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China robots signal US challenge

Monday 11 March 2013

By Joshua Jacobs and Eftychis Mourginakis

A little over two years ago Terry Gou the CEO of Foxconn announced that over the next three years his company was going to begin phasing in up to 3 million industrial robots with an eye towards increasing efficiency and reducing labor costs. This announcement, from the world’s largest electronics contract manufacturer, sent waves through the media and business community. Foxconn employs over 1.5 million people in China, in hundreds of plants and facilities, scattered around the country.

The prospect of Foxconn shifting towards robotic labor has enormous implications for the future of not just the Chinese, but also global labor markets. This is primarily because of the type of work that the robots engage in is the assembly of complex electronics, an area previously thought beyond the capabilities of commercial robotics and left presumably to human hands. So far, the robots seem more than up to the job.

While the headline grabbing prediction of "millions of robots" does not seem to have panned out in the time frame that Gou predicted, Foxconn has nevertheless managed to deploy significant numbers of its new robotic workers. Over the course of last year, Foxconn managed to install 30,000-50,000 new robots in its factories, and is aiming for 300,000 more by 2014.

What is astounding about this information is the impact it already has had. According to Liu Kun, a spokesman for Foxconn, "We have canceled hiring entry level workers, a decision that is partly associated with our efforts in production automation." Moreover according to the International Federation of Robotics the growth of industrial robotics in China has been exceeding 40% to 50% a year, an unprecedented level of growth. The question that springs to mind is: What would happen if Foxconn actually had 3 million robots?

The advent of truly sophisticated and relatively cheap industrial robotics and automation technology is beginning to change the global economic landscape. The fear in China is that the Lewis Turning Point, the point where rural laborers moving to urban manufacturing loses its value, is being accelerated by the mass adoption of industrial robotics that reduce the value and efficiency of new human labor. This is precisely the pivot point that American manufacturers are starting to seize upon.

Driven by changing economic realities in China, American industries are looking toward the boon provided by new technologies to "reshore" back to the United States. Breakneck advancements in 3D printing, artificial intelligence, robotics, and industrial automation are bringing us close to a factory floor that is more sophisticated and advanced than ever before. The result is home grown industries capable of producing complex and high quality products with greater efficiency and economy than ever thought possible.

According to the McKinsey Global Institute, the cost of advanced robots has fallen by almost 50% since the early 1990s, and seems set to continue falling. This startling fact is being put on dazzling display by companies like Rethink Robotics. The company is perhaps one of the most famous in the field of robotics in the world today due to their development of Baxter, the US$22,000 industrial robot. It is precisely kind of advancement that American entrepreneurs are looking to harness. Designed with an eye toward small and mid-sized manufacturers, Baxter allows business owners to eliminate the human element in repetitive, costly, and time-consuming tasks. This allows companies to keep the labor they actually need instead of sending it offshore.

This is just the tip of the iceberg. For example, the increasingly fast arrival of 3D printing has begun to spur an overhaul of some of America’s largest factory floors. Boeing and Lockheed Martin have both begin mass experimentation with regards to producing niche materials and parts using 3D printing factory lines. As other companies have begun to take notice, 3D printing using advanced polymers has the potential to totally restructure global supply chain. Take for instance Boeing’s now grounded 787, an aircraft that was built, component by component, around the world. 3D printing has the potential to eliminate the need to such supply chains, with raw materials and composites being shipped from their country of origin to one production facility.

The results are already starting to become measurable. According to the Manufacturers Alliance for Productivity and Innovation, a trade group of American manufacturing executives, 17% of companies with production overseas had brought back some of that work to the United States since 2011. This is underscored by a Boston Consulting Group survey which covered 106 companies worth $1 billion or more and with manufacturing overseas. Some 37% were considering bringing production back to the United States, a percentage that rose to almost half, when companies over $10 billion were asked.

US President Barack Obama was wise to focus attention on these economic frontiers in his State of the Union address. However his prescriptions for accelerating their development leave much to be desired.

For example, the decisions to block the Keystone-XL pipeline and the extraordinary pressures applied to American coal have placed a great burden on the country’s ability to generate efficient power, a key ingredient in an anticipated manufacturing renaissance. It not only leaves the US poorly footed in the short term by pushing aside cheap coal producers, but also in a worse position in the long run, when natural gas inevitably rises in price as domestic demand increases. This energy story is critical, as so much of the American industrial revival is reliant on consistent and low electricity prices.

According to the MIT Technology Review natural gas could both "…significantly lower costs for manufacturers who use a lot of energy, such as steel makers" as well as revitalize our chemical industry". Just five years ago, natural gas prices were so high that some chemicals manufacturers were shutting down operations. Over the last 18 months, low US gas prices have prompted plans for the construction of new chemical plants".

Furthermore, dramatic structural changes to economic efficiency are being pioneered in the United States. These will lead to a fundamental redetermination of the value of labor. Human capital will, inevitably, be far more important in its ability to innovate, create, and decide outcomes, than in carrying out remedial tasks. In the world of low-skill labor, for nearly a decade valuable resources and energy were wasted attempting to fight a pointless battle with other developed economies. As a post-industrial economy, the policy imperatives for the US now lie in creating an environment conducive to innovation, and that begins with a reduction in regulation across frontier industries.

A good place to start would be a dramatic overhaul of the laws that prohibit American companies from attracting and retaining top innovators and thinkers. The H1B visa program is a travesty of tremendous proportions, but other regulations, such as the lack of a territorial income tax, preclude creative people from living and working in the US. If the US wants to be prepared, it must start by allowing innovators and thinkers to come to its shores, and then, just as importantly, provide them with an environment to spur further innovation both in home markets and abroad.

Policymakers should also begin to assiduously examine and reduce the hurdles and impediments in the way for nascent industries and ideas. For example harmonizing driverless car regulation between US States would create a far more promising market environment for an exciting new piece of American innovation. While examining the impact that 3D printing will have on government revenue streams, intellectual property, and licensing concerns are practical steps that will save headaches later.

The 21st century will be a world led by ideas. These ideas promise to usher in a new era driven only by the limits of scientific possibility. It is the frontier economies of the coming century that will generate newfound prosperity and heighten the limits of the human condition. Yet there is no law of nature that ordains American supremacy in this new era. A new industrial revolution is not on the horizon, it has already arrived. Unless the United States takes the necessary steps to seize these emerging opportunities, they may very well pass by.

Joshua Jacobs and Eftychis Mourginakis founding members of the Conservative Future Project

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(Copyright 2013 Joshua Jacobs and Eftychis Mourginakis.)


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