Foxconn, the Taiwanese manufacturer who supplies Apple, Samsung and other prominent technology companies, has cut its worker headcount by 60,000 at a single factory in China's Kunshan region, replacing them with robots. That dramatic reduction is apparently only the beginning, as the South China Morning Post reports:
The manufacturing hub for the electronics industry, Kunshan, in Jiangsu province, is seeking a drastic reduction in labour costs as it undergoes a makeover after an industrial explosion killed 146 people in 2014.
However, the blaze, blamed on poor safety standards and haphazard industrialisation, dented Kunshan’s pride.
More than a year on, the county, which attracts much of its investment from Taiwan, is trying to reinvent its growth strategy. It is accelerating growth by replacing humans with robots and encouraging start-ups.
Thirty-five Taiwanese companies, including Apple’s supplier Foxconn, spent a total of 4 billion yuan (HK$4.74 billion) on artificial intelligence last year, according to the Kunshan government’s publicity department.
“The Foxconn factory has reduced its employee strength from 110,000 to 50,000, thanks to the introduction of robots. It has tasted success in reduction of labour costs,” said the department’s head Xu Yulian.
As many as 600 major companies in Kunshan have similar plans, according to a government survey.
The companies' plans have ominous tidings for Kunshan's human labor force, as the South China Morning Post report notes. But they also provide fodder for thought on the broader changes going on in today's global manufacturing climate.
"In places like China where they're bringing in more robotics over people, it's because the people are getting more expensive," says Constellation Research VP and principal analyst Guy-Frederic Courtin. "If they can substitute some of these variable costs through robotics, they will."
"China's going through what Japan went through, from manufacturing low-tech products to today much more complex ones," Courtin adds. "Labor is still more important but things like design become much more important." Meanwhile, jobs in areas such as garment manufacturing are moving to places such as sub-Saharan Africa, where labor costs are lower.
Chinese manufacturers are also feeling competitive pressure around complex products from Mexico, which has become a key player in nearshoring thanks to its close proximity to the U.S. market.
Nearshoring is an idea that in today's market makes sense for more than just cost savings, Courtin says. Consumer expectations for getting the products they want, when they want them, is higher than ever: "Does it make sense today to do more manufacturing closer to your customer?"
After all, it can take several weeks for a container ship in China to be loaded, cross the Pacific and pass any customs and other regulatory hurdles. "Four weeks is one third of a fiscal quarter," Courtin notes. "That's a lifetime."
Another manufacturing concept—postponement—could also increase in popularity in today's climate.
Postponement is a practice wherein manufacturers create products that aren't quite finished and then completes them toward the end of the supply chain once the true demand is determined. For example, a clothier could have 20,000 white shirts made in Bangladesh, ship them to the US or other markets, and won't actually dye them all until initial sales show which colors are the best sellers.
"It changes the definition of what manufacturing is," Courtin says.
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