Last week, Reuters reported that Taiwan-based Foxconn Technology Group, the world’s largest contract electronics manufacturer, would begin investing more in robotics and automation technology with the goal of stabilizing and eventually reducing its employee head count. Foxconn, one of the largest private employers in the world, has 13 factories in nine Chinese cities that employ the majority of its estimated 1.3 million workers.
Foxconn is not alone. With revenue growth slowing and wages in China rising rapidly (more than double 2010 levels), China is now the largest buyer of industrial robots in the world, according to the International Federation of Robotics (IFR) World Robotics 2014 report. China passed Japan with 36,560 robots purchased in 2013 — an increase of almost 60 percent from 2012 — and its total operational stock of industrial robots is projected to become the largest in the world by 2017 (Chart 1).
This trend should come as no surprise. China’s dominance of global manufacturing has eroded as labor costs skyrocketed over the last decade. Companies in search of low labor costs are now relocating manufacturing hubs to Southeast Asia (e.g., Indonesia, Thailand) or back to their host countries. Average real monthly earnings growth for employees in China increased more than three times faster than in other Asian countries between 2006 and 2013 (Chart 2).
Meanwhile, the costs of robotics investment are moving in the opposite direction. According to a 2013 McKinsey Global Institute report, robot prices have fallen by about 10 percent annually in recent decades and could decline at a similar or faster rate through 2025. The report estimates that industrial robots with machine vision and high-precision dexterity, which typically cost $100,000 to $150,000 (as of 2013), could be available for $50,000 to $75,000 by 2025.
China’s slowdown in labor force growth and the speed of technological change mean that robotics investment will pay off in the longer term, providing lower-cost production options of higher and/or more uniform quality. Under the right set of policies and market conditions, this could also drive a much-needed reallocation of labor into the fledgling service sector, making the Chinese economy more efficient and balanced.
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