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The Robots Are Coming

Reports out earlier this week indicate that {complink 2125|Foxconn Electronics Inc.}, the Taiwan-based electronics manufacturing services provider, wants to increase the number of robots at its China facilities to 1 million within three years from about 10,000 currently.

This development raises an important question for OEMs: If China is the next great retail market for electronics — because of a rising middle class — what happens if Foxconn's solution becomes a trend, undermining the development of that demographic segment?

The numbers are fairly straightforward. The oft-quoted figure of 450 million Chinese citizens using electronic and computing devices, and the rapid rise of consumerism in urban China, makes the country the obvious target for OEMs seeking new markets. But that middle class exists because of the rise of manufacturing jobs over the past 15 years. Wages are going up in China, enough to even create worries that electronics suppliers will decamp for cheaper homes in neighboring Vietnam, the Philippines, or Indonesia.

But the mechanization planned at Foxconn isn't a result of the wage debate. Rather, it's a result of international criticism that has failed to dissipate much since a string of suicides last year cast light on working conditions at the company's factories. Protests by workers followed, and a fatal explosion this past spring deepened the calls for reform. Foxconn’s most high-profile client, Apple, started to feel the blowback from its supplier's troubles. (See: Apple Has a Foxconn Problem and Apple: Too Cool to Boycott?)

Foxconn is not replacing the workers with robots because robots are cheaper (mechanization is expensive). Rather the company appears to be proposing the shift — if it happens — as a way to end-run the working conditions debate. This would make a certain kind of business sense, except for one thing: If you lay off a million people who make iPhones, that's a million people who probably can't buy an iPhone either. China's supply chain was supposed to start looping back on itself within the decade, with production in China also feeding demand in China. But no jobs, no wages, no Chinese demand, right?

So what's the solution? The obvious one, for both OEM customers and for Foxconn, would seem to be to just address the working conditions problem. Better working conditions means less criticism, and more jobs, and thus more money, and thus a million more middle class people walking around Shenzhen with their pockets full — and perhaps wandering into an Apple store to buy the same product they just made.

But Foxconn isn't going that way, at least not for the moment. What's motivating the move that potentially could throw a million people — more than the entire population of San Francisco — out of work? Put another way, what sort of conversation brought Foxconn to the conclusion that it was better to remove the human element, than to provide for it? It's a good question and I look forward to your response.

One answer, which is sadly pessimistic, is that this is really just a drastic threat. The message — explicit or not — is that too many complaints about working conditions will result in just eliminating the jobs wholesale, and bringing in the robots instead. It's a fine irony: The people who build the technology that promises to make human life easier must now wonder if that same know-how will steal their job, and perhaps worse, their ability to ask for a better situation in a factory that every day sounds less like a part of China’s future, than like some less savory parts of its past.

21 comments on “The Robots Are Coming

  1. Ariella
    August 5, 2011

    Thank you for a very thought provoking post. It appears to me that this parallels the move of manufacturing plants from the USA to places — like China — where labor was far cheaper and regulatios less restrictive. Now for a plant in China, there is no other place to go to avert worker demands, hence the robot solution. Of course, it is one that does not take into account the impact of the economy for the country, but I don't think most factories think about paying their workers enough for them to be able to become their customers. (Many who work on designer apparel, for example, could never afford to buy it for themselves.) They really think more in terms of their numbers to keep their own costs down. 

  2. Eldredge
    August 5, 2011

    Foxconn's 'cure' may undermine their customers sales base, taken to the extreme. Wonder if anyone has modeled the elasticity of the electronics market as a funtion of amount of mechanization?

  3. Marc Herman
    August 5, 2011

    The elasticity point: that is a really good question. I'm not aware of any model. This weekend I should probably go back and watch the first two, maybe three Terminator movies.

  4. Harry Moser
    August 5, 2011

    It is possible to find a silver lining in this story.   If Foxconn is willing to replace Chinese workers with robots, we should convince them to build the required factories in the U.S., at least enough to supply the U.S. market.   If there will be few workers, the higher U.S. labor costs should not be an issue.   Apple could then promote its products as, significantly “Made in the USA.”  I would be delighted to have the fctories here, even if they only employed 50,000.

    Actually, economic trends are presenting an opportunity for a revitalization of a broad range of U.S. manufacturing.  Boston Consulting Group and Accenture recently reported: Chinese net unit manufacturing costs are rapidly converging on U.S. costs.   For the economic trends to have a rapid impact on the behavior of major U.S. companies and thus continue the strong U.S. manufacturing trend, however, the companies will have to calculate their total cost of offshoring.  Unfortunately, most companies’ calculations are rudimentary, rather than complete, mainly comparing prices rather than the entire costs of offshoring.  As a result, companies have offshored more than is in their own self interest. 

    To help companies make better sourcing decisions the non-profit Reshoring Initiative, http://www.reshorenow.org , provides for free a Total Cost of Ownership (TCO) software that helps them calculate the real offshoring impact on their P&L.  With clear evidence of the fragility of global supply chains, Chinese and other LLCC (Low Labor Cost Country) wages rising rapidly, the U.S. $ declining and oil soaring, this is the perfect time for U.S. companies to reevaluate their offshoring strategies and bring some of the sourcing home.

    Readers can bring back jobs by asking their companies to reevaluate offshoring decisions. Suppliers can use the TCO software to convince their customers to reshore. 

    You can reach me at harry.moser@comcast.net.

  5. Eldredge
    August 5, 2011

    This would be a welcome trend. I agree – I don't think most companies have correctly calculated the cost of off-shoring.

  6. itguyphil
    August 5, 2011

    “As a result, companies have offshored more than is in their own self interest.”

    How does an organization make this determination?

  7. Harry Moser
    August 5, 2011

    They make the determination by calculating their Total Cost of Ownership.  We provide an easy to use software to perform this calculation.  Free at http://www.reshorenow.org

  8. itguyphil
    August 5, 2011

    Harry,

    Thanks. Looks like a great resource to have on hand!

  9. Harry Moser
    August 5, 2011

    Pocharte,

    Thanks!

  10. Nemos
    August 6, 2011

    “If you lay off a million people who make iPhones, that's a million people who probably can't buy an iPhone either”

    Indeed, workers or employees are also consumers and most of the time are the most fanatic about their company products. When I was reading the title of your article, it seems to me very interesting because of the robots and the new impressive technology, but as I was reading further I thought it was a joke, :They want to replace one million people with robots instead of improving the working conditions ??????. No comment.

     

  11. Ariella
    August 7, 2011

    I agree with you, Nemos. It is depolorable, but it seems to me that it a pattern that factory owners have established. When there is no more places to move to to cut labor costs, the only alternative is to cut out labor altogether.

  12. Taimoor Zubar
    August 7, 2011

    I think one important point that companies don't take into account when they are making automation decisions is the need for labor to manage and troubleshoot these robots. It's clear that there will be several issues with robots each day and companies will need people with specific skills to manage and troubleshoot these. So, besides handing over the production work to robots, companies also have to arrange hundreds of technicians who will manage and look after the robots.

  13. Taimoor Zubar
    August 7, 2011

    It's interesting to note here that Foxconn is not taking this move to cut down on labor costs but to avoid having to improve their working conditions. I cannot see how laying off such large quantity of labor and replacing them with robots is a better option. It does not seem viable in terms of cost, practicality or long-term prospects. I feel the company has to rethink the idea and adopt a more sensible approach.

  14. Ariella
    August 7, 2011

    I would include not having to improve working conditions in labor costs. The costs are not just wages but whatever other expeditures are necessary to satisy labor conditions or demands.

  15. Daniel
    August 8, 2011

    Marc, I don’t know whether this statement is acceptable for Chinese government. Once I read that Chinese communist party is against Robots because it may bring more unemployment and against the party idealism. Up to an extend this is true because china have a greater population and unemployment can create much headache to the government. From government point of view they are much concerned about unemployment rate and labors welfare. So they decided to use robots, where human presents are not possible like atomic reactor, mining companies etc.  They are very keen in their policies, especially from the foreign investment point.

    From personal point of view I agree that robots can bring enormous changes in working environment and culture in industries. For companies, they can reduce the labour cost and other expenditures.

  16. prabhakar_deosthali
    August 8, 2011

    It may look quite ironical but if FOXCONN really executes their plans to install 1 million robots and if other factories in China also follow the suit, imagine the no of jobs created in Robotics industry. May be not in China but the country like Japan. And may be the new chinese entrepreneurs will seize this opportunity and start factories to manufacture robots.

    As has been commented by TaimoorZ – the maintenance of these robots itself will create many thousands of new type of jobs.

     

    No doubt robotics is much high tech than the labor work in Electronics assembly. But on a positive note it will sure create another industry.

    What say?

  17. JADEN
    August 8, 2011

    Foxconn robotics is a good development in technology to get rids of mind-numbing jobs done by unskilled workers to improve the skilled level ones, but the company still need people to manage and operate these robots.

  18. Ariella
    August 8, 2011

    True, Jaden, but what of the people who had the skills to do the job the robots are now doing but who lack the skills to operate the robots? What are they supposed to do for work?

  19. Anand
    August 20, 2011

    what of the people who had the skills to do the job the robots are now doing but who lack the skills to operate the robots?

    @Ariella,  You are absolutely right, this is the concern everyone is raising. When countries like US/Europe are struggling to create new jobs    inudction of these robots will further shrink the job oppurtunites for people. But lets not forget similar concers were raised when computers were introduced. People argued computers will take away jobs from accountants,typewriters etc but it turned out computers created lot of new jobs.

  20. Ariella
    August 20, 2011

    @anadv In the 1957  movie, “Desk Set” . Nearly a half century before Google, this movie presents a super computer that is installed in a reference service. The women who work there all fear they will lose their job. I won't spoil the plot for you, but you can be assured that it is a comedy.

  21. Adeniji Kayode
    August 21, 2011

    I think that is one of the effects of machines in man's affairs.

    If care is not taken, people will start to become jobless because of the use of machines or thye number of man power that a company employs is reduced because additional supports are being supplied by machines

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