China looks to the future of factories
The low wages and massive workforce that made China the world’s top exporter are no longer the advantage they once were, forcing it to adapt its approach
CHINA IS NO LONGER the default setting when it comes to choosing a low-cast production centre, as production costs rise and cheaper competitors such as Vietnam and the Philippines offer an alternative for manufacturers.
The average wage for migrant workers rose 15 per cent in the first six months of 2012, and some high-profile corporates are heading elsewhere. In July, Adidas closed its last factory in China, moving to rising star Burma, prompting concerns that China had priced itself out of the manufacturing sector that made it such a success story.
Yet while it’s true that companies are feeling the pinch from rising wages, robots are helping boost competitiveness in China, as firms discover that falling commodity prices and the stabilisation of the yuan currency’s rise are helping those that can use automation to keep costs down.
Increased mechanisation has broader benefits too, as it feeds into the government’s obsession with moving up the manufacturing value scale, the quest for China to transform itself from a low-cost manufacturing hub into an innovation centre, with biotech industries and IT development.
Galway-based CF Tooling supplies IBM with server cabinets from its Dongguan plant, because of proximity to the customer, and while the experience has been positive, the company has found that a combination of a labour shortage and the economic slowdown has made China a more challenging environment.
“In Guangdong province there is a labour shortage, and a lot of factories are giving in to high wage demands because they have to. Staff turnover is high, and we have to keep training new staff. So we decided to switch parts of our production process to robots and specially designed machines,” says Damian Gavin, CF’s country boss.
The company is located in Dongguan, the manufacturing centre that seamlessly adjoins Shenzhen, and employs 120 staff, largely migrant workers who come from many provinces, including Hunan and Henan.
Gavin bought in Japanese robots to handle a big part of the welding tasks, and has noticed considerable improvement in production process.
Skilled workers such as welders have a lot of leverage.
“The welders wanted to keep doubling wages and we can’t keep doing that. The robot welders go according to the speed we need. We had 26 people doing welding before, now we have nine. We are still manually welding one part but that too will be replaced,” he says.
“From a manufacturing point of view it was too slow. We are now doing 55 racks a day with robots, it was 40 without robots. This machine does in three minutes what took 15 minutes before,” says Gavin.
Similarly, in the section of the factory where they do buffing and grinding, keeping people was a problem. He designed a buffing machine for the side panels of the racks.
“This does the job of 14 people. So far the consistency of the machines is fantastic,” he says.
CF’s chief executive John Flaherty has described increased automation in China as “the shape of things to come”.
Not all of the problems in southern China are related to increased costs, and the economic slowdown in the country has led to other challenges.
Companies talk of how labour conditions are worsening. Stricter labour laws means workers have more rights, which is a positive thing of course, but in a situation where there is a worker shortage, makes it is difficult for employers to plan.
At Chinese New Year, the time of year when workers go home to see their families, there is traditionally a bonus given out, but many do not return after Chinese New Year – in some cases 80 per cent of employees fail to come back to their jobs. The most common excuse for leaving employment is going home to get married.
And there are production problems at local government level. The price of power is going up constantly, and lately there have been complaints about power being cut on certain days to save electricity. If a company is discovered using power on that day, it is cut off for three days.
The pressure on Taiwanese company Foxconn, which makes iPads and iPhones as well as a range of products for Dell, Sony and Hewlett-Packard, and has 1.2 million employees, has been a case in point. More than 400,000 people work at the plant in Shenzhen.
Since a series of suicides in 2010, the enormous plant has been forced to make widescale changes to working conditions. In August, Foxconn said it would continue to cut overtime to less than nine hours a week from the current 20. This means one-third fewer hours for the hundreds of thousands of Foxconn workers across China.
This translates into a big increase in labour costs, and it also makes it difficult to attract workers, as many workers want to work as many overtime hours as possible to make as much money as fast as possible.
The wave of suicides had wider implications in the area, with a number of factories reporting employees getting up on the roof and threatening to jump unless they were given increased wages.
Foxconn is also focusing more on automation. Last year Foxconn’s owner, Taiwan tycoon Terry Gou, set up an automation robotics division and hired engineers to design and repair the cybernetic workers. Gou said the move to automate was more about helping its employees move up the value chain, away from basic manufacturing work.
There is also a shift back to manufacturing in the US, long the biggest investor in making things in southern China. Last year 237,000 jobs were created in the US manufacturing sector, and this is expected to keep growing.
China’s labour costs remain much lower than those in the West, but the gap is narrowing because production costs are falling in Europe and America, and productivity is on the rise.
There is growing investment in areas such as nanotechnology, high-grade batteries, energy materials, bio-manufacturing, new-generation microelectronics and advanced robots.
“Given that the US is on the threshold of a new technological and industrial revolution, China should change its manufacturing strategy in order to overcome its insufficient technological innovation capacity and low competitiveness,” the China Daily said in an editorial.
China’s labour costs remain much lower than those in the West, but the gap is narrowing as production costs fall in Europe and America, and productivity is on the rise
The welders wanted to keep doubling wages and we can’t keep doing that. The robot welders go according to the speed we need