An article in today's Financial Times described the initiative of Foxconn in China to eventually replace and/or augment their workforce of 1 million workers with increased automation. Foxconn which is a leading contract manufacturer known for their work with Apple products including the iPad currently only uses approximately 10,000 robots. They plan to increase this number to 1 million by 2013. I had several thoughts on what this means.
The Financial Times article cited Alvin Kwock from JPMorgan where he noted ' that the cost of capital for purchasing and operating a robot has now met the cost of the workers it replaces.' In my opinion, the fact that this is happening in China is a particularly big deal. Why do I say this? In a highly automated factory, the main operating costs are for the facility, energy and raw materials. After that, you have the costs for a much smaller number of higher skilled workers. The tipping point comes at the point where China either has enough of these skilled workers to meet the increased demands or the labor costs for them increase to the point where there is not a significant Chinese advantage. At the same time, the governments in EMEA and the Americas are looking to increase job creation. Empty / underutilized factories, available workforces that have re-set expectations, and possible government incentives could drive a shift in the marketplace. The benefits that many N. American and European companies saw from outsourcing over the last 10 years are now drying up to the point that the problems from the logistics and quality are not being offset.
We saw some of this in the preliminary results from our recent level measurement survey. In the survey, we asked 'Do you see the regional percentages for your organizations demand for products changing in 2011 or 2012? Please indicate where you see your regional percentage for your company’s demand for Process Level and/or ITG Products and systems decreasing and increasing in 2011 or 2012.'
Quite simply, it looks like the trend moving the market demand from Americas and EMEA to APAC is slowing and even likely to be reversing.
My other thought is that's a lot of robots and it should make a pretty good impact on the industrial automation market regardless of where they are made.
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