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Automation in China?

Automation in China

Interesting blog post from Tim Worstall at Forbes entitled, “Foxconn to Automate: Be Careful What You Wish For“. You should click through to read the whole thing, but the money ‘graphs:

I think we’re all familiar with the regular cries that Foxconn, over in China, should pay its workers more? …

The thing is though, higher wages are not something that happen in a vacuum. Or if you prefer, there are no answers in economics, only trade offs. Foxconn wages have gone up and here’s the trade off coming:

Taiwanese technology giant Foxconn will replace some of its workers with 1 million robots in three years to cut rising labor expenses and improve efficiency, said Terry Gou, founder and chairman of the company, late Friday.

The robots will be used to do simple and routine work such as spraying, welding and assembling which are now mainly conducted by workers, said Gou at a workers’ dance party Friday night.

Higher wages means that automation becomes, relatively, more profitable. And it is to automation that most jobs go to die, not trade or international competition.

These robots are being used at Foxconn for the same reason that self-service checkout counters are being used in supermarkets, for the same reason that self-service yoghurt shops proliferate. The change in relative prices between labour and machines means the machines are being used in place of the people.

Those who have been agitating for higher wages can pat themselves on the back for those who keep their jobs will indeed be getting higher wages. But there will be fewer of them as a result.

Manufacturing jobs, minimum wage jobs, service jobs, whatever, the result is always the same: raise the price of labour and more automation will happen.

Years ago, I had a friendly debate over dinner on the subject of automation in China. At the time my dinner partner, an old Taiwanese friend, said that automation would never take off in China, as there were too many people, the cost of labor would never get high enough to make the cost curve, etc. We were dining in Dongguan, and what started the conversation was our visit to a huge stamping plant earlier that day. I grew up in the stamping business in the States, and I’ve been in some big factories in USA, Mexico, Europe, and Asia, but I’d never seen so many presses in one place.

And I’d never seen so many idle presses. More than half of the machines I saw were either sitting empty or were having dies changed. Normally the die changes would’t concern me, but we were there for several hours and the same crews were changing the same dies the whole time we were there. There was either no urgency at all or they had no idea what they were doing. Or both.

While quick die change equipment is not exactly automation of the scope or scale being discussed by Foxconn, it is indicative of the fact that even low cost employees still have a recurring cost. The last set of quick die change clamps I bought is still working fine seven years later and has not cost me a thin dime in maintenance. And they save money every day by making die changes a fast, one-man operation.

My counter-argument at dinner was that if a visionary factory owner embraced efficiency and labor saving equipment before the labor costs jumped, he would be miles ahead of his competition. My dinner partner responded that I might be right, but it would be politically riskyto eliminate jobs with automation in China.

As PassageMaker is primarily a contract assembly company, I will be watching this closely, because Foxconn will be the test case to see how Beijing reacts when workers inevitably start losing jobs to the robots. I’m betting they react poorly.

What do you think?

Weekend notes

Couple of articles and points of clarification:

  • In my post on Foxconn founder, Terry Gou, I pointed out that the romanization of his family name should be Guo. I assumed that it was the magazine that made the mistake, but since information on Mr. Gou is sparse, I cannot be sure. Since Taiwan does not use pinyin, it is possible that is how he spells it. Certainly he has enough money he can spell it anyway he pleases.
  • If my recent post makes it sound like Mike and I drank our way through school and are still burning the candle at both ends, that is an inaccurate portrait. We are both responsible family men. But I will say that drinking is a business skill in Asia, and we do have mad skills.
  • A good article on the higher education bubble I mentioned in the post linked above – The Bubble: Higher Education’s Precarious Hold on Consumer Confidence.
  • Chinese think tank warns US it will emerge as loser in trade war – interesting counterpoint at the end of the article.
  • Shenzhen is getting the world’s second tallest building.

Have a good weekend!

The Man Who Makes Your iPhone

Fascinating article on Terry Gou (which is an incorrect romanization for his family surname, 郭, the pinyin should be Guo, not Gou), the founder of Foxconn.

The article spends a good deal of time talking about the recent suicides at Foxconn, which were tragic and not to be dismissed. I did not blog about the suicides at the time, but it occurred to me when I read this article that at roughly 900,000 employees, Foxconn has a larger “population” than the following US states:

  • Alaska (149 / 681,111)
  • South Dakota (102 / 795,689)
  • Wyoming (101 / 523,252)
  • Delaware (95 / 861,953)
  • North Dakota (95 / 637,904)
  • Vermont (89 / 620,748)

You’ve probably figured out that the first number is the number of suicides, the second the state’s population (2007 data from the American Foundation for Suicide Prevention). Frankly, we should be surprised there were not more than 12 suicides, just given the sheer density of the living and working conditions. Or maybe that helped prevent them? Lack of privacy denies you the opportunity or provides something of a support structure whether you like it or not?

Anyway, money ‘graph:

Gou has plans to capitalize on the changes he has wrought. Perhaps most intriguing is his plan to move additional production to the U.S. The company currently employs about 1,000 workers in a Houston plant that makes specialized high-end servers for corporate clients the company declined to disclose, and Gou envisions a fully automated plant to produce components within five years. “If I can automate in the U.S.A. and ship to China, cost-wise it can still be competitive,” he says. “But I worry America has too many lawyers. I don’t want to spend time having people sue me every day.”

I’ve said it before and I’ll say it again – bean counters, lawyers and @$$hat corporate buyers took all the fun out of US manufacturing and along with unions have done their damnedest to destroy what was left.

Anyway, enjoy the article about the “new Henry Ford”, and say a prayer for the departed.