Western Robotisation The End of China's Growth Journey?

Adidas is bringing production of it's running shoes back home to Europe (to home country Germany precisely), with the help of robots to keep labour costs down. It expects to manufacture it's first batch of running shoes in a new robotised plant in 2016.

In the more recent chapters of the sporting company's story, production has predominantly been outsourced to Asia, particularly to China, which has seen a spectacular growth by building itself up on supporting the world's production needs with it's gigantic workforce toiling on low wages. What robotics or mass automation does, is it solves the problems of labour shortage as well as skills shortage, along with cutting the most expensive cost of day-to-day business operation, for any organisation in the world; wages. Off course this does not apply to companies that have access to slaves, but thankfully, we all agree that that is wrong, and pretty much everywhere at least today (hopefully), is illegal.

Even before the a-Commerce bug began to bite or approach the hotel and hospital industries, robotics have long been embraced by manufacturers, and is not quite anything new or novel today. What has changed however, is a drop in material and production cost of machines, which is essentially what both computing devices and robots are. Low cost of production leads to low cost of acquisition and adoption. That leads to lower cost of production per unit, in the long run, for the acquiring company. You don't need to go to business school to learn that. 

When you don't need human labour, you do not need to outsource or off-shore for human labour. That cuts away to the logistical cost and time of outsourcing and off-shoring, such as that of shipping. China has been an alternative, for lower wage bills. Now, there is an alternative becoming more practical, to China, where, besides, labour costs have steadily been rising anyway, with rising aspirations of Chinese workers realising their worth.

Adidas embracing robotisation, is far more likely than not, a precedence for a pantheon of companies through the West, to jump onto the bandwagon, to withdraw production from abroad, to make at home affordably and efficiently. With production for Western companies out of the hands of producers in China, the question is, what will they do?

Off course there is more to China today, than cheap labour. It has its own home grown industries and MNCs, that do not manufacture for others, but themselves, with brand names that now present themselves as reckoning forces in global competition. However, those industries and corporations too have risen, on the back of low production costs, without the need to off-shore, because they have had direct access to low wage labour. Robotics however, now levels the field in terms of costs for Western competitors of the Chinese companies, including the most successful ones, to a degree. And robotics present Western companies, an opportunity to take on Chinese companies directly on price.

A return to home, of production, for Western companies, could also spell the return to what Western production, particularly European production, was known for for the better part of the last century before the rise of outsourcing to China; quality. Products used to last. Warranties were for filing and not exercising, with Western brand refrigerators running without glitches for over a decade. You don't get many products like that on the market any more. Whether it is t-shirts, or vehicles. European production has in history been hailed for reliable lasting quality and it can be no better news for a consumer, to see a return of that era, with price not necessarily a concern, because production is more affordable for the producer.

Off course products of brands like Adidas are not expected to be cheap, but if need be, their prices can be adjusted, if technology allows that flexibility, which takes away the advantage that many of China's companies have grown on.

While successes can be reversed, some effects of successes cannot, and that is good news for China and its population overall. Great news in fact, because the level of prosperity achieved there in a relatively short period of time, is rather enviable, equally so, that the country can likely retain it for a long time yet. Successes can be slowed and stopped though. As adoption robotics and mass automation becomes a norm, with cost of technology still racing towards zero, the ability exploit currency differences and poverty of workers of one country over others, becomes less of a lever for prosperity. And the pace we have been able to witness of the adoption of technology around the world over the past decade, should definitely be sounding loud alarms for China's businesses.

Harish Shah is Singapore's first local born Professional Futurist and a Management Strategy Consultant. He runs Stratserv Consultancy. His areas of consulting include Strategic Foresight, Systems Thinking, Scenario Planning and Organisational Future Proofing.