The implications of continued progression of technologies in production competitiveness should be taken into consideration to repeat the past success of Silk Road, connecting regional countries, writes M. Rokonuzzaman
As a part of his programme to strengthen relations with South Asian countries, Chinese President Xi Jinping was in Bangladesh. The core purpose of this trip was to accelerate the progress of a key development agenda called 'One Belt, One Road'. After investing trillions of dollars in developing domestic infrastructure, China has planned to invest billions with the aspiration of developing a new economic bloc connecting Asian countries with Europe and Africa.
President Xi's development model is centred on the concept of making China the factory of the world. To implement this model, the Chinese government had borrowed trillions of dollars to build infrastructure and provided incentives to both domestic and foreign investors to set up factories in China to produce to export. In the process, it appears that China has incurred a $28-trillion debt with government, corporate and household debt as of mid-2014, according to McKinsey & Co. With the rising labour cost and the emergence of low-cost, high- performing robots, a growing number of multinationals are opting to explore opportunity of taking manufacturing plants back to the Western countries to produce better products at lower cost with the help of robots. Adidas's recent attempt in opening robotic shoemaking factory in Germany and a plan to open similar factories in the USA and other advanced countries appears to be the cusp of globalisation's U-turn.
Until China is successful in recovering the staggering debt from exported-oriented production activities, manufacturers are finding the country no longer economically attractive destination for low-cost production. Most importantly, due to the emergence of factory robots having the ability to cooperatively work under the guidance of skilled workforce, many of these multinationals are no longer finding developing countries as the low-cost production base. As a result, instead of off-shoring, the re-shoring concept has started to surface in corporate boardrooms across the Western multinationals. Companies like GE, Wal-Mart, GM and so on, known for off-shoring, have already started to take back manufacturing jobs to America. Recent political decisions, including Brexit, are also adding momentum to this process.
It appears that China's development ambition is based on massive state-led investments in infrastructure - roads, ports, electricity, railways, and airports - that facilitate industrial development. China built those infrastructures to capitalise the opportunity of globalisation-by being the factory of the world. But as there is a possibility of globalisation's U-turn, China has been attempting to develop a mega regional market, which will be served by the factories, already developed in the country. Moreover, to take the advantage of low- cost labour and other natural resources, China will also expand its production capacities in those countries. To implement this strategy, China has been lending billions of dollars to these countries to build infrastructure. It is reported that $200-billion infrastructure projects are already planned, and another $1.0-trillion projects are being considered.
But the borrowing countries may be disappointed if they are under the impression that infrastructure improvement will repeat the success of China's export-oriented growth model in their countries as well. But if Western manufacturers keep delegating roles to robots and automation to produce better products at lower cost eroding the low-cost labour advantage, how will these countries become successful in hosting export-oriented manufacturing plants? The recent growth of underlying component technologies, primarily fuelled by smartphone revolution, is increasingly making it possible to develop machine capabilities to get jobs done better at less cost, which were once used to be done by low-cost labour. As result, workers are neither cutting fabrics, nor fixing buttons in major ready-made garment manufacturing plants in Bangladesh. Although many of the machines do not look like conventional robots, these are being continuously developed and integrated in production processes to take away roles from low-cost labour to produce better products at lower cost. As the sustaining competition strategy is to produce better products at less cost, such progression of developing technologies and delegating roles to machines will simply keep gaining momentum, leading to manufacturing products without human touch, known as the Fourth Industrial Revolution. Moreover, the delegation of manufacturing roles to programmable machines also lowers the lead time and makes it economically viable to produce customised products in small batches.
Due to the continued technology progression, the economic viability of manufacturing by taking the advantage of low-cost labour is continuously shrinking. Moreover, the challenge is not just to produce at lower cost, but most importantly, we have to produce higher quality products. Such higher quality is associated with the ability to invent and innovate. The Western countries are far more capable than many aspiring developing countries to offer greater value in delivering industrial products by taking the advantage of sustaining innovation. For this reason, despite the availability of low-cost high-end industrial products like cars offered by newly industrialised countries, consumers, even in developing countries, opt for products of advanced nations like Japan or Germany. By taking the advantage of robotics and automation, if multinationals produce better products at lower cost from home-based manufacturing plants, what will these countries transport through the Silk Road?
The implications of continued progression of technologies in production competitiveness should be taken into consideration to repeat the past success of Silk Road, connecting regional countries.
The writer is Professor, Department of Electrical and Computer Engineering, North South University.