Rising wages, combined with a volatile global economy, increasing product complexity, and changes in consumer expectations around customization for everything from cell phones to luxury vehicles are forcing manufacturers to rethink supply chains and find ways to tighten the gap between innovation and product delivery.
Responding to the new realities is fueling governments around the world to invest in the transformation. Case in point: last spring, the Chinese government launched an ambitious strategy to transform Chinese manufacturing from the world’s source of low-cost labor to the leader in innovation and quality. The government committed $8 trillion yuan over 10 years on its Made in China 2025, a vision for a new industrial revolution.
China’s in good company. Germany launched Industry 4.0 in 2013 and is expected to invest 1.35 trillion Euros over 15 years on transforming its manufacturing base. In 2014, the U.S. Congress authorized $1 billion for the establishment of a 15-node National Network of Manufacturing Innovation, designed to accelerate the development and delivery of advanced manufacturing technologies.
What China does in the coming year to transform its manufacturing sector is worth watching. Chinese companies are aggressively addressing rising labor costs and productivity gaps at home, using a three-pronged strategy centered on automated manufacturing, improved education, and imported expertise.
Officials have gone on record about the government’s plan to solve an increasing labor shortage and high turnover rates by installing robots to reduce the number of human workers by half. The country already ranks as the world’s largest market for robotics machines and the International Federation of Robotics projects that the country will have more installed robots than any other country by 2016.
A focus on strengthening education efforts is translating into lower rates of voluntary employee turnover. In the early to mid-2000’s it was estimated that China’s employee turnover rates were as high as 50 percent; more recently the rates have been pegged at less than 20 percent.
Chinese manufacturers are investing in factories in the US in a move toward gaining critical know-how in innovation, engineering and advanced technical skills – all in short supply domestically. Companies that manufacture everything from auto parts and textiles to household products have established operations in the US. At the same time, Chinese manufacturers are bringing Japanese and German manufacturing experts into their operations, to increase productivity and adopt best practices.
Transformation takes time, of course. The last industrial revolution took place in the 20th century. The steps being taken in China are illustrative of how we’re all trying to chart a new course. I for one, am staying tuned and I’d love to hear what you’re seeing in China and around the world.