Focus: (Not) made in China
Comment of the Day

December 31 2012

Commentary by David Fuller

Focus: (Not) made in China

This is an excellent, futuristic article by Simon Duke of The Sunday Times (UK) (subscription required for full online access, PDF also provide). Here is the opening:
America's tech giants are starting to move production away from the People's Republic as a new breed of robots cancel out the advantage of cheap labour

For the creator of the Raspberry Pi, there was one business decision that did not call for much soul-searching. When it came to finding a factory to build the stripped-down computer - one of 2012's most hyped gadgets - Eben Upton concluded it could not be built in Britain. Only China could offer the rock-bottom production costs needed to slash the price of the credit-card-sized machine to just £15.

That has started to change, however. The latest batch of the lo-fi device designed to get kids into computer programming have the words "Made in Britain" etched on the side. In September, production was shifted to a site operated by Sony in south Wales, where most Raspberry Pis are now assembled.

"When we were setting up, China was cheaper all round," said Upton. "Labour costs were lower and manufacturers had greater proximity to where the components are made."

With between 100,000 and 200,000 Raspberry Pi units now being shipped every month, the business has enough clout to secure a more cost-effective deal with a British-based manufacturer.

Upton is not the only technology guru looking to move his production out of China, in spite of its reputation as the workshop of the world. Apple, the world's biggest technology company, is also beating a retreat after switching production of its new iMac computers back to America for the first time in a decade. The Silicon Valley giant is also considering moving the assembly line for its Mac Mini computer back home. Google, meanwhile, is making its Nexus Q internet television player in America.

It may not yet be a stampede, but experts believe that an exodus of western firms from the world's most populous nation is under way. In years to come, far fewer of the gadgets we pull from our Christmas stockings will have been made in China.

The seismic shift has nothing to do with a desire to bolster debt-laden home economies. For the likes of Apple and Google it comes down to cold, hard cash. The harsh truth is that China is steadily losing its competitive edge.

The typical Chinese worker still earns between 10% and 20% of what his counterpart would take home in developed nations such as America and Britain. However, the gap is closing rapidly. Chinese wages have doubled over the past decade, while take-home pay in the developed world has stagnated, according to the International Labour Organisation (ILO).

"China's huge attraction to western companies hasn't worn off totally, but it is already being undermined by rising labour costs," said George Magnus, an economic adviser to UBS investment bank, in a recent research paper.

Rocketing energy prices are also forcing the hand of profit-hungry gadget makers. The crude oil price has more than trebled since 2003, making it more expensive for firms to ship finished products back from the Far East.

Advances in robotics and other innovations such as 3D printing are likely to further erode the advantages of a cheap and compliant workforce.

Right now the factories where more than 100 million Chinese workers labour to produce digital cameras, laptops and millions of other gadgets are in the ascendant. However, the technological tide could soon be potent enough to swing the balance of power back towards America and Europe.

David Fuller's view The exciting, somewhat scary and often predictable speed with which manufacturing assembly policies can shift between Asia and the old world, the latter represented mainly by the USA and to a lesser extent Europe, is due to three primary factors: globalisation, the race for a competitive advantage, and especially the accelerating era of technological innovation, often mentioned by Fullermoney in recent years.

To put this latter factor in perspective, when financial people talk about trend acceleration, we are usually referring to a short to medium-term unsustainable market advance, before prices fall back sharply as these bubbles burst.

I have never viewed Fullermoney's forecasts of an accelerating era of technological innovation as a bubble, although it will contain some price bubbles within it as that is the nature of financial markets, at least while they remain controlled by humans.

The era of exponential advances in our technological development is still in its foothills, in my opinion, although almost everyone will recognise that the pace and breadth of innovation is increasing in line with mankind's scientific knowledge. Theoretically, it probably has no logical end in terms of scientific innovation or breakthroughs. However, it will end, because everything does, but probably due to an unavoidable misfortune rather than a logical limit to mankind's growing understanding and harnessing of scientific potential.

Lest you conclude, dear reader, that I am losing my marbles, or have been indulging too much over the holidays, or have perhaps been carried away by the excitement of yearend 3-D films for grownups, all of which may be true, consider your own evidence.

How many of us who are over the age of 50 had any idea as a child that smart phones and tablet computers would be indispensable accessories in the developed world by yearend 2012? How many of us expected to be skyping with friends and family around the around the globe for almost no cost, or running your affairs from inexpensive computers which happen to be infinitely more powerful than anything built only 30 years ago? How many of us over the age of 50 anticipated as children that we would be communicating and receiving our information almost entirely online?

One can easily think of numerous other examples of our rapidly evolving technologies. History has numerous examples life-changing developments of enormous importance: the printing press, calculators, the telegraph, electric lights, railroads, telephones, radios, automobiles, vaccines, television and computers, to mention just a few. Initially, these breakthroughs occurred at a glacial pace over centuries, which gradually increased. Today, most of us feel privileged to have seen a dramatic acceleration in innovation and technological progress during our own lives, most of which have occurred within the last 20 years. The future will be even more exciting.

Returning to The Sunday Times article above, lest we become too concerned about China, which Fullermoney maintains is now one of the most interesting investment plays, please read the excellent reader's 'comment' from John Broom, which I included in the report and also reproduce below:

"Yes , but the most important point is contained in the almost throw away mention of Foxconn planning to install One Million robots into their production processes! So not just a couple of dozen then.

"China is moving from the phase of people-intensive production into the next phase, of automation. And they'll do it faster, bigger, and better than anyone else. As someone who has worked with Chinese factories, I have total confidence in their ability to accomplish this change."

Lastly, the beginning of the reversal in the decline of energy intensive heavy industries within the USA is entirely due to the invention of fracking. This has made America much more competitive in terms of energy costs within developed economies. It is worth remembering that this did not occur with much help from the current government. In fact, the Obama administration opposed fracking and restricted it to land that was privately owned. I suggest that it has been saved by fracking.

From Europe to Japan, we have seen a number of developed economies fall behind economically because they favoured green energy policies which were either insufficiently developed, unproven, unreliable and much more expensive. Atmospheric pollution has also increased in most of these countries because their green systems required backup, usually in the form of coal for reasons of expediency. In the ultimate irony, atmospheric pollution has actually declined in the USA due to all the natural gas that is being produced.

We are all green at heart but let us get there through sensible economic progress which funds more beneficial innovation. Our economies are not ready to move away from fossil fuels because heavy reliance on green technologies will weaken most of them, as we are seeing. People are also noticing that so-called green technologies can have unpleasant side effects. For instance, those of us who have spent some time near wind farms or even a solitary windmill will have noticed the unacceptable levels of noise pollution when there is sufficient wind to produce energy.

None of us want our children or grandchildren to be traumatised by significant climate change, which may or may not occur anytime soon. However, if that is what they face, for what every reasons albeit increased by humans, is it not better if our economies and populations mostly have the resources to address the problem more effectively?

See also, Skilled Work, Without the Worker, on 20th August 2012, plus companies which manufacture robots in 21st August.

Back to top