Economic Issues and Challenges of China Automation - 275 Words

Economic Issues and Challenges of China: Industrial Automation (Lab Report Sample) Content: Automation in China Name: Instructor: Course: Date: Table of Contents 1. Introduction. 3 2. Background. 3 3. History of China. 5 4. Industrial automation. 8 4.1 Factory automation. 8 4.2 Process automation. 9 4.3 Hybrid automation. 9 4.4 Control systems. 9 5. Automation investment 10 5.1 Labour costs. 12 6. Trends in globalization and internationalization. 13 6.1 Future trends. 14 7. Reflection. 14 8. Conclusion. 15 1. Introduction According to Fox (2010), the global automation industry was heavily affected by the 2008 financial crisis, but it has since recovered. The recovery of the advanced economies and the increased demand for machinery and technology in the emerging economies means that this sector will continue to experience steady growth. The companies will also continue seeking energy-efficient, and improved wastewater solutions. The automation industry has vast opportunities in the renewable sector and it is expected that in future many firms will continue to adopt smart technologies such as cloud-computing solutions and mobile communication technologies to enhance communication between employees working in different units. Flexible manufacturing processes are also expected to become popular in the BRIC economies. This paper examines the automation industry in China and the factors influencing the adoption of the automation systems in the country. 2. Background For long, China has provided firms with cheap labour and adequate resources. The country is also the largest recipient of the FDI, and several factors make the country a suitable destination for investment capital. According to Fox (2012), these factors include well developed infrastructure, availability of labour, and adequate workforce skills. In addition, lower transaction costs mean that the investors are able to attain high returns on their investment. However, in the recent past, the workers in the country have been agitating for better wages, and in response firms have started automating their production processes. According to the available statistics, the labour costs in China have increased by 12.3%, while the cost of raw materials is already going up (Nolan, 2014). Automation of the industries is also being driven by the need to produce quality products. Companies want to compete with foreign countries, and ensure consistent production of goods. According to Sultan (2012), the automation of Chinese factories is happening at a very fast rate, and already companies such as Foxconn have adopted the new technology. Foxconn is one the largest producers of phone products in the country, and due to bad publicity it has decided to introduce over one million robots in its factories. The extent of the practice is well captured in an article titled, analysis: robots lift Chinas factories to new heights. According to Christensen (2012), the Great Wall Company in china has also introduced giant orange robots. So far, the company has invested 96.5 million in mechanizing 4 plants with 1,200 robots. With the automation of some of its processes, the Great Wall Company has been able to control the operating costs. Another company, which had adopted the robotic technology, is Pegatron, which has invested more than 60 million to automate the production of harsh chemicals (Nolan, 2014). The adoption rate of industrial robots of China is growing, and in 2012 the country reached 22,577 units up 51% over 2011 (Nolan, 2014). Robots are mostly used in the automotive industry and Abetti and Haldar (2011) attribute the new trend to change in demographics. With the aging population, china will not be able to meet labour demands, hence the growing popularity of the robotic technology. The number of the people in the working-age group is already declining, and to just illustrate further here is a perfect example. In 2000, the number of the Chinese workers entering the market was 22 million, but this number declined to 15 million in 2012 (Nolan, 2014). Besides the declining number of workers, the young people no longer want to work in factories, instead preferring to work in the service industry. The number of the migrant workers is already reducing, and as a result, companies are forced to look for alternative measures. Due to the increasing demand for robotic technology, the suppliers including, Universal Robots and ABB are already, boosting their chinas investment. In 2015, the demand is projected to rise to 35,000 from 26,000 in 2012 (Nolan, 2014). Although adoption of robotic technology is currently underway in China, there are fears that the automation process will take years to achieve. This is due to the high price of advanced robots, and lack of adequate capacity. At the same time, some of the researchers observe that the robots are more expensive compared to the workers and the automation process could be affected by logistical problems. The sections below examine in details the prevalence of the automation in China. 3. History of China Prior to 1979, the Chinese economy was centrally planned and state controlled. However, in 1979, the government initiated a number of economic reforms and established special economic zones. Enterprises and state-owned organizations were subjected to free market principles while citizens were encouraged to engage in businesses. The establishment of economic zones attracted FDI into the country. The liberalization efforts in the country were also facilitated by the removal of trade barriers. The introduction of economic reforms saw the economy improve and the presence of foreign entities in the country increased. The economic growth in china can be attributed to many factors, one of which the large-scale investment. In 2010, there were approximately 445, 244 foreign-invested enterprises in the country and they contributed a major share of the countrys industrial output (Nolan, 2014). According to the available statistics, the FDI growth in the country has been very phenomenal, and jus t to prove this point here is a good example. At 1985, the FDI inflows were estimated to be 1.2 billion, but this number rose to 72.5 billion in 2013 (Nolan, 2014). Most of the countrys FDI inflows originate from the United States, Taiwan, Japan, British Virgin Islands, Hong Kong and Japan. One of the FDI determinants in the country is the market size. According to Christensen (2012), large markets are attractive to investors due to larger economies of scale and spillover effects. The large population in the country drives up domestic consumption, which means that companies can easily find a ready market for their goods and services. The second factor is the availability of cheap labour. Foreign investors, flock into the country to take advantage of cheaper labour and well educated workers. According to Greenfield (2010), the Chinese labourers are highly skilled and the government provides investors with favourable policies in taxation, land use and foreign currency exchange. China has been experiencing improvements in productivity as a result of reallocation of resources. In this regard, the resources were re-allocated to the agriculture, trade and services industries. The private enterprises have taken the place of centrally-controlled SOEs and China has become a centre for innovation and economic development. By pursing the fast-growth economic model, the country has transitioned to a developing economy, but the government hopes to adopt the smart growth approach. In other words, the government is now focusing on achieving long-term and more balanced growth; in order address the environmental problems affecting the country. The country GDP is estimated to be 5.4 trillion, while the GDP per capita stands at 4,174 (Nolan, 2014). It is estimated that the country will soon overtake America as the worlds largest economy. Already, china is the worlds second largest merchandise importer and exporter. The country is renowned for supplying goods to developing and developed economies and its major exports include electrical goods, machinery, furniture, and clothing. To maintain high production levels, the country relies on fuel such as coal and petroleum. According to the International Energy Agency, the country is the largest energy consumer, and by 2035, China is projected to consume 70% more energy than the United States (Nolan, 2014). Despite the positive economic outlook, the country is faced with a number of challenges. Firstly, China has not fully adopted the market system. The State Owned Enterprises still dominate various sectors of the economy, hence limiting competition. Unlike the private entities, th e SOEs receive preferential treatment in the access of credit facilities. The countrys economy is also negatively affected by the undervalued currency. Another key challenge facing the country is overdependence on fixed investment and exports. China has also failed to deal decisively with the problem of pollution in the cou...