Changes in technology and global demographics are spurring a manufacturing revolution
Radical changes in technology and global demographics (the latter described in last Thursday’s Insights article) are spurring a manufacturing revolution. The current volatility in the Chinese economy demonstrates how a diminished labor pool and an aging population combined with rapid automation are destabilizing global markets.
The impact of industrial espionage
Often overlooked is the role of industrial espionage in advancing Chinese manufacturing. In last Sunday’s “60 Minutes” (1/18/16), a report updated the impact of Chinese industrial espionage against the U.S.–claiming a 2M U.S. jobs loss at a cost of upwards of $1T to the economy. Bottom line–the migration of manufacturing jobs from the U.S. and other developed economies is no longer limited to old-style mass production, but now includes high-tech manufacturing as well. Though industrial espionage is a global phenomenon, there is nothing comparable to the scope and magnitude of the Chinese theft of U.S. intellectual property in the past 10 years, regardless of how often denied by the Chinese leadership.
Chinese labor costs rise with automation and a declining labor pool
Chinese Communist Party Chief Xi Jinping recently called for “an industrial robot revolution” in his country, because of his concerns about the beginning of a manufacturing migration to other parts of the world as their labor pool shrinks, population ages, and labor costs rise (now at $14.60 an hour compared to 60 cents in 2002). –Automated sewing machines and digital printers, for example, have revolutionized the apparel industry with fewer but better paid, higher skill jobs.
Mass customization and demand for quicker delivery
Further undermining China’s manufacturing prowess is an increasing demand for faster delivery of high tech but customizable products. While China is gaining ground on customization, it can’t compete with Mexico or the U.S. itself on quick delivery. Nor can their manufacturing of inexpensive products compete with the cheap labor in economically undeveloped countries like Indonesia, India, and Thailand. Interestingly, while Africa has great manufacturing potential in the longer term, concerns about its weak infrastructure are holding it back for now.
Next, I’ll explore the emergence of product customization–from medicines customized to an individual’s DNA to clothing tailored to a buyer’s exact size, fabric and color preferences.
Customized products and services – from customer preference to business necessity
Dramatic breakthroughs in digital technology have triggered growing consumer demand for rapid product and service delivery and customization. Why wait a month or more for delivery of a generic product when you can get a version customized to your exact needs and preferences within a day or two?
Expect this growing customer preference to become a demand by the early 2020s. In the early 19th century, most everything was customized. Those still able to afford tailored clothing 150 years later are happy to pay for that kind of personalized quality and fit. With rapid advances in AI-supported cheaper production, customization will soon again become the norm.On the immediate horizon–the perfecting and distribution of affordable scanners that will allow customers to upload their body measurements to clothing retail websites. Associated reductions in costs should also help reduce future economic inflation, though that remains to be seen.
Much more critical to our future well-being and quality of life is will be the customizing of medicines to individual DNA (e.g., antidepressants that are an exact complement to a person’s brain chemistry; cancer treatments that ‘fix’ a person’s genetic vulnerabilities)–and much more.
Customized manufacturing is decentralized
I described how product customization is leading to decentralized manufacturing, leaving mass producers like China at a disadvantage for a growing range of products. Smaller manufacturing facilities will become the norm, especially for higher-end products with varied local customer preferences. Underscoring the broad implications of this change, Moody’s Analytics, in a recent Wall Street Journal analysis predicts, “The U.S. trade deficit with China will diminish and turn positive by 2042, in good measure because of this and related changes.”
The coming, ultimate decentralization – 3-D Manufacturing
It’s as difficult now to imagine every home having a 3-D printer as it was to imagine every home having a personal computer in the 1970s. Yet this is the direction we’re headed in, one distinctly parallel with the pre-industrial model of hand-made, artisanal products. – By mid-century, people will again take pride in ‘home made’ clothing, food, even electronics.
Going forward, I’ll provide an overview of how a Fourth Industrial Revolution characterized by a fusion of physical, digital and biological domains will once again revolutionize our world and individual lives.
