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Rise of the Machines Not a Terminator for Foxconn Employees
 

August 11, 2011

Caixin reported on Monday that Foxconn, the world’s largest electronics manufacturer, is planning to introduce a million robots to its production lines. The Taiwanese company, an employer of 1.2 million in Mainland China, plans to roll out the machines over the next three years. Foxconn reported an operating loss of around RMB 2 Bn in 2010.  

Some initial thoughts:

Rising labor costs are undoubtedly a contributing factor but certainly not the only one. Foxconn will also want to improve its product quality, take on more complicated / higher value projects and - this is just personal conjecture – get into the very lucrative industrial automation industry. (Note to self: find out who their supplier is). 

But will the introduction of 1 million robots, reduce human headcount by 1m?  

No.  

It’s hard enough for a foreign company to reduce headcount by 1, but shedding 100s or 1000s of jobs just isn’t going fly.  

Secondly, what are the details of these robots? PLC pricing ranges from around RMB 75 per point, or RMB 4,000 per unit (for the really cheap stuff…) to over RMB 10 Mn for a distributed control system.

This raises the question of how much money is this actually going to save. Assume that an average “robot” (which we will take to mean a 256 1/0 PLC) costs RMB 200,000 to the company in the first year, and RMB 50,000 over the first five years of its useful life (i.e., RMB 400k). Now, an average Foxconn assembly worker, making RMB 2,000 per month, is three times cheaper (assuming Foxconn are paying 13 months’ salary).

There’s also the total cost of 1 Mn robots: RMB 0.4 trillion over three years, or around 8 times annual earnings. You could buy your own automation company for that.

File under: doesn’t add up…

 

About GCiS China Strategic Research

GCiS (www.GCiS.com.cn) is a China-based market research and advisory firm focused on business to business markets. Since 1997, GCiS has been working with leading multinationals in sectors ranging from technology to industrial markets, medical, chemicals, resources, building and constructions and a few others.

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