Chinese factories digitalization
Although there has been a lot of talk about digitization in the consumer environment, what it is when applied in the factory environment is less clear.
While some of Chinese giants such as Baidu, Alibaba, Tencent, Didi Chuxing and ByteDance, are showing accelerated growth in digital transformation, most of the Chinese factories have not even begun their digital journey.
The digitization of Chinese factories is a big question mark. Why are managers reluctant to take the big step towards digitalization? Is it price pressure from China or are companies afraid of not being able to compete even if they invest in new technologies?
To stay ahead of the competition, these businesses need to go through digital transformation.
Chinese factories lack automation
Although China is the largest market for robots in the world, Chinese factories remain relatively unautomated, with only 36 robots per 10,000 manufacturing workers, about half the average of all advanced economies and less than one-fifth the US level.
Most of the manufacturers are struggling to sustain growth, and most are discovering that their efforts are inadequate to meet the market demands. Therefore, companies are looking to improve production capabilities through digitalization. These enhancements include using new data-driven methods and digital technologies like Artifical Intelligence (AI), Augmented Reality (AR), Internet of Things (IoT), Robotic Science and more to optimize their existing business. The aim is for manufacturers to use real-time data to connect designers, factories and distribution centers.
Chinese factories toward digitalization processes
Over the past few decades, the vast population of skillful jobs and inexpensive labor costs has pushed China to become the world’s factory. But with the introduction of robots and automatic machines, suddenly things changed and production started to lag behind.
The introduction of robots and automatic machines has started in large-scale factories. Some companies have even gone a step further by building fully automated machines that rely solely on manufacturing robots without human instructions. However only some of them had introduced these technologies, while many other factories’ managers are reluctant to invest in these smart processes.
To stay ahead of the competition, Chinese factories should focus on three core aspects:
- building a foundation for lean manufacturing,
- developing a solid management infrastructure,
- developing new mindsets and capabilities, especially in data and advanced analytics.
What are the reasons why Chinese factories lack automation?
Chinese manufacturers are not enough prepared for the digitalization
Chinese manufacturers are less prepared than their foreign counterparts to push ahead with the digitization of the industry.
While digitization has become a keyword of factories management, organizational skills, talent and mindset are not at the forefront of new trends.
As a matter of fact, few companies have made digitization a priority or increased managers’ awareness and skills. Digital manufacturing tools also remain inadequate and companies lack the digital foundation to analyze, manage and use data collected from production lines.
Why digitization is important for factories?
Data collected from production lines are critical to product development, to increase quality and to create globally competitive products.
Chinese consumers purchasing behavior highlight a growing propensity to spend more and save less. Chinese consumers are increasingly trading up from mass products to premium products. That’s why factories should put efforts on their digitalization to increase their quality and be competitive both in the local and global market.
Government reforms encouraged the factories digitalization
The concept of intelligent manufacturing has been encouraged by the Chinese government by issuing the “Made in China 2025” strategy in 2015 and the later “Supply-side reform,” in order to upgrade China’s manufacturing sector.
- With “Made in China 2025”, China aims to move away from being the “world’s factory”, producing cheap, low-quality goods facilitated by lower labor costs and supply chain advantages. The initiative encourages the production of high-value products and services, like aerospace and semiconductors, to help achieve independence from foreign suppliers.
- The “Supply-side reform” is the opposite of the demand side. On the demand side, there are three stimulating forces of the economy (Investment, consumption, and export) that determine the short-term economic growth rate. While on the supply side there are four factors (Labor force, capital, technology, and regulation) which determine long and mid-term potential economic growth rate.
Shenzhen has become a global technology center
The best example we can find of the digital and technological revolution that China has undergone is that of the well-known “Silicon Delta“. The delta contains places like Hong Kong, Macau, Foshan, Guangzhou, and Shenzhen. Shenzhen, whose economy surpassed that of Hong Kong, was no more than a simple fishing village and has since become the global technology center.
Since 1979, when Shenzhen became China’s first economic zone, its economy has grown at an average annual rate of 22%. It is now considered the electronics manufacturing capital of the world. Big giants of electronic manufacturers such as Apple, Samsung, Microsoft, Sony, Canon, manufacture their products in Shenzhen. In fact, this city produces 90% of the world’s electronics.
The 3 Chinese Internet giants led the first wave of digital transformation
In China, the 3 largest internet companies led the first wave of digital transformation: Baidu, Alibaba and Tencent.
- Baidu is the largest Chinese search engine and is only second to Google in the global market share.
- Alibaba is a Chinese multinational technology company specializing in e-commerce, retail, Internet, and technology. The Alibaba Group has transformed traditional retail with a complete digitalization of commerce, what is now referred to as “New Retail”. This strategy is now redefining what is relevant in the global market and not just the Chinese domestic market.
- Tencent is not only China’s biggest social network but it is also the largest gaming company in the world. Now it is the fifth largest internet company in the world.
What is the next step for China about the digital transformation strategy?
Globally, the digital transformation of factories is helping improve operational efficiencies. However, China tends to focus its efforts on driving customer inquiries and experiences rather than the digital transformation of factories.
Chinese factories must channel their digital transformation on the automation of production processes and internal efforts on the human, employee, and legal resources.
Labor productivity in China remains only 15% to 30% of the levels of the advanced economy. Approaches like lean and Six Sigma are not new to China, but they have had limited impact due to the focus on technical tools and little attention paid to helping workers adopt and adapt to new processes.
Big data analytics, artificial intelligence, IoT, cloud computing, and other internet-based innovations must be used aggressively to win the race as the world’s most digital economy. China is now starting to build a digital business. The plan is to start investing in some powerful technologies and develop the workforce.
What will be the future of the digitalization of Chinese factories in China?
Given the high level of qualification and competence among Chinese youth, the quality of engineering in China is starting to skyrocket. In China, more and more cloud-based software solutions will surely be invented that would compete with Silicon Valley.
Efforts have been launched to create security and privacy in everything, and companies are investing in digital skills and the abundance of talent available.
Factories are making IT investments to better manage data and cross-functional efficiencies. The focus should no longer be on having a standardized approach, but rather:
- a fusion of lean manufacturing,
- a concrete management framework,
- the fostering of evolving mindsets and capabilities.
A new China is emerging and we will have to get used to more and more innovations coming from this country. China is no longer just a manufacturing country, now it’s about engineering and innovation in the age of digital transformation. This is a new era for them not only as a country but also as a global player.
Do you want to know more about how to digitalize your factory in China? Contact GMA a digital marketing agency, specialized in the Chinese digital market.