Robotics Adoption Linked to Slower Rate of Offshoring

robotics-adoption-linked-to-slower-rate-of-offshoring

A recent Organisation for Economic Co-operation and Development (OECD) report entitled “Industrial Robotics and the Global Organisation of Production” has shown that in countries that have seen growth in robotics investments, there has been a direct impact on the growth of offshoring. In particular, developed economies that saw 10% growth in robotics investments saw a corresponding 0.54% drop in offshoring between 2010 and 2014. The negative correlation becomes stronger as the labor intensity of jobs increases, which suggests that for human jobs that are labor intensive and costly in developed economies, robotics actually stops or at least hinders the growth of offshoring, as robotics becomes much more cost effective.

While there has been a lot of debate recently about automation and jobs within national economies like China, the United States, and Europe, the OECD report draws a link between global supply chains and the increased use of robots. This could have a significant impact on developing economies like India, Southeast Asia, and China, which have benefitted significantly from offshoring in recent years.

Automation and Lower Costs of Robotics Are Attractive Features

The report cautions that, in the past few decades, as digitization and the rise of information technology (IT) led to global supply chains and the offshoring of manufacturing jobs from developed economies to developing economies, the reverse could happen with the rise of robots. We are at the very early stages of robotics automation, although some industries like the automotive and electronics sectors are further along the robotics curve than others. Developing economies in Asia that support the electronics industry could suffer, with developed economies speeding up investment in robotics with lower costs, countering high labor costs that have impeded their adoption so far.

Based on the data and analysis included in the report between 2010 and 2014, there is no clear suggestion that reshoring of jobs would occur, although there is an impact on the growth of offshoring. This means that fewer jobs are likely to be offshored henceforth as developed economies adopt robots, but for the jobs that have already been offshored, there is little evidence that they will be come back. The trend that is more likely to occur is that companies with global supply chains will be smarter at moving production closer to where demand is, possibly scattering production across different affiliates depending on their robotics capabilities.

More Nuanced Approach to Global Production

The level of robotics adoption within countries varies, with Italy and Spain, for example, seeing more than 60% of robot purchases for handling and machine tending related to initial stages of production, while Japan and Korea have some of the highest robot densities in the world and are seeing the adoption of robots for highly specialized tasks, such as clean room production or flat panel display production. In summary, we are likely to see a more nuanced approach to global production than a simple move toward offshoring to low-cost manufacturing economies, dictated more by the robotics capabilities in a given region or country.

One area in which the report lacks analysis is the impact of political events and the recent backlash against globalization, with Brexit and the United States adopting protectionist policies under President Trump, essentially unwinding global supply chains. The report also does not provide a detailed analysis of the AI and robotics wave that is occurring in China, with China already on the path toward winning the AI arms race. If China does end up with cheaper and more capable robots, far more than any other country in the world, what does that do to global supply chains? Does it tilt the power back toward China? Or does China become the prime supplier of robot and AI technology to the world, moving away from being the production hub?

New Era of Automation Impacting Every Industry

The report does fall in line with an earlier Tractica blog post on AI and jobs, suggesting that there is no clear-cut answer, and the realities are more nuanced than one is led to believe through the news and media. Tractica’s AI analysis indicates that we are entering a new era of automation during which new jobs will be created, old jobs will be destroyed, and every industry will be impacted. Combining the technological revolution with shifts in the global economy and political realities will lead to this era playing out in multiple scenarios.

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