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China economy

Manufacturers in China ‘ill-prepared for Industry 4.0’ says McKinsey report

Despite being the ‘world’s factory’, its manufacturing productivity is still only a quarter of developed countries

PUBLISHED : Monday, 24 April, 2017, 9:02am
UPDATED : Monday, 24 April, 2017, 4:17pm

Chinese manufacturers are not well prepared to brace for the coming wave of digitalisation to narrow the gap with advanced economies, McKinsey & Company suggest in a report .

McKinsey sent the warning when it launched a Digital Capability Centre at Tsinghua University, the fifth it has set up after ones in the United States, Germany, Italy and Singapore, to facilitate the application of smart production and digital operation to reshape manufacturing.

As the world’s factory, China produced 70 per cent of mobile phones, 80 per cent of air conditioners and 91 per cent of personal computers, but its manufacturing productivity was still only a quarter of developed countries.

Manufacturing automation to drive China’s robotics spending to US$59b by 2020, says IDC

Aiming to transfer the country from a manufacturing workshop to a leading innovator, Premier Li Keqiang launched “Made in China 2025” two years ago. It was China’s version of “Industry 4.0” to join the global wave of the fourth major upheaval in modern manufacturing.

“Digitalisation is not just the purchase and installation of expansive, state-of-the-art automation equipment. Organisational structure, management talent and mindset all matter”, said Arthur Wang, partner at McKinsey at a press conference on Friday.

The Chinese are actively engaged in hi-tech R&D, such as 3D printing, big data and VR, but McKinsey noted in the report that most of the players are small start-ups or branches of research agencies, with the market still being dominated by multinationals.

“For most manufacturers in China, Industry 4.0 still seems like a stretch goal,” McKinsey said in the report after talking to 130 Chinese manufacturing executives.

Taking robotics as an example, the report pointed out that China’s robotics, in the absence of sufficient research support, are mainly applied in assembly and system integration that offer lowest profits along the value chain. With customers from low- or middle-end producers such as cosmetics and beverage producers, Chinese robotics is less competitive against global giants such as Fonuc and ABB.

Still, Chinese manufacturers, especially private entrepreneurs, showed great interest and put great hope on the digital operation to improve competitiveness, raise income and reduce costs, McKinsey said in the report.

Manufacturing automation to drive China’s robotics spending to US$59b by 2020, says IDC

The report noticed only a limited number of companies are ready to put the Industry 4.0 initiatives into operation.

“Excessive enthusiasm toward Industry 4.0 can lead to irrational investment in equipment and tools, resulting in wasted resources,” the report said.

“Lack of a systematic roadmap and toolbox is consistently cited as a top obstacle to implementing Industry 4.0 among Chinese manufacturers.”

More than half of Chinese manufacturers were “followers” with semi-automation and a sense of data collection but lacking in digital management experience and talent.

Less than 5 per cent of Chinese manufacturers were first movers or pioneers with innovative business models and advanced digitalisation, such as Haier, Lenovo and Huawei, it said.

Therefore, a “one-size-fits-all” solution to digital transformation did not work for China.