Why the internet and automation are key to survival for Chinese manufacturers

PUBLISHED : Sunday, 02 April, 2017, 8:17pm
UPDATED : Sunday, 02 April, 2017, 10:36pm

Chinese manufacturers should embrace internet technology and artificial intelligence to survive for the long term, given that more rapid changes are expected in consumer behaviour and the supply chain as a result of the impact of information technology, according to two speakers at a technology conference.

“The changes brought about by internet technology in the next three decades will be much larger than what we could imagine,” e-commerce giant Alibaba Group Holding executive chairman Jack Ma Yun told the China IT Summit in Shenzhen on Sunday.

He called on China’s manufacturers to embrace information technology instead of blaming it for their operating difficulties and profit declines.

“Many Chinese manufacturers have blamed the internet for their business difficulties, but in the United States and Europe, instead of cursing the internet, manufacturers ask themselves why they had not embraced [it] earlier. We should not treat the internet as a scapegoat,” Ma said.

Alibaba owns the South China Morning Post.

Zhu Min, an economist and former deputy managing director at the International Monetary Fund, told the conference that Chinese manufacturers had a lot of catching up to do on automating their operations.

“A decade ago, China’s manufacturing industry was less than half the size of that of the US. Today, it is the world’s largest, surpassing that of the US and Japan together. Yet, it is facing competition from other emerging markets like India and Vietnam, as well as a national strategy for outsourced manufacturing to return to the US,” he said.

“Whether China can reach its 2025 goals for manufacturing to be upgraded depends on whether artificial intelligence can be deployed in the industry successfully.”

Artificial intelligence refers to the use of machines with capabilities for learning and problem solving, which can replace humans on some tasks.

New manufacturing will be all about personalisation, and no longer all about mass production and shipping by containers
Jack Ma, Alibaba

Zhu noted that China’s labour productivity was still low compared to developed nations due to low levels of automation, with ample room for improvement.

Despite being the world’s largest manufacturer of mobile phones, televisions and computers, China still relies on US$200 billion worth of imported semiconductor chips to make these products – the nation’s largest single imported item.

Ma said the biggest success factors in manufacturing would no longer be standardisation and economies of scale, but rather “intelligent production” that allowed producers to better meet consumers’ needs.

“New manufacturing will be all about personalisation and no longer about mass production and shipping by containers,” he said.

He warned that traditional manufacturers in Guangdong were more vulnerable to competitive challenges brought about by technological advances compared to regions near Shanghai.

“I believe the challenges facing Guangdong manufacturers in the next 10 to 15 years will be far greater than those facing the firms in the Yangtze River Delta,” he said.

Ma believes all businesses will not be able to remain detached from the internet-linked world in the long term while businesses with online operations only will not survive either.

“In 30 years’ time, the business world will not belong to internet companies, it will belong to companies that are capable of using internet technology well. All businesses must be digitalised,” he said.

“Pure e-commerce firms will still enjoy high growth in the next five years ... but a decade after that, pure offline or pure online businesses will have a hard time surviving.”