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Worker deficit spurs automation

Prohibitive costs limit adoption to tier 1 enterprises, but local governments are doling out subsidies to encourage more factories to upgrade.

Raising compensation and benefits to retain or entice workers is not the only approach China suppliers are taking to maintain output levels amid a still challenging labor situation. Many are also turning to automation.

Worker deficit spurs automation
Procuring computerized flat-knitting machines allowed Jiaxing Mengdi to cut two-thirds of its workforce.

Swimwear makers that produce their own fabrics, for instance, are replacing manual knitting machines with computerized units. In addition to boosting efficiency, the advanced equipment minimizes the need to retain a large workforce.

The same is true for suppliers of fashion jewelry and watches. Companies are bringing in automatic thermal presses, and copper and phosphorus slug cutters to boost productivity even with a downsized labor pool.

Bathroom scale manufacturer Zhongshan Camry has actually been able to raise daily output from 10,000 units to 50,000 when it imported surface-mount equipment from Samsung of South Korea. The size of its PCB insertion department was also reduced 70 percent.

The company also shifted from manual to automatic calibration, thereby improving the scales' accuracy and reaction times. Developed in-house, equipment for the latter process was introduced at the start of 2009 and has trimmed the number of workers in the production line from 50 to 45. It has raised efficiency by about 30 percent as well.

Toothbrush and massager specialists are also investing in computerized and automated machines. Doing so has helped speed up production turnaround and minimize manual processes.

Success stories in Tongxiang

A second-tier city in Jiaxing, northern Zhejiang, Tongxiang is among the many areas in China experiencing a shortage in labor. Factories have been taking steps to automate since 2007. More plants are now following suit. In fact, the city imported nearly 1,000 computerized machines after 2010's Chinese New Year.

Jiaxing Mengdi Import & Export Co. Ltd (Sweater Branch) purchased 50 computerized flat-knitting machines recently. Depending on the intricacy of the pattern, each machine can turn out about 800 sweaters monthly. Using such equipment enabled the company to cut two-thirds of its workforce. The remaining machine operators, however, receive roughly 2,000 yuan ($293) each in wages. Jiaxing Mengdi estimates the expenditure can be recovered in five years.

Since it began to upgrade production equipment in 2007, Jiaxing Strong Imp. & Exp. Co. Ltd has managed to acquire 48 computerized flat-knitting machines and retired all of its manual units. The company used to have 300 workers. With each computerized version capable of fulfilling the output of three or four manual ones, manpower has now been downsized to 170. Annual yield, however, increased 10 percent. Efficiency has improved as well and, consequently, delivery times have been shortened. Because the advanced machines turn out better-quality knits that can have more intricate patterns, Jiaxing Strong can also charge higher for its sweaters and pullovers. This, in fact, has made the company confident it can recoup the investment in equipment over the next three years.

Long-term trend

A solution that emerged during 2007's widespread worker shortage, upgrading equipment helped many suppliers ease their dependence on labor, while improving quality and stabilizing delivery time. In fact, several garment plants in the Dongguan town of Humen in Guangdong province have been utilizing computerized weaving looms since 2007. Each machine was able to replace 20 workers and required only two people to operate. As a result, manpower was reduced without affecting efficiency.

In general, apparel factories with annual output of about 2.5 million pieces need 700 to 800 workers putting in 12-hour shifts. Procuring 200 advanced machines can bring down the manpower requirement to just 200. This, however, can amount to an investment of up to $14 million.

As a result, few companies took this route despite the advantages. Computerized weaving looms, for instance, cost between 400,000 and 500,000 yuan ($58,500 to $73,100) each. Computerized flat-knitting machines, on the other hand, can be as low as 35,000 yuan ($5,000) or exceed 400,000 yuan. The former are locally produced units. Although inexpensive, the quality of output from such machines is often worse than what manual versions can produce. Domestically made units that can yield good-quality knits are in the 120,000 to 160,000 yuan range ($17,600 to $23,400). Imported machines, such as those from Germany, are the highest priced. They are also faster, can turn out more intricate patterns and are 20 percent more efficient.

Because of the wide disparity in equipment costs, it is only the large and well-established enterprises that can bring in imported units. Small and midsize companies often purchase locally made computerized flat-knitting machines.

In addition, employees needed to run such equipment often ask for higher pay. Depending on their qualifications, these technicians can demand as much as 1,000 yuan ($146) salary increase.

Government support

Understanding that substantial investment is the main barrier to automation, several local governments have implemented policies that can alleviate this obstacle. The provincial authorities in Zhejiang, for instance, set up a 514 million yuan ($75 million) fund during Q2 2009 for industrial upgrading and automation. Among the supported endeavors are high-tech projects, advanced equipment procurement, computerized production management and technology development.

Even city officials have set similar measures in place. Zhoushan, a city in northeastern Zhejiang, implemented a rebate system in Q1 2010. Enterprises that invest up to 10 million yuan $1.5 million in purchasing advanced equipment can receive a 2 percent refund. Expenditure exceeding 10 million yuan has an equivalent rebate of 5 percent.

Shengzhou, a tie hub in Zhejiang, has been subsidizing up to 5 percent of factories' production upgrade costs since 2007. As a result, the quality of ties from the city has improved to a level where nothing has been rejected during spot checks carried out in the past two years.

Government policies, however, may not be a big enough incentive for China’s export manufacturers to automate. With subsidies and rebates capped to 5 percent, companies will still have to shoulder the bulk of investment costs. In addition, the financial aid applies only to businesses that import advanced machinery. As such, it is mainly enterprises with adequate capital, sufficient and stable orders, and a confident export outlook that will undertake steps to upgrade production equipment.

The shortage in manpower affects mostly labor-intensive industries such as garments, footwear, textiles, toys, leather goods and furniture. There is some impact on a few electronic lines, especially those that continue to carry out manual assembly. The majority, however, already have automated equipment and processes such as plastic injection and SMT.

Even so, a handful of electronic companies are exploring other areas in which to automate. Foxconn, one of the largest EMS suppliers in the world, for instance, is planning to construct a fully automatic factory in Taiwan. One fully automatic production line is already in its experimental stage. If proven successful, the maker will build similar facilities in various areas worldwide, including mainland China.

Note: This article "Worker deficit spurs automation" was originally published by Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.

All price quotes in this report are in US dollars unless otherwise specified. FOB prices were provided by the companies interviewed only as reference prices at the time of interview and may have changed.

Disclaimer: All product images are provided by the companies interviewed and are for reference purposes only. Those product images featuring products with trademarks, brand names or logos are not intended for sale. We, our affiliates, and our affiliates' respective directors, officers, employees, representatives, agents or contractors, do not accept and will not have any responsibility or liability for product images (or any part thereof) which infringe on any intellectual property or other rights of a third party.

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