A country wishing to benefit from such effects must deploy more robots than others. According to data from the International Federation of Robotics, recent deployments of industrial robots in developing countries have been concentrated in China, and the country is expected to maintain its front-runner status (figure 1). In response to a shrinking working-age population and rising labour costs, which have eroded the country’s cheap-labour advantage, China has embarked on a government-backed robot-driven industrial strategy entitled “Made in China 2025”. Each year since 2013, China has bought more industrial robots than any other country and, by the end of 2016, is likely to overtake Japan as the world’s biggest operator of industrial robots. While its robot density - robots per industrial workers – continues to fall short of that of Germany, Japan and the Republic of Korea, the rapid pace of robot deployment is likely to significantly reduce the erosion of China’s comparative advantage in labour-intensive manufacturing.

The data also show, however, that industrial robots have primarily been deployed in the automotive, electrical and electronics industries (figure 2). This means that in developing countries – such as Mexico and many countries in Asia – those engaged in export activities in these two sectors are the most exposed to reshoring. By contrast, in many labourintensive industries, such as garment-making, widespread automation is not yet suitable. While robots have become cheaper, some developing countries continue to have a large pool of cheap labour. Thus, for those countries whose major challenge is to create jobs for a large number of low-skilled entrants to the labour force – such as in many parts of Africa – deploying robots under current cost structures may drive production costs up, rather than down.

Eoin Treacy's view

Manufacturing is not a one size fits all solution. The primary reason humans still predominate in low cost manufacturing is because they do not require retooling or programming but can adapt quickly to emerging situations. However the challenge is that robotics, machine learning and artificial intelligence are getting better all the time and the ability of the low skilled human workforce to innovate is not as swift as technological innovation. 

China is engaged in a race to automate. Having successfully earned the moniker “workshop of the world” it now wishes to ensure that as much manufacturing capacity as possible is retained even if that means less workers are required. With rising wages the only way to achieve that goal is to embark on massive industrial automation and to expand the number of sectors that it is applicable to. Hon Hai Precision (Foxconn) is producing 10,000 robots in house every year and has already let 60,000 workers go. http://www.nextbigfuture.com/2016/10/foxconn-reaches-40000-robots-of.html That would appear to be the thin end of the wedge considering the company’s plans to install 500,000 robots over the medium term.  

To some extent the rise of populism in the West has been contained by demographics. The fact of the matter is that in most countries the number of young disaffected unemployed people is just not large enough to provoke revolution. A very different situation exists in emerging markets where large swathes of the population are often under 25. Imaginative government and improving standards of governance will be essential to navigate the challenges as they evolve and not every country will prosper equally. 

China is in a privileged position as an emerging middle income country with a large population. It is well placed to straddle automation, low-ish cost labour and a mix of both not least because it also has a rapidly evolving services sector. India on the other hand has some major catch-up to do if it is going to capture manufacturing capacity before the current window of opportunity closes. It really is a race because the country that succeeds in holding on to low cost manufacturing through introducing automation will have a competitive advantage versus capital poor emerging economies. India’s success could be in manufacturing for its own population and serving its own middle class and that could be possible because of the size of its population which would lend scale. For other countries the challenge will be greater with energy and transport costs likely to play an increasingly important role in future. 

It is looking increasingly likely that economic development models, focusing on low cost manufacturing, that were the building blocks for development in the past are now obsolete. It’s a very big question whether a country can go from a largely agrarian base to urbanisation and services without first going through a process of industrialisation if for no other reason than exports help fund major infrastructure projects. To say imaginative solutions and massive leaps in standards of governance would be required is an understatement.