Manufacturing in China has been one of the biggest global economic success stories of the past few decades. It has undergone massive transformation and rapid grow: In 1990, China was responsible for less than 3 percent of the world’s manufacturing output by value, by 2015, it was around 25 percent. This surge was thanks to access to vast amounts of cheap labor and an undervalued currency – and the world’s producers flocked to China to take advantage.
Throughout that period, manufacturing has accounted for 33 percent of China’s GDP and 15 percent of the country’s workforce. Seventy percent of the world’s mobile phones are manufactured in China, as are 60 percent of the world’s shoes.
However, manufacturing is finally starting to slow in China as increases in real estate costs and the exchange rate of the Yuan start to bite. In addition, it is facing increased competition from countries like Vietnam, Germany and the United States. So what is next for China’s manufacturing industry and how does it kick-start growth and competitiveness again?
Addressing a shifting marketplace
One important factor is that the market has changed dramatically over the last decade. Today’s customer is familiar with online shopping and the e-commerce experience. They have probably got used to getting digital content for free via various mechanisms. In terms of manufacturing and consumer goods, they now expect more for less, and “cheap” is no longer enough. The increased expectation levels created by the digitally-enabled customer experience have driven consumers to expect both sophistication and quality when shopping.
What this means for Chinese manufacturers is that they must innovate in their production processes and systems to remain competitive. Naturally they need to protect their bottom line, but they also need to create new revenues to help them grow and move forward. This is where digital technology can be a powerful ally.
China’s digital mission
China has recognized the need to invest in digital transformation to keep its manufacturing sector competitive and at the forefront of the world. With that in mind the Chinese government put in place the “Made in China 2025” initiative as a central part of the country’s Five Year Plan for the economy. Within this plan, Chinese manufacturers have been given access to billions of yuan to help them take advantage of technologies such as mobility, robotics, 3-D printing, cloud computing, big data and Internet of Things (IoT).
China took Germany’s “Industry 4.0” plan as a template, with its four pillars of interoperability, information transparency, technical assistance and decentralized decisions. This is designed to help companies identify and implement digital solutions that can help them manufacture more sophisticated products that carry higher margins.
The IoT in manufacturing imperative
China is focusing heavily on the improvements IoT can bring to manufacturing, particularly in terms of productivity, efficiency and cost-effectiveness.
The power of analytics in IoT can be a big benefit to companies. Manufacturers are always looking to improve bottom lines, and connected devices and sensors in the production line that collect data for analysis are driving big gains. Predictive data analytics has been acknowledged as perhaps the most important advanced manufacturing technology for driving future competitiveness, and China has quickly got on board with that.
Pattern monitoring is being used to help prevent breakdowns via preventative maintenance, as are self-correcting, self-maintaining and self-healing features built into machines. Furthermore, IoT technologies also allow manufacturers to track energy consumption so they can schedule their most energy-intensive assets to operate during off-peak periods, thereby reducing energy costs and, again, increasing profitability.
The numbers around IoT in manufacturing make a compelling case. Ten to 20 percent energy savings in factories and up to 10 to 25 percent potential improvement in labor efficiency. As much as $4 trillion of value through increased revenues and lower costs over the next decade. PwC estimates that manufacturing companies in China will invest $128 billion in IoT technologies between 2016 and 2020 as they continue to drive competitiveness and the desire to remain the “World’s Factory”.
Real world examples already making the case
China already has smart manufacturing initiatives underway. For example, leveraging the power of IoT solutions, Chinese smartphone and technology giant Huawei is using digital technology to improve its production line. The company intends to connect all areas of its manufacturing processes in order to drive greater productivity, reduce costs and lower emissions. The enhancements are expected to help Huawei save as much as US$500 million a year in its production operations.
Digital technologies are helping China’s manufacturing industry stay innovative, keep on improving and enhancing service levels, and remain at the front of the global manufacturing pack. With the right digital transformation partner in place to make the right decisions from day one, the future is bright.
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To read more about how manufacturing companies can use digital transformation to innovate and stay competitive, please read a new PwC white paper, “Powering up the assembly line: How the Internet of Things can help Chinese manufacturers compete”: http://www.orange-business.com/en/library/white-paper/powering-up-the-assembly-line