Why Foxconn’s Switch to Robots Hasn’t Been Automatic

05.14.2013 17:43

Why Foxconn’s Switch to Robots Hasn’t Been Automatic

With the wages of workers rising, the huge manufacturer has pursued increased automation, but the effort has not gone smoothly

By staff reporter Li Xuena

(Beijing) – In the face of rising labor costs in recent years, manufacturing companies at home and abroad have tried to find new ways to control spending and improve productivity. At the same time, Foxconn International Holdings, the original equipment manufacturer for companies such as Apple Inc. and its iPhones and iPads, has been at the center of controversy over its labor practices since a spate of worker suicides at its facilities in 2010. This prompted the company to give employees a raise. In June 2010, Foxconn said that starting from October 1, 2010 its entry-level workers’ wages would be increased to 2,000 yuan per month from 1,200 yuan after a three-month probation. It also spurred Foxconn to speed up its pursuit of automation. The company’s president, Terry Guo, said in 2010 that it would produce 1 million Foxbots, a mechanical arm researched and developed by Foxconn to perform dull and dangerous jobs. The robots would be implemented from 2012 to 2015 to increase the rate of automation and productivity. However, a poor financial showing in 2012 has become an obstacle realizing the plan. Foxconn’s net loss in 2012 was US$ 316 million, the biggest loss it has suffered since listing in Hong Kong in 2005, the company’s financial report shows.However, Liu Kun, a spokesperson for Foxonn, said it would continue with automation. “Nowadays, young workers are picky about their workplaces, and it’s become difficult for us to find workers.”

Automation Strategy

Earlier this year at a workshop in Foxconn’s Longhua factory in Shenzhen, hundreds of Foxbots were tested. This was the result of years of effort for Foxconn. Around 2006, Guo hired a batch of experts from the Massachusetts Institute of Technology to work full time on researching and developing robots.

Some 15 models of the Foxbot were completed in 2009. They were designed for tasks such as assembling, moving and polishing. In 2010, these robots were put into mass production in Foxconn’s Jincheng plant in Shanxi Province.

In recent years, more and more Chinese manufacturing companies have accelerated their pace of automation. From 2008 to 2011, the rate of automation among these firms increased 210 percent, a recent report by International Federation of Robotics said.

No Easy Task

However, Foxconn has run into some difficulty in its automation efforts.

“Obviously, Terry Guo overestimated the pace of using Foxbots to replace workers,” a Foxconn equipment supplier who declined to be named said.

So far, some 20,000 Foxbots have been produced by Foxconn, a source close to the company said, but half of them are still in the warehouse.

The reason Foxconn researched and developed the robots on its own was to reduce costs. The company has said its core competitiveness for making the robots was that it had the material, parts and software.

But research and development of robots requires huge capital and forced Foxconn to seek ways to control expenses.

Also, some department heads oppose using robots to replace workers because of the difficulties in redesigning production lines.

“The transformation from workers’ manual labor to using the robots means the models of production will be changed and the changes are complicated,” said Xu Fang, director of the Center Research Institute at high-tech company SIASUN Robot & Automation Co. Ltd.

At Foxconn, some jobs require workers to use their judgment. The tasks may appear simple, but robots cannot be used to perform them because they lack decision-making ability. This was another reason that some departments were opposed to using the Foxbot.

Replacing manpower with robots would also require a long period of development, Ge Huanqing, vice chairman of the Shenzhen Robotics Association, said.

Pushed by Clients

Some of Foxconn’s clients have encouraged it to pursue automation.

The automation rate of production lines that make ink cartridges for Hewlett-Packard Co. printers is the highest at Foxconn’s Longhua factory. This production line was designed and manufactured by HP and has been used by Foxconn since April 2011.

Only five to 10 workers are needed on each line, about one-tenth of the previous number, Foxconn documents shows. This workshop can produce 30 percent of HP’s ink cartridge production for Asia.

Apple has also urged Foxconn to buy automation equipment, such as machines made by Fanuc Corp., a Japanese company that is one of the world’s largest industrial robot and factory automation firms, a department head at Foxconn said.

“After all, Foxconn is a manufacturer for other companies’ original equipment and its clients have already completed the product design,” Yang Zhiqiang, editor in chief at automation website gkong.com, said. “So if a company wants to use robots to make products, at the beginning the company needs to consider the robot design in order to fit the production line.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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