August 8, 2018
I recently published a report — “Emerging Technologies Are Transforming ‘Made In China’” — in which I discuss how manufacturing CIOs should leverage emerging technologies to drive their transformation under the “Made in China 2025” initiative.
China has long been known as the world’s factory, contributing the most added manufacturing value in the world. However, China’s manufacturing sector is facing more urgent challenges than ever. It needs a digital overhaul to facilitate the “Made in China 2025” transformation initiative because:
- Labor will no longer be an advantage of China. Labor costs in China rose by half from 2012 to 2017. Brands are moving their factories to the MITI-V countries, where labor costs are lower. China faces long-term issues around industry competitiveness if it doesn’t upgrade its manufacturing sector from being labor- and resource-intensive to being technology-intensive.
- Customer expectations are rising. Customer expectations are shaped by the best companies in each industry, which are often digital innovators; those that fail to deliver great customer experience will be at risk. Metropolitan Chinese online adults are more tech-savvy and demanding than their peers in more mature markets. As such, the manufacturing sector needs to catch up with these consumers’ expectations via product and service innovation.
- Most manufacturers are stuck in “industry 2.0.” The China Manufacturing Information Index (CMII) shows the progress of Chinese manufacturers on a scale from 0 to 100. The average CMII score for Chinese manufacturers is 37; scores between 30 and 60 mean they’re at the industry 2.0 level. Most small manufacturers in China still lack modern management information systems: Only 23% have adopted a manufacturing execution system (MES).
- China is yet to invest more in R&D to catch up with innovation in developed nations. According to 2016 data, R&D expenditure as a percentage of GDP in China was still lower than that of countries like the US, Germany, and Japan. And in a manufacturing index survey, only 33% of execs said that China was extremely competitive on talent; the US, Germany, and Japan scored twice as high.
The Chinese manufacturing sector must transform to survive. The Chinese government has been aware of this challenge for some time; in 2015, it unveiled its Made in China 2025 vision to drive the industry to innovate. To help manufacturing CIOs in China embrace and realize the Made in China 2025 vision, I have identified four areas where innovation can take place:
- The manufacturing environment. Data is critical in these environments; using it well can help companies achieve operational excellence. Emerging technologies can help CIOs realize this goal by connecting assets, identifying opportunities for automation, and offering advanced analytics.
- The product life cycle. The life cycle extends far beyond factory borders to include R&D, manufacturing, logistics, supply chain, and service. CIOs can leverage emerging technologies to accelerate the lengthy process from product concept to production.
- Digital ecosystems. Manufacturing companies can increase their operational agility and deliver more and better products and services that satisfy customer needs through digital ecosystems. Manufacturers need to integrate further into these ecosystems for deeper transformation that targets customer success and embraces the platform business.
- Business models. In the age of the customer, forward-thinking digital manufacturers are transforming the conventional inside-out engineering mindset to a customer-led, outside-in approach. Manufacturing companies are starting to create connected products powered by emerging technologies; watch for new business models to appear gradually as a result.
To understand how manufacturing CIOs in China should leverage emerging technologies like artificial intelligence (AI), big data, cloud, and the internet of things (IoT) in these four scenarios and their use cases, Forrester clients should read my report: “Emerging Technologies Are Transforming ‘Made In China’“