For decades, companies have relied on foreign labour either through lower trade barriers or increased immigration. However, citizens in the US and Europe are turning against the globalist vision, and as governments make trade and immigration more difficult, companies will seek alternatives.
Historically, Apple generated operating margins of more than 25 per cent by getting its iPhone assembled by third-party contractors in China. However, reliance on Chinese workers is losing its appeal. The Chinese Communist Party is becoming more authoritarian, meanwhile, the US government is enacting stricter tariffs on goods imported from China. This doesn’t include iPhones yet, but the risks are clear.
The final straw for Apple came in November 2022 when a protest turned violent at its largest iPhone assembly plant in Zhengzhou. The plant was run by Apple's contractor Foxconn. Workers had been under strict Covid lockdown for years and, when Foxconn missed a payroll deadline, a protest began and police were sent in. Workers were hurt during the protest and production was halted.
After this incident, senior vice president of operations, Sabih Khan, requested that managers reduce the number of workers on final assembly lines by as much as 50 per cent over the next few years, according to US technology magazine The Information.
Previously, Apple had avoided automation because the upfront costs were too high, and labour was cheap and abundant. However, growing trade tensions and increased uncertainty around Taiwan have changed the calculations. In its recent annual report, Apple reported it had reduced the total number of employees at its manufacturing partners to 1.4mn in 2023 from a peak of 1.6mn in 2022. This quick change is even more impressive given the number of factories it monitors rose from 300 to 380. Meaning, the number of workers it needs per factory fell 31 per cent in the year.
Across the world, governments are erecting more barriers to trade and trying to limit the number of migrants coming into their countries. Globalisation is in retreat, and this is going to make it harder for companies to find affordable labour, either at home or abroad. Especially, given birth rates in the US and UK have fallen to 1.66 and 1.56 respectively, well below the 2.1 needed to keep a population steady.
South Korea is an example of this future. The country has a fertility rate of 0.92, making it the lowest in the world. However, it makes up for this with the highest density of robots – with 1,012 robots per 10,000 employees, according to the International Federation of Robotics. This is followed by Singapore with 730 and Germany with 415. Other countries are trying to catch up, with global robot density doubling in the last six years.
This surge in demand is benefitting some companies. In Japan, Keyence is a fabless automated sensor manufacturer. It designs sensors for industrial customers and takes a 55 per cent operating margin as it does it. And its growth is impressive. Last year, it made $6.8bn in revenue up 34 per cent since 2021.
Companies are dispassionate. They will pursue the option that maximises their profit. For the last two decades, that meant cheap labour either working abroad or imported. Now that avenue is being cut off for political reasons, they are looking to the next best option. If that proves to be robots, then so be it.
