High-Tech Workhorses to Storm China’s Factories

If you were to visit Yue Yuen Industrial (Holdings) Limited’s factory in Dongguan, China, 15 years ago, you would see the factory floors packed with young men and women who hail from rural China, cutting, pasting, sewing and gluing some 15 different parts to assemble a Reebok sport shoe. Today, with factory automation, it’s a whole new game plan for the company.

For the uninitiated, Yue Yuen is the world’s largest listed shoe manufacturer that produces footwear for renowned brands like Nike, Adidas and Reebok, among other brands. Squeezed by China’s rising labour costs in the last 10 years and the nation’s labour force that had stopped growing since 2010, “cheap labour” now is long gone notion. Yue Yuen, like many other factories,

had moved out of China in search of locations offering cheaper labour, the likes of Vietnam, Indonesia, and Myanmar. Today, Vietnam accounts for about 43% of the giant shoemaker’s production, while Indonesia accounts for 34% of total production; only 22% of its shipments were manufactured in China*.

What’s more interesting is that the demise of the “cheap labour” era has also coincided with the advent of an era where there is increasing deployment of robots, or industrial automation, to move manufacturing closer to the end-markets.

You might have heard of Adidas’ “Speedfactory” due to open in Germany, which will use robots and single-piece heat technology to manufacture one batch of sport shoes in approximately 5 hours. This compares to the current production period of 18 months from idea to shelf. Likewise, industrial automation is progressively making inroads into China’s factories like Yue Yuen. In time to come, with state-of-the-art technologies like 3D-printing, making shoes in other parts of Asia and taking 3 weeks to ship the products will never make sense anymore.

Despite the fact that industrial automation and smart factories are gaining traction in China, robot density in China is still at a very low level (30 units/10,000 workers) compared to Japan (323 units/10,000 workers) and Korea (437 units/10,000 workers)*. This means that there is still a lot of potential for factories in China to jump onto the industrial automation bandwagon, where robots will primarily be deployed for handling, dispensing, welding, assembling and cleanroom functions.

Meanwhile, China’s homegrown robotics industry is also burgeoning. While the German robot manufacturer, Kuka, still dominates the welding robots market, Chinese players are fast catching up. At the same time, Automated Guided Vehicles (AGVs) have also started to take off in Chinese logistics centres and fulfilment warehouses, similar to those currently deployed in Amazon’s fulfilment centres.

To be sure, industrial automation and robotics are clearly disruptive forces that have changed the way production lines operate and will improve manufacturing processes in a big way in the many years to follow.

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Comparing the TER cost for 20 years

Here’s the difference a low cost advantage makes to cost savings

Here's how much you pay

$190,272.13
Selected TER 1.00% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $90,359.56 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 2 years and 6 months.

Here's how much you pay

$271,950.61
Selected TER 1.50% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $172,038.04 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 4 years and 9 months.

Here's how much you pay

$345,744.19
Selected TER 2.00% p.a.

$99,912.57
LionGlobal All Seasons Fund 0.5% p.a.

By investing a fund with low TER

You may save $ 245,831.62 over 20 years based on an initial investment of $1,000,000 compared with a TER of 0.5% p.a.

It is enough to provide for a monthly expenditure of $3,000 over the next 6 years and 9 months.

TER (Total Expense Ratio) is the sum of various identified operating expenses charged on an ongoing basis to the fund’s assets as a percentage of the fund’s average net asset value calculated over a 12-month period at the close of the annual and semi-annual financial statements of the fund for all the p.a. tabs (1.0%, 1.5%, 2.0%).

The above scenarios are for illustration purpose only. Past performance, as well as any prediction, projection or forecast on the economy, securities market or the economic trends of the markets are not necessarily indicative of the future or likely performance of the funds. Calculations based purely on costs with no market movement or investment returns.