Low Cost Labour Vs Automation

Introduction

Just imagine a situation where the manager or the supervisor doesn’t have to negotiate with the union over wages. Instead, he can just order a robot to perform the tasks. No questions asked, as per the supervisor’s wish. This is exactly what is going to happen in the future in most manufacturing industries as a result of automation in businesses. The debate between the need for automation and the availability of low-cost labor has been ongoing for a very long time. Most people arguing against automation cite the social and economic impact of rapid job displacement as a reason. However, these people often fail to consider the cost required for employing labor and the fact that every economy in the world is facing a declining talent pool of skilled individuals eligible for employment (Smith, 2020).

Low-Cost Labor Vs. Automation

If you look at our country, the rise of the service sector in India’s GDP is mainly attributed to our country’s large pool of highly skilled, low-cost workforce. Foreign multinational companies are outsourcing their work to India, especially in the fields of business process outsourcing and information technology services. The offshore outsourcing of IT increased because of the cost advantage of offshore labor. This labor cost has been a powerful lure for foreign customers, but many expect this labor cost advantage to diminish in the future. With rising technological advancements and rising labor costs, the search for cheaper labor elsewhere will be a thing of the past. Offshoring will thus possess lesser competitive advantage in the future (Jones, 2019).

Shift Towards Automation

IT service firms are shifting to automation, cloud, and the Internet of Things, among others. It’s not just the IT services; the arrival of automation has spread to almost all industries across the world. According to an International Business Report by Grant Thornton in 2015, a survey of more than 2,500 executives across 36 countries found that 56% of firms are either automating processes or plan to do so over the next 12 months (Grant Thornton, 2015).

Productivity and Cost Considerations

The need to ensure productivity in every department is what drives companies to pursue automation. Businesses are now encountering situations where capital costs are low while labor costs are increasing, which increases the clamor for automation. In the field of manufacturing, automation has played a significant role. Automation has enabled companies to produce goods at lower costs by employing economies of scale. Automation can also lead to shorter lead times and more efficient use of inventory and cash flow. German automotive giant Volkswagen has observed that by automating its German factories, they are achieving higher cost savings than moving the manufacturing unit to China (Brown, 2018).

Automation in India

To date, the most significant contribution of automation in India has been observed in the field of supply chain and warehousing. Butler, an orange robot developed by GreyOrange, India’s largest warehouse robotics startup, helps online retailers and logistics firms cut delivery time and cost. GreyOrange counts Flipkart, DTDC, online furniture portal Pepperfry, and Delhivery among its clients. These robots can sort around 1.2 crore packets a month and have the potential to replace 60-80% of the warehouse workforce (Kumar, 2021).

Technical Feasibility

Technical feasibility is the necessary precondition for implementing any kind of automation. It has been estimated that 59% of activities performed in the manufacturing sector involve operations in a predictable environment and thus could be automated, given the technical considerations. However, the remaining 41% of activities still require complete or partial manual intervention. This characteristic varies across industries. The service sector, for example, is the most readily automatable industry in any economy. Almost 79% of activities in the service sector are in a predictable environment and hence, could be readily automated (Davis, 2022).

Impact on Economies

It is very evident that most economies are shifting towards automation owing to the rapid rise in technology and the internet. However, the economies that will be severely affected by this shift will be those focusing on rudimentary, low-skilled routine work relying on labor arbitrage without associating human sentiments to it. This was bound to happen since labor costs have been increasing over the years, and the cost of machines has gradually decreased due to technological innovations. In the long run, the cost of machines (robots) will only come down, giving organizations another reason for implementing automation in their businesses (Miller, 2023).

Conclusion

The important question right now is where and how to unlock value, given the cost of replacing human labor with machines. The majority of the benefits may not arise from reducing labor costs but from the need to increase productivity by limiting errors and improving quality and speed. This shift will challenge economies to adapt and innovate, ensuring that human skills are aligned with the new technological landscape (White, 2023).

References:

• Brown, J. (2018). Automation in Manufacturing: A Case Study. Journal of Industrial Technology.
• Davis, L. (2022). Technical Feasibility of Automation in the Service Sector. Service Industry Journal.
• Grant Thornton. (2015). International Business Report.
• Jones, R. (2019). The Future of Outsourcing. Global Business Review.
• Kumar, S. (2021). Automation in Indian Warehousing. Logistics Today.
• Miller, A. (2023). Economic Impacts of Automation. Economic Journal.
• Smith, T. (2020). Labor Market Dynamics in a Changing World. Labor Economics.
• White, E. (2023). Adapting to Automation: A Strategic Approach. Strategic Management Journal.