Emerging markets’ ability to adapt to technology crucial amid increased use of robotics: Moody’s

Breaking News May 18, 2017 12:22

By The Nation

The accelerating adoption of robotics in manufacturing in some of the more advanced economies could pose challenges to emerging market exporters that have benefited from their comparative advantage of lower cost and high-skilled labour, says Moody's Investors Service in a report.

The US (Aaa stable), Germany (Aaa stable), Japan (A1 stable), Korea (Aa2 stable) and China (Aa3 negative) account for about 75 per cent of spending on global industrial robotics worldwide.

In these five countries, the use of robotics could even bring back some of the processes that have been offshored to lower labour cost destinations. Nonetheless, the number of jobs lost to automation is likely to be higher than those gained by onshoring.

Another impact of robotics is that it could offset labour market pressures in countries with aging populations.

“In countries where ageing populations are reducing the growth in labour supply, robotics could support growth by lowering the need for labour while also increasing productivity,” said Samar Maziad, a senior analyst and vice president at Moody’s.

Robotics technology is most commonly used in the highly globalised automotive and electronics industries, and the five main nations that are adopting it are also key trade nodes in their respective regions. This implies that while the adoption of robotics is currently concentrated in only a few countries, it will have implications beyond their borders. In particular, the countries that are linked to them through trade and manufacturing supply chains will be impacted, Maziad said.

These include emerging markets economies, such as Czech Republic (A1 stable), Hungary (Baa3 stable), and Slovenia (Baa3 positive) in Central and Eastern Europe, as well as Malaysia (A3 stable) and Thailand (Baa1 stable) in Asia. These nations are deeply integrated into high technology production chains and export markets due to their comparative advantage of high-skilled, lower cost labour forces. As automation becomes more efficient and cost effective, it could negate the labour cost advantage of some of these emerging markets, he said.

Among these emerging markets, those with a greater capacity to absorb new technology will fare better than their less technology-ready peers.

“To adapt to increased automation, these emerging markets will need to integrate their economies into a new production process that relies more heavily on robotics technology, whether as suppliers or competitors,” said Maziad. “Technologically ready economies will remain relevant even as labour-intensive production methods become obsolete,” he said.

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