Growth with innovation taking center stage

In 2018, Shanghai announced a three-year action plan to fulfill the goal to become a leading manufacturing city. Shanghai aspires to be an intelligent manufacturing hub with an ambition of exporting intelligent manufacturing solutions by the end of 2021. 

To achieve this goal, Shanghai boasts inherent advantages relative to other cities in China. It is an international city with efficient government administration, tolerant internal standards, and practices. It is home to many leading industries that have shown an early interest in the city’s ambitious manufacturing goals and have adopted the Industry 4.0 standard. Shanghai’s large scale industries have demonstrated vision, resources, and an understanding of financial incentives. Companies in these industries have adapted to the changing paradigm of intelligent manufacturing through their firm-level initiatives. 

However, small and the medium manufacturing industries (SMEs), which account for 60 percent of industrial output and 80 percent of job creation and are thus, vital to Shanghai’s economy, are challenged to move forward with boldness and success of their larger enterprise counterparts. The upgrade of SME companies requires a holistic approach and needs to address both external (political and social) and internal factors (financial and organizational) in a coordinated way. 

In a report published by WEF, Readiness for the Future of Production Report 2018, which assessed 100 countries, China ranks best for its scale of manufacturing and greenfield investments. It also ranks high in infrastructure (16) and procurement of advanced technology products (8). However, the report also shows that there is still room for improvement in many aspects. China ranks low on firm-level technology adoption (51), digital skills amongst the population (34), quality of math and science education (43), quality of vocational training (31), and C02 intensity levels (91). Addressing these factors will be critical to meet the ambitious goals of Shanghai for wide-spread intelligent automation in its manufacturing industries, especially the SMEs and also in the integration development plans in the Yangtze River Delta region. Here we have three recommendations for Shanghai to promote the goal of adopting intelligent automation at scale. 

Increase firm-level technology adoption

Plan and policies aimed for sheer scale underestimate the role of the individual firm and gradual upgrade of the production process as a way to realize intelligent automation in manufacturing. Predictable, high-performing management and operations processes are critical to ensure the success of the industrial upgrade vision. Manufacturing companies are at different stages in the adoption of automation and manufacturing technology. SME firm senior leaders often do not have the conviction to undertake an upgrade journey because benefits take longer to show, and true rate of investment is not understood. SME managers also are less likely to have the necessary skills to manage the change.

To encourage bottom-up, enterprise-level upgrade initiatives, policymakers can create centers of excellence with external experts in industrial clusters. These centers or boards can encourage the management of industries to undergo training, and develop understanding on the benefits of manufacturing excellence, learn the skills required to manage this transformation, and offer support through this transition. Companies should create a prioritized roadmap and strategy with all the inputs associated with upgrading, including capital investment, managerial effort, skill acquisition, and deployment. Management can determine financial and non- financial benefits like increased product quality and standards compliance, and based on objective criteria, decide to formally pursue the upgrade and transformation.

Address talent gap

It requires a lot of technical know-how and expertise to manage and operate manufacturing industries with advanced and sophisticated equipment. Shanghai has an excellent environment to at- tract external talent with the desired experience. Companies should be encouraged leverage experienced talent to groom and reskill other employees in the firm.

The vocational training model in Germany has been hugely instrumental and successful in developing technical talent there. Nearly 80 percent of young people accept vocational education. Students divide their time between the vocational school where they acquire the- oretical knowledge, and at the actual company where they will work. It is mutually beneficial for the students and the companies. The students can apply their theoretical knowledge and gain practical experience that accelerates their ability to contribute to the company. When the students graduate, the companies already have a thoroughly trained and productive employee on their rolls.

To cultivate future talent required for the digitized manufacturing economy, Shanghai can develop and customize vocational educational models for its needs. Accreditation boards should also be set up to ensure quality and governance when vocational models become mainstream. It’s essential to have a job, but these models help people get a good job and meet talent needs as well.

Ensure environmental sustainability

Shanghai has relatively high pollution levels and unfortunately ranks very low on the air quality index. Chinese manufacturers are 70 percent less efficient than manufacturers in developed economies. For example, a Chinese steelmaker uses 300 percent of the water and 200 percent of the energy of its German counterparts. While these are sobering statistics, they are also reasonable when considered with China’s industry maturity in the journey to higher value-added contribution and market influence. Thinking optimistically, it also provides hope for the future as Shanghai and China overall adopt advanced manufacturing and environmental-friendly practices.

SME sectors traditionally look at compliance with regulatory norms like pollution control, while macro factors like planet conservation, sustainable resources, and resource efficiency are beyond their usual scope. For this to change, regulatory bodies should carefully design incentives which ensure SME firms invest in green technologies, while mitigating risk to their short-term financial results and longer-term economic viability.

Government policies should incentivize the use of resource- efficient machinery that generate fewer pollutants. Use of advanced innovative methodologies like 3D printing in the manufacturing process can increase rapid prototyping and shorten production cycles. Improved operational process efficiency will reduce resource usage and help China meet its sustainability goals.

These recommendations can position China at the highest levels in the global manufacturing value chain. This elite status will be demonstrated by greater manufacturing line efficiency and production output, reduced quality issues, and higher value job creation. Strength in advanced manufacturing will also positively impact other areas of the Chinese economy like the rapidly growing service sector.

Given Shanghai’s explicit in- tent and determination to lead this technological shift in the manufacturing industry, it has the potential to not only outrank its peer cities but also become a role model, enabling them to collectively achieve the national goal of transitioning from the world’s largest manufacturing country to the world’s best.