China-based investment expert Edward Tse, CEO of Gao Feng, says Chinese manufacturers have progressed from being considered “shanzai” – copycats – to embracing the idea of becoming developers of advanced robotics and automation systems

Chinese electrical appliance manufacturer Midea’s move to acquire Kuka, the German robot maker, could be a defining moment in the evolution of China’s manufacturing sector.

China’s reliance on low-cost, labour-intensive manufacturing to power its immense economy is no longer attractive, mainly due to the rise in labour and other costs.

The world’s second-largest economy needs to seek alternative ways to grow and companies like Midea are showing the way.

For a long time, China’s manufacturers were branded copycats (shanzhai). While there are still plenty of shanzhai companies around, increasingly more established companies like Midea are transforming themselves into market leaders and disruptors through innovation, evolution, experimentation and a closer connection with consumers.

While China has traditionally enjoyed low labour costs, its workforce of young, cheap labour has become scarcer. Facing these new demographic changes, Industry 4.0 stands to shift China’s industry to more automated and labour-light practices.

Fang Hongbo, Midea’s chairman, said this was a major motivating factor for their offer for Kuka.

By investing in Kuka, which is heavily focused on digitising its industrial manufacturing solutions, Midea stands to directly benefit from Kuka’s Industry 4.0 expertise and its international network.

“This trend in acquiring robotics and automation technologies should bring increased efficiency and production to China’s manufacturing.”

Kuka can provide vital technologies to help Midea build up its Industry 4.0 strategy and production lines, while Midea will assist Kuka with its expansion plan and growth strategy in China.

The acquisition would be a turning point that might very well help Midea become part of China’s very own Industry 4.0 vanguard.

Other Chinese firms that have recently acquired German companies with more advanced manufacturing capabilities include ChemChina (machinery maker KraussMaffei), Shanghai Electric Group (hi-tech equipment manufacturer Manz) and Shang Gong Group (knitting machine maker H Stoll).

This trend in acquiring robotics and automation technologies should bring increased efficiency and production to China’s manufacturing. It will also help drive down costs for Chinese companies and assist in reaching their goals of transforming into Industry 4.0 enterprises.

Chinese manufacturers have come a long way from being shanzhai companies, and are now increasingly technology-driven and innovative. Judging from recent developments, it looks like their time is edging close, at least for the leading ones.

Not many Chinese manufacturers may get there, but some will, but a small percentage of a large number can still be significant. And, those who do make it will serve as role models for many more to come.

This is an abridged version of Edward Tse’s article on South China Morning Post.

Edward Tse is founder and CEO, Gao Feng Advisory Company, a global strategy and management consulting firm with roots in China. A pioneer in China’s management consulting profession, he led the Greater China operations for two major international management consulting firms for 20 years and is widely known as China’s leading global business strategist. He is author of The China Strategy (2010) and China’s Disruptors (2015).

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