Tags: Nike | automation | robots | footwear

FT: Nike's Focus on Robotics Threatens Asia's Low-Cost Factories

FT: Nike's Focus on Robotics Threatens Asia's Low-Cost Factories

By    |   Monday, 23 October 2017 11:51 AM

Nike, the U.S. maker of athletic wear whose sales in China rose 9 percent to $1.1 billion in the company’s fiscal first quarter from a year earlier, is working with high-tech manufacturer Flex to automate factory production.

The effort to cut labor costs comes as the world runs out of inexpensive places to make clothing and consumers grow more aware of abusive labor practices in sweatshops.

 "The very-low labor costs in Asia are no longer that low unless you go to Africa or somewhere else. The pressure has been mounting for a long time to either move to a super low-cost place or automate more," Sridhar Tayur, a professor of operations management at Carnegie Mellon's Tepper School of Business, told the Financial Times. “That has come to a point where people are more seriously looking to automation."

Nike since 2015 has been working with Flex Ltd., a manufacturing company known for producing Fitbit activity trackers and Lenovo servers, to introduce more automation into the labor-intensive process of making a shoe. Flex’s factory in Mexico has introduced innovations such as laser-cutting of materials and automate gluing that will be rolled out at other Nike suppliers.

In the past two decades, child labor activists and watchdog groups have targeted Nike for criticism as the company outsourced production to factories in emerging markets like China.  Many of those countries now fear that robots will deprive them of their shot at industrialization.

Analysts at Citibank estimate that by using the Flex process to make Nike's popular Air Max shoes, labor costs would drop 50 percent and materials expense would fall 20 percent. That savings would equal a 12.5 percentage point increase in gross margins to 55.5 percent, according to analysts Jim Suva and Kate McShane.

If Flex were to make 30 percent of Nike's North American footwear, the company could save $400 million, a 5 percent to earnings per share, according to Citibank estimates cited by the  FT.

Nike employs more than 1 million people worldwide when its contracted factories are considered.

The UN's International Labor Organization estimates about 56 percent of employment in Cambodia, Indonesia, the Philippines, Thailand and Vietnam is at a high risk of being automated in the next decade or two, with clothing and footwear manufacturing jobs among the hardest hit. More than 75 percent of footwear line workers for Nike work in Vietnam, Indonesia and China.

Nike said any job losses in its factories will be made up in other parts of its supply chain if sales grow.

Society needn’t fear automation if it helps improve the lives of more people instead of a handful of ultrawealthy plutocrats.

"When the benefits of increased automation accrue to a tiny portion of the population, then that's a problem," Scott Nova, executive director of the Worker Rights Consortium, said. "Over the past couple [of] decades, most of the monetary benefits of increased productivity have accrued to the owners of stock and senior executives of a company, not to the whole of the population."

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Nike, the U.S. maker of athletic wear whose sales in China rose 9 percent to $1.1 billion in the company's fiscal first quarter, is working with high-tech manufacturer Flex to automate factory production.
Nike, automation, robots, footwear
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2017-51-23
Monday, 23 October 2017 11:51 AM
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