Digital Transformation, Boosting "Made in China"

Digital transformation will be a powerful engine for Chinese enterprises to achieve sustained growth, transformation and upgrading and high-quality development. Improving quality and efficiency and changing production methods are the problems that China's manufacturing industry must solve at present. The development of intelligent manufacturing is the only way for China's manufacturing to grow from big to strong.

Since the State Council issued the "Made in China 2025" white paper in 2015, China's transformation from a "manufacturing power" to a "manufacturing power" has been increasingly strengthened. The white paper believes that innovation and development are the specific requirements for implementing the national strategy, and innovation is the core driving force of "Made in China 2025". Enterprise organizations will be flattened and virtualized, and product models will turn to customization and service.

Current global industry trends and technological development trends are driving the digital transformation of China's manufacturing industry.

Of course, digitization is very complicated, and the concept of digitization will involve various application scenarios in product design, production planning, production engineering, manufacturing and operation and maintenance. iResearch's 2019 "Research Report on the Intelligent Path of Chinese Manufacturing Enterprises" pointed out: For manufacturing enterprises, the core value of building an intelligent manufacturing system is mainly reflected in reducing production costs, improving production efficiency and reshaping production methods. Based on the comprehensive consideration of production site data, production process, operation management and other data, enterprises can achieve more accurate supply chain management and financial management, reduce material waste, reduce storage pressure, and reduce operating costs; The comprehensive collection and in-depth analysis of data in each link of "method, environment and measurement" enables enterprises to discover the deep-seated causes of production bottlenecks and product defects, and continuously improve production efficiency and product quality; the introduction of highly flexible CNC machine tools and robots Production equipment, enterprises can realize new production methods of multi-variety and small batches, and promote the evolution of production mode from mass production to personalized customized production.

Deloitte's "2018 China Smart Manufacturing Report" also pointed out that digital factories are listed as the top priority of smart manufacturing deployment by enterprises. At present, the main task of enterprise digital factory deployment is to open up the data flow from production to execution, and there is still a lot of room for improvement in product data flow and supply chain data flow. Industry iterations, frequent challenges, diversified demands, and reshaping of the competitive landscape are all urgently requiring companies to undergo digital transformation.

Intelligent manufacturing can not only help manufacturing enterprises to reduce costs and increase efficiency, but also give them an opportunity to rethink their value positioning and reconstruct their business models. Today's manufacturing industry is facing huge uncertainty. This is the time when we have to face up to our own gaps. China's enterprise management is far from refined, and the extensive business model of enterprises is still the mainstream. "Epidemic prevention and control" and "reconstruction of the global industrial chain" undoubtedly created a problem for China's wisdom.

Since 2015, there has been a wave of "machine substitution" in Dongguan, the world's factory. Today, "machine substitution" is not a new topic. Relying on automation to fully upgrade the production process and change the labor structure has long been an inevitable choice for many enterprises. These developments almost make us feel that the road to Industry 4.0 is approaching.

In this regard, the CEConline interviewed Zhang Yimin, professor emeritus of China Europe International Business School, on the topic of "digital transformation".

CEConline: How do you view the urgent need for digital transformation of China's manufacturing industry?

Zhang Yimin: Nowadays, Chinese manufacturing enterprises are far from reaching the level of refined management, and the extensive business model is still the mainstream. There is still a long way to go in the future.

In the late 1990s, under the background of globalization, manufacturing enterprises were faced with many pressures such as rising costs, declining profits, and increasing energy conservation and environmental protection requirements. It has become an inevitable choice for many enterprises.

After the epidemic, enterprises will more actively promote automation and flexible production to better cope with labor shortages. In the process of responding to the epidemic, some companies with early and high levels of digital transformation have been relatively less affected, and many have achieved growth against the trend. At the same time, many traditional enterprises have been greatly impacted, especially many small, medium and micro enterprises are particularly sensitive to changes in the external environment brought about by the epidemic, and are facing greater pressure to survive. On the one hand, the strong anti-shock ability and development resilience demonstrated by the digital economy, on the other hand, many small, medium and micro enterprises in the manufacturing industry are faced with insufficient capabilities, "will not transfer", high costs "cannot transfer", and long labor pains. Don't dare to turn" and so on. According to statistics, more than 55% of enterprises in my country have not yet completed the digital transformation of basic equipment, and most of the enterprises carrying out digital transformation are basically in the early stage, lacking a deep understanding of "digitalization".

From the perspective of the development mode of domestic enterprises, the expansion of enterprises is mainly driven by investment, expansion of production, reinvestment, and further expansion of production. In the early days, a large amount of labor input promoted the rapid growth of enterprises, but the original capital accumulation also formed extensive growth, lack of technical barriers, and serious product homogeneity competition. In general, businesses are large but have low profit margins. According to statistics, the profit margin of domestic low-end manufacturing industry is generally only 2% to 3%. The uncertainty brought about by the Sino-US trade friction will lead to a further decline in profit margins.

In addition, small and medium-sized enterprises generally have weak control over the supply chain. We believe that in a complete industrial chain, each enterprise is a small node. Midstream companies lack digital management of raw materials purchased by upstream companies, resulting in inventory management problems and pressure on downstream companies to deliver. On the whole, the rough layout of the supply chain leads to poor profitability of the enterprise. Both internal and external factors are forcing the digital transformation and upgrading of China's manufacturing industry to accelerate.

CEConline: What is digitalization? Why digital transformation?

Zhang Yimin: Active innovation is the foundation of enterprise development under the new normal. The profits of traditional manufacturing are meager, and the use of digital technology to reduce costs and increase efficiency and expand the market is becoming the spontaneous choice of more companies.

We all know that China's Internet applications are more manifested in the consumer Internet. With the gradual advancement of my country's manufacturing industry transformation and upgrading and high-quality development, the cross-border integration of information technology and traditional manufacturing has become an inevitable development trend. Intelligent production, remote operation and maintenance, and flexible manufacturing are the main implementation methods of the current industrial Internet. The fourth industrial revolution after the mechanical revolution, electrical revolution and information revolution, there is no doubt that the Industrial Internet will greatly improve labor productivity. However, China's industrialization process is short, the industrial foundation is weak, the road of automation and informatization has not yet been completed, and it has caught up with the wave of intelligence and digitalization. It can be described as "a long way to go".

As the world's leading manufacturing power, Germany's manufacturing development is on the fast track. Through the implementation of the Industry 4.0 strategy, Germany hopes to become a supplier and leading market for a new generation of industrial production technology, and to enhance its global competitiveness. The direction of German Industry 4.0 is to enter into intelligent production, which is also the key direction of the Made in China 2025 strategy.

CEConline: What is the specific strategic significance of Made in China 2025?

Zhang Yimin: From a horizontal perspective, China should learn from the experience and lessons of the industrialization development process of developed countries.

The manufacturing industry in the United States and the United Kingdom has developed into the post-industrial era. After 70 years of deindustrialization, the United States has experienced a relatively serious hollowing out of the manufacturing industry, so as to focus on high-end manufacturing and financial technology, such as Aircraft manufacturing, aerospace.

Germany attaches great importance to manufacturing upgrading. German manufacturing provides society with more than 20% of employment opportunities, while the United States has only about 10%.

From the smile curve, it can be found that the profits of enterprises in different industrial chains are quite different. Low-end manufacturing only has a meager profit of 2-3%, and high-end manufacturing has a profit of 10-20%. Upstream R&D design and downstream brand marketing, the profit margin can reach an astonishing 20-50%. The implementation of the Made in China 2025 strategy is driving China's manufacturing to the high-end and seeking profits from upstream R&D and design.

CEConline: How to do digital transformation of enterprises?

Zhang Yimin: At present, the lack of human resources with digital skills is the biggest problem in the manufacturing industry. Digital transformation enterprises need to invest a lot of resources, but where does the investment come from? China's manufacturing industry, especially the low-end manufacturing industry, has very low profits. Why are the profit margins of enterprises so low? The solution to this problem is to learn from Made in Germany.

As we all know, Germany has a solid industrial base and a world-leading manufacturing industry, such as machine tools, automobiles and other industries, occupying an absolute leading edge. But what is most often heard among German companies is "cooperation" rather than "competition". Cooperation is a win-win situation. China's manufacturing industry needs to undergo digital transformation and try to learn to use cooperative thinking to break through the homogeneous competition between industries. Looking at Germany's market economy model, enterprises are mainly based on cooperation. Germany's production organization model is "division of labor". Within the industry, each industry can be divided into a large number of subdivisions. Therefore, German companies intensively cultivate subdivisions, be "specialized" and "deep", but do not seek "Big".

Do not pursue diversification, pursue specialization, and achieve the ultimate in product quality. This is how the "hidden champion" of German manufacturing, which is praised by the world, comes from.

The digital transformation of China's manufacturing industry requires learning "not perfection but refinement". Nowadays, many enterprises emphasize on the strategy of "bigger and stronger", blind expansion and reorganization, and the benefits are not ideal. To be "specialized" and "deep" without seeking "big" is actually also suitable for Chinese enterprises.

How to do the digital transformation of China's manufacturing industry?

The first is to cultivate more automation, digital and information-based professionals. When it comes to German workers, everyone immediately thinks of professionalism, rigor, technical skills, and craftsmanship. The main reason for the high quality of German craftsmen is that Germany has seized the "two ends" of talent training and use. The unique dual system has played an extremely important role in training young industrial workers and engineers. German society's respect for craftsmen is second to none in the world, and German craftsmen's wages are generally higher. Due to the large demand for manufacturing technicians, 65% of junior high school graduates every year give up the path of studying in high school and go to university, and directly enter vocational schools. Students are "ordered" by enterprises to become prospective employees of enterprises during their studies in vocational schools.

Second, it is not easy to think that automation can replace people, and talents are the masters of digital factories. The future of the manufacturing industry is to meet people's yearning for a better working environment, meet the more and more personalized needs of the market, reduce costs and increase efficiency, and improve the core competitiveness of enterprises. In the future, digitalization will require more high-end professional talents, and the society should take the cultivation of professional talents as part of the enterprise growth strategy.

CEConline: What "pits" should Chinese enterprises pay attention to in the digital transformation road?

Zhang Yimin: The current transformation of Chinese enterprises. One is to shift from extensive to innovative, from labor-intensive to technology-intensive. The second is the reconstruction of the global industrial chain, which requires companies to change the global circulation into an internal circulation. Third, the sooner an enterprise realizes digital transformation, the less risk it will face in the future.

CEConline: How to deal with new problems from management after digital transformation?

Zhang Yimin: Divide it into two. One is how enterprises should deal with "external relations", and the other is how enterprises should deal with "internal relations".

From a long-term strategic point of view, enterprises should focus on the management of "external relations": focusing on "cooperation" rather than "competition". Cooperation between industries to improve industry standards and improve product quality.

Management of "internal relations". There is now a misconception that "employee costs are too high and companies invest too much". In fact, enterprises should encourage employees internally, strive to improve the quality of talents and increase the income of employees. Don't try to treat talents as a cost. Under the wave of digitalization, enterprises are in urgent need of transformation, and digital talents are the key element to achieve transformation.

Europe, America and Japan have basically completed the process of Industry 3.0. China is still in a complex stage of multi-process parallel development with extremely unbalanced industrial development, and it is still far from the road to Industry 4.0.

Top-level design, bottom-level upgrades, and digital transformation have a long way to go, which requires Chinese enterprises to forge ahead in "remedial learning" and to continuously innovate in management practices.

Of course, enterprise transformation and upgrading requires time and accumulation. It should be recognized that digital transformation is a gradual process.