News emerged a few days ago that Foxconn had effectively laid off 60,000 workers in China and replaced them with robots. “So what?” you might think. And to be honest, if it keeps the cost of our tech devices down, then good for Foxconn, right? Well, unfortunately it’s not that simple.
The changing dynamics of the Chinese labour market could have a profound effect on us here in the West, and even portend similar disruption to our own workforce in the not-too-distant future.
These stories have been doing the rounds for years because – well – contract manufacturers like Foxconn and others have been investing significant sums into robotics for years. Why? The answer’s pretty simple, according to IHS analyst, Alex West.
“Robots don’t need to stop working, but they don’t get drowsy, distracted or depressed either, so quality and consistency of manufacturing is enhanced. With the developments in AI and predictive analytics, robots are also far less likely to get ‘sick’, reducing downtime,” he told me.
To that I’d add that they don’t go on strike, commit suicide or complain to the papers about poor working conditions – all problems Foxconn for one has encountered. But robots can also add value in other ways, such as helping firms win business from their rivals, according to West.
“Robots are evolving, becoming more intelligent as AI solutions help them to ‘learn’ on the job, but also becoming far easier to program and integrate on production lines,” he continued. “Collaborative robots are also making robotic solutions safer and easier to install without the additional safety concerns and equipment.”
There’s clearly a drive for this in China, the tech manufacturing centre of the world. The Chinese government has made investment in robotics a priority in its 13th Five-Year Plan, with IHS forecasting a 30% CAGR. But this threatens to create social instability as human workers are shelved in favour of machines. Foxconn and others claim bots are only used for repetitive tasks that humans don’t want anyway. But there’s no guarantee that there are enough skilled roles to fill the gap.
“Dull, repetitive jobs on the plant floor will be replaced by a range of higher-skilled positions such as robot/systems integrators, programmers, and data scientists supporting enhanced AI,” argued West.
“However, there will be less of these more advanced roles, and some of the type that existing workers will not have the skillsets to be able to transition to.”
This might seem a long way from the UK. But our workforce is also facing a robot invasion – not from these industrial bots, but service robots like Softbanks’ Pizza Hut-serving Pepper. In fact, a Deloitte study has claimed that 35% of UK jobs have a high chance of being automated in the next decade or two.
Robots still only account for 0.3% of all machinery produced in China last year, according to West, so there’s still a long way to go. But it’s probably time to start getting nervous in the UK.
Huawei has leaped over local rival Xiaomi to take number one spot in China’s much prized smartphone market, according to Canalys. I covered the news for IDG Connect and asked Canalys VP analysis, Rachel Lashford, whether she thought the Middle Kingdom now belonged to domestic players.
She argued that the market has actually decelerated slightly of late (1% from 1H14 to 1H15) which has increased the pressure on all vendors – but Apple and Samsung are still flying the flag for the Rest of the World.
“Apple still has a very powerful brand in China and we expect to see the latest product launches to continue its popularity,” Lashford told me.
Samsung, meanwhile, has dropped from the top spot of a 15% share in 1H14 to fourth place (9%) a year later.
“But it is recovering in the high end and has really focused on investing in localised marketing messages,” Lashford added, by email. “Combined with recent restructuring of its channels, focusing on large retail and operators, it should be well equipped to keep the pressure up on its local competition.”
So what of Huawei and Xiaomi? The former’s rise has come on the back off a steady building out of online channels over the past two years and a focus on its offline channel presence. Aiming squarely at the mid-range ($200-500), it has increased investment in the brand to good effect, concentrated on quality and kept momentum with regular product updates.
Xiaomi, on the other hand, may have taken its eye off the ball by concentrating on wearables, TVs and other smart home kit. It will need a “refreshed flagship” in time for Chinese New Year to wrest back momentum, she claimed.
And what of the two vendors’ plans for international expansion? Well, half of Huawei’s sales already come from outside the massive China market. But Xiaomi will need more help to get it competing beyond the Great Firewall.
“Many vendors are hindered by the lack of patents and having the difficulties and expense of licensing those in order to enter markets like the US and Western Europe where these are adhered to, so this needs to be overcome,” claimed Lashford.
“As does the adoption of a successful channel strategy. Xioami’s focus has been directly online, but it will still likely need the expertise of distributors mobility businesses – like Tech Data and Ingram Micro – in order to navigate the complexities of bringing those products to market.”
China, Russia, Eastern Europe, the Middle East – the list of hacking hotspots on the radar of most threat intelligence operatives is growing all the time. But what about Japan? For such an apparently technologically advanced nation, you might be surprised to learn its cybercrime underground is still in its infancy.
The security giant claimed that Japanese cybercriminals haven’t yet built up the technical know-how to create malware themselves, preferring to buy from other countries and then share tips on how to use it on many of the local underground bulletin board forums.
These forums also sell the usual suspects of child porn, stolen card data, stolen phone numbers, weapons, and so on.
There were several interesting distinctions Trend Micro uncovered between the Japanese cybercrime underground and elsewhere:
- Cybercriminals accept gift cards from Amazon and the like in lieu of payment
- CAPTCHA in Japanese is used to access the forums, keeping their membership mainly to locals
- URLs for some secret BBSs hosted on Tor and other anonymising platforms can actually be found published in books and magazines
- Japanese cybercriminals are ultra cautious, even using code words when discussing certain contraband, like the kanji character for “cold” when referring to methamphetamine.
So far, the notorious yakuza organised crime gangs have largely stayed out of the game, and that’s the way it’ll stay for some time to come, report author Akira Urano told me. That’s because of a combination of strict cybersecurity laws and the fact that offline scams still work a treat. But it might not be that way forever.
“If ever organized crime groups like the yakuza ever venture into darknets, all they would need is the aid of tech-savvy individuals to engage in criminal transactions,” Urano argues in the report.
I was curious to hear a second opinion on Japanese cybercrime, so I asked FireEye’s local experts.
They hit me with a few stats from the National Police Agency (NPA) which show that, infancy or not, there’s a pretty healthy cybercrime industry in Japan.
Some 88 people were arrested for cybercrimes in the first half of the year, 58% of whom were Japanese. The country is also a major victim of banking fraud – second only to the US, according to other stats.
The country’s public and private sectors also have to withstand a barrage of likely state-backed cyber attacks, launched from outside the country.
Japan’s strengths in advanced technology and engineering, as well as its hand in territorial disputes, have made it a target for China.
Aerospace and defence, transportation, high-tech, construction and telecoms are some of the highest risk industries.
FireEye told me the following by email.
“FireEye observes similar tactics and techniques on Japanese networks as we see elsewhere in the world. However, the key difference is localization: APT actors tailor their phishing e-mails, CnC infrastructure, and even their exploits to Japanese end users. For instance, we have observed threat activity against Japanese targets exploit the Japanese Ichitaro word processing system; zero days against the program are not uncommon.”
How much do you think Chinese state-sponsored cyber spies steal from the US each year? No, you’re way off. It’s in the region of $5 trillion – 30% of GDP – according to one expert interviewed in a new exposé of Beijing-backed cyber attacks by the Epoch Times.
I covered this one for Infosecurity and IDG Connect because although most of the info for the article came from publicly available sources, it had some interesting insight from various industry experts and tied together the whole shadowy web of guanxi-tinged goings-on in the Middle Kingdom very well.
Particularly illuminating were claims that there are hundreds of state-backed “tech transfer centres” whose mission is to earmark IP they want, send scientists abroad to study in relevant industries and then reverse engineer products from stolen IP. It’s China investing in state-sanctioned theft because it’s quicker, easier and way cheaper than doing R&D the legal way. It’s happening on an industrial scale, to feed the country’s military aspirations and economic growth – many of the products are produced cheaply and sold back to the West at a fraction of the cost of the originals.
It’s thoroughly depressing but fascinating stuff and will make for frustrating reading if you’re a US tech CEO. If you haven’t been breached yet, you will be – or maybe you just haven’t found out about it yet.
China can do this, of course, because there’s a very fine line between government, academia, military, state-owned enterprise and even private business. All organisations must have a CCP committee which some believe sits even higher than the board. And all are expected to pull together for the betterment of Team China. But while the report calls out state-owned enterprises, there is in fact little in the way of evidence that private businesses have capitalised on stolen IP to accelerate R&D and produce cheap kit with which to flood Western markets.
Report author Josh Philipp told me that evidence was hard to find – even the US indictment of five PLA hackers last year referenced only SoEs. IP theft does happen, however, especially by contract manufacturers making products for US firms, although this is slightly different from the cyber espionage/tech transfer cycle mentioned in the report.
“Any private company involved would likely be running a small-scale counterfeit operation, which would be hard to pin down,” Philipp told me.
What is clear is that despite recent exhortations from the top to create an “innovation driven” country – an admission in itself that hitherto China’s economic growth and military might has been built on theft – the Chinese communist regime is unlikely to change things around anytime soon.
Western firms must get better at deflecting these attacks – and in so doing force up the size of investment needed by Beijing into cyber espionage activity, so that attack campaigns are just not worth the return in many cases. If they don’t, we can expect the same old breach headlines to continue ad infinitum.
What’s the future of Bitcoin? That’s what I’ve been trying to work out in my latest feature for IT Pro in Hong Kong. As always it’s a topic everyone seems to have an opinion on, although not many are prepared to stick their neck out too far.
The main issue is that most countries have adopted a “wait and see” approach to the crypto-currency, which puts it a bit in limbo. Very few have banned it outright – not even China or Thailand, as is commonly reported.
Usually in these cases, it’s merely restrictions rather than total prohibition that have been instituted.
For Frost & Sullivan analyst, Vijay Narayanan, IT leaders in public and private sector organisations could face “new challenges, responsibilities and opportunities” if the cryto-currency can establish itself.
“While corporates are likely to build upon the Bitcoin technology to deliver new products and services, governments may find new methodologies to execute its mission from a view point of a law enforcer and regulator,” he told me.
“Bitcoin, in the future, further could revolutionise the way firms conduct business. As Bitcoin as a form of payment is expected to mature, it is likely to create an ecosystem of firms that will support retailers and end consumers in storing, accepting and exchanging bitcoins as a mode of barter of goods and services.”
However, he argued that for Bitcoin to go mainstream if must become more stable, and “resolve issues pertaining to trust and security” – only this will give the markets the confidence they need to adopt it more readily.
Quocirca founder Clive Longbottom agreed that the currency’s price volatility has been its undoing in the past, claiming that only those who value anonymity are really keeping it going from an end user perspective.
“Most governments are publicly trying to say that Bitcoin is a passing fad that will not last, while shitting themselves behind closed doors as to what crypto-currencies mean to global trade and how that can be effectively tracked, taxed and manipulated. It is more than likely that there have been deep discussions between governments and central and global banks to try and find a way to control any spread of crypto-currencies, but obviously, without a completely different thought process behind it all, these will not get anywhere,” he told me by email.
“It is difficult to regulate something where there is no true controlling body as such and all transactions are controlled by an overarching network. It is too easy for people to bypass any controls, so transactional charges and banking charges cannot be easily applied. As such, I think that we will see a few poorly thought out and implemented attempts to put in place some level of control, which will fail – unless Bitcoin itself suffers more problems.”
As to the future – well I suspect that Bitcoin and digital currencies in general will fail in themselves to see the mass adoption predicted for so long, mainly because most people are perfectly happy with existing currency systems. Where it could become more popular is in countries which already have weak and volatile currencies, but I doubt this will give it the momentum it needs.
Whether something bigger and better – and easier for ordinary users to ‘grasp’ – will eventually evolve from these platforms, is the great imponderable.
Apple had a rip-roaring second quarter, as I’ve just reported here for IDG Connect. But the financials were about more than putting yet more dollars in the bank. In years to come, the quarter may well be seen as a tipping point – the point when the Cupertino giant came to rely way too much on China.
Although sales in China have yet to surpass the Americas, that point is not too far away. But the quarter did see iPhone sales from the Middle Kingdom overtake the US, and it also witnessed total revenue from China leapfrog that of Europe – two pretty significant milestones.
Apple is in a position that its American rivals and counterparts – Google, Microsoft, Amazon, Facebook etc – would dearly love. They’ve all been either banned or investigated for anti-trust dealings – in other words harangued by the authorities. These firms face an uncertain future in the world’s soon-to-be largest technology market. But while Apple is largely loved by consumers still in style-obsessed China, its days too could be numbered.
Certainly the government has been making life difficult for US tech firms over the past year or two. The revelations from NSA whistleblower Edward Snowden has given it the perfect excuse to request stringent security checks on products destined for the public sector market. It’s a de facto ban for many providers. Beijing is trying to do the same with the banking industry. And it will get its way, eventually.
What does it mean for Apple? Yes the firm is a large investor in the country. But that won’t count for much if or when Beijing wants to apply some pressure. Apple has already been forced to comply with its unpalatable censorship demands, withdrawing apps from its store. It was notably silent when the authorities launched a Man in the Middle attack on iCloud last year. And CEO Tim Cook was forced to make a grovelling apology when a state TV-led witch hunt found issues with its customer service in the country. Cook has reportedly also agreed to give the government access to its source code in a bid to pacify regulators and ensure its devices are approved. This in itself could backfire if Beijing uses that intelligence to create backdoors to spy on Apple users outside the country.
Then there’s the issue of growth. China is not necessarily the license to print money many think it is for Apple.
IDC analyst Xiaohan Tay told me smartphone growth will begin to slow in the country over the coming years.
“Most of the growth in the smartphone market will come from the lower end segment of the market. As Apple is a high-end product in the China market, most of its growth will come from replacement users which are the Apple fans, as well as those who may be using the higher end Android phones at the moment,” she added.
“The new iPhones were a hit in the Chinese market as consumers were awaiting the release of the larger screen sized phones from Apple for the longest time, and this helped to drive growth in the past two quarters since the new iPhones were launched in China.”
Growth will continue, but at a slower rate, although the Apple Watch represents a great opportunity to arrest that slide, she added.
“The die-hard Apple fans as well as the middle and upper-middle class consumers in the cities will help to sustain the growth,” said Tay. “I believe that Apple’s high prices actually makes its phones more desirable for the consumers. Owning an iPhone represents a status symbol that the average consumer wants to work towards.”
Plenty of positives for the future for Apple in China, then. But what the Middle Kingdom giveth it can also taketh away. In my opinion, Cupertino had better disperse its eggs into other BRIC baskets if it wants to avoid a nasty surprise down the road.