Artificial Intelligence is just around the corner and most manufacturing is likely to be done by robots.
Mexico is a country between US and Central America known for its beautiful beaches, diverse landscapes and jungles. The country has a rich history and has Spanish colonial-era towns and ruins scattered throughout the country.
The country has a population of 120 million people with a GDP of 1 trillion US dollars (2016). It is 16th largest economy in the world (nominal) and 11th largest in terms of purchasing power parity. Mexico did not always enjoy this position in the world. There has been a steep incline in Mexico’s GDP per capita since 1980.
The reason for this is that in the early 1990s, Mexico went through a major political change resulting in the North American Free Trade Agreement. As a result, a manufacturing belt sprung up at Mexico’s shared border with the United States. Since the implementation of NAFTA in 1994, Mexico’s real GDP climbed by about $383 billion to nearly $1.3 trillion. Mexico had planned its economic strategy around two strategic points. First, of which, is the short transport distances to the world’s largest consumer market and second, lower wages compared with those of the United States — low wages that had spurred investment in manufacturing (with the United States as a leading investor) and has continued to do so for decades.
That brings us to present day where Artificial Intelligence is just around the corner and most manufacturing is likely to be done by robots. The costs will be significantly lower than the current costs. Considering it is machine driven, the probability of quality errors will also be much lower.
So, what happens to Mexico’s economy and the labor force when this becomes reality in the not so distant future?
Considering the manufacturing value-added sector makes up 18 percent of Mexico’s GDP (2014), Mexico is beginning to explore getting front and center with AI development, especially in the automobile and aeronautics sectors to improve the production process and develop new products. In 2015, 6,320 units valued at $243m were sold, according to the US-based Robotics Industries Association. That was nearly three times the volume of the previous year. Though sales of robotic products homegrown in Mexico has increased it pales in comparison to the US numbers.
Mexico has immense process knowledge of manufacturing floors and the variety of skills needed across different manufacturing lines. The marriage of this knowledge with robotics is required for effective robotic automation. While Mexico has the process knowledge, investment in innovation in AI is still lower than other leading countries. If Mexico does not want to miss the AI train, investment in innovation, education and training are key.
Developing this space is an important step in ensuring Mexico pivots and does not lose its economic position. This, alone, will not solve the challenge the existing manufacturing workforce in Mexico face. More than 30 million people in Mexico rely on the industries and these jobs for their livelihood.
If we think about this workforce, there are 3 categories — 1) workforce that has just entered this industry (let us call them Sprouting workforce), 2) workforce that has been this industry for a few years(mid-level workforce) 3)a seasoned workforce who have another few years of working life still left (Experts). As much as the current manufacturing setup improves Mexico’s economy, there needs to be an awareness and focus on the limited lifetime of these jobs.
McKinsey published a report on Dec 2017 that outlined jobs that would increase in demand by 2030 and jobs that would be on the decline. Mexico is expected to see increased demand for doctors, teachers, engineers, scientists, construction workers among others (You can find the full report here).
Sprouters should be encouraged to go back to school and to think about alternate paths. Experts, hopefully, are ready to retire by the time manufacturing jobs leave the country or are replaced by AI. This group could also bring substantial expertise to the transformation strategies for many manufacturers.
The big challenge is going to be the mid-level workforce, who have families and who rely on their jobs to subsist. They may also be past a point where they resist education because of their stage in life or circumstances. The question is how can we retrain this mid-level workforce in skills adjacent to what they do so that they can continue to make a livelihood?
McKinsey’s detailed report on future jobs, published in 2017 highlights need for construction workers going up by 50–99% in Mexico. Construction is already a large contributor to Mexico’s GDP and visibility of these jobs currently can produce easier pathways for people to gradually make a shift. Other possible areas for retraining include specialized mechanics for cranes, robots and other machinery.
It is important that we bring along the people who have touched our cars, clothes and so many other items we use regularly as we move along on our AI journey. The economic impact of not doing so may prove grave. It is important for Mexico to continue its efforts in the investment of AI-related areas and encourage more entrepreneurs to partner with universities to have a stepped increase in AI manufacturing in Mexico. More importantly, Mexico needs to invest in retraining its mid-level workforce in construction and operating advanced machinery, among others, to ensure they have a pathway to be able to sustain in a world where their current skills will eventually become obsolete.