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Moody's: Emerging markets' ability to adapt to technology crucial as robotics use surges

Capital Market 

The accelerating adoption of robotics in manufacturing in some of the worlds' more advanced economies could pose challenges to emerging market exporters that have benefited from their comparative advantage of lower cost, high skilled labor, says Investors Service in a report.

The US (Aaa stable), (Aaa stable), (A1 stable), Korea (Aa2 stable) and (Aa3 negative) account for about 75% of spending on global industrial robotics worldwide.

In these five countries, the use of robotics could even bring back some of the processes that have been offshored to lower labor cost destinations. Nonetheless, the number of jobs lost to automation is likely to be higher than those gained by onshoring.

Another impact of robotics is that it could offset labor market pressures in countries with aging populations.

"In countries where aging populations are reducing the growth in labor supply, robotics could support growth by lowering the need for labor while also increasing productivity," said Samar Maziad, a Senior Analyst and Vice President at

Robotics technology is most commonly used in the highly globalized automotive and electronics industries, and the five main nations that are adopting it are also key trade nodes in their respective regions. This implies that while the adoption of robotics is currently concentrated in only a few countries, it will have implications beyond their borders.

In particular, the countries that are linked to them through trade and manufacturing supply chains will be impacted.

These include emerging markets economies, such as Czech Republic (A1 stable), Hungary (Baa3 stable), and Slovenia (Baa3 positive) in Central and Eastern Europe, as well as Malaysia (A3 stable) and Thailand (Baa1 stable) in Asia. These nations are deeply integrated into high technology production chains and export markets due to their comparative advantage of high-skilled, lower cost labor forces. As automation becomes more efficient and cost effective, it could negate the labor cost advantage of some of these emerging markets.

Among these emerging markets, those with a greater capacity to absorb new technology will fare better than their less technology-ready peers.

"To adapt to increased automation, these emerging markets will need to integrate their economies into a new production process that relies more heavily on robotics technology, whether as suppliers or competitors" said Maziad. "In other words, technologically-ready economies will remain relevant even as labor-intensive production methods become obsolete."

Whether the sovereign credit implications of the adoption of robotics are net positive or negative for a particular country will depend on how private sector investment strategies, government policies and labor market dynamics evolve and interact with each other over the next several years.

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(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Thu, May 18 2017. 11:13 IST