Automation as a Survival Strategy

Estimated reading time: 4 minutes

At the EIPC Summer Conference, Aurelijus Beleckis, head of robotics at Lithuania-based Elinta Robotics, challenged manufacturers to rethink how they evaluate automation investments. Elinta has been growing its robotics business for 10 years and is the leading Lithuanian company in this market.

In this interview, Aurelijus explains the value of automation, even in regions with high labor costs, and why delaying automation may be a far greater risk than the investment itself.

Marcy LaRont: Aurelijus, your demonstration of investing €100 and receiving a €10 return every second for 20 seconds after that was the most memorable presentation opening of the day. What point were you trying to make about automation and ROI?

Aurelijus Beleckis: Most companies evaluate automation by asking one question: How long will it take to recover the investment? One year? Three years? But you need to turn the question around and ask, “What happens after the investment has paid for itself? How much longer will it operate, and how much value will it generate?"

My demonstration was designed to show that people often focus on the initial investment while overlooking the long-term gains. Even when I added ongoing maintenance costs to the example, the return remained overwhelmingly positive. Most people would eagerly accept an investment that continues paying them year after year, yet manufacturers often hesitate when faced with the same logic in automation.

LaRont: Economic uncertainty has not helped the situation, but you also made a point about what happens when a company chooses not to make any decision at all. What's the problem with not making a decision?

Beleckis: Not making a decision is the worst decision ever. In the words of Arvydas Paukštys, the owner of Teltonika, “When you don’t know which way to go, the easiest decision is just to decide to do something. At least you have a chance to be right, to be successful. When you do nothing, there is a 100% chance you will fail.” The percentage of success in doing something is always bigger than zero.

LaRont: It seems to be the logical decision to go to a low labor cost region to manufacture. That is how business has operated for many decades. But how does automation prove itself out over time, even against low-cost labor regions?

Beleckis: You break down the price of a product into four common elements: the kind of equipment you need to produce, how much energy it needs, its raw material price, and labor cost. The only difference between similar companies producing the same product in the same region is the labor cost.

Many people argue that automation makes sense in countries with high labor costs, such as Germany or France, but not in countries where labor is inexpensive, like Vietnam. That may be true if both factories rely on the same level of manual labor. But once the German factory automates much of its process, labor costs become a much smaller part of the equation. In the ideal case, labor costs approach zero. At that point, production can actually become cheaper in Germany than in a lower-wage country.

In Lithuania, where wages are two and a half times lower than Germany, I’ve seen product moved out of Lithuania to Germany, France, or Italy because those plants had automated so much more of the process, and it simply became cheaper to produce in Germany.

LaRont: How does China factor into this concept?

Beleckis: I have compared the labor costs, and Chinese labor is two times less expensive than in Lithuania, and five times less than in Germany. So, it makes completely no sense to automate, right?

But China installs more robots than the rest of the world every year, at 54% of all new installations. So, even though their labor costs are relatively low, they're still automating like crazy. Soon, it will simply be impossible to compete against them directly. There may be tariffs and other challenges, but it will be so much less expensive to produce products there that it may not matter.

That's what we really need to be thinking about. Maybe it's worth waiting five years for your ROI instead of closing your business after those five years.

LaRont: So, we’re asking the wrong questions again?

Beleckis: Yes, when you look at making those investments, are you willing to be patient while you earn back your investment, or do you want to be searching for a new job because your business has become irrelevant?

LaRont: How many robots is China installing against its labor force?

Beleckis: China has about 470 robots per 10,000 employees, which amounts to 4,7% of its workforce. South Korea’s is the number one country for global installations at 10% of its workforce, but China is so much bigger, their numbers are higher.

LaRont: The thing about China is it fully commits. They don’t ask questions or create noise. Western culture isn’t like that. We need so much input and want a guaranteed return in a specific amount of time. That seems very short-sighted.

Beleckis: For us, a long-term strategy is maybe five years max. China has had an industrial strategy for 30 years, and, as a country, has a strategy for the next 200 years. When you stay focused on a strategy for that type of long term, you get positive results in the long run. That's what we need to learn from them.

LaRont: I agree, and it’s so important for the U.S. and European electronics ecosystem to see that. Aurelijus, thank you for the conversation. I wish your company continued success.