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How do companies in high labor cost countries manage to remain competitive?

In western manufacturing, the more manual a process, the more severe the competitive handicap of high wages. Full automation would make labor costs irrelevant but remain impractical in most industries. Most successful manufacturing processes in advanced economies are neither fully manual nor fully automatic -- they involve interactions between small numbers of highly skilled people and machines that account for the bulk of the manufacturing costs and thereby remain competitive.

In Working with Machines: The Nuts and Bolts of Lean Operations With Jidoka, author Michel Baudin explains how performance differences that can be observed from one factory to the next are due to the way people use the machines -- from the human interfaces of individual machines to the linking of machines into cells, the management of monuments and common services, automation, maintenance, and production control.