November 13, 2014      

The robot gold rush for foreign robot brands may well be coming to an end.

Quick rise to No. 1. Now what?

For nearly 10 years now, foreign robot manufactures like FANUC, ABB, KUKA, and Yaskawa, to name a few, have been coming to China, setting up joint ventures with the Chinese, building factories, and producing industrial robots for a burgeoning market; a market that these foreign firms could virtually call their own.

Even future prospects for keeping a lock on the Chinese robot marketplace looked quite rosy, what with no credible homegrown competition anywhere to be found.

With no viable alternative, the Chinese obliged, and according to the International Federation of Robotics (IFR), bought 5,000 industrial robots in 2009, 14,978 in 2010, 22,577 in 2011, and 36,560 in 2013, a rise of almost 60 percent over 2012, which put them ahead of former world leader Japan’s purchase of 26,015 robots in 2013; the U.S. came in third place at 23,679.

industrial robot sales

The Financial Times reports that China bought one in five robots sold globally in 2013. “Robot sales to China have increased 36 percent, on average, every year from 2008 to 2013,” it said.

Although both Japan and the U.S. each have more total industrial robots in operation than China, that will change by 2017, according to the IFR, when China will have a projected 427,900 units. China by 2017: most robot sales and most in operation. With an eye toward 2017 and beyond, that?s a staggering multi-billion dollar market in the making.

“China is entering a golden decade for the development of domestically produced robots.” — Qu Daokui, deputy director, State Engineering Research Center for Robotics in Shanghai.

The problem for the Chinese is that only 9,000 of those 36,560 robots for 2013 came from domestic vendors, although the 9,000 were triple sales from the year before, writes Computerworld’s Beijing correspondent, Michael Kan, based on IFR statistics.

“Though large in quantity, China has a low robot density with 23 units for every 10,000 workers, compared to the world average of 58 units,” said Qu Daokui, deputy director of the State Engineering Research Center for Robotics. “Only a quarter of the robots in the Chinese market are domestically made and the three core parts and components of domestic robots have long relied on imports.”

Meanwhile, the past decade has seen the cost of robot production decrease by 5 per cent annually, while labor cost has been growing by 10 per cent year on year, according to Qu.

“Robotics and the Internet will transform global manufacturing, and China is entering a golden decade for the development of domestically produced robots,” he said.

Robotics will promote the transformation and upgrading of China?s work force, and companies will face new challenges such as employing and training staff and transforming production technology and management, he added.

See related: Shanghai Express: China’s Robot Metropolis 2014-2020

ifr robot shipments

Someone is making — and will continue to make — a whole bunch of money with industrial robot sales to China, but it won’t be the Chinese. Unless?

Things change

The Chinese have always recognized their inferior position when it comes to building robots; but with no indigenous robot-making alternative –especially high-quality robots — they have had to be patient and wait, all the while building out a competitive response.

Now, the robot gold rush for foreign robot brands may well be coming to an end, and rather swiftly, if what the Chinese are doing with their own homegrown robots is any indication.

efort robots

China’s Xinhua News Agency reports that the country’s Ministry of Industry and Information Technology will develop a “robotics technology road map” as part of new government plans.

Forbes‘ Yue Wang reports that China “is now encouraging domestic players to capture market share from established foreign brands. Su Bo, a vice minister at the Ministry of Industry and Information Technology, said Beijing wants local brands to grab 45 percent of the high-end industrial robot market by 2020.” That’s a mere six years distant!

Although most of the robots China buys are industrial robots for use in car manufacturing plants, the government intends to spread robots out to other industries such as construction, logistics and food production, said the report.

According to Xinhua, one ministry official admitted, “Currently, our country’s robotics industry still has some weaknesses in its technological foundations. The key core components used are heavily reliant on imports.”

It doesn’t help either that many Chinese buyers prefer foreign robot brands.

According to Sun Zhiqiang, a managing director of the Risong Group, a Guangzhou automation integrator, China has yet to reach international standards in critical robot technologies and techniques, lagging behind in bearings, reducers, casting and software development.

The patent situation looks equally grim. Zhao Jie, vice director at Harbin University’s State Key Lab of Robotics and Systems, admits that Japan holds all the key patents for robot control, sensor and actuator technologies.

Maybe the most disheartening rejection of domestic robots — undoubtedly shared by countless other of his compatriots — comes from Risong’s Sun, who simply takes a purely business view that he’d pay more for a robot from ABB or KUKA than buy for much less from Chinese manufacturers.

Paying more, he says, “you acquire technologies 30 years ahead. It’s an easy choice to make.”

The new plan for success

Xinhua reports, “The ministry plans more financial support and new policies to help improve standards and robotics development.”

As a result in policy change, just “paying more” may not be such an easy choice to make anymore.

xi pointing

At the third plenum of the party’s 18th Central Committee (November 2013), both President Xi Jinping and Premier Li Keqiang pledged their personal support for pushing homegrown technology, especially technology from China’s 12th Five-Year Plan (2011-2015), which for the first time in the 60-year history of the country’s five-year plans includes robotics.

A McKinsey article: “What China’s five-year plan means for business,” says, “China’s government aspires to increase the share of GDP these industries contribute from about 1 percent today to 8 percent by 2015 and to 15 percent by 2020, presenting a huge market potential for domestic and foreign businesses alike.”

With robotics looming big in China’s next and 13th Five-Year Plan (2016-2020), getting homegrown robots that are technologically advanced and competitive will be a must. If it takes massive government intervention to pull it off, so be it.

Doesn’t hurt to have help in the highest of places. “Chinese President Xi Jinping has articulated a simple but powerful vision: the rejuvenation of the Chinese nation,” writes Elizabeth Economy, Director Asian Studies at the Council on Foreign Relations, in the journal Foreign Affairs. And technology plays a big part.

“Broadly speaking,” says Economy, “his objectives include transforming China from the world’s manufacturing center to its innovation hub, rebalancing the Chinese economy by prioritizing consumption over investment, and expanding the space for private enterprise.”

Notice that bit about “innovation hub?” That’s vitally important to China’s high-tech future.

With China’s vast bankroll and near complete power over state-controlled industries, domestic robots could easily become the machines of choice throughout the country, if incentivized just a little bit by homegrown robots legitimately able to compete with foreign brands.

Building out quality and capacity

The response has been quick and dramatic. Xinhua reported that China now has 420 robot companies, adding that more than 30 industrial parks devoted to robotics were being built or were already functioning around the country.

Stefan Sack, CEO of robot manufacturer Comau Shanghai Engineering, told a robotics industry conference, “that small [robot] manufacturers in the sector were “coming up like mushrooms.”

“Everybody wants to become a robot manufacturer now because it’s sexy,” said Sack.

Rather than sexy, it’s probably a case of being more pleasing to the Party, patriotic, and highly profitable.

Reuters reports that by “mid-summer [2014], 54 listed Chinese companies had invested in robotics firms, of which 80 percent were first-time investors, causing the number of robot stocks to nearly triple since July 2012.”

“Established players are also doing well. Shanghai Siasun Robotics & Automation, one of China’s best-known robot makers, is up over 50 percent this year and pricing at around 84 times earnings, far outperforming benchmarks.”

Harbin Boshi Automation, No. 34 on the Forbes China’s Top 100 Publicly Traded Small Businesses for 2014, has surged in the past twelve months. The company, a Harbin-based manufacturer of oil exploration and extraction robots, has been expanding into agricultural automation and 3D printing.

Shanghai-based Step Electric Corporation, a maker of elevator control systems and industrial robots, No. 70 on the Forbes China?s Top 100 Publicly Traded Small Businesses for 2014, has been investing in automation research.

Veteran Asian robot watcher, Ilian Bonev, director of the Control and Robotics Laboratory at Montreal’s Ecole Polytechnique, has witnessed the quality upgrade in Chinese robotics. In addition to Saisun, there’s GSK CNC Equipment, and ESTUN Robotics, headed by one of Bonev?s former students, Dr. Jiegao Wang.

Bonev sees opportunity for China?s homegrown robots, and uses for an example, the rise of Denmark’s Universal Robots:

“Building an industrial robot isn’t trivial, but is not rocket science either. It’s far simpler than manufacturing a car, for example. A few good robot experts, some funding, and a couple of years of hard work are sufficient to come up with designs that can compete with those manufactured by current industry leaders. Sure, it helps to have KUKA’s marketing budget, but robots are not luxury goods and news about novel robot models spread quickly these days.”

“Universal Robots may no longer be a small startup, it is still minuscule compared to other robot manufacturers. Yet last year, Universal Robots received more attention than any other industrial robot company, and their sales probably start to match the sales of other similarly sized robots.”

“With increased competition from China and from young and dynamic companies from around the world,” reasons Bonev, “and thanks to constantly increasing sales, the leading manufacturers of industrial robots will certainly have to start to lower their prices.”

Right country, wrong robot?

If China is indeed preparing itself to take over the industrial robot market with a multitude of homegrown robot brands that are angling up in quality yet maintaining low prices, should foreign brands rethink their product portfolios, and, as Bonev suggests, their pricing?

All of which leads to the question about foreign robot manufacturers in China jeopardizing market share by making the wrong kinds of robots, mainly, industrial robots?

Should foreign brands make room for building robots other than industrial arms? Maybe, mobile robots, for one? Mobile robots would be mostly competition free for a long while in China.

Problem there is that FANUC, ABB, KUKA, and Yaskawa don’t have mobile robots. KUKA avoided the dilemma of spending large to develop its own mobility brand by recently acquiring Swisslog for $335 million.

See story: KUKA Falls First, Buys Swisslog for $335M. Who’s Next?

Swisslog’s AutoStore system will work well in China’s food warehouses. This year witnessed China’s cold-storage capacity take the world lead by surpassing that of the U.S.

Cold storage literally means that China’s households now have more refrigerators, which means that the Chinese will be doing more weekly grocery shopping errands to fill those new refrigerators, which means a need for more supermarkets and more food warehouses to supply those supermarkets.

In China, such a mobile robot solution will be very difficult for homegrown robots to equal anytime soon.

KUKA has a mobile solution that can establish new markets, meanwhile, the other foreigners lacking a mobile solution, will fight it out with China’s homegrown industrial robot makers for an ever-dwindling slice of market share.