Context is key to automation’s future in China
Parting the troubled waters surrounding China’s stock market, currency and declining exports — all of which are temporary distractions and, ultimately, beside the point — there is an unavoidable vision beneath it all of a new industrial behemoth on the rise: large-scale automation of a size and scope that will make China the world’s leading market for automation for decades to come.
As of last year (2014) already the globe’s largest buyer of industrial robots — 16 percent of which purchased from indigenous manufacturers, with a growth forecast to 45 percent for homegrown robots by 2020, according to the Nikkei Asian Review — China is in hot pursuit of automation and digitization on a massive scale.
Getting a feel for context
To best understand and clearly see how transformative and powerful this undertaking truly is, let’s put a large piece of it into context with the help of Georg Stieler of STM Technology & Marketing Consultants from his lofty perch in Shanghai. — The Editors
STM Technology & Marketing Consultants
The possibilities of automation and digitization are increasing exponentially. This poses a challenge for developing and emerging countries. The Chinese government has recognized this and actively facilitates automation.
Ben Evans, the British technology author and partner at Andreessen Horowitz, one of the biggest venture capital firms in Silicon Valley, has put the increasing possibilities of automation and digitization into the following three easy, but powerful sentences:
- A computer should not ask anything that it should know
- A person should not work out something a computer could
- What a computer knows is changing radically
When we apply this thought to the situation in emerging and developing countries, this could mean that China might have been the last country that has come to prosperity by the classical industrialization process — the mass production of simple goods with a big supply of unqualified, cheap labor.
Why struggle with the typical problems of emerging countries — corruption, government red tape, poor infrastructure, etc. — if the capabilities and flexibility of automatic production solutions are increasing while becoming more affordable at the same time?
The Chinese government is observing new technologies and their potential carefully, however. According to the “Made in China 2025” strategy published in May 2015, China is supposed to catch up with technologically-leading industrial nations due to a higher degree of automation and intelligent, interconnected production processes.
China is responsible for 25 percent of the global manufacturing output. Due to existing supply chains, the country will keep its position as factory of the world. China will become a leading market for automation.
China’s share in global manufacturing output grew from a mere 4 percent in 1990 to approximately one quarter today.
Need for change
As the events of the past months have shown, the growth model that formed the base for this unique development has reached its limits.
If China wants to keep its position, the country must not only reform its legal and educational system, it must also automate its manufacturing sector.
Rising labor costs, a diminishing supply of labor, increasing quality requirements on sales markets as well as a more responsible usage of resources force the country to do so.
The increasing capabilities of intelligent, interconnected production processes, which are making early-industrialized countries more competitive again are increasing this necessity.
A “reshoring” has not taken place to the extent some market observers were expecting 1-2 years ago, however.
We are seeing more the impression that Chinese manufacturers are trying to move up the value chain and to produce better quality products with a higher degree of automation. Also, due to existing supply chains, the exodus to countries with lower labor costs has been limited, so far.
The huge industrial base together with the big automation potential on the one side as well as specific characteristics of Chinese automation customers and aggressive new competitors will make China a new leading market for automation products.
Chinese consumer Internet companies are among the most innovative in the world. We expect that China will also come up with its own, homegrown solutions also its industrial Internet.
Converting consumer Internet success into industrial Internet success
Chinese companies have developed their own solutions and generated new business models for every application in the consumer Internet.
Might this also happen in the Internet of Things (IoT)?
What we can already observe today is how the Chinese government is trying to actively promote domestic solutions in this area:
- A legal bill that grants the government access rights into software programs
- The development of a genuine Chinese operation system for computers and smartphones may lead in this direction
- The fact that Microsoft products have been removed from the computers of governments and SOEs (state-owned enterprises)
- The regulation that servers for Maintenance-in-Advance-Services must be located within the country
- The privileged treatment of the local Baidu navigation system in smart agriculture applications through purchasing subsidies
— Georg Stieler
About STM Stieler
STM Stieler Technologie & Marketing Beratung is a boutique consulting firm specializing in B2B market research, strategic management and business development services for companies in the engineering industry.
STM combines country-specific competencies for Europe, Northern America, Brazil, Russia and India in our international team. In 2011, we opened a subsidiary in Shanghai to better serve our clients’ needs in China.