April 17, 2017      

Since 2013, China has become the world’s largest market for industrial robots. According to a study by my firm, that market grew another 28.5% just last year — stronger than in any other region in the world. However, many observers still have questions about whether the country has what it takes to be a true leader in smart manufacturing.

  • Isn’t China traditionally more a nation of shanzhai — copycats and opportunistic traders instead of tinkerers?
  • Doesn’t the top-down approach of its government lead to a misallocation of financial resources, which creates investment bubbles and overcapacities — also in the robotics industry?
  • Aren’t foreign automation vendors discouraged by the arbitrary rule of the Communist Party and obscure regulations such as China’s new cybersecurity law?
Smart manufacturing vendors had increased sales in China last year.

After a first quarter with mixed growth, global robotics market leaders saw increased sales in China in the second half of 2016. Domestic robot manufacturers had stronger growth, albeit from a considerably lower base. (Click here to enlarge.)

Western companies can learn from their Chinese competitors

These are all legitimate questions. The modernization of China’s smart manufacturing sector faces some serious challenges.

However, my team has seen firsthand some examples where established automation vendors can learn from their Chinese competitors. Even if we discuss pioneers and not the majority of firms here, multinational businesses should consider the following things:

1. Chinese manufacturing companies don’t have an IT legacy of several decades. There is less resistance for audacious entrepreneurs to realize bold visions of advanced and integrated digital manufacturing.

2. Customized manufacturing exists at mass manufacturing prices. This is closely related to the first point. Chinese companies have been among the first to embrace a key mantra of Industry 4.0.

For instance, Han’s Laser Technology Industry Group Co. has acquired three systems integrators in the past two years. The company is the biggest laser manufacturer in China and is getting closer to the vision of “dark factories.”

In such factories, automation is involved with everything from initial ordering and the internal logistics of raw materials to manufacturing and shipping. With these competencies in house, Han’s Laser can offer more advanced systems in China than established Western enterprises.

3. Chinese firms are open to new business models. For example, Zhi Jui Robots offers logistics robots under a robotics as a service (RaaS) model. Its clients pay for them per order served in their warehouses.

Systems integrators such as MJ Electronics set up joint ventures with industry leaders, which are often skeptical about the rewards of smart manufacturing, and share the profits with them afterwards.

DJI Enterprise, a subsidiary of the world’s leading maker of affordable commercial drones, is considering an RaaS business model under which users can rent airtime.

4. Chinese firms have internalized a “cost-down” approach. A local systems integrator recently presented my firm his homegrown machine vision solution, which costs only one-fifth of the Cognex system used before. He still buys a camera from Germany, but he makes the software and control system himself.

Startups such as AUBO Robotics or Elephant Robotics at the Hax accelerator in Shenzhen are offering easy-to-use collaborative robots or simple machine vision capabilities at competitive price points. These offerings cost between $10,000 and $15,000 — a big step down compared with those from Universal Robots A/S and other vendors. Dropping prices will open up a vast array of new possibilities in many fields beyond smart manufacturing!

5. Chinese smart manufacturing companies are diligent. Some companies in China’s digital economy pride themselves of working six days a week from 9:00 a.m. to 9:00 p.m. This makes 72 hours a week, 37 hours more to catch up with established competitors that work according to collective wage agreements in Europe.

6. The velocity of work is much faster in China than in Germany and even Silicon Valley. Last but not least, when you spot a business opportunity in China, the window of time you have to respond is usually very short. The ability to adapt to constant change is part of China’s modern cultural DNA.

Is China’s consumer Internet a blueprint for the industrial Internet?

When we think about automation in the middle to long term, we think of robotics and machine learning. Smart manufacturing is also a platform game in the end. The vendor with the most data available has an important advantage when it comes to creating the most powerful solutions.

China's users could help it forge IIoT for smart manufacturing.

China’s more than 730 million Internet users provide huge amounts of data that can help with training AI to detect patterns. Could this be a blueprint for IIoT? (Click here to enlarge.)

As the “factory of the world,” China was responsible for approximately 25% of global industrial output last year. Will this be an advantage when it comes to make industrial processes more efficient through the application of big data and smart manufacturing algorithms?

Of course, the Chinese government wants to stay in control. Industrial Internet of Things (IIoT) platforms such as Siemens MindSphere or GE Predix cannot be realized without local partners.

Foreign automation deployed in China is state of the art

China’s manufacturing sector needs to modernize to remain competitive internationally. The upgrade is also an integral part of the government’s “Made in China 2025” strategy. Hence, leading foreign industrial automation companies are deploying their newest technologies in China.

Chinese smart manufacturing includes autonomous delivery vehicles.

The Chinese government actively encourages cooperation between the country’s Internet companies and traditional robot enterprises. An example is the collaboration between JD.com, a leading online retailer, and Siasun, the largest Chinese state-owned robot manufacturer, in the form of an autonomous delivery vehicle.

Bosch Rexroth AG, for instance, operates as an engineering consultancy only in one market — China. The German company just completed an intelligent and interconnected production line for high-precision robotic gears at Qinchuan Machine Tool Group (QCMT&T), one of the country’s largest machine tool suppliers.

It plans to announce another Industry 4.0 project with other leading Chinese robot manufacturers soon.

Both ABB Robotics and KUKA Robotics are collaborating with the Chinese telecommunications provider Huawei Technologies Co. in developing IIoT applications.

In addition, smaller automation vendors are carefully following these examples.

More on Chinese Robotics and Smart Manufacturing:

Outbound M&A in smart manufacturing

We shouldn’t forget the aggressive merger and acquisition (M&A) strategies of Chinese firms. Although stricter capital controls in China have affected outbound M&A activity so far this year, we expect that deals in line with Beijing’s strategic goals will still be approved.

After its spectacular takeover of KUKA last year, Midea Group paid $170 million for a substantial share in Israel-based Servotronix Motion Control Ltd. just this February.

For all these reasons, developments in China will shape the industry globally. The sheer size and the competitiveness of its market are driving technology and business-model innovations by both foreign and domestic companies. Companies that succeed here will leverage their strengths in other markets.

Despite a widespread lack of local know-how and trade barriers such as its “Great Firewall,” China is still likely to become a global leader in smart manufacturing.