For many types of goods the Chinese were manufacturers well before they became consumers. But the situation is a little different in robotics, where China has been the largest market for industrial automation since 2013, installing more robots than Europe and the Americas combined.
While foreign suppliers are still a disproportionate share of the market, Beijing wants to see more robots made domestically. Local share grew to 39% last year from 16% in 2015, thanks to a stream of activity from Chinese players, as well as encouragement from government subsidies. But the median age of China’s robotics companies is just six years old, according to Gain & Co, a Danish consultancy that specialises in automation.
To learn more about how Chinese robotics firms are establishing themselves, WiC spoke with Emil Hauch Jensen, Gain & Co’s General Manager in China. Jensen has lived in Shanghai since 2006 and his company recently published an 800-page study on Chinese robotics.
Your report mentioned nearly 3,800 robotics or automation companies in China. How many are homegrown and how many from abroad?
The majority are homegrown. Integrators [companies that provide a plan for automation and implement robotics into a production process] have the largest share, followed by distributors and manufacturers.
Foreign-invested companies made up just 5% of the pie – 179 companies to be exact. However, that’s where the manufacturers are concentrated. Half of the foreign-backed robotics players in China are manufacturers with outsized market share. And the Big Four of ABB, Kuka, Fanuc and Yaskawa Electric dominate the market for industrial robots – robot arms with six degrees of freedom – with at least 70% share.
Has the ratio changed much over the years?
If you just look at the overall ratio, the Big Four is still the Big Four. But if you focus on new categories such as collaborative robots and autonomous mobile robots, you’ll find a stronger presence from domestic players.
They are growing much faster and doing very well in these newer technologies, thanks to national policies such as ‘Made in China 2025’, which set targets for local robot manufacturers to supply half of the domestic market by 2020, and 70% by 2025.
That has stirred up interest in the robotics business in China, as evidenced by the explosive growth in the number of start-ups in the field.
What are the more traditional technologies that the bigger foreign players are better at?
Welding robots. They have been around for more than 40 years. It’s an area where foreign robotics firms have perfected the quality, with a leading market position. For instance, ABB has more than 300 distributors in China, far more than the domestic brands.
Because companies like ABB are so well established Chinese start-ups are focusing on new categories for market opportunities.
Can you talk a bit more about the newer types of robot?
Collaborative robots, or cobots, look similar to traditional robots in the sense that their arms can move in a number of directions. But the word “collaborative” should also be understood as “safe”. Traditional robots are powerful – they will keep moving as they are programmed to, even when human beings get in the way. So they are quite dangerous and usually installed behind fences. In contrast, cobots are equipped with safety sensors so that they stop moving or even move away when touched.
That allows humans and robots to work side by side, which enables a lot of new things that weren’t feasible before. One can expect a huge efficiency boost from simply having 20% of the work done by humans and 80% by machines, versus having robots that can only work on their own.
Autonomous mobile robots (AMR) – also described as self-driving robots – derived much of their initial technology from DARPA, the US defence department research agency, as did driverless cars. Their main purpose at the moment is to support internal logistics in factories. A lot of the work in factories is already done by machines but the task of moving things from machine to machine has been mostly manual because automating that process is particularly hard. Stuff like conveyors, which are expensive and inflexible, were pretty much the best we could get in the past.
In the last five years we have seen AMR disrupt the market by becoming more intelligent, flexible and affordable. It performs something that almost all the manufacturers need and it represents a technological breakthrough for problems that were seen as difficult to solve. As a result, everybody is buying it. AMRs are increasingly deployed in restaurants, hospitals and e-commerce warehouses too.
Have Chinese players relied on government support to do well in these new categories of robot?
It’s hard to answer. There isn’t just one government subsidy programme in China for robotics. There are probably more than 400 programmes on offer across local, provincial and municipality levels. And it’s hard to assess the impact of each and every policy because of a lack of transparency.
But if you look at what is happening overall, you can definitely say that China’s leadership in robotics development doesn’t seem completely natural, especially given that labour costs are still only a tenth of those in developed countries.
How come a country with much cheaper labour costs is far ahead of others in terms of robot adoption? I think that definitely speaks to the strengths and successes of the policies that the Chinese government is pursuing. However, I wouldn’t go as far as suggesting that government subsidy is the single driving factor. It makes a lot of sense for China, which manufactures so many of the world’s goods, to seek advancement in automation.
Guangdong is the leading robotics hub in China, accounting for 28% of suppliers, followed by Jiangsu’s 15%, and Shanghai’s 13%. How do you account for this distribution?
Guangdong, Jiangsu and Shanghai were among the earliest to establish a sizable manufacturing base, deriving a lot of their GDP growth from industrial production. There you also see a significant amount of high-tech investment in research and development. There are also policies encouraging manufacturers to walk away from some of their most labour-intensive activities and to transition towards production of higher value-added goods. Minimum wages, or labour costs, in those areas are higher too. All of these factors explain why they are ahead of the rest of the country in robotics development.
How else do these regions stand out in China’s robotics supply chain?
Broadly speaking, robot players from Shenzhen tend to target electronics businesses, because of their proximity to big players in that industry.
Jiangsu focuses more on automotive and automotive supply chain. But the truth is that each of the players has ambitions to go beyond their own immediate area and be known nationwide.
Shanghai is better known as a financial centre. But it’s also a robotics hub?
Start-ups need talent and there’s a lot of that in Shanghai. The city provides access to financing too. And although there is less and less manufacturing done in Shanghai, the surrounding area is still very active in industrial production. Shanghai actually has all the right ingredients to succeed as a robotics hub.
Logistics solutions are cited as the most popular product on offer from robotics suppliers, followed by materials handling solutions. What exactly are they?
There are two types of logistics solution. One is e-commerce fulfilment for logistics companies. These are customers who have to handle huge amounts of warehouse orders daily. They tend to bulk-purchase hundreds or even thousands of robots.
The other type is manufacturing logistics, which as mentioned previously is being more widely deployed across different manufacturing companies for moving things around.
As for materials handling, the boom in demand is linked to technological breakthroughs that allow collaborative robots to be more adaptive and flexible. These kinds of robots can now be reprogrammed for different applications in a matter of minutes instead of taking days, making them much handier for different production activities.
Is robot density high in China’s e-commerce sector?
Yes, and it’s getting higher. Many warehouses have more robots than humans, and some are claiming full automation.
There are still processes that are too hard or simply uneconomical to automate, though. For example, robots are not good at picking something from one box and putting it into another one. There’s a lot of research going into this area because it is a necessary step in processing orders in warehouses. Ideally, robots should also be capable of identifying the type of goods they need to pick out and then selecting the right motions to handle the products. But even when they can do these jobs, these robots are still much slower than human beings. So it wouldn’t be a good investment decision to replace humans with them because the technology just isn’t there yet.
Metal and machinery as an industry ranked the highest in terms of the ‘robot maturity index’. Which other industries are showing strong growth in robot adoption?
Let’s start with metal and machinery. One reason it ranked high as a sector is because it has been focusing on robot automation for a long time, resulting in relatively mature technology. A lot of these companies are within the automotive supply chain, which have a lot of automatable processes.
Other industries that saw strong adoption include food and beverage, pharmaceuticals (both drugs and medical devices), tobacco manufacturing and solar panel manufacturing. Aside from lower costs, these sectors gravitate towards robots for their abilities to improve product quality.
2016 saw the highest number of new robotics companies formed in China. Since then the figure has been falling. What’s the implication of that?
The ‘Made in China 2025’ policy, launched in 2015, injected fresh impetus into the industry, prompting a lot of start-ups to come into being. It shifted activity up a gear.
But another way to look at the fall in numbers since then is that the thresholds for robotics start-ups have got much higher in the years since the policy was announced as there are a lot more established players. Starting up a new business is getting tougher and tougher due to competition.
But it would be wrong to think that the market is shrinking or that enthusiasm is waning because investment in the field is actually surging. It might not always be going into creating new companies but flowing to players showing previous success instead. Think of follow-through investments in B or C financing rounds, for instance.
So is the robotics sector due for some consolidation?
There will be some consolidation among manufacturers – there are about 1,200 in China at the moment – because some bigger players have emerged. On the integrator and distributor side, it’s a different story. I don’t necessarily see a lot of consolidation there. You have big and small integrators and a lot of small distributors. I think that will continue because of the nature of the business. There’s room for a lot of different kinds of companies in those markets.
In terms of consolidation, how does China compare to other manufacturing countries like Japan, South Korea and Germany?
There are a lot of robotics start-ups around the world these days. Typically you find big, established players dominating traditional segments, while younger companies compete mostly in new categories. The trend is seen everywhere but you have a lot more activiy in China, where there are more start-ups than anywhere else in the world. I would say that China is an extreme version of what is happening in other developed economies.
When do you think China can match Japan, South Korea and Germany in robot density?
Historically countries with higher portions of their GDP coming from the automotive sector tend to have higher robot density. That applies to Japan, South Korea and Germany. That’s one of the things to keep in mind. The other is China’s population. One in five people in the world are from China. It’s hard for such a huge country to have above-average robot density. That said, that’s the direction that China is heading.
Are there better indicators to look at robotics adoption?
Some other things I look for are – What’s the adoption rate of new technologies? How is the ecosystem of robotics doing in the country? Is there government support? Is there investor support? And so on.
What you’re seeing in China is that you’ve got a little bit of everything. You’ve got robot manufacturers, customers and stakeholders from the government, as well as private investors. All the forces are pushing in the same direction. It’s a very powerful mix. A lot of other countries would like to have something similar.
How about other trends that are unique to the Chinese market?
Aside from focusing on new technologies, start-ups in China are good at providing standardised solutions across an array of processes and applications. These types of plug-and-play solutions save customers from having to hire integrators to work on customisation for them.
On the other hand, the Chinese market is getting more confusing, simply because there are so many players. For example, it’s not easy to know which of the companies is emerging as the IBM of collaborative robots or even which offers the most reliable options.
We saw a flurry of venture capital deals in the sector earlier this year. Will we see more?
I think so. We still have a lot of room to grow in the robotics business. Right now there is a huge competition inside China and soon it will be exporting robots to the rest of the world. I’ve seen a huge number of Chinese robot companies achieving CE marking [a certification in meeting health, safety and environmental standards for goods sold within the European Economic Area] in the last 6-12 months. It’s a quality stamp for customers in China for sure. But it’s also a very important step for entering the European market.
China’s ambitions go beyond having a big robotics market domestically. Let me draw a parallel between the robotics and automotive industries. Back in the 1980s, when Japan and South Korea emerged as new producers of vehicles for the rest of the world, there was scepticism around their competence and competitiveness. Today they are the key exporting countries.
I think that there is a parallel with where we are today with robots. Traditionally they have been manufactured in a few places around the world and China has been the biggest consumer for some time. But in the next few years you are going to see more and more robots coming from China.
But don’t Chinese-made robots compete on cost, rather than quality, at the moment?
I wouldn’t say that Chinese robots only compete on costs. That is not looking at the full picture. Like I said, Chinese companies tend to focus on new categories. They are not directly attacking the welding robots market, where the Big Four is dominating, but looking at markets that might start smaller but grow quickly. Take drones – an exciting category that supports humanless inspection of facilities such as power plants or oil rigs, which would otherwise be costly and troublesome.
So it’s not just a price play. It’s more that the Chinese are strong in newer areas that are yet to be as big as traditional categories.
Which local robotics firms do you see as most promising?
For collaborative robots, we like Techman Robot, AUBO Robotics, JAKA Robotics and Elite Robot. For AMR, we like Geekplus Robotics and Hikrobot. For drones there’s not just DJI but many emerging start-ups.
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