ROBOT Revolution
three consumer habits defining china's robotics revolution
The industrial world has trained its focus on China’s recent robotics reform, which has the country’s southern provinces in utter turmoil as producers rush to automate under the current grant system. Provincial governments like Guangdong’s have offered trillions of RMB to support local enterprises as they automate, in some cases subsidising as much as 15% of the robot’s value.
Robotics: A Chinese-Only Game?
April 18, 2016
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1 | Domestic producers offer tailor-made integration services to properly apply technologies to a wide range of production lines.
Localisation is absolutely vital in China’s current market. More and more often Chinese consumers are demanding a personalised corporate experience, from direct conversations with suppliers on Taobao, to the user interfaces of various mobile applications. Willing and able to pay a premium for such support, the Chinese are increasingly turning to smaller, more personable companies to fulfil their consumer needs. And robotics is no exception to this rule.
Many of the domestic companies producing robots for industrial use developed as side-projects of existing large industrial producers. Drawing on the extensive experience of the parent company, these domestic producers are able to provide start-to-finish services including design and adaptation for the production line in need of automation. Such is the strength of personalisation services, that robotics giants like ABB are commissioning local companies, both small and large, to provide tailoring for specific production lines.
The rapid rise of the sector itself can be attributed to domestic producers being sensitive to changing local conditions. As attitudes and life expectations evolve across the country, far fewer young workers consider industrial occupations an acceptable career option. Even with the two-child policy taking effect, factories will be increasingly faced with a dearth of workers. The machines that companies will use to replace workers can be ten times more expensive, and five times more productive, decreasing the risk of both injury and human error in production.
South China is leading the robotics revolution in China, with provinces in the north up to five years behind their southern counterparts. National support for implementing German Industry 4.0 across the country has encouraged manufacturers to either automate their own production lines, or make the shift to start producing industrial robots. In both cases, innovation is the key to success.
Of course, this level of government support is only the latest in a long history of artificial growth stimulation in China, often aiming to encourage other investors and actors to leap out into the field. In recent years, we have seen the same in the electric vehicles industry, environmental technology and services sectors. However, the robotics rush is indicative of a far larger shift in China, rather than simply seeking to stimulate a strategic industry.
The robotics revolution is an essential part in the Chinese bid to shift away from the cheap China production mantra, which has been damaged by rising labour and production costs across the country. In lieu of a cheap China option, the government plans to encourage continued foreign and domestic investment by climbing up the value chain with local produced, high-value products.
Though this will come as a shock to no-one who has experience producing for the domestic market, Chinese consumers — both commercial and industrial — are becoming far more selective about which products or services they choose. Moving away from the mass-marketing model so successful for foreign producers like Coca Cola and Volkswagen, today’s producers must be more sensitive to the high-value, user-centric needs of Chinese consumers.
It is no longer enough to wave the foreign brand flag, the Chinese want far more.
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2 | Companies are increasingly interested in long-term value. This translates as more investment in innovation, less in expansion.
With returns on initial investment taking an average of five years, automation can seem a daunting prospect for many smaller producers. However, many are still deciding to automate, taking into consideration long-term productivity and quality benefits.
For companies like Midea, a Foshan-based producer of home appliances, an emphasis on user experience and quality of goods has stalled expansion in favour of product development. In the last year, Midea did not purchase any addition land for expansion, instead investing heavily in research and development (R&D) in the smart home appliances sector. The shift can be seen as a direct response to local conditions, and the issue of over capacity in China. Chinese consumers have a huge wealth of options in terms of home appliance purchases. Oversupplied with cheap mass-produced air conditioning units, microwaves, sanitisers and so on, the Chinese consumer can easily shop around for the best value deal. However, the average Chinese consumer is becoming increasingly interested in specialised products with specific premium functions. In order to attract new customers, producers are having to distinguish themselves as facilitators of unique user experiences, rather than providers of affordable premium goods.
The same is the case for robotics producers, many of whom are investing heavily in software and interface development. Starting salaries for software engineers can be two times as high as a normal blue-collar worker, and developers can be doubly as expensive again. Moreover, software engineers and developers are becoming increasingly difficult to find outside of major electronics hubs such as Shenzhen. In this sense, local government support for the mass implementation of robotics in industry must go beyond merely financial. For example, robotics producer E-Deodar relies on the local government in Foshan to facilitate cooperation between the company and universities. For software developers, E-Deodar does not recruit below an MA level, and relies on partnership with these universities to recruit and train PhD students.
Investment in R&D makes up a major chunk of a robotics producer’s workforce, in some cases up to a third of all employed staff are focused on product development. Local governments are also offering specific support for R&D by co-investing in local development alongside major industry names. For example, the local government in Shunde District of Foshan have invested in a robotics R&D Centre with KUKA Robots and ABB. The investment comes after the district government spent 10 million RMB on robotics incentives and support last year.
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3 | Despite serious competitive advantages, such as higher quality products and services, Chinese consumers can still count on local brands remaining more cost-effective than foreign.
Across a variety of markets, Chinese companies are proving quick to adapt and improve their products in response to local conditions. In contrast, while remaining more expensive, foreign brands are far less mobile in creating newer, more innovative technology for China’s insatiable consumers. In the mobile phone market, for example, Chinese producers are innovating not only their product, but also their business model. Companies such as Xiaomi do not have even a single factory, and yet produce exclusive, high-value, low-cost mobile technology that proves to be three times as powerful as the latest iPhone. Now, the latest two models from Xiaomi are in such great demand that retailers are only able to purchase 100 units at any one time.
Similarly, despite offering a more competitive product, investing millions in software development and R&D, and providing essential integration services, Chinese robots are still up to 30% cheaper than their foreign competitors.
In order to compete, some foreign manufacturers are choosing to provide an economy option alongside a premium model. E-Deodar Robotic Equipment Co., Ltd. has been producing industrial robots for almost one year, having been created by its Taiwanese parent company, Techmation Plc., in 2015. With extensive industrial experience in China, Techmation was perfectly positioned to apply this knowledge and technology to the robotics revolution in South China.
Others are looking or strategic partnerships with local producers or integrators, in order to get their products into the mainstream market. Kawasaki, for example, partnered with the local Guangdong LS Robot in 2013 to provide robotic arms to local manufacturers. LS Robot also partner with international producers Adept, KUKA, Yaskawa and Universal Robots, providing integration and production services. Between 2014 and 2015, LS Robot saw nearly 50% growth in sales. As mentioned in #1, giants like ABB must commission local robotics producers to adapt their products to Chinese production lines, in order to maintain their market share.
In order to survive in an increasingly competitive market, foreign producers must make their products and services cheaper and more high-value. The national push for supply-side reform means that sales are falling, but the quality of goods produced in China is climbing rapidly. In tackling overcapacity, companies are looking to improve efficiency and product value, which often starts at the production line and ends with customer service and tailoring. By eliminated traditional and out-dated machinery, upgrading production to cut costs, and being able to put product to customer faster and more efficiently, companies should be able to provide a great customer service experience without suffering from lower sales. As always, innovating the service provided is key.
The current focus on quality and diversity has led many Chinese consumers to return to domestic brands and products, which are becoming increasingly innovative in how they utilise local expertise and knowledge. And this shift goes beyond fast-moving consumer goods and luxury handbags.
Here, are three reasons why domestic robotics producers are faring better than foreign, and how innovative foreign companies can seek to fill gaps in the industry.