Chinese Robotics Firms Are in a Furball With Big Foreign Four to Feed Growing Demand

Wang Shifeng / Yicai

2017-05-11

(Yicai Global) May 11 -- China’s industrial robot industry has developed rapidly as labor costs have risen continuously, causing a trend of ‘replacing human labor by robots’ to spread across the country, insiders told Yicai Global.

Domestic robot businesses still can’t complete with the international market’s Big Four, and Chinese firms’ cost advantage will be play a less crucial role in the future.

“Labor costs keep rising,” said Liu Feng (not his real name), the boss of a bearing manufacturing enterprise in the Pearl River Delta region who has recently been feeling pressure from rising labor costs. “We often make jokes to each other that we are busy working for our workers the whole year.”

In the past ten years, the average wage of employees at urban-based companies and institutions rose to from CNY56,399 (USD8,168) from CNY18,200.

Robot Market Master Plan

The robot market in China has been divided into four regions. The country’s east, west, south, and north are home to industrial clusters in the Circum-Bohai-Sea area, the Pearl River Delta, the Yangtze River Delta, and Midwest China, respectively.

The Yangtze and Pearl River Deltas make the best use of robots, Shenyang SIASUN Robot & Automation Co. President Qu Daokui said.

“In terms of robot and high-end equipment application, enterprises in Yangtze River Delta more easily accept the idea of replacing human labor by robots,” said Zhang Zhen, Co-President of Shandong VT Technology. “Surely, it has a lot to do with supports of local governments in the Yangtze River Delta region to relevant industry.”

Robot companies in the Yangtze River Delta region attach high importance to high-end research, development, and innovation, while in the Pearl River Delta region more emphasis is placed on industrial application, Zhang said. The robot industries in these two regions conscientiously take different assignments and complement one another.

Hard to Penetrate

Although demand for industrial robots is huge, it appears to be quite minimal compared with the Chinese manufacturing industry. Low penetration rate seems to be the most difficult problem for the robot market’s development in China.

The ‘density’ of industrial robots (the number of industrial robots per 10,000 workers) in China is only 49, while the global average is 69, Shenwan Hongyuan Securities estimates. South Korea’s density is 531.

"We can maintain normal operation although the workers are highly paid,” Liu said. “If the workers are replaced by robots, it means that we have to spend the money earned for years in updating the production line. What should we do if the business cannot recover the cost?”

A person in charge of Nanjing Deshuo Industrial Co. in the Yangtze River Delta area said that the company has not yet put in fully robotic production lines and that bots are only used in the warehousing logistics and palletizing areas of one of the firm’s new plants.

Manufacturers must weigh whether the cost of adding robotic production lines is justifiable in the long-term.

“For artificial production, workers can perform on production lines immediately after skills training, but for mechanical arms, each process needs to be constantly re-programmed, otherwise they cannot be used,” said Tu Wei, former senior manager of Reis Robotics. “In other words, the current lack of flexible industrial robots is one of the reasons for restricting the penetration of industrial robots.”

“There must be a rational judgment between the cost and benefit of the machine substitution, otherwise the cost increase brought by the machine substitution is unacceptable to most private manufacturing enterprises,” said Tan Yuanzhi, board chairman of Wuxi Micro Research Precision Press-parts Co.

‘Cost-Performance Ratio’

China has emerged as the largest consumer of robots in the world since 2013. The colossal market did not help to breed domestic robot enterprises qualified to vie with the four biggest global leaders in industrial robot, Qu said.

The four titans -- Japan’s FANUC Corp. [TYO: 6954] and Yaskawa Electric Corp. [TYO:6506], Switzerland’s ABB Ltd. [NYSE:ABB], and Germany’s KUKA AG [     FWB:KU2] -- hog over 60 percent of the global market.

Chinese players’ growth is largely dependent on the domestic market space as well as strength in “cost-performance ratio.” An imported Epson SCARA (selective compliance assembly robot arm) is priced between CNY300,000 and CNY400,000, while the home-made SCARA counterpart is CNY200,000.

Change is brewing, Qu said. Amid the current 2.0 age for the industry, apart from the unshakable Big Four, innovative newcomers such as Alphabet Inc. [NASDAQ: GOOGL] and Facebook Inc. [NASDAQ: FB] are joining the quest to make fundamental transformations, said Qu.

In wake of fierce competition, robot makers at home obviously cannot continue to rely on the traditional cost-performance ratio advantage to strengthen their weak links.

“It is not so much improving vulnerable links as supporting several predominant local industry giants that may be a better way.” Qu said.

In this respect, home appliance conglomerate Midea Group [SHE:000333] rolled out its solution --acquisition. Midea’s purchase of KUKA will help it blaze a new trail in the intelligent manufacturing market.

SIASUN’s plan is to make a distinctive ecological system, Qu said. “SIASUN is now dedicated to building its own technology, talent as well as capital platforms.”

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