China and Robotics: the End of an Era

On November 3rd, Chinese Deputy Minister for industry announced the formulation of a strategic roadmap for the development of the local robotics industry.

 

Salients

  • Chinese 5 Year Plan to Includes a Robotics Roadmap – China already made clear that robotics was part of their latest 5 year government plan as a strategic axis for development. However, they are now moving forward with the creation of a robotics roadmap that is expected to deliver a vision for robotics and China.
  • China as a Major Robotics Provider to Capture Local Market Opportunities – Chinese government officials admits that current local offering for robotic solutions is heavily, and almost solely, relying on import from foreign vendors (US, Europe, Japan). China, because of its high manufacturing capabilities, is a natural client for industrial robotics and the local government wishes to stimulate local robotic vendors to aggressively capture domestic market shares.

 

Analysis

  • Being as Close as Possible from Point of Consumption – In a scenario where Robotics & Intelligent Operation Systems (RIOS) are used extensively for manufacturing processes, the weight of human labor is naturally expected to decrease thanks to a higher level of tasks automation. Therefore, requirements to manufacture goods in geographies where labor cost is lower will also decrease and leveraging logistic costs decrease will be key to compete.

    As a result, the location of manufacturing processes will remain strategic to lower overall total product unit costs, but this time to leverage logistics cost containment: successful manufacturers will seek to produce goods as close as possible from points of consumption, reducing the size of factories to increase their number and leveraging the agility in manufacturing processes brought by robotics to serve various domestic demands.
  • Robotic Powered Model for Manufacturing, not a Choice for China – For China, but this is also true for similar outsourcing locations, the increased use of RIOS in manufacturing processes is canceling the need for cheap labor heavily used in “old” outsourcing models. As a matter of fact, in a “manufacturing 4.0” world (intensive use of Robotics & Intelligent Operation Systems in manufacturing processes – the “new” model), China becomes the best place to manufacture for its domestic market needs only as the Europe and US markets are fully able to compete in term of unit price, but also in term of time to market (reduced supply chain complexity for end-users of manufactured goods)

    Only 3 to 4 years ahead, and particularly as Western countries will start to engage in the wide local deployment of RIOS for manufacturing processes, China and similar outsourcing manufacturing countries will actually not have an alternative and must equip their plants with similar agile robotics systems or take the risk over time to not even be capable of playing against goods made in Western countries in their own domestic market.
  • Running the World Factory, not Just Making Robots – The announced Chinese government stimulus for the local robotic vendors is likely to benefit the entire robotics industry (more providers of RIOS solutions implies accrued pricing and capabilities competition). For manufacturers however, where robotics vendors are capable of delivering solutions only matters if these vendors can follow manufacturers to produce closer to points of consumption as this is the major competitive advantage that Chinese manufacturers must retain: they already hold strong client relationships and must embrace the new sourcing model below.

    Independent Manufacturers: the ones manufacturing their own goods or manufacturing goods upon orders from clients but on a one-off basis)
    Contract Manufacturers: the ones manufacturing goods for clients and linked with long term and/or multi-products contract)
  • Compete with Robotics & Intelligent Operation Systems (RIOS) or Face Obsolescence – Beyond the shift between labor and logistic costs as a lever to determine the localization of factories for manufacturers, many criterion inherent to the manufacturing industry are calling for an increased usage of RIOS systems.

    In all scenarios, the final scoring comparing “old” manufacturing processes versus “new” ones implying a great deployment and usage of RIOS is in very clear advantage of robotics.