- July 22, 2015
By Georg Stieler, Stieler Technologie
The Chinese market for Industrial Automation is growing much faster than other sectors of the Chinese economy and will almost double within the next five years, according to our estimations.
By Georg Stieler, Stieler Technologie
Based on our project experience in the fields of production systems, CNC machine tools and robotics in China, we analysed the country’s whole value chain of Industrial Automation in detail – from the enterprise level over the plant and factory level down to plant instrumentation. Key findings from the overall assessment:
1. The Chinese market for Industrial Automation is growing much faster than other sectors of the Chinese economy and will almost double within the next five years, according to our estimations.
2. The market share of Chinese automation technology vendors has been growing continuously during recent years. Based on our analysis, we expect that their current share of 45 percent will increase to over 50 percent by 2020.
3. Multinational companies are using some of their facilities in China as testing grounds for new concepts of interconnectivity.
Even the overall level of digitalization is considerably lower than in early-industrialized countries, some of China’s large industrial companies are starting to embrace the concept of Industrial Internet. Chinese industrial enterprises will come up with their own concepts of intelligent interconnectivity, which will foster the development of new business models that will also have an impact beyond China’s borders in the future.
Digitizing the factory of the world
The share of the P.R. China in total global manufaturing output has increased from 4 to 24 percent between 1990 and 2013. The country can be rightly regarded as "factory of the world", today.
Manufacturing output as of global total
There are even products, which cannot be made anywhere else at the moment, since the corresponding production clusters are located in China. Nowhere else in the world can the suppliers for products like the iPhone be found in such a small spatial distance, nowhere else does a flexible supply of labor exist to produce millions of devices within such a short time at product cycles of just one year.
The Chinese growth model of the last 30 years has reached its limits
The growth model of the Chinese development process during the past 25 years was based on the classic industrialization approach: Mass production of cheap products through a wide range of unskilled labor at low wages. This recipe for success has now reached its limits: Rising wages, a declining supply of labor, increased quality requirements from sales markets, the need for a more careful use of resources and more stringent work safety standards - to name just the major factors - force the country to greater automation. This has also been recognized by the government in Beijing, which is supporting automation, in some areas such as robotics even much earlier than initially planned.
China already the most important market for Industrial Automation, the major growth is yet to come
China is already the largest market for automation products. In 2013, the country has overtaken Japan as the largest market for robots. At the same time, the degree of automation in China is still at a low level. The proportion of machine tools with numerical control in China is about the same level of Japan in the late 1970s. The diffusion rate of enterprise software (PLM, ERP, MES) is still lower than 60 percent.
As our study shows, the areas analyzed have grown significantly faster than the Chinese economy recently. For Industrial Automation in total, we expect an average annual growth (CAGR) of around 15 percent in the period between 2015 to 2020. In other words, the market volume is expected to almost double within the next five years (see following diagram).
We expect the highest growth rates in 3D printing, sensors, optimization software and robots. According to our estimates, the largest nominal gains will be in sensors, robots and drives (each in this order).
Industrial Automation in China: Current situation and outlook 2020*For reasons of proportionality, machine tools have not been taken into consideration in this illustration.
China is building more of its automation euipment by itself, and this trend is here to stay
China still depends strongly on foreign know-how in some areas of automation technology. Over the coming years, the country will rely more and more on domestic automation solutions, however. Companies, which are largely unknown outside her borders today, will shape this development.
According to our research, Chinese manufacturers of automation technology have continuously increased their share of the total Industrial Automation market during the past four years. From 40 percent in 2010, their share will have risen to 45 percent by the end of this year. Based on our analysis, we expect that this value will even rise to over 50 percent by 2020 (see following diagram).
Local providers of automation solutions still have considerable deficits in terms of precision, reliability and speed in certain fields. However, they are usually cheaper, closer to the customer, more flexible and can provide shorter delivery times. Another advantage for local suppliers is the fact that a substantial part of the expected growth will be driven by small and medium-sized enterprises, which often prefer local vendors.
We expect the largest relative growth of domestic manufacturers’ market shares in 3D printers, drives, robots and MES. Their largest nominal gains will be in sensors, SCADA systems, drives and robots (each in this order).
Industrial Automation in China: Domestic and foreign market share development
Current market shares of domestic IA suppliers in China and expected gains 2015-2020
Risks and obstacles
Despite the euphoria, the hurdles on the way to a higher degree of automation should not be underestimated:
The large number of small and medium enterprises is weakly digitized, their management often lack long-term planning horizons, or the skills for a solid business case for projects. The inexperienced buyers and high cost pressure in this segment represents a major challenge for the suppliers of automation solutions.
The lack of qualified systems integrators is another bottleneck for rapid automation. Although the number of companies has multiplied exponentially in recent years in this area, they find it difficult to find qualified staff. Both foreign and domestic robot manufacturers complain about the difficulties in finding competent partners for demanding automation projects locally. We tried to ease this problem by identifying and analysing the relevant system integrators in the present study.
Some companies simply have overestimated the capabilities of robots: From the 1 million robots Foxconn set itself as target until the end of 2015, only about 10,000 to 30,000 have been installed, so far. Johnson Controls replaced robots that should do sewing work on the production of car seats by people, again. However, we believe that these problems will be solved with increasing skills of robots.
A higher degree of automation will displace low-skilled jobs. Along with the cooling economic climate, this might enhance social tensions. The government's policy is not entirely consistent on this point: One the one hand, it actively fosters automation and the eligible industries, on the other cities like Shanghai introduced some new performance indicators (KPIs) for their top officials. These include employment and the preservation of jobs.
The progress of intelligent, globally networked automation solutions depends on open and fast Internet connections as well as the confidence of companies in a guaranteed data security in the so-called cloud solutions. Unfortunately, this is in conflict with the current practice of the government in Beijing, to make the Great Chinese Firewall ever more impermeable and allow extensive access to software in a newly planned security legislation. This could prove to be a heavy burden for the involvement of Chinese manufacturing locations in the global networks of multinational enterprises.
Despite the risks and obstacles, the trend towards more automation in China is inevitable.
Sales markets and their automation potentials
Technological change and market dynamics are blurring the distinctions between different segments. With increasingly interconnected production processes, an enterprise software company should know the robot companies and vice versa.
Industry 4.0 or Industrial Internet in China
Multinational companies like Bosch and Siemens are using some of their facilities in China as testing grounds for new concepts of interconnectivity.
Even the overall level of digitalization is considerably lower than in early-industrialized countries, some of China’s large industrial companies are starting to embrace the concept of Industrial Internet. SMEs will follow. Similar to the development of the consumer internet, where many Chinese never had a landline phone before and started browsing the Internet directly via their mobile devices, Chinese companies might just skip certain steps of digitalization.
Chinese industrial enterprises will come up with their own concepts of intelligent interconnectivity, which will foster the development of new business models that will also have an impact beyond China’s borders in the future.
Author: Georg Stieler has been the Managing Director of STM’s Shanghai office since 2011, a consulting firm founded in Germany in 1995 and specialized in market-oriented consulting services for technology companies. During the past years, Mr. Stieler and his team have gained extensive knowledge about the Chinese automation industry while working for foreign suppliers of robotics, sensors and CNC-systems in this county.Learn More
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