Robots to China

Though its purchasing power may be on the wane, the automotive industry is still the primary buyer of robotics products. With China’s automotive sector showing strong growth, ABB’s robotics group moved its headquarters to where the action is.

In yet another sign that China is now at the forefront of manufacturing, ABB Robotics has moved its world headquarters from Detroit to Shanghai, China. ABB Robotics is part of Switzerland-based ABB Group, and is a world leader in automation technology. Decades ago, the company was the first to market a microcomputer-controlled, all-electric industrial robot. According to Anders Jonsson, ABB executive vice president and head of its robotics division, the booming Chinese automotive industry was one of the reasons for ABB’s move to Shanghai.

“The automotive industry still remains the largest consumer of robots today,” he said at an April press conference in Shanghai. The move also will place ABB closer to the growing Chinese market than its competitors in Japan. One of ABB Robotics’ biggest rivals, Yaskawa, is based in Japan. For a variety of reasons, including politics, Yaskawa is not likely to move its headquarters to China, giving ABB both a symbolic and practical advantage in this fast-growing market.

Fertile Ground

The automotive sector is currently ABB Robotics’ largest consumer and many of ABB’s clients — including Toyota, GM, Honda, and Volkswagen — have set up shop in China. Chinese auto makers like Geely have also begun using ABB robots on their production lines, ABB says.

“We are forming more and more partnerships with Chinese companies as they realize that the key to keep winning in the future is solid competitive strength,” Jonsson said at the April press conference. The robotics division is one of ABB’s five core businesses, and contributed $1.7 billion to the group’s total revenue of $22.4 billion in 2005. The company reports that is has already sold more than 3,000 robots in China, and claims to have the largest market share among international robot suppliers there. And sales are increasing at 20% annually, the company says — compared to single-digit growth in other geographies. ABB isn’t alone in following its customer base to China. Automation companies like Rockwell, Siemens, and Schneider have also entered

the Chinese market. But ABB’s history in China probably dates back further than most. The company traces its connection to a steam boiler sold to the country in 1907. More recently, ABB set up an office in Hong Kong in 1974, followed by a permanent location in Beijing in 1979. Today, ABB has more than 8,500 employees in China, out of about 104,000 worldwide, and sales and service offices in 30 Chinese cities. In particular, ABB Robotics has over 300 employees, all located in Shanghai, as well as a factory and a network of suppliers.

In 2005, China passed Germany to become ABB Group’s second-largest market, trailing only the United States. The company plans to more than double its sales in China, to $4 billion by 2008 — which would make China its largest market in the world. ABB Group says it plans to hire more than 5,000 additional employees in China over the next two years and to invest more than $100 million in new product lines and factories.

“Most auto markets globally are mature and the growth has leveled off,” says ABB spokeswoman Grace Nan. “Take Japan, Western Europe, and North America, for example. We predict that there won’t be much change in those markets in the next three years,” Nan says. “But China is completely different. We see that there is a huge potential challenge here — more and more companies want to take part in China’s fast-growing automotive industry.

So does ABB. We want to embrace this opportunity as soon as possible.” According to Nan, there are currently 120 auto makers in China and many of them are already using ABB robots. The bulk of the company’s sales, however, are to global giants like Toyota. But that situation is likely to change, since Chinese manufacturers are looking to improve quality, she says. Meanwhile, ABB will also be able to take advantage of lower production costs, Nan notes.

“The competition in robot systems isn’t just in the area of high technology but also in price,” she says. “We have to lower the cost of our products. We believe that we can reach this goal as we move to Shanghai.” According to ABB Robotics’ vice president of communication, Brad Hoffman, the Shanghai factory currently produces about 1,000 robots per year. China is now a primary manufacturing location, he says, along with Norway and Sweden.

The robotics group also has lead centers, locations which take robots manufactured elsewhere and package them with tools, software, and expertise for particular market segments. These centers will not be affected by the move of the headquarters to Shanghai, Hoffman says. The biggest single impact on customers, he says, will probably be an eventual price reduction as China becomes a bigger part of ABB’s supply chain.

“It is just the headquarters operation that has moved,” he notes. “It is not a move that will immediately produce a great change in either China or our Western operations.” For example, ABB Robotics currently has lead centers in the U.S., Japan, Germany, and France — close to major hubs of automotive manufacturing activity, he explains. “The Detroit location will remain,” Hoffman says. “The large markets, including the U.S., are extremely important to us. We recognize a need for a strong local presence to support our customers. That’s not going to change.”

Instead, at the outset the move is expected to change management mindset, he explains. “We have people who travel all over the place and live all over the world, but by formally relocating our robotics headquarters to China, we’re trying to sensitize our management to the importance of the Chinese market,” he says. “Our management meetings are now held there and most of our decisions are made by people sitting in China.”

Playing Catch Up

The relocation might help ABB Robotics catch up with the rest of ABB. Although China is the number-two market for the company as a whole, Asia in general accounts for only 15% of revenues for ABB Robotics. North America accounts for 35%, and Europe takes the remaining 50%. China’s market for robots, though growing fast, is still tiny. ABB has 140,000 robots installed worldwide, Hoffman says — and about 3,500 of them are in China. “We do believe that ABB has the number-one market share for robotics in China,” he says. “And it’s not just the automotive manufacturers that are buying the robots,” he adds — despite China’s reputation as the place to go for low-cost human labor.

“It’s an oxymoron to some people when you look at the lower-cost labor base, but it’s not just about saving labor,” Hoffman says. “It’s about increasing the quality and flexibility of production. We sell equipment to companies producing everything from toothpaste to iPods who require a certain level of quality which cannot always be achieved by humans. The robots can help to achieve that.” Robots also help remove humans from hazardous environments, such as foundries, he adds. Another factor is that China is becoming a very competitive market for car makers, and the wave of consolidation that’s expected there will cause downward pressure on prices.

“The manufacturers need robotics to build a better car at a lower price,” according to Hoffman. China is now at a major turning point, confirms Ken Goldberg, vice president of technical activities for the IEEE Robotics and Automation Society. In particular, World Trade Organization membership and the attendant guidelines on opening up domestic markets create a real acceleration for business in general and manufacturing in particular, he says. But automation in China actually has a long history — the first academic automation department in the world was formed at Beijing’s Tsinghua University in the 1980s, and since then Chinese universities have created more than 100 departments of automation.

“China was very strategic about this,” Goldberg says. “We don’t have anything like this in the United States.” As a result, there’s a lot of research work being done in China on making automation more efficient, reliable, and cost effective. Indeed, Chinese researchers have already begun making their mark in academic journals, Goldberg says. “This is an area where China is not only doing well, but leading.” That, he says, creates even more motivation for automation-related companies to move to China.

This article was originally published in Managing Automation, which has since ceased publication.