German industrial giant Kuka is the world's largest producer of robots used to make automobiles, with its signature orange crane-like bots a fixture in automated car factories across the globe.
So why is Chairman and Chief Executive Till Reuter worried?
The reason is simple enough: Growth in robots for all industries other than automotive is up more than 10%; that compares to just 3-5% for the car industry, he says. Kuka's auto business has fallen from 80% of robot revenues, when he took over the company in 2009, to around 50% today, Reuter notes.
Now this 120-year-old company, which in January became just under 95%-owned by China's Midea, the world's largest appliance maker, is aiming to pull off a big transformation that, if successful, will take it into faster-growing robot markets.
That means smaller-sized and nimble robots for electronics manufacturing and logistics warehouses. Also on the drawing board are machines that could handle plugging in electric vehicles for owners, or even allow the elderly to live independently at home later in life, Reuter said in an interview in the southern Chinese city of Guangzhou earlier this month.
"We want to keep number one in automotive [but] we see that the higher growth is coming out of other industries and other sectors." For example, one large market that will become "even bigger in the future, will be the production of mobile phones, handhelds, and iPads," he says. Reuter is referring to robots that have a payload of six kilograms or less--the maximum weight they can pick up and manipulate--and are capable of carrying out much more delicate assembly tasks.
China will be key to realizing Kuka's diversification strategy, which is being led by Reuter, who makes monthly visits to Midea's Foshan headquarters and stays in close contact with its chairman and CEO Paul Fang. It's the world's largest and fastest-growing automation market. Sales of robots in China, which amount to about one-third of the global demand, grew by 27% last year, compared to just 12% in Europe and 8% in the Americas, according to the International Federation of Robotics.
Number 1 in China
With 68 robots per 10,000 Chinese manufacturing workers, far fewer than the 189 in the U.S. and 631 in South Korea, there's room for growth and rising factory wages are powering more automation. "We want to become number one in China," says the Kuka executive, noting that their market share for robots last year was around 14% (that puts it among the top three suppliers).
Revenue in the country, now at 500 million euros ($588 million), will be "way above" one billion euros by 2020, he predicts. "If you want to be a global player, you need to compete there," says Justin Rose, a partner at BCG in Chicago. "China will become even more important."
Kuka however, is hardly alone in vying for the $11 billion China market. ABB and Fanuc are two of its largest competitors globally in industrial robots. Meanwhile, local rivals like E-Deodar Robot Equipment Co., Anhui Efort Intelligent Equipment Co., and Siasun Robot & Automation Co., sell their robots for about one-third the cost of foreign brands. A cost-cutting war and shakeout is possible, as China's hundreds of new local robot makers start to vie for market share.
Midea's decision to pursue Kuka last year was a two-pronged strategy. The company has aggressively automated its own factories producing white goods including rice cookers and microwave ovens, reducing the number of its employees by half from 200,000 in 2011 to about 100,000 now. At the same time, it wants robotic sales to account for one-fifth of total revenues in 2020, up from 12% today.
The Kuka purchase initially encountered political resistance in Germany and from government bodies including the Committee on Foreign Investment in the U.S. Midea won over Kuka largely through committing to protect the German company's independence and promising no job cuts through 2023.
"If we were to try to do it now, I don't think the acquisition would be successful due to the changed political climate in the U.S. and Europe,'' Midea's Fang said in an interview with Bloomberg TV in late October. "It is harder now for Chinese companies to go overseas through acquisitions.''
" Made in China 2025", the government's ambitious national plan to modernize and automate manufacturing, has set specific targets to increase the proportion of Chinese-made robots, and municipalities across the country are subsidizing robot purchases. "Kuka is now part of the Midea family which is great," says the bespectacled Reuter, who used to work as an investment banker including for Morgan Stanley, Deutsche Bank and Lehman Brothers. "Midea is helping us in China get more weight on the ground."
Along with its push into non-auto industrial robots, Kuka aims to leverage Midea's sales networks and company connections to start producing consumer-focused robots too. The companies are jointly building a large industrial park near Guangzhou that will have R&D, technology development, a robotics training center, and critically, a production facility. "We are increasing capacity. That is the first step," says Reuter. "For Kuka, the park will be a very, very important step towards becoming number one."
As to what specific kinds of robots will be produced in the new park or elsewhere in China, Kuka's chairman is keeping mum for now. "We have some projects on the consumer side [but] lots of them are still confidential. If I let them out of the box, people will probably jump on," Reuter says.