CEO sees automation as key to increased wealth creation for all

A twin degree in law and business helped Till Reuter secure jobs in investment banks and law firms over the decades. But to oversee a robotics company, Reuter needs to have a special winning formula.

As chief executive officer of KUKA AG Corp, Reuter identified the one legacy that previous experience has afforded him: a sensitivity to numbers.

"I don't forget numbers. Once I hear them, I memorize them immediately and they just stay there forever," Reuter chuckles as he walks around KUKA's brand new plant in Shanghai.

So when he addressed the opening ceremony on Dec 10, he prepared no speech. The fact that this 20,000 square meter assembly line, set to produce 3,000 units in the first year and expected to grow to 5,000 units in five years, was simple numbers.

"It's amazing when we laid the cornerstone from the sketch only a year ago. Now what you are seeing is the only factory outside KUKA's home country, Germany," Reuter says.

KUKA's Shanghai-based China operation has been in the country for 14 years, at a time when people touted China's inexhaustible human resources and the concept of robot workers failed to catch on.

But a change in demographics has helped to open a window of opportunity. China's working-age population is set to shrink and labor costs are likely to spiral upward as a result. That has given a fresh impetus to the development of the robotics sector.

Reuter sensed the trend even on his first visit to China 15 years ago. He had a tightly packed business schedule and saw Beijing mainly from hotel windows.

"Each time I came, the views out there had overwhelmingly changed," Reuter says, referring to the massive construction going on, which, at the end of the day, needed to be supported by more automation solutions.

Research by the consultancy Ernst & Young LLP showed similar considerations. Average labor costs have more than doubled since the beginning of 2007. The average annual labor cost per worker rose to more than 40,000 yuan ($6,400; 4,884 euros) in 2011, from less than 25,000 yuan five years ago.

Given the context, it is easy to calculate the tradeoffs of getting a robot. "In fact, industrial robots are already cheaper than workers in China's eastern regions," says Wang Tianmiao, who heads the expert panel of robot technology under the State High-Tech Development Plan.

Wang says a typical industrial robot costs about 300,000 yuan and has annual maintenance costs of 20,000 yuan. The total layout of 500,000 yuan over 10 years is considerably less than that for a 6,000-yuan-a-month technician, and robots can work three times more efficiently.

In general, robots fall into two categories, industrial and service, according to a definition provided by the International Federation of Robotics, an industry alliance based in Frankfurt, Germany.

Industrial robots are used in industrial automation applications, while service robots are usually found in the fields of medicine, inspection and maintenance systems, but they also have personal and domestic uses.

However, the revenue from service robots is meager compared with that of industrial robots. In 2012, the industrial robot market was worth $8.5 billion, while service robots accounted for just $636 million.

"Robots are efficient. They can work 24 hours a day, offer more output in repetitive work, are much more accurate and keep manufacturers away from a reliance on human labor," Reuter says.

An automation boom among Chinese manufacturers has spelled tremendous opportunities for KUKA, which controls 20 percent of China's robotics market.

Reuter says sales in China reached 2 billion yuan last year, which accounted for one-fifth of KUKA's overall revenue.

The new assembly line in Shanghai is designed to mass-produce the KR Quantec robot series and KR C4 universal controllers, which went on the market in 2011 and widely applied in the automotive industry.

It has more than 30 regular Chinese suppliers for the manufacturing base, which applies equally high standards throughout the world.

While originally designed to serve all Asian markets, Reuter predicted that production from the new factory will barely be enough to feed the soaring demand for robotics in China.

Two driving forces propelled KUKA to deploy its China strategy with greater ambition.

One was a recent government call to push ahead with urbanization, enabling the older, rural population to enjoy a modern lifestyle similar to their city peers. That generates huge demand for domestic automized facilities.

The other is the ever-expanding demand from Chinese original equipment manufacturers, where automakers such as Great Wall Motors Co Ltd and Geely Automobile Holdings Ltd rose to become prominent businesses and created the need for the next level of a surge in automation accordingly.

"Apart from the auto industry, the glass industry and art welding are the next bright spots," Reuters says.

China now ranks as the globe's sixth-largest market in terms of robot installation. The International Federation of Robotics predicts the country will overtake Japan as the top user of industrial robots by 2014, with demand reaching 32,000 units.

The Chinese government supports the development of robots. The 12th Five-Year Plan (2011-15) outlined a plan for overall revenue in the intelligent equipment sector to exceed 1 trillion yuan by 2015, an annual compound growth rate of 25 percent.

The ambitious target also includes 30 percent of intelligent equipment with homegrown technologies. It further sets out to localize production of robotics and relevant electrical machinery by the end of the plan.

Like KUKA, many industry giants are looking to capitalize on the robotics boom.

Swiss firm ABB AG established its first global quality center in Shanghai in early 2012.

Staubli Holding AG has invested 200 million yuan in expanding its factory in Hangzhou, Zhejiang province. It also plans to build an industrial robot assembly production line.

Reuter identifies two key elements to determine the quality of robots: on the one hand applications and software and, on the other, people.

The repeatable accuracy of a KUKA manipulator, which means the measurement of the variation in the position of a robot manipulator from one cycle to the next, can be as little as 0.01 millimeter, depending on customer needs.

This contrasts with a typical Chinese robot that operates around a 1 mm dimension, says Sun Zhiqiang, managing director of Risong Group, an automation company in Guangzhou, Guangdong province.

But Reuter still keeps an eye on the development of Chinese robot makers.

"They are catching up fast so we are closely watching them. A real differentiator is people, so we need to stay ahead of the curve by recruiting the best talent."

As a result, KUKA sends its employees for up to three months of training at its German headquarters so they can master the necessary skills.

Reuter picked up his managerial talent from his family business, run by his parents. He helped make business decisions when he was young.

"We want to make sure that KUKA China is a Chinese company," he says.

hewei@chinadaily.com.cn

An industrial robotics exhibition in Hefei, Anhui province. China is the sixth-largest market for robot installation. Provided to China Daily