The Rise of Co-Bots

Industrial robots have been around for decades, but only recently are they showing their true potential to revolutionize the global manufacturing ecosystem. This potential is driving investor interest and fueling the emergence of a variety of robotics startups, many of which are not only developing the most advanced and innovative robotics to date, but are also focusing on the increasingly significant role of machine-human interaction in the workplace.

Can a robot help you with that?

The estimated 1.5 million[1] robots in use globally are predominantly used by large manufacturers in the automotive and semiconductor industries; all are engaged in tasks that were once performed by human labor. While these robots have taken center stage as they steadily replace traditional factory workers, a new and novel trend is emerging with the arrival of collaborative robotics. Rather than entirely replacing the human element, these aptly named “co-bots” are designed to work alongside their human colleagues, assisting in a variety of intricate tasks and only taking over the most repetitive activities. By combining the complex decision-making ability of the human brain with the speed and accuracy of a machine, these co-bots are designed to increase productivity beyond what a robot or human could achieve on their own.

As sensor technology, connectivity and big-data analytics see steady advancement and powerful low-cost components become more widely available, these highly adaptable co-bots are becoming increasingly affordable and ubiquitous. Small- and medium-sized enterprises are already using these machines for everyday activities, including assembly, packaging and material handling. As the technology continues to mature, these specialized robots will inevitably continue to expand the scope of their capabilities.

The role of wage economics

As with many new technologies, the increasing presence of co-bots on the factory floor is largely due to quickly declining costs. In this case, the cost of the incumbent competition is the wage rate of the average stand-alone factory worker. Baxter, a co-bot from Rethink Robotics, operates at just over the hourly wage of the average factory worker in China, the nation with the largest global manufacturing output today. While the cost of co-bots like Baxter is decreasing, wages in China have been increasing dramatically[2].

As the disparity in costs between stand-alone human labor and robotic manufacturing increases, it becomes less economically viable for a company to continue to solely employ factory workers, especially when more forward-thinking competitors are using lower-cost and increasingly capable co-bots in their manufacturing process. Furthermore, the increased flexibility of these advanced co-bots allows manufacturers to automate processes that were previously impossible to automate, even with traditional robotics. Together, both decreasing costs and increased capability are fundamentally driving the growth of this sector.

Will co-bots help revive U.S. manufacturing?

Manufacturing as a share of the U.S. economy has dipped from 14 percent of GDP and 11 percent of jobs in 2013 to 12 percent of GDP and 9 percent of jobs in 2016. In the face of this decline, there are a number of initiatives to increase manufacturing jobs in the United States, with many seeing co-bots as one of the solutions. In addition, the collaborative robotics sector as a whole is expected to experience a 51-percent cumulative annual growth rate through 2019, reaching over $1 billion by 2020. The increasing growth of co-bots may be enough to stem the tide of outsourcing and domestic job losses; many believe this growth will be the catalyst of a manufacturing revival in the United States.

With investor interest growing, new startups are finding a ready source of capital to fuel their growth prospects, with startups like Rethink Robotics quickly becoming a leader in the space. Others are finding their niche; for example, Fetch Robotics is tackling warehouse logistics with its range of transport robots, and Flirtey is testing drone delivery with 7-Eleven. These startups are competing with larger incumbents, including FANUC, KUKA and ABB for industrial robots. Tech giants are not missing out either, as Amazon bought Kiva Systems in 2012 to automate its warehouse logistics and Apple recently announced a $1 billion fund[3] to invest solely in U.S advanced manufacturing

China leads in robot deployment
 
 According to the International Federation of Robotics, more than 1.4 million new industrial robots are expected to be installed in factories around the world by 2019. The top five countries investing in robotics are China, South Korea, Japan, the United States and Germany.

With 36 percent of GDP coming from manufacturing (more than twice the global average of 15 percent), China is leading the way. By 2018, China is expected to account for more than one-third of the industrial robots installed worldwide. In the global race to automate manufacturing, the European Union is also a front-runner, with 65 percent of member nations having an above-average number of industrial robots per 10,000 employees. As mentioned, North America is also a leader in the space, with 35,000 robots installed in 2016[4], a 10-percent increase from the year prior.

What are the future trends?

In the near future, we will see an increasing reliance on co-bots to help factory employee’s complete advanced, complex manufacturing tasks and processes. This will drive a dramatically higher level of automation for basic manufacturing jobs, even sometimes taking the human equation out the process altogether. For instance, in China, the near-full automation of a cell-phone factory increased productivity 250 percent while reducing the number of defects by 80 percent. In some cases, the emergence of “lights-out” manufacturing, which describes automation that requires no employees to be physically present, will further ramp productivity metrics while reducing costs. One notable example is the FANUC manufacturing facility in Japan, where robots build other robots.

Still presently a big challenge in current factories is the transitions between tasks, which limit the introduction of full automation without the need for expensive retro-fits, or even the building of a new factory all together. However, once the existing factories and infrastructure are replaced and the enabling technologies continue to evolve, all steps in the supply chain will be automated to a much higher degree — from design, to manufacturing, logistics, and even customer service. The impact from co-bots and their constituent technologies, will define the manufacturing processes of tomorrow. In short, we see a bright future for advanced manufacturing, and we’re excited to see what the future holds for companies innovating in this space.

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Companies referenced throughout this document are independent third parties and are not affiliated with SVB Financial Group.

This material, including without limitation to the statistical information herein, is provided for informational purposes only. The material is based in part on information from third-party sources that we believe to be reliable, but which have not been independently verified by us and for this reason we do not represent that the information is accurate or complete. The information should not be viewed as tax, investment, legal or other advice nor is it to be relied on in making an investment or other decision. You should obtain relevant and specific professional advice before making any investment decision. Nothing relating to the material should be construed as a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction.

[1] Robotics & Automation Market Outlook — 2017, ROBO Global

[2] Huffington Post, BLS, IB Times, CNBC

[3] Reuters — http://www.reuters.com/article/us-apple-fund-idUSKBN17Z2PI

[4] Robotic Industries Association

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