China’s Midea Group Co. has a vision to put consumer robots in homes globally -- and it’s doubling down in Silicon Valley to get there.
The world’s biggest consumer appliance maker sees its 3.7 billion-euro ($4.4 billion) purchase of German robot maker Kuka AG as the linchpin to its expansion plans, from making robots capable of pouring beer to installing droids in factories without a single worker. Increasing the number of research engineers in the U.S. and adding a Kuka factory in China is just the start, Midea Vice President Hu Ziqiang said in an interview.
“We want to be the world leader,” said Hu on Wednesday at Midea’s headquarters in Foshan, Guangdong. “It will take time, but I think we can do it.”
Midea’s purchase of Kuka put it on the frontlines of the industrial robotics battle just as the country embarks on an ambitious plan to automate its vast manufacturing sector. Demand is being spurred by rising labor costs, making China’s $11 billion robot market the biggest in the world. At the same time, Midea plans to integrate Kuka’s expertise to expand into consumer products.
“We want artificial intelligence technology applied to robotics and applications,” said Hu, citing as an example its research on cooking appliances that can recognize the food that’s put into them and pull up recipes. “There’s huge potential for us to expand.”
The appliance maker plans to more than double the number of engineers to 100 that are working on product development and artificial intelligence at its research centers in Silicon Valley and Louisville, Kentucky, Hu said.
The Kuka-Midea combination, completed this year, may have an edge over other competitors in finding applications for industrial robot technology in the consumer robotics space. A good example of that synergy is the robotic arm that pours beer that Kuka exhibited, said Wilmer Zhou, a Shanghai-based senior technology analyst for IHS Markit. It’s a calibrating robot that the company designed for industrial use but can also tip a beer bottle in small degrees.
“This is the sort of technology other appliance companies won’t have -- used in a way that other purely industrial robotics companies won’t consider,” said Zhou. “Kuka has the technology while Midea has the understanding of consumer products and sales distribution network."
On the industrial robot front, Kuka will be able to tap into Midea’s vast logistics system and supply chain to lower costs that will allow it to gain market share from competitors, including Japan’s Fanuc Corp. and Switzerland’s ABB Ltd., Hu said. Kuka, which operates independently from Midea, will also cut costs in procuring core components from Servotronix, the Israeli company that Midea acquired in February.
Chinese manufacturers are still reliant on overseas brands for industrial robots. About 67% of China’s robot sales last year went to foreign companies. The government wants to boost the share of Chinese-branded robots in the country to more than half of total sales volume by 2020 from 31% last year. It aims to produce 100,000 robots a year by 2020, compared with 33,000 in 2015.
Under Made in China 2025 and a five-year plan launched last year, Beijing plans to focus on automating key sectors like car manufacturing, electronics, appliances, logistics, and food.
With its new Chinese owner, Kuka aims to be the top supplier in the Chinese market. The company is among the three biggest suppliers in the country with a 14% share, and aims to double annual sales over the next two years to 10,000 units, Chief Executive Officer Till Reuter said earlier this year.
Adding to its advantage, Midea has seen costs plummet. Midea’s workforce has halved to 100,000 since 2011, while revenue has grown, said Hu. That trend will accelerate as profit margins widen with further automation of Midea factories, he added.
The company’s sales per employee climbed to 1.65 million yuan ($250,000) in 2016, edging past rivals Qingdao Haier Co. and Gree Electric Appliances Inc., according to data compiled by Bloomberg.
The company’s profit has almost tripled in the past four years to 14.7 billion yuan in 2016 as Chinese families increasingly adopt higher-priced smart appliances such as refrigerators that connect to the Internet.
Midea has also acquired other companies overseas to strengthen its existing businesses, including Electrolux Group’s North American vacuum cleaner brand Eureka and Italian air-conditioner maker Clivet SpA. It plans to collaborate with Toshiba Corp.’s home appliance unit, in which it bought a majority stake last year, to boost sales in Southeast Asia, said Hu, who also heads the company’s central research and development institute.
“We can integrate to bring costs down and that will really increase the competitiveness for the robotics business, and drive market share increase,” said Hu. “We are going to be a big player on the world stage.”
