RaaS and the New American Challenge

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1Q 2018 | IN-5056

China’s strategic technology investments have given it the early lead in the robotics market, but America’s RaaS-based vendors are taking advantage of lower CAPEX and shorter development times. Regulation and legislation will prove to be challenges and international competition will continue to increase.

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Global Competition, Particularly from China


Jean-Jacques Servan-Schreiber’s seminal and much-vaunted 1967 book, The American Challenge, is insightful in light of today’s robotics industry. In his book, Servan-Schreiber describes how American businesses like IBM and General Motors were outcompeting their European counterparts, and that American technological know-how and entrepreneurial spirit would leave Europe behind. This was a warning to Europeans that American capital represented a long-term challenge to their economic competitiveness.

Servan-Schreiber’s warning still resonates, but the roles have changed. It is the Americans who routinely worry about the effectiveness of other countries in outcompeting American rivals, especially as it relates to advanced technology. This particularly relates to China and its push to compete and eventually dominate in a variety of fields, including quantum computing and artificial intelligence.

Robotics stands out as a key market where America has been conspicuously limited in its influence. This is in stark contrast to most other key technologies. None of the major industrial robot manufacturers are American, and the largest collaborative robotic maker, Universal, emanated from Denmark.

Anxiety among American thought leaders has grown regarding their country’s relative disinterest in strategic technology investments, especially when considering the actions of the Chinese leadership. In January 2017, billionaire investor Mark Cuban argued that government funding for infrastructure should be reallocated to robotics, where Chinese investment far exceeds that of the United States.

China’s political response to its demographic and business challenges has been to invest heavily in strategic technologies. The country’s ambitious and wide-ranging “Made in China 2025” program was launched to improve and modernize China’s manufacturing sector. Robotics technologies will play a significant role in this.

Traditionally an importer of robotics, Chinese companies are looking inward and developing their own solutions, while also reaching out to partner with leading international robotics companies, such as ABB, Fanuc, Yaskawa, Kawasaki, and others. Chinese appliance maker Midea Group even bought Kuka, a German industrial robot manufacturer, in December 2016. In other categories related to robotics, such as drones, China’s DJI has forced out Western competition to become the undeniable market leader for both consumer- and commercial-grade hardware.

The United States has its analogous government initiatives with plans to invest in robotics, particularly in collaborative systems, such as the National Robotics Initiative (NRI). However, there is serious concern that China has built an early lead in investing in strategic technology.

Early RaaS Vendors Dominated by America


But with the development of robotics-as-a-service as an integral part of the future robotics market ecosystem, American companies have led the way in developing services that lower the barriers to robotics adoption and shifted CAPEX to OPEX. A new ABI Research report profiles a number of the most prominent RaaS providers that have arisen over recent years, and they are disproportionately American-based. This is a major departure from the wider commercial and industrial robotics industry, where America does not lead in robotics adoption, is not present among the largest manufacturers or distributors, and will not be close to the largest market in the future (which will still be China).

Because RaaS is centered around collective resource-sharing platforms, partnerships, and customer service, it is a better fit for the American business landscape than capital-intensive robotic platforms heavily tied to manufacturing. The shifting value of robotics from manufacturing to services naturally benefits the world’s largest service economy.

At this point, the larger robotics industry is still centered around manufacturing, where the United States has significant challengers in Asia and Europe. But RaaS, with its lowering of barriers to adoption, is becoming more popular across the service industry, which is more attractive to American entrepreneurs.

There is a secondary factor to America’s disproportionate profile in the RaaS vendor landscape. In a number of profiles, RaaS companies were heavily interconnected with the American defense industry. In the case of Sarcos, its development of exoskeletons was originally specified for technology demonstrators for the U.S. Armed Forces.

One of the biggest structural problems facing American defense companies is the exorbitant CAPEX coupled with very long development times, often leading to solutions that are over-budget and unsuited to a rapidly changing environment. Militaries are keen to shorten the development life cycle. RaaS companies can do this, and provide novel solutions to problems the military may have, but not the resources or flexibility to tackle. A clear example of this is the value military forces in the United Kingdom and the United States are getting from underwater data-capture platforms like those from Liquid Robotics.

The prevalence of RaaS providers in the United States offers a major opportunity for economic growth. With a tightening labor market, sustained growth of the kind expected prior to the 2008 crash is hard to achieve. The productivity and efficiency gains of deploying robots across a range of market verticals can offset the lack of new entrants in the workforce and help unshackle the country from secular stagnation, the phenomenon where market-oriented economies with aging populations struggle to post significant growth.

Regulation Could Hinder Competitive Advantage


Most examples of RaaS in the United States are in the fairly early stages, with very few independent providers having a workforce greater than 250 employees. There are also serious questions about the effects of regulation and legislation. RaaS has the potential to take robots out of controlled environments and into public spaces, but this has already irked political actors. The most glaring case of this is the San Francisco Bay Area, where, unsurprisingly, a great many RaaS companies test their first deployments. Ironically, the city most associated with technological innovation in the United States has also seen the most public rejection of robotics in public spaces.

In May 2017, San Francisco officials proposed legislation that would ban autonomous delivery robots like those from Starship Technologies. Reasons for legislation included the possibility that robots might inadvertently harm children or that they illicit bad reactions from pets. In December 2017, San Francisco followed up and severely limited autonomous delivery. Among the new regulations was a requirement for companies to have permits, and to only test in areas within industrial zoning. Among the most major limitations were:

  • Platforms cannot operate at more than 3 miles per hour.
  • Platforms cannot operate on sidewalks that are 6-feet wide or more.

There have also been misgivings about Knightscope’s security bots and the enforcement of property rights, with some activists suggesting the robots put property before the growing number of homeless people that populate the West Coast. These actions may just be initial pains associated with the rolling out of new technology, or they could be the harbinger for more wide-ranging limitations on RaaS providers in the future.

After being something of a secondary player in the robotics industry, the United States has a lead in one of the most dynamic parts of the industry, the growth of RaaS as a legitimate alternative to standalone purchasing. With China becoming the largest market for industrial robots and Chinese conglomerates buying Western firms, the competition will increase at the international level in terms of robotics development.

While the stakes are high for the countries competing, customers everywhere are likely to benefit from lower barriers to robotics adoption. This particularly relates to small and medium-sized enterprises that are affected by the mass-customization trend in the consumer market and need easier access to sophisticated automation solutions.