How Intelligence and Mobility Will Shape the Future

Schroders

Among the many trends accelerated by the pandemic are automation and reshoring, which is when a company brings production closer to its home market.

However, this is no short-term boost; these are trends that are set to prevail and grow for many years to come and provide rich opportunities for investors.

Last year saw massive disruption to global supply chains amid Covid lockdowns, worker shortages, and even a container ship stuck in the Suez Canal. Freight and logistics costs skyrocketed to all-time highs as booming demand for goods met tight supply conditions.

These events highlighted a need for greater resilience in supply chains. Given that imperative, the next decade looks set to herald a new cycle of capital expenditure (capex, or spending on buying, upgrading or improving physical assets).

Companies will lift long-term spending, with investment in automation spearheading this as it addresses both capacity and resilience concerns at the same time.

Automation to be adopted by more industries

The adoption of automation has already broadened out from the car manufacturing and technology sectors to other industries. This is due to multiple factors: advances in technology; a shorter payback time between making an investment in automation and seeing a return; declining working age populations; and the ability to automate more tasks and functions.

The obvious beneficiary since 2020 has been warehouse and logistics automation, after demand rocketed post Covid-19. Innovations, embedded artificial intelligence and better vision systems, as well as price deflation, are making automation investments the most economically attractive they have ever been.

Meanwhile, pandemic-related disruptions are also driving automation demand as manufacturing companies rethink processes and localization in the face of ever mounting labor shortages, longer lead times and rising costs. It’s therefore not surprising to see that the theme of reshoring noticeably accelerated towards the end of 2021.

We now see very clear data points, as well as commentary from company management teams, illustrating that we have reached the tipping point for both reshoring and automation. As the chart below shows, we think the potential for automation remains huge.

McKinsey & Company

Automation will drastically alter the way companies work, and this potential makes it a top priority for many business leaders. Indeed, McKinsey research shows that up to 50 percent of work performed today can already be automated with currently available technology. However, companies in the heavy industry sector (such as in energy, mining, utilities, and manufacturing) tend to struggle to set bold aspirations, develop robust business cases, and devise effective deployment approaches to take advantage of automation. Building these capabilities could help these companies capture benefits at scale, improve customer and employee experience, and build a long-term competitive advantage.

Delayed impact at heavy industry companies The heavy industry sector isn’t lacking in exploring or attempting automation, but those attempts rarely benefit the bottom line. A recent McKinsey survey found that 88 percent of respondents from the heavy industry sector have either embarked on an automation transformation or are planning to start one in the next year. Less encouraging, only 4 percent report capturing significant bottom-line improvements. Worse still, more than half of respondents believe it will take anywhere from a year to more than three years to realize bottom-line benefits—or simply don’t know. Yet more than 40 percent believe their organizations have been “successful” or “very successful” at meeting their automation targets.

Boston Consulting Group

Robotics is a diverse sector with many moving parts, and what its future will look like is a complex question.

Robotics has significant upside potential. But a more-nuanced analysis is that to succeed, established companies manufacturing machinery and industrial automation hardware and software must be both nimble and aggressive, prepared to take advantage of new strategic and technological directions that will likely become more important as 2030 approaches but may not be their traditional strengths. Meanwhile, smaller rivals and startups will be pushing innovation in areas that have the potential to generate high profits and alter the dimensions of the robotics industry. But the speed with which they will be able to transform the trajectory of the field is still a wildcard.

Trends That Will Shape Robotics

Robotics is a crowded industry of more than 500 companies making products that can be best broken down into four categories: conventional industrial robots and cobots, stationary professional services (such as those with medical and agricultural applications), mobile professional services (such as professional cleaning, construction, and underwater activities), and automated guided vehicles (AGVs) for transporting large and small loads in logistics or assembly lines.

Professional services robots will dominate the sector 

Currently only a bare sliver of the market, professional services robots will have sales that may be more than double those of conventional and logistics robots. We expect the global robotics market to climb from about $25 billion this year to between $160 billion and $260 billion by 2030, with market share for professional services robots hitting up to $170 billion and industrial and logistics robot sales topping off at about $80 billion. 

Robots will increasingly take over traditionally lower-paying and less skill-intensive jobs. The combination of a shortage of manual laborers and wage escalation in formerly low-wage countries will drive a more rapid replacement of humans with robots. Factory worker wages in China have doubled since 2007 and risen by more than 50% in India over the same period.

Artificial intelligence and other technological advances will enhance human-to-robot interactions. Rapidly developing breakthroughs in technologies involving machine intelligence, connectivity, and control will enable expanded robot capabilities and scope while simplifying human-to-robot interactions.

Among the most promising innovations, artificial intelligence (AI) will allow robots to handle unsupervised, unexpected situations; swarm intelligence will increase the flexibility of mobile robots to share and alter tasks on location; and imaging systems will enhance autonomous inspections, analysis, and movements. These capabilities will be augmented by 5G communications networks that increase mobile bandwidth and robot operational radius as well as so-called edge services, which are essentially cloud-based networks that expand robot and sensor computing power.

My conclusions and considerations

Annual installations of industrials robots will growth over the years.

Mostly of them are from Asia/Australia.

Companies are investing always more on it, so it’ll be very possible to see a new revolution of the world in this sector.

• Automation will drastically alter the way companies work, and this potential makes it a top priority for many business leaders.
• A recent McKinsey survey found that 88 percent of respondents from the heavy industry sector have either embarked on an automation transformation or are planning to start one in the next year.
• Robotics is a diverse sector with many moving parts, and what its future will look like is a complex question.
• Robotics has significant upside potential.
• Global robotics market to climb from about $25 billion this year to between $160 billion and $260 billion by 2030, with market share for professional services robots hitting up to $170 billion and industrial and logistics robot sales topping off at about $80 billion. 

Join the conversation with your own take on these topics in the comments below.

About the Author

Alessandro is a Financial Markets enthusiastic and he loves learning from articles/papers on many financial topics and in doing so he shares with you the most interesting charts and comments.

Disclosure

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.