TECHNOLOGY AT WORK

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46 Citi GPS: Global Perspectives & Solutions February 2015 The Boston Consulting Group Manufacturing Survey suggests that more American companies are weighing the decision to manufacture in the US again. Figure 36 and Figure 37 provide a snapshot of the survey published in the Wall Street Journal. Figure 36. Q: Given the fact that China’s wage costs are expected to grow 15-20% per year, do you expect your company will move manufacturing to the US? Figure 37. Q: Please rank the most important factors you consider when deciding where to locate production for products consumed in the US Rubber and miscellaneous plastic products 67% 33% Labor costs 57% Industry and commercial machinery 42% 58% Electronic and electrical equipment and components 41% 59% Product quality 41% Computer equipment 40% 60% Ease of doing business 29% Fabricated metal products 35% 65% Transportation equipment 30% 70% Proximity to customers 28% No 0% 20% 40% 60% 80% 100% 120% Yes 0% 20% 40% 60% Source: Boston Consulting Group Manufacturing Survey, Feb 2012, WSJ Source: Boston Consulting Group Manufacturing Survey, Feb 2012, WSJ There have been several recent examples of manufacturing companies reshoring to the US We highlight in Figure 38 several examples of manufacturing investment in the US from both domestic and international industrial companies. This illustrates the theme of a global flow of capital into the US sector; the new facilities have not only increased the activities of multinational companies within the US, but have also added thousands of manufacturing sector jobs in the country. With this comes an increase in automation and more efficient production resources. There are now ~225,000 operational robots in US-based factories, placing the US second only to Japan in terms of robot use. One driver of the shift to robotics in North America has been the increase in capex investments by automotive original equipment manufacturers (OEM) and component suppliers, which allocate about 50% of their spending on robots. There has also been a growing application of robots in other non-auto industries, such as metalworking and life sciences/biomedical. This notable and broad-based growth in robotic equipment could further increase US manufacturing productivity, though it could come at the expense of manufacturing jobs as more production becomes automated. © 2015 Citigroup
February 2015 Citi GPS: Global Perspectives & Solutions 47 Figure 38. Reshoring examples in recent years Company Products Investment Location From-To Year (announced) Jobs Reshore/New Apple Mac products $100 mn Texas, US China-US 2012 Reshore Caterpillar Small construction machinery - Georgia and Texas, US Japan-US 2011 > 1,000 Reshore Celebriduck Toys - - 2012 50 Reshore Farouk Systems Hair Dryers - - China-US 2009 1,500 Reshore Ford Cars $6,200 mn US 2011 12,000 New+Reshore GE Appliances $1,000 mn Kentucky, US China-US 2012 c. 1,000 Reshore K'nex Toys - Pennsylvania, US China-US 2020 25-30 Reshore Lenovo PC Manufacturing - North Carolina, US 2012 100 Reshore Masterlock - Wisconsin, US 2012 100 Reshore Motorola Cellphones - Texas, US 2012 2,500 New+Reshore NCR <strong>AT</strong>M manufacturer - Georgia, US 2009 c. 3,000 Reshore Nissan Cars (Sentra model) - Mississippi, US Mexico-US 1,000 Reshore Oracle Data centre services & storage systems - Oregon, US Mexico-US 430 Reshore Philips Shaver production - Drachten, Netherlands China-Netherlands 2011 - Reshore Selected Furniture Furniture - Indiana, US China-US 40 Reshore Trellis Earth Products Bioplastic goods $8.3 mn New York, US China-US 2013 189 Reshore United Technologies Elevators - South Carolina, US Mexico-US 2012 360 Reshore Whirlpool Small appliances $40 mn Ohio, US China-US 2014 400 Reshore Whirlpool KitchenAid hand mixers - South Carolina, US China-US 2012 25 Reshore Source: Citi Research, Company, WSJ, Huffington Post Robots and Japan Japan and its robot industry Japanese names also dominate the supply chain Auto industry is about one-third of demand in Japan, half in the US but maybe threequarters in China Data from the Japan Robot Association (JARA) show that in 2013 the Japanese market for robots was worth ¥402 billion ($4bn). Overall shipment value fell 4% year-over-year, with the biggest drop seen in chip mounters down by 18%. In 2014 we think the market grew by over 20%, to close to ¥500 billion ($4.6bn), with CAGR of more than 10% expected over the next few years, as per volume forecasts made by the IFR. On a regional basis the largest and fastest growing market for the Japanese robot makers is China which now accounts for approximately 25% of total demand with the largest and most significant end user segment said to be the auto industry. The largest makers of industrial robots in Japan are Fanuc and Yaskawa, with 2014 revenues of about ¥170 billion (+20% year-on-year) and ¥140 billion (+16%), respectively. Other smaller suppliers include Kawasaki Heavy, Nachi Fujikoshi and Daihen. However, we note that industry data from the JARA also includes chip mounters, which do not meet most people’s idea of a robot, and it is worth highlighting that revenues at Fuji Machine in 2014 grew by about 5%, to ¥52 billion, with other large mounter makers including Panasonic Factory Solutions, JUKI and Yamaha. On the component side, Fanuc and Yaskawa both use in-house made servo motors and controllers but there are a wide range of Japan-based component suppliers such as Nabtesco (with its 60% share in precision speed reducers); Harmonic Drive (a smaller, niche player in precision speed reducers which is also partly owned by Nabtesco); THK (roller bearings); and Obara (a leading maker of welding guns). Including chip mounters, data from the JARA showed that in Japan the auto industry made up ~35% of the value of industrial robot demand in the third quarter of 2014. This is relatively low compared to the US where the auto industry is said to make up about half of total demand. Yaskawa suggest that maybe 70% or more of its total industrial robot shipments are to the auto industry but this ratio is closer to 80% in China. It is quite clear that the challenge for Yaskawa, Fanuc and other robot makers in China is to expand applications in the non-auto industry. © 2015 Citigroup
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TECHNOLOGY AT WORK

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