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ESSAYS ON ISSUES THE FEDERAL RESERVE BANK OF CHICAGO NOVEMBER 1987 NUMBER 3 Chicago Fed Letter R obots O urs are sm arter; theirs sell better Something happened on the way to an American robotics industry. In spite of much ballyhoo from time to time, both the production and adoption of robots in the U.S. have fallen short of expectations. Productivity gains by robot users have often suffered from unforeseen problems in getting the new machines on line. Consequently, do mestic consumption has leveled off in recent years as large users, especially automakers, have curtailed their pur chases of robots. Meanwhile, this American-born indus try has ceded its position of world emi nence in production and has been surpassed by the Japanese, who have benefitted from government support both for robotics technology develop ment and for the adoption of robots by Japanese industry. While heavy gov ernment support for robotics overseas has contributed to the troubles of the domestic robotics industry, it also ap pears that many U.S. producers con tributed to their own undoing by developing products that were too so phisticated and expensive. Once the world leader in robotics technology, the United States now leads in only a few remaining areas with foreign compet itors close behind. Robotics in the Midwest The U.S robotics manufacturers (as self-defined by trade association figures) are highly concentrated in the Mid west, including the Seventh District slates: Illinois, Indiana, Iowa, Michigan, and Wisconsin and partic ularly in the state of Michigan (see map). Over one-third of reporting firms were located here in 1986 with one-half of those in the state of Michigan. Michigan’s strength in robotics derives from the stale’s contin ued specialization in auto production. This industry has widely adopted robotics for use in painting, welding, and, to a lesser degree, assembly. GMF Robotics of Michigan reportedly leads the domestic industry in sales. This company is a joint venture be tween GM and Fanuc Limited of Japan. Designs for basic GMF units largely originate overseas, but the company estimates that each sales dol lar is comprised of approximately onehalf value added performed in the U.S. The robotics industry is also wellrepresented in other Midwestern slates. Wisconsin-based ASEA, a subsidiary of ASEA of Sweden, reportedly adds sig nificant value to its products on the U.S. mainland. Other industry nota bles include Cybotech Corporation and Thermwood Corporation of Indiana and GCA/Industrial Systems Ltd. of Illinois. Recent industry trends The industrial robot market originated in the U.S. about 25 years ago. Ac cording to U.S. Department of Com merce count, there are approximately 60 manufacturers of industrial robots in the U.S., as of 1986. The large number of producers masks a significant con centration, however; the top 10 pro ducers account for approximately 80 percent of domestic production. Following a long period of disappoint ing robotics usage in the U.S., sales rose rapidly in the late 1970s and early 1980s. During this period, U.S. man ufacturers responded to the carrot of large productivity gains foreseen by analysts, and to the threats of overseas competition that w'ere emerging in tra ditionally strong domestic industries. So far, most robotic applications have been made by the auto, electronics, metalworking, and aerospace indus tries. Robot sales escalated very rap idly from 1983 to 1985 as extensive modernization programs undertaken, especially by domestic auto manufac turers, stimulated demand (see table). Now, however, the robotics industry is in a slump. Sales flattened in 1986 with some industry observers expecting as much as a 30 percent decline for 1987. Lagging sales stem from cut backs in capital spending by domestic auto producers, who are reportedly ex periencing a difficult transition to the new' technologies. As a result of falter ing market conditions, many firms are merging, closing down operations, and abandoning domestic product develop ment in favor of foreign product lines. Japanese successes While the robotics industry originated in the U.S., the Japanese were quick to follow, developing their own domestic markets before penetrating U.S. and world markets during the 1970s. Japan now leads the world in overall pro duction, followed by the U.S. and Western Europe. The United States, Japan, France, and West Germany are the largest users of robots. Japan re ports significantly more robots installed in their factories but many of these are less sophisticated in their operations than those installed in U.S. factories. Most analysts believe that the U.S. balance of trade in robotics was roughly in balance in the early 1980s.1 However, the value of imports has risen sharply since that time, moving the U.S. into a deficit position. Japan has strongly gained share of U.S. markets in recent years. The U.S. imports an estimated 40 percent of robots with 80 percent coming from Japan. (The re mainder arrives from Western European countries—especially Sweden and West Germany.) Domestic producers have responded to strong foreign competition by cutting back on the manufacture of many robotics products—especially basic units. Instead, joint ventures and li cense agreements with overseas firms have become common. U.S. firms have increasingly imported basic robot units, Domestic robotics shipments and number of producers 1983 1984 1985 1986 Robotics Institute Data Shipments (units) Value of shipments ($ millions) 3.060 194 5,137 333 6.209 443 6.219 441 U.S. Department of Commerce Shipments (units) Value of shipments ($ millions) Number of producers n.a n.a n.a 6.534 226 75 5.466 276 72 6.150 251 60 Sources Robotics Industries Association, and U S Department of Commerce. Bureau of the Census. Current Industrial Reports especially from Japan, then added re finements and peripherals such as soft ware and vision systems on the U.S. mainland. In fact, several firms have moved toward becoming service firms—selling, installing, and adapting foreign-source equipment in their U.S. factories. Why has Japan been so successful in encroaching on this domestic industry long before the industry itself has fully blossomed? The first reason is a famil iar story: The Japanese government extended extensive support and en couragement to the robotics industry through government-sponsored R&D programs and low-interest loans. Such support facilitated the growth of a large domestic market prior to widespread overseas marketing. The government encouraged market development through the use of tax incentives to domestic purchasers and lessees of ro bots. The wide domestic use of robots helped producers by providing a testing ground for quality control and appli cations. Moreover, a large Japanese market also contributed to economies of scale and lower production costs, which subsequently translated into very competitive export prices. Exports ac counted for only an average 4 percent of Japanese robotic output from 1977 to 1980. By 1984, this figure had jumped to 28 percent. U.S. robots— too clever? A second reason for the disappointing U.S. performance may be tied to de velopment mistakes. Imports encroached on domestic markets early because, in part, early generations of domestic robots were typically complex in design- perhaps loo complex. As a result, some domestic products w'ere very expensive and required frequent maintenance. Robots produced in Japan and Western Europe were often mechanically simpler and less expen sive. Undoubtedly, much energy was mistakenly expended by U.S. research ers in trying to build sophisticated ro bots to mimic human work routines and abilities rather than learning to apply existing robotics technologies to factory functions. In rebuttal, how ever, many involved in U.S. robotics technology lay the blame for slow U.S. market growth at the feet of U.S. manufacturers who w'ere too conserva tive in bringing the early robots into their factories. Whatever the reason for the difficulties of the domestic industry, however, all is not lost. The U.S. continues to lead in some robotic technologies. As robotics users learn to apply robotics in their factories, the need for more so phisticated robots may emerge. If so, domestic producers may expand mar ket share. Robots with vision and tac tile sensors will most likely be the next major advance. Already G.M. and Ford use some robots with vision sys tems, for example, to install auto windshields as they move down an as sembly line. With much of the research in “machine vision” being conducted in the Detroit-Ann Arbor area, U.S. producers can potentially emerge ahead of the competition in this area. Seventh District perspective Along with their U.S. brethren else where, Midwest producers are re trenching in response to slumping sales. Robots in use percent (totals to 100) 0 15 30 45 New England Mid-Atlantic South Atlantic East North Central West North Central East South Central West South Central Mountain Pacific S ource S ociety of M a n u fa cturing E ngineers/T he U niversity of M ichigan. In d u s tria l Robots. Forecasts a n d Trends. D elphi Study. A n n Arbor. 1985 The Midwestern problem may be magnified because of the pullback in robotics purchases by the auto indus try. But even before that, it was ap parent to many industry analysts that robotics usage would soon spread be yond the auto industry. And, as robotics sales spread to industries such as electronics and aerospace, the mar ket share of Midwestern producers could be expected to diminish. These market developments appear to dim the prospects for robotics pro duction to make a significant contri bution to Midwest revival. However, regional growth may be more closely tied to technological gains acquired through the purchase and adoption of such innovations as robotics rather than the actual production of robots. Those regions gaining an edge in tech nology through early adoption of proc ess technologies will have competitive advantages over neighboring regions. Several studies have reported signif icant regional differences in the rate of technology diffusion and the Midwest already has the lion’s share of robots installed (see chart).2 Several factors will determine if the Midwest adopts emerging factory au tomation technologies more rapidly than other regions. The concentrated presence of producers in the Midwest may encourage a rapid adoption of robotics technologies by Midwest in dustries. Producers have learned that successful robotic installations are often those in which the vendor takes an ac tive role in integrating new technolo gies with the production system, so robotics vendors have the incentive to push local adoption. Physical proxim ity can be valuable in supplying factory automation systems. However, this need for a close relationship between producer and vendor has encouraged many large firms, such as GM, GE, IBM, and Westinghouse, to opt for inhouse robotics subsidiaries. This inhouse phenomenon has taken away much of the potential market of the independent producers. Remaining Midwest robotics producers now have an incentive to cultivate a small-firm market niche to insure their own survival. But expanding the mar ket for smaller robotics-using firms will not be easy. Firm size has been identi fied as an impediment to factory auto mation because of the high costs and risks imposed on smaller firms. Here again, the region’s early start in factory automation has possibly helped to spur technology adaptation in the Seventh District. The Midwest contains several public institutions to help overcome the barriers that small-to-medium firms must surmount in considering new technologies. One, the Industrial Technology Institute in Ann Arbor, Michigan, provides direct and practical services to individual firms seeking to implement computer-controlled manu facturing systems. Another, the Inter national Flexible Automation Center in Indianapolis, will soon emerge as an educational center for small-to-medium firms and a clearinghouse for intelligent machine producers. Conclusion With the infant robotics industry in a state of flux, it is far too early to tell whether the production segment of this industry will settle in the Midwest. In any event, the domestic industry may well end up far smaller than once pre dicted owing to a surge of foreign competition and disappointing rates of adoption by user industries. Similarly, the impact of the new technology on the geography of manufacturing cannot be predicted. Still, the Midwest’s quick start in both applying and producing robotics technology bodes well for fu ture productivity gains in the District. - William A. Tesla 1 H istorical d a ta on robotics a rc n o t w idely a v ailab le because sales w ere previously subsum ed u n d e r existing S IC codes. T h e C ensus B ureau is now w restling w ith an a d e q u a te d efinition o f this industry. T h e 1987 Census o f Manufactures will rep o rt on robots as a 5-digit “ p ro d u ct class” w hich will m ean th a t som e lim ited d a ta will be rep o rted on. S u b seq u en t analysis o f the 5-digit d a ta will help d eterm in e the possi bility o f defining robotics as a “4 -d ig it” in dustry. 2 T h e M idw est is rep resented by th e N orth C e n tra l regions in th e c h a rt. T h e E ast N o rth C e n tral region includes all states o f the S eventh D istrict ex cept Iow a. It also covers O h io . A m ore recent study reports the a d o p tio n rates for a wide range o f a u to m atio n technologies by industry in each o f six G re a t Lakes S tates. See Frostbelt Au tomation: The I T I Status Report on Great Lakes Automation, In d u stria l T echnology In sti tu te, A nn A rbor, M ich ig an, 1987. See also J o h n Rees, R o n ald Briggs, an d R aym ond O ak ey , “T h e A d o ption o f New T e c h n o l ogy in the A m erican M ach in ery In d u s try ,” Regional Studies, V ol. 18, N o. 6, pps. 489-504. Karl A. Scheld, Senior Vice President and Director of Research; David R. Allardice, Vice President and Assistant Director of Research; Edward G. Nash, Editor. Chicago Fed Letter is published monthly by the Research Department of the Federal Reserve Bank of Chicago. The views expressed arc the authors' and are not necessarily those o f the Federal Reserve Bank of Chicago or the Federal Reserve System. Articles may be reprinted if the source is credited and the Research Department is provided with copies of the reprints. Chicago Fed Letter is available without charge from the Public Information Center, Federal Reserve Bank of Chicago. P C). Box 834, Chicago. Illinois 60690, or telephone (312) 322-5111. ISSN 0895-0164 The Midwest Manufacturing Index (covering manufacturing industries in Illinois, Indiana, Iowa, Michigan, and Wisconsin) showed further improvement in Au gust, up 1.3 percent from the previous month. The gain marked the fourth con secutive advance for the index, after being relatively flat since the beginning of 1986. Capital usage accounted for most of the gain in August, while labor (measured by employment and hours worked) was virtually flat. The MM I showed a stronger gain than the Federal Reserve Board’s Index of Industrial Production, which gained only 0.3 percent in August. Both indices, however, were deriving much of their strength from durable-goods industries, particularly primary metals and nonelectrical machinery. An exception for both was transportation equipment, which reflected attempts to reduce inventories. Chicago Fed Letter FEDERAL RESERVE BANK O FCHICAGO Public Information Center P.O. Box 834 Chicago. Illinois (50690 (312)322-5111 NOTE: The \1M I is a composite index of 15 manufacturing industries and is constructed from a weighted combination of monthly hours worked, and kilowatt hours data. See ‘‘Midwest Manufacturing Index: The Chicago Fed’s new regional economic indicator,” Economic Perspectives, Federal Reserve Bank of Chicago, Vol. XI, No. 5, September/October. 1987. The United States represents the Federal Reserve Board's Index of Industrial Production, Manufacturing.
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