Japan and Euro Companies Dominate, but Can Software Prowess Get US Back in the Game?

President Trump has made reinvigorating US manufacturing one of his primary themes, and indeed there are trends, such as rising wages in China and the need for many manufacturers to be closer to markets, that at least modestly favor domestic production.

Another trend that could support growth in US manufacturing is the increasing adoption of robots on the factory floor. Robots decrease the need for labor, making the still much higher US labor costs less of an issue versus the offshore option.

Supply Chain Digest Says... "In the U.S. there's been a brain-drain in manufacturing technology," says Alex West, manufacturing-technology analyst at London consultants IHS Markit. What do you say? Click here to send us your comments Click here to see reader feedback

And indeed, the robots are coming and powering domestic production. Bu in a high bit of irony, nearly all the robots are coming from companies outside the United States.

"America is losing the battle to supply the kind of cutting-edge production machinery that is powering the new automated factory floor, from digital machine tools to complex packaging systems and robotic arms," the Wall Street Journal noted in a recent article.

Data from the Commerce Department show the US last year ran a trade deficit of $4.1 billion in advanced "flexible manufacturing" goods with Japan, the European Union and Switzerland, countries which lead the robotics industry.

That is double the 2003 deficit. The gap was $7 billion in 2001, but most of the decrease from that level to lower numbers comes from foreign companies making some of their robots in the US, not domestic companies providing robotic solutions.

The US does have an overall trade surplus in robotic-related technologies, but a growing deficit to Japan and EU countries, as shown in the graphic below. Even the overall surplus is the result of exports of components and less-sophisticated machinery, mostly to developing nations. The US largely imports all the more advanced robotics.

The trend is the same for the broader market for industrial machinery of all sorts. According to Germany's VDMA industrial-machinery trade group, in 1995, US manufacturers provided 81% of domestic demand for factory equipment. By 2015, that share had slipped to just 63%.

It's a tough scenario in a sense, in that even if US manufacturing was to surge, it would likely do so in tandem with a big increase in the imports of robots and other equipment, as manufacturers have very limited domestic sourcing options.

And that's before a wave of robots from China that is sure to emerge soon.

How the US reached this point is interesting. For example, in the 1980s, with US manufacturing hit hard by a deep recession early in the decade, nearly seven of 10 American machine-tool companies closed due to falling demand, the strong dollar and strategic miscues, according to a 1993 Rand Corp. study.

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In 1982, auto giant GM formed a joint venture with Japanese robotics company Fanuc, only to sell its half back to Fanuc, which is now among the global leaders in robotic technology.

Last year, German robotics company Kuka was acquired by Midea Group Co. of China for almost $4 billion, in a move that was very controversial in Germany. Midea is now pushing Kuka to find ways to lower the costs of its high-priced robots.

The continued decline in US manufacturing and offshoring in many sectors over the past couple of decades often meant less focus on automation in domestic plants.

"In the U.S. there's been a brain-drain in manufacturing technology," says Alex West, manufacturing-technology analyst at London consultants IHS Markit.

In an example of the current state, electric car maker Tesla uses many Kuka robots in its highly automated assembly plant in California. Then last year, Tesla bought German factory-automation specialists Grohmann Engineering GmbH to help build its new Nevada battery factory. Tesla's announcement said it sought "the best engineering talent in automated manufacturing systems," though most of the work from this new group will be done in Germany.

One hope for the US robotics industry: the country's general leadership in software. For example, Marlin Steel Wire Products LLC owner Drew Greenblatt spent some $5.5 million on robotics from Germany and Japan to save his company from low cost offshore competition.

Recently, Greenblatt launched Ready Robotics, which makes smartphone-style interfaces for industrial robots, aiming to make automation easier for small firms. "A lot of innovation is happening stateside," Greenblatt told the Wall Street Journal.

By augmenting robots with sensors for vision, motion and touch - a software focused field where the US is strong - American innovators are enabling automation systems to be reactive and not just follow rote tasks.

Jeff Burnstein, president of the Association for Advancing Automation trade group, says that among small technology companies "you're seeing a lot of drive innovation in automation in the US."

Is it ironic that revitaling US manufacturing may be done with offshore robots? What can the US do to get back in the game? Let us know your thoughts at the Feedback section below.

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