‘China Price’ Just One Hurdle to Compete in ‘World’s Manufacturing Center’

In recent years, North American and European machine vision companies have rounded out their revenue numbers by focusing on high growth markets in Europe and South America. But these weren’t the highest growth markets during the past decade. China, ‘the world’s manufacturing center,’ has enjoyed near double-digit growth and is expected to continue to lead the world as the number one growth economy as it attracts more foreign and domestic manufacturing interests.

So, why aren’t more vision systems for quality control sold in China?

The answer is buried inside the question. Despite China’s economic growth, North American and European vision companies have traditionally looked to China as a low-cost-labor manufacturing region, rather than a vast market of untapped vision customers. And the machine vision industry isn’t alone, of course. China’s low-cost labor has prompted manufacturers from all industries and regions to set up facilities in China and other Pacific Rim nations, but cheap labor is a sword that cuts both ways. Cheap labor has created an expectation in China that vision solutions should work almost as cheaply as China’s abundant labor pool, regardless of the quality and productivity improvements machine vision offers compared to manual inspections.

Of course, the one constant in life is change, and economic success breeds its own challenges. Recently, China passed a new minimum wage labor law, has adopted new environmental regulations, and is trying to find the best way to transition 1.3 billion citizens to a higher standard of living without bankrupting the country or inflating the economy. These challenges, combined with the growing number of multinational manufacturers with their associated higher-quality product standards and demanding customer bases are causing Chinese facilities to reconsider machine vision.

The cheap labor market is finally becoming a customer itself, but as we’ll see, it takes more than a building, quality vision products, and engineering know-how to succeed in China.

Big Market, Small Prices
According to Paul Kellett, director of market analysis for AIA, China has benefited from close to 9% annual economic growth for the past 6 years. Kellett predicts that China will continue to grow between 7.6% and 9% per year through 2011, which equates to a potential for China to represent 37% of global demand for machine vision technology. This compared to 26% and 27.5% for North American and European markets.

‘‘The China manufacturing market has traditionally been considered ‘low tech,’’‘ explains Joseph Smith, sales director at machine vision lighting supplier, Advanced illumination (Rochester, Vermont). ‘‘But the rate at which they are advancing is much faster than anything I’ve seen in North America or Europe. They’ll probably compress 20 years of our machine vision advances into 5 years.’‘

Multinational companies that sell products outside of China, often to more demanding customer bases, have helped to plant the seeds of machine vision acceptance. ‘‘There are two types of customers in China,’‘ explains Steve Zhu, Director of Asia Business Development for DALSA (Waterloo, Ontario, Canada), who heads up smart camera sales for DALSA in China. ‘‘One group is formed by either joint ventures or multinational companies like Conoco, or GM. The other group is composed of domestic Chinese companies. For smart cameras and complex systems, our customers have mainly been the multinational companies that have to serve global markets.’‘

A new segment of small to medium size privately owned Chinese companies, particularly in the southern and eastern regions of China, are spinning off from government industries into textiles and electronic component manufacturing, according to Arthur Pang, DALSA’s frame grabber specialist for the Chinese market. These companies tend to use lower-end analog and digital cameras and frame grabbers, such as academic institutions, defense, aerospace and R&D. Government related institutions and academics still make up about 70% of DALSA’s Chinese revenue, while the rest is made up of multinationals and smaller domestic companies.

Regardless of which segment of Chinese industry a machine vision company targets, there seems to be one commonality: price. ‘‘People really love the product, but we also hear it’s too expensive,’‘ notes Lu-Chin Mschike, Director of Sales for China at PPT VISION, Inc.  (Eden Prairie, Minnesota). You hear it from all Chinese customers. It’s a very difficult market to sell on price, but it’s rooted in Chinese low-wage culture. At least, until they realize their product quality is unreliable and manual inspection can’t meet their goals.’‘

See a Need, Fill a Need
As China’s need for quality manufacturing processes grows, more opportunities arise for machine vision technologies that cannot be supported by local component vendors, which are typically limited to optics, lighting, and low-end frame grabbers.

For instance, DALSA distributes to China through several local companies, some of whom also make their own frame grabbers. However, DALSA has done very well with high-end frame grabbers, components, cameras, software and smart cameras for a variety of manufacturing sectors that cannot be easily or quickly developed.

‘‘Software is easier for China to manufacture than hardware, but developing good vision software takes time,’‘ explains DALSA’s Zhu. ‘‘We have spent 20 years developing software for general purpose machine vision applications. While Chinese vision suppliers have developed good software for specific tasks, general purpose software requires a lot of knowledge and experience.’‘

Dirk Muschert, director of marketing for SCHNEIDER-KREUZNACH (Bad Kreuznach, Germany), is quick to add that software, which is labor intensive and an active part of Chinese vision development, cannot replace data lost through poor-quality hardware. ‘‘The Chinese approach is often to avoid high-cost components and to compensate for hardware weaknesses with software, which is in the end, manpower. Low labor costs can make that work to a certain extent, but in certain applications, once the object information is destroyed by a poor contrast lens, it is not physically possible to extract the information with a software algorithm. That being said, the barrier to adoption in China is still – in many cases – cost.’‘

While selling on ‘price’ can make it more difficult to educate the Chinese manufacturing population about the benefits of machine vision, the size and diversity of the Chinese manufacturing sector means that opportunities abound. Advanced illumination has had significant success in currency and printing applications. DALSA’s frame grabber business has been supported by the textile industry (among others), while it’s high-end cameras have developed China’s aerospace, defense, academic, and emerging flat-panel industries, as well as automotive, automation, electronics and pharmaceutical packaging, for the past 10 years. PPT VISION, who has long targeted electronics, continues to see success in this sector, particularly as components shrink in size until manual assembly and inspection is no longer a viable alternative. 

Wanted: Integrators, Support Personnel
In a market that recently started selling a white LED ring light for machine vision at $100, non-Chinese companies may question how they can compete. The answer lies not in price, but in quality, functionality, and more than anything: local support.

‘‘We used to bring engineers in from the U.S. to provide tutorials for partners to get up to speed, but the low cost of the product is so important, and regional cultural such a part of Chinese business that you can’t be successful without local support,’‘ says PPT VISION’s Mschike. ‘‘Some of our competitors have gone away from developing local support, but we think that’s what leads to more loyal partnerships in China.’‘ 

DALSA’s Zhu confirms the importance of support by looking at the response from different Chinese market segments. ‘‘The research scientist that buys high-end equipment understands programming and English, so once you teach him, he can do it on his own,’‘ Zhu says. ‘‘But there are many different levels of understanding about machine vision when you get into Chinese manufacturing industries, so it takes more support. And if you bring in non-Chinese support personnel, they have to tackle the technology, as well language and culture. The same is true for integrators. DALSA is just part of the solution for a production floor. China needs more competent integrators to help the market make the best use of vision systems.’‘

To illustrate the importance of domestic support and language in vision systems, PPT VISION says its recent introduction of Chinese character support for GUI’s is paying off. ‘‘Back in the days when I was supporting China sales, which is almost a decade ago now, one of the biggest barriers we faced was indeed the language,’‘ explains PPT VISION’s Marketing Communication Manager. ‘‘I can recall countless situations where customers and potential customers were having a hard time not only in terms of communications and training, but even after the lead production personnel were trained and learned how to use the product, they would have a hard time ‘‘selling’‘ it to the rest of the production crew because the control panel and software screens still looked foreign to them. Making our software GUI ‘multi-lingual,’ particularly in Chinese, was on our product enhancement list for the longest time. Due to amount of time and effort it takes to support multi-language, particularly East Asian characters, we finally accomplished that earlier this year.  We have since received many positive comments from Chinese customers.’‘

Despite the challenges to selling vision into the Chinese market, there is no question that market potential will eventually be realized. Currency valuations, currency transfers, and IP protection continue to plague non-domestic businesses operating in China, but conditions are improving, according to AIA members that do business in China. In the meantime, educating a populace of several billion people may remain machine vision’s greatest challenge.

‘‘When we get to customer sites, there’s a much better chance in the past few years that an engineer has heard of or tried machine vision, and that’s a good thing,’‘ explains PPT VISION’s Mschike. ‘‘But sometimes that can be more of a problem than a benefit. They know enough to be dangerous, and can make the sale more difficult. Finding an engineer that really understands machine vision - understands the pros and cons, and limitations of vision systems in respect to changing light, noise and vibration from manufacturing equipment - that’s hard to find. Their knowledge just isn’t to that level yet.’‘