The great convergence
China aims to lead the world in connecting the factory
Jul 23rd 2016 | SHANGHAI
THE “internet of things” (IoT) is much hyped. For a decade, a world in which household appliances, packaged goods, clothes, medical devices and much more besides would be connected to the internet via smart chips and capable of sensing and sharing information has been just around the corner. Progress remains slow in the consumer market, despite a few hit products, such as the Fitbit, an activity tracker that connects to smartphones. An industrial form of the IoT, however, may come to fruition much faster.
As the world’s biggest manufacturing power, China is well placed to lead this transition. Which is why this week GE, the world’s biggest industrial company, opened what it calls a “digital foundry” in Shanghai. The centre will help Chinese companies develop and commercialise products for the industrial internet of things, which involves factory machines and industrial goods communicating with each other and their surroundings. It will probably be a much bigger market than the one for consumers. China has millions of factories with billions of machines and it also makes most of the world’s electronics, including many of the sensors and other electronic devices that would form the backbone of such a network. Moreover, the government is keen to upgrade the country’s manufacturing base.
There are already more things connected to each other in China than in any country, with the numbers set to skyrocket further (see chart). IDC, a research firm, forecasts that the overall market for IoT kit of various forms in China will rise from $193 billion last year to $361 billion in 2020. Accenture, a consultancy, reckons embracing IoT in manufacturing could add up to $736 billion to China’s GDP by 2030.
GE’s new centre (it will soon open a similar one in Paris to tap into the European market) is part of its efforts to get firms to use Predix, its proprietary software for the industrial IoT. The American company had already signed up China Eastern Airlines and China Telecom, two big state-owned enterprises, and this week Huawei, a Chinese telecoms-equipment giant, also came on board as a partner. GE is not alone in seeing China as a potential hotbed of the industrial IOT. Siemens, a German rival, held an event in Beijing earlier this month to trumpet its own technology. HP, Honeywell and Cisco, all big American technology firms, are also rushing in.
Sany side up
Chinese firms, however, have their own plans. China Mobile, the largest mobile-phone firm, has established its version of a digital foundry: a “cellular IoT open lab”. Li Yue, the company’s chief executive, dreams that he could earn 100 billion yuan ($15 billion) from the IoT with as many as five billion devices connected by 2020.
Chinese firms also have local knowledge. Sany, which makes construction equipment, started connecting machines on its factory floor in 2008. It then put sensors on its diggers and cranes to monitor them in real-time to improve operating efficiency. The company has invested in data analytics and artificial intelligence. He Dongdong, who leads those efforts, brags that unlike foreign multinationals his firm knows how to make affordable kit that works in “Chinese conditions”. By that he means places where workers are low-skilled, conditions are dirty and operators often push equipment to its limits.
That points to another sort of local advantage. Foreign firms might have fancier kit, but locals know how to make things cheap and cheerful. Huawei’s push into the IoT got a boost in June when a new protocol it helped to develop, known as “narrow band IoT”, was approved as a global standard. The new protocol works with devices that require inexpensive sensors that use little energy.
Still, there are three potential snags to China’s IoT ambitions. Firms, squeezed by both a weak local and global economy, may not be able to afford to connect their machines to the cloud. Sany’s Mr He, however, reckons the downturn will be good for stronger firms as their low-end competitors will be forced out.
Secondly, Chinese factories are less technologically advanced than those in America or Europe, so moving to advanced computer-controlled production and automation could be daunting for some.
Finally there are standards. Despite the new narrow band IoT protocol, there is a lack of overall global standardisation, such as the common GSM protocol that allowed Europe to leapfrog others in mobile telephony. Jagdish Rebello of IHS, a consultancy, argues that a push from Chinese regulators, combined with the country’s massive home market, could lead to domestic standards dominating the global market. Firms elsewhere, and in a variety of different industries from cars to robotics and cloud computing, will have other ideas. Consumers, meanwhile, will continue to wait for the refrigerator that can contact the supermarket to restock itself.
1. Why are US firms showing great eagerness to invest in IoT hardware in China ?
2. What are the advantages China has to adopt IoT in a big way ?
3. Can Chinese cos. beat US cos in IoT ?
4. Why are standards crucial in IoT hardware market ?