Low-cost man­u­fac­tur­ing and in­no­va­tive con­cepts work in China’s fa­vor as it soars ahead of rivals

China Daily (USA) - - ANALYSIS - By AN­THONY WAR­REN an­thony@chi­nadaily@apac.com

Drones — also known as un­manned aerial ve­hi­cles (UAVs) — are big busi­ness. Pre­vi­ously the purview of the mil­i­tary, and en­thu­si­asts who made them at home, the last three years have seen newer, more ad­vanced mod­els fly­ing off the shelves.

Over the Christ­mas sea­son last year, drones were a pop­u­lar gift on wish lists world­wide. About 1 mil­lion UAVs were sold in the United States alone, mak­ing North Amer­ica the big­gest buyer glob­ally.

Yet since the US Fed­eral Avi­a­tion Ad­min­is­tra­tion or­dered drone pi­lots to reg­is­ter on­line ear­lier this year, fig­ures show that more than 50 per­cent of US-owned drones were Chi­nese mod­els. Not sim­ply made in China, but de­signed and de­vel­oped there.

Ac­cord­ing to Dronelife.com, more than 500 drone man­u­fac­tur­ers ex­ist glob­ally. Of those, some 400 are Chi­nese. Of the 13 most pop­u­lar brands in 2015, no fewer than eight were Chi­nese.

When it comes to the world of con­sumer drones, it is safe to say that China dom­i­nates the mar­ket. Mar­ket re­search firm IDC re­cently de­ter­mined that sales of com­mer­cial-qual­ity drones in China will hit 950,000 units by 2019 — a rise of some 300 per­cent over four years.

Adam Na­jberg is the global direc­tor of com­mu­ni­ca­tions for DJI, the world's big­gest civil­ian drone man­u­fac­turer.

He said that the com­pany, which is based in Shen­zhen, in South China’s Guang­dong province, ex­pe­ri­enced “crazy growth” last year, with the big­gest in­creases in Asia oc­cur­ring in China, South Korea and Ja­pan.

Between 2009 and 2014, the com­pany’s sales are said to have tre­bled each year. Last year DJI raised $750 mil­lion from US ven­ture cap­i­tal firm Ac­cel, based on an $8 bil­lion val­u­a­tion. Ac­cord­ing to Forbes, DJI claims a 70 per­cent share of the global drone mar­ket.

“Last year I think we (reached) around $1 bil­lion in sales,” said Na­jberg. “That was roughly dou­ble the pre­vi­ous year.”

With 2015’s DJI Phan­tom 3 drone now sell­ing at about $800 and the pro­fes­sional DJI In­spire 1 clock­ing in at over $3,000, it is not bad for a com­pany that, just 10 years ago, was run by three col­leagues in a Shen­zhen apart­ment.

Founded in 2006 by Frank Wang Tao, a Chi­nese main­land alum­nus of the Hong Kong Uni­ver­sity of Science and Tech­nol­ogy, DJI started off sell­ing ac­ces­sories for DIY drones. The com­pany’s big break came with the re­lease of the first of the Phan­tom se­ries in late 2012.

Four years and four it­er­a­tions later, the sleek white fliers are a sta­ple of the drone in­dus­try. Used as a toy and for tasks as var­ied as movie mak­ing and ter­rain map­ping, DJI’s pop­u­lar­ity has been com­pared with that of tech giant Ap­ple.

Af­ter all, both have cor­nered their re­spec­tive mar­kets with plug and play tech­nol­ogy wrapped in­side a user-friendly exterior.

So how has China man­aged to pull it off? For decades, China has been the cen­ter of global man­u­fac­tur­ing, nowhere more so than in Shen­zhen — the so-called work­shop of the world.

Drones are a com­mod­ity that lends it­self well to Chi­nese man­u­fac­tur­ing, and ac­cord­ing to some fig­ures, al­most 80 per­cent of the world’s UAVs are now put to­gether in the city’s fac­to­ries.

“Like most things, cost plays a huge fac­tor in how suc­cess­fully a prod­uct sells,” said Ben Grear, op­er­a­tions man­ager for Rise Above Cus­tom Drone So­lu­tions. The Aus­tralian com­pany sells and adapts UAVs for clients in­clud­ing uni­ver­si­ties, the po­lice and lo­cal govern­ment.

“China is able to de­sign and man­u­fac­ture many elec­tron­ics and parts far cheaper than most other coun­tries, so this plays in its fa­vor.”

ZDNet, a tech­nol­ogy anal­y­sis web­site, reported that ex­ports of civil­ian drones from China in­creased by al­most nine times in 2015. The to­tal value was said to be in ex­cess of 2.7 bil­lion yuan ($404 mil­lion).

DJI’s Na­jberg said “first-mover sta­tus helped a lot” in push­ing his com­pany’s sales.

He added that the pop­u­lar­ity of drones in Asia is un­der­scored by af­ford­abil­ity, more dis­pos­able in­come among the mid­dle class and growing in­ter­est stem­ming from me­dia ex­po­sure.

Gary Clay­ton is the chair­man of the Un­manned Aerial Ve­hi­cle Sys­tems As­so­ci­a­tion, a Bri­tish-based group that rep­re­sents drone users.

He said he can trace the surge in sales to three key tech­no­log­i­cal fac­tors: The de­vel­op­ment of ad­vanced bat­ter­ies al­low­ing ve­hi­cles to stay aloft longer; new reg­u­la­tions on how un­manned sys­tems can com­ply with avi­a­tion au­thor­i­ties; and the fact that recre­ational use has pushed down man­u­fac­tur­ing costs, en­sur­ing com­pet­i­tively priced, high-end mod­els for pro­fes­sion­als.

But even if DJI is cur­rently miles ahead of the op­po­si­tion, it is not alone in the race.

French drone maker Par­rot and other Chi­nese firms like Yuneec — in which US-based chip­maker In­tel in­vested $60 mil­lion last year — have been com­pet­ing in the mar­ket for years.

Even Xiaomi, the Chi­nese elec­tron­ics com­pany known for its smart­phones, re­cently un­veiled its own drone. The mini fly­ing ma­chine costs only 2,999 yuan and is equipped with a pro­fes­sional-level cam­era.

As more and more — pre­dom­i­nantly Chi­nese — play­ers rush into an in­creas­ingly con­gested mar­ket, drones with sim­i­lar spec­i­fi­ca­tions and hard­ware have be­come avail­able to buy­ers. With the ac­tual tech­nol­ogy cheap and pro­duc­tion costs low, many com­pa­nies are choos­ing to com­pete with cheaper prices rather than bet­ter tech­nol­ogy.

Na­jberg said: “The gaunt­let (DJI is) fig­u­ra­tively throw­ing down ev­ery time we have a new drone is — if you want a pre­mium drone at the top of the mar­ket, you’d bet­ter have these fea­tures. Oth­er­wise, (cus­tomers may ask) what are you charg­ing us for?”

But with China the dom­i­nant party in the mar­ket, some are ask­ing whether it is pos­si­ble for com­pa­nies to com­pete on a tech­no­log­i­cal level.

Amer­i­can drone man­u­fac­turer 3D Ro­bot­ics has re­fo­cused it­self as a drone provider for big busi­ness, where profit mar­gins are higher and pro­duc­tion costs are less prob­lem­atic. At the same time, the com­pany also moved man­u­fac­tur­ing from Ti­juana, Mex­ico, to Shen­zhen.

“China will al­ways have the edge in the raw man­u­fac­ture of com­po­nents,” said Grear of Rise Above. “How­ever, there is plenty of room in the in­dus­try for lo­cal man­u­fac­tur­ers and de­sign­ers to pro­vide in­no­va­tive so­lu­tions out­side of the main­stream.”

De­spite this hope, high-pro­file in­vest­ments, such as In­tel sink­ing around $127 mil­lion into nine Chi­nese tech and drone com­pa­nies last year, have gone into big­ger UAV com­pa­nies. Non-Chi­nese star­tups and de­sign­ers, by com­par­i­son, have been mostly left out of the loop.

One com­pany shoot­ing for suc­cess is Playable Cre­ation, a Hong Kong­based toy man­u­fac­turer. It re­cently demon­strated its own lo­cally de­signed drone, the Kon­sept VR32.

Kennes Che­ung, co-founder of the com­pany, told China Daily that although many cus­tomers look for low-cost, cut-price mod­els, there is strong pos­i­tive feedback to­ward al­ter­na­tive man­u­fac­tur­ers.

“We are ab­so­lutely tired of such price wars,” she ex­plained. “That’s why we formed Kon­sept.”

Cap­i­tal­iz­ing on in­ter­est in cut­tingedge tech­nol­ogy, the fist-sized VR32 drone is pi­loted through vir­tual re­al­ity gog­gles. Pi­lots live-stream what the drone’s cam­era sees, as if rid­ing on­board. Che­ung said in­ter­est had al­ready come from the US, Bri­tain, and else­where in Asia.

But de­spite Hong Kong’s tal­ent and tech­no­log­i­cal ex­per­tise, man­u­fac­tur­ing con­tin­ues to serve as the de­cid­ing hurdle.

The cost of mak­ing a drone in the Chi­nese main­land can be three times cheaper than mak­ing it in Hong Kong, said Che­ung. Govern­ment grants are avail­able but are dif­fi­cult to get, she added.

“I wish the Hong Kong govern­ment could lower the re­quire­ments and sim­plify the pro­ce­dures so that more com­pa­nies can en­joy fund­ing.”

While Clay­ton of UAVSA does not be­lieve Europe can ever com­pete on man­u­fac­tur­ing costs, he sees a time com­ing when China’s dom­i­nance may not be guar­an­teed.

“The pop­u­la­tion of China has in­creas­ing wage ex­pec­ta­tions, and fig­ures show that con­sumerism is growing,” he said. “There will in­evitably be a tip­ping point, and man­u­fac­tur­ing de­ci­sions may move to the next de­vel­op­ing econ­omy.”

Whether the drone crown can be snatched away from China, or whether the mar­ket frag­ments into dozens of small com­pet­ing firms, re­mains to be seen.

China is able to de­sign and man­u­fac­ture many elec­tron­ics and parts far cheaper than most other coun­tries.” Ben Grear, op­er­a­tions man­ager for Rise Above Cus­tom Drone So­lu­tions 950,000 units of com­mer­cial-qual­ity drones will be sold in China by 2019

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