Robotics growth in slowing economy highlights financing dilemma
Businesses are buying robots like never before – and the trend seems to continue.
Industrial robot installations increased by 5% globally last year to a record 553,000 units according to the newly published World Robotics 2023 report by the International Federation of Robotics (IFR). What is also worth noting about the report is that despite the slowdown in the global economy, the growth in robotics is expected to continue at about 7% each year from 2023-26.
The positive outlook for the industry shows that the need for robotics stays strong and that businesses need robots even when the future of the economy is uncertain. The massive labor shortages in manufacturing and other sectors persist across many countries. Without enough labor to produce the goods needed, automation and robotics are a must.
Through HowToRobot’s global marketplace, we can also see a continued need for and interest in robotics this year – with some challenges ahead.
The financing challenge – and why it’s key today
The future growth of the robotics industry will not happen by itself. At a time of economic slowdown, high inflation, and growing interest rates, businesses must be thoughtful about their investments. Indeed, IFR’s quarterly survey also shows a decline in new robot orders in 2023 compared to last year. High interest rates often put a damper on capital investments, which is typically how businesses have bought robotics and automation. System integrators may charge upwards of 80% of a solution’s price before it is shipped to the customer. At the moment, making large upfront payments for such systems can be harder to get approval for.
Why the need for large down payments on a robot solution? To build one, integrators first need to buy a long list of components. Asking the bank to finance this purchase, presents a challenge in the current market. Robotic hardware is generally unknown to banks, which means they will not provide financing with the equipment as collateral. As a result, the integrator would have to get financing through their general business line of credit instead. This typically puts a limit on how much equipment the integrator can afford to buy, and – especially at a time with growing interest rates – makes financing expensive.
It is therefore common to instead ask the customer to pay for the hardware upfront after the purchase order has been issued. Again, given the current demand for automation and the need to minimize capital expenses, the potential reward for solving this issue and lowering down payments for end customers should be substantial.
For banks to be able to lower the cost of capital for buying robot solutions, an important step would be for them to get a better understanding of the robotics market and the line of business of system integrators.
Growing focus on financial performance
The slowing economy is also bringing about a related topic: An increasing focus on the financial performance of automation. Hard times often make businesses scrutinize their investments – and provide less margin of error. Businesses, especially those that are new to automation, increasingly need to make sure that robot solutions can deliver the expected outcome before investing.
To convince management to spend $150,000 on a robot solution, they will also need to know that it can indeed free up the desired staff to work on other tasks – and deliver the expected throughput. While this has always been important, it is even more crucial at the present time.
Many end-users are not robot technology experts and will not always have the expertise to judge if a solution can meet their targets. Often, they will need to rely on communication from vendors instead. Unclear communication is therefore more likely to cause hesitation at times when businesses are cautious about their investments.
For automation vendors, this moment presents an opportunity to gain a competitive edge by speaking the buyer’s language. Does a supplier proposal confirm and explain how the solution solves the end-user’s specific needs – for example, the number of staff it can free up?
Providing this kind of assurance can make investment decisions easier for businesses, especially at a time when there is little room for mistakes.