Automation for the people: Robotics needs to be a part of investors’ portfolios now – Investment Week

Rosanna Burcheri of Artemis

Back in 2014 I was doing some exploratory number-crunching around potential investment themes. Often this can be like taking out a metal detector and finding a bottle top, but this time I noticed something I knew was significant.

I was reading about the growing capacity of robots and realised that the price, including depreciation, was converging with the full cost of labour doing a similar job, once you took into account pensions and healthcare costs.

Over the following months, a theme I kept hearing in calls with CEOs was how they were deciding where to build their next factory. Simply putting it where suitable labour was cheapest was no longer sufficient.

The boss of fashion retailer Gap joked in one call that the best choice to remain competitive would be to build the next factory on a boat and anchor it in the optimum location in the world according to tariff, labour and logistic costs.

Automating a plant costs pretty much the same wherever you locate. It reduces concerns about labour costs and labour quality (robots are increasingly becoming more reliable than humans), making it easier to build a plant where tariffs are lower or customer numbers are higher.

Not surprisingly, the automation industry was seeing a pronounced take-off. According to IFR World Robotics, shipments of industrial robots were growing by around 4% a year until 2012 - but they have grown by nearer 19% a year since.

There is often a gap between recognising a theme and finding profitable ways to invest in it. We immediately turned to Japan. Because of the country's demographic pressures, Japanese corporations were already investing in automation to help address the challenges of a labour force expected to shrink 40% by 2065.

Industries were adopting technology at differing rates. Automation was already far advanced in the car industry, where more than 80% of some areas of plant were automated, but in its infancy elsewhere.

The Japanese government was keen to see automation spread. In January 2015 the Ministry of Economy and Trade unveiled a five-year plan on robotics.

It targeted 25% robotisation of large manufacturing companies, 30% robot use in the services industry for picking, checking or screening and 20% automation of the sensor-based maintenance sector.

The Ministry aimed to expand the domestic nursing robot market to JPY50bn (33bn). And it proposed transforming Tokyo's Odaiba district into a robot village (a robot will carry your luggage or shopping bags - or even you - and comes with a free translation service).

In our search of companies with high barriers to entry, we avoided robot manufacturers, focusing instead on companies with a leading market share in a common vital component.

As a result, we were early investors in Nabtesco and Harmonic Drive, which manufacture precision reducers.

These are the clever gears that help a robotic hand know when to stop squeezing while picking tomatoes, so that the crop isn't turned into a pulp, or which tell the doors of an underground train to stop closing when your trailing leg is caught between them.

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Automation for the people: Robotics needs to be a part of investors' portfolios now - Investment Week