Jake Mendrik discusses opportunities in the drone and Unmanned Aerial Vehicles (UAV) industries
From a 2015 market valuation of US$6 billion, the global drone market has expanded exponentially with the latest projections estimating market value of at least US$22 billion by 2022. A compound annual growth rate of 21 percent represents a telling indication of drone and UAV’s role in the global ‘smart technology’ revolution.
Unsurprisingly, China has had a major part in driving the market’s growth and will continue to be central to the sector’s future in both manufacturing and, importantly, innovation.
The Chinese Market Today
The signs from within the Chinese drone market are very positive. The industry is growing ahead of the global curve with recent analyses indicating that the market’s export value has doubled in size since 2015 to around RMB 10 billion while production value in 2016 reached RMB 32 billion.
According to most recent estimations provided by the China UAV Industry Alliance, there are in excess of 1,200 companies registered within the UAV and drone market in China. Of these companies, around ten percent have established international links, with the Asia-Pacific, Oceania and US the predominant focus.
Furthermore, the biggest Chinese firms have benefitted from government policies such as Made in China 2025 (MIC 2025) that promote innovation and technology, cheap labour and manufacturing costs and perhaps most importantly, prudent investment into the UAV and drone supply chain.
Issues Facing the Chinese Drone and UAV Market
While there appears to be strong evidence for market growth, it can be argued that the industry has not nearly reached its potential with several factors inhibiting development.
Firstly, the domestic regulations are not yet fully established. Issues such as defined air space within urban areas and the severe shortage of public-use zones have stifled progress. That the industry falls within the scope of several different government departments will only further delay any attempts at regulation clarification.
Fears surrounding public security are an additional problem. Drones, particularly private-use models, have the potential to present a threat. The Chinese population’s safety is a clear priority for government officials with national security spending more than doubling to around RMB 190 billion in the last ten years. No other country has exhibited the same growth in security investment. Those at the Public Security Bureau need to reach a clear consensus with their counterparts at the Civil Aviation Department to enable the continued rise of a technology that will aid in achieving the government’s innovation and development targets.
China has previously been seen to move quickly to amend and update the necessary regulation if the economic benefits exist, the high-speed train network and the growing autonomous vehicle (AV) industry being two recent examples. However, when security is the impeding factor the issue may drag on for the foreseeable future.
Opportunities for British Enterprise
As rules and regulation regarding commercial drone usage are further clarified in China and abroad, infrastructure, agriculture and transport have the largest potential as growth markets; increased drone usage in agriculture is targeted by MIC 2025 in one of its ten priority sectors.
These sectors stand to benefit most from the ease of access, high data transmission speeds, and monitoring capabilities that drones deliver in addition to their relative cost-effectiveness when compared with other methods.
British companies that can push the technology further by optimising battery life, sensor capabilities and data collection will be able to find willing collaborators in the market, especially with attractive Chinese government policies promoting international partnership in the form of innovation centres and science and technology parks. Importantly, intellectual property must be carefully protected when opportunities for partnership present themselves.
However, many industry players such as the China UAV Industry Alliance see military and security services as presenting the most lucrative opportunities in the Chinese market. This observation is based on the importance the nation places on border control, the preservation of security (counter-terrorism) and safety (emergency services applications), as well as surveillance.
A number of British enterprises possess the necessary expertise in the field of military and security drone application to meet this demand. Outside the export of hardware, training and unmanned aerial systems (UAS) management are also wanted within the Chinese market.
However, it must be noted that any UAV or drone with potential military capacity may be subject to the UK’s controls on military equipment export to China. Although parliamentary clarification regarding definition was made in 2012, each export opportunity will be assessed on a case-by-case basis, leaving a certain amount of room for manoeuvre. Training and UAS management should not be affected. More information can be found here.
In the coming years, whilst it seems likely that use in the military and security sector will continue to hold the biggest market share, projections from observers including PwC and Goldman Sachs suggest the future also lies elsewhere. The attraction of UAV and drone technology to investors and partners from outside the industry reflect how broad the possible applications may be. Project monitoring, agriculture, use in emergency services and commercial delivery services will undoubtedly be central to the development of the industry. Yet it is drones’ wider application in a number of additional industries that are particularly intriguing.
In sport, drone racing has emerged as both viable and marketable with the Drone Racing League being broadcast on major networks since 2016, while in transport, efforts to solve traffic congestion problems by providing green technology solutions has led to autonomous drone taxi services being proposed. Finally, with the rise of social media, miniature drones have been suggested as a tool to take the perfect ‘selfie’.
Boundaries still remain in the form of regulation, development costs and fears surrounding safety, but, with investors as varied as Epson, John Deere, Axis and Getty Images vying to join the game, the market holds huge amounts of potential across a wide range of formats.