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Will China Dominate the Drone Market?

With a cluster of drone manufacturers and a flood of new investment, is China poised to dominate the drone market?

From today’s perspective, that depends on which segment of the drone market you consider. There is no doubt that when it comes to manufacturing of consumer drones, China has already achieved dominant status. With drone giant DJI leading the way – holding at this time over 70% of the consumer drone market – China has been able to develop a cluster of sorts around drone technology.  China currently boasts over 400 drone manufacturers: on an Air Drone Craze annual list of the 13 most popular drone manufacturers of 2015, 8 of the 13 were Chinese.

Investors in the US are following the money, and investment in Chinese drone companies has been heavy. US chip manufacturer Intel invested $60 million in manufacturer Yuneeclast August, following that investment with an additional $67 million one month later divided between 8 other Chinese drone companies.  Research firm CBInsights reports that investment in the drone sector was nearly $500million in 2015: more than a quarter of the total funding amount went to DJI in series B funding and Yuneec in venture capital funding.

Chinese exports of consumer and commercial drones increased ninefold in 2015, ZDNet reports.  Customs data released last week indicates that total drone exports in 2015 were valued at 2.7 billion yuan, or more than $413 million. This should be no surprise to North Americans, who have long been accustomed to purchasing Chinese manufactured goods – and the recent devaluing of the Chinese currency in a government effort to boost exports is a tried and true tactic.  China has developed a formidable edge in manufacturing, combining a cheap labor force with infrastructure support and currency manipulations designed to stack the deck in their favor; drones are merely another consumer product like televisions and mobile phones that lend themselves well to China’s manufacturing machine.

While consumer and hobby drones are the ones that most people think of, military and defense spending make up a significant part of the market.  Here the US has been losing ground to a number of foreign competitors, including Israel and Europe; but China has quickly been increasing its capacity.  According to a UAVGlobal list of military manufacturers, China now has 21 manufacturers of military drones. (The US has 20.)

In this segment, however, China’s government has not necessarily supported the industry.  While China’s domestic market for military drones may be strong, the government enacted legislation tightening the controls on exports of military drone technology last August.  The new regulations are aimed at drones which have a flight time greater than one hour and an altitude potential of more than 15,420 meters.  Manufacturers of drones that meet the requirements must now register for an export license to ensure that they do not “compromise national security,” the state media reports.  The move came two weeks after Pakistani officials claimed to have shot down an Indian surveillance drone, found to be manufactured in China.  The government concern that military technology stay in China could be enough to prevent China from making a larger impact in the global defense market.

While China’s consumer and military drone manufacturing is strong, their position in innovative commercial applications is less robust.  UAV Global’s list of commercial drone companies shows only 9 based in China; in the US the list of companies developing commercial applications grows daily.  The thirst for Chinese drones is growing exponentially, fueled in part by innovators in the US developing new software and uses for them.  Intel, after all, made their investment in Yuneec and other Chinese drone companies in the hopes that their own technology advances would find another vehicle for use.  In the drone industry, China and the US have taken up now familiar positions: China has staked out its territory in manufacturing, while the US is growing quickly in the area of commercial applications and solutions.

Naming the ultimate winner in the drone race depends upon how you predict the future spending.  Currently, military spending accounts for more than half of the entire market, according to this research by ABI.  But as time goes on, the military spend on drones may flatten, and the consumer spend begin to grow more slowly.  It is the commercial sector that holds the potential to expand dramatically, minimizing the importance of the other two areas.   As new uses for drones develop across verticals, in areas as diverse as agriculture and entertainment, the sky seems truly the limit for drones’ business potential.

If the US government regulates appropriately to support the innovation business here, China and the US may find themselves partners in expansion, both reaping the benefits of new development.

drone market by sector

 

Original Story: Dronelife.com

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