Pharmacies run by robots mark Midea's foray into health care

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(Bloomberg) -- China’s nearly 400,000 pharmacists may be next in line to be replaced by robots.

Midea Group Co., the world’s biggest appliance maker, is working with Guangzhou Pharmaceutical Holdings Ltd. to bring fully-automated dispensaries that can pick, package and distribute pills at hospitals and drugstores. The pilot program, in China’s southern Guangdong province, could eventually turn into a joint venture, according to Midea Chairman and Chief Executive Officer Paul Fang.

“There is explosive potential in robotics and automation in China, and we are only at the beginning,’’ the 50-year-old said from his office in Foshan. “Every consumer sector in China is upgrading and our cooperation seizes this trend in health care.’’

The pilot underscores Midea’s vision of industrial and consumer robotics powering future growth as the Chinese manufacturing sector automates in the face of rising labor costs. The global medical robotics market may triple to almost $21 billion by 2022, according to Research and Markets. The potential has attracted companies from Japan’s Kawasaki Heavy Industries Ltd., which plans to offer surgical robots in 2019, to Mountain View, California-based Omnicell Inc., which markets automatic medication dispensing systems.

Midea is seeking to use its 3.7 billion euro ($4.3 billion) purchase of German company Kuka AG to outrun rivals in China. There’s plenty of room to scale up in the country’s $11 billion robot market -- the world’s biggest -- which has fewer robots per worker than other economies like South Korea and Germany.

Beijing launched a five-year robot plan last year that calls for automating key sectors of the economy, including car manufacturing, home appliances and food production. Midea has said it plans to integrate Kuka’s expertise to expand into factories and consumer products.

“Our transformational direction is the same as the government’s, but we would still have embarked on this journey even without the government’s plan,’’ Fang said.

Midea, whose name is on one of every five air-conditioners sold in China, wants robotics to account for a fifth of its revenue in 2020, up from about 12 percent this year, said Fang. The bulk of Kuka’s robots are now employed in factories. Midea approached Guangzhou Pharmaceutical, which distributes drugs to 4,000 health-care institutions and thousands of drug stores and retailers nationwide, to help implement the new people-less dispensaries.

Midea’s plans capitalize on pill dispensing systems being developed by Swisslog Holding AG, the business that was acquired by Kuka in late 2014. Its dispensing machines are used in retail pharmacies and hospitals.

Artificial Intelligence

Investors have cheered Midea’s robotics push. With a market value of $50 billion, the company surpassed Sony Corp.’s by market capitalization last month. Shares of the Chinese company have advanced about 83 percent this year, compared to the 56 percent gain in the MSCI China Consumer Discretionary Index. The stock gained as much as 2.5 percent Wednesday.

In China, Midea is also looking at opportunities in the electric vehicle sector. The company won’t get into the business of making electric vehicles and will look at what it can offer in the supply chain, said Fang, citing batteries or power-generating machines.

“Electric vehicles, without a doubt, is China’s next big industry,” he said. “We know cars are a big opportunity and the industry is facing revolutionary change.”

Midea is also investing in artificial intelligence and will grow its Silicon Valley research center to more than 100 employees, said Fang. It has invested in a Silicon Valley-based voice-recognition software company that’s valued at more than $1 billion. Fang declined to identify the company or the investment amount.

Whirlpool, Electrolux

Though Midea is taking a break from acquisitions for at least the next year, it has low debt levels and cash that makes it “adequately positioned for more large-scale acquisitions,’’ Fang said. The company had about $7.8 billion of cash and equivalents and $9.6 billion in total debt as of the end of June.

The CEO ruled out acquiring rival appliance makers such as Qingdao Haier Co. and Gree Electric Appliances Inc., but the company would be interested in American and European makers, he said. When asked about foreign brands Whirlpool Corp. and Electrolux AB, Fang said, “We would be interested to take a look if suitable opportunities arise.”

The targets may not be within reach as before, he said. Although Midea did encounter political resistance in its bid for Kuka in 2016, it managed to overcome objections from government bodies including the Committee on Foreign Investment in the U.S.

“If we were to try to do it now, I don’t think the acquisition would be successful due to the changed political climate in the U.S. and Europe,’’ he said. “It is harder now for Chinese companies to go overseas through acquisitions.’’

Midea won over Kuka largely through committing to protect the German company’s independence and reportedly extended a jobs guarantee through 2023. Fang said that Midea will not attempt to increase its holdings of Kuka, which currently stand at just under 95 percent. “We have no reason to do so because we want to maintain Kuka’s independence,’’ he said, adding that the company does not have any Midea executives in Germany.

“We have succeeded in internationalizing, unlike many other Chinese companies, because our strategy is to have local management run local businesses and for us to take a hands-off approach,’’ he said.

--With assistance from Haze Fan, Dexter Roberts and Li Hui

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