With its strong base in hardware platforms, Advantech has recently actively promoted the co-creation model to work with Solution Ready Package (SRP) software partners and system integrators to build a complete industrial IoT (IIoT) supply chain and accelerate the realization of related applications.
For Advantech, Japan is a strategic market for IoT business, presenting considerable opportunities in both industrial and IoT markets as a result of the country's strong demand and advanced industries. As a result, Advantech announced in March this year that the company will invest around NT$300 million (US$9.8 million) in Nippon RAD, a Japanese system integrator, in order to acquire a 19% stake of the company. Through closer cooperation, the two companies plan on jointly expanding the Japanese IIoT market.
Expanding the Market with a Unique Domain-Focused System Integrator Model
According to Tsuyomu Tsuchiyama, director of Strategic Planning at Nippon RAD, the company was founded in 1971 and has been listed for 19 years. As a long-established IT system integrator, Nippon RAD has accumulated rich experience in IT hardware/software integration and enterprise software development.
Nippon RAD is an independent system integrator, which is in contrast to many Japanese system integrators that are affiliated with large groups such as NTT, Toyota, and Software Bank. The company has 300 employees, 80 of whom are engineers. Although it is a medium-sized system integrator, it is well positioned to meet the needs of customers with its sufficient resources and work flexibility. With the emergence of the Japan's IoT market, Nippon RAD recently established a new department to develop IoT platforms and expand into new markets, particularly the smart manufacturing sector.
Nippon RAD has been working with Advantech only since the middle of last year, but within this short period, the two companies have cooperated closely and have won several important IoT projects. This has been attributed to their shared vision and complementary technologies. Because of the significant synergy and positive market response, a joint venture was therefore established to make their relationship even closer.
"Advantech already has a strong business foundation in Japan, providing excellent hardware platforms for many manufacturing customers," Tsuchiyama said. "However, to truly help customers migrate to smart manufacturing, Advantech needs to fill the gap of software, system consulting, and integration, and this is what we specialize in. So, the cooperation between us is the best fit to explore the market together."
He stressed that although the manufacturing market in Japan is mature and advanced, many traditional manufacturers still have a very conservative mindset. It is imperative that manufacturers implement new technologies and new ideas to enhance their operational efficiency and competitiveness. IoT is crucial for them to embrace for the new digitalization era.
At present, Japan has no professional IoT system integrator. Nippon RAD hopes to become the country's leading domain-focused IoT integrator through its cooperation with Advantech, in a bid to drive changes in Japan's manufacturing industry. In addition, the company will gradually port its existing business intelligence and artificial intelligence analysis software to Advantech's platform. Nippon RAD has expressed great confidence in the long-term prospects of its cooperation with Advantech and the business opportunities that can be leveraged as a result of this partnership.
Adhere to Strategy, Create the Highest Value
KC Liu, chairman of Advantech, pointed out that, in the future IIoT market, the ratio of production value of industrial computers, SRPs, and domain-focused system integrators will be 20:30:50. Domain-focused system integrators present the highest value and play a key role in the overall industrial chain. By acquiring a stake of Nippon RAD, Advantech will fully support them to become the iconic smart factory system integrator in Japan.
Through this move, Advantech will cooperate with Nippon RAD in jointly marketing WISE-PaaS and SRP technologies in Japan. Meanwhile, Nippon RAD will become the country's WISE-PaaS Competence Center and will adopt Advantech's IIoT, WISE-PaaS, and SRP products to fulfill projects and meet market demand in Japan, especially in smart factory and Industry 4.0 application markets.
Advantech plans to establish more than 50 regional domain-focused system integrator partners within the next five years. For Japan, Nippon RAD will be its sole system integrator partner but will replicate this joint venture model to other countries.
Liu emphasized that Advantech's hardware platforms are now widely used. However, combining domain-focused software, services, and system integration is the only way to create value and enhance competitiveness to capitalize on the opportunities that IoT presents. In the future, those who only provide contract manufacturing services for industrial computers will fall to the bottom of the value chain, and the biggest winners will be those who have the ability to provide hardware, solutions, system integration, and cloud services to support customers around the world with a replicable platform. Although it's a challenging mission, to create the highest value, Advantech will adhere to this strategy and implement it thoroughly.
Liu expects that with the implementation of the co-creation model, Advantech will be able to generate approximately 500 million USD in additional revenues in the five years, which is about one-third of current annual revenues. The IIoT market is expected to peak in the next five to ten years, gradually maturing in 15 years.
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