The United States has an edge over China due to its different incentives and approaches that encourage AI adoption in industrial manufacturing
Industrial manufacturing is the heartbeat of the economy for the United States and China, hence building Artificial Intelligence (AI) capabilities in industrial manufacturing is not only critical for economic transformation but also a stepping stone toward sustainable competitive advantages. ABI Research found that despite the nearly equal number of installed bases of AI-enabled end device in both markets, the United States has an edge over China due to its different incentives and approaches that encourage AI adoption in industrial manufacturing.
In the United States, the ecosystem of AI in industrial applications is growing quickly. The expensive labor force has driven the industrial sector to enhance production efficiency and lower operational costs. Currently, cloud service providers, smart manufacturing platform vendors, pure-play industrial AI platform and service providers, edge industrial AI gateway and server vendors, and chipset vendors are partnering with each other to bring AI into industrial manufacturing. Major cloud players, AWS and Microsoft, have established a wide range of partnerships with industrial AI development platform vendors, AI software vendors, and system integrators to provide an end-to-end, cloud-to-edge solution to enhance operational efficiency, reduce bottlenecks, and optimize resource consumption in factories.
In China, the Chinese government has listed 10 key industrial manufacturing segments under Made in China in 2025, and AI is a strategic component of the Information Technology segment. Since 2015, the government has been encouraging provincial and local government, public agencies, and state-owned enterprises to adopt AI in industrial manufacturing. Chinese cloud AI conglomerates such as Alibaba, Baidu, Huawei, and Tencent have all made AI in smart manufacturing a key priority in their business strategy. Manufacturing giant Foxconn even spun out Foxconn Industrial Internet (FII), a company focusing on developing software and building hardware, including precision tools, servers for cloud services, and robots, to accelerate its digitalization effort. However, despite the government’s will to transform the industrial sector, small- and medium-sized manufacturers, which represent a significant proportion of the manufacturing sector in the region, are less incentivized to follow the government guidance in adopting AI and automated operations. For these players, it is still economically viable and more practical to perform back-end operation tasks manually via a cheap and abundant workforce.
Under these circumstances, it is very hard to build a pure-play industrial AI vendor ecosystem in China. A lot of industrial and manufacturing startups in China are still focused on the connectivity layer, instead of pure-play industrial AI solutions. AI market leaders like Alibaba are visionary and have their own suite of AI-based solutions for industrial manufacturing. However, these cloud AI companies do not often have the right connections and go-to-market channel to reach many provincial and municipal manufacturers where the majority of small- and medium-size manufacturers reside, and are still relying on existing relationships with legacy solution providers, local system integrators, and most importantly on cheap labor to support back-end operations.
On the other hand, industrial AI startups in the United States are more mature than their global peers. C3, Falkonry, FogHorn, Sight Machine, SparkCognition, Uptake, and Zymergen are some of the highly recognized startups with proven solutions in AI development platforms, material synthesis, machine vision, and operational efficiency enhancement. Being vendor agnostic, they can coexist with many well-established industrial solution providers such as ABB, GE, Siemens, and Honeywell, and bring AI into brownfield deployment, lowering upfront cost and the barrier to adoption. Through their partnership with system integrators and regional distributors, these startups have also ventured into Europe, South Korea, and Japan.
The high labor cost and the quick time-to-market have driven U.S. manufacturers to be more aggressive with the adoption of industrial AI solutions. This has given birth to pure-play AI players in the US, and as such, keeps the US to be the global leader in industrial AI solutions. Over time, however, we believe that China will catch up. The investments poured into AI and all its adjacencies, such as 5G and robotics, will create new opportunities for domestic companies that focus on AI in industrial manufacturing and this will boost China’s sustainable competitive advantages.