The global economy is entering the Fourth Industrial Revolution (4IR), or Industry 4.0, based on the application of new digital and automated technologies in production processes and service delivery. These changes are presenting emerging markets with opportunities such as improved productivity, as well as risks, namely reshoring and the displacement of human labour by automation. Wealthier emerging markets, such as the Gulf states, that have the resources to invest in new technologies, and those with better established manufacturing sectors, such as South-east Asian nations, appear best placed to reap the benefits of the 4IR. Many are putting in place strategies to encourage the transition towards Industry 4.0. Meanwhile, other regions seem more vulnerable to threats arising from technological changes. Adopting strategies that leapfrog existing stages of industrial and infrastructure development will help these regions avoid being left behind.
Klaus Schwab, founder and executive chairman of the World Economic Forum (WEF) and author of the book The Fourth Industrial Revolution, posits that the world has experienced three industrial revolutions. The first involved water- and steam-powered mechanisms, the second electricity-powered mass production, and the third being the digital revolution. Schwab argues that we are now entering the fourth industrial revolution, which is “characterised by a fusion of technologies that is blurring the lines between the physical, digital and biological spheres”. Among the emerging technologies expected to play a significant role in the 4IR are robotics, artificial intelligence (AI), the internet of things (IoT), machine-to-machine (M2M) communication, virtual reality and 3D printing.
Arguably the most consequential area of 4IR-related technology in terms of its impact on labour markets and manufacturing jobs is robotics and other automated processes. Klaus Prettner, professor of economics at the University of Hohenheim in Germany, told OBG that the use of robotics and automated processes in manufacturing started to take off in the 1990s and has been expanding rapidly, posting annual growth rates of around 12%. “Until recently robots were used largely for work that was too dangerous or difficult for humans, but now the technology is improving and becoming more cost-effective, allowing it to be used for an ever-wider range of applications,” Prettner said.
Use of the technology is generally concentrated in automotives, electronics and electrical equipment, and machinery production. While robots have generally struggled to work with smaller parts that made them less suitable for other industries, this is now starting to change, and so-called lights-out manufacturing factories that can operate without human presence are already in existence, namely in North-east Asia.
3D Printing & Virtual Reality
Also known as additive manufacturing, 3D printing is the computer-controlled production of three-dimensional objects from digital models. The technology is now widely used to create a range of products, from prototypes to highly customised mechanisms. Similar to the use of 3D printing for prototype production, virtual reality is particularly useful for the process prior to actual production, allowing designers to explore and interact with virtual renditions of their products and to identify any design flaws and safety issues. This is particularly valuable in industries producing large, complex goods, with the aviation manufacturers making use of the technology.
AI, IOT & M2M
AI, IoT and M2M communication are at an earlier stage of development than robotics, making their impact on industry harder to gauge. AI is not as widely deployed in the service sector as anticipated; nonetheless, it could have numerous applications in manufacturing and related activities, such as in the field of autonomous vehicles, which combines AI and IoT technologies. “Autonomous vehicles, should they take off, have enormous potential to drastically change logistics and supply chains,” Prettner told OBG. He forecast such vehicles to be available on a large scale within 10-15 years. IoT can also enable machine parts in both industrial components and in consumer products to automatically send alerts when they malfunction or need replacing, further improving industrial efficiency.
For emerging markets, one of the most prominent risks from automation is the reduced need for lower-cost and unskilled labour, making it less attractive for industry to outsource production away from consumers. This risks exacerbating a trend already under way in some regions – notably in parts of Latin America and Africa – towards what economist Dani Rodrik has called premature deindustrialisation. Increased automation in developed economies such as the US, which lessens the attractiveness of cheaper labour elsewhere, appears to be a contributing factor to the phenomenon. A March 2018 report by the Overseas Development Institute (ODI) found that even in the low-tech furniture manufacturing industry, using robots in the US could become cheaper than paying workers in Kenya by 2033. Prettner cited highly automated production facilities built in Germany by Adidas to manufacture trainers – a product generally produced by low-wage workers in Asia – as an example of 4IR-enabled reshoring.
Of the emerging markets covered by OBG, Thailand is arguably leading the way in terms of technological development, thanks in large part to its already high level of industrial growth. In 2016 the government launched the Thailand 4.0 strategy, with the goal of developing innovative and high-value-added industries in order to achieve high-income status. The strategy includes the development of technology clusters and start-ups based around 4IR technologies and overlaps with the Eastern Economic Corridor strategy to create growth hubs in three eastern provinces.
“As we move into Thailand 4.0, the manufacturing sector that has underpinned growth will benefit from a stronger competitive edge,” Porametee Vimolsiri, former secretary-general at the National Economic and Social Development Board, told OBG. “However, for Thailand to upgrade its economy, further foreign direct investment is needed, which will require efforts to link multinationals with domestic firms and innovators.”
Other countries are following suit. In April 2018 Indonesia launched its 4IR-oriented strategy, Indonesia 4.0, which is expected to boost annual GDP growth by one to two percentage points. The strategy focuses on five priority sectors, namely food and drink, automotive, textiles, electronics and chemicals.
The Philippines’ Inclusive Innovation Industrial Strategy (i3S) is also geared in part towards preparing the country for Industry 4.0. Ramon Lopez, secretary of the Department of Trade and Industry, told OBG that the authorities were aiming to ready the workforce for technological change. “This may be done through strengthened education modules that align with Industry 4.0, enhanced faculty training on innovation and entrepreneurship, and government subsidies for university research and extension,” he said.
In the Gulf, the UAE has repeatedly demonstrated its desire to remain at the forefront of technological advances and has put in place a raft of initiatives regarding 4IR-related technologies. September 2017 saw the launch of the UAE Strategy for the 4IR, which outlines 18 priority areas, four of which focus on manufacturing. In January 2018 the UAE and WEF agreed to establish the Centre for the 4IR to promote related technologies and their regulation.
Neighbouring Saudi Arabia, which is seeking to develop its manufacturing sector as part of its Vision 2030 plan, is also starting to look at various 4IR technologies. For example, officials from state energy company Saudi Aramco, speaking at a local symposium on 4IR in May 2018, said that the Kingdom could soon see the introduction of around 11,000 robots to carry out specialised industrial and technical work.
Latin America, conversely, has been one of the principal regional examples of premature deindustrialisation. Mexico has historically been a prominent beneficiary of industrial offshoring trends, putting it at risk from aspects of 4IR that could reduce its competitive advantage. Nevertheless, Mexico is one the countries leading the charge towards Industry 4.0 in the region, with the government in the process of drawing up a legal framework to regulate the transition. The state of Nuevo León, a domestic hub for advanced industry and manufacturing, is the centre of 4IR-focused activity in the country. In 2016 the state government launched the Nuevo León 4.0 programme, which aims to build an advanced industrial base using innovative and automated technologies, alongside the development of research and development centres. The vehicle, aerospace and electronic appliance segments are the main drivers of 4IR activity, with IoT the most advanced technology being utilised.
Of all emerging regions, Africa is perhaps most at risk of being left behind by Industry 4.0. The continent is poorly industrialised and many countries lack the resources and financing to invest heavily in new technologies. Infrastructure deficiencies in many markets, such as shortages or unreliable electricity supply, risk further hindering the transition. However, the potential embedded in 4IR for countries to leapfrog previous development stages presents a promising avenue for take up. Infrastructure deficiencies could even help to speed up such development, as was the case when the continent leapfrogged to mobile communications without first investing in costly fixed-line infrastructure. Prettner told OBG that the absence of a fixed-line telephone network in Africa facilitated and accelerated the uptake of mobile communications and related technologies such as mobile banking, suggesting this could be repeated with some 4IR technologies.
3D printing, for example, offers the opportunity to establish manufacturing that bypasses expensive and traditional infrastructure-intensive industrialisation. It could also help to avoid importing capital goods from developed markets at a high cost. “It could be easier for a central African country to produce something locally with a 3D printer than to ship it from the US, for example,” Prettner told OBG. This could be a boon for countries far from ports, particularly given the continent’s underdeveloped land transport infrastructure.
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