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 countries in Southeast Asia, appear best placed to reap the benefits of the 4IR. Many of these economies are putting in place strategies to manage and encourage the transition towards Industry 4.0. Meanwhile, other regions have shown signs of so-called premature deindustrialisation. In particular, Latin America and Africa seem more vulnerable to threats arising from technological changes and at greater risk of being left behind. To avoid such a fate, they need to adopt new innovative strategies that will allow them to leapfrog existing stages of industrial and infrastructure development.
Klaus Schwab, founder and executive chairman of the World Economic Forum (WEF) and author of the book The Fourth Industrial Revolution, states that the world has already gone through three industrial revolutions. The first involved water- and steam-powered mechanisms, followed by electricity-powered mass production. The third industrial revolution is referred to as the digital revolution.
Schwab argues that the world is currently 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”. There are a number of emerging technologies expected to play significant roles in the upcoming revolution, including robotics, artificial intelligence (AI), the internet of things (IoT), machine-to-machine (M2M) communication, virtual reality and 3D printing, among others.
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.
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, in a manner that is more efficient and cost-effective. An example is the manufacturing of hearing aids, which need to be individually moulded to the ear of the wearer. “Hearing aids used to be produced manually, which was a complicated process, but now manufacturers can simply scan the ear and use a 3D printer to make the product,” Prettner told OBG. As a result of such useful applications, 3D printing has witnessed a significant boom since 2008. However, as the technology matures, growth rates will likely level off.
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 and expensive goods. The technology is already being used for such purposes in the aviation manufacturing industry, for example.
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.
Pace of Change
While Schwab has argued that technological change is taking place at an exponential and unprecedented pace, other observers differ in opinion regarding the likely extent to which 4IR will transform the international industry and the speed at which this will happen. Prettner told OBG that the impact of 4IR-related technologies would be felt gradually. “There won’t be a real revolution in the foreseeable future,” he said. “While such technologies may work to reverse the decline in productivity growth that has been witnessed in recent decades, this will probably not bring them back to the levels seen in the mid-20th century.”
Some observers argue that change could be even slower. US economist Robert Gordon observed that there are major barriers to designing robots that can take over many roles currently performed by humans, and that the pace and impact of change was much higher between 1980 and 2005 than it is today.
Efforts to automate industrial processes have not always gone smoothly. In April 2018 Elon Musk, CEO of electric car manufacturer Tesla, told local media that the company had engaged in “excessive automation” at its facilities, and that this partly contributed to its failure to meet production targets. He added that salaries for engineers to maintain robots could sometimes outweigh the savings involved in their use.
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 their main consumer bases. 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 referred to as premature deindustrialisation. The process has been driven by various factors, including rising competition from China; however, increased automation in developed economies such as the US, which lessen the attractiveness of cheaper labour in developing countries, also appears to be a contributing factor. A March 2018 report by the Overseas Development Institute (ODI) found that even in the relatively low-tech furniture manufacturing industry, operating robots in the US could become cheaper than paying workers in Kenya by 2033. Prettner cited new highly automated production facilities built in Germany by Adidas for the manufacturing of trainers – a product generally produced by low-wage workers in Asia– as an example of Industry 4.0-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. For example, it is the sixth-largest vehicle producer in the world.
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 such as robotics, IoT and biotechnology, and overlaps with the Eastern Economic Corridor strategy to create growth hubs in three eastern provinces.
4IR-type activity is already developing rapidly in Thailand. In 2014 it shipped 2646 multipurpose industrial robots, up 13% on the previous year, according to the “Executive Summary World Robotics 2017 Industrial Robots” report by the International Federation of Robotics. The figure is expected to increase to 5000 in 2020. A 2016 study by Citi GPS found that the payback period for investment in robotics in the country fell from around five years in 2013 to three years in 2017, further encouraging the trend. Thailand hosts at least four robotics research centres, and is home to the Institute of Field roBOtics, which offers robotics and automation engineering degrees.
Although Thailand is actively working on its transition into an increasingly digitalised world, more still needs to be done to ensure that the country maximises its potential. “There will always a threat from technological disruption, but as we move into Thailand 4.0, the manufacturing sector that has underpinned Thailand’s growth will benefit from a stronger competitive edge,” Porametee Vimolsiri, former secretary-general at the National Economic and Social Development Board, told OBG. “However, in order for Thailand to upgrade its economy, further foreign direct investment is needed, which will require additional efforts to link multinationals with domestic innovators and local firms.”
A key requirement for any country transitioning to the 4IR will be reforming education and training systems to provide workers with skills that are still valuable under the new paradigm, such as the ability to programme automated systems.
“We are pushing for change to education to develop digital manpower, such as AI and cybersecurity specialists, among others,” Nuttapon Nimmanphatcharin, CEO of Thailand’s Digital Economic Promotion Agency, told OBG. “Universities are also developing curricula focused on topics such as AI, though there will also be a need for more informal and on-the-job forms of training, and an important step will be to encourage educational institutions to work with multinationals.”