It’s the future of manufacturing, according to many experts, but what effect will Industry 4.0 have on the flow of investment capital, and which countries will benefit most?
Some call it the Fourth Industrial Revolution. Others refer to it as 'Industry 4.0'. It is a vision of tomorrow’s manufacturing in which a network of devices with embedded technology enable the transfer of data via the internet.
The core of Industry 4.0 is highly intelligent, connected systems that create a fully digital value chain. Based on cyber-physical production systems that combine communications, IT, data and physical elements, Industry 4.0 is intended to transform what are traditional manufacturing plants today into smart factories of the future.
The potential of Industry 4.0 is enormous, especially if it becomes a key enabling technology for digital businesses. US-based research and advisory firm Gartner estimates that 4.9 billion internet-connected 'things' were already in use in 2015. Gartner expects that figure to rise to 25 billion by 2020.
The annual IBM Global Location Trends report for 2015 states that the emergence of the Internet of Things (IoT) and changes associated with Industry 4.0 will usher in new opportunities for companies to operate complex networks of production, distribution and sales across multiple geographical locations. IBM analysts see IoT data as the new source of value creation and economic growth.
“More generally, we are witnessing a considerable transformation of IoT-engaged industries,” the report concludes.
A digital world
Corporations are becoming more aware of the potential of these new technologies for improving efficiencies. “When the industry is moving towards a new digital world, it is important for companies to master the use of IT and ecommerce to better manage their own affairs and also to compete and thrive in the emerging digital economy,” says Benoy CS, director of the ICT practice at the India office of global consulting firm Frost & Sullivan. “This will call for a lot of investment into technology sectors from other industries that are getting transformed with digitisation.”
He foresees particular opportunities for IT software and service companies. While traditional IT service hubs with some manufacturing base will continue to attract maximum investments, there will be a push by governments to promote manufacturing to support investment.
In the US, Oklahoma Department of Commerce head of FDI attraction Jennifer Springer explains that the best way for the state to recruit companies that are embracing the Industry 4.0 concept is to help build the workforce they need. “This is being done by working with tech centres, universities and industrial parks to create centres of innovation,” she says.
Oklahoma has several entrepreneurial innovation centres where individuals with a concept can work with technical experts from Oklahoma’s universities to build a prototype through 3D printing or other automated process. The Oklahoma State University Institute of Technology at the MidAmerica Industrial Park has partnered with Google to operate an advanced technical training centre offering STEM (science, technology, engineering and mathematics) education.
“Aerospace and industrial manufacturing are our two biggest targets for FDI,” says Ms Springer.
Germany steps up
Industry 4.0, first identified at the Hanover Messe industrial fair in 2011, began in Germany as an initiative to revive manufacturing competitiveness. In 2012, management at Robert Bosch and the German Academy of Science and Engineering presented a set of Industry 4.0 implementation recommendations to the German federal government, which were formally adopted in 2013.
During several speeches at tech summits in 2014, German chancellor Angela Merkel clearly outlined a four-year Industrial 4.0 digital agenda, and called for a pan-European effort. Her government is investing €200m in Industry 4.0 research across government, academia and business. Tech and communications heavyweights involved include Deutsche Telekom, SAP and Siemens.
In the US, companies such as GE have proposed a US industrial internet platform, to be “the first data analytics platform that can manage large-scale industrial machines in the cloud”. GE has partnered with tech companies Amazon Web Services, Accenture and EMC’s Pivotal Initiative as well as AT&T, Cisco and Intel in efforts to include the platform in programmes such as Rail Connect 360 Monitoring and Diagnostics for transportation, Cloud Imaging for healthcare, and non-destructive Testing Remote Collaboration for oil and gas utilities.
Meanwhile, analysts predict newer economies with a promising pool of skilled workforce are also expected to receive sizeable investments in the years ahead. “The industrial supplier groups that are providing solutions to end-users are expected to be a key front for new FDI in emerging economies such as India, China and the rest of Asia,” says Karthik Sundaram, senior research analyst in Frost & Sullivan’s Moscow office.
Promising territories
Mr Sundaram highlights two examples of initiatives directly or indirectly influenced by the Germany Industry 4.0 initiative. Make in India is a major national programme designed to facilitate investment, foster innovation, enhance skill development, protect intellectual property and build best-in-class manufacturing infrastructure in India. Made in China 2025 is an initiative to comprehensively upgrade Chinese industry. China’s Ministry of Industry and Telecommunication Technology, which drew up the plan, says the strategy is intended to give China an edge in innovation, green development and quality goods.
“The advanced economies of Europe and North America are touted as locations that are most ideal for Industry 4.0-related investments; however, we at Frost & Sullivan believe that the emerging economies of Asia are equally promising as investment destinations for Industry 4.0,” says Mr Sundaram.
He stresses that while manufacturers in advanced economies have a compelling need to invest and transform their manufacturing facilities, the large spread of brownfield installations running legacy systems presents a huge roadblock for any process revamp. “Emerging economies such as China have less of a load to carry and are more open towards new greenfield investments that can be Industry 4.0-compliant,” says Mr Sundaram.
Proving this point is Siemens' announcement in September that it is investing €1bn in India, a market with a strong IT labour pool. This is the biggest investment from a European business conglomerate under the Make in India plan.
Meanwhile, global market intelligence firm IDC forecasts that the IoT in Asia-Pacific (excluding Japan) will include 8.6 billion devices by 2020, and by this time will be worth $583bn, from its current annual market value of $250bn.
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