Why is Everyone Investing in Industry 4.0?Jackie Orr
Renovating a factory and innovating the manufacturing process. Where would you start? Industry 4.0 is the umbrella term that covers the newest approaches to tackling this question. The technologies include the Internet of Things, artificial intelligence, human-machine interface, robot and sensor technology, and 3D printing. Industry 4.0 was a term coined by Germany, but it’s more and more being adopted by countries across the globe.
Why they’re investing resources and energy is particular to each country. Let’s start by looking at three countries well known for their manufacturing: Germany, Indonesia, and China. Can you guess Canada’s Why?
Germany at the Forefront of Industry 4.0
Germany is at the forefront of Industry 4.0 technologies (and Industry 3.0 technologies). They invest money and resources into factory technology – and they’ve been doing this for years! Now, early investing in manufacturing was really more luck than foresight. Like Canada is a prime location for a lumber industry, Germany has the natural resources available for metal and steel production that make it a prime location for an industrial sector.
But what’s kept Germany a global industrial leader isn’t luck, it’s foresight. They have encouraged their manufacturing industry continually beginning with Prussia in the early 1800s. Germany’s Unification in 1871 strengthened the internal economic and internal industry ties even further. They funded educational research institutions, set up industrial-friendly policies and invested monetary resources to help the sector grow together. By the time the second industrial revolution came about, Germany had an advantage: a torrent of experts and ideas lying in wait. Their economy boomed. Almost by tradition, they continue to promote manufacturing.
Unsurprisingly, Germany has built up quite the international hub for IT industrial professionals. Where some countries are working to fix their factories’ models to stay globally competitive, Germany is the catalyst country that has jump-started the manufacturing industry and launched it into a high-tech, software heavy era. They are the industrial sector’s metaphorical meter stick – as anyone who went to Hannover Messe in April would be able to attest to.
Germany benefits by staying at the forefront of these waves of industrial innovation. If their factories are efficient, they have a competitive edge globally and can attract customers not only with cheaper production costs, but smarter products – that suit individual clients’ needs.
What’s at stake for Germany? If their factories aren’t, comparatively speaking, efficient then Germany risks losing clients to other countries who innovate faster. German industrial work makes up for “nearly 23 percent of [their] domestic product,”(BDI). For reference, that number is 13 percent in the United States and about 11% in Canada. Losing against their international competitors would mean constricting their economy and accepting a higher unemployment rate. They’re not stopping anytime soon.
Key Take-Away: Be competitive and invest in the future. Start early and start now. Develop hubs like Montreal’s AI-powered supply chain supercluster, Scale.ai, where meaningful collisions between financing, R&D, and talent yield powerful solutions. It’s essential and it’s effective.
China in the Starting Blocks of Industry 4.0
“Made in China” is an iconic tagline, not because it was the product of any expensive marketing campaign, but because of the extensive factory network that was built and cultivated in China over the past few decades. “Made in China” was stitched or stamped onto almost every good you could buy. The developing country with the massive population had the advantage of having a massive blue-collar labour market to tap into from their rural areas. A very cheap labour market gave Chinese goods an inherent competitive advantage – for a long time.
But how is the “Made in China” mark fairing today? It no longer equates to low quality – but Chinese factories are beginning to have their own cost problems. China faces an aging population coupled with an upcoming generation of young people not looking to work in current factory conditions. In addition, the cost of living in suburban regions – where factory workers live- and the living conditions in rural areas – where factory workers’ families live – have both increased. Chinese factory workers want to stay home.
In fact, they do stay home. In an article published by PWC, they note that China is “[o]ne of the countries that stands to gain the most from automating and digitizing labour-intensive manufacturing processes and needs to find a solution to rising employee remuneration,”(PWC). More and more workers are visiting their families over the holidays and staying, deciding to either extend their visits or remain at home indefinitely. Chinese factories have had to increase wages on average 10-30% to keep their employees, but employee remuneration remains a persisting issue.
Introducing “Made in China 2025”: a marketing campaign. What made China into a mass factory-producer was a ready-to-go labour force. That labour force is changing. Their cheap labour market isn’t a reliable competitive advantage anymore and it’s why China(#smartcountries) is turning to industry 4.0 for solutions. They are looking for ways to decrease costs, retain their employees, keep their clients and maintain their export numbers.
Key Take-Away: China can’t keep their employees in their factories without raising wages, and improving the overall employee package and work environment. As the factory is being reinvented, bringing in technology while taking into consideration the human element is critical to how factories are supported overall and what the industrial workforce looks like. Employees are a critical part of the equation.
Indonesia: Industry 4.0 in Its Line of Sight
Indonesia is one of the latest countries to join Industry 4.0’s international community. They officially launched their industry 4.0 initiative in April of this year. Why now? Two major shocks have hit their factories’ production, which includes fluctuating global economies as well as massive floods that have inhibited transit and prolonged delivery times. A weak Indonesian currency, in part due to tightening US monetary policy, has increased the costs of imported raw materials into Indonesia. Their overall production costs have gone up – something that is hard to explain to their customers. To stay internationally competitive and to avoid product price increases, they opted to reduce their factories’ inventories and cut small fractions of their employees.
This was the short-term fix to the shocks they experienced. Investing in Industry 4.0 technology is their long-term solution. They’re trying to bring stability into the equation, to have more levers to pull on than just employee numbers (i.e. salary costs) and inventory levels. In an article issued by Indonesia Investments, they report that the Indonesian government and President “Widodo is enthusiastic about Industry 4.0 and is optimistic that the transformation will lead to more jobs – rather than job shedding – on the Indonesian market,” (Indonesia-Investments). Manufacturing technology will give Indonesian factories more options the next time they face unpredictable outcomes – like weather trends and politics. Indonesia’s government is looking at manufacturing technology as a way to secure their industrial sector.
Key Take-Away: Indonesia needed a way to reduce costs when they faced untimely and unexpected events. Having more options available to reduce costs temporarily in tough economic times helps avoid closures permanently. Technology brings an elasticity to how products are made and brings stability to manufacturing industries.
What about Canada?
Canada is unlike these three countries in terms of why we’re investing in manufacturing technology and industry 4.0. Our economy is not as dependent as Germany is on manufacturing. There is only an unlikely, and unpredictable, chance that we experience the exact same shocks that hit Indonesia and China.
Contributing 11% to our GDP, manufacturing is an industry that boosts our economy and our employment levels. And, we’re proud of our aerospace industry in Quebec, our automobiles in Ontario and our tractors in Saskatchewan – to name a couple of the larger sectors. A good way to start supporting the industry is by becoming familiar with the great technologies out there that can help. Check out industry 4.0: the Internet of Things, artificial intelligence, human-machine interface, robot and sensor technology, and 3D printing. Just as there’s no one “Why” that causes a country to turn to industry 4.0, there’s no one way to re-do an industrial sector – or even one lone factory.
Translation of article: Pourquoi ces pays ont-ils pris le virage numérique de L’industrie 4.0? Juliette Martinez