Throughout the history of humanity, technological advances have driven different radical transformations in the material and social conditions of production. We are currently witnessing a new phase in the transformation of the global economy, the Fourth Industrial Revolution, which centers on the digitization of the manufacturing sector and is driven by surprising increases in volumes of data, computing power, and connectivity.
Industria 4.0. Fabricando el Futuro [Industry 4.0. Manufacturing the Future] explores the scope of these changes and their impact on emerging economies, especially on the local manufacturing industry. The publication was developed by INTAL, which is part of the IDB’s Integration and Trade Sector (INT), in partnership with the Argentine Industrial Union (UIA).
Data analysis and real-time decision-making have a positive impact on firms’ individual efficiency and the value chains that they are part of. Some of today’s trends—such as the spread of the Internet of things, integration systems, and online platforms—allow companies to grow their markets, access information on clients and products, and partner with other players in the productive ecosystem.
The effects of the reconfiguration of the global geography of production remain uncertain . New technologies may prompt global firms to reshore production in their country or region of origin and to decentralize production (distributed manufacturing) to bring manufacturing closer to where products will be consumed. This is bringing new opportunities for SMEs with small-scale infrastructure in urban areas who can now engage in smart production and become part of decentralized manufacturing networks. Automation and robotization are eroding the traditional competitive advantages of developing countries, which were based on the supply of cheap labor, while the spread of information and communication technologies and technologies such as cloud computing, the Internet of things, and big data reduce the cost of global coordination even further. As a consequence, global companies’ localization decisions now focus on other competitiveness-related factors, such as digital infrastructure, logistics, and connectivity systems, energy costs, and human talent that can respond to the demands of Industry 4.0. The democratization of access to specific technologies such as 3D printers, circuit printers, and computer numerical control (CNC) systems make economies of scale less significant than they used to be. This means that some links in the global supply chain can be replaced, opening up new opportunities for SMEs. These emerging trends may soon alter the geography of global value chains and the volumes and directions of international trade flows.
Markets are expanding via e-commerce platforms: the distances between manufacturers and consumers are getting shorter, new channels for dialogue are opening up between manufacturers and consumers, intermediaries are falling by the wayside, and the chances of creating value by accumulating stock are on the downturn. Customers are now center stage and products are ever more personalized. The challenge for the manufacturing industry is no longer about producing large volumes using only minimal resources or selling large volumes to obtain a larger market share. The cycle is no longer simply design-produce-sell—instead, companies contact future users before they manufacture a given product. The challenge now is capturing the value generated by product use and moving from traditional products to product platforms. There is a growing trend toward manufacturing smart products that include services. Access to a product is more important than owning it. Using open innovation platforms, cooperation mechanisms are being created between companies so that they can accelerate the results of R&D&I initiatives.
The automation of production is another global trend that is on the rise. From 2010 to 2016, the production of industrial robots grew at an average annual rate of 12%, while the number of industrial robots per 10,000 inhabitants went from 66 to 74. Robot capital is concentrated in a handful of countries (see figure 1) and large companies, and the automotive industry is the main global adopter of this technology. Some 75% of industrial robots are concentrated in just five countries: China, the United States, Korea, Japan, and Germany, which are also the main producers of these technologies.
The breaking down of work into tasks and the rise of the sharing economy are reducing wage labor and creating new ways of organizing work. As industries attempt to digitize their operations, companies come into contact with ICT stakeholders. The automation of administrative tasks and human resource management can reduce the time and costs associated with hiring people, thus making it easier to outsource tasks. New business models, the sharing economy, and the growth of freelancing are some of the driving forces behind changes to the way that work and labor relations are organized. Software developers, IT experts, and professionals from all walks of life working remotely as freelancers or in the gig economy[1]are some examples of these changes.
The digital transformation is challenging social players in different areas. The technological challenges ahead include standardizing interfaces, perfecting autonomous decision-making systems, developing infrastructure for big data, and strengthening cybersecurity. Some of the socio-economic challenges include avoiding the concentration of new technologies among just a handful of companies; guaranteeing universal digital literacy; developing worker skills to meet new demands; monitoring the impacts of these changes on the labor market, with a special focus on income inequality between men and women; and reducing the digital gender divide. New regulatory challenges include generating a new form of governance around data security and ownership; new labor markets and activities; intellectual property; national security; digital currencies; and bioethics.
The world’s most industrialized economies are starting to redefine their industrial policies in the light of the 4.0 revolution. States must not only facilitate access to new technologies, they must also play an active role in designing roadmaps and policy instruments that foster the cultural change needed for this transformation to take place. These changes are not just private and not just public. The Fourth Industrial Revolution means that we will all have to work together to build 4.0 institutions, 4.0 governance, 4.0 states, 4.0 labor forces, and 4.0 entrepreneurs. This is the only way that we make inclusive digital transformation a reality.
[1] This new form of hiring is central to the sharing economy. For example, TaskRabbit is a platform that connects supply and demand for home maintenance, repair, and renovation services (such as painters, plumbers, gasfitters, gardeners, removal companies, cleaners, etc.). The user posts what they need and how much they are prepared to pay for the service and the platform finds a provider who fits their needs and budget.
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