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Industry 4.0: Impacts on Trade, Labor and Productivity

 

Keywords: Industry 4.0, Robots, Automation, Technology, Trade, Competition, Mindfacturing, Digital Transformation, Labor, Productivity, Mexico, Economy

Global technological growth

We are living in the era of machines, seeing an exponential growth in the technologies that impact our daily lives and increase productivity in the workplace.

Industry 4.0, also known as ‘The Fourth Industrial Revolution’, centralizes around automation, interconnectivity, machine learning and real-time data and “its purpose is to revolutionize the industry through smart factories”. However, Industry 4.0 is not only about investment in technology, but also the development of new strategies to operate your business.

Source: https://amiti.org.mx/wp-content/uploads/2018/01/Crafting-the-future-10-agosto-2016.pdf

According to Dr. Jesús Vázquez, a business professional consultant, Industry 4.0 is the mega trend to the adoption of automation and the exchange of data for the fabrication technologies that includes the cyber systems and the Internet of Things. Starting in Germany between 2011 and 2012, it became popular around the world until 2016 when it was identified as one of the causes for unemployment in the World Economic Forum. Yet the economic story does not end here; opportunities for new industries, products and services continually present themselves and create a shift in the global economy and a precursor for changes in the future of international trade.

Source: https://www.forbes.com/sites/louiscolumbus/2018/12/13/2018-roundup-of-internet-of-things-forecasts-and-market-estimates/#61ab57787d83

The Industry 4.0 products and services are expected to grow to $310 billion dollars by 2023, at a compounded annual growth rate of 37%. The core building blocks considered in this forecast are hardware connectivity, cloud platform and analytics, applications, cybersecurity, and system integration. The supporting technologies include additive manufacturing, augmented and virtual reality, collaborative robots, connected machine vision, drones, and self-driving vehicles.

Industry 4.0 connects the physical world with the digital and helps owners and decision makers improve their understanding about their company´s operations. With this they can optimize their processes and boost their efficiency and productivity, taking advantage of developing technologies. One such area seeing large growth and continual change is manufacturing.

How is Industry 4.0 affecting manufacturing?

Industry 4.0 contributes to manufacturing in diverse manners.

  • Interoperability- the ability of sharing data between different components from the factory (such as robots, local and wide area networks, machines and smart products).
  • Virtualization and Real-time Analytics make way for vastly improved decision-making, optimization, monitoring etc.
  • Decentralization- the ability to design autonomous sub-processes and enable them to make autonomous decisions as well.
  • Service orientation has been benefited as well from the new industry, as new value has been placed on the new and improved services/processes.
  • Modularity – the responsiveness to the needs of industry and companies.

Source: http://www.iotsens.com/what-is-industry-4-0-and-what-does-it-contribute-to-my-company/

Whether or not a company is intentionally entering the Industry 4.0 era, they are facing affects such as the replacement of mass production for customized products, where large volumes of a specific product can be replaced for dynamic and flexible amounts of production. Some of these affected changes are directed by demand, and others are based on strategic decisions to utilize technology to increase profits, create more flexible organization, etc.

The growth of technology in manufacturing processes that incorporate big data and flexible production can be measured in part by the installation of industrial robots, which continues to show sustainable growth over the coming years. The incorporation of robotics in the manufacturing process has the potential to increase productivity and cut labor costs.

https://ifr.org/downloads/press2018/IFR%20World%20Robotics%20Presentation%20-%2018%20Sept%202019.pdf

Abraham Tijerina , an expert in the application and connection of the Nuevo Leon Industry 4.0 with Metalsa, a leading automotive company based in Mexico, mentions that, “with the 4th Industrial Revolution, labor will no longer be an advantage. We will need to sustain the economy with ‘Mindfacturing’, [where intellectual productivity and intellectual capital rather than specialization are the base of the new wealth of nations], and by taking advantage of the demographic bonus”, or the boom in young people. He says there is a threat of losing jobs with this new revolution but the risk we would face for not being part of it is higher.

“Industry 4.0 is probably our best opportunity to provide well-being by using efficient, flexible and clean technologies, allowing everyone to integrate into this digital transformation era. Education, health, work and digital entertainment can be provided to the most remote regions of the country with lower costs than they currently have today”.

With this increased access to technology, we are sure to see impacts in the organization of production, the trade of goods, investment in capital, and the development of new products and services.

The future of global trade

Across many platforms and opinions, the consensus is that the rise of Industry 4.0 is sure to raise productivity, making data an important raw material sought after across many industries. As detailed in the 2018 WTO Report (6), “how do we prepare for the technology-induced reshaping of trade”?

Source: https://www.wto.org/english/res_e/publications_e/world_trade_report18_e.pdf

  • Expect regulation changes across industries, governments and international trade.
  • Look for the creation of new markets that may impulse footprint changes of certain industries and activities from developing to high-income countries.
  • Be aware of the emergence of new products due to the availability of data which will facilitate exponential technological growth.
  • Expect the reduction of trade costs due to digital technologies, data exchange systems, e-certifications and facilitated customs cooperation.

“The impact of digital innovation and of digital technologies on trade depends on access to digital infrastructure and a workforce with appropriate skills as well as on the availability of efficient and low-cost digital infrastructure services” (p. 132). The basis of this digital infrastructure is computers, and since 1997, the cost of computers has had an inverse relationship to the growing cost of all other market items, expressing the precursor and continued readiness for the Industry 4.0 technologies to shape our lives even further.

In addition, the labor composition is bound to shift and adapt, with average robot prices already falling in comparison to labor compensation over time. “Definitely [we will see the disappearance] of low value-added, manual jobs,” mentions Abraham Tijerina. Also affected will be “the high-risk jobs or those related to product quality because automation will not only replace [low wage] workers but also those employees that simply collect and input data to the system without generating intelligence.” Dr. Jesús Vázquez also mentions that “jobs with repetitive activities and those with little creativity are bound to suffer a greater affect”.

Even if robots replace some jobs, experts agree that we are already seeing a major shift of certain activities toward the services industry that will gradually change the labor composition, demanding a workforce with a different skill set, and increasing new opportunities. Where robots increase productivity and efficiency, they lack the intuition and problem-solving skills that humans possess. As human capital utilizes technology, such as robots for example, productivity has increased at a higher rate than the labor compensation for the same human capital, which has sparked an interesting debate in the global manufacturing and technology sectors, pointing out the discrepancy in real value creation and reward.

“Compensation must be based on productivity”, mentions Emilio Cadena, CEO of Prodensa. “We will foresee a rapid inflation of wages. Social stability is required for a productive environment, and the perception of fairness in terms of compensation is integral to achieving it.” With the exponential growth of technology associated with Industry 4.0 comes the need to address labor issues to ensure a sustainable future for manufacturing and trade. “We are just seeing the beginnings of a major change in labor composition and compensation structures in the global and local economies”.

Industry 4.0 Importance in Mexico

Emilio Cadena also addresses the concern that robotic technology has the potential to replace labor, a key for manufacturing investment in Mexico.

“Mexico has 10-20 years where manual assembly will still be required for the production of goods, but there are other aspects that we need to improve in the midterm. Mexico is still very important for a North American footprint and is still preferred employment location for assembly, engineering and machining trades. In order to keep its preferential status in North America, it must invest in developing its infrastructure, energy and logistics as well as connectivity, to be able to move data around.”

Mexico will see a major labor composition change in the coming decades due the dependence and sustainability of manufacturing to the country, and the importance of Industry 4.0 technology to manufacturing. Abraham Tijerina mentions that,

“the industry at a global level has been transformed. There are new business models supported by digital tools and exponential technologies that are being used around the world, especially in European and Asian regions. For Mexico this transformation and performance has shown less advance. The manufacturing industry in Mexico has been threatened and subjected to pressures relating to quality, response times and competitiveness. For many companies, this has generated an awareness for the need to introduce improvements and technological developments to attend these pressures.”

As the Industry 4.0 grows in Mexico, as seen by the investment and incorporation of Smart Factories, the development of manufacturing technologies, and the emergence of specialized educational programs, there is still work to be done to close the gaps and create a competitive advantage over other nations that are also growing. Dr. Jesus Vazquez mentions that,

“in comparison with more developed countries, the consolidation of Industry 4.0 in Mexico has been slow. These days there are no solid bases to develop it, nevertheless, we need to understand that in the short-term investing in technology is important but in the future, it is extremely profitable, even more so if we consider the economic impact that for example, clusters, have had in manufacturing topics. The principal change is found in the adoption of digital transformation strategies. The effort is focused on the development of reliable systems that serve as platforms for future interventions and investments in projects to enable cyber-physical systems”, the integration of computation, networking and physical processes. 

In order to adopt digital transformation strategies and use them to create such platforms, skilled labor is the key to a competitive advantage. “It is vital in the modern world for Mexico to develop and retain talented workers. A skilled workforce such as data scientists are crucial for Mexico´s future”, adds Emilio Cadena.

Is your company prepared?

If you are wondering whether your company is ready or not to begin this journey, you can start by doing research on the new Industry 4.0 revolution, getting an expert’s assessment on your company and clarifying how you want your factory to move forward.
Future workforce, as mentioned before, will demand new skills and knowledge; starting to introduce and train your staff is a key and valuable activity.

The three determinants for whether a company is prepared for industry 4.0 based on the opinion of Dr. Vazquez are:

  • the ability to adapt to new technologies and effectively adapt them to their company
  • the skills and knowledge of the people in the company’s workforce
  • the maturity of the factory

Whether your company is exploring new production technologies or already using these technologies to create a competitive advantage in your industry, it is important to be active in the macroeconomic indicators of the industry, including global trade and labor composition changes.

Most importantly is the understanding that “the Industry 4.0 is driven by consumption trends. For the first time in history, man is driving supply and products are made according to customer specification,” stresses Emilio Cadena. Big data and consumer trends have become increasingly necessary to maintain a competitive advantage in an everchanging market, to help companies know the behavior, loyalty and engagement of their consumers. “The key to coming out ahead in the technologically competitive market is to be able to predict the human.”

Prodensa is an advisory and project management firm based in Mexico, providing manufacturing footprint analysis and strategy development to clients seeking increase their competitive advantage in the shifting global economy.

https://www.prodensa.com.mx/contact/

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