Welcome to the digital economy where technologies like the Internet of Things (IoT), artificial intelligence (AI), wearables, robotics and additive manufacturing are fueling the development of new production techniques and business models and driving global production. These technologies are also driving new, more distributed and connected value chains. Both the speed and scope of change add a layer of complexity to the already challenging task of developing and implementing industrial strategies that promote productivity and inclusive growth.
In collaboration with AT Kearney, the World Economic Forum recently released its Country Readiness for the Future of Production report focusing primarily inclusive transformation and growth. “As production systems stand on the brink of another technological revolution, countries need to build awareness of the changing nature of production, determine how to best prepare to benefit from this transformation and collaborate across the public and private sector to enhance readiness,” write authors Helena Leurent and Johan Aurik. “This project builds upon the World Economic Forum’s competitiveness and benchmarking expertise and is a result of collaboration between the Future of Production and Future of Economic Progress teams at the Forum.”
After applying their analysis framework to 100 countries, the authors offer 8 key takeaways:
1. Transformation could prove polarizing. Global transformation of production systems will be a challenge, and the future of production could become increasingly polarized in a two-speed world. Global solutions and significant investment will be required to bring countries at different stages of development and MSMEs along in the transformation journey.
2. Various routes exist. Different pathways will emerge as countries navigate the transformation of production systems. Not all countries may seek to pursue advanced manufacturing in the future. It will be important for each country to differentiate itself, capitalize on competitive advantages and make wise trade-offs in forming its own unique strategy for the future of production and its broader economy.
3. Continued improvement required. All countries have room for improvement. We are at the beginning of the transformation journey, and no country has reached the frontier of readiness, let alone harnessed the full potential of the Industry 4.0 in production. The specific industry footprints of each country may be challenged in the future under a different production paradigm.
4. Challenges all around. Leading countries need to convert readiness into actual transformation and push the frontier by designing, testing and pioneering emerging technologies. Legacy countries need to avoid getting squeezed between more advanced Leading countries, which can offer more advanced manufacturing, and Nascent countries that can offer lower cost labor.
5. Leapfrogging is possible. As a cluster of new industries surface, there is potential for leapfrogging. However, only a handful of countries are positioned to capitalize. New technological paradigms serve as a window of opportunity for lagging countries to catch up, since they can enter emerging industries at a later stage without the legacy costs of being locked into existing technologies. The opportunity exists with emerging technologies related to Industry 4.0.
6. Value chains are fluid. Selective reshoring, nearshoring and other structural changes to global value chains are all possible as Industry 4.0 continues to gain steam. Inertia is one of the biggest obstacles to changing global value chains, as it is so costly in most industries to move production from one location to another. The adoption of emerging technologies will change the cost-benefit equation for shifting production activities – ultimately impacting location attractiveness.
7. Continued investment required. Countries seeking to compete in the future of production need to invest in enablers and develop a strategy to capitalize on future opportunities and build or transition their production base. However, there are some enablers that cannot be developed in isolation to unlock the full potential of the future of production.
8. Collaboration could be key. Accelerating transformation requires new and innovative approaches to public-private collaboration. New approaches to public-private collaboration that complement traditional models could help governments effectively and quickly partner with industry, academia and society to unlock new value.