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The Fourth Industrial Revolution: An Introduction

By May 22, 2018 No Comments

Background to Industrial Revolutions

The income per capita grew in Western Europe at 0.12 per cent per year between the year 1000 and 1500. It means the income per capita in 1500 was only 82% higher than what it was 500 years earlier. To give you a perspective of how slow the growth was, assuming the average Malaysia growth was 4.1%, we have experienced the same increase in income per capita in less than 15 years (between 2002 and 2016) what Western Europe achieved in 500 years during the period. In terms of material progress, one year in Malaysia today would be equivalent to 33 years of income growth in Western Europe then. The growth rate was worse in Eastern Europe and Asia, growing at one-third the rate of growth of Western Europe.

Capitalism was born in the 16th century but it got into turbo-charged phase in the 50 years between 1820 and 1870 when the per capita income in Western Europe grew at 1 per cent. Still, it was more than 8 times the growth rate achieved during the period between 1000 and 1500. That acceleration in economic growth between 1820 and 1870 was so dramatic that it is typically referred to as the Industrial Revolution. It will not be off-tangent to say that an industrial revolution is associated with significant growth impact on economic regions.

The Classification of Industrial Revolutions

Today, there appears to be some retrospective categorization of the industrial revolutions and there is general agreement that the first industrial revolution was between 1780 and 1870. It commenced with the emergence of several innovative technologies that signaled the dawn of mechanized production systems especially in textiles, steel-making and chemicals. Hand production methods were replaced by machinery and small workshops evolved into the factory system that could produce on a more massive scale. Much progress during this era was based on mechanical production driven by water and steam power.

The second industrial revolution (between 1870 and 1970) began with the spread of electricity that replaced steam power leading to innovative ways of working with assembly-line production. Goods could be produced in large volumes for the first time and offered at a lower cost, leading to increased personal wealth. This industrial revolution can be best summarized as mass production enabled by electrical energy.

In the third industrial revolution (1970-2015), based on the use computers and electronics, brought about new levels of automation of complex tasks. The development of programmable logic controllers (PLCs) and increasingly powerful microchips paved the way to digitalization and the first use of software in manufacturing. Machines became more productive, accurate and flexible enabling higher levels of automation. Machines increasingly substituted difficult and dangerous tasks from humans. We saw the advancement of the use of networks by pooling several machines together as one production unit with single controllers. To be concise, computerization and miniaturization of technology were the main thrust of this revolution.

The fourth industrial revolution or also known as Industry 4.0 (2016 onwards) integrates people and digitally controlled machines with the Internet and information technology. The use of sensor technology; interconnectivity (with various permutations) between machines and humans; the merging of various value chains; and analysis of huge and wide array of data depicts the era of Industry 4.0. The popular terminology for foregoing overarching integration is ‘cyber physical systems’. The role of humans does not diminish in this industrial system but significantly alters the type of competencies required. (This matter will be addressed in forthcoming article). Work is facilitated to a greater degree than ever by software-based systems. In fact, the parts or products being produced or used in manufacturing are always uniquely identifiable and communicate independently with one another. Information flows vertically from the individual components all the way up to the company’s IT platform. Digitization and the widespread use of ICT allow to integrate all systems throughout a combination of value chains and enables data collection on all levels and aspects. The Fourth Industrial Revolution is an all-embracing industrial transformation that will eventually permeate into every industry and economic activity. It will change the way business is conducted. The present technological advances are also considered as ‘disruptive technologies’ due to the convergence of the physical, digital and biological systems.

‘Industry 4.0’ is a term coined by the German Government’s strategic initiative to transform its secondary industry (manufacturing) as a leader in advanced manufacturing (using cyber physical systems) and to be more efficient and cost effective. It is a part of the overall High-Tech Strategy 2020 Action Plan of Germany. Different countries are using different terms to describe their national strategy in terms of Industry 4.0. It is known as ‘Smart Manufacturing’ in the United States; ‘Made in China 2025’ in China; ‘Manufacturing Innovation 3.0’ in South Korea; ‘Industrial Value Chain Initiative’ in Japan; and ‘Smart Nation Programme’ in Singapore.

 

Benefits of Moving into Industry 4.0:

In addition to the foregoing benefits of embracing Industry 4.0, the Malaysian Government is also committed to moving away from the dependency of low-skilled foreign workers particularly in the manufacturing sector initially and other sectors subsequently. The usage of cheap immigrant labour is unsustainable for Malaysia in a long run. Primarily because the true costs of employing foreign labour is not reflected in the financial statements of organizations. The economic cost (explicit and implicit costs) is very much higher than the accounting cost (explicit or transactional cost) of hiring of cheap-and-uneducated foreign labour.

The human capital pyramid for Malaysia is thinning on the top-side (high-value human capital) of pyramid with the exodus of talent to developed countries; and widening at the bottom of the pyramid with the influx of uneducated labour (lower value human capital). The economic cost of the hiring of foreign workers can be monumental for several reasons. The return of previously-eradicated diseases; expenditures through medical care, education, judiciary and prisons; and the displacement of local labour (due to their higher costs) and the consequential social costs to the government are just some of the visible impact. The costs will increase dramatically because unskilled immigrants with legal status — what most foreign workers would become – can access government programs, but still tend to make very modest tax payments. By not reflecting the true economic costs, companies are over-stating their profits; and worse still, it simply reduces the companies’ drive or motivation to innovate. Yet another cost arises when companies lose their competitive advantage when they fail to innovate as fast their competitors (locally or globally). There is also a thing to be learned from China that is rapidly moving towards digitalization on a large scale despite the abundance of cheap labour in the country.

A Brief Overview of Major Challenges Faced by Malaysian Industries in the Adoption of Industry 4.0

There appears to be a lack of awareness on the concept of Industry 4.0 and its potential benefits. It is not surprising that many industry leaders have a vague idea of the new technological implication – especially those people born in the analogue era (as opposed to the digital era). Policy direction and coordination between various agencies entrusted with the adoption of Industry 4.0 is still at its initial stage. Even more serious are the infrastructure gaps, particularly the digital and networks platforms that forms a major pillar of Industry 4.0. It is also uncertain whether Malaysia will be able to speedily develop the required pool of human capital competencies for the fast adoption of Industry 4.0. Another major concern would be the lack of standards that would be required for exchange of data between machines, systems and software within networked value chains. Yet another challenge would be the legal issues surrounding product liabilities, intellectual properties and management of employees in the new digital environment. Of course, there are numerous other challenges to be overcome to realize the implementation of Industry 4.0.

 

Conclusion

Adopting new technological systems will be in tandem with global trends. Industry 4.0 is taking the manufacturing world by storm and will help create the smart factories of the future. Industry 4.0 will create higher value-added jobs for the manufacturing industry as opposed to the misconception that Industry 4.0 will eliminate jobs. Recent studies show that Industry 4.0 will lead to increase in employment in the coming years. The embracing of Industry 4.0 will enable companies to focus on higher level problems within the organizations, such as IT and process improvements. Unfortunately, many Malaysian manufacturers are not at all prepared for all that Industry 4.0 entails, and all the challenges it presents. Although for now, Industry 4.0 is about the digital transformation in and of the manufacturing sector, it will eventually impact and link other sectors and industries. As intimidating it may sound, taking a proactive approach to embracing Industry 4.0 right now can set the nation for success in the future.

By : Thangaraj – May 22th, 2018

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