Manufacturers in developed markets are eager to explore the digital technologies covered by the 'Industry 4.0' label, but Asean firms have been slower to get onboard, says McKinsey in its report Industry 4.0: Reinvigorating ASEAN Manufacturing for the Future. ASEAN BUSINESS summarises the report's main insights.
Industry 4.0: an opportunity for Asean
The digital technologies of Industry 4.0 can help Asean manufacturers overcome relatively low productivity rates. These technologies can be grouped into four clusters:
- Data, computing power, and connectivity, linking components of the production chain
- Analytics and intelligence, which can be used to maximise asset use and optimise processes
- Human-machine interaction, including augmented reality and collaborative robots
- Advanced production methods such as 3D printing
Globally, Industry 4.0 is expected to result in annual economic gains of US$1.2 trillion to US$3.7 trillion. Of this, Asean has the potential to capture productivity gains worth US$216 billion to US$627 billion.
Closing the Asean productivity gap
Labour costs in most Asean countries are lower than those in China, but this competitive advantage is eroded by low labour productivity. Industry 4.0 could help Asean's manufacturing industries boost their productivity and close the gap.
Asean's five largest manufacturing industries stand to benefit: electronics; chemicals, oil and gas, and mining; consumer goods; food; and pharmaceuticals. Globally, these five industries have achieved productivity gains of 10 to 50 percent and improvements to overall equipment effectiveness of 10 to 20 percent by adopting elements of Industry 4.0.
Asean perceptions of Industry 4.0
McKinsey surveyed more than 200 managers at manufacturing companies and technology suppliers across six Asean markets: Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam.
- Almost all respondents (96 per cent) believed Industry 4.0 will enable new business models. 90 per cent expect new technologies to bring improved performance.
- More than 75 per cent expect digital technologies to boost revenues by mor than 10 per cent, and bring costs down by more than 10 per cent
- But only 13 percent of respondents said their companies had begun an Industry 4.0 transformation.
The main challenges cited by respondents were creating clear business cases, data integration, cybersecurity, capabilities, and coordination across business units.
- Finding use cases: Companies could focus on use cases that apply directly to their industry and concentrate on understanding those with significant or immediate impact.
- Eliminating silos: Many established Asean manufacturers have built their IT systems over decades, resulting in data and processes being isolated in different systems. To adopt Industry 4.0, these legacy systems must be integrated, bringing all data under one roof.
- Mitigating security risks: Firms can mitigate risks by putting in place appropriate controls, improving governance and organisation, and ensuring all employees are aware of the importance of cybersecurity.
- Finding talent: Firms must strike a balance between external hires and internal development. According to McKinsey, companies typically fill 50 to 80 per cent of new roles required by Industry 4.0 through external hiring.
- Adjusting incentives: Traditional key performance indicators must evolve to account for new work processes arising from transformation.
Accelerating adoption in ASEAN
Government, industry and academia will have to work together to quicken the pace of Industry 4.0 adoption in the region.
Government support should include:
- Preferential tax policies for Industry 4.0 adoption and special funds for transformation.
- Promoting industrial alliances, for instance by creating innovation platforms to connect local firms with IT experts
- Encouraging cooperation across Asean states.
- Supporting training and talent initiatives.
- Establishing national standards and protocols for new technologies.
Corporations themselves should step up to begin or continue their Industry 4.0 journeys. They can also self-organise into industrial clusters, working together with technology companies to test ideas. Besides local alliances, Asean firms should also build relationships with global players and technology providers to gain access to the latest technologies.
Academic institutions have an important role to play in providing tailored training programmes and leading innovation.