The industrial future is taking shape; VCs are missing out

THE battle to dominate industrial technology is ramping up as government intervention in economies becomes far more prevalent. Investors – once enamoured of asset-light firms and high returns – better be prepared to put in billions of dollars towards this, or risk being crowded out.

This isn’t just a reaction to the fallout from Russia’s war in Ukraine and geopolitical tensions between the US and China. The past two years of goods shortages and labour shocks have exposed weak and clunky supply chains across the globe. To ensure we don’t end up there again, governments are bolstering their multibillion dollar industrial policies to incubate the next generation of hardware, including chips, 5G base stations, electric vehicles, batteries and high-tech machinery and systems.

At the same time, they are drawing in – and incentivising – companies with the know-how. Big corporates are spending, too. Japan’s Industry Ministry this month (November) announced it was joining forces with some of the nation’s largest companies, along with IBM, to develop chips for quantum computing and artificial intelligence. Along with the provision of subsidies, Tokyo is seeking more funds to build advanced manufacturing facilities. In the US, S&P 500 firms recently reported record capital expenditures of US$222 billion on new machinery, buildings and technology – a sign that they have a positive outlook on future consumption despite fears of an imminent recession. Equipment investment grew at 11 per cent, while that on intellectual property rose 7 per cent. The past few years have shown how high the costs of industrial dysfunction can be, and no one wants to get left behind.