Is Thailand ready for Industry 4.0?

Is Thailand ready for Industry 4.0?

A decade ago, robotic solutions were costly. A single robot set-up cost more than US$300,000. Robots had to be caged safely, and programming required specialised training, and only to perform repetitive tasks. Any new function required at least a few days of tedious reprogramming.

Today, robots can cost as little as $20,000; and not only complement, but also adapt to human capabilities, learn new skills and demonstrate traits of high performance, with zero human error. Programming these autonomous and collaborative robots is relatively simple and intuitive via visual applications.

The emergence of autonomous robots, along with other fast-evolving and matured technologies such as cloud computing, industrial internet and big data is creating "smart factories", where digitally superior cyber-physical systems achieve operational efficiency and cost optimisation at levels never seen before. This marks the beginning of the fourth industrial revolution, more commonly known as Industry 4.0.

How will Industry 4.0 affect businesses? The fourth industrial revolution will allow companies to produce faster and cheaper, with better quality, reduced waste and greater control of production systems. All of which means higher degrees of customisation for more customer segments. Industry 4.0 will result in better businesses than before -- not only in delivering profits, but also in transforming business models, products and services. For instance, the New York Times recently described General Electric (GE) as "the 124-year-old software startup", for continuously reinventing and innovating its products. GE is beginning to harness vast amounts of data generated from sensors (attached to machines such as jet engines) to improve services and software that could enhance its engines' performance and reliability.

Industry 4.0 will also see more companies reconfigure their manufacturing supply chain, as technologies negate the advantage of locations with low labour costs in favour of lower logistical costs and closeness to markets. Adidas, for instance, has recently announced its plans to start producing shoes in Germany again, after more than 20 years of production in low-cost countries, with high dependence on intensive labour. Adidas will operate a highly automated, smart factory in Germany as its response to the increasing cost of producing in Asia and the need to be closer to its markets in Europe. In other words, if high-cost businesses competed more effectively from traditional low-cost manufacturing locations in the past, with Industry 4.0, competitiveness will come from efficiency, speed and innovation through technologies of the future.

How should companies be prepared for Industry 4.0? In our work with clients worldwide, we have come to see Industry 4.0 as a disruptive solution that can potentially transform businesses and offer competitive advantages. But companies do face multiple challenges in adopting it: from understanding what Industry 4.0 is and what it means for their business, to navigating the deployment of the technologies and convincing large vendors to embrace Industry 4.0 to drive positive change.

A great start would be to gain a perspective on what Industry 4.0 means to your business and what applications are already available in the marketplace. A top-down approach would also be critical towards successful implementation of Industry 4.0 strategies and solutions.

Do Thai companies have a systematic programme to exploit the full potential of Industry 4.0? Industry 4.0 has big potential to drive growth of industrial sectors even with currently existing technologies. BCG estimates that in the next five to 10 years, Industry 4.0 could boost productivity in Germany's manufacturing sector from €90 billion to €150 billion, contributing one percent per year to its gross domestic product and create up to 390,000 jobs. In Singapore, BCG estimates that every additional 1 per cent of companies adopting an Industry 4.0 roadmap could bring approximately $360 million of output yearly for the industry.

In some manufacturing sectors that are dominated by Thai companies, it is important to raise awareness and deepen understanding of Industry 4.0, and how it can complement or become a new source of competitive advantage. We see two key scenarios:

manufacturing set-ups or factories in Thailand operated by multinational companies may be turned into high-technology units, which are less dependent on semi-skilled labour;

multinationals uproot their factories from Thailand and move closer to their customers in larger markets (which would be the worst-case scenario).

This, in turn, would affect local employment scene too. It is thus critical to proactively build Thailand's proposition as a manufacturing location that is fast evolving towards Industry 4.0, which will also have a profound positive impact on its labour market.

Our research draws a more complex and progressive picture, contrary to the perceived rise of humanless robots, making human labour or skills obsolete. We believe Industry 4.0 will create new high-income jobs that require cognitive skills, and increase demand for a new generation of knowledge workers such as data scientists or user interface designers. While this trend may be welcomed in developed markets such as Germany and Singapore, which are looking to reduce their reliance on low-cost labour, it could be a challenge for markets such as Thailand. It would take both time and resources to upskill the labour force and manage Thailand's transition into an Industry 4.0.

The question is how can our education system produce more data scientists, more programmers, more user experience and user interface (UX/UI) designers, more engineers, and more researchers? Who will lead the way for building a talent pool that is both capable and prepared to take Thailand to an Industry 4.0 era? Thailand needs to remain regionally and globally competitive and its transition towards Industry 4.0 is inevitable. With many opportunities and some threats, it is time for the country to strategise its game plan, get ready and get going.

Isada Hiranwiwatkul and Yew Heng Lim are partners and managing directors of The Boston Consulting Group.

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