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When Technology meets Strategy: Impacts of Industry 4.0

INTRODUCTION

Today, the Fourth Industrial Revolution represents a new technological paradigm, where digital systems, the Internet, and the conventional industry will merge together, leading to a transformation of the multinational companies. Industry 4.0 (or I4.0, another name for the current technological era) has captured the interest of many stakeholders, among them top-level executives, governments and policymakers around the world. Senior managers are interested in the adoption of emerging technologies as they offer the possibility of changing their company´s strategies. Governments are also aware of the impacts of the Fourth Industrial Revolution because they know that it will increasingly give citizens the ability to use technology to seek greater autonomy. Finally, policymakers´ interest is based on the understanding of how I4.0 will challenge the power of governments and institutions in disruptive ways.

WHAT IS THE FOURTH INDUSTRIAL REVOLUTION?

The fourth industrial revolution is a set of emerging technologies that allow hardware and devices to communicate autonomously to each other along the production networks, which leads to the creation of the smart factories, where computer-driven systems will control production processes, create virtual copies of physical products/contexts/processes, and/or make decisions based on self-organization mechanisms. A report from BCG, an international consulting firm [1] suggests that I4.0 includes several technologies that drive the transformation towards a “Manufacturing Renaissance”: (a) big data and analytics; (b) autonomous and collaborative robots; (c) simulation; (d) horizontal and vertical system integration; (e) the Industrial Internet of Things (IoT); (f) cybersecurity; (g) cloud computing; (h) additive manufacturing; and (i) augmented reality. While some of these digital technologies have been available for some time, recent cost reductions and improvements in reliability mean that their development for industrial applications become commercially viable.

IMPACTS OF INDUSTRY 4.0 ON STRATEGY AND INTERNATIONALIZATION

International Business research points out that the adoption of emerging technologies may impact on the international configuration of the company and in the structure of global value chains. Regarding the specific technologies that are under the umbrella of the current industrial revolution, Big Data and Analytics (BDA) enhances the capabilities of firms to monitor emerging trends and opportunities in foreign markets without the need to make substantial resource commitments, such as the expatriation of managers, the acquisition of local firms or the execution of market research [2]. Therefore, Big Data may slow down the international expansions of firms because the need to internationalize in order to learn about foreign markets may decrease.

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IMPACTS OF INDUSTRY 4.0 IN MANUFACTURING AND ON GLOBAL VALUE CHAINS

First, some applications of I4.0 aim at reducing costs and increasing productivity, collaborative robots. Second, I4.0 relates to new concepts of predictive maintenance used to improve operational excellence, by using remote maintenance and diagnosis to service machines or products. Third, there is the possibility to increase flexibility with the utilization of 3D printing to produce small batches of customized products. In fact, this last technology may reshape global value chains because companies may redesign their production systems and decide to disperse printing facilities close to end users, with a subsequent revolution of the distribution strategy. This change could affect the rules of the game, challenging multinationals as coordinators of global value chains and bringing fundamental changes in the management of geographically-dispersed manufacturing chains.

Will Robotics bring manufacturing activities back to advanced economies?

Over the past few decades, many manufacturing jobs were transferred to developing countries to avoid the high labour costs of North America, Western Europe, and Japan, and this movement resulted in an international fragmentation of manufacturing. However, as the costs of both hardware and software of robotics systems have fallen with a simultaneous improvement of their performance, robots are becoming an economic alternative to human labour for highly complex jobs. Additionally, industrial robots are becoming more versatile and able to perform more complex and sophisticated tasks. Finally, the most advanced systems are also “intelligent” in that they provide and receive data to/from other parts of the production with the Internet of Things (IoT). The result of the adoption of large-scale robotics may be a reshoring (or backshoring) of manufacturing activities from Latin America, Southeast Asia, and Eastern Europe to developed economies, a reversal of internationalization of production.

Photo by Franck V. on Unsplash

CONCLUSION

Regarding our understanding of the impacts of the Fourth Industrial Revolution, we may incur in the same mistakes we did with other disruptive technologies: an overestimation of short-term potential and an underestimation of long-term impacts [4]. What we know for sure is that the adoption of the Industry 4.0 technologies has the potential to transform both the strategies and the global value chains of multinational companies worldwide. We also perceive that improved automation will continue to displace lower-skilled labour, while simultaneously increasing the demand for specialists in software specialists, mechatronics and data analysts.

REFERENCES

[1] Rüßmann, M., Lorenz, M., Gerbert, P., Waldner, M., Justus, J., Engel, P., & Harnisch, M. (2015). Industry 4.0: The future of productivity and growth in manufacturing industries. Boston Consulting Group9(1), 54-89

[2] Laplume, A. O., Petersen, B., & Pearce, J. M. (2016). Global value chains from a 3D printing perspective. Journal of International Business Studies, 47(5), 595–609

[3] Rezk, R., Srai, J. S., & Williamson, P. J. (2016). The impact of product attributes and emerging technologies on firms’ international configuration. Journal of International Business Studies, 47(5), 610–618.

[4] Strange, R., & Zucchella, A. (2017). Industry 4.0, global value chains and international business. Multinational Business Review25(3), 174-184.

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