The Challenges Nations Are Facing In A Time Of Industry 4.0 – AI, Blockchain, IoT, Robotics and Fintech

Industry 4.0 is reshaping global economies with AI, Blockchain, IoT, and Fintech driving change. Nations must adapt quickly or risk falling behind. How prepared is your country for the digital transformation, and what strategies should it adopt?

“We must develop a comprehensive and globally shared view of how technology is affecting our lives and reshaping our economic, social, cultural, and human environments. There has never been a time of greater promise, or greater peril.” Klaus Schwab, Founder and Executive Chairman, World Economic Forum.

“Digital is the main reason just over half of the companies on the Fortune 500 have disappeared since the year 2000.” Pierre Nanterme, CEO of Accenture

Countries are at the frontline of the upcoming Industry 4.0 and the digital transformation that it brings. Having said so, it is also an utter truth that these countries all around the world are going through the most challenging times since the end of WW2.  And these challenges are potentially risky enough to become serious threats if not properly addressed, while they affect all facets in many nations’ correct functionality. The 4IR resulting from profound digital transformation is just the tip of the iceberg in these complex, changing times. 

Nations face sensitive threats, to say the least. Political uncertainty and loss of trust in the state’s leaders have spread across the globe. This is particularly the case in traditionally well-established democracies such as those in Western civilisation. Social unrest has brought nationalism and identity back to the main frontline, giving way to a new wave of populist far-right parties. 

An ageing population and a worryingly low number of births have begun to trigger all the alarms towards the sustainability of the social welfare state. Climate change has been proven to be as devastating as science confirmed it was going to be, and it is only expected to become even worse. And all of this is embraced by an economy at the edge of a new recession, albeit still healing the wounds from the Financial Crisis of 2008. 

These challenges, though, have a common denominator, one that affects them all directly, and which is strong enough to seal the fate of the future. A tour de force technological wave is happening, at unprecedented speed, and it is changing everything it touches. In fact, these challenges are nothing but the direct outcome of a world unable to fully direct the disruptive digital transformation the planet is going through.

The digital transformation era

Across the world, in all nations, all kinds of physical interactions are being partially replaced by digitally mediated processes,  from social, political, media, and entertainment. Paradoxically, and precisely due to the same digital devices, it has never been so easy to interact socially with each other. 

People are more interconnected than ever. This swift transformation has been fast, disruptive, and it will be shifting to a new world of automation and disruption where data-driven AI will be the leading force amidst changing the face of governments and nations as they stand now. 

For better or worse, the world has laid its eyes on digital transformation as its last-stand answer to all these, and more, challenges, with nations at the spearhead of this disruptive force. Nations are the regulators, watchdogs and drivers of this present global innovative landscape. 

Despite other key agents, such as companies, entrepreneurs, supranational institutions, self-organised citizens’ movements, grass root movements,  nations themselves held the strong point of being the voice of their citizens, which in the end are the main cause/effect of these innovative times. The emerging technologies will thrive or perish as long as they can serve nations and their citizens. In the same vine, their ensuing applications within the Industry 4.0 context will be as disruptive to the economy as to the culture and society. These are triggering profound evolution in human consciousness, even if at different paces, and awakening all kinds of different needs.  

Artificial Intelligence, Cloud Computing, Big Data, Internet of Things, and recently, the blockchain, are the foundational technologies of this new Industry 4.0 world. They leverage new access to long-standing sectors, especially in the finance industry (Fintech, funding models, crypto economics, investments, open banking), insurance (insurtech), communications (social media, 5G, real-time news feed), services (video streaming, TV-on-demand, new consumer habits) or retail (e-commerce and online shopping). Nations, likewise, are mirroring companies’ digital frenz to adopt these technologies within the services they provide. 

The term disruption has never been so accurate as it is applied within the Industry 4.0 context, and data across the world reassures the ongoing transformation. Today, two-thirds (5 billion) of the world’s population have a mobile phone, while it is expected that by 2025, more than 5 billion users will enjoy the internet on their mobile devices. The mobile revolution has triggered the digital inclusion of billions of individuals living in developing countries. 

Solely in the past year, social media gained 11 new users every second. These make the breeding grounds for a never-experienced social disruption in both communications and data. In fact, according to the aforementioned Harvard Business Review, “cross-border flows of digitally transmitted data have grown manifold, accounting for more than one-third of the increase in global gross domestic product in 2014,” in a world of more than 4 billion internet users. 

This digital swift will enable the rapid adoption of transformational technologies such as automation, big data, machine learning, and artificial intelligence, with experts forecasting that they will radically affect up to 50% of the world economy in the coming years.

One of the areas that will be greatly altered by the digital transformation is related to the future of work, with radical disruption on the horizon. More than one billion jobs and $14.6 trillion in wages are considered automatable with technology already available.

The humanitarian crisis that this all-out automation could originate might bring back already-forgotten social unrest across the world. To alleviate the loss of jobs and hard-needed income, leading economists suggest a guaranteed living income, retraining workers to give them the skills required for future jobs and other nation-driven social policies.

The disruption of productivity models: The impact of Industry 4.0 on nations

If we are to disclose a broad picture of how digital transformation will have on nations, we need to take a closer look at production schemes worldwide. As of now, production models and manufacturing methods are changing at an unprecedented rate, and that is directly affecting national productivity strategies. 

Ultimately, nations will be the most affected by the advocacy of emerging technologies and their impact on their economic models. Countries tend to develop their economic strategies and their productivity targets while avoiding compromising their competitiveness in a global context. It is in this scenario that these technologies push new production techniques, business models more based on cooperation and value chains that will completely take global production to a new level.

The speed and breadth at which this is happening bring a layer of complexity to an already ambitious goal of developing and implementing industrial strategies that enhance new and more sustainable economic strategies, without losing value and attractiveness in the long term.

This in-depth change can be felt in every country, though not all of them are experiencing it at the same pace. Like everything else in today’s world, there are some countries more inclined to digital transformation, such as the USA, Japan. UK  or Germany. Many others, on the other end of the spectrum, haven’t even started yet due to lack of resources, political instability or conservative approach, which can be disadvantageous in the future. This global transformation of production systems will be a challenge, and the future of production could become increasingly polarised in a two-speed world. 

We can find this two-speed approach to the changes brought about by Industry 4.0 in a new report from The World Economic Forum (WEF) and A.T. Kearney, which reveals that only 25 out of 195 countries are poised to take advantage of Industry 4.0. 

“Countries need to decide how to best respond in this new production paradigm vis-à-vis their national strategies and their ambition to leverage production as a national capability. This requires countries to first understand the factors and conditions that have the greatest impact on the transformation of their production systems and then assess their readiness for the future,” they stated. 

Challenges and opportunities of Industry 4.0 for nations

The challenges nations face with Industry 4.0  are huge, as is the task to properly address them. A thorough research, called Readiness, assessed 100 countries and economies across all regions and stages of development, and how well positioned they are to gain from emerging technologies, such as linked sensors – also known as the Internet of Things – artificial intelligence, robotics, blockchain, wearables and 3D printing, and the additive manufacturing that would change traditional methods.

With this in mind, countries participating in the study were assigned to various categories regarding how prepared they are for the advent of Industry 4.0: featuring leading countries with a strong current base and the highest level of readiness for the future; and those set in the nascent spectrum with a limited current base, and the lowest level of readiness for the future.

Of course, each country has its own goals and strategies, so a like-for-like comparison is not appropriate. Furthermore, we are at the very beginning of Industry 4.0, so all countries can still catch up with the new digital transformation. No country has yet reached what the study calls ‘the frontier of readiness’. Nor has anyone truly harnessed the full potential of Industry 4.0 in production. At this stage, the non-Leaders can learn from the advanced countries, even though they’re still navigating the early stages of transformation.

In parallel, readiness for the future of production requires global, not just national, solutions. Globally connected production systems require sophisticated technology, but also standards, norms and interoperability across a diverse set of systems. Standards, norms and regulations that cross technical, geographical and political boundaries offer efficiencies and make it easier for global value chains to do business. 

This cross-related approach can also be applied to public-private collaboration in order to accelerate transformation. Every country faces challenges that cannot be solved by the private sector or the public sector alone. New approaches to public-private collaboration that complement traditional models can help governments effectively partner with industry, academia and society to find new value.

Another challenge that countries are now facing is how the value of producing just for the sake of producing has been compromised, particularly with rising global movements questioning climate change and linking it to current systems of production at all costs.  New models have risen out of these movements, like the so-called circular economy, which put their focus towards a reuse production scheme or the platform cooperativism economy, one that democratises access to services through digital-based business models that are decentralised.

On the other hand the Industry 4.0 might trigger selective reshoring, nearshoring and other structural changes to global value chains. Emerging technologies will change the cost-benefit equation of production across borders. When a value chain is identified, countries will have the chance to gain position or lose share. 

This has exponential opportunities to disrupt traditional production-based economies, such as those in many developing countries, and the inertia followed in recent years. In this respect, companies and manufacturers might close the gap between production and consumers geographically, with new locations in those market destinations.

This would create different pathways as countries navigate the transformation of production systems. As every country would pursue their own goals and challenges, not every country will swiftly advance towards advanced manufacturing. Some will continue to follow traditional manufacturing opportunities, while other countries will aim for a dual approach. The different pathways opened up by digital transformation also bring the potential for leapfrogging. 

Countries lagging behind in the current global production schemes can enter emerging industries at a later stage without the legacy costs of earlier investment. To do that, they must have the right set of capabilities and develop effective strategies for taking advantage of the opportunities most relevant to them. Very few countries, however, would have the right amount of resources to capitalise such an opportunity.

As we have seen in these very lines, there are 25 countries in the leading archetype that make up more than 75% of global manufacturing value added (MVA). On the other side, we found that 90% of the countries from Latin America, the Middle East, Africa and Eurasia suffer a low level of readiness for Industry 4.0.

While the biggest technology companies may currently be located in the United States, Japan keeps pushing its position as the first technology-driven country. Norway on the other hand,  has a higher potential to adapt and strengthen its structure of production and diversify its economy; other countries keep adopting digital initiatives, transferring manual processes into digital ones, nurturing technology start-ups, and implementing all kinds of strategies to drive digital transformations. 

Industry 4.0 is not a matter of if but when, and all countries will have to deal with the ongoing digital transformation sooner or later.

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