Industrial strategy in the advanced digital Age

M. Rokonuzzaman | Published: January 14, 2020 20:56:05 | Updated: January 21, 2020 20:50:04

In developing an industrial strategy we often face conflicting situations. Some of them like production growth versus environmental impact, automation versus employment are highly complicated issues to deal with. The capabilities of developing countries are being challenged in finding ways for simultaneously addressing productivity, job creation, wage increase, value addition, inequality, environmental degradation, and inclusiveness. Although productivity is critical for increasing wage, it often leads to the adoption of advanced technology that reduces labour demand. To counter the role of labour-saving technology, often developing countries condone environmental issues.

However, the new industrial age offers the opportunity of addressing these variables simultaneously. For example, wastage could be reduced or recycled profitably by leveraging advanced digital production (ADP) methods which can address competitiveness and environmental issues at the same time. To reap benefit from this opportunity, it's time to focus on having an appropriate strategy.   

Some of the options for leveraging ADP for addressing conflicting objectives in creating industrial economy are: (i) redesigning existing products and processes to produce them so that material and energy needs to produce them are reduced, (ii) innovating substitution to existing products making them more affordable as well as usable to the people residing at the bottom of the pyramid, (iii) redesigning products so that operation cost is reduced, safety is improved, and impact on environment is lowered, (iv) improving capital utilisation by reducing waiting time, down-time, and lowering inventory, and (v) revamping product and processes for fostering female employment, and enabling physically challenged people to add value to productive activities.

To leverage ADP for addressing critical variables like meeting sustainable development goals, the industrial strategy should focus on upgrading to smart production levels. According to a recent United Nations Industrial Development Organisation (UNIDO) study, there appear to be five levels of maturity in harnessing ADP. These are (i) Analog, (ii) Rigid, (iii) Lean, (iv) Integrated, and (v) Smart. In leveraging ADP, smart production focuses on fully integrated, connected production processes, where information flows across operations and generates real-time feedback to support decision making. In such a production environment, the use of smart sensors and machine-to-machine communication, big data analytics, cloud computing, artificial intelligence, and 3D printing are highly in use. Both products and processes should be redesigned to reach the smart production stage.

Unfortunately, as many as 70 per cent of firms in the developing and low-income economies are still in the analog production stage. The bottom of the pyramid represents an initial stage of production where digital technologies are not used in any area. Only a small fraction of firms are operating at level 5 (Smart). For example, only 0.4 per cent of firms in Vietnam, and 5 per cent of firms in Thailand are at level 5. As a result, neither can they address conflicting variables, nor can they face increasing competitive pressure from those who are quickly moving towards smart production. It is a big challenge for moving to a higher level in leveraging digital opportunities. To address this high gap, leapfrogging into the smart production often dominates the discourse. As firms and host countries need to make a significant investment in upgrading facilities, and most importantly, building learning and innovation capacity, the prudent approach should be not leapfrogging, rather accelerating progression for reaching the top level by going through intermediate ones.  Evolving from Level 2.0 to Level 3.0 does not require significant organisational changes, but it improves efficiency substantially. But changing from Level 3.0 to Level 4.0 requires substantial changes -- to fully integrate corporate functions, with comprehensive and useful standardisation of processes and information systems. Reaching level 5.0 involves the use of ADP technology-based solutions, such as advanced communication devices, robotisation, sensorisation, big data, and artificial intelligence.

According to the UNDO research finding, 10 advanced economies -- the frontrunners -- account for 90 per cent of all global patents and 70 per cent of all exports directly associated with these technologies. Another 40 economies are in the follower category, which are actively engaged in these technologies. These economies own 8 per cent of global patents and consume almost half of all imports of goods embodying these technologies. But unfortunately, more or less, all LDCs and low income developing countries either show very little activity or fail to take part in the use of these technologies. Moreover, there is an uneven scope of leveraging ADP across industries. For example, among major industries -- textiles, apparel, leather are in a highly disadvantageous position to benefit from cloud computing, 3D printing, and robotics. On the other hand, transport equipment and capital machinery industries are in the most favourable position to benefit from ADP. 

To leverage ADP to meet their development challenges, LDCs and developing economies require country-level initiative. They should refocus their strategy of developing the industrial economy. It begins with the strengthening of the essential capability of absorbing, deploying, and diffusing ADP technologies along the supply chains through the fusion of new and existing technologies into complex integrated technology systems.  The next challenge is about retrofitting and integration. For leveraging the already acquired production technologies, they need to learn how to retrofit and integrate the new digital production technologies into their existing production plants.  The next challenge is providing affordable and high-quality electricity as well as reliable connectivity. Despite the recent progress of telecommunication, it seems further progress is needed in quality and cost. To leverage value chain benefit, capability enhancement should take place in all the upstream and downstream firms, which is often  challenging to attain. The local value addition through adaptation and innovation is a crucial need for fully leveraging ADP. Developing countries should acquire the capability of reducing their dependence on importing these technologies from advanced countries. To address this challenge, they need to have an integrated approach by connecting their education, industry, trade and commerce, science and technology, and overall economic growth strategies into a unified one.

M Rokonuzzaman PhD is an academic and researcher on technology, innovation ands policy.


Share if you like