Industry 4.0 to revolutionise manufacturing sector

Dr Martyn Davies, MD for emerging markets and Africa at Deloitte, explains the implications of Industry 4.0 for SA manufacturers.

PRINESHA NAIDOO: The traditional manufacturing industry is said to be in the throes of a digital transformation, spurred by exponentially growing technology that is set to change the face of manufacturing as we know it. That’s according to consulting firm Deloitte. Dr Martyn Davies, MD for emerging markets and Africa at Deloitte, joins us with more on Industry 4.0 and its implications for manufacturers. Martyn, thank you for your time.

MARTYN DAVIES: Thank you very much, good to be here.

PRINESHA NAIDOO: Martyn, commentators refer to the changes afoot as Industry 4.0 or the Fourth Industrial Revolution. What exactly is meant by this?

MARTYN DAVIES: I think Industry 4.0 is not so much a dedicated moment in time as a continuous shift, now there has been this convergence of ideas and technology and innovation – and the velocity of life and the velocity of change has clearly increased for all of us, as individuals or companies and, of course, also the country. I think going forward the question about Industry 4.0 is how it will become more robotic, if you will, and ultimately displace the human factor, ie. labour, out of the production process. So this will have severe implications for all economies but some more than others and particularly those that are unable to prepare their workforces for the dramatic change that is coming.

PRINESHA NAIDOO: Now that’s obviously a concern – what technology does to labour, especially in a country with as high an unemployment rate as our own. Is it necessarily true [that] technology may leave many people without jobs?

MARTYN DAVIES: Technology is, again, commerce, economics – technology is never static, and with the ongoing trend, the Industrial Revolution dating back 200 years now, but what we are seeing, as I say, the velocity of this change is increasing dramatically. Technology will always displace jobs but it will also create jobs somewhere else, the question is where will these other jobs be created. In South Africa’s case we have a bit of a double whammy, firstly we have a flailing basic education system, where people are unable to acquire the necessary skills in order to make them more productive in the economy. Secondly, people are not so much unemployed as they are unemployable, and that talks to the technological shift that is taking place in, not all, but in many industries, including here in South Africa.

Technological shift in SA

PRINESHA NAIDOO: So what do you mean when you say a technological shift taking place in South Africa?

MARTYN DAVIES: Industry 4.0, as we call it – which is more about cyber-physical production; ie. the merging of the real and virtual world, if that makes sense. I don’t want to make it sound too Star-Trek, but it applies to certain sectors more than others. The sector that I think it applies most pertinently to is the automotive sector. This is a sector that arguably – and I would argue – is the most successful industrial sector in our country in the last two or three decades. It’s the only success case.

The only outcome is a very proactive industrial policy, practically all other industries in our economy in the last two to two-and-half decades have been hollowed out. But the automotive sector counts for roughly 7.5%, maybe slightly more, of GDP. It’s a major employer and a very scalable employer and because of the nature of the automotive OEM [original equipment manufacturer] manufacturing process, it’s extremely high-tech. Imagine the technology and the know-how, the intellectual property, that goes into the manufacture of, for example, a BMW X3 that’s manufactured in Rosslyn or a Mercedes Benz C-Class; we can imagine, this is world-leading technology.

But, of course, Industry 4.0 is going to dramatically affect that and this is our most important industrial sector, arguably, in the country. So I think it really is at a high-level view. Industry 4.0, as we are calling it, the convergence of fibre-physical production will certainly have a significant impact on South Africa, not all sectors, not all regions, but certainly key companies going forward.

PRINESHA NAIDOO: It’s interesting that you mention that, though, because in a survey carried out by Deloitte across 19 countries, there were answers by some 100 South African executives which really stood out when compared to their global peers because South African executives don’t actually see technology as a competitive advantage. Why is this, and why is there such a stark difference between the perceptions of South African executives and global executives?

MARTYN DAVIES: We don’t see what … it’s an ability to see the future and see what is possible, and I think it also depends on the survey of course. But, again, technology, innovation, intellectual property, these are very big words and it means different things to different people. What is technology? Is it accumulated stored intellectual property? Okay, let’s take that definition and as you start to accumulate this IP, let’s call it know-how, that is mission critical to the success of any company, and the success ultimately of the country. And without intellectual property, stored, embedded – that’s a good word – embedded intellectual property, ie. technology, in one’s organisation, small or large, I’m afraid you have no other competitive advantage.

So if we start to think about these things in a deeper fashion, I think in the current highly, and into the future, competitive global economy, it’s about how countries are able to acquire and attract, and in our case, retain technology. [In other words], stored intellectual property – which is not stored so much on servers or in books or in journals; that’s very old school, but it’s accumulated and stored in people’s brains – and how do you put people together to create these ecosystems that are going to increase competitiveness?

I think that is really the secret sauce of organisational success.

PRINESHA NAIDOO: So, as you say, it’s embedded intellectual property that’s key, and alongside this an enabling environment or regulatory environment, as with the automotive sector.

MARTYN DAVIES: Yes, undoubtedly. We are getting towards policy certainty in terms of our APDP [Automotive Production and Development Programme] and the reiteration of automotive policy giving long-term certainty … and business needs that. Think mining sector, think auto – these are not short [term investments]; these are massive capex investments and they require long-term certainty, and it’s only policy that can provide that. So we need to see similar proactive policy that provides certainty to business – not interventionist policy at all, but enabling policy that I think the mining sector needs, a bit of both, [the] industrial sector needs hopefully more enabling [policy].

So we need to see far more enabling policy in our country, in all countries, to provide that long-term certainty for business to make those necessary decisions.

PRINESHA NAIDOO: But until that regulatory certainty comes into effect, how would you advise businesses – manufacturers in South Africa – to prepare for the future?

MARTYN DAVIES: Again, the term I use is velocity – velocity of life – there’s too much data, there’s too much information, too much complexity and, unfortunately, risk. And risk is often exposed by external forces, and that is often political risk. We need to fix that. I have just seen the ranking of South Africa has declined significantly in terms of market openness and the like, and that’s deeply problematic. We need an open economy, one that’s open to not just the obvious like capital, goods and labour but open to ideas. I’m afraid we are falling short in terms of that.

When looking at advising our clients from the leading multinationals globally, and obviously here in South Africa, and – well, it’s around getting through that complexity, cutting straight through it, we have to be efficient, business must always be efficient, it must always be productive – and productivity and competitiveness is  [necessary for a] company. So that’s what Deloitte does in terms of speaking to the productive, competitive and that is a very, very complex process as to how one helps to shape strategy and implement strategy in times of uncertainty, which we have had in South Africa. Hopefully we’ll start to come out of that going forward. 

PRINESHA NAIDOO: Martyn, that’s where we are going to leave things for today. Thank you very much for your time. Dr Martyn Davies is MD for emerging markets and Africa at Deloitte.

Brought to you by Deloitte.

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