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June 12, 2019updated 15 Aug 2022 12:12pm

Industry 4.0: SMEs caught in a race for technology

By Christopher Marchant

Industry 4.0, also known as the fourth industrial revolution, refers to digital developments as discrete as cloud computing, the Internet of Things and 3D printing. A recent report by Siemens Financial Services (SFS) has examined the pace of transformation, and how SMEs need to adapt to avoid a ‘two-tier’ economy. Christopher Marchant writes.

SFS observes that in most marketplaces, the first half of commercial enterprises to invest in new technologies are those that could gain the most advantage, at the expense of competitors that have not adopted.

The research from SFS showed that around 80% of larger manufacturers have already piloted a project that could be defined as Industry 4.0, compared to around half of SME manufacturers.

The gap in this two-tier race to digital transformation is significant, although the research also highlighted that SMEs may be better placed to invest with the help of specialist finance tools. Although larger players have the advantage of scale and market power, their digital transformation may be more complex as a result.

“Debate has moved on from whether to invest in digital transformation, to when and how,” explains Brian Foster, head of industry finance at SFS in the UK.

“Most leading manufacturers, large and small, are looking for sustainable ways to invest in digital transformation so that they gain the competitive benefits of being in that early-mover cohort – the first half of adopters. But there are a number of challenges, many of which centre around the practicalities of investment in the technology and machinery required.”

Mainstream Adoption

The SFS study served to forecast the point at which both larger and smaller manufacturing companies may find themselves catching up with the mainstream of Industry 4.0 adoption. This would be a point at which investment will not offer early-mover competitive advantage, but instead simply a necessity to compete.

Respondents estimated the “tipping point” for Industry 4.0 adoption – when 50% of the global manufacturing community will have substantially converted to Industry 4.0 production platforms – will be reached within the next five to seven years for larger manufacturers, but only in the next nine to 11 years for SME manufacturers.

According to SFS, the pace of transformation could benefit from acceleration, especially as incumbent players look to compete with rival economies, stay ahead of new entrants, and manage disruptive change.

These challenges tend to focus on the issue of finance, and related to this understanding the commercial benefits of Industry 4.0, knowing that there will be a reliable return on investment, and paying for Industry 4.0 technology at a rate that is less than or matches those commercial gains.

Impact on Business

Martin Leeming, chief executive officer of packaging manufacturer TrakRap, sees the impact of digitised technology on business. “Equipment is expensive, but it is also upgradable over the years and is changing all the time, so traditional depreciation models don’t work,” he explains.

“That’s why manufacturers need to look to new financing models to invest in Industry 4.0 systems.

“Smart financing models are helping companies to digitally transform that otherwise would not be able to. For smaller companies, for example, it is vital to enable them to make investments in technology, investments which might otherwise be unaffordable.”

According to the SFS report, Industry 4.0 initiatives are expected to generate $21.7bn (€19.3bn) annually in technology investment by 2023, having grown by 23.1% since 2017. The report also shares analysis predicting that by 2020, manufacturers worldwide will be saving $421bn annually as a result of Industry 4.0 investments and will gain $423bn per year in revenue as a result of digital transformation.

Revolutionary

Clement Muhle, president of French medical manufacturer Addidream, also sees the revolutionary possibilities for Industry 4.0, noting: “In the field of 3D printing, industry 4.0 enables my company to produce very complex parts in small or medium-sized series, and allows us to optimise the manufacturing costs of those parts.

“In France, companies are struggling to finance Industry 4.0. This slows down the revolution in France, because it means that some of the technologies that would allow us to create the factories of the future are not being acquired within the nation.”

The SFS report is here to show that Industry 4.0 is upon businesses, whether they are quick to wake up to this unavoidable fact or not. The need to act is especially pressing for SMEs, which have both the most to gain from early adoption and the most to lose from being last to the wave.

There is no one nation ahead in this technology race, although there are European nations that are lagging behind. They will need businesses and government to move quickly to save greater expenditure in the future.

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