Analysis of the Industry - Assignment Example

What challenges do areas such as Industry 4.0 set organisations trading on an international basis? What businesses have risen to the challenge and what threats and opportunities are they encountering with regard to their international trade?

Table of Abbreviations

IoT Internet of Things

FDI Foreign Direct Investment

IP Intellectual Property

Introduction (Briefly about the Industry 4.0)

With the development of Information Technology, Internet and mobile communications, the business environment has changed dramatically, being facilitated by increased pace of continuous innovation, more demanding and sophisticated customers, and globalization of markets (Selig, 2008). This era is called to be a fourth wave of technological advancement, which gave push to the development of Industry 4.0 (Rüßmann et al., 2015). Industry 4.0 is a new digital industrial technology, which is comprised of nine technology pillars, including: big data/analytics; autonomous robotics; simulation; horizontal and vertical integration; Internet of things; cybersecurity; cloud; addictive manufacturing; and augmented reality (Rüßmann et al., 2015). All these new developments are connected along the value chain of organizations, especially those operating internationally.

Industry 4.0 provides organizations with connected systems that enable to collect, process and analyze data within a matter of seconds, to ensure more flexible, faster and more efficient operating processes and to reduce both time and costs significantly (Rüßmann et al., 2015). These systems allow enterprises to foster economic growth, to increase manufacturing productivity by reducing human factor, and to achieve greater efficiency in different operational and managerial aspects. This study aims to provide a brief analysis of the Industry 4.0 and to identify major opportunities, challenges and threats faced in each area of industrial digitalisation.

• Big Data/Analytics

Big Data is a primary pillar of the Industry 4.0, which implies generation, processing, analysis and evaluation of large data. This approach to data analytics enables firms to measure, to evaluate different data from many different sources and to utilise this information for further improvements and effective decision-making process (Rüßmann et al., 2015).

2. Autonomous robotics

With the development of technology, there was observed an evolution of robots used as effective and cost-efficient tools in manufacturing processes (Rüßmann et al., 2015). Today’s robots are even more flexible, autonomous, “clever”, and reliable in handling complex tasks (Rüßmann et al., 2015). More sophisticated version of robots nowadays are the robots with greater capabilities to interact closely with humans as well with one another as part of a team.

3. Simulation

Another technological breakthrough that has gained increasing popularity in manufacturing process is related to 3-D simulations of materials, products, and production processes (Rüßmann et al., 2015). Virtual simulations allow stimulating various processes, parts, based on the real-life variables/data and thus, to save significant time and costs for assembling/matching processes (Rüßmann et al., 2015).

4. Integration (Horizontal & Vertical)

Nowadays, IT systems allow organizations to integrate business operations, processes, and all elements of the value chain of business (Rüßmann et al., 2015). Businesses become both horizontally and vertically integrated, enabling thus organizations to achieve economies of scales, increase overall efficiency, utilize better resources. Integration of functions, companies, departments and divisions allow developing of automated cross-functional value chains that increase firm’s competitive capacity (Rüßmann et al., 2015).

5. The Industrial Internet of Things

The Industrial Internet of Things (IoT) is a computer-based technology, which allows connecting products and devices, making them to interact and interoperate under centralized system or controller (Rüßmann et al., 2015).

6. Cybersecurity

With the development of IT systems and increased use of standard communications protocols, the threats to cybersecurity have increased significantly (Rüßmann et al., 2015). Therefore, organisation’s capability to ensure effective protection of the important operations and critical industrial system plays a crucial role to the overall firm’s success. It is essential for organisations to develop and to implement secure communication systems, to integrate reliable personal identity systems, and sophisticated access management of users and equipment (Rüßmann et al., 2015).

7. Cloud

Cloud-based technologies is another pillar of the Industry 4.0, which allows storing and sharing data in a matter of seconds between sites and across the organizational boundaries (Rüßmann et al., 2015).

8. Additive manufacturing

Additive manufacturing is another technological breakthrough of the Industry 4.0, used to produce individual components by layers and to create prototypes of some elements/products (Rüßmann et al., 2015). This technology allows producing customised products that have higher performance, are more complex and have lightweight designs (Rüßmann et al., 2015).

9. Augmented reality

The systems based on the augmented reality are characterised as the systems that combine real reality with simulated or virtual reality. These systems help to create necessary environment with an effective combination of real-time information/environment and non-tangible technology (Rüßmann et al., 2015). By using special augmented devices and technologies, firms can create all conditions necessary for work (Rüßmann et al., 2015). Virtual training is another important application of augmented-reality-based systems that allow training personnel or other people to use certain machines and equipment (Rüßmann et al., 2015).

Challenges, threats and opportunities related to the

BCG 9 pillars faced in international trade

The fourth digital revolution offers great opportunities for development of international trade especially among the industrial companies (Koch et al., 2015). Industrial digitalisation has a potential to help companies to differentiate themselves in today’s highly competitive and dynamically changing global market. According to the forecasts, by 2020, industrial companies in Europe will invest about 140 billion Euro or about 3-4% of annual revenues in industrial Internet applications (Koch et al., 2015). Moreover, within the next five year about 80% of enterprises will digitalise fully their value chains.

Experts explain that the Industry 4.0 transforms the whole organization and therefore imply significant changes and transformation of organizational structures and culture (Janićijević, 2012). Thus, there are many different challenges and threats that the companies involved in international trade may face with especially during the initiation/implementation stages. Even though there are nine different pillars of Industry 4.0, the challenges faced by organisations are often interrelated and may arise immediately in many areas. While analysing the main challenges that are faced by the companies implementing international trade in Industry 4.0 there can be identified the following challenges: excessive investments and unclear economic benefits; insufficient qualifications of employees; lack of regulations, standards, and forms of certification; unclear legal situation about the use of external data (Koch et al., 2015). Some other challenges include: low maturity level of required technologies; unresolved issues about data security; lack of support by top management and lack of prioritisation; data backup and insufficient network stability (Koch et al., 2015). Below is provided more detailed analysis of key challenges, threats and opportunities related to each of the BCG 9 pillars.

• Big Data/Analytics

Big Data is an effective instrument in todays’ information and knowledge-based global economy, whereas data utilized for both business and social purposes is very valuable (Verma & Agrawal, 2016). The Big Data helps the companies to grow their business, to learn more about their consumers/customers, and to make more intelligent and faster strategic decisions (Verma & Agrawal, 2016). However, Big Data also poses various challenges and obstacles mainly associated with the capability of a firm to process, handle and utilize large sets of data. These challenges can be divided into two major categories: practical and political challenges (Bulger et al., 2014). An important practical challenge that is faced by international companies is associated with the quality of large data sets (Bulger et al., 2014). According to statistics, analysts spend up to 90 % of their working time and efforts in order to filter and clean the data (Bulger et al., 2014). While operating internationally, this challenge is even more serious as it implies the necessity to analyse the data generated with different standards and socio-cultural patterns (Bulger et al., 2014). Another challenge is associated with the administration function, whereas access to the information is not always provided to those who can best use and exploit it for positive business outcomes (Bulger et al., 2014). Another challenge is associated with privacy issues, as very often companies fail to protect the Big Data and this information leaks out to unconscientious hands (Bulger et al., 2014). In terms of political challenges of Big Data management faced by the international businesses there is a major factor associated with the individuals’ reluctance to share data within or outside the organization (Bulger et al., 2014). Due to different cultures (including corporate culture) and varying organizational policies, firms involved in international trade and business may face challenges with gaining access to the data.

Autonomous robotics

As it has been briefly discussed, autonomous robotics offer many different opportunities for business development and growth. Robots nowadays are more sophisticated and intelligent, which allows them to become a good replacement of human factor. However, as robots are increasingly used in the military and civilian worlds, there emerge various ethical and legal challenges (The Economist, 2012). Replacement of humans by robots in manufacturing process will pose fewer challenges than replacement of humans by robots in such places as healthcare, public transportation (The Economist, 2012). Here the main challenges will be associated with various ethical dilemmas and responsibility distribution for the outcomes.

Another challenge associated with the use of autonomous robotics relates to varying legislation systems and regulations. Such automotive companies as Volvo and its new V40 hatchback or Ford and its B-Max minivan are new models of cars supplied with autonomous robotics (The Economist, 2012). However, these automotive companies cannot sell their autonomous cars to the global mas market, as most of the prospective markets lack relevant regulations and legislation. Google also has introduced its driverless cars and even tried those cars on public roads in Nevada, USA (The Economist, 2012). However, the potential growth of both national and international sales of new driverless car is restricted by lack of legal framework that would regulate this type of autonomous robotics. Therefore, the major challenge with the use of autonomous robotic systems is associated with restrictive laws, which are not changed as quickly and operatively as technology.

• Simulation

Simulation as one of the pillars of the Industry 4.0 offers many opportunities for development of international business activities. Therefore, it also poses some critical challenges that are faced by different internal departments and divisions, including engineering, marketing and sales, and HR departments (Crosbie, 2010). In order to effectively introduce simulation, companies are required to develop collaborative corporate culture, whereas all teams and divisions affected are ready to work closely and to cooperate (Crosbie, 2010). Moreover, simulation requires additional training for the employees as it is associated with the acquisition of new knowledge and skills (Mourtzis et al., 2014). Many companies might face with various challenges at human management level, as change management process is a difficult process, which often causes the failure of project, especially if it is implemented at international level. In the manufacturing simulation, the companies operating internationally also may face with a challenge of the interoperability between home-based and foreign markets (Mourtzis et al., 2014). Even though there exist many different resources and functions, “the vast majority of tools are focused only to a small percentage of them” (Mourtzis et al., 2014: 226). The company may face with difficulties of collaboration between partners and systems due to lack of common standards, use of different domains, and lack of integrated networks (Mourtzis et al., 2014). Moreover, international business operations implies the necessity to cooperate with other facilities and plants, which may have highly hierarchical structure and centralized production and logistics processes that would pose additional challenges for cooperation (Mourtzis et al., 2014). While firms gradually adopt the models of virtual factory/plant, such crucial functions as monitoring and control are still underdeveloped (Mourtzis et al., 2014). Therefore, many enterprises face with a challenge of monitoring and managing real-time processes virtually.

4. Integration (Horizontal & Vertical)

The companies operating internationally increasingly digitalise and connect their systems and functions throughout the model of vertical and horizontal integration of value chain (Koch et al., 2015). This process starts with the product development, manufacturing and customised product development and ends up with digital order processing and post-sale customer service (Koch et al., 2015). It is forecasted that by 2020%, 80 % of companies will have highly digitalized vertical value chains, and about 86% of companies will have highly digitalized horizontal value chains (Koch et al., 2015).

Through digitalisation of horizontal value chain firms are able optimize the information flow and flow of goods/services throughout the whole organization to the suppliers (Koch et al., 2015). Thus, all internal departments including manufacturing, HR, strategic planning, logistics, and procurement are under greater control of the main company. External foreign partners (suppliers, third party contractors, etc.) also are under greater control, which allow effective decision-making process. Vertical digitalization offers firms the opportunity to achieve greater flexibility and quality, but to reduce costs through optimal connection of internal systems and improved analytics. However, horizontal and vertical integration of value chains poses significant challenges for international companies. One of the major challenges associated with this pillar of Industry 4.0 is associated with massive changes required for successful integration of these systems (Koch et al., 2015). According to the survey results carried out by PwC, many CEO recognise “unclear economic benefits vs excessive investments”, “lack of standards” and “insufficient qualification of employees” as key challenges (Koch et al., 2015: 37).

5. Internet of things

Internet of things (IoT) is a unique technology that enables enterprises to connect things and services with people and allow them to interact with each other on the international scales (Koch et al., 2015). Such level of connectedness offers the opportunities to share information between different systems that are interdependent or are affected with each other. It is predicted that soon “every THING in this world will be connected to each other via INTERNET so that we can know anything we want to know” (Mukhopadhyay, 2014:2). While this forecast implies unlimited opportunities for international trade development, there are some challenges and threats that the companies will face while integrating this type of technology into their business models. Some of the key threats that may prevent integration of IoT include the following: lack of employee knowledge and skills; immaturity of standards in the sphere of IoT; lack of commitment and knowledge of top management; undeveloped consumer awareness; high investments required for IoT infrastructure; regulations regarding data privacy; etc. (Mukhopadhyay, 2014). However, one of the most critical barriers of using and integrating internationally the IoT is related to the people’s misleading perception that there are no ways and opportunities to connect their products/services to IoT technology (Mukhopadhyay, 2014). Some major challenges of IoT include the following: security issues, energy, scalability, power consumption, acceptance among the users/society and availability of Internet at no cost everywhere (Mukhopadhyay, 2014). While Internet is widely available in Europe, North America, and Oceania, still more than 50% of global population does not have access to the Internet technology (Mukhopadhyay, 2014).Therefore, companies operating internationally and organizations involved in international trade are more likely to face significant challenges with implementation of IoT due to limited Internet coverage.

6. Cybersecurity

Information technology is recognised to be an important enabling and driving factor of development of international trade (Muroyama and Stever, 1988) as it removes geographical boarders and offers fast and efficient operations. However, despite the efficiency of IT-infrastructure there are such common threats and challenges as: lack of security, threats of cyberattacks, risks associated with interdependence of institutions and systems at international level, etc. (Friedman, 2013). Inability to ensure cybersecurity at national level might pose significant barriers to the development of international trade. Governments might introduce policies that “impede the global flow of IT products and services”, which will have inevitable impact on the importing countries, the exporters, and IT firms (Friedman, 2013:10). Even though international trade agreements encourage and facilitate growth of goods and services exchange, many countries impose trade barriers and raise production costs aiming thus to protect the market by denying market access of foreign firms (Friedman, 2013). Therefore, such cybersecurity policies and measures not only close the national markets to imports but also impose limits on in-country inflows of Foreign Direct Investment (FDI) (Friedman, 2013). National policies that impose a requirement of the Intellectual Property (IP) disclosures or transfers discourage firms to invest directly into the foreign markets and thus pose threats to international trade development (Friedman, 2013). International companies are less likely to invest into countries where theft of competitive data and weak data protection legislation are the key cybersecurity risks (Friedman, 2013). Moreover, countries with weak cybersecurity systems also may discourage potential customers and consumers to use digital technologies and sharing their private information (Friedman, 2013). Therefore, cybersecurity plays a crucial role in the development of international trade and business between countries.

7. Cloud-based technologies

Cloud-based technologies provide great opportunities for development of international trade relationships as they enable enterprise to ensure availability of data and information, to support very large databases, and manage these data more efficiently and effectively (Sakr, 2013). However, cloud-based technologies also impose various risk associated with data theft or data loss, introduction of foreign cloud environments, violation of IT procedures and policies, and other risks associated with data mismanagement (Webroot, 2013). These threats can significantly undermine the reliability of an enterprise and lead to international scandals associated with data security and integrity. In addition to data security challenges, the companies involved in international trade face with the legal risks associated with export regulations. Cloud technology allows firms to place virtual resources and store data in different locations (geographical locations where servers are set up) (Lopez-Casero, 2014). However, the US-based organisation, which locates its technical data to the U.S cloud may not be aware of on which servers it is stored (Lopez-Casero, 2014). Lack of this awareness and ability to control physical destination of the cloud (which is more likely to be in different country) raises issues on export control legislation (Lopez-Casero, 2014).

8. Additive manufacturing

Additive manufacturing facilitates and encourages international trade development, especially the development of knowledge-based industries (Brown, 2013). Due to its unique features and capabilities, additive manufacturing allows firms to reduce cheap labor force, to foster on-demand production, to increase speed to market(s), and facilitate economic development in markets where the firm providing engineering solutions is based (Brown, 2013). While these opportunities are very impressive, there are some critical challenges and threats associated with adoption/integration of additive manufacturing technology. The main challenges and threats are associated with the Intellectual Property risks (Brown, 2013). Technology enables consumers from all over the world to find and download three-dimensional files with no reference to the original developer/manufacturer (Brown, 2013). The number of counterfeits of various goods and products used in different sectors and industries will grow while the geographical scope of the IP protection may not be sufficient enough for a firm to protect its legal rights, patents, trademarks. (Brown, 2013). Some other threats associated with additive manufacturing relate to product recall risks (defective products and different legislation) and professional indemnity risks (Brown, 2013). In addition to these marketing and legal risks, the company may face with supply chain risks, as increased regularity and international trade of such products will lead to reduced traceability (Brown, 2013). Legal department of such an organisation will have to analyse various jurisdictions and to develop effective recommendations to avoid the potential risks.

9. Augmented reality

Augmented reality technologies also offers many opportunities for developing cost-effective and highly competitive business model (Marceux, 2015), which is relevant to the international environment. Different tools of augmented reality such as 3D technology enable firms to enhance the performance of field workers and to offer better product illustrations for consumers (Marceux, 2015). International trade nowadays greatly depends on e-commerce. Therefore, retail market is recognized to be a major market that will largely benefit from this technology, offering consumers to take detailed and close inspections of products either on site or remotely (Marceux, 2015). The global digital gaming is another industry that will significantly benefit from development of augmented reality apps (Marceux, 2015). The main challenge faced with the integration of this technology is associated with limited access to the Internet and mobile technologies (Marceux, 2015). Another challenge is associated with the privacy and security issues. Thus, for example, Google Glass has been prevented from entering the German market because of strict data privacy legislation (Marceux, 2015).

Conclusion

Industry 4.0 is a new digital industrial technology, which is comprised of nine technology pillars, including: big data/analytics; autonomous robotics; simulation; horizontal and vertical integration; Internet of things; cybersecurity; cloud; addictive manufacturing; and augmented reality. Industry 4.0 provides organizations with connected systems that enable to collect, process and analyze data within a matter of seconds, to ensure more flexible, faster and more efficient operating processes and to reduce both time and costs significantly (Rüßmann et al., 2015). Moreover, development and integration of different areas of Industry 4.0 greatly impacts on the development and pace of development of international trade. Research demonstrates that that the Industry 4.0 transforms the whole organization and therefore implies significant changes and transformation of organizational structures and culture. Even though there are nine different pillars of Industry 4.0, the challenges faced by organizations are often interrelated and may arise immediately in many areas. While analysing the main challenges that are faced by the companies implementing international trade in Industry 4.0 there were identified the following challenges: excessive investments and unclear economic benefits; insufficient qualifications of employees; lack of regulations, standards, and forms of certification. Unclear legal situation about the use of external data, low maturity level of required technologies, unresolved issues about data security, also were the major challenges that pose threats to the development of international trade especially between developed and developing markets (Koch et al., 2015).

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