Only 25 countries well-positioned to benefit from Industry 4.0 according to new World Economic Forum report

Singapore is among the 25 Leading countries. It ranked 11th for the Structure of Production, and 2nd for Drivers of Production.

The World Economic Forum (WEF) released its first ‘Readiness for the Future of Production Report’ (“the Report”) assessing how well-positioned global economies are to shape and benefit from changes in production being driven by the Fourth Industrial Revolution. The report was developed in collaboration with A.T. Kearney.

Singapore is among the 25 countries assessed to be in the best position to benefit from the changing nature of production.

Assessment framework

The Report uses a new benchmarking framework, diagnostic tool and data set to help countries understand their current level of readiness for the future of production, as well as corresponding opportunities and challenges.

The assessment framework is made up of two main components: Structure of Production, or a country’s current baseline of production, and Drivers of Production, or the key enablers that position a country to capitalize on the Fourth Industrial Revolution to transform production systems. There are 59 indicators across these two components.

The 100 countries and economies included in the assessment are assigned to one of four archetypes based on their performance in the Drivers of Production (vertical axis) and Structure of Production (horizontal axis).

The assessment measures readiness for the future, rather than performance today. It assesses the entire country on average, not just the highest-performing areas within a country. It does not look at sub-regional differentiation within a country.

The report finds that global transformation of production systems will be a challenge, and the future of production could become increasingly polarised in a two-speed world. Of the 100 countries and economies included in the assessment, only 25 countries from Europe, North America and East Asia are Leading countries, or in the best position to benefit from the changing nature of production. These 25 countries already account for over 75 per cent of global Manufacturing Value Added (MVA) and are well positioned to increase their share in the future.

The rest of the 100 includes 10 Legacy countries, 7 High-Potential countries/economies and 58 Nascent countries.(Complete rankings can be found in Table3.1 on page 12 of the Report.

Singapore's position

Singapore is among the above mentioned 25 Leading countries. It ranked 11th for the Structure of Production, and 2nd for Drivers of Production. It ranks in the top 20 for economic complexity and performs well across all Drivers of Production, except Sustainable Resources. Within the Sustainable Resources driver, Singapore contributes less emissions than other Leading countries, but has challenges related to baseline water stress and alternative energy sources.

The assessment finds Singapore to be a leader on the Global Trade & Investment driver as one of the most open and trade-friendly countries in the world. The Report highlights Singapore’s strong Institutional Framework and future-oriented approach (the recent launch of the Singapore Smart Industry Readiness Index is mentioned as an example) of the Government as key strengths.

Mr. Lim Kok Kiang, Assistant Managing Director, Singapore Economic Development Board, commented on the report, "Singapore’s strong performance in the Drivers of Production reflects our commitment and early efforts in building an ecosystem to drive the adoption of advanced manufacturing amongst our MNCs and SMEs. The launch of the Singapore Smart Industry Readiness Index, a world-first tool to help industrial companies harness the potential of Industry 4.0, and Hannover Messe staging its first Asia edition in Singapore later this year, will reinforce our efforts. Transformation is a multi-year journey, and more needs to be done. It is important that we continue working closely with companies, trade associations and unions to improve our competitiveness and ensure our workforce is well equipped to support and enable the future of production."

Key general findings

The findings are intended to catalyse multi-stakeholder dialogue to inform the development of modern industrial strategies. The report recommends leaders from both the public and private sectors to work together to address key challenges, build on opportunities and define joint actions at the national, regional and global level.

The Report finds that the Fourth Industrial Revolution will trigger selective reshoring, nearshoring and other structural changes to global value chains. Emerging technologies will change the cost-benefit equation for shifting production activities and, ultimately, impact location attractiveness. All countries must develop unique capabilities to make them attractive production destinations and capitalise on these shifts.

Some countries that are next in line as the low-cost labour destinations may still seek to capture traditional manufacturing opportunities in the near term (the benefits of low-cost labour will be altered by the emerging technologies, as was also highlighted in a recent World Bank report). Others will pursue a dual approach, or prioritise other sectors altogether.

The report also says that all countries have room for improvement. Though there are early leaders, no country has achieved full readiness, let alone harnessed the full potential of the Fourth Industrial Revolution in production.

The assessment also finds common challenges within each archetype (as seen in chart above: Leading, Legacy, High Potential and Nascent) and countries can learn from each other, while pursuing their own unique strategy.

Leading countries need to convert readiness into actual transformation and push the frontier by designing, testing and pioneering emerging technologies. Legacy countries need to avoid getting squeezed between more advanced Leading countries, which can offer more advanced manufacturing, and Nascent countries that can offer lower cost labour. High-Potential countries and economies have capabilities that can potentially be converted to strengthen their Structure of Production and further diversify their economy. Their key challenge is expected to be to find the right balance across sectors when determining economic priorities. For nascent countries, the challenge will be to determine whether to pursue advanced manufacturing or traditional manufacturing, and to what extent.

However, readiness for the future of production requires global, not just national, solutions. Globally connected production systems need not only sophisticated technology but also standards, norms and regulations that cross technical, geographical and political boundaries. This would be necessary to release efficiencies and make it easier to do business across global value chains.

Moreover, the report recommends that new and innovative approaches be explored for public-private collaboration to accelerate transformation. Every country faces challenges that cannot be solved by the private sector or public sector alone.

New approaches to public-private collaboration that complement traditional models can help governments quickly and effectively form partnerships that unlock new value.

It is also important to note that the assessment framework is based on two key hypotheses and working assumptions that will be tested and researched over time.

The first is that the most important drivers of future readiness are Technology & Innovation, Human Capital, Institutional Framework and Global Trade & Investment. These drivers have the strongest correlation with economic complexity. The needs within each driver are expected to evolve, but the overall drivers will remain significant.

Economic complexity is more important than scale for readiness for the future of production. The ability to gather, combine and use knowledge embedded in people and technology to create a range of unique products will become an increasingly important competitive advantage. Thus, small countries such as Switzerland or Singapore are not necessarily at a disadvantage against global giants with larger scale.

Read the complete report here. 

This article was first published in OpenGov on 14 January 2018 and written by Priyankar Bhunia.