Struggle for Industry 4.0 in the EU

A small overview of some issues the EU faces while trying to stay ahead in industry 4.0.

The definition

Industry 4.0 is a term (initially coined by the German government in 2011) for the digital transformation of production concerning the convergence of:

• AI analytics based on Big Data: data collected from a wide range of sources: sensors, equipment, IoT devices, ERP, CRM, and analyzed by AI/ML systems
• Cloud Computing: speed, scalability, storage, and cost-effectiveness provide the basis for advanced technologies like AI/ML, IoT, and communication 
• Internet of Things (IoT) and Industrial IoT (IIoT): devices and equipment provide real-time data about their operations via 5G networks
• Advanced Robotics: machines that can, via their sensors, analyze their surroundings and perform delicate tasks
• Advances Simulations: the creation of digital twins of systems enables easy prediction of operational strategies and prevention of problems when operating in the real world

Products and production processes get networked over (autonomous) data-centric communications enabling new ways of production and value creation. We can observe social, juridical, and political implications in this context.

The Vision

Since the ESPIRIT program and the Treaty on the Functioning of the European Union (TFEU), the EU has worked to develop integrated industrial policies for the globalized era that acknowledge the decline of European industry and recognized the significance of a robust industrial base in ensuring prosperity and economic success for Europe.

For example, the entire euro area digital economy is about 2/3 the size of the United States. The digital service sector in the USA alone contributes as much to the overall digital economy as the entire digital economy in the EU [https://www.ecb.europa.eu/]. Despite having the highest public R&D spending, Europe's private investment in R&D accounts for only 19% of the global total, lagging behind China (24%) and the United States (28%). Europe invests 1.7% less of its GDP in intangible assets such as software, databases, and intellectual property than the United States [https://www.mckinsey.com/].

To that effect, the European Commission presented a vision for Europe's digital transformation by 2030:

• A minimum of 80% of the population has basic digital skills [https://ec.europa.eu/eurostat/]
• A minimum of 80% of citizens use digital IDs.
• 100% of vital public services like e-government and e-health are online
• Gigabit connectivity for everyone [https://ec.europa.eu/eurostat/]
• 5G in all populated areas
• 75% of companies using cloud/AI/big-data
• 20 million ICT specialists [https://ec.europa.eu/eurostat/]

Even as the digital world has become essential to lives, shaping opinions, activities, and fixations of EU citizens outside the critical stakeholders in the industry, policymakers, academia, and unions, the awareness of Industry 4.0 needs to be higher [https://www.europarl.europa.eu/].

Deployed, the shift to industry 4.0 could contribute to greater productivity through resource efficiency, improved competitiveness, reversal of the trend to relocate production to low-wage countries, and opening of more domestic production locations in the EU and USA. [https://www2.deloitte.com/]. The implementation of Industry 4.0, a long-term program, is expected to start in 2025. However, there are likely risks to its successful adoption, including the requirement for advanced technology infrastructure, specialized personnel to design and secure systems, and individuals with the creativity and expertise to create and execute new work methods. In addition, there is the worry that other countries may outperform EU businesses in terms of implementing Industry 4.0.

The Company

According to https://www.aeaweb.org/, US productivity growth accelerated after 1995 (compared to the euro area), particularly in sectors that intensively lean on ICT. The "Americans Do IT Better" phenomenon here seems to be a factor. US multinationals operating in the EU and foreign affiliates of US multinationals (even with stricter EU labor market regulations) outperform their non-US international counterparts. US firms are more flexible in their people management and have a more decentralized organizational structure which allows them to more easily adapt to a higher rate of technological change in ICT in both hiring and shifting focus.

Besides the possible boosts in efficiency and productivity, larger firms implementing Industry 4.0 ideas might entice their suppliers to adopt standards and methods to take the initiative to remain in the value chain. Those companies can then run into obstacles:

• Lack of awareness about advanced technologies.
• Knowledge and standardization of cybersecurity practices in the new interconnected ICT-based value chains.
• Access to global value chains.
• Access to (and protection of) IPs - IP protection issues can be at stake in many fast-growing target markets.
• Head start of economies such as the USA, China, and India - production of these economies has more than doubled, while at the same time, the EU faced relatively widespread deindustrialization. 
• Cost of technology and pilot projects.
• Availability of skilled professionals - EU has a generally skilled workforce but faces shortages that are filled beyond the EU.
• ...

National and EU-level policies play a part in lowering those entry barriers.

A Eurostat survey examined the difficulties small and medium-sized enterprises, and larger companies face in recruiting ICT specialists and how these challenges affect economic growth and the labor market. The survey found that 55% of companies experienced difficulties recruiting ICT specialists in 2019. Medium-sized enterprises particularly needed help to fill ICT vacancies. However, both medium-sized and larger companies cited similar reasons, such as a need for more applications, a lack of relevant qualifications, and higher salary expectations. These trends negatively impacted employment and made the recruitment process more complex or unsuccessful.

The Person

Even as machines and systems take on more and more of the work, the people are still the main protagonists. They are involved as designers, workers, and customers.

Currently, most labor laws are based on the premise of a classic employment model, where an individual has a stable, long-term contract with a single employer. However, this no longer echoes the reality for numerous people. In the EU, roughly 15% of workers are self-employed, while the percentage is higher at 25% in the USA. The employment landscape is constantly developing, with 20% of jobs being created or destroyed annually. In addition, it is predicted that 50% of today's youths will eventually hold positions that still need to be defined. Workers will need to develop specific competencies, abilities, skills, knowledge, and attitudes, enabling them to participate in the new job market.

At the same time, according to https://www.semanticscholar.org/, the employment shares of high-paid professionals as well as low-paid personal services workers have increased at the expense of the employment shares of middling manufacturing and routine office workers. Job, as a set of skills, can be more easily automated if tasks required to perform it are easily translated into computer code. Also, with the availability of digitalization, such a job can get easily offshored to a different labor pool.

• NRC - non-routine cognitive
• NRM - non-routine manual
• R - routine

The current labor pool still needs to be ready for Industry 4.0 and presents unique challenges for these disadvantaged groups, and the existing system may need to address their needs sufficiently. One area in which these groups may require additional support is in continuing education and retraining. However, even with retraining, these individuals may still need help to meet the rapidly transforming skill demands of the market. This underlines the need for a more comprehensive strategy to address disadvantaged groups' challenges in the immediate future labor market. 

Traditionally, employees were expected to conform to the needs of the organization. However, in the modern business world, it is increasingly vital for organizations to adapt to the necessities and preferences of their employees. Companies prioritizing employee satisfaction and well-being are more likely to attract and retain top talent in a competitive job market.

The onset of technology led to the emergence of connected customers. These customers inform but also purchase using various devices and processes. Retailers are facing significant pressures due to changes in the economic and social environment, which require them to adopt new price optimization models to increase their profits, margins, and market share. As these ICT-related technologies continue to rise in the purchasing process, companies use Big Data to identify and satisfy consumer human and social needs while maintaining profitability. Personal data is aggregated and commercialized by companies like Facebook, Twitter, Instagram, Amazon, and Alibaba to serve as data sources for targeted advertisements.

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In conclusion, the EU needs to catch up and address the impact of cyber-physical production on economic structure, policies, institutions, and governance.