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World Economic Forum 2018

Is the World Ready for Digital Production?

| Editor: Janina Seit

The World Economic Forum has presented its first "Readiness for the Future of Production Report". It assesses how well positioned the world's economies are in the run-up to the fourth industrial revolution. Japan and the United States are ahead of the pack in transforming their production systems towards digitized production.

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The "Readiness for the Future of Production Report 2018" examines the readiness of the world's economies for the changes in production prompted by the fourth industrial revolution.
( Source: Pixabay / CC0 )

At this year's summit in Davos, Switzerland, the World Economic Forum (WEF) for the first time presented the "Readiness for the Future of Production Report". It shows that only 25 countries are well positioned to master the challenges of the fourth industrial revolution — the digital transformation of production. The report, compiled in collaboration with the consulting firm A. T. Kearney, examines the impact of the Industrial Internet of Things and other key technologies on production systems and business models, provides a snapshot of today's global production landscape and discusses possible strategies for a digital future.

Essential parameters underlying the analysis framework are:

  • The current structure of production, which measures the scope and complexity of a country's production;
  • The drivers of production, i. e. the key factors that enable a country to transform its production systems and to take advantage of the fourth industrial revolution.

Being aware of the fact that each country has its own unique goals and strategies for industrial production and development, the report has assigned each country have to one of four so-called archetypes: Leading (strong current base, high readiness for the future); High Potential (limited current base, high potential for the future); Legacy (strong current base, weakly positioned for the future); or Nascent (limited current base, limited readiness for the future).

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A World of Two Production Speeds

Helena Leurent, head of the Future of Production System initiative of the World Economic Forum, says: "Our efforts aim at building a future in which new technologies in production systems contribute to unlocking human potential, addressing and solving challenges that were previously insurmountable and from which everyone benefits. Our report is intended to stimulate discussion between the public and private sectors concerning the factors and conditions needed to achieve this, support the development of modern industrial strategies and to define areas for cooperative action."

In addition to further qualitative analyses, the first evaluation came up with some important findings:

  • The global transformation of production systems could lead to the split of production in areas that develop at two speeds. This could lead to a further polarization in the world. The 25 leading archetype account for more than 75 % of global value added production in the manufacturing sector, while 90 % of the countries of Latin America, the Middle East, Africa and Eurasia are classified as "not ready".
  • Digital production will not be the right way for all countries. Some countries will try to exploit the possibilities of traditional manufacturing in the near future, while others could adopt a dual approach.
  • None of the countries is perfectly prepared. No country has reached the limits of what is feasible, let alone exhausted the full potential of the fourth industrial revolution in production. Although there are industrial "leaders" in many countries that could serve as role models, these countries and economies are nevertheless still in an early phase of transformation.
  • Technological progress holds the potential for quantum leaps, but only a handful of countries are able to take it. Countries whose development is lagging can potentially enter emerging industries at a later date without having to invest as much as those who have arrived so earlier, but only if they have the right skills and develop effective strategies to take advantage of the most promising opportunities.
  • The fourth industrial revolution will initiate selective reshoring, nearshoring and other structural changes in global value chains. New technologies will have an impact on the cost-benefit ratio for the relocation of production activities and will ultimately determine the attractiveness of the location. All countries must develop special skills so that they can attract production and benefit from these shifts.
  • The future viability of production requires global and not just national solutions. Globally networked production systems require sophisticated technologies, but also standards, norms and regulations across technical, geographic and political boundaries to unlock efficiency gains and facilitate business across global value chains.
  • New and innovative approaches of public-private partnerships are needed to accelerate industrial transformation. Each country faces challenges that can’t be met by the private or public sector alone. New approaches to public-private cooperation are necessary for governments to enter into partnerships quickly and effectively.

Johan Aurik, Managing Partner and Chairman of A. T. Kearney, emphasizes: "In a changing production environment, each country must differentiate itself, exploit competitive advantages and make intelligent compromises in order to develop its own unique strategy for their future of production. Given the speed and scale of change, the study and the analysis and benchmarking tool it is based on can help raise awareness and inspire change.

Download the complete "Readiness for the Future of Production Report 2018" as a PDF.

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This article was first published by Industry of Things. Executive Editor: Jürgen Schreier.

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