The widespread use of information technology has undoubtedly turned our lives upside down. The internet and smartphones created a world that is utterly different from the one we experienced before. It has revolutionized the way we connect with each other and we have access to instant and unlimited information so much that we can’t even imagine our lives without it. The technological revolution is about to disrupt industrial production globally, a process that is referred to as the Fourth Industrial Revolution or Industry 4.0.
The First Industrial Revolution was the improvement of industrial production with the mechanization through water and the steam engine. The Second one was through electric power and mass production. The Third one used electronics and information technology to automate production and now the Fourth Industrial Revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century.
The difference between the first three structural changes and this one is that this time no new disruptive technology is the direct cause of this transformation but rather the way those technologies are applied together to achieve a step up in production processes. For example, analysing large amounts of data to improve production – nowadays called big data analytics – has been in use for decades, for instance in huge projects like a nuclear power plant to optimise electricity production. However, in Industry 4.0 the breakthrough is that data has become so abundant and technologies so much cheaper, that the same techniques are ready to be applied by all companies including small enterprises. They can be applied to optimise production processes on a very wide scale as well, not just on a single machine but on all of the productive capacity that a factory has. Then, through Internet of Things (IoT) solutions, these machines can even communicate with each other directly, without the involvement of a human, and coordinate production between themselves in a very efficient manner.
These efficiencies can both lead to reduced costs and improved top lines for companies. Additionally, a few tangible examples of what benefits Industry 4.0 can bring are custom-made running shoes for everyone that perfectly fit one’s feet or predictive maintenance of machines - data-driven maintenance that predicts when a given part will need to be replaced before the machine breaks down and thus preventing unscheduled downtime or costly failures.
Most industrial companies are aware of this structural change and that they need to be on board not to fall behind with competitors. However, the implementation is still in its infancy across the world. Most of the companies run only ‘pilot projects’ and just a select group of manufacturers have been able to deploy advanced manufacturing techniques at scale. The World Economic Forum created a category for these companies, the so-called Global Lighthouse Network. These companies show leadership in using Fourth Industrial Revolution technologies to transform factories, value chains, and business models. As of October 2021, only 90 such factories have been identified in the world to implement technologies on a scale that is a clear step up compared to prior standards. The main reason for this lag is not reported to be due to the high capital requirements but rather because of the lack of employees with the necessary know-how to build out and operate these advanced systems.
From an investment perspective, in the following years, it would be interesting to monitor companies that are expected to gain a head start in the implementation of Industry 4.0 processes. They will inevitably generate a competitive edge against other players and could be good stock picks for a long-term buy-and-hold strategy. In addition, due to the current bottlenecks in know-how, companies focused on implementing such systems for industrial players can become very sought after as they continue to commit themselves to take a step up to Industry 4.0 and consequently their share prices may follow suit.
Disclaimer: This article was issued by Tamas Jozsa, research analyst at Calamatta Cuschieri. For more information visit www.cc.com.mt. The information, view, and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.