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Lettera Clu b September 2016 - no. 77 Club The European House - Ambrosetti This Lettera is an initiative of Ambrosetti Club. However, its content does not necessarily reflect the views of Club members. 77 INDUSTRY 4.0 REVOLUTION. CHALLENGES AND OPPORTUNITIES FOR EUROPE 1 2 X Commissione Permanente, “Indagine conoscitiva su «Industria 4.0»: quale modello applicare al tessuto industriale italiano. Strumenti per favorire la digitalizzazione delle filiere industriali nazionali”, June 30, 2016. Observatory on Europe is the think tank conceived by The European House - Ambrosetti in Brussels. It aims to pragmatically contribute to the success of the European Union, providing its political and economic leaders, as well as its citizens, with high quality studies, analyses and proposals in order to help them build a stronger Europe from economic, social and political standpoints. EUROPEAN MANUFACTURING INVESTMENT AND SIMULATION NEEDS NEW For centuries, manufacturing has been the productive core of the European Union. This remained true until the expansion of service industries in the second half of the last century when, little-bylittle, manufacturing saw its weight decline within a number of European economies, leaving room for services which, in any case, remain closely tied to the industrial sector. In fact, while in 2000 manufacturing accounted for 18.8% of Added Value in the European Union, fourteen years later this percentage had dropped to 15.5%. Trend and weight of Gross Value added in EU manufacturing sector (2000=100 and % on total value added), 2000-2014. 18.8% 120.6 15.5% % weight of manufacturing GVA on total activities GVA Total Activities GVA growth % share on total GVA 145.9 Index year (2000=100) The term “Industria 4.0” is becoming increasingly central in the economic, social and political debate, both nationally and internationally. It refers to the application of digital technologies to the manufacturing sector. This debate centers around the changes in models for business, production and work organization made possible by digital technologies, as well as their impact on value creation, productivity and employment. Experts agree in their definition of this phenomenon as the “fourth industrial revolution”, indication of its magnitude and importance of the changes connected with it. The European Union has understood the scope of Industry 4.0 and has activated policy measures and allocated funds to ensure that the continent does not find itself unprepared or left behind in the face of international competition. The Italian government has also recently placed this issue at the center of its agenda. In July 2016, the Minister for Economic Development presented the results of a research on Industry 4.0 models that could be applied to Italian business1 and announced the inclusion in the next “Legge Finanziaria” of a major investment plan to promote digitalization in Italian companies. The Observatory on Europe2 dedicated to the challenges and opportunities connected with Industry 4.0 detailed study, analysis and discussion at its ninth forum held on June 30, 2016. This Lettera offers a summary of the analysis and proposals that emerged within this context, and also presents the challenges and opportunities connected with the Industry 4.0 approach, particularly given the current state of European manufacturing. Manufacturing GVA growth Source: The European House-Ambrosetti elaboration on Eurostat and AMECO data, 2016 European manufacturing is also losing ground on a global level. In 1995, European manufactured products accounted for 31% of the world total, while in 2013 their share had fallen to 27%. During the same period, the European Union’s contribution to global Added Value produced by the manufacturing sector fell from 23% to 17%. This decline in the manufacturing sector is not an exclusively European phenomenon, nor is it crisis-related. In fact, it affects all the main industrialized economies. 1 However, European manufacturing is growing less than in the United States. Between 2000 and 2014, the added value generated in Europe Nonetheless, the EU manufacturing sectorthe is one generated by increased by 20.6%, while becomingAmerican less-important on a was global level, industry 34%. performing worse than the US and struggling to 3 in the European manufacLabor productivity recover from the 2008 crisis turing sector also grew less than in the United States4. The same is true for industrial production which, in Europe, is struggling to recover Some facts: from the crisis, while in the United States it has The share of the manufacturing sector to total European surpassed pre-2008 levels. But this added value dropped from 18.8% in 2000 to 15.5% in is not the case 2014 for all industrial sectors. High-tech manufacturing hasthe been than others and grew by over On a global level, shareless-affected of European manufacturing between 2000 andin2015. exports dropped35% from 31% in 1995 to 27% 2013 The declining relevance of manufacturing in The weight of European manufacturing added value to economies is toalso from the the world totalEuropean dropped from 23% in 1995 17%worrying in 2013 standpoint of employment. In 2000, this sector employed 18% manufacturing of the European Between 2000 and 2014, European added workforce, but value grew by 20.6%, while thatin of the US byThe 34% absolute number of only 14.2% 2014. thoselabor employed in the sector has also fallen, with a EU manufacturing productivity grew by 2.1%/ year between 2000 2014, 15% while in the US it2000 grew and 2014. dropand of over between by3.2% Despite this less-than-rosy picture, Europe cannot EU industrial production is struggling to recover from allow itself to abandon its industrial base or see it the crisis, while in the United States it has surpassed further eroded. In fact, the manufacturing sector pre-2008 levels remains central to the growth, the development and the competitiveness of the European Union and its economy. It generates a turnover of more €7 billion, accounts for 15.5% of the total priority for EUthan growth and development. Added Value, purchases more than €5,400 billion ide the key to recovery in goods and services each year, and still employs f digital technologies to the manufacturing sector 14.2% of the total workforce. enon as the “fourth industrial revolution” the in the service sector is cloIn the EU, 60% given of jobs and work organization, as well as the impact on sely tied to manufacturing, as is 65% of the productivity, 74.6% of exports and 65% of private Industry 4.0, expected benefits: investment in R&D5. The average retribution level Greater efficiency quality products processes perand capita in inthe sectorand is also 20% higher than the one of the economy overall. Greater focus on cost centers In light of these figures and the importance of Increased productivity manufacturing for other sectors of the economy More rapid processes and society at-large, in our view, relaunching European manufacturing sector is a priority Management and participation in global value chains for the European Union, to render it more comGreater customer involvement petitive on a global level6. H CONCEPT INDUSTRY 4.0 COULD BE A DECISIVE LEVER IN RELAUNCHING EUROPEAN INDUSTRY RESEARCH es and young people. It4 is also fundamental invest2.1%/year in the digital Between 2000 andto2014, in the EU compared the workforce, especiallywith management, which 3.2% in the US. is being asked to rough continuos learning initiativesOECD, Eurostat and European Commission, 5 Source: The application of The cutting-edge digitalsector and computer manufacturing remains, even today, centralprocesses to the growth, development and technologies to production and industrial competitiveness therelaunch European Union organization could serve as a driverof to and its economy European manufacturing. In fact, in recent years, digitalization has been transforming not only society and the most innovative sectors of the economy, but Some key statistics regarding European manufacturing: also traditional industry, thanks to the following, It generates a turnover of more than €7,000 billion interconnected, enabling factors: – potential offeredItbyrepresents the analysis of structured, 15.5% of the total comAdded Value in the European Union plex databases (Big Data analytics) – additive manufacturing that and provides greaIt purchases goods servicesfor worth over €5,400 billion a year ter customization, more complex and sustainable designs, and more rapid14.2% and ofeffective prototype It employs the European workfroce and testing phases It generates 74.6%platforms of exports to allow – integrated digital and cloud all players and equipment the producIt undertakes involved to 65% ofin private investment in R&D tion process throughout the entire value chain to 60% of European Union service sector jobs are connected communicate and make decisions in real time to and depend on manufacturing – Industry of Things, which refers to all devices, Contributes to 65% of productivity in Europe sensors and smart machinery capable of commuIts per capita leveland is 20% nicating and interacting withretribution each other withhigher than the rest of the economy overall people, transmitting data in real time, anticipating breakdowns, etc. – increased involvement of the customer equipped with new technologies and involved in the processes Relaunching European manufacturing is a of product creation, testing, distribution, purchaIndustry 4.0 could provi sing and post-sales assistance The term Industry refers to the application of – automation which provides for increased4.0 decentralization, efficiency, security andagree productivity. Experts in their definition of this phenome radical changes in business models, production The positive impacts on European manufacturing value creation, productivity and employment expected from this “fourth industrial revolution” are numerous: Industry 4.0, enabling factors: – greater efficiency and and productivity thanks to Structured complex database analytics data analytics, automation, enhanced quality conmanufacturing trol of products Additive and processes, preventive diagnostics of equipment status, digital greater focus in-house Integrated and cloudon platforms cost centers and on distribution. It is estimated Industry of Things that, thanks to efficiency savings of between 6% Increased in customer centrality and 8%, the increase turnover is expected to 7 surpass €370 billion/year Automation – more rapid processes thanks to supply chains based on data analytics, with a reduction in delivery order times of 120% and time-to-market Urgent action is needed to remove obstac lower by 70%. the development of digi – management and participation in interconnected Proposals of the Observatory on Europe: and digitalized global value chains characterized by Setofcommon guided by the market, based on wha major integration supplierstandards, and outsourcer chains open ecosystems, without damaging Europe’s ability to innova – enhanced customer involvement with higher levels required between companies and other players, including thos of customization and product quality. Promote the activation of company and cross-industry cooper These benefits will not be the of large cost-benefit resultprerogative from investments in digitalization companies alone, even small- and medium-sized Complete the European Digital Single Market, whose corners companies will be to benefit from increasingly theable activation of which could result in benefits to the Europea less-expensive equipment and software, as well as Create adequate digital skills, not only focusing on universitie industrial robots capable educationof of adapting people whotoareproduction already established members of guidetasks. companies during this period of significant change, thr peaks and diversified model. This must involve stakeholders, provide unified 6 all relevant European Commission shares this view, and in 2014 it wide level, thus avoiding The fragmentation and overlap, promoting set itself the on between industries and companies.target to relaunch European manufacturing so 7 cles and create the right environment for ital industry in Europe at currently exists and capable of promoting interoperability and ate. Without these, it will be impossible to activate the synergies se from different industries, value chains and sectors ration networks that are indispensable for obtaining the maximum stones provide the basis development of Industry 4.0 and 3 for the“Apparent Labour Productivity” has been used, an economy of over €400 Here billion a year equivalent to Gross Added Value per person employed. 2016. that, by 2020, 20% of European GDP will be generated by the manufacturing sector. 2 Develop a real platform for Industry 4.0 based on the German m governance of the various initiatives on a national and EU-w Source: The European House-Ambrosetti elaboration of investment, national or regional specialization, and cooperatio European Commission and European Parliament data, Industry 4.0, Digitalization for production and growth, 2016. 3 H CONCEPT INDUSTRY 4.0 COULD BE A DECISIVE LEVER EUROPEAN INDUSTRY RESEARCH CONCEPT IN RELAUNCHING The application of the cutting-edge digital and computer Nonetheless, EU manufacturing sector is becoming less-important on a global technologies to production processes and level, industrial performingcould worseserve than the and struggling to organization as US a driver to relaunch recover from the 2008 crisis European manufacturing. In fact, in recent years, digitalization has been transforming not only society and the most innovative sectors of the economy, but Some facts: Some facts: Some key statistics regarding European manufacturing: also traditional industry, thanks to the following, The share of the manufacturing It generates asector turnover to total of more European than €7,000 billion The share of theenabling manufacturing sector to total European interconnected, factors: added value dropped from 18.8% in 2000 to 15.5% in added value dropped from 18.8% in 2000 to 15.5% in – potential offered by the analysis of structured, com2014 2014 It represents 15.5% of the total Added Value in the European Union plex databases (Big Data analytics) On a global level, the share of European manufacturing On a global level, the share of European manufacturing – additive manufacturing that toprovides for greaexports dropped from 31% in 1995 27% in 2013 exports dropped from 31% in 1995 27% in 2013 It purchases goodstoand services worth over €5,400 billion a year ter customization, more complex and sustainable The weight of European manufacturing added value to The weight of European manufacturing added value to designs, rapid the world total dropped from14.2% 23% of in the 1995 to 17%workfroce in the worldand total more dropped from and 23% effective in 1995 toprototype 17% in It employs European 2013 2013testing phases and It generates 74.6% of exports – integrated digital and cloud platforms to allow Between 2000 and 2014, European manufacturing added Between 2000 and 2014, European manufacturing added all players and equipment involved inbythe producvalue grew by 20.6%, while thattoof65% the US by 34%investment in R&D value grew by 20.6%, while that of the US 34% It undertakes of private tion process throughout the entire value chain to EU manufacturing60% labor of European productivity Union grew service by sector 2.1%/jobs are connected EU manufacturing labor productivity grew by 2.1%/ communicate and and make decisions real year between 2000 to and and 2014, dependwhile on manufacturing in the US it grew year between 2000 2014, while ininthe UStime it grew by3.2% by3.2% of Things, which refers to all devices, – Industry Contributes to 65% of productivity in Europe sensors and smart machinery capable of commuEU industrial production is struggling to recover from EU industrial production is struggling to recover from the crisis, while inItsthe it haslevel surpassed the crisis,and while in the United has surpassed perUnited capita States retribution is 20% higher than the nicating interacting withStates eachitother and with pre-2008 levels rest of the economy overall pre-2008 levels people, transmitting data in real time, anticipating breakdowns, etc. – increased involvement of the customer equipped with new technologies and involved in the processes priority for EU growth Relaunching and development. European manufacturing is a priority for EU growth and development. of product creation, testing, distribution, purchaide the key to recovery Industry 4.0 could provide the key to recovery sing and post-sales assistance f digital technologies to the manufacturing The term sector Industry 4.0 refers to the application of digital technologies to the manufacturing – automation which provides for sector increased decentralization, security and Experts the “fourthefficiency, industrial revolution” givenproductivity. the enon as the “fourth industrial revolution” givenagree the in their definition of this phenomenon as radical changes work organization, as wellonasEuropean the impactmanufacturing on and work organization, as well as the impact on in business models, production and The positive impacts value creation, productivity and employment expected from this “fourth industrial revolution” are numerous: Industry 4.0, expected Industry benefits: 4.0, enabling factors: Industry 4.0, expected benefits: – greater efficiency thanks to Greater efficiency Structured and qualityand in products complexand database processes analytics Greater efficiency and and qualityproductivity in products and processes data analytics, automation, enhanced quality conGreater focus on cost Additive centers manufacturing Greater focus on cost trol of products andcenters processes, preventive diagnostics of equipment status, greater focus on in-house Increased productivity Integrated digital and cloud platforms Increased productivity cost centers and on distribution. It is estimated More rapid processes Industry of Things More rapid processes that, thanks to efficiency savings of between 6% Management and Increased participation customer in global centrality value chains Management participation in global value chains to and 8%, theandincrease in turnover is expected 7 surpass €370 billion/year Greater customer Automation involvement Greater customer involvement – more rapid processes thanks to supply chains based on data analytics, with a reduction in deli120% and time-to-market cles and create the Urgent right action environment is needed for to remove obstacles very and order createtimes the ofright environment for lower by 70%. ital industry in Europe the development of digital industry in Europe – management and participation in interconnected Proposals of the Observatory on Europe: and digitalized global value chains characterized by at currently exists and capable Set common of promoting standards, interoperability guided by the andmarket, based on what currently and capable of promoting interoperability and majorexists integration of supplier and outsourcer chains ate. Without these, it willopen be impossible ecosystems, towithout activatedamaging the synergies Europe’s ability to innovate. Without these, it will be impossible to activate the synergies – enhanced customer involvement with higher levels se from different industries, required valuebetween chains and companies sectors and other players, including those from different industries, value chains and sectors of customization and product quality. ration networks that are indispensable Promote the activation for obtaining of company the maximum and cross-industry cooperation networks that are indispensable for obtaining the maximum These benefits will not be the prerogative of large cost-benefit result from investments in digitalization companies alone, even small- and medium-sized stones provide the basis Complete for the development the European of Industry Digital Single 4.0 andMarket, whose cornerstones provide the basis for the development of Industry 4.0 and companies will be billion able to benefit from increasingly an economy of over €400the activation of over €400 a year billion a yearof which could result in benefits to the European economy less-expensive equipment and software, as well as es and young people. It isCreate also fundamental adequate digital to invest skills, in the not digital only focusing on universities and young people. It is also fundamental to invest in the digital capable of adapting tobeing production the workforce, especially education management, of people which who is are being already askedestablished to members of theindustrial workforce,robots especially management, which is asked to rough continuos learningguide initiatives companies during this period of significant change, through continuos learning initiatives peaks and diversified tasks. Nonetheless, the TheEU manufacturing manufacturing sector sector remains, is even today, becoming less-important central toonthe a global growth, level, development and performing worse than competitiveness the US and struggling of the European to Union recover from the 2008and crisis its economy model. This must involveDevelop all relevant stakeholders, unified a real platform forprovide Industry 4.0 based on the German model. This must involve all relevant stakeholders, provide unified wide level, thus avoidinggovernance fragmentation andvarious overlap, promoting of the initiatives on a national and EU-wide level, thus avoiding fragmentation and overlap, promoting 7 Source: The European House-Ambrosetti elaboration of on between industries and companies. investment, national or regional specialization, and cooperation between industries and companies. European Commission and European Parliament data, Industry 4.0, Digitalization for production and growth, 2016. 3 For the benefits outlined above to be realized, action must be taken quickly to remove obstacles and create the proper environment for the development of digital industry in Europe. Taking action immediately is key: it is estimated that the potential loss from delays in the digitalization of European manufacturing will exceed €600 billion by 20208. Towards this, the Observatory on Europe has identified the following proposals for priority action: – the creation of common standards, guided by the market, based on what currently exists and capable of promoting interoperability and open ecosystems, without damaging Europe’s ability to innovate. Without these, it will be impossible to activate the synergies required between companies and other players, including those from different industries, value chains and sectors – the activation of company and cross-industry cooperation networks that are indispensable for obtaining the maximum result in terms of costbenefit from investment in digitalization – the completion of the European Digital Single Market, whose cornerstones provide the basis for the development of Industry 4.0 and the activation of which could result in benefits to the European economy of over €400 billion a year – the creation of adequate digital skills9. To date, the major focus has been placed on universities and young people. We believe that, through continuous learning initiatives, it is also fundamental to invest in the digital education of people who are already established members of the workforce, especially management, which is being asked to guide companies during this period of significant change – the development of a real Industry 4.0 platform based on the German “Industrie 4.0” model. This must involve all relevant stakeholders, provide unified governance of the various initiatives on a national and EU-wide level, thus avoiding fragmentation and overlap, promoting investment, national or regional specialization, and cooperation between industries and companies. In this regard, the first encouraging steps have been taken by the European Commission which, in April 2016, took on many of these priorities by launching the “Digitising European Industry” strategy that is designed to coordinate the various European and national initiatives in this area, and activate the public/private investment required to take on the priority issues still unresolved (standards, regulatory structure, skills, e-government, Open Science, etc.). The creation of a special steering committee by the Italian government, also involving companies, goes in the direction to create in Italy a platform for industry 4.0 similar to the German one. 8 9 OUR PROPOSALS FOR MAXIMIZING BENEFITS FROM INDUSTRY 4.0 THE Source: European Commission, “Digitising European Industry Fact Sheet”, April 2016. It is estimated that 32% of the European workforce lacks or has limited digital skills. In addition, by 2020, 852,000 jobs will not be filled due to the lack of graduates in computer-related fields. Companies themselves report a gap in in-house digital skills, 94% of which is considered serious or moderate. The next Lettera will be dedicated to “The impacts of reforms in the PA, Jobs Act, banking and credit sector and constitutional reform on businesses and the public” The European House - Ambrosetti Lettera Club draws on the analysis, theses and solutions developed as part of Club activities and, more generally, the professional activity of The European House - Ambrosetti Group. We are aware that we offer an observatory of information and relational network, including on an international level, that is extremely high-level, but at the same time we are cognizant of the fact that we are not the sole “repositories of truth”. In order to be of assistance to Italy and Europe - one of our key commitments - we sincerely hope that each Lettera will provide the basis for a large number of critical suggestions, both in terms of content and more generally, from those who receive it. Please send your suggestions and comments to [email protected]. We thank you in advance for your invaluable collaboration. 4 YEAR X ISSUE no. 77 Lettera Club The European House Ambrosetti, 2016 All rights resered. MANAGING EDITOR Nino Ciravegna Printed by: TFM - Via San Pio da Petralcina, 15/17 - 20010 Pogliano Milanese EDITORIAL OFFICES: The European House Ambrosetti S.p.A. Via F. Albani, 21 20149 Milano Tel. +39 02 46753 1 Fax +39 02 46753 333 For information: [email protected] Registered with the Court of Milan no. 493 dated 20.07.06