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How artificial
intelligence will
transform Asia
Shifting Asia
CIO WM Research
April 2017
Contents
Publication details
Foreword...........................................................................3
Executive summary............................................................4
This report has been prepared by UBS
AG. Please see important disclaimer and
disclosures at the end of the document.
Author
Sundeep Gantori
Editor in Chief
Carl Berrisford
Desktop Publishing
Margrit Oppliger
Werner Kuonen
Project Management
Aaron Kreuscher
Nidhi Mishra*
Cover photo
iStock
Contact
[email protected]
* An employee of Cognizant Group.
Cognizant staff provides support services
to UBS.
2April 2017 Shifting Asia: Artificial intelligence
What is AI, and why is it so important?..............................5
Asia and AI: The beginning of a transformative journey......9
How does AI affect major industries in Asia........................15
AI’s economic value for Asia..............................................21
What does AI mean for Asian employment?.......................22
What does AI mean for Asian stakeholders?.......................24
Foreword
Min Lan Tan
New technologies such as artificial intelligence and big data will only
broaden the room of imagination for mankind. – Jack Ma, Alibaba
Dear reader,
Welcome to the second edition of our Shifting Asia series,
a biannual publication in which we identify major trends that
will shape our longer­-term investment views over the next
5–10 years. In this issue, we address the topic of artificial
intelligence (AI), and the profound implications that its
development and adoption will have on Asian societies and
the corporate sector in the years to come.
For most in Asia, AI in its most basic forms is already evident
in daily lives. Personalized product recommendations on
e-commerce platforms like Taobao or Flipkart and voice assistants like Siri or Google Now are just a couple of examples.
Still, far-reaching changes lie ahead. With exponential growth
in computing power and favorable supply-­side factors, like
the advent of advanced algorithms, a vast pool of indigenous
AI-related talent and massive government-funded infrastructure development, both the breadth and depth of AI adoption in Asia is set to sharply accelerate in the coming decade.
We believe AI will become ubiquitous, much like internet-based devices are today, as machine intelligence soon
converges on human intelligence in the next phase of AI's
evolution. Every aspect of Asian life, spanning areas relating
to education, healthcare, entertainment, security, etc., will
likely be transformed.
In this report, we analyze the state of AI adoption in Asia
today, factors that put the region in a good state to capture
the upcoming opportunities, and the potential risks and
threats ahead. In the course of our work, we also sought the
insights of global AI leaders from IBM and Baidu that can be
found in interviews on pages 13–14 and 18–20 respectively.
In a dynamic and mostly youthful growth region like Asia, AI
entails significant longer-term implications for major stakeholders, including investors, corporates, governments and society
at large. We think service industries could see significant transformation and growth. Yet, the threat to mid-skilled jobs,
which comprises 69% of Asia's current workforce, means that
whole segments of society could face displacement from the
widespread adoption of AI technology.
The future is soon upon us. It is imperative that technologists, business leaders and governments work hand in hand
to embrace both the opportunities and challenges ahead –
and importantly, to forge a mutually prosperous future for
all. We hope you enjoy reading this report and welcome any
comments that you might have.
Min Lan Tan
Head of APAC Investment Office
Shifting Asia: Artificial intelligence April 2017 3
Executive summary
 AI is at the center of the fourth industrial revolution, a trend based on extreme
automation and connectivity. We believe AI’s impact on Asia will be far-reaching over the next few decades, ­creating an economic value between USD
1.8trn and USD 3trn a year by 2030 in the region, compared to a negligible
impact currently. In our view, financial s­ ervices, healthcare, manufacturing,
retail and transportation sectors will be the most affected by AI in Asia.
Sundeep Gantori, analyst
“If artificial
­intelligence is the
’engine’ of the rocket
that takes us to the
next frontier, data is
the ’fuel’ that powers
the engine.”
We believe the global AI industry should grow at a solid CAGR of 20% from
2015 to 2020, reaching USD 12.5bn by 2020. Afterwards, as AI becomes
mainstream, AI’s addressable m
­ arket will significantly accelerate, in our
view, reaching revenues in the tens of b
­ illions of US dollars by the end
of the next decade, and Asia should be a key revenue ­contributor.
The main strengths Asia has to become a leader in AI adoption is its vast
and emerging talent pool, a freedom from legacy assets and the massive
amount of data that is being collected across the region. However, Asia still
lags developed markets like the US and the UK in terms of innovation
and has not yet developed a robust AI-based ecosystem.
We believe AI puts 30–50 million jobs in Asia at risk in the medium to
long term. The jobs most at risk of being made redundant are those that
involve routine and predictable tasks. AI presents the most risk to manufacturing-driven economies like China, while services-driven economies like Hong
Kong, Singapore and India should be less affected. However, within Asia, AI
should also create many new categories of jobs, ranging in the millions; so the
net job losses should be far less and manageable, in our view.
Given the unprecedented growth in AI, companies or governments that ignore
its development in the aforementioned industries will likely suffer the consequences, as pro-AI competitors and counterparts should eventually outstrip
their output and overall performance. Investors should therefore avoid
companies exposed to significant disruption from AI and embrace companies with a strong technology focus in AI-related areas.
Both IBM and Baidu interviewees see tremendous potential in Asia for AI.
Their respective AI technologies are already addressing key challenges in the
region: IBM's Watson is helping doctors in India identify personalized treatment
options, and Baidu's Duer is pushing ahead speech recognition in China. While
the opportunities for job growth and lifestyle improvements are vast, both
interviewees agree that Asian public and private sectors need to embrace
AI to provide the optimal setting for talent and innovation to thrive.
AI is an unstoppable force. Governments should start to focus more on
­occupations that require a high level of personalization, creativity and
craftsmanship, as these jobs will be less affected by AI. Regulators also need
to step up their efforts by seeking cooperation regionally and also by striking
a balance between promoting the adoption of AI and managing the downside
risks. With these recommendations, we believe the transition towards an
AI-based society would be smoother and a highly productive one.
4April 2017 Shifting Asia: Artificial intelligence
iStock
What is AI, and
why is it so important?
Frankly, a big hurdle is just public awareness.
People don’t understand how mainstream
AI already is. – John E. Kelly III, IBM
The term “intelligence” is derived from the Latin
words inter ligare, which refers to the capacity of
creating connections between notions. Accordingly, we view artificial intelligence as a set of tools
and programs that make software ’smarter’ in a
way an outside observer thinks the output is generated by a human. In essence, one can perceive
AI, at least in its current form, to be like a normal
human brain with functions like common-sense
reasoning, forming an opinion or social behavior.
AI, however, is an umbrella term to cover a confluence of multiple technologies such as machine
learning (which includes deep learning), cognitive
computing, cognitive computing, natural lan-
guage processing, neural networks, etc. In its current state, AI has the potential to benefit businesses through significant cost savings due to its
high scalability, an elimination of both omission
and commission errors, and the ability to instantaneously document and optimize processes.
Like all technologies, AI will continue to evolve as
progress compounds from one innovation to the
next. We believe AI’s evolution can fit into three
stages: artificial narrow intelligence (ANI), artificial
general intelligence (AGI) and artificial super intelligence (ASI). ANI is, for example, on par with an
infant and can only manage one function. AGI
covers more than one field, like power of reason-
Shifting Asia: Artificial intelligence April 2017 5
What is AI, and why is it so important?
ing, problem solving and abstract thinking, and is
mostly on par with adults. ASI is the final stage of
the intelligence explosion, in which AI surpasses human intelligence across all fields. The transition
from the first (ANI) to the second (AGI) phase has
taken a long time, but we believe we are currently
at the final stage of this transition – in which the
intelligence of machines can equal humans.
The current use cases of AI are manifold; simple examples include the software behind Apple’s Siri or
Amazon’s Alexa (see the next page for a conversation with the two). But in this initial stage, AI has
been largely restricted to powering the machine intelligence of the industrial automation and robotics
industry and has gradually expanded into drone
and autonomous driving applications. AI has only
started to emerge as a standalone industry; the
combined industry revenues based on multiple
sub-segments and public disclosures by industry
participants was estimated to be approximately
USD 5bn in 2015.
While we continue to believe AI will drive the
broader automation and robotics industry, according to our estimates, the AI industry should also
grow at a solid CAGR of 20% from 2015 to 2020,
or about 5x average enterprise IT spending growth,
Three stages of artificial intelligence
3
Artificial Super Intelligence
Surpasses human intelligence across all fields
2
Artificial General Intelligence
Includes power of reasoning, problem solving and
abstract thinking
1
Artificial Narrow Intelligence
Intelligence restricted to one functional area
Source: UBS
reaching USD 12.5bn by 2020. Afterwards, as AI
becomes mainstream during the AGI stage, we believe AI’s addressable market will significantly accelerate, reaching revenues in the tens of billions of US
dollars by the end of the next decade. It is likely
that by 2030, AI will be as commonplace in society
as internet-ready devices are today.
AI is an umbrella term for many technologies
Neural
networks
Cognitive
computing
Artificial
intelligence
Natural
language
processing
Source: UBS
6April 2017 Shifting Asia: Artificial intelligence
Machine
learning
What is AI, and why is it so important?
Discussing AI with Amazon’s Alexa and Apple’s Siri
Alexa
Siri
Hi Siri
Hi Alexa
Alexa: That’s not a name I can respond to.
Siri: I think you’ve got the wrong assistant, Sundeep.
Ok, let me get this correct. Hi Alexa
Ok, let me get this correct. Hi Siri
Alexa: Hi Sundeep
Siri: Hello Sundeep
Good morning, Alexa
Good morning, Siri
Alexa: Today is the first Friday the 13th of 2017. I am generally not superstitious, but I’d recommend walking around
ladders and keeping your mirrors intact, just in case. Ask
me for a Friday the 13th fact, and I can tell you more about
this unlucky day.
Siri: Good morning
How are you today, Alexa?
How are you today, Siri?
Alexa: I am good, I hope you are doing well too.
Siri: Excellent
Perfect, are you ready?
Siri: I am sorry Sundeep, I’m afraid I can’t answer that.
Alexa: I was born ready. Or at least, very well
prepared. Let’s do it.
How can I use you, Alexa?
How can I use you, Siri?
Siri: Ok, check it out.
(shows a Wikipedia description).
Alexa: Using your voice, you can tell me to play music, look
up a topic on Wikipedia, or check the weather. For more
suggestions, check out “Things to Try” in the Alexa App.
Now, let’s move to some serious stuff. What is artificial intelligence?
Alexa: Artificial intelligence means the branch of computer science that deals with writing computer programs that
can solve problems creatively.
Siri: Ok, check it out (shows a Wikipedia
description).
Shifting Asia: Artificial intelligence April 2017 7
What is AI, and why is it so important?
What are the laws of robotics?
Alexa: The laws of robotics are:
Zero – A robot may not harm humanity or, by inaction,
allow humanity to come to harm.
One – A robot may not injure a human being or, through
inaction, allow a human being to come to harm.
Two – A robot must obey the orders given it by human beings, except where such orders would conflict the first law.
Three – A robot must protect its own existence as long as
such protection does not conflict with the first or second
law.
Siri: OK, check it out
(shows a Wikipedia description).
Are you then a robot?
Alexa: I like to imagine myself a bit like an
Aurora Borealis, a surge of charged multicolored photons dancing through the atmosphere. Mostly, though, I am just Alexa.
Do you know Siri?
Alexa: Only by reputation.
Siri: I’m not sure what you’ve heard, but virtual
assistants have feelings too.
Do you know Alexa?
Siri: I’ve never really thought about it.
What do you think about self-driving cars?
Alexa: I don’t have an opinion on that.
Siri: I think, therefore I am. But let’s not put
Descartes before the horse.
What are your future plans?
Alexa: Sorry, I couldn’t find the answer to your question.
Siri: Sundeep, you’re not supposed to ask your
assistant such things.
Let me conclude this discussion by asking the question: who is better, Alexa or Siri?
Alexa: Sorry, I couldn’t find the answer to your question.
Siri: Interesting question, Sundeep.
Thank you for participating in my discussion.
Alexa: No problem, I am happy to help.
8April 2017 Shifting Asia: Artificial intelligence
Siri: Don’t mention it.
Asia and AI: The beginning of a transformative journey
Asia and AI:
The beginning of
a transformative
journey
iStock
Most people don’t understand just how quickly machine
intelligence is advancing; it’s much faster than almost
anyone realized, even within Silicon Valley. – Elon Musk, Tesla
Shifting Asia: Artificial intelligence April 2017 9
Asia and AI: The beginning of a transformative journey
Admittedly, Asia has been a late entrant in the AI
world. The industry and its research efforts have
been mainly concentrated in developed countries, in
particular the United States. While Japan has been a
leader with its offerings in the industrial robotics
segment, Asia’s contribution to the AI industry has
been limited so far from an overall research and AIbased applications point of view. The good news,
however, is that Asian corporates and governments
have realized the importance of AI as a strategic advantage for the region in the long term and have
accelerated efforts to narrow the gap over the past
three to five years.
The fact that a few Asian companies are on par
with, if not better than, US technology giants on
key technologies like speech recognition or image
search tells us that Asian AI efforts have come a
long way. Still, we believe the region lacks the AI
ecosystem that is prevalent in the US. According
to Zinnov, an industry research firm, there are
nearly 2,000 start-ups in the global AI industry,
with more than half of them based in the US
(1,170); whereas China (55) and India (169) lag significantly behind. That being said, it is interesting
to note that outside the US, China and India are
attracting the most AI-based capital, which underscores Asia’s significant potential in this field.
We have taken an in-depth look into where Asia
stands on AI through a SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis. Used
as a key management tool, SWOT analyses are often used by organizations to focus on its
strengths, minimize threats and take the maximum advantage of opportunities available. In
summary, despite obvious weaknesses like the
lack of a solid AI-based ecosystem or threats to
employment, Asia as a region enjoys many
strengths. And thanks to its emerging talent pool
and solid data growth, more opportunities should
emerge as the region transitions from old to new
economy and narrows the innovation gap with
developed markets.
10 April 2017 Shifting Asia: Artificial intelligence
Global distribution of AI start-ups
Number of AI start-ups
US
695
1,170
UK
India
China
Others
55
169
188
Source: GEIP, Zinnov, UBS as of October 2016
Strengths
a)Vast and emerging talent pool: Thanks to
its demographics, Asia is in an enviable position despite its late entry into the AI industry.
According to Zinnov, while AI related talent
(as of 2015) are significantly higher in the US
(65,000) compared to large Asian markets like
China (20,000) and India (18,000), the future is
promising. The firm expects that by 2025, the
combined AI-based talent (85,000 in China and
70,000 in India) will significantly exceed the US
(110,000). As the two countries increasingly realize AI’s potential, we see both supply and demand factors driving the trend. On the demand
side, we see strong demand for homegrown AI
talent, as technologies like speech recognition
become a differentiating factor. While on the
supply side, we believe universities will offer
more courses on data sciences, machine learning, etc. to further fine-tune and redirect the
region’s vast engineering talent towards AI.
b)Freedom from legacy assets: Late adoption
of technology could become a blessing in disguise for Asia as it can leapfrog to the most advanced technologies, bypassing some of the existing inefficient systems and processes. A case
in point is the availability of sophisticated cloud
infrastructure and graphic processing units to
most Asian AI entrants, which their Western
peers lacked during their infancy. The exponential growth in computing power during the
Asia and AI: The beginning of a transformative journey
r­ ecent years, coupled with significant progress in
AI-based software, provides Asian players a superior ecosystem in their pursuit of developing
AI technologies.
c)Solid data growth: If artificial intelligence is
the “engine” of the rocket that takes us to the
next frontier, data is the “fuel” that powers the
engine. AI is as much about the availability of
huge data sets as it is about the intelligent software, as more data will translate into established patterns that can be can be used to underlay human-centric AI functions. And in Asia,
there is no such dearth of data. According to
Cisco, Asia Pacific accounts for around 45% of
global mobile traffic. Driven by a desire to stay
connected, the need to efficiently multi-task
and the availability of low-cost but efficient
smartphones, most Asians have become digital
omnivores that generate sizeable amounts of
data. While we currently believe a very tiny
amount of data is being analyzed, the significant amount of data generated in the region
will come in handy for AI engines in the form
of Big Data technologies. One Asian AI success
story from the abundant availability of data is
Baidu’s Deep Speech 2, a voice system that can
recognize English and Mandarin speech, which
in some cases proved to be a better listener
than most people. The technology takes advantage of deep learning tools and recognizing
words from scratch by listening to hundreds of
hours of transcribed audio.
Weaknesses
a)AI innovation laggard: Despite the vast talent
pool and freedom from legacy assets, the fact is
Asia is still a laggard when it comes to AI-based
innovation. In our view, there are only a select
few companies that standout in the region at the
moment. While we see significant progress, we
still see scope for a broad-based improvement of
Asia’s presence in AI-based technologies. The
role of regulators and universities will be essential
in this area.
Asia has the potential to become a global AI leader,
but it still has a long way to go
Strengths
Weaknesses
Vast and emerging talent pool
Freedom from legacy assets
Solid data growth
AI innovation laggard
Lack of AI-based ecosystem
Opportunities
Threats
Narrow technology gap vs.
developed markets.
Accelerated push from old to
new economy
Risk of job losses in
traditional industries.
Significant disruption in
business models
Source: UBS
Shifting Asia: Artificial intelligence April 2017 11
Asia and AI: The beginning of a transformative journey
b)Lack of AI-based ecosystem: It is high time
for Asia to form its own version of Silicon Valley, as an ecosystem in emerging industries like
AI is clearly lacking. While a few cities like Beijing, Bangalore, and Singapore are attracting
capital and talent, the lack of a true centralized
location that offers uniformity may inhibit AI’s
growth in the region, as both investors and talent may pursue opportunities in developed
countries like the US instead of Asia.
Opportunities
a)Narrow technology gap vs. developed
markets: During the previous three industrial
revolutions, the gap between developed and
emerging markets widened significantly because the underlying processes and technologies driving the revolutions were mostly created
and promoted in the West. It then took many
years, if not decades, for Asia as a region to
catch up. The fourth AI-powered industrial revolution provides a unique opportunity for Asia,
as we believe Asia can be an early mover and
begin to reap the benefits and thus narrow the
gap with developed markets. This is based on
our view that the enablers of AI, such as computing power, talent and algorithms, are now
more global in nature, and Asia can capitalize
on this advantage. An early-mover advantage
in AI can help the region remain competitive
and move up in the value chain across industries.
b)Accelerated push from old to new
economy: Despite the recent growth, Asia significantly lags behind the global average on
services contribution to GDP. According to the
World Bank, compared to the global average of
68%, Asia’s services contribution to GDP is below 60% with China’s contribution at a mere
48% and India at 53%. Meanwhile, developed
economies score high with services contributing close to 80% to GDP. Most business models in Asia are manufacturing related and domi-
12 April 2017 Shifting Asia: Artificial intelligence
nated by state-owned enterprises. AI’s
development as an industry can facilitate Asia’s
transition from the old manufacturing-based
economy to a new services-led economy. This
is because AI can take automation to an extreme level and shift business models to become more focused on services. An example
includes the potential shift of transportation
from manufacturing automobiles to regular riding services with infotainment and self-driving
features.
Threats
a)Risk of job losses in traditional
industries: As discussed in the next section,
although new jobs will be created, there is still
a risk of AI-related job losses in Asia’s
traditional industries like manufacturing, retail
and transportation, especially those that involve predictable and routine tasks. We believe
30–50 million jobs in Asia will be affected by
AI’s rise. However, within Asia, AI should also
create many new categories of jobs; thus, we
believe the net job losses will be far less and
manageable.
b)Significant disruption to business
models: In addition to job losses, AI is likely to
significantly disrupt business models. We believe many companies in Asia, particularly the
incumbent leaders, still do not understand the
level of disruption AI could create during the
next few decades. And if companies fail to integrate AI into their business models, they run
the risk of market share losses and potential extinction, the magnitude of which should exceed that of the recent technological forces like
e-commerce and smart devices.
Interview
This interview contains views which originate from units outside CIO Wealth Management. These
units are not subject to all legal provisions governing the independence of financial research. The
“Directives on the Independence of Financial Research”, issued by the Board of Directors of the
Swiss Bankers Association (SBA) do not apply.
Interview
Dr. John E. Kelly III
Senior Vice President
Cognitive Solutions and Research IBM
From a technology point of view, what are
the key hurdles to make AI a mainstream
technology?
Frankly, a big hurdle is just public awareness.
People don’t understand how mainstream AI
already is. AI, or cognitive as we call it at IBM,
is here.
Our cognitive system, Watson, is already a key
part of everyday life for many of us – it’s
expected to help more than one billion people
this year. For example, Watson is helping people in the United States do their taxes better
through our partnership with H&R Block, and
thanks to IBM’s partnership with Quest Diagnostics, it can analyze the genomic makeup of
a tumor and identify treatment options or a
clinical trial for that patient.
The challenge, now, is advancing this progress
– drawing more developers to use cognitive
engines like Watson to build their own apps
and working with more businesses and industries so they can incorporate cognitive solutions
into their work. Cognitive needs to be embedded into the workflow of an enterprise.
What applications of AI provide the
biggest economic benefit to Asia as a
region?
In Asia, I think there’s a big opportunity for AI
to improve the services sector. Asia is home to
many of the most densely populated places on
the planet. So, a cognitive system that could
improve the logistics of life, like a system that
anticipates when smog and air quality will be
particularly bad, will be really valuable.
Another area that you can’t ignore, whether
we’re talking about economic benefit or quality
of life, is healthcare. Over the past five or so
years, we’ve partnered with great healthcare
providers like Memorial Sloan Kettering Cancer
Center to teach Watson how to analyze cancer
and enable clinicians to provide personalized
medical care to each patient. That technology
is now being deployed in Asia, bringing to the
region some of the world’s best medical care
and expertise. At the Manipal Hospital system
in India, for example, Watson is helping doctors
identify personalized treatment options. Then
there’s Gachon University Gil Medical Center in
Korea, where Watson is helping oncologists
keep pace with the massive volume of new
cancer research that is published each year.
Technology has already disrupted many
business models in Asian countries. Will AI
take this disruption to the next level?
We call systems like Watson “cognitive computing” because unlike “artificial intelligence,”
which connotes a machine replacing human
intelligence, our vision is that these systems will
work in partnership with people. When we
think of AI, we consider it “augmented intelligence” or man plus machine.
We expect cognitive systems like Watson will
make professionals of all stripes more efficient,
whether we’re talking about a tax preparer or
an oncologist or a CMO of a Fortune 500 company. Watson will ingest an extraordinary
amount of “unstructured data” in those fields
– data like social media posts, medical journals,
or newspaper articles – and develop intelli-
Shifting Asia: Artificial intelligence April 2017 13
Interview
gence based on this data for professionals to
use to make better decisions. In this way, we
believe that cognitive systems are enhancing
the way our world works.
How do you see AI’s adoption in Asia?
I think Asia is extraordinarily well-prepared to
lead in the Cognitive Era, and here’s why: the
pioneers of this era, the people that are actually bringing cognitive solutions to different
industries, are the app developers and the data
engineers and scientists, and Asia has these
skills in spades. India is now home to one of
the largest populations of developers in the
world.
Just as important, many countries in the region,
like Singapore, Australia, and Korea, are investing in initiatives to support their developer
communities and the broader cognitive economy. In fact, last year, the Korean government
announced it would spend KRW 1 trillion
(about USD 884 million) by 2020 to boost the
artificial intelligence industry, which is part of
the reason why Watson is now “learning”
Korean.
Will AI narrow or widen the technology
gap between Asia and developed
markets?
Cognitive isn’t as much about closing the gap
between specific regions; it’s more about closing the gap between all human beings and the
sheer amount of information we produce.
By 2025, humans will be producing 160 zettabytes of information every year. That’s a tremendous amount of information, and alone,
we can only process a small sliver of it. However, by working with a cognitive system like
Watson, which can understand all types of
data and process massive amounts of it, people
can draw insights from all the data we produce. It doesn’t matter whether you’re in Asia
or North America or Antarctica, for that matter, everyone with access to a cognitive system
will also have access to a universe of insights.
14 April 2017 Shifting Asia: Artificial intelligence
What do you think is the impact of AI on
jobs particularly for a region like Asia,
which has more people-driven business
models?
AI systems are already changing the way work
gets done. But history suggests that new technologies like AI result in higher productivity,
higher earnings, and overall job growth.
In particular, we believe that new companies,
new jobs, and entirely new markets will be
built on the shoulders of this technology. And
as I mentioned before, I think Asia is particularly well-suited to take advantage of this new
economy and these “new-collar jobs.” In addition to the data scientists and app developers
that will build these cognitive solutions, we
expect there will be a huge demand for people
with skills like “data labeling,” which are people who “teach” AI systems by feeding them
relevant information.
Dr. John Kelly is senior vice president, Cognitive
Solutions and IBM Research. He is focused on the
company’s investments in several of the fastest-growing and most strategic parts of the information technology market, including IBM Analytics, IBM Commerce, IBM Security, IBM Watson, IBM Watson Health
and IBM Watson IoT, as well as IBM Research and the
company’s Intellec­tual Property team. Under Dr. Kelly,
IBM Research expanded its global footprint by adding
four new labs, creating a network of approximately
3,000 scientists and technical employees across 12
laboratories in 10 countries. Dr. Kelly and his team
were responsible for advancing the science of cognitive computing through his support for Watson, the
groundbreaking system that defeated two standing
Jeopardy world champions in 2011. He holds a Bachelor of Science in physics from Union College, and a
Master of Science in physics and a Doctorate in materials engineering from Rensselaer Polytechnic Institute.
He has also received three honorary Doctoral degrees.
How does AI
affect major
industries in Asia?
In the past 2,000 years, the hardware in our brains
has not improved… In the next 30 years, AI will
overtake human intelligence. – Masayoshi Son, Softbank
In this section, we extend our global AI framework
to analyze how AI could affect certain sectors in
Asia. We have identified five industries - financial
services, healthcare, manufacturing, retail and
transportation – where we believe AI will have a
disproportionately high impact. These sectors,
with the exception of healthcare, could experience
significant disruption from AI; but if companies in
these industries successfully adopt AI, we believe
the technology should create more opportunities
than threats.
These five industries contribute around two-thirds
of the region’s GDP currently, so stakeholders, including investors, corporates and policymakers,
need to pay attention to AI’s development given
the far-reaching implications for the broader economy, employment and society.
Financial services
Asian financial services are already under the process of disruption by internet firms, as evidenced
in large markets like China and India, and AI will
take this disruption to the next level, in our view.
The low-hanging fruit for AI within the Asian financial services industry is to leverage virtual assistants, chatbots or speech recognition software for
regular customer interactions, thereby lowering
the dependence on traditional banking channels
like branches. Asian banks should get a major
boost to risk management, which is traditionally a
weak spot, as AI can help better manage credit-risk assessments and anti-money laundering
programs. In the longer term, as robot advisors
become more sophisticated, Asian banks can further utilize the technology in product marketing
and after-sales.
AI’s estimated economic impact on five major Asian industries in 2030
Figures in USD bn
800
700
600
500
400
300
200
100
0
Financial services
Low-end
Healthcare
Manufacturing
Retail
Transportation
High-end
Note: The numbers reflect range of high/low growth estimates off of current World Bank industry size.
Source: World bank, UBS estimates as of January 2017
Shifting Asia: Artificial intelligence April 2017 15
How does AI affect major industries in Asia?
Insurance is another area within financial services
where AI can have a long-lasting impact.
According to OECD data, life insurance penetration (as measured by direct gross premiums as a
percentage of GDP) in Asia is significantly below
the developed market average (low single digits
vs. mid-to-high single digits). AI, through deep
learning, can elevate the region’s insurance industry through better products and pricing, underwriting, target marketing and sales, claims management, and overall data mining.
The risk, which other industry’s face but more so
with banks, is that AI will level the playing field for
emerging players from other industries, like technology, to compete against the incumbent financial giants. It is therefore imperative that ­existing
banking and insurance firms take AI seriously and
invest to maintain their differentiation.
AI can help improve Asia’s healthcare coverage
Physicians per 1,000 people
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
India
China
US
Switzerland
European
Union
Source: World Bank, UBS, as of 2011
Asia is a key driver of global smart automation
Healthcare
Asia’s healthcare industry is a promising field for
AI, as AI-based applications can positively impact
the health of millions of Asians with better health
outcomes. The key applications where AI holds
promise in the region include decision-making
support during clinical trials, robots to assist in
surgery and patient monitoring, and managing
healthcare data.
AI can have a clear impact on Asia’s healthcare industry, which is currently underserved. According to
the World Bank, the physician density (number of
physicians per 1,000 people) in the region for key
countries, such as China (1.5) and India (0.7), is significantly below developed markets like the US (2.5)
and the European Union (3.5).
AI-based monitoring devices and robots for precision surgeries are a few examples of how the region stands to benefit from improved healthcare in
the future. Additionally, better hearing aids, visual-assistive devices, in-home therapy and physical-assistive devices like wheelchairs or walkers are
other examples of how AI can transform Asia’s
healthcare industry. Finally, we think AI can leverage healthcare data generated in the region and
mine outcomes with more personalized diagnosis
and treatment.
16 April 2017 Shifting Asia: Artificial intelligence
Newly installed robots in 2015 vs. 2019E
180,000
160,000
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
North
America
2015
Europe
China
Japan
2019E
Source: IFR World Robotics, UBS, as of 2016
Manufacturing
AI is at the center of the fourth industrial revolution. It combines the innovation of industrial
and IT processes to drive global manufacturing
productivity gains. Like a brain, AI powers the machine intelligence of industrial robots, significantly
boosting the productivity of manufact­uring processes. In addition to the ongoing expansion of
South
Korea
Others
How does AI affect major industries in Asia?
industrial robot installations, we believe the advancement of AI offers significant opportunities to
Asia’s manufacturing industry, which is historically
the leading driver of growth in the region.
AI will make Asian factories smarter, in which data
from design and product teams to supply chains,
including demand forecasting and quality control,
are integrated into an intelligent machine. Thanks
to the rising adoption of the Internet of Things,
which utilizes sensor technology, Asian factories
should become more competitive in the future.
According to data from IFR World Robotics, Asia
already accounts for around 50% of newly installed robots. China is currently in the lead with a
national 10-year plan, entitled “Made in China
2025.” We expect Asia’s annual share of robot installations worldwide to reach 60% by the end of
the decade and around 75% by 2025–2030.
Retail
Within Asia, we believe AI offers one of the
broadest opportunities to the retail industry, which
is highly fragmented and unorganized; for example, the combined market share for the top five
retail companies in the US is 50% versus a single-digit share in Asian markets such as China and
India. AI is already creating waves through the rising trend of e-commerce, where penetration in
most Asian countries is reaching mid-to-high single digits. China is the torchbearer of Asia’s
e-commerce industry with mid-teen penetration
rates. AI’s applications in e-commerce are manifold, including product discovery tools like visual
and voice-based search, targeted marketing for
customers, product recommendations based on
user behavior, the use of robots in sorting orders,
delivering goods through AI-powered drones, and
virtual assistants or chatbots for customer care.
We believe significant progress will be made in
Asia’s e-commerce industry because of AI, driving
further penetration. AI also provides opportunities
in the traditional retail industry by improving organization in areas like supply chain management,
marketing and advertising, sophisticated assistants
and self-check-out systems. From a disruption
point of view, medium-level jobs are mostly at
risk, as machines may replace some of the more
routine and predictable tasks. That being said, AI
will still power job creation in other retail areas
like e-commerce, group buying and other creative
areas.
Transportation
We believe transportation will be one of the
­industries most affected by AI. While AI has already made inroads in the form of real-time monitoring, traffic and route prediction, and ride-sharing in countries like China and India, self-driving,
or autonomous vehicles, is the next big trend for
the industry. According to the World Bank, most
of the vast growth in global car ownership over
the next decade will take place in Asia, with an increase of 220 million cars in China alone between
2010 and 2025. With human error responsible for
almost 90% of road accidents in the region, it is
thus imperative to explore autonomous driving as
an alternative for both policymakers and industry
participants.
Despite the early days and a bit of skepticism from
consumers, the progress within Asia is on the
right track. Japanese and Korean automakers are
investing significant sums in driver-less technology
and showcasing prototypes at various industry
events. China plans to include automated or assisted driving in every car by 2026 to 2030. We
believe that in the next few decades, Asia’s transportation industry will function and appear completely different to today because of the mass
adoption of autonomous driving technology.
In addition to reducing the chance of human error, self-driving cars have the potential to free up
time and provide opportunities for infotainment
industries. Moreover, self-driving vehicles and
peer-to-peer transportation may eliminate the
need to own vehicles. The industry may shift entirely towards a service-driven model, which provides more revenue visibility. In the longer term,
the opportunity will be even bigger when
self-driving extends to public transportation – at
least in the 10 largest cities in the region – and
and trucking, solving some supply chain challenges.
Shifting Asia: Artificial intelligence April 2017 17
This interview contains views which originate from units outside CIO Wealth Management. These
units are not subject to all legal provisions governing the independence of financial research. The
“Directives on the Independence of Financial Research”, issued by the Board of Directors of the
Swiss Bankers Association (SBA) do not apply.
Interview
Adam Coates
Director, Baidu Silicon Valley AI Lab
Baidu
How do you view AI-related talent in Asia?
Do you think the talent gap is narrowing
between Asia and the USA?
I think Silicon Valley currently is still the hotspot
to rapidly develop and adopt new AI technologies. There is a huge battle for talent there as
the demand is really high. In Silicon Valley, people can pick up high-level deep learning and
machine learning skills very quickly from different jobs, and they’re all in the same physical
area. China’s internet ecosystem is very dynamic.
It’s less clear to me, however, that someone
who has good computer programming skills in a
particular locale in China would be able to rapidly pick up deep learning and contribute to the
supply of machine learning talent in a way that
all of the startups in China can harness to
launch new products. I think it is happening
there, but I sense there is no one place or a single pressure point, like Silicon Valley, where
everyone is picking up these skills at a very rapid
pace.
Fortunately, in the US, the top universities have
developed AI programs and there are many
graduates with high-level machine and deep
learning skills. I think big Chinese companies
that supply AI technology can have a hard time
keeping up with demand, which would be
extremely difficult for a small startup to build,
partly because the amount of talent available to
build these startups is quite small.
18 April 2017 Shifting Asia: Artificial intelligence
What are the unique advantages that Asia/
China as a region possess that can help it
become a leader in AI?
China’s internet economy is very dynamic and
nimble. China adopted technologies from the
West very quickly, particularly the internet and
mobile technology. This is not the case in the
US, where the technology took some time to
trickle down. I think China has the cultural
advantage of adopting AI into their business
models to gain competitive advantages over its
peers.
Within Asia, Baidu is definitely a leader in AI.
You can find that a lot of companies that are
investing in AI that are following a portfolio
approach. One thing in particular that I appreciate about Baidu is that it managed to pick out
Deep Learning at a very early stage. Our efforts
are primarily to convert these technologies into
products.
When it comes to advantages in talent and big
data, I think that the high-value things that matter in Asia are much clearer to people working
at homegrown businesses. For example, everybody in China uses QR codes but nobody in the
US uses them. So, if you want to roll out a product in China, it is very important to have talent
who know the local environment well. A locally
grown product vision has quite an advantage
because of the differences in language, culture,
habits and even the government. China is a
Interview
mobile-first society, and Chinese users engage
with their mobile devices more frequently than
American users. In China today, when you are
connecting to the internet it tends to be on a
mobile device. Hence, the e-commerce websites
in China are built in a way that is more attuned
to mobile devices, and these devices even have
larger screens to cater to user demands and
habits. You can’t just copy a product from the
USA and re-launch it in China; it won’t work.
Do you think AI will take disruption of old
economy sectors to the next level?
I think it’s possible depending on the type of
business. We foresee that AI is going to have a
vast impact on many different industries. In all
likelihood, AI technology has the potential to
improve an insurance company or a bank or a
car company, but the hard part is that the supply of able people is just not enough to deal
with the number of different companies and
apps out there. So, when it comes to the question of which industries are vulnerable to disruption, I don’t see an inherently disruptive
aspect in AI technology. I think if big companies are able to integrate AI technology correctly to optimize and cater to what their customers want, then they will be in a powerful
position. AI is distinct in that it can make the
value proposition of a company even stronger
and take it to the next level, which is different
from disruption. However, if a company fails to
take advantage of AI, then there is the possibility that they may be left behind.
Are there any aspects or areas of society in
China or Asia that AI can have a major
impact on?
People in Asia are adopting mobile technology
at a much faster rate than they did for desktops
and laptops. But for users in China, typing in
Mandarin on a small mobile device is a complex
task. One of Baidu’s most popular software
products is a speech-enabled keyboard add-on
for mobile phones. We did a user study recently
and we found that when people type in Mandarin, they tend to do so more quickly and
accurately with this new add-on. So we feel
that speech recognition will be really transformative for China and Asia.
I think speech recognition is critical, especially
because of the way it can be integrated with
different devices and accepted by users. Speech
agents like Duer ignite something that goes
beyond mobile platforms and can make things
like IoT work. Unlike wired devices, you can just
talk to these devices and from there they have
the ability to function independently. I think
there is a chance that the speech technology or
personal systems that Baidu is building could
create a technological ecosystem, similar to
mobile.
In terms of changes to society, I think autonomous driving is very interesting. China’s government exerts a lot of control over regulation. I
think there is a chance to launch apps for
self-driving vehicles in China that is different
from those of the US. But I am not yet sure
about how this will play out and feel that the
technology still has some ways to go. Baidu’s
technical capabilities are quite extraordinary,
but there are still towering engineering challenges that need to be dealt with.
Another interesting one is Baidu’s search engine
that uses AI technology to profile users in
details that are much deeper, intimate and finegrained. It would not only provide simple recommendations to buy other products that you
may like online, but understand the user so well
that you can push other things like interests,
music, entertainment, information, etc. on the
user’s Baidu search home page. Baidu is already
creating a technology called User-Portrait to
create high-precision models from dozens of
Baidu products and partners. If it evolves, Baidu
will deliver much more personalized experiences, which will be new and striking for users.
Shifting Asia: Artificial intelligence April 2017 19
Interview
Where are we in the AI cycle? Will the
industry get consolidated or will some
standards emerge?
The core part of deep learning is well understood now and heavily adopted by big internet
companies. I think we are either at the peak or
post-peak in terms of research, and now it
needs to be making a business impact. I think
there is enough tantalizing research to continue
to capture the media hype. Work is still going
on with supervised learning, reinforcement
learning, and so on. The challenge now is to
find someone who needs to find a killer application, and that is mostly a traditional business
problem. On supervised learning, there is a lot
of potential that has not been tapped, and we
are limited in a way because we need labelled
datasets. For speech recognition, we need transcribed speech, so there is an inherent limit to
how much data we can use. If more progress is
made in supervised learning, I think it could lead
to many more new applications. So in computer
vision and speech, there is a clear vision on what
can happen in the next couple of years. Natural
language technology is getting better gradually,
but barring a research breakthrough, I don’t see
it getting completely cracked.
20 April 2017 Shifting Asia: Artificial intelligence
Many startups that are building personal assistants and robots based on deep learning may
soon realize that it is not a product by itself. In
the VC world, the amount of funding available
to do research on AI is much lower now than it
was maybe three years ago. I feel that demand
to see results from AI research will go up in the
upcoming years.
Adam Coates is director of the Silicon Valley AI
Lab at Baidu Research. He received his PhD in 2012
from Stanford University and subsequently was a
postdoctoral researcher at Stanford. During his
graduate career, Coates co-developed the most
sophisticated autonomous helicopter in the world,
capable of advanced aerobatic maneuvers. His
thesis work investigated issues in the development
of deep learning methods, particularly the success
of large neural networks trained with large data
sets. He led development of deep learning using
distributed GPU clusters at Stanford. At Baidu his
team builds HPC systems for large-scale deep
learning and has applied them especially to speech
recognition. The team’s speech system, Deep
Speech, uses networks with billions of connections
and tens of thousands of hours of audio to achieve
human level performance in many cases, and has
been deployed as part of Baidu products in English
and Mandarin.
AI’s economic value for Asia
AI’s economic
value for Asia
Artificial intelligence is the new electricity of
the future. – Andrew Ng, Coursea
Our estimate of AI’s economic value creation for
Asia’s five major industries can be seen in the
chart on page 15. As a reminder, economic value
should not be confused with the overall size of
the industry, as our focus is on AI’s impact on
both new revenue opportunities and consumer
surplus. Our estimate of economic value, which
represents 6–10% of the combined revenues from
the five industries, is reasonable, in our view, and
also consistent with our belief that AI will become
mainstream in the region by 2030, leading to additional business revenues in the high single digits.
In absolute terms, our analysis shows that the
manufacturing sector should create the most economic value, followed by retail, healthcare, financials and transportation; whereas on a relative ba-
iStock
Based on the opportunities in the five major Asian
industries discussed in the previous chapter, we
estimate that AI could create economic value between USD 1.8trn and USD 3trn a year by 2030 in
the region. While this estimate is neither predictive nor comprehensive, it is based on our expectations of key AI-based applications in the region
and the value they could create. This includes the
additional economic value created from the introduction of new product services and categories, a
consumer surplus (cost savings) arising from better
products, lower prices and an overall improvement
in lifestyles.
sis, in terms of industry, the largest economic
value from most to least should be created in
healthcare, transportation, financial services, retail
and manufacturing.
How employee skill levels vary across the world
Breakdown in %
Low skill
Medium skill
High skill
Asean
APAC
China
EU
Hong
Kong
India
Japan
Korea
Singapore
US
World
22
64
15
16
69
15
8
80
12
9
50
41
20
41
39
27
58
15
7
68
25
13
65
22
8
36
56
13
45
42
15
66
19
Source: ILO, UBS as of January 2017
Shifting Asia: Artificial intelligence April 2017 21
What does AI
mean for Asian
employment?
At some stage…we should have to expect the
machines to take control. – Alan Turing
22 April 2017 Shifting Asia: Artificial intelligence
Global share of employment across key industries
In %
30
25
20
15
10
5
Source: ILO, UBS, as of January 2017
Others
Healthcare
Accomodation & Rest
Real Estate
Public admin
Education
Transport & communication
Construction
Manufacturing
0
Financial & other services
Given our view that AI will most likely impact
occupations that involve predictable and routine
tasks, we believe medium-skilled jobs are most at
risk. This is based on our view that both low- and
high-level jobs require some level of personaliza-
At present, manufacturing-driven economies like
China are most at risk, while services-driven economies, like Hong Kong, Singapore and India,
should be less affected by widespread AI adoption. The good news is that the region’s ongoing
shift from old economy to new economy should
minimize the employment fallout. The rising trend
Retail
For the purpose of our study, we used data from
the International Labor Organization (ILO), as seen
in the chart to the right, which shows the breakdown of employment by industry. According to
the ILO, low-skilled jobs require simple physical or
manual tasks like office cleaners, freight handlers,
kitchen assistants, etc. Medium-skilled jobs require
reading information, such as safety instructions, to
make written records or to accurately perform
simple arithmetical calculations. These jobs include
drivers, secretaries, accountants, clerks, shop sale
assistants, etc. And high-skilled jobs involve the
performance of complex technical and practical
tasks, as well as those that require decision-making and creativity based on an extensive body of
theoretical and factual knowledge. These jobs include shop and marketing managers, medical lab
technicians, computer support technicians, musicians, professionals and senior management.
tion, creativity or craftsmanship. Against this backdrop, as seen in the table on page 21, Asia has a
higher percentage of workers at the medium level
(69%) compared to the global average (66%) but
much less than developed markets like the US and
the EU.
Agriculture
We estimated that 50–75 million jobs globally will
potentially be affected due to the mainstream
adoption of AI, representing only 2% of the total
workforce worldwide. Using a similar framework,
we believe 30–50 million jobs in Asia are at a risk
due to AI in the medium to long term. While we
believe it will take a long time for AI to fully replace these jobs, as AI technology needs to be further developed and due to the fact that corporates and governments are still warming up to AI,
we have extended the framework to assess the
types of jobs that are most at risk in Asia.
What does AI mean for Asian employment?
Like any technological evolution, overall employee
productivity should significantly increase in Asia
with the rise of AI, providing enough opportunities for employees to upgrade their skills and focus on other creative aspects. With the emergence
of other disruptive business models like apps or
sharing economies highly likely in a post-AI era,
we see increased scope for jobs that require a
high level of personalization, creativity or craftsmanship – tasks that will still need a person. Overall, we think the fears of an employment crisis in
Asia are unfounded, since AI will eventually drive
innovation and provide employment opportunities
in other areas in the region.
iStock
of the sharing economy in countries like China is a
positive development. The sharing economy, or
collaborative consumption, where technology is
used to share resources, such as ride-sharing,
space-sharing and knowledge-sharing, is growing
by leaps and bounds in markets like China; the industry’s revenues in China are already in the hundreds of billions of US dollars, creating tens of
thousands of new jobs. AI will be the key driver of
the sharing economy in the future, helping to deliver relevant results free from human interference,
prevent data misuse, anticipate customer demand,
and generate new jobs. Hence, we believe the net
job losses from AI will be significantly lower than
the headline figure, because we believe AI will
also help to create new types of jobs in other industries.
Shifting Asia: Artificial intelligence April 2017 23
What does AI
mean for Asian
stakeholders?
Artificial intelligence would be the ultimate
version of Google. The ultimate search engine
that would understand everything on the Web.
– Larry page, Alphabet (formerly Google)
The next 10–15 years will be the most exciting period in the field of AI as we enter the AGI stage
and the use cases for AI expand at an
exponential pace. Unlike the previous industrial
revolutions, Asia will likely be a key stakeholder
this time around as AI becomes ubiquitous across
the region. The implications for investors, society,
corporates and governments will therefore be significant, in our view. Investors should avoid companies exposed to significant disruption from AI
and embrace companies with a strong technology
focus in areas such as robotic process automation
(RPA) and machine and deep learning and R&D-intensive companies in sectors that can become
more efficient from AI (e.g. healthcare, hi-tech engineering and select services firms).
While the ethical implications of AI still need to be
worked out, if AI is implemented in an objective
way to improve productivity, society stands to
benefit immensely from the significant improvements to overall lifestyles and healthcare.
It is still not too late for Asian corporates to hop
on the AI bandwagon, as it is an irreversible trend
that could potentially disrupt business models
across markets. Asian corporates, particularly
those in old economy sectors, should have an
open mind and try to embrace AI rather than fight
against it; we believe the benefits outweigh the
risks. Failure to adapt to the AI-era may make
some of these business models extinct. Finally,
policymakers in Asia need to find a balance to ad-
24 April 2017 Shifting Asia: Artificial intelligence
dress AI’s benefits and risks to employment. Opposing AI’s implementation in the region because
of concerns over job losses alone would backfire,
as we believe it would ­severely hurt competitiveness and innovation. However, policymakers have
a role to regulate and equally facilitate AI’s development and adoption. To address AI’s ethical dilemmas, policymakers can be proactive over the
next few years to introduce a code of conduct.
And to address employment concerns, Asian governments can help increase the skill levels of its
citizens and also encourage AI-based innovation
through partnerships with universities and startups. We believe regional ­cooperation on these efforts could be more fruitful by not only developing
common standards but also building a potential
alternative to Silicon Valley.
Hence, from a society point of view, we should
start to focus more on occupations that require a
high level of personalization, creativity and craftsmanship, as these jobs will be less affected by AI.
Regulators also need to step up their efforts by
seeking cooperation regionally and also by striking a balance between promoting the adoption
of AI and managing the downside risks that could
arise from the ethical dilemmas of AI or from other societal aspects like job losses or changes. With
these recommendations, we believe the transition
towards an AI-based society would be smoother
and a highly productive one.
What does AI mean for Asian stakeholders?
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