Industry 4.0 – our name for the fourth Industrial Revolution – uses smart technology to enhance manufacturing processes, making them more efficient and more easily adaptable to customer needs. It promises the integration of automation, data, analytics and manufacturing to deliver new business and operating models. Computers and robotics will come together in an entirely new way in ‘smart factories’. Robots will be connected remotely to digital systems equipped with machine learning algorithms. These systems will analyse information coming from the shop floor and control the production line, making decisions with minimal input from human beings.
Future production lines will employ a fraction of the people currently needed, so the impetus for production to happen in low-wage locations may become less important. There may also be a greater need for software engineers who can monitor increasingly complex systems on-site and less need for manual labour.
For these reasons, Industry 4.0 could mean greater investment in production within Europe and the US. As a consequence, the production shift in the late 20th and early 21st centuries to low-wage economies, such as Mexico and Bangladesh, may be reversed. Inevitably, a revolution on this scale will likely shift economic distribution, both from country to country as well as from labour to capital. This could be the most material long-term consequence of Industry 4.0.
Walter Scott Global Equities team