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Industry 4.0: Can Multinational Firms Reshore Their Manufacturing Facilities?

We are in the middle of new industrial revolution. General Electric called it as Industrial Internet of Things (IIoT), Cisco named it Internet of Everything and German government termed it as Industry 4.0, but they all refer it to the same concept.

The 20th century was based on mechanization and the mass production of physical goods, but this new era is characterized by a fusion of tech­nologies. The combination of big data, cloud computing, and IIoT is enabling increasingly autonomous and intelligent machines that do a better job than humans in an expanding variety of tasks.

Any job that is routine is a candidate for automation, and even complex jobs can be broken down into routine sub-elements that can be managed by algorithms and robots. Many jobs are being transformed as robots replacing workers in assembly manage­ment or algorithms doing background fact-checking instead of journalists.

Industry 4.0 change not only ‘How’ things are produced but also ‘Where’ they are produced. During the last 25 years, world has witnessed two massive examples of the role of technology in changing the game. The first change in the game started in the 1990s which was facilitated by information and com­munication technologies (ICTs) and container shipping. Global value chains transformed global trade by moving from products ‘made in one country’ to those ‘made in the world’, and from ‘trade in goods’ to ‘trade in tasks’.

Technology today is bringing about a second change in the game. For example, Adidas is about to bring shoe pro­duction back to Germany. With new advances in robotics, the process of making a pair of trainers from start to finish takes roughly five hours, far less than the several weeks in Adidas’s Asian supply chain.

After decades of offshoring, particularly of manufacturing tasks, Industry 4.0 is turning the tide to reshoring be­cause multinational firms have advantages in their home coun­tries.

  • First, they can become more agile in responding to local markets. For example, Zara realized decades ago that fashion is fickle; by the time that goods planned and ordered a year ago arrive from Asia, the demand has changed. A growing number of customers want to have shoes, clothes, and cars made on demand.
  • Second, logistic and stor­age costs decline with the elimination of complex global supply chains.
  • Third, firms can operate in clusters that give access to a pool of people with the new talent required by Industry 4.0, while traditional service technicians, production planners, and professionals in assembly and inventory management are no longer needed.

As rich countries become more self-sufficient with robots and automation, many emerging countries are losing their main source of competitive advantage, especially cheap labor for manufacturing operations. Moreover, rich countries are also anticipating future benefits in the transition of global trade from traditional physi­cal goods to trade in ideas and intellectual property, by being better equipped with regulatory frameworks that promote and protect intangible ideas.

After two decades of increasing global equality, will we return to a situation where rich nations again become richer compared with the rest of the world? Can some developing countries leapfrog industrialization altogether with­out being dragged down by legacy industrial infrastructures that are no longer competitive? Can Industry 4.0 make multinational firms to reshore all kind of manufacturing facilities back to their parent countries?

Faisal Imran
Doctoral Researcher
Industrial Management
Faculty of Technology

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