The Industrial IoT arms race
Escalating trade tensions and economies hit hard by the COVID-19 pandemic are driving considerations around working practices and supply chains, leading companies to assess how they operate in this “new normal”. As industrial companies fight to remain competitive in a changing environment, a key question must be considered. Who’s leading the Industrial IoT race?
It’s a question I’ve asked and been asked for the last four years, and feedback has been nothing if not varied. Especially when it comes to understanding the countries that are driving the modernization of manufacturing. It’s also a critical question in understanding how the industrial landscape will evolve as countries look at their global competitiveness. That certainly becomes a greater factor in current times, as a combination of trade tensions and evolving supply chains come to the fore. Whilst historically labour costs have been a major influencer, today the pendulum is swinging ever further to technological maturity.
The current state of play – China then everyone else!
As measured by industrial CapEx, which globally stood at USD 4.1 trillion in 2019, China dominates and accounts for over 45% of the total. It’s followed by the US (15.8%), Japan (4.9%), India (2.6%) and Germany 2.5% (although the EU as a whole makes up ~12%).
Its emergence as a global manufacturing superpower coincided with the third industrial revolution. Even in the last 15 years its position as a leading player has grown significantly. With its share of production of machinery growing from around a tenth to a third globally.
Why IIoT is a differentiator
Although many companies are still in the exploratory stage, Omdia expects the short-term C-19 pandemic headwinds and CapEx cuts will be more than surpassed in the medium-term. As we emerge from the pandemic, companies that have “kicked the can down the road” on digital transformation projects are re-prioritizing, especially in considering remote monitoring and operations, supply chain and worker safety.
These investments will all influence the inevitable market shake-up under the “new normal”. According to Omdia’s IIoT project database, IIoT deployments have already helped companies realise benefits impacting their bottom line. Companies introducing IIoT solutions have realised some of the following average performance improvements:
- 22% improvement in OEE (Overall Equipment Effectiveness)
- 19% reduction in unplanned downtime
- 14% improvement in labor efficiency
Readiness > willingness
Intentions count for very little! Many companies may wish to realise the benefits of AI, Edge and cloud computing, and 5G. However, these are empty aspirations if the underlying components necessary for a successful project are not in place.
Omdia has benchmarked companies’ readiness to introduce IIoT based on the criteria below, and analysed which countries were leading and lagging.
Networking and infrastructure – logically designed networks connecting the enterprise and factory floor
Data handling – processes for the collection, storage and analysis of manufacturing data
Skillsets and collaboration – investment in training to upskill workforce and support collaboration across functional teams.
Software – software solutions being used and integrated to ensure seamless operation
Cybersecurity – technologies, people, procedures and policies in place to ensure that its plants and equipment are cybersecure
Governance – adjustments to handle new business models and the impact of IIoT on a companies’ operation
The winners will be IIoT ready – and China has a lead
According to Omdia’s analysis, Chinese companies were found to be most prepared for the introduction of IIoT solutions, compared to their American and German counterparts. In contrast the US lagged, particularly in the areas of cybersecurity and data handling processes.
China’s manufacturing sector is set to recover from the COVID-19 pandemic most quickly. Higher levels of greenfield investment, combined with aggressive government investments and policies through “Made in China 2025”, and the new China Standards 2035 plan, will continue to drive industrial investment in technologies such as 5G, AI and IoT.
However, China does face challenges both externally and internally. Trade tensions and concerns of dependency on China has resulted in a number of foreign governments such as Japan and the US encouraging diversification of supply chains. Alongside this, one of the key advantages of Chinese manufacturing has been reduced, with average manufacturing labour rates increasing by 155% over the last decade.
Whilst technology investment will mitigate some of the impact of rising labour costs, trade tensions pose a significant threat to China – and are arguably the primary threat to China’s continued ascension in manufacturing dominance. One example of this is in the semiconductor sector where the US has restricted China access to US technology.
This issue has become a strategic focus for the Chinese government, which is targeting semiconductor self-sufficiency, an area both critical to AI supremacy and also an area China is believed to lag the US by at least 3 years.
China’s manufacturing sector is well placed to maintain, and even increase, its dominance in manufacturing. However, depending on the vigour with which companies consider the repositioning of global supply chains, the post-pandemic market will provide new opportunities for “western” manufacturing. Those companies that can digitally transform their business, through technology and training that will be those that benefit in the “new normal”!