Industry 4.0, also known as the fourth industrial revolution, is rapidly developing and the consequences for laggards are dire: for ASEAN, the missed opportunity sums to more than $600 billion by 2025; for Australia, it is an economic, people, and political cost that could fulfill Lee Kuan Yew’s portentous words in 1980. To best capture the technological and economic opportunities, policy and diplomacy must depart from tradition and reflect the dynamism of the regions citizenry.
ASEAN Context: An appetite for change in a rojak environment
A number of markers indicate a strong appetite for change and the growing ability to adapt in ASEAN countries. McKinsey & Company’s survey of 200 ASEAN business leaders confirmed the recognition and transformative potential of Industry 4.0 in ASEAN countries. Of the respondents, 96% believed that business models would have to change as a result of Industry 4.0, and 90% agreed that improved performance would result. Furthermore, Steven Suhadi said that Indonesians over the past two years, and the process is ongoing, have quickly adapted to trusting the balance on their phones, from traditional cash-in-hand.
There are strong contrasts though. Digital transformation and security remain a hinderance for companies established prior to the millennium, the majority operating siloed systems less compatible with the integrated needs of Industry 4.0. Culturally, trust based relationships and economies are still present, Indonesia for example is known for having innumerate middle men from factory to warung for simple items like tooth paste. Additionally, only 13% of business leaders surveyed stated their businesses had commenced the necessary adaptions to the future of work.
The manufacturing environment in ASEAN is also characterised by strong contrasts. ASEAN labour costs are currently lower than in China, and despite China looking inward post-COVID, it doesn’t necessarily bode well as McKinsey states, ASEAN’s competitive advantage is significantly hampered by lower productivity. The large low-skilled workforce is also at a high risk of unemployment, with the International Labour Organization predicting 56% of those jobs will be lost to automation, however it is predicted ASEAN’s workforce growth will be some 11000 per day over the next 15 years.
Australian Context: From mining wealth to mining minds
Australia has taken a number of steps towards preparing for Industry 4.0, marked by a number of significant investments across science and technology at a national level, paving the way for Australian advanced technology exporters through government bodies such as Austrade, and a Prime Ministerial Industry 4.0 Taskforce.
Australia remains significantly behind in terms of skills, with 75% of employers finding a skill gap in Australian university graduates, and KPMG finding a “growing complacency around digitalisation” in Australia. The report found that whilst broadly familiar with cloud technologies, few Australian businesses have moved beyond so called “gateway” technologies, bearing an eerie similarity to the ASEAN business leaders surveyed by McKinsey.
Poised to be a dynamic duo
There are clear and significant cultural differences between Australia and ASEAN, but there could be complementarities in the mutual desire to prosper in Industry 4.0 despite poor uptake, and Industry 4.0 focussed relationships could provide the diversity both require to capitalise on opportunities. Ties and policy, however, must be as dynamic and agile as the people. This can be reflected in a number of nuanced approaches to policy that deviates considerably from traditional constructs, reflecting the dynamic people.
In recognising two major features of Industry 4.0: the changing nature of currency and money (e-wallet, block chain, cryptocurrency); and necessity for thinking regionally, it is vital for ASEAN and Australia to work in tandem as an “integrated and enabling ecosystem” to ensure businesses are capable of creating and retaining business opportunities notwithstanding the increasingly nuanced ways consumers across ASEAN countries and Australia are paying for goods and services.
Furthermore, though long term blueprints may provide a sense of direction, due to the “rapid, non-linear change”, frequent revision of strategy, or as the World Economic Forum suggests, “rolling three-year strategies”, are the preferred method to mitigate inaccuracies of traditional forecasting and modelling. WEF even suggests “experimental” policy.
Regional sandboxes have also proven to be a worthwhile experiment, with the European Union’s European Platform of National Initiatives cited in WEF’s recommendations to ASEAN. With the increasingly important regional defence ties coming into the equation, a nuance for ASEAN-Australia 4.0 could take the form of cross-border innovation hubs operating in a follow-the-sun styled initiative, albeit not truly following the sun per se.
The benefits for Australia and ASEAN in strengthening ties under the auspice of Industry 4.0 are potentially worth more than half a trillion dollars in trade. ASEAN is currently Australia’s second largest trading partner, with $93 billion in two-way trade or 15% of Australia’s total trade. Factoring in the expected increase to $627 billion in gains from ASEAN alone over the next five years, that’s a potential doubling of Australia’s current trade to the exclusion of other developments. Seizing this opportunity could healthily grow a streak of regional tiger cubs. To get the wooden spoon however means Australia could be exporting low quality, low value products to be improved on elsewhere, a less than desirable prospect for our scores of innovators.