India and the Fourth Industrial Revolution


India may have missed the bus with regard to the first three industrial revolutions, but she is in a unique position to grab the opportunity with what is touted as the fourth industrial revolution, says Raj Nair. She has no choice, as she just can’t afford to be left behind if she has to achieve the Make in India goal , he avers.

We finally have a Government which wants to boost manufacturing in India after decades of neglect, and successive governments being oblivious to this being a means to creating employment. As India becomes increasingly urban, people are moving away from the farm sector. However, without a strong manufacturing base, the scope for far reaching innovations would be limited. The share of manufacturing has dropped year after year from 17.6% of GDP in 2006, to 15 % by 2015.

Some argue that the fact that it is still in the 15% range four years after the current Government took over, and that it has not fallen further, could indicate that something good is coming out of the ‘Make in India’ policy. They argue that we are at the cusp, and that the graph will turn upwards. Whether this is true or not, does not really matter in the context of a huge change that is happening in the global manufacturing scenario. If India gets it right, we could even end up with the share of manufacturing crossing 20% of GDP by 2025, and if we mess up, the share could plummet below 10%. Hopefully it will creep up to 20% since the Government is seized of the big issues that need to be confronted, because the Fourth Industrial Revolution is upon us, and it is for us to seize the opportunity, and not lose it by lack of foresight and neglect.

Looking back to understand the way forward
India lost out during the First Industrial Revolution, when a combination of steam powered textile mills in the UK, and vicious colonial masters conspired to wipe out India’s world-famous but largely manual textile manufacturing sector. A lot of other traditional sectors also fell prey. Later in the early 20th century, India lost out in the Second Industrial Revolution when mass production in factories with assembly line production systems that used electric power, changed the manufacturing landscape. The Third Industrial Revolution followed in the second half of the 20th century with micro-electronics and computers helping automation to cut labour input, and increase productivity. Labour was not just a cost item which had to be reduced.

While it was an important factor of production, it was a source of much consternation in the capitalist world because it was on the factory floor that the battles between the two opposing socio-economic ideologies were fought. The mid-20th century and a little beyond, were the glory days of labour unions. As the world entered the 21st century, digital technologies, the Internet, and smart phones changed the world as we knew it. From consumer applications, this triumvirate moved swiftly into the manufacturing domain. Labour’s relevance was further reduced drastically with the arrival of industrial robots. India lost out again, in the Third Industrial Revolution, but managed to pick up some revenue from coding software and systems integration, but the industrial backbone of India’s manufacturing, the SME sector, still remains stuck in the Second Industrial Revolution, barring a few notable exceptions. In the meanwhile, with the coming of age of the multinationals, and with it the economic concept of global supply chains, manufacturing started shifting eastwards to low wage countries, slowly at first, and in a big way in the last two decades, as China’s grip became firm.

The China effect

Germany watched with concern, the shift in manufacturing away from the West to China, and other parts of Asia. They realised that they cannot reduce labour cost beyond a point by using automation, and even if they deployed robots. If German automobile companies could deploy robots in their factories, the Chinese could do that too. So, what next? It was clear that manufacturing was beset with some constraints, which everyone accepted meekly in the past. In the supply chain from procurement to manufacturing to delivery, there were so many silos and broken processes that led to inefficiencies and high cost. Cost of avoidable inventory, cost of delays, cost of sub optimal machine utilisation, etc. Human systems have, per force, accepted these limitations. If these costs could be eliminated, the factories in the West could even beat manufacturers in low cost countries. But for that, the factories would have to be smart. Smart enough to rise above human capabilities.

What is Industry 4.0?

In what started as a German initiative, Bosch and SAP came together and announced at the Hanover Trade Fair in 2011, what they called Industry 4.0, to make German manufacturing competitive in a world, in which manufacturing was slowly but steadily moving from the West to the East. Several countries like the US, Japan and the UK to mention a few, have joined the bandwagon to build their own version of essentially the same thing. Imagine a layer of digital technologies sitting on top of a layer of conventional manufacturing systems comprised of machinery, systems, raw materials and manpower, whereby the physical layer is optimally controlled by the cyber layer – machines could behave like autonomous cars, to decide when and what to produce, and in what quantity, as per the demand signals from the market. Would that not be very smart? That is the Fourth Industrial Revolution, the age of Smart Factories.
You can let your imagination run wild about how smart the factory could be. Imagine you have a factory shed with 20 machines. For some reason four machines are going to be idle next week. What if your factory could on its own (without human intervention) contact some website on which another factory has posted that it needs production capacity of exactly, the same type for a day, and agrees to fulfil that unmet demand at a preset price, all without you even knowing, how smart would that be? It is possible today.

Imagine you are in a rush to fulfil a big order and a critical machine breaks down. All hell breaks loose. If only you had inspected the machine during the last holiday and replaced the faulty part, you would not have had a break down. But how would you know unless you had opened-up, that machine during the previous holiday? Check every machine every week? Not possible. Do periodic preventive maintenance? That would be better than breakdown maintenance, but still not optimal in terms of cost because you will be replacing parts before their life is almost over. In a smart world, the machine would have told you, that such and such a part would break within 96 hours on its own while it is running. You could replace just that part at the right time. Smart, right? Possible? It is already happening in India, but these examples are few and far between.

Industry 4.0 is the new buzzword for creating such factories. The combination of the physical world of manufacturing with the cyber world of interconnected digital technologies which enable the deployment of data to optimise the supply chain within the factory and the external environment of vendors and customers, predict outcomes that can impact output, input and demand pull, autonomous actions being taken by machines in situations that used to require humans involvement, etc. Smart Factories, as they are called, have big advantages over conventional factories in terms of cost competitiveness, flexibility to serve individual customer needs better, lower cycle time, better utilisation of capacity by accessing markets effectively, and by lowering down time through predictive maintenance.
Across the developed world, there has been a rush during the past two years to make their factories smart. MNCs with factories in India, like Siemens, Hyundai, etc., have started the trend in India. Some Indian companies too, like Mahindra and Mahindra, Tata Motors, and a few others. More of it will happen in the next few years. They have success stories to talk about better quality, higher production, greater flexibility, etc., and now the ability to meet stringent export standards. By adopting Industry 4.0, Indian manufacturers can be serious contenders for becoming the global production hub for many products. Conversely, if Indian manufacturers ignore this galloping trend, India will witness the shift in manufacturing to the West or to other low wage countries which adopt the systems required in the Fourth Industrial Revolution, because India’s low labour wage advantage will be more than offset by the benefits that manufacturing in the US, UK, Germany, etc., and even China will provide. In some sense, Industry 4.0 is not an option; it is going to be a basic necessity.

Whither Indian SMEs

SMEs or Small and Medium Enterprises, are the engines for growth and employment in India. The Government is acutely aware that this sector cannot be allowed to be killed by the Fourth Industrial Revolution. Hence, the Government of India is launching many new novel and effective initiatives, just like the German Government played a role in facilitating Bosch, SAP, Siemens, etc., to pioneer the Cyber-Physical Integration of Manufacturing to drive efficiency, innovation and competitiveness of German manufacturing. Four centres are being contemplated in India by the Ministry of Heavy industries and Public Enterprises, which is facilitating the establishment of India’s first Smart Factory in Bengaluru. It will feature networked data flow, analytics, the Internet of Things (IoT), robotics, AI (Artificial Intelligence), Augmented Reality, etc.

If the goals of Make in India have to be fulfilled it is important that the large Indian manufacturing sector adopts Industry 4.0 and also helps SMEs who are their vendors to adopt the same, because they need to be connected with the plants of vendors as much as they need to be internally connected and connected with their customers.

It would do a lot of good for the Indian SMEs to learn best practices from the German Mittelstand (German SMEs which aim to be world beaters in whatever little they do), which is going through this change. Mittelstand companies think long term (not quarterly), and invest accordingly. Indian SMEs need to evolve a model that suits India by combining those lessons with relevant aspects of Industry 4.0. They don’t have to start with a fully integrated smart factory, but at least start using the concepts in critical areas using standard software, analytics, and AI. Start with a low cost but effective ERP (Enterprise Resource Planning), use open source CRM (Customer Relationship Management), and then sensibly integrate relevant digital technologies to convert existing factories into smart factories. If anyone wants proof that it can work in India, he should visit the diamond cutting industry. What used to be a sea of sweatshops where workers worked in sub-human conditions, is today a shining example of Industry 4.0. Their factories look like 5-star hotels, their deployment of technologies ranging from B2B ecommerce and CRM, to processes using Augmented Intelligence, where cyber systems and human judgment work in sync, to make those companies world beaters. There are reportedly 65 such companies in Surat, each with a revenue in excess of US $ 1 billion. All of them were small and rather basic, a few decades ago. They understood what their customers needed and what their competitors in other countries were doing. Today, the Cyber Physical Systems they use will fill an observer with pride. Hence the question is not whether the Government’s Make in India policy is successful, but how can the captains of industry, industry associations and the Government take this as a mission to accomplish.

Raj Nair

Raj Nair is the President of IMC Chamber of Commerce and Industry. He is also the Chairman of four professional services companies including  Avalon Consulting, with 17 offices in India and abroad, employing over 2,200 professionals. These companies are known for innovation, quality and creative use of technology. He is a strategy consultant who has worked across sectors for clients in India, South East Asia, Middle East, USA and the UK to develop ways to win in competitive markets, transforming organisations to cope with changes happening in the business environment. Digital Transformation is his passion.