The Fourth Industrial Revolution Is Going To Change Our World
The fourth industrial revolution follows the first three major periods of industrial innovation in human history, namely mechanization and steam power, assembly line manufacturing and thirdly automated production and sophisticated electronics. We are now right in the middle of the next industrial revolution, 4.0, which we believe is going to change everyone’s lives.
The fourth industrial revolution is defined by the Internet of Things, smart manufacturing, cyber-physical systems and the digital transformation of our day to day lives. The impact of the Internet has been massive since the 1990s and is leading to the convergence of some of the key technologies that comprise this new revolution: big data, artificial intelligence and robotics.
This revolution will transform the way human beings live and interact over the next century and lead to massive innovation in new technology like autonomous vehicles, nanotech, materials science and energy storage.
But what does this mean from an investment perspective?
Each of the previous three industrial revolutions have produced huge corporate revenues for those companies that have stood at the centre of that revolution, many of which are still with us today (e.g Ford Motor Company, IBM). From an investment perspective, it is important to identify those sectors that are likely to benefit the most from this technological innovation.
The impact of this revolution will be felt across all sectors, and in some there will be job losses, just as in others new jobs will be created. The software industry now employs millions of people around the globe, but it was a tiny sector only three decades ago.
Innovation is going to create new industry sectors that will grow rapidly. Using recent research from a combination of companies, including McKinsey & Co, PWC, Roland Berger and the Smart Manufacturing Leadership Coalition, we can estimate some of the specific business benefits:
Chart: Operating Efficiency Gains From Industry 4.0 – Predicted Ranges
Source: McKinsey & Company, PWC, Roland Berger and the Smart Manufacturing Leadership Coalition
Cloud computing involves the delivery of computer services via the Internet. Most of the everyday tasks we carry out over the Internet are being made possible by this technology – for example, email, online banking, file storage and social media. This market is seeing growth as it provides benefits to businesses and their customers like lower cost and ease of access.
Many people take the benefits of the cloud for granted already - it is just there, operating behind the scenes, backing up data and delivering functionality and desktops and tablets, but it is changing the way most big companies do business. The companies that have chosen to specialize in the delivery of the cloud are now responsible for much of the day to day data traffic across the globe. They sit at the nexus of the data revolution. The growth of this sector is being tracked by the HAN-GINS Cloud Technology UCITS, an ETF created specifically to tap into the theme of the growing importance of these organisations.
The Internet of Things
The Internet of Things – or IoT – is going to play a huge role in our daily lives in the future. It is connecting systems, sensors, devices and assets to the Internet. This can be everything from a mobile phone to a coffee maker or a washing machine. Components of larger machines are also being connected to the Internet, to allow for ease of monitoring, feeding data back of manufacturers for example.
For consumers, it will make life easier. For companies it means new opportunities. Rolls Royce, for example, has embedded IoT sensors across its product lines, generating vast amounts of live data that are aggregated and analyzed in the cloud. This data provides Rolls Royce with unprecedented insights into the live performance of its products, helping to predict equipment issues and maintenance requirements.
The concept of data analytics has been around for years. Most organisations understand that by capturing data that streams into their business, they can analyse and derive significant value from it. The new benefits that big data analytics bring are speed and efficiency, helping to identify insights for immediate decisions, cost reduction and the development of new products and services.
At General Electric the use of big data analytics has allowed the company to identify the trend of customers wanting to optimise inspection, maintenance and repair processes of their machines. This has spurred the decision to enable machines to communicate with one another and generate sensor data. For example, sensors collect signals on the health of blades on a gas turbine engine to show things such as stress cracks. Such technology will become widely accepted in years to come, but the innovation is happening now.
Full automation of manufacturing has been a goal pursued for some years now but companies in this sector are going to be major game changers over the next decade. According to Deloitte and the Manufacturing Institute, up to 2 million manufacturing jobs will be left unfilled over the next decade due to improperly trained talent or a lack of individuals interested in careers in the manufacturing space.
Technology like this will be used to address skill shortages in developed markets like the US. What is changing from the days when major Japanese auto conglomerates embraced high levels of robotics is that the technology is getting cheaper and therefore more widely adopted. Penetration rates for robots in the manufacturing sector are still low, no more than 74 per 10,000 workers in the manufacturing space, but that is destined to change.
Industry 4.0 as an investment theme
Industry 4.0 is a major trend that is changing the way we manufacture globally. It is akin in its importance to the transformations that the first industrial revolution delivered, but is different in that its benefits will be felt globally. Businesses are being granted unprecedented insights into their manufacturing processes, the machines they operate and the services they can provide.
Investing in a theme like this can be an onerous and difficult task. One route to accessing its growth potential is via ETFs, like the HAN-GINS Innovative Technologies UCITS - SKYY (domiciled in Ireland) which tracks the Solactive Innovative Technologies Index. It seeks to provide exposure to a diverse basket of companies from developed and emerging markets whose products and services are driving innovation, transforming lifestyles across the world.
Hector McNeil is Co-Founder and CEO of HANetf, the UK-based white label platform for fund managers interested in launching ETFs.
Past performance is not a reliable indicator of future performance. As with all investing, your capital is at risk.