robotic arm modern industrial tech
Robotic arm working on a production line. (Image: cookelma via Envato)

What is the Fourth Industrial Revolution?

Advanced digital production technologies are changing manufacturing and carry implications for the future of industrial development.

By Alejandro Lavopa and Michele Delera

The Fourth Industrial Revolution (4IR) is a term coined in 2016 by Klaus Schwab, Founder and Executive Chairman of the World Economic Forum (WEF). It is characterized by the convergence and complementarity of emerging technology domains, including nanotechnology, biotechnology, new materials and advanced digital production (ADP) technologies. The latter includes 3D printing, human-machine interfaces (HMIs) and artificial intelligence, and is already transforming the global industrial landscape.1 Incorporating ADP technologies into industrial production processes has given rise to the concept of Industry 4.0, also known as the Smart Factory – one that learns as it works, continuously adapting and optimizing its own processes accordingly.

Schematic overview of 4IR technologies in manufacturing
Source: UNIDO Industrial Development Report 2020.

The Fourth Industrial Revolution is more than a technological leap forward

The First Industrial Revolution was triggered by the invention of the steam engine in the 18th century, the Second in the 19th century was powered by widespread electrification, and the Third, in the 1960s, was chiefly the product of advances in computing. Although 4IR is also the product of technological advances, it is uniquely marked by a blurring of the boundaries between the biological, the physical and the digital realms. Machines ‘speak’ to each other through the internet of things, processes respond to intelligence devised by algorithms, and humans engage in real-time ‘conversations’ with mechanical processes through bidirectional interfaces.

What truly sets Industry 4.0 technologies apart is the novel way in which hardware, software and connectivity are being reconfigured and integrated to achieve ever-more ambitious goals, the collection and analysis of vast amounts of data, the seamless interaction between smart machines, and the blurring of the physical and virtual dimensions of production. For example, sensors might detect specific actions or process durations, or ambient conditions such as temperature, allowing for independent self-correction according to insights from ‘big data’ and artificial intelligence (AI). These data points might also feed through the system in real time to adjust and optimize downstream stages of the manufacturing process, minimizing downtime and freeing up resources.

The geographic spread of ADP technologies remains limited

4IR is not yet global in reach – indeed, UNIDO research suggests that just four frontrunner economies account for more than three-quarters (77 per cent) of ADP-related patents worldwide.2 Trade in capital goods related to ADP technologies, such as robots and 3D printers, show a similarly confined distribution. There is clearly a virtuous circle at play: the more technology- and digitally-intensive industries (such as computers and electronics) exist in an economy, the faster the diffusion of ADP technologies and the greater the build-up of experience and expertise, which in turn accelerates the process of further digitalization.3

Share in global ADP-related patents

Note: The shares are based on the cumulative number of global patent families in the last 20 years. Global patents are defined as those simultaneously applied for in at least two of the following patent offices: the European Patent Office, the United States Patent and Trademark Office, the Japan Patent Office and/or the China National Intellectual Property Administration Office.

Source: UNIDO Industrial Development Report 2020.

The converse of this self-reinforcing pattern is supported by a firm-level survey of selected developing countries reported in UNIDO’s Industrial Development Report 2020. In Argentina and Brazil, for example, only 3 per cent and 4 per cent of firms, respectively, employed any advanced digital technology, while in Ghana, Thailand and Viet Nam, non-digital mechanization accounts for the vast majority of manufacturing processes.4 These economies are more likely to be characterized by less digitally-intensive industries, such as basic metals, food production and textiles.

Adoption of production technologies

Note: Analogue/simple mechanization (or rigid production) refers to manual production and/or basic electronic stand-alone machinery with no or only specific use of basic digital technologies (e.g. internet for emails). Automation (or lean production) refers to automated production with the use of some isolated digital technologies (e.g. design software for product development and manufacturing). Computerized manufacturing (or integrated production) refers to the use of computerized process execution systems and internet based support for client and supplier relationships. Smart production entail the use of interconnected and internet-based digital production technologies associated with the 4IR.

Source: UNIDO Industrial Development Report 2020.

Nevertheless, the globalized nature of value chains means that most parts of the world will be impacted by 4IR sooner or later, directly or indirectly, positively or negatively. Some observers fear that it presages widespread unemployment as humans are replaced by technology. The more optimistic forecaster sees an opportunity for developing countries to leapfrog some intermediate stages of industrialization. Either way, much (virtual) ink has been spilled advising industries and economies on how best to prepare themselves. But the ability to benefit from 4IR will be contingent on the availability (and affordability) of ADP technologies, together with the right level and combination of skills and industrial capabilities. Unless developing economies are able to fulfil these two requisite conditions simultaneously, the accelerating frontrunner economies are likely to leave them behind.

4IR has implications across a number of economic, social and environmental domains

The implications of 4IR are nuanced and difficult to disentangle. For example, automation is often seen as an opportunity to reduce the gender gap in employment, however, studies suggest that this is dependent on disrupting the long-established gender divide in terms of, inter alia, STEM education, digital access and family responsibilities.5 There is also the potential for ADP technologies to support environmental sustainability through the more efficient use of energy and materials, thereby emitting less carbon and reducing particulate pollution.6 But the extent of this potential is a matter for discussion, and the realization of this promise is yet to be proven.

The impact of 4IR on global value chains (GVCs) is another interesting route of inquiry. On the one hand, the 4IR’s innovations can improve trade logistics and lower transaction costs, making it cheaper and easier to ‘offshore’ certain aspects of production.7 Conversely, ADP technologies enable increased productivity and capacity utilization at home, undermining the advantages of large-scale production formerly associated with fragmented GVCs. This is already leading to a small but increasing shift towards the ‘backshoring’ of production tasks.8

4IR represents a technological paradigm shift with uncertain consequences in many spheres of life. The opportunities for greater productivity, sustainability, social inclusion and prosperity are compelling, but are contingent on an enabling industrial ecosystem and a supportive policy regime.

  • Alejandro Lavopa is Research and Industrial Policy Officer at the Department of Policy Research and Statistics (PRS) of UNIDO.
  • Michele Delera is a PhD fellow at the United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (UNU-MERIT).

Disclaimer: The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

References

  1. For an explanation of the most prominent ADP technologies, see the glossary of the Industrial Development Report 2020.
  2. UNIDO. (2020) Industrial Development Report 2020, Brief No. 5: The diffusion of advanced digital production (ADP) technologies: a heterogeneous landscape. Vienna: UNIDO.
  3. UNIDO. (2020) Industrial Development Report 2020, Brief No. 6: Industrial structure and the diffusion of ADP technologies. Vienna: UNIDO.
  4. UNIDO. (2020) Industrial Development Report 2020, Brief No. 5: The diffusion of advanced digital production (ADP) technologies: a heterogeneous landscape. Vienna: UNIDO.
  5. Madgavkar, Anu; Krishnan, Mekala and Ellingrund, Kweilin. (2019) Will Automation Improve Work for Women – or Make It Worse? Harvard Business Review. 3 July 2020.
  6. UNIDO. (2020) Industrial Development Report 2020, Brief No. 7: The contribution of ADP technologies to environmental sustainability. Vienna: UNIDO.
  7. Rentzhog, Magnus. (2019) The Fourth Industrial Revolution: Changing Trade as We Know It. Washington International Trade Association. 18 October 2019.
  8. Dachs, Bernhard and Seric, Adnan. (2019) Industry 4.0 and the changing topography of global value chains. Inclusive and Sustainable Industrial Development Working Paper Series 10/2019. Vienna: UNIDO.

Read next