Published on 24 September 2020
Writer: Aznita Ahmad Pharmy, Research Fellow, CARI
Editors: Jukhee Hong, Executive Director, CARI and Eleen Ooi Yi Ling, Research Manager, CARI

CARI Viewpoint: Companies in ASEAN need to have a cultural shift to successfully embrace IR4.0

CIMB ASEAN Research Institute (CARI) organised “CARI Briefings: COVID-19 Economic Recovery Plan Series titled “How Can ASEAN Bounce Back: Industry 4.0 and the Forces of Change in ASEAN ~ Swedish Industry Voices in Response to the COVID-19 Pandemic” on 15 September 2020 featuring voices from the Swedish organisation and firms in the region including Kacper Pierzynowski, co-author of “Southeast Asia’s Big Shift – Industry 4.0 and the Forces of Change in the ASEAN Bloc” report and Daniel Häggmark, Managing Director of Monitor ERP. The session was moderated by Tan Sri Dr. Munir Majid, Chairman of CARI, and the discussion centred on Swedish companies’ experience in utilising Industry 4.0 (IR4.0) during the COVID-19 pandemic and how ASEAN can adopt IR4.0 in a post-pandemic world.

During the briefing, among the key insights shared were:

1) COVID-19 accelerated the shift towards IR4.0

In the early days of the pandemic, the lockdowns and border restrictions had companies looking at supply chain resilience. According to Kacper, Swedish companies in the ASEAN region discussed main strategies to either simplify the supply chains or work towards the setting up of a back-up capacity to gain a higher degree of control over the supply chains to enable a quicker return to normal levels post-disruption.

During his presentation, Kacper remarked that while many people viewed the COVID-19 as a black swan that would force businesses to utilise IR4.0 technologies, he did not share that view. He opines that COVID-19 is basically further accelerating the move towards IR4.0 which is driven by existing underlying factors such as increasing cost levels in China, rising protectionism, trade tensions and shifting demands.

According to Business Sweden report, “Southeast Asia’s Big Shift – Industry 4.0 and the Forces of Change in the ASEAN Bloc,” four out of five of the 300 manufacturers surveyed in six ASEAN countries have already budgeted investments for IR4.0 in the coming three years. The trending technologies that manufacturers are investing in are smart machines and robots, smart energy systems, big data, virtual modelling, e-learning, additive manufacturing, and augmented reality.

In view of the COVID-19 situation at the moment, Kacper observed that companies are emphasising on solutions that would allow them to work remotely such as cloud and e-commerce. He said local manufactures should also be more open towards collaborating with technology providers.

2) To move towards IR4.0, companies need to assess their capacity and start small

Kacper said the pandemic proved to be a stress test for companies’ technological maturity. “How quickly do companies react to the disruption and how quickly can they respond?” he ventured.

For companies wanting to adopt IR4.0 technologies, Kacper said they would need to consider the following:

• Evaluate capabilities – the company should look into its capacity and capabilities in order to react to the correct changes to the supply chain. The company should also look at how dependent it is on its suppliers and network and whether it should look into integration or redundancy.
• Capacity for resilience – what is the company’s capacity to build resilience and manage disruption? Do they have the right tools to perform scenario analysis?
• Availability of the right tools – does the company have the right tools in place to capture opportunities in a changing environment? It should look at its responsiveness level and how it can leverage digital tools to expand service offerings.

Moving towards IR4.0 in a time of economic slowdown caused by COVID-19 would no doubt prove challenging for small and medium enterprises. Kacper said companies wanting to make the transition “do not need to jump in the deep water at once.”

“You can gradually develop, starting small, within the areas that are critical for you to cover at the first move. Nowadays, technology providers are thinking in those dimensions, providing something that is easily swallowed at the first start,” he said.

In his sharing session, Daniel concurred and said that for SMEs, the adoption of IR4.0 can be done in small, simple ways from the beginning. His company, Monitor ERP, supplies ERP systems for manufacturing companies and thus has a good understanding of manufacturing SMEs in the region. Daniel said that for companies to start small, they can start with simple things that can help them to always deliver their products on time.

One of the issues he has observed is that many SMEs want to go from “zero to hero overnight.” The important thing is for companies to implement solutions that help the organisation grow and stay competitive, he said.

3) Product-as-a-service concept under IR4.0 could potentially open up new opportunities

One of the impacts from the adoption of next generation technologies is how it could propagate value added services in the manufacturing industry, Kacper said.

“Product-as-a-service business model allows customers to purchase the desired result rather than the product that delivers the result,” he said. According to him, data from Sweden shows services currently making up 50% of employment in the manufacturing sector, a significant increase from 39% in 2008. Revenue from services in the manufacturing sector in Sweden has also grown to the range of 25%-30% in the past years from 10% during the late 1990s.

“It’s becoming increasingly profitable to think around more value add services that we are offering together with the product. Digital platforms and sensors coupled together with the monitoring analytical tools and technologies such as artificial intelligence allow the manufacturing industry to offer increasingly high value services,” he commented.

Companies such as ABB, Volvo and Atlas Copco are typical examples of Swedish companies that have equipped their machines with sensors to transmit data on how their products are being used, and these data that can be then be used for internally driven prevention maintenance and decision fleet management, he added.

According to Kacper, digital twinning also has enormous potential for the high-tech industry. Connectivity with sensors enables companies to identify the essential parts of a product, digitally react and accept images. Digital twinning allows products to remain “evergreen” as the products can be continuously updated or refined online.

Selling a product as a service is more complicated than just selling the product but it can lead to higher profit, commented Kacper. Companies that move towards the product-as-a-service concept, i.e., servitisation stand to benefit from it.

4) Businesses need to be inclusive and design a flatter organisational structure to gain employee buy-in to embrace IR4.0

The awareness among businesses of IR4.0 and its acceleration is being driven mainly by the younger generation of managers.

“There is a clear shift, on one hand, you might say that the shift is being driven by the fact that the younger generation is stepping into managerial positions and have certain influence and impact on the decision-making process,” said Kacper.

Daniel remarked that procuring technology is one thing but how to implement it is another matter. “I’m not so worried about the technical part, but more on the softer part, like how do you drive change in an organisation?”

Organisations would need to think about how to get their people’s buy-in and how to get everyone to work together. From this standpoint, he believes that the Swedish business culture offers some guidance.

“Swedish leadership is very consensus-based, we like to make group decisions or at least always involve everyone in decisions, and there is no hierarchy basically. It is a reflection of the culture of Swedish companies which always focuses on the future and change,” he said.

Daniel also brought up Hofstede’s cultural dimensions which indicates Sweden as one of the countries with the lowest power distance scores in the world. This is reflected in its comparatively flatter social and business organisational structure.

He noted that changing a company’s business culture is no simple task but there are many small areas in which the company can try to adopt. He has observed that many SMEs in Malaysia have a very top-down organisational structure where it would be difficult to bring about change and fewer opportunities for all employees to get their opinions heard.

When asked on crucial investment areas a company should make to adopt IR4.0, Daniel ranked people, software and hardware in terms of importance, while Kacper said the proper foundation would have to be in place first.

“I think if you don’t have the proper software in place where people can communicate efficiently and share information on the same route, it doesn’t really matter how much automation you put in. It doesn’t matter if your machine can run 30 seconds faster in a cycle if you don’t have enough raw material to run the production,” he said.

5) Beyond COVID-19, sustainability must be a core business value

The experience from the COVID-19 pandemic has emphasised the need for businesses to prepare for the challenges ahead.

“While physical infrastructure and education was key to Sweden’s development as an industrial nation in the first half of the century, digital literacy and infrastructure combined with making sustainability a core business value are the challenges of the 21st century,” said His Excellency Dag Juhlin-Dannfelt, Ambassador of Sweden in Malaysia during his special remarks

“To remain competitive and relevant as manufacturers and service providers, the challenges such as connectivity, sustainability and digitalisation must be managed,” he said.

According to him, European Union members have taken the initiative to bring economies back on track by focusing on sustainable growth, integrating the need for a green transition and to necessitate digital transformation. With ASEAN projected to become the 4th largest economy in the world by 2030, he said the substantial growth potential should transition to a more connected, digitalised and sustainable economy.

“As Malaysia and ASEAN prepare to relaunch their economies, the challenges of upgrading economic activities to the realities of the new normal, the fourth industrial revolution, and the need for business activities to be environmentally and socially sustainable will be key for success; it is of paramount importance,” he commented.

6) Conclusion

IR4.0 remains crucial to businesses despite COVID-19

Industry 4.0 is a necessary step forward for manufacturers in ASEAN, particularly since manufacturing is a major contributor to the region’s GDP. Whilst companies are busy responding to COVID-19, Tan Sri Munir said that it is also necessary to anticipate and to implement the particular technologies that would drive the fourth industrial revolution in Malaysia and in ASEAN. The COVID-19 pandemic has made it more challenging for companies to adopt IR4.0 but it can be done on a smaller scale and at a gradual pace, depending on the companies priorities.

The human element and business culture must not be forgotten when adopting IR4.0

Technology is a main component of IR4.0 but as has been discussed during the webinar, the human element is an equally important ingredient. Successful adoption of IR4.0 requires buy-in from everyone in the organisation that would allow them to understand and accept the changes, and be able to work together with the new technology. Business culture plays a prominent role whereby a less hierarchical organisational structure often found in Swedish companies would make it easier in obtaining employee buy-in.

Taking note that Malaysia has a more hierarchical, almost feudal system in place, Tan Sri Munir said though it may take a long time, Malaysians need to be less hierarchical in their way of thinking in order to move forward. “There’s a lot to be done on the education and personal level in Malaysia, which is always a great challenge,” he said.

Sustainability is a key component in the post-pandemic era

In preparing for future shocks, companies need to look ahead to stay prepared. As mentioned by H.E. Ambassador Dag, Swedish businesses have made sustainability a core business value. To stay relevant and competitive, businesses in ASEAN need to manage the challenges of connectivity, digitalisation and sustainability.

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