Letter IEDI n. 895–The 4.0 challenge for Brazilian industry
In the context of the III National Meeting of Industrial Economy and Innovation, the "IEDI Session: The Future of Industry" was held on September 18, 2018; in this Letter the discussion that took place there is summarized. Organized by the Economics Institute of UFU (Federal University of Uberlandia), the event hosted as speakers professors David Kupfer (UFRJ) and Roberto Vermulm (USP). The complete material is available on the IEDI website (in Portuguese).
The debate was shaped by the increasingly consistent progress of Industry 4.0 in the world, largely thanks to the major industrial powers' adoption of strategies that deliberately seek to accelerate the development of enabling technologies and to strengthen their industrial fabric —as shown in the series of studies published by the IEDI and summarized in Letter no. 860, July 5, 2018.
This technological revolution finds Brazilian industry in a moment of extreme fragility, after three years (2014-2016) of acute crisis, whose negative effects on the pace of production are hardly being overcome by the weak recovery in course since 2017.
Moreover, industrial fragilities are not limited to a circumstantial dimension. Roberto Vermulm reminds us that manufacturing has been losing its share in the country's productive structure since the 1980s, in a process that is nothing like the one experienced by developed countries. Here, it results from the disruption of productive chains, compromising their technological skills and their capacity to innovate. This is accompanied by barriers to productivity increases in the sector, either by the disincentive that the macroeconomic environment impels to investment, or by the diminishing importance of branches more intensive in technology.
The current state of our industrial park in relation to 4.0 technologies is, thus, not surprising. David Kupfer takes up the findings of the Industry 2027 project's field work, according to which about 80% of the companies surveyed still operate in the era of rigid production or, at best, in the era of lean production —a principle that has spread throughout the world in the 1980s. Even more serious, while recognizing that the future will be digital, 40% of companies are doing nothing to make up for lost time.
The necessary jump toward Industry 4.0 is, therefore, quite large. Especially when the average age of machines and equipment in our industrial park is no less than 17 years, as Vermulm recalls. Modernity, when it arrives, will find old productive structures. This is why it is important to strengthen the foundations from which 4.0 technologies will spread. There is a delay that we must overcome as soon as possible.
This means that the challenges are stark, but they are not insurmountable. Kupfer points out that Industry 4.0 poses challenges not only to Brazil, but to all countries. In China, most companies are also in the era of lean production. In Germany, the country that coined the term “Industry 4.0”, the rate of adoption of these new technologies is around 10%, much higher than the 1.6% level of Brazil, but much lower than imagined.
Our difference from these countries, as well as from others like the US, South Korea, Japan, the United Kingdom, etc., is that they have well-structured national strategies regarded as a priority within their governments' agendas. This is something we lack, as Vermulm stresses. Given this situation, would there still be time to position ourselves satisfactorily in Industry 4.0? For both speakers the answer is affirmative, as long as we begin to act fast.
This is because the underlying technological innovations will be disruptive in the future, but not immediately. In the short term, they will reach the disruptive point in only a few industrial segments. In addition, the incorporation of these technologies can be done gradually, in response to concrete problems faced by companies. That means there is time to plan.
However, since the emergence of a new industrial organization is at stake, it must be accompanied by new institutional articulations, both between agencies and the government, as well as workers' and companies' representatives, in society itself. Only then will there be capacity to formulate programs that transform the entire industrial structure. This, for Kupfer, is probably the biggest challenge Brazil would have to face.
Vermulm, in turn, proposes a strategy of organized action around the following axes:
• Dissemination of technologies already mastered, with a focus on small enterprises, to reduce the technological heterogeneity of the Brazilian industrial fabric, which restricts the increases in productivity and competitiveness required to join global production chains. The solutions would include scaling up programs such as Brazil More Productive and S System actions, given its capillarity.
• Expansion of investments in modernization and renewal of capital goods, in order to make the productive structure more receptive to 4.0 technologies. In this case, it is fundamental to find a funding structure with costs compatible with the margins of industrial businesses. The replacement of the interest rate TJLP by the TLP in BNDES funding operations was a setback in this regard.
• Diffusion of 4.0 technologies, which requires improving companies' access to information about the new production standard, as well as structuring consulting and integrator activities to assist them in project design and implementation. The expected gains from the adoption of these technologies are large enough to finance the projects, not requiring subsidies, but long-term credit is needed.
• Expansion of innovative entrepreneurial efforts in cross-cutting technologies with a high impact on business’ competitiveness. This calls for a national plan for Industry 4.0, the creation and improvement of institutional structures that encourage companies to cooperate in R&D projects, and the easing of startups' access to credit, to venture capital and to mentoring with eyes on promoting the marketing of their products.