The Internet of Things, automation, connected and wireless networks, artificial intelligence (AI), big data and cyber-physical systems that facilitate innovative human/machine interactions are all examples of technologies driving what is being called the fourth industrial revolution, or Industry 4.0. These technological innovations are transforming the nature of work across all industries, and FDI outcomes may also be impacted.
Increasingly, geography matters. Industry 4.0-driven disruption – positive and negative – will be localised. There will be winners and losers all over the world as companies, cities and countries grapple with how to adapt to this. Countries showing early leadership in AI and technological innovation – the US, Canada, the UK, Germany, China, South Korea and Israel, for example – are poised to capture a disproportionate share of economic benefit from Industry 4.0 as early adopters.
Laggard countries will likely play perpetual catch-up and earn a smaller share of the aggregate benefits from innovation. A similar dynamic applies to localities within countries, among industry sectors and among companies in any given industry.
The FDI implications of Industry 4.0 will also be numerous. With changes to the economy, we must revise our understanding and expectations of how technological innovations will affect FDI by geography, industry, asset and occupation.
Common measurements of FDI activity include: number of companies making investments; number of investment projects; capital investment per project; jobs created per project; and number of FDI recipient communities. For each measure, higher numbers are considered better outcomes for recipient locations, but technological changes may force these metrics in opposite or unexpected directions. Corporate consolidation through M&A may reduce the number of tech firms active in FDI. More localised supply chains combined with digitalisation may produce on average more, but smaller, projects.
The countervailing trend, however, is that substitution of capital for human workers may push capital investment per project up and job creation metrics down. And the current trend for large, talent-rich metropolises to capture a disproportionate share of FDI may persist or deepen, meaning fewer locations may capture a growing share of FDI. Innovation uptake will also increasingly blur the sectoral definitions of FDI as firms in all industries begin to self-describe as ‘technology firms’.
The overall point here is that besides the material challenges to emerge from Industry 4.0, there will be an ongoing and growing challenge to define, measure and track the changes locally, nationally and across FDI.
Gregg Wassmansdorf is senior managing director, consulting, at Newmark Knight Frank, a global real estate services firm. He is a member of the Site Selectors Guild. E-mail: firstname.lastname@example.org