The concept of the Fourth Industrial Revolution was first introduced at the World Economic Forum (WEF) annual meeting, held in Davos, Switzerland from January 20 to 23 this year. The WEF meeting, where internationally prominent figures in the fields of economics and politics gather to seek solutions to key economic global challenges, has been held since 1971. In this year’s WEF meeting, the main agenda was “Mastering the Fourth Industrial Revolution.” This indicates that the Fourth Industrial Revolution is now a topic that deserves worldwide attention. In fact, it can already be experienced in countries like Germany.

 

 

Historically, the world has undergone three industrial revolutions, and is now ready to welcome the fourth. Each industrial revolution was an extension of the previous one, allowing it to become more powerful and influential. So, how does the Fourth Industrial Revolution differ from the past revolutions?

 

The First Industrial Revolution, which began in the late 18th century in Britain, utilized the power of mechanical innovations like cotton spinning, the steam engine, and railroads. As machines replaced hand-powered tools, the same amount of work could be done at a much faster rate, and the development of locomotives allowed manufactured goods to be sold on a global scale. The Second Industrial Revolution took this a step further and introduced mass production through electrification. Henry Ford’s invention of the moving assembly line increased the efficiency of the production process by utilizing the standardization of parts and the division of labor.

 

Electronics and information technology (IT), which advanced automated production, marked the dawn of the Third Industrial Revolution. Through the development of Enterprise Resource Planning (ERP), an integrated real-time system that offers manufacturers the information required to allow for effective production management, manufacturers were able to monitor their sales in real time and plan ahead. For example, if Hyundai predicts that customers will buy more of its white Hyundai Avante model based on ERP, they could program its machines to produce more Avantes even before additional orders have been received from car retailers.

 

Today, more and more customers demand personalized products. Moreover, because customers’ tastes change quickly, customized products need to be delivered very rapidly before customers change their minds again. The Fourth Industrial Revolution is a response to these new market conditions. When planners hand over a precise three-dimensional (3D) digital sketch of how the product needs to be designed, machines visually sense this and automatically decide which part they are responsible for. When the previous machine adds a component to a product, the next machine senses the change and responds by referring to the sketch to figure out what it needs to do next.

 

 

Professor Shin Ho Jung (Business School) emphasized the difference between the Third and the Fourth Industrial Revolutions. “People understand that the first two industrial revolutions are different from the fourth, but they think the Fourth Industrial Revolution is similar to the third, and it is not,” said Professor Shin. “The Third Industrial Revolution is more like a communistic procedure. A person in charge needs to program machines to produce certain parts of a product in specific quantities, designs, and colors. Therefore, countless programming is needed to produce the distinct array of products. The Fourth Industrial Revolution is more like the current society’s market system. Machines produce products in whichever design customers prefer, as machines interact with each other,” he continued.

 

Of course, products could be customized to consumer needs even during the Third Industrial Revolution, yet they were not quite quick enough to keep up with modern day customers’ ever-changing preferences. As a solution to this, the cyber-physical system of the Fourth Industrial Revolution arose, creating an efficient and flexible production process by restructuring the centralized production process into digital, decentralized tasks.

 

 

The Fourth Industrial Revolution has introduced a new era of industrial production by decreasing production costs, increasing resource efficiency, and becoming more customer-orientated. Traces of the Fourth Industrial Revolution can be found in most industries within the German economy. 25 years ago, the German engineering company Siemens AG built a smart factory in Amberg. The factory connects different sites via the internet, from parts to assembly, all the way through to sales companies. Production equipment and mechanical parts in the factory are also connected to the internet. Furthermore, every product has an integrated circuit (IC) tag attached, which tracks items through the use of radio frequency identification (RFID) technology, and barcodes. Thus, facilities equipped with sensors can easily locate a product and identify any defects.

 

 

In this smart factory, machines can realign the production line without any help from humans. This means that if a factory that has been producing the Hyundai Accent receives an order for the Kia Opirus, the machines can produce the new model as long as the factory possesses the necessary components. According to Newsquare, the machines rearrange the production line as they move across the factory floor, and this can be done within 24 hours. The speed at which machines exchange information is much faster than when a person has to create a program and order machines to behave in a specific way. As for customers, they can use their smartphone applications to select the type of engine and the color of their car, and they have time to think twice about their decisions until their request is processed by the machines.

 

The German kitchen manufacturer Nobilia also actively takes part in the Fourth Industrial Revolution. Nobilia provides a wide variety of kitchens because it understands that all customers are different and need a kitchen that best suits their lifestyle. Nobilia customers can own a unique kitchen by choosing from a wide range of kitchen options. This is possible because the Nobilia factory in Germany is just like the smart factory mentioned above. Unfortunately, however, individually tailored kitchens are more expensive than kitchens that are commonly found in the market— although the cyber-physical system may be efficient in terms of production, it is costly as it requires a great deal of investment.

 

A smart factory is comprised of countless technologies that enable machines to communicate with each other and produce a diverse range of products expeditiously and accurately. Consequently, building these factories requires a great deal of time and money and Nobilia is not an exception. “Companies such as Nobilia improve margins by pricing products and services at premium levels because they need to cover their production costs and gain a profit. A branding campaign is also essential for these companies if they want customers to buy their high-priced products,” said Professor Shin.

 

 

Nobilia successfully managed to win the hearts of customers by guaranteeing high quality products. It is currently the largest European kitchen manufacturer. According to Nobilia, it produced 630,000 kitchens in 2015, almost one-third of the kitchens sold in Germany, and its export quota was 42 percent. As such, Nobilia has taken advantage of the Fourth Industrial Revolution. Nonetheless, this does not mean that all companies should immediately transform their production method. As Professor Shin explained, building a smart factory requires a huge investment, which puts small and medium-sized manufacturing firms at a disadvantage.

 

 

There have always been winners and losers after every industrial revolution. The First Industrial Revolution led Britain to become the most powerful country whereas the Second and the Third Industrial Revolution have made the United States (U.S.) a global superpower. Naturally, many countries are getting ready for the Fourth Industrial Revolution so that they can emerge as the pioneers of the new digital economy. Germany thus stands out the most with its Industry 4.0 initiative. “Germany somewhat lagged behind in the Third Industrial Revolution, so it is looking at the upcoming industrial revolution as an opportunity to leap forward,” explained Professor Shin.

 

Germany is not the only country that wants to take a chance on the Fourth Industrial Revolution. The U.S. is in a powerful position when it comes to big data because it has developed an extensive cloud computing system. Data that is uploaded to the internet is stored in massive data centers that allow many people to have access to the information whenever and wherever they wish.

 

 

Meanwhile, Japan has pursued industrial robots as its main strategy. The government plans to come up with AI (Artificial Intelligence)-equipped robots that are capable of communicating with each other over the internet. Robots have found their way into the automobile and electronics industry and are expected to be used in agriculture, construction, medicine and nursing care. According to the Japan Times, the Japanese government plans to use more robots as the size of the working population dwindles, with people aged 65 and older estimated to account for 40 percent of the nation in 2065.

 

Earlier this year, the Swiss global bank UBS AG ranked countries according to how it thinks they will perform in the upcoming industrial revolution. Some of the criteria it took into account were labor structure flexibility, legal protections, and education level. The U.S., Japan, and Germany ranked 5th, 12th and 13th respectively. As things look right now, it seems that developed countries are going to lead the change as always, which could widen the income inequality gap between countries. Korea was ranked 25th out of 45 countries, which is not a particularly satisfying result— labor structure flexibility and legal protections were the two criteria in which it scored especially low.

 

Nonetheless, Professor Shin presented an optimistic view. “We may not possess a factory like the one in Germany, but we have Posco, Samsung Electronics Xi’an and Kia’s Slovakia Zilina Plant that are all working towards the Fourth Industrial Revolution. We may be slightly behind, but we will catch up soon,” said Shin. Additionally, President Park Geun-hye explained in the fifth ministerial meeting for regulatory reform the government aims to ease restrictions for information and communication technology (ICT) industries. Fewer regulations will also apply to the finance, medical and education sectors, with hospitals now able to save their patients’ medical records in cloud storage. Finally, it will allow more public organizations to have access to big data services.

 

 

As with the previous industrial revolutions, the newest industrial revolution is likely to lead to several economic disruptions. It is not yet clear how machine-to-machine systems will replace human labor. Whereas the new industrial revolution will be beneficial for countries with low birth rates, it could be a threat in countries where unemployment is a serious issue. Privacy is another concern. Since everything is connected to the internet, companies are vulnerable to cyber attacks. In order to encourage people to come up with intelligent machines and ideas, tight security is critical.

 

Despite the setbacks, many people are thrilled about the new industrial revolution as they believe that the manufacturing process will improve the quality of living. Although Korea may have received a low score for its preparation, it should not worry too much as Professor Shin explained. Korea just has its own way of adjusting to the new environment and will demonstrate its ability in the near future. Hopefully, as a result, it will stand shoulder to shoulder with other major developed countries.