26 November 2018

Is South East Asia ready for the Fourth Industrial Revolution? – How big is the challenge really?

I lived in South East Asia (S E Asia) for fifteen years, twelve of those in Singapore. On reflection, I was rather privileged to be caught up in the expansion and rapid development that occurred in this time and is accelerating even more today.

The region continues to evolve at impressive rates of growth, drawing in consistent levels of external economic investment, but is S E Asia ready and equipped to participate in the Fourth Industrial Revolution? I was asked for my perspective on this revolution, from an Industry 4.0. Understanding, I would say that S E Asia has many big issues that are not being fully addressed with the dedicated focus necessary and it continues to hold its industry offerings back across the regionl.

Countries in South East Asia face many complicated challenges, certainly many are region-specific, partly due to their rapid growth in recent decades. Some of these challenges are very infrastructure specific, requiring them to keep “catching up” with other countries, where they need to compete against, many here in the West, to attract their share of any future investment.

In this series of articles, I am discussing the deeper issues within S E Asia and what the individual countries are facing and what is involved for them, with tackling the Fourth Industrial Revolution. I will organize my analysis in four parts, beginning with an overview of the challenges global companies face in South East Asia. In my second blog, I want to further evaluate these challenges on the concrete example of innovation and implementation of new technologies and solutions. For the third and fourth part, I will mainly talk about how to realize business in South East Asia, focusing on investment opportunities and on how a roadmap for the Fourth Industrial Revolution might look like.

Firstly, how big is the challenge really?

There are still, for me, many constraints around S E Asia’s readiness for IR4.0. Unless some of the major pressure points are not resolved, many countries within S E Asia will either get left behind or simply never catch up. Even Singapore, the real exception in the whole region, does need its surrounding countries to keep in touch with a world that is connecting at a rapid rate, to modernize and digitalize. For many, Singapore is a hub into S E Asia and a stepping stone out to the greater Asian region.

If S E Asia countries fail to put in place a long-term, dynamic digital strategy, that does not recognize that there are numerous factors to be simultaneously managed. These include ones of coordinated leadership across society, redirecting its education towards developing digital talent, as well as recognize this world is connecting and forming relationships and ecosystems, powered by technology, encouraging co-ordination across its manufacturing base, , with all these needing a drawing together, in a plan to manage the Fourth Industrial Revolution. The ability to juggle so many areas makes this highly dynamic and fluid and requires clear Government orchestrating. Without this constant interplay, it will self-impose serious constraints on its economic output and is in danger of evolving in uncoordinated ways.

When you have ideological differences and fail to not work more closely with your neighbors, you will eventually miss out. S E Asia needs a far-reaching, certainly holistic dedicated digital transformation, if it wants to progress towards a digital maturity that draws in outside investment to help secure a dynamic future. A future one that is seen to be highly competitive and attractive to invest in, otherwise much of the region will simply be passed by, caught in a low-value trap in industrial development.

The challenge for business becomes one of recognizing the value in changing existing business models and configuration designs. Ones that seek out more open partnerships, working within ecosystems, so they can provide a product or service that is sufficiently different enough, to gain a return on investment and allow each business model to evolve in new, attractive ways.

The problems become, when you have many unknowns, it is not so easy to justify this sort of radical change. The search must be on identifying products and services that become highly connected and digital, offering points of new customer value creation. These value creation points are ones that need to play to the Asia strengths, where hard work, younger generations and the ability to coordinate and respond quickly does, among others work for them. Determining what these are to offer places that attract investors regard as being more agile and reactive and how can show why they can offer investors value to attract continued investment and growth potential.

The search must be on seeing products and services that become highly connected and digital, offering new customer value creation points, ones that specifically work for them. These propositions continue to attract investment and growth, the demand side, not so much the supply side, where S E Asia has been fulfilling previously as often a lower cost sourcing point. Not an easy task in any future planning to shift market attractiveness: you simply have to be convinced it is worth all the disruptive effort. Digital transformation is just that, it is “transformational”. Digitalization changes nearly everything we know, how we work, who we connect-up too in radically different, potential value-enhancing ways. We transform ourselves as we grow our own networks of relationships that provide into us new knowledge

For this digitally connecting-up to happen, the focus lies in where advanced technologies, shifting business models and digital transformation. These must be realized to give those making the investment, future economic benefit. The business case needs to become far more compelling than it is today. If you presently have good growth, why invest? How does a Government incentivize change that seems necessary? Seeing and reacting in any revolutionary period calls for radical redesign and coordinated efforts from all involved in making changes for benefiting from this fourth industrial revolution.

To achieve IR4.0, each country across S E Asia will have to equip themselves to make ‘massive’ investments in infrastructure, just to keep pace with the rapid population needs. This includes energy and electricity, power plants, grids, along with significant investment in transportation solutions. The S E Asian countries are constantly building, but are they building with “smart” in mind, meaning digitally smart for all the gains one can achieve in being connected?

Deepening my perspective on S E Asia

I certainly believe you always gain a very different perspective when you live in the region, against those that are simply making regular trips. These transitory visitors never get as deeply under the surface in culture appreciation, in the complexities, the rivalries, and tensions that surface then how they are eventually resolved, always have some level of consequences somewhere else in the system. But most importantly, they don’t understand how to treat this region differently, as this is uniquely different from other parts of the world. The ones living there need to be listened too constantly, as they can “connect” the greater narrative and break it down into where the problems and opportunities lie.

From a business perspective, I ran businesses in Singapore and Malaysia and had the mandate to extend the business development into Indonesia for the need to make an investment decision later. In this time, I was also a constant traveler to Thailand, even more so when I moved from working in a specific business to advising into different businesses. I had to stay really engaged, curious and determined to figure out much that lay underneath the surface to help build the case for change and investment.

Today I would argue many Global Organizations fail to see many of the compelling reasons to “over-invest” in this region, in more resources, in relative terms, than a mature business or country. When you have ‘thin resources’ on the ground, you are constantly running behind. Today, to yield a greater return within a few years, I would argue a position of having a higher disproportioned investment in resources that can build close relationships and connect-up solutions to present constraints.

In my opinion, after living for significant periods in the Middle East, Asia, Africa, and Europe, along with being a visiting global executive all over the world you need a balanced perspective – surprising I found many don’t have it. That placing a greater emphasis on culture and contextual understanding, on business development and on local awareness, does give richer dialogues so as to tailor appropriate solutions, especially if you are engaged in providing infrastructure solutions. Building understanding does take time and the more you can build into the local component or fabric, the more ‘it’ is wanting to relate back in its relating.

Believe me, this often does not happen, the visitor has limited listening time, far too many external engagements and many pressures, partly created by not letting go of looking far too much only through a global lens. Visitors tend to impose their experiences and miss the real differences and subtleties. So often local people remain quiet, or not able to marshal their thoughts to counter-argue a position, caught in often contrived situations or business reviewing situations of current performance and pressures to immediately perform.

The argument of future investing in what the Industry 4.0 requires, needs to become compelling in my opinion and experience. We do need to yield the return in a few years’ time, even on many long-term projects to prompt change. It is often by having this disproportioned investment in local resources or greater emphasis on getting a deep understanding of where these countries ‘lead or lag’ we can build up far more compelling business cases, so as to tailor appropriate solutions that bring you closer to a deal, built on intimate knowledge. Local is as important as global presence.

There will be increased sensitivity to each country’s individual needs and desires. Local and regional bias will get stronger. The Western Organizations that make specific choices of deeply embedding themselves will gain the upper hand. The appeal of well-known and respected western-goods of high-quality, in their solutions and fit, will have to work even harder to stay in touch with local conditions. It is not just showing clear performance, it is relating to that country’s sensitive needs.

In the second part of this series, I want to provide a perspective on how global companies struggle to implement new technologies and solutions and what they can learn from Frugal innovation. Read more on why adaptation to local needs and considerations is far more important than often realized.

Read the other parts of the series “Is South East Asia ready for the Fourth Industrial Revolution?”:

Part 2: The application of innovation, the Asian way

Part 3: What are the real opportunities to invest in in S E Asia

Part 4: The Roadmap for the Digital Revolution

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