Industry 4.0 | KPMG | CZ

Industry 4.0: More heads, less hands

Industry 4.0: More heads, less hands

In economic matters, the Czech Republic has a very close relationship with its most Western neighbour. For quite some time, Germany has been our greatest economic partner; with the onset of the new industrial revolution, mutual relations are bound to change, however. Quite understandably, Germany is trying to maintain and further develop its prosperity and in the future will aim to do so with a more intensive use of Industry 4.0.

1000
Milan Bláha

Partner, Audit

KPMG in Czech Republic

Contact

Related content

To start off, let us look at some numbers. In 2015, the reciprocal commercial exchange between both countries exceeded a record two billion Czech crowns. Last year quite likely was another record year. Exports from the Czech Republic in 2015 came to over 46 billion euros (roughly a third of the country’s total export numbers), while German imports into the Czech Republic totalled more than 33 billion euros. To compare, Czech exports to Russia were valued at around 3 billion euros in the same year, while to China, Czechs delivered goods worth a measly 1,6 billion euros. Since 1993, Germany has been the biggest foreign investor in the Czech Republic with a total of 20 billion euros in investments. What’s more, German firms create more than 150 000 jobs on Czech soil. With all these impressive numbers, it makes more-than-ample sense for Czech businesses to look for investment and cooperation opportunities in Germany. And, in turn, for German firms, the Czech Republic is the number one market in the Central and Eastern European region. “It’s an attractive investment location. In fact, 92% of the companies that already invest here would do so again,“ says Bernard Bauer from the Czech-German Chamber of Industry and Commerce. The Czech Republic’s popularity among German investors is no longer just based on lower labour costs as it was in previous years.

Digital ecosystems

Research, development and innovation are steadfastly gaining in importance, as these areas are closely intertwined with Industry 4.0 (Industrie 4.0 in German). While this term was just about unknown a couple of years ago, according to experts, it today may mean the future of competitiveness and a further chance for economic growth. “Industry 4.0 envisions hope for the reindustrialisation of Europe. The digitisation of production leaves behind the wage element and the connected offshoring, outsourcing and transferring of production into countries with minimum labour cost. Instead, logistic aspects like flexibility, reaction speed and transport cost come to the foreground. Thanks to digitalisation, customers, their needs and the overall consumer market will gain on importance, as production takes place geographically closer to the markets were the customers are,” so Harald von Heynitz, Head of Industrial Manufacturing KPMG Germany. He adds that with so-called digital ecosystems, individual partners in Germany and the Czech Republic may get an even bigger chance to interconnect and cooperate.

The Industry 4.0 concept embodies a new industrial revolution currently under development and hence offers a unique opportunity for all willing to join the trend and to actively help to advance it. The ultimate goal of this modernisation is the strengthening of competitiveness on a global level. It doesn’t just involve the region of Europe, as the originally German term has gained a foothold all over the world. “When in China they talk about the digitalisation of industry and production chains, they in all honestly speak about Industrie 4.0, even with the ‘ie’ at the end,” so Henning Kagermann, former CEO of SAP and current president of acatech, the German National Academy of Science and Engineering, recently in the daily Frankfurter Allgemeine Zeitung. Cooperation with German companies and research institutes offers interesting opportunities also for Czech firms and other institutions dealing with digitalisation, automation, and the enhancement of competitiveness in general. It no longer makes sense to look for one’s one idiosyncratic path, as one of the main challenges of Industry 4.0’s successful implementation is the configuration of standards and automation to make them transferable. The results of Industry 4.0 are to be individual solutions custom-made for each costumer and the just-in-time delivery of orders, but these standards must function on a universal level.

Czech businesses generally fulfil the preconditions to take advantage of the chances offered by Industry 4.0. “Germany and the Czech Republic have concluded a cooperative agreement concerning digitalisation. Germany has not signed such an agreement with any other country in the EU. With this project, the countries take a fundamental step towards their future cooperation on the swift development of digitalisation,” comments Bernard Bauer and adds that during her last visit to Prague at the end of last August, even German Chancellor Angela Merkel confirmed this strategic Industry 4.0 cooperation. The undertaking is still in its infancy, but contacts have been exchanged and first projects covered by the agreement are springing up. On the Czech side, the agreement’s guarantor is ČVUT, on the German side, it’s the German Research Center for Artificial Intelligence (DFKI).

As is to be expected, the advent and gradual implementation of Industry 4.0’s various aspects involve a number of challenges. As Harald von Heynitz points out, for example, the extensive linkage of all production elements, equipment and systems through the internet requires broad investments. According to von Heynitz, the full digitisation of all company processes, new configuration of production chains and processes, quality assurance and fundamental cyber safety as well as the modification of business models will all not be easy. The challenges are indeed manifold, and Industry 4.0 German investors believe that it is high time to vigorously work on their resolution.

Factories without people?

The often-voiced fear that due to greater automation and digitisation, Industry 4.0 will lead to the decreased need for human employees certainly deserves its own chapter. It is quite easy to anticipate that many blue-collar jobs will become redundant, while new positions will come into existence in so-far publicly unknown fields. This is exactly the area where cooperation between Czech and German companies will be most beneficial, to prepare for unavoidable changes on the job market.

Meanwhile, Germany will have to figure out where to locate its “human-less” factories and whether the Czech Republic will be still as an attractive destination as it has been so far. Currently, companies are belabouring the lack of domestic labour as an obstacle to further expansion of production and investment. “This would not be helped by a prospective influx of workers from other countries, as this would only be a stop-gap measure. After the onset of automation, those workers would be left without a job and their unemployment would have to be dealt with alongside the joblessness of the domestic workers. If additionally a large section of blue-collar jobs are replaced by machines, then our position will undoubtedly weaken”, notes Milan Bláha, Partner at KPMG Česká republika, offering advisory services to family businesses and investors from German-speaking countries. But how can the Czech Republic maintain its position?

“Companies should try to solve the existing workforce shortage with their heads rather than with hands, i.e. through the automation of production as a precursor to fully robotized production plants,” adds Bláha. “The only recourse is to start to invest heavily into education and to support technical and IT schools, to bring up young people not afraid of mathematics, physics and programming. All of it with the goal to have an appropriately educated generation at hand at the right time. That’s the only way to retain investors and to avoid a decline in our standard of living,” concludes Bláha.

Connect with us

 

Request for proposal

 

Submit