This article first appeared in Forum, The Edge Malaysia Weekly on November 20, 2017 - November 26, 2017

According to the 2017 Randstad Employer Brand Research report, over a third of employees (37.7%) in Singapore, Hong Kong and Malaysia plan to leave their jobs within half a year. Against the backdrop of slower global economic growth, the repercussions for firms in terms of productivity losses when trained staff leave for so-called greener pastures can be critical.

Productivity is the most important determinant of long-term growth and living standards. In fact, the issue of slower global productivity growth has been keeping policymakers awake at night. Since the turn of the millennium, some 90% of Organisation for Economic Co-operation and Development (OECD) countries have seen their pace of productivity growth slowing down.

Emerging economies have not been spared. According to the OECD, the long-term growth prospects of emerging Asia and Asean countries, China and India are being threatened by plateauing productivity growth.

It would seem then that the global economy needs to reboot — an industrial revolution, no less. In fact, we are now on the verge of another industrial revolution — Industry 4.0. The world has been dramatically changed by three waves of industrial revolutions that came about through mechanisation (Industry 1.0), electricity (Industry 2.0) and information technology (Industry 3.0). In Industry 4.0, digitisation will take centre stage, and the change wrought by it will likely be even more dramatic.

Industry 4.0’s provenance lies in Germany, where it was one of ten “future projects” under the government’s High-Tech Strategy 2020 Action Plan passed in March 2012. In the future, according to the Industrie 4.0 Working Group, “… businesses will establish global networks that incorporate their machinery, warehousing systems and production facilities in the shape of Cyber-Physical Systems” that “… comprise smart machines, storage systems and production facilities capable of autonomously exchanging information, triggering actions and controlling each other independently”.

That conceptual idea has since been widely adopted in many other nations. Many of the world’s leading multinationals are already starting to digitise essential functions within their internal vertical value chain and with their horizontal supply-chain partners. Eventually, digitisation will cover the whole value chain with real-time data linkages to suppliers upstream and customers downstream. It will also extend beyond to encompass after-sales service and end of product life management.

Many policy makers have high hopes that Industry 4.0 will boost productivity and foster industrial and economic growth. A study by the Boston Consulting Group found that Germany’s advanced manufacturing sector stands to reap productivity gains of 5% to 8% on total manufacturing costs over 10 years from the implementation of Industry 4.0.

An immediate priority in the Malaysia Productivity Blueprint launched in May this year is to encourage companies in Malaysia’s main economic sectors to adopt Industry 4.0 technologies. In fact, the sixth thrust of Budget 2018 is “fortifying the fourth industrial revolution and digital economy”.

As to be expected, Industry 4.0 will cause a lot of corporate disruptive pain. A recent Washington University study found that 40% of today’s Fortune 500 companies on the S&P 500 Index will no longer exist in 10 years, all corporate victims of digital disrupters.

The first few ripples coming from the advent of the new industrial age are already giving us a strong whiff of what to expect in the brave new world of production. For example, Adidas — the German maker of sportswear and equipment — has brought back to Germany some of its offshored production and with it, jobs, after having left more than 20 years ago.

The motivation for Adidas’ strategic U-turn goes well beyond the issue of rising manual work cost in Asian factories. Its Ansbach plant, called Speedfactory, uses state-of-the-art robots and 3D printing that drastically shortens the supply chain. This is an important consideration because consumers, especially sports fashionistas, want fashionable sports goods immediately.

In addition, it can produce specialised sports goods to cater for the different needs of consumers in different cities. Adidas’ second Speedfactory, located in Georgia, the US, has start producing for the American market. If all goes according to plan, it will build more plants elsewhere.

Rival Nike is not likely to sit by and watch Adidas re-invent the US$80 billion-a-year sporting goods industry. As advanced manufacturing expands further, there will be consequences for the armies of manual workers in Asian factories — not only in the sporting goods industry but also in many others.

It is not just the manufacturing sector that has been turned upside down by digitisation and the internet. A March 2016 survey by PriceWaterhouseCoopers of senior-level management and C-Suite executives in financial services found that respondents expect to lose more than 20% of their market share by 2020 to technology-focused start-ups and innovative new market entrants.

Coming back to the Randstad report about the unsettlingly high proportion of disgruntled employees anxious to leave their jobs, will disgruntled Malaysian employees still be as anxious, say, 10 years down the road? That will depend on how successful Malaysia is in embracing Industry 4.0.

According to the World Economic Forum’s Future of Jobs report, employment growth going forward “... is expected to derive disproportionately from smaller, generally high-skilled job families that will be unable to absorb job losses coming from other parts of the labour market” and that “even if they could, significant reskilling would be needed”.

Quah Boon Huat is senior economist at Malaysian Rating Corp Bhd (MARC). The opinions expressed and arguments employed in this article do not necessarily represent or reflect the views of MARC.

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