Rapidly emerging technologies — the Internet of Things (IoT), artificial intelligence (AI), wearables, robotics, additive manufacturing and blockchain — are changing the business landscape. In the UAE alone, IoT has the potential to unlock up to 11 per cent in incremental GDP driving economic growth in the GCC, according to A.T. Kearney’s latest IoT report.
These technologies are spurring new production techniques and business models that will profoundly disrupt most manufacturing and global supply chains. Some low-cost manufacturing export economies may be at risk, as technology may soon make it possible to manufacture products much closer to the markets where they will be sold at a competitive cost and depending less on human labour.
Yet that is just one aspect of a vastly shifting landscape. It is imperative that governments and business leaders take a fresh look at how their countries and corporations contribute to the world’s fast-changing value chains.
In the classic game of leapfrog, a child jumps over another to land ahead. A strategy that has worked for some countries and businesses is to leapfrog into global leadership in targeted areas, as South Korea did with high-definition television (HDTV) and China is now endeavouring to do with electric vehicles.
Rapid technological advances open windows of opportunity for trailing, or nascent economies to quickly take leading positions in prosperity-sustaining value chains without having to replicate the paths taken by more established competitors. The Fourth Industrial Revolution will definitely create fresh opportunities to leapfrog.
It is important to understand, however, that leapfrogging is not for everyone. In fact, the findings of the “Readiness for the Future of Production Assessment 2018” report, by the World Economic Forum in collaboration with A.T. Kearney, suggest that only a handful of countries may be poised to make such leaps.
High potential countries, such as the UAE — and nascent countries closest to the archetype border, such as Saudi Arabia — are likely in the best position to leapfrog in the emerging production paradigm. These countries have a relatively small current production base, but have the resources and potentially the right combination of other capabilities to capitalise on opportunities.
Others have the potential to leapfrog, but with still greater effort, by focusing on a few opportunities, then focusing their energies and investments to develop correspondingly crucial capabilities.
The Readiness for the Future of Production Assessment 2018 report analyses how 100 economies are positioned today to shape and benefit from the changing nature of production. Readiness is generally regarded as the ability to capitalise on future production opportunities, mitigate risks and challenges and be resilient and agile in responding to unknown future shocks.
The assessment is made up of two main components: structure of production, or an economy’s current baseline of production; and drivers of production, the essential enablers that position an economy to capitalise on the Fourth Industrial Revolution.
Some of these capabilities are particularly vital to leapfrogging and so must be coherently addressed before choosing a leapfrog strategy. Three areas that particularly merit early attention are technology and innovation, human capital and institutional framework.
Most leapfrogging efforts begin with a differentiated competitive edge in technology and innovation. Leaders preparing to leapfrog must clearly foresee and define how they will nurture focused and continuous technology development and diffusion.
Human capital is obviously fundamental. Leaders charting a leapfrog strategy must be realistic in assessing what will be required of their country and industry talent pools and meticulously implement corresponding strategies to rapidly develop the human strengths required. In the Fourth Industrial Revolution, these comprise not only technical prowess but also the ability to continuously learn, creativity, emotional intelligence and other soft skills.
A country’s institutional framework encompasses how well government institutions, rules and regulations shepherd technological development, novel businesses and advanced manufacturing. Leaders must cultivate an environment where rule of law protects intellectual property and ensures social well-being, liberal enough to encourage rapid innovation and attract unconventional thinkers, and business-friendly enough to entice entrepreneurial activity.
Many countries will find it difficult, if not impossible, to cultivate all the capabilities required to leapfrog via traditional industrial policy.
Choosing individual value chains and combining them with selected technological solutions will not work, as it would require that leaders guess right nearly all the time about where the best opportunities to become and remain competitive might be found, and how best to pursue those opportunities.
A practical alternative to traditional industrial policy is to actively participate in new economic systems, comparable to those found in nature. Coral reefs, for example, blend the abilities of a diverse array of organisms, big and small, for the survival and sustenance of all.
Economic entities frequently mimic nature by choosing to engage in symbiotic relations. The tech giants and start-ups of Silicon Valley, for example, are highly dependent on the region’s universities, which in turn benefit from having elite employers nearby, anxious to hire their graduates and fund their research.
Throughout the world, in fact, the high-tech industry and higher education institutions tend to recognise their interdependence and form strong communities of self-interest which are, in essence, systems that foster the healthy competition of ideas and solutions.
Systems are much more resilient than any individual solution and have a far greater capacity to adapt to the unexpected. Countries and companies looking to leapfrog must therefore be visionary to see where they may share interests with partners they do not yet know, and creative in forming new bonds of mutual dependence.
In fact, building and engaging in economic systems may prove the most crucial capability of all in the Fourth Industrial Revolution. Leaders can now begin to cultivate that capability by actively engaging industry, academia, unions and other crucial stakeholders in the process of exploring, targeting and pursuing leapfrog opportunities.
Leapfrogging requires government, private sector, academia and other sectors of society to work together in an orchestrated way, just like in the children’s game. While this is not for everyone, the GCC economies are well positioned to play at this game.
Will we capture this opportunity?
The writer is Partner, Government & Innovation, A.T. Kearney.
