View from Europe: why automation signals a storm ahead

There is great anxiety and hand-wringing in Europe about the likely effects of digitalisation, automation and robotisation of our work environments – and probably with some justification. But while our societies will experience hefty displacement effects during the change-over period, the number of job losses will, overall and over a period of time, probably be quite moderate.

On the other hand, emerging countries face a tough future. If labour is no longer the biggest cost-block (due to rising levels of automation) and so companies can replace repetitive tasks with robots, the entire business model of efficiency-seeking/low-labour-cost FDI might disappear – maybe not overnight, but within the relatively short period of a few years. This effect is already aggravated by rising transport costs and carbon dioxide balances for everything we do, and the rapid wage hikes we are seeing in some of these countries (such as China’s coastal region).

Some research suggests job losses in emerging economies will be higher by a factor of 10 compared with those in Europe, generating the perfect storm for developing countries. Not only will there be little new FDI coming in, but existing jobs will be lost in large numbers, and – owing to the logic of being close to the market – many firms will contemplate re-shoring their operations to locations with the highest purchasing power.  

This will have huge implications, even if only looked at from a purely European perspective. Are European IPAs prepared for this? For example, is having a foreign office in China, India or Mexico still the best use of scarce IPA resources, or should IPAs instead intensify contacts with European firms that have, over the years, offshored large parts of their production? And doesn’t dealing with re-shoring and re-investing require a different skillset than the one they currently have?

As for European firms: can they afford a supply chain in which their products take months to arrive at destination markets while their competitors can make the turnaround in days (the ‘Zara effect’)? Is their production still world class, or are they in danger of being leap-frogged by the small number of cash-rich emerging market conglomerates who experiment with artificial intelligence and hi-tech, and might arrive at their doorstep when the need for market proximity becomes overwhelming? It is time to get moving!

Martin G Kaspar is head of business development at a German mittelstand company within the automotive industry. E-mail: martin.georg.kaspar@gmail.com