Republish: The ‘fourth industrial revolution’: potential and risks for Africa

The ‘fourth industrial revolution’: potential and risks for Africa

Image 20170328 3803 1jykm8e — Klaus Schwab, the World Economic Forum founder, holds his book about the Fourth Industrial Revolution.
Reuters/Denis Balibouse

Ross Harvey, South African Institute of International Affairs

Klaus Schwab, the founder of the World Economic Forum, argues that the single most important challenge facing humanity today is how to understand and shape the new technology revolution. What exactly is this revolution, and why does it matter, especially for Africa?

The “fourth industrial revolution” captures the idea of the confluence of new technologies and their cumulative impact on our world.

Artificial intelligence can produce a medical diagnosis from an x-ray faster than a radiologist and with pinpoint accuracy. Robots can manufacture cars faster and with more precision than assembly line workers. They can potentially mine base metals like platinum and copper, crucial ingredients for renewable energy and carbon cleaning technologies.

3D printing will change manufacturing business models in almost inconceivable ways. Autonomous vehicles will change traffic flows by avoiding bottlenecks. Remote sensing and satellite imagery may help to locate a blocked storm water drain within minutes and avoid city flooding. Vertical farms could solve food security challenges.

The machines are still learning. But with human help they will soon be smarter than us.

The first industrial revolution spanned 1760 to 1840, epitomised by the steam engine. The second started in the late 19th century and made mass production possible. The third began in the 1960s with mainframe computing and semi-conductors.

The argument for a new category – a fourth industrial revolution – is compelling. New technologies are developing with exponential velocity, breadth and depth. Their systemic impact is likely to be profound. Policymakers, academics and companies must understand why all these advances matter and what to do about them.

So why does the fourth industrial revolution matter so much – specifically for Africa? And how should the continent approach the risks and opportunities?

Exciting opportunities

The revolution’s most exciting dimension is its ability to address negative externalities – hidden environmental and social costs. As Schwab has written:

Rapid technological advances in renewable energy, fuel efficiency and energy storage not only make investments in these fields increasingly profitable, boosting GDP growth, but they also contribute to mitigating climate change, one of the major global challenges of our time.

Some countries’ growth trajectories may follow the hypothesised Environmental Kuznets Curve, where income growth generates environmental degradation. This is partly because natural capital is treated as free, and carbon emission as costless, in our global national accounting systems.

New technologies make it possible to truncate this curve. It becomes possible to transition to a “circular economy”, which decouples production from natural resource constraints. Nothing that is made in a circular economy becomes waste. The “Internet of Things” allows us to track material and energy flows to achieve new efficiencies along product value chains. Even the way energy itself is generated and distributed will change radically, relying less and less on fossil fuels.

Perhaps most importantly for African countries, then, renewable energy offers the possibility of devolved, deep and broad access to electricity. Many have still not enjoyed the benefits of the second industrial revolution. The fourth may finally deliver electricity because it no longer relies on centralised grid infrastructure. A smart grid can distribute power efficiently across a number of homes in very remote locations. Children will be able to study at night. Meals can be cooked on safe stoves. Indoor air pollution can basically be eradicated.

Beyond renewable energy, the Internet of Things and blockchain technology cast a vision for financial inclusion that has long been elusive or subject to exploitative practices.

Risks

No revolution comes without risks. One in this case is rising joblessness.

Developing countries have moved away from manufacturing into services long before their more developed counterparts did, and at fractions of the income per capita. Dani Rodrik calls this process “premature deindustrialisation”.

The employment shares of manufacturing, along with its value addition to the economy, has long been declining in industrialised nations. But it’s also been declining in developing countries. This is unexpected, because manufacturing is still the primary channel through which to modernise, create employment (especially by absorbing unskilled labour) and alleviate poverty. Manufacturing industries that were built up under a wall of post-independence protectionism are starting to decompose.

Rodrik D, ‘Premature deindustrialisation’, Journal of Economic Growth, 21, 2016, p. 19.

The social effects of joblessness are devastating. Demographic modelling indicates that Africa’s population is growing rapidly. For optimists this means a “dividend” of young producers and consumers. For pessimists, it means a growing problem of youth unemployment colliding with poor governance and weak institutions.

New technologies threaten to amplify current inequalities, both within and between countries. Mining – typically a large employer – may become more characterised by keyhole than open heart surgery, to borrow a medical metaphor. That means driverless trucks and robots, all fully digitised, conducting non-invasive mining. A large proportion of the nearly 500 000 people employed in South African mining alone may stand to lose their jobs.

Rising inequality and income stagnation are also socially problematic. Unequal societies tend to be more violent, have higher incarceration rates, and have lower levels of life expectancy than their more equal counterparts.

New technologies may further concentrate benefits and value in the hands of the already wealthy. Those who didn’t benefit from earlier industrialisation risk being left even further behind.

So how can African countries ensure that they harness this revolution while mitigating its risks?

Looking ahead

African countries should avoid a proclivity back towards the import substitution industrialisation programmes of early independence. The answer to premature deindustrialisation is not to protect infant industries and manufacture expensively at home. Industrialisation in the 21st century has a totally different ambience. In policy terms, governments need to employ systems thinking, operating in concert rather than in silos.

Rapidly improving access to electricity should be a key policy priority. Governments should view energy security as a function of investment in renewables and the foundation for future growth.

More generically, African governments should be proactive in adopting new technologies. To do so they must stand firm against potential political losers who form barriers to economic development. It pays – in the long-run – to craft inclusive institutions that promote widespread innovation.

There are serious advantages to being a first mover in technology. Governments should be building clear strategies that entail all the benefits of a fourth industrial revolution. If not, they risk being left behind.

Ross Harvey, Senior Researcher in Natural Resource Governance (Africa), South African Institute of International Affairs

This article was originally published on The Conversation. Read the original article.

Preparing for a different manufacturing future

In Africa, we face the challenge of a manufacturing sector that often manufactures products in low volumes. In a country like South Africa, we manufacture a wide range of products but often at low scale. Even our manufacturers that manufacture in larger volumes are still small compared to European or Asian competitors. In some parts of Africa we are further challenged by not having very sophisticated domestic demand in many sectors. When demanding customers are far away it becomes much more difficult to be innovative and well informed of what is possible and what can be done to exceed or at least meet the demands of customers.

But I can sense an important change taking place. I am frequently visiting manufacturers that are becoming much more knowledge intensive. They are smaller and more flexible than their more established competitors, and they combine different skills sets, technology platforms and knowledge bases.

In a forthcoming paper [1] that I co-authored with Garth Williams of the Department of Science and Technology and Prof. Deon de Beer (Vaal University of Technology), we offered the following definition of Advanced Manufacturing.

Advanced manufacturing is an approach that

Depends on the use and integration of information, knowledge, state of the art equipment, precision tooling, automation, computation, software, modelling and simulation, sensing and networking;
Makes use of cutting edge materials, new industrial platform technologies [2], emerging physical or biological scientific capabilities [3] and green manufacturing philosophies; and/or
Uses a high degree of design and highly skilled people (including scientific skills) from different disciplines and in a multidisciplinary manner.

We also argue that Advanced Manufacturing includes a combination of the following.

Product innovation: Making new products emerging out of new advanced technologies (including processing technologies).
Process innovation: New methods of making existing products (goods or services).
Organizational innovation or business model innovation: Combining new or old knowledge and technologies with traditional factors of production [4] in non-traditional fields or disciplines in unique configurations.

I am very proud that our definition of advanced manufacturing was also taken up by the Department of Trade and Industry in their next Industrial Policy Action Plan (IPAP) 2014/15-2016/2017.

The implication is that our technology development, technology transfer and education programmes need to change in order to be better able to equip and support manufacturers. Manufacturers increasingly need to be able to manage multidisciplinary teams using different technologies. These manufacturers must not only be able to learn fast from the market around them, they must be harness and pro-actively develop new combinations of knowledge within their enterprise. Existing or potential manufacturers must also think differently about manufacturing. Smaller factories, using more modern equipment in a flexible way is now a competitive advantage. The entry costs for starting a small manufacturing enterprise has never been so low. For instance, the cost of an automated electronics surface mount production line has come down by more than 70% in less than 10 years. Additive manufacturing allows tooling and products to be developed in parallel, but also makes it possible to develop new products very fast.

Where do South Africa enterprises learn to become more knowledge intensive at the moment? The answer is: At European Trade Shows. If you are a manufacturer or a potential entrepreneur, start saving up. There are many excellent trade shows throughout the year.

Which Meso-organisations offers the best examples, technology demonstration and training on this? Again, European Universities, Technology Transfer centres and universities. (The US and Canada also provide brilliant services, but it is much harder to access for us). If you cannot find a local expert or academics to help you, reach up to Europe.

What do we have to do? Think of ways to get as many of our entrepreneurs curious or interested in the newer technologies available, and learn from our (larger) competitors. Also, we have to get our universities to be more involved in technology adaptation and participating in new research areas. The academia should focus less on publishing in journals and get involved in real research collaboration that gives our industries (exporting) opportunities and that at the same time address unique needs in our domestic markets.

Oh, and by the way. Start reading up on the “internet of things”. Maybe my next post should focus on that.

Notes:

[1] Our paper will be presented at the International Conference on Manufacturing-Led Growth for Employment and Equality in Johannesburg on the 20th and 21st of May. The paper is titled “Advanced Manufacturing and Jobs in South Africa: An Examination of Perceptions and Trends”.

[2] Such platforms have multiple commercial applications, e.g. composite materials, and exhibit high spill-over effects.

[3] E.g. nanotechnology, biotechnology, chemistry and biology.

[4] Labour, materials, capital goods, energy, etc.

2013 – Setting some direction

Perhaps I am taking a risk by publishing some of my resolutions for 2013 here. But this post will probably help me to connect my own learning with those of my close friends, partners and fellow adventurers that follow my blog.

During 2012 my focus shifted strongly into the manufacturing sector where I am working on improving innovation systems, building domestic industries, strengthening the role of universities and research organizations to create new platforms from where to compete. This is stimulating work where I combine my interests in engineering and science, with soft issues such as networks in industry, market signals and systems and innovation. I also find that my ability to work both with business people, academics and researchers is handy. Take a look at my page Stimulating industrialization, science and innovation to see some of the activities I have been involved with in 2012 in this area.

In 2013 I want to increase my focus on the manufacturing sector. Key research questions for me are:

How does competencies learned by organizations such as firms become developmental platforms for industries?
How can I use the insights from complexity to accelerate the formation of new industries, new markets and deeper industrialization?
How can new technologies, questions, ideas be used to upgrade traditional industries?
What is the role of universities and research organizations to upgrade the industries around them?
How can learning and experiments in firms be disseminated to accelerate exploration and exploitation of ideas?

As much of my work in this area is focused on Southern Africa, I am also keen to see how some of the insights from here can be tried elsewhere.

As far as my academic research is concerned (I have a post doctoral research fellowship position with the Vaal University of Technology), I must concentrate more on my academic publications and feeding the insights gained in working with industry back into the formal university system. Here my work will be focused on understanding how technological competencies can be created or leveraged to create new markets and new competencies. In the image below

I show the technological choices that a particular group of enterprises that I am working with face.

Of course, the manufacturing sector is a clumsy way to draw a boundary around a system, so just to put some of your concerns to rest, I am still committed to the knowledge and service sectors, technological intermediaries and the local economies in developing countries. I have found that these are useful perspectives to look at manufacturing activities and how it evolves. Manufacturing to me is not only about making products, it is also about matching competence with opportunity within a given societal context. It connects wealthy people with poor people, clever dreamers with needy users, highly qualified people with poorly educated people, nerds with geeks, domestic ideas with international realities.

What makes my approach different is that I am working from demanding customers and markets back to the basic operations, and not from suppliers towards markets. I am not doing marketing promotion, I am developing supply side based on current and future needs. It means that I will help to better articulate demand criteria, and will then try to shape the institutional system and manufacturing capacities to work towards these needs. Central to all of this are developmentally minded organizations like universities, industry bodies and even consultancies that wants to develop a particular sub sector, technological competence or outcome.

In 2013 I undertake not to be a problem solver, but to be a better facilitator of deeper thinking, an adviser that assists my customers and counterparts to better recognize patterns, constraints and opportunities. I will assist my customers to become change agents within the systems that they work in.

Lastly, I want to work more with systemic thinking and complexity. Watch this space for some announces about a new podcast series and a new research field in collaboration with Marcus Jenal

Localisation and building domestic manufacturing capacity

At the moment I am spending most of my time working with the more traditional manufacturing sector in South Africa. Traditional apparently means non-advanced, but it would be a mistake to think that because a particular object (like a metal casting) has been made for 8000 years that there is nothing advanced about it. For instance, in a typical foundry you find very different technical, engineering and management capacities that must be combined in order to make metal components for very demanding customers.

Localisation in South Africa (and in other places like the US) means to bring orders that have gone offshore back into the country. It often involves trying to rebuild manufacturing capacity that once existed in a country, but that originally developed under completely different economic conditions. For instance, 30 years ago many manufacturers grew in South Africa, starting very small and growing over time. About 10 years ago these manufacturers closed, or moved offshore. In the meantime global market consolidated and found low cost producers. To now try and create this capacity again is not an easy task. Firstly, you don’t have 20 years for experimentation in technologies, business models and market segments. Secondly, customers already now know what they want, and this usually includes a proven product at a competitive price. The new enterprise must hit the ground running with proven technology, management and adequate resources. This means that you have to develop both local producers and their supporting institutions, service providers and their markets at the same time. Bear in mind that their competitors overseas are benefiting from this same ecosystem developing naturally.

Localization is seen by some as the opposite of globalization and outsourcing. But buying from a local manufacturer is still outsourcing . As far as localization as the antidote to globalization is concerned, this is not correct, as localized products often enter world markets again, as does local knowledge workers that are now mobile due to their enhanced expertise. Localization is about creating local manufacturing capacity. It is about more than just helping local entrepreneurs start firms – it is often about finding or developing unique local capacity that meets very specific local requirements. It is therefore often driven by public policy- however the most successful localization is often driven by businesses wanting certain suppliers or competencies nearby.

Perhaps another way of looking at localization could be to see it as part of a natural cycle. Products are made locally at $x and a small volume supported by a limited local market. Over time standards, low cost production methods evolve, market consolidate and production concentrates in a few places able to reach scale and efficiency. Now the numbers are high – new entrants struggle to enter as existing firms ramp up efficiency. Right about then flexibility is lost, management becomes expensive, and you may be sharing production facilities with current and future competitors. In the meantime, products evolve, markets and applications differentiate, and suddenly there is a need for more specific production to meet a specific market. this is where a local producer with the right technology, people and business model could gain a foothold (if only they knew about the opportunity). The cycle might just start all over again. This is just one simple example. I acknowledge that many countries have not been able to recapture orders once they are lost to offshore competitors – partly because several economies have also progressed up the value chain. But for developing countries, evolving up a value chain is a very painful process that is often not possible.

From the demand side we have a different perspective. Multinationals or large local manufacturers wanting to localize typically have an existing production system, or they are expanding local capacity. They have advanced or well developed management systems, markets, products and supply chains. Often, buying local is not first choice as they might have invested already in capacity elsewhere, although localization is frequently a requirement of developing country procurement policies. So they first localize non-core activities, the crumbs or components where few things can go wrong. For local manufacturers, this is the toughest place to enter, as these basic components are often like commodities – they are standard, and hence competitors have already reached scale and efficiency levels that are hard to beat.

For buyers, another problem is that local manufacturing capacity is hard to identify and secure. Existing manufacturers in developing countries are either undergoing BOOM or BUST. The boomers are just to busy in markets and products they already understand, and the busters just cant be trusted. Lastly, large multinationals that tries to localize production very often draw their domestic engineering, management and other skills directly from the very limited skills pool that exists locally, attracting skills from the local manufacturing sector that is hard to replace.

So some insights:

a) firstly, don’t let your local manufacturing sector collapse, even if they are not entirely local or entirely politically correct

b) don’t assume that multinationals can easily do business with local manufacturers, don’t depend on checklists.

c) don’t assume that all that your local manufacturers need are some orders from the big firms or government – they are most likely behind in multiple areas, such as skills, working capital, engineering technology and capacity

d) it is not just about technology. Large firms giving technology to local firms is not the solution. Local firms must get a deeper understanding into the market, the drivers of change, the drivers of performance and manufacturing management methods.

e) for a local manufacturer to grow, take on new (demanding) customers, add additional shifts, manage a busier schedule, recruit and train more staff – all these things require change. Remember to assess the readiness of local entrepreneurs to change, invest and expand.

Lastly, localization should not be about import substitution at all cost, because this reduces the buy local decision to a costing issue. Isolating local manufacturers from international markets will not help in the long run. Rather, the focus must be to connect local manufacturers with global markets, knowledge pools, trends and developments.

If you really want to develop your local manufacturing sector, start with the buyers and understand their needs. Understand their business risks, their cost drivers, their incentives to expand and their means to support local manufacturing. Then find out which experts they bring into their operations, what challenges they had to create and maintain their own systems – chances are that what is an inconvenience to a large firm could be a complete obstacle to a local firm. Then articulate these messages, trends and projects clearly to local producers.

I have found that the main issue for large firms wanting to localize is not price – it is reliability and flexibility of local supply. It is dedication to getting the product right at the right quality, on time. And it is also a supply chain of local engineering and management skills.

Oh, did I mention that small firms also want to localize, not just the big firms? More about that next time.

My activities in the last months

So what have I been up to in the last few months?

At the moment I am working with several industry organizations and development institutions in South Africa on topics that are all interrelated around the topic of upgrading of our manufacturing sector. This involves working both on the softer issues such as facilitation of processes, building trust, identifying patterns, mobilizing stakeholders and lobbying for change to both government and the private sector. Another dimension of this work is to assist meso level organizations created to stimulate upgrading and competitiveness of industries to design better and more relevant programmes, developed organizational plans, and diagnosing industries to find systemic intervention points. I am involved in several cluster development programmes, and I am also working quite a bit with universities to better respond to the (often unarticulated) needs of industries. Lastly, I am assisting several large international and national buyers to develop their South African supply chains. This work is partly fueled by the public sectors increased emphasis on localisation.

For me all of this can be summarized under the heading of upgrading innovation systems, and building new industrial competencies. Sometimes I describe it as modernizing industries, or to stimulate technological upgrading of industries and regions. My customers do not often use these words.I thought it would be interesting to perhaps share with you how some of my current customers describe the work I am doing. I will not share their details due to the sensitivity of the work I am sometimes involved in.

The universities I work with describe my work as :

stimulating industry- academia relations around upgrading and regional innovation,
facilitating the improvement of technology transfer,
developing industry partnerships, research strategies and applied research programmes. This involves improving innovation within the academia
improving innovation systems that the university forms part of by designing appropriate support programmes

The industry development organizations I work with describe my work as:

facilitating the improved competitiveness of industries,
facilitating change processes in industry in order to unlock new markets and improve competitiveness,
developing public sector programmes that are responsive to the needs of industries.
High level policy advocacy and industry partnerships

For the government officials that I work with my work is:

developing industry – government partnerships,
supporting the development of local industries,
brokering partnerships,
shaping policy based on industry insight and
developing practical development programmes.

Why do I share this with you? The insight for me is that I am using a limited number of tools (mainly facilitation skills, some insight into manufacturing and technology transfer, insights into innovation systems, organizational development and a fearless approach to engaging with industry leaders) to work with a largely overlapping set of stakeholders.

Although I think that I am basically doing the same kind of work, my customers describes my work in completely different ways, even if ALL my current customers have the same objectives (they all want to improve manufacturing competitiveness and grow the local industries).

This work is all based on process consulting and I am very happy that I have a complementary set of customers that are all eager to work together to achieve our common goals. The work is very intensive and I am also grateful that I have contracts that have sufficient time and sufficient flexibility in so that my work can be supportive and responsive to the people I work with.

Note 1: Right at the moment I hardly work for any donors agencies in South Africa, mainly because private sector development and especially innovation system promotion in South Africa is not very high on their agendas. I do however assist with capacity building, coaching and programme design work occasionally.

Note 2: One important contract is with GFA on behalf of GIZ where I am supporting several technology stations at universities to improve their technological services to the industries they work with. This work is included in the descriptions above about the work I do for universities.

Note 3: The work I am currently doing is all possible due to the experience I have gained by working for organizations such as the GIZ (then GTZ) on issues such as innovation systems, university industry relations and local/regional economic development.

Is there a hierarchy of the different levels of innovation?

In my daily work I often switch between working on firm level issues about innovation to working on the more systemic level of innovation systems. My focus is mainly on the institutions that are trying to get whole regions or sub-sectors to uprgrade technologically. In other words, they want modernization of a particular sub-sector or region for a specific reason.

In the last few years I have noticed some patterns that explain why these technology intermediaries are not hitting their targets:

1) they focus mainly on the micro level of the firm, and don’t move to the innovation system level. Moving from one firm to many is not necessarily systemic or holistic.

2) an underlying assumption in many Technology Transfer or economic development programmes with an emphasis on technology is that the problem is that firms cannot innovate (for whatever reason), therefore agencies must innovate on their behalf. It therefore takes a very narrow perspective that innovation is about products or processes, and that technology is about hardware + training. It completely miss the point that innovations emerge from within a specific framework, and that giving a firm a new product on a platter is not technology transfer nor sustainable.

3) a third pattern is the assumption that improving innovation in industry is an engineering problem (see my post on what is meant with technology). It completely ignores that fact that an innovation system is a dynamic system that is mainly about how different economic agents interact, engage, share information, learn together, and remember (learn) what works and what doesn’t work. Freeman (1987:1) defined an innovation system as “the network of institutions in the public and private sectors whose activities and interactions initiate, import and diffuse new technologies.” The emphasis is mainly on the dynamics, process and transformation of knowledge and learning into desired outputs within an adaptive and complex economic system.

4) Innovation is somehow disconnected from creativity and creative thinking. Creativity in innovation is all about getting different people to think together. Maybe they agree, most often they don’t. But somehow they need to recognize constraints, threats, opportunities and then work from there. It requires some tension and often a lot of argumentation. It isn’t serendipitous journey. It requires strong leadership and a lot of guts. And it takes time.

Let me stop here.

Earlier in a post I have written about the different levels of innovation that are commonly identified as:

Product or service innovation
Process innovation
Business model or organizational innovation
Social or societal innovation

The funny thing is that everyone is focusing on helping firms to develop new products or maybe even a better process. Yet, the biggest obstacles to product and process innovation is not a lack of effort, or funding or ideas. It is complacent or outdated management, or perhaps business models that worked in another time but that has not kept pace with change. How often do we hear that someone we know or even a whole group quit a firm to start their own enterprise because management wouldn’t listen to their ideas?

Lets get practical. For example, large parts of our South African manufacturing sector is focused on the manufacturing of components designed somewhere else in the value chain. This is most likely explained by several factors including the concentration of corporate ownership in a few industrial holdings (a left over from sanctions and import substitution) and the presence of highly organized supply chains in many sectors like Automotives or electronics. Partial success in getting larger firms to compete internationally, combined with local framework conditions that inhibit the growth of small firms (for instance inflexible labour laws, collective bargaining, Black Economic Empowerment and a preference to procure through tenders) re-inforce this pyramid structure, with many component manufacturers at the base and product integrators (OEMs) at the top of the pyramid. The product owners dominates both their supply chain, the product architecture and the performance criteria. Most component manufacturers are squeezed both on their margin but also on the processes that they may use.

Are we getting things the wrong way around?

To help manufacturers to design new products and services is not entirely a bad idea, but this doesn’t address the systemic problem. We need business model innovation. We need new OEMs to emerge with new product combinations that draw on existing or easy to develop component competencies. Or we need some business model innovation where some traditional component manufacturers expand their business by manufacturing their own products. Perhaps we need some manufacturers to diversify horizontally, or vertically.

I have played with this idea with students in my classes, and almost all business model innovations will lead to interesting product, service and process innovations. However, we can generate long lists of product/service and process innovations that have not resulted in business model innovations. Partly because these firms cannot sell their new innovative products to their existing customers, they also need to diversify their markets which sometimes requires a completely different business approach.

To stimulate a sub-sector or a region to upgrade cannot be achieved only by helping one firm or a few firms at a time. Somehow we have to challenge management models, we have to help business people identify areas for management innovation. This will result in business model, process and product/service innovations that are self perpetuating; meaning businesses can do it again and again because their competence have increased. Actually, the best impulse into innovation is still modern management that is strategic not only about the internal dynamics of the enterprise, but that is also looking outside of the firm into the market place, at their collaborators, new technologies and their competitors. With firms that are aware of what is going on inside and outside the discussion about innovation is a fantastically creative discussion about what is possible or impossible, with the latter gives rise to very interesting discussions. But a firm that is under-managed or managed with outdated principles is very difficult to assist. Giving the latter group a new product, or taking them to a new market simply won’t do the trick.

Perhaps this is where creative destruction of Schumpeter comes in. Sometimes the only way to upgrade a sector is to allow enterprises with new combinations of management, ideas, products and processes to outcompete older more complacent firms. Hopefully some of the incumbents will at least be able to imitate the signals from the new entrants.

I propose a toast to business model innovation.

Job creation for electronics contract manufacturing

I know some readers are waiting for the continuation of the series on the services sector. Apologies for the delay.

In the meantime, here is a link to a lead editorial that I wrote for the EngineerIT Journal in Southern Africa. The article is informed by my ongoing work in the electronics sector in South Africa. Advanced sectors such as electronics are often overlooked in developing countries because they don’t seem to absorb low-skilled staff. However, these advanced sectors play a critical role in upgrading our economy, drawing out different kinds of suppliers, experts and even customers.

Perhaps our greatest asset for the advanced manufacturing sectors in South Africa is that we have some very demanding customers here and in the region. These demanding customers wants sophisticated products that solve problems that are rather unique. For instance, the depth of mining in the region requires much more robust products that can work for long periods in tough environments. Also, the sophistication of the international crime cartels in the region place stringent demands on the police force in terms of communication technology. I can cite many other examples of how demand shapes the development of certain sectors.