Beyond The Bad News - EuroFinance · + $ 14 Trillion to global GDP Accenture, 2015 (by 2030) + $ 11.1 Trillion in 9 economic settings* * Factories, Worksites, Offices, Retail environments,

Beyond The Bad NewsCelebrating Technology And Innovation

Marco AnnunziataAnnunziata + Desai [email protected]

http://www.annunziatadesai.com/

Agenda

1. Innovation Hype vs Economic Gloom

2. Digital Industrial Revolution

3. Impact on Industries

4. Impact on Global Trade & Global Supply Chains

5. Skills & Automation

6. Strategic Implications

Agenda







Why The Pessimism…

World economy doing fine, advanced economies need “rehab”

When There Is So Much To Be Excited About?

Supply vs. Demand

U.S. Productivity Growth OECD Productivity Growth

Sources: BLS; OECD

So Much Innovation, So Little Productivity

Innovation is…

Powerless Mismeasured Not in place yet

Investment Trending Up

• Investment lagged in the recovery…

• …now on a more decisive uptrend

• Investment to GDP ratio is just back to the historical norm, has more room for growth

Sources: BEA

Productivity Waking Up?

Too early to tell, but promising

Sources: BLS

Economic Environment Spurs Innovation

• Past focus on cost-cutting, financial ops – no more low-hanging fruits

• Productivity has languished, needs reboot

• More intense global competition

• Greater uncertainty

• Digital-Industrial innovations coming of age

• Talent harder to find

• Turning trend for funding costs, wages

Agenda







The Great Promise Of Digital-IndustrialGE, 2012 (by 2030)+ $ 15 Trillion to global GDP

+ $ 14 Trillion to global GDP Accenture, 2015 (by 2030)

+ $ 11.1 Trillion in 9 economic settings*

* Factories, Worksites, Offices, Retail environments, Logistics and navigation, Vehicles, Cities, Home, Human

McKinsey, 2015 (by 2025)

“Most hyped technology of 2014”Gartner

Digital-Industrial Revolution

A.I. Robotics Material Science

Additive Manufacturing

Generative Design

Energy Health Care Manufacturing

Disrupting Design…

Source: Autodesk

• Define the goal, not the solution

• AI + Cloud Computing

• Mimic nature’s evolutionary approach

• Adapt to different manufacturing techniques

…And Production

Source: GE Reports

• Faster / flexible prototype-test-produce cycle

• New materials & geometry

• Lighter & stronger components

• GE jet engine: 822 à 12 parts

Agenda







IIoT: Where Are We?

• Past the initial skepticism – companies now believe in the value proposition

• Fear Of Missing Out begins to take hold

• Global IIoT arms race is on: Germany, China, Japan, Korea

• Companies investing at different paces

Adoption Hurdles: Uncertainty

• Cybersecurity concerns

• Concerns on upstream/downstream integration: can my suppliers / distributors cope?

• Compatibility – am I choosing the right platform?• Germany’s IoT Analytics estimated 450 platforms (2017)

• Value – is it worth the investment?

• Fast pace of new innovations such as A.I., Digital Twin, blockchain

Adoption Hurdles: Management And Talent

• Workforce skills

• Need to re-organize processes

• Need to adapt management practices

• Need for IT/OT integration

Where Is The Fastest Progress?

• Aviation

• Energy

• Transportation & Logistics

• Manufacturing (very uneven)

Innovation & Success: Unevenly Distributed

Productivity (value added per worker, OECD countries)

Source: OECD

Widening gap between the best and the rest

Increasing Divergence

Source: OECD

• The “best” firms (top 5%) are doing better – faster productivity growth

• The “rest” are doing worse and falling further behind

• Less churn: harder for laggards to make it to the top 5%

Easier to survive, harder to succeed

What Drives Success?

Source: OECD

• It’s not how much you invest, it’s how well you invest:ü Introducing better technologiesü Success at combining ‘intangibles’: IT, OT, new processes à complementarity is keyü Digital matters: divergence most pronounced in ICT-intensive industries

STAKES GET HIGHER

• More and more winner-takes-all; catching up gets harder• Rising importance of platforms

Agenda







Reshaping Global Trade

• Global trade growth rate has halved, with no impact on global growth• China now exports just 9% of its

production, share halved in last ten years• EM share of global consumption up

50% in last ten years• Emerging Asia imports just 8% of its

intermediate inputs, share halved in last two years

Source: McKinsey Global Institute, “Globalization in transition,” January 2019.

Innovation Reshapes Global Supply Chains

• Less of 20% of trade now driven by low labor costs

• Investment in IP, R&D, Brand rose to 31.1% of revenue from 5.5% in 2000

• Innovations like 3D printing favor reshoring…

• …but also localization to EM

• Trade in (digital) services growing faster than goods trade, poorly measured

Source: McKinsey Global Institute, “Globalization in transition,” January 2019.

Free Trade Was Never Really Free

• Protectionism has been creeping up for some timeØTariffsØLocalization requirements

• Companies have been adapting• Going forward this will continue:

expect protectionism to evolve and companies to keep adapting as countries negotiate new rules of engagement

Average Tariff Rates

Sources: WTO

Agenda







Skills And Automation

The Robots Are Coming!

670k U.S. jobs “stolen” by robots

2013- Oxford University: 47% U.S. jobs automated within next 20 years (~80m jobs)

40x jobs created

2019 – 20m new jobs created; more openings than unemployed & Workers shortages across industries

They Are Coming For Your Job

Frey and Osborne (2013) “The Future of Employment: how susceptible are jobs to computerization?” Oxford University

Skills: The New Scarce Resource

Sources: Autor and Price (2013) “The changing task composition of the US labor market”; BLS

2009 2010 2011 2012 2013 2014 2015 2016 2017

0%

50%

100%

150%

200%

250%

300%

%

Openings

Hires

U.S. Manufacturing Openings & Hires, Seasonally Adj., change since June 2009

Change in demand for workers tasks in the U.S. economy

Skills: Priorities And Risks

Priorities• Boost digital skills, STEM…• …but don’t neglect traditional

manufacturing skills• Need closer dialogue between schools

and companies• New technologies can help learning

and training

Risks• UBI• “Tech only” myth• “Renaissance” myth• Great Cognitive Depression

The Great Cognitive Depression

Mr. Miyagi

Agenda







Global Industry TransformedFrom

• Talent & Technology in advanced economies

• Cheap labor & growing markets in emerging economies

• Specialized supply chains

• Scale rules at plant level

• Flexible talent, nurtured & deployed globally

• Everyone will chase smart labor

• Global innovation

• Scale rules at network/ecosystem level

To

Investment Implications: Strategy

• Targeted implementation of new tech

• Execution / ability to implement

• Investment in human capital

• Diversify globally

• (Geo)political risk matters more

• Look for ability to attract global talent

Investment Implications: Best Bets

• Personalized medicine & health care IT

• Smart grids / energy systems

• Distributed manufacturing

• Generative design

• Infrastructure

• New materials

The End

This is just the beginning…

Documents

Beyond The Bad News - EuroFinance · + $ 14 Trillion to global GDP Accenture, 2015 (by 2030) + $ 11.1 Trillion in 9 economic settings* * Factories, Worksites, Offices, Retail environments,