Which Industries are Dying?
Business has never moved so fast. Sectors from agriculture to utilities are in the midst of disruptive revolutions that are transforming where and how business is conducted. Three influencing factors are providing the thrust. Firstly, the increasing percentage of global profits captured by emerging markets; secondly, the influence of technological advancements, coined “Industry 4.0,” that offer companies the ability to optimise their services by harnessing data; and thirdly, wide-scale automation. A common wisdom holds that some industries are more vulnerable than others to losing-out to the accelerating pace of technological development. The reality is a little more terrifying. Any business in any sector is ultimately vulnerable if they don’t adapt and forward plan.
“The waves of industrial revolutions that have already washed over modern history have created more jobs than they have depleted.”
A recent study by McKinsey & Company broke down occupations into a number of activities and calculated their automation potential from there. The results were surprising: fewer than 5 percent of jobs can be fully automated through today’s existing technologies, yet roughly 60 percent of jobs could have 30 percent of their activities automated. It is likely that mass automation will enter various sectors in the next 30 years, but its emergence will not exterminate jobs, rather it will transform the day-to-day activities of many employees, from entry-level to C-suite positions, who, McKinsey predict, could even have 25 percent of their tasks automated.
The challenge automation poses to many industries is therefore not one of extinction survival, but one of capitalising on opportunity. There is going to be a balance to strike between automated and manual tasks, but if companies get it right it is capable of boosting GDP from 0.8 percent to 1.4 percent annually. This challenge will be most critical for accommodation and food services, manufacturing, transportation and warehousing, agriculture, and retail trade, sectors that all have predicted automation potentials of over 50 percent. This is not to say these industries are in danger of dying out—but businesses will need to adapt or face losing out to more forward-thinking players. The domination of retail, for example, by e-commerce platforms, or that of the automotive industry being disrupted by big tech, testifies to the need to stay ahead of competitors, both incumbent and incoming., To that end, it is increasingly being advised for companies to invest in self-disrupting think-tanks.
“The manufacturing industry last year accounted for just over 15.5% of global GDP, down from over 17.5% in 1997.”
At the same time, “Industry 4.0,” or the subset of the Fourth Industrial Revolution relating to connectivity and real-time data, will offer traditionally regressing industries a way to survive. For example, the manufacturing industry last year accounted for just over 15.5 percent of global GDP, down from over 17.5 in 1997. Yet, the industry stands to gain the most from the technological developments that define Industry 4.0: namely, big data, advanced analytics, human-machine interfaces, and digital-to-physical transfer. These developments will help manufacturers correct data inefficiencies, a fix that could boost productivity by up to 25 percent, and will help to maximise process effectiveness, drastically reducing opex. To capitalise on these developments and offer the consumer the best way to purchase manufactured material, the traditional business model will need to change. Indeed, 84 percent of manufacturing suppliers interviewed by McKinsey expect new competitors to enter the market soon.
The continued globalisation of the world’s economy will also be a concern. An article published in the Harvard Business Review back in 2015 posited the end of the great divergence, with companies from emerging markets capturing an ever-increasing share of global GDP. Western companies, having enjoyed security and a profit-boom over the past 40 years, are facing a fresh surge of competition from foreign disruptors. The business models for these companies differ from the traditional western structure, which has focused on broad, public ownership, board structure, and stock exchange listings. Competitors from eastern markets, for example, are increasingly prioritising long-term growth and revenue over quarterly earnings. Western businesses hoping to maintain or even extend their lead over emerging market rivals will need to invest ever more resources into understanding rival home environments. Half of GDP growth over the next few years will arise from smaller cities in emerging countries. With global consumption set to reach $65 trillion by 2025, businesses across the world must understand how to capture emerging markets or risk massively losing out on returns.