Automation has greatly impacted the industrial landscape and reshaped how businesses operate and compete, especially in the manufacturing sector. But there is a disparity in technology adoption in manufacturing, particularly in small and medium enterprises (SMEs) in the United States and its Asian and European international counterparts. In these regions, automation was embraced enthusiastically, increasing efficiency, cost savings and improved product quality. American manufacturing, especially at the SME levels, has been slower to adopt automation technologies. With a new era of industrialization looming—Industry 5.0—it’s critical for government organizations to develop unified policies that support automation investment and help U.S. SMEs to remain competitive and innovative.
Industry 5.0 is the successor to the fourth industrial revolution, or Industry 4.0, which brought increased automation and decentralized decision-making worldwide. While Industry 4.0 prioritized efficiency and productivity, the Industry 5.0 approach seeks to place humans and overall societal well-being at the center of the production process with three key pillars: resilience, sustainability and human-centricity. Returning humans to the industry framework does not mean eliminating automation. Instead, Industry 5.0 envisions a collaboration between humans and robots, the Internet of Things (IoT), artificial intelligence (AI) and machine learning (ML). As the Association for Advancing Automation explains, “Industry 5.0 […] puts more attention on highly skilled people and robots working side-by-side.” To leverage Industry 5.0, however, companies need to have integrated the automation that will drive this human-centered, technology-driven framework.
Historically, U.S. SMEs could leverage their size and agility to lead innovation and new technology implementation. Larger enterprises were, by nature, slower. These companies often acquired small businesses to integrate newly developed innovations into their ecosystems. Over the decades, these larger businesses with capital became innovation hubs. SMEs fell into a vicious cycle: they lacked the resources to conduct research and development, and it became increasingly difficult to implement new technologies developed externally. Due to their inability to embrace cutting-edge technologies, which could have otherwise ensured cost efficiency, SMEs forfeited the delicate balance between pricing and costs. This equilibrium had been their ticket to maintaining a competitive edge within the market. Consequently, many family-owned enterprises are vulnerable to financially driven investors equipped with ample capital, enabling them to implement vital operational transformations.
Widespread adoption of and investment in automation technology is a necessary first step before an Industry 5.0 framework can be considered. On the global stage, Asia leads the way regarding automation. The International Federation of Robotics (IFR) measures manufacturing automation by the number of robots per 10,000 employees. In 2021, according to an IFR report, six of the top 10 countries for robot density were in Asia, with the Republic of Korea (South Korea), Singapore and Japan taking the top three spots. South Korea has held the top spot since 2010 and has a robot density seven times higher than the world average.
Each of the top three countries has also demonstrated a commitment to making it easier for SMEs to adopt and implement new technologies and automation. South Korea announced the Digital New Deal, which included a pledge to invest $4.8 billion in data, networks, AI and additional investments to support SME technology adoption. Japan introduced the IT Introduction Subsidy to provide grants to SMEs in various sectors, including manufacturing companies. In addition to the SMEs Go Digital program to promote the adoption of advanced digital technologies, Singapore also introduced measures to support digital transformations totaling $359 million. While these countries’ high technology adoption rates can’t be attributed to a single factor, the investment in and support of SMEs likely plays a significant role.
Taking fourth and fifth place in the IFR report were Germany and Sweden, both members of the EU and demonstrating support for SME automation and technology adoption. Sweden’s Agency for Economic and Regional Growth ran several programs called Smart Industry that focused on supporting digitization, automation, and robotization among SMEs. Although these projects have closed, Sweden supports small and medium-sized manufacturing companies looking to increase automation and robotization with funding through Automation Checks.
In Germany, the Federal Ministry of Economy and Climate Protection established 25 centers nationwide dedicated to providing information and support to SMEs, or “Mittelstand,” seeking to increase and improve digitization and automation. These Mittelstand 4.0 centers are part of the Ministry’s larger efforts to support SMEs. In addition to publishing numerous reports and bringing together various thought leaders, the Commission also launched an annual Industry 4.0 award in 2022.
As for U.S. manufacturing policies, the Creating Helpful Incentives to Produce Semiconductors and Science Act (CHIPS Act), signed into law in 2022, aims to boost domestic semiconductor manufacturing and other cutting-edge technologies. The Build America, Buy America Act (BABAA) of 2021 requires federally funded infrastructure projects to use materials produced in the United States. Unfortunately, both lack any specific support for SMEs.
To adequately address the automation and technology gap in manufacturing, the U.S. needs a unified policy to support innovation and adoption at the SME level rather than the current piecemeal efforts. This approach should ensure access to capital across regions and sectors and provide resources such as education and connections within the value chain.
The World Economic Forum (WEF) data supports the benefits of this kind of policy framework; in the 2021 survey, financial concerns were the most common barrier to technology adoption and innovation for SMEs, including a lack of government support during the pandemic. The absence of industry standards also discouraged investment in digital technology. Its policy recommendations included improving labor skills, providing financial support and addressing infrastructure limitations.
While adopting automation technology may seem like a significant investment, especially for SMEs, there are substantial benefits. Improving the efficiency of the manufacturing process and adopting AI, ML and other automation technologies helps increase productivity and reduce costs. Additionally, automated manufacturing reduces human injury, produces uniform and consistent results, and enhances competitiveness.
Technology is often accused of being an employee’s death knell, but reality doesn’t support this. A 2011 McKinsey report examining the impact of the internet on jobs, growth and prosperity found that for every job destroyed, 2.6 jobs were created. Another more recent report compared the number of jobs lost to those gained due to the spread of computers between 1980 and 2015. The report found that while the adoption of computers eliminated 3.5 million jobs, it created over 19 million. The jobs automation does eliminate are often replaced by higher-skill jobs and potentially better paying; technology offers the opportunity to upskill the workforce while reaping the benefits of increased automation.
U.S.-based manufacturing is at a critical juncture. It risks losing competitiveness on a global scale as its Asian counterparts leverage the benefits of advanced technologies and government investment to drive innovation and efficiency. Failure to adopt automation by U.S. SMEs hampers productivity and limits the ability to respond to the market with agility. The opportunities to increase automation, not only on the manufacturing floor but throughout the whole enterprise, also offer a chance to control the impacts on employees. Automation doesn’t happen by itself—by investing in people who can develop, customize and implement automation and technology solutions, organizations will create new, well-paying jobs and safeguard their competitiveness in the market.
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