ANALYSIS & OPINION
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Digital production to 'fundamentally change' business models, says Photonics21 president

Jessica Rowbury reports from the General Assembly of the Photonics Public Private Partnership Annual Meeting 2016, which took place in Brussels on 1-2 March

Will digital communication become a vital element within Europe’s economic structure, or will it lead to markets being dominated by large internet companies? This question was asked by Dr Michael Mertin, CEO of Jenoptik and president of Photonics21, during a speech at the General Assembly of the Photonics Public Private Partnership Annual Meeting 2016.

The digitisation of industry, or Industry 4.0, will influence production processes, consumer behaviour, and business models like no other technology before, Mertin said during his talk discussing its impact on Europe's economic ecosystem. ‘What I am convinced of is that the rising tide of digitisation will induce fundamental changes to classic global economic structures and business models, as well as to our private lives,’ he said. 

European Commissioner for Digital Economy and Society, Günther Oettinger, pointed out as part of his keynote speech that the digitisation of European industry presents a huge opportunity for Europe, adding that ‘photonics is the heart of our digitisation strategy'.

This requires the use of photonics to deliver a competitive edge to companies and their products all over Europe, Oettinger said, in every industrial market. ‘It is more than just making the photonics sector stronger,’ he said. ‘It means using photonics to make other industrial sectors, including the traditional ones, more innovative and more competitive.’

By 2020, German industry would have spent an estimated €40 billion on the digitisation of its enterprises, according to a study referred to by Mertin in his speech, but is expected to gain an estimated €75 billion due to improvements in efficiency. The report forecast that the widespread digitisation of production processes will radically change industry, and will affect SMEs in particular, Mertin added.

But as Europe moves towards Industry 4.0, companies must be aware of how digitisation will affect supply chains and markets, in order maintain control rather than letting it fall into the hands of large internet companies.

In the future, manufacturers will sell the majority of products through a digital interface, a business model that companies such as Google and Apple have been using for some time, Mertin said.

Markets will be defined by a system that offers best-fit products and forward prices through targeted and personalised use of expert systems, according to Mertin.

'These systems will connect consumers and customers to a world of production operation – that’s a tremendous change on how we act today compared to how we will connect companies and customers tomorrow,' he commented.

As a result, ‘supply chains will be disconnected from markets and ruled by expert systems and through digitisation', Mertin added. ‘The market dominance will shift to those who can establish and control access to both markets and consumers through a variety of digital interfaces.'

Mertin again referred to large web companies that have turned the trend of digitisation to their advantage, without adversely affecting their own supply chains.

'Europe is still in a good position in terms of digital readiness for Industry 4.0... [but] we need to exploit our favourable position to a greater extent,' he said. 'We have to be aware of the success stories and the business models of customer-orientated companies such as Google, Facebook, Apple, Amazon. They have already realised what we try to understand.'

So, does Europe want digital communication to become a vital element within its economic structure – to have control – or does it want this to be in the hands of large internet corporations, Mertin asked the representatives of companies, organisations, and universities sitting in the room.

‘If we choose the latter, we can be sure that the companies that control the access to digital gateways will prioritise their own business models before considering the interest of industry and customers,’ Mertin said.  

The main challenges that will hamper the advancement of digitisation in Europe include a lack of industry standards and a dedicated digital infrastructure, as well as system uncertainties concerning data protection and security.

In addition, Mertin pointed to the fact that many areas in Europe still have no access to the infrastructure necessary to provide sufficient nationwide broadband connection to enable Industry 4.0.

Other countries, in particular the United States and China, have stepped up their efforts for digitisation, Mertin commented. For example, the United States’ Industrial Internet Consortium was founded in March 2014 to bring together the organisations and technologies necessary to accelerate the growth of the industrial internet by identifying, assembling and promoting best practices. Membership includes small and large technology innovators, vertical market leaders, researchers, universities and government organisations.

‘This consortium has already begun setting industry standards,’ said Mertin, adding that it receives generous support and financial assistance from the US government. ‘This is the heart of Europe’s industry - this is a take on us, on our core competency.’

He also referred to increased funding in China working on the same agenda. ‘Both the US and China are pursuing the same objective as we are, but it seems to be that they are faster,’ Mertin said.

‘In this context, the systematic approach is highly recommended, starting by examining what digitisation or Industry 4.0 actually means for our business models, our value chains, and our value proposition,’ Mertin said.

Commissioner Günther Oettinger believes that the Public Private Partnership must be central to strategy in delivering the European Digitisation of Industry. ‘We must adopt a wholesale approach: every sector has a competitive role to play in the digitisation of industry.

‘We need more digital innovation hubs in Europe so that every company, in particular every SME, in every region has access to the very best photonics expertise and innovation and manufacturing capability,’ Oettinger continued. ‘This is an ambitious goal but we need to be ambitious.’

He added that a stronger collaboration between regions, member states and the EU is required to make the digital innovation hubs deliver.

Further information:

Photonics21

Günther Oettinger 

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