Antti Peltomäki. Industrial challenges can become opportunities

The fourth industrial revolution, robotization, the disappearing traditional sectoral concept is just part of the challenges that await the industry in the European Union. Will the EU continue to demonstrate a progressive approach and will the industry be able to keep up with the times? More about this in the interview with Antti Peltomäki, Deputy Director-General for the Internal Market, Industry, Entrepreneurship and SMEs at the European Commission.

What are the challenges and opportunities for the EU industry this year and in the nearest future? What can the EU industry expect in the nearest future?

Deputy Director-General Antti Peltomäki
Deputy Director-General Antti Peltomäki.

The industry is a key driver of productivity and innovation, and the basis of economic prosperity in Europe. The EU is a world leader in many industrial sectors, such as pharmaceuticals, chemicals, mechanical engineering and fashion industries. The EU industry accounts for two thirds of the EU’s exports and provides jobs for 32 million people, with 1.5 million of these jobs created since 2013. Europe’s lead industrial position has been built on a Single Market with 500 million consumers, strong value chains, a talented workforce and a world-class science base.

However, our industry is also facing new challenges: rapid technological development, intense global competition or sustainability challenges. Europe is well placed to respond to these challenges and reap the opportunities of the new industrial age. To keep its competitive advantage the industry needs to adapt continuously and embrace innovation, digitisation and the transition to a low-carbon circular economy. Here comes the industrial policy into play. Its role is to strengthen the industry’s ability to adapt and innovate.

That is the objective of the renewed EU industrial policy strategy – establishing a framework that empowers EU industry to adapt to these challenges and turns them into opportunities. For example, our new EU plastics strategy will create new possibilities for the industry and encourages EU leadership in plastics recycling. Artificial intelligence and the closely related field of connected and automated driving are coming our way. The industry is already preparing and we want to give the private sector as well as the citizens in Europe the right framework for that. We will soon present dedicated strategies on both issues.

Who would be better placed to give indication about the future trends than the industry and stakeholder organisation themselves? The Commission has therefore established a high-level roundtable called “Industry 2030” to specifically discuss the challenges and opportunities for the medium and longer term. We also organise the annual Industry Days. This year, they will take place in Brussels on 22 and 23 February. Some 50 more events will happen during that week across Europe.

What do you think about the EU opportunities and competitive advantages in the global world?

EU industry continues to retain a leading position in many sectors on the global market. This is for example true for the transition to a low-carbon and circular economy. Thanks to continued productivity growth since 2014, the EU has also closed the productivity gap to the US. And it continues to be the main destination for foreign direct investment, having attracted €424 billion of foreign direct investment in 2016.

Recent data confirms that Europe’s industry is back on track since the economic crisis. Industrial production has been increasing and business creation and R&D investment are also on the rise. In 2017, the Purchasing Managers’ Index that indicates the health of the manufacturing sector reached its highest level ever since 20 years.

The way companies have changed rapidly in the last 20 years. Not only people are more interconnected, businesses are as well. Worldwide companies from the industrial sector get more and more integrated into cross-border business activities and global value chains. European companies doing business cross-border in our Single Market also find it easier to compete at global level. Today manufacturing companies also bundle their products more often with related services than before. An example would be an application accompanying a product. This is where Europe’s industry has competitive advantages. The services component in industrial value-added is higher in Europe than in other regions.

To respond to global competition and rapid technological change, it is essential that EU industry embraces innovation. Industrial companies need to adapt their business models and invest in new technologies. Reaping the benefits of the industrial transformation requires substantial investment in people’s skills and talents, advanced manufacturing equipment and intangible assets. It also requires a better functioning of the best tool we have in Europe for industrial competitiveness: the European Single Market.

What do you think about the perspectives of the manufacturing sector of Eastern Europe and Baltic states?

First of all I would like to point out that the economies of those countries are diverse, with different potential and perspectives. Of course they also have things in common, especially when looking at the Baltic States. They have a good chance to further integrate and climb higher in the European and global value chains. So far their industries are dominated by traditional sectors with lower R&D intensity and many firms are involved in contract manufacturing. The strong focus on the digitisation of the manufacturing sector and the solid support for start-ups are promising for the future of the Baltic economies. The Estonian Council presidency has shown us as well that the Baltic Tigers have become politically and economically more influential in Europe. But some challenges remain. The countries will have to address issues such as skills shortages and investment in innovation, which is important for maintaining and improving their competitiveness in the longer term.

Lately, there has been a lot of talk about the 4th industrial revolution, industrial automation, digitisation and domination of the service industry. The traditional concept of sectors is vanishing and a lot of attention is being drawn to intersectoral business. What are the perspectives in this field?

Technological breakthroughs in areas like robotics, Internet of Things, artificial intelligence, bio-economy and new energy systems are hallmarks of the new industrial age. Automation, enabled by information technologies, is transforming traditional manufacturing processes and the nature of work. The service component is becoming ever more important.

Therefore, it is essential to boost the uptake of such smart technologies alongside industrial value chains. This is especially important for small businesses, as the uptake of digital technology by SMEs is still low: according to studies, more than 90% of SMEs are lagging behind in digital innovation.

The approach to upgrade industry for the digital age is based on three pillars:

• First, companies need support to experiment with these technologies. Digital innovation hubs, testbeds and other technology centres need to reach out to companies that are not yet engaged in the digital transformation and offer support services on technologies, processes and business models.
• Second, we need to provide a framework that removes obstacles for digitisation. For example, addressing cybersecurity, ensuring interoperability, allowing a free flow of data and facilitating investment in state of the art digital infrastructure.
• Third, we need to train and re-train our citizens to empower them to adapt to the digital age.

By adapting manufacturing processes to the production for customers seeking individuality and the personalized assortment or markets, directly linking production processes to consumers, do you think sustainable industrial development and sustainable productivity will be ensured?

Innovation and value creation are changing in profound ways. The new generation of consumers expects co-creation and sustainable products. Manufacturing companies and service providers will work more closely together to build consumer driven solutions combining products and services. Regional and local customisation will also have a major effect on how industry will operate.

Diverse global markets, distributed manufacturing and an increasingly informed and prosperous global middle class will set many challenges to industry. The new global market will lead to regional diversity of consumer choice, with different regions often requiring very particular products, with different features and different pricing policies.

The industry will have to respond by significantly improving its market analysis capabilities to capture consumer requirements adequately. The production of goods and services will therefore have to address mass customisation, and become localised and networked to be closer to customers, to respond to local demand, and to decrease costs.

Antti Peltomäki, is Deputy Director-General for the Internal Market, Industry, Entrepreneurship and SMEs at the European Commission. In this function, Mr Peltomäki is responsible for Industrial transformation and Advanced value chains; Consumer, Environmental and Health Industries; and Innovation and Advanced Manufacturing Sectors.

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