Industry 4.0: is Brazil ready for the change?

. Aug 17, 2018
industry 4.0 brazil innovation investments

During Brazil’s worst recession on record, no economic sector lost more than industry. For 14 months in a row, Brazilian industry posted negative results. As a result, industry started to account for a smaller share of the GDP – even in a scenario of economic retraction. Rock bottom came at the beginning of 2016, when Brazil’s industrial production was almost 18 percent smaller than in January 2014. The picture is a bit better now – but the truth is that Brazil’s industry is at a crossroads.

brazil industry 4.0 industrial output economic crisis recession

Brazil’s statistics agency divides the industrial sector into two categories: extractivist and transformation. The former is dependent on external factors, especially for a country that relies so heavily on commodities. That’s because most of the production of things like iron ore is intended to be sold to other countries. That’s why its behavior is different. 

While the sector has posted timidly better outputs, it shows other signs of stagnation. The productivity index has sharply fallen between 2006 and 2016 – 7 points. This led to Brazil’s manufacturing sector dropping from the world’s 5th most competitive in 2010 to 69th place in 2016.

How can Brazil reverse this trend? Three words: investment in innovation. According to MIT professor César Hidalgo’s Atlas of Economic Complexity, Brazil ranks 51th in the world, despite being the world’s 21st largest exporter.

</span></p> <hr /> <p><a href=";partner=undefined&amp;product=undefined&amp;productClass=SITC&amp;startYear=undefined&amp;target=Product&amp;year=2016" rel="noopener noreferrer"><img loading="lazy" class="alignnone size-large wp-image-7477" src="" alt="industry 4.0 products feasible chart 2 harvard complexity" width="1024" height="651" srcset=" 1024w, 300w, 768w, 610w, 1808w" sizes="(max-width: 1024px) 100vw, 1024px" /></a></p> <hr /> <h2>Industry 4.0 already a reality</h2> <p><span style="font-weight: 400;">In south Germany, a factory set up by Homag Group produces furniture faster than ever &#8211; only using machines. Production lines have become emptied of humans, who are now only working in the creative part of the business &#8211; designing pieces and monitoring machines. The name for that is Industry 4.0, in other words, advanced manufacturing.</span></p> <p><span style="font-weight: 400;">According to Klaus Schwab, founder and chairman of the </span><a href=""><span style="font-weight: 400;">World Economic Forum</span></a><span style="font-weight: 400;">, this transformation will be different from anything humans have already experienced. Labeled as the fourth industrial revolution, the principles of Industry 4.0 allow companies to gather and analyze data across machines, enabling faster, more flexible, and more efficient processes to produce higher-quality goods at reduced costs. It comes at a high cost &#8211; thousands of jobs will become <a href="">redundant</a>.</span></p> <p><span style="font-weight: 400;">For Brazil, placing itself as part of the forefront of modern industry will be challenging. The country has not yet been able to catch up with the third industrial revolution, let alone the fourth, says Rodrigo Rodrigues, coordinator of the National Startup Industry Connection Program. On a scale of 1 to 4, Mr. Rodrigues places Brazil&#8217;s industry at a 2.4. </span></p> <p><span style="font-weight: 400;">A survey carried out by 100 Open Startups of more than 1,000 Brazilian companies showed that only 2 percent of them have incorporated any kind of 4.0 technology into their processes. And according to the Federation of Industries of São Paulo (Fiesp), only 41 percent of industries use lean manufacturing, a pre-requisite for the implementation of the Industry 4.0. Also, 32 percent of respondents had not even heard of the &#8220;fourth industrial revolution.&#8221; </span></p> <h2>Despite grim reality, Brazil has potential</h2> <p><span style="font-weight: 400;">For Wilson Nobre, a professor at Fundação Getulio Vargas and specialist in innovation, right now Brazil faces two scenarios: the real and the potential. The first one is what explains the country&#8217;s lack of competitiveness. In Mr. Nobre&#8217;s opinion, Brazil has not &#8220;done its homework&#8221; to be economically successful, that is, research and development have not received the support needed for the industrial sector to develop. </span></p> <p><span style="font-weight: 400;">After the economic crisis that started in 2014-2015, he says, the few companies that actually did research and development (foreign companies) left. Brazilian companies are not able to step into that role, neither are the universities. &#8220;Brazil is losing competitive positions in all international measures: innovation, competitiveness, production, industrial productivity, and government productivity,&#8221; Mr. Nobre says. A survey made in 2017 by the Brazilian Association for Industrial Development showed that 88 percent of the industries do not have an area dedicated to research, development, and innovation.</span></p> <p><span style="font-weight: 400;">A part of this can be explained by a lack of resources: the economic crisis decreased the demand for manufactured goods and companies are operating far below their capacities. Another side of the same coin is culture, Mr. Rodrigues says: &#8220;It&#8217;s also a generational issue. The decision makers in power today are in their 60s, 70s, they are not attuned to what is happening.&#8221;</span></p> <p><span style="font-weight: 400;">But not all is bad news. The professor believes in a more promising future. Brazil&#8217;s advantage relies upon its biodiversity and cultural diversity. These two elements will be essential in a world that will rely heavily on new biotechnologies and where production will be increasingly local, and product development and testing will be a significant advantage. </span></p> <hr /> <p><img loading="lazy" class="alignnone size-large wp-image-7484" src="" alt="brazil industry 4.0 industrial output economic crisis recession gdp" width="1024" height="441" srcset=" 1024w, 300w, 768w, 610w, 1096w" sizes="(max-width: 1024px) 100vw, 1024px" /></p> <hr /> <p><span style="font-weight: 400;">Even if Brazil is not on par with countries such as Germany or the U.S., there are some initiatives trying to combine the needs of the fourth Industrial Revolution with what Brazil already has. In Mr. Rodrigues&#8217; opinion, trying to keep up with developed economies is out of Brazil&#8217;s reach. </span></p> <p><span style="font-weight: 400;">What local startups are doing is applying new technologies &#8211; such as IoT, machine learning, tracking, predictive maintenance, and factory integration &#8211; to the industries machinery to increase productivity and make processes smarter. Bruno Rondani, CEO and founder of the 100 Open Startups ranking, says that startups are increasingly interested in Industry 4.0, &#8220;for the are many opportunities of quick implementation&#8221; and an increasing market. </span></p> <p><span style="font-weight: 400;">&#8220;We should look more at local innovation&#8221;, believes Valter Pieracciani, an industrial innovation consultant. &#8220;We need to recognize these competencies and encourage them, to spur them on&#8221;. </span></p> <p><span style="font-weight: 400;">The Ministry of Industry, Foreign Trade, and Services (MDIC), in partnership with the Brazilian Industrial Development Agency (ABDI), launched in March the Brazilian Agenda for the 4.0 Industry,  a set of measures &#8211; including financial aid &#8211; to assist the productive sector, specifically small and medium-sized industries. In April, the government announced the National Plan for the Internet of Things, part of the Brazilian Strategy for Digital Transformation. </span></p> <p><span style="font-weight: 400;">The plan will focus on healthcare, smart cities, agriculture, and advanced manufacturing. The National Bank for Economic and Social Development and the Financier of Studies and Projects (Finep) will provide financing for IoT projects. Ambev, the beverages giant, has already been establishing connections with startups through hackathons and partnerships, Now, it wants to improve its industrial processes and implement solutions based on the Industry 4.0 innovations.

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Diogo Rodriguez

Rodriguez is a social scientist and journalist based in São Paulo.

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