Managed under PlattformIndustrie 4.0, this effort is led by the German government but includes manufacturing firms, trade associations, research institutions, labor organizations, and academia. Activities include the development and adoption of technical standards, development of broadband infrastructure, enhanced cybersecurity, and accelerated workforce training. Government funding is estimated at $550 million for the first seven years. Implementation will be bolstered through Germany’s network of over sixty Fraunhofer Institutes that are collaborations between industry, governments, and engineering schools in every region; these have a total annual ongoing budget of approximately $2B a year.
Inspiration for Industrie 4.0 comes from Germany’s High-Tech Strategy, a national plan first issued in 2006 to promote research and innovation and revamped in 201o as High-Tech Strategy 2020. The current version identifies ten “future” projects, including Industrie 4.0. The first details of the Industrie 4.0 program were revealed publicly in 2013.
Although broadly applicable to all of manufacturing, implementation has thus far focused on Germany’s leading subsectors: autos and machine tools.
Germany is aggressively developing technical standards and pushing for their international adoption, starting within the EU. PlattformIndustrie 4.0 supported development of the Reference Architectural Model for Industrie 4.0 (RAMI), which is a guide to standards and interoperability. According to a report from ITIF, Germany is aggressively pushing development of its standards, which are widely considered “rigorous, comprehensive, and inclusive.”
Major challenges include (1) acceptance by the country’s small and medium manufacturers, most of which have never heard of the initiative, according to one recent survey, and (2) fostering disruptive innovation. To date, much of the innovation under Industrie 4.0 has been incremental.
Made in China 2025
In 2011, China surpassed the US to become the leading manufacturing country in terms of total value added. This achievement is even more remarkable due to the speed of the country’s ascent in this sector. Its rise coincided with China’s admission to the WTO just ten years before. However, China believes the strategy that led it to this point is neither sustainable nor desirable. They recognize the threat posed by lower cost production in developing countries, particularly elsewhere in Asia. China lags some developed economies in producing goods with the highest value add. For China, it is imperative to avoid the “middle income trap” that has plagued so many other developing countries: industrialization raises GDP per capita, but only to a certain level.
Inspired by Germany’s Industrie 4.0 in 2013, China went to work on its own AMP, which was revealed in 2015 as Made in China 2025. The plan is both broad in its coverage—much of its content would benefit all of manufacturing (e.g., through digitalization)—and also narrowly targeted to ten subsectors: information technology; CNC machine tools and industrial robotics; aerospace and aeronautical equipment; maritime equipment and high-tech maritime vessel manufacturing; advanced rail equipment; energy-saving and new-energy vehicles; electrical(power) equipment; agricultural machinery and equipment; new materials; and biopharmaceuticals and high-performance medical devices. Its ambitious goal is to develop self-sufficiency and world leadership across these ten subsectors in a very short period of time.
The plan is supplemented by dozens of other policy documents, some of which are complementary (Internet Plus Action Plan, MIC2025 Major Technical Road Map) and others that are subsidiary (e.g., more than 70 provincial plans have been issued aligned with MIC2025).
The plan borrows elements of AMP from other countries. Aside from seeking leadership in the digitalization of manufacturing (like Germany’s Industrie 4.0), China has committed to establishing 40 manufacturing innovation centers (like Manufacturing USA) at the national level by 2020; it currently has established just 5 (although 48 provincial innovation centers have reportedly been created).
Funding is significant. MIC2025 is expected to receive ($1.5B) from the national government and a greater amount ($1.6B) from provincial, city, or county governments. These initial figures likely represent a small portion of the total investment, with a much larger share coming from state-owned enterprises such as national banks. One recently established institute (on batteries) is reported to have received $400M in funding, and this is just one of 40 planned institutes. A study by the Mercator Institute (MERICS) identified large pools of state-directed funding: China’s Advanced Manufacturing Fund is roughly $3 billion. The National Integrated Circuit Fund reportedly received 139 billion CNY ($22 billion). These financial resources are much larger than the German government has provided for research underIndustrie 4.0.
MIC2025 implementation is moving forward rapidly and with noticeable results. For example, China has become, in just three years, the world’s leading producer of plug-in electric vehicles (PEVs), a development attributable in part to policies that include subsidies, regulatory restrictions, and production quotas. (For more details, read the May 2018 issue of Insight into Manufacturing Policy).
China also faces serious challenges to realize the promise of MIC2025. Critically, it must promote indigenous innovation, a traditional weakness in the country’s national system of innovation which has relied on a top-down governmental effort. Although China is spending heavily to promote innovation, critics contend its investment is inefficient. For example, China has a large amount of IP (e.g., patents), but that IP is considered relatively weak (i.e., not valuable).
Critics argue that implementation of MIC2025 will dependon mercantilism (to promote exports and limit imports) and autarky (becoming self-sufficient) at the expense of other nations. As evidence, they point to China’s numeric targets—contained in MIC2025 and the Green Book—that aim to increase its global share of manufacturing value add.
In the first decade of this century, the US manufacturing sector lost 6 million jobs—one-third of its workforce. Observing the rapid exodus of US manufacturing capability through outsourcing, Harvard Business School professors Gary Pisano and Willy Shih argued that the US was losing its “Industrial Commons.”
Influenced by a series of key academic reports and recommendations from two presidential task forces, Congress enacted legislation in 2014 to address the issue. The Reinventing American Manufacturing and Innovation (RAMI) Act ratified the creation of Manufacturing USA, a federal program to support government-industry-academic collaborations in new institutes to promote particular advanced technologies. The aim was to bridge the so-called “valley of death” in precompetitive manufacturing technologies.
Inspired by the success of Germany’s famed Fraunhofer Institutes, the US program currently comprises 14 institutes that are geographically dispersed (see Figure 1).Each institute focuses on a particular set of related technologies, such as advanced composites, photonics, or biofabrication.
Manufacturing USA has four stated goals: (1) To increase the competitiveness of U.S. manufacturing; (2) facilitate the transition of innovative technologies into scalable, cost-effective, and high performing domestic manufacturing capabilities; (3) accelerate the development of an advanced manufacturing workforce; and (4) support business models that help institutes to become stable and sustainable after the initial federal startup funding period.
Federal funds are approved for a five-year period for each institute. The federal funding level is typically $70-110M per institute, matched or exceeded by funding from private industry and other non-federal sources, with a minimum 1:1 cost share. To date, the federal-nonfederal ratio exceeds 1:2.
Each institute has a federal agency sponsor and is managed by a third-party, often a non-profit entity set up through a university. A Deloitte study sponsored by the US Department of Commerce concluded that the program has fostered a high degree of collaboration in its first year, and that institute members “have made substantial joint investments in collaborative approaches to R&D and commercialization of cutting-edge advanced manufacturing technologies.” Subsequent GAO and National Academies reports reached similar conclusions.
The program has several challenges. Perhaps the most critical is uncertainty as to whether the federal government will extend the initial five year startup funding for the manufacturing institutes, which may be necessary for the program to meet its long-term goals.