From science fiction to reality!
Monique Frederick, CFA, FRM
The world of driverless flying cars and automated gadgets, as featured in the classic animated cartoon “The Jetsons”, is closer than we think. The insatiable appetite for cutting-edge automation and even greater and faster connectivity is the driving force behind the fourth industrial revolution. Characterised as the age of “extreme automation and connectivity,” this industrial revolution is disrupting every industry as it ushers in a world of wider implementation of artificial intelligence.
Admittedly, we have already witnessed the proliferation of robotics and automation within various industries. Perhaps the most popular are the recent changes in the automobile industry. This rapid speed of change may soon influence the Oxford dictionary to change the definition of a “vehicle”, “automobile” or “car” to “a computer on wheels with the ability to function as a communication and entertainment device, along with a myriad of other uses”. Long gone are the days of taking your vehicle to just any mechanic, as automobiles have become technological devices requiring specialised proprietary tools and software to provide a diagnosis. It should, therefore, come as no surprise that tech giants Google (Alphabet) and Apple are entering the automobile space and are building prototypes for the first driverless cars. Tesla and Uber are also in the race for the first fully autonomous vehicle.
Other industries are also being impacted by the fourth industrial revolution as technology firms recognise the growth potential of venturing outside their sector. These companies already made their foray into the life sciences and healthcare industry during the last decade. Google’s partnership with Novartis to develop the smart diabetes lens is only one of the many collaborations taking place. The software-as-a-service (saas) industry and innovations in mobile technology are other sources which have transformed the health care industry. Similarly, traditional banking models are also under attack by small startups offering automated online lending and online investment advice.
What are the implications?
While these developments improve quality of life for most and increase productivity and efficiency in general, they will also result in challenges for others. The displacement of workers, as well as greater income inequality, is an unfortunate consequence of this shift. These social implications reach far and wide, and while no-one can predict exactly how this shift will play out, a few outcomes are inevitable. Technology has injected itself into every aspect of our lives so it’s fair to say that, while certain industries and skills may become obsolete, technology is not only a mainstay but will become a growing field as it permeates through every other industry.
Cyber security threats, copyright infringement and data privacy are just a few of the other challenges society and governments will have to grapple with as global connectivity continues to intensify. Ultimately, regulatory reform and crime prevention will have to play catch up.
Where are the investment opportunities?
From an investment perspective, there will certainly be beneficiaries and losers. Countries with a large lower-skilled demographic will be at a disadvantage as robotics and artificial intelligence displace these workers. Middle skilled workers are not immune from this phenomenon and are vulnerable as well. Conversely developed countries are better positioned from an infrastructure and labour demographic perspective, as long as they remain flexible and quickly adapt to the new business model.
Another group which stands to benefit from these developments is pioneers in the field of robotics and artificial intelligence. Furthermore, the ability to identify consumer patterns or have immediate access to valuable customer data is becoming essential to achieve a competitive advantage. Big data providers— companies with the ability to mine large amounts of data to identify patterns and trends—are therefore ideally positioned to gain from this transformation. UBS estimates the software analytics market will experience mid-teens growth reaching USD 75 billion by 2020.
Even though certain countries and companies are poised to benefit from the fourth industrial revolution choosing the winners requires doing your homework. It would be a risky proposition to assume that every incumbent player or technology startup will provide stellar investment performance. Likewise it would be foolish to remain in denial and ignore the signs that the world of automation is upon us.
Sources: World Economic Forum, Sanford C. Bernstein & Co. LLC, UBS White Paper for the World Economic Forum Annual Meeting 2016
Disclaimer: The views expressed are the opinions of the writer and whilst believed reliable may differ from the views of Butterfield Bank (Cayman) Limited. The Bank accepts no liability for errors or actions taken on the basis of this information.