Last month, the chief executive officer of one of the country’s largest manufacturers spoke in a closed-door meeting to a group of Japanese executives on his company’s global strategy. Remarkably, he spend 20 percent of his time praising German companies, from traditional heavyweights such as Siemens and Thyssen- Krupp to young up-and-comers such as SAP and Infineon.

The Japanese CEO focused on these firms’ global lead in what some describe as the fourth industrial revolution. He was referring to Industry 4.0, a term that was first used at Hanover Fair in 2011 and has since become a cornerstone of the German government’s industrial high-tech strategy.

Put simply, Industry 4.0 aims to computerize traditional manufacturing and create a “smart” factory. Universal digitization links all productive units in an economy, thereby integrating production with suppliers, customers and business partners. Cyber-physical systems and an increasing use of the Internet underpin all these transactions on a technological basis.

This new industrial trend carries enormous significance for Japan, as its economy relies on a strong manufacturing sector — very similar to Germany. Therefore, it comes as no surprise that Japanese companies pay close attention to Germany.

Last fall, a high-ranking business delegation visited German blue-chip firms such as BOSCH and BASF to study the German approach to industrial innovation. In January, the Nikkei newspaper published an article headlined “Germany’s fourth industrial revolution,” which further sparked interest in Industry 4.0 and triggered a slew of follow-up articles.

This comes on top of similar trends from Germany. The Japanese auto industry, for example, is already following modularization initiatives that German automotive giant Volkswagen has successfully implemented.

Since the end of this year’s Hanover Fair on April 11, I have been quizzed by three Japanese business journalists on Industry 4.0 and its development in Germany. Their overall take on the subject matched that of the aforementioned Japanese chief executive during his speech last month: “Very interesting but also threatening to Japanese firms.”

This conclusion certainly makes a lot of sense. Japanese manufacturers occupy leading technologies and commanding market shares in many sectors. However, their dominance often relies on proprietary technology and a black-box approach that limits knowledge loss. The majority of Japanese manufacturers still operate within a global management system that strongly relies on Japanese headquarters and Japanese expatriates running overseas entities.

However, Industry 4.0 is about networking and interlinking, about connecting hardware and software and coordinating the cross-functional work of people across physical, cultural and mental borders. Collaborative and cross-cultural competencies will be required to successfully work in this new network environment, an environment that is based on information sharing.

Japan is probably the most advanced country in the world in terms of robotics and automation. However, its firms will likely struggle combining these strengths with requisite soft skills, especially on a global scale. Interdisciplinary work within Japan is still rare outside of close networks of related firms. On a global scale, interdisciplinary collaboration is rarer still, a few well-published cases notwithstanding.

At the Hanover Fair this year, industrial experts pointed to South Korea and Singapore as those Asian countries with firms best prepared to play a leading role in Industry 4.0 on a global scale. Consider the openness of these economies and you will not be surprised. Japanese firms, in contrast, were not mentioned.

Japan is still an industrial heavyweight, and Japanese manufacturers have proven their ability to adjust their technological edge where necessary. Even today, large German firms send engineers on weeklong study trips to Japan to learn more about the secrets of kaizen (continuous improvement) and modern production methods developed in this country.

Thus, Japanese firms can and must play an active role in the upcoming industrial changes. These changes do not only embrace monozukuri (making of things) but go much further. More tie-ups with firms from other industries and from other countries are not only an option, they are essential.

Existing and future competitors do not only come from Germany or under the umbrella term of Industry 4.0. The term itself might even disappear altogether over the next few years.

However, Japanese manufacturers were sure to take note of a recent announcement by influential German firm Siemens. On May 7, the company pledged to rebuild its organizational structure around the three growth trends of electrification, automation and digitalization. Siemens will even create a new division titled Digital Factory that deals directly with the challenges and opportunities of Industry 4.0.

Dr. Jochen Legewie is managing director of German communications consultancy CNC Japan. Follow his blog at www.cncblogs.jp.

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