M E X I C OA S A N A L LY O F T H E

W O R L D L E A D E R SI N I N D U S T R I A L I N N O V A T I O N

BUSINESSINTELLIGENCE UNITUIN

© ProMéxico, December 2017

Business Intelligence Unit:

Marco Erick Espinosa Vincens, Head of Unit Claudia Esteves Cano, Strategic Executive DirectorJ. Santiago Rodriguez Suarez, Senior Project Consultant (Project Manager) Luisa Regina Morales Suarez, Editorial Design

0 1 Introduction

0 2Main Trends and Leading Countries in Industrial Innovation Technologies

0 3Main global Trends in Terms of Industrial Innovation with Greater Potential for the Mexican Market

0 4Mexico’s Opportunities for Collaboration with Leading Countries According to the Trends Analysed

0 5 Conclusions

0 6 Acronyms and Definitions

0 7 Bibliography

CONTENT

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Industrial innovation trends are a key element of the Fourth Industrial Revolution as they integrate intelligent sys-tems and collaborative networks in order to achieve greater efficiency in production processes. Thus, factories prepare for the future by implementing collaboration between people and between systems and, as well as by pursuing a better manufacturing economy, using resources more efficiently to achieve results more quickly.

Within this revolution, it is possible to identify at least five major categories of trends that are shaping the future of manufacturing and that have an impact on the technologies, inputs, and processes used: The Internet of Things (IoT), intelligent automation, digitalization, additive manufacturing (3D printing), and energy efficiency.

For the purposes of this study, ProMexico analysed these trends in the light of five sections, each related to one of the five large areas where industry 4.0 technological innovations can be applied: digital factories, movement, actioning, and automation (MAA), efficient energy use and storage technologies for manufacturing, industrial supplies and research and development.

The following chart summarises the trends analysed and shows some of the main technologies, processes, and sys-tems leading the transition towards the new productive system, as well as the main countries that are applying them.

EXECUTIVE SUMMARY

Trend Technology / Process /Industrial system to which it is being applied

Leading countries

IoTSensors, wiring and networks, iAR, technologies for

remote monitoring and advanced analyses.Germany, United States,

China, and Singapore.

Intelligentautomation

Robots, cobots, and advanced control. United States and Japan.

Digitalization

Transmission systems, engines, pneumatic systems, supply chains, energy generation, transmission, and

distribution (virtual automation systems), APS, cognitive robots, digital twins, iAR, autonomous robots, real-time

equipment monitoring.

United States, Germany, and

Japan.

3D PrintingTechnologies (MDF, SLS, SLA, FSL) and

materials such as plastics, resins, and metals.Germany and the

United States.

Energy efficiency

Distributed generation, efficient distribution and storage,smart networks and micro-networks, stationary fuel cells

and batteries, renewable energy generation (solar, photovoltaic, thermoelectric, wind, biomass).

Germany and the United States.

The aim of this study is to show that Mexico, thanks to its important industrial production and strategic position in global value chains, possesses characteristics to become an ally for industrial innovation leaders; however, a reactive approach will not be enough to prepare properly for the Fourth Industrial Revolution. Therefore, it is necessary to know Mexico’s particularities as a manufacturing and exporting country, make the most of its strengths and, thus, devise a strategy that will help the country participate in the implementation of different manufacturing innovations in its main industries.

With this in mind, ProMexico is conducting several studies to generate information that will help determine the strategies to follow in order to profit from the opportunities presented by the development of new technologies for the industries of tomorrow. Thus, it is vital to know Mexico’s current position in the main themes of industrial innovation, with the objective of harnessing the country’s growth potential in collaboration with the leaders in these trends, forming technological alliances towards this industrial revolution.

To this end, this study has identified those trends in industrial innovation with the greatest potential for the Mexi-can market according to the following criteria: Assessment of the potential market value for the trend (IoT, in-telligent automation, digitalization, 3D printing, and energy efficiency); analysis of the strategic sectors most feasible to adopt these industrial innovation technologies, as well as of current industrial innovation capacities and opportunity areas in their production chains; work-related capabilities developed in the higher education sector; and, finally, identification of public policies geared to develop an industrial policy that includes industrial innovation technologies.

As a result of analysing the adoption of industrial innovation technologies in Mexico, ProMexico has identified opportunities for collaboration with the leading countries in the matter. On the one hand, there are opportunities related to Mexico’s four outstanding manufacturing sectors, which can be divided in two strategic axes: streng-thening of the productive chain and development of working and technological skills. On the other hand, and as a third, complementary, and transversal strategic axis, the sphere of design and public development policies aimed at creating mechanisms to stimulate synergy among government, industry, and academia. The opportu-nities identified are listed below by sector:

AEROSPACE

• Attracting aerospace companies operating with industrial innovation technologies to create local supply for processes that are not yet developed in the country, to support OEMs and Tier 1 companies’ production in-crease.

• Collaborating with technological leaders to develop MRO centres with industrial innovation technologies in Mexico.

• Consolidating OEMs and local suppliers’ productive capacities through the Incorporation of Leading Indus-trial Innovation Technologies.

• Collaborating with international leaders to develop research centres or laboratories specialised in aircraft design that use industrial innovation technologies.

• Collaborating with innovation leaders to develop educational offering, curricular content, and standards and certifications in industrial innovation technologies applied to the sector.

AUTOMOTIVE

• Attracting and establishing international companies that manufacture parts for die-cutting and/or stamping, machining, and foundry, which have experience implementing industrial innovation trends.

• Creating a structure for technological transfer from industrial innovation leading countries to Mexican ma-nufacturers.

• Creating the State of Guanajuato’s Technological Research and Development Centre.• Joint work programme to incorporate or strengthen technical-technological innovation competencies in

academic offerings and higher education curricula in the northern-central region states.Source: International Consultants (Consultores Internacionales, S.C.)

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ELECTRONIC

• Creating local narrow-band IoT (NB-IoT) networks in the north-western, north-eastern, and western areas of the country.

• Creating a structure for technological transfer from industrial innovation leading countries to manufacturers in the States of Baja California, Jalisco, and Tamaulipas.

• Creating a Technological Research and Development Cluster specialised in the internet of things, in the State of Jalisco.

• Strengthening the higher education sector by creating IoT study programmes and integration relevant com-petencies and skills.

CHEMICALS

• Attracting investment to additive manufacturing companies to strengthen the chemical sector supply chain.• Collaborating with world leaders to improve energy efficiency in the production processes of the chemical

sector.• Collaborating with industrial leaders to develop automated factories.

Opportunities for collaboration in the development of public policies

• Generating participation forums with leading countries in industrial innovation, whose experience can help foster public policy development strategies aimed at the stronger trends. The topics discussed in these forums can be found in each country’s experience detailed below.

• Establishing a single trade partner in terms of industrial innovation, as done by Germany in their Industry 4.0.

• Creating a Committee of public policy specialists in charge of the meetings with leading countries and inter-national forums, as well as visiting, these leading countries in industrial innovation if necessary.

• Designing funding programmes with the development bank in order to provide financial support to busi-nesses working in those sectors most feasible to adopt industrial innovation technologies so they can, on the one hand, acquire these technologies and, on the other, enter collaboration agreements with leading companies at affordable prices.

• Creating tax incentives for companies from leading countries in industrial innovation technologies to attract investment and boost the Mexican sectors featuring significant strengths.

The present study sets a precedent in the analysis of the adoption of industrial innovation technologies, highli-ghting Mexico’s industrial strengths and positioning the country as a strategic ally for leading countries through opportunities for collaboration, aimed at contributing to its modernisation through the joint involvement of go-vernment, industry, and academia.

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The trends in industrial innovation, which are key to the Fourth Industrial Revolution, also known as industry 4.0, are constituted in a global reality since they are helping the businesses and countries that have adopted them to increase their competitive advantages and win markets. These innovations have helped companies reduce costs, increase production and productivity, conduct real-time monitoring, customise goods and services, and become environmentally friendly.

Within this revolution, it is possible to identify at least five big trends that are leading the way in industry and that affect the technology, products, and processes used. These trends are digitalization, Internet of Things (IoT), intelligent automation, energy decentralisation, and 3D printing.

Broadly speaking, the countries leading these trends are those with the greatest economic development; such as, Germany (the pioneer of industry 4.0), the United States, and Japan; likewise, some developing economies, such as South Korea or China, which have in recent years, produced important scientific and technological developments thanks to their investments in physical and human capital.

Mexico, thanks to the importance of its industrial production - mainly in manufacturing - and its positioning in global value chains, meets all the necessary conditions to ride this new wave of industrial innovation. However, a reactive vision will not suffic, and Mexico must prepare to make the most of this Fourth Industrial Revolution by determining its overall current capacities, as well as its main industrial sectors’ potential needs, in order to increase its international collaboration.

In this respect, the objective of this document is to describe the current global trends in matters of global industrial innovation, and point at those with most potential for Mexico, in accordance with the needs of its pro-ductive sectors and market value, as well as to list some opportunities for collaboration with the leading countries in each of these trends, organi-sed by strategic axes.

The document is organised as follows: The first chapter describes the main global industrial innovation trends and the countries leading each of them. The second chapter estimates the potential market value of each of the five trends described in Mexico and analyses the country’s current technological capacities and needs, related with industrial innovation in four of Mexico’s manufacturing sectors: aerospace, automotive, electro-nics, and chemicals. The third chapter describes Mexico’s opportunities for bilateral collaboration with industrial leaders in the trends analysed, presented in four strategic axes. Finally, the fourth chapter includes the study’s general conclusions.

INTRODUCTION MAIN TRENDS AND LEADING COUNTRIES IN INDUSTRIAL INNOVATION TECHNOLOGIES

In prospective studies, a trend is a phenomenon that historically displays an increasing or decreasing behaviour, which can be assumed to con-tinue in the future.1 In this context, and for the purpose of the analysis, trends will considered as phenomena resulting from change and inno-vation that has an impact on the technologies, inputs, and processes used in industry which can be assumed to continue in the future.

Within the Fourth Industrial Revolution, it is possible to identify certain trends that are already having an impact on the inputs and processes used. The trends identified by this study are digitalization, Internet of Things (IoT), intelligent automation, energy efficiency, and additive ma-nufacturing.

It is worth noting that, in this document, these trends are organised in five groups in order to present the general development foreseen for industry 4.0 more clearly: digital factories; movement, actioning, and automation (MAA); efficient energy use and storage technologies for manufacturing; industrial supplies; and research and development.

1. Mojica, Francisco Jose, (2005). The construction of the future. Strategic, territorial, and technological foresight concept and model, Colombia, Agreement Andres Bello and University of Externado.

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Digital or intelligent factories (also known as smart factories) refer to the transformation of the entire industrial ecosystem, not only affecting manufacturing but also the whole supply and distribution network, with the ob-jective of adding value along the whole chain by automating and self-optimising processes through the digita-lisation and interconnection of physical and digital systems, real time data generation and analysis, reduction of idle time, and, even more so, self-learning.

An intelligent factory is a business, or better said, a business model that is more agile, flexible, and dynamic, and, therefore, able to adapt quickly to changes and, as a result, achieve greater competitiveness and efficiency.

2 . 1 D I G I T A L F A C T O R I E S

Figure 1. Digital Factory: traditional and digital supply chains.

SUPPLY CHAIN

Source: Deloitte. University Press, (2017). ‘The smart factory’.

2. Deloitte. University Press, (2017). The smart factory. Available on: https://dupress.deloitte.com/dup-us-en/focus/industry-4-0/smart- factory-connected-manufacturing.html

The constant automation of manufacturing plants is not a recent process of change; however, the rapid increase in the technological capacities (artificial intelligence, cognitive computing, and automatic learning); the increa-sing complexity of the supply chain; the separation of production and demand at a global scale, as well as the growing pressure in terms of competitiveness, are the drivers of change that have boosted transformation at a faster pace.

Intelligent factories pursue benefits beyond simply adding value; among which are increasing asset efficiency, improving the quality of goods and services offered at low costs, and becoming safe, reliable, and sustainable business models.

An intelligent factory is characterised by holistically adopting qualities such as flexibility, transparency, optimi-sation, and proactivity through greater vertical and horizontal integration of the value chains. Thus, business models are increasingly adopting emerging technologies that are part of the industrial innovation trends of the Fourth Industrial Revolutions; however, it is worth highlighting two of them: greater digitalisation and connecti-vity applied to devices and processes through the Internet of Things.2

Digitalization

The Fourth Industrial Revolution is characterized by a greater integration among physical and digital systems. This greater integration is achieved through connectivity, which makes it necessary to digitise the industrial ecosys-tem (digital integration). This digitalisation seeks to optimise existing processes and devices so they become “intelligent”, generate data in real time and, even, in conjunction with other more advanced technologies, gain autonomy in terms of self-calibration and adjustment.

Within the digital industrial ecosystem, data coming from different sources of the physical world is collected in digital records, then the machines communicate with each other to share information, enabling real time ad-vanced analysis and visualisation of this data; algorithms are then applied, and the processes are automated to translate the decisions and actions of the digital world into movements in the physical world.3

Each industrial ecosystem will determine what processes to digitalise in line with their market strategy; however, the implementation opportunities are ample and intervene at any time.

3 Deloitte. University Press (2017), “Industry 4.0 and cybersecurity”. Available on: https://dupress.deloitte.com/content/dam/dup-us- en/articles/3749_Industry4-0_cybersecu-rity/DUP_Industry4-0_cybersecurity.pdf

Traditional Digital

Development Plan Resources Fabrication Delivery Support

Dynamic compliance

Digital development

Smart supplies

Connected consumer

Synchronized planning

Sensor-driven refueling

Cognitive planification

Quality detection

3D printing

DIGITAL CORE

Dig

ital f

acto

ry

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Digitalization processes and solutions.

Process Digitalization solutions

Manufacturing

Advanced Planning and Scheduling (APS) systems connect stock data with the manufacturing plant capacity in real time to reduce waste and shorten cycle times. It replaces the Manufacturing Resource Planning (MRP) system, which works separately and by stages.

Cognitive robots that comply with safety and reliability standards to be used in routine and chain processes.4

Digital twins or pairing technology is a virtual Siamese process that, with the help of technologies such as the cloud, big data, sensors, and the Inter-net of Things, simulates the performance of manufacturing models and of physical businesses in a virtual environment in order to avoid idle time, pro-vide predictive maintenance, and analyse different solutions to a problem: from real time data generated with intelligent components. 5

Distribution centres:

a) Storage operations

b) Inventorysupervision

Digitalisation through intelligent and autonomous devices has transformed storage facilities into distribution centres, reconfiguring their role in the supply chain, going from being simple cost centres to strategic distribution centres. 6

Industrial augmented reality (iAR) to aid staff in work instructions and trai-ning, quality control and safety, and work flow, logistics, and operations ma-nagement. 7

Autonomous robots to carry out tasks such as classification, administration, and Storage supervision.

Sensors track the movements in real time of inputs, work progress, finished products and high value tools.

Analytical platforms to optimise taking inventory by hand and automatically assign it for restocking.

Source: Deloitte. University Press, (2017), “The smart Factory”.

4. European Society for Cognitive Systems, (2017). Cognitive Robot Architectures; Industrial Priorities for Cognitive Robotics.Available on: file:///C:/Users/Consultor/Desktop/2017_EUCognition_2016_CEUR-proceedings.pdf5. Forbes, (2017). What Is Digital Twin Technology - And Why Is It So Important? Checked in October 2017. Available on: https://www.forbes.com/sites/bernardmarr/2017/03/06/what-is-digital-twin-technology-and-why-is-it-so-important/#4600ebcb2e2a6. Deloitte. University Press, (2016). Industry 4.0 and distribution centres. Available on: https://dupress.deloitte.com/dup-us-en/focus/industry-4-0/warehousing-distributed-center-operations.html7. World Economic Forum, (2015). How will augmented reality Change work?Available on: https://www.weforum.org/agenda/2015/08/how-will-augmented-reality-change-work/

Quality

Maintenance

Environmental health and safety

Optics-based analytics to run online quality tests.Equipment monitoring in real time to predict possible quality issues.

iAR to help staff maintain and repair equipment.Sensors placed in the equipment to control the analysis of predictive and cognitive maintenance.

Sensors to detect dangerous equipment operating in the vicinity of staff.Sensors carried by staff members to monitor ambient conditions, lack of movement or other potential threats and hazards.

According to the chart above, digitalisation is a trend that brings together technologies in order to make proces-ses more dynamic.

Digital twins are the virtual representation of a real manufacturing or business model that, based on sensors and “actors” from the physical world, collects and analyses information in real time about the historic and current performance to simulate future scenarios of said model, in accordance with the records of potential ware and failures. It is a complex system that, besides analysing each component separately, also measures the interac-tions among them, as well as the whole processes of the life cycles. 8

Augmented reality and virtual reality (AR & VR), the former understood as the superposition of digital images onto the real world and the latter as the user’s immersion in an imaginary plane or the replication of a real one, have di-versified their applications to include the industry. Even though it is true that these applications are not new, their combination with other technologies maximises their utility. In the case of augmented reality, the technology’s applications range from object classification and location by warehouse and assembly line, to the automotive industry by improving the experience of driving by turning the windscreen into a display featuring information relevant to the trip. 9

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Internet of Things

Real time communication between machines and processes enables greater efficiency within the industrial ecosystem. In order to achieve this, it is necessary to digitalise the entire business model; however, unlike pre-vious digital solutions, the Fourth Industrial Revolution entails two key aspects: making machines and processes ‘intelligent’, and in turn, making these generate shareable information that can be processed and analysed auto-matically.

Although emerging technologies (sensors, additive manufacturing, virtual and augmented reality, big data, and the cloud, to name a few) improve both machines and processes, it is the Internet of Things (IoT) that has given them new value. IoT is the practice of collecting and analysing data and acting upon the data generated by online objects and machines.10 In turn, in order for IoT to become a massive industry, it will require specific technologies to enable it; such as:

• Sensors. Devices able to generate electronic signals from a physical condition or event.

• Networks. The means through which to communicate and transmit the electronic signal.

• Standards. Technical-technological schemes to process data, operate aggregates, and establish commonly accepted prohibitions or prescriptions.

• Augmented intelligence. Analytical tools that improve the capacity to describe, predict, and explore the relations among events.

• Augmented behaviour. Technologies and techniques that improve the performance of the action prescribed.

8. Deloitte. University Press, (2017). Industry 4.0 and the digital twin. Available on: https://dupress.deloitte.com/dup-us-en/focus/industry-4-0/smart- factory-connected-manufacturing.html9. Disruption, (2016). 10 Industries Embracing Augmented Reality. Checked in October 2017. Available on: https://disruptionhub.com/industries-embracing-augmented-reality/10 Deloitte. University Press, (2016). Internet of Things. Dedicated networks and edge analytics will broaden adoption. Available on: https://dupress.deloitte.com/content/dam/dup-us-en/articles/internet-of-things-iot-adoption-edge-analytics-wireless-communication- networks/DUP_2828_IoT_SFS_vFINAL_1.23.pdf

Sensors and networks are vital for IoT. Sensors bring ‘light and transparency’ to events, phenomena, and, even, the human body by recording the information they generate. They are important as they identify data parameters that can be measured, analysed, and processed. There are position, occupation, and movement sensors; also, sensors that measure speed, acceleration, force, pressure, fluidity, acoustic, humidity, light, radiation, tempera-ture, chemicals, and biosensors. 11

Germany has two notable sensor-related projects: e-Brains, which develops nanometric sensor systems for environmental applications and has shown promising progress in miniaturisation, intelligent wireless commu-nication, reliability, and energy costs and efficiency; and Diamant, which develops technologies able to design materials at the level of individual atoms. 12

Regarding network technology, there are basically two different types: wired and wireless, depending on whe-ther they are of long or short reach; however, their connectivity costs, propagation radius, large investment requirements, and energy consumption makes them unfeasible IoT solutions. Low-power, wide-area networks (LPWA) meet the necessary requirements to support IoT technology at a mass scale, with low cost and energy consumption; applications of this technology in factories range from preventive maintenance and monitoring to safety controls.

It is expected that information technologies will be implemented in the industrial sector, also known as industrial IoT (IIOT); they will be developed in four major stages, the first two in the short term: operational efficiency and new products and services; and the latter two with long term impact: performance and autonomy economy through end to end automation and resource optimisation.

If compared by only the number of patent applications, the leading countries in IoT are the United States, the European Union, Korea, the BRICS countries, Japan and China. 13 It is worth noting that patent application is an upward trend; however, it is slowing down due to shorter product cycles and simpler paperwork. 14

11. Deloitte. University Press (2015). Inside the Internet of Things (IoT). A primer on the technologies building the IoT. Available on: https://dupress.deloitte.com/content/dam/dup-us-en/articles/iot-primer-iot-technologies- applications/DUP_1102_InsideTheInternetOfThings.pdf12. European Commission, (2012). Germany, a world leader in technology, engineering and innovation. Checked in October 2017. Available on: https://ec.europa.eu/digital-single-market/en/news/germany-world-leader-technology-engineering-and-innovation13. Organization for Economic Co-operation and Development (2017). The Next Production Revolution. Implications for Governments and Business. Available on: http://www.oecd-ilibrary.org/science-and-technology/the-next-production-revolution_9789264271036-en14. World Economic Forum, (2016). The Global Information Technology Report (2016). Available on: http://www3.weforum.org/docs/GITR2016/GITR_2016_full%20report_final.pdf15 Deloitte. University Press, (2017). Industry 4.0 and cybersecurity. Available on: https://dupress.deloitte.com/dup-us-en/focus/industry-4-0/cybersecurity-managing-risk-in-age-of-connected-production.html

Figure 2. Leading countries in IoT technology patenting.

As business models evolve into intelligent factories through digitalisation and connectivity, they will become more susceptible to suffering cyber-attacks affecting the whole system and not only an individual machine. Cyber security measures will have to ensure the safety of staff, members; as well as data, system interoperability and quick system recovery in the event of an attack. 15

Internet of Things (IoT) 2005-07

United States

Euro28

Korea BRICS Japan China France Switz Alemania

40

%

35

30

25

20

15

10

5

0

Source: OECD, (2017). The Next Production Revolution. Implications for Governments and Business. Available on: http://www.oecd-ilibrary.org/science-and-technology/the-ne-xt-production-revolution_9789264271036-en

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2 . 2 M O V E M E N T , A C T I O N I N G , A N D A U T O M A T I O N ( M A A )Trends such as the Internet of Things, digitalisation and intelligent automation have permeated through al-most all areas of industrial production, including the systems in charge of setting factories in motion, such as transmission, fluid, and bearing power systems.

The development of these trends and their application in MAA systems are enabling the factories of tomorrow to improve the levels of integration between machines, increase the energy efficiency of their manufacturing processes, smart-monitor their processes, and implement predictive maintenance.

According to the World Intellectual Property Organisation (WIPO), between 2013 and 2015, the countries that submitted the largest numbers of patent applications for MAA-related technologies were Japan, the United Sta-tes, China, Republic of Korea, Russia, and Germany.16 This shows a first approximation to the leading countries riding the wave of industry 4.0 in MAA.

Internet of Things

Intelligent Automation

Digitalization

Within MAA, IoT may be described as the use of sensors and digital control to monitor and track machine perfor-mance remotely and wirelessly, as well as to improve their general performance.

These applications help reduce costs within processes by detecting failures and optimising the general perfor-mance of moving systems. A good example is the coding technology known as Hyperface DSL, developed by the German company SICK for servo drive systems (control elements in servomotors) that, through a completely digital interface, allows systems to reduce connection costs, improve their performance, and facilitate predictive maintenance.

16. Source: Statistical database by the WIPO. Last update: February 2017. It includes the patents granted in category 27. Engines, pumps, turbines, and 31. WIPO mechanical components.17. Motion Control Tips (Checked in November 2017). Power-transmission components and mechanical systems see three new trends. Available on http://www.motioncontroltips.com/power-transmission-components-mechanical-systems-see-three-new-trends/

Predictive maintenance

As a result of IoT and industrial digitalisation, machine pro-cesses and life cycles are changing. Such is the case of the evolution from corrective maintenance (failure - repair) to predictive maintenance (monitor - anticipate - maintain).

Predictive maintenance uses a series of techniques to de-tect possible failures or defects that may affect machines at early operational stages in order to avoid shutdowns due to breakdowns and, thus, minimise economic loss.

According to the MCR Group, the advantages of predictive maintenance are:

It enables action planning and programming.

It is an on-condition technique; that is, it is applied when the machine is functioning at full performance.

It is a proactive maintenance measure.

Source: MCR Group (Consulted in November 2017). Productive maintenance in industry 4.0, available on http://www.mcr.es/el- mantenimiento-predictivo-en-la-industria-4-0/

Likewise, and according to the web portal Motion Control Tips 17, in the case of trans-mission systems, the increasing IoT trend could result in the generalised utilisation of sensors in larger (and more critical) power transmission units. Sensors could be placed in the pulleys of conveyor belts and trans-mission belts to measure their wear and performance, as well as any changes such as slot height and efficiency rates. Finally, technological improvements could give de-signers access to large amounts of data they could use to design longer-lasting, more efficient, lower-maintenance equipment.

Thanks to automation, production processes are almost entirely automatic, especially so with the use of robots; however, older automation equipment is still independent and autonomous, hampering communication be-tween units by different manufacturers. 18

Nowadays, automation trends are evolving towards greater integration; however, this is only a precursor to in-telligence. Intelligent automation also includes data creation and analysis. Intelligent automation systems are developing software architectures in the equipment, so that operational data can be collected, stored in a large database, and analysed for different purposes, from maintenance to process optimisation and energy saving measures.

According to Accenture 19, global leaders are adopting intelligent automation to change the way they run their businesses in order to generate a more productive relation between machines. This is leading to greater so-phistication in the work place and is changing the rules of production; thus, factory employees have to learn to collaborate with this new digital workmate.

Some of the main intelligent automation applications are within the manufacture of controls, actuators, engines, robots, and collaborative robots (or COBOTS). These COBOTS or collaborative robots are designed to physically interact with humans, enabling safer ways to perform tasks within factories as well as greater precision, routine tasks facilitation, and defect reduction. 20

18. Sdi News (2013), ’From traditional automation to intelligent automation.Available on: https://control.sdindustrial.com.mx/imagenes/abril13/AutomatizacionInteligente_Abril2013.pdf19. Accenture (2016), “Intelligent Automation: The essential new co-worker for the digital age”. Available on: https://www.accenture.com/t00010101T000000Z__w__/mx-es/_ac-nmedia/Accenture/Omobono/TechnologyVision/pdf/Intelligent- Automation-Technology-Vision-2016.pdfla=es-LA#zoom=5020. Mabie Scott, “Collaborative Robots (Checked in November 2017). An Introduction to Collaborative Robots with a Focus on Applications”.Available on: https://www.robotics.org/userAssets/riaUploads/file/13- CollaborativeRobotTechnologyandCustomerApplicationsUniversal-ScottMabie.pdf21. Mckinsey (2014), “Success patterns and trends in German power transmission engineering. Approaches for more growth and profitability”.Available on: http://www.vdma.org/documents/105628/6563034/Future+of+Mechanical+Engineering+-+Power+transmission+engineering.pdf/d76afbbd-79b9-479b-925a-d323883c28da

According to the publication “Success patterns and trends in German power transmission engineering” by the consulting firm McKinsey21, the three main trends that will shape the manufacturing of power transmission tech-nologies are the use of advanced materials with superior features, digitalization, and renewable energy.

Regarding digitalization, it is noted that the trend is leading to an increased production in mechanical enginee-ring and power transmission systems, which will translate into a significant sales potential for leading companies providing this type of technologies. Besides the three trends mentioned above, the authors point out that other relevant innovations are slim construction, human-machine interaction, new energy storage options, 3D prin-ting, and IoT.

20 21

Figure 3. Innovation technologies relevant to German mechanical engineering companies.

Source: Mckinsey (2014). “Success patterns and trends in German power transmission engineering. Approaches for more growth and profitability”. Available on http://www.vdma.org/documents/105628/6563034/Future+of+Mechanical+Engineering+-+Power+transmission+engineering.pdf/d76afbbd-79b9-479b-925a-d323883c28da

In the same vein, those systems using fluids as a power source, such as hydraulic and pneumatic devices, are evolving towards the adoption of digitalization systems, digital interfaces, and smart sensors. These technologies not only facilitate the interaction with other machines and with a “decentralised intelligence” by exchanging data via multi ethernet interfaces, but they also provide the basis for predictive maintenance and enable the so called “conditioned movement”, which allows factories to operate while consuming less energy when performing less demanding tasks and increase their consumption when they need to carry out more demanding processes by keeping record of the equipment operation and usage routines.

According to Steffen Haack22, member of Bosch Rexroth executive bureau, a German company specialised in producing industrial control and movement systems, modern hydraulic systems have the advantage of combi-ning fluid technology with the flexibility of modern control architecture; that is, once placed, flow sensors feed information to a control device, creating an intelligent system that is more efficient and adaptive.

Similarly, small sensors and controllers able to adapt to the mechanical parts of the machines are being placed in valves and packages. A good example of this is the development by the German company Festo, which has created a valve that can go from being monostable (with one stable resting position) to being bi-stable (without a unique resting position); and even a pressure-regulating valve or a flow-regulating one, among other functions, controlled from a mobile phone application.23

Likewise, there has been a massive change in the functionality of actioning technologies architecture towards standardisation through technological interfaces, communication protocols, engineering of electromechanical tools, and hydraulic auctioning, which will enable engineers to streamline their operations by, for example, utili-sing parameters recommended by mobile phone applications.

Finally, according to market research company Technavio24, the main three trends in the bearing markets are di-gitalization, an increasing demand for integrated bearings, and the emerging demand for bearings with specific applications.

2 . 3 . I N D U S T R I A L E F F I C I E N T E N E R G Y U S E A N D S T O R A G E T E C H N O L O G I E S

Energy Efficiency

Decentralization

The drivers for change in energy innovation and, especially in electricity, are the result of global changes driven by climate change, the lack of access to energy, rapid urbanisation, and the changes in industrial production that integrate physical and digital systems.25

Energy transition seeks to generate, store, transmit, and distribute electricity in a more efficient, clean, and eco-nomical way. According to the World Intellectual Property Organisation (WIPO), between 2013 and 2015, Japan, China, the United States, and South Korea accounted for 91.3% of the total number of patents granted to techno-logies related to electrical energy by the International Patent System comprised of 191 member countries.26 This gives a first approximation to which leading countries are implementing the industrial innovation trends in the field of efficient energy generation and storage. The drivers of change and technological innovation in energy target two converging trends: energy efficiency and digitalization.27

Energy efficiency is the trend focused on enhancing the energy sources by decentralising them; that is, mitiga-ting dependence on a single source and, instead, using renewable sources. Energy efficiency is not limited to the design of new technologies and their application, but also requires a public policy framework that creates the necessary conditions to turn them into a competitive and accessible market for the different sectors: residential, industrial and commercial. Thus, energy efficiency is included in two of the big categories: energy decentralisa-tion and renewable energy sources.

The trend to decentralise energy, also known as Decentralised Energy Resources (DER) is part of the technolo-gical changes; in business terms this translates into:• Provision of clean energy from local sources instead of from a single power plant;• Efficient distribution and larger storage para to ensure standard levels of electricity consumption at all times

of the day.28

25. United Nations. Industrial Development Organization, (2017). Accelerating clean energy through Industry 4.0: manufacturing the next revolution. Available on: http://www.unido.org/fileadmin/user_media_upgrade/Resources/Publications/REPORT_Accelerating_clean_energy_through_Industr y_4.0.Final.pdf26. World Intellectual Property Organization (Checked in October 2017). IP Statistic Database. Available on: http://www.wipo.int/ipstats/en/help/index.html27. World Economic Forum, (2017). The Future of Electricity. New Technologies Transforming the Grid Edge. Available on: http://www3.weforum.org/docs/WEF_Future_of_Electricity_2017.pdf28. SWECO, (2015). Study on the effective integration of Distributed Energy Resources for providing flexibility to the electricity system. Available on:https://ec.europa.eu/energy/sites/ener/files/documents/5469759000%20Effective%20integration%20of%20DER%20Final%20ver%2 02_6%20April%202015.pdf29. Idem SWECO, (2015).

53Advanced materials

47Digitalization

41Renewable energies

35Lightweight construction

35Human-machine interaction

29New for energy storage technologies

243D Printing

18IoT and Big Data

12Cloud technologies

12Advanced robotics and cobots

12E-mobility

6Self-driven cars

6Fracking (oil and gas)

6Mobile internet

Provision of Clean Energy from Local Sources

Also called distributed generation, it aims to turn every electricity consumer into a producer, also known as a “prosumer”. This trend turns Variable Renewable Energy Sources (VRES) into electricity; among these, wind, solar and biomass energy stand out.29 Due to their importance, the document will discuss the topic as a separate trend in the section related to renewable energy generation.

One of the most important processes in distributed generation is called co-generation. Co-generation combi-nes electric energy with thermal energy (Combined Heat and Power, CHP), through combined heat, electricity, and cooling systems. This process has had a recent boom, and many countries are expected to adopt it as an efficient alternative for the generation of electricity.

22. Machine Design (Checked in November 2017). Impact IoT fluid power systems.Available on http://www.machinedesign.com/iot/impact-iot-fluid-power-systems. 23. Industrial Report (2017), “Trends in hydraulic and pneumatic systems”, p 9.24. Technavio (Checked in November 2017). Global Bearings Market 2017-2021. Available on: https://www.technavio.com/report/global-bearings-system-market?utm_source=t2&utm_medium=bw&utm_campaign=businesswire

22 23

Digitalization

Processes and machinery digitalization has led to greater operational efficiency throughout the energy supply chain. Real time analysis, thanks to big data, virtual facilities, automation, artificial intelligence, and quantum com-puting technologies are a good example of possible uses of digital applications for the benefit of the industry.42

The trend to digitise both processes and equipment related to energy, seeks to efficiently manage demand and supply by exploring data in real time through big data in order to automatize failure detection, target DERs, and the use of smart meters to thoroughly measure energy consumption .

Virtual Power Plants (VPP) offer decentralisation and digitation solutions based on cloud technologies and the Internet of Things in order to supervise and efficiently redistribute the generation, delivery and consumption of electricity generated from solar and wind-based sources. This is currently a rising industry; Japan is the pioneer in Asia as a consequence to the 2011 earthquake; the United States is running a large simulation project with American Electric Power Service Corporation (AEP), in the State of Ohio; the United Kingdom and France use it during the winter43; Germany follows the concept known as “transparent factory” which, based on smart ne-tworks, seeks the interconnection of machinery to save energy.44

The automation systems used in buildings (Building Automation Systems, or BAS), are software based on ener-gy digitalization that manage energy use and monitor the control systems used in Heating, Ventilation, and Air Conditioning (HVAC) and other energy management systems used in the building in order to reduce costs and extend asset life. Four of the five main BAS software developers are originally from the United States and one of them has offices in France.45

30. Idem SWECO, (2015)31. OAK Ridge National Laboratory (Checked in November 2017). Energy Infrastructure Visualization and Analytics System. Available on: https://www.ornl.gov/partnerships/energy-infrastructure-visualization-and-analytics-system-032. Bloomberg New Energy Finance (2017). New Energy Outlook 2017,33. BP Global, (2017). Energy Outlook 2017 edition. Available on: https://www.bp.com/content/dam/bp/pdf/energy-economics/energy- outlook-2017/bp-energy-outlook-2017.pdf34. Idem Bloomberg New Energy Finance (2017)35. Renewable Energy World (Checked in November 2017). Solar and Renewable Energy Trends in 2017. Available on http://www.renewableenergyworld.com/articles/2016/12/solar-and-renewable-energy-trends-in-2017.html36. International Energy Agency, (2015). Trends 2015 in Photovoltaic Applications.Available on: http://www.iea-pvps.org/fileadmin/dam/public/report/national/IEA-PVPS_-_Trends_2015_-_MedRes.pdf37. Euronews, (2017). Denmark uses solar energy to generate electricity and heat in one single power plant. Available on: http://es.euronews.com/2017/04/27/dinamarca-usa-energia-solar-para-generar-electricidad-y-calefaccion-en-una

38. United Nations Environment Programme, Renewable Energy Policy Network for the 21st Century (REN21), (2017). Renewables 2017 Global Status Report. Available on: http://www.ren21.net/wp-content/uploads/2017/06/17- 8399_GSR_2017_Full_Report_0621_Opt.pdf39. Energy digital, (2015). Top 10 wind turbine suppliers. Available on: http://www.energydigital.com/top-10/top-10-wind-turbine- suppliers40. The energy journal, (2016). The world’s ten largest biomass plants. Available on: http://elperiodicodelaenergia.com/las-10-mayores-plantas-de-biomasa-del-mundo/41. Renewable energy, (2017). In Brazil, biomass is the second most important energy source above gas. Available on: https://www.energias-renovables.com/biomasa/en-brasil-la-electricidad-con-biomasa-es-2017031342. International Energy Agency, (2017). Available on: https://www.iea.org/newsroom/news/2017/april/iea-examines-critical-interplay- between-digital-and-energy-systems.html43. Frost & Sullivan, (2016). Trends Impacting Global Microgrids and Virtual Power Plants. Available on: https://ww2.frost.com/frost-perspectives/trends-impacting-global-microgrids-and-virtual-power-plants/44. Hannover Messe, (2017). Massive Energy Savings Thanks to the “Transparent Factory”. Available on: http://www.hannovermesse.de/en/news/news-details_44864.x html45. Business Wire, (2016). Top 5 Vendors in the Global Integrated Building Management Systems Market from 2017-2021: Technavio. Available on: http://www.businesswire.com/news/home/20170106005181/en/Top-5-Vendors-Global-Integrated-Building- Management

Storage and distribution for Constant Consumption

Integrated energy, aligned to the supply of local sources, the efficient distribution of energy for consumption, and energy storage improvements are industrial innovation trends that seek to save energy by reducing the “hi-ghs” and “lows” in energy consumption and maximising the storage of energy for consumption during the night or during wintertime.

Efficient distribution can be achieved with greater interconnection among local power plants to supply elec-tricity and, therefore, by modernising the transmission networks. Innovations in terms of interconnection seek to achieve real time interaction with consumers through digital two-way communications. Therefore, there are smart networks and micro-network developments that enable this connectivity.

The Advanced Metering Infrastructure (AMI) is a smart network application that detects preferences and failures in the supply to final consumers with the objective of saving energy and reducing costs.30 In addition, visualisa-tion technologies analyse the energy infrastructure in real time, to manage power outages or natural disasters.31

The trend in storage improvement seeks to constantly generate and manage electricity in order to achieve substantial energy savings. For that reason, stationary fuel cells and batteries are becoming increasingly popular, due to their application in remote locations or industrial parks. On the other hand, it is expected that by 2040, li-thium-ion batteries installed in residential homes and commercial buildings, together with photovoltaic systems represent 57% of the installed storage capacity around the world.32

Renewable Energy Generation

Worldwide, it is estimated that energy consumption will increase by 27.4% between 2015 and 2030. Even though oil, natural gas, and coal will continue to be the main energy sources, the production of biofuels and renewable fuels is expected to triple.33

Energy generated from renewable sources is a current trend that seeks to reduce production costs in order to become a viable marketing model. In line with the distributed generation, the main renewable energy sources are solar, wind, and biomass.

By 2040, it is expected worldwide, solar and wind energy will account for 48% of the installed capacity and 34% of electric energy generation. The countries expected to show greater penetration of these technologies are Germany (74%), the United States (38%), China (55%) and India (49%). Within solar energy technologies, photovol-taic generation will become the most important, accounting for 24% of total electricity production in Australia; 20% in Brazil; 15% in Germany; 12% in Japan; and 5% in the United States and India.34

China has taken the lead in photovoltaic generation and marketing, mostly thanks to their climate change public policies35; followed by Taiwan, Japan, Malaysia, Germany, and the United States.36 On the other side, Denmark is well recognised for the application of a technology called Concentrated Solar Power (CSP), that enhances the capturing of sunbeams by using concave or U-shaped panels.37

Spain and the United States are the leading countries in thermoelectrical plants, recently followed by South Africa, the Middle East and North Africa (MENA), and particularly China.38 Danish, Chinese, German, Indian, and American companies are leading the production of windmills worldwide.39

In recent years, there has been an increase in electricity generation from biomass. Seven out of the ten most important biomass plants are in Finland and mainly use turf, forest residues and wood, besides other recovered solid fuels (plastic, paper, cardboard, and wood) and black liquor. The United Kingdom has the largest plant and uses wood pellets as input.40 On the other hand, Brazil is known for its significant power generation from cane bagasse.41

24 25

2 . 4 . I N D U S T R I A L S U P P L I E SIndustrial supplies play a key role within the value chain; increased interaction between producers and suppliers, and producers and final users has created the need to work on productivity. This entails optimising operating costs and responding more swiftly to an unpredictable market.

According to the World Intellectual Property Organisation, between 2013 and 2015, the United States, China, Japan, Korea and Russia became the countries with the largest number of patents in areas related to industrial supplies; such as, digital communication, computing technology, new materials, machines and tools. This gives a first approach to leading countries, which are already immersed in this trend of the Fourth Industrial Revolution.

Thanks to information technologies (IT) and digitalization, supply chains are evolving towards the concept of digital supply chains. Likewise, other high-impact important trends in supply provision are 3D printing and the Internet of Things, which, as noted in the last section, permeate all phases of industrial production, from procu-rement to the final sale.

46. PWC (2016). Industry 4.0: How digitization makes the supply chain more efficient, agile, and customer-focused. Available on https://www.strategyand.pwc.com/reports/industry4.0

Digitalization (digital supply chain and digital vertical and horizontal integration)

The goal of digital supply chains is to improve product and input quality throughout the production chain of an industry, and reduce the gap between supply and demand (clients, suppliers, and partners) by using and levera-ging real-time digital data.

Nowadays, many companies are investing strongly to develop their own digital supply chains. According to a survey by PWC in 2016, to more than 2000 companies, a third of the respondents are already investing in digital technologies such as sensors or connectivity devices, as well as in employee training and encouraging organi-sational change. The rest is planning to invest in these areas within the following five years.46

The company that conducted the survey pointed out that digital supply chains are comprised by eight main elements:

1. Integrated planning and execution, making sure that all supply chain components (suppliers, manufac-turing, logistics, storage and customers) are well connected in order to deliver proper, reliable products as quickly as possible.

2. Logistics visibility, stems from the difficulties that arise within traditional supply chains due to the lack of in-formation among its components. This concept corresponds to the need to open the supply chain and make it visible to all players, so they can respond in real time.

3. Procurement 4.0 is a concept which establishes that all purchases throughout the supply chain will be done digitally; the same applies to maintenance contracts, software, sensors, and other electronic components needed to run a digital supply chain. To this effect, it will be necessary to have specialist software.

4. Smart warehouses represent improvements in efficiency and security through optimisation in storage activi-ties. They cover factory logistics, using sensors so that lorries can communicate their location and arrival in-formation, and therefore be automatically assigned a space within the warehouse and the resources needed to download their cargo. Meanwhile, this information will be disseminated to the supply chain so that their players can act in consequence.

5. Efficient spare parts management makes it possible to move on quickly with large inventories and have an efficient supply chain.

6. The concept of driverless cars has caught the attention of developers and ‘inspired their imagination’ to in-troduce autonomous logistics, which, by using drones, would be able to deliver goods to their final customers, reducing labour costs and delivery times.

7. Prescriptive analysis systems provide information used to make decisions throughout the supply chain; not only helping to optimise demand planning, but also making simple decisions without the intervention of an ope-rator, by applying previously programmed indicators.

8. Smart enablers in supply chains correspond to the actions a business must undertake to implement its digital supply chain. These actions include new processes, organisational schemes and skills; performance manage-ment; new partnerships or strategic alliances; and the implementation of emerging technologies.

Figure 4. Key digital supply chain elements.

Source: PWC (2016). Industry 4.0: How digitization makes supply chains more efficient, agile, and customer-focused.

In order to implement digital supply chains, it necessary to have both vertical and horizontal integration among suppliers, producers and customers. Digital vertical and horizontal integration as well as digitalization, are hel-ping to reduce costs within supply chains, increasing their product manufacturing efficiency, also allowing grea-ter interaction with customers to improve their satisfaction levels. Seeking customer satisfaction through digital supply chains has impacted on the manufacturing systems, which are affected by the types of operations, and the system’s levels of automation and flexibility. From these factors six general types of manufacturing are de-fined, which are: single station manufacturing cells, automated single station cells, manual assembly systems, automated assembly systems, cellular manufacturing systems, and flexible manufacturing systems.47

These manufacturing systems include Computer Numerical Control (CNC), which implies using a computer in order to control and monitor the movements made by a tool, as well as forging processes, sheet metal forming, cast products, machining components, and materials know-how, as discussed in the first part of this section.48

Integrating these to value chains may, on average, reduce costs by an annual 3.6% by using sensors to improve the quality of production lines; ERPs and real time cloud-based horizontal planning to reduce inventories; and achieve greater efficiency in predictive machine maintenance by using predictive algorithms to optimise repairs and maintenance programmes.49

47. Jian Qina, Ying Liua, Roger Grosvenora (2016). A Categorical Framework of Manufacturing for Industry 4.0 and Beyond. Available on: http://www.sciencedirect.com/science/article/pii/S221282711630854X48. Beroe (Checked in November 2017). Industry 4.0 adds value to forgings/castings supply chain. Available on: https://www.beroeinc.com/whitepaper/industry-4-supply-chain/49. PWC, (2016). Global Industry 4.0 Survey. What we mean by Industry 4.0 / Survey key findings / Blueprint for digital success. Available on https://www.pwc.com/gx/en/industries/industry-4.0.html

Provider Production Distribution ClientStorage

INTEGRATED PLANNING AND EXECUTION

Supply chain smart enablers

Supply chain prescriptive analysis

Procurement 4.0 Intelligent storage

Efficient spare part management Autonomous logistics

Logistics visibility

26 27

50. Sculpteo (2017), “The State of 3d Printing. The data you need to understand the 3D Printing world and build your 3D Printing strategy”. Available on http://docplayer.net/49689487-The-state-of-3d-printing-the-data-you-need-to-understand-the-3d-printing- world-and-build-your-3d-printing-strategy.html51 CANACINTRA (2016). Diagnose to develop additive manufacturing processes. Available on https://www.gob.mx/cms/uploads/attachment/file/189123/0018-F- 13032015_Diagn_stico_para_desarrollo_de_procesos_de_fabricaci_n_de_manufactura_aditiva._Parte_1.pdf

52. Lee, Kate (2015). How the Internet of Things will change your world. Supply Chain Quarterly. Available on: http://www.supplychainquarterly.com/topics/Technology/20150331-how-the-internet-of-things-will-change-your-world/

Internet of Things

The potential of the Internet of Things for industrial supply chains is promising. Devices will be able to communi-cate in real time, making it possible to know where they are at all times. It will also allow greater control over mo-bile assets, such as cargo transports, how it will be possible to know where they are and how they are being used. It is unlikely that industrial suppliers will see the constant pressure to control costs and optimise their operations reduced. However, current e-commerce trends and supporting activities, more precisely business-to-business and business-to-customer relationships, will undoubtedly encourage innovative businesses to adopt this new technology as early as possible.

As the number of IoT devices grows, so will their impact on industrial supply chain operation and management. These devices are spreading into areas such as warehouses, manufacturing plants, health, banking, finance and transport.

The Internet of Things can affect the industrial supply chains - and vice versa - and there are expected to be more in many ways. The following are examples of the different areas already experiencing this phenomenon.52

Transparency and visibility. Real time tracking and monitoring activities for shipments by using a combination of communication channels, sensors and connected devices improve businesses’ efficiency optimisation capa-cities.

Proactive restocking. Developing the capability of automatically recognising needs to order and restock a pro-duct by machine-to-machine communication reduces human intervention.

Predictive maintenance. Predictive machinery and equipment maintenance programmes utilising sensors and connected devices to monitor and respond to problems in applications as wide as large-scale manufacturing and family vehicles. Through self-diagnosis, it is possible to detect potential problems before the actual failure, order spare parts, or even schedule maintenance hours to avoid expensive idle times. Likewise, using IoT to an-ticipate maintenance issues has repercussions at an industrial scale.

Manufacturing flow management. Manufacturers have been using Programmable Logic Controllers (PLC) and automation techniques to optimise manufacturing flows across their facilities. Ensuring optimal product flow across an entire factory entails coordinating a large number of processes and activities that are commonly con-ducted independently from one another. However, IoT brings about more sophisticated, connected, intelligent, and highly integrated networks able to create efficiency for manufacturers.

Figure 5. Main 3D printing priorities and more commonly used materials.

Source: Sculpteo (2017), “The State of 3D Printing. The data you need to understand the 3D Printing world and build your 3D Printing strategy”.

MAIN PRIORITIES FOR 3D PRINTING MOST USED MATERIALS IN 3D PRINTING

0%

Product development acceleration

Buy a 3D printer

Facilitate co-creation

Others

Custom made products and limited series

Increase production flexibility

Reduce tool investment

Optimize expenses in product demos

Improved administrationof spare parts

5% 10% 15% 20% 25% 30%

88%

35%

Pla

stic

s

Re

sin

s

Me

tals

San

dst

on

e

Wax

Ce

ram

ics

Oth

ers

28%

15%11% 8%

4%

2017 2022

3D Printing (Additive Manufacturing)

A production process in which components are created layer by layer, by 3D digital data design devices. Ac-cording to Sculpteo’s survey on the current state of 3D printing50, related priorities include: accelerated product development, customised products, limited series, and growing production flexibility. Plastic is the most com-monly used material for 3D printing, given its low cost and wide colour range, followed by resins due to their robustness and endurance, as well as metals.

Worldwide, the more mature sectors utilising 3D printing are aerospace, automotive, and defence. However, many other sectors are beginning to use this technology, thanks to advancements made in terms of materials quality, readiness, and availability; as well as a better trained labour force.

In recent years, there has been an increase in the variety of printing materials, which range from plastic, porce-lain, and ceramics to steel, coal, and metals. Other improvements in printing methods, and the use of materials and components are expanding the use of 3D printing in different stages of the production chain (prototyping, repairing, manufacturing), as well as reducing the weight of printing parts, and achieving complex geometrical shapes with less components.

The three most commonly used 3D printing technologies are: fused deposition modelling (FDM), selective laser sintering (SLS), and stereolithography (SLA).51 Although it is not the most commonly used technology, selective electron beam fusion has great application potential, as it will enable the manufacturing of larger pieces and the utilisation of advanced materials.

28 29

2 . 5 . R E S E A R C H A N D D E V E L O P M E N TIndustrial production is becoming more dynamic, as dwindling resources need to be used efficiently. Manu-facturing cycles are shortening, and consumers are showing preference for customised products. Production systems are becoming more flexible and complex. Thus, the need for appropriate responses to the following questions: How can complex systems be manageable? What basic technologies does the country need? How can components be adapted to meet customer needs? To answer these properly, more and better research and development are needed.

The evolution that changes in research and development have implied multiple stages, recently coining some very current terms as a result of the developments in areas such as mechatronics ( mechanical elements + ac-tuators + controllers); adaptronics, so called smart machines (mechatronics + self-diagnosis + self-correction + self-calibration), and even intelligent machines (smart machines + cooperation + collaboration with operators, and other machines and elements).

The research and development efforts aiming to provide efficient answers to the great questions posed by the new paradigm focus mainly on building cyber-physical systems (CPS), which involve mechanical, electrical and electronic engineering, and software.53 Some examples of this type of systems include smart factories and ma-chines able to respond and make decisions independently, as well as organise and optimise.

Research and development in industrial innovation has become a key factor, enabling a new level of collabora-tion based on the most innovative developments in Information Technology (Internet of Things, cyber-physical systems, cloud computing, and big data), which enable greater processing availability and joint analysis of the data and information obtained from physical systems equipped with sensors; real-time remote communication features; mass data conversion into useful and valuable information for the value chains; capacity for action on physical systems (flexibility and adaptation), elevating functionalities, performance, and services to higher levels than the ones available up to now.54

In this context, transferring, but most especially, implementing or adopting the research and development results generates new services and capabilities, which are not restricted to one operation or one machine, but trans-cend into production lines, factories, businesses, industrial parks or, even clusters as there are no geographical limitations and their effects are felt along the entire value chain of any given product. This has direct effects on productivity, quality, energy efficiency, people skills and interactions, as well as to the life cycle of both products and production means.

In the Fourth Industrial Revolution, factors such as energy, materials, time, and costs are vital. Information in the form of ‘data’ has become manufacturing’s most important resource. Combining operational data, energy con-sumption, and maintenance programmes enables to create new production linkages capable of being analysed, tested, and optimised while running and in real time.55

Undoubtedly, research and development open the door to new possibilities for innovation, not only in indus-try but also in research centres, institutes, and enterprises. Likewise, new knowledge and technology transfers between industry and research institutions in the field of industrial innovation give way to a wide range of disci-plines, but mainly, of applications; such as bionics, adaptronic, aerospace navigation, textile materials and tech-niques, energy efficiency, mobility and automation, robotics, and communications.

53. Federal Ministry for Economic Affairs and Energy (Checked in November 2017). Plattform Industrie 4.0. Research and Innovation. Exchanging knowledge for the products of tomorrow. Available on: http://www.plattform- i40.de/I40/Navigation/EN/Industrie40/AreasOfAction/ResearchAndInnovation/research-and-innovation.html54. Federal Ministry for Economic Affairs and Energy (2016). “Digitization of Industrie –Plattform Industrie 4.0. Progress Report 2016. Berlin”, Germany. Available on https://www.plattform-i40.de/I40/Redaktion/EN/Downloads/Publikation/digitization-of-industrie- plattform-i40.pdf? blob=publicationFile&v=455. Fraunhofer-Gesellschaft Communications (2016). “Trends in Industrie 4.0. Munich”, Germany.

The introduction and integration of new technological tools by all players involved in industrial processes is be-coming a key factor to continue the improvement and innovation, as they generate important benefits in terms of heightened efficiency, optimisation of operations, and cost savings.

In general, high-income countries lead the efforts in research and development. Such is the case with econo-mies highly associated with manufacturing processes. In this context, there are two indicators that allow the identification of those countries leading in industrial innovation research and development: the number of pa-tents granted for associated technologies; and the level of robotization or automation in manufacturing.

According to WIPO, the three main countries with the largest number of patents granted in the area of industrial innovation are China, the United States, and Germany. On the other hand, the following figure shows the invest-ment in R+D in relation to the GDP of some prominent G20 member countries.

Figure 6. R+D investment by a selection of G20 countries in relation to their GDP.

Source: International Consultants (Consultores Internacionales, S.C.), based on data from the World Bank.

Kor

4.5

4

3.5

3

2.5

2

1.5

1

0.5

0Jap Ale USA Fra Euro

282005 2015

Chin RU Ita Rus MexInd

30 31

Chapter Overview

The following chart summarises the trends analysed in this chapter, together with some of the main technolo-gies, processes, or systems currently being implemented by the main countries leading those trends.

Summary of trends, technologies, processes or application systems and leading countries.

Trend Technology / Process /Industrial system to which it is being applied

Leading countries

IoTSensors, wiring and networks, iAR, technologies for

remote monitoring and advanced analyses.Germany, United States,

China, and Singapore.

Intelligentautomation

Robots, cobots, and advanced control. United States and Japan.

Digitalization

Transmission systems, engines, pneumatic systems, supply chains, energy generation, transmission, and

distribution (virtual automation systems), APS, cognitive robots, digital twins, iAR, autonomous robots, real-time

equipment monitoring.

United States, Germany, and

Japan.

3D PrintingTechnologies (MDF, SLS, SLA, FSL) and

materials such as plastics, resins, and metals.Germany and the

United States.

Energy efficiency

Distributed generation, efficient distribution and storage,smart networks and micro-networks, stationary fuel cells

and batteries, renewable energy generation (solar, photovoltaic, thermoelectric, wind, biomass).

Germany and the United States.

Source: International Consultants (Consultores Internacionales, S.C.)

32 33

THE MAIN GLOBAL TRENDS IN TERMS OF INDUSTRIAL INNOVATION WITH GREATER POTENTIAL FOR THE MEXICAN MARKET

The development of technological solutions applied to industrial inno-vation processes form one of the trends that characterise the Fourth Industrial Revolution. In the previous chapter, digitalization, Internet of Things (IoT), intelligent automation, energy efficiency, and 3D printing were identified as industrial innovation trends.

Therefore, the goal of this new chapter is to present the potential for im-plementing the analysed trends in Mexico’s industry in order to identify those with the greatest potential.

Mexican businessmens’ perspective will be addressed, according to the relevance of implementing technological trends within their factories’ pro-ductive processes with the objective of identifying their interests, as well as the feasibility of integrating them into their short term strategic plans.

Afterwards, there will be an introduction to different determinants of change towards the adoption of technological trends, as well as the clas-sification of technological intensity, in order to identify those sectors in which Mexico can implement these trends more efficiently.

The main characteristics of the aerospace, automotive, electronics, and chemicals sectors will be described; highlighting their economic grow-th, foreign investment, and integration with the productive chain to de-termine what processes are more feasible to implement industrial inno-vation features in and, thus, focus on those trends with greatest potential for the Mexican market. By doing so, the conclusion will begin by discus-sing Mexico’s potential in the areas of working skills, public policies, and geostrategic trade position in order to identify the best opportunities for collaboration with leading countries to parallel leverage their expertise and generate the necessary synergies to adopt the current trends in in-dustrial innovation.

3 . 1 . T H E I M P O R T A N C E O F I N N O V A T I O N I N M E X I C O ’ S I N D U S T R I A L S E C T O RIn Mexico, many productive sector enterprises consider the innovation goals to be highly important to their ma-nufacturing processes, such as adopting technological innovation and industrial innovation trends.

The Technological Development and Research Survey (ESIDET for its acronym in Spanish) shows the main rea-sons why industrial companies find it necessary to innovate. In the first place, the survey highlights that compa-nies aim at maintaining or increasing their participation in the market, which they achieve either by producing differentiated products and/or by reducing costs. Likewise, the latter can be achieved through the Fourth Indus-trial Revolution technological innovations, which allow for the production of differentiated goods and services and, in many cases, also include digital system, IoT, and Big Data applications, as well as reducing production costs by automatizing factories and improving digital supply chains or 3D printing.

Companies also consider it important to invest in innovation in order to reduce environmental damage and energy consumption. Although these goals are not only related to the current trends in industrial innovation, the technological applications in digitalization, smart automation or energy decentralisation do offer great potential for Mexico’s industry, from innovation to generation and transmission of renewable energy, smart network and micro-network applications in large energy consuming sectors, to transmission systems with digital interfaces and smart sensors that enable constraint movement and lower energy consumption.

It is also worth noticing Mexican enterprises’ interest in having more productive flexibility, which can partially be achieved through greater interaction with customers and suppliers, and better integration within the supply chain through IoT and Big Data; as well as digitalization through analytical platforms, 3D printing, augmented reality or intelligent automation.

Figure 7. Number of companies in the productive sector that consider the 2014 innovation goals to be highly important.

Source: INEGI-CONACYT. Technological Development and Research Survey (ESIDET) 2014

0 3

0 500 1,000 1,500 2,000

Keep market share

Improve quality for products and services

Increase or create new market share

Comply with regulations and standards

Reduce costs

Reduce environmental damage

Expand the offer of products and services

Develop products and services that don’t affect the environment

Reduce energy consumption

Reduce the consumption of supplies

Improve production flexibility

Modernization of products and services

34 35

On the other hand, the same survey also differentiates the sources used by companies from the productive sector to innovate, according to their importance. Businesses give great importance to internal sources, such as in-house departments dedicated to research, development, and engineering. Among external sources, clients themselves are the most important, followed by research centres, conferences, and trade fairs. This last case is worth highlighting, as companies use these sources as examples of innovation success cases to promote the work by domestic and foreign companies.

Moreover, in order to help domestic companies to achieve their innovation goals, it would be possible to foster collaboration with foreign companies ranking sixth among the most relevant external sources of investment in innovation.

Figure 8. Number of companies in the productive sector that consider the internal and external innovation sources to be highly important.

Source: INEGI-CONACYT. Technological Development and Research Survey (ESIDET) 2014

Innovation from internal sources

1,0

00

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3 . 2 . S E C T O R S M O R E F E A S I B L E T O A D O P T T H E I N D U S T R I A L I N N O V A T I O N T E C H N O L O G I E S P R E V I O U S L Y D E S C R I B E DThe adoption of technological trends described in the previous section is opening up the possibility of maintai-ning or expanding the competitive advantages of leading countries, the economies that are starting to imple-ment them, and the sectors at the leading-edge of their development.

Mexico’s comparative advantage, based on low salaries, which allowed an influx of foreign capital to several developing economy sectors in the 1980’s and 1990’s, is now being compensated by the implementation of new technologies with potential for low cost production of industrial goods, which is also making it possible, to certain extent, to relocate some of the production clusters back to their place of origin.56

A country’s feasibility to adopt and participate in the use of these new technologies depends on constraints such as the availability of a communications infrastructure and broadband access, the implementation of public policies fostering technological development and innovation, as well as workers’ willingness to undergo training in these technologies.

On the other hand, although industrial innovation trends can be implemented in all manufacturing sectors, their feasibility varies from sector to sector and, according to the World Bank57, this is mainly dependant on three fac-tors: 1) relative automation level of each of the sectors, 2) export concentration, and 3) intensity of services in manufacturing.

Dimensions that will determine the adoption of technologi-cal trends, according to the World Bank.

Relative level of automation. Considers the level of labour in-tensity (or low automation) in the operation of certain manu-facturing sectors. The more labour intensive the industry, the less likely the adoption of robots and automation technologies.

Export concentration level. The higher the level of exports concentration, the more difficult to maintain competitiveness based only on economies of scale or agglomeration and, the-refore, the more viable the application of new technologies.

Manufacturing “servification”: Industrial innovation means that services are becoming an increasingly necessary supple-ment to the success of manufacturing.

Source: Banco Mundial (2018), “Trouble in the Making? The future of Manufacturing-Led Development”, Washington DC.

Under these categories, the same institution found that, at an inter-national level, the industrial sec-tors most feasible to adopt these technological trends are: com-puters, electronics and optical equipment; transport equipment; pharmaceutical products; other machining and equipping; and electrical machines and devices.

56. Banco Mundial (2018), “Trouble in the Making? The future of Manufacturing-Led Development”, Washington DC. Available on http://www.worldbank.org/en/topic/competitiveness/publication/trouble-in-the-making-the-future-of-manufacturing-led-development57. Idem.

36 37

Figure 9. Export concentration and automation of global manufacturing subsectors by trade and services intensity.

Source: Consultores Internacionales, based on data from the World Bank (2018), “Trouble in the Making? The future of Manufacturing-Led Development”, Washington DC.

In addition, the Organisation for Economic Cooperation and Development (OECD) annually publishes the Analytical Business Enterprise Research and Development database (ANBERD), which measures the R+D invest-ment efforts by companies from the economic activity sectors. Using this information, the OECD put together a typology of industries that measures their levels of research and development, classifying them within five groups: high, medium-high, medium, medium-low, and low intensity in research and development.

Although the OECD and the World Bank apply slightly different sectorial classifications, high and medium-high intensity sectors fully coincide with the sectors the World Bank identified as the most feasible to adopt the trends in industrial innovation technologies. That is, the applicability of these trends and their corresponding industrial innovation technologies have greater implementation potential in high-tech and medium-tech sectors.

In the case of Mexico, these sectors also coincide, for the most part, with those identified by the World Bank, star-ting with the pharmaceutical sector, followed by aerospace, electrical devices, chemical products, machining and equipping, motor vehicles (and also transportation and locomotive vehicles), textiles, leather products, rub-ber and plastics, computers, electronics, and other basic metal products. As pointed out, although all economic sectors are, in some measure, adopting -or will need to adopt in the future- Industry 4.0 trends in order not to lose competitiveness, the sectors mentioned above are currently the most feasible to adopt them and, therefore, ProMexico’s strategies for promotion and international collaboration should focus on them.

Figure 10. Technological intensity in OECD (top) and Mexican (bottom) sectors with average economic activity.

Source: International Consultants (Consultores Internacionales, S.C.)based on data from the OECD, ANBERD.

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38 39

3 . 3 . S E C T O R A L A N A L Y S I S A N D N O T E W O R T H Y F A C T O R S F O R T H E A D O P T I O N O F I N D U S T R I A L I N N O V A T I O N T E C H N O L O G I E S

Aerospace

This section seeks to identify those trends Mexico has greater potential to insert itself within the current global industrial technological innovation trends.

To this end, the section first describes the current capacities, needs, and areas for opportunities within the main activities of the productive chains of the four sectors representative of Mexico’s manufacturing: aeros-pace, automotive, electronics, and chemicals.58

Secondly, the section describes the working capacities, that is, Mexico’s human capacities in areas and educa-tional courses relevant to the innovation trends that will facilitate their implementation.

By analysing the current public policies, it is possible to identify what is currently being done to support the im-plementation of each of these trends in the country.

Finally, and regarding Mexico’s strategic positioning, the section will point out some of the countries deman-ding or offering innovation technologies with which Mexico has trade treaties or agreements that could ease potential collaboration mechanisms.

58. The selected sectors, besides being part of the group of sectors more feasible to adopt industrial innovation trends, according to the methodology described above, are representative of Mexico’s industrial sector. Firstly, the document will introduce the aerospace sector, which, in recent years, has grown significantly thanks to the investment and innovation of multinational companies such as Airbus or Boeing. Secondly, the automotive sector, and its large production and export volumes, has historically been considered as a leading sector around the world, thanks to its technological innovations. The electronics sector also accounts for a significant part of Mexican exports. Finally, the chemicals sector is known for its research and development activities. 59. Milenio Negocios (Checked in November 2017). It boosts aerospace demand. Available on http://www.milenio.com/negocios/favorece-demanda-sector_aeroespacial-aviacion-tlc-autopartes-aeronaves-femia- milenio_0_1009699036.html

Characteristics of the sector

Aerospace is one of Mexico’s most dynamic industries; between 2010 and 2016, its average annual growth was 17%, however, its contribution to the manufacturing sector as a whole was of only 1%. According to the INEGI, in 2016, it employed around 24,000 people, twice as much than in 2010, whereas that same year, it received 205.7 million dollars in foreign direct investment (FDI), accounting for 1.2% of the FDI in the manufacturing sector.

Its growth has been accompanied by an industrial growth process that has evolved from manufacturing simple parts and joints, in its initial phase, to becoming known for servicing the whole cycle of an aircraft. The FEMIA expects the sector to grow by 11% by 2017.59

Concept

GDP (Billions of pesos, based on 2013)

Actual variation

Total personnel employed(Millions of dollars)

% FDI(Millions ofdollars)

% FDI (of the manufacturing industry total)

2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6

Aerospace indicators.

8.708

-9.3

10.195

247.9

3.4

15.077

9.3

19.465

206.9

0.7

8.628

-0.9

10.792

396.9

2.8

16.950

12.4

22.586

243.4

1.4

10.129

17.4

15.433

187.0

1.7

19.769

16.6

24.917

167.6

1.0

13.792

36.2

17.663

130.6

1.4

21.744

10.0

24.236

205.7

1.2

Source: Prepared by the authors, based on data from INEGI (Domestic accounts & EAIM) and the Secretariat of Economy

The sector is comprised of 300 companies, distributed along several phases of the productive chain, among which are international consortiums of the calibre of Airbus, Boeing, Safran, and Honeywell, which manufacture various aircraft components.

Productive Chain Analysis

The aerospace industry comprehends the subsectors of design and engineering; production and manufacture; and Maintenance, Repair and Overhaul (MRO) of aircrafts, helicopters and engines, as well as their parts, com-ponents and systems.

Its supply chain is comprised of Original Equipment Manufacturers (OEMs), and Tier 1, Tier 2, and Tier 3 suppliers, respectively.

In order to meet the demand, aircraft manufacturers (OEMs) need to increase their productive capacity and su-pply requirements, which opens up the possibility for Mexico to enter the sector’s supply chain by fostering the establishment of first tier suppliers in the country.

In order to improve the possibilities of increasing the national value added to the aerospace industry, Mexico needs to have the necessary technological and human capacities to carry out design engineering and manufac-turing tasks. Shortening product launch times is an important competitive advantage. In this sector, the period from product concept development to market launch is considerable.

The OEMs resort to the design capacities of system manufacturers (Tier 1 and 2) and develop distributed designs with the support of more modern communication systems and platforms. Using concurrent engineering colla-borative systems is key to shorten times, facilitate innovation, and improve quality.

40 41

An industrial growth process has accompanied the rapid growth of the aerospace sector. Initially, Mexico only manufactured simple fittings, joints, and parts. Currently, the country has grown well into a second stage that seeks to turn it into a destination that caters for the whole cycle of an aircraft; that is, design and engineering, part and fitting manufacturing, maintenance, aircraft assembly and recycling, and reconversion. This entails develo-ping more complex processes, such as manufacturing turbines, fuselage, harnesses and landing gear; as well developing manufacturing activities with higher value added.60

Mexico’s aerospace industry is mainly based in five states: Chihuahua, Baja California, Queretaro, Nuevo Leon, and Sonora. In each of these states, development is focused on the following aspects:

• Chihuahua. Is one of the states with the greatest development and potential in aerospace and defence, specialising in part and fuselage manufacturing, electric-electronics, interiors and tooling. One of this state’s strategic milestones is to reduce its dependence on moulding, tooling, and specialised services imports to half the current levels.

• Baja California. Is focusing its innovation capacities in high-value knowledge services (KPO - Knowledge Process Outsourcing) for aerospace and defence (A+D). Additionally, it has the potential to develop fuselage systems and power plants, which will turn it into an important manufacturing state with an integrated value chain.

• Sonora. The state’s strategy seeks to develop the supply chain with an innovation-oriented approach, mainly in turbine manufacturing, and the creation of specialist talent in line with the sector’s needs. It specialises in manufacturing engine and turbine components, fuselage, and compound materials. The state has imple-mented medium- and long-term strategies seeking to become a world leader in turbine manufacturing. To this end, it plans to implement actions that will help it achieve competitive costs throughout the whole pro-duction chain, as well as develop human talent.

• Querétaro. Has the potential to specialise in turbines; manufacturing, assembly; MRO of complex fuselage parts, turbines, and landing gear. The companies, mainly based in the city of Queretaro, specialise in manu-facturing engine and landing gear components, and assembling of components, fuselage, and MRO.

• Nuevo León Companies, mainly based in the cities of Apodaca, Monterrey, and Santa Catarina, specialise in forging and machining, component manufacturing, and assembling of helicopter fuselage.

Technological Capacities in the Trends Studied

Technological innovations crosscut the entire productive chain and range from aircraft design and structural analysis to manufacturing and welding, assembly and quality control, and, finally, maintenance.

3D printing is one of the most developed trends within the aerospace sector. Companies like Boeing are using around eight thousand 3D-printed parts in their aircrafts worldwide. However, it is necessary to continue making progress in the production of more precise, more resistant and lighter parts; progress that can be achie-ved by using polymers, metals and compound materials in 3D printing. 61

In digitalization and IoT, the Mexican company NC Tech has developed a system to instrument and monitor aeronautical parts, as well as equipment and instruments’ functionality. This information is reviewed in real time through a cloud-based user interface that can also be accessed from smart phones or tablets.

Out of the more than ten aerospace research centres in the country, the National Centre of Aeronautical Tech-nology (CENTA for its Spanish acronym) is well known for its experiments in Industry 4.0 innovations.

Needs and Opportunities within The Sector and the Trends Studied

This activity represents an opportunity for the attraction of investment oriented towards the generation of high value-added activities in engineering and design, and, in time, to become a catalyst of development and in-vestment opportunities. This has become reflected in the fact that the Mexican aerospace industry attracted 51 aerospace investment projects from 44 companies between 2011 and 2015, and that the largest number of jobs - amounting to around 5,000 - were created through foreign investment during the same period. 62

The aerospace sector has great potential to implement industrial innovation technologies. Currently, all the parts in an aircraft require monitoring and assessment, both tasks eased by digitalization or IoT. Furthermore, there is an increased need for manufacturing safe aircraft components and parts with minimal error, a better materials weight-resistance ratio, as well as better fuel efficiency.

According to the 2017 Aerospace and Defence Top Management Issues Radar published by Rolad Berger, 98% of CEOs within the sector consider that the digitalization of the aerospace sector has or will have an impact within the industry. The document also refers to the main technological solutions required by the different stages of the sector’s productive chain.

Digital transformation processes are a priority for Original Equipment Manufacturers (OEM), as well as for Tier 1 and Tier 2 companies. In the design phase, there is an interest in digitalization and 3D printing technologies; in production, there is a need for augmented reality, digital solutions for the supply chain, APS, remote monitoring, pneumatic and drive systems, numerical control, robots and cobots; in maintenance, there is a need for aug-mented reality, remote monitoring and 3D printing for manufacturing spare parts.

60. FEMIA-Secretaría de Economía. Pro-Aéreo 2012-202 Programa Estratégico de la Industria Aeroespacial.61. CONACYT (Checked in November 2017). Manufacturing 4.0 in Aerospace Industry Available on http://www.conacytprensa.mx/index.php/tecnologia/tic/18145-manufactura-4-0-industria-aeroespacial

62. Sergio L. Ornelas Ramirez, VI edition of Mexico ’s Aerospace Summit 2016.

Use of materials like polymers, metals and compound materials

Development

Digitalization

loT

Smart Automation

3D printing

ProductionMaintenance and

overhaul

Augmented reality, solutions in the digital supply chain, and APS

Augmented Reality

Figure 11. Main industrial innovation technologies needed by Mexico’s aerospace sector.

Source: Prepared by the authors based on Roland Berger (2017) and field studies

Remote monitoring for predictive maintenance,

advanced analysis

Parts repair

Remote monitoring, pneumatic systems,

transmission systems

Robots, cobots, advanced numerical control

Simulation in Digital Environments, Virtul Prototypes,

Augmented Reality

According to the Mexican Secretariat of Economy, most companies in the aerospace productive chain are ma-nufacturers, accounting for 79% of the total. Thus, and even though adopting all trends is necessary for the ae-rospace sector, the main opportunities for collaboration fall within Intelligent Automation, digitalization, IoT and 3D Printing.

42 43

Figure 12. Percentage of companies in the aerospace sector by production phase.

Source: International Consultants (Consultores Internacionales, S.C.) based on data from the Secretariat of Economy of Mexico

Automotive

Characteristics of the sector

The automotive sector has historically been one of the most important sectors for the development of Mexican industry. In 2015, Mexico was the world’s 7th largest car manufacturer, and the 5th largest part and component manufacturer.

Between 2010 and 2016, the sector had an average growth of 7.4%, employed almost 815,000 people, and at-tracted a significant amount of FDI, equivalent to 35% of the total FDI in the manufacturing sector.

Concept

GDP (millions of pesos, based on 2008)

Actual annual variation

Total personnel employed FDI(Millions of dollars)

IED (millones de dólares)

% FDI (of the manufacturing industry total)

2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6

Automotive indicators.

233.307

-26.4

413.490

1.985

27.4

428.887

4.8

659.287

4.640

14.8

328.132

40.6

483.685

2.947

20.6

468.076

9.1

729.754

6.020

35.1

366.964

11.8

536.300

2.734

24.3

496.734

6.1

776.855

6.944

41.0

409.108

11.5

607.435

3.577

37.6

502.994

1.3

814.445

6.110

35.1

Source: International Consultants (Consultores Internacionales, S.C.) ®, based on data from INEGI (Domestic accounts & EAIM) and the Secretariat of Economy

Mexico is an attractive market for the leaders in industrial innovation. The sector is comprised of 23 of the most important automotive companies involved in car and lorry manufacturing and generating an output value of over 1.56 trillion pesos; plus 300 Tier 1 manufacturers, and more than 2,500 auto part manufacturers.

The growth of Mexico’s automotive sector is the result of the investment by companies such as Volkswagen, Chevrolet, Nissan, Ford, Toyota, GM, Kia, Mazda, and Audi, from the leading countries in technological innovation: Germany, the United States, Japan, and Korea.

The Mexican Automotive Industry Association (AMIA) estimates that, by 2020, more than 5 million light vehicles will have been produced; that is, the sector’s economic performance is expected to continue its upward trend as a dynamic driver of Mexico’s economy.

Figure 13. Light vehicle production

Source: Mexican Automotive Industry Outlook towards 2020 drafted by AMIA63

63 AMIA. (2016). Mexican Automotive Industry Outlook towards 2020. Available on: http://www.suncorridorinc.com/SunCorridor/media/Sun-Corridor/Documents/Industry%20Strengths/AMIA-Auto-industry-in- Mexico.pdf?ext=.pdfStrengths/AMIA-Auto-industry-in-Mexico.pdf?ext=.pdf

Manufacture79%

Maintenance repair and overhaul (MRO)11%

Design and engineering 10%

2000

1.9

2001

1.8

2002

1.8

2003

1.5

2004

1.5

2005

1.6

2006

2

2007

2

2008

2.1

2009

1.5

2010

2.3

2011

2.6

2012

2.9

3.4

2015

4.4

20182013

2.9

3.5

2016

4.6

20192014

3.2

4

2017

5.1

2020

44 45

Productive Chain Analysis

The activities that characterise the finished-product automotive industry range from product origin to final con-sumer outreach, including design, engineering and development; production of spare parts; component manu-facturing; assembly; quality tests; and distribution and sales.

Similar to the aerospace sector, the automotive industry supply chain is composed of OEMs, which are compa-nies in charge of placing finished products in the market. Likewise, Tier 1 companies are direct suppliers of OEMs and follow strict quality, time, and cost controls for subassembly parts and components. Finally, Tier 2 compa-nies supply components to Tier 1 companies, and Tier 3 companies supply Tier 2 companies.

There are over 30 engineering and design centres in Mexico; and 23 OEMs (13 for light vehicles and 10 for heavy vehicles) have set up business in Mexico. In the case of auto parts manufacturing, 345 Tier 1 companies suppl-ying major and minor components, and 865 focused on machining, forge and foundry, have been set up as well.

Figure 14. Companies and importance of the automotive sector

Source: International Consultants (Consultores Internacionales, S.C.) based on data from ProMéxico.

The fields of study for Mexican engineering and design centres are:• Engine pollutants emission reduction. Development of special anechoic chambers, road simulation (detec-

tion of parts and bodywork), weather conditions reproduction.• Engineering, design and development of electronic systems.• Design and development of new products and components with new technologies, cutting-edge enginee-

ring, and manufacturing cell and process development.64, 65

According to a study carried out by ProMexico, the country offers opportunity areas to develop Mexican Tier 2 and Tier 3 providers, as 76% of the total process demand is imported. The processes with greatest potential for opportunities are:

64. Ministry of Economy. Strategic Automotive of Programme. Available on: http://www.economia.gob.mx/files/comunidad_negocios/industria_comercio/peia_ok.pdf65. ProMéxico. (2016). Mexican Automotive Industry: Current situation, challenges, and opportunities. Available on: http://mim.promexico.gob.mx/work/models/mim/Resource/71/1/images/la-industria-automotriz-mexicana.pdf

Main processes

Main processes

Imports

Domestic production

Die-cutting and/or stamping

Die-cutting and/or stamping

Smelting

Machining

Forging

Smelting

Semiconductors

Plastic injection

Machining

Forging

Engineering and Design

Electrical components

Plastic injection

Carpets and linings

10.7

5.8

10.7

3.7

10.1

3.6

8.8

2.7

8.5

2.5

6.1

1.5

4.9

1.3

Automotive supply chain imports in Mexico, 2014 (billion dollars).

Mexico’s national production for the automotive supply chain, 2014 (billion dollars).

Source: ProMéxico, (2016). Mexican Automotive Industry: Current Situation, Challenges, and Opportunities.

Source: ProMéxico, (2016). Mexican Automotive Industry: Current Situation, Challenges, and Opportunities.

On the other hand, the processes with the largest domestic production are:

2,500 autoparts companies

manufacturers for TIER1

Automotive Industry: Mexico

7th largest producer in the world for light 4th biggest exporter of light vehicles5th global autoparts supplier

21 brands of assembly plants

11 heavy vehicles10 light vehicles

+300

46 47

Technological Capacities in the Trends Studied

The automotive industry is one of the sectors rapidly adopting the Fourth Industrial Revolution technological trends. Mexico, being one of the major world production hubs, is also advanced in implementing these technologies.

A good example of this is the German company Volkswagen, which is based in the State of Puebla and has star-ted developing augmented reality technology in virtual laboratories, seizing the advantages of digitalization.

Likewise, General Motors’ On Star service models continue to make progress in IoT, providing Internet connec-tions anywhere their vehicles are located.66 Ford is testing the large scale production of automotive parts using 3D printing with the Stratasys Infinite Build 3D printer. Also, in 2015, Audi opened in Mexico one of the most im-portant smart factories in the continent. This factory will manufacture digital and automated vehicles.

These examples are only of OEMs and Tier 1 companies. Albeit, the rest of this sector’s supply chain is not as advanced in technological innovations and requires both government involvement to foster technological ac-quisition and transfer, as well as ProMexico’s help to build relations between Mexican SMEs and technological leaders, in order to improve their economic development.

Needs and Opportunities within the Sector and the Trends Studied

According to SIEMENS, automotive OEMs require different technological solutions. In design, there is special in-terest in digital technologies for automobiles’ design and testing through augmented reality, digital twins and 3D printing; in digitalization, there is interest in engine applications, pneumatic and drive systems or generation of renewable energies, cells and batteries. In production, companies require robots and cobots, mobility systems, as well as solutions for the digital supply chain, with the contribution of different tier suppliers. Last, maintenance and operations increasingly require the use of 3D printing, and implementation of sensors and remote monito-ring, mainly for predictive maintenance.

66. Aristegui Noticias (Checked in November 2017). Revolution 4.0: the new challenge for the automotive industry (Revolución 4.0: el nuevo reto para la industria automotriz). Available on http://aristeguinoticias.com/2703/mexico/revolucion-4-0-el-nuevo-reto-para-la-industria-automotriz/

Figure 15. Main industrial innovation technologies needed in Mexico’s automotive sector

Source: Prepared by the author, based on SIEMENS and field studies.

As pointed out, Mexico’s OEMs suppliers are falling behind in terms of technology (among these suppliers there are those in the plastics, glass, rubber and machining sectors), which entails the creation of new opportunities for collaboration with industrial leaders towards technology adoption.

The future of Mexico’s national production lies on developing its productive chains and increasing its exports value added, which is currently very low; therefore, one of the main challenges will be to bring industrial inno-vation technologies to all the companies across the sector’s supply chain, including those for which technology acquisition may be too expensive. In this sense, in addition to the usual collaboration with leading countries and companies in technological production, government support is key to overcoming these barriers. A current collaboration example is the joint work by German company SIEMENS and the Mexican government to increase technological innovation and digitalization in the automotive industry (and other industrial sectors) through three main investment areas, technological transfer and training via dual education.67

The reasons why SIEMENS considers Mexico to be an appealing market are its investment rate, its industrialisation rate, its growing digitalization, and the creation of human capital. According to the company’s regional manager in Mexico68, these are key times for the industrial sector as it seeks new strategic exporting alliances; hence the importance of developing local chains to support SMEs growth. The abovementioned further highlight the importance of ProMexico’s contribution to achieve greater consolidation between Mexican industrial SMEs, and innovation leading countries and companies.

67. Siemens press (2017). SEP and SIEMENS promote technological transfer in industrial processes digitalizationdigitalization and strengthen the available dual training on https://w5.siemens.com/cms/mam/press/Documents/2017/100610_SIEMENS_Final_MoU_Siemens_SEP.pdf 68. Manufacturing (2017). Siemens and the Government, allies in Industry 4.0. Available on http://www.manufactura.mx/industria/2017/03/06/siemens-y-gobierno-de-mexico-promoveran-la-industria-40

Digitization

loT

Energetic decentralisation

Smart automation

3D Printing

Maintenance and Overhaul

Manufacturing and AssemblyDesign and Engineering

Sensors, predictive maintenance, advanced

data analytics

Transmission systems

Efficient storage and renewable energies

Cognitive robots, cobotsEngines, pneumatic

systems and transmission systems, autonomous

vehicles

Prototypes, materials like plastic, resins, and metals

Digital supply chain, APS, pneumatic system, advanced control and mobility systems

Digital twins, virtual prototypes, augmented

reality

Parts and auto parts replacement

48 49

Electronics

Characteristics of the Sector

Electronics is one of the greatest contributors to Mexico’s economy and one of the industries with the largest participation in the manufacturing sector. In 2016, it contributed with 8.11% of the manufacturing sector GDP, that is, over 226.626 billion pesos; it employed around 275,000 people; and it attracted 1.013 billion dollars in investment, the equivalent to 5.9% of the total foreign direct investment in manufacturing.

Concept

GDP (Millions of pesos, based on 2013)

Real annual variation

Total personnel employed

FDI(Millions of dollars)

% FDI (of the manufacturing industry total)

2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6

Electronics sector indicators.

149.444

-22.9

233.915

1.494

20.6

176.412

5.1

249.946

1.250

4.0

160.604

7.5

250.651

1.604

11.2

198.757

12.7

249.053

657.5

3.8

160.373

-0.1

247.796

524.3

4.7

213.669

7.5

259.411

618.3

3.6

167.844

4.7

245.420

1.112

11.7

226.626

6.1

275.074

1.013

5.9

Source: Prepared by the authors, based on data from INEGI (Domestic accounts & EAIM) and the Secretariat of Economy

The main exports of the electronics sector are computers and peripheral equipment - data processing devices and their magnetic or optical readers, and data recording devices -, as well as audio and video equipment - TV sets -, which account for the 26.5% and 26.4% of the total exports of these products, respectively.

Some of the world’s main electronics companies operate in Mexico to serve the American and Canadian mar-kets. Thus, 9 out of the 10 main transnational companies of electronics manufacturing services (EMS) are in the country. 69 Among these are Samsung, Foxconn, LG, IBM, Flextronics, and HP. In 2014, there were in Mexico 766 economic units70, 71, which employed 478,816 people.72 These units were mainly based in the following Mexican states: Baja California, Jalisco, Chihuahua, Tamaulipas, Sonora, Queretaro, State of Mexico, Aguascalientes, and Nuevo Leon.73

Given the market demand to reduce costs, as well as having more flexible and agile manufacturing systems, some OEMs have opted for subcontracting manufacturing services to Electronic Manufacturing Services (EMS) companies, which has also allowed them to focus their resources onto design, marketing, sales, and innovation.74

69. Manufacturer Market Insider70. By economic units the text refers to offices, manufacturing plants, and distribution centres71. DENUE, 2014.72. Projections by ProMexico based on data by INEGI.73. DENUE, 2014.

74. ProMéxico (2014), “Electronic Industry”, Mexico. Available on http://www.promexico.gob.mx/documentos/diagnosticos- sectoriales/electronico.pdf75. Idem.76. Idem.

Figure 16. Productive chain of the electronics industry.

Source: ProMéxico (2016), “Sectoral diagnosis, electronics”.

The electronics productive chain consists of different TIER companies, OEMs and EMSs (Electronics Manufacturing Servi-

ces), the latter being subcontracted by OEMs. OEMs mainly design consumer and industrial electronics, and are supported

by Tier 1, 2, and 3 companies that specialise in PCB (Printed Circuit Board) design, passive and active components, software,

and electrical components.75

The broad supply chain generated in the electronics industry comprises different sized companies supplying consumables,

parts, and components, but also manufacturing and assembling final goods and other products components for the end

market.

In the case of electronic products supply, Mexico has a specialised electronics manufacturing industry, mainly in consumer

electronic products (television sets, mobile phones and computers). However, national companies dedicated to designing

and/or manufacturing electronic components are scarce and, therefore, demand cannot be covered. For example, it is

estimated that around 97% of the components needed to manufacture TV sets in Mexico are imported, which represents

great opportunities for investment.76

Productive Chain Analysis

PCB (printed circuit board design) Design

Passive components design

Passive components:

Active components design

Electric components design

Conductive components

Electric components: - cables

- harnesses- fuses

Mechanical components

Industrial electronics

Consumer electronics

Electronics design

Active components:

Micro-mechanic

Micro-mechanic

Micro-mechanic

Chemical substrates

Chemical substrates

Copper sheets

Resins

T4 T3 T2 T1/EMS OEMs

Phenolic tablet

Photosensitive chemicals

PCS (Printed circuit

assembly)

PCS (Printed circuit

assembly)

PCB

Silicon wafers

Algorithm and instructions

- Diodes- displays- transistors- microprocessors- integrated circuits

- connectors- capacitors- inductors- resistors

Embedded software design

Embedded software

Testing

50 51

The Mexican electronics national industry is integrated by a wide range of goods, from large electrical and in-dustrial infrastructure equipment, to control devices, engines and lightbulbs, among others; one can note that electrical household appliances, electrodes, or manufactures directly related to the automotive industry are not considered. Many transnational companies established in Mexico are very interested in growing their business in the country, particularly through Mexican companies’ productive linkage and by relocating suppliers to close the gaps in the national productive chain.

According to the analysis of the Input-Output-Matrix Model, the main ten branches of electronics sector pur-chases are electronic component manufacturing, audio and video equipment, communication equipment, electrical devices and accessories, computers and peripherical devices, machinery and equipping for trade and services, plastic products, energy generation and distribution devices, measurement and monitoring tools, and non-electronic medical devices.

Technological Capacities in the Studied Trends

According to PWC’s 2016 Global Industry Survey77, the electronics sector expects higher levels of investment in industrial innovation by 2020, rising to 7% of the annual income, whereas, on average, it is estimated to be 5%.

77. PWC (2016), “2016 Global Industry Survey. Industry 4.0: Building the Digital Enterprise”. Checked on: https://www.pwc.com/gx/en/industries/industries-4.0/landing-page/industry-4.0-building-your-digital-enterprise-april-2016.pdf78. Manufacturing (2017). Industry 4.0 has ‘clipped wings’. Available on http://www.manufactura.mx/industria/2017/06/07/la-industria-40-tiene-las-alas-cortas

Figure 17. Sectors’ Investment in industrial innovation technologies.

*Investment as annual income percentage.Source: PWC (2016), “2016 Global Industry Survey. Industry 4.0: Building the Digital Enterprise”.

In Mexico, and worldwide, the electronics sector shows the greatest development in industrial innovation tech-nologies. This is due to improvements in automation that help reduce the costs of mass-producing electronic de-vices, but also because industrial innovation technologies have allowed the industry to overcome one of its main challenges: the market’s demand for ever more customised products, making life cycles increasingly shorter.

At the same time, the Fourth Industrial Revolution brings about great potential for improvement, for, even if Mexico is one of the main manufacturers of electronic devices, many of these manufacturing processes are still manual as workers perform some tasks in the production line themselves.78

Needs and Opportunities within the Sector and the Trends Studied

The electronics sector seeks to improve its competitiveness through its supply linkage, which enables EMSs and OEMs companies installed in the country to incorporate Mexican component manufacturers to their supply chains whenever possible.

Across the electrical-electronic productive chain, there are processes with room for technological improve-ment, as is the case of those related to micro-mechanics. These processes are microinjection, micro-ceramics, micro-die cutting, and micro machining, which are used to manufacture active and passive electronic compo-nents. Designing new software instructions and algorithms for maintenance and operation are crucial in order to make industrial processes more efficient. Micro-assembly processes, like Surface Mount Technology, are used to manufacture PCBs (Printed Circuit Boards), which is the process used to build electronic circuits by welding components directly on PCB boards. Surface mounting has substituted “through hole” technology; a method used to install components with wires into the PCB’s holes by piercing through the board on both sides.79

Chemical Industry

Characteristics of the sector

The chemicals sector contributes with around 9% of the manufacturing GDP; however, in recent years, it has shown a downward trend of around -1.3% and -3.6% for 2014 and 2015, respectively.

Chemical sector indicators.

Concept

GDP (Billions ofpesos, based on 2013)

Real annual variation

Totalpersonnel employed

FDI (Millions ofdollars)

% FDI (of the manufacturing industry total)

2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 6

270.033

-2.6

156,513

403.2

5.6

269.589

1.2

156,346

2,197.8

7.0

273.773

1.4

156,956

435.5

3.0

266.094

-1.3

153,469

3,500.4

20.4

269.300

-1.6

158,675

2,871.1

25.5

256.574

-3.6

150,686

1,177.6

6.9

266.294

-1.1

161,479

1,980.8

20.8

249.301

-2.8

151,228

3,847.3

22.3

79. Ladelec (Checked in December 2017). What is Surface Mount Technology? Available on http://www.ladelec.com/teoria/informacion-tecnica/407-que-es-la-tecnologia-de-montaje-superficial-smt

Source: Prepared by the authors, based on data from INEGI (Domestic accounts & EAIM) and the Secretariat of Economy

Invest in Industry 4.0 (in % p.a. until 2020)

Aerospace, Defence

0% 2% 4% 6% 08% 50010% 1000

Automotive

Chemical

Electronics

Manufacturing industry

Engineering and Construction

Metals

Wood, paper and plastics

Transport and logistics

Weighted average

Invest in Industry 4.0 (in US$ bn p.a until 2020)

52 53

According to the National Institute of Geography and Statistics (INEGI), the sector employs around 150,000 peo-ple every year. In 2016, it received 3.847 billion dollars in foreign direct investment, equivalent to 22.3% of the total FDI in the manufacturing sector.

The industrial branches that receive more FDI are the manufacturing of soaps, cleaning products and toiletries, pharmaceutical products, resins and synthetic rubber. The companies that have contributed the most through FDI are P&G (United States), Avon (Spain), and Merck Sharp and Dohme (Luxembourg).

Figure 18. FDI per economic branch of the chemicals sector.

Source: International Consultants (Consultores Internacionales, S.C.) based on data from the Secretariat of Economy

The sector is comprised of a little over 1,600 companies registered with the Mexican Business Information Sys-tem (SIEM), distributed along several stages of the productive chain; among them, BASF (chemical products), Allen (cleaning products), Johnson & Son (cleaning products), Sherwin Williams (paint), La Corona (soaps and detergents), and others.

Productive Chain Analysis

Mexico’s chemicals sector is key to the development of several industrial branches. It receives inputs from sec-tors such as oil extraction, petrochemical products, construction, mining and metallurgy, metal mechanic and other mineral exploitation mainly. In turn, it provides for sectors such as textile, automobile and transport, deter-gents, cosmetics, shoe-making, packaging, food and beverages, agriculture, construction, and clothing.

The companies in Mexico City, and the states of Mexico, Veracruz, Jalisco, and Guanajuato are the most attrac-tive for FDI, and specialised mainly in manufacturing of soaps, cleaning products and toiletries, pharmaceutical products, resins and synthetic rubber.

Technological Capacities in the Studied Trends

Technological trends and applications have had extreme relevance to the chemicals sector, to the point that some authors have even called this process ‘Pharma 4.0’, giving it a special meaning given the particularities of the digital transformation and everything it entails.80

It is estimated that the chemicals sector invests around 45 billion dollars globally in processes related to the Revolution 4.0.81

Mexico is still in the early stages of this process; however, companies are increasingly seeking to implement di-gital strategies and add more efficient and innovative technologies to their processes, which, in turn, generates numerous business opportunities.82

Rest23%

Soaps, cleaning products, and toiletries33%

Resins and synthetic rubber

14%

Pharmaceutical products30%

80. Tecnología para los negocios (Checked in November 2017). Industry 4.0 in the chemical and pharmaceutical sectors. Available on https://ticnegocios.camaravalencia.com/servicios/tendencias/la-industria-4-0-en-el-sector-farmaceutico-y-quimico/81. PWC (2016). Industry 4.0: Building the Digital Enterprise. Available on https://www.pwc.com/gx/en/industries/industries-4.0/landing-page/industry-4.0-building-your-digital-enterprise-april-2016.pdf82. Deloitte (Checked in November 2017). Chemistry 4.0: the different realities; a promising future for the strong, determined, and persevering. Available on https://www2.deloitte.com/mx/es/pages/manufacturing/articles/quimica-4-0.html83. Based on field information.

Needs and Opportunities within the Sector and the Trends Studied

The opportunities within the value chain are diverse. For example, 3D printers have been used in design and engi-neering for a few years now, either to develop pieces for exhibitions and prototypes or to develop injection moulds to support hundreds of hits from injection machines. This has represented significant savings for businesses that, thanks to this technology, no longer need to resource large investments for these purposes.

It is worth mentioning that, at the moment, 3D printing is not expected to replace traditional industrial processes, as it is not yet possible to match the latter’s quality and durability.

Mexico’s chemicals industry is not making investments or applying processes already de-fined to its manufacturing and assembling processes. However, there is potential83 for investment in cogeneration systems within factories and the use of robotic arms for chemical packaging, as well as for cleaning or production tasks.

At this stage, one of the biggest challenges is energy storage. Although possibilities in the use of photovoltaic and wind energy are observed, there has yet to be a techno-logical development that allows stabilising both grid and energy storage. Once this becomes possible and cost-effective, these will become attractive to the eyes of the chemicals industry. It is important to note that the situation is expected to be comple-tely different in less than ten years.

More progress has been made in the maintenance and operations stage; for exam-ple, by using digitalization. Currently, there are dashboards to control the movement of materials, invoicing, Big Data (along with its applications such as data mi-ning and market intelligence) in real time, among others. Businesses are using cloud-based management software, having as a result the substitution of phy-sical servers, as well as saving in maintenance and other associated concepts.

M2M devices are currently being used by all chemical companies in the world. Although their use is still minor in Mexico, their potential is undeniable. Systems used to monitor pressure, temperature, and other key indicators in containers used for long-distance transport allow businesses to check the status of their product in real time, thus avoiding accidents and losses. In the case of the petrochemical industry, these devices allow the areas in charge of operational activities to know whether pipes are co-rroded or damaged in any way, avoiding failures that could be seriously harmful - or even lethal - to humans or the environment.

54 55

Technological affinities Economic Information Technologies

Social media business value leveraging

Service orientation

Product service offering

Management of business processes

Management of business change

Understanding and coordination of work flows

Network security

Information Technology

Architecture Automated learning

System development

Integration of heterogenous technologies

Mobile technologies

Embedded systems and sensors

Network technology and M2M communication Robotics and artificial intelligence

Predictive maintenance

Modelling and programming

Big Data and analysis and data interpretation

Cloud programming and architecture

Statistics

Network security

Figure 19. Main industrial innovation technologies used in the chemical industry.

Source: International Consultants (Consultores Internacionales, S.C.) based on field information

3 . 4 . L A B O U R A N A L Y S I S F O R T H E A D O P T I O N O F I N D U S T R I A L I N N O V A T I O N T E C H N O L O G I E STo identify Mexico’s working capacities in light of the industrial innovation trends, ProMexico conducted a desk research of the most recent articles dealing with labour skills, field studies and/or courses relevant to these trends.

Subsequently, and based on annual data from the National Association of Universities and Higher Education Ins-titutions (ANUIES) for 2012-2016, courses relevant to the industrial innovation trends were identified.

For the purposes of this study, a professional with relevant capacities is identified as one who, based on the com-petencies and fields of studies resulting from the research, has acquired a higher education degree (bachelor’s degree, engineering, or university technical diploma) related to the topics in hand.

At the beginning of 2017, a study called “A competencies model for Industry 4.0 employees” made in Germany, was conducted to analyse the working competences higher education graduates working in Industry 4.0 com-panies should have. The study contemplated three variables: Information Systems, Information Technologies, and Engineering.

The study concluded that competencies and skills in communication, interdisciplinarity, and leadership are ne-cessary for Industry 4.0-related jobs; additionally, graduates from Information Technology courses are expected to be skilled in digital security, networks and data, mobile technologies, integrated systems and sensors, ne-twork technology and M2M communication, robotics and artificial intelligence, modelling and programming, cloud-based architectures and Big Data, and data analysis and interpretation.84

84. Prifti, L.; Knigge, M.; Kienegger, H.; Krcmar, H., (2017). A Competency Model for “Industrie 4.0” Employees. Available on: https://wi2017.ch/images/wi2017-0262.pdf.

Figure 20. Industry 4.0 employees’ skills.

Information systems Computer sciences Engineering

In order to identify Mexico’s working capacities relevant to the industrial innovation trends, ProMexico used the competencies of Industry 4.0 employees in the area of knowledge and technology analysis, processing, and application as a benchmark and selected the courses from the higher education level related to technology, computer sciences, systems and networks, manufacturing and process automation, aerospace and automotive engineering, as well as electronic, among others.

Between 2012 and 2016, 550 courses related to industrial innovation trends were identified across the country, out of a total of 3,205, which represented 17.16% of the total educational offerings. The names of all 550 courses were verified and grouped by similarity to narrow down the selection to a total of 410. The names of these 410 courses were analysed against key words and grouped in nine large categories or fields of study. The chart below details this classification.

Source: Prifti, L.; Knigge, M.; Kienegger, H.; Krcmar, H., (2017). A Competency Model for “Industrie 4.0” Employees

molds for prototyping

Design and engineering

Digitalization

loT

Energy decentralization

Smart automation

3D Printing

Manufacturing and assembly

Maintenance and Overhaul

Cogeneration systems

Software for business administration

Sensors and remote monitoring systems

Robot arms for packaging and manipulation of chemicals

A N A L Y S I S A N D P R O C E S S I N G / K N O W L E D G E A P P L I C A T I O N A N D T E C H N O L O G Y

56 57

Higher Education Graduates from industry 4.0-related courses (2012-2016).

Group of courses

Biological / Chemical Technologies

Software development

Graphic and Industrial Design

Industrial / Mechanic / Mechatronics

Energy resources

Systems andcomputing

Advanced Technology

Electric /Electronic

Total graduates

Total Higher Education graduates

Manufacturing

T C * 1 2 - 1 6Courses

34

22

27

59

69

28

87

21

63

410

3,205

2 0 1 6

6,906

1,046

2,567

41,286

13,976

2,968

35,981

822

7,988

113,540

604,658

1.1%

0.2%

0.4%

6.8%

2.3%

0.5%

6.0%

0.1%

1.3%

18.8%

100%

2 0 1 4

6,391

614

2,134

36,752

10,263

1,421

35,941

536

8,998

103,050

541,793

1.2%

0.1%

0.4%

6.8%

1.9%

0.3%

6.6%

0.1%

1.7%

19.0%

100%

2 0 1 3

5,914

334

1,948

26,616

3,547

860

29,959

359

8,837

78,374

469,673

1.3%

0.1%

0.4%

5.7%

0.8%

0.2%

6.4%

0.1%

1.9%

16.7%

100%

2 0 1 2

6,116

347

1,796

29,309

7,600

841

32,379

356

9,161

87,905

478,429

1.3%

0.1%

0.4%

6.1%

1.6%

0.2%

6.8%

0.1%

1.9%

18.4%

100%

13%

201%

43%

41%

84%

253%

11%

131%

-13%

29%

26%

2 0 1 5

1.2%

0.1%

0.4%

7.0%

2.2%

0.3%

6.3%

0.1%

1.5%

19.2%

100%

7,057

832

2,401

39,673

12,306

1,910

35,916

764

8,538

109,397

570,181

Source: International Consultants (Consultores Internacionales, S.C.) ® with data from the annuals of the National Association of Universities and Higher Education Institutions (ANUIES). Several years. Note. VA. Growth rate for the period 2012 - 2016 It includes bachelor’s degrees, engineering, university technical diplomas.

One of the main findings was that, during 2012 in Mexico, 87,905 youths graduated from higher education cour-ses related to the industrial innovation trends and that, in 2016, the number of graduates rose to 113,540, increa-sing by 29%. Likewise, their percentage compared to the total number of graduates also increased marginally; as, in 2012, it accounted for 18.4% and, in 2016, for 18.8%.

This past year, and in line with the aforementioned course grouping, the study found that the areas accounting for the largest number of graduates were industry, mechanics, and mechatronics with 41,286 graduates, fo-llowed by systems and computing with 35,981 graduates, and manufacturing with 13,976 graduates.

The degrees that experienced the greatest growth between 2012 and 2016 were those related to energy resour-ces (growing from 841 to 2,968), software development (growing from 347 to 1,046), and advanced technology (growing from 356 to 822).

The latter - advanced technology - is particularly interesting to industry 4.0, as it groups 21 courses focused, to a larger extent, on industrial robotics (9) and, to a lesser extent, on nanotechnology (4), cybernetics (3), and artificial intelligence (2).

In the fields of manufacturing, electrical-electronics, and industrial-mechanical-mechatronics, 14 courses spe-cialised in industrial automation were also identified.

Likewise, out of the 28 courses that comprise the group called energy resources, 13 made special reference to renewable energy sources or alternative energy, which, in terms of number of graduates, translated into 1,242 graduates in 2016 out of the total 2,968 graduates in the group.

With regard to courses within the category graphic and industrial design, the study recorded a significant growth in the number of graduates; from 1,796 in 2012 to 2,567 in 2016, accounting for a cumulative growth of 43% during the period.

Mexico has extensive professional capacities in some of the fields related to the current trends in industrial inno-vation; especially given the large number of graduates from industrial-mechanical-mechatronics, systems and computing, and graphic and industrial design courses. In the field of energy resources, the number of graduates has risen exponentially, including graduates from renewable energy courses. On the other hand, although ad-vanced technology, which includes courses on robotics, cybernetics, and artificial intelligence, have experien-ced significant growth, its share in the total number of graduates is still small.

3 . 5 . P U B L I C P O L I C I E S R E L A T E D T O T E C H N O L O G I C A L I N N O V A T I O N , A C C O R D I N G T O T H E T R E N D S S T U D I E DDuring this government, special regard has been given to public policies seeking to leverage new technologies and the development of a healthy ecosystem for the innovation, development, and utilisation of new technologies, mainly in the Mexican economy’s strategic sectors.

Although these public policies focus on social aspects, they are especially important for domestic and foreign companies wishing to invest in or develop a long-term strategy in terms of innovation and development of tech-nological capacities.

Trend Associated Public Policy

Internet of Things

Digitalization

Automation

3D Printing

Energy efficiency

Without any identified policy

National Digital Strategy PROSOFT

Regional Clusters Policy (indirectly)

Energy Reform

Legal Framework for the Co-generation Projects in Industrial Companies

Below are the most important strategic actions implemented by the Mexican government to boost confidence and foster a favourable environment for i4.0 and the modernisation of the Mexican industrial sector.

G R A D U A T E S , P E R C E N T A G E O F T O T A L G R A D U A T E S , G R O W T H R A T E .

58 59

National Development Plan

The 2013-2018 National Development Plan (PND for its Spanish acronym) established the “Modern and Proxi-mate Government” (Gobierno Cercano y Moderno) strategy, which outlines the following action lines:

• Guaranteeing access to information and personal data protection; encouraging accountability.• Establishing a National Digital Strategy to encourage the adoption and development of information and com-

munication technologies; fostering an efficient government to insert Mexico into the Knowledge Society.• Consolidating a government that is productive and efficient in achieving its goals, through adequate resour-

ce management, merit recognition, the use of best practices, and the implementation of automated admi-nistration systems.

Another related strategy is known as “Reactivating an Economic Advancement Policy Focused on Increasing Mexican Dynamic and Traditional Sectors’ Productivity, Balanced per Region and Sector.” For the latter, the fo-llowing action lines were defined:

• Implementing an economic advancement policy contemplating the design and development of regional and sectorial agendas, and development of innovative human capital; fostering high value strategic sectors; developing and promoting value chains in strategic sectors; and supporting technological development and innovation.

• Articulating, from a cross-sectional regional and/or sectorial point of view, the design, execution and fo-llow-up of projects oriented to strengthen the country’s competitiveness by the three levels of government, the private initiatives, and other parts of civil society.

National Digital Strategy

This PND’s approach resulted in a document entitled: National Digital Strategy. “The main purpose of this Strategy is to develop a Digital Mexico, where the adoption of ICTs maximises their economic, social, and political impact in order to improve people’s quality of life.”85 This document shapes the public policy fostered by the Government of the Republic on this matter, has 5 goals, of which, the second goal pertains the economic processes in the country.

85. From the document “Estrategia Nacional Digital”, Verbatim. Can be consulted electronically on: http://cdn.mexicodigital.gob.mx/EstrategiaDigital.pdf

Governmental Transformation

Digital economy

Top-quality Education

Effective and Universal Health

Citizen Security

National Digital Strategy Goals

Build a new relation between government and civil society, focused on citizens’ experiences as users of public services, through the adoption of ICTs by the Government of the Republic.

Develop a digital economic ecosystem that supports the development of a prosperous country by incorporating ICTs to economic processes in order to foster productivity growth, economic growth, and the creation of formal jobs.

Integrate ICTs to the educational process, both in educational management and in teaching-lear-ning processes, as well as to teacher training, and culture and art dissemination and preservation to allow the population to successfully insert itself into the Information and Knowledge Society.

Create a comprehensive digital health policy harnessing the opportunities offered by ICTs, with two goals: expand coverage, effective access, and quality of health services; and make the coun-try’s existing health infrastructure and resources more efficient.

Use ICTs to prevent social violence, articulating citizenship and authorities’ efforts towards com-mon goals to promote security, and to prevent and mitigate damages caused by natural disasters.

Source: Federal Government (2013), National Digital Strategy.

One of the initiatives that resulted from this strategy that has the largest potential on the Mexican productive sector, has been the development of a Sectorial Agenda for the Development of Information Technologies in Mexico 2014-2024.

PROSOFT

The Programme for the Development of Software Industry and Innovation (PROSOFT 3.0) stems from the Sec-torial Agenda for the Development of Information Technologies in Mexico. It specifically focuses on:

1. Training human capital specialised in information technologies and innovation in strategic sectors.2. Generating applied research, technological development and innovation in strategic sectors.3. Funding businesses in strategic sectors so that they can develop and adopt innovation and information

technologies.4. Generating infrastructure for the development and adoption of innovation and information technologies.5. Generating and disseminating IT and innovation knowledge through studies and events.

PROSOFT 3.0 is an effort by the Secretariat of Economy that has provided dozens of businesses in the country with the necessary funds to develop an ecosystem of innovation. In 2016 alone, this programme granted 850 million pesos to support different businesses and projects.86

Figure 21. PROSOFT 3.0 Strategies and Goals.

Source: Secretariat of Economy, Sectorial Agenda for the Development of Information Technologies in Mexico: 2014-2024.

86. The 2016 beneficiaries register can be checked on the following link: https://prosoft.economia.gob.mx/doc/beneficiarios%202016.pdf

Stimulate the market by linking

the different economic

sectors’ demand with the IT

products and services of quality

in Mexico.

Enhance the IT sector’s corporate

culture in terms of innovation and

specialisation.

Stimulate the development and identification of competencies,

skills and staff for the IT sector.

Promote business leads overseas and attracting investment for the IT sector.

Increase options and possibilities of access to financial

resources for IT businesses.

Encourage smart specialisation to

consolidate com-petitive clusters based in specific

niches of high value IT.

Facilitate the development of a legal framework to encourage IT production and

adoption.

Integrate and articulate the actions and

agents of the IT ecosystem.

DigitalMarket

CorporateInnovation

Talent and Excellence

Globalisation Fundind SmartRegionalisation

LegalCertainty

Governance

60 61

In the document Amendment of the Operating Rules for the Programme for the Development of Software In-dustry (PROSOFT) and Innovation for the fiscal year 2017 reads:

This convergence between the physical and digital is known as the Industry 4.0 model” Thus, the Secretariat of Economy, through its Programme for the Development of Software Industry (PROSOFT) and In-novation, promotes the development of projects in that industry to strengthen the innovation culture, and the adoption of IT, supporting projects that strengthen a broad scope of industrial sectors. The Industry 4.0 model

(i4.0) consists of the capacity to incorporate information technology to productive processes in a profitable way This is the Programme’s end goal, and, in order to achieve it, it is necessary to have the necessary techni-cal and organisational skills. This programme will support projects geared to creating innovation ecosystems that have positive externalities and impact on multiple industries, are self-financed and can be replicated by

different industrial clusters in the country.87

The aforementioned is a significant example of the Secretariat of Economy and the National Administration’s approach to the development of public policies and is part of the guarantee offered by the country to foreign businesses that wish to create an innovative ecosystem that meets contemporary challenges.

Policy for Industrial Promotion

The Secretariat of Economy has developed an industrial policy dividing the different industrial branches into three groups: mature, dynamic, and emerging. Following this classification, each group’s specific needs are addressed:

S E C T O R S Mature

Boost productivity

Metal-mechanic

Textile-Clothing and Leather-Footwear

Wood and Furniture

Iron and Steel

Food and Beverages

Increase competitiveness

Dynamic

Automotive & Auto Parts

Aerospace

Electric

Electronic

Chemicals

Attract and foster emerging sectors

Emerging

Biotechnology

Pharmaceutical

IT

Creative Industries

Medical Equipment

87. Puede consultarse el documento completo en: https://prosoft.economia.gob.mx/ro2017/MODIFICACION%20ROP%202017.pdf

In this way, the Secretariat of Economy established an Industrial Policy matrix, shown below:

Figure 22. Industrial Policy Matrix.

Industrial Policy Matrix

Source: Ministry of Economy

In the case of the automotive industry, the public policies identified and lead by the Secretariat of Economy in matters of innovation and human capital, are as follows:

• Identify and disseminate the technological and human capacities of the automotive industry available in aca-demia, industry, and government; and create a network of researchers, engineering centres, and laboratories.

• Support projects that invest in technological research, design, and development of the automotive industry. It is worth mentioning the regional cluster policy has facilitated access to i4.0 technologies, mainly to businesses with little investment capacity. For example, in the case of the Nuevo Leon automotive cluster (CLAUT for its Spa-nish acronym), the different committees offer specific services at different stages of the value chain; such as de-sign, 3D printers for prototypes, access to specific innovative knowledge, links with academia and research cen-tres, and solution development, among other. For example, in the case of CLAUT, the different committees offer specific services at different stages of the value chain; such as design, 3D printers for prototypes, access to specific innovative knowledge, links with academia and research centres, and solution development, among others.

Suppliers

Development

- Proactive and oriented- Join efforts with the industry- Resources security- Results follow up

- Incorporate suppliers to value chains through tractor companies- Increase the production value added.

- Increase the techno-logical and productive capacity of suppliers to sell to more world class producers.

- Create a minimum base of suppliers.- Link with the productive sector.

- Link them with dynamic sectors.- Create manufacturing regions with a defined purpose and uniform standards.

- Automotive: NL, Gto, Chih, EdoMex, Ags, & Pue.- Aeronautical: BCN, Chih, Qro, NL y Son.- Electronic: BCN, Jal. y Chih.- Electrical: NL, Qro. y Chih.

- Programme for intersectoral linkage.

- Articulate broad scope capacities development projects.- Support industrial reconversion and invest-ment in physical, human and technological capital.

- Create networks of high level innovation and development centres.

- Encourage high level human capital training.- National initiative to foster the Digital Market.

- Consolidate clusters, existing or in formation

- Linking with the productive sector

Mature

Guidelines

Dynamic

Strategies for each sector

Human Capital

Cro

ss s

ect

ion

al s

trat

eg

ies

Emerging

Regional

Clusters

Innovation

“

“

62 63

Energy Reform

The Energy Reform seeks to attract investment and modernise the energy sector. It includes the following goals and fundamental tenets:88

1. Preserve the country’s ownership over the hydrocarbons in its subsoil.2. Modernise and strengthen, without privatising, Petroleos Mexicanos (Pemex, for its abbreviation in Spanish),

and the Federal Electricity Commission (CFE, for its acronym in Spanish) as 100% public, 100% Mexican, pro-ductive state enterprises.

3. Reduce the country’s exposure to financial, geological, and environmental risks in oil and gas exploration extraction.

4. Allow the Nation to exclusively plan and control the National Electric System in pursuit of a competitive sys-tem that helps to reduce electric energy prices.

5. Attract more investment into the Mexican energy sector to boost the country’s development.6. Offer a larger energy supply at better prices.7. Ensure international energy supply efficiency, quality, and reliability standards, as well as transparency and

accountability throughout the different activities of the energy sector.8. Fight corruption in the energy sector effectively.9. Strengthen the management of oil revenues and promote long-term saving to the benefit of future generations.10. Foster socially and environmentally responsible development.

Item 5 above is a promising energy opportunity for foreign companies. In the same document, it reads: “One of the sector’s biggest challenges is the lack of investment in the national electricity transmission. There is need to expand the grid and interconnect those areas in the country with high clean energy potential.”

This need has already been identified by both the Mexican Government and the companies needing to integrate clean and efficient energy to their processes, thus calling for the development and harnessing of new technologies.

Cogeneration Projects

To most industrial companies, thermal and electric energy are basic operational consumables. Therefore, there is an opportunity to implement cogeneration systems.

Mexico has already developed the necessary regulation to achieve this. The 1992 reforms to the Electric Energy Public Service Act (LSPEE, for its acronym in Spanish) defined civil participation in activities not considered to be a public service; electric energy cogeneration was one of them.89 The same Act establishes that the SENER has to consider the criteria and guidelines outlined in the national energy policy, as well as the CFE pronouncements, when granting cogeneration permits.90 It also establishes that, in order grant these permits, the generated elec-tricity has to be used by the companies associated to the cogeneration; both the energetic and the economic efficiency of the entire process have to increase; and the level of energy efficiency obtained has to be higher than the one obtained by traditional power plants. Finally, it establishes that applicants must make their energy surplus available to the CFE.

Article 45 of the rules of application for the Use of Renewable Energy Act and the Financing of the Energy Trans-mission anticipates future agreements between the CFE and Pemex or their subsidiaries for efficient cogenera-tion projects. It establishes that it will be necessary to develop agreements for the comprehensive management of thermal and electrical energy in industrial processes and meet the minimum efficiency criteria established by the CRE.

88. Information about the Energy Reform. http://reformas.gob.mx/reforma-energetica/que-es 89. Article 3, Section I90. Section II of Article 36 of the same Act

3 . 6 . C O M M E R C I A L P O S I T I O N I N G

Mexico is one of the world’s most cost-effective countries to do business in comparison with other more mature countries such as Canada, Italy or Germany, according to the 2016 Competitive Alternatives Review by KPMG.91

Mexico offers important competitive advantages at a global level, such as:• geographical location• labour force quality and availability• preferential access to the world’s main markets

Important automotive clusters have been developed across the country, together with aerospace and other economic sectors cluster in recent years.

The growth of the automotive sector has allowed both employers and employees to develop capabilities that led to the emergence of the aerospace industry; hopefully, the same will happen in other sectors, such as tele-communications, railways, etc.

While it takes China, Japan or Malaysia an average of 15 to 23 days for their supplies to reach the American mar-ket, it takes Mexico between 4 and 5 days at sea to reach America’s main ports and only a few hours by road.

These elements are considered key in the development of commercial strategies by those businesses that im-plement Industry 4.0 technologies. Digital systems and the Internet of Things are trends that have special impact on logistics processes; such is the case of remote monitoring systems, M2M devices, commercial intelligent systems, data mining, and Big Data, among others. These offer significant advantages to businesses from the most dynamic sectors in the country. Considering these options, business will find Mexico in an advantageous position, in comparison with other economies, to reach the American market, given the reaction capacity and the speed with which specific situations can be dealt with in the country. These include transporting dangerous or highly sensitive materials, as well as the possibility of monitoring them in real time.

Mexico has a network of 12 Free Trade Agreements with 46 countries (FTAs); 32 Agreements for the Reciprocal Promotion and Protection of Investments with 33 countries; and 9 Economic Complementation Agreements and Partial Agreements within the framework of the Latin American Integration Association (LAIA).92

Likewise, it is worth noting that Mexico participates in the World Trade Organisation (WTO), the Asia-Pacific Eco-nomic Cooperation (APEC), the Organisation for Economic Cooperation and Development (OECD), and the ALADI.

92. Available on https://www.gob.mx/se/articulos/mexico-cuenta-con-12-tratados-de-libre-comercio?idiom=es

64 65

Figure 23. Mexico’s Trade Agreements.

JapónAcuerdo: AAE

BoliviaAcuerdo: ACE NO.66

ArgentinaAcuerdo: ACE NO.6

Cuba*Acuerdo: ACE NO.51

BrasilAcuerdo: ACE NO.53

UruguayAcuerdo: ACE NO.60Chile

Acuerdo: ACE NO.46

EcuadorAcuerdo: AAP NO. 29

ParaguayAcuerdo: AAP NO. 38

ColombiaAcuerdo: ACE NO.36

PanamáAcuerdo: AAP NO. 14

Source: International Consultants (Consultores Internacionales, S.C.) based on data from the Secretariat of Economy and the World Bank

Mexico’s Trade Agreements.

NAFTA

Mexico-

EU FTA

GDP (Million Dollars) * Million peopleCountry

1,238,052

3,765,638

59,940

23,504

318,781

571,079

16,249

1,822,736

417,283

345,404

251,176

2,077,613

230,724

470,013

16,865,604

514,165

104,437

2,810,525

28,847

2,730,705

633,983

19,926,391

56,520

50,293

244,343

11,613

557,734

45,591

229,267

N.D.

24,048

1,460,642

145,702

886,854

18,225,788

64,710

198,648

2,358,297

Mexico

Germany

Croatia

Estonia

Ireland

Poland

Iceland

Canada

Austria

Denmark

Finland

Italy

Portugal

Norway

Estados Unidos

Belgium

Slovakia

France

Latvia

United Kingdom

Switzerland

Total*

Bulgaria

Slovenia

Greece

Malta

Sweden

Lithuania

Czech Republic

Liechtenstein

Cyprus

Spain

Hungary

The Netherlands

Total*

Luxembourg

Rumania

Total*

127.54

82.67

4.17

1.32

4.77

37.95

0.33

36.29

8.75

5.73

5.5

60.60

10.32

5.23

323.13

11.35

5.43

66.90

1.96

65.64

8.37

486.95

7.13

2.06

10.75

0.44

9.90

2.87

10.56

0.04

1.17

46.44

9.82

17.02

511

0.58

19.71

142

Mexico-

EU FTA

EFTA

Agreement:

Agreement:

Agreement:

Agreement:

Agreement:

Agreement:

Agreement:Brazil

Agreement:

Agreement:

Agreement:

Agreement:

66 67

47,184

24,128

268,998

343,939

24,128

51,409

172,889

294,947

51,409

19,482

1,343,181

11,901,544

19,482

1,333,071

13,301

288,747

11,970

11,970

1,822,736

6,045,913

366,159

268,998

1,392,225

193,484

164,105

47,184

48,251

Costa Rica

El Salvador

Chile

Malaysia

El Salvador

Guatemala

New Zealand

Singapur

Guatemala

Honduras

Australia

Total*

Honduras

Total*

Brunéi Darussalam

Israel

Nicaragua

Nicaragua

Canada

Japan

Colombia

Chile

Total*

Peru

Vietnam

Costa Rica

Uruguay

4.86

6.34

17.91

31.19

6.34

16.58

4.69

5.61

16.58

9.11

24.13

822.4

9.11

159.6

0.42

8.55

6.15

6.15

36.29

126.99

48.65

17.91

170.59

31.77

92.7

4.86

3.44

SINGLE

FTA WITH

CENTRAL

AMERICA

FTA

NORTHERN

TRIANGLE

TPP TRANS-

PACIFIC

PARTNERSHIP

TLC

Source: International Consultants, S.C. based on data from the Secretariat of Economy and the World Bank

Figure 24. Mexico’s Trade Agreements.

Source: International Consultants (Consultores Internacionales, S.C.) based on data from the Secretariat of Economy and the World Bank

Therefore, and although Mexico and its industries do offer key traditional competitive advantages for its de-velopment, the future of dynamic industries lie in differentiating by their value added and implementation of leading-edge technology, Internet of Things, additive manufacturing, and other processes; such as, efficient energy.

From the analysis of Mexico’s trade treaties and agreements, it may be observed that Mexico’s potential to enter into alliances or agreements with the country’s leading the current industrial innovation technologies trends is very high. Currently, Mexico has agreements with the United States, Germany, Singapore, and Japan, which it should leverage, together with its domestic strengths, to harness the technology these leading countries offer to make value chains more efficient.

3 . 7 . A N A L Y T I C A L F I N D I N G SAccording to their monetary value, for each one of the trends analysed, Mexico is an important, growing market, with multiple opportunities for doing business and building alliances with industrial innovation technology lea-ders that will boost the country’s economic development.

Companies established in Mexico consider these innovation goals important, as these allow them to increase their market participation, reduce costs as well as environmental damages and energy consumption, and higher productive flexibility.

Regarding Mexico’s current industrial innovation technology capacities, even though in most cases they are incipient and vary from sector to sector, there is currently a higher development in 3D Printing for parts manu-

68 69

facturing, industrial components, and moulds with certain dimensions and weight; IoT with applications in con-trolling, monitoring and maintaining final goods or components within assembled products; and digitalization, having even some digital factories in the country.

In the analysis performed, the four main industrial sectors (aerospace, automotive, electronics and chemicals) have been found to possess certain strengths that will allow them to adopt these industrial innovation trends; strengths such as expertise and productive capacity to develop certain productive processes -which vary from sector to sector,- a significant number of OEMs, many of them international companies operating under global standards, and research centres and academic institutions where technological and human capacities are deve-loped, mainly in fields such as industrial/mechanical, mechatronics, systems and IT, and graphic and industrial design -although, as mentioned before, there could be more degrees in advanced technology, including robo-tics. Based on these strengths and experience, Mexico is well-positioned to build alliances with world leaders in industrial innovation.

On the other hand, some common needs include the lack of development in certain suppliers’ specific pro-duction and design processes, as well as the lack of productive and technological capacities in Mexican SMEs; therefore, there are different opportunities for collaboration in order to strengthen the productive chain.

At the public policy level, there are strategies and programmes aimed at digitising and enhancing energy effi-ciency, as a result of the Energy Reform and the International Agreements underwritten by Mexico to reduce greenhouse gases and other pollutants. However, there is no explicit policy in areas such as automation and robotization -which do exist in countries like the United States and Japan- or the Internet of Things and 3D Prin-ting; therefore, it is necessary to develop public policy instruments to develop these technological trends and implement them in the country’s industries.

70 71

MEXICO’S OPPORTUNITIES FOR COLLABORATION WITH LEADING COUNTRIES ACCORDING TO THE TRENDS ANALYSED

Pursuant to the findings covered in previous sections, the study has iden-tified some opportunities for collaboration in Mexico, where joint colla-boration and synergy between government, industry and academia with world leading countries are key.

Through the analysis of this group of four outstanding Mexican industrial sectors ripe for adopting industrial innovation technologies, the study di-vides the opportunities for collaboration into two strategic axes: a) stren-gthening the productive chain and b) developing technological capaci-ties and working skills.

To strengthen the productive chain, it would be necessary to develop national and international suppliers with industrial innovation capacities, and to strengthen OEMs and different Tier companies’ productive activi-ties through the application of technological trends.

With regard to the development of working skills and technological ca-pacities, the goal is to train the human capital required to apply innova-tions and conduct a higher level of research and technological develo-pment that will enable more value added to be added to areas related to industrial innovation.

In addition, and as a supplement to the opportunities for collaboration in significant sectors of the national industry, the impact of designing and developing public policies on the creation of mechanisms to facilitate synergies among government, industry, and academia has been iden-tified. In this matter, and as a third cross-section strategic axis, oppor-tunities for collaboration between the leading countries in industrial in-novation trends with Mexican public policymakers in order to establish frameworks to guide the design of a holistic industrial policy geared to the technological development of Mexico’s domestic industry.

4 . 1 . A E R O S P A C E I N D U S T R Y

Opportunities for Collaboration

Mexico is a global leader in aerospace industry production, mostly due to the large number of internationally renowned companies manufacturing different aircraft components in the country, which has helped to stren-gthen a dynamic sector with a large exportable supply for countries such as the United States and regions such as Europe.

Component manufacturing and assembling are the most developed stages of the production chain in Mexico; 79% of the businesses engage in these processes as they manufacture engines, landing gear, plastic moulds, fu-selages, precision machining, and turbines. However, the country needs to further develop areas such as design and engineering, and maintenance, repair, and revision, as well as cladding, corrosion and protection, moulds, non-destructive testing techniques, data and image processing, and embedded system design.

In Mexico, there are important public and private research centres working in the development and innovation sector; such as, the Aerospace Engineering Research and Innovation Centre (CIIIA, for its acronym in Spani-sh), the Aerospace Development Centre (CDA, for its acronym in Spanish), the Centre for the Development of the Aerospace Industry (CEDIA, for its acronym in Spanish), the National Polytechnic Institute for Research and Advanced Studies (CINVESTAV, for its acronym in Spanish), the Electrochemistry Research and Technological Development Centre (CIDETEQ, for its acronym in Spanish), The Aerospace Testing Laboratory (LABTA)93, the Honeywell Research and Technology centre, General Electric Aviation.

Moreover, there is a strong linkage between academia and the productive sector, especially in the norther and Bajio regions. Such is the case of the Aeronautic University of Queretaro (UNAQ), which collaborates closely with the Queretaro cluster. However, the educational offer is low if compared with the number of companies in the sector, as for each economic unit, there are only 0.3 educational institutions; whereas in other sectors, this ratio is higher than 1.

93. LABTA is composed of CIDESI, CIDETEQ, and CIATEQ, all members of the CONACYT.

Attracting aerospace companies operating with industrial innovation technologies to create local supply for processes that are not yet developed in the country in order to support OEMs and Tier 1 companies’ production increase.

The industry seeks to increase the national value added in the engineering and design phases, as well as de-crease its dependence on certain components’ imports. At the moment, there are few national and foreign companies at this stage in the productive chain, therefore, the country could foster their development through foreign investment by aerospace companies using technologies such as augmented reality, digital twins, or 3D printing, which are used in activities such as simulation, moulds creation, scenario simulations, and prototype manufacturing.

Similarly, the sector seeks to decrease dependence on moulds and tools imports, therefore, it is necessary to attract investment from companies specialised in these processes that currently use 3D printing technologies, as this type of technology would enable the manufacture of tools in a quick, low-cost, customised way, with adequate physical characteristics such as weight and size thanks to the new materials and technologies used in additive manufacturing. The United States and Germany are Industrial leaders in this sector.

Strengthening the Productive Chain

0 4

72 73

Collaborating with Technological Leaders to Develop MRO Centres with Industrial Innovation Technologies in Mexico.

There are some companies in Mexico that specialise in MRO (Maintenance, Repair, and Overhaul), located mainly in the State of Queretaro. Due to the increasing global demand for aircrafts, passengers’ safety, and the aerospa-ce sector’s need to reduce time and costs, it is necessary to count on MRO centres that use industrial innovation technologies such as robots, sensors, data analytics, 3D printing or digitalization. Mexico could collaborate with industrial innovation leaders like the United States, Japan or Germany to develop its MRO centres, incorporating and experimenting with these technologies, based on industrial processes and their quality standards, to create world leading MROs.

Consolidating OEMs and Local Suppliers’ Productive Capacities through the Incorporation of Leading In-dustrial Innovation Technologies.

Consolidate Mexico’s global competitive advantage in turbine manufacturing with Mexican aerospace OEMs and Tier 1 manufacturing and production companies through the incorporation of industrial innovation techno-logies in IoT and 3D printing; an industry led by the United States, Germany and Singapore.

Strengthen the parts, components, materials and equipment supply chain for companies that are already establi-shed in the country, by generating digital supply chains, helping to shorten aircraft manufacturing and assembly time and costs, collaborating with digital leaders to implement digital supply chains and offer technological so-lutions like Big Data and Cloud Computing.

Labour Capacities and R+D of Development

Collaborating with International Leaders to Develop Research Centres or Laboratories Specialised in Air-craft Design that use Industrial Innovation Technologies.

One of the country’s main challenges in creating more value is the development of technological and human capacities in design. Mexico has some aerospace research institutes, but few of them specialise in the design phase.

One suggestion to foster technological development and research is collaborating with international leaders who use industrial innovation technologies in aircraft design - such as iAR, digital twins, development of new materials, new 3D printing technologies, and energy efficiency- to establish research centres or laboratories in the country, equipped with these technologies and the qualified staff needed to use them. This will position Mexico as a world leader in aerospace design. Queretaro and Sonora are some of the states that can host these design laboratories or research centres in collaboration with innovation leaders.

Collaborating with innovation leaders to develop educational offering, curricular content, and standards and certifications in industrial innovation technologies applied to the sector.

According to ANUIES, there is a total of 25 graduate and postgraduate courses related to the aerospace sector.

To secure the current and future development of the aerospace sector, it is vital to have human capital with the necessary capacities, competencies and certifications to work within Industry 4.0 ecosystem.

Mexican human capital can be increased through collaboration agreements among government, businesses and academia from leading countries to adjust the curricula, train teachers overseas, and create standards and certifications to regulate the use of these technologies.

Automotive Sector

In Mexico, there are over 30 design and engineering centres, 23 original equipment manufacturers, and 345 Tier 1 auto parts suppliers.

The largest installed capacity is consolidated, largely, in manufacturing pieces and piece components for die-cu-tting and stamping, machining, smelting, plastic injection, and forging.

Between 2012 and 2016, there were 44 higher education courses related to the automotive sector (bachelor’s degrees, engineering, and university technical diplomas). During this period, the graduate cumulative growth rate was 106.3%, growing from 1,050 in 2012 to 2,166 in 2016. That is, more than 7,600 students enrolled in these courses during this period.

The industrial-academic relation is concentrated mainly in five states: Puebla, Mexico, Guanajuato, Aguasca-lientes, and Queretaro, accounting for more than half of the national total in terms of productive plants (55%), supplying companies (50%), light vehicle production (62%), academic courses available during the period 2012-2016 (52%), and graduates (60 %).

State Productive plants, 2016

Companies TIER 2-3

Light vehicle production, 2015

Courses 2012-2016

Graduates 2012-2016

Mexico Industry - Academia relation in the automotive sector of five states.

Puebla 2 28 457,517 10 2,292

Mexico 7 77 352,569 5 1,399

Guanajuato 6 119 731,349 3 485

Aguascalientes 4 17 551,664 3 301

Quéretaro 3 204 ------* 2 127

Top five 22 455 2,093,099 23 4,604

Total National 40 902 3,385,003 44 7,613

Source: International Consultants (Consultores Internacionales, S.C.) ® based on data from ProMexico and ANUIES.Note: Important heavy vehicles manufacture present in four assemblers

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The auto parts and finished-product automotive sector is a dynamic sector that seeks to increase its competiti-veness. As a dynamic sector, the automotive sector’s public policy seeks to increase the suppliers’ technological and productive capacities; create regional clusters; and identify and disseminate the technological and human capacities related to the sector in academia, industry, and government, as well as to create linkages among re-searchers, engineering centres, and laboratories.

There are successful examples of regional clusters, such as the ones in Aguascalientes, Nuevo León, Guanajua-to, Chihuahua, State of Mexico, Puebla, among others.

Opportunities for Collaboration

Attracting and establishing international companies that manufacture parts for die-cutting and/or stam-ping, machining and foundry and have experience implementing industrial innovation trends.

The adoption of these industrial innovation trends by Mexican companies is not mature yet. The cases reviewed in this study show examples of pilot projects; that is, positive innovation experiences that not yet implemented at a mass production level and have yet to substitute current processes.

Attracting and setting up companies with industrial innovation trend-based ecosystems will provide the neces-sary information about the experience of joining the national productive chain, and, thus, it will be possible to document the challenges and opportunities that arise and create an incubation and development model for the technologies implemented in domestic companies.

As mentioned in chapter two, Tier 2 and Tier 3 companies offer plenty of opportunities in the Mexican auto-motive sector. Learning from the experiences of international manufacturers will boost the current capacities of domestic manufacturers and generate an experience-based model for technological adoption that can be replicated.

The experience of manufacturers using additive manufacturing to replace spare parts and auto parts will provide feedback on product precision, inventory reduction, and responsiveness to real time demand.

In the case of manufacturing and assembly processes, attracting manufacturers that utilise collaborative robots will help to design and implement training models for the labour force. In the case of stamping and machining parts manufacturers, using software to integrate the different production stages will help to measure its impact on product precision, as well as their incorporation into the domestic su-pply chain.

Creating a structure of technological transfer from industrial innovation leading countries to Mexican manu-facturers.

The Mexican auto parts and finished-product automotive industries have plenty of experience in their fields and are well known worldwide for their high-quality standards.

Mexico has the necessary capacities to develop a pilot project in which research centres and supply chain com-panies become incubators for industrial innovation technologies. Detailed below are the expected outcomes for this project: • Research and Development Centres. Integrating additive manufacturing technologies to the design of low-complexity auto parts will offer greater modelling precision, and the possibility of obtaining information that will help to reduce printing time and increase production levels.

Using digital twins will allow manufacturers to test auto components in different surfaces and at different tem-peratures to measure their wear.

The United States are leaders in technology development and collaborating with them will enable technology implementation in Mexico.

• Stamping and Machining Factories. Adopting the Internet of Things has resulted in cost reductions, more vertical and horizontal integration of production processes, and greater precision when manufacturing parts.

Germany is a leading country in software development and technological applications for factories that utilise comprehensive process monitoring; it also has the expertise to better implement them in SMEs.

• Assembly Factories. Augmented reality has proved to be a useful tool in facilitating workers’ tasks by assisting them in real time through mobile devices.

Germany is a leading country in implementing these technologies and has developed pilot projects applied to the orientation of employees’ roles and processes.

Using collaborative robots has improved product quality, reduced labour risks, and increased assembly automation.

Japan is a leader in collaborative robot manufacturing and has experience in the automotive sector plus the educational tools that integrate training and capacity development to handle industrial robots.

Labour Capacities and R+D of Development

Creation of the Centre for Research and Technological Development in the State of Guanajuato.

The State of Guanajuato has a significant participation at a national level in the number of manufacturing plants (15%), supplying companies (13%), and light vehicles production (22%).

The states of Puebla, Mexico, Aguascalientes, and Queretaro have important design and engineering centres; such as the Centre for the Development of the Automotive Industry in Mexico (CEDIAM for its Spanish acronym) in the first three states; and the Technical Assistance and Research Centre (CIATEQ for its Spanish acronym) in the latter. However, there are no research centres in the State of Guanajuato.

Therefore, creating a Technological Research and Development Centre will help to better link industry and aca-demia.

The centre’s objective will be to foster specialisation in industrial innovation technologies applied to Mexico’s largest parts production processes; such as smart machining, stamping, and industrial additive manufacturing.

Likewise, it will be a space for mutual collaboration among manufacturing companies, such as Mazda, Honda, General Motors, and Volkswagen, coming from Japan, the United States, and Germany – countries leading in industrial innovation.

Joint work programme to incorporate or strengthen technical-technological innovation competencies in academic offerings and higher education curricula in the northern-central region states.

Guanajuato, Aguascalientes, and Queretaro are home to 32.5% of the productive facilities, 37.7% of the supplying companies, and 37.9% of the light vehicles production; however, between 2012 and 2016, only 12% of all do-mestic graduates in the 8 available courses graduated in these states. By incorporating the states of Nuevo Leon,

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Coahuila and San Luis Potosi to the region, participation increases to 57.5%, 68.7% and 55.8% respectively; that is virtually more than half the productive capacity of the automotive industry. However, the number of graduates from related courses only increases slightly, from 12% to 16.4%, representing 1,251 young graduates, less than the 1,399 graduates from the State of Mexico and the 2,292 from the State of Puebla.

Given this context, an opportunity for collaboration exists in the creation of an inter-institutional programme that, together with national governmental agencies, representatives of the automotive industry, and the leading countries in industrial innovation, would help identify the technical-technological competencies related to the automotive industry in order to adjust or enhance the study programmes at a national level and with special em-phasis on the northern-central region of the country.

4 . 2 . E L E C T R O N I C S S E C T O RMost of the installed capacity focuses on manufacturing computers, peripheral equipment (data processing de-vices), and audio and video equipment, mainly TV sets.

Mexico City and the states of Jalisco, Baja California, Tamaulipas, and Chihuahua attracted most of the FDI in 2016; they also have the largest number of economic units and research centres, as well as young graduates from industry-related courses.

Together, they account for 58% of the national total number of economic units, 78% of FDI, and (between 2012 and 2016) 33% of higher education courses related to electronics (bachelor’s degrees, engineering, and univer-sity technical diplomas), and in terms of labour force, 45% of the total young graduates.

State

Mexico Industry - Academia relation in the electronics sector of five states.

Mexico City

Jalisco

Baja California

Tamaulipas

Chihuahua

Top five

Total National

Economic units

95

73

165

59

88

480

835

FDI (million dollars) 2016

187.3

205.8

136.6

119.5

138.7

787.9

1,013.6

Courses 2012-2016

15

16

7

13

6

57

174

Graduates 2012-2016

7,440

2,503

853

1,652

692

13,140

28,983

Source: International Consultants (Consultores Internacionales, S.C.) ® based on data from the Secretariat of Economy and ANUIES. Note: Important heavy vehicles manufacture present in four assemblers

The electronics sector is a dynamic sector that seeks to increase its competitiveness. Because of their charac-teristics, the states closer to the northern border (Jalisco, State of Mexico, Mexico City, and Yucatan) are home to the country’s main manufacturing companies. The most recent success case is the creation of the Artificial Intelligence Cluster in Ciudad Juarez, Chihuahua, where there exist all the necessary conditions.

Opportunities for Collaboration

Strengthening the Productive Chain

Creating local narrow-band IoT (NB-IoT) networks in the north-western, north-eastern, and western areas of the country.

Mexico has valuable expertise in public areas connectivity thanks to an important broadband network supported by the scheme Connected Mexico. The scheme’s main goal is to provide academic and research centres with proper connectivity.

Likewise, the north-western, north-eastern, and western regions are some of the country’s industrial competiti-veness poles. Given of their proximity from each other, the cities of Ensenada, Mexicali, and Tijuana in the nor-th-western region (Baja California); Saltillo, Ramos Arizpe, and Monterrey in the Northeast (Coahuila, and Nuevo Leon); and Guadalajara in the West (Jalisco) have great potential to form economic units, generate human capi-tal, and conduct research relevant to the electronic industry.

Likewise, the collaboration with China, through an Industrial Internet Alliance would allow Mexico to further explore the concept of industrial Internet and, in particular, its mechanisms of implementation and linkage be-tween smaller and medium-sized cities to narrow the city-countryside gap.

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Both collaborations would allow the development of different pilot projects to implement local Narrow-Band IoT (NB-IoT) networks in the north-western, north-eastern and western regions of the country. For example, the city of Guadalajara would then be part of multiple current IoT strategies, such as the Smart Cities Cluster (Clúster de Ciudades Inteligentes), and Creative Digital City (Ciudad Creativa Digital).

Creating a structure for technological transfer from countries leading in industrial innovation to manufactu-rers in the states of Baja California, Jalisco and Tamaulipas.

Mexico’s expertise in manufacturing components and semiconductors, medical equipment, communications equipment, computers, and office equipment is located mainly in the states of Baja California, Jalisco and Ta-maulipas, as these states are home to many important manufacturing companies, as well as main recipients of FDI and purveyors of a top academic offering.

These States’ expertise can help Mexico to become an ally of the United States in the manufacture of equipment necessary for the IoT industry, through joint investment in Mexican plants under joint ventures schemes, given their global leadership in IoT, their geographical proximity, and their status as main domestic electronics manu-facturers.

In this sense, Mexico would become an experimental laboratory for the mass production of IoT measuring sen-sors, smart networks, data processing mobile electronic devices, and components and semiconductors.

Labour Capacities and R+D Development

Creating a technological Research and Development Cluster specialised in the Internet of Things, in the State of Jalisco.

Jalisco has a significant national participation in economic units (10%) and, in 2016, was the leading State in FDI attraction (20%).

It is home to important research and development centres - such as Intel / Jalisco, which specialises in Telecom-munications - as well as a branch of the Centre for Research and Advanced Studies of the National Polytechnic Institute (CINVESTAV).

The state has designed a project called “Digital Creative City” for Guadalajara, with the objectives of turning it into a smart city, boosting audio visual equipment production, and using new digital technologies as communica-tions and connectivity solutions.94 Additionally, it has the largest number of graduates in the country, followed by Mexico City, with more than 2,500 young graduates in the period 2012-2016.

For all these reasons, creating a Technological Research and Development Cluster specialised in the Internet of Things will reinforce the link between industry and academia and focus its work on IoT technologies.

This cluster will foster joint collaboration between the main companies present in the state: Lucent Technologies and Tyco Valves and Controls of México (electronic components manufacturing); Freescale and Intel (semi-conductors); Benchmark Electronics, Sanmina SCI, Flextronics, Jabil, and Universal Scientific Industrial, Gollet Electronics, Eei, Dyseme, Gartin Technologies y Pounce Electronics (manufacturing); as well as HP (computer equipment).95

Collaborating with the United States as a world leader, through its Research Centres will allow Mexico to draw on from their expertise in this area and the use of technology in key productive processes; whereas in electronics, energy, and potential creation of smart cities.

Strengthening the higher education sector by creating IoT study programmes and integration relevant com-petencies and skills.

In Mexico, between 2012 and 2016, 28,900 young students graduated from electronics related courses, and over 170,000 graduated from systems and IT programmes. This translates into opportunities for further speciali-sation in industrial innovation technologies.

Designing and adding courses on Internet of Things to current study programmes will provide the necessary specialisation of Mexico’s labour force to facilitate their integration into factories operating under industrial inno-vation ecosystems.

This opportunity for collaboration focuses on creating an interdisciplinary work group where Mexico will partici-pate, together with its American counterparts, as leader in Internet of Things.

This collaboration group would be formed by governmental agencies responsible for training and specialisation of labour capacities, Mexican and American universities and research centres, and emblematic technological de-velopment multinational companies such as CISCO, IBM, Intel, General Electric, Google, Microsoft, and Oracle.

The goal of this collaboration will be to update and professionalise the current IoT curricula; create new techno-logical training courses, both on software design and hardware development; increase graduates technological adoption and expertise; and create specialisation and postgraduate offerings with academic transfer links.

94. ProMexico, (2014). Internet of Things (IoT) Roadmap. Available on: http://www.promexico.mx/documentos/mapas-de- ruta/internet-of-things.pdf95. ProMexico. Electronic industry. Sectoral evaluation. Available on: http://www.promexico.gob.mx/documentos/diagnosticos-sectoriales/electronico.pdf96. Prepared by the authors based on data from INEGI (EAIM).97. Mexican Business Information System.

4 . 3 . C H E M I C A L S S E C T O RMexico’s chemicals sector is comprised of world-class companies such as Johnson & Son, Allen, and Sherwin Williams focused on manufacturing a wide variety of chemical products such as cleaning goods, paints, soaps and detergents, resins, and pharmaceutical products. It also comprises of micro, small, and medium enterprises, which, together, employ around 150,000 people on average.96

In terms of foreign direct investment, in the years 2011, 2012, 2014, and 2016, the country received more than a fifth of the total investment in manufacturing, most of it concentrating in Mexico City, Mexico State, Veracruz, Jalisco, and Guanajuato. The companies that have contributed the most through FDI are P&G (United States), Avon (Spain), and Merck Sharp and Dohme (Luxembourg).97

Among the different types of manufacturing products are soaps, cleaning products, and toiletries; followed by pharmaceutical products, resins, and synthetic rubbers. In the pharmaceutical sector, the implementation of trends and technological applications (known as Pharma 4.0) is still at an early stage; however, businesses are increasingly more interested in implemented more efficient and innovative technologies in their products to generate more business opportunities.

These are some on the institutions working in research and innovation within the sector such as the Electroche-mistry Research and Technological Development Centre (CIDETEQ), the Applied Chemistry Research Centre (CIQA), the Research and Advanced Studies of the National Polytechnic Institute (CINVESTAV), the Advanced Ma-terials Research Centre (CIMAV), and institutions of the Faculty of Chemistry at the UNAM, such as the Research and Industry Support Services Unit, the Preclinical Research Unit (UNIPREC), the Food Industry Service Unite (USIA), and the Animal Testing Unit (UNEXA).

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98 Source: International Consultants, S.C. ® with data from the annuals of the National Association of Universities and Higher Education Institutions (ANUIES). Several years.

Opportunities for Collaboration

Attracting investment to additive manufacturing companies to strengthen the chemical sector supply chain.

The study identifies opportunities for collaboration within Mexico’s chemicals sector to implement 3D printing technologies to industrial prototyping, mainly in moulds and plastic manufacturing, helping companies save millions of pesos.

To SMEs, this entails being able to develop new moulds at low cost in, for example, small-scale piece manufac-turing with the required quality.

The idea behind collaborating is to attract investment from countries such as the United States and Germany to strengthen the chemicals sector supply chain.

Collaborating with world leaders to improve energy efficiency in the production processes of the chemical sector.

Another opportunity for collaboration consists of implementing cogeneration technologies and renewable energies to improve some processes of the chemicals sector so that they consume energy more efficiently.

Currently, countries such as the United States, Germany, and Denmark have made significant progress in the development and utilisation of these technologies; therefore, it is important to stay in touch with them.

Collaborating with industrial leaders to develop automated factories.

In manufacturing, the chemicals sector requires automation solutions such as robots and cobots to improve their productivity and help to reduce risks in processes such as packaging.

There are opportunities for collaboration in the development of automatized factories that combine robots and cobots, as well as to implement automation through digital data analytics (Mechatronics i3). Japan is the leading country in automation solutions; therefore, it would be possible to generate opportunities for joint investment by Mexican and Japanese companies to develop this type of factories.

4 . 4 . P U B L I C P O L I C I E S ( T R A N S V E R S A L A X I S )In order to identify opportunities for collaboration with leaders in industrial innovation, to develop public policies that facilitate the development of the industrial sector based on technological development, the most emblema-tic cases in the world were studied:

Lessons Learnt on Public Policies Related to Industry 4.0 in the Selected Countries

• The German Industry 4.0 started out as one of the ten future pro-jects of the 2020 High-Tech Strategy action plans.• In Spain, it was the digital arm of the Agenda for the Strengthening of the Industrial Sector and it gradually grew into the Connected Industry 4.0.• In France, the lack of significant investment and the development problems of competitive digital industries were the drivers behind the creation of new public policies.• In the Netherlands, it was the low ratio of manufacture-related employment that led to the creation of the intelligent industry.• In China, the high technological dependence on foreign coun-tries, the lack of efficiency compared with other countries, the high consumption of energy and consumables in good production, and absence of Chinese brands in the market, and the low digitalization levels caused the creation of “Made in China 2025”.• In Japan, the goal was to maintain the same productivity levels in the future, while faced with a new demographic situation (shortage of labour and an aging labour force).• Italian policies focus on Industry 4.0 technological implementa-tion and applications and, also, on research.• The Internet of Things (IoT), and intelligent automation are the most commonly technological approaches, especially in France and Germany.• Only the United Kingdom includes more clearly defined mone-tary goals in its policy.• The primary goals of public policies aimed at manufacturing are infrastructural and technological development, leaving personnel capacity development in second place; except in Swedish and Czech policies.• European public policies followed the course set by governments; investors and representatives from the sector were consulted and given a role in the implementation of said policies; with the excep-tion of Sweden (where industry, academia, and research groups were responsible for designing and implementing the initiative) and the Netherlands (where a bottom-up approach was preferred to a top-down one and industry, universities, research teams, and the public sector contributed to the conduction of relevant activities).• The main barriers to the implementation of these policies are balancing different interests and competencies (as in French and Italian policies); involving a broad group of investors and sector representatives (German and Spanish policies); lack of capacities (Dutch and British policies); and lack of financing (Dutch and Czech policies).

Source: Manufacturing Technology Centre (2016). From Industry 4.0 toDigitising Manufacturing an End User Perspective. Available on http://www.the-mtc.org/pdf/Industry-4-Report-2016-e.pdf, Centre for Research and Development Strategy Japan Science and Technology Agency (2016). Future Services & Societal Systems in Society 5.0. Available on https://www.jst.go.jp/crds/pdf/en/CRDS-FY2016-WR-13.pdf

There are educational courses offered across the country related to industrial innovation technologies within the chemicals sector; and the number of graduates grew by 13% from 2012 to 201698. It is worth noting the coo-peration academia and industry at the CINVESTAV chemical department and the UNAM Faculty of Chemistry Research Unit, as well as in different civil associations (CIDETEQ, CIQA, CIMAV) proving graduates with jobs in research and development.

The most renowned case is that of Germany, whose leadership in the Fourth Industrial Revolution led to the focus on their “Industry 4.0” public policy. The German Industry 4.0 programme supported the transition towards a digital economy geared to build a project of and for society; it also benefited from a close alliance among the private sector, the academia, research groups, politicians, and trade unions.

The main goals of this policy are: focusing on the needs of busi-nesses and end users; creating a partner to develop international alliances, transparency and participation; mastering complex pro-duct and service processes as well as compliance and information transparency.

The Industry 4.0 platform is managed by a central board comprised of representatives from government, businesses, trade unions, and academia. The board is organised in an Executive Committee, run by businesses, and a Strategy Committee led by politicians, acade-mics, and representatives from trade associations and unions.

These are supported by working groups covering areas such as standards and architecture, research and innovation, system secu-rity, legal framework, employment, training and ongoing training. Plus, additional support by an Academic Advisory Committee, in-ternational standards organisations, and industrial consortiums.

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Opportunities for Collaboration in the Development of Public Policies in Mexico

Mexico has shown progress in public policies related to trends such as digitalization and energy efficiency; howe-ver, it still needs to develop suitable public policies based on international experience and geared to enhance the country’s strengths. The following are the general lines of the proposed strategies:

• Generation of participation forums with leading countries in industrial innovation whose experience can help create public policy development strategies aimed at the strongest trends. The topics discussed in these forums can be found in each country’s experience detailed below.

• Establishment of a single commercial interlocutor in terms of industrial innovation, as done by Germany in their Industry 4.0.

• Creation of a Committee of public policy specialists in charge of the meetings with leading countries and inter-national forums, as well as visiting these leading countries in industrial innovation if necessary.

• Design of funding programmes with the development bank to provide financial support to businesses working in those sectors most feasible in the adoption of industrial innovation technologies so they can, on the one hand, acquire these technologies and, on the other, enter into collaboration agreements with leading companies at affordable prices.

• Creation of fiscal incentives for companies from leading countries in industrial innovation technologies to at-tract investment and boost the Mexican sectors featuring significant strengths. Utilising the mechanisms current-ly available in the Special Economic Zones (SEZ) in order to bolster industrial innovation.

The opportunity areas with leading countries are:

• France: Given their experience in implementing tax exemption policies for SMEs as well as Internet of Things and intelligent automation policies.

• Germany: Experience in: - Adoption of reference architecture, that is, creating communication protocols for devices connected to the Internet of Things. - Integration of the supply chain with a special focus on digitalization and the Internet of Things.

• The Netherlands: Experience in implementing ICTs in manufacturing and in adapting business value chains; plus, it is one of the exceptions to upward implementation - academia, industry, and trade unions are responsible for implementing public policy strategies.

• Sweden: Their public policy approach is based on the interaction with academia and the development of lea-dership in sustainable production; development of doctoral courses and research teams involving young resear-chers (with the capacity to occupying management positions in academia over time) as leaders in order to create university deans with excellent research skills and connections within the private sector.

• Italy: Their public policy approach is based on adopting existing technology such as the development of re-search centres. Although they do follow a more specific approach to IoT and automation development, this does not affect the openness and cross-sectioning of its politics.

• Spain: Their approach is based on increasing industrial value added and qualified employment in the sector through digitalization trends. Their public policies have had a great impact on the business sector.

• United Kingdom: Aimed at developing high value businesses (R+D) that have participated in successful invest-ment schemes.

• Czech Republic: Like the Netherlands, they have followed a bottom-up approach where trade unions, acade-mia, and industry generate and implement industrial innovation strategies. Likewise, their public policies are as important to working skills development as in Sweden.

• China: Given the international landscape geared to increasing productivity while reducing water and energy consumption in product manufacturing, Chinese public policies follow guiding principles in innovation and ta-lent oriented development, quality standard improvement, sustainable development and structural organisation.

• Japan: Going a step further from Industry 4.0, it focuses on Society 5.0, where digitalization permeates all as-pects of society to offset an increasing shortage of labour and other economic and social problems through IoT and intelligent systems.

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CONCLUSIONS ACRONYMS AND DEFINITIONS

According to the research conducted, the industrial innovation trends that are determining the way forward for industries and having an impact on its technologies, products, and processes are: digitalization, Internet of Things (IoT), intelligent automation, 3D printing, and energy efficiency.

Overall, the countries leading these trends and those with the highest economic development; such as Ger-many, the United States, and Japan but also some developing economies such as China or Singapore. The rea-sons behind these countries’ leadership are the level of investment in technological research and development, the implementation of public policies geared towards innovation as a tool to strengthen their industries, the ge-neration of emblematic and innovative processes by leading companies and research centres, or the generation of human capital specialised in these technologies.

Mexico has numerous opportunities to do business and generate collaboration alliances with innovation leaders given the size of its market; its labour force; its international treaties; and the experience of its industrial sectors in different stages of the production chain, in process development or the manufacturing of components or finished-products that characterise it.

Based on the analysis of four Mexican industrial sectors, the general opportunities for collaboration with leaders in innovation have been identified: i) attraction of foreign industrial companies with experience in innovation technologies to help develop domes-tic procurement; ii) collaboration between Mexican and foreign companies leaders in innovation technologies to improve key production chain processes or phases; iii) joint investments to manufacture innovation technologies; iv) technology transfer to enhance the productive capacities of domestic companies; v) joint creation of research centres or laboratories focused on developing innovation technologies and streng-thening the country’s scientific and technological capacities;vi) generation of working capacities, standards and certifications in innovation technologies; andvii) design of public policies to foster productive sectors with international experience.

Finally, it is worth noting that, in order for these opportunities to realise and flourish, it is necessary to count with the joint participation of government, industry, and academia together with the countries leaders in innovation.

APS: Advanced Planning and Scheduling

CPS: Cyber-Physical Systems

iAR: Augmented Reality

IoT: Internet of Things

MAA: Movement, actioning, and automation

MRP: Manufacturing Resource Planning

PLC: Programable Logic Controller

ICTs: Information and Communication Technology

Definitions

Technological application: Application of industry 4.0 trend-related knowledge in order to develop program-mes, machines or processes for the industrial sector. Adaptronic: Systems capable of adapting in real time to the operational conditions of facilities or machines.

Big Data: set of mass data from both humans and machines that are processed through digital platforms for different purposes.

Cobot: Robots designed to physically interact with humans in a shared work space.

Micro-network: bidirectional electric generation system that enables the distribution of electricity from suppliers to consumers by using digital technology and fostering the integration of renewable energy generation sources in order to save energy, reduce costs, and increase dependability.

Virtual power plants: Integration of different energy sources in one single, optimised facility thanks to the utili-sation of Internet of Things and Information Technology.

Augmented reality: term used to define the act of seeing a physical environment from the real world through a technological device, adding vital information to the already existent physical information.

Sensor: device capable of detecting physical or chemical values and transform them into electrical variables.

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The Network Cisco’s Technology News Site (Checked on

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cda

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90 91

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EOS (Checked in November 2017). Available on https://www.

eos.info/en

ExOne Digital Part Materialization (Checked in November

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FAU (Checked in November 2017). Bavarian state minister

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International Trade Administration (2016), “Industrial Automa-

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ABB (2017). ABB unveils newest member of the YuMi family.

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Yaskawa (Checked in November 2017). Yaskawa to Propose

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Robotic Industries Association (Checked in November 2017).

Mexico, Land of Automation Opportunity. Available on https://

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dustry-Insights/Mexico-Land-of- Automatizaci-n-Opportuni-

ty/content_id/6041

Digital magazine Zafiro Software (Checked in November

2017). Mexico imports industrial robots for the automotive

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com/importa-mexico-robots-industriales-para- sector-auto-

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Manufactura (Checked in November 2017). Mexico is the

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manufactura.mx/industria/2017/07/31/mexico-es-el-4o-im-

portador-de-robots-en-el-mundo

Siemens Press (2017). Siemens and the Secretariat of Eco-

nomy will foster initiatives for 750 bn pesos in Mexican key

industries. Available on https://w5.siemens.com/cms/mam/

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Siemens Press (2017). Digitalization will turn Mexico into

the fifth largest economy in the world: Siemens. Availa-

ble on https://w5.siemens.com/cms/mam/press/Docu-

ments/2016/2211_SIEMENS_Digitalizaci%C3%B3n_Enterpri-

se_Tour.pdf

Martin Cave & Ernesto Flores-Roux (2017). Potential benefits

of the digital economy in Mexico. Available on http://ceeg.mx/

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The Economist (2016). Digitalization may help Mexican indus-

try sector to grow by 3.5 bn pesos. Available on https://www.

eleconomista.com.mx/empresas/Digitalizacion-puede-incre-

mentar-industria-mexicana-en-3500-mdp- 20161121-0084.

html

CANALYS (2016). 3D printing market to be worth US$22.4

billion in 2020. Available on https://www.canalys.com/static/

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Allied Market Research (2016). North America 3D Printing

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on https://www.alliedmarketresearch.com/press-release/nor-

th-america-3d-printing-market.html

Forbes Mexico (2017). 2017 will be an important year for Mexi-

can 3D printing: Stratasys. Available on https://www.forbes.

com.mx/2017-sera-grande-la-impresion-3d-mexico-stra-

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Markets and Markets (Checked on November 2017).

New market report. Available on https://www.marketsandmar-

kets.com/Market-Reports/gas-turbines-market- 94641697.

html?gclid=Cj0KCQiAi7XQBRDnARIsANeLIeu9aIR7nl_

UmsK5PRXNSeOLSHy62RQoYvFlE4TV-yBXj- mH7c4O-

Fe4aAm0DEALw_wcB

El Financiero (2015). SENER foresees the investment of 7

bn pesos in electrical cogeneration projects. Available on

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nes-de-dolares-a-proyectos-de-cogeneracion-en-siete-

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Markets and Markets (Checked in November 2017). Smart Grid

Market by Software (AMI, Smart Grid Distribution Manage-

ment, Smart Grid Communication, Grid Asset Management,

Substation Automation, and Billing and Customer Information

System), Hardware, Service, and Region - Global Forecast to

2022. Available on https://www.marketsandmarkets.com/Mar-

ket-Reports/smart-grid-market-208777577.html

International Trade Administration (2017). A Market Assessment

Tool for U.S. Exporters. Available on: https://www.trade.gov/

topmarkets/pdf/Smart_Grid_Top_Markets_Report.pdf

Banco Mundial (2018), “Trouble in the Making? The future of

Manufacturing-Led Development”, Washington DC. Available

on http://www.worldbank.org/en/topic/competitiveness/

publication/trouble-in-the-making-the-future-of- manufactu-

ring-led-development

AMIA (2016). Mexican Automotive Industry Outlook towards

2020. Available on http://www.suncorridorinc.com/SunCorri-

dor/media/Sun-Corridor/Documents/Industry%20Strengths/

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Milenio Negocios (Checked in November 2017). It boosts

aerospace demand. Available on http://www.milenio.

com/negocios/favorece-demanda-sector_aeroespa-

cial-aviacion-tlc-autopartes-aeronaves-femia- mile-

nio_0_1009699036.html

ProMexico (2014), “Electronics Industry”, Mexico Available

on http://www.promexico.gob.mx/documentos/diagnosti-

cos-sectoriales/electronico.pdf

Prifti, L.; Knigge, M.; Kienegger, H.; Krcmar, H., (2017). A Com-

petency Model for “Industrie 4.0” Employees. Available on:

https://wi2017.ch/images/wi2017-0262.pdf.

Government can the Republic (Checked on November

2017). Connectivity. Available on https://www.gob.mx/mexi-

codigital/articulos/conectividad

McKinsey (2017). A FUTURE THAT WORKS: AUTOMATION,

EMPLOYMENT, AND PRODUCTIVITY.

CONACYT (Checked in November 2017). Manufacturing 4.0

in Aerospace Industry Available on http://www.conacytprensa.

mx/index.php/tecnologia/tic/18145-manufactura-4-0-indus-

tria-aeroespacial

Aristegui Noticias (Checked in November 2017). Revolution

4.0: the new challenge for the automotive industry. Availa-

ble on http://aristeguinoticias.com/2703/mexico/revolu-

cion-4-0-el-nuevo-reto-para-la-industria-automotriz/

Siemens press (2017). SEP and SIEMENS promote technolo-

gical transfer in industrial processes digitalization and

strengthen the available dual. Available on https://w5.siemens.

com/cms/mam/press/Documents/2017/100610_SIEMENS_

Final_MoU_Siemens_SEP.pdf

Manufacturing (2017). Siemens and the Government allies on

industry 4.0. Available on http://www.manufactura.mx/indus-

tria/2017/03/06/siemens-y-gobierno-de-mexico-promove-

ran-la-industria-40

PWC (2016), “2016 Global Industry Survey. Industry 4.0: Buil-

ding the Digital Enterprise”. Checked on: https://www.pwc.

com/gx/en/industries/industries-4.0/landing-page/indus-

try-4.0-building-your-digital-enterprise- april-2016.pdf

Manufacturing (2017). The industry 4.0 has ‘clipped

wings’. Available on http://www.manufactura.mx/indus-

tria/2017/06/07/la-industria-40-tiene-las-alas-cortas

Tecnología para los negocios (Checked in November 2017).

Industry 4.0 in the chemical and pharmaceutical sectors.

Available on https://ticnegocios.camaravalencia.com/servi-

cios/tendencias/la-industria-4-0-en-el-sector- farmaceuti-

co-y-quimico/

PWC (2016). Industry 4.0: Building the digital Enterprise.

Available on https://www.pwc.com/gx/en/industries/indus-

tries-4.0/landing-page/industry-4.0-building-your-digital-en-

terprise- april-2016.pdf

Deloitte (Checked in November 2017). Chemistry 4.0: the di-

fferent realities; a promising future for the strong, determined,

and persevering. Available on https://www2.deloitte.com/mx/

es/pages/manufacturing/articles/quimica-4- 0.html

Government of the Republic (Checked in November 2017).

ProMexico and Siemens sign a strategic alliance agreement

in preparation for Hannover Messe 2018. Available on https://

www.gob.mx/promexico/prensa/promexico-y-siemens-fir-

man-alianza- estrategica-rumbo-a-hannover-messe-2018

92

Government of the Republic (Checked in November 2017).

Mexico and Japan renew their strategic alliance. Available

on https://www.gob.mx/promexico/articulos/mexico-y-ja-

pon-refrendan-su-alianza-estrategica?idiom=es

Government of the Republic (Checked in November 2017).

European companies seek to enter into strategic alliances with

Mexico. Available on https://www.gob.mx/promexico/arti-

culos/empresas-europeas-buscan-alianzas-estrategicas-en-

mexico?idiom=es

Connected Mexico (Checked in November 2017). What is

Connected Mexico? Available on http://mexicoconectado.

gob.mx/sobre_mexico_conectado.php?id=66

Government of the Republic (2013). National Digital Strategy.

Available on http://cdn.mexicodigital.gob.mx/EstrategiaDigital.

pdf

Government of the Republic (Checked in November 2017).

Digital Inclusion and Literacy Programme (PIAD). Available on

https://www.gob.mx/mexicodigital/articulos/programa-de-in-

clusion-y-alfabetizacion-digital-piad

Nuevo Leon, Citizen Governance (Checked in November

2017) Starts the technological revolution “Nuevo Leon 4.0”.

Available on http://www.nl.gob.mx/noticias/inicia-revolu-

cion-tecnologica-nuevo-leon-40

Siemens Press (2017). SEP and SIEMENS promote technologi-

cal transfer in industrial processes digitalization and strengthen

the available dual. Available on https://w5.siemens.com/cms/

mam/press/Documents/2017/100610_SIEMENS_Final_MoU_

Siemens_SEP.pdf

UNIDAD DE INTELIGENCIA DE NEGOCIOSUIN