In the B2B area: Machine learning hotspot: Europe can still beat the USA and China in the race
Europe is currently lagging behind when it comes to digitizing consumer applications. Established platforms from Facebook, Google and Amazon all come from the USA, and attempts to develop European alternatives are eking out a niche existence. But in the industrial environment, Europe can still beat the USA and China in this race, says digital expert Dirk Lumma.
The US platforms not only occupy the consumer sector, but also many other sectors in which digital, cloud-based infrastructures play a role. Amazon Web Services, Microsoft Azure and others have become indispensable as cloud providers in the B2B market, as they now support a wide range of aspects – from data aggregation to database management, analytics and machine learning to interfaces for mobile devices. Platform companies also occupy important positions in industrial services, across all sectors. So is it to be expected that Europe will lose another economic race in the digitization of industry?
Dirk Lumma has been Chief Technology Officer and Managing Director of the Körber Digital Business Unit since 2021. Before that, he was Head of Software Products for the Digital Grid business unit at Siemens. He received his doctorate in physics from the Massachusetts Institute of Technology in Cambridge, USA.
Not necessarily. Unlike in the B2C sector, the competitive dominance of US corporations in the B2B market is far from settled. The race is open. In a study in early 2021, the Association of German Mechanical and Plant Engineering (VDMA) looked at startups in the field of artificial intelligence (AI) for mechanical engineering. The study, which was conducted over a period of ten years, makes it clear how far technology development has progressed in this country. A total of 825 industrial AI startups from 46 countries were identified, 42 percent of them in Europe, but only 33 percent in North America and 24 percent in Asia.
Germany is a vital innovation location
Germany even stands out as the most vital innovation location, with more than a third of the European start-ups examined being founded here. Added to this is the industrial diversity. While selected applications were able to establish themselves quickly in the consumer sector because a platform or a service creates value for almost all users, specific industry solutions are required in industry. The so-called scalability, an essential property of many consumer applications, does not exist in this form in the industrial environment, because a digital application from one industrial sub-area cannot simply be transferred to another.
So-called domain knowledge is often required for the transfer, which is available in particular from the manufacturer of the machines. But not yet to the full extent among the platform companies specializing in digitization. So the question arises: To what extent has Europe as an industrial location used this competitive advantage so far?
Industrial companies must be aware that it is not just a matter of integrating digitization and machine learning into their factories, but in particular of staffing future checkpoints themselves. If European companies give up competences at this point, plant manufacturers could, in the worst case, be demoted to hardware parts suppliers. Especially when it comes to the large number of already installed industrial systems, digital technologies can achieve a lot: improving overall efficiency in operation, increasing quality, reducing the probability of failure, reducing throughput time, to name just a selection.
Digital applications will ensure increased efficiency in factories
The digitization of these existing systems always follows a similar pattern. The first step is to connect the machines to the IT systems in order to read out data in a further step. This process data must be combined with other data sources, patterns identified, and then, as a final step, recommendations for improvement derived. At the end of such a procedure, the so-called "digital layer" was added to an existing system. This potentially creates a strategic checkpoint. Also economical. Because from now on, the digital application will be used as the basis for decisions on how the machines can be operated in the best possible way.
And if it repeatedly turns out to be advantageous in daily work to follow the digital recommendations, then this approach will become firmly established. Instead of the original plant manufacturer, the digital application based on data will ensure increased efficiency in factories in the future. This leads to the essential question: Who will make these digital applications available in the future?
The economic advantage of a smoothly functioning factory means that the application of digitization and machine learning in the B2B cosmos is progressing unstoppably. All control points for future value flows will most likely be occupied at some point, the pace and order are open. Naturally, a wide variety of stakeholders have an interest in intervening in these value chains. At least two sides can be identified as possible players in this competition – on the one hand the digital platform companies such as Microsoft, Amazon Web Services or Google, on the other hand the plant manufacturers themselves. Both sides have specific hurdles.
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The plant manufacturers often lack the methodical, sometimes also technological approach to the digitization of processes, including the necessary personnel skills. The platform companies, on the other hand, do not yet have the profound and detailed understanding of the relevant industrial processes. Above all, the diversity of the industrial landscape with its variety of sectors and thus also machines keeps the race open. In response, the platform companies are entering into partnerships with industrial companies, developing machine learning systems and sensor technology for factories and creating a local presence through their own research and development locations in Europe.
Amazon recently opened its fourth research center in Germany. The Dresden location focuses primarily on the cloud services that are so important for industry. What is a way for platform companies to expand their sphere of influence is simply a question of long-term survival for plant manufacturers. So is the end of this economic race already in sight?
Pure machine builders have to reposition themselves
The major advantage of European machine builders is their installed base. Unlike the platform companies, the machine builders are already everywhere in the warehouses and factories with their machines. They know their own systems and can use this understanding to find optimization potential and thus gain a competitive advantage. However, this will only succeed if European industry digitizes itself. Pure machine builders have to reposition themselves as digital and mechanical engineering companies in order not to become parts suppliers.
The first step should be to equip your own systems and factories with the "digital layer" and thus optimize their operation. The aim must be to offer cloud-based services for both existing and new systems. In order to occupy the important control points of industrial digitization in the long term.
And, of course, this approach does not exclude mutual complementarity. Amazon Web Services, Microsoft Azure and others offer digital platforms that are indispensable in industry. Also because these companies, thanks to their experience in the consumer market, know exactly where the success factors for digital structures lie and are continuously developing them. At the same time, Germany and Europe must not unhesitatingly pass on their knowledge advantage, which is relevant for digitization, the detailed knowledge of their engineers about industrial processes, to third parties, but should independently develop their own digital business models for new systems and especially for the installed base.
Medium-sized companies and mechanical engineering have allowed a fruitful machine and industrial network to grow in this country. It is important to use this network in terms of cooperation. Targeted co-creation between "classic" engineers, developers of cloud-based applications and data scientists working in the field of machine learning can still make Europe an industrial machine learning hotspot ahead of the USA and China. The outcome of this race is open. It remains exciting.
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