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IIoT | The trends, opportunities and legal challenges for transforming industry in Asia

Written on 18 Apr 2019

For one day every year, on Chinese New Year, Ericsson’s smart factory in Nanjing stops production. The high-precision industrial screwdrivers that make its radio base stations come to a temporary stop. But the next day, they start up again, and production lines run for the next 364 days without interruption.

In manufacturing, where precision and efficiency are everything, tool maintenance is a major challenge in keeping production lines running. But Ericsson’s factory has one major advantage: it’s screwdrivers are smarter than the average tool. They feed information back to the factory’s private cloud system, enabling predictive maintenance that optimises the life cycle of the tool and cuts the need (and cost) of manual maintenance work. Warren Chaisatien, Ericsson’s global head of IoT customer engagements, stated that “In our Nanjing plant, we have realised significant savings: a 50% maintenance workload reduction and a 10-12% cost reduction, which is quite substantial.”

Transforming industry in Asia

Ericsson’s factory is just one example of the power of the Industrial Internet of Things (IIoT), which is transforming manufacturing.

As our latest report explores, nowhere is this transformation more apparent than in Asia. Commissioned in association with Conventus Law, the report looks at how IIoT technology is changing the nature of manufacturing in key jurisdictions in which Osborne Clarke operates: China, Hong Kong, India and Singapore.

As the report shows, Asia is moving from a centre of production to a centre of innovation. The drivers for change vary across the region. In China, for example, the “Made in China 2025” strategy has a focus on emerging industries such as robotics, connected and autonomous vehicles, aviation and biotech – industries in which digital transformation is part of the DNA. For businesses looking to enter mainland China, or for Chinese businesses looking westwards, Hong Kong is a natural gateway. And Hong Kong’s traditionally open and pro-business economy is helping it to attract many businesses to use it as a hub for R&D, often in conjunction with manufacturing bases in mainland China.

In India, although there is a drive to increase manufacturing as a share of GDP, much of the adoption of IIoT at the moment is coming from the logistics industry in meeting the challenge of transporting goods across the country. Logistics is also important in Singapore, with its long-standing importance and expertise in global supply chains. But industry in Singapore also benefits from its size, as it has proven nimble in responding to digital trends. New technologies are identified and targeted through government programmes and incentives, with IIoT applications at the forefront of Singapore’s “Smart Nation” initiative.

Confronting the legal challenges

At its heart, the IIoT is about data, which inevitably raises the spectre of cyber and regulatory risks. Connected devices are frequently the target of attacks, whether in an industrial or a consumer setting. The types of attack for IIoT devices could include corporate espionage, infiltration of ransomware or more malicious attempts to compromise the production or integrity or products.

In a survey that we ran in association with Conventus Law, cyber security and data protection / privacy were cited jointly as the key legal challenges in implementing IIoT in manufacturing or logistics in Asia.

This poses a challenge not just for the manufacturer but for other businesses in the supply chain – the mantra being that the cyber security of an organisation in a connected supply chain is only as good as the weakest ember of that chain. Managing the risks requires a combination of the practical (identifying exposure, carrying out due diligence, conducting audits) and the contractual (setting the required standards, giving you the audit rights you need and giving you legal protection in the event of an incident).

IIoT devices may also involve or generate valuable IP that needs to be protected, whether through registration (such as for patents or design rights), under copyright laws (for software developed to work with IIoT applications), or as trade secrets. In our Report, Karthikeyan Natarajan, senior vice president and global head of integrated engineering solutions at Tech Mahindra, comments that:

Indian manufacturers are deeply concerned with securing their trade secrets. They know about the prospects of running more efficiently, with better quality and improved productivity, but they worry about protecting their proprietary information.”

As with cyber risks, effective IP protection requires a combination of practical and contractual actions. This will start with identifying the full extent of the business’s IP portfolio, and the different ways in which the various rights can (and need to) be protected and enforced, internationally. Hong Kong and Singapore have long-established reputations for having predictable and efficient common law-based legal systems. IP enforcement in China has traditionally been more of a challenge for international businesses, but major reforms are seeking to address this to support China’s push higher up the innovation curve.

Where, as is often the case, new technologies are introduced through corporate ventures, this brings its own legal challenges. Investments and M&A require careful thought as to corporate structuring, due diligence and any exit strategies, while joint ventures raise particular issues as to the ownership and licensing of IP and maintenance of trade secrets. Other issues are more jurisdiction-specific, such as merger control regulation or any competition issues that may be raised.

A connected future

As Ericsson’s screwdrivers illustrate, one of the attractions of IIoT is that applications can be retrofitted into existing plants and quickly generate a positive return on investment. But IIoT technology can become even more transformative as it draws on a convergence of other new technologies. Next-generation connectivity is driving adoption not only in logistics, but also in an industrial setting, through low-power, machine-to-machine connections. Increasingly sophisticated tech stacks – taking in cloud, local and edge computing – are addressing the challenges of interoperability; while machine learning / artificial intelligence is opening up new ways of harnessing the data that is being collected.

The IIoT could also see in the fifth industrial revolution the full realisation of a trend that started in the first industrial revolution, of increasingly automating factories. The factories of tomorrow could see industrial robots, fed with data from IIoT devices and powered by AI, not only completing routine operations but predicting maintenance needs and 3D printing spare parts.

We may not yet be at the stage where all of these technologies are being integrated widely across industry. Nevertheless, the pace of digitisation of manufacturing and logistics in Asia means that as and when new complementary technologies or applications come along, the infrastructure will already be set up for businesses to take advantage of them.

The successful adoption of IIoT carries with it practical and legal challenges, but as countries in the region compete to lead industry 4.0, IIoT will be one of the defining technologies for the manufacturing and logistics sectors.