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Japan is launching an initiative to counter Germany’s Industry 4.0, a set of rules and standards to drive digital technology in manufacturing. To increase efficiency, German makers are attempting to revolutionize production methods by connecting factories around the world via the Internet.

On Thursday June 18, a consortium of about 30 Japanese companies launched a new forum—the Industrial Value Chain Initiative—to discuss ways of both creating technology standards to connect factories, and internationalizing Japan’s industrial standards.

Yasuyuki Nishioka, a professor of information and industrial engineering at Tokyo’s Hosei University, has long advocated using information technology in the manufacturing industry.

Nishioka is the man behind the newly formed Industrial Value Chain Initiative (IVI), which counts major businesses in the electricity, IT, machinery, and automobile sectors among its members, including Mitsubishi Electric, Fujitsu, Nissan Motor, and Panasonic.

IVI members will discuss how to create common communications standards for linking factories and facilities, as well as how to standardize security technology.

For a long time, Japanese businesses have built communications networks linking their own groups and affiliates. But this time things are going to be different.

“We aim to establish a structure that will connect even small and mid-sized companies via the Internet, beyond affiliates, and across sectors,” said Nishioka.

That is exactly what is happening in Germany under the Industry 4.0 initiative. Information systems at small, mid-size, and large companies will all be connected via the Internet. This will allow the synchronization of all processes—from ordering to parts procurement, production to shipment and follow-up services.

The move is aimed at achieving leaner operations and inventory management, which is manufacturers’ ultimate goal. Under Industry 4.0, German companies rely on big data technology to analyze volumes of information and use artificial intelligence to find the most efficient manufacturing methods.

German Chancellor Angela Merkel (left) and Indian Prime Minister Narendra Modi

German Chancellor Angela Merkel (left) and Indian Prime Minister Narendra Modi

Factories constantly communicate with one another, enabling manufacturers to eliminate losses—even when making small amounts of many different products—and achieve the same level of efficiency as with mass production, one Siemens executive said.

This approach contrasts sharply with Japan’s method of mass production, once seen as the best model for manufacturers worldwide. Siemens is aiming for the next stage of manufacturing, called mass customization, according to the executive. Japan’s IVI seeks to achieve that as well.

Germany has already laid out a road map for Industry 4.0 until 2020, through public, industry, and academic collaboration. What’s more, this spring the country unveiled its own communications standards, sensors, controls, and other devices for Industry 4.0. Most of these systems are German made.

Creating international standards means Germany will have the upper hand in the business sector. Volkswagen, for instance, is participating in Industry 4.0.

If the German automaker which, among foreign carmakers, holds the largest market share in China is to press ahead with the German initiative there, its Chinese automaker partners, parts makers, and financing companies will all be integrated into this system.

However, this would mean that Japanese makers would have to spend extra money to carry out any necessary adjustments. If they did not, Japanese businesses might be left behind.

As a manufacturing-oriented nation, Germany is throwing its full support behind Industry 4.0. German Chancellor Angela Merkel herself is courting emerging countries. She invited Indian Prime Minister Narendra Modi to the Hannover Messe 2015 in mid-April, and pitched the concept to him.

Furthermore, leading German companies that promote Industry 4.0 recently reached out to Industrial Internet Consortium, a US body that encourages greater use of the Internet in the American manufacturing sector. These German companies have taken part in the Industrial Internet Consortium (IIC) standards-creation processes, too.

“What is important is to make friends, rather than competing to set standards,” according to an executive at Hitachi, a Japanese maker of heavy electric machinery.

“By participating in foreign standardization organizations, Japanese companies need to collect information and think of ways to create new businesses using their technologies.”

Japanese manufacturers, such as major automakers and machinery makers, have enjoyed greater profitability. In the days of Industry 4.0, however, they are likely to face a totally different industry landscape.

In a world of growing connectivity, innovative small and mid-size companies and venture companies in emerging nations would be able to market their products globally by utilizing factories run by larger corporations.

The next wave of industrial revolution could level the playing field for manufacturers across a number of boundaries, such as region, size, and business sector.

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