“It’s May 3, 2021. Don’t forget to upgrade the embedded software in your shoes before you go for a run!”
This may sound like a commercial for the 1986 Puma Smart Sneaker, the first running shoe with embedded sensors and software in its heel. It could also be an opening line from an old sci-fi movie describing a distant point in the future. Sci-fi movies have a great track record of predicting the future, from video calls to self-driving cars. The former is a dominant part of our daily professional routine these days. The latter is no longer science fiction. So, what if the growing interplay between goods and services is not about the future but a good description of the present? Nowadays we live in a world of connected objects that rely on sophisticated embedded software. Recently, the Volkswagen’s CEO admitted that the only way for VW to remain a successful car manufacturer is to become a successful software company. And while he may be the latest CEO to recognise the business irrelevance of such a goods-services distinction, he certainly is not the only one. Apple understood it well before many other companies when designing mobile phones and their underlying software ecosystem without having any production facilities. Now Apple wants to produce cars. And so do several Chinese telecom giants, like ZTE or Huawei. And the list is longer: Amazon, Tencent, Google, Baidu. All these corporate announcements are another way of saying that mode 5 services are going to be one of the most important ingredients of global competitiveness in many sectors.
Car companies are right to get interested in software. Future autonomous and electric vehicles are primarily software-driven products compared to traditional cars. Already in 2010, the General Motors’ Volt car was dubbed as one of the most sophisticated IT products, with over 10 million lines of software code and its own IP address. So, in the future, car manufacturers might need to do software in order to produce cars successfully. Surely, along complex global supply chains with many suppliers scattered around the world.
These headline announcements from global manufacturing companies entering the software market and vice-versa, confirm a simple truth: in order to stay competitive, companies can no longer see themselves just as a manufacturing firm, or a services firm. And this simple truth goes beyond the automotive sector. Underpinning this radical shift is a series of digital disruptive technologies, affecting everything from product standards, industrial design, intellectual property, and investment decisions. Such technological developments are game changers for many traditional manufacturing sectors.
ECI_21_PolicyBrief_08_2021_LY05 (1)To read the full policy brief by the European Centre for International Political Economy, please click here.