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The countries most likely to be affected by automation

Automation is inevitable, but its impact won’t be felt evenly across the globe.
By Anslee Wolfe

Knowing how and where robots and machines could impact the global economy will help financial executives gain a competitive edge in their industries. But predicting which countries are likely to be impacted most by workforce automation—and when—isn’t as simple as comparing industries across the globe.

A recent McKinsey Global Institute report, A Future That Works: Automation, Employment, and Productivity, analyzed the automation potential of 46 countries, representing 80% of the global workforce. Several factors are considered, including the percentage of work activities that could be automated using current technology, the number of full-time employees that could be affected, and wages.

The types of activities that have a high potential for automation are physical tasks in highly structured and predictable environments, data processing, and data collection. Those that have a considerably lower potential for automation are unpredictable physical work, interactions with others, applying expertise, and managing others, which is the least susceptible to automation.

Vast differences are expected in how automation will play out across the globe, as technical, economic, and social factors will determine the pace and extent of it. But it’s hard to say how quickly automation will become reality, according to the report.

“What we also found interesting is that automation is ultimately a universal phenomenon, impacting every country and region in the world significantly, albeit differently,” said Mehdi Miremadi, a partner at global management consulting firm McKinsey & Company and one of the report’s authors. That’s because sectors typically vary country by country given the different mix of jobs with a higher or lower automation potential.

Take manufacturing, for example. One country may have a larger concentration of work hours in jobs that have higher automation potential, such as production and administrative support. And another country may have a higher proportion of work hours in jobs that are less likely to be automated, such as management and engineering.

“Manufacturing in a developing country likely looks very different than manufacturing in an advanced economy. And even among advanced economies, it could look very different,” said Miremadi, who works out of McKinsey’s Chicago office.

These sector differences may greatly impact a country’s overall potential for automation, according to the report.

Here are the report’s findings for automation potential of several select countries or regions with large populations and/or high wages, with the percentage of activities that could be done by robots or machines using technologies currently available:

  • Japan, 55%
  • India, 52%
  • China, 51%
  • Europe Big Five (France, Germany, Italy, Spain, and the United Kingdom), 47%
  • U.S., 46%
  • Remaining countries, 50%

Automation and finance transformation

Such findings are the kind of insight that financial executives need to help plan for competitive advantages worldwide as robots and machines become more commonplace, said Steve Palomino, CPA/CITP, CGMA, director of financial transformation at Redwood Software, a worldwide robotic process automation company headquartered in Burnham, England.

“If we don’t focus on technology and understand it, we’re going to have less and less relevance in the industry. The better I am at predicting the future and responding, the better I’m preparing now to have a future,” said Palomino, who in his current role works on automation, including for many accounting functions.

Palomino, who works out of Redwood’s Dallas office, said it’s important for executives to understand and anticipate how automation will shape the world economy, as well as be aware of which regions are likely to be affected the most.

“We’re in such a world economy,” he said. “Robotics will most certainly affect the future of companies. If you’re not prepared, then your long-term prospects are pretty dim, and I don’t see how you can honestly be competitive.”

Automation will impact every aspect of business, from technology to processes to employees, he said.

“Technology will take accounting, reporting, and operational efficiencies to the next level. Processes that were once thought impossible to change or improve will do both in short order,” he said.  

That means employees will be affected in various ways, depending on their skill level. India, for example, has a larger number of low- to moderate-skilled employees than high-skilled ones in call centers that will likely be affected first by robots and machines, Palomino said, so planning for the change there would be prudent.

Because Europe and the U.S. have more high-skilled workers, he said, companies there can use automation to reduce back office costs while employees spend more time on analysis.

“Each region should anticipate and retrain or retool their employees to meet the ever-changing demands that will be driven by automation,” he said.

The McKinsey report, released earlier this year, found that about half of the activities people are paid to do could potentially be automated worldwide by adapting current technologies, accounting for nearly $16 trillion in wages.

Being aware of the global impact of automation may potentially help create new industries, invaluable insight for financial executives when advising clients worldwide, said Jason Ackerman, CPA, CGMA, with BNA, a CPA and advisory firm in Rock Hill, S.C.

“People are going to lose certain jobs, but new jobs are going to be created,” he said. “Where are those people who lose their jobs going to go? What can we train them to do now? What skills do they need? Create industries based on those skills.”

Ackerman hopes global automation serves as a crucial reminder that firms must adapt to survive in the future.

“It’s coming whether you’re ready or not. Our whole economy has to be focused on this,” he said. “The countries that are able to manage that change the best, those are going to be the new leaders in the world.”

He sees benefit in automation for finance, letting robots and machines handle easy accounting tasks while allowing CPAs to better connect with clients.

“You have to provide critical thinking,” Ackerman said. “You should be putting your focus on human interaction—a robot can’t replace that.”

The McKinsey report says robots and artificial intelligence (AI) will bring widespread benefits to businesses, including increased performance, by reducing errors and improving quality and speed. In some cases, outcomes may exceed human capabilities.

“The reality is that almost every job that requires physical work will soon be done better by robots,” said Vivek Wadhwa, an adjunct professor and distinguished fellow at Carnegie Mellon University’s campus in Silicon Valley. “And as machine learning gathers enough data and perfects its algorithms, AI will be able to make better and more informed decisions than humans can.”

Anslee Wolfe is a freelance writer in Colorado Springs, Colo. To comment on this article, contact Chris Baysden, senior manager of newsletters at the AICPA.

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