Smart Supply Chains: Powered by Iot

Disruptive Technology
Multi-Asset
Global Thematic research
By: Shanella Rajanayagam, Davey Jose, Frank Lee, Nicolas Cote-Colisson, November 2021
Sean McLoughlin, Wai-Shin Chan and Amy Tyler www.research.hsbc.com
Smart Supply Chains

Powered by IoT
The COVID-19 pandemic has
significantly disrupted global supply
chains, highlighting the importance
of digital technologies to ensure
operational continuity
We examine how the Internet of

Things (IoT) can help businesses build
more resilient and transparent supply
chains going forward…
…and how IoT solutions can be

applied across key sectors of the
economy, along with ESG implications
Play video with

Shanella Rajanayagam and
Davey Jose
Disclosures & Disclaimer: This report must be read with the disclosures and the analyst certifications in
the Disclosure appendix, and with the Disclaimer, which forms part of it.
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Disruptive Technology ● Multi-Asset
November 2021
Why read this report?
Get smart
The push towards digitisation

Supply chains across various sectors have been significantly disrupted over the past 20 months
The pandemic to accelerate
smart supply chains…
in the wake of the COVID-19 pandemic – highlighting the need for businesses to have greater
visibility of their value chain, along with access to real-time data that can help them make
decisions quickly and remain agile in times of uncertainty.
Given these strains, we thought it timely to think about how businesses could use tech solutions
to better prepare for future trade shocks. In this note, we look at how Internet of Things (IoT)
technologies can be applied through the production process to help businesses build more
resilient, efficient and transparent supply chains going forward. This report is the second in our
series of publications on how disruptive technologies can impact trade flows.
Building next-gen supply chains

IoT refers to the use of internet enabled devices that communicate with each other. It can be used
…powered by IoT
technologies
all through the supply chain – from manufacturing to logistics and to after sales services. Such
technologies could ultimately help businesses minimise waste, cut costs and improve efficiency.
For instance, IoT solutions help manufacturers know how much inventory they have in real time,
when equipment is not being used efficiently, and when a machine is likely to go down so it can
be fixed ahead of time. It can also help businesses monitor how much energy they are using
and can be used to monitor and adjust climate conditions.
Supporting IoT adoption

We expect the COVID-19 pandemic to spur greater enterprise adoption of IoT technologies as
businesses look to become more resilient. Indeed, according to IoT analytics, business
spending on IoT is set to grow from an estimated USD160bn in 2021 to USD412bn in 2025
However, next-gen IoT solutions will require the right devices, infrastructure hardware and
networks to be in place. Cybersecurity threats and undue data localisation requirements that
serve to limit the flow of data across borders also risk hindering IoT adoption.
Sector applications – We also set out how IoT technologies can be used in 10 key sectors across
We outline many IoT supply
chain examples in key
the economy to improve supply chain operations, and look at ESG implications of IoT adoption.
sectors  Total IoT connections are set to grow from over 13bn in 2020 to 24bn by 2025, according to
the GSMA
 91% of manufacturers currently use IoT devices but 80% of warehouses are operated manually
 90% of businesses are expected to adopt IoT and Analytics in warehouse automation by 2030
 44% of businesses intend to invest more in IoT strategies and solutions in the wake of
the pandemic
 Key drivers of IoT adoption: cost efficiencies, better supply chain insight, environmental
sustainability reasons
1
November 2021
 Around half of North American manufacturing companies are considering implementing

smart factories to prepare for future business disruption
 GSMA estimates licenced cellular IoT will double from 1.7bn to 3.5bn from 2019 to 2025
 Vodafone, ARM, Altair Semiconductor and Murata created smart labels for Bayer, helping
them monitor their products through their supply chain and respond in real-time if there
were any issues
 Cellular IoT technologies enabled manual maintenance work at Ericsson’s Nanjing factor to
be cut in half
 60% of manufacturing companies have experienced cybersecurity incidents in their
smart factories
 IoT solutions have helped food retailers save an estimated USD37m by cutting food waste
 BASF is exploring opportunities from using IoT to enhance its manufacturing processes and
has 90 digital projects in the pipeline in China
 Honeywell is working on transforming its supply chain to be more automated and agile
 IoT solutions can help autos OEMs predict when a maintenance visit to a service centre is
required, long before a failure occurs
 Schneider and Siemens industrial software offerings include “digital twin” capabilities that
allow businesses to more precisely monitor and optimise operations
 Ensuring efficient production processes is even more important for med-tech companies in
the wake the pandemic, with Fujifilm SonoSite reportedly paying over 43 times more than
normal for a key component in short supply
 Consumer goods companies can use IoT technologies to have a much more dynamic view
of demand and reduce lead times
 DHL plans to invest EUR2bn in digitisation including for IoT-related applications
 25% of vaccines are degraded when they reach their destination due to incorrect
shipping conditions
 Shipping lines such as Maersk and Hapag-Lloyd are using IoT solutions that enable customers
to remotely track the location and temperatures of refrigerated containers in real-time
 Associated British Ports and British Telecom are currently trialling next-gen IoT and sensor
technology at the Port of Ipswich in the UK
 THG has launched a new warehouse management system that aims to reduce fulfilment
cost per unit, increase implementation speed, and reduce integration risk
This is our latest report on the Disruptive Technology theme. If you want to subscribe to any of
our nine big themes, click here
2
November 2021
Disruptive trade and digitalisation

Businesses are looking to digitise to make supply chains more resilient …
Expenditure on enterprise IoT solutions Top five drivers of IoT adoption*
(USD)
412bn 54%
48% 48% 46% 45%
129bn 160bn
2020 2021f 2025f Cost Better supply Environmental Greater Better decision
efficiencies chain insight sustainability automation making
… and IoT solutions can be used across various sectors …

Chemicals
Augmented reality to support production and emissions
analytics, drones assist inspection of plants
Banks Consumer & Retail

Help trade finance banks monitor Monitor production factors, inventory
movement of inventory through supply levels, reduce lead times, improve
chain to mitigate credit risk factory efficiency
Aviation Healthcare
Real-time monitoring of Predictive maintenance of
components, baggage medtech devices, optimised
handling and predictive resource utilisation
maintenance
Industrials
Smart equipment and
Autos plants, reduced costs
Just-in-time delivery, through predictive
over-the-air software maintenance
updates, preventative
maintenance, vehicle Transport
connectivity Digitised supply chain,
intelligent inventory
management, remote
monitoring of conditions,
… however cybersecurity threats
smart container terminals
could affect IoT adoption
Cybersecurity incidents in smart factories** TMT
Key to supporting IoT ecosystem
Experienced via 5G technology
cybersecurity incident
61%
Incident stoped
production
75% Utilities
Smart energy grid, real-time consumption data,
Production stopped
for more than 4 days
43% centralised analytics, intelligent management
USD35bn 24bn 90%

Losses in the biopharma industry each year Number of estimated IoT connections Expected share of businesses using IoT &
due to temperature failures in logistics in 2025 (GSMA) Analytics in warehouse automation in 2030,
(IQVIA Institute) up from 45% in 2019
Source: IoT Analytics, Senseye, Bloomberg TV. *Inmarsat (based on 2021 survey of 450 business respondents), **Trend Micro. (based on sample sizes of 500, 306 and 228 respondents, respectively), HSBC
3
November 2021
Contents
Why read this report? 1

Get smart 1
Disruptive trade and digitalisation 3
Disruptive tech research 5
Smart supply chains and IoT 6

The role of IoT 6
Implications for supply chains 11
ESG implications 17
Making IoT work 18
Data challenges to adoption 20
Sectoral applications of IoT 23

TMT – supporting the ecosystem 23
Automotive 24
Aviation 25
Banks 26
Chemicals 27
Consumer & Retail 28
Healthcare 30
Industrials 32
Transport 33
Utilities 35
Disclosure appendix 37
Disclaimer 40
4
November 2021
Disruptive tech research
Disruptive trade
The 5G World – Impact on trade and beyond (24 August 2021)
Digital tax update – Towards a global solution (19 July 2021)
Manufacturing and trade – From Just-in-time to Just-in-case? (21 June 2021)
Cybersecurity
Cyberdemic – cybersecurity returns, insurance held ransom (9 September 2021)
Spotlight: Age of Cybersecurity – Spend to Defend (29 April 2021)
Energy transition disruption technology

Spotlight: The second frontier – towards low-carbon shipping (10 February 2021)
Spotlight: The second frontier – towards low-carbon trucks (26 May 2020)
Energy Transition: Synthetic biology – the next industrial revolution? (01 June 2021)
Connectivity disruption
Leapfrog tech 2.0 – From Hype to Reality: Low Earth Orbit Networks (03 October 2019)
Spotlight: Powering the data revolution – The strains facing global electricity (30 May 2019)
Experiential disruption
Digital currencies: What are they and why do they matter? (17 March 2021)
Beyond Reality: Is the race to VR in 2020s about to begin? (26 January 2021)
Esports: Why Esports requires a different perspective (28 May 2020)
Other key disruptive tech

Spotlight: The Edge of Disruption – Finding engines of growth for tomorrow (22 November 2020)
Automation: Rising potential for data-driven Industry 5.0 (02 July 2021)
Disruptive Food Tech: Shopping will never be the same (01 June 2021)
GEMs healthcare – The impact of telemedicine (02 September 2020)
ESG Matters: Can COVID-19 catalyse transport transition? (26 March 2020)
5
November 2021
Smart supply chains and IoT
 IoT technologies could help businesses build more resilient, efficient

and transparent supply chains in the wake of the pandemic…
 …by providing manufactures with real-time data and greater visibility
of production and logistics
 We look at how IoT solutions can be used through the supply chain
and in key sectors to help businesses prepare for future disruption
The role of IoT
From disruption to digitisation

The COVID-19 pandemic has highlighted just how interconnected global supply chains are. As
we have written about extensively, disruption in one part of the value chain can very quickly
upend production and trade in another part.1 For instance, over the past 20 months, exporters
and importers have grappled with shortages of key inputs such as semiconductors and plastic
materials, low inventories, port congestion, issues around the availability of truck drivers,
surging freight rates and difficulties in securing containers to ship their goods.
Ongoing logistics issues, coupled with strong demand for certain components (e.g.
COVID-19 has disrupted just-
in-time manufacturing...
semiconductors), have significantly affected just-in-time manufacturing. As we set out in
Manufacturing and trade: From Just-in-time to Just-in-case? (21 June 2021), just-in-time (or JIT)
production – whereby producers hold only the amount of parts they need to minimise costs and
improve efficiency – has transformed how supply chains operate over the last 60 years. Today,
JIT production is used in a number of industries including autos and electronics. But such lean
production processes rely on the seamless movement of inputs between suppliers and buyers
around the world – something that has been disrupted by the spread of COVID-19.
As parts of the world start to emerge from the pandemic, many businesses and economies are
looking for ways to make their supply chains more resilient in order to better mitigate the next
trade shock. One way in which businesses could do this is by embracing digital technologies
such as the Internet of Things (IoT).
IoT refers to the use of internet enabled devices that communicate with each other via private or
…but IoT can help build more
resilient supply chains
public networks. It can help manufacturers know, for example, when more components are needed,
when an assembly line is about to go down, and the condition of their cargo at any given time – by
collecting, analysing and transmitting data in real-time about the status of production and logistics.
In this report, we look at how IoT can be applied through the supply chain and help businesses
build more resilient, efficient and transparent value chains going forward. Our equity analysts
also detail how IoT can be used in key sectors now and in the future to improve operations. For
a summary of sectoral supply chains applications of IoT tech, see Table 1.
______________________________________
1 See Christmas is coming: Trade data and policy tracker, 27 October 2021.
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November 2021
1. Summary of IoT supply chain applications

Sector Summary of IoT applications in the supply chain
TMT The telecom sector will be key in supporting the IoT ecosystem by leveraging new capabilities from 5G technology.
Autos IoT tech is already used in many parts of the automotive industry, e.g. for just-in-time delivery, production line
management/stocking, line balancing and preventative maintenance. It can also be used for over the air (OTA)
software updates, car connectivity to help update customer vehicles and deliver and deliver quick fixes for issues, for
predictive maintenance, and to support cloud based systems to meet driver and passenger needs.
Aviation IoT technology could help support operational reliability and safety via real-time monitoring of components, and
predictive maintenance. IoT can also help with baggage handling and retrieving, and to remotely monitor the
temperature of cargo containers - which is important for the transport of temperature-sensitive vaccines.
Banks IoT can help trade finance banks keep accurate tabs on the movement of inventory through the supply chain in order
to mitigate their credit risk as they will have a better handle on their collateral.
Chemicals Help to support the use of augmented reality (e.g. to record production data), drones (e.g. for use in daily inspections
and monitoring around chemical plants), predictive maintenance, on-site communication in large plants, and
monitoring of ESG factors (e.g. emissions data).
Consumer & Retail IoT can be used throughout the consumer and retail supply chain from monitoring external factors impacting food
production to drive better yields to monitoring temperatures in logistics. It can help to reduce operating costs via
automation and provide better information around retail inventory levels. IoT solutions may also be used to help with
channel fragmentation, enable businesses to operate on shorter lead times, reduce waste from overproducing, help
with supply chain traceability, and support the development and use of “digital twins” to enhance manufacturing
efficiency in factories.
Healthcare Can be used for predictive maintenance of medtech devices, to facilitate the use of digital twins to simulate
production plants, optimise resource utilisation, and enable the use of real-time data for predictive analytics.
Industrials Will help to support operational efficiency by connecting equipment and plants digitally, and enable assets to be
optimised via better maintenance models that can help to reduce downtime and lower maintenance costs.
Transport Help improve supply chain visibility via smart shipments that enable various factors such as location and temperature
to be monitored and connected assets tracking for products such as roller cages and reefer (refrigerated) containers.
IoT could also help to improve the use of facilities based on anticipated weather conditions, temperature and more,
and support intelligent inventory management, and supply chain data analytics. Container terminals could leverage
IoT to build smart terminals to improve turnaround of containers and better forecast throughput trends.
Utilities Can support development of smart energy grids with smart meters that feed real-time consumption data into a
centralised control hub.
Source: HSBC
What is the Internet of Things?

IoT refers to the use of internet enabled devices that communicate with each other via private or
IoT has industrial and
consumer applications
public networks. IoT technologies can be used by businesses to make systems more efficient,
safer, reliable and productive, while consumers are increasingly using this technology to track,
monitor and improve their daily lives (e.g. via wearable health monitors, home security devices,
thermostats, smart speakers and refrigerators). In the future, IoT may also enable the use
operation of fully autonomous vehicles in society.
For manufacturing industries, industrial IoT (IIoT) can help businesses set up smart factories
and optimise their supply chains by automating production activities, enabling remote inventory
and environment management, and facilitating remote maintenance.
IoT is therefore a rather broad topic and much can be written on it. However, in this note, we focus
specifically on the implications of IoT for supply chains. In particular, how such technologies could
help businesses make their production chains more resilient to future trade disruption.
7
November 2021
24bn
Estimated number of IoT connections by
2025
According to GSMA, there were over 13bn IoT connections in 2020, with this set to grow to
24bn by 2025. However, IoT is not a new trend. The actual term – “internet of things” – was
coined in 1999 by computer scientist Kevin Ashton, who proposed putting RFID chips on
products to track them through the supply chain while working at Procter & Gamble.2
Today, the possibilities for IoT applications are endless. However, next generation IoT solutions
will require the right end-point devices, infrastructure hardware and networks to be in place.
Ensuring data security will be important for industrial applications of IoT, while undue data
localisation requirements that serve to limit the flow of data across borders could also hinder the
adoption of IoT technologies and will also need to be tackled. More on these below.
How does IoT work?

IoT devices essentially function as mini computers that are connected to the internet. IoT
Understanding the IoT
ecosystem
devices typically have sensors that monitor a range of environmental factors, ranging from
temperature, status of components, use of water and more. The data collected by these
sensors are transmitted through the internet to the cloud to be processed and analysed, with
instructions based on the analysis returned to the devices.
There are five key components in the IoT ecosystem:3
1. Hardware (e.g. the actual IoT devices)
2. Networks that connect the IoT solution to the user (e.g. WiFi, cellular)
3. Remotes that provide the user with an interface to connect to the IoT solution (e.g.
smartphones, tablets, smart watches)
4. Platforms that provide analytics (e.g. Amazon, Microsoft and Google offer managed IoT
platform options)
5. Security protocols that ensure the IoT solution is protected (see Age of Cybersecurity,
April 2021)
Where are we at with IoT?

We place IoT between the real application and new normal stages of our HSBC Disruption
IoT moving from real
application to new normal…
Framework, based on the sector applications today and the development of supportive
connectivity networks going forward.
______________________________________
2 World Economic Forum, 31 March 2021

3 Business Insider Intelligence report on The Internet of Things 2020.
8
November 2021
2. HSBC Disruption Framework: Connectivity infrastructure
Gradient of estimated expectation vs. reality

Bandwidth
Low-earth orbit satellites, Data
5G, light fidelity wireless Data centres, cloud,
communication technology power/cooling, hyperscale
(Li-Fi), open radio access cyber-security
network (RAN)
Processing
System On a Chip (SoC), graphics / tensor
processing units (GPU & TPU), IoT, AI analytics
Early Hype Backlash Real New normal

disruption mania window application
Source: HSBC
For example, in the second part of this report, we highlight how the aviation sector has been
deploying IoT in the form of so called “Loggers” to track vaccine temperature during
transportation. Thus we can say that the rollout of this type of IoT supply-chain solution has
been accelerated by the pandemic, and is in the early part of the “new normal” phase of our
connectivity disruptive framework.
On the other hand, we also highlight the chemicals sector, which is in the process of digitising
the onsite communication at large chemical plants for automated guided vehicles and intelligent
inspection robots facilitated through IoT. The current bottleneck is signal weakness between
plants. But as 5G connectivity technology is deployed, IoT for this sector will move from the “real
application” to “new normal” stage.
According to a recent survey by Microsoft, IoT adoption remains strong across industries, with
over 91% of manufacturing businesses and 85% of energy companies having adopted IoT.
Around 90% of overall businesses surveyed regard IoT technology as critical to their overall
success. The key drivers for IoT within industry are to maintain quality, secure technology,
optimise operations, enhance employee productivity, and improve workplace safety. Managing
supply chains, optimising energy use, and improving sustainability were also notable reasons
for businesses to use IoT.
According to the GSMA, the number of IoT devices globally is forecast to grow at a CAGR of
The pandemic may have
slowed IoT adoption down by
12% between 2019 and 2025 (Chart 3). Although the number of IoT connections are expected
2% by 2025 to double over this period (reaching 24bn connections in 2025), the GSMA recently revised
down their pre-pandemic forecast for 2025 by 2% due to COVID-19. Nevertheless, they say that
enterprise IoT is set to recover faster than consumer IoT – which bodes well for the
development of smart supply chains going forward.
9
November 2021
3. Global total IoT connections (millions) 4. Warehouse automation technology

adoption (% of organisations)
25,000
Blockchain
12% CAGR
20,000
AI
15,000 Cloud Computing &

Storage
10,000
Robotics & Automation
5,000
IoT & Analytics
0
2021e
2022e
2023e
2024e
2025e
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
0% 20% 40% 60% 80% 100%
2030 2019
Source: GSMA Source: LogisticsIQ
Considering today that 91% of manufacturing companies are users of IoT devices, one would
assume warehouses have similar levels of automation. However, it is estimated that only 5% of
warehouses were automated in 2016, with only 15% mechanised and 80% manually operated. 4
But this is expected to change as robotic technology develops and becomes highly complex
with their logistics capabilities, such as picking and packing. Chart 4 illustrates the expected
uptake in warehouse automation technologies, with the adoption rate of IoT & Analytics set to
grow from 45% in 2019 to 90% in 2030.
According to the GSMA, enterprises rather than consumers are set to be the largest users of IoT
Enterprise set be biggest
users of IoT technologies by 2025. The biggest chunk of growth comes in enterprise for smart buildings (e.g.
lighting, HVAC systems, security and automation) at 2.9bn more IoT devices, followed by smarter
enterprises (1.8bn – includes fleet management, asset tracking, agriculture, oil & gas, mining and
construction) and smart manufacturing (1.2bn – inventory tracking, monitoring and diagnostics,
warehouse management). On the consumer end, IoT is likely to be driven by the smart home (1.9bn)
for example, home network infrastructure and home-security devices. See Charts 5 and 6.
5. Expected 12bn new IoT connections by 6. Enterprise vs consumer IoT – 2020-2025

2025, smart buildings and smart home set (millions)
to grow
10,000
30
8,000
25
6,000
20 7.9
4,000
15 4.0 2,000
24.0
10 0
Consumer Enterprise
5
12.2 Smart vehicles Wearables
Consumer others Consumer electronics
Smart home Smart health
0 Smart retail Smart city
2019 Consumer Enterprise 2025e Smart utilities Smart manufacturing
Enterprise others Smart buildings
Source: HSBC, GSMA Source: HSBC, GSMA
______________________________________
4 'Robotics in logistics', DHL, March 2016
10
November 2021
We believe that increasing IoT uptake within the industrials sector, along with steps to embrace
automation and improve connectivity, could fuel data centre growth going forward. Moreover,
according to McKinsey, the majority of IoT-related investments will be directed towards
improving operational efficiency and asset utilisation of plants which are expected to generate
70-75% of total future value for connected factory set-ups. As autonomous vehicles begin to roll
out over the coming decade and the industrials sector automates further through IoT adoption,
we believe their market share could grow in terms of demand significantly.
Implications for supply chains
IoT and the COVID-19 pandemic

We expect the COVID-19 pandemic to catalyse businesses adoption of, and investment in, IoT
IoT solutions to support
business continuity technologies as a means to ensure operational continuity in the event of a future external shock.
As we discuss below, IoT could help businesses cut costs, and improve efficiency and flexibility
all through the supply chain – from manufacturing in smart factories through to logistics and to
after sales services.
Adopting IoT solutions can provide businesses with greater visibility of their supply chain and
enable producers to make business decisions quickly via the rapid exchange of information in
real-time.
Indeed, the COVID-19 pandemic has highlighted just how important having access to such data is.
Knowing where inventory is located, when components might run out, or where particular shipments
are in the world at any precise time could enable businesses to have better oversight of their supply
chains and to be more agile in responding to future production or trade disruptions.

COVID-19 has pushed some organizations to utilize IoT
more as a way of staying ahead of the competition during
an uncertain time
Microsoft IoT Signals report, 14 October 2021
A recent survey by Inmarsat found that over half of respondents said that challenges related to
The pandemic has
highlighted the importance of COVID-19 have underlined the importance of IoT, while 47% have accelerated the deployment
digitisation of IoT projects in response to the pandemic (Charts 7 and 8). The same survey also found that
those companies that had already accelerated their IoT deployments or have IoT strategies
have been able to navigate the pandemic a bit better than others.
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November 2021
7. The pandemic has highlighted the importance of IoT for businesses…

COVID-19's impact on IoT adoption
Underlined importance of IoT
We have accelerated deployment of IoT projects in response
Negatively influenced ability to operate
We intend to accelerate deployment of IoT projects in next 12

months in response
We intend to accelerate deployment of IoT projects beyond
12 months in response
0% 10% 20% 30% 40% 50% 60%

Source: Inmarsat. Note: Based on 2021 survey of 450 business respondents.
8. …for a number of key reasons

Top five drivers of IoT adoption
Cost efficiencies
Better supply chain insight
Environmental sustainability
Greater automation
Better decision making
0% 10% 20% 30% 40% 50% 60%

Source: Inmarsat. Note: Based on 2021 survey of 450 business respondents.
And businesses are already looking to digitise in the wake of the pandemic. Expenditure on
enterprise IoT solutions grew by 12% in 2020 to nearly USD130bn according to IoT Analytics,
with this set to rise to USD412bn by 2025 (Chart 9). Although many hardware installations were
postponed due to the pandemic, businesses looked to spend more on IoT cloud and
infrastructure services such as remote asset monitoring solutions.
According to a survey of North American manufacturing companies, around half are considering
implementing smart factories and 47% are considering IoT solutions to prepare for future
business disruptions (Chart 10). This finding is corroborated by a 2021 survey by Microsoft,
which found that the pandemic has accelerated the desire for 44% of businesses surveyed to
invest more in IoT strategies and solutions (compared to 31% in 2020).
12
November 2021
9. Business spend on IoT is set to surge… 10. …as a means of preparing for future
disruptions
USDbn IoT enterprise spending USDbn New tech NAM manufacturing companies are
450 450 considering to prepare for business disruptions
400 400 AI and ML

Advanced analytics
350 350
Smart factory
300 300 B2B cloud integration strgy
250 250 Blockchain
APIs for integration
200 200
IoT
150 150
Ecosystem integration pltfm
100 100 Robotic processing automation
50 50 0% 20% 40% 60% 80%
Share of respondents
0 0
2020 2021f 2025f
Source: IoT Analytics Source: Cleo, Business Insider Intelligence. Note: NAM=North America. Q2 2021.
A separate survey by Gartner found that 47% of businesses plan to increase their investment in
Businesses are looking to
invest more in IoT tech
IoT technologies to reduce costs going forward, with Gartner estimating that by 2023 one-third
of mid to large size companies that implemented IoT will have implemented at least one ‘digital
twin’ motivated by COVID-19. Digital twins are essentially a digital replica of physical equipment
that allows companies to monitor and analyse the physical asset in an industrial environment. 5
This allows businesses to undertake predictive maintenance, simulate certain scenarios, and
optimise the performance of the asset.
For example, Unilever has created virtual models of its factories, with IoT sensors that feed
real-time performance data (e.g. on temperature and motor speed) to the enterprise cloud. The
company uses advanced analytics and machine learning to simulate various scenarios to
identify the best operational conditions to improve efficiency. In one instance, Unilever’s digital
twin used data on how long it takes to produce one batch of liquid (e.g. shampoo or detergent)
to predict the correct order of processes to get the most efficient batch time – enhancing the
production capacity of the plant.
In the sections below, we outline examples of how IoT can be used through the supply chain
for: manufacturing, predictive maintenance, logistics and post-sales.
Manufacturing and predictive maintenance

Predictive maintenance is a key use case for IoT. IoT sensors can assist with predictive
maintenance of factory equipment by helping to reduce machine downtime and ultimately
minimising costs for businesses. For example, Senseye estimates that Fortune 500 companies
could collectively lose around 3.3m hours each year to unplanned downtime at a cost of around
USD864bn or 8% of their annual revenues (Chart 11).
______________________________________
5 Internet of Business, 27 August 2021.
13
November 2021
11. Unplanned downtime can be costly for businesses

USDm Cost of one hour's unplanned plant downtime USDm
1.6 1.6
Millions
Millions
1.4 1.4
1.2 1.2
1.0 1.0
0.8 0.8
0.6 0.6
0.4 0.4
0.2 0.2
0.0 0.0
Automotive Oil and gas Heavy industry FMCG/CPG
Source: Senseye
By way of example, KUKA – a German producer of intelligent automation solutions – built an

IoT can facilitate predictive
maintenance…
IoT-enabled factory for Jeep in the US that automated the production of unpainted vehicle
bodies. To do so, it linked the plant’s 259 robots and 60,000 other devices with powerful back-
end monitoring and data management systems. The system controls the entire production
process from receiving the materials to the actual production and dispatch of goods, and can
identify bottlenecks and optimise capacity utilisation. This allows products to be manufactured
around the clock and enables the factory to easily produce vehicle bodies for different Jeep
models. Today, a vehicle body comes off the production line every 77 seconds.
Similarly, Ericsson’s Panda manufacturing plant in Nanjing uses cellular IoT technologies to monitor
the output of workstations, inventory levels, the location of key assets and environmental factors. IoT
is also used to monitor the performance of production tools such as its high precision screwdrivers,
meaning that staff can know exactly when these tools need to be recalibrated based on actual use
rather than periodically. Ericsson estimates that such IoT solutions enabled manual maintenance
work to be cut in half, saving USD10,000 annually at its Nanjing factory.
IoT solutions can also be used to collect data on product defects, while IoT wearables and other
devices could help to alert workers to potential hazards within a smart factory, and assist with
training and maintenance. For example, Bosch’s augmented reality (AR) solutions can help
auto repair technicians see where hidden components are located in vehicles, along with
instructions on how to fix an issue and any special tools required to do so. Bosch estimates that
such AR applications in car service workshops could lead to time savings of 15% on average
per step taken (even on common vehicles and less complex repair tasks).
Logistics and warehousing

IoT technologies can also be deployed to monitor and adjust climate conditions for temperature-
…and remote monitoring of
cargoes during logistics
sensitive goods during production, transport or storage. For example, Maersk’s Remote
Container Management (RCM) system enables customers to remotely track the location and
conditions (e.g. temperature and humidity) of refrigerated containers in real-time. The conditions
can also be adjusted remotely if they deviate from certain thresholds, reducing the number of
perishable goods that get spoiled during the journey, as well as time spent on container
inspection upon arrival.
According to the shipping line, which transports around 27% of the world’s refrigerated
containers, around 350m tonnes of food are lost every year due to inadequate storage and
delays during transportation. Today, around 94% of Maersk’s more than 380,000 refrigerated
containers are supported by the RCM technology.
14
November 2021
25%
Estimated share of vaccines degraded
due to incorrect shipping conditions
Being able to remotely monitor and control the temperature of products during transportation
matters for other industries too such as pharmaceuticals. According to Carogsense, around
25% of vaccines are degraded when they reach their destination due to incorrect shipping
conditions, while the IQVIA Institute found that the biopharma industry loses around USD35bn
each year due to temperature failures in logistics. However, this number could be even higher in
the wake of the pandemic and the global rollout of COVID-19 vaccines.
Using IoT sensors could help pharma manufacturers proactively identify weak points along the
IoT solutions can be used for
supply chain where temperatures tend to change, and ensure that products such as vaccines remain
temperature-sensitive
goods… safe in cold storage. For example, according to the International Air Transport Association (IATA),
more than 50% of the temperature excursions occur during airline and airport handling.
Monitoring cargo remotely and in real-time could also help to speed up the movement and
processing of goods at ports. This is particularly pertinent in the wake of the pandemic, as
strong demand for goods combined with movement restrictions led to significant congestion at
major ports around the world and lengthy delays in clearing cargo (Chart 12).
12. Containerships have faced long delays to berth at key ports during the pandemic
Day s Top 10 ports by average waiting time - as at 1 Nov ember 2021 Day s
10 10
8 8
6 6
4 4
2 2
N/A
0 0
Savannah
Algeciras
Los Angeles (incl San
Long Beach
Hong Kong
Manila
Singapore
Shanghai
Tanjung Pelepas
Vladiv ostok
Pedro)
1-Nov-20 1-Nov-21
Source: Refinitiv Eikon. Note: Based on number of days between anchorage entry and corresponding berth entry. Average over two days to 1 Nov 2020 and 1 Nov 2021.
Associated British Ports and British Telecom are currently trialling next-gen IoT and sensor
technology at the Port of Ipswich in the UK. They have installed IoT devices on cranes and transport
equipment, which enables a range of data to be analysed (e.g. turnaround time, travel distance,
routes taken, weight of goods unloaded), enabling port management to track progress of ship-to-
shore operations in real time and improve the flow of cargoes from the wharf to the yard and
onwards to the gates, particularly during periods of severe congestions and peak season. The
devices also monitor periods of inactivity, underutilisation and if maintenance is required, which could
help the port reduce costs and even greenhouse gases. Such technological capabilities could also
help minimise human intervention errors and help improve safety at the ports.
IoT sensors could also be used to ensure that returnable packaging such as boxes, pallets and
roll cages do not go missing during transport. These products are key for facilitating goods trade
flows but various case studies suggest that about 10-30% of these items go missing each year,
which could increase costs for businesses that need to replace these. 6
______________________________________
6 Enterprise Times, 30 September 2021.
15
November 2021
In warehouses, IoT technologies can be used in automated guided vehicles (AGVs) to calculate
…and to manage and move
inventory
the shortest route in aisles and restock inventory without human supervision, manage stock,
and even fulfil orders. For example, Cainiao – Alibaba’s logistics unit – has nearly 700 AGVs
that are aided by IoT to pick up and deliver parcels to other parts of the warehouse. The AGVs
are also self-charging and are estimated to have significantly reduced the number of steps staff
walk in a day, leading to a 30% improvement in personnel efficiency.7
Post-sales
IoT can also be used for predictive maintenance post-sales, which could help to reduce the
costs associated with returned goods as customers might be less likely to return a product if it is
fixed quickly. For example, Caterpillar uses IoT in its machines to automatically detect faults. A
notification is sent to Caterpillar field staff when a part is developing a fault, enabling them to
send the affected businesses a replacement before the machine stops working completely. The
data can also be used by companies to enhance future products and to fine tune their design.
______________________________________
7 Parcel and Postal Technology International, 5 April 2021
16
November 2021
Wai-Shin Chan, CFA

ESG implications
Head, Climate Change Centre;
Head, ESG Research
The Hongkong and Shanghai A key benefit of IoT adoption is the ability to monitor ESG metrics. Factors such as energy
Banking Corporation Limited efficiency, waste and water usage, are tracked via sensors, allowing for effective management
wai.shin.chan@hsbc.com.hk
+852 2822 4870 of resources and more accurate, granular results. In supply chains, IoT device monitoring
Amy Tyler assists in tracking these metrics globally, giving real-time carbon data and predictions. This
ESG Analyst provides stakeholders with an accurate understanding of impacts. Allowing companies to
HSBC Bank plc
amy.frances.tyler@hsbc.com effectively record data and provide greater visibility for investors.
+44 20 3359 4059
For example, IoT sensors can be used to monitor how much energy the equipment in a factory is
using, where a manufacturer might be losing energy, and how this could be fixed. In agriculture, IoT
solutions can help minimise the use of water, fertiliser and pesticides and even reduce the impact of
greenhouse gases produced by livestock via the monitoring the health of the animals.
According to Danfoss, IoT solutions have helped food retailers save an estimated USD37m by
cutting food waste (e.g. via temperature monitoring) and avoid more than 2m tonnes of CO2
over the past five years alone. Moreover, IoT solutions could also be used by logistics
companies to shorten delivery routes, which could help to reduce energy consumption, while
predictive maintenance facilitated by IoT tech can help to extend the lifespan of critical
equipment and ultimately help to reduce waste.
Furthermore, many IoT projects are contributing to the UN’s Sustainable Development Goals
(SDGs). Currently, 84% of existing IoT deployments address the SDGs, with 75% focusing on
five8, see Chart 13. Specifically, ‘industry, innovation and infrastructure’ and ‘responsible
consumption and production’ both aid the sustainability of supply chains. It should be noted that
environmental factors such as energy usage in production, the limited supply of raw materials
and e-waste have to be considered with the expected rise in IoT device volume.
13. 75% of existing IoT deployments address five of the SDGs
12 - Responsible consumption and production
3 - Good health and well-being
7 - Affordable and clean energy
11 - Sustainable cities and communities
9 - Industry, innovation and infrastructure
0% 5% 10% 15% 20% 25%

Source: HSBC, World Economic Forum
Data collection from IoT devices in the supply chain provides potential benefits to both companies
and consumers. Regarding the former, monitoring factors such as air and water quality to optimise
health and wellbeing aids employee welfare. Tracking physical assets such as goods and
infrastructure allows for greater supply chain transparency, whereby the consumer can monitor the
location and expected arrival of ordered goods travelling through the supply chain.
A significant challenge faced with the increased adoption of IoT devices is the cybersecurity of
such assets. Connected devices often lack sophisticated security, creating an entry point for
hackers and a security vulnerability. In logistics, cyber-attacks can result in delays in resource
and product distribution, potentially having significant societal impacts as well as potential
______________________________________
8 'The effect of the Internet of Things on sustainability’, World Economic Forum, 2018
17
November 2021
reputational and financial implications. An additional risk is data privacy – movements and
interactions are monitored more often with a greater number of connected devices, concerns
arise if this information ends up in the wrong hands.
It’s becoming increasingly important for boards to include a technology expert and Chief
Information Security Officer (CISO), to evaluate and manage the risks involved. 73% of boards
in the FTSE 350 recognise cyber threats in their supply chains to the first tier (third party).
However, just 23% recognise these threats to the second-tier and beyond (fourth party and
onwards), with 4% not recognising the risks at all, leaving firms vulnerable to attacks9.
Making IoT work
The IoT inside supply chains

As noted above, there are various key components of the IoT ecosystem that are needed to
IoT devices in supply chains
can be online up to 15 years
support the adoption of IoT solutions. In terms of the actual devices, one could classify IoT
hardware into two broad categories 1) shorter range IoT – which requires things like
smartphone or a gateway to connect, or 2) cellular IoT where the device can be connected
directly to the base station.
According to our TMT team, there are now more than 160 commercial licenced LPWA (Low
Powered Wide Area), and many of these will be NB-IoT (NarrowBand-Internet of Things) and
LTE-M (Long Term Evolution for Machines) connections. These IoT connections are lower
powered and the battery can typically last between 10-15 years. LTE-M has also typically higher
throughput than NB-IoT connections.
14. Licenced cellular IoT connections by region (millions)

2,500 2294
2,099
1,924
2,000 1,757 464
1,598
1,444
1,500 1,264 411
434
351
292 388
1,000 238 331
154 191 276
223 259
144 177 236
500 208
121 152 179
131
-
2019 2020 2021 2022 2023 2024 2025
Asia Pacif ic Europe Northern America ROW
Source: GSMA
Applications for LTE-M include things like asset tracking in supply chains, for example shipping
Low powered IoT leads to
smart labels for supply and pallet tracking – where roaming is required. NB-IoT applications include predictive
chains… maintenance for supply chains – where longer range is preferred, usually stationary to one
specific region and which is easier for over-the-air updates.
GSMA estimates licenced cellular IoT will double from 1.7bn to 3.5bn from 2019 to 2025. As an
example, Vodafone has launched iSIM (integrated SIM), a LPWA for tracking supply chains with
smart IoT powered labels. Vodafone, together with ARM, Altair Semiconductor and Murata were
able to create smart labels for Bayer, helping them monitor their products through their supply
chain and respond in real-time if there were any issues.
______________________________________
9 'FTSE 350 Cyber Governance: Health Check 2018’, UK Government, 2019
18
November 2021
15. Global IoT networks
Finland
Lithuania
Poland
Sweden
Czech Republic
Norway
Denmark Russia
Germany Estonia
Latvia
United Kingdom Belarus
Canada Ireland Slovakia
The Netherlands Ukraine
Kazakhstan
Belgium Romania
France
US Spain Turkey Mainland China
Portugal Japan
South
Switzerland Korea
Austria Qatar Pakistan Bangladesh
Mexico Slovenia
Italy UAE Taiwan
Saudi India
Croatia Arabia
Hungary Thailand Vietnam
Serbia
France Greece Sri Lanka Malaysia
Colombia Bulgaria
Indonesia
Brazil
Australia
South Africa
Uruguay
Argentina
Both LTE-M & NB-IoT New Zealand
LTE-M Only
NB-IoT Only
Source: GSMA
As we wrote about in The 5G World (24 August 2021), the rollout of 5G will be key to enabling
5G assisting IoT adoption
other technologies, including IoT, across various sectors. The integration of 5G aims to increase
the efficiency of communications with a more robust network, data quality improvements and
cost reductions – allowing sectors such as manufacturing to integrate advanced IoT
technologies into their processes.
Increasing affordability of devices that power IoT solutions, such as sensors, will also help to
spur uptake of this technology. For example, Business Insider Intelligence estimates that the
average price of IoT sensors could fall below USD0.25 by 2025.
Frank Lee* Tech components for IoT

Head of Technology Research,
Asia
IoT is projected to become a USD1,058bn market in 2030, growing at a CAGR of 10.2% from
The Hongkong and Shanghai 2021 to 2030 according to Transforma Insights. Some of the largest demand drivers for IoT are
Banking Corporation Limited
frank.lee@hsbc.com.hk in the consumer market (connected appliances, smart home, wearables, and more), and
+852 2996 6916 electricity, gas, steam & A/C markets. IoT by definition are electronic devices that are
embedded in other objects, capable of connecting to wireless networks.
* Employed by a non-US affiliate of HSBC
Securities (USA) Inc, and is not registered/ Some of the most prevalent connection protocols are NB-IoT, LTE Cat1, BLE 5.0, Wi-Fi, UWB,
qualified pursuant to FINRA regulations
and 5G. Like any electronic device with connectivity, IoT products will need processors,
sensors, memory, MCUs, PMICs, and RFIC as foundational building blocks.
Given the smaller-size nature of IoT products (usually 1/3 of smartphones according to IEEE),
packaging of integrated circuits (ICs) will be critical to deliver low power, high reliability, and
miniaturization. However, given the limited function necessary, content value of semiconductors
for typical IoT products remain limited.
How will the recent chips shortage impact adoption of IoT?

The typical IoT product will likely use 22/28/45/90nm nodes as reliability and robustness are
prioritized over computational capabilities. Under the current semiconductor environment, while
advanced large-scale IoT products like TWS, smart watches, and home pods may still enjoy
robust demand, smaller-scale IoT products will likely suffer in the near term.
19
November 2021
With the ongoing foundry tightness, new IoT semiconductor tape-outs will likely be put on hold,
as the ASP and volume of these products may not satisfy the already-tight foundries.
Furthermore, consumers may be more price sensitive to the increasing cost of producing these
IoT products as a result of price hikes from foundries, compared to industrial and commercial
customers who are more price inelastic.
Edge computing to support growth of IoT

The growth in IoT devices is also set to generate huge amounts of data, which could affect how
Edge computing could help
process data faster
quickly the data are processed. Edge computing offers a solution to this latency problem by
moving computing services closer to the source of the data (i.e. the IoT device). This enables
data from the IoT device to be analysed quickly “at the edge” rather than sending it to a
datacentre or to the cloud where it may take longer. According to Tologa Research, global
capex on edge computing is set to rise from around USD10bn in 2019 to USD146bn by 2028
(Chart 16).
16. Capex on edge computing is set to surge

USDbn Estimated global capex on edge computing USDbn
160 160
Billions
Billions
140 140
120 120
100 100
80 80
60 60
40 40
20 20
0 0
2019e 2020e 2021e 2022e 2023e 2024e 2025e 2026e 2027e 2028e
Source: Tologa Research, Business Insider Intelligence. Note: Based on spending on edge devices, IT and data centre facilities.
Applications such as autonomous vehicles are a good example of where edge computing would
be helpful, as a self-driving truck would need to collect and process information in real-time,
without any lags in order to avoid an accident. 5G would be important in this instance too.
Edge computing could also be useful for predictive maintenance of machinery and equipment in
factories, where high volumes of data are being generated and an immediate response is
required if an imminent malfunction is detected. This can ultimately help businesses save on
costs (both monetary and productivity-related) and mitigate future production disruption by
preventing small issues from becoming a much larger problem.
Data challenges to adoption
Data security
However, as businesses increasingly look to adopt IoT technologies, devices and equipment
Cybersecurity threats could
affect IoT adoption… become more connected, and IoT applications become more sophisticated, companies will also
need to increasingly manage cybersecurity threats. In fact, a 2020 survey by Trend Micro found
that over 60% of manufacturers (surveyed across the US, Germany and Japan) have
experienced cybersecurity incidents in their smart factories, with such incidents causing a
production outage for three quarters of these businesses (Chart 17).
20
November 2021
17. Cybersecurity attacks can be highly disruptive for smart manufacturing

Share Cybersecurity incidents in smart factories Share
80% 80%
70% 70%
60% 60%
50% 50%
40% 40%
30% 30%
20% 20%
10% 10%
0% 0%
Yes No Yes No More than 4 days Less than 4 days
Experienced cybersecurity incident Incident stoped production Length of time production stopped
Source: Trend Micro. Note: Based on sample sizes of 500, 306 and 228 respondents, respectively.
Cyber threats to industrial IoT could take various forms (e.g. phishing, brute force attack,
unauthorised use of credentials) and could disrupt operations through the supply chain. For
example, Maersk’s operations were significantly affected in 2017 by the NotPetya malware,
which impacted its ability to process shipping orders for several days and was estimated to have
cost the shipping company up to USD300m in losses.10
According to Tiempo, there are five key factors that make industrial IoT difficult to secure and
that businesses could focus on to reduce the risk of future cyber threats:
1. Legacy equipment and software (i.e. backdoors left open from previous breaches often
go unnoticed leaving systems vulnerable to future threats)
2. Incorrect authentication practices (i.e. poorly configured user authentication could allow
attackers to steal credentials)
3. Interoperability (i.e. industrial IoT systems are made up of various sensors, software and
equipment that could make it difficult to secure end points)
4. Vulnerable communication protocols (i.e. operational technologies such as sensor and

controllers have not typically been designed to detect cyber threats)
5. Disconnect between operational technology and IT (i.e. IT and operations teams

operate separately in many organisations which could affect a business’s ability to
implement and monitor security controls)
See Age of Cybersecurity (29 April 2021) for more detail on cybersecurity risks.
Restrictions to cross-border data flows

In addition to cybersecurity threats, restrictions that impede the free flow of data across borders
…as could data localisation
requirements could also impact the adoption of IoT technologies. For instance, some economies implement
data localisation restrictions that require certain data to be stored domestically rather than
abroad, which can restrict the cross-border flow of data.
According to the Information Technology and Innovation Foundation, the number of economies
that implement data localisation requirements has nearly doubled from 35 in 2017 to 62 in 2021,
with China, India, Russia and Turkey implementing the most number of data localisation
measures globally. This means, for instance, that US companies such as Apple and Tesla are
required by Chinese law to store the data of their Chinese customers in China. 11
______________________________________
10 ZDNet, 29 April 2019.

11 SCMP, 19 July 2021.
21
November 2021
62
Number of economies that currently
implement data localisation requirements
Although data localisation restrictions generally serve to restrict the free flow of personal data,
such requirements could have implications for industrial adoption of IoT. For example, it could
impede the ability of manufacturers to receive data from their customers that could be used to
conduct predictive maintenance and further enhance their products. Restrictions to cross-border
data flows could also restrict secure logistics and tracking.
In agriculture, for instance, farm data captured by sensors (e.g. around farming conditions) are
transferred between countries to feed into other parts of the value chain (e.g. to food processors
and retailers) for traceability, quality assurance, food safety and/or animal welfare reasons –
something that will only grow in importance as consumers become more sustainability-minded.

Supply chain operators depend on data transfers and on
cross-border access to industrial cloud infrastructure for
sourcing, logistics, financial operations, and productivity
enhancement
Global Data Alliance, March 2021
Therefore, data localisation requirements could have the effect of diverting trade and production to
national suppliers. But even though some domestic businesses may see their activity increase as a
result of such measures, others may face efficiency losses as foreign-sourcing might be more cost-
effective. Adhering to data localisation requirements could also lead to added costs for businesses
that have to relocate or replicate certain functions (e.g. after-sales services).12
There have been some efforts to tackle barriers to cross-border data flows via modern trade
Some trade deals look to
facilitate the free flow of data
deals. For example, the United States-Canada-Mexico Agreement (USMCA) prohibits data
localisation for all sectors including for financial services – a sector that is typically carved out of
such provisions in trade agreements.
The recent Australia-Singapore Digital Economy Agreement (DEA) also prohibits data
localisation requirements for all sectors and includes commitments around not forcing
businesses to build data storage centres or use local computing centres as a condition of doing
business. This deal entered into force on 8 December 2020.
______________________________________
12 OECD, Trade and cross-border data flows, 21 December 2018.
22
November 2021
Sectoral applications of IoT
 IoT solutions can be used across various sectors…

 …to monitor equipment, manage inventory, enable predictive
maintenance, track the conditions of cargo and more…
 …which can ultimately help businesses minimise waste, boost
efficiency, and have greater visibility of their supply chain
Nicolas Cote-Colisson* TMT – supporting the ecosystem

Senior Analyst, TMT
HSBC Bank plc
nicolas.cote-colisson@hsbcib.com Networks at the centre
+44 20 7991 6826 IoT generally describes an ecosystem rather than a specific technology. This ecosystem includes a
Luigi Minerva* sensor or a chipset that captures the information, a network that will carry the data generated by the
Senior Analyst, Telecoms
Services & Infrastructure
connected device and a computing unit that analyses and processes the data. Hence devices and
HSBC Bank plc networks are at the centre of the ecosystem, and the data can fuel many applications.
luigi.minerva@hsbcib.com
+44 20 7991 6928 Also part of the enlarged ecosystem is the necessary security layer, to prevent the information
Adam Fox-Rumley*, CFA collected to be interfered (privacy concerns) or tempered, or for malicious codes to take control
Analyst, Telecoms
HSBC Bank plc
of the connected equipment (think about connected hospital equipment for example).
adam.fox-rumley@hsbcib.com
+44 20 7991 6819
18. IoT value chain for telecom operators
Securities (USA) Inc, and is not registered/ Device
qualified pursuant to FINRA regulations sourcing & Network Service platform Deployment
procurement connectivity (Solutions) Integration
Source: HSBC
Operators have the ambition to intervene across the value chain, from sourcing the devices and
sensors, building/maintaining the network and integrating the solutions into the client’s
processes including services. Competition for the services layer is more intense than for
networks. Standardisation and APIs (application programming interfaces) have the effect of
removing the barriers to entry. On the network side, competition exists, between operators first
but also against Low-power wide-area (LPWA) networks that can support Machine to Machine
and IoT devices that don’t require high data load. Sigfox is an example of an independent
LPWA network operator. Major operators are part of a global alliance (LoRa) to create an
ecosystem of networks (156 across the globe) to support a global standard and interoperability.
To illustrate an operator business case for IoT, we would refer to Vodafone. The European
operator is a global leader in IoT connectivity, having more than 130m connected devices on its
platform. Most of the IoT revenue is derived from connectivity (growing 10% pa in 2021-2024),
while hardware and solutions are small but growing (respectively 11% and 30%+). Vodafone
would help its clients from the legal and regulatory aspects, the sourcing of equipment the
system integration and the go to market solution (marketing material, pricing and support).
Operators can defend their position by creating verticals and leverage the process across the
same industry (automotive, health etc).
23
November 2021
Business case: Smart Forests

Vodafone partnered with Rainforest Connection, a non-profit organisation, to create Romania’s
first smart forest in 2021, giving a voice to trees in the fight against illegal deforestation. Solar-
powered IoT devices are placed in trees, each monitoring over 3km2 of forest for the sound of
chainsaws. When activity is detected, alerts are automatically sent to forest rangers, via a
smartphone app, improving response effectiveness, which is especially important as a single
ranger may be responsible for thousands of hectares. Smart forest solutions are also active in
the UK, where Vodafone has partnered with DEFRA to measure CO2 absorption.
Source: Vodafone
5G will expand IoT opportunities

5G is the latest generation of mobile transmission that will support services such as:
 Enhanced mobile broadband: for very high speed communications
 Ultra reliable and low latency communications for autonomous vehicles, healthcare, etc
 Massive machine-type communications (mMTC) supporting smart cities, smart homes, etc
Previous generations of mobile communications (2G, 3G and 4G) were able to deal with connected
objects but 5G takes the Internet of Things to the next level, supporting larger volumes of transferred
data. This will open a large array of opportunities when data are processed by algorithms.
We would underline some key features from 5G relevant to the IoT case. The first one is about
volumes. The Stand Alone version of 5G (also called Release 16, an end-to-end 5G
architecture from core to access, with a cloud-native configuration) can support one million IoT
devices per square km, with improved power and connectivity controls. The second
characteristic is linked to Mobile Edge Compute. Mobile Edge Compute (MEC) refers to the
distribution of processing power to the edge of the network, allowing for lower latency and
better, more efficient processing of certain tasks in either the enterprise or for consumers.
Combined with network slicing, which is the ability to offer different latency, bandwidth and
priority to dozens or more of different user groups is one of the main potential benefits of 5G
and could foster innovation for massive IoT.
To conclude, the telecom sector will be supporting the IoT ecosystem at least from a network
point of view, leveraging the new capabilities from 5G technology. From a business case point
of view, the challenge will be for operators to keep a strong foothold in the services side of the
business where competition from software is sustained.
Henning Cosman* Automotive

European Head of Automotive
Equity Research
HSBC Bank plc The Internet of Things is already commonplace in the Automotive industry, at OEMs and their
henning.cosman@hsbc.com
+44 20 7991 0369 suppliers, with this trend only likely to increase in the future with the growth of semi and fully
autonomous vehicles (AV), according to Mick Cameron, HSBC’s EV expert in residence.
Securities (USA) Inc, and is not registered/ Through IoT, connectivity and data management are key to: increasing efficiency through reduced
qualified pursuant to FINRA regulations downtimes in both manufacturing and real world driving; reducing lead times to introduce new
features/vehicles; improving safety; and ultimately leading to autonomous vehicles. Connected
vehicles consume and transmit many 100s of megabytes of data per day; by the time they are fully
autonomous those megabytes of data will likely become terabytes of data per day.
In the very connected world in which we live today, staying up to date and relevant has never
been more important; this is true in the automotive industry as well.
24
November 2021
 A key enabler in the modern vehicle is Software over the air (SOTA). Not many years ago
if a vehicle needed a software update, the customer had to take the car to the retailers,
leave it there for often many hours, causing great inconvenience and wasted time; but now,
through SOTA enabled vehicles, these updates and many more actions can be
implemented while the vehicle is parked on the customers’ drive, at their place of work, or
even at the supermarket or gym. Cloud connected vehicles can deliver software almost
anywhere there is a good signal. Heavily pioneered by Tesla with the introduction of Model
S in 2012, where software updates were common place for this new emerging Electric
Vehicle technology, nowadays most major OEMs use SOTA to remotely update and
enhance their customers’ vehicles, from minor tweaks to the range of the battery or
suspension settings to the role out of new features in the infotainment systems or vehicle
handling and safety systems. These new feature rollouts are an added source of revenue
for the OEMs, where customers pay to upgrade their car remotely.
 Connectivity, not only allows OEMs to update customers’ vehicles, with fixes and features,
but it also provided OEMs with masses of previously hard to access data: on customer
usage patterns and preferences, early warning on recurring vehicle issues, etc. These data
can be used to develop and deliver quick fixes for issues and aid the rapid development
and rollout of new features and ultimately new cars in the future.
 Predictive maintenance is enabled by IoT in modern vehicles, utilising the plethora of
chips and sensors on the vehicles. Collected data are processed in the cloud, for the
OEMs to use, to predict when a maintenance visit to a service centre is required, long
before the failure occurs, improving customer satisfaction scores and vehicle reliability.
 The car radio and navigation system are becoming less relevant and outdated in the
connected IoT automotive world, replaced by fully connected cloud based systems like;
Apple CarPlay, Google Assistant, Baidu, etc, which can add apps covering everything the
driver and passengers need: audio, telephone, navigation, parking, charging, the list is
endless, in their vehicle, often through voice control, to allow the driver to focus on driving
and not pushing buttons or playing with manual controls
Andrew Lobbenberg* Aviation

Analyst
HSBC Bank plc
andrew.lobbenberg@hsbcib.com The Internet of Things is already seeing multiple applications in the aviation sector and this
+44 20 7991 6816
trend is only likely to increase. The commercial aviation industry is one of the most complex
organisations in society, representing a system of different sub-systems. There are airline
Securities (USA) Inc, and is not registered/ operators, airports, flight controllers, maintenance providers and grounder handlers. Each
player within this space often has multiple systems working independently, all of which have
potential to deliver better efficiency through connectivity.
In terms of business application, cost reduction opportunities, operational improvement and

revenue optimisation opportunities abound. Examples include:
 Operational reliability and safety: IoT technology offers opportunities in sharing real-time data
from multiple components across the aircraft. In monitoring the real-time performance of
components, predictive maintenance can optimise MRO costs and reduce the down-time of
aircraft. This is happening already across airlines but has potential for further development.
 Airports: Airlines and airports are now using beacon technology to offer their flyers an improved
flying experience and themselves improved revenue generation, by offering a seamless flow of
information between the carrier and passengers. IoT-enabled beacon technology adds value to
the traveller in every step along the way - finding the right gate; getting alerts about departure
25
November 2021
time; customising the in-flight experience; and, focussing on revenue generation, offering
personalised recommendations. Airports such as Helsinki, Miami and Tokyo Haneda were early
adopters of the iBeacon technology, with hundreds of sensors throughout the terminals. These
can communicate with travellers’ smartphones in real-time, conveying location-relevant
information, estimated times for passport control, etc. They also collect data on foot traffic,
helping to avoid bottlenecks and adjusting staffing time-tables.
 RFID Bag tags: The IoT has promise for baggage handling and retrieving lost baggage.
Delta and Lufthansa are both working with an RFID-tag based baggage tracking system,
which allows passengers to track the location of their bags in real-time, from the plane all
the way through the airport. Lufthansa’s product offers travellers the option of a ‘Smart bag’,
using a RIMOWA electronic tag that allows passengers to check-in their luggage from
home, and then simply drop it off at the automated station.
 Vaccine distribution: A particularly relevant example of IoT technology in aviation today
comes from the use of “Loggers”. These are remote temperature measuring devices which
are deployed in cargo containers and have proven essential in the temperature
management of vaccine distribution. A vaccine data logger is used for monitoring the
temperature or humidity of a vaccine during every stage of the supply chain, including
storage and transportation. Temperature data loggers can be programmed to notify supply
chain managers if a vaccine enters an undesired temperature zone. This helps facilities to
certify that they are working with safe temperatures and comply with government guidelines
and that the vaccine’s efficiency is not compromised during transportation. This is a new,
highly relevant application of IoT to logistics and aviation.
Kiri Vijayarajah* Banks

European Banks Analyst
HSBC Bank plc
kiri.vijayarajah@hsbc.com The involvement of banks in the supply chain mainly revolves around: (i) the provision of
+44 20 7005 8621 working capital finance and (ii) trade finance to facilitate the cross-border flow of goods.
Robin Down* In essence, both working capital finance and trade finance serve the common purpose of
Analyst
HSBC Bank plc allowing suppliers to manage their short-term cash flow needs. This relates to the inherent cash
robin.down@hsbcib.com flow deficit associated with the time between paying for inputs, the manufacturing cost, then
+44 20 7991 6926
dispatch of goods versus the eventual receipt of cash payment for those goods from the end
buyer. Typically, this cash flow “gap” is larger when goods need to move cross-border, and that
Securities (USA) Inc, and is not registered/ “gap” is filled by short-term credit provided by trade finance banks.
This extension of credit by a bank will be secured against those goods moving through the
supply chain. If the IoT can enable trade finance banks to keep accurate tabs on the
movement of inventory passing through the supply chain, then this allows banks to mitigate
their credit risk as they will have a better handle on their collateral. This should over time reduce
the cost of trade finance for the end user as the perceived credit risk for the bank is reduced.
Trade finance as a banking product is already considered rather low-risk, but IoT could reduce
the risks even further. As with many other areas of technological innovation that reduces costs
for banks, it is unclear how much of the cost saving will translate into lower customer pricing.
In the rapidly growing buy-now-pay-later (B2C) space, we could envisage that IoT and the
resulting ability to better track large volumes of small ticket items could accelerate disruption.
Eventually having real-time visibility of rapidly moving collateral and inventory could encourage
specialist tech-savvy start-ups and/or Big Tech to enter various components of the B2B trade
finance value chain, which would involve the financing of big-ticket items. IoT may well pose a
risk for trade and commodity finance banks in the long-term but the inherent scale benefits of
(B2B) trade finance and the difficult-to-replicate international networks provide the large
incumbent cross-border banks with a defendable moat.
26
November 2021
Martin Evans*
Chemicals
Head of European Chemicals
Research
HSBC Bank plc
The IoT as regards the global chemical industry is estimated at billions in terms of potential market
martin1.j.evans@hsbc.com size as the manufacturing process embraces industrial robots and smart automation – although, as
+44 20 7991 2814
always, one offsetting concern is the upfront capex involved plus concerns over cyber security.
* Employed by a non-US affiliate of HSBC The world’s largest chemical company by sales, BASF is at the forefront of exploring the various
Securities (USA) Inc, and is not registered/ benefits and opportunities from digitalisation and 5G within the IoT to enhance its manufacturing
processes. For example, in China across its sites the company has 90 digital projects in the
pipeline with some 40 already launched. These projects for example are adapted to a variety of
application scenarios, according to BASF, covering augmented and mixed reality, predictive
maintenance and process optimisation by big data.
19. Chemicals IoT market size, USDbn

100
80
60
40
20
0
2019 2024
Chemical IoT market size (USDbn)
Source: Markets and markets
20. IoT applications in manufacturing
IoT in Process Manufacturing

• Storage
IoT Cloud •
•
Processing / Logic
Presentation
• Management
Cyber Security
• Ecosystem of Apps
Communication
”Things“ (Cyber Physical Systems)
Manufacturing Site Supply Chain Digital Business Models
Predictive Applications Mobility, Buildings Track & Trace Intelligent Products

Operational Excellence Differentiation and Growth
Source: HSBC based on BASF 2017 presentation
For example, through Augmented Reality (AR), operators can use mobile devices to record
production data directly on site, with reports generated automatically and if needed
maintenance orders created automatically saving time and process.
Another example BASF cites is using AR in coatings manufacturing where the scanning of
QR codes on raw materials and packaging with AR equipment allows operators to record the
feeding of materials in addition to the sequence and the exact time of input.
A further example of smart manufacturing enabled by the IoT is in the use of drones replacing
manpower in daily inspections and monitoring around chemical plants where safety is always a
concern and where the drone can cover chimneys and utility tunnels and obviate the potential of
workers inhaling harmful gases.
27
November 2021
Drones transmit image and data through a first person view (FPV) in real time back to operators
who can assess the status of equipment and facilities. An infrared thermal imager mounted on a
drone could also locate heat loss points or faults and send back a status report.
Another area where technology can improve the production process in mainstream
manufacturing would be in predictive maintenance where sensors capture real-time data from
production facilities using big data analysis with reference to historical data, and therefore
identify potential problems and predict optimal time for further maintenance, etc.
ESG and environmental regulation also requires chemical companies to monitor and report
emissions data and disclose it to the public online. Investments are therefore increasing into
measures to improve environmental performance with digital tools helping this process with
neural network algorithms, for example, helping to predict emissions data within 30 minutes
which would provide automatic alarm systems to help companies take preventative measures to
reduce unwanted emissions.
On site communication on large chemical plants can be a challenge for digitalisation with
the high cost of cabling and the potential for signal weakness between plants. 5G should
remove some of these pressures when rolled out on a large scale. BASF, as an example, is
partnering and trialling 5G projects at the Shanghai Pudong Innovation Park and Caojing site
with applications such as IoT, automatic guided vehicle (AGV), intelligent inspection robot and
live video and face recognition, all supported by the large bandwidth and reliability of 5G.
Andrew Porteous*, CFA Consumer & Retail

Co-Head, European Consumer
Retail Research
HSBC Bank plc It is difficult to identify a part of the consumer & retail supply chain that will not be impacted by
andrew.porteous@hsbc.com
+44 20 7992 4647 IoT technology driving greater connectedness throughout the supply chain. The uses of sensors
to provide accurate real time information through the supply chain can help almost every aspect
* Employed by a non-US affiliate of HSBC and some benefits are already being seen; we are clearly only in the early stages of what will
Securities (USA) Inc, and is not registered/
ultimately be possible. It is critical to driving improvements in wastage, emissions, inventory
management and so driving revenue growth and cost efficiency throughout the supply chain.
 At the food production stage, IoT technology can drive better yields through monitoring of
external factors and better quality control.
 Through transportation better information can drive improved product flows, optimising
logistics utilisation and improving product quality through monitoring factors like
temperature etc on an end-to-end basis. Lower food waste and emissions are critical to the
ESG goals of many consumer businesses and can be helped by IoT capabilities. For
example, the connectedness this technology brings will help retailers in targeting Scope 3
emissions, which is currently a challenge.
 In the retail supply chain, better information around inventory levels can improve
availability (helping sales and customer satisfaction), monitoring promotions in real time,
helping retailers and suppliers drive better ROI. IoT capabilities could also be used to
manage staff hours through better understanding of where staff are best used e.g.
checkouts vs replenishment.
 Even in consumers’ homes, while it has been slower to take off than expected, more
connected devices can improve factors such as food waste (most of which happens in
consumers’ homes).
28
November 2021
Jeremy Fialko*, CFA

A digitally connected supply chain can help Consumer goods companies in a number of ways to
Head of Consumer Staples evolve in order to better meet customers’ needs. Key is being able to combine agility with
Research, Europe
HSBC Bank plc significantly greater complexity arising from the fragmentation of consumer needs and channels.
jeremy.fialko@hsbc.com Increasingly, what makes the difference is not only the products and services companies bring
+44 20 7991 1562
to the market but the way they are able to adapt them to deliver bespoke solutions which better
Doriana Russo*
Analyst fit consumers’ needs. The competitive environment is becoming more complex and companies
HSBC Bank plc are investing more in consumers and category insights. This is to better understand the way
doriana.russo@hsbc.com
+44 20 3359 5588 consumers shop and behave in order to anticipate and better respond to these changes.
There are a number of elements to this, enabled by IoT, that we highlight:

Securities (USA) Inc, and is not registered/ 
Channel fragmentation. With the growth of e-commerce – and the number of different forms
of e-commerce, the distribution of FMCG products has become much more fragmented. These
different channels all have slightly different needs in terms of the type of product demand and
how it is packaged. The role of customised products is also increasing. It is only through having
a highly digitised and agile manufacturing base/supply chain that the consumer goods
companies can cope with the complexity at a reasonable cost.
 Shorter lead times/planning agility. One of the emerging principles of planning in
consumer goods is one of ‘produce what we sold yesterday’. Rather than relying on longer-
term manufacturing planning, through the use of point of sale (PoS) data, it is possible to
have a much more dynamic view of demand. This can help consumer goods manufacturers
to take advantage of shorter-term uplifts in demand while also reducing the risk of product
wastage through overproducing.
 Digital twin. Many factories now have a ‘digital twin’, where it is possible to exactly
replicate the actual factory but in a virtual setting. By making tweaks on the digital twin it is
possible to identify process improvements that can then be applied to the real factory, as a
way of enhancing manufacturing efficiency.
Paul Rossington* Non-Food Retail

Co-Head, European Consumer With regard to the Non-Food supply chain we see three potential areas of meaningful gains that IoT
Retail Research
HSBC Bank plc technologies could help support, in part driven by rising labour costs and resulting substitution of
paul.rossington@hsbcib.com capital for labour in sourcing markets (e.g. at the production stage) and end markets (e.g. warehouse
+44 20 7991 6734
and logistics). This is in addition to growing commitments among major retailers, particularly in the
* Employed by a non-US affiliate of HSBC apparel and footwear sector, to adopt more sustainable processes throughout the lifecycle of a
Securities (USA) Inc, and is not registered/ garment from its manufacture to use, reuse and or repair, and recycle.
Given the largely non-perishable nature of Non-Food products like apparel and household
goods, and the longer lead times/product cycles upon which many of the products are
produced, we see potential for IoT to drive improvements in the production process and
warehouse and logistics vs, for example, a reduction in wastage experienced in Food Retail.
Supply chain sustainability/traceability: Factors such as energy efficiency, waste and water
usage are tracked via sensors, allowing for effective management of resources and more
accurate, granular results. In supply chains, IoT device monitoring assists in tracking these
metrics globally, giving real-time carbon data and predictions. This provides stakeholders with
an accurate understanding of impacts, allowing companies to effectively record data and
provide greater visibility for investors.
This is key to apparel retailers including fast fashion which remain front and centre of investor
concerns over the impact that clothing manufacturing is having on the environment from a water
usage and pollution perspective. In our note ‘Uncovering the ESG risks –European Retail:
Transparency and supply chains’ (20 April 2021), we highlighted the challenges facing investors
in terms of screening retailers for their sustainability and other ESG credentials. Retailers that
29
November 2021
have extensively mapped their supply chains – beyond Tier 1 – and publicly report
accompanying code of conduct and supplier information, have already made themselves more
accountable to investors, customers and the media. Use of IoT could allow retailers to take
greater responsibility for the practices in their supply chains.
Warehouses and logistics: As noted on page 10 of this report, only 5% of manufacturing

companies used automated warehouses in 2016, with only 15% mechanised and 80% manually
operated. This is an area of operational focus for an increasing number of retailers looking to
streamline the time it takes to receive deliveries from suppliers, and then better allocate/manage
that inventory through increasingly sophisticated omni-channel routes to market.
If successfully implemented the benefits are multiple:

 Improved availability, higher full price sales/reduced markdown and higher gross margins.
 Reduced operating/labour costs through via automaton and resulting cost to serve.
 Increase in stock utilisation resulting in lower required inventories, i.e. doing more with less.
The development of new warehouse management solutions such as THG’s newly developed,
next generation ‘FIR/ST’ (Fulfilment & inventory Retrieval/Storage Technology) solution is one
such example. FIR/ST is a cross-border software solution formed through the integration of
AutorStore’s proprietary Automated Storage Recovery System and THG Ingenuity’s propriety
Voyager Warehouse Management System, and will deliver meaningful operating and cost
improvement including reduced fulfilment cost per unit, increased implementation speed and
reduced integration risk vs comparable products in the market place.
Sezgi Oezener*, CFA Healthcare

Analyst
HSBC Trinkaus & Burkhardt AG
sezgi.oezener@hsbc.de The Internet of Medical Things
+49 211 9103290 The Internet of Medical Things (IoMT) refers to the application of IoT for medical and health
related purposes, data collection, and analysis for research and manufacturing. It is a
Securities (USA) Inc, and is not registered/ connected infrastructure of medical devices, software applications, health systems and services.
According to Business Insider, the market for IoT Medical Devices is estimated to grow at a
CAGR of over 29% from 2017 to 2022, reaching USD158bn (from USD41bn in 2017). An earlier
estimate suggests there were 4.5bn devices connected to the Internet of Medical Things (IoMT)
in 2015, with this expected to have grown to 20 to 30 billion devices today (source: GE and
Business Insider). Devices concerned represent a wide range of areas from patient monitoring
(in and out of hospital settings) to telemedicine to sensors measuring vitals to smart beds to AI-
based medical imaging analysis and diagnosis.
In the healthcare and care delivery sector, data from electronic health records (EHR) containing
personally identifiable information and patient generated health data, along with other machine-
generated data are gathered and provided to healthcare providers for real-time monitoring and
treatment, and also used for compliance reasons.
Use of IoT in the manufacturing process

Supply chain disruptions and raw material shortages caused by the COVID-19 pandemic and
demand cyclicality became an increasingly popular topic in MedTech company conference calls
and webcasts. Although only a fraction of the worlds’ semiconductor chips end up in medical
devices, and producers are known to be more sensitive towards the needs of the healthcare
sector, chips are a key component for many life-saving medical devices such as MRI machines
and blood-sugar monitors for diabetes.
30
November 2021
However, lead times for chips have been getting longer while prices have been rising. Philips
recently lowered its growth and margin outlook due to supply chain issues, including shortages
of electronic components, while Fujifilm SonoSite, which makes portable ultrasound machines,
reported paying over 43 times more than normal for a key component in short supply.
All this, along with the pandemic-driven rise in demand for certain products, makes precision
timing and more efficient production processes even more critical for Medtech companies.
Smart applications…
Siemens Digital Industries Software offers solutions for medical device companies for product
lifecycle management, as well as platforms to answer product development challenges.
Siemens has also recently been awarded a contract by the US Food and Drug Administration
(FDA) which will provide the latter access to its Xcelerator portfolio, which includes integrated
software capabilities for design control, risk management, product lifecycle management and
manufacturing execution, among others.
Philips is providing end-to-end connectivity solutions not just in its own products but also for
external healthcare companies by leveraging its experience in integrating and combining
consumer and clinical data. It also, in cooperation with Open Market, created a mobile
messaging remote sensor technology alerting users of system issues in MRI systems.
Carl Zeiss Meditec will connect its medical technology devices to Microsoft’s cloud and leverage
Azure AI and IoT technologies for new digital services for improved clinical workflows,
treatments and device maintenance.
Zeiss Ecosystem promises to connect all existing Zeiss devices, providing seamless access to
data and connecting applications from diagnosis to device ordering to procedure and post
procedure exams in a compliant and secure way.
…and better clinical outcomes

SYNLAB, Europe’s largest clinical lab services provider, recently announced a cooperation with
Feedtrail XM platform across 2,100 sites in 36 countries where hospitals and caregivers as well
as patients can leverage the Feedtrail XM platform in real-time to provide feedback. By using
this platform, SYNLAB aims to maintain a continuous dialogue with its customers and improve
day-to-day processes.
Cybersecurity is key
Global Digital Health Partnership, a collaboration of 330 countries and territories and the WHO
formed to support the effective implementation of digital health, published a draft Medical
Device Manufacturer Internet of Things Code of Conduct in January 2020 where it highlights the
importance of: 1) confidentiality of patient information; 2) integrity of data; and 3) availability of
data to authorised entities to ensure proper functionality of medical devices. Further emphasis is
made on establishing proper Cybersecurity policies, an issue rendered even more critical in the
context of rising ransomware attacks targeting the healthcare industry.
Capturing the right data, filtering out the junk

Healthcare data stand for 30% of the world data out there, according to IDC, while 97% of
hospital data are unused, according to WEF. Therefore, capturing the right kind of data is key to
using resources efficiently.
31
November 2021
Sean McLoughlin*
Industrials
EMEA Head of Industrials
Research
HSBC Bank plc The Industrials sector plays an integral part in enabling the adoption of the Internet of Things
sean.mcloughlin@hsbcib.com (IoT) in the manufacturing and supply chain. In very simple terms, the Internet of Things
+44 20 7991 3464
connects the physical world with the digital world. In a digitally connected manufacturing plant,
Puneet Garg*
Analyst, Industrials
optimisation/maintenance no longer need to happen at the site, but through transferring and
HSBC Securities and Capital analysing large volumes of equipment/plant level data in the cloud in real time. Industrial
Markets (India) Private Limited
puneet.garg@hsbc.co.in companies, especially automation players like Siemens, ABB, Schneider Electric, Honeywell,
+91 80 4555 2756 Emerson, Rockwell etc. are enabling this digital transformation of their customers across
Jonathan Day* different verticals, which helps them in achieving operational efficiency and asset optimisation.
HSBC Bank plc In addition, industrial companies are themselves undergoing digital transformations of their own
jonathan.day@hsbc.com manufacturing processes and supply chains.
+44 20 3359 1217
Operational efficiency: By getting equipment and plants digitally connected, each part of the
* Employed by a non-US affiliate of HSBC manufacturing process can be monitored and analysed on-premises/edge or in the cloud and
qualified pursuant to FINRA regulations improvements communicated back in real time to drive operational gains. This will be driven by better
integration from intelligent sensors and processors embedded on devices on the factory floor, faster,
open and secure networks enabling the seamless flow of large chunks of data from connected
devices, right up to the cloud and advanced data analytics. Benefits will be realised in the form of
increased productivity, speed to market, flexibility and lower production and supply-chain costs
including energy efficiency. Manufacturing lines can become more dynamic and customized, and can
react more quickly to customer and market demands as well as customer feedback.
Asset optimisation: This will be achieved through better maintenance models which should
enable reduced downtimes, lower maintenance costs, and improved asset utilization, hence
leading to increased productivity. While predictive maintenance practices will be at the forefront
and stand to gain most from industrial IoT, we believe downtime can approach zero in future as
prescriptive/deductive maintenance models gain prominence with further advances in data
analytics, machine learning and artificial intelligence.
Examples of increasing adoption of IoT at industrial companies for their manufacturing and
supply chain are as follows:
 Connected elevators – Most new elevators/escalators being installed are fitted with in-built
connectivity and Global elevator OEMs are trying to connect their installed elevator base as
it helps improve uptime of the equipment using machine data, analytics and predictive
maintenance. It also helps elevator companies offer additional digital services and benefit
from service efficiencies in connected units. Schindler is planning to connect large part of
their installed base by 2023 and Otis is connecting 100k units every year for these benefits.
 SKF is undergoing manufacturing transformation, wherein it is reducing the number of sites,
developing regional manufacturing capabilities and increasing automation in existing sites.
SKF is investing in new automated factories towards localising manufacturing which should
help improve flexibility.
 Honeywell is working on supply chain transformation to smart, connected and integrated
supply chain with high degree of automation, simplification and agility. It is using its own
connected-factory expertise and Honeywell Forge for industrials to transform into a digital
supply chain.
 Rockwell Automation combined its multiple, disparate systems into one ERP and also
rolled out a manufacturing execution system as its centralised system across factories.
Further, it employed FactoryTalk InnovationSuite (powered by PTC) across six global
facilities to infuse edge-to-enterprise analytics, machine learning, internet of things (IoT),
and augmented reality (AR) directly into their industrial operations.
32
November 2021
 ABB, Schneider, Legrand and Siemens all offer connected products and software which
can be used for industrial and building automation. Their IoT products help drive energy
and operational efficiency and span a wide range of end markets. Schneider and Legrand
are both exposed to data centres which are becoming more connected, energy efficient and
are moving to the edge to become a more local part of an IoT solution. Schneider and
Siemens industrial software offerings include powerful digital twin capabilities allowing much
more precise monitoring, process management and optimisation than ever before. ABB
offers data analysis and device connectivity services via its ABB Ability platform.
Christian Korth* Transport

HSBC Trinkaus & Burkhardt AG
christian.korth@hsbc.de DHL and IoT
+49 211 910 1397
As part of its “Strategy 2025” DPDHL announced that it plans to invest EUR2bn in the
digitalisation of the company, which includes the foundation of several “Centre of Excellence”
Securities (USA) Inc, and is not registered/ expert teams. One of these is for IoT related applications in order to make sure the company is
at the forefront of the developments in the transport and logistics world.
The key developments of this theme are:
1. The rise of smart shipments that fulfil the legal and physical requirements for various
geographies that enable location, temperature, shock, acceleration, light and damage
monitoring, which increases the need for shipment sensors;
2. Connected assets tracking for vehicles and specific products such as roller cages, and people;
3. Improve the use of facilities/properties to monitor light and heat or control buildings based
on anticipated weather conditions, occupancy, temperature and business activity to benefit
from lower energy costs.
But the progress does not stop there, and the theme is gaining importance within the supply
chains itself.
In 2020, DPDHL published a report “Next Generation Wireless (NGW): Trend Report explores
the future of IoT in logistics” that found that 60% of the 800 participating supply chain leaders
believed they have insufficient visibility, and 75% of them planned to deploy at least one or
more NGW technologies in the near future. These findings are interconnected as the key
challenges in the sector are: 1) the end-to-end track and trace; 2) the lack of a centralised
platform; and 3) a fragmented data collection.
It is thus no surprise that the three most named top trends to improve supply chain visibility
strategy include: 1) end-to-end transportation visibility; 2) intelligent inventory management; and
3) supply chain data analytics.
Deutsche Post concluded that three key things will become possible for the logistics industry: 1)
total visibility for every shipment, asset and infrastructure to enable highly efficient automation,
processes and more transparent incident resolution leading to the best possible service quality;
2) a wide-scale autonomy for all autonomous vehicles relying on ultra-fast wireless
communication to navigate efficiently to enable autonomous supply chains; and 3) perfecting
prediction of data-driven systems for delivery timing and routing.
The ultimate goal is to further increase productivity and efficiency for the company, while at the same
time allowing the highest possible transparency for the customer which adds to the perceived service
offering. This can for example be used in forwarding or the Global Express business.
In warehousing, the increase usage of robots helps to increase efficiency as well, which includes
several technologies including RFID applications and autonomous inventory and asset tracking.
33
November 2021
21. The fully connected future of logistics
Source: DHL
Shipping and ports

Parash Jain*
The application of IoT in shipping and ports is mainly focussed on providing visibility on and
Head of Shipping & Ports & Asia improving the speed of cargo flows given inefficiencies on capacity and turnaround time drive
Transport Research
The Hongkong and Shanghai up costs and could potentially choke the supply chains. Shipping lines are focussing on
Banking Corporation Limited providing their customers with real-time information on containers, particularly reefers for quality
parashjain@hsbc.com.hk
+852 2996 6717 control of the cargoes being shipped. In ports, the focus of IoT applications is to better forecast
volumes and deploy resources to improve turnaround time. In this context, we list some of the
* Employed by a non-US affiliate of HSBC initiatives by the companies in this space:
qualified pursuant to FINRA regulations  Hapag Lloyd is installing IoT monitoring technology across its fleet of reefer container boxes
which would enable it to provide products marketed to its customers under the name Hapag-
Lloyd LIVE and provide real-time data on GPS location and temperatures. Maersk and OOIL too
offer similar services which improve the transparency and visibility for shippers.
 Maersk is strengthening its investments in IOT and automation of terminals to drive better
management of physical assets and in particular build a roadmap to leverage real-time data
from devices on vessels, containers and terminals to improve decision making. Maersk
aims to leverage data as a discrete and differentiating asset to offer data products besides
the transportation and logistics services.
 Port operators like CS Ports, ADSEZ are taking advantage of IoT applications to better
manage their assets including for yard planning and to build smart terminals which will
benefit in not just better understanding and managing the cargo flows efficiently in the
terminals but also improve safety in operations.
34
November 2021
Evan Li*
Utilities
Head, Asia Utilities &
Conglomerates Research
The Hongkong and Shanghai The issue: imbalance between power demand and supply
evan.m.h.li@hsbc.com.hk
The perfect balance between demand and supply has yet to be achieved in most parts of the
+852 2996 6619 world. In Asia, countries such as China which seems to have abundant generation capacity,
Wilson Ling* power shortages could still emerge, while experiencing excess capacity at times causing
Analyst, Conglomerates &
Utilities wastage. Governments have had put in a lot of effort in energy planning to minimise shortages
The Hongkong and Shanghai and wastage, and yet, still occur because: 1) the lack of reliable grid infrastructure to accurately
wilson.s.l.ling@hsbc.com.hk dispatch required power; 2) unforeseeable shifts in power demand and supply; and 3)
+852 2914 9575 limitations in data for power planning.

qualified pursuant to FINRA regulations 22. China: total generation capacity, peak load capacity and adjusted reserve margin
2,500 100%
90%
2,000
80%
1,500 70%
1,000 60%
50%
500
40%
0 30%
2015 2016 2017 2018 2019 2020
Total generation capacity (GW) Peak load (GW) Adjusted reserve margin (RHS, %)
Source: CEIC, HSBC
Note: Adjusted reserve margin represents total generation capacity over peak load of thermal, nuclear and hydro power
The solution: smart grids to bridge the gap

We believe power consumption and generation data coupled with flexible dispatch automation
could greatly enhance the mismatch between demand and supply. Within the power supply
chain, we think the grid distribution network (i.e.mid-stream) is a good place to start given its
natural exposure between power producers and end-users. In fact, smart energy grids which
mainly consist of smart meters that feed real-time consumption data into a centralised control
hub have been in development, which should enable better demand-response systems to
enhance distribution, hence efficiency.
In China, the smart meter market was worth cRMB13bn in 2020, according to WIND.
Centralised Control Stations (CSS) will be a key focus for State Grid in 2021-22, according to
the Power Transformation Equipment 2020 #57 Notification issued by State Grid. CSS solutions
are highly automated surveillance centres to monitor and manage multiple power sub-stations.
In Thailand, a 20-year roadmap initiative to develop a national smart grid was launched in 2017. Pilot
projects were rolled out since then including the installation of 116,000 smart meters in Pattaya.
35
November 2021
China’s investment in power 23. China: power grid infrastructure investment (RMBbn)
grid infrastructure averaged
600 5-year average: RMB520bn
RMB520bn p.a. over 2016 to
2020, 49% higher than the
average over the prior 10 years 500
400
300
200
100
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Power grid investment (RMBbn)
Source: CEIC, HSBC
Rise of renewable energy puts greater emphasis on grid efficiency

As solar and wind power are variable in nature, the rising share of solar/wind puts stress on the grid
infrastructure. For China, we forecast 20% of the country’s power will come from solar/wind in 2025e
(vs 9% in 2019) and estimate the maximum-to-average load ratio will rise from 1.4x in 2019 to 1.9x in
2025e, as a result of the shift in energy mix, which could be disruptive to the grid. We see increasing
demand for power dispatch automation equipment, which helps dispatch power from baseload
power sources (e.g., hydro) to the grid when solar/wind output is low.
36
November 2021
Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s)
whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering
analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or
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their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific
recommendation(s) or views contained in this research report: Shanella Rajanayagam, Davey Jose, Frank Lee, Nicolas Cote-
Colisson, Sean McLoughlin, Wai-Shin Chan, CFA, Amy Tyler, Luigi Minerva, Adam Fox-Rumley, CFA, Henning Cosman, Andrew
Lobbenberg, Kiri Vijayarajah, Robin Down, Martin Evans, Andrew Porteous, CFA, Jeremy Fialko, CFA, Doriana Russo, Paul
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37
November 2021
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38
November 2021
Additional disclosures
1 This report is dated as at 09 November 2021.
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39
November 2021
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Main contributors
Shanella Rajanayagam Sean McLoughlin*
Trade Economist EMEA Head of Industrials Research
HSBC Bank plc HSBC Bank plc
shanella.l.rajanayagam@hsbc.com sean.mcloughlin@hsbcib.com
+44 20 3268 4118 +44 20 7991 3464
Davey Jose* Wai-Shin Chan, CFA

Thematic Analyst, Disruptive Technologies Head, Climate Change Centre;
HSBC Bank plc Head, ESG Research
davey.jose@hsbcib.com The Hongkong and Shanghai Banking
+44 20 7991 1489 Corporation Limited
wai.shin.chan@hsbc.com.hk
+852 2822 4870
Frank Lee* Amy Tyler

Head of Technology Research, Asia ESG Analyst
The Hongkong and Shanghai Banking HSBC Bank plc
Corporation Limited amy.frances.tyler@hsbc.com
frank.lee@hsbc.com.hk +44 20 3359 4059
+852 2996 6916
Nicolas Cote-Colisson*
Senior Analyst, TMT
HSBC Bank plc
nicolas.cote-colisson@hsbcib.com
+44 20 7991 6826
* Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered / qualified pursuant to FINRA regulations
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Disruptive Technology

Smart Supply Chains

We examine how the Internet of

…and how IoT solutions can be

Play video with

Why read this report?

The push towards digitisation

Building next-gen supply chains

Supporting IoT adoption

 Around half of North American manufacturing companies are considering implementing

Disruptive trade and digitalisation

… and IoT solutions can be used across various sectors …

Banks Consumer & Retail

USD35bn 24bn 90%

Why read this report? 1

Disruptive trade and digitalisation 3

Disruptive tech research 5

Smart supply chains and IoT 6

Sectoral applications of IoT 23

Disruptive tech research

Digital tax update – Towards a global solution (19 July 2021)

Manufacturing and trade – From Just-in-time to Just-in-case? (21 June 2021)

Spotlight: Age of Cybersecurity – Spend to Defend (29 April 2021)

Energy transition disruption technology

Esports: Why Esports requires a different perspective (28 May 2020)

Other key disruptive tech

GEMs healthcare – The impact of telemedicine (02 September 2020)

Smart supply chains and IoT

 IoT technologies could help businesses build more resilient, efficient

The role of IoT

From disruption to digitisation

1. Summary of IoT supply chain applications

What is the Internet of Things?

How does IoT work?

There are five key components in the IoT ecosystem:3

1. Hardware (e.g. the actual IoT devices)

Where are we at with IoT?

2 World Economic Forum, 31 March 2021

2. HSBC Disruption Framework: Connectivity infrastructure

Gradient of estimated expectation vs. reality

Early Hype Backlash Real New normal

3. Global total IoT connections (millions) 4. Warehouse automation technology

15,000 Cloud Computing &

5. Expected 12bn new IoT connections by 6. Enterprise vs consumer IoT – 2020-2025

4 'Robotics in logistics', DHL, March 2016

Implications for supply chains

IoT and the COVID-19 pandemic

7. The pandemic has highlighted the importance of IoT for businesses…

Underlined importance of IoT

We have accelerated deployment of IoT projects in response

Negatively influenced ability to operate

We intend to accelerate deployment of IoT projects in next 12

0% 10% 20% 30% 40% 50% 60%

8. …for a number of key reasons

Better supply chain insight

Better decision making

0% 10% 20% 30% 40% 50% 60%

400 400 AI and ML

Manufacturing and predictive maintenance

5 Internet of Business, 27 August 2021.

11. Unplanned downtime can be costly for businesses

By way of example, KUKA – a German producer of intelligent automation solutions – built an

Logistics and warehousing