How does Manufacturing 4.0 create value for countries?

Manufacturing 4.0 creates both direct and indirect opportunities for countries.

Direct opportunities include: (i) research and developing technologies; (ii) manufacturing technologies and their components; (iii) adapting technologies to particular firms’ needs and context; and, lastly, (iv) adopting Manufacturing 4.0 applications and solutions.

The development and manufacturing of Manufacturing 4.0 technologies is largely dominated by a small number of countries. Ten countries account for 90% of the patents and 70% of exports of advanced digital production (ADP) technologies.1

Among Commonwealth countries, the United Kingdom, Canada, Singapore, Australia, India, Malaysia and South Africa are among the top 50 economies by their patent and export activity of ADP technologies.

Despite this market concentration, adaptation and adoption represent substantial opportunities. These also represent more immediate opportunities for LDCs. For example, Bangladesh is situated among the top 20 economies by its import activity of ADP technologies.

In addition, the adoption of Industry 4.0 technologies also generates indirect opportunities through the development of enabling infrastructure and the provision of Industry 4.0 related services.

M4.0 Opportunities could translate into concrete benefits for various stakeholders

Technology upgrading through the adoption of Manufacturing 4.0 technologies is particularly relevant to LDCs, as factors such as social responsibility, supply chain transparency and agility, and environmental sustainability are becoming more important to participation in global value chains.

Industrial digitalisation may also offer jobs for the growing economically active population in LDCs, which is expected to increase by 13.2 million workers per year in the next decade.

Industrial digitalisation, however, also risks increasing market concentration and deepening existing inequalities, as has become apparent during the COVID-19 pandemic.

In a post-COVID-19 context, industrial policy has become even more relevant to ensure that LDCs recover from the current economic crisis and are not further left behind in the digital industrialisation journey.

As global value chains are being reconfigured, with an emphasis on regional integration, those countries with adequate policies in place will be able to participate in, and benefit more from, new market opportunities.

How does Manufacturing 4.0 create value for firms?

The integration of cyber and physical systems in manufacturing is leading to three main types of innovation:

• “Smart” products (e.g. new data-based services, mass customisation).
• “Smart” processes (e.g. predictive maintenance, energy management systems).
• “Smart” supply chains (e.g. traceability systems, demand forecast).

These innovation trends are changing the drivers of industrial competitiveness, including: efficiency, quality, price, flexibility, agility, speed of response, reduction in downtime and speed of new product development.

They are also creating new sources of value added for firms and industries.

How does Manufacturing 4.0 create value for employees & households?

For employees, the adoption of Manufacturing 4.0 technologies offers benefits to job creation, upskilling and reskilling.

For households, the adoption of Manufacturing 4.0 technologies offers benefits relating to new, better quality, and more affordable products and customer experiences.

What challenges identified by manufacturers can be solved by Manufacturing 4.0?

Manufacturing 4.0 technologies can be utilised to address several challenges and digital requirements, from change management to various aspects of monitoring, analysis and reporting.

This table is based on requirements identified by manufacturers involved in the Digital Manufacturing on a Shoestring Project lead by the Institute for Manufacturing, University of Cambridge in the UK.

Manufacturing 4.0 Use Cases

To demonstrate the benefits listed here, we examine three use cases of Manufacturing 4.0 technologies:

1. Application to the food and beverage value chain
2. Application to vaccine production during the Covid-19 pandemic
3. Looking beyond technology adoption, to internet-of-things device manufacturers and service providers

Barriers to leveraging Manufacturing 4.0 technologies

Multiple barriers prevent developing countries from benefiting from Manufacturing 4.0 technologies. While participation in the development and manufacturing of Manufacturing 4.0 technologies may be particularly challenging in contexts where domestic knowledge generation is still scarce, more immediate opportunities can be identified from the adaption and adoption of M4.0 technologies.

Although Manufacturing 4.0 applications and solutions are becoming more accessible, firms face technical, economic and organisational barriers that hinder their ability to adapt and adopt Manufacturing 4.0 technologies within their operations. These include: technical and managerial skills’ gaps; a lack of awareness of Manufacturing 4.0 applications and their benefits; financial constraints; and resistance to change.

Barriers at firm level are generally linked to gaps in contextual enablers. These may include: a mismatch between graduates’ skills and the skillsdemanded by the industry; absent or insufficient entrepreneurial and innovation systems; inadequate institutional frameworks; and limited physical and digital infrastructure.

Risks involved in the widespread deployment of Manufacturing 4.0 technologies

As already discussed, Manufacturing 4.0 technologies are raising expectations about the potential benefits from its adoption. However, concerns have also emerged about the risks involved in the widespread deployment of these technologies.

Main concerns can be grouped into four key topics:

1. Impacts on the quantity and quality of jobs;
2. Changes in the drivers of competitiveness;
3. Increasing economic and social inequality; and
4. Increasing gender inequality.

Risks and mitigation strategies

Jobs

Emerging research indicates that job losses will not be as dramatic as early studies predicted. In developing countries, lower labour costs, a younger population and limited infrastructure translate into slower rates of technology adoption. For example, a recent study on the impact of automation on the garment industry found that “about 10–15 years remain to exploit labour cost advantages in the clothing industry before automation kicks in decisively”. However, it is also becoming clearer that tasks and roles will change and that new safety and security hazards are emerging. This requires lifelong learning approaches in education and training, as well as responsive labour regulation, and flexible social security systems and safety nets.

Drivers of competitiveness

Although evidence on the potential of automation facilitating reshoring of production to high-income countries is limited, digital technologies are enabling transparency and flexibility across value chains and thus becoming increasingly important to participate in international markets. In addition, factors such as sustainability and social responsibility are reducing the importance of labour costs as a competitive advantage. To respond to this changing environment, countries should strengthen their production and innovation capabilities by investing in infrastructure, skills’ development, business advisory support and rethinking their FDI attraction strategies.

Economic and social inequality

I4.0 has the potential to open up spaces for economic and social inclusion, but it can also reinforce and deepen existing inequalities. More innovative firms and high-skilled individuals are likely to benefit disproportionately from I4.0 adoption if levelling-up mechanisms are not in place. Governments can mitigate increases in inequality by targeting training and business support at disadvantaged population groups and regions and SMEs; and establishing mechanisms for accountability and transparency in the use of AI technologies.

Gender inequality

Special attention should be given to gender inequality, as globally women are disproportionately represented in low-skilled occupations, performing routine tasks, and thus they face higher risks of job disruption than men. Governments can address this issue by: adopting gender-sensitive approaches in policy design and delivery; promoting campaigns and regulation to reduce structural discrimination; and improving sex-disaggregation data collection.