Policy Development Recommendations
Ecosystem Framework
Productive Inputs
1
M4.0 Technologies
Benefits
Artificial intelligence allows physical objects to undertake tasks through programmability, memory storage capacity and sensor-based capabilities. This allows established, centralized systems to operate in a decentralised and disruptive setting. Deployment of AI is the basis of smart machines which potentially increase yield and reduce waste while increasing product quality.
3D printing can produce customised products and spare parts and support the development of new service businesses. It spurs innovation through enabling more flexible, on-demand production.
Digitisation is a driver for innovation, resource efficiency, new business models, value-chains, cyber-physical systems, customisation and generation of new products, services and processes.
Blockchain technology generates both public and private keys that differ in terms of the type of information they allow access to, and utilise, in the shared chain. Integrity, security, transparency, and auditability of the information available and the entire flow of processes and information contained in the blockchain are guaranteed. The technology has been observed to improve the efficiency and traceability of production, distribution and reverse logistics processes and can also been applied to the execution of smart contracts.
Challenges
The potential of 4IR technologies is not widely understood and appreciated across Commonwealth SIDS and LDCs.
Many manufacturing processes are at basic levels of automation, particularly in MSMEs. Since the pandemic, programmes to achieve digitisation of government services and among small businesses are being promoted, however the seamless, remote, data driven and fully integrated features of Manufacturing 4.0 are likely to be some way in the future.
The costs of energy, broadband and data services, ICT equipment and production machinery and equipment are also viewed by producers as being uncompetitive, in part due to high tariffs and duties on imported items.
Recommendations
Pilot demonstration labs should be established as public-private partnerships between governments and Manufacturers' Associations/ Chambers of Commerce to build awareness, facilitate research, guide assessment of the potential of manufacturing 4.0 technologies, facilitate adoption of the technologies and measure productivity gains. Incubation and acceleration of MSME- led projects should also be a key area of strategic focus. There may be potential to gain support for collaboration with global development partners who are leaders in particular technologies.
2
Data capture and analytics
Benefits
A key benefit of Manufacturing 4.0 is the capacity for data capture and to generate significant analytics. The resulting information increase the ability to make real-time, automated decisions to simplify asset management, maintenance, maximise equipment and process efficiency and improved product quality.
Challenges
The culture of data capture and analytics is not well developed in Commonwealth SIDS and LDCs and there will be a need for capacity building to shift behaviour.
Recommendations
Establish short training programmes that are widely accessible for data capture and analytics with specific reference to Manufacturing 4.0 implementation.
3
Equipment and machinery
Benefits
Manufacturing 4.0 technologies can offer improved flexibility in production processes, generate increased productivity and output, improve process monitoring of quality and conformance and support traceability by capturing data at various points in the process.
Challenges
Manufacturing 4.0 tooling and retrofitting of equipment and machinery requires considerable up-front investment. Ongoing technology upgrades and advancements could require costly retrofitting or replacement for compatibility.
Recommendations
Develop a fiscal incentive regime to incentivise the retrofitting of machinery and equipment and the acquisition of the required technologies along with related ICT devices and all productive inputs.
4
Internet of Things (IoT) and Cyber-Physical Systems
Benefits
The IoT extends machine-to-machine communication to communication with their broader environment and with other infrastructure. IoT-enabled products allow manufacturers to control and analyse their performance and collect usage data.
Cyber-physical systems (CPS) are engineered systems built and dependent upon the integration of computational algorithms and physical components. They enhance the sharing of data and information and depend on a high level of standardisation and interoperability.
Challenges
Standardisation and interoperability issues can function as barriers to the optimal performance of IoT-enabled and CPS systems.
Recommendations
Capacity building programmes to support standardization and interoperability should be developed and rolled out through demonstration labs, incubators and accelerators.
5
Raw material supply chains
Benefits
The deployment of M4.0 technologies such as 3D printing depends on the availability of consumable, specialised raw materials in the form of filaments. Other productive inputs include sensors, hardware and software used to modify machinery and equipment. There is an opportunity to develop new and more sustainable raw material supply chains for manufacturing which are more localised or regionalised.
Challenges
Costs of raw materials for manufacturing and their transportation have increased significantly for manufacturers in SIDS and LDCs since the Covid-19 pandemic. The demand for raw material inventories and productive inputs will increase the demands for efficient inventory management. Technologies like 3D printing require specialised raw materials inputs that otherwise may not be acquired or stocked. This will increase the management demands on MSMEs. Increased demand for foreign currency could also place pressure on small economies.
Recommendations
Policy makers should increase efforts to encourage the development of sustainable raw material supply chains on a local and regional level. This could be a component of national or regional industrial policies.
Micro/Firm Level Strategies
1
Customisation
Benefits
Digital fabrication methods such as 3D printing, laser cutting, CNC-milling and robotic assembly support the ability to undertake flexible production of greater variety of products. This includes designs of a complexity that cannot be easily realised with traditional manufacturing methods. Customisation allows for products to be designed to fit the specific needs of consumers, who may even be part of the design process. This may increase the competitiveness of product offerings.
Challenges
Customisation can drive consumption and therefore sustainability concerns. Traditionally, the capability and capacity for new product development in relation to the requirements of international markets is limited across SIDS and LDCs, evident in the small number of globally distributed products originally made in these countries.
Recommendations
Governments should develop policies, programmes, incubators and accelerators to support new product development in relation to international markets using Manufacturing 4.0 technologies. This support should be driven by private-sector demand and steered by inclusive public-private leadership Committees to maximise buy-in and potential for success.
2
New Business Models
Benefits
The availability of big data and appropriate management information systems and tools for analytics as components of Manufacturing 4.0 systems support extensive customer analysis and the opening of new sales channels.
Servicification trends in manufacturing and outsourcing can drive new service business models and additional employment and foreign investment.
Virtual networks and platform owners can mine new forms of value from the creation of new business models based on data analytics and connectivity.
Challenges
In SIDS and LDCs, large numbers of small and potential business owners lack an understanding of the strategic possibilities of M4.0 technologies, approaches to evaluating their feasibility, and new business models that may result.
Recommendations
Policymakers should adopt a learning posture in engaging businesses around the potential for developing viable business models enabled by M4.0 technologies.
This can include a focus on areas that support the generation of evidence bases for new business models, such as data collection and analytics.
3
Optimisation
Benefits
M4.0 technologies support enhanced competitiveness and cost savings thanks to more lean, efficient, and optimised processes.
Climate change and pollution mitigation dictates the optimised use of any available resource through circular economy concepts. Such concepts are based on the optimisation of energy and natural resource ecosystems, including reduction and minimisation of waste.
The circular economy requires integrated information about demand and resources. Data capture and smart M4.0 technologies can be used to enable predictive maintenance schedules, optimising and minimising production loss due to machine downtime or failure.
Challenges
Many MSMEs in SIDS and LDCs operate on a survival level, minimising their ability to focus on productivity and sustainability.
This is in part since many formal businesses grow from a position of informality and therefore adequate systems focus is lacking. High costs of energy and doing business in fragmented markets also frequently erode any gains made in relation to productivity and competitiveness. Optimisation can be a limited concern in these circumstances.
Recommendations
Pilot research demonstration centres to measure the impact of M4.0 technologies on real life manufacturing challenges in SIDS and LDCs should be established. This should be done in partnership with manufacturers and business associations to ensure they focus on real needs and challenges.
4
Rapid Prototyping
Benefits
Economic production of small batches, including a batch of one, is feasible with M4.0 technologies and equipment. This reduces the cost and speed of new product development activity.
Challenges
The capacity and capability for technical design and new product development in relation to international markets is a weakness of SIDS and LDC-based manufacturing. Technical skills to support ideation and programming of software and hardware are also lacking.
Recommendations
Short training programmes (including virtual programmes) focusing on technical skills for ideation and new product design and development as well as programming should be developed.
5
Rapid Tooling
Benefits
3D printing / additive manufacturing processes can be used for on-demand printing of spare parts directly at production sites.
Once created, prototypes can be reproduced on an as-needed basis, as often as needed. This potentially improves the maintainability of machinery, equipment and tooling and extends their life cycle.
The generation of tooling on an on-demand basis and on-site offers significant time savings and foreign currency in the case of imported tooling. It can also be useful for spare part production to address ageing equipment. A tooling production capability offers the flexibility to produce proprietary new designs and therefore potentially increase value and sales.
Challenges
Specialised technical skills and substantial experience are required to design efficient tooling.
The feasibility of establishment of such institutions/ centres is heavily dependent on adequate industry demand for services and the relevance of the services which can be provided.
Recommendations
Short training programmes (including virtual programmes) featuring technical skills for design and development of equipment and tooling should be established.
6
Smart Factories
Benefits
Smart sensors, intelligent assistants and robots can be configured in intelligent production systems. In smart factories these systems are seamlessly integrated and networked within processes to increase output, reduce material handling and waste while facilitating remote and decentralised production.
The data generated from operations can be used for management decision making, planning, traceability and execution of "smart contracts" which reduce dependence on human approval to execute their terms. Smart factories are associated with minimised downtime caused by workplace accidents.
Challenges
While there can be concern around the potential loss of employment through the introduction of M 4.0 across the region, there is less concern for the potential business failure which could result from MSMEs not adequately scaling to satisfy market demand or the lack of viability and competitiveness resulting from a refusal to adopt technologies in line with competitors based in countries which are major trading partners.
Recommendations
Based on a comparison of incentive systems for manufacturing in major trading partners, governments should develop appropriate fiscal incentive regimes to provide duty relief for genuine manufacturers, including MSMEs aiming to establish smart production systems.
Regional legislative frameworks may also be appropriate in the context of regional integration initiatives and increasing global trends toward the regionalisation/localisation of production.
7
Technology Integration
Benefits
Based on a comparison of incentive systems for manufacturing in major trading partners, governments should develop appropriate fiscal incentive regimes to provide duty relief for genuine manufacturers, including MSMEs aiming to establish smart production systems.
Regional legislative frameworks may also be appropriate in the context of regional integration initiatives and increasing global trends toward the regionalisation/localisation of production.
Challenges
Despite several initiatives to develop coding skills in youth and girls, enhanced use of e-governance and e-banking platforms, and proposals to fast-track the digitisation of businesses since the Covid-19 pandemic, there is very little encouragement or medium-term financing of the development of robotics, automation and/or home-grown software and apps.
These may be particularly relevant in the areas of production/ inventory management and/ or predictive maintenance.
Recommendations
Research grants and competitions should be established to support M4.0 technology integration and incentivise the development of novel competitive solutions to the challenges of technology integration with manufacturing.
Meso Level Strategies
1
Agro-processing / Food and Beverage Sector
Benefits
M4.0 technologies enable more efficient and cost- effective production of goods, improved management of raw materials, more efficient detection of non-conformance, and improved transparency and traceability. Blockchain technologies are being deployed to identify origin and track supply chain activities and custody of goods in international trade.
There are some of the many benefits that can accrue to the agro-processing and food and beverage sectors through the adoption or adaptation of these technologies.
Challenges
M4.0 technologies are reliant on good quality data, though there is a weak culture of data collection in many SIDS and LDCs. This is in part due to the fact that many businesses grow from informality.
There is also a narrow understanding how these technologies can be applied by firms in these sectors.
Recommendations
Governments should develop policies, programmes, incubators and accelerators to support new product development in relation to international markets using M4.0 technologies. This support should be driven by private-sector demand and steered by inclusive public-private leadership Committees to maximise buy-in and potential for success.
Efforts should be made to boost awareness amongst agro-processing and food and beverage firms as to benefits of applying M4.0 technologies to their firms.
2
Blue Economy
Benefits
Blue Economy development is associated with a wide range of traditional economic activities that have vast potential for economic growth and expansion, particularly in SIDS.
These include fisheries, aquaculture, boatbuilding, yachting repair and maintenance, ocean transport, seaweed harvesting, seabed minerals, ocean tidal renewable energy, marine research and management of seaports and waterways.
The buildout of new production infrastructure for processing, repair and maintenance utilising M4.0 technologies is a potential growth opportunity where SIDS may be able to generate comparative and competitive advantages.
Challenges
Blue Economy industries can be research-oriented, capital intensive and technical in nature. There are skill gaps and limited understanding of how successful business models can build out in these industries in many SIDS.
Recommendations
The application of M4.0 technologies to the Blue Economy should be considered in future industrial policies.
Development of the Blue Economy can be a new lever for economic growth and development of novel activities in many SIDS. With the need to move the needle in relation to climate change, incorporating M4.0 technologies can provide the necessary data to monitor progress and create leapfrogging opportunities for SIDS in this context.
3
Circular Economy
Benefits
The circular economy concept requires that resources be optimised in terms of renewability (energy used), reusability (recycling valuable metals, alloys and polymers beyond the shelf life of individual resources) and recyclability (compostable packaging).
Consumers are becoming more ecologically aware and, in some markets, demand for ecologically sensitive products and sustainable processing is increasing. M4.0 technologies can play a crucial role in these products and processes.
Challenges
The scaling of production in M4.0 and the achievement of output at lower costs could lead to increased consumption and create negative sustainability impacts.
Eco-designed products and processes are often more expensive and therefore not accessible by poorer consumers, creating a challenge in production for local consumption in SIDS and LDCs.
Recommendations
The application of M4.0 technologies to the circular economy should be considered in future industrial policies. Mapping of the potential waste streams for reclamation should be done and only the most feasible opportunities for scaling on a regional level developed as investment profiles.
4
Repair and Maintenance Sector
Benefits
Localisation of production based on the adoption of adaption of M4.0 technologies enables prospects of more professionalised and effective repair and maintenance sectors in SIDS and LDCs. This can contribute to the growth and expansion of several industries from production to transportation and logistics, including increased employment and job creation.
Challenges
There is limited study available detailing the prospects of advancing the repair and maintenance sectors in SIDS and LDCs, including the ability of this sector to support the competitive functioning of other industries.
Recommendations
Governments should undertake a mapping of the repair and maintenance sector with a view to identifying available skills and potential impact on manufacturing competitiveness.
The mapping should assess the extent of operation of in-house service departments versus outsourced activity. They should further evaluate the aggregate demand for tooling as a component of manufacturing and undertake a feasibility assessment in relation to the need for incentives to support tooling and retooling.
5
SME-based Design-led and Innovation-led Manufacturing
Benefits
M4.0 technologies may lower existing cost barriers to radical product innovation. Access to the technologies could encourage designers and entrepreneurs to be more experimental and innovative, to work with new materials, technologies, and processes, and to access new markets with their creative products and services.
Challenges
Many MSMEs in SIDS and LDCs operate on survival level, with limited resources to develop and sustain product innovation.
Recommendations
Governments should enact policies to encourage and incentivise innovation among MSMEs with a focus on the potential for M4.0 technologies and processes.
Macro Level Strategies
1
Innovation Ecosystems
Benefits
Modest investments in technology upgrades such as high-speed broadband, 3D printers and local power hubs could provide and network systems to automate manual tasks that can be done at lower costs and higher quality levels.
The broad-ranging impact of M4.0 technologies across industries and societies make a holistic ecosystem approach to policymaking most effective, to ensure all benefits are captured and drawbacks effectively mitigated.
Challenges
SIDS and LDCs are generally lacking in their approaches to innovation and their ability to create and sustain innovation ecosystems.
Recommendations
Governments should approach policymaking for M4.0 with a holistic mindset, thinking beyond traditional industrial policymaking and incorporating policymaking processes for all aspects of the digital economy.
2
Manufacturing Services
Benefits
With increasing automation, data collection and analytics, the manufacturing sector is increasingly relying on services as inputs or as output sold bundled with goods (such as installation, maintenance and repair services).
Services are a new growth frontier and servicification trends aligned with M4.0 indicate that investments in M4.0 will simultaneously yield expansion in the services sector.
Challenges
Success in managing servicification business models requires the embrace of customer-centric, demand driven approaches to creative collaboration, continuous improvement, and productivity, to define and co-create value with customers/clients.
This is an approach that MSMEs in SIDS/LDCs may be unfamiliar with and may prove challenging to adapt to.
Recommendations
The potential for manufacturing services should be considered in developing or updating industrial policies.
Some governments have invested in the development of legislation to support the development of business process outsourcing (BPO) industries and Free Zones with a view to job creation and investment attraction. It may be worthwhile to review this legislation to determine whether it could be usefully applied to the attraction of investment for service-related M4.0 operations.
3
Waste Management
Benefits
The data harvesting inherent in Manufacturing 4.0 technologies supports the efficient reclamation and recycling of waste by identifying specific product component and product usage patterns to identify waste and allow for its treatment and potential reclamation to be managed effectively.
Challenges
The current and future impact of M4.0 technologies on waste streams in many SIDS and LDCs requires further study. Accurate mapping of the waste streams and their contents is not yet being widely undertaken in a scientific and ongoing manner, but will likely be needed to meet future environmental and climate crisis mitigation.
Recommendations
Governments should be proactive in investigating the potential impact of M4.0 technologies on waste streams and developing appropriate guidelines for waste treatment and management. SIDS and LDCs should encourage the use of ecologically sensitive materials wherever possible.
Cross-Cutting Issues
1
Addressing Skills Gaps
Benefits
M4.0 implementation will require and may enable changes to education and vocational training as well as managerial capacity building for technology management.
The composition of workforces in SIDS and LDCs will need to change to match the digital skills required. New career paths will emerge related to engineering, programming, software design and development, robotics, data management and analytics, cybersecurity, among others.
Challenges
Specialised technologies and expertise will be required for education and training on new technologies, increasing associated costs.
Lower skilled jobs may be eliminated and replaced by machines, while new highly skilled jobs would be created which may be out of sync with labour supply.
Recommendations
Governments must engage in proactive planning to support labour market reform and enact policies to support new IT and technology-centric education and work opportunities. This should be done in collaboration with the private sector and collective bargaining organisations.
2
Business environment
Benefits
M4.0 technology adoption and adaption could potentially impact other economic segments including construction, transportation, logistics, and urban development. Alongside the likely resulting human capital development, this could potentially be transformative in raising the standard of living in SIDS and LDCs with limited resources, while reshaping the business environment towards greater efficiency.
Internet-based and remote-controlled technologies such as drones have the potential to transform economic activities in rural and remote areas, and across archipelagic countries. Investments in connectivity which could enable these technologies could spur economic development and growth.
Challenges
Business environments in many SIDS and LDCs are generally inefficient and uncompetitive in many respects, including high costs of energy and doing business.
Recommendations
Governments should consider the impact of M4.0 and its transformative potential and resulting economic and social benefits in future/updated industrial policies.
3
Cybersecurity
Benefits
The increased reliance on digital technologies and communications with M4.0 adoption or adaption means cybersecurity becomes both prerequisite for safe and secure operations, as well as a potential catalyst for countries to upgrade their cybersecurity technologies and implementation.
The expanding number and sophistication of cyberthreats mean all countries need to enhance their monitoring and mitigation capabilities to keep businesses, industries and societies secure. Anything that catalyses this can bring net benefits to countries overall.
Challenges
Robust management of cyber-security risks by private companies to avoid data breaches is required to support M4.0 technologies and processes.
This can be costly, particularly for MSMEs in SIDS and LDCs, particularly as local expertise may not be available. Reliance on outside/foreign expertise can be an issue in more sensitive areas.
This is also a fast-moving area with constantly emerging and increasingly sophisticated threats. Remaining up to date is both crucial and challenging.
Recommendations
Governments should enact/update legislation to address cyber security issues and mitigate against potential cyber threats in industrial contexts.
Uniform regional legislative framework could be considered in the context of regional integration initiatives.
4
Investment Attraction
Benefits
M4.0 technologies allow MNCs to extract efficiencies from their international production networks by reducing governance and transaction costs and enhancing centralised coordination and control. Productivity gains generated by automation in developed economies can increase the demand for intermediate inputs, many of which may continue to be sourced from less developed countries through GVCs.
Challenges
As noted, business environments in many SIDS and LDCs are generally inefficient and uncompetitive in many respects, including high costs of energy and doing business.
The competitive nature of global investment attraction adds extra impetus for SIDS and LDCs to address legal, regulatory, and doing business issues that limit their ability to attract foreign investment.
Size and geography can often place natural constraints on foreign investment, given small and relatively remote markets, especially for SIDS.
Recommendations
Governments in SIDS and LDCs should target the attraction of productive activities in shorter value chains, with an emphasis on final goods production, broader industrial capability, and clustering.
To produce scale and overcome size and geographic limitations, they should consider developing/adapting industrial policies with a focus on investment attraction that is regional in scope.
5
Managing ICT Infrastructure & Interconnectivity
Benefits
Fully functioning digital systems requite seamless data sharing between machines and other physical systems, including systems from different manufacturers.
Efficient, reliable, and cost effective administrative and managerial support is required in the form of broadband communication networks and services, hardware and software.
Challenges
Fast, reliable and cost-effective internet access remains a challenge for many SIDS and LDCs. As a crucial element supporting the adoption and adaptation of M4.0 technologies, this can be a big constraint.
For example, during the Covid-19 pandemic, the availability of efficient, reliable and cost-effective broadband services was often criticised in relation to a lack of support for online education in many SIDS and LDCs.
Recommendations
Policymakers should promote investment in digital infrastructure and encourage sufficient competition in high-speed networks and services to boost reliability and affordability for businesses.
6
Managing technological disruption
Benefits
New and disruptive technologies have been associated with giants leaps in human progress and security, standards of living and productivity. The more widely adopted the technology, the greater the potential transformation.
M4.0 technologies can be a catalyst for such transformation and disruption, not only in manufacturing sectors but more broadly across entire economies and societies.
Challenges
Technology disruption can have positive as well as negative effects that must be managed in the interest of prosperity and equality.
For example, new technologies can create structural shifts in employment and skills requirements that could permanently alter labour landscapes. Some jobs will become redundant, demand for other jobs will grow rapidly, and there will be changes in the skillsets required to perform existing jobs.
Manufacturers in some product groups which lend themselves to highly automated production, while others may find themselves uncompetitive against more efficiently produced imported products.
Recommendations
Policymakers in SIDS and LDCs should ensure they are aware and well informed of both the positive and negative impacts of technological disruption, and structure policies that promote the former and mitigate the latter as much as possible.
A holistic and cohesive approach to industrial policymaking is required, considering the broad nature of potential disruptions.
7
Productivity
Benefits
Increased human-machine interactions will naturally increase productivity as tasks are simplified and enhanced by smart technologies. Increased productivity is one of the biggest expected benefits of M4.0 technology adoption and adaptation.
Challenges
High costs of energy, inputs, and transportation as well as high costs of doing business can erode the advantages of lower production costs derived from M4.0, especially in SIDS and LDCs where these costs can be high/uncompetitive.
Recommendations
Productivity measurement and improvement should be key strategy governments consider in developing or updating industrial policies.
8
Standardisation & Interoperability
Benefits
M4.0 technologies require an investment in standardisation and interoperability of systems. This is the subject of initiatives in various international forums (ISO/IEC, W3C, IEEE). M4.0 technology adoption and adaptation can also be a catalyst for greater standardisation and interoperability.
Challenges
Testing and implementation of systems to achieve standardisation and interoperability can be costly, particularly for MSMEs and for SIDS and LDCs more broadly.
Recommendations
National standardisation activities and initiatives should be harmonised with those at the international level to ensure efficient interoperability of devices and technologies. This should be a component of industrial policy development.
Programmes focused on trade development should include support for MSMEs in these areas.