the Visegrád countries
5. Industry 4.0 readiness of the Visegrád countries
New technologies can be adopted not only at Western headquarters of investor firms but also at the firms functioning in Central and Eastern European region.
Agglomeration effects can also help this strategy, the Visegrád countries have become important clusters of the automotive industry due to the high concentra-tion of producconcentra-tion capacities here. McKinsey (2018) argues that automaconcentra-tion will reduce the mentioned labour shortage that is creating a bottleneck to economic growth.
How are the Visegrád countries prepared for Industry 4.0? Roland Berger (2014) developed a macro level Industry 4.0 readiness index bundling production process sophistication, degree of automation, workforce readiness and innovation intensity into a category called “industrial excellence”. Then factors like high value added, industry openness, innovation network and Internet sophistication
16 https://pisadataexplorer.oecd.org/ide/idepisa/
17 Programme for the International Assessment of Adult Competencies (PIAAC)
were combined into a category labelled “value network”. The combination of these two categories determines a country's position in the RB 4.0 Readiness Index. Combining this index with the percentage share of manufacturing in GDP, European countries were grouped into four clusters. The clusters are the „front-runners” (large industrial base, very modern business conditions and technologies (Sweden, Austria and Germany) „potentialists” (weakened industrial base but in the corporate sector indications of a modern and innovative mindset) „hesitators”
(lacking a reliable industrial base, suffering from severe fiscal problems). The fourth group consists of the „traditionalists” mainly in CEE region. They have sound industrial base, but few of them have thus far launched initiatives for industry 4.0.
Naudé et al. (2019) analyse the Industry 4.0 readiness of the Central and Eastern European countries. The study divides this to three broad dimensions 1) technological competencies, 2) entrepreneurial and innovative competencies and 3) governance competencies. In each dimension several international indices, rankings are evaluated, and a composite normalized score is calculated. The authors find that the Czech Republic and Hungary are more I4.0-ready than Slovakia and Poland.
As a part of the Industry 4.0 implementation, digitalization can also be mentioned. In this respect the EU has built an index (DESI index) that can illustrate the position and development of certain countries. A part of this complex index is the „integration of digital technology” combining e-commerce and business digitization.18 Figure 3 shows that the increase of Business Digitisation index between 2014–2019 where V4 countries are at the end of the rank (except for Slovakia) with rather moderate development during the period.
SMEs and large companies work in a local economy, connected to its social and economic conditions, which is called an entrepreneurial ecosystem. Autio et al., (2018) constructed the European Index of Digital Entrepreneurship Systems (EIDES) to assess the digital entrepreneurial ecosystem. The authors state that digitalization creates new challenges for policy that should facilitate entrepreneurial ecosystems, instead of focusing on individual SMEs. Countries are grouped into „leader”, „follower”, „catcher-up” and „laggard” categories.
Czech Republic is the only „catcher -up” country among the V4, the others belong to the “laggard” group.
18 https://ec.europa.eu/digital-single-market/en/desi
Figure 3. Development of Business Digitization 2014–2019
Note: DESI Business Digitisation sub-dimension is calculated as the weighted average of the normalised indicators: Electronic Information Sharing (enterprises who have ERP software package to share information between different functional areas), RFID (Enterprises using Radio
Frequency Identification technologies for after sales product identification or as part of the production and service delivery), Social Media (firms that use two or more types of social media),
e Invoices (firms sending e-invoices suitable for automatic processing), Cloud (buy Cloud Computing services of medium-high sophistication).
Source: DESI Index database.
The Global Entrepreneurship Index19 is a composite indicator of the entrepreneurship ecosystem in each country. The GEI index has 14 components, it measures both the quality of entrepreneurship and the extent and depth of the supporting ecosystem. Figure 4 shows that since 2014 this index has been deteriorating in Hungary, contrary to the other three Visegrád countries. The sub-components of GEI index show that the fields where Hungarian managers perform badly are the risk acceptance, competition, start-up skills and networking. (My interviews reinforced what the GEI index shows. Management is usually the weakest element in Hungarian SMEs, basic capabilities are missing and there is a complete lack of aims and strategy. Managers do not consider necessary to communicate aims to the employees and delegate tasks. Often the manager
19 https://thegedi.org/global-entrepreneurship-and-development-index/ The GEI index contains data of more than half million individuals from the Global Enterpreneurship Monitor and also composed institutional data from 6-8 large databases (WEF, UNESCO, OECD, UN, World Bank, etc).
0 10 20 30 40 50 60 70 80 90
NL FI BE DK IE UK SE MT ES LT LU CY FR EU PT DE EE EL AT HR SI IT SK CZ LV PL RO HU BG 2014 2019
undertakes a lot of things (HR, logistics, purchase, etc.) there is no middle-level leader or responsible person. Evaluation showed weakness in supply chain and quality management too).
Figure 4. GEI index value
Source: Global Entrepreneurship index, yearly reports.
Regarding Industry 4.0 technologies there is a kind of dichotomy in the Visegrád countries, foreign MNE affiliates (and large domestic firms too) are more able and willing to introduce these than domestic SMEs. This is partly, because SMEs are different from MNEs anyway in several respects. Scholars argue that the Industry 4.0 maturity models for SMEs should be different from large firms (Mittal et al., 2018). SMEs are financially constrained, they have informal organizational structure, they have scarce employee participation, less collaboration with R&D and educational centres, etc. The very starting point for an SME on the road of automation is different (lower) from that of a large firm.
The other reason of the duality can be the attitude and capability of SME-managers as it is the case in Hungary (Éltető, 2019) and in Poland (Stasiak-Betlejewska, Parv and Gliń 2018).
Adamik and Nowicki (2018) surveyed 120 SMEs operating in Poland and found that although increasingly aware of modern solutions, they still have a relatively low level of knowledge concerning Industry 4.0. This results in their low activity in terms of the use of tools, they lack preparedness. Ślusarczyk, (2018) found that according to firms’ opinion the high financial investment requirements are the main barriers of Industry 4.0 implementation.
30 35 40 45 50 55
2014 2015 2016 2017 2018
Hungary Slovakia
Czech Republic Poland
Observing the supply side, Grzyb, (2019) asked thirty-one providers of Industry 4.0 solutions who operate on the Polish market. According to their opinion the level of Industry 4.0-familiarity among enterprises in Poland is low or moderate, companies had heard of the concept, but they did not know what it meant (52%) or they understood only its basic assumptions (48%). The highest demand for Industry 4.0 technologies was observed in automotive sector (93%), followed by mechanical engineering (45%), pharmaceutical (35%), aerospace (33%) and food processing (26%), in these sectors market leaders are usually multinational and large enterprises.
Similarly to the former studies, based on survey data Mohelska and Sokolova, (2018) demonstrate that awareness in Czech companies’ upper management level is quite high about Industry 4.0. However, companies still lack their own Industry 4.0 strategy and they have not assigned responsible personnel to take care of that.
Benefits of Industry 4.0 are unclear and in many cases high costs are associated with its application. Results of a survey in 2017 of a thousand Czech SMEs (Vrchota, Volek and Novotná, 2019) are similar, 62% plan to implement automa-tion in the next five years, but 71% of the micro enterprises and 48% of the small ones and 38% of the medium-sized firms did not have any strategy for that.
Regarding Slovakia, the survey of Papula et al., (2019) showed that the greatest need and actual introduction of new technologies/automation in Slovak companies is in the automotive and electrotechnical industry. The authors argue that there is a need for a comprehensive development of enterprises in Slovakia, the main challenges being in corporate culture and in people in relation to the necessary innovation. Grenčíková et al., (2019) conducted a survey among 80 Slovak SMEs operating in the mechanical engineering sector in 2017 and 2018. Compared to 2017, the number of businesses that have not started yet to deal with the Industry 4.0 issue has dropped from 25% to 11%. At the same time the share of those who made already first attempts in Industry 4.0 increased from 15% to 31%. Thus, awareness increased, however, the small (10%) share of the firms that have any kind of strategy remained.
6. Conclusion
In the past decade reshoring became a relevant phenomenon. In several developed economies companies brought back previously offshored production partly or totally. Backshoring took place mainly from China or from other far distance areas. Motivations for reshoring can be various, most importantly the need for more flexibility, control of the whole production process, prestige of the home country quality, etc. Automation and robotization proved to be also a motive for backshoring in the past years.
In this article I used the European Reshoring Monitor database, according to which there are some examples of backshoring from the Visegrád region, mostly from Poland. Nearshoring to the Visegrád area an also be important (there are a few examples also), because of its location advantages. However, some previous location advantages are weakening (there is a labour shortage and wage increase), thus investors can push automatization of their plants. The introduction of Industry 4.0 technologies can be bound mostly to foreign affiliates in the Visegrád countries and to some extent to large domestic companies. SMEs in most Visegrád countries proved to be unprepared for the application of Industry 4.0 technologies (although they are mostly aware of the concept and its effects). This statement is supported by global indices, studies presented in this article.
To sum up, the question for the future is whether location advantages in the Visegrád region will be attractive enough for maintaining or nearshoring foreign investments. After a while –if no cheaper skilled workers are available –it can be more advantageous for foreign investors to automate production at the home country. In this way, new Industry 4.0 production facilities in developed home countries can make investment in V4 superfluous. In order to avoid this a pool of skilled labour should be created with cognitive skills necessary for the new age and thus efforts to improve education and training is essential.
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