Proceedings of the 2019 International Conference on Advanced Mechatronic Systems, Kusatsu, Shiga, Japan, August 26 - 28, 2019

How firms in emerging economies can learn industry 4.0

by extracting knowledge from their foreign partners? A
view point from strategic management perspective
Saqib Shamim1, Shuang Cang2, Hongnian Yu3,4, Yun Li4, Leo Yi Chen4,  Xifan Yao5

1
Kent Business School, University of Kent, Canterbury, UK
2
School of Economics and Management, Yanshan University, Qinhuangdao, Hebei, China, 066004
3*
Faculty of Sciences & Technology, Talbot Campus, Bournemouth University, UK
4
Dongguan Industry 4.0 Artificial Intelligence Laboratory, Dongguan University of Technology, Dongguan 523808, China
5
School of Mechanical and Automotive Engineering, South China University of Technology, Guangzhou 510640, China

Abstract Industry 4.0 strategy can give a boost of 267 billion euro
This study offers a view point from a strategic to the German economy [2]. It does not mean that this
management perspective which shows that firms in concept is only applicable for Germany; in fact, Industry
emerging economies can learn Industry 4.0 from their 4.0 is becoming a general strategy for the fourth industrial
foreign partners operating from developed economies, by revolution, and it becomes a global phenomenon, being
developing knowledge based dynamic capabilities discussed by a number of researchers in different contexts
(KBDCs). It emphasises on the importance of management and economies [4].
inclination towards Industry 4.0. Integration of literature Elicited by the internet, Industry 4.0 enables
and logical beliefs show that management inclinations communication between humans as well as machines in
towards Industry 4.0 in terms of leadership, talent CPS to acquire and process data and to self-control certain
management, culture, and technology can facilitate the tasks. It is radically transforming the performance of
development of KBDCs which facilities knowledge manufacturing activities. Consequently, many developed
activities. Firms in the emerging and underdeveloped and emerging economies such as Germany, USA, China,
economies are in special need of this kind of capabilities Japan, and Malaysia are exploring ways to revolutionize
because of institutional voids. By developing these and renew their existing manufacturing competencies [7].
capabilities they can extract knowledge from their foreign In this context, new manufacturing capabilities need to be
partners from developed industrial economies who are established to enable firms to extend and renew their
doing well in terms of Industry 4.0. This study suggests resources bases in order to respond effectively to rapid
that it needs a right combination of leadership, talent technological developments. A radical technological
management, technology, and culture to learn and change often creates capability gaps for manufacturing
implement Industry 4.0 in the firm. firms because it introduces new ways of performing
manufacturing activities, and new ways of creating value.
Key words: Industry 4.0; Management inclination; This is particularly challenging for firms from emerging
Knowledge based dynamic capabilities; Knowledge and underdeveloped economies which have been heavily
extraction; Emerging economy. leveraging labor-intensive, low specialist and
technological skills to produce simple products in order to
Introduction serve low cost market segments [5]. With historically low
Due to the recent technological leaps and pace of emphasis on R&D and consequently weak technological
innovation, industry faces paradigm shifts, also known as capabilities, many firms from emerging economies have
industrial revolutions [1]. The first three industrial relied upon buying new technologies from industrialized
revolutions are characterized by mechanization, high economies [6]. However, the process and mechanism of
electric energy usage, and automation and electronics, developing new capabilities to respond to the radical
respectively [1]. Today’s economy is heading toward the technological changes associated with Industry 4.0 are
fourth industrial revolution, characterized by the use of theoretically distinct from R&D based on learning before
Cyber Physical Systems (CPS), smart factories, digital doing.
transformations, industrial internet of things, and service Furthermore, the institutional characteristics of
innovations [2, 3]. Germany is playing the leading role in emerging economies are also greatly different from those
planning the next paradigm shift, and they came up with of industrialized economies [7]. Indeed, resource scarcities
an idea of Industry 4.0 for the fourth industrial revolution such as low availability of domestically produced capital
[3]. The concept of Industry 4.0 originates from a German equipment and technologies [5], the pervasive role of
government project to promote digitalization and government institutions and the absence of market
computerization. It is expected that implementation of the supporting institutions further hinder the development of

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manufacturing firms in emerging economies. This raises a capital and organizational capabilities as well. DC
very important question: how can manufacturing firms framework suggests that having the unique resource is not
from emerging economies respond to such radical sufficient for sustainable competitive advantage, there is
technological change? As technologies associated with need to effective management practices to create value
Industry 4.0 are poised to fundamentally challenge from strategic resources [14, 16]. Knowledge based view
established theories and the practices of manufacturing argues that knowledge is the main strategic resource of
firms [8, 9], another question emerges, to what extent, can organization and individuals leading to competitive
the lessons learned from developed economies are advantage [17,18]. RBV receives criticism because it is not
transferable to the emerging economies? very useful in turbulent environment, where firms need
Emerging economy firms usually operate in an DC. DCs are the processes that can operate in both
environment which is dynamic and evolving. It is also dynamic and static business environment. Learning
characterized by lack of intermediaries, weak institutions, mechanisms, especially knowledge management (KM)
nascent innovation ecosystem and limited financial activities are prominent drivers of DCs [19]. Knowledge
support for innovative activities from government which is based view states that organizations are knowledge
a key institutional player [10]. Such institutional bearing entities and the basic purpose of the organization
immaturity is often referred to as “Institutional voids” is to integrate and use this knowledge for value creation
making it very difficult for the firms in emerging economy [18, 20]. Synthesis of these different streams of work
to perform innovative activities [10,11]. In such a context, forward the KBDC framework, which refers to the ability
sources of external knowledge becomes extremely to acquire, generate, and combine knowledge resources to
important for the firms in emerging economy to pursue sense, explore, and address the environment dynamics.
revolutionary activities [10], such as Industry 4.0. [10] The underlying phenomenon of KBDCs includes
argues that foreign partners e.g. suppliers and other players knowledge related activities of both external and internal
in value chain from developed economies are important knowledge [16] .
source of knowledge extraction for firms in emerging In the KBDCs framework knowledge includes tacit
economies. [10] also emphasises on the importance of and explicit knowledge, information and know-how,
absorptive capacity in the process of knowledge extraction management, technological and marketing knowledge.
from foreign partners. Furthermore importance of dynamic Knowledge acquisition, knowledge generation, and
capabilities (DCs) to operate in digital environment such knowledge combination capabilities are the sub-
as Industry 4.0 is acknowledge by researchers [12]. capabilities, represents the dimensions of KBDCs [16].
Particularly knowledge based dynamic capabilities Based on these arguments it can be assumed that KBDCs
(KBDCs) can play a critical role in knowledge extraction can facilitate the firms in emerging economy to extract
from foreign partners. industry 4.0 knowledge from technologically advanced
It is well established that absorptive capacity and foreign partner firms. [21] also argues that knowledge
KBDCs are crucial to enable firms to extract knowledge related capabilities are important for firms to gain
from external environment [10, 12]. However it is equally knowledge from external environment which leads to
important to that how firms develop absorptive capacity inbound and outbound innovations.
and KBDCs. Literature suggests that role of management
inclination is critical in order to develop DCs [12] and Management inclination towards Industry 4.0
adopt digital transformations [13]. Particularly, Theory of DCs suggests that the DCs can be influenced by
combination and right inclination of leadership, talent managerial practices. Inclination of management towards
management, culture, and technology is important for the the desired capabilities and outcome is vital. Particularly
development of desired capabilities. Based on literature to develop the DCs to operate in a digital environment such
and logical beliefs, this study offers a view point on, how as Industry 4.0, human resource, technology, and culture
management inclination towards Industry 4.0 can develop are important [22]. [13] also argues that leadership, talent
absorptive capacity and DCs to extract Industry 4.0 related management, culture, and technology are key factors to
knowledge from foreign partners. This type of knowledge make a company more data driven. [12] also acknowledges
extraction can facilitate the industry 4.0 orientation of the importance of leadership, talent management, culture,
firms in emerging economies. technology in the process of DCs development for big data
driven decision making. These arguments show the
Knowledge based dynamic capabilities
importance of management inclination for successful
DCs refer to the ability to build, integrate, and reconfigure development of DCs required for Industry 4.0
the internal and external competencies to respond against implementation.
rapidly changing environment [14, 15]. DC view suggests
that reconfiguration of capabilities according to changing Leadership
environment is essential for sustainable competitive Leadership is an effective way of providing direction to the
advantage [14]. DC is actually extension of resource based organization and it also plays a critical role in the
view (RBV), which suggests that organizations should development and modification of desired DCs [23]. This
leverage their strategic resources which are unique and not is also consistent with the contingency theories of
easy to imitate, for sustainable competitive advantage [16]. leadership, suggesting that leadership style should be
DC emphasizes on tangible and intangible assets, human

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adapted according the environment and desired outcomes communication skills, and trust in knowledge, continuous
[24]. Importance of leadership inclination in the context of improvement and lifelong learning [23]. So talent
Industry 4.0 is well acknowledged in the existing literature management in the organizations should focus on these
[3, 17]. Furthermore literature also provides evidences of skills, to strengthen the required DCs. By creating the
crucial role of leadership in the process of development required KBDCs, talent management can enable the firms
and reconfiguration of DCs. Particularly DCs are to extract knowledge form the external knowledge sources
associated with the leadership proclivity towards change. i.e. foreign partners, who have this set of skills. Skills
Furthermore there are evidences in literature that suggested by [24] are summarized in Table 1.
leadership can influence the ability of knowledge
extraction [17], which can play a critical role to learn from Technology
foreign firms from developed countries with high Combining the right technology with leadership and talent
orientation of Industry 4.0. [21] also emphasises on the management is equally important. DCs view is widely
importance of leadership to create KBDCs in the firm to examined in the technology management context, because
enable the firm to adapt new advancements in international technology is one of the most important influencer of DCs
environment. Researchers acknowledge the importance of in the firms [27]. Providing the right technology to the
leadership in the process of Industry 4.0 implementation in right talent, with right leadership is must for facilitating the
difference sectors, for example [25] suggests that development of DCs for Industry 4.0, particularly KBDCs
leadership can play a key role to enable hospitality firms to extract knowledge from external sources i.e. foreign
to embrace Industry 4.0. partners. [13] also argues that digital transformations
require the cutting edge technology for example to collect,
Talent management
store, visualize, and analyse data. China is evidence where
Leadership is an essential tool to provide the direction to indigenous technological capabilities are improved
the organization, however when it is accompanied with the through technological imports. Collaboration, knowledge
right talent management it can produce even better results. exchange and big data analytics etc. can be enhanced by
Talent management is emerging as a key challenge for the the use of suitable technologies [12].
firms in the process of digital transformations [13, 12]. For In the era of Industry 4.0, technology should drive the
example, data is crucial in the Industry 4.0 era i.e. it is change in product-supply side, such as assistance systems,
characterized by implementation of CPS, and IOTs which production technologies, support systems. Technology can
create data, more often big data. This phenomenon is also enhance the product-demand side by making demand
increasing the importance of data scientists. Data is forecasting processes more smart and digital. There are
becoming more and more affordable now a days, and data several technologies aiming to facilitate the production
scientists are becoming more expensive, and hard to retain. industry, in the fourth industrial revolution [26]. Such
This situation needs well directed talent management to technologies can help the organizations to cope with
hire, retain and train suitable employees to work in the changing market demands and maintain global
environment of Industry 4.0. Traditional statistical skills competitiveness in the global technological environment.
are not enough in the big data era, as it requires more By adopting these technologies organizations can make
sophisticated data analysis techniques. [29] also argues their products and production process smarter. However,
that talent management plays a critical role in the digital successful adaptation of these technologies depends on the
transformations by managing the talent which is able to firm’s technology readiness level [24], which requires
speak both technical and business language, thus facilities KBDCs at a firm level. For the underdeveloped and
the leaders by formulating the ways to tackle Industry 4.0. emerging economies, technology is not very advanced and
[26] suggests set of technical and personal skills institutional support is rare, KBDCs can play a critical role
required for Industry 4.0, which should be considered in to learn these technologies from partners in developed
talent management activities of firms operating in Industry economies. [24] highlighted number of technologies with
4.0 environment. [24] argues that technical skills required the potential to play critical role in the era of Industry 4.0.
for Industry 4.0 are IT knowledge and abilities, data These are shown in Figure 1.
processing and analytics, organizational and processual
understanding, knowledge management, awareness of data
security, specialized knowledge of manufacturing process,
computer programming and coding abilities, knowledge or
ergonomics, and understanding of legal affairs. Personal
skills required for Industry 4.0 are time and time
management, ability to change, social skills,

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 Table 1. Set of skills for Industry 4.0 [24]

Figure 1. Technologies for Industry 4.0 [24]

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Culture
When a firm is equipped with right leadership, talent Discussion and conclusion
management, and technological inclination towards the
This study offers a view point from a strategic
Industry 4.0 and DCs required for industry 4.0, it can lead
management perspective that how firms in emerging
to an Industry 4.0 culture in the organization. Culture
economies can learn industry 4.0 from their foreign
refers to the set of values, norms, patterns of behaviours,
partners from developed economies by developing
and attitude, which defines the organization’s core identity
KBDCs. It emphasises on the importance of management
[28]. Literature shows that culture can influence DCs, for
inclination towards Industry 4.0. Integration of literature
example a learning culture can influence the firm’s
and logical beliefs show that management inclinations
capability of adapting marketing program according the
towards Industry 4.0 in terms of leadership, talent
environment. [13] also argues that for successful
management, culture, and technology can facilitate the
adaptation of digital transformations, firms need to
development of KBDCs which facilities knowledge
develop a culture of digital work environment. This
activities. Firms in the emerging and underdeveloped
argument is validated by [12] that culture has the ability to
economies are in special need of these kind of capabilities
influence the KBDCs related to digital transformation,
because of institutional voids. By developing these
which can facilitate Industry 4.0. Flexible and change
capabilities they can extract knowledge from their foreign
oriented culture is essential for the development of DCs
partners from developed industrial economies who are
[22]. Culture affects the processes designed to acquire,
doing well in terms of Industry 4.0. This study suggests
exchange and transform external resources. Considering
that it need a right combination of leadership, talent
knowledge as most important strategic resource, it can be
management, technology, and culture to learn and
argued that suitable culture can influence the firm’s ability
implement Industry 4.0 in the firm. All these management
to extract knowledge from foreign partners by enhancing
practices should be in same direction which should be
KBDCs. Suitable culture can develop the consistent
towards Industry 4.0. Combined result of the managerial
behaviours in the firms required for Industry and to gain
factors can be successful adaptation of Industry 4.0, by
knowledge of Industry 4.0 from foreign partners, by
developing KBDCs which facilitate knowledge extraction.
enhancing KBDCs.
The proposed conceptual model is presented in Figure 2.

Figure 2. Conceptual model

This study contributes towards the existing body of empirical research on this topic to go in more depth and to
knowledge by suggesting a framework of how explore the process of how KBDCs facilitates the process
management practise can facilitate Industry 4.0 by of knowledge extraction from external sources e.g. foreign
developing KBDCs to facilitate knowledge extraction. partners. One of the major limitation of this study is that it
Existing literature on Industry 4.0 mainly focuses on is a view point based on the integration of literature and
engineering designs. However, what kind of capabilities logical beliefs, which need empirical validation. Future
are required for Industry 4.0 needs specialized research. research can follow a qualitative method to explore the
This framework provides solid grounds for future

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