OCTOBER 2025AUTO BUSINESS OUTLOOK 8IN MY OPINIONKNOWLEDGE GATHERING AND INDUSTRY 4.0 ADOPTION BY SMALL-MEDIUM ENTERPRISES (SME) MANUFACTURERSBy David Chia, Managing Director, Beckhoff AutomationIntroductionIndustry 4.0 (I4.0) started as an initiative in Germany and was first announced during the Hannover Fair in 2011. It began as a concept to maintain the status of Germany as an industrial manufacturing powerhouse, much contrary to the practice of offshoring amidst intense competition from low-cost countries.Continuous innovation in manufacturing is required to maintain such competitiveness. Not only does this support high-tech developments in the country and allow Germany to maintain its technological lead in the world, but manufacturing also supports employment. Hence, besides a strong technological push, there is an equally strong social-political pull.Most research in I4.0 is geared towards technology, with few touching on business model innovation and even fewer on small-medium enterprises. But as the saying goes, "When two elephants fight, the grass suffers." what more can it be with the large nations and large firms competing? What does it mean for smaller nations and small-medium enterprises?Industry 4.0 in GeneralI4.0 is a concept born ahead of its time in 2011 and has been described as a future project where there is both a social-political pull and a technological push. And similarly, on the technology push, there need to be innovative business models to pull in the adoption.According to a World Economic Forum report, the general adoption of I4.0 is relatively low. The most digitally mature industries of semiconductors, electronics, and pharmaceuticals are at most hovering on average, which means others are way below average. Noting that these top industries are typically the domains of large firms, it is not surprising to find SMEs are lagging, or perhaps not.Industry 4.0 Technologies in ManufacturingIndustry 4.0 has the eventual goal of transforming regular factories into `smart autonomous production units', and a common term used is cyber-physical systems (CPS). Ideally, autonomous machines would be interacting with one another with minimal or no human interactions. Expanding this across the value chain, we can then see smart production units interacting with one another in a larger ecosystem. Related to the traditional focus of manufacturing, I4.0 technologies are supposed to enable interoperability across systems, support decentralization, maintain real-time visibility and capability to provide more flexibility, reduce costs, reduce lead time, and allow mass customization in small batch operations.Industry 4.0 and Business Model InnovationThere is both a technological push and a social-political pull to Industry 4.0, and this phenomenon is pushing business models to evolve as well. Early research shows SMEs embark on I4.0 adoption but only at elementary levels. The reasons or hurdles preventing SMEs from going further remain unknown. Referring to Figure 1, here we divide the stage of I4.0 adoption into two ­ internal process optimization and external value creation. Figure 1: Defining a simple 2-stage adoption status (Adapted from (Ibarra et al., 2018, p. 8), p. 8)Internal process optimization represents incremental innovations that firms adopt to be more efficient and to
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