SMART

MANUFACTURING
National
Implementation
Framework
The Asian Productivity Organization
(APO) is an intergovernmental
organization that promotes
productivity as a key enabler for
socioeconomic development and
organizational and enterprise
growth. It promotes productivity
improvement tools, techniques, and
methodologies; supports the
National Productivity Organizations
of its members; conducts research on
productivity trends; and disseminates
productivity information, analyses,
and data. The APO was established in
1961 and comprises 21 member
countries.

APO members
Bangladesh, Cambodia, Republic of
China, Fiji, Hong Kong, India,
Indonesia, Islamic Republic of Iran,
Japan, Republic of Korea, Lao PDR,
Malaysia, Mongolia, Nepal, Pakistan,
Philippines, Singapore, Sri Lanka,
Thailand, Turkey, and Vietnam.
SMART MANUFACTURING:
NATIONAL
IMPLEMENTATION
FRAMEWORK

MARCH 2022 | ASIAN PRODUCTIVITY ORGANIZATION

Smart Manufacturing
National Implementation Framework

Dr. Meng Hua Li served as the volume editor.

First edition published in Japan

by the Asian Productivity Organization
1-24-1 Hongo, Bunkyo-ku
Tokyo 113-0033, Japan
www.apo-tokyo.org

© 2022 Asian Productivity Organization

The views expressed in this publication do not necessarily reflect the official views of
the Asian Productivity Organization (APO) or any APO member.

All rights reserved. None of the contents of this publication may be used, reproduced,
stored, or transferred in any form or by any means for commercial purposes without
prior written permission from the APO.

Designed by BM Nxt
CONTENTS

FOREWORD VII

ACKNOWLEDGEMENT VIII

BACKGROUND 1

OVERVIEW OF SMART MANUFACTURING IN FIVE APO MEMBER COUNTRIES 2

SMART MANUFACTURING IN THE ROC 7

Background of Manufacturing Industry in the ROC 7
Impact of COVID-19 on Manufacturing Industry and Countermeasures 7
Policies for Smart Manufacturing in the ROC 9
The ROC’s Industry 3.5 Strategy for Industrial Revolution 4.0 10
Reference 10

INDIA 11
Introduction 11
India: The Fastest-growing Economy 11
Indian Manufacturing Sector 12
Status of Smart Manufacturing Promotion and Implementation 13
Smart Advanced Manufacturing and Rapid Transformation Hub 14
National Mission on Interdisciplinary Cyber–physical Systems 15
IMPRINT IIC: A Unique Collaborative Initiative 16
COE by Ministry of Electronics and IT on Smart Manufacturing Technologies 17
APO–NPC Center of Excellence on Industry 4.0 17
Roles of Industry Bodies and Academic Institutions in Promoting Smart Manufacturing 18
Tools and Techniques for Readiness Assessment at Enterprise Level 19
The Evolving National Framework for Smart Manufacturing 21
National Mission for Smart Manufacturing 23
Potential Collaborations and Dialogs in Smart Manufacturing with other Countries 25
Smart Manufacturing Adoption among Indian SMEs 26
Smart Manufacturing Awareness and Knowledge 27
Smart Manufacturing Technical Competencies 27
Affordability of Smart Manufacturing Technologies 28
Potential Actions by Stakeholders 28
Conclusion 29
References 30

MALAYSIA 33
Introduction: Manufacturing Sector in Malaysia 33
Definition of SMEs in Malaysia 33
Challenges of Smart Manufacturing Implementation 34
Impact of COVID-19 and the Countermeasures 35
Smart Manufacturing Context in Malaysia 36
CONTENTS

Smart Manufacturing Policies 37

Smart Manufacturing Priority Industries 38
Tools and Techniques for Readiness Assessment at Enterprise Level 39
Readiness Assessment 40
Productivity 1010 42
Smart Manufacturing Structure 44
Proposed Framework for Smart Manufacturing Implementation 47
Enterprise Level 47
National Level 47
Conclusion 49
References 50

PAKISTAN 52
Introduction to Smart Manufacturing 52
Manufacturing Sector of Pakistan 52
Role of SMEs in Manufacturing Sector 52
Impact of COVID-19 53
Impact of COVID-19 on Manufacturing 53
Relief to Industry by Government of Pakistan 54
Implications of COVID-19 55
Definition of Smart Manufacturing in Pakistan 55
Status of Smart Manufacturing Promotion and Implementation 56
National-level Initiatives for Smart Manufacturing Promotion 56
Priority Industries for Smart Manufacturing 60
Tools and Techniques for Readiness Assessment at Enterprise Level 62
Readiness Assessment at National level 62
Smart Manufacturing Tools and Techniques for Local Industry 63
Pros and Cons of Smart Manufacturing Tools 63
Proposed Readiness Assessment Tools and Techniques at Enterprise level 64
Framework for Smart Manufacturing Implementation at National Level 67
Proposed Framework 67
Conclusion 70
References 71

THE PHILIPPINES 72
Introduction to Smart Manufacturing in the Philippines 72
I4.0 and Smart Manufacturing in the Philippines 79
Status of Smart Manufacturing Promotion and Implementation 81
Tools and Techniques for Readiness Assessment at Enterprise Level 85
Proposed Framework for Smart Manufacturing Implementation at National Level 88
Inculcate Smart Manufacturing Awareness, Practices, Skills, and Competencies 92
Improve Access to Digital Infrastructure, Financial Support, and Smart Manufacturing
Technologies and Facilities 95
Integrate Collaboration, Innovation, and Entrepreneurship 97
Institutionalize Smart Manufacturing-related Policies, Programs, and Projects 99
Conclusion 100
References 100

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 CONTENTS

VIETNAM 105
Introduction to Country-specific Smart Manufacturing 105
Background Statistics on Manufacturing Sectors in Vietnam 105
Impact of COVID-19 on Smart Manufacturing 105
Status of Smart Manufacturing Promotion and Implementation 106
Digital Capabilities through ICT Applications 106
Priority for Smart Manufacturing 108
Smart Manufacturing Policy 115
Tools and Techniques for Readiness Assessment at Enterprise Level 119
Background for Enterprises using the Smart Manufacturing Tools and Techniques 119
National Tools to Assess Smart Manufacturing Readiness at Enterprise Level 121
Evaluation Results of Enterprises Ready to Transform to Digital and Smart Manufacturing 122
Framework for Smart Manufacturing Implementation at National Level 127
Need for Smart Manufacturing Implementation Framework and Gaps in Current Policy
Framework 127
Elements of Implementation Framework for Smart Manufacturing at National Level 128
References 135

LIST OF TABLES 136

LIST OF FIGURES 137

LIST OF CONTRIBUTORS C

SMART MANUFACTURING: NATIONAL IMPLEMENTATION FRAMEWORK | V

VI | SMART MANUFACTURING: NATIONAL IMPLEMENTATION FRAMEWORK
FOREWORD

S mart manufacturing (SM), the advanced technology-driven approach that integrates intensive
applications of ICT and internet-connected machines in the production process, is a key
element of the Fourth Industrial Revolution, also known as Industry 4.0. Even though it is typically
led by highly industrialized economies and technology giants, APO member economies in different
stages of development are embracing SM applications in key industries in various ways.

A need assessment study completed in 2020 by the APO Center of Excellence (COE) on SM found
that the industrial structures of most APO member economies posed challenges for the transition
to cyberphysical Industry 4.0 systems. The majority of firms in APO member countries are micro,
small, and medium enterprises that are struggling to define the starting point for this journey.
Nevertheless, the SM journey requires concerted efforts from the government to enterprise level to
achieve digital transformation.

Based on those findings and to support member countries in gearing up for Industry 4.0, frameworks
for SM implementation were drawn from the expertise of the APO COE on SM in this publication.
Optimal strategies in national contexts to enable the adoption of smart production technologies are
suggested. Recommendations on SM implementation at all levels, from national policies, to
industry standards, to enterprise strategies, are given with the roles of each stakeholder delineated.
The frameworks support efforts by member countries to initiate the SM journey and build up
ecosystems for manufacturing to transform and thrive.

The APO hopes that the SM implementation plans developed in this study are useful for policy
analysts and government officials in member countries in drawing up their own clear roadmaps for
SM strategic planning. The valuable contributions and commitment of the APO COE on SM and
all the experts who participated in the research are very much appreciated.

Dr. AKP Mochtan

Secretary-General
Asian Productivity Organization

SMART MANUFACTURING: NATIONAL IMPLEMENTATION FRAMEWORK | VII

ACKNOWLEDGEMENT

T he publication on Smart Manufacturing: National Implementation Framework was drafted

with the support of the APO Center of Excellence (COE) on Smart Manufacturing (SM) hosted
by the China Productivity Center (CPC), the ROC. The publication is built upon the results of the
study on Assessment of Smart Manufacturing in APO member countries completed in 2020. Inputs
provided by the APO COE on SM during the coordination meeting of experts and throughout the
research implementation phase are much valued.

Without the contribution of the APO COE on SM, this publication would not have been completed.

VIII | SMART MANUFACTURING: NATIONAL IMPLEMENTATION FRAMEWORK

BACKGROUND

Smart manufacturing is a concept or an idea to equip the manufacturing industry with

state-of-the-art technologies, coupled with improved and relevant management
guidelines and approaches to operations. The end goal is to improve efficiency while
maximizing productivity with the use of digitalization and new technologies. By
employing state-of-the-art technologies, along with integrated data-driven systems,
smart manufacturing optimizes the entire manufacturing process to improve the
efficiency and flexibility of the existing manufacturing environments [1]. The approach
is always associated with the fourth industrial revolution, known as Industry 4.0 (I4.0).
Smart manufacturing is also one of the initiatives to turn I4.0 into a reality.

APO member countries are gearing up for I4.0 with various policy initiatives. However,
the recent pandemic situation has hit the developing countries hard. As most of the
developing economies are lacking in resilience, it is an immense challenge for these
countries and their enterprises to put focus on industrial transformation as they combat
the pandemic. In future too, these countries will require longer periods to recover from
their losses due to the pandemic.

In this report, insights on the development of smart manufacturing in five APO member
countries, namely, India, Malaysia, Pakistan, the Philippines, and Vietnam are presented.
The manufacturing industries of these five APO member countries share some common
features. A majority of the enterprises in the aforementioned countries are small and
medium enterprises (SMEs). Apart from that, the manufacturing industries of these
countries are still moving from Industry 2.0 to Industry 3.0. This corroborates that
information and communication technologies (ICT) are yet to be fully used in the
production processes. As a result, the manufacturing processes are only partially
automated and the demand for labor is sufficiently intense. As the host country for the
Center of Excellence on Smart Manufacturing, insights on smart manufacturing from the
Republic of China (ROC) are shared as best practices for other participating countries.

[1] Ku C.C., Chien C.F., Ma K.T. (2020). Digital transformation to empower smart
production for Industry 3.5 and an empirical study for textile dyeing. Computers &
Industrial Engineering, 142, 106297. https://doi.org/10.1016/j.cie.2020.106297.

SMART MANUFACTURING: NATIONAL IMPLEMENTATION FRAMEWORK | 1

OVERVIEW OF SMART MANUFACTURING
IN FIVE APO MEMBER COUNTRIES

The demand for manpower has become dreadfully high due to the COVID-19 pandemic. Many
factories were forced to shut down as governments began to lock the nations down to control the
pandemic. Production lines were unable to function properly, and orders could not be completed on
time, which caused huge losses for companies. Many countries were greatly affected, as business
activities were halted and workers were urged to stay at home. Challenges were faced by both
governments and companies in the implementation of smart manufacturing amidst tough global
and local economic situations.

To handle the economic crisis resulting from the COVID-19 pandemic, governments have
introduced various policies and economic stimulus programs to strengthen and rebound local
economies. The Government of India has launched programs such as ‘Make in India’ and
Atmanirbhar Bharat (self-reliant India) to help the economy rebound strongly in the next couple
of years. Malaysia has initiated the National Economic Recovery Plan and subsidized MYR260
billion for SMEs to support their businesses. The Government of the Philippines has introduced
programs such as Recharge PH, The Bayanihan to Heal as One Act, and other financial programs,
to ensure business continuity in the country. It has also encouraged local manufactures to repurpose
their products by producing COVID-19-related products, to reduce the dependence of the country
on imports. In Pakistan, the government has countered the adverse impact of the pandemic by
introducing programs such as Prime Minister’s Emergency Relief Package of PKR1,200 billion,
provincial relief packages, Temporary Economic Refinance Facility (TERF), zero-rated industries,
and more. The government has also cut down the interest rates for enterprises to lessen their
financial burden. The Government of Vietnam has also issued policies to support SMEs (68% of
the 783 surveyed enterprises) related to tax; finance and credit; labor; and insurance. The
government support offered in the form of policies or financial packages is a necessity to assist
people in their lives and the businesses to overcome their financial difficulties.

The majority of enterprises in the aforementioned countries are SMEs. A common challenge faced
by SMEs when adopting smart manufacturing pertains to scarcity of resources. Financial resources
are essential to realize intelligent manufacturing in the present production system of factories, e.g.,
in adapting and integrating basic devices such as sensors as well as advanced technologies such as
industrial internet of things (IIoT), cyber–physical systems, big data analytics, artificial intelligence
(AI), and more. However, the revenues made by the SMEs hardly leave room for them to invest in
smart manufacturing. Also, given that it is considered to be a long-term investment, SMEs can
barely attract financial investments. In most of the developing countries, the current digital
ecosystem is also not fully mature to sustain smart manufacturing. Therefore, SMEs are somewhat
challenged to adopt smart manufacturing in their respective businesses.

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 OVERVIEW OF SMART MANUFACTURING IN FIVE APO MEMBER COUNTRIES

Lack of talent in the industry threatens to put the industry at high risk, as only a few will be able to
sustain the systems in smart factories. Implementation of new technologies may also hasten job
losses in future since less-competent workers will be replaced by autonomous machines that aim to
reduce labor cost.

Many efforts were made by government agencies and authorities to draw the attention of players
towards industrial revolution and assist those who are participating in the journey towards
digitalized transformation. Countries have come up with blueprints and policies to initiate digital
revolution in industries.

In India, manufacturing has traditionally played a key role in the economic growth and development
of the world’s sixth-largest economy. However, the importance of manufacturing had diminished
towards the end of last century. The share of manufacturing in India’s GDP had stagnated at 15–
16% since 1980, though it has increased to 18.32% in the last 10 years. Given the large domestic
market with high levels of consumption, it was recognized that industrialization with an increased
share of manufacturing in GDP would be a key feature of economic growth.

India has been undergoing a challenging period due to due to the COVID-19 pandemic. Smart
manufacturing underpins the realization of the government’s Make in India and Atmanirbhar
Bharat programs. Along with other measures needed for the revival of the manufacturing sector,
widespread adoption of smart manufacturing is likely to be a silver bullet to propel competitiveness
of the sector and pave the way for India’s economic leadership. The government is working at
every level to promote the manufacturing sector by taking early steps and spearheading activities
to launch smart manufacturing. Many government programs were launched toward that end. These
include Smart Advanced Manufacturing and Rapid Transformation Hub (SAMARTH) Udyog
Bharat 4.0, Startup India, and Digital India initiatives on interdisciplinary cyber-physical systems;
Impacting Research, Innovation and Technology (IMPRINT); Centers of Excellence for IoT and
AI; and APO Center of Excellence on Industry 4.0.

Various other industry bodies such as Confederation of Indian Industry Smart Manufacturing
Platform, and Federation of Indian Chamber of Commerce and Industry, in conjunction with
academic institutions, are involved in promoting smart manufacturing. At the firm level,
organizations take up readiness assessments as part of their plans to adopt smart manufacturing.
India is gearing up to leverage smart manufacturing for achieving economic leadership. Although
the Indian manufacturing industry is fast embracing technologies, it needs to confront the
impediments that can impact the adoption of smart manufacturing. The adoption of new
technology-based solutions is expected to bring the much-needed transformation in the
manufacturing sector, thus making the sector a bigger participant in the development of the
Indian economy.

In Malaysia, I4.0 has become a trendsetter. The Ministry of International Trade and Industry (MITI)
had launched Industry4WRD: National Policy on the basis of I4.0, which has acted as a spur to
digitalize the manufacturing and service sectors. The policy aims to increase productivity in the
manufacturing sector, nurture high-skill-equipped employees to deal with the problems arising
from digitalization, and raise innovation capabilities and competitiveness in the industry. The
ministry and its collaborating organizations plan to bring about awareness among enterprises.
Awareness campaigns and seminars will aim to help unaware enterprises move to the stage of
smart manufacturing, followed by implementation of intelligent production.

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OVERVIEW OF SMART MANUFACTURING IN FIVE APO MEMBER COUNTRIES

Enterprises are required to do a ‘readiness assessment,’ conducted by the Malaysian Productivity

Corporation (MPC), to assess their readiness for smart manufacturing. After the assessment,
enterprises gain more clarity on how to implement smart manufacturing in their existing production
systems and come out with a strategy and plan for the purpose. Further, there is involvement of
experienced consultants for their guidance and suggestions. A similar program, Business Virtual
Advisory Mentoring (BVAM), is also led by the MPC.

In terms of financing, government agencies are likely to support enterprises by providing loans to
them or through other monetarily schemes, so that enterprises have enough funds to set up the
emerging technologies in their manufacturing systems. Moreover, with support from the Ministry
of Education, science, technology, engineering, and mathematics (STEM) education was
implemented in the academic curriculum, including courses and subjects related to advanced
technologies and manufacturing to prepare future talents that are ready for the era of smart
manufacturing. Meanwhile, training programs were designed to upskill existing workforces so that
they could carry out the implementation of smart manufacturing in their workplaces. Various
government agencies have collaborated to gather resources for ensuring that the required
technologies and infrastructures are in place. These include increasing broadband speeds and
engaging tertiary education institutes to collaborate with ventures. The ultimate goal of the policy
is to transform the manufacturing industry in the country, so that it is systematic, resilient, smart,
and at par with other countries.

The Philippines faces several major issues, such as weak technology base, weak human capital,
and poor infrastructure to support future production. To solve these hindrances, the Government of
the Philippines introduced an industrial policy, namely, the Inclusive Innovation Industrial Strategy
(i3S). Through this policy, it expects to improve the current situation of the industrial sector and
reduce poverty by reviving GDP of the manufacturing sector. In future, the policy may also be
implemented in agricultural and service sectors. The triple-helix relationship between the
government, the academia, and the industry greatly influences the connectedness in the country
because each of them has the duty to support the development of the country.

Although the government has not dedicated a framework for the application of smart manufacturing
in the industry, the national experts of Philippines had suggested a framework for the implementation
of smart manufacturing, referred to as I4.0, representing inculcate, improve, integrate, and
institutionalize. The proposed framework is drafted on the foundation of some important policies
such as i3S, Philippines Development Plan (PDP) 2017–22, and the AmBisyon Natin 2040 (Our
Vision 2040). Its goal is to strengthen the country’s manufacturing sector by employing smart
manufacturing systems and solutions in local factories. By applying new technologies, it enables
ventures to operate efficiently and improve productivity. In the meantime, it helps enterprises reduce
their production costs, so that they are able to increase their competitiveness. To assess the readiness
of enterprises, especially the SMEs, which are in majority, the Philippines plans to adopt SIRI as a
potential international standard tool for Industry 4.0. The core elements for evaluation are process,
technology, and organization of an enterprise. Due to the COVID-19 pandemic, the training for the
assessor was put on a halt. This framework could further contribute towards the realization of the
Philippines’ existing plans and long-term vision of reducing poverty in the country.

The Government of Pakistan has initiated many policies, with majority of them being focused on
information and communication technology (ICT), to improve the technology and communication
infrastructure in the country. Some of the policies, such as Vision 2030, Digital Pakistan Policy,

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 OVERVIEW OF SMART MANUFACTURING IN FIVE APO MEMBER COUNTRIES

and Industrial Technology Acquisition Policy of Pakistan (2020–23), are meant to ensure the
availability of accessible, affordable, reliable, and high-quality ICT services; create a digital
ecosystem within the country; expand knowledge-based economy; and stimulate the socioeconomic
growth, in order to improve the quality of life and economy in the country.

Like the Philippines, Pakistan is yet to have an actual framework for the implementation of smart
manufacturing in the industrial sector. Major efforts need to be put towards enhanced usage of ICT
technologies in manufacturing sectors; development of machine technologies; availability of
skilled human resources; and implementation of smart manufacturing standards. An assessment
mechanism to evaluate the readiness of enterprises for smart manufacturing also needs to be in
place. It should bring awareness to SMEs about the existing digital revolution happening in the
manufacturing industry and assess their current readiness for the implementation of smart
manufacturing. The inclusion of cyber security as a component of the readiness assessment is
extremely necessary and crucial, so that the information of an enterprise is secured and protected.
Nurturing high-skill talents for the intelligent era and generating awareness among the manufacturing
ventures are also necessary measures. Government agencies supporting the implementation by
initiating industrial policies, smart manufacturing policies, or recognizing a smart manufacturing
standard, should serve as references for enterprises.

Vietnam has been recognized as one of the most dynamic emerging countries in Asia. One factor
that contributes to its fast-growing socioeconomic status is its initiation in digital transformation.
ICT has been applied in Vietnamese enterprises for productivity growth and competitiveness. The
government has also put in efforts for facilitating the application and development of ICT by
building telecommunications infrastructure, fostering talents equipped with high-tech knowledge
and skills, and focusing on the development of databases. Several policies promote the restructuring
of the industrial sector towards intelligent and high-value-added production and provide guidelines
for enterprises to participate in I4.0.

For the evaluation of enterprises on their readiness for smart manufacturing, Vietnam found the
necessity to adopt its own assessment tools for smart manufacturing so that they are more relevant
to local SMEs. Therefore, Vietnam National Productivity Institute (VNPI) has developed the
Vietnam Innovation Productivity Assessment (ViPA) toolkits to benchmark local SMEs and assess
their readiness for smart manufacturing. There is a significant difference in the levels of readiness.
SMEs, which contribute 40% of the country’s GDP, face major barriers that refrain them from
undergoing digital transformation. Issues such as lack of financial resources, limited participation
in domestic and international value chains, and bounded business capacity, discourage SMEs from
undertaking digital transformation. It is necessary to form a smart manufacturing ecosystem
involving different agencies to support the SMEs. Government organizations have their vital roles
in promoting the implementation of smart manufacturing by raising awareness and training on
smart manufacturing implementation; assessing the digital manufacturing capacity; and publishing
a smart manufacturing standards framework for enterprises.

Overall, the proposed framework for the implementation of smart manufacturing focuses on the following
elements: (1) awareness of enterprises, especially SMEs, on the industrial revolution; (2) maturity of
ICTs, in terms of infrastructure and digital platforms, in the country; (3) assessment of enterprises on the
readiness for smart manufacturing; (4) planning and roadmap of an enterprise to implement smart
manufacturing; (5) financing resources of an enterprise to participate in digital transformation; and (6)
cultivation of talents and upskilling of current workforce through education and training.

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OVERVIEW OF SMART MANUFACTURING IN FIVE APO MEMBER COUNTRIES

Governments need to provide support by way of initiating policies or allocating resources towards
the industrial revolution. This would encourage ventures to participate in digital transformation.
Readiness assessment is used to evaluate the strengths and weaknesses of enterprises before they
adopt intelligent manufacturing. It could help them understand smart manufacturing better and
outline a clear strategy for its implementation. Collaboration between government agencies,
enterprises, and academia is crucial to make the implementation a success. Each party has a role to
play, and their relationship needs to be strengthened. In future, the adoption of automated systems
in industrial process will keep growing. As digitalization has become a demand globally, leaders of
all nations should keep pace with the trend, recognizing it as the key to increase productivity,
efficiency, and economic growth of a country.

In the subsequent chapters, detailed reports for all the selected countries will be presented.
Situations and challenges to realize smart manufacturing in the countries, the impact of recent
COVID-19 pandemic towards the implement of smart manufacturing, and policies and frameworks
introduced by the government agencies will be discussed.

6 | SMART MANUFACTURING: NATIONAL IMPLEMENTATION FRAMEWORK

SMART MANUFACTURING IN THE ROC

Background of Manufacturing Industry in the ROC

The manufacturing industry contributes 35% to the overall GDP in the Republic of China (ROC).
Industrialization in the ROC began with light industries, such as textiles and small devices, and
began to spread rapidly in the 1960s, when more labor- and capital-intensive industries were
developed focused on information and communication technologies. The rise of the manufacturing
industry has transformed the ROC into a developed country. However, the declining birth rates and
the aging of population have created a labor-force crisis. Therefore, the government has been
working to cultivate a workforce that is knowledgeable, innovative, and equipped with the skills
needed to sustain the industry and further contribute to breakthrough innovations in the industry.

Impact of COVID-19 on Manufacturing Industry and Countermeasures

Since 2020, the COVID-19 pandemic has changed the world economy, as many countries have
been forced to take lockdown measures to tackle the infectious virus. Companies and citizens have
struggled to make a living due to the impact of the lockdown. At a time when the global economy
is facing its deepest recession, the ROC has outperformed many countries, having successfully
controlled the spread of the pandemic by mid-May of 2021. It had clocked an overall annual GDP
growth rate of 3.11% in 2020.

The ROC is also recognized for its domination in the production of semiconductors. Although the
industry faced difficulties in managing production capacities and the supply chain, due to factors
such as dropped orders, rescheduling of deliveries, temporary addition of niche microchip orders,
or emergency changes in the manufacturing lines, it accounted for 60% of the total global foundry
revenues in 2020, as shown in Figure 1. This was due to the global demand for microchips, which
put the industry in spotlight. The most challenging aspects to resolve were collaboration with the
customers and supply chain.

To counter the impact of the pandemic, enterprises set up situation rooms to integrate production
indices and real-time distribution situations through intelligent technologies and platforms, to
better adapt to the changes in manufacturing. On the other hand, in traditional manufacturing, the
outbreak of the pandemic gradually struck an impact. Exports of products were limited due to
import restrictions imposed by other countries, thereby threatening the revenues in the traditional
manufacturing industry. In the meantime, enterprises were forced to reduce the working hours to
mitigate the risk of COVID-19 infection. This jeopardized situation, however, prompted a rapid
development of industrial transformation. Nowadays, the government is making efforts to promote
high-level manufacturing, while aiming to transform the ROC into a high-end production hub for
Asia. Along with the development of advanced technologies and production quality, the government
is trying to accelerate the development of intelligent warehousing through a value-added-services
system. The overall impact of the COVID-19 epidemic is shown in Figure 2.

SMART MANUFACTURING: NATIONAL IMPLEMENTATION FRAMEWORK | 7

SMART MANUFACTURING IN THE ROC

FIGURE 1
HOW MUCH THE WORLD DEPENDS ON THE ROC FOR SEMICONDUCTORS.
Semiconductor contract manufacturers by market share
Total foundry revenues stood at USD85.13 billion in 2020

SMIC
Other firms

Global foundries
PR China

Others

ROC TSMC
ROK
Samsung

UMC

Source: [1].

FIGURE 2
IMPACT OF COVID-19 ON THE MANUFACTURING INDUSTRY IN THE ROC.

Semiconductor manufacturing
• Influencing customer team play
• Influencing internal supply chain planning

Active
transformation
Traditional manufacturing
• Worker shortage crisis
• Expert restrictions

Intelligent Set up
warehousing situation room
• To control the
production indices
• To handle real-time
distribution situation

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 SMART MANUFACTURING IN THE ROC

Policies for Smart Manufacturing in the ROC

As Industrial Revolution 4.0 started emerging globally, in 2016, the ROC government initiated the
‘Smart Machinery Development Program’ to accelerate adoption of intelligent technologies in
production systems across the manufacturing industry. This was to comply with the global trends
of intelligent manufacturing supporting small-volume and large-variety production and real-time
big data analysis. The plan also aimed to promote the development of smart machinery, in order to
create job opportunities and expand production plants, so that the machinery and equipment
industries of the ROC could have the ability to provide total solutions and establish differentiated
competitive advantages. Figure 3 shows the general plan for implementation of smart manufacturing
in the industry. The ‘Statute for Industrial Innovation’ was amended in 2019, so that the enterprises
that had invested more than TWD1 million on smart machinery between 2019 and 2020 were
entitled for either (1) up to 5% of the annual spend to be credited against the profit-seeking
enterprise’s income tax payable by it in the current year, or (2) up to 3% of the annual spend to be
credited against the profit-seeking enterprise’s income tax payable by it in each of the three years
from the then-current year. This legal provision was created to promote industrial innovation and
optimize the industrial structure for further achieving smart transformation. By increasing the
willingness of ventures to invest in intelligent manufacturing, the manufacturing industry in the
ROC has been able to accelerate the pace of smart manufacturing.

FIGURE 3
CONCEPTUAL STRATEGY FOR THE IMPLEMENTATION OF SMART MANUFACTURING IN THE ROC.

Precision machinery

Smart machinery

Smart manufacturing

Precision machinery Intellectual technology

Robot CPS

IoT Lean

Information and communication technology Big data 3D printer

Smart machinery

System
integrator

Smart manufacturing (smart production line)

• Total solution
• Set up domain knowhow
• Set up differentiation and competitive advantage

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SMART MANUFACTURING IN THE ROC

The ROC’s Industry 3.5 Strategy for Industrial Revolution 4.0

Today, Industry 4.0 (I4.0) has become the ideal standard for global manufacturing. Many solution
providers are providing a variety of solutions, and some are even providing customized services,
to assist companies in their digital transformation journey. However, these services are often
expensive and hardly affordable for SMEs due to their limited budgets for such solutions.
Considering that most of the enterprises in the ROC belong to the SME category, Chair Professor
of National Tsing Hua University, Prof. Chen-Fu Chien has initiated the ideology of Industry 3.5.
Based on his long-term observation and rich collaboration experience with the industry, Prof.
Chien has stated that when it comes to smart manufacturing, I4.0 will be the first thing that comes
to mind. However, I4.0 will disrupt the present business model of the ROC’s manufacturing
industry. Moreover, the manufacturing industry will require a long period to achieve digital
transformation completely. Therefore, he came up with the hybrid strategy of Industry 3.5, which
is a fusion of Industry 3.0 and I4.0 and uses disruptive innovation technologies such as artificial
intelligence (AI), big data, and more. The strategy is based on the foundation of management
practices used in the ROC’s manufacturing industry. It enhances the capabilities of flexible
decision-making and resource scheduling within a system, to maintain the ROC’s niche positioning
between advanced and emerging countries due to a lower production cost. Thus, enterprises are
able to benefit from transformation and upgrading. As they accumulate sufficient experience, and
the technologies are more mature, they are able to achieve the phase of I4.0 easily.

With the application of Industry 3.5, along with disruptive innovation as the core strategy,
companies require to first establish operational core competence, such as comprehensive resource
management, smart production, digitalization strategy, smart supply chain, and smart factory.
There are four key factors driving the development of industrial ecosystem. These are: (1)
systemization and digitization of production strength and knowledge management; (2) product
lifecycle and revenue management; (3) vertical integration of hardware and software with analytic
capability; and (4) sustainable development and green supply chain management. The underlying
environment, taking the advanced technologies, including internet of things (IoT), big data, cyber–
physical systems, and others into account, enhances the flexibility of current manufacturing
processes and the overall management of the enterprise, to establish a new-era business model.

Reference
[1] Lee Y. N. CNBC. https://www.cnbc.com/2021/03/16/2-charts-show-how-much-the-world-
depends-on-taiwan-for-semiconductors.html. Accessed on 16 March 2021.

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Introduction
India: The Fastest-growing Economy
India is world’s sixth-largest economy by nominal GDP and the third largest by purchasing power
parity. The government aims to grow the Indian economy to USD5 trillion by 2024 and to USD10
trillion by 2030 [1]. The GDP per capita in India is 16% of the world’s average. It averaged
USD693.96 for the period of 1960 to 2017, reaching an all-time high of USD1,967 in 2017 [2]. In
2021–22, India’s real GDP was expected to record a growth of 11% and nominal GDP of 15.4%,
which would be the highest since India’s independence. As seen in Figure 1, the service sector
contributes 54.13% to the GDP, followed by the manufacturing sector (18.32%) and the agriculture
sector (14.39%) [3].

FIGURE 1
SECTOR-WISE GDP DISTRIBUTION OF INDIA.
Share of agriculture, industry, manufacturing, and services in total GDP
70.00

60.00

50.00

40.00

30.00

20.00

10.00

0.00
1951–52
1953–54
1955–56
1957–58
1959–60
1961–62
1963–64
1965–66
1967–68
1969–70
1971–72
1973–74
1975–76
1977–78
1979–80
1981–82
1983–84
1985–86
1987–88
1989–90
1991–92
1993–94
1995–96
1997–98

2001–02
2003–04
2005–06
2007–08
2009–10
2011–12
2013–14
2015–16
2017–18
2019–20
1999–2000

Financial year
Agriculture’s share in total GDP Manufacturing’s share in total GDP
Industry’s share in total GDP Services’ share in total GDP

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Indian Manufacturing Sector

Manufacturing has traditionally played a key role in the economic growth and development of
India. The sector has evolved through several phases of transformation, including the license raj
initially to liberalization later and the global competitiveness now [4]. The importance of
manufacturing, however, diminished toward the end of the last century. The share of manufacturing
in India’s GDP had stagnated at 15–16% since 1980 while its share in comparable economies in
Asia stood much higher at 25–34% [5]. In the fast-developing Asian countries such as Thailand,
Indonesia, Malaysia, the ROC, the Philippines, the Republic of Korea (ROK), and PR China,
manufacturing contributes 30–50% of GDP. Given the large domestic market with high levels of
consumption, lower contribution of manufacturing is not a healthy sign. Therefore, it was
recognized that industrialization with an increased share of manufacturing in GDP should be a key
feature of modern economic growth. In the last 10 years, India’s manufacturing sector’s contribution
to GDP has increased to 18.32% [3].

Revitalizing the Manufacturing Sector with Make in India Program

The Make in India initiative aims to make India an integral part of the global supply chain. Targets
were identified along with policy initiatives. The three major objectives were (1) to increase the
manufacturing sector’s growth rate to 12–14% per annum in order to increase the sector’s share in
the economy; (2) to create 100 million additional manufacturing jobs in the economy by 2022; and
(3) to ensure that the manufacturing sector’s contribution to GDP increases to 25% by 2025 [6].
The program focused on 25 sectors including automobiles, aviation, biotechnology, chemicals,
construction, textile and garments, thermal power, tourism and hospitality, and wellness, among
others. The program involves many initiatives across several sectors and needs policy focus with
more inbuilt consistencies [7].

With Make in India 2.0, the Government of India is making continuous efforts under investment
facilitation to identify potential investors. India recorded its highest-ever annual FDI inflow of
USD74.39 billion during the financial year 2019–20. In the six financial years up to 2020, India
had received FDI inflows worth USD358 billion, which amounted to 53% of the total FDI of
USD682 billion reported in the last 20 years [8]. Multinational companies have transformed the
Indian market from a low-cost production ground to a global and important production base of
strategic significance. Innovative products designed and manufactured by India are not only sold
in the domestic market but can also compete in the international markets. Investment outreach
activities are being carried out for enhancing international cooperation for promoting FDI; and
India has improved its position from 142 in 2014 to 63 in 2019 on Ease of Doing Business [9].

COVID-centered Program, Atmanirbhar Bharat

The COVID-19 pandemic was a heavy blow for India. For India, the fall in real GDP in the April–
June quarter of 2020 was the record lowest at 23.9%, with the Reserve Bank of India calling it a
‘historic technical recession.’ The contraction of the economy continued in the subsequent quarter
at 7.5% [10]. The pandemic impacted the industrial-and-manufacturing sector through strict safety
protocols, reduced workforce, and forced lockdowns. The challenges have highlighted the need for
heightened automation, increased efficiencies, optimized performance and agility, and data-driven
decision making.

The pandemic has turned India’s focus towards becoming self-reliant by emphasizing on local
manufacturing as the key to the country’s survival, thus giving a major boost to the manufacturing
sector. The government launched a new program called Atmanirbhar Bharat (self-reliant India).

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Under this program, a production-linked incentive (PLI) scheme was introduced to benefit 10 key
sectors for enhancing India’s manufacturing capabilities and exports with an outlay of INR2,000
billion. This PLI scheme is expected to lead to an output worth USD520 billion in the next five
years. Unlike the earlier schemes, which focused on incentives to be open-ended input-based
subsidies, PLI espouses targeted and performance-based incentives through a competitive process.
The government is working at every level to promote the manufacturing sector through measures
such as ease of doing business, reducing the compliance burden, creating multimodal infrastructure
to reduce logistics costs, and constructing district-level export hubs.

Smart manufacturing has been one of the most talked about trends in India in the recent past. With
the support of programs like Make in India and Atmanirbhar Bharat, adoption of smart technologies
is likely to assume greater importance. The adoption of newer technology-based solutions is
expected to bring the much-needed transformation in the manufacturing sector, thus making the
sector a bigger participant in the development of the Indian economy.

Status of Smart Manufacturing Promotion and Implementation

According to the Office of the Principal Scientific Adviser to the Government of India, smart
manufacturing, which is synonymously used with Industry 4.0 (I4.0), is a technology-driven
approach that encompasses fully integrated, collaborative manufacturing systems that employ
internet-integrated machinery to monitor manufacturing processes in real time via an open
infrastructure. Smart manufacturing involves interoperable systems, intelligent automation, and
multi-scale dynamic simulation. It includes 3D printing, big data processing, advanced industrial
robotics with networked sensors, industrial internet of things (IIoT), and distributed manufacturing
technologies with strong cyber security mechanisms. These cyber–physical systems entail synergy
of production and digital technologies to enable rapid adaptability and design changes, using data
analytics that enable newer areas of innovation to optimize manufacturing by creating enhanced
quality products, accelerating productivity, increasing energy efficiency, and sustaining safety.
They enhance production processes and optimize supply chains by finding solutions to existing
and future problems at the speed of business.

Smart manufacturing underpins the realization of Make in India and Atmanirbhar Bharat programs
of the government. The Government of India is working with technology providers, user industries,
consulting and audit agencies, educational and research institutions, industry bodies, and
international organizations to promote and develop excellence in smart manufacturing.
Complemented with several other government initiatives to foster best-in-class manufacturing
infrastructure in India, the dawn of I4.0 and smart manufacturing has arrived. Experts say that for
India, year 2021 is a tipping point to indicate that advanced digital capabilities are essential to
create new products and services and to identify new markets. The need for implementation of
smart manufacturing has two important dimensions as explained below.

First, the manufacturing sector was sluggish for two consecutive years for various reasons manifested
through low productivity, inefficient supply chains, talent and skills shortage, and lower levels of
supplier competence, among others. Many manufacturers depend on obsolete and complex systems
to capture data, are reluctant to adopt newer skills and technologies, and have issues with machines’
interoperability and tracking information during the production cycle. India’s manufacturing sector
was in need of a revolution that has smart manufacturing at its core, with new-age solutions across
the value chain and a paradigm shift that transforms the manufacturing processes. India realized the

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need to get onto the smart manufacturing bandwagon to restore the growth of its manufacturing
sector and to meet the target of the sector contributing 25% to GDP by 2025.

Second, since early 2020, the industrial and manufacturing sectors in India have been reeling from
the effects of the COVID-19 pandemic. Factories have struggled to manage production due to
forced lockdowns, strict safety protocols, etc. While normal activities have resumed despite the
pandemic, the impacts of COVID-19 have highlighted the need for automation, optimized
performance, process visualization, and data-driven decision making. In such a scenario, smart
manufacturing technologies are increasingly gaining traction in the manufacturing sector. These
technologies help organizations reduce risks associated with non-availability of human workforce,
improve the overall efficiency, and overcome the challenges posed by uncertainties and
unprecedented events. Major programs of the government, especially the partnerships with industry
bodies and research and academic institutions are presented in the following sections.

Smart Advanced Manufacturing and Rapid Transformation Hub

The Indian government took early steps and spearheaded several activities to launch smart
manufacturing in the country. Many new government programs were launched by the government,
including Smart Advanced Manufacturing and Rapid Transformation Hub (SAMARTH), Startup
India, Digital India, and other initiatives through the Department of Science and Technology.
SAMARTH Udyog Bharat 4.0 is an I4.0 initiative of the Ministry of Heavy Industry and Public
Enterprises under its scheme for enhancement of competitiveness in the Indian Capital goods
sector. SAMARTH Udyog encompasses manufacturers, vendors, and customers as the main
stakeholders. Experiential and demonstration centers have been proposed to spread awareness
about I4.0 among the Indian manufacturing industries. It is emphasized that these centers
would have resource sharing, common platforms of I4.0, and collaborate with each other so that
the utilization of resources is maximized. The scope, objectives, partners, activities, and
achievements of the five centers of excellence set up under SAMARTH are highlighted in the
following sections [11].

The Centre for Industry 4.0 (C4i4): The C4i4 plans to develop an ecosystem that nurtures
innovation and drives growth in smart manufacturing through collaboration among the government,
the industry, and technology companies [12]. The center, established in 2017 in partnership with
Kirloskar, provides I4.0 solutions on demonstration sets and equipment. C4i4 Lab helps in
upskilling the existing workforce and accelerating training of the new workforce to keep up with
new digital challenges and opportunities. In addition to I4.0 readiness assessment, C4i4 has also
developed Industry 4.0 Maturity Model (I4MM) as a tool to assist manufacturing organizations
across all industries to identify their current state of I4.0 maturity and readiness. The model helps
enterprises in formulating a comprehensive and sustainable digital transformation roadmap. C4I4’s
SMART 50 tool uses a menu-based approach to assist SMEs in correctly selecting I4.0 solutions
that help address specific value-chain challenges for swift and impactful solutions.

IITD-AIA Foundation for Smart Manufacturing (IAFSM): Indian Institute of Technology (IIT)
Delhi and Automation Industry Association (AIA) have jointly set up a fully integrated smart
manufacturing and learning facility for discrete and hybrid manufacturing segments such as
automotive, consumer durables, and processed foods [13]. A demo-cum-experience facility
supported by extensive skill building, SME consultancy, multi-academia partnerships, and research
has been set up. Users have access to common engineering facilities and a full-fledged cyber–
physical factory situated at IAFSM. Promotion efforts include awareness building, prototyping,

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simulation and testing services, consulting services, site integration services, education and
training, and skill certification. The foundation is collaborating with many leading industries such
as Mitsubishi Electric, Rockwell Automation, Deloitte, KUKA, Hexagon’ Mathworks, and
Siemens. The initial focus will be on discrete and hybrid manufacturing segments such as
automotive, consumer durables, and processed foods.

I4.0 India at Indian Institute of Science (IISc): Centre for Product Design and Manufacturing,
Indian Institute of Science, Bengaluru had developed India's first indigenous smart factory
platform I4.0forIndia@IISc comprising two components: (1) a labor-intensive tool room with a
connected set of legacy machines that represents the SMEs of India; and (2) an automation-
intensive factory that integrates 3D printers, metal laser routers, 5-axis CNCs using industrial
robots, collaborative robots, and automated guided vehicles. The center is to focus on awareness
campaigns around I4.0; training of master trainers; enabling startups and incubators; handholding
SMEs to plan and implement relevant I4.0 projects; collaborating with neighborhood universities
for training and internship programs for students; supporting development of indigenous I4.0
standards, protocols, and middleware; and participating in a government-formed platform for
I4.0 on common agenda [14]. The center is partnering with Tata Consultancy Services, Toyota,
Ashok Leyland, Yaskawa, Robert Bosch Center for Cyber–Physical Systems (RBCCPS), and
Common Engineering Facility Centre (CEFC) of IISc.

Smart Manufacturing Demo and Development Cell at CMTI: The aim is to create a smart
manufacturing platform at Central Manufacturing Technology Institute (CMTI), Bengaluru, for
Indian manufacturing industries encompassing machinery OEMs, subsystem developers, users,
component manufacturers, solution developers, startups, and so on. The smart manufacturing
demo-cum-development center showcases I4.0 concepts, tools, and solutions, along with
capabilities, advantages, and limitations. It supports the industry for rolling out smart production
systems by way of consultation (configuration, selection, and viability analysis), as well as
customized solutions (development and deployment, technology transfer, and handholding) [15].
Partnering with Siemens, the cell focuses on research and development in areas including IIoT
solutions for machine tools, I4.0 dashboard for smart-machine health trending and analytics
modules, smart-motor current signature analysis module, and intelligent module to predict the
remaining useful life (RUL) of machine tools, subsystems, and digital twins for feed drive systems.

COE on Advanced Manufacturing Technology, IIT Kharagpur: The COE has been established
at IIT Kharagpur with the support of a consortium of top industry members in the country. The
center focuses on innovative and top-quality research focused on industries in design and
automation, additive manufacturing, digital manufacturing, and IIoT. Recent innovations include
real-time monitoring and control of friction stir welding process using multiple sensors and
algorithm developed to boost profits in India’s manufacturing sector and low-cost real-time
machine vision-based quality inspection system. These innovations were possible through industry
partners including Tata Motors, Tata Consultancy Services, Tata Steel, Tata Sons, BHEL, and HEC.
The center also houses an innovation lab to facilitate the culture of innovation and open engineering
among SMEs and startups; and enables end-to-end support from experts including access to various
state-of-the-art facilities for early prototyping of products.

National Mission on Interdisciplinary Cyber–physical Systems

Cyber–physical systems (CPSs) are a new class of engineered systems that integrate computation
and physical processes in a dynamic environment. A CPS encompasses technology areas of

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embedded systems, IoT, big data, AI, and more. CPS systems are intelligent, autonomous, and
efficient; and are expected to drive innovation in many sectors including manufacturing [16]. With
seamless integration of the real and the virtual worlds with decentralizing control, the focus is on
leading-edge smart manufacturing development and implementation. To harness the potential of
this new wave of technology, Department of Science and Technology had launched National
Mission on Interdisciplinary Cyber–Physical Systems (NM-ICPS) with a total outlay of INR36,600
million for a period of five years [16, 17]. The mission aims to create a strong foundation and a
seamless ecosystem for CPS technologies by coordinating and integrating nationwide efforts. The
mission will be implemented through a network of 15 technology innovation hubs (TIHs), six
sectoral application hubs (SAHs) and four technology translation research parks (TTRPs). Each
hub and technology park will follow a technology life cycle approach, i.e., will be addressing all
four stages of knowledge, development, translation, and commercialization [16]. Host institutes
will be reputed academic and R&D institutions.

The first phase of NM-ICPS focuses on establishing six TIHs in the areas of

1. artificial intelligence and machine learning;

2. internet of things, sensors, activators, and control;

3. databanks, data services, and data analytics;

4. advanced communication systems;

5. robotics and autonomous systems; and

6. cyber security and cyber security for physical infrastructure.

The first phase of NM-ICPS is implemented in reputed academic and R&D institutions, with an
impressive track record of scientific excellence, depth of experience in the proposed field, and a
strategic vision, to establish and sustain dynamic technology innovation hubs in CPSs [16]. Each
TIH focuses on knowledge generation, technology/product development and commercialization,
skill development, innovation, entrepreneurship and startup ecosystem, and international
collaboration. TIHs can support projects at academic and R&D institutions, industries, and other
funding agencies. Support for projects must be based on requirement and due scientific diligence
and processes. TIHs can provide support to student startups and support incubatees in the form of
investments or debts. TIHs are allowed to initiate international collaborative projects on 50:50 cost
sharing basis between India and participating international institutions from other countries [17].

IMPRINT IIC: A Unique Collaborative Initiative

Impacting Research, Innovation and Technology (IMPRINT) is a unique technology development
initiative of the Ministry of Education (MoE) and the Department of Science and Technology
(DST) [18]. This consortium approach was proposed in 2018 in the IMPRINT Institute Innovation
Council (IIC) Program to include strong and complementary expertise from different disciplines
and organizations in India to address major technological challenges for breakthrough in selected
areas of industrial importance. The salient aspects of the program are following:

• The principal objective is to translate knowledge into a viable technology.

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• Normally, the average cost of the approved projects will be around INR20 million.

• MoE and DST are equal partners to steer the scheme.

• IMPRINT IIC is open to all MoE-funded higher education institutions (HEIs) and centrally
funded technical institutions (CFTIs).

• Industry support and partnership is mandatory.

It is required to specify the technology readiness level (TRL) of the proposal with suitable evidence
and justification at the time of applying and to note the target TRL to be reached. All IMPRINT IIC
proposals attempt to identify and involve industry partners or potential user groups or agencies that
will offer financial support of a maximum 50% of the budget and undertake field trials of the
prototype developed by the concerned project. At least 25% of the overall project cost should be
supported by the industry, out of which at least 10% of the project cost should be in cash. The
university will develop a sustainability plan and incorporate it into the proposal and run the
consortium for at least another five years after the completion of project tenure towards long-term
impact of the consortium. As of 2020, a large number of projects were funded in the areas of
advanced manufacturing areas including I4.0 and smart manufacturing [19].

COE by Ministry of Electronics and IT on Smart Manufacturing Technologies

The Center of Excellence for IoT and AI was announced in 2015 as part of Digital India initiative to
jumpstart the IoT and AI ecosystem by taking advantage of India’s IT strengths. As part of the program,
centers of excellence (COE) were set up in four locations, namely, Bengaluru, Gandhinagar, Gurugram,
and Visakhapatnam. Out of them, the COE located in Bengaluru and Gandhinagar focus on robotics and
I4.0, respectively. These COE act as platforms for the best minds from industry, academia, startups, and
government to drive a culture of cocreation and research to find solutions for complex business problems
and highlight India’s innovation quotient and workforce development. The main objective of the COE
is to create innovative applications and domain capability by harnessing the innovative nature of the
startup community and leveraging the experience of corporate players [20]. These COE have been
focusing on I4.0 and AI for enterprises in collaboration with TCS, Microsoft, Siemens, Schneider
Electric, LG, Mitsubishi Electric, and BEML, among others. In addition, Ministry of Electronics and
Information Technology (MeitY) has set up three COE in blockchain technology in collaboration with
the government and private entities to help innovations and startups.

APO–NPC Center of Excellence on Industry 4.0

The Asian Productivity Organization (APO), in association the National Productivity Council (NPC),
had established a COE on IT for Industry 4.0 in 2017 with the vision to be a knowledge center to
provide support to the Asia-Pacific region on I4.0 [21]. The objectives of the COE are to act as a
knowledge center for I4.0 and its applications through display of latest technologies and demonstration
projects to help the SMEs and startups; and coordinate with the APO for experts to disseminate
knowledge on I4.0 in other countries.

The NPC has signed a memorandum of understanding with National Small Industries Corporation,
under the Ministry of MSME, Government of India. An analysis of capacity development needs for
I4.0 was taken up to identify the gaps in the integration of I4.0 with national industrial policies.
The gap analysis highlighted the critical needs for capacity development for embracing I4.0 at the
national level to achieve inclusive and sustainable economic growth. In addition to a few e-learning

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modules on I4.0, webinars were organized to disseminate various technology components of I4.0
and case studies of successful I4.0 implementations. More than 5,000 SMEs have benefited from
these modules and webinars. Through a systematic process, Directory I4.0 of empaneled
consultants, consulting companies, and solution providers was created and made available through
the NPC portal.

To showcase the utilization of IT solutions for successful applications of I4.0 technologies in

processes (to improve productivity), five demonstration companies, mostly SMEs, were selected
and supported under the umbrella of the APO COE on IT for I4.0. In addition, a toolkit on I4.0 for
SMEs has been developed to guide SMEs in identifying their own definitions, and approaches, to
I4.0 and supporting them in adopting new and disruptive business models. An experience zone on
I4.0 has been set up in the form of a studio for digital display of operational prototypes of IoT, AI,
augmented/virtual reality (AR/VR), and simulation, along with storyboards, use cases, etc.

A study on ‘SME Readiness for I4.0 Adoption,’ conducted by Indian Institute of Information
Technology, Sri City, Chittoor, has attempted to assess the readiness of the SME sector for adoption
of I4.0 in five key sectors, namely, agriculture, automotive, food processing, pharmaceutical, and
textile and garments. The study started with fact-finding workshops followed by a survey of SMEs
and interviews of other stakeholders. In addition to sector-specific analysis and recommendations,
the report covered cross-sector recommendations with specific action items for stakeholders.

Roles of Industry Bodies and Academic Institutions in Promoting Smart Manufacturing

The Confederation of Indian Industry (CII) Smart Manufacturing Platform is designed to make India
an I4.0-enabled country, by working with government agencies, technology providers, user industries,
consulting and audit agencies, education and research institutions, and international organizations to
promote and develop excellence in I4.0 across the Indian industry. The platform is a one-stop shop to
spearhead multidisciplinary I4.0 initiatives and services like assessment models, training programs,
case studies, advisory services, state-level intervention centers, demonstration facilities,
standardization, policy research, studies, and publications [22]. CII has set up five smart manufacturing
demonstration centers to create awareness on I4.0 across the manufacturing industry. CII has also
developed a set of 55 detailed case studies plotted on the map of India to represent the regional spread
of deployment and implementation of smart manufacturing. Moreover, CII has conducted detailed
primary and secondary research, including a study of various international programs and discussions
with various stakeholders involving domestic and international consultations. It has also arrived at
the ‘Action Plan for Fostering Adoption of Smart Manufacturing in India,’ and organized six smart
manufacturing summits and more than 10 workshops in different parts of the country.

The Federation of Indian Chamber of Commerce and Industry (FICCI) has constituted a committee
on I4.0. This committee aims to focus on creating awareness about this new technology across the
industry and also support the government in developing a roadmap for the industry [23]. As part of
the efforts, FICCI is capturing the major developments in smart manufacturing and disseminating
them through newsletters. Along with Tata Strategic Management Group, FICCI has also carried
out a survey on advanced manufacturing where over 90% of the respondents considered at least
one of the advanced manufacturing trends relevant for their businesses. The committee has top
industry leaders as members and the group will primarily focus on strategizing Digital India 2.0
with focus on smart manufacturing. FICCI has also instituted the country’s first-of-its-kind FICCI
I4.0 Awards for Manufacturing to recognize organizations that are ahead on the path of digital
transformation and would like to showcase their achievements as models for others to follow.

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I4.0 offers a more comprehensive, interconnected approach to manufacturing. It ensures connection

of the physical with the digital; and enhances the quality of collaboration across departments. It
benefits industry owners to optimize their operations efficiently. Hence, it can easily be understood
that educational institutes and universities should include new courses such as IoT, cyber security,
robotics, and 3D printing in their curriculum, so that trained graduates are available for industries.

Tools and Techniques for Readiness Assessment at Enterprise Level

In the first phase, there is a need to create a critical mass of companies adopting smart manufacturing,
which would lead to widespread adoption later. However, organizations want to ascertain their
technical and operational capabilities and ensure that there is a potential for realizing significant
benefits before they actually adopt smart manufacturing. Many companies are keen to check the
viability of integrating smart manufacturing features with their existing manufacturing
infrastructures. Organizations take up readiness assessments as part of their plan to adopt smart
manufacturing. In addition, they also need smart manufacturing maturity models to access the
current state and accordingly pursue further plans. Some of the tools and techniques used by Indian
companies for readiness assessment at the enterprise level are presented ahead.

APO–COE Digital Readiness Assessment Tool, called Bharat 4.0, can be used by organizations,
especially SMEs, to assess their current level of digital readiness on five maturity levels, namely,
starter, managed, adaptive, realizer, and top-notch (SMART). It also provides an overall assessment
indicating the requirements and strategies to be adopted to transform to the next level. The tool is
applicable to all companies, regardless of their industry, size, profile, and I4.0 maturity. It uses a
digital questionnaire, which the company is required to answer. This is followed by an instant
Bharat B4.0 (B4.0) evaluation report through e-mail. The B4.0 tool assesses three main drivers,
namely organization strategy, manufacturing strategy, and digitalization strategy, which are
covered through nine sub-pillars for gauging the readiness of I4.0.

ATS Smart Industry Readiness Index is developed by an independent solution provider to help
manufacturers assess and raise their manufacturing maturity levels in the form of a Smart Industry
Readiness Index (SIRI). It also takes a questionnaire-based approach to evaluate the relative
readiness of various operational aspects of the plants by simplifying them along three building
blocks of process, technology, and organization; eight pillars such as operations, supply chain,
automation, connectivity, and intelligence; and 16 dimensions such as vertical/horizontal
integration, shop-floor automation, and workforce learning. A SMART framework comprising five
distinct elements, namely standardize, measure, architect, realize, and transform, is specially
designed to help manufacturers improve their maturity levels for smart manufacturing by following
a practical approach to digital transformation. While the first two elements help organizations
develop an approach towards the whole assessment process and a detailed readiness assessment in
line with SIRI, the other three elements (architect, realize, and transform) focus on designing and
implementing a digital transformation strategy.

The Smart Manufacturing Assessment Model, developed by CII, uses criteria spanning the key
aspects of the organization in its journey toward world-class smart manufacturing using digital
technologies through the following five perspectives:

1. Leadership strategy: This requires the organization to determine its current state with
respect to the level of smart manufacturing adoption and to set a goal state (e.g., from

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level 1.0 to level 4.0) through management of resources, financial planning, and
effective communication.

2. People and organizational culture: This aspect probes the level of understanding and
knowledge of people on the core concepts of smart manufacturing and emphasizes the
importance of collaboration across industry verticals.

3. Infrastructure: It focuses on core elements of digital manufacturing to determine the level

of deployment of various technologies, including data security.

4. Operations: This component evaluates the extent of adoption of smart manufacturing tools
in operations such as plant layout, design for manufacturability, and design for quality.

5. Supply chain and logistics: This component identifies linkages through alignment of
information flow and seamless integration of supply chain partners, thereby enabling real-
time decision making through use of collaborative tools for creating traceability chains up
to component or part level. The outcome of self-assessment is presented in the form of
criteria scores and visual charts.

Industry 4.0 Maturity Model (I4MM) was developed by C4i4, based on a joint industry survey
conducted by the Department of Heavy Industries and Tata Strategy Management Group. I4MM is
designed as a simple and effective model to understand the current state of I4.0 maturity and
readiness for manufacturing organizations across all industries and helps them to plan a
comprehensive and sustainable digital transformation roadmap. The model uses data collected
from specific companies on various aspects. Based on in-depth assessments, tailor-made roadmaps
and training sessions are provided to enable organizational teams to reach their full potential for
smart manufacturing. Organizations are placed on one of the five levels of maturity, namely,
beginner, explorer, investor, accelerator, and visionary. As part of the assessment, C4i4 has created
a 90-day training-and-mentorship program to develop ‘digital champions’ who can spearhead,
coach, and lead digital transformation within an organization.

The Enterprise Maturity Model for Excellence in Manufacturing has been developed by IIT Delhi-
AIA Foundation for Smart Manufacturing. The model measures best practices necessary to ensure
effective changes in both technologies and organizational cultures for smart manufacturing. In
stage 1 (assessment), the model evaluates all facets of an organization’s existing IT network by
examining the people and the processes that manage the network and the operations, while laying
the foundation for more advanced technologies such as business intelligence software and cloud
computing. Stage 2 (secure and upgraded network and controls) focuses on workshops with cross-
functional teams to assess new technology options, establish vendor roadmaps and plot out future-
ready scalable design for smart manufacturing. Stage 3, which pertains to defined and organized
working data capital (WDC), defines and organizes the company’s WDC and determines how to
leverage it for optimum gains. It helps organizations establish systems that allow them to identify
how to turn data into tangible triggers for change and evaluate how CXO-level decisions benefit
the bottom line. In stage 4 (analytics), the focus shifts from technologies to how to best leverage
the new-found IT capabilities through real-time information and ability to act on the information
with standardized protocols. Finally, in stage 5 (collaboration), organizations build predictive
capabilities that make timely and leveled order execution, along with improved quality, streamlined
plant-to-plant performances, and the ability to sense and manipulate plant processes on the fly.

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The Evolving National Framework for Smart Manufacturing

According to Gartner, with 50% of factory work expected to be done remotely by 2024, COVID-19
has only increased the investments made by manufacturers into smart manufacturing capabilities
[24]. India is gearing up to leverage smart manufacturing for achieving economic leadership.
Although the Indian manufacturing industry is fast embracing technology, it needs to confront the
impediments that can impact the adoption of smart manufacturing. With manufacturing and
conversion costs expected to reduce by 20% and 40%, respectively, with the deployment of emerging
technologies in manufacturing, the smart manufacturing techniques are likely to be the new industry
normal for manufacturers across sectors [25]. India’s manufacturing industry is already moving in
the direction of I4.0 where everything will be connected, and every data point will be analyzed.

The economic outlook of India and the underlying importance of the manufacturing sector highlight
the importance of smart manufacturing. Given India’s aspirations to become one of the top three
economies of the world by 2035, driven by manufacturing competitiveness, and the near-term goal
of achieving 25% of GDP from manufacturing by 2025, the government has to stimulate adoption
of smart manufacturing at different levels. India’s focus on smart manufacturing is significantly
noticeable at the global level. The country has announced the Centre for the Fourth Industrial
Revolution in India at the World Economic Forum [26]. The center has been developed in
partnership with the Government of India through the National Institution for Transforming India
(NITI) Aayog. According to a study by United Nations Industrial Development Organization
(UNIDO) [27], India is the only lower-middle-income country that made it to the second group
“followers in production,” along with countries like Australia, Canada, Italy, Singapore, and Spain.
Besides manufacturing capabilities, India also has a strong position in knowledge-intensive and
ICT service businesses that control and connect the shop floor, supply chain partners, and markets.
Although the financial impact of COVID-19 may currently be hampering investments in smart
manufacturing technologies, obvious benefits of smart manufacturing would accentuate its
adoption in the coming years. These technologies would better equip industries to face similar
challenges in future and ensure improvement in overall efficiency and business continuity [28].

The successful implementation of smart manufacturing roadmap in the next five years will be of
paramount importance for transitioning the manufacturing sector in India to be globally competitive.
Participation and support of stakeholders ranging from the government, multilateral agencies,
academia, and associations would be critical to establish an enabling ecosystem for faster adoption
of smart manufacturing in India. It is imperative to have a national framework for smart
manufacturing to achieve the targeted level of adoption and realization of benefits. Such a
framework essentially needs to capture the role of the government and the underlying roles of other
stakeholders. A national framework for smart manufacturing implementation is proposed, as
presented in Figure 2.

The emerging smart manufacturing context is progressive and dynamic as per the technology
options, nature of applications, implementation partners, investments, etc. The smart manufacturing
technologies and services market comprising producers and consumers is at the centerstage of
transformation. However, other stakeholders in the ecosystem play an equally important role in
various forms. The smart manufacturing implementation has the following three primary constituents:

1. the smart manufacturing technologies and services market consisting of technology

vendors and service providers including startups (producers) and large and SMEs
manufacturing companies (consumers);

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FIGURE 2
NATIONAL FRAMEWORK FOR SMART MANUFACTURING.
Government

Policies Programs Funding Security and standards

Smart manufacturing technologies and services market space

Technology and Large and

service providers, SME manufacturing
including startups companies

Producers Consumers

Industry bodies R&D centers Academic institutions International agencies

Other stakeholders

2. the government, which focuses on policies, programs, funding, and standards; and

3. other stakeholders including industry bodies, R&D centers, academic institutions, and
international agencies.

India’s smart manufacturing market is projected to witness considerable growth due to growing
government focus and initiatives such as ‘Make in India.’ Moreover, the ease of foreign direct
investment (FDI) is further attracting the attention of market players in the country. The market
space has four types of entities comprising large technology providers and startups/mid-size niche
companies as producers, and large manufacturing companies and SMEs as consumers of
technologies. The smart manufacturing market is also classified on the basis of components,
technologies, and end-use industries. Among these end-use industries, the automobile industry is
contributing significantly to the market’s growth. The key players of the smart manufacturing
market include ABB Ltd., Emerson Electric Co., SAP SE, Schneider Electric SE, Siemens AG,
Honeywell International, Inc., General Electric Co., and Intel Corp. These companies are playing
a significant role in the growth of the smart manufacturing market by providing various products
and adopting several strategies such as partnerships and collaboration, and technological
development, among others.

A great opportunity exists for tech startups to disrupt the traditional manufacturing, logistics, and
supply-chain sectors. For example, according to The National Association of Software and Service
Companies (NASSCOM), more than 5,000 IoT patents were filed in 2014–19 while India was
home to more than 480 Indian IoT startups in 2020 [29]. Startups offer increased flexibility and

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customization to manufacturers at a significantly lower cost than that offered by more established
technology companies. Moreover, startups have multidisciplinary teams of entrepreneurs who
have worked on developing the technology and implementing it, which enables them to provide
end-to-end solutions. Given their smaller sizes, they are more agile and responsive to changes in
the ecosystem and are able to adapt to larger platforms as well as individualized needs of customers.

National Mission for Smart Manufacturing

Almost all the ministries and their departments related to the manufacturing sector have launched
programs to promote smart manufacturing. However, there seems to be lack of a comprehensive
long-term policy for effectively leveraging the smart manufacturing technologies. Such a policy
framework could drive programs in an integrated manner, provide funding, and aid development of
standards. The framework could also define the roles of smart manufacturing technologies, services
markets, and other stakeholders; and enable them as well. It would also enable effective linking of
other national programs such as Startup India, Digital India, and Skill India, thereby leading to a
synergistic contribution towards transformation. Programs are to be focused to support smart
manufacturing technologies and services market space consisting of technology and service
providers including startups (producers) on one hand and large enterprises and SMEs as users of
smart manufacturing (consumers) on the other hand. The policy framework needs to address how
to create a win-win partnership between the providers and consumers, with the help of other
stakeholders. There is a need to create a national mission with a mandate to drive a smart
manufacturing-focused manufacturing transformation.

The national mission may adopt an ecosystem approach to help all market entities to achieve a win-
win opportunity. This requires bringing them together and aligning them with industry bodies and
others through a policy framework. The large technology providers such as ABB, Honeywell,
Bosch, and Siemens are helping organizations in developing and implementing smart manufacturing
technologies. However, the high costs of technologies and long implementation times deter mutual
opportunities. Thanks to the Startup India program, the country is witnessing a large number of
startups in this market space. They have made inroads into many industries within the manufacturing
sector with innovative technologies and solutions. Their price points are very competitive as
compared to large players, coupled with the advantage of a faster implementation cycle. However,
many startups face huge challenges due to lack of supportive policies and are looking for markets
outside India for growth.

There are also possibilities of large manufacturing companies helping their SME partners in the
adoption of smart manufacturing technologies. For example, TAFE, a large tractor manufacturer in
south India, has helped its 70-plus suppliers, mostly SMEs, through standard I4.0 technologies,
resulting in benefits for both the entities. Such efforts have to be supported through direct financial
incentives or reduced taxes. The governments may have policies to support SMEs through subsidies
and other financial incentives for smart manufacturing implementation. Technological development
may be funded by the government so that the solutions are made available at affordable prices.

The Government of India has launched major programs through Ministry of Heavy Industries,
Ministry of Electronics and IT, and Department of Science and Technology, among others, to
promote smart manufacturing. In 2015, the government launched an IoT policy that aimed at skills
development, technological upgrades, and building IoT products specific to Indian demands,
thereby occupying a considerable share in the global IoT market. In addition to the establishment
of five COE under SAMARTH Udyog Bharat 4.0, the government has implemented a mission on

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cyber–physical systems and allotted initial corpus to about 25 centers [30]. However, a continued
funding to current programs and the need for additional programs is important, and therefore a
long-term funding scheme has to be proposed specifically for smart manufacturing promotion.

Proliferation of smart manufacturing in all manufacturing industries is inevitable in a near future.

The adoption of technical standards facilitates the expansion of both domestic and international
markets. The Indian industry cannot shy away from adopting I4.0 standards and practices. It is
important for organizations to participate in the development of standards that will shape the future
of smart manufacturing technological development. Besides benefitting the industry, it will enhance
the reputation of organizations that take a leading part in the development of impactful standards.
In 2019, Bureau of Indian Standards (BIS) established a new technical committee dedicated to
standardizations for smart manufacturing. However, it will be a long way to achieve certain levels
of standardization maturity, which again, needs to be addressed by the government through
appropriate policy initiatives. Moreover, India needs to develop adequate cyber security norms to
safeguard the interests of ecosystem partners.

One of the key strengths in favor of India’s foray into I4.0 is the IT services industry. India is one
of the most sought-after IT outsourcing destinations in the world and houses some of the world’s
largest IT companies. India’s IT expertise, along with the right infrastructure, can now be leveraged
locally to catalyze I4.0 adoption in the country [31]. Indian IT companies are already on the lookout
to bolster their I4.0 capabilities through R&D in order to seize the hidden opportunity. Apart from
this, the IT majors have started exploring organizational tie-ups and collaborations to develop their
I4.0 capabilities and offerings. IT services companies have also started increasing their focus on
partnering with manufacturing companies from other countries to develop new solutions relevant
to smart manufacturing.

Industry bodies such as NASSCOM, CII, and FICCI have been playing their roles in promoting
smart manufacturing in India. These bodies have memberships from companies of different sizes,
R&D centers, and academic institutions. At present, their focus is mainly on creating awareness,
training, and demonstration facilities. However, NASSCOM has moved one step further to establish
COE in collaboration with MeitY to link the technology developers and consumers. Such COE are
yet to make a meaningful impact due to lack of integration with the entire ecosystem. For example,
the major government programs launched through leading academic institutions have limited
linkages with other important initiatives. Active participation of these bodies in the national
mission will largely improve the effectiveness of the ecosystem.

R&D activity is vital because economies that have consistent levels of innovation tend to achieve
high levels of manufacturing growth. The smart manufacturing landscape is vast in terms of
technologies and applications, and requires R&D for faster development and implementation.
Almost all the ministries related to manufacturing, science and technology (S&T), electronics, and
IT have their own research centers. In addition, large technology companies have their own
specialized research centers. These centers are required to collaborate on specific technology areas
for the benefit of the industry. They also require collaboration with countries like Germany and the
UK that have made significant progress towards successful implementation of smart manufacturing.

The role of academic institutions is pivotal for promotion of smart manufacturing in India. It has
the primary responsibility of developing highly talented graduates who are industry ready. More
and more industries and professionals undertake skill enhancement programs, not only for

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immediate use, but also to make the employees future ready. Institutions also have to participate in
reskilling and upskilling of the workforces to make them ready to take up emerging job roles. Top
technology institutions such as IITs are at the centerstage for garnering government funds to set up
R&D facilities and rope in industry partnerships for developing new technologies. R&D facilities
are also used to promote innovation and startups in smart manufacturing technologies. More Indian
institutions have to play a larger role in smart manufacturing-related R&D and skills development
in the immediate future. Collaboration with leading universities in Germany, the UK, and PR China
is essential for faster and better results in this domain.

Communication and sharing of best practices among industries and countries is important for
achieving development and implementation of smart manufacturing technologies. International
development and intergovernmental agencies such as the APO, UNIDO, World Economic Forum,
the World Bank, and Asian Development Bank have key roles in supporting major programs and
missions. India has to systematically move up the efforts to engage with these agencies for
establishing relationships with industries and R&D centers of world’s leading countries and
channelizing funds required for the smart manufacturing mission.

Potential Collaborations and Dialogs in Smart Manufacturing with other Countries

Global supply chains are a common way of managing investments, production, and trade in the
global economy. Effective supply chain gives companies a competitive advantage over others
through increased efficiency, more sourcing options, elimination of wastes, increased output, and
better customer service. Smart manufacturing has a significant role in improving the efficiency and
effectiveness of global supply chains. Therefore, there is a greater need for collaboration among
countries, both at global and regional levels, on smart manufacturing adoption. Such collaborations
have to involve large as well as small providers of smart manufacturing technologies and services.

First, the collaboration among large companies happens through MNCs that have manufacturing
locations in multiple countries. Local companies in different countries are able to gather insights
from such MNCs and explore opportunities for smart manufacturing. Further, large smart
manufacturing technology and solution providers such as ABB Ltd., Emerson Electric Co., SAP SE,
Schneider Electric SE, Siemens AG, Honeywell International, Inc., and General Electric Co. have
presence in multiple countries. Best practices are being shared by these companies with manufacturing
industries across multiple countries. International agencies such as the World Bank, UNIDO, and
others have to launch programs that will connect the manufacturing industries across many countries.

Second, collaboration among SMEs is enabled through many development agencies. German
Agency for International Cooperation (GIZ), an international enterprise owned by the German
Federal Government, is helping transfer of smart-manufacturing knowledge from Germany to
other countries. The APO is spearheading collaboration through various approaches. The COE on
Smart Manufacturing in the ROC and the COE on Industry 4.0 in India are significantly contributing
towards collaboration across Asian countries, especially among SMEs. There are many smart
manufacturing startups with innovative products and solutions present in these countries. A well-
structured global or regional industrial policy is likely to provide a win-win opportunity for the
startups and other manufacturing companies.

According to McKinsey, companies should build deep relationships with global players and technology
providers to ensure access to latest technologies. In exchange, ASEAN companies can offer global
players access to local markets for their products. Germany’s SAP, for example, complements its

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existing capabilities in IoT and machine learning by inviting other leading players to join it on a
platform called the Co-Innovation Lab. The effort allows SAP to communicate with other players
along its value chain to ensure a proper development of its own products and services.

Smart Manufacturing Adoption among Indian SMEs

SMEs occupy an important and strategic place in the economic growth and equitable development
of India. They employ around 40% of the country’s workforce, which equals an estimated 80
million people earning their livelihood through employment in low-skilled jobs. Around 1.3 million
SMEs contribute 45% to India’s manufacturing output and 40% to India’s total export [32]. SMEs
are the second-largest employment generators after the agriculture sector in India. The manufacturing
SMEs, also known as the ‘engine of growth’ for India, have scaled significantly. They form 95%
of total industrial units in the country and manufacture around 8,000 quality products for local as
well as international markets [33]. To support its massive growth, India will need an ecosystem of
suppliers across various tiers, with a higher level of automation flexibility achieved through
digitization. If the local manufacturers including SMEs do not gear up, the opportunities will be
lost to foreign players. Some key facts about the SMEs in India are given in Figure 3.

FIGURE 3
KEY FACTS ABOUT SMEs IN INDIA.

Number of SMEs in Employment  Products Output

India SMEs employ about SMEs produce more 45% of India’s total
42.5 million SMEs 106 million people, i.e., than 8,000 products. manufacturing output
comprise 95% of the 40% of India’s is by SMEs.
total industrial units in workforce.
the country.

GDP contribution  Exports Growth rate

Currently, SMEs account for around 6.11% of the 40% of the total SMEs have maintained
manufacturing sector’s GDP and 24.63% of the exports are on account an average growth
service sector’s GDP. of SMEs. rate of over 10%.

In spite of their contribution to the socioeconomic growth of India, SMEs face a number of
challenges, including lack of capital due to inadequate access to finance and credit, inability to
attract talented and tech-savvy manpower, and poor infrastructure and utilities resulting in low
production capacity. Despite the challenges in the form of infrastructural constraints and lack of
access to formal credit, they are thriving and standing tall to shoulder their responsibility towards
India’s economic and social development. It has been envisioned to increase SMEs’ contribution to
India’s GDP to over 50% from the current 29%. For the Indian economy to scale the USD5 trillion
mark, the role of SMEs will be crucial. Their export contribution, which currently stands at 50%,
should be increased to 75% [34].

Indian SMEs could learn many lessons from leading economies such as Germany, Japan, and PR
China. Bringing economies of scale into production is difficult for SMEs. Collaboration among
SME units is the best way to find innovative solutions. Using a united approach to production and
marketing for a cluster can help in standardization. Online marketplaces play an important role in
helping SMEs expand their market reach. Such a collaboration is a win-win opportunity for both

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the market parties, as it allows consumers to have more choices and SMEs to have new opportunities.
Offering one-time support through different schemes is difficult as the needs of the SMEs are
different. Very few SME players in India have the required visibility of global competitiveness.

There is a clear distinction between large and SME manufacturing companies. While the large
manufacturing companies are supported by leading MNCs and startups for smart manufacturing
implementation, SMEs really suffer due to many factors. The Indian SME sector is somewhere
between Industry 2.0 and Industry 3.0 and India’s unique challenge is to get the SMEs to automate
their machines, refine their processes, and develop their skills and talents so that they can actually
begin to understand the potential of I4.0. The pervasive use of IT is a prerequisite for successful
adoption of smart manufacturing. The integration of the data generated in the value creation process
requires networking of various IT systems, both within and beyond a company. The integration of
physical systems on cyber platforms, which is an essential premise of I4.0, is still in its infancy.
Due to a lack of resources and the inability to assess the technological maturity of potential
solutions, it is not easy for SMEs to go for smart manufacturing. Lack of general standards makes
it difficult for them to join value creation networks with different standards and norms, thereby
constraining their ability to transform. It has been found that awareness and knowledge, technical
competencies, and affordability are the key determinants of smart manufacturing adoption among
SMEs. The findings related to these variables across five sectors, namely, automotive, agriculture
implements, textiles, pharma, and food processing are presented in the sections ahead.

Smart Manufacturing Awareness and Knowledge

Programs of the Government of India such as Make in India and Digital India have made a
significant impact on SMEs. Initiatives such as Aadhaar and Unified Payment Interface (UPI),
among others, have created a foundational infrastructure for SMEs across all sectors. However, the
level of I4.0 awareness ranges from ‘very low’ to ‘very high’ across the five sectors mentioned
earlier. Industry associations have made efforts to push smart manufacturing-related information to
their members through social media. However, given the small nature of their businesses, SME
owners and managers tend to adopt a policy of ‘nice to know’ rather than ‘need to know’ when it
comes to smart manufacturing. Creating awareness on smart manufacturing in terms of technologies,
benefits, and basic information is an important milestone in making SMEs adopt smart
manufacturing. Close linkages with OEMs enable automotive SMEs to acquire a high level of I4.0
knowledge. Further, sessions offered by technology providers, including startups, provide detailed
presentations at the technology summits and other events that have helped the SMEs.

Smart Manufacturing Technical Competencies

Technical competencies required for smart manufacturing among SMEs are based on the size of
the firms and the level of IT adoption in their administration and manufacturing functions. Given
their financial conditions, it is not possible for SMEs to acquire additional IT manpower to fulfill
the needed I4.0 competencies. It is observed that most automotive SMEs located in industrial
estates are serviced by a set of local consultants and vendors. Specialized institutes set up in the
respective sector may be provided support to conduct technical training. For example, COE set up
by Automotive Components Manufacturers Association (ACMA) in two locations, Sonipat and
Gandhinagar, help SMEs to develop technical competencies. Machinery suppliers may take up the
responsibilities for providing training to their SME customers. Similarly, OEMs may focus on their
tier 2 and tier 3 suppliers for imparting technical skills. Research and technical institutions may
play an important role in developing technical competencies through short-term technical training,
including live demonstrations and certification programs, as per the requirements.

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Affordability of Smart Manufacturing Technologies

Affordability is one of the major concerns of SMEs across sectors. First, the overall economic
situation, especially over the last couple of years, has not been favorable for making any investments
in smart manufacturing. Many in the SME sector are hard pressed for capital expansions and
working capital requirements due to thin margins. Moreover, such technologies take longer lead
times to realize the benefits of investments, thus discouraging SMEs to commit upfront investments.
It is understood that government support is very important for all sectors and may be in the form
of capital subsidy and interest subvention through various existing schemes for different industry
sectors. It was also proposed that higher depreciation may be allowed wherever capital subsidy is
not relevant or possible. It was also proposed that academic institutions are best placed for
developing cost-effective solutions and democratizing the solutions, along with implementation
support with funding through DST, MeitY, and other departments.

Potential Actions by Stakeholders

Based on the learning from workshops and the preliminary discussion with industry associations,
SMEs typically go through a lifecycle once they decide to adopt smart manufacturing. It starts with
being aware of high-level details of I4.0, followed by acquiring detailed knowledge, gaining
technical competencies, and getting funding support to adopt smart manufacturing. Given the
global scenario, cutting-edge competition, and changing business environment, it is expected that
SMEs have to adopt advanced manufacturing technologies, including I4.0. The role of key
stakeholders to address the top three determinants for smart manufacturing adoption by SMEs is
summarized and presented in Table 1.

TABLE 1
ROLES OF KEY STAKEHOLDERS IN ADDRESSING TOP THREE SMART MANUFACTURING DETERMINANTS.

Stakeholder Knowledge and awareness Technical competence Affordability

• Conduct seminars for • Conduct basic- and • Develop cost-effective

cross-sector SMEs advanced-level solutions and democratize
located in the region. training for specific the solutions.
• Organize exhibitions sectors. • Provide cost-effective
and lecture sessions in • Develop self-learning implementation support
IEE, CSI Chapters. material for various to SMEs.
Academic • I4.0 COE of NPC to sectors.
institutions design awareness • Develop online
programs. platform to provide
training to various
sectors.

• Share case studies of • Launch training • Work on cost-effective

successful programs in solutions to make them
implementations. industry estates. affordable.
• Conduct technical • Certify technically • Offer standard and
Technology
training for SMEs. competent advanced solutions for
providers
• Machinery suppliers professionals. SMEs to choose from.
to organize sessions
for SMEs.

(Continued on next page)

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(Continued from previous page)

Stakeholder Knowledge and awareness Technical competence Affordability

• Conduct dedicated • Conduct training • Provide inputs to the

sessions at the annual need assessments government for designing
national-level events. and share with various schemes.
• Conduct technical agencies. • Facilitate SMEs in availing
workshops by • Facilitate SMEs in the benefits of the
technology at annual attending the schemes.
Industry conferences for training sessions and • Provide feedback to the
associations owners. workshops. government and funding
• Organize regional • Augment Industry agencies.
seminar sessions. 4.0 skill components
• OEMs to sponsor and in degree/diploma
share case studies. programs.

• Expose association • Sectoral skill councils • Promote incubation

office-bearers to to focus on technical centers for startups in I4.0.
international trends in training. • Provide capital subsidy for
I4.0 adoption. • Certify technically those sectors that cannot
• Sponsor sessions and competent afford initial investments.
seminars at national/ professionals. • Provide interest
regional levels. • Provide special funds subventions, subsidies on
• Fund institutions to for specialized depreciation, etc.
organize seminars. institutes for • Allow OEMs to support
• Recognize successful organizing training their SMEs with cost-
Government
I4.0 implementations. programs. sharing arrangements and
• Launch a scheme for • Empanel consultants claim subsidies or tax
demonstration for each sector to exemptions.
companies in each assist SMEs. • Machinery suppliers may
sector at strategic be provided subsidies for
locations. I4.0 features.
• Enable standardization of
I4.0 technologies.

Legend: Relative
High Medium Low
importance

Conclusion
India is rapidly emerging as a preferred country for foreign investments in the manufacturing
sector. Several mobile phone brands as well as luxury and automobile brands, among others, are
already here or have plans to establish their manufacturing bases in the country. The manufacturing
sector in India has the potential to reach USD1 trillion by 2025. According to a Cushman &
Wakefield Report 2021, India has emerged as a global manufacturing hub and effectively
surpassed the USA to become the world’s second-most desired manufacturing destination. This
indicates the growing interest in India by manufacturers as a preferred manufacturing hub over
other countries. Widespread adoption of smart manufacturing would be a game changer in
leveraging the global opportunities. While large enterprises are likely to accentuate the smart
manufacturing adoption efforts in the next few years, SMEs require significant thrust through
policies and funding from the government and other stakeholders. The national framework
proposed in this study, along with the establishment of a national mission for smart manufacturing,
would enable and support the country.

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[17] National Mission on Interdisciplinary Cyber–Physical Systems. https://nmicps.gov.in/.

Accessed on 19 January 2022.

[18] Impacting Research Innovation and Technology-2. http://www.imprint-2.in/Imprint-II/

HomePage. Accessed on 19 January 2022.

[19] Science and Engineering Research Board. https://www.serbonline.in/SERB/IMPRINT2C.

Accessed on 19 January 2022.

[20] Center of Excellence-IOT & AI. https://www.coe-iot.com/about-us/. Accessed on 19

January 2022.

[21] National Productivity Council. https://www.npcindia.gov.in/NPC/User/CentreOfExcellence.

Accessed on 19 January 2022.

[22] CII Smart Manufacturing Platform. http://www.ciismart.in/. Accessed on 19 January 2022.

[23] FICCI. https://ficci.in/sector-details.asp?sectorid=100. Accessed on 19 January 2022.

[24] Manufacturing Global. https://manufacturingglobal.com/smart-manufacturing/gartner-5-

best-practices-post-covid-innovation. Accessed on 19 January 2022.

[25] ET Auto. https://auto.economictimes.indiatimes.com/news/industry/opinion-smart-

manufacturing-will-define-future-strength-of-enterprise-and-economy/70568943. Accessed
on 19 January 2022.

[26] World Economic Forum. https://www.weforum.org/agenda/2019/01/India-biggest-future-

three-challenges-consumption/. Accessed on 19 January 2022.

[27] The Economic Times. Industry 4.0: India well-poised for digital transformation of
manufacturing. https://economictimes.indiatimes.com/small-biz/sme-sector/india-well-
poised-for-digital-transformation-of-manufacturing/articleshow/77428990.cms. Accessed
on 19 January 2022.

[28] ET CIO. https://cio.economictimes.indiatimes.com/news/next-gen-technologies/smart-

manufacturing-technologies-the-future-of-efficient-production/79421046. Accessed on 19
January 2022.

[29] Nasscom. https://community.nasscom.in/communities/iot/state-iot-post-pandemic-resurgence.

Accessed on 19 January 2022.

[30] SAMARTH Udyog Bharat 4.0. https://www.samarthudyog-i40.in. Accessed on 19 January 2022.

[31] All India Management Association. https://resources.aima.in/presentations/AIMA-KPMG-

industry-4-0-report.pdf. Accessed on 19 January 2022.

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INDIA

[32] Hero FinCorp. Role of SMEs in India’s Economic Growth. https://www.herofincorp.com/

blog/role-of-smes-in-indias-economic-growth#:~:text=Role%20of%20SMEs%20in%20
the%20Indian%20Economy&text=Around%201.3%20million%20SMEs%20
contribute,backbone%20of%20the%20Indian%20economy.&text=Despite%20
employing%2040%25%20of%20India's,bane%20of%20India's%20economic%20problems.
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[33] India Brand Equity Foundation. SMEs’ Role in Indian Manufacturing. https://www.ibef.org/
download/SMEs-Role-in-Indian-Manufacturing.pdf. Accessed on 19 January 2022.

[34] The Economic Times. MSME day 2019: Vision is to increase MSMEs contribution to GDP
to 50%: Nitin Gadkari. https://economictimes.indiatimes.com/small-biz/sme-sector/vision-
is-to-increase-msmes-contribution-to-gdp-to-50-nitin-gadkari/articleshow/69978436.cms.
Accessed on 19 January 2022.

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MALAYSIA

Introduction: Manufacturing Sector in Malaysia

The manufacturing sector is an important economic sector of Malaysia. It has contributed an
average 23% to the overall GDP of Malaysia in the last five years [1]. As of date, the growth of the
manufacturing industry has brought about the effect of stimulating job growth, attracting foreign
investments, and creating business and work opportunities throughout Malaysia. The manufacturing
sector is estimated to remain a strong pillar on track to achieve a targeted annual GDP growth rate
of 5.1% under the 11th Malaysia Plan (11MP). The manufacturing industry has also played a
significant part in providing job opportunities for the local population, with an estimated 2.28
million workers in the manufacturing industry making up for 14.55% of the total employed
personnel in the country. It is crucial to note that the manufacturing sector is made up of a large
number of SMEs, which account for an estimated 97.1% of the total establishments in the sector.
Although most of the existing SMEs do not have a strong global presence, a large number of them
have the potential to be global exporters.

In July 2020, Malaysia’s manufacturing sales stood at MYR119.3 billion, having grown 1.9%
compared with July 2019. The rise in sales value was driven by food, beverages, and tobacco
products (24.9%); transport equipment and other manufactured products (14.3%); and electrical
and electronics products (8.4%). Based on the Monthly Manufacturing Survey, the total number of
employees engaged in July 2020 were 2.19 million, after a decrease of 2.4% as compared with 2.25
million in July 2019. The decline was mainly attributed to transport equipment and other
manufactured products (–5.6%); wood, furniture, paper products, and printing (–5.1%); and
electrical and electronics products (–2.4%). Salaries and wages paid amounted to MYR7.1 billion
in July 2020, after a drop of 3.2% or MYR236.7 million, compared with the same month of the
preceding year. All these declines were mainly due to the COVID-19 pandemic. However, the sales
value per employee grew 4.5% to MYR54,403 as compared with MYR52,072 in July 2019.
Meanwhile, the average wage per employee was MYR3,235 versus MYR3,262 in July 2019 [2].

By the year 2018, Malaysia’s internet penetration had risen to 85.7%, compared with 70.0% in
2015 [3]. A considerable number of SMEs in Malaysia are still at a stage where computerization
can be done with minimal effort, though this is beginning to change, especially in the e-commerce
sector. However, the manufacturing sector is still slow and is currently stuck between Industry 2.0
and 3.0, according to the Ministry of International Trade and Industry (MITI).

Definition of SMEs in Malaysia

A definition of SME was officially endorsed in the 14th National SME Development Council
(NSDC) meeting in July 2013 [4]. It covers a wide range of sectors, namely manufacturing, services,
agriculture, construction, mining, and quarrying. Under this new definition, SMEs are defined as

• those companies in the manufacturing sector having sales turnover of less than MYR50
million or full-time employees less than 200; and

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MALAYSIA

• those companies in services and other sectors having sales turnover of less than MYR20
million or full-time employees less than 75.

Additionally, to be qualified as an SME, the said entity must be registered with the Companies
Commission of Malaysia (CCM), more commonly known as Suruhanjaya Syarikat Malaysia
(SSM). However, this requirement excludes entities that are publicly listed on the main board;
subsidiaries of publicly listed entities on the main board; multinational corporations (MNC);
government-linked companies (GLCs); Minister of Finance Incorporated entities; and state-owned
enterprises [3].

Challenges of Smart Manufacturing Implementation

The SME Association of Malaysia (SME Malaysia) conducted an online survey titled SME Industry
4.0 Quick Survey in the month of September 2019. The survey was distributed mainly through
e-mails to over 10,000 business communities, to gauge the general interest of the industry toward
I4.0, and subsequently, toward smart manufacturing. The results revealed that the adoption of
smart manufacturing technologies was rather low due to various obstacles. According to the survey
results compiled by SME Malaysia, only 2.7% of SMEs were implementing smart manufacturing
initiatives in certain processes of their production while 75% had not taken any actions despite
attempts made in trying to understand more about smart manufacturing. The survey had further
drilled down to the reasons that were preventing SMEs from embracing smart manufacturing and
had identified three main reasons based on the responses: (1) smart manufacturing requires a
massive financial investment backing, which SMEs cannot afford (54% of the respondents); (2)
SMEs have no clear idea of where to start implementing smart manufacturing and who to look for
to help them kickstart this journey (32% of the respondents); and (3) SMEs are unsure if they are
ready for smart manufacturing (29% of the respondents).

FIGURE 1
KEY CHALLENGES ACROSS INDUSTRIES TO MIGRATE TO SMART MANUFACTURING.
43.5%

34.8%
32.6%
30.4%
28.3%

11.0%

Talent Use cases Digital ecosystem Awareness Finance Not related

Source: MITI Survey (Public Consultation), 2018.

34 | SMART MANUFACTURING: NATIONAL IMPLEMENTATION FRAMEWORK

 MALAYSIA

Across the board, there also existed another set of key challenges in migrating current technologies
to smart manufacturing. One, 43.5% of the industries agreed that it was a challenge to obtain,
source, or upskill talents that were ready for smart manufacturing. Next, there was also a lack of
relevant use cases as reference points, as indicated by 34.8% of the industry players. Besides that,
industry players were concerned that the existing digital ecosystem was not fully developed to
sustain smart manufacturing. Lack of awareness was also agreed upon as a challenge in migrating
to smart manufacturing by 30.4% of the respondents. Further, financial issues also formed a key
challenge in migrating to smart manufacturing. Since most industry players were SMEs, they
needed a sturdy financial backing, apart from meeting their current business operating needs, when
migrating to smart manufacturing.

Impact of COVID-19 and the Countermeasures

Along with the unfortunate circumstances that led to a ravage across the globe, the pandemic has
left a dent on Malaysia’s manufacturing industry like it has for the rest of the world. According to
the survey conducted by the Malaysian Investment Development Authority (MIDA) and the
Department of Statistics Malaysia (DOSM), the manufacturing sector had suffered a potential loss
of MYR12.9 billion during the 14 days of Movement Control Order (MCO) [5], i.e., the cordon
sanitaire implemented by the federal government of Malaysia in response to the pandemic. The
manufacturing sector’s total exports were MYR834 billion, i.e., 84.6% of the total national export
of MYR986 billion. The exports of the manufacturing sector had a potential loss of MYR32.0
billion during the 14 days of the MCO [6].

FIGURE 2
IMPACT OF COVID-19 ON SMEs.

79.5% 70.8%

Closures during MCO Closures during RMCO

Source: [2].

In response to the outbreak of COVID-19, the Malaysia Productivity Corporation (MPC) is carrying
out a survey to have a clear understanding of the current business status and needs of Malaysian-
owned businesses effectively and immediately. The data collected will be analyzed, in order to
build relevant and useful assistance schemes or programs to help SMEs that are affected by
COVID-19. The impact of COVID-19 on SMEs in Malaysia is that 79.5% of the companies had

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MALAYSIA

suspended their operations during the MCO. During Recovery MCO (RMCO), an estimated 70.8%
of companies had ceased their operations. It may be noted that RMCO was a loosened control order
issued by the Prime Minister with reduced limitations on travel and gathering for Malaysian
citizens, in order to improve and revitalize the economy [7].

Along with the MCO announcement, the Federal Government of Malaysia had implemented the
Wage Subsidy Programme to address the impact of COVID-19 on the economy. As of 19 June
2020, MYR4.89 billion had been approved for a total of 303,596 employers, benefiting an estimated
2.4 million workers [8]. As compared to 19 April 2020, when the approved amount was MYR1.2
billion for 159,000 employers, increasing the number of persons benefiting from the Wage Subsidy
Programme meant that more jobs were saved [6]. The People-centric Economic Stimulus Package
or Pelaksanaan Pakej Rangsangan Ekonomi Prihatin Rakyat (PRIHATIN) and the National
Economic Recovery Plan or Pelan Jana Semula Ekonomi Negara (PENJANA) had also been
launched to ensure that as much as possible, the unemployment rate be controlled and possibly
reduced. At the same time, the plans aimed at protecting and cushioning the financial burden of the
people, supporting local businesses that were affected, and strengthening the local economy. The
PRIHATIN scheme was worth MYR250 billion while PENJANA was worth MYR35 billion [6].
The Central Bank of Malaysia, Bank Negara Malaysia (BNM) had indicated that the packages
were estimated to add 2.8% to GDP growth in 2020 [9].

Upon various requests from multiple interest groups to provide better support for SMEs, which are
the backbone of Malaysia’s economy, on 6 April 2020, an additional MYR10 billion was allocated
to further strengthen the support for SMEs [10]. Thus, together with the previously announced
economic stimulus packages, the total amount pledged by the government for the PRIHATIN
economic stimulus package became MYR260 billion.

In Malaysia, there is an ongoing call for the manufacturing industry to shift toward higher value-
added processes, digitization, advanced manufacturing technologies, and resource utilization to
drive competitiveness. To ease the transition of industry members toward implementation of smart
manufacturing and automation technologies and concepts, Malaysia has earnestly been investing
in the development and growth of this sector. The Ministry of International Trade and Industry
(MITI) has been leading the integration and adoption of smart manufacturing and I4.0 and preparing
industry players in Malaysia for growth and innovation, while aligning with the 2050 National
Transformation or Transformasi Nasional 50 (TN50). TN50 is a 30-year transformation plan that
was launched by the sixth prime minister of Malaysia, with the intention of building the foundation
for Malaysia for the next thirty years, starting from the year 2020 [6]. MITI had taken the initiative
by tabling the National Policy on I4.0. The policy is to assist Malaysia in advancing the local
businesses and factories toward smart manufacturing, and subsequently, achieving I4.0. It intends
to serve as a guide to provide useful insights by defining parameters and definitions of smart
manufacturing; assist in increasing efficiency, productivity, and quality of industry players; and
develop the skills needed by the local talent pool.

Smart Manufacturing Context in Malaysia

There are some important technologies that enable smart manufacturing. These technologies
include but are not limited to autonomous robots, simulation, system integration, internet of things
(IoT), cyber security, cloud computing, additive manufacturing, augmented reality (AR), and big
data. These are the smart manufacturing technologies that are going to be in trend for the next
foreseeable years.

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 MALAYSIA

The integration of smart manufacturing is still a very foreign concept for most of the SMEs in
Malaysia. To assess the digital capabilities of smart manufacturing, another common denominator
is that the technologies require a stable and high-speed connection for them to work. The average
connection speed in Malaysia is 23.86 Mbps, which ranks 30th in the world. In comparison, the
neighboring Singapore has a staggering speed of 70.86 Mbps, which amounts to the second-fastest
internet connection speed in the Asia region as well as the entire world [11]. This shows that
Malaysia still has plenty of room for improvement to catch up to be digitally ready to accept and
integrate smart manufacturing. Apart from speed, the stability and coverage of the internet also
need to be addressed as there are still some parts in Malaysia where the internet is not accessible.

From a geographical standpoint, it should be noted that Penang, one of the states in western
Malaysia’s northern region, was aptly named as the Silicon Valley of the East due to its technological
advances [12]. The Industrial Zone of Bayan Lepas in Penang is a famed semiconductor hub in
Malaysia. Bayan Lepas, which is a major smart manufacturing location booming with its free
industrial trade zones and strategic location near transportation and shipping hubs, is undoubtedly
a leader in the country’s smart manufacturing activities. In the central part of western Malaysia, the
economic activities are more focused on the rubber industry. The vast stretches of rubber plantation
in the region have helped it become an active site for the production and manufacturing of rubber-
based products. The central region of Malaysia oversees smaller scales of smart manufacturing
activities and implementation. However, the east coast of western Malaysia and the two states of
eastern Malaysia, namely Sabah and Sarawak, are having less smart manufacturing activities.

Smart Manufacturing Policies

SME Corporation Malaysia (SME Corp) is the central coordinating agency (CCA) under the
Ministry of Entrepreneur Development and Cooperatives (MEDAC) that coordinates the
implementation of development programs for SMEs across all related ministries and agencies.
SME Corp acts as the central point of reference for research and data dissemination on SMEs and
entrepreneurs and provides business advisory services for SMEs and entrepreneurs throughout the
country. SME Corp had launched the SME Masterplan, a policy that focuses on productivity and
innovation-led growth for SMEs in Malaysia [13]. One of the goals of the SME Masterplan is to
align SMEs with the new, growing trends in Malaysia’s industry. One of such trends is Industrial
Revolution 4.0, which is closely linked with smart manufacturing.

In response to Industrial Revolution 4.0, Industry4WRD: National Policy on Industry 4.0 was
launched on 31 October 2018 by the Ministry of International Trade and Industry (MITI) to drive
digital transformation of manufacturing and related services sectors in Malaysia. This policy
focuses on achieving four goals: (1) drive growth in the manufacturing sector; (2) increase national
productivity; (3) create higher-skilled employment opportunities; and (4) raise innovation
capabilities and competitiveness. It is believed that the Industry4WRD Policy will enable and
allow the manufacturing sector to take the first few steps toward transitioning to smart manufacturing
and subsequently to I4.0, and will also be able to contribute toward fulfilling Malaysia’s commitment
to the United Nation’s Sustainable Development Goals (SDGs).

The decision to develop this national policy on I4.0 stems from the intention to transform the
manufacturing industry in Malaysia and enable its related services to be systematic, resilient, and
smart. Countless discussions have been opened to discuss the impact of I4.0 on the local businesses,
the society, and the industrial and economical scene at large.

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MALAYSIA

The main agencies that are responsible for the implementation of smart manufacturing are the MPC,
MIDA, and Human Resources Development Fund (HRDF), to name a few. The MPC is primarily in
charge of the productivity of the nation. Having multiple productivity nexuses under its care, the
MPC would be one of the core government agencies to lead the transformation of the manufacturing
industry with smart manufacturing. It has an assessment program called the Readiness Assessment,
which is a tool used to gauge the preparedness of an enterprise for smart manufacturing integration
and provide the means and methods for the enterprise to integrate smart manufacturing into its
operating space. COE will be involved as treasurers in this scenario, as they will primarily be
focusing on financing for the enterprises that wish to integrate smart manufacturing and transition
to I4.0. The funding assistance would be in the form of matching grants or program schemes so that
enterprises would be able to secure enough finances to bolster themselves against the changes. Next,
HRDF would be responsible for providing and preparing talent pool and workforce. They will be in
charge of supplying training courses for trainers and trainees alike, while also allowing the current
workforce in the industry to avail the training programs to upskill and prepare themselves to be able
to navigate the new technological industrial wave.

Smart Manufacturing Priority Industries

The industries that have a higher priority for the development of smart manufacturing are electricals
and electronics, machinery and equipment, chemicals, medical devices, and aerospace, as compared
with other sectors such as automotive, transport, textiles, pharmaceutical, metal, food processing,
and services. These six sectors are the sectors that are considered to be the sectors with high
potential. The electricals and electronics industry spearheads Malaysia’s manufacturing sector,
playing a big role in contributing to the country’s employment and exports status. The subsectors
of the electrical and electronics industry are: electronic components, consumer electronics,
industrial electronics, and electrical products. Machinery and equipment industry is the next in line
that has key potential areas for growth and further development. By having high-value and high-
technology machinery and equipment, this industry can contribute to the development and
integration of smart manufacturing. Particularly, subsectors such as specialized machinery and
equipment for specific industries would be contributing to smart manufacturing. Included here are
subsectors such as general industrial machinery and equipment, along with parts and components,
power-generating machinery, and machine tools.

The chemicals industry is a catalyst industry within Malaysia that also has a high potential for the
integration of smart manufacturing alongside its rapid growth. The industry will act as a catalyst
for the development of other industries. There is also an abundant availability of oil and gas as a
primary commodity, which acts as a base for usage by other industries. Medical devices also form
an ever-expanding industry, spanning across an enormous range of supplying industries ranging
from rubber, latex, plastics, machinery, as well as engineering and electronics support.

The aerospace industry is also one of the industries in Malaysia that has the potential to be a high-
value sector from the implementation viewpoint of smart manufacturing. It is a strategic sector with
a promising potential and scope for growth. Aerospace is widely involved in Malaysia’s
industrialization as well as technological development programs. The potential for industrial growth
lies in its subsectors such as engineering and design; aero-manufacturing; system integration; and
maintenance, repair and operations (MRO). The aerospace industry and its subsectors will be able to
provide opportunities to the manufacturing industry by stimulating and generating the need for the
suitable technology to be implemented. To bring these priority industries to a conclusion, there also
are a number of industries that have high potential for development. These include automotive,

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 MALAYSIA

transport, textiles, pharmaceutical, metal, food processing, and service industries. They are heavily
involved in the provisioning of essential services, which makes them very desirable candidates for
smart manufacturing-related adoption and transformation. They could be the priority sectors that
would be adapting themselves for smart manufacturing technologies and be frontliners in leading
Malaysia’s manufacturing industry’s transformation to smart manufacturing [14].

Tools and Techniques for Readiness Assessment at Enterprise Level

To fully integrate and enable smart manufacturing in Malaysian enterprises, there currently exists
a program by the Federal Government of Malaysia called the Readiness Assessment.

Readiness Assessment is a program conducted by the MPC, as part of the Budget 2019 measures
taken to accelerate the adoption of smart manufacturing. An amount of MYR210 million has been
allocated for the period 2019–21 in order to support the Readiness Assessment program. The
guidelines for Readiness Assessment were created based on an initial study conducted with 22
companies. Guidelines on manufacturing-related sectors were estimated to be finalized for proper
implementation in the second quarter of 2019 [15].

The MPC is responsible for spearheading the Readiness Assessment program to facilitate up to 500
SMEs to upgrade to smart manufacturing. Readiness Assessment is a comprehensive tool to help
companies and firms in assessing their readiness and capabilities in adopting the technologies and
processes of smart manufacturing. The Readiness Assessment utilizes predetermined guidelines
and criterion to understand and analyze a company’s current capability and identify any gaps in
reaching smart manufacturing standards. This enables the company to prepare and execute feasible
strategies and plans for moving toward smart manufacturing. Readiness Assessment is able to
determine the company’s readiness in adopting smart manufacturing along with opportunities for
productivity improvement and growth.

Besides Readiness Assessment, a new tool, Productivity 1010, was launched on 29 August 2020.
This program is led by the Machinery and Equipment Productivity Nexus (MEPN), an initiative
consisting of four main machinery-and-equipment sectoral initiatives that were identified by the
Malaysia Productivity Blueprint (MPB), with the intention of improving productivity across
enterprises. The four initiatives of MEPN are to (1) set up partnerships between government and
industry associations to upskill existing employees; (2) set up COE for skilled professionals to
share industry expertise and develop new technologies; (3) update domestic product standards to
be at par with international standards to enforce compliance; and (4) set up more product testing
facilities to ensure that the standards are met.

Productivity 1010 has two main activities as its core. These are: ‘Digitization Self-diagnostic and
Prioritization Matrix’ and ‘Business Virtual Advisory Mentoring.’ Both these are efficient tools to
help businesses start their digitization journeys. MEPN is targeting an estimated 1,000 companies
from the manufacturing sector to kickstart Productivity 1010 with the intention to improve their
productivity for long-term competitiveness. Not just improving an individual enterprise’s ability to
remain competitive, this program also intends to train and produce more than 20 industry experts
to initiate the transfer of knowledge and technology to the industry. Digitization Self-diagnostic is
an online self-assessment tool that offers enterprises a series of questions, allowing them to self-
diagnose their own businesses in the field of digitization. Upon completion of assessment,
enterprise could opt for participation in the Business Virtual Advisory Mentoring (BVAM) Program

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MALAYSIA

conducted by the MPC. The BVAM Program offers a virtual mentoring session of 10 hours of
duration, under the guidance of a board of 20 system integrators from The Malaysia Industrial 4.0
System Integrator (MISI4.0) and Malaysia Automation Technology Association (MATA), certified
as mentors by the MPC. Meanwhile the ‘Prioritization Matrix’ tool is a management planning tool,
encompassing 4Rs of reality check, ROI calculation, review KPIs, and reference global best
practice. The intention of this tool is to assist companies in quantitatively identifying the high-
priority index dimensions where improvements will bring the maximum benefits [16].

While Readiness Assessment is conducted by the MPC, Productivity 1010 is fully endorsed by the
MPC. With the involvement of the MPC in conducting Readiness Assessment, enterprises that are
able to pass the Readiness Assessment not only have a clear overview of their readiness on I4.0 and
smart manufacturing, but are also able to benefit in the form of more open doors to a wide range of
projects and grants that are under the care of either the MPC or other government agencies.

Readiness Assessment
The assessment criteria for Readiness Assessment are based on three shift factors, namely people,
processes, and technology (see Figure 3).

People: By focusing on the people and the whole organization, the emphasis is on
implementing feasible strategies towards building a suitable workforce. This is achieved
by developing the human capital that is needed as well as creating a sustainable
transformation process with suitable activities for smooth transition with regard to an
organization’s business and growth strategies, governance, and collaboration.

Processes: The focus is on the management system that is in charge of business operations,
product lifecycle, and supply chain. The process of transformation involves an emphasis
on strategic, smart, and suitable business partnerships; process security; economic
sustainability; and innovative cocreation of products.

Technology: This is about giving attention to the application of automated, connected,

and intelligent technologies. The technological criteria are measured by three different
layers of the business, namely, enterprise, shop floor, and facilities.

Each shift factor is a core that branches out into smaller, more specific branches known as thrusts.
Thrusts are activities that would speed up or facilitate the development of that specific core. Within
thrusts are dimensions, i.e., clusters of different sectors that are responsible in working together to
assist their respective thrusts in accelerating the core development.

Within the people core, the respective thrust activities are human capital development and
transformation initiative. The dimensions that made up human capital development are personnel’s
I4.0 competency, as well as top management’s technology savviness. The dimensions for
transformation initiative are leadership, collaboration structure and governance, and I4.0 strategy.

The three thrust activities that make up the process core are supply chain management, product
management, and operations management. Supply chain management contains dimensions such as
cybersecurity and horizontal integration. Product management works with the dimensions of product
individualization and product lifecycle management. Operations management has three dimensions,
which are performance management, technology management, and product management.

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 MALAYSIA

FIGURE 3
READINESS ASSESSMENT CRITERIA MODEL.

3 21
8
Shift Dimensions
Thrusts
factors
Top
management’s
technology
Personnel’s savviness
I4.0
competency Collaboration
Cyber security Leadership structure
and
governance
Horizontal
integration

Product I4.0
Human strategy
individualization capital
Supply
chain development
management Transformation
Product Shop floor
lifecycle initiative automation
management Product
management People
20%
Performance Processes Asset Facilities
management 30% automation automation
(vertical
Operations integration)
management Technologies
Technology
management 50% Enterprise
automation

Asset Asset
Product connectivity
management intelligence
Shop floor
connectivity
Enterprise
intelligence
Facilities
Facilities connectivity
intelligence
Shop floor Enterprise
intelligence connectivity

Source: [14].

Of all the three cores of the Readiness Assessment criteria, technology is considered to be the
biggest core. The thrusts that make up the technology core are asset automation (vertical integration),
asset connectivity, and asset intelligence. Asset automation connects with shop floor automation,
facilities automation, and enterprise automation. Asset connectivity is made up of dimensions such
as shop floor connectivity, facilities connectivity and enterprise connectivity. Asset intelligence
deals with dimensions of shop floor intelligence, facilities intelligence, and enterprise intelligence.

The pros of using Readiness Assessment are that it is a comprehensive tool and a well-rounded
program that has been designed with the similarities of various industries in mind. This means that
it allows enterprises to utilize Readiness Assessment for their smart manufacturing journey, without
raising the concern whether the guidelines stipulated in the Readiness Assessment are of appropriate

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MALAYSIA

relevance or not. The program is a one-size-fits-all, ensuring that sectors across all industries will
have an equal opportunity to improve themselves and stand a chance to upgrade to smart
manufacturing to be more competitive.

The only con is that the assessors for Readiness Assessment must also be adequately equipped and
prepared to guide and advise various types of enterprises in the industry. Readiness Assessment’s
assessors will have to be enriched with the appropriate manufacturing knowledge. It would be even
better if they come from the relevant industries so that they can utilize their experience to guide
enterprises hailing from the same industry. This is because there would be different sets of criteria
and requirements to assess the readiness of companies for smart manufacturing. The variety of
assessment criteria will better assist the assessors and their respective agencies to facilitate smooth
communication between them and the companies being assessed, thereby allowing for a better
chance to encourage and assist more companies from each industry in implementing smart
manufacturing. Therefore, the assessors themselves must first be prepared with the arsenal of
knowledge needed, in order to guide the enterprises in smart manufacturing implementation.

Productivity 1010
There are two major process flows of Productivity 1010, namely the Digitization Self-diagnostic
Tool and Business Virtual Mentoring Services (BVAM), as shown in Figure 4.

Enterprises that chose to participate in Productivity 1010 as their steppingstone to I4.0 will have to
undergo a self-check with the use of the Digitization Self-diagnostic Tool, answering 15 questions
that are related to their current business and operating environment. Upon completing the
assessment, the companies’ readiness for I4.0 and smart manufacturing is graded based on their
answers. Each enterprise gets its own Readiness Profile, which is a standard grading scale that
shows where the enterprise stands on readiness for I4.0 and smart manufacturing. The Readiness
Profile has five categories, naming observer, beginner, learner, leader, and master.

The observer profile is for enterprises that get a score of 0–20% with the Digitization Self-
diagnostic Tool. The beginner profile has a score of 21–40%; the learner profile has a score of 41–
60%; and the leader profile has a score of 61–90%. The master profile is graded the highest, with
a score in the range of 91–100%.

An observer enterprise is one that has operations remaining ‘as is,’ with no intention or initiative to
venture into the adoption of digitization. Beginner enterprises show a clear interest in undertaking
digitization but with minimal initiatives and efforts to do so. Learner enterprises show the interest and
intention to go for digitization adoption in their operating environments, have the plans and strategies
in place, and exhibit observable efforts and initiatives being carried out and implemented in the
workplace. These enterprises are also ready for system adoption. Leader enterprises are enterprises
that have pursued small- to medium-sized digitization adoption initiatives and are currently carrying
them out. They are also carrying out horizontal integration and are ready for large-scale system
adoption. Master enterprises have already implemented large-scale, company-wide digitization
adoption initiatives; and have already integrated a new system in favor of the existing one.

After knowing their Readiness Profile scores and where they are currently placed on I4.0 and smart
manufacturing readiness, enterprises could go for BVAM, which is a management planning tool
that enterprises could make use of to understand in detail and find out more about the current
standing of their smart manufacturing journey.

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The coaching focuses on three points, namely, process, technology, and organization. Within these
focus points lie different focus areas. For process, the focus areas are operations, supply chain, and
products. For technology, the focus areas are connectivity, intelligence, and automation. For
organization, the focus areas are business and strategy, and leadership and talent development.

FIGURE 4
BVAM FOCUS POINTS.

Operations
Product

Supply
chain

Process
Business and
strategy

Organization
Leadership
Connectivity and talent
development

Technology

Automation
Intelligence

In the ‘process’ focus point, coaching is done to improve the equipment readiness for smart
manufacturing implementation as well as the degree of digitization of an enterprise’s vertical value
chain. This means that there is focus on integration of processes and systems across all hierarchical
levels of the automation pyramid, from product development to production. The degree of
customization of an enterprise’s available products is also assessed. The adaptation of product
lifecycle is also determined, to find out the degree of automation within the production line. It may
be noted here that an integrated product cycle is the integration of multiple parties such as people,
processes, and systems along the entire product lifecycle. This lifecycle is inclusive of the research,
design, and development stages as well as the engineering, production, customer use, service, and
disposal stages. Lastly, it is assessed if the enterprise’s supply chain system links up with its customers
and suppliers, and how much automation technology is being integrated at the moment.

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For the technology focus point, the most forefront requirement that is assessed is the automation
adaption level of an enterprise. Technology intelligence is essential for processing and analyzing
data in order to optimize and improve existing processes, so that the enterprise is able to introduce
new products, services, and application methods to the operating environment. Assessment is also
done of the collection of data generated during operational activities, and the enterprise is coached
to further utilize and improve upon making the best out of the collected data. It is also important to
note that manufacturing equipment must be intelligent enough to be able to self-optimize the
processes. The connectivity between different equipment, machinery, and systems must also be
established to enable seamless data exchange within different departments of the organization. The
degree of interconnection is important to allow interaction and exchange of information. Aside
from that, the security and integrity of the enterprise must also be weighed thoroughly, for it
contains the working recipes of the said enterprise. Therefore, the degree to which IT and cyber
security have been implemented in an enterprise must also be assessed.

Coming to the 'organization’ focus point, the two focus areas are business and strategy, and
leadership and talent development. An established digitalization strategy and designated roles for
design and execution of long-term smart manufacturing goals are important to provide a roadmap
as well as a plan of action for the enterprise’s smart manufacturing journey. The roadmap could
include items such as a system of rules, practices, and processes, to translate a vision into business
value, and the presence or absence of an urgency to see it to fruition. Besides that, the top
management of an organization should also be adequately prepared to drive the implementation of
smart manufacturing. The competency of the top management mostly refers to the readiness of the
senior management team to leverage the latest and upcoming trends and technologies, to allow the
enterprise to remain highly competitive while being incredibly relevant and related to the latest
technological practices and values.

The benefit of using Productivity 1010 is that it is an easily and readily available tool for
enterprises of all sizes. The assessment test is available online, so enterprises could access it at
any time they desire. The beneficial aspect of virtual business mentoring is that enterprises could
enjoy the guidance of industry experts without having to arrange for a venue for those experts.
Besides, the guidance can be personalized to fit an enterprise’s needs, so there need not be any
concern about irrelevant content. The downside of Productivity 1010 is that it may not be as
comprehensive as Readiness Assessment in terms of implementation, as Productivity 1010 is
more of a self-assessment tool for an enterprise’s self-enrichment purpose. Nevertheless, it is still
a relevant tool for enterprises that wish to determine where they belong on the smart manufacturing
readiness scale.

Smart Manufacturing Structure

The priority sectors chosen for smart manufacturing structure are Malaysia’s two major subsectors in
the electrical and electronics sector. These are electronic manufacturing service (EMS) and
semiconductor industries. Based on these two subsectors, a model will be developed to form the basis
of a national-level framework to be widely implemented across Malaysia’s manufacturing industry.

EMS refers to a sector that provides a wide range of value-added engineering and manufacturing
services. EMS is also often used interchangeably with the more generic term ‘electronics contract
manufacturing.’ In short, EMS allows manufacturers to improve operational efficiencies and focus
on core activities.

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Semiconductor industry engages in the design and fabrication of semiconductors. The industry is
the main driving force behind the electrical and electronics industry. As semiconductors have
become more heavily embedded in an ever-increasing number of products, from cars to coffee
makers, and with the rise of nascent technologies like artificial intelligence (AI), virtual reality,
and internet of things (IoT), the global demand for semiconductors has increased [17].

Currently, enterprises rely on manpower such as operators or engineers in order to oversee the
smooth operation of the entire manufacturing process. Operators are mostly tasked with physically
moving the components from one machine to another, or from the machine to the conveyor in order
for it to be able to transport over to the next machine (see Figure 5). Engineers mostly oversee the
entire process flow, making sure that there are no unexpected discrepancies or errors that might
arise, and act on them if there are any.

FIGURE 5
PRODUCTION LINE WITHOUT SMART MANUFACTURING INTEGRATION.

Machines are not connected to MES and ERP

Operators need to move the materials among the machines manually

Most of the machines that are deployed in the factories are not connected horizontally with each
other. Also, they are not connected vertically to a centralized server that hosts enterprise resource
planning (ERP) and manufacturing execution system (MES) software. They are operating in the
shared environment individually, aided by external help from the operators.

For the machines to be horizontally connected, the contribution of new technologies must be
considered. The use of smart manufacturing technologies such as smart conveyors, automated guided
vehicles, and robotic arms is essential in allowing the individual machines to be connected horizontally
with each other. This would enable the reduction of labor and manpower across the production line,
thus taking enterprises a step closer to automation, and consequently, to smart manufacturing.

For the manufacturing line to be vertically connected, each machine in the manufacturing line must
be connected to a centralized local server, which would act as a hub that oversees the entire
manufacturing process flow and also act as a controller for all the machines that are connected to
it (see Figure 6).

With horizontal and vertical integration, we can define the combination of both the integrations as
smart manufacturing. The intelligent automation technologies such as smart conveyors, robotic
arms, and automated guided vehicles, when put together with the unconnected machines, would
create a more complete integrated system that could be defined as smart manufacturing. The goal
is to bring about the interconnection of machines and automate them; integrate them to the server
as part of a bigger network; and enhance them with functionalities such as visualization, real-time

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FIGURE 6
PRODUCTION LINE WITH SMART MANUFACTURING INTEGRATION.
ERP MES

Mobile cobot

Mobile cobot
Mobile cobot
Smart conveyors

monitoring, remote control, predictive maintenance, overall equipment effectiveness (OEE), and
utilization, among various other smart manufacturing capabilities. Some individual machines may
have the potential to communicate with a centralized server. However, the ones that do not have the
capability to do so could be upgraded with technologies such as smart sensors, IoT, big data, and
cyber–physical production systems.

There exists an urgency for the establishment of a smart manufacturing framework. This framework
is needed to help the establishments with a reference point and the enterprises with a blueprint to
follow, in order to fully integrate smart manufacturing in the operating sites. Currently, the national
policy on Industry 4.0 and Smart Manufacturing, Industry4WRD, highlights the achievable goals
and milestones, which are high-level visions for the nation to set sight on. To penetrate further into
the deliverables to achieve the said goals, a smart manufacturing implementation framework is
needed. This will allow the manufacturing industry to have a better understanding of the tasks that
they need to carry out, in order to fully embrace smart manufacturing.

The combination of high-level policy and mid-level deliverables will bring about an increased
adoption of smart manufacturing among SMEs across various sectors and industries. In summary,
the idea that is visualized in the policy, combined with the actions that can be taken in the
framework, will result in a large number of smart manufacturing implementations. The smart
manufacturing framework can also tackle the pain points of SMEs, such as lack of reliable
operational data for business decisions, which is a key reason why SMEs are unable to grow fast
enough despite a high level of expertise and product quality. This leads to an inability to strategize
where the capability and capacity building is to be focused. The shortage and rising cost of labor
can also be eliminated with the introduction of smart machinery and computerized processes.
Unpredictable downtime will also be reduced, as smart manufacturing will be able to enable
predictive maintenance across the entire production chain. Other suitable maintenance procedures
can also be performed whenever needed, before the machine gets to the point of expiration or needs
maintenance. Thus, the overall efficiency of the production line will be improved.

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Proposed Framework for Smart Manufacturing Implementation

Enterprise Level
At the enterprise level, the three acting catalysts, namely, action, actor, and outcome will exist in
each phase of the implementation roadmap. The aim of the enterprise-level implementation of smart
manufacturing is to bring an enterprise from the stage of being unaware to the implementation stage.

Initially, the idea is to bring about the awareness and importance of smart manufacturing in an
enterprise to decision makers. This can be initiated through a conversation started by dedicated
personnel hailing from places of interests such as technology centers or lighthouses. In this scenario,
the actors are the dedicated personnel, the action that they do is initiating the conversation, and the
outcome is that they spark the awareness for the need of smart manufacturing within the enterprise.

In the next phase, the said enterprise will have to come up with a plan. Planning will be carried out
in order to come up with a strategy or a blueprint, so that the enterprise has a clear idea of what is
to be done to implement smart manufacturing. In this scenario, the actors are the enterprise’s
decision makers, the action taken is the planning and creation of the strategy or the blueprint, and
the outcome is the existence of the plan or the blueprint.

Next, the enterprise will engage a consultant experienced in smart manufacturing, to oversee the
implementation roadmap, provide feedback on any shortcomings, or give suggestions on the
existing blueprint. In this scenario, the consultant is the actor, the providence of the consultancy
service is the action taken, and the outcome is an enhanced and complete roadmap.

Thereafter, a technical team is to be assembled, be it an internal team within the enterprise, or an

external team to which the tasks are outsourced. The team will carry out the solutions that are
outlined in the roadmap, while performing installation tasks and jobs wherever necessary within
the enterprise. In this scenario, the technical team is the actor, the installation jobs that it carries out
as per the solutions depicted in the roadmap form the action, and the outcome is the upgraded
operations base that is created for the enterprise.

In order to carry out the smart manufacturing implementation as a whole, the first and foremost
need that comes to mind is financing. To carry out an implementation, the finance department, with
or without the help of a government agency, will have to provide sufficient financing to supply the
labor and workmanship of the technical team to implement smart manufacturing. In this scenario,
the finance department, alongside the government agency, is the actor that will carry out the actions
to provide financing to the technical team, leading to an outcome, i.e., a funded project.

In the final stage, the enterprise will also have to engage trainers who are experienced in educating
in the area of smart manufacturing, in order to provide training to the enterprise’s working
personnel and upskill the said talents so that they are able to fully utilize the smart manufacturing
environment and the enterprise truly achieves the smart manufacturing status. In this scenario, the
trainers are the actors, and the training they provide to the personnel is the action that they carry
out, followed by the outcome of upskilled talents who are well-prepared to navigate in a smart
manufacturing environment.

National Level
At the national level, we are looking at a whole industry and any or all of its subsectors to implement
smart manufacturing. The implementation framework is built with the idea that our target audience

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MALAYSIA

will primarily be SMEs, as SMEs make up a large portion of Malaysia’s manufacturing sector.
However, this scheme is also available for the existing MNCs and LLCs in Malaysia for their
perusal. Once again, the use of the three catalysts, namely, actor, action, and outcome will be
utilized, with the hope of providing a clearer insight and a better comparison of the enterprise-level
framework and the national-level framework.

The elements that make up the national-level framework are awareness, assessment, planning,
financing, talent sourcing, and technology provisioning. The awareness element is needed to
increase the number of SMEs that are aware of smart manufacturing. Planning is important for
SMEs to have a clear idea of how to go about implementing smart manufacturing. Financing is also
an important factor in order to monetarily fund the activities needed to carry out the implementation.
Talent sourcing too is crucial because there exists the need for appropriate talents to do the smart
manufacturing implementation and handle any subsequent innovative upgradation works. Finally,
technology provisioning is a key element needed to realize smart manufacturing.

To bring about awareness, the huge percentage of SMEs that are yet to be fully aware of smart
manufacturing in Malaysia, will need a bigger scale to kickstart and get the conversation going.
Awareness campaigns will lead to the organization of activities such as technology exhibitions,
industrial talks, and networking seminars, to name a few. These events will undoubtedly feature a huge
group of SMEs from various sectors of the manufacturing industry, brought together by either the
sheer interest of expanding their horizons, or under the influence of esteemed guests and/or
organizations. These events will be hosted by government agencies such as the MPC, which is known
for spearheading smart manufacturing activities; technology centers; universities; or associations such
as the Federal of Malaysian Manufacturers (FMM) and the SME Association of Malaysia. The
organization of such activities under the umbrella of awareness campaign will effectively spread
awareness around the importance of smart manufacturing among SMEs. In this scenario, the actors
will be the government agencies, technology centers, universities, and associations. They will organize
or co-organize awareness campaigns, which will form the action undertaken, while the outcome will
be the successful spread of awareness on smart manufacturing implementation and its benefits.

Next, to assess the readiness levels of SMEs, they will have to first undergo an assessment of their
current standing on smart manufacturing readiness. This can be done either through on-site
inspection or by undergoing a self-check assessment. (There are several dedicated government
agencies providing such services, with the departments available in order to better assist and
facilitate the assessment process.) This will allow more SMEs across various sectors to understand
their current readiness on smart manufacturing, thereby allowing them to review their existing
states and further review the recommended steps to achieve smart manufacturing. In this scenario,
the actors will be the government agencies, which will be providing actions such as on-site or self-
assessment, and allowing SMEs to reach their outcome, i.e., a better and clearer understanding of
their smart manufacturing readiness.

The planning stage will also require SMEs to have a collective strategy and a concise roadmap to
serve as a guideline, which will help them know how to kickstart their smart manufacturing journey.
This stage usually requires a number of activities to be carried out, with training for top management
being a core one. Top management training will be provided by government agencies, who will be
assisted by industry experts, tech-center personnel, academic professors at universities, and such
others. Proper guidance is needed and expected by the top management across SMEs in order to
achieve the national implementation of smart manufacturing. Only when the top minds come

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together bearing the same goals, the entire sector or industry of a country could start to take a new
shape. The training for top management will not be a regular training. Instead, they will be educated
on aspects such as coaching, mentoring, planning, and the like. This is because the top management’s
understanding will indirectly cause a ripple effect, spreading the use of smart manufacturing across
SMEs. In this scenario, the actors are government agencies (e.g., the MPC), technology centers,
industry experts, and universities. They carry out their actions of providing training for top-
management persons in SMEs, and the outcome is the creation of a blueprint or a strategy to
implement smart manufacturing.

For financing, government agencies such as MIDA and SME Corp have been consistently providing
financial support for SMEs to improve and upgrade their working environments in line with the
latest technological trends. In the new national implementation framework blueprint, these agencies
will be in charge of provisioning of funds to SMEs in order to carry out the smart manufacturing
upgradation activities. In this scenario, the actors will be the government agencies (e.g., MIDA and
SME Corp); their actions will be to procure funds for the SMEs; and the outcome will be that
smart-manufacturing upgradation activities get funded.

When it comes to providing talents, it is discovered that there are two separate paths that the
country can undertake. The first path is to upskill existing talents and make sure that they are well-
equipped for the new smart manufacturing technologies. The second path is to prepare the upcoming
workforce to be ready for the era of smart manufacturing. For upskilling of current workforce,
trainings could be conducted by the government agency in charge of talents and the workforce, i.e.,
the Human Resources Development Fund (HRDF). For the preparation of the next generation,
science, technology, engineering, and mathematics (STEM) divisions of tertiary-education
institutes could assist by preparing relevant course content and suitable hands-on activities to
nurture interest and grow skills. The education scheme could be under the care of the Ministry of
Education (MoE), which would be in charge of coming up with an appropriate syllabus to be
implemented across STEM divisions, in order to fully prepare STEM graduates for smart
manufacturing. In this scenario, the actors are the HRDF and the MoE, who will carry out the
action of conducting training and preparing STEM courses and subjects relating to smart
manufacturing. This will lead to the outcome of having a workforce, both existing and upcoming,
which is fully prepared to navigate in the new era of smart manufacturing.

Regarding the provisioning of technology, be it machinery, software, components, or licensing, a

joint effort will be required from various government agencies to come together and pool resources,
to make sure that SMEs are well-supplied. This will involve agencies such as the Malaysia Digital
Economy Corporation (MDEC), MIDA, Ministry of Science, Technology and Innovation (MOSTI),
and even MoE and Collaborative Research in Engineering, Science and Technology (CREST). The
involvement of MoE and CREST will be to engage tertiary education institutes to collaborate with
industrial players. This will help prepare and produce talents that are well-versed and adequately
equipped with smart manufacturing knowledge.

Conclusion
To conclude this report, the additional insights and inputs of equal importance are to draft the
legalities surrounding smart manufacturing implementation. Appropriate court laws to prevent foul
play or misuse of technology or power should be considered, to better secure the physical and
financial safety of industry players with the newly integrated smart manufacturing technologies.

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MALAYSIA

Discussions and collaborations with other neighboring countries should also be encouraged to
stimulate different insights, while keeping proper safety methods in place in the wake of the
COVID-19 outbreak. Issues that could draw more attention would relate to financial procurement,
as global businesses have taken a hit due to the pandemic outbreak. So, a balance must be maintained
between sustainability and development. The smart manufacturing framework will be implemented
more effectively if there is more awareness around smart manufacturing, because the drive for
constant planning and action will only come from a proper understanding of the concepts.

References
[1] Department of Statistics Malaysia, Federal Government of Malaysia. Annual Gross Domestic
Product 2015–2019; 2020.

[2] Department of Statistics Malaysia, Federal Government of Malaysia. Malaysian Economic

Statistics Review Vol 5/2020; 2020.

[3] New Straits Times. Malaysia’s Internet penetration is now 85.7 per cent. https://www.nst.
com.my/business/2018/03/346978/malaysias-internet-penetration-now-857-cent. Accessed
on 6 October 2020.

[4] SME Corporation Malaysia. SME Corporation Malaysia – SME Definition. https://www.
smecorp.gov.my/index.php/en/policies/2020-02-11-08-01-24/sme-definition. Accessed on
29 September 2020.

[5] Malaysian Investment Development Authority. Impact of COVID-19 on the Malaysian

Economy and the Mitigation Measures. https://www.mida.gov.my/home/impact-of-covid-
19-on-the-malaysian-economy-and-the-mitigation-measures/. Accessed on 2 October 2020.

[6] Malaysian Investment Development Authority. Smart Manufacturing, The Way Forward for
Malaysia. https://www.mida.gov.my/home/3352/news/smart-manufacturing-the-way-forward-
for-malaysia/. Accessed on 2 October 2020.

[7] The Sun Daily. CMCO ends June 9, Recovery MCO from June 10 to Aug 31 (Updated).
https://www.thesundaily.my/home/cmco-ends-june-9-recovery-mco-from-june-10-to-aug-
31-updated-EM2538754#. Accessed on 16 December 2020.

[8] Malay Mail. Finance minister: Wage Subsidy Programme has saved 2.4 million jobs amid
Covid-19 pandemic. https://www.malaymail.com/news/malaysia/2020/06/23/finance-
minister-wage-subsidy-programme-has-saved-2.4-million-jobs-amid-cov/1878103.
Accessed on 5 Oct 2020.

[9] Central Bank of Malaysia, Federal Government of Malaysia. Bank Negara Malaysia
Publishes Annual Report 2019, Economic and Monetary Review 2019 and Financial Stability
Review for Second Half 2019; 2020.

[10] New Straits Times. Additional RM10bil for SMEs under Prihatin economic stimulus package.
https://www.nst.com.my/news/nation/2020/04/581812/additional-rm10bil-smes-under-
prihatin-economic-stimulus-package. Accessed on 15 Oct 2020.

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[11] Akhyari H. Rank of Countries with Fastest (and Slowest) Internet in The World 2019. https://
seasia.co/2019/07/12/rank-of-countries-with-fastest-and-slowest-internet-in-the-
world-2019. Accessed on 6 October 2020.

[12] Bangkok Post. ‘Silicon Valley of the East’ in Penang regains shine. https://www.bangkokpost.
com/business/1772049/silicon-valley-of-the-east-in-penang-regains-shine. Accessed on 16
December 2020.

[13] Rizal N. SMECorp Malaysia. Industry 4.0 and its implications to SMEs. https://www.miti.
gov.my/miti/resources/Industry4Point0/SMECorp_Industry_4_and_Implications_to_SMEs.
pdf. Accessed on 6 October 2020.

[14] Ministry of International Trade and Industry, Federal Government of Malaysia. Industry
4WRD: National Policy on Industry 4.0. MITI; 2018.

[15] Malaysian Investment Development Authority. Industry 4.0 Blueprint on readiness

assessment finalised, says Miti. https://www.mida.gov.my/home/7589/news/industry-4.0-
blueprint-on-readiness-assessment-finalised-says-miti/. Accessed on 16 October 2020.

[16] Malaysia SME Media Group. Productivity 1010 A Virtual Mentoring Digitisation Services
For Manufacturing Sector. https://www.malaysiasme.com.my/productivity-1010-a-virtual-
mentoring-digitisation-services-for-manufacturing-sector/. Accessed on 27 October 2020.

[17] Semiconductor Industry Association. Annual Semiconductor Sales Increase 21.6 Percent,
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sales-increase-21.6-percent-top-400-billion-for-first-time/. Accessed on 18 November 2020.

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PAKISTAN

Introduction to Smart Manufacturing

Manufacturing Sector of Pakistan
Pakistan is a developing country with a GDP growth rate of 3.29% and population of 212 million,
according to Economic Survey of Pakistan 2018–19. The GDP was estimated at USD284 billion,
which ranked it 42nd globally. Pakistan’s economy has experienced frequent boom and bust cycles.
Typically, each cycle comprised three to four years of relatively higher growth followed by a
macroeconomic crisis that necessitated stabilization programs. The preceding five years have seen
an average growth rate of 4.7% against a target of 5.4%. The fiscal year 2018–19 witnessed a
muted growth of 3.29% against an ambitious target of 6.2%.

Three main pillars contributing to the country’s GDP are industry (20.3%); agriculture (18.5%);
and services (61.2%) [1]. Manufacturing is the largest among Pakistan’s industrial sectors. The
contribution of manufacturing to GDP had hovered in the range of 13.5–13.8% for almost a decade,
while in the fiscal year 2018–19 it declined to 13.0% [2].

The manufacturing sector is further divided into three segments, i.e., large-scale manufacturing
(LSM) with a share of 78% of the manufacturing sector; small-scale manufacturing (SSM) with a
share of 15.2%; and slaughtering with a share of 6.9%. LSM’s overall contribution to the GDP
stands at 9.5%, while SSM contributes 2.04% and slaughtering contributes 0.94%. LSM mainly
includes textile, cement, fertilizer, edible oil, sugar, iron and steel products, tobacco, chemicals,
pharmaceuticals, machinery, food processing, automobile, telecom, electrical and electronics, non-
metallic mineral products, and medical instruments, primarily surgical. SSM covers industrial and
household units engaged in manufacturing activities, having less than ten employees. Slaughtering
constitutes products such as meat, hides, skins, bones, and blood.

The manufacturing sector is the driver of economic growth due to its forward and backward
linkages with other sectors of economy. This sector provides employment opportunities to around
16.1% of the total labor force.

Role of SMEs in Manufacturing Sector

Small and medium enterprises (SMEs) make a significant contribution to the total GDP of Pakistan,
according to Small and Medium Enterprises Development Authority (SMEDA) working as an
autonomous body under Federal Ministry of Industries and Production (MoIP), Government of
Pakistan. Unfortunately, there is no single definition of SMEs in Pakistan. Different government
departments categorize them according to their perspectives. Normally, SMEs are defined as per
the definition of SMEDA and State Bank of Pakistan (SBP).

As per the definition by SMEDA, SMEs are enterprises having employee base of up to 250 persons
with a paid-up capital of PKR25 million and annual sales turnover up to PKR250 million. This
definition was an outcome of a consultative process spanning over two years, followed by scrutiny

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and refinement at various levels of government before its finalization and approval by the Federal
Cabinet in 2007.

SBP broadly defines SMEs as comprising (1) small enterprises (SEs) with employment size up
to 20 persons and having sales turnover up to PKR75 million; and (2) medium enterprises (MEs)
with employment size of 21–250 persons (for manufacturing and services sectors) and 21–50
persons (for the trading sector) and having annual sales turnover from PKR75 million to PKR400
million [3].

SMEs’ share in the annual GDP is 40%, and they generate significant employment opportunities
for skilled workers and entrepreneurs. Small- and medium-scale firms represent nearly 90% of all
the enterprises in Pakistan and employ 80% of the nonagricultural labor force. These figures
indicate the potential for further growth in this sector.

SMEs play a key role in shaping national growth strategies and employment generation and
improving the standard of living of vulnerable segments of the society. They are the backbone of
the economy but lack the resources to adopt new technologies and improve their production based
on latest developments. To provide impetus to the SME sector and enhance its competitiveness, the
present government is developing National SME Policy through SMEDA, which would serve as
Government of Pakistan’s master plan for providing support to catalyze growth of the sector. The
focus of the policy is on job creation, export enhancement, and increased contribution of SMEs in
the national economy. A cohesive strategic framework for business facilitation across the public-
sector institutional infrastructure, both federal and provincial, will be developed for the
implementation of policy under the principle of ease of doing business.

Impact of COVID-19
The economic fallout of coronavirus is visible not only in the countries most affected by the
pandemic but also across the globe. Pakistan’s economy, which was already in a low-growth phase
due to macroeconomic imbalances and was undergoing a stabilization program, was hard hit by
COVID-19 during the last quarter of 2019–20. The economic growth declined to a historical low
of –0.4%. Activities in the manufacturing and services sectors, like for the rest of the world, were
adversely affected. The decline in services sector was particularly substantial due to a larger impact
of social-distancing norms. This adversely hit daily workers during the lockdown that was enforced
to control the spread of the pandemic. Agriculture grew by 2.7%, but industry contracted to a
negative 2.6% and services to a negative 0.6% against the growth targets of 3.5%, 2.3%, and 4.8%,
respectively [4].

Impact of COVID-19 on Manufacturing

Industrial sector plays a significant role in the economic development of the country. It contributes
almost 20% to GDP and employs 24% of the total employed labor force. The sector was envisaged
to grow 2.3% on the back of manufacturing sector (2.5%), utilities (1.5%), and construction (1.5%).
However, it faced a major brunt of the COVID-19-related shutdown and depicted an overall
contraction of 2.3%. The LSM sector showed a decline of 5.40%. Major declines were observed in
textile (2.6%); food, beverage, and tobacco (2.3%); coke and petroleum products (17.5%);
pharmaceuticals (5.4%); chemicals (2.3%); automobiles (36.5%); iron and steel products (8%);
electronics (13.5%); engineering products (7.1%); and wood products (22.1%). Increases were
witnessed in fertilizer (5.8%); leather products (5%); rubber products (4.3%); paper and board
(4.3%); and nonmetallic mineral products (1.8%) [4].

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Pakistan has the ninth-largest labor force in the world. Almost 4 million youth are being added
every year to the total civilian labor force, which stood at 65.50 million in FY2017–18. The existing
labor force participation rate of 31.7% (crude) and female participation rate of 14.6% need to be
enhanced. Due to the outbreak of the COVID-19 pandemic, most of the non-agriculture informal
workers (27.3 million) and home-based workers are at risk of losing their jobs [4].

Relief to Industry by Government of Pakistan

The government is fully cognizant of the impact of COVID-19 and has taken certain emergency
measures to lessen the adverse impact, especially for industry workers, daily wage earners, and
street vendors. These programs include:

• Prime Minister’s Emergency Relief Package of PKR1,200 billion;

• provincial relief packages;

• SBP’s Refinancing (Rozgar) Scheme;

• reduction in policy rate;

• Prime Minister’s Kamyab Jawan Programme, a skill development initiative; and

• Prime Minister’s Hunarmand Pakistan Programme (Skills for All).

SBP has complemented the government efforts and announced various monetary measures to
address challenges posed by COVID-19 to employment and growth. The key measures are being
discussed in the next section.

Facilitating New Investment

SBP has announced Temporary Economic Refinance Facility (TERF) and its Shariah-compliant
version to stimulate new investments in manufacturing. Under this scheme, the SBP will refinance
banks to provide financing at a maximum end-user rate of 7% for 10 years for setting up of new
industrial units. Total size of the scheme is PKR100 billion, with a maximum per-project loan size
of PKR5 billion.

Reduction in Interest Rates

In March 2020, the policy rate was cut by 75 basis points. On 24 March 2020, 16 April 2020, and 15
May 2020, the policy rate was further reduced by 150, 200, and 100 basis points, respectively.

Relief Package for Businesses

SBP, in collaboration with Pakistan Banks Association (PBA), announced a comprehensive relief
package for businesses, including microfinance companies, SMEs, and corporates across commercial,
retail, and agriculture sectors/segments to ensure adequate liquidity amidst growing disruptions.

Incentivizing Businesses to Support Employment and Prevent Layoff of Workers

SBP introduced incentives for businesses under refinance scheme for payment of wages and
salaries to workers and employees to prevent layoffs. To shoulder the scheme, Federal Government
allocated PKR30 billion under a credit-risk-sharing facility for banks, spread over four years, to
share the burden of losses due to any bad loans in future.

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Prime Minister's Kamyab Jawan Program

To provide decent work and employment opportunities for youth joining the labor market, Prime
Minister launched Kamyab Jawan Youth Entrepreneurship Scheme (PMKJ-YES) in October 2019.
Under this scheme, PKR100 billion would be disbursed to 140,000 youth entrepreneurs over five
years, which will create around 1 million employment opportunities for the youth in Pakistan.

Implications of COVID-19
Due to the spread of COVID-19 in Pakistan in February 2020 and rapid increase in cases on a daily
basis, the country was put under a nationwide lockdown by the government from 1 April 2020. The
lockdown was extended twice and lasted until 9 May 2020. The government also announced
closure of all private-sector industries and technical/vocational institutes till 31 May 2020, resulting
in suspension of all corporate trainings and technical/vocational trainings offered by Gujranwala
Tools, Dies and Moulds Centre (GTDMC) under donor-funded projects. Similarly, due to the
lockdown, mostly industrial units were closed and GTDMC technical services were also affected.
Overall, revenue streams of organizations were severely disturbed.

However, as COVID-19 has resulted in high-level economic suffering for many other countries, its
limited exposure in Pakistan may create substantial economic benefits for many export-oriented
Pakistan’s industries and may also result in import substitution. Such opportunities create room for
enterprises like GTDMC, which facilitates local industries through latest technologies, skilled
workforce, and expert consultancy services.

Definition of Smart Manufacturing in Pakistan

In this modern era of industrialization and increasing global competitiveness among countries,
Pakistan is still lagging behind due to long-term socioeconomic challenges. There is no approved
definition of smart manufacturing in Pakistan. The merging of virtual and physical worlds through
cyber–physical systems and the resulting fusion of technical processes and business processes are
leading the way to this new industrial age of smart manufacturing. Smart factory products,
resources, and processes are characterized by cyber–physical systems, providing significant real-
time quality, time, resource, and cost advantages in comparison with classical production systems.
The smart factory is designed according to sustainable and service-oriented business practices. It
insists on adaptability, flexibility, self-adaptability, and learning characteristics, along with fault
tolerance and risk management.

In Pakistan, smart manufacturing tools need to be involved from ‘design to prototype to assembly.’
Pakistan’s ICT industry, its innovative capability as well as its skills development industry are at a
growing edge. IoT platforms, artificial intelligence (AI), and cloud computing can easily get
adopted in Pakistan. Adoption of cyber–physical systems for advanced manufacturing processes is
also required. Further, rapid prototyping can even make it possible for each customer to order one-
of-a-kind product without significant cost increase. Collaborative virtual factory (VF) platforms
can drastically reduce the cost and the time associated with new product designs and engineering
of the production process, by exploiting complete simulation and virtual testing throughout the
product lifecycle. 5G technology for cyber–physical systems can also be a revolutionary addition.

The major factors that will impact this transformation include infrastructure availability, stable
economy, utilities, skilled labor, R&D supportive environment, structured production systems,
industrial automation, etc. The Digital Pakistan Policy developed in 2018 can be helpful in
industrial transformation [5].

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Pakistan’s industry has lack of management experience in the context of Industrial Revolution 4.0
and needs competitive management resources in the context of I4.0. Human resource management
would play a vital role through training programs and could jointly work with engineering and
business universities to overcome challenges more efficiently. Pakistan’s infrastructure, economic
condition, instability, utility crisis, unavailability of smart devices, and unavailability of latest
machinery would also be possible barriers.

For smart manufacturing, knowledge and skillsets would be different as people with digital
knowledge would be required in future. So, there is a need to prepare people for enhanced planning
capabilities. Information flow would be rapid and require people with relevant skills to understand
the signals fast and act quickly. Firms would need to become demand-driven adaptive enterprises
and must adopt the demand-driven model to manage end-to-end supply chains. Parameters such as
return on assets/cash equity, customer service level, and lead time to serve, in conjunction with other
performance indicators would be used for measuring business success.

Status of Smart Manufacturing Promotion and Implementation

The initiatives taken at the national level to enhance productivity, competitiveness, and upgradation
of manufacturing/industrial sectors are being discussed in detail in the following section.

National-level Initiatives for Smart Manufacturing Promotion

National Technology Fund (Ignite)
Ignite (formerly National ICT R&D Fund) is a non-profit company owned by the Government of
Pakistan and administered by the Ministry of Information Technology and Telecommunication. It
provides grants to startups and innovative projects that utilize the ‘fourth industrial wave’
technologies to solve local problems and target global opportunities in health, education, energy,
agriculture, telecom, finance, and other verticals. It has a network of incubators across Pakistan to
support startups and engage them with investors and corporations. Ignite has established national
incubation centers (NICs) in five major cities across Pakistan and has launched Digiskills program
to prepare 1 million people for future technologies.

Ignite outreach activities seek to inform professionals, media, students, corporations, and policy makers
about the challenges and threats posed by the new economy and the importance of innovation. Prime
Minister’s National ICT Scholarship Program was a flagship human resource development (HRD)
initiative of Ignite. Ignite has successfully completed more than 125 projects relevant to telecommunication,
cyber security, IoT, software systems, networks, embedded systems, and AI, among others.

Taskforce on Technology-driven Knowledge-based Economy

This task force was developed by the government in 2019, focusing on an economic and institutional
regime that stimulates the acquisition, creation, dissemination, and use of knowledge and
information to improve economic growth and welfare. It also aims for effective systems of
education and skills, information and communication technology (ICT), research and development
(R&D), and innovation. The task force is working on the objectives of

• knowledge-based industrial development through technology innovation, dissemination,

and commercialization;

• promoting cutting-edge research in academia and industry;

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• intensifying cooperation among the relative stakeholders including government, private

sector, and academia;

• taking steps to build human capital in critically important areas; and

• taking all measures necessary so that education, science, technology, and innovation can
be effectively employed to develop a strong, inclusive, and sustainable knowledge
economy

The task force recommends the innovative projects to Public Sector Development Programme
(PSDP) of Government of Pakistan, with a focus on building a knowledge-based economy.

Industrial Designing and Automation Centers

Realizing the importance of digitization and automation in manufacturing sector, Technology
Upgradation and Skill Development Company (TUSDEC), working under the administrative control
of MoIP, has proposed Industrial Designing and Automation Centers (IDAC) in three major industrial
cities of Pakistan, i.e., Lahore, Karachi, and Sialkot. The aim is to upgrade technology and skills of
key and strategic industrial sectors. The centers will offer specialized services for automation and
design-related issues in Pakistan’s industry. They will focus on industry processes, product designing,
and additive manufacturing. Following are the key features of IDAC:

• Dedicated labs will be established with an environment to encourage and carry out R&D
activities, along with trainings on automation and additive manufacturing technologies,
for industry professionals and students from relevant fields.

• In order to increase ‘R&D productivity’ and ‘reduce the time to market,’ external
relationships will be built including partnerships with academia, industry, and equipment
manufacturers/principals to foster this process.

Vision 2030 of Ministry of Planning, Development and Reform (MoPD&R)

MoPD&R has developed Vision 2030 for Pakistan with the objectives of

• establishing a developed, industrialized, just, and prosperous Pakistan through rapid and
sustainable development in a resource-constrained economy by deploying knowledge
inputs; and

• changing the share of the manufacturing industry sector from the current 13% of GDP to
nearly 30% by employing latest ICT technologies and other cutting-edge I4.0 technologies;

Pakistan Industrial Vision by Pakistan Council of Science and Technology

Pakistan Council for Science and Technology (PCST) is mandated to advise the government on the
development of science and technology (S&T) at the national level. The Council is involved in
S&T policymaking, planning, implementation, and carrying out policy studies. PCST is also the
secretariat of National Commission of Science and Technology (NCST), headed by the Prime
Minister. It takes the major decisions for the development of S&T in the country.

‘PCST Technology-based Industrial Vision and Strategy for Pakistan’s Socioeconomic

Development’ lays down the framework for the future development of the country. There are three

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technology policy instruments, namely, technology transfer, technology diffusion, and indigenous
R&D. Technology techniques focus on latest ICT technologies and rapid manufacturing techniques
(smart manufacturing).

National Industrial Policy (Draft)

Developed by the Core Group of the Ministry of Industries and Production, Government of
Pakistan, the draft National Industrial Policy envisaged that in the next ten years, Pakistan would
establish itself as a formidable manufacturing economy producing for an expanding domestic
market as well as for the world market. Through value addition and diversification, this policy aims
to increase the manufacturing output per worker by at least 100% in the next 10 years. This increase
is expected to enhance manufacturing’s share in GDP to at least 30% in the next 10 years, as
envisioned in Vision 2030.

Digital Pakistan Policy

Pakistan introduced its first ‘Digital Pakistan policy’ in 2018. The policy was developed by
Ministry of IT & Telecom, Government of Pakistan, with a focus to digitize the economy, tackle
socioeconomic issues, and capitalize the digitization. It aims to bolster the IT industry by building
a digital ecosystem. Taking a step forward, the current government launched the ‘Digital Pakistan
Vision’ in December 2019 with an aim of enhancing connectivity, improving digital infrastructure,
increasing investment in digital skills, promoting innovation, technology entrepreneurship, and
adopting industrial revolution 4.0, i.e., IoT, AI, etc.

The policy is focused on advancing entrepreneurship and research and innovation (R&I) by
implementing a paradigm shift toward the strategic exploitation of traditional as well as emerging
technology sectors such as robotics, fintech, augmented/virtual reality, IoT, big data, and AI. It will
also help promote the local manufacturing of IT hardware, e.g., desktop PCs, laptops, mobile
handsets, network equipment, LEDs, and microprocessors, to augment the measures that are
already in place to incentivize local manufacturing [5].

National Science, Technology and Innovation (ST&I) Policy 2012

The policy was drafted by Pakistan Council for Science and Technology (PCST), Ministry of
Science and Technology, for promotion of ST&I in the society and development of an S&T
management system. The new policy envisaged a paradigm shift, in which innovation was
recognized as an integral part of the S&T system. The main focus of the policy remained on science,
technology, and innovation planning; management structure; human resource development;
indigenous technology development; technology transfer; and creation of absorptive capacity and
international cooperation as well as R&D.

The thrust areas included metrology; standards; testing and quality (MSTQ); environment; health and
pharmaceuticals; energy; biotechnology; and genetic engineering; agriculture and livestock; water;
minerals; ocean resources; electronics; ICTs; space technology; materials science; nanoscience and
nanotechnology; lasers and photonics; and engineering.

Science, Technology and Innovation Strategy 2014–18

The Government of Pakistan developed the Science, Technology and Innovation Strategy 2014–18
to shift toward a realistic and fast-moving S&T strategy. The strategy aims to address the key
challenges faced by Pakistan in the fields of energy, water, food security, health, unemployment,
and export enhancement through

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• rapid human capital development to meet the country’s current and future human
resource demands;

• improving communication, coordination, and collaboration among S&T, ICT, and other
sectors of socioeconomic development;

• supporting emerging technologies through research and development, commercialization

of R&D results, exploring innovative solutions, and establishing new firms;

• ensuring acquisition of emerging technologies, i.e., biotechnology, nanotechnology,

renewable energy technologies, and fuel cell technologies to gain world-class expertise
and global competitiveness;

• promoting indigenous technology development, innovation and entrepreneurship through es-

tablishing network of innovation incubators, holistic technology clusters, and technology fund;

• establishing S&T think tanks to support policy research;

• enhancing R&D expenditure by up to 2.0% of GDP by 2018; and

• creating 1 million employment opportunities during five years to support economic growth.

Board of Investment Pakistan Policy 2013

Board of Investment (BOI) is mandated to promote, encourage, and facilitate both local and foreign
investments. BOI works for enabling business environment through policy and strategic
interventions. Guiding principles of Investment Policy 2013 include

• reducing the cost and processes of doing business in Pakistan;

• ease of doing business with creation of industrial clusters and special economic zones; and

• linkages of trade, industrial, and monetary policies for greater convergence.

According to the sector policy of BOI, one of the key points is “enabling digitization of key
socioeconomic sectors” through ICTs. Major sectors include agriculture, cloud computing and big
data, IoT, fintech, robotics, health, and energy.

Industrial Technology Acquisition Policy of Pakistan, 2020–23

TUSDEC has developed ‘Draft Industrial Technology Acquisition Policy to benchmark, acquire,
assimilate, and improve the technology being used in various industrial sectors across all major
clusters of Pakistan with the objectives of

• acquiring high-end technologies for potential industrial sectors;

• bridging the identified technology gaps (horizontal technology transfer) and enabling
Pakistan to become a producer of technology (vertical technology transfer);

• enhancing technical capacity of labor market and skill development;

• creating, fostering, and supporting national technology climate in Pakistan;

• strengthening investment climate through joint ventures and incentivizing local industry; and

• promoting knowledge dissemination, stakeholder linkages, and engagement for sustainable

industrial development.

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At the time of writing this publication, the policy was at the approval stage with the Ministry of
Industries and Production. The expected investment size of the policy was PKR118 billion.

Skilling Pakistan with the National Skills Strategy

The National Skills Strategy (NSS) is a key policy document prepared by the National Vocational
and Technical Training Commission (NAVTTC) to revamp Pakistan’s TVET sector and make it a
just, prosperous, and industrialized country by 2030. This strategy addresses the weakness in the
current TVET delivery system through a number of actions. The major reforms that the strategy is
focused on include

• introducing competency-based training;

• establishing industry-specific centers of excellence;

• increasing the role of the private sector;

• reforming the apprenticeship system; and

• encouraging entrepreneurship.

Draft National SME Policy 2019

Currently, the SME sector contributes 40% to the GDP of Pakistan and provides employment to
80% of the country’s non-agriculture workforce. The current growth of the SME sector is 8% in
manufacturing, 10% in exports, and 10% in services.

In order to enhance the share of the SME sector in Pakistan and develop a strong industrial base,
the Small & Medium Enterprises Development Authority (SMEDA) has developed Draft National
SME Policy 2019 in consultation with Ministry of Industries and Production. The policy involved
detailed consultations with relevant stakeholders and inputs/feedbacks from chambers of commerce
and industries. Various consultation sessions were organized that helped gain valuable inputs,
recommendations, and engagement of stakeholders for SMEs’ growth in Pakistan.

The basic aim of the policy is to develop a uniform definition of SMEs based on annual sales
turnover of small industries, include all industries based on the definition, and give credit for
working capital and promote SMEs through the introduction of a credit guarantee scheme.
Modaraba should also be included for the financing of small and medium enterprises.

The policy has given high priority to SME development and creation of a conducive business and
economic environment for SMEs across Pakistan, where SMEs can exploit emerging opportunities
in the local and global markets. Other priority areas include ICT and e-commerce to promote
productivity and growth. The policy focuses on job creation, export enhancement, and increased
contribution of SMEs to Pakistan’s economy.

Priority Industries for Smart Manufacturing

Various countries have developed their economies by adopting industrial revolutions through latest
technological developments. Due to a low technological base, Pakistan’s industrial sector’s share
is very low in GDP when compared with other developing countries. Consequently, it is having
very limited share in global exports.

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Pakistan needs to focus on its key and potential economic sectors that will positively support sustainable
industrial development. The economy is still dependent on traditional industries and is far behind on
the I4.0 revolution front due to limited research as well as technological and skill gaps. The present
government is focused on transformation as is also evident from the latest Digital Pakistan Policy.

TABLE 1
PRIORITY INDUSTRIES FOR SMART MANUFACTURING.

Priority industries Rationale

It constitutes 58% of manufacturing exports. Smart manufacturing is imperative.
Textile Also, support is required for technical textile (sportswear, fire and safety, and
health sector, etc.).
Mostly dies and molds are being imported. Additive manufacturing is the key to
manufacturing high-precision and complex contour parts. Key areas are reverse
Automobile
engineering, prototype development, 3D printing, metal injection molding, etc.,
in addition to smart manufacturing.
There is high potential in manufacturing of implants and electro-medical devices
using smart manufacturing technologies. Potential exists to create orthopedic
Surgical implants, patient-specific tools, devices, and innovative ways of treatment.
The surgical global market is worth USD247.4 billion, while Pakistan’s share is
USD0.356 billion.
There is a need to promote local manufacturing of IT hardware (desktop PCs,
Electronics/ICT laptops, mobile handsets, network equipment, LEDs, microprocessors, etc.). This
has been prioritized in Digital Pakistan Policy.
There is a potential for exports in processing of canned food, fruit pulp, potato
chips and powder, fruits and vegetable dehydration, processed meat, and milk
Food processing
products such as cheese and butter. Smart manufacturing technologies are
required for competitiveness in international markets.
Smart manufacturing, including additive manufacturing technique, is imperative
in manufacturing of composites-based sports goods (e.g., skis, golf sticks, fishing
Sports goods
tackles, hockey and ice hockey sticks) and mechanized balls.
The estimated market size is USD7 billion.
For the tableware market, automation in continuous polishing and CAD design-
ing is required.
Cutlery
The global cutlery market is estimated at USD22.6 billion, while Pakistan’s share
stands at USD0.085 billion.
For footwear and leather goods, smart manufacturing techniques, including
computerized pattern designing, compliance with REACH etc., are required.
The global leather market’s size is USD119 billion, with Pakistan’s share being
USD1.17 billion.
Leather
The global footwear market’s size is USD54.46 billion, with Pakistan’s share being
USD 0.092 billion.
The leather goods market has a size of USD27.51 billion, while Pakistan’s share in
it is USD0.022 billion.
Marble, granite, Smart manufacturing techniques are required for processing and finished
and onyx products.
Growth opportunities exist in value fish/seafood processing using smart manu-
Marine fisheries
facturing technologies.

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Tools and Techniques for Readiness Assessment at Enterprise Level

Readiness Assessment at National level
Smart manufacturing is necessary to cope with the economic, social, and environmental challenges
being faced by the world. Some factors establishing the need for Pakistan to adopt smart
manufacturing and gauging readiness are mentioned below:

• Smart farms are required to be introduced in the agriculture industry for food security.

• The textile sector, with its high growth rate, has a potential to use smart manufacturing
technologies for further enhancement and transformation from conventional to technical
textile manufacturing.

• Pakistan’s overall ranking in Global Competitiveness Index has improved over the years.
However, as can be observed in Figure 1, with a low ranking of 131 in technology
readiness, 120 in labor market efficiency, and 125 in higher education in 2019–20, the
country is facing slow growth rates of output and exports. However, with a comparatively
better ranking of 79 in innovation, effective policymaking and its implementation could
help Pakistan adopt the innovative technologies involved in smart manufacturing.

• The structure of Pakistan’s manufactured exports as per UNIDO’s Competitive Industrial

Performance Index shown in Figure 2 depicts its low share in medium and high-tech
categories and thus confirms the need for smart manufacturing adoption.

FIGURE 1
PAKISTAN’S RANKING OF KEY INDICATORS IN GLOBAL COMPETITIVENESS INDEX.
140
131 132
129 128
127 124 123 125 125
119 121 120 120
120
113 111

100
89
79
80 75 75

60
60

40

20

0
Technology Labor market Higher education Innovation
readiness/ICT efficiency and training/skills
adoption

2015–16 (140) 2016–17 (138) 2017–18 (137) 2018–19 (140) 2019–20 (141)

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FIGURE 2
STRUCTURE OF PAKISTAN’S MANUFACTURING EXPORTS AS PER UNIDO’S COMPETITIVE
INDUSTRIAL PERFORMANCE INDEX.
80%
74%
58%
60%

40%
24%
18% 18%
20%
8%

0%
High- and medium-tech Low-tech Resource-based
World Pakistan

Smart Manufacturing Tools and Techniques for Local Industry

Smart manufacturing will help boost the production of Pakistan’s industrial sectors, decrease
production times, and increase quality and quantity by integrating IoT and cyber–physical systems.
Smart manufacturing tools need to be involved from design to prototype to assembly. Pakistan’s
ICT industry and its innovative capability as well as skills development industry are at a growing
edge. IoT platforms, AI, and cloud computing will easily get adopted in Pakistan. Smart
manufacturing in advanced manufacturing processes and rapid prototyping can even make it
possible for each customer to order one-of-a-kind product without significant cost increase.
Collaborative virtual factory platforms can drastically reduce the cost and time associated with
new product design and engineering of the production process, by exploiting complete simulation
and virtual testing throughout the product lifecycle. 5G technology for cyber–physical systems can
also be a revolutionary addition.

Pros and Cons of Smart Manufacturing Tools

Security Issues
A smart manufacturing system is one that makes use of an integrated network system in a
manufacturing system for sharing information between manufacturing or machining units with end
customers. This requires reliable network connectivity, especially access to the internet. Sharing
information through the internet requires security of data and information throughout the system at
various points with globally unique identification and end-to-end data encryption.

System Integration
Another challenge in the implementation of a smart manufacturing system is the integration of new
technology equipment with the existing ones. The compatibility issues of existing devices with the
new ones cause various problems in the implementation of smart manufacturing technologies. The
old conventional machinery, which may be controlled by legacy communication protocols, might
be outdated and new devices might use different protocols hindering system integration.

Interoperability
Without proper matching of the communication protocols and standards, interoperability may not
be achieved efficiently. The dissimilarities between communication bandwidth, operational
frequency, mode of communication, and hardware capabilities determine the limitations of the
interoperability of the system.

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Safety in Human–robot Collaboration

The main considerations should be made regarding occupational health and safety of personnel
working on sites. Any hazardous environment should be avoided, and the necessary occupational
health and safety should be maintained. Although the use of robotic systems in Pakistan is rare,
while implementing any industrial robotic system, attention should be given to minimize any types
of mechanical, electrical, thermal, noise, vibrational, radiational, and material or substance-related
work environment hazards in a given industry.

Multilingualism
Smart manufacturing systems should be handling multilingual operations, to be able to interpret
any instructions given in human language in machine language in order to instruct the machine on
the desired operation. To make the concept of smart manufacturing realistic and to implement AI
and advanced technologies in manufacturing systems, they should preferably be able to get the
instructions directly from the operator either in voice or text format.

Return on Investment in New Technology

When shifting to another advanced technology in an existing manufacturing system, financial
analysis is done and return on investment (RoI) is very carefully analyzed. The additional
investment that should be done when adopting a new technology should be compared with the
losses in production during the upgrade. The time required to recover the investment influences the
adaption of the new technology.

Challenges to Human workforce

In the wake of smart-manufacturing tools and technologies, policy makers and government
agencies need to consider very critically the probable layoffs/replacements of workforce with
machines, especially in countries like Pakistan where abundant labor force is available. The
implementation of smart manufacturing requires careful analysis and adoption of selected
technologies to avoid layoffs.

Proposed Readiness Assessment Tools and Techniques at Enterprise level

In Pakistan, considering recent developments in terms of the industrial progression to smart
factories, companies are overwhelmed and seem to be incapable of developing appropriate
implementation strategies. SMEs have to analyze their situations and individual needs and then
choose those smart-manufacturing concepts that can best help them achieve the output targets.
There is a need to develop suitable models and instruments to assess the current status of
technologies in industrial companies and to implement the concepts based on their appropriateness
for the companies. SMEs are usually less informed about these concepts. Therefore, an assessment
model should clearly describe the concepts and also show the different possibilities and technologies
that can be adopted by the companies. Thus, the model’s objective should be to

1. inform SMEs about the existing smart manufacturing concepts;

2. assess the current status for implementation and application of smart manufacturing
concepts and readiness; and

3. signal the SMEs as to which smart manufacturing concepts are the most important ones
for them.

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There is no existing agreed assessment model available in Pakistan. Therefore, the country is in a
dire need to have a framework for smart manufacturing implementation at the national as well as
the enterprise level.

For readiness assessment, it is proposed to establish a conceptual framework as follows [6]:

• The objectives should include optimal management of production processes, zero waste,
maximum efficiency, product customization, strengthening of manufacturing
competitiveness, asset utilization, and innovation of supply chain and logistics.

• The directions to be pursued should include intellectualization and optimization,

responding to changes in the external environment, ICT-led integration of processes,
connection of functions, controlled improvement, and sensitiveness to contexts.

• The necessary technologies would include automation, IoT, big data, cyber–physical
systems, etc.

• The applicable objects would be facilities, devices, workers, materials, parts, and products.

• The applied processes would be product design, production planning, process control,
quality control, logistics, and sales from a product lifecycle view; and sensing, controlling,
and actuating from a behavioral view.

The management activities can be divided into strategic planning, management control, and
operational control. In order to make the management activities at the factory smarter, it is necessary
to provide operational requirements for each activity. Therefore, the smart factory’s operating
system is divided into ‘vision’ based on high-level strategy; ‘goal’ based on performance evaluation
for management control; and ‘operations’ at the lower level, subdivided into enterprise, factory,
and machine levels. Enterprise-level requirements involve not only enterprise information systems
such as product lifecycle management (PLM), enterprise resource planning (ERP), supply chain
management (SCM), and manufacturing execution systems (MES), but also factory energy
management systems (FEMS). In addition, security should be implemented.

FIGURE 3
CONCEPTUAL FRAMEWORK FOR ASSESSMENT
Management level Operational requirements

Vision Leadership and strategy

Goal Performance assessment
Enterprise level Information systems

Manufacturing process
Product development Production planning
Operations Factory level Process control Quality control
Facility management Logistics management

Machine level Facility automation

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PAKISTAN

Factory-level requirements mean that step-by-step manufacturing processes such as product

development, production planning, process control, quality control, facility management, and
logistics management should be intelligently implemented. Machine-level requirements mean that
automation of factory facilities, such as production facility, logistics facility, inspection facility,
and equipment information networking, should be implemented. The conceptual framework is
depicted as shown in Figure 3. The list of criteria and sub-criteria specifying the detailed core
activities of each criterion has been given in Table 2.

TABLE 2
CRITERIA, SUB-CRITERIA, AND READINESS ASSESSMENT ITEMS.
Criteria Sub-criteria Assessment items
CEO leadership
Leadership Strategy and plan for implementing smart factory
Leadership
and strategy Management of organization and capability of smart factory
Management of key performance indicators (KPIs)
Procedure of product development, product design and evaluation,
Product and process design and evaluation.
development Management of product information
Management of technical information
Management of information for production planning
Production Demand and order planning
planning
Sales and operation planning
Master production scheduling
Development of a detailed job schedule and order
Process
Management of the production progress
control
Management of abnormalities in the manufacturing process
Management of information for quality control
Management of documents of standards for quality control
Quality control Management of testing data
Process
Management of machines and equipment for quality control
Management of operation of facilities
Facility Maintenance of facilities
management Management of spare parts
Management of molds, jigs, and tools
Management of the demand of materials

Management of orders and lead times

Logistics Management of storing and releasing products in a warehouse

management Management of racking systems

Management of peaking and delivering products

Management of information about delivering and tracking

Utilization of ERP and SCM
Utilization of MES
System and Information
Utilization of PLM
automation system
Utilization of FEMS
Management of information security
(Continued on next page)

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 PAKISTAN

(Continued from previous page)

Criteria Sub-criteria Assessment items

Automation of manufacturing facilities
Automation of logistics facilities
System and Facility
Automation of evaluation and testing facilities
automation automation
Automation of information network for facilities
Management of energy, safety, and environment
Productivity
Quality
Performance Cost
Performance
assessment Lead time
Safety
Environment

Framework for Smart Manufacturing Implementation at National Level

Proposed Framework
Shifting Priority Industrial Sectors to Smart Manufacturing

FIGURE 4
FRAMEWORK FOR SMART MANUFACTURING IMPLEMENTATION.
Vision
Industrial production capacity is enhanced, exports increase, and Pakistan
emerges as a leading economy

Strategic goal
To shift the local priority industrial sectors to smart manufacturing

Enhance ICT Enhance machine Availability of Implement national

technologies’ technology skilled human policies/smart
usage resource manufacturing standards

TABLE 3
SHIFTING INDUSTRIAL SECTOR TO SMART MANUFACTURING

Thematic area Implementation mechanism/ Major stakeholders/ Timeline

tasks implementation agencies
Enhance use of ICT technologies
1 Applicability of • Introduction of IOT in • National Institute of Short-to-
internet of things priority industries Electronics (NIE) medium
(IOT) • Smart chip development • Ministry of Science and term
• Design and development Technology (MoST)
digital and analog circuits • Ministry of IT and
• Enhanced embedded Telecommunication
systems • Ministry of Industries and
Production (MoIP)
• Chambers of commerce and
industry and industrial
associations
(Continued on next page)

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PAKISTAN

(Continued from previous page)

Thematic area Implementation mechanism/ Major stakeholders/ Timeline

tasks implementation agencies
2 Enhanced internet • Network security • Pakistan Short
security • Application security Telecommunication term
• Information security Authority (PTA)
• Operational security • National Information
To stop cyber crime, cyber Technology Board (NITB)
attacks, and cyber terrorism • MoST

3 Digitization and • Big data analysis • MoST Short-to-

analysis • Artificial intelligence • NITB medium
• Cloud computing • MoIP term
• Digital designing • TUSDEC
• Cyber–physical systems • NIE
(CPS) • National University of
• Active design and Science and Technology
manufacturing software (NUST)
• Private/public universities
• Chambers of commerce and
industry and industrial
associations
4 High-speed • 5G technology • PTA Short
internet • Optical fiber • NITB term
• Ministry of IT and
Telecommunication
5 Materials and • Sensors and actuators • MoST Medium-
nano technologies • NIE to-long
• MoIP term

Enhance machine technology

1 Development of • Research and • MoIP Short-to-
platform to development centers to • TUSDEC medium
enhance smart facilitate local industry • MoST term
manufacturing • Induction of advanced • National University of
technologies robotics and cobots Science and Technology
• Additive manufacturing (NUST)
• Facility for machine • Private/public universities
learning • Higher Education
• Technology upgradation Commission (HEC)
centers working on
common facility center’s
concept

2 Readiness of firms • Technical assistance • TUSDEC Short-to-

and Individuals • Consultancy services • MoIP medium
regarding adop- • MoST term
tion of smart • Small and Medium
manufacturing Enterprises Development
technologies Authority (SMEDA)
• Sector development
companies

(Continued on next page)

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 PAKISTAN

(Continued from previous page)

Thematic area Implementation mechanism/ Major stakeholders/ Timeline

tasks implementation agencies
3 Awareness • Training and support • MoIP Short
centers • MoST term
• Roadshows • TUSDEC
• Workshops • HEC
• Webinars • Chambers of commerce and
industry and industrial
associations
4 Technology grants • Challenge funds • HEC Short-to-
and joint ventures • Technology transfer fund • MoIP/TUSDEC medium
• Government facilitation • MoST term
programs for joint • Ignite
ventures between MNCs • Ministry of Commerce
and progressive local • Board of Investment
enterprises for technology • Ministry of Finance (MoF)
transfer
• Introduction of tax
incentives and reforms
Availability of skilled human resource
1 Educational • Introduction of degree- • TUSDEC Short
reforms level programs in • MoST to-medi-
universities • Private/public universities um term
• Introduction of certificate- • SMEDA
level courses in TEVT • NAVTTC
institutes • Provincial TEVTAs
• Short courses on smart • HEC
manufacturing for
company executives,
mid-level managers and
operators
• Center of excellence
(technology specific)
2 Research assis- • Digital library • MoST Short
tance • E-research papers • MoIP term
• Online sessions and • HEC
presentations
3 Industry– • Support through Office of • MoST Short
academia linkages Research, Innovation and • Provincial TEVTAs term
Commercialization (ORIC) • Chambers of commerce and
industry and industrial
associations
• HEC
National policies/implementation of smart manufacturing standards
1 Industrial policies Finalization/approval of • MoIP Short
existing draft policies: • MoST term
• National Industrial Policy • SMEDA
• National SME Policy • TUSDEC
• Industrial Technology • Chambers of commerce and
Acquisition Policy industry and industrial
associations
(Continued on next page)

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PAKISTAN

(Continued from previous page)

Thematic area Implementation mechanism/ Major stakeholders/ Timeline

tasks implementation agencies
2 Smart Manufactur- • Development and • MoIP Short
ing Policy approval of National • MoST term
Smart Manufacturing • TUSDEC
Policy • Ministry of IT and
Telecommunication
• Chambers of commerce and
industry and industrial
associations
• MoF
• NPO Pakistan
3 Smart manufactur- • Awareness on • Pakistan National Short-to-
ing standards international smart Accreditation Council medium
manufacturing standards • MoST term
• Development of local • MoIP
standards and • NPO Pakistan
harmonization with
international smart
manufacturing standards

Conclusion
It is inevitable for Pakistan’s industry to shift from conventional manufacturing processes to smart
manufacturing. Pakistan’s ICT industry is rapidly growing, which is a healthy sign for the easy
absorption of IoT, cloud computing, and AI technologies in Pakistan’s domestic market. As of May
2020, Pakistan had about 82 million internet users, making it the ninth-largest base of internet
users in the world. The growth rate and employment trends had indicated that Pakistan’s ICT
industry would exceed the USD10-billion mark by 2020 [7]. The sector employs 12,000 employees
and counts among top-five freelancing nations.

It is evident from research that Pakistan is far behind on technological readiness in the Asian
region, so this is an opportunity for timely measures to be taken to introduce smart manufacturing
in the country. Pakistan has got enormous potential in the textile industry as well as in the
agricultural industry. If smart manufacturing tools are incorporated in these industries, they can
boost manufacturing and exports, thereby resulting in a significant rise in GDP. The government
should promote and support acquisition of latest technologies including AI, additive manufacturing,
IoT, and related emerging technologies that can revive the key economic sectors of Pakistan.

The government could develop a forum to support coordination between the relevant federal
ministries, divisions, or organizations and the provincial governments and stakeholders to
streamline policies and programs relevant to a smart manufacturing implementation framework in
Pakistan. The NPO in Pakistan may be tasked to act as a secretariat for this joint forum. The forum
may propose recommendations in developing national policies, facilitate in getting the necessary
approvals from the government, and oversee the implementation of the framework to encourage
smart manufacturing in industrial sectors.

The government may also facilitate in acquiring technology and seeking foreign investments in high-
technology manufacturing industries and joint ventures with foreign investors on smart manufacturing
technologies. Through the Board of Investment (BOI), the government could seek foreign investment
in priority industries for smart manufacturing and facilitate local and foreign investors for speedy
materialization of their projects. These measures would ultimately result in enhancement of Pakistan’s
international competitiveness and contribute to its economic and social development.

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 PAKISTAN

It is recommended to support technical human resource development through ‘blended learning’

approach at the school, college, and university levels to promote smart manufacturing. The
government should promote R&D through industry–academia linkages to identify latest skills,
technologies, and innovative ideas for smart manufacturing implementation. A national R&D fund
may also be established with support from federal and provincial governments. The fund should
support continuous R&D activities.

The concept of sector-specific technology upgradation and skill development centers should be
promoted to address the technology- and skill-development needs of each priority sector. The
currently established training facilities may be relocated to local industrial clusters.

A national technology transfer fund may be created for priority industries to incentivize the SMEs
that are ready to transform to smart manufacturing. Changes in taxes and duties may also be
introduced to facilitate such SMEs.

The government should create an enabling environment to encourage local manufacturers and
SMEs to shift to smart manufacturing technologies. Support of other APO member countries may
be sought through the NPO to establish technology-specific centers of excellence. Visits of
international experts to Pakistan may be arranged with dedicated trainings on smart manufacturing
technologies. The experiences gained and lessons learnt by other member countries would help
Pakistan in its transformation to smart manufacturing.

References
[1] Qadri A. Road Map for Pakistan Smart Industries, Industry 4.0. International Supply Chain
Education Alliance; 27 November 2018. https://www.iscea-emea.com/post/road-map-for-
pakistan-smart-industries-industry-4-0. Accessed on 19 January 2022.

[2] Finance Division, Government of Pakistan. Pakistan Economic Survey 2018–19.

[3] Business Recorder Post. Incentives to SMEs: government to adopt SBP’s definition; 21 October
2018. https://www.brecorder.com/news/4643062/incentives-to-smes-government-to-adopt-
sbps-definition-20181021417624. Accessed on 19 January 2022.

[4] Planning Commission, Ministry of Planning, Development and Special Initiatives, Government
of Pakistan. Covid-19 Responsive Annual Plan 2020–21.

[5] Ministry of Information Technology and Telecommunication, Government of Pakistan. Digital

Pakistan Policy. https://moitt.gov.pk/SiteImage/Misc/files/DIGITAL%20PAKISTAN%20
POLICY.pdf.

[6] Lee J., Jun S., Chang T-W. et al. A Smartness Assessment Framework for Smart Factories Using
Analytic Network Process. MDPI. https://www.mdpi.com/2071-1050/9/5/794/pdf. Accessed on
19 January 2022.

[7] DataReportal. DIGITAL 2020: PAKISTAN. DataReportal – Global Digital Insights. https://
datareportal.com/reports/digital-2020-pakistan. Accessed on 19 January 2022.

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THE PHILIPPINES

Introduction to Smart Manufacturing in the Philippines

Small and medium enterprises (SMEs) have been widely recognized as drivers of economic and
industrial development, particularly in providing growth, investments, and employment in a
country [1]. In the Philippines, a total of 1,000,506 enterprises were registered under the Philippine
Statistics Authority’s (PSA) List of Establishments in 2019. The majority of them were micro,
small, and medium enterprises (MSMEs), accounting for 99.52% of the total enterprises, while
0.48% were large enterprises (see Figure 1). More than half of the workforce belonged to MSMEs,
which created 5,510,760 jobs or 62.4% of the country’s total employment in 2019 [2].

FIGURE 1
BREAKUP OF ENTERPRISES IN THE PHILIPPINES BY SIZE IN 2019.

Micro 89.06%
MSMEs 99.52%
Large
0.48%

Small 9.99%

Medium 0.48%

Enterprise size No. of enterprises

Large 4,761
Micro 891,044
Small 99,936
Medium 4,765
Total 1,000,506

Source: [2].

Enterprises are categorized according to their asset and employment sizes as defined in the Republic Act
No. 9501 or the Magna Carta for MSMEs. As seen in Table 1, a micro enterprise employs less than 10
workers, small has 10–99 workers, medium has 100–199 workers, and a large enterprise employs 200
or more workers. These businesses are engaged in industry, agribusiness, or services, regardless of their

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 THE PHILIPPINES

legal structures such as sole proprietorship, partnership, cooperative, and corporation [3]. Classification
of enterprises is still subject to evaluation by the Micro, Small and Medium Enterprises Development
Council (MSMEDC), considering the changes in inflation and other economic indicators [3].

TABLE 1
CLASSIFICATION OF ENTERPRISES IN THE PHILIPPINES.
Size By asset value By employment
Micro <PHP3,000,000 (<USD58,465) 1–9
Small PHP3,000,000–15,000,000 (USD 58,465–292,323) 10–99
Medium PHP15,000,001–100,000,000 (USD292,324–1,948,824) 100–199
Large >PHP100,000,000 (>USD1,948,824) >200
Source: [3].

With the substantial contribution of MSMEs to the country, the government has made it a priority
to promote inclusive and sustainable growth through improved and innovative strategies
encapsulated in the MSME Development Plan 2017–22. One of its strategic goals has been to
provide enhanced access to technology and innovation, especially as the Philippines started to
revive its manufacturing industry [4]. According to the 2019 MSME Statistics of the PSA,
manufacturing played a vital role in the MSME sector, where it ranked third with the maximum
number of establishments engaged in manufacturing. Other top industry sectors included wholesale
and trade, accommodation and food service, financial and insurance, and other services [2].

Historically, from the 1980s up to the early 2000s, manufacturing had a low performance in terms
of its contribution to the country’s growth and employment [5]. The share of manufacturing in the
total GDP declined from 22.5% to 22.1%, in contrast with the rising trend of industrialization in
the neighboring countries, including PR China, Indonesia, Malaysia, and Thailand [6]. This was
due to the series of financial and political declines in the country, coupled with SMEs’ difficulty in
competing and entering the market, and weak linkages in both domestic and global supply chains
[5, 6]. Aldaba [5] observed a decline in the manufacturing industry brought by the absence of
structural transformation of the Philippine economy from agriculture to manufacturing.

The Philippines’ drive towards industrialization and its policies, programs, and innovative
interventions are being continuously developed to understand the country’s scope of activities as it
envisions to have a globally competitive manufacturing industry. In the prioritization index of key
sectors in the Philippines developed by Go, et al. [7], the manufacturing sector (see red line in
Figure 2) had consistently received the highest priority ranking from the government among the
key sectors. It is followed by the sector comprising agriculture, fishery, and forestry, for which the
Philippine economy was largely known. Manufacturing retained its top position in terms of
resource allocation because of its interconnection with other sectors. Simply put, parts of the
operations of most sectors are linked with manufacturing in terms of production and value addition
that signify the sectors’ shares in economic growth.

In addition, the vulnerability of agriculture to disaster-related impacts has resulted in unstable

output share, thus leading to the country’s shift toward an industry-driven economy. Hence, most
of the government’s efforts were reallocated to the manufacturing industry [7].

Having a large play in the manufacturing industry, MSMEs are part of the government’s priority in
coping with the increasing demand for industrialization. Various policies and interventions have

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THE PHILIPPINES

FIGURE 2
PRIORITIZATION INDEX RANKING OF KEY SECTORS IN THE PHILIPPINES, 1969–2012.
11

10

1
1969 1974 1979 1985 1988 1994 2000 2006 2012

Agriculture, fishery, and forestry Mining and quarrying Manufacturing

Construction Electricty, gas, and water Private services

Trade Finance Government services

Transporation, communication, and storage Real estate and ownership of dwellings

Source: [7].

been formulated to address the significant issues faced by MSMEs. With these, innovative
incentives and mechanisms have been provided, such as R&D facilities and financial assistance to
improve enterprises’ products and services and to promote their production efficiencies. There are
also technology upgradation and access-to-market activities for linking MSMEs with multinational
companies and production networks. Overall, SME-related policies concentrate on technology
transfer, financing, market improvement, and domestic linkages to support SME ventures in
manufacturing and other industry sectors [4–6].

Evidently, the manufacturing industry has been gaining more relevance in the Philippine economy.
It was labeled as the country’s rising source of growth in the 2018 Philippine Economic Forum [8].
Rafael Garchitorena, Managing Director and Chief Strategist at Deutsche Pegis Partners, Inc. had
declared the Philippine manufacturing industry as the country’s ‘new growth driver’ in his speech
at the 2018 Economic Forum [8]. According to the PSA [9], manufacturing has consistently
remained the top contributor to GDP since 1998 at an average of 19.7%. In 2019, it dominated the
industrial sector (19.2%), which accounted for almost or near a quarter of the total GDP (see Table
2). It may be noted here that the PSA defines GDP as comprising three major sectors, namely
agriculture and fisheries, industry, and services. Each sector has sub-components indicated in Table
2, with manufacturing belonging to the industry sector [9].

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 TABLE 2
PERCENT CONTRIBUTION TO GDP BY SECTORS AND SUBSECTORS, 1998–2019.

Industry Annual
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
1. Agri., hunting,
11.6 12.4 11.9 11.9 11.8 11.8 11.6 11.3 11.2 11.0 10.9 10.4 9.7 9.6 9.2 8.7 8.3 7.9 7.3 7.1 6.8 6.5
forestry, and fishing
a. Agriculture and 9.5 10.3 9.9 9.9 9.8 9.7 9.5 9.1 9.0 8.9 8.7 8.2 7.7 7.8 7.5 7.1 6.8 6.5 6.0 5.9 5.7 5.4
forestry
b. Fishing 2.2 2.1 2.0 2.0 2.0 2.1 2.1 2.1 2.1 2.2 2.2 2.1 2.0 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.1
2. Industry sector 31.0 29.7 29.4 28.6 28.3 28.2 27.9 27.6 27.7 27.6 27.8 26.0 27.1 26.8 26.9 27.2 27.7 27.8 28.2 28.3 28.5 28.4
a. Mining and 0.6 0.6 0.5 0.5 0.8 0.8 0.7 0.8 0.8 0.9 0.8 0.9 1.0 1.0 1.0 0.9 0.9 0.9 0.9 0.8 0.8 0.8
quarrying
b. Manufacturing 21.5 21.3 20.9 20.7 20.5 20.3 20.1 20.0 20.0 19.5 19.5 17.8 18.5 18.8 18.5 18.9 19.3 19.3 19.3 19.7 19.5 19.2
c. Construction 5.7 4.7 4.9 4.3 4.0 4.0 3.9 3.7 3.9 4.2 4.4 4.5 4.8 4.2 4.6 4.7 4.7 5.0 5.2 5.2 5.6 5.7
d. Electricity, gas 3.2 3.1 3.1 3.1 3.0 3.1 3.2 3.0 3.0 3.0 3.0 2.9 3.0 2.9 2.8 2.8 2.7 2.7 2.8 2.7 2.7 2.7
and water supply
3. Service sector 45.1 45.9 44.0 44.2 44.2 44.6 45.4 45.6 46.3 47.0 46.9 46.4 46.4 47.3 47.3 46.9 46.9 47.4 47.8 47.9 48.3 49.0
a. Transport,
storage, and 5.1 5.2 5.2 5.6 5.9 6.3 6.7 6.8 6.8 7.0 6.9 6.6 6.2 6.3 6.3 6.2 6.2 6.4 6.3 6.1 6.1 6.2
communication
b. Trade and repair
of motor vehicles,
motorcycles, 12.8 13.6 13.5 13.7 13.7 13.7 13.9 14.0 14.2 14.5 14.1 13.7 13.8 13.9 14.0 13.8 13.7 13.9 14.0 14.1 14.1 14.5
personal, and
household goods
c. Financial 4.7 4.7 4.5 4.5 4.5 4.6 4.6 4.9 5.2 5.4 5.3 5.3 5.5 5.6 5.6 5.9 6.0 6.0 6.0 6.1 6.2 6.5
intermediation
d. R. Estate, renting,
and business 8.7 8.6 8.0 7.7 7.5 7.6 7.8 7.9 8.1 8.2 8.6 8.6 8.6 9.0 9.0 9.1 9.2 9.3 9.5 9.6 9.5 9.3
activities
e. Public
administration and
defense; 4.9 4.7 4.4 4.3 4.2 4.1 4.2 4.0 4.0 3.8 3.7 3.8 3.7 3.7 3.6 3.5 3.4 3.3 3.3 3.3 3.6 3.8
compulsory social
security
f. Other services 8.9 9.1 8.5 8.4 8.4 8.2 8.2 8.1 8.1 8.1 8.3 8.4 8.5 8.7 8.8 8.5 8.4 8.6 8.6 8.6 8.8 8.8
Gross domestic
87.7 88.0 85.3 84.7 84.3 84.6 84.9 84.5 85.1 85.6 85.6 82.8 83.2 83.7 83.4 82.8 82.9 83.1 83.3 83.4 83.6 83.9
product
Gross national
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
income
Source [9].
Note: Percentage distribution is based on constant 2000 prices.
THE PHILIPPINES

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THE PHILIPPINES

In terms of business generation, the Annual Survey of Philippine Business and Industry (ASBPI)
released in March 2020 recorded a total of 24,200 establishments in 2017. (ASBPI is one of the
survey activities of PSA. It was conducted in 2018 with 2017 as the reference period [12].) As
shown in Figure 3, the top five manufacturing establishments by number are (1) manufacture of
other food products; (2) manufacture of beverages; (3) printing and service activities related to
printing; (4) grain mill, starches, and starch products; and (5) wearing apparel manufacturing [10].
Based on the 2019 MSME Statistics, manufacturing had the third-largest number of establishments
among MSMEs while it took the lead among large enterprises [2, 11].

FIGURE 3
PERCENTAGE CONTRIBUTION OF ALL PHILIPPINE MANUFACTURING ESTABLISHMENTS BY
INDUSTRY GROUPS, 2017.

Manufacturing
of other food
products
All other 32.6%
manufacturing
industries
41.6%

Manufacturing of
beverages 9.9%

Manufacturing of wearing
apparel, except fur apparel 4.2%

Manufacturing of grain mill products, Printing and service activities

starch, and starch products 5.2% related to printing 6.5%

Source: [10].

With 1.3 million manufacturing establishments noted in 2017 [10], it employed over 1.6 million
workers in the country, thereby having the second-largest share among the industry groups in 2019
[2]. According to Technical Authority and Skills Development Authority (TESDA), the majority of
this labor force was working in the fields of chemicals, tools, and die manufacturing, and animal
production industry, while the highest employment growth rate was in the air and spacecraft
subsector of manufacturing as of 2018 [12].

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 THE PHILIPPINES

FIGURE 4
MANUFACTURING PERFORMANCE OF SELECTED ASEAN COUNTRIES.
Manufacturing value added as % of GDP, 2019

Thailand
30
USD111.34 billion
Malaysia
25 USD74.63 billion

Indonesia Vietnam
20
USD 208.67 billion USD24.58 billion
Philippines
USD58.91 billion
15

10

5
0 1 2 3 4 5 6 7 8 9
Average annual growth in %, manufacturing value added, 2010–19
Source: [13].

Aside from growth and employment shares, the manufacturing performance is also assessed based
on the manufacturing value added (MVA). According to the World Bank [13], the Philippines had
an average of USD58.91 billion MVA in the period 2010–19 (see Figure 4). However, it is important
to note that the Philippines grew faster than other ASEAN countries with an MVA growth of 5.8%,
which was almost double compared with the global average of 3.1% in the same period [13]. This
is a good indicator for the country to maximize the full potential of its manufacturing industry. The
ASEAN Economic Community (AEC) has also increased its efforts to help the ASEAN to challenge
the top manufacturing hubs and increase its leverage in the global trade market. These efforts are
channeled through free trade agreements (FTAs) among member countries and economic bilateral
partnerships with major markets [14, 15].

Despite the remarkable performance of the manufacturing industry in the past years, sudden
economic shocks have been experienced since December 2019. This situation was brought about
by the COVID-19 pandemic that exacerbated the growth rates across all sectors of the economy.
The manufacturing sector was deemed most critical, along with wholesale–retail trade and
government services since these are labor-intensive sectors [16]. The share of manufacturing in the
Philippine GDP declined by about 22.1% in the second quarter of 2020 compared with the second
quarter of 2019 [17]. The crisis has also negatively affected other sectors, as seen in Table 3.

TABLE 3
GDP CONTRIBUTION OF THE INDUSTRY SECTOR, Q2 2019 VERSUS Q2 2020.
Selected sector Q2 of 2019 Q2 of 2020 % change
Industry 1,493,273 1,151,788 –21.3
Mining and quarrying 56,818 42,917 –32.1
Manufacturing 909,831 716,454 –22.1
Electricity, steam, water, and waste management 152,196 143,311 –1.7
Construction 374,429 249,107 –27.9
Source: [17].
Note: GDP contribution is based on 2019 constant prices.

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THE PHILIPPINES

According to the PSA [18], the Value of Production Index (VaPi) for manufacturing also reduced
by 11.6% in September 2020, preceded by a 13.6% decline in the previous month (see Figure 5).
This was the seventh consecutive month that VaPi had a decrease amidst the drastic impact caused
by the COVID-19 outbreak, e.g., massive closure of factories and movement restriction. Production
of all manufacturing subsectors fell, except for food manufacturing with 11.6% growth, basic
metals (12.3%), chemical products (5.6%), and miscellaneous manufactures (1.6%). Nevertheless,
the National Economic and Development Authority (NEDA) shared its optimism on gradual
recovery of this sector as more factories reopened amidst an easing of movement restriction [19].

FIGURE 5
VALUE OF PRODUCTION INDEX FOR MANUFACTURING, DECEMBER 2019–SEPTEMBER 2020.
5.0
2.6

0.0
–1.6
–5.0
–6.8
–10.0
–11.6
–15.0 –13.3 –13.6

–16.8
–20.0 –18.9

–25.0

–30.0 –29.2

–35.0

–40.0
–39.5

–45.0
Dec 2019 Jan 2020 Feb 2020 Mar 2020 Apr 2020 May 2020 Jun 2020 Jul 2020 Aug 2020 Sep 2020
Source: [18].
Note: Value of Production Index 2000=100.

Manufacturing is considered by the International Labour Organization (ILO) as the most risk-sensitive
sector affected by COVID-19 [20]. This is influenced by disruptions in the global supply chain where
the world experienced a supply shock, at the peak of the pandemic, caused by lockdowns [21]. The
major trading partners of the Philippines, i.e., PR China, Japan, Hong Kong, Singapore, and the USA
were the countries most affected by the pandemic, which limited the flow of supplies. In effect, lesser
demands for the nonessential manufactured items are estimated to cause losses up to PHP855.2B in
revenue as per the Philippine Institute for Development Studies’ (PIDS) projections [21]. The
Department of Trade and Industry (DTI) has enumerated the manufacturing sectors that were and will
be heavily affected. These include aerospace, automotive and auto parts, electronics, footwear,
furniture, iron and steel, pharmaceuticals, plastics, shipbuilding, and textiles and garments [22].

To cope with global supply limits, DTI’s Board of Investments (BOI) manifested the need to
strengthen the capacity of local manufacturers and lessen the country’s dependence on imports.

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Part of this initiative is the repurposing of manufacturers’ products to produce COVID-19-related

items such as personal protective equipment (PPEs) and diagnostic and clinical-care equipment.
For example, the companies that were in the field of ready-to-wear garments repurposed to
produce PPEs, while beverage companies could get into the manufacturing of alcohol-based
disinfectants [23–25].

Other government efforts in addressing the challenges of COVID-19 are focused on programs for
business continuity. These include Recharge PH; The Bayanihan to Heal as One Act or the Republic
Act No. 11469; COVID-19 Assistance to Restart Enterprises (CARES) Program; and financial
programs in partnership with the Philippine government banks. Recharge PH is a national recovery
program crafted by NEDA towards a healthier and more resilient Philippines. It aims to reduce the
impact of COVID-19 while restarting the social and economic activities of the country.

One of the strategies is to digitize enterprises by creating products and solutions with technology
building blocks [26, 27]. The Bayanihan to Heal as One Act provides sufficient funding to
productive sectors, including the manufacturing industry, as a means of recovery from the impact
of the pandemic. Through this act, MSMEs are qualified for loan grants up to PHP500,000,
depending on their asset size and annual sales [28]. As this RA 11469 was signed into a law, it
allotted PHP10 billion budget to Small Business Corporation (SB Corp) in support of its CARES
Program for the MSMEs who suffered business reversal [25, 29]. It may be noted that SB Corp is
a government financial institution created in virtue of the Republic Act 6977 (now amended as the
Republic Act 9501 or the Magna Carta for MSMEs). Its main objective is to foster growth among
MSMEs through financial access and inclusivity [29].

Similarly, the Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP)
have allocated a total of PHP30 billion for their financial programs to SMEs. Recipients of the
aforementioned initiatives are mostly MSMEs because of their vulnerability to financial resources
and economic disruptions. As they comprise the bulk of the Philippine establishments, efforts
toward ensuring business continuity for this sector will aid in the economy’s recovery [25].

COVID-19 has pushed Filipinos to search for more innovative and technologically advanced
solutions to battle the pandemic. The Department of Science and Technology (DOST) has
developed tools varying from contract-tracing applications, health monitoring tools, and goods/
supply delivery systems with artificial intelligence (AI), robotics, and internet of things (IoT)
[30, 31]. As Aldaba [25] has emphasized, enterprises with greater innovation emerge resilient
and create leverage even with economic slowdown, which allows them to adapt to the rapidly
changing market conditions. Now, I4.0 has been gaining more importance, especially in times of
disruptions [25].

I4.0 and Smart Manufacturing in the Philippines

The Philippines is quite behind on capacity building for I4.0. As per the World Economic
Forum’s assessment of countries’ readiness for the future of production, the Philippines was
categorized as a legacy country, along with India, Thailand, Mexico, Turkey, and Romania.
Legacy countries are those that have a complex production system but with weak drivers of
production. Specifically, the country was said to be facing hindrances as the country had a (1)
weak technology base; (2) weak human capital (knowledge and competencies of workers); and
(3) poor infrastructure in keeping up with the future of production [33, 34]. This is similar to
the classification by the APO where the Philippines recorded low competitiveness scores in

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R&D and innovation [35]. While global economies are transitioning or have already advanced
to I4.0, most establishments in the Philippines are still moving from Industry 2.0 to 3.0. A few
are already in the 3.0 phase, but much fewer are in the fourth industrial revolution (FIRe) phase
[33]. Similarly, the Philippine manufacturing industry is also lagging in the adoption and
implementation of smart manufacturing technologies.

A few companies in the country have taken steps towards technological transformation but they are
mostly classified as large ones. These firms have the financial capacity and global partners to
innovate and plan their digital transformation. Schneider Electric, for instance, a multinational
company providing energy and digital transformation, has launched its first smart factory in Cavite,
the Philippines. It has incorporated IoT architecture into its systems, allowing real-time monitoring
and control of its production processes. The smart factory is not yet fully automated as it still has
manual operations and mostly consists of sensory tools that have elevated its capacity for mass
production and operational efficiency [36]. IoT devices have also been used in smart farms, traffic
management, and high-end condominiums in the Philippines. In general, IoT allows interlinking of
devices using wireless connectivity to centralize the control of the system. This technology is not
yet notable in the country, but is part of the Department of Information and Communications
Technology’s (DICT)’s Roadmap for Digital Startups that promotes interrelated digital ecosystems
among startups [32, 37].

Applications of robotics in the country are mostly in subsidiaries of foreign companies such as
Seiko Epson Corporation, which is a global market leader in Selective Compliance Articulated
Robot Arm (SCARA) robots. In 2019, the company launched its industrial robots in the Philippines,
capable of assembly of electronic components such as printers and watches [38]. In the same year,
Toyota Motor Philippines started to utilize its high-tech press line machine, which is the first in the
country to produce side member panels (largest part of a vehicle’s body shell) using this high
technology in the local automotive industry. This is in partnership with DTI’s Comprehensive
Automotive Resurgence Strategy (CARS) program, which aims to boost automotive manufacturing
in the Philippines [39]. Dadios, et al. [32] have also documented a case study of an automated coco
sugar production using robotics systems. It regulates the status and temperature of the cooking
chamber that results in efficiency of production.

As mentioned earlier, technological adoptions toward smart manufacturing are still rarely observed
in the Philippines [40]. The country’s weak science, technology, and innovation (STI) culture has
contributed to this state. As emphasized by NEDA [41], many sectors are not recognizing,
appreciating, and acknowledging the role of STI. Aside from these, there are also problems in
technology-transfer and adoption among MSMEs and backbone sectors like agriculture and
fisheries [41]. The country also suffers from a shortage in workforce that specializes in STI.
Although graduates in science, technology, engineering, and mathematics (STEM) had increased
from 2017 (213,853) to 2018 (247,608) by 14%, the number was still way below the country’s
target of 331,800 graduates in 2018. Moreover, the bulk of the graduating students are business
administration and education degree holders [42].

Education is also among the sectors that were significantly affected by the coronavirus outbreak in
the country. The country’s Department of Education had announced in May 2020 that, in the
opening of basic-education classes for the school year 2020–21, the mode of learning would be
virtual or remote. Delivery of classes would be in the form of blended learning, distance learning,
homeschool, and other modes, in accordance with the local COVID-19 severity [43]. The call for

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remote learning has exposed the poor digital infrastructure of the Philippines. Filipinos living in
both urban and rural areas are suffering from slow internet connections as the average speed in the
country is far lower than the global average [44]. The poor digital infrastructure in the Philippines
is said to be due to lack of foreign and local competition among telecommunication companies, as
well as the difficulties in securing permits for building transmission towers [45].

Nevertheless, the 2019 Philippines Innovation Ecosystem Assessment under USAID Philippines’
Science, Technology, Research, and Innovation for Development (STRIDE) project reported
improvements across all elements of the innovation ecosystem, compared with the 2014’s
assessment. Key elements include human capital education, research and knowledge creation,
knowledge transfer, startups, and collaboration. The evaluation was based on the survey and
interview responses from the government, industries, startups, and academic sectors. Overall, the
improvement was mainly attributed to (1) the government’s continuous efforts in policymaking
initiatives and plans towards strengthening innovation; and (2) increased willingness of the
government–industry–academia collaboration [46].

Status of Smart Manufacturing Promotion and Implementation

The Philippines has strived for inclusive innovation with the aim to develop globally competitive
industries through innovation, research and development, strengthening of industry clusters, and
removing barriers to growth. Based on the 2019 findings of USAID STRIDE, the stakeholders had
observed positive changes in the innovation ecosystem of the Philippines since 2014. This is
parallel to the results of the Global Innovation Index where the country had ranked 50th in 2020,
which marked a big leap from its 54th rank in 2019 and 73rd rank in 2018 [25, 47]. The government,
industries, and academia have legislated and launched various policies and interventions to realize
this goal.

One of the promising policies is the Inclusive Innovation Industrial Strategy (i3S). It was crafted by
the DTI-BOI with the aim to improve not just the industry sector but also the existing level of
poverty by reviving the manufacturing sector and connecting it with agriculture and services
sectors. Hence, the industrial strategy was made inclusive to create more jobs and promote
innovation in all regions of the country. The i3S policy was initially based on five major pillars.
These were:

1. creation of new industries and industry clusters;

2. human resource development and making the workforce more I4.0 ready by upgrading the
education curricula and improving digital skills;

3. development of innovation and entrepreneurship, which is at the heart of this strategy;

4. MSME and startup development; and

5. enabling ease of doing business through simplification and automation of processes to

reduce transaction costs and address the high costs of power and logistics [48].

As the Philippines is now challenged with new technologies and other global and domestic
developments, i3S focuses on the outlook of I4.0, to ensure that the country’s current production

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FIGURE 6
THE INCLUSIVE INNOVATION INDUSTRIAL STRATEGY FRAMEWORK.

Government Academy

Industry

Innovation and entrepreneurship

MSME growth and development

clusters, and agglomerations

Ease of doing business and

investment environment
Building new industries,

Capacity building

Five major pillars of i3S

Source: [48].

system is transformed and well-positioned for the future. In achieving this, the industrial policy has
expanded into six strategic actions derived from the five pillars. These are:

1. Embracing I4.0: Manufacturing enterprises should utilize new technologies that would
strengthen competitiveness and sustainability.

2. Innovative SMEs and startups: Inclusion of SMEs and startups in technological

breakthroughs will prepare them for I4.0.

3. Integrating production systems: This can be achieved by linking manufacturing to other

key sectors and facilitating access to global markets.

4. Ease of doing business: This aims to simplify the business process in manufacturing and
improve the digital infrastructure and logistics of the country.

5. Upskilling/reskilling of workforce: This can be achieved through technical training

programs and R&D on smart manufacturing technologies, along with incentivizing
programs to promote STEM curriculum.

6. Innovation and entrepreneurship ecosystem: This will help commercialize R&D

outputs and strengthen the startup network [49, 50].

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Overall, the policy is focused on pursuing connectedness in the country by strengthening the triple-
helix relationship between the government, the academia, and the industry. The government will be the
main governing body that facilitates addressing the constraints of progress among industries. Through
i3S, government agencies are called to collaborate in the R&D and physical innovation infrastructure,
human resource development, innovation policy formulation and monitoring, alignment and
implementation of innovative programs, and provisioning of financial support in the implemented
programs [51]. The government agencies in close coordination with DTI-BOI are shown in Table 4.

TABLE 4
GOVERNMENT AGENCIES IN COLLABORATION WITH I3S.

Focus Agencies
Department of Information and Communications
Technology (DICT);
R&D and physical innovation
Department of Science and Technology (DOST);
infrastructure
Department of Agriculture (DA); and
Commission on Higher Education (CHED).
Technical Education and Skills Development Authority
(TESDA);
Human resource development (HRD)
Department of Labor and Employment (DOLE); and
Department of Education (DepEd).
Innovation policy formulation and
National Economic and Development Authority (NEDA).
monitoring
Alignment and implementation of Department of the Interior and Local Government (DILG);
innovation programs Local government units (LGUs)
Financial support in the implementation Department of Finance (DOF); and
of innovation programs Department of Budget and Management (DBM).
Source: [51].

In 2017, DTI’s inclusive innovation-led industrial strategy has 12 industrial sectors to prioritize,
including aerospace manufacturing, electrical and electronics, automotive, chemicals, shipbuilding/
RORO, tourism, transport and logistics, construction, IT-BPM, agribusiness, tools and dies, and
furniture and textile creative industries [51]. In 2020, climate change, digital trade, and innovation
and R&D were added to the list of priorities. The policy aims to implement bolder trade regulations,
increase infrastructure, and intensify investing to ramp up these priority sectors. These industries
were prioritized because of their crucial contribution to the economic transformation [25, 50, 51].

In promoting i3S, the DTI has been conducting Annual Manufacturing Summits since 2016, which
bring together different stakeholders from private sectors, industry associations, business chambers,
academia, the research community, and government agencies. Other activities include business
matching, trade fairs, and exhibits. Similarly, the Development Academy of the Philippines (DAP),
through its Center for Governance, had its seminar series on I4.0, with the aim to have a basic
understanding of the I4.0 concept, current trends, and how they affect the country’s industries. In
2020, DAP continued this program through a webinar series, which focused on the best practices
and working models related to I4.0 that may apply to MSMEs. These online learning sessions aim
to enable the participants to appreciate and compare models, practices, and applications of I4.0
initiatives of select countries in order to obtain ideas on how to further improve the productivity
and competitiveness of the MSMEs in the Philippines.

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Embracing FIRe technologies as part of the strategic actions of the i3S, DOST has been the
forefront agency in advancing smart manufacturing in the country. One of its programs is the
Advanced Manufacturing Center (AMCen), which aims to be the country’s leading research
center in innovative 3D printing technologies, processes, and materials. It provides shared
facilities for advanced additive manufacturing technologies in the Philippines, initiated by two
of DOST’s line agencies, namely the Industrial Technology Development Institute (ITDI) and
the Metals Industry Research and Development Center (MIRDC). The program consists of two
major projects that focus on R&D of advanced manufacturing materials handled by ITDI, while
MIRDC is to facilitate product innovation through rapid prototyping. Also, DOST–MIRDC
initiated the Advanced Mechatronics, Robotics, and Industrial Automation Laboratory
(AMERIAL) that provides training and consultation for technology advancement and
competitiveness of the metals and engineering industry. The laboratory is an industrial automation
facility, consisting of various equipment used in smart factory and Industry 3.0, cobots, and an
automation studio. This project may assist the transformation of Philippine MSMEs from
Industry 2.0 to Industry 3.0 including the DOST-assisted Small Enterprises Technology
Upgrading (SETUP) program cooperators.

By the end of 2020, the DOST plans to include the SETUP co-operators transition to I4.0 and be
called SETUP 4.0 or smarter MSMEs. This is to align with the growing acceptance of I4.0 which
allows small enterprises to shift to online and contactless operations, especially amidst the
pandemic. Large companies, majority of which operate in the automobile, electronics, robotics,
and metal fabrication industries, are also beginning to adopt smart technologies [25]. For food
production and processing, the Smart Food Value Chain Program of DOST Philippine Council for
Industry, Energy and Emerging Technology Research and Development (PCIEERD) has utilized
smart and innovative technologies throughout the value chain, ranging from raw inputs to
distribution of products for consumption [46].

Further, DTI’s Securing Manufacturing Revitalization & Transformation (SMART) Program

intends to technologically upgrade processes, products, services, and development of new
business models toward I4.0. SMART is currently targeting the manufacturing of jeepneys with
internal combustion engine (ICE) and electric vehicle (EV) technology through DTI-National
Development Corporation Co-investment Program, Electrified Vehicle Incentive Scheme
Program, and Industrial Transformation Program. Firms that aspire to be funded by the SMART
program should be eligible as per a list of criteria. Overall, DTI has proposed to allocate PHP25
billion to PHP30 billion (USD493 million to 592 million) to support the priority industries and
programs [25, 51].

Given the increasing initiatives for smart manufacturing, it is equally essential for the workforce to
be ready for these technologies. As previously mentioned, through its AMERIAL project, DOST
has been providing training to create a pool of skilled and highly qualified workforce. The agency
has also crafted its Harmonized National R&D Agenda (HNRDA) 2017–22. Section IV of this
program focuses on the development of industry, energy, and emerging technologies through
continuous R&D. Similarly, the Science for Change Program (S4CP) was established to accelerate
science, technology, and innovation through increased investments in S&T human resource
development. It consists of four major components including (1) Niche Centers in the Regions
(NICER) for R&D; (2) R&D Leadership (RDLead) Program; (3) Collaborative Research and
Development to Leverage Philippine Economy (CRADLE) Program; and (4) Business Innovation
through S&T (BIST) for Industry Program.

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Research grants and incentives were also provided to promote local research involving innovation.
The Balik Scientist Law (RA No. 11035) provides benefits and incentives to encourage overseas
Filipino researchers to practice in the country. Moreover, programs on educational curriculum lean
toward STI promotion through scholarship grants, advanced science training for high-school
students, and TESDA’s Free Access to Technical-Vocational Education and Training (TVET) [46].
These programs can help contribute toward gradual readiness of the workforce to adopt smart
manufacturing technologies. With the adoption of smart manufacturing technologies, processes
and work procedures can be made easier. As a result, workers can be more effective and efficient
in meeting their objectives and targets.

To enable inclusive innovation, the two important legislations, the Philippine Innovation Act (RA
11293) and the Innovative Startup Act (RA 11337), were approved in 2019 primarily for the
development of MSMEs and startups. Both aim to promote innovation through education, training,
funding, and incentives, thereby serving as a key driver of sustainable and inclusive growth [49].
DICT is seen to be the pioneering agency for helping startups grow their businesses through digital
adoption as crafted in the Philippines Roadmap for Digital Startups in 2016. Moreover, in 2018,
another roadmap for startups was formulated in partnership with DICT, DTI, and DOST. This is a
five-year plan called Startup Assistance and Program 2019–23, which aims to assist and develop
strategies for 1,000 startups. Like MSMEs, startups would have a vital role in the innovation
endeavor of the country, given that the young population has an embedded capability for AI,
robotics, fintech, and machine learning [46].

To strengthen the innovation performance and address the gap in innovation and entrepreneurship,
DTI outlines the innovation strategies in the Inclusive Filipinnovation and Entrepreneurship
Roadmap (IFER). It focuses on the market-oriented policy that diffuses R&D with
commercialization. In partnership with DOST and various universities, it enables researchers to
assess commercial and societal value via experiential learning to improve commercialization
outcomes. The establishment of Technological Business Innovation (TBI) offices at universities
encourage students to engage in technopreneurship. In support, agencies like DepEd, CHED, and
TESDA have also included entrepreneurship classes for K-12 students to align with the Youth
Entrepreneurship Act [47, 50].

The Philippine Development Plan (PDP) 2017–22 of the National Economic Development
Authority, aligned with the AmBisyon Natin 2040 (Our Vision 2040), was crafted to enhance the
social fabric, reduce inequality, and promote growth potential [52]. Unlike the i3S framework,
the PDP 2017–22 is a more holistic approach to national development. It prioritizes not just
the enterprises and the manufacturing sector, but also human development, the government, and
the environment.

Tools and Techniques for Readiness Assessment at Enterprise Level

In the Philippines, (1) Global Innovation Index (GII) and (2) Readiness for the Future of Production
framework by the World Economic Forum (WEF) were most cited by DTI in assessing the country’s
maturity for Industry 4.0 [47]. The WEF placed the Philippines under ‘legacy’ countries. Its report
concluded that the country was lagging in I4.0 adoption due to weak innovation and technology
base, poor infrastructure, and weak human capital [48]. Overall, the Philippines scored low on
readiness for the future of production, with a score of just 4.5 out of 10 [34]. In terms of the Global
Innovation Index assessment, the Philippines ranked 50th in 2020, the highest rank ever achieved

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by the country since 2014, and had the most significant progress over time in terms of innovation,
along with PR China, India, and Vietnam [47].

The Philippines has not structured a national index to diagnose the readiness and maturity of its
domestic enterprises. However, DTI is planning to adopt Smart Industry Readiness Index (SIRI) as
the WEF has endorsed it internationally as a standard tool for I4.0. Currently, the only accredited
assessor of SIRI in the country is the TUV SUD Philippines, and so far, no company has been
subjected to SIRI. DTI and DOST have expressed interest in becoming SIRI assessors in the
country and were supposed to send representatives for training. However, this was halted due to the
pandemic [53].

In 2019, DTI conducted a smart manufacturing survey with over 200 manufacturing firms in the
country using the survey tool from the Manufacturing Enterprise Solutions Association (MESA).
MESA’s assessment contains eight dimensions, namely, (1) planning and scheduling; (2)
manufacturing activity management; (3) equipment connectivity and data management; (4)
material management and handling; (5) equipment maintenance; (6) quality; (7) shop floor
visibility; and (8) cyber security. These dimensions measure the technology’s utilization level and
smart-manufacturing preparedness of enterprises. Results in the survey showed that manufacturing
enterprises had poor adoption of digital technologies and high barriers to I4.0. The firms’ inadequate
financial capability was reported as the most challenging hindrance in digital transformation,
followed by a lack of awareness and motivation for the rest of the firms. Other problems cited were
poor digital infrastructure and market conditions. Overall, the technology utilization score was
only 18 out of 40, which implies a slow pace of digital transformation [25, 54].

Firms that adopt technologies are mostly the large, foreign-owned ecozone locators and exporting
manufacturers, while MSMEs are quite behind. In terms of geographical distribution, technology
utilization is concentrated in the Mega Manila area including three regions out of the total 17
regions, thus indicating a wide digital imbalance. The three regions are, National Capital Region
(NCR), Region 3, and Region IV-A. In terms of planned investments, all enterprises (large,
medium, small, and micro) showed openness to invest in software and machinery in the next five
years, with large firms being the most likely to invest. Small enterprises displayed the most diverse
planned investments in the next few years. In general, there is a low level of transformation among
manufacturing firms despite the fact that a majority of them are aware of the opportunities and
challenges of transforming to I4.0. Specifically, 70%, 60%, and 70% of the micro, small, and
medium enterprises and exporters are open and familiar with I4.0, respectively [25].

With regard to awareness with the terms I4.0 and smart manufacturing, another survey conducted
by DOST XI showed that 67.7% recognized the importance of technology and the need to upgrade
to accommodate business needs. Also, 52.4% said their operations were already equally dependent
on both technology and people.

For a majority of respondents, it was their first time to hear about cyber–physical systems (65%);
augmented reality (49%); industrial internet of things (46%); and big data analytics (42%). This
mirrors the unfamiliarity of the respondents with I4.0 and smart manufacturing. For cloud storage/
technologies, robotics, artificial intelligence, RFID, and 3D printing, respondents were either
‘vaguely familiar’ or ‘familiar’ by a margin of 0–3%. Among emerging technologies in smart
manufacturing, 3D printing and robotics were the leading technologies in the ‘very familiar’
category. However, these accounted for 11% and 9% of the respondents only, respectively.

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FIGURE 7
FAMILIARITY WITH THE TERMS I4.0 AND SMART MANUFACTURING.
400
348
350 327

300

250

200

150
123
95
100
74 67

50

0
Have you heard of Industry 4.0? Have you heard of smart manufacturing?

Yes, familiar Yes, not familiar No, not at all

FIGURE 8
PERCENTAGE OF FAMILIARITY WITH EMERGING SMART MANUFACTURING TECHNOLOGIES.

Augmented reality 49% 30% 17% 4%

3D printing 19% 34% 36% 11%

Cloud technologies/
36% 29% 29% 7%
storage

Big data analytics 42% 35% 20% 4%

Robotics 18% 35% 39% 9%

Radio frequency
29% 30% 33% 8%
identification (RFID)

Artificial
28% 31% 34% 6%
intelligence

Cyber–physical
65% 24% 10% 1%
systems

Industrial internet
46% 31% 19% 4%
of things

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

First time to hear Vaguely familiar Familiar Very familiar

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Nevertheless, 436 out of 517 respondents were willing to test their enterprises’ readiness and maturity
for smart manufacturing. In actuality, only 8.1% had already implemented smart manufacturing
strategies. In a test of their readiness and maturity, 48.6% stated they were already seeking solution
partners to help adopt smart manufacturing technologies. However, only 8.5% had allocated for a
budget, while 72.6% did not have an account to adopt smart technologies. The main reason for this was
the high cost of digital technologies, lack of infrastructure, lack of employee expertise with smart
technologies, lack of employees with data analytical skills, and lack of knowledge.

The majority were willing to overcome these challenges. However, 45.3% had no established team
dedicated to gear their organizations towards smart manufacturing. More than half (54.2%) were not
using smart manufacturing technologies yet. Notably, the most employed technology among
respondents was industrial internet of things (IIoT), accounting for 31.3%, while other technologies
had a usage rate of 2.5–7% only. This may be attributed to the enterprises’ current smart manufacturing
level, with 68.7% not making smart manufacturing efforts because they perceive it as not relevant
to the business. In fact, 71.6% admitted that the products in their portfolio were not yet digitalized.

With these results, it can be implied that the country is not yet ready for I4.0. However, this survey
can be further improved by encouraging more large enterprises to respond to produce a more
comprehensive perspective of smart manufacturing in the Philippines.

FIGURE 9
PERCENTAGE OF SMART MANUFACTURING TECHNOLOGIES EMPLOYED BY ENTERPRISES.

None 54.2%

Augmented reality 2.5%

3D printing 5.8%

Cloud technologies 7.0%

Robotics 3.5%

Radio frequency identfication (RFID) 4.4%

Artificial intelligence 2.5%

Cyber–physical systems 4.1%

Industrial internet of things 31.3%

Proposed Framework for Smart Manufacturing Implementation at

National Level
A national framework would be an essential guide to enable smart manufacturing implementation.
Although the country’s innovation plans have started to recognize and align with FIRe initiatives,
there is no dedicated framework for smart manufacturing. As previously mentioned, DTI has
structured an industrial policy called the Inclusive Innovation Industrial Strategy (i3S), but it integrates
a more holistic approach to I4.0. It focuses not only on manufacturing but on all key sectors, including
agriculture, services, and other industries. Thus, it is strategic to design a smart-manufacturing-
specific framework for its implementation, especially because this sector has been termed as the

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country’s new growth source. It will serve as a basis for policymakers and stakeholders to formulate
roadmaps to monitor and measure smart manufacturing transformation progress in the Philippines.

I4.0 is the proposed framework, representing the four strategic I’s for the national smart-
manufacturing implementation, namely, inculcate, improve, integrate, and institutionalize (see
Figure 5). The I4.0 framework is anchored on i3S; Philippine Development Plan (PDP) 2017–22;
and the AmBisyon Natin 2040 (Our Vision 2040). It is intentionally structured in this manner to
align with and provide a more systematic approach to shaping a smarter manufacturing industry in
support of the country’s aspirations. AmBisyon Natin 2040 signifies the Filipinos’ desire for a
comfortable, secure, and peaceful life. In realizing the AmBisyon Natin 2040, NEDA has crafted
the PDP 2017–22 in collaboration with the government, the private sector, and the civil society. It
entails the country’s comprehensive plan to have inclusive growth, a globally competitive economy,
and a high-trust resilient society.

A significant contribution toward the opportunities in the industry is the implementation of i3S. It
creates an environment of innovation-centered initiatives in all key sectors (manufacturing, agriculture,
and service) to reinforce domestic and global linkages. i3S has six strategies incorporating innovation
to achieve globally competitive sectors. It covers (1) capacity building of employees for human
resource development; (2) inclusion of MSMEs and startups in the innovative ecosystem; (3) embracing
I4.0 technologies; (4) integration of production systems with agriculture and service sectors, along
with linkages with domestic and global value chains; (5) linking innovation with entrepreneurship; and
(6) promoting ease of doing business. These strategies have formed the backbone when designing the
I4.0 framework for smart manufacturing implementation in the Philippines.

The I4.0 framework aims to strengthen the country’s manufacturing sector by employing smart
manufacturing systems and solutions. The application of new technologies (see Table 4) enables
firms to operate efficiently and improve productivity while reducing costs, thus helping
manufacturing to be more competitive. This framework intends to contribute to the realization of
the Philippines’ existing plans and long-term vision, with the primary objective of reducing poverty
in the country. It consists of four components, namely, (1) inculcate smart manufacturing awareness,
practices, skills, and competencies; (2) improve digital infrastructure and financial support; (3)
integrate collaboration, innovation, and entrepreneurship; and (4) institutionalize the National
Policy Framework for Smart Manufacturing.

Each component includes strategies that need to be considered to ensure smart manufacturing
implementation with the collaboration of the quadruple-helix stakeholders comprising the
government, the academia, the industry, and civil society organizations (CSOs). With the
government’s mandated responsibilities, it should spearhead and address the issues that may
restrain the progress of the framework’s implementation.

As a facilitating body, the government should encourage all stakeholders, especially in the private
sector, to be actively involved in the smart manufacturing framework; and monitor and evaluate the
manufacturing industry’s performance. The government agencies identified in Table 5 should closely
coordinate with other stakeholders to facilitate the strategies under the four components. As the
knowledge- and skills-building sector and technology incubator, the academia should provide more
smart manufacturing-related research outputs, improve the educational curriculum to cultivate both
theoretical and applied knowledge of smart manufacturing technologies, and increase awareness
activities about the emerging digital transformation in the country. The private sector’s participation

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THE PHILIPPINES

in all innovation initiatives is significant for the industry to fully implement and assess the effectiveness
of the framework. The firms (mostly large enterprises) that have already employed smart manufacturing
are essential players in identifying the gaps and opportunities and provide recommendations, given
that they have the experience and technical knowledge of the new technologies. Their factories can
be utilized as model facilities to foster technological learning and appreciation, coupled with the
government’s innovation programs. Creating partnerships between manufacturing firms will help
elevate the status of the manufacturing sector. CSOs play a vital role in mitigating the unintended and
known adverse effects of smart manufacturing on society. Smart manufacturing may offer a vast
array of benefits, but it also comes with possible drawbacks such as but not limited to substitutes for
labor, environmental consequences, and data privacy issues. Thus, CSOs can advocate accountability,
fairness, and ethical use. That this can minimize the risks that may arise from new technologies, is an
important aspect to consider in crafting regulations and institutional frameworks. CSOs can also be
associates in capacity-building and digital-literacy efforts at the grassroots level to extend innovation
to unprivileged communities and promote community-led developments. In general, the proposed
framework embraces the quadruple-helix approach to nurture collaboration and presents a more
comprehensive perspective in implementing the smart manufacturing framework. Moreover, I4.0 and
its underlying strategies are not a one-way process, but the whole framework relies on the continual
cycle and simultaneous execution of the four strategic ‘I’s.

FIGURE 10
PROPOSED NATIONAL SMART MANUFACTURING FRAMEWORK I4.0 IN THE PHILIPPINES.
Poverty reduction

Expand economic opportunities in industry

Increase access to economic opportunities in industry and services for investments,
for startups, MSMEs, and cooperatives

Inclusive Innovation Industrial Strategy (i3S)

Globally competitive manufacturing, agriculture, and services
Capacity Innovative Embrace Integrated Innovation Ease of
building SMEs and Industry 4.0 production and doing
startups systems entrepreneurship business
ecosystem

Government I4.0: Proposed national smart manufacturing implementation framework Industry

Inculcate smart Improve access to digital Integrate collaboration, Institutionalize smart

manufacturing awareness, infrastructure, financial innovation and manufacturing-
skills, competencies, and support, and smart entrepreneurship related policies, programs,
practices manufacturing 1. Build a smart and projects
1. Scale up I4.0 and technologies and facilities manufacturing 1. Institutionalize the
smart manufacturing 1. Accelerate digital ecosystem to foster National Policy
awareness and transformation and collaboration and Framework for smart
knowledge-building infrastructure agenda. inclusivity. manufacturing.
initiatives. 2. Prioritize funding 2. Leverage innovation 2. Develop roadmap for
2. Equip labor force with support for the and smart manufacturing
smart manufacturing- digitalization and entrepreneurship transition.
related skills and smart manufacturing ecosystem. 3. Create the National
competencies. programs. Smart Nanufacturing
3. Sustain acquired 3. Improve access to Council.
smart manufacturing smart manufacturing
knowledge and technologies and
capacity. innovation. Academy
CSO

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TABLE 5
SUMMARY OF I4.0 FRAMEWORK’S COMPONENTS, STRATEGIES, AND THEIR LEAD STAKEHOLDERS.

Component Strategies Sub-strategies Lead stakeholders

Assess the smart manufacturing readiness
DTI-BOI
and maturity of Philippine firms
Scale up I4.0 and Technology
Develop smart manufacturing knowledge
smart providers and
management products
manufacturing consultants,
• Smart manufacturing guidebook,
knowledge academia,
modules, and learning materials
building and research
• R&D outputs
awareness community, PIDS
initiatives
Facilitate national awareness programs and DAP, LGUs, CSO,
activities related to I4.0 and smart DTI-BOI, and
manufacturing BSMED
Inculcate smart Realign educational programs responsive DepEd, CHED,
manufacturing to the smart manufacturing demands TESDA, and HEIs
awareness,
practices, skills, Form task force for skills training and
TESDA, DOST, and
and Equip labor force development programs to intensify capacity- DTI
competencies with smart building for smart manufacturing
manufacturing- TESDA, DTI, SSG,
related skills and Leverage investments/agreements from and foreign
competencies international quality standards and expertise
investors
Update the Philippine Qualifications National
Framework (PQF) to align with the FIRe Coordinating
skills requirements Council (NCC), DOLE
Sustain acquired Recognize smart manufacturing champions
Industry firms
smart to motivate smart manufacturing adoption
manufacturing
knowledge and Build innovative consultants and industry
DOST
capacity experts
Expedite the digital connectivity programs
such as National Broadband Program, and DICT
Free Wi-Fi in Public Places Program
Secure basic infrastructure to support
DOE
Accelerate digital expansion in digital connectivity
transformation
Fast-track the implementation of the Digital
and DICT
Government System
infrastructure
agenda Strengthen cyber and data security DICT and its
measures of smart manufacturing systems Industry Partners
DICT, BOI, LGUs, &
Improve access Endorse ICT policy reforms to improve
other national
to digital digital connectivity
agencies
infrastructure,
financial support, Increase budget allocation for digitalization DOF, DBM, BOI
and smart LBP, DBP, SB
manufacturing Prioritize funding Provide financial grants to manufacturers,
Corporation, and
technologies and support for the especially MSMEs, to access smart
NGO financial
facilities digitalization and manufacturing technologies
institutions
smart
manufacturing LBP, DBP, SB
programs Unify all government and NGO financial
Corporation, and
institutions in providing financial assistance
NGO financial
to adopt smart manufacturing technologies
institutions
Intensify science, engineering, technology,
Improve access and innovation (SETI) activities on smart DOST
to smart manufacturing through R&D
manufacturing
technologies and Strengthen the implementation of Securing
innovation Manufacturing Revitalization and DTI
Transformation (SMART) Program
(Continued on next page)

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THE PHILIPPINES

(Continued from previous page)

Component Strategies Sub-strategies Lead stakeholders

Build a smart Establish smart manufacturing networks

manufacturing through Regional Inclusive Innovation DTI, DOST
ecosystem to Center (RIICs)
foster Create a web-based smart manufacturing DOST, DTI, TESDA,
collaboration platform and DICT
Integrate
Smart manufacturing as part of the priorities National
collaboration,
for innovation in the National Innovation Innovation
innovation, and
Agenda and Strategy Document (NIASD) Committee (NIC)
entrepreneurship Leverage an
innovation and Strengthen the intellectual properties (IP)
entrepreneurship system to facilitate smart manufacturing IPOPHIL
ecosystem commercialization process
Develop a culture of innovation and
NIC, DOST, DTI
entrepreneurship among MSMEs and startups
Institutionalize the National Policy Framework for smart
DTI, NEDA
manufacturing
Institutionalize
smart DTI and key
Develop a roadmap for smart manufacturing transition
manufacturing- stakeholders
related policies,
programs, and DTI, key
projects government
Create a smart manufacturing inter-agency body
agencies, and
industry partners

Inculcate Smart Manufacturing Awareness, Practices, Skills, and Competencies

The first component of the I4.0 framework aims to widen the recognition of I4.0 and smart manufacturing
among industries, enterprises, and individuals while honing their skills aligned with the requirements
needed for smart-manufacturing technologies. It will then focus on reinforcing the learnings gained, apply
them in real life, and obtain evidence-based feedback and coaching for others to improve continuously. In
other words, this component aims to change the perception of Filipinos towards technologies and gain
massive support and interest to engage from the industry through the following strategies:

Scale up I4.0 and Smart Manufacturing Knowledge Building and Awareness Initiatives
A low level of awareness and knowledge among companies is a significant obstacle to the adoption
of smart-manufacturing technologies. Based on the survey conducted by DOST XI, most businesses
are not even familiar with the terms I4.0 and smart manufacturing or the related technologies such
as IoT, CPS, AI, and BDA. The lack of awareness results in a lack of usage, leading to a slow
transition to FIRe. To bridge this gap, there is a need to assess the industry's current position, nurture
awareness about the paradigm shift, and understand the fundamental aspects of smart manufacturing.

Assess smart manufacturing readiness and maturity of Philippine firms: Evaluating the overall
state of firms’ operations is an essential consideration before the transformation. It seeks to
understand the technological preparedness of firms and create strategic action plans to help them
in the transition from Industry 2.0 to 3.0 and 4.0. Given its coverage of industry development, DTI-
BOI should lead the assessment through the use of tools such as SIRI. The country may also
develop its own specific smart manufacturing readiness and maturity index to ensure a tailored tool
and benchmark, based on SIRI.

Develop smart manufacturing knowledge management products: Smart manufacturing

guidebooks, modules, and learning materials should be made available to manufacturers aiming to
build smart manufacturing knowledge. A common understanding should be set of the descriptions,

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benefits, and applications of the enabling technologies of smart manufacturing indicated in Table 4.
This will guide companies to understand the appropriate technology investment applicable to their
procedures and explain how it affects their businesses to become more productive and efficient.
Technology providers and consultants such as TÜV SÜD, Siemens, and Yokogawa can formulate
the learning materials in collaboration with the academia, the research community, and the industry.

Facilitate national awareness programs and activities related to I4.0 and smart manufacturing:
Raising awareness about the importance of innovation is a preparatory step to appreciate industrial
transformation. It is necessary to rapidly scale up all I4.0 and smart manufacturing-related
awareness initiatives to respond to the low awareness around new technologies. This can be
achieved through webinars, course trainings, and workshops that are free and accessible to all. As
the country’s national productivity organization (NPO), the DAP can be the leading agency to plan,
conceptualize, and facilitate effective programs that raise knowledge levels regarding I4.0 and
smart manufacturing. The programs can be extended to communities through assistance from
CSOs and LGUs. The topic’s complexity should be relayed in a way that those who are
technologically lagging can appreciate the emerging technologies and their positive impacts on
communities. The BOI and Bureau of Small and Medium Enterprise Development (BSMED) can
also be tapped to extend awareness among MSMEs on smart manufacturing-related policies,
projects, programs, and activities.

Equip Labor Force with Smart Manufacturing-related Skills and Competencies

The smart manufacturing industry’s success not only depends on the deployment of technology but
also on the labor force employed. The employees must have the required skillsets to operate
advanced machines, deal with information and data flow, and ensure that the processes follow the
standard operating procedures. According to the WEF’s The Future of Jobs Report 2018, 51% of
the Filipino workforce needs to reskill to adapt to new work landscape. The knowledge of smart
manufacturing and a highly trained labor force apparently influences the low adoption rate of smart
manufacturing technologies among enterprises.

Realign educational programs responsive to smart manufacturing demands: Education plays

a vital role in ensuring the skills readiness of the labor force. DepEd, CHED, and TESDA, supported
by DTI, DOST, and DICT, are suggested to continuously upgrade the existing curricula and
integrate courses that could foster a learning environment conducive to smart manufacturing
innovation. Programs to be developed should align with the industry needs and extend support to
academic institutions in terms of research funds for faculty and students. This may go beyond a
classroom-centric approach and allow learners to work on real-world applications like analyzing
an industry’s big data sets (e.g., Project SPARTA) and exposure to training on AI, robotics, and
augmented reality, among others. It should also start at the early stages of student development and
reinforce learnings to life applications. The design of programs should collaborate with higher
educational institutions (HEIs), training providers, and members of the private and industry sectors.
The graduates are expected to have a strong foundation in smart manufacturing systems and
technology. It may be noted that Smarter Philippines through Data Analytics Research and
Development, Training and Adoption (SPARTA) is a free online course for data science. It aims to
train Filipinos handle big data generated by government agencies. This program is an initiative of
DOST in collaboration with DAP and Analytics Association of the Philippines (AAP).

Creativity is a vital skill in generating new ideas for innovation. Integrating arts in disciplines such as
science, technology, engineering, and mathematics (STEM) in the education curriculum would produce

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an agile workforce. Thus, the transformation of DepEd’s STEM to science, technology, engineering,
arts, and mathematics (STEAM) will nurture a more innovative smart manufacturing industry.

Form a task force for skills training and development programs to intensify capacity-building for
smart manufacturing: A governing body should be established to develop and harmonize all smart
manufacturing training and other activities that involve representatives from smart manufacturing
technology users, solution providers, training institutes, and government agencies. It aims to unify
smart manufacturing skills programs, offer technical training on smart manufacturing technologies, and
produce a globally competitive smart manufacturing-ready workforce. As the leading technical
vocational education and training (TVET) provider in the country, TESDA is endorsed to spearhead the
task force and identify other encompassing stakeholders needed to supplement the skills programs. The
industry’s cooperation in the skills development process would also play a crucial role in crafting
programs. Efforts should be made available to involve smart manufacturing firms and solution providers
in this process as they have relevant experience with these technologies.

The task force will harmonize and amplify the smart manufacturing training activities and facilities
initiated by various government agencies. Notable programs include the DOST’s AMeRIAL and
AMCen projects; I4.0 Pilot Factory, Digi Hubs, Fabrication Laboratories, and SME Academy and
Innovation Center of DTI; and the Regional TVET Innovation Center of TESDA. These activities
provide technical assistance, workshops, and training hubs for technologies.

Leverage investments/agreements from international quality standards and expertise: The

passage of the 11th Regular Foreign Investment Negative List would allow the entry of foreign
educational institutions specializing in teaching advanced high-technology skills such as robotics,
engineering design, additive manufacturing, IoT, and augmented reality. It is expected to attract more
foreign-owned training centers that specialize in short-term high-level skills development. It would then
stimulate knowledge transfer from international institutions to local industries, thus enabling firms to
leverage technological advancements, perform higher value-added functions, and produce high-quality
outputs. Similarly, the memorandum of understanding (MOU) between TESDA, DTI, and Skills Future
Singapore (SSG) would strengthen international-standard skills training in the country.

Update Philippine Qualifications Framework (PQF) to align with FIRe skills requirements:
There is a need to integrate the smart manufacturing qualifications standards in PQF to address
skills mismatch issues in future work. It would enhance workers’ employability, by ensuring that
their qualifications fit the requirement, with the assistance of the Department of Labor and
Employment (DOLE). Under the National Skills Program, DOLE initiated a web-based national
skills registry system that enrolls skills registrants in the country. It helps employers expedite the
selection and hiring process, thus assuring that skills registered are correct and up to date. This
program will be relevant to utilize in the context of smart manufacturing employers and job seekers.

Sustain Acquired Knowledge and Capacity

Recognize smart manufacturing champions to motivate smart manufacturing adoption:
Local companies that are already smart-manufacturing-ready or have successfully implemented
smart manufacturing technologies in their operations should be recognized as smart manufacturing
champions and benchmarked for other enterprises. Smart manufacturing champions play a vital
role in extending their best practices and learning by coaching others to improve productivity
through new technologies. Highlighting their success stories will likely influence more companies
to be open to technological and organizational changes and imply that smart manufacturing

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transformation is possible in the Philippine setting. This recognition can be documented and
integrated into the smart manufacturing knowledge guidebook and modules.

Build innovative consultants and industry experts: Qualified consultants who have experience
and knowledge about the latest smart manufacturing practices are needed to continue developing
the industry. It seeks to establish a network of local scientists, researchers, inventors, and engineers
from public and private institutions to address smart manufacturing problems. DOST could identify
the accredited smart manufacturing experts under its ‘One Expert’ portal and recommend
incorporating smart manufacturing into their system. The web-based platform would help firms
access technical advice and consultations from experts located anywhere in the Philippines.

Improve Access to Digital Infrastructure, Financial Support, and Smart Manufacturing

Technologies and Facilities
The question of resources is critical to digital transformation. Of particular importance in this
context are: suitability of the existing ICT infrastructure, availability of funding support, R&D
investments, and access to smart manufacturing technologies. These are the most-cited challenges
faced by the companies that resist switching to smart manufacturing. The second component of the
I4.0 framework aims to address these issues and provide the following strategies:

Accelerate Digital and Infrastructure Agenda

Smart manufacturing adoption will be fully realized if the country’s digital divide is addressed.
Reliable and fast communications networks and services should be made available, affordable, and
accessible to every firm, especially MSMEs, to enable smart operations. For instance, a smart
factory empowered with a technology such as IoT requires high-speed internet to interact with
other machines and perform operational tasks. Without the high quality of connection and ICT
infrastructure, disruptions in production may occur, thereby leading to low productivity instead of
the supposed efficiency promised by smart manufacturing. Notably, the Philippines lags in digital
connectivity and infrastructure among neighboring countries. Thus, policy reforms should be
reviewed and programs to facilitate digital transformation should be fast-tracked to provide an
ICT-enabling environment for manufacturers to shift to smart manufacturing.

Expedite digital connectivity programs: DICT should prioritize the implementation of the
National Broadband Program and the Free Wi-Fi in Public Places Program to support the increasing
demand for broadband services. These programs serve not only the smart manufacturing
transformation but also benefit other businesses, the government, and the public. The expansion of
services should include the countryside to provide equal broadband access. CSOs may be tapped
to gather inputs from the communities’ experiences in connectivity issues, to offer a comprehensive
plan to address the digital divide. Simultaneously, they can educate the communities on the benefits
of high-speed connections and how they can be part of the ICT improvement in the country.

Secure basic infrastructure to support ICT adoption and application: Electricity and access to
roads and ports should also be considered to facilitate broadband projects, particularly in remote
areas. The Department of Energy (DOE) is suggested to establish a robust national electricity
infrastructure to ensure that basic and critical power infrastructure will be in place to support the
expansion of digital connectivity needed for smart manufacturing transition in the country.

Fast-track the implementation of the Digital Government System: A full implementation of the
Digital Government System, offering a technology-enabled government, would promote confidence

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among manufacturers to invest in advanced technologies as the system signifies a strong foundation
toward digitalization. Hence, the government, under the direction of DICT, needs to accelerate the
development of critical solutions toward the digital system. It would enable the government
agencies to remotely perform their mandates and implement their programs, projects, and activities.

Strengthen cyber and data security measures of smart manufacturing systems: Data and cyber
security threats pose a challenge to smart manufacturing as it heavily relies on data connectivity.
There is a need to integrate strategic programs and platforms in the National Cybersecurity Plan
that are responsive to issues arising from smart manufacturing and I4.0. A unified platform with
DICT and its cyber security partners from the private sector must be established to assist in data
protection, cyber security threats, attacks, and other issues.

Endorse ICT policy reforms to improve digital connectivity: To harness the potential of digital
transformation, the government will need to evaluate the programs and interventions in the ICT
sector to align with the onset of FIRe. Policymakers may consider removing the entry barriers to
increase the number of network providers. Currently, limited players are present in the country due
to regulatory restrictions. This reform could promote competition among independent network
providers, increase investments, and speed up the overall quality of broadband services at affordable
rates. The inclusion of telecommunications and infrastructure under the 2020 Investment Priority
Plan (IPP) of BOI would provide incentives for new private investments towards ICT improvement.
Qualified investors may be entitled to tax and duty exemption, lower fees, and other incentives.

Further, multiple permits and licenses required to deploy networks, as imposed by national and
local governments must be redefined to abide by the mandated period for issue of clearances and
certifications as per the country’s Ease of Doing Business Act of 2018. This would simplify and
harmonize the processes to speed up broadband deployment and encourage more market players.
Infrastructure sharing should also be fortified to reduce costs for network and service providers
while enabling the development of new and innovative services for the public. This would also
help expand the coverage of ICT services across the country, especially in unserved and
underserved communities.

Prioritize Funding Support for Digitalization and Smart Manufacturing Programs

Increase budget allocation for digitalization: Funding is necessary to facilitate digitalization-
related initiatives. The country needs to realign the budget in line with its pressing need for
digitalization, especially amidst the pandemic and the country’s vision towards FIRe. Increasing
the allocation would expedite smart manufacturing implementation, including the acquisition of
smart manufacturing technologies for training purposes, provisioning of more capacity-building
and awareness programs, enhancement of the existing digital infrastructure, and other initiatives
that would drive the country towards I4.0. An integrated long-term financial plan for the full-
program budget of digitalization and smart manufacturing transition should be made available by
DOF and DBM. It would serve as a guide for overall project allocations and project development
updates. The BOI may present to the Legislative Branch to secure budgetary support for smart
manufacturing implementation.

Provide financial grants to manufacturers, especially MSMEs, to access smart manufacturing

technology: There is a need to finance enterprises to transform to smart manufacturing. The lack
of adequate capital and investment is a major factor that hinders companies, especially MSMEs,
in adopting new technologies. As part of the 2020 IPP-preferred investment activities, firms that

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venture into smart manufacturing and innovation-centered initiatives would be financially

supported. Assistance also covers business and research opportunities as well as fiscal and non-
fiscal incentives. Funding can be facilitated through LBP businesses to invest in strategic
industries like smart manufacturing.

The private sector may also invest in startups and MSMEs to explore new digital business models.
Funding startups would allow large companies to focus on their actual operations while having
external partners to develop their next digital innovations. This would typically be achieved
through competition where startups and MSMEs pitch their business models and get selected to
receive the funding grants. On the other hand, the academia could also subsidize their spinoffs and
provide access to facilities for the initial phase of their organizations.

Unify all government and NGO financial institutions in providing financial assistance to
smart manufacturing: Both public and private sectors offer various financial assistance programs
but are fragmented. LBP, DBP, SB Corporation, and other NGO financial institutions should
collaborate and create a special holding department to facilitate all smart-manufacturing-related
grants and fundings. This would strengthen and streamline financial programs to capacitate more
assistance to manufacturers.

Strengthen Access and Development of Smart Manufacturing Technology and Facilities

Intensify science, engineering, technology, and innovation (SETI) activities through R&D on
smart manufacturing: With the proliferation of new technologies and innovation in smart
manufacturing, the Philippines should intensify its SETI initiatives through R&D to take advantage
of the trends in the manufacturing industry and compete in a global perspective. First, the
government should invest more in R&D. There is a need for high-quality R&D outputs that focus
on smart manufacturing processes, systems, and technologies. The academia and research
communities can harness partnerships with countries having smart-manufacturing-ready industries
as well as with government agencies doing smart manufacturing research activities. All R&D
activities related to smart manufacturing can be subsumed into the DOST-PCIEERD’s online
compendium of PH technologies. Information should be available on the research, progress
updates, and details of scientists and researchers. Private companies and the industry are also
encouraged to participate in the sharing of R&D. This would promote coordinated R&D and bridge
the information gap that may exist in research activities conducted by an institution. Particularly,
the creation of national and regional research committees on smart manufacturing would provide
directions and set priority research areas in smart manufacturing development.

Strengthen the implementation of Securing Manufacturing Revitalization and

Transformation (SMART) Program: The SMART program is part of DTI’s efforts to engage
the manufacturing sector in innovation and digital transformation as a preparation for FIRe. It
would support projects related to I4.0 technologies adoption, industry-led innovation and R&D,
global value chain upgrading, standards development, and technology-intensive investments,
especially in rural areas.

Integrate Collaboration, Innovation, and Entrepreneurship

The third component of the framework aims to create an environment conducive to smart
manufacturing innovation with strong collaboration of key stakeholders. It also intends to foster
inclusivity of smart manufacturing by strengthening the bridge between innovation and
entrepreneurship. The key action points are discussed ahead.

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Build a Smart Manufacturing Ecosystem to Foster Collaboration and Inclusivity

Establish smart manufacturing networks through Regional Inclusive Innovation Centers
(RIICs): RIICs would help expand smart manufacturing developments in every region, promoting
inclusive innovation through productive collaboration between industries, academia, government
agencies, startups, MSMEs, and other related agents in the ecosystem. These centers would
accelerate the establishment of a smart manufacturing network across Philippine manufacturers.
Under RIICs, priority industries are based on a region’s existing comparative advantage,
capitalizing the strategies aligned to its specific needs. Priority manufacturing industries
identified under i3S include electronics, automotive, chemicals, aerospace, shipbuilding, tourism,
transport, IT-BPM, construction, agribusiness production, tools and dies, and furniture and
textile creatives.

Create a web-based smart manufacturing platform: Integration of all smart manufacturing

efforts would strengthen the promotion of the ecosystem and avoid overlapping smart manufacturing
initiatives by different institutions. DOST, DTI, TESDA, and other key stakeholders, with the
technical assistance of DICT, could develop a website for all smart manufacturing-related
information pertinent to smart manufacturing framework, roadmap, plans and policies, projects
and programs, knowledge management outputs, and databases. It would act as a one-stop shop
aimed at providing seamless access to smart manufacturing services. The platform could also be
linked to the Filipinovation portal containing other innovation-related sites.

Leverage Innovation and Entrepreneurship Ecosystem

Smart manufacturing as part of the priorities for innovation in the National Innovation
Agenda and Strategy Document (NIASD): The National Innovation Committee (NIC) may
consider smart manufacturing’s inclusion in the innovation priorities to stimulate the country’s
capacity toward FIRe. Smart manufacturing should be integrated into the comprehensive strategies
and action plans to improve innovation governance aligned with the mandate of the Philippine
Innovation Act.

Strengthen intellectual properties (IP) system to facilitate smart manufacturing

commercialization process: The Philippines has generally remained low in technology transfer
and commercialization of R&D output due to IP filing issues. There is a need to simplify and
streamline administrative and registration procedures of IP filing to reduce costs, thus encouraging
more commercial outputs. Implementing the National Intellectual Property Strategy (NIPS) would
allow the IP system to be more systematic, comprehensive, and effective in delivering reliable
service for Philippine creators and innovators.

Develop a culture of innovation and entrepreneurship among MSMEs and startups: This could
be achieved through mentorship programs on certification and licensing, as well as capability training
on crafting business plans, market research, and feasibility studies. The aim would be to transform
creative ideas into commercially viable products. The NIC may also assist MSMEs and startups in
registering patents, layout designs, registration of trademarks, and geographical indications, along
with other marks of ownership, industrial designs, utility models, and deposit of copyrights.

The presence of technology hubs would allow MSMEs and startups to connect and network with
industry experts and large players in the manufacturing industry. The establishment of more
Technology Business Incubation (TBI) offices in universities would encourage startups to engage
in smart manufacturing solutions and innovation. Recipients would be provided with business

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development training in innovation and technopreneurship. Notable programs include the

Innovative Development through Entrepreneurship Acceleration (IDEA) Program, the Philippine
Startup Development Program, and the Google Launchpad Accelerator Program. Moreover, the
recently passed MOU between DICT, DTI, and DOST would develop the Startup Assistance
Program 2019–23 and amplify the support to 1,000 startups.

Institutionalize Smart Manufacturing-related Policies, Programs, and Projects

Institutionalize the national policy framework for smart manufacturing: Institutionalizing the
strategies and programs presented in the previous three components would strengthen smart
manufacturing implementation and allow more support from government agencies and other
stakeholders. Given the extensive involvement in the country’s preparation for I4.0, DTI should
craft a national policy on smart manufacturing that aims to provide support, benefits, and programs
that could transform the manufacturing industry and its related services to be smarter and FIRe
ready. This policy should recognize the importance of smart manufacturing technologies for overall
operations in manufacturing. DTI and NEDA may harmonize the country’s industrial policies and
strategies, streamline projects and programs, facilitate industry upgrades, and attain sustainable
and inclusive growth that are all anchored on AmBisyon Natin 2040. It should formulate policies
covering the three ‘I’ components, namely, inculcate, improve, and integrate.

The inculcate component would scale up actions for all levels and areas of education, training, and
human resource development toward sustainable smart manufacturing awareness and capacity
building of the workforce. The smart manufacturing readiness and maturity index would be
performed, deployed, and analyzed to provide more insights on smart manufacturing implementation
at the enterprise level.

The improve component would strengthen the country’s ICT infrastructure and digital connectivity;
support full or partial subsidy in digitalization and all smart manufacturing-related programs and
initiatives; and enable continuous development of smart manufacturing technologies.

The integrate component would strengthen and deepen the interactions and partnerships among
different actors in public and private sectors; encourage entrepreneurial attitude in fostering
innovation to stimulate growth ambitions among manufacturers; and support and promote the
access of MSMEs and startups to smart manufacturing development programs.

These components are recommended to be incorporated in the national policy. Guidelines should
be developed for their coordinated implementation. The leading government agencies identified in
each component could coordinate in stipulation of each stakeholder’s roles and responsibilities.

Develop a roadmap for smart manufacturing transition: A roadmap should also be developed
by DTI, integrating all the inputs from different stakeholders. The roadmap would guide
stakeholders on the assigned responsibilities and track the progress of the transformation. It should
cover areas in the planning, implementation, reporting, monitoring, and evaluation of the roadmap
results. The roadmap must be time-bound with specific, measurable, achievable, realistic, and
timely (SMART) objectives. A separate roadmap for large enterprises and MSMEs may be
developed to cater to the differences between their current situations, needs, and capabilities,
among others. A monitoring-and-evaluation framework/criteria must also be put in place to
determine if the goals are being achieved on time, and to measure the effectiveness of smart-
manufacturing-related policies, plans, and programs being implemented.

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THE PHILIPPINES

Create a smart manufacturing interagency body: An interagency body should be established,

composed of the relevant government agencies; academia; representatives from the industry, including
manufacturing firms, financial institutions, and CSO (to complete the quadruple-helix); and committees
from the House of the Representative and the Senate. This body would provide overall guidance and
supervision, and facilitate development of the country’s smart manufacturing.

Conclusion
The Philippines has continuously strived to keep abreast with the new manufacturing trends, and
aims to develop a globally competitive manufacturing through innovation. Efforts to promote
and implement smart manufacturing include conducting annual manufacturing summits, business
matching, trade fairs, and awareness programs that serve as a means for bringing together
different stakeholders and consultations in preparation for the transition to I4.0. One promising
policy that supports the transition is i3S that aims to grow competitive manufacturing, agriculture,
and services industries. Innovation is at the center of this policy and its strategic actions. Other
innovative programs initiated by the government have been in areas such as training, facilities,
technological upgradation, R&D, and commercialization. However, these programs were
observed to be fragmented and limited, and no systematic plans were available to directly address
the smart manufacturing transition.

To strengthen the preparation of the country’s shift to smart manufacturing, the I4.0 framework was
proposed to provide a specific approach designed solely for the implementation of smart
manufacturing in the country. It aims to guide the formulation of new policies and roadmaps to
legitimize and recognize smart manufacturing. The framework relies on the iterative process and
simultaneous execution of four general components. Thus, new strategies may emerge along with
the implementation of the framework. These strategies will be implemented to collaborate with the
quadruple-helix stakeholders comprising the government, the academia, the industry, and CSOs. In
general, the government would be the principal agency to lead the execution of strategies, crafting
of policies, and ensuring the framework’s successful implementation. With the academia’s help, it
would act as the knowledge- and skills-building sector and technology incubator. The industry
would be the learning partner in terms of sharing best practices and model factories for those who
have adopted smart manufacturing technologies. CSOs would have a vital role in ensuring
sustainable and ethical use of technologies and extending smart manufacturing initiatives to the
less-advantaged communities to promote inclusive innovation.

The Philippine manufacturing still has a long way to transform to smart manufacturing. However,
with full collaboration of the key stakeholders involved to maximize the opportunities given to
them, the country would achieve its goal of having a globally competitive manufacturing industry.

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VIETNAM

Introduction to Country-specific Smart Manufacturing

Background Statistics on Manufacturing Sectors in Vietnam
As per the Socioeconomic Report 2019 from General Statistics Office (GSO) of Vietnam, the
country’s GDP stood at 7.02% in 2019. This made Vietnam one of the three countries with the
highest GDP growth in Asia. Notably, the industry and construction sector grew by 8.9%,
contributing 50.4% to the GDP growth [1].

In 2019, the processing and manufacturing industry, with a growth of 11.29%, continued to play a
key role in the economy’s growth, contributing 2.33% to GDP. Among all the industries, the
processing and manufacturing industry accounted for 56% of the total value added by the industry
as a whole, while employing 95% of the industry’s labor force. Labor productivity of the processing
and manufacturing industry stood at VND96.2 million (USD4,160) per person. The processing and
manufacturing industry is considered to have good growth, in terms of both quality and quantity.
However, compared with some industrially developed countries in Asia and the ASEAN-4 group,
the labor productivity of manufacturing is low. The processing and manufacturing industry, with a
growth of 10.9%, is still the bright spot and the driving force of the industry.

Despite a slow growth in global trade and economy, Vietnam’s exports in 2019 were expected to
grow by 7.8%, much higher than the world and regional averages. In particular, the processing and
manufacturing industries grew by 9.8%. Products with high export growth such as wood and
furniture, textiles, footwear, electronics, electric cables, and toys and sports equipment have all
contributed toward enhancing the position of the manufacturing and processing industry.

Industry in general and processing and manufacturing industry in particular are also bright spots in
attracting foreign investment. In 2019, Vietnam attracted 3,478 new projects, with a total capital of
around USD31.8 billion. Processing and manufacturing industries accounted for the highest share with
a total capital of USD21.56 billion, which amounted to 67.8% of total registered investment capital [2].

Impact of COVID-19 on Smart Manufacturing

The survey on the effects of COVID-19 on SMEs done in 2020 revealed that as of mid of July 2020,
while other countries were at the peak of the epidemic, many Vietnamese SMEs had almost returned
to normalcy. However, negative effects were still present in 52.5% of the 783 surveyed enterprises,
with 4.6% of the enterprises even suspending, closing, or dissolving their businesses. COVID-19
impacted all industries in the survey groups, but was led by tourism, accommodation, and food and
beverage (70% of the enterprises downsizing and dissolving); wholesale and retail (59%); and services
(59%). Comparing business results with the same period in the previous year, the indices recorded an
average decrease of over 21%, impacting around 70% of the surveyed enterprises (see Figure 1) [3].

The survey results also show a negative picture of business performance. This is clearly reflected in
the indicators related to finance, production, output market, and labor resources. More than 96% of

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VIETNAM

FIGURE 1
HOW COVID-19 IMPACTED THE SMEs.
Bankruptcy
Temporarily closed down 0.1%
4.5%
Increased
business scale
15.1%
Decreased
business Same business
scale scale
47.9% 32.4%

Source: Survey of SMEs in July, 2020.

the enterprises had difficulties on financial, production, and business fronts. As high as 96.7% of
enterprises had financial problems due to reasons such as the failure of customers to make payments
on time; receivables not getting collected when due (70.1%); and high costs due to trade difficulties
on account of social distancing norms (27%). In addition, 30.5% of the enterprises said that financial
difficulties led to their inability to pay dues. Also, 96.3% of the enterprises faced difficulties in
production as sources of raw materials were hard to find and there was either a lack of labor supply
due to the social distancing policy or a labor surplus due to reduced production scales. Regarding
the business situation, due to customers canceling orders, the issue of delayed payment was reported
as a common problem by 90.6% of the surveyed enterprises. Market demand fell sharply, thereby
greatly affecting production and business activities, said 88.3% of the enterprises (see Figure 2).

FIGURE 2
SECTORS MOST VULNERABLE AND AFFECTED BY COVID-19.
Hospitality and dinning
Wholesale and retail
Other services
Information and communication
Agriculture, forestry, and fisheries
Health and social support activities
Education
Transportation, warehouse
Construction
Manufacturing and processing industry

Increased business scale or newly established Same business scale

Decreased business scale Closed down
Source: Survey of SMEs in July, 2020.

Status of Smart Manufacturing Promotion and Implementation

Digital Capabilities through ICT Applications
To continue to have breakthrough development in a new period, for gradually narrowing the gap
with developed countries, one of the most fundamental solutions is to have a strong digital

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 VIETNAM

transformation, i.e., to promote smart manufacturing. According to research reports by

Commonwealth Scientific and Industrial Research Organisation (CSIRO)’s Data61 on Vietnam’s
digital transformation scenario, if Vietnam is not active and has a low investment in digital
transformation, it will result in a slow digital economy and stagnant productivity.

In recent years, ICT enterprises have developed strongly. Vietnam’s ICT industry continues to
achieve growth with high turnover, high export value, and an average annual growth rate of 20–
30%. In 2018, the total revenue of the ICT industry was estimated at USD98.9 billion, and exports
were estimated at USD94 billion. In the past 10 years, the size of the ICT industry has increased 16
times, making it one of the fastest growing economic sectors in the country. The large domestic
ICT enterprises have turned to research, manufacturing, and production autonomously. At the
forefront are Viettel Group, VNPT Group, FPT, CMC, and the upcoming Vingroup, along with
many other corporations. Many startups are digital, some of which are quite successful [4].

ICT has been widely applied in various types of enterprises, and has helped increase labor
productivity and competitiveness. However, Vietnamese enterprises, especially SMEs, are not
properly aware of the roles of digital transformation and smart manufacturing in Industrial
Revolution 4.0. SMEs have not actively approached technology and infrastructure systems, or
transformed business organization models to meet technology trends. Most of the machinery used
in Vietnamese enterprises is based on old technologies. Specifically, according to Vietnam Chamber
of Commerce and Industry (VCCI), Vietnam’s SMEs accounted for around 97% of the total number
of enterprises with a low adoption level of science, technology, and innovation.

ICT application has been widely applied in the society, thereby contributing to improved quality of
life of people and reduced social gaps, especially in the fields of education and health. ICT has
been applied to develop e-governance, thereby contributing to administrative reforms. Legal
documents have been issued to facilitate the application and development of ICT in all fields.
Specifically, the Law on IT, Law on Cyber Information Security, Law on Cyber Security, and many
Decrees have contributed significantly. However, the current legal environment has not kept pace
with the requirements to perform digital transformation. Specifically, the lack of legal frameworks
for the development of a sharing economy, sharing and opening of data of government agencies
and enterprises, issues of protection of personal data and private information, and issues of rights
and ethics in the application of artificial intelligence, limit the scope of digital transformation.

Vietnam has rapidly developed its telecommunications infrastructure, thus creating a foundation
for socioeconomic development. The telecommunication infrastructure spans more than 600,000
km of fiber optic cable nationwide, with high access speeds of more than 27 Mbps. The number of
fixed broadband subscribers is more than 13 million, of which more than 12 million subscribers
use fiber optic services, with access speeds more than 10 Mbps. Total international bandwidth is
more than 8.1 Tbps and mobile network coverage is 99.7%. 5G mobile network, a breakthrough in
connection speed, has been licensed for testing. It would be an important platform for connecting
the IoT infrastructure as part of the digital transformation. To facilitate digital transfer, it would be
necessary to continue developing the digital infrastructure, especially the 5G mobile networks.
Data protection and cyber security are areas where Vietnam still faces a big challenge.

In the context of digital transformation, digital data plays a very important role. Digital data is an
asset, a resource, and a prerequisite for digital transformation. The development of databases in
both public and private sectors has been focused. A number of national-scale databases has been

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VIETNAM

formed and brought into full play for provisioning of online services. Examples are National
Business Registration Database, database of households participating in insurance, tax database,
customs database, and social insurance database. Also, digital signature authentication service in
Vietnam has been developed, and serves the purpose of electronic identification and authentication.

Coming to Vietnamese workforce, it has many advantages. However, by the end of 2018, Vietnam
still had a shortage of 70,000 employees in the ICT field. As per data from a recent survey of the
Institute of Information and Communication Strategy, Ministry of Information and Communication,
70% of graduates in IT need to be retrained to meet the job requirements. A majority of IT students
do not have a grasp of their fields of work; 72% lack practical experience; while 42% lack the skills
to work in groups. Among the newly graduated students, only about 15% meet the requirements of
enterprises, with 80% of new graduates in computer programming being in need of retraining.

Priority for Smart Manufacturing

In 2019, a preliminary survey on the current status and applicability of smart manufacturing in
Vietnam for 215 enterprises in the northern, central and southern provinces was conducted by
Directorate for Standards, Metrology and Quality of Vietnam (STAMEQ). The survey explored the
awareness around the role and applicability of smart manufacturing; the current status of smart
manufacturing applications; difficulties and barriers in the application of smart manufacturing in
Vietnam; and policy priorities according to their importance for smart manufacturing promotion.
The survey results are shown in Table 1.

TABLE 1
ENTERPRISES ARE GROUPED BY 15 AREAS OF ACTIVITY.

Sl. Sectors and domains Ratio (%)

no
1 Processing aquatic products and agro-fishery products 10%
2 Manufacturing of food, beverages, and tobacco 8%
3 Producing other non-metal products (ceramics, glass, etc.) 6%
4 Producing paper and paper products 5%
5 Wood processing and wood products 5%
6 Producing chemicals and chemical products 5%
7 Producing rubber, plastic, and products from rubber and plastic 5%
8 Manufacturing of motorcycles, motorbikes, and bicycles 4%
9 Manufacturing of machinery and equipment (including electrical equipment) 10%
10 Car manufacturing and other transport equipment 4%
11 Electronic 8%
12 Producing metal and metal products 8%
13 Textile and apparel production 5%
14 Products of the printing industry and publishing houses 3%
15 Other production and processing 14%

Among the surveyed enterprises, 39% were privately owned; 32% had owning forms of domestic
shares; 2% had owning forms of joint ventures, with FDI accounting for more than 50%; 11% had
owning forms of 100% FDI; and 15% had other forms of ownership (see Figure 3). The number of
employees in the firms and the average growths in firm sales over the past three years are also
depicted in Figure 3.

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 VIETNAM

FIGURE 3
INFORMATION OF SURVEYED ENTERPRISES.
Average sales growth (in the last three years) Total number of employees

6%
12%
13% 5%

36%
42%
20%

40%
27%

0–10% 11–20% <50 51–100

21–50% > 50% 101–500 501–1,000 > 1,000
Type of ownership Locations of the headquarters of enterprises
90
80
15%
70
11% 39% 60
50
2%
40
32% 30
20
10
Private Domistic share
0
Joint venture (FDI capital > 50%) Northern Southern Central
100% FDI Other areas areas areas

Sectors/industries
Other production and Processing of seafood and
processing agro-fishery products
Products of the printing industry Manufacturing of food, beverage,
and publishers and tobacco
14%
10%
Textiles, manufacturing of 3%
Manufacturing of other
wearing apparel 8% non-metallic products (craft
crystal, ceramics, and building
Production of metals and metal 5%
6% materials)
products
8% 5% Manufacturing of paper and
Electronics paper-based products
5%
Production of automobiles and 8% Woodworking and wood-based
other transportation vehicles 5%
products
4% 5%
Manufacturing of machinery and 10%
Manufacturing of chemicals and
equipment (including electric 4%
chemicals-related products
equipment)
Manufacturing of rubber, plastics,
Manufacturing of motorcycles, and plastics- and rubber-based
motor bikes, and bicycles products

Survey data on the perception of the potential of smart manufacturing to help enterprises (see
Figure 4) shows that out of the total number of surveyed enterprises, about 77% agreed with the
opinion. Also, 27% of the surveyed enterprises completely agreed with the view that smart
manufacturing plays a role in improving the quality of business management decisions. Only 7%
of the enterprises believed that smart manufacturing did not play an important role in improving
the quality of executive decision-making.

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VIETNAM

FIGURE 4A
SMART MANUFACTURING HAS GREAT POTENTIAL TO HELP ENTERPRISES.
Smart manufacturing’s potential in Smart manufacturing’s potential in
improving the quality of decision making reducing labor costs
1% 3%
3%
4%

14%
27% 16%

40%

42%
50%

Smart manufacturing’s potential in Smart manufacturing’s potential in improving the

reducing material wastage operational efficiency of production line
3% 2% 1%
2%

13%
14%

36%
41%

42%
44%

Smart manufacturing’s potential in improving Smart manufacturing’s potential in increasing

quality of products labor productivity
0% 1%
2% 3%

14% 11%

38%
45%

40%
46%

Completely disagree Disagree Neutral Agree Completely agree

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 VIETNAM

FIGURE 4B
SMART MANUFACTURING HAS GREAT POTENTIAL TO HELP ENTERPRISES.
Smart manufacturing’s potential in Smart manufacturing’s potential in improving
improving customer satisfaction competitiveness and sustainable development
2% 1% 2%
2%

17% 15%

34%
36%

43% 47%

Smart manufacturing’s potential in improving Smart manufacturing’s potential in improving

social image market position
3% 1% 2%
3%

19%
26% 18%
29%

51%
47%

Completely disagree Disagree Neutral Agree Completely agree

A majority of enterprises participating in the survey views that smart manufacturing was playing a
role in (1) improving the efficiency of production line operations (83%); (2) reducing labor costs
(82%); (3) reducing material wastage (80%); (4) increasing product quality (84%); (5) increasing
labor productivity (85%); (6) providing a better position to respond to customer requirements
(79%); (6) enhancing competitiveness and sustainable development (81%); and (7) increasing
market position and social image (76%).

The perception of applicability of various technologies to smart manufacturing in the industry in

Vietnam is depicted in Figure 5.

Among the surveyed enterprises, 18% think that big data analysis and processing is applicable to
smart manufacturing; 83% see the possibility of applying big data analysis and processing to smart
manufacturing; 15% think that robots and automatic production can be applied to smart
manufacturing while 17% disagree with that; 11% think that AI can be applied to smart
manufacturing while 16% disagree with that; 12% think that IoT can be applied to smart
manufacturing while 14% disagree with that; 16% think that cloud computing can be applied to

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VIETNAM

FIGURE 5
PERCEPTION OF APPLICABILITY OF TECHNOLOGIES TO SMART MANUFACTURING.
Application of robotics/automated Application of Application
production artificial intelligence of IoT

8% 11% 6% 7%
12%
15% 7%
9% 10%

27% 30% 40% 34%

43%
41%

Application of big data analytics Application of Application of

and processing cloud computing automated design

5% 6% 6%
7%
12% 16% 8%
18%
23%

20% 25%
32%
38%
45%
40%

Completely disagree Disagree Neutral Agree Completely agree

smart manufacturing while 14% disagree with that; and 23% think that automatic design can be
applied to smart manufacturing while 13% disagree with that.

The current status of smart manufacturing applications that the surveyed enterprises have deployed
in specific areas is described in Figure 6. Regarding the application of big data analysis and
processing, results show that among the participating enterprises, on an average, 30% have learned
it but have no intention of implementing it. As for other applications, only 7–10% have implemented
and obtained encouraging results from robotics and automatic production, AI, IoT, cloud computing,
and automatic design applications.

The survey results regarding some difficulties and barriers in the application of smart manufacturing
in Vietnam are described in Figure 7. On understanding the value that each application can bring
for enterprises to consider and choose, 5% of the participating enterprises said it was not difficult,
while 49% of surveyed enterprises believed that it was difficult. In particular, 10% of the surveyed
enterprises considered it very difficult to understand.

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FIGURE 6
CURRENT STATUS OF SMART MANUFACTURING APPLICATIONS.
Application of big data analytics and Application of robotics/
processing automated production

7%
10%
16% 15%

16%
17%

28%
38%
23%
28%

Application of Application
artificial intelligence of IoT

6% 7%

14% 23% 22%

17%

27%
23%
31% 31%

Application of Application of
cloud computing automated design

8%
14% 15%
18%

17%

21%
31%
30%

27%
20%

Unaware Studied but Having Initially Implemented

don’t have intention to implemented but and obtained
intention to implement but not yet brought initial encouraging
implement not yet started about specific results results

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FIGURE 7A
THE DIFFICULTIES AND BARRIERS IN THE APPLICATION OF SMART MANUFACTURING.
Understand the value that each application Infrastructure for application
can bring to enterprises for consideration of smart manufacturing is still limited

5% 4%
10%
12%

18% 25%

23%
39%

27%
35%

Qualifications and skills of employees are not ready Leaders have not recognized
for the application of smart manufacturing smart manufacturing as the top strategic priority

5%
11% 10%
17%
16%

20%

28%

37% 26%

30%

Benefits that smart manufacturing can bring Access to financial resources for
are not higher than investment costs investment in smart manufacturing is not easy

7% 4%
7%
7%
13%
24%

28% 28%

44% 36%

Not difficult Not too difficult Slightly difficult Difficult Very difficult

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FIGURE 7B
THE DIFFICULTIES AND BARRIERS IN THE APPLICATION OF SMART MANUFACTURING.
The competitive environment does not The government has no mechanism
support investment in innovation to attract investment in smart manufacturing

5% 4%
10%
12% 12%
19%

37%
28%
37% 37%

Not difficult Not too difficult Slightly difficult Difficult Very difficult

Further, 60% believed that the infrastructural conditions for smart manufacturing applications
were still limited; 54% were of the view that qualifications and skills of staff were not ready for
smart manufacturing applications; 39% believed that leadership had not considered it as the top
strategic priority; 35% did not see the benefits of smart manufacturing applications to be much
higher than investment; 60% did not find it easy to access financial resources for smart manufacturing
application investment; 47% found that the competitive environment had not encouraged investment
in innovation; and 56% said that an attractive government mechanism to promote investment in
smart manufacturing applications was missing.

In the survey, the enterprises also ranked their policy priorities according to their importance in
promoting smart manufacturing applications (see Figure 8). The top policy priority for the surveyed
enterprises was that the government should support associations and consulting centers to help
enterprises better understand the value of smart manufacturing and the ways to invest in it. After
that, enterprises’ policy priority was to support investment in training human resources for smart
manufacturing applications; followed by forming a strategy to promote the application of smart
manufacturing in Vietnam with clear goals to be achieved in the next five years through a
comprehensive action plan.

Smart Manufacturing Policy

Orientations and Policies of the Party and the State
On 22 March 2019, Resolution No. 23-NQ/TW on National Industrial Development Policy until
2030 with a vision for 2045 was issued, for Vietnam to become a modern, industrialized country.
Under this Resolution, mechanisms and policies would be created to promote internal restructuring
of the industrial sector toward higher value added and smarter levels. It is necessary to accelerate
the integration of IT and automation in industrial manufacturing to create smart manufacturing
processes and intelligent factory models and develop smart products and smart devices. So, smart
technology standards and manufacturing techniques would be developed and issued. Besides, the

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FIGURE 8
ENTERPRISES’ POLICY PRIORITIES FOR PROMOTING SMART MANUFACTURING APPLICATIONS.
Government support to associations and Investing in upgrading infrastructure
consultancy centers help SMEs better understand (especially broadband speed, internet security)
the value of smart manufacturing and its to create more favorable condition to invest in
investment smart manufacturing with greater efficiency
40% 40%

30% 30%

20% 20%

10% 10%

0% 0%

Supporting investment in human resource Developing promotion strategies for smart

training for smart manufacturing applications manufacturing applications in Vietnam with
clear objectives for the next five years and a
comprehensive action plan
40% 40%

30% 30%

20% 20%

10% 10%

0% 0%

Establishing a national committee on smart Offering attractive incentive mechanism for

manufacturing promotion, with representatives businesses applying smart manufacturing
from government, businesses, and experts to
implement the strategy outlined
40% 40%

30% 30%

20% 20%

10% 10%

0% 0%

Supporting enterprises with access to financial Supporting smart manufacturing service

resources for investment in smart manufacturing providers to lower the price to suit Vietnam's
applications market
40% 40%

30% 30%

20% 20%

10% 10%

0% 0%

1st priority 2nd priority 3rd priority 4th priority

5th priority 6th priority 7th priority 8th priority

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textile, garment, and footwear industries would be further developed, but with focus on high added-
value-creating phases using smart and automated manufacturing processes. Tax reductions and
exemptions at reasonable levels and over appropriate periods would be granted for priority
industries and smart industries. This document also focuses on the implementation of technical
regulations and standards in the industrial sector, as applicable to protect domestic production and
consumers. These would be developed and implemented, while smart technology standards and
manufacturing techniques would also be developed and issued.

On 27 September 2019, Resolution No. 52-NQ/TW on several guidelines and policies to actively
participate in Industry 4.0 (I4.0) was issued. Vietnam has stepped up the application and
development of science, technology, and creative innovation; and enhanced the ability to access
and participate in I4.0. Two guidelines and six significant policies need to be implemented.

Directive No. 16/CT-TTg pertains to strengthening capacity to tackle challenges posed by I4.0.
This Directive focuses on reviewing the strategies and action plans, and proposing and formulating
targeted plans and tasks so that they are implemented following the development trends in I4.0. On
3 June 2020, the Prime Minister issued Decision No. 749/QD-TTg approving the ‘National Digital
Transformation Program to 2025, with an orientation to 2030.’ The program aims to bring Vietnam
into the group of 50 leading e-government countries (EGDI). Accordingly, Vietnam aims to become
a digital, stable, and prosperous country, while pioneering in testing of new technologies and
models. The National Digital Transformation Program aims to develop digital government, digital
economy, digital society, and digital-technology Vietnamese enterprises with global capacity.

On 31 August 2020, Decision No. 1322/QĐ-TTg was approved for a national program to support
enterprises to improve productivity and quality of products and goods in the period 2021–30. This
is considered to be a major program to support enterprises in the application of science and
technology solutions as well as in innovations for digital transformation and smart manufacturing.
The general target of this program is to (1) support enterprises in improving their productivity and
quality of products and commodities (quality productivity) through application of standards,
technical regulations, advanced management systems, and tools to improve productivity and
quality; (2) contribute to the increase in the proportion of total factor productivity (TFP) in
economic growth; and (3) improve the productivity, quality, efficiency, and competitiveness of the
economy. For the period 2021–25, the harmonious ratio of national standard system to international
and regional standard system is 65%, with training and qualified certification for 600 experts in
productivity and quality at ministries, departments, cities, and enterprises. For the period 2026–30,
the harmonious ratio of national standard system to international and regional standard system is
70–75%; with training and qualified certification for 1,000 experts in productivity and quality
(approximately 200 of them are to be certified regionally and internationally).

Action Plans from Ministries

The Ministry of Science and Technology plays the role of guiding the development of national
standards, research, and application of smart manufacturing technologies and solutions. On 27
September 2018, the Ministry of Science and Technology issued Decision No. 2813/QD-BKHCN,
approving the crucial national science and technology program to 2025, called ‘Research support,
development, and technology application of I4.0.’ The program was built with the goal of applying
research, development, and transfer of some key I4.0 technologies for Vietnam to create products
for socioeconomic development; and supporting pilot innovation of some corporate governance
and manufacturing business models in some critical areas in the direction of digital transformation.

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The program content focuses on certain key I4.0 technologies for (1) creating products and services
in areas such as medicine, economy, tourism, finance-banking, agriculture, processing and
manufacturing, educational training, vocational training, transport, construction, and information
and communication; (2) researching and applying several digital transformation solutions in
enterprise management and general management; and (3) developing policies to promote credit for
businesses investing in research, development, and application of I4.0 technologies.

The Ministry of Industry and Trade has been implementing many activities to support enterprises
to improve their capacities to access I4.0, toward smart manufacturing. It has supported enterprises
in implementing a number of typical projects, e.g., developing smart warehousing model;
supporting the development and application of production monitoring module for LED and
electronic product lines at Rang Dong Joint Stock Company; Online production monitoring and
operating system (module for energy management and maintenance) at Saigon Beer Company;
applying digital maps to manage and provide information on Vietnam’s leather and footwear
industry; automatic control system for medicinal high extraction equipment meets I4.0; and QCS
automatic quality monitoring system in the production of industrial packaging paper at Van Diem
Paper Joint Stock Company.

In 2020, many projects with direct participation of application enterprises were launched in the
implementation plan. Examples include, development and pilot application of production planning
and management software at Pho Yen Mechanical Joint Stock Company; support to build a pilot
model to apply innovative solutions and a smart warehouse management system at Tien Phong
Plastic Joint Stock Company; and industrial IoT for industrial factory for the purpose of building a
model smart factory, applied at Massan Industrial Group and Duy Tan Mechanical Co., Ltd.

Activities of STAMEQ
STAMEQ is the agency helping the Ministry of Science and Technology to build a national standard
system. Many smart manufacturing-related standards have been developed and published by
STAMEQ. So far, there are about 500 Vietnam Standards called Vietnamese Tiêu chuẩn Việt Nam
(TCVN) relevant to production. These include over 200 TCVNs of IT (e.g., IT infrastructure and
IoT); 35 TCVNs of network security, (e.g., system security, information quality, network safety,
and risk management); 16 TCVNs of automation (e.g., industrial automation and automation
integration model); five TCVNs of robotics; nine TCVNs of smart agriculture (e.g., concept and
terminology of mobile phone, standard of mobile communication, and evaluation index of mobile
phone); five TCVNs of smart transportation (ITS system); over 74 TCVNs of waste and
environmental pollution control; 67 TCVNs of traceability; over 30 TCVNs of advanced
management systems; 70 TCVNs of services (e.g., supply chain safety, assessment of supplier
capacity, financial services, and health services); and five TCVNs of human resource management
and development.

STAMEQ has been a pioneer in implementation activities to promote smart manufacturing in

Vietnam. STAMEQ cooperated with TUV SUD Digital Service to conduct the first pilot assessment
with 15 enterprises for smart manufacturing access using SIRI. STAMEQ cooperates with CPC in
implementing iBench productivity assessment solutions for Vietnamese enterprises, and developing
online training programs and direct training for Vietnamese enterprises on smart manufacturing.
STAMEQ and CPC have also agreed to sign an MoU on the contents of training cooperation on
smart manufacturing for each industry field and each type of enterprise. STAMEQ cooperates with
the KPC on smart manufacturing training programs for enterprises. They have jointly established

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a training cooperation center located at STAMEQ to organize training courses for Vietnamese
enterprises to provide vocational training and diploma services for enterprise employees, support
startups, and introduce and support new global businesses.

Tools and Techniques for Readiness Assessment at Enterprise Level

Background for Enterprises using the Smart Manufacturing Tools and Techniques
Applying SIRI Assessment Indicators for Vietnamese SMEs
In 2019, a cooperation agreement on smart manufacturing evaluation program for 15 enterprises in
Vietnam was signed between Vietnam National Productivity Institute (VNPI), STAMEQ, and
Economic Development Board (EDB) Singapore. Based on the agreement, TUV SUV experts
conduct smart manufacturing readiness assessment at 15 enterprises in Vietnam using the SIRI
evaluation set. The assessment program in each enterprise consists of two main seminars, which
focus on the introduction of I4.0 technologies and the application model (SIRI set) to evaluate
enterprises based on the three main pillars of process, technology, and organization. This is
considered to be the foundation for the process of establishing a roadmap and action toward I4.0
for enterprises. The whole roadmap consists of three steps, i.e., survey, roadmap setting, and action.
From October 2019 to March 2020, the TUV SUV review team with the support of the VNPI’s
coordination team, participated in the assessment of selected enterprises.

Through the surveys, most enterprises have changed their perception of I4.0, and understand the
benefits of the I4.0 revolution for productivity and competitiveness. In addition, experts also
conduct a comprehensive survey of current business activities to assess the application of I4.0 to
internal processes, supply chain management, and life cycle management. They assess the level of
automation, connection, and intelligence of the production function as well as of organizational
management through leadership capacity, human resources, teamwork organization, and
development strategy. The assessment of the indicators is combined with the assessment process of
the unit’s balance of revenues and expenditures and the key performance indicators (KPIs), thereby
selecting priority indicators to focus on in the immediate term.

Through the evaluation process, Vietnamese enterprises still have a relatively low capacity to
access I4.0, especially regarding the issue of connecting the shopfloor and the facilities (see Figure
10). Vietnamese enterprises also face many limitations in accessing consulting support and
switching solutions to smart manufacturing based on SIRI’s assessment platform. Thus, it is also
found that Vietnamese SMEs need a separate set of assessment tools for smart manufacturing
productivity and transformation capacity.

Vietnam Innovation Productivity Assessment

With the support of the APO, VNPI has developed Vietnam Innovation Productivity Assessment
(ViPA), in accordance with the conditions of SMEs in Vietnam. The toolkit assesses 16 criteria on
management aspects of enterprises including enterprise management, productivity management,
and infrastructure for digital transformation and smart manufacturing.

The toolkit has the function of assisting enterprises in determining the current state of productivity.
This helps them in building roadmaps for digital transformation and smart manufacturing, through
which enterprises can develop short-term and long-term plans to improve productivity and move
toward digital transformation and smart manufacturing in future.

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FIGURE 10
AVERAGE ASSESSMENT MATRIX SCORE AND FOCUS DIMENSIONS.
Vietnam 15 companies vs industry average

Vertical integration

Horizontal integration

Integration of product lifecycle

Shopfloor automation

Enterprise automation

Facility automation

Shopfloor connectivity

Enterprise connectivity

Facility connectivity

Shopfloor intelligence

Enterprise intelligence

Facility intelligence

Workforce learning and development

Leadership competency

Inter-and intra-company collaboration

Strategy and governance

0 1 2 3 4 5
Vietnam 15 companies AM score Industry average AM score
No. of focus dimensions

Workforce learning
Shopfloor automation
and development
7
Shopfloor connectivity 6
14

Enterprise automation
Shopfloor intelligence 4
5
Integration of product Enterprise
lifecycle connectivity
Strategy and governance 2 1
8 Vertical integration Enterprise Facility
4 intelligence intelligence
2 1

Enterprise management includes (1) leadership comprising four components of vision and mission,
policy and objective, plan/strategy, and social and community responsibility; (2) customer
orientation of enterprises comprising quick response to market requirements, customer satisfaction,
and competitiveness; (3) human resource development including knowledge and skills training
program to develop human resources, working environment to ensure safety and health of
employees, policies to encourage employees, and policies to attract and develop talent; and (4)
culture of innovation and improvement including product and process innovation, continuous
improvement, knowledge sharing and management, and intellectual property strategy.

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Productivity management includes (1) standards/management tools including application of

management systems according to ISO 9000, ISO 14000, ISO 56000, ISA 95, ISO 45000, etc.;
(2) application of productivity improvement tools such as 5S, Kaizen, and TPM; (3) application
of advanced tools such as Lean, Lean 6 Sigma, and MFCA; (4) process control including quality
assurance, administration management, production and business operations, and information
exchange; and (5) performance management including use of machines and equipment to
measure process performance, having a department dedicated to measuring and analyzing
performance, periodically measuring production performance and productivity, and annual
measurement of business performance.

Digital transformation infrastructure system includes (1) infrastructure including computers,

networks, deployed human resources, regular investment in information technology, and internal
as well as outsourced information technology projects; (2) strategy for business digital
transformation including leadership awareness, implementation program, resource planning of
finance and human resources, specific implementation plan, and specific solutions; (3) application
of information technology to digital transformation in enterprises including internet work
management tools such as chat and social networks, application of management software such as
ISO online, measuring productivity, development of internal process management software, and
application development of connection management software in the enterprise’s link chain
comprising suppliers, customers, and stakeholders; and (4) managing innovation activities in
enterprises including products, processes, organization and management, and business model.

Smart manufacturing comprises (1) using the sensor system to monitor the process and includes
optimal layout, control point definition, connection of integrated equipment system, and
synchronization of sensor data; (2) building information technology solutions to exploit and
manage data, including building production management solutions, building business management
solutions such as warehouse and traceability, integrated production and business management
solutions such as process linkages under ISA95, and chain management solutions such as oriented,
planned, outsourced, and self-deployed; (3) synthesizing and building a database based on cloud
estimation including single data synchronization, cloud-based data system on production and
business, and enterprises data waterfall based on cloud computing; and (4) application of technology
4.0 solutions to data mining and business management including application of I4.0 solutions to
build production-business integration modules for flexible production to meet specific requirements
of retail customers; strategy, deployment of automation technology, robotics, and 3D printing in
production of enterprises, application of block chain platform for enterprise management, and use
of big data and AI to analyze the market and build business plans.

National Tools to Assess Smart Manufacturing Readiness at Enterprise Level

The I4.0 vision, and the roadmap to achieve this vision, will vary from business to business. Not
every enterprise has a short-term ambition to realize the full vision of I4.0. Enterprises define their
interim and final goals based on their respective backgrounds and situations. For this reason, the
model allows for clear distinction by the aforementioned aspects. It is therefore important to
evaluate (score) the willingness/participation of enterprises according to each criterion.

Based on an enterprise’s responses to the criteria questions (in each pillar), a score with a value of
1–5 will be assigned to the enterprise’s readiness on that criterion. A value 1 is assigned to
enterprises that do nothing or have very little or no foundation to prepare for digital transformation.
A value of 5 is assigned to best-practice enterprises, i.e., those enterprises that have successfully

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performed all activities of digital transformation. The value 5 of the model also describes the state
of fully realizing the target vision, i.e., when the entire value chain is integrated in real time and the
components can interact with each other.

The readiness level is determined by the ratio of the total points achieved for the 16 criteria, divided
by the total points for the set of criteria. For example, after the self-assessment, if an enterprise
achieved 35 out of 80 points in the set of criteria, then the enterprise readiness is defined as
(35/80) * 100 = 43.75%.

Based on the score achieved, enterprise willingness and participation are classified according to
the five levels above. These five levels of readiness are categorized into five stages and 10 enterprise
readiness levels. Such classification allows enterprise to see the overall picture of the business in a
more general way and facilitates drawing conclusions about progress, requirements, and conditions
related to digital transformation and toward I4.0. It also helps identify a number of specific actions
based on the level of implementation. The five classifications are:

1. Not interested group (phase 1, level 1–2): This includes enterprises that are ‘outside’ and
do not have any activities related to digital transformation or targeting smart manufacturing.

2. Newcomers group (phase 2, level 3–4): This includes enterprises with ‘basic qualifications,’
i.e., those that have taken the first steps in implementing I4.0.

3. Leading group (readiness level 3 or higher): This includes ‘experienced,’ ‘expert,’ and
‘leading’ enterprises, i.e., those that have made good progress in the process or implemented
I4.0 and are at a much more developed level than other groups of enterprises.

4. Group of good practices: This is a group of enterprises that have relatively fully applied
information technology solutions to connect production and business management data,
and share knowledge in the supply chain/department. Their infrastructure has been
invested and operated well toward smart manufacturing.

5. Leading group: This is a group of enterprises that have applied advanced solutions to
manage and operate their businesses. They have applied software/sensors to connect
between machines and equipment, and build big data to perform smart manufacturing.

The ViPA toolkit is developed and applied for the self-assessment of enterprises, regardless of
their type of production and business, ranging from manufacturing, processing, agriculture,
forestry, and fisheries to other business services. Therefore, as part of the process, enterprises
should pay attention to the purpose of self-assessment in order to clearly define the current state/
level of enterprise readiness, thereby building a suitable roadmap toward digital transformation
and smart manufacturing. When determining the level (1–5), the closer it is to the current state
of the enterprises, the more convenient it is to establish a digital transformation vision,
specifically with strategies toward I4.0.

Evaluation Results of Enterprises Ready to Transform to Digital and Smart Manufacturing

By October 2020, ViPA had the participation of 161 enterprises located in 27 provinces, as shown
in Figure 11.

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FIGURE 11
PROVINCE-WISE DISTRIBUTION OF ENTERPRISES TAKING ViPA ASSESSMENT.
70 100%
90%
60
80%
50 70%
60%
40
50%
30
40%

20 30%
20%
10
10%
0 0%
Ha Noi Binh Da Phu Quang Dak Lam Bac Hai Bac Ha Quang Thanh Vinh
Duong Nang Tho Ninh Lak Dong Ninh Duong Giang Giang Nam Hoa Long
Ho Chi Hai Dong Quang Thai Ha Tuyen Ca Vinh Can Hoa Thai Thua
Minh Phong Nai Ngai Binh Tinh Quang Mau Phuc Tho Binh Nguyen Thien
Hue

Enterprises participating in the assessment included enterprises of different types, including state-
owned enterprises, non-state enterprises, and FDI enterprises. Of these, non-state enterprises
accounted for the majority (124 out of 161), as shown in Figure 12.

FIGURE 12
ENTERPRISES TAKING ViPA ASSESSMENT BY TYPE.

FDI enterprises
10
State-owned
Enterprises
17

Others
124

The results of a preliminary assessment of the level of smart manufacturing access of Vietnamese
SMEs based on 16 criteria of ViPA are depicted in Figure 13.

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FIGURE 13 A
SMART-MANUFACTURING ACCESS OF VIETNAMESE SMEs TAKING VIPA ASSESSMENT.
Enterprise management
100

80

60
55
53 52
50
46 45

40 39
36
32 31

24 25 23 23 23
21
20 17 17 16 16

0
Level 1 Level 2 Level 3 Level 4 Level 5

Leadership Customer-oriented business

Human resource development A culture of innovation and improvement

Productivity management
100

81
80

60
51
48
42 42
40 38 38 38 38
36
32
28
24
21 21
20 18
16 15
10
7

0
Level 1 Level 2 Level 3 Level 4 Level 5

Standards/management tools Application level of productivity

Process control Performance management

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FIGURE 13 B
SMART-MANUFACTURING ACCESS OF VIETNAMESE SMES TAKING VIPA ASSESSMENT.
Digital platform
100

82
80
72

60
54 54

40
40
35
29 30 30
27 27 28
22 22
20
20 18
16 15 16

0
Level 1 Level 2 Level 3 Level 4 Level 5

Facilities foundation Digital transformation strategy

IT application to digital transformation Management of innovation activities

Smart manufacturing
100

88

80 79
80

61
60

43 43
40 38
36
33
28
27

20 17
13
10 11
9 7 8 7 6

0
Level 1 Level 2 Level 3 Level 4 Level 5

Sensor to monitor the process IT to manage data

Databases based on cloud computing Technology 4.0 to data mining

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Enterprise Management
For the pillar of enterprise management, most enterprises are at levels 1–3. This shows that
enterprises still have many opportunities to improve their corporate governance methods, from
establishing missions and visions, and doing strategic planning to moving toward digital
transformation and smart manufacturing. The first step for enterprises that need to start smart
manufacturing is to standardize and optimize the current production and business processes as the
foundation for digital transformation. In the next step, enterprises can build a suitable roadmap to
implement digital transformation and move toward smart manufacturing.

Productivity Management
For the pillar of productivity management, the majority of enterprises are at level 1. Of the 161
enterprises, 51 chose level 1 with criteria 7 (process control); 81 enterprises chose level 1 with
criterion 8 (performance management); and only 48 enterprises choose level 5. This shows that
the majority of enterprises are still limited in the criteria of process control (15/161) and
performance management (10/161). This result is generally consistent with the reality of corporate
governance among SMEs in the region that accounts for the majority of the total number of
Vietnamese enterprises. In general, enterprises generally need to have innovative solutions to
improve their productivity and efficiency. This is the way to ensure competitiveness in the current
difficult context.

Digital Platform
A majority of enterprises participating in the assessment choose level 1 and 2 for criteria 9, 10, 11,
and 12. Thus, the infrastructure system for digital transformation of Vietnamese enterprises is at a
very low level. IT personnel are not yet fully professional, while the awareness among business
leaders about digital transformation is still limited. Enterprises need to learn and research I4.0
trends in the field of enterprises production, determine their current capacities, and develop
strategies for digital transformation, to avoid a lag or loss of their competitiveness.

In addition, enterprises are also less interested in innovative products, processes, management
organizations, and business models. Of the 161 enterprises, 54 are rated 1 and 2 for the criteria of
managing innovation activities. Only seven enterprises are rated 5 for this criterion. The results
show that enterprises need to promote innovation activities in their businesses, do adequate research
on the market/competitors, and develop alternative products to maintain and improve their
productivity and competitiveness.

Smart Manufacturing
A majority of enterprises also arrange production stages based on their experience, supplier
recommendations, or learning from similar enterprises. Enterprises have not developed any
solutions to apply IT in production management. They do not really care or have plans to
synchronize data to manage and operate production and business activities. They have no plans to
apply I4.0 solutions.

Enterprises need to research to optimize the entire production area including equipment, factories,
processes, inventories, transportation, and logistics. They also need to study the benefits of the IT
system, and make investments in IT system applications to improve productivity and competitiveness
in the digital age.

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Framework for Smart Manufacturing Implementation at National Level

Need for Smart Manufacturing Implementation Framework and Gaps in Current Policy
Framework
The survey results show that a majority of industrial enterprises in Vietnam are not ready for I4.0.
Among the four pillars related to readiness to approach I4.0, enterprises have moderate readiness for
business and productivity management. The readiness for digital platform and smart manufacturing
pillars is on the lower side. There is a significant difference in the level of readiness to approach I4.0.
For big enterprises, the percentage achieved is greater. State-owned enterprises, with a higher level
of capital equipment, size, manufacturing concentration, and technology usage than the FDI and non-
state firms, have a pioneering role in willingness to participate in I4.0. Interest in digital transformation
and smart manufacturing is mainly concentrated among manufacturing and manufacturing enterprises.
Approximately two-thirds of enterprises do not have plans to invest in digital transformation in the
context of the I4.0, as many enterprises do not know what to do. Some enterprises plan to change
their investment options for factory equipment and information technology.

Policy Implications
Although the SMEs sector is the driving force behind economic development in Vietnam,
contributing 40% to the GDP and accounting for more than 20% of the exported value [5], a 2017
study by the Japan External Trade Organization (JETRO) found that SMEs in Vietnam faced many
barriers, with the main obstacles being (1) lack of ability to continue access to financial resources;
(2) limited participation in domestic and international value chains; and (3) limited business
capacity. Besides, investment in technological innovations by enterprises, and government
spending on science and R&D (around 0.2% of GDP per year), are still modest.

The policy implication of these findings is that efforts to improve the readiness level of enterprises
for I4.0 should be an integral part of industrial development policies, business development in
water, SOE reform, FDI attraction, etc.

Efforts should be made to help all domestic enterprises of different ownership types, especially
SMEs, to grow in size, capital equipment, and increasing concentration and pressure ratios.
Applying high technology and improving R&D capacity and training skills of employees are not
only decisive factors for enterprises to develop and improve productivity and competitiveness but
also to help them increase their readiness for I4.0, which determines their competitiveness and
productivity in future. Solutions should be provided for building an ‘innovation network,’ with the
participation of all parties (state, enterprises, social organizations, and investors) in the application
of innovation. Innovation is highly critical to assist Vietnamese enterprises in achieving industrial
development goals, enhancing productivity and competitiveness, and connecting with domestic
and global value chains.

SOEs, due to their current status/starting point, have a number of advantages (e.g., size of labor,
capital, technology level, and concentration) compared with other types of ownership. Increasing
their willingness, labor productivity, and competitiveness is very important to develop them into a
leading group toward I4.0.

Domestic SME development efforts should give priority to the application of I4.0 to improve key
factors such as size, capital equipment level, concentration index, high-technology application,
R&D capacity, skills training for workers, and connectivity and spillover, instead of focusing on
quantity growth.

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In order to increase the readiness to approach I4.0, the study found that the score on the enterprise
management pillar was low. Many enterprises have advanced the implementation of labor
restructuring strategy and technical standardization of the entire production chain in their
departments; pursued application of ERP models and supply chain management; and increased
collection and exchange of information about the manufacturing processes and products. Others,
based on their current situation, need to upgrade existing strategies to I4.0 strategies. In addition,
support for investment and technological innovation should also be prioritized and focused (e.g.,
applying relatively simple and low-cost technologies such as cloud storage/computing).

In the smart manufacturing field, enterprises need to focus on equipping production processes and
products with IT features (e.g., IT integration of production data and products). They should collect
and analyze data to optimize production or product development and support sales and marketing.
For the smart manufacturing pillar, new enterprises need to collect and process data to increase the
efficiency of planning and monitoring, for adjusting and optimizing their business and production
processes. At the same time, it is necessary to have a solution to connect infrastructure, machines,
and equipment with IT systems to automate the task of adjusting the processes in a timely and
flexible manner.

For digital transformation infrastructure, enterprises need to promote external system integration and
automated processes. The readiness level for workers’ skills is improved if enterprises focus on
equipping the necessary skills for aspects related to I4.0. This can be done not only with the efforts
of individual enterprises, but also through linkages with leading enterprises and government support.

However, it should be noted that (1) the willingness to connect equipment to devices, systems, or
products is only possible when there are large new investments (involving high risks) in a few
enterprises; and (2) not all enterprises need to complete all the requirements of I4.0. Depending on
the impact of I4.0 on the production and business process, enterprises determine the appropriate
level of participation and the specific sectors. Enterprises can choose to use advanced technologies
with low costs and wide applicability such as the cloud computing technology.

Finally, the availabilities (pillars, dimensions in each pillar, and their weights and scores) in the
ViPA method should be ‘adjusted’ in future studies. The pillars and the criteria in each pillar, along
with the questionnaire, should be developed through a series of consultations with experts and
enterprises from different industries. Weights should be built through research. Since I4.0 affects
all industries, in many fields, a connect between industries is required. Future surveys or assessments
should be conducted with enterprises from all fields and localities.

Elements of Implementation Framework for Smart Manufacturing at National Level

Framework Implementation Mechanism
In order to support enterprises in deploying smart manufacturing, the formation and development
of a smart manufacturing ecosystem is very necessary. The proposed smart manufacturing
ecosystem includes government agencies, policy makers, consulting organizations, training
institutions, financial institutions, solution consulting units, and international organizations (see
Figure 14), but most important are the efforts of the enterprises that are implementing smart
manufacturing. The details are as follows:

Government agencies: These include ministries, sectors, and agencies responsible for
implementing digital transformation and smart manufacturing programs and projects. Specifically,

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the Ministry of Science and Technology has chaired the implementation of Directive No.16/CT-
TTg on strengthening capacity to tackle challenges posed by I4.0; Decision No. 1322/QD-TTg
approving the national program to support enterprises to improve productivity and quality of
products and goods in the 2021–30 period; and Decision No. 2813/QD-BKHCN approving the
crucial national science and technology program to 2025 titled, ‘Research support, development
and technology application of I4.0.’

The Ministry of Information and Communications has presided over Decision No. 749/QD-TTg
approving the ‘National Digital Transformation Program to 2025, with an orientation to 2030.’ The
Ministry of Industry and Trade has focused on developing e-commerce and digital transformation
in the industry.

FIGURE 14
SMART MANUFACTURING ECOSYSTEM MODEL.
Information Handling structured Production
safety and Big data data according to
security Cloud computing Manufacturing market and
cooperation customer
requirements
Flexible
Advanced production production
Sensor Cyber–physical
management
system system
system
Production
according to
market
Supplier requirements

Production line system in a smart factory

Nano Automated
3D printing Technology Internet
technology, guided
technology robots of things
Logistics nano materials vehicle

Clean resources in the future

Government agencies Policy-making agency Consulting organization

Research institutes, universities Financial institutions Enterprise

Solution consulting unit Foreign organization Logistics unit

Policy makers: They focus on research and propose policy mechanisms to promote smart-
manufacturing-related activities in enterprises. Examples include legal corridors; mechanism for
research and testing of sandbox; financial mechanism; mechanism for training high-quality human
resources for smart manufacturing; mechanism to encourage the use and connection of data to
ensure safety and security; mechanisms to promote enterprises to join the supply chain; financial,
tax and investment incentive policies and regimes; and specific policies of local governments.

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Smart manufacturing consulting organizations: They provide consulting on productivity,

productivity boosting solutions, and digital transformation. Vietnamese enterprises are at a relatively
low level of access to smart manufacturing, so consulting organizations need to focus on consulting
activities on standard systems and basic productivity tools such as quality management systems.

Training organizations: They implement smart manufacturing training activities for enterprises.
First of all, training organizations need to focus on educating enterprises on I4.0, digital
transformation, and smart manufacturing. Particularly, it is necessary to focus on raising awareness
for enterprises leaders. Training organizations should focus on training pertaining to smart
manufacturing standards. STAMEQ was expected to announce the standard framework for smart
manufacturing in early 2021. This would be an important direction for training organizations to
deploy training courses for supporting enterprises on smart manufacturing standards. ISA 95 or
IEC 62264 set of standards are the basic and most important sets of standards that need to be
focused upon for training Vietnamese enterprises to deploy smart manufacturing. In addition,
STAMEQ also cooperates with the KPC and the CPC to organize intensive training courses on
smart manufacturing for Vietnamese enterprises.

Financial support agencies: The Ministry of Science and Technology implements programs and
schemes to support enterprises in smart manufacturing implementations. The system of research,
development, and application research programs supports enterprises to carry out R&D in product
innovation. APO projects help improve the productivity and quality of Vietnamese enterprises’
products and assist enterprises in implementing organizational innovation. The National Technology
Innovation Program and the Technology Innovation Fund support enterprises in implementing
technological innovation and production lines. The national program to support national innovation
startups, and the annual business connection activities such as Techfest, TechDemo, and Techmart
also support enterprises to innovate their business models. In particular, the National Program to
support enterprises to improve productivity and quality of products and goods in the period 2021–
30 is considered to be the most important program toward helping enterprises implement digital
transformation and smart manufacturing.

Solution consulting units: They support Vietnamese enterprises to build and apply IT solutions.
Solution consulting units help connect data of existing machinery and equipment systems of enterprises
with the new systems being deployed by enterprises. These units help connect enterprises with the
supply chain, while solution units help connect Vietnamese enterprises with foreign enterprises.
Currently, commonly used IT solutions include enterprise resource planning, customer relationship
management, supply chain management, and product lifecycle management.

International organizations: The APO is the most important international organization helping
Vietnamese SMEs approach digital transformation and smart manufacturing. The APO’s annual
training programs on smart manufacturing play a very important role for Vietnamese enterprises.
Besides, STAMEQ has cooperated with the CPC to train on smart manufacturing; with the KPC to
establish training centers for smart manufacturing and innovation; and with TUD SUV for
evaluation and construction of the smart manufacturing roadmap for Vietnamese enterprises.

Delineated Role of Ministries and Agencies

Going forward, projects to support smart manufacturing enterprises will be focused on implementing
the National Program to support enterprises in improving the productivity and quality of their
products in the period 2021–30. The participation of organizations and agencies is to be as follows:

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Ministry of Science and Technology will be responsible for presiding over and administering the
program’s activities, while STAMEQ will be the standing agency of the program. MOST will guide
relevant ministries, agencies, and localities to plan and implement the tasks of the program; research,
formulate, and submit to competent authorities for promulgation mechanisms, policies, and solutions
for promoting productivity and quality; build pilot projects for smart manufacturing; formulate and
promulgate criteria and standards for quality productivity specialists for smart manufacturing; organize
productivity and quality training activities in smart manufacturing; support training of productivity
and quality experts on smart manufacturing in local areas; and implement propaganda activities and
international cooperation in the field of smart manufacturing. MOST will also organize activities to
honor and reward collectives and individuals with achievements in promoting productivity.

The Ministry of Industry and Trade, the Ministry of Agriculture and Rural Development, the
Ministry of Health, the Ministry of Construction, the Ministry of Transport, and the Ministry of
Information and Communications, within their competences, will be responsible for appointing the
focal agency to organize and perform the tasks of the program; develop and implement a five-year
plan, annually implement the program’s tasks, integrate with national target programs, national
programs, and other socioeconomic development programs. All this will be done in accordance
with the development orientation of key products and goods of the sectors and fields, while
focusing on key industrial and agricultural products and goods.

The Ministry of Finance will be responsible for allocating funds for the implementation of the
program’s tasks in accordance with the law on the state budget. The Ministry of Finance will
coordinate with the Ministry of Science and Technology in reviewing and supplementing a financial
management mechanism to implement the program (if necessary).

The People’s Committees of provinces and cities will be responsible for appointing the focal
agency to organize the implementation of the program’s tasks; develop five-year plans, annually
implement the program’s tasks, integrate with national target programs, national programs and
other socioeconomic development programs to improve productivity quality of key products and
goods in their provinces. At the same time, the People’s Committees of provinces and cities are
responsible for allocating funds and mobilizing legal sources of capital to carry out the program’s
tasks in accordance with the law on state budget and regulations.

The Vietnam Chamber of Commerce and Industry, the Vietnam Association of Small and Medium
Enterprises, the Vietnam Cooperative Union, and central and local enterprise associations will be
responsible for mobilizing and introducing enterprises to join the National Program; coordinating
with ministries, agencies, and localities to organize propaganda and knowledge dissemination
programs on productivity and quality for enterprises; and participating in the consideration and
selection of rewards for collectives and individuals having achievements in productivity and
quality promotion activities.

Role of VNPI
Based on the necessity, and within the framework of the National Program to support enterprises
to improve productivity and quality of products and goods, VNPI focuses on supporting enterprises
through the following main contents:

1. Evaluate the difficulties and challenges of organizations and enterprises in the COVID-19
pandemic phase and the need for training and practical guidance on solutions to restore

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and increase productivity. The novelty of the approach in the enterprise survey methodology
is the use of the ViPA set of indicators, based on the current situation of enterprises on four
pillars, i.e., enterprise management, productivity management, digital transformation, and
smart manufacturing.

2. Build and operate IT platforms to support connection and training, and provide consulting
on improving productivity and quality for organizations and enterprises.

In response to the pandemic and to better prepare for similar crises, VNPI desires to develop a
digital expert platform to connect the experts and support the enterprises as well as individuals in
productivity-related fields. The platform is expected to run on both PCs and mobile devices. This
would enable connection and quick interactions between experts and enterprises and provision the
training courses/knowledge shared by VNPI regardless of geographic barriers.

Considering the significance of the project, the platform should be well designed to better meet the
current as well as future demands and needs of potential users. In this regard, the Technical Expert
Service (TES) project provided by the APO was aimed at supporting VNPI in designing and
developing the operation and management plan of the platform (see Figure 15).

FIGURE 15
VIPRO PLATFORM FOR SMART MANUFACTURING PROMOTION AND IMPLEMENTATION.

Consultants
Verified individual consultants
enter the platform to search for
clients, share knowledge, and
offer voluntary activities.
Partners/solution
providers
Corporates
Verified partners/solution
Corporates join to look for
providers can pair with
advise as well as business
consultants to provide
matching opportunities.
complete solutions for
corporates’ problems.

Members/guests
Administrators
Members/guests are
They perform the hard
provided free resources
work of controlling,
(some limited to registered
operating, and maintaining
members only).
the platform.

Users are the key drivers to ViPro

The platform that connects objects includes experts; enterprises that need to be consulted and
provided with solutions; enterprises that are capable of providing solutions (it may be noted that
these enterprises do not provide consulting services and do not coincide with the expert audience);

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and members or guests who can also join the platform to use the services or the value that the
platform can provide.

The benefits of joining the program are listed below:

• Experts/enterprises providing solutions are evaluated and ranked by the system to create
confidence for users.

• Experts (service providers) are connected with enterprises (who are consulted/trained). The
system’s features include interactive search and being contracted directly on the platform.
In addition, the participants can exchange information and interact via chat, call, or video.

• Enterprises or members who need to find solutions/consulting services can post information on
the message board, while experts/solution providers can search the queries and offer suggestions.

• The system participants are sent promotional information and notifications on free courses
over the phone or through the system’s information boards.

• It connects multi-dimensional enterprises with experts, solution providers, and members.

It is also a new approach and means for professionals to connect and participate in quick and easy
support groups. Groups of experts with different geographical positions can be set up to analyze,
find solutions, and consult on a large scale during and after the COVID-19 situation in three regions,
namely, north, central, and south. The implementation of the IT platform is expected to connect
domestic experts as well as foreign experts under APO programs for some training courses with new
content that has not yet been found. Qualified domestic experts, in accordance with business
requirements, develop a set of documents for training, online guidance on energy efficiency
solutions, and digital transformation orientation for organizations and enterprises.

This content is intended to develop materials adapted for online training. The method of
implementation is to use suitable tools such as recording teacher clips, combined with presentation-
based teaching materials or teaching materials including practical images. Appropriate IT-based
teaching suited to the needs and applicability of groups of experts is combined with enterprise
infrastructure, which can be used for online teaching and instruction.

The online teaching materials are selected for topics of (1) management systems (basic tools to
help enterprises capture and restore productivity and quality); (2) management systems and quality
productivity improvement tools to help enterprises respond to increased productivity; and (3)
management systems, tools, and solutions to help enterprises with step-by-step access to digital
transformation and smart manufacturing.

VNPI focuses on organizing practice instructions for 80 organizations and enterprises on systems
and tools for improving smart manufacturing to restore and increase productivity during and after
the COVID-19 pandemic. Based on the results of the assessment of productivity performance and
the willingness to digitally convert each enterprise as per the ViPA criteria, the team of experts,
along with the enterprises, determines the KPIs and develops roadmap to implement the
improvement plans. Enterprises are instructed to choose two priority issues to improve and agree
to choose the right solution for sustainable energy. They are also required to determine the goals

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and plan the implementation of the solution comprising personnel, implementation plan,
implementation scope, and expected content.

In addition, VNPI also organizes information and communication activities on smart manufacturing
solutions. Online seminars are held monthly, focusing on smart manufacturing solutions, IT
applications, and digital transformation for recovery of enterprises’ productivity growth during and
after the COVID-19 pandemic. The content of the seminar is selected based on enterprises’ concerns
and experts’ opinions. Besides, propaganda articles about mission results are also published in
specialized newspapers and websites.

Timeline and Priority for Framework Implementation

In 2020, STAMEQ was to launch a national project to support the assessment of the digital and
smart manufacturing capacities of 80 Vietnamese SMEs through the ViPA system. In 2021,
STAMEQ would focus on publishing and guiding the Smart Manufacturing Standard Framework
for Vietnamese enterprises. It would continue to organize domestic and foreign training courses on
smart manufacturing for enterprises; connect and develop the smart manufacturing ecosystem on
the ViPRO platform; and develop Vietnam’s smart manufacturing system of standards and
productivity experts’ certification.

The orientation of promoting smart manufacturing through science, technology, and innovation has
become an important goal of the National Productivity Master Plan.

1. The targets for 2025 are:

• Contribute toward achieving the target of increasing labor productivity by an average

of over 7% per year (according to the Politburo’s Resolution No. 52-NQ/TW dated 27
September 2019 on a number of policies to actively participate in the Public Revolution
industry for the fourth time).

• Contribute toward achieving the goal of science-and-technology’s contribution through

total factor productivity (TFP) being about 45% to economic growth (according to
Decision No. 283/QD-TTg dated 19 February 2020 of the Prime Minister on the approval
of the plan to restructure the service sector by 2020, with an orientation to 2025).

• Develop a productivity improvement strategy based on science, technology, and

innovation in at least 10 provinces/cities nationwide to achieve the goal of increasing
the overall labor productivity of the whole economy.

• Implement productivity improvement programs, schemes, and plans based on science,

technology, and innovation in at least two state economic groups.

• Develop productivity improvement plans and roadmaps and implement innovative

activities that increase productivity in at least 300 medium-sized or higher enterprises
and have a value to contribute to the sector and the locality.

• Select at least 10 colleges, universities, and vocational institutions that promote

productivity growth through productivity research activities; provide training,
fostering, and practical guidance to link the development of high-quality human

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resources to businesses and the labor market; and build productivity improvement
networks and clubs for students.

2. The targets for 2030 are:

• Contribute to the goal of increasing labor productivity by an average of 7.5% per year
(according to the Politburo’s Resolution No. 52-NQ/TW dated 27 September 2019 on
a number of policies to actively participate in the fourth industrial revolution).

• Contribute toward achieving the goal of science-and-technology’s contribution

through total factor productivity (TFP) being about 50% to economic growth.

• Develop a productivity improvement strategy based on science, technology, and

innovation in at least 30 provinces/cities across the country to achieve the goal of
increasing the overall labor productivity of the whole economy.

• Implement programs, schemes, and plans to improve productivity based on science,

technology, and innovation in at least five state corporations and other corporations.

• Develop productivity improvement plans and roadmaps and implement productivity-

enhancing innovation activities in at least 500 enterprises (including public and
private enterprises) that are of medium size or above and have a value to contribute to
the sector and the locality.

• Select at least 20 colleges, universities, and vocational institutions that promote

productivity growth through productivity research activities; provide training,
fostering, and practice guidance to link the development of high-quality human
resources for businesses and the labor market; and build productivity improvement
networks and clubs for students.

References
[1] Vietnam productivity report 2019 (in Vietnamese), Vietnam National Productivity
Institute; 2020.

[2] Vietnam Association of Small and Medium Enterprises. Assessment of impacts of COVID-19
on SMEs, results of review of supporting policies and recommendations for improvement;
July 2020.

[3] GSO. Socio-Economic Report 2019.

[4] Ministry of Information and Communication. The draft of the National Digital Transformation
Program, version 4 April 2019.

[5] Analysis of Credit Ratings for Small and Medium-Sized Enterprises: Evidence from Asia.
Asian Development Review 2015; vol. 32, no. 2, pp. 18–37.

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LIST OF TABLES

INDIA
TABLE 1 Roles of key stakeholders in addressing top three smart manufacturing determinants............ 28

PAKISTAN
TABLE 1 Priority industries for smart manufacturing...........................................................................................61
TABLE 2 Criteria, sub-criteria, and readiness assessment items........................................................................66
TABLE 3 Shifting industrial sector to smart manufacturing................................................................................67

THE PHILIPPINES
TABLE 1 Classification of enterprises in the Philippines......................................................................................73
TABLE 2 Percent contribution to GDP by sectors and subsectors, 1998–2019..............................................75
TABLE 3 GDP contribution of the industry sector, Q2 2019 versus Q2 2020..................................................77
TABLE 4 Government agencies in collaboration with i3S.....................................................................................83
TABLE 5 Summary of I4.0 Framework’s components, strategies, and their lead stakeholders.................... 91

VIETNAM
TABLE 1 Enterprises are grouped by 15 areas of activity...................................................................................108

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LIST OF FIGURES

SMART MANUFACTURING IN THE ROC

Figure 1 How much the world depends on the ROC for semiconductors......................................................... 8
Figure 2 Impact of COVID-19 on the manufacturing industry in the ROC........................................................ 8
Figure 3 Conceptual strategy for the implementation of smart manufacturing in the ROC........................ 9

INDIA
Figure 1 Sector-wise GDP distribution of India......................................................................................................11
Figure 2 National Framework for Smart Manufacturing......................................................................................22
Figure 3 Key facts about SMEs in India.....................................................................................................................26

MALAYSIA
Figure 1 Key challenges across industries to migrate to smart manufacturing.............................................34
Figure 2 Impact of COVID-19 on SMEs......................................................................................................................35
Figure 3 Readiness Assessment criteria model.......................................................................................................41
Figure 4 BVAM focus points.........................................................................................................................................43
Figure 5 Production line without smart manufacturing integration................................................................45
Figure 6 Production line with smart manufacturing integration.......................................................................46

PAKISTAN
Figure 1 Pakistan’s ranking of key indicators in Global Competitiveness Index............................................62
Figure 2 Structure of Pakistan’s manufacturing’s exports as per UNIDO’s Competitive
Industrial Performance Index......................................................................................................................63
Figure 3 Conceptual framework for assessment....................................................................................................65
Figure 4 Framework for smart manufacturing implementation........................................................................67

THE PHILIPPINES
Figure 1 Breakup of enterprises in the Philippines by size in 2019...................................................................72
Figure 2 Prioritization Index ranking of key sectors in the Philippines, 1969–2012.....................................74
Figure 3 Percentage contribution of all Philippine manufacturing establishments by
industry groups, 2017...................................................................................................................................76
Figure 4 Manufacturing performance of selected ASEAN countries................................................................77
Figure 5 Value of Production Index for manufacturing, December 2019–September 2020....................... 78
Figure 6 The Inclusive Innovation Industrial Strategy Framework....................................................................82
Figure 7 Familiarity with the terms I4.0 and smart manufacturing.....................................................................87
Figure 8 Percentage of familiarity with emerging smart manufacturing technologies............................... 87
Figure 9 Percentage of smart manufacturing technologies employed by enterprises................................ 88
Figure 10 Proposed National Smart Manufacturing Framework I4.0 in the Philippines..................................90

VIETNAM
Figure 1 How COVID-19 impacted the SMEs.........................................................................................................106
Figure 2 Sectors most vulnerable and affected by COVID-19...........................................................................106

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LIST OF FIGURES

Figure 3 Information of surveyed enterprises..................................................................................................109

Figure 4A-B Smart manufacturing has great potential to help enterprises....................................................110
Figure 5 Perception of applicability of technologies to smart manufacturing........................................112
Figure 6 Current status of smart manufacturing applications.....................................................................113
Figure 7A-B The difficulties and barriers in the application of smart manufacturing..................................114
Figure 8 Enterprises’ policy priorities for promoting smart manufacturing applications.....................116
Figure 10 Average assessment matrix score and focus dimensions.............................................................120
Figure 11 Province-wise distribution of enterprises taking ViPA assessment............................................123
Figure 12 enterprises taking ViPA assessment by type.....................................................................................123
Figure 13A-B Smart-manufacturing access of Vietnamese SMEs taking ViPA assessment............................124
Figure 14 Smart manufacturing ecosystem model...........................................................................................129
Figure 15 ViPro platform for smart manufacturing promotion and implementation..............................132

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LIST OF CONTRIBUTORS

Republic of China
Dr. Meng Hua Li
Associate Professor
Department of Industrial Management &
Institute of Industrial Engineering and Management
National Formosa University

India
Dr. Ganesan Kannabiran
Professor and Director
Indian Institute of Information Technology, Sri City

Malaysia
Cheng Boon Seng
CEO
Elliance Sdn Bhd

Pakistan
Nabeel Asghar
Director
Projects and operations
Technology Upgradation and Skill Development Company

Philippines
Dr. Kenneth D. Barroga
Assistant Regional Director
R&D for Innovation and Development Division
Department of Science and Technology XI

Vanessa Ellen R. Wabina

Science Research Analyst
R&D for Development and Innovation Division
Department of Science and Technology XI

Vietnam
Dr. Ha Minh Hiep
Deputy Director General
Directorate for Standards, Metrology and Quality

APO Secretariat
Huong Thu Ngo
Program Officer
Policy and Analysis Unit
Smart
Manufacturing:
National
Implementation
Framework