From routine to revolution: Why internal capabilities alone do not drive Industry 4.0 adoption?

Abstract

Although Industry 4.0 continues to receive strong policy endorsement, its adoption among small and medium-sized enterprises (SMEs) is still low. This study challenges the assumption that internal capabilities of firms is sufficient to drive digital transformation. We investigate the influence of supply chain management (SCM) and operations management (OM) on the adoption of Industry 4.0 in the service sector SMEs in Malaysia, and whether government intervention moderates these relationships. Using survey data from 248 SMEs, we analyse the results by using PLS-SEM. The findings show there is a strong and positive association between SCM and Industry 4.0 adoption as well as a positive yet less significant association between OM and Industry 4.0 adoption. Government intervention moderates the relationship for both independent variables and dependent variable. The findings indicate that digital transformation arises not only from the technological readiness, but the alignment between the organisational capabilities and support received from the government. We suggest that policymakers should combine institutional support with initiatives to integrate better inter-firm collaboration, while SMEs may need to focus on supply chain management and operations management as a way to speed up their Industry 4.0 adoption.