Policy pathways to incentivize Industry 4.0 technology adoption

Numerous research studies highlight the benefits of Industry 4.0 technologies; however, many firms still lag in advanced technology adoption. Small-to-medium enterprises (SME) mainly constitute those technology laggards. This chapter investigates the challenges that hinder the digital transformation of firms and takes a capability-oriented approach to their development requirements. Filling the gap of limited policy studies in the Industry 4.0 literature, this study links Industry 4.0 literature with policy research and develops policy design principles for boosting advanced technology adoption. It discusses both supply-side and demand-side policy instruments and proposes five actionable policy design principles, including the focus on (1) employing a mix of policy instruments, (2) targeted engagement with SMEs, (3) fostering trust across the sector, (4) recognizing SME differences, and (5) adopting a location-based approach. These policy design principles provide a guideline to policymakers at the council, state, and federal government levels in formulating mission-oriented strategies and leveraging policy instruments to boost the adoption of the Industry 4.0 technology by firms.