Postgraduate & Mid- Career Development Unit

Faculty of Management & Finance

University of Colombo

Programme : MBA Weekday Programme 2017 - 2019

Trimester : Trimester V
Course : MBA 5214 - Managing Business Across Borders
Lecturers : Dr. Pramuk Perera
Assignment : Controversial Issue Report
Topic : Should Sri Lanka focus on Industry 4.0 to build
the country’s economy in the 21st Century?
List of the Group Members

No. Name Registration No. Signature

01 Madhubhashini S.H.M.M.C 2017/MBA/WD/39

02 Perera U.L.H.S 2017/MBA/WD/45

03 Silva P.K.D.A.C 2017/MBA/WD/61

04 Nallawangsa T.M 2017/MBA/WD/41

Table of Contents

01. Introduction...........................................................................................................................1
02. Favorable Arguments............................................................................................................1
I. Internal Processes Perspective..............................................................................................1
II. Financial Perspective.............................................................................................................2
III. Learning and Growth Perspective.........................................................................................3
IV. Stakeholders’ Perspective.....................................................................................................3
03. Unfavorable Arguments........................................................................................................4
I. Lack of Infrastructure............................................................................................................4
II. Influence the Existing Labour Force.....................................................................................4
III. Data Ownership and Security................................................................................................4
04. Recommendations and Justifications....................................................................................5
I. Government Support for Formation of a Policy....................................................................5
II. Development of ICT and other Infrastructure to foster the change......................................5
III. Private Public Partnership.....................................................................................................6
05. References.............................................................................................................................7
I. Introduction

Industry 4.0, the fourth industrial revolution has dramatically changes the entrepreneurial
attitude, innovation, industrial productivity in specific and both consumer and producer
beheviour in general. The order of industrial revolutions will produce the greater insight to the
significant changes of those revolutionary period. The first industrial revolution which was
largely supported by mechanization through water and steam power followed by second industry
revolution emphasize on electricity, mass production and assembly lines. Then, it evolved into
the use of computers and automation which marked the third industry revolution. This is
followed by modern stage, fourth industrial revolution backed by nine technological factors
(Autonomous robots, Simulation, Horizontal and Vertical System Integration, The Industrial
Internet of Things, Cybersecurity, The Cloud, Additive Manufacturing, Augmented Reality, Big
data and analytics).

These revolutions occurred in last three centuries largely impact the level of “knowledge”
produce, distribute and utilize in the value creation process which shape the concepts such as
knowledge economy and service economy where it has a significant role in defining a particular
country. Further, United Nations Industrial Development Organization (2017) stated that
Industry 4.0 will affect all sectors and disciplines, and will have a huge impact on developing
countries. In that context, studying the application of the industry 4.0 in Sri Lanka where service
sector accounted for almost 57.7% of total GDP will provide useful insight to the reader.

II. Favorable Arguments

This section will focus on highlighting the positives of application of industry 4.0 based on four
major perspectives, namely, internal processes perspective, financial perspective, learning and
growth perspectives and stakeholders’ perspectives.

III. Internal Processes Perspective

Dominancy of the service sector in terms of contribution to total GDP is one of the major
positives of Sri Lankan economy where according to the statistics of world bank, the
contribution ratio is well within the range of developed countries (The World Bank, 2019).
However, it is noteworthy that 40.38 % of service sector contribution is fueled through the
category of Wholesale and Retail Trade, Transportation and Storage, and Accommodation and
Food Service Activities which provide the indication of level of unskilled labor contribution.
Industry 4.0 will provide effective platform to enhance the skill level of those human capital
which indeed improve the productivity level of entire economy. For an example, motion tracking
of the consumer in retails shop through the robotic cameras together with integrated big data
analysis will provide significant insight to purchasing beheviour of customers. This will enhance
the knowledge level of the market participants predominantly sellers, which indeed increase the
quality of the subsequent service delivery. Supporting view of increasing level of productivity,
Islam, Jantan, Hashim, & Chong (2018) stated that the integration of Industry 4.0 in the country
will lead to reduction of the cost of production thereby increase production efficiency result in
increase in production level.

IV. Financial Perspective

Margin and Revenue growth is partly fueled by the productivity improvement which was
elaborate earlier. Further, Agriculture, Forestry & Fishing, Industries and Service Sectors
together will get benefitted from the various positives from industry 4.0. it includes
comprehensive information for decision making, highly efficient production facilities, high level
of skilled labours, process improvement, decrease of material usage, positive impact on
entrepreneurial attitude of the society due to increase level of knowledge sharing by various
parties.

Furthermore, Cost reduction and quality improvement in export industries will indeed increase
the global competitiveness of the local production such as tea, textile and garments, rubber
products whereby create a positive impact to the current export income of US $ 11,889.6 million.
Simple example is quality control in tea industry through big data analytical tools which
integrated the entire process from tea leaf plucking to export will certainly improve the quality of
the Ceylon tea result in revenue growth.

Further, Integration of the industry 4.0 will reduce the human capital involvement in
manufacturing plants and some other risky ventures to some extend where the organizations will
benefit from effective managing of health and safety cost which accounts for significant line item
in Profit and Lost Statement of those organizations.
 V. Learning and Growth Perspective

Manda & Dhaou (2019) stated in the article of Responding to the challenges and opportunities in
the 4th Industrial revolution in developing countries that “The 4th industrial revolution will
demand the production of innovative products, business models and production techniques
driven by technology”. This emphasize the argument of Schumpeter (1934) where it highlighted
that innovation occurs in various methods. Those are

a) launch of a new product or a new class of already known product;

b) application of new methods of production or sales of a product
c) opening of a new market
d) acquiring of new sources of supply of raw material or semi-finished goods;
e) new industry structure such as the creation or destruction of a monopoly position.

It is justifiable that application of the industry 4.0 will not only derive a new class of products
and services but also it facilitates the economy to focus on other type of innovation with the
facilitation of previous mentioned 09 factors.

United Nations Industrial Development Organization (2017) confirm that The Industrial Internet
of Things (IoT) and ecommerce platforms will facilitate SMEs to internationalize through the
range of innovation and it encompasses the ability to learning from lead firms in global value
chain.

VI. Stakeholders’ Perspective

The general public or the consumers as the biggest stakeholder of any economy will enjoy the
benefit of industry 4.0 as any given positive will directly impact the quality of the life of them.
Few of the specific benefit for the stakeholders are listed below.

 Increase the depth of product range due to innovation and mass customization.
 Energy-efficient and environmentally sustainable production facilities safe guard the
existing limited resources.
 Enhance the level of knowledge which increase the quality of the work force.
VII. Unfavorable Arguments
I. Lack of Infrastructure

The developing countries may undergo difficulties in implementing the industry 4.0 as
information and communication infrastructure is fairly less when compare to the developed
countries. This is justifiable through the ICT Development Index (IDI) which combines eleven
indicators on ICT access, use and skills, and ICT development in to one measure (International
Telecommunication Union, 2017) . IDI 2017 Value of developed countries is 7.52 whereas
developing countries accounted for the value of 4.26 which confirm the above argument. Korean
Republic was 01st in the list of IDI index with the IDI Value of 8.82 whereas Sri Lanka stood at
116th position with the IDI value of 3.91.

II. Influence the Existing Labour Force

Possible automation of manufacturing and service industries will affect the job security of the
existing work force if not essential human capital development is not taken part in the economy
system simultaneously. This is justified in the Manda & Backhouse (2016) in which it
highlighted that low level of e-readiness of the existing work force will act as a barrier to move
towards smart societies. Inability to move towards modern revolutionary economies will become
a vicious cycle for the developing countries as their strength of low wage labour which derive the
global competitiveness against giant counties starts to diminish as application of industry 4.0 by
developed countries replace labour intensive manufacturing cells with ICT.

III. Data Ownership and Security

High level of integration of data, specifically by big data concept will affect the efficiency and
long lasting nature of the business strategies as there is high possibility of data leakage through
vertical and horizontal integration in the industries. Any new strategies to outperform the market
disappear almost instantaneously as knowledge sharing process exceptionally effective. National
security and privacy is one of the greatest phenomena which is under threat if the industry 4.0 is
not tailor made for the countries requirements.

Apart from those specific and selected unfavorable arguments, following need to be considered
too.
 a) Lack of government support.
b) Inability of the education system to facilitate the industry 4.0.
c) High level of funding needs.

IV. Recommendations and Justifications

Following section will provide comprehensive recommendations based on literature in this
discipline and current context of Sri Lanka.

I. Government Support for Formation of a Policy

The comprehensive policy statement is needed to drive and control economic agents while
applying industry 4.0 as application of the industry 4.0 will create significant impact to the
existing economic system. This policy should cover the rebuilding of Sri Lankan education
system and university system in a way that it contributes positively to the adaptation of industry
4.0 and it should ensure that human capital is well – developed to cater the future needs. Further,
Zhou, Liu, & Zhou (2015) identified that adaptation of 4 th revolution may cause data security
issues in individual, business and national level which should strongly address by strict
regulation through standards, legislation, and policies. Right to Information Act, No. 12 of 2016
plays vital role in building up the knowledge in the Sri Lankan society with the required level of
restrictions. However, it was observed and experienced that most of the requests made through
the act are due to political reasons which indeed hinder the effectiveness of the act.

Further, machanisam for the skill development is vital as United Nations Industrial Development
Organization (2017) emphasize on loss of jobs with the implementation of industry 4.0. It further
stated that “This transformation will also bring with it a change in the nature of jobs, requiring
not only increased technical competencies but also interpersonal skills, and will feature remote,
flexible and on-demand work”. This ultimately encourage the concept of knowledge intensive
service economy in which knowledge is created, distributed and utilized for more towards
service sector.

II. Development of ICT and other Infrastructure to foster the change

The development of infrastructure will create a business friendly environment where SMEs also
can invest in the business with an extended level of certainty. Investor confidence is one of the
major factor when it comes to business continuity and growth. United Nations Industrial
Development Organization (2017) report confirm that many of the Chinese SMEs benefited
through the use of big data, cloud computing and other new technologies since even though such
businesses do not have a physical global presence outside china.

This will further influence the confidence of skilled and professional migrants to reconsider the
decision to leave the motherland. Aforesaid migration has a substantial impact to the domestic
country and in the context of Sri lanka, Number of skilled and professional migrants is
approximately 75,000 in 2017 and 83,000 in 2018.

III. Private Public Partnership

When compare the level of efficiencies in private and public sector organizations in Sri Lanka, it
is evident that public sector is well under par in each and every aspect in implementing a
particular decision. However, it is the government who possess the policy making power.
Effective coordination and collaboration of public and private sector will provide strong platform
to implement the industry 4.0. this argument is partly supported the United Nations Industrial
Development Organization (2017) where it emphasize the multi-stakeholder approach to
facilitate the implementation namely , government, the private sector, unions, academic
institutions and civil society.

IV. References
International Telecommunication Union. (2017). Measuring the Information Society Report
2017. Geneva.
Islam, M. A., Jantan, A. H., Hashim, H., & Chong, C. (2018). Fourth Industrial Revolution in
Developing Countries: A Case on Bangladesh. Journal of Management Information and
Decision Sciences, Volume 21( Issue 1).
Manda, I. M., & Dhaou, S. B. (2019, April). Responding to the challenges and opportunities in
the 4th Industrial revolution in developing countries. In Proceedings of the 12th
International Conference on Theory and Practice of Electronic Governance
(ICEGOV2019), 3-5.
Manda, M. I., & Backhouse, J. (2016). Towards a “Smart Society” Through a Connected and
Smart Citizenry in South Africa: A Review of the National Broadband Strategy and
Policy. International Conference on Electronic Government and the Information Systems
Perspective, 228-240.
Right to Information Act, No. 12 of 2016. available at
http://www.parliament.lk/uploads/acts/gbills/english/6007.pdf

Schumpeter, J. (1934). The Theory of Economic Development: An Inquiry into Profits, Capital,
Credit, Interest and the Business Cycle.
The World Bank. (2019). Retrieved from The World Bank:
https://data.worldbank.org/indicator/NV.SRV.TOTL.ZS
United Nations Industrial Development Organization. (2017, November 29). Industry 4.0 – the
opportunities behind the challenge.
Zhou, K., Liu, T., & Zhou, L. (2015). Industry 4.0: Towards future industrial opportunities and
challenges. In Fuzzy Systems and Knowledge Discovery (FSKD). 2015 12th
International Conference, 2147-2152.