HO CHI MINH CITY UNIVERSITY OF TECHNOLOGY

FACULTY OF MECHANICAL ENGINEERING

SUBJECT: INDUSTRY 4.0 IN MECHANICAL ENGINEERING

WEEK 4 (30/01/2024-05/02/2024)

EXERCISE 1: SUMMARY OF RESEARCH PAPER

Digital transformation and manufacturing company competitiveness

Class: CC01
Instructor: Assoc. Prof Phạm Ngọc Tuấn
Student’s name Student’s ID
Hồ Thiên Bảo 2052395

Ho Chi Minh City, 05/02/2024

1. Topic and chosen research paper
- Topic: Digital transformation
- Research paper: S. Xiaoning, J. Shuaipeng, Y. Wang, and H. Wang, “Digital
transformation and manufacturing company competitiveness,” Finance Research
Letters, vol. 59, p. 104683, Jan. 2024, doi: 10.1016/j.frl.2023.104683.
2. Summary of the paper
Digital transformation has been applied in all aspects of life, from production,
education,… to household applications. Especially in industrial production, digital
transformation has been extensively developed to enhance productivity and quality of products.
In this paper, Wang and his colleagues investigated the relationship between the digital
transformation and the competitiveness of manufacturing companies. The research found that
if the degree of digital transformation increases by 1%, it can make the company’s
competitiveness enhanced by 0.015%. The reasons to explain this dependence are represented
in the latter sections. From the attained result, the authors indicated that this is a proof of the
influence of digital transformation on manufacture industry.
In the introduction section, the authors built the bridge connecting manufacture industry
and digital transformation by giving brief description of application of digital technology and
digital transformation in manufacturing companies to emphasize the role of digital
transformation in the company’s competitiveness. Beside, the authors also gave definition of
the resource-based view (RBV) model used to assess the company’s competitiveness. As we
known, the manufacturing industry plays an important role in national economic development;
therefore, it is a prior field for innovation. The enhancement of manufacturing company’s
competitiveness can contribute to economic sustainability and ensure the leading position of
manufacturing industry in global economy. The enhancement of competitiveness is also
necessary due to the challenges that the companies encounter when they adapt their roles as
economic entities. The digital era came with various digital technologies such as: big data,
artificial intelligent, cloud computing, the Internet of things, blockchain, … By applying these
technologies, the companies go through a profound transformation in their production and
operation. The applications of these technologies and their benefits can be listed as follows: the
intelligent manufacturing technologies makes production process smarter and improves
efficiency and product quality; the digital management for comprehensive visibility in
production, sales and supply chains improves the management efficiency and responsiveness
in the companies; the utilization of big data and artificial intelligence can aid company

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accurately forecast and optimize market demand, product quality and production processes,…
From that, the manufacturing companies gradually increase their competitiveness. There is a
way to recognize and assess the competitiveness of a company via resources and capabilities
which company has to possess and control that resource. This is based on the resource-based
view (RBV). The RBV model comprises 4 aspects to conclude if resources possess the potential
to bolster a company’s competitiveness or not. These aspects are Value, Rarity, Imperfect
Imitability and Non-substitutability. The resource which satisfies these four attributes can be
considered as a company’s core competencies – which can help a company establish a
sustainable competitive advantage. From these attributes, the authors proved that digital
transformation is a resource which contributes to the competitiveness of the company. First,
digital transformation resources bring values to the company when they enhance productivity,
reduces operational cost, boost innovation capabilities… to name but a few. Second, digital
transformation resources are rare due to their provision of specialized knowledge and skills,
enormous data resources, forward-looking industry, and market insights. Third, digital
transformation resources are imperfectly imitable, which means that the results brought by
digital transformation for company such as corporate brand, reputation, culture and
organization atmosphere are difficult to imitate. Finally, digital transformation resources are
non-substitutable – there is nothing that can bring the advantages same as digital transformation
does. After these reasons, we cannot deny the role of digital transformation in enhancement of
company’s competitiveness. This paper focuses on systematical exploration of the impact of
digital transformation on the enhancement of the company competitiveness and how this impact
occurs.
In the section of research design, the authors divide the variables used in the research into
4 groups as listed in the table below:
Group Name Allias Meaning
Describe a company’s operational
Dependent Company
𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑣𝑒 performance and level of
variable competitiveness
competitiveness
Independent Company digital Discern a company’s future
𝐷𝑖𝑔𝑖𝑡𝑎𝑙
variable transformation development direction and strategies
Total factor Include company output, labor,
𝑇𝑓𝑝
productivity capital, and intermediate input
Research and The ratio of research and
Mechanism development 𝑅𝑑 − 𝑑𝑒𝑛𝑠𝑖𝑡𝑦 development investment to total
variables density operating revenue
The proportion of employees with a
Human capital 𝐿𝑎𝑏𝑜𝑟 bachelor’s degree or higher among
the total number of employees

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 Difference between the year in which
the business is located and the year in
Company age 𝐴𝑔𝑒
which it was established + 1 to take
logarithm
total business assets + 1 to take
Company size 𝑆𝑖𝑧𝑒
logarithm
the ratio of a company’s net profit
Return on assets 𝑅𝑜𝑎 after tax to its total assets at the end
of the year
the ratio of total liabilities to total
Leverage ratio 𝐿𝑒𝑣 assets of a company at the end of the
year
Overseas take 1 if the executives of the
Control
background of 𝑂𝑣𝑒𝑟𝑠𝑒𝑎𝑏𝑎𝑐𝑘 company have overseas background,
variables
executives otherwise take 0
the registered capital of the
Registered capital 𝐶𝑎𝑝𝑖𝑡𝑎𝑙
companies take logarithm
the ratio of a company’s year-end
𝐶𝑎𝑝𝑖𝑡𝑎𝑙
Capital density total revenues to its year-end total
− 𝑑𝑒𝑛𝑠𝑖𝑡𝑦
assets to take logarithm
Equity the sum of the shareholdings of the
𝑇𝑜𝑝10
concentration top 10 shareholders of a company
the ratio of the proportion of shares
held by the first largest shareholder to
Equity balance 𝐵𝑎𝑙𝑎𝑛𝑐𝑒 the proportion of shares held by the
second largest shareholder + 1 to take
logarithm
After examine selected Chinese A-share listed manufacturing companies from 2007 to
2021 as the research sample, a final dataset of 22,062 sample observations is obtained. The
descriptive statistics of the research variables are shown in the following table:

From the table, we can see that the greatest value of the standard deviation was 1.456. It means
that the descriptive statistics of all variables were within normal values and that the logarithmic
treatment of the variables of interest was reasonable. We can conclude that the competitiveness
of different manufacturing companies has large differences when looking at the gap between

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the minimum and maximum value of variable 𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑡𝑖𝑣𝑒. There is also significant difference
in degree of digital transformation between the companies. The study employs three regression
models:
Model 1 is used to estimate the parameter 𝛼 to measure the overall impact of digital
transformation on company competitiveness. This model has form:

𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑣𝑒 = 𝛼 + 𝛼 𝐷𝑖𝑔𝑖𝑡𝑎𝑙 + 𝛼 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀

Model 2 and 3 are the mediation effect models that analyze the influence of mechanism
variables. Model 2 has form:

𝑀𝑒𝑐ℎ𝑎𝑛𝑖𝑠𝑚 = 𝛽 + 𝛽 𝐷𝑖𝑔𝑖𝑡𝑎𝑙 + 𝛽 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀

Model 3 has form:

𝐶𝑜𝑚𝑝𝑒𝑡𝑖𝑣𝑒 = 𝛾 + 𝛾 𝐷𝑖𝑔𝑖𝑡𝑎𝑙 + 𝛾 𝑀𝑒𝑐ℎ𝑎𝑛𝑖𝑠𝑚𝑠 + 𝛾 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 + 𝑌𝑒𝑎𝑟 + 𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦 + 𝜀

Where:
𝑀𝑒𝑐ℎ𝑎𝑛𝑖𝑠𝑚 : mechanism variables
𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠 : a series of control variables
𝑌𝑒𝑎𝑟: year fixed effect
𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦: industry fixed effect
𝜀 , 𝜀 , 𝜀 : error term
In the empirical analysis, the authors found evidence to prove that the digital
transformation contributes to the enhancement of company competitiveness. The results of
regression modes are given in the table below:

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In three models, the coefficients of 𝐷𝑖𝑔𝑖𝑡𝑎𝑙 are positive regardless of whether industry and year
fixed effects and control variables are controlled for. We also see that return on assets, overseas
background of executives, capital density, and equity concentration have significant positive
effects on company competitiveness, while company age, leverage ratio, registered capital, and
equity balance have significant negative effects on company competitiveness. For the
mechanism analysis, the results are presented in the table:

Looking at (2), (4) and (6), we can conclude that digital transformation significantly improves
total factor productivity, research and development density and human capital. It is clear that
digital transformation enhances company competitiveness by improving total factor
productivity, research and development density and human capital.
This paper uses several ways to check robustness of its finding. First, it employs the
instrument variable construction method to address potential endogeneity issues. Second, it
replaces the asset contribution rate with profitability and return on assets as measures of

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company competitiveness when measuring company competitiveness. Third it modified the
measurement of digital transformation by replacing the digital transformation data with the data
used in another study and data taken from the digital transformation research database of
Chinese listed companies. Forth, it assessed the impact of individual components of digital
transformation by separate regressions for the five key technology components that digital
transformation relies on. Fifth, it introduced lagged variables for digital transformation.
In conclusion, in spite of finding the significant impact of digital transformation on
company’s competitiveness and the mechanisms with which the digital transformation enhance
competitiveness of the company, this study still has some limitations. There are more
comprehensive indicators can be used to measure the degree of digital transformation of
manufacturing companies which can be included in the study. In addition, the actual mechanism
may be far more complex so it is necessary to research more in the future to find out,