Industry 4.0 and capability development in manufacturing subsidiaries

This paper investigates whether advanced manufacturing technologies (AMT) can modify the patterns of upgrading in manufacturing subsidiaries operating in FDI hosting factory economies. Does the digital transformation of local manufacturing engender the accumulation of local technological and R&D capabilities, or the beneficial impact of AMT remains confined to production capability? Analysis is based on primary data collected through in-depth interviews with a sample of high-flying manufacturing subsidiaries in Hungary, complemented with interviews with AMT providers. We find that AMT have spectacularly improved all components of production capability. AMT redefined the boundaries of production activities and incited a fusion of selected technological activities in production activities. AMT deployment has automated selected tacit knowledge-intensive technological activities, making the related subsidiary-level capabilities obsolete. Conversely, other local technological activities have become more knowledge-intensive than before. AMT propelled the upgrading of subsidiary-level R&D capabilities by supporting specific R&D activities and by acting as enabler of innovation collaboration. AMT created an integrated development environment and thus reduced the risks related to the decentralisation of R&D. Altogether, AMT adoption contributed to subsidiary R&D capability becoming 'revealed' and further upgraded through learning by doing.