ADAPTATION AND ADOPTION OF  INDUSTRY 4.0 IN CAMBODIA

ADAPTATION AND ADOPTION OF

INDUSTRY 4.

IN CAMBODIA

EXECUTIVE SUMMARY

Cambodia’s 2030 and 2050 visions can only be Industry 4.0 has the potential to create new
realised by exploiting the potential of new sources of value for workers, firms, sectors and
technologies to upgrade and diversify its countries. Industry 4.0 applications and solutions
economy. Cambodia has made important progress: are becoming cheaper, more widely available and
its economy has grown at rates above 7% since easier to use. There is broad international agreement
2011, and the share of people living in poverty has that the use of these technologies has the potential
more than halved in the last decade. The Royal to drive opportunities for more efficient and
Government of Cambodia’s (RGC) Rectangular productive use of labour, capital and natural
Strategy sets out the vision to become an upper- resources. Manufacturing firms can leverage
middle-income country by 2030 and a high-income Industry 4.0 to offer digitally enabled (“smart”)
country by 2050. As recognised in the Industrial products, services, supply chains and delivery.
Development Policy (IDP) 2015–2025, this vision Industry 4.0 capabilities could also be extended
can only be achieved if new technologies are from manufacturing to other sectors of the economy
leveraged to increase industrial value added, and society. According to some estimations,
diversify exports and strengthen small and medium- productivity increases from new technologies could
sized enterprises (SMEs). have an economic impact of up to US$625 billion in
the ASEAN region alone by 2030.
Cambodia’s manufacturing has increased its
contribution to the economy over the last couple The term Industry 4.0 is often misunderstood and
of decades, mainly driven by the garment and Cambodia still lacks a “champion”. The term
food industries. The contribution of manufacturing Industry 4.0 is not used consistently and is often
to Cambodia’s GDP has increased from below 10% used interchangeably with other labels such as
in the 1990s to over 16% in 2018. It now provides 1.4 “Fourth Industrial Revolution” and “digital economy”.
million jobs. However, Cambodia’s manufacturing is The lack of clarity regarding the scope of Industry
concentrated in two main sectors: textiles, clothing 4.0 complicates communication and collaboration
and footwear and food and beverages. Together, between stakeholders, and, so far, no “champion”
they account for 80% of manufacturing value added has clearly emerged promoting its adoption in
and 76% of the country’s exports. Cambodia.

It is generally agreed that Industry 4.0 refers to 4.0. Cambodia has a growing economy with
the widespread integration of information and increasing FDI flows and a demographic dividend of
communication technology (ICT) in manufacturing. young people. A number of initiatives are being put
In particular, Industry 4.0 is underpinned by into place to promote technology and innovation in
engineering systems that link the “cyber” world (e.g. the country, including a strategic framework for
software, computational algorithms and wireless Cambodia’s digital economy. Opportunities exist to
communication) with the “physical” world (e.g. exploit technological spillovers from FDI, to leverage
machines and human users). As such, Industry 4.0 the participation in global value chains, and to
goes beyond the development of mobile phone further develop established international economic
apps and e-commerce platforms. Meanwhile, partnerships.
“Fourth Industrial Revolution” is associated with a
wider range of technologies (including Private sector stakeholders perceive that Industry
biotechnology, nanotechnology and new materials) 4.0 represents an opportunity to boost
and their application across all sectors of the productivity, reduce costs and diversify the
economy. Finally, official definitions of “Digital economy. Specific opportunity areas from Industry
Economy” typically define it as the trade of goods 4.0, identified by the local stakeholders consulted,
and services through electronic commerce – include: energy management; predictive
although some recent definitions used in Cambodia maintenance; traceability; inventory and distribution
refer to the use of digital technologies in the overall management services; increasing value-added from
economy. food processing; the creation of more sophisticated
tasks and better-paid jobs; and integration into
This report focuses on the opportunities and regional supply chains.
challenges arising from Industry 4.0, and the
policy options required to harness its potential in The level of Industry 4.0 adoption in Cambodia is
Cambodia. Conceived by the United Nations still low, as is the case in many developing and
Development Programme (UNDP), this investigation developed countries. The stakeholders consulted
aims to support ongoing efforts in Cambodia by suggested that digital technology in the majority of
more closely investigating how the adaptation and firms (over 90%) is still at a basic level. At firm level,
adoption of Industry 4.0 technologies could help barriers to adopting Industry 4.0 in Cambodia
address constraints to sustainable industrial include: a lack of awareness of digital technologies
development in Cambodia. The investigation draws and their benefits; the perceived high costs of
upon consultations with local public and private technologies; an aversion to the use of new
sector stakeholders, brings together both technologies; skills gaps; limited access to training
technological and economic perspectives, and and technical assistance; and constrained access to
reviews the latest academic and policy evidence on finance. Low levels of Industry 4.0 adoption are also
the topic of Industry 4.0. reported by recent surveys in both developing
(including ASEAN and Latin American countries) and
Both “optimistic” and “pessimistic” views on the developed countries (including European countries).
implications of Industry 4.0 for developing
countries are found in the international debate. In Efforts are required to raise awareness of Industry
order to gain a balanced view, the report reviews 4.0 technologies and their benefits; to make these
the international development and academic technologies more widely accessible; and to
literature across themes, including: impact on jobs; develop the skills needed to use them. The
the role of manufacturing as a driver of economic consultations carried out suggest that these efforts
growth; inequality between developed and will be required in parallel with initiatives – some of
developing countries; market concentration; and which are already in progress – to develop the
gender inequality. The emerging picture is one enablers that underpin Cambodia’s competitiveness
characterised by contrasting views but also one that as an industrial location. These contextual enablers
highlights the need for countries to act. include: investments in basic and digital
infrastructure; improvements in the institutional
Cambodia has the opportunity to build on a framework; addressing financial constraints; and
number of conditions to support the adaption and strengthening linkages between innovation actors.
adoption of new technologies, including Industry

The evidence base around Industry 4.0 in and deployment; technology awareness and
Cambodia needs to be further strengthened with diffusion; and technology development and
in-depth sector-specific analysis and firm-level importing.
insights. This scoping report generated significant
cross-sectoral insights into Cambodia’s readiness to National roadmaps can bring local stakeholders
adapt and adopt Industry 4.0 technologies. While together to co-develop options, identify key
there is broad consensus about the potential large- actions and agree on steps for implementation.
scale impact of Industry 4.0, there is a need to Roadmaps could help to develop an Industry 4.0
strengthen the evidence base about the particular strategy that addresses the particular challenges
opportunities and challenges for Cambodia by facing firms in Cambodia, complementing wider
conducting sector- and firm-level analyses in the efforts to reap the benefits of digital technologies.
next stages of the project. Co-development by local stakeholders is essential
to ensure that activities are grounded in the realities
Practical mechanisms for the roll-out of Industry of the country, reflect on past experiences and
4.0 in Cambodia need to be identified. Based on promote ownership.
the mapping of existing institutions and ongoing
initiatives in the country, it is suggested that In the months since this report was compiled
appropriate mechanisms for the roll-out of Industry Cambodia, like other nations, has been impacted
4.0 need to be identified. Such mechanisms could by the Covid-19 pandemic. The implications of this
take different forms: centres of excellence, for Industry 4.0 are picked up in a separate Covid-19
competence centres, technology institutes and Update that follows. The pandemic makes the
innovation networks. Their potential implementation transfer of these technologies and know-how still
in Cambodia should be informed by international more prescient for Cambodia - enabling reopening
best practice. Whatever the institutional form, and repurposing of the industrial sector, better
Industry 4.0 roll-out requires activities to address management of uncertainty and delivering new
barriers across three key areas: technology transfer productive capacities through digitalization.

COVID-19 UPDATE

Across the world, the COVID-19 pandemic is driving predictive maintenance, traceability, inventory, and
profound changes in the way we communicate, distribution management services.
work and live. On the industrial front, firms are facing
supply and demand disruptions today and an The COVID-19 pandemic is accelerating a number
uncertain global landscape in the future. of digitalization trends. In doing so, it is revealing
more opportunities for Cambodia’s industrial
As we move forward, emerging evidence suggests upgrading and diversification.
that digital technologies will play a crucial role in
addressing these challenges. Opportunities range from the increasing use of digital
payments; brick-and-mortar shops using online sales
This report explores how digital technologies can channels for the first time; new digital business
be leveraged to support sustainable industrial models; use of responsive supply chain management
development in Cambodia, based on higher value systems to address supply disruptions and uncertainty
added and economic diversification, as envisioned in demand; and access to remote technical assistance
by the Royal Government of Cambodia’s Rectangular and training as a response to travel and social
Strategy. distancing restrictions.

In particular, the report focuses on the opportunities RESPONDING TO CAMBODIA’S
and challenges driven by Industry 4.0 – the CHALLENGES THROUGH INNOVATION
widespread integration of digital technologies
across manufacturing products, processes and Cambodia has successfully contained the spread of
operations.1 Initial consultations with stakeholders the pandemic, with only 141 cases confirmed and zero
in Cambodia have already identified opportunities deaths as of 1 July.2 However, the global economic
in several areas, including: energy management,

effects of the pandemic meant that Cambodia’s learning applications can help build prediction
industries experienced a “double hit”. models and respond to real-time changes across
the supply chain.
The first was the “supply hit” felt in Cambodia even
before the disease arrived in the country. As early ■ Accessing data, expertise and training
as February, garment factories were already remotely. Travel and social distancing restrictions
reporting shortages of supplies, primarily due to the have meant higher reliance on remote data and
closure of factories in China. Some Cambodian expertise. Cloud-based systems can facilitate
manufacturers decided to suspend operations. accessing operational and management data
remotely; while augmented and mixed reality (AR/
There was then a more significant “demand hit” as MR) solutions can help accessing technical
orders from clients in Europe and the United States support and training.
dried up. Within manufacturing, the garment industry
is the most affected by demand shocks in Cambodia.3 ■ Enabling digital orders and customer
Hundreds of garment firms have suspended support. In times of travel restrictions, methods of
operations due to reductions in orders.4 fulfilling customer orders must change. Digital
applications can help firms sell products and
The speed and quality of the industrial recovery will services through online shops, update clients on
depend on a number of international factors but inventory levels, provide virtual product
also on the strategies implemented by firms, presentations and training, and offer remote
development actors, and the Royal Government of customer support and after-sales services.5
Cambodia. Governments and firms around the world
are seizing the COVID-19 crisis as an opportunity to Although the adoption of these applications has
upgrade technology, diversify and improve been mainly triggered as a response to short- to
environmental sustainability. medium-term disruptions, these adoptions are likely
to have long-lasting effects in firms’ capabilities as a
As has happened in previous crisis, emerging result of the skills and capacity developed.
evidence suggests that more innovative firms
tend to be more resilient to shocks. Firms are now KEY TAKEAWAYS IN THIS REPORT
leveraging digital technologies to address the
challenges posed by the COVID-19 pandemic. As discussed in this report, the adoption of digital
technologies in Cambodian industries requires a
Specific examples of applications in manufacturing, number of contextual enablers, including: further
the focus of the report, include: investments in basic and digital infrastructure;
skills development; and improvements to the
■ Repurposing production capacity. Dozens of institutional framework.
garment firms in Cambodia have repurposed to
produce personal protective equipment (PPE). It also requires deliberate efforts to help
Digital technologies can help firms to adapt Cambodian firms to adopt and adapt these
production processes to those goods in high technologies, with specific support policies that
demand. Applications include designing and draw from international experience but are driven
modelling of modifications of production lines, 3D by local needs.
printing for rapid prototyping, and rapid digital
design for injection moulding. In developing these pre-conditions, Cambodia
would strengthen its competitive advantages and
■ Managing uncertainty in supply chains. be better prepared to seize the opportunities from
Disruptions in supply chains and volatility in the imminent reconfiguration of supply chains in
demand require responsive planning models to the ASEAN region.
help decision making. Data analytics and machine

1 Section 1 of the report defines Industry 4.0 and its interfaces with similar concepts, such as Fourth Industrial Revolution and Digital Economy.
2 Johns Hopkins (2020). COVID-19 Dashboard. Center for Systems Science and Engineering (CSSSE).
3 UNIDO (2020). Impacts of COVID-19 on the Private Sector. Survey report. Cambodia.
4 Interview with representatives of the Garment Manufacturers Association in Cambodia (GMAC).
5 Industrie 4.0 Maturity Center (2020). Industrie 4.0 & Covid-19. How to deal with digitalization strategies during the crisis?