Technological transformation: Growth opportunities for lagging regions in Europe

The 4.0 technological transformation rests on the creative recombination of basic and general technologies with specific domains of application. Basic hardware and software technologies and basic connectivity systems support wideranging technological fields. Digital networks, mobile digital devices, cloud computing, artificial intelligence, simulation algorithms for learning machines, the Internet of Things, sensors, big data applications and cybersecurity are only some of them.

The recombinatorial nature of 4.0 technologies leads to a radical reconfiguration of technology markets. It opens up possibilities for obtaining profits from creative inventions to small and new firms, including firms located in laggard regions (Map 1). In countries leading 4.0 technological trends (i.e. Germany, France, the United Kingdom, Sweden, the Netherlands, Finland and Switzerland), almost all regions contribute (and not negligibly) to the production of recombinatorial 4.0 patents with a specific application, and several regions making a significant contribution are located in advanced areas of follower countries (e.g. Italy, Spain and Belgium). However, the phenomenon is not confined to leading regions. Inventing areas also emerge in eastern countries such as Poland, Czech Republic and Hungary, and in the Baltics (notably in Estonia). They are generally regions that host the capital city or second-tier cities in the national context (Map 1).

When one uses the same map to analyse the intensity of traditional information and communication technologies (also know as 3.0 technologies) and 4.0 technologies, multiple and interesting insights emerge (Map 2). Most of the highperforming 4.0 regions exploit an existing edge in 3.0 technologies, showing that the degree to which technological expertise tends to accumulate over time is high. Moreover, more than 40% of regions do not contribute substantially to efforts to invent 4.0 technologies, highlighting the difficulty of closing a pre-existing technological gap.

However, the evidence shows that regions are able to leapfrog to exploit the 4.0 technological frontier even in the absence of a strong knowledge base on 3.0 technologies. These regions are the new islands of creative innovation and they exist thanks to zero marginal costs and low entry barriers to the market for new technologies. These areas are located both in relatively less innovative regions in leading countries (e.g. France, the United Kingdom, Sweden, the Netherlands and Germany) and in follower countries (e.g. the north-eastern and central regions of Italy, Norte in Portugal, and Pays Basquos, Aragona and Asturias in Spain). Even more importantly, they can be found in eastern countries and not only in capital regions (e.g. Poland, Czech Republic, Slovenia and Romania). Interestingly enough, the results also demonstrate that these islands of innovation are able to achieve productivity growth advantages thanks to their creative capacity.

Industry 4.0 and servitisation: growth opportunities

Once 4.0 technologies are produced and applied, significant transformations occur in the economy and society. One of the most commonly cited transformations is the advent of Industry 4.0, or the smart factory, based on cyber-physical systems (CPSs). CPSs comprise smart machines, storage systems and production facilities, able to exchange information, initiate actions and mutually control each other. Their interconnection via the internet, sometimes referred to as “the industrial internet of things”, generates technological leaps in engineering, manufacturing, material flow and supply chain management. A second well-known transformation is servitisation: this refers to the supply of services or products offered on virtual markets via digital platforms (e.g. Uber, Amazon, BlaBlaCar and eBay) that, managing billions of data, allow people to share their spare resources, offer new services and develop new businesses.

Servitisation is a typically urban phenomenon. It develops particularly in large metropolitan regions. Interestingly enough, this phenomenon is also present in the capital cities of eastern countries. Industry 4.0, by contrast, takes place in only a few regions in Europe, located mainly in Germany and, less intuitively, in northern Italy.

Some peripheral regions in northern countries – for example the United Kingdom with the exception of London and the surrounding area, certain Baltic regions, and regions in Norway, northern Germany and parts of the Netherlands – are going through digitalisation of services. E-commerce exists in these regions, but its exploitation is still limited and there are opportunities for further expansion.

Robotisation of traditional manufacturing is diffused in most regions in Europe; it is a typical lagging region phenomenon. Regions in France, Poland, central Italy, Spain, Finland and Sweden but also Hungary, Poland, Romania, Estonia and Bulgaria have either relatively high adoption of robots in traditional manufacturing sectors or have robotisation in certain niche sectors or activities. Generally, these regions show a very low adoption of 4.0 technologies and are specialised in tiny industrial sectors; they also have a very high risk of job automation.

" evidence shows that regions are able to leapfrog to exploit the 4.0 technological frontier even in the absence ofa strong knowledge base on 3.0 technologies. These regions are the new islands of creative innovation "

The adoption of 4.0 technologies generates growth opportunities. Through higher competitiveness across a large number of manufacturing industries, Industry 4.0 regions have a strong tendency to show a steady and significant increase in gross domestic product (GDP). The same applies to regions with advanced digital service markets. Through growth in both high-skilled jobs (e.g. for developers of apps for large digital intermediaries) and low-skilled jobs (e.g. for Uber drivers and home delivery riders) provided by digital markets, servitisation regions also have a strong tendency to show GDP growth.

Technological transformation and the COVID-19 pandemic

Advanced technologies have played a strategic role in limiting the spread of the novel coronavirus. Robots are used to disinfect hospitals, to deliver medicines in infected environments, to nurse infected people, to control the epidemic’s diffusion (through apps) and to collect data for epidemiological studies.

They also play a crucial role in limiting the negative effects of the lockdown and keeping society and the economy functioning. For example, distance learning, remote working and online forms of social entertainment have become vital to guarantee a minimum degree of economic activity and social life, and smart factories guarantee production (albeit to a limited extent) thanks to machine-to-machine communication and remote human control.