Digitalization and De-Digitalization: Investigating the Phenomenon of Declining Industry 4.0 Adoption Rates in German Manufacturing

This study analyzes firm-level data of the German Manufacturing Survey from 2015, 2018 and 2022 using cross-sectional analysis as well as panel analysis to assess the dynamics of Industry 4.0 (I4.0) adoption in the German manufacturing over the past decade. Our findings reveal that the pace of I4.0 adoption progress has slowed considerably between 2018 and 2022, when compared to the period from 2015 to 2018 - with overall growth dropping from 12 to just 5 percent since 2018. This decline is largely due to digital progress being concentrated in a relatively small number of firms, while most companies have stagnated. In addition, we find that the use of I4.0 technologies has declined among a relevant share of companies in recent years - a phenomenon we refer to as "de-digitalization". This de-digitalization is mostly found in small and medium-sized companies. Moreover, we see that labour productivity and sales growth are two relevant factors that significantly influence the degree of I4.0 progress of a firm in the long term.