Digitalization in the Food Industry: A Cross Country Analysis of Economic Performance
The food manufacturing industry confronts persistent challenges that force the sector to restructure its production and business scheme as the only alternative to survive. Current globalization trends in the food manufacturing sector, advocate towards the adoption of Information and Communication Technologies (ICT) that support the development of strategies while it helps enterprises to overcome challenges (Schiefer, 2004).
The industrial manufacturing sector is heading towards the fourth industrial revolution, whose main vision is process automation, value chain transformation and data exchange through the deployment of digital technologies and the Internet of Things (IoT) (B?ba, 2018).
In spite of the overall trend, the investment and the benefits of innovative technologies have developed in a smaller proportion in the food sector. (WEF, 2018).
Considering the above exposed arguments, the main purpose of this study is to determine if the adoption of digitalization technologies has a positive impact on economic performance of the food manufacturing industry.
To achieve this end, a cross-country analysis will be performed featuring panel data of Information and Communication technologies (ICT) and economic performance indexes of the food industry across the globe from the years 2010 through 2017.
The long-term goal of the research is to address the need of the food manufacturing industry to improve their performance at the same time they sustain value. The industry needs to adapt to constant changes using technological mechanisms that allow the proactivity demanded by all involved stakeholders.
The following sections of this literature review will be organized as follows. In first instance, the current challenges of the food manufacturing industry will be defined, and alternative solutions proposed by digitalization technologies. Subsequent, by digitalization will be defined alongside with the parameters of measurement, and consequent drawbacks.
Challenges for the food manufacturing Industry
Based on the increased global demands, enterprises that form part of the food industry are exposed to a higher level of challenges that must be overcome in order to continue operations. For instance, some of the challenges present in the food sector are: the increased standards and regulations for food production, quality assurance, supply chain reliability, retention of consumers trust, environmental control and processes efficiency (Schiefer, 2004).
For the reason of being part of the manufacturing sector the food industry is exposed to constant fluctuations in terms of supply and demand (Demartini, Pinna, Tonelli, Terzi, Sansone, Testa, 2018). Over the last years, enterprises in the manufacturing sector have recognized the importance of having a prompt responsiveness to sudden changes in the customer demands (Sieger, Badiru, Milatovic, 2000), mass customization, reduced time to market and product life cycles (Ramesh and Devadasan, 2007).
As a result of challenges across the industry, enterprises implement digital transformation strategies to innovate in terms of value and workflows (Shaughnessy, 2018). In this sense, enterprises in the food manufacturing sector need to re formulate their business models and operations to remain relevant.
By the means of digitalization, certain enterprises have expanded their business from being exclusively suppliers into offering a wide range of converging services in order to create and capture value (Lerch, C., Gotsch, M., 2015) (Bj?rkdahl and Holm?n, 2018). Also, enterprises are reinforcing their relationships with other stakeholders within the supply chain in order to establish further collaboration. (Bigliardi and Galati, 2013) and target towards internal and cross-company navigation by means of horizontal integration of the value creation chain supported by IT solutions. (Armengaud et al., 2017).
Over the past decades, the interest in exploring the impacts of digital technologies on companies as the importance of information and connectivity becomes increasingly evident.
The fourth industrial revolution, also referred to as Industry 4.0, seems to become true therefore enterprises seek to align themselves with the demands of the market to remain relevant. Industry 4.0 aims towards the introduction of digital technologies on process production, value creation and business models. In other words, implementing ICT, IoT and data technologies into the production lifecycle with the aim of transforming the business model while maintaining agility in respect to market changes and customer demands (Armengaud, Sams, von Falck, List, Kreiner, and Riel, 2017).Within this theoretical framework, digitalization is defined as the exploitation of digital resources and data, to restructure business operations and models with the purpose of creating revenue and improving business processes (Schallmo and Williams, 2018).
According to this precedent, digitalization emerged as a response to reduce production costs, accelerate innovation cycles, customize products, reduce workforce and materials inputs on production (Armengaud et al., 2017). From an economic perspective, digitalization proposes to increase productivity, increase revenue and reduce costs, and from this derives the great importance of its study.
Impact of digitalization in the manufacturing industry
The spread of digital technologies leads to significant productivity improvements on firms and long-term economic growth. Digitalization is considered to improve the performance, scope of the business (Westerman et al., 2011), increase flexibility, responsiveness and product customization (Rachinger, Rauter, M?ller, Vorraber, and Schirgi, 2018).
Notwithstanding the fact that digitalization arises as a prominent strategy to improve performance and profitability; it is an alternative that must be studied meticulously before implementation. If the digitalization strategy is not designed and executed thoughtfully it may lead into disruption of the established ways of doing the work of the enterprise, stakeholder power may be fundamentally changed, and there is potential for redefining the nature of the enterprise itself (von Kutzschenbach and Br?nn 2017). Companies trying to digitally transform themselves must start by defining their specific objectives, how they want to move forward and the KPIs they need to measure the progress of digitalization (Fernandez-Olano Castedo, Gonz?lez, Opitz, Pfirsching, 2015).
Disruptive introduction of newer manufacturing technologies makes regent technological investment obsolete in a very accelerated time lapse (Ramesh and Devadasan, 2007). And the use of innovative technologies leads to complex customer preference, legal preferences (Rachinger et. al 2018).
Due to the importance attributed to digital technologies, the studies that aim to find a measure to the impact of digitization have increased. Especially in regards of how developing countries can exploit ICT technologies to reduce gaps with industrialized countries regarding productivity and output (Mansell, 2001).
For the purpose of categorizing the ICT performance across countries various international organizations and institutions provide indexes that estimate the infrastructure and adoption of ICT technologies in countries, as an initiative to find areas of improvement.
The Network of UNESCO Chairs in Communication developed the Info state Index (Orbicom 2003), a conceptual framework index that measures the connectivity and ICT deployment across countries based on the following parameters: ICT Capital, ICT Labour, Uptake, and Intensity.
The World Economic Forum created he Network Readiness Index (WEF, 2004), a composite index that measures the propensity of countries to exploit ICT technologies from the parameters of: environment, readiness, usage and impact.
For its part, the International Telecommunications Union has developed several indexes over the last years. ICT Development Index (IDI) (ITU, 2017), a composite index regent through 2009 until 2017, based on the following parameters: readiness, use, capability and impact. DAI (ITU, 2003), measures the overall ability of individuals to access and use ICT based on quality, infrastructure, knowledge and affordability of ICT per country. DOI (ITU, 2018) is a benchmark index that aggregates the most valuable indexes of ICT, reporting on opportunity, infrastructure, utilization of ICT resources per country.
Academic literature has also developed and analyzed ICT indexes that contribute to digitalization from different perspectives. Hanafizadeh, Saghaei, Hanafizadeh, 2009 formulated an index that analyzed the digital divide across countries. Bruno, Esposito, Genovese, and Gwebu, 2011 analyzed several composite indexes that addressed ICT in order to measure digital divide.
In addition, academic literature has explored the impact of digitalization in academic literature. For instance, Evangelista, Guerrieri, and Meliciani, 2014, analyzed the impact of digital technologies on the economy of European countries. Medina and Miljanov?c, 2017, studied the value co creation in the food industry as a result of deployment of digital technologies. Wroblewski, 2018 studied the impact of digitalization in respect to the performance of enterprises, in order to determine if companies with advanced deployment of digital strategies have an advantage over their less advanced counterparties.
Nevertheless, current literature has not yet explored a high-level cross-country analysis of the impact of digitalization on the food industry. Which is relevant to study, given that several challenges appointed by the industry are attributed to digitalization. And throughout this study, enterprises will be able to determine if further investment on digitalization will help them improve their performance and productivity. Therefore, the aim of this study will be to reduce this gap in literature.
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List of On-Line Databases, Catalogs and Keywords
1 Scopus and Web of Science “Digitalization””Digitalization in the Manufacturing Industry””Process Automation””Investment””Digital Investment””ICT Index”Parameter of Search: Digitalization in finance Filters: (Subject: Business, Management and Accounting / Economics, Econometrics and Finance), (Source Type: Journals)
2 Google Scholar “Digitalization””Digitalization in the Manufacturing Industry””Process Automation””Investment””Digital Investment””ICT Index”Parameter of Search: Digitalization in finance Filters: (Subject: Business, Management and Accounting / Economics, Econometrics and Finance), (Source Type: Journals)
3 Official page of Journal of Intellectual Capital “Digitalization””Digitalization in the Manufacturing Industry””Process Automation””Investment””Digital Investment””ICT Index”Parameter of Search: Digitalization in finance Filters: (Subject: Business, Management and Accounting / Economics, Econometrics and Finance), (Source Type: Journals)