New Technologies in Lithuania’s Industry – When Will We Reach the Leaders?

Important | 2023-12-06

Researchers from the Faculty of Economics and Business of Kaunas University of Technology (KTU EVF), as part of the “In4Act” project, discussed new technologies, the impact of “Industry 4.0” on management practices and the economy, and the transformation to “Industry 5.0” in the final event of the project.

The discussion began with an analysis and evaluation of signs of industrial transformation and the final establishment of ICT technologies in society and business logic. Professor Monika Petraitė noted that ICT technologies have been shaping global competitiveness and the logic of societal organization for almost forty years, culminating in Industry 4.0. According to the indicators of the European Broadband Portal (EBP), Lithuania has long maintained leadership in the penetration and accessibility of broadband Internet – both financially and economically worldwide. However, in terms of the number of contracts per 100 inhabitants, compared to Estonia, a global leader exceeding the OECD average by 200 percent, Lithuania has fallen behind by almost 80 percent points, gradually approaching the global average. From the perspective of technological wave development, this has created a robust infrastructure for the development of a digital society and the implementation of digital transformation tools in industry and business. However, the pace of progress has not been uniform, and today we can only speak about leading sectors whose digitization was driven by the accumulation of virtual reality capabilities and the creation of a favorable legal framework that facilitated capital attraction for the development of such sectors. Julita Varanauskienė, Deputy Chairperson of the Board of the Bank of Lithuania, noted that the financial technology and engineering sectors were particularly successful.

Nevertheless, as the discussion continued, Julita Varanauskienė pointed out that Lithuania is facing the challenge of rapid income growth, which is greater than the added value growth in industry and business. Over the past 20 years since Lithuania joined the EU, average income has reached 90 percent of the EU average, increasing by 40 percentage points during the same period. According to both the Bank of Lithuania and international experts, the main factor determining the success of such rapid economic “catch-up” was the education and skills of the population at all levels of work complexity. In other words, the proportion of the population with higher education, qualified workers, and specialists in science and technology, who created the sources of rapid prosperity growth using traditional competitiveness factors such as cheap labor, raw materials, and energy. However, whether we are ready for the arsenal of the digital economy remains to be discussed.

Fruits hanging low are already written off

“Although for a long time one of the main competitive advantages of Lithuanian industry was cheap labor, today these low-hanging fruits are already written off. Our manufacturers say that competing on price is becoming increasingly difficult – both due to labor costs and energy costs. I think any pressure forces us to look for solutions, so gradually, from a country with cheap labor, we become creators of higher value-added products and, accordingly, more sophisticated market participants,” says J. Varanauskienė. On the other hand, inadequate digitalization and Industry 4.0 capabilities accelerate the lag of some businesses. In other words, digitization accelerates both the growth of competitiveness and the loss of it. As KTU EVF Professor Mantas Vilkas notes, comparing the development of digital technologies in Lithuania and other countries, Lithuania is still in the middle of the digitalization category. According to the scientist, in terms of the spread of digital innovations, we cannot yet assign ourselves to the category of leading countries, but we have also come a long way from lagging countries.

“For example, enterprise resource planning (ERP) systems in Germany and Austria are used by about 75 percent of companies, while in Lithuania, this figure is only 40 percent. Robotic systems are integrated into the activities of 40 percent of businesses in Germany and Austria, while in Lithuania, this number reaches only 17 percent. At least one artificial intelligence solution is applied by more than 10 percent of companies in Western European countries, while in Lithuania, this number is only 4 percent,” says the professor. Thus, the advantages offered by the digital economy remain unused in business, pushing “average” companies into an unfavorable competitive position.

It is necessary to focus on creating industry leaders shaped by the reality of digital production

Tomas Jaskelevičius, the leader of the leading Lithuanian engineering industry company “Arginta Engineering,” sees another problem in this context – some Lithuanian companies have acquired digital business management systems but do not use them. The practical insights of the entrepreneur, conversations with companies show that only 19 percent of manufacturing companies in Lithuania effectively use various ERP systems.

“Lithuania’s industry still does not exploit its full potential. By applying the right technologies, we have the opportunity to double or even triple the export of engineering industry. However, some of the staff will need to be retrained, imbued with digital knowledge, but Lithuanians are entrepreneurial and will find solutions. I believe that the next decade will be our golden age when we will no longer be average but industry leaders,” says T. Jaskelevičius. However, this requires encouraging progressive engineering companies, which have already proven their competitiveness with export indicators and the expansion of international operations since today. These companies can create high-value manufacturing clusters, high-quality competitive jobs, thus accelerating digital industrial transformation in the entire sector, including small and medium-sized businesses. The development of digitalization and Industry 4.0 management skills becomes a critical factor here to increase the added value of exports, along with specific support measures for strengthening exporting businesses in the development of technology, innovation in business, and transition to the category of technology creators and exporters. Nevertheless, we have little time for this change, as the “window of opportunity” for rapid added value and leading positions in global value chains is limited in time. As soon as the constantly growing costs of skilled labor reach the level of developed EU countries, this unique opportunity will be exhausted, and we will have to rely on standard competitiveness factors dominant in high-income countries, such as R&D and innovation in business, and transition to the category of technology creators and exporters. A critical mass of workers with digital engineering skills is crucial for implementing these changes now, and it is necessary to allocate resources for both the education of new employees and the regular updating of existing qualifications in the context of Industry 4.0 needs.

Internet of Things and Artificial Intelligence

Continuing the discussion about global trends in “Industry 4.0” and “Industry 5.0,” Morteza Ghobakhloo, a researcher from the “In4Act” project, says that not all digital and robotics technologies applied in companies can be considered innovations. Some of these technologies have already become an integral part of business. “Today, we can consider the Internet of Things and artificial intelligence solutions as innovative and important technologies in business. The integration of artificial intelligence into various business processes can increase competitiveness and help approach the leading economies of the world,” says the researcher. However, digital workers also have their own risks.

Artificial intelligence and the reality of the digital economy also have their own risks

Nevertheless, today’s technologies, providing great benefits and efficiency, also generate various risks. Peiman A. Sarvari, a researcher in the field of industrial engineering, identifies three areas where new technologies can face ethical challenges. “First of all, due to technological accessibility and the possibilities of remote work, Lithuanian companies will find it increasingly difficult to attract employees without offering new and relevant values and meanings to employees. Second, businesses that do not invest in Industry 4.0 solutions today may find it difficult to adapt and adjust quickly to the new reality. The development and application of artificial intelligence and other digital technologies at the EU level, which is inevitable and will require appropriate investments,” says the researcher. Thus, businesses will be forced to seek investment resources, thus strengthening and increasing the level of competitiveness for additional profit necessary for these investments, generating. At the same time, if today Europe is characterized by one of the most advanced DI regulation packages, and other countries are aligning with it, changes in regulatory changes can change this globally important advantage, which can encourage the transfer of research developed by the most innovative companies to other countries. Here, too, we need to take action to develop digital society and artificial intelligence literacy in all layers and age groups of society, provide democratic and accessible DI tools for all, while ensuring the ethics of technology application.

The discussion was organized by the researchers of the KTU School of Economics and Business and the “In4Act” project, funded by the European Union Horizon 2020 project. More about “In4Act”: