1 Introduction: Background and Contemporary Mega-Trends in Industrial Development

Since the era of the First Industrial Revolution in the eighteenth and nineteenth centuries when steam-driven production methods were introduced and disseminated, industry has been continuously evolving [32]. The landscape of industrial development has again changed significantly in the first 20 years of the twenty-first century, with the emergence of distinct mega-trends such as globalization, digitalization, a series of unexpected large-scale external shocks including the Coronavirus Disease 2019 (COVID-19) pandemic and growing international concerns about the environmental and social impacts of development.

The shape of industry is also rapidly changing with new technologies, globalized production processes, and diversification of product needs coming to the fore. However, it is not clear how these changes affect the content and basic functions of industrial policy, as well as the process of its formulation and implementation in developing countries. We need to know what has been changing and what has not in industrial policy, in particular in developing countries. In this situation, Aiginger and Rodrik [2] point out a variety of trends that have contributed to renewed interest in industrial policy after a period of decline and summarize the general principles of this policy for the twenty-first century.

In seeking to answer these questions, this chapter first captures the mega-trends of industrial development that have become clear in the first 20 years of the twenty-first century and discusses related industrial policies and development partner intervention. It then examines the challenges and opportunities for developing countries in the face of contemporary mega-trends and how industrial policy should/would change in association with such trends. This is followed by a concrete case study of the automotive sector. Finally, it concludes with some lessons for the future of industrial policy and draws implications for Japan’s industrial policy support to developing countries. While the chapter mainly deals with the manufacturing sector, the analysis is not necessarily limited to that sector, depending on the nature of each topic. As the manufacturing sector itself is also evolving as a result of on-going changes, the chapter takes a broader perspective which can be described as ‘manufacturing and beyond.’

To provide the background for the chapter, the rest of this section summarizes four mega-trends around industrial development: (i) globalization; (ii) digitalization; (iii) global external shocks including COVID-19; and (iv) the growing environmental and social concerns about industrialization (see Table 10.1).

Table 10.1 Major contemporary mega-trends around industry discussed in this chapter
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The first mega-trend is globalization. In the last two decades or even in the last two centuries, globalization has been going on in various ways and has accelerated further recently. Technological progress and the resultant dramatic increase of affordable transportation and communication means have contributed to advancing globalization. From the industry viewpoint, the emergence of global value chains (GVCs) is one of the most significant structural changes involving developing countries. The evolution, diversification, and fragmentation of GVCs provide a great number of opportunities for developing countries to penetrate international production networks with huge global markets. The promotion and facilitation of foreign direct investment (FDI) and international trade is however required to enhance GVCs. To reduce the barriers for international trade and investment among countries, a large number of Free Trade Agreements (FTAs), Economic Partnership Agreements (EPAs), and Bilateral Investment Treaties (BITs) have been established. Industrial policies to cultivate the fruits of globalization have also been further activated and expanded to achieve export-oriented and FDI-led industrialization. Meanwhile, globalization incorporating GVCs, FDI, and FTAs may also create the risk of developing countries being left behind through global competition.

The second mega-trend is digitalization. The rapid evolution of electronic technology and the consequent emergence of information and communications technology (ICT) have dramatically changed the shape of industries in the world, in both developed countries and developing countries at the same time. Several innovations, new industries, and epoch-making business models as represented by the global giant platforms have been emerging. Existing industries have also been experiencing significant changes through digital transformation (DX). Digitalization has a strong power to transform industries in the world and has resulted in significant transformation up to the level of a revolution. This is the Fourth Industrial Revolution (4IR), and it is based on networked virtual production systems, represented by Industry 4.0. It is associated with up-to-date technologies such as the Internet of Things (IoT), Artificial Intelligence (AI), robotics, 3D printing, and big data. It will have significant impacts in the next decade, although industrial policies to utilize this new trend are still under-developed, especially in developing countries. For example, digitalization provides significant and wide opportunities for developing countries and startups in the world to utilize digital technology at an affordable cost and sometimes create more advanced businesses than developed countries and established industries. This is because developing countries may be able to offer flexible opportunities for proof of concept (PoC) of new businesses and new technology applications due to their abundant social needs and their less rigid regulatory frameworks. There is also the chance that innovations born in developing countries can flow back to developed countries and spread in their markets. These phenomena are often described as leapfrogging and reverse innovation.

The third mega-trend is global external shocks as exemplified by the COVID-19 pandemic. Industry has been heavily hit by global-wide unexpected external shocks irregularly during the past 100 or so years. The latest large one is COVID-19, which was declared as a pandemic in March 2020 and the world is still fighting against this extra-ordinary large-scale disruption as of 2022. Even though their impacts were less than those of COVID-19, several other epidemics have also affected human lives and industries in the last two decades (for example, SARS, Avian Flu, Swine Flu). Furthermore, there have been other unexpected external shocks with strong negative impacts. These include natural disasters such as earthquakes with tsunami, cyclones/hurricanes/typhoons, floods/landslides, forest fires, and conflicts and wars such as the one in Ukraine by invasion of Russia in 2022. Other unexpected external shocks that need to be considered are the economic ones. The largest of these in the last two decades was the 2008 global financial crisis.

All these unexpected external shocks have tremendous negative impacts on industries in developing countries from both demand and supply sides. At the same time, they create unique opportunities for new industries and innovative businesses. From the policy aspect, measures to ease pain and assist their survival are immediately needed and must be provided; but later more positive policies to nurture new industries and innovative businesses should also be considered. Finally, policies to strengthen the resilience of industries may be introduced to allow for future unexpected external shocks.

The fourth mega-trend is the growing environmental and social concerns about industrial development. Sustainable and inclusive development objectives are becoming mainstream not only in the international development community but also in the private sector, especially after the Sustainable Development Goals (SDGs) were adopted at the United Nations General Assembly in 2015 and disseminated around the world. The four mega-trends are summarized in Table 10.1.

The remaining sections of this chapter focus on each of these mega-trends and add an exclusive section for a case study of the automotive sector and a final concluding section. These mega-trends do not necessarily exist alone, they are closely interlinked. For example, COVID-19 accelerates digitalization, GVC sophistication and environmental/social-friendly enhancement; and digitalization provides solutions to COVID-19 and GVC networking.

2 Renewed Interest in Emerging Global Value Chains (GVCs)

2.1 Overview of GVCs

The Organisation for Economic Co-operation and Development (OECD) [29] describes GVCs as being ‘where the different stages of the production process are located across different countries.’ Inomata [18, p. 36] defines GVCs as production and consumption networks in the global game to create and distribute values. The theoretical framework of GVCs has been conceptualized based on accumulated works such as those of Gereffi et al. [6] who identified the five types of GVC governance as hierarchy, captive, relational, modular, and market. Recently evidence-based research has been attempting to recognize how GVCs work in the developing country context. The World Bank [36] World Development Report 2020: Trading for Development in the Age of Global Value Chains suggests that GVCs powered the surge of international trade after 1990 and they now account for almost 50% of global trade. The Bank suggests that GVCs have helped poor countries grow faster over the past 30 years and a 1% increase in GVC participation is estimated to boost per capita income levels by more than 1%, which is almost twice as much as conventional trade.

One of the most significant concepts behind GVCs is ‘fragmentation,’ which means specialization of the various production processes in multiple countries. This fragmentation allows developing countries the opportunity to participate in part of a GVC without having a full set of production capabilities. In this regard, value chain management through the initiative of multinational enterprises (MNEs) throughout the whole process, and the network infrastructure such as transportation and communication channels, becomes important.

GVCs are composed of chains of value-added processes from upstream to downstream around the core production process, such as research and development (R&D), design, logistics, production, distribution, sales, and services. Generally, there is a tendency for value added in the core production process to decrease while value added in the upstream and downstream processes increases over time. Along with such tendencies, how developing countries associate with this ‘servicification’ of the manufacturing process [7] is important because they need to avoid the ‘race to the bottom’ in lower value-added production processes and can secure more benefits from higher added value processes in the upstream and downstream of GVCs.

2.2 Industrial Policies in Developing Countries in Relation to GVCs

The World Bank [36] suggests that national policies can boost GVC participation. More concretely, GVCs can continue to be a force for sustainable and inclusive development if developing countries speed up trade and investment reforms and improve connectivity, but at the same time only if advanced economies pursue open and predictable policies. It also suggests renewed interest in GVCs due to their larger contribution to growth as follows: ‘In contrast to the “standard” trade carried out in anonymous markets, GVCs typically involve long-term firm-to-firm relationships. This relational nature of GVCs makes them a particularly powerful vehicle for technological transfer along the value chain. Firms have a shared interest in specializing in specific tasks, exchanging technology, and learning from each other’ [36, p. 70].

For developing countries to pursue trade and investment reforms and improve connectivity for better GVC ecosystems, a standard policy menu for investment and trade promotion and facilitation is required, including trade/investment regulatory reform for further liberalized and simplified ecosystems, capacity development of investment/trade promotion agencies, hard and soft infrastructure improvement, special economic zone development, and customs reform. In other words, a broad-based ‘horizontal policy’ is indispensable. Also, policies for securing GVC benefits for developing countries need to be considered. These GVC benefits include: (i) job creation; (ii) technology transfer (typically from MNEs to local partners); (iii) capital inflow; (iv) backward linkage establishment; and (v) spillover effects in the local economy.

As the GVC’s nature is fragmentation and they offer selective participation in certain industries, policy to set priority industries may also be needed. In other words, ‘vertical policy’ focusing on a specific industrial sector is significant. At the same time, fragmentation suggests that there is much room to have divestment if a host country that participates in a particular segment of a GVC does not maintain or improve the advantages for footloose type investors. For example, wage standard setting is quite important but requires sensitive policies to balance securing job welfare for people while maintaining competitive labor costs for investors.

Thus, while GVCs provide wide opportunities for developing countries to earn the benefits mentioned above, there is also a risk that developing countries may be left behind in global competition if they cannot secure a position in the global production network. Developing countries should not rely heavily on the benefits brought by the GVC leaders such as MNEs; they should also put further effort into their industrial policies to grow local industries potentially linked with the GVCs. Regarding FDI-based GVCs, a country is not in a position to choose those GVCs; rather, FDI or GVC lead firms are in a position to choose countries.

2.3 Donors’ Intervention in GVC-Related Industrial Policy

Donor intervention in GVC-related industrial policy has been evolving in response to the rise of GVCs in developing countries. The Japan International Cooperation Agency (JICA) has been working on GVCs in developing countries by assisting supporting industries (parts and component industries), especially in the second tier and third tier in the pyramid of the automotive industry under car manufacturers. Having a careful look at firm-to-firm relationships in the GVCs of the automotive industry, JICA has been conducting technical cooperation in Thailand, Indonesia, Philippines, Mexico, and South Africa. Katai [24] finds some evidence of a positive relationship between GVC lead firms’ evaluation of quality/cost/delivery (QCD) levels and the supplier firms’ position in GVCs in Mexico. This is good evidence to support the importance of firm-to-firm relationships, as mentioned in the World Bank report [36]. The report suggests that ‘firm-to-firm relationships’ are a distinct feature of GVC-based trade compared with traditional trade. Meanwhile, as suggested above, investment reform is an integral part of industrial policy related to GVCs. JICA has been supporting investment reforms in many countries but mainly in Southeast Asia, South Asia, Africa, and Eastern Europe. Parts of this JICA support are quite comprehensive and include dispatch of an investment promotion policy advisor to its investment promotion agency (IPA), support for investment policy reform with long-term investment promotion plan development, legal/regulatory framework upgrades, capacity building of IPAs, investment climate reform, special economic zone (SEZ) development, economic infrastructure development, public–private partnership frameworks, and so on.

For more deeply related intervention in GVCs, JICA implements technical cooperation on selected industries that rely on GVCs, such as in the automotive and electric/electronics industries, and in some countries such as Indonesia and the Philippines. In cooperation with these countries, GVC analysis is conducted (see Fig. 10.1). This shows local parts makers are involved in the production process together with auto makers; but in other upstream and downstream processes, they are less involved, and value is not added locally. Furthermore, in the case of Indonesia, the JICA study team assisted the secretariat for inter-ministerial coordination on industrial policy to provide hands-on policy inputs including the good practices of neighboring countries in response to actual needs. This hands-on support, which corresponds to ‘translative adaptation processes’ [31], was welcomed and created some successes such as the realization of a new tax incentive scheme for accelerating R&D and human resource development for several designated industries including the automotive industry.

Fig. 10.1
An illustration of the G V A analysis. It includes automaker, parts maker tier 1, and parts maker tier 2 in upstream, midstream, and downstream. The factors in the midstream and downstream are mostly involved. The factors of the upstream are not much involved.

(Source JICA and NRI [22]. Abbreviations Original Equipment Manufacturer [OEM]; Original Equipment Supplier [OES]; Purchase Order [PO]; Request for Quotation [RFQ])

Status of GVCs in the Automotive Sector in Indonesia

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Subsequent to these recent attempts to support GVCs, the nature of JICA’s intervention has been changing. First, JICA’s intervention is widening from a focus on production process in global supply chains to include those out-of-production processes that add more value, such as R&D, design, and affiliated services. Second, the target of its intervention is expanding from isolated individual parts manufacturing small and medium-sized enterprises (SMEs) to more structured groups involving both the parts/components local industries and the assemblers of the finished product.

As pointed out earlier, the World Bank has adopted GVCs as their main topic [36], and the OECD has been pursuing GVCs and conducting international research projects. The Donor Committee for Enterprise Development (DCED) collects donor interventions in value chain development and shows that many European donors focus more on GVCs in the agro-processing industry, while Japan focuses more on the automotive industry. DCED [5] also shows that the activation and appropriation of market mechanisms, logistics improvement, actor analysis, environment and social considerations, and Corporate Social Responsibility (CSR) are the key elements of donor interventions related to GVCs in developing countries.

3 Industry 4.0/Fourth Industrial Revolution

3.1 Overview of the Fourth Industrial Revolution/Industry 4.0

The Fourth Industrial Revolution (4IR) is recognized as introducing ‘smart applications that integrate virtual and physical production systems,’ following the First Industrial Revolution (1760–1900) that pioneered the use of steam and mechanically driven production facilities, the Second Industrial Revolution (1900–1970) that was based on mass production driven by electricity and the division of labor, and the Third Industrial Revolution (1970–present) that brought extensive use of controls, information technology, and electronics for an automated and high-productivity environment ([1], based on [32]).

The term Industry 4.0 is sometimes used interchangeably with the term 4IR. The idea of Industry 4.0 (Industrie 4.0 in Germany) was established in Germany around 2013 through the initiatives of German manufacturing and other industries backed by the government. Putting the IoT and Cyber Physical Systems (CPS) as its core, Industry 4.0 harnesses the three concepts of connecting, replacing, and creating to achieve more efficient production and productivity improvement [28]. The United States (US) followed the German movement, and the Industrial Internet Consortium was created.

A World Bank publication by Hallward-Driemeier and Nayyar [7] shows that the top 10 technologies associated with Industry 4.0 are: IoT, big data analytics, 3D printing, robotics, smart sensors, augmented reality (AR), cloud computing, energy storage, AI/machine learning, and nanotechnology. Utilizing such digital technologies, the idea of 4IR/Industry 4.0 is being tested and/or has already materialized in global industry.

Although these trends originated in developed countries, developing countries, in particular relatively advanced ones, are also getting involved in Industry 4.0. Mischke [27] demonstrates that developing economies are beginning to close the gap through rapid adoption of new technologies starting from a low base as shown in the growth of the Country Digital Adoption Index. Some of the technologies with Industry 4.0 such as AI have become more easily available even in least developed countries such as those in Sub-Saharan Africa. On the other hand, close to 50% of tasks could be automated by 2030, affecting 760 million workers in emerging economies [27]. The digital divide, which currently means four billion people in the world being outside the digital economy, may become more serious especially in developing countries. It is thus important to analyze the pros and cons of the impact of 4IR on the future of developing countries.

3.2 Industrial Policies in Developing Countries in Relation to Industry 4.0

In response to the rapidly growing interest in 4IR in western countries, several countries in Asia have been trying to accommodate this movement into their respective national policies. In 2015, China set forth ‘Made in China 2025,’ which is based on innovation of manufacturing as a target using digital technologies. In 2016, Japan advocated the concept of ‘Society 5.0’ in its science and technology plan as the cyber-physical integrated social system for human-centered society that fully utilizes IoT, AI, and robotics to provide solutions. Society 5.0 is considered as the next society following Society 1.0 (hunting), Society 2.0 (agriculture), Society 3.0 (manufacturing), and Society 4.0 (information). It is considered that Japanese industry has strength in ‘integral architecture’ when manufacturing products are built from many parts with optimal adjustment thanks to its technological capability. However, ‘modular architecture,’ which is the simple assembly of units with less coordination than the ‘integral architecture,’ is becoming more mainstream in the global digitalization era [25]. Japan needs to reconsider how to survive in the era of 4IR with digital technology and a systemic approach.

Meanwhile, several Southeast Asian developing countries have published national industrial policies inspired by Industry 4.0. These include ‘Thailand 4.0’ in 2015, ‘Making Indonesia 4.0’ in 2018, and ‘Malaysia’s National Policy on Industry 4.0’ (Industry 4WRD) in 2018. While these policies have the contents and flavor of Industry 4.0, they are considered as updated versions of more comprehensive national industrial policies.

These policies demonstrate the positive impacts of Industry 4.0 as a key driver to create innovation, raise efficiency, and improve the productivity of industry. However, negative concerns such as job opportunity loss due to the introduction of up-to-date automation technologies, and safety and data security issues caused by the new technologies, tend to be left out of their consideration. The DCED Annual Conference held in 2019 discussed Industry 4.0 as its main topic on private sector development in the age of digitalization. The conference summarized great opportunities for developing countries’ development through innovation in the private sector including startups geared by digitalization and Industry 4.0 type technologies. At the same time, it voiced concerns about the possible negative effects on job markets caused by AI and automation and stressed the need for education and vocational training to meet the emerging requirements for digital skills. The United Nations Industrial Development Organization (UNIDO) suggests that 4IR technical cooperation including convening/awareness raising, road mapping and policy advice, readiness analysis and Industry 4.0 observatory, demonstration, learning and innovation centers, Industry 4.0 absorptive capacity building, and international twinning [26] should be made available to developing countries.

Essentially, renewed industrial human resource development should be the key in developing countries. Advanced Southeast Asian countries such as Thailand, Malaysia, and Indonesia are already faced with rapid increases in the cost of labor and the emerging necessity for accelerating automation and factory IoT [22]. Industrial human resource development is needed to support human resource shifts from simple labor-intensive workers to advanced technological engineers. In any developing countries including those in Sub-Saharan Africa, there is also increasing demand for fostering entrepreneurs who can start digital technology-driven businesses using AI, IoT, and big data. But this requires earlier education and training in advanced ICT. Industrial policy should accelerate this dynamic shift of industrial human resources by providing learning opportunities for digital technology/system engineering at higher education or technical and vocational education and training (TVET) level, and the skill development opportunities for technicians in industry, and by establishing a fiscal/non-fiscal incentive framework for enhancing such opportunities.

3.3 Japan’s Possible Intervention in Industry 4.0

Industry 4.0 is still new even in Japan, particularly in its technical cooperation with other countries. Under such a situation, what can Japan or JICA contribute to adding value in this area? JICA conducted a ‘Data Collection Survey on Upgrading Manufacturing Industry using the Latest Technology’ in 2019–2022 with some field surveys in target countries such as Thailand, Vietnam, Indonesia, Malaysia, and Myanmar, as well as literature surveys of benchmark countries such as Germany, the US, China, India, and Japan. The survey’s purposes are: (i) analyzing the impact of rapidly advancing new technologies in industrial development; (ii) mapping out the current situation of Industry 4.0 in selected Asian countries; and (iii) proposing plans for the cooperation program of JICA in this area [21].

The survey found that the industries in the target countries are generally not fully equipped to accommodate Industry 4.0 developments such as IoT. Nevertheless, it has identified some trial cases and potential needs. The survey also found that Industry 4.0 has an affinity with Kaizen,Footnote 1 which: (i) has the distinct feature of data visualization (for example, visualized data chart posted in each factory shop floor to be shared among the staff in Quality Control Circle: QC Circle); (ii) originates from statistical quality control; and (iii) is fairly well disseminated in the surveyed Southeast Asian countries [9]. JICA et al. [21] also suggest that 4IR is something that should be implemented based on the foundation of Kaizen, otherwise redundant processes would be brought into digitalization and the IoT network, preventing efficient realization of 4IR. Figure 10.2 illustrates 3 steps/criteria to achieve advanced manufacturing or 4IR including (i) data driven, (ii) digitalization, and (iii) connectivity (network), and Kaizen works on the transition from being data driven to digitalization. It is suggested that Kaizen has ‘renewed value’ in the Industry 4.0 and digitalization era. Furthermore, Japan may have a comparative advantage over other countries in certain areas of manufacturing industries, in particular robotics and factory automation where hardware technology and software technology are fully integrated. These areas could be prioritized and promoted.

Fig. 10.2
An illustration of the three criteria includes data-driven, digitalization, and connectivity. The 3 criteria include data acquisition, data accumulation, data analysis, decision or prediction, reflection or control, and autonomous or self-organization.

(Source JICA [21]. Abbreviations Business Intelligence [BI]; Database [DB]; Enterprise Resource Planning [ERP]; Factory Automation [FA]; Manufacturing Execution System [MES]; Materials Requirements Planning [MRP]; Programmable Logic Controller [PLC]; Supply Chain Management [SCM])

Roadmap Towards Advanced Manufacturing and 4IR and Status of Elemental Technologies, Featuring the Function of Kaizen

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As was shown previously, Industry 4.0 is still new from a viewpoint of technical cooperation. While there is a great potential for Japan to contribute to this area, it has not yet developed policies to make this future concept a reality. Therefore, it seems that a co-learning and co-creation approach is needed and is suitable rather than the traditional type of one-way technology transfer. It should be appropriate for Japan and host developing countries to think and learn together about how to accommodate Industry 4.0, utilizing a hands-on approach with a problem-solving methodology such as Kaizen.

4 COVID-19 and Industrial Development

4.1 Overview of the COVID-19 Pandemic

The World Bank [38, 39] suggests that world real GDP growth in 2020 was -3.5% and that COVID-19 is likely to cause a global recession whose depth is surpassed only by the two World Wars and the Great Depression over the past century and a half. World trade volume decreased by 8.3% in 2020 compared with the previous year. The International Labour Organization (ILO) [17] confirms the massive impact that labor markets suffered in 2020 with 8.8% of global working hours being lost in the whole of last year (relative to the fourth quarter of 2019), equivalent to 255 million full-time jobs or approximately four times greater than the number lost during the 2008 global financial crisis.

In a nutshell, industry in the world has heavily suffered from COVID-19 through a massive economic slump, huge demand losses, trade volume losses, liquidity losses, job opportunity losses, and difficulties in access to finance. Developing countries of course faced all these problems even before the COVID-19; but the picture has become worse, up to a fatal situation, due to COVID-19. The ILO [16] reveals that enterprises in the surveyed developing countries claim they stopped operations due to COVID-19 (70% of respondents), experienced a shortage of cash flow (86%), and received less than half the number of orders compared with before-COVID-19 (33%). Furthermore, GVCs were damaged and/or interrupted due to massive lockdowns affecting national borders and factories, less human mobility, a mismatch in demand and supply, a logistics slump due to demand loss, and concern for the rise of protectionism as against free trade regimes. Thus, the benefits of GVCs for developing countries have deteriorated.

On the other hand, this unprecedented global crisis also provides positive impacts for industry. First, extra-ordinary immediate demands are created for certain products; in particular, medical products such as masks, gloves, personal protective equipment (PPE), and ventilators. Second, digitalization and DX have accelerated to meet the huge demand for remote working, contactless procedures, and automated production. Third, a wide variety of new technologies called ‘Corona-Tech’ are being rapidly developed, especially by startups, to solve the huge social issues created by COVID-19. Fourth, due to the interruption of GVCs and general trade, local production with tailor-made technology and home-grown solutions is being enhanced.

4.2 Policy Support in Response to COVID-19

The world is being forced to devote massive resources to alleviate the negative impact caused by COVID-19. The World Bank [37] suggests a three-stage investment climate policy support in response to COVID-19: (i) relief; (ii) restructuring; and (iii) resilient recovery. Initially, immediate action is required to mitigate shocks and short-term financial schemes should be provided for mainly SMEs and for job security. The ILO [16] reveals that enterprises in the surveyed developing countries need support in the form of business continuity advice (50% of respondents), advice on export and logistics restrictions and requirements (38%), and other information. In the restructuring stage, policy support for restoring their businesses and accelerating their reopening through policies to enhance demand are required. Finally, in the resilient recovery stage there is a need to secure a firm foundation and ‘build back better.’

JICA has formulated a framework for supporting its private sector development (PSD) program in response to COVID-19 [23], cited in [10]. This framework identified four major consequences of COVID-19 in relation to PSD, namely: (i) lost cash flow; (ii) damaged supply chains; (iii) emerging demand for medical/sanitary products and business continuity/contingency planning (BCP) of local SMEs; and (iv) demand for a ‘new normal.’ In response, JICA has been providing: (i) emergency financial support; (ii) support for supply chain rebuilding by business development services (BDS) and new technology; (iii) support for BDS/Kaizen; and (iv) innovative startup support.

One such example to associate with the above (iv) is JICA’s startup support overarching program, called Project NINJA, which stands for ‘Next Innovation with Japan.’ One of the achievements of Project NINJA is a business contest in 19 African countries to provide support for startups and the acceleration of new businesses in response to COVID-19, such as remote medical services, infection information delivery, remote business/education tools, online sales, logistics/delivery systems, and other Corona-Tech-based business. It supports proof of concept (POC) for the winners for their business ideas and had attracted 2,713 applicants from 19 African countries by August 2020.

Each donor agency has created a COVID-19 specialized website. DCED created one of the fastest knowledge portals on its website called ‘Private Sector Development and COVID-19,’ immediately after the pandemic declaration in March 2020. The portal provides useful content such as: (i) information on socioeconomic impacts and national responses; (ii) how to adjust PSD interventions in the short term (a greater focus on: (a) conducive investment policies/procedures; (b) tax relief or other measures to ease the financial burden on businesses; and (c) digitalizing administrative procedures); (iii) promoting economic recovery and resilience; and (iv) building agency knowledge portals, statements, and funding activities.

In the area of investment promotion, in response to COVID-19 and a sharp decrease in newly announced greenfield investment due to economic turmoil and moving difficulties, many investment promotion agencies (IPAs) in the world have attempted to tackle this situation. In the initial phase of COVID-19, IPAs were required to take care of existing investors to secure their businesses by facilitating their daily activities which were heavily affected by the COVID-19 pandemic by, for example, labor management, visa extension for home country staff and other immediate means. In the next phase of the pandemic, fresh greenfield investment is still difficult. But, as a short-term measure, IPAs might consider working with some of the existing investors who have already roots in the host country and are interested in reinvestment or investment extension to capture rapidly growing demand for certain commodities and provide home-grown solutions to address cross-border trade difficulties. After surviving these phases, IPAs could consider, as mid-term measures, greenfield investment attraction for those who seek business information on a remote basis.

A JICA project in support of investment promotion in Bangladesh has been taking these staged approaches. The previously mentioned 3-step phased approach of the World Bank Group [37] (relief, restructuring, and resilient recovery) is based on a similar idea. It is also important to identify priority investment sectors in the light of new demand in the era of COVID-19 and beyond. It is also useful to identify strategically important sectors that may have a larger impact on people’s lives but need emergency assistance from the government. The JICA investment promotion project in Bangladesh provides analysis and suggestions for identifying such investment sectors [11].

Meanwhile, JICA’s Kaizen project in Tunisia produced a video clipFootnote 2 that summarizes how Kaizen can contribute to the response to COVID-19 through work environment improvement (see Chap. 7 for a description of the Kaizen project in Tunisia). JICA’s cooperation ‘Japan Center’Footnote 3 in several Asian countries also created e-learning materials on how to sustain the on-going business through Kaizen, management strategy and human resource management.

4.3 Resilience and Future Pandemic and Other Challenges

As discussed in the above, COVID-19 has been one of the heaviest shocks in the present century but similar pandemic and other unexpected external shocks including natural disasters may attack industry again in the future. At the same time, there are some new positive opportunities for the future such as Corona-Tech. What is required in preparing for such anticipated events is to enhance the resilience of industry. To strengthen resilience, the recovery process is quite critical. Many donors call for ‘build back better,’ which is exactly suited to the purpose of strengthening resilience. The Europian Union (EU) has set policy on green recovery for this stage to realize ‘build back better.’ It is crucial for the world including developing country governments to draw-up comprehensive recovery plans involving various sectors horizontally and deepening each sector vertically. In a nutshell, the COVID-19 experience shows that industrial policy in developing countries needs to take this opportunity to accelerate transformation in the short run, and to strengthen the resilience of industries in the long run.

5 Environmental and Social Response in Industrial Development

5.1 Overview of the Environmental and Social Response in Industrial Development

The role of industry in contributing to the SDGs and supplying solutions for environmental and social issues is increasingly attracting attention as Aiginger and Rodrik [2, p. 191] note: ‘an increased focus on societal and environmental goals is necessarily raising questions about industrial policy as it shapes the structure of economic activity more generally.’ The need to address the SDGs is more significant in developing countries involving the local private sector. Global financial flows also pay attention to these trends, for example, emerging impact investment and Environment, Social and Governance (ESG) investment. These influence not only developed countries but also developing countries through the behavior of globally operating MNEs and GVCs. Venture capital has been growing to supply seed money and beyond for startups, which contribute to solutions for social and environment issues and operate in developing countries. A green industrial revolution is going on in response to the pressing need to create decarbonized society. Green industry is not only for anti-pollution and renewable energy, but it is a conceptual change in any industry designed to create an efficient and green society. Industrial policies need to address these various dynamic changes in relation to environmental and social concerns and to contribute to quality industrial development in the next few decades. OECD has been working on the ‘FDI Qualities Initiative,’Footnote 4 which addresses sustainable investment promotion and launched FDI Quality Indicators in 2019, FDI Qualities Policy Toolkit in 2022 and FDI Qualities Guide for Development Co-operation Policy in 2022 [30].

5.2 Environmental Consideration in Industrial Development

As already noted, careful consideration needs to be given to anticipated environmental consequences caused by industrial economic activities. Growing concern over the possible negative impact and risk mitigation efforts is foreseen in industry globally. On the other hand, there is also a new business opportunity in tackling these concerns and risk alleviation needs.

Under such circumstances, a keyword which combines both ideas of environmental consideration and industrial development is ‘Green Growth.’ DCED [5] describes Green Growth as ‘Many private sector development (PSD) programmes aim to achieve economic as well as environmental goals, including the mitigation of, and adaptation to, climate change, the reduction of pollutants, and a reversal of biodiversity loss and water scarcity. Meeting these needs can also be an opportunity for businesses in the developing world.’ Meanwhile, the Japanese government declared ‘Carbon Neutral in 2050’ to be national policy and in response developed the ‘Green Growth Strategy’ as an industrial policy to be associated with the ‘virtuous cycle of economy and environment.’ This aims to transform the basic idea that global warming mitigation is just a hindrance and cost into a more positive approach to revolution and future growth. It also suggests that there is support for Asian emerging economies for de-carbonization.

5.3 Social Consideration in Industrial Development

There is growing interest in pursuing both social consideration and economic development in investment. For such purposes, Impact Investment is attracting interests in development community as an investment activity to try to solve social and environmental issues at the same time with pursuing financial benefits, according to the Global Steering Group for Impact Investment (GSG). The size of the global Impact Investment market was estimated to be 500 billion USD in 2019 according to the GSG.

Startup business and entrepreneurship support is also a rapidly growing area in industrial development, as a quite active approach to fully use the startups’ dynamism and power to solve social challenges that people in developing countries face in their lives. The above mentioned JICA NINJA Project is one such approach to co-creating solutions for social issues.

6 Case Study: The Automotive Industry

This section provides a case study focusing on the automotive industry as a giant industry of approximately three billion USD in global market terms producing some 78 million cars to meet global annual demand. As such, it is an industry with transformative industrial development potential (see Chap. 2). The automotive industry is also heavily affected by the contemporary mega-trends presented in the earlier sections of this chapter such as GVCs, Industry 4.0, COVID-19, and environmental/social considerations. Furthermore, the industry is at a juncture of drastic change in its electric vehicle (EV) and de-carbonization responses to the climate change problem. COVID-19 has also affected the automotive industry from both the demand and supply sides. Especially the challenges on the supply side highlight the necessity for resilience in the global supply chain.

Meanwhile JICA has been conducting various technical cooperation for automotive industry promotion in several developing countries that have the automotive industry and its supporting industries (parts and component industries). This section first summarizes JICA cooperation for automotive industrial promotion. It then articulates how the contemporary mega-trends are changing the feature of the automotive industry and how those changes need to be addressed in technical cooperation programmes.

6.1 Overview of the Automotive Industry Development Promotion in the World by JICA

As the automotive industry is an industry which can bring a lot of opportunities for local industries to become involved in its large global supply chain network and for job creation, there are potential demands from developing countries for technical cooperation. As it is Japan’s flagship industry, developing countries easily recognize the value of requesting Japan to support the development of their local automotive industry and JICA can also use the rich national resources and experiences accumulated in the industry. In response to these demands, JICA has been planning and implementing technical cooperation programs for automotive industry promotion in various developing countries. Table 10.2 presents selected countries/regions which have sought on-going JICA technical cooperation for automotive industry promotion.

Table 10.2 Selected countries/regions with on-going JICA’s technical cooperation for automotive industry promotion
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The main focus is to help in the capacity building of local industries which are often SMEs and may have some future potential to manufacture and supply parts and components to the giant automotive makers (otherwise known as Original Equipment Manufacturers: OEMs). Those local industries are often called ‘supporting industries.’ Supporting industries development has been the mainstream of JICA’s technical cooperation in relation to the automotive industry.

6.2 Global Value Chain, Supporting Industries Development, and Linkage Formulation

The automotive industry is one of the representative industries which form a giant GVC led by multinational OEMs involving both developed and developing countries. Discussions presented in the earlier section on the GVCs are mainly on the automotive industry. These include fragmentation theory, supporting industries (parts and component industries) development, value chain analysis, and high value-added process promotion in the GVCs.

These can be found in JICA’s technical cooperation with such countries as Indonesia, Philippines, Thailand, and Mexico as shown in Table 10.2. Supporting industry development has been one of the mainstream areas in industrial development cooperation, and the automotive industry and its component industries are often identified as the key target sector. The earlier Fig. 10.1 illustrates a value chain analysis implemented in Indonesia and same applied to the Philippines.

Another aspect which are growingly becoming important in relation to GVC is ‘linkage formation.’ This forms strong business links through FDI by OEMs with local industries to supply auto parts and components to OEM assembly factories. It includes supporting preparation of relevant automotive industry policy, incentive packages which encourages linkage formulation and provision of opportunities for linkage matching.

6.3 Digitalization and CASE

Digitalization in the automotive industry is strongly represented by its mega-trend called CASE—Connected, Autonomous, Shared, and Electrification. The CASE trends have become the driving force of technological innovation in the world’s automotive industry and are expected to be increasingly prevalent over the next 10–15 years. Figure 10.3 is an overview of each of the CASE mega-trends [20].

Fig. 10.3
4 Stacked bar graphs plot the global trend in C A S E versus the years from 2019 to 2035. The connected, autonomous, shared, and electrification graphs display that the share of new car sales is 100% in 2035.

(Source BCG analysis presented in JICA and BCG [20]. Abbreviations Battery Electric Vehicle [BEV]; Hybrid Electric Vehicle [HEV]; Plug-in Hybrid Electric Vehicles [PHEV])

Global Trend in CASE Penetration, 2019–2035

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Among the four items of the CASE, being ‘Autonomous’ is still too far away to be realized in the developing country context, especially from the industrial development cooperation aspect, thus it is not discussed in this chapter. On the other hand, both ‘Connected’ and ‘Shared’ are expected to penetrate developing countries from the digitalization and innovation aspect. ‘Connected’ means ‘vehicles are capable of connecting to wireless networks, enabling vehicles to communicate with other vehicles and other devices’ [20], while ‘Shared’ has been already widespread in developing countries such as ride-hailing, ride-sharing, and last mile delivery thanks to rapid penetration of mobile phone networks. These are valuable in the context of the developing countries as they allow easy access to services and job creation.

In both Connected and Shared, startups are quite active in developing countries in providing innovative services. These are often called ‘Mobility Tech’ or ‘Mobility Startups.’ JICA is also engaged in the support of startup business mainly through its previously mentioned flagship approach, the ‘NINJA Project.’ Some of the mobility startups are involved and highly demonstrated such as a Cote d’Ivoire startup that focuses on inclusive Mobility as a Service (MaaS) and a Ghanaian startup which provides IC card services for smart payments.

‘Electrification’ is perhaps the largest trend which has a multiple influence on the four mega-trends of this chapter and is the one most related to environmental consideration, thus it will be discussed in the following subsections.

6.4 Carbon Neutral, Environmental and Social Consideration

Carbon neutral, as the measures to mitigate the negative impact of climate change are currently described, is one of the most important global issues and has been rapidly penetrating in the automotive industry as the top agenda. In particular, the accelerating shift from long-lasting internal combustion engine (ICE) vehicles to new energy vehicles (NEV), especially to electric vehicles (EV) is the largest revolution. Most advanced economy and major OEMs have already committed to reduce ICE and shift at a certain high level to EV by 2035. This is an unavoidable shift as a great contribution to carbon neutral society.

However, there are some concerns on this dynamic shift from ICE to EV from the developing countries’ standpoint. First, EV in particular Battery EV (BEV) requires significant amount of investment in battery charging infrastructure, which is normally not affordable for the developing countries. Secondly, the number of automotive components, around 30,000 items in the case of ICE, is dramatically reduced to 1/3–1/4 of its previous level. This means that the automotive component industries, which are often SMEs in developing countries, may be damaged and their employment contribution hampered. Thirdly, the shift needs to be closely linked with their national energy mix when the life cycle (sometimes described as ‘well to wheel’) and value chain of the automotive industry are considered. For example, even though EV is strongly introduced in a society, it is not contributing to activities being carbon neutral if the main source of the electricity they need is a high carbon one such as coal fired power stations. Fourthly, human resources are scarce in response to electrification, especially in the after sales industry, which is quite important in developing countries.

In this context, policy support and associated studies to evaluate the potential impact of electrification is often required and are a growing demand on technical cooperation. Gradually, this may influence all aspects of automotive industry promotion support. Meanwhile, as the automotive value chain is quite influential and involves a significant number of productive jobs in developing countries, social consequence and inclusiveness need to be considered carefully. According to the IDE-JETRO and ILO [15] report on the automotive industry’s responsible supply chain, automotive and its component industry in Thailand contribute 12% of GDP and provide 700,000 jobs, which is equivalent to 2% of total employment in Thailand. The report illustrates the growing necessity for the industry to be engaged in more corporate social responsibility (CSR) especially from the aspects of human rights and decent work.

6.5 New Automotive Industry Promotion Landscape and Key Takeaways from the Experience of the Automotive Industry

As has been discussed in previous subsections, the automotive industry is the typical industry that is much influenced by the four mega-trends including GVC, digitalization, resilience, and social and environmental consequences. The automotive industry is also an industry whose development cooperation has evolved along with these contemporary mega-trends. Figure 10.4 illustrates the dynamic evolution of the automotive industry and its development cooperation from around 1990s and towards the Industry 4.0 era in the 2020s and onwards.

Fig. 10.4
An illustration of the trend of development cooperatives in the automotive industry towards the I 4 point zero era. It includes automotive industry policy support with industry 4 point 0, digitalization, I o T, x E V or C A S E policy, carbon neutral, mobility, social consideration, etcetera.

(Source Elaborated by the author)

Trends in Development Cooperation in the Automotive Industry Towards the I4.0 Era (Illustrative)

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Development cooperation in the automotive industry has evolved in the following directions. First, policy support for the automotive industry becomes increasingly the more featured type of cooperation. Second, the focus on a master plan (M/P) type of cooperation has been shifting from SME promotion M/P, to supporting industries M/P, strategy on foreign SME engagement in developing countries, and further advanced planning such as R&D. Third, in relation to supporting industry development, the increase of local contents (local supply ratio of parts and components) has been always an issue and to achieve this, further collaboration with OEMs has been suggested. This features the gradual development of the mode of assembly from Complete Build-Up (CBU) to Semi Knock-Down (SKD), Complete Knock-Down (CKD), and supporting industries development. Fourth, the target area of technical cooperation has been shifting from hard to soft technologies. Previously it targeted the elemental technology for parts and components such as mold/die, casting (foundry) technology, machining, and plastic processing. It then went more towards cross-cutting or soft areas such as SME promotion, supporting industries development, linkage formulation with FDI, promotion of higher value-added process such as R&D, and innovation promotion. Fifth, the mode of technology transfer has also been shifting from the capacity building of public technology development institutes to more focus on direct factory consultation by visits, more highlights on specific component development based on local needs, and further focus on GVC participation. Finally, all these trends are currently updating towards the Industry 4.0 era. The on-going or near-future area of cooperation may include Industry 4.0, digitalization and IoT implementation, EV/CASE policy and strategy including carbon neutral measures, mobility startup support, and social considerations. This implies that value addition by ‘servicification’ is also valid in the automotive industry and its cooperation.

As previously mentioned, there are strong ties between the Japanese automotive industry and local industries as supporting industries to supply parts and components, such as Thailand and Mexico. Therefore, strengthening firm-to-firm relationships (discussed in Sect. 10.2.3) and formulating linkages between FDI and local industries based on mutual learning and translative adaptation have been playing a significant role in automotive industrial development.

7 Implications and Conclusions

This section summarizes the opportunities and challenges presented by the above-mentioned contemporary mega-trends for industrial development of developing countries and analyzes how these should or should not change the content of industrial policy and the process of policymaking and implementation. It further comments on the approach of Japanese industrial policy support to developing countries discussed in the other chapters of this volume (see Chap. 5). Then finally, it draws lessons and implications for industrial policy and Japan’s industrial development cooperation in the face of the contemporary mega-trends.

7.1 Opportunities and Challenges Under the Contemporary Mega-Trends in Developing Countries

The above-mentioned contemporary mega-trends present both ‘opportunities’ and ‘challenges’ for developing countries. Regarding ‘opportunities,’ globalization and digitalization widen the chances for any developing country, which are not found in East/Southeast Asia as the ‘global factory,’ to take part in global production networks without a ‘full-set’ industrial base. Fragmentation because of GVC deepening has been providing smaller but adoptable processes utilizing host countries’ advantages, and it can be observed for example that Cambodia and Lao PDR have benefited from such fragmentation. Digitalization encourages startups in Southeast Asia and Sub-Saharan Africa to create ‘leapfrog’ technologies and new businesses which have been changing traditional industries locally, regionally, and sometimes internationally.

As another set of opportunities, while mega-global external shocks such as COVID-19 and increased environmental and social responsibilities are often characterized as burdens, they can also supply a significant volume of potential needs (opportunities) and issues that can be solved by the power of industry. ‘Corona-Tech’ and social businesses are examples for these in developing countries.

On the other hand, developing countries also face ‘challenges.’ First, these benefits and emerging needs may not be automatically available to a developing country under the severe global competition existing today if no efforts are made to enhance its capacity to fully utilize them [35]. Capacity development at the firm, industry, and national levels is indispensable if countries want to take advantage of these opportunities. To strengthen such capacities learning and translative adaptation are also indispensable. In this context, in particular vis-à-vis the complex circumstances under the four contemporary mega-trends, there is the increasing importance of policy learning and societal learning. While the national and government level needs continuous policy learning for capacity development, the industry, firms, managers, workers and people level require social learning for achieving the same goals. For example, the benefits of GVC fragmentation may not be fully realized without further efforts to upgrade their capacity for adding more value; otherwise, the GVC opportunity may fall into a ‘race to the bottom,’ particularly in developing countries.

Secondly, further complexity may be generated from survival under these mega-trends in a comprehensive manner. For example, as environmental and social compliance and digitalization for IoT are increasingly needed for participating in GVCs, those businesses that want to be a part of GVCs in developing countries will need to take further consideration of these aspects in addition to upgrading their added value.

Third, particularly for industrial policies, there may be less space for policy makers to intervene in globally operated industry, considering the increasing power of MNEs and the global giant platformers to govern global (and regional/local) industries. Developing countries must therefore make further advanced and strategic industrial policies to cope with these situations [3].

7.2 What Does Not Change in Industrial Development Policy Under These Trends?

Despite these major trends, there are no significant changes in the fundamental policy directions raised in this volume, even though there is some acceleration for those directions. These include the following distinct features discussed throughout the volume.

First, the fundamental importance of industry, in particular manufacturing, which fully utilizes a country’s advantage and leads its economic growth, remains the same. As Hauge and Chang [8] suggest, manufacturing is still the driver of productivity growth and technological development. They also argue that the existence of the service industries is largely dependent on a manufacturing core, rather than the other way around. Therefore, development policy to support such industry remains significant. Even though digitalization is rapidly advancing as we enter an information and digitalization-based society, somebody will manufacture physical products somewhere in the world.

Second, the combination of horizontal (broad-based and not trying to benefit any particular industry sectors) and vertical industrial policies (focusing on specific sectors) based on market mechanism is still crucial, and they are complementary [13]. While the comprehensive features of up-to-date mega-trends such as COVID-19, 4IR, and the SDGs need a horizontal approach, specialization at depth is also needed for each sector. This suggests the significance of a vertical approach as well. The automotive industry case in this chapter shows how a vertical approach is taken in its policy contribution and practical implementation.

Third, key areas, domains, and measures of industrial policy basically remain the same. For example, the key areas and domains proposed in Chap. 2 by Hosono, which are classified using three essential supply-side measures (education/training, firm capabilities, and technology/innovation), two other supply-side measures (finance and infrastructure), and three demand/supply measures (internal market, international trade, and foreign investment), still make sense and are equally useful when developing countries consider appropriate industry policy packages under contemporary mega-trends. Even though issues have become more complex and comprehensive under the latest trends, these domains still form an integral part of the industrial policy framework.

Fourth, the basic structure of an industrial policy document and the procedure of industrial policy formulation also generally remain the same. These still need to have vision, missions, strategy, policy instruments, and action plans with common key areas, for example in the policy documents presented in the earlier section on Industry 4.0. Although the mega-trends provide strong reasons for their consideration in the documents, procedures still need to follow the general sequence of analysis, draft making, stakeholder participation, public hearing, and finally a political decision.

Fifth, participation of government policymaking organizations and the private sector in the process is still critical. There is a need to set up a proper policymaking structure in government, with high-level initiatives and workable secretariats and with inter-ministerial coordination mechanisms, to cover the complex issues arising from COVID-19 and environmental/social responses. Private sector participation and public–private partnership are equally significant to expose business to such complex issues.

Sixth, the combination of policymaking and implementation is still quite crucial. As it is often seen in many countries, this does not work without proper implementation even if excellent industrial policy is formulated. In other words, implementable industrial policy is required to make things happen and the results of implementation need to feed-back into policymaking, especially in the era of rapid transformative changes under digitalization and other mega-trends.

Seventh, policy learning process and policy dialogues to assist this process remain useful and effective. Even though historically accumulated replicable experiences for such up-to-date trends such as Industry 4.0 and COVID-19 are much less important, it is still important to learn about each other’s on-going experiences, with hands-on policy dialogue for facilitation. This tendency implies the effectiveness of ‘translative adaptation’ processes, which feature hands-on approaches and learning and adaptation processes.

Eighth, FDI-led industrialization associated with linkage formulation with local industry remains highlighted. Although there are some accelerating factors such as GVCs and some discouraging factors such as the attempts to domesticate manufacturing processes seen at the initial stage of the COVID-19 pandemic, the basic direction of industrial policy toward FDI-linked industrialization remains a common approach.

7.3 What Changes in Industrial Development Policy Are There Under These Trends?

On the other hand, there are some significant changes in industrial policy along with these major trends. These include following the distinct features discussed throughout the entire volume.

First, concrete policy details including policy menus and priority settings may change or be expanded. For example, emerging industrial sectors such as the ICT industry should be prioritized along with digitization trends, and the idea of resilience should be added to industrial policy as one of the key directions. We obviously need to deal with more sophisticated global production networks and digitalized industries including industrial human resource development. At the same time, it is necessary to look closely at the difference of level of sophistication between, for example, upper middle-income countries and least developed countries in Sub-Saharan Africa. The automotive sector case study shows the expansion of the policy scope including not only traditional manufacturing process improvement but also new areas such as mobility concept development.

Second, the idea of sustainable and inclusive development may be enhanced. Along with the emerging function of industry (from MNEs up to startups) to provide ‘solutions’ for society, industrialization focus may be shifting from supply-driven (product out) to demand-driven (market in) and thereby up to ‘solution-driven.’ This solution-driven function seems to be accelerating in response to a wide variety and complex development issues under the with/post COVID-19 era and beyond. Digitalization further makes it easier to provide useful solutions. Resilience is again a key word in relation to sustainability and inclusiveness. Industrial development in the fragile context is also an up-to-date topic.

Third, speediness for policymaking and implementation may change. In the Fourth Industrial Revolution era and ‘with/post COVID-19’ situation, policy needs to be prepared and implemented at faster speed to meet immediate solution needs and fully use digital transformation benefits.

Fourth, a whole of government approach may become more crucial. Industrial policy requires not only the ministry in charge of industry. It also needs to involve more government resources beyond the typical ministry to meet with the complexity and opportunities under these trends.

Fifth, the likelihood for latecomer countries to catch up may change. In the digitalization era, many new businesses and application of new technology as solutions are emerging in developing countries, suggesting the possibility of ‘leapfrog’ (which suggests something beyond catchup) and even ‘reverse innovation.’ As it is not easy to harness such leapfrogging up to the creation of country-level significant change, industrial policy may be needed to fairly utilize such opportunities. At the same time, this means that there are also negative opportunities for the least developed countries. Again, success or failure depends on industrial policy making and implementation.

7.4 Conclusions

This chapter reviewed the four mega-trends influential to industrial development, and prioritized three of them, namely, GVCs, Industry 4.0, and COVID-19. It also conducted a concrete case study on the automotive industry, which is a giant and transformative industry strongly affected by such contemporary mega-trends. In concluding the chapter, following five points are raised as lessons and implications for industrial policy and Japan’s industrial development cooperation.

First, although these up-to-date trends and phenomena bring significant impacts to industries in developing countries, the basic nature and framework for industrial policy may not change drastically. This includes: (i) the fundamental importance of industry/manufacturing; (ii) horizontal and vertical policy combination; (iii) key areas, domains, and measures; (iv) the structure of policy documents and the procedures in their formulation; (v) government organization and private sector participation; (vi) combination of policymaking and implementation; (vii) policy learning processes; and (viii) FDI-led industrialization.

Second, there are some significant changes in industrial policy in response to these major trends. These include: (i) concrete policy menus and priority settings; (ii) enhanced idea of sustainability, inclusiveness, and resilience; (iii) speediness; (iv) whole of government approach; and (v) latecomers’ catchup chances.

Third, inter-linkages among these major trends need to be recognized to properly formulate and implement industrial policy. Examples include: (i) the usefulness of Industry 4.0 for efficient GVCs; (ii) the disruptive impact of COVID-19 on GVCs and the need for resilience; and (iii) the acceleration of Industry 4.0 to pursue a contactless digitalization world by COVID-19 through such technologies as Corona-Tech. This means increasing complexity of industrial policy.

Fourth, Japan’s industrial policy support approach needs upgrading, recognizing that there are limitations to Japan’s advantages based on its own industrial development, in the context of twenty-first century major trends. Developing countries may be more advanced in some cases, represented by the impact of the phenomena of leapfrogging and reverse innovation on digitalization and in response to the pandemic. What is crucial here is to consider new approaches to learning together (co-learning), solving issues together (co-solving), facilitating these joint efforts (facilitation), and accumulating in an appropriate way such experience for further utilization (experience accumulation). This may create new values of industrial policy support. At the same time, it may also correspond to the basic idea of ‘translative adaptation’ which features ‘learning and adaptation processes.’ In sum, Japan’s industrial policy support approach can be further enhanced by these new approaches to co-learning, co-solving, facilitation, and experience accumulation.

Fifth, contemporary mega-trends encourage developing countries to enhance quality and productivity improvement capability to participate in GVCs and utilize digital technology. Kaizen, as the Japanese unique and traditional approach for industrial development through quality and productivity improvement and a still useful approach in the up-to-date context, may work on this and also create ‘renewed values’ under the twenty-first century’s major trends of: (i) the renewal of the concept of Kaizen as the approach to produce ‘incremental innovation;’Footnote 5 (ii) affinity with Industry 4.0 and digitalization; (iii) contributions to the responses to the pandemic, for example the concept of sanitization and efficiency; and (iv) contributions to social considerations through its human-centered bottom-up approach.Footnote 6

Finally, this chapter offers only preliminary thoughts on the circumstances around industrial policy resulting from the major up-to-date trends. This should change rapidly overtime considering potentially influential emerging technology such as generative AI, and additional studies are necessary to deal with on-going issues. There may be also different outlooks in other sectors than the automotive industry discussed in this chapter. Hence, this research needs further elaboration with more concrete examples of the variety of countries, industries, and technologies involved in responding to such mega-trends.