Start-Ups as One of the Elements Triggering the Development of Industry 4.0

Abstract

The study analyses the significance of start-ups in the contemporary economy in the light of the industrial revolution – Industry 4.0. It presents the essence of the fourth industrial revolution and its main components that are aimed at creating intelligent value chains on the basis of dynamic, self-organising and self-optimising sociotechnical systems. Modern information and communication technologies that are increasingly integrated with production processes are used to this end. In this aspect, new digital client access channels are of key significance, as they allow departing from the traditional “push” model (pushing products into the market) and moving towards the “pull” model (production on demand). Start-ups play an important role as regards these relationships, since they operate in an ecosystem tailored to their needs and, as a result, they become more important in creating digital business models. These models, in turn, enable them to gain competitive advantage under volatile market conditions. Competition is an immanent feature of start-ups: operating under in an environment marked by high risk forces them to accept challenges that lead them to achieving market success and stable long-term development. The results of conducted analyses indicate that competition, treated as the main hazard for the operation and development of start-ups, depends on the developmental status of such enterprises and their market lifespan.

Full text

Start-Ups as One of the Elements Triggering the
Development of Industry 4.0
Ryszard Pukala1,*
1Bronislaw Markiewicz State Higher School of Technology and Economics, Czarnieckiego St. 16,
37-500 Jaroslaw, Poland
Abstract. The study analyses the significance of start-ups in the
contemporary economy in the light of the industrial revolution – Industry
4.0. It presents the essence of the fourth industrial revolution and its main
components that are aimed at creating intelligent value chains on the basis
of dynamic, self-organising and self-optimising sociotechnical systems.
Modern information and communication technologies that are increasingly
integrated with production processes are used to this end. In this aspect,
new digital client access channels are of key significance, as they allow
departing from the traditional “push” model (pushing products into the
market) and moving towards the “pull” model (production on demand).
Start-ups play an important role as regards these relationships, since they
operate in an ecosystem tailored to their needs and, as a result, they
become more important in creating digital business models. These models,
in turn, enable them to gain competitive advantage under volatile market
conditions. Competition is an immanent feature of start-ups: operating
under in an environment marked by high risk forces them to accept
challenges that lead them to achieving market success and stable long-term
development. The results of conducted analyses indicate that competition,
treated as the main hazard for the operation and development of start-ups,
depends on the developmental status of such enterprises and their market
lifespan.
1 Introduction
The contemporary global economy is marked by considerable changes that take place in
various sectors of the industry. We are witnessing the fourth industrial revolution, which
allows linking devices into digital ecosystems as well as deepening the integration within
vertical and horizontal value chains. This is favoured by a significant growth in the number
of available data and of computational capacity, which in turn is a consequence of the
development of information and communication technologies that are more and more
integrated with the production processes. Constant evolution of these technologies triggers
industrial capacity, reduction of production costs and provision of efficient solutions aimed
at improving quality, increasing the speed of delivery and meeting individual needs [1].
This is also reflected in increased efficiency of managing enterprise resources, production
*Corresponding author: ryszard.pukala@interia.pl
© The Authors, published by EDP Sciences. This is an open access article distributed under the terms of the Creative Commons Attribution License 4.0
(http://creativecommons.org/licenses/by/4.0/).
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planning and product lifecycle. In the face of technological progress and a scenario where
the demand for products tailored to individual needs, greater complexity, higher quality and
lower costs is on the rise, the emergence of a new industrial model is identified as Industry
4.0 [2]. Its essence lies in the creation of intelligent value chains based on dynamic, self-
organising and self-optimising sociotechnical systems, named intelligent factories. They are
formed by spontaneously emerging virtual networks that cover employees, machines and
devices as well as auxiliary IT systems. They constitute a dynamic value concentrated
around a common cooperative object, which is subject to constant reconfiguration
depending on the changes of objectives and conditions [3]. New digital client access
channels, owing to which a transition from the traditional “push” model (pushing products
into the market) to the “pull” model (production on demand) was possible, are of key
importance in this process.
The Industry 4.0 report The new industrial revolution. How Europe will succeed by
Roland Berger points out several principal features of this initiative. They include [4]:
smart robots and machines; big data; new quality of connectivity; energy efficiency and
decentralization; virtual industrialization.
We need to emphasize that all presented solutions intermingle and continue entering
into mutual logical interactions that in a long run will probably be controlled not by a
human being, but by artificial intelligence.
Contemporary enterprises further depart from the known rules of market competition in
the national and international dimension and increasingly compete along the “digital
enterprise” versus “analogue enterprise” line of division. The business potential of
particular enterprises becomes their “to be or not to be” in the new, innovative sectors and
services. Therefore, more and more enterprises start creating their own digital business
models that can become a tool for achieving competitive advantage under changeable
market conditions. Within the framework of Industry 4.0 enterprises see benefits that can
translate into reduced costs and enhanced operational efficiency. Suffice to take a glance at
selected indicators concerning the economy and enterprises – Table 1.
Table 1. Diverse effects of Industry 4.0
Effects of Industry 4.0 until 2020
Annual investments in digitalization in Poland; return on investment for
two
-
thirds of them is expected within 2 years or less
100 bln PLN
The number of “Internet of Things” devices connected to the network in
2021
21 bln
The following number of the following devices will operate within global
digital ecosystems:
gas turbines - 10 thou
jet engines - 68 thou
light bulbs - 100 mln
cars
-
152 mln
Expected p
roductivity growth in Europe
55 %
Average increase in annual income
2,9 %
Average decrease in operating costs per year
3,6 %
Source: https://napedzamyprzyszlosc.pl/raporty/gospodarka-4-0-czas-zmiany-dla-biznesu
The success of an enterprise in the reality of Industry 4.0 represents a great chance for
further development. However, it also depends on clear regulations that favour innovative
business models [5]. These regulations should cover enterprises and consumers and
facilitate the creation of an efficient ecosystem where technological innovation and new
business models emerge. If necessary, these regulations should be adjusted to new market
requirements.
2 The ecosystem of start-ups
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Industry 4.0 is characterized by a high level of economic innovation. This is not only
attributable to enterprises that form it, but also to the entire business environment that
shapes its support network, referred to as an ecosystem. The term ecosystem was first
introduced by J.F. Moore, who stated that achieving business success requires a set of
resources, such as capital, partners, suppliers and clients as part of the collaboration
network, where companies can compete and cooperate in the process of creating innovative
products and services as well as delivering value to clients [6]. This term refers to broadly
understood entrepreneurship and entities involved in that process. According to M. Iansiti
and R. Levien, the entrepreneurial ecosystem is a network of stakeholders consisting of
loosely connected entities that interact in a complex way, and its capacity and efficiency
depend on particular ecosystem participants [7]. Somewhat differently, M. Peltoniemi and
E. Vuori perceive the ecosystem as a population of organisations that constitute a dynamic
structure that consists of interlinked social organisations, small enterprises, large
corporations, universities, research centres, public sector organisations and other parties
that have impact on the ecosystem [8, 9]. All these elements shape the field of start-ups’
operation. The term can also refer to the business ecosystem, which consists of a group of
enterprises and other organisations, which through interaction benefit from
interdependencies to create goods, technologies and services that fall into the realm of
clients’ interest. The main participants of ecosystems understood as such are
enterprises/products and clients, plus suppliers, competitors etc. However, the client is at
the centre of attention, therefore deep understanding of the role of the client in the
ecosystem is one of the challenges faced by ecosystems [10]. The business ecosystem is a
place where enterprises can survive at the presence of competitors focused on gaining
patronage over the available pool of clients [11].
When analysing various ecosystems, we need to stress that the ecosystem of start-ups
differs from others as regards the specificity of their main components, which include [12]:
• start-ups and entrepreneurs and employees that form them,
• various categories of institutions in the start-up environment, the most important of
which include business incubators, higher education institutions, research centres, entities
providing legal, consulting, financial and other services as well as corporations and
financing authorities,
• ideas, inventions and innovations as well as information resources,
• mentors, investors, advisers,
• resources allowing cooperation in the real (coworking) and virtual space (social
communities).
The abovementioned elements create a broadly understood structure of stakeholders,
who either directly or indirectly partake in the creation and development of start-ups.
Factors that have impact on the success of start-ups and at the same time represent
success components within the start-up ecosystem can be divided into three categories [13]:
• internal factors that depend on the young company,
• external factors,
• availability of mentoring as part of incubators and accelerators.
All of them represent conditions that stimulate operation and development of start-ups –
Table 2.
Table 2. Categories of start-up success factors
Internal factors External factors Support by incubators/
accelerators
 employees, team
 work culture

co
-
founders
 governmental policy
 political stability

location
 mentoring
 development of links
within the network
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 ability to communicate the business
idea
 organizational structure
 exit strategy
 marketing strategy
 client network
 product
 scale building ability

life
–
work balance
 access to talents
 access to new
markets
 access to existing
markets
 competition
 previous experience
 financing
 taxes, legal, business
and other aspects
 infrastructure
 workshops/events
Source: [13].
Taking all abovementioned categories of factors into account, we have to underline that
the operation of start-ups is burdened with a high degree of risk. Therefore, in their case the
ecosystem consists of entities determined to create new products and services under a high
degree of uncertainty, making use of available resources and functioning in a certain
regulatory environment [14].
3 Significance and competitiveness of start-ups
Start-ups have become an inseparable component of the economy. As shown by analyses of
CBInsights, in August 2018 the total of 271 start-ups with a value of USD billion and more
operated on the global market. Their total value amounted to ca. USD 869 billion. With
regard to the value, Uber topped the ranking with USD 72 billion. Didi Chuxing – Uber’s
competitor on the Chinese market –ranked second with the value of USD 56 billion.
Another Chinese company – China Internet Plus Holding (Meituan Dianping) ranked third,
with the value of USD 30 billion.
Table 3. Countries with the largest number of start-ups
Country Number of start-ups Total value in USD
USA
126
438
China
78
289
United Kingdom
15
35
India
13
32
Germany
6
12
Israel
4
5
South Korea
3
11
Indonesia
3
5
France
2
2
South Africa
2
2
Switzerland
2
2
Columbia
2
2
Source: [15].
The highest figures are shown by Chinese and Korean start-ups – USD 3.7 billion each
on average, as well as American ones, with an average value of USD 3.5 billion. However,
we need to note that the country of start-up origin/registration/launch does not clearly
define its operational area. The vast majority of such enterprises, through using modern
data processing and client access technologies, operate in the global dimension. In this way,
they gain access to a very broad market of potential recipients but also clash with
competitors that often benefit from the awareness of the specificity of local markets or legal
restrictions.
In the reality of contemporary global economy, competition becomes one of the most
important determinants of the market position of an enterprise [16-18]. Generally, one
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could say that competition reflects the company’s potential – resources, skills and abilities
that guarantee gaining advantage over other entities operating in the same sector. Therefore,
competition can be defined as a multidimensional feature of an enterprise, both resulting
from its internal characteristics and related to the ability to adapt to changes taking place in
the surroundings. This is a feature that defines a company’s distinctive capacity to
undertake actions that safeguard stable and long-term development and contribute to
building market value. It also refers to describing mutual relations taking place between
enterprises in a given sector as well as to comparing assessments of operation of selected
companies [19, 20].
Competition is also an immanent feature of start-ups, as they must take challenges
aimed at achieving market success and long-term stable development, while burdened by
high risk [21, 22]. The results of conducted analyses show that competition treated as the
main hazard for the operation of start-ups depends on the developmental status of such
enterprises and their market lifespan* – Chart 1.
Chart 1. Assessment of increased competition as the main risk for start-up operation – distinction by
lifespan and developmental status
Fig. 1. Own calculations made with the aid of the Statistica software
The chart topography indicates that the impact of losing financial liquidity on the start-
up operation is evaluated as:
• Maximal (5 points) – by enterprises active for between 2 and 3 years, in the phase of
maturity, as well as enterprises active for over 5 years, in the phase of vision. Beyond
doubt, relatively young enterprises that have already reached the maturity stage still
remain in the phase of intense financial investments dedicated to further development
and advertising. It takes place alongside a simultaneous copying of solutions and
products or services offered by competing entities, which can pose a threat for further
development. When it comes to other start-ups, their long lifespan and the
accompanying lack of development (vision phase) indicates that such enterprises have
either failed to come up with an offer that could be competitive on the market or to
*The study was conducted among 200 start-ups in October and November 2018.
The study assumed that we can distinguish five stages in the lifespan of start-ups: vision, forming,
validation, scaling and maturity; the lifespan included the following ranges: up to 1 year, between 1
and 2 years, between 2 and 3 years, between 3 and 4 years, between 4 and 5 years and over 5 years;
the adopted risk assessment scale: from 1 (the lowest impact) to 5 (the highest impact).
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amass funds for further development. In both cases time works for their disadvantage
and it is hard to expect that such start-ups will achieve market success.
• High (4 points) – by representatives of start-ups operating for over 3 years and
remaining in the formation, validation, scaling and maturity phases. When it comes to
start-ups in the formation and validity phases, we can talk mainly about difficulties with
refining the product, too long a testing time and shrinking funds, which can pose a
threat for the enterprise operation. As regards entities in the scaling and maturity phase,
insufficient funds and loss of market advantage due to the “ageing” of the start-up offer
make up important factors that can inhibit their development.
• Average (3 points) and below average – by representatives of start-ups operating for up
to 2 years and remaining in the validation, scaling and maturity phase. In this case we
can talk about a very dynamic development of an enterprise, which in a relatively short
time wins its position on the market, followed by competitive advantage gained.
Each start-up’s determination to reach product scalability and maturity in a relatively
short time ensues taking actions aimed at gaining competitive advantage. Increasing
revenue streams from executed production can help in this process. Beyond doubt, this is a
chance for continuing dynamic growth and achieving market success, which is exactly what
every enterprise aspires to.
4 Conclusions
The driving force behind Industry 4.0 is a conviction that enterprises that efficiently
implement their developed solutions can count on the increased revenues and get an
impulse for further dynamic development. Enterprises that have already undergone digital
transformation, which is definitely the case with start-ups, will most probably achieve
better results on the market, take leading positions and set directions for further
development. The direction of changes in value chains concerning products and services
that are subject to strong integration processes will be determined by client needs. Such
entities will be better adapted to their individual needs, which is going to made possible by
data analytics and application of innovative solutions aimed at personalisation of the offer.
Start-ups operating as part of Industry 4.0 play an ever more important role in the process
of creating and implementing innovative solutions. Their market success is reflected in a
dynamically growing value and importance when it comes to offering their products and
services to an increasing group of recipients all around the world. When striving to reach
maturity and market success, start-ups encounter the problem of increasing competition that
can pose a threat for their development or even lead to their insolvency. However, broad
use of Industry 4.0 components by such enterprises and their sustainable growth, taking
account on the one hand of high operating risk and on the other hand of chances and
possibilities of development created by the market, enable start-ups to gain more and more
importance in the contemporary economy.
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