Conditions towards manufacturing upgrading in the era of Industry 4.0

As a manufacturing power in the era of Industry 4.0, the Chinese traditional manufacturing industry urgently needs innovation and upgrading. In this process, the pressure on the traditional manufacturing industry is mainly financial shortages. The government can act as a Booster to add power to the upgrading by providing financial support. We build a three-tier game model consisting of Raw Material Suppliers, a Traditional Manufacturer, and an Original Equipment Manufacturer to explore the upgrading conditions and construct three settings: Agency, Consignment, and Design. We find that the government subsidy can serve as an effective way to ease enterprises’ financial burden and improve the innovation level, which is more evident when the traditional manufacturer innovates. In addition, when the market competition and the government subsidy are both at a moderate level, the combined effect of the two factors is positive, and the condition is the best to upgrade. Encouragingly, the social welfare under Design will be the highest when the government subsidy is slightly great. Finally, excessive subsidy hinders upgrading and aggravates market competition, even if the traditional manufacturer enjoys exorbitant profits.HIGHLIGHTS The upgrading on the manufacturing industry in the era of Industry 4.0The right of product design in supply chain modelsThe cross-influence of the government subsidy and market competition on industrial upgrading is introducedThe conditions to help upgrade the manufacturing industry are given in the era of Industry 4.0