Indian automotive SMEs struggle with automation, data systems and digital strategy

The study makes clear that while there is widespread awareness of the need for digital transformation, actual readiness varies greatly. Using six dimensions, strategy and organization, smart factory, smart operations, smart products, data-driven services, and workforce capability, the researchers assessed each firm’s progress against a standardized benchmark.

The Indian automotive sector is a major driver of employment and industrial growth, and its small and medium-sized enterprises (SMEs) are critical to sustaining supply chains and innovation. A new study reveals that Indian automotive SMEs are showing early progress in preparing for Industry 4.0, but most remain far from fully ready to implement smart manufacturing systems.

The article, “Assessment of Smart Manufacturing Readiness for Small and Medium Enterprises in the Indian Automotive Sector,” published in Sustainability, highlights uneven readiness across strategy, technology, and workforce capability, revealing both the potential and the hurdles facing this critical sector.

The study adapts the internationally recognized IMPULS Industry 4.0 model to the context of Indian automotive SMEs. Based on data from 31 firms, the study introduces a readiness index and gap metrics to show where companies stand today and what interventions are most urgently required.

Are Indian SMEs ready for Industry 4.0?

The study makes clear that while there is widespread awareness of the need for digital transformation, actual readiness varies greatly. Using six dimensions, strategy and organization, smart factory, smart operations, smart products, data-driven services, and workforce capability, the researchers assessed each firm’s progress against a standardized benchmark.

The results showed that 41.9 percent of the surveyed SMEs fell below a readiness score of 3.0, signaling that many firms are still at a basic level of digital integration. Smart factories and operations remain underdeveloped, with companies relying heavily on manual or semi-digital processes for planning, quality control, and warehouse management. Concerns around cyber security, system interoperability, and high investment costs were cited as primary reasons for slow adoption.

By contrast, workforce capability emerged as the strongest area of readiness, with an average score of 3.91. Many SMEs reported active efforts to train employees and upskill staff for digital roles, suggesting that human capital is not the primary barrier. However, this strength has not yet translated into technology adoption or strategy execution, leaving a gap between workforce preparedness and operational reality.

Where are the biggest gaps?

A detailed gap analysis provided the clearest picture of where SMEs lag behind. The study found that only 42 percent of firms had a formal digital strategy, and just 28 percent were using IoT or AI in production. About 35 percent reported process automation, while 23 percent offered smart products, and only 19 percent used advanced analytics. Although 31 percent conducted digital skills training, this leaves a majority without structured programs to integrate skills with new technologies.

These figures also reveal the mirror image, the gaps. Roughly 58 percent lacked a digital plan, 72 percent were not leveraging advanced automation, 65 percent remained reliant on manual processes, 77 percent sold only traditional products, 81 percent lacked analytics capability, and 69 percent had not developed adequate digital skills training.

The study introduced two diagnostic tools: the Readiness Gap Index (RGI), which measures how far a firm is from its next stage of digital maturity, and the concept of Latent Potential, which identifies companies with strong workforce skills but weak infrastructure. Eight SMEs scored high on the RGI, with half of them showing latent potential, meaning they had trained staff but lacked the technology investments to put that training to use.

What needs to change for SMEs to catch up?

The authors argue that targeted interventions, not broad one-size-fits-all solutions, are required to close these gaps. Many firms demonstrate strong intent and motivated employees but face structural barriers in financing, infrastructure, and technology adoption. The study calls for a four-pronged approach:

• Targeted capital support for retrofitting factories with automation equipment and sensors.
• Affordable modular software frameworks for ERP, MES, and interoperability to ease integration.
• Practical mentoring programs to guide SMEs through digital transitions.
• Training aligned with live projects, ensuring that skills development is directly tied to ongoing digital initiatives.

Policy support is crucial, the study notes, as many SMEs lack the financial flexibility to invest in new technologies independently. Without state-backed incentives or financing schemes, firms may continue to lag behind larger manufacturers in adopting Industry 4.0 practices.

At the same time, the study highlights that progress cannot be measured only in terms of technology adoption. For many SMEs, building strategic clarity and aligning digital initiatives with long-term business goals are as important as deploying new machines or software. Bridging the gap between workforce readiness and operational execution will require a holistic approach that integrates people, capital, and modular digital tools.