Industry 4.0 and upgrading in the Italian fashion supply chain: a history-friendly model

Abstract This paper examines how Industry 4.0 technologies reshape the upgrading opportunities of micro and small enterprises (MSEs) in the Italian fashion industry. While digital transformation is widely viewed as a potential source of renewal for mature manufacturing sectors, little is known about whether these technologies generate genuine windows of opportunity for small firms embedded in historically specialized, district-based production systems. Building on the windows of opportunity framework, the paper develops a history-friendly model (HFM) that reproduces key empirical features of the Italian fashion value chain and simulates alternative technological trajectories. The model incorporates heterogeneous suppliers and clients, spatial constraints, capability accumulation, and differentiated Industry 4.0 shocks. Results show that upgrading in the baseline scenario is shaped primarily by geography and access to non-local or multinational clients. Production-Efficiency Enhancers (e.g., robotics, IoT monitoring) do not expand overall upgrading but disproportionately benefit geographically constrained firms by reducing cost disadvantages. In contrast, Capability-Building Technologies (e.g., digital prototyping, additive manufacturing) reduce upgrading opportunities by enabling client firms to internalize functions, despite raising suppliers’ learning capacity. These findings highlight the asymmetric and technology-specific nature of digital transformation and call for differentiated industrial policies that consider both spatial inequalities and supply-chain power dynamics.