UK lags China & US in race to digital, AI-led factories

UK manufacturers risk losing ground in the shift to software-led and AI-driven production, as firms in China and the US report faster adoption of digital factory technologies, according to a new international survey of industrial companies.

The Industry 4.0 Barometer 2026, produced by MHP with LMU Munich, found the UK's self-assessed level of industrial digitalisation slipped to 62%, down two percentage points from the previous year. By contrast, the overall score across all regions surveyed rose to 66%, up from 48% in 2022.

China recorded the highest score at 72%, followed by the US at 69%. India and Mexico, included for the first time, scored 68% and 67% respectively. The DACH region-Germany, Austria and Switzerland-remained the lowest at 57%.

Adoption gaps

Progress varied across the technologies typically grouped under Industry 4.0. The biggest gaps were in digital twins, the use of AI in production, and what the report calls Software-Defined Manufacturing.

Digital twin use in plants and machines rose to 62% across the survey, up from 54%. In logistics, it increased to 67% from 61%, the largest jump since 2022. China reported the highest use of digital twins in logistics, with 84% of respondents saying they used the technology partly or fully.

Mexico ranked second at 74%, followed by India at 68% and the US at 61%. The UK followed at 54%, while DACH was last at 42%. Digital twins model and simulate assets or processes, and are often used for maintenance planning, throughput analysis and warehouse operations.

AI in production

China also led on the use of AI in production environments. Some 71% of Chinese respondents reported partly or fully using AI, compared with 61% in India and 57% in the US. Mexico stood at 51% and the UK at 48%, while DACH lagged at 37%.

The results suggest a gap in the UK between expectations and deployment. The survey found 61% of UK respondents expect AI to have a "significant" or "groundbreaking" impact over the next five years. It also noted that many European companies still use AI mainly in pilots, with limited integration into production processes.

MHP and its academic partners linked this to technology readiness. The report argued that AI projects rely on foundations such as data infrastructure, sensors and digital twins; without them, AI is difficult to scale across sites and processes.

Legacy barriers

Technical obstacles remained common across all markets. In the UK, 40% of respondents cited data silos as a barrier to digital transformation, while 47% pointed to legacy IT systems. Limited interoperability and fragmented data landscapes also slowed the adoption of new tools.

Although these issues are not unique to the UK, the survey suggested companies are overcoming them at different speeds. Faster progress in some markets was linked to more integrated approaches to production technology and digital architecture.

Software-led factories

The survey described Software-Defined Manufacturing (SDM) as an emerging competitive factor. SDM separates production control from physical hardware and creates a central software layer for manufacturing operations across sites.

Awareness of SDM remained low in the UK and DACH. Only 6% of UK respondents and 3% of DACH respondents said they were "very familiar" with SDM, compared with 30% in both China and India. The US and Mexico stood at 14% and 18% respectively.

Companies with a Chief Information Officer were more likely to report familiarity with SDM and alignment with strategy. The study also associated the presence of a CIO with a greater propensity to invest and a lower share of budgets allocated to maintenance.

Bodo Philipp, CEO of MHP Consulting UK, said the findings show China and the US are pushing manufacturing transformation with a strong focus on software and data, while the UK and German-speaking markets have yet to build similar momentum. "Without the strategic integration of production control, data, and software, it will become increasingly difficult to remain competitive internationally," he said.

Investment willingness

The barometer also tracked investment intentions. India showed the highest willingness, with 71% of respondents saying their companies would spend significant sums on new digital technologies. Mexico followed at 65%, ahead of the US at 59%.

The UK figure was 36%, the second-lowest in the group, while DACH ranked last at 29%.

Expectations of disruption over the next decade also varied. Globally, 31% of respondents said they were convinced their industry would undergo fundamental change due to digitalisation and software-driven approaches, while a further 51% said it was likely. In India, 44% said they were convinced, compared with 17% in the UK.

Dr Johann Kranz, Professor of Digital Services and Sustainability at LMU Munich, said industrial digitalisation is increasing worldwide, with Europe also making progress. However, he said the US and China are adopting digital production technologies faster and taking a more integrated, scalable approach than European companies, while India and Mexico also performed better on some measures.

The survey was based on responses from 1,206 people at industrial companies across the regions, including 202 in the UK. Mechanical and plant engineering and information and communication technology were the largest sector groupings, followed by automotive. Respondents most commonly worked in production and IT.

Prof Christina S. Reich said emerging markets such as India, China and Mexico are pursuing more differentiated strategic goals. "India, for example, is specifically focusing on improving quality due to its historical competitive position and global pressure. The aim here is to meet international standards and open up new markets," she said.