Simply speaking, "hollowing out of industry" is the transfer of domestic factories and jobs to other countries.
An example is Japan. Due to the rapid yen appreciation after "Plaza Accord" in 1985, the competitiveness and profits of Japan's manufacturing sector suffered a lot. Thus, many manufacturing production bases were swiftly transferred overseas, such as to Southeast Asia. The large amount of Japan's outward investment not only resulted in the decline of domestic employment directly, but also induced the great concerns about the possible downward turn of technology levels. That's the so called "hollowing out of industry".