Industry 4.0 In Malaysia, The Untold Story?

Embracing the future...the growth of Industry 4.0 will provide greater avenue for Malaysian companies to ignite the growth cycle.

The emergence of the Fourth Industrial Revolution, which gave birth to Industry 4.0 has created significant ripples among the public and private sectors. For the Malaysian private sector, especially exporters across various sectors, the excitement is palpable as it promises to be a potential game changer in what seems to be a staid global macroeconomic landscape. semiconductors, modules, routers, machineries and equipment.

Sectors such as chemical, medical devices, aerospace, automotive, transport, textiles, pharmaceuticals and food processing and services will also likely to benefit. The potential for Industry 4.0 initiatives to transform the Malaysian manufacturing industry is real. The contribution of the sector to the national economy can increase substantially from the current RM254 billion.

It is estimated that currently, Industry 4.0 related products account for approximately 40 percent of Malaysia’s total exports. In terms of productivity, the number of skilled workers employed in the manufacturing sector is targeted to increase from the current 18% if the sector adopts Industry 4.0 tools and systems.

There will also likely be major impact on the services sector where enabling sectors such as logistics (including warehousing), transportations, as well e-commerce and ICT related services will be among the many type of services that will benefit from the potential boom for products and services related to the Industry 4.0 adoption.

The data game Industry 4.0, among others emphasises on the centrality of data in governing companies’ decisionmaking process, especially the manufacturers.

The added emphasis of data has also impacted trade promotion organisations tasked at promoting growth of trade such as the Malaysia External Trade Development Corporation (MATRADE) as it too needed to develop structure and process to embed data in its operational structure.

This would strengthen MATRADE’s decision making process and ability to convert market intelligence into market insights for the benefit of the Malaysian exporters.

More critically, it also provides the catalyst for MATRADE to refocus and in some cases re-make its trade promotion approach so that it is able to address the potential opportunities and challenges posed by megatrends such as Industry 4.0 on Malaysian industry.

However, MATRADE’s focus on matters related to Industry 4.0 takes a different tangent compared to the norm. Consultants, policy makers and machine makers/ service providers are at pains to point out that Industry 4.0 will lead to greater insights on back-end operations in areas such as efficiency, cost savings and the likes. This is entirely true, but covers only half the narrative.

There seem to be lack of appreciation on the potential impact of Industry 4.0 applications and systems on companies’ front end operations. This is a curious vacuum considering it is likely that the impact of Industry 4.0 will be the most significant on a company’s bottom line from the aspect of revenue creation rather than cost savings and efficiency.

It is at the front-end where MATRADE comes into the fore in an age where organisations struggle to reinvent their businesses to better leverage on the ever-changing dynamics of global trade. MATRADE’s support for exporters to innovate using Industry 4.0 tools and technologies to ensure greater competitiveness and sustainable operations can be crucial in Malaysia’s Industry 4.0 journey. There is ample scope for Malaysian companies to evolve and adapt using Industry 4.0 technologies.

For example, Malaysian footwear companies can embrace supply chain digitisation by piloting the usage of additive manufacturing, often known as 3D printing, with the goal of reducing the manufacturing cycle, and ultimately reduce the time to market its footwear products and provide customised footwear to their clients. Through big data, businesses will be able to cross-reference pricing histories or customer traffic patterns with multiple outside sources. By doing so, this will help in better understanding customers’ behaviour, reduce costs by eliminating inefficiencies, enriching existing service offerings with new knowledge and eventually help companies to increase revenue and be more competitive.

Cloud on the horizon

The challenges of ensuring that Malaysian exporters benefit from the full potential of Industry 4.0 trends either as a user/innovator or selling of products/services or related parts/components will depend heavily on the ability of the Malaysian public, government sector and the private sector to move quickly and leverage on the opportunities and navigate around the potential issues.

As it stands, 98% of Malaysian companies are SMEs and many of them might struggle to quickly scale-up to embrace the potential business arising from Industry 4.0. This could result in loss of competitiveness and a drop in profit margins en masse for Malaysian companies, which are especially operating in industries that potentially would be the early adopters of Industry 4.0 such as automotive, consumer electronics and aerospace. Feedback from the industry indicates that currently, there is lack of awareness among many Malaysian exporters especially SMEs on the importance of big data.

Consequently, MATRADE plans to create adequate awareness and access to training to ensure that small firms have the awareness on the potential of big data to transform and sustain their operations and enhance their profits. On the other hand, there are also many smaller firms that do have the awareness and interest to develop big data, but suffer from lack of access to data needed to conceptualise and activate ideas.

Most times, they do not have access to relevant data due to a lack of funding or outreach to owners of data. As such, MATRADE is also exploring collaborations with the private sector to develop database platforms populated with datasets required by the small firms to undertake the right operational and marketing decisions. 

Big Data and Cloud solutions are buzzwords in IR 4.0.

MATRADE’s Role

MATRADE’s game plan is two pronged. Firstly, they intend to enable Malaysian exporters to leverage on the export opportunities arising from the implementation of Industry 4.0 products and services globally. This is done by linking Malaysian exporters to relevant global supply chains through various trade promotion activities.

Secondly, they plan to train exporters to leverage on Industry 4.0 related technologies (e.g. Big Data Analytics, Internet of Things) to develop new business models, customised solutions and strengthen the supply chain. They will also push for usage of e-Commerce by Malaysian SMEs.

MATRADE is aware that it too needs to re-invent itself to better respond to these changes and have the adequate understanding and resources to provide the kind of support that the Malaysian exporters especially SMEs require. That can be done through internal process as well as collaboration with third parties. In the case of MATRADE, it has already started collaborating with universities, research institutions as well as big data analytics companies that are able to provide additional resources, insights and infrastructure needed by MATRADE to provide the SMEs with the kind of support required for them to succeed in the era of Industry 4.0.

There has to be a greater level of syndication of responsibilities with other government bodies that have the right resources to expedite the adoption of technologies among Malaysian SMEs. This includes agencies involved in training such as the Human Resources Development Fund as well as SIRIM, which facilitates the adoption of certification and testing practices among Malaysian companies.

The final component will also need to be the financial ecosystem. The speed in which technologies change necessitates a great level of agility among funders, be it from the government sector or private to absorb certain amount of risk in funding the adoption of new technologies. A risk averse financial ecosystem could be detrimental to SMEs seeking fast technological response to market changes.
MATRADE is working hard to continuously align its process and incentives to supporting exporters embarking in Industry 4.0 processes. It has also proactively undertaken various initiatives to push this agenda forward.

This year alone, MATRADE has undertaken efforts to collaborate with third parties such as Intel to co-organise workshops and seminars involving more than 100 Malaysian companies from the E&E, ICT and M&E sectors on Industry 4.0 topics such as smart manufacturing. MATRADE has also organised seminars on logistics and financial services to promote the array of support services available to Malaysian exporters of Industry 4.0 products and services.

Additionally, MATRADE also organised the participation to three overseas trade fairs related to Industry 4.0, availing 45 Malaysian companies to technology, business leads and market opportunities.

The Malaysian Government has currently put in place incentives to support the use of automation, robotics and ICT among SMEs.

These include:

• Capital allowance to increase automation in labour-intensive industries (eg. rubber products, plastics, wood, furniture, and textiles industries) - Capital Allowance of 200% on first RM4 million;

• Reinvestment Allowance of 60% on Qualifying Capital Expenditure incurred within 15 years;

• Production of Selected Machinery and Equipment - 100% tax exemption for 10 years; and

• High Technology Companies - 100% tax exemption for 5 years

This can be a good start to support the Malaysian exporters’ aspirations to move to Industry 4.0. However, greater thought will be given to reevaluate and/or improve the current set of support system to further promote the adoption of significant components of Industry 4.0 such as automation, robotics and ICT.

Moving Forward

The failure to respond to the impetus and opportunities from Industry 4.0 could erode Malaysia’s exports and exporters capabilities to compete in the long run. This could create a significant divide between Malaysia and countries who have proactively transformed its industries and government machinery to respond to these opportunities.

The first mover advantage will be crucial to ensure the Malaysian SMEs are able to quickly escalate their resources - technology and manpower - to ensure they are able to harness the potential of Industry 4.0 to provide value to their customers and stakeholders and consequently generate greater income and profit margins for them.

However, a delay in this adoption can be detrimental to the overall economic growth and export sector of the country. For example, in sectors that are highly dependent on supply chain such as E&E and aeronautics, failure to adopt SOPs determined by the principals will result in companies losing their access to vendor programmes. Malaysia is clearly ready to respond as there are already preparations to launch a National Policy on Industry 4.0. Ultimately it may just come down to how well

Government organisations such as MATRADE can provide the private sector with the right policy mix, concerted capacity development programmes and trade promotion activities to make the difference.

By all indications, it looks like MATRADE and other government agencies are ready for the challenge.

MATRADE has also organised seminars on logistics and financial services to promote the array of support services available to Malaysian exporters of Industry 4.0 products and services.