THE CHANGING LANDSCAPE OF MANUFACTURING SECTOR
11MP strategies will chart new direction to produce high-value, diverse products
THE manufacturing sector remains an important sector in the Malaysian economy. In the first quarter of this year, the sector was the secondlargest contributor to Malaysia’s gross domestic product (GDP) at 22.8 per cent, followed by mining (nine per cent), agriculture (7.8 per cent) and construction (4.8 per cent).
The services sector contributed 54.2 per cent to GDP in the quarter.
As of last year, Malaysia recorded a total of RM1.07 trillion of approved investments in the manufacturing sector. Of these, 54 per cent were from foreign sources, while the rest were domestic investments.
These investments contributed to positive economic benefits for Malaysia, including job opportunities, exports and businesses for local suppliers.
While Malaysia is moving steadily towards a diversified service-based economy, the sector continues to play an important role in the economy as the next wave of business and investment opportunities is high-value manufacturing.
This area is still largely untapped by local and foreign companies, but it is vital in sustaining the service-based economy Malaysia wants to achieve in the long term.
Malaysia also needs to continuously focus on the sector to improve export numbers in making its growth more sustainable in the long run. Currently, manufactured goods are the largest component, contributing more than 80 per cent to Malaysia’s total exports.
With clear and predictable policies in place, Malaysia continues to have the trust and confidence of foreign investors in its investment environment.
This is attested by a multitude of independent international institutes and organisations.
For example, Cushman & Wakefield’s Manufacturing Risk Index 2017 retained Malaysia’s position as the most attractive manufacturing market of choice for manufacturers.
Malaysia also is ranked first out of 80 countries in a survey on the best nations to invest in, ahead of regional competitors Singapore, India, Thailand and Indonesia, based on the 2017 Best Countries Report, a joint rankings and analysis project from US News & World Report, Young & Rubicam’s BAV Consulting and the Wharton School of the University of Pennsylvania.
In tandem with the Economic Transformation Programme, the 11th Malaysia Plan (11MP) introduced strategies to chart a new direction for the sector to produce high-value, diverse and complex products.
Growth would be driven by the private sector, with private investment expanding at 9.4 per cent per annum. The manufacturing and services sectors are expected to contribute more than 75 per cent of the total GDP.
Five strategies have been identified with the relevant action plans:
Moving towards complex and diverse products;
Enhancing productivity through automation;
Stimulating innovation-led growth;
Strengthening growth enablers; and,
Ramping up internationalisation.
To encourage the transformation of the sector, the government has implemented several initiatives. These include incentives packages for the production of robotics and factory automation equipment and related modules, automation capital allowance for companies undertaking automation as well as facilitation of the modernisation and upgrading of plants.
The country is now more targeted in its investment promotional efforts.
The focus is to attract quality investments, i.e. high technology, high value-added, knowledge intensive, skills intensive, exportoriented, capital intensive, design and research and development (R&D) intensive, high gross national income impact and have strong linkages with domestic industries.
The Malaysian Investment Development Authority (Mida), as the execution agency for the nation’s investment agenda, adopts an ecosystem approach whereby concerted efforts have been put in place to promote the entire value chain of industry clusters and enhance delivery enablers to support the value chain.
This is not confined to just within the country but also in the larger Asean region where investors can connect to more vibrant and accessible investment opportunities through operating in Malaysia.
Malaysia is already at the forefront of several markets within high-impact industries in the sector, such as aerospace and solar industry.
The country currently has an almost complete solar ecosystem, which comprises about 250 companies — the upstream ranging from polysilicon, wafer, cells and modules production as well as the downstream such as inverters, balance of system components and system integrators segments.
In the aerospace industry, the country has developed a strong local supply chain that consists of both global and local industry players.
Spirit Aerosystems, the world’s largest first-tier aero-structure manufacturer, is one of the top investors in Malaysia’s aerospace ecosystem.
On the homefront, Malaysia’s budding aerospace sub-sector features prominent local companies such as UMW, SME Aerospace, CTRM Aero Composite, Sepang Aircraft Engineering, Airod and Malaysian Aerospace Engineering.
Under 11MP, three catalytic sub-sectors, namely chemicals, electrical and electronics (E&E) and machinery and equipment (M&E) industries, and two subsectors of high-potential growth, namely aerospace and medical devices, have been identified to drive the growth of the manufacturing sector.
The “3 + 2” sub-sectors were selected due to their strong inter-linkages to other sub-sectors and indirectly, their capacities will be the base to support the development of the overall manufacturing sector.
Today, outsourcing is the name
of the game. Some companies have restructured their business plans and relocated their manufacturing facilities from Malaysia to other countries as the growing pace of economic development here no longer supports labour-intensive and low value-added industries.
Emerging trends and technologies that are convergent and disruptive should also be taken into account.
For example, the rise of smartphones and tablets has rendered many of the standalone application products, like household appliances and consumer electronics, less competitive.
The E&E industry as a whole is undergoing consolidation to have bigger economies of scale. This shift, while primarily used to obtain new technology, is motivated mainly by the slowing growth in a mature market, rising costs and complexity of the industry.
This has resulted in a changing landscape within the industry as we see a rise in mergers and acquisitions, particularly in the tech sector.
Despite the downsizing or closure of companies of many labour-intensive industries here, Malaysia continues to attract investments in the manufacturing and services sectors, particularly from multinational corporations (MNCs).
Malaysia remains an attractive location for investments This is reflected by the double-digit growth of its annual gross fixed capital formation since 2010 from RM101.3 billion to RM211.3 billion last year, an average increase of 13.2 per cent per annum.
Many MNCs here also continue to expand and diversify their operations. Notable companies include B. Braun, Osram Opto Semiconductor, Infineon, Abbott, Boston Scientific, HP, Biocon, Keysight Technologies, Rohm-Wako, Longi and Jinko Solar Technology.