Don't waste the crisis, push for growth

The World Health Organisation declared the outbreak of Covid-19 as a pandemic on March 11 2020. As at June 20, more than 8.6 million confirmed cases have been reported worldwide, while in Malaysia the number of infections was 8,535 with 8,070 recoveries.

On March 18 this year, the Malaysian government implemented the movement control order (MCO), which mandated the closure of many businesses. This was to contain the spread of the disease. Despite being one of the early bird industries that was allowed to commence operations, many electrical and electronics (E&E) companies were affected by the lockdown which disrupted their business.

It is important to note that the E&E industry in Malaysia, particularly the semiconductor ecosystem, has critical cross-industry linkages and applications. The supply chain of this industry is highly integrated, be it within its own industry or with other industries, locally and worldwide. The contribution of this industry to this nation is significant, accounting for 6.3% of its GDP, 38% of its total exports and 92% of its trade surplus in 2019. The E&E industry, employing 560,000 people, topped the approved investments in the manufacturing sector last year.

Financial problems and liquidity constraints, falling productivity, loss of customers, difficulty to save jobs, inability to meet contracts and reinventing business were some of the challenges that were faced by companies impacted by the pandemic. It has been estimated that the industry has suffered large losses during the four phases of MCO, reducing its contribution to GDP and total exports by Rm9.1bil and Rm35.7bil, respectively.

The E&E Productivity Nexus (EEPN) in collaboration with MPC and other government agencies have embarked on various initiatives to facilitate and accelerate recovery of E&E companies. The first is through webinars, followed by Virtual Advisory Clinics, Business Coaching as well as how to gain market access through trade clinics and promoting Malaysian E&E companies to the world (see chart).

We kicked off with a series of three business recovery webinars. The first was Rethink, Reinvent and Revitalise in the new normal and the objective was identifying challenges faced by companies affected by Covid-19 and strategies to overcome them.

The second was Making the Climb towards Recovery, assisting SMES to understand how to develop recovery plans for their businesses. It ended with the third webinar, Growing Business Against the Tides of Disruption, assisting SMES to seize opportunities in markets. In addition, EEPN in collaboration with the Digital Nexus organised a webinar on Digital Transformation to highlight the urgency and that digital transformation is inevitable. The i4.0 webinars in collaboration with Elliance talks about the why, what and how of i4.0, while Aachen University, Germany covered the technical aspects of i4.0. In the new normal, companies are greatly encouraged to go digital with less touch, as well as, implement i4.0 programmes to improve productivity and effectiveness to better serve their customers.

The business recovery webinars were well attended by companies in E&E and related sectors. Out of the 1,129 attendees, 10% were from mid to large companies, while the remainder were SMES. Feedback obtained has been relayed by EEPN to the government. The EEPN Virtual Advisory Clinics (EEVAC) connecting companies to advisors on one-on-one basis, are currently underway to help companies to undertake analytics and diagnostics on their respective companies for appropriate remedial action.

What does the future hold?

The recent EEPN survey conducted in June 2020 on 49 large E&E companies (both local and MNCS) showed that 22% of the companies are operating at full manufacturing capacity in May/june and is forecasted to increase to about 45% in Q4 of this year. There were 38% of companies were currently operating at >80% to <100% capacity and will sustain at this capacity till the end of the year. It is also good to note that 18% of companies which are currently operating at 50% to <70% is expected to reduce to 6% by Q4.

The positive outlook is driven mainly by the demand of cloud computing, servers, memory markets and medical device and health products. PC demands were better than expected due to WFH (working from home) initiatives while demands in the automotive and aerospace sectors are weak. In addition, the mobile market is also recovering. Even though we are still see weaknesses in the market, most MNCS are continuing with their expansion plans. If the MNCS and large local companies are able to sustain and grow, then the local supply chain will benefit and be able to sustain, if not grow. In this respect, the private sector is encouraged to take advantage of the assistance packages and incentives given by EEPN and the government to reenergise and reinvent their businesses to capture the opportunities created. Recovery will take time in light of trade disruptions, Covid-19 and possibility of further supply chain shocks due to geo-political uncertainties.

The E&E industry is a strong engine of recovery for Malaysia and there are opportunities that should not be missed. What’s the way forward? How should the industry and the country prepare themselves?

Firstly, the industry needs consistent messaging from the government. We need to operate in greater clarity and effectiveness. This will help to create confidence in the government and the economy. Information and decisions must be clear and when they are not, there is a waste of management time as they need to resolve the inconsistencies.

When the federal government issue a statement and the state government says something else, or the police or other government agencies on the ground act differently; it causes confusion. Companies face such situation in cases like testing of FW, travelling between states, implementation and updating of Covid-19 SOPS and many more. It will be good to have one voice and clarity in government’s information on RMCO. There should be one decision making body and all questions or requests can be channelled to them for decision making. Example here is foreign technical experts who need to fix or set up equipment and customers who need to come to Malaysia to qualify products or audit factories so that products can be shipped.

We need to rethink the way incentives are approved in light of the impact of the pandemic on the economy of the country and the increasing unemployment rate.

Unemployment is expected to exceed one million. Normal criteria and approval process should be reviewed and those who wish to expand or increase their investments especially if they are creating or adding new valuable jobs should be encouraged. Mida announced that there were 201 projects which were at the stage of factory construction and machinery installation. We need to follow through to help ensure the projects are completed, factories get started as soon as possible and real jobs are created. It will be great if Mida can report out the status of each project.

We need to make Mida as a one-stop agency and be fully accountable for investment into the country. Time and speed will be of important essence. Quick action, fast response and effective decisions should be the new normal especially in the next 12 months so that investments decisions can be made.

The new normal has accelerated the implementation of digitalisation. The government together with the industry need to undergo digital transformation at a faster rate. With WFH, zero touch, social distancing etc requires new or better digital tools. We encourage the government to work on one window for all payments eg quit rent, house assessment, utility bills, etc, one window of applications for approval (licenses, permits, etc ), and an integrated system for the government agencies so that data and info are shared between them.

This will ease the lives of the people, make processes transparent and make everything possible with the touch of the fingers.

As for the industry, we need to strengthen the companies for the rebound in the economy next year. While we are assisting them to recover with our programs discussed above, we would like to encourage them to embark on the i4.0 journey, to improve their factories productivity, implement IIOT (industry IOT), data analytics, automation and the like so that they can be globally competitive and satisfy customers’ expectations.

EEPN will launch the E&E virtual marketplace portal in Q4 2020 so as to promote Malaysian companies to world, thus giving them market access. The Malaysian government should promote a “local content” campaign, encouraging the MNCS and LLCS to nurture their existing local vendors and suppliers to expand and diversify.

The industry is concerned about the second wave. If there is one, then, we need the government to be prepared to have a better system of control to approve which industry can operate to allow business continuity and what SOPS should be applied. The approval needs to be not only transparent but also easy to implement. If not, the impact to economy would be greater. The Malaysia economy has started the recovery phase, where we have implemented a majority of our recovery plans.

As we move forward with the strategies above, EEPN believes that we would be in a much better position to progress into the subsequent phases, namely, revitalizing the economy as a whole, and to reform the existing economic structure as we leap into the new normal. Don’t let the crisis go to waste. We can transform, succeed and thrive in this new normal.

Datuk Seri Wong Siew Hai is chairman, E&E Productivity Nexus. The views expressed are the writer’s own.