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By June Ramli
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Kuala Lumpur, June 16: The manufacturing sector in Malaysia is poised for growth with a renewed increase in momentum seen at the start of the second quarter of this year. The seasonally adjusted S&P Global Malaysia Manufacturing Purchasing Managers’ Index rose from 49.6 in March to 51.6 in April this year. This shows a renewed improvement in the sector. Additionally, manufacturing has also contributed 22.9 per cent to Malaysia’s economy last year. The increase has seen a rise in job vacancies and opportunities within the sector. With this in mind, DailyStraits.com recently spoke to Rimini Street Southeast Asia and Greater China GVP and Regional GM Andrew Seow on its recent technology partnership with AllianceCorp Manufacturing Holdings (ACM) to help transform the manufacturing ecosystem in Malaysia. In this exclusive interview, Seow tells us what the partnership entails and his thoughts about the sector as a whole.
What is the market potential that the manufacturing sector in Malaysia can accomplish through technology transformation?
While Malaysia is abundant with natural resources, it is the manufacturing sector that has played a key role in transforming it into an important player in the global value chain, rapidly turning the country into an industrialised nation. This Fourth Industrial Revolution entails infusing higher value-added manufacturing processes through the application of digitisation, advanced manufacturing technologies and efficient resource utilisation. It has resulted in enhanced efficiency and reduced dependency on human labour, thereby ultimately driving competitiveness in the ecosystem. In Malaysia’s transformation journey, particular emphasis needs to be given to SMEs as they constitute the bulk of manufacturing companies (98.5 per cent) and act as a major source of employment (42 per cent). Apart from large manufacturing players, Industry 4.0 also has the potential to transform manufacturing SMEs in multiple ways: improving productivity, efficiency, and cost; and developing innovators and producers of Industry 4.0 technologies.
While on one hand, it underscores Malaysia’s strong current manufacturing position, on the other, it also highlights the economic value at stake if Malaysia is not able to transform itself in an accelerated manner. The competition from global leaders like Japan, the Republic of Korea, Germany, Switzerland and China is still significant and other countries in the region have aggressive plans and are moving fast in their implementation. Services related to Industry 4.0 are important to help Malaysian companies accelerate their transition, especially in developing people, transforming processes and adopting technologies. Hence, Industry 4.0 service providers need to be involved as an integral part of the ecosystem and be connected to manufacturing firms, especially SMEs, who often have limited visibilities.
How would the manufacturing sector play a vital role in revitalising Malaysia’s economy post-pandemic?
The Malaysian manufacturing industry is an important economic sector contributing about 22 per cent to the GDP in the last five years. To date, its growth has had the effect of stimulating jobs, attracting investments and creating business opportunities in the downstream activities and related services sectors. The manufacturing sector is expected to remain resilient and is on track to achieve the targeted annual GDP growth rate of 5.1 per cent under the 11th Malaysia Plan (RMK-11).
The manufacturing business is continually growing with more and more automation infusion, from mass production through the employment of an intensive labour force in production lines to the usage of robotics to boost efficiency. COVID didn’t significantly slow the digital economy. The crisis precipitated its adoption by creating a critical need for technology-enabled processes to support new needs. Companies are revamping business models to adapt to new consumer expectations and market disruptions. The Fourth Industrial Revolution which is the next stage of evolution took centre stage. As a result of technological efficiencies, the manufacturing sector is ideally positioned to contribute considerably to Malaysia’s economy following the epidemic and revitalise allied industries. However, to help these new business models succeed, IT must find ways to quickly build resiliency and enable agility, while CIOs must find creative ways to cut waste and re-invest where dollars drive tangible results.
How would talent searching in the manufacturing sector represents a cycle of growth and innovation?
Enhanced productivity, job creation, a high-skilled talent pool and ultimately economic prosperity and societal well-being are tell-tale indications of a growing manufacturing sector, especially in a country like Malaysia where the sector contributes significantly to the national economic growth. It demonstrates how innovation in the manufacturing sector is fundamentally reshaping the jobs landscape to foster significant changes in the way industrial workers perform their jobs. It will increase the talent search for entirely new jobs with very different skill requirements. The transition to smart manufacturing business models, technologies and processes is rapidly changing the required skill sets for the existing workforce. Many firms, especially SMEs, will require more structured and up-to-date training and skills development avenues for developing and maintaining world-class practices and capabilities within their workforce, including experts with advanced Industry 4.0 knowledge.
How can third-party players help manufacturing organisations optimise their IT investment costs?
Rimini Street helps manufacturing companies maximize the value of current systems and free up funds so they can focus their budgets on strategic initiatives like solutions to current operational disruption and short- and long-term transformation. The leaders will likely sustain revenue growth, demonstrate higher EBITDA margins and increased Return on Invested Capital (ROIC). Manufacturing organizations were already struggling to navigate increased global competition, high labour costs, thin margins, environmental regulation, automation, rapidly changing consumer expectations and new digital business models. Now, maintaining the status quo is simply not an option and action is required. To enable growth, Manufacturing organizations are focusing resources on key priorities that can help them create resiliency and rethink requirements to supply and demand. Third-party support from Rimini Street has helped more than 600 manufacturing companies significantly reduce Oracle and SAP support and related costs to address near-term budget challenges and invest in digital transformation programs that drive competitive advantage and growth. In summary, reducing costs and maximizing existing investments, customization support, freeing up funds for digital transformation projects, and maintaining stability where organisations can tactically gain efficiencies in existing ERP along with value premium services and support for global tax, legal and regulatory compliance are the key reasons Rimini Street is a trusted partner for the manufacturing industry.
How can efficient IT systems and teams ensure manufacturing processes are not disrupted, resulting in higher outputs?
A majority of the companies want to reimagine their current IT and OT systems, upgrading them to deliver the horsepower that advanced use cases in digital and analytics depend on—particularly to support IoT. To ensure this happens seamlessly and without downtime, a scalable, obsolescence-resistant IT stack is essential. Similarly, upgrades of suppliers’ IT/OT systems must also go through free of any disruption for end-to-end horizontal integration of data. To bring in expertise, companies can leverage external technology providers by creating an ecosystem of partners that can help them execute the digital transformation. These partnership models can range from outsourcing with third-party vendors such as Rimini Street to acquisitions, and strategic alliances.
To navigate today’s challenging economic scenario and thrive tomorrow, manufacturing CIOs need to instil stability where they can tactically gain efficiencies in areas like ERP.
Instead of deploying large transformation projects, seek quick wins that help the organization pursue innovation without disrupting critical operations. By shifting budget priorities, CIOs can become superheroes by funding what’s essential, optimizing spending, and using the savings to help fund the future.
What are some of the technology trends that are poised to transform the sector?
According to Gartner, 90 per cent of the average IT budget is secured for ongoing operations and enhancements, while only 10 per cent of the budget is set aside for business transformation initiatives. In the case of the manufacturing industry, this includes implementing technology that can potentially transform the sector. When costs in software support are reduced with the help of third-party players, manufacturing organisations can use these resources to instead focus on implementing solutions that can deliver faster order responsiveness, improved collaboration, better market intelligence, and more effective customer communications. The key aspects cover:
Revolutionizing manufacturing software support services: As the manufacturing industry moves to Industry 4.0, combining the latest smart technology with traditional manufacturing platforms, makes it more important than ever to avoid disruption to mission-critical systems
Cutting application support costs and maintaining cash flow: Many manufacturing organisations run lower-margin businesses, and their IT teams are in a daily war against costs. Their application support systems must enable them to redirect precious resources to innovation and strategic initiatives that enhance competitive advantage and fuel growth.
Refocus resources to help fund digital innovation: The industry is navigating increased global competition, high labour costs, thin margins, environmental regulation, automation, rapidly changing consumer expectations, and new digital business models. Maintaining the status quo is simply not an option and action is required. Saving valuable time and resources on costly ERP upgrades ─ or on reapplying customizations post-upgrade ─ is key.
In comparison to Vietnam, how does Malaysia fare when it comes to the manufacturing sector?
Vietnam is enjoying an influx of foreign manufacturers, that began in 2017, as low-end garment and shoe factories began to leave China and its rising costs. Today, Vietnam becoming a major hub for high-tech manufacturing, as geopolitical tensions are forcing the realignment of the supply chains that supports the computer, smartphone and telecom industries.
Free trade agreements (“FTAs”) have had a direct impact on the movements of goods across international borders. While China has a higher total number of FTAs, Malaysia and Vietnam have more multilateral trade agreements in place. This multilateral trade approach arguably provides access to more countries with larger markets.
In terms of cost considerations, Malaysia and China have significantly higher wage costs compared to say Indonesia and Cambodia, whereas Vietnam and the Philippines have similar wage costs which are significantly lower than China. Utilities, taxes, and land rental costs are other key cost considerations that make Vietnam an attractive investment destination For supply chain considerations, Vietnam’s shared land border with China (with direct road connections) enhances its interconnectivity and arguably reduces supply chain disruption risks, adding more stability to the value chain. Vietnam is also a rising electronics manufacturer and has a very significant garment manufacturing sector. Malaysia on the other hand has attracted attention for its higher value-added industries and hi-tech manufacturing.
What are some of the manufacturing sectors or industries that Malaysia is leading in or can better improve at?
Malaysia’s Industrial Production Index (IPI) grew 5.1 per cent in March, steered by the manufacturing sector with a growth of 6.9 per cent, despite the challenges posed by the pandemic. The manufacturing sector output based on year-on-year comparison increased by 6.9 per cent in March 2022 after recording a growth of 5.2 per cent in February. Some of the key industry verticals that have contributed to this growth owing to their innovative mindset and increased technology adoption include Electrical & Electronics Products, Non-metallic Mineral Products, Basic Metal & Fabricated Metal Products, and Food, Beverages & Tobacco industries. Some of the sectors such as construction, livestock, plantation and real estate require a renewed focus to drive efficiencies and outputs that are necessary for optimum margins.
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June Ramli is the editor of DailyStraits.com. To stay in touch with June, look her up on Twitter @junesairaramli