IN mid-December 2018, South Korea revealed measures to enhance the development of manufacturing Small and Medium-sized Enterprises (SME), as part of a bigger plan to establish 30,000 smart factories by 2022.
Having supported the construction of 7,800 smart factories to date, the South Korean government plays an active role in helping companies upgrade their operations to smart factories. All of these efforts are aligned with its Manufacturing Industry Innovation 3.0 strategy, which was launched in June 2014.
The three western global leaders of Industry 4.0 transformation — Germany, the United States and the United Kingdom — show similar strategies where the governments mostly play an enabling role. They typically emphasise the establishment of strong institutions, Intellectual Property protection and support for research and development as the foundation of their strategies which have also proven successful.
However, China’s ascent as a manufacturing superpower takes the cake. The Made in China 2025 strategy plays a major role in China’s manufacturing success. It has generated more real manufacturing value added than the other four global leaders combined.
Playing ‘catch-up’, Malaysia’s International Trade and Industry Ministry launched its National Policy on Industry 4.0 late last year. The blueprint, named Industry4WRD, stated Inclusive involvement of SMEs as among five themes that could uplift Malaysia’s manufacturing sector. SMEs definitely play a big role — a whopping 97 per cent of companies in the manufacturing sector are SMEs, which are also employers of 42.1 per cent of workers in the sector.
To better chart a direction and to ensure a successful transition of SMEs in the manufacturing sector, the Industry4WRD Readiness Assessment programme will be implemented to identify gaps and escalate technological capabilities of 500 SMEs from 2019 to 2021. After all, more than 1.5 million Malaysians’ jobs depend on the sustainability of this sector.
Unfortunately, although there are many steps taken by the government to assist technological development of SMEs, the mood by the supposed receivers paints a sombre picture. Digital adoption, especially among SMEs, is barely touching 20 per cent, and most manufacturing companies apply less than 50 per cent of automation.
Malaysia has always scored among the highest in the region in terms of digital readiness, according to global surveys. However, the drive by industry players themselves falls short. Critical challenges include the lack of awareness, especially among SMEs, in terms of the impact of and benefits of keeping up with new technologies. The high cost of technological adoption coupled with a slow return of investment also results in profound unwillingness to jump on the Industry 4.0 bandwagon.
Lessons from international smart manufacturing strategies tell us that the drive from industry players is crucial. The success of the western intervention model lies on a bottom-up approach led by the private sector and markets.
In the Asian approach, although the governments play a substantial role through heavy investments in research and innovation, government subsidies and so forth, their citizens are hungry for technological success, aligned with the top initiatives. For instance, China’s domestic markets are very competitive. It is even attracting eager Chinese players based in Silicon Valley to come back, taking part in the rapid urban development and its increasing international appeal.
Why are our local players, particularly the SMEs, not as driven or hungry as their counterparts? Could it be due to education or cultural phenomenon? Perhaps both. Also, could the way SME funds are distributed be at fault? Strategies involving allocations of resources not only require avoidance of political interest but also need to spur the element of competition.
Key to taking the next step, Malaysia needs to convince reluctant industry players and boost their appetite to take this route. A study by Deloitte and MIT Sloan Management Review found that cultural changes are key to digital transformation rather than technological ones.
Malaysians need to start being enthusiastic, open to being challenged as well being opportunistic to grasp technology transformation. They need to understand that it is meant to complement human skill sets and ease our burdens. Making this a cultural norm would trigger other industry players to break the hesitation.
To achieve this, the government needs to set strategies with measureable targets. Most importantly, it needs to apply rigorous monitoring and evaluation mechanisms to ensure that industry players are on the same page.
Further, collaborations among the private and public sectors need to be enhanced. In China for instance, there is a sizeable role for private sector consultation, most of the time involving the formation of public-private councils. These collaborations could not only spark innovative ideas but also ensure both parties are aligned in terms of understanding and drive for digital change.
Even though the Malaysian government has stated its commitment in pushing forward the Industry 4.0 policy, it would be meaningless if the people are not on board. Similarly, the success of industry players is a success for Malaysia. As Prime Minister Tun Dr Mahathir Mohamad once said, “..it is our business to ensure that you do not fail in yours”.
Thus, if it takes two to tango, can we stop letting them dance alone?
The writer is senior analyst, Technology, Innovation, Environment and Sustainability (TIES)