Malaysia’s Budget 2022: US$10.8M For Industry4WRD To Address SMEs’ Main Challenges

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A recent Industry 4.0 drivers online survey found financial capability as a key challenge in adopting Industry 4.0.

Petaling Jaya, Malaysia, 2 November 2021

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In Budget 2022, the Malaysian government announced the allocation of RM 45 million (US$10.8 million) as a technological transformation incentive for SMEs as well as mid-stage companies in the manufacturing and services sectors, in line with Industrial Revolution 4.0 or Industry4wrd.

A recent online survey, “Industry 4.0 Adoption Journey 2021” found that Financial Capability is the top reason SMEs have yet to adopt Industry 4.0. The RM 45 million (US$10.8 million) allocated for Industry4wrd will be a boost to drive the level of Industry 4.0 adoption among manufacturers and manufacturing-related services. 

The Online Survey was jointly conducted by Malaysia Productivity Corporation (MPC) together with a group of Industry 4.0 drivers, including Bizsphere Brand & Marketing Group, unifi Business, Aresys Industries, Emerging EPC, ICA 40, Monitor ERP System, SHRDC, and SmartB Solutions from 7 October 2021 to 24 October 2021.

Ten thousand businesses, including companies part of the Industry4wrd Readiness Assessment Programme, were invited to participate in this survey. The survey focuses on three key components: present industry 4.0 initiatives, challenges (People, Process, Technology, Finance) in adopting Industry 4.0, and government incentives.

“The Online Survey is one of the continuous Private-Public Partnership initiatives to drive Industry 4.0 adoption and to formulate strategies and programmes to address any gaps and concerns. Digital Transformation of manufacturers is vital for Malaysia to compete in the global market. We are pleased that the government listens to the voice of industry, especially the SMEs. We are confident that Malaysia will regain its competitiveness in advanced manufacturing through the synergistic Private-Public Partnership programmes and initiatives.” shared Keng Teck, managing consultant of BIZSPHERE Brand & Marketing Group.

The survey received 173 respondents, with the majority of respondents being SMEs, with 45.66 percent from Small Size SME and 41.04 percent Medium Size SMEs (in accordance with the official SME definition by SMECorp).

Reasons For Not Starting Industry 4.0 Journey

The top four reasons why manufacturers have yet to start their Industry 4.0 Journey are Financial capability (42.41 percent) followed by People readiness (32.28 percent), Unsure of what to do (25.95 percent), and Machines Automation is a priority over Industry 4.0 (25.32 percent).

Ms. Teh Sook Ling, executive director of Selangor Human Resource Development Centre (SHRDC), commented that there are still myths that investment into Industry 4.0 has to be high in hundreds of thousand MYR. Many manufacturers are still unaware that they can start small and scale up when they are more ready. Smart Manufacturing is a journey. Manufacturers can kickstart with a particular production process instead of the whole factory process chain. “People will always be the challenge for any manufacturer. Yet, in the case of Industry 4.0, it is mission-critical for the management team to equip themselves with basic knowledge before they can get the buy-in from their team to pursue advancement,” she says.

“The investment preference of machine automation over industry 4.0 is not surprising as most manufacturers are more concerned about present operation than future development. Yet, manufacturers ought to be more forward-looking on the potential opportunities and possible threats. Industry 4.0 is an unavoidable global progression and advancement. Manufacturers need to be in the race or end up out of the game,” says Daniel Haggmark, managing director of Monitor ERP System.

The respondents’ level of understanding of Industry 4.0 is rather high at 71 percent, whilst 29 percent are still unclear of how industry 4.0 will benefit their business or are still unclear about the concept. Respondents are equally spread on their Industry 4.0 journey. There are positive developments where only about 10 percent of respondents have yet to undertake any initiative on Industry 4.0. Ninety percent of them are already in different stages of the Industry 4.0 journey from exploring the idea to practicing and implementing it in their factory.

Challenges In Adopting Industry 4.0

PEOPLE. The top three challenges for manufacturers are the knowledge or level of understanding of Industry 4.0 among their engineers or factory supervisors (56.96 percent), followed by the management team having minimum knowledge on Industry 4.0 (44.30 percent). Operation team follows as most of them are identified as being computer illiterate and unskilled workers (30.38 percent). Management might be the ones who will steer the business towards smart manufacturing, but it is the middle management in the factory who will drive and ensure smooth implementation. It is not only the matter of starting the journey but ensuring continuity to gain long-term ROI and competitiveness.

PROCESS. “Not knowing what is the available Industry 4.0 technology that is relevant to its operation” (46.20 percent) is the top process challenge of manufacturers. This is followed by “not knowing where to start and what to prioritise” (32.91 percent). This is despite 70 percent of respondents having a basic understanding of the concept of Industry 4.0. “There is still fear among manufacturers of wrong decisions as it may affect their present operation on top of perceived high investment. Manufacturers are advised to identify their operational pain points in their factory and then to explore how Industry 4.0 can address it.” commented John Loh, director Emerging EPC.

TECHNOLOGY. Manual Production is the most common challenge (41.77 percent) faced by manufacturers, followed by uncertainty on how to choose the right Solution Partners (37.97 percent) and compatibility of present equipment with Industry 4.0 technology (37.34 percent). A certain level of automation is needed to generate data, not to mention analysing it for decision making. Manufacturers may intend to advance them with Industry 4.0 but are limited by their manual operations.

FINANCE. Not having sufficient funds to finance the Industry 4.0 project (50 percent) tops as the main financial challenges whilst 40.51 percent responded that they are unsure and not convinced of the potential ROI from Industry 4.0. It is interesting to note that respondents named “waiting for grant or loan to be approved before proceeding with the project as their fourth challenge (38 percent). The speed of grant or loan approval may be the determining factor on how many and how fast manufacturers will adopt Industry 4.0. “We believe that manufacturers’ main concern should not be how much the investment is, instead they should focus on the speed and potential level of ROI to make the decision. Manufacturers should approach Industry 4.0 as a strategic business investment instead of treating it as a technology cost, shared Alwin Ng – CEO & Founder of SmartB Solutions advises.

Government Incentives

The government is already addressing the issue of financial challenges and uncertainty on how to start their industry 4.0 journey. For example, Industry4wrd Readiness Assessment Programme is fully subsidised for SMEs. Manufacturers are urged to participate in the programme to assess the gap, pain points, and opportunities as the foundation to start their smart manufacturing journey.

Government incentives have been one of the main drivers to accelerate the adoption of Industry 4.0 by manufacturers. Some key schemes available include:

  • Soft loan scheme for automation and modernisation (SLSAM) by Midf,
  • Industry Digitalisation Transformation Fund (IDTF) by BPMB,
  • Industry4wrd Intervention Fund and Domestic Investment Strategic Fund (DISF) under MIDA,
  • Industry4wrd Readiness Assessment Programme and Rise4wrd, which are fully subsidised programme for SMEs, and
  • Automation Capital Allowance, which reduces tax payment.

54.11 percent of respondents are already in different stages of Industry4wrd Readiness Assessment (RA), with 41.1 percent who already received their RA report. 30.82 percent have already applied for the Industry4wrd intervention fund, with 13 percent having received their approval.

42.47 percent responded that they would only embark on the Industry 4.0 project after the grant application has been approved. Only 20 percent of the respondents are willing to embark on the Industry 4.0 journey if they can see the ROI even without a grant. 26.71 percent are willing to invest now while waiting for the grant to be approved should they be allowed to claim part of what they have spent when the grant is approved in the future. 

Comparing the choice of speed and grant amount, only half of the respondents, prefer higher grant value over shorter approval time. Another half sees the importance of a shorter approval time for a smaller grant amount. “The Covid-19 pandemic has greatly affected many businesses, and a high number of SMEs are facing a shortage in cash flow. Manufacturers might not have the financial capability to use their reserves to invest in Industry 4.0. Therefore, manufacturers will likely wait for their grant to be approved before having the confidence to invest in Industry 4.0. This will lead to delay in adoption and loss of opportunity to increase productivity and marketability. Half of the respondents are willing to sacrifice bigger grant amounts for speedier approval.” added Keng Teck, who is also the chairman for Industry 4.0 cum National Vice President of SME Association Malaysia.

Suggestions For Government Consideration

Open-ended comments on government incentives received both positive and negative feedback. Some praised the government’s effort in supporting SMEs by offering grants and other incentives and learned a lot about Industry 4.0. The grant has also sped up improvement in process and system for their facilities. The sizable allocation of RM 45 million (US$10.8 million) could be best used to organise more outreach or engagement programmes as well as small grant value for manufacturers to kickstart their Industry 4.0 journey.

Low grant value and slow approval process are the most common negative comments spotted. Among the suggestions is for the government to release funds according to project phases to help manufacturers transform their business, which has been greatly affected by the pandemic. Another suggested effort is to simplify the application procedure and process.

-End-

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