Gearing up for IR4.0
20 Jun 2022
LEARNING from their experiences at the height of the Covid-19 pandemic, companies are increasingly integrating technology into their operations as an imperative, as they embark on their respective digital transformation journeys to regain lost ground and reinvigorate the growth of the economy.
It comes as no surprise that the global industrial automation market was valued at US$191.89bil in 2021, while it is projected to grow at a compounded annual growth rate of 9.8% to reach US$395.09bil by 2029.
In 2020, the World Economic Forum published a report revealing that although the rise of the machines and automation would eliminate 85 million jobs by 2025, it also expects 97 million new jobs to be created.
This means that with a focus on job creation, efforts towards rationalising automation and digitalisation is a critical progressive move forward.
On one hand, this helps businesses effectively use their resources and on the other, it also equips their manpower with the capability to improve productivity, technology deployment and speed.
In turn, automation helps to not only achieve cost-competitiveness, but also ensure that the current workforce remains relevant in targeted highly skilled and higher income job segments, in line with Malaysia’s move towards achieving a high-income economy.
In Malaysia, the state of industrial revolution in the manufacturing sector hovers between Industry 2.0 (IR2.0) and IR3.0 – made up predominantly of small and medium enterprises (SMEs).
Given that these SMEs form more than 90% of all Malaysian business establishments and contribute approximately 38% to the Malaysian gross domestic product (in 2020) and 48% to the country’s total employment, it is a crisis for the nation if they remain unaware of the importance of embracing automation to improve their competitiveness, moving forward.
Companies, especially SMEs, often cite lack of understanding about automation technologies and the perceived high cost of equipment as barriers to the adoption of automation.
Among the biggest misconceptions are the high cost of adopting such technology and that they have to automate the entire production line.
In order to address these issues, companies need to first identify the specific processes in their production lines that can be improved through automation.
Mida’s API is focused on enabling Malaysian businesses adapt to the new normal.
Alternatively, they can start with low hanging fruits for quick wins, within a short period of time, such as adopting simple devices like sensors to enable data collection and analytics.
Gradually, they can then enhance to more sophisticated machinery and equipment that is aligned with artificial intelligence and other cutting edge technology.
In seeking to encourage smart manufacturing, the government has introduced the Industry4WRD policy, among other initiatives.
This framework includes three core elements and eight core thrusts, which are designed to create a pathway for enhanced productivity, job creation and to grow a high-skilled talent pool in the manufacturing sector.
Getting help from experts
In today’s day and age, companies that want to stay ahead of the game must ensure that their systems are able to work synchronously, as integrated systems are key to boost the speed of information flow throughout the process, thereby reducing operational costs.
Conversely, systems that are not integrated will result in significant increases in cost and resource consumption.
While there are always trade-offs when considering the level of automation for a facility, the critical aspect to keep in mind is to ensure that experts have a seat at the table early on in the process and to carefully consider all available options.
Datuk Arham Abdul Rahman is the chief executive officer of Mida.
Thus, materialising the success of the automation journey means that companies should identify and work with factory automation providers or system integrators (SI).
These experts – who have inherent exposure to different industries and a wide range of projects that enables them to explore innovative solutions to resolve a client’s challenges – play a significant role in integrating systems, equipment and machinery to create a manufacturing solution, enabling the business to improve its productivity and quality of operations at the same time.
Locally, there are approximately 50 companies including Malaysian-owned companies that have grown and established themselves as internationally recognised providers of factory automation systems, including names such as Pentamaster, ACM, Greatech Integration, Genetec, Cheng Hua, TXMR, Vepro and XTS Technologies.
As compared to 2010, where there were about 25 local factory automation companies with RM234mil in total market value, there are more than 50 factory automation companies that provide different kinds of solutions required by their clients today – the top 10 have an accumulated total market value of more than RM25bil.
While different companies require different solutions when it comes to automation, there are varying challenges to successful adoption, even within the same industry.
It is critical to find a factory automation provider or SIs who can offer the right support to enable a smoother journey.
This is where the Malaysian Investment Development Authority (Mida) comes in, as it can assist to connect companies with the right factory automation providers or SIs.
Govt support and facilitation
In support of automation within the manufacturing sector, Mida has launched the Automation Project Initiatives (API), which is focused on enabling Malaysian businesses to adapt to the new normal in the post-pandemic era.
A physical platform that serves to connect labour intensive and low productivity companies with potential factory automation or SI players, API is an ongoing project.
Its objectives are to assist companies in automating their processes, particularly those heavily dependent on unskilled or foreign labour; as well as to disseminate the latest information on government facilitation and programmes for automation or Industry4WRD projects.
Under the initiative, Mida has organised a series of API programmes for industry players with various business associations, since it commenced on Sept 15, 2020. Several webinars on government facilitation for companies undertaking automation and digitalisation initiatives with reputable Malaysian factory automation providers and SIs were also held during the same period.
Through these initiatives, Mida aims to promote the importance of automation among local companies to transform their facilities towards becoming more competitive and cost-effective, while ensuring the success of their automation journey in Malaysia.
Apart from the Industry4WRD policy, the government is also committed to assisting businesses via its Industry4WRD Readiness Assessment and the subsequent Intervention Fund, by:
> Assessing their capabilities and readiness to adopt IR4.0 technologies and processes
> Understanding their present capabilities and gaps
> Preparing feasible strategies and plans to move towards effective IR4.0 adoption
The Industry4WRD Intervention Fund, for one, offers a matching grant of 70:30 on a reimbursable basis for up to RM500,000 for eligible expenditure.
In addition, as of May 31, 2022, Mida approved 444 applications for the Automation Capital Allowance (Automation CA), which provides a 200% tax deduction on the first RM4mil expenses incurred within eight years of assessment (2015 to 2023) for Category 1 (labour intensive industries) and a 200% tax deduction on the first RM2mil expenses incurred within eight years of assessment (2015 to 2023) for Category 2 (other industries).
Companies that have leveraged on these facilities have invested more than RM685.6mil.
As a result, the companies reported cost savings due to the reduction of over 2,448 unskilled foreign workers and contributed an average of 201.7% improvement in production volume.
For new and existing companies planning to relocate or incur new investment, the government has also provided a special tax facility.
Under Penjana, a 0% special tax rate for 10 years for new investments is offered to new companies in the manufacturing sector with capital investment between RM300mil to RM500mil; a 0% special tax rate for 15 years for new investments is also offered to company in the manufacturing sector with capital investment above RM500mil.
Meanwhile, existing companies in Malaysia that are relocating their overseas facilities into the country with a capital investment of above RM300mil may apply for 0% Investment Tax Allowance for five years, which is offset against 100% of their statutory income for each assessment year.
Moreover, Mida has also established a Project Acceleration and Coordination Unit, better known as PACU, to facilitate all necessary approvals, in addition to the 12 Mida state offices to assist and facilitate investors who are not based in Kuala Lumpur.
By doing so, Mida thus acknowledges the importance of factory automation providers or SIs in supporting the country’s IR4.0 vision, as well as supporting these factory automation providers or SI players – particularly local companies – to bolster their capabilities and capacity in the manufacturing and services supply chain.
Undeniably, the path to survival and competitiveness lies in manufacturers incorporating digital manufacturing into their business roadmaps, in order to serve as a sustainable long-term growth strategy and enable them to compete at the global level.
Source: The Star