Supporting Domestic Industry Players during an Unprecedented Crisis
24 Jun 2020
By : Dato’ Azman Mahmud
The entire world was caught off-guard by the unprecedented challenges from the COVID-19 pandemic. In battling this, many governments have had to put drastic measures in place. The pandemic has impacted not only our everyday lives but also the productivity, supply chains and growth plans of many businesses. In Malaysia, the government enforced the first Movement Control Order (MCO) on March 18, 2020, as a measure to contain the spread of COVID-19. This was followed by the Conditional MCO and now the Recovery MCO until Aug 31, 2020. As a result, Malaysia is not exempted by the economic impact of these measures.
Many companies face declining sales, challenges in production, and the inability to physically engage with customers. Economists estimate that between 20 and 30 per cent of SMEs, particularly those in the non-essential sectors, would have to scale down or shut down their businesses. An unprecedented situation calls for extraordinary responses. Businesses today need to take decisive actions and re-examine their approaches to weather this storm.
MIDA support for businesses
The Malaysian Investment Development Authority (MIDA) has been leading efforts to secure sustainable investments, both foreign and domestic, that will strengthen the country’s business ecosystem. MIDA recognises that small and medium-sized businesses (SMEs) in the manufacturing and manufacturing-related services sectors are part of the industry ecosystem. They support large companies and multinational corporations in driving the economic growth of the country, and are key to our economic recovery in this present crisis. We continue to support local businesses and SMEs, especially during this time, to build their capabilities through business linkages with the multinational corporations (MNCs) and large local companies (LLCs). We seek to position these SMEs to better expand their market outreach, adopt best practices and become critical parts of domestic supply chains in sustaining and strengthening the industry ecosystem.
Before the MCO, MIDA had organised seven regional and three national supply chain development conferences, which had attracted more than 5,000 business owners and industry players; conducted business matching sessions between anchor companies and potential local suppliers/providers; and initiated engagement sessions between companies and potential funders/technology providers. MIDA also organised domestic investment seminars on quarterly basis to update industry players on the government’s latest incentives and facilities in promoting domestic direct investments (DDI).
Success of initiatives
The success of these initiatives is reflected by the many MNCs that have started establishing vendor development programmes and supply chain management initiatives with local companies and suppliers. They developed local supply chains to ensure the smoothness of their operations and to maintain costs. Over the years, these local suppliers became large manufacturers in their own right and employed local graduates/talents.
Some examples include B. Braun Medical Industries that has established a strong presence of local suppliers and businesses in its supply chain ecosystem. The presence of more than 30 MNCs producing high value-added medical devices in Malaysia has successfully created and benefited more than 200 local SMEs in the medical device industry’s supply chain ecosystem. The local companies include Abio Orthopaedics Sdn Bhd, Straits Orthopaedics (Mfg) Sdn Bhd, Vigilenz Medical Devices Sdn Bhd, Granulab (M) Sdn Bhd, Hospitech Manufacturing Services Sdn Bhd, and OSA Technology Sdn Bhd.
As for the UK-based producer of high-tech home appliances in Johor, Dyson Ltd, it has injected billions of ringgit into the economy by outsourcing its production to local contract manufacturers such as VS Industry, SKP Resources and ATA. Dyson also shared the knowledge, skills and technology with its local suppliers to meet Dyson’s high standards of quality. To-date Dyson has produced 15 million units of Malaysian-made bagless vacuum cleaner with the support of local manufacturers and exported to more than 75 countries worldwide. Some of its local suppliers have now grown into large, public-listed companies.
In the petrochemical industry, Lotte Chemical Titan, the largest integrated
producer of olefins and polyolefins in Malaysia, spends more than RM200 million annually for outsourcing activities to local suppliers. Lotte Chemical Titan has so far engaged with more than 500 local vendors and business partners.
In addition to MNCs, LLCs such as PETRONAS, YTL, SIME DARBY, UEM, and PROTON continue to support the development of Malaysian companies through outsourcing activities either in services, manufacturing or construction sector, both in Malaysia and abroad. This provides the opportunity to showcase Malaysia’s reliable and diversified ecosystem to the world.
In the electrical and electronics industry, MIDA has been supporting Pentamaster Corp, a homegrown automated equipment manufacturer, in their Penang Automation Cluster project in efforts to groom SMEs to produce high-quality precision machine parts. The company formed a joint venture with two other local companies, Walta Group and ViTrox Corp, for this particular project as a domestic supply chain development initiative.
MIDA re-strategising approaches
The development of a domestic supply chain ecosystem contributes significantly to Malaysia’s economy as this strengthens the local businesses and creates quality jobs for local graduates. The E&E sector, for example, contributed 6.3 per cent to the country’s GDP in 2019 and employed more than 800,000 employees out of 2.3 million manufacturing workforce in 2019. The sector also contributed some RM372.67 billion in export value, representing 44.7 per cent of all manufactured goods exported.
As the Government is now reopening the economic sectors, businesses need to be prepared and adapt to new ways of working and living as restricted international travel, social distancing rules, and other restrictions involving large crowds will remain for the foreseeable future. Recognising that we are in this for the long haul, MIDA is also re-evaluating and re-strategising approaches in supporting the local businesses and SMEs to rebuild stronger and ensure their long-term survival and sustainability.
MIDA,together with other MITI agencies, has been promoting the adoption of the Industry 4.0 or Industry4ward to domestic players, particularly the SMEs, with great emphasis placed on the role of digital transformation. While adoptions among industry players have been relatively slow, this present crisis has exposed the urgent need to embrace these technologies to survive. It is time to reset, reskill and carve out a niche in the market. On the flip-side of the challenges caused by the pandemic, it has also become a catalyst for local players and SMEs to transition and optimise the usage of new technology, business digitalisation and e-commerce platform for their businesses. Under his new normal era, digital readiness is no longer optional, but a necessity.
MIDA has recently launched an initiative known as the “Lighthouse Project”. This project is set to provide comprehensive guidelines for the development of Malaysia’s manufacturing industry in adopting the Fourth Industrial Revolution and to reposition the country to be among the top Global Manufacturing nations. To find out more about Malaysia’s Lighthouse Project, you can visit: https://www.mida.gov.my/home/malaysias-lighthouse-project/posts/
Through this project, MIDA will identify and attract foreign companies which have successfully adopted and implemented the Industry4.0 key pillars to invest in Malaysia. These multinational companies would then be encouraged and provided with ‘tailor-made’ facilities to establish linkages and develop local vendor development programme, and lead the local companies in taking actionable steps to advance into Industry 4.0.
In promoting the “Lighthouse Project”, MIDA has initiated webinar sessions with industry players and potential investors through the chambers of commerce and industry, and associations such as National Chamber of Commerce of Industry of Malaysia (NCCIM), British Malaysia Chamber of Commerce, and European Union Chamber of Commerce in China. Similar sessions will be conducted with other industry players. To date, nine multinational corporations and 10 local companies have registered their interests to participate in the project.
This current global landscape is a challenging and uncertain time for all of us. As the situation evolves, ensuring business continuity and growth will be a priority. MIDA seeks to better support local businesses and SMEs through our continuous engagements and collaborations with the private and public sectors towards broadening prosperity for the country.
*Dato’ Azman Mahmud is the Chief Executive Officer of the Malaysian Investment Development Authority (MIDA).