Information & Communications Technology (ICT)

A special report by the Malaysian-German Chamber of Commerce and Industry (Sept/Oct 2017)

A year ago, Malaysia announced in its federal budget that 2017 would be "the year of the Internet economy". The desired outcome? To turn Malaysia into a country that's fully adapted to the realities of doing business in the 21st century.


The DFZT could enable delivery of goods from one central warehouse in Malaysia to consumers all over Southeast Asia - Photo by 123RF

The digital age has enabled businesses to electronically transact on a mass scale, affecting millions and turning customers into moving targets. E-commerce is the new game, but the number of fresh entrants with unfettered access to new markets has unnerved many domestic incumbents. Aware of the opportunity, the Malaysian government is racing to build a new and powerful digital economy ecosystem that will ensure all can stay on the path to greatness.

Malaysia may be one of Southeast Asia’s smallest nations, but it’s still an international place of business with tremendous digital opportunities. In 2015, Malaysia’s ecommerce market was estimated at RM 4.2 billion and is on equal footing with Singapore in terms of market size and developed infrastructure. Using a number of focused interventions, the Malaysian government now aims to accelerate growth so that ecommerce GDP contribution crosses RM170 billion by 2020.

 

MEASURING SUCCESS

For Malaysia to reach an Internet economy, a number of things must happen. First of all, national levels of Internet economic activity must rise. One way to secure this is by ensuring a high level of enablement – the amount of Internet infrastructure that is in place – such as integrated networks and hi-speed connectivity.

Then, expenditure must be adequate (the amount of money spent on online transaction and activity). Finally, there must be clear and rapid engagement (the degree to which businesses, governments, and consumers are involved with the Internet).

Oversight for many of these activities lies with the Malaysia Digital Economy Corporation (MDEC), a government-owned agency headquartered at the Multimedia Super Corridor in Cyberjaya.

MDEC, along with the Ministry of International Trade and Industry (MITI) has developed a masterplan to boost ecommerce that will build capabilities, boost productivity and expand market access. This year, its brand new initiatives coincided nicely with those of Jack Ma, the founder of Chinese ecommerce giant Alibaba.

In March, Alibaba Group announced construction of an e-hub that will act as a centralised customs clearance, warehousing and fulfilment facility for Malaysia and the Southeast Asian region, speeding up clearance for imports and exports. The hub is set for a launch in 2019.

Out of the e-hub was born the Digital Free Trade Zone (DFTZ) – a joint initiative by Prime Minister Dato’ Sri Mohd Najib Tun Abdul Razak and Alibaba Group to accelerate Malaysia’s digital roadmap that aims to double ecommerce growth from 10.8% to 20.8% by 2020.

According to Yasmin Mahmood, MDEC’s chief executive officer, the original idea was mooted as a way to help SMEs overcome complex regulations, processes and barriers that slow down their progress in global commerce.

The DFTZ removes the bumps in the road by boasting a direct connection to Alibaba’s headquarters – via the OneTouch platform. To ride on this unique route, many trading operations like custom clearance, foreign exchange services, financing services and logistics solutions will be offered as a wholly digitised bundle in the zone.

 

ENABLING SMES TO COMPETE ON THE SAME LEVEL 

SMEs have long been the backbone of business in Malaysia. Recent policies are enough proof that the government recognises the importance of SMEs in the digital era, and further enabling them would increase macroeconomic indicators.

SME contribution to the overall GDP for Malaysia was estimated to be 36.3% in 2015, whereas it tends to be about 50% and above in high-income nation.

The RM350 million allocated to promote SME development, as well as the funding for MDEC programs, has a very positive step in this direction. There is a growing discussion on the creation of more e-hubs that can accelerate SMEs output, as well as interconnectivity of these hubs globally.

Two key areas worthy of future attention are figuring out how to retain more revenues from e-commerce sector within Malaysia, as well as encouraging global e-commerce platforms to increase investment in the country.

 

TAKING THE BUSINESS GLOBAL 

In a rapidly changing business environment with increased competition, there is no doubt that the DFTZ would help SMEs thrive in an Internet economy. Its presence would attract the right sort of investment, and permit current investors to enlarge their footprint easily.

Foreign companies with regional offices in Malaysia have lauded the creation of DFTZ. Many, like German pharmaceutical firm Queisser Pharma GmbH & Co, are optimising resources by choosing to penetrate the Malaysian market through digital platforms.

Matthias Gross, Junior Export Sales Manager said: “The DFZT could enable us to deliver our goods from one central warehouse in Malaysia to consumers all over Southeast Asia, once it has been fully designed. This could decrease our costs significantly and gives us greater flexibility. Shoppers from all over the ASEAN region could order on Lazada Malaysia for example and receive their purchase only a few days later. In our view this is a very significant chance to increase our brand awareness throughout the whole region.”

Therefore if the Internet economy works, the bonuses for globalised businesses will be solutions reaching target markets at just the right time, lower costs and gaining first mover advantages.

 

IN CONCLUSION 

Economic impact of the Internet is unmistakable, here and just about everywhere. Malaysia’s desire to push for a greater digital presence will bring new ideas, innovations and disruptions as the government forges ahead with more DFTZs.

The current plans for an Internet economy are fresh and exciting. Industry experts are keen to see how things will play out. What’s apparent though, is that Malaysia needs the digital ecosystem to work, so that businesses in the country can finally realise their full trading potential in the digital era.

A special report by the French Trade Commission - Business France Malaysia (January 2019)

 

MARKET TREND

The Malaysian government has been showing for several years a desire to accelerate the digital transformation of its industry. With industry and services sectors accounting for nearly 80% of GDP, the Ministry of International Trade and Industry (MITI) seeks to promote the adoption of smart manufacturing technologies and the industry of the future in Malaysia.

This strategy prepares the country for the new era of growth and innovation, in line with the new 30-year transformation plan: National Transformation 2050 (NT50).

In 2015, the government launched a National IoT Strategic Roadmap with the ambition to make Malaysia the regional hub for IoT. By 2020, the IoT sector is expected to reach MYR 9.5 billion (EUR 2 billion) - a figure which could reach MYR 42.5 billion (EUR 9 billion) by 2025 - and generate around 15,000 high value-added jobs in Malaysia.

 

MARKET OPPORTUNITIES

Internet of Things
Encouraged by government initiatives, IoT is becoming an integral part of the Malaysian digital economy. Agriculture, health, manufacturing and transportation are all sectors identified as having a high potential for the deployment of connected objects.
As an example of progress made by Malaysia, Cyberjaya in Selangor is presented as the first ASEAN smart city, based on LPWAN technology and connected by 
LoRa network.


Industry 4.0
As a sign of its growing interest in Industry 4.0, the Ministry of International Trade and Industry (MITI), has recently released a discussion paper on Malaysia's future policy in this area,
the National Industry 4.0 Policy Framework (Draft). This paper, while still undergoing review, presents work done by 5 different interdepartmental working groups (Ministry of Science, Technology and Innovation, Ministry of Human Resources, Ministry of Higher Education, Ministry of Finance, and Ministry of Communications and Multimedia), under the coordination of MITI.
It was also released as part of a consultation and a national call for papers ending in March 2018.

It should be noted however that this Framework only concerns the manufacturing industry so far.

Goals for Industry 4.0 in Malaysia (2016-2026):
•    Increase the productivity level of the manufacturing sector by 30%;
•    Increase the share of the manufacturing sector in the Malaysian economy from MYR 254 billion (EUR 54 billion) to MYR 392 billion (EUR 83 billion);
•    Reach the Top 30 of the most innovative companies ranking in the world, based on the "Global Innovation Index" (#35 today);
•    Increase the number of highly skilled employees in the manufacturing industry from 18% today to 50%.

 

Automation and robotics, serving the manufacturing industry
As a prelude to the ongoing construction of the National Framework for Industry 4.0, the government has been encouraging automation of factories for several years, with the aim of transforming the manufacturing landscape in Malaysia. Indeed, this automation could make it possible to reduce dependence on low-skilled manual-labour and to maintain the country's export competitiveness. While most manufacturing companies understood the concept of Industry 4.0, only 30% of them had started investing in this type of technology in 2016.

Among the notable initiatives, the Automation Capital Allowance (ACA), introduced in 2015, enabled the concerned companies to achieve an average increase in production volume from 200% to 300%. All these initiatives are strongly supported by Malaysian public agencies: MIDA, MDEC, InvestKL, etc.

One of the main challenges of this trend is the transformation of Malaysian factories into "smart factories", combined with robotic solutions, smart sensors to collect data and predictive analysis to optimize production. A second major issue is the protection of data collected, in order to create a climate of trust between manufacturers, their suppliers and their customers.

 

Education, the cornerstone of the 4th industrial revolution
While the entry into the era of the 4th industrial revolution aims to reduce the share of low-skilled jobs in the country's economy, education and training are major challenges.
Industry 4.0 is expected to have a strong impact on the world of work: new jobs, requiring new skills should be created, while others - especially the 
manual-labour force - should become obsolete.

The need is to train urgently a new diverse and skilled workforce, benefiting from a high salary level, both by training and qualifying the existing workforce, but also by attracting and developing future talent to the manufacturing sector. Special attention should also be given to training 
and/or redeployment to other activities and sectors of the less qualified workforce.

The transition to Industry 4.0 will require knowledge and high technical skill.
Recruitment should mainly take place in STEM sectors (Science, Technology, Engineering, Mathematics).

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