The National Industry 4.0 Policy Framework - Final Report (Compiled) (832018)

CONTENTS
LIST OF FIGURES ...................................................................................................... iii

LIST OF TABLES ........................................................................................................ vi
ABBREVIATIONS........................................................................................................ ix
INTRODUCTION .............................................................................................................................................................. 1
1.1. BACKGROUND ................................................................................................. 2

1.2. SCOPE OF THE STUDY ..................................................................................... 4
1.3. WORKING DEFINITION OF INDUSTRY 4.0 ......................................................... 6
1.4. THE METHODOLOGY ........................................................................................ 7
OVERVIEW OF INDUSTRY 4.0 ...................................................................................................................................... 13
2.1. WHAT IS INDUSTRY 4.0? ................................................................................14

2.2. THE ENABLING TECHNOLOGIES ......................................................................24
CASE FOR CHANGE ....................................................................................................................................................... 69
3.1. DRIVERS OF CHANGE – GLOBAL PERSPECTIVES ...............................................70

3.2 CASE FOR CHANGE .........................................................................................91
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ENABLING INDUSTRY 4.0 IN MALAYSIA.................................................................................................................... 100
4.1. GLOBAL INITIATIVES ON INDUSTRY 4.0 ........................................................ 101

4.2 MALAYSIA’S MANUFACTURING LANDSCAPE ........................................................ 132
INDUSTRY 4.0 ........................................................................................................ 135
4.3 STATE OF READINESS TO SUPPORT THE INDUSTRY ....................................... 137
4.4 MAPPING OF NATIONAL POLICY/PLAN ........................................................... 207
4.5 MAPPING OF NATIONAL POLICY/PLAN TARGETS ............................................ 208
MALAYSIA INDUSTRY 4.0 FRAMEWORK .................................................................................................................... 214
5.1. ENVISIONING MALAYSIAN INDUSTRY 4.0 ...................................................... 215

5.2. THE SHIFT FACTORS .................................................................................... 220
5.3. THE IMPLEMENTATION STRATEGIES ............................................................. 222
THE GOVERNANCE ................................................................................................................... Error! Bookmark not defined.
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LIST OF FIGURES
Figure 1: The Methodology for Developing the Industry 4.0 Policy Framework ............................................................................. 7
Figure 2: The Series of Activities Conducted for the Study .......................................................................................................... 8
Figure 3: Industry 4.0 Framework and Contributing Digital Technologies ....................................................................................15
Figure 4: The Industry 4.0 Environment ...................................................................................................................................16
Figure 5: McKinsey “Digital Compass” ......................................................................................................................................17
Figure 6: GTAI Smart Factory Pipeline ......................................................................................................................................18
Figure 7: The Industrial Revolution to Industry 4.0 ...................................................................................................................21
Figure 8: Cyber-physical production systems (CPPS) .................................................................................................................23
Figure 9: The three dominant trends of technology hype cycle. .................................................................................................40
Figure 10: Smart factory with enabling technologies .................................................................................................................47
Figure 11: Industry 4.0 Characteristics .....................................................................................................................................49
Figure 12: Transformation Framework into Industry 4.0 ............................................................................................................59
Figure 13: The digital vortex for twelve (12) industries ..............................................................................................................67
Figure 14: Internet of Things units installed base worldwide by category from 2014 to 2016 (in million units) ..............................75
Figure 15: AI Annual Global Financing History...........................................................................................................................76
Figure 16: Worldwide Annual Supply of Industrial Robots ..........................................................................................................77
Figure 17: The Share of Manufacturing in the Number of Greenfield FDI projects Declined between 2003 and 2015 .....................81
Figure 18: BRICs – GDP Growth Forecasts ................................................................................................................................81
Figure 19: Global manufacturing share of GDP and absolute value relative to services, 1997-2015...............................................83
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Figure 20: CO2 emissions from manufacturing per unit of manufacturing value added (MVA) .......................................................87
Figure 21: Domestic material consumption per unit of GDP .......................................................................................................88
Figure 22: A circular business model avoids value leakage .........................................................................................................89
Figure 23: Malaysia’s Rankings in the Global Competitiveness Index and the Global Innovation Index ..........................................91
Figure 24: Manufacturing GDP Performance under 10th and 11th MP .........................................................................................92
Figure 25: Employees in the Manufacturing Sector Based on Citizenship .....................................................................................94
Figure 26: Share of Foreign Workers in Different Sectors (%) ....................................................................................................95
Figure 27: Employment in the Manufacturing Sector by SMEs and Large Firms ...........................................................................97
Figure 28: Budget Allocation between Ministries for Industrie 4.0 initiative. .............................................................................. 102
Figure 29: The Average Cost of Broadband (in USD) of Benchmarked Countries and Malaysia ................................................... 128
Figure 30: Examples of Technologies that Could Benefit from 5G Broadband (Ericsson Mobility Report 2017) ............................. 130
Figure 31: The Availability of 4G LTE (%) and The Speed of 4G LTE (Mbps) of Benchmarked Countries and Malaysia ................. 131
Figure 32: Manufacturing and MRS Service Sectors ................................................................................................................. 135
Figure 33: Differences between Industry 3.0 and Industry 4.0 ................................................................................................. 136
Figure 34: Automation Level of FMM Members Surveyed (370 respondents) ............................................................................. 137
Figure 35: Automation Level of Key Areas of Operation ........................................................................................................... 138
Figure 36: Awareness on Industry 4.0 of FMM Members Surveyed (370 Respondents) .............................................................. 139
Figure 37: Number of Establishments by Manufacturing Sub-Sector ......................................................................................... 140
Figure 38: Industry Knowledge Content and Innovation Mapping ............................................................................................. 141
Figure 39: Concentration of Manufacturing Establishments in Malaysia ..................................................................................... 145
Figure 40: Mapping of Current High-Speed Broadband (HSBB) Coverage at Education and Training Institutions ......................... 153
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Figure 41: Level of Digital Adoption in Malaysia ...................................................................................................................... 158
Figure 42: Profile of Employed Persons, Malaysia, 2016 ........................................................................................................... 163
Figure 43: Number of Employment by Manufacturing Sub-Sector, 2015 ................................................................................... 164
Figure 44: Salaries and Wages of Full-Time Paid Employees by Employees Categories, 2015 ..................................................... 165
Figure 45: Number of Skills Development Institutes in Malaysia, 2016 ...................................................................................... 167
Figure 46: Registered Employers by Category ......................................................................................................................... 171
Figure 47: HRDF Approved Training Places by Skill Areas (2016) ............................................................................................. 172
Figure 48: Risk-based approach in re-prioritising initiatives ...................................................................................................... 183
Figure 49: Current Government Initiatives to support growth of Innovative SMEs ..................................................................... 191
Figure 50: Existing Tax Incentives on Automation, Robotics and ICT for SMEs in Malaysia ......................................................... 192
Figure 51: Projection of Labour Productivity, LP (RM) 2016-2025 ............................................................................................. 217
Figure 52: Absolute Contribution From the Manufacturing Sector to the National Economy 2016-2025 ....................................... 218
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LIST OF TABLES
Table 1: Examples of Technology Disrupt Manufacturing Sector .................................................................................................37

Table 2: Summary of the Expected Benefits..............................................................................................................................58
Table 3: Level of Industry 4.0 Adoption of 3 + 2 Industries. ......................................................................................................93
Table 4: Percentage of Jobs from 3+2 Industries Lost from 2016 to 2027 due to Industry 4.0 .....................................................96
Table 5: Effect of Industry 4.0 on Jobs Lost and Gained from 2016 to 2027 ...............................................................................96
Table 6: Snapshot of Germany’s Manufacturing Sector ............................................................................................................ 103
Table 7: Snapshot of the US’s Manufacturing Sector ............................................................................................................... 107
Table 8: Snapshot of the Singapore’s Manufacturing Sector ..................................................................................................... 109
Table 9: Snapshot of the Thailand’s Manufacturing ................................................................................................................. 112
Table 10: Snapshot of the Republic of Korea’s manufacturing sector ........................................................................................ 114
Table 11: Snapshot of Japan’s Manufacturing Sector ............................................................................................................... 116
Table 12: Snapshot of China’s Manufacturing Sector ............................................................................................................... 118
Table 13: Snapshot of Taiwan’s Manufacturing Sector ............................................................................................................. 121
Table 14: Summary of Programmes and Initiatives of Each Benchmarked Country .................................................................... 123
Table 15: Global Ranking on Average Internet Speed of Asia Pacific Countries in Q1 2017 ........................................................ 126
Table 16: Global Ranking on Peak Internet Speed of Asia Pacific Countries in Q1 2017 ............................................................. 127
Table 17: SWOT analysis of the Malaysian innovation system (OECD, 2016) ............................................................................. 133
Table 18: Manufacturing Sub-Sector Knowledge Content and Innovation Mapping .................................................................... 142
Table 19: Gross Output and Value Added According to Manufacturing Sub-Sectors in 2015 ....................................................... 143
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Table 20: Global Ranking on Average Internet Speed of Asia Pacific Countries in Q1 2017 ........................................................ 147
Table 21: Global Ranking on Peak Internet Speed of Asia Pacific Countries in Q1 2017 ............................................................. 148
Table 22: Example of High Speed Broadband (HSBB) Subscriptions Package at Industrial Areas ................................................ 149
Table 23: Digital Service Providers in Malaysia ........................................................................................................................ 150
Table 24: Current High-Speed Broadband (HSBB) Coverage at Industrial Areas ........................................................................ 151
Table 25: Current High-Speed Broadband (HSBB) Coverage at Education and Training Institutions ............................................ 152
Table 26: National Initiatives and Targets for Digital Infrastructure .......................................................................................... 155
Table 27: National Initiatives and Targets for Digital Adoption ................................................................................................. 160
Table 28: Skill and Education Level ........................................................................................................................................ 166
Table 29: Existing Professional and Technical Certification ....................................................................................................... 168
Table 30: List of Centres of Excellence in Technology (CoET) and Academic of Professional and Industry Certifications (APIC) in
Malaysia ............................................................................................................................................................................... 170
Table 31: National Initiatives to Reduce Dependency on Foreign Workers ................................................................................ 173
Table 32: Number of Academic Staff in Engineering Faculties in local public universities in Malaysia .......................................... 174
Table 33: National Initiatives and Targets for Talent and Human Capital Development .............................................................. 176
Table 34: National Initiatives and Targets for Technology and Standards ................................................................................. 187
Table 35: National Initiatives and Targets on SMEs in Manufacturing Sector ............................................................................. 194
Table 36: Existing Tax Incentives in Malaysia.......................................................................................................................... 196
Table 37: Tax Incentives for Enablers (Institutions) in Malaysia ............................................................................................... 197
Table 38: Tax Incentives for Enablers (Institutions) in Malaysia ............................................................................................... 198
Table 39: Existing Soft Loans in Malaysia................................................................................................................................ 199
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Table 40: Other Existing Incentives in Malaysia ....................................................................................................................... 199
Table 41: Number of Establishments for Information and Communication Services by Activity, 2015 .......................................... 202
Table 42: Number of Establishments for Education Services by Activity, 2015 ........................................................................... 202
Table 43: Number of Establishments for Transportation and Storage Services by Activity, 2015 ................................................. 203
Table 44: Number of Establishments for Financial Services by Activity, 2015 ............................................................................ 203
Table 45: Industry Associations in Malaysia ............................................................................................................................ 206
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ABBREVIATIONS
11MP 11th Malaysian Plan BRIC Brazil, Russia, India and China FMM Federation of Malaysian
4IR Fourth Industrial Revolution BSF Business Start-up Fund Manufacturers
ACCCIM Associated Chinese Chambers CAGR Compound Annual Growth GBS Global Business Services
of Commerce & Industry of Rate GDP Gross Domestic Product
Malaysia CSMMySEF Security Evaluation Facility GHG Greenhouse Gasses
ADTEC Advanced Technology Training
CoETs Centres of Excellence in GIS Global Innovation Summit
Centre Technology
GNI gross national income
ADAX ASEAN Data Analytics CIT Corporate Income Tax
eXchange GSIAC Global Science and Innovation
CNCA Certification and Accreditation Advisory Council
AI Artificial Intelligence Administration of the People’s
HIP High Impact Programmes
AIM Agensi Inovasi Malaysia Republic of China
HRDF Human Resources
AME Advanced Manufacturing and CPS Cyber-physical Systems
Development Fund
Engineering CRDF Commercialisation of Research
HSBB High Speed Broadband
ASM Academy of Sciences Malaysia & Development Fund
IAC Industry-Academia
APF Access Pricing Framework DFTZ Digital Free Trade Zone
Collaboration
BAP Business Accelerator DISF Domestic Investment Strategic
IBS Industrialised Building System
Programme Fund
ICAB Independent Accredited
BBGP Broadband for General DOSM Department of Statistic
Conformity Assessment Body
Population Malaysia
ISO International Standards for
BCG Boston Consulting Group EDB Economic Development Board
Organisation
BDA Big Data Analytics EPU Economic Planning Unit
IRB Inland Revenue Board of
BEF Business Expansion Fund EU European Union Malaysia
BFF Bumiputera Financing Fund eWTP Electronic World Trade I4.0 Industry 4.0
BGF Business Growth Fund Platform INDSTAT Industrial Statistics
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ICT Information and MIER Malaysia Institute of Economic NEXT Nurturing Expert Talent
Communications Technology Research NNMI National Network for
IKM Institut Kemahiran Mara MIGHT Malaysian Industry- Manufacturing Innovation
ILP Institusi Latihan Perindustrian Government Group for High NOSS National Occupational Skills
Technology
IMF International Monetary Fund Standards
MITI Ministry of International Trade
NRF National Research Foundation
IoT Internet of Things and Industry
NSTC National Science and
IRB Inland Revenue Board of MOA Ministry of Agriculture and
Technology Council
Malaysia Agro-Based Industry Malaysia
OECD Organisation for Economic Co-
ISO International Standards for MOE Ministry of Education
operation and Development
Organisation
MOOC Massive Open Online Courses
OT Operational technology
IT Information Technology
MOF Ministry of Finance
PCAST President's Council of Advisors
ITM Industry Transformation Map
MOHE Ministry of Higher Education on Science and Technology
ITU International Telecoms Union
MOHR Ministry of Human Resources PSDC Penang Skills Development
IVI Industrial Value Chain Initiative Centre
MOSTI Ministry of Science,
JVE Junior Vocational Education Technology and Innovation PwC PricewaterhouseCoopers
VC Vocational College MOTIE Ministry of Trade, Industry and RAMI4.0 Reference Architecture Model
KITECH Korea Institute of Industrial Energy (Korea) Industrie 4.0
Technology MRS Manufacturing-related services RAPID Rapid Advancement in Process
LT Long Term MT Medium Term Intensification Deployment
MCM Ministry of Communications MVA Manufacturing Value Added RDC Research, Development &
and Multimedia Commercialisation
MYKE Malaysia Knowledge Economy
MCCM Malay Chamber of Commerce RD&I Research, Development and
NBI National Broadband Initiative Innovation
Malaysia
NDT Non-Destructive Testing RI Research institution
MDEC Malaysia Digital Economy
Corporation NECT-Gen Next Generation Workforce RIE Research, Innovation and
Programme Enterprise
MIDA Malaysian Investment
Development Authority NETFLEX Flexible Hybrid Electronics SJPP Skim Jaminan Pembiayaan
MIDF Malaysian Industrial Manufacturing Innovation Perniagaan
Development Finance Berhad Institute
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SLSAM Soft Loans Scheme for STEM Science, Technology, VAS Vulnerability Assessment
Automation & Modernisation Engineering and Mathematic Service
SLSCD Soft Loan Scheme for Services STTF SME Technology Transfer VUCA Volatility, uncertainty,
Capacity Development TAF Technology Acquisition Fund complexity and ambiguity
SLSME Soft Loan Scheme for SME TCP Technology Commercialisation UNIDO United Nation Industry
SLSSS Soft Loan Scheme for Services Platform Development Organisation
Sector TVET Technical and Vocational US United State
SM Smart Manufacturing Education and Training USD United States Dollar
SME Small Medium Enterprise TiVA Trade in Value Added WEF World Economic Forum
SMLC Smart Manufacturing TTSA Trustmark Technical Security WIP Work-in-process
Leadership Coalition Assessment
ST Short Term TWG Technical Working Group
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CHAPTER 1 INTRODUCTION
CHAPTER 1
INTRODUCTION
The National Industry 4.0 Policy Framework 1

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1.1. BACKGROUND
In September 2017, the Ministry of International Trade and Industry (MITI) appointed the Malaysian Industry-Government Group
for High Technology (MIGHT) and Academy of Sciences Malaysia (ASM) as strategic partners to assist in developing the National
Industry 4.0 Policy Framework. The policy serves as an important reference for industry players involved in manufacturing and
manufacturing-related services to adopt or embrace the Industry 4.0 concept.
Therefore, the policy framework is designed based on the following guiding principles:
a) To communicate the Government’s intent and purpose in embarking on Industry 4.0. It is an initiative to create a
national platform and consolidate the industry’s wills and efforts under a flagship programme backed by the Government.
b) To motivate participation from various stakeholders. The initiative demonstrates the Government’s commitment in
providing a wide range of support (Digital Infrastructure, Human Capital & Talent, Funding & Incentives, Technology &
Standards, Governance) for Malaysian companies in manufacturing and manufacturing-related service; especially SMEs; in
adopting Industry 4.0.
c) To be inclusive - windows of opportunity for respective activities to be included. The framework is meant to be
inclusive and not only for specific or select industries. Therefore, the framework is designed to be adaptable to any industry
with different levels of digital maturity and readiness.
The objective of this study is to develop a comprehensive National Industry 4.0 Framework with clear strategies and initiatives to be
undertaken in realising the set Vision and Strategic Objectives.

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VISION:
“Positioning Malaysia as a global leader for smart manufacturing and related services in Asia Pacific as well as the primary
destination for high-tech industry which offer total solutions for the whole ecosystem by 2030”
STRATEGIC OBJECTIVES:
a. National Productivity Growth – Improving Malaysia’s international productivity ranking, which has been stagnant since
2009 and has remained relatively low compared to developed countries such as Japan, South Korea, Australia, Singapore
and the United States.
b. Sustainable Growth of the Manufacturing Sector – The 11th Malaysia Plan set a target to sustain an average
manufacturing growth at 5.1 percent until 2020
c. Innovation Capacity – Boost the competitive innovation and creativity of our local products and services relative to
foreign brands in domestic and international markets
d. High Skilled Jobs – Enhance workforce skills for higher value-added work and move away from foreign labour
dependency

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1.2. SCOPE OF THE STUDY
The scope of work of this study is to develop the National Industry 4.0 Policy Framework covering:
a. Malaysia’s manufacturing and manufacturing-related services baseline according to “Industry 4.0” definition;
b. Benchmarking comparison according to global megatrends in reference to countries like Germany, the US, Korea,
Thailand, Singapore, Vietnam, the EU, Japan, China, and India;
c. Realigning existing industry roadmaps/national plans/initiatives by various stakeholders;
d. Assessing the contribution of the overall policy in achieving the following objectives:
• To sustain the growth of manufacturing sectors;
• To increase productivity in manufacturing and manufacturing-related services and achieve optimum cost
efficiency;
• To increase exports of higher value-added and complex products;
• To increase Malaysia’s industry capability as a technology and solutions provider; and
• To contribute to overall high-quality job creation in line with Industry 4.0;
e. Covering areas of: Digital Infrastructure, Funding and Incentives, Talent and Human Capital Development,
Technology and Standards, and SME Development; and
f. Outlining strategies, initiatives and action plans to achieve the targets and vision of the Industry 4.0 agenda in
Malaysia.

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The above scope is to be accomplished in the period of TWO MONTHS, commencing on 17 November 2017 and to be completed
by 17 January 2018. At the end of this study, the National Industry 4.0 Policy Framework aspires to cover the areas of Digital
Infrastructure, Funding and Incentives, Talent and Human Capital Development, Technology and Standards and SMEs.
As such, the framework shall outline strategies as well as short, medium and long-term action plans along with initiatives for the
manufacturing and manufacturing-related services in Malaysia until 2030. This framework is designed to be sufficiently fluid as well
as adaptable to future trends and technological changes.

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1.3. WORKING DEFINITION OF INDUSTRY 4.0
Industry 4.0 or smart manufacturing is defined as the technological evolution from embedded systems to cyber-physical systems
(Industrie 4.0, Germany). Based on Terms of Reference (ToR), Industry 4.0 is referred to as:
“Production or manufacturing-based industries digitalisation transformation, driven by connected technologies of nine (9)
technological drivers namely Internet of Things (IoT), Cloud Computing, Big Data Analytics, Autonomous Robots, Augmented
Reality, Simulation, System Integration, Additive Manufacturing and Cybersecurity (source: PwC, BCG)”
However, in line with the strategic objectives as stated above, a more relevant definition for this study is as follows:
“Industry 4.0” refers to the use of interconnected digital and associated

technologies in industrial production that enable transformation in terms
of people, process and technology to enhance efficiency, productivity and
revenue” - adopted from OECD 2017
More detailed information regarding the definition of Industry 4.0 is further deliberated in Chapter 3: Overview of Industry 4.0.

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1.4. THE METHODOLOGY
The study team will be working with the TWGs to frame the information gathered and guide the subsequent processes in formulating
the Industry 4.0 Policy Framework. Based on the scope of the study, the approach to deliver the policy framework is divided into
three (3) phases as shown in Figure 1 and Figure 2:
Figure 1: The Methodology for Developing the Industry 4.0 Policy Framework

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Figure 2: The Series of Activities Conducted for the Study

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a. Phase 1: Data Gathering
The purpose of Phase 1 is to develop an understanding of the subject matter and strengthen Industry 4.0 knowledge from a global
perspective, especially relevant countries which have successfully embarked on adopting the Industry 4.0 such as Germany, the US,
Korea, the EU, Japan and China. Therefore, the benchmarking exercise will be conducted through desk research and literature review
of the countries as stated in the scope of work. To provide context, further analysis will be made to understand trends that are
shaping the manufacturing industry and to critically anticipate potential opportunities and disruptiveness in the future.
Apart from the global perspective, data gathering at local level too is required to answer the question of “where are we?” which will
provide the current state assessment of Malaysian manufacturing and manufacturing related services. This study will incorporate
works undertaken by the following five (5) Technical Working Groups (TWGs):
Technical Working Group Lead Ministries/Agencies
SMEs Ministry of International Trade and Industry (MITI) and SME Corporation
Digital Infrastructure Ministry of Communications and Multimedia and Malaysia Digital Economy Corporation (MDEC)
Human Capital and Talent Ministry of Higher Education (MOHE) and Ministry of Human Resources (MOHR)
Technology and Standards Ministry of Science, Technology and Innovation (MOSTI)
Funding and Incentives Ministry of Finance
In addition, studies conducted by the University of Monash entitled, “Malaysia Knowledge Economy (MYKE III) Study” and “Future
of Manufacturing: Industry 3+2” by MIDA will also be referred to in the development of this framework.

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b. Phase 2: Analysis
Phase 2 will focus on analysing input gathered from the previous phase. This will involve identifying trends and opportunities and
threats from the global outlook as well as anticipating its impact on the manufacturing industry. Insights from local stakeholders will
also be utilised to recognise strengths, issues and challenges. The study team will work with each TWG to engage key stakeholders
and consolidate all input. A series of analysis will eventually lead to the formulation of a set of strategies for each TWG area. This
will include looking into future plans, sets of strategies and the various action plans of the respective countries benchmarked.
c. Phase 3: Recommendation
During this phase, a list of strategies will be formulated and tested. These strategies will be statements depicting how to achieve the
desired outcome and will be supported by a list of actions. Considering there are already a number of on-going programmes
conducted by stakeholders, all of these programmes will be aligned with the respective strategies and actions. Subsequently, the list
of actions will be prioritised according to their impact and feasibility. These actions will be phased into the short term (2018 to 2020),
medium term (2020 to 2025) and long term (2025 to 2030).
d. Experts Panel Consultation
A joint platform was established by MIGHT and ASM to synthesise input gathered from TWGs and findings of the study team. The
experts comprise of distinguished professors and prominent figures with extensive years of experience in national policy-making
initiatives.

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e. Global Science and Innovation Advisory Council (GSIAC)
An assessment of Industry 4.0 will be done in conjunction with the upcoming GSIAC Intersessional Meeting scheduled in November
2017. This assessment will provide an alternate perspective of Industry 4.0, and to serve as input for the committee to deliberate
further. The outcome of the assessment could also complement the current efforts by the Ministry of International Trade and
Industry (MITI) to prepare the National Policy for Industry 4.0.
This study recognises the following limitations and assumptions regarding availability of certain dataset and information during the
period of the study including but not limited to:
1. Time and duration of the study;

2. Data related to the state of readiness of the industry players;
3. Biased towards manufacturing activities;
4. Reference to nine (9) technology pillars identified currently; and
5. Employ existing and ongoing work by TWGs.
f. Global Federation of Competitiveness Councils (GFCC)
The Global Federation of Competitiveness Councils (GFCC) is a network of leaders and organisations from all around the world
committed to the implementation of competitiveness strategies to drive innovation, productivity and prosperity for their nations,
regions and cities. The GFCC develops and implements ideas, concepts, initiatives and tools to understand and navigate the complex
competitiveness landscape.

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In meeting the challenges of the Fourth Industrial Revolution, Global Innovation Summit (GIS) 2017 was held in November 2017 and
the discussion addressed themes related to the future of production, consumption, and work in uplifting the economy through a
more sustainable, inclusive and equitable manner.

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CHAPTER 2 OVERVIEW OF INDUSTRY 4.0
CHAPTER 2
OVERVIEW OF INDUSTRY 4.0

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2.1. WHAT IS INDUSTRY 4.0?
Presently, the rate of technology advancement is occurring at an exponential rate which has caused a systemic change including
economic, social, geo-political and eco-system. This phenomenon is known as the Fourth Industrial Revolution (4IR). The
Fourth Industrial Revolution refers to the revolution process from steam power to the development of machine tools and the rise of
factory machines. This revolution is evolving at an exponential rather than a linear pace. Moreover, it is disrupting almost every
industry in every country. The breadth and depth of these changes herald the transformation of entire systems of production,
management, and governance.
The term 4IR was coined by Professor Klaus Schwab, Founder and Executive Chairman of the World Economic Forum (WEF) and
driven by applications of 12 technology clusters as identified by WEF namely mobile internet, automation of knowledge work, Internet
of Things (IoT), cloud, advanced robotics, autonomous or near-autonomous vehicles, next-generation genomics, energy storage, 3-
D Printing, advanced materials, advanced oil and gas exploration and recovery, and renewable energy. Fusion of these technologies
has blurred the lines between the physical, digital and biological spheres. As such, disruptiveness caused by these technologies is
more profound than in previous revolutions. Some examples are, traditional models such as “brick and mortar” businesses are
disrupted by online shopping, taxi services are disrupted by UBER, established car makers are facing intense competition with new
players such as Tesla and Google.
For the purpose of this report, the study focuses more on the impact of the above technologies in transforming manufacturing and
manufacturing-related services into a smart manufacturing, known as Industry 4.0 (I4.0). It is a new paradigm shift as a result
of harnessing emerging technology applications into the manufacturing industry. It is all about making manufacturing smarter, the
use of technology so that processes within the manufacturing system may make adaptive and predictive decisions.
The International Standard for Organisation (ISO) definition of Industry 4.0 and the use of Reference Architecture Model Industrie
4.0 (RAMI4.0) refer to Industry 4.0 as a domain of integrated processes and resources (cyber, physical and human) to create and
deliver products and services, which also collaborate with other domains within an enterprise’s value chain and improves its
performance aspects. While RAMI4.0 is held as a key standard for Industry 4.0 by German manufacturing, several reports mention

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equivalent terms of ‘Industry 4.0’ as the ‘Industrial Internet’ or the ‘Digital Factory’ to describe the changes. Therefore, it is best to
study other definitions to understand the whole concept that has shaped our industrial revolutions.
Figure 3: Industry 4.0 Framework and Contributing Digital Technologies

According to PwC, Industry 4.0 is driven by
digitisation and integration of vertical and
horizontal value chains, digitisation of product
and service offerings and digital business models
and customer access. All these adoptions will
transform the design, manufacturer, operation
and service of products and production systems.
Connectivity and interaction among parts,
machines, and humans will make production
system much faster and efficient.

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Deloitte on the other hand, refers to Industry 4.0 as smart, connected manufacturing which includes Industrial Internet, Connected
Enterprise, Smart Manufacturing, Smart Factory, Manufacturing 4.0, Internet of Everything and Internet of Things for Manufacturing.
What all these terms and concepts have in common is the recognition that traditional manufacturing and production methods are in
the realms of digital transformation.
Figure 4: The Industry 4.0 Environment

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Figure 5: McKinsey “Digital Compass” McKinsey defined it as a confluence of disruptive digital

technologies that are set to change the manufacturing sector
beyond recognition driven by the astonishing rise in data volumes,
computational power, and connectivity; by the emergence of
advanced analytics and business intelligence capabilities; by new
forms of human-machine interaction, such as touch interfaces and
augmented-reality systems; by improvements in the transfer of
digital instructions to the physical world, such as in advanced
robotics and 3-D printing.

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The German Trade and Invest (GTAI) describe Industry 4.0 as smart industry or Industrie 4.0 refers to the technological evolution
from embedded systems to cyber-physical systems. It represents the industrial revolution by adapting Internet of Things, Data and
Services. Overall, Industrie 4.0 is construed as a paradigm shift from “centralised” to decentralised” production through technological
advances.
From all the definitions mentioned above, the OECD provides a more relevant definition in line with the basis of constructing a policy
framework. It refers to the use of interconnected digital and associated technologies in industrial production that enable
transformation in terms of people, process and technology to enhance efficiency, productivity and revenue.
Figure 6: GTAI Smart Factory Pipeline

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All definitions as stated above demonstrate that digital technologies are disrupting the traditional nature of the manufacturing value
chain. Embedded system production technologies and smart production processes are paving the way to a new technological age
which will radically transform industry, production value chains and business models. The Internet of Things and big data analytics
are the key components in this whole process. They allow the vertical and horizontal networking processes to connect with more and
more systems through devices, sensors, assets and people ranging from wireless, low power and high capacity networks.
However, industries and companies will embrace Industry 4.0 at different phases and ways as this transformation requires technology
readiness. Many technological changes will affect production and distribution over the next 10-15 years. As these technologies
transform production, they will have impact on productivity, employment, skills, income distribution, trade, wellbeing and the
environment. In Malaysia, the concept of Industry 4.0 is going to change the way our manufacturing operates especially with the
rapid development in the field of information technology and hardware, driven by the power of big data, high computing capacity,
artificial intelligence and analytics. This new revolution aims to completely digitalise the manufacturing sector, enhancing productivity,
developing highly skilled workers, building an innovation capability and thus generating higher revenue for the country.

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THE OVERVIEW OF INDUSTRY 4.0
As described by the definition, Industry 4.0 will bring a new face to the manufacturing industry by creating factories that are smart,
agile, flexible and more responsive to their customers. It is possible now to create a smart factory with all the tools that are available
from the advancement of technologies such as the Internet, wireless sensors, software and other technologies that can work together
to optimise the production process and improve customer satisfaction. These tools allow a business to react more rapidly to market
changes, offer more personalised products, and increase operational efficiency in a cycle of continuous improvement.
Industrial revolution has always been driven by the innovation and advancement of technologies. Industry has experienced four
revolutions beginning with the era of ‘mechanisation’, Industry 1.0., when industrial production was based on machines powered by
water and steam. After Industry 1.0, the availability of electric energy to power the factory assembly lines contributed hugely to
production rates and factories moved to mass production as a primary means to production in general, which defines the
characteristics of Industry 2.0. Industry 3.0, saw manufacturing evolve towards automation with the availability of computers,
information technology (IT) and electronics. Industry 3.0 is also often referred to as the Digital Revolution, and came about when
there was a change from analogue and mechanical systems to digital systems.
Currently industry is undergoing Industry 4.0, where there is an integration of cyber or digital and physical systems with the
involvement of advanced technologies like additive manufacturing, virtual reality, big data, robotics, IoT and cloud computing.
Industry 4.0 differs from Industry 3.0, by taking the automation of manufacturing processes to an advanced level towards customised
and flexible mass production technologies. Factory machines operate independently, or cooperate with humans in creating a
customer-oriented production field that constantly works on maintaining itself. Machines become independent entities that can
collect data, analyse it and provide advice to manufacturers. As result, factories introduce self-optimisation, self-cognition, and self-
customisation into the industry. Figure 7 illustrates the evolution of industry towards Industry 4.0 driven by innovation of technology.

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Figure 7: The Industrial Revolution to Industry 4.0

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CYBER-PHYSICAL SYSTEMS (CPS)

Industry 4.0 brings an integration of cyber and physical systems, which means that computers and networks can monitor the physical
process of a certain manufacturing process. In general, CPS systems integrate computational entities in an intensive connection with
the surrounding physical world and its on-going processes to provide, use, access and process data in the digital environment. A CPS
component can be divided in two main functions, first, the advanced connectivity that ensures real-time data acquisition from the
physical world and information feedback from cyber space; and second the intelligent data management, analytics and computational
capability that constructs the cyber space.
In the manufacturing or factory environment, digitalisation of technologies creates better communication between machines and
machines, and between machines and manufacturers or humans; these integrations are called cyber-physical production systems
(CPPS). CPPS is used to explain the integration of the physical factory floor and the cyber computational space. By utilising technology
such as advanced information analytics, the factory ecosystem (i.e. smart manufacturing) is able to perform more efficiently,
collaboratively and resiliently. All of this helps industries integrate the real world into a virtual one and enable machines to collect
live data, analyse the information, and even make decisions based upon the insight generated.
The flow of the connected environment between cyber-physical environments can be addressed in three steps as illustrated in the
CPPS (Figure 8). First is the establishment of a digital record, which is a process to capture information from the physical world to
create a digital record of the physical operation and supply network. Second, analysing and visualising the information that is derived
by the interaction between machine to machine interaction, where machines talk to each other to share information, allowing for
advanced analytics and visualisation of real-time data from multiple resources; and third, the generated movement from applying
algorithms and translating decisions and actions from the digital world into movements in the physical world.

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Figure 8: Cyber-physical production systems (CPPS)
The CPPS consists of autonomous and cooperative elements and sub-systems that are connected based on the context within and
across all levels of production, from processes through machines up to the production of products. This development requires strong
interdisciplinary partnerships between IT and manufacturing companies, which strengthens the links in existing ecosystems.
Companies, consumers and products are massively interconnected due to digital networks, which lead to increased network effects
and a joint value creation in ecosystems.

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2.2. THE ENABLING TECHNOLOGIES
The advancement of technology is growing exponentially, becoming a platform for growth of new technology and converging to form
new applications that disrupt conventional practices. By virtue of the fact that technology is growing and evolving over time, it is
difficult to specify the number of technologies that have significant impact to manufacturing industry. However, as a start the Boston
Consulting Group (BCG) has published an overview of Industry 4.0 in a white paper, Industry 4.0: The Future of Productivity and
Growth in Manufacturing Industries. They identify nine pillars of technology which make up Industry 4.0.
The 9 pillars of technology advancement are:
i. Big data
Description
Big data is a platform that brings useful insight to the industrial environment through collective data that is shared from multiple
sources. The platform can collect, store and analyse a massive amount of data derived along the industrial value chain. Information
such as trends, patterns and the relationship between inputs, process, and outputs are gathered and analysed to provide insight
allowing improvements to be made across the industrial value chain.
Characteristic and its application
The digital universe is forecasted to grow to around 40 zettabytes (40 trillion gigabytes) by 2020, compared to 1 zettabyte (1021
byte) in 2010. The insights generated from big data allows better efficiency in industrial production. Subsequently, this helps to
improve the whole value chain from internal operations to optimising product and pricing strategies. For example, the data generated
can inform workers on new opportunities and upcoming changes; and develop and propose strategies for further action.

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Big data application can affect the whole value chain by creating possibilities such as:
- Decreasing product failures by correlating all of the data captured in the operational process, allowing identification of patterns
to help in discharge fault early in the process and improve production quality.
- Optimising production quality, saving energy and improving product quality and prices. The collection and comprehensive
evaluation of data from many different sources like production equipment and systems as well as the enterprise and customer-
management systems will become standard to support real-time decision making.
Process
- Supporting real-time decision making and improving strategies development based on data evaluation derived from many
different sources like production equipment and systems as well as the enterprise and customer-management systems.
- Informing workers about the coming changes to take advantage of new opportunities.
- Decreasing product failures by correlating all the data captured in the operational process by allowing identification of patterns
to help in discharge fault early in the process and improve production quality.
Consumers
- Consumers will have better experience with brands and content; and more likely discover new things that are also relevant to
consumers.
- Consumers will benefit from improved quality products with lower prices, as result of optimising production quality, energy
saving process and production cost reduction.

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ii. Cybersecurity
Description
Cybersecurity is a digital security system that protects valuable data from being exploited by other parties. As industrial
communication is expanding and strongly connected, digital security becomes a critical aspect that must not be overlooked in the
industrial environment. It is estimated that the cybercrime damages will cost the world $6 trillion by 2021.
The utilisation of various technologies such as the Internet of Things (IoT) and cloud computing might harm the overall system in
the industrial environment. Investments are required to strengthen security to enable new business models to be developed and
encourage the cybersecurity market to grow. Globally, it is estimated that in the year 2021, spending on cybersecurity will surpass
$1 trillion. In 2017 alone, the cybersecurity market was worth at least $120 billion.
The industrial environment has become more complex, it consists of connected devices and environments that cannot be protected
by traditional cybersecurity approaches. Current cybersecurity has largely been developed for IT-centric devices and environments.
The system is now facing new challenges about how to embed security functionality into the IoT devices with sophisticated
cybersecurity.
- An ideal cybersecurity system would be a combination of traditional network security and embedded security on the IoT
devices. This system would focus on several areas such as the security to safeguard systems against cyber-attacks, networking
to support the systems’ distributed operations, game techniques to advance interaction and visualisation, as well as software
engineering and artificial intelligence to build autonomic capability into the systems for intelligent operations.
Process
- Cybersecurity will safeguard organisations’ digital systems not only from cyber-attacks, but also in several areas as mentioned
above.

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Consumers
- Building consumers’ trust in the product brands and companies. Consumers demand convenience and “always on” access to
the digital life and have high expectations for security. In fact, 93% of consumers stated a preference to be involved in
choosing how their personal information and accounts are protected and 91% prefer service providers make security visible.
iii. Augmented reality(AR)
Description
Augmented Reality (AR) is a means to allow for augmented imaginary (virtual information) to be placed in front of the physical means
in the real world. The technology brings an added value to the real-world by enriching the physical means with virtual information.
Between 2015 and 2016, investment in AR and virtual reality (VR) increased by 85% and the market for AR and VR technologies is
projected to grow 400% by 2018.
In a manufacturing environment, human error and inefficient methods are the biggest pain points leading to a decrease of output
and increase of operational costs. Augmented reality is attempting to address these issues through combining the virtual world with
physical world, which helps the industrial environment in many ways especially in improved decision making and work preplanning
or procedures.
Augmented reality supplements the industrial environment with interactive surroundings with a specific objective to make the working
environment more informative and enjoyable. Workers are provided with real-time information to improve decision making, work
planning and procedures.

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Process
- Supplementing the industrial environment with interactive surroundings with a specific objective to make the working
environment become more informative and enjoyable.
- Providing real-time information for workers to improve in decision making and work planning and procedure.
- Speeding up operational activity with high accuracy. With the aid of augmented reality devices that use sensors, cameras and
motion sensors which accumulate information and display the images into real world during work, workers can see the
information or instructions to accomplish tasks. With this approach, the accuracy in completing the task is increased in a short
period of time.
Consumers
- Allowing customers to experience the product in virtual form, manufacturers could use augmented reality technology to
showcase their products to consumers in terms of the design, function and actual size without creating a physical copy. This
way they can demonstrate what a product may look like or how it would work without the expense of a physical trial.

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iv. Additive manufacturing
Description
Additive manufacturing brings a limitless application from preproduction to end-use products. Additive manufacturing techniques are
used to create three-dimensional objects based on digital models by layering or “printing” successive layers of materials. These
manufacturing techniques encompass many technologies including 3D Printing, Rapid Prototyping (RP), Direct Digital Manufacturing
(DDM), layered manufacturing and additive fabrication. The 3D printers market size itself will grow from $2.7 billion in 2016 to $7.7
billion in 2025, at a CAGR of 12%.
The additive manufacturing approach involves adding layer-upon-layer in a simpler production process, allowing modifications to
meet diverse needs. Parts printed by 3D printing cut down on waste due to overproduction and overhead expenses, leading the way
to more efficient manufacturing practices.
Process
- Helping to bring products to the market faster. The additive manufacturing technology adoption will save time and money,
which allows designers or workers to pay more attention to streamlining the function of the product's invention.
- Improving operation efficiency through software innovation. Innovations at the software level enable time savings, design and
product quality and consistency.
Consumers
Customisation meeting the customers’ requirements without any penalties; zero cost for complexity. Compared to traditional
manufacturing, additive manufacturing brings design and innovation to the forefront. Customers can design and make products
based on their requirements for size, shapes, and own preferred design, creating personalised products.

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v. System integration
Description
A process that brings together the component sub-systems into one system in order to perform or deliver the intended functionality.
It provides platforms that enable all operational aspects in the industrial environment to be linked and networked such as design,
business, production and logistic processes. The system integration occurs in vertical (within the industry value chain) and in
horizontal systems (across multiple value chains) eventually achieving end-to-end digital integration across the entire value chains.
Vertical integration links the components and sub-systems within the enterprise value chain. Elements such as, business processes,
ICT systems, manufacturing processes, communication layer and field layer are created to allow for a flexible system.
Horizontal integration connects across multiple value chains in various avenues or networks to facilitate inter-corporation
collaboration.
In 2020, more than 26 billion devices will be able to communicate and signal via the internet. Sensors and smart appliances are
everywhere and all are able to communicate both by M2M (machine to machine) and M2H (machine to human). System integration
expands efficiency in the industrial environment through improved communication and data sharing within value chains and across
the multiple value chains.

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Process
- Giving way to a more cohesive, cross-company approach to use and share data; bringing benefits to the internal business
environment as well as to producers and suppliers.
- Enabling actual communication and data transfer between systems to ensure that the whole industrial environment can run
smoothly and efficiently as well as manage accomplishing complex tasks and sharing the information with respective parties
or multiple partners, accurately and in real time mode.
Consumers
- Building buyer confidence in the brand and company. An integrated system allows customer service to identify touch points
such as order receipts and shipping confirmation emails to flow smoothly with minimal daily involvement. Critical order detail
information presented with shipment status, ship date and tracking number simplifies the customer’s experience and enhances
your brand.
- Increasing consumer satisfaction levels through eliminating the requirement of re-entering the data. In turn, this helps reduce
data redundancy, human involvement, and error.

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vi. Simulation
Description
Technology that forms imitation on situation, process or environment; and projecting the imitation through virtual realities (VR).
Simulation leverages on real time data to reflect reality or the physical world in virtual form, which includes the virtual form of the
machines, products and humans.
Integration of VR into manufacturing is still in its infancy, however total spending on virtual reality products and services is expected
to increase from $11.4 billion in 2017 to nearly $215 billion in 2021. The benefits of utilising simulation in the industry especially in
plant or factory operations will allow major improvement in industrial production especially in product development and process
simulation.
Process
- In product development, designers can build virtual prototypes to check for accuracy, as well as better communications to
teams located in different places physically.
- In process simulation, simulation systems or virtual reality can be used to identify bottlenecks, maximise efficiency, fine-tune
workflows, and mitigate risks.
- In training, simulations provide a safer environment. Training will be conducted in virtual form, allowing workers to understand
the risk of working in operation plants without having to be in dangerous physical environments.
Consumers
- Enabling better communication to customers. With simulation and virtual reality, consumer insights and customer behaviour
data and preferences can be gathered, products can be improved, and new products can be developed in a more customer-
and data-driven way.

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vii. Autonomous robots
Description
Machineries and robots evolved through generations. Robots can do more on their own, including learning on the job and teaming
up with other robots as well as with humans. This technology advancement allows the manufacturing systems to think, act and react
autonomously as well as conduct remote decision making. This can help contribute to a company’s competitiveness, productivity and
profitability.
The actions and functions of autonomous robots are advancing. Robots are connected digitally with improved mobility structure
allowing them to complete tasks intelligently with minimal human input. Bank of America's (2015) report predicts that robots could
by 2025, take over 45% of manufacturing jobs, cutting labour costs by $9 trillion. As technology becomes cheaper or offered in more
cost-effective ways (robotics-as-a-service), it will help to remove humans from dull, dirty, and dangerous tasks and allow human
labour to channel their energies into more value-added activities by removing the simpler, yet more labour-intensive tasks that exist
today.
Process
- Autonomous robots improve the accuracy of routine tasks by reducing the effort and time requirements for each task. In
addition, autonomous robots can perform inspections on inbound goods and provide real-time data to suppliers.
- Efficiency of the industrial processes are improved; any mistakes are reduced through the adoption of collaborative robots
that are able to work side by side with humans. The autonomous robot also allows humans to focus on more strategic and
mentally stimulating work.
- Product development and prototyping activities can benefit from around-the-clock testing for fatigue, damage tolerance, and
quality as autonomous robots are set up to perform continuous, repetitive tasks.

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Consumers
- Increasing customer satisfaction where autonomous robots can improve perfect order fulfilment rates, delivery speed, and
help to provide the highest output with the least amount of spending.
viii. Cloud computing
Description
Cloud computing offers a network of remote servers to store, manage and process data. Cloud based platforms are essential with
the increase of data sharing across industrial environments especially at sites and it optimises companies’ boundaries. Cheaper and
faster technology is making cloud computing increasingly technically and economically viable. The cost of digital storage has plunged
from $300,000 per gigabyte of data in 1981 to $0.03 per gigabyte in 2014. Files that would have taken days to download over a 28.8
kbps dialup connection can be transferred in a matter of minutes or seconds over today’s broadband connections. As the result of
the changing environment, machines’ data and functionality will increasingly be deployed to the cloud, enabling more data-driven
services for production systems. Even systems that monitor and control processes may become cloud based.
The cloud based platform can be very beneficial to the industrial business environment bringing new intelligence and knowledge to
the environment as well as introducing faster, newer product development processes, enabling the release of new products to
markets in a shorter time.
Process
- Functioning as a service platform. The concept of “serverless” computing via “serverless” architectures. Software developers
could deconstruct applications into a suite of small, modular services that perform their own unique function, action, or piece
of business logic, are expected to start within milliseconds, process individual requests and then end the process.

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- Having advanced analytics capabilities for applications like predictive maintenance and asset optimisation. As machine learning
techniques are maturing they open the door for prescriptive analytics. Cloud computing able to predict when failures are likely
to happen in the future, based on historical machine data, usage information, and likely environmental conditions – rather
than just flagging a potential issue that has been detected in real-time.
Consumers
- Consumers will experience fast response from the organisation. The technology enables manufacturing companies to create
a feedback loop from customer deployment directly to manufacturing operations, as well as further upstream to research and
development teams. Capturing real-world usage and performance information for modelling and simulation purposes enables
manufacturing organisations to detect potential early-life failures.
ix. Internet of things (IoT)
Description
Internet of things enriched devices, processes or sometimes unfinished products can be embedded with computing and connected
through standard technologies. The IoT gains prominence to enable real-time data sharing between all parts of the system and all
connected parties. The growth of IoT development has been accelerated by the declining of sensor technology costs, which have
reduced by 100 times compared to past 10 years. Hence, it is estimated that IoT applications in manufacturing and factory settings
are expected to generate $1.2 to $3.7 trillion of economic value annually by 2025.
The IoT allows industrial devices to communicate and interact both with one another and with more centralised controllers, as
necessary. It also decentralises analytics and decision making, enabling real-time responses.

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Process
- IoT leads to a decrease in production time, aids risk management and will save manufacturers valuable resources such as
time and money.
- Improving overall control in the production process. For example, production facilities that have been equipped with semi-
automated controls are able to decentralise production processes. Products are identified by radio frequency identification
codes, and workstations “know” which manufacturing steps must be performed for each product and can adapt to perform
the specific operation.
Consumers
- IoT devices combined with mobile devices can push information and adaptive content to customers as they interact with
displays, increasing engagement and connecting them to physical and online storefronts.
Industrial productivity has been shaped by the adoption of technology to bring greater efficiency, integration and automation, and
allow self-adoption towards any changes in the ecosystem. The advancement of technology has led to greater efficiency; changed
the traditional production relationships that involve better collaboration between suppliers, producers, and customers, as well as
between humans and machines. Technology has also improved integration and automation of the industrial environment through
digitalisation in the ecosystem. In addition, technology has turned the industrial environment to self-adapt to changes; unified by
the connected systems that allows the interaction within and between systems to do self-configuration and failure prediction.
Industrial productivity changes will shift economic growth, foster industrial development and modify the profile of the workforce. The
companies or countries competitiveness will be improved with the adoption of the technologies; where technologies bring faster,
more flexible and more efficient process to produce higher quality products at reduced cost. Table 1 explains the examples of how
the technologies are disrupting the industrial productivity.

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Table 1: Examples of Technology Disrupt Manufacturing Sector
From… Technology To…
Data for improving internal operations Big data Use customer data to optimise product and pricing strategies
Security on network and IoT devices to provide protection to

Security on internal network Cybersecurity
the entire ecosystem
Use sensors, cameras and motion sensors to accumulate
Workers operating machines based on information Augmented
information and display the images into real world during
displayed on dials, gauges or screens. reality
work (virtual image on top of real things or devices)
Additive
Overproduction of products Lean manufacturing; cut down on waste and cost
manufacturing
Improve overall communication through value chain -
Countless devices running separately, information not System
vertical (within the industry value chain) and in horizontal
being utilised integration
system (across multiple value chains)
Complicated and time-consuming tools which are unable
Reflect reality or physical world in virtual form (virtual form
to adapt well enough to the rapidly changing Simulation
of the machines, products and humans).
manufacturing techniques
Autonomous Bring about more effective use of human labour; channelling
Leverage on human labour to operate
robots their energies to value-added activities
Cloud Data driven process with intelligence that changes the role
Managfing hardware and software to operate the system
computing and function of the system
Disjointed data all over the systems, making it difficult to Internet of Enable real-time data sharing between all parts of the system
obtain a real-time view of assets, people and transactions. things and all connected parties
Passive and thin film technology mainly for packaging and Strengthening and enhancing performance of materials for
Advanced
semiconductor electronics 3D-printing, flexible printed electronics and highly sensitive
Materials
sensors for IoT, system integration and lightweight robots

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TECHNOLOGY MATURITY AND OTHER EMERGING TECHNOLOGIES

Beyond the nine (9) technological pillars of the Industry 4.0, there are more potential technologies that will have a disruptive effect
on manufacturing eco-systems in the future. The Gartner Hype Cycle highlights an overview of emerging technologies, level of
maturity and adoption of technologies and its applications. It also provides a view of how the technology or application will evolve
over time, providing a sound source of insight of how to manage its deployment.
Year Technologies
>10 years
• Quantum computing
• Artificial general
intelligence
• Autonomous vehicle
• Augmented reality
5 to 10 years
• Blockchain
• Autonomous
robots/smart robots
• Cloud
computing/digital twin
• Simulation/virtual
reality
2 to 5 years
• Cybersecurity
• System integration
• Internet of things
• Big data
• Additive manufacturing

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The technology maturity and adoption can be described based on five (5) characteristics; the explanation of the characteristics is
described below:
- Innovation Trigger: A potential technology breakthrough kicks things off. Early proof-of-concept stories and media interest
trigger significant publicity. Often no usable products exist and commercial viability is unproven.
- Peak of Inflated Expectations: Early publicity produces a number of success stories — often accompanied by scores of
failures. Some companies take action; many do not.
- Trough of Disillusionment: Interest wanes as experiments and implementations fail to deliver. Producers of the technology
shake out or fail. Investments continue only if the surviving providers improve their products to the satisfaction of early
adopters.
- Slope of Enlightenment: More instances of how the technology can benefit the enterprise start to crystallise and become
more widely understood. Second- and third-generation products appear from technology providers. More enterprises fund
pilots; conservative companies remain cautious.
- Plateau of Productivity: Mainstream adoption starts to take off. Criteria for assessing provider viability are more clearly
defined. The technology's broad market applicability and relevance are clearly paying off.
Mapping the enabling technology into the hype cycle helps to identify the next potential technology that might bring impact to the
industry. In general, the trends of the technology maturity and adoption of the hype cycle can be summarised in three (3) dominant
trends. They are: Artificial Intelligence (AI) Everywhere, Transparently Immersive Experiences, and Digital Platforms. Figure 9,
categorised all the technologies in the hype technology cycle into the three dominant trends.

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Figure 9: The three dominant trends of technology hype cycle.
In summary, the hype cycle helps to identify the next enabling technologies that might impact the industry’s ecosystem. Potential
technologies to watch in next 5 to 10 years are artificial intelligence, blockchain and quantum computing. Artificial intelligence will
make a significant impact due to massive movement towards radical computational power, near-endless amounts of data and
unprecedented advances in deep neural networks; where organisations with AI technologies will able to harness data to adapt to
new situations and solve problems that no one has ever encountered previously. For blockchain and quantum computing, the
technologies are being selected due to the trends in business where digitalisation has moved business from silo business ventures
towards interconnected ecosystems. While in technology trends, technology is evolving from compartmentalised technical
infrastructure to ecosystem enabling platforms. Blockchain and quantum computing are the technologies that help business in the
transformation towards platform-based business model. Further information regarding the technologies is stated below:

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i. Artificial Intelligence (AI)
Description
Software algorithms that can perform tasks that normally require human intelligence, such as visual perception, speech recognition,
decision-making, and language translation. AI is a concept that is made up of numerous subfields such as machine learning, which
focuses on the development of programmes that can teach themselves to learn, understand, reason, plan, and act when exposed to
new data in the right quantities. It is estimated that by 2020 AI will become mainstream in the market. International Data Cooperation
(IDC) predicted the number of AI sales will exceed $10 billion.
Applications
- AI technology will supplement smart factory ecosystem toward more networked factory, in which data from supply chains,
design teams, production lines and quality control are linked to form a highly integrated, intelligent creation engine
- In security systems, AI can identify human behaviour and predict actions
- AI technology can use past information and preprogramed systems to make proper decisions and execute appropriate actions,
(to be applied in E-commerce, Smart home, Personal digital assistance)

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ii. Blockchain
Description
Distributed electronic ledger that uses software algorithms to record and confirm transactions with reliability and anonymity. The
record of events is shared between many parties and information once entered cannot be altered, as the downstream chain reinforces
upstream transactions. It is estimated that blockchain technology will be mainstream in 2020, starting in the financial industry where
20% of trade finance globally will incorporate blockchain/distributed ledger technology.
Application
- Blockchain-enabled smart contracts allow files to automatically negotiate terms and conditions (such as price, quality level and
delivery date) without the need for a middleman.
- Ease the deployment of distributed 3-D manufacturing value chains, as it enables low-cost, distributed and assured integrity
for contracts, product histories, production processes and more.
- Blockchains will provide transparency in transaction processes eliminating the use of middleman and avoiding certain
regulations. Security is improved as there will be fewer cyberattacks because it can be hard to hack with a decentralised
system.

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iii. Quantum computing
Description
Quantum computing is a new more holistic approach to processing information by using new types of algorithms. In classic
computing, information is encoded in bits; which takes the value of 1 and 0 (binary) that acts as on or off switch for a computer to
function. In quantum computing, the two properties quantum computers use to disrupt the binary are known as “quantum
superposition” and “quantum entanglement.” The quantum superposition allows quantum bits (“qubits”) to be a 0 and 1 at the same
time, while quantum entanglement entwines multiple qubits, allowing for a greater number of calculations. By using these two
principles, qubits can act as a more sophisticated switch which enables quantum computers to solve difficult problems that are
intractable using current computers. Experts predict that quantum computing will not be mainstream for 10 to 20 years since the
hardware development is still at infant stage.
Application
- Quantum computers could be used to re-balance day to day investment portfolios, or even hour to hour managing of company
investment and financial plans by using data and creating various solution models.
- In security systems, quantum computers will change the landscape of data security. In fact, quantum computers would be
able to crack many of today’s encryption techniques.
- In the age of big data, a massive amount of data produced every day (2.5 exabytes of data) can be processed by quantum
computing since it operates at 100,000 times faster than the current computer.

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TECHNOLOGY APPLICATIONS IN THE MANUFACTURING INDUSTRY

The adoption of advancements in the technology of the manufacturing or production industry may bring disruption in many ways.
Disruption affects the ecosystem when it requires organisations to develop specialised solutions for specific industries and
applications, identify the right business model of technology adoption, and setting a new strategic target by understanding the
desired values to be achieved.
i. Cloud and IoT
The impact of cloud technology has been addressed by companies like AWS Lambda and Sight Machine who have created an
application called cloud based digital twins. Digital twin is about collecting precise information regarding the use and performance of
complex physical objects, and modelling that information in a virtual environment with simulation and analytics tools. This can provide
OEMs with richer real-world product utilisation information, and provide operators with richer insights into the current state of the
object in real time. Siemens is also a strong player that has focused on digital twins as one of its core technologies; differentiators
for its IoT platform, Mindsphere.
ii. IoT and Cybersecurity
Another example of IoT cybersecurity is from companies like NextNine who has developed on specific technology areas and has a
suite of network monitoring solutions for mining and maritime applications. The technology is about embedding IoT devices with a
ledger of whitelisted and blacklisted IPs through a blockchain ledger. When a device is accessed with authorisation, a particular
IP/access point is used to detect the IP status of the device i.e. blacklisted, and the IP status then is updated across ledgers in the
blockchain.
iii. Augmented reality (AR)
Technology like AR has been implemented in the automotive and aerospace industries. Companies like BMW have been adopting
these technologies since 2014 at Spartanburg plant in South Carolina. Smart glasses (google glasses) were used to take photos or
videos to document deviations during pre-series production testing, providing a faster and more precise means for subsequent

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analysis. The Google Glass camera was used in its three different settings: photos, video, and background video. With Google Glass,
the testing staff could stay right at the vehicle, look at the test plans on the device’s integrated display and sign them off via voice
control. This is just one example of how staff productivity is increased with the adoption of AR technology.
iv. Simulation and VR
Ford uses VR to aid in design build and collaboration between teams that are physically located apart. Members of a team can create
an entire vehicle (engine, power train, seats and all its mechanisms) in VR. Different divisions like body, interiors, and structures can
use the same model in real time. The VR images allows engineers to look at the car with a level of granularity. Then, the team uses
the VR to simulate several stages of its manufacturing processes for injury reduction. Since implementing VR, the company has seen
a 70% reduction in employee injuries.
v. Big data analytics
Big data analytics have progressed in the last few years. Companies such as Datalogue, H2O.ai and Feature Labs are attempting to
address the fundamental issues of big data analytic technology by creating what is known as data science automation application,
which is an application that refers to everything from data wrangling to feature selection. The application helps the data scientists or
researchers to minimise and reduce the work of data clean-up and feature selection. Therefore, researchers and data scientists can
focus more on analytic work rather than cleaning up the data.
vi. Additive manufacturing
One major development in additive manufacturing, specifically in 3D printing space, over the past few years is the emergence of the
desktop professional. Desktop professional refers to a reduction in price of 3D printing. Desktop professional offers a similar price
point to desktop printers and quality like industrial-type printers, as the hardware and materials innovations are progressing towards
cost reduction and efficiencies. This technology, which has been commercialised by companies like Formlabs and Sinterit, is primarily
used for prototyping and end-use applications that require high accuracy.

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Globally, the technologies are being made available in the market and have already made impact on the industry. As for the
technologies used, all industries will experience the impact of improvement. These changes will bring about a more efficient, safer
workforce and capital assets, and/or supply chain optimisation.
SMART FACTORY, IS ONE OF THE KEY FEATURES OF INDUSTRY 4.0

Changing the traditional manufacturing practices from isolated and optimised cells to smart factories with fully integrated data and
product flow across borders brings about many benefits. For instance, smart factories are not only able to provide real time
information that adds to market research, but also provides information about internal factory processes such as the failure of a
machine in a production line. Enabling manufacturers to identify the defects and re-delegate tasks to other operating machines,
contributes greatly to the flexibility and the optimisation of production. Furthermore, smart factory production is based on customer
preferences, generating a better build connection between people and smart devices as products or services are being built based
on customers’ specifications. Smart factories also bring modularity to the business where in a dynamic market, a smart factory can
adapt to a new market in a short time. Whereas typically it would likely take a week for an average company to study the market
and change its production accordingly, smart factories are able to adapt quickly and smoothly to seasonal changes and market
trends.

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Figure 10: Smart factory with enabling technologies

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The adoption of technology through the movement to smart factories will blur the boundaries between front, middle, and back office
operations. Besides the technologies transforming the whole supply chain in factories, they have also made an impact on the
operating model of traditional factories at the level of front office sales and customer service; mid office-finance/accounting, IT
support and audit; and back office data generation and reporting.
The smart factory solution allows for demand forecasting and intelligent pricing impacting front office. Traditionally, the forecast
result generated from the estimates made by sales and marketing executives, market expectations, and overall market competition
is being used to help leaders make important business decisions in everything from sales and production planning to pricing. This
approach is sometimes imperfect and unresponsive to developments. With smart factory, companies experienced improvement in
decision making by relying on technologies such as big data automatically drawing on data from a wide range of sources and
centralised analytic algorithms to predict future demand from different customer segments and geographies. Ultimately, real-time,
algorithm-based demand forecasting will feed into many related processes, such as market research, sales planning, production
planning, and scheduling with very little human assistance.
For middle office the impact can be seen in smart purchasing and outsourcing. Smart factory will increase integration and
transparency with suppliers, which allows greater access to a wider range of suppliers and flexibility in make-or-buy decisions. As a
result, manufacturers will be able to overcome a variety of current shortcomings such as inconsistent digitisation, which can hamper
the request-for-proposal process.
In the back office, the impact will influence R&D efficiency and product launch. The use of technology in smart factory like simulation,
data integration, big data pattern recognition and real-time feedback loops will make R&D more efficient through the structured
analysis of operating data and concurrent mechatronic engineering between manufacturers and suppliers using digital models. As
simulations improve, R&D departments will require fewer costly, labour-intensive physical prototypes, replacing them with digital
modelling and virtual testing environments.

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INDUSTRY 4.0 CHARACTERISTICS AND ITS BENEFITS
The characteristics of Industry 4.0 could be understood from perspectives of digital horizontal and vertical integration within Industry
4.0 ecosystem (Figure 18).
Figure 11: Industry 4.0 Characteristics Digital horizontal integration through value network
Digital horizontal integration refers to the integration of ICT systems for

and across the various production and business planning processes. In-
between these various processes there are flows of materials, energy
and information. Moreover, they concern both the internal and external
(partners, suppliers, customers but also other ecosystem members,
from logistics to innovation) flows and stakeholders.
Digital vertical integration through value network
Vertical integration has a hierarchical level component. It is about the

integration of ICT systems at various hierarchical production and
manufacturing levels. These hierarchical levels are the field level
(interfacing with the production process via sensors and actuators), the
control level (regulation of both machines and systems), the process
line level or actual production process level (that needs to be monitored
and controlled), the operations level (production planning, quality
management and so forth) and the enterprise planning level (order
management and processing, the bigger overall production planning
etc).
Deeper understanding of the Industry 4.0 ecosystem could be

established through the horizontal and vertical integration. The four

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characteristics are: (i) predictive insight to react on demand and marketing, (ii) digital customer experience, (iii) digital supply chain
& production in supply chain & distribution (iv) digital product and services in supply & production.
I. PREDICTIVE INSIGHT TO REACT ON DEMAND AND MARKETING

Predictive insight - the ability of the organisation to anticipate and understand the demand of consumers, and expressing the insights
of demand through marketing and its supply channels. Predictive consumer insights help to develop behaviour-based customer
profiles and segments. This insight generates highly personalised and optimised propositions and other interventions that are
executed through multiple platforms of engagement. As a result, organisations and their decision-makers have consistent, continuous
and relevant customer engagements.
• Omni-channel enablement. An evolution of multi-channel retail but with a seamless integration of the customer experience
through all available shopping channels on mobile, brick-and-mortar, television, radio, direct mail, catalogue etc. Insight from
Omni-channel enablement are used to exploit rapid sales growth through emerging channels. For example, usage of mobile
devices to promote brand awareness and loyalty. A Deloitte study claimed that Omni-Channel customers spent 93% more
than shop direct/ online customers and 208% more than in-store only customers. Customer engagement is paramount and
the Deloitte study also observed that if customers liked a retailer on Facebook they would spend 44% more time on their
online store than customers who did not.
• Demand Sensing & Shaping. A process that is centred around a specialised type of monitoring focused on the identification
of changes that occur in near-real or real-time. These incoming signals can come from big data accumulated and analysed
individually or collectively to determine the effect on the current demand plan. The demand-sensing process uses advanced
analytics to support the selection, preparation and transformation of both structured and unstructured data in support of
demand and supply synchronisation. This includes identification of data irregularities for demand volatility reduction. Turning
data into actionable insights, which include early warning algorithms, predictive models, decision support, workflows and
dashboards will allow manufacturers to make fast and accurate decisions throughout the value chain.

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• Intelligent Marketing. Describes how marketing and advertising has changed from the adoption of technology such as Big
Data Analytic (BDA), Cloud Computing, Artificial Intelligence, Internet of Things (IoT) and other advance platforms in
understanding changing demands. Manufacturing companies are being driven by a few impactful market trends affecting their
business. In addition, the expectations of global markets are causing companies to build production processes with greater
agility and adaptability. This is to respond to highly variable market demand as massive amounts of data are being produced
through social media channels and as a result are changing the way manufacturers approach consumers. For examples,
according to a McKinsey report, 35% of Amazon.com’s revenue is generated by its recommendation engine illustrating the
power of analysing data to predict what your customer wants, and offering it to them.
The benefits
The benefits of predictive insight are to provide check and balance on reacting towards the demands by eliminating error and
improving your overall accuracy. Predictive insight also helps organisation make quick decisions since the technology can help them
to understand and learn how to carry out the day-to-day work and identify patterns in behaviour. Hence, the systems can then begin
to make decisions based on pre-determined criteria.
The system also helps in dealing with the more mundane work, especially routine marketing, to allow more space for humans to be
more creative, and devise campaigns to connect better on a human level. With the system's ability to think and act quicker, predictive
insight applications can be used to run multiple tests at any given time, while at the same time harvesting real-time data to continually
influence the testing cycle - optimising their marketing as they go.

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II. DIGITAL CUSTOMERS EXPERIENCE

Digitising customer experience – is the ability of organisations to capture the quality of all consumer encounters with any of the
company’s products, services, and brand through a digital interface, like a computer, tablet, or smartphone.
• End-to-end experience. It uses technology to capture the intangible value for consumers when they interact with the
products, services and brands throughout a period of time. The interaction encompasses three main elements that consist of
the customer’s point of contact with the brand or product and services, the customer journey and the environments in which
the activities take place. By understanding the intangible values from the interaction, the end-to-end approach can be well-
modelled towards a customer-focused experience.
• Trusted machine. Describes an analytic tool, like a learning capable machine, to understand consumer behaviour. By using
a trusted machine, it helps in eliminating the need to fill out forms and enter tracking numbers for gathering information about
the targeted customers. This creates an opening of new possibilities, delivering information faster and more efficiently than
the normal practices.
• Digitise product and service. Products and services are being developed from the feedback of customer experience. With
the digitalisation of products or services, consumers who are interested in the products/services of a brand may, in their spare
time, upload reviews and comments and respond to other reviews and comments about the product. Subsequently helping
other users with technical service issues or gaining extra information about the product. These individuals can be very useful
sources of product development ideas, or can be incentivised as a low-cost provider of technical service to other consumers.
The benefits
The benefits of digital customer experience can be seen with the customisation of products, services or brands. Customisation can
be developed by collecting valuable data from customer preferences based on actual orders and behaviours. This will allow
manufacturers to improve production schedules, marketing materials and sales strategy based on real time data.

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Leveraging on technologies such as cloud, big data, robots and cyber-physical systems to predict and meet consumer demand,
detection of fluctuations in production, the possibility to downscale or upscale and all of the adjustments that are sometimes more
or less predictable, can now be made more predictable. This is because technologies help to increase visibility and flexibility and
allows the organisation to fully utilise the asset to optimise production in term of time and scale. As a result, better production and
service meets consumer demands.
III. DIGITAL SUPPLY CHAIN & PRODUCTION IN SUPPLY CHAIN & DISTRIBUTION
Digital supply chain and production - an evolution of supply chain towards digital supply network (DSN), as result of the changing
technology landscape, and increasing connectivity between the digital and the physical worlds. Digital supply chain and production
address the linear and siloed issues of traditional supply chains towards connected and integrated supply chains networked where
real-time information and insights can be shared across the entire supply network to drive actionable decisions. The ability of DSNs
to play an integral role in strategic decision making, fewer trade-offs, customising multiple supply networks to the specific needs of
customers and clients, help organisations to gain huge advantages in customer service, flexibility, efficiency, and cost reduction.
• Collaborative Planning. One of the attributes of digital supply chains will be the ability to see and understand the activities
and events of multiple players, as Industry 4.0 focuses on the end-to-end digitisation of all physical assets and integration
into digital ecosystems with value chain partners. Generating, analysing and communicating data seamlessly underpins the
gains promised by Industry 4.0, which networks a wide range of new technologies to create value.
• Scenario-based planning. Digital supply chains will embed the uses of scenario based planning to the supply chain to allow
manufacturing planners to anticipate the future requirements of production. With the help of advancements in IoT and analytic
related technologies such as telematics, sensors and geo-positioning signals, it will allow manufacturers to implement scenario-
based contingency planning and help to make better decisions.
• Intelligent and innovative procurement. Smart technologies and algorithms allow very large volumes of data from varied
sources to be aggregated, processed, and analysed. The resulting analyses can be used to understand suppliers, markets,

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and customers; hence, procurement processes can be done automatically and automatically drive procurement decisions.
Analysing data and using it smartly is therefore one of the key success factors for companies that want to make the most of
the potential of innovative procurement. For example, suppliers can be provided with field application data analysis to improve
the design and performance of their products. Predictive information about where and when to expect the next failure will
offer the opportunity to optimise maintenance services and the availability of spare parts.
The benefits
Digital supply chain and distribution help to develop innovative capabilities and new business models in organisation. The true value
is generated by tapping into new, mostly information-intensive, revenue sources and ecosystems, enabling innovative capabilities,
for instance in deploying an as-a-service-capacity for customers, advanced maintenance services and understanding consumers’
behaviour. The digital supply chain also improves decision making by connecting entire value streams to enable suppliers, the
manufacturers and the clients to communicate and react to changes. It will be possible to make quicker and more accurate decisions
about which products to manufacture and how to manage the organisation efficiently.
Digital supply chain is reflected towards real time data which helps in improving manufacturing productivity by optimising process
and cost for enhanced customer-centricity. In the value chain and ecosystem within which manufacturing operations reside, there
are many stakeholders involved including customers that want enhanced productivity.

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IV. DIGITAL PRODUCT AND SERVICES IN SUPPLY AND PRODUCTION

Digital products and services - a revolution of products, production and service towards digitalisation. Products have become a
complex system that combines hardware, sensors, data storage, microprocessors, software, and connectivity in numerous ways.
Smart and connected products are made possible by vast improvements in processing power and device miniaturisation and by the
network benefits of ubiquitous wireless connectivity.
• Customer Driven Engineering. Product and services developed are the reflection of customer driven engineering. Digital
tools have enabled the manufacturers to understand the changes in customers’ behaviour and preferences. With these tools,
personalisation of products and services can be produced to meet customers’ expectations. In addition, with predictive
maintenance, consumers’ satisfaction can be fulfilled as a result of real-time engineering information that includes location,
running data, and status, to cater for fault-modelling and failure analysis.
• Connected Products. Smart, connected products offer expanding opportunities for new functionality, greater reliability,
much higher product utilisation, and capabilities that cut across and transcend traditional product boundaries. The changing
nature of products is also disrupting the value chains, forcing manufacturers and businesses to rethink and retool almost all
internal processes.
• Strategic Enable Ecosystem. Digitisation of product and service offerings are focused on the end-to-end digitisation of all
physical assets and integration into digital ecosystems. The digital ecosystem is resulting from generating, analysing and
communicating data seamlessly for creating networks from a wide range of new technologies to create value.
• Service Analytics. Analytics based on large amounts of data have emerged to optimise production quality on assembly
lines, detecting faults or anomalies in various machines on the shop floor, addressing the issues of machine degradation and
component wear etc. Both data and analytics are becoming increasingly important in the decision-making process. A
substantive amount of data will bring significant impact on decision-making processes over the next five years and only about
half of the manufacturers are currently using data to make decisions. There will be a significant change in the entire decision-
making process as the result from extensive use of analytics.

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The benefits
Digital products and services will benefit the manufacturers through optimisation and automation to enhance productivity. The use
of thousands of smart devices that can self-optimise production will lead to an almost zero down time in production. This is important
for industries that use high-end expensive manufacturing equipment such as the semi-conductor industry. Being able to utilise
production constantly and consistently will greatly profit the company.
According to a study published by PwC, “Digitised products and services generate approximately €110billion of additional revenues
per year for the European industry”. The benefits including saving costs, increasing profitability, reducing waste, automating to
prevent errors and delays, speeding up production to work more in real-time and in function of the overall value chain, where speed
is crucial for everyone, digitising paper-based flows, being able to intervene faster in case of production issues and so forth. With
increased connectivity of machines and by applying intelligent prediction algorithms, smarter predictive maintenance is possible. This
results in reduced machine downtime and lower maintenance costs.

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TRANSFORMING INTO INDUSTRY 4.0
Industry 4.0 will bring many possibilities to organisations. As the characteristics of Industry 4.0 and its benefits are being explored
and the use of advanced technologies like the internet, wireless sensors and advanced software combine, production processes will
be optimised and customers’ needs better met. This will improve the way organisations do business and subsequently affect
organisations’ revenue, cost and productivity.
Revenue
Organisations revenues can be improved with the adoption of Industry 4.0. Companies will no longer need to choose between
focusing on a better top or bottom line. They will be able improve both at the same time. A finding by PwC on global Industry 4.0
estimated that the companies who are adopting Industry 4.0 will gain revenues by an average of 20% in the next five years. The
effect will be higher for first movers who combine high investment levels with advanced digitisation. Industry 4.0 has also improved
the overall product quality. For instance, real-time quality controls allow companies to reduce, or even eliminate customer returns
that occur when products do not meet specifications.
Cost
The cost of companies’ operations can be reduced up to 50% with the adoption of Industry 4.0. This cost reduction can be achieved
alongside the operational process. For instance, the use of higher automation in production lines can help to reduce labour cost and
at the same time improve operational output. The use of real time production monitoring and quality control helps to reduce
production waste and rework. While the use of predictive maintenance will prevent costly repairs and unplanned downtime.
Productivity
The productivity of the organisation is boosted through efficiency in the whole production process and the capability to predict and
prevent failure. It is estimated that productivity can be increased between 5% and 25%. For example, the adoption of digital

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technologies in smart factories help to optimise equipment Table 2: Summary of the Expected Benefits
effectiveness and enhance the maintenance capacity to predict Business benefits Improvement (%)
and prevent downtime factories. Technology such as 3D printers Operating efficiencies
help to boost productivity by creating fast prototyping, reduce Manufacturing, logistics and reduce by 10% to 20%
quality costs
the cost of engineering and accelerating the time it takes to
Labour costs reduce by 10% to 25%
introduce a product to the market.
Energy costs reduce by 10% to 30%
In addition, manufacturers who are adopting Industry 4.0 Water usage reduce by 40%
Factory inventory carrying costs reduce by 20% to 50%
technologies can expect to gain improvements in operating
Overall operating efficiency increase by 5% to 15%
efficiencies, asset management, safety, supply chain
Resource efficiency increase by 28%
management and time to market. The summary of the expected Asset management
benefits can be referred in Table 2. Maintenance costs reduce by 10% to 40%
Unplanned downtime reduce by 50%
Transforming into Industry 4.0 requires a structured and holistic
Equipment capital investment reduce by 5%
approach that is focused on increasing business value and Equipment life time Increase by 5%
reducing business risks. A transformation framework is needed Supply chain management
to speed up the adoption pace so that organisations can have the Retailer inventory carrying costs reduce by 10%
advantage as the first mover ahead of its competitors. The Error rates in order picking reduce by 40%
transformation toward Industry 4.0 covers changes in the activities
perspectives of organisational structure and culture, business Number of lost packages reduce by 30%
Container utilisation increased by 10% to 25%
process or plan, people, data management and technology and
Safety reduce by 10% to 28%
product design.
Time to market reduce by 10%

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INDUSTRY 4.0 TRANSFORMATION FRAMEWORK
Figure 12: Transformation Framework into Industry 4.0 The transformation framework identified five (5) elements
requiring changes when transforming into Industry 4.0. The
elements consist of understanding the organisation structure and
culture for having the right ecosystem and mindset, exploring
business models to describe the changing environment from
traditional approaches of business processes towards dynamic and
digital supply chain processes. It also includes exploring talent and
workforce development, materialise data management to bring the
values from understanding the data towards development of
insights and creating the technology and product design to
understand the need of the clients or customers.

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Organisations structure and culture
Organisations need to be prepared by having the right ecosystem and mindset to meet the structural and cultural changes required
by Industry 4.0.
First, organisations need to know about their current condition; the strengths and weaknesses of the organisations in order to set a
clear vision. The current state of digital maturity requires organisations to evaluate the way they operate with a mindset of looking
into the future so that they can set up clear targets for development. Having clear targets will help the organisations to prioritise the
measures that will bring the most value to their business and to ensure the companies’ leadership is ready and willing to champion
the approach.
Second, organisations within the same industry need to build networks and facilitate collaboration. The increasing connection of
companies with third parties along the value chain creates the need for alliances and cross-functional governance. Companies need
to seek these alliances since one of the impacts of Industry 4.0 is the increasing need to integrate data and processes from outside
the company. Strategic partnerships with other companies that offer complementary technologies may bring solutions to address
specific revenue potential.
Third, organisations need to adapt new work models that include flexible schedules to link with the increase of variability in production
schedules as the result from the new interaction between human and machines. The adoption of new work models also brings
integration that requires the organisation to build relevant digital infrastructure to combine data, integrate systems and processes,
and help make decisions based on cross functional information.

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Business model
The business processes of organisations are transforming into dynamic interconnected systems, where the influence of cyber-
physical-systems have integrated information from many different sources to drive production and distribution, potentially altering
manufacturing’s competitive landscape.
First, organisations need to realign their business vision, model or operation with the changes brought by Industry 4.0. From time to
time experimental approaches are needed for new business models to find the best approach to suit the changing environment. The
new business models of Industry 4.0 need to consider a mixture of top-down and bottom-up approaches. A top-down approach is
where the company is driven by the goals and mission of top management, while a bottom-up approach is when company adapts to
new changes driven by consumer demand and operational needs to optimise revenue, lower costs, and increase productivity.
Second, organisations need to create initial pilot projects. The shift from linear, sequential supply chain operations to an
interconnected, open system of supply operations could lay the foundation for how companies will compete in the future. The idea
of having an initial pilot project is to address new elements or issues at an earlier stage. As a proactive approach, pilot projects can
bring various benefits to the organisation some of which are:
• establishing proof of concept and demonstrate business value, where scope can be confined and end-to-end concepts of
Industry 4.0 can be highlighted;
• gaining buy-in from the organisation, and securing funding for a larger rollout by showing the evidence from early successes;
• being designed pragmatically to compensate for standards or infrastructure that do not yet exist; and
• promoting collaboration with digital leaders outside the organisation, by working with start-ups, universities, or industry
organisations to accelerate digital innovation.

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People
The people in organisations need to be flexible to work effectively in this new environment. Organisations need think about how to
manage talent and workforce from the shift into Industry 4.0.
First, organisations need to map out in detail the requirements, and set up the capability needed to meet their vision of Industry 4.0.
Organisation must be able to systematically gather baseline information relating to all employees and categorise the various types of
employees into job families. As result of understanding the requirements, recruiting elements for future talent and workforce can be
set to focus on capabilities, rather than qualifications; determined by degrees and roles. Because employees will be working on a
greater variety of tasks unrelated to their core education, recruiters will often have to look beyond formal degrees to identify workers
with the relevant skills for specific roles. In addition, understanding the requirements will help organisations to create strategic talent
and workforce planning:
• to frequently retrain workforce to keep pace with the introduction of technological advancements;
• to expand and refine, reskill and upskill employees; and
• to have effective training programmes for specific job-related skills that include both on-the-job instruction and classroom
instruction.
Second, organisations need to work with governmental job agencies to develop a set of specific capabilities for each role and design
ways to assess individuals’ capabilities against the requirements. Because the talent pool for Industry 4.0 jobs are not limited to fresh
graduates, it is crucial that companies identify existing employees or experienced individuals from outside the company who possess
the right capabilities for specific jobs.
Third, organisations need to become learning organisations to optimise the potential of exponential technologies in achieving better
revenue, low cost, and productivity. The future of work suggests employees should be self-direct learners who pursue upskilling
according to their time availability alongside with what has already been offered by company.

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Data management
Data will bring value to the organisation. An introduction towards advancement of technologies in the organisation can generate
massive volumes of data and making sense of all the data requires strong data management, storage and high-performance data
analytics capabilities. First, organisations need to understand and manage data as one of their most important assets. All data should
be collected, aggregated, and analysed to unlock its business value for Industry 4.0 solutions. For example, understanding the flow
of data management in real time access. Real-time access to data and intelligence is fundamentally driven by the continuous and
cyclical flow of information and actions between the physical and digital worlds, through an iterative series of three steps, known as
the physical-to-digital-to-physical loop:
• Physical to digital - capture information from the physical world and create a digital record from physical data
• Digital to digital - share information and uncover meaningful insights using advanced analytics, scenario analysis, and artificial
intelligence
• Digital to physical - apply algorithms to transform business processes
Second, organisations need to build direct links with decision-making and cross-functional expert teams in managing data in order
to get value out of the generated data. By having this direct link in the organisation, the results from data analytics are organised to
get quick reactions and feedback from the decision makers. This feedback helps organisations to improve products and the use in
the field will subsequently build new service offerings.
Third, organisations need to have strong data security. Ensuring cybersecurity is crucial since the threat of cyber risk is on the rise
in a hyper-connected world. The Internet of Things means that physical targets such as connected machinery will become an interest
to hackers. Practices such as prioritising protection around key assets, integrating cybersecurity into core processes and safeguarding
technology needs to be deployed to minimise the impact of cybersecurity and effectively manage the cyber risks.

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Technology and product design
Technology and product design of the organisation needs to be focused to meet the need of the customers.
Organisations need to standardise systems, platforms, protocols, connections, interfaces and reference architectures. There also
needs to be a technical description of these new standards to facilitate the implementation Industry 4.0 processes. In terms of
interoperability standards, organisations need to be partners with suppliers, IT companies, connectivity providers, and/or competitors
in developing industrywide standards so that they can gain a competitive advantage as a result of these newly evolved standards.
Second, organisations need to develop complete product and services solutions for customers through the digital ecosystem. Agile
digital infrastructures such as fast-speed internet and advanced data software will be necessary to quickly address changes in
customers’ expectations. With the digital infrastructures, an ecosystem for co-creation can be established to allow innovative solutions
that meet the needs of customers.
Transforming into Industry 4.0 requires a holistic understanding on the overall context of Industry 4.0. By understanding the whole
ecosystem, its characteristics and benefits can be optimised and subsequently, organisations can craft the framework for changes.
It is important for organisations to strengthen their digital connectivity internally, which then will create connectivity between industry,
education and training hubs. Through this strong digital connectivity, bottlenecks and the digital divide within the digital ecosystem
can be removed.
There will also be a demand to establish collaborative platforms between knowledge partners and manufacturing firms for advisory
on digital adoption and cyber securities readiness among the players. Therefore, the enhancement of the digital adoption along the
manufacturing value chain are paramount. This enhancement needs to include back office and front-end solutions for manufacturing
firms and respective suppliers.
In addition, there is a need to enhance the manufacturing related services (MRS) with Industry 4.0 technologies. This can be done
through collaborative platforms between manufacturing firms with MRS, both parties will get the benefits through the collaborative
platform. The manufacturing firm will experience better and improved services from MRS; while MRS will gain better support and
integration with manufacturing firms.

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THE TYPE OF INDUSTRY THAT PRONE TO DISRUPTIVENESS

As described above, technologies will bring multiple changes to the business ecosystem. Adoption of technology are not in isolation,
but combined technologies in the industry will create new function in the business operations or creates new development of new
business models. For example, automation is derived from the combination of technologies such as robotics and Internet of Things,
cloud and big data; Security features are combination of cybersecurity, Internet of Things, simulation and big data analytics; and
improvement in efficiency and connectivity are resulted from the combination of technologies like system integration, additive
manufacturing, augmented reality and simulation. Through the convergence of technologies at certain point throughout the
ecosystem, new values to the industries will be created. The ability of technologies to sense, capture and process entirely new set
of data or information and turn it into detail insights, creating richer insights to be developed in the ecosystem, that lead to the big
breakthrough that underpin the digitalisation in business ecosystem or digital disruption.
Digital disruption can reshape the market faster than ever before. In general, it affected the industry in two main factors. First, is on
the velocity of change and it involve the high-risk factors. Second, digital disruptors innovate rapidly, and then use the innovations
to gain market share and scale far faster than the challengers who are still in physical business models. One of the example is in the
telecommunication industry, where WhatsApp overwhelmed the $100 billion global text messaging market through its free text
messaging and now as an addition to the WhatsApp text messaging, its allows users to make free mobile voice calls. Digital disruptors
and tech innovators are emerging in different industry sectors, threatening to overthrow conventional business models faster than
ever. The implications are clear, either embrace digital transformation or be stagnate and perish.
Knowing the implication of digital disruption in emerging industries, a fundamental understanding of how digital disruption works is
vital. Thus, Digital vortex was introduced to help companies plan a strategy to exploit or to counter any possibilities that may arise
from digital disruption. A digital vortex can be described as the inevitable movement of industries toward a ‘digital centre’ in which
business models, offerings, and value chains are digitalised to the maximum extent possible. The construct of a vortex helps to
conceptualise the way digital disruption impacts firms and industries.
A digital vortex study by Global Centre for Digital Business Transformation, has mapped twelve (12) industries that they believe will
experience the most digital disruption leading up to 2020. Figure 13 explains the results of digital vortex for twelve (12) industries.

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The study is based on a quantitative analysis of market data and responses from 941 business leaders across 13 countries. The
industries were scored and ranked based on four (4) indicators of potential for digital disruption.
• Investment: The level of investment in companies that are focused on using digital technologies to disrupt.
• Timing: The length of time until digital disruption is expected to have a meaningful impact in an industry, and the rate of change
expected to occur.
• Means: The barriers to entry that digital disruptors face in an industry, and the extent of digital business models they have at
their disposal to surmount these barriers.
• Impact: The extent of disruption, such as impact on the market share of—and the level of existential threat to—incumbents in
an industry.

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Figure 13: The digital vortex for twelve (12) industries

The outcome of the study indicates that technology products and
services industries experience the most digital disruption, followed by
media entertainment, retail, financial services and telecommunications
while the pharmaceutical, oil and gas and utilities industries will
experience the least amount of digital disruption. The updated version
of the study in 2017 indicates some changes in the industries positions.
The centre of the vortex indicates changes between media and
entertainment and technology products and services followed by retail,
financial services, and telecommunications. These industries are also
closer to the centre compared to the 2015 digital vortex studies.
The centre of the digital vortex symbolises a “new normal”

characterised by rapid and constant change as industries become
increasingly digital. In the digital centre, business models and value
chains are digitalised as much as possible. The force of the vortex
separates physical and digital sources of value, yielding “components”
that can be readily combined to create new disruptions and blur the
lines between industries.

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CONCLUSION
Enabled by technologies, Industry 4.0 aided, in performing tasks and transforming from traditional manufacturing value chains into
digital network systems value chains. Therefore, it is fundamental to identify critical technology areas to ensure standards and
interoperability is in place which will subsequently contribute towards the optimisation of resources and improved productivity.
To encourage the adoption of technology, multiple collaborative platforms need to be established especially to have smart
partnerships between SMEs, MNCs, technology providers and training and academic institutions. Through this collaborative platform,
awareness of Industry 4.0 can be created, transfer of knowledge becomes easy and access to technologies for adoption will be
increased.
The rate of technology adoption is also influenced by standards that can be clearly understood. The establishment and implementation
of standards for systems interoperability for smart manufacturing are important. Therefore, relevant parties need to work within
industries to encourage the development of industry-led voluntary standards and best practices that address issues such as
interoperability, privacy, and security.

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CHAPTER 3 CASE FOR CHANGE
CHAPTER 3
CASE FOR CHANGE

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3.1. DRIVERS OF CHANGE – GLOBAL PERSPECTIVES
The world is constantly changing with volatility, uncertainty, complexity and ambiguity (VUCA). However, there are certain directions
of change that have taken place which can be explained through a number of trends. These trends will have direct or indirect
influence on the future of manufacturing sectors which are clustered around social, technological, economic and environmental
trends.
SOCIAL DRIVEN TRENDS
Among the key social trends that will have an impact on the future of manufacturing are demographic shifts, an urbanised world,
new behaviour and a shift to workers in skilled intensive.
KEY TREND 1: DEMOGRAPHIC SHIFT

The rapid pace of aging populations is occurring in many countries around the world. The United Nations (UN) defines an aging
nation as a country that has more than 15 percent of its population aged 60 and above. Between 2015 and 2030, the number of
people in the world aged 60 years and above is projected to grow by 56 per cent. Due to a drop in fertility rates and a hike in the
lifespan of citizens, Malaysia is expected to be an aged country by 2030, where 15% of the population will be made up of senior
citizens. Among the main factors that drive this trend are; (1) Declining fertility rates are happening in nearly all regions of the
world. Even in countries with the highest fertility rates as in Africa, total fertility has fallen (5.1 births per women in 2000-2005 to
4.7 in 2010-2015). (2) Increasing life expectancy is a growing trend globally (65 years for men and 69 years for women in 2000-
2005 to 69 years for men and 73 years for women in 2010-2015). Driven by advancements in public health and medical technologies,
along with improvements in living conditions.

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KEY TREND 2: GROWING MIDDLE CLASS

Expansion of a global middle class, expected to reach 4.9 billion, is nearly 57 percent of the global population. It has been estimated
that 88 percent of the next billion entrants into the middle class will be in the Asia. By 2030, Asia could represent 2/3 of the global
middle-class population. Populations in China in particular have undergone rapid entry into the global middle class and in 2015 the
Chinese middle class for the first time outnumbered the American middle class and became the world’s largest, counting 109 million
adults compared with 92 million in the United States (Credit Suisse 2016). A similar situation is expected to happen in India during
the period of 2020 – 2030.
KEY TREND 3: URBANISED WORLD

Every year, 70 million people are joining the urban population. It is anticipated that by 2030, two-thirds of the world’s population will
reside in cities and 96 percent of urbanisation will occur in developing countries. Cities are becoming denser and expanding their
boundaries further and eventually forming megacities (population of more than 10 million people). Currently, it is estimated that
more than 29 megacities are on the rise, projected to grow to between 41 and 53 by 2030. The trend, according to Grayline Group,
is a global phenomenon with several common factors driving the trend : sophisticated agriculture methods and machinery decrease
the number of workers required to sustain agricultural production. This currently drives a greater velocity of migration in developing
nations that are just now transitioning to more efficient and mechanized agriculture techniques. Another factor is the shape of modern
economies, specifically the increasing concentration of wealth creation and the specialised nature of modern workforces.
KEY TREND 4: NEW BEHAVIOUR

As incomes grow and the population urbanises, consumers tend to become more sophisticated and responsive to trends. Generations
X, Y and the new Millennials will increasingly comprise the vast majority of the population, bringing with them a complete change in
consumer behaviour. There are number of trends related to changing behaviour of consumers among others: (1) From “buy my
own” to “design your own” which consumers want to have a more active role in the design and development of the products they
acquire. This is fuelled by an increased desire for personalisation, a desire for sharing designs with others, curiosity for new forms of
product configurations and availability of technology to support it. The drop of prices of disrupting technologies, such as 3D printing,
enable this personalisation and co-creation of products, from jewellery to airplane parts. (2) People can basically know everything.

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Information is increasingly available with a simple mouse click. Consumers are developing their identity in a free format. Therefore,
needs and consumption patterns can no longer be sufficiently estimated based on demographics such as age. Interests, hobbies and
lifestyle have become better predictors. (3) Customers know it all. As a result, they compare products and services constantly on the
Internet. Standing out from the crowd and adding value for customers shifted from providing information to inspiring customers and
providing personalised advice. Re-thinking the purpose of channels is fundamental to adapt to the customer’s needs.
Why it matters to the Manufacturing Industry
a. Source of Talent. Changing demographics pose significant impact on both opportunities and challenges for the manufacturing
sector as it can potentially improve the competitiveness of less industrialised countries in labour-intensive manufacturing (World
Bank 2015a). The largest producer of manufacturing products, China’s population will continue to grow its working age population
is shrinking by nearly 50 million in the next 15 years (UN). On the other hand, most of the emerging economies are still in an
expansionary phase, with their working age population set to increase in the two coming decades. The new generation of young
workers from these economies is more educated than the previous ones, increasing the supply of skilled workers (Ahmed and
others 2017). Urbanisation, which is proceeding rapidly in many Low Middle-Income Countries, could also boost manufacturing
production through agglomeration and localisation effects (Beeson 1987; Morosini 2004). Perhaps more importantly, greater
urbanisation can foster the exchange of ideas and attract talent since centers of innovation tend to be in urban areas (Malmberg
and Maskell 2002; Padmore and Gibson 1998).
b. Customer Base. Besides the working population, demographic change has also contributed to a growing customer base. The
developing world’s middle class is likely to play a critical role in economic and social progress by driving consumption and domestic
demand and accumulating human capital (OECD 2012). Asia’s growing middle class will transform a region known as a global
manufacturing hub into a consumption powerhouse. As demand rises, more and better jobs will be created not only in Asia, but
also globally, along supply chains and across production networks. Brookings estimated that globally, the middle class is already
spending USD 35 trillion, and could spend USD 29 trillion more by 2030, accounting for roughly 1/3 of the global economy.

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c. “Brain Gain” vs “Brain Drain”. Globally, the increasing movement of highly skilled workers has led to the possibility of “brain
gain” in reshaping manufacturing-led development. “Brain gain” is represented by the number of migrants with tertiary education
in OECD countries. This grew by 70 percent between 2001 and 2011 with a large number of these migrants originating from
Asia. The origin countries of these migrants are facing an acute shortage of talent due to “brain-drain”. On the brighter side, the
are a number of potential benefits arising from remittances, diaspora links, the return migration of talented entrepreneurs and
technical workers, and the creation of trade and business networks to help more firms of the origin country move into higher
value-added goods (OECD, ILO, World Bank, 2015). Asian economies such as Japan, the Republic of Korea and Taiwan, China,
have relied on their diasporas as sources of knowledge (Plaza 2013). However, looking from the perspective of the origin country,
the “brain drain” to certain extent poses an adverse impact on the productivity of the country.

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TECHNOLOGY DRIVEN TRENDS
Trends shaping the manufacturing industry from the perspective of technology advancement, among others are: blurring of traditional
boundaries, hyper-connectivity and the rise of robotics and automation.
KEY TREND 1: BLURRING OF TRADITIONAL BOUNDARIES

The advancement of technologies created during The Third Industrial Revolution and expanding to The Fourth Industrial Revolution
resulted in a converging of industries and sectors, reducing the clear lines of demarcation which previously was defined and codified
almost 80 years ago. First, the blurring of human and machine boundaries is where machines are encroaching into the non-
routine cognitive domain. This could be enabled by advanced technologies such as artificial intelligence (AI), sensors and the Internet
of Things. Application of AI such as machine learning where the automation or robot is able to perform self-learning through feeding
of relevant data, hence enhancing its precision of undertaking a particular task. Second, the blurring of producer and consumer
boundaries is a consequence of a consumer shifting from passive to active in the production of tangible and intangible products.
As an example of intangible products, in a sharing economy, production of valuable data does not reside with a particular person or
group but it is shared across the world through social media and other types of online platforms such as blogs and YouTube. While
tangible products ranging from simple design such as cutleries, toys, prosthetic parts, to complex items such as weapons, buildings
or cars can be produced using a 3D printing machine. Third, the blurring of physical and digital boundaries when both world
start to look more alike. This is driven by the increasing pace and scope of internet computing, artificial intelligence, and big data to
create a seamless consumer experience. Using smartphones and other digital devices, consumers are capable of doing everything
from shopping to dating. As an example, Alexa personifies the Amazon brand, a cloud-based digital assistant driven by artificial
intelligence and natural language that is capable of voice interaction, music playback, making to-do lists, setting alarms, streaming
podcasts, playing audiobooks, and providing weather, traffic, and other real-time information. Next, consumers’ experiences will be
further enhanced with augmented and virtual reality technologies such as Google glass by Google and Oculus by Facebook.

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KEY TREND 2: HYPER-CONNECTIVITY AND THE ERA OF BIG DATA

Hyper-connectivity is a new world where people, information, and objects around us are connected via global networks. The industrial
revolution is creating technologies that enable a person to communicate with a person, then a person to machine and today enables
machine to machine (M2M) communication. The trend is driven by the Internet of Things, social computing and digital platforms
being several of the major technologies. Figure 14 shows that a rising number of devices connected to the internet especially in
consumer items such as wearables for tracking health related information. Research firm Gartner predicts there will be nearly 20
billion devices connected to the IoT by 2020. Advancing future connectivity, there are billions of dollars’ worth of investments being
put into the idea to beam internet service around the world, known as “space internet” by renowned companies such as Facebook,
SpaceX, Google (Project Loon), Qualcomm and Virgin (OneWeb). Space internet will give everybody on Earth internet access without
having to build an untenable amount of infrastructure. These initiatives will expand digital inclusiveness to people especially in
providing equal opportunities for rural areas to have the same access to information, people, and services, as people in urban areas
do.
Figure 14: Internet of Things units installed base worldwide by category from 2014 to 2016 (in million units)

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More connected objects mean more data will be produced. The amount of data is doubling every 18 months and amount of data
grew 50 times from 2010 to 2020. In the era of big data, analysis work to make sense of huge amounts of data and provide new
insight into what has never been encountered before will become a job that is sought after the future. Customers increasingly want
to determine how their products are designed and made, and want to have input into the development and production processes at
an early stage. If data can be harnessed, a manufacturer will be able to produce the right product for the right customer, enable
greater energy efficiency based on a real-time decision-making process.
KEY TREND 3: RISE OF ROBOTS AND AUTOMATION

Automation has been around for decades and existed Figure 15: AI Annual Global Financing History
with the purpose to save manual labour, increase
productivity and create high value jobs. Automation of
the past was limited by the type of tasks that are highly
structured, predictable environments, and the
collection and processing of data. The new age of
automation includes the advancement of technology,
especially in artificial intelligence (AI), the Internet of
Things, machine learning, big data among others have
further enhanced the capabilities of machines to
perform beyond non-cognitive and routine tasks. AI is
already finding its way into the smart manufacturing environment with the increasing trend of AI financing reaching a high in 2016.
It grew from USD 589 million in 2012 to USD 5 trillion, almost eight-fold, in just five years. According to IFR World Robotics, there
has been a steady increase of industrial robots from 2010 and this is projected to grow at an average of 15 percent from 2016 to
2018 (Figure 15). Deployment of robots in Malaysia increased about 8 percent annually from 2010 to 2015, according to the World
Robotics Report. The IFR estimates that there are currently between 1.5 and 1.75 million industrial robots in operation, a number
that could increase from 4 to 6 million by 2025 (Boston Consulting Group, 2015).

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Figure 16: Worldwide Annual Supply of Industrial Robots
China is leading in terms of installing more robots compared to other countries followed by South Korea, North America, Japan and
Germany. Chinese firms have acquired a number of German robotics companies. One such firm is Midea Group (Chinese consumer
products manufacturer), which acquired over 94% of the outstanding and privately held shares of KUKA AG, a Germany-based robot
manufacturer and one of the Big Four international robot makers. State-owned China National Chemical Corp. (ChemChina) had
acquired Germany’s KraussMaffei Automation, an industrial robot integrator and plastics, carbon fibre, and rubber processor. In
addition, Warren-based Paslin Co., which is an assembly line robotics manufacturer, has been acquired by China robotics
manufacturer Zhejiang Wanfeng Technology Development Co. providing an influx of capital to Paslin. With such capabilities to
deliver high output but with lower operational costs, Smart machines could increase a nation’s productivity. However, there are five
(5) key factors that will influence the pace and extent of this smart machine including technical feasibility, the cost of developing and
deploying solutions, supply, cost - benefits of human labour as an alternative to automation, productivity rates and regulatory and
social acceptance.

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CHAPTER 2 GLOBAL OUTLOOK AND TRENDS
Why it matters to the Manufacturing Industry
a. Boost productivity and displacement of workers. In 2013, Oxford scholars published their research on the eﬀects of
technological progress on employment, claiming that within 20 years up to 47% of ‘human’ jobs in the US could be done just
as well, or even better, by industrial computers or algorithms. This result is furthered supported by an estimate made by the
German Centre for European Economic Research (ZEW) that the potential for the automation of jobs in the industrialised
nations is probably around 42%. As an example, in computer electronics manufacturing, the use of a robot will cost USD 4
per hour to do a routine assembly task compared to USD24 for an average worker (Technavio). Adoption of related
technologies will lead to a sizeable displacement of workers which has already been demonstrated by a Chinese company,
Changying Precision Technology in Dongguan. It replaced some 600 assembly line workers with 60 robots and claimed to
yield a fivefold reduction in manufacturing errors and an increase in production of over 250 percent.
b. Demanding for Multi-Skills. Adoption of emerging technologies demand for a greater task variety. The nature of work will
be no longer associated with only one particular type, causing significant reduction in monotony and making it ergonomically
challenging. Instead, workers will have to share the space with intelligent robots while processing information and data will
be the key elements in their day-to-day jobs. Moreover, artificial intelligence will enable collaboration between humans and
machines through the use of digital platforms such as smartphones and tablets for communication and machine operation.
This means that workers will have to do less manual work and more tasks of control and supervision of the processes.
c. Customisation and rapid delivery. People have become more demanding with regards to fast responses and timely
information/deliveries. The use of technologies enables producers, to a certain extent, to predict and meet seasonal demand,
fluctuations in production, the possibility to downscale or upscale which was previously not effectively attainable. For an
example, big data offers opportunities to quickly recognise a person’s behaviour and offer those personalised products and
services that meet their specific needs. Application of the technologies will increase visibility, flexibility and optimise production
assets from a perspective of time and scale. Therefore, instead of large factories, smaller manufacturing facilities located
around the world will become the norm, especially for higher-end products with varied local customer preferences.
d. New Business Model. Adopting the technologies solution not only impacts on talent and production processes, but also
shifts business models. It will change the way a company operates and its products and services portfolio. In order to achieve

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customer experience improvement, increasing speed to market, and costs reduction, it will not be possible if everything works
in silos. Therefore, the whole supply chain management, operations management and product life cycle management needs
to be integrated in a collaborative manner. Integration of operations technology (OT) and information technology (IT) is
required to connect process control, operations management and business planning. Organisations will also need digital
product models for end-to-end product life cycle management.

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ECONOMY DRIVEN TRENDS
Among the key trends that will have significant impact on manufacturing industry are globalisation, protectionism, decentralisation,
and de-industrialisation.
KEY TREND 1: GLOBALISATION

Globalisation as manifested through freer cross-border
flows in trade, capital, labour, and ideas as well as the
associated growth of global value chains—has been an
Digitalisation has changed globalisation in several ways:
important driver of export-led manufacturing. Although
global flows of trade and finance have lost momentum Globalisation of 20th Century Globalisation of 21th Century
and declined relative to world GDP (Figure 17 and 18), Intangible flows of data and
Tangible flows of physical goods
used cross-border bandwidth has grown 45 times larger information
since 2005. It is projected to grow by another nine times Flows mainly between advanced Greater participation by
in the next five years as digital flows of commerce, economies emerging economies
information, searches, video, communication, and Capital- and labour intensive flows More knowledge intensive flows
intracompany traffic continue to surge. Soaring cross- Transportation infrastructure is Digital infrastructure becomes
border data flows now generate more economic value critical for flows equally important
than traditional flows of traded goods. In view of that, Multinational companies drive Growing role of small enterprises
globalisation is entering a new era defined by data flows flows and individuals
that transmit information, ideas, and innovation. Digital Flows mainly of monetised More exchanges of free content
platforms create more efficient and transparent global transactions and services
Instant global access to
markets in which far-flung buyers and sellers find each Ideas diffuse slowly across borders
information
other with a few clicks. The near-zero marginal costs of Innovation flows from advanced to Innovation flows in both
digital communications and transactions open new emerging economies directions
possibilities for conducting business across borders on a
massive scale.

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Figure 17: The Share of Manufacturing in the Number of Greenfield FDI projects Declined between 2003 and 2015
Figure 18: BRICs – GDP Growth Forecasts

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KEY TREND 2: PROTECTIONISM

Protectionism consists of economic policies that restrict trade between countries in order to promote "fair competition" between
imported domestically produced goods. Tariffs are only one form of protectionism. Most of the time, protectionism stems from a
desire to help improve domestic manufacturers by making them more competitive with imported goods. And often times, these
desires stem from a weak job market that could be improved with more domestic manufacturing jobs.
Protectionist sentiments are on the rise among a wide range of countries seeking to reindustrialise, upgrade, or industrialise their
economies and manufacturing sectors and at the same time, undermining free flow of goods. Popular examples are the United
Kingdom’s vote to exit the Europe Union and President Trump’s promise to Make America Great Again by bringing back U.S.
manufacturing jobs. But there may be more to come. If a broadly less open trade environment does emerge, it would undermine
opportunities for export-led manufacturing in low middle-income countries.
KEY TREND 3: DECENTRALISATION AND LIBERALISATION

Decentralisation is the process of redistributing or dispersing functions, powers, people or things away from a central location or
authority. Traditional businesses which run on a centralised model will no longer be competitive and sustainable as the world
economic system is moving towards collaboration between individuals and the sharing of resources. Popular examples of this trend
are Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content.
Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate.
More examples of decentralisation are happening in the financial system with emergence of a technology platform called Blockchain.
It is a shared database of transactions among parties designed to increase security, transparency, and efficiency (Goldman Sach).
The invention and use of Bitcoin as a cryptocurrency eliminates the need for a centralised server or a trusted authority. In the energy
sector, advancement of solar and wind technology, high capacity batteries, smart and micro-grid coupled with blockchain technology
will cause a shift from the power producer which is run by large corporation to the level of individual house as demonstrated by a
community in Brooklyn, New York. The community demonstrated peer-to-peer how to use an energy sales network based on
blockchain technology whereby homes with rooftop solar panel sell to neighbours on the same street who do not have solar installed.
Last but not least are YouTube, Instagram and other social media tools on the Internet which empower the ordinary citizen to have

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aspirations to create content, create his own channel on YouTube and become a star. Basically, anyone with an internet connection
can become the world's most watched YouTuber without the help of big media houses if they produce quality content.
KEY TREND 4: DEINDUSTRIALISATION

Deindustrialisation refers to a long-term decline in manufacturing relative to other sectors, typically measured in terms of a share of
manufacturing employment in total employment. (UNIDO 2013a). It is reflected by the share of manufacturing value added in global
GDP which has been declining for decades, as services have grown relatively faster. Globally, the increase of services sectors from
62.8 percent in 1997 (US$28.2 trillion) to 69 percent (US$47.1 trillion) in 2015—reflects its relatively faster growth, averaging 2.8
percent per year. Much more concern over the “premature deindustrialisation” which was described by UNIDO’s Industrial
Development Report 2016: The Role of Technology and Innovation in Inclusive and Sustainable Industrial Development, as it begins
at a lower level of GDP per capita or a lower level of manufacturing as a share of total employment and GDP than is typically the
case. If that happens— or if deindustrialisation begins when manufacturing has not yet reached the shares of employment and GDP
typically associated with the normal turning point of industrialisation.
Figure 19: Global manufacturing share of GDP and absolute value relative to services, 1997-2015

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Why it matters to Manufacturing Industry?
a. Co-creation. Customers increasingly taking part in how their products are designed and made, and will have an input into
development and production processes at an early stage. Co-creation is also is another way to offer a good customer
experience (Prahalad & Rameswamy 2004). Research has shown that co-creation could generate trust and customer
satisfaction and strengthens customer relationship (Rajah et. Al 2008). Such a model can also be applied to collaboration with
suppliers.
b. “Servicification” of manufacturing. “Servicification” - manufacturing firms not only buy and produce more services than
before but also sell and export more services as integrated activities (National Board of Trade of Sweden 2016). Services are
embodied in manufacturing production, either as inputs (such as design, marketing, or distribution costs included in the value
of a good) or as enablers for trade to take place (such as logistics services ore-commerce platforms). Globally, more than one-
third of the value of gross manufacturers’ exports come from the value added of embodied services (World Bank).
c. Distributed manufacturing. Distributed manufacturing is a form of decentralised manufacturing and was one of the ten
emerging technologies for 2015 as highlighted by the World Economic Forum’s Meta-Council on Emerging Technologies. In
traditional manufacturing, raw materials are brought together, assembled and fabricated in large centralised factories into
identical finished products that are then distributed to the customer. In distributed manufacturing, the raw materials and
methods of fabrication are decentralised, and the final product is manufactured very close to the final customer. Current uses
of distributed manufacturing rely heavily on the DIY “maker movement”, in which enthusiasts use their own local 3D printers
and make products out of local materials. Instead of being centrally driven, the creative design element can be more
crowdsourced; products may take on an evolutionary character as more people get involved in visualising and producing them.
It also lowers the barriers to market entry by reducing the amount of capital required to build the first prototypes and products.

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d. Reshoring to Origin Countries. For decades, European and American companies have been shipping jobs overseas to take
advantage of lower-wage economies. This trend is now being reversed. Robots and other labour saving technologies (e.g.
3D printing, Internet of Things) will challenge the comparative advantage by reducing the relative importance of wage and
location competitiveness in the global market. The authors of the Made in America, again report, maintaining labour
contributes only 10% to production costs, concluding that “within five years, rising Chinese wages, higher US productivity, a
weaker dollar, and other factors, will virtually close the cost gap between the US and China for many goods consumed in
North America.” This could result in reshoring current manufacturing activities back to origin countries.

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ENVIRONMENT DRIVEN TRENDS
Last but not least, the environment is a critical component driving the future of manufacturing, among the key trends are increasing
pressures on natural resources and climate change as well as the global movement towards sustainability.
KEY TREND 1: CLIMATE CHANGE AND INCREASING PRESSURE ON NATURAL RESOURCES

The Paris Agreement was signed on 12 December 2015, by 195 governments agreeing to limit the global average temperature rise
to “well below 2°C above preindustrial”. Recently, the Intergovernmental Panel on Climate Change (IPCC) reported that the total
carbon budget that is compatible with the target of 2°C has already reached 65 percent (Climate change and the sustainable, IPCC
March 2017) which leaves only a small window for worldwide action. The average temperatures are predicted to increase by more
than two degrees Celsius, a threshold at which scientists believe significant and potentially irreversible environmental changes will
occur. Rising temperatures are expected to cause major shifts in ecosystems and precipitation patterns — with some areas becoming
more prone to droughts and others to flooding, as well as affecting human health, food security, and potentially taxing infrastructure
with stronger storms. At the same time, the global population will continue to grow over the next 25 years from 7 billion to 9 billion
and this will make the challenge of meeting demands for water, land and energy more acute. Moreover, the race for economic
growth has continuously put the pressure on existing resources and without sustainable mind-set, the damage cost of climate change
will be increasing over time, thus compromising the need of future generations.

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KEY TREND 2: GLOBAL MOVEMENT ON SUSTAINABILITY

The Sustainable Development Goals (SDGs), otherwise known as the Global Goals, are a universal call to action to end
poverty, protect the planet and ensure that all people enjoy peace and prosperity (UNDP). SDGs established 17 Goals built
on the successes of the Millennium Development Goals (MDGs), while including new areas such as climate change, economic
inequality, innovation, sustainable consumption, peace and justice, among other priorities. Among the goals that matter for
the manufacturing industry are Goal 8: Promote sustained, inclusive and sustainable economic growth, full and productive
employment and decent work for all, Goal 9: Build resilient infrastructure, promote inclusive and sustainable industrialisation and
foster innovation, Goal 12: Ensure sustainable consumption and
Figure 20: CO2 emissions from manufacturing per unit of
manufacturing value added (MVA)
production patterns, and Goal 13: Take urgent action to combat
climate change and its impacts.
In particular, Goal 9, the SDGs report 2017 stated that

manufacturing industry globally made a general decrease in terms
of emission intensity across regions (Figure 20). Manufacturing is
consistently improving its emissions performance as countries
move to less energy-intensive industries, cleaner fuels and
technologies, and stronger energy efficiency policies. Emissions
levels have also been reduced through structural changes and
product diversification in manufacturing.

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Another relevant matter is Goal 12 regarding the Domestic Material Consumption (DMC). It refers as the amount of material used in
production processes within an economy. Figure 10 shows that most regions have managed to use fewer resources per unit of
production. However, in Eastern and South-Eastern Asia, DMC per unit of GDP increased from 2.0 to 2.7 kilograms over that period.
This is mainly due to the global shift in manufacturing to this region and the rapid industrialisation that followed. As a result, DMC
per unit of GDP increased globally from 1.2 kilograms to 1.3 kilograms. DMC per unit of GDP increased globally from 1.2 kilograms
to 1.3 kilograms. Total DMC also rose over this period, from 48.7 billion metric tons to 71 billion metric tons; Eastern and South-
Eastern Asia accounted for 42 per cent of all materials consumed in 2010.
Figure 21: Domestic material consumption per unit of GDP

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Why it matters to Manufacturing Industry
a. Circular Economy. It is defined as restorative

and regenerative by design and aims to keep Figure 22: A circular business model avoids value leakage
products, components, and materials at their
highest utility and value at all times (PwC). As
envisioned by the originators, a circular
economy is a continuous positive development
cycle that preserves and enhances natural
capital, optimises resource yields and minimises
system risks by managing finite stocks and
renewable flows. It works effectively at every
scale. (Ellen MacArthur Foundation 2015). The
circular economy model aims to eliminate waste
by using close-loop production to keep
materials’ inputs in the process as long as
possible. Manufacturers invest in collection
networks to reclaim end-of-life products,
maximising the reuse of parts and then feeding
material back into the recycling chain. New
technologies can be used to trace materials
through the supply chain and to track product
status during its life cycle. This development will
not only create opportunities in reducing waste,
but also finding a value in recovery process.

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b. Securing Supply. Threat to accessibility of required raw materials is a reality faced by various sectors. As example, rare
earth minerals are critical components in a wide range of high technology products such as smartphones, laptops, hybrid
batteries and others. One of the rare earth minerals that is critical due to a global shift towards electric vehicles is lithium.
The lithium-ion batteries are able to produce more electricity per unit than conventional batteries. In this case, China has
emerged as the leading market player for electric and hybrid cars, accounting for approximately half of global sales. This
situation raises concern from competitors such as Tesla over the control of lithium supply as China not only solely focuses on
electric vehicle manufacturing, but also buying up lithium projects and supporting the growth of battery producers.
c. Policy and Regulation. In line with SDGs, a number of countries announced a ban of fossil based energy as part of their
commitment to combat climate change. For example, France will end sales of petrol and diesel vehicles by 2040 as part of
an ambitious plan to meet its targets under the Paris climate accord, Emmanuel Macron’s government has announced as
reported the Guardian. Following suit, the U.K. will ban sales of new gasoline and diesel cars starting in 2040 as part of a bid
to clean up the country's air and by 2050, all cars on the road will need to have zero emissions. The Norway government's
transportation plan outlines a clear target: all new passenger cars and vans sold in 2025 should be zero-emission vehicles.
Moreover, a bold statement has been made by India that every vehicle sold in the country should be powered by electricity
by 2030. At least 10 other countries have electric car sales targets in place, according to the International Energy Agency
(IEA) including Austria, China, Denmark, Germany, Ireland, Japan, the Netherlands, Portugal, Korea and Spain. A number of
car makers are echoing the same by expanding their product lines into making electric cars. Tesla, a car maker, is progressing
well in this market segment. Taking a cue from the electric car manufacturing leaders, the president and CEO of Volvo stated
that starting 2019 onwards, all vehicles manufactured by Volvo will either be hybrid or electric. Toyota Motor Corp and Mazda
Motor Corp recently announced they would join forces to develop electric vehicle technologies. Other car makers expanding
their product portfolio into electric cars including BMW, Daimler, Nissan-Renault, Hyundai-Kia, Ford, General Motors, Subaru
and Volkswagen.

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3.2 CASE FOR CHANGE
FACTOR 1: ENHANCE GLOBAL COMPETITIVENESS

Malaysia ranks as the second most Figure 23: Malaysia’s Rankings in the Global Competitiveness Index and the Global Innovation Index
competitive and innovative nation
in SEA, behind only Singapore. In
terms of global standings, the
country is ranked 23rd out of 137
countries in the Global
Competitiveness Index 2017 –
2018 and ranked 37 out 127
countries in the Global Innovation
Index 2017.
Innovation is key in driving the

manufacturing sector. Malaysia
will need to increase the level of
innovation in the manufacturing
landscape in order to remain
competitive globally.

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FACTOR 2: STRENGTHEN GROWTH & PRODUCTIVITY OF MANUFACTURING INDUSTRY

The manufacturing sector has Figure 24: Manufacturing GDP Performance under 10th and 11th MP
shown a positive overall
performance with an average
annual growth of 4.8% under the
10th MP and contributed a steady
25% to total GDP during the
period. The growth has gained
traction, compared to 2.8%
average annual growth in the
previous plan and is expected to
continue under the 11th MP, the
annual average growth for the 5-
year tenure is targeted at 5.1%
and the achievement of 4.44% in
2016 is still within the threshold.

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In order to further accelerate this growth in the manufacturing sector, Malaysia will need to fully adopt Industry 4.0. According to
the “Study on the Future of Manufacturing: “Industry 3 + 2”” conducted by Roland Berger, even though countries that are leading
in manufacturing are moving towards Industry 4.0 operationalisation, no country has achieved full adoption of Industry 4.0. The
study notes that countries that are moving towards full adoption of Industry 4.0 have stronger upstream and R&D activities compared
to Malaysia. Below is the summary table of the level of Industry 4.0 adoption of the 3 + 2 industries based on the report:
Table 3: Level of Industry 4.0 Adoption of 3 + 2 Industries.1
Electrical & Machinery &

Manufacturing Industries Electronics Equipment
Chemicals Medical Device Aerospace
Level of Industry 4.0

2.5 – 3.0 2.0 – 2.5 2.5 – 3.0 3.0 – 3.5 2.0 – 2.5
Adoption
Some of Malaysia’s manufacturing industries have begun to adopt Industry 4.02. The Electrical & Electronics (E&E), Chemicals and
Medical Device are in the early stages of Industry 4.0 adoption with only a moderate number of companies (both MNCs and SMEs)
being involved in the adoption of Industry 4.0 solutions. The Machinery & Equipment (M&E) and the Aerospace industries are at the
level where MNCs and SMEs are beginning to explore Industry 4.0 solutions, but the level of adoption of these solutions varies
according to sub-sectors in those industries. The M&E and Aerospace industries are strong in terms of manufacturing assembly parts
but lack the level of innovation needed to move into higher value activities.
In order to maintain the growth and increase the productivity of the 3+2 industries, Industry 4.0 adoption must take place throughout
the value chain. Based on the projections made by Roland Berger in the Industry “3+2” study, companies from the 3+2 industries
are expected to contribute RM 215.1 billion in added value from 2017 to 2027. The chemicals industry would have the highest levels
of GDP increments of up to RM 142.3 billion in added value followed by Electrical & Electronics (RM 55.95 billion), Medical Device
(RM 7.4 billion), Aerospace (RM 5.9 billion) and Machinery & Equipment (RM 3.6 billion).

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FACTOR 3: CREATE HIGH VALUE-ADDED JOBS & REDUCE DEPENDENCY ON FOREIGN LABOUR
Approximately 550,000 or 1 out of 4 employees in the manufacturing
Figure 25: Employees in the Manufacturing Sector Based on
Citizenship1
sector are non-Malaysian citizens. The Ministry of Higher Education
Malaysia’s publication on Foreign Labour in Malaysia: Selected Works
2017 reported that firms generally hire foreign labour for several
reasons:
Malaysia experiences a critical shortage of labour especially in

construction, manufacturing and industrialisation sectors.
Domestic labour is not interested in 3D works (dirty, dangerous and

difficult) and overtime.
The salary of foreign labour is cheaper than domestic labour despite

the minimum wage practised in Malaysia.
Ministry of Higher Education Malaysia’s publication on Foreign Labour

in Malaysia: Selected Works 2017 reported that in 2015, a total of
308,834 highly-skilled Malaysians moved overseas, with 47.2% to
Singapore, 18.2% to Australia, 12.2% to US and the rest of other
countries like UK and Canada. The number of skilled Malaysians living
abroad rose 300% in the last 2 decades, with 2 out of every 10
Malaysians with tertiary education opting to leave for either
Organisation for Economic Co-operation and Development (OECD)
countries, or Singapore.

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Although it is important create attractive ecosystem to retain and entice talent to work in Malaysia, Malaysian high-skilled talent
overseas provides opportunity for Malaysia to tap onto their experience, connection and expertise in the long run. Striking a balance
between these two will benefit Malaysia.
Figure 26: Share of Foreign Workers in Different Sectors (%)3

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Foreigner workers played a significant role in several relatively smaller manufacturing sectors namely wood (37%), food products
(11%) and transportation machinery and equipment (11%). There is a need to reduce reliance on foreign labour in these sub-sectors
through the adoption of Industry 4.0 technologies.
Table 4: Percentage of Jobs from 3+2 Industries Lost from 2016 to 2027 due to Industry 4.0
Table 5: Effect of Industry 4.0 on Jobs Lost and Gained from 2016 to 2027

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FACTOR 4: INCREASE SME COMPETITIVENESS
Figure 27: Employment in the Manufacturing Sector by SMEs and Large Firms 4
There are 2,119,158 employees in the manufacturing sector. Although SMEs

has the highest number of establishments (96.1% or 47,201 establishments),
SMEs employs 42.1% or 892,888 persons whereas Large Firms employs most
workers in manufacturing sector (57.9% or 1,226,270 persons) within its
1,900 establishments.
However, it is important to upgrade SMEs in the manufacturing sector to

Industry 4.0 level to ensure that they remain competitive and are able to
adapt in the manufacturing industry’s changing landscape.

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END NOTES
1
Draft Final Report of the “Study on Future of Manufacturing: "Industry 3+2”, Roland Berger (2017)
2
Draft Final Report of the “Study on Future of Manufacturing: "Industry 3+2”, Roland Berger (2017)
3
Analysed by ASM, Economic Census 2016 Manufacturing Sector, Department of Statistics, Malaysia
4
Analysed by ASM, Economic Census 2016 Manufacturing Sector, Department of Statistics, Malaysia
REFERENCES
1. Anderl, R. et al., (2016). Aspects of the Research Roadmap in Application Scenarios. Platform Industrie 4.0. http://www.plattform-i40.de/
2. WEF, (2017). Digital Transformation Initiative Unlocking $100 Trillion for Business and Society from Digital Transformation, http://reports.weforum.org/digital-
transformation.
3. Hallward-driemeier, M. & Nayyar, G., (2017). Trouble in the Making? the future of manufacturing-led development. In p. 255.
4. Kearney, A.T., (2017). Readiness for the Future of Production: Country Profiles. www.weforum.org.
5. Martin, C. & Leurent, H., (2017). Technology and Innovation for the Future of Production: Accelerating Value Creation. World Economic Forum, www.weforum.org.
6. OECD, (2017). Small, medium, strong. Trends in SME performance and business conditions. OECD Publishing, Paris.
7. Lux Research, (2017). Industry 4.0: Disruptive technology. Lux Research Team.
8. McKinsey, (2015), Industry 4.0: How to navigate digitisation of the manufacturing sector. McKinsey Digital.
9. European Parliament, (2016). Industry 4.0: Policy department A- Economic and scientific policy. ITRE Committee.
10. P. Bédard-Maltais, (2017). Industry 4.0: The new industrial revolution, are Canadian manufactures ready? Business development bank of Canada (BDC).
11. PWC, (2016). Industry 4.0: Building the digital enterprise. Global industry 4.0 survey. www.pwc.com/industry40
12. GCI, (2017). Industry 4.0: Making your business more competitive.www.cgi.com/manufacturing
13. “"4th Industrial Revolution": Expensive costs for poor countries that reject changes”, Dr. Nguyen Thanh Tuyen and MA. Truong Huu Chung, http://english.vietnamnet.vn
14. “Accelerating clean energy through Industry 4.0: manufacturing the next revolution.”, Nagasawa, T., Pillay, C., Beier, G., Fritzsche, K., Pougel, F., Takama, T., The, K.,
Bobashev, I. UNIDO, August 2017, https://www.unido.org/sites/default/files/2017-08/REPORT_Accelerating_clean_energy_through_Industry_4.0.Final_0.pdf
15. “Digital Transformation Monitor, Germany: Industrie 4.0”, European Commission, January 2017, https://ec.europa.eu/growth/tools-
databases/dem/monitor/sites/default/files/DTM_Industrie%204.0.pdf
16. “Global Generations”, Ernst & Young, 2015, http://www.ey.com/Publication/vwLUAssets/EY-global-generations-a-global-study-on-work-life-challenges-across-
generations/$FILE/EY-global-generations-a-global-study-on-work-life-challenges-across-generations.pdf
17. “Global Manufacturing Shifts: An EMEA Perspective Production in the Post-BRICs Era”, Q4 2016 | Industrial & Logistics, Colliers International
18. “Industry 4.0 and manufacturing ecosystems Exploring the world of connected enterprises”, Deloitte University Press, 2016,
https://www2.deloitte.com/content/dam/insights/us/articles/manufacturing-ecosystems-exploring-world-connected-
enterprises/DUP_2898_Industry4.0ManufacturingEcosystems.pdf
19. “Industry 4.0 as an enabler of the Circular Economy: preventing the waste of value and permitting the recovery of value from waste”, PwC,
http://pwc.blogs.com/sustainability/2017/06/industry-40-as-an-enabler-of-the-circular-economy.html, June 2017
20. “Industry 4.0 Opportunities Behind the Challenge”, UNIDO, November 2017, https://www.unido.org/sites/default/files/files/2017-
11/UNIDO%20Background%20Paper%20on%20Industry%204.0_27112017.pdf
21. “Industry 4.0, Opportunities and Challenges of the New Industrial Revolution for Developing Countries and Economies in Transition”, UNIDO, November 2017,
https://www.unido.org/sites/default/files/2017-01/Unido_industry-4_NEW_0.pdf

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22. “The Exponential Growth of Data”, https://insidebigdata.com/2017/02/16/the-exponential-growth-of-data/

23. “The Factory of the Future, Industry 4.0 The challenges of tomorrow”, KPMG, 2016, https://assets.kpmg.com/content/dam/kpmg/es/pdf/2017/06/the-factory-of-the-
future.pdf
24. “The rise of services in the global economy”, Services Trade Policies and the Global Economy, OECD, 2017
25. “The Role of Technology and Innovation in Inclusive and Sustainable Industrial Development”, Industrial Development Report 2016, UNIDO
26. “Top 5 Reasons Why Industry 4.0 Is Real And Important”, 15 October 2013, http://www.digitalistmag.com
27. “Trends that significantly change the behaviour of consumers and organisations 2016 Outlook”, The Next Organization,
http://thenextorganization.com/media/1210/151215-trends-final.pdf
28. “Trouble in the Making? The Future of Manufacturing-Led Development”, World Bank Group, September 2017, http://www.worldbank.org
29. “Urban World: The Global Consumers to Watch”, McKinsey Global Institute (MGI), April 2016, www.mckinsey.com/mgi
30. “What is Protectionism?: Protectionism and Its Impact on Global Investments”, The Balance, October 2017, https://www.thebalance.com/what-is-protectionism-1978989
31. “World Robotics 2015 Industrial Robots’, Diag, http://www.diag.uniroma1.it/~deluca/rob1_en/2015_WorldRobotics_ExecSummary.pdf, accessed July, 2017

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CHAPTER 4 NATIONAL LANDSCAPE & CHALLENGES
CHAPTER 4
ENABLING INDUSTRY 4.0 IN MALAYSIA

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4.1. GLOBAL INITIATIVES ON INDUSTRY 4.0
Countries around the world are addressing the need to improve innovation in the manufacturing sector by introducing initiatives and
strategic plans to promote digitalisation throughout the manufacturing value – chain.1 Countries that were benchmarked in this report
were selected based on inputs gathered from the High – Level Taskforce (HLTF) and Technical Working Groups (TWGs). Based on
the analysis of the benchmarked countries, each address different aspects of manufacturing with some having started their Industry
4.0 initiatives and strategic plans as early as 2011 (Germany2) while others are just starting theirs more recently (Thailand)3.
4.1.1. GERMANY
Germany’s manufacturing sector is one of the strongest in the world, contributing around 26% (USD 866.69 billion) of the country’s
GDP in 2016. This is attributed through its technological advancements in the manufacturing sector as well as its focus on promoting
innovation in industry, particularly in SMEs or more commonly referred to as Mittelstand.
Subsets of Germany’s manufacturing sector are made up of a variety of industries, most notably are the automotive, machinery and
equipment, electrical and electronics, and chemicals sector. The Mittelstand specialises in the development and manufacturing of
complex goods, in particular capital goods and innovative production technologies. In 2015, according to statistics by the Kreditanstalt
für Wiederaufbau (KfW), 7.3% of the Mittlestand focused on the manufacturing sector and employed around 7.2 million people.
To further strengthen Germany’s economy and position as a leader in innovation, in 2010, the government launched its ‘High-Tech
Strategy 2020’ where it had identified 10 ‘Future Projects’ that will help it achieve its goals. To promote and develop innovation in
manufacturing sector, the ‘Industrie 4.0’ initiative was established which is jointly headed by the Federal Ministry for Education and
Research (BMBF) and the Federal Ministry of Economics and Technology (BMWi).

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A total of EUR 200 million was allocated to the two federal ministries to oversee the Industrie 4.0 initiative with the coordination of
the initiative carried out by Platform Industrie 4.0 (Platform I40) which was formed among business associations in Germany that is
overseen by the two federal ministries. Figure 28 shows the budget allocated to the BMBF and the BMWi for Industrie 4.0.
Figure 28: Budget Allocation between Ministries for Industrie 4.0 initiative.
• €120 million allocated

• Funds research activities and calls for proposals targeting areas of IT systems
BMBF such as cyber-physical system (CPS), Internet-of-Things (IoT) system and I40
• Funds testbeds, that cater to SMEs in particular
• €80 million allocated

• Focuses on funding standardisation and regulation
BMWi • Funds "Industry 4.0 Competence Centres" which supports SMEs in the
digitalisation, networking and introduction of Industrie 4.0 applications
Germany’s push to adopt Industry 4.0 is largely due to several key factors:
• According to a survey by PwC in 2016, 20% of the German companies had already implemented the first measures or concepts
of smart manufacturing while almost half of the German companies had at least already drafted concepts regarding Industry
4.04;
• Germany’s economy is largely reliant on its SMEs which makes up 99% of firms. Modernising their production and
strengthening their innovation capacity allows them to remain competitive;

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• Germany has a number of universities and research institutes already looking into emerging technologies and collaborating
with local business associations. Industrie 4.0 initiative encourages collaboration between these institutes with Germany’s
Mittlestand.
Siemens is an example of a German manufacturing company that has embraced Industry 4.0 having adopted digitilisation into their
manufacturing production line. The company also provides digitilisation adoption services by helping other manufacturing companies
to transition their traditional factories into smart factories. An example of such service is Doublestar Group Co., Ltd. (Doublestar) and
their digital factory. Doublestar, which is a Chinese tire manufacturing company was able to establish its digital factory by working
with Siemens. The digital factory incorporates digital technologies and software from Siemens that allows Doublestar to monitor their
tire production in real – time as well as cut the cost of production and improve the quality of its manufacturing process.
Table 6: Snapshot of Germany’s Manufacturing Sector
• Government encourages SMEs to carry out R&D on technologies on Industry 4.0 through targeted
incentives
SMEs
• Government facilitates networking between SMEs and large manufacturing firms in adopting
Industry 4.05
• 17 ‘Industry 4.0 Competence Centres’ provide reskilling and upscaling programmes to SMEs in
Human Capital manufacturing sector throughout Germany
& Talent • Trainers and facilities for these competence centres are supported by universities, research
institutes and private companies in each region/state6
• Established I40 Standardisation Council made up of German bodies related to standards for the
Technology & manufacturing sector
Standards • Standardisation roadmap; regularly revised and amended on the basis of new findings7
• Provides overview of the relevant standards in the area of Industry 4.0
Digital • Internet download speed increased to 50 Mbps and 100% internet coverage by 20188
Infrastructure • Government to spend EUR 100 billion to build a high-performance broadband network in Germany
& Digital by 2025
Adoption

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• The Mechanical Engineering Industry Association (VDMA) has compiled a compendium listing of all of
Germany’s research institutes and universities working in the field of I40 for companies to refer for
collaboration in the field of I409
• Multiple financing schemes10 to cater to different funding requirements (investments, working capital,
R&D, personnel etc.) via different instruments (e.g. grants, loans, guarantees, equity capital etc.).
Examples of initiatives are as follows:
• Excellence Initiative
• EUR 2.7 billion increased funding for university based research between 2011 and 2017, 75% of which
Funding &
was funded by the federal government
Incentives
• Pact for Research and Innovation
• Increased funding to German research organisations by 5% each year between 2011 and 2015
• ‘Innovations for the production, service and work tomorrow’ research programme
• EUR 1 billion will be invested by 2020 aimed to adapt work practices to increase mechanisation,
automation, and digitisation.

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4.1.2. UNITED STATES OF AMERICA

Manufacturing contributed to 18.9% (USD 3509 billion) of the USA’s GDP for 2016.11 Industries consisting of petroleum products,
steel, automobiles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, equipment
and mining make up the USA’s manufacturing sector.
In 2016, the United States of America (US) exported around USD 1.05 billion in manufactured goods with its largest exports being
transportation equipment, chemicals, computers and electronic products, and machineries (source: US Census Bureau 2016).
To build upon its manufacturing sector, in 2014, Congress passed the Revitalise American Manufacturing and Innovation Act (RAMI),12
which established the National Network for Manufacturing Innovation Programme now generally referred to as Manufacturing USA.
Manufacturing USA is a network which connects 14 innovation intermediaries focusing on developing and commercialising
manufacturing technologies.13
Each innovation intermediary was established through collaboration between business associations, public and private universities,
government laboratories and large enterprises to form a consortium. The federal government funds around USD 70 million to USD
120 million for each new innovation intermediaries over a five-year period with the requirement that institutes receiving this seed
funding need to be self-sustaining (without federal funding) after five years. Table 7 provides a snapshot on the various initiatives
implemented in the manufacturing sector in the USA.
The Clean Energy Smart Manufacturing Innovation Institute (CESMII) is one of the innovation intermediaries under Manufacturing
USA and it focuses on promoting smart manufacturing technologies to the manufacturing sector.14 CESMII is made up of 200 partners
and conducts R&D as well as training manufacturing personnel to handle smart manufacturing equipment. The 14 innovations
intermediaries, each focusing on different industries, are:
1. Advanced Functional Fabrics America, AFFOA

2. America Institute for Manufacturing Integrated Photonics, AIM Photonics
3. America Makes

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4. Advanced Robotics Manufacturing, ARM

5. Advanced Regenerative Manufacturing Institute, ARMI
6. Clean Energy Smart Manufacturing Innovation Institute, CESMII
7. The Digital Manufacturing and Design Innovation Institute, DMDII
8. The Institute for Advanced Composites Manufacturing Innovation, IACMI
9. Lightweight Innovations for Tomorrow (LIFT)
10. NextFlex
11. The National Institute for Innovation in Manufacturing Biopharmaceuticals, NIIMBL
12. Power America
13. Rapid Advancement in Process Intensification Deployment Institute, RAPID
14. Reducing Embodied-energy and Decreasing Emissions, REMADE

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Table 7: Snapshot of the US’s Manufacturing Sector
• Innovation intermediaries under Manufacturing USA programmes act as one-stop centres for
SMEs
information on digitisation and digitalisation for SMEs
• Innovation intermediaries carry out assessments of workforce supply and demand, employee
certification, and technology-focused training programmes
Human Capital & • Manufacturing Innovation Fund Incumbent Worker Training, setup by Walmart offers
Talent matching grants of up to ??? companies for upskilling in manufacturing
• Innovation intermediaries conduct stakeholder engagements and provide platform for networking
between industry and academia
• Innovation intermediaries carry out assessments of workforce supply and demand, employee
certification, and technology-focused training programmes
Technology & • Manufacturing Innovation Fund Incumbent Worker Training, setup by Walmart offers matching
Standards grants of up to companies for upskilling in manufacturing15
• Innovation intermediaries conduct stakeholder engagements and provides platform for networking
between industry and academia
Digital • Infrastructure of Internet for manufacturing sector largely funded and improved by large telco
Infrastructure & companies16
Digital Adoption • Expansion of digital infrastructure in the US is market-led and not government driven
• The US generally has few federal level tax incentives and taxes on R&D or innovation
activities17
Funding &
• States in the US provide state level tax incentives to companies to carryout R&D
Incentives
• State tax incentives include R&D tax credit, social tax reduction of R&D personnel, training tax credit,
targeted tax incentives based on industry, and other state-level taxes

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4.1.3. SINGAPORE
Singapore’s manufacturing sector was the second highest contributor to its GDP in 2016 with 19.6% share to the overall GDP (USD
58 billion).18 99% of Singapore’s companies consist of SMEs with the manufacturing sector employing 381,900 people. To further
develop the manufacturing sector, the government has identified Advanced Manufacturing and Engineering (AME) as one of the
Strategic Technology Domains in its Research, Innovation and Enterprise (RIE) 2020 Plan. Research and activities related to AME are
given prioritised funding to encourage innovation and development in that field.19
The AME technology domain of the RIE2020 Plan place focuses on four enabling technology areas which have been identified to
support the growth of Singapore’s manufacturing industries. The four technology areas are Robotics and Automation, Digital
Manufacturing, Additive Manufacturing and Advanced Materials.
Prioritised funding and incentives are given to research activities related to these four technology areas which have an impact on the
following industries:
1) Aerospace
2) Electronics
3) Chemicals
4) Machinery & Systems
5) Marine & Offshore
6) Precision Modules & Components
7) Biologics & Pharmaceutical Manufacturing
8) Medical Technology Manufacturing
Funding and incentives such as individual grants and funds are open to all parties who carry out projects and research related to
AME.
Universities, private companies and research institutes have also formed programmes and initiatives to further develop the nation’s
manufacturing sector over the past year. The Singapore Economic Development Board (EDB), in partnership with German product

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and testing firm TÜV SÜD, launched the ‘Smart Industry Readiness Index’ which will act as a conformity index to measure the
readiness of SMEs in Singapore to adopt Industry 4.0 as well as providing criteria for companies to adhere.20
International partnerships have also been formed by parties within Singapore and countries leading in the field of Industry 4.0.
Singapore’s first model factory was set up between German Die Lernfabrik @ TU Braunschweig, or "Learning Factory" and the
Singapore Institute of Manufacturing Technology (SimTech). The partnership was facilitated by the Ministry of Trade and Industry
and National Development with the model factory acting as a demonstrator of new technologies to local SMEs.
To address the development of the manufacturing – related services sector, the Singaporean government launched the Logistics
Industry Transformation Map (ITM) which will integrate all government and industry efforts in Singapore’s logistics sector and position
Singapore as a global logistics hub.21
Table 8: Snapshot of the Singapore’s Manufacturing Sector
• Singapore Smart Industry Readiness Index assesses a company’s readiness to adopt Industry 4.0
SMEs • Digitalisation hubs and digital consultancy setups between private companies and universities to develop
and demonstrate digital solutions to SMEs
• Universities revised curriculum to provide courses in fields related to Industry 4.0
• Polytechnics provide industry attachments to manufacturing companies using Industry 4.0 technologies
Human
• NUS’s Centre for Instructional Technology (CIT) conducts ‘Digital Assessment’ to measure students’ IT
Capital &
literacy
Talent
• Model factories set up by large firms to demonstrate new technologies and hands-on training
to university students as well as upskilling of existing workers22

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• Formation of alliances between the government and 13 companies to develop IoT solutions for
Technology & manufacturing industries23
Standards • Committed USD 3.2 billion to develop technological capabilities in advanced manufacturing and
engineering under its Research, Innovation and Enterprise 2020 (RIE2020) plan
• McKinsey & Company and A*Star's Advanced Remanufacturing and Technology Centre (ARTC)
Digital
partnered to setup Digital Capability Centre (DCC) to groom talent in Industry 4.024
Infrastructure
• Government to table Cybersecurity Bill to Parliament in 2018. The bill will expand the role of the Cyber
& Digital
Security Agency (CSA) in managing cybersecurity incidents and raise the standards of cybersecurity vendors
Adoption
in Singapore
• Funding provided in the RIE2020 Plan25
o Individual Research Grants
▪ Open to individual researchers with projects within the AME domain
▪ Grant is awarded through open grant calls
o Programmatic Grants
▪ Supports long – term programmes that builds and improves industry readiness
Funding &
Incentives ▪ Grant is open to all public researchers via open calls
o Industry Alignment Fund (Pre-Positioning) (IAF-PP)
▪ Grant is open to fund forward-looking programmes that build industries capabilities ahead
of current market interest to create greater industry traction
▪ Projects are to be evaluated by both A*STAR and the Economic Development Board (EDB)
• Grant is awarded through open grant calls

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4.1.4. THAILAND
‘Thailand 4.0’ initiative, which was announced in the middle of July 2016, is to transform Thailand’s economic sector and allow it to
leapfrog into Industry 4.0. Thailand’s manufacturing sector contributed around 27.43% to the total GDP in 2016 and the Thailand
4.0 is expected to further boost the manufacturing sector’s contribution. 26 The initiative’s objectives are to move Thailand from the
middle-income trap, address inequality and imbalance in Thailand’s industries and transform its economic sectors to become ‘value-
based’. The Thai government consulted international partners such as Japan and Germany as well as carried out stakeholder
engagements with industry captains .
The initiative has identified 10 Future Industries (First S-Curve and New S-Curve).27 The First S-Curves industries are to develop the
five old industries that already have solid foundations, but still require further innovative improvement and R&D to add value and
keep up with competition in the global field. The industries are as follows:
• Next Generation Automotive

• Smart Electronics
• Medical and Wellness Tourism
• Agricultural and Biotechnology
• Food for the Future
The New S-Curves are five new industries in Thailand that have the potential to grow and become main industries for Thailand in
the future. The ‘Thailand 4.0’ initiative is to enhance their capabilities to support future competitiveness of these industries:
• Robotics
• Aviation and Logistics
• Biofuels & Biochemical
• Digital

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• Medical Hub
The government has also allocated incentives to encourage research activities into these S-Curve industries.
Table 9: Snapshot of the Thailand’s Manufacturing
• Identified 10 targeted industries: 5 existing industries and 5 new industries to be upgraded

SMEs
for Industry 4.0
• College of Innovative Business and Accountancy (CIBA) at Dhurakij Pundit University and Stamford
Human Capital &
International University have revised their bachelors, masters and doctoral degree courses
Talent
to incorporate elements of Industry 4.02829
Technology & • Thailand’s Eastern Economic Corridor (EEC) to act as a hub for the automotive and robotics
Standards industry.30
• Ministry of Digital Economy and Society formed partnerships with the local business associations
and the International Telecoms Union (ITU) in developing and building cybersecurity
Digital measures31
Infrastructure &
Digital Adoption • Planned to build Digital Park Thailand, that will be a digital hub for a variety of start-ups
and large firms from digital industries as well as the base for Thailand's smart city
initiatives32
• National Competitive Enhancement Act for Targeted Industries has fund for investment in
research and development and innovation (RD&I)33with incentives such as:
o Exemption from corporate income tax for qualifying firms for a maximum period of
up to 15 years
Funding & o Exemption of import duties for imported machinery, and visas and permits
Incentives
allowing foreign experts and craftsmen to work in the country
Fund for Enhancement of Competitiveness for Targeted Industries which has a seed money of THB10
billion (about USD 285 million) for investment in RD&I and development of expertise for
targeted industries34

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4.1.5. South Korea

South Korea’s manufacturing sector grew by 2.3% in 2016 from 1.8% in 2015 . Manufacturing Innovation Industry and Korea Smart
Factory Foundation initiatives established in 2014 are led by the South Korean government. The objective is to enhance productivity
and quality of life as well as improve competitiveness of SME factories by building 10,000 Smart Factories by 2020. 30% of those
factories will be transformed into an intelligent plant with a total investment of about KRW 1 trillion of funds.
The South Korean state governments and seven major conglomerates in Korea signed an agreement with Ministry of Trade, Industry
and Energy (MOTIE) in order to transfer the smart manufacturing technology to their SME partners and academia (roadmap
promotion council comprised of 76 experts from universities, businesses and research institutes as on April 2016) are leading the
adoption of Industry 4.0.
The government also provides support including grant for local SMEs with the view to disseminate smart factory technologies among
local SMEs while the industry is responsible to transfer smart factory and smart manufacturing technology to SMEs in cooperation
with various organisations.

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Table 10: Snapshot of the Republic of Korea’s manufacturing sector
• Funds SMEs that plan to invest in upgrading their production facilities and can contribute 50% of
SMEs
the investment
Human Capital & • 17 'Creative Economy Innovation Centres' to support innovative start-ups in Industrie 4.0
Talent related fields and establish links with South Korean conglomerates and regional players35
Technology & • SME policy promotes collaboration between SMEs in the manufacturing sector with chaebols to
Standards provide system integrations to customers36
• The Korea Institute of Industrial Technology (KITECH) provides testbeds to SMEs that are
interested in experimenting with digital technologies. Testbeds consist of three categories:
Digital Virtual, Hybrid, and Real Factory37
Infrastructure & • South Korea and Germany are cooperating in the usage of platform Industry 4.0 to encourage
Digital Adoption private citizens and businesses to support the Industry 4.0, and conducting an exchange
programmes of experts and professionals regarding cyber development in both
countries38
• Government raised venture capital funding up to $3 billion and venture capital investments
Funding & worth $2 billion
Incentives • Funds and investments will be used to help establish 50,000 tech start-ups and support 500
start-ups to enter the global market39

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4.1.6. JAPAN
Japan’s Industrial Value Chain Initiative (IVI) was founded and officially began work in June 2015. Starting out with about 30
companies e.g. Nissan, Mitsubishi, Fujitsu, and Panasonic, membership stood at around 110 at the end of the 2015 and had already
reached about 150 firms by mid-2016. Membership is not limited to Japanese firms but open to all companies operating production
facilities in Japan.40
IVI believes that the traditional approach of Japanese firms to make everything they need themselves is not sustainable in today’s
globalised world and aims to create opportunities for a more collaborative approach. This includes providing information on areas
where companies can work together, and occasions to meet and engage.
IVI targets SMEs that may be too small to effectively use IoT technologies on their own by providing a platform for collaboration. IVI
aims at enabling the SMEs to scale up their business size and open up new markets collectively. IVI is based on two principles: 1)
Connected Manufacturing (“tsunagaru kojo”) which targets to purge “muri” (overburden), “muda” (waste), and “mura” (unevenness)
through digitally connected companies and factories, and create smart value chains that are based on automation and human ability
at the same time.
Although Japan keeps a leading position for robotics and IoT technologies used in production, IVI was established to promote global
and borderless collaboration, with countries such as the US and Germany, by win-win value chain partnerships not only in
manufacturing industries, but also service industries, all over the world.

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Table 11: Snapshot of Japan’s Manufacturing Sector
• Industrial Value Chain Initiative (IVI) set up by large firms to demonstrate smart
SMEs manufacturing processes to enable SMEs to adopt new technologies
Human Capital & • Centres of Innovation (COI) programme that assist SMEs in conducting research into
Talent smart manufacturing. COIs consist of universities and public research institutes that conduct
research for SMEs41
• Manufacturing companies and ministries engaged international partners (e.g. Germany’s
Technology & Platform I40) to share knowledge on standardisation for Industry 4.0 technologies
Standards • Government established a Robot Revolution Realization Council, robotics experts from
industry and academia which sets technology development plans, regulatory reforms, and
global standardisation of Japan’s robot technologies.42
• Manufacturing companies joined international consortia on ICT and formed testbeds for
Digital new technologies in ICT
Infrastructure & • Through Platform Industry 4.0, exchanging best practices on innovative production
Digital Adoption processes with the use of digital technologies, cyber security will be one of the areas of
joint activity between Germany and Japan43
• The Japan External Trade Organisation (JETRO) carried out the ‘Subsidy Program for Global
Funding & Innovation Centers’ which subsidised the cost of foreign companies for setting up
Incentives innovation centers and conducting experimental studies and feasibility studies on IoT
in collaboration with Japanese firms44

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4.1.7. CHINA
In 2015, the Government through the Chinese State Council (a body comprising the National Development and Reform Commission,
Ministry of Industry and Information Technology, Ministry of Science & Technology, Ministry of Finance) led the adoption of Industry
4.0 agenda. However, the industry and academia also play a pivotal role by driving the setup of 'model factories' and vocational
colleges as well as academic institutions. These academic institutions provide skills development, including training, to ensure the
curriculum is up-to-date with the industry’s demand.45
The Government has worked on dedicating the use of land and premises for high-tech or innovations by establishing a designated
'high tech zones'/industrial parks for the industry to utilise. Funding and incentives are also provided by the government, for example,
in order to entice skilled talent, China provides material incentives such as housing and transportation.
Among other initiatives that have enabled the adoption of Industry 4.0 are encouraging Chinese corporations to invest in the
acquisition of technology overseas with a view to assist the technology upgrading of China's technological innovation and capabilities,
and securing market access opportunities for China’s products. All these efforts are geared towards encouraging the integration of
“Made in China 2025”.46
The “Made in China 2025” prioritises 10 sectors which are:
1. New information technology

2. High-end numerically controlled machine tools and robots
3. Aerospace equipment
4. Ocean engineering equipment and high-end vessels
5. High-end rail transportation equipment
6. Energy-saving cars and new energy cars
7. Electrical equipment
8. Farming machines
9. New materials, such as polymers
10. Bio-medicine and high-end medical equipment

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Another initiative is creation of Innovation Centers as foundation for industrial development especially in generating greater variety
of high-end equipments. Innovation centers, which are expected to grow to 15 by 2020 and 40 by 2025, will assist the development
of technology, smart manufacturing and creation of new materials. These centers will be funded by both public and private funds.
Innovation centers are to focus on domestically-created, as opposed to foreign-created, technologies for security reasons, although
it has been noted that this may restrict the technologies that can be applied.47
Table 12: Snapshot of China’s Manufacturing Sector
• Certification and Accreditation Administration of the People’s Republic of China (CNCA) carries out
SMEs Conformity Assessment of SMEs to evaluate whether they are ready to adopt Industry
4.0 related technologies48
• Made modifications to vocational schools by adding curriculum related to new manufacturing
focus areas
Human Capital & • Policies that encourages institutes of higher learning to provide courses in data science
Talent and engineering
• National level training programme to upscale ICT level of teachers and improve ICT awareness of
students
Technology & • Chinese government provides certification to manufacturers of new technologies (e.g. 3D –
Standards printing, robotics, IoT systems)
• Internet Plus Initiative for advanced manufacturing to boost innovation in manufacturing
Digital through integrate mobile Internet, cloud computing, big data and the IoT with modern
Infrastructure & manufacturing49
Digital Adoption • A Cyber Security Law was enforced on 1 June 2017, which requires network operators to store
select data within China and allows Chinese authorities to conduct spot – checks on a
company’s network operations50

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• To establish 3 years special funds through the Central Bank to help SMEs;
Funding & • Provide training to improve SMEs so that it helps them to secure financing easily. Other
Incentives tax incentives are also offered by Industrial Parks located in provincial/local government
jurisdictions.

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4.1.8. TAIWAN
In 2014, Taiwan launched its Productivity 4.0 to further develop its manufacturing sector and elevate Taiwan’s position in the global
supply chain. The plan’s objective is to raise GDP per capita of the manufacturing sector to NTD 10 million by 2024. 51 It focuses on
optimising the smart supply chain eco-system of five leading industries in Taiwan which are as follows:
1. Electronics and information technology

2. Transportation equipment
3. Machine tools
4. Food
5. Textile
Productivity 4.0 focuses on three main areas:
• Developing key technologies;

• The ‘A-team’ model; and
• Cultivating talent
Productivity 4.0 will identify key technologies for the manufacturing sector to adopt and push for R&D into these technologies for the
use of the manufacturing sector. Productivity 4.0 targets to lessen the reliance on foreign technologies in the manufacturing sector
and promote and adopt local technologies to improve competitiveness.52
The A-team model referenced in the Productivity 4.0 plan refers to improving the vertical supply chain of all industries in the
manufacturing sector. It also focusses on the adoption of new technologies along the manufacturing supply chain.
In nurturing talent, the government will review the formal education system - including technical and vocational schools, universities
and postgraduate studies - to determine whether graduates are equipped with sufficient fundamental knowledge in light of new

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advancements in technologies. The plan also addresses talent already in the job market and equip them with skills as well as
necessary knowledge for industrial transformation.
Industrial Technology Research Institute (ITRI), a public research institute responsible in promoting industrial innovations is
assisting in industrial transformation and upgrading as well as enhancing Taiwan’s international competitiveness. ITRI and its partners
established an Open Innovation System Platform to foster collaborative ecosystems. ITRI applies key enabling technologies in three
domains: Smart Living, Quality Health, and Sustainable Environment leading to development of intelligent systems for the benefit of
industry and society, such as integration of information and communications technology (ICT) and the clinical trial systems in
hospitals75.
Table 13: Snapshot of Taiwan’s Manufacturing Sector
• Introduce a SME Service Network and Mutual Assistance Mechanism across the different
regions supported by the various chambers of commerce, Provincial Federation of Industries and
Chinese National Federation of Industries53
SMEs • Intense capability enhancement programme to enhance the productivity of SMEs to
adopt Productivity 4.0, solutions and platforms by appointing experienced experts and mentors
• Matchmaking with leading industries across the globe – organise forums between Taiwanese firms
and European firms, located in 23 priority industrial clusters for potential collaborations
Human Capital & • Productivity 4.0 Promotion Office signed MOU with Siemens to introduce cyber-physical
Talent system (CPS) training courses to cultivate talent on site or in Taiwan54
• Tong-Tai Machine Tool Co Ltd cooperates with Siemens to introduce Siemens's technology and
Technology &
establish a Productivity 4.0 production line in cooperation with Taiwan's Aerospace Industrial
Standards
Development Corporation (AIDC) for high-end national defence and aerospace markets
Digital • Strengthening Information Management Capabilities of SMEs initiative by increasing ICT adoption,
Infrastructure & provide e-learning programme, e-commerce, promote 4G Mobile and Commerce Application
Digital Adoption Service

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• Government provides tax credit on R&D activities done by SMEs to encourage technology
Funding & adoption55
Incentives • Provide tax credits to companies that derive income from self-developed Intellectual Property (IP)
and tax reduction on R&D

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4.1.9. KEY TAKEAWAYS

The global benchmarking shows that countries are moving towards fully adopting Industry 4.0, with many developed countries
already having strategic initiatives to forge Industry 4.0. The benchmarking analysis of countries also shows that in crafting these
initiatives, some countries leverage on established players in Industry 4.0 to enhance both knowledge and skills exchange.
The following table is a brief summary on the initiatives and strategic plans of each of the benchmarked countries:
Table 14: Summary of Programmes and Initiatives of Each Benchmarked Country
Country Industry 4.0 Programme/Strategic Plan Amount of Funding

EUR 200 million granted to the the Federal Ministry for
Germany Industrie 4.0 Education and Research, (BMBF) and the Federal Ministry of
Economics and Technology, (BMWi)565758
United States of Funding for each of the 14 innovation intermediaries under

America Manufacturing USA Manufacturing USA ranges from USD 70 million to USD 120
million over a five – year period59
One of the technology areas for funding
under the Research, Innovation and
Singapore SD 3.3 billion allocated for research and programmes related to
Enterprise 2020 (RIE2020) Plan is
the area of AME60
Advanced Manufacturing and Engineering
(AME)
Allocated TBT 10 billion to the ‘Fund for Enhancement Act for
Thailand Thailand 4.0 Targeted Industries for research and activities under Thailand
4.061
KRW 1 trillion investment to build 10,000 smart factories by
South Korea Manufacturing Innovation Industry 2020 from the government over a five – year period (2015 to
2020)62

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Country Industry 4.0 Programme/Strategic Plan Amount of Funding

Activities under IVI is fully funded through its’ membership
Japan Industrial Value Chain Initiative (IVI) fee.63 Members in IVI consist of SMEs and large firms and both
local and international manufacturers that operate in Japan
Government plans to inject USD 1.52 billion from 2017 to
China Made in China 2025 2020 to support Made in China strategy.64 China is also investing
more than USD 3 billion in “advanced manufacturing” activities65
Taiwan Government plans to spend NTD 36 billion from 2015 to 2030

Productivity 4.0
under its Productivity 4.0 initiative66

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Key takeaways from the global benchmarks in which Malaysia can adopt are as follows:
• To establish innovation intermediaries to promote collaboration between SMEs, large firms and
universities to carryout R&D and provide industry solutions in the manufacturing sector (Germany,
the USA)
SMEs • To provide targeted incentives to SMEs in order to encourage technology adoption and incentivise
them to carry out own R&D (Germany, Thailand, China, Taiwan)
• Develop and carryout conformity assessment of manufacturing firms to determine level of Industry
4.0 readiness (Singapore, China)
• To intensify partnerships between academia and industry to enable skill development for students
(Germany, the USA, Singapore)
• To review current curriculum of universities to incorporate necessary skills for Industry 4.0
Human Capital & (Germany, China, Singapore)
Talent • To setup talent centres to retrain and upskill existing workforce using existing facilities and trainers
(Singapore, the USA, Republic of Korea)
• To provide assessment of manufacturing workforce and certification of talent with skills relevant to
Industry 4.0 (China, the USA)
• To increase international collaborations with countries leading Industry 4.0 to allow technology and
Technologies and
knowledge transfer (Singapore, Thailand)
Standards
• To setup a taskforce to oversee standards related to new technologies (Germany, China)
• To provide necessary digital infrastructure to allow ease of digital adoption among SMEs (Taiwan,
Digital Germany, Singapore)
Infrastructure • For R&D institutes to act as testbeds and allow companies to experiment with new technologies
(Korea, the USA, Singapore)
• To provide support schemes to enable the development of SMEs in areas such as talent, innovation,
Funding and R&D, entrepreneurship, etc. (Thailand, Taiwan)
Incentives • To provide incentives for companies to adopt technologies associated to Industry 4.0 (Taiwan,
Thailand)

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The benchmarked analysis shows that one of the main areas that countries are addressing in their Industry 4.0 initiatives and
strategic plans is the upgrading of digital connectivity and digital infrastructure. Improving the manufacturing sector’s digital
connectivity and digital infrastructure allows manufacturing companies, and even manufacturing-related service (MRS) providers, to
readily process data and ensure that technologies such as IoT and sensors are able to operate well.
Comparative analysis between Malaysia and the benchmarked countries show that though Malaysia’s digital infrastructure, such as
its internet speed has improved over the years. However, Malaysia’s internet speed is relatively slower compared to the benchmarked
countries. Based on Akamai’s Q1 2017 State of the Internet report, Malaysia’s average and peak internet speed has improved by
40% and 38% respectively. However, Malaysia’s global ranking out of 146 countries in terms of average and peak internet speed is
at 62 and 50 respectively67.
Table 15: Global Ranking on Average Internet Speed of Asia Pacific Countries in Q1 2017
Global Rank Country/Region Q1 2017 Average Mbps Quarter on Quarter Change Year over Year Change
1 South Korea 28.6 9.3% -1.7%
4 Hong Kong 21.9 -0.2% 10%
7 Singapore 20.3 0.8% 23%
8 Japan 20.2 3.1% 11%
16 Taiwan 16.9 7.9% 14%
21 Thailand 16.0 20% 49%
27 New Zealand 14.7 14% 40%
50 Australia 11.1 9.6% 26%
58 Vietnam 9.5 15% 89%
62 Malaysia 8.9 9.1% 40%
68 Sri Lanka 8.5 17% 58%
74 China 7.6 20% 78%
77 Indonesia 7.2 6.7% 59%
89 India 6.5 17% 87%
100 Phillipines 5.5 20% 57%

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Table 16: Global Ranking on Peak Internet Speed of Asia Pacific Countries in Q1 2017
Global Rank Country/Region Q1 2017 Peak Mbps Quarter on Quarter Change Year over Year Change
1 Singapore 184.5 n/a 26%
4 Hong Kong 129.5 n/a 17%
5 South Korea 121.0 n/a 17%
8 Thailand 106.6 n/a 53%
13 Taiwan 94.7 n/a 14%
14 Japan 94.5 n/a 12%
35 New Zealand 70.8 n/a 42%
43 Indonesia 66.1 n/a -40%
50 Malaysia 64.1 n/a 38%
61 Vietnam 59.0 n/a 73%
62 Sri Lanka 57.3 n/a 62%
64 Australia 55.7 n/a 27%
86 China 45.9 n/a 48%
88 Philippines 45.0 n/a 50%
97 India 41.4 n/a 62%
In terms of affordability, Cable.co and BDRC Continental ranked Malaysia 73rd out of 196 countries68. Based on the report, the cost
of Malaysia’s broadband per month in USD is at USD 47.05. The findings of this report correlate the findings in ASM’s position paper
entitled “Increasing Broadband Penetration and Quality for National Transformation Based on Science, Technology and Innovation
(2012)”, where it was found that the provision of broadband in Malaysia is at high cost, attributing to low penetration; In addition,
low quality leads to low level of value-added economic and social activities which finally culminates in low level of preparedness for
tomorrow’s applications69.

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Figure 29: The Average Cost of Broadband (in USD) of Benchmarked Countries and Malaysia

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According to the “Ericsson Mobility Report 2017” by Swedish-based telecommunications company, broadband technology such as 5G
could accelerate the use of digital technologies in the manufacturing sector70. Figure 30 shows some of the technologies that can
operate using 5G broadband. Digital technologies such as augmented reality (AR)-based applications require high data and low
latency. In the context of smart manufacturing, AR-based applications are used in diagnostics and remote maintenance which would
make operations more effective and less costly. At present, Malaysian telco companies provide 4G broadband coverage, but coverage
and speed requires further improvement. According to “The State of LTE” report (2017) published by UK-based OpenSignal71. The
report compares the 4G broadband availability and speed of 88 countries. Based on the report, Malaysia ranks 42 nd out of 88 countries
in terms of 4G broadband availability which covers 74.88% of the country and ranks 70th in terms of average 4G broadband speed
which is at 14.83 Mbps. Figure 31 shows the comparison on 4G availability and speed between Malaysia and global benchmarked
countries. (Note: Data on 4G broadband availability and speed for China was not available in “The State of LTE” report).

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Figure 30: Examples of Technologies that Could Benefit from 5G Broadband (Ericsson Mobility Report 2017)

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Figure 31: The Availability of 4G LTE (%) and The Speed of 4G LTE (Mbps) of Benchmarked Countries and Malaysia

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4.2 MALAYSIA’S MANUFACTURING LANDSCAPE
Policy makers around the globe see innovation as a central effort to achieving a wide range of economic and social objectives for the
following reasons (OECD, 2016):
• Innovation generates qualitative improvements in products and processes, and through this it produces output and productivity
growth;
• Real incomes and economic welfare are affected by the ways innovation shapes the levels of technology; and
• Innovation is central to establishing and maintaining competitive trade positions that both accompany and enable domestic growth
strategies.
Malaysia has transformed from an agrarian-based economy with the agriculture sector as its main industry in the early 1960s to an
industrialised economy in the 2000s. In the past Malaysia’s economy depended heavily on the export of primary crops such as rubber
and oil palm, but the Malaysian economy now sees the manufacturing and services sectors taking precedence. The manufacturing
sector contributed 23% to GDP in 2016 and the rapidly growing services sector was the major contributor to Malaysia’s GDP at 54.2%
in 2016. This also resonates with the changing focus of the Malaysia Plans over the years (ASM, 2017). These key sectors need to
be further developed by leveraging on the advancement of science, technology and engineering to accelerate its growth.
Malaysian industries must be prepared to face the challenges brought upon by the new economy, therefore a paradigm shift is
required in the following figure:

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Table 17: SWOT analysis of the Malaysian innovation system (OECD, 2016)

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Malaysian industries must be prepared to face the challenges brought upon by the new economy requiring a need for a paradigm
shift as in following figure:
Resource focused Knowledge intensive

Labour intensive High-skilled talents
Requires control Requires collaboration
Vertical Horizontal trust orientation
Mass production Mass customisation
Proximity is important Location less significant
Rigid Flexible
Capitalist Profit Sharing

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INDUSTRY 4.0
In order to transform the manufacturing ecosystem, Industry 4.0 adoption or smart manufacturing processes must be adopted
throughout the manufacturing value chain.
Industry 4.0 enables the operation of manufacturing companies to be seamlessly integrated by making their processes smart. The
manufacturing-related services (MRS) sector is especially crucial in enabling the transformation of the current manufacturing sector
into smart manufacturing.
Figure 32: Manufacturing and MRS Service Sectors

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According to the Study on Knowledge Content in Key Economic Sectors in Malaysia Phase III (MyKEIII), advanced manufacturing
such as that featured in Industry 4.0 has the potential to cut sales, administration, production, and supply chain costs by 20-30%.
Figure 33: Differences between Industry 3.0 and Industry 4.0

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4.3 STATE OF READINESS TO SUPPORT THE INDUSTRY
MANUFACTURING SECTOR READINESS TO ADOPT INDUSTRY 4.0
Generally, Malaysian industry is perceived to be at best Industry 2.5 level (use Figure 34: Automation Level of FMM Members
of machinery and some level of automation) and certain sectors are thought Surveyed (370 respondents)
to be at Industry 1.0 level (mechanical but labour intensive).72
Ascertaining the level of readiness of the Malaysian manufacturing sector is

crucial to determine the different strategic interventions or investments
required. At the moment, there seems to be a gap in terms of a national level
Industry 4.0 Readiness Level Assessment. Specific parameters in tandem
with global best practices and indicators should be developed and assessed
for this purpose.
One of the indicators for readiness to adopt Industry 4.0 is the level of
automation. Some indication of the industry’s readiness to adopt Industry 4.0
can be seen in the level of adoption of Industry 3.0 (automation) among
members of Federation of Malaysian Manufacturers (FMM) where they were
asked to indicate their current level of automation in the FMM-Malaysian
Institute of Economic Research (MIER) Business Conditions Survey 2016. The
survey showed that the average level of automation within Malaysian firms
is still low as 80% of firms have less than 50% automation within their
processes.

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Figure 35: Automation Level of Key Areas of Operation
The level of automation in key areas of operation is mostly in

information management (84%) and process control (78%).
While 37% of the respondents indicated interest in stepping up

into automation, the respondents indicated the following issues
as the hampering factors for them to automate:
a. High cost (71% responses);

b. Lack of technical support (31% responses);
c. Limited labour savings (29%);
d. Difficult to obtain government incentives (21%);
e. Technology being too dynamic (16%); and
f. Difficult to obtain loan (10%).
Other factors include high mix / low volume and nature of

process/ operations / product (customised).
There is a diverse range of companies in the industry landscape

in term of readiness for adoption of Industry 4.0. As such, the
policy interventions cannot be a one-size fits all, instead they need
to be customised for each sector.

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Industry 4.0 Awareness Level Figure 36: Awareness on Industry 4.0 of FMM Members
Surveyed (370 Respondents)
Enhancing awareness of Industry 4.0 among the quadruple helix
(Government, Industry, IHLs, Community/Civil Society) is crucial for Malaysia
to move towards adopting Industry 4.0. Each player in the ecosystem needs
to understand the value add over the long term through Industry 4.0
adoption. Once awareness is enhanced, the level of engagement at
programme and activity level is expected to improve.
At present, there has not been a survey undertaken to gauge national

awareness level of Industry 4.0. However, some indication of the awareness
levels of the industry players can be seen in the survey by FMM and MIER in
their Business Conditions Survey 2016.
There is a need to track the level of awareness and perception of industry

4.0 by all stakeholders to allow informed decision-making and for policy
interventions to be made accordingly. As such, leveraging on existing
periodic surveys would provide insights into respective sector. Examples of
surveys are as follows:
a. Industry – Quarterly Survey by FMM-MIER

b. SMEs – Quarterly Survey by SME Corp
c. Public – Public Awareness Survey on STI by MASTIC

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Manufacturing Sector in Malaysia
Figure 37: Number of Establishments by Manufacturing Sub-Sector

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Figure 38: Industry Knowledge Content and Innovation Mapping

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Based on the Study on Knowledge Content in Key Economic Sectors in Malaysia Phase III (MyKEIII), 21 industries’ knowledge content
was mapped against level of innovation and divided into four category groupings:
a. Pace-setters
b. Adapters
c. Imitators
d. Laggards
Table 18: Manufacturing Sub-Sector Knowledge Content and Innovation Mapping
Knowledge Content and Innovation

No Manufacturing Sub-Sector % of establishments
Mapping
1. Textile, Wearing Apparel and Leather Products 19% Laggards
2. Non-Metallic Mineral Products, Basic Metal and Fabricated 18% Between Adapters and Pace Setters
Metal Products
3. Wood Products, Furniture, Paper Products and Printing 17% Laggards
4. Vegetable and Animal Oils and Fats, and Processed Foods 17% Pace-Setters
5. Transport Equipment, Other Manufacturing and Repair 11% Between Imitators Adapters
6. Petroleum, Chemical, Rubber and Plastic Products 9% Pace-Setters
7. Electrical, Electronic and Optical Products 8% Pace-Setters
8. Beverage and Tobacco Products 1% n/a
Source: Analysed by ASM, from Economic Census 2016 Manufacturing Sector, Department of Statistics, Malaysia and A Study on Knowledge
Content in Key Economic Sectors in Malaysia Phase III (MyKEIII), EPU 2017
Although textile, apparel and leather products makes up the highest number of establishments in Malaysia, this sub-sector is
categorised as laggards. Other sub-sectors such as wood products, furniture, paper products and printing are also lagging behind.
However, the potential and economic opportunities of textile and furniture industries cannot be ignored 73. Therefore, the support for
these sub-sectors would require special intervention to move up the value chain.

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Table 19: Gross Output and Value Added According to Manufacturing Sub-Sectors in 2015
Manufacturing Gross Output % Share of Gross Value Added % Share of

Sub - Sectors (RM Billion) Output (RM Billion) Value Added
Petroleum, chemical, rubber and
322.0 28.2 77.6 30.2
plastic products
Electrical, electronic and optical
299.1 26.2 68.7 26.7
products
Non-metallic mineral products,
basic metal and fabricated metal 199.8 17.5 34.3 13.4
products
Vegetable and animal oils and fats
134.6 11.8 27.8 10.8
and food processing
Transport equipment, other
92.0 8.0 22.1 8.6
manufacturing and repair
Wood products, furniture, paper
62.9 5.5 17.2 6.7
products and printing
Textiles, wearing apparel and
18.2 1.6 5.0 1.9
leather products
Beverages and tobacco products 13.4 1.2 4.4 1.7
Three manufacturing sub-sectors that were identified as Pace-Setters in the MyKEIII study were also part of the top 5 sub-sectors
that had contributed in terms of gross output and value added in the manufacturing sector in 2015.74
Industries such as the Electrical & Electronics (E&E), Chemicals and Medical Device are in the early stages of Industry 4.0 adoption
with only a moderate number of companies (both MNCs and SMEs) being involved in the adoption of Industry 4.0 solutions. The
Machinery & Equipment (M&E) and the Aerospace industries are at the level where MNCs and SMEs are beginning to explore
Industry 4.0 solutions, but the level of adoption of these solutions varies according to sub-sector in those industries. The M&E and

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Aerospace industries are strong in terms of manufacturing assembly parts but lack the level of innovation needed to move into
higher value activities.
In order to maintain the growth and increase the productivity of the 3+2 industries, Industry 4.0 adoption must take place
throughout the value chain. Based on the projections made by Roland Berger in the Industry “3+2” study, companies from the 3+2
industries are expected to contribute RM 215.1 billion in added value from 2017 to 2027.

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Figure 39: Concentration of Manufacturing Establishments in Malaysia
In 2015, Malaysia had 49,101 establishments in the manufacturing sector. These establishments were concentrated in Selangor,
Johor, Kuala Lumpur, Perak and Pulau Pinang. The location of these establishments is important in order to plan infrastructure roll-
out for delivery of digital connectivity, a prerequisite to digital adoption and ultimately adoption of Industry 4.0.
Nevertheless, digital infrastructure should be available nationwide to ensure the entire supply chain is connected (e.g. supplying
product design to production line in other area).

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KEY TAKEAWAYS:
Key takeaways from Malaysia’s manufacturing sector:
• Current level of automation of Malaysian companies are still low;
• Currently, there is no official national level instrument (i.e. survey) to ascertain the level of awareness on Industry 4.0;
• Knowledge content and innovation mapping for the 21 industry sectors in Malaysia varies from laggard to pace setter. Specific,
targeted interventions might be needed for certain industries in order to move up the value chain;
• Full adoption of Industry 4.0 in 3+2 industries is projected to increase level of value added and job opportunities
• Roll out delivery for digital connectivity and infrastrucure should prioritise states in which the number of manufacturing
establishments are high.

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DIGITAL INFRASTRUCTURE IN MALAYSIA
Table 20: Global Ranking on Average Internet Speed of Asia

Pacific Countries in Q1 2017
Global Country/Region Q1 Quarter Year

Rank 2017 on over
Digital infrastructure is a prerequisite to the implementation of Industry
Average Quarter Year
4.0. Internet infrastructure is the backbone of Industry 4.0, and is
Mbps Change Change
fundamental to the implementation of key technologies such as the
1 South Korea 28.6 9.3% -1.7%
Internet of Things (IoT) and Big Data Analytics (BDA).
4 Hong Kong 21.9 -0.2% 10%
7 Singapore 20.3 0.8% 23%
8 Japan 20.2 3.1% 11%
16 Taiwan 16.9 7.9% 14%
21 Thailand 16.0 20% 49%
27 New Zealand 14.7 14% 40%
50 Australia 11.1 9.6% 26%
58 Vietnam 9.5 15% 89%
62 Malaysia 8.9 9.1% 40%
68 Sri Lanka 8.5 17% 58%
74 China 7.6 20% 78%
77 Indonesia 7.2 6.7% 59%
89 India 6.5 17% 87%
100 Philippines 5.5 20% 57%

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Table 21: Global Ranking on Peak Internet Speed of Asia

Pacific Countries in Q1 2017
Global Country/Region Q1 Quarter Year In terms of affordability, Cable.co and BDRC Continental ranked
Rank 2017 on over Malaysia 73rd out of 196 countries75. Based on the report, the cost of
Peak Quarter Year Malaysia’s broadband per month in USD is at USD 47.48. The findings
Mbps Change Change of this report corroborate the findings in ASM’s position paper titled
1 Singapore 184.5 n/a 26% “Increasing Broadband Penetration and Quality for National
4 Hong Kong 129.5 n/a 17% Transformation Based on Science, Technology and Innovation”, where
5 South Korea 121.0 n/a 17% it was found that the provision of broadband in Malaysia is at high cost,
8 Thailand 106.6 n/a 53% attributing to low penetration; in addition, low quality leads to low level
13 Taiwan 94.7 n/a 14% of value-added economic and social activities which finally culminates
14 Japan 94.5 n/a 12% in low level of preparedness for tomorrow’s applications76.
35 New Zealand 70.8 n/a 42%
43 Indonesia 66.1 n/a -40%
50 Malaysia 64.1 n/a 38%
61 Vietnam 59.0 n/a 73%
62 Sri Lanka 57.3 n/a 62%
64 Australia 55.7 n/a 27%
86 China 45.9 n/a 48%
88 Philippines 45.0 n/a 50%
97 India 41.4 n/a 62%

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Table 22: Example of High Speed Broadband (HSBB) Subscriptions Package at

Industrial Areas
Characteristics of Internet Connectivity
in Malaysia Price “Double the Speed”
per Subscribers Initiatives
Package Month as at Jun
2016 2017
2017 (‘000)
(RM) From (Mbps) To (Mbps)
BIZ 5 199 43.0 5 10*
BIZ 10 289 32.6 10 30
BIZ 20 359 9.0 20 50
BIZ Advance Plan 30 299 66.1 30 50
BIZ Advance Plan 50 349 9.8 50 50**
BIZ Pro Plan 100 399 11.5 100 100
Total 172.0
* From March 2017 onwards 10Mbps entry level @ RM199 offered.
** From July 2017 onwards 50 Mbps package @ RM 299 offered.
*** Non-Household subscribers is inclusive of SME, Enterprise, Government, etc
Source: TWG Digital Infrastructure

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Table 23: Digital Service Providers in Malaysia
Broadband
Mobile Broadband Fixed Broadband
Segment
Service 1. Altel Communications Sdn Bhd 1. AT&T Worldwide Network Services (Malaysia) Sdn Bhd*
Providers 2. CELCOM (Malaysia) Berhad 2. Citi Broadband (Setia Haruman Technology Sdn Bhd)
3. Ceres Telecom Sdn Bhd 3. Clear-Comm Sdn Bhd
4. DiGi Telecommunications Sdn Bhd 4. Dacs Network Solutions Sdn Bhd
5. Enabling Asia Tech Sdn Bhd 5. IX Telecom Sdn Bhd
6. Maxis Broadband Sdn Bhd 6. Macro Lynx Sdn Bhd
7. Merchantrade Asia Sdn. Bhd. 7. Maxis Broadband Sdn Bhd
8. Pavo Communications Sdn. Bhd. 8. Next Wave Communications Sdn Bhd
9. PLDT Malaysia Sdn Bhd 9. Optical Communication Engineering Sdn Bhd
10. RedONE Network Sdn Bhd 10. REDtone International Bhd
11. Talk Focus Sdn. Bhd. 11. Sarawak Information Systems Sdn. Bhd.
12. Telekom Malaysia Berhad 12. Sunway Digital Wave Sdn Bhd
13. Telekomunikasi Indonesia International (Malaysia) Sdn. 13. Telekom Malaysia Berhad
Bhd. 14. TT dotCom Sdn Bhd
14. Tune Talk Sdn Bhd 15. Webe Digital Sdn bhd
15. U Mobile Sdn Bhd
16. Webe Digital Sdn bhd
17. XOX Com Sdn Bhd
18. YTL Communications Sdn Bhd
Source: TWG Digital Infrastructure

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Digital Infrastructure at Industrial Areas
Table 24: Current High-Speed Broadband (HSBB) Coverage at

Industrial Areas
Current HSBB Coverage at Industrial

No. State
Areas for the Short Term Plan
1. Johor 12 out of 47 Total industrial areas nationwide = 650
2. Kedah 15 out of 24
3. Kelantan 3 out of 5 Current HSBB Coverage = 153 out of 245 (Short Term)
4. Kuala Lumpur 19
5. Melaka 10 Future HSBB Coverage = 405 (Long Term)
6. Negeri Sembilan 10 out of 12
7. Pahang 9 out of 15
8. Penang 16 out of 23
9. Perak 16 out of 19 There is a total of 650 industrial areas nationwide, around 153
10. Perlis 2 out of 5 of which are already equipped with high speed broadband.
11. Sabah 1 out of 6
There is a need to document the broadband speed at all
12. Sarawak 2 out 7
13. Selangor 35 out of 46 industrial estates and perform industry satisfaction surveys on
14. Terengganu 3 out of 6 the quality of internet services.
15. WP Labuan 0 out of 1
Total 153 out of 245
Source: Analysed by ASM, based on input from TWG Digital
Infrastructure

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Digital Infrastructure at Education and Training Institutions
Table 25: Current High-Speed Broadband (HSBB) Coverage at Education and Training Institutions
Public Private
HSBB1 (2008-2018) HSBB2 (2015-2025) HSBB1 (2008-2018) HSBB2 (2015-2025)
1. UM 1. USM (1 campus) 1. IMU 1. MMU (1 campus)
2. UKM 2. UTM (2 campuses) 2. MMU (1 campus) 2. UNIRAZAK (2 campuses)
3. USM (1 campus) 3. UiTM (6 campuses) 3. UNITEN 3. OUM (4 campuses)
4. UPM (2 campuses) 4. UIA (1 campus) 4. UTAR 4. AIU
5. UTM (3 campuses) 5. UPSI 5. UNIRAZAK (1 campus) 5. MISDC
6. UiTM (6 campuses) 6. UNIMAS (1 campus) 6. UNISEL 6. UCSA (1 campus)
7. UIA (2 campuses) 7. UMK 7. KLIUC 7. Perak Institute of Art
8. UPNM 8. UTeM 8. UCSI 8. UNITAR (2 campuses)
9. UNIMAP (2 campuses) 9. APU 9. Swinburne (1 campus)
10. Sekolah Latihan Jururawat (1 10. OUM (1 campus) 10. Institut Kompas
campus) 11. HELP (1 campus)
11. Giat MARA (1 campus) 12. Monash
12. Politeknik (1 campus) 13. Lim Kok Wing
13. Institut Pendidikan Guru (1 campus) 14. Sunway (1 campus)
14. Maktab Pengajian Islam (1 campus) 15. Taylors (1 campus)
15. Matriculation College (1 campus) 16. UNIKL
16. Institut Perdagangan MARA (1 17. KUTPM
campus) 18. Twintech
17. Institut Latihan Perindustrian, ILP (1 19. CUCMS
campus) 20. Binary College University
18. Kolej Poly-tech MARA (1 campus) 21. MUST (1 campus)
22. KUIS (2 campuses)
23. Cosmopoint (1 campus)
Source: Analysed by ASM, based on input from TWG Digital Infrastructure

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At present, there are 20 public universities, 488 private universities/colleges, 28 Institutes of Teacher Education, 34 Polytechnics, 23
Institusi Latihan Perindustrian (ILP), 8 Advanced Technology Training Centres (ADTEC), 13 Institut Kemahiran MARA (IKM), 231 Giat
MARA, 15 Matriculation Colleges and 9 Kolej Poly-tech MARA.
Figure 40: Mapping of Current High-Speed Broadband (HSBB) Coverage at Education and Training Institutions
Although the coverage of digital infrastructure high speed broadband depends largely on the demand and requirements by the
institutions, there is a need for facilitation and support to provide necessary digital infrastructure and facilities at recognised Industry
4.0 training institutions.

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ISSUES AND CHALLENGES ON DIGITAL INFRASTRUCTURE
TWG Digital Infrastructure & Ecosystem has identified the following issues and challenges in rolling out digital infrastructure:
Demand Supply
1. Low digital adoption especially among SMEs (~20%) 4. Gaps in deployment of high speed broadband
and limited use of automation by manufacturing firms infrastructure in key industrial and training locations and
(majority of firms use less than 50% automation) not always able to support Industry 4.0 technology needs
• Broadband is still not considered as essential • Due to lack of detailed information of each
utility by the developer industrial area (i.e. information on companies,
• Low subscription at existing industrial areas type of business activity, number of premises
with broadband services as manufacturing which require high speed broadband)
firms do not consider internet connection a • No central body possesses detailed information
priority on activities in industrial areas
2. Lack of integrated and digital approach to data • No prioritisation list of company or industrial
gathering along manufacturing supply chains areas ready for Industry 4.0
• High security deposit imposed by Jabatan Kerja • Longer return of investment (ROI) high speed
Raya Malaysia (JKR) for way leave broadband is deployed in smaller sized
3. Exposure to cyber threats with increased connectivity industrial areas
and new technologies, especially IoT • Higher investment required to provide service
• Lack of awareness among manufacturing firms at isolated industrial area
on safe use of network and cloud services • Exclusivity – State government appoints
• Reluctance of manufacturing firms to invest in specific telecommunication service providers to
cyber security measures provide telecommunications infrastructure in
industrial areas under the state
• Non-standard processes on issuance of permit
by local authority
Source: TWG Digital Infrastructure & Ecosystem

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NATIONAL INITIATIVES ON DIGITAL INFRASTRUCTURE
Table 26: National Initiatives and Targets for Digital Infrastructure
Policy
Strategy Programmes / Initiatives Target
Documents
11th Malaysia Enforce and monitor infrastructure • Wireless Broadband Rollout Plan • 95% of populated areas
Plan (2016- rollout towards the achievement of • Fixed Broadband Rollout Plan covered with broadband
2020) connectivity targets • High speed broadband (HSBB), Sub-Urban infrastructure by 2020
Broadband (SUBB), Broadband for • 100 Mbps broadband for
High Speed General Public (BBGP), Mobile Broadband households in state capitals
Broadband Ensure alignment among all • Include infrastructure consideration in and high impact growth areas
(HSBB) stakeholders, federal and state, to long term development plans (KPKT, by 2020
Phase 1 expedite infrastructure rollout JPBD) • Reduce fixed broadband costs
Phase 2 Increasing affordability and • Improving the Access Pricing Framework to 1% of GNI per capita in
protection for consumers (APF) for providers to facilitate 2020
competition and infrastructure sharing
among service providers.
Budget 2018 Fortifying 4th Industrial Revolution • Implement Malaysia Digital Policy
and Digital Economy • Provide matching grants under the
Domestic Investment Strategic Fund to
upgrade Smart Manufacturing facilities
(RM245 million)
• Capital Allowance for ICT equipment is
claimable from 2018-2020 including SMEs

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Policy
Strategy Programmes / Initiatives Target
Documents
Digital Free Stimulate growth in electronic • Construct infrastructure of DFTZ in • 1,500 SMEs to participate in
Trade Zone trade. Aeropolis KLIA the digital economy
(DFTZ) Comprises e-Fulfilment Hub, • Increase minimum value for imports from • Attract RM700 million worth of
Satellites Hub and e-Service RM500 to RM800 to establish Malaysia as investment
Platforms regional e-commerce hub. • Create 2,500 job opportunities
• Provide physical and virtual
zones to facilitate SMEs to
capitalise on the convergence
of exponential growth of the
internet economy and cross-
border e-Commerce activities.
The deployment of High speed broadband (HSBB) is part of Malaysia’s National Broadband Implementation Strategy which is also
known as the National Broadband Initiative (NBI). The project is divided into two phases; HSBB1 (2008-2014) and HSBB2 (2015-
2025). The initial aim of the project was for the country to achieve 50% broadband penetration by 2010. Under the 10th Malaysia
Plan, HSBB1 and Broadband for General Population (BBGP) were rolled out in several states, raising national broadband penetration
from 55.6% in 2010 to 70.2% in 2014.
In the second phase of HSBB, the government has targeted to have broadband infrastructure to up to 95% of populated areas and
together with its affordability - targeting 1% of gross national income (GNI) per capita for fixed broadband costs. One hundred Mbps
broadband will be provided for households in state capitals and high impact growth areas by 2020.
These targets will be achieved through several strategies stated in the 11th Malaysia Plan:
a. Enforce and monitor infrastructure rollout towards the achievement of connectivity targets through Wireless Broadband Rollout
Plan and Fixed Broadband Rollout Plan.
b. Ensure alignment among all stakeholders, federal and state, to expedite infrastructure rollout plan.

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c. Increasing affordability and protection for consumers by improving the Access Pricing Framework (APF) for providers to
facilitate competition and infrastructure sharing among service providers.
In Budget 2018, the government outlined strategies to fortify the 4th Industrial Revolution and Digital Economy through the
implementation of the Malaysia Digital Policy. In order to support the business and investment activities related to Industry 4.0, the
government has agreed to provide matching grants worth RM245 million under the Domestic Investment Strategic Fund to upgrade
Smart Manufacturing facilities. Furthermore, the Capital Allowance for ICT equipment, which includes spending on computer software
development, is claimable from 2018-2020.
The Digital Free Trade Zone (DFTZ) which was recently launched by the prime minister in November 2017 targeted 1,500 SMEs to
participate in the digital economy and the creation of 2,500 job opportunities. DFTZ will provide physical and virtual zones to facilitate
SMEs to capitalise on the convergence of exponential growth of the internet economy and cross-border eCommerce activities. It will
act as a hub to support internet companies to trade goods, innovate and provide services.
KLIA Aeropolis has been selected to be the site of the initial phase for DFTZ - the first Electronic World Trade Platform (eWTP) Hub
outside of China. The infrastructure support will nurture an ecosystem to drive innovation in e-commerce by tapping available
resources under KLIA Aeropolis. DFTZ is expected to attract RM700 million worth of investment in the digital economy.

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LEVEL OF DIGITAL ADOPTION IN MALAYSIA
The overall digitisation is relatively average for the manufacturing sector while certain services sectors such as ICT, business and
financial services are relatively high.
Figure 41: Level of Digital Adoption in Malaysia

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ISSUES AND CHALLENGES IN DIGITAL ADOPTION
Demand Supply
1. Low awareness of digital adoption benefits 4. Low integration of technology with businesses’ core
• only 3% use analytics to derive business strategies and operations
insights • only 4% have full integration with technology
• only 15% use cloud computing
• only 3% automate operations to improve 5. Lack of digital talent especially in IoT and analytics
productivity • 73% rate employees’ digital capability at basic
level
2. Insufficient drive from Management on digital
strategies and capabilities
• 53% do not have IT departments and/or a
CIO/CDO
• 84% of business IT department’s key role is to
provide IT support
3. Businesses surveyed stated that high costs is a top

barrier for digital adoption
• 60% cite cost as the top hindrance for
technology adoption
Source: TWG Digital Infrastructure & Ecosystem

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NATIONAL INITIATIVES ON DIGITAL ADOPTION

Table 27: National Initiatives and Targets for Digital Adoption
Policy Documents Strategy Programmes / Initiatives Target

Communications and Accelerate adoption of digital Technology scale-up programme 75% SMEs adopt advanced
Multimedia Blueprint enablers ICT tools and services by
2018-2025 2025
Foster innovation to move Establishment of Digital Hubs 23% GDP contribution from
ahead of the curve digital economy by 2025
Malaysia Productivity Strengthen digitalisation • Establishment of a single platform 3.7% growth per annum
Blueprint 2017 among SMEs through to oversee the entire innovation
e-commerce and process of SMEs.
adoption of innovative • Enhance promotion and marketing
technology on the benefits of e-commerce to
SMEs
• Streamline incentives for SMEs to
participate in e-commerce towards
ICT-based business solutions and to
improve productivity and enhancing
competitiveness of SMEs.
National eCommerce • Accelerating seller • Provide support to encourage the
Strategic Roadmap adoption of e-commerce use of ICT
• Increasing use of • Shift investments and co-
eProcurement by investments as the primary model
businesses of financial support
• Promote success stories to advance
the use of technology.

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The newly launched Communication and Multimedia Blueprint 2018-2025 by the Ministry of Communications and Multimedia (KKMM)
in December 2017 has outlined some programmes for SMEs to accelerate the adoption of digital enablers in order to help them
increase the use of technology. For example, technology scale-up programmes in this blueprint aim to foster inclusive development
by making sure organisations with limited access to technology resources (typically SMEs) increase their technology use. At the same
time, the programme also promotes widespread use of priority technologies across the board where the adoption is lagging across
sectors in Malaysia. The outcome of this strategy is to have 75% SMEs to adopt advanced ICT tools and services by 2025.
The establishment of Digital Hubs was also part of the initiatives mentioned in the Communication and Multimedia Blueprint to foster
innovation to move ahead of the curve, by achieving 23% of GDP contribution from the digital economy by 2025. The objective of
the Digital Technology Hubs is to nurture and grow innovative and disruptive digital entrepreneurs and start-ups to create cutting-
edge technologies, products and business models. This hub offers a conducive ecosystem in terms of resources, advocacy and
collaboration opportunities to grow the positive impact of the Digital Economy.
In the National Productivity Blueprint 2017, one of the strategic thrusts is driving digitalisation and innovation to increase the labour
productivity especially in the manufacturing sector by 2.6%. The strategies are to strengthen the readiness of enterprises to
effectively adopt and exploit technology and digital advantages and increase the digitalisation adoption among SMEs through e-
commerce and adoption of innovative technology.
The establishment of an innovation centre for SMEs supported by technical assistance, market information as well as incubation and
testing facilities needs to be an immediate priority to ensure they are well- supported for digitalisation adoption. This initiative is also
in line with High Impact Programme (HIP) 2 in the SME Masterplan 2012 – 2020.
Actions to promote the use of technology among businesses have been outlined in the National E-Commerce Strategic Roadmap,
and include a focus on accelerating seller adoption of e-commerce and increasing the use of eProcurement by businesses. Three
activities are recommended in this roadmap. First, to provide targeted support to encourage the use of information and
communications technology, and to bridge the technology adoption gap; secondly, to shift investments and co-investments as the
primary model of financial support; and thirdly, to generate and promote success stories to advance the use of technology.

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KEY TAKEAWAYS:
• 24% of industrial areas in Malaysia are equipped with high speed broadband. Expansion of digital infrastructure to other industrial
areas is needed to enable Malaysian manufacturers to adopt Industry 4.0;
• Broadband speed and reliability at all industrial areas must be periodically checked and industry satisfaction surveys on the quality
of internet services must be conducted;
• Digital infrastructure needs to be provided for recognised Industry 4.0 training institutions;
• Overall level of digitisation is relatively average for the manufacturing sector in Malaysia;
• Awareness of digital adoption benefits, management drive of digital initiatives and digital talent are low in Malaysia.

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TALENT FOR MANUFACTURING SECTOR TRANSFORMATION TO INDUSTRY 4.0
Due to the rapid changes on an exponential scale driven by advances in technology, the core skills of future talent are centred on
learning. Talents in the future need to be able to learn, unlearn, re-learn, co-learn and co-create.
Figure 42: Profile of Employed Persons, Malaysia, 2016

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Figure 43: Number of Employment by Manufacturing Sub- The manufacturing sector has the second highest employment amongst all
Sector, 2015 economic sectors, accounting to 16.9% of the total share of employment.

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Skills Spectrum in Manufacturing Sector
Figure 44: Salaries and Wages of Full-Time Paid Higher skills level of the workforce is required to perform higher value-added
Employees by Employees Categories, 2015 manufacturing activities and is especially crucial towards adopting Industry 4.0.
In the manufacturing sector, 18% are high-skilled, 75% are semi-skilled and
7% are low-skilled workers. In the next two decades, it is estimated that
between 11% and 54% of the current jobs in Malaysia could be significantly
affected by automation (KRI, 2017), more so by Industry 4.0 technologies.
Therefore, retraining, upskilling and new skills are important for the existing
employees to develop relevant skills for the coming future. The employers need
to be incentivised to upscale their workers to a higher skill over time with
combination of equipment, machinery and technology of Industry 4.0 to raise
productivity.

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Skill and Education Level
Table 28: Skill and Education Level
Category MASCO Description Educational Level

High-skilled M1 Managers N/A
M2 Professionals Tertiary education leading to a university or postgraduate university
degree; Malaysian Skills Advanced Diploma (DLKM) Level 5-8
M3 Technical and Associate Professionals Tertiary education leading to an award not equivalent to a first
University Level; Malaysian Skills Certificate (SKM) Level 4, or
Malaysian Skills Diploma (DKM) Level 4
Semi-skilled M4 Clerical Support Workers Secondary or post-secondary education; Malaysian Skills Certificate
M5 Service and Sales Workers (SKM) Level 1-3
M6 Skilled Agriculture, Forestry and Fishery
workers
M7 Craft and related trades workers
M8 Plant and machine-operators and
assemblers
Low-skilled M9 Elementary occupations Primary education
At present, 80.5% of the manufacturing sector’s employees possess SPM/SPM (V)

or equivalent and above, while 12% of them have a diploma/STPM or equivalent.
About 7.5% are university degree holders or above.

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Figure 45: Number of Skills Development Institutes Retraining/Upskilling/New Skills for Existing Talent
in Malaysia, 2016
TVET Workforce
The supply pipelines for TVET are under the purview of 8 ministries. At present,
the Ministry of Human Resource is overseeing all public and private skills
development institutions through its accreditation centres, except those under
the Ministry of Higher Education, which are governed by the Malaysian
Qualifications Agency. Integration and synergy is crucial for impactful outcomes.
5 Categories of Accreditation Centres
1. Public Accreditation Centre

2. Private Accreditation Centre
3. Industry Accreditation Centre
4. Association Accreditation Centre
5. Accreditation Centre for Non-Destructive Testing (NDT)
*The programmes offered are based on the established National Occupational

Skills Standards (NOSS).

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Certification for Industry 4.0
Certification is important for Industry 4.0. In many advanced countries professionalising the skilled workforce is important and this
requires recognised / accredited certification programmes. Accreditation is fundamental in retraining existing workers and develops
new talents that are recognised locally, regionally and globally.
Table 29: Existing Professional and Technical Certification
Sector / Functional
Name of Certification Programme Name of Certification Body
Area
Engineering Professional Engineer (PE) Board of Engineers (BEM) Malaysia
Chartered Engineer (CEng) - Engineering Council Institution of Chemical Engineers (IChemE)
Chartered Scientist (CSci) - Science Council
Chartered Environmentalist (CEnv) - Society for the
Environment (SocEnv)
Chartered Engineer (CEng) Chartered Engineer Engineering Council
Institution of Mechanical Engineer
Institution of Structural Engineers
Chartered Manager (CMgr) Institution of Civil Engineers
Certified Software Development Associate (CSDA) Institute of Electrical and Electronics Engineers (IEEE)
Certified Software Development Professional (CSDP)
Wireless Communication Engineering Technologies
(WCET)
ICT Certified Information Systems Auditor (CISA) Information Systems Audit and Control Association
(ISACA)
Microsoft Professional Certifications Microsoft
Oracle Professional Certifications Oracle
CISCO Professional Certifications CISCO
SAP Professional Certifications SAP
Technologies Professional Technologist and Certified Technician Malaysia Board of Technologists (MBOT)
Source: Professional Certification, Talent Corp

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Industry-Driven Industry 4.0 Certification Programmes
The Human Resources Development Fund (HRDF) under the purview of the Ministry of Human Resources Malaysia (MoHR) is
supporting the collaboration between the Penang Skills Development Centre (PSDC) and Knowledgecom Corporation Sdn Bhd to
promote the National Empowerment in Certification and Training for Next Generation Workforce Programme (NECT-Gen) through
the launch of the Centres of Excellence in Technology (CoETs) in Industry 4.0.
According to PSDC and Knowledgecom, these centres are strategically located throughout Malaysia and have the capacity and
capability to deliver high-end technology certification programmes. They are targeting to provide training and certification for 3,300
Industry 4.0 certificated workers across Malaysia under the CoET programme by 2018.

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The target of the CoETs is to upskill 600 local employees in 2017 through five main tracks that form the technological pillars of
Industry 4.0.
Table 30: List of Centres of Excellence in Technology (CoET) and Academic of Professional and Industry Certifications (APIC) in Malaysia
No Centres of Excellence in Technology (CoET) Academic of Professional and Industry Certifications (APIC)
1 Penang Skill Development Centre (PSDC) Politeknik Ibrahim Sultan (PIS)
2 Johor Skill Development Centre (PUSPATRI) Politeknik Seberang Perai (PSP)
3 Perak Human Capital Development Centre (PHCDC) Politeknik Kota Kinabalu (PKK)
4 Sabah Skills and Technology Centre (SSTC) Politeknik Kuching Sarawak (PKS)
5 Sarawak Skills Development Centre (PPKS) Politeknik Shah Alam (PSA)
6 Negeri Sembilan State Development Centre (NSSDC) Politeknik Mersing Johor (PMJ)
7 Pahang Skills Development Centre (Pahang Skills) Politeknik Balik Pulau (PBU)
8 Kedah Industrial Skills and Management Development Politeknik Ungku Omar (PUO)
Centre (KISMEC)
9 Universiti Putra Malaysia (UPM) Politeknik Sultan Idris Shah (PSI)
10 Universiti Kebangsaan Malaysia (UKM) Politeknik Sultan Haji Ahmad Shah (POLISAS)
11 Universiti Technologi Petronas (UTP)
12 Universiti Teknologi MARA (UiTM)
13 Universiti Malaysia Perlis (UniMAP)
14 Universiti Sains Malaysia (USM)
15 Universiti Malaysia Pahang (UMP)
Source: KnowledgeCom Corporation (KCOM), http://www.eknowledge.com.my/coet.html

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Upskilling and Reskilling Fund: Human Resource Development Fund (HRDF)
Figure 46: Registered Employers by Category
Total number of employers registered with HRDF = 17,535 (2016)

Collection of Levi = RM672,19 million (2016)
Financial Assistance Approved = RM568,773 (2016)
Training providers listed under HRDF = 3,248 (2016)

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The Human Resource Development Fund (HRDF) was established under the Human Resources Ministry in 1993 to facilitate continuous
retraining and skills upgrading to workers. It is compulsory for employers to register with HRDF if their business exceeds a certain
size and they must pay a levy fixed at a percentage of their annual turnover. They are then eligible to apply for training grants equal
to that amount of contribution, in order to fund worker retraining and skills upgrading programmes.
The HRDF is governed by the Pembangunan Sumber Manusia Berhad Act 2001 and effective from 1 April 2017, the Act was being
expanded by abolishing the Paid-up Capital and streamlining the eligibility criterion for all employers employing a minimum of ten
(10) local employees across all sub-sectors within the Manufacturing, Services, Mining and Quarrying. Currently, the Act covers 63
sub-sectors.
Figure 47: HRDF Approved Training Places by Skill Areas (2016)

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Malaysia Foreign Labour Policy
One of the ways to increase productivity is to adopt automation across all sectors in Malaysia. This will also lead to reducing the
dependency of low-skilled foreign workers. In the 11th Malaysia Plan 2016-2020, it was mentioned that the performance of the
manufacturing sector will be enhanced through a shift towards the production of more complex and diverse products and improving
productivity by adopting greater automation and upgrading skills. Greater automation especially in labour intensive activities, as well
as migration to knowledge intensive activities will be encouraged in all sectors of the economy, particularly in the agriculture,
manufacturing, and construction sectors, which currently employs more than 30% of foreign workers.
In the National Productivity Blueprint 2017, a maximum threshold of 15% was set for foreign workers across all sectors. Several
strategies have been lined out in the plans to deal with this problem. First, restructuring and improving the management of foreign
workers. Next, formulating and implementing a comprehensive foreign workers policy and streamlining the management of foreign
workers through a single point of authority.
In Budget 2018, the government introduced loans for SMEs through Skim Jaminan Pembiayaan Perniagaan (SJPP) worth RM1 billion
with 70% guaranteed by the government. These loans are provided to enable SMEs to automate production processes and reduce
employment of foreign workers.
Table 31: National Initiatives to Reduce Dependency on Foreign Workers

11th Malaysia Plan • Restructure and improve the Maximum threshold of 15% for
(2016-2020) management of foreign workers foreign workers across all
• Formulate and implement a sectors
National comprehensive foreign workers policy
Productivity • Apply market mechanisms based on
Blueprint 2017 levies
• Streamline management of foreign
workers through a single point of
authority

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Budget 2018 Loans for SMEs to automate production Skim Jaminan Pembiayaan SMEs contribute 41% GDP by
process and reduce employment of foreign Perniagaan (SJPP) for service sector 2020
workers including Industry 4.0 Current: 36.7% (2016) - DOSM
(RM 1 billion)
Experts in Manufacturing - related Fields
Table 32: Number of Academic Staff in Engineering Faculties in local public universities in Malaysia
University No. of Academic Staffs in Faculty No. of Academic Staffs in Faculty

No
of Engineering of Computer Science
1. Universiti Teknologi MARA (UiTM) 1170 1253
2. Universiti Malaysia Perlis (UNIMAP) 706 73
3. Universiti Teknologi Malaysia (UTM) 650 107
4. Universiti Tun Hussein Onn Malaysia (UTHM) 562 67
5. Universiti Malaysia Pahang (UMP) 463 80
6. Universiti Teknologi Melaka (UTeM) 511 213
7. Universiti Sains Malaysia (USM) 229 48
8. Universiti Putra Malaysia (UPM) 223 83
9. Universiti Kebangsaan Malaysia (UKM) 194 96
10. Universiti Malaya (UM) 172 83
11. Universiti Malaysia Sarawak (UNIMAS) 151 70
12. Universiti Pertahanan Nasional Malaysia (UPNM) 104 -
13. Universiti Malaysia Sabah (UMS) 89 60
14. Universiti Malaysia Terengganu (UMT) 60 -
15. Universiti Sains Islam Malaysia (USIM) 21 -
16. Universiti Malaysia Kelantan (UMK) 9 -
17. Universiti Sultan Zainal Abidin (UNiSZA) - 53
18. Universiti Pendidikan Sultan Idris (UPSI) - 114
19. Universiti Islam Antarabangsa Malaysia (UIAM) 221 60
Total 5535 2460
Source: Ministry of Higher Education

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19 out of 20 local public universities in Malaysia have expertise in various fields related to engineering and computer sciences that
could benefit the manufacturing sector. However, there is no list of experts in the field of Industry 4.0, thus, there is a need to
prepare a national compendium of experts in Industry 4.0-related skills in Malaysian IHLs, Research Institutes (RIs), government
agencies and industry so that the manufacturing sector can leverage upon.
ISSUES AND CHALLENGES ON HUMAN CAPITAL & TALENT DEVELOPMENT

Demand Supply
1. Limited understanding of manufacturing firms of required 1. Existing training programmes not sufficiently geared toward
future skills and expertise and own readiness to embark on Industry 4.0 and current pool of trainers unable to keep up
Industry 4.0 transformation with the advancement of technology
• Flexibility of employers to let their employees to improve • Only a few training centres in Malaysia
their skills. specialises in Industry 4.0 technologies
• Lack of drive to invest in training of current employees
• No effort to identify new interdisciplinary fields and 2. Limited attractiveness of manufacturing as career
expertise destination for top talent
• Are complacent or lack of lifelong learning culture. • Jobs in manufacturing sector perceived as 3D
• Lack of budget for enhancement training on the latest (dirty, dangerous and difficult) by public
technology in all 9 pillars. • Jobs in manufacturing sector is perceived to be
• Adoption of robots stifled by social issues as they were low-skilled
constantly viewed as a replacement of human worker • Wages paid by manufacturing companies are
• Shortage of skilled and semi-skilled labour has created lower compared to neighbouring countries such
heavy reliance on foreign workforce. as Singapore
2. Significant shortage of required talents, skills & knowledge

for Industry 4.0, particularly in the areas of IoT, robotics and
AI
• Limited number of talent with knowledge/expertise on
data science and digital technologies
• Current workforce lack skills related to Industry 4.0

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National Initiatives on Upskilling and Reskilling Talent
Table 33: National Initiatives and Targets for Talent and Human Capital Development

11 Malaysia Plan 2016-
th
• Mainstreaming and • • 60% of the 1.5 million jobs
Skim Kemahiran dan Kerjaya 1Malaysia
2020 broadening access to (SKK1M) that will be created require
quality TVET programme • 8 new satellite centres for Instructor
TVET-related skills
• Transforming TVET to meet • 225,000 intake of SPM
and Advanced Skill Training (CIAST)
industry demands campuses. leavers to TVET
programmes in 2020.
MDeC Formulate industry relevant • ASEAN Data Analytics Exchange 20,000 data professionals
National Big Data curriculum for university (ADAX) for Professionals and SME including 2,000 data scientists
Analytics Framework adoption Masterplan to be trained by 2020
Initiatives
MOHE Vocational Transformation of vocational • Junior Vocational Education (JVE) Produce 35% or 5.3 million
Education education curriculum & Programme skilled workers by 2020
Transformation Strategic institutions • MOE Vocational College (VC)
Plan
Budget 2018 Transforming TVET in • Implementation of TVET Master Plan
producing highly skilled and (RM 4.9 billion)
competitive workforce • 100 TVET Outstanding Student
Scholarships (RM4.5 million)
Malaysia Education Enabling industry to lead • Introduce undergraduate 3+1 or 2+2
Blueprint (Higher curriculum design through programmes with off-campus or
Education) hands-on training, real-life industry-based learning
simulations, and specialised • Study on campus for two years and
employer training programmes. interning in industries for another two
(2u2i)
• Accreditation of Prior Experiential
Learning (APEL)
• iCGPA,
• CEO@Faculty
• 21st Century Learning

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Talent Roadmap 2015- Optimise Malaysian talent as a • Industry-Academia Collaboration (IAC)
2020 sustainable pool of top local • Nurturing Expert Talent (NEXT)
talent to meet industry needs • Developing a National Future of Work
Action Plan
Communications and Retrain the existing workforce • Expand human capital development
Multimedia Blueprint to remain relevant in the new funds
2018-2025 wave of digital disruptions • Massive Open Online Courses (MOOCs)
National Policy on To nurture, develop and retain Increase the ratio of
Science, Technology and a strong and committed talent researchers per 10,000
Innovation 2013-2020 pool to drive STI agenda workforces to at least 70 by
2020
The Technical and Vocational Education and Training (TVET) has been recognised to be crucial to prepare a highly skilled workforce
ready to drive the Industry 4.0. It was stated in the 11th Malaysia Plan that 60% of the 1.5 million jobs that will be created require
TVET-related skills. Curriculum for TVET will be strengthened with greater input from the industry in order to equip workers in SMEs
with the right skill sets. In addition, reskilling and upskilling of workers will be intensified to enable them to fill higher-paying jobs.
The government has also highlighted in Budget 2018 the importance of transforming TVET to produce highly skilled and competitive
workforce through the implementation of TVET Master Plan. The government has also allocated RM4.5 million to award 100
outstanding students in TVET courses through TVET Outstanding Student Scholarships.
As part of the National Big Data Analytics Framework Initiatives, MDeC is also focused on filling the talent gap in BDA. The outcome
of this initiative is to produce 20,000 data professionals including 2,000 trained data scientists by 2020. One of the strategies is to
formulate industry relevant curriculum for university adoption. For instance, introduce postgraduate courses on Data Science and
undergraduate IT-related degrees with Data Science specialisation. In addition, Data Science modules are being introduced into non-
ICT degree courses such as Actuarial Science, Business Management, etc.

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MDeC had also set up the ASEAN Data Analytics eXchange (ADAX) for Professionals, a regional platform that brings together
innovative talent development models and showcases the latest BDA technologies. By piloting advanced data analytics use cases for
the ASEAN region and providing a co-working location for BDA start-ups and accelerators, ADAX has a unique opportunity to catalyse
the migration of traditional organisations to become data driven organisations.
The government aims to achieve 35% or 5.3 million of the workforce by 2020 in order to become a developed nation. In relation to
this, Ministry of Education (MOE) has come out with the Vocational Education Transformation Strategic Plan to provide innovative
vocational education and training to meet the needs of communities and industries. One of the initiatives is to develop vocational
education curriculum and institutions that can produce skilled talent ready for employment and able to further their education at a
higher level. Several action plans have been identified to support the initiative, such as to set up the Junior Vocational Education
(JVE) Programme and to establish MOE Vocational College (VC).
The Ministry of Higher Education (MOHE) has introduced undergraduate 3+1 or 2+2 programmes with off-campus or industry-based
learning. These programmes are work-based learning programmes which provide undergraduate students with an enhanced industry
exposure during the course of their studies. APEL, iCGPA, CEO@Faculty, 21st Century Learning and other initiatives under the Malaysia
Higher Education Blueprint 2015-2025 were also introduced in order to prepare graduates with skills required by industries which
involve hands-on training, real-life simulations, and specialised employer training programmes.
The Talent Roadmap 2015-2020 which was published by Talent Corp has identified three key programmes to optimise Malaysian
talent, with the intended outcome being a sustainable pool of top local talent to meet the industry needs. Those three key
programmes are:
a. Industry-Academia Collaboration (IAC)

The objective of this programme is to bridge the gap between industries and universities. This is a collaborative effort with the
Ministry of Higher Education (MoHE) to bring employers back to universities and help refine the technical and soft skills of industry-
ready graduates.

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b. Nurturing Expert Talent (NEXT)

NEXT is a national talent analytics platform to acquire and analyse data about the quality and ability of the Malaysian workforce
in meeting the demands of the evolving marketplace. As part of a holistic talent strategy, NEXT forms vital links between
education, employers, and employability, as well as offers insights to help talent identify their strengths, passion, and career
choices that are best suited to their skill sets.
c. Developing a National Future of Work Action Plan
The National Future of Work Action Plan will identify the opportunities and risks that will arise from Industry Revolution 4.0, and
able to outline and specify the strategies and actions towards future-proofing our Malaysian workforce.
Current workforce development schemes can be improved by including digital skills and extending industry participation in
development efforts. Two programmes have been identified in the Communications and Multimedia Blueprint 2018-2025 which are
to retrain the existing and future workforce, enabling them to remain relevant in the increasingly digitised economy. The first
programme seeks to expand human capital development funds to sharpen their focus on relevant and updated ICT topics. The
second programme will increase completion of technology-related Massive Open Online Courses (MOOCs), as a way to keep the
workforce current in digital developments.
The National Science, Technology and Innovation (NPSTI) 2013-2020 formulated by the Ministry of Science, Technology and
Innovation (MOSTI) identified three major challenges in building Malaysia’s human capital for the innovation economy. The challenge
of the country is that it needs to build its talent pool by nurturing and retaining them. Another challenge is in utilising and linking the
talent in the country. In order to ensure continual development and engagement of the local talent pool, the NPSTI has set a target
to increase the ratio of researchers per 10,000 workers to at least 70 by 2020.
Malaysia Automotive Institute (MAI) was incorporated in 2010 to function as an independent non-profit organisation under the
custodian of MITI. It serves as the focal point, coordination centre and think tank for the nation's automotive industry. MAI has
introduced several initiatives related to Industry 4.0. One of those initiatives is the MAI Resource Centre 77. The centre acts as a
training centre that houses industrial grade equipment including a hybrid vehicle trainer, toolings, and assembly jigs. The MAI

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Resource Centre is also a technology commercialisation centre to undertake technology transfer, validation and adoption of
automation practices.
MAI provides capacity building programmes across all levels from school leavers to undergraduates whom, upon completion of these
programmes, will be offered employment. These programmes include: -
1. Industry-Led Professional Certificate (IPC) – a program for SPM leavers to produce skilled workers and technicians
through specific modules and on-the-job training, for a duration of 6 months
2. Automotive Industry Certification Engineering (AICE) – a programme for fresh graduates in STEM degrees to jump start
their careers in the industry through a syllabus that tailors them to be immediately employable in the automotive
industry, for a duration of 8 months
3. MAI Graduate Apprenticeship – a programme for undergraduate students of STEM degrees which exposes them to the
automotive industry from the 1st year of study until their graduation.
MAI also conducts capacity building programmes for current employees in the automotive industry. Participating companies that send
their employees to these programmes record an average increase in productivity by 24%. These programmes include:-
1. Digital Engineering and Prototyping (DEP) – a 3-month programme for current engineers to enhance their design and
engineering capabilities
2. Lean Production System (LPS) – a 9-month program for all levels of employment to enhance the productivity of their
manufacturing operations
3. Customised programmes – a 3-month programme for all levels of employment to enhance specific areas of a company
Another initiative under MAI is the MAI Design Centre 78 . The centre was established with the purpose of enhancing the
implementation of Industry 4.0 in the Malaysian automotive industry specifically in the areas of design engineering, simulation and
prototyping. It is a product of Government-Industry cooperation between MAI, PERODUA and their vendors.

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It will be an open sharing Industry 4.0 platform whereby any OEM and vendor from various tiers can leverage on the hardware and
software available, such as the Fused Deposited Material 3D Printer, Selective Laser Sintering (SLS) 3D Printer for the additive
manufacturing, Augmented Reality, the MAI High Performance Computing Server and many more.
MAI Design Centre will also enable the automotive industry to conduct simultaneous engineering between the OEM and their vendors
during the product development stage of a new model. This will assure quality, and improve productivity of new model development
thus ensuring good user-experience in the finished product.
The establishment of MAI Design Centre will also promote a more conducive environment for the industry to innovate and to have
strategic alliances and collaboration, which is vital for our local industry to remain competitive and to be a part of the global supply
chain.

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KEY TAKEAWAYS:
• The manufacturing sector has the second highest employment (16.9% of the total share of employment);
• At present, 80.5% of the manufacturing sector’s employees possess SPM/SPM (V) or equivalent. retraining, upskilling and
learning of new skills are important for existing employees for them to remain relevant;
• Foreign workers play a significant role in several relatively smaller manufacturing sectors, but dependency on foreign labour can
be reduced through the adoption of Industry 4.0 technologies;
• It is important to reach a balance between retaining talent to work in Malaysia and having Malaysian high-skilled talent back from
foreign countries; and
• A national compendium of experts in Industry 4.0-related skills in Malaysian IHLs, RIs, Government agencies and the industry
should be created.

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TECHNOLOGY & STANDARDS
Technology and standards are key enablers of Industry 4.0. The convergence of emerging technologies is critical to the growth of
today's manufacturing sector. On the other hand, standards if not developed or complied internationally, will pose a threat to
Malaysia’s manufacturing sector in terms of barriers to enter new markets.
CURRENT STATUS OF SELECTED TECHNOLOGIES PILLARS OF INDUSTRY 4.0 IN MALAYSIA
Figure 48: Risk-based approach in re-prioritising initiatives
Cyber Security
Cyber security is an underlying factor that needs to be addressed for

Industry 4.0 adoption. Initiatives related to Industry 4.0 require a
risk-based approach (see figure below) in aspects of cyber security
to ensure resiliency of the adopted and developed technologies
primarily for applications that have an impact on public safety and
mission critical implementation. Germany, as the early adopters of
Industry 4.0, clearly identified that their biggest obstacles for
implementing Industry 4.0 were data and network. Their concern in
particular was on data security and safeguarding systems, as well as
a lack of uniform standards for data transfers and end-to-end
connectivity via wireless networks. Malaysia needs to foresight
similar challenges in regard to cyber security and take necessary
action79.

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Additive Manufacturing Technology (Three-dimensional (3D) printing)
The National Study on the Additive Manufacturing Landscape in Malaysia by SIRIM has mapped out the landscape of Additive
Manufacturing proliferation within Malaysian Industry. Additive Manufacturing are machines that can produce the desired components
faster, with much more flexibility and precision unlike before. With their capability of turning data into components and products at
an incredible speed, fewer prototype construction and dies would be required with less post-processing phases thus shortening the
production value chain.
Malaysian organisations’ application of AM technology throughout the manufacturing and service value chain are not homogenous,
reflecting the different maturing and capability levels of Malaysian organisations.

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The survey conducted by SIRIM has identified the following challenges that AM users face in Malaysia:
Technical barriers Economic barriers Legal or Institutional barriers

1. Limited choice of materials available 10. Equipment cost is prohibitive (limiting 14. Lack of formal standards
2. Complex post-processing factor) 15. Current company business model is
requirements 11. Manufacturing cost using AM is incompatible with AM operations.
3. Lack of in-house AM resources prohibitive (limiting factor)
4. Lack of expertise in design 12. Complying with regulatory
engineering requirements is costly (Limiting
5. Lack of training among Factor)
workforce/employees in AM 13. Market demand for AM manufactured
6. Lack of product designers products is limited (limiting factor)
7. Limited repeatability (accuracy from
build to build)
8. Limited low volume production
9. Limited recyclability

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ISSUES & CHALLENGES IN TECHNOLOGY & STANDARDS

Demand Supply
1. Reliance on current technologies 1. Lack of clear standards for equipment or systems that
• Existing technologies used by manufacturing support local and global inter-operability of Industry 4.0
companies are labour intensive technologies and processes
• Existing technologies are not efficient but are • Need to review current standards in Malaysia and
cheaper than technologies related to Industry 4.0 if they are aligned to standards related to
• Lack of talent with expertise in Industry 4.0 Industry 4.0
related technologies
• Lack of awareness among manufacturing
companies on technology suppliers that provide
Industry 4.0 related technologies
TWG on Technologies & Standards

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NATIONAL INITIATIVES ON TECHNOLOGY AND STANDARDS

Table 34: National Initiatives and Targets for Technology and Standards

National Policy on Enhance scientific Research, Development • Science Fund, TechnoFund, InnoFund 2.0% GERD/ GDP by
Science Technology & Commercialisation (RDC) • Smartfund & Enterprise Innovation 2020
& Innovation 2013- Fund
2020 • Pre-Commercialisation Fund
National IoT Build an integrated centre for IoT solutions, • BDA Digital Government Lab initiative Malaysia as the Regional
Strategic Roadmap equipped with supporting services and • Manufacturing Innovation Centre for Development Hub for
2014-2025 facilities E&E sector IoT
National Cyber Promote the development and • CSM Industry Collaboration
Security Policy 2007 commercialisation of IPs, technologies and Programme
innovations through focused R&D
• Standardise cyber security systems • CSM CyberDEF (cyber forensics)
across all elements of the CNII service
• Develop a standard cyber security risk • Vulnerability Assessment Service
assessment framework (VAS)
• Security Evaluation Facility
(CSMMySEF)
• Trustmark Technical Security
Assessment (TTSA)
• Malaysian Common Criteria Evaluation
& Certification (MyCC) Scheme
• ICT Product Security Assessment
(IPSA)
• CSM27001 Scheme
SME Masterplan HIP 2: Technology Commercialisation • Commercialisation of R&D Fund • Improve
2012-2020 Platform (MTDC) productivity and
Establish a national network of privately- • Biotechnology Commercialisation enhancing
managed platforms to promote innovative Funding (Bioeconomy Corporation) competitiveness of
ideas from proof of concept to the • Public-Private Research Network SMEs
commercialisation stage (MOHE)

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• InnoCERT Certification Programme • Upskilling and
• SIRIM Fraunhofer professionalisation
• Steinbeis (AIM) of SMEs
Communications and Fostering innovation to move ahead of the • Establish ‘Future of C&M Squad’ with
Multimedia Blueprint curve three cross-functional teams (sensing,
2018-2025 industry engagement and government
engagement teams
• Technology Experimentation:
o Organise a series of hackathons to
build industry understanding of
technologies beyond narrow
verticals with a focus on a wider
range of business use cases.
o Set up a Centre of Excellence
capability to encourage
technology experimentation in
areas at early stages of
accelerating adoption.
o Set up technology sandbox to
enable low-cost prototyping of
next generation business
technologies and provide
infrastructure support for
learning.
• Establishment of digital hubs
National Graphene To promote the adoption of graphene Industrial awareness and funding for RM 10 billion of GDP
Action Plan 2020 technology by industry and industrial product development and scale- 2000 to 3000 high value
commercialisation of developed graphene up jobs created
products and solutions.

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As stated in National Policy on Science Technology & Innovation 2013-2020, Malaysia aspired to achieve 2.0% of GERD per GDP by
2020 through enhancing the scientific Research, Development & Commercialisation. Several schemes and funds have been introduced
under this policy such as the Science Fund, Smartfund & Enterprise Innovation Fund as well as Pre-Commercialisation Fund.
Internet of Things (IoT) is one of the technology pillars in Industry 4.0. The National IoT Strategic Roadmap 2014-2025 has
envisioned Malaysia to be the Regional Development Hub for IoT by 2025. They plan to build an integrated centre for IoT solutions,
equipped with supporting services and facilities to encourage the R&D activities in IoT technology among industries across all sectors.
The National Cyber Security Policy 2007 strategies are to promote the development and commercialisation of Intellectual Properties,
technologies and innovations through focused R&D through CSM Industry Collaboration Programme. The policy also states the need
to have standardised cyber security systems across all elements of CNII and develop a standard cyber security risk assessment
framework. Several programmes have been planned to support these strategies:
1. CSM CyberDEF (cyber forensics) service

2. Vulnerability Assessment Service (VAS)
3. Security Evaluation Facility (CSM-MySEF)
4. Trustmark Technical Security Assessment (TTSA)
5. Malaysian Common Criteria Evaluation & Certification (MyCC) Scheme
6. ICT Product Security Assessment (IPSA)
7. CSM27001 Scheme
In the SME Masterplan 2012-2020, Digitalisation and Innovation thrust represents a particular importance for SMEs as it focuses on
technology as a game-changer of productivity growth. The thrust aims to encourage the increase in investment for research and
development, greater adoption of technology to improve efficiency and the development of an integrated business environment.

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The two national initiatives which were recommended to achieve these goals are as follows:
1. Strengthen readiness, knowledge and adoption of technology by enterprises across sectors by actively encouraging the adoption
of IR 4.0 technologies by companies across the main economic sectors.
2. Strengthen digitalisation among SMEs through e-commerce and adoption of innovative technology.
Graphene certainly holds many untapped potentials. It holds significant promise in replacing conventional semiconductor materials
such as silicon, and has fittingly been dubbed by the scientific community as a “wonder material”. In order to enhance graphene
product development projects and scale-up of manufacturing prospects, NanoMalaysia Berhad through the National Graphene Action
Plan 2020 will facilitate in promoting the adoption of graphene technology by industry and commercialisation of developed graphene
products and solutions. The contribution of graphene technology to the GDP is worth RM 10 billion and this industry is expected to
create more than 2000 high value jobs.

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SME in the Manufacturing Sector
The adoption of Industry 4.0 needs to be implemented throughout the manufacturing value chain and requires the participation of
all actors. With a large proportion of the manufacturing sector comprising of SMEs, there is a lack of a need to emphasis Industry
4.0 adoption among them in order to transform the manufacturing sector.
Figure 49: Current Government Initiatives to support growth of Innovative SMEs

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Figure 50: Existing Tax Incentives on Automation, Robotics and ICT for SMEs in Malaysia

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ISSUES AND CHALLENGES ON SMES

Demand Supply
1. Awareness and understanding of benefits of Industry 4.0 1. Skills needed for Industry 4.0
• Lack of understanding among SMEs of Industry • SMEs are unaware of the skills needed to operate
4.0 and its potential benefits technologies related to Industry 4.0
• Low level of automation among SMEs • SMEs are concerned of the impact of automation
• Difficulty for SMEs to develop clear business towards their earning and their existing
models that relates to Industry 4.0 workforce
2. Implementation costs
• Inability for SMEs to justify investment into
adopting Industry 4.0 as it is perceived to be
risky
• High cost of setting up infrastructure and
acquiring new technologies
• Lack of awareness of sources of funding for SMEs
to adopt Industry 4.0

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NATIONAL INITIATIVES ON SMES IN MANUFACTURING SECTOR

Table 35: National Initiatives and Targets on SMEs in Manufacturing Sector

SME Masterplan HIP 6: Catalyst Programme • BioNext Initiative Creation of 20 global BioNexus
2012-2020 To create home grown • OxfordAccelerator Programme SME companies by 2020.
champions through a targeted From 2017 onwards, the focus is
approach with support in the on creating high-growth SMEs in
areas of financing, market the aerospace, medical devices
access and human capital and rail sectors.
development
11th Malaysia Plan Enhancing productivity through • Technology Commercialisation Platform Contribution of SMEs across all
(2016-2020) automation (TCP) sectors is targeted to increase to
• Inclusive Innovation programmes 41% of GDP by 2020
• Expand current levy system
• Introduce a cap on employment of
unskilled foreign workers
Stimulating innovation-led • Introduce intermediaries (Steinbeis,
growth to produce high value SIRIM-Fraunhofer, and PlaTCOM)
products • Promote R&D and technology adoption
through industry associations and
chambers of commerce
Developing SMEs in Sabah and • Increase coverage and quality of
Sarawak telecommunications network.
• Expand their markets by adopting e-
commerce, cloud computing, and
crowdsourcing for financing.
Budget 2018 Enhance SME RM200 million for SMEs training programmes, SMEs contribute 41% GDP by
grants and soft loans under SME Corp 2020
Fortifying 4th Industrial Extend incentive period for Accelerated Capital
Revolution and Digital Economy Allowance of 200% from 2018 to 2020 on
automation equipment for manufacturing and
manufacturing related services

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The SME Masterplan 2012-2020 serves as a basis for the sector’s development as the country enters the last mile towards becoming
a high-income nation. The Masterplan aims to bring SMEs to the next level of development in order to raise their contribution of GDP
to 41% by 2020. The SME Masterplan is focusing on the implementation of the High Impact Programmes (HIPs) which help SMEs to
embrace Industry 4.0. One of the HIP is the Catalyst Programme, which aims to create 20 global BioNexus SME companies by 2020
through a targeted approach with support in the area of financing, market access and human capital development through several
initiatives such as BioNext Initiative and Oxford Accelerator Programme. From 2017 onwards, the focus is on creating high-growth
SMEs in the aerospace, medical devices and rail sectors.
As stated in 11th Malaysia Plan, SMEs are encouraged to adopt greater automation in production processes and business services.
Two existing high-impact programmes, namely TCP and Inclusive Innovation will be continued. The TCP links innovation initiatives
under one platform and aims to remove market and financing barriers to innovation. This end-to-end facilitation enables SMEs to
use technology as well as acquire IPs and early stage financing. In this regard, PlaTCOM, established in 2014, will continue to
implement the TCP to assist SMEs to innovate and commercialise products and services. The Inclusive Innovation programme aims
to empower microenterprises in rural areas and the B40 households to leverage innovation. The programme will provide technical,
financial, and management support to the target groups and encourage grassroot innovation.
The government has allocated RM200 million for SME training programmes, grants and soft loans under SME Corp in Budget 2018.
A total of RM7 billion has also been allocated to strengthen SMEs under Skim Jaminan Pembiayaan Perniagaan (SJPP), of which RM5
billion will be for working capital and RM2 billion with 70% guaranteed by Government for the service sector, including Industrial
Revolution 4.0.

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FUNDING & INCENTIVES
The role of government is crucial to enable companies in the manufacturing sector transition into Industry 4.0. It is imperative for
government to provide the necessary funding and incentives to companies who wish to upgrade their facilities and processes either
leveraging on existing incentives or creating new ones. Below is the list of relevant funding and incentives relevant to Industry 4.080:
Table 36: Existing Tax Incentives in Malaysia
Manufactu
No Agency Programme All sectors SMEs Services
ring
Tax Incentives
1. Malaysian Automation Capital Allowance ✓ ✓
2. Investment Production of Selected Machinery and Equipment ✓
3. Development High Technology Companies ✓
4. Authority (MIDA) Green Industry ✓ ✓
5. High Technology / Strategic Project for New ✓
Manufacturing Activity
6. High Technology / Strategic Project for Expansion ✓
and/or Diversification
7. Commercialisation of Public Sector R&D Findings in ✓ ✓
Resource-based and Non Resource-based Industries
8. Investment Tax Allowance of 50% and/or Expatriate ✓ ✓
Posts for In-house Research and Development
9. Investment Tax Allowance of 50% of Reinvestment ✓ ✓
for In-House Research & Development / Expatriate
Post
10. Incentives for Production of Halal Food ✓ ✓
11. Ministry of Finance Venture Capital Programme ✓
12. Malaysia (MoF) Acquisition of Proprietary Rights ✓
13. Bioeconomy BioNexus Tax Exemptions ✓
Corporation
Malaysia

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Manufactu
No Agency Programme All sectors SMEs Services
ring
14. Inland Revenue Reinvestment Allowance ✓ ✓
Board of Malaysia (Schedule 7B)
(IRB)
Source: TWG on Funding and Incentives
Table 37: Tax Incentives for Enablers (Institutions) in Malaysia
Technology & Digital Infra &

No Tax Incentives Human Capital Talent
Standards Ecosystem
1. Independent Accredited Conformity ✓
Assessment Body (ICAB)
2. Approved Service Project (Telecommunication/ ✓
utilities)
3. Approved Research Institute (section 34A ITA ✓ ✓ ✓
1967)
4. Approved Training Institute (Section 34B ITA ✓
1967)

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Table 38: Tax Incentives for Enablers (Institutions) in Malaysia
All Manufac
No Agency Programme SMEs Services
sectors turing
Grants
1. Malaysian Investment Development Domestic Investment Strategic Fund ✓
Authority (MIDA) (DISF)
2. SME Corporation Malaysia (SME SME Technology Transformation Fund ✓ ✓
3. Corporation) Technology Commercialisation Platform ✓ ✓
4. Industrialised Building System (IBS) ✓ ✓
Promotion Fund Financing Programme
5. Bioeconomy Corporation Malaysia Biotechnology Commercialisation Fund ✓
6. Malaysian Technology Development Commercialisation of Research & ✓
Corporation (MTDC) Development Fund (CRDF)
7. Technology Acquisition Fund (TAF) ✓
8. Business Growth Fund (BGF) ✓
9. Business Start-up Fund (BSF) ✓
10. Business Expansion Fund (BEF) ✓
11. Cradle Fund Cradle Investment Programme Catalyst ✓
12. Malaysia Debt Ventures Berhad Funding Scheme for Technology and ✓
Innovation Acceleration
13. Human Resources Development Fund Future Worker Training Scheme - ✓
(HRDF) Enhancement Programme for
Employability
(GENERAtE)
14. Ministry of Higher Education Malaysia Public-Private Research Network (PPRN) ✓
(MOHE)
15. Ministry of Agriculture and Agro-Based High Impact Product Matching Program ✓
Industry Malaysia (MOA) for Agro-based Industries Entrepreneurs
16. Ministry of Science Technology & Smart Challenge Fund ✓
Innovation Malaysia (MOSTI)

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Table 39: Existing Soft Loans in Malaysia
All Manufac
sectors turing
Soft Loans
1. Malaysian Industrial Soft Loans Scheme for Automation & ✓
Development FinanceBerhad Modernisation (SLSAM)
2. (MIDF) Soft Loan Scheme for SME (SLSME) ✓
3. Soft Loan Scheme for Services Sector (SLSSS) ✓
4. Soft Loan Scheme for Services Capacity ✓
Development (SLSCD)
5. Small Medium Enterprise Business Accelerator Programme (BAP) ✓ ✓
6. Development Bank Malaysia SME Technology Transfer (STTF) ✓ ✓
7. Berhad (SME Bank) My Seed SME Scheme ✓ ✓
8. Financing Programme for SME (SME-LEAP) ✓ ✓
9. Bumiputera Financing Fund (BFF) ✓ ✓
10. GreenTech Malaysia Green Technology Financing Scheme ✓
Table 40: Other Existing Incentives in Malaysia
All Manufa
sectors cturing
Others
1. SME Corp + SIRIM QAS 1-InnoCERT Certification Programme ✓ ✓
International SB
2. SME Corp + Agensi Inovasi Technology Commercialisation Platform ✓ ✓
Malaysia (AIM)
3. Agensi Inovasi Malaysia (AIM) Strategic Investments in Innovative
Companies Programme

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ISSUES AND CHALLENGES ON FUNDING & INCENTIVES

The TWG on SMEs has identified the following issues and challenges81:
1. Lack of data on the current technologies used/applied by our industry players.
2. The need to measure level of readiness of Malaysian companies to adopt Industry 4.0 technologies.
3. There is a need for specific committee/task force with technical knowledge to evaluate the incentives/grants applications.
4. Lack of awareness from SMEs on funding & incentives related to Industry 4.0

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MANUFACTURING-RELATED SERVICES SECTOR IN MALAYSIA
End-to-end Supply Chain Ecosystem
Transformation of manufacturing-related services sector (MRS) is important to ensure the end-to-end supply chain ecosystem in
Malaysia could support the adoption of Industry 4.0 by the manufacturing sector. For example, the logistics sector could be
transformed through the applications of technologies such as intelligent transport systems, smart warehousing, swarm intelligence
and smart factories.
Manufacturing-related Services Sectors:
a. Information and Communication Services (Digital Technology Solution Providers, System Integrators, Telecommunication
Infrastructure)
b. Education Services (TVET Institutions, Training Providers)
c. Transportation and Storage Services (Global Supply Chain)
d. Financial Services (Fintech)
e. Professional Services (e.g. R&D Services, Installation Services, Engineering and Design House)

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Table 41: Number of Establishments for Information and Communication Services by Activity, 2015
No Information and Communication Services No of establishments

1. Publishing 726
2. Motion picture, video and television programme production, sound recording and music publishing 1355
3. Programming and broadcasting 39
4. Telecommunication services 1135
5. Computer programming, consultancy and related activities 4102
6. Information services 651
Total 8008
Source: Extracted from DOSM Economic Census 2016 Information and Communication Sectors
Table 42: Number of Establishments for Education Services by Activity, 2015
No Education Services No of establishments

1. Pre-primary education 4413
2. Primary education 141
3. General secondary education 276
4. Technical and vocational education 151
5. College and university education 622
6. Sports and recreation education 216
7. Cultural education 819
8. Tuition centres 2207
9. Driving school 560
10. Other education* 2317
Total
Source: Extracted from DOSM Economic Census 2016 Education Services Sectors

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Table 43: Number of Establishments for Transportation and Storage Services by Activity, 2015
No Transportation and Storage Services No of establishments

1. Land transport 47553
2. Warehousing & support activities 4910
3. Water transport 993
4. Post & courier 690
5. Air transport 44
Total 54190
Source: Extracted from DOSM Economic Census 2016 Transportation and Storage Services Sectors
Table 44: Number of Establishments for Financial Services by Activity, 2015
No Financial Services No of establishments

1. Other financial service activities and activities auxiliary to financial services
2. Monetary intermediation activities
3. Insurance/takaful, reinsurance/retakaful and pension & provident funding activities
4. Activities auxiliary to insurance/takaful and pension funding
Total 15945
Source: Extracted from DOSM Economic Census 2016 Financial Services Sectors

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NATIONAL INITIATIVES ON SERVICES SECTOR

Programmes /
Policy Documents Strategy Target
Initiatives
Services Sector n/a n/a 1. Increasing value added per worker from
Blueprint 2015 RM55,574 in 2013 to RM74,101 in 2020
2. Raising the contribution of knowledge-
driven subsectors to the GDP from 36%
in 2014 to 40% in 2020
3. Increasing the share of services exports
value added from 12% in 2010 to 19% in
2020.
EPP2 Objective: To build globally competitive SSO n/a n/a
Shared Services and industry in Malaysia by:
Outsourcing (SSO)/ 1. Attracting and retaining the best SSO
companies in the world to Malaysia
2. Increasing the competitiveness of
Malaysian outsourcing companies
EPP3 Objective: Positioning Malaysia as a World n/a n/a
Data Centres Class Data Centre Hub by:
1. Addressing the supply and demand of DC
services
2. Raising awareness of the local DC industry

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Services Sector Blueprint 2015
As stated in the 11th Malaysia Plan, 2016-2020, the services sector will continue to be the primary driver of the economic growth.
The development of the services sector is supported by Services Sector Blueprint, launched in 2015 by Economic Planning Unit (EPU).
The Blueprint aims to unlock the potential of the sector and transform it to become more knowledge-intensive and innovation-led.
The strategies are formulated to enhance the competitiveness and resilience of the services sector and promote the migration into
high-value and knowledge-intensive services activities.
The main growth contributors are the wholesale and retail trade, financial services and communications subsectors, supported by
strong household spending and stable labour market conditions. Greater focus is given to the modern and knowledge-intensive
industries, including Halal, ecotourism and information, communications and technology (ICT).
The services sector is expected to grow at 6.8% per annum and contribute 56.5% to the GDP in 2020 and to provide 9.3 million
jobs. In addition, specific targets to transform the services sector are as follows:
1. Increasing value added per worker from RM55,574 in 2013 to RM74,101 in 2020
2. Raising the contribution of knowledge driven subsectors to the GDP from 36% in 2014 to 40% in 2020
3. Increasing the share of services exports value added from 12% in 2010 to 19% in 2020.

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Industry Associations in Malaysia
Table 45: Industry Associations in Malaysia
Industry Association Total There are 3967 industry associations throughout Malaysia. Among prominent ones
Chambers of Commerce 646 are National Chamber of Commerce and Industry of Malaysia (NCCIM), SME
Association of Malaysia, Associated Chinese Chambers of Commerce & Industry of
Manufacturing Industries 266
Malaysia (ACCCIM), Malay Chamber of Commerce Malaysia (MCCM) and Federation
Small Medium Industries 596
of Malaysian Manufacturers (FMM).
Small Business & Hawkers 1249
There are pockets of activities related to Industry 4.0 undertaken by these
Services 1210
associations. These associations could be leveraged upon to promote the adoption
Grand Total 3967
of Industry 4.0 by the industry.
Source: Analysed by Science Outlook 2017
from the Registry of Societies Malaysia
Database
KEY TAKEAWAYS:
• National initiative concerning Industry 4.0 could leverage on industry associations in terms of awareness and promotion; and
• Transformation of manufacturing-related services sector (MRS) is important towards ensuring a seamless adoption of Industry
4.0 by the manufacturing sector.

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4.4 MAPPING OF NATIONAL POLICY/PLAN

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4.5 MAPPING OF NATIONAL POLICY/PLAN TARGETS

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KEY TAKEAWAYS FOR CURRENT NATIONAL POLICIES RELATED TO INDUSTRY 4.0
Items Key Takeaways
• Increase access to internet connectivity and broadband infrastructure to cover all populated areas
Digital • Increase affordability and quality of internet services throughout the nation
infrastructure • Upgrade smart manufacturing facilities through matching grants
• Transforming TVET to produce high skilled and competitive workforce

Upskilling and • Upskilling and reskilling current workforce to meet with industry needs
reskilling talent • Reduce dependency on foreign workers
• Promote the development and commercialisation of technologies through innovation and R&D
activities
Technology and • To have an integrated centre, equipped with testing facilities and technical support for learning and
Standards training purposes.
• Strengthening cybersecurity system
• Malaysia as the regional development hub for Internet of Things (IoT)
SMEs in • Increase SMEs contribution to GDP by enhancing their productivity through automation, allocating
Manufacturing grants and loans as well as training programmes.
Sector • Create home-grown champions and globally competitive companies.

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END NOTES
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19 Research, Innovation & Enterprise (RIE) 2020 Plan
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25
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development-of-technology-cluster-and-future-industries/
28
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29
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30
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31
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news/1281590/thailand-ranks-20th-in-global-cybersecurity-ranking
32
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33
National Competitive Enhancement Act for Targeted Industries (2017)
34
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news/article/thailand-new-law-on-competitiveness-in-targeted-industries/
35
Creative Korea (2017, November 10). CCEI – A Platform
for Local Job Creation and New Industries. Retrieved from http://policy.creativekorea.or.kr/eng/
36 STUDY ON FUTURE OF MANUFACTURING: "INDUSTRY 3+2" Electrical & Electronics industry, Roland Berger (2017)
37 International Telecommunications Union (2017, October 29). The future of manufacturing is
with smart factory (Industry 4.0). Retrieved from https://www.itu.int/en/ITU-D/RegionalPresence/AsiaPacific/Documents/Events/2015/December-

YILF2015/day1/S3_KITECH.pdf
38
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from https://reutersforprakdip.wordpress.com/2017/04/17/press-release-south-korea-is-going-to-endorse-industry-4-0-as-the-base-of-cyber-infrastructure-in-
the-country/
39 Ministry of Science, ICT and Future Planning (2017, October 26). Press Releases. Retrieved from
http://english.msip.go.kr/english/msipContents/contentsView.do?cateId=msse42&artId=1325020
40 Business Sweden (2017, November 10). SEIZING INDUSTRY 4.0 OPPORTUNITIES IN JAPAN OPPORTUNITIES & BARRIERS TO IMPLEMENTATION OF INDUSTRY 4.0 IN JAPAN
Retrieved from https://www.business-sweden.se/contentassets/4f2db52dbae148a78e626486d64e7c2b/seizing_industry_4_0_in_japan.pdf

41
JST (2018, January 22). Centre of Innovation (COI) Programme. Retrieved from https://www.jst.go.jp/tt/EN/platform/coi.html
42
Ministry of Economy, Trade and Industry (2018, January 17). Japan’s Robot Strategy was Compiled. Retrieved from
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43
Plattform Industrie 4.0 (2018, January 21). Action plan agreed between Plattform Industrie 4.0 and the Japanese Robot Revolution Initiative. Retrieved from
https://www.plattform-i40.de/I40/Redaktion/EN/News/Actual/2016/2016-04-05-aktionsplan-mit-japan.html
44
JETRO (2018, January 22). Incentive Programmes. Retrieved from https://www.jetro.go.jp/en/invest/incentive_programs/
45 Centre for Strategic & International Studies (2017, November 15). Made in China 2025. Retrieved from https://www.csis.org/analysis/made-china-2025

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46McKinsey & Company (2017, October 19). China Is Betting Big on These 10 Industries. Retrieved from http://mckinseychina.com/chinas-new-initiative-to-promote-homegrown-
technology/
47
Forbes (2018, January 21). Foreign Firms Wary Of 'Made In China 2025,' But It May Be China's Best Chance At Innovation. Retrieved from
https://www.forbes.com/sites/sarahsu/2017/03/10/foreign-firms-wary-of-made-in-china-2025-but-it-may-be-chinas-best-chance-at-
innovation/#391079fa24d2.
48
“China Manufacturing 2025: Putting Industrial Policy Ahead of Market Forces”, European Union Chamber of Commerce in China (2017)
49
The State Council of China (2017, October 10). China promotes Internet Plus manufacturing to boost innovation, competitiveness. Retrieved from
http://english.gov.cn/premier/news/2017/10/30/content_281475926427288.htm
50
The Diplomat (2018, January 21). China's Cybersecurity Law: What You Need to Know. Retrieved from https://thediplomat.com/2017/06/chinas-
cybersecurity-law-what-you-need-to-know/
51 Focus Taiwan (2017, October 20). Taiwan to invest NT$36 billion in Productivity 4.0 project. Retrieved from http://focustaiwan.tw/news/aipl/201508140011.aspx
52 Executive Yuan, Republic of China (2017, November 9). Productivity 4.0 to boost Taiwan’s global competitiveness: premier. Retrieved from
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53 “A Study on Knowledge Content in Key Economic Sectors in Malaysia Phase III (MYKE III)”, EPU (2017)
54 Ming-Ji, Wu, “Smart Machine and Productivity 4.0 in Taiwan: Now and Future”, Industrial Development Bureau, Ministry of Economic Affairs (MOEA), 2016
55 PwC (2017, November 10). Taiwan, Corporate – Tax credits and incentives. Retrieved from http://taxsummaries.pwc.com/ID/Taiwan-Corporate-Tax-credits-and-incentives
56
European Commission (2017, November 11). Germany: Industrie 4.0. Retrieved from https://ec.europa.eu/growth/tools-
databases/dem/monitor/sites/default/files/DTM_Industrie%204.0.pdf
57
GTAI (2018, January 21). Industrie 4.0: Smart Manufacturing for the Future. Retrieved from
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58
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https://www.iesingapore.gov.sg/Media-Centre/News/2016/6/Singapore-and-Germany---partners-in--Industrie-4-0
59
The Next Production Revolution Implications for Governments & Business, OECD (2017)
60
Straits Times (2018, January 21). Record $19 billion set aside for science and technology research over next five years. Retrieved from
http://www.straitstimes.com/singapore/record-19-billion-set-aside-for-science-and-technology-research-over-next-five-years
61
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from https://www.opengovasia.com/articles/7386-thailand-40-means-opportunity-thailand-government-taking-steps-to-attract-investments-in-targeted-
industries
62
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http://www.businesskorea.co.kr/english/news/ict/13092-interview-secretary-lee-gyu-bong-uniqueness-korea’s-industry-40
63
Japan Industry News (2018, January 21). Internet of Things in Japan: Quietly, Systematically Plowing Ahead. Retrieved from
https://www.japanindustrynews.com/2016/04/internet-things-japan-quietly-systematically-plowing-ahead/
64
China Daily (2018, January 21). Ministry releases Made in China funding plan. Retrieved from http://www.chinadaily.com.cn/business/2017-
10/12/content_33165546.htm
65
China Daily (2018, January 21). China establishes fund to invest in advanced manufacturing. Retrieved from http://www.chinadaily.com.cn/business/2016-
06/08/content_25652625.htm
66
Focus Taiwan (2018, January 21). Taiwan to invest NT$36 billion in Productivity 4.0 project. Retrieved from
http://focustaiwan.tw/news/aipl/201508140011.aspx

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67
Extracted from “State of the Internet: Q1 2017” report, Akamai (2017)
68
Cable.Co.UK (2018, February 2). Study of broadband pricing in 196 countries reveals vast global disparities in the cost of getting online – UK ranks 62nd
cheapest. Retrieved from https://www.cable.co.uk/media-centre/release/new-worldwide-broadband-price-league-unveiled/
69
Extracted from “Increasing Broadband Penetration and Quality for National Transfomation Based on Science, Technology and Innovation” position paper,
ASM (2012)
70
Extracted from “Ericsson Mobility Report”, Ericsson (2017)
71
Extracted from “The State of LTE” report, OpenSignal (2017)
72
Based on input from Professor Dr Mahendhiran S.Nair’s presentation on ‘Knowledge Content in Key Economic Sectors in Malaysia’ and panellist Mr Jacob Lee,
Council Member & Chairman Industry 4.0 Committee, Federation of Malaysian Manufacturers (FMM) during Academy of Sciences Malaysia 27th IdeaXchange
held on 5 December 2017
73
Further information can be obtained through MyKEIII and Mega Science Report by the Academy of Sciences Malaysia
74
Analysed by ASM, Economic Census 2016: Manufacturing Sector, Department of Statistics, Malaysia
75
Cable.Co.UK (2018, February 2). Study of broadband pricing in 196 countries reveals vast global disparities in the cost of getting online – UK ranks 62nd
cheapest. Retrieved from https://www.cable.co.uk/media-centre/release/new-worldwide-broadband-price-league-unveiled/
76
Extracted from “Increasing Broadband Penetration and Quality for National Transfomation Based on Science, Technology and Innovation” position paper,
ASM (2012)
77
MAI (2018, February 16). MAI Resource Centre (MAIRC) – Bukit Beruntung. Retrieved from http://mai.org.my/mai-resource-centre-bukit-beruntung/
78
MAI (2018, February 16). Peranan MAI Design Centre (MAIDC). Retrieved from http://mai.org.my/2018/02/06/757/
79
“Cyber Security: Towards a Safe and Secure Cyber Environment” report, ASM (2017)
80
Inputs based on discussion with TWG Funding & Incentives
81
Inputs based on discussion with TWG on Funding & Incentives

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CHAPTER 5 MALAYSIA INDUSTRY 4.0 FRAMEWORK
CHAPTER 5
MALAYSIA INDUSTRY 4.0 FRAMEWORK

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5.1. ENVISIONING MALAYSIAN INDUSTRY 4.0
VISION
The policy framework outlines three national vision for Malaysia’s manufacturing sector towards achieving full adoption of Industry
4.0 over the next 10 years. These visions were formulated based on the fact that, globally, countries are moving towards greater
digital and technological adoption in the manufacturing sector and the global value chain is becoming more competitive. The visions
of the policy framework are as follows:
1. For Malaysia to become a strategic partner for smart manufacturing and manufacturing related services in Asia Pacific
2. For Malaysia to become the primary destination for the high-tech industry
3. For Malaysia to become a total solutions provider for advanced manufacturing
To become a Strategic Partner for Smart Manufacturing and Manufacturing Related Services in Asia Pacific
The global economy is creating a competitive environment with more and more countries competing among each other for a place
in the global value chain. Malaysia’s manufacturing sector needs to create an environment that incorporates elements of Industry
4.0, such as greater digital connectivity and increased innovation capacity, in order to accelerate growth and productivity in the
sector. By creating this ecosystem and fully adopting Industry 4.0, Malaysia’s manufacturing sector will continue to remain relevant
and Malaysia’s position within the global & regional value chains will be elevated.
To become the Primary Destination for the High-Tech Industry
Malaysia has been known for its manufacturing of electrical components that are part of high technologies. However, Malaysia will
need to increase the level of innovation in the sector to encourage our existing partners to continue operating in the country while
attracting international players.

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To become a Total Solutions Provider for Advanced Manufacturing
The adoption of Industry 4.0 needs to be holistic and focused on elevating and upgrading all actors throughout the manufacturing
value chain. This will include upscaling of manufacturing related service (MRS) providers as well as SMEs to be at par with Industry
4.0 standard. The transformation of MRS providers and SMEs is essential in the adoption of Industry 4.0 in the manufacturing sector
as Malaysia’s manufacturing sector consist of mostly SMEs and services related to Industry 4.0 technologies while processes and skill
sets are provided by MRS providers.
NATIONAL GOALS AND TARGETS

Realising the vision by the year 2025, it is anticipated that the country will witness positive improvements of its performance driven
by massive adoption of Industry 4.0 in manufacturing sector. Successful implementation of the policy framework will make an
impact at the national level by meeting the four (4) major goals and targets as follows:
a. To increase the level of productivity in the manufacturing sector
Malaysia labour productivity in 2016 almost hit which is around 84.7 percent of the target set in 11 th Malaysia Plan (RM92 300 by
2020). Although the target is within reach, in the state of volatility, uncertainty, complex and ambiguous world shaped by various
drivers of change demand more intensive efforts to navigate through future challenges and ensure readiness for any disruptive
effects caused by emerging technologies.
In the era of fourth industrial revolution (4IR), Industry 4.0 introduces new level of playing field driven by digital technologies,
provides opportunities to enhance productivity and innovation of a manufacturing company. In addition, it enables Malaysia to move
from labour intensive to skilled intensive workforce. Assuming the local manufacturing industry successfully adopted and
progressively into highest level of digital maturity, the projected productivity level is expected to increase by 30 percent from 2016
to RM138 425 by 2025.

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Figure 51: Projection of Labour Productivity, LP (RM) 2016-2025
160,000
Productivity of the manufacturing indusry

140,000
120,000
100,000
per person
80,000
60,000
40,000
20,000
-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: MITI
b. To elevate the contribution of the manufacturing sector to the economy
Local manufacturing sector has become second largest contributor to GDP economy accounted 23 percent in 2016 and continued to
grow in absolute value despite decreasing in term of growth rate due to the expansion of service sector. Nevertheless, the need to
further boost its contribution and ensure its sustainability to the national economy is crucial. In view of this, Industry 4.0 adoption
will become a catalyst in delivering the desired result and by 2025, the target for the manufacturing sector contribution is estimated
RM 392 billion to the national economy which is an increase of 54 percent from RM254 billion in 2016.

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Figure 52: Absolute Contribution From the Manufacturing Sector to the National Economy 2016-2025
450,000
Millions
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
-
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
c. To strengthen our innovation capacity and capability, reflected in the global innovation ranking
In 2015, Malaysia was at 32nd global innovation ranking however its position continues to slip to 35th in 2016 and further deteriorated
to 37th in 2017. Parameters highlighted as weaknesses were consistent in these three consecutive years among others related to
human capital and research particularly PISA scales, knowledge and technology output (including utility model, royalty and licenses),
creative outputs and business sophistication. Such situation will continue in the future if there is no concerted efforts to improve it
further. Industry 4.0 initiative is seen as a platform to strengthen these weaknesses such as in STEM education, research
collaboration and innovation capacity. Therefore, Malaysia aims to improve its position from 37th to 30th by 2025.

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d. To increase the number of high skilled workers employed in the manufacturing industry
Employment in manufacturing industry constitutes about 17 percent of total working population in Malaysia which large number of
workforce is employed in service sector. However, out of total manufacturing workers, only 18 percent is considered as high-skilled
which is relatively below the average of benchmarked countries (around 30 percent). Considering one of shift factors to embrace
the Industry 4.0 is about people. This is by ensuring existing workers equipped with relevant knowledge and skills demanded by
new nature of work. The strategies dedicated for talent development aim to further boost the current size of high-skilled workers to
at least 35 percent by 2025.

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5.2. THE SHIFT FACTORS
Malaysia’s transformation will require an ecosystem approach that optimises the linkages between people, process and technology.
Industry 4.0 relevant technologies adoption will only be as good as the processes that are implemented around it, and the processes
as good as the people who execute them.
People
Talent development is crucial in ensuring that the manufacturing workforce is able to adapt to the wave of innovation that is disrupting
the manufacturing sector. The strategies of this policy framework focus on both building the capacity of the existing workforce and
developing the right talent and skillsets for the advancement of the manufacturing sector.
Globally, countries have introduced talent development programmes and initiatives to enhance their skilled workforce in order for
their companies to participate in high value-added manufacturing activities.
Process
The processes in Malaysia’s manufacturing sector needs to be able to cater to growing consumer demand and needs. Through
Industry 4.0, traditional linear processes will be replaced with dynamic and fast processes that are able to modify and customise
products based on consumer specifications. The strategies under the policy framework encourage companies to change and upgrade
their processes to be more demand oriented while ensuring efficiency, safety, quality and effectiveness.
Technology
New technologies enable manufacturing companies to collect, analyse and synthesise data related to their operations in real time.
This allows them to make data-driven decisions. Globally, governments have been pushing for greater technology adoption in their
manufacturing sector and for companies to invest and participate in innovation activities.

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Companies in Malaysia will need to familiarise themselves with the latest technological solutions and increase the level of innovation
in order to remain competitive. Companies must look beyond current technologies and must focus on how new technologies are able
to solve industry problems.
This policy framework is supported by three shift factors: People, Process and Technology. The policy framework aims to transform
People, Process and Technology to meet Industry 4.0 standards throughout the value chain of the manufacturing sector.

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5.3. THE IMPLEMENTATION STRATEGIES
THE DESIRED OUTCOMES OF THE POLICY

In previous chapters, it is deliberated at length regarding number of Industry 4.0 or smart manufacturing related initiatives
implemented throughout Malaysia in various aspects covering human capital development, products and services, investment on
machineries, research and development, to name a few. However at this juncture, these initiatives are currently pursued by various
parties independently and fragmented in manner.
Therefore, there is a need for a more streamlined and cohesive national agenda under which these initiatives and organisations can
be integrated to accelerate Malaysia’s transformation into a smart and modern manufacturing system. This will also include the need
for a greater alignment across government, research institutions and academia regarding the priority industries, specific goals,
enabling actions and their funding. Nevertheless, it is not an easy task due to numerous of issues and challenges identified earlier
faced by local industry players in order to embark on this journey.
The path that Malaysia will take is neither similar to the Germany model which is more of bottom up approach where private sector
driving the initiative or dictated by the Government using top down approach such as China model. Malaysia’s approach towards
Industry 4.0 is more of hybrid of both worlds. The industry players will have to demonstrate their commitments and efforts in the
embracing the initiative while the Government’s role is more of enabler that provides necessary supports namely funding and
incentives, infrastructure, regulations, skills and talents and technologies. These components are outlined in the strategic thrusts of
the policy framework.
In view of that, the National Industry 4.0 Policy Framework aims to provide a concerted and comprehensive transformation agenda
for the manufacturing sector through the implementation of strategies under strategic thrusts to achieve the three (3) main desired
outcomes as follows:
i. ATTRACT
Attract stakeholders to Industry 4.0 technologies and processes and further increase Malaysia’s attractiveness
as a preferred manufacturing location. This is due to large portion of local manufacturing related players are

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still lack of awareness and clear guidance to embrace Industry 4.0 implementation in Malaysia. Not only that,
perception of companies especially SMEs unlikely to embark due to high cost of investment and take “wait and
see” to ensure it is proven and demonstrated to be successful.
ii. CREATE
Despite the interest and awareness on the Industry 4.0 are built and commitment are made by the local
companies, unconducive ecosystem would thwart the whole journey and demoralise any parties to take any step
further. Create the right ecosystem for Industry 4.0 to be adopted such as ensuring supply of right talent, strong
support of digital infrastructure, funding support, data availability and sharing and innovation capacity.
Considering number of related existing and future development initiatives have identified and undertaken by
various ministries, agencies and implementation organisations will need to be aligned.
iii. TRANSFORM
With the right ecosystem, more and more local manufacturing companies equipped themselves with Industry
4.0 technologies and progress from lower to highest level of adoption will result in transformation of Malaysian
industry capabilities in both a holistic and an accelerated manner. This will further enhance future
competitiveness of the country deriving from improvement of labour productivity, cost efficiency, share of high-
skilled jobs, technology, and innovation capacities and stimulate indigenous technology development.
A.C.T represents the overarching picture of the expected impact created by the policy framework. However, deeper strategies are
required to allow all relevant Government ministries and agencies as well as industry players to plan and consolidate their initiatives
towards a common vision. Therefore, A.C.T is further translated into F.I.R.S.T. It is the acronym that represents the five (5) strategic
thrusts outlined for this framework that comprises of strategies, initiatives and action plans/programmes in support of the above
three (3) desired outcomes. Each strategy consists of proposed responsible organisations which will implement within control of its
domain or through a collaboration with related agencies and ministries.

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The strategic thrusts (F.I.R.S.T) are;
1. Funding - Funding & Outcome Based Incentives;

3. Infrastructure - Enabling Ecosystem & Efficient Digital Infrastructure;
4. Regulatory - Regulatory Framework & Industry Adoption;
5. Skills - Upskilling existing & producing future talents; and
6. Technology - Access to Smart Technology & Standards.
The strategic thrusts were formulated and derived from inputs of literature reviews, benchmarking exercise, rigorous discussion with
stakeholders and analysis on macro and micro trends. The outlined strategies represent opportunities among others to streamline
various existing and future initiatives by ministries and agencies, strengthening collaboration between industry players and research
institutions and enhance the industry’s capacity in innovative products and processes. Subsequently, this will create a dynamic
delivery system throughout the whole value chain. Nevertheless, Industry 4.0 is a journey rather than destination and therefore the
nature of this policy framework document will continue to be a ‘live and open’ and needs to be reviewed and reflected upon along
the implementation period as part of on-going processes embedded in the coordination and monitoring mechanism of the
Government.

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STRATEGIC THRUSTS (F.I.R.S.T.)

F.I.R.S.T is the acronym that represent the five strategic thrusts outlined for this framework. These strategic thrusts are the specific
enablers that will be resolute by strategies, initiatives and action plans/programmes in support of the three (3) desired outcome
above. Each strategy identified will have their own respective ownership which will be undertaken and implemented by the respective
agencies and ministries individually or on a collaborative platform. The strategic thrusts are;
The strategic thrusts were formulated and derived from the understanding and consideration on drivers of change identified in
Chapter 3 of this report. Thus, the formulation of the strategic thrust was established from understanding of emerging trends and
opportunities and anticipation of future challenges that will be faced by the manufacturing and manufacturing related services. The
outlined strategies represent an opportunity to streamline processes between agencies, ministries and the industry for optimisation
of sources and innovative approach by including industry players’ and relevant stakeholders’ needs. Subsequently, this will create a
dynamic delivery system throughout the whole value chain.
Nevertheless, the nature of this framework policy document will continue to be a ‘live and open’ and will continue to receive
continuous feedback from stakeholders.

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FUNDING & OUTCOME- BASED INCENTIVES
The development and adoption of Industry 4.0 technologies and processes may require substantial investments by manufacturing
firms. Questions will arise on what incentives and funding options are available by both Government agencies and private entities,
especially for SMEs. The funding strategies are aimed at encouraging companies to adopt new manufacturing technologies and
processes and invest in R&D, specifically to develop local solutions targeted at Malaysia’s needs and priorities. Special attention will
be given to collaborative efforts in developing and deploying Industry 4.0 technologies. To ensure progress and impact, the incentives
will be linked to specific outcomes. These strategies are applicable to both manufacturing firms as the users and adopters and to
service providers of Industry 4.0 technologies and solutions.
STRATEGY F1: PROVIDE OUTCOME BASED INCENTIVES, INCLUDING TAX INCENTIVES TO ENCOURAGE INVESTMENTS
IN, AND ADOPTION OF, INDUSTRY 4.0 TECHNOLOGIES & PROCESSES.
RATIONALE
The Government aims to support industry transformation and develop local technology development by providing and aligning
incentives with targeted outcomes to manufacturing firms and solution providers. The Government has always been consistent in its
objective for Malaysia to move towards more value-add activities in the manufacturing sector and thus encouraging the
transformation through various incentives.
STRATEGIC OUTCOMES
• Fiscal and non-fiscal incentives for local firms, SMEs and start-ups as well as multi-national corporations (MNCs) that deploy
or develop Industry 4.0 technologies and processes.

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ACTION PLANS/PROGRAMMES
1. To explore on realigning and leveraging incentives packages to encourage the adoption of industry 4.0 among
local firms, especially SMEs.
• To give attractive packages to support local firms, especially SMEs.
o Several global leading manufacturing countries have already embarked on their Industry 4.0 transformation and are
in advanced stages of implementation, e.g., Germany, US, UK, China and Korea. It is critical for Malaysia to learn
from these experiences and to move fast in its own Industry 4.0 adoption to not fall behind in its own global
manufacturing position. Therefore, through various incentives to the local manufacturing industry it could address
the issue of readiness to adopt into Industry 4.0 technology.
• Ownership: MIDA
2. To explore providing incentives packages to MNCs partnering with local firms, especially SMEs, to expedite the
adoption and implementation of Industry 4.0.
• Through MNCs collaborations, our local firms will be supported especially SMEs, through various means such as mentorship,
prototype production avenue and job creation. This is to provide a platform for MNCs to share the success and to support
local companies to be part of their supply chain network as most MNCs in Malaysia have embraced the technological
revolution of Industry 4.0
o Provide adequate support to companies who are still in traditional manufacturing phase with low technological
advancement. Through MNCs partnering there will be an increase in local companies’ technological capacities. This
will ensure that these companies do not become laggards or even exit the industry due to technological disruption
in their industries. Participation from large MNCs companies is crucial as it will establish platforms such as,
technology transfer, offer expert exchanges and share knowledge and it will also eradicate the issue of a lack of
data on the current technologies used and applied by our local industry players.
• Ownership: MIDA

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STRATEGY F2: INTRODUCE DYNAMIC AND INNOVATIVE FINANCIAL PRODUCT TO ENCOURAGE ADOPTION OF
INDUSTRY 4.0 TECHNOLOGIES & PROCESSES.
RATIONALE
In fulfilling the needs of diverse and innovative businesses, the Government and private sector will spur the implementation of
Industry 4.0 dynamic and innovative funding options for local firms, SMEs and start-ups as well as multi-national corporations (MNCs).
Through financial support and incentives there will be a boost to the mobilisation of financial resources to long term investments in
the industry.
STRATEGIC OUTCOMES
• A suite of comprehensive financial products that local firms, SMEs and start-ups as well as multi-national corporations (MNCs)
can leverage on in line with their needs in implementing and adopting Industry 4.0 technologies and processes, across all
stages of business life-cycles.
• Create a conducive financing eco-system to support the adoption, development and deployment of Industry 4.0 technologies
and processes.
1. To explore creating Government-led development funds for Industry 4.0
• The Government endeavours to ensure a conducive financing eco-system to support local firms, SMEs and start-ups as
well as MNCs.
o In Germany and the United States, for example, governments have established strong nationwide programmes to
push the transformation.

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o In UK, the government provides support through a number of programmes, including some specifically aimed at
SMEs. They provide funding in terms of Production Line Readiness for High Value Manufacturing to help companies
bring recent technology innovations closer to the points of manufacturing readiness.
• Ownership: MOF
2. To create awareness among local firms on the availability of various financing options to expedite the adoption
and implementation of Industry 4.0 and encourage hybrid purchase or service arrangement for B2B on their
financing agreements.
• Funding assistance from the private sector to support local firms, SMEs and start-ups as well as multi-national corporations
(MNCs).
• Ownership: Securities Commission and Bank Negara Malaysia
3. To explore on aligning existing alternative financing including venture capital, crowd funding and other
intermediaries to expedite the adoption and implementation of Industry 4.0
• To have other financial platforms to attract local firms, SMEs and start-ups as well as multi-national corporations (MNCs)
to leverage on.
• Revise and update the existing fund to support existing and potential local firms to embark on Industry 4.0.
• To set funding quantum and criteria for Industry 4.0 in terms of eligibility for local firm fund applications.
• Ownership: MIDA

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STRATEGY F3: LEVERAGE ON GOVERNMENT PROCUREMENT TO DRIVE INDUSTRY 4.0 ADOPTION AS WELL AS
PRODUCTION OF ASSOCIATED PRODUCTS AND SERVICES.
RATIONALE
The digitalisation in cyber-physical system (CPS) will lead to major changes in the field of industrial procurement. A changing
procurement portfolio, the opportunity to establish networks with partners along the supply chain and the real-time availability of
internal and external data are just a few of the developments that reveal the opportunities and challenges connected to this
digitalisation. On average, government spends approximately RM 2 billion on ICT related products and services. Strengthening the
procurement policy on local content and IoT adoption would spur the local manufacturing industry. Based on a report by The Hackett
Group, however, the current situation in procurement is very different: “84% of procurement organisations believe that digital
transformation will fundamentally change the way their services are delivered over the next three to five years. Yet only 32% have
developed a strategy for getting there.”
STRATEGY OUTCOMES
• Increase the capacity and capability of Malaysia’s manufacturers in the adoption of Industry 4.0; and
• Increase the local production and consumption of Malaysian made products and services.

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1. To enhance the implementation of procurement policy, ‘Buy Malaysia First’
• Capturing opportunities in global supply chain by supporting local firms through procurement strategy.
o For some of the industries included in China Manufacturing 2025, government procurement has been observed to
favour domestic producers.
• Ownership: MOF
2. To provide awareness and information of availability of local content to Government Ministries and agencies
procurement departments
• To prioritise local content and to create ‘buy local’ policy to maximise supply opportunities for competitive local businesses
when bidding for government contracts.
• Ownership: MOF
3. To establish a set of cyber security and IoT security guidelines for government procurement.
• Guidelines create a secure basis for technical procurement by ensuring interoperability in applications, protecting the
environment, plant and equipment and consumers.
o Similar legislation in US, known as the Internet of Things Cybersecurity Improvement Act of 2017, aims to provide
minimal cybersecurity operational standards for internet connected devices purchased by government agencies and
for other purposes.
• Ownership: MOF

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ENABLING ECOSYSTEM & EFFICIENT DIGITAL INFRASTRUCTURE
Fast and secure data connection is a basic requirement for the realisation of Industry 4.0. Malaysian manufacturing companies and
manufacturing related services (MRS) providers will need good and reliable internet speed in order to accelerate the usage of internet-
based production technologies or services such as IoT solutions, devices that use augmented reality, wearables in production, or
programmes that provides evaluation of real-time data. Although Malaysia has deployed High Speed Broadband and 4G technologies
on a wide-spread basis, there is a need to prioritise key industrial and training locations.
A digitalised and connected infrastructure across supply and manufacturing value chains is critical to foster a seamless movement of
goods, data and services, drive efficiency and resource optimisation, and support joint development efforts. Currently, a number of
value chain elements are still not to be digitalised across many ministries and agencies, ranging from various approval, licensing,
certification, to good clearance and other processes.
MRS providers will play an essential role in helping Malaysian companies accelerate their transition to Industry 4.0, particularly in
developing people, transforming processes and adopting technologies. As such, involving service providers and linking them to
manufacturing firms, especially SMEs, is important to create a holistic and effective Industry 4.0 ecosystem.

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STRATEGY I1: STRENGTHEN THE DIGITAL CONNECTIVITY IN AND BETWEEN INDUSTRIAL, EDUCATION AND
TRAINING HUBS TO REMOVE CONNECTIVITY BOTTLENECKS IN ADOPTING INDUSTRY 4.0 TECHNOLOGIES.
RATIONALE
Adoption of digital technologies can contribute to the growth of the economies by providing a competitive edge, driving innovation
and opening up new market opportunities. According to the MDEC Digital Economy Roadmap, the overall digitisation for
manufacturing sector in Malaysia is still at average level, as compared to other sectors such as ICT, business and financial services
which are relatively high.
As we move towards maximising the level of digital adoption especially at manufacturing sector, there will be a need to have a fast
and secure data connection, which is a basic requirement for the realisation of Industry 4.0 technologies and services. There is a
need for facilitation and support to provide necessary digital infrastructure and facilities at recognised Industry 4.0 training
institutions.
Malaysia already has deployed High Speed Broadband (HSBB) and 4G technologies on a wide-spread basis, but there are still some
gaps in key industrial and training locations that could impact the adoption and development of Industry 4.0 technologies and
processes. Identifying industrial areas and training locations with high potential and prioritising the roll out of HSBB to those areas
is crucial in providing the necessary digital infrastructure to enable manufacturing companies to fully adopt Industry 4.0 and the
capacity to transfer and process data.
Through the global benchmark analysis, countries that are moving towards Industry 4.0 are pushing for greater connectivity and
setting up minimum targets for internet speeds. For instance, Germany had set a target of 50 Mbps broadband coverage throughout
the country by 2018.
The strategy aims to systematically address and remove key connectivity bottlenecks in priority locations.

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STRATEGIC OUTCOMES:
• Ensuring high speed and reliable connectivity for industrial, education and training hubs
• Enabling adoption of digital and Industry 4.0 technologies and processes among manufacturing firms and related service
providers
ACTION PLANS/PROGRAMMES:
1. To prioritise and expedite the implementation of High Speed Broadband (HSBB) at key industrial areas and
training centres.
• Fast and reliable internet speed is needed to enable manufacturing companies to adopt and operate Industry 4.0
technologies and processes. In order for this to happen, it is suggested that agencies such as MCMC should consult and
gather feedback from relevant authorities to prioritise industrial areas and training centres to be covered under the Phase
2 of the High-Speed Broadband (HSBB). This ensures that industrial areas and training centres which are ready for Industry
4.0 adoption is prioritised for HSBB roll-out and helps facilitate their transition.
• The rolling out of HSBB to prioritised industrial areas and training centres is a strategy similar to that of China’s “Internet
Plus” initiative for advanced manufacturing and Germany’s internet infrastructure expansion under Industrie 4.0, where
both countries identify targeted areas to upgrade internet infrastructure to allow manufacturing companies to better adopt
Industry 4.0.
• The owner of this strategy should be MCMC in terms of identifying and rolling out the HSBB to prioritised areas. To assist
in this strategy, it is advised that MCMC consult government agencies with close ties to the manufacturing sector and
training providers to better identify areas of prioritisation.

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2. To encourage the deployment of converged networks that are essential for Industry 4.0 technologies,
especially IoT.
• The adoption of digital technologies such as IoT, Big Data analytics and cloud computing allows manufacturing companies
to make informed decisions which are driven by data. This enables manufacturing companies to improve their efficiency
and productivity.
• Agencies such as MDEC should facilitate and monitor the adoption of digital technologies by manufacturing companies in
Malaysia. This provides the government with information on the progress of adoption of digital technologies by
manufacturing companies. The strategy will also require for collaboration with local digital technology suppliers (i.e. SIRIM,
MIMOS, Maxis) to monitor the uptake of digital technologies and for authorities to build the competencies of manufacturing
companies in digital technologies during the adoption process.
• The facilitation of adoption of digital technologies is similar to the efforts of telco companies in Singapore. In 2017, telco
companies in Singapore have begun to roll-out IoT networks and facilitating their customers in installing IoT systems into
their businesses86
• The owner of this strategy is suggested to be MDEC as their core activities relates to facilitating Malaysian companies to
adopt ICT technologies.

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STRATEGY I2: ENHANCE THE DIGITALISATION AND INTEGRATION OF GOVERNMENT PROCESSES AND
INFRASTRUCTURE ALONG SUPPLY AND MANUFACTURING VALUE CHAINS.
RATIONALE
Industry 4.0 specifically refers to the digitalisation and automation of manufacturing processes which encompass the entire value
chain, including suppliers, procurement, design, logistics and even sales, to result in better productivity and flexibility.
Digitising and integrating government processes and infrastructure elements along value chains will be key to enable secure data
flows, assure seamless goods movements, and drive improvements in efficiency and productivity.
Based on the global benchmark analysis, some countries have begun to digitilise the services and processes of their governments.
Singapore launched it Smart Nation and Digital Government Office (SNDGO) in 2017, to transform the government to be more
responsive and integrated87. This is done by bringing together all related agencies driving digital transformation in Singapore and
collaborating to execute key projects that will digitise government services.
A number of government processes are not yet digitised and will need to be optimised, digitised and integrated to support Malaysia’s
Industry 4.0 transformation. These include certain approval, licensing, certification, good clearance and other processes.
STRATEGIC OUTCOMES
• End-to-end digitisation of government processes along the manufacturing and supply industry value chains
• Seamless movement of goods and services between manufacturers, suppliers and supporting agencies with improved visibility
and optimised resourcing

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ACTION PLANS/PROGRAMMES:
1. To assess priority government-related processes and elements that impact manufacturing and supply chains
and Industry 4.0 transformation.
• The upgrading of e-services from key government bodies is needed to better improve government services to
manufacturing companies. This strategy would determine government bodies that are points of contacts for manufacturing
companies and assess the level of satisfaction of companies on government e-services.
• The strategy is similar to Singapore’s Government Technology Agency (GovTech), an agency which spearheads the digital
transformation of the public sector. In January 2017, GovTech launched the Business Grant Portal which consolidates and
digitises all business-related government grants for application and routes applicants to the relevant government agencies
for further support88.
• The ownership of this strategy is suggested to be under KKMM. KKMM should collaborate with relevant agencies such as
MAMPU to determine government bodies that are points of contacts for manufacturing companies and consolidate
information of these bodies into a one-stop portal.
2. To support the accelerated digitisation and integration of these processes, led by the respective government
agencies.
This strategy would determine government bodies that are points of reference for manufacturing companies and enable
assessment of the level of company satisfaction towards government e-services.
• This strategy requires for periodic assessment on the satisfaction level of manufacturing companies on government e-
services to be conducted.
• For KKMM, in collaboration with MAMPU, to facilitate digitisation processes of government bodies that are points of contacts
for manufacturing companies to improve their services to their clients.

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STRATEGY I3: INVOLVE SERVICES PROVIDERS FOR INDUSTRY 4.0 AND LINK THEM TO MANUFACTURING FIRMS TO
HELP IMPLEMENT TECHNOLOGIES, PROCESSES AND SKILL DEVELOPMENT.
RATIONALE
Services related to Industry 4.0 are an important element to help Malaysian companies accelerate their transition to Industry 4.0,
especially in developing people, transforming processes and adopting technologies.
Through the manufacturing landscape analysis, manufacturing related services (MRS) that have been identified as being key to
Industry 4.0 adoption are:
• Education
• Financial services
• ICT
• Transportation and Logistics
• Professional services
Countries such as Germany and Singapore leverage on their MRS providers to help manufacturing companies integrate their
factories with smart technologies and transform their front, middle and back desk operations.
Hence, Industry 4.0 service providers need to be involved as an integral part of the ecosystem and be connected to manufacturing
firms, especially SMEs, who often have limited visibility.
STRATEGIC OUTCOMES
• End-to-end ecosystem support and service providers visibility for manufacturing firms
• Improved performance of services providers in helping manufacturing firms adopt and transform to Industry 4.0

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1. To develop and disseminate a catalogue of leading manufacturing – related service (MRS) providers.
• MRS providers and their services are essential in the manufacturing landscape as they provide services such as systems
integration and retraining which are needed for Industry 4.0 adoption. The strategy would require a catalogue of MRS
providers from the following industries:
o ICT services
o Education services
o Transportation and Storage
o Financial services
o Professional services
• This strategy is similar to Singapore’s Industry Transformation Map (ITM) for the logistics industry. In Singapore’s ITM,
the government provides a catalogue of leading logistics and container providers in Singapore for reference of
manufacturing companies. This provides a point of reference and enables relevant strategic linkages between MRS
providers and manufacturing companies.
• The owner of this strategy is recommended to be MITI as MITI works closely with MRS providers. MITI could leverage on
their service sector division to determine who are the MRS providers. It is advised that MITI work with other government
bodies, such as MIDA, SMECorp and MDEC, to determine MRS providers.

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2. To link MRS providers to manufacturing firms and SMEs through collaboration platforms.
• This strategy would link require the identification of leading MRS providers in Malaysia and linking the providers to
manufacturing companies in prioritised industrial areas. This is to facilitate manufacturing companies to adopt Industry 4.0
through the services of these MRS providers.
• Similar to the Singaporean government’s current strategy of connecting large firms and SMEs in the logistics industry with
local and international manufacturers through their JTC Logistics Hub @ Gul.
• The owner of this strategy is recommended to be MITI, MIDA and SMECorp.

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REGULATORY FRAMEWORK & INDUSTRY ADOPTION
Regulation is a key enabler of Malaysia’s Industry 4.0 transformation. Special emphasis will need to be on increasing the awareness
of the need and benefits of adopting Industry 4.0 technologies and processes. This is particularly important for SMEs who still have
a limited understanding of digital and Industry 4.0 and often are concerned about the cost and level of change required. Moreover,
to foster an accelerated transformation, mechanisms will need to be put in place to help manufacturing firms understand their current
capabilities and what it will take for them to transform and implement Industry 4.0 technologies and upgrade processes and skills.
Identified as the overarching enabler of Industry 4.0, regulatory framework plays an important role where a successful
implementation of these lines of action will shape the governance model for Industry 4.0 adaption and subsequently will redefine the
roles of organisations in the ecosystem.
Data generated, stored, utilised and transferred during automation, like the deployment of new application technologies or product
liability, gives rise to numerous regulatory issues. Furthermore, legal uncertainties will be alleviated by the networking of small and
medium-sized enterprises with foreign companies. A capacity to adapt and adopt will be tied to the access and opportunities as well
as awareness.
Digitalisation affects all corners of the economy and society, and it requires governments to reach across traditional policy silos and
across different levels of government to develop a whole-of-government approach to policy making. This means more co-ordination
when making decisions and conducting actions across government ministries and levels of government as well as actively involving
all key stakeholders, including the business community, trade unions, civil society and Internet technical community, in the policy
making process. To do so, comprehensive information about how the rapid rise of the digital economy has affected various legal and
regulatory frameworks and policy areas such as competition, taxation, trade, the transfer of data across borders, transportation,
investment, labour markets, institutions, etc. is essential. In tandem with this, the industry adoption strategies will require a robust
and comprehensive approach to entice industry in adopting Industry 4.0.

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STRATEGY R1: INCREASE AWARENESS OF THE NEED, BENEFITS AND OPPORTUNITIES OF INDUSTRY 4.0
TECHNOLOGIES AND BUSINESS PROCESS AMONG MANUFACTURING FIRMS.
RATIONALE
Lack of awareness of digital and Industry 4.0 is one of the main issues and barriers to embark on the smart manufacturing
transformation. A greater understanding of Industry 4.0 is crucial for manufacturing firms to make informed decisions on investments,
especially on assessing impact, determining the cost and benefits of automation, and capitalising on data. Structured awareness
programmes are needed to educate and promote the understanding and need for action to local firms and particularly SMEs.
STRATEGIC OUTCOMES
• Increased understanding of the need, benefits and opportunities of Industry 4.0
• More manufacturing firms adopting Industry 4.0 technologies and processes

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1. To undertake Industry 4.0 awareness programme across all stakeholders with a particular focus on SMEs –
establish partnership platforms and centres to work more closely with SME manufacturing firms to help them
learn about and how to adopt smart manufacturing technologies.
• An effective and innovative communication strategy is an essential step in the process of turning policies into actionable
information. Through workshops or long-term collaborations, an effective communication plan will help to increase the
policy intervention reach and monitor its impact. A national communication plan enforced through the press, web-sites and
social media, with the aim of making the industrial sector more keen on the I4.0 concepts and digital innovations.
• Ownership: MITI
2. To create a regulatory sandbox that enables firms to manage regulatory risks during the testing stage
• A Regulatory Sandbox is defined as a ‘safe place’ where a predetermined set of rules allow innovators to test their products,
services, business models and delivery mechanisms in a live environment with relaxations on all or specific regulatory
requirements. The National Regulatory Sandbox Initiative carried out under the Ministry of Finance (MOF) involves the
creation of a brain-storming group from regulators and selected industry players to enable innovators to test their solutions
or products in a conducive environment.
• Ownership: MITI/MoF (MAGIC/FUTURISE)

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STRATEGY R2: CREATE A PLATFORM AND MECHANISM TO ENABLE EASE OF INDUSTRY 4.0 ADOPTION AMONGST
MANUFACTURING FIRMS ESPECIALLY AMONGST SMES.
Small and medium-sized enterprises (SMEs) are the backbone of most economies. SMEs have to adapt permanently both in products
and production, in order to stay competitive. The platform and mechanism’s overarching aim is enhancing business growth for
manufacturing SMEs among other things through competence-based matching mechanisms implemented in an online platform, arch
monitoring and evaluation mechanisms.
RATIONALE
For many companies, Industry 4.0 will be a major transformation, not only by investing in technology, but also by changing business
processes and ways of working. The experiences of other countries show that sharing assessment tools and platforms for learning
and best practice help companies, especially SMEs, pinpoint priorities of not only what to address, but also how to transform.
Implementing this strategy will require a close collaboration with the different industry associations to ensure focus on the right
sector priorities. This strategy will also help the Government assess better the broader needs, challenges and priorities of Malaysian
manufacturing firms.
STRATEGIC OUTCOMES
• Better understanding among manufacturing firms of best practices, their own capabilities and transformation requirements
• Profile of the state of readiness of the local manufacturing industry in adopting Industry 4.0 for targeted technology
improvement and support prioritisation.
1. To create tools and processes to help manufacturing firms assess their capabilities and readiness to adopt
Industry 4.0 technologies and processes.
• Encourage the establishment of common user groups for tool users, tool manufacturers (product managers, architects)
and trainers with a view for participants to gain better understanding of each other’s situations.

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• For a transformation to Industry 4.0 to take place, there is a need to understand and take stock of manufacturing firms’
readiness before progressively transitioning their legacy systems to smart components and smart machines, enabling
digital factories, and then to an ecosystem of connected factories. Therefore, a platform and mechanism is required to
assist manufacturing firms to assess and identify needs and requirements for their respective Industry 4.0 needs.
• Ownership: MITI/Respective Agencies
2. To establish a national Conformity & Industrial Assessment as a platform for conducting this assessment,
sharing global and local best practices, supporting the development of local firms, and identifying national
Industry 4.0 priorities.
• Through technology showcase both local and international players are able demonstrate technology and standards
capability. Outreach and engagement programmes will actively engage a range of stakeholders for visits, meetings,
training, workshops, and thought leadership.
3. To establish collaborative programmes with other countries that are leading the Industry 4.0 transformation
to share best practices and help guide Malaysia’s programmes for optimal impact.
• The collaboration with industry actors/stakeholders as the driving force by the implementing authorities. Industry
proactively encouraged the creation of the initiatives (e.g. the Netherlands and in France). The involvement of regional
authorities which are engaged in adopting I4.0 strategies at regional level will encourage greater policy alignment between
the national and regional levels.
• Ownership: MITI/SME Corp.

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STRATEGY R3: IMPROVE DATA INTEGRITY, STANDARDS, SHARING SECURITY TO FACILITATE SEAMLESS
INTEGRATION OF VALUE CHAINS AND SUPPORTS INTRA-MINISTERIAL ANALYSIS TO CHART EFFECTIVE INDUSTRY
4.0 PROGRAMMES
RATIONALE
A significant barrier to enable seamless digital flow along manufacturing and supply chains is the lack of standards, inter-operability
and governance for both data and intellectual properties. Issues with data integrity and inter-operability can also affect intra-
ministerial coordination and effective analysis in identifying programme and regulatory priorities. This will require both the
development of standards and security protocols and integration especially across government ministries and agencies. This strategy
supports strategy I2, the digitisation and integration of government processes into manufacturing supply chains.
STRATEGIC OUTCOMES
• Integrated, standardised, secure and trusted data ecosystem that enables seamless data flow throughout major manufacturing
and supply chains
• Better understanding and analysis of priority issues across initiatives, ministries and agencies, driving more effective
programmes and regulatory support.
1. To identify and implement effective and streamlined, standardised data, regulation and compliance protocols
within and between government ministries and agencies.
• To assess the institutional issues related to the actors and stakeholders involved in data, regulations, circulation plans, the
procedures and decision-making processes, and methods of communication (formats, channels) and proposed governance
framework.

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2. To collaborate with businesses to ensure suitable standards are in place for privacy of data, including
appropriate handling, ownership and storage
3. To create a manufacturing industry data depository that will enable sharing and analyses across all government
ministries and agencies. This could be done through re-evaluate, re-assess and define (organisational,
functional, technical) aspects and procedures to be fostered and to recommend action.
• In Malaysia, such initiatives is pioneered by the Malaysian Administrative Modernisation and Planning Unit (MAMPU) through
the Malaysian The Public Sector Open Data Portal (www.data.gov.my). The portal serves as an online one-service-center
to access and download open government data. It will also provide opportunities to citizens and the business community
to increase their creativity and innovation in the creation of new products.
• While MyGDX was established to enable information to be coordinated and shared across agencies more efficiently and
also reduce the duplication of infrastructure and ensure that data is obtained from authentic sources, with the agencies
complementing information available in each other’s database.

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4. To establish a set of cyber security and IoT security guidelines for Industry 4.0 as part of Malaysia’s broader
development of cyber security capabilities.
• Cyber security is a preventive technique to protect the integrity of networks, programmes and data against criminals or
unauthorised use of electronic data. Being a crucial component in technology development, it must be embedded in the
initial stage of any digital development. Malaysia, a key manufacturing and industrial hub in Asia-Pacific, with IoT market
is worth US$700 million, according to research company International Data Corp (IDC). By 2018, connected vehicles,
insurance telematics, personal wellness and smart buildings will be the four key IoT use cases in the spotlight on the
nation. These cases represents a massive and huge application of big data which requires a future proof cyber security
and IoT security capabilities.
• Ownership: Cybersecurity, MOSTI

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UPSKILLING EXISTING & PRODUCING FUTURE TALENTS
Industry 4.0 is fundamentally reshaping the jobs landscape and will require high-skilled talent to operate in this new environment.
There will be an increase in demand for talent with 21st century skills to fill high value jobs in the manufacturing sector. The increase
in these high value jobs also means that repetitive, low skilled jobs will become redundant and obsolete. The shift in the employment
landscape will have significant implications towards the industry, education systems, and the Government. A qualified and skilled
workforce is indispensable for the introduction and adoption of Industry 4.0.
There is an urgent need to create a skilled and diverse workforce, with high salary, both by up-skilling the existing labour pool and
by attracting and nurturing future talent in the manufacturing sector. Particular attention also needs to be given to re-skilling and re-
deploying lesser skilled workers to other sectors and activities.

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STRATEGY S1: ENHANCE THE CAPABILITIES OF THE EXISTING WORKFORCE THROUGH NATIONAL DEVELOPMEN T
PROGRAMMES SPECIALLY DESIGNED FOR SPECIFIC MANUFACTURING SECTORS AND SUPPORT RE-SKILLING AND
RE-DEPLOYMENT.
RATIONALE
One of the ways to increase productivity is to adopt automation across all sectors in Malaysia. Labour-intensive activities could be
reduced through the adoption of Industry 4.0 technologies to increase production and reduce their dependency on foreign labour.
As of now, 1 out of 4 employees in the manufacturing sector are non-Malaysian citizens.
The transition to smart manufacturing business models, technologies and processes is rapidly changing the required skillsets for the
existing workforce. Many firms, especially SMEs, will require more structured and up-to date training and skill development avenues
for developing and maintaining world-class practices and capabilities within their workforce. This also includes the development of
experts with advanced Industry 4.0 knowledge that can be accessed by local firms.
Furthermore, as firms transform their operations to more automated processes, higher skilled talent will be required and existing
workforce will have to be reskilled and repurposed to overcome concerns of the job market. This strategy aims to both upskill the
existing workforce and mitigate the negative impact of job loss.
Through the global benchmarking analysis, countries such as Germany, the US, Singapore and China have introduced upskilling and
reskilling programmes to equip their workforce with the skills needed to operate technologies in Industry 4.0. For instance in the US,
this is done through innovation intermediaries that provide industry related courses and hands on training with Industry 4.0 related
technologies.

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STRATEGIC OUTCOMES
• Increase in overall labour productivity due to upskilling and reskilling of the existing workforce
• Increase in number of high-skilled and multi-skilled workers in the manufacturing industry
• Mitigation of the number of potential job losses as a result of automation and technology adoption
1. To create an Industry 4.0 Talent Competency & Technology Mentoring Programme to drive broader workforce
development initiatives in line with specific sector requirements
• Mentoring programmes usually involves connecting participants with industry experts to provide guidance in prototyping
and commercialising new products. Mentoring companies typically have had multiple successes in the past and have built
a strong skill set to tackle common issues within product development and market validation. Mentoring companies will
also be able to provide industry-specific training which focusses on areas such as patent research, intellectual property
protection, fund-raising, marketing, customer acquisition etc. The knowledge shared by mentoring companies will assist
participants in developing and growing their businesses to be competitive in the current manufacturing climate.
• The strategy would require the identification of companies with significant experience within the manufacturing sector to
teach their growth strategies and tactics to the SMEs/startups/participants undergoing the mentoring programme.
• The strategy is in-line with initiatives such as from South Korea’s Centers for Creative Economy and Innovation (CCEIs)
which acts as incubators for startups and links the them with mentoring companies that will provide professional mentoring
services to accelerate the startups development in digitilisation.
• The owners of this strategy are suggested to be MOHE & MOHR.

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2. To establish an Expert Certification Programme in Industry 4.0 area

• Certification programme on Industry 4.0 is necessary to determine and accredit individuals who specialise in the technology
fields related to Industry 4.0. Certifying experts ensures that there will be a steady supply of talent that is able to drive the
adoption of Industry 4.0 in Malaysia.
• This strategy is aligned to the recommendation in the “Future of Manufacturing: Industry 3+2” study by MIDA, where it is
proposed that a certification programme be established to certify experts in the technology pillars of Industry 4.0.
• This strategy could leverage on skills development centres to provide certifications to individuals with expertise in Industry
4.0. At present, there are a number of skills development centres and universities that provide training on Industry 4.0
technologies such as Penang Skills Development Centre (PSDC) which provides training on precision machining, Negeri
Sembilan Skills Development Centre (NSSDC) which provides training on robotics and engineering and Universiti
Terengganu Malaysia (UMT) provides training on software engineering and cyber security.
• The owners of this strategy is proposed to be MOHE and MOHR. Both are to identify industry players and education service
providers to develop a training module for the certification programme.
3. To develop tailored training courses for the re-skilling of transitioning employees

• This strategy requires the development of a reskilling programme targeted of the existing workforce of the manufacturing
sector. As Industry 4.0 will cause certain jobs within the sector to be redundant, there is a need to reskill and retrain the
existing manufacturing workforce to adapt in this new environment. The programme should include skills which are in
demand in Industry 4.0.
• This strategy is similar to a recommendation in “Future of Manufacturing: Industry 3+2” study, which had recommended
a reskilling programme to equip manufacturing workforce with the skill set needed in Industry 4.0.
• The owners of this strategy is recommended to be MOHE and MOHR. Both will need to identify skill gaps of current
workforce and skills in demand for Industry 4.0.

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4. To enhance classroom programmes for rapid upskilling programmes by using augmented or virtual reality
(AR/VR)
• It is important that talent for the manufacturing sector is familiarised with the technologies and skills needed for Industry
4.0. It is recommended that MOHE should work with public universities to review curriculum of courses related to Industry
4.0. MOHE should consider expanding top-up and hybrid programmes at universities to produce more industry relevant
talent.
• The strategy should provide a long-term hybrid programme which combines the theoretical elements learnt in university
and placement in manufacturing companies to hone the students’ application of technical skills. This would enable a
multidisciplinary exposure of students to areas relevant to Industry 4.0. The programme should be part of the universities
curriculum.
• To address the short-term needs for talent in the manufacturing sector, the strategy should include ‘top-up’ programmes
targeted to final year students. The top-up programmes should be focusing on preparing students to enter the
manufacturing sector and equip them with information on the latest developments of the manufacturing sector.
5. To enable the availability of data on Industry 4.0 talent and labour pools for the government, academia and
industry (in order to chart future action plans)
• Periodic monitoring of talent needed to drive Industry 4.0 in order for the government to adjust certain programmes in
regard to talent development.
• It is recommended for MOHE & MOHR to monitor the demand and supply of talent for Industry 4.0 and to publish market
analysis reports and make them available to the public.

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STRATEGY S2: ENSURE THE AVAILABILITY OF FUTURE TALENT BY EQUIPPING STUDENTS WITH THE NECESSARY
SKILLSETS TO WORK IN THE INDUSTRY 4.0 ENVIRONMENT.
RATIONALE
Ensuring the pipeline of future talents in the manufacturing sector is important as advances in manufacturing techniques and
processes require a higher skilled and educated workforce.
The focus on technical vocational education & training (TVET) and STEM (science, technology, engineering, mathematics) education
will be of priority as this will ensure a continuous supply of highly qualified talent.
The implementation of structured industrial training programmes between industry and academia are able to close the gap between
the skills taught in the classroom with the skills needed in the working environment. In Germany, companies such as Lufthansa
Technik provides apprenticeship programmes aimed at university students undergoing their final year of study89. Lufthansa Technik
assists around 180 students per year in various areas of studies to successfully write their graduate thesis. With a focus on economics,
the company provides students with a personal tutor, acting as a professional advisor and coach until the thesis is completed.
There is also a need to raise the profile of the high technology manufacturing industry and firms as attractive work and career places
and employers of choice. This will be key to attract more students to STEM subjects.

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STRATEGIC OUTCOMES
• Continuous availability of Industry 4.0 talents for the manufacturing industry
• Increased number of TVET & STEM students
• Graduates equipped with relevant and practical Industry 4.0 skills
• Increased industry-academia collaboration
1. To boost support for TVET & STEM education programmes, in part by increasing funding for vocational
education and training programmes
• This strategy recommends that increased funding be given to TVET and STEM education programmes to improve their
facilities and programmes. Funding should be allocated for these programmes to expand their digital infrastructure to be
able to train talent in digital technologies needed in Industry 4.0.
• It is recommended that MOHE and MOHR to identify TVET & STEM programmes eligible for funding.
2. To integrate theory and practical Industry 4.0 applications into tertiary education curricula, including
structuring industry placement opportunities
• The lack of industry experience in university graduates is a key hindrance to the development of the manufacturing sector.
This is due to the students’ low exposure to the industry which hampers the development of industry-focused skills.
Countries such as Germany have strong apprenticeship programmes which enable the development of industry-ready
workforce. This is done by placing university students into companies within the manufacturing sector for a minimum of 2
to 3 years to hone their skills.

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• To carry out this strategy, MOHE should collaborate with HRDF to match companies within the manufacturing sector with
research institutes and the universities to improve Industrial Training programmes under those institutes. This ensures
that talent in those institutes are provided early exposure to the manufacturing environment and improve their skills before
entering the workforce.
3. To promote manufacturing as a preferred destination for high-skilled jobs to overcome public perception issues
and attract both skilled labour and university graduates
• The perception of the manufacturing sector as being 3D (dirty, dangerous and difficult) and low-skilled needs to change
as it is an indicator of the public’s interest to the sector. To attract more talent to enter the manufacturing sector, the
government must actively promote the manufacturing sector as being knowledge and innovation driven and requiring high-
skilled talent.
• It is proposed that MOHE should work with public universities in promoting job opportunities in the manufacturing sector
to change the perception of the public. MOHE should also conduct periodic surveys to measure the public’s perception on
manufacturing sector as desired destination for work.
4. To enhance and increase the capacity and capabilities of educators, trainers and instructors in the
manufacturing related education sectors
• Capable educators, trainers and instructors is key to train talent to be industry ready. Programmes that provide training to
these educators is needed to equip trainers with new skills and knowledge on Industry 4.0. The programme will require
the identification of local and international training providers that specialise in Industry 4.0 related technologies, processes
and services to train the trainers.
• To drive this strategy, it is proposed that MOHR to establish a Transform the Trainer Programme to enhance competencies
of domestic trainers and encourage training providers to upgrade facilities.

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TECHNOLOGIES
Access to Smart Technology & Standards
Understanding of and access to advanced, cost-effective and interoperable Industry 4.0 technologies are at the core of unlocking the
potential of Industry 4.0. At present, the majority of Malaysian manufacturing firms surveyed have adopted less than 50%
automation.
The experiences from other countries demonstrate the importance of digital/technology labs and collaborative platforms, especially
public-private partnerships (PPP), in disseminating Industry 4.0 technologies and transferring knowledge. The Government aims to
work with major global and local industry players to set up digital and Industry 4.0 demonstration and collaboration labs.
In addition, standards compliance that fosters interoperability of systems, both nationally and internationally, is important to support
seamless value chains, optimise resources, and improve productivity.
Finally, developing and commercialising new technologies and processes that address specific needs in priority sectors will be crucial
to retain Malaysia’s position as a preferred high tech and manufacturing hub and supply chain partner.

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STRATEGY T1: ESTABLISH DIGITAL/TECHNOLOGY LABS AND COLLABORATIVE PLATFORMS, ESPECIALLY PUBLIC-
PRIVATE PARTNERSHIPS (PPP), TO CREATE AWARENESS AND UNDERSTANDING, FOSTER THE ADOPTION OF NEW
TECHNOLOGIES, AND FACILITATE THE TRANSFER OF KNOWLEDGE.
RATIONALE
Most manufacturing firms, especially SMEs, display low readiness to adopt Industry 4.0, as they often cannot access all the
information and best practices required to be competitive. Thus, this situation lessens the effort of the companies to work on
innovative solutions or products. In addition, companies need to bear the higher cost of product development due to the high cost
of R&D tools and equipment, IP management and finding the right talent. There is a need to enhance the speed at which firms
embrace collaborative partnerships to take advantage of advances in technology.
Digital/technology labs by manufacturing leaders create showcases for local companies, especially SMEs, to understand available and
best-in-class technologies, practical use cases, and engage in collaborative deployment efforts. Through this, companies can address
challenges like low market acceptance of proof of concept of local products and to find support to commercialise its products or
technologies.
Public-private partnerships (PPP) are proven concepts to help expedite the adoption of new technologies in priority areas. The
Government intends to work with local and global leaders to establish more digital and technology labs and collaboration platforms
through PPP arrangements. This partnership will open more options to companies to the adoption of Industry 4.0. The partnership
creates a conducive environment for businesses to gain access and implement the technologies. The digital capabilities of the
companies can be built; enhancing the opportunities to be applied and creating innovative solutions for the problems and challenges.

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STRATEGIC OUTCOMES
• Access for local companies, especially SMEs, to key to an enable Industry 4.0 technologies and partners
• Stronger collaboration in deploying new technologies across value chains
• Public-private partnership platforms for industry, academia, government and other stakeholders to work for a targeted
outcome in Industry 4.0
1. To support leading global and local industry leaders to establish digital/technology labs that showcase the
potential applications, benefits and proof of concept of new technologies for industry adoption
• Establishment of digital and technology labs in the form of demonstration labs or centre on industry 4.0 related technology.
The establishment of demonstration labs based on manufacturing subsectors, by regional or manufacturing establishment
areas.
• The demonstration labs will create options, but are not limited to the following:
o allows local firms, SMEs and start-ups to understand and learn the concepts in smart manufacturing.
o allow the manufacturers to see first-hand how the technology works and understand how it could be implemented.
o assist manufacturers in design and implementation for solutions
o help SMEs to cut short the setup process and get information without facing the high cost of hiring specialists, as
the implication accelerates the adoption of industry 4.0.
• Examples of demonstration centres are;
o the Fraunhofer society in Germany which displays cutting edge technologies that showcase how the technologies
work

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o the UK public-private catapult program, where the government and business communities each supply part of the
funding
o Singapore Model Factories’ initiative – simulating production environments where companies can experiment and
learn new manufacturing technologies. These Model Factories allow SMEs to test new technologies with the help of
public sector researchers before adopting into their factories
o Other examples: South Korea’s virtual factories and the USA’s innovation intermediaries
• Ownership: MOSTI, SIRIM, MIMOS
2. To create public-private partnerships and collaborative programmes for manufacturing activities that foster
digital adoption, collaborative deployment and development of local capabilities, especially in priority sectors
and technologies
• The PPP collaborative platform can involve government, academia and industry. For industry, the members may consist of
local and foreign firms, SMEs and start-ups in manufacturing. The partnerships can be arranged in form such as:
o organisations with other organisations;
o consortium;
o network platform;
o a combination of platforms for the above.
• The PPP collaborative platform helps the industry by:
o facilitating partnerships to build trust, frameworks for collaboration, plan industry engagements and strategies, and
match expectations.
o detailing out examples on how companies need to cooperate in specific areas and exchange best practise with each
other

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o providing a mechanism that helps to match like-minded companies with each other. Matching companies with similar
needs to a single supplier, finding a group of companies to co-finance or co-develop an industry 4.0 project
• The strategy is similar to the USA’s innovation intermediaries under Manufacturing USA, where a network is a decentralised
structure that facilitates sustained interactions (1) between Institute consortia and (2) between individual members of
different Institutes; the additional web of connections formed is mutually reinforcing and creates additional value for
participating actors. The Manufacturing USA Program represents a “whole-of-economy” approach, and provides oversight
and guidance to support Institute effectiveness. The Program represents the sum of all individual Institutes, the Institute
consortia, and the Network.
• Ownerships by MITI, MOSTI, SME Corp, SIRIM, MIMOS
3. To provide SMEs and local firms with open access to smart manufacturing research, tools and technologies and
help them understand what can be applied in the early stages of adoption
• A professional service or one stop centre (either physical or virtual) to help industry players, SMEs and start-ups to improve
their knowledge through self-learning and also get information and guidance especially in funding.
• The one stop centre provides services, but not limited to the following;
o information platform for Industry 4.0 solutions that cover a wide manufacturing spectrum, from floor monitoring
and control to energy optimisation
o a platform for easy navigation to find potential investors
o communication platform for various incentives in Malaysia related to Industry 4.0, this will attract more companies
to take part in adopting industry 4.0 technology
o review, identify and recommend current situation and trends for each technology to provide information on current
state or trends.

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o publication of information through exhibitions, seminars or workshops on Industry 4.0 to raise interest and build
networks among the industry players
• Ownership: MITI, MIDA SME Corp., MOSTI

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STRATEGY T2: ESTABLISH AND IMPLEMENT STANDARDS FOR SYSTEMS INTEROPERABILITY FOR SMART MANUFACTURING
AND INDUSTRY 4.0 TECHNOLOGIES.
RATIONALE
Standards and interoperability of systems are important to facilitate a wide-spread adoption of Industry 4.0 technologies and
processes, especially given the need for collaboration and integration along manufacturing and supply chains. These standards need
to be understood, well documented, and allow Malaysian-based manufacturing firms to integrate both within local and global
production networks and supply chains.
The machines, product, parts and humans are all being integrated as result of Industry 4.0. This scenario requires new international
standards that define the interaction of these elements in the digital factory of the future. Currently, the adoption of technology in
Malaysia is bound by the issue of standards that are not in line with international standards. This situation will pose a threat to
Malaysia’s manufacturing sector in terms of barriers to enter new markets. Therefore, relevant parties need to work with industry to
encourage the development of industry-led voluntary standards and best practices that address issues such as interoperability,
privacy, and security. As a result of the smart collaboration platform, development of standards for systems, research, innovation,
commercialisation and entrepreneurship can be strengthened especially in the adoption of key technologies that are relevant to
Industry 4.0.
The standards will provide a technical description of these standards and help businesses to implement Industry 4.0 processes. Thus,
organisations’ resources can be optimised and further improve the productivity of the organisation. With standards that compliment
international standards the organisation will be better able to gain a competitive advantage especially when the standards evolve;
and the rate of technology adoption is also being influenced by standards that can be clearly understood.

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STRATEGIC OUTCOMES
• Standardisation for interoperability of Industry 4.0 technologies and processes
• Seamless integration and interoperability in local and global manufacturing and supply value chains
1. To establish an inventory of Industry 4.0 related standards – consolidate, develop, harmonise, align with global
standards, and enact
• To establish a standardisation council to manage the national and international standardisations activities and ensure that
Malaysia’s internal standards are in line with international standards. Members of the standardisation council should include
government bodies and business associations from various manufacturing subsectors.
• The council will act as follows but not limited to the list;
o Identify, study and map out available standards related to Industry 4.0 published by ISO, IEC, DIN, ASTM, ASME
etc. As suggested, use RAMI 4.0 as reference to standardise technology adoption.
o Purchase standards from relevant standard bodies to ensure the standards cover all aspects in the industry 4.0
value chain.
o Continuously monitor and closely follow the development of related standards developed by ISO, IEC and ITU to
keep abreast of new developments.
• The initiative to build an inventory of standards is being developed by countries like Germany, Singapore and Japan; and
managed by standardisation Council.
o Germany: Established I4.0 Standardisation Council made up of German bodies related to standards for the
manufacturing sector. The examples of the council’s role are regularly revised and amended based on new findings
and provides overview of the relevant standards in Industry 4.0

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o Singapore: Formation of an alliance between the government and 13 companies to develop IoT solutions for
manufacturing industries.
o Japan: Manufacturing companies and ministries engaged international partners (i.e. Germany’s Platform I40) to
share knowledge on standardisation for Industry 4.0 technologies
• Ownership: MOSTI, SIRIM & Standards Malaysia
2. To address interoperability barriers by implementing appropriate and advanced industry standards, in close
consultation with the industry
• One of the roles of the standardisation council is to carryout stakeholder engagements to promote standards relevant to
Industry 4.0 and gather input from industry on standards.
• To ensure the interoperability of the standards, the council is required to provide services and guidance to the industry.
The services are not limited to the following:
o To provide consultancy services to mitigate technical and non-compliant difficulties to meet the industry
requirements.
o Enhance existing verification and certification programmes and establish a policy for mandatory product certification
to ensure performance claims by manufacturers are genuine. For example, in the aviation industry the need to link
with certification bodies like Airbus.
o To have international collaboration with countries leading Industry 4.0 to allow technology and knowledge transfer

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• Several countries have created similar initiatives in ensuring the interoperability of the standards. For examples,
o In China, the government provides certification to manufacturers who applied new technologies (i.e. 3D – printing,
robotics, IoT systems) in their plants.
o In Thailand, the government provides certification to local technology suppliers to operate in manufacturing sectors
(i.e. certification for robotics in manufacturing).
• Ownership: MOSTI, SIRIM & Standards Malaysia

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STRATEGY T3: INTENSIFY RESEARCH, INNOVATION, COMMERCIALISATION AND ENTREPRENEURSHIP (RICE)

PROGRAMMES AND ACTIVITIES IN SPECIFIC INDUSTRY 4.0 TECHNOLOGIES AND PROCESSES THAT SUPPORT AND
ADVANCE PRIORITY SECTORS.
RATIONALE
Growth opportunities in the manufacturing sector will need to be supported by technological innovation from both private and public
research communities. Sustained growth in the manufacturing sector will require proactive investments in advancing and enabling
Industry 4.0 technologies and processes. A further step up in Malaysia’s innovation capabilities will be important to propel priority
sectors and technologies and reinforce Malaysia’s position as a preferred high-tech manufacturing destination.
An innovation platform is necessary to bridge the gap between academia and industry, and align the types of research activities.
Moreover, a platform is needed to conduct new R&D activities to address new trends and the government should consider establishing
a Research & Innovation Centre that focuses on innovation activities.
STRATEGIC OUTCOMES
• Increase in capacity and capability of Malaysian firms, universities and research institutes in Industry 4.0 technologies
• Production and commercialisation of high value and innovative products and services
• Position as primary destination for the high-tech industry

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1. To prioritise technology development programmes on Industry 4.0 that strengthen the overall research,
innovation, commercialisation and entrepreneurship capacity and provide solutions for priority sectors
• The priority sectors to be identified based on the findings of the level of readiness from the Conformity assessment, level
of knowledge content from MYKE studies, and level of readiness from the “Future of Manufacturing: 3 + 2” study by Roland
Berger.
• Technology audit and development programme to provide the right solutions and platforms for sector-specific industry
development
o Form and develop a focus technical team to identify relevant technology solutions for various industries in Malaysia.
o Determine development methods for the solutions identified such as prototyping, IP acquisition, and collaboration.
o Development of technology platforms and sandboxes consist of generic technologies, tooling and processes to
provide industry jump start to develop and customize products without the need of investment in expensive tools.
• The strategy is similar to the Japanese government’s incentives to realise society 5.0, the establishment of "Public- Private
Council for the 4th Industrial Revolution.” The council will take control of the government's overall efforts – identify priority
areas for Japan, formulate strategies for each priority area, accelerate regulatory reforms, R&D, provision of funds, human
resources development, etc.
• Ownership: MITI, MIDA, MOSTI

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2. To improve understanding by and access for manufacturing firms of existing Industry 4.0 research facilities
and ongoing research and development
• To develop a compendium of expert, facilities and MRS providers related to Industry 4.0. This collection will be used to
provide guide for organisations, firms, SMEs, start-ups or public events as a means for getting more information and
understanding about Industry 4.0.
• In Germany, a compendium of research institutes specialising in advanced manufacturing has been established, where all
the research institutions’ results and programmes are shared to provide an overview of the work of German research
institutes in the Industrie 4.0 environment and to support companies and research institutes in finding partners for future
projects and activities in the Industrie 4.0 environment in a targeted manner.
• Ownership: MOSTI, SIRIM

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3. To create technology development and experimentation labs for collaborative Industry 4.0 technology and
solution development
• The development of centres of excellence, sand boxes and test beds to conduct research and provide platform for
collaboration on research and finding solutions.
• The technology development and experiment labs will conduct activities to find solutions for industry 4.0
o Carry out innovative activities and develop local talent to further drive development and adoption of new
technologies
o Provide shared infrastructures and services for allowing local industry players to optimise technology, products and
business process for better decision making and cost saving
o Disseminate technical simulation technology to the local industry, through programmes like SME automation
adoption programme.
o Build smart pilot facilities/factories as learning platforms for Industry 4.0 to focus on fostering product, process and
business development
o Provide platforms for innovation exchange to encourage industry growth
• Some examples of this initiative;
o Taiwan: Tong-Tai Machine Tool Co Ltd cooperates with Siemens to introduce Siemens's technology and establish a
Productivity 4.0 production line in cooperation with Taiwan's Aerospace Industrial Development Corporation (AIDC)
for high-end national defence and aerospace markets
o The Korea Institute of Industrial Technology (KITECH) provides testbeds to SMEs that are interested in
experimenting with digital technologies. Testbeds consist of three categories: Virtual, Hybrid, and Real Factory.
• Ownership: MITI, MIDA, MOSTI, SIRIM, NanoMalaysia

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END NOTES
86
The Business Times (2018, February 16). Singapore becomes IoT ready as networks are rolled out. Retrieved from
http://www.businesstimes.com.sg/technology/singapore-becomes-iot-ready-as-networks-are-rolled-out
87
GovTech (2018, January 29). GovTech joins the Smart Nation and Digital Government Group. Retrieved from
https://www.tech.gov.sg/technews/upclose/2017/03/govtech-joins-the-smart-nation-and-digital-government-group
88
GovTech (2018, February 14). Initiatives: Business Grants Portal. Retrieved from https://www.tech.gov.sg/programmes-partnerships/programmes-
partnerships/initiatives/business-grants-portal
89
Extracted from Draft Final Report of the “Study on Future of Manufacturing: "Industry 3+2”, Roland Berger (2017)

INTERIM REPORT
END OF FINAL REPORT

INTERIM REPORT

The National Industry 4.0 Policy Framework - Final Report (Compiled) (832018)

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The National Industry 4.0 Policy Framework - Final Report (Compiled) (832018)

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CONTENTS

LIST OF FIGURES ...................................................................................................... iii

1.1. BACKGROUND ................................................................................................. 2

OVERVIEW OF INDUSTRY 4.0 ...................................................................................................................................... 13

2.1. WHAT IS INDUSTRY 4.0? ................................................................................14

CASE FOR CHANGE ....................................................................................................................................................... 69

3.1. DRIVERS OF CHANGE – GLOBAL PERSPECTIVES ...............................................70

4.1. GLOBAL INITIATIVES ON INDUSTRY 4.0 ........................................................ 101

MALAYSIA INDUSTRY 4.0 FRAMEWORK .................................................................................................................... 214

5.1. ENVISIONING MALAYSIAN INDUSTRY 4.0 ...................................................... 215

THE GOVERNANCE ................................................................................................................... Error! Bookmark not defined.

Table 1: Examples of Technology Disrupt Manufacturing Sector .................................................................................................37

The National Industry 4.0 Policy Framework 1

The National Industry 4.0 Policy Framework 2

The National Industry 4.0 Policy Framework 3

1.2. SCOPE OF THE STUDY

c. Realigning existing industry roadmaps/national plans/initiatives by various stakeholders;

• To sustain the growth of manufacturing sectors;

• To increase exports of higher value-added and complex products;

• To increase Malaysia’s industry capability as a technology and solutions provider; and

• To contribute to overall high-quality job creation in line with Industry 4.0;

The National Industry 4.0 Policy Framework 4

The National Industry 4.0 Policy Framework 5

1.3. WORKING DEFINITION OF INDUSTRY 4.0

“Industry 4.0” refers to the use of interconnected digital and associated

The National Industry 4.0 Policy Framework 6

1.4. THE METHODOLOGY

The National Industry 4.0 Policy Framework 7

Figure 2: The Series of Activities Conducted for the Study

The National Industry 4.0 Policy Framework 8

a. Phase 1: Data Gathering

Technical Working Group Lead Ministries/Agencies

Technology and Standards Ministry of Science, Technology and Innovation (MOSTI)

Funding and Incentives Ministry of Finance

The National Industry 4.0 Policy Framework 9

d. Experts Panel Consultation

The National Industry 4.0 Policy Framework 10

e. Global Science and Innovation Advisory Council (GSIAC)

1. Time and duration of the study;

f. Global Federation of Competitiveness Councils (GFCC)

The National Industry 4.0 Policy Framework 11

The National Industry 4.0 Policy Framework 12

OVERVIEW OF INDUSTRY 4.0

The National Industry 4.0 Policy Framework 13

2.1. WHAT IS INDUSTRY 4.0?

The National Industry 4.0 Policy Framework 14

Figure 3: Industry 4.0 Framework and Contributing Digital Technologies

The National Industry 4.0 Policy Framework 15

Figure 4: The Industry 4.0 Environment

The National Industry 4.0 Policy Framework 16

Figure 5: McKinsey “Digital Compass” McKinsey defined it as a confluence of disruptive digital

The National Industry 4.0 Policy Framework 17

The National Industry 4.0 Policy Framework 18

The National Industry 4.0 Policy Framework 19

THE OVERVIEW OF INDUSTRY 4.0

The National Industry 4.0 Policy Framework 20

Figure 7: The Industrial Revolution to Industry 4.0

The National Industry 4.0 Policy Framework 21

CYBER-PHYSICAL SYSTEMS (CPS)

The National Industry 4.0 Policy Framework 22

Figure 8: Cyber-physical production systems (CPPS)

The National Industry 4.0 Policy Framework 23

2.2. THE ENABLING TECHNOLOGIES

The 9 pillars of technology advancement are: