Chapter 5

SECONDARY SECTOR:
INDUSTRIAL SECTOR
5.0 SECONDARY SECTOR 

5.1 Contribution
5.2 Problems/Challenges
(excluding: Heavy Industry and SME)
5.3 Development of Secondary Sector
5.3.1 Phases of Industrial Sector
5.3.2 Industrialization and Deindustrialization (factors)
5.3.3 Industrial Revolution 4.0
5.3.3.1 Overview (Characteristic) and challenges
5.3.4 Overview of Industrial Master Plan 1, 2 and 3
(Objectives and strategies)
INTRODUCTION

 During colonization period, manufacturing was not very important

 After independence Malaysia started it one industrial development
programs
 Secondary sector is the main contributor to Malaysia GDP since decades.
 It consists of manufacturing and construction industries.
 5.1 CONTRIBUTION

 Malaysia’s economy grew by 4.5 per cent in the second quarter this year,
slower than the first quarter growth 5.4 per cent. On a quarter-on-quarter
seasonally adjusted, the GDP grew 0.3 per cent.
 The declines in Agriculture and Mining & quarrying sectors have weighed
down the overall performance of GDP. Nevertheless, the Services sector has
supported the economic growth, while Manufacturing and Construction
sectors continued to register favourable growth during the quarter. On the
expenditure side, the momentum was spearheaded by the expansion in
Private final consumption expenditure and Gross fixed capital formation. 
 Release Date : Friday 17, August 2018 1200
 Manufacturing sector registered a moderate pace of 5.4 per cent
(Q3 2017: 7.0%). 
 Electrical, electronic & optical products continued to be the main
impetus in Manufacturing for this quarter, albeit at a moderate
growth rate of 5.7 per cent.
 This was attributed by the sturdy momentum in semiconductors and
integrated circuit boards.
 Petroleum, chemical, rubber & plastic products recorded 4.6 per
cent influenced by the moderation in refined petroleum, plastic and
rubber products.
 Vegetable and animal oils & fats and food processing remained
resilient with a growth of 9.7 per cent.
 This was fuelled by the strong growth of palm oil products in this
quarter.
5.2 PROBLEMS/CHALENGES
1. Narrow Manufacturing Base Dominated by electrical and
electronic sub-industry

2. Weak Industrial Linkages MNC import components from

overseas
3. Highly dependent on Foreigners Highly depended on foreign
investment and technology

4. High cost of production Labor intensive

5. Lack of domestic research and

development

6. Inadequate use of natural

resources
 Cont..
5.2 PROBLEMS/CHALENGES

7. Dependence on protection

8. Weak international marketing

 MEASURES TO OVERCOME PROBLEMS

 Fostering global orientation among the industry players

 Enhancing productivity and competitiveness of manufacturing firms
 Enhancing requisite economic foundations
 Direct support and assistance to manufacturing firms  Promoting intensive
and knowledge-driven processes
 Promoting and spearheading research and development efforts
 Improving international marketing
5.3 DEVELOPMENT OF SECONDARY
SECTOR

5.3.1 Phases of Industrial Sector in

Malaysia

The development and expansion of industrial sector can be divided into

several phases
 Phases of Industrial Sector in Malaysia

1957-1960s 1970s 1980s 1990s

Import Export Orientation Resource Based High Technology
Substitution •the manufactured and Heavy Industries
•Means producing goods were meant Industries •Emphasized on
manufactured for export markets. •Government capital intensive
goods which were •Factors that led to encouraged to industries, skills
once imported. export orientation use local raw intensive
•Included food, •Small domestic material as input industries,
beverages and market in production. services based
tobaccos. •High Such as rubber, industries and
•To reduce import unemployment rate petroleum, palm development of
bill as before •New Economic oil and forestry SMIs.
independence. Policy products.
5.3.2 Industrialization And Deindustrialization
(Factors)
INDUSTRIALIZATION

 The industrial sector mostly contributed by the Manufacturing, Mining and

Electricity
 In April 2018, 4.6% production have been increased (Department of
Statistic)
 It consist of 5.3% increase in manufacturing, 1.8% increase in mining and
5.8% increase in electricity
ROLE OF INDUSTRIAL SECTOR IN MALAYSIA

Increase inflow of FDI

Transfer technology
Growth of GDP
Accelerate agriculture sector
Utilization of resources
 Deindustrialization

DEFINITION  Deindustrialization is usually defined as the

phenomenon whereby there is a steady decline in the
manufacturing sector’s share of employment
INTRODUCTION  Malaysia is indeed facing premature deindustrialization with a trend
slowdown in manufacturing value-added, trade performance and
productivity since 2000.
 Not only has the trade performance of manufacturing been falling,
manufacturing labour productivity has also slowed down, with the key
sectors such as electric-electronics, textiles and transport equipment
showing either negative or low productivity growth since 2000
 Factors /Causes Deindustrialization
1. Technological shocks : increase in technology advancement
Con..Factors /Causes Deindustrialization
2. Disruptions : desired, little understood and feared
 Making things that make the old things obsolete
Con… Factors /Causes Deindustrialization
3. Globalisation or trade policy factors
4. Limited investment in high-technology sectors, while the investment
climate appears unattractive to foreign and local investors.
5. Blaming the mismatch on a broken education system, which resulted in
a lack of quality graduates.
6. Malaysia needs labour-absorbing growth, not just in the manufacturing
sector but the service sector as well.
7. High labour costs and the failure or inability of firms to respond to
changing market conditions
8. Jobs created in the manufacturing sector is not balanced out in the
services sector
 Factors Impacting Deindustrialization
1. Productivity Growth
o More output per workers
o Price of manufacturing goods getting lower
Labour productivity for Mining and quarrying, Manufaturing and Construction getting lower if we
compared Q12018 to Q42017
 Cont…Factors Impacting Deindustrialization
2. Outsourcing
 Remove some service activities outside the manufacturing corporation
 Input cost will transfer to service sector
3. Offshoring
 Transfer of a production functions to another country
The example of outsourcing vs offshoring activities
 Cont…Factors Impacting Deindustrialization
4. Added Value
 A growth share the added value among the value chain is derived from non
manufacturing activities
The example of activities that need value added and value chain
 How to solve deindustrialization
problems
 Malaysia change its policy framework to one that is based on meritocracy and put in
more efforts to upgrade its electronics manufacturing industry.
 Malaysia should be moving up the value chain within the manufacturing sector,
which is referred to as “industrial upgrading”. Noting that Malaysia has failed to move
up the value chain, due mainly to a lack of appropriate domestic skills,
 The shift towards services is not a panacea as the service sector is a very diverse
one.
 Increasing the share of services now will not produce the expected high-paying jobs
that we observe in most industrialised countries
 To ensure good-quality economic growth in the long run, there must be improvement
in productivity. To improve productivity, it comes back to the local human capital
issue
5.3.3
 What is the different between 4th Industrial Revolution
and Industry 4.0?

•The Fourth Industrial Revolution is an overarching industrial transformation that covers every
aspect of industries and economic activities including every aspect of living.
• It is a total transformation of all sectors into new system and/or way of life that will change the
way we do businesses.
• Current technological advances at times also considered as ‘disruptive technologies’ due to
the convergence of the physical, digital and biological worlds.

•Industry 4.0 is referred to as production or manufacturing based industries digitalisation

transformation, driven by connected technologies.
• Industry 4.0 introduces what is referred to as “smart factory” in which cyber physical systems
monitor real time physical progress of the factory and are able to make decentralized
decisions.
• Other terminology includes Smart Manufacturing.
• Some regard Industry 4.0 as a subset of the Fourth Industrial Revolution.
World Industrial Revolution
• A national policy/framework on Industry 4.0 is currently being formulated by the Government.
In May 2017, the Cabinet tasked MITI, MOSTI and MOHE to lead this initiative.
• A High Level Task Force (HLTF) led by MITI with members from relevant Ministries and
Agencies has been established since March 2017 to spearhead development of whole of
Government strategy for Industry 4.0 with strong stakeholders’ feedback including from the
industry.
• The Industry 4.0 HLTF has five (5) Technical Working Groups (TWGs):

1. Digital Infrastructure and Eco-system led by KKMM;

2. Funding and Incentives led by MOF;
3. Talent and Human Capital led by MOHR and MOHE;
4. Technology and Standards led by MOSTI; and
5. SMEs led by SME Corp.
5.3.3.1 Characteristic of Industry 4.0
 5.3.3.1 Major challenges faced by industries in moving
towards Industry 4.0 adoption include
1. Lack of awareness on the concept of Industry 4.0 and its benefits;
2. No clear comprehensive policy and coordination on Industry 4.0 in Malaysia;
3. Infrastructure gaps particularly the digital infrastructure as well as ecosystem
gaps;
4. Lack of targeted incentives to incentivize more companies to move to Industry
4.0;
5. Mismatch skillsets and lack of right talent/human capital; and
6. Lack of standards resulting in difficulty of integrating different systems and
reliability issue.
 Sustainability Industry 4.0

•Every organization needs to constantly reinvent itself and the

adoption of Industry 4.0 can be considered as part of the
upgrading process.

•To ensure sustainability in the long run, digital transformation

must be done with the aim of solving important business issues
faced in the manufacturing process.

•Global trends show companies that are not confined to the

traditional way of doing things and utilize technology to its
advantage have a higher chance of   remaining relevant and
successful in the long run.
Global Trends
Industry 4.0
 The nine (9) 1. 4. 6.
technology Autonomous Internet of System
drives/pillars are: Robots Things (IoT) Integration

•Cyber security is key in 2.

7.
achieving a truly digital Big
Cybersecurity
nation. Hence, one of Data Analytics
5.
the technology driver in
the nine (9) pillars is Additive
3. Manufacturing 8.
Cybersecurity.
•Our
Cloud  (3D Printing) Augmented
Government
through CyberSecurity Computing Reality
Malaysia has instituted
a broad range of
innovation-led cyber •Malaysia is currently ranked third globally among 193 9.
security programmes International Telecom Union members, in terms of the Simulation
and initiatives to fulfill its level of national commitment to addressing cyber-security
mandate accordingly. risks.
•Malaysia is also among the top scorers in the Technical
Performance Index of the Global Cybersecurity Index
2017.
 Benefits of industries moving in to Industry 4.0
1. Increase in flexibility

2. Increased productivity, efficiency, quality and reduced time to

market

3. More R&D&D activities

4. Development of new skills and talent globally.

 This new wave has in one way or another impacted Malaysia’s economic cycle, resulting in a
robust transformation of the corporate landscape.
 If for instance, a certain industry is doing well economically, demand for industry experts will
continue to rise and vice versa, according to ManpowerGroup Malaysia.
 Thus, some jobs and skills will cease to be relevant, and others will enjoy an upward trajectory.
5.3.4 First Industrial Master Plan (IMP 1) 1986-1995

Objectives:
– To accelerate the growth of manufacturing sector
– To ensure a continue rapid expansion of the economy
– To meet the social objective of NEP
– To promote opportunities for the maximum and efficient use of the
nation’s natural resources through value added manufacturing activities
– To build up the foundation for leap-frogging towards an advanced
industrial country by increasing indigenous technological capability and
competitiveness.
Con.. First Industrial Master Plan (IMP 1) 1986-1995

Strategies:
Rationalize the existing infrastructure, deregulate the investment
environment and to upgrade the level of technology
Encourage private sector participation
Promote industrial depth, economic linkages
And the appropriate economic foundation

Achievements
Growth of industrial sector by an average of 13.5% (1986-95)
26.5% of GDP in 1990 and 33.4% in 1995
19.9% of employment in 1990 and 27.6 in 1995
80% of export
Second Industrial Master Plan (IMP2) 1996-2005

 Focus more on improving the competitiveness of manufacturing by

broadening and raising its base
 Strategies
 Manufacturing plus-plus strategies
 Expand along the value chain
 Cluster-based industrial development
 Through integration of key industries, suppliers, supporting
industries, critical supporting business service, requisite
infrastructure and institutions
Third Industrial Master Plan (IMP3) 2006-2020

Objective:
To achieve long-term global competitiveness through transformation and innovation of
the manufacturing and services sectors.
Emphasized global competitiveness and inter-cluster linkages

Strategic thrust
Strengthening Malaysia position as a major global trading nation
Generating investments in targeted growth areas
Integrating Malaysian companies into regional and global networks
Ensuring industrial growth contributes toward equitable distribution and balanced
regional development
Sustaining manufacturing sector’s significant contribution to economic growth
Positioning service sector as major source of growth
 The current economic plans (IMP3 and RMK11) are still relevant and remain as
Malaysia’s mid-term policy guide until 2020.

 RMK11(2016-2020) has identified the three (3) catalytic (E&E, M&E and
Chemical) plus two (2) new growth (Aerospace and Medical Devices) sectors
as game changers for the manufacturing sector.

 These sectors will continue as the focus sector together with other sectors such
as automotive, petrochemicals, textiles and services.

 The overall National Policy is still being developed as such the list of focus
sectors will be finalized later.