Energizing Manufacturing

Moving up the value chain is a common objective among all nations striving for high-income status, and the Malaysian government addressed the issue in the Eleventh Malaysian Plan with the “3+2“ focuses for the manufacturing industry. The three traditional, or catalytic, subsectors are electronics and electrical (E&E), machinery and equipment (M&E), and chemicals and chemical products (C&C), complemented by two new areas of focus that have high growth potential: aerospace and medical equipment. These subsectors were selected as they have strong links with other subsectors, and have the capacity to support overall manufacturing development through the cross-fertilization of technologies. In addition, these industries are believed to be capable of diversifying production toward more complex and high value-added products, the so-called “frontier products.“

In E&E, business is concentrated in Selangor and Penang, both with the presence of global brands such as Intel and Dell, operating manufacturing plants. Solar and nanotechnology are two areas where investments have increased and where the government is creating incentives to attract more. Frontier products here included electric lasers, photo beams, and apparatus using X-rays.

The M&E sector consists chiefly of equipment for the construction, mining, and plantation industry. UMW is a key player here, and is scaling up exports throughout the region. Frontier products include power tools and electric ignition equipment. Lastly, the C&C industry has strong potential due to the increased diversification in downstream—especially for petrochemicals. The RAPID complex in Pengarang is one example of private sector investments bundled with strong incentive packages by the government. Other than that, cosmetic and new lubrications are listed as frontier products.

The development of the aerospace industry is organized along four different clusters: OEMs, MROs, system engineering, and system integration, with aeroparks as a fifth section to facilitate the growth of the industry. Today, aerospace in Malaysia is still relatively small, accounting for just over 2% of GDP, though that is projected to increase to 5% by 2030.

The medical equipment industry is still largely dominated by the manufacturing of surgical gloves and other rubber and latex-based products, accounting for 55% of the industry. However, the sector has also welcomed investments in engineering support and electronic devices for the medical industry. The positioning of Malaysia as the regional destination for medical tourism, and the efforts of the government to provide inclusive healthcare and build more public hospitals, have boosted the industry as it drives demand for medical devices.
In the words of Dato’ Sri Idris Jala, CEO of performance management and delivery unit in the Prime Minister’s cabinet, this is something that should not be limited to these sectors, as innovation should be the driver in industries across the board. Overcoming the middle-income gap means being globally competitive. “Moving up the value chain is essential if you want to compete. Demand for your products is a natural consequence of being globally competitive. A great example is LKL Beds, a hospital beds manufacturer in KL that exports to more than 40 countries simply because they produce competitive products.“

Idris Jala is a great proponent of trade liberalization and welcomes the TPP Agreement, stating that protecting a country’s manufacturing only holds for a limited amount of time and benefits no one in the end, as it discourages innovation.

Investment development agency MIDA is tasked with coordinating the other IPAs and including frontier products in its promoted list for incentives. This is intended to encourage manufacturers to diversify into these products and attract foreign investment. The Ministry of International Trade and Industry helps producers, industry associations, and academic institutions participate in the development of centers of excellence in frontier industries.

All together, in 2015 the manufacturing industry contributed 24% to Malaysia’s GDP, after the services industry on 52%. Oil and gas and agriculture follow, both at 9%, and construction on 4%.