Are Our SMEs Ready for Smart Solutions?

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Small and medium enterprises (SMEs) form the backbone of Penang’s manufacturing industry, yet many are still very much rooted in tradition, applying processes and practices of the preceding Industry 3.0 – automation, computers and electronics.

The current industrial shift to Industry 4.0 directs focus to the creation of smart factories, enabled by data-driven technologies and the combination of cyber-physical systems, e.g. the Internet of Things (IOT) and the Internet of Systems (IOS), propelling the existing manufacturing landscape into a thriving new era of production.

For this reason, companies are suddenly faced with the pressing need to embrace higher levels of innovation, adopt smart technologies and invest in the reskilling and upskilling of employees and talents to improve performance and remain competitive in the ever-changing world of business.

Challenges to Digital Transformation

But the road to implementing Industry 4.0 – despite encouraging government backing –is progressing at a slack pace. Even with widespread knowledge of what this new wave of industrial revolution entails, understanding of it remains relatively on the surface, and the benefits and implications it is supposed to bring remain unclear.

Some frequently asked industry-based questions include: What are IOT-related technologies? How do we start, and what do we want to achieve? What is the indication of interest (IOI) and the return on investment (ROI)?

“It’s a cultural challenge, the fear of change stemming from technological anxieties,” explains Tony Lau, the managing director of Ventnor Industry, when queried during the Industry 4.0: Smart Factory Solutions seminar held last July in conjunction with the inaugural Taiwan Expo 2019 in Penang which aims to deepen bilateral trade ties in fields of Industry 4.0 and smart retail, among others, between the two countries.

“Everybody has a fear of being the guinea pig for development. Take IOT development for example – there’s a longer gestation period for concept development which has to be supported by case studies and ROIs because if you can’t prove its workability and figure out the IOI, who is going to be willing to invest?”

Proving ROI Forms the Basis for Business Sustainability

“One of the biggest challenges that SMEs face is that they are interested in making money, but forget how to sustain their businesses,” says Lau, who introduced a customer-centric co-creation model during the seminar to address customerspecific solutions rather than industry-generic ones. “This model requires a symbiotic relationship between customers, new industry members, suppliers and development facilitators within the same industry.

“To start off, there must be knowledge-sharing from which we will try to change mindsets. This in turn will help in the upskilling of employees. Next, the development stage involves the creation of the proof of concept for the ROI to be calculated and only then, are we able to convince investors of the product or service’s viability.

“So, what you get out of this is education training, develop customer-specific solutions, establish proof of concept, pilot, trial-run and investment calculations which are then presented back to the management.”

Also factored in as a significant hindrance to SMEs in embracing Industry 4.0 are the initial costs of smart technology adoption. “In some cases, we have noticed very distinctly that the application of programming interfaces, the language and libraries to connect certain machines and equipment, are ridiculously expensive.

“We also lack the knowledge of government funds and grants. I’m not saying there are none, we just lack knowledge of their existence and how to go about obtaining them,” he says.

The general sense of confusion and hesitation notwithstanding, “It is important that SMEs and microenterprises have solid understanding of Industry 4.0 application since they make up 80-90% of the economic movers in Malaysia,” stresses Raja Rizal Kamrul Abdullah, vice president of the Penang Malay Chamber of Commerce (NCCIM).

So what is Industry 4.0? It’s essentially the convergence of three technologies – operational, information and finance – to deliver certain products or services. “In the automotive industry for example, the customer can now build, design and even see the car’s final look with the help of augmented reality before it goes into final production,” Rizal explains, adding that NCCIM is currently assisting the migration of its members, especially those in the manufacturing sector, into a high-value digital manufacturing economy via its GO 4.0 programme launched last year. “This ensures our SMEs stay relevant in the future and continue to evaluate their services. We also have a mature platform established by the Penang Skills Development Centre; I believe it is set to become the centre of excellence for Industry 4.0 in Penang.”

The Taiwan Halal & Bubble Tea Products Sharing Event held during Taiwan Expo 2019.

Forging Ahead

Last October, the Ministry of International Trade and Industry introduced the National Policy on Industry 4.0, or Industry4WRD in short, to transform the Malaysian manufacturing industry and its related services to be smarter, more systematic and resilient.1

And to further accelerate the rate of technological adoption among SMEs, the Industry4WRD Readiness Assessment (Industry4WRD-RA), a comprehensive programme that uses a pre-determined set of indicators to understand firms’ present capabilities and gaps, and their readiness to adopt Industry 4.0 technologies and processes was established, with a fund of RM210mil allocated from 2019 to 2021 to support the endeavour, while the outfit Malaysia Productivity Corporation is tasked with its implementation.2

In Budget 2019, a sum of RM5bil has also been set aside to help businesses adopt Industry 4.0 practices; RM2bil is assigned under the Business Loan Guarantee Scheme (SJPP) while RM3bil is channeled into the Industry Digitalisation Transformation Fund.

Under the SJPP, the government provides guarantees of up to 70% to incentivise SMEs to invest in automation and modernisation. As for the Industry Digitalisation Transformation Fund, there is a subsidised interest rate of 2% under Bank Pembangunan Malaysia to accelerate the adoption of smart technology such as automation, robotics and artificial intelligence.3

1https://www.miti.gov.my/miti/resources/National%20Policy%20on%20Industry%204.0/Industry4WRD_Booklet.pdf.
2https://www.thestar.com.my/business/business-news/2018/11/15/industry-40-blueprint-on-readiness-assessment-finalised-says-miti/.

3Ibid.



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