Ninth Malaysia Plan To Upscale Manufacturing And Related Services

The transformation of the manufacturing sector, and sustaining its competitiveness, remains a major factor in determining the pace of economic activity in the country. For the Ninth Malaysia Plan period (2006-2010), in meeting a more challenging and competitive global environment, a crucial goal will be to upscale the manufacturing sector towards higher value added activities and upgrade capacity in the provision of related services. The focus will be on transforming industrial businesses and complementary services, especially SMEs, into strong knowledge-intensive and value-creating entities.

THE PROMOTION of technology- and innovation-driven strategies will be given increased priority. Greater emphasis will be placed on promoting investment in new areas of growth as well as reinforcing innovation capability and capacity to augment productivity and competitiveness. Of equal importance will be the promotion of greater industrial integration and international collaboration to further benefit from the increasing global deployment of production and services networks.

The Ninth Plan period will be more challenging to the industrial development process, in the face of an increasingly globalised and competitive world economic environment. Concomitant with this is the global trend towards greater concentration of major growth and high-technology industries, especially the automotive, biotechnology and E&E industries, among key global players. This increased industrial consolidation and a more dynamic global environment will continue to generate more intense competition for investment opportunities worldwide.

As such, Malaysian companies too will need to identify and build upon niche products and services for specific markets. Among others, Malaysian industry must forge and intensify strategic integration with foreign affiliates, including joint ventures, mergers and acquisitions in designated high value added and high-technology industrial activities and related services. These will provide a wider platform for Malaysian industries to generate greater intersectoral and intra-sectoral linkages as well as integrate into regional and global networks of production, investment and services.

During the Ninth Plan period, the prime focus will be to ensure robust and sustainable growth as well as competitiveness of the manufacturing sector. The sector is targeted to grow at an average rate of 6.7 per cent per annum. The impetus for overall growth of, and investment in, the sector is expected to emanate largely from technology- and innovation-driven industries, which will in turn contribute to greater exports, income and employment generating opportunities.

With the relatively higher growth rate, the share of manufacturing to GDP is projected to increase from 30.8 per cent for the Eighth Plan to 31.8 per cent in the Ninth Plan. This will require substantial investment in new and emerging manufacturing activities as well as manufacturing related services (MRS).

Apart from attracting foreign investment, there is also a need to accelerate growth in domestic private investment. The private sector and GLCs in particular, will be encouraged to take up new investment opportunities, build up indigenous capability to utilise advanced technology as well as develop niche products and services that will generate new demand and expand markets.

The promotion of foreign investment will continue to be a priority as opportunities arise from greater intra-regional trade and investment in response to further regional and globalliberalisation. In this regard, promotional efforts will be intensified to leverage on Malaysia's good track record in macroeconomic management, advanced infrastructure and the favourable foreign investment environment to attract more quality investments, particularly in knowledge based and technology-intensive industries.

The growth of the manufacturing sector will continue to be export-led, with the export of manufactured goods expected to expand by 9.3 per cent per annum during the Ninth Plan. The share of manufactured exports to total exports is expected to expand from 80.5 per cent in 2005 to 83.4 per cent in 2010. The share of resource-based exports is anticipated to increase further, particularly with the renewed focus on the development of agro-based industries arising from new technology infusion from biotechnology. The non-resource-based products will continue to lead overall manufacturing exports.

Malaysia will step up efforts to enhance its global position as a trading nation as well as raise the level of competitiveness of its manufacturing sector. In this regard, efforts will be undertaken to expand the scope and coverage of its regional arrangements such as free trade agreements (FTAs) and economic partnership agreements (EPAs) to ensure greater access to markets, trade and investment opportunities. As substantive outbound and inter-regional investments intensify, contributed largely by competition as well as integration of global production and marketing networks worldwide, Malaysian firms will also need to be proactive and seek new investment opportunities locally and abroad. Focus must be given to the development of soft infrastructure, including raising the quality of human capital, R&D capability as well as management systems.

In the rapidly changing global environment and the increasing trend towards growing strategic alliances and networking among a number of international players, it will become imperative for Malaysian investors to form greater partnerships with foreign affiliates, as well as venture out on their own, to make inroads into targeted growth areas both at home and abroad. This will enable Malaysian industries to become a crucial part of the international economic chain and produce goods and services that create new demand and market opportunities.

While building upon established clusters of industries to produce next generation products, efforts will be made to enhance the development of new sources of growth, largely science-based and innovation-based activities, especially biotechnology and ICT industries to diversify and broaden the manufacturing base. With competitive pressure, it will be vital to harness technology and innovation for improved and new product development and related services to cater for existing and potential markets. Among the key factors will be to expand existing and create new mechanisms for public-private sector collaboration and build a critical mass of innovating firms. This will, among others, require augmenting capabilities in technology development and management, usage of knowledge-intensive applications, networking and accelerating industrial skills upgrading.

To accelerate the development of the country s nascent biotechnology industry, increased efforts will be undertaken to generate new investment opportunities for local entrepreneurs as well as attract world class biotechnology companies to Malaysia. Customised fiscal and non-fiscal incentives will be provided to enhance collaborative R&D, special skills development as well as global partnerships. A global marketing strategy will be formulated to build brand recognition for Malaysian biotechnology products and applications as well as generate new businesses through strategic alliances and joint ventures.

During the Plan period, shared services and outsourcing (SSO) will be positioned as a major new source of growth. The worldwide market for SSO is estimated at US$600 billion by 2008, more than half of which is expected to be implemented through third-party outsourcing or joint ventures. Considering that Malaysia has an edge in global SSO, increasing emphasis will be given to attracting more global players as well as encouraging the participation of the local industry in potential markets. A major strategy includes attracting local companies to undertake high-end SSO-related services such as marketing, project management, product development and supply chain management.

At the same time, domestic demand of SSO would also be stimulated in order to help the local outsourcing industry reach its critical mass. In order to further strengthen the SSO cluster, assistance such as access to funds for joint ventures as well as mergers and acquisitions will be made available. This in turn will enable local outsourcing firms to acquire world-class competencies, access to greater offshore markets and upscale operational size. Further, the legal framework for intellectual property rights protection will be strengthened to provide greater trust in outsourcing.

Greater efforts will be undertaken in the machinery and equipment (M&E) industry to enhance domestic capability to design and fabricate machines and tools for the mechanisation and automation needs of the economy through the provision of incentives and financing schemes. Promotional efforts will be intensified to attract foreign high-technology and specialised M&E manufacturers to set up base in Malaysia. Existing incentives for regional establishments will be improved while new incentive packages will be considered, including the setting up of machinery parks within free trade zone facilities, with a view to making Malaysia a centre for M&E activities in the region.

The successful establishment of the M&E industry will depend mainly on the ability of the local engineering industry to supply parts, components and modules as well as the availability of highly qualified technical human resource. M&E manufacturers worldwide are turning to global outsourcing for machinery components and modules. Thus, increased efforts will be made to encourage local companies in the engineering support industry to upgrade their technology and production capabilities especially to participate in extensive outsourcing activities. 

In order for the country to continue to maxi mise growth opportunities from manufacturing, focus will be given to the expansion of supplementary business and services industries. The availability, quality and functionality of the essential support services will provide the platform for a multitude of forward and backward linkages further contributing to the value-added economic activities. The wide range of activities will have to commensurate with the growing and varied demands of increasingly complex production, processes, as well as distribution, marketing and R&D operations in the manufacturing sector. Among others, it will be necessary to build up the requisite infrastructure, infostructure and core competencies in key areas such as integrated transport and logistics, marketing and distribution, R&D and innovation as well as specialised engineering and product design.

The increasing trend of outsourcing of core as well as non-core activities by large companies, especially MNCs, will open up greater investment opportunities in the provision of support services. Malaysian companies, particularly SMEs, will be encouraged to seek new and improved investment opportunities, especially in supply chain management and integrated logistics activities and services. For this purpose, a Services Sector Development Fund for SMEs will be set up to assist potential entrepreneurs upgrade their technical and professional skills.

To sustain demand for Malaysian brands, efforts will be intensified to ensure quality and specialisation as well as consistency with changing lifestyles of discerning consumers. Various efforts including the provision of incentives and grants for brand development as well as targeted marketing and promotion will be continued. Increased focus will also be on enhancing awareness of the industry players, particularly SMEs, on new and emerging aspects such as innovation, acculturation, advertising and the rapidly changing medium of communications in order to strengthen local brands and build market share.

The Government will increase its efforts to promote investment in high value-added and knowledge-intensive industries. In this context, the pre-packaged or customised incentives for specific industries, particularly in new growth areas, will be further improved. These customised benefits will cover areas such as R&D and technology transfer, job creation, expansion of new businesses and linkages as well as intellectual property creation, digital content and biotechnology industries. In addition, existing companies will also be encouraged to expand and diversify into high-end industries as well as move into related services.

As a major effort to promote investments in new growth areas, a RM600 million Strategic Investment Fund will be established under the existing prepackaged incentive scheme. The fund will be utilised to attract quality investments in projects which are knowledge-intensive, labour saving and have high-technology content involving R&D, intellectual property (IP) development as well as human capital enhancement.

Taking cognisance of the increasing technology and knowledge content in manufacturing industries, priority will be accorded to incentives to upgrade skills that promote intensive knowledge applications in production processes and related services, especially among SMEs. In this regard, industrial skills upgrading will focus, among others, on ICT integration and utilisation of bioinformatics that infuse the knowledge content into industries as well as e-management and virtual engineering services for high-end design activities. For these purposes, a total of RM463 million will be provided.

The MRS industry will continue to be an important area of investment opportunities, particularly for SMEs. Within the manufacturing sector, the MRS will form the new backbone of rapidly changing integrated production systems, which cut across geographical and spatial distances. Increased resources, including incentives, will be made available to promote the development of supporting infrastructure such as business services, transport, communications and logistics, as well as training funds to enhance the requisite technical skills. For SMEs in particular, soft loans amounting to RM220 million will be allocated, among others, for the purchase of new machinery and equipment required to participate in the expanding MRS sector.

As part of the efforts to ensure a strong and efficient industrial structure, measures will also include the establishment of an Automation Fund as well as the re-establishment of the Industrial Adjustment Fund (lAF). The Automation Fund will be dedicated to modernising and automating manufacturing processes with a view to improving efficiency, quality and the utilisation of labour-saving technologies. The IAF will assist industries, facing intense competition from the liberalisation measures under the ASEAN Free Trade Area (AFTA) and FTAs, to rationalise and streamline their operations.

The strategy will be to focus on creating high performance and resilient SMEs, equipped with strong technical and innovation capability as well as managerial and business skills to realise new jOb opportunities and improved market access. This will be with the view to strengthening the capacity and capability of domestic SMEs to produce innovative as well as quality products and services at competitive costs and integrate them into the international supply chain.

Inter-firm linkages among and between SMEs as well as with large domestic companies, including GLCs and foreign entities, will be further strengthened to enable SMEs to become more competitive, innovative and reliable suppliers for global outsourcing networks thereby facilitating entry into new export markets. In this regard, existing programmes will be intensified and new ones initiated to further develop advanced professional and managerial skills among SMEs. These measures, aimed at the internationalisation of operations and businesses, will in turn add value to products and services as well as generate new market opportunities for the SMEs.

Another strategy will be building a platform for enterprise start-ups and incubation that will create the pool of new and innovation-driven entrepreneurs needed to sprout new businesses and services. Towards this end, the Government will promote the setting up of technology incubators for the purpose of nurturing new firms and entrepreneurs as well as expanding capacity for innovations and related services.

Efforts will be undertaken to assist SMEs to further develop technical skills, especially in generating innovation and creating economic value from knowledge applications. The Small and Medium Industries Development Corporation (SMIDEC), along with other agencies and the private sector, will review the ongoing and devise new training and apprenticeship programmes to incorporate knowledge management plans and strategies as well as knowledge-based applications and practices among SMEs.

On-going entrepreneurship programmes, including advisory and outreach services, will be expanded to equip SMEs with new and improved management and business practices and methods in production, quality improvement, marketing and distribution in order to raise productivity, efficiency and profit levels. New schemes, including increased automation, business coaching as well as provision of technical skills to assist SMEs to develop, commercialise and market innovative ideas will also be implemented.

Increased funding initiatives will be undertaken to support the development of SMEs. To complement the efforts of commercial banks as well as the development of financial institutions, the SME Bank will devise new approaches, and the provision of more integrated assistance packages to SMEs involving both financial, including cash-flow based funding, and related business support services. In addition, increased venture capital will be made available to finance start-up technology companies, especially to promote the potential commercialisation of research findings and the sprouting of innovative products and services.

In terms of institutional coordination, the National SME Development Council provides the strategic framework for more focused and coordinated inter-agency efforts on SME development. Emphasis will be aligned towards strengthening the requisite financial and non-financial infrastructure, including skills upgrading as well as enhancing access to financing.

The Government will continue with the provision of industrial sites at more competitive rates for SMEs. During the Ninth Plan, a total of RM927.5 million will be provided as soft loans to state economic development corporations and regional development authorities to develop industrial sites and special SME parks, including agriculture centres. In addition, an allocation of RM833 million will be provided to build business premises and provide office space at strategic locations.

With increasing globalisation and regionalisation, more Malaysian entrepreneurs are investing overseas in countries such as China, India, the Middle East and a number of African countries as well as ASEAN countries. Net flow of Malaysian direct investment abroad increased from RM7.7 billion in 2000 to RM11.4 billion in 2005 mainly in plantations, oil and gas, telecommunications, the construction sector as well as MRS. Among the factors driving investments abroad, include increasing domestic competition, maturity of local markets and higher growth opportunities overseas.

During the Ninth Plan period, more Malaysian companies are expected to avail themselves of the investment opportunities arising from regional agreements and the various bilateral FTAs as well as the global trend in outsourcing. The Government will continue to encourage and support Malaysia's overseas investments, which can result in economic benefits to the country. This will include accessing new and larger markets, maintaining market share and sourcing raw material inputs and components for the growth of domestic industries as well as diversifying into non-traditional businesses. Given the rising trend in cross border investments by Malaysians, it is imperative to have strong institutional back-up to support the country's outward investment drive which will fuel further economic growth. In this regard, the existing Cross Border Investment Division in the Malaysian Industrial Development Authority (MIDA) will be expanded to spearhead the promotion and coordination of cross border investments in manufacturing and MRS.

Employment in the manufacturing sector is targeted to grow at an average rate of 2.8 per cent per annum. Labour productivity as measured by value-added per employee is expected to increase at an average of 3.8 per cent per annum largely due to the wider applications of knowledge-intensive and labour-saving technologies as well as quality improvement programmes. The employment in the resource-based industries is expected to grow at an average rate of 3.7 per cent per annum, creating 279,700 new jobs. As for the non-resource-based industries, employment is projected to grow at an average rate of 2.0 per cent per annum, creating 170,000 new jobs.

Entry into new and emerging industrialised areas will require increased upgrading of current skills and technical expertise. Quality training will be emphasised at the various institutes of learning and skills development centres to ensure that knowledge, skills and expertise remain relevant to meet market requirements and to face the increasingly competitive environment. Among others, the human resource development programme on science and technology will be targeted towards developing a core group of research scientists and engineers to meet the requirements for high-end industrial development, particularly in key technology areas.

Institutional Support And Allocation

In terms of institutional support for the development of the industrial sector, the Ministry of International trade and Industry (MITI) will continue to be the lead agency driving the expansion of manufacturing activities and related services. These efforts will be complemented by other key ministries and agencies, including the Ministry of Entrepreneur and Cooperative Development, Ministry of Science, Technology and Innovation, MIDA, Malaysia External Trade Development Corporation (MATRADE) and SMIDEC. These various agencies will provide the lead for specific programmes, accelerating development of new biotechnology and ICT industries, coordinating and promoting investment and marketing activities as well as developing innovation-driven SMEs.

The Eighth Plan had laid a firm foundation for the manufacturing sector to contribute further to high value-added and knowledge-content industries and promote economic growth. In order to foster the on-going transformation of the manufacturing sector more vigorously and sustain its competitiveness, the Ninth Plan provides for a more vibrant enabling environment for FDI and domestic investment to move the sector up along the entire value chain. The challenge will be to reinforce established, as well as develop new and emerging industrial clusters to generate more investment, income and job opportunities.

For the future expansion and deepening of manufacturing and related services, the Government will continue to assist the private sector by providing a range of support services, including customised incentives and funding. This will be with a view to building up R&D, technical and managerial core competencies and development of IPs for the expansion of high-value products and brands with export potential. A principal thrust in the industrialisation programme will be the development of a competitive, innovative and technologically strong SME sector. Of equal importance will be for domestic firms to work within global and regional structures in order to develop economic integration and strategic partnerships with international businesses as well as sustain growth and competitiveness of the industrial sector.

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Last modified: December 19, 2006
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