Diving into the Machinery and Equipment Industry Outlook

Interview with Datin Lorela Chia, Vice President 1, and Mr. Tiong Khe Hock, EXCO Committee of the Machinery & Engineering Industries Federation (MEIF)

Datin Lorela Chia Vice President of Small and Medium Enterprises Association (SAMENTA)

About MEIF

Vision

• To be the Principal Advocate for the Development of a World Class in Malaysian Machinery and Engineering, Manufacturing, and Services Industry.

Mission

• To integrate and transform local players into the world-class global value chain by facilitating and assisting members in enhancing productivity and technology to provide new, better, and more competitive products and services.

• To provide a consultative resource to government and government-related agencies in policy advocacy, strategy formulation and implementation, incentives, and assistance programs.

• To facilitate in reformation, rationalization, and harmonization of regulatory requirements relating to the industry.

Mr. Tiong Khe Hock Immediate Past President of Malaysia Automation Technology Malaysia (MATA)

Role of MEiF

• Enhancing productivity and global competitiveness

• Seminars, consultation guidance and information exchange about the industry

• Promotion of international trade, investment co-operation and joint-ventures

• Investigation, research and compilation of information on domestic and global machinery and engineering supporting industries

• Research and survey on development of machinery and engineering supporting industries

• Protection of member’s legal rights

1. MEIF is deemed Malaysia’s lead voice of machinery and engineering, what are the significant contributions from MEIF to the industry?

Mr. Tiong: The Machinery & Engineering Industries Federation (MEIF) was formed several years ago when MIDA mooted the idea of uniting the associations in Malaysia’s machinery & equipment industry under one umbrella to present a collective and cohesive voice. MEIF was to play the essential role of establishing the vital linkages to build a stronger comprehensive ecosystem together with multiple stakeholders, focusing on talent, skills, productivity, and innovation.

Closing CNC machine door with new gripper

Since we were formed, we represent industry, and advocate for policies that support the growth and the development of the industry. We provide industry insights, such as market trends, industry challenges and opportunities to help M&E companies make informed decisions and develop strategies to grow. We are also in a position to facilitate collaboration with sectors that look into developing industry standards. Right now everyone is talking about the ESG framework. We can represent the M&E sector collectively to help to develop these standards. Plus, we support workforce development by developing more holistic training programs, and even apprenticeships towards building a skilled workforce with the expertise and knowledge that keeps up with technology evolution.

Datin Lorela: Let me also point out that M&E is not solely limited to machine makers. It encompasses a much broader spectrum, including engineering support services (ESS) that covers technical guidance, troubleshooting, and maintenance support to ensure the smooth operation of manufacturing processes.

M&E also includes manufacturing related services (MRS) that encompasses a wide array of services, such as prototyping, quality control, supply chain management, and logistics, which are crucial for optimizing efficiency and productivity in manufacturing operations. Together, this comprehensive M&E ecosystem supports and enhances all facets of manufacturing, driving innovation, productivity, competitiveness, and sustainable growth in various industries. It is the backbone that ensures seamless operations, efficient production, and the delivery of high-quality products.

2. Briefly share with us what the initiatives MEIF and other associations provide in assisting SMEs in the current industry.

Mr. Tiong: Since its establishment, MEIF has been championing the interests of the M&E sector. M&E was identified as one of the important areas as it cuts across all industries and is the backbone for our manufacturing industries to move towards Industry 4.0. We have four WorkGroups, Work Group 1 is on Manpower & Talent Development, Work Group 2 is on Technology & Efficiency, Work Group 3 is on SME Empowerment & Development, and Work Group 4 is on Ecosystem (Policies & Procedures).

Over the years we have come up with different programs that are addressing specific industry pain points. For example, we came up with an industrial skills framework for the M&E industry in collaboration with HRDC, as a guide for M&E companies to understand the categories of skills required and for the training providers to identify the training programs required. We have also successfully carried out a Process Improvement Program (PIP) which is an industry-driven training program, to prepare our TVET graduates to be more future-ready.

Another ongoing program is the Smart Factory Transformation Program where we focus on helping M&E companies on their digitalization journey towards smart factories. This program includes visits to companies that had successfully implemented digitalization in Taiwan.

Datin Lorela: I think I’ll just add on two more items that are in progress. One is the industry cluster. We thought that if we can group, identify certain clusters, and put them together, it will make sense for us to market this as a Malaysian solution to the world. That is in the pipeline. The other one we’re doing is the M&E industry capability mapping exercise. As of right now, all the programs and everything that we’re talking about in the M&E sector are based on pre-pandemic statistics and landscape. This will be the first M&E capability mapping exercise postpandemic. We are going to start rolling this out in June, and we target to have a report out by the end of the year.

Taking out finished part from CNC machine with new gripper

I also want to add that we’re going to officially launch the PIP program Mr Tiong was mentioning, at the Metal Engineering Expo (MTE) at the end of this month. Besides that, we thought that since we are helping the companies to increase and improve themselves, we need to start marketing them as well. Last year, we started an international outreach program. The first one was in the Industrial Transformation Asia Pacific (ITAP) exhibition which was held in Singapore last year.

It was the very first Malaysian pavilion organized by MEIF. There were pros and cons, and improvements that can be made, but I think it’s important that we started, and the results were quite promising. We found a lot of very useful feedback about people looking at Malaysia in terms of sourcing. Based on the meetings we had and the feedback collected, we will make certain decisions about how to proceed this year. So these two areas are the bulk of the work that we do, to enhance and fortify, and boost outreach.

3. One of the main concerns of Malaysia’s M&E industry is the various non-tariff barriers imposed by countries on M&E imports. In your view, how can the government and MITI help in this?

Mr. Tiong: Malaysia is a country that has a very large number of FTAs with many countries, but most FTAs deal with trade issues. There are non-trade areas COVER STORY that FTAs do not officially address. We are ready to work with MITI to conduct a comprehensive analysis of the nontariff barriers imposed by the different countries on M&E imports in key export markets. I’m quite sure MITI must be conducting some level of research on this, but we can offer our industry expertise to help them look into this.

This can include an assessment of trade policies, technical regulations, standards, and certification requirements. By working together, we can identify specific barriers that Malaysian exporters are facing, and work towards addressing that. The data collected can also be analyzed to identify trends and patterns, which can help policymakers in their decisions and negotiations with partner countries.

Datin Lorela: Once we collect enough data and analyze it cohesively, we can identify the exact challenges, and design proper training and capacity-building programs to help Malaysian companies better navigate and comply with technical regulations and standards in target export markets. MEIF currently already has capacity building programs with the Malaysia Productivity Corporation (MPC) under the Machinery & Equipment Productivity Nexus (MEPN) in relation to the skills gap, talent development, and productivity enhancement, and once we analyze the data collected on non-tariff barriers we can design more programs for this specifically.

Next is to establish a task force to address the non-tariff barriers that are faced by many sectors in Malaysia. This task force should comprise representatives from MITI, MEIF, and other relevant stakeholders, with a clear mandate to identify and address the specific non-tariff barriers that are impacting the industry. The task force should have a strong focus on evidence-based strategies and

should work closely with the Malaysian government to advocate for the needs of the industry.

After we have done all that, we need to develop a strong strategic communications plan to raise awareness of the non-tariff barriers faced by Malaysian exporters. The plan can include outreach efforts with industry stakeholders and foreign governments, with targeted messaging to Malaysian exporters to gain support and create a conducive environment for policy change. At this stage, we would be ready for more collaboration with like-minded countries and international organizations where we can work towards recognizing technical regulations, and conformity assessment procedures, promote the use of international standards, and reduce the burden of compliance.

This can include organizing and participating in international forums and working groups to share information and best practices. And finally, what we need moving forward is a change in mindset and the way change is coordinated. We must remember that we’re actually in the same boat together and we are not each other’s enemy. While we call for the industry and SMEs to upgrade our skills, the government also should invest in training for the officers, especially when technology is improving and evolving so fast.

4. What are the few other concerns that MEIF would like to highlight to the government that can benefit the players and the economy?

Mr. Tiong: One of the most commonly raised issues is the skill gap amongst our fresh graduates. A skilled workforce is essential for the growth and development of the industry. More emphasis needs to be given to investing in education and skills development to create a pool of skilled workers with the necessary technical expertise and knowledge. This includes the more conventional skills such as mechanical engineering, electrical engineering, welding and fabrication, CNC programming and machining, industrial automation and mechatronics, and quality control and assurance. But it also includes emerging skills such as data analytics and machine learning, cybersecurity, 3D printing and additive manufacturing, and industrial and autonomous robotics. These are all critical to increasing productivity, quality, and competitiveness in the industry.

Another issue would be access to financing and government incentives. There are already many grants offered by various government agencies that are more capex oriented and some are still under-utilized. For these, there needs to be more refined targeting for each specific outreach program to achieve better results of grant application and utilization. Other financing and incentive programs can include OPEX-oriented packages and assistance. The criteria for the incentives

offered should be more flexible, and easily accessible to SMEs.

Datin Lorela: At the beginning of the pandemic, we ran a series of transformation webinars trying to help SMEs in the M&E sector make sense of the pandemic. We wanted to help equip them with some strategies, or at least some kind of confidence, to start planning better for what their companies want to do. Technology adoption was a big part of it. One of the things that we did back then was to run polls at every webinar asking a variety of questions to get a feel of their mindset, their needs, and their pain points. The answers were sometimes not what we expected.

One of the questions we asked was how they preferred to adopt technology, and whether they preferred to own or lease the technology. We thought that a lot of companies would be more fixated on owning either the machine, the solution, or even the software. To our surprise, 51% of the companies indicated they would prefer to lease the technology, but own the data and run their analytics. 43% didn’t care so long as they got the outcomes they wanted. Only 6% of the companies wanted to own the technology they adopted.

Most of the available grants out there are CAPEX-driven. Many are matching grants, for the companies that invest to own the technology. But these days a lot of SMEs are more mindful of overheads, and the cash flow to keep operating. They prefer to look at more OPEX-driven things. It would be good to have more of these sorts of financial incentives and funding assistance.

Mr. Tiong: Let me add one more point. If you take a look at our existing industry players, we have many players who are very strong in the backend semicon testing and packaging processes. Many of them are exporting their machinery to more advanced countries. However, few players can do their R&D and conduct proof of concept (PoC). If the industry players were to do everything on their

own, it would be very costly. One of the things the government can do to help the M&E players is to set up more centers of excellence to assist them in conducting PoC and developing various prototypes.

Prototyping is one. The other is linking R&D to commercialization and innovation. Universities are doing their research, totally independently of the industry. Industry players, especially the bigger companies, are trying to set up their centers of excellence. If the government can come up with some kind of initiative that marries the industry and the educational institutions that are doing actual research, the results will be quite forthcoming.

EPU is looking into initiatives for R&D, commercialization, and innovation to move SMEs up the global value chain. The industry players lack the resources and capabilities to do their R&D, while the research institutions have all the resources made available to them but they don’t know what the industry needs. I think the government can play a bigger role to bridge this gap.

5. The recent CPTPP ratification is expected to enable enhanced access to new markets such as Canada, Mexico, and Peru. Could you share with us your hopes and expectations from this?

Mr. Tiong: When we talk about enhanced market access, the most obvious benefit that can come out of that will be increased exports and market share. We get to export cheaper and easier. We get

to diversify our customer base and reduce reliance on traditional markets. Once we can increase our sales volume and move up our value chain, we can create more value-added jobs for our employees.

Datin Lorela: Enhanced market access also means widening sourcing and procurement channels at the same time. We were not able to source effectively from Canada, Mexico, and Peru in the past. Once we announced our ratification, Canada organized a trade mission related to grains very quickly. Traditionally, we take our grains from Ukraine but because of the war, the supply has gone down, and that’s why grain-related product prices have shot up. But once Canada introduced their grain exporters to Malaysia, Malaysian importers could look at Canada as a stable source of supply.

That’s just one example. Of course, that’s not M&E but it works the same way. This is just one example of how the widening of sourcing can look like. It makes us more competitive.

The enhanced market access can also provide Malaysian M&E companies with new opportunities to improve their competitiveness, by leveraging local knowledge and niche expertise to develop innovative solutions that meet the specific needs and requirements of customers in these countries. This can help them gain a competitive advantage and differentiate themselves from the competition.

Competitive pricing, innovative and high quality products, and excellent customer service are all areas for differentiation. Of course, by demonstrating the ability to enter new markets and meet the specific needs of customers, Malaysian M&E companies can also enhance the reputation of our industry globally as a whole. This can help attract more foreign investments, looking to the Malaysian M&E industry as a gateway to gain access to the wider Southeast Asian market. This translates to more opportunities for collaboration and partnerships within the industry, leading to more opportunities for sustainable growth and development.

It is important to note that all of the above hopes and expectations are feasible, but will require significant effort, investment, and collaboration from all stakeholders involved, including the government, industry associations, and individual companies. MEIF can play a critical role in facilitating this to help achieve these goals.