Rizal Nainy

Deputy CEO I
SME Corp Malaysia
15 June 2017

Industry 4.0
and its implications to SMEs

121
SULIT
 Malaysia GDP growth expected to improve in 2017 supported by
domestic demand amidst challenging economic situation

Malaysia’s Major Real GDP

World growth is projected to pick up gradually Trading Partners Growth Forecast
in 2017-18, mainly in US, Canada and in 2016 (% share) (%)
emerging markets 2017f 2018f

2016 2017f 2018f 14.6% 2.2 2.6

Singapore

3.1 3.5 3.6

13.9% 5.0 5.2
ASEAN-5

Malaysia Real GDP Growth Forecast, (%) 12.5% 6.6 6.2

2015 2016 2017f 2018f China
Annual growth, %
Official
10.2% 2.3 2.5
5.0 4.2 4.3 - 4.8 n.a US
(BNM)
IMF 5.0 4.2 4.5 4.7
10.2% 1.7 1.6
Analysts EU
5.0 4.2 4.4 4.4
Consensus

8.1%
Source:
1)Asia Pacific Consensus Forecasts, April 2017 1.2 0.6
2)World Economic Outlook (WEO) Updates, April 2017
Japan
2
* ASEAN-5 refers to Indonesia, Malaysia, Philippines, Thailand and Vietnam
e: estimate f: forecast Source: Department of Statistics, Malaysia
 Prospects for SME GDP growth to hover around
5 - 6% in 2016 - 2017
Annual
growth, % 1Q 2017 Overall GDP: 5.6%
(1Q 2016: 4.1%)
8.3%
6.5%
5.8%
5.6% 1.6%

Agric. Const. Serv. Mfg M&Q

e: estimate
f: forecast
3
Source: Department of Statistics, Malaysia and SME Corp. Malaysia
 SME Masterplan (2012 – 2020) to contribute
significantly to SME growth

Recap on the SME Masterplan… GOALS MACRO TARGETS

Increase business
formation
Average
per year6%
Implementation Monitoring & Increase no of high
of: evaluation of growth &
Focuses on
•6 High Impact the SME innovative firms
productivity-
Programmes Masterplan 10% a year
driven &
innovation- (HIPs)
led growth •26 supporting Raise productivity
initiatives 2020:
Complement RM76,400
other National per worker
plans
(RMKe-11; Intensify
sectoral formalisation
blueprints) Exports
2020:
15%
of GNI

4
 Aligning SMEs with the new trends will accelerate
SME Masterplan

New trends will facilitate achievement of the

targets in the SME Masterplan
Contribution of SME GDP
to Overall GDP (%)
SME Masterplan
target
Megatrends
41.0

36.3 Industrial Revolution 4.0

Digital Free Trade Zone

(DFTZ)
2015 2020

Contribution of SME Exports Share of SME Labour

to Total Exports (%) SME Employment (%) Productivity
SME Masterplan SME Masterplan
target revised target
23.0 65.5 65.5 RM76,400
per
RM58,451
17.6 worker
per
worker

2015 2020 2015 2020 2015 2020 5

Source: Department of Statistics, Malaysia and SME Corp. Malaysia
 A two-pronged strategy need to be undertaken for
sustainable and inclusive development

Strategy
Strategy

1 2
Ramping up
creation of Increasing
HIGH GROWTH & MICROENTERPRISES
INNOVATIVE FIRMS (B40) contribution
for quantum leap in to the economy
GDP

Creation of more global SMEs Reduction in income

through targeted assistance in disparity through support
automation, digitalisation & for microenterprises &
robotisation startups

Aligning with IR4.0

6
Government Initiatives to support growth of Innovative SMEs

1-InnoCERT
Certification Programme

HIP 5:
SIRIM- Fraunhofer
Catalyst Programme

HIP 2: Technology
Commercialisation Platform AIM-Steinbeis

HIP 6:
Inclusive Innovation Existing Innovation TPM Incubation Programme
Programmes for
SMEs
Public-Private Research
InnoFund & TechnoFund Network (PPRN)

Commercialisation TAF & CRDF

Financing

Venture Capital CIP 500 & CIP Catalyst

Investment 7
4 megatrends which will have far-reaching impact on SMEs

High growth
M1 M2
GLOBALISATION
DIGITAL
FUTURE
&
IR4.0

SNAPSHOT
RISING OF
ENTREPRENEURSHIP

COMMUNITY
LIVING

M3 M4
Inclusiveness
8
 Digital Future & IR4.0: SMEs that seize the
M1 opportunities stand to gain significantly

Digital transformation changing Increasing mobile device

business & delivery models adoption, a “mobile first” world

• Big data
• 3D printing
• Cloud computing
• Robots
• Social media Cloud, mobile and
• IoT
• Virtual stores social technologies
• AI
• Subscription-based
• On-line platforms
models
• Digital village

9
1
Globalisation: Faster growth and favourable
M2 demographics in Asia & rapid-growth markets

Global balance of power to • Asian middle class- significant

BRIC & MINT nations spending power
• “New knowledge world order”
emerging, with Asia as a hub

Increased
workers
mobility and
technological
Trading between emerging advances
markets increasing ASEAN
• Market size of 625 million
people (60% - youth)
• Internationalisation through
regional cooperation

10
 M3
Community living: Empower communities with the
power of ICT and broadband enabling creation

Globally there will be more devices connected to the internet

than people (50 billion devices vs 7.5 billion people by 2020)

1 2 3 PUSH FACTORS
FOR ICT ADOPTION
CURRENT • Low cost
CHARACTERISTICS • Easy access
• Peer pressure
 More microenterprises in developing
world (77% in Malaysia)
 Lack of automation Go Global Malaysia
 More mobile phones; cheaper and more
powerful each day.
#MYGoGlobal
• build up business capabilities
• connect with digital ecosystem partners
Going forward, microenterprises • promote exports
• to be globally competitive companies
in rural area need to be part of
digital economy
11
 Rising of Entrepreneurship: The drivers of entrepreneurial
M4 activity moving from Necessity to Opportunity

Start-ups with
innovative ideas,
making a high-
impact

The face of The face of

entrepreneurship is entrepreneurship is
increasingly female increasingly young

12
What is Industry 4.0?

13
12
 Industry Revolution 4.0 is not only about smart and
connected machines or systems, it is much wider…

..from Gene Sequencing ..from Conventional Computing

to Nanotechnology.. to Quantum Computing..

..from Traditional Supply Chain

to Digital Supply Chain..

Fusion of these technologies & interaction across the physical, digital

and biological domains make IR 4.0 is fundamentally different from
previous revolutions.
14
 Why IR 4.0 ?
The revolution will help elevate the industry
further…
Efficiency

Productivity

Return of Investment

Technology Convergence

Mega Trends

15
 9 pillars of Industry Revolution 4.0 are interrelated

Autonomous Robots

Simulation
Big Data

Augmented System
Industry
Reality Revolution 4.0 integration

Additive
Internet of
Manufacturing
Things

Cloud Cybersecurity 16
Computing 12
 Some Tipping Points of Technological Shifts expected
to occur by 2025

10% of people wearing clothes connected The 1st robotic pharmacist in the
to the internet US

90% of people having unlimited and free 5% of consumer products printed in

storage 3D

1 trillion sensors connected to the 90% of population with regular

internet access to the internet
10% of reading glasses connected to the Driverless cars equaling 10% of all
internet cars on US roads

80% of people with a digital presence on The 1st transplant of 3D-printed

the internet liver

The 1st 3D-printed car in production 30% of corporate audits performed

by AI

The 1st Government to replace its Tax collected for the 1st time by a
census with big-data sources Government via blockchain

17
Source: Global Agenda Council on the Future of Sofware and Society, WEF, Sep 2015
 Examples of strong Government support in
digitalisation and IR4.0 of SMEs in various countries...
DENMARK: Innovation Fund GERMANY: Industries 4.0 SOUTH KOREA: Technology &
Innovation
• Innovation Fund Denmark for innovative • A three-year plan to spur the
• To finance projects and
SMEs to innovate further
applied research centres, tax country’s biotech innovation
breaks for investments in • Govt. R&D budget allocated
FRANCE: Industrie du Futur tech start-ups
• Invest for the Future Fund comprises
subsidised loans for SMEs and mid-tier, CHINA: “Internet Plus” &
tax incentives for private investment and “Made in China 2025”
tax credit for research

• To fund the “Made in China

2025” action plans

THAILAND: 4.0 Start-ups

US: Manufacturing USA
ITALY: Italia 4.0 Plan • To sponsor and support
• To fund research local start-ups
projects by SMEs
• IR4.0 fund allocated for
SMEs from 2017 to 2019 SINGAPORE: Industry
Transformation Programme
AUSTRALIA: Advanced
Manufacturing Industry Growth
• IR4.0 fund allocated for the
Centre Industry Transformation
• Growth Centre Project Fund covers Programme
over 4 years from 2017 to 2020 18
 Existing tax incentives on automation, robotics and ICT
for SMEs in Malaysia

Capital Allowance to Increase Automation

in Labour Intensive Industries (MIDA)
Capital Allowance (CA) of 200% maximum of RM 4 mil

Reinvestment
Accelerated Capital Allowance (IRB)
Allowance (IRB) 60% on Qualifying
for plant and machinery Capital Expenditure
incurred within 15 years

Enhance Use Production of Selected

of ICT (IRB) Machinery and Equipment
for ICT equipment (MIDA)
and software 100% tax exemption for 10 years

High Technology Companies (MIDA)

100% tax exemption for 5 years
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 IR 4.0 has four main effects on business for SMEs

1
Customer expectations are shifting – packaging, brand,
customer service, customised offering

2 Products are being enhanced by data, which improves

asset productivity – new materials, data analysis of asset
maintenance

3 New partnerships are being formed as companies learn

the importance of new forms of collaboration – resource
sharing through collaborative innovation

4 Business and delivery models are being transformed into

new digital models – data-powered models are faster
with greater agility, increasing productivity through
e-Commerce 20
 Global e-Commerce sales have reached $1.0 trillion in
2015 with double digit sales growth in all continents…

e-Commerce Sales Growth

(2015, USD, % sales growth compared to 2010)

China:
United States: $ 293 Bn.
$ 271 Bn.
86% 52%
15% 79%

EU Japan:
$ 158 Bn. $ 69
Bn.
15% 75% 14% 81%

ASEAN
$ 9 Bn.
ASEAN accounts
World: for only <1% of
29% 60%
$ 1 Tn. global sales

24% 45%

$ e-Commerce Sales Sales Growth Online Buyer Penetration

21
Source: Euromonitor, Statistica, A.T. Kearney estimates

12
 Within ASEAN, Malaysia ranks 3rd behind
Indonesia and Singapore in B2C e-Commerce market size

ASEAN retail e-Commerce market size in 2015

Indonesia Philippines

253 m inhabitants 100 m inhabitants

43 m netizen 40 m netizen

Singapore Thailand

5.5 m inhabitants 67 m inhabitants

4.2 m netizen 20 m netizen

Malaysia Vietnam

30 m inhabitants 93 m inhabitants
21 m netizen 43 m netizen

Retail eCommerce size (USD B) 22

Source :AT Kearney

 Current State of e-Commerce in Malaysia

e-Commerce GDP
contribution 114
Malaysia e-Commerce GDP (RM Bil) +11 103
93
contribution is at 5.4% vs. %
US (35%), China (21%) and +12 75 83
68
Chinese Taipei (14%)* % 61
49 53

e-Commerce GDP
contribution growth is
steady but gradual
2012 2013 2014 2015F 2016F 2017F 2018F 2019F 2020F

Additional government
interventions will drive
higher GDP contribution

CRITICAL SUCCESS
FACTORS
Favourable Ready Specific
demographic infrastructure government
& economic trends and ecosystem interventions

23
Source: MDEC 12
 1Q 2016 SME Survey : ICT and e-Commerce Adopted by
SMEs

Usage of ICT for 20.3%

2,176 involved in
business increased
Respondents Online
from 27% in 2011 to
Business
1st Q 2016 Survey 89% in 2016

E-Commerce & E-Payment 32.3%

7.1%

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 SME Corp. Malaysia’s end-to-end approach for
eCommerce adoption among SMEs in 2017

eCommercePlus Strategic Approach – Collaboration with Agencies,

eCommerce Players & Associations

Register User via Trained via eCommerce Trained via neutral training
1 eCommerce Portal 2 portal
3 provider/ workshops/ seminar

• eCommerce portal to guide • SMEs trained via eCommerce
SMEs in eCommerce adoption Wizard & eLearning Module
journey. • Portal gamification to enable
SMEs earn „graduation‟ points to
redeem partners’ offers (eg: Amazon
Subscriptions, EasyParcel Credits)
• Develop and implement a
common traditional
eCommerce training
programme. Partnership with
the following partners:

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 Total immersion activities for SMEs to
adopt eCommerce platform

Go Global Malaysia
Handholding & Coaching Programme
Programme with LAZADA  1000 SMEs to be 11 Street Awareness & Training
assisted – going digital Activities
 Facilitate SMEs to get onboard Lazada
eMarketplace via customised training; via training and  Training activities to encourage SMEs
 Potential SMEs to be trained at Lazada education programme to adopt 11 street eCommerce
Seller Conference regionally platform

Awareness & Outreach Programme on

SME Enabler Programme and
eBusiness Centre
Programme with Facebook-
 Regional coaching activities on SME Avana
Enabler programme;  Facebook eCommerce
 Trade facilitation & Guidance on Marketing for SMEs via
eCommerce solution via POS selection and coaching
eBusiness Centre programmes regionally

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 New opportunities in DFTZ

…resulting in positive spillover effects to Malaysian economy

More job Encourage

Malaysian SMEs Benefiting logistics opportunities
will get tax free with business and
services firms, (expected to
purchases higher traders to connect
freight forwarders provide 60,000
than the current and collaborate
(including SMEs) new jobs)
threshold

SMEs can Holistic eCommerce

Local SMEs can Additional tax
overcome trading experience
export through revenue to the
complex with strategic
DFTZ Government for all
regulations, location and global
e-commerce companies
processes and best-in-class facilities
platform
barriers
27

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 World’s 1st Digital Free Trade Zone (DFTZ)
To capitalize on the confluence & exponential growth of the Internet Economy
& Cross Border e-Commerce activities
Physical Virtual
E-fulfillment hub Satellite Services DFTZ E-Services Platform

KL Internet
City
o Warehouse o Training o E-Services platform
o Logistics o Regional HQ o Interface with services from
o Customs o FSI Services agencies & private sector

Strategic partnership with global leaders:

Enabling Policies
Investment
Outcome:
1. Increase SME e-Commerce exports
2. Make Malaysia a key sourcing & fulfillment hub for global marketplaces
3. Nurture an ecosystem to drive innovation in eCommerce and other Internet
4. Economy-related innovations Drive investments into Malaysia 28
 Malaysia’s DFTZ e-Services Platform
16

Hangzhou

Shenzhen

DFTZ e-Services Platform

Alibaba OneTouch
(to be developed and managed
+ by MDEC) Shanghai
SMEs Service Provider A
Service Provider …and others
Permit Issuing Agencies Linkage and data
B Service Provider Customs
(eg. SIRIM, MOH, FAMA) sharing with other
C cross border e-
commerce
platforms

• One Touch platform to be customised by Alibaba for Malaysia

• Firewall to separate National applications for governance and data
protection

29
12
KLIA Aeropolis has a comprehensive development
Masterplan aligned to the objectives of DFTZ
11
E-fulfillment
hub

30
12
 ALIBABA One Touch Platform
Enabling Seamless Cross Border Trade and Financing Services for SMEs

ALIBABA One Touch Platform facilitates

Cross Border Trade by:

1.Performing end-to-end customs

clearance on behalf of SMEs

DFTZ e-
Service 2.Providing foreign exchange service
to SMEs for convenience and better
s
Platform

exchange rate, based on economies

of scale

3.Providing fast trade financing

services to SMEs based on their trading
data

4.Consolidating logistics requirements

for SMEs to lower cost for SMEs and
consumers

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 Success Story #1: e-Commerce Adoption

STE Engineering Sdn. Bhd.

Sales increased

- supplier and - Using Google Before Google

manufacturer of Cable AdWords to market its Adwords: Sales
Tray, Cable Ladder and products and services RM3mil
Cable Trunking - Starts using Google After Google AdWords:
- Established in May AdWords in 2013 Sales RM8million
2002
Increase by 166%

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 Success Story #2: e-Commerce Adoption

-
- 45,000 monthly
- Online Book Store visitors - 2010: RM132k
established Dec 2010 - 54,894 subscribers - 2016: RM2.7 mil
- 19 employees - 72,660 registered Increase by 1933%
users
- 177 publishers

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 Success Story #3: 1-Innocert programme resulted in higher
domestic sales and exports

Assistance from SME Corp

 1InnoCERT Rating : AAA
 SCORE Rating : 4 Star
 Sector : Manufacturing
 Nature of Business : Design, develop,
manufacture integrated
circuit test socket,
interconnect, test solutions
for semi-conductor and
electronic assembly
- Innovation Voucher
RM400k
- Utilised on purchase of
high precision
machinery for the
development of new
product
New Product Developed – Bell Contacts
- Smallest actuating
Grounding Solution
for IC final testing
- US Patent granted in
Feb 2015

Annual Sales (RM) Exports Manpower

9.7mil 58
6.2mil
6.0mil 46 45

2012 2013 2012 2013

2014 2014
Annual sales increased Successfully exporting Manpower increased by
by 63% since 2012 to US & Singapore 34
26%
 Success Story #4: Innovative Products & Services
Evolution
EPP 10 Programme

• comprehensive assistance and

2013 machinery and systems upgrade
2016
1-InnoCERT

• Strengthening of innovative
practices and products

Milestones for New Factory

Bigger Production R&D for New Branding and
Jobs
Capability Products Confidence
• Bigger space for • Medium intensity • New job creation for • Better confidence to
storage of raw AOL Mi-20KP & Mi- local community win bigger contracts
materials 20-2KP for TM • Hiring 2 new R&D • Launch Pad for
• Increase by 200 • R&D stage: Induction engineers international market
percent of light for TNB, all new
production capability low intensity total
• Increase QCD of the internal reflection
products light Li-3201

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 Conclusion

Industry 4.0

• is about companies orienting themselves to the customers through

eCommerce, digital marketing, social media and the customer
experience.

Productivity

• Investment into Automation

• Adoption of platforms such as eCommerce
• Digitalization of business

Policies

• To support SMEs
• More engagements

36
Thank you…

37