EVENTS of the past two years have certainly pushed businesses, especially smaller firms, to boost their digital capabilities. Industry observers note that going digital was no longer about “if”, but “when”.
Many would be able to attest to the hype and the myriad of webinars, programmes and tools rolled out to help SMEs go digital in the many months since the pandemic began. Companies that never considered such a move were forced to adopt new solutions and businesses that had longer-term digitalisation plans were suddenly accelerating them in order to stay in business.
But now that Malaysia is emerging from the lockdown and more economic sectors are operating, there are some concerns that companies may fall back on “business-as-usual” as they’d be able to deploy manual labour once again and tap into foot traffic or regular customers for sales.
“People wanted to go digital during the period of forced restriction because they needed to reach customers. But now that that has been lifted, and there seems to be light at the end of the tunnel, I think people may not look into digital so urgently anymore.
“They could just go back to business as usual before the pandemic because going digital and automating cost money,” says Bernard Yap, partner and Malaysia Private Client Services Leader at Ernst & Young Tax Consultants Sdn Bhd.
For sure, many SMEs would be a little better off on the digital front compared to two years ago.
However, Yap reckons that there would be some who may put off further digitalisation and automation plans as they focus instead on rebuilding their business and reserves.
This may mean that for all the earlier hype around digital and Industry 4.0, the recovery phase could well end up becoming a setback for digitalisation efforts.
A recent survey by the Malaysia Productivity Corp (MPC) found that many SMEs, particularly from the manufacturing sector, still faced challenges in implementing digitalisation initiatives. According to the survey, which polled 173 companies, financial capability is the top reason why SMEs have yet to adopt Industry 4.0.
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The online survey was jointly conducted by MPC together with Bizsphere Brand & Marketing Group, unifi Business, Aresys Industries, Emerging EPC, ICA 40, Monitor ERP System, Selangor Human Resource Development Centre (SHRDC), and SmartB Solutions on Oct 7-24.
It notes that the top four reasons why manufacturers have yet to start their Industry 4.0 journey are due to financial capability (42.41%), followed by people readiness (32.28%), unsure of what to do (25.95%) and a priority in machine automation over Industry 4.0 (25.32%).
Given such, many welcome additional funds by the government under Budget 2022 to incentivise SMEs’ technological transformation. Under the annual budget, the government has allocated RM45mil for SMEs as well as mid-stage companies in the manufacturing and services sectors, in line with its Industrial Revolution 4.0 or Industry4WRD plans. It also increased the amount for the Smart Automation matching grants by another RM100mil, which will benefit 200 companies.
And thanks to the many promotional efforts over the past year, SMEs seem to have a better understanding of new technologies and various digitalisation initiatives.
The survey highlights that the respondents’ level of understanding on Industry 4.0 is rather high at 71% while only 29% are still unclear on how Industry 4.0 will benefit their business or are still unclear about the concept.
Encouragingly, it also notes that only 10% of respondents have yet to undertake any initiative on Industry 4.0. The others are at various stages of the Industry 4.0 journey, from exploring the idea to implementing projects at their factories.
However, with over 40% of the respondents citing funding as the main challenge and a sizeable proportion of the responses noting that they are not convinced on the potential return on investment (ROI) from Industry 4.0, perhaps more awareness on affordable solutions will be needed.
In this regard, SHRDC executive director Teh Sook Ling, in a statement, remarks that there are still myths that investment into Industry 4.0 has to be high in the “hundreds of thousand ringgit”. Many manufacturers are still unaware that they have the option to start small and scale up when they are more ready, she adds.
“We believe that manufacturers’ main concern should not be on how much the investment is, instead they should focus on the speed and potential level of ROI to make the decision. Manufacturers should approach Industry 4.0 as a strategic business investment instead of treating it as technology cost,” shares SmartB Solutions chief executive officer and founder Alwin Ng.
On the other hand, SMEs also think that their employees are not ready for the technology shift.
According to the survey, manufacturers say their engineers and factory supervisors lack knowledge on Industry 4.0 (56.96%) and the management team has minimum knowledge on Industry 4.0 (44.30%). Additionally, the operations teams were mostly made up of computer illiterate and unskilled workers (30.38%).
This certainly poses a challenge given that companies will require the assistance and buy-in of middle management for a smooth implementation of new technology adoption to ensure continuity and long term ROI and competitiveness.
Notably, manufacturers prefer to invest in more machinery for immediate improvement in productivity rather than in digitalisation initiatives which will take longer to implement and for returns to set in.
“The investment preference of machine automation over Industry 4.0 is not surprising as most manufacturers are more concerned about present operation than future development. Yet, manufacturers ought to be more forward looking on the potential opportunities and possible threats.
“Industry 4.0 is an unavoidable global progression and advancement. Manufacturers need to be in the race or end up out of the game,” says Daniel Haggmark, managing director of Monitor ERP System.
Uncertainty in navigating the process of new technology adoption may also be an intimidating factor for companies. The survey results show that not only are companies unsure about which Industry 4.0 technology is relevant to their operation (46.20%), they also do not know where to start or what to prioritise (32.91%).
This is despite the fact that 70% of the respondents say they have basic understanding of the Industry 4.0 concept.
“There is still fear among manufacturers of wrong decisions as it may affect their present operation on top of perceived high investment. Manufacturers are advised to identify their operational pain points in their factory and then explore how Industry 4.0 can address it,” advises Emerging EPC director John Loh.
Understandably, the fact that many of them still mainly rely on manual labour (41.77%) also makes it difficult to make the switch.
A certain level of automation is needed in order to generate data for analysis and decision making to identify and implement the right solution for digitalisation. Manufacturers may have the intention to advance them with Industry 4.0 but are limited by their own manual operations.
The government is looking into efforts to address issues of financial challenges and uncertainty on how to start their industry 4.0 journey. For example, Bizsphere points out that the Industry4wrd Readiness Assessment Programme is fully subsidised for SMEs.
Other schemes available for companies include the soft loan scheme for automation and modernisation (SLSAM) by MIDF, the Industry Digitalisation Transformation Fund (IDTF) by BPMB, the Industry4wrd Intervention Fund and Domestic Investment Strategic Fund (DISF) under MIDA, the Industry4wrd Readiness Assessment Programme and Rise4wrd which are fully subsidised programmes for SMEs as well as the Automation Capital Allowance which reduces tax payment.