As companies look to mitigate their risk in China through diversification, what role will industry 4.0 play in in Southeast Asia’s success?
As the trade war continues, the forecast can seem gloomy, but it also presents opportunity. As companies look to mitigate their risk in China through diversification, what role will industry 4.0 play in in Southeast Asia’s success?
With the promise of increased efficiency and productivity, Industry 4.0 draws a lot of attention. With a stream of companies moving their manufacturing to Southeast Asia. Companies are revaluating their manufacturing strategies and constructing new factories with Industry 4.0 capabilities.
Last year, the Malaysian government launched its Industry 4.0 policy, Industry4WRD. The policy focuses on a digital transformation of Malaysia’s manufacturing sector with a target of evolving Malaysia into a strategic partner for smart manufacturing.
Shidah Ahmad, Vice-president & General Manager of Order Fulfilment and Global Supply Chain at Keysight; who is also General Manager of Keysight’s operations in Malaysia, explained: “Malaysia is not a big country; we only have a population of around 30 million people. This isn’t enough people to reach what the country wants to achieve”.
Ahmad explains that when Keysight’s facility was first established in Penang during the 70s, the electrical and electronic industry was very labour intensive. In fact, Ahmad believes that manufacturing companies would have had around 80% of their employees as operators.
In order to be at the forefront of technology, Malaysia’s industry 4.0 policy, Industry4WRD, has set some lofty goals. The policy hopes to elevate the total contribution of the manufacturing sector from US$61 Billion to US$94 Billion. In order to achieve a 54% increase in revenue, the policy aims to increase the productivity of workers by 30%.
The concept of Industry 4.0 seeks to automate and accelerate as many processes as possible, using computer-based technology and data analytics to drive major increases in productive efficiency.
When asked what Industry4WRD means for the Malaysian workforce, Ahmad said, “a goal of Industry4WRD is to increase high skilled workers to about 35%. This is in line with wanting to develop people rather than have them be out of a job. This policy is developing the resources and the talent of the country to a higher skill level”.
That being said, Ahmad stated that Malaysia definitely isn’t there yet.
Industry4WRD was only launched one year ago and it’s still in its infancy. Keysight and other MNCs have started to develop automation in their facilities but this is just the start of a journey and one Ahmad is very bullish about.
Ahmad believes that Southeast Asia’s adoption of industry 4.0 will play an important role in attracting MNCs and investment to the region. “At the end of the day it’s all about making sure we’re more efficient and more productive so that we can be the new greenfield which China used to be. If this is to be realised, then Southeast Asia needs to get better and the industry 4.0 trend will help us get there”.
Is Industry 4.0 all about data?
Taiwan based power supply manufacturer, Mean Well, recently opened a new facility in the Philippines. They had their concerns “with manufacturing moving and becoming decentralised, as it makes creates challenges for a company headquarters to maintain lines of communication” said Leo Wu, Regional Sales Manager at Mean Well. He added, “that means you have to know how to access, control and manage all of the data”. He believes that Industry 4.0 is ready today and presents a great opportunity for Southeast Asia.
For Chroma, currently operating as Quantel in Southeast Asia, Industry 4.0 is all about data, and the company is ready to capitalise in this market. If you look deeper into the life cycle of Industry 4.0, you immediately see that there are huge opportunities to exploit data collection and big data analytics.
“Most of the companies in this region are not very familiar with how industry 4.0 works”, explains Eric Yip, Marketing Director at Quantel. But he expects that Industry 4.0 will play an important role in this region for the next 5-10 years.
The number of companies developing smart factories in the region is still low and Yip feels that it is still the role of distributors, such as Quantel, to increase implementation. “It takes time to educate local manufacturers to adopt new technologies. Lots of training is still required to help these manufacturers understand how industry 4.0 will benefit them”.
According to Molex, Industry 4.0 is a long-term vision of ultra-automation based on digital technology, mass data storage in the petabyte range and beyond, and the evolving field of 'big data' analytics. It will involve the extended use of sensor arrays, machine vision, machine learning, AI, and networked communications in very close to real time.
However, Industry 4.0 may not play a significant role in Southeast Asia in the near future. James Loh, Regional Marcom Manager, Asia Pacific South at Molex, explained: “Since no country, anywhere, has yet implemented Industry 4.0, it's unlikely to be a key to Southeast Asia's success in the near term”, although arguably Singapore may be the closest in the region, if not the world, to achieving the Industry 4.0 vision.
Is industry 4.0 for everybody?
Rohit Girdhar, Vice President & Head of Strategy and Market Development Asia Pacific at Infineon Technologies, explained: “Industry 4.0 really brings its benefits when you’re already at a stage similar to Singapore or where Malaysia is getting to”.
Girdhar continued: “because at this stage you’ve already taken as much productivity as you could out of labour. It takes a lot of capital to get to the next stage of productivity through capital investment”.
Using Vietnam as an example, Girdhar questions whether it makes sense to take a capital heavy approach when labour costs are extremely low?
He said, “If you’re in the footwear manufacturing industry, for example, I think that you won’t be the first to adopt industry 4.0, but there are other industries that will take a global approach”.
Joseph Soo, Vice President, APAC Sales at National Instruments, agrees: “There’s a large supply of workers in countries such as the Philippines and Vietnam, it just lacks economic sense to invest in industry 4.0”. Soo feels that it will be the MNCs that drive automation and if “Samsung decide they want this type of capability then they will have it, but it just doesn’t make sense at this stage”.
To date, Samsung have invested a reported US$ 17.3 billion in factories and R&D in Central Vietnam. It is estimated that Samsung’s Vietnam exports reached around US$60 billion in 2018 which accounted for almost a quarter of Vietnam’s total export turnover.
ASEAN has seen exponential growth in recent years, out pacing the global average, this is in part due to Southeast Asia developing itself as a manufacturing hub. As a region, Southeast Asia isn’t always driving innovation. But due to the low cost of labour and free trade agreements, companies from around the world have a manufacturing base here.
Soo pointed out that, “China today is no longer a low-cost production space and those companies that entered China due to cost, will now leave. This has made ASEAN more attractive”.
For many, the strength of Southeast Asia still lies in its cheap labour and young population. Soo highlights that currencies in Southeast Asia have been trending down in recent years with nations such as Malaysia having a relatively cheap currency.
While having an introspective moment, Girdhar ponders whether some industries will leave Asia entirely, “it might not even make sense to setup factories in Asia anymore, you could be location agnostic, as long as you have the right amount of robotics”.
Girdhar continued: “Today, for certain very high value functions such as front-end wafer production, it almost doesn’t matter where you do it in the world. All you need is low cost materials, electricity, access to water and a super high skilled talent pool. This is the reason that in our industry, Taiwan is still home to the largest foundries”.
He does feel, however, that industry 4.0 is going to be increasingly adopted in Southeast Asia over the next 10-20 years. But in the present climate, Girdhar believes that Singapore and Malaysia are the only nations in ASEAN where it’s viable.