IR 4.0 and SMEs in malaysia

IR4.0 1

Assignment brief “This fourth Industrial Revolution will create more jobs than it destroys.

Not only in the long term, but also in the short term� ~ Joko Widodo

Malaysia is one of the countries forging ahead with Industry 4.0 (IR4.0). The objective is to modernize the industrial capability, and transform the economy from a low-cost manufacturing country into a high-value competing manufacturer. The most recent Malaysia's National Policy in IR4.0, "Industry Forward" (lndustry4WRD) launched, aims to help transform Malaysia's manufacturing sector to be stronger and smarter.

Discuss critically, on how the government could assist to SMEs by measuring their gaps and readiness, and guiding them to adopt IR4.0 technologies. How these enterprises can contribute to the development of a circular economy through the adoption of Industry 4.0 technologies.

EDITORIAL BOARD Prepared for: Ts Norishahaini binti Mohamed Ishak Prepared by: Azzri Fazril Bin Rosman 2020916259 Adam Zhariff Qameil Bin Zamry 2020312085 Farhana Bt Mohammed Isa 2019658866 Mazliyani Bt Mazlan 2020391063 Norzaihan Bt Mad Zin 2020392719

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Contents

Introduction p4-9

p10-15 SMEs’

Contribution Suggestion to p16-31 GOVERNMENT

p32

conclusion

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Introduction History of Industrial Revolution The world of the manufacturing are changing from times. This revolution phase had been divided by four that is The first industrial revolution, the second industrial revolution, the third industrial revolution and the current of is the fourth industrial revolution.

First industrial revolution: The first industrial revolution is between 1760 and 1840 (End of 18th Century). This included the improvement process from manual method to use steam-powered engines and water as a source power (Luenendonk, 2019). This steamed powered engine is introducing to support the human work that are out of their ability (Mohd Yusof, 2017).

During this period, it focusses on manual labour performed by people and help by the animal in optimizing the labour performed by people through the use of water and steam power engines and other related machine tools (Epicor.com,2020).

Second Industrial revolution: This second industrial revolution is between 1870 and 1914 although some of the characteristics are started on 1850. During this industry 2.0, the introducing of pre-existing systems such as telegraphs and railroads into the industry.

During that period, it is focus more one the introduction of mass production as a primary means to production (Luenendonk, 2019). Here start the introduction of steel and the use of electricity in the industry that enable the efficiency increase and increase the mobility of the factory machine (Epicor.com,2020).

Figure 1 Sources: (Designgeng.net, 2020)

Third Industrial revolution: The third industrial revolution is dated between 1950-1970. This industrial revolution referred as Digital revolution and changes from analogue and mechanical systems to digital. It is also called information age where it includes huge development in computers and information and communication technology (Luenendonk, 2019). During this period, manufacturer start incorporating electronic and computer into their factories (Epicor.com,2020).

Fourth Industrial revolution: This fourth industrial revolution starting round 2016 are to continue the third industrial revolution regarding the automation and internet. This industrial revolution aims towards the problems of 4 limitation of energy sources (Mohd Yusof, 2017).

What is IR 4.0?

The concept of IR 4.0 is started and introducing from Germany as this country is the most competitive manufacturing industries in the world and the leader of manufacturing equipment (Rojko, 2017). Industry 4.0 is a strategic initiative towards the transformation of industrial manufacturing through digitalization and exploitation of potential of new technologies where this production systems are more flexible and enable customizing products (Rojko, 2017). The vision is more focussing on the creating intelligent products, process and procedures (Crnjac, 2017). The main idea of this latest industrialized revolution is to exploit the potentials of new technologies and concepts such as availability and use of the internet and IoT, integration of technical processes and business processes in the companies, digital mapping and virtualization of the real world, and ‘Smart’ factory including ‘smart’ means of industrial production and ‘smart’ products (Rojko, 2017). The essence of industry vision 4.0 is the Internet of Things and Internet of Services as per figure below;

Figure 2 Assesnce of Industry vision 4.0 (Sources; Crnjac;2017)

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Malaysian and IR4.0 There are three main initiative by the government regarding the Industry

4.0 as explained by Mohd Yusof (2017). The first one is Malaysian government had announced 2017 as “Malaysian Digital Economy� in increasing the KDNKK 18.2% on 2020. The second one is the introducing of first digital free trade zone in the world under MDEC in improving the online and digital towards worldwide e-trade and the third one is improving the Internet of Things (IOT) concept under MIMOS that provide almost 15,000 job opportunities in this country. Under MITI they target towards the increasing of the supplier of the internet accessories that invest in this country.

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Introduction (cont’d) Malaysia and IR4.0 Towards the transformation in Industry in Malaysia, Malaysian National Policy on Industry 4.0 had highlighted six aspect by taking experience from the experience of other countries in adopting and implementing in the other countries that include setting the high aspiration by a clear, actionable, targeted and impactful objective by the policy makers. The second one is Ensuring the right level of focus to encourage innovation and adaptation in the priority sectors.

Besides that, the third one policymaker are Pay attention to enables where there is a need to tailor emphases to the current realties in the country. The fourth one is including the SMEs towards a giant company in the future. The fifth aspect are providing access to funding that include initiatives towards R&D and adoption in the manufacturing process and the last aspect is implement from the top by including the for government for such initiatives should be initiated at the top most level in this country.

In Malaysia also, a book title Industry 4wd had been prepared through consultation with numbers of agencies, and industry players where all the topics covered Malaysia’s business and competitive advantages, potential disruptors, and technology developments in this manufacturing industry (Industry4wrd, 2018).

Figure 3 Malaysia’s manufacturing GDP contribution and growth RMK-11

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SMEs and IR 4.0 In Malaysia transformation plan, SMEs play an important role towards the contribution towards the country. Under Malaysian National Policy 4.0 highlight the importance of government to give attention more on the SMEs as they contribute around 98.5% in the sector and 42% on the employment. SMEs in Malaysia. Most SMEs in this country slowly adapt the practice of IR4.0 compared to the large company that already anticipating the benefit and risk. This is because SMEs seems slowly realizing in adapting this revolution. Industry 4.0 have the big potential in transforming this manufacturing SMEs in improving productivity, efficiency and cost, enhance organizational, management and production capabilities, enabling better quality and monitoring, and developing innovators and producer of this technology

Figure 4 Malaysia Manufacturing Industries Employees (Sources: Industry4wrd,2018)

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Introduction (cont’d)

Malaysia’s Issue and Challenge In Industry4wrd, (2018) had highlight several issue and challenge of this country in adapting this IR4.0. Actually, it is important for this issue been focus by the government to ensure Malaysia are not too behind from the other countries. IR 4.0 as a path towards this country in adapting the concept not only in this country but also worldwide. The issue and challenge for demand aspect that had been highlight but Industry4wrd, (2018) are in term of awareness industry player, lacking of information and success stories, higher cost adoption and inadequate understanding of cost and benefit, innovation, digital readiness and connectivity, and skill enhancement. For supply aspect the limitation is due to aspect like governance, infrastructure, standard and digital integration, training providers, eco-systems support and funding and alternative (Industry4wd, (2018).

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2.0 contribution Of SMEs to Economy and Development Towards IR4.0 Adoption In today’s era of technology, SMEs would act as a vital role in improving huge economic growth especially in term of labour supply productivity, rate of employment and growth of GDP in Malaysia. Hence, SMEs contribute in providing exclusive training and coaching which related to IR 4.0 adoption in exchanging type of machinery and integrated system which important to their employees. Owner of SMEs will encourage their subordinate to take part in training and coaching of IR 4.0. As a result, they would master, adapt and ready toward IR 4.0 in very short time of period. Undeniably, the powerful of IR 4.0 already brought out a lot of smart technologies such as smartphones, smart homes and cars (The Sun Daily, 25th December 2018)

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Besides that, SMEs has contributed significant huge investment towards IR 4.0 in implementing IT infrastructure which can lead to yielding a big impact for very long term.

SMEs could experience increased cost efficiency when IR 4.0 is fully implemented (SME Bank. 2017). SMEs would ensure their stakeholder are aligned with the vision of IR 4.0 in digitalization their process, data and system. In same time, SMEs help to embrace research and development towards digital economy in the Industrial Revolution 4.0 for more sustainable growth.

In the latest BUDGET 2021 that has been presented by YB Senator Tengku Dato’ Sri Zafrul Tengku Abdul Aziz, the Minister of Finance Malaysia on 6th November 2021, Business Continuity was put as a Second Goal for the country budget planning. Hence under the second objective of the budget planning, Government will boost more investment, strengthen strategies and improve accessing to financing. (Ministry of Finance Malaysia, 2020)

Figure 5: Malaysian Budget 2021

In conjunction to current COVID-19 issues, this announcement could be good news for all SMEs in Malaysia to re-build their business development. Thus, this chapter will discuss more on what are the SMEs contribution to support the Fourth Industrial Revolution (IR 4.0) in Malaysia.

Figure 6: Pillar elements of IR 4.0

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2.0 contribution Of SMEs to Economy and Development Towards IR4.0 Adoption (cont’d) 2.1 Integration with Internet of Things Internet of Things (IoT) had fall under the nine pillar elements of invoking IR 4.0.

(Zaidi et.al,2019) In relevant to current pandemic issues, Work from Home (WFH) had become compulsory for certain industries in Malaysia and globally. During the early stage of invoking this WFH in Malaysia, the society has facing with various issues regarding the poor data connection and lacking online platform to perform their task. By taking consideration on this current obstruction, Government had injected funds of 1 billion Ringgit for Industrial Digitalization Transformation Scheme as prioritizing to use new technology towards high-income economy under Budget 2021 planning. (Ministry of Finance Malaysia, 2020)

Figure 7: Internet of Things (IoT)

Maxis Communications and Digi Communications are among the telecommunication’s SME that stand out with their digital business plan to support their plan users. By receiving these funds, the SMEs now can change their manual operation system into digitalize operation. Going through MDEC, the eligibility to apply for the Grant are covering from the micro and new start up SMEs as well. This digitalized system not only help the speeding of business operations but also expanding the marketing to a wider region. If previously the marketing only limited in the country or certain area, but by using this digitalize marketing, the SMEs potentially expanding their market to locally and globally.

Figure 8: DIGI Plan

Figure 9: MAXIS Plan

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Figure 2.6: Marketing Strategies

Besides that, focusing on the mobile application had become the major trending to all mobile users. In recent Malaysia Apps Statistics in 2020 data collections held by 42matters web portal, the usage of mobile application has rapidly increase during the Movement Control Order (MCO) period. From here on, we can relate that most of the Application been download are related to the current online working and studying methods due to the lock down period. Flooding of people in using the same applications in one time can cause a high traffic on the networking too. This should be an idea for the SMEs to establishing a new workable online platform or application to solve this networking issues.

Figure 10: Online Classes

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2.0 contribution Of SMEs to Economy and Development Towards IR4.0 Adoption (cont’d) 2.2 Complying Cloud Computing The integration among different equipment in an automation solution is essentials to bring improvements to production process and to contemplate the concept of IR 4.0. (Saturno et al., 2017)

Figure 11: Cloud computing elements

Nowadays, with a fewer option in hands, in order to fit with this radical technological change, the SMEs must transform themselves towards the IR4.0 sooner or later. (Zaidi et.al,2019).

This is can support by the latest Budget 2021 announcement, where the Government had extend the availability of the Governments funds until 31st December 2023 (Ministry of Finance Malaysia, 2020) in order to allow more time for the SMEs to re-boot their planning and operations system. In enhance, cloud computing is to ensure all the data sharing and data storage are within our fingertips. ‘Paperless’ campaign has been widely implemented globally to achieve the sustainable environment and cloud computing are one of the major contributions to this.

Figure 12: Paperless Office concept

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Cloud computing should be implied internally starting with the office operation itself, where all the data to be share through the online sharing platform such as Dropbox, Google Drive and others.

As simple as that because the user can control whether they data to be privately share of publicly share to outsiders. One of the simple examples that we can refer to are the online boarding pass.

Slowly most of the Airline company has change into online boarding system and online ticket purchasing. Most of the Airline company will do an online promotion to encourage consumers to use the online platform for purchasing the tickets and this automatically ending the long que of people at the airport too.

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3.0 Suggestion to government in assisting SMEs for IR4.0 The shift factors determining the success of Fourth Industrial Revolution or Industry 4.0 in SMEs Malaysia are by optimizing in a balance manner between people, process and technology. Above all, it is crucial for our Government to assist SMEs developing their company by measuring their gap and readiness and guiding them to adopt IR 4.0. The wellcoordination between government and SMEs is a self-confident device ensuring the vision and mission of IR 4.0 achieved.

There are several main suggestion and initiatives on how government could assist SMEs by focusing on resilient and globally-competitive SMEs through Market Access & smart partnership, providing business support of infrastructures and facilities, promoting the development of innovation and technology adoption, Financial Assistant and Support, Sustainability growth solutions through various platforms and programme for SME development and robust the business models through Human Capital Development.

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Market access

3.2

infrastructure Innovation & technology adoption

3.4

3.1 3.3

Financial assistance human capital development

3.5 17

3.1 Market access By opening up more possibilities to SME to sell their goods and services within and across border and entering a foreign market, market access in the conditions and vast opportunity for SME to growth globally. According to the World Trade Organization (WTO), "market access for goods in the WTO means the conditions, tariff and nontariff measures, agreed by members for the entry of specific goods into their markets." Engaging and gaining market acesss is one of the key to go forward in trade market.

Some of the suggestion to Government to tackling market access restrictions and limitation as below for SME to adoption of IR 4.0:

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3.1.1 Digital Free-Trade Zone (DFTZ) DTFZ is an initiative to capitalize on the confluence and exponential growth of the internet economy and cross-border eCommerce activities (SME Corp Malaysia). DFTZ consist of three components which are eFulfilment Hub, Satellite Services Hub and eServices Platform to help, connect and manage the exporting business efficiently. Through DFTZ, it can help the SME to export their product globally with ease, enable market places to source from Malaysian manufacture, making Malaysia the regional fulfilment hub for global brands to reach ASEAN buyers and nurture the ecosystem of innovation in eCommerce and internet economy.

Figure 13: The automated guided vehicles (AGVs) move customers’ orders around the warehouse. Image Source: Quicktron

Government can assist in providing the facilities of warehouse that using the latest technology that including sorting, shelving and pick pack facilities. We can see the example of Alibaba’s warehouse in youtube by searching this title “Inside Alibaba’s smart warehouse staffed by robots” by Business Insider. It was already implemented 3 years ago and you definitely will amaze how robotics technology run so fast align with DTFZ. DFTZ also can assist SME by spearheading the collaboration between various stakeholders, agencies, ministries and enablers in the eCommerce such as MDEC, SME Corp, MITI, MOF, Customs, MOT and MIDA.

TRADE IN GOODS

TRADE IN SERVICES

3.1.2 Knowledge Transfer of Technologies Via Free Trade Agreement (FTA) Next, Government could assist the SME by providing market access that allows the exchanging or transferring knowledge and technologies with Advance Neighboring Countries such as Australia, New Zealand, Japan, Turkey, India, China, via Free Trade Agreement (FTA) into other realms, where it will benefit industry, politics and society.

Trading exercise shall be through offering goods and services that we have in exchange of what we want such as technologies, machineries, robotics etc to adopt the IR 4.0 for SME. See below as an example of trade in goods and services that can be done.

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3.2 infrastructure In order to grasp and support the Industry 4.0, the technology needs in providing smooth deployment the high speed broadband infrastructure in key industrial and manufacturing area is crucial. The suggestion on how the government could assist in enabling good digital infrastructure and its ecosystem such as 100% tax exemption or tax incentives for the MSC status manufacturing SME in Malaysia for at least 10 -15 years, centralize the SME manufacturer’s technology park in a few cities and satellite SME’s hub around Malaysia.

3.2.1 Tax exemption or incentives for Multimedia Super Corridor (MSC) status manufacturing companies The benefits of operating within the MSC status compound or area has big impact to SME. The list is exhaustive, but worth mentioning. Below are the benefits and some of the ideas to government why it is

.

significance to have MSC status

Source: www.mdec.com.my

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3.2.2 Centralize the SME manufacturer’s technology park (TP) in a few cities The suggestion of centralizing the SME technology park (TP) in a few cities or sub urban area where government could provide the office shared facilities, co-working spaces, labs, machinery and equipment, production plant, infra mapping and testing facilitation. Through this TP, it shall accelerate the growth of SME in the renewable energy, ICT, biotech, and engineering industries to grow from ideation to commercialization. In addition to this, TP can be supported with panel of service provider, in-house coaches and subsidiaries to give comprehensive and integrated advisory services including business and technical skill enhancement, access to funding, market access and cyber security.

Source: http://www.tpm.com.my

3.2.3 Satellite SME’s hub around Malaysia.

Similar to Technology Park initiative, the idea of providing the Satellite SME Hub around Malaysia is a platform or one stop centre for SMEs to acquire knowledge, learn business best practices through achievement and obtain essential information on business start-up for IR 4.0, know-how, process, and business development. It is also one of the method for SME to obtaining information and access relevant information online and offline. To reach the SME in rural area, ‘SME Hub On-wheels’ is the idea providing business advisory services, resource centre, info centre and marketing Virtual SME Hub at located area.

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3.3 Innovation & technology adoption Technology advancement is increasingly propelling global manufacturing competitiveness and this Policy fosters a seamless and accelerated adoption of Industry 4.0 technologies, especially for SMEs. Understanding of and access to advanced, cost-effective and interoperable Industry 4.0 technologies are at the core of revealing the potential of Industry 4.0.

At present, the majority of Malaysian manufacturing firms surveyed adopt less than 50% automation. The experiences from other countries demonstrate the importance of digital/technology labs and collaborative platforms, especially publicprivate partnerships (PPPs), in disseminating Industry 4.0 technologies and transferring knowledge(Industry 4WRD). How the Government could work together with SME is to set the mandatory of standard compliance with technology adoption to them and free training to the junior-senior manager level. In construction industry, the specific needs of Building Information Modelling implementation is demanding if we want to compare with other well developed countries.

3.3.1 Adoption of BIM Building Information Modelling (BIM) in one of the advance tool modelling in construction sector. Most of the stakeholder especially contractors and consultant are well aware of its advantages such as clash detection, improve efficiency, quality and coordination in managing design construction. However, it is clear that the numbers of project using it is still low in both private and public sectors (Idris O., 2020). From the numerous investigation done by several universities, the lack of practicality and hands-on using BIM and low source of fund to adopt this innovation. How government could do is to mandatory all public projects using BIM by giving free software at the stipulate project time and gives free training to the project team from various field, through-out the project cycle.

Figure 14: BIM sample 3D Modelling (Wsp,2020)

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3.4 Financial Assistance (Government Funding) 3.4.1 Grants To provide greater financial accessibilities, the Government through its agencies offers various grants and incentives to the SMEs. Partial matching grants are provided to finance product and process improvement quality certification and management system improvements, market development, skills upgrading, factory audit and acquisition of strategic technology. There are many grants that government offer for SMEs five of that stated below:

I.

Matching Grant for Business Start-Ups

The objective for this Scheme is to provide assistance to entrepreneurs in starting up of businesses.

Qualifying Criteria The grants offered to assist companies to set-up enterprises comprise: • manufacturing companies or companies providing manufacturing related services incorporated under the Companies Act 1965 or enterprises in the manufacturing sector incorporated under the Registration of Business Ordinance 1956 with annual sales turnover of not exceeding RM25 million or full-time employees not exceeding 150; • for the services sector, businesses incorporated under the Registration of Business Ordinance 1956 with an annual sales turnover of not exceeding RM5 million or full-time employees not exceeding 50; • at least 60% equity held by Malaysians; and • possess valid premise license.

Sector Coverage • Manufacturing; • Manufacturing Related Services**; and • Services (excluding insurance and financial services).

II. Matching Grant for Product and Process Improvement The objective of this scheme is to provide matching grant to SMEs for improvement and upgrading of existing products, product design and processes.

Qualifying Criteria • manufacturing companies or companies providing manufacturing related services incorporated under the Companies Act 1965 with annual sales turnover of not exceeding RM25 million or full-time employees not exceeding 150; • for the services sector, businesses incorporated under the Registration of Business Ordinance 1956 with an annual sales turnover of not exceeding RM5 million or full-time employees not exceeding 50; • at least 60% equity held by Malaysians; and • possess valid premise license.

Sector Coverage • Manufacturing; • Manufacturing Related Services**; and • Services (excluding insurance and financial services).

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3.4 Financial Assistance (Government Funding) – cont’d IV.

iii. Technology Acquisition Fund (TAF) The objectives of TAF are as follows: • to promote technology upgrading through the introduction and utilisation of technologies in the manufacturing and physical development of existing and new products or processes; • to enhance the competitiveness level of Malaysian companies to compete globally; and • to increase wealth creation and technology content of Malaysian companies via acquisition of foreign technology.

Priority Technology Clusters: Project proposals eligible for consideration must be listed in the following Priority Technology Clusters: • Biotechnology; • Agriculture; • ICT; and • Industrial (advanced materials, advanced manufacturing, manutechnology, alternative energy, waste to wealth).

Funding Quantum The quantum of funding approved under TAF is up to a maximum of 50% or RM2,000,000 whichever is lower depending on the merits of each application.

Enterprise Innovation Fund (EIF)

To be eligible for EIF: • applicants must be a Malaysian individual/soleproprietor, micro, or small enterprise; • applicants must show proof that they can fund their share of project costs not funded under Innofund; • project proposal must contain elements of technological innovation leading to commercial sable applications, products or services; • the technological innovation may be either: - recombination/fusion/integration or - replication/refinement of existing technologies with improved value, enhanced efficiency or cost reduction.

• have appropriate management team (for micro and small enterprise only).

Quantum of Funding The quantum of funding approved under EIF will be determined on the merits of each application listed below: Target Group Quantum • Individual/Sole Proprietor - Up to RM20,000; • Micro - Up to RM50,000; and • Small - Up to RM250,000.

Scope of Funding The eligible expenditures are: • Consumables/aterials; • Equipment (not more than 40% of total project cost); • Expenditure for services (consultancy and testing); • Project Documentation; • Regulatory and Standard Compliance; and • Market testing (including samples, fees and documentation for participation in trade fairs and exhibitions).

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V.

Matching Grant for Market Development

The objective of the scheme is to provide a matching grant to assist SMEs to undertake activities for the development of export markets.

To qualify SMEs must be: • incorporated under the Companies Act 1965; • for professional services (such as lawyers, accountants, doctors, engineers and architects), partnerships and sole proprietors are also eligible; • at least 60% equity held by Malaysians; • for manufacturing sector, having an annual sales turnover not exceeding RM 25 million (based on the latest financial report) or not more than 150 full-time employees; • for services sector, having an annual sales turnover not exceeding RM 5 million (based on the latest financial report) or not more than 50 full-time employees (financial services are not eligible for MDG); and • for trading companies that meet the following conditions: - having annual sales turnover of between RM10 million to RM25 million or export sales of RM3 million or not more than 150 full-time employees (Women owned enterprise are exempted from this condition); - exporting “Made In Malaysia” products especially those manufactured by SMEs; and - not more than 20% of the company's annual sales is derived from trading in primary commodities. For description of primary commodities, please refer to Annex Aof MDG application form.

Form of Grant Companies can obtain a 50% reimbursable matching grant on the approved cost of the eligible activities. The grant is available for one or more of the eligible activities subject to restriction on repeat participation.

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3.4 Financial Assistance (Government Funding) – cont’d 3.4.2

Loans

Other than that, there are the loan that provided from government for the SMEs such as:

i. IKHTIAR FINANCING SCHEME Objective To reduce poverty in Malaysia through the provision of interest free microcredit facilities to the poor and lowincome households to finance income-generating activities and thus improve their standard of living.

Eligibility •Malaysians above 18 years old •Low-income households (below RM3,850 per month) Tenure •Minimum: 25 weeks •Maximum: 250 weeks Interest Rate •10% of annual competitive administration charge

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ii. SKIM PEMBIAYAAN EKONOMI DESA-I Objective •To increase the number of rural Bumiputera entrepreneurs in all dynamic and legal economic areas.

•To upgrade the business of rural Bumiputera entrepreneurs to be more dynamic, competitive and resilient.

•To provide funding facilities for rural Bumiputera entrepreneurs in order to improve the rural economy.

• To provide a collateral-free funding scheme at a low instalment rate.

•To encourage the creation of Bumiputera Commercial and Industrial Community (BCIC) among rural residents.

Target

•Group Rural Entrepreneurs Coverage •To finance purchase of machinery & equipment, stocks or working capital and minor renovation of business premise Tenure Maximum: •5 years (operation - 3 years and below) •7 years (operation - above 3 years)

Interest Rate •5% per annum (monthly basis)

iii. MICRO ENTERPRISE FUND To increase access to micro financing for micro enterprises with viable businesses.

Coverage •To finance working capital or capital expenditure purposes.

Quantum of Financing •Maximum: RM50,000 per micro enterprise Tenure •Maximum of 5 years Interest Rate •6% to 24% per annum 27

3.4 Financial Assistance (Government Funding) – cont’d Pioneer Status (PS) If you produce government-promoted products or participate in promoted economic sectors, this allows you to get between 70% and 100% tax exemption for a period of five or 10 years. Income exempted under PS can be used in dividend payments.

3.4.3

Tax incentives

In Malaysia, tax incentives, both direct and indirect, are provided for in the Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Excise Act 1976 and Free Zones Act 1990. These Acts cover investments in the manufacturing, agriculture, tourism (including hotel) and approved services sectors as well as R&D, training and environmental protection activities.

The direct tax incentives grant partial or total relief from income tax payment for a specified period, while indirect tax incentives are in the form of exemptions from import duty and excise duty.

Investment Tax Allowance (ITA) The ITA is an alternative to PS and is mutually exclusive, which means that you cannot get both at the same time. ITA also applies to promoted products and sectors, and is granted based on your capital expenses on industrial buildings, plant and machinery used for those products or sectors.

Reinvestment Allowance (RA) You can give up your PS/ITA status and take up RA instead. RA applies to Malaysia-based companies that have been in operation for at least three years that are involved in manufacturing and selected agricultural activities. A rate of 60% is given for 15 years for reinvesting capital expenditure into expansion, automation, modernization or diversification of their existing business.

Accelerated Capital Allowance (ACA) After benefiting from RA for the 15 years allowed, if you continue to reinvest in promoted products and sectors for three years, ACA provides an initial allowance of 40% and then 20%, and allows your capital expenditure to be exempted for those three years.

Allowance for Increased Export You get a tax exemption of 10% and 15% for exported products that gain at least 30% value-added and 50% value-added respectively. In the automotive industry, the National Automotive Policy (NAP) allows 30% and 50% for corresponding levels of value-add to the exports.

Industrial Building Allowance (IBA) If you construct a warehouse for specific purposes, such as approved service projects, agriculture, manufacturing, hotels (registered with the Ministry of Tourism, Arts and Culture), infrastructure or mining facilities, you get an initial allowance of 10% and subsequent 3% annual allowances that can be written off in 30 years.

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3.4 Human capital development 3.5 Human Capital Development Malaysia has placed significant policy emphasis on indigenous SMEs as a basis for achieving economic growth and competitiveness. This renders the human capital infrastructure of SMEs of critical importance Malaysia has placed significant policy emphasis on indigenous SMEs as a basis for achieving economic growth and competitiveness. This renders the human capital infrastructure of SMEs of critical importance Malaysia has placed significant policy emphasis on indigenous SMEs as a basis for achieving economic growth and competitiveness. This renders the human capital infrastructure of SMEs of critical importance Malaysia has placed significant policy emphasis on indigenous SMEs as a basis for achieving economic growth and competitiveness. This renders the human capital infrastructure of SMEs of critical importance.

3.5.1 Enterprise 50 (E50) Award The Enterprise 50 (E50) is a prestigious award programme that recognizes the achievements of Malaysia's enterprising small and medium enterprises (SMEs), which are well positioned for the future. A total of 50 winners are selected based on their financial capabilities, operations and management competencies, among the nominations received.

The objectives of this programme are: • •

• •

Promote a greater pursuit of excellence among local enterprises; Recognize contributions of local enterprises towards the growth of the nation and to encourage them to assume a greater role in the economy; Encourage and recognize the entrepreneurial spirit among local companies; and Establish a platform on which emerging local companies can gain recognition and greater visibility.

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3.5 Human Capital Development (cont’d) 3.5.2 SME Innovation Award The International Innovation Awards (IIA) recognizes outstanding innovations across the globe in the category of Product, Service & Solution and Organization & Culture. Innovative companies from more than 16 countries have been awarded annually.

The main objective of the Award is to encourage SMEs to adopt innovative approaches and practices leading to business transformation, new markets, productivity improvement and increased investment.

3.5.3 Entrepreneurship & SME Development Programmes To address the issues encountered by SMEs in critical areas of business operations; namely, access to finance, human capital development with emphasis on entrepreneurship development and productivity, adoption of technology and innovation with emphasis on raising the technological competence of SMEs and ultimately their productivity level, market access to spur market growth domestically and internationally, as well as the provision of good infrastructure for SME growth.

3.5.4 Program National Mark of Malaysian Brand SME Corporation Malaysia in collaboration with SIRIM QAS International Sdn. Bhd. developed the National Mark of Malaysian Brand, a certification scheme that depicts quality, excellence and distinction of products and services of Malaysian companies. Through this effort, the Government hopes to change the perception that local products are of lower quality, reliability and low packaging standards than big brand names. With the National Mark of Malaysian Brand certification, Malaysian SMEs are able to build credibility and reputation of quality at par. The National Mark of Malaysian Brand was first launched in 2009 by the then Crown Prince of Perak Darul Ridzuan, HRH Raja Dr. Nazrin Shah Ibni Sultan Azlan Muhibbuddin Shah.

Under this programme, participating Malaysian companies will be evaluated through stringent standards, whereby auditing and monitoring measures will be put in place to ensure adherence to the quality standards set. If successful, the products or services will be given the right to carry the National Mark of Malaysian Brand for a period of two years. In order to retain the Mark, auditing and monitoring measures will be done periodically to ensure adherence to the criteria set. Various trade promotion activities will be undertaken to promote brands that have been awarded with the National Mark of Malaysian Brand.

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3.5.5 1-InnoCERT Programme The 1-InnoCERT certification process involves a two-stage assessment. Potential innovative companies are required to conduct an On-line Self-Assessment (www.1-innocert.my) to gauge on their readiness to be certified as a 1-InnoCERT company. Upon completing the self-assessment, the on-line system will generate a Technology Innovation System Evaluation Index, ranging a score from 0 to 1,000. A scoring of higher than 700 is an indication that the company’s internal innovation system and processes is ready to comply with the requirement.

Companies with difficulties in scoring higher than 700 can attend regular sessions of pre-certification training to understand the 1-InnoCERT criteria, and on how to become more innovative. Upon reaching a score of more than 700, the company can apply for an on-site innovation audit to be conducted at their premise. On-site innovation audit is compulsory to ensure that companies applying for the 1InnoCERT certifications are indeed innovative and complies with the requirement of the 1-InnoCERT criteria.

Upon a successful passing of the on-site audit, the company can then officially apply to be certified as a 1-InnoCERT certified company. However, the approval is subject to acceptance by the 1-InnoCERT Approval Committee, which oversees the overall certification Program. Please take note that minimal fees are chargeable for the 1-InnoCERT certification (RM5,000.00 for first time certification and RM3,000.00 for renewal of certification).

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CONCLUSION IR 4.0 is a very popular topic nowadays due to it play an important role in the

manufacturing industry. Malaysia are one of the new players in the industry 4.0 where we had implemented few of the nineth industry 4.0 technologies such as automation, iOT, robotics and big data analysis. This IR 4.0 is expecting to change how e live, work and communicate.

For Malaysia, it is important to keep trying to implement this system to avoid we are not left too much far behind other developed countries in enabling we are kept competitive in the industry. It had been mentioned by StudyMalaysia (2020)

citing The World Economic Forum that 65% of future work from todays primary education had not been created yet today. In this challenging economic nowadays, this country is advisable to keep track regarding this IR 4.0 towards attracting more investment or Malaysia will lag behind other advanced countries like China, US, Japan, and Germany in the today’s marketplace.

Several steps had been taken by the government like market access aspect, infrastructure, innovation and technology adoption, financial assistant and human

capital developed. However, it had been highlighted by Mohamad et al., (2018) that there is not much response to the programmes from manufacturers and organization that tends for the implementation of IR 4.0 are more challenging.

This, suggestion to the stakeholder towards more education and investment towards improving the ability of this revolution in this country.

SMEs play important role in the implementation of IR 4.0. As discussed before, criteria like Integration of Things and Complying Cloud Computing are the aspect where SMEs contribute to this economic revolution. The important of SMEs in this aspect can be seen with the Annual Report of SMEs as mentioned in the Berita Harian where 907,065 SMEs that contribute to the 36% of the KDNKK where SMEs bank had help more than 17,000 SMEs from the year 2005 for cumulative amount more than RM30millions (Mahpar, 2019) 32

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