February 26, 2018



The Industrial Revolution 4.0 will dominate the manufacturing industry in the near future. Established in Germany, a group of high-tech research experts, at a cost of €500m, had conducted high-tech research project over the last decade, to become pioneer in transforming the future of the world's industrialization. The final report of the Industry Expert Working Group 4.0 was submitted to the German government in 2014 at the Hannover Fair, for implementation.

Driven by the latest development, other countries, such as China, Japan, South Korea and the United States are pursuing proactive measures to create global systems and standards to make their manufacturing industries more competitive over the next decade.

What is Industry 4.0?

Industry 4.0 is a revolution in the world manufacturing industry that combines two isolated technologies namely Information Technology (IT) and Operational Technology (OT).

Among its features are the integration of the digital industry, linking digital and physical elements, physical-cyber-based production systems and the Internet of things (IoT)

In industrial strategy 4.0, computers and machines are integrated to perform new functions and tasks in smart factories, where robots will be linked with remote computers, equipped with automation and capable of reading, interpreting systems and procedures, making decisions and directs the robot to act, with the minimum input from human resource.

Why is it called the Industrial Revolution 4.0?

It is called Industry 4.0 as it is the 4th level in the history of the global industrial revolution.

As we are aware, the Industrial Revolution is a process of change from the agricultural economy to an industry-based economy and characterized by the use of machinery. The Industrial Revolution 1.0 started in Great Britain in the 18th century and then advanced to other countries. The main feature of the Industrial Revolution 1.0 is the use of steam-powered machinery.

The Industrial Revolution 2.0 is characterized by the use of electricity and machinery for large-scale production and automation in the assembly line.

The Industrial Revolution 3.0, better known as the Digital Revolution, is characterized by the use of computer and information technology (IT). It reduces human resource requirements where robots and machinery will take over the task of performing automation functions in the production line.

The Industrial Revolution 4.0 incorporates information technology (IT) and operational technology based on the physical-cyber-system and IoT (internet of things). The use of manpower will be replaced almost entirely with robots equipped with systems and procedures that can interpret and make their own decisions.

Where is Malaysia's position in Industrial Revolution?

Malaysia is currently still in Industry 2.0, which is based on labor intensive.

Today, Malaysia fall behind other countries in the region, such as South Korea that had moved up to Industry 3.0 level, although in terms of industrial development, in 1970s South Korea was behind Malaysia

Can Malaysia disregard Industrial Revolution 4.0?

Can. But we have to accept the fact that we will be left behind by the fast-growing high-tech development which will dominate the manufacturing industry in this globalization era.

We may still recall when globalization was first introduced. We were skeptical and wanted to protect our rights. But we were unable to resist and eventually all of us were drawn into the wave of globalization as it is today.

We also have to accept the fact that foreign investors are now more focused on emerging Asian countries, such as Vietnam, Myanmar, Laos and Cambodia. Their focus on these countries is no longer because of cheap labor but because they have laid the foundation for the development of more advanced manufacturing industries in the countries.

The implication is that if now Malaysia is the 4th largest economy among the 10 ASEAN countries after Indonesia, Thailand and the Philippines, in the next decade Malaysia's ranking may go down and be replaced by countries such as Singapore, Vietnam, Myanmar, Laos and Cambodia.

The Malaysian manufacturing industry is strong and the second largest contributor to the country's GDP. Why change?

Indeed, the manufacturing industry is the second largest contributor (23.0%) after the services sector (54.5%) to the Gross Domestic Product (GDP) in 2016.

Malaysia's long-standing manufacturing industry which remained unchanged at Industry 2.0 level is the main reason Malaysia needs to import millions of foreign workers today.

The importation of foreign labor into this country had obviously deviated from the original goal of overcoming labor shortages in three major sectors, namely plantation, construction and maid services. Today, instead of fulfilling the labor shortage in the above sectors, the importation of foreign labor is directed towards the manufacturing industries and services sectors.

Currently, the importation of foreign labor has created ‘crowding out effects’ in the labor market in Malaysia.

Zahid Hamidi: Almost 2 million temporary foreign workers in Malaysia
It is true that the total exports of the manufacturing industry is high, which is RM645,768 million in 2016 (Bank Negara Report), especially electrical and electronics products which accounted for 36% of total exports.

But we have to accept the reality, not all RM645,768 million of the export value, which always been mentioned by the political leaders to show the strong fundamentals of the Malaysian economy, is accrued to the government’s coffers. Only a mere 25% were collected through corporate tax.

Yet, we have not taken into account the leakages of money from the country's economy in the form of transfer payments made by foreign labor as a result of the industrial development which is based on labor-intensive, Industry 2.0.

The happy faces of a group of foreign workers as they set foot on KLIA

Recently, I have interviewed a group of foreign workers in the manufacturing industries and services sector. Their average income is about RM1,100 per month. Nearly all interviewees send money between RM500 - RM800 to families or parents to their home country.

Just imagine, how much would it be if there were 2 million foreign workers and each of them sent home an average of RM600 to their home country? RM600 X 2 million = RM1.2 billion a month ...!

The amount of money flowing out of the country's economy is huge. The money should be spent in the country to increase private consumption which is a major contributor to the country's economic growth (GDP).

Why, after more than 50 years Malaysian manufacturing industry is still at the stage of Industry 2.0?

It is because since the 1960s, Malaysia opted a strategy of using foreign investment to develop the industrial sector in the country. Hence, there are local industries largely owned by foreign investors who maintained labor-intensive technologies at the stage of Industry 2.0 and the situation remained until today.

Contrary to South Korea where the country was committed to creating competitive local entrepreneurs in industrial sector. Hence, there are high-tech local industries in Korea with big brands such as HYUNDAI, KIA, DAEWOO, SSANGYONG and SAMSUNG

Can we rely on foreign investors to jump into Industry 4.0?

As we know, foreign investors and Multi National Corporations (MNCs) invest in Malaysia due to the various facilities and incentives provided by the government.

In reality, they will not develop Malaysian products. Instead, maintaining the strategy for using existing labor-intensive and low-level of technology in their production, as it remains today.

Has Malaysia ever stepped into Industry 3.0?

Malaysia had stepped into Industry 3.0 when the country successfully developed a high-tech industry, such as PROTON in 1983 when PROTON SAGA cars began entering the market in 1985

But after taking 34 years to develop the industry, beginning from 2017, PROTON is just left by name because PROTON is no more owned by Malaysia but owned and controlled by Zhejiang Geely.

Can Malaysia jump from Industry 2.0 to Industry 4.O?

Let's think logically. While we're shouting and telling people that we're ready to jump from Industry 2.0 to Industry 4.0, but in reality it's not that easy.

Can we attract foreign investors to implement Industry 4.0 in Malaysia?

We can attract more foreign investors to invest in Malaysia. But as mentioned above, the reality is that foreign investors will not develop Malaysian products. Instead, they will maintain the existing labor-intensive technology based production strategy, as it is today.

Should the university change the curriculum to offer new courses in line with Industry 4.0?

This agenda is being seriously discussed at the Ministry of Higher Education and universities. We should not be so excited to change the university curriculum.

Changes can be made on condition that after leaving the university, graduates are guaranteed to be employed in the manufacturing industries with Industry 4.0 standard.

The question is, when will Malaysia have manufacturing industries with Industry 4.0 standard? As we are well aware, over the past 50 years, our manufacturing industry is still in Industry 2.0

We do not want the 1970s issue to recur. When the government announced that the future nation's development will be based on science and technology, the university's intake of science students was doubled. After leaving university, graduates did not become scientists, but eventually became teachers.

What is the Malaysian strategy to face the Industrial Revolution 4.0?

The labor-intensive, Industry 2.0, which had been maintained over the past 50 years, has to change its focus to high-tech capital-intensive Industry 3.0.

History tells us that Malaysia was capable to develop Industry 3.0, such as PROTON in 1983 when the PROTON SAGA car began to enter the market in 1985. After Industry 3.0, it is best to talk and think strategies for the Industrial Revolution 4.0.

Author: Dr Muzahet Masruri. Ph. D (Economics), University of East Anglia, United Kingdom.