• Madani Sahari

Expanding parts and components value chain

THE term “manufacturing sector” often leads the laymen to imagine vast factories with long production lines, droves of workers and robots putting pieces in place to build products.

While that’s the literal definition of manufacturing, it is not limited to the downstream activities on the production line alone, as capabilities of manufacturers also lie in key upstream activities in the design and development of products, tooling, and processes.

While the majority of Apple products are assembled in Asia, the sub-components are sourced

around the world from the United States, Europe, and Asia.

Their research centres are also just as scattered around the globe, but the ultimate depiction of the Apple brand is their headquarters in Cupertino, California.

The location of its headquarters gives it that definition of Apple being a true American brand.

The bulk of their gross profits benefits their research and development (R&D), marketing and communications teams while possibly a smaller portion of the revenues goes to the manufacturing line and materials costs.

The point is this — the success of the manufacturing sector is not only dependent on lean production systems and strict quality control.

It also culminates from the abilities of manufacturers to develop products that meet consumer demands, are highly manufacturable and is designed with in process quality built in at the conceptualisation stage.

The automotive industry in Malaysia is well aware of the importance of such upstream activities, and the government is working closely with all stakeholders to develop industry capabilities in these upstream areas.

On a side note, the learning space for capacity building of the entire automotive value chain was the main reason behind the government’s creation of the automotive industry, to begin with.

Nevertheless, such awareness is not just the work of the industry, but rather the mindset and understanding of the nation as a whole, as we are aspiring towards full industrialisation.

This realisation is important for two main reasons.

Firstly, the mechanisms to encourage capacity building must be understood by all stakeholders.

Financing systems, policy makers, educational institutions, and regulating bodies must create the necessary structural framework to allow new investments, human capital supply, and business operations to flourish towards a more conducive ecosystem for upstream activities to take place.

Secondly, it becomes challenging for the mechanisms above to be implemented when it often goes against public opinion.

While constructive criticism is important to ensure a competitive market, the perception of “us versus them” may lead to difficulty in establishing the needed environment for meaningful local capacity development above the line of manufacturing activities alone.

It, therefore, is key that public clarity and understanding of issues, such as education policy, regulations and use of public funding, are established to allow a path of less resistance and increased interest and participation to strengthen the local industry, instead of purely taking the consumer position.

Understandably, the debate for R&D investments lies on the balance against production volume.

In the past five years, the exports of automotive parts and components have risen tremendously, demonstrating the growing confidence of the global markets in local parts and components manufacturers.

However, for us to progress even further, an increase in exports must also translate to higher margins that are accumulated through an increase in higher value, upstream activities that benefit local businesses and the talents what work within them.

To this end, the next phase for the government would be the introduction of future-proofed policies and roadmaps that address the large scale ecosystem which connects the various sectors that affect not only a more integrated technology ecosystem but also a more integrated consumer demand in the future.

In the meantime, the industrialisation of Malaysia is not a government agenda but a national agenda. Therefore, all of us are responsible to ensure that we support the local ecosystem and its products, and create the critical mass we need to spur the economy.

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