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Abdulaziz, Q.A.; Mad Kaidi, H.; Masrom, M.; Hamzah, H.S.; Sarip, S.; Dziyauddin, R.A.; Muhammad-Sukki, F. Industry 4.0 in Malaysian SMEs. Encyclopedia. Available online: https://encyclopedia.pub/entry/53251 (accessed on 20 May 2024).
Abdulaziz QA, Mad Kaidi H, Masrom M, Hamzah HS, Sarip S, Dziyauddin RA, et al. Industry 4.0 in Malaysian SMEs. Encyclopedia. Available at: https://encyclopedia.pub/entry/53251. Accessed May 20, 2024.
Abdulaziz, Qusay Adnan, Hazilah Mad Kaidi, Maslin Masrom, Halim Shah Hamzah, Shamsul Sarip, Rudzidatul Akmam Dziyauddin, Firdaus Muhammad-Sukki. "Industry 4.0 in Malaysian SMEs" Encyclopedia, https://encyclopedia.pub/entry/53251 (accessed May 20, 2024).
Abdulaziz, Q.A., Mad Kaidi, H., Masrom, M., Hamzah, H.S., Sarip, S., Dziyauddin, R.A., & Muhammad-Sukki, F. (2023, December 29). Industry 4.0 in Malaysian SMEs. In Encyclopedia. https://encyclopedia.pub/entry/53251
Abdulaziz, Qusay Adnan, et al. "Industry 4.0 in Malaysian SMEs." Encyclopedia. Web. 29 December, 2023.
Industry 4.0 in Malaysian SMEs
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The implementation of Industry 4.0 is relatively low in Malaysian manufacturing small- and medium-sized enterprises (SMEs). SMEs are facing various challenges, including the need for education and training, budget constraints, and a lack of experience and knowledge among workers.

Industry 4.0 IoT framework SMEs Malaysia manufacturing status

1. Introduction

Industry 4.0 presents new technological capabilities by integrating emerging ICT technologies to optimize production performance. Through the adoption of Industry 4.0 technologies, the IoT has become increasingly important and visible in manufacturing sectors. However, SMEs often lack the human, technical, and financial resources essential to implement Industry 4.0. Industry 4.0 is defined as a manufacturing procedure that is adapted, service-oriented, optimized, integrated, and interoperable through the use of several advanced technologies [1]. It has revolutionized how things are created, shipped, used, maintained, and serviced [2]. It has also affected the energy footprint of companies as well as their procedures, management, manufacturing power, and skill requirements for supply chain management [3]. The manufacturing industry’s steady and continuing flow of brand development programs is driven by shortening product lifecycles [4]. Moreover, the current COVID-19 pandemic presents a chance for a “new generation of entrepreneurs” to drive the next industrial revolution and to develop innovative business models employing cutting-edge technology [5].
According to Bawany [6], Industry 4.0 refers to the concept of “smart factories,” in which machines are improved by the use of web connectivity since they are connected to a system capable of seeing the whole manufacturing chain and making choices on its own. Compared to conventional automated processes, “smart factories” represent an important step toward a fully integrated and flexible system, in which machines and computers interact, collect, and exchange information, and use that data to optimize production efficiency and strengthen a factory’s competitive advantage in the market [7].
Because of globalization and speedy technological improvements, small- and medium-sized enterprises (SMEs) now have a better chance of competing successfully. SMEs are recognized as the backbone of the economy, accounting for the majority of a country’s gross domestic product [8]. Increased productivity, effectiveness, adaptability, and expanded manufacturing capacity; cost-effectiveness; enhanced quality monitoring and controlling; decreased waste and delivery time; and an incredibly stressful work environment are some of the ways Industry 4.0 might affect manufacturing SMEs [9][10]. By integrating IoT devices and services, SMEs can collect and analyze real-time data from their production procedures, which can help to identify inefficiencies, bottlenecks, and areas for improvement. Then, this information can be used to adjust the behavior of the devices and services in real time, improving overall performance and reducing downtime [11]. Therefore, situation-aware dynamic service coordination in an IoT environment can help to improve efficiency, reduce costs, and can enhance overall productivity [12].
Malaysia’s economy relies heavily on SMEs [13]. The majority of SMEs are connected with business organizations, and their contribution to the gross domestic product (GDP) is almost 47%, which, by 2020, expanded to 50% of manufacturing yield [14]. Malaysia’s manufacturing industry is the second-largest contributor to overall SMEs, accounting for 5.3% of all SMEs with 47,698 establishments [15]. Since the automotive industry is crucial to Malaysia’s efforts to become an industrialized nation, on 21 February 2020, the Ministry of International Trade and Industry (MITI) launched the National Automotive Policy (NAP) 2020 [16], which was an extension and expansion of NAP 2014, that intends to make Malaysia a regional leader in automotive manufacturing. The manufacturing sector of Malaysia contributes to 80% of interregional merchandise trade, while services account for just 20% [17].

2. Current Status and Practices of Industry 4.0

Through Industry 4.0, the manufacturing sector is changing worldwide from a labor-intensive landscape to a digitalization and automation landscape [18]. Cloud computing, cyber-physical systems, intelligent systems, the Internet of Things (IoT), and robotics are all examples of manufacturing technologies that contribute to the growing trend of automated data sharing and configuration or replanning of production [9]. The goal of Industry 4.0 is to deliver IT-enabled mass customization of manufactured goods; to enable the fully adaptable and automated adjustment of the manufacturing process; to track the components and products; to improve communications between parts, machines, and products; to use human–machine interaction (HMI) paradigms; and to accomplish IoT-enabled manufacturing optimization in smart factories. The aim of industry 4.0 is to establish “smart factories” where the IoT and cloud technology are used to improve and revolutionize industrial technology [19].
Information-sensing devices and systems, the Internet, and various access networks are all part of the IoT, which is a massive intelligent network capable of providing real-time data and insights. Within the Industry 4.0 framework, situation-aware dynamic service coordination can help to improve industrial autonomy and virtualize the production process [12][20]. To be competitive in today’s global economy, it is imperative for manufacturers to invest in Industry 4.0 [21]. Furthermore, the manufacturing sector continues to the most significant industry in the economy of Malaysia, as it has the biggest multiplier impact on the country’s progress and operations. As of the year 2020, approved investments in Malaysia totaled MYR 164 billion, with the industrial sector receiving the largest share at MYR 91.3 billion [22].
Leaders in international manufacturing industries such as Japan, Germany, and the USA see Industry 4.0 as a chance rather than a risk, although certain manufacturers are significantly less confident due to the complication of altering industry boundaries [23]. Despite that, Shaalan et al. [24] stated that manufacturers are not as ready as they should be for the many features of Industry 4.0 and to reap its benefits. Compared to the United States and Germany, Japan demonstrates a lesser level of readiness for Industry 4.0 [25].
In terms of the industrial revolution, Malaysia’s manufacturing sector is currently at a point between Industry 2.0 and 3.0 [26]. The vast majority—98.5%—of Malaysia’s 49,101 manufacturing establishments are SMEs, whereas just 1403 are considered to be large firms [27]. The majority of Malaysian industries are SMEs. Currently, SMEs account for 59% of all jobs, and they produced 38% of the country’s GDP last year [28]. If SMEs do not realize the critical nature of implementing Industry 4.0 to enhance their manufacturing competitiveness, the country will face a crisis [29].
Only 30% of Malaysian firms are even familiar with Industry 4.0 [30]. Despite widespread recognition among manufacturers of Industry 4.0’s potential benefits and chances for increasing competition, the extent of preparation for this shift has varied widely among different nations, industries, and even individual businesses. Executives in Malaysia, however, are largely optimistic as they prepare for Industry 4.0 [31]. According to the Global Competitiveness Index 2017–2018, Malaysia has moved up from the 25th position (2016–2017) to the 23rd position (2017–2018) out of 137 economies around the world in terms of overall competitiveness [32].
Money was set aside in the 2019 federal budget to encourage businesses, especially smaller ones, to implement Industry 4.0 technology and digitize their operations, and therefore compete more effectively in the global marketplace. In the 2019 budget, the Malaysian government allotted MYR3 billion to the “Industry Digitalization Transformation Fund” and MYR210 million to the Readiness Assessment Program to accelerate the uptake of technologies related to Industry 4.0 in Malaysia’s industrial sector [33]. As part of the 2020 budget, the Malaysian government planned to invest in the 5G ecosystem, launch the Connectivity Plan, and to provide a range of investment incentives to help local businesses to enter Industry 4.0 [34].
The technological adoption rate in Malaysia is around 20%, notably among SMEs. The majority of manufacturing businesses have adopted less than 50% automation [35], despite measures created by the Malaysian government to support the technological growth of manufacturing firms. While the government of Malaysia has taken steps to encourage SMEs’ digitalization, the COVID-19 pandemic has caused only 25% of Malaysian businesses to speed up their digital transformation efforts, while 60% have slowed down. In addition, the Malaysian manufacturing sectors have had difficulties adopting Industry 4.0 due to a scarcity of technical facilities and infrastructure as well as a lack of a highly skilled labor force and resources [36].
Despite the Malaysian government’s National Policy of Malaysia on Industry 4.0 (Industry4RWD), which aimed to drive manufacturing industries toward Industry 4.0, the initiatives have not been widely available to the general public at this time because contact is primarily restricted to technocrats. With respect to Industry 4.0, bridging the gap between small- and micro-sized firms or even medium-sized firms at the other end of the technical divide will be difficult if the necessary support infrastructure is not in place. Production upgrades from 2.0 to 3.0 occur very slowly, which is exacerbated by the fact that Malaysia is not a technology-producing nation [29]. Luthra and Mangla [37] emphasize that Industry 4.0 is a fairy tale to emerging nations when a country is ambiguous on an exact definition of proper practice and understanding in business.
Malaysia ranks above all of the 17 East Asian and Pacific economies, ahead of Indonesia (36), Thailand (32), China (27), and the Republic of Korea (26). Malaysia’s manufacturing industry provides 23% of the nation’s GDP [38]. Malaysia maintains a competitive and strong position among global competitors despite widespread ignorance of Industry 4.0. Indeed, the Malaysian government has sent alerts to manufacturers about this revolution, and they have been strongly urged to join it. This is a particular challenge for manufacturers who have completely adopted Industry 4.0 standards [39].

3. Challenges of Industry 4.0 during the Implementation Process

Even though Industry 4.0 would generate economic advantages, there remain challenges to its adoption. The early development of Industry 4.0 is a contentious issue among practitioners and researchers. Numerous scientific, economic, social, political, and technical dimensions may be used to recognize the challenges of Industry 4.0 [40]. During the preliminary phase of implementing Industry 4.0, first, organizations will confront barriers to adopting this new revolution that include acknowledging implementation necessity and preparing the corporation’s transition procedures [41].
Before initiating a transition, management has several considerations and concerns regarding the risks associated with the procedures as well as the marginal profits that will result from the adoption of Industry 4.0. These concerns are the impediments to Industry 4.0 adoption. The most likely cause of reluctance among companies preparing to launch an Industry 4.0 effort is the possibility that investment costs may exceed the anticipated growth of a firm, ultimately resulting in an economic deficit [41]. Industry 4.0 is difficult, and its advancement is a building-block procedure. According to a survey conducted by Hamidi et al. [42], one of the challenges faced by firms in implementing Industry 4.0 is a lack of financing for its maintenance.
According to a survey conducted by Müller et al. [43], one of the biggest challenges that SMEs face is the high cost of investing in information technology (IT) infrastructures, machine parts, and, last but not least, the costs for technical training and IT personnel. Improving or replacing old IT infrastructures is expensive, which is a problem for all companies [44]. Massive investments in modern IT infrastructure relevant to Industry 4.0 are required for industrial IoT development [45]. According to Gilchrist’s [30] research, companies need financial support to invest in or join Industry 4.0 roadmaps. Further, the preliminary phase of implementing Industry 4.0 has cost implications such as professional consultation, advanced technology through all levels of the organization, high-performance communication and information technologies, infrastructure, highly skilled workforces, and the re-engineering and re-evaluation that will be formed to build the Industry 4.0 platform. Another challenge associated with implementing Industry 4.0 is the uncertainty around its potential financial benefits [46].
Management is hesitant to implement Industry 4.0 due to cost and benefit concerns. Time constraints are another challenge that management faces. The transition to an Industry 4.0 infrastructure is labor-intensive process [47]. Many experts have estimated that it will take 20 years for the manufacturing sector as a whole to make the transition to Industry 4.0 [48]. More specifically, a firm needs a minimum of 10 years to lay out a solid digital foundation [49]. Multiple configurations of smart devices are needed for a full Industry 4.0 platform, which take time and money to build before the platform can be used in manufacturing industries [50]. Regarding managing time, management faces two main challenges. First, the time needed to adopt, test, and execute technologies relevant to Industry 4.0 might have an impact on regular operations. Second, the organization has to establish a mature Industry 4.0 ecosystem, and the benefits of deploying Industry 4.0 will take some time to become apparent [20].
Management is also concerned with improving the human resource development process to implement Industry 4.0. The availability of skilled personnel at various organizational levels to cope with the rising complexity of future manufacturing procedures is also a significant challenge [51], and it is not exclusive to the financial capital necessary to install complicated technology. In the future, autonomous robots will take over low-skilled employment, forcing workers to acquire new competencies connected to the use of smart technologies [52]. According to research on the risks of Industry 4.0 conducted by Tupa et al. [53], human resource (HR) departments are likely to have a shortage of suitably trained employees for deployment in the new digital workplace. The manufacturing problem will worsen due to a lack of specialists and people willing to take on steep learning curves. The lack of experience and workers on learning slopes will worsen the manufacturing issue [54].
Workers’ jobs will soon be increasingly automated; thus, it is important to equip the next generation with the skills necessary for Industry 4.0 [55]. According to a survey by Müller et al. [43], getting staff on board with Industry 4.0 is a major challenge for businesses. The lack of Industry 4.0 capabilities and skills, mainly in the area of IT, is the reason for the low acceptance of Industry 4.0 competencies and skills, leading to job loss. However, rather than being replaced by robots, Bragan et al. [56] see humans and machines working together. An important aspect of a worker’s role in the age of Industry 4.0 is to manage complicated and indirect activities, such as monitoring everyday activities using smart devices instead of transferring goods. Therefore, management should place a premium on multidisciplinary training in areas such as engineering, informatics, mathematics, and economics [45].
There is a potential for several psychological risks to emerge, which poses a serious challenge to occupational safety and health [54]. For instance, existing workers may experience unease when manual labor is replaced by automation or robots [56]. Indirect risks rise when humans and technology work closely together. In the context of Industry 4.0, Khalid et al. [57] listed the potential risks associated with human and machine collaboration, including those posed by the robot itself, those posed by the industrial process, and those posed by a malfunctioning robot control system. The success of cyber intelligence relies heavily on computational intelligence for tracking, analyzing, and recognizing virtual potential threats to combat hackers, viruses, and terrorists who use the World Wide Web (www) for cyber harassment and stalking coercion, extortion, stock market deception, complicated industrial espionage, and making plans or carrying out terrorist activities. With respect to optimizing production and manufacturing decisions, today’s information-based network construction lacks the necessary self-computing, self-sensing, self-maintaining, and self-organizing capabilities.
Ling et al. [20] described the numerous challenges that have been identified as continuing to be technical challenges in the early stages of Industry 4.0, especially the growth of the IoT, such as the absence of standardization, the reality that privacy and security solutions are needed, and the errors in data analytics technologies. Most firms are concerned about the privacy and security of their data since the infrastructure of Industry 4.0 is either cloud-based or web-based [58]. Cybersecurity is the problem, as information has become a lethal resource [59]. Massive amounts of data are collected from many sources, for instance, by evaluating manufacturing data and integrating the findings with consumer information systems [44]. In addition, firms in the corporate value chain should be able to send and receive data via the IoT in an ideal Industry 4.0 setting. Confidential data and information may be leaked because various cooperating firms have varied levels of cybersecurity. Small firms within a value chain with limited resources may have inadequate cybersecurity systems [60].
Despite a firm’s full adoption and integration of all Industry 4.0-related technologies, communication protocols, and IoT hardware [61], it is claimed that there is still a gap for this completely linked platform to gather relevant data and to analyze that data for implications. There is concern over cybersecurity due to insufficient technical support for the development of Industry 4.0 technologies as well as the leakage of sensitive data through the internet. To stop cyberattacks on the IoT data connection and data theft, all participants in the value chain must take precautions to protect their data [62].
The use of the IoT, people, and data will generate opportunities for industrial espionage, data theft, and cyberattacks [44]. The cybersecurity problems are not just restricted to data disclosure but are on the edge of betraying private data, and last but not least, the production system is under the unlawful control of third parties [23]. Industry 4.0 will increase the need for secure data architecture and secure design practices [63]. Automatic detection of viruses, attacks, and threats with zero installation is a must-have for the smart manufacturing system. Meanwhile, Gilchrist [30] investigated the sustainability challenge that many businesses face when attempting to implement Industry 4.0 across their entire organization and all of their factories at once. Up until now, many businesses relied on a separate application network. When several real-world items are linked together, scalability becomes a challenge. The challenge of scalability is complicated by the need for multi-tiered data transfer and communication, data management and processing, and service delivery [64]. To meet the need for whole-company and cross-company collaboration, as well as that of suppliers and consumers, a scalable solution is necessary [65].
A report by Deloitte [44] pointed to one of the main challenges of Industry 4.0 as being the management of a vast amount of generated data and the transformation of the data into meaningful information. According to a survey conducted by Thames and Schaefer [66], the integration of data is one of the top three challenges encountered during the implementation of Industry 4.0. The difficulty in integrating data from various smart devices into a standard format was also highlighted as a challenge to Industry 4.0 [65]. In Industry 4.0, data become a company’s most valuable assets; therefore, the risks associated with data collection, interpretation, and disclosure are very high. Information risks, including data loss, integrity loss, and a lack of relevant information, can occur during management system implementation [67]. New product or service launches, innovations, and alternative business models can all pose challenges if a firm is having problems with technology. Different types of machines have variable degrees of autonomy and have different lifecycles that put a strain on businesses because some equipment needs to be replaced while others may need modification to different degrees [23]. The extent to which a business adopts Industry 4.0 technologies is influenced by the size of the firm [67].
SMEs have an advantage when it comes to speeding up the digital revolution since they can more readily design and implement new IT structures. In contrast to organically evolved structures, however, multinational companies and large companies have more complexity to worry about. Large firms that practice regular process management will see the benefits of Industry 4.0 implementation sooner than SMEs [68]. Unless new systems replace the present ones with manageable effort and justified risk, these two types of firms must guarantee that new technologies are compatible with their current IT infrastructure systems [44]. However, compared to large firms, SMEs have fewer resources to deal with technical, financial, and human resource challenges [69].
The most significant challenges that SMEs face when embracing Industry 4.0 are the ability to develop a workable Industry 4.0 approach, the shortage of financial resources, a low degree of standardization, the cost and benefit analysis of Industry 4.0 technologies, unawareness of the integration concept, data security, and a lack of skill in IT [67][70]. According to Zaidi and Belal [71], Malaysian SMEs choose to be technology followers since they can only learn more about IoT-related products and services with the help of a third party. As a result, the technical challenge is not dominating in Industry4RWD. However, it is difficult for technology, software, and system developers to create a new and effective Industry 4.0 platform. Immature technology may interpret incorrect data extraction or interpretation.

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