Govt needs to collaborate with private sector to understand the dynamics of domestic, regional and global supply chains 

by JUNE MOH / pic TMR FILE

THREE years after the Covid-19 pandemic, some policies are still not resolved quickly enough to respond to the reopening of Malaysia, such as the foreign labour quota. 

As a result, repercussions have created acute labour shortages, forcing companies to rethink their workflow, by increasing automation in the work processes and digitalising. 

Malaysia has exceeded expectations in responding to the semi-conductor shortage, with positive growth towards the end of last year, said supply chain consultancy TMX Global Ltd country manager Malaysia and Singapore Greg O’Shea. 

“Now, the supply chain is performing well with steady improvements, though more can be done to speed up automation processes to optimise workflows,” he told The Malaysian Reserve (TMR). 

He gave an example of larger businesses with larger and stable capital being able to implement technology more easily, but TMX Global also expected to see more small and medium enterprises (SMEs) in Malaysia looking to optimise their current business model through continuous improvement programmes. 

“SMEs and smaller stakeholders may lack the expertise, knowledge and resources to help them adopt technology into their workflow, so it is crucial to seek the right advice and partner to guide them through the digitisation process,” he added. 

Supply Chain Challenges in Malaysia

Malaysia has strong ambition and equal potential to become the region’s logistics hub, with the government classifying logistics as a priority industry with a number of initiatives. 

However, the pandemic has been a key turning point. During the height of it, the Movement Control Order (MCO) was not only a significant but disruptive event. 

It also brought to light several vulnerabilities within Malaysia’s supply chains, which are currently being worked through to strengthen the industry against future disruptions, including: 

The lack of storage and technological infrastructure

With the accelerated growth of e-commerce in recent years, Malaysia still lacks key connectivity between ports and warehouses. Train lines, port facilities, effective technology and automation are not readily available throughout the country. 

It impacts the productivity of the supply chain despite the traceable nature of the network which the economy should be headed towards. 

Instability due to Malaysia’s connectivity to other key markets

China has been Malaysia’s largest trading partner for more than 13 years. As a result, any key market changes in China impacts Malaysia greatly. 

For instance, the U-turn in Zero Covid policies and the Chinese New Year (CNY) season compounded issues in the Chinese supply chain, resulting in huge delays and disruptions to Malaysia’s supply chain as well. 

The fall in productivity in the manufacturing sector in China, coupled with port closures and a rise in Covid cases, will eventually affect the flow of goods and supplies into Malaysia. 

The delays may already be felt and can be expected to last for a few weeks after the CNY holidays. 

Inflation 

The pressures of inflation are felt by many, but especially in the logistics sector. 

Delivery and freight prices, alongside warehouse storage charges, have been increasing. 

For smaller players down the supply chain, inflationary pressures may suffocate businesses that are likely to be key in delivering niche services. 

Labour Shortages 

Although Malaysia has waived industry quotas for businesses to hire foreign workers on Jan 10, 2023, it will not show immediate result as there will still be time needed to hire enough foreign labour. 

Before that, manufacturers faced tight labour issues, and some have been reported to rope in any available staff including executives to help out on the ground. 

The logistics industry is labour-intensive sectors, and even with the advent of automation, people are still needed on the ground to ensure the supply chain keep moving. 

Governmental Policies 

Governmental policies play a huge role in determining the future of Malaysian supply chain. 

Regulatory issues affect labour policies and have a say in the movement of goods in the country. 

The government needs to collaborate with the private sector to understand the dynamics of domestic, regional and global supply chains. 

This way, any policymaking will reflect the collective input of the industry, while monitoring the performance and risks to respond efficiently with policy and investments. 

O’Shea said businesses could consider three key areas to address supply chain challenges namely process, technology and people. 

“Operation processes must be optimised and geared towards fast-changing customer preferences. Businesses must also leverage digitalisation, automation and emerging technology such as virtual reality to enable necessary business transformations. Logistics workforces also need to be upskilled and transformed to serve a reinvented supply chain. 

“To comprehensively address these issues, businesses can adopt a two-pronged approach, where preventive measures are complementing reactive ones,” he said. 

Such preventive measures can include implementing technology to predict and streamline workflows, allowing inventories to be adequately balanced in case of disruptions. 

Automation and going paper-less helped businesses cope with labour shortages, O’Shea said, while investing in the right infrastructure both physical and digital also helped businesses maximise efficiency along the supply chain. 

Open communication and collaboration between different stakeholders, such as the local policymakers, suppliers and other parties in the supply chain, could play important roles in clarifying how businesses in Malaysia can cope with macro challenges, such as economic issues and policy changes around the world. 

“It will help the industry work together to find common ground and collaborative opportunities, which is crucial in supply chains that rely on global communication and connectivity,” he added. 

What Malaysia should do to revive its supply chain and attract foreign investors

Many multinational corporations (MNCs) had left Malaysia and moved to other Asean countries — such as Vietnam — for its relatively low operational costs. 

Among their reasons are the global economic decline caused by the pandemic and the weak market following the decline in demand. 

As manufacturing costs in South-East Asia remain around 50% to 60% lower than in China, the region is popping up as a viable alternative for a lot of companies.

“In TMX Global’s ‘Cost of Doing Business in Asia’ report, Vietnam emerged as one the lowest costs of doing business in the region, with only Cambodia and Myanmar being cheaper.

“Its average warehouse rental cost is also the fourth lowest at US$5 (RM21.42) per sq m per month. The country also boasts a sizable and affordable labour pool and is the fourth most affordable labour market in the region,” O’Shea said. 

Meanwhile, Malaysia ranked the second-highest in monthly operational and labour costs, and fourth highest when it comes to leasing costs. 

However, when looking at qualitative factors such as business environment, talent and logistics performance, and readiness for digitalisation, Malaysia emerged in second place in terms of overall country competitiveness. 

Malaysia was also assessed to be in the stage of “early automation” and is actively investing in smart manufacturing and innovation. 

As the report reveals, there are various nuances between each country in the region, and how different strengths and opportunities can play to a business’ advantage. 

It can be labour, government policies and infrastructure. Malaysia is better placed at leveraging its positioning in attracting foreign investors that are on the same trajectory and where the only cost is not a priority. 

“While Vietnam finds its strengths in footwear, apparel and retail, Malaysia excels in tech manufacturing.

“Notably, 7% of total global semiconductor trade flows through Malaysia, and the country is responsible for 13% of global chip testing and packaging,” O’Shea said. 

Another way Malaysia can strengthen its competitiveness is by ensuring a collaborative “cross-pollination” of talents to help to widen the level and breadth of expertise that Malaysia can offer to foreign companies and investment. 

“Highlighting the quality of the workforce and efficiency of the supply chain with potential businesses and stakeholders can help offset the slightly higher operational costs as well,” he added. 

RCEP and Malaysia’s supply chain

O’Shea said Malaysia taking part in the RCEP was beneficial to the nation’s supply chain industry. 

“Being the world’s largest free trade zone, it builds interdependence, which is a collaborative effort between different stakeholders and is much needed in the industry,” he said to TMR. 

Specifically, the RCEP is expected to eliminate a range of tariffs on imports within 20 years. 

It includes specific provisions covering trade in goods, including rules of origin, customs procedures and trade facilitation, sanitary and phytosanitary measures, standards, technical regulations and conformity assessment procedures, and trade remedies. 

It also includes provisions on intellectual property, telecommunications, financial services, e-commerce and professional services. 

Compared to existing FTAs, the RCEP expands the scope to include horizontal provisions on e-commerce, assistance to SMEs and additional cooperation on the economic and technological front, among others. 

Once in effect, the partnership will bolster Asean’s position as a long-term, stable production and export market in the context of risk and uncertain global supply chains. 

“It will encourage greater foreign investment into the region including Malaysia, and build supply chains and services, as well as generate jobs. 

“Overall, RCEP helps Malaysia reduce its vulnerabilities in the supply chain, by allowing for more interaction and trade within Asean and the other nations,” O’Shea said. 

He concluded that the interactions provide opportunities for Malaysian businesses to learn and adapt to other markets and reduce reliance on any singular market.

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• This article first appeared in The Malaysian Reserve weekly print edition