26 Industry4wrd : National Policy on Industry 4.0 CASE FOR ACTION NEED TO EMBRACE Industry 4.0 Despite its strong current position, the state of the manufacturing industry has been a case for concern in the last few years. Malaysia has moved away from being an investment destination for low cost labour manufacturing activities and is challenged by lower cost competitors from emerging economies and rapidly changing technologies. In line with the global trends outlined before, three major factors are impacting the future of manufacturing in Malaysia, offering opportunities for growth, but also challenging its competitive position: • Global value chains and geographies of production are continuing to shift, especially as China and other Northeast Asian countries are relocating production to ASEAN. This is opening up new opportunities for Malaysia. However, Malaysia will need to transform itself fast as other countries in the region are catching up. • Quality of labour and higher productivity, and not low labour cost, will be the new source of competitive advantage. Although Malaysia’s labour productivity has grown at 3-4% over the last few years, its relative global position and use of high-skilled labour have not moved forward. Malaysia’s labour productivity was ranked only at 44th position in 2016, a position that has remained unchanged since 2009. The relative share of high-skilled labour declined from 19% in 2010 to 18% in 2017. • New technologies are disrupting and fostering a technology-based model of production. Barriers of adoption have come down with key Industry 4.0 technologies maturing and costs declining. Application of technologies to improve efficiency and product quality is becoming the new normal, requiring Malaysian manufacturing firms to innovate and invest in new technologies to remain competitive.