Embracing automation, innovation and disruptive technologies

by: Prof. Yeah Kim Leng, Director of Economic Studies Program at Jeffrey Cheah In­stitute on Southeast Asia

The planned launch of the world’s first Digital Free Trade Zone in Malaysia in March this year has sparked interest not only among the wider public as consumers but also among technopreneurs and small and medium enterprises (SMEs) interested to tap the domestic and international e-commerce opportunities.

Having successfully nurtured an internationally competitive electronics and electrical manufacturing base for the global market through foreign multinational companies supported by efficient domestic supply chains since the early 1970s, the government then embraced the rise of the Digital Age that propelled the Third Industrial Revolution through the development of the Multimedia Super Corridor in the mid-nineties.

The Fourth Industrial Revolution is now being touted although the definition and nature of the latest revolution remains a subject of contention given that the forces of change are basically the same except being deeper and more far reaching.

In a white paper issued for the World Economic Forum last year, the authors identified two forces driving the current industrial revolution. First is extreme automation, where robotics and artificial intelligence are being deployed increasingly in business, government and private life.

The second is extreme connectivity where deeper and faster communication between and among humans and machine have overcome the limitations of distance and time.

The Digital Free Trade Zone could become a platform to accelerate the adoption of digital technology and automation and reverse the decline in Malaysia’s ranking in the Global Innovation Index, which benchmarks a country’s innovation capabilities.

Opportunities for automation and innovation

With technological advances driving ever greater levels of automation and the proliferation of smart devices across the world resulting in unimaginable interconnectedness, the socio-economic, political and cultural implications are expected to be significant although the scale and timing of the impact are subject to much debate.

Given Malaysia’s heavy reliance on unskilled and low-skilled foreign labour in all sectors of the economy, there is a pressing need to promote basic automation, for instance, in assembly line work and other functions that can now be performed by machines with the advent of artificial intelligence.

These “intelligent machines” have the potential to work at a higher rate of production relative to that of lower skilled human workers. In other areas, smart devices, sensors and algorithms are used to optimise logistics, manage inventory, perform other core business functions with greater efficiency, accuracy and cost-savings.

Addressing automation and innovation challenges

There are, however, a number of factors that need to be looked into in accelerating automation in Malaysian industries and businesses.

First is technical feasibility, where the lag between technological advances which require basic research and technology adoption, which needs “applied research”, is determined by the availability of engineers and scientists who can develop the engineering solutions.

Technological advances in automation are widely available ranging from physical hardware and robotics to artificial intelligence and software. The adoption phase is seen as the ‘missing link’ in the country’s innovation eco-system.

This will require closer collaboration between the industry players, research universities and public research institutions to address the technical feasibility issues facing the various industries in a larger scale and a more systematic approach.

The second factor is the cost of automation technologies. While obvious that the benefits must exceed the cost, often business owners and decision makers are hesitant to invest in automation due to uncertainty over the sustainability of more advanced production systems due to lack of skilled personnel.

From a cost perspective, there is merit for government financing support and other fiscal incentives to help cover some of the costs of developing and deploying solutions, including spending on physical infrastructure such as tooling and laboratories.

“Virtual” solutions based on software also require real investment in information technology engineers and computer programmers to create solutions. For physical technologies, these are real capital expenditures as industrial robots cost from tens of thousands to millions.

The deployment costs are lower for software-based solutions, especially when delivered remotely through “the cloud”, and where the software is sold as a service, thereby turning capital expenditure into operating expenditure.

The third factor is the labour costs associated with work activities that could potentially be automated. For the low skilled jobs, the low wages and ready availability of cheap foreign labour act as a major deterrence against the economics of automation.

For middle-skill job functions especially those in the knowledge industry, there are growing opportunities for deployment of artificial intelligence solutions that combine automation and connectivity. Already, clerical work, sales, customer service, and support functions can now be substituted in varying degree by robotic process automation, automatic reporting, and virtual assistants.

What’s next for businesses and the government?

The main technology conundrum for Malaysia is not the substitution of costly labour for cheaper robots or intelligent software but the replacement of low and unskilled foreign labour. As the source of cheap foreign labour supply faces disruption due to policy changes or the changing dynamics of growth and employment in the source countries, the labour intensive firms will need to consider some of automation to sustain their businesses.

By Prof. Yeah Kim Leng | 26 Jan 2017 

Professor Yeah Kim Leng is the Director of Economic Studies Program at Jeffrey Cheah In­stitute on Southeast Asia at Sunway University and Professor of Eco­nomics at Sunway University Business School. He is also an external member of Bank Negara Malaysia’s Monetary Policy Committee. The views expressed in this article are his own.

First appeared in the New Straits Times

Modified by Low Wai Sern