Monday, August 2, 2010

Technology upgrade needed to stay competitive

M'sia must catch up technologically to stay competitive in E&E sector

By EUGENE MAHALINGAM
eugenicz@thestar.com.my

PETALING JAYA: Malaysia needs to step up its pace technologically if it wants to remain competitive in the electrical & electronics (E&E) sector, according to a report by RAM Rating Services Sdn Bhd.

“Malaysia must catch up technologically to compete against players that are higher up in the value chain, as reliance on lower-end operations will keep the local E&E industry in a vulnerable position.

“In this regard, we believe that investments, which are picking up again industry-wide to revitalise earlier plans halted amid the crisis and expand into new technologies, will enable local E&E players to tap new businesses,” RAM said.

The rating agency also noted that the Government’s efforts to boost the local E&E sector, such as the development of training centres and academic programmes, as well as focus incentives towards strategic segments of the value chain such as design testing and precision machining, were steps in the right direction.

“Nevertheless, it remains to be seen whether these initiatives are sufficient for the sector to leap to the next level,” RAM said.

According to the rating agency, the E&E industry is characterised by the need for continuous capital investments as well as technology upgrades.

“E&E players are required to continually develop new features and capabilities, which require them to also attract and retain developmental talent. As such, technological capabilities and the ability to be ahead of rapid technological changes are key to the success of E&E players.” it said.

It said those that were highly skilled in technology would have a competitive edge, thus making it easier for them to maintain their market positions.

RAM also said having a wide product mix would reduce the exposure of E&E players to just a single market.
“A broader and more diversified clientele also adds strength to a company as it would then be less vulnerable to the loss of any single key customer.

“In addition, more extensive geographical coverage is viewed positively as this would reduce the company’s vulnerability to economic cycles in a particular country.”

The rating agency also said that the competitiveness of an E&E company was underpinned by its operational efficiency.

“Cost structure is important for E&E companies because of pricing pressures, particularly from other emerging economies like China,” RAM said, adding that constant cost-reduction initiatives could offset such pressures.

“Improved operating efficiencies can be derived from cost-efficiency drivers such as economies of scale, mechanised operations or localised benefits, such as easy access to raw materials as well as cheap and skilled labour.”

RAM said the competitiveness of local E&E players had been diminishing when compared with regional counterparts in more technologically advanced economies and countries with lower production costs.

“Malaysia’s overall market share in the global E&E industry has been sliding amid intensifying competition, with the main threat being China’s booming E&E industry.

RAM highlighted that China had evolved into the world’s largest producer of consumer electronics, with exports charting a compound annual growth rate (CAGR) of 28% from 1998 to 2008, compared with Malaysia’s CAGR of 6% during the same period.

“Furthermore, China’s exports of industrial electronics show a CAGR of some 31% from 1998 to 2008, compared with Malaysia’s 8%.”

RAM said the local E&E segment also faced a shortage of skilled personnel, such as software and design engineers, which could hinder the industry’s long-term growth and competitiveness. “Additionally, the E&E industry in other emerging economies, such as Vietnam, are picking up fairly quickly.”

The rating agency also said there was a notable “technological gap” between Malaysia and countries such as Taiwan and Singapore, especially within the electronic components segment.

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