Malaysia’s Skills Readiness for Competitiveness and Industry

4.0 Transformation1

RAS: Inputs to Malaysia’s 4th Industrial Masterplan

Report prepared for the Ministry of International Trade and Industry (MITI), (February 2020)

Executive Summary
The Malaysian Government has identified 5 priority sectors, centered around the manufacturing
industry, as drivers to sustained economic growth and industry 4.0 transformation. These five sectors
are Electrical & Electronics, Machinery & Equipment, Chemicals, Medical Devices, and Aerospace,
according to MITI’s Industry4WRD (2019) report. The report posits that the manufacturing industry is
expected to undergo an “inevitable” transformation, as the advancement and convergence of digital
technologies find their way into manufacturing infrastructure. This transformation of manufacturing
best practices, observed primarily in advanced economies, is referred to as Industry 4.0, where it will
likely impact the entire production process from design and fabrication to end use and monitoring.
Therefore, for Malaysia to compete in global markets and value chains, it will need to support key
sectors (i.e. the 5 priority sectors) in their transition to and adoption of Industry 4.0 solutions.

Do these 5 priority sectors “make sense”? This report as an input to Malaysia 4th Industrial Plan, focuses
on assessing the skills readiness for Industry 4.0 transformation. However, before doing this, one needs
to first ask – how do these 5 priority industries perform compared with other industries in recent years
when evaluated against gross value addition, employment and export, especially the domestic value
addition part of exporting goods. The first chapter of this report focuses on answering this question
using official statistics which show that the priority sectors are doing well overall in terms of labor
productivity growth, employment growth, gross value-added growth, and export performance. Outlier
cases include Chemicals falling behind in labor productivity growth (mainly due to employment growing
faster than value addition), and Machinery & Equipment lagging in domestic value addition of exports
(probably due to competition from neighboring countries in the region).

1
This report was prepared by Juni Tingting Zhu (Private Sector Specialist) and Jan Orlowski (Private Sector Specialist)
of Finance, Competitiveness and Innovation Global Practice of the World Bank Group, under the overall guidance of
Smita Kuriakose (Senior Economist, TTL) in the same practice group.

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Are these priority sectors in Malaysia ready for the Industry 4.0 solutions which tend to be tech-
intense and data-driven? The report in chapter 2 first examines whether industries in Malaysia are
already hiring these frontier tech top talents, and how these occupations are being paid which can be
a proxy for market demand and readiness. Data from the Labor Force Survey, and other non-traditional
sources such as Burning Glass and SalaryExpert.com show that Malaysian industries demand digital and
high-skilled talents and are willing to pay higher salaries for digitally-intense positions than even the
finance sector/investment banking. Given this strong market demand, the report explores the supply
of frontier tech skills in Malaysia. LinkedIn in Malaysia has 3.7 million members and these members
concentrate in knowledge-intensive occupations and tech sectors. We use this unique data source
leveraging a partnership that the World Bank established with LinkedIn to map out the frontier tech
skills readiness of Malaysian labor force. The results show that Malaysia is lagging behind advanced
economies as well as BRICS in frontier-tech skills penetration. Specifically, the top 5 frontier tech skills
deficits in Malaysia are Artificial Intelligence, Development Tools (mainly programming and coding),
Human Computer Interaction, Robotics, and Nanotechnology. It also highlights that complementary
skills (e.g. “soft” skills and industry-specific skills) are needed. Beyond workforce skills readiness, the
report also explores in chapter 3, whether local entrepreneurs as well as international talent networks
in Malaysia can help partially close the human capital gaps by nurturing home-grown frontier tech start-
ups as well as tapping into international professional networks to foster cross-border collaboration. In
these two areas, Malaysia is also lagging behind other regional and global peers.

Are there any other industries in the economy that can also take advantage of digital technologies
and new business models? The report in chapter 4 further explores opportunities in other high labor
productivity sectors, such as ICT. It shows that the tech services sector may also contain untapped
growth opportunities such as FinTech and B2B digital platforms that can streamline sourcing and
exporting process and increase access to finance and new markets for SMEs. Importantly, these
additional opportunities can also serve as enablers of Industry 4.0 transformation in the five priority
sectors as access to international markets and finance are critical constraining factors in emerging and
developing countries vs. advanced economies.

How to keep climbing the value addition ladder when competition is even more fierce as Malaysia is
facing headwinds as it competes with regional and globally advanced economies? When comparing
Malaysia’s skillsets comparative advantage, one key impression is that the frontier tech skillsets that
Malaysia has abundancy in, such as materials science, genetic engineering and data science, are skills
its regional top neighbors such as Taiwan, Korea and Japan also have an abundancy in. The skillset that
Malaysia is lagging most in is Artificial Intelligence. Currently there is a net outward migration of these
AI talents in Malaysia, for example to Singapore and other regional tech hubs, which exacerbates the
frontier tech skillsets deficiency. In this sense, when Malaysia is embarking on an Industry 4.0 and
digitalization journey, developing a unique value position for Malaysia to help attract and retain talent
is key together with long-term workforce training and home-grown innovation development. Some
examples on how other countries have successfully implemented such programs are included in the
last chapter.

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Table of Contents
I. Understanding the current state of Malaysia’s industrial development, especially in the five high-
potential sectors ........................................................................................................................................... 5
II. Skills readiness for Malaysia’s Industry 4.0 transformation ............................................................... 15
III. Sourcing global talents in support of Industry 4.0 transformation .................................................... 28
IV. Assessing the potential of high-value added tradable services sectors in Malaysia .......................... 34
V. Summary and Recommendations....................................................................................................... 39
References .............................................................................................................................................. 46

List of Figures
Figure 1 Manufacturing Value Added (MVA) Growth in Malaysia and Comparator Countries (Bubble
Size= MVA 2016) ........................................................................................................................................... 5
Figure 2 Malaysian Labor Productivity Growth by Industry (2015-2018) ..................................................... 6
Figure 3 Gross Value Add Contribution (GVA- constant prices, 2015) by Sector 2015-2018 ....................... 8
Figure 4 Manufacturing Gross Value Add Contribution by Sub-Sector 2015-2018 ...................................... 9
Figure 5 Employment Contribution by Sector 2015-2018 .......................................................................... 10
Figure 6 Malaysia Employment Contribution by Five Priority Sectors, 2015-2018 .................................... 11
Figure 7 Malaysian Priority Sector Exports by Value 2010-2018 ................................................................ 12
Figure 8 Composition of Foreign vs. Domestic Value Added in Malaysian Manufacturing Exports........... 13
Figure 9 Growth in Domestic Value Added of Malaysian Manufacturing Exports, 2010-2016 .................. 14
Figure 10 Extraction of LinkedIn Profile Data Points .................................................................................. 18
Figure 11 LinkedIn members that have an industry assignment, and their % of Malaysian employment
(Department of Statistics, Malaysia) 2018.................................................................................................. 19
Figure 12 Distribution of Employee Skills Level in Priority Sectors (2009-2015) ........................................ 21
Figure 13 Malaysian frontier tech skill gap with comparator countries ..................................................... 22
Figure 14 Malaysian Frontier skill penetration detailed comparison with comparator countries ............. 23
Figure 15 Aerospace Engineering Skill Penetration Malaysia vs. Peer Countries ....................................... 24
Figure 16 Tech and Frontier Tech Skill growth in Malaysia, 2015-2018 ..................................................... 25
Figure 17 Malaysian Co-Founder Skill Profile, benchmarked against competitor countries (2015-2018
pooled data) ................................................................................................................................................ 27
Figure 18 Malaysian Frontier Skill Gain/Loss due to Migration, 2015-2018............................................... 29
Figure 19 Decreasing Non-Malaysian Worker Skill Level in Malaysia......................................................... 29
Figure 20 Biomedical Engineer skill profile (COL #21, 2018/2019) in Malaysia vs. comparator country
groups ......................................................................................................................................................... 30
Figure 21 Exports and GVC Participation vs. Online Foreign Connections (WDR 2020, Box 6.2, Figure
B6.2.1) ......................................................................................................................................................... 31
Figure 22 Malaysia International Connections in the Internet Industry, 2015-2018 ................................. 32
Figure 23 Gross Value Add Contribution (GVA- constant prices, 2015) by Service Sector 2015-2018 ...... 34
Figure 24 Employment Contribution & Growth by Service Sector 2015-2018 ........................................... 35
Figure 25 Composition of Foreign vs. Domestic Value Added in Malaysian Service Exports ..................... 36

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Figure 26 Distribution of Malaysia Fintech players in 2018........................................................................ 37
Figure 27 Financial & Insurance Activities Sector Migration in EAP & SA Regions, 2018 ........................... 38
Figure 28 Malaysia Frontier Tech Skills-Gap, compared to global average ................................................ 40

List of Tables
Table 1 Summary of Economic Performance: Five High-Potential Sectors ................................................ 15
Table 2 Global Top 10 Industry Skills Needs in Priority Sectors (bolded ones are skills needs that are
common in all four priority sectors) ........................................................................................................... 16
Table 3 Assessing Industry Demand for Frontier-tech Skills through Wage Data: Comparison of average
Malaysian Wages (RM) of Frontier Tech, Average College-Educated, and Finance Jobs ........................... 20
Table 4 AI Master Programs: US vs. Malaysia ............................................................................................. 41
Table 5 Summary of Programs for Improving Frontier Tech Skills ............................................................. 42

List of Boxes
Box 1 Modern Construction Technologies in Malaysia................................................................................. 7
Box 2 Japan: New Robot Strategy ............................................................................................................. 165
Box 3 Korea: K-Startup to Attract International Entreprenuers ................................................................ 32
Box 4 UK: AI Sector Deal To Address AI Skills Deficits ................................................................................ 42
Box 5 EU Auto-Gration: Integrage SMEs into the Automotive Supply Chain Through Digital Platforms . 424

4
I. Understanding the current state of Malaysia’s industrial development,
especially in the five high-potential sectors

The Industry 4.0 (Industry4wrd, MITI 2018) strategy of the Malaysian government lists the
following five catalytic and high-potential sectors: Electrical & Electronics, Machinery &
Equipment, Chemicals, Medical Devices, and Aerospace. Under the 9th and 10th Malaysian
Economic Development Plan, in addition to manufacturing, the government also highlighted the
importance of building upon the growth in the services sector and rising domestic demand to
“move-up” the value chain ladder. This approach is well warranted given the latest data from the
Department of Statics Malaysia, indicating that while productivity is highest in the manufacturing
sector, employment growth has predominantly concentrated in services (Department of
Statistics Malaysia, 2019).

Overall manufacturing value added (MVA) produced by the Malaysian economy is growing,
and exceeding the growth seen in comparator countries (Figure 1). Although the services sector
still accounts for the majority of economic activity and value added, Malaysia’s manufacturing
sector’s contribution to GDP is catching up with countries like Korea and Thailand. Both
Malaysia’s share of MVA in GDP as well as its growth between 2010-2018 have been strong.
Figure 1 Manufacturing Value Added (MVA) Growth in Malaysia and Comparator Countries (Bubble Size=
MVA 2016)

Source: UNIDO MVA Database 2010-2018; Note: CAGR- Compound Annual Growth Rate

5
 Considering labor productivity growth, the five priority sectors stand out with strong
performance as seen in Figure 2. Medical Devices record the fastest growth of any single sector,
and 3 of the 4 priority sectors covered fall into the top 5 performers. One exception is seen in
Chemicals & Pharmaceuticals, with one of the lowest labor productivity growth rates and only
marginally outperforming industries such as Mining and Agriculture. In services, the ICT sector
emerges as the most productive sector, also positioning itself in the top 5 of all sectors. Finally,
construction sector’s labor productivity reports the second highest productivity growth rates,
potentially driven by increased use of modern construction technologies (Box1).

Figure 2 Malaysian Labor Productivity Growth by Industry (2015-2018)

Malaysia Labor Productivity Growth by Industry

Gross Value Added per Worker Growth (2015-2018)
9.00%
7.83%
Average Annual Growth (2015-2018)

8.00%
7.00%
6.00% 5.64%
4.97%
5.00%
4.00% Average of all sectors= 3.36%
3.00%
1.97%
2.00%
1.00%
0.00%

Source: Constant GVA (2015 base year) and Employment, Departments of Statistics, Malaysia 2019. Note: Aerospace
sector is missing due to sector specific data limitation.

6
 BOX 1. MODERN CONSTRUCTION TECHNOLOGIES IN MALAYSIA

The Malaysia construction sector is also witnessing the convergence of Industry 4.0 technologies. Efforts to modernize the
construction sector are under way and promoted by agencies including the Malaysian Construction Industry Development
Board (CIDB), Construction Research Institute of Malaysia (CREAM), and the Prime Minister’s office. In the case of the latter,
the Prime Minister announced that all construction projects above a given threshold (RM10 Million) will require mandatory
use of modern Industrial Building Systems (IBS), otherwise known as Pre-Fabricated Construction.

Major companies involved in IBS Manufacturing include AlloyMtd, Sarawak Consolidated Industries Berhad, and SPC Industries
SDN BHD, among others. The government has also promoted innovation in this area by offering tax exemptions between 70-
100%, investment tax allowances, import duty exemptions, allowing 100% foreign investment, and facilitating expatriate posts
in key positions.

Other technologies are also being utilized in Malaysia, such as Building Information Monitoring (BIM) which primarily serves
as a digital management tool for monitoring building costs and optimizing the construction process. Similarly, to promote the
use of IBS systems, in 2017 the GoM has set an agenda where all public sector construction projects above RM100 million will
require the use of BIM systems (enforced as of 2019). The GoM has also allocated RM1 million of incentives for promoting BIM
use in Malaysian construction companies. Additionally, training centers for BIM usage were developed such as myBIM Centre.

Malaysia appears to be making notable progress in the use of digital technologies in the construction sector, as characterized
by the Malaysian governments efforts: ““The adoption of such innovations and new technologies is a necessity for companies
to remain competitive and be able to deliver projects in a timely and cost-effective manner and this change needs to happen
quickly and at scale” - Datuk Ahmad Asri Abdul Hamid (CEO CIDB), 2019

Source: http://rehdainstitute.com/event/ibs-2017/ ; MIDA: http://rehdainstitute.com/wp-content/uploads/2017/05/1.-Datuk-

Phang-MIDA..pdf ; New Straits Times: https://www.nst.com.my/business/2017/11/305294/mybim-promotes-modern-
construction-technology ; https://www.nst.com.my/news/nation/2019/03/470468/cidb-recommends-mandatory-use-bim-
certain-private-sector-projects

The most recent Gross Value Added (GVA) data from the Malaysian Department of Statistics
(2018), highlights manufacturing and the services sectors as the dominant GVA contributors,
with services sector representing more than half of the GVA in Malaysia. Between 2015-2018,
services expanded by 2% (31,993M Ringgit) and manufacturing expanded at a much lower rate
of ~0.1% (10,398M Ringgit) (Figure 3). Mining and agriculture GVA share, on the other hand, fell
by ~1%. The construction sector share of GVA has remained consistent over the same timeframe.
In sum, the dominant GVA contributing sector in Malaysia is the services sector.

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Figure 3 Gross Value Add Contribution (GVA- constant prices, 2015) by Sector 2015-2018

GVA Contribution by Sector

350000 (Real value, 2015 base year; percentage adds up to 100%)
4.9%
300000 7.4%
4.8% 7.7%
8.4%
250000
8.9% 22.4%
Ringgit (Millions)

200000 22.3%
150000

100000 57.6%
55.6%
50000

0
2015 2018
Services Manufacturing Mining Agriculture Construction

Source: Constant GVA (2015 base year), Departments of Statistics, Malaysia 2019

The GVA growth of the manufacturing sector is primarily supported by the impressive
expansion of Electronic Component manufacturing between 2015-2018. The Electronic
Component manufacturing sector (e.g. circuit boards, transformers, and switches) contributed
an additional 3,247M Ringgit (2015-2018), and captured an additional 2% of total manufacturing
GVA over the same time frame (Figure 4). Lower GVA contributors such as end user Computers
& Electrical equipment (e.g. PCs, Cables, Input/output devices such as computer mouse, USB
stick) grew by under 1% in absolute terms, with their share of GVA remaining constant. The
remaining priority sectors (Medical/Precision Devices, Machinery, and Chemicals) have also
performed well on average, with GVA growth matching average manufacturing sector expansion.
In sum, out of the five high-potential sectors, Electronic Component manufacturing represents
the single largest subsector contribution to Manufacturing GVA and is still growing fast. The
other sub-sectors are also growing but either on par with or slightly below average manufacturing
growth (which is 5.1%).

8
Figure 4 Manufacturing Gross Value Add Contribution by Sub-Sector 2015-2018

Manufacturing GVA Contribution by Sub-sector

(Real value, 2015 base year; percentage adds up to 100%)
80000 2%
3%
70000 2% 4%
3% 11%
60000 4%
11%
20%
Ringgit (Millions)

50000
18%
40000

30000

60%
20000 62%

10000

0
2015 2018
Other Electronic Components
Chemicals & Pharmaceutical Products Computers & Electrical Equipment
Machinery & Equipment Medical/Precision/Opt Instr/Watches/Clks

Source: Constant GVA (2015 base year), Departments of Statistics, Malaysia 2019

Employment at the sector level mirrors GVA contribution, with services and manufacturing
accounting for over 70% of the total employed Malaysian labor force (Figure 5).
Manufacturing’s share of total employment decreased marginally, but services expanded further
by ~2%. Agriculture saw the sharpest drop in employment share, while mining fell to 0.5% of total
employment loosing 3,500 workers between 2015-2018. Only services and manufacturing
sectors report an increase in absolute employment over the same time frame, adding 123,000
and 739,000 workers respectively.

9
Figure 5 Employment Contribution by Sector 2015-2018

Employment by Sector
16000 0.5%, Mining
0.6%, Mining
14000 10.2%
10.8%
12000 12.5%
13.4%
Workers (Thousands)

10000 16.9%
17.0%
8000

6000

60.0%
4000 58.2%

2000

0
2015 2018

Services Manufacturing Agriculture Construction Mining

Two out of the five 2 priority sectors in manufacturing for Industry 4.0 transformation boosted
their share of total manufacturing employment, while all priority sectors reported increases in
absolute employment in 2015-2018 (Figure 6). The Chemical manufacturing industry captured
the largest increase in total manufacturing employment share, followed by Electronic
Components manufacturing which also serves as the largest employer of all priority sectors.
Medical Devices (and other precision equipment) and Machinery manufacturing reported
positive absolute employment growth but saw their share of total employment decrease
between 2015-2018. In sum, among priority sectors, Electrical Component and Chemical
manufacturing sub-sectors stand out both in terms of employment and GVA growth. Medical
Devices and Machinery continue growing in absolute terms but at a lower rate than Electronics
and Chemicals. There is limited official data about the aerospace industry.

2
Aerospace is not captured in the official dataset and not included.

10
Figure 6 Malaysia Employment Contribution by Five Priority Sectors, 2015-2018

Manufacturing Sub-sector Employment 2.8%,

1200000 Medical/Precision/Opt
Instr/Watches
2.9%, Medical/Precision/Opt
Instr/Watches

3.3%
1000000 3.9%
3.4%
3.7%
13.2%
13.2%
800000
Workers (Persons)

17.0%
16.9%
600000

400000

59.9% 59.9%

200000

0
2015 2018
Other Electrical Components Computers & Electrical Equipment
Chemicals & Pharmaceuticals Machinery & Equipment Medical/Precision/Opt Instr/Watches

When evaluating export performance between 2010-2018, chemicals and electronics

experienced the most sustained growth at an average annual growth rate of 6%. Aerospace
stood out as the highest export growth sector at an average annual growth of 15% as it started
from a relatively low base (Figure 7). Outputs from the aerospace sector in Malaysia center on
aerospace specific products (e.g. air craft doors, avionics, thrust reversers etc.), positioning the
country to play an important role in regional aviation value chains. Recent investments by Airbus
in Malaysia (120M USD through to 2023), highlight the potential for Malaysia to integrate into
aerospace value chains. To support these efforts the GoM has set an agenda to improve
coordination between the National Aerospace Industry Coordinating Office (NAICO) and other
agencies so as to foster the growth of the industry (The New Straits Times, 2019). Medical devices
have also seen growth in export value, albeit falling behind BRICS.

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 Figure 7 Malaysian Priority Sector Exports by Value 2010-2018

Priority Sector Export Value, YoY Growth 2010-2018

80%

60%
Real Growth Rate

40%

20%

0%
2010 2011 2012 2013 2014 2015 2016 2017 2018
-20%

-40%

Aerospace Chemicals Electronics Machinery Medical/Prec/Opt Inst/Watches

Aerospace Export Value

(USD Millions Constant (2010 Base year), HS Codes: summation of 8801-8805
2500
Export Value USD M

2000

1500

1000

500

0
2010 2011 2012 2013 2014 2015 2016 2017 2018
BRICS (average) Malaysia

Medical/Prec/Opt Intsr/Watches Export Value

(USD Millions Constant (2010 Base year), HS Code: summation of 90 & 91)
20000
Export Value USD M

15000

10000

5000

0
2010 2011 2012 2013 2014 2015 2016 2017 2018

BRICS (average) Malaysia

Source: Figure a, Total Export Value, Departments of Statistics, Malaysia 2019; Figures b & c, Medical Device and Aerospace
exports from UN COMTRADE; All values deflated using 2010 CPI as base year, WDI. Note: Aerospace missing 2010-2011 due
data missing for Russia in those years. Note *HS Code 90 sum of all 33 four-digit sub-categories. Note ** HS Code 91 sum of
all 14 four digit sub-categories. HS 2002 codes are used. 12
Using the domestic value-added portion of exports as a proxy to evaluate industry
competitiveness of the five priority sectors, electronics manufacturing sector has much room
to grow and keep climbing the value-added ladder. The Electronics sectors account for over 20%
of manufacturing employment and GVA, yet their exports report the lowest domestic value add
with much of the value added of this sector still captured by foreign firms. It is only
outperforming Motor Vehicles, Trailers, and Semi-Trailers (Figure 8).
Figure 8 Composition of Foreign vs. Domestic Value Added in Malaysian Manufacturing Exports

Source: OECD TiVA data, Domestic & Foreign VA in embodied in foreign exports; 2016

However, Computer, Electronic & Optical Products and Electrical Equipment stand out with
positive average annual growth rates in the share of domestic value added in exports, signaling
the high potential of these electronics subsectors despite starting from a relatively low base
(Figure 9). For other priority sectors, year on year growth rates are positive across the board and
generally increasing between 2010-2016, except for Computer, Electronic & Optical Products and
Machinery. Chemicals make a strong contribution in domestic value add (over 60%) and report
impressive growth trends. Finally, Machinery has a domestic value add of about 50% and reports
relatively low, albeit positive, growth rates between 2010-2016.

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Figure 9 Growth in Domestic Value Added of Malaysian Manufacturing Exports, 2010-2016

Growth in Domestic Value Added share of Exports in Manufacturing

7% Sector
6%

5%

4%

3%

2%

1%

0%
2011 2012 2013 2014 2015
-1%

Chemicals & Pharmaceuticals Computer, Electronic & Optical Products

Electrical Equipment Machinery & Equipment
All Sectors

Source: OECD TiVA data, Domestic VA embodied in exports; 2016. Note: Domestic VA embodied in exports is
calculated using TiVA data “Domestic Value-Added Share of Gross Exports” (domestic VA embodied in gross exports
over gross exports) for a given country, industry, and year. Year over year growth rates are reported above. Sector
specific and All Sector values are reported as the share average of TiVA sector classifications for those industries
composing them.

In sum, all five priority sectors recorded growth in GVA and employment between 2015-2018,
with electronics manufacturing growing fastest in export competitiveness 3 , followed by
chemicals (Table 1). Aerospace and medical devices are also growing fast in export value, though
this might be due to starting from a relatively low base. Finally, machinery systematically
underperform in export competitiveness relative to other priority sectors even though they
registered absolute GVA and employment growth.

3
Export competitiveness is defined by high share and high growth in in domestic value-added share of exports.

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Table 1 Summary of Economic Performance: Five High-Potential Sectors

Five high-potential Growth in GVA Growth in Growth in domestic VA share

sectors Employment of export*

Electronics (computers & (+6%) (+2%) (+2%)

electrical components)

Chemicals** (+5%) (+3%) (+2%)

Medical Devices (+5%) (+1%) (+13%*)

Machinery (+5%) (+<1%) (+1%)

Aerospace N/A N/A (+22%*)

* Domestic value-added share in export for aerospace and medical devices is not available, YoY real
growth of export value was used to evaluate export performance. GVA and Employment growth rates
reported as average annual growth 2015-2018, Domestic VA Export Share (*or export value) reported as
average annual growth 2011-2015. Growth rate for Electronics given as average rate of “Computers &
Electrical Equipment” and “Electronic Components”.

II. Skills readiness for Malaysia’s Industry 4.0 transformation

Malaysia performs well in the 5 priority sectors, as evidenced by the analysis above, however
continued growth will require even higher human capital as the crucial inputs to propel the
economy towards a high-income one. In large part, these human capital assets will center the
ability to assimilate and utilize the latest technologies, to remain competitive in the ever-
changing global markets and industry technology trends. This is also important for Malaysia to
break out of the “middle income trap” characterized by plateauing marginal productivity gains as
one climbs further up the industrial ladder.

To keep increasing the productivity, Malaysia needs to promote the adoption of modern
industrial solutions. Recent studies however argue that emerging and developing countries may
struggle in the face of Industry 4.0 (Center for Global Development, 2017; UNIDO- Industry 4.0,
2017; Islam et al, 2018). Digital technologies can in fact reinforce the comparative advantage of
High-Income economies, due to the technology being attuned to High-Income country factor
endowments and capabilities. There is evidence that the technological gap between frontier
countries (e.g. USA) and emerging countries is widening rather than decreasing over the past
decade, seen by the lack of or low convergence of productivity levels between advanced and
developing economies. A 2017 note by the Bank of England states, by correlating productivity
gap and growth, that emerging economies are as far away from the technological frontier as they
were back in 1950 (Productivity Puzzles, Bank of England, 2017).

15
The skills readiness of economies and firms will be a determining factor in narrowing the
technological gap between nations competing in global GVCs. The OECD states that the extent
to which individuals, firms and economies can reap the benefits of digitalization and industry 4.0
will depend on their ability to develop and maintain relevant skills (Future Ready Adult Learning
Systems, OECD, 2019). Using the World Bank-LinkedIn dataset we identify the top 10 global
industry skills needs for each of the selected priority sectors (no data on medical devices) (Table
2). Each skill category contains sector specific as well as cross cutting skills, such as digital literacy,
project management and leadership skills. This report will focus on Tech and Frontier Tech skill
categories, the reasons for which are two-fold. First, due to near-real time updates, digital
platform data (e.g. LinkedIn data) is unique in its ability to capture the emergence of the latest
technologies across sectors in daily jobs (Zhu et al, 2018). Second, Tech skills under the LinkedIn
classification offer a more objective and comparable measure across countries in comparison to
more “subjective” skills that can have multiple interpretations due to cultural and behavioral
differences, e.g. soft skills such as “Leadership” or “Problem Solving” can mean different things
in different countries. Table 2 shows that (frontier) tech, industry specific, business and soft skills
are all in-demand by industries. This report will focus on examining frontier tech skills, as these
skills are more closely linked to Industry 4.0 transformation which tend to be tech-intensive and
data driven. It should however be emphasized that complementary skillsets are also needed and
should be examined using datasets that are specifically designed to measure these.
Table 2 Global Top 10 Industry Skills Needs in Priority Sectors (bolded ones are skills needs that are
common in all four priority sectors)

Global Industry Skills Needs in Priority Sectors*

Electrical & Machinery &

Chemicals Aerospace
Electronics Equipment

Digital Literacy
Tech Skills
(including Digital Literacy Aerospace
Digital Literacy Digital Literacy
frontier Robotics Engineering
tech skills)
Scientific Computing

Chemical Industry Electronics Machining Air Force

Specialized Research Architecture Architecture Airlines

Industry
Manufacturing Manufacturing Manufacturing Manufacturing
Skills
Operations Operations Operations Operations

Retail Sales Retail Sales Aircraft Management

Business Business Business Business Business

Skills Management Management Management Management

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 Product
Product Development Product Development
Development

Project Management Project Management Project Management Project Management

Negotiation Negotiation Negotiation

Soft Skills
Leadership Leadership Leadership Leadership

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation, licensed
under CC BY 3.0. * Priority sectors excluding medical devices due to industry classification limitation that industries
beyond 2-digit ISIC disaggregation level are not available in LinkedIn data.

To perform a quantitative assessment of the frontier tech skills readiness in Malaysia vis-à-vis
other peer countries, we use LinkedIn global data covering 140 countries with over 645 Million
members, in over 10,000 occupations and reporting nearly 35,000 unique skills. The World Bank
has partnered with LinkedIn to derive labor market information from their platform, especially
on frontier tech skills 4adoption by the labor force (as detailed in the Digital Data for Development
Methodology Report, Zhu et al, 2018). The data in its “raw” form is extracted from LinkedIn user
profiles to capture user content on skills, industry affiliation, location etc. (Figure 10). This
information is in turn processed by LinkedIn data scientists and aggregated to generate country
labor and industry insights.

4
Frontier Tech Skills are defined based on LinkedIn skill groups and represent those skills associated with cutting
edge industries and digitalization. Specifically: Aerospace Engineering, Artificial Intelligence, Cloud Computing, Cyber
Security, Data Science, Development Tools, Genetic Engineering, Human Computer Interaction, Materials Science,
Nanotechnology, and Robotics.

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Figure 10 Extraction of LinkedIn Profile Data Points

Malaysia has 3.7 million LinkedIn members which accounts for about 20% of the working age
population. As of 2017, there are ~3.7 Million workers on LinkedIn in Malaysia, and they are
predominantly college educated, 5 spread across 18 sectors and 2031 unique occupations. The
LinkedIn dataset is skewed towards highly-educated and highly-skilled labor force, which is a
good basis to understand frontier tech skills. Of its total members, 380,000, or 10% of total
members, can be reliably assigned to specific industries at the ISIC 2-digit level. Over 70% of
Malaysian members fall into ICT (29%), Finance (17%), Mining (14%), and Manufacturing (14%)
ISIC sectors. Figure 11 maps LinkedIn members to the official employment data, ranked by
LinkedIn penetration of total workforce by sector. Mining & Quarrying 6 and ICT sectors emerge
as the best represented with 53% and 36% coverage, respectively.

5
75% of LinkedIn members in Malaysia hold a bachelor’s degree, and 20% hold a master’s degree.
6
The reason mining and quarrying is big is because many utility and petrol companies are grouped under this
category.

18
Figure 11 LinkedIn members that have an industry assignment, and their % of Malaysian employment
(Department of Statistics, Malaysia) 2018

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation, licensed
under CC BY 3.0. 2018 & Department of Statistics, Malaysia 2019
Note: n= number of LinkedIn members that has a verified industry

While LinkedIn data does not have strong coverage of the Manufacturing sector as a whole; it
has good coverage for high-skilled occupations (i.e. engineers and the operations managers
working in manufacturing but not necessarily factory floor workers). Therefore, LinkedIn data
can provide insightful skills analysis of high-tech and knowledge-intensive occupations. This
unique form of labor market data comes with certain sample selection characteristics and
caveats. Firstly, LinkedIn data is skewed towards knowledge sector workers (e.g. ICT, Finance
etc.). In addition to sector skewness, the LinkedIn platform is more likely to capture data on
workers with at least a bachelor’s degree. The data also has unique characteristics such as
reliance on self-reported data and varying propensity to list skills depending on country/cultural
norms. This results in differing levels of reliability across indicators, where, for example,
occupation, location, and hard skills are less prone to bias and manipulation, but for certain soft
skills or unemployment trends the data is less reliable.

Malaysia exhibits growing demand for knowledge related occupations. Before assessing
frontier tech skills readiness, it is important to assess whether industries in Malaysia already
demand these skills. Over the last 2 decades the most common occupations in Malaysia have
evolved to include knowledge-related occupations such as Science and Engineering Associate
professionals (Labor Force Survey 2001-2017). Burning Glass data further supports these claims,
showing that digital skills and productivity tools are in high demand in Malaysia, primarily though
digital “intensive” occupations such as Web Technicians and Software Developers (World Bank
Burning Glass online job advertisement data). These findings are consistent with

19
SataryExpert.com data, which show that frontier tech intensive occupations tend to earn a
substantially higher wage, compared not only to the average wage for a tertiary educated worker
in Malaysia but also compared to relatively high paid finance professions (Table 3).
Table 3 Assessing Industry Demand for Frontier-tech Skills through Wage Data: Comparison of average
Malaysian Wages (RM) of Frontier Tech, Average College-Educated, and Finance Jobs
Frontier Tech Average Job Finance
Annual Wage Wage Malaysia Annual Wage
Common Jobs applying Frontier Tech Skills* Common Jobs in Finance Sector**
Malaysia (with Tertiary Malaysia
(SalaryExpert.com) Education) (SalaryExpert.com)
Average of Frontier Tech Occupations Average of Finance Occupations
(Top 10)
121k vs. 103k (Top 10)
Information System Security Manager 165,000 125,000 Financing Officer
Data Scientist 138,000 117,000 Financial Analyst
Software Engineer 130,000 112,000 Risk Manager
Java Software Engineer 124,000 112,000 Investor Relations Coordinator
Information System Security Officer (certified) 120,000 110,000 Investment Analyst
Information Assurance Engineer 120,000
43k 106,000 Portfolio Manager
Research Statistician/Programer/Analyst 118,000 98,000 Budget Analyst
Engineering Scientist 111,000 97,000 Accountant
Computational Scientist 101,000 91,000 Account Analyst
Web Technician 78,000 69,000 Investment Banker

Source: Wage data for frontier tech and finance jobs acquired from SalaryExpert.com, a subsidiary of Economic
Research Institute in the US which has been collecting wage data globally since 2000. Tertiary education wage
rate is from Department of Statistics Malaysia, Salaries and Wages Survey Report 2018 (Average Wage with
Tertiary). Note 1: * The most common jobs applying frontier tech are derived using LinkedIn data, according to
Frontier Tech skills penetration across all occupations globally. Note 2: **Common Jobs in Finance sector based on
author’s research selecting common jobs listed by sources such as ZipRecruiter, Glassdoor, and BLS. Note 3:
LinkedIn occupation seniorities are filtered to remove references to senior positions (e.g. Director of Data Science is
omitted from top 10 list)

However, the proportion of high-skilled workers in priority sectors has decreased between
2009-2015 (Figure 12). Except for a spike in high skilled labor in 2012, data from DOSM suggests
that high skilled labor (both Malaysian national and non-Malaysian) has remained constant with
a slight dip in 2015. Semi-skilled labor is the majority which suggests room to upskill. The
subsequent analyses will study in details frontier tech skills penetration especially Malaysia’s
position vis-à-vis the four Asian Tigers and Brazil, Russia, India, China and South Afrcia (BRICS) as
well as against advanced economies.

20
Figure 12 Distribution of Employee Skills Level in Priority Sectors (2009-2015)

Priority Sector* Distribution of Employees by Skill Level

2009-2015
100%
90% 24.0% 22.8% 22.4%
25.8%
80% 36.2%

70%
60%
50%
40% 73.2% 74.0% 71.5% 73.7%
30% 61.7%

20%
10%
0% 2.7% 3.2% 2.1% 2.7% 3.9%
2009 2010 2012 2014 2015

Low Skilled Semi-Skilled High Skilled

Source: DOSM

Note: Priority sectors covered are: Chemicals, Electrical and Electronics, Machinery & Equipment, and
Medical Devices and optical instruments.

In addition to the slight decrease in high-skilled worker percentages, when compared with
peers, Malaysia falls behind BRICS 7 countries in Frontier Skill penetration, especially skills such
as Robotics and Artificial Intelligence (Figure 13).The majority of Frontier Skills fall to the right
of the blue column in Figure 13, which means that BRICS are in general performing better in
frontier tech skills penetration in daily jobs than Malaysia especially in Robotics and AI. On the
other hand, Malaysia appears to compete more closely with Asian Tigers 8 – in some cases
Malaysia outperforming the Tigers in skills such as Aerospace Engineering and Robotics. This may
be due to the fact that Asian tigers include city states (Singapore and Hong Kong) with lower
presence of manufacturing sector. AI skills in Malaysia, however, fall behind both Asian Tigers
and BRICS nations. Conversely, Materials Science and to a lesser degree Genetic Engineering
emerge as areas of relative advantage for Malaysian workers.

7
Excluding Russia, since LinkedIn is not operating in this country.
8
Asia Tigers defined as Hong Kong, Singapore, South Korea, and Taiwan.

21
Figure 13 Malaysian frontier tech skill gap with comparator countries 9

Below Malaysia Above Malaysia

Malaysia skill level

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation,
licensed under CC BY 3.0, 2015-2018. Note: “Distance from Comparator” is measured as the difference of
Malaysia’s relative skill penetration and the comparator country group’s relative skill penetration.

Compared with other global and regional countries, the Malaysian workforce also lacks a niche in
frontier tech skills. What Malaysians are good at – its regional neighbors are also good at it, which poses
additonal competitiveness pressure for Malaysia. While advanced economies tend to outperform
Malaysia, the greatest strength of the Malaysian workforce in frontier tech is Material Science, Aerospace
Engineering, and genetic engineering compared with other regional peers (Figure 14, Y- Axis). However,
these skills are not uniquely possessed by Malaysia especially compared with Taiwan, Korea and Japan,
hence Malaysia lacks a clear niche in frontier tech skills regionally and globally. Malaysia is placed 5th in
average frontier skill penetration (X Axis) out of the 15 comparator countries, and performes weakest in
Aritifical Intelligence compared with other frontier skills that its workforce possesses (AI penetration rate
is at the bottom vertically as shown in Y Axis). These results are consistent with ILOSTAT data, pointing
that Malaysia lags behind in high skilled jobs in occupations with “knowledge generation and application”
activities (28% high skilled jobs in Malaysia vs. over 40% in aspirational countries) (Malaysia-Creating Jobs,
World Bank, forthcoming chapter in Malaysia High Income Study).

9
Please see Annex for a details of description of these skills

22
 Figure 14 Malaysian Frontier skill penetration detailed comparison with comparator countries
Higher Malaysian skill penetration

Higher Penetration

Lower Penetration

Higher overall Frontier skill penetration, by country

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation,
licensed under CC BY 3.0, 2015-2018. Note1: Percentage value in brackets behind each country in X Axis is
LinkedIn membership penetration rate as a percentage of the working age population 15-64 years old (World
Bank WDI, 2017). Note2: Countries ordered left to right by overall penetration of Frontier Skills (e.g. Malaysia
ranks 5th out of the 11 comparator countries listed. Note3: Skills in Y Axis are ranked by Malaysia’s relative
penetration, with skills decreasing in prevalence in Malaysia top to bottom along.

23
Taking the priority aerospace industry as an example to examine further, Malaysia needs to catch up
with industry leaders in aerosapce engineering skills such as Brazil (Figure 15). In fact the prevelance,
or penetration, of Aerospace engineering skills in Brazil (e.g. CATIA, ANSYS, Avionics) is nearly double that
of Malaysia. Mexico also slightly outperforms Malaysia.

Figure 15 Aerospace Engineering Skill Penetration Malaysia vs. Peer Countries

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation,
licensed under CC BY 3.0, 2015-2018; Note: Results are calculated across 48 occupations common across
Malaysia, Mexico and Brazil that at least one country has reported using aerospace skill in their daily job.

In terms of the growth of frontier tech skills between 2015-2018, the skills that are already starting from
a high base are growing the fastest (e.g. Data Science & Development Tools), but others are developing
slower. Data Science, for example, has a six fold increase in penetration between 2015 and 2018 (0.1% in
2015, and it reaches 0.6% by end of 2018). AI, Cyber Security and Human Computer Interaction skills are
also growing in Malaysia, but at a significantly lower rate than other consumer-facing less-sophisticated
tech skills, such as graphic design, web devleopment and social media. Skills that Malaysian workforce
possess abundantly such as Materials Science (Figure 16) are showing declining trends, as are Genetic
Engineering, Nanotechnology, Aerospace and Robotics skills. These results may be linked to talent
migration trends, which are discussed in the subsequent section. Japan introduced a strategy in 2015 to
foster industrial revolution through the use of robots. The strategy clearly outlined the short- term,
medium term and long term vision of the economy ranging from vocational education and training to
embedding learning at the foundational stage for children (Box 2).

24
Figure 16 Tech and Frontier Tech Skill growth in Malaysia, 2015-2018

25
 BOX 2. JAPAN: NEW ROBOT STRATEGY

Japan’s “New Robot Strategy" was formulated and released in February 2015 aiming to create a “new Industrial
Revolution” using robots. The Robot Revolution Five Years Implementation Period started in fiscal year 2015, including
following initiatives:
- Government and private sector investment in projects related to robots for 100 billion yen
- Expand robot market scale to 2.4 trillion yen (the market size in 2015 was 650 billion yen)
- Construct a new robot test field in Fukushima (provide an area for testing field robots and drones)
- Facilitate innovation and accelerate public implementation through organizing the World Robot Summit
- Reduce costs for initial introduction of robots by 20% and double the number of human assistant robots to
30,000 by year of 2020.

To nurture the human capacity who can perform the development of robots and raise the level of “know-how” in utilizing
robots at workplace, the Strategy provided short-term and long-term policy recommendations:
Short term: vocational training
It is necessary to consider measures for developing human capacity that understand technologies, principles, operation
methods and the like about robots at workplaces by utilizing public vocational training for employed workers, certification
and qualification systems of not only robot manufactures but also robot users.
Middle term: higher education
Education institutions, such as research institutions and universities, should consider the introduction of interdisciplinary
curriculum concerning IoT and the like. At the same time, they should develop human resources through the
implementation of attractive projects that allure young people and develop human capacities and technologies together,
as well as those that not only engage in research and development but also venture into starting a business.
Long term: robot for all
Toward the realization of “society where robots are part of daily life”, it is necessary to cooperate with educational
institutions and social educational facilities such as science museums as well to make children familiarize themselves with
robot use in daily life.

Source: Japan’s New Robot Strategy (2015)

Co-founders and entrepreneurs’ skillsets also matter for digital technology adoption. This is
because start-ups can provide locally adapted tech solutions especially for SMEs that have a
limited budget to source foreign tech solutions. Malaysian manufacturing SMEs are slow in
adopting Industry 4.0 technologies (Central Bank of Malaysia, 2018). A major driver for this
aversion is both the lack of awareness and more importantly, the associated costs. Malaysian
firms supplying Industry 4.0 technology/consultation locally are negligible, and foreign
companies offering these services are often too expensive for Malaysian SMEs to engage. As
quoted by the head of the Malaysian Technology Development Corporation (MTDC) “..companies
should look at the bigger picture and become the ‘provider’, as the supplier of many [Industry
4.0] solutions and products is currently dominated by foreigners” (MTDC CEO, Datuk Norhalim
Yunus, 2019). The ability of local tech firms to provide industry 4.0 solutions is crucial, both in
terms of cost and meeting local needs. To promote growth, the Malaysian government has taken
a pragmatic approach through establishing a hub (Centre of 9 Pillars of Industry 4.0) in
collaboration with leading Malaysian universities 10, to accelerate Industry 4.0 innovations. One
good indicator of whether local start-ups have a good chance in providing frontier tech solutions
is to look at co-founders’ frontier skills profile.

10
Universiti Putra Malaysia (UPM-MTDC Technology centre) and Universiti Teknologi Malaysia (UTM-MTDC)

26
In Malaysia, co-founders 11 excel in business skills but fall behind regional and income group
competitors in frontier tech skills (Figure 17). Basic tech skills for Malaysian co-founders are
similar to those of neighboring competitors. On the other hand, when it comes to frontier tech
skills such as those most often associated with industry 4.0, Malaysian co-founders are falling
behind regional or income group comparators. While it is not necessary that only tech-equipped
entrepreneurs can establish and run tech start-ups, the fact that Malaysian entrepreneurs as a
whole severely lag behind other countries in frontier tech skills, points to some room for
improvement given that increasingly entrepreneurs that come up with a new tech solution at
least has some knowledge in the field (especially at the ideation stage).
Figure 17 Malaysian Co-Founder Skill Profile, benchmarked against competitor countries (2015-2018
pooled data)

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation, licensed
under CC BY 3.0., 2015-2018; Note: “Co-founder” defined by average results of Co-founder, Founder, and
Entrepreneur occupations.
Note: BRICS excludes Russia since LinkedIn does not operate in this country; Asian Tigers in sample are Hong Kong,
Singapore, South Korea, and Taiwan.

11
“Co-founder” is defined by the average results of Co-founder, Founder, and Entrepreneur occupations captured
on LinkedIn.

27
III. Sourcing global talents in support of Industry 4.0 transformation

The Malaysian government has implemented a range of talent retention and attraction
policies. 12 These range from student exchanges, relaxation of requirements to obtain
employment authorization and the establishment of Expatriate Talent Service Centre(s)
(MYXpats). Other steps to overcome hurdles in attracting talent and repatriating talent include
working on “leveling the playing field” within the Malaysian workforce as it relates to ethnicity
and promoting foreign talent employment in local businesses.

While Malaysia has been successful in attracting low-cost labor, the attraction of high-skilled
foreign labor has been lagging. Immigration is one of the primary sources of low skilled and labor
intensive occupations in Malaysia (Malaysia Economic Monitor: Immigrant Labor, December
2015). In turn, the ample supply of cheap foreign labor has a distorting effect on the incentives
for increased productivity through technological upgrading of Malaysian firms – instead of
technological upgrade, many firms might chose to hire additional low wage foreign labor instead
of adopting better technology (Central Bank of Malaysia, 2018). Nonetheless, one should note
that Malaysia is still in large part reliant on low skilled immigrant labor, particularly in sectors
such as agriculture (Malaysian Economic Memorandum, WB, 2015). On the other hand, hiring of
high skilled expatriates is low. In a February 2019 press release, Talent Corp stated that of the
16,000+ companies utilizing the Expatriate Services Division, expatriates only accounted for 10%
of new hires, and Malaysians accounted for 90%, indicating companies prefer to hire locals for
high-skilled jobs (Talent Corp, 2019). The Central Bank of Malaysia echoes these sentiments,
highlighting that while Malaysia’s immigrant population ratio is higher than most of its regional
peers, Malaysia is falling behind in efforts to attract skilled workers as seen in Australia, Singapore
and Hong Kong.

Low skilled labor is flowing in, while high skilled talent is moving out. Only 1 out of 12 frontier
tech skills in Malaysia managed to avoid rapid out migration between 2015-2018 (Figure 18).
In fact, comparing migration trends for all skill types, frontier tech skills are departing Malaysia
in the greatest volume. Skills such as Artificial Intelligence and Nanotechnology are departing
Malaysia at the fastest rate, where for every 10k LinkedIn members in Malaysia reporting AI
related skill, ~750 are going abroad to find work. This rate is nearly double the ~4% AI out-
migration rate seen in Asian Tigers. Skills most conductive to industry 4.0 in the 5 priority sectors
such as Robotics, Aerospace Engineering, and Materials Science are also exiting the Malaysian
workforce. Asian Tigers, however, are attracting talent in these areas including Aerospace and
Genetic Engineering. Data from DOSM for priority sectors (excluding Aerospace) is consistent
with this LinkedIn data migration analysis. While the DOSM data reports no growth in high skilled
non-Malaysian employment, it shows a 3-fold increase in low skilled labor contribution to total
non-Malaysian employment (Figure 19).

12
Nurturing Expert Talent (NEXT), Critical Occupations List (COL), myAPEC YouthConnect, myASEAN Internship,
Returning Expert Program (REP), Residence Pass-Talent (RPT), KNOWMADS, Scholarship Attraction and Retention
(STAR), among others.

28
Figure 18 Malaysian Frontier Skill Gain/Loss due to Migration, 2015-2018

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn
Corporation, licensed under CC BY 3.0., 2015 -2018

Figure 19 Decreasing Non-Malaysian Worker Skill Level in Malaysia

Priority Sector* Distribution of Non-Malaysian Employees by Skill Level

2009-2015
100% 3.0% 2.4% 3.5%
5.1%
90%
24.6%
80%
70%
60%
50% 95.9% 96.6% 93.9% 93.1%
40% 74.8%
30%
20%
10%
0% 1.1% 1.0% 0.6% 1.0% 3.4%
2009 2010 2012 2014 2015
Low Skilled Semi-Skilled High Skilled

Source: Data from DOSM; Note: Priority sectors covered are: Chemicals, Electrical and Electronics,
Machinery & Equipment, and Medical Devices and optical instruments.

29
 Another channel to help industry upgrade is to ensure the critical occupations lists in priority
industries are in place. The Malaysian government’s Critical Occupation List (COL), presents a
platform for keeping an updated view of changing labor market supply-demand and coordination
of human capital development policies. These lists are useful to policy makers’ efforts in forming
talent attraction policies, targeting investments in human capital, and other skill development
initiatives.

For example, to develop the Medical Devices industry, Biomedical Engineers (COL #21,
2018/19) stand out as a critical occupation but the typical skills mix of biomedical engineers in
Malaysia now lags behind peer countries. We find that technical and specialized industry skills
for biomedical engineers (those who apply engineering principles to create solutions for
healthcare and deal with the design and development of medical products) fall behind developed
and BRIC countries. Furthermore, Biomedical Engineers in Malaysia show no activity in Frontier
Tech skills, reporting a penetration rate of zero (Figure 20). This all points to the need for further
training needs of this critical occupation in Malaysia. While this is just an example, a follow-up
of this strategy exercise is to go one step further, by identifying the key critical occupations per
high-potential industry, and the skills profile of each occupation. College curriculum, on-the-job
training and talent attraction programs can then be targeted to address the skills and occupation
gaps.

Figure 20 Biomedical Engineer skill profile (COL #21, 2018/2019) in Malaysia vs. comparator country groups

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation, licensed
under CC BY 3.0., 2015-2018;
Note: Due to sample size limitation for Biomedical Engineer occupations, country groups are composed of the following
countries: Asia Tigers [Singapore]; BRIC [India, Brazil]; Regional [New Zealand]; Developed [France, Germany, Italy,
United Kingdom, United States]; ASEAN [Indonesia, Singapore, Vietnam]; country groups with penetration of zero for
given skill group are removed from figure.

30
Another channel to help industries upgrade is to connect workers with international experts
outside of Malaysia to foster collaboration and generate new sales leads especially in traded
sectors. The World Bank’s World Development Report (WDR) 2020 finds that exports and global
value chain participation are strongly correlated with the number of foreign connections
members have on LinkedIn as it posits that international connections facilitate the matching of
ideas and business opportunities, which in turn contributes to GVC participation (WDR 2020,
World Bank, 2019) (Figure 21).

Figure 21 Exports and GVC Participation vs. Online Foreign Connections (WDR 2020, Box 6.2, Figure B6.2.1)

Source: WDR 2020, using World Bank-LinkedIn Digital Data for Development. “Each of the graphs shows the correlation between one of
the three GVC measures and the stock of foreign LinkedIn connections. The y-axis present data from the TIVA dataset at the sector level for
64 countries. The dataset includes 36 sectors. The variables are total exports on total output (figure 6.6a), forward and backward
participation in GVCs (figures 6.6b and 6.6c). The x-axis data come from the Economic Graph at LinkedIn, showing the (natural log) of the
total number of foreign connections in a given sector in the same 64 countries for 2015-2018. Each point in the scatterplot represents the
mean of the y-axis variable in each of the one hundred chosen bins of the x-axis data. The blue line is the prediction of the dependent
variable calculated using linear regression with additional country and sector fixed effects and, therefore, its slope represents the elasticity
between the y-axis and the x-axis measures.” (WDR 2020).

However, in Malaysia, even in the most digitally-fluid internet industry, workers are not
connected to the global centers of the internet 13 professional network (Figure 22). The most
connected players in the internet industry are predominantly in the United States, followed by
other major players such as the United Kingdom, Singapore, India, Ireland and Germany. Malaysia
is mostly connected with regional partners such as the Philippines, Thailand, Indonesia etc. This
points to a potential quick win for the government -- when fostering digital entrepreneurship
ecosystem development, international networking events and joint-product development
collaboration opportunities and grants between firms and universities can be facilitated through
government support programs. Korea has launched a Startup Grand Challenge in 2016 which
invites international tech start- ups to Korea and cooperate with local companies (Box 3).

13
Internet industry includes firms that provide a wide variety of products and services online, including many of
the unicorn digital platform firms in the world. While LinkedIn is not a representative sample of the entire
economy, workers in the internet industry regardless their physical locations, are likely to be on LinkedIn. Hence
this network map is less likely to be skewed because of different sectoral penetration rate across countries.

31
Figure 22 Malaysia International Connections in the Internet Industry, 2015-2018

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation,
licensed under CC BY 3.0., Network Connection Data, 2015 -2018. This map is generated by the number of
connections between LinkedIn members of different countries. The larger the circle means the more
international connections. Closer to the center means more connected to global centers of the professional
network (similar to gravitational force).

32
BOX 3. KOREA: K-STARTUP TO ATTRACT INTERNATIONAL ENTREPRENEURS

The Korean government is working to transform the economy into Industry 4.0, ultimately raising the employment rate,
the GDP growth rate, and Korea's place in the world. For this purpose, Korea is supporting talented entrepreneurs and
promising startups to turn Korea into a global startup hub.

K-Startup Grand Challenge was launched in 2016 by the National IT Industry Promotion Agency (NIPA) and Ministry of SMEs
and Startups of South Korea, in partnership with Seoul-based accelerators. It is Korea’s first accelerator program that invites
international tech startups to Korea and cooperate with local VCs and companies.

In the 2019 Challenge, 40 winning teams from global audition were invited to Pangyo Tech Valley, located in the south of
Seoul, to participate in a 3.5 month-long accelerator program. The 40 teams receive a total of $10,840 to cover the living
expenses. At the end of the accelerator program, the government hosted a Demo Day to select top 20 startups. These
startups will be eligible to receive $10,840 each for settlement in Korea if they meet the required criteria. And the top 4
startups will receive additional grants from $6,000 to $10,000.

In addition to financial support, the participated startups also receive free office spaces, visa and incorporation support, as
well as matchmaking with Korean tech largest companies, including Samsung Electronics, LG Electronics, Kakao, and others.

The program accepts applications from startups in all sectors with growth potential, but it is particularly focused on frontier
technologies such as AI, Blockchain, Robotics, IoT, Fintech, Big Data and 5G.

In 2018, 1,771 startups from 108 countries competed to be selected for the 2018 K-Startup Grand Challenge. 73 of them
were selected to participate the acceleration program, and 40 teams were then chosen in the Demo Day to receive
additional funds. Since launched in 2016, the K-Startup Grand Challenge has witnessed 64 entities established in Korea
attracting $48 million domestic and international investment.

Source: Authors’ summary based on review of relevant literature and case studies

33
IV. Assessing the potential of high-value added tradable services sectors
in Malaysia
The Services sector in Malaysia accounts for 58% of total GVA (Gross Value Add) of the economy (2018),
contributing ~190 Billion Ringgit to the Malaysian Economy, with the ICT sector growing the fastest
between 2015-2018. Wholesale and Retail trade is the fastest growing in terms of their share and the
largest contributor to GVA. In absolute terms however, the ICT sector grew the most (after administrative
services), with an average annual growth rate of over 8% between 2015-2018 (Figure 23). The Financial
Services sector on the other hand only grew by 4.3% over the same period and decreased its proportional
contribution by ~0.5%.

Figure 23 Gross Value Add Contribution (GVA- constant prices, 2015) by Service Sector 2015-2018

GVA Contribution by Service Sectors

(Real value, 2015 base year)
200000
2.6%
180000 5.6%
5.9%
160000 2.7% 6.5%
5.3%
140000 5.6% 10.2%
6.5%
Ringgit (Millions)

120000 9.7% 10.7%

100000 11.2% 11.6%

12.2%
80000
17.5%
60000 18.2%

40000
29.4%
20000 28.6%

0
2015 2018

Wholesale and retail trade; repair of motor vehicles Education, Health, Public Admin. & Defense
Finance & Insurance Activities Electricity, Gas, Water & Other Service Activities
Information & Communication Transport & Storage
Accomodation & food service activities Administrative & Support Services
Real Estate Activities

Source: Constant GVA (2015 base year), Departments of Statistics, Malaysia 2019

Employment is similarly dominated by the Services sector (60% of total workforce), with majority of
new job creation (2015-2018) taking place in the accommodation and wholesale/retail sub-sectors
(Figure 24). These two sub-sectors are also the two single largest contributors to Malaysian service sector

34
employment. Employment share contributions of ICT and Financial services sectors have positive average
growth rates of 2.9% and 1.8% between 2015-2018, respectively. Other services including Electricity and
Transport also grew at moderate rates.

Figure 24 Employment Contribution & Growth by Service Sector 2015-2018

Employment by Service Sector

1.1%, Electricity, gas,
10000 1.2%, Electricity, gas, steam and air
steam and air conditioning
9000 conditioning
2.5%
4.1%
8000 2.5% 5.9%
4.3%
6.0% 12.3%
7000
Workers (Thousands)

12.1%
6000 17.1%
16.1%
5000

4000 27.6%
26.2%
3000

2000
31.6% 29.3%
1000

0
2015 2018

Other Service Activities Wholesale and retail trade; repair of motor vehicles
Accomodation and food service activities Real Estate Activities
Transport & Storage Finance & Insurance Activities
Information & Communication Electricity, gas, steam and air conditioning

Source; Labor Force Employment, Departments of Statistics, Malaysia 2019

Despite being the fastest growing sub-sector in services, ICT’s domestic value proportion out of gross
exports is the lowest, signaling there is much room to keep climbing the Value-Added ladder and
enlarging domestic value creation in the fast-growing ICT sector. Non-tradable services sector reports a
high proportion of domestic value add, for example Real Estate activities rank highest in the list. As
mentioned in section 3, firms in Malaysia are often reliant on foreign firms for the delivery of Industry 4.0
technologies and services. Hence there may be an opportunity for this sector to gain additional domestic
value addition, for both domestic and foreign market clients, by developing home-grown ICT solutions.
Indeed, domestic value add portion of ICT export has been growing at a mediocre speed, at overall
services sector average growth rate (Figure 25).

35
Figure 25 Composition of Foreign vs. Domestic Value Added in Malaysian Service Exports

Source: OECD TiVA data, Domestic & Foreign VA in embodied in foreign exports- 2016

Sustained productivity and export growth in the Malaysian wholesale/retail sector may be
achieved through digital transformation and the adoption of new business models, since this
sector is the anchor of the economy both in terms of employment and value addition
contribution. E-commerce and e-trade can help develop “frictionless” economies which drive
productivity growth and job creation (Digital Economy Report, UNCTAD, 2019). These end goals
can be achieved in part by private digital platforms, which have shown to improve interactions
between consumers and producers (e.g. B2C commerce) and help take advantage of, and foster
development of, network effects (UNCTAD Technical Notes on ICT for Development, 2017). In
Malaysia, super/hypermarkets have seen declining growth trends (Retail Group Malaysia, RGM,
2019). On the other hand, specialized stores and e-commerce have seen strong growth, following
consumer preferences for greater convenience and personalization (Retail Group Malaysia, RGM,
2019; Malaysia Mobile Retail Shopping Business and Investment Opportunities, Research and
Markets, 2019).

Malaysia can take advantage of the domestic retail sectors growth, to develop e-commerce
solutions capable of reaching global markets instead of ones confined to the country or its
immediate neighbors as the market size in Malaysia is limited. Not only can e-commerce
address consumer demand and increase productivity of retail in the domestic market, but it can
also eliminate geographical barriers and enable international trading of both goods and services
and increasing Malaysian service exports. Malaysia’s Digital Free Trade Zone is certainly a step in
that direction and should be fostered to encourage more SMEs to access greater markets.
Malaysia presents a strong foundation for growth, ranking 5th in the top 10 developing economies
for e-commerce readiness according to the UNCTAD B2C E-commerce Index (2019),
outperforming regional counterparts such as Thailand. A next step is to deep-dive into the

36
specific digital transformation opportunities of this sector can be carried out to further this
development, especially Business-to-Business (B2B) sourcing platforms that enable SMEs to
access to greater markets through participating in GVCs.

Turning to financial services which is also a high value-added sector with a high domestic value
addition portion in exports. The Malaysian financial sector has historically been highly
commended, characterized by its inclusivity, strong governance and high bank capitalization post
Asian financial crisis (Malaysia Financial Sector Assessment Program, IMF, 2008; World Bank,
2013). As of 2019, all leading Malaysian banks report in house fintech solutions or partnerships
with fintech firms. Further, Malaysia appears to have enjoyed a “late-mover” advantage, allowing
regulators to observe international best practices prior to domestic regulatory implementation.
Many of the regulatory uncertainties prior to 2016 centered around the Fintech start-up space
and development of fintech partnerships (Malaysia Fintech Ecosystem Overview, Supercharger,
2018). Central to alleviating these uncertainties was the introduction of a Financial Technology
Regulatory Sandbox Framework (2016) by BNM (Bank Negara Malaysia), tasked with testing
responses to disruptions brought by Fintech technologies. Since then, as of July 2019 there are
over 300 new Fintech start-ups operating in Malaysia (The Malaysia Fintech Ecosystem Report,
E27, 2019). The majority of Fintech firms in Malaysia operate in e-payments and digital
wallets/crypto currencies (Figure 26), however others include frontier tech such as “Robo-
Advisors”, two of which gained regulatory clearance in October 2019 (International Investment
News).
Figure 26 Distribution of Malaysia Fintech players in 2018

Source: Fintech Malaysia Report 2018, Fintech News Malaysia

37
In recent years, numerous additional efforts have been promoted by the Malaysian
government to support Fintech. These include Fintech Academy 14, Digital Finance Innovation
Hub 15, and MyFintechWeek 16 among others (including corporate based programs). Nonetheless,
certain regulatory constraints remain, such as lack of government regulation with regard to
cyber-security (Fintech in ASEAN Unlock the Opportunity, Economist Intelligence Unit, 2019).
Another prominent problem that financial services sector face is “brain drain” – loss of talents
due to migration to neighboring financial centers such as Singapore and Hong Kong. Malaysian
workers in the financial sector are leaving Malaysia for more established financial hubs such as
Singapore and Hong Kong (Figure 27). The results signal that Malaysia needs to find its niche in
the financial services sector when facing two regional hubs close by. Fintech has great potential
to be this niche and can be leveraged to increase efficiency and reduce the cost of access to
finance in supporting developing local digital solutions by entrepreneurs.
Figure 27 Financial & Insurance Activities Sector Migration in EAP & SA Regions, 2018

Source: "World Bank LinkedIn Digital Data for Development" by World Bank Group & LinkedIn Corporation,
licensed under CC BY 3.0, Industry Talent Migration (2018); Red (green) means the country is experiencing net
negative (positive) migration.

14
Joint project between Malaysian Digital Economy Corporation (MDEC), Bank Negara Malaysia (BNM) and the
Security Commission producing regulatory “bootcamps” on the topic of Fintech.
15
Joint project between MDEC, UNDCF and BNM to spur innovation in the financial sector.
16
Event hosted by BNM bringing together leaders in technology and finance to discuss Fintech innovation.

38
In sum, wholesale & retail trade, accommodation & food services, and financial services
historically drive the Malaysian services sector and they can further leverage new business
models in the digital economy to increase their productivity and export. The ICT sector on the
hand presents a large potential to drive Malaysia’s Industry 4.0 transformation especially when
the domestic value addition portion of exports in this sector is the lowest among all service
exporting sectors. Wholesale & retail trade accounts for over a quarter of service sector
employment and GVA, while also being the key growth driver in services between 2015-2017.
Malaysia seems ready to take on an e-commerce revolution. Fintech within financial services
sector is also growing fast in recent years. When facing two global financial hubs close by:
Singapore and Hong Kong, focusing on niche product and market (e.g. Islamic Finance) through
fintech seems to be a sensible industry move. All these new opportunities, require tech skills
development of the labor force (as well as complementary skills and factors), including amongst
digital entrepreneurs to nurture home-grown new digital solutions. Malaysia’s skills readiness
overall would need to be strengthened to help the country achieve a digital transformation both
in the manufacturing sector (i.e. Industry 4.0) and the services sector that leverage new digital
technologies and business models.

V. Summary and Recommendations

The challenge for Malaysia is sustained and even higher value-added growth in the five priority
sectors that utilize more sophisticated technologies and capabilities of the work force. Out of
the five high-potential sectors 17 laid out in “Industry4wd” by Ministry of International Trade and
Industry, four of them except for Machinery & Equipment registered steady GDP, employment
and export growth in recent years. Malaysia’s Fintech and e-commerce also witnessed
substantial growth albeit largely as B2C solutions, instead of the more sophisticated B2B
platforms that help SMEs access global value chains and improve productivity. Malaysia is largely
lagging behind its regional and global peers in skills readiness to support the industry
transformation, especially in frontier tech skills such as artificial intelligence, development tools
(e.g. Python, Java), human computer interaction, robotics and nanotechnology. Using aggregated
data on 3.7 million Malaysian LinkedIn members, and comparing Malaysia against its regional
comparators identifies major skills gaps across the majority of frontier tech skills. Figure 28 listed
the top 5 frontier skills gaps for Malaysia. These critical frontier skills should be included in the
local university curriculum and on-the-job training to improve the competitiveness of the
Malaysian work force in the long run.

17
They are: 1) Electrical & Electronics, 2) Machinery & Equipment, 3) Chemicals, 4) Medical Devices, and 5)
Aerospace.

39
Figure 28 Malaysia Frontier Tech Skills-Gap, compared to global average

The World Bank Human Capital Index reports that Malaysia lags behind aspirational peers in
educational performance (measured by test scores). As the analysis for the forthcoming high-
income report shows, the performance in Trends in International Math and Science Studies
(TIMSS) 2015 was higher in all the domain subjects when compared to the previous cycle for
TIMSS but lower than the target of 500 points, with 465 points for mathematics and 471 points
for science. The OECD average for PISA 2018 was 487 for reading and 489 for both mathematics
and science. Malaysia, which is aspiring to become a high-income country, scored lower than the
OECD averages, with 440 points for mathematics, 415 points for reading and 438 points for
science. The general picture of learning outcomes that are below international averages is
confirmed by the World Bank’s HCI which measures educational performance in terms of
harmonized test scores. Similarly, World Development Indicators (WDI) place Malaysia behind
aspirational peers in tertiary enrollment.

Putting an emphasis on applied tech skills and having structured partnerships with industries
for internship and capstone projects is the biggest difference between the US and Malaysia in
AI and Robotics curriculum design. By comparing the curriculum of AI master’s programs in two
top universities: US Carnegie Mellon University (CMU) and Malaysia Asia Pacific University (APU),
we find that the US AI education offers detailed topics that apply AI for different purposes. For
example, the AI program of CMU provides courses on using machine learning for text mining, for
signal processing, for large databases. It also offers interdisciplinary courses such as
Bioinformatics and Computational Medicine. In addition, the US AI education has a focus on
university-industry collaboration and entrepreneurship. The CMU’s AI program has partnered
with industrial sponsors to provide real-world training. Students are also required to take
industry internships in the middle of the master’s program as a graduation requirement. Similar
patterns were also observed in other tech education courses, such as robotics and
nanotechnology.

40
Table 4 AI Master Programs: US vs. Malaysia

US Carnegie Mellon University: Master of Science in Malaysia Asia Pacific University of Technology & Innovation:
Artificial Intelligence & Innovation Master of Science in Artificial Intelligence

Core courses: Core courses:

 Artificial Intelligence and Future Markets  Artificial Intelligence
 Law of Computer Technology  Image Processing and Computer Vision
 AI Engineering  Fuzzy Logic
 AI Innovation  Applied Machine Learning
 Coding Bootcamp  Computational Intelligence Optimization
 Machine Learning  Natural Language Processing
 Machine Learning with Large Datasets  Research Methodology in Computing and
 Natural Language Processing Engineering
 Applied Machine Learning Elective courses (choose 3):
 Deep Learning  Applied Robotics
Elective courses (choose 3):  Pattern Recognition
 Machine Learning for Text Mining  Expert Systems and Knowledge Engineering
 Search Engines  Business Intelligence Systems
 Neural Networks for NLP  Multivariate Methods for Data Analysis
 Machine Learning for Signal Processing  Deep Learning
 Advanced Multimodal Machine Learning Other requirements:
 Design of Intelligent Information Systems  Project
 Machine Learning with Large Datasets
 Conversational Machine Learning Source: http://www.apu.edu.my/our-courses/postgraduate-
 Advanced Machine Learning: Theory & Methods studies/masters-degree-programmes/master-science-
 Cloud Computing artificial-intelligence
 Foundations of Cyber-Physical Systems
 Database Systems
 AI: Representation and Problem Solving
 Practical Data Science
 Advanced Cloud Computing
 Computer Vision
 Medical Image Analysis
 Sensing and Sensors
 Visual Learning and Recognition
 Web Application Development
 Management of Software Development
 Methods: Deciding What to Design
 Managing Software Development
 Software Engineering for Startups
 Fundamentals of Bioinformatics
 Computational Medicine
Other requirements:
 Capstone project
 Summer internship
Source: https://msaii.cs.cmu.edu/curriculum-0

In the short run, another way to address the human capacity gap in tech skills is to provide
targeted support to the Malaysian digital entrepreneurship ecosystem, including hosting
international start-up challenges and global entrepreneurship programs that foster knowledge
exchange and develop collaborative and communications skills of local digital entrepreneurs.
The study of researchers in Finland shows that the collaborative events such as Hackathons and
code camps as teaching tools offer students new ways of learning specific technologies or
methods in short periods of time through practice. In addition, many researches have proven

41
that participants in such events could develop interpersonal behavior and communication skills,
personal motivation and working independently, and critical and creative thinking, which are
most needed soft skills by industries like ICT and software engineering. There is a vicious circle
that most firms in Malaysia are lagging in Industry 4.0 transformation as firms (mainly SMEs)
cannot afford to purchase foreign technology solutions. Home-grown ICT firms while growing
fast, also rely on foreign inputs and key technologies (as evidenced by the high foreign value add
% in ICT export). On the other hand, a typical start-up founder’s profile in Malaysia is lagging in
frontier tech skills indicating little chance of providing home-grown alternatives especially for
new tech solutions that require deep technical knowledge at the ideation and prototype stages).
While workforce capability development is a long-term endeavor, countries such as Korea and
the UK have managed to achieve some immediate results that improve the tech and
interpersonal skills through global entrepreneurship programs and start-up challenges. These
start-up ecosystem human capital interventions that put a strong focus on international
collaboration also expose local digital entrepreneurs with the latest technologies and
international competition. These programs have the potential to quickly close the capability gaps
of entrepreneurs with frontier countries. Below is a summary of short-term and long-term
programs for improving frontier tech skills based on international experience. Since technologies
and skills needs are quickly changing, the table focuses on the mechanisms and types of
programs, instead of the skills training content within each program.
Table 5 Summary of Programs for Improving Frontier Tech Skills

Skills for Industry 4.0 Short Term Programs (3 months-2 years) Long Term Programs (3-5 years)

1) AI/ Internet of - Training grants: Government provides - PhD programs co-funded by industries:
Thing/ Advanced data funding to AI training projects in Government partnering with Industry and
analytics academic, profit or non-profit universities to co-fund PhD places in AI
institutions through (e.g., Canada (see Box 5. UK AI Sector Deal)
Quebec government grants $23.4
Million to an AI training company to - Public vocational training with
support training activities for Quebec apprentice programs in industries:
workforce) Provide robotics/AI utilization training
- Research-Industry collaboration through practice for employed worker
grants: Government agencies provide (see Box 2. Japan Robot Strategy and Box
2) Robotics/
grants to higher education institutes and 4 on UK Industrial Strategy)
Automation
NGOs for robotics research projects with
focus in specific industries (e.g., US- - Museums and other public facilities
National Robotics Initiative 2.0: that use AI or Robotics: Expose all
Ubiquitous Collaborative Robots) segments of the population on the day-to-
- Start-up Challenges and Global day use cases of advanced technologies in
entrepreneurship programs: e.g. Start- public facilities to nurture new technology
up Chile and K Start-up that has adoption in the culture and behaviors of
dedicated objectives in attracting the next generations (see Box 2)
international entrepreneurs to be based
in the country to work with local digital
entrepreneurs, which help learn tech
skills with practice, but also develop
interpersonal and communication skills,
personal motivation, working

42
 independently, and critical and creative
thinking

3) Fundamental digital - Coding bootcamps: Intense coding - Programming education at all levels:
skills (especially learning programs that last three National initiatives to promote
programming) months on average, can be full-time, coding/programming education at all
part-time, online or in-person, usually levels (e.g., Canada-CanCode; Singapore-
run by private company or universities code@SG; US-Computer Science for All
Initiative)
- STEM Education: Colleges and
universities offer bachelor’s / master’s
degrees in science, technology,
engineering and mathematics (STEM) with
applied use cases electives: e.g. industrial
robotics, bioinformatics

BOX 4. UK: AI SECTOR DEAL TO ADDRESS AI SKILLS DEFICITS

The UK Industrial Strategy white paper identified AI and data as 1 of 4 Grand Challenges - putting the UK at the forefront
of the artificial intelligence and data revolution. However, skilled experts are needed to develop AI, and they are in short
supply. As a global leader, the UK needs a large workforce with deep AI expertise; a more diverse AI research base and
workforce; and better digital skills in the wider workforce to use AI.

To solve this challenge, the UK government is working with schools, universities and industry to ensure a highly-skilled
workforce. The Industrial Strategy’s AI Sector Deal which was launched in April 2018 has created the new skills and talent
package supported by industry funding and up to £110 million government investment, including:
- Up to 200 new AI Master’s programmes at UK universities funded by companies such as DeepMind,
QuantumBlack, Cisco and BAE Systems. The Masters programme marks the first nationwide effort to address
the skills gap at this level, in collaboration with the Institute of Coding and British Computer Society
- 1,000 PhD students will have the opportunity to enhance their skills at 16 dedicated UK Research and
Innovation AI Centers for Doctoral Training (CDTs), located across the country
- Up to 5 AI research Fellowships, created in collaboration with The Alan Turing Institute to both attract and
retain the best research talent from around the world. The fellowship would have ties to research focused
industry partners, allowing fellows to freely transfer between public and private organizations to engage in
solving challenging problems faced by industry and supporting academic research. The fellowship programme
would be jointly funded by industry sponsors and Government. Incoming fellows would receive a Tier One
(Exceptional Talent) Visa.

In addition, the AI Sector Deal has set aside £406 million investment in skills, with a focus on maths, digital, and technical
education, including funding to upskill up to 8,000 computer science teachers and creating a National Centre for
Computing. The government has also committed to introduce a National Retraining Scheme, with an initial investment in
digital skills.

To better perform the policy design in AI development, the government will refer to the Alan Turing Institute’s upcoming
reviews on the application of AI in sectors to inform future strategies on AI applications in the UK.

Source: https://www.gov.uk/government/publications/artificial-intelligence-sector-deal/ai-sector-deal#executive-

Malaysia has the potential to keep improving the productivity and worker incomes in the
manufacturing, retail and financial services sectors through adopting B2C and B2B digital
business models, such as e-Commerce, digital trade, fintech and in general a platform-based

43
economy and Malaysia government has a role to play in this. In addition to B2C models in e-
commerce and fintech, other advanced economies have stepped up with targeted efforts to help
SMEs and traditional industries upgrade with B2B solutions. For examples, Europe’s Industry
Digitalization Initiative championed by European Commission has put aside EUR 50 billion to help
boost digital innovation in industries. Part of the money is used to help set up an EU-wide digital
industrial platform that connects the latest technology providers with industrial applications. This
kind of B2B platform not only helps connect sourcing partners, but it also harmonizes industry
standards and requirements in a unified platform interface, so that SMEs without substantial
resources are able to study industry requirements and can participate in the value chains and
understand where the opportunities lie for them both as a potential supplier of parts or as an
affordable technology solution seeker in their own production (see Box 5 on Europe’s Auto-
Gration). EU now is also at the juncture to enable industry data to be centralized on these
platforms with the advance of 5G and Internet of Things, so that third parties can develop
applications based on these industry data, leveraging the trust and data security guaranteed by
GDPR (General Data Privacy Regulations). For Malaysia, drawing from its solid base in the
manufacturing and selected services industries, there can be potentials where the government
takes a lead in certain industries to pilot industry digitalization. A potential industry-specific
platform economy diagnostic can follow this report to understand where the exact opportunities
lie in the five priority sectors. Electronics, chemicals, aerospace, and medical devices are the
most technology and data-intense sectors according to the latest industry and Input/output data
from the US and Europe. Malaysia can take an even more assertive role to nurture these digital
transformation opportunities.

44
BOX 5. EU AUTO-GRATION: INTEGRATE SMES INTO THE AUTOMOTIVE
SUPPLY CHAIN THROUGH DIGITAL PLATFORMS

The Challenge: The European automotive industry accounts for more than 12 million jobs and has net exports of more than
€50 billion. As growth in Europe is slowing, companies must be ready to take advantage of opportunities in the global
marketplace, particularly those in emerging economies. But different EDI (electronic data interchange) standards, different
software or different B2B service providers can hamper information exchange among trading partners, create confusions and
large transaction costs.

The Solution: In 2009, the European Commission (EC) launched a Call for Tender asking for proposals on how to harmonize the
EDI standards market, as part of a set of similar eBusiness harmonization initiatives under the EC’s “Small Business Act”. The
auto-gration proposal, submitted by a consortium that includes many key organizations in the automotive sector (Odette,
Boost, CECRA, CLEPA, COVISINT, FIGIEFA, GALIA, INOVA+, SupplyOn, and TecCom, among others) was selected as the best
suited to develop this B2B industry platform.

The project aims to develop the auto-gration architecture and promote its adoption by the industry’s key players. The auto-
gration architecture specification includes three layers (Business application, Middleware and Communication) covering a
range of tasks from the highest to the lowest level on how a message is sent or received. This architecture also defines a
canonical structure for the transformation of different message formats into one simple format, known as the Auto-gration
message format that can be handled by the auto-gration Connector, an open-source plug-in software that can be deployed
within an IT system of a SME.

The Result: The project has developed an SME friendly solution which facilitates the exchange of business messages within the
automotive industry value chain. The auto-gration pilots confirmed the success of this solution and highlighted the benefits it
can bring to SMEs, both in the upstream supply chain and in the downstream (aftermarket) of the industry:
- easier entry to the market through low-cost, easy to use, interoperable solutions - SMEs got connected in less
than one day
- an 80% cut in manual data entry, fewer errors and lower operational costs
- a 60-80% reduction in telephone and fax inquiries for stock availability
- a 30% increase in staff productivity
- improved business agility - immediate information on products and their availability helped in the selection of
best suppliers and allowed industry players to quickly respond to customer needs
- wider market opportunities - a larger network of suppliers was available and opportunities to access to new
customers were created
So far, major automotive manufacturers (VW, BMW, Renault and Skoda Auto) are exploring the implementation of auto-
gration in their daily business processes.

Source: Fostering SMEs’ Growth through Digital Transformation

https://s3platform.jrc.ec.europa.eu/documents/20182/84453/150527_ICFMostra_EY_Guidebook_Final.pdf/5598b1cf-fda9-
416a-a560-1b934ee195c0

45
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47
Annex

Skill Group
Name Top 10 most reported individual skills
Aerospace CATIA, ANSYS, Avionics, Aeronautics, Airworthiness, Helicopters, Aerospace
Engineering Engineering, Abaqus, CAE, Flight Test
Machine Learning, Data Structures, Artificial Intelligence, Computer Vision,
Artificial Apache Spark, Deep Learning, Pattern Recognition, OpenCV, Artificial Neural
Intelligence Networks, Neural Networks
Cloud Computing Microsoft Azure
Security, Network Security, Firewalls, Information Security, Computer Security,
Information Assurance, Information Security Management, IT Audit, Security
Cyber-security Audits, Vulnerability Assessment
Data Analysis, Forecasting, Statistics, Analytics, SPSS, R, Trend Analysis, Data
Data Science Mining, SAS, Modeling
Development
Tools Java, C++, C, Linux, C#, Python, Unix, .NET Framework, ASP.NET, Git
Molecular Biology, Polymerase Chain Reaction (PCR), Genetics, Real-Time
Genetic Polymerase Chain Reaction (qPCR), Genomics, Molecular Cloning, Gel
Engineering Electrophoresis, DNA, Protein Expression, DNA Extraction
Human User Experience, User Interface Design, Bootstrap, Interaction Design, User
Computer Experience Design, Usability, Usability Testing, Human Factors, Wireframing,
Interaction Experience Design
Materials, Materials Science, Design of Experiments, Characterization,
Spectroscopy, Metallurgy, Thin Films, Scanning Electron Microscopy, Raw
Materials Science Materials, Metrology
Nanotechnology, Nanomaterials, Molecular Modeling, Carbon Nanotubes,
Nanotechnology Nanostructures, Nanomedicine, Mechanical Properties, Nanoelectronics
Automation, Robotics, Control Theory, Process Automation, Machine Design,
Electrical Controls, Mechatronics, Electro-mechanical, Motion Control, Machine
Robotics Vision

48