Relationship Between Plastic industry and Manufacturing sector
- The manufacturing sector in 2020 registered a decrease of 2.1% in sales value to RM1,346.6 billion as compared to RM1,375.5 billion in 2019. However, some sub-sectors managed to register positive growth: Food & Beverages
- After registering a 0.7% growth in Q1 2020, Malaysia’s economy experienced a decline for the subsequent three quarters, resulting in a pandemic-driven decline of 5.6% for the full year.
- The plastics industry is a key supporting industry to essential sector including E&E, medical supply and F&B sectors which is less impacted by COVID-19
- Sales of plastic industry turnover increased by 2.3% from
*RM47.35 billion for 2019 to *RM48.46 billion for 2020.
- Phases 1 & 2 of MCO (18 Mar – 28 Apr) – 40% of plastics companies were allowed to operate at 50% of the normal capacity to cater for the essential sectors, such as food, medical and personal protective equipment (PPEs).
- CMCO in mid-May 2020– all companies were allowed to operate.
- RMCO in June 2020 – manufacturing activities almost resumed to the normal level. Work-from home policy (and study/cook at home) had driven the demand for E&E products.
- A sharp increase in food take-aways and packed food for home cooking led to an increase in packaging.
- The industry faced manpower shortages as foreign workers who had left after completing their contracts were not replaced by new workers. Locals were not keen to work in factories. In Addition, some companies faced cash flow issues that impacted their operations.
Projected growth for 2021-Malaysia’s GDP is projected to growth within the range of 6.5% to 7.5%.
| Issues might face by employer |
| Local councils have yet to issue standard operating procedures on the process. |
| Lack of suitable accommodation available. |
| High cost involved in renovating accommodation space according to specifications in the local councils’ guidelines. |
| Objections from local residents on housing workers at premises in residential areas in close proximity to industrial estates. |
Employee’s RISK COVID-19 cases surged again in November 2020, MCO was reimplemented in mid-January 2021.
- The manufacturing sector which employs approximately 35% of the total documented foreign workers in this country, has been identified as one of the major sectors of the COVID-19 clusters.
- Employers to take the necessary measures to ensure the full compliance of the SOPs to contain further spread of the COVID-19.
- Strick compliance with SOPs at workers’ hostel, workplace, factory buses, etc.
Shortage of workers, particularly foreign workers.
- Foreign workers who have completed their contract have returned to their home country. Some went back for a break, but are unable to return due to travel restrictions.
- Companies which have expanded their scale of operation require additional workers.
- Manpower shortage will continue to be a challenge as the Government has not approved the intake of new/replacement foreign workers.
- Locals are not willing to work in the manufacturing sector.
Difficulties in recruiting and retaining local workers- Survey was conducted by MPMA on the recruitment of local workers in October 2020.
Between June to September 2020, 23 companies attempted to recruit 2,958 workers but the success rate was only 56% (1,672). By end September, only 49% or 817 of the 1,672 workers recruited had remained in employment. (817 = 27% of 2,958)
Compliance of Foreign Workers Policies
MIDA/MITI: mandatory for all manufacturing to comply with the 20:80 ratio for foreign/local workers by 31 December 2022.This will be a HUGE challenge given that the locals are unwilling to work in a factory environment.
*Additional detail
(Starting operations in 1967, MIDA was given the mandate to promote investments in the manufacturing and services sectors; and to advise the Ministry of International Trade and Industry (MITI) on industry matters including the formulation of related policies)
Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446), requires employers to put in place improved accommodations for foreign workers.
| Issues might face by employer |
| Local councils have yet to issue standard operating procedures on the process. |
| Lack of suitable accommodation available. |
| High cost involved in renovating accommodation space according to specifications in the local councils’ guidelines. |
| Objections from local residents on housing workers at premises in residential areas in close proximity to industrial estates. |
Challenges in 2021- Meeting Sustainability Requirements
Major brand owners are committing on Recycling, Circular Economy. Customers and Government requirements for sustainable packaging
Outlook 2021- Further Growth Strategies
Vaccination Roll Out-> Borders Reopening-> E-Commerce Growth and Recovery Growth
The above factor will increase the demand (pent-up demand) for majority of the market sectors
Export is KEY to success – CHINA and USA
| International Growth Opportunities- Export is KEY to success | |
| CHINA | USA |
| China was the only major economy that registered growth (2.3%) in 2020. China growth will continue, projecting GDP growth of 6% for 2021. | US government has approved the US$1.9 trillion stimulus package. Goldman Sachs projected US GDP growth of 6.9%. Morgan Stanley projected 7.3%. The US has not surpassed China’s GDP growth since 1976.The US stimulus package will provide cash and unemployment benefits that will drive demand/consumption. Estimates by analysts: US households may have held back spending due to concerns over the uncertainty. These savings ($2.3 trillion) will be “unleashed” when the situations improve after the vaccination program. |
| The 2 largest economies in the world will drive trade and consumption if the vaccination programs are successfully carried out. | |
Growth Strategies Regional Comprehensive Economic Partnership (RCEP)
*Additional detail
The Regional Comprehensive Economic Partnership (RCEP) is a proposed agreement between the member states of the Association of Southeast Asian Nations (Asean) and its free trade agreement (FTA) partners.
Potential benefits of RCEP to Malaysian companies:
- Largest trade bloc. Offering market access to a third of world’s population • Integrating supply chain within the RCEP region.
- Promoting greater transparency, information sharing, trade facilitation, economic cooperation, standardisation of international rules relating to E-commerce.
- Mutually recognising international standards, technical regulations trade.
- Providing clarity in protection of intellectual property rights
Larger market, new investment/joint venture opportunities,
- Double edged sword – new competition
- US is not a member of RCEP. However, RCEP countries has huge trading relationships with the US.
- The US stimulus program will directly and indirectly benefit RCEP countries.
3Ms – Man, Machines, Materials
- Technology upgrading and automation to: ➢ consistent high quality ➢ reduce dependence on labour, especially foreign workers
- Rising hygiene concerns: requirement for automation to reduce human contact during the production process of food packaging.
Government’s assistance available
- Technology Acquisition Fund. Quantum of Funding: up to RM2,000,000 or 50% (whichever is lower) of eligible project costs
- Automation Capital Allowance of 200% will be provided on the first RM4 million expenditure incurred by companies within the assessment year from 2015 to 2023.
Growth Strategies Responsive to Market Shift
- Rapid growth of food delivery and e-commerce, rising hygiene and consumer safety concerns, → new business opportunities for food packaging.
- Revenue is expected to show an annual growth rate (CAGR 2021-2024) of 15.39%, resulting in a projected market volume of US$410m (RM1.72 billion) by 2024.
- In global comparison, most revenue will be generated in China (US$56,936m in 2021).
- Growth Strategies Opportunities Arising from Change in Business Models.
Published date
15 March 2021
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