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Chapter 1
SMEs Retailing in Malaysia: Challenges for Industrial Revolution 4.0 Implementation
Halim Hamim, Mohd Nizam Abdul Kadir and Mohd Noor Mohd Shariff
Abstract
The importance of the retail sector to the Malaysian economy especially in this volatile environment caused by the Covid-19 pandemic would be more prominent. The retail sector under the current Industry Revolution 4.0 would be prioritized to align with the challenges of future growth for retail sales and employment. In the Industry 4.0 environment, retail companies must put enough resources in embracing the major changes for maintaining their competitive advantages. This includes adapting and developing backend systems, creating effective storage and distribution networks that make products available to consumers on any time basis, and offering maximum flexibility in the last-mile delivery options. Retail companies will need to evaluate the importance of innovative ideas such as crowdsourced distribution networks, radio-frequency identification (RFID), automated locator that shift the look of logistics when evaluating newer, nimbler distribution models, and multichannel marketing that consist of online and offline customer interface.
Keywords: Industrial revolution; IR4.0; automation; information sharing; Internet of things; big data; digitization; SME; retailing; Malaysia
1. SMEs Retailing
Retail is a large, competitive, and highly potential sector that has a significant impact on the economy of many countries, apart from being one of the main contributors to Small and medium-sized enterprises (SMEs) growth. As shown in Fig. 1.1, the global total retail sales in 2019 stood at USD21.46 trillion for both in-store and Internet revenue. Considering that the retail sector is still dominated by large enterprises, the shares of SMEs (2013–2018) vary from 24% to 27% of total retail revenues.
Fig. 1.1. Total Worldwide Retail Sales 2013–2018. Source: Retail Group Malaysia (2017), Research and Markets On-line (2017).
Moreover, for many countries retail becomes a major source of employment. Retail is a labor-intensive sector that offers enormous opportunities for employment. The retail industry is the largest private sector in the United States that supports nearly 35 million jobs, or 1 out of 4 its jobs. The retail sector generates more than 35% of total national jobs for developing countries such as China, India, and Indonesia.
Internet or e-commerce is becoming increasingly important, reaching 8.8% or USD 2.49 trillion in 2018, where the United States and China are leading this segment. The African continent and the Asia Pacific countries are expected to become the new growth frontier for the next decade for in-store or brick-and-mortar retail establishments (PwC, 2016).
1.1 Retail Sector in Malaysia
For Malaysia, the sector reported RM96 billion (USD23 billion) of sales value out of RM1.237 billion (USD 296.4 billion) of the total nation's GDP in 2016 and provided jobs for 992,986 individuals. Since 2013, retail sales have been growing consistently though not as fast as the global rate.
Fig. 1.2 shows the growth in retail sales for selected countries in 2016 and shows that the retail sector in Malaysia still lags behind the benchmark for global retail growth. While a few countries such as the United States, Brazil, Nigeria, China, Russia, and Indonesia have reached 3.9% global retail expansion, few others are still struggling to reach the target including the United Kingdom, Singapore, the Philippines, Thailand, and Malaysia.
Fig. 1.2. Retail Sales Growth Rate for 2016 (Selected Countries). Source: Kadir (2019).
In September 2010, the Malaysian government announced that this subsector of SMEs would be placed under the National Key Economics Areas (NKEA) priority agenda. It is also classified within the Economic Transformation Program (ETP) initiative among 12 subsectors. ETP is a high priority program with the objective of boosting the Malaysian economy to become a developed nation by 2030. ETP's other aim is to escalate the status of Malaysia as one of the best shopping destinations in the world.
2. Industrial Revolution
The buzzwords of the current Industry Revolution 4.0 or IR4.0 of which many researchers, media, organizations, and others are currently discussing are the key technologies that drive this revolution and its impact on governments, companies, and people as a whole. In short, the new approach is integrating conventional production processes with technologies by utilizing the Internet of Things (IoT) to enhance the efficiency of automation, connectivity, and the data in real time for all situations applicable to the value chain (Kurniawati & Ali, 2018).
The IoT relates to the billions of hardware appliances connected to the Internet today, storing and sharing information worldwide. It affects just about every aspect of our daily lives. The first industrial revolution focuses solely on the use of steam engines, the second industrial revolution on electrics, and the third on IT-based industrial revolution (Kurniawati & Ali, 2018).
Many years ago, TV channels were only a tool for disseminating information and entertaining the public. Nevertheless, today a Smart TV will sense if those watching it fall asleep and automatically switch off the TV.
2.1 The Evolution of Industrial Revolution
The Industry 4.0 term was used in Germany as early as 2011. However, it only started to gain attention when the World Economic Forum 2016 declared the world was on the verge of the Fourth Industrial Revolution. The world has undergone three distinctive industrial revolutions and is still undergoing the fourth industrial revolution.
2.1.1 The First Industrial Revolution
Between the end of 1700s and beginning of the 1800s, the first industrial revolution was taking place. The first industrial revolution began with the arrival of steam-powered engines in the eighteenth century. Manufacturing during this period evolved from the reliance on manuals labor done by humans and assisted by animals to an optimal structure of labor performed by humans and was supported by water and steam engines and other machine tool methods. Steam was being used for powering locomotives and facilitated later among other things effective advances in manufacturing development besides transport, leading to Industrial Revolution 1.0.
2.1.2 The Second Industrial Revolution
During the early part of the twentieth century the world began its second industrial revolution, with steel innovation and electricity use at factories. Scientists then invented electricity that powered Industrial Revolution 2.0 just before World War I, leading to telephone, aircraft, and other innovative automobiles using internal combustion system engines. The advent of electricity empowered producers in making machines more effective to boost productivity. Manufacturing on a mass scale could be done with electricity, leading to the creation of manufacturing factories. During this period mass production concepts such as the assembly line were being introduced as a way of improving productivity.
2.1.3 The Third Industrial Revolution
The third industrial revolution gradually began to emerge in the late 1950s, when manufacturers began to integrate more electrical equipment into their plants, and finally computer technology. It was also known as the digital revolution, when electronic appliances such as cameras, televisions, and radios were being created. During this period of time, manufacturers started to experience change which put less focus on analogue and mechanical engineering and more on digital technology software and automation development. This is the period of the advancement of Internet technology.
2.1.4 The Fourth Industrial Revolution
The fourth industrial revolution is otherwise known as Industry 4.0. IR4.0 emerged in the last few decades, promoting interconnectivity through the IoT, accessing real-time data, and implementing cyber-physical systems. IR4.0 has put the focus on digital technology compared to the last decades.
It differs from IR3.0 in terms of the interaction among digital technology and human factors and other physical structures. IR4.0 is concerned the cyber-physical systems and technologies which connect the digital world through the Internet with biosystems such as humans. However, the technology does not directly interact with humans in IR3.0. This is, however, a two-way link between humans and electronics with the IR4.0. In other words, people become a part of technology. Electronic devices such as smartphones, smart TVs, and smart homes use data generated from human beings to better perform their roles.
IR4.0 provides a wider, more interconnected, and more integrated manufacturing method. It integrates digital with the physical and facilitates greater communication and connectivity through agencies, partners, suppliers, products, and individuals. IR 4.0 empowers business owners to monitor and increase in value each part of their operation better and enables instant data which can be leveraged to boost productivity, automate processes, and drive performances.
IR4.0 is a name given to current trends in automation technologies and the sharing of information. This consists of cyber-physical systems, the IoT, cloud computing, and cognitive computing. In 2011, the word IR4.0 was first officially adopted by a coalition of members from various fields (such as finance, politics, and academia) as “Industry 4.0” under an effort to improve German competitiveness in the manufacturing industry.
From the manufacturing perspective, development of robots and sensors refers to a replacement of human workers for specific tasks through automation. Malaysia is one of the countries that forges IR4.0. Artificial Intelligence (AI) is one of IR4.0's core advance technologies. A manufacturing or business process system can use AI to build and learn from its environment and with that data connect people, machines, and the digital world. IR 4.0 is also known as “IIoT” (Industrial Internet of Things) or intelligent manufacturing, which merges activities in manufacturing and smart digital technology, machine learning, and big data in order to generate a more streamlined and better connected world for businesses that rely on manufacturing and supply chains. The cycle of revolutions is depicted in Fig. 1.3.
Fig. 1.3. Industrial Revolution 1.0 to 4.0. Source: Erich (2018).
3. Impact of IR 4.0
From a macroeconomic point of view, more competitively priced exports have the potential to boost volume of exports and stimulate the Malaysian economy. In other words, IR 4.0 could enhance Malaysian exports' competitiveness, thereby increasing its Gross Domestic Product (GDP). A higher GDP translates into more profits that can further improve the manufacturing and potential job sectors.
Implementing IR 4.0 would reduce the cost of manufacturing operational costs and prices of products and services to be provided to make Malaysia more profitable on-the-ground goods rapidly adapted to the transformation of Malaysia, gaining the value of early movers. On the contrary, it may be claimed that increased automation ensures employment opportunities for heavily manual jobs with repetitive tasks which can be diminished. Consequently, some workers might be retrenched as robots take over hu...
