Market Watch 2011 The Machinery & Equipment Industry

Market Watch 2011 The Machinery & Equipment Industry General information about Malaysia Malaysia is centrally located within the ASEAN and consists of the Malaysian Peninsula and the States of Sabah and Sarawak on the island of Borneo. The former British colony gained its independence in 1957 and is a Parliamentary democracy with constitutional monarch since. Malaysia has a tropical climate and is with a total area of 330.000 km 2 slightly smaller than Germany. Due to its bio-diverse range of flora and fauna, Malaysia is one of the 17 megadiverse countries. Malaysia is a multi-ethnic, multicultural and multilingual society with 28.31 million inhabitants. Malays make up the majority of the population at 50.4% followed by Chinese 23.7%, Indian 7.1% and other local Malays 11%. The Malaysian constitution guarantees freedom of religion, although Islam is the largest and official religion. Approximately 60.4% of the population practiced Islam, 19.2% Buddhism, 9.1% Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional Chinese religions. The official language of Malaysia is known as Bahasa Malaysia but English as well as Chinese are the business languages. Economical Overview Malaysia is a dynamic country constantly on the move. From a country dependent on agriculture and primary commodities decades ago, Malaysia has now become an exportdriven economy spurred on by high technology, knowledge-based and capital-intensive industries. Malaysia is one of the 20 largest trading nations worldwide and is ranked 30 th out of 125 countries by the Global Enabling Trade Report 2010, published by the World Economic Forum as well as the 21 th largest exporter among the trading nations worldwide. The country is strategically located in the heart of South East Asia and offers a costcompetitive location for investors intending to set up offshore operations for the manufacture of advanced technological products for both regional and international markets. In addition, the Malaysian economy is supported by a market-oriented economy 1

and pro-business government policies. The new Economic Transformation Programme (ETP) by the PEMANDU, the Performance Management & Delivery Unit of the Government from Malaysia, has been presented to the public. The ETP is anchored on 12 National Key Economic Areas (NKEAs), which are drivers of economic activities that have the potential to materially contribute to the growth of Malaysia. ETP is developed under the patronage of the Prime Minister, the objective also known as Vision 2020 to transform Malaysia into a high income country until the year 2020 is to be achieved. Therefore, it is planned to increase the Gross National Income (GNI) per capita to US$ 15,000.00 or RM 48,000.00. To reach this, an annual growth of the GNI of 6 % is necessary. Within the programme, it is planned to reach a growth of the service sector from 58 to 65 % and to create 3.3 million new jobs. Economical Key facts Malaysia 1 Currency: 1 Ringgit (RM) = 100 Sen Exchange rates: 1 EURO = 4.2 RM; 1 US$ = 3.1 RM (14.12.2010) GDP (billion RM): 2007: 639.8; 2008; 738.7; 2009: 674.4 GDP - real growth rate: 2009: -1.7%; 2010: 4.5-5.5% Inflation rate : 2-2.4 %(2010) Exports: $157.2 billion (2009) Exports - commodities: electronic 36.5%, petroleum and products 8.3%,Chemical products 6.6%, natural gas 6.4%, fats & oils 6.4%, electrical engineering 4.6%, machinery 3.5% Exports - partners 2009: 14.0%, China 12.2%, US 11.0%, Japan 9.8%, Thailand 5.4%, Hong Kong 5.2%, Germany: 2.7% Imports: $119.3 billion Imports - commodities: electronics 29.4%, chemical products 9.1%, machinery 8.9%, electrical engineering: 7.2%, petroleum and products 7.0%, food and living animals: 6.2%, iron and steel 3.6%, raw 1 Source: Germany Trade & Invest

materials: 3.4% Imports - partners: China 14.0%, Japan 12.5%, USA 11.2%, 11.0%, Thailand 6.1%, Germany: 4.2% Unemployment rate: 3.7% (2009) Average wage 2008: Middle management: 6.805RM, senior clerk: 2.650RM, skilled worker: 1.845RM, consultant: 1.450RM, unskilled workers: 910RM Population below poverty line: 5.1% Bilateral Trade: Malaysia & Germany Despite ruled by the British historically, Malaysians still highly value and appreciate Made in Germany products. In 2010, Germany remained Malaysia s largest trading partner within the EU and was ranked Malaysia s 9 th largest trading partner. Malaysia s total trade with Germany recorded a decrease of 22 per cent in 2009, valued at US$ 5.2 billion compared to US$ 6.7 billion in 2008. Exports to Germany amounted to EURO 3,996.4 million in 2009, while imports were valued at EURO 3,234.4 million. Among ASEAN countries, Malaysia was Germany s largest trading partner and source of imports. Overview of the Machinery Sector The early development of the machinery and equipment (M&E) industry emerged to serve the agro-based and tin mining sectors. Over the years, the local manufacturers have also ventured into producing other M&E to meet the needs of other industries. With the rapid development of the country's manufacturing sector over the last three decades, the machinery and equipment industry has expanded to produce a diverse range of machinery, such as automation equipment for the semiconductor industry, blow-moulding machines, pressure vessels, conveyors and conveyor systems, cranes, power/hydraulic presses, welding machines, filling and packaging machines, and offshore and onshore oil and gas equipment.

Malaysia is presently the leading manufacturer of automation machinery and equipment (M&E) for the electrical and electronics (E&E) industry in the ASEAN region with a total of 22 companies in production. Major companies in operation are capable of producing advanced handling systems with full automation and incorporating intelligent robot. The machinery and equipment industry is of strategic importance to the overall industrial development of the country, due to its cross cutting linkages with all industrial sectors. The machinery & equipment industry, according to trade classifications, can be categorized into 4 sectors as follows: Power generating machinery and equipment Metalworking machinery Specialized/process machinery & equipment for specific industries General industrial machinery, equipment and parts The power generating machinery and equipment industry in Malaysia is the sector with the largest increase in investments within the M&E industry due to the growing interest in environmental-friendly power generating solutions. Out of 66 projects approved from Jan- Sept 2010, 21 projects amounting RM239.1 million were for the power generating segment. Malaysia's machinery and equipment (M&E) industry has attracted investments worth RM 1,916.0 million with 92 projects approved in 2010 compared to 95 projects approved with RM 1,239.9 million in 2009. Foreign-based investments amounted to RM 1,019.4 million of the total investments. Specialized/process M&E for specific industry sub-sectors attracted 28 projects with combined investments of RM 734.2 million. General industrial M&E components and parts accounted for 57 projects valued at RM 1,096.0 million while power generating M&E had 5 projects with an investment of RM 77.1 million and metal working M&E attracted RM 8.7 million with 2 projects. Under IMP3, investments into the industry have been targeted to reach RM 30.8 billion.

Power Generating Machinery and Equipment The power generating M&E sector mainly comprises boilers, condensers, electric generating sets, turbines and engines. Malaysia is currently the largest manufacturing hub of boilers in the Southeast Asia region. The main activities involve engineering design, fabrication, assembly and testing. Most of the boilers manufactured cater for the local demand from various industries, ranging from oil & gas, oleo chemicals, petrochemicals, food and beverages, palm oil, rubber, wood, textile and hospitals. Apart from boilers, there are producers of generating sets for power plants, refineries, exploration platforms, petrochemical plants and commercial buildings. Metalworking Machinery The metalworking machinery sub-sector presents vast opportunities in the manufacture of M&E, such as laser cutting machines, machining centers, electro-discharge machines (EDM), milling machines, drilling machines, lathes, shearing machines, bending rolls, stamping machines, press brakes, forging machines and presses. Several Malaysian and Malaysian/Foreign joint venture companies are currently undertaking the manufacturing of metalworking machinery for the automotive, electrical & electronics as well as other engineering supporting sectors. There is great potential for the manufacturing of this metalworking machinery with its emphasis on high technology, NC and CNC machines. Specialized/Process M&E for Specific Industries The machinery and equipment in the above category is specifically designed for use in a particular industry or process. Industries targeted include food and beverages, woodworking, pulp and paper, agricultural, automotive, medical, biotechnology, oil & gas processing, petrochemicals, pharmaceuticals, printing, semiconductor, construction, etc. The increasing mechanization of the agriculture sector has spawned investment opportunities in the manufacturing of M&E for the cultivation of crops, fruits and

vegetables, plantation management, livestock rearing, meat and dairy processing. In the food and beverages sector, the focus is on automated food processing and packaging M&E. In the electrical & electronics sector, Malaysia is a production base of the world s top electronics companies. M&E manufacturers have the advantage of producing machines at competitive prices and benefit from the close proximity to clients for back-up service and after-sales service. The Malaysian plastic industry is considered well established. However, most of the M&E, such as plastic molding machines and plastic extrusion machines are still being bought abroad. General Industrial Machinery and Equipment, Components and Parts The general industrial machinery and equipment, components and parts sub-sector covers a broad category of products such as air-conditioning plants, cold room equipment, elevators, cranes, conveyor systems, pumps, compressors, welding machines, fans & blowers, heat exchangers, pressure vessels, filtering equipment, valves, bearings, gears, actuators etc. The engineering supporting industries essentially cater to the needs of the electrical & electronics and automotive industries. The current focus on the growth of the M&E manufacturing, aerospace, medical equipment and devices industries indicates a potentially increasing demand for precision components, parts and modules. Import & Export of Machinery & Equipment Machinery and equipment export was valued at RM21.5 billion in 2010. The export destinations were mainly to, Indonesia, USA and Thailand. In 2009, this export totaled RM 19.1 billion, with the top three export destinations being, Indonesia and China. Correspondingly the import of machinery and equipment was valued at RM44.0 billion in 2010 compared to RM 38.1 billion in 2009. The main import destinations are Japan, USA, China and Thailand.

Table 1: Imports of Machinery & Equipment, [RM billion] Sub sectors 2008 2009 Major Sources Power generating machinery and equipment Machinery & equipment for specific industries Metal working machinery General industrial machinery equipment and parts 10.3 9.6 12.3 10.4 3.9 3.1 16.7 15.5 Total 43.3 38.2 Source: Ministry of International Trade and Industry (MITI) USA, Japan China Thailand Japan Germany USA, Taiwan Japan Germany USA, Taiwan Japan USA Germany Taiwan Table 2: Exports of Machinery & Equipment, [RM billion] Sub sectors 2008 2009 Power generating machinery and equipment Machinery & equipment for specific industries Metal working machinery General industrial machinery equipment and parts 2.20 2.72 5.68 5.84 1.44 0.92 12.09 10.16 Total 21.9 19.1 Major Destinations USA, Japan Germany UK USA, Indonesia Japan Thailand Hong Kong Japan, USA Thailand Hong Kong Japan, USA Australia Source: Ministry of International Trade and Industry (MITI) Germany is one of the important exporters of machinery and equipment products to Malaysia. The list of machinery and equipment products that Malaysia imports from

Germany is shown in the table below. Products that Malaysia exports to Germany include machinery, electrical & electronic products, vehicles and components. Table 3: Main German machinery & equipment product-groups exported to Malaysia 2010 1 Air-handling Technology 8 2 Productronic 9 Food Processing and Packaging Machinery Construction Equipment and Building Material Machinery 3 Materials Handling Technology 10 Valves and Fittings 4 Printing and Paper Technology 11 Compression, Compress.Air,Vacuum Technology 5 Power Transmission Engineering 12 Pumps 6 Process Plant and Equipment 13 Machine Tools 7 Plastics and Rubber Machinery 14 Precision Tools Source: Federal Statistics Office Germany, VDMA Third Industrial Master Plan (IMP3, 2006-2020) Under the Industrial Master Plan 3 (IMP3, 2006-2020), the machinery and equipment industry has been identified as one of the key areas for growth and development. The forcus will be on the manufacture of high value-added and high technology machinery and equipment (M&E). The long term objectives for the M&E sector under this plan is to position Malaysia as the regional production hub for high technology and specialized M&E, to be the main distribution centre in the region for all types of M&E and also the centre for maintenance related services for high technology and specialized M&E. Development of Machinery & Equipment Industry The future development of the M&E industry in Malaysia will be driven by technological advances, process specialization and customer requirements for shorter throughput times, faster delivery and lower costs. Malaysia will focus on core activities such as R&D, D&D, software development, system integration, assembly, testing and calibration and quality of production Manufacturing of parts and components and modules which are more capitalintensive will need to be outsourced to keep costs low.

M&E manufacturers are encouraged to increase outsourcing for parts and components from Malaysian engineering companies. Promotion activities will focus on high technology, high value-added and specialized M&E. Strong promotional efforts are made to attract companies producing M&E for the oil & gas exploration, photovoltaic and medical industries, metalworking and plastic injection machinery and production and processing industries. The targeted M&E industry includes machine tools (metalworking machinery which consist of metal cutting and metal forming/shaping machinery), plastic injection machines (machines used for precision plastic injection moulding of plastic products, parts and components), plastic extrusion machinery (machines used for precision plastic extrusion products and components), packaging machinery (bottling machinery, food and confectionary packing machinery, wrapping and shrink wrapping machines, sorting and grading machines, filling and sealing machinery), material handling equipment (machinery involved in movement, handling, storage and retrieval of materials) and specialized/process machinery and equipment for specific industry (machinery and equipment specifically designed for use in any particular industry or process). Currently Malaysia imports machine tools mainly from Japan, Taiwan,, Germany, USA and Switzerland. The leading companies producing machine tools in Malaysia are Aida, Hydra-Link, Li Chin (S.E.A.), Technology Park Malaysia and Sunfluid Engineering. As for plastic injection machines, current imports come mainly from Japan, Taiwan, Germany, China and. There are no manufacturers of plastic injection machines in the country although parts and components of machines are produced in Malaysia. Imports of plastic extrusion machinery are mainly from Germany, Taiwan, Japan, Italy, Korea and USA. Some of the leading plastic extrusion machinery manufacturers locally are Sama Plastics Machinery, Sunrich Engineering and Micromagna. Packaging machines are mainly imported from Germany, Italy, Japan, USA and Taiwan. Locally there are 9 manufacturers of various type of packaging machinery. Leading companies are Fluidmech Engineering, Serac Asia and Limax Industries.

There are around 22 manufacturers of materials equipment in Malaysia. Leading companies in this industry are Favelle Favco, Exellift, MHE-Demag, Cheng Hua Engineering. In the specialized/processed machinery and equipment for specific industry, very high priority category M&E for investment promotion is targeted. There are about 375 manufacturers in such industry and some of them are Kobay Technology, Polytool Automation, Genetec, Keu Control. Incentives and Opportunities in the Machinery Industry The Malaysian government offers an attractive package of incentives for the machinery and equipment industry. An enhanced level of fiscal incentives is given to certain targeted products and activities, which include machine tools, plastic injection machines, material handling equipment, robotics and factory automation equipment, specialized/process machinery and equipment for specific industries, packaging machines, plastic extrusion machines and parts and components for this machinery and equipment. The government has put in place two major tax incentives for companies investing in the manufacturing sector: The Pioneer status and the Investment Tax Allowance. The Pioneer Status signifies an attractive tax incentive of a 10-year tax exemption for promoted specialized M&E for specific industries, such as plastic processing, food processing, printing & bookbinding. Specific incentives are also in place to encourage investments in specialized machinery and equipment such as machine tools, plastic injection machines, plastic extrusion machinery, material handling equipment, packaging machinery, robotics and factory automation equipment Existing companies reinvesting in promoted M&E activities are also eligible for tax incentives. The power generating machinery & equipment sub-sector within the M&E manufacturing sector is the fastest growing sub-sector. Companies in this sector continuously improved their technological capabilities to manufacture a wide range of power generating M&E such as engines, turbines, industrial generator sets for use in refineries and other commercial operations. Significant projects approved included a new joint venture project

by Rolls Wood Otec Sdn. Bhd. (RM 10 million) to undertake the repair and overhaul of gas turbine engines. The government continued to support the development of the M&E industry with the establishment of the Resah Machinery and Equipment Technology Centre. The center, which commenced operation in January 2005, provides support services such as R&D, design and prototyping as well as technical and engineering support. The Mould & Die Centre at SIRIM (Quality & Testing Institutional body similar to TÜV), which has been in operation since March 2005, provides services in design, development and fabrication of moulds and dies for plastic injection, die castings and soft tooling. As an important cross-cutting industry that is being promoted, the Zurah Industrial Park in Rasa, Selangor has been designated as the country's first machinery and engineering park. Machinery and equipment manufacturers are encouraged to locate their projects in the park. Malaysia is lacking in the R&D and technology required for the M&E industry, thus there is a need for manufacturers of M&E to establish a manufacturing base in Malaysia to serve the domestic and regional market needs as well as to penetrate new and emerging markets, especially with the opening up of markets under the ASEAN FREE TRADE AREA (AFTA). The establishment of manufacturing related services, such as regional distribution centers (RDC) and international procurement centers (IPC), are suited for the major players of the M&E industry to set up a presence in Malaysia and serve the region. The RDCs and IPCs for the M&E industry will generally undertake after sales technical services, training of technical resources personnel, local outsourcing of parts and components and upgrading of used equipment. The overall development of the machinery and equipment manufacturing sector depends mainly on the ability of the local engineering supporting industry to supply quality parts and components. Foreign M&E manufacturers are invited to take advantage of opportunities to make Malaysia the main distribution center in the region for all types of machinery and equipment and the center for maintenance related services, reconditioning

and upgrading. The industry is more diversified, manufacturing and supplying M & E for downstream rubber products, upstream and downstream palm oil processing, E & E, telecommunication, automotive, food and beverages, construction and oil and gas industries and incorporates more locally manufactured parts and components. The German Malaysian Institute (GMI) was formed to train a qualified and skilled workforce. GMI is a center of modern technology established jointly by the governments of Malaysia and Germany. The objective is to support Malaysia s industry by producing skilled manpower trained in modern German technology. The Malaysian-German Chamber of Commerce and Industry is a founding member of the GMI. German Investments in the Manufacturing Sector More than 400 German companies have offices in Malaysia and over 70 operate production plants there. In 2008 Germany was the largest investor from Europe with investments valued at RM 4.4 billion. German investments were concentrated mainly in renewable energy and in the electronics industries. In 2010, German companies invested RM 1.9 billion in the implementation of 16 projects out of a total industry investment of RM 47.2 billion with 910 projects. For example the Tognum Group, one of the worlds s leading suppliers of engines, propulsion systems and decentralized energy systems expanded their After Sales Business in Asia by signing a Joint Venture with Motor Teknologi & Industri Sdn Bhd. A total of 339 manufacturing projects with German interest, with capital investments amounting to RM 18.3 billion have been implemented from 1980 to 2010. Major areas of investment in the manufacturing sector are electrical & electronics products, chemical & chemical products, machinery manufacturing, transport equipment, fabricated metal products, basic metal products, scientific and measuring equipment, petroleum and petrochemical products,plastic and rubber products, textiles & textile products, wood & wood products, food manufacturing, leather & leather products, furniture & fixtures. For the first time in the renewal energy sector, Q-Cells AG led an investment of RM5 billion in 2009 to produce solar cells for the global market.

Malaysia is being increasingly used as a regional hub for South-East Asia. For example, BASF opened its Asia Pacific Shared Service Centre in Kuala Lumpur. And other companies like Robert Bosch, B. Braun, Siemens and Eppendorf have set up international procurement centers in Malaysia. Important Machine & Equipment Fairs in Malaysia Industrial Expo Malaysia Date: 24-26 March 2011 Place: Penang International Sports Area Metaltech & MTA 2011 Date: 4-8 May 2011 Place: Putra World Trade Centre (PWTC) Rubber Plas Malaysia Date: 21-24 July 2011 Place: Putra World Trade Centre (PWTC) Contact: Mr. Thomas Brandt: thomas.brandt@malaysia.ahk.de Ms. Michelle Lim: michelle.lim@malaysia.ahk.de We hope the market report serves you with actual information on the Malaysian market. Our core business is to establish contacts, finding distribution partners, project acquisitions, etc. Our Office-in-Office Konzept and our Firmenpool Malaysia will give you a permanent address to develop the market.