ADAM Smith, the founding father of economics, had a fascination for manufacturing. In his book, The Wealth of Nations, Smith condemns as unproductive the labours of “churchmen, lawyers, physicians, men of letters of all kinds; players, buffoons, musicians, opera singers, opera dancers, etc”. We may easily dismiss Smith’s tirade against the services sector. Surely, his bluster seems outdated. It is clearly at odds with the pre-eminence of the services sector in advanced countries, and in Malaysia.
But, there is a ring of truth to Smith’s advocacy. Manufacturing continues to be at the heart of Malaysia’s development efforts despite its composition of one quarter of the gross national product.
There are three reasons for this.
FIRST, unlike services, manufacturing can absorb large numbers of workers with moderate to specialised skills. The current 11th Malaysia Plan (11MP) anticipates that the manufacturing sector will create 20 per cent of all jobs — or three million jobs — in the economy during the 2016 to 2020 plan period;
SECOND, manufacturing will comprise 80 per cent of all exports during this period. It is, thus, a huge foreign-exchange earner and a potential source of higher wages; and,
THIRD, given its long history since the 1960s, the manufacturing sector has built up a vast body of productive knowledge and capabilities. Such a fertile base of capabilities will prove handy in creating new technologies to make a leap to other industries. These new sources of growth will help diversify our industrial base.
This is the essence of what academics Gary Hamel and C. K. Prahalad (since deceased) advocate in their 1996 book, Competing for the Future. Hamel and Prahalad exhort companies to exploit their existing competencies to spin off new businesses whose benefits the customers have not imagined. Honda exploited its core competency in building motor engines to spin off engines for motorboats and motorcycles.
Akio Morita, Sony’s visionary leader, once said: “Our plan is to lead the public with new products.” Accordingly, Sony leveraged its digital technology to develop an array of products ranging from colour televisions to mobile phones and personal computers.
Finding new growth sources on the back of the existing manufacturing infrastructure is one of the key strategies of 11MP. To enable this diversification, the Economic Planning Unit has identified 238 so-called frontier products.
One such product is pharmaceuticals. Halal pharmaceuticals (HPs) are a natural extension of the traditional manufacture of pharmaceuticals. Their manufacturing represents a logical leap from the existing technology in pharmaceutical manufacture. HPs hold bright potential in pushing outwards the boundaries of manufacturing. There are two main reasons for this potential.
FIRST, the market is extremely lucrative. In 2015, Malaysians spent RM6 billion on pharmaceutical products. Increasing affluence among an expanding middle class, ageing population (15 per cent by 2030) and increasing urbanisation (75 per cent of our population will be urban by 2020) are expected to spike per capita consumption of healthcare (products).
Two-thirds of the population are Muslim. They rank fourth in terms of purchasing power among the two billion Muslim population worldwide or one-quarter of the global population. With 138 hospitals and 15 million patients, and with another 200 healthcare facilities planned, the government is poised to become a strong buyer of HPs; and,
SECOND, Malaysia is a leading global halal hub, which the HP industry can leverage on. Well-developed supporting industries, such as halal logistics, including industrial parks, warehousing and transportation, augur well for the HP industry. Government institutions such as the Halal Industry Development Corporation, Department of Islamic Development Malaysia (Jakim) and specialised research (centres) at universities enhance the ecosystem for HPs. Jakim’s halal certification for HPs is the first of its kind in the world. It will surely enable the HP industry to foray into local and global markets.
As Malcolm Gladwell in his 2000 book, The Tipping Point, argues: “To create one contagious movement, you often have to create many small movements first.” Here are four “movements” to make HP adoption more “contagious” and their production sustainable.
FIRST, the government, jointly with the pharmaceutical industry, should carry out a communication blitz to educate the public and make the adoption of HPs irresistible. To quote Morita, again: “We refine our thinking on a product and its use, and try to create a market for it by educating and communicating with the public.”
SECOND, greater investments in HPs should be promoted – both locally and abroad. Local pharmaceutical companies should venture into partnerships with foreign companies for large-scale manufacturing to meet the huge potential demand;
THIRD, strengthened research and development collaboration between manufacturers and universities will ensure that local ingredients can be quickly capitalised for the manufacture of HPs. Lower costs will make HPs even more accessible; and,
FOURTH, to conquer the global HP market, the government should foster global collaboration to develop an internationally recognised certification scheme.
As Gladwell said: “[The] world… may seem like an immovable, implacable place. It is not. With the slightest push — in just the right place — it can be tipped.” The tipping point for HPs is that trigger moment when their use starts to grow exponentially.
Alas, that tipping point has not arrived yet. We should continue to push towards that auspicious mark. Not only will the harvest of profits be aplenty, HPs may even prove to be the tipping point for the accelerated development of other frontier products. The industrial diversification, therefore, will assure manufacturing’s place in economic development. At that prospect, Smith would surely be happy!
Datuk Dr John Antony Xavier is a principal fellow at the Graduate School of Business, Universiti Kebangsaan Malaysia. He can be reached via firstname.lastname@example.org