KUALA LUMPUR: Malaysia's manufacturing sector is under heightened scrutiny as industry leaders from the Federation of Malaysian Manufacturers (FMM) and the Malaysian Employers Federation (MEF) weigh in on the risks and opportunities arising from reports of worsening factory closures in Thailand.
FMM president Tan Sri Soh Thian Lai acknowledged the challenges facing Malaysia's manufacturing sector but emphasised its distinct position compared to Thailand.
"Malaysia's manufacturing sector remains exposed to a variety of risks, requiring proactive monitoring and strategic mitigation," he said, citing economic slowdowns, rising operational costs and global supply chain disruptions as significant concerns.
More Thai factories were expected to close this year than in the past two years, Bangkok Post reported recently, quoting Kasikorn Research Centre (K-Research) which cited a weakening manufacturing sector and several ongoing economic challenges.
According to the think tank, the rate of factory closures was higher than 100 per month last year for the second year in a row.
The highest rate of closures was for small and medium enterprises due to their limited capital.
On average, the registered capital of companies that closed their factories in 2024 was 3.8 times lower than for those that shuttered plants in 2023.
The total registered capital of companies that closed factories last year was 47.8 billion baht, down from more than 180 billion baht in 2023.
Cautious Optimism In 2025
MEF president Datuk Dr Syed Hussain Syed Husman said global economic uncertainties, particularly tariffs imposed by the US, and declining demand for key exports such as electronics and semiconductors, could affect production and sustainability.
He added that rising energy prices, inflation and increased raw material costs pose serious challenges especially for micro, small and medium enterprises.
Despite the challenges, Malaysia's manufacturing sector is poised for growth in 2025, driven by resilient export-oriented industries and robust investment activities. amid concerns over rising trade protectionism may pose challenges, RHB Research said.
The firm recently said the country's Industrial Production Index increased by 4.6 per cent year-on-year (YoY) in December, slightly below its in-house estimate of 4.8 per cent.
Meanwhile, Malaysia's manufacturing sector showed positive trends in December, with sales expanding by 5.7 per cent YoY, up from 4.5 per cent in November.
Growth was driven by increased output in E&E, petroleum, food, beverages and tobacco subsectors.
Additionally, the country's manufacturing sector output expanded by 5.8 per cent YoY, led by positive growth in E&E products, non-metallic mineral products, basic metal and fabricated metal products, and food, beverages and tobacco.
Preempting Potential Downturns
Both Syed Hussain and Soh stressed the importance of monitoring key indicators to preempt potential downturns.
Soh pointed to industrial output, export performance and foreign direct investment as critical metrics. "A reduction in these areas, particularly in sectors like electronics and automotive, could signal emerging challenges."
Syed Hussain warned that rising unemployment in industrial areas and an increase in bankruptcies among manufacturing firms could indicate systemic issues, noting that surveys like the Purchasing Managers' Index provide early warnings of declining confidence and production cuts.
To ensure resilience, FMM is focused on driving digital transformation and innovation among its members.
"Adopting Industry 4.0 technologies such as automation and artificial intelligence is essential for improving operational efficiency," Soh said.
FMM is also advocating for diversification into high-value industries like green technology and biotechnology.
Meanwhile, MEF focuses on workforce development and sustainability initiatives.
"Upskilling and reskilling employees in new technologies and automation are critical," said Syed Hussain, who also underscored the importance of compliance with environmental, social and governance standards.
Both leaders emphasised the crucial role of government collaboration with Soh calling for policy interventions, such as tax incentives and infrastructure enhancements.
Syed Hussain advocated for regulatory reforms and increased funding for research and development.
They agreed that Malaysia is well-positioned to attract manufacturing operations relocating from other countries.
"Malaysia's strategic location and access to trade agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership enhance its appeal," Soh said.
Syed Hussain said the country has developed an established manufacturing base and introduced incentives such as tax breaks and special economic zones.
"Malaysia's focus on high-tech and sustainable manufacturing aligns with global trends, making it particularly appealing to operators in these sectors," he added.
Source: https://www.nst.com.my/business/economy/2025/02/1175969/fmm-mef-risks-opportunities-worsening-thai-plant-closures