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CONTENTSCONTENTS

PART B: OBJECTIVES OF THE BLUEPRINT

PART C: STAKEHOLDERS OF THE BLUEPRINT

PART D: INTRODUCTION :

The Malaysian Defence Industry Strategic Analysis of The National Defence Industry The Competencies

PART E: THRUST AREAS AND INITIATIVES

PART A: FOREWORD

PART F: SUMMARY OF THRUST STATEMENTS ANDKEY INITIATIVES


PART A

FOREWORD


PART B

OBJECTIVES OF THE BLUEPRINT


The Objectives of the Defence Industry Blueprint are:The Objectives of the Defence Industry Blueprint are:

to provide an overview of the Malaysian Defence Industry;to provide an overview of the Malaysian Defence Industry;

to provide guidelines for the development of local defence Induto provide guidelines for the development of local defence Industry; stry;

to identify strategic technology areas of focus to catalyse the to identify strategic technology areas of focus to catalyse the defence defence industry development and capability building; and industry development and capability building; and

as a reference to all stakeholders of local defence industry.as a reference to all stakeholders of local defence industry.


PART C

STAKEHOLDERS OF THE BLUEPRINT


The Defence Industry Blueprint comprise stakeholders under the The Defence Industry Blueprint comprise stakeholders under the following three classifications:following three classifications:

1. 1. Key Players:Key Players:

Members of MDICMembers of MDIC

Malaysian Defence Industry CompaniesMalaysian Defence Industry Companies

Ministry of Defence ( MINDEF), MalaysiaMinistry of Defence ( MINDEF), Malaysia

The Malaysian ArmyThe Malaysian Army

The Royal Malaysian Air ForceThe Royal Malaysian Air Force

The Royal Malaysian NavyThe Royal Malaysian Navy

Ministry of Internal SecurityMinistry of Internal Security

Royal Malaysian PoliceRoyal Malaysian Police

Department of Civil DefenceDepartment of Civil Defence

Ministry of Home AffairsMinistry of Home Affairs

Department of ImmigrationDepartment of Immigration

Ministry of Housing and Local GovernmentMinistry of Housing and Local Government

Malaysian Fire & Rescue DepartmentMalaysian Fire & Rescue Department

Other AgenciesOther Agencies

Royal Customs DepartmentRoyal Customs Department

2.2. Supporting Players:Supporting Players:

Financial InstitutionsFinancial Institutions

R&D InstitutionsR&D Institutions

Companies in Related and Supporting IndustriesCompanies in Related and Supporting Industries

Higher Education Institutions / Technical /Higher Education Institutions / Technical /

Vocational Training InstitutionsVocational Training Institutions

3. 3. Interests GroupsInterests Groups

Original Equipment Manufacturers (OEMOriginal Equipment Manufacturers (OEMs)s)

International Defence ContractorsInternational Defence Contractors

Research / Industry AnalystsResearch / Industry Analysts

Foreign GovernmentsForeign Governments

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All rights reserved; no part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means,electronic, mechanical, photocopying, recording, or otherwise without the prior written permission of Defence Industry Division, Ministry of Defence, Malaysia

PART D

INTRODUCTION

1.0 BACKGROUND

2.0 THE MALAYSIAN DEFENCE INDUSTRY

3.0 STRATEGIC ANALYSIS OF THE NATIONAL DEFENCE INDUSTRY

4.0 THE COMPETENCIES

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1.0 Introduction

Shaping the Defence Industry Competency

Defence industry is a strategic component that forms an integral part in the development of the nations defence capability. A well developed defence industry contributes significantly to the availability of the state of the art technology, weapon systems and military solutions. It also provides through life support structures and services that have a bearing on the serviceability rate of the armed forces inventory. This has become more significant with the implementation of outsourcing and contractorisation. The role of the defence industry in maintaining, repairing, overhauling, upgrading and modernising military equipment has become increasingly significant. A well developed local defence industry reduces the nations reliance on foreign manufacturers and suppliers, hence building up national self dependence.

The contribution of defence industry to socio-economic development of the country should also be recognised. Defence industry contributes towards the creation of employment opportunities, savings from foreign exchange, technology transfer, inward flow of foreign direct investments (FDIs) and dual use of technology. It also generates spin-offs to other sectors of economy. These in turn contribute to the economic well being as well as political stability of a country which is the essential ingredients of national security.

The Government in the Eight Malaysian Plan Mid term report re-iterated the importance of the defence industry in creating value added activities as well as enhance the economic development of the country. Since the industry as a whole involves the manufacturing of products for use in aerospace, maritime, defence, automotive and ICT, therefore it provides vast opportunities in the area of technology development, skills enhancements and export. The spill over effects from these activities will accelerate the development of other supporting industries

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The development of the Malaysian defence industry started in the early 1970s when the nation embarked on the setting up of a government owned ordnance factory. This was then followed by the privatisation of the depot facilities of the Royal Malaysian Air Force and the Royal Malaysian Navy in the 1980s and 1990s. With the launching of the Industrial Master Plan in 1986, the industrial sector expanded significantly, contributing to the development of a broad industrial base, a necessary prerequisite for the development of the defence industry This development encouraged some companies engaged in the production of commercial goods to venture into defence sector .The defence industry received further impetus with the nations procurement of capital equipment in the 1990s and the implementation of the offsets policy, enabling the country to leverage on the procurement process to acquire technology.

The Eight Malaysia Plan Mid Term Report emphasized the importance of offset arrangement as a strategy to obtain transfer of technology to upgrade and improve the local technology base as well as provide training and spin-offs for the local industry. The Government will review the whole approach of the offset programme with the aim of strengthening its framework and formulating guideline as well as determining appropriate process, structure and practices.

However, on the whole, the development of the defence industry is still far from its true potential as compared to other leading sectors such as electronics, oil & gas and automotive. Malaysian defence industry today contributes to a growing supply of military assault rifles, small caliberammunitions, aerial reconnaissance vehicle (ARV), patrol vessels, information and communications technology (ICT) based solutions and military gear and apparel. It has also developed capabilities to undertake activities in the area of maintenance, repair and overhaul, upgrades and modernisation in certain areas as well as the capability to manufacture parts and components for both local and foreign markets.

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Nevertheless, much remains to be done in enhancing indigenous defence capability. Various challenges stand in the way of accelerating the pace of growth for the defence industry. These include the lack of critical mass, high capital investment, lack of research and development, rigid specifications, lack of competencies, absence of uniformity and lack of promotional and marketing activities.

Taking cognisance of these challenges as well as continued defence industry development initiatives and programmes, it is imperative that the nation formulates and put in place a national strategy that charts out the strategic direction and the way forward for the nations defence industry. As such, it is indeed timely a Defence Industry Blueprint be formulated to provide the strategic direction of the industry.

Therefore, the intention of this document, is to look into the existing and future capabilities in order for the nation to be able to maintain its self reliance, self defence capability and full combat readiness, in any circumstances.

It is best to describe the competencies along the value chain for manufacturing and such components are listed as follows:

y Research and Development

y Design

y Manufacturing

y Assembly

y Integration

y Maintenance

It is noted that the components of the value chain vary with the functions prescribed under the Ministry of Defence.

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1.1 Background

The functions and responsibilities of the Armed Forces are:

y To manage national defence;

y To implement the national defence policy and general government policies;

y To provide management and administrative service to the components of the Malaysian Armed Forces; and

y To manage resources allocated for national defence.

Managing national defence is a costly affair to the nation as many key technologies and competencies are not readily available. It is the agenda of this blueprint to identify areas where technologies and hence competencies that can be developed in order for Malaysia to be a self-sustaining nation in defending her sovereignty.

1.1.1 The Armed Forces

The Malaysian Armed Forces comprise three core groups :-

The Malaysian Army

The Royal Malaysian Navy

The Royal Malaysian Airforce

The functions and activities of these three core groups are supported by the Armed Forces Head Quarters.

The development of local capabilities will ensure savings in terms of purchasing of new weapon systems and in the maintenance of the existing systems in the Armed Forces. Apart from savings, development of competencies may help the nation to overcome dependence on imports should sanctions and embargoes being imposed on Malaysia. A friend today may be a foe tomorrow.

Initial investment towards building national defence capabilities is expensive. Nevertheless, such investment is necessary as building a strong and coherent national defence capability is of strategic importance to the nation.

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There are many ways to develop such capabilities and the Armed Forces have taken steps towards achieving such goals. Core competencies across the disciplines of the Armed Forces need to be identified, acquired, developed and strengthened. Investment in such competencies will eventually benefit the Armed Forces and the nation as a whole.

Malaysian Armed Forces require the necessary military hardware and software in order to carry out its functions effectively. The need for some of these hardware and software may be similar among the three components of the Armed Forces.

One of the main objectives of this Blueprint, is to identify the common competencies available from the acquisition of the military hardware and software across the three components of Armed Forces. This Blueprint will eventually identify products for the local industry to produce in compliance with Malaysian requirements and specifications. The objective for a return on investment may be secondary for selected strategic products however the competencies acquired can be extended to other civilian applications in order to strengthen the technical competencies of the nation.

1.1.2 Malaysian Defence Industry Council

The Malaysian Defence Industry Council (MDIC) was formed in August 1999 to ensure the coordinated development of the defence industry in Malaysia.

The Council, chaired by the Hon. Minister of Defence, consist of representatives from Ministry of Defence, Economic Planning Unit, Prime Ministers Department, Ministry of International Trade and Industry, Ministry of Finance, Ministry of Entrepreneur and Cooperative Development, Ministry of Home Affairs, MIGHT and local defence industry companies.

The Functions of the MDIC are to:

steer and direct the orderly development of the defence industry taking into consideration the objectives of the Government as well as that of the nation as a whole;

discuss common problems encountered by defence companies;and

establish and maintain a grouping of national companies concerned with and interested in the defence industry in Malaysia.

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The Functions of the MDIC are to:

assist in the promotion of the products and services developed by the local companies.

disseminate information to defence companies regarding offsets and transfer of technology programme;

facilitate the dissemination of information relating to export opportunities and assist defence companies in accessing foreign markets;

assist and coordinate the presence and representation for defence companies at relevant overseas trade shows, promotions and marketing activities;

act as clearing house for the exchange of information and to organise seminars on defence industry related issues;and

develop and build upon working relationships with appropriate foreign defence industry organisations.

1.1.3 Development of the Blueprint

The move towards the development of the Defence Industry Blueprint started a few years ago. This was then followed with the gathering of key players to a workshop on 10th to 12th October 2002 at the Regency Hotel and Resort, Port Dickson. This workshop was the first consultative workshop held for the development of the National Defence Industry Blueprint.

The consultative workshop comprise players from industry, the Government Agencies and personnel of the Ministry of Defence.

The recommendations made in this Blueprint are based upon extensive consultation between the major stakeholders in the defence industry. These consultations involved a wide spectrum of people with interest in the development of national defence capabilities for both military and civilian purposes.

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18


There is a need to coordinate the development of the There is a need to coordinate the development of the local defence industry taking into consideration the local defence industry taking into consideration the needs of the Malaysian Defence Forces, the industry needs of the Malaysian Defence Forces, the industry and the nation as a wholeand the nation as a whole

DatoDato Seri Seri MohdMohd NajibNajib Tun Abdul Tun Abdul RazakRazakSource: Bulletin Malaysia Defence Industry Council, Source: Bulletin Malaysia Defence Industry Council,

October 2000 October 2000

2.0 The Malaysian Defence Industry

In this section, members of the MDIC Taskforce reviewed the rationale for developing a defence industry, and also highlighted the importance of the defence industry towards defending the sovereignty of the nation.

This section shall also identify the role of the key players in the development of the industry and the importance of sustaining the capability already available in the three components of the Malaysian Armed Forces.

2.1 Outline

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Currently, the industry lacks critical mass to encourage diversification of markets and users to support the export initiatives of the defence industry. A relatively high capital investment is required for the development of the defence industry. In order to reduce the high capital investment, a planned distribution of work may reduce the burden of high investment on the chosen main contractors.

2.2 The Rationale for Developing the Defence Industry

Military products and services of the Malaysian Armed Forces are numerous in types and of varied specifications. The quantum for each product and service do not justify the production capacity of profit margin for local companies. As a result, Malaysia has to import such products and services hence, contributing to high import bills on defence. One way of reducing the balance of payment is to create certain capabilities and the production of major parts in the country. Malaysia must at least be able to overhaul and maintain the military equipment procured.

2.2.1 Reducing The Balance of Payment

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The development of the defence industry means development in three (3) different applications; mainly applications for land, sea and air. These applications tend to employ people in various disciplines and skills, thus creating business activities and employment opportunities principally for skilled and semi-skilled workers. Retired military personnel can also be absorbed into the industry.

2.2.2 Employment Opportunities

Defence industry houses the most complex core technologies which have potential applications in other industries. The technological competencies developed in the whole spectrum of the value chain shall be extended for use in other industries. This provides opportunity for the universities, skill development centres and industries to work hand in hand in promoting new technologies and skills especially for the use in the maintenance programme of the military hardware and products.

The development of competencies shall ensure a certain degree of technological sustainability for the nation, military might to be maintained on a regular basis and to ensure its combat capability in times of need.

This will also enable the armed forces to have all military equipment to be maintained on regular basis by a competent and capable local defence industry.

2.2.3 Technology Gateway/Spin-Off Benefits

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The government must take the lead and identify companies that can carry out certain products/hardware utilising local R & D capability in collaboration with foreign parties. Companies will have to continuously nurtured and monitored until the product is successfully produced.

There may be export potential that can be realised with government support and funding. The product can therefore be continuously improved. A good example is the experience of South Korea. Many companies are now hardware / product exporter in the defence sector.

Their success story can be emulated by local companies with the Governments assistance. Therefore, the spirit / slogan Malaysia Boleh can be realised with full commitment from both parties, i.e the Government and the private sector. We have to be bold and aggressive to realised the vision.

2.2.3 Technology Gateway/Spin-Off Benefits contd

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The return on investment for military hardware and systems purchased is expected to be low unless steps are being taken to add value for such hardware and systems. Since this is the scenario, it is imperative for the defence industry to take a different approach in tackling the issue on the return of investment made for the military hardware and systems purchased.

The revenue generated may not be obtained directly from the technology developed and the selling of the hardware. Nevertheless, the return on investment can be expected from the development of competencies and extension of such competencies for application in the spin-off industries.

2.2.4 Revenue Generation

The ability to maintain our own military hardware and software will enable us to sustain our defence deterrent capabilities. This should greatly enhance our independence in areas such as military intelligence and HiTech defensive capabilities.

2.2.5 Security

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2.3 The Malaysian Defence Industry - Critical Issues

The national defence philosophy advocates the sustenance of national defence through directing of all national resources available. This indicates the need to build up capabilities to sustain own equipment and weaponry for engaging intruders into the Malaysian territories. Apart from the philosophy mentioned, the National defence policy is based upon the three main fundamental elements, namely self-reliance, total defence and international cooperation.

The build-up of defence capabilities very much depend on policies as stated in New Economic Policy, The Second Industrial Master Plan, The National Defence Policy and the Policy on Privatisation and Contractorisation.

It is the objective of this Blueprint to enhance the national defence policy in implementing the the self-reliance elements into the Malaysian defence.

2.3.1 National Defence Policy

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The current military hardware and software are very much depended upon foreign Original Equipment Manufacturers (OEMs). There is a need to develop an efficient technology management programme in the long run. This is to reduce the cost of developing the technological capability without compromising on technological superiority.

2.3.2 Dependence on Foreign OEMs

The development of military superiority is an expensive exercise. During the financial crisis that hit the region in 1997, major cutbacks in defence expenditure hampered the growth of the industry. However, the global uncertainties since the September 11 tragedy has generated greater interest towards enhancing national security.

Defence budget is mostly allocated for the purchase of military hardware but little is being allocated towards the development of the technology locally. As a result, the companies involved in the development of military technology do not have the economy of scale to sustain further growth in the technology that they are already involved in. This leads to the non-retention of resources and dedicated players for the defence industry. Specific research and development grants channelled through STRIDE and selected companies with research and development facilities would go along way in alleviating the problem.

2.3.3 Limited Defence Budget

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Due to our small population of 22 million and with a relatively small land covering a total area of 329,758 sq. km, the local defence industry players do not enjoy the luxury of a strong local base to market the products on a large scale. So there is a need to export these products to the global market and compete with international players right from the start. Perhaps Malaysia should be a leading manufacturer for nations in the South-South Cooperation and as OEMs for the more renowned international players.

2.3.4 Small Domestic Market

The development of the defence industry in Malaysia is still at the nascent stage compared to some of our neighbouring countries. Singapore, which began its expansion drive in the early 80s, currently has the largest maintenance, repair and overhaul (MRO) facilities in the Asia-Pacific region. Nevertheless, this should not be seen as a problem, but seen as an opportunity to look at the area of MRO. With the introduction of various equipment from non-traditional western suppliers, Malaysia can now position itself for a niche market.

2.3.5 Late Entry

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Southeast Asias security dynamics, rather than getting simplified in the post-Cold War era, have become more complex and multifaceted. Regional peace, security and stability has always been a priority to ASEAN countries. The self reliance defence capability is an important concept in the development of the defence capability of the ASEAN countries. The ASEAN countries, despite the regional security and stability has to be wary of the threat of terrorism and aggressive acts in the wake of globalisation and unipolarity. With the advent of technology and increased sophistication of weaponry and systems, the terrorists now are better equipped with state of the art weaponry and combat systems. Hence, it is imperative for the countries in the region to harness and capitalise on advanced technologies in developing and strengthening their defence capabilities and systems to deter the threat of terrorism and other aggressive acts.

The ASEAN countries must also continue to strengthen the existing cooperation in the defence area for sustainable regional stability and peace.

2.3.6 Constant Threat

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In terms of manpower resources, there approximately 100,000 personnel in the Malaysian Armed Forces. Malaysia is in the process of filling in the occupational gaps in its industrial sectors. Roles played by training institutes, companies and government agencies are critical towards the development of skilled manpower in strategic areas with potentials in the upgrading of Malaysian military capability. Such capabilities, with clearly defined and structured programmes, will catapult the defence industry into new heights. Thus the need to increase defence competencies among the armed forces personnel through programmes that are clearly defined, has become increasingly important.

2.3.7 Human Resource Development

The role of both supporting industries and government is to provide a conducive business environment for the development of the defence industry. In terms of regulatory aspects, Malaysia has still a long way to go before it can become a serious contender in the global defence market.

There is a need to promote standardization and interoperability among the products so as to enable the vendor to cater certain parts of the products used in the army, navy and air force.

2.3.8 Supporting Industries

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Supporting infrastructure such as materials technology development and research institutes focus on defence products and technology are still lacking in Malaysia. There is a need to accelerate and develop the capability in producing strategic materials.

Malaysia needs to blend with foreign expertise for further development in technological competencies and this needs to be looked into closely during the purchase of new military equipment. This can be achieved through close monitoring of the offset programmes.

Lack of standardization and interoperability exacerbates logistics and maintenance problems and hence inviting many players who finally require dependency on foreign experts and companies.

2.3.9 Infrastructure

New competition from emerging defence industrial players which include but not limited to countries like India, Turkey, Taiwan, Korea, Singapore, Indonesia, Brazil and South Africa will have sights towards countries which still depend so much on third countries in order to refurbish and maintain their military equipment. In most of these countries, the defence industries are being nurtured through strategic defence policies and implementation programmes.

2.3.10 Newly Emerging Market Players

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The key players in the defence industry can be categorised according to the sub- sectors as follows:

a) Aerospaceb) Maritimec) Automotived) Weapon and Ammunition Systemse) Information and Communications Technologyf) Common user

The list of the key players according to the six sub-sectors above are as in Appendix.

2.4 Key Players

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3.0 STRATEGIC ANALYSIS OF THE NATIONALDEFENCE INDUSTRY

This section analyzes the competitiveness on the broad defence industry activities using the Porters Diamond Model.

3.1 Outline

The defence industry is very much dependent upon the requirements of the individual nations and the geographical terrain of the nation. Based on the needs of these individual countries, the global defence industry has grown and is now not limited to the superpowers of the West. A few developing nations have developed the capabilities to produce the necessary defence equipments and able to sell them to nations which may need them.

In spite of the above, certain quarters of the Malaysian defence industry capabilities have been promoted to the international market. Apart from that, the nation imports almost all military requirements from the West and Russia.

3.2 Competitive Analysis

In order to address this situation, we must identify the key issues faced by the local players and the government in upgrading the nations competitive advantage in the defence industry.

3.2 Competitive Analysis ..(contd)

Using Michael E. Porters Dynamic Diamond, a SWOT analysis is carried out by examining attributes for the industry as a whole which Malaysia intends to embark on. The four corners of the diamond represent the determinants or attributes which are necessary for achieving and sustaining competitive advantage in knowledge intensive industries that form the backbone of the advanced economies of today. These are outlined as follows.

3.3 Determinants of National Competitive Advantage

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3.3.1 Factor Conditions

Factor conditions refer to the nations ability to deliver on factors of production such as skilled labour and the relevant infrastructure deemed necessary to compete in any given industry. Malaysia possesses an adequate supply of highly-skilled labour and excellent infrastructure to support the defence industry.

These refer to the nature of demand (domestic and international) for the industrys products or services. Though Malaysia herself offers a very small market, the developing countries should be viewed as the potential market for Malaysias defence products and services.

3.3.2 Demand Conditions

These refer to the presence or absence of suppliers and related industries that are internationally competitive in the nation. Industrialisation in Malaysia has resulted in activities that may be relevant to in the defence industry. There are various similar products & services that can be provided by the non-military manufacturers towards strengthening the development of the defence industry.

3.3.3 Related and Supporting Industries

These refer to the conditions in the nation governing how companies are created, organised and managed. It also takes into account the nature of domestic rivalry.

These determinants, both individually and collectively, provide the contextual structure within which companies are created and compete for available resources and skills towards achieving a competitive advantage in any given industry.

3.3.4 Firm Strategy, Structure and Rivalry

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3.4 The Defence Industry

It is the vision of the Malaysian Government to have an efficient and innovative defence industry to support a knowledge driven Malaysian Armed Forces in fighting and winning.

In order to achieve such a vision, there is a strong need to develop an indigenous knowledge based defence industry to support the Malaysian Armed Forces. The objective of achieving this vision is driven by three (3) key defence policy attributes, namely

To develop and enhance the local defence industrial capabilities;

To achieve self-reliance in defence technology;and To prepare for global competition in selected niche

areas.

It is identified that in order to enhance the capabilities of the indigenous defence competencies, the Malaysian Armed Forces needs to have the following criteria:

The need to have a 10 years Blueprint for the defence industry.

Upgrading of Local companies to be Prime Contractors instead of Foreign Contractors for Defence Equipment Purchase

Preferential treatment to be given to the local companies

Future requirements of the Armed Forces must be acquired with the incorporation towards the development of capabilities of the defence industry

The Defence Industry Blueprint needs to be incorporated into the coming Malaysian Industrial Master Plan (IMP) and the Five Year Development Plan

The need to develop policy guidelines on the demarcation line for the involvement of local defence industry in specific areas

Accelerate the pace of the enhancement by Increasing the local content Offset and technology acquisition Smart partnership with technology provider

The need to link the defence industry with the The need to link the defence industry with the general industry to cater for both the military and general industry to cater for both the military and commercial clientscommercial clients

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3.5 The Defence Facilities Requirements

The defence facilities requirements are as shown in Figure 3.1. The requirements are very much based upon the functions of the Malaysian Armed Forces.

As illustrated in Fig. 3.1, the types of platform to carry the weapons are mainly the land, sea and air types. ICT is used to integrate the systems used for the land, sea and air weapons and vehicles whilst logistics form an essential support for all the three divisions of the Armed Forces.

The products under the 6 sub-sectors of the defence industry may then be broken down into the roles and types that they play in the battlefield. The analysis conducted is on the overall defence industry requirements and not looking into each sub-sector defined in the divisions of the Malaysian Armed Forces.

Fig 3.1 Classification of Defence Facilities Needs

VIP Trans

Logistic

Training

SAR

Figthers

Recognition

Sub Marine

L og i

s ti c

CarrierOPV

Assault Boat

Ko r

v et

F ri g

a te s

ArmouredC 4 IDefence

FacilitiesNeeds

Medic

FuelFood & B

everage

Stora ge

Logistic andTransportation

Fixed Wing

Rotary Wing

Unmanned

Costum

e

C 4 I

Mi s

s il e

S ys t

e ms

L ig h

t A

r m

Ar t i

l l er y

Sy s

t em

s

Bridging andRecovery

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3.6 A Competitive Analysis of The Defence Industry

It is important to apply this competitive analysis model on the defence industry on the whole. At this juncture, it is not possible to look into sub-sectors and perhaps this will be looked into closely in the future. The nature of the products may be applied in some of the sub-sectors identified in the Second Industrial Master Plan. This can also be examined in detail later.

The competitive analysis is carried out on the basis of evaluating Strengths, Weaknesses, Opportunities and Threats (SWOT) of the various elements/attributes which determine the competitive advantage of a nation in a particular industry (with reference to Porters Diamond).

These elements, to reiterate, are Factor Conditions, Demand Conditions, Firm Strategy, Structure and Rivalry and Related and Supporting Activities.

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Strengths Weaknesses Opportunities Threats

FactorConditions

x Human ResourceDevelopment in place

x Adaptable and resourcefulwork force

x Infrastructure ready

x Lack of capitalx Dependent on foreign

product/technologyx Human resource not focus

on defencex Dependent on foreign

expertise

x Trained retired militarypersonnel

x SMIs not fully utilisedx Knowledge workers growing

in numbersx Increasing number of

graduate in technology

x Consolidation ofinternational defencecompany

x Low retention of resourcesand expertise

x Globalisationx Pace of technology

DemandConditions

x Increasing defence budgetx Increase in fleet sizex Some export quality

products and servicesx Increasing global

uncertainties

x Perceived lack ofconfidence by the user

x Increase offset requirementsx Increase local contentx Greater demand of

competitive products forDeveloping Countries

x Export restrictionx Condition imposed by

critical component suppliers

FirmStrategy,Structure,and Rivalry

x Good networking andpromoting capabilities

x Visionary Government

x Poor negotiation skills andstrategy

x Fragmentedx Lack of clear policies on

defence industryx Lack of clear definition of

LDI Companyx Inadequate policy to protect

interest of LDIx LDI involved at tail end of

procurement exercisex No defined R&D grantsx Internal security does not

patronise LDIx Foreign perception on

Malaysiax Acquiring proper Transfer of

Technology

x 5+5 Contractorisation Policyx Good standing of Malaysia

x Lack of clear policies toprotect LDI

x Lack of unified directionx Competition with foreign

companiesx AFTAx Preference for foreign

products

Related andSupportingIndustries

x Strength in other sectorssuch as oil palm,automotive, electronics andICT can support the defenceindustry

x Fragmentedx Infancy stagex Too small in sizex Lack of R & Dx Lack of capital

x Expanding local defenceindustry

x More sub-contractingopportunities

x No dedicated playersx AFTA / Liberalisationx Cheaper sub-contracting

sources

3.6.1 The Defence Industry Competitive Framework - (Based on Blueprint Workshop Report)

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3.7 Observations - Based On SWOT

Based on the analysis, it can be observed that there are challenges that needs to be addressed in developing a strong local defence industry. These challenges include:

High Capital Investment / Lack of Investment Investment does not guarantee return due to

absence of long term commitment on procurement programme

Lack of support from government agencies There is a need for a close cooperation

between industry and government agencies so that industry can match its growth/investment to the needs of the country

Government to facilitate to resolve conflicts between agents, Local Defence Industry (LDIs) and OEMs

Tender award Preferences not given to Local Defence

Industry Selection process not transparent Fair competition Specification based on specific equipment

rather than functional requirement

Specifications should reflect local conditions and should not follow NATO etc

STRIDE should develop appropriate specifications suitable for local conditions

Identify sectors, areas and levels of capabilities Establish database for local industries and

conduct auditing to establish thorough capabilities and performances

Networking between LDIs Incentives for LDIs

Import duties exemption for LDI on equipment / spares to support defence needs

Government agencies should assist LDIs to get certification for export

Pioneer status - special consideration for LDIs Government to give support to sustain LDI in

economic crisis Close cooperation between user, administrator

and LDI in determining requirements and providing support

Use procurement as leverage to get industry to improve

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3.7 Observations - Based On SWOT ..(contd)

Improve offset management Improve procurement procedures (see Figure

3.2) Government should conduct R&D to establish

the multi use of common items and not depend entirely on OEMs

Increase Industrial Linkages LDI should complement each other rather than

compete Enhance the skills to meet the need of self

reliance True Local Content, not screw driver

engineering Joint development to reduce cost

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3.8 Current National Procurement Process

The current national procurement process could be further improved by bringing the industry much earlier on to the procurement process.

This will enable the local industry to understand the requirements and proposed a more cost effective and sustainable approach to fullfill the needs of the Armed Forces

There is an urgent need to re-examine the current procurement process in order to have effective participation of the local defence industry players in it. To further encourage the development of local initiatives, it is proposed a Prototyping Stage is to be included in the National Procurement Process. This is meant to allow a local defence industry to develop a prototype to a requirement of the Malaysian Armed Forces for evaluation purposes. In this manner, the local defence industry is in a better position to assess the appropriate technology transfer required as well as making better estimates of the contract value.

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Determine Allocation

Prepare Specifications

Limited Tender

Direct Negotiation

Get Treasury Approval

Prepare Tender Documents

A

Determine Type of Tender

Bumiputera Open Tender

Figure 3.2 Current National procurement process flowFigure 3.2 Current National procurement process flow

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Non-Unanimous deliberation of more than RM7 million documented for Treasury approval

Below RM7 million, decided by Procurement Board

Figure 3.2 National procurement process flow contdFigure 3.2 National procurement process flow contd

Advertise

Open Tender

Evaluate Tender

Prepare Tender Briefs

Tender Board Consideration

Treasury inform agency of decision

Implement Decision

A

B

42


If need to negotiate, issue Letter of Intent

Negotiation Stage

Issue Letter of Acceptance if offer is accepted

Contractor returning Letter of Acceptance

Prepare Contract Document

Sign Contract Document

Monitoring/Payment of Contract

Source: National Procurement Guide Book, Ministry of Finance, Malaysia

Figure 3.2 National procurement process flow contdFigure 3.2 National procurement process flow contd B

43


NATIONAL OBJECTIVENATIONAL OBJECTIVE

DEFENCE POLICYDEFENCE POLICY

SELF-RELIANCESELF-RELIANCE

MKNMKN

MINDEFMINDEF

MALAYSIAN DEFENCE INDUSTRY COUNCILMALAYSIAN DEFENCE INDUSTRY COUNCIL

ARMED FORCES + DEFENCE INDUSTRYARMED FORCES + DEFENCE INDUSTRY

SPECIFICATIONSPECIFICATION

TENDERTENDER

Identify offfset / leveraging & local content to develop local defence industries

Figure 3.3 Proposed Defence procurement process flow Figure 3.3 Proposed Defence procurement process flow

Source : Local Defence Industry Blueprint Workshop Report, Regency Hotel & Resort, Port Dickson, 10-12 October 2002 Defenece

44


TENDER SPECIFICATION

TENDER SPECIFICATION

TENDERTENDER

AUDITAUDIT

DELIVERYDELIVERY

AWARDAWARD

Inputs from Local IndustryInputs from Local Industry

Local ProductLocal Product

Local contentLocal content

Technology transferTechnology transfer

Work shareWork share

Sub contractSub contract

OffsetsOffsets

User User

Functional SpecificationsFunctional Specifications

Operational RequirementsOperational Requirements

QuantityQuantity

Source : Local Defence Industry Blueprint Workshop Report, Regency Hotel & Resort, Port Dickson, 10-12 October 2002 Defenece

Figure 3.3 Proposed Defence procurement process flow Figure 3.3 Proposed Defence procurement process flow

45


46


4.1 Competencies Requirements

In order to enhance competencies for the sustenance of Malaysias military capability in conflicts, objectives need to be defined.

The requirements of the Malaysian Armed Forces are as depicted in Figure 4.1. The Malaysian Armed Forces defence requirements such as systems, weaponry and other products and services are mostly met by foreign supplies.

The situation is more apparent if we breakdown the competencies further. It can be further broken down to look in depth of the competencies available in the country. This will then indicate the competencies that need to be developed in order to produce Made-In-Malaysia products and services.

Since the products used by the Malaysian Armed Forces are varied in nature and coming from various technologies, it is logical to look into the maintenance of these products and hence developing the technological competencies in-house for the available products. This is derived from the objective of the defence industry for the 10 year period.

The experience gained from the maintenance can be put into use for the development of new products for the defence industries.

47


xArmoured VehiclesxSoft-Skin VehiclesxSpecialist VehiclesxHeavy Machinery Vehicles

xMissile SystemsxLight ArmsxLaunchersxArtillery SystemsxAmmunition

xFixed Wingxfighters & bombersxinterceptorsxtransport and logisticsxreconnaissance

xRotary Wingxhelicopters

xUnmanned Aircraft Vehicles (UAV)

xAssault BoatsxRaftsxHovercraftsxOPV / MPVxCorvettesxFrigatesxCarriersxSubmarinesxMinesweepersxSurvey vessels

xCommandxControlxCommunicationxCo-ordinationxIntelligence and ReconnaissancexPlatform management systemxSoftware development/ Customisation

xApparels and GearsxBio-MedicxFood & BeveragesxStoragexFuelsxParachutes

Defence Industry Needs

Weapons andAmmunition

Aerospace Maritime Automotive ICT Common User

LOCAL PLAYERS

Product ProviderResearch & DevelopmentxDesignxManufacturerxAssemblerxMaintenancexIntegrator

Services Provider

xPlanningxAnalysisxDesignxInstallationxIntegrator

National Defence Demands and Needs

International Defence

Demands & Needs

Figure 4.1 The National Defence RequirementFigure 4.1 The National Defence Requirement

48


Element R & D DESIGN MANUFACTURING MAINTENANCE INTEGRATION ASSEMBLY

ItemCurrent L N H H N/A N/A

2010 L - M N - S H H N/A N/A

2020 S S H H N/A N/A

Current N N N M L M

2010 N - L N - L N - L M - S L - M M - S

2020 S S S S S S

Current L L L H S S

2010 L - M L - M L - M H S - H S - H

2020 S S S H H H

Current L L L S S S

2010 L - M L - M L - M S - H S - H S - H

2020 S S S H H H

Current L L L S L L

2010 L - M L - M L - M S - H L - M L - M

2020 S S S H S S

* Note: N-None L-Low S-Sufficient M-Medium H-High N/A -Not Available

IPMS

Auxiliary

Electrical System

Propulsion System

Structure

MaritimeMaritime

COMPETENCIES IN MALAYSIAN DEFENCE INDUSTRY (COMPETENCY MATRIX)

SURFACE COMBATANT - PLATFORM

49



ItemCurrent N N N M L L

2010 N - L N - L N - L M - S L - M L - M

2020 S S S H S S

Current N N N M L L

2010 N - L N - L N - L M - S L - M L - M

2020 S S S H S S

Current N N N L L L

2010 N - L N - L N - L L - M L - M L - M

2020 M M M H S S

Current N N N M L M

2010 N - L N - L N - L M L - M M

2020 M M M S S S

Current N N N L L N

2010 N - L N - L N - L L - M L - M N - L

2020 S S S S S S

Note: N-None L-Low S-Sufficient M-Medium H-High N/A-Not Available

Electronic Warfare

Weapons

Weapons Fire Control System

Integrated Communication

System

Integrated Navigation

System

Maritime (Maritime ( contcontd)d)(SURFACE COMBATANT-COMBAT SUITE)

50



ItemCurrent

2010 N N N L N/A N/A

2020 L L L M N/A N/A

Current

2010 L L L M L L

2020 M M M S M M

Current

2010 M M M S S S

2020 M M M S S S

Current

2010 M M M S S S

2020 S S S S S S

Current

2010 M M M S M M

2020 S S S S M M

* Note: N-None L-Low S-Sufficient M-Medium H-High N/A-Not Available

IPMS

Auxiliary

Electrical System

Propulsion System

Structure

Maritime (Maritime ( contcontd)d)(SUBMARINE-PLATFORM)

51



Item

Current

2010 L L L M L L

2020 M M M M M M

Current

2010 N N N M L L

2020 M M M M M M

Current

2010 N N N L L L

2020 L L L M M M

Current

2010 L L L M L M

2020 M M L M M M

Current

2010 L L L M M L

2020 M M L M M M


Electronic Warfare

Weapons

Weapons Fire Control System Periscope Sonar

Integrated Communication

System

Integrated Navigation

System

Maritime (Maritime ( contcontd)d)

(SUBMARINE-COMBAT SUITE)

52


Element R & D DESIGN MANUFACTURING ASSEMBLY INTEGRATION MAINTENANCE REFURBISHMENT/

Item UPGRADE

Small Arm Current L L S S S S S

Weapon 2010 M M H H H H H

2020 S S H H H H H

Medium Calibre Current N N N N N M M

Weapon/ 2010 L L M S S S S

Cannon/Mortar 2020 S M S H H H H

Large Calibre Current N N N L L M M

Cannon/Guns/ 2010 L L L S S H H

Mortar 2020 S S S H H H H

Fire Control Current N N N N N L L

System for 2010 L L L L L M M

Cannon/Guns 2020 S S S S S H H

Small Arm Current L L H H H H H

Ammunition 2010 M M H H H H H

2020 S S H H H H H

Weapons & AmmunitionsWeapons & Ammunitions


53


Element R & D DESIGN MANUFACTURING ASSEMBLY INTEGRATION MAINTENANCE REFURBISHMENT/

Item UPGRADE

Current N N L S S S S

2010 M M M H H H H

2020 S S S H H H H

Current N N L S S S S

2010 M M M H H H H

2020 S S S H H H H

Current L L M M M M M

2010 S S H H H H H

2020 M M H H H H H

Current N N N N N L L

2010 L L L L L M M

2020 S S S S S H H


Guided Weapons System

Components for

Ammunition

Large CalibreAmmunition

Medium Calibre

Ammunition

Weapons & Ammunitions (Weapons & Ammunitions ( contcontd)d)

54



Item system system equipmentsystem

equipment system equipment

Power Train Current N N N H H H

2010 N N N H H H

2020 N N N H H H

Transmission Current N N N H H H

2010 N N N H H H

2020 N N N H H H

Suspension Current N N N H M N

2010 L L L H H L

2020 M M M H H M

Hull Current N N N H N/A N

2010 L L L H N/A L

2020 M M M H N/A M

Track Current N N N H N/A N

2010 L L L H N/A L

2020 M M M H N/A M

Turret Current N N N H H H

2010 N N N H H H

2020 N N N H H H


AutomotiveAutomotive A VEHICLE (WHEELED + TRACK)

55


Element R & D

DESIGN MANUFACTURING MAINTENANCE INTEGRATION ASSEMBLY



Current N N N L M M

2010 N N N M M M

2020 N N N M M M

Current N N N H H H

2010 L L L H H H

2020 S S S H H H

Current N N N H N/A H

2010 N N L H N/A H

2020 N N M H N/A H

Current M N N H M H

2010 M L N H S H

2020 M L N H H H

Current N N N M M L

2010 N N N M H M

2020 N N N S H S


Add On System

Communication

Tyres / Wheel

Weapon System

Fire Control System

AutomotiveAutomotiveA VEHICLE (WHEELED + TRACK) ( .contd)

56





Current L L M H N/A H

2010 M M S H N/A H

2020 S S H H N/A H

Current L L N H M H

2010 M M L H S H

2020 M M M H S H

Current N N N H H H

2010 L L N H H H

2020 L L N H H H

Current M M M H H H

2010 S S S H H H

2020 H H H H H H


Suspension

Transmission

Power

Chassis

AutomotiveAutomotiveB VEHICLE

57


Element R & DDESIG

N MANUFACTURING MAINTENANCE INTEGRATION ASSEMBLY



Current M M M H H H

2010 S S S H H H

2020 H H H H H H

Current M M M H H H

2010 S S S H H H

2020 H H H H H H

Current H H H H H H

2010 H H H H H H

2020 H H H H H H

Current N/A N/A N/A H H M

2010 N/A N/A N/A H H S

2020 N/A N/A N/A H H H


Add On Systems

Body

Instrumentation

Electronic / Electrical

AutomotiveAutomotive

B VEHICLE ( .contd)

58



Item

Current L L L S L S

2010 S S S M L S

2020 M M M H M M

Current L L L S L L

2010 S S S M L S

2020 M M M H M M

Current L N N L L L

2010 S S S M S S

2020 M M S H M H

Current S S S S S S

2010 M M M M M M

2020 H H H H H HSimulator

Electronic Warfare

Avionics

Structure

AerospaceAerospace

AIRCRAFT


59



Item

Current L L L S L L

2010 S S S M S S

2020 S S S H M M

Current L L L S L L

2010 S S S M S M

2020 M M M H M M

Current L L L M M M

2010 S S S H H M

2020 M M M H M M

Current L L L L L L

2010 S S S M S S

2020 M M M H M M


Integrated Navigational

System

Ground Support System

Electrical System

Weapon Fire Control System

Aerospace (Aerospace ( contcontd)d)AIRCRAFT

60



ItemCurrent L L L S L L

2010 S S S M M M

2020 M M M H H H

Current L L L S L L

2010 S S S M M M

2020 M M M H H H

Current L L L S L L

2010 S S S M M M

2020 M M M H H H

Current L L L S L L

2010 S S S M M M

2020 M M M H H H


Auxiliary

Navigational Aids

Radio System

Radar System

Aerospace (Aerospace ( contcontd)d)

GROUND ELECTRONIC DEFENSE SYSTEM

61



ItemCurrent L L N N L L

2010 M M L N S S

2020 M H M N H H

Current L L L N L L

2010 M M S N S S

2020 H H H H H H

Current L L N N L L

2010 M M S N S S

2020 M M M N M M

Current L L N N L L

2010 S S L N S S

2020 M M L N M M

Current L L L L L L

2010 S S S S S S

2020 M M M M M H


Bus/Platform

Payload

Control System

Electrical system

Structure

Aerospace (Aerospace ( contcontd)d)SATELLITE

62



Item (system) (system) (equipment) (system equipment) (system) (equipment)

Current L L N M L L

2010 S S M H S S

2020 H H M H H H

Current N N N L L L

2010 M M L S S S

2020 S S M H H H

Current L L N L L L

2010 S S M S S S

2020 H H M H H H

Current M M L M M M

2010 H H M H H H

2020 H H M H H H

Current N/A N/A N/A N/A N/A N/A

2010 N/A N/A N/A N/A N/A N/A

2020 N/A N/A N/A N/A N/A N/A


Simulator

IPMS

Electronic Warfare

Combat Managemen

t System

Integrated CommsSystem

Information and Communication Technology (ICT)Information and Communication Technology (ICT)

63


4.2 Current Available Competencies

From the summary of competencies available in the country, it looks as though the defence industry is ready to support the Malaysian Armed Forces. This situation portrays the general outlook of the competencies of the suppliers to the Ministry of Defence. It is an indication of capabilities available but upon closer look, most of these companies are basically manufacturers and assemblers of components. The capabilities portrayed in the summary are capabilities pertaining to the production of light aircraft, light patrol boats, light weapon systems.

The capabilities to produce the final products are not readily available in the country for many defence product sectors. This is the reason why Malaysian companies are still dependent on foreign suppliers to provide the sub-components of major parts of the final product.

Hence there is a need to do a micro study on the competencies of the products produced by Malaysian companies. From here, it is then possible to look at the competencies required to do heavy weight products, capable of defending the nation based on user requirements.

There is a lot of work need to be done to increase the capability of the Malaysian companies to produce defence products and services according to the required standards and specifications

64


4.3 Supporting Industry Requirements

The development of core industries depends heavily on the availability of supporting industries. The role of these supporting industries is to be the recipient of the outsourcing programme by the core industries. No single company can manufacture all items required in producing a product.

In the development of the local defence industry, the core industries may come from the foreign suppliers. Nevertheless, the offset programme should go to the local supporting industries with close cooperation from the foreign suppliers. This is to promote the local supporting industries to become vendors for other markets.

Close working relationship from the foreign suppliers is essential in ensuring the successful implementation of the offset programme by local supporting industries. As shown in Table 4.1 only 24% of the local supporting industries receiving the offset programme in 1990-2000 have completed the offsets.

Table 4.1 Offset Programmes

From Table 4.1, it can be inferred that the risk in the implementation of the offset programme by local companies could be mitigated through close linkages with foreign suppliers.

Total Number of Procurements From1990 - 2000 30Total Number of Offsets Generated 230

Completed 55

Unaccounted 81

No response 94

Note : No response was due to companies havingclosed down, merge and unavailability ofinformation

Source: Survey Response, Study on Offset Programme of the National Defence Procurement by MiGHT ( March 2002)

65


Textile & Apparel IndustryTextile & Apparel Industry

Machinery & Equipment IndustryMachinery & Equipment Industry

Education Industry:FormalNon-FormalTraining Institutes

Education Industry:FormalNon-FormalTraining Institutes

WEAPONS

COMMON USER

AEROSPACED

E FE N

CE

I ND

US T

RY

AUTOMOTIVE MARITIME

ICT

Telecommunication IndustryTelecommunication Industry

HU

MAN

RES

OU

RC

E

L OG

I ST I

CS

Petro-Chemical Industry

Natural Resources Based Industry

Food Based IndustryFood Based Industry

Electronics & Electrical IndustryElectronics & Electrical Industry

Materials IndustryMaterials Industry

Figure 4.2 Supporting Industries for Defence ProductsFigure 4.2 Supporting Industries for Defence Products

Transport IndustryTransport Industry

66


PART E

THRUST AREAS AND INITIATIVES

67


5.0 Introduction

The primary purpose of the Blueprint is to guide the development of the Malaysian Defence Industry, into a strong and reliable economic sector that is able to provide strategic support in sustaining the defence capability of the nation at all times.

Figure 5.1 illustrates the framework in developing the industry through this Blueprint. Five key thrust areas have been identified for the Blueprint.

Thrust Area 1Human Resource and Competency Development

This covers issues and actions related to the development of basic and strategic competencies for the industry. The primary factor required for competencies development is Human Resource. Human Resources Development is central towards competency development.

Thrust Area 2TechnologyDevelopment

Technology is strategic in developing a strong national defence. The ability to develop and deploy technology is critical for the Armed Forces. The industry must continue to upgrade technology either through R & D or Technology Acquisition / Transfer.

Thrust Area 3IndustryDevelopment

Only with the available competency and technology, the Malaysian Defence Industry can grow. The Malaysian Armed Forces requirement cannot be established primarily for the development of the industry and at the expense of national security.It has to move in sync with each other. The industry must invest in the best to give the best to the nations defence forces.

68


Thrust Area 5InternationalMarketing

The local defence experience could be extended to other nations. Malaysian Defence Industry should tap on the global defence spending. This will provide a good base for the industry to develop its technology and business capability.

Thrust Area 4Domestic Defence Procurement

The National Defence Procurement Policy must provide greater avenue and preferences to local defence contractors in awarding the tender and local defence contractors to be allowed to be involved in determining major defence requirements. This will make it obligatory for OEMs to transfer related technology and capability to the local players.

69


DRIVERS FOR GROWTH

Figure 5.1NATIONAL SELF-

RELIANCE

STRONG LOCAL DEFENCE INDUSTRY

TECHNOLOGY DEVELOPMENT

DOMESTIC DEFENCE PROCUREMENT

INTERNATIONAL MARKETING

HR & COMPETENCY DEVELOPMENT

INDUSTRY DEVELOPMENT

70


5.1.3 Industry Development

The issues related to Industry Development for the Defence Industry include:

x Fast pace of technological development - Local Defence Industry and support services are not in

tandem with acquisition x Small number of competent producers / manufacturers

(generally still consumer based)x Fragmented players / industryx Lack of support from government agenciesx Insufficient vendor developmentx Internal security does not patronise LDIx No dedicated policy and direction to support development

of LDI x High capital investment x Uncertain return on investments

5.1 Issues and recommendations

5.1.1 Human Resource and Competency Development

The issues related to Human Resource and Competency Development for the Defence Industry include:x Lack of technical capabilities x Lack of technologists & engineers in the Weapons and

Systems;x Lack of focus by human resource development on

defence industry needs;x Lack of knowledge workers in the defence industry;x Lack of capitalization by Defence Industry on manpower

potential from the pool of trained military personnel and trainable human resources.

5.1.2 Technology Development

The issues on Technology Development are as follows:x Lack of Research and Development x Offset programme

- level of technology transfer and capability development of local companies.

x No R& D grant allocated for Defence Industryx Limited funding on research and development

71


5.2 Thrust areas and initiatives

From the FIVE thrust areas, key issues are identified for further action. Key initiatives are then established from the key issues that have been selected

5.1.4 Domestic Defence Procurement

The issues related to Domestic Defence Procurement include:

x Rigid specificationsx Over dependence on foreign OEMsx Lack of standardisation x Inadequate policy to protect interest of LDIx 5 + 5 Contractorisationx Lack of support for Defence Industry Development by

procurement system. - LDI is at tail end of procurement exercise- Controlling of supply chain- supplies of spare parts are often given to agents

5.1.5 International Marketing

The issues related to International Marketing include:

x Only some companies are able to export quality products and services.

x Competition- Open Market - Globalisation, AFTA- Regional players- Foreign companies- Government owned companies

x Poor negotiation skill and strategy

72


ISSUE 1

The Malaysian Armed Forces has various categories of equipment that fall under the various sectors of IMP2. For example, defence transportation equipment has similarities in terms of applications and functions with the transportation equipment under the cluster of IMP2 which covers equipment for use on land, sea and air. With such similarities, it is possible to analyze and derive products, technology and competencies required for meeting the needs of the Malaysian Armed Forces. The competencies identified can be mapped along the manufacturing value chain and this will then facilitate the identification of lead players and the supporting industries for the production of such equipment.

It is recommended that the offset programme for future acquisitions of defence equipment shall be based on competencies of local defence industry and the identification of local companies having such competencies be intensified. Thus, the identified lead industrial player and its related supporting players be invited to participate in receiving the offset technology and competencies