Malaysia is one of the fastest growing industrializing economies in South-East Asia as well as in the larger region of East Asia. For eight consecutive years, the economy recorded strong growth, averaging 8.8 per cent per annum. In 1995, Gross Domestic Product growth was 9.5 per cent. For 1996, it is expected to be 8.3 per cent. The key economic sector contributing to this robust growth is the manufacturing sector, which recorded 14.5 per cent growth in 1995. Rapid industrialization, however, is accompanied by strains in manpower supply, utilities and transportation facilities. Economic success as quality subcontractors to world-class brand names has in turn caused many Malaysian manufacturers, particularly small and medium-sized industries (SMIs), to become complacent about indigenous technology development, research and development (R & D) activities, and strengthening direct market access to final consumers. Today, however, manufacturers face increasingly tight labour conditions, rising production costs, rapid advances in technology and competition for markets and funds. These constraints are being addressed, particularly through the promotion of higher value-added production and higher technology processes.
This paper provides a brief outline of technology development in Malaysia's manufacturing sector, including the role played by the Government and the private sector; some of the problems faced in technology-based enterprise development; brief examples of some technology-based enterprises; and some key features which technology-based enterprise development in Malaysia should have.
- TECHNOLOGY DEVELOPMENT IN MALAYSIA
Technology development in Malaysia as reflected in the different stages of industrialization, particularly in the manufacturing sector, has been comparatively more successful in building up technical skills to master the operation of sophisticated machinery than in encouraging R & D and innovative activities. We must bear in mind, however, that industrial technology development did not gather momentum in Malaysia until the late 1970s.
A) The early years: 1960s and 1970s
In the early days of technology development, i.e. the 1960s, the focus was primarily on the agricultural sector. During that period even industrial R & D was carried out to explore new end uses for agro-based industries so as to deepen and widen the agricultural base, and hence overcome the country's excessive reliance on exports of agricultural commodities. Most, if not all, of these R & D activities were conducted by public research institutes.
When labour-intensive industries were introduced into the economy during the latter half of the 1970s, the electronics and textile industries experienced rapid growth thanks to foreign investors. It was this inflow of foreign direct investment that formed the major source of technology acquisition.
Technology was acquired through project-packaged transactions whereby foreign investors were responsible for all aspects of the planning and implementation of operations. Local involvement in planning and implementation was minimal. The import of product and process technology took the place of local R & D in the manufacturing sector. Nevertheless, it was then that local manufacturers began to build up and strengthen their technical discipline and skill in using sophisticated production processes. By the end of the 1970s, Malaysia had joined the ranks of the world's largest producers and exporters of integrated circuits, semiconductors, and textiles and garments.
B) The 1980s
The 1980s was a challenging and exciting decade for industrialization as well as technology development in Malaysia. The Government led the economy into heavy industry through participation in joint ventures with foreign investors, such as with Mitsubishi for the national car project C Proton Saga C in 1985. In addition, the steel billet industry was entered through Perwaja, as well as the small-engine production and cement industries.
Industrial R & D continued to be conducted mainly by public research institutes. The Standards and Industrial Research Institute of Malaysia focused on enhancing the utilization of local resources and improving the domestic application of proven industrial technology, particularly for SMIs. The Nuclear Energy Unit researched nuclear technology applications for agriculture, the food industry, engineering, medicine and the environment. The Malaysian Institute of Microelectronic Systems (MIMOS), established in 1985, provided basic and applied research in microelectronics. The emphasis was on developing applications in innovative high-technology products for local distribution and export.
Nevertheless, the build-up of indigenous technological innovation and competence was still generally limited to the private sector. This was largely because most modern industries were mainly foreign-owned and depended almost exclusively on external sources for technology. Technology exposure was acquired mainly by importing technology through technical assistance and know-how agreements (609 in 1981-1990), licensing, trademarks and patents (240), and joint ventures (148).
The Industrial Master Plan (IMP), drawn up with private sector inputs and launched in 1986, identified 12 priority industrial sectors for development. A National Action Plan for Industrial Technology Development (also drawn up with the private sector) was launched in 1990 to follow up on implementation of the IMP to import technology, internalize imported technology, and identify R & D areas for the priority sectors. A comprehensive manpower development programme was instituted in order to create an indigenous supply of technically skilled manpower.
In 1988, the Vendor Development Programme (VDP) was introduced for SMIs to become suppliers of industrial inputs, machinery and equipment. This programme has since been expanded to cover the electrical and electronics, wood-based, automotive and light engineering industries, enabling local SMIs to supply parts and components to large-scale industries and multinational corporations. As well as providing greater integration and linkages in the economy, the programme has assisted in upgrading the technical capabilities of SMIs.
From 1988 onwards, Malaysia's economic and industrial development recorded strong annual growth. Malaysian manufacturers had established themselves as quality subcontractors for multinational original equipment manufacturers. Moreover, they had mastered the technological intricacies of running modern, sophisticated industries, ranging from food to electronics.
C) The 1990s
The 1990s have witnessed the introduction of the National Development Policy and Vision 2020, aimed at making Malaysia a fully developed country in economic, social, political and spiritual terms. Building on existing capabilities, the manufacturing sector is being encouraged to move into higher value-added and higher technology processes such as the aerospace and advanced materials industries; electronics, microelectronics and automated manufacturing technologies; biotechnology; and information technology industries. Priority is given to technology absorption, adaptation, innovation and exploitation in line with industrial and export requirements. However, public research institutes have continued to take the lead in carrying out industrial R & D.
Between 1991 and 1995, public research institutes established a contract research management system to promote R & D services such as resolving specific product and process problems in industry, and to create potential revenue-generating activities. Ongoing collaboration between public research institutes and industry was further intensified through existing research, consultancy units and innovation centres. The aim of these measures was to ensure that R & D programmes were more industry-oriented, and to prepare for the gradual corporatization of research institutes.
A large number of R & D projects were carried out, particularly in microelectronics, information technology, automated manufacturing technology, nuclear technology and material sciences. Some of their results have benefited the computer, telecommunications and software industry. Advanced techniques using computer-aided design and computer-aided engineering were developed and successfully applied in the mould and die industry.
Private sector R & D was still very limited. However, significant progress was made in the telecommunications industry with extensive product diversification and innovation. The 1990s have also seen multinational corporations such as Matsushita and Intel locating their R & D facilities in Malaysia. Recently, Nippon Telegraph and Telephone Corporation, Japan has proposed locating its R & D operations at Malaysia's Multimedia Super Corridor. Integrated manufacturing centres which included the setting up of R & D and marketing as well as production operations in Malaysia also began to emerge among multinational corporations, the most recent of which being Dell Computers.
The Malaysian manufacturing sector is set for yet another challenging decade when the New Industrial Master Plan is announced this year. It will advocate a rolling plan emphasizing industrial cluster competitiveness analysis that would "move industries upstream and downstream along the value chain". Upstream activities along this chain would include increased R & D activities, initial product design as well as subsequent incremental improvements, prototyping and process design.
- KEY ISSUES IN DEVELOPING TECHNOLOGY-BASED ENTERPRISES
In the light of the above, there are several key issues in the development of technology-based enterprises in Malaysia. These are:
A) Inadequate industrial technology base
For the past two decades, the rapid growth rate of modern industries has not been matched by a corresponding rate of growth in indigenous and private-sector technological innovation and competence. Malaysia's indigenous technological innovation and potential are so far mainly in areas of research to which the Government has attached priority.
For instance, the Government's concerted push into high-tech manufacturing could be expected to transform Malaysia into a formidable high-tech contender in the fields of chemicals and plastics, computers, medicine and biology, microelectronics and telecommunications equipment. Malaysia could also gain dramatically in the scientific/precision equipment, machine tools and robotics, and aerospace industries. This means that development of technology-based enterprises involving Malaysia and developed countries should preferably be focused on these areas of national strategic importance in order to tap the technology base that is already being built up through government investments and initiatives.
B) Inadequate supply of indigenous skilled technical manpower
Malaysia has an inadequate supply of skilled technically oriented manpower, especially in engineering. Sustaining growth at an average of 8.8 per cent per annum for eight consecutive years placed added strain on the supply of manpower, particularly skilled technical manpower. The inadequate supply of skilled manpower has consequently led to a relatively high labour turnover among engineers, and skilled and unskilled labour. The Federation of Malaysian Manufacturers' 1995 manufacturing sector survey revealed that, on average, respondents reported a turnover of engineers of about 21.8 per cent in 1994, the corresponding figures for skilled trades and unskilled labour being 18.4 per cent and 26.6 per cent respectively.
In relation to the supply of R & D manpower, the Sixth Malaysia Plan reported that the ratio of research scientists to the total population was estimated to be about 400 per million population. This is low in comparison with Japan (6,500 per million), the United Kingdom (3,200 per million), Germany (3,000 per million) and the Republic of Korea (1,300 per million).
The inadequate supply of R & D manpower is further aggravated by two other factors: most R & D staff are employed in the public sector and a large proportion are involved in basic or upstream research, especially agricultural research. A survey of R & D manpower in 1989 revealed that 92.3 per cent worked in the public sector. Of this percentage, 2,131 or 23.7 per cent were in engineering, 211 or 4.1 per cent in computer sciences, and 333 or 6.5 per cent in medical science. The remainder were in either agriculture or basic sciences.
The number of R & D personnel in the private sector was 423: 33.1 per cent were in engineering, 7.3 per cent in computer sciences, and the remainder in agriculture or basic sciences. Increasing the pool of indigenous skilled technical manpower would require time, even with the Government's approval for employing foreign expertise and encouraging Malaysian scientists and engineers to return home.
C) Small number of private sector R & D activities
It follows then that the number of private sector innovative activities in Malaysia is small, particularly among local manufacturers. Industry is more concerned with improving production processes and operations than with strategic R & D or technology priority-setting. In addition, private sector spending on actual R & D and technology acquisition is low.
However, the situation is gradually improving. National R & D expenditure in 1989 was estimated at 0.8 per cent of Gross National Product or RM 548.9 million. More than 80 per cent of that amount was spent by the Government. A survey by the Malaysian Science and Technology Information Centre (MASTIC) in 1993 revealed that total R & D expenditure in 1992 was 0.6 per cent of GNP or RM 550.7 million, 55 per cent of which was incurred by the public sector. Private sector expenditure increased from less than 20 per cent in 1989 to 45 per cent in 1993. RM 48 million of R & D activities was contracted to R & D centres outside Malaysia. Nearly half of the expenditure incurred was for the purchase of equipment and infrastructure instead of actual R & D activities. Malaysian businessmen, especially the dynamic exporters and successful subcontractors to multinational corporations, would be keen to join ventures and form strategic alliances, including joint investments in R & D. The greater problem would be to induce the larger population of local SMIs to commit their limited resources to joint R & D.
D) Strong reliance on public R & D
Another issue is the private sector's dependence on public R & D efforts. The Government has always taken the lead in steering industry into new technology areas. It is acceptable for the Government to invest in R & D at the initial stages of industrialization; however, having built up its technical capabilities and established marketing networks, industry should then begin to take the lead. Although this is gradually happening, particularly now that Malaysian manufacturers are faced with intense competition from emerging as well as developed economies, private sector R & D activity has yet to gather momentum. In this regard, technology-based enterprise development would probably have to consider tripartite cooperation in R & D activities, i.e. between the Malaysian manufacturer, the public sector research institute and the foreign investor.
E) Financing of R & D activities
The lack of momentum in private sector R & D can be partly attributed to access to financing for such activities. With limited resources, particularly among SMIs, R & D activity may not have a high priority. A survey carried out by the Standards and Industrial Research Institute of Malaysia in 1993 revealed that 41.8 per cent of respondents spent less than 1 per cent of their turnover on R & D. With respect to technology acquisition, 38.2 per cent also spent less than 1 per cent of turnover. Furthermore, the survey indicated that 73 per cent of respondents financed their R & D activities from internal funds, 17 per cent from venture capital, 15 per cent from government grants or subsidies, and 11 per cent from equity funding, banks, investors, the parent company or long-term loans.
The relatively limited access to government grants or subsidies is mainly attributed to the application procedures requiring an inordinate amount of information, including disclosure of R & D results. In the case of banks, the demand for collateral and the financial sector's relative lack of expertise in assessing returns on R & D investment, thus resulting in either very few loans being approved or high interest rates, could account for the limited use of such sources. In this regard, technology-based enterprise development in Malaysia would have either to finance itself or to comply with government requirements for information. On a more positive note, the Government will be implementing on a trial basis a pilot R & D syndication scheme for the private sector. This could be the private sector's answer to financing for R & D activities in Malaysia.
- SOME EXAMPLES OF TECHNOLOGY-BASED ENTERPRISE DEVELOPMENT IN MALAYSIA
There are many Malaysian manufacturers who are high-tech entrepreneurs with vision, expertise and commitment to technology development. They are fully aware that acquiring technology capacity and being involved in innovative activities, whether in terms of process or product development, are crucial for enhancing their competitive edge in global markets. Whatever the skills training or industry, the common traits among these Malaysian manufacturers are a strong entrepreneurial spirit, vision, hard work, confidence, risk-taking capacity, aggressive marketing and good managerial skills.
A) Case study no. 1
This is a technology plastics manufacturer. The company was a subsidiary of a Dutch-controlled multinational corporation when the management was bought out by Malaysian entrepreneurs. The management then ceased business operations which were unviable and took up the challenge to become a world-class custom moulder in high-technology plastic parts such as engineering plastic parts and plastic components for computers. The high-technology plastics moulding skills were acquired through field and visit research to understand world-class manufacturing practices, benchmarking with the best in the leading countries; and through hiring the best skilled personnel from outside and providing a strong technical training programme for company workers. Quality systems and just-in-time practices were also implemented. Computers were used in designing and also to monitor idle times daily in order to provide full analyses for rectifications to be made.
The company has since branched out into the manufacture of electronic products and purchased technology from Silicon Valley in the United States, with some venture capital assistance from the Malaysian Technology Development Corporation, which was set up by the Government to help companies at the start-up stage commercialize R & D results and market new products and processes.
B) Case study no. 2
This is an electronics firm set up by a group of engineers. It started off as a part-time "hobby" for engineers who worked full time on maintenance, modification and development of production and testing equipment in the semiconductor, oil and gas industries. The firm provides solutions for the modification of existing production equipment, personal-computer-based control systems, including digital input/output cards, data acquisition cards, micro-based controllers, design and manufacture of alarm systems, battery back-up systems and remote indicator systems, and so forth.
Technological skills were acquired through years of exposure and working in multinational corporations, particularly American and Western-based multinationals which were more willing to share their expertise and provided technical training, technical literature and management commitment to upgrading and using local engineers for equipment design, development and manufacture.
C) Case study no. 3
This is an automotive battery manufacturer employing high-tech production methods, including automation and ongoing R & D to improve the physical appearance and functions of automotive batteries. Technology was acquired through several methods, including bringing in an experienced foreign production engineer as a minor shareholder to provide on-the-job training; technical training from machine vendors; regular overseas training; and adopting a "learn from others and improve" policy through carrying out R & D on newly developed batteries in the market.
- ROLE OF GOVERNMENT, BUSINESSES AND TRADE ASSOCIATIONS
As may be surmised from the above, the strategic roles that the Government, businesses and even industry and trade associations could play in technology-based enterprise development are as follows:
A) Government
Besides providing direction and policies for industrial development, incentives, physical infrastructure and facilities, the Government could assist the private sector in accessing technology. In this respect, the Malaysian Government has taken the following steps, among others:
It has implemented the Malaysia Incorporated concept to act as a mechanism through which it and the private sector discuss and provide inputs for formulating national policies and strategies, and improving government operations.
It has set up MASTIC as a primary, authoritative provider of science and technology information, and has created technology parks and high-technology parks such as the Kulim High-Tech Park as a seedbed for new technology-based companies.
It has formed a high-level public private sector partnership C the Malaysian Industry-Government Group for High Technology (MIGHT) C to exploit research and technology for new business opportunities.
It provides soft loans to industries to upgrade training facilities and teaching of technical and advanced skills under the Human Resources Development Fund.
In 1997, the Government will introduce technology forecasting.
B) Business sector
The immediate task of the business sector in Malaysia is to step up its R & D activities, including design. Industry should also be more aggressive in the sourcing, absorption and adaptation of new technology. In addition, training and upgrading of technical manpower skills should be increased.
Industries should form strategic alliances among themselves to conduct R & D that is basic to their particular industry for the general improvement and upgrading of its technological capabilities. In this regard, industries should work together to identify common areas of basic R & D, and then form linkages with public research institutes to obtain funding for projects under the Government's Intensification of Research in Priority Areas programme.
Concurrently, the industry should also work through the various industry/trade associations in order to sit on government councils, consultative panels and working groups to provide the necessary inputs, support and commitment for mapping out practical and effective strategies for national R & D expansion.
C) Industry and trade associations
The role of industry and trade associations would basically be to serve as a conduit through which some of the main linkages could be made for the following purposes:
-to identify and appoint appropriate industry representatives to government councils, boards, consultative panels, working groups and so forth;
- to submit industry's views on various development issues, including R & D strategies and programmes;
- to expand into providing technical training to assist industry in its efforts to train workers and upgrade their skills;
- to be a contact point for business, trade and investment matching for foreign and local manufacturers;
- to disseminate relevant information on technology offers and requests to local manufacturers.