Technology policy in Malaysia

International Journal of Technological Learning, Innovation and Development

Volumn 1, Issue 2, 2007, Pages 153-178

  Felker, Greg ^a   Sundaram, Jomo Kwame ^b  

^a WILLAMETTE UNIVERSITY   (United States)

^b UNITED NATIONS   (United States)

Author keywords

Malaysia; national innovation system; newly industrialised economies; S T; science and technology policy

Indexed keywords

EID: 70449499857     PISSN: 17531942     EISSN: 17531950     Source Type: Journal    
DOI: 10.1504/IJTLID.2007.015402     Document Type: Article

References (76)

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2. Anuwar, A. (1992) Malaysia’s Industrialisation: The Quest for Technology, Singapore: Oxford University Press.
3. Bowie, A. (1988) ‘Redistribution with growth? The Dilemmas of state-sponsored economic development in Malaysia’, Journal of Developing Societies, Vol. 4, No. 1, pp.52–66.
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5. Edquist, C. and McKelvey, M. (Eds) (2000) Systems of Innovation: Growth, Competitiveness, and Employment, Cheltenham, UK: Edward Elgar.
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7. Freeman, C. (1987) Technology Policy and Economic Performance, London: Pinter.
8. Gopal, J. (1999) ‘Malaysia’s palm oil refining industry: policy, growth, technical change and competitiveness’, in K.S. Jomo, G. Felker and R. Rasiah (Eds). Industrial Technology Development in Malaysia: Industry and Firm Studies, London: Routledge, pp.360–395.
9. Hobday, M. (1995) Innovation in East Asia: The Challenge to Japan, UK: Edward Elgar, Aldershot.
10. Jomo, K.S. and Felker, G. (Eds) (1999) Technology, Competitiveness and the State: Malaysia’s Industrial Technology Policies, London: Routledge.
11. Jomo, K.S., Felker, G. and Rasiah, R. (Eds) (1999) Industrial Technology Development in Malaysia: Industry and Firm Studies, London: Routledge.
12. Lall, S. (1992) ‘Technological capabilities and industrialisation’, World Development, Vol. 20, No. 2, pp.165–186.
13. Lall, S. (1993) ‘Promoting technology development: the role of technology transfer and indigenous effort’, Third World Quarterly, Vol. 14, No. 1, pp.95–108.
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18. Lee, K. (1996) ‘Labour market issues: skills training and labour productivity’, Paper Presented at the National Convention on Seventh Malaysia Plan, 5–7 August, Kuala Lumpur.
19. Leigh, M. (1992) ‘Politics, bureaucracy and business in Malaysia: realigning the eternal triangle’, in A.J. MacIntyre and K. Jayasuriya (Eds). The Dynamics of Economic Policy Reform in South-East Asia and the South-West Pacific, Singapore: Oxford University Press, pp.115–123.
20. Lim, L. and Pang E.F. (1991) Foreign Direct Investment and Industrialization in Malaysia, Singapore, Taiwan, and Thailand, Paris: OECD.
21. Lundvall, B. (Ed) (1992) National Systems of Innovation: Towards a Theory of Innovation and Interactive Learning, London: Pinter.
22. MIDA/UNIDO (1986) Medium and Long Term Industrial Master Plan: Malaysia, 1986-1995. Vol. III, Part 6, R&D and Technology Policies. Kuala Lumpur: Malaysian Industrial Development Authority.
23. Nelson, R. (Ed) (1993) National Innovation Systems: A Comparative Analysis, New York: Oxford University Press.
24. Nelson, R. and Winter, S. (1982) An Evolutionary Theory of Economic Change, Cambridge, MA: Belknap Press.
25. OECD (1997) National Innovation Systems, Paris: Organization for economic cooperation and development.
26. Porter, M. (1990) The Competitive Advantage of Nations, New York: The Free Press.
27. Rasiah, R. (1994) ‘Flexible production systems and local machine-tool subcontracting: electronics components transnationals in Malaysia’, Cambridge Journal of Economics, Vol. 18, pp.279–298.
28. Rasiah, R. (1999) ‘Government-business co-ordination and the development of Eng Hardware’, in K.S. Jomo, G. Felker and R. Rasiah (Eds). Industrial Technology Development in Malaysia: Industry and Firm Studies, London: Routledge, pp.231–246.
29. Rasiah, R. (2001) ‘Politics, institutions and flexibility: microelectronics transnationals and machine tool linkages in Malaysia’, in F.C. Deyo, R.F. Doner and E. Hershberg (Eds). Economic Governance and the Challenge of Flexibility in East Asia, Lanham, MD: Rowman & Littlefield, pp.165–190.
30. Wong, P. (1991) Technological Development Through Subcontracting Linkages, Tokyo: Asian Productivity Organization.
31. Wong, P. (2001) ‘Leveraging multinational corporations, fostering technopreneurship: the changing role of S&T policy in Singapore’, International Journal of Technology Management, Vol. 22, Nos. 5/6, pp.539–565.
32. World Bank (1995) Enterprise Training, Technology, and Productivity, Washington, DC: World Bank.
33. This paper incorporates material from the Introduction to Technology, Competitiveness and the State: Malaysia’s Industrial Technology Policies. London: Routledge, 1999, and is a slightly edited version of chapter 6 in Jomo K.S. (Ed). Malaysian industrial policy, National University of Singapore Press, Singapore, 2007.
34. Calculated from World Bank. World Development Indicators, various years.
35. Lall (1998) observed that, “While all countries have increasing access to the same supply of technological knowledge, not all can tap its potential equally… With the accelerating pace of technological change and mobility, the quality of national technological capabilities becomes more important rather than less. The technologies that flow into countries in a liberalised world reflect the quality of national capabilities: countries with weak capabilities receive relatively simple technologies (to operate competitively), while those with strong capabilities receive complex ones and generate new technologies themselves. Globalisation does not equalise capabilities across economies; it only leads to technology flows being more closely geared to complementary local factors.”
36. For overviews of Malaysia’s technology policies and national innovation system, see studies in Jomo and Felker (Eds) (1999). Critical studies of technology development at the sectoral and firms levels are found in Jomo et al. (Eds) (1999).
37. These offer only a partial window onto technology development in late-industrialising economies in which, as described below, much innovative activity occurs outside formal Research and Development (R&D). Yet, research-based innovation typically does play an important and growing role as the economy shifts into new, more technologically dynamic industries.
38. Utusan Malaysia, 24 January 2004.
39. One reason for this is the strong government effort to encourage foreign and local investors to increase R&D activity through the granting of special tax incentives. This has encouraged the ‘breaking out’ of engineering work into separate R&D affiliates or units. As discussed below, adaptive design and engineering functions can be important stepping stones towards more sophisticated, research-based forms of technological development. This is less true, however, of multinational corporations, which usually rely on home-country research and whose decisions to locate other engineering functions in overseas subsidiaries may or may not be part of localised technological learning.
40. This conclusion is reinforced by the United Nations Development Programme’s 2001 Human Development Report, which ranked Malaysia thirtieth among 72 countries in a Technology Achievement Index. The report categorised Malaysia as a ‘potential technology leader’, a mid-range category made up of countries that had invested in human skills and diffused old technologies widely, but which do not generate much original innovation. Particularly revealing was the fact that Malaysia ranked as the ninth largest exporter of high-technology products, yet received negligible royalty payments.
41. For an overview of the now-vast literature on national innovation systems, see Nelson (Ed) 1993, Lundvall (Ed) 1992 and Edquist and McKelvey (Eds) 2000.
42. See Gopal (1999) for an analysis of Malaysia’s successful industrial-technology policy in building the palm oil refining industry.
43. The report recommended aggressive strategic investment and regulation to build up local capabilities, noting that “Although a beginning has been made in the establishment of some modern industries like electronics, this has not been accompanied by corresponding build up of technological competence.. This is partly for the reason that these industries are largely foreign owned, partly or wholly [sic], and depend almost exclusively on external sources for technology” (MIDA/UNIDO, 1986, Vol. III, Nos. 6: 5).
44. An additional RM300 million was added to MAVCAP in the 2004 Budget.
45. By July 2004, MDV had approved loan applications worth RM826 million (The Star, 10 September 2004).
46. The distinction between mission-oriented and diffusion-oriented policies is related to the one between selective and functional industrial policies. Yet the two variables are conceptually distinct. As Lall (1996) argues, even institutions and policies that aim to diffuse existing best-practice technology often must be tailored to sector-specific market failures and learning requirements.
47. The Star, 16 May 1999.
48. Scarcely a year later, Petronas resold its controlling stake in Proton to the Ministry of Finance’s strategic industries investment arm, Khazanah Holdings.
49. See P. Gunasegaram ‘The Proton-Petronas conundrum’. The Edge Weekly, 25 June 2002; Gatsounis, I. ‘Rocky road for Malaysian car’ in AsiaTimes online http://www.atimes.com (accessed 24 February 2004). The cost of engine technology development was apparently heightened by competing development projects, including collaboration between Petronas and Swiss design engineering firm Sauber, and Proton’s internal engine project, drawing on Lotus engineering. The latter project, dubbed the Campro engine, was brought into production in 2004.
50. Prime Minister Mahathir avowed that “The industry employs the most complex core technologies which are applicable to all other industries and provide critical technologies for the future. It is important we succeed not only for our own economic growth but also to contribute towards our competence in the high technology business” (The Star, 3 December 1999).
51. Utusan Malaysia, 15 March 2002.
52. Production capacity was reportedly only 24 aircraft per year in 2002. A major portion of sales is of small reconnaissance aircraft to the Malaysian air force (Utusan Malaysia, 12 April 2002). At the same time, the government estimated the total aerospace industry in 2000 as comprising some 100 companies with sales of RM10 billion, indicating considerable growth in output, if not necessarily efficiency or innovation capabilities.
53. In 2001, the MSC launched a new flagship application dubbed ‘technopreneur development’, which aimed to nurture new small and medium sised start-up enterprises exploiting ICT.
54. By November 2003, the MDC had awarded grants worth RM96.58 million to 44 companies for 47 R&D projects. The original grant scheme has been followed up with a Strategic Trust Area Research program to promote research in six strategic technology areas: wireless mobility, advanced software development, advanced microelectronics, design technology, bioinformatics and nanotechnology (Utusan Malaysia, 29 September 2003). From its inception in 1999 to mid-2002, the MDC’s venture capital arm had committed RM67 million to 14 companies, including several that folded during the 2001-2002 downturn in the global IT industry, and planned to launch a second RM200 million venture fund (New Straits Times, 11 July 2002). Meitech by end-2001 had acquired nine portfolio companies with investment of between RM80-100 million (The Star, 16 February 2001). Among them was MSCTrustgate, the quasi-monopoly provider of digital certification services and the regional agent for US certification company Verisign.
55. Pointing to the number of companies granted MSC status, Mahathir boasted that “We had targeted 500 companies by the end of 2003, but we now have 920 companies. We needed 30 world class companies for 2003 and we now have well over 50” (Utusan Malaysia, 6 September 2003).
56. Utusan Malaysia, 6 September 2003.
57. See The Star, 1 June 2001, and Business Times (Singapore), 24 September 2002 and 25 August 2003. Malaysia’s first ‘paperless’ hospital purchased its information systems from a US vendor.
58. Ututsan Malaysia, 12 March 2002.
59. The Star 2 April 2001. See also the discussion in Huff (2001) and Abbott (2004). A particular complaint focused on the role of Telekom, the privatised government telephone company and monopoly network service provider in the MSC. Telekom evidently had not achieved the service standards companies expected, notwithstanding the physically sophisticated high-bandwidth infrastructure offered in the zone. E-commerce companies typically must offer their customers Service Level Agreement guarantees of network performance and stability, yet they could not obtain similar guarantees from Telekom itself, on whose networks they relied (Business Times (Malaysia), 30 March 2001).
60. At the launching ceremony, Mahathir commented, “It may not be Silicon Valley, but at least it is the kind of facilities that we can be proud of’. The Star, 6 Sept. 2003.
61. Like similar government venture capital arms in other countries, the MSC’s venture capital arm was criticised for being “slow to respond, lacking insufficient expertise to conduct a proper due diligence and that it does not value-add to its investments”. Business Times (Malaysia), 16 May 2001.
62. The Star, 8 July 2003.
63. Prime Minister Abdullah Badawi avowed that the biotech policy would “employ an approach that moves away from an infrastructure focus to one that builds on the capabilities of existing institutions” by upgrading and networking them in a program dubbed Bionexus Malaysia. Similarly, private sector companies would not need to be located in the BioValley site to be eligible for biotechnology subsidies.
64. Mahathir explained the MSC’s technology leap-frogging mission thus: “Unlike the industrial age which initially involved only the already rich nations, the Information Age provides an opportunity for all countries to start together” New Straits Times, 7 November 2000.
65. Certain industries are closely linked to scientific research, and thus do tend to have high R&D requirements even in early stages of growth. Latecomers may hope to enter such industries, but only if their public and university research establishments are exceptionally strong as well as closely-linked to the enterprise sector. Even in such cases, efforts to nurture local innovation must be coordinated with technology acquisition from abroad, including partnerships and subcontracting agreements.
66. As noted above, both the Ministry of Science’s IRPA system and the Malaysia Industry-Government Group for High Technology (MIGHT) included private sector figures in their planning processes.
67. In coverage of the critical McKinsey review study, one press report noted that, “Observers said that while the revelations might be eye-opening for some, much of McKinsey’s findings on the MSC’s shortcomings were nothing new. ‘A lot of the things said in the study are what many in the local IT industry have known for some time,’’ said an executive with an MSC-status company who preferred anonymity” (The Star, 2 April 2001). Many businesses engaged in ICT-related activity simply did not wish to relocate from established urban centres to a green-field zone with limited amenities. The McKinsey study criticised the government’s refusal to grant MSC status and incentives to qualified companies outside of the zone. Starting in 2003, the MDC did begin granting incentives to companies outside the zone, in particular, technology incubator companies.
68. With regard to IT policies, Abdullah noted the private sector’s frustration with the limited supply of ‘knowledge workers’, their inadequate level of skills and experience, poor command of English and expectations for high salaries. He spoke in particular about the mismatch between government policies and the local private sector, which was less able than foreign investors to make up for absent local innovation resources. “He said that there were also gaps in the technology funding and business incubation environment, especially between the needs of local industry participants and the facilities and programmes offered” (The Star, 23 September 2003).
69. Utusan Malaysia, 25 September 2002.
70. Smaller training centres were subsequently opened by the Plastics, Textiles and Mould & Die Associations.
71. Utusan Malaysia, 14 May 2002.
72. The Technology, Industry and Government for E-economic Revolution or TIGeR, launched its pilot project in Penang in late 2002. Linking several global electronics multinationals, their local suppliers and logistics providers, the Customs Bureau and the port and airport, TIGeR made import and export procedures fully electronic and integrated with supply-chain management software operated by firms in the neighbouring industrial zones.
73. To encourage its smaller members to learn e-commerce techniques, the FMM in 2001 developed its own RM15 million program, called TradeNex, which combined a web-based document-sharing and payments-processing system with extensive training workshops.
74. Only half of the SMIs paying into the mandatory national Human Resources Development Fund, for example, have drawn on their entitlement for training subsidies from the Fund.
75. One example involves the MIGHT forum, whose primary mission is to foster advanced technology development efforts in industry. In 2003, however, MIGHT’s commercial subsidiary teamed with LKT, a leading Penang-based contract manufacturer, to develop and market a low-cost web-based quality-management system to Malaysian SMEs (The Star, 6 March 2003). SMIDEC, too, has worked closely with the Penang Skills Development Centre in its Industrial Linkage Development programme and Global Supplier Development training programme.
76. For example, Singapore’s successful MNC-led model involved a high degree of strategic intervention through a range of non-trade policy instruments, combined with specific changes in MNCs’ strategies and network structures.