Download Knowledge Deepening and Industrial Change in

Knowledge Deepening and
Industrial Change in Malaysia
Policy Options
Shahid Yusuf
DRG
World Bank
February 25, 2008
Malaysian Context
• Growth during 2000-2007 has slowed averaging 5.0%
per annum as against 7.3% during the 1990s.
• The growth of TFP averaged 1.3 percent per annum
during 2000-2005.
• Rate of saving in 2006 was 36% of GDP but
investment rate, which has been falling, was 19% in
2006.
• Population/workforce is growing at about 2% per
annum (not including migrants).
• Policy questions: Can Malaysia achieve higher growth,
in the 6+% range? If so, which industrial sector(s)
(including services) could serve as the main engines
of growth?
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Growth Rates in East Asia
12.0
10.0
8.0
1995
6.0
2000
2006
4.0
2.0
0.0
Policy Options
• Seven policies for enhancing Malaysia’s growth prospects:
– Strengthen the leading sectors (electronics, electrical engineering,
food processing, wood products and palm oil);
– Re-evaluate future role of auto and auto parts industries;
– Focus R&D and applied technology development on a limited
number of fields;
– Raise supply and quality of human capital, especially in STEM skills;
– Encourage major domestic firms to take the lead in targeting and
assimilating foreign technologies and building own research
capacity;
– Concentrate efforts to improve knowledge economy potential in a
few selected cities where major universities, HQs, logistics
capabilities, and urban amenities are present;
– Enhance quality and capacity of IT infrastructure.
• Successful outcome requires combining well-targeted policies
identified above with market signals.
Industrial Focus
• Malaysia’s revealed comparative and innovation advantages,
export performance, in-bound FDI, manufacturing capacity, and
new starts all point to electronics, electrical engineering
industries, food processing, wood products and palm oil, as the
current and future leading sectors.
• There is little evidence that other industrial or services subsectors
are emerging with the potential to serve as leading sectors.
• The key to increasing domestic value added and improving
competitiveness lies in raising the technological capabilities of the
key industries.
• This has to come from the greater efforts by the domestic firms.
MNCs have not contributed much to Malaysia’s technological
capabilities in the past, and are unlikely to do so in future in view
of the intensifying global competition and MNCs guarding their
intellectual properties more tightly.
Export Composition
0
20000 40000 60000 80000
Exports of Malaysia, by Type of Manufacture
1995
2000
year
Primary Products
Other, Resource-Based
Other, Low-Technology
Process
Electronic & Electrical
2005
Agro-Based
Textile, garment & footwear
Automotive
Engineering
Other, High-Technology
Export Composition
(excluding Electronics)
Exports of Malaysia, by Type of Manufacture
0
100001500020000
5000
without Electronic & Electrical
1995
2000
year
Primary Products
Other, Resource-Based
Other, Low-Technology
Process
Other, High-Technology
2005
Agro-Based
Textile, garment & footwear
Automotive
Engineering
Industrial Focus (continued)
• The emphasis on key leading subsectors needs to be
complemented with a reassessment of policy support
for the automotive sector.
• The future outlook of the automotive sector in
Malaysia needs to be viewed with reference to
acquired capabilities, apparent potential given
domestic market saturation, and the emergence of
automotive clusters in Thailand, China, and India.
• Consolidation and restructuring of this industry could
enhance competitiveness and free up resources to be
reallocated to other more promising sectors.
R&D Effort
•
•
•
•
•
•
R&D by firms, universities and research institutes in Malaysia is on a
limited scale (0.7% of GDP) and widely dispersed across fields.
Spreading the small amount of R&D resources (both in terms of funding
and R&D personnel) is not yielding fruitful outcomes for key leading
subsectors (e.g. as measured by patents).
Innovative western economies and Japan doubled R&D expenditures
from 1% of GDP to 2% of GDP in about ten years.
China and Korea were also able to double expenditures in that time
period.
R&D efforts should be coordinated among different entities and focused
on fewer areas that are viewed as having good longer term prospects.
Innovation within the universities should be encouraged with the proper
institutional support (such as technology commercialization offices,
incentives to staff to conduct and commercialize research, better liaison
with firms, and involvement of universities in regional development
programs).
Intermediary institutions to facilitate more efficient technology transfers
from universities and GRIs to firms would also help.
4
R&D Spending
(as share of GDP)
3
Japan
Korea, Rep.
2
Singapore
1
China
Malaysia
Hong Kong, China
0
Thailand
0
20000
40000
per capita GDP, constant 2000 US$
60000
R&D Spending by Subsector
Top 5 Sectors with Highest R&D Spending in Malaysia
Sector
Manufacture of Motor Vehicle, Trailers and Semi-trailers
Manufacture of Office, Accounting and Computing Machinery
Manufacture of Radio, Television and Communication Equipment and Apparatus
Extraction of Crude Oil and Natural Gas; Service Activities Incidental to Crude
Oil and Natural Gas Extraction Excluding Surveying
Manufacture of Electrical Machinery and Apparatus n.e.c.
Amount
(million RM)
646.3
414.4
396.3
150.5
117.8
R&D Spending by GRIs
Top 15 Fields of Emphasis by GRIs, 2004
description
Crop Production
Pest and Disease Management
ICT Applications
Agricultural Engineering
Civil Engineering
Horticulture
Radiation Chemistry
Environmental Management and Bioremediation
Resource-Based Technology
Communication
Electrical and Electronic Engineering
Plant Biotechnology
Process Technology and Engineering
Soil and Water Sciences
Advanced Materials
R&D (million ringgit)
23.7
23.2
18.2
15.1
12.4
10.9
10.5
9.3
8.0
7.4
7.3
7.1
6.4
5.5
5.4
Share of Total
8.0%
7.8%
6.1%
5.1%
4.2%
3.7%
3.5%
3.1%
2.7%
2.5%
2.5%
2.4%
2.1%
1.9%
1.8%
R&D Spending by Universities
Top 15 Fields of Emphasis by Universities, 2004
Description
Biochemistry
Manufacturing and Production Engineering
Communication
Education
Energy Technology
Mechanical Engineering
Automotive Engineering
Information Systems
Process Technology and Engineering
Electronic Materials
Mathematics
Resource-Based Technology
Condensed Matter Physics
Civil Engineering
Clinical Medicine
R&D Spending
(million Ringgit)
37.1
29.7
18.4
16.5
13.9
13.7
12.2
11.6
11.5
11.0
10.7
9.2
9.0
8.2
8.2
Share
7.2%
5.8%
3.6%
3.2%
2.7%
2.7%
2.4%
2.3%
2.2%
2.1%
2.1%
1.8%
1.8%
1.6%
1.6%
Patents Granted by USPTO
Patents Granted by USPTO to Foreign Residents
JAPAN
TAIWAN
KOREA
CHINA,HONG KONG S.A.R.
CHINA P.REP.
SINGAPORE
INDIA
MALAYSIA
THAILAND
PHILIPPINES
INDONESIA
Source: USPTO
2000
32,922
5,806
3,472
548
162
242
131
47
30
12
14
2001
34,890
6,545
3,763
621
265
304
180
56
47
15
10
2002
36,339
6,730
4,009
589
390
421
267
62
61
19
15
2003
37,248
6,676
4,132
681
424
460
356
63
47
25
12
2004
37,032
7,207
4,671
641
597
485
376
93
28
21
23
2005
31,834
5,993
4,591
596
565
377
403
98
25
18
23
2006
39,411
7,919
6,509
753
970
469
506
131
42
35
16
Role of Major Firms
• Leading Malaysian firms need to base future
competitiveness on technology acquisition and
incremental in-house innovation.
• Currently technology licensing accounts for (1% of
GDP) compared to 10% of GDP in Ireland and 7% in
Singapore.
• A technology led strategy for Malaysian firms could
entail (besides higher R&D spending), a global market
orientation for manufacturing firms, investment in
equipment embodying advanced technology, open
innovation practices, closer ties with local and foreign
research universities, and networked alliances with
overseas firms to absorb ideas and guide strategy.
Human Capital
• Efforts to increase the supply of science, technology,
engineering, and math (skills) must continue (with the
help of university reform), alongside parallel
improvement in English and IT skills.
• Private firms must raise their own outlay on training so
as to strengthen the skills of those who are already
employed. Upgrading and expanding public training
institutions and streamlining the application and
approval processes for firms to utilize these skill
development centers, would complement in-house
actions of firms.
Dynamic Urban Regions
•
•
•
•
•
The geography of innovation strongly favors large urban centers with
diverse economic activities, which benefit from urbanization economies.
Experience of advanced countries points to significant concentration of
patents issued, high-tech employment, and venture capital in a few
large urban centers and established industrial clusters.
Innovation is an urban phenomenon. A high percentage of new ideas
typically comes from the large core urban centers. This is true for the
US, Japan, and other East Asian economies.
The ingredients of a dynamic innovative urban center are: a collection
of leading universities (suppliers of skills and basic research), corporate
HQs (much R&D is done near to HQs), availability of other supporting
business services (law firms, finance including VCs, management
consultants, accountants, logistics experts, etc.).
In addition, the city needs to be able to attract knowledge workers by
offering affordable housing, social services, and urban amenities.
Knowledge Economy Potential
Number of GRIs
Putrajaya
7
Source: from EPU
KL
22
Penang
1
Johor
1
Malacca
0
Location of public and private universities
KL
Penang
Public
3
1
Private
8
0
Note: Only the main campuses are included in this table.
Source: from EPU
Johor
2
0
Malacca
1
0
Cyberjaya
2
Location of Headquarters
KL
Putrajaya
23
2
Source: Supplied by EPU
Penang
2
Selangor
10
Ipoh
1
Perak
2
IT Infrastructure
• ICT infrastructure and IT skills contribute to
firm-level productivity, Availability, pricing and
accessibility of telecom services also linked to
research collaboration, community networking,
international connectivity, local economic
development, formation of software clusters
and innovations related to IT and multi-media.
• Investment is needed in soft and hard IT
infrastructure (e.g. to increase bandwidth) so
as to improve the access to information, and
facilitate exchange of ideas with others and
innovation.
E-Readiness Scores
E-Readiness Scores
Economy
Singapore
Korea
Taiwan (China)
Japan
Malaysia
Thailand
India
China
Indonesia
2003
8.20
7.80
7.40
7.10
5.60
4.20
3.90
3.80
3.30
2004
8.02
7.73
7.32
6.86
5.61
4.69
4.45
3.96
3.39
2005
8.18
7.66
7.13
7.42
5.43
4.56
4.17
3.85
3.07
2006
8.24
7.90
7.51
7.77
5.60
4.63
4.25
4.02
3.39
2007
8.60
8.08
8.05
8.01
5.97
4.91
4.66
4.43
3.39
International Bandwidth
Country / Data
Australia
Canada
China
Denmark
Finland
Germany
India
Indonesia
Ireland
Japan
Korea
MALAYSIA
Netherlands
New Zealand
Norway
Philippines
Singapore
Sweden
Switzerland
Thailand
United Kingdom
USA
1998
375
8,278
143
1,213
670
11,834
159
80
239
830
250
85
10,874
35
583
100
90
4,388
5,257
37
18,338
27,388
1999
730
8,278
351
1,213
670
11,834
267
120
239
2,643
1,251
188
10,874
150
583
125
845
4,388
5,257
118
18,338
27,388
2000
2,455
34,868
2,799
7,520
1,796
69,745
840
250
917
7,200
2,268
540
68,079
250
3,928
165
2,249
18,607
21,126
268
86,485
111,307
2001
7,025
55,623
7,598
43,456
7,820
207,669
1,475
343
4,203
22,705
5,432
733
173,154
1,900
21,637
237
2,639
60,349
40,056
642
238,074
273,770
2002
10,498
89,273
9,380
109,204
16,857
260,668
1,870
573
13,501
30,286
17,207
1,321
167,232
2,303
22,696
891
5,898
94,896
65,827
1,011
319,663
381,693
2003
12,583
172,529
27,216
118,559
18,056
384,848
2,000
1,059
20,139
75,946
42,000
2,308
253,831
3,315
33,930
2,323
15,564
157,636
71,464
1,438
534,814
708,599
2004
22,056
217,521
74,429
188,455
22,617
566,056
12,300
2,244
24,587
132,608
71,380
3,193
334,578
4,575
43,019
3,215
24,704
157,636
71,464
3,006
781,554
970,594
Policy Suggestions: A Summing Up
•
•
•
•
•
•
•
Malaysia should aim to double R&D spending from public and private sources over
the next ten years. This must be supported by higher education policies and
incentives that raise quality and volume of STEM training.
The larger firms, public and private, need to take the lead role in industrial
deepening through backward and forward integration and by stimulating knowledge
assimilation as well as domestic innovation.
Measures to strengthen the knowledge economy must be concentrated on at the
most one or two urban areas where the main universities and corporate
headquarters are located.
Urban centers must create the environment and culture which will attract and retain
talented people from Malaysia and overseas. This calls for a mix of policies
including policies affecting urban design.
A dynamic urban knowledge environment which is conducive to the exchange of
ideas, to both research and business related networking, and to innovation,
demands an IT infrastructure that is comparable to the best in Asia.
Polices that enhance openness and market competition can reinforce technological
upgrading.
Better, more detailed and current data to monitor changes in innovativeness and
productivity across subsectors and increasing access to public data to encourage
research on socio-economic issues, would assist in policy formulation.