IDG Connect has just published another of my forays into Asia’s ICT markets, this time focusing on Malaysia and whether it can possibly sneak in to take the crown of regional digital hub from its rivals in Hong Kong, Singapore and elsewhere.
The truth is that the country has flown under the radar for much of the past 20-odd years, although in reality the government had been pushing for foreign investment there since the early 1970s, when Intel and six other firms set up facilities in what was once nothing more than mud and rice fields.
Fast forward to today and Malaysia has something of an image problem, according to Ng Wan Peng, COO of Malaysia’s Multimedia Development Corporation (MDeC), the government agency leading the charge.
“While the country is fast-becoming viewed as a top Asian holiday destination, with beautiful beaches and luxury hotels, it doesn’t immediately spring to mind as a place for foreign firms to invest or in which to establish their Asian hub,” she told me.
Its efforts to change this and help the country move up the ICT value chain were spearheaded by the founding of the Multimedia Super Corridor (MSC) – a hi-tech investment zone running from Kuala Lumpur airport into the city centre. It’s designed to spur foreign investment (33% of which comes from the UK) and encourage that transformation into a “digital economy” by 2020.
The Malaysian government has put together a very generous set of inducements to invest here, including a “Bill of Guarantees” which promises MSC-status companies: a 10-year income tax “holiday” or investment tax allowance for up to 5 years; freedom of ownership; strong cybersecurity laws; and no internet censorship, according to Peng. The government also offers unrestricted employment of foreign knowledge workers, cutting visa-related red-tape.
So what else? This is what Peng had to say:
The answers range from the economical, to the cultural, to the financial. For one, we are politically and socially stable. We also believe our multi-cultural society holds a business advantage – we Malaysians are used to sitting across the table from someone of a different ethnicity to us from an early age, so we’re used to conducting business with people from all geographies and walks of life. Being a largely English-speaking population is also attractive to Western investors, while our world-class infrastructure helps to facilitate global commerce without fear of being disrupted by natural disasters.
So far so good. But there are challenges, as Frost & Sulivan APAC associated director Pranabesh Nath explained to me.
“Areas that stand out as challenges include inadequate technology infrastructure, lack of sufficient talent, small domestic market, and not enough ‘knowledge jobs’,” he argued. “Adoption of technology for consumers in terms of usage, and lower e-commerce penetration provides additional growth challenges. The government, though, recognises these shortcomings and is expect to be implementing policy to overcome them.”
Indeed, Peng explained separately without prompting that these areas of concern are being addressed by the government.
There’s certainly a will from the top to make this work which is heartening to see and some impressive growth stats already. Yet I wonder whether the problem Malaysia might face is in that delicate balance between encouraging foreign investment via tax breaks and other inducements and nurturing its home-grown companies.
“There are frameworks and policies since the ’90s on encouraging home grown companies, however these don’t seem to have worked very well,” Nath argued. “Technology and markets have also changed rapidly in the last 20 years and it is always hard to keep up to date with the latest development and growth areas.”
However, he was optimistic of a way to surmount this problem and accelerate Malaysia’s ICT growth without this coming at the expense of home-grown companies.
“The internet of things and its applications in industry sectors such as automobiles, healthcare and consumer are enabling new business models and use-cases such as wearable technology. These highly integrated solutions use all key tech areas such as cloud, big-data and high speed connectivity,” he explained.
“A strong emphasis being a leader in this area, coupled with a focus on generating a knowledge intensive economy can propel Malaysian ICT to much greater growth in the next five years. Both foreign investment and local companies’ incubation can be simultaneously pursued in these cases. Now we just need strong policies that can implement the above.”
Spent a fascinating day at Intel’s Penang facility a week ago today with The Register. Up until now it’s been something of a hidden gem for Chipzilla but, as the largest plant outside of the US, it’s a key part of its Asia and global operations.
So exactly why is it such a big deal for Intel? Well it was its first ever foray outside the US some 40-odd years ago and now employs over 6,000 designers and engineers. Crucially it acts as a hub for Intel’s other plants across Asia, providing training and support for engineers from newer facilities in Chengdu, Bangalore and most recently Vietnam.
As if any more proof were needed of its importance to Intel, the firm’s global VP of the Technology and Manufacturing Group, Robin Martin, is based there.
We learned that having everything from product development and design to testing and manufacturing on one site means the firm can respond much quicker to changing market demands and keep up with faster development cycles demanded by today’s mobile computing trends.
Perhaps an even more interesting story, though, is the emergence of Malaysia and Penang as an IT destination during the past 40 years. I spoke to Datuk Noharuddin Nordin, CEO of MIDA, the government’s investment and development agency, who admitted that the reason Intel was lured to the country in the early ‘70s was purely based on cost.
However, the government has taken that early investment and managed to grow it, attracting more big electronics MNCs with skilled labour, solid IPR protection and cheap land.
“We must remember MNCs come here because they want the greatest margins,” he said. “We have to anticipate what’s round the corner and create systems which will help to prepare for that.”
It’s not done a bad job. Intel on its own has invested $4bn in Malaysia over the past 40 years and other big names including Motorola, AMD, Western Digital, Renesas, Bosch and many more have all joined Chipzilla in Penang. Nordin claimed such investment has managed to help to move local firms up the value chain, nurture world class IT talent in Malaysia’s universities and attract MNCs from other related industries like aerospace, medical equipment and automotive.
As we walked through the old colonial streets of Georgetown that evening I couldn’t help but think Penang has come a long way since its days as a British East India Company trading port.
Whether it can continue to lead in the future remains to be seen, with hugely ambitious Asian rivals like China coming up fast. However, alongside Taiwan, Malaysia has something of a first mover advantage in Southeast Asia which will be hard to match in the near-term.