TBY sat down with leaders in the innovation scene in Malaysia and discussed raising the country's competitiveness in new and emerging sectors.

Azli Mohamed
GE Malaysia
Tan Sri Dato’ Seri Ahmad Ramli Mohd Noor
Managing Director
Boustead Heavy Engineering Corporation
Datuk Phang Ah Tong
Deputy CEO & Chief Information Officer
Wan Latiff Wan MusA
Senior Director of the Strategic Planning Division
Datuk Ir. Khairil Anwar Ahmad
Managing Director
Medini Iskandar Malaysia

Why is innovation urgent in the economy of Malaysia today?

DATUK PHANG AH TONG Our focus at MIDA is on bringing innovation into manufacturing and to a certain extent the services sector. Innovation takes two avenues, from multinationals and local companies. MNCs are most of the time ahead of the curve; whether Malaysian companies can catch up is a different story. It is a challenge to move into the high-end knowledge industry; in the manufacturing sector, in particular, local firms rely on support from MNCs. Local firms are part of the global supply chains of these international companies, and this business model is quickly becoming obsolete compared to countries in the region where SMEs perform at much more advanced levels. Malaysians have been too comfortable in depending on multinationals while being unable to innovate fast enough. Singapore, Taiwan, and Korea were behind us at one time, and pressure from countries such as Vietnam is already noticeable. Innovation is extremely important for us—perhaps not revolutionary R&D, but incremental innovation is what we need today. It is the process and the product that will make us competitive. Human capital is the most important to make this happen, and we should move away from our reliability on resources and avoid the resource curse.

AZLI MOHAMED GE has been around 130 years with a presence in over 180 countries. We play a role in almost every critical industry such as aviation, oil and gas, electricity, and healthcare. Staying competitive is a continuous journey, and innovation is the way forward. Innovation does not begin and end within a company; we need a strategy in place that goes wide and deep across all the stakeholders to innovate together. As a MNC, we cannot have a cookie-cutter approach in every country that we work in; every country has a unique way of doing things and we always partner with the the ecosystem such as supply chain and the public sector. Sharing this responsibility helps us fast track innovation. The geography of product development has changed over time; it is no longer the West that innovates and brings in new products. In the last two decades, we have been strong in reversing the innovation process, with emerging markets starting to play a larger role. In addition, co-creation is a powerful avenue, and we work to rejig the innovation process within GE, where product development used to be a secretive process within; however, we realized that it is no longer the case that engineers and scientists best know what the markets need. We take direct input from our customers; for example, for the new engine that will power the new AirAsia aircraft, the A320neo-LEAP 1A, we consulted heavily with AirAsia and other airlines. Also, we have embarked to morph ourselves into a digital industrial company, to bring the use of data analytics into the traditional industrial space such as aviation, the power sector, and oil and gas. Multinationals should not be ashamed to learn from start-ups and we try to adapt start-up processes into our corporate culture.

TAN SRI DATO' SERI AHMAD RAMLI MOHD NOOR From our modest approach, we have to be realistic in innovation; we are focused more on processes than manufacturing. This is a challenge in itself, as we require economies of scale in the broad range of things we do and for that we require skilled and trained manpower. Our education system in Malaysia is not targeted at driving innovation, which is where it starts. Often, engineers trained in Germany or France seem to be more creative and innovative. We may want to follow Norway's system, a small country that is productive and innovative.

What role does innovation play in the future for exports from Malaysia, particularly innovation within companies and moving into new fields and new technologies?

WAN LATIFF WAN MUSA Malaysia's largest export basket has always been E&E, currently amounting to 35% of total exports—around 90% of these come from MNCs operating in Malaysia. A heavy dependency on E&E places us at risk; a slowdown in China is noticeable right away because of our dependency on exports of home appliances to China. We need to diversify our exports, preferably into high-value adding manufacturing sector, such as medical, optical, and scientific equipment. We would like to see our local companies become less dependent on MNCs in the process of innovation and to come up with new products, shorten production processes, and move towards lean manufacturing. MNCs know the way; at MATRADE, we are tasked with supporting SMEs with available tools of innovation to prepare them to be export ready and guide them toward the international market. Currently, SMEs only contribute 17.6% to our total exports, and we would like to see that increased to 23% by 2020. We work with universities and research centers to change mindsets on innovation and with banks to organize funding.

How have you gone about implementing greenfield innovation?

DATUK IR. KHAIRIL ANWAR AHMAD We are the master developer of a Medini Iskandar, a new township in the south of Malaysia. Innovation is at the very core of our development strategy, and we have drafted a smart city blueprint, and because we are building from scratch we have the unique opportunity to develop a smart and sustainable township. The blueprint outlines the key areas that we can promote; for example, we have a healthcare hub around the already-opened Gleneagles hospital, we have Legoland, we are building an integrated command center, and we have smart partnerships with digital enablers like TM. We also aim to become an academic center of innovation, for which we have teamed up with University Technology Malaysia, on a program called the Innovation Challenge. Another area is the creative industry, and we strive for innovative approaches even here, to come up with new ways of art, design, and music. We have good incentives for innovative MNCs to become resident in Medini, and Huawei has started its operations here. Because of our close proximity to Singapore, we offer an attractive and competitive alternative.

What new developing technologies will be the most important for Malaysia in the coming 10 years?

DATUK PHANG AH TONG The global economy knows roughly three basic economic models: a laissez-faire system where everything is left to the free market, for example in the US; the central command system, which tends to be more authoritarian like China and Vietnam; and countries with a mixed economy. Malaysia is certainly a mixed economy where a certain amount of economic planning is necessary and where the market should be allowed some freedom. In this respect, the Economic Transformation Program and the Eleventh Malaysia Plan were drafted. The same goes for innovation. It is not just about companies; the government should also understand the dynamics of change. It should act and formulate new regulations—or get rid of them—to compete with other countries. Malaysia today is good in producing technology—if you give us the specifications, we will build it for you. But when it comes to product technology, which involves true innovation, we lag far behind. As a technology producer, we are number four in the world, while on the global innovation index, we are 35 out of 120. So, which should we choose? Apple, for example, is the mother of the supply chain; it uses the non-equity model to get its products made. It does not invest in manufacturing but controls the software and ICT design and lets another company build it. A USD499 iPad costs USD38 in manufacturing and USD8 in assembling—USD46 in total. Innovation is where the money is made; not in the manufacturing supply chain. Developing countries to a certain extent benefit from being part of the supply chain; however, they will not move up to the next level if they rely heavily on the tasks that multinationals give them. We should be on top of this game; Vietnam, for example, is more aggressive in changing the way of doing business.

How can the private sector contribute to the level of human resources in the country?

AZLI MOHAMED MNCs often complain about a mismatch between education and industry requirements, which is an easy call to make. Fortunately, many take responsibility to address this issue and partner with the education sector. GE prides itself on the high percentage of localized positions, all the way up to senior management, wherever we go. At our MRO facilities in Malaysia, we have a 100% Malaysian, highly skilled workforce, servicing aircraft engines from all over the world. Because we are a global firm, there is also global talent; however, that does not stop us from recruiting entry-level positions in each market we work. Having the right pipeline of talent is essential and we are keen to partner with the local industries, academia, and tertiary organizations. Curriculum building is something that should be done in consultation with industry players as well. An upfront approach in addressing the issue of graduate employability is a much better way to move forward.

TAN SRI DATO' SERI AHMAD RAMLI MOHD NOOR This is something companies need to take control of as we face challenges in the labor market. We offer internships to students and young graduates for them to gain experience, and we have our own maritime academy where we emphasize the remanufacturing processes. We work closely with universities and now have the knowledge in-house to come up with our own ship designs. We want to innovate on fuel economy, speed, and weight distribution—practical matters—and small steps in the innovation process. Ships are delivered within a year, and we have committed ourselves to shortening the process to eight months. To do so, we need to review the supply chain and all the processes, for which we take an incremental avenue. Current vessels have reached high levels of automatization and can be manned by as little as four people; that says something about the demand for skilled engineers.

DATUK IR. KHAIRIL ANWAR AHMAD Nurturing talent is the most important thing. Young graduates today see themselves as global citizens and their career choices are not limited to the place where they grow up. We are establishing our education hub in close proximity with Singapore and indeed expect a great deal of cross-border exploration of career opportunities, though not just limited to Singapore. Similarly, for our medical school, we expect to welcome graduates from all over the world. Nurturing talent is a global phenomenon and young graduates should take the chance to gain experience abroad. As property developers, we hope some of these graduates choose to work in Iskandar, in healthcare, academia, leisure, or another sector. We promote various amenities in Iskandar and believe we can retain some of that talent. There are Singaporeans who come to work in Iskandar because they feel there is more space, with a lifestyle more conducive and with great schools. It is a two-way street. We encourage companies in Iskandar to come up with internship programs; we incentivize staff development, and we send our own people abroad to conferences and seminars to develop themselves.

What are the major barriers to innovation and what are the most important steps to be taken?

DATUK PHANG AH TONG It comes down to people; they must be able to have critical thinking. We go around to promote Malaysia as an investment destination and often hear that our graduates have purely academic experience and lack critical thinking skills. Engineers have to start in operating positions because of the lack of experience; our graduates need to be more job-ready—it now takes on average six to nine months to be trained. Today, it is all about Industry 4.0, smart manufacturing, and the Internet of Things (IoT). Today's manufacturing industry is not about large workforces; instead, we need people who can develop robotics and automation processes. Adidas left Germany in 1994 to manufacture in Southeast Asia and recently decided to go back to Germany. This tells us how Germany has advanced its manufacturing processes and Adidas can ease its logistics and warehousing by going back to Germany. We need to keep up with this to remain competitive and it seems that countries without significant natural resources such as Taiwan, Korea, and Singapore are doing better than the ones with.

AZLI MOHAMED All challenges present opportunities, and from perspectives we should take control of innovation in Malaysia. We see the strong efforts by InvestKL, and MIDA to attract foreign investment and, of course, multinationals take an opportunistic approach in their decisions on where to set up shop, for example. Four years ago, Malaysia competed with Indonesia and Vietnam for the set up of our center of excellence in engineering. On the basis of several criteria like competitiveness of the highly skilled workforce and the number of patents in the country, the decision was made for Vietnam. On the other hand, Malaysia is an MRO hub and we look to invest USD60-70 million to expand our facilities here. Our customers make us work harder and drive us to innovate. AirAsia and its business model put our engines to the limits and create a high standard for the industry as a whole. And although real estate is not the traditional sweet spot of GE, whilst moving toward the digital economy with smart cities, the IoT, and the notion of asset performance management, we believe we have something relevant to contribute to the innovation ecosystem.

WAN LATIFF WAN MUSA Although we have a surplus in terms of trade for merchandise, we have a deficit in business trade. We use foreign services more than we export abroad. Other than tourism, most of our services sectors have a deficit in our payment balance. Thus, we need to increase export of goods and merchandise and narrow down deficit in the services trade. Our export composition should be restructured and we should move away from overreliance on multinationals. The mindset of our SMEs should be opened up. TalentCorp is a great initiative as it repatriates talented Malaysians from abroad; these people have a good notion about innovation and this could be a shortcut into bringing knowledge into our system. We try to address the challenges that SMEs face in bringing their competiveness on par. We match SMEs with larger companies, both multinationals and homegrown giants, to spur actual implementation of innovative ideas that come from our entrepreneurs. Secondly, we guide and help them in the process of valorization and selling their products on the international market. We would like the large corporations to impart some knowledge in terms of innovation to our SMEs. Human capital is something we need to take control of on a broader scale. Becoming part of TPPA and other FTAs means nothing if our products do not meet international standards.