small and medium thoughts: January 2006

Friday, January 27, 2006

Thank God for Globalization

Fellow Malaysians, say what you like but I think we have to be thankful for globalization as it has kept our UMNO-led government on its toes and of late, has prevented it from going overboard with its social restructuring policies.

Every kris-waving 30% equity requirement that is proposed will increase the cost of doing business in Malaysia and lower our competitiveness. With both India and China in the ascendancy, who in their right minds would position themselves at a disadvantage especially if they (i.e. we) do not have a significant technological edge?

First off, in an effort to reduce our budget deficit, the government has been forced to cut down on its spending over the past few years. Traditionally this has been the main way of pump-priming the economy (and boosting rent-seekers’ fortunes).

Secondly, a government can only milk domestic consumption for so long without inducing inflationary effects on the economy as experienced by South Korea’s artificial boom in the 90’s which was fuelled by over-borrowing/over-lending.

This is an excerpt from a Morgan Stanley report commenting on the 2005 Malaysian market:

Private consumption risk also stems from the modern Malaysian household enjoying a sophisticated credit culture, which has enabled it to increase debt in the past few years. Household leverage and consumer credit penetration are already at levels equal to Korea, Hong Kong and Singapore. Consumer and housing credits have been aggressively driving loan growth in Malaysia, and total consumer and housing debt are some 56% of GDP, exceeding Singapore’s 54% and close to Hong Kong’s 60% (Korea is at 60%-plus). However, bear in mind Malaysia’s income per capita is a fraction of that of Korea, Singapore and Hong Kong.

And:

The economy has depended excessively on private consumption fueled by a run-down in savings, expansion in household balance sheets and a sophisticated credit culture. We don’t expect this to continue – the private consumption story is not structural. The main economic strategy of making private investment the growth engine has not materialized so far.

In other words, the UMNO-led government can only do so much to force us poor Malaysians to buy more protectionist cars and products to stimulate economic growth. We have to look at a good balance between export-led growth and domestic demand.

And if we are looking at improving private investment, the last thing we want to do is to frighten businesses away by telling them they have to surrender 30% of their equity.

Malaysia may have gotten away with many protectionist crimes in the past but in a rapidly globalizing and open economy, this will hopefully be the stuff of history books. Wishful thinking for the year of the Dog? Maybe not. Happy Lunar New Year.

Tuesday, January 24, 2006

Malaysia is in the Top 10– and for the RIGHT reasons too!

Believe it or not, we’ve finally made a Top 10 list that we can be proud of. We even managed to beat countries that are usually considered more advanced than us and this in an area that many of us would have thought was a lost cause in this country – Environmental Protection.

Yes, Ladies & Gentlemen – you may stop staring in disbelief now – Malaysia is ranked no. 9 in the ENTIRE world in the 2006 Environmental Performance Index (EPI), outranking the likes of the US, Switzerland & Australia.

And in case you think this ranking is sponsored by yet another delusionary foreign billionaire, it was conducted by Yale & Columbia Universities in conjunction with the World Economic Forum and Joint Research Centre of the European Commission.

The EPI is based on two environmental protection objectives – 1) reducing environmental stresses on human health & 2) promoting ecosystem vitality & sound natural resource management. Countries are ranked based on 16 indicators tracked in 6 policy categories: Environmental Health, Air Quality, Water Resources, Productive Natural Resources, Biodiversity and Habitat, and Sustainable Energy.

All this despite the rape of Bakun and the destruction of Bukit Cahaya Seri Alam – not bad at all. Well done Malaysia.

Still can't believe it?? Click here.

Monday, January 23, 2006

This Moon is Rising. A story of a successful Malaysian entrepreneur

I feel that I have been focusing on so many negative aspects of the Malaysian economy, it’s beginning to make us look like such basket cases.

So, for a change, I thought it would be nice to share an inspiring story about a Malaysian entrepreneur who is making a big impression on his own, without any of the political patronage that other companies seem to need to be ‘successful’.

Moon FX or MFX, is a well known local production house that has won many awards for its excellent, cutting-edge post-production work. Its most recent works includes animation work for the Proton Savvy ads and the Hotlink birds as well as a whole host of creative work outside the country.

Its co-founder, Chan Moon Kien (pictured above), is a 20-year advertising industry veteran who has collaborated with the likes of special effects wizards Industrial Light & Magic. Within 4 years of being set up, MFX has bagged 51 international awards for its creative work. He was also honoured with the Ernst & Young Emerging Entrepreneur of the Year Award last year.

In an interview with the Edge, Chan says that he was unable to make much headway in the early days with local companies because of his insistence on initial payment for his consultation. However, being shunned in the local arena turned out to be a mixed blessing because it forced him to look overseas. Today, he has secured clients from 22 countries and many of them are big, blue-chip multinationals.

Now he probably feels vindicated that MFX’s work is recognized as one of the best in the region and certainly no laggard globally. He is also responsible for the creation of the Malaysian Video Awards (now into its 11th year) to showcase the works of aspiring Malaysian film makers. It is satisfying to note that all of this was achieved without a single brick of the ill-fated RM3 billion E-village park being laid.

Three cheers for genuine Malaysian entrepreneurship and creativity!

Friday, January 20, 2006

Malaysia: Kingdom of Rent-Seekers

When I read the following definition of ‘rent-seeking’ from the Economist A-Z terms of economics, I couldn’t help but see how well it applies to us in Malaysia.

Don’t get me wrong, we are most certainly NOT the only country in the world to practise rent-seeking but we certainly do it on a mega-scale.

Definition (italics mine)

RENT-SEEKING
Cutting yourself a bigger slice of the cake rather than making the cake bigger. Trying to make more money without producing more for customers. Classic examples of rent-seeking, a phrase coined by an economist, Gordon Tullock, include:

• a protection racket, in which the gang takes a cut from the shopkeeper’s PROFIT;
- I don’t know about this but from what I hear, I think there’s a lot of this sort of thuggery happening in our towns and cities.
• a CARTEL of FIRMS agreeing to raise PRICES;
- Hmm… the only thing that comes to mind are the oil companies but our oil prices are subsidized and controlled so there’s hardly room to move there. The only other area I can think of are approved government suppliers/vendors from whom agencies must procure their stuff from.

• a UNION demanding higher WAGES without offering any increase in PRODUCTIVITY;
- Our unions have been rendered quite toothless… so I guess no comment on this one.

• lobbying the GOVERNMENT for tax, spending or regulatory policies that benefit the lobbyists at the expense of taxpayers or consumers or some other rivals.
- In this category we have PLENNNNTTTYYY of examples:
o The auto industry (Proton, Perodua, Naza etc)
o The highway industry (PLUS, LITRAK etc)
o The media industry (TV3, NST, Astro etc)

This last statement takes the cake and summarizes our current economic environment:
Whether legal or illegal, as they do not create any value, rent-seeking activities can impose large costs on an economy.

The definition can be found here.

Wednesday, January 18, 2006

Come home lah Malaysian Professionals...

Familiarise yourselves with this term GERD – it’s going to be important for us as we race to meet our VISION 2020. GERD stands for Gross Expenditure on Research and Development and GERD/GDP (or Research Intensity) is a measure of a country’s overall investment in R&D as a percentage of its Gross Domestic Product.

Malaysia’s GERD/GDP was at 0.69% in 2002 – small change when compared to the more than 3% of innovation powerhouse Japan, 2.92% of Korea, 1.89% of Singapore and 1.6% of China. Our target is to reach a GERD/GDP of 1.5% by 2010.

Studies have shown that investing in R&D has a positive effect on economic growth, so this can only be a good thing for local SMEs.

We’ve been trying for several years now to attract highly-qualified overseas Malaysian professionals to come home to relight the spark of innovation in this country. How successful has the programme to encourage Malaysian citizens with expertise residing overseas to return home been so far? A paltry 300 out of an estimated 50,000 professional and technical Malaysians who are living in Singapore, the US, Australia, UK etc. And we haven’t yet taken into account the 100,000 or so students being educated overseas – how many of those would eventually decide NOT to come back?

In an age where the only borders are in our minds, I find Malaysia’s race-obsessed economic policies sadly limiting to our country’s progress. I think years of closeted nationalist policies have also made us become xenophobic to the point that when for example a foreigner is called in to head up a local company (much less a GLC), the invariable response from the Malaysian is “What?? Can’t a local guy do just as good a job or better?”

The point isn’t so much that our own citizens can’t do a good job but that there simply may not be enough home-grown talent around. So I guess if we as a nation don’t really like foreigners, then at least let’s get back some of our ‘exported’ talent and have them inject some new thinking.

Saturday, January 14, 2006

Soon you might need AP’s for Mobile Phones too!

The country's first 'indigenous' mobile phone

Ladies and Gentlemen, you have been warned. If Malaysia’s first ‘indigenous’ mobile phone manufacturer has its greedy little way, you will soon have to apply for an import permit for your ‘non-national’ mobile phone.

Freshly culled from this week’s print edition of the Edge: In a classic display of boleh-dom business wisdom, the MD of Kosmo Tech, a company proposing to acquire a 30% stake in national mobile phone maker M dot Mobile Sdn Bhd, has called on the government to slap import permits on mobile phone distributors to bring in foreign brands!!!

And let it not be a surprise to you that Kosmo Tech is an auto parts manufacturer – an industry that is already subject to a protectionist AP ruling and sky-high taxes to protect a forever-nascent domestic auto industry.

Here is an extract as the news is not yet available online:

“An industry player estimates that 60% of phones sold locally are through authorized distributors while the rest are grey imports. Norhamzah [Group MD of Kosmo Tech] says to curb such practices, M.Mobile is seeking government approval to allow it to collaborate with Sirim Bhd to develop a Malaysian standard for imported phones.”

The Edge then goes on to comment:

“In essence, mobile phone distributors would need to apply for import permits. A processing fee could be charged. Norhamzah declines to say where the fees would go.”

Come on guys – surely this isn’t the way to help aspiring Malaysian enterprises grow by yet again slapping protectionist measures on the domestic market and milking its own citizens dry!

In the first place, why the heck is M.Mobile entering the savagely competitive mobile phone hardware industry from which even giant conglomerate Siemens has exited and Chinese manufacturers are rolling out low-cost, full-featured models every other month!

Secondly, why is an auto parts manufacturer contract-manufacturing cellular phones? Are there many similar processes and industrial parts or synergies between the two widely different sectors that I am not aware of??

Good Citizens of Malaysia, if this protectionist rule happens, watch our beloved country sink further into the depths of pariah-hood among global economies as we introduce yet another silly scheme to line the pockets of a few at the expense of the entire nation.

Friday, January 13, 2006

Celebrating Innovating Heroes - Not Flag Draping Zeroes..

Instead of embarking on foolhardy ventures like draping another country's revered ancient monuments with giant flags, our nation should be celebrating these real heroes! These are Malaysian winners of the 2005 Geneva International Exhibition of Inventions, New Techniques and Products.

1) PRIZES OF THE WORLD INTELLECTUAL PROPERTY ORGANIZATION (WIPO)
Mr. Hashim ROSLAN, from Malaysia, for his system for controlling erosion in coastal areas, especially with soft soil.

2) PRIZE OF THE CITY OF GENEVA
Mr. Mahmoud MOGHAVVEMI from Malaysia for his smart stick for helping the visually impaired.

3) SWISS AUTOMOBILE CLUB PRIZE - ACS
Mr. Ruzairi ABDUL RAHIM, from Malaysia, for his safety system for vehicles. An SMS is sent immediately if the alarm is not turned on.

4) SPECIAL PRIZE FOR TECHNICAL CULTURE - CROATIA
Mr. Abdul Rahman MOHAMED, from Malaysia, for his one-stage production process of hydrogen nano-tubes, using natural gas.

5) Prize of the Taiwan Association of Inventors
Mr. Rauzah HASHIM, from Malaysia, for his branched chain glycolipids for application in high technology and liquid crystals.

6) PRIZE OF THE KOREA INVENTION PROMOTION ASSOCIATION - (KIPA)
Mr. Chin Ooi ONG from Malysia for his ventilation system based on temperature difference technologyFull list here

Full list here

Wonder if any of these inventions have been spun off to enterprising business people yet?

Talk about innovation.. they're giving awards now!

Hmm.. talk about coincidence. This appeared in today's edge daily - SMEs stand a chance to win an award for the most innovative product at the upcoming 17th International Invention, Innovation, Industrial Design and Technology Exhibition 2006 (ITEX '06) organised by the Malaysian Invention & Design Society (MINDS).

See here for details.

I wonder who and what product will win!

Thursday, January 12, 2006

For Boleh-hood's sake, our SMEs better be innovative!

Innovation is key to economic progress and Malaysia is certainly not spared from this. But just how innovative are Malaysian SMEs?

Innovation is not just about inventing the latest and greatest gadget or discovering the cure to cancer but can be about small and incremental steps taken to improve organizational processes or existing technology.

There are few studies available about innovation among Malaysian SMEs. A paper* by Hobday from University of Sussex has some interesting findings.

His paper seems to lend credence to our fixation with Foreign Direct Investment (FDI) – it appears that when multinational companies invest in this country, there is evidence of innovation being transferred via their local subsidiaries. These transnational companies or TNCs are defined as Group 1 companies which include the likes of Sony & Motorola.

Group 2 companies are the SME linkage companies that have spun off from TNCs and still supply to them.

Group 3 companies are the large local conglomerates like LIKOM, Sapura etc that have forged partnerships with foreign MNCs and supply both domestic and export markets.

Finally Group 4 companies are the rest of the low-tech local companies that focus on low quality, low value-added goods and activities for the domestic market. The paper finds that in these companies, “management practices are poor, technology lags behind the other groups and investments in training are low. The majority of Group 4 firms supply low technology indirect materials and services, such as packaging supplies, freight services, brackets, TV cabinets, power cords and cables.”

The summarized findings are that:

1) Innovation has occurred because of TNCs.
2) Innovation is not radical or R&D based but incremental driven from the needs of competitive manufacturing.
3) Overseas technology transfer to Malaysian TNC subsidiaries did occur and mainly for the benefits of realizing cost reduction.
4) There is still some way to go to improve backward linkages between TNCs and local SMEs. It appears that most TNCs are isolated from the local economy, sourcing instead from only a handful of suppliers and even other TNCs.
5)Technical vocation education lags behind industry needs and as costs continue to rise, multinationals may begin to question their investments in Malaysia.

So are our SMEs innovative enough? It appears not as much as they should but they are certainly not standing still which is encouraging.

Now to see how well we can encourage the vast majority of Group 4 companies to upskill themselves and bring more innovation into their organizations.

In the spirit of Boleh-hood, I am sure our government wants to see the next Acer or Samsung to emerge from this country.

*Full paper available here.

Friday, January 06, 2006

Instant Entrepreneurs? Just Add Water...

“In spite of the cultural aspirations towards being the boss and the involvement in family
enterprise, certain Taiwan officials also suggested that starting a SME is something that is
done only after proving you can be a good employee. For example, to qualify for
entrepreneurship training programs of the China Youth Career Development Association, the young person must be at least 23 years old and have 3-5 years of experience working for an employer.” (Patterns & Trends in Entrepreneurship/SME Policy & Practice in ten economies)

This excerpt from a report on Taiwanese SMEs got me worried somewhat that in the bid to develop an entrepreneurial class, our government may be in too much of a rush.

Case in point is the Graduates Assistant scheme or Scheme PROSPER Siswazah “aimed at inspiring, guiding and developing young Bumiputera graduates to be entrepreneurs in the retail sector.” The requirements appear a bit too simple and only require that candidates be able to finance a minimum capital of RM500 and attend all PUNB courses. Of course these candidates still have to go through some form of assessment and presentation of their business proposal but wouldn’t they be more successful if they had some exposure to the ‘real’ working world first?

Chicken or egg you say? If they were employable in the first place, they wouldn’t have needed to have ventured into their own business right? Well from the hoo-ha generated in last year’s headlines about how 60,000 Malaysian graduates couldn’t be employed, it appears it is not just the issue of choosing the wrong course of study but also that of attitude – students are simply being churned through the system to produce results with little emphasis on character building or communication skills. This blog talks extensively about the state of education in our country http://educationmalaysia.blogspot.com/

Wednesday, January 04, 2006

What's up for SMEs in January 2006

I thought I might make this blog that little bit more useful by highlighting events relevant to the SME community. Any of you out there who feel there are events of interest to SMEs do let me know!

7 Jan 2006
"Government Government Financing & ICT Aid for SMI/SME: A forum with SMIDEC, SME Bank & MIRC", Nibong Tebal, Organised by MIRC.
http://www.mirc.org.my/misc/Forum_for_SMIs_and_SMEs.doc

9 Jan 2006
"Enhancing E-Biz Entrepreneurship", Equatorial Hotel Penang, Organised by Young Entrepreneurs Society of Penang.
http://www.yespenang.org/eee

24-Jan-2006
"Workshop On Financial Assistance for SMEs ", KL, Organised by SMIDEC.
http://www.smidec.gov.my/

Tuesday, January 03, 2006

Just how many SMEs are there in Malaysia?

Just how many SME’s are there in Malaysia? It depends on where you look:

800,000 – Datuk Donald Lim, Deputy Information Minister, Dec 2005
349,617 –Department of Statistics Census, 2005 (Baseline Census of Establishments & Enterprises)
690,000 – Oracle, 2003
625,600 – DBS Bank report, 2005

Whatever the actual number, there are certainly a LOT and that is why the government has decided to pay so much attention to them.

The 2005 Baseline Census on Establishments and Enterprises was undertaken in 2005 by the Department of Statistics (which is now officially, LAST YEAR!) with the objective of collecting the following information:

- Main activity of the establishment and ownership structure
- Income from sales of goods and services
- Purchase of goods, materials, and industrial services
- Opening and closing stock position
- Value of assets and liabilities
- Sources of financing and access to credit
- Access to technology, research and development and accreditation
- Marketing and promotion
- Characteristics of employment & salaries and wages

I think this has something to do with the GST (Goods & Services Tax) introduction in 2007 but we should soon know the findings (fingers crossed) by June 2006 when the National SME Development Council convenes again.
And who’s in the NSDC? Well just about everyone:
The Prime Minister (Chairman)

II. Minister of International Trade and Industry
III. Minister of Domestic Trade and Consumer Affairs
IV. Minister of Entrepreneur and Cooperative Development
V. Minister of Agriculture and Agro-Based Industries
VI. Minister of Human Resource
VII. Minister of Finance II
VIII. Minister of Energy, Water and Communications
IX. Minister of Plantation Industries and Commodities
X. Minister of Science, Technology and Innovations
XI. Minister of Tourism
XII. Minister of Rural and Regional Development
XIII. Minister of Education
XIV. Minister of Higher Education
XV. Minister of Housing and Local Government
XVI. Minister in The Prime Minister’s Department (Y.B. Dato’ Mustapa Mohamed)
XVII. Governor of Bank Negara Malaysia
XVIII. Director-General of the Economic Planning Unit
XIX. Chief Executive Officer of the Multimedia Development Corporation
Bank Negara Malaysia serves as the Secretariat to the Council.