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.
posted by hew @ 11:01 am
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