Fostering Creation of Next Generation Innovative Tech Co Malaysian Policy Report May 2011 DR Siva

Fostering the Creation of the Next Generation of Innovative Technology Enterprises
Fostering The Creation of the Next Generation of Innovative Technology Enterprises in Malaysia
xx
A Policy Paper for the Special Innovation Unit of the Prime Ministers Office of Malaysia 20th May 2011 by Dr. Sivapalan Vivekarajah & Ms. Renuka Sena
Prepared for the Unit Innovasi Khas, Prime Ministers Office, Malaysia
FOSTERING THE CREATION OF THE NEXT GENERATION OF INNOVATIVE TECHNOLOGY ENTERPRISES IN MALAYSIA
By Dr. V. Sivapalan & Ms. Renuka Sena 20th May 2011
Chapter Brief
This chapter deals with the innovation issues related to small and medium sized innovative technology enterprises (SITEs). As one part of a larger study being conducted by UNIK, we explore the innovation status and problems and issues faced by SITEs and propose recommendations and implementable actions that can be taken by the respective parties to solve these problems and assist SITEs to grow and contribute to the Malaysian economy and employment. Definitions There are several definitional issues we would like to clarify before we proceed to the report and recommendations. Innovation There are many different definitions for innovation and some people confuse innovation with invention or creativity and other use these words interchangeably. As an example, the Merriam-Webster dictionary defines innovation as the introduction of something new and a new idea, method or device, while it defines creativity as to make or bring into existence something new. Invention is defined as a device, contrivance, or process originated after study and experiment. These dictionary definitions are of little help to us as they contribute little to increasing our understanding of innovation and even confuse the meanings of innovation and creativity. Dr. Edward Roberts a Professor of Technological Innovation, Entrepreneurship, and Strategic Management at Massachusetts Institute of Technology coined a more useful definition. He defined it as Innovation = Invention + Exploitation. Innovation in business and society is therefore an invention that is exploited to create value, either business value or a benefit to society. Invention is derived from research and development (R&D), while value is created through the exploitation or commercialisation (C) of the invention. In
simple terms we can define innovation as Innovation = R&D&C. This is a concept that embraces both the dictionary definition as well as the generally used business definition. In this study therefore we define innovation as the exploitation or commercialisation of inventions and research & development, to create economic and social value.
Innovative Companies
We define innovative companies as companies that are the creators of innovation who own their own Intellectual Property.
SITEs
We define SITEs as Small and Medium Sized Innovative Technology Enterprises. By small and medium we use the SME Corporation definition as follows: Industry or Sector Small Enterprise Medium Enterprise Manufacturing, Sales turnover between Sales turnover between Manufacturing-Related RM250,000 and less than RM10 million and RM25 Services and Agro-based RM10 million OR full million OR full time industries time employees between employees between 51 5 and 50 and 150 Services, Primary Sales turnover between Sales turnover between Agriculture and RM200,000 and less than RM1 million and RM5 Information & RM1 million OR full time million OR full time Communication employees between 5 employees between 20 Technology (ICT) and 19 and 50 Our report and recommendations are provided below. We hope this study and our Recommendations and Execution Points will further the objective of UNIK (Unit Innovasi Khas or Special Innovation Unit) and the nation in making innovation the key driver of the economy and towards achieving the goals of the New Economic Model of making Malaysia a High- Income, High-Value economy. Authors of the Report: Dr. V. Sivapalan and Ms. Renuka Sena
CONTENT OUTLINE
1.0 Introduction 1.1 1.2 1.3 Project Description & Objectives Modus Operandi Towards a High Income Economy 1.3.1 Contribution Towards the Economy 1.3.2 Contribution to High Income Society 1.4 2.0 2.1 Structure of Recommendations Pave the Footpath 2.1.1 Entire Ecosystem 2.1.2 Entire Lifecycle 2.1.3 Being Colour Blind 2.2 Sector Selection 2.2.1 Be Sector Agnostic 2.2.2 Let Markets Drive Sectors 2.2.3 Support Existing Sectors with Strong Market Players 2.2.4 Summary 2.3 Micro Actions 2.3.1 Small Things Make Big Differences 2.3.2 Execution Policy More Important than Macro Policy 2.3.3 Always Engage Market Players 2.4 Government Policy and Role Rethinking Necessary 2.4.1 Policies to be Market Driven 2.4.2 Manage Inter-Disciplinary Nature of Innovation 2.4.3 Reform Bureaucracy and Rewards Success and Meritocracy 2.4.4 Summary 3.0 Contribution of Funding Mechanisms to Innovation 3.1 3.2 Grant Mechanism Big Picture Standard Timelines and Documentation 3.2.1 Client Charter and Rule of 4 Macro Recommendations
3.2.2 Standard Client Charter for ALL Grants 3.2.3 Standardise Documentation and Due Diligence 3.3 Lack of Commercial Evaluations and Expertise 3.3.1 Lack of Commercial Evaluations in Grants 3.3.2 Lack of Expertise in Processing Applications 3.3.3 Standardised Voting Mechanism for Approval 3.3.4 Set Up Shared Database of Experts 3.4 Lack of Transparency 3.4.1 No Transparency in Processing Applications 3.4.2 Publish Recipient Projects, Amounts as well as Resources 3.4.3 Set up Shared Database of Physical Assets and Resources 3.5 Low Returns from R&D Funding 3.5.1 Include Commercial Evaluations for ALL Grants 3.5.2 Include Allocation within Grants for Commercial Activities 3.5.3 Tracking Mechanism on Commercial Aspects 3.6 Lack of Commercialisation Funding 3.6.1 Create a Balance between R&D and Commercialisation Funding 3.6.2 Incorporate Commercialisation Activities in al Pre-Seed, R&D and Pre-Commercialisation Grants 3.6.3 Increase Human Resource Allocations in Commercialisation Funding 3.6.4 Incorporate Voucher Mechanism in ALL Grant Funding Programs 3.6.5 Summary 4.0 Market Dynamics 4.1 4.2 Market Dynamics - Big Picture Market Accessibility 4.2.1 GLCs to Buy Local : Firm Direction Needed 4.2.2 Priority for Certified Companies 4.2.3 Build A Culture of Trust 4.2.4 Set up Labs for Local SITEs to Test Bed Innovations
4.3
Market Adoption 4.3.1 Need to Boost Adoption 4.3.2 Incentivise Adoption 4.3.3 Remove Benefits that Restrain Adoption of Technology 4.3.4 Additional Incentives for Early Adopters of Technology
4.4
Go Global and Exporting Innovations 4.4.1 Increase Funds for Export Promotion 4.4.2 Have More Tech-Knowledgeable Staff at Matrade Offices Abroad 4.4.3 Move Agencies from Industrial to New Economy 4.4.4 Special Programs to Promote Global Access 4.4.5 Matrade Export Accelerators (MExA)
4.5
Government Role and Contribution to Market Dynamics 4.5.1 Policy Making to Engage Market Players 4.5.2 Quarterly Problem Solving Dialogues 4.5.3 Government and GLC Procurement Transparency and Meritocracy 4.5.4 One Stop Centre for Complaints and Problem Resolution
5.0
Stakeholder Dynamics 5.1 5.2 Stakeholder Dynamics Big Picture Empowering Agencies 5.2.1 Move Agencies to PMO and Empower them Adequately 5.2.2 Remove outdated Policies and Shackle Companies 5.2.3 Improve Recognition of Certified Companies Among Public and Corporations 5.2.4 Help Companies Engage GLCs and PLCs. 5.2.5 KPIs to be Success Drive and Not Numbers Driven 5.2.6 Data Collection to be Better Utilised to Help Companies 5.2.7 Create Success Stories by Backing the Best Companies All the Way 5.3 Institutional Roles and Responsibilities 5.3.1 Developmental Financial Institutions to Support Innovation 5.3.2 Institutions Need More Knowledgeable Staff
5.3.3 SME Corp to Update and Upgrade 5.3.4 IHLs to Provide More Market Driven Education and Training 5.3.5 Promote Risk Taking By Amending Bankruptcy Laws 5.3.6 Eliminate Corruption in Technology Sector 6.0 Contribution of existing funding mechanisms to innovation 6.1 6.2 6.3 6.4 6.5 6.6 6.7 Right Kind of Support for Right Kind of People Policies Should Pave the Footpath Policy of Positive Engagement Innovation is Inter-disciplinary Dont work in Silos Agencies and Organisational KPIs should be more Market, GNI and Employment Driven Reduce Monopolies to Promote Innovation Lucky Country
Appendix A: Integrated Grant Management System Appendix B: Further Details Of Recommendations And Execution Plans For The Grant Mechanisms In Chapter 3
Chapter 1: Introduction
1.1
Project Description and Objectives
In the technology sector, anecdotally it is accepted that many of the most innovative enterprises in the world started as small enterprises, which then grew to be large enterprises or were acquired by the larger corporations to enhance their own innovative products and services. Most new or disruptive innovations are created by small and medium sized innovative technology enterprises (SITEs) whereas the larger corporations are mostly the creators of incremental innovations. Hence larger corporations acquire these SITEs for their innovations or innovation capabilities, thereby ensuring their continued dominance in their industries. This Study will review the status of innovation by SITEs primarily in the Information and Communications Technology (ICT) and Biotech sectors and also the Green Technology sector even though this is still a relatively new sector in Malaysia. It explores their contribution to the economy and secondly to recommend proposals and policies to foster the growth and development of these SITEs to ensure that their contribution to the national agenda of a High Income, High Value economy and Vision 2020 is maximized. The objectives are to recommend policies and proposals to: 1. Foster high-growth and innovation-based entrepreneurship 2. Increase innovation among ITEs 3. Promote an open, dynamic market for innovative products and services 4. Support open public funding markets that allocate resources to the most promising ideas 5. Promote the exports of products and services regionally and globally 6. Ensure that there is a vibrant and supportive ecosystem for ITEs The report will include recommendations based on best practices and policies from other countries that are relevant to the growth of Malaysian ITEs.
1.2
Modus Operandi
This study will incorporate when appropriate the following strategies: extensive stakeholder interviews and dialogues; reviews; benchmarking; data collection via surveys with industry players and related stakeholders; data analysis and stakeholder reviews. However, the bulk of the study and recommendations are based on what we call a bottoms up approach, where we examine the problems and issues faced by
the beneficiaries of the policies, the innovators and SITEs themselves and provide recommendations based on what they want and need, based on their own input. Currently most Government policy normally adopts a top down approach where civil servants and consultants create policies based on benchmarking with other countries and assume that this is what the beneficiaries need and then create policies for them. The process of consulting these beneficiaries is seldom done in great detail and rarely done on a face-to-face basis. This has resulted in policies that dont meet real needs and sometimes policies are inappropriate and downright hated by the companies who find that some of these policies stifle growth rather than promote growth. We are strong believers in the strategy to Pave the Footpath, which we explain in Chapter 2 below, which essentially means providing policies that benefit everyone regardless of industry or sector and we believe strongly that this must always be done in consultation with the beneficiaries of the policies themselves and not done in isolation from them. In doing this study we have had consultations with three groups of companies and associations in the three sectors mentioned above (ICT, Biotech & Green), which are the primary innovative sectors in Malaysia with the largest number of SITEs who create and own their own Intellectual Property (IP). While there are many other technology sectors like the Electric and Electronic (E&E) and Oil & Gas (O&G) sectors, there arent as many SITEs in these sectors who are IP creators compared to the three sectors we have studied. We have had consultations with the following: 1) Technopreneurs Association of Malaysia (TeAM) 15 members 2) Biotech Corp 15 members 3) PIKOM 10 members 4) Green Tech industry 30 members Consultations include in depth discussions and dialogues to understand the issues that impact these industry sectors, their problems and their policy suggestions to improve the ecosystem for SITEs to thrive and grow. Additionally, the recommendations were also presented and tested with the ICT, Biotech and Green entrepreneurs in a separate session prior to the finalisation of these recommendations to obtain their confirmation and validation of our policy recommendations and proposals.
1.3
In line with the Government initiative of the New Economic Model our study and proposals have been made with the objective of creating companies that contribute positively towards:
Towards a High Income Economy
a) The Economy and GDP, and; b) High income employment 1.3.1 Contribution towards the Economy Our study covers the innovative SITEs of ICT, Biotech and new technology areas including Green technology. In terms of contribution to GDP, in ICT, MSC Malaysia's value add contribution to Malaysia's economy was recorded at 1.2% of Gross Domestic Output of Malaysia in 20071, while Biotech contributed 1% to GDP in 20092. We arent able to assess Green Techs contribution, as this is still a nascent industry in Malaysia. Even for both ICT and Biotech, while the GDP contribution was measured in terms of their firms actual revenue contribution, their real contribution to the economy includes the expansion in the use of ICT and Biotech within businesses and the consequent increase in productivity of those industries in Malaysia. For example, ICT is being used in all sectors from retail to manufacturing to banking to construction while Biotech is used in sectors from agriculture to industrial to healthcare. The use of these technologies to increase productivity, reduce costs and increase revenues all make a significant though indirect contribution that is currently not being measured in terms of their contribution to GDP. The point we wish to make is that one cannot value these sectors contribution to GDP or Gross National Income only in terms of its DIRECT contribution as measured in the New Economic Model (NEM). Their indirect contribution is also immense and is probably greater than their direct contribution hence they are extremely important sectors for the economy. Even the firms own contribution could have been more impactful on GDP had Malaysian SMEs adopted more technology within their own businesses and if the larger companies and GLCs supported local technology instead of using foreign technology. The problem with ICT and Biotech is not that there is a lack of technology creation but a lack of technology adoption by Malaysian companies both SMEs and larger companies. If we fix the adoption problem, their direct contribution to the economy and overall contribution to the business sectors productivity increase and profitability will increase total contribution to the economy and GDP. So, while current statistics show only a low level of contribution by technology companies towards GDP, this can be significantly improved with the right kind of policies and proposals and the proper execution of these policies coupled with increased adoption by businesses.
MSC Malaysia Impact Survey 2008 st As stated by CEO of Biotech Corp to New Straits Times on 21 March 2009. http://www.biotechcorp.com.my/pages/20090321_BiotechSectorConfidentOfHittingGDPContributionGoa l.aspx?AudienceId=1
2
10
1.3.2 Contribution to High Income Society We must also differentiate between a sectors contribution to GDP and its contribution to a High Income economy. For example, while there is no disputing the contribution of the plantation sector to GDP, however, its contribution to a High Income economy is minimal. Other than management level staff in the few companies that own plantations and perhaps at the estates, the rest of the workers are low-income employees while a majority of estate workers are actually lowly paid foreign workers. Based on a minimum standard of RM4,000 per month in earnings as being a relatively high-income salary, most estate workers would earn far below this, thus their moniker of low-income employees. The good news is that the high technology sector is a significant contributor to the Governments drive towards a high-income economy. Statistics by the Multimedia Development Corporation and BiotechCorp show that significant numbers of the employees in MSC Status3 (74.2%) and Bionexus Status4 companies (50%) respectively are knowledge workers who earn above RM4,000 a month, thereby contributing to an annual per capita income of RM48,000 or USD16,000 which already meets the Governments New Economic Model target of a per capita income of USD15,000 by the year 2020. It is therefore imperative that the innovative technology sector be promoted and supported as a driver of growth and developed further to help achieve the NEM objectives especially of creating a high income society. 1.4 Structure of Recommendations We have structured our recommendations in the following manner. We have divided our study and proposals into three distinct areas: a) Firstly we have our Headline Topics as follows: (i) Macro View where we look at macro policy decision making and issues (ii) Grant Mechanisms the main funding methodology that we reviewed (iii) Market Dynamics which includes market access and adoption, two of the most important commercialisation and value creation problems faced by innovators and; (iv) Stakeholder Dynamics where we study several Government stakeholders, especially the Agencies and Institutions that impact on innovation
3 4
MSC Malaysia Impact Survey 2008, Employment Outlook Malaysian Biotechnology: Human Capital Development Report 2009
11
b) Secondly, within each of the Headline Topics we have our general Recommendations, which are the main recommendations we propose in this study. We have a total of 15 Recommendations, which use the abbreviation R. c) Finally, we have Execution Points (EP), which are the actual actions to be taken by UNIK or the relevant stakeholders to execute the recommendations we have made. These are implementable actions that are the key to the success of our Recommendations. We have a total of 76 Execution Points. We shall now proceed to the actual recommendations of this study.
12
In preparing our recommendations, we have identified a set of Macro Recommendations that will be the guiding platform for the study and our policy recommendations. This is represented in Table 2.1 below and will be expanded further in this introduction.
Chapter 2: Macro Recommendations
2.0
Macro Recommendations
There are four key Macro Recommendations Paving the Footpath, Sectors and Focus Policy, Micro Policy Actions and Government Policy and Role Rethinking.
Why have a Macro View? Policies cannot be formulated without proper consideration of the impact they will have not just on the beneficiaries we identify but also on the whole ecosystem. Furthermore, on researching the best possible policies to have the greatest possible impact, we have also studied other markets and nations and have explored experiences and practices elsewhere to ensure that we create the best possible policies for Malaysia.
13
2.1 Pave the Footpath R1: We recommend that in formulating policy the Government adopts the strategy of Paving the Footpath where policy is driven by the market and policies should focus on making the entire ecosystem better for ALL innovators and Entrepreneurs. Prof. Daniel J. Isenberg, Professor of Management Practice at Babson College and Executive Director of the Babson Entrepreneurship Ecosystem Project coined the term Pave The Footpath in his influential Harvard Business Review article How To Start An Entrepreneurial Revolution.5 He believes that Governments should not dictate the direction of economic activity, especially predicting the future of business activity including the formation of economic clusters or selected sectors to push. Instead they should observe what Entrepreneurs are doing and build economic activities around them to help them do better. To quote Prof. Isenberg, They [meaning governments] should observe which direction entrepreneurs take and pave the footpath by gently encouraging supportive economic activity to form around already successful ventures, rather than planning new sidewalks, pouring the concrete, and keeping the entrepreneurs off the grass. Government policy should therefore be driven by the market and policies should focus on making the entire ecosystem better so that Entrepreneurs can do what they do best: build companies, hire people and create successful ventures that contribute to economic activity, the GDP of nations and to employment. Our study therefore does not focus on specifics, instead it is focused on making the entire ecosystem better for all Entrepreneurs/Innovators so that everyone has an equal opportunity to thrive and succeed no matter what happens in the future, especially in the arena of technology Entrepreneurship and innovation where changes are rapid and unpredictable. We propose the following Execution Points to ensure the successful application of this Recommendation. 2.1.1. Entire Ecosystem EP1: We propose that innovation policies focus on the promotion and enhancement of the entire ecosystem and not just on selected sectors or industrial clusters or parts of the ecosystem. Our Footpath is the entire ecosystem. Although we have covered only parts of the ecosystem (the short timeframe for this study means we have to focus on the most important areas) we hope that future policy studies incorporate the
5
Harvard Business Review, June 2010
14
Footpath ideology so that all players (Entrepreneurs and Innovators) will benefit from more holistic policies. A representation of the Entire Ecosystem is provided below, in Figure 2.1. We use the model devised by Prof. Isenberg as that is a complete representation of the Entrepreneurship Ecosystem.
Figure 2.1: Map Of The Entrepreneurship Ecosystem. To paraphrase Lewis Carroll, if you don't know where you are going, any road will get you there. We use the phrase, "entrepreneurship ecosystem," but without a map, how will we know if we have one? Here is a simple map of 13 elements of an entrepreneurship ecosystem: these are elements that all must exist in order for an entrepreneurship ecosystem to be self-sustaining.... Encourage and empower each of the hyper-local initiatives to cultivate all 13 elements of their own entrepreneurship ecosystem, in ways that are unique to them.6
Daniel J. Isenberg in the Harvard Business Review Blog topic President Obama can make Startup America succeed. Wednesday February 2, 2011
6
15
We do not cover all aspects in this study, merely the following: Government, financial capital (primarily grants), entrepreneurial organisations (we call them stakeholders), economic clusters (Biotech, ICT and Green tech) and customers (market access). Other researchers are looking at the other aspects of the innovation ecosystem and innovation stakeholders that we hope will bring about better policy making. It is our fervent belief that Malaysian policy makers must consider the entire ecosystem in future policy decisions, as incomplete policy making will lead to ineffective policies as has been proven in the past. As an example, we have spent billions on R&D and filing patents but we never first addressed whether these patent applications have any commercial potential or in fact, whether registered patents can be commercialised. Similarly companies have been funded without first conducting any meaningful assessment of the companies products (networks, support services and customers) and whether there is a ready market for commercialisation. We also created economic clusters (MSC, Biotech, Green) but did not address education and financial capital (more than just R&D grants). This lack of a holistic policy has led to billions in wasted funds and not enough return on investment. We have created some success stories with many listed ICT companies but it could have been much, much better if we had addressed all parts of the ecosystem. 2.1.2 Entire Lifecycle EP2: Policies must not just cover the entire ecosystem but also the entire lifecycle of entrepreneurial ventures. In the past policies and support have been seriously imbalanced mostly towards venture or R&D creation while policies for venture growth and R&D exploitation were seriously lacking. This led to the creation of entrepreneurial startups but mediocre growth of these startups and many patents and inventions but poor exploitation of these creations. The problem here is twofold. Firstly, the focus of policy has been on creation with very little regard paid to the exploitation of the technology and secondly, no regard has been paid to enhance adoption of the technologies being created. Our policies have not been holistic and we continue to make this mistake even today. Figure 2 below represents the entire lifecycle of the business venture from idea to maturity. It will be clear to policy makers that the focus has been very one- sided if viewed from the perspective of Figure 2. Most of the money has been
http://blogs.hbr.org/cs/2011/02/dear_president_obama_how_to_ma.html
16
spent on discovery and R&D, some on prototype and product design and a smaller amount on the early stages of commercialisation. Much of policy has also been focused on patent creation with very little on commercialisation. A few of the agencies have dealt with the growth aspects but there has been little thought given to helping innovative companies at their most vulnerable stage, the early customers and growth stage. This is where failure happens. If they fail to get market adoption in the early stages of commercialisation then the venture will fail and everything that the government spent on them is lost. This is the reason for the poor ROI on government investment in innovation. Policies should be more holistic and balance the need between creation, exploitation and growth. They should therefore be designed for every stage of the lifecycle of a business venture or at least from Discovery to going Global.
2.1.3 Being Colour Blind EP3: Innovation policies must be colour blind, they must not favour any groups or sectors and must be completely transparent and meritocracy based. During the consultation process this issue was brought up many times by Entrepreneurs who feel that in the rapidly changing arena of technology and innovation, the best way to ensure success is to ensure that policies are based on meritocracy and only deserving projects and entrepreneurs are provided the support they need.
17
As Government resources need to be allocated more carefully in the future, policies that benefit only certain classes of people should be avoided. Transparent, merit based policies will always ensure the biggest bang for the buck. By cutting out leakages and removing barriers to ensure only the deserving are supported we will give the best companies a real chance of creating success stories that will ultimately benefit the nation as a whole. Furthermore, in market access, the Government and GLCs are the biggest buyers/users of technology. By being colour blind we can remove the middleman from the equation and this will in almost all cases ensure better delivery of products and services at the best price. In far too many cases, favoured middlemen have been nothing but rent seekers who collect their money upfront, delay payments to the real companies that deliver the project and in many cases use up the money allocated for the project for personal use and thereby cause the project to be abandoned because the real companies are unable to deliver because of cash flow problems and because payments are never made for services delivered. This is one of the worst kept secrets in the technology space and this is the main culprit that leads to the low profitability of technology companies. Worse still, technology companies are then black-marked or stigmatised because of their inability to deliver and those that do deliver, are sometimes almost bankrupted in their attempt to ensure customer satisfaction and therefore cannot sustain themselves for the long-term. If projects were awarded based on merit and best price basis, then the best companies will win the projects they will deliver the project on time and make a decent profit. This profit will then be utilised to further grow the company and hire better people and ultimately lead to bigger and more successful companies. The Government probably realises this but has not acted on this information to create merit based procurement policies. This is one of the biggest causes of failure among innovative companies. The Government can cure this problem immediately and if it wants to ensure the success of all the support and public funding provided to companies then it must fix this problem or company growth will always be stunted. 2.2 Sector Selection R2: We recommend that in formulating policy the Government adopts a sector agnostic policy outlook and formulates policy based a market driven approach, where Entrepreneurs and Markets Create Clusters and not a policy where Clusters Create Entrepreneurs. Cluster creation and sector picking have been an activity that many governments have been doing for years. Yet there has been very little success when governments do this. Adherents mention Korea and Taiwan as companies that
18
picked sectors and created success but this is not what they did, at least not the way proponents of the theory think they did. Cluster thinking was first derived from Prof. Michael Porters analysis in The Competitive Advantage of Nations. However, most people mistook his analysis for which he provided this response in a Harvard Business Review article in 1998. Governmentshould reinforce and build on existing and emerging clusters rather than attempt to create entirely new ones. In fact, most clusters form independently of government actionand sometimes in spite of it. They form where a foundation of locational advantages exists. To justify cluster development efforts, some seeds of a cluster should have already passed a market test 7 Even in Korea and Taiwan, they already had heavy industries and electronics industries respectively when they chose to focus and promote them further by forming clusters. It was not initially driven by the government and this is still the best way to form clusters, around the initial success of the market. 2.2.1 Be Sector Agnostic EP4: We recommend that the government be sector agnostic in creating innovation policy. Creating new sectors should only be undertaken when there is market demand and not because of resource availability, prioritising by academics or other reasons. Yet government is also notorious for its ability to misread technical change Matt Ridley in The Rational Optimist, 2010 The Government should not presume to know whats best for the country or industry or what the future holds. Sector selection should be market driven or industry driven and not Government driven. Hence Government policies where some sectors are selected over and above other sectors for special treatment should be avoided. History has shown that sector selection has failed and has serious repercussions on the economy and on businesses. As recently as the last 5 years, due to the rise in oil prices and because of the drive towards renewable fuels, the Government pushed heavily for the use of palm oil as biodiesel. This sector was endorsed by the Government and 100 licences were given out as well as loans and grants towards making Malaysia a leading player in biodiesel. Five years later almost all the biodiesel companies that started factories have either closed down or are seriously floundering in deep red ink. Hundreds of millions of Ringgit in investment both by the Government and by industry players has been lost. Can we predict with any certainty whether the agro-biotech sector or even Green industries will continue to drive innovation as well as both economic and high
Clusters And The New Economics Of Competition, Harvard Business Review, 1998
19
income employment over the next 10 or even 20 years in Malaysia? At best we can guess, cross our fingers and hope for the best. Furthermore sector selection should not be too narrow either, unless there is a market driven reason for it (as we shall see later in relation to Creative Content). Hence picking a niche sector within a broader sector (like agritech a niche sector within the broader biotech sector) should be avoided. There may be too few companies and employment levels also may not be high enough to make this a success. Finally, creating new sectors is a long-term game. With MSC Malaysia it took 10 years before it bore fruit and with the Biotech sector after 5 years we still only have less than 150 Bionexus companies. It will easily take Biotech another 5 to 10 years before the investments bear fruit. Creating a new cluster now will mean not just another 10 years wait but also all the investments we made in prior sectors will be wasted. Technological changes today are too fast paced for anyone, whether Government or Consultants, to make proper future predictions on where sectors are heading. We strongly recommend that the government be sector agnostic in creating innovation policy. Our recommendations have been based on being sector agnostic. 2.2.2 Let Markets Drive Sectors EP5: Sector selection should be market driven or industry driven and not Government driven. Hence in creating policies policymakers should study the market, understand the position, needs and wants of market players and formulate sectoral policies only where there exists a groundswell of companies whose growth and activities that can be further enhanced with relevant policy. Clusters dont create entrepreneurs. Entrepreneurs create clusters Prof. Michael Porter, 1999 In formulating policy and in driving clusters or sectors we should let the markets drive sectors. Hence we should focus on existing sectors that already have many market players and help these sectors to grow and thrive. Over the last 15 years we have created market players in ICT and Biotech. Although Biotech will still need another 5 years to contribute meaningfully to the country, the fact remains we have some market players in this sector and many innovations. We also have other market driven innovative sectors like Electrical & Electronics but not many others. Many of the drivers of the economy are in primary resources or manufacturing (mostly non-innovative manufacturing). Even in the
20
burgeoning sector like oil and gas, while contribution is high, innovation by locals is not meaningful. The same goes for the agricultural sector. So what should we focus on? Certainly not in creating new clusters or sectors like agriculture or oil and gas or other primary resources but in creating an ecosystem in which ALL these sectors can thrive. Innovation policies must be sector agnostic but market driven, so that any sector in which there are market players who want to innovate will be given all the help they need. And if within these players a cluster develops, then and only then should we spend more money and resources in helping that sector to thrive and grow faster. Just like in all our policies, we seem to be leaning towards the creation element and not in the growth element. Just like we seem to fund R&D and not commercialisation, even in this matter we seem to be creating more and more but not supporting the growth once we have succeeded with creation. This is shown in Figure 3 below where we transpose the Malaysian Policy Lifecycle onto the Business Venture Lifecycle of Figure 2 above to show that we do the same thing in policy as we do in the businesses we fund. We do plenty at the beginning and then stop just when the growing baby needs the most help. We seem to have no follow through, but we like to create new things. For once we should just follow through existing policies to its ultimate conclusion and ensure complete success. Dont keep reinventing new things, just finish what we have started.
21
The case against new clusters or new sectors where there isnt a thriving market place of companies and innovators is that to create new sectors means another 5 years of a learning process, 5 years that we dont have. What we do have is an already thriving ICT sector and a Biotech sector thats on the tipping point of commercial success. We must not ignore years of spending and commitment to these sectors just to create yet another cluster or sector. The market is working, the companies have been created, innovations funded, people have the experience, now is the time to reap what we sow. 2.2.3 Support Existing Sectors With Strong Market Players EP6: The Government should concentrate on existing sectors with strong market players and large market potential and formulate policies to further enhance these sectors. The Government should move away from creation and focus more on growth and enhancement. Where there is already in existence some specific sectoral strengths like in the Creative Content sector or the agro-biotech sector, then further policy enhancements are encouraged because it is already market driven and additional policies will further the growth of this sector. The Creative Content sector has shown much promise and even has made an impact globally primarily with the support of MDeC. It is a bubbling cauldron of young enthusiastic companies creating content on a global stage. However, it needs to be further nurtured and supported to ensure we create larger global success stories. Similarly, in other sectors where we see market success and many players, those sectors deserve further input and support. 2.2.4 Summary The point we want to make is that picking sectors and industries are best left to the market. The Governments role should be to create the best ecosystem for any sector or industry to thrive and grow. It should not take on the role of the market in deciding what it should focus on. We have made this mistake before; we should not continue to repeat it. Its time we learnt from experience. We need to go back to one core reason for this study and the driving force of the NEM the creation of a high income, high value society. We therefore need to leap-frog and not just catch up. Whilst we are busy floundering in the ditches, regional countries around us are making leaps and bounds Indonesia, Thailand,
22
India and China. Soon our only competitors will be Myanmar, Cambodia and Vietnam! We tend to get bored with sectors and keep looking for new ones. Creating new sectors mean another decade to build industries and companies that can contribute to a high income economy. The high income, high value is not in creation but in exploitation where we exploit all the IP that has been created and help existing companies to grow big and succeed. Every time we create a new sector we spend more and more time and money just to grow them to the right size before they can contribute to the economy. We cannot leap frog by creating, we leap frog by exploiting.
2.3
R3: We recommend that in formulating policy the Government pay as much attention to the micro issues and not just the macro issues. While the macro issues determine what should be done, the micro issues are how these policies are implemented in terms of how it will be done. Malaysias failure has not been in policy creation but in policy execution. We often know what needs to be done, but dont have clear solutions on how it should be done. Hence we must have not just Policies but Executable Policies. 2.3.1 Small things make big differences EP 7: When formulating policy, policymakers must not just consider the macro aspects of policy but also spend an equal if not more time seeking out the little things that make a big difference the small policy measures without which the large macro policies will fail. The norm in policymaking has always been about the big picture and sometimes grandiose projects but often the same small issues persist throughout years of policy making thereby hindering the success of any policy. We have the same problem in Malaysia. Year after year we have the same problems whether it is the 7th Malaysia Plan or the 10th Malaysia Plan. In the end the small things destroy the best laid plans. It might not be sexy, but small things make a big difference in the success of any policy. Simple things like the time taken to process a grant application or the lack of knowledgeable people in some government agencies or even the use of outdated documents can derail the best intentioned policies and ultimately affect the success of the policy. We then blame everyone from policy maker to agency to the beneficiaries for the lack of success. Hence we have not just looked at some macro aspects of policy as stated earlier but we have spent more time seeking out the little things that make a big difference and have highlighted many of them in our recommendations.
Micro Actions
23
2.3.2 Executable Policy More Important Than Macro Policy EP8: Policy must be executable and actionable. Having grandiose plans does not help the economy to grow. Policymakers must ensure that their policies can be successfully executed because many of our policies fail not because of the idea but because of poor execution. In the same way, we have also made sure that all our policy recommendations are easily executable. We have seen over the years many government policies that had great intentions with fantastic plans but could not be executable for various reasons. We take great pains to ensure that the recommendations presented in this study are executable and workable. They are therefore not just conceptual ideas but immediately executable actions that can be done immediately. We dont just describe but we also prescribe and we prescribe actions that are immediately executable. 2.3.3 Always Engage Market Players EP9: Always engage the market players and beneficiaries for whom the policy has been created and who will be impacted by the policy. No policy should be applied unless it receives the go ahead from the market players and beneficiaries themselves. Doing otherwise is a sure recipe for failure of the policy measures concerned. We believe that for policy to work and for it to be effective it must be done in consultation and in collaboration with the market. Policy should never be created in a vacuum and nor should it be created by bureaucrats or consultants in isolation. Policy makers must engage market players because they are the ones impacted by policy and they are the ones who can ensure the success or failure of policy. Furthermore policies must be actually what the market needs and not what bureaucrats think the market needs. There are so many policies that are created ostensibly for the market but the market totally disregards it because thats not what it needs. And oftentimes the market cries out for a particular policy, sometimes for years but bureaucrats dont heed those cries. This is a big, big mistake. The best policies give the market what it needs and continues to listen to the market and provide market needs. Our recommendations are made after extensive consultation with industry. Hence policy makers can be assured that this is indeed what the market wants and needs.
24
2.4 Government Policy and Role Rethinking Necessary R4: We recommend that the Government rethink its role and how it makes policy. The old ways of creating policy and implementing policies without the input of the market should be eliminated. The Government must also review how each arm of Government plays a complementary and coordinated role in implementing policy and helping to ensure the success of policy initiatives. It is still critical that the Government plays a central role in the innovation ecosystem. Malaysia is still in its infancy in innovation and technology Entrepreneurship and still needs the nurturing hand of the Government. Policies and support are still a necessary requisite for the growth of innovation and Entrepreneurship in Malaysia. It may take until 2020 before the Government can afford to play a lesser role that is provided the Government does all the right things today. Entrepreneurs must ultimately be weaned off their Government dependence but until the private sector is strong enough to do this the Government still has to play a major role. However, the Government must rethink their role and how they make policy. The old ways of creating policy and implementing policies without the input of the market should be eliminated. The Government must also review how each arm of Government plays a complementary and coordinated role in implementing policy and helping to ensure the success of policy initiatives. Innovation is by nature interdisciplinary and involves many different Government Agencies and Ministries. However, turf protection and silo mentality means there is very little coordination between these organisations leaving innovators and SITEs frustrated and unable to grow and develop. This goes against the Governments own work to drive a more innovation based economy and will not create a high income economy. 2.4.1 Policies To Be Market Driven EP10: In the future Government has to ensure that its policies are driven by the market and what it needs, as this is the only certain method by which policy objectives can be fully achieved. Policies are created to enhance economic returns, provide jobs and generally contribute to the well being of society. Innovation policies are created so that companies will benefit from these policies and they in turn will contribute to the well being of the nation. However, as often happens policies do not match the needs of its beneficiaries, in this case innovators, and in those cases the
25
contribution to the nation never reaches the ideals or targets set by policymakers. The main reason why this happens is because policies are not matched with market needs. They are not derived from extensive discussions and consultations with the very beneficiaries they hope to help. This gulf between what the market wants and what Government THINKS it wants has to be bridged if policies are to be effective and if they are to ever reach their objectives. Therefore the Government has to ensure in the future that its policies are driven by the market and what it needs, as this is the only certain method by which policy objectives can be fully achieved. The recommendations in this study are derived from extensive consultations with the market and even the recommendations were discussed with the market to seek their opinions and consensus. It is hoped that all future Government policies will be similarly derived. 2.4.2 Manage Inter-Disciplinary Nature of Innovation EP11: The Government has to recognise that innovation can be multi- disciplinary in nature and has to create policies and institutions that enable cross ministry or agency coordination. One common complaint of market players is that innovative companies have a difficult time navigating the various regulatory procedures and requirements because they have to deal with multiple ministries and agencies and often these institutions do not have the ability or mandates to coordinate policy with each other. This causes numerous problems for companies and can hold back the growth of such companies for months if not years in the case of pharmaceutical or healthcare companies. Sometimes it takes superhuman effort to navigate the multiple institutions and in some cases companies just give up. The Government has to recognise that innovation can be multi-disciplinary in nature and has to create policies and institutions that enable cross ministry or agency coordination to help these companies. As an example a neutraceutical product for human health derived from plants by a University researcher has to navigate MOSTI, Ministry of Health, Ministry of Agriculture, Ministry of Higher Education and if funds are needed Ministry of Finance or their agencies. One can barely fathom the type of issues and problems that can crop up at any juncture in the journey through these ministries and agencies. Yet there is an agency called BiotechCorp which can help yet does not have the power or mandate to do this. In such cases a One-Stop Centre (like the MIDA model) that is adequately empowered can do wonders to speed up the process
26
so that companies focus on growth and not on pushing papers from one ministry to the next. Once the Government realises this it should act to ensure the smoothest path possible for all companies in navigating this maze. 2.4.3 Reform Bureaucracy And Reward Success And Meritocracy. EP12: Government must reform its bureaucracy to ensure policies are implemented based on transparency and meritocracy and it must seek out and reward successful ministries, agencies and other institutions based on merit for achieving or exceeding their KPIs. While the Government is seeking out policy changes to further induce the innovation capabilities of the nation and its Entrepreneurs, it should also reform bureaucracy and ensure minimal problems for innovators. This may involve many parties and stakeholders all working in concert towards one goal the betterment of the nation. If bureaucracy reform is not made, we will always continue to have problems and will never see the true potential of Malaysian innovators. In doing so, Government must also seek out and reward successful ministries and agencies and other institutions based on merit for achieving or exceeding their KPIs. Weaker or failed institutions on the other hand should not be allowed to continue as this will weaken the ecosystem. All decisions must be based purely on merit. Anything less will lead to continued failure despite the best intentions of the Government. 2.4.4 Summary In summary, the Macro Recommendations presented above are the first step towards making good policy that will truly assist and help Malaysian innovators and entrepreneurs in contributing to the nation. We can continue to look for the best policies, continue to create more and more policy papers and studies but if we dont do the right things then we will not succeed. Other developing nations are catching up with us. Some who were behind us have overtaken us. If we dont do the right thing now, we will be left behind in the fast moving and rapidly changing world of innovation and business. In the next few chapters we will be providing more specific recommendations that are directly applicable and easily implementable with as little fuss or problems as possible. These recommendations have been formulated to provide for real changes that will have immediate impact on innovation and entrepreneurship leading to immediate benefits.
27
These are not just grandiose ideas and plans that are hard to implement and often do not see the light of day but may sound fantastic. Our recommendations may not create much fanfare but they are designed to solve immediate and future problems and to lead to a better ecosystem for all players. We are paving the footpath for innovators, because thats really all thats needed.
28
Chapter 3: Contribution Of Funding Mechanisms To Innovation

This section looks at one area that is of great concern to companies funding. The main funding mechanisms currently are grants via MDeC, Cradle, MOSTI & Matrade; project financing via Malaysian Debt Ventures (MDV), venture capital via government backed VC funds like Mavcap, Kumpulan Modal Perdana, etc and loans via SME Bank. However, as BCG is doing a comprehensive review of the funding landscape, we have focused only on the funding areas that SITEs have indicated to be their biggest concern. The BCG study is doing a macro review mostly from the perspective of the Government and the Fund Managers while our study is from the perspective of the beneficiaries themselves. Hence while the BCG review is top down, our study is from the bottom up. The fund mechanism that is of the biggest concern to SITEs is the grant mechanism. This is because the dearth of VC funding means most SITEs have come to rely on grants as the primary funder of choice. We did not focus on VC because their impact on SITEs is small and for the SITEs themselves the grant system is of far greater importance. However, the recommendations that we make here apply equally to the soft loans provided by the Government or DFIs. Hence all policy recommendations that we make henceforth also apply to other funds especially soft loans. 3.1 Grant Mechanism big picture The following Table 3.1 provides a big picture of the main problems faced by entrepreneurs and the recommendations that will be provided herein.
29
3.2 Standard Timelines and Documentation R5: We recommend that all fund providers provide standard timelines and use standardised documents for the processing of all funding applications to enhance the evaluation, processing and documentation of all applications. One of the most serious problems with the grant mechanism is the lack of transparency and standardisation on the time taken to process applications. Time to market is important for innovation hence processing time for funding applications is critical. Unacceptable delay will kill innovation. Currently it can take anywhere from 3 months to 12 months for applications to be processed. Often applicants are left in the dark and are unable to even plan their R&D efforts and corporate planning because of the inability to predict timelines for approval. This is not ideal to promote innovation. Furthermore, because of the rapid changes in technology, delays can result in lost opportunities and obsolescence of the R&D proposal. Hence we are recommending that ALL grant providers adopt a standard Client Charter with stipulated timelines that takes into consideration the interests of the applicant, the time necessary to do conduct proper evaluations and due diligences and an acceptable waiting period for innovators.
30
3.2.1: Client Charter & Rule of 4 EP13: Speed Up Processing via a Client Charter We recommend that ALL funding applications be processed and first disbursements occur within 4-5 months of application. All funding providers must adopt a standard Client Charter that indicates how applications will be processed and the timelines for each stage of the process. We further recommend a standardised timeline called The Rule of 4 for adoption by ALL providers. We recommend setting up a Client Charter with the Rule of 4 for all grants. Simply put, The Rule of 4, means that at every step of the application process, the provider must apply either 4 weeks or 4 days to perform any particular task from notification to evaluation to due diligence. The tasks are explained below and a flow chart is provided to clarify the flow of a typical process in a grant application. We are assuming that there are 2 committees or parties that have to approve each application; an initial Evaluation Committee that performs the technical and commercial evaluation of the project and approves or rejects the application. If approved, it will be sent to the final Approval Committee for approval. This is to ensure transparency so that different groups of people are involved in the approval process (see our recommendation below on evaluation process). Step 1: An applicant makes an application for the grant. Step 2: Within 4 weeks from date of application the fund provider must inform applicant whether his application has been rejected or approved for presentation to the Evaluation Committee. Step 3: Within a further 4 weeks from date of acceptance for presentation to committee the proposal must be presented to the respective Evaluation Committee. Notice of approval or rejection must be sent to the applicant within 4 days of the approval committee meeting. Step 4: Within a further 4 weeks from date of approval by the Evaluation Committee the proposal must be presented to the respective Approval Committee. Notice of approval or rejection must be sent to the applicant within 4 days of the Approval Committee meeting. Step 5: If approved, the Letter of Offer must be sent to the applicant within 4 days of the Approval Committee meeting. Step 6: Within 4 working days of the applicants acceptance of the Letter of Offer The project file must be sent to the Lawyers and Financial department for Due Diligence.
31
Step 7: Within 4 weeks Due Diligence must be completed and applicant must be notified of final approval or rejection. Step 8: Within 4 days of satisfactory completion of the Due Diligence, the Funding Agreement must be sent to the applicant. Step 9: Within 4 working days of the signed Agreement the first disbursement must be completed (i.e. mobilisation funds). Post Approval: Disbursements of funds upon meeting milestones must be done within 4 working days of receipt of all necessary documents.
32
Fig 3.1: Flow Chart of Client Charter
33
3.2.2 Standard Client Charter for All Grants EP14: Standardise the Client Charter for ALL Grants To ensure standardisation and ease of monitoring not just for grant providers but also for SITEs, we recommend that the Government institute a standardised Client Charter as proposed in EP13 above for ALL grant providers. Standardisation will help all parties to ensure the highest levels of service and where such service falls below the standard immediate remedial measures can be taken to ensure that grant providers and applicants do not suffer unwanted problems or repercussions from delays. 3.2.3: Standardised Documentation & Due Diligence EP15: Standardise all documents We recommend that all fund providers (grants, loans, etc.) work together to set up a single standardised documentary format and process for all applications. This is especially so in relation to corporate and personal information and documents, certification papers and due diligence reports. This will ease the sharing of information between all organisations. EP16: Set up a database for all documentation We also propose that an electronic database be set up for the storing and sharing of all these documents and information. This should be a technology based database that allows storing of all shared information that can be electronically accessed by authorised personnel at the grant providers and other authorised parties like the MOF and PMO. The database should also allow the storing of due diligence reports so that time and costs can be significantly reduced without the need to do extensive due diligences every time. Only updated due diligence needs to be done (i.e. for any new loans or legal issues). The chart below provides a snap-shot view of a process that can be implemented using the stage-gate system. Further details of objectives and tasks for each gate is further detailed in Appendix A.
34
Currently for all the grants, there are no standard documentation processes, no standard documents, no shared resources, no sharing of due diligences and all fund providers work in silos. Even for certified companies like MSC Status or Bionexus or 1Innocert, their certificates bear no relevance to fund providers. No matter what certification one has or even if a SITE has been processed and approved by one provider, they have to go through the process all over again with another provider. For example, if a SITE has received a Cradle Catalyst grant of RM150,000 and been through their extensive evaluation, documentation and due diligence process, if they then apply for a MOSTI Technofund grant or a soft loan with MDV or SME Bank, they have to fill up completely new sets of documents each time and provide copies of their certificates etc., all over again. This process of documentation and form filling is a waste of time and resources for all parties. The funder then will expend more time, money and resources checking the validity of documents and conducting due diligences all over again if they approve the funding request. With the availability of technology all this duplication can be significantly reduced if all providers share resources and if documentation is standardised. Even the link up to Suruhanjaya Syarikat Malaysia and the Inland Revenue Department as well as the Insolvency Department can be digitised using technology so that completion of documents and checking of validity and verification can be done much faster.
35
3.3 Lack of Commercial Evaluations and Expertise R6: We recommend that all fund providers incorporate commercialisation evaluation and ensure adequate expertise for ALL evaluations, R&D as well as Commercialisation Grants and Funds. There is currently a lack of expertise in performing proper commercial evaluation of funding applications and some funds provide commercialisation evaluation while others either dont or are weaker in this area. 3.3.1 Lack of Commercial Evaluations in Grants EP17: Incorporate Commercial Evaluation for all Grants We recommend that ALL R&D grants incorporate commercial evaluations as one criterion for approval. Commercial value, market needs and the ability to exploit the R&D to show economic or social value must be a set criteria for approval of all R&D grants in the future. Many of the R&D grants currently do not have serious commercial evaluation aspects when being evaluated. This leads to many discoveries and patents but no commercialisation and hence no ROI for the government. It must be made clear that even though the R&D may have technical merits it does not necessarily have commercial merit. A natural exclusion would be for pure research projects, normally conducted by IHLs, which only seek to discover or prove a technology element. These would include projects funded by MOSTI under the Science Fund, which are mainly for the IHLs. Such projects do not have the element of development in their research, hence knowledge discovery and not commercialisation is the objective. In such cases there is no need for commercial evaluation as a commercial ROI is not required. However in the case of all other R&D grants where there is a strong development element, commercial value is critical. In these sorts of R&D projects the real return for the grant is a product or service or prototype that can be exploited for commercial returns thereby creating ROI for the Government and for the researcher or company undertaking the R&D. In this case the evaluation must include a pure commercial evaluation besides the usual technical evaluation. Therefore, we propose that all R&D grants include commercial evaluation to ensure that the applicants are doing R&D that will lead to potential exploitation and ultimately to economic value and ROI for the government. 3.3.2 Lack of Expertise in Processing Applications EP18: Include 4 Independent Evaluators for all applications
36
We recommend that ALL grants incorporate a minimum number of independent evaluators from IHLs and industry for every application. We recommend that the Evaluation Panel comprises at least a minimum of 4 independent evaluators who are not part of the grant managers personnel or team. There should be 2 independent Technical Evaluators who can be either from industry or IHLs who will evaluate the project based on its technical merit and another 2 independent industry based Commercial Evaluators who will evaluate the grant on the basis of potential commercial value and the potential for commercial returns. One of the commercial evaluators can be a venture capitalist but while this is desirable, it is not compulsory. The grant manager can include their own personnel as part of the evaluation panel but they cannot constitute the majority of the panel and their decision cannot override the expert panels decision. Applicants believe that in many grant processes there is a lack of expertise among evaluators. This is because in some cases junior or young staff with no experience or specific expertise make judgement calls on project evaluations and in other cases Government personnel or administrators with no technical and commercial experience and expertise make such decisions. There are also certain grants where the applicant needs to explain their project to Account Managers or Analysts and rely on them to present their project to the evaluation panels and again this issue of lack of experience and expertise becomes a serious flaw in the overall process. It is imperative that the applicant is allowed to present their application directly to the evaluation panel because at the end of the day, it is the applicant who will ensure successful implementation and completion of the project and therefore the funding panel is assessing not just the project but also the applicant and his/her ability to deliver. EP19: Applicants to Present Directly to Evaluators We recommend that for ALL grants, the applicants should be given the opportunity to present directly to both the Evaluation and Approval Committees so that the relevant committees can evaluate not just the project but also the Applicants themselves. While most providers will have several levels of evaluation, it is the initial evaluations that could be an issue. If the providers do indeed provide proper evaluation then it would not need to change however, a better methodology or format is also possible. In this aspect we propose that all grant evaluations follow the MSC Malaysia Multimedia Grant Scheme (MGS) approval process, which includes not just 2 technical evaluators but also 2 commercial evaluators from industry as part of the Evaluation Committee.
37
The MGS methodology has been used for more than 10 years and has proven to be both transparent and successful in producing R&D that leads to both a high level of commercialisation and strong ROI on Government investments. To ensure both sufficient and acceptable levels of expertise in processing applications and also the additional need for commercial evaluations we recommend the following: 3.3.3 Standardised Voting Mechanism For Approval To ensure that there is proper decision making within the panel we also recommend the following voting method for ALL grant providers. EP20: Standardised Voting Mechanism At least THREE (3) members out of the four technical and commercial evaluators must recommend the project for approval. In the event that there are more than 4 panel members, then a MAJORITY must approve. In a case where there are more than 4 panel members, if either TWO (2) technical or TWO (2) commercial evaluators reject the project, then the project must be rejected as it carries either no technical merit or no commercial value and this means it will lead to zero returns and no ROI for the Government. Once the Evaluation Panel has approved the project, it will then be sent to the Approval Committee as recommended in EP21 below. 3.3.4 Set Up Shared Database of Experts EP21: Set Up Shared Database of Experts We recommend that an electronic shared database of experts be set up under UNIK with access given to all funders. Whenever a funder identifies an expert his/her details and expertise levels are input into the database so that it can be shared with all funders. As the above recommendations require experts in many different areas both in technical and commercial areas, to ensure that all funders have adequate numbers of experts and access to these experts in all sectors and geographical areas we recommend that UNIK set up a shared database of experts that can be accessed by all funders. 3.4 Lack of Transparency
38
R7: We recommend that all funds set up a structure and processes to ensure the transparency of all evaluations and approvals of funding applications. 3.4.1 No Transparency In Processing Applications EP22: Have both, Independent Evaluation and Approval Committees For additional transparency, we also recommend that once the Evaluation Panel has approved the project the project then be sent for approval to a higher level Approval Committee. This committee can consist of personnel from the grant managers but must also include technical and commercial members. This panel can overturn the decision of the Evaluation Panel if it feels there is inadequate merit in the project but should not take such a decision lightly as the Evaluation Panel is the correct panel to make such evaluations. But it will retain the right to a final decision. It is also recommended that when reviewing each project, at least one member of the Evaluation Panel that evaluated that project be present to answer queries on the decisions made by the Evaluation Panel. The Approval Committee CANNOT approve projects that have been rejected by the Evaluation Committee. In the case of an appeal or complaint by an Applicant, if there is very good cause for the complaint, then the grant provider can at its discretion convene a new Evaluation Committee consisting of new members in the numbers suggested above to independently review the project. If it is rejected a second time no further appeals will be allowed and the Approval Committee CANNOT consider the project for approval. To ensure complete transparency of the application and evaluation process, the proposal on the independent evaluators in EP18 will provide an initial level of transparency. Additionally, we also propose an additional 2 level approval process. This is already in existence in most grant providers but just serves to cement the transparency of the process. 3.4.2 Publish Recipient Projects And Amounts As Well As Resources For additional transparency and to show that projects have been evaluated properly both projects and resource allocations that can be shared have to be made transparent.
39
EP23: All Approved Projects To Be Published And Open To The Public We recommended that all projects that receive approval for funding be published publicly on ONE website. This may be a UNIK website or other website under PMO. The information to be made public will include the name of recipient, amount, agency, project information, period of funding, stage of funding and other relevant information. This will also serve the additional role of eliminating multiple applications and the same applicant receiving too many grants. The database will also serve as a one stop database of all approvals that can be checked by fund providers to ensure no multiple applications at the very earliest stages. 3.4.3 Set Up Shared Database of Physical Assets and Resources EP24: Set Up Shared Database of Physical Assets and Resources We recommend that an electronic shared database of physical assets and resources be set up under UNIK with access given to funders, innovators and other fund recipients. This database should include all physical assets and resources, including but not limited to, labs, equipment, facilities, buildings, infrastructure, etc that can be used by researchers and innovators. We further recommend that this database include locational information of such assets and resources so that innovators can choose locations, which are closest or most appropriate to them. Additionally, Funders and Evaluators should check prior to approving funding needs by applicants so that there is no duplication. In addition to transparency on the projects approved, SITEs have also requested that resources, especially physical resources and assets paid for by the Government through various grants, be publicly listed and shared with all innovators. It is common for recipients to request that grant money be used for specific assets like labs, equipment, facilities, buildings and other assets/resources that are located in various locations from IHLs to Research Institutions to private companies. The use of these resources are often not maximised and not shared with other innovators and some fall into disuse very quickly. It is therefore only proper that other recipients of grants as well as other innovators be granted the use of such facilities at a very low cost to ensure that resources purchased with Government funds are shared with everyone. It will also eliminate the need for such resources to be duplicated. 3.5 Low Returns From R&D Funding
40
R8: To ensure that in future there is better Return on Investment (ROI) from R&D Funding, we recommend that commercial evaluation and funds for commercialisation be incorporated in all R&D grants and that there is a proper tracking mechanism in place to track and measure the commercial success or failure of all R&D grant recipients. 3.5.1 Include Commercial Evaluation for ALL Grants EP25: We recommend that all grants, at all stages of the innovation business lifecycle, whether Pre-Seed, R&D or commercialisation, incorporates commercial evaluation to ensure that the R&D or project has real commercial value. If the project evaluation fails the commercial test, then the project must not be approved. This will ensure that only projects with real commercial potential are funded. Pure research projects or basic research projects will be exempted from this requirement. One reason for the commercial failure of many projects and hence the low returns from R&D funding is that many projects never had any real commercial value in the first place and hence would have failed anyway. By only approving projects with commercial value we will be significantly increasing the potential for commercialisation of the projects and hence have better returns from the funds provided to these projects. 3.5.2 Include Allocation within Grant for Commercial Activities If the commercial evaluation is positive and the application is approved, then it is also necessary to include funds to ensure that the project can actually be commercialised. It will defeat the purpose if the project has commercial merit but no funds are available to exploit this potential. Currently the failure rate for R&D is high because even when projects reach the pre-commercialisation or prototype stage, applicants are unable to exploit their inventions because they come up to a brick wall where there is no money available for commercialisation. EP26: We recommend that for all Pre-Seed, R&D and Pre- Commercialisation projects a 30% portion of the grant be allocated for commercial activities. (See also EP31 for further discussion on quantum) EP27: Definition and Examples of Commercial Activities: By commercialisation activities we mean allowing the recipients to perform initial commercialisation activities including the following, which should be allowed: i) Hiring or obtaining the services of experienced executives with experience in selling similar technology or products to the industry to be served; ii) Appointing the services of Business Coaches, Mentors and Industry Advisors;
41
iii) Attending exhibitions, trade fairs, technology conventions and other events to gain to understand competitive landscape and also to interact and obtain market feedback from potential customers. Grant therefore to be allocated for fees to access these events and travel. At this stage however it is recommended that events and travel are limited to local only unless the entrepreneur can justify the benefit to be gained from attending an overseas event. iv) Obtaining services of external experts e.g. IP registration, Market Research (e.g Focus Groups), Business Planning, Legal Experts etc v) Purchase of market data and customer databases. vi) Online and offline marketing activities. vii) Capability development programs to up-skill or re-skill personnel.
3.5.3 Tracking Mechanism On Commercial Aspects To ensure that the grants are being utilised to create commercial value and are contributing to the nation, the outcomes and KPIs must incorporate the measurement and tracking of the values that are being contributed by each recipient. Some providers already track these outcomes and can provide not just results but also Return on Investments (ROI) on grant allocations. This is necessary to ensure that allocations are meeting expectations. To ensure that there is complete transparency and to enable the evaluation of the success of the funds and the Agencies that provide the funding these KPIs and measurements must be published for evaluation. EP28: KPI and Tracking of Commercialisation Values We recommend that ALL grants other than pure research grants track the outcomes of all grants provided over a 24-month period from the date of completion of the grant milestones for the following outcomes: a) Revenues derived from the R&D or Commercialisation of the project b) Job Creation - both of knowledge workers (i.e. those with tertiary education or those with more than 5 years of experience AND earning more than RM4,000 per month in basic salary) and other workers. c) Improvements to business performance e.g. skills formation or enhancement, improved productivity, lowering of cost of sales, international certification acquired and improvements in product quality and standards etc. d) New investments acquired from third parties; e) Investments made in IP and physical assets whether local or overseas; f) Expansion of product lines or newer versions of existing products g) Establishment of new industries or successful capture of new markets whether local or overseas; h) Mergers and Acquisitions, Joint ventures or expansion of sales networks both local and overseas;
42
EP29 Publish ROI Information All fund providers have to provide ROI on grant allocations on an annual basis AND make the information public for transparency purposes and also as a benchmark for future allocations of money to the providers. As mentioned in the Macro Recommendations in Chapter 2 above, future allocations of money by the Government are to be made based on merit and based on ROI of each grant provider or on other acceptable success KPI. 3.6 Lack of Commercialisation Funding
i) Social contribution if applicable j) Contribution to corporate income in other ways
R9: The current low ROI from the Governments investment in the innovative sector is due to the lack of adequate commercialisation funds in the market. We recommend that the Government increases the quantum and percentage of commercialisation funding both in terms of total funds made available each year and also for individual R&D grants which in many cases do not have any commercialisation funds and therefore provide innovators no potential to exploit these R&D. 3.6.1 Create a balance between R&D and Commercialisation Funding Policies should be more holistic and balance the need between creation and growth and exploitation. Currently there is no balance in the provision of grants. Most of the grants are only provided for R&D but very little for commercialisation. In fact the largest amounts are only for R&D or Pre-Commercialisation for prototypes but not commercialisation purposes (e.g. MOSTI Technofund, MDeC MGS, BiotechCorps Bionexus grant). The only pure commercialisation grants available are Cradle Funds CIP500 which provides RM500,000 for commercialisation activities and MTDCs CRDF (Commercialisation of R&D Fund) which provides between RM500,000 to a maximum RM4 million depending on the type of R&D and the source of the R&D. BiotechCorps Seed fund provides some commercialisation funding but is not a full fledged commercialisation fund. Fund size is a maximum of RM2.5 million. As mentioned in the Macro View, past grant policies and support have been seriously imbalanced mostly towards venture or R&D creation while policies for venture growth and R&D exploitation were seriously lacking. This led to the creation of entrepreneurial startups but mediocre growth of these startups and many patents and inventions but poor exploitation of these creations. We therefore recommend the following:
43
EP30: Allocate 40% of Total Annual Grant Funding to Commercialisation, Export and Expansion Activities The amount of commercialisation grants currently does not assist in the value creation aspect of R&D. Hence we propose that at least 40% of all Government grants are directed towards the commercialisation of R&D and not just R&D creation. Therefore we propose that of the current budget of RM2.5 billion in the 10th Malaysia Plan, at least RM1billion be allocated for activities that need to be conducted during Commercialisation, Export and Expansion stages of Growth. It is recommended that this allocation be directed to A. Increase allocations to existing Commercialisation Funding (see further EP31); AND B. To establish new Commercialisation Grants and Programs for : i) Acquisition of Key Executives (see further EP 32 & EP33); ii) Export Related Skills Enhancement Programs (see further Appendix B) iii) Global Market Access Program (see further EP49); and Further details of all the above grants are detailed in Appendix B 3.6.2 Incorporate Commercialisation Activities in all Pre-Seed, R&D and Pre-Commercialisation grants EP31: Allow 30% of total funding from all existing & future Pre-Seed, R&D and Pre-Commercialisation Grants to be allocated for Commercialisation Activities We propose that 30% of all R&D grants be allocated for commercialisation activities. This 30% allocation is to be spent on prescribed activities only where up to 20% of total grant funds can be spent on obtaining personnel, services of experts or capability enhancement activities and up to 10% towards other activities. Please see EP27 above for some examples of commercialisation activities. As discussed in EP25 In line with our view that all grant evaluations have both technical and commercial evaluation, therefore ALL recipients must show commercialisation capability and commercial value to prove that they can exploit their R&D and create economic or social value.
44
The one exclusion would be for pure research grants, but as long as development is part of the grant, commercial value and commercialisation becomes a necessity. To enable exploitation and commercialisation activities to take place even during the late stage of R&D and especially in the pre-commercialisation stage, we recommend that 30% of all Pre-seed, R&D and Pre-commercialisation grants be allocated for commercial activities. 3.6.3 Increase Human Resource Allocations in Commercialisation Funding Money and Talent Drives Innovation. The way to incentivize innovation, any Silicon Valley venture capitalist will tell you, is to bring capital and talent together. For most of history, people have been adept at keeping them apart. Matt Ridley in The Rational Optimist, 2010 The problem with current funding mechanisms is not just the lack of money but that even when money is made available very little of it is available for the hiring of talent. Yet, without talent not just R&D, but even commercialisation is not possible. Take as an example, the Cradle CIP500 Commercialisation Fund of RM500,000. CIP500 allows the recipient to spend the money over a 12 month period but only 30% of the money is allocated to human resources. While this is admirable and is one of the best funds around, still this only provides RM50,000 for a year or RM12,500 only a month for human resources. In the market a really good Marketing or Sales Manager alone will cost you RM10,000 a month not including benefits like EPF and Socso. Hence with this allocation one cannot hire more than one capable talent. Worse still if you need other business development assistance then you have to forgo the most important talent that the company completely. We need to realise that people are the creative force in every business and success is about people. If we believe this to be true then why is it that we dont allocate more money to the hiring of talent? We also bemoan the fact that M&C talent do not join more innovative companies to help them succeed, but the fact is that they are not cheap. Good talent costs money. To overcome the problem of lack of experienced talent we recommend the following: EP32: Allow up to 50% Of Total current Commercialisation Funding to be allocated For Human Resources. This allocation can be spent on recruitment activities, pay salaries of full time staff or contracted knowledge workers, business coaches, industry
45
experts or mentors and capability activities to up-skill or re-skill human resources. Controls can be placed via reviews of the talents Curriculum Vitae to ensure experience and expertise in these areas together with the provision of proper documentation to show that the talent has been properly hired like EPF and SOCSO statements and the filing of Income Tax scheduled payments. EP33: Establish a new Matching Grant for Companies to acquire Human Resource Talents. During the Export and Expansion stages of Growth one of the key requirements for success is Talent. Therefore in addition to increasing the allocation for human resources in current available Commercialisation Funding, we propose a new Grant to be established specifically to pay for high level executives and management staff that can lead and drive activities that will ensure commercialisation success during export and expansion stages of growth. This grant will be a matching grant and the level of matching will be dependent on the revenue levels of the company. For further details of this new grant, see Appendix B. 3.6.4 Incorporate Voucher Mechanism into ALL Grant Funding Programs EP34: All grants to allocate funds in the form of vouchers (not cash) to be spent on certain prescribed activities like acquisition of human resources or services. Entrepreneurs can only utilise the vouchers to obtain and pay for human resources or services and therefore cannot re-allocate the funds towards any other funding activity. Providers of the service or facilities, whether employees, contract workers, consultants or service providers need to present the vouchers to the grant providers directly in order to exchange the vouchers for payments and will need to provide documentation to prove that services or facilities were provided. Entrepreneurs are idea generators and these ideas generally focus on providing innovative products or services. History has shown that when given a choice of where to spend their funds, entrepreneurs will naturally allocate a large percentage of funding allocation towards product development. However, having the best product does not always equate to a successful and sustainable business. To be fair to entrepreneurs, especially fledging entrepreneurs, they dont know any better. All inventors and innovators naturally believe that if they develop and produce the best possible product or service, that miraculously the market will adopt and purchase their wares. This is far from true and the reality is that, a successful business can only be built with the right business strategies implemented by experienced talent, identification of the right market and customers and providing a product or service which the market wants and therefore will pay for.
46
Entrepreneurs often learn this, the hard way after costly mistakes have been made and investments wasted. As such, it is actually necessary to PRESCRIBE what and where funds should be spent. Our recommendation for this prescription is that rather than give entrepreneurs the money, that they are given vouchers that can be exchanged to obtain pre- determined prescribed services or facilities deemed necessary for commercialisation success. These Vouchers can ONLY be utilised for the prescribed activities and if Vouchers are not exchanged or redeemed, the allocation cannot be re-allocated towards other activities. This is a key aspect of the recommendation to use a Voucher System because it forces entrepreneurs to conduct these activities in order to fully utilise their grant allocation. Prescribed activities include acquisition of human resources whether employees or consultants, obtaining services from external service or facilities providers e.g. like access to labs, researchers, industry experts, equipment, infrastructure or data. A voucher system has the added benefit of revitalising the eco-system within which the entrepreneurs exist. Services and facility providers, consultants and even potential employees now have access to potential revenue, fees and wages and therefore this will create a more competitive and dynamic eco-system which allows market forces to come into play. Only the best will survive and therefore this will create a push for all players within the eco-system who want to benefit from the vouchers to provide more innovative, affordable and targeted services for entrepreneurs. Further details of the vouchers system is detailed in Appendix B. 3.6.5 Summary We have identified in the above section many of the major problems faced not just by innovators in terms of the funding ecosystem and the shortage of commercialisation funding but also the issues faced by the Government in realising a return on the investments it makes in innovation activities. There is a win-win formula for all parties but it will need the endorsement and the initiative of the Government to introduce the Recommendations and Execution Points as soon as possible to ensure that the ecosystem and all the stakeholders benefit from our recommendations.
47
This is another area that is of grave concern to SITEs. Despite the many companies and inventions or patents created by the Government through various agencies and programs including grants, the level of commercialisation as well as market access by companies on one hand and market adoption by SMEs, GLCs and PLCs (public listed companies) on the other is poor to non- existent. If this part of the equation or lifecycle is not urgently addressed, then no matter how much we pump into funding innovation or R&D we will never achieve our targets of creating economic and social value for the nation. As we have mentioned above in Section 2.1.2 as well as demonstrated in Figure 2.2 (reproduced below), commercialisation is a very important aspect of the lifecycle of the company and hence it must be adequately addressed to ensure the success of the National Innovation Policy.
Chapter 4: Market Dynamics
In this section we address the commercialisation aspect of the lifecycle in terms of what we shall call Market Dynamics, which includes market access, market adoption, supporting institutions and the role they play in market dynamics, exports of innovative products and services as well as the role of the Government.
48
We would also like to include a definition of what we mean by Local. In the context of our recommendations in this report, Local Products/Services include: i) Products developed by Malaysian Companies/Businesses; ii) Services provided by Malaysian Companies/Businesses; iii) Products or Services developed or provided by Malaysian citizens; iv) Products or Services created in Malaysia (even if it is made by foreign companies located in Malaysia). However, the Intellectual Property must be owned by a Malaysian registered company and must have been created in Malaysia. 4.1 Market Dynamics Big Picture The following two Tables provide a big picture of the main problems faced by entrepreneurs and the recommendations that will be provided herein.
Table 4.1 covers the first 2 areas of market accessibility and market adoption. Market Accessibility refers to the ability of the company or innovator to access customers or buyers in the marketplace for his products or services and the problems faced therein. Market adoption refers to companies or institutions in the market, in this case the Malaysian market, that are users or adopters of technology or innovation and the problems related to poor adoption in the market. The SMEs for example are notorious for low adoption of technology which leads to many SMEs not being
49
able to improve their productivity or using and being over reliant on excessive cheap labour resulting in them being far less competitive globally than they could be had they adopted technology.
Table 4.2 covers the final two areas in Market Dynamics related to export and the role that Government can play in the market. Export relates to the export of innovation and the role of specific agencies that can assist in this area. Government role relates to actions and policies that need to be incorporated by the Government to help with market access.
4.2
Market Accessibility
R10: We recommend that the Government review its policies and the policies of stakeholders and GLCs under its control to provide better Market Accessibility to innovative companies, as this is a critical component for the successful commercialisation of these companies. Gaining access to the local market especially the Government and GLCs is a major problem for SITEs. Made in Malaysia works against you in Malaysia. There is a
50
belief that if its unique, then it cannot be from Malaysia. The Malaysian market is too cautious and this kills innovation. Only incremental innovation is acceptable not disruptive innovation. Local companies therefore reject Malaysian innovations because of this false belief that Malaysian companies are not truly innovative. There is a lack of trust of local innovations despite the fact that these companies have been around for a long time and even though they have been certified as innovative by government agencies. Furthermore, Government business is still only for companies with Bumiputra interests, so this restricts the growth of the majority of technology companies. Hence many companies are forced to get market acceptance elsewhere (abroad) before coming back to Malaysia. Also, larger companies including GLCs are doing good business already so they do not need new innovation. Many larger companies either have some sort of monopoly or are well supported by government business or contracts hence they feel there is no need to innovate and no need to acquire innovations from local companies to better serve their customers or to stay ahead of competition because often times there is no real competition. Regardless of this the local market is still interesting and plentiful. There are still many opportunities to do business in Malaysia especially with GLCs, PLCs and the Government. While the Government does not have any control over how PLCs purchase or utilise technology and innovations, especially Malaysian innovations, it does however have some control over how GLCs and the Government itself can utilise technology and innovations. This control however minimal should be better utilised to help spur market access for SITEs. Many companies with innovations have trouble accessing GLCs and the Government but if they could it would definitely help them to increase their revenues and profits many fold and help create far more successful companies than just more funding. Many of the respondents have even stated that they would gladly give up government funding in exchange for contracts to acquire their innovations. Increasing accessibility helps the government to reduce its support via grants and also helps SITEs to grow bigger and more profitable faster. This in turn will lead to higher employment and returns to the Government in terms of future taxes, so its in the interest of the Government to help with market accessibility. 4.2.1 GLCs to Buy Local: Firm Direction Needed GLCs are big buyers of technology and as they are not very active themselves in innovating, they procure innovative technologies for internal use and for growth as well as to keep up with market and customer needs. However, they tend to
51
acquire foreign technologies instead of local technologies even when equivalent local technology is available and even at higher foreign prices. This is because of several reasons. Firstly the foreign companies have the clout to lobby strongly for the use of their technologies and secondly because of the buy IBM and you wont be blamed if it fails mentality. Hence if they procure foreign branded technology and the acquisition fails, they will not be blamed for the acquisition. Thirdly, they dont trust local technology companies because they are small and they feel that the companies and their technologies are untested. This is despite the fact that the local companies have proven themselves by showing adoption of their technologies by other Malaysian users. Such mentality does not help local companies to grow. If they are unable to serve the larger companies in their own market they will not be able to generate enough profits to reinvest in new innovations and in growing their companies. Hence the GLCs need to do more and be more supportive of local players. Korea, Taiwan and Japan have always been touted as successful countries where their local companies have been able to grow into large entities but this is because these nations have a strong culture of supporting their own home grown companies. Even when abroad the Buy Local Companies products mentality and culture is strong, hence Japanese companies in Malaysia support other Japanese companies and Korean companies in the US support other Korean companies. Preference is always given to their fellow companies but in Malaysia we dont have this culture. Support Your Own National Companies should be a part of our culture and needs to be inculcated especially in the GLCs because they are such large buyers of technologies. EP35: GLCs and Government to Buy Local We recommend that it be part of the requirement for GLC and Government procurement policy that all things being equivalent, if there is a local technology then the GLC/Government must buy local. They can only buy foreign if no equivalent local product exists. We recommend that the Government as significant shareholders of the GLCs incorporate this into the procurement policies of GLCs. This must be a firm prescription and not be open ended policy. EP36: One-Stop Complaints Centre To ensure that GLCs and Government Ministries, Agencies and Departments follow the prescription the Government has to set up a One-Stop Complaints Centre to handle complaints by local companies that feel they have not been given fair treatment or opportunity to present their proposals against foreign proposals or where they feel aggrieved that even when they have an equivalent product the GLC has chosen a foreign product.
52
We propose that this Complaints Centre be hosted at UNIK and where necessary mediators from the KL arbitration and mediation Centre can assist in resolving issues. 4.2.2 Priority for Certified Companies EP37: Give Priority To Certified Companies In Procurement Policies We recommend that GLCs and the Government give priority to certified companies in their procurement policies. The Certified Companies we recognise for the moment will be MSC Status, Bionexus Status and 1Innocert. Other certifications can be considered but these certifications must certify the company as an innovative company that is a creator of its own Intellectual Property. EP38: Agencies to constantly review database of Certified Companies annually and remove companies that are not innovative. This will also ensure that companies that want to renew their certification continue to conduct activities to remain innovative. In order to ensure that certified companies are deserving of the priority accorded to them, we recommend that at the minimum the process for certification mimic the evaluation and approval processes set out in 3.2, 3.3 and 3.4.1 above. This stringent process and governance will provide credibility to the certified companies. In any GLC or Government procurement deal priority should be given to companies certified as innovative companies. This includes MSC and Bionexus Status and 1Innocert companies. These certification processes are very stringent and certified companies inherently are among the most innovative companies in the country, have to follow stringent guidelines and are recognised producers of their own Intellectual Properties (IP). Currently these companies find that there is little value in being certified. Procurement priority will enhance the value of such certification and ensure that innovative companies find value in being certified. 4.2.3 Build A Culture Of Trust EP39: We recommend that GLCs and Government start to build a culture of trust in local companies by starting the procurement of local products and services from certified companies immediately, by having programs to introduce certified SITEs to GLCs and Government procurement officers and managers and by training procurement officers and managers on the value of acquiring local technologies.
53
While we recognise that a culture of trust can take time, we have to introduce this immediately through proactive means. Procurement must take place and by seeing the value and robustness of local technologies only then will trust be built up. However, if they never acquire local and never learn about how good local technologies are, how can they learn to trust them? Hence there must be proactive policies to introduce procurement officers to local technologies immediately. 4.2.4 Set Up Labs For Local SITEs to Test Bed Innovations EP40: GLCs to Set Up Labs We recommend that the Government instruct GLCs to immediately formulate policies to set up test bed labs and to collaborate with SITEs to test bed innovations in these labs for mutual benefit. We further recommend that UNIK take up the responsibility of helping the GLCs to set up labs and to assist in the collaborative efforts between the GLC labs and SITEs. Besides procurement, innovative companies also often need to test bed their innovations or prototypes with their potential customers or users. They will need to test if it works according to specifications, whether it meets requirements or standards and if performance is up to customer requirements. Companies in the mobile space like Celcom and Maxis currently provide facilities for SITEs to test their products and services within the infrastructure of these companies and if these tests pass requirements then often they will become the first adopters of the technology. This helps mobile companies to innovate further and grow their business at the same time. Many larger technology companies also provide such test beds, although it is sometimes not accessible to local SITEs because it may be located abroad. For example HP has such lab facilities in Singapore but not in Malaysia. This need to test their products and services is not just for mobile companies but is also required in all fields from ICT to Biotech to Greentech. Hence companies from Telekom Malaysia to Sime Darby and Felda can all contribute to the effort of SITEs by setting up labs for these companies to test bed innovations. However, as not many of them are currently doing this the Government has to instruct these companies to formulate policies immediately to start labs and to invite SITEs to participate in these labs.
4.3
Market Adoption
R11 We recommend that the Government formulate policies to promote and increase the adoption of local technology and innovation in Government,
54
GLCs, PLCs, and SMEs in Malaysia. Adoption of local technology is very poor in Malaysia and this affects not just the innovators but also the organisations that dont adopt technology as such adoption can increase productivity and improve profitability of all business sectors in the country. It is a well known fact that adoption of technologies in Malaysia is low, especially by SMEs. The GLCs and PLCs do adopt technology, only they prefer foreign technologies to local ones, hence the main problem with these larger enterprises is access not adoption. But with the SMEs adoption is the issue. Low adoption of technology leads to low productivity and a permanent dependence on low cost labour, mainly foreign labour. This is bad for Malaysia in several ways, including keeping Malaysian labour at the low income levels, loss for foreign exchange when foreign workers send their money home, low level manufacturing with their corresponding low returns and the inability to compete effectively with our neighbours. In the long term we will continue to lose competitiveness and in a decade we will end up a poorer nation. Hence it is critical that we create policies that follow the carrot and stick approach if we are to coax and force SMEs to adopt more technology. Just leaving them to their own devices will not work. 4.3.1 Need to Boost Adoption There is an urgent need to boost technology adoption in SMEs and a long term campaign is necessary to educate and inculcate the need to improve productivity and profitability in all industries. EP41: Boost Low Adoption Of Technology In SMEs The Government and relevant technology agencies need to have a concerted long term and year round effort to boost technology adoption among SMEs. This should include the following: a) Just like previous Buy Malaysian campaigns, to carry out year round campaigns to Buy Malaysian Technology, Boost Productivity and Profitability campaigns. These should promote not just the use of technology but also that the use of technology will boost productivity and profitability the two biggest concerns of all businesses. All relevant agencies and ministries must carry out these campaigns over the next 5 years on a regular basis. b) Work with Associations, Chambers of Commerce and other institutions to promote these campaigns and if necessary provide funds to these organisations to continually promote this program.
55
c) Make this the most important campaign to be carried out by all relevant institutions because boosting the use of technology will do wonders for the economy and the future of all industries in Malaysia.
4.3.2 Incentivise Adoption There needs to be a carrot and stick approach to boost adoption. In the carrot approach we need to provide incentives to companies to boost adoption. EP42: Incentivise Adoption The government has to provide more incentives to boost adoption among SMEs. These can include the following: a) Tax incentives including double tax deduction for using technology from Certified companies. This is almost equivalent to a matching grant and will be a good incentive for adoption. b) Provide soft loans that can be used for the adoption of technology. These can also be Government guaranteed soft loans. c) Allow SMEs to apply to be included in the Early Adopter Program discussed in 4.3.4 below and if selected, to receive grants and additional incentives for being an early adopter of technology. 4.3.3 Remove Benefits That Restrain Adoption of Technology There are some benefits provided to local companies that actually restrain the adoption of technology and these have to be removed to force them to adopt technology. This is the stick approach. EP43: Remove Benefits That Restrain Adoption We recommend that any benefit currently provided to companies that keep them from adopting technology to boost productivity be removed, if not immediately then over the course of the next 3 years. These include: a) Remove visas for hiring low cost foreign labour. This is especially so for the manufacturing sector where adopting technology and innovation can increase productivity but as long as cheap foreign labour is available manufacturers will not invest in technology. Visa removal to be done over 3 years but within a set time frame and the Government must not waver from this proposal once it is made. b) Remove incentives for high labour intensive projects that can adopt technologies. This includes the assembly plants in the E&E industry.
56
c) Remove any tax benefits that have been provided to companies that can adopt technologies for productivity improvement but refuse to do so. 4.3.4 Additional Incentives for Early Adopters of Technology EP44: Provide a voucher based Grant that will incentivise Early Adopters of Technology. We recommend that the Government provide a grant, through the respective agencies to allow certified companies and early adopters to apply to be part of an Early Adopter Lab Program. Early Adopters and Certified Technology Companies that have been selected will have access to grant funds to assess and implement technology and also additional incentives for adoption like tax breaks and soft loans. Further details of the Early Adopter Lab Program is detailed in Appendix B. Ideally there should be nation wide adoption of technology. However since this is not happening currently, the Government should designate or select groups of companies to be the early adopters of technology, to test bed these technologies and to use them extensively to boost their businesses. Companies or organisations that wish to tap into the additional grants and incentives provided to early adopters can apply to be part of this program. The early adopter scheme will be available to groups of SMEs via industry associations, PLCs and GLCs, NGOs and community based organisations, educational or research based institutions e.g. schools, IHLs and PRIs (Private Research Institutions) and even government departments and local authorities. As an example, the Government through MDeC could select 20 Travel and Tourism companies put them together in a lab with companies that offer different technologies for their industry. Similarly in agro biotech, groups of palm oil companies could be grouped together to benefit from the latest developments in their industry which selected companies can offer. Certified technology companies will be provided the opportunity to showcase their technology to the early adopters and early adopters have the opportunity to communicate problems or issues they have in remaining competitive in their industry. This will assist the technology companies to customise solutions to help them to adopt these technologies. All early adopters will have access to a special voucher based grant scheme which allows early adopters to exchange the vouchers for services or facilities to conduct feasibility studies, prototype development and testing in labs or even payment to consultants to assist in the assessment and implementation of the technology.
57
Early adopters can also be provided with other incentives like tax breaks and soft loans discussed above. These Lab style programs to promote early adopters of technology can help these companies better understand how technologies can be utilised to increase productivity and profits. Coupled with additional benefits to promote adoption this proactive methodology will go a long way towards boosting adoption.
4.4
R12: We recommend that the agencies and ministries that can help promote exports do more to help innovative companies to export their services and products. The Government has to provide export assistance and Agencies and Ministries must ensure that they are adequately staffed with experts in the different technological areas to be better able to assist innovative Malaysian companies. One of the keys to building large successful companies is to have companies that derive significant portions of their incomes from the export of innovative products and services. The Malaysian market is far too small to accommodate the large numbers of companies that have been created over the last 15 years in ICT and last 5 years in Biotechnology. With more than 2,000 MSC Status companies, the market is far too crowded and far too small to cater to such a large number of companies. It is therefore imperative that we enhance the potential of the export market to ensure that these companies have the potential to grow and thrive. Therefore, it is imperative that the agencies and ministries that can help promote exports do more to help these companies. Specific agencies like Matrade are critical in this area. 4.4.1 Increase Funds For Export Promotion Currently, the grants and funds available for export promotion are small and limited. Considering the importance of export towards helping to build companies and increasing foreign exchange gains and returns, the funds available are not commensurate with the benefits to the nation. There also used to be a Services Export Fund available for technology companies but the fund was small and has been fully utilised. The only fund currently available is the Market Development Grant which at just RM30,000 is far too small to be of much significance in enhancing the potential of the export market. Much more needs to be done especially in assisting the companies to set up offices abroad. Unlike the manufacturing sector, which is just about export of products, the technology service sector needs to have a presence abroad to serve
Go Global and Exporting Innovations
58
customer needs. Buyers of technology will only procure technologies if the companies have a geographic presence nearby to serve them. This is one of the main reasons why we have been unable to export more technology, because the setting up of service offices abroad is far too expensive. If this problem can be overcome, we will be much bigger players in the export of innovation and technology. EP45: Increase Export Promotion Funds We recommend that export promotion grants be increased in number and amount to truly enable companies to grow the export market. The following recommendations are pertinent: a) That the MDG grant amount be increased to RM100,000 per company per year. b) That the Government reinstate the Service Export Fund which has been discontinued because it has been fully utilised. This is a very popular grant and of great value to technology companies as it assists in the setting up of representative offices abroad as well as paying for staff in the target country. c) We recommend that the Government provide grants to specifically help set up representative offices abroad and hire marketing personnel in the target country. We propose a fund size of RM250,000 per annum on a 1:1 matching grant basis. We further propose that each company can utilise the fund to set up as many foreign operational offices as required but up to a maximum grant of only RM250,000 per year. d) We also recommend a soft loan of up to RM1 million per company for the purpose of expanding and setting up offices abroad. 4.4.2 Have More Tech-Knowledgeable Staff at Matrade Offices Abroad EP46: Matrade to Set Up New Technology Division We recommend that Matrade set up a wholly new division covering the three areas of ICT, Biotech and GreenTech with new knowledgeable staff who will be trained to assist companies in these three sectors to export their products and services. Once trained these officers should be placed in all Matrade offices abroad to assist innovative companies in their export efforts. They should also be trained to do business development, market research and to look for specific opportunities for these companies. EP47: Redeploy Experts from Agencies to Matrade The Government should also consider re-deploying resources from the innovation Agencies like MDeC, Biotech Corp etc to Matrade offices in
59
Malaysia and abroad to assist innovative companies with Market Access. As they are already knowledgeable within their sectors, their learning curve will be shorter and their ability to assist companies will be more immediate. Alternatively, if this cannot be done or if there are insufficient staff to be re- deployed, then Matrade should also consider employing contract experts or even Malaysians abroad that have the experience to represent these industries in the countries that they are already living in. The final choice would be to contract foreign experts. Matrade has been a real success story for the industrial economy. They have done a marvellous job at promoting Malaysias exports of goods and primary resources abroad and at helping the industrial sector to promote manufacturing companies to foreign buyers. However, it has been unable to do the same for the ICT and Biotech sector. For example, as the main organisation that helps promote the export of Malaysian products and services, Matrade does not have a policy to cover biotech and agritech sectors. Their channels of promotion are at the low level, low-tech activities and they dont have a proper channel or method of promoting high tech companies. Promoting the innovative sector is far different from the manufacturing sector as different knowledge sets are required. Also due to the fast moving nature of technology changes they must be staff who are educated in technology and able to keep abreast of the evolution in technology. They must work closely with the relevant agencies like MDeC, BiotechCorp and GreenTech Corp and with SITEs. Currently this type knowledge is lacking in Matrade and hence their inability to help sell Malaysian technology to the world. Staff who are knowledgeable in this area can also do more business development, market research and even help to identify potential opportunities in different markets. Matrade needs to set up new divisions to look after the innovative sector and this will require new personnel not just placing existing officers in new roles because the requirements of these new roles are far different. Only with a new division to promote these new sectors can Matrade really help these companies. 4.4.3 Move Agencies From Industrial To New Economy EP48: Agencies to Adopt New Economy Practices and Knowledge We recommend that all relevant agencies and Ministries work closely with the new technology Agencies and companies to adopt the latest practices and
60
knowledge so that they can better assist innovative companies in their export and growth. We recommend that this be done in the form of Labs with all parties helping the Ministries and Agencies move form the industrial to the new economy. Many Government agencies are still in the Industrial mode and havent moved up to the New Economy mode yet. This is reflected in the knowledge levels of their staff and even in their documentary processes. For example, some SME Corp documents require Premises Licence by the local council. This is not applicable to ICT companies but more for manufacturing facilities and causes problems for ICT companies. Also in allowing marketing expenses the allowable expenses are for traditional marketing and advertising but not for new forms of marketing like Google Adwords and Adsense, Facebook marketing, EDMs (Electronic Digital Marketing) etc. While it is not possible to identify all such items in this report, suffice to say that many agencies are not yet adequately prepared for the new technology sectors and this must change if we are to be an innovation and technology driven economy. 4.4.4 Special Programs To Promote Global Access In some cases, special programs have to be created to provide the additional boost to some innovative sectors. MDeC has done this well with the Creative Content sector with a successful globalisation program for the Creative Content companies. While we have many good companies in Creative Content they were unable to export their services to the primary market like the USA and Europe because of the lack of networks there. They also did not know much about the practices and nuances of the industry and the intricacies of such things like co-production contracts. To solve this lack of knowledge and networks, MDeC hired an experienced American consultant named Regis in Silicon Valley to help Malaysian companies with face-to-face linkages in the US. He has helped Creative Content companies to build good networks and linkages in the US and has helped with market access. Also there was a good strategy to co-produce content and Regis was also hired to push this initiative which he did successfully. He had something to sell, a strong value proposition reduced costs to do co-production in Malaysia, which was attractive to the US market. This is one of the most successful of MDeCs programs and this has helped o build a strong Creative Content industry in Malaysia. The same can be done for the rest of the innovative sector as appropriate.
61
EP49: Set Up Special Global Market Access Programs We recommend that Matrade, as the agency mandated to assist in the exports of Malaysian products and services, work closely with the relevant innovation Agencies (MDeC, BiotechCorp & GreenTech Corp) to create special global market access programs for innovative companies where Matrade can provide the access to the target markets and the agencies can provide the technology companies with capability building programs to prepare them for market penetration and export. Each Program can be targeted towards a specific niche sector where there are large numbers of companies and where Malaysia has specific strengths like Creative Content in ICT and perhaps Agritech in the Biotech sector. These programs must be specific, targeted and provide networks, business development and targeted exports. The program may require foreign experts to be hired to ensure the success of the programs, someone like Regis. For further details of the Global Market Access Program, see Appendix B. 4.4.5 Matrade Export Accelerators (MExA) EP50: Matrade to Set Up Matrade Export Accelerators (MExA) Globally We recommend that Matrade set up special co-location spaces for tech companies to be located in major cities worldwide to be used as initial office space for the marketing and sales teams of tech companies. This space will allow companies to globalise their business by having a permanent space in each country so that they can serve their customers on a long term basis. We call this program Matrade Export Accelerators (MExA), a one of a kind program that will definitely accelerate the exports of Malaysian technology exports. Innovative technology companies, unlike their manufacturing counterparts, require a local presence so that buyers of technology feel confident that these companies will be around not just during the acquisition or sales process but also to service them all year round. However, locating in different global regions is an expensive affair and most companies simply cannot afford to do this. But if such premises can be provided at a very low cost then more Malaysian companies will want to globalise their business. If this is then coupled with general office services like secretarial services, accounting and finance and some administrative services then it will be a winning combination for companies.
62
Currently Matrade offers space for manufacturers and traditional old economy exporters to showcase their products and services at either their offices or in special showcases or exhibition spaces rented by Matrade. We would like to propose that instead of product showcase space, Matrade now offer office co-location space for tech companies who just need a small space for a small team (often just 2 to 3 people) to be located at the target country. It is similar to an incubator but we call this an Accelerator because it is for the more mature companies to locate their marketing team to accelerate their sales process. The Technopreneurs Association of Malaysia (TeAM) has a similar program called Go Global where companies locate in the Plug & Play incubator in Silicon Valley. But this is still costly and location like that is not easy to find elsewhere. We propose that Matrade set up such co-location spaces in selected cities as a pilot program and slowly expand it to most cities where Matrade is located. This will be the first of its kind of program for a Government Agency in the world but one that will definitely accelerate Malaysias tech and innovative exports. In countries or geographical locations where there are no Matrade offices, it is suggested that space be allocated within Malaysian Embassies or Consulates to achieve the same purpose with recommendations from the Ambassador to set up a Matrade office in the country or geographical location.
4.5 Government Role and Contribution to Market Dynamics

R13: As the Malaysian innovative sector is not yet a mature sector, the Government still has a big role to play in different areas from funding to market access to problem solving. We recommend that the Government review policy and stakeholders in the market access arena to ensure that it provides the best assistance possible in enhancing market access, adoption and exports for innovative companies. 4.5.1 Policy Making To Engage Market Players EP51: Engage Market Players In Policy Making We recommend that in the future ALL policy making bodies positively engage market players BEFORE any policy is put into effect. There must be a process of dialogue and enquiry to determine the actual wants and needs of the market and to ensure that all policies meet market needs and wants before being created or implemented. One important aspect of Government policy making is that very often bureaucrats make policy in silos without engaging the very people who will be
63
the beneficiaries of the policy - the market players. Consultants that the Government hires also fail to properly engage the market especially in the prescriptive part of their recommendations, thus leading to many recommendations by consultants not being implemented. This has led to many problems with policy implementation. Additionally, policy makers do not implement policies that market players actually want, thereby leading to massive gaps between what the market wants and needs and what the Government thinks it needs. Thus policies that could really help the market are never implemented while policies that are implemented dont help and sometimes actually hinder the market. This has to end if Malaysia is to make real progress. For example ALL the policies in this study are what market players have requested and have not been implemented by the Government despite some of them having been requested years ago. From the number of recommendations one can see that there is a very big gap in policy making and implementation in the country. 4.5.2 Quarterly Problem Solving Dialogues EP52: Quarterly Problem Solving Dialogues With Market Players We recommend that Ministers and Heads of Agencies tasked with the innovative sectors hold quarterly Problem Solving Dialogues with market players, to understand their problems and needs and to ensure that any problems are resolved so that our initiatives in market access and market growth are achieved. Such engagement should be done with leading market players and the associations and chambers of commerce that represent the innovative sectors EP53: Make Dialogue Decisions Public We recommend that all problems and solutions be made public on the Ministries and Agencies Websites. This serves the dual objective of creating greater awareness for all market players as well as enabling industry groups to monitor whether promises made have been fulfilled to ensure Ministerial and Agency accountability. Market players currently dont have adequate access to policy makers and the higher echelons of Government who can address their market woes and problems. When Dato Seri Rafidah Aziz was Minister of International Trade and Industry she used to have regular dialogues with industry to understand their grouses and solve their problems and this was a major reason for the success of
64
our industrial policy especially in relation to the export of manufactured products. It is time Ministers and Agency heads emulate this regular dialogue sessions as such engagement is necessary for us to make progress not just in exports but in market access issues as well as policy issues in general. 4.5.3 Government & GLC Procurement Transparency And Meritocracy EP54: Adopt Transparency and Meritocracy in Government and GLC Procurement We recommend that for all Government and GLC procurement of innovation and technology products and services and for all projects involving technology and innovation the Government does away with the need for Bumiputra companies and middlemen and deals directly with the provider of the products and services. All procurement must be made purely on merit and directly from the owner or producer of the technology and innovation. Many GLCs still have a Bumiputra requirement to do business with local companies but not when they do business with foreign companies. There should not be any double standards. They should look at technology acquisition and procurement purely on merit basis and should do away with special requirements. This is also true for government procurement where preference is given to companies with Bumiputra status. As mentioned in the introduction to this study, this merely leads to rent seeking and many failed projects as well as losses or very low profits for the real technology companies that do all the work. This does not help SITEs and in fact severely constrains their growth. If preference is to be given, it should be given to Certified companies. 4.5.4 One-Stop Centre for Complaints and Problem Resolution EP55: One-Stop Centre for Complaints and Problem Resolution We recommend that the Government form an independent and empowered One-Stop Centre for Complaints and Problem Resolution under the PMO to resolve any complaints that market players have relating specially to market access issues. This Centre must have the power and authority to reverse decisions made against National Policy and ensure all stakeholders comply with National Policy on market access and other matters relating to the innovative sectors. Complaints must be investigated transparently and there must also be a method to enforce complaints. To ensure that all policies are being executed and applied to the benefit of market players and to ensure that all stakeholders especially in Government and
65
GLCs are following policy guidelines and rules, the Government needs to set up a One-Stop Complaints Centre, which is empowered to handle any complaints related to such policies. This Centre should be contained within the PMO to ensure minimum bias and also to ensure that it is adequately empowered to resolve any complaints in a swift and resolute manner. Complaints can include non-transparent procurements, non-application of policies or even agencies and Ministries that are not doing what they should be doing to advance National innovation policies. Currently market players have no proper complaints channels and no access to senior decision makers.
66
The innovation economy in Malaysia is managed by several key stakeholders including Ministries, Agencies and other institutions. Some of these stakeholders have specific responsibilities like MDeC and BiotechCorp while others like Matrade and SME Corp play a more horizontal role by helping all sectors. Other stakeholders include ministries like MOSTI, MITI, Ministry of Agriculture; Developmental Financial Institutions (DFI) like SME Bank, Malaysian Debt Ventures, Agro Bank and even UNIK. Stakeholders have so far played a critical role in the innovation economy especially the vertical sector stakeholders like MDeC in the ICT sector and BiotechCorp in the Biotech sector. While these players have done a reasonably good job, SITEs still feel that there are still ways in which the stakeholders could do more to drive innovation and Entrepreneurship. This section looks at some of the key stakeholders and provides several recommendations on how they could do more for innovation and innovative companies.
Chapter 5: Stakeholder Dynamics
5.1
Stakeholder Dynamics Big Picture
The following two Tables provide a big picture of the main problems faced by entrepreneurs and the recommendations that will be provided herein. Table 5.1 relates specifically to the two main vertical agencies in Malaysia Multimedia Development Corporation (MDeC) and Malaysian Biotech Corporation (BiotechCorp). The recommendations would also apply to GreenTech Corporation even though it is a relatively new agency. However since it does not as yet have a track record, its activities and role wasnt taken into consideration in the dialogues with industry players.
67
The second section as depicted in Table 5.2 below covers other critical agencies and the Government.
68
5.2
Empowering Agencies
R14: We recommend that the Agencies that play a major role in the innovative sectors be properly mandated and empowered to better serve the innovative companies within their purview including the ability to deal across multiple stakeholders, which include other Government Agencies and Ministries. Currently MDeC and BiotechCorp have similar mandates and have fulfilled their mandates reasonably well. However, market players feel that they can do much more if they are given a bigger mandate and empowered to do a lot more to help companies. Currently they are both based under MOSTI and being under one Ministry they have limited powers or clout to work with other Ministries. There is no denying that each Ministry protects its own turf (this is common in all countries and is not prevalent in Malaysia alone). However, their inability to work with other Ministries and Agencies because of their lack of clout leads to them working in silos and they are unable to help the companies under their care to the maximum. Lets take the Creative Content companies under MDeC for example. There are several stakeholders that play a role including MDeC, KPKK (Kementerian Penerangan, Komunikasi & Kebudayaan) and FINAS (Filem Nasional Malaysia). The way each of these Ministries/Agencies work is independent and this affects Creative Content companies. For example, when Creative Content companies want to sign international trade agreements they will come under the purview of FINAS. Doing co-production with foreign companies also comes under FINAS. But since FINAS is independent of MDeC and they report to different Ministries (FINAS reports to KPKK, while MDeC reports to MOSTI) companies that need special approvals from FINAS have to deal separately with FINAS and this Agency operates very differently from MDeC. FINAS is also not a specialist on animation or digital movies and this makes it more difficult for the highly innovative companies to get fast approvals from FINAS. Additionally, content or animation that does not look Malaysian cannot be screened in Malaysia. Authority to do so is directly under the purview of KPKK. This is an extremely strange rule considering the fact that the Government has poured millions into this sector but content cannot be commercialised locally only abroad. It seems to be one of many ridiculous rules pertaining to the content industry in Malaysia. The Government and MDeC are pushing the Creative Content industry and promoting it internationally but they cannot resolve the above local issues because it is not under their purview. This causes problems for Creative Content companies. On one hand the Govt is promoting Creative Content but on the other
69
hand the Creative Content companies cannot grow because of the independent actions of the various stakeholders. This lack of integration between Agencies/Ministries holds back the development and growth of ICT companies and Creative Content is just one example. Organisations like KPKK and FINAS are still mainly from the old economy while Creative Content companies are very much part of the new economy, something MDeC understands better than either FINAS or KPKK. The same issues affect BiotechCorp in relation to bio-healthcare for example where bio-healthcare companies have to deal with the Ministry of Health, Ministry of Agriculture and MOSTI. 5.2.1 Move Agencies To The PMO & Empower Them Adequately It is therefore important to take these critical agencies out of specific ministries and place them under the PMO as MDeC was when Tun Mahathir was Prime Minister. As part of the PMO, it can to a larger extent stay out of individual ministry turfs and deal with most ministries on a stronger footing. While these agencies are placed directly under the PMO, they dont necessarily have to report directly to the PMO on a regular basis. They can instead report to one of the Ministers in the PMO but should report to the PM on a half yearly basis by making direct presentations on their progress to him. We recognize that the PM is a busy person, but as he has stated on many occasions including in the 10th Malaysia Plan and the NEM that innovation will be the driver of a high income economy, we feel that it is therefore necessary that these innovation based Agencies be placed under the PMO to ensure that this ideal is achievable. If they continue to remain within their ministries the lack of adequate empowerment will curtail their potential to help achieve an innovation driven economy. By reporting to the Prime Minister, it also shows the importance that the PM places on innovation as a driver of growth. Additionally under the PMO, these agencies can be further empowered to take on ALL the critical needs of the companies under their care. In the above Creative Content example for instance, MDeC should be the body that deals with all the licensing needs or approvals for Creative Content including the signing of international agreements, co-production and even consent for the screening of locally produced content in Malaysia itself. This will take away the need to work with multiple Agencies and Ministries, will hasten the approvals necessary and will enable companies to move faster in a rapidly changing technology environment. EP56: Move Agencies to PMO
70
We therefore recommend that the following two agencies MDeC and BiotechCorp be moved out of their current ministries to the PMO with immediate effect. The position of GreenTech Corp needs to be reviewed and if necessary then it can also be moved to the PMO. EP57: Empower Agencies and Make them One-Stop Centres like MIDA We recommend that the Agencies be given adequate powers to help the companies under their purview in totality and not just for some aspects. This will require internal discussions between the Agencies, UNIK and the PMO in consultation with key market players to ensure that ALL the needs of market players can be fulfilled by the more empowered Agencies. We recommend using the MIDA model where MIDA is given extensive powers to help investors who wish to invest in Malaysia. Likewise these 2 Agencies should be given extensive powers to help the innovative companies under their purview. 5.2.2 Remove Outdated Policies That Shackle Companies EP58: Remove Location Requirement for MSC Status Companies We recommend that the requirement for MSC Status companies to locate within Cyberjaya or MSC Status CyberCentres be removed with immediate effect. MSC Status companies should be given the freedom to locate anywhere they please without restraint. There are many policies that shackle and have a negative impact on companies. Where there are such policies they should be removed completely. This is especially the case where companies are financially impacted and have been clamouring for change for years. While we have not gone on to identify these policies, they can be identified via dialogues with innovative companies. We urge all the stakeholders to have such dialogues with market players if they wish to identify such policies. We have however been requested on more than one occasion by a large number of market players to remove one such policy the need for MSC Status companies to be located in Cybercentres. This policy was instituted in 1996 when the MSC was first formed. It was at a time when high speed broadband was largely not available in most parts of the country and when available it was very expensive. Also because the policy at that time was to create a cluster of tech companies in Cyberjaya, this rule was instituted. Hence all MSC Status companies at that time and since have to be located in a certified MSC Status building or location. Times have changed since then. In the last 15 years, broadband has been made easily available at reasonable prices and with Telekom Malaysia and Wimax high speed broadband is now easily available in all urban areas.
71
CyberCentres are very expensive places to be located in. In fact they are far more expensive than most locations. The clearest example of the unreasonable cost of being located in a CyberCentre is in the new location of Bangsar South. Within the cluster of buildings that make up Bangsar South, the CyberCentre has a rental of RM5.50 per sq ft whereas neighbouring buildings without such status rent for just RM3.00 to RM3.50 per sq ft. In other words just to be located in a CyberCentre a company has to pay almost DOUBLE the rental. This is why the requirement to be located within a CyberCentre is termed a property play by most MSC Status companies. This is one of the most hated rules of the MSC Status and most companies want this to be removed entirely as it makes no sense to pay double the rental just to be located in a CyberCentre. This rule is now outdated, expensive and has served its purpose. It especially hurts startups that already have very little money yet have to spend huge sums on rental just to maintain MSC Status. Many companies try to avoid locating in such places by sharing spaces with other companies or rent small spaces and never occupy them. They only use the space if someone from MDeC wants to visit them. This rule should be ended immediately and the sooner it ends the happier MSC companies will be. Many Entrepreneurs feel that MSC Status is no longer a motivating issue but has become more of a compliance issue and MDeC is playing more of a policing role especially with locating within Cybercentres. They feel that MDeCs time would be better spent on helping to grow MSC companies instead of threatening to strip them of their MSC Status if they dont locate at Cybercentres. 5.2.3 Improve Recognition Of Certified Companies Among Public & Corporations Many certified companies, including MSC Status, Bionexus Status and 1Innocert feel that their certifications do not help them in any way. In fact other than the tax free status and the ability to hire foreign knowledge workers easily the other benefits or purported benefits like green lanes in funding applications and ease of applying for government grants have never materialised. Even market access is no different from other non-certified companies. They feel that spending time and money on obtaining these certifications have not been worth their while. So while the Government extensively promoted these certifications, the certified companies themselves dont find real value in the certificates. EP59: Create Value for Certifications The Government and Agencies need to do a lot more to create value and improve recognition for these certificates. They need to:
72
a) Make the public, financial institutions and other Ministries and Agencies aware of the value of these certifications through awareness sessions and sharing of information. b) They also need to do more to provide value like green lanes and fast track applications for grants and loans not just with Government backed organisations but also with financial institutions. c) They need to create policies to ensure that certified companies are given preference in Government and GLC procurement and; d) They need to help these companies with market access both locally and globally. All possible assistance should be given to these certified companies to enable them to realise the value in being certified. 5.2.4 Help Companies to Engage GLCs & PLCs As mentioned above, market access and specifically access to GLCs and PLCs is critical to SITEs success but an extremely difficult task for them. It should be made one important role for all Agencies to help their companies to engage with and sell their technologies to GLCs and PLCs or form partnerships to do joint research or take part in labs to integrate their technologies with them. EP60: Agencies to Assist with Access to GLCs and PLCs We recommend that Agencies make it a priority and if necessary create a special division to assist their companies with market access, co-research possibilities and lab testing of their innovations with GLCs and PLCs. As this is a critical element of the commercialisation of innovation, we recommend that Agencies make this an important part of their future service for companies within their care. 5.2.5 KPIs To Be Success Driven And Not Numbers Driven All Agencies and Ministries have certain KPIs to meet every year or for each of their 5-year plans. In the past many of the KPIs were driven by numbers x number of companies created, y number of patents filed, z number of knowledge workers and so on. While this is good in the very early stages of the formation of the Agencies and clusters, it is no longer as important as real success and this has to be measured in terms of the contribution of companies to the economy, GDP and high income employment. Hence the new mantra of KPIs should be revenue and profit growth and quantum, number of high income employees earning RM x per annum and the growth in income levels, and also indirect measurements like x% of productivity improvement contributed to adopters of the technology, x% revenue and profit growth or x% reduction in costs in companies that adopt the technologies, x% increase in yields (in palm oil or rubber for example), etc. The New Economic
73
Model is about innovation being the driver of economic growth, and this can only be achieved by the right type of measures both direct and indirect. It is therefore the right time for Agencies to adopt new KPIs based on real economic and social contribution. EP61: Agencies to Adopt New Economically and Socially Driven KPIs We recommend that all Agencies and Ministries adopt new KPIs based on the contribution of innovation to economic and social growth. It is time to discard pure numbers driven KPIs for real economic and social contribution based KPIs as follows: a) Revenue and Profit growth and quantum, b) Number of high income employees earning RM x per annum and the growth in income levels c) Indirect measurements like x% of productivity improvement contributed to adopters of the technology, d) Percentage of revenue and profit growth among technology adopters e) Percentage reduction in costs in companies that adopt the technologies f) Percentage increase in yields (in palm oil or rubber for example) This list is not a conclusive list but just provides examples of KPIs that are more concerned with growth and not just numbers. By measuring both direct and indirect contribution, Agencies and Ministries will also be able to better judge the contribution that the innovations and companies within their purview are really contributing to the national agenda. For these KPIs to be taken seriously by the Agencies their budgets and funding should be based on the successful achievement of these KPIs. We should reward the successful Agencies by giving them bigger budgets and rewards and penalise those that underperform by reducing their roles and budgets. Only by measuring them against their KPIs and rewarding them accordingly will we ensure true performance to meet KPIs. E62: Reward Agencies based on KPI Achievement We further recommend that Agencies be rewarded and budget requests be approved or increased based on their successful attainment of their KPIs. However, Agencies that underperform should have reduced budgets and roles. This is based on our philosophy of rewarding success and meritocracy. 5.2.6 Data Collection To Be Better Utilised To Help Companies Currently most Agencies and Ministries collect some form of data or do some form of survey among their companies. Unfortunately all of these data collection
74
is just for statistical purposes and is not used to help the companies any further. It is also just used for reporting purposes. Instead of just collecting for statistical purposes these data can be better used to further help the companies and to identify the better companies that can be provided the added assistance or push to succeed and grow into larger entities that will then make a greater contribution to the nation. For example, instead of just collecting data on revenue and profits or on how many knowledge workers they hire, they could be asking questions on the problems they face, the outcomes experienced from training programs and the type of programs companies want more of, strategies that work and dont work, globalisation plans and what companies need to make their plans work etc. It does take an entirely different mindset to collect more meaningful data to further help companies and not just statistical data. In fact most companies are tired of filling up more data collection forms because it does not help them at all. If the data collection was designed to identify how Agencies and Ministries can further assist the companies to grow and succeed, then the companies will be more than willing to complete these forms. However, it should not just be about collecting this valuable information but also about using the information to execute plans to provide the assistance. For example it can be as simple as asking about capability development programs and what has helped and what hasnt and what more companies need. If the companies say that the coaching programs have assisted them more than just seminars, then the Agencies and Ministries should do more coaching and less seminars. If they say that they want more project management training and not just more technical training then do more project management programs. The point is that data collection can be a very valuable tool to identify the needs and wants as well as the problems of the companies and they can be used to provide more valuable assistance to the companies to help them to grow and contribute to the national agenda of a high income, high value economy. Agencies and Ministries should therefore use the data collection opportunity better than just for statistical purposes. EP63: Use Data Collection To Provide More Valuable Assistance to Companies We recommend that Agencies and Ministries review their data and statistical collection programs and change these into collecting data that can instead be used to identify the needs and wants as well as the problems of the companies and then to use this information to provide more valuable assistance to the companies including programs and strategies to help them to grow and contribute to the national agenda of a high income, high value economy.
75
5.2.7 Create Success Stories By Backing The Best Companies All The Way Malaysia needs success stories. Success breeds success and will serve as models on how to create bigger and better companies and will also be models that other Entrepreneurs can look up to and emulate. One method of doing this is to find the best and back them all the way. This strategy has been used to great effect by the best Venture Capitalists in the USA and Europe. The selection process should be very rigorous, independent, transparent and merit based as per the recommendations below. Backing should be in the form of financial backing, providing market access, assisting with getting the best management team, additional help with R&D, helping them to test their innovations in Labs with GLCs and PLCs and Universities and also understanding their needs and problems and satisfying their needs and solving their problems. After 15 years of the MSC and 5 years of BiotechCorp it is time we focused on creating at least 5 to 10 best of breed companies for both the ICT and Biotech sectors as these are the most mature innovative sectors in Malaysia. All stakeholders must assist them to succeed from the Agencies to Ministries and even individual Ministers if necessary. We need to do this NOW. EP64: Back The Best Companies All The Way We recommend that MDeC and BiotechCorp select the best 5 to 10 companies each based on merit and on their potential for growth and success and create policies and programs to back them all the way to success. EP64-1: Selection Process Agencies must select the best 5 to 10 companies in their stable purely on merit and based on their potential for economic success and these should be given strong backing to succeed. While the selection process can be determined in detail at a later stage, we propose that they include the following: a) A transparent and merit based process to give the best companies an equal opportunity to be selected. b) Criteria for selection should be decided on by Agencies, VCs and independent industry players c) Criteria must include the ability of the companies to contribute to the nations GNI, high income employment, ability to invigorate the ecosystem, export growth and the ability of the leadership to contribute to future companies by sharing of experiences, allowing
76
local companies to contribute to their technologies, the ability to contribute to more innovation within the ecosystem and their ability to meet the KPIs as set by the evaluation panels. d) There must be a pre-selection to shortlist all companies that meet the above requirements and then to allow them to pitch their companies to an independent panel of selectors that comprise of industry players, investors and agencies. e) The pitch must be open and transparent and selection to be done on a majority vote basis by the panel. f) Only the best companies must be selected and then given the best support possible. We also recommend that PEMANDU play a role in the selection of these companies and help in setting the criteria for selection as well as KPIs to ensure the success not just of the program but also of the companies themselves. PEMANDU to also contribute towards market access and market development for these companies. EP64-2: Support Programs These programs should include the following: a) Financial backing both for R&D and commercialisation, b) Providing long term funding via investments in these companies and not via grants. Investments are more sustainable and the companies should be able to provide equity in exchange for investment, whether Govt backed or private investment. c) Providing market access and helping with technology adoption by customers, d) Assisting with getting the best management team, e) Assisting with R&D including helping them to test their innovations in Labs with GLCs and PLCs and Universities f) Having regular programs and dialogues to understand their needs and problems and satisfying their needs and solving their problems. g) Providing Coaching and Mentoring Programs in general or specific areas h) Setting up a Council of Advisors and Mentors to coach and guide them. The above is not a conclusive list as any other assistance they need can and should be provided. EP64-3: Government Budget We also propose that the Govt provide a budget for this program annually, to support a minimum of 10 companies per year over a 3 to 5 year period of support, whether in the form of VC investments or soft loans as well as support for the programs to assist these companies.
77
5.2.8 Transition Agencies towards Self-Sufficiency Currently the Govt funds the budgets of all Agencies in 5-year terms via the Malaysia Plans and also via the annual budget. These Agencies often run as offshoots of Government Ministries and report to the Minister. Like all Government organisations they have annual budgets which they request from the Ministry and these budgets are expended across operations and programs. There is however no long term plan for self sufficiency and independence from the Government. This creates a continuous dependency on the Government and creates a culture of operating like a Government department. However, as Agencies that deal with entrepreneurship and innovation we feel that there needs to be a culture of entrepreneurship within the Agencies themselves and that setting a timeline for independence and self sufficiency will create greater awareness and a sense of urgency within the Agencies to do more for their clients companies. By working towards a model of self sufficiency they can draw up better programs for their client companies including marketing assistance, research, capability development programs, export promotion, building networks, managing grants and other funds (both private and government) and other services that companies will pay for. While they can still report to the PMO, they should be more market driven and innovative themselves. The model that they should follow would be the Securities Commission which is a self-funding statutory body. Granted it may take some time before they can be self sufficient, hence we propose a maximum 5 years for further full support and thereafter a sliding scale of support and by 10 years no further Government funding for these Agencies. EP65: Transition Agencies Towards Self-Sufficiency We recommend that the Government transition the innovation and related funding agencies towards self-sufficiency over a 10 year period beginning immediately. We propose that full Government funding be provided only for a further 5 years and then funding to be reduced over the next 5 years until zero funding by year 10. It is our belief that by being more market driven and market oriented the drive towards self-sufficiency will create leaner organisations that will do more for their client companies and for innovation and entrepreneurship in general.
5.3
Institutional Roles & Responsibilities
R15: There are also several other institutional stakeholders who have a role to play in the innovation ecosystem. We recommend that these institutions play a more supportive role in assisting innovative companies to develop and
78
grow. They should conform to Government policy, change their mindsets, improve their technology skills and knowledge and do more to help the Government achieve its high-income economy objectives. This section looks at a few of these institutions. 5.3.1 Developmental Financial Institutions to Support Innovation Money continues to be a major issue for SITEs. This is not just the case for R&D but also for expansion and growth. The Government has stated that it wants to offer more soft loans instead of grants in the future and this is an acceptable arrangement for innovative growth companies who have already done their R&D and are in the commercialisation or expansion stage. As long as they are generating revenues, they are willing and able to take on loans to continue their expansion. However, banks and other financial institutions are still very much stuck in the old economy and still using old methods of evaluating companies i.e. looking for track record, collateral and personal guarantees. They do not value Intellectual Property and knowledge and still look for physical properties like buildings or assets like machinery. Many SITEs are unable to obtain funds because of the lack of such collateral even for soft loan programs offered by the Government. Oftentimes applications are rejected even by certified companies simply because there is no collateral on offer. Hence even the soft loans programs under SME Bank are seriously underutilised by SITEs and have not served their main objective of spurring the growth of innovative companies. In that sense DFIs do not support innovation and it has been proven that they are not the appropriate organisations to evaluate and finance innovative companies. There are therefore two alternatives to this scenario: either we remove the funds from the DFIs and get the expert agencies to fund SITEs or the Government has to intervene to ensure that DFIs meet their KPIs and actually fund these companies. The latter proposal can be somewhat softened via a significant Government guarantee (say 90%) that limits the risk of these institutions. We have recommendations for both as follows: EP66: Agencies to Manage Soft Loans Firstly we recommend that most of the soft loan funds be given to the expert agencies to manage and fund innovative companies. These include MDeC, BiotechCorp, GreenTech Corp and other possibilities like Cradle and MDV. These organisations have a better grasp of the potentials of the technologies and innovations and will be better able to fund these companies. EP67: Government Guarantees For Soft Loans
79
We also recommend that the Government provides loan guarantees under the Credit Guarantee Corporation (CGC) or other similar body to cover up to 90% of any loan (soft or otherwise) provided by banks or DFIs to innovative companies. This will help to significantly minimise the risk of the banks and DFIs and will spur more innovation financing by these institutions. EP68: Bank Negara Malaysia to Monitor DFIs We also recommend that BNM monitor the DFIs to ensure that they follow Government directives to provide loans to innovative companies. In the event that DFIs falter or do not meet Govt directives BNM to take appropriate prescriptive action and if necessary to recommend that the Govt reallocate the funds provided to DFIs to other institutions or agencies that are better able to meet such directives. EP69: Increase the Mandate of MDV to Fund Overseas Projects One of the few Agencies that provides project funding for innovative companies is Malaysia Debt Ventures. While they have been reasonably successful with funding local projects, they however do not have the mandate to fund foreign projects. Hence companies that have begun to export their products and services do not have an avenue to fund their projects. This does not augur well for the growth of companies especially in the export of services and does not help the nation in gaining export income. We recommend that the Ministry of Finance change the mandate of MDV and allow them to fund the foreign projects of Malaysian companies with immediate effect. 5.3.2 Institutions Need More Knowledgeable Staff Currently many of the institutions especially banks and DFIs do not have staff who are tech savvy and knowledgeable about innovative companies and the innovations that Malaysian companies produce. This lack of knowledge holds back the support that they can offer innovative companies and these companies suffer as a result. It is most prominent in banks and DFIs as most bank officers and managers have very little clue about technology products and solutions and therefore are unable to evaluate companies and their offerings properly. But this is not just prevalent in banks and DFIs as even Government agencies and institutions dont have knowledgeable staff. If the Government is serious about promoting innovation then it must ensure that all relevant institutions especially those under the purview of the Government or those involved in supporting Government policy have knowledgeable staff.
80
Hence if the Government wants DFIs like SME Bank or Bank Industri or Agro Bank to provide loans to innovative companies then they must first prove that they have the staff who are knowledgeable enough about the technologies before giving them the mandate to manage funds for these sectors. Currently this is not the case as many of the DFIs dont have knowledgeable staff yet have been given the mandate to fund innovation. It is no surprise that this policy has failed. EP70: Institutions To Have Knowledgeable Staff Before Being Mandated By The Government to Support Innovation Initiatives We recommend that in future before the Government mandates any institution with any initiative in the innovative sectors, it first ensure that those institutions have staff who are knowledgeable in the sectors and innovations they have been mandated to support. If they dont have such staff then they cannot be part of the initiative. This applies not just to DFIs but also to all institutions. 5.3.3 SME Corp to Update And Upgrade To Support Innovative Companies While SME Corp has done a lot of great programs and has a management team that is very supportive of SMEs, it does not have enough people who are knowledgeable about the new economy and innovative companies and many of its documentations, procedures and programs are still very industrial based. 5.3.3.1 Update Eligibility Requirements for Programs and Initiatives We have mentioned earlier about the need for such things as premises licences before they disburse grants including training grants and there are also cases where their grants can be used mainly to purchase raw materials which dont apply to ICT companies for whom the only raw materials that matter are the intellectual skills of IT personnel. The grant did not allow this particular type of raw material purchase we were told. In our consultations we even had a case where an ICT company applied for a grant and the only thing they could purchase with the grant was the plastic packaging for their software products. Today, software is often delivered online and needs no packaging, hence this shows that they have to relook their programs and offerings and need to seriously upgrade themselves to truly serve the innovative companies. EP71: SME Corp To Update Eligibility Requirements for SMEs to Access Its Programs and Initiatives We recommend that SME Corp engages with the innovation Agencies and with innovative companies to relook and review all their documentary requirements, grant allocations and other initiatives to ensure that they are meeting the needs of innovative companies and to ensure that outdated or
81
inappropriate eligibility documents or grant requirements are changed immediately. 5.3.3.2 Innovative Skills Development Programs SMEs have been notoriously slow to adopt new technologies often practising the motto if it aint broke, dont fix it. Whilst many SMEs are profitable, their reluctance to embrace new technologies or business practices have resulted in the general inability to expand and become more competitive. It is therefore necessary to provide programs and incentives for SMEs to up-skill or re-skill their workforce especially key executives and middle management as this is the generation that will drive innovation, change and are the future leaders of the business. We have recommended grants and incentives that allow SMEs to embrace technology but to complete the process, they need to have executives and middle management that can implement these technologies into day to day operations that will provide results like lowering operational costs, increased efficiencies and increased profitability. This is where SME Corp needs to step in and provide current and relevant business, operational, technical and branding programs, to name a few. EP72: SME Corp to provide specific human capital development initiatives and Programs to SMEs to up-skill and re-skill their employees so that they can be more innovative and competitive. SME Corp needs to review the current programs offered and engage with industry organisations to understand training needs that are currently not being addressed for each sector. Thereafter they need to select additional organisations to be included into its training panel and allow training organisations, universities, vocational training partners, and industry associations to fill this gap and provide courses that are more relevant for current and future needs of SMEs. 5.3.4 IHLs to Provide More Market Driven Education and Training To support the innovative sector and the Governments initiatives for innovation to drive the economy, talent is critical. This means knowledgeable, well educated and trained talent who can be hired as soon as they leave University to contribute immediately to companies as they grow and expand. Unfortunately, the quality of education at Malaysias Public Institutes of Higher Learning (IHLs) is abysmal at worst and passable at best. There is rarely excellence in education as many graduates remain unemployable and not merely unemployed. When we say unemployed it means there is talent but no jobs, but when we say unemployable then it means there are jobs available but
82
these graduates are simply not good enough to fill these jobs and are therefore not hired. The Government has now resorted to retraining programs to train graduates so that they can be employed. That is a sad waste because the Public IHLs are letting down all these students. They literally waste 3 years in university because what they learn cannot be used in a real business setting. There is a serious MISMATCH between what industry needs and what Public IHLs teach. As long as this mismatch happens we will not be able to meet the needs of innovative companies. Public IHLs are also not producing talent that is needed by the market. Many of their programs and curriculum are outdated and have little value in the market. Technical skill sets are also a problem. What they learn in University is simply inadequate for industry application. They learn a lot of theory but not application skills that are necessary. For example if ICT graduates just learn .Net programming, SAP, C++, Joomlah or Php, with these skills alone they can easily find employment. These are industry tools that all ICT companies and ICT departments need. But what they learn is theory & then when they leave University with a degree they have to re-learn industry tools all over again before they can be employed. Many private IHLs are aware of this issue and in view of fierce competition to obtain students, have introduced programs to ensure that their students are more marketable and often advertise 100% employment of graduates from their institutions. The public universities need to emulate this practise and introduce more market driven and industry relevant programs to ensure that students from Public IHLs are also more employable. If Malaysia is to be successful in the innovation sector, then Public IHLs must produce graduates with skill that are needed by the market. They can do this by interacting with market players and the innovation Agencies to determine the needs of the market and then prepare students to meet these needs. They should NOT create their syllabus in isolation from industry, which is what many of them are doing. Furthermore, they must constantly update their syllabus to meet the constantly changing needs of industry. If they dont do this Malaysia will continue to face a talent shortage and this will affect all the plans and initiatives of innovative companies and the Government. EP73: IHLs To Update Syllabus Based On Current Market Needs. We recommend that IHLs engage market players and expert Agencies annually to tailor their programs and curricula to meet the needs and requirements of the market in order to ensure that the graduates they produce are not a mismatch to market needs. We recommend that all public IHLs immediately start this engagement so that programs for year 2012 can be changed to meet market needs and are driven by market needs of the present and future.
83
We recommend that the respective Agencies (MDeC, BiotechCorp and GreenTech Corp etc) immediately start the process by setting up labs with the involvement of both the public and private IHLs and market players to review current syllabus and immediately make changes to the curricula of the IHLs to match the needs of the market. We also recommend that MOHE and MQA (Malaysian Quality Agency) representatives are present at these labs and can champion and fast-track the approval of the updated curricula so that IHLs can take steps to implement the new curricula for 2012 intake. EP74: Provide Mandate to Faculty Deans to have flexibility to implement 30% of programs based on non-core modules and programs which can be awarded points that count towards the final grade. We strongly recommend that all IHLs (whether public or private) provide faculty Deans with the flexibility to run at least 30% of the curricula without having to go through the tedious process of getting formal approval from MQA. These curricula should include materials from leading market players including via Industry Linkage programs and flexibility should be given for the programs to be taught by industry experts. Additionally they should be allowed to incorporate points from non-technical or business modules into their students grades. Details on how these recommendations can be implemented are given below: i) Obtain teaching materials from MNCs. MNCs like IBM, Motorola etc have begun to provide teaching and course materials which are made available to Universities. Their curricula is offered, usually for free, to provide technical training aids and materials to students with the aim of increasing employable talent either directly or indirectly by providing employment opportunities to graduates via the vendor and partner networks. Many MNCs will also offer their own senior management to be seconded to universities to conduct these training if required. Often IHLs are unable to incorporate this into their formal curricula and therefore such training is usually offered, if at all, as additional optional courses. If the Dean of each faculty was given the ability to incorporate these programs into the curricula as supporting modules, more students will have access to current technology, certification programs etc. e.g. IBM has an IBM Student Opportunity System resume database which allows certified students to post their CV for IBM customers and business partners around the world to view. ii) Allow industry experts and entrepreneurs to teach non-theoretical modules as Associate or Adjunct Professors. Many IHLs around the globe do this and this allows students to get first-hand knowledge about the industry and workplace challenges. Very often whilst
84
professionals and industry representatives are invited to teach at universities, they are only engaged to provide ad hoc training as deans do not have the mandate to include the materials as modules into the curricula or assign points that will be counted towards the final grade. iii) Allow the option of taking non-technical or business based modules which can also be counted towards the grade. Employers are finding more and more that the nature of business in this day and age calls for multi-disciplinary skills. Engineers are required to submit budgeting reports, professionals (e.g. doctors, lawyers, accountants) need to possess basic marketing skills to obtain and service clients and graduates from any field of study need to learn basic skills like data analysis and reporting, presentation development and communication skills, and web 2.0 or internet marketing skills. Basic entrepreneurial skills like business plan development, cost benefit analysis, competitor analysis, and even financial planning modules should be offered as an option to ALL students either within the curricula or as optional modules which are awarded points towards graduating. These skills although not directly related to the field of study, give graduates the ability to apply a broader multi-disciplinary approach to employment therefore making them more attractive to would be employers especially SMEs who usually dont have the funds to hire many employees but require the employee to be able to perform multiple functions within the organisation. iv) Industry Linkage Program In addition to having labs with industry players to improve and upgrade curricula, it is recommended that IHLs conduct labs with local industries to understand challenges faced by them in their industry/business. These labs should be conducted at least bi-annually and industry requirements are translated into projects for researchers and students alike to develop solutions that will help the local industries. Work on developing these solutions can be awarded points which count towards the graduating grade. Researchers and students should also be given the flexibility to implement the solutions on-site thus providing them with real working experience and not just ad hoc, unfocused internships which offer no real value to either the industry or the student. This approach not only provides a benefit to students and researchers but also builds credibility for the University with Industry and a reputation of churning out graduates that are immediately employable as a result of direct working relationships built during working internships with the local industry. This approach should be practised especially by Universities located at the different States e.g. University Malaysia Terengganu or Perlis or Kelantan or Pahang are all located close to different industrial hubs and/or have local SMEs servicing these industries. These universities are in prime locations to provide
85
talent, expertise, R&D capabilities and lab facilities to provide both human capital and technical expertise to the local industries. Constructing programs to provide these resources to the local industry should become the primary goal and focus of these universities. SMEs can be encouraged to work with the universities via grants or incentives but ultimately if the university does not have the credibility, SMEs and the Industry will not work with them. Similarly university bureaucracy and inflexibility is often cited as being a major factor why industry linkage programs have failed. Allowing Faculty Deans to have this mandate and flexibility to cater towards industry needs will greatly improve this hurdle. 5.3.5 Promote Risk Taking By Amending Bankruptcy Laws To promote a vibrant entrepreneurial ecosystem we need to amend bankruptcy laws pertaining to companies and individuals. This is even more important especially if soft loans are part of the funding equation. The current law provides for a minimum of a 5-year bankruptcy period but with no automatic release. Without an automatic release mechanism and a clean slate thereafter, risk- taking and entrepreneurship will be curtailed, as few entrepreneurs will take on the risk of a loan in their venture. For many bankrupt Entrepreneurs the current laws have become a life sentence just for taking an entrepreneurial risk. This does not foster Entrepreneurship but instead seriously constrains it. These are the very risk takers we need more of and if they remain bankrupt a key source of future providers of economic growth will be left idle. This is a huge waste of resources. Table 5.1 provides a comparison with the more entrepreneurial nations and shows the scale of difference in their bankruptcy laws compared to Malaysias and why a change is necessary. Table 5.1: Comparative Bankruptcy Rules in Selected Countries Country Bankruptcy Period Automatic Discharge Australia/New Zealand 3 years but small Yes bankruptcies can be earlier USA No specific period but Yes generally between 1 and 3 years Holland 3 years Yes UK 3 years Yes Canada 9 months with some Yes conditions (creditors can object with good reason) Malaysia 5 years (minimum) No!
86
EP75: Bankruptcy Laws to Be Amended EP75-1: We recommend that Malaysia change its bankruptcy period to a maximum of 3 years and then an automatic discharge thereon. EP75-2: For bankruptcies for principal amounts owing below RM500,000 we recommend a period of 2 years with an automatic discharge thereon. EP75-3: We also recommend that for business bankruptcies (i.e. related to business loans whether direct loans or guarantees) the threshold amount before someone can be declared a bankrupt is a principal amount of minimum RM100,000. Interest, penalties and other costs should not be included in this sum as this should be based only on the principal sum owed. 5.3.6 Eliminate Corruption in Technology Sector One of the biggest user and buyer of technology today is the Government. The private sector is small in comparison. If there was a meritorious system through which real technology companies could bid for and obtain government contracts for real value, we would be creating many more success stories and these companies would be able to use the revenues and profits from Malaysia to successfully penetrate the global market. However because of inherent corruption in the system and because of the intangible nature of technology especially software and solutions, most technology companies that bid through middle men and favoured parties often are paid only 30 to 50% of the contract value, thus depriving them of profits that could be used to grow the business and employ more people. Corruption is inherent in the technology arena as it is in every other sector and does not foster a competitive industry sector and does not provide maximum benefit to society. EP76: Eliminate Corruption by Institutionalising a Merit-Based Procurement System We recommend that the Government create a more merit-based system for the procurement of technology and services as follows: a) All projects above RM250,000 (Ringgit: Two Hundred and Fifty Thousand) to be awarded by open tender b) All companies to be allowed to tender direct without middlemen
87
c) Companies to be shortlisted and tenders awarded on merit, based on experience and expertise only d) Tender selection or evaluation panel members names to be provided on the relevant Ministrys website for complete transparency e) Decisions on awards to be transparent, with reasons given for successful awards f) All tender awards to be posted on the relevant Ministry website for transparency g) Both directors and shareholders of any company that fails to complete an award to be placed on a blacklist and not be awarded future tenders. This will ensure that all tender awardees perform their part of the contract, as failure to do so will lead to no future contracts. This should serve as sufficient deterrent for future tenderers.
88
Entrepreneurs still feel that the Government has an important role to play in innovation and Entrepreneurship. Even though we have had policies on technology and have created initiatives like MSC Malaysia, these are still evolving and growing. In the US, even today the Government still plays a role with its support of Entrepreneurs and initiatives like Startup America including pledging USD 2 billion towards funding startups over the next 5 years. Even in the best startup environment in the world the government still provides funding, this shows us that Government support will always be required no matter how advanced the nation. 6.1 Right Kind of Support Purely Merit Based In a still nascent innovation economy like Malaysia, government support should not be stopped. Hence talk of reducing R&D funding, converting commercialisation grants to loans, focusing on specific sectors to the detriment of others and other negative policies needs rethinking. Yes, we have made many mistakes, but this is to be expected as we discover what works and what doesnt. The key is to not repeat the same mistakes, something we continue to do. Outdated policies should be changed, bad policies discarded and support that has previously been provided in non-transparent ways should be completely eliminated. It is important therefore that we ensure that while support continues, it is the right kind of support based purely on merit and merit only for those (whether innovators, Entrepreneurs, companies, Agencies or Ministries) who truly deserve it to ensure positive returns for the nation. 6.2 Policies Should Pave The Footpath We wish to reiterate again how strongly we feel that the best policies are the policies that Pave the Footpath. Policies should ensure that the path to innovation and Entrepreneurship for everyone should be made as smooth as possible so that everyone, all innovators and Entrepreneurship, not just those from selected sectors or industries are given a chance to succeed. While we dont disagree that specific innovation programs with the potential for greater impact may be selected at different times, we feel that the greatest impact on the economy and citizens alike will happen when all opportunities are given an equal chance to succeed by ensuring that Malaysia has the best ever ecosystem for anyone and everyone to become an innovator and Entrepreneur in any field he or she so chooses.
Chapter 6: Conclusion
89
6.3 Policy of Positive Engagement In creating policy, a strategy of positive engagement with the market is extremely important. Policies created in a vacuum or in silos by bureaucrats and consultants have not and will not result in success. Many such policies have not worked, some have been hated by Entrepreneurs and others just ignored despite the best intentions of the Government. The best policies are created by engaging the very market players it will impact; by listening to their voices and giving them what they really want and by removing policies that they dont want. The best policies are Market Driven for the market, by the market. 6.4 Innovation is Interdisciplinary Dont Work in Silos A common complaint by market players is that the different Government Agencies and Ministries all work independently and in silos and often do not collaborate and work together to ensure that they give their best for the market to ensure its success. There are far too many anecdotes of problems that Entrepreneurs face in getting products certified or getting it to market because of inter-Ministry or Inter- Agency problems. They dont work hand-in-hand and they dont help each other and they often act as barriers instead of helping to smooth things along. For far too long this silo mentality has hurt innovation and the growth of entrepreneurial ventures in the country and has held back the progress of the nation. If the Government truly means business and wants to ensure the success of its initiatives and policies then this silo mentality must end. Everyone must work together to ensure that policies work smoothly and innovators and Entrepreneurs are given the best opportunity to succeed. 6.5 Agencies and Organisational KPIs Should Be More Market, GNI and Employment Driven It is also time for all Agencies and Government Ministries that are involved in innovation and entrepreneurship to strive for more meaningful objectives and KPIs. The plain numbers game of creating another 1,000 companies or hiring 100,000 employees or filing 5,000 patents are all not meaningful or useful in helping the nation to meet challenging and difficult times or in helping our citizens to cope with the challenges of increasing costs and higher inflation rates. It is time that all organisations be more driven by meaningful KPIs like increasing the revenues and profits of their client companies, by helping to increase export earnings, by providing high-income employment, by contributing to the GNI of the nation and on a social scale by improving the well
90
being of Malaysian society. They should be driven by market driven percentage increases in revenues and profits or high-income employment. Only by having more meaningful KPIs will these Agencies be contributing to the national interest. Hence we recommend that the Government review then KPIs of these Agencies and Ministries to create better KPIs that will provide real contribution to the nation and not just numbers that are meaningless in terms of value creation. This should apply to Agencies, Ministries, Research Institutions, IHLs, Grant providers and all other applicable institutions and organisations. 6.6 Reduce Monopolies to Promote Innovation A monopoly is generally bad for a nation. It is anti-competitive, kills innovation, stifles Entrepreneurship, drives up prices and promotes corruption. Malaysia is a very monopolistic nation where the Government provides all sorts of concessions on very long term basis without open tenders. If we really want to promote innovation we must remove monopolistic practices from the system especially in business. Innovation cannot thrive in a monopolistic system. This is one reason why innovation in Malaysia cannot thrive. In an open, competitive economy, Entrepreneurs will continually innovate to ensure they are able to compete effectively and beat their competitors. Such innovation drives down prices, increases value and provides consumers with the best of breed products and services. A monopoly on the other hand kills all competition and makes the monopoly holder a lumbering giant that never needs to innovate because the monopoly earns an income without the need to do anything more than deliver a minimalist service. Without competition there is no need to innovate. We have far too many monopolistic companies and they have such good business they dont find a need to innovate. If we really want innovation to drive the future of the nation then we must eliminate all monopolistic practices from the national agenda. 6.7 Lucky Country By all accounts Malaysia is a lucky country. We have a nation that is endowed with huge natural resources including the most precious of commodities crude oil and palm oil. Yet this can also be a burden to the nation as we become too dependent on our resources and neglect the more important areas of the economy. Like many resource rich countries, this lucky country is stuck in a middle-income trap. For many citizens though it probably feels more like a low-
91
income trap as rising commodity prices affect their daily lives from food to transport to homes. Yet these innovative sectors can provide us with the goal we so want to achieve, that of becoming a high-income economy. As has been proven by the ICT and Biotech sectors, in these two sectors the majority of workers are already high- income earners. The ICT sector is exemplary as 72% of the workers in this sector already earn a wage that the Government is targeting to achieve in 10 years time. ICT employees are high-income earners with this 72% earning above RM50,000 a year. Biotech employees are not far behind as 50% of them already earn just as much. To achieve the NEMs target of a high-income economy we must ensure that these innovative sectors not just grow but thrive and that more citizens are employed in these sectors. To do that we must grow innovations and Entrepreneurial ventures faster and ensure they are bigger so that they contribute more to the nations GDP and more importantly they employ more high-income earners. The old economy sectors like low-tech manufacturing, plantations and retail will not be able to provide our citizens with high wages. Unless manufacturing can re-tool itself and adopt more technology within its processes, it will also die a natural death as cheap labour in neighbouring countries attract more of the foreign direct investments to their shores to the detriment of Malaysia. Therefore, we dont have a choice. We MUST promote, nurture and grow the innovative sectors and we must do this fast. Time and tide waits for no one. In this Report we have provided 15 recommendations and 76 Execution Points based directly on the needs and wants of innovators and Entrepreneurs. These recommendations are not by us as consultants but they are recommendations from the bottom up By Innovators, For Innovators. We cannot ignore these requests and UNIK and the Government must strive to fulfil these recommendations and EPs on an urgent basis. We must not just talk the talk but we must also walk the walk. The time to do the walking is NOW.
92
Authors of the Report This report was prepared by Dr. V. Sivapalan and Ms. Renuka Sena as consultants for the Unit Innovasi Khas, Prime Ministers Office, Malaysia. For further information please contact the authors at: Dr. V. Sivapalan Email: drsivapalan@gmail.com Ms. Renuka Sena Email: Renuka.sena@gmail.com Recommendations prepared and finalized on 20th May 2011
93
APPENDIX A INTEGRATED GRANT MANAGEMENT SYSTEM 1. Key Characteristics of Grand Funding Process Overhaul Based on industry discussion, we hereby propose a suggested methodology and streamlined process for evaluation and approval for commercialisation grant funding. The process identified in the following slides is a combination of best practices adopted and refined from existing evaluation processes from MDeC (MGS and Star Innovation & R&D Grants), Matrades MDG grant and Cradle Fund. This process utilises an IT platform that has been used by Cradle Fund since 2005. Various key aspects already built into the system ensures a transparent and systematic process flow where each step is documented and logged. This key component provides accessibility, ease of use and fair treatment of every application submitted and therefore lends credibility to the evaluation process. However the IT platform will have to modified substantially before it can be utilised as recommended here. A key success factor is the quality of analysts and the expert evaluation panel who will lend their expertise and experience in the analysis, examination, review and approval within the process so that only technology/projects with HIGH COMMERCIAL VALUE is provided with the backing and resources to achieve commercial success. Experts from identified industry clusters who are best of breed and highly regarded by their peers within their industry must therefore be recruited.
94
2. FEATURES AND FUNCTIONS OF EACH GATE i) Gate 1 Evaluation of Corporate & Personal Information Objective - To check and verify information regarding the company and also the directors/ shareholders to ensure that the company is eligible to apply for the grants. Key Functions & Features of GATE 1 Eligibility criteria for all Commercialisation Assistance Programs will be pre- determined and streamlined. It is possible and recommended that points are awarded to companies based one information submitted e.g. paid up capital, education level /qualification of the directors/shareholders, number of years the company has been in existence, number of full time staff , core industry, certifications received etc. This helps towards assessment of risk e.g. for grants that are matching or repayable and encourages serious and committed companies to apply and constantly find ways to increase their points/risk rating. Having said that, there must be baseline criteria set to allow all companies to apply (i.e. so as not to exclude very new ventures) e.g. shareholding held by Malaysian (% to be determined), place of business in Malaysia, number of Malaysia employees etc.
95
This stage is crucial to the Integrated GMS because provided there is no change in status of the company (and companies will be allowed to update their status from time to time), passing through this Gate pre-qualifies a company for ALL available grants. Companies can submit their data at any time and will given an ID number that can be used to reference their company. ii) Gate 2 Technical and Commercial Evaluation Objective - To provide each application submitted with a fair and unbiased review and evaluation by experts from the industry cluster group selected by the inventor. Key Features and Functions of GATE 2 Applicants that have been pre-qualified at Gate 1 can submit their project for technical assessment and commercial evaluation without having to repeat the process of completed basic information about company, directors, shareholders etc. Technical Evaluation Applications will be evaluated by experts based on pre-determined criteria for each evaluation. Each submission will be assessed by two independent experts from the selected cluster. The cluster will be selected by the Applicant. Where local experts cannot be found, the Applicant may identify local or foreign experts who have to expertise to evaluate the technology. It is key at this stage that the Technical Evaluators are not privy to Gate 1 information. This is to ensure that the technical evaluation is unbiased. The reasoning for dividing industries into pre-selected Cluster groupings is two-fold: i) To build a unified database of technical experts within each identified cluster. This will allow not just grant applicants but also anyone within the industry looking to tap into the expertise of individuals identified as experts within the clusters. ii) To build a database of technologies utilised and solutions developed for a particular cluster. This will provide an easy gateway for anyone looking for solutions within the industry cluster to identify companies to work with. Commercial Evaluation Applicants that have been pre-qualified at Gate 1, and been recommended by the Technical Evaluation Panel as having sound technology that has high potential for commercialisation will then be evaluated by a Commercial
96
Evaluation Panel. The modus operandi of the Commercial Evaluation Panel will be the same as the technical evaluation panel. It is key at this stage that the Commercial Evaluators are not privy to Gate 1 information. This is to ensure that the commercial evaluation is unbiased. Where a technology application has been recommended for commercial evaluation by the Technical Evaluation Panel, the Applicant may, contemporaneously or at a later stage, apply for a different grant and provided the technology application is the same, the Application can by-pass not only Gate 1 but also the Technical Evaluation Panel in Gate 2 and proceed directly to commercial evaluation. There however must be a different Commercial Evaluation Panel for each Grant Program. Reports : Evaluation, due diligence and other relevant reports from both panels will be uploaded into the system and available to other grant providers, at the request of the Applicant to ensure there is no unnecessary duplication of effort by different grant providers.
97
iii) Gate 3 Funding Approval Objective - To approve the application for funding. To assess funding needs of the applicant/project and approve funding quantum Key Features and Functions of GATE 3 Provided the Application has been recommended for funding by 3 out of the 4 members of both panels, the application will proceed to Gate 3, which is the Approval Committee Stage. The Approval Committee will have the final decision on whether to approve the technology for the selected Grant. The Approval Committee will also review recommendations for funding by both evaluation committees i.e. eligible expenses, quantum requested in each category or eligible expenses, additional work that the applicant is recommended to carry out etc and pre- approve the quantum of funds granted to the Applicant. This Gate is a pre-qualification gate and that means that whilst the funding limits for the company have been pre-set, the monies are not actually disbursed here. iv) Gate 4 & 5 Grant Activity Review and Monitoring and Disbursement Evaluation Objective - To review and monitor progress of KPIs, provide additional advice and assistance required by the entrepreneur and Process Disbursement Claims. Key Features and Functions of GATE 4 & 5 By this Stage, the applicants would have successfully received confirmation of grant funding and also the quantum of their provisional grant entitlement The activities at this gate will be conducted by the agency overseeing the industry and they will review and monitor the KPIs of the Applicant and provide any assistance required by the entrepreneur to achieve commercial success. Then depending on the eligible expenses allowed under each grant, the Agency can assist the Entrepreneur to obtain the assistance required. The Agencies will also have some authority to adjust the allowable expenses within categories provided under the confines of the grant as sometimes it is difficult to accurately gauge actual needs until commercial activity has commenced. This will allow more flexibility to the entrepreneurs as long as the pre-set total quantum of the grant is not exceeded.
98
The agency can also assist the entrepreneur with business linkages and also with obtaining certification and clearances to conduct tests, market research, proof of concept sites etc. All the existing agencies i.e. MDeC, Cradle and Biotech Corp already have the capabilities to provide this assistance to grant recipients. However, when provided with a much larger mandate and the ability to cross industries and ministries, they will be able to do so much more for entrepreneurs. Finally, the Agency will process disbursements claims (which will also be subject to the Client Charter and Rule of 4) so as to provide entrepreneurs with timely disbursements of much needed funds.
99
APPENDIX B: FURTHER DETAILS OF RECOMMENDATIONS AND EXECUTION PLANS FOR THE GRANT MECHANISMS IN CHAPTER 3 This Appendix sets out further details of recommendations and execution plans set out in the Chapter 3 Commercialisation Assistance Programs The Commercialisation Assistance Programs (CAP) listed below are programs to assist entrepreneurs commercialise their products. The CAP Schemes recommended below aim to assist entrepreneurs overcome key challenges faced by entrepreneurs during different stages of growth. 1. Recommendation of CAP Schemes Available for Technology Companies at Different Stages of Growth
Pre-Seed R&D Pre- Commercialisation Grants No New Grants proposed for Entrepreneurs. Existing Grants are still applicable and recommendations for change have been highlighted in Chapter 3, Paragraph 3.6 Vouchers instead of Cash proposed for prescribed activities. New grant proposed for Early Adopters which, although does not provide direct funds to entrepreneurs, will greatly benefit them during this stage of growth. Early Stage Commercialisation (ESC) Funding No New Grants proposed. Existing Grants are still applicable and recommendations for change have been highlighted in Chapter 3, Paragraph 3.6 Vouchers instead of Cash proposed to access and pay for the following: 1. Researchers in Business 2. Specialist Services 3. Key Personnel 4. Programs for Up- skilling and Re-Skilling Soft Loans recommended to fund all other activities Export and Expansion Matching Grants/Loans New Voucher based matching grant proposed to access: 1. Researchers in Business 2. Specialist Services and Facilities 3. Key Executives 4. Programs for Up- skilling and Re- Skilling Matching Grants to access: 1. Global Market Access Programs Soft Loans recommended to fund all other activities
No New Grants proposed Existing Grants are still applicable and recommendatio ns for change have been highlighted in Chapter 3, Paragraph 3.6 Vouchers instead of Cash proposed for prescribed activities.
No New Grants proposed. Existing Grants are still applicable and recommendatio ns for change have been highlighted in Chapter 3, Paragraph 3.6 Vouchers instead of Cash proposed for prescribed activities.
100
2. Summary of Recommendations for Changes in the Current Grants provided to Entrepreneurs at the Pre-Seed, R&D and Pre- Commercialisation Stage Allocate 30% of total grant amount for ALL Pre-Seed, R&D and Pre- Commercialisation Grants towards Commercialisation Activities In order for entrepreneurs to successfully commercialise the output of their R&D, Commercialisation Activities needs to be conducted well before the commercialisation stage. These activities are generally market driven activities that provide insights to entrepreneurs about the needs and preferences of the market that they will ultimately serve. This understanding is glaringly absent to most entrepreneurs and therefore if existing grants allocate funds for such activities to be conducted, this will ensure that the outcome of R&D has a higher chance of successful commercialisation. By commercialisation activities we mean allowing the recipients to perform initial commercialisation activities listed below. This list is by no means exhaustive. It is recommended that up to 20% of total grant amount be spent on obtaining personnel, services or experts or towards capability enhancement and the remaining 10% towards other activities. Commercialisation Activities permitted therefore include but are not limited to: i) Hiring or obtaining the services of experienced executives with experience in selling similar technology or products to the industry to be served; ii) Obtaining the services of Business Coaches, Mentors and Industry Advisors; iii) Attending exhibitions, trade fairs, technology conventions and other events to gain an understanding of the competitive landscape and also to interact and obtain market feedback from potential customers. Allowable expenses will therefore need to be allocated for fees to access these events and also travel and accommodation. At this stage however it is recommended that events and travel/accommodation are limited to local only unless the entrepreneur can justify the benefit to be gained from attending an overseas event. Upon such justification, allowable expenses can be allocated. iv) Obtaining services of external experts e.g. IP registration, Market Research (e.g Focus Groups), Business Planning, Legal Experts etc v) Purchase of market data and customer databases.
101
vi) Online and offline marketing activities. vii) Capability development programs to up-skill or re-skill personnel. 3. Introduction of a New Voucher Based Grant to assist in Pre- Commercialisation of New Technology (a) Rationale for introduce Voucher based Funding as opposed to Cash The Pre-Commercialisation Stage is a key hurdle in the life-cycle of a technology entrepreneur. As such, the recommendations below provide details of suggested Voucher Based Grant Schemes that can be made available to both entrepreneurs as well as early adopters to remove the risk associated with this activity for both Entrepreneurs as well as Early Adopters. The Voucher Based grant proposed for Early Adopters is further detailed below in Paragraph 4. The objective of proposing a voucher based grant system is to ensure that both entrepreneurs as well as early adopters actually utilise allocations within grants for key prescribed activities for purposes of ensuring successful technology adoption. The key change that the Voucher System will orchestrate is that entrepreneurs can only utilise the vouchers to obtain and pay for the prescribed activities and therefore cannot re-allocate the funds towards any other funding activity. If the allocation is not utilised, it is lost. The Voucher Based Grant System is intended to revitalise the industry ecosystem by: i) ii) Providing proof of concept test sites and data for SITEs which can be referenced during the growth to convince potential Customers. Allowing SITEs to gain hands-on experience and insights of the needs of potential customers in a specific Industry during implementation and testing of the technology.
iii) Reducing the risk of adopting new technology for all Early Adopters by providing funds to assess, test and obtain data on potential impact on their business from use of the new technology. iv) Promoting technology adoption to previously resistant industries or sectors to utilise technology to increase productivity and competitiveness. v) Encouraging early adopters to utilise resources from Universities and this in turn provides an avenue for researchers in IHLs and PRIs to
102
gain insights into technology implementation and market needs and demands and this will spur more market driven R&D projects. vi) Providing SITEs and Early Adopters with access to external experts, consultants that can assist with technology implementation and improvement. vii) Channelling of funds to SME service providers allows them in turn to hire more knowledge workers and improves competitiveness and experience levels of these knowledge workers. viii) Allowing NGOs, Community Organisation and Industry Associations to help raise the level of competitiveness of their respective communities thereby allowing for quicker and more widespread adoption of technology in Malaysia. (b) No New grants for Entrepreneurs at this Stage Apart from the Grant for Early Adopters (which has been recommended so as to accelerate technology adoption and therefore has an direct benefit to entrepreneurs) it is our recommendation that no new grants need to be created for entrepreneurs at the Pre-Seed, R&D or Pre-Commercialisation Stage of Growth. Recommendations have been listed in Chapter 3 for changes to be made to existing grants and therefore the points set out in paragraph 2 above will therefore also be implemented via Vouchers. Prescribed Activities for which the Vouchers will be allocated will be able available to both entrepreneurs and Early Adopters in exchange for services. Service Providers will need to redeem their vouchers directly from the Grant Provider provided they can prove that services have been provided. Granted, funds allocated, even via a Voucher System can be open to abuse and this has been listed as one of the key reasons why grant providers do not provide a high allocation for acquisition of skills and talent however there are many ways in which this risk can be minimised for example: Requiring individuals to show tax returns Requiring companies to show EPF and SOCSO statements Providing maximum limits for payments to each individual Talent based on average industry based wage rates Requiring the entrepreneur to match funding Restricting individual Talents from working on multiple projects at the same time
103
Restricting each enterprise to a maximum amount of funds to ensure that they carefully assess their Talent requirements and negotiate the best deal.
For entrepreneurs, all the activities set out in paragraph 2 above are applicable prescribed activities although the list in itself is not meant to be exhaustive. This Table provides a snap-shot view of prescribed activities for which the vouchers can be used for.
Technology Companies (Vendors) SMEs (Customers) All Government or Private Educational and Research Institutions GLCs and PLCs Industry Associations, NGOs and Community Organisations
Access to Researchers from IHLs Specialist Services, Capability Building and Lab Facilities Wages and Remuneration for employees
Technology Adoption Program for Early Adopters (details are below)
(c) Fostering Linkages with Universities. The Commercialisation activities prescribed in Paragraph 2 above is self explanatory. However, there is one activity which was not included in that list and therefore warrants further explanation is Access to Researchers from IHLs. This Voucher is available to both Entrepreneurs and Early Adopters. This Voucher is being provided to access talent from Universities or Research Institutes that can assist with development and implementation of a new idea with commercial potential. The researcher may be required to assist with developing internal skills that they are lacking, for development or testing of technology, to build and test prototypes or conduct research to investigate new business models. The grant will require the researcher to spend a significant amount of time working on-site with the entrepreneur and his team.
104
Similarly researchers will be able to assist Early Adopters with testing and validation of technology adoption and use. Examples of eligible activities that can be conducted by Researchers: i) Product innovation developing and testing new, or improved products or services targeted to new or existing markets ii) Process innovation addressing production/ process issues (e.g. improve manufacturing efficiencies and/or quality through new or improved technologies) iii) Marketing innovation analysing brand, product or service consumer perceptions and impact in the market iv) Environmental sustainability identifying, measuring pollution/waste reduction opportunities (water, energy, recycling etc). 4. Creation of a new Voucher Based Grant to Accelerate Market Adoption a) Grants for Individual SMEs It is our recommendation that a Voucher Based Grant is developed to assist in early stage commercialisation activities, encouraging early adopters to use new technologies that have not been previously tested within their industry. Providing funding assistance to encourage early adopters to try untested technology is crucial to commercialisation success because it allows the entrepreneur to test the viability of their technology in a live environment. Very often entrepreneurs have to provide technology for free (and at considerable expense to them) to implement and test their technology because it is imperative for them to show that their technology works and to get the necessary reference sites to convince other customers. The risk to the entrepreneur here is that because they need to fund the cost of testing, they very often dont have sufficient funds to survive the early commercialisation stage. Even by providing technology and services for free, it is difficult to convince potential customers to allow the technology to be implemented because of the perceived high risk. Provision of Vouchers to Early Adopters, will provide the necessary bridging funds to entrepreneurs as well as allow the early adopters to reduce the perceived risk of adoption by allowing them to pay for other expertise. It also assists businesses looking to introduce small technologies in their products, processes and services to solve problems, enhance products or
105
increase competitiveness. Technology here is used in the broadest term and can encompass ICT, Biotechnology and Green Technology. The objectives of providing a voucher based grant for early adopters is to: i) Support early adopters of new technologies to undertake collaborative innovation projects, thereby accelerating the take-up of new technologies in key sectors of the Malaysian economy ii) Fund innovative projects enabled by technology which demonstrate productivity, and provide models for more widespread adoption of new technologies and practices iii) Build local capability to undertake innovation projects, and foster champions of technology innovation Vouchers are provided to Early Adopters that can be exchanged to pay for: i) Services, advice or expertise of third parties (other than the technology provider e.g. researchers from universities) to assess and assist with adoption and integration of small technologies e.g. obtain the services or a third party consultant to conduct preliminary testing, marketing studies, and consulting services to evaluate feasibility of small technologies. Payment for research and development capability (people, equipment and facilities) within publicly funded institutions and service providers e.g. assistance for small scale product prototyping, laboratory verification, field testing and fabrication of small technology demonstrators. Obtain market studies and data to validate use of the technology to increase competitiveness Payment for larger scale prototype development, pilot scale trials that can demonstrate the advantages of adoption of small technologies into products or production processes and provide data on improvements to existing products or processes through the adoption of or integration of small technologies. Payment to access complementary technologies that can assist with improving internal products, processes or services; Acquisition of technology and related systems from the technology company To reduce abuse, early adopters intending to obtain these grants may be required to make a minimum 25 per cent matching
ii)
iii) iv)
v) vi) vii)
106
contribution and can only apply for the grant up to an annual maximum limit (to be determined). viii) Additionally all data, prototypes etc., resulting from this Program must be made available to the Technology Entrepreneur to help them use the said data to convince potential customers. To reduce abuse by technology companies working with early adopters, each technology company may only service a pre-determined number of early adopters from a specific industry after which, they may no longer participate in this scheme for that industry. However the Technology Entrepreneur may still participate in this scheme if they are commencing activities to penetrate a new industry segment. b) Specific Early Adoption Programs for Larger Organisations and Groups of SMEs to embrace ICT. Globally ICT is moving into a new era, characterised by the widespread uptake of high capacity broadband, many millions of users and powerful digital devices becoming networked, and the evolution of the Internet as the key platform for the delivery of services to end users in homes and businesses. The program is actually designed so that SMEs can help GLCs, PLCs, Public and Private sector educational and research institutions, industry associations, NGOs and community organisations to embrace new technology. Each entity will create a list of technology needs. SMEs will be invited by Government Agencies overseeing the technology sector to access this list and also to gather more information. SMEs wishing to participate in this scheme must apply providing details of proposed solution and if selected, will be granted funds to conduct a feasibility study. Selection must be done in a transparent manner and based purely on merit. Names of companies selected must be made public in the database as mentioned in section 3.4.2 and EP22 above. After a feasibility study is finished, the organisation will select the technology (or in some cases, consortium of companies) to conduct pre- commercialisation activities and can apply for the Early Adopters Program detailed above. Technology Companies requiring funds for further R&D and talent may apply to existing funds available to them.
107
(c) Collaborative ICT Innovation Fund Program aimed at accelerating the innovative use of the next generation of information and communication technology (ICT) by GLCs, IHLs and PRIs, industry associations and NGOs. (i) Collaborative ICT Innovation Fund The Collaborative ICT Innovation Fund focuses on collaborative projects that use next generation ICT to innovate, develop new ways of working and solve problems faced by larger organisations or industries and communities. These Programs will be implemented using Labs to allow both vendors and customers to help each other solve a problem faced by their industry, customers (for GLCs and PLCs) and communities. (ii) Collaborative Broadband Network Innovation Fund This Program focuses on Applications in a National Broadband world and will support the development of applications that are dependent on characteristics of the National Broadband Network, such as its ubiquitous nature and high bandwidth. These applications will change how we work, study and play and will be key to driving productivity and quality of life benefits. It is important that these applications are developed and tested contemporaneously with rollout of broadband facilities in order to minimise the lag effect between the deployment of the infrastructure and its effective use. 5. Commercialisation Funding for Entrepreneurs at Early Stage Commercialisation (ESC), Expansion and Export Stages of Growth. Whilst entrepreneurs bemoan the fact that there is a serious lack of commercialisation funding, this is because they have been unable to successfully commercialise their products and derive sales revenue necessary to sustain themselves. As such, they look to grants as a means of survival and have therefore become known as grantpreneurs. This grantpreneur mentality is something that needs to be banished. We are of the opinion that if the Early Adoption Schemes and the Voucher Based Grant system is set up, that entrepreneurs should be making sufficient revenue to sustain themselves via sales revenue throughout the Early Commercialisation Stage of Growth. Having said that, what the entrepreneur DOES NEED at ESC, and during Expansion and Export stages is Talent and not just employees but senior level
108
executives and even CEOs that can develop and implement strategies for market capture and sustainable growth. The grants that we have therefore proposed for these stages centre around the acquisition and development of people within the organization that can propel the organization forward. However, in order to ensure that grants are made available the committed entrepreneur (as opposed to pure grantpreneurs), we also strongly recommended that: In order to have access to grants Entrepreneurs need to show their commitment to the venture and to fund a percentage (to be determined) of the activity themselves. The amount to be matched can be tiered depending on the revenue/profit of the company; There is an aggregated maximum allocation of grants to companies on a per annum basis. Certain grants can have a soft loan element where upon achieving a pre- determined revenue level, the entrepreneur is required to repay the funds. Before additional grants are awarded to entrepreneurs, the entrepreneur must show progress in their business achieved from the last round of funding. We have therefore recommended that the entrepreneurs are monitored over a 24-month period and the criteria for assessment of eligibility for further funding can be tied to business performance. We would also like to recommend that the assessment criteria for grants provided to entrepreneurs at this stage is higher and following are some recommended criteria that can be used. i) Management Capability The management team has the prerequisite skills, experience and commitment to successfully implement the project and maximise the commercial potential for which grants are being sought. Commercial Potential Applicants need to have a business plan for the growth and expansion. For a product/service diversification project, the market opportunity for the new product or service has been outlined or the actions to perform required market research are clearly understood.
ii)
iii) Financial Viability A feasibility assessment has been performed to demonstrate the financial viability of the activities for which funds are being sought.
109
iv) Innovation and Technology - The extent to which the project demonstrates the introduction of new innovations or technology, including whether the new innovations or technology is new to the company, new to a region or industry or new to Malaysia. v) Funding & Economic Impact Applicants need to demonstrate they can fund their portion of the costs (e.g. through cash flow, investments or external borrowings).
vi) Applicants need to outline the economic benefits of the activity to Malaysia or to a specific industry sector (e.g. new job creation, new sales including exports, supply chain impact, environmental/social benefits, etc.). vii) End User Relevance Entrepreneurs seeking funds should be required to demonstrate that the intended activity for which funds are being sought will address end user needs/benefit end users and that end users and/or decision makers have been involved or engaged in the development of the proposal (e.g. via an industry association or Network). Outline of new Grants A) Voucher Funding for Talent Acquisition, Experienced High Level Executives, Business Coaches, Mentors and Industry Experts There are no grants in Malaysia that provides funds for hiring of high level, experienced executives. No matter how great a technology or an idea, it can only be successfully commercialised by people. It is said that an A team can make a successful business out of a sub-standard product whereas a B team may screw up an exceptional business opportunity. In Australia, under the Commercialisation Australia Program, Entrepreneurs can apply for a grant to engage an experienced CEO or other executive to help develop the commercialisation of a product. The Grant provides up to AUD$200,000 over two years or up to $100,000 per year. We would recommend that each entrepreneur applying for this fund be allocated RM120,000 per annum on a matching basis which can be utilised to pay for up to 3 persons meaning that if the entrepreneur chooses to spend all the money on 1 experience CEO, he can but must justify this with past experience and results based KPIs set for the individual. By providing the entrepreneurs with Vouchers to pay these high level executives or Business Coaches, enterprises may actually stand a good chance on successfully commercialising their technology. Vouchers also give an advantage to the entrepreneur to be satisfied with the performance of the individual concerned
110
and sign off before the Voucher can be redeemed. Grant providers can also assess the performance of the individual concerned prior to releasing funds. b) Voucher Funding for External Experts Here entrepreneurs will be provided with vouchers to access specialist advice and services. Service Providers wishing to avail themselves of the grants should apply to be evaluated by the Grant Provider and provide listing or services and standard fees structure which are reasonable. It is our recommendation that each entrepreneur applying for this fund is allocated a maximum of RM100,000 per annum on a matching basis. c) Skills Enhancement Program This program will support the development of pre-identified skill requirements in individual businesses and industries at the commencement of Early Stage Commercialisation (ESC) and Export Related Commercialisation (ERC) activities and will provide support on a matching grant basis for employee capability enhancement activities. Matching in this circumstance can be from Agencies offering capability enhancement programs where the Agency provides the Programs and the Entrepreneurs matches by paying up to 50% of the fees from the grant. Entrepreneurs can tap into this grant to access and pay for: i) training existing staff to plug a skills gap that can assist in realising a specific growth opportunity outside Malaysia; ii) training for new staff being employed by a businesses to realise a new growth opportunity outside Malaysia; and iii) targeted recruitment activities for attraction of staff with skills that are directly relevant to realising a specific growth opportunity in the overseas market. d) Researchers from IHLs Refer to paragraph on linkages with universities in 3 (c) above. B. Funding for Export and Expansion Activities. 1. Global Market Access Program (Global-MAP) Objective of this program is accelerating Malaysian innovative companies into Specific Geographical Locations (SGL).
111
The Global MAP Program provides selected companies with a unique opportunity to enter the TARGET MAARKET in a sustainable manner. Entry into the Program is recommended to be competitive with a maximum of ten (10) grants awarded per annum for entry into each Specific Geographical Location. Global Map funds can be utilised to pay for : i) Pre-mentoring programs and preparation where successful candidates will be linked to their assigned local mentors for briefing and preparation, prior to departure overseas; ii) Intensive mentoring and experiential program in the SGL, conducted by mentors from the location to rapidly upgrade value propositions, business case and export skills of the successful candidates through individual and group sessions with their assigned foreign mentors. Companies develop their market entry strategies and establish links with potential alliance partners, channel partners and financiers iii) A continuing 6-month mentoring support program on their return to Malaysia, linking both the local and foreign mentors to successfully implement activities to penetrate the SGL. Co-contribution/Matching Funds Global MAP grants will be provided on a matching basis (% to be determined) and the entrepreneur must contribute funds of their own to access this program. Successful Global MAP recipient may also tap into other grants (like the MDG) to support activities in the SGL.
112

Fostering Creation of Next Generation Innovative Tech Co Malaysian Policy Report May 2011 DR Siva

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Fostering Creation of Next Generation Innovative Tech Co Malaysian Policy Report May 2011 DR Siva

Uploaded by

Copyright:

Available Formats

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Project Description and Objectives

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Towards a High Income Economy

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Chapter 2: Macro Recommendations

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Harvard Business Review, June 2010

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Chapter 3: Contribution Of Funding Mechanisms To Innovation

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fig 3.1: Flow Chart of Client Charter

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

i) Social contribution if applicable j) Contribution to corporate income in other ways

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Chapter 4: Market Dynamics

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Fostering the Creation of the Next Generation of Innovative Technology Enterprises