MALAYSIA’s focus on innovation has been substantial, especially since the 10th Malaysia Plan (2011-2015), with the birth of many agencies and programmes created to boost innovation.
However, the story of innovation could be traced back from decades ago, and some remind us about the failure of “hand-holding” despite Malaysia’s efforts to encourage domestic innovation.
In the 1970s, Malaysia started to broaden its export industries to transition to a middle-income economy. Supporting an infant industry, the government facilitated technology transfer agreements with foreign partners, which should have helped companies to build knowledge to innovate on their own.
However, despite efforts to assist domestic players, rates of technical adoption and innovation were less than optimal.
Similarly, when Malaysia started to shift into heavy industries, foreign partnerships were again relied on, coupled with government assistance in these industries with tariff and non-tariff protection, as well as subsidies.
However, as a whole, industry was not very successful at finding new export markets for products, but was only sustained largely by high rates of protection and the domestic market.
Now, Malaysia’s efforts to leverage on innovation as the central plank of its economic growth is proven from its various actions, with the proliferation of agencies aimed to enhance innovation, the various assistance and programmes targeted to advance areas that are key to innovation such as research and development, entrepreneurial activities, human capital and skills, technology, infrastructure and many more.
However, the Global Innovation Index (GII) 2016 revealed that Malaysia’s innovation input, which captures elements that enable innovative activities, is more than the average of comparator countries but the innovation output, which involves the actual evidence of innovation outputs, is less than the average of comparator countries. This implies that despite the investments and efforts made, even though larger than other comparator econo- mies, the outcome is yet to be satisfactory.
Does this infer that too much assistance and “hand-holding” has resulted in the lack of drive for domestic innovation?
Studies have shown that Malaysian small and medium enterprises are not innovating at the desired level. Self-reported surveys show that companies do not innovate due to a lack of funding.
However, is the lack of prioritisation the main cause of allocation for innovation not being made in the first place?
To reflect, let’s look at how other countries feel and react on the pressure of innovation. For instance, China’s digital transformation journey and India’s path from poverty to empowerment.
Having the advantage of a massive domestic consumer market, Chinese innovators do not stop there.
Instead, they strive for improvements by leveraging on customer feedbacks to carry out rapid refinements. Chinese consumers would buy 1.0 versions of products and give feedback that helps manufacturers and service providers upgrade their products accordingly.
For instance, Xiaomi relies on over a million of its users to vote online for new features, then introduce those desired features in weekly software updates.
In the case of India, GII 2016 showed that India has improved its ranking by climbing up 15 notches to number 66. Indian Prime Minister Narendra Modi insisted that the success of innovation in the information technology industry is possible due to the government’s lack of participation in the industry’s growth.
Furthermore, in a poverty-stricken country like India, the innovators, from grassroots innovators to academic creators involved in complex innovation, are marked by a strong sense of constraints, resulting in an amazing ability to outwit them.
How do we create this “pressure” or desire to push and drive innovation for our local players? First, we need to educate consumers to raise the bar for quality. “Good enough” products should no longer suffice as “guaranteed” markets for local players as they can impede innovation in the long term.
Next, competition should be encouraged to produce competitive innovators. Competition also provides incentives for the more efficient domestic firms and a disincentive for the less efficient ones.
Lastly, encourage local companies to export and not just focus on the domestic market. Greater pressure from foreign competition stimulates innovation.
To summarise, there is a need to re-look into the impact of “hand-holding” on innovation. It is important to balance between assisting and encouraging innovation without accidentally creating discouragement.
Incentives that “over protect” local firms jeopardise their competitive edge to compete outside of the domestic market, over reliance on foreign direct investments and easy access to funding without proper monitoring and evaluation, are not the answers to innovation development.
Many successful innovators did not have it easy; they face challenges after challenges that allow them to stay competitive. In the long run, to create sustainable innovation, the sink-or-swim experience matters. As the saying goes, “no pressure, no diamonds”.
This article first appeared in New Straits Times, 9 May 2017.