Did you know that Taiwan’s and South Korea’s GDP per capita was behind Malaysia’s back in 1967? However, these two countries have evolved rapidly since then, including during the Asian Financial Crisis in 1997. The latest statistics mentioned that South Korea’s GDP per capita is USD33,000, Taiwan’s USD25,000, and Malaysia at USD11,000. The question we need to ask ourselves is – Why are we left far behind?
There are various reasons why our country is in this situation. One of the main reasons is that we are over-reliant on natural resources such as oil and gas. South Korea and Taiwan have 15 and 9 companies respectively listed in the Fortune 500 list, ranking the biggest companies in the world by revenue. We only have one company on the list, our nation’s oil and gas company – Petronas. Despite Petronas being a global brand, how do we become a high-income nation if we are only dependent on one company? What happens when our oil has run out?
The dominance of GLICs (Government-Linked Investment Companies) and GLCs (Government-Linked Companies) in our economy prevent us from moving forward. The seven GLICs control essential companies in the economy, and they have majority ownership of 35 public-listed companies. In terms of market capitalisation, they own about 42% of the entire Bursa Malaysia. In addition to the appointment of incapable politicians as the board of directors of these companies and scandals such as 1MDB, Tabung Haji, and FELDA, our future to achieve as a high-income nation will be very challenging.
Another challenge that we face is that many businesses in Malaysia offer products and services that already exist. We are too focused on the domestic market. We are too comfortable manufacturing chip processors instead of designing and researching our chip processors. We are so focused on marketing our products and services domestically that we ignore the potential of expanding our businesses in the international market. Offering products and services in the red ocean market will not last as competition increases while profit and growth decline.
Our country also relied substantially on multinational corporations and foreign direct investment for export upgrading and technological transfer. Global companies are usually unwilling to hand over their technologies to local companies, leaving our nation stuck supplying raw materials. These multinational companies usually uphold their intellectual property rights and product development. Besides being reluctant to transfer technologies to us, they are also unwilling to train our local talents. As our domestic industries are underdeveloped, our local companies’ challenges continue as we have little capabilities to fund research and development.
Malaysia is desperately in need of new wealth creation. We need to create more global brands, just like South Korea and Taiwan created companies such as Samsung, LG, KIA, Acer, and Asus. To achieve this, we can no longer rely on businesses focused on natural resources. We need to shift our attention to technology-based companies. According to the Asian Productivity Organisation, Total Factor Productivity or TFP (which represents efficiency and technology) contributed 14% to Korea and 24% to Taiwan’s economic growth between 1970 and 2016. Meanwhile, TFP only contributed 5% to Malaysia’s growth.
South Korea and Taiwan’s economic growth has relied on technological innovation by their local companies. Their reliance on creating technology by local firms was much more successful in innovating and increasing productivity. Generating and dispersing technology through local firms are significant to improving efficiency and producing innovation and technological upgrading. We must follow South Korea and Taiwan’s footsteps to break through our nation’s middle-income trap. We need to create local firms and clusters in high-tech sectors by increasing research and development (R&D) spending and improving quality education.
Grab is a perfect example of how a small tech company based in a cramped garage in Kuala Lumpur transformed into a USD14 billion company within eight years. However, due to a more established start-up ecosystem that promotes international attention, Grab has moved its HQ from Malaysia to Singapore. It is a loss to our country as Grab could have been our hope to be part of the Fortune 500 list. Nevertheless, Malaysia needs to create more innovative companies like Grab for us to become a high-income nation. We need them now before more global companies keep on buying Malaysian-based companies such as Iflix, which China-based Tencent has bought over.
Arif Dzulkifli is a content writer under Headliner by Newswav, a programme where content creators get to tell their unique stories through articles and at the same time monetize their content within the Newswav app.
Register at headliner.newswav.com to become one of our content writers now!
*The views expressed are those of the author. If you have any questions about the content, copyright or other issues of the work, please contact Newswav.