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

7/31/2019 Fostering Creation of Next Generation Innovative Tech Co Malaysian Policy Report May 2011 Dr Siva

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Fostering the Creation of the Next Generation of Innovative Technology Enterprises

Prepared for the Unit Innovasi Khas, Prime Ministers Office, Malaysia 1

FosteringTheCreationoftheNextGenerationof

InnovativeTechnologyEnterprisesinMalaysia

APolicyPaperfortheSpecialInnovationUnitofthe

PrimeMinistersOfficeofMalaysia

20thMay2011

byDr.SivapalanVivekarajah&Ms.RenukaSena


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FOSTERINGTHECREATIONOFTHENEXTGENERATIONOF

INNOVATIVETECHNOLOGYENTERPRISESINMALAYSIA

ByDr.V.Sivapalan&Ms.RenukaSena

20thMay2011

ChapterBriefThischapterdealswiththeinnovationissuesrelatedtosmallandmediumsizedinnovativetechnologyenterprises(SITEs).AsonepartofalargerstudybeingconductedbyUNIK,weexplorethe

innovationstatusandproblemsandissuesfacedbySITEsandproposerecommendationsandimplementableactionsthatcanbetakenbytherespectivepartiestosolvetheseproblemsandassistSITEstogrowandcontributetotheMalaysianeconomyandemployment.

DefinitionsThereareseveraldefinitionalissueswewouldliketoclarifybeforeweproceedtothereportandrecommendations.

Innovation

Therearemanydifferentdefinitionsforinnovationandsomepeopleconfuseinnovationwithinventionorcreativityandotherusethesewordsinterchangeably.Asanexample,theMerriam-Websterdictionarydefinesinnovationastheintroductionofsomethingnewandanewidea,methodordevice,whileitdefinescreativityastomakeorbringintoexistencesomethingnew.Inventionisdefinedasadevice,contrivance,orprocessoriginatedafterstudyand

experiment.Thesedictionarydefinitionsareoflittlehelptousastheycontributelittletoincreasingourunderstandingofinnovationandevenconfusethemeaningsofinnovationandcreativity.Dr.EdwardRobertsaProfessorofTechnologicalInnovation,Entrepreneurship,andStrategicManagementatMassachusettsInstituteofTechnologycoinedamoreusefuldefinition.HedefineditasInnovation=Invention+Exploitation.Innovationinbusinessandsocietyisthereforeaninventionthatisexploitedtocreatevalue,eitherbusinessvalueorabenefittosociety.Inventionisderivedfromresearchanddevelopment(R&D),whilevalueiscreatedthroughtheexploitationorcommercialisation(C)oftheinvention.In


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simpletermswecandefineinnovationasInnovation=R&D&C.Thisisaconceptthatembracesboththedictionarydefinitionaswellasthegenerallyusedbusinessdefinition.Inthisstudythereforewedefineinnovationastheexploitationor

commercialisationofinventionsandresearch&development,tocreateeconomicandsocialvalue.

InnovativeCompanies

WedefineinnovativecompaniesascompaniesthatarethecreatorsofinnovationwhoowntheirownIntellectualProperty.

SITEs

WedefineSITEsasSmallandMediumSizedInnovativeTechnologyEnterprises.BysmallandmediumweusetheSMECorporationdefinitionasfollows:IndustryorSector SmallEnterprise MediumEnterpriseManufacturing,Manufacturing-RelatedServicesandAgro-basedindustries

SalesturnoverbetweenRM250,000andlessthanRM10millionORfulltimeemployeesbetween

5and50

SalesturnoverbetweenRM10millionandRM25millionORfulltimeemployeesbetween51

and150Services,PrimaryAgricultureandInformation&CommunicationTechnology(ICT)

SalesturnoverbetweenRM200,000andlessthanRM1millionORfulltimeemployeesbetween5and19

SalesturnoverbetweenRM1millionandRM5millionORfulltimeemployeesbetween20and50

Ourreportandrecommendationsareprovidedbelow.

WehopethisstudyandourRecommendationsandExecutionPointswillfurthertheobjectiveofUNIK(UnitInnovasiKhasorSpecialInnovationUnit)andthenationinmakinginnovationthekeydriveroftheeconomyandtowardsachievingthegoalsoftheNewEconomicModelofmakingMalaysiaaHigh-Income,High-Valueeconomy.AuthorsoftheReport:Dr.V.SivapalanandMs.RenukaSena


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CONTENTOUTLINE

1.0 Introduction1.1 ProjectDescription&Objectives

1.2 ModusOperandi

1.3 TowardsaHighIncomeEconomy

1.3.1 ContributionTowardstheEconomy

1.3.2 ContributiontoHighIncomeSociety

1.4 StructureofRecommendations2.0 MacroRecommendations

2.1 PavetheFootpath

2.1.1 EntireEcosystem

2.1.2 EntireLifecycle

2.1.3 BeingColourBlind

2.2 SectorSelection

2.2.1 BeSectorAgnostic

2.2.2 LetMarketsDriveSectors

2.2.3 SupportExistingSectorswithStrongMarketPlayers2.2.4 Summary

2.3 MicroActions

2.3.1 SmallThingsMakeBigDifferences

2.3.2 ExecutionPolicyMoreImportantthanMacroPolicy

2.3.3 AlwaysEngageMarketPlayers

2.4 GovernmentPolicyandRoleRethinkingNecessary2.4.1 PoliciestobeMarketDriven2.4.2 ManageInter-DisciplinaryNatureofInnovation

2.4.3 ReformBureaucracyandRewardsSuccessandMeritocracy

2.4.4 Summary

3.0 ContributionofFundingMechanismstoInnovation

3.1 GrantMechanismBigPicture

3.2 StandardTimelinesandDocumentation

3.2.1 ClientCharterandRuleof4


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3.2.2 StandardClientCharterforALLGrants

3.2.3 StandardiseDocumentationandDueDiligence

3.3 LackofCommercialEvaluationsandExpertise

3.3.1 LackofCommercialEvaluationsinGrants3.3.2 LackofExpertiseinProcessingApplications

3.3.3 StandardisedVotingMechanismforApproval

3.3.4 SetUpSharedDatabaseofExperts

3.4 LackofTransparency3.4.1 NoTransparencyinProcessingApplications

3.4.2 PublishRecipientProjects,AmountsaswellasResources

3.4.3 SetupSharedDatabaseofPhysicalAssetsandResources

3.5 LowReturnsfromR&DFunding3.5.1 IncludeCommercialEvaluationsforALLGrants

3.5.2 IncludeAllocationwithinGrantsforCommercialActivities

3.5.3 TrackingMechanismonCommercialAspects

3.6 LackofCommercialisationFunding3.6.1 CreateaBalancebetweenR&DandCommercialisation

Funding

3.6.2 IncorporateCommercialisationActivitiesinalPre-Seed,

R&DandPre-CommercialisationGrants

3.6.3 IncreaseHumanResourceAllocationsinCommercialisation

Funding

3.6.4 IncorporateVoucherMechanisminALLGrantFunding

Programs

3.6.5 Summary

4.0 MarketDynamics

4.1 MarketDynamics-BigPicture

4.2 MarketAccessibility

4.2.1 GLCstoBuyLocal:FirmDirectionNeeded

4.2.2 PriorityforCertifiedCompanies

4.2.3 BuildACultureofTrust

4.2.4 SetupLabsforLocalSITEstoTestBedInnovations


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4.3 MarketAdoption

4.3.1 NeedtoBoostAdoption

4.3.2 IncentiviseAdoption

4.3.3 RemoveBenefitsthatRestrainAdoptionofTechnology4.3.4 AdditionalIncentivesforEarlyAdoptersofTechnology

4.4 GoGlobalandExportingInnovations

4.4.1 IncreaseFundsforExportPromotion

4.4.2 HaveMoreTech-KnowledgeableStaffatMatradeOffices

Abroad

4.4.3 MoveAgenciesfromIndustrialtoNewEconomy

4.4.4 SpecialProgramstoPromoteGlobalAccess

4.4.5 MatradeExportAccelerators(MExA)

4.5 GovernmentRoleandContributiontoMarketDynamics

4.5.1 PolicyMakingtoEngageMarketPlayers

4.5.2 QuarterlyProblemSolvingDialogues

4.5.3 GovernmentandGLCProcurementTransparencyand

Meritocracy

4.5.4 OneStopCentreforComplaintsandProblemResolution

5.0 StakeholderDynamics

5.1 StakeholderDynamicsBigPicture

5.2 EmpoweringAgencies

5.2.1 MoveAgenciestoPMOandEmpowerthemAdequately

5.2.2 RemoveoutdatedPoliciesandShackleCompanies

5.2.3 ImproveRecognitionofCertifiedCompaniesAmongPublic

andCorporations

5.2.4 HelpCompaniesEngageGLCsandPLCs.

5.2.5 KPIstobeSuccessDriveandNotNumbersDriven

5.2.6 DataCollectiontobeBetterUtilisedtoHelpCompanies

5.2.7 CreateSuccessStoriesbyBackingtheBestCompaniesAll

theWay

5.3 InstitutionalRolesandResponsibilities

5.3.1 DevelopmentalFinancialInstitutionstoSupportInnovation

5.3.2 InstitutionsNeedMoreKnowledgeableStaff


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5.3.3 SMECorptoUpdateandUpgrade

5.3.4 IHLstoProvideMoreMarketDrivenEducationand

Training

5.3.5 PromoteRiskTakingByAmendingBankruptcyLaws5.3.6 EliminateCorruptioninTechnologySector

6.0 Contributionofexistingfundingmechanismstoinnovation

6.1 RightKindofSupportforRightKindofPeople

6.2 PoliciesShouldPavetheFootpath

6.3 PolicyofPositiveEngagement

6.4 InnovationisInter-disciplinaryDontworkinSilos

6.5 AgenciesandOrganisationalKPIsshouldbemoreMarket,GNI

andEmploymentDriven

6.6 ReduceMonopoliestoPromoteInnovation

6.7 LuckyCountry

AppendixA:

IntegratedGrantManagementSystem

AppendixB:

FurtherDetailsOfRecommendationsAndExecutionPlansForTheGrantMechanismsInChapter3


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Chapter1: Introduction

1.1 ProjectDescriptionandObjectives

Inthetechnologysector,anecdotallyitisacceptedthatmanyofthemostinnovativeenterprisesintheworldstartedassmallenterprises,whichthengrewtobelargeenterprisesorwereacquiredbythelargercorporationstoenhancetheirowninnovativeproductsandservices.Mostnewordisruptiveinnovationsarecreatedbysmallandmediumsizedinnovativetechnologyenterprises(SITEs)whereasthelargercorporationsaremostlythecreatorsofincrementalinnovations.HencelargercorporationsacquiretheseSITEsfortheir

innovationsorinnovationcapabilities,therebyensuringtheircontinueddominanceintheirindustries.ThisStudywillreviewthestatusofinnovationbySITEsprimarilyintheInformationandCommunicationsTechnology(ICT)andBiotechsectorsandalsotheGreenTechnologysectoreventhoughthisisstillarelativelynewsectorinMalaysia.ItexplorestheircontributiontotheeconomyandsecondlytorecommendproposalsandpoliciestofosterthegrowthanddevelopmentoftheseSITEstoensurethattheircontributiontothenationalagendaofaHighIncome,HighValueeconomyandVision2020ismaximized.

Theobjectivesaretorecommendpoliciesandproposalsto:

1. Fosterhigh-growthandinnovation-basedentrepreneurship2. IncreaseinnovationamongITEs3. Promoteanopen,dynamicmarketforinnovativeproductsandservices4. Supportopenpublicfundingmarketsthatallocateresourcestothemost

promisingideas5. Promotetheexportsofproductsandservicesregionallyandglobally6. EnsurethatthereisavibrantandsupportiveecosystemforITEs

ThereportwillincluderecommendationsbasedonbestpracticesandpoliciesfromothercountriesthatarerelevanttothegrowthofMalaysianITEs.

1.2 ModusOperandi

Thisstudywillincorporatewhenappropriatethefollowingstrategies:extensivestakeholderinterviewsanddialogues;reviews;benchmarking;datacollectionviasurveyswithindustryplayersandrelatedstakeholders;dataanalysisandstakeholderreviews.However,thebulkofthestudyandrecommendationsarebasedonwhatwecallabottomsupapproach,whereweexaminetheproblemsandissuesfacedby


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thebeneficiariesofthepolicies,theinnovatorsandSITEsthemselvesandproviderecommendationsbasedonwhattheywantandneed,basedontheirowninput.CurrentlymostGovernmentpolicynormallyadoptsatopdownapproachwherecivilservantsandconsultantscreatepoliciesbasedonbenchmarkingwithothercountriesandassumethatthisiswhatthe

beneficiariesneedandthencreatepoliciesforthem.Theprocessofconsultingthesebeneficiariesisseldomdoneingreatdetailandrarelydoneonaface-to-facebasis.Thishasresultedinpoliciesthatdontmeetrealneedsandsometimespoliciesareinappropriateanddownrighthatedbythecompanieswhofindthatsomeofthesepoliciesstiflegrowthratherthanpromotegrowth.WearestrongbelieversinthestrategytoPavetheFootpath,whichweexplaininChapter2below,whichessentiallymeansprovidingpoliciesthatbenefiteveryoneregardlessofindustryorsectorandwebelievestronglythatthismustalwaysbedoneinconsultationwiththebeneficiariesofthepoliciesthemselvesandnotdoneinisolationfromthem.Indoingthisstudywehavehadconsultationswiththreegroupsofcompaniesandassociationsinthethreesectorsmentionedabove(ICT,Biotech&Green),whicharetheprimaryinnovativesectorsinMalaysiawiththelargestnumberofSITEswhocreateandowntheirownIntellectualProperty(IP).WhiletherearemanyothertechnologysectorsliketheElectricandElectronic(E&E)andOil&Gas(O&G)sectors,therearentasmanySITEsinthesesectorswhoareIPcreatorscomparedtothethreesectorswehavestudied.

Wehavehadconsultationswiththefollowing:

1) TechnopreneursAssociationofMalaysia(TeAM)15members2) BiotechCorp15members3) PIKOM10members4) GreenTechindustry30members

Consultationsincludeindepthdiscussionsanddialoguestounderstandtheissuesthatimpacttheseindustrysectors,theirproblemsandtheirpolicysuggestionstoimprovetheecosystemforSITEstothriveandgrow.Additionally,therecommendationswerealsopresentedandtestedwiththeICT,BiotechandGreenentrepreneursinaseparatesessionpriortothefinalisationoftheserecommendationstoobtaintheirconfirmationandvalidationofourpolicyrecommendationsandproposals.

1.3 TowardsaHighIncomeEconomy

InlinewiththeGovernmentinitiativeoftheNewEconomicModelourstudyand

proposalshavebeenmadewiththeobjectiveofcreatingcompaniesthatcontributepositivelytowards:


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a) TheEconomyandGDP,and;b) Highincomeemployment

1.3.1ContributiontowardstheEconomyOurstudycoverstheinnovativeSITEsofICT,BiotechandnewtechnologyareasincludingGreentechnology.IntermsofcontributiontoGDP,inICT,MSCMalaysia'svalueaddcontributiontoMalaysia'seconomywasrecordedat1.2%ofGrossDomesticOutputofMalaysiain20071,whileBiotechcontributed1%toGDPin20092.WearentabletoassessGreenTechscontribution,asthisisstillanascentindustryinMalaysia.EvenforbothICTandBiotech,whiletheGDPcontributionwasmeasuredin

termsoftheirfirmsactualrevenuecontribution,theirrealcontributiontotheeconomyincludestheexpansionintheuseofICTandBiotechwithinbusinessesandtheconsequentincreaseinproductivityofthoseindustriesinMalaysia.Forexample,ICTisbeingusedinallsectorsfromretailtomanufacturingtobankingtoconstructionwhileBiotechisusedinsectorsfromagriculturetoindustrialtohealthcare.Theuseofthesetechnologiestoincreaseproductivity,reducecostsandincreaserevenuesallmakeasignificantthoughindirectcontributionthatiscurrentlynotbeingmeasuredintermsoftheircontributiontoGDP.Thepointwewishtomakeisthatonecannotvaluethesesectorscontributionto

GDPorGrossNationalIncomeonlyintermsofitsDIRECTcontributionasmeasuredintheNewEconomicModel(NEM).Theirindirectcontributionisalsoimmenseandisprobablygreaterthantheirdirectcontributionhencetheyareextremelyimportantsectorsfortheeconomy.EventhefirmsowncontributioncouldhavebeenmoreimpactfulonGDPhadMalaysianSMEsadoptedmoretechnologywithintheirownbusinessesandifthelargercompaniesandGLCssupportedlocaltechnologyinsteadofusingforeigntechnology.TheproblemwithICTandBiotechisnotthatthereisalackoftechnologycreationbutalackoftechnologyadoptionbyMalaysiancompaniesbothSMEsandlargercompanies.Ifwefixtheadoptionproblem,theirdirect

contributiontotheeconomyandoverallcontributiontothebusinesssectorsproductivityincreaseandprofitabilitywillincreasetotalcontributiontotheeconomyandGDP.So,whilecurrentstatisticsshowonlyalowlevelofcontributionbytechnologycompaniestowardsGDP,thiscanbesignificantlyimprovedwiththerightkindofpoliciesandproposalsandtheproperexecutionofthesepoliciescoupledwithincreasedadoptionbybusinesses.

1MSC Malaysia Impact Survey 20082 As stated by CEO of Biotech Corp to New Straits Times on 21st March 2009.http://www.biotechcorp.com.my/pages/20090321_BiotechSectorConfidentOfHittingGDPContributionGoal.aspx?AudienceId=1


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1.3.2 ContributiontoHighIncomeSocietyWemustalsodifferentiatebetweenasectorscontributiontoGDPandits

contributiontoaHighIncomeeconomy.Forexample,whilethereisnodisputingthecontributionoftheplantationsectortoGDP,however,itscontributiontoaHighIncomeeconomyisminimal.Otherthanmanagementlevelstaffinthefewcompaniesthatownplantationsandperhapsattheestates,therestoftheworkersarelow-incomeemployeeswhileamajorityofestateworkersareactuallylowlypaidforeignworkers.BasedonaminimumstandardofRM4,000permonthinearningsasbeingarelativelyhigh-incomesalary,mostestateworkerswouldearnfarbelowthis,thustheirmonikeroflow-incomeemployees.ThegoodnewsisthatthehightechnologysectorisasignificantcontributortotheGovernmentsdrivetowardsahigh-incomeeconomy.Statisticsbythe

MultimediaDevelopmentCorporationandBiotechCorpshowthatsignificantnumbersoftheemployeesinMSCStatus3(74.2%)andBionexusStatus4companies(50%)respectivelyareknowledgeworkerswhoearnaboveRM4,000amonth,therebycontributingtoanannualpercapitaincomeofRM48,000orUSD16,000whichalreadymeetstheGovernmentsNewEconomicModeltargetofapercapitaincomeofUSD15,000bytheyear2020.ItisthereforeimperativethattheinnovativetechnologysectorbepromotedandsupportedasadriverofgrowthanddevelopedfurthertohelpachievetheNEMobjectivesespeciallyofcreatingahighincomesociety.

1.4 StructureofRecommendationsWehavestructuredourrecommendationsinthefollowingmanner.Wehavedividedourstudyandproposalsintothreedistinctareas:a)FirstlywehaveourHeadlineTopicsasfollows:

(i) MacroViewwherewelookatmacropolicydecisionmakingand

issues(ii)GrantMechanismsthemainfundingmethodologythatwereviewed(iii) MarketDynamicswhichincludesmarketaccessandadoption,twoof

themostimportantcommercialisationandvaluecreationproblemsfacedbyinnovatorsand;

(iv) StakeholderDynamicswherewestudyseveralGovernmentstakeholders,especiallytheAgenciesandInstitutionsthatimpactoninnovation

3MSC Malaysia Impact Survey 2008, Employment Outlook4Malaysian Biotechnology: Human Capital Development Report 2009


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b)Secondly,withineachoftheHeadlineTopicswehaveourgeneralRecommendations,whicharethemainrecommendationsweproposeinthisstudy.Wehaveatotalof15Recommendations,whichusetheabbreviationR.c)Finally,wehaveExecutionPoints(EP),whicharetheactualactionstobe

takenbyUNIKortherelevantstakeholderstoexecutetherecommendationswehavemade.TheseareimplementableactionsthatarethekeytothesuccessofourRecommendations.Wehaveatotalof76ExecutionPoints.Weshallnowproceedtotheactualrecommendationsofthisstudy.


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Chapter2: MacroRecommendations

Inpreparingourrecommendations,wehaveidentifiedasetofMacroRecommendationsthatwillbetheguidingplatformforthestudyandourpolicyrecommendations.ThisisrepresentedinTable2.1belowandwillbeexpandedfurtherinthisintroduction.

2.0 MacroRecommendations

TherearefourkeyMacroRecommendationsPavingtheFootpath,SectorsandFocusPolicy,MicroPolicyActionsandGovernmentPolicyandRoleRethinking.

WhyhaveaMacroView?

Policiescannotbeformulatedwithoutproperconsiderationoftheimpacttheywillhavenotjustonthebeneficiariesweidentifybutalsoonthewholeecosystem.Furthermore,onresearchingthebestpossiblepoliciestohavethegreatestpossibleimpact,wehavealsostudiedothermarketsandnationsandhaveexploredexperiencesandpracticeselsewheretoensurethatwecreatethebestpossiblepoliciesforMalaysia.


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2.1 PavetheFootpath

R1:WerecommendthatinformulatingpolicytheGovernmentadoptsthe

strategyofPavingtheFootpathwherepolicyisdrivenbythemarketandpoliciesshouldfocusonmakingtheentireecosystembetterforALL

innovatorsandEntrepreneurs.Prof.DanielJ.Isenberg,ProfessorofManagementPracticeatBabsonCollegeandExecutiveDirectoroftheBabsonEntrepreneurshipEcosystemProjectcoinedthetermPaveTheFootpathinhisinfluentialHarvardBusinessReviewarticleHowToStartAnEntrepreneurialRevolution.5HebelievesthatGovernmentsshouldnotdictatethedirectionofeconomicactivity,especiallypredictingthefutureofbusinessactivityincludingtheformationofeconomicclustersorselectedsectorstopush.InsteadtheyshouldobservewhatEntrepreneursaredoingandbuildeconomicactivitiesaroundthemtohelpthemdobetter.ToquoteProf.Isenberg,They[meaninggovernments]shouldobservewhichdirectionentrepreneurstakeandpavethefootpathbygentlyencouragingsupportiveeconomicactivitytoformaroundalreadysuccessfulventures,rather

thanplanningnewsidewalks,pouringtheconcrete,andkeepingtheentrepreneurs

offthegrass.GovernmentpolicyshouldthereforebedrivenbythemarketandpoliciesshouldfocusonmakingtheentireecosystembettersothatEntrepreneurscandowhat

theydobest:buildcompanies,hirepeopleandcreatesuccessfulventuresthatcontributetoeconomicactivity,theGDPofnationsandtoemployment.Ourstudythereforedoesnotfocusonspecifics,insteaditisfocusedonmakingtheentireecosystembetterforallEntrepreneurs/Innovatorssothateveryonehasanequalopportunitytothriveandsucceednomatterwhathappensinthefuture,especiallyinthearenaoftechnologyEntrepreneurshipandinnovationwherechangesarerapidandunpredictable.WeproposethefollowingExecutionPointstoensurethesuccessfulapplicationofthisRecommendation.

2.1.1.EntireEcosystem

EP1:Weproposethatinnovationpoliciesfocusonthepromotionand

enhancementoftheentireecosystemandnotjustonselectedsectorsor

industrialclustersorpartsoftheecosystem.OurFootpathistheentireecosystem.Althoughwehavecoveredonlypartsoftheecosystem(theshorttimeframeforthisstudymeanswehavetofocusonthemostimportantareas)wehopethatfuturepolicystudiesincorporatethe5Harvard Business Review, June 2010


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Footpathideologysothatallplayers(EntrepreneursandInnovators)willbenefitfrommoreholisticpolicies.ArepresentationoftheEntireEcosystemisprovidedbelow,inFigure2.1.WeusethemodeldevisedbyProf.Isenbergasthatisacompleterepresentationof

theEntrepreneurshipEcosystem.

Figure2.1:MapOfTheEntrepreneurshipEcosystem.ToparaphraseLewisCarroll,ifyoudon'tknowwhereyouaregoing,anyroadwillgetyouthere.Weusethephrase,"entrepreneurshipecosystem,"butwithoutamap,howwillweknowifwehaveone?Hereisasimplemapof13elementsofanentrepreneurshipecosystem:theseareelementsthatallmustexistinorderforanentrepreneurshipecosystemtobeself-sustaining....Encourageandempowereachofthehyper-localinitiativestocultivateall13elementsoftheirownentrepreneurshipecosystem,inwaysthatareuniquetothem.6

6Daniel J. Isenberg in the Harvard Business Review Blog topic President Obama can make

Startup America succeed. Wednesday February 2, 2011


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Wedonotcoverallaspectsinthisstudy,merelythefollowing:Government,financialcapital(primarilygrants),entrepreneurialorganisations(wecallthemstakeholders),economicclusters(Biotech,ICTandGreentech)andcustomers

(marketaccess).Otherresearchersarelookingattheotheraspectsoftheinnovationecosystemandinnovationstakeholdersthatwehopewillbringaboutbetterpolicymaking.ItisourferventbeliefthatMalaysianpolicymakersmustconsidertheentireecosysteminfuturepolicydecisions,asincompletepolicymakingwillleadtoineffectivepoliciesashasbeenproveninthepast.Asanexample,wehavespentbillionsonR&Dandfilingpatentsbutweneverfirstaddressedwhetherthesepatentapplicationshaveanycommercialpotentialorinfact,whetherregisteredpatentscanbecommercialised.Similarlycompanieshavebeenfundedwithoutfirstconductinganymeaningfulassessmentofthecompaniesproducts(networks,supportservicesandcustomers)andwhetherthereisareadymarketforcommercialisation.Wealsocreatedeconomicclusters(MSC,Biotech,Green)butdidnotaddresseducationandfinancialcapital(morethanjustR&Dgrants).Thislackofaholisticpolicyhasledtobillionsinwastedfundsandnotenoughreturnoninvestment.WehavecreatedsomesuccessstorieswithmanylistedICTcompaniesbutitcouldhavebeenmuch,muchbetterifwehadaddressedallpartsoftheecosystem.

2.1.2 EntireLifecycleEP2:Policiesmustnotjustcovertheentireecosystembutalsotheentirelifecycleofentrepreneurialventures.

InthepastpoliciesandsupporthavebeenseriouslyimbalancedmostlytowardsventureorR&DcreationwhilepoliciesforventuregrowthandR&Dexploitationwereseriouslylacking.Thisledtothecreationofentrepreneurialstartupsbutmediocregrowthofthesestartupsandmanypatentsandinventionsbutpoor

exploitationofthesecreations.Theproblemhereistwofold.Firstly,thefocusofpolicyhasbeenoncreationwithverylittleregardpaidtotheexploitationofthetechnologyandsecondly,noregardhasbeenpaidtoenhanceadoptionofthetechnologiesbeingcreated.Ourpolicieshavenotbeenholisticandwecontinuetomakethismistakeeventoday.Figure2belowrepresentstheentirelifecycleofthebusinessventurefromideatomaturity.Itwillbecleartopolicymakersthatthefocushasbeenveryone-sidedifviewedfromtheperspectiveofFigure2.Mostofthemoneyhasbeen

http://blogs.hbr.org/cs/2011/02/dear_president_obama_how_to_ma.html


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spentondiscoveryandR&D,someonprototypeandproductdesignandasmalleramountontheearlystagesofcommercialisation.Muchofpolicyhasalsobeenfocusedonpatentcreationwithverylittleoncommercialisation.Afewoftheagencieshavedealtwiththegrowthaspectsbuttherehasbeenlittle

thoughtgiventohelpinginnovativecompaniesattheirmostvulnerablestage,theearlycustomersandgrowthstage.Thisiswherefailurehappens.Iftheyfailtogetmarketadoptionintheearlystagesofcommercialisationthentheventurewillfailandeverythingthatthegovernmentspentonthemislost.ThisisthereasonforthepoorROIongovernmentinvestmentininnovation.Policiesshouldbemoreholisticandbalancetheneedbetweencreation,exploitationandgrowth.TheyshouldthereforebedesignedforeverystageofthelifecycleofabusinessventureoratleastfromDiscoverytogoingGlobal.

2.1.3 BeingColourBlindEP3:Innovationpoliciesmustbecolourblind,theymustnotfavourany

groupsorsectorsandmustbecompletelytransparentandmeritocracybased.

DuringtheconsultationprocessthisissuewasbroughtupmanytimesbyEntrepreneurswhofeelthatintherapidlychangingarenaoftechnologyandinnovation,thebestwaytoensuresuccessistoensurethatpoliciesarebasedon

meritocracyandonlydeservingprojectsandentrepreneursareprovidedthesupporttheyneed.


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AsGovernmentresourcesneedtobeallocatedmorecarefullyinthefuture,policiesthatbenefitonlycertainclassesofpeopleshouldbeavoided.Transparent,meritbasedpolicieswillalwaysensurethebiggestbangforthebuck.Bycuttingoutleakagesandremovingbarrierstoensureonlythe

deservingaresupportedwewillgivethebestcompaniesarealchanceofcreatingsuccessstoriesthatwillultimatelybenefitthenationasawhole.Furthermore,inmarketaccess,theGovernmentandGLCsarethebiggestbuyers/usersoftechnology.Bybeingcolourblindwecanremovethemiddlemanfromtheequationandthiswillinalmostallcasesensurebetterdeliveryofproductsandservicesatthebestprice.Infartoomanycases,favouredmiddlemenhavebeennothingbutrentseekerswhocollecttheirmoneyupfront,delaypaymentstotherealcompaniesthatdelivertheprojectandinmanycasesuseupthemoneyallocatedfortheprojectforpersonaluseandtherebycausetheprojecttobeabandonedbecausetherealcompaniesareunabletodeliverbecauseofcashflowproblemsandbecausepaymentsarenevermadeforservicesdelivered.Thisisoneoftheworstkeptsecretsinthetechnologyspaceandthisisthemainculpritthatleadstothelowprofitabilityoftechnologycompanies.Worsestill,technologycompaniesarethenblack-markedorstigmatisedbecauseoftheirinabilitytodeliverandthosethatdodeliver,aresometimesalmostbankruptedintheirattempttoensurecustomersatisfactionandthereforecannotsustainthemselvesforthelong-term.Ifprojectswereawardedbasedonmeritandbestpricebasis,thenthebest

companieswillwintheprojectstheywilldelivertheprojectontimeandmakeadecentprofit.Thisprofitwillthenbeutilisedtofurthergrowthecompanyandhirebetterpeopleandultimatelyleadtobiggerandmoresuccessfulcompanies.TheGovernmentprobablyrealisesthisbuthasnotactedonthisinformationtocreatemeritbasedprocurementpolicies.Thisisoneofthebiggestcausesoffailureamonginnovativecompanies.TheGovernmentcancurethisproblemimmediatelyandifitwantstoensurethesuccessofallthesupportandpublicfundingprovidedtocompaniesthenitmustfixthisproblemorcompanygrowthwillalwaysbestunted.

2.2 SectorSelection

R2:WerecommendthatinformulatingpolicytheGovernmentadoptsa

sectoragnosticpolicyoutlookandformulatespolicybasedamarketdriven

approach,whereEntrepreneursandMarketsCreateClustersandnotapolicywhereClustersCreateEntrepreneurs.

Clustercreationandsectorpickinghavebeenanactivitythatmanygovernmentshavebeendoingforyears.Yettherehasbeenverylittlesuccesswhengovernmentsdothis.AdherentsmentionKoreaandTaiwanascompaniesthat


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pickedsectorsandcreatedsuccessbutthisisnotwhattheydid,atleastnotthewayproponentsofthetheorythinktheydid.ClusterthinkingwasfirstderivedfromProf.MichaelPortersanalysisinTheCompetitiveAdvantageofNations.However,mostpeoplemistookhisanalysis

forwhichheprovidedthisresponseinaHarvardBusinessReviewarticlein1998.Governmentshouldreinforceandbuildonexistingandemergingclustersratherthanattempttocreateentirelynewones.Infact,mostclustersformindependentlyofgovernmentactionandsometimesinspiteofit.Theyformwhereafoundationoflocationaladvantagesexists.Tojustifyclusterdevelopmentefforts,someseedsofaclustershouldhavealreadypassedamarkettest7EveninKoreaandTaiwan,theyalreadyhadheavyindustriesandelectronicsindustriesrespectivelywhentheychosetofocusandpromotethemfurtherbyformingclusters.Itwasnotinitiallydrivenbythegovernmentandthisisstillthebestwaytoformclusters,aroundtheinitialsuccessofthemarket.2.2.1 BeSectorAgnostic

EP4:Werecommendthatthegovernmentbesectoragnosticincreating

innovationpolicy.Creatingnewsectorsshouldonlybeundertakenwhen

thereismarketdemandandnotbecauseofresourceavailability,prioritisingbyacademicsorotherreasons.

Yetgovernmentisalsonotoriousforitsabilitytomisreadtechnicalchange

MattRidleyinTheRationalOptimist,2010TheGovernmentshouldnotpresumetoknowwhatsbestforthecountryorindustryorwhatthefutureholds.SectorselectionshouldbemarketdrivenorindustrydrivenandnotGovernmentdriven.HenceGovernmentpolicieswheresomesectorsareselectedoverandaboveothersectorsforspecialtreatmentshouldbeavoided.Historyhasshownthatsectorselectionhasfailedandhasseriousrepercussionsontheeconomyandonbusinesses.Asrecentlyasthelast5years,duetotheriseinoilpricesandbecauseofthedrivetowardsrenewablefuels,theGovernmentpushedheavilyfortheuseofpalmoilasbiodiesel.ThissectorwasendorsedbytheGovernmentand100licencesweregivenoutaswellasloansandgrantstowardsmakingMalaysiaaleadingplayerinbiodiesel.Fiveyearslateralmostallthebiodieselcompaniesthatstartedfactorieshaveeithercloseddownorareseriouslyflounderingindeepredink.HundredsofmillionsofRinggitininvestmentbothbytheGovernmentandbyindustryplayershasbeenlost.Canwepredictwithanycertaintywhethertheagro-biotechsectororevenGreenindustrieswillcontinuetodriveinnovationaswellasbotheconomicandhigh

7

Clusters And The New Economics Of Competition, Harvard Business Review, 1998


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incomeemploymentoverthenext10oreven20yearsinMalaysia?Atbestwecanguess,crossourfingersandhopeforthebest.Furthermoresectorselectionshouldnotbetoonarroweither,unlessthereisamarketdrivenreasonforit(asweshallseelaterinrelationtoCreativeContent).

Hencepickinganichesectorwithinabroadersector(likeagritechanichesectorwithinthebroaderbiotechsector)shouldbeavoided.Theremaybetoofewcompaniesandemploymentlevelsalsomaynotbehighenoughtomakethisasuccess.Finally,creatingnewsectorsisalong-termgame.WithMSCMalaysiaittook10yearsbeforeitborefruitandwiththeBiotechsectorafter5yearswestillonlyhavelessthan150Bionexuscompanies.ItwilleasilytakeBiotechanother5to10yearsbeforetheinvestmentsbearfruit.Creatinganewclusternowwillmeannotjustanother10yearswaitbutalsoalltheinvestmentswemadeinpriorsectorswillbewasted.Technologicalchangestodayaretoofastpacedforanyone,whetherGovernmentorConsultants,tomakeproperfuturepredictionsonwheresectorsareheading.Westronglyrecommendthatthegovernmentbesectoragnosticincreatinginnovationpolicy.Ourrecommendationshavebeenbasedonbeingsectoragnostic.

2.2.2 LetMarketsDriveSectorsEP5:Sectorselectionshouldbemarketdrivenorindustrydrivenandnot

Governmentdriven.Henceincreatingpoliciespolicymakersshouldstudythe

market,understandtheposition,needsandwantsofmarketplayersandformulatesectoralpoliciesonlywherethereexistsagroundswellof

companieswhosegrowthandactivitiesthatcanbefurtherenhancedwithrelevantpolicy.

Clustersdontcreateentrepreneurs.Entrepreneurscreateclusters

Prof.MichaelPorter,1999Informulatingpolicyandindrivingclustersorsectorsweshouldletthemarketsdrivesectors.Henceweshouldfocusonexistingsectorsthatalreadyhavemanymarketplayersandhelpthesesectorstogrowandthrive.Overthelast15yearswehavecreatedmarketplayersinICTandBiotech.AlthoughBiotechwillstillneedanother5yearstocontributemeaningfullytothecountry,thefactremainswehavesomemarketplayersinthissectorandmanyinnovations.WealsohaveothermarketdriveninnovativesectorslikeElectrical&Electronicsbutnotmanyothers.Manyofthedriversoftheeconomyareinprimaryresourcesormanufacturing(mostlynon-innovativemanufacturing).Eveninthe


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burgeoningsectorlikeoilandgas,whilecontributionishigh,innovationbylocalsisnotmeaningful.Thesamegoesfortheagriculturalsector.Sowhatshouldwefocuson?Certainlynotincreatingnewclustersorsectorslikeagricultureoroilandgasorotherprimaryresourcesbutincreatingan

ecosysteminwhichALLthesesectorscanthrive.Innovationpoliciesmustbesectoragnosticbutmarketdriven,sothatanysectorinwhichtherearemarketplayerswhowanttoinnovatewillbegivenallthehelptheyneed.Andifwithintheseplayersaclusterdevelops,thenandonlythenshouldwespendmoremoneyandresourcesinhelpingthatsectortothriveandgrowfaster.Justlikeinallourpolicies,weseemtobeleaningtowardsthecreationelementandnotinthegrowthelement.JustlikeweseemtofundR&Dandnotcommercialisation,eveninthismatterweseemtobecreatingmoreandmorebutnotsupportingthegrowthoncewehavesucceededwithcreation.ThisisshowninFigure3belowwherewetransposetheMalaysianPolicyLifecycleontotheBusinessVentureLifecycleofFigure2abovetoshowthatwedothesamethinginpolicyaswedointhebusinesseswefund.Wedoplentyatthebeginningandthenstopjustwhenthegrowingbabyneedsthemosthelp.Weseemtohavenofollowthrough,butweliketocreatenewthings.Foronceweshouldjustfollowthroughexistingpoliciestoitsultimateconclusionandensurecompletesuccess.Dontkeepreinventingnewthings,justfinishwhatwehavestarted.


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Thecaseagainstnewclustersornewsectorswherethereisntathrivingmarketplaceofcompaniesandinnovatorsisthattocreatenewsectorsmeansanother5yearsofalearningprocess,5yearsthatwedonthave.

WhatwedohaveisanalreadythrivingICTsectorandaBiotechsectorthatsonthetippingpointofcommercialsuccess.Wemustnotignoreyearsofspendingandcommitmenttothesesectorsjusttocreateyetanotherclusterorsector.Themarketisworking,thecompanieshavebeencreated,innovationsfunded,peoplehavetheexperience,nowisthetimetoreapwhatwesow.

2.2.3 SupportExistingSectorsWithStrongMarketPlayers

EP6:TheGovernmentshouldconcentrateonexistingsectorswithstrongmarketplayersandlargemarketpotentialandformulatepoliciestofurther

enhancethesesectors.TheGovernmentshouldmoveawayfromcreationandfocusmoreongrowthandenhancement.

WherethereisalreadyinexistencesomespecificsectoralstrengthslikeintheCreativeContentsectorortheagro-biotechsector,thenfurtherpolicyenhancementsareencouragedbecauseitisalreadymarketdrivenandadditionalpolicieswillfurtherthegrowthofthissector.

TheCreativeContentsectorhasshownmuchpromiseandevenhasmadeanimpactgloballyprimarilywiththesupportofMDeC.Itisabubblingcauldronofyoungenthusiasticcompaniescreatingcontentonaglobalstage.However,itneedstobefurthernurturedandsupportedtoensurewecreatelargerglobalsuccessstories.Similarly,inothersectorswhereweseemarketsuccessandmanyplayers,thosesectorsdeservefurtherinputandsupport.

2.2.4 SummaryThepointwewanttomakeisthatpickingsectorsandindustriesarebestlefttothemarket.TheGovernmentsroleshouldbetocreatethebestecosystemforanysectororindustrytothriveandgrow.Itshouldnottakeontheroleofthemarketindecidingwhatitshouldfocuson.Wehavemadethismistakebefore;weshouldnotcontinuetorepeatit.Itstimewelearntfromexperience.WeneedtogobacktoonecorereasonforthisstudyandthedrivingforceoftheNEMthecreationofahighincome,highvaluesociety.Wethereforeneedtoleap-frogandnotjustcatchup.Whilstwearebusyflounderingintheditches,

regionalcountriesaroundusaremakingleapsandboundsIndonesia,Thailand,


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IndiaandChina.SoonouronlycompetitorswillbeMyanmar,CambodiaandVietnam!Wetendtogetboredwithsectorsandkeeplookingfornewones.Creatingnewsectorsmeananotherdecadetobuildindustriesandcompaniesthatcan

contributetoahighincomeeconomy.Thehighincome,highvalueisnotincreationbutinexploitationwhereweexploitalltheIPthathasbeencreatedandhelpexistingcompaniestogrowbigandsucceed.Everytimewecreateanewsectorwespendmoreandmoretimeandmoneyjusttogrowthemtotherightsizebeforetheycancontributetotheeconomy.Wecannotleapfrogbycreating,weleapfrogbyexploiting.

2.3 MicroActions

R3:WerecommendthatinformulatingpolicytheGovernmentpayasmuchattentiontothemicroissuesandnotjustthemacroissues.Whilethemacroissuesdeterminewhatshouldbedone,themicroissuesarehowthese

policiesareimplementedintermsofhowitwillbedone.Malaysiasfailurehasnotbeeninpolicycreationbutinpolicyexecution.Weoftenknowwhat

needstobedone,butdonthaveclearsolutionsonhowitshouldbedone.

HencewemusthavenotjustPoliciesbutExecutablePolicies.2.3.1 Smallthingsmakebigdifferences

EP7:Whenformulatingpolicy,policymakersmustnotjustconsiderthemacroaspectsofpolicybutalsospendanequalifnotmoretimeseekingoutthelittlethingsthatmakeabigdifferencethesmallpolicymeasures

withoutwhichthelargemacropolicieswillfail.

Thenorminpolicymakinghasalwaysbeenaboutthebigpictureandsometimesgrandioseprojectsbutoftenthesamesmallissuespersistthroughoutyearsofpolicymakingtherebyhinderingthesuccessofanypolicy.WehavethesameprobleminMalaysia.Yearafteryearwehavethesameproblemswhetheritisthe7thMalaysiaPlanorthe10thMalaysiaPlan.Intheend

thesmallthingsdestroythebestlaidplans.Itmightnotbesexy,butsmallthingsmakeabigdifferenceinthesuccessofanypolicy.Simplethingslikethetimetakentoprocessagrantapplicationorthelackofknowledgeablepeopleinsomegovernmentagenciesoreventheuseofoutdateddocumentscanderailthebestintentionedpoliciesandultimatelyaffectthesuccessofthepolicy.Wethenblameeveryonefrompolicymakertoagencytothebeneficiariesforthelackofsuccess.Hencewehavenotjustlookedatsomemacroaspectsofpolicyasstatedearlierbutwehavespentmoretimeseekingoutthelittlethingsthatmakeabigdifferenceandhavehighlightedmanyoftheminourrecommendations.


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2.3.2 ExecutablePolicyMoreImportantThanMacroPolicyEP8:Policymustbeexecutableandactionable.Havinggrandioseplansdoesnothelptheeconomytogrow.Policymakersmustensurethattheirpolicies

canbesuccessfullyexecutedbecausemanyofourpoliciesfailnotbecauseoftheideabutbecauseofpoorexecution.Inthesameway,wehavealsomadesurethatallourpolicyrecommendationsareeasilyexecutable.Wehaveseenovertheyearsmanygovernmentpoliciesthathadgreatintentionswithfantasticplansbutcouldnotbeexecutableforvariousreasons.Wetakegreatpainstoensurethattherecommendationspresentedinthisstudyareexecutableandworkable.Theyarethereforenotjustconceptualideasbutimmediatelyexecutableactionsthatcanbedoneimmediately.Wedontjustdescribebutwealsoprescribeandweprescribeactionsthatareimmediatelyexecutable.2.3.3 AlwaysEngageMarketPlayers

EP9:Alwaysengagethemarketplayersandbeneficiariesforwhomthepolicyhasbeencreatedandwhowillbeimpactedbythepolicy.Nopolicy

shouldbeappliedunlessitreceivesthegoaheadfromthemarketplayersandbeneficiariesthemselves.Doingotherwiseisasurerecipeforfailureof

thepolicymeasuresconcerned.Webelievethatforpolicytoworkandforittobeeffectiveitmustbedoneinconsultationandincollaborationwiththemarket.Policyshouldneverbecreatedinavacuumandnorshoulditbecreatedbybureaucratsorconsultantsinisolation.Policymakersmustengagemarketplayersbecausetheyaretheonesimpactedbypolicyandtheyaretheoneswhocanensurethesuccessorfailureofpolicy.Furthermorepoliciesmustbeactuallywhatthemarketneedsandnotwhatbureaucratsthinkthemarketneeds.Therearesomanypoliciesthatarecreatedostensiblyforthemarketbutthemarkettotallydisregardsitbecausethatsnotwhatitneeds.Andoftentimesthemarketcriesoutforaparticularpolicy,sometimesforyearsbutbureaucratsdontheedthosecries.Thisisabig,bigmistake.Thebestpoliciesgivethemarketwhatitneedsandcontinuestolistentothemarketandprovidemarketneeds.Ourrecommendationsaremadeafterextensiveconsultationwithindustry.Hencepolicymakerscanbeassuredthatthisisindeedwhatthemarketwants

andneeds.


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2.4 GovernmentPolicyandRoleRethinkingNecessary

R4:WerecommendthattheGovernmentrethinkitsroleandhowitmakes

policy.Theoldwaysofcreatingpolicyandimplementingpolicieswithouttheinputofthemarketshouldbeeliminated.TheGovernmentmustalsoreview

howeacharmofGovernmentplaysacomplementaryandcoordinatedroleinimplementingpolicyandhelpingtoensurethesuccessofpolicyinitiatives.

ItisstillcriticalthattheGovernmentplaysacentralroleintheinnovationecosystem.MalaysiaisstillinitsinfancyininnovationandtechnologyEntrepreneurshipandstillneedsthenurturinghandoftheGovernment.PoliciesandsupportarestillanecessaryrequisiteforthegrowthofinnovationandEntrepreneurshipinMalaysia.Itmaytakeuntil2020beforetheGovernmentcanaffordtoplayalesserrolethatisprovidedtheGovernmentdoesalltherightthingstoday.EntrepreneursmustultimatelybeweanedofftheirGovernmentdependencebutuntiltheprivatesectorisstrongenoughtodothistheGovernmentstillhastoplayamajorrole.However,theGovernmentmustrethinktheirroleandhowtheymakepolicy.Theoldwaysofcreatingpolicyandimplementingpolicieswithouttheinputofthemarketshouldbeeliminated.TheGovernmentmustalsoreviewhoweacharmofGovernmentplaysacomplementaryandcoordinatedroleinimplementingpolicyandhelpingtoensurethesuccessofpolicyinitiatives.

InnovationisbynatureinterdisciplinaryandinvolvesmanydifferentGovernmentAgenciesandMinistries.However,turfprotectionandsilomentalitymeansthereisverylittlecoordinationbetweentheseorganisationsleavinginnovatorsandSITEsfrustratedandunabletogrowanddevelop.ThisgoesagainsttheGovernmentsownworktodriveamoreinnovationbasedeconomyandwillnotcreateahighincomeeconomy.2.4.1 PoliciesToBeMarketDriven

EP10:InthefutureGovernmenthastoensurethatitspoliciesaredrivenby

themarketandwhatitneeds,asthisistheonlycertainmethodbywhich

policyobjectivescanbefullyachieved.Policiesarecreatedtoenhanceeconomicreturns,providejobsandgenerallycontributetothewellbeingofsociety.Innovationpoliciesarecreatedsothatcompanieswillbenefitfromthesepoliciesandtheyinturnwillcontributetothewellbeingofthenation.However,asoftenhappenspoliciesdonotmatchthe

needsofitsbeneficiaries,inthiscaseinnovators,andinthosecasesthe


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contributiontothenationneverreachestheidealsortargetssetbypolicymakers.Themainreasonwhythishappensisbecausepoliciesarenotmatchedwithmarketneeds.Theyarenotderivedfromextensivediscussionsand

consultationswiththeverybeneficiariestheyhopetohelp.ThisgulfbetweenwhatthemarketwantsandwhatGovernmentTHINKSitwantshastobebridgedifpoliciesaretobeeffectiveandiftheyaretoeverreachtheirobjectives.ThereforetheGovernmenthastoensureinthefuturethatitspoliciesaredrivenbythemarketandwhatitneeds,asthisistheonlycertainmethodbywhichpolicyobjectivescanbefullyachieved.Therecommendationsinthisstudyarederivedfromextensiveconsultationswiththemarketandeventherecommendationswerediscussedwiththemarkettoseektheiropinionsandconsensus.ItishopedthatallfutureGovernmentpolicieswillbesimilarlyderived.2.4.2 ManageInter-DisciplinaryNatureofInnovationEP11:TheGovernmenthastorecognisethatinnovationcanbemulti-

disciplinaryinnatureandhastocreatepoliciesandinstitutionsthatenablecrossministryoragencycoordination.

Onecommoncomplaintofmarketplayersisthatinnovativecompanieshavea

difficulttimenavigatingthevariousregulatoryproceduresandrequirementsbecausetheyhavetodealwithmultipleministriesandagenciesandoftentheseinstitutionsdonothavetheabilityormandatestocoordinatepolicywitheachother.Thiscausesnumerousproblemsforcompaniesandcanholdbackthegrowthofsuchcompaniesformonthsifnotyearsinthecaseofpharmaceuticalorhealthcarecompanies.Sometimesittakessuperhumanefforttonavigatethemultipleinstitutionsandinsomecasescompaniesjustgiveup.TheGovernmenthastorecognisethatinnovationcanbemulti-disciplinaryinnatureandhastocreatepoliciesandinstitutionsthatenablecrossministryoragencycoordinationtohelpthesecompanies.AsanexampleaneutraceuticalproductforhumanhealthderivedfromplantsbyaUniversityresearcherhastonavigateMOSTI,MinistryofHealth,MinistryofAgriculture,MinistryofHigherEducationandiffundsareneededMinistryofFinanceortheiragencies.Onecanbarelyfathomthetypeofissuesandproblemsthatcancropupatanyjunctureinthejourneythroughtheseministriesandagencies.YetthereisanagencycalledBiotechCorpwhichcanhelpyetdoesnothavethepowerormandatetodothis.InsuchcasesaOne-StopCentre(liketheMIDA

model)thatisadequatelyempoweredcandowonderstospeeduptheprocess


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sothatcompaniesfocusongrowthandnotonpushingpapersfromoneministrytothenext.OncetheGovernmentrealisesthisitshouldacttoensurethesmoothestpathpossibleforallcompaniesinnavigatingthismaze.

2.4.3 ReformBureaucracyAndRewardSuccessAndMeritocracy.EP12:Governmentmustreformitsbureaucracytoensurepoliciesare

implementedbasedontransparencyandmeritocracyanditmustseekoutandrewardsuccessfulministries,agenciesandotherinstitutionsbasedon

meritforachievingorexceedingtheirKPIs.WhiletheGovernmentisseekingoutpolicychangestofurtherinducetheinnovationcapabilitiesofthenationanditsEntrepreneurs,itshouldalsoreformbureaucracyandensureminimalproblemsforinnovators.Thismayinvolvemanypartiesandstakeholdersallworkinginconcerttowardsonegoalthebettermentofthenation.Ifbureaucracyreformisnotmade,wewillalwayscontinuetohaveproblemsandwillneverseethetruepotentialofMalaysianinnovators.Indoingso,GovernmentmustalsoseekoutandrewardsuccessfulministriesandagenciesandotherinstitutionsbasedonmeritforachievingorexceedingtheirKPIs.Weakerorfailedinstitutionsontheotherhandshouldnotbeallowedtocontinueasthiswillweakentheecosystem.

Alldecisionsmustbebasedpurelyonmerit.AnythinglesswillleadtocontinuedfailuredespitethebestintentionsoftheGovernment.

2.4.4 SummaryInsummary,theMacroRecommendationspresentedabovearethefirststeptowardsmakinggoodpolicythatwilltrulyassistandhelpMalaysianinnovatorsandentrepreneursincontributingtothenation.

Wecancontinuetolookforthebestpolicies,continuetocreatemoreandmorepolicypapersandstudiesbutifwedontdotherightthingsthenwewillnotsucceed.Otherdevelopingnationsarecatchingupwithus.Somewhowerebehindushaveovertakenus.Ifwedontdotherightthingnow,wewillbeleftbehindinthefastmovingandrapidlychangingworldofinnovationandbusiness.Inthenextfewchapterswewillbeprovidingmorespecificrecommendationsthataredirectlyapplicableandeasilyimplementablewithaslittlefussorproblemsaspossible.Theserecommendationshavebeenformulatedtoprovideforrealchangesthatwillhaveimmediateimpactoninnovationandentrepreneurshipleadingtoimmediatebenefits.


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Thesearenotjustgrandioseideasandplansthatarehardtoimplementandoftendonotseethelightofdaybutmaysoundfantastic.Ourrecommendationsmaynotcreatemuchfanfarebuttheyaredesignedtosolveimmediateandfutureproblemsandtoleadtoabetterecosystemforallplayers.Wearepaving

thefootpathforinnovators,becausethatsreallyallthatsneeded.


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Chapter3: ContributionOfFundingMechanismsToInnovation

Thissectionlooksatoneareathatisofgreatconcerntocompaniesfunding.ThemainfundingmechanismscurrentlyaregrantsviaMDeC,Cradle,MOSTI&

Matrade;projectfinancingviaMalaysianDebtVentures(MDV),venturecapitalviagovernmentbackedVCfundslikeMavcap,KumpulanModalPerdana,etcandloansviaSMEBank.However,asBCGisdoingacomprehensivereviewofthefundinglandscape,wehavefocusedonlyonthefundingareasthatSITEshaveindicatedtobetheirbiggestconcern.TheBCGstudyisdoingamacroreviewmostlyfromtheperspectiveoftheGovernmentandtheFundManagerswhileourstudyisfromtheperspectiveofthebeneficiariesthemselves.HencewhiletheBCGreviewistopdown,ourstudyisfromthebottomup.

ThefundmechanismthatisofthebiggestconcerntoSITEsisthegrantmechanism.ThisisbecausethedearthofVCfundingmeansmostSITEshavecometorelyongrantsastheprimaryfunderofchoice.WedidnotfocusonVCbecausetheirimpactonSITEsissmallandfortheSITEsthemselvesthegrantsystemisoffargreaterimportance.However,therecommendationsthatwemakehereapplyequallytothesoftloansprovidedbytheGovernmentorDFIs.Henceallpolicy

recommendationsthatwemakehenceforthalsoapplytootherfunds

especiallysoftloans.

3.1 GrantMechanismbigpictureThefollowingTable3.1providesabigpictureofthemainproblemsfacedbyentrepreneursandtherecommendationsthatwillbeprovidedherein.


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3.2 StandardTimelinesandDocumentation

R5:Werecommendthatallfundprovidersprovidestandardtimelinesandusestandardiseddocumentsfortheprocessingofallfundingapplicationsto

enhancetheevaluation,processinganddocumentationofallapplications.Oneofthemostseriousproblemswiththegrantmechanismisthelackoftransparencyandstandardisationonthetimetakentoprocessapplications.Timetomarketisimportantforinnovationhenceprocessingtimeforfundingapplicationsiscritical.Unacceptabledelaywillkillinnovation.Currentlyitcantakeanywherefrom3monthsto12monthsforapplicationstobeprocessed.Oftenapplicantsareleftinthedarkandareunabletoevenplan

theirR&Deffortsandcorporateplanningbecauseoftheinabilitytopredicttimelinesforapproval.Thisisnotidealtopromoteinnovation.Furthermore,becauseoftherapidchangesintechnology,delayscanresultinlostopportunitiesandobsolescenceoftheR&Dproposal.HencewearerecommendingthatALLgrantprovidersadoptastandardClientCharterwithstipulatedtimelinesthattakesintoconsiderationtheinterestsoftheapplicant,thetimenecessarytodoconductproperevaluationsandduediligencesandanacceptablewaitingperiodforinnovators.


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3.2.1:ClientCharter&Ruleof4

EP13: SpeedUpProcessingviaaClientCharterWerecommendthatALLfundingapplicationsbeprocessedandfirst

disbursementsoccurwithin4-5monthsofapplication.Allfundingproviders

mustadoptastandardClientCharterthatindicateshowapplicationswillbeprocessedandthetimelinesforeachstageoftheprocess.Wefurther

recommendastandardisedtimelinecalledTheRuleof4foradoptionby

ALLproviders.WerecommendsettingupaClientCharterwiththeRuleof4forallgrants.

Simplyput,TheRuleof4,meansthatateverystepoftheapplicationprocess,theprovidermustapplyeither4weeksor4daystoperformanyparticulartaskfromnotificationtoevaluationtoduediligence.Thetasksareexplainedbelowanda

flowchartisprovidedtoclarifytheflowofatypicalprocessinagrantapplication.Weareassumingthatthereare2committeesorpartiesthathavetoapproveeach

application;aninitialEvaluationCommitteethatperformsthetechnicaland

commercialevaluationoftheprojectandapprovesorrejectstheapplication.Ifapproved,itwillbesenttothefinalApprovalCommitteeforapproval.Thisisto

ensuretransparencysothatdifferentgroupsofpeopleareinvolvedintheapproval

process(seeourrecommendationbelowonevaluationprocess).

Step1:Anapplicantmakesanapplicationforthegrant.

Step2:Within4weeksfromdateofapplicationthefundprovidermustinform

applicantwhetherhisapplicationhasbeenrejectedorapprovedforpresentationtotheEvaluationCommittee.

Step3:Withinafurther4weeksfromdateofacceptanceforpresentationto

committeetheproposalmustbepresentedtotherespectiveEvaluationCommittee.

Noticeofapprovalorrejectionmustbesenttotheapplicantwithin4daysoftheapprovalcommitteemeeting.

Step4:Withinafurther4weeksfromdateofapprovalbytheEvaluationCommitteetheproposalmustbepresentedtotherespectiveApprovalCommittee.

Noticeofapprovalorrejectionmustbesenttotheapplicantwithin4daysoftheApprovalCommitteemeeting.

Step5:Ifapproved,theLetterofOffermustbesenttotheapplicantwithin4daysoftheApprovalCommitteemeeting.

Step6:Within4workingdaysoftheapplicantsacceptanceoftheLetterofOfferTheprojectfilemustbesenttotheLawyersandFinancialdepartmentforDue

Diligence.


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Step7:Within4weeksDueDiligencemustbecompletedandapplicantmustbe

notifiedoffinalapprovalorrejection.

Step8:Within4daysofsatisfactorycompletionoftheDueDiligence,theFundingAgreementmustbesenttotheapplicant.

Step9:Within4workingdaysofthesignedAgreementthefirstdisbursementmustbecompleted(i.e.mobilisationfunds).

PostApproval:

Disbursementsoffundsuponmeetingmilestonesmustbedonewithin4workingdaysofreceiptofallnecessarydocuments.


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Fig3.1:FlowChartofClientCharter


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3.2.2 StandardClientCharterforAllGrants

EP14:StandardisetheClientCharterforALLGrants

Toensurestandardisationandeaseofmonitoringnotjustforgrant

providersbutalsoforSITEs,werecommendthattheGovernmentinstituteastandardisedClientCharterasproposedinEP13aboveforALLgrantproviders.

Standardisationwillhelpallpartiestoensurethehighestlevelsofserviceandwheresuchservicefallsbelowthestandardimmediateremedial

measurescanbetakentoensurethatgrantprovidersandapplicantsdonotsufferunwantedproblemsorrepercussionsfromdelays.

3.2.3:StandardisedDocumentation&DueDiligenceEP15:Standardisealldocuments

Werecommendthatallfundproviders(grants,loans,etc.)worktogetherto

setupasinglestandardiseddocumentaryformatandprocessforall

applications.Thisisespeciallysoinrelationtocorporateandpersonalinformationanddocuments,certificationpapersandduediligencereports.

Thiswilleasethesharingofinformationbetweenallorganisations.

EP16:SetupadatabaseforalldocumentationWealsoproposethatanelectronicdatabasebesetupforthestoringand

sharingofallthesedocumentsandinformation.Thisshouldbeatechnology

baseddatabasethatallowsstoringofallsharedinformationthatcanbeelectronicallyaccessedbyauthorisedpersonnelatthegrantprovidersand

otherauthorisedpartiesliketheMOFandPMO.

Thedatabaseshouldalsoallowthestoringofduediligencereportssothat

timeandcostscanbesignificantlyreducedwithouttheneedtodoextensiveduediligenceseverytime.Onlyupdatedduediligenceneedstobedone(i.e.

foranynewloansorlegalissues).Thechartbelowprovidesasnap-shotviewofaprocessthatcanbe

implementedusingthestage-gatesystem.FurtherdetailsofobjectivesandtasksforeachgateisfurtherdetailedinAppendixA.


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Currentlyforallthegrants,therearenostandarddocumentationprocesses,nostandarddocuments,nosharedresources,nosharingofduediligencesandallfundprovidersworkinsilos.EvenforcertifiedcompanieslikeMSCStatusorBionexusor1Innocert,theircertificatesbearnorelevancetofundproviders.NomatterwhatcertificationonehasorevenifaSITEhasbeenprocessedand

approvedbyoneprovider,theyhavetogothroughtheprocessalloveragainwithanotherprovider.Forexample,ifaSITEhasreceivedaCradleCatalystgrantofRM150,000andbeenthroughtheirextensiveevaluation,documentationandduediligenceprocess,iftheythenapplyforaMOSTITechnofundgrantorasoftloanwithMDVorSMEBank,theyhavetofillupcompletelynewsetsofdocumentseachtimeandprovidecopiesoftheircertificatesetc.,alloveragain.Thisprocessofdocumentationandformfillingisawasteoftimeandresourcesforallparties.

Thefunderthenwillexpendmoretime,moneyandresourcescheckingthevalidityofdocumentsandconductingduediligencesalloveragainiftheyapprovethefundingrequest.Withtheavailabilityoftechnologyallthisduplicationcanbesignificantlyreducedifallprovidersshareresourcesandifdocumentationisstandardised.EventhelinkuptoSuruhanjayaSyarikatMalaysiaandtheInlandRevenueDepartmentaswellastheInsolvencyDepartmentcanbedigitisedusingtechnologysothatcompletionofdocumentsandcheckingofvalidityandverificationcanbedonemuchfaster.


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3.3 LackofCommercialEvaluationsandExpertise

R6:Werecommendthatallfundprovidersincorporatecommercialisation

evaluationandensureadequateexpertiseforALLevaluations,R&DaswellasCommercialisationGrantsandFunds.

Thereiscurrentlyalackofexpertiseinperformingpropercommercialevaluationoffundingapplicationsandsomefundsprovidecommercialisationevaluationwhileotherseitherdontorareweakerinthisarea.

3.3.1 LackofCommercialEvaluationsinGrantsEP17: IncorporateCommercialEvaluationforallGrants

WerecommendthatALLR&Dgrantsincorporatecommercialevaluationsasonecriterionforapproval.Commercialvalue,marketneedsandtheabilityto

exploittheR&DtoshoweconomicorsocialvaluemustbeasetcriteriaforapprovalofallR&Dgrantsinthefuture.ManyoftheR&Dgrantscurrentlydonothaveseriouscommercialevaluationaspectswhenbeingevaluated.ThisleadstomanydiscoveriesandpatentsbutnocommercialisationandhencenoROIforthegovernment.ItmustbemadeclearthateventhoughtheR&Dmayhavetechnicalmeritsitdoesnotnecessarilyhavecommercialmerit.Anaturalexclusionwouldbeforpureresearchprojects,normallyconductedby

IHLs,whichonlyseektodiscoverorproveatechnologyelement.ThesewouldincludeprojectsfundedbyMOSTIundertheScienceFund,whicharemainlyfortheIHLs.Suchprojectsdonothavetheelementofdevelopmentintheirresearch,henceknowledgediscoveryandnotcommercialisationistheobjective.InsuchcasesthereisnoneedforcommercialevaluationasacommercialROIisnotrequired.HoweverinthecaseofallotherR&Dgrantswherethereisastrongdevelopmentelement,commercialvalueiscritical.InthesesortsofR&DprojectstherealreturnforthegrantisaproductorserviceorprototypethatcanbeexploitedforcommercialreturnstherebycreatingROIfortheGovernment

andfortheresearcherorcompanyundertakingtheR&D.Inthiscasetheevaluationmustincludeapurecommercialevaluationbesidestheusualtechnicalevaluation.Therefore,weproposethatallR&DgrantsincludecommercialevaluationtoensurethattheapplicantsaredoingR&DthatwillleadtopotentialexploitationandultimatelytoeconomicvalueandROIforthegovernment.

3.3.2 LackofExpertiseinProcessingApplicationsEP18: Include4IndependentEvaluatorsforallapplications


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WerecommendthatALLgrantsincorporateaminimumnumberof

independentevaluatorsfromIHLsandindustryforeveryapplication.WerecommendthattheEvaluationPanelcomprisesatleastaminimumof4

independentevaluatorswhoarenotpartofthegrantmanagerspersonnelorteam.

Thereshouldbe2independentTechnicalEvaluatorswhocanbeeitherfromindustryorIHLswhowillevaluatetheprojectbasedonitstechnicalmerit

andanother2independentindustrybasedCommercialEvaluatorswhowill

evaluatethegrantonthebasisofpotentialcommercialvalueandthepotentialforcommercialreturns.Oneofthecommercialevaluatorscanbea

venturecapitalistbutwhilethisisdesirable,itisnotcompulsory.Thegrantmanagercanincludetheirownpersonnelaspartoftheevaluationpanelbut

theycannotconstitutethemajorityofthepanelandtheirdecisioncannot

overridetheexpertpanelsdecision.Applicantsbelievethatinmanygrantprocessesthereisalackofexpertiseamongevaluators.ThisisbecauseinsomecasesjuniororyoungstaffwithnoexperienceorspecificexpertisemakejudgementcallsonprojectevaluationsandinothercasesGovernmentpersonneloradministratorswithnotechnicalandcommercialexperienceandexpertisemakesuchdecisions.TherearealsocertaingrantswheretheapplicantneedstoexplaintheirprojecttoAccountManagersorAnalystsandrelyonthemtopresenttheirprojecttotheevaluationpanelsandagainthisissueoflackofexperienceandexpertisebecomesaseriousflawintheoverallprocess.Itisimperativethattheapplicant

isallowedtopresenttheirapplicationdirectlytotheevaluationpanelbecauseattheendoftheday,itistheapplicantwhowillensuresuccessfulimplementationandcompletionoftheprojectandthereforethefundingpanelisassessingnotjusttheprojectbutalsotheapplicantandhis/herabilitytodeliver.EP19:ApplicantstoPresentDirectlytoEvaluators

WerecommendthatforALLgrants,theapplicantsshouldbegiventhe

opportunitytopresentdirectlytoboththeEvaluationandApproval

CommitteessothattherelevantcommitteescanevaluatenotjusttheprojectbutalsotheApplicantsthemselves.

Whilemostproviderswillhaveseverallevelsofevaluation,itistheinitialevaluationsthatcouldbeanissue.Iftheprovidersdoindeedprovideproperevaluationthenitwouldnotneedtochangehowever,abettermethodologyorformatisalsopossible.InthisaspectweproposethatallgrantevaluationsfollowtheMSCMalaysiaMultimediaGrantScheme(MGS)approvalprocess,whichincludesnotjust2technicalevaluatorsbutalso2commercialevaluatorsfromindustryaspartoftheEvaluationCommittee.


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TheMGSmethodologyhasbeenusedformorethan10yearsandhasproventobebothtransparentandsuccessfulinproducingR&DthatleadstobothahighlevelofcommercialisationandstrongROIonGovernmentinvestments.

Toensurebothsufficientandacceptablelevelsofexpertiseinprocessingapplicationsandalsotheadditionalneedforcommercialevaluationswerecommendthefollowing:

3.3.3 StandardisedVotingMechanismForApprovalToensurethatthereisproperdecisionmakingwithinthepanelwealsorecommendthefollowingvotingmethodforALLgrantproviders.EP20:StandardisedVotingMechanism

AtleastTHREE(3)membersoutofthefourtechnicalandcommercialevaluatorsmustrecommendtheprojectforapproval.Intheeventthatthere

aremorethan4panelmembers,thenaMAJORITYmustapprove.Inacasewheretherearemorethan4panelmembers,ifeitherTWO(2)technicalor

TWO(2)commercialevaluatorsrejecttheproject,thentheprojectmustbe

rejectedasitcarrieseithernotechnicalmeritornocommercialvalueandthismeansitwillleadtozeroreturnsandnoROIfortheGovernment.

OncetheEvaluationPanelhasapprovedtheproject,itwillthenbesenttothe

ApprovalCommitteeasrecommendedinEP21below.

3.3.4 SetUpSharedDatabaseofExpertsEP21: SetUpSharedDatabaseofExperts

Werecommendthatanelectronicshareddatabaseofexpertsbesetupunder

UNIKwithaccessgiventoallfunders.Wheneverafunderidentifiesanexperthis/herdetailsandexpertiselevelsareinputintothedatabasesothatitcan

besharedwithallfunders.Astheaboverecommendationsrequireexpertsinmanydifferentareasbothintechnicalandcommercialareas,toensurethatallfundershaveadequatenumbersofexpertsandaccesstotheseexpertsinallsectorsandgeographicalareaswerecommendthatUNIKsetupashareddatabaseofexpertsthatcanbeaccessedbyallfunders.

3.4 LackofTransparency


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R7:Werecommendthatallfundssetupastructureandprocessestoensure

thetransparencyofallevaluationsandapprovalsoffundingapplications.

3.4.1 NoTransparencyInProcessingApplications

EP22: Haveboth,IndependentEvaluationandApprovalCommittees

Foradditionaltransparency,wealsorecommendthatoncetheEvaluation

PanelhasapprovedtheprojecttheprojectthenbesentforapprovaltoahigherlevelApprovalCommittee.Thiscommitteecanconsistofpersonnel

fromthegrantmanagersbutmustalsoincludetechnicalandcommercialmembers.

ThispanelcanoverturnthedecisionoftheEvaluationPanelifitfeelsthereisinadequatemeritintheprojectbutshouldnottakesuchadecisionlightlyas

theEvaluationPanelisthecorrectpaneltomakesuchevaluations.Butitwillretaintherighttoafinaldecision.Itisalsorecommendedthatwhenreviewingeachproject,atleastonememberoftheEvaluationPanelthat

evaluatedthatprojectbepresenttoanswerqueriesonthedecisionsmadebytheEvaluationPanel.

TheApprovalCommitteeCANNOTapproveprojectsthathavebeenrejectedbytheEvaluationCommittee.

InthecaseofanappealorcomplaintbyanApplicant,ifthereisverygood

causeforthecomplaint,thenthegrantprovidercanatitsdiscretionconveneanewEvaluationCommitteeconsistingofnewmembersinthenumberssuggestedabovetoindependentlyreviewtheproject.Ifitisrejectedasecond

timenofurtherappealswillbeallowedandtheApprovalCommitteeCANNOT

considertheprojectforapproval.

Toensurecompletetransparencyoftheapplicationandevaluationprocess,theproposalontheindependentevaluatorsinEP18willprovideaninitialleveloftransparency.

Additionally,wealsoproposeanadditional2levelapprovalprocess.Thisisalreadyinexistenceinmostgrantprovidersbutjustservestocementthetransparencyoftheprocess.

3.4.2 PublishRecipientProjectsAndAmountsAsWellAsResourcesForadditionaltransparencyandtoshowthatprojectshavebeenevaluatedproperlybothprojectsandresourceallocationsthatcanbesharedhavetobemadetransparent.


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EP23: AllApprovedProjectsToBePublishedAndOpenToThePublic

Werecommendedthatallprojectsthatreceiveapprovalforfundingbe

publishedpubliclyonONEwebsite.ThismaybeaUNIKwebsiteorotherwebsiteunderPMO.Theinformationtobemadepublicwillincludethename

ofrecipient,amount,agency,projectinformation,periodoffunding,stageoffundingandotherrelevantinformation.Thiswillalsoservetheadditionalroleofeliminatingmultipleapplicationsandthesameapplicantreceiving

toomanygrants.Thedatabasewillalsoserveasaonestopdatabaseofall

approvalsthatcanbecheckedbyfundproviderstoensurenomultipleapplicationsattheveryearlieststages.

3.4.3 SetUpSharedDatabaseofPhysicalAssetsandResources

EP24: SetUpSharedDatabaseofPhysicalAssetsandResources

WerecommendthatanelectronicshareddatabaseofphysicalassetsandresourcesbesetupunderUNIKwithaccessgiventofunders,innovatorsand

otherfundrecipients.

Thisdatabaseshouldincludeallphysicalassetsandresources,includingbut

notlimitedto,labs,equipment,facilities,buildings,infrastructure,etcthatcanbeusedbyresearchersandinnovators.Wefurtherrecommendthatthis

databaseincludelocationalinformationofsuchassetsandresourcessothat

innovatorscanchooselocations,whichareclosestormostappropriateto

them.Additionally,FundersandEvaluatorsshouldcheckpriortoapprovingfundingneedsbyapplicantssothatthereisnoduplication.Inadditiontotransparencyontheprojectsapproved,SITEshavealsorequestedthatresources,especiallyphysicalresourcesandassetspaidforbytheGovernmentthroughvariousgrants,bepubliclylistedandsharedwithallinnovators.Itiscommonforrecipientstorequestthatgrantmoneybeusedforspecificassetslikelabs,equipment,facilities,buildingsandotherassets/resourcesthatarelocatedinvariouslocationsfromIHLstoResearchInstitutionstoprivate

companies.Theuseoftheseresourcesareoftennotmaximisedandnotsharedwithotherinnovatorsandsomefallintodisuseveryquickly.ItisthereforeonlyproperthatotherrecipientsofgrantsaswellasotherinnovatorsbegrantedtheuseofsuchfacilitiesataverylowcosttoensurethatresourcespurchasedwithGovernmentfundsaresharedwitheveryone.Itwillalsoeliminatetheneedforsuchresourcestobeduplicated.

3.5 LowReturnsFromR&DFunding


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R8:ToensurethatinfuturethereisbetterReturnonInvestment(ROI)from

R&DFunding,werecommendthatcommercialevaluationandfundsforcommercialisationbeincorporatedinallR&Dgrantsandthatthereisa

propertrackingmechanisminplacetotrackandmeasurethecommercialsuccessorfailureofallR&Dgrantrecipients.

3.5.1 IncludeCommercialEvaluationforALLGrantsEP25:Werecommendthatallgrants,atallstagesoftheinnovationbusinesslifecycle,whetherPre-Seed,R&Dorcommercialisation,incorporates

commercialevaluationtoensurethattheR&Dorprojecthasrealcommercialvalue.Iftheprojectevaluationfailsthecommercialtest,thenthe

projectmustnotbeapproved.Thiswillensurethatonlyprojectswithreal

commercialpotentialarefunded.Pureresearchprojectsorbasicresearchprojectswillbeexemptedfromthisrequirement.

OnereasonforthecommercialfailureofmanyprojectsandhencethelowreturnsfromR&Dfundingisthatmanyprojectsneverhadanyrealcommercialvalueinthefirstplaceandhencewouldhavefailedanyway.Byonlyapprovingprojectswithcommercialvaluewewillbesignificantlyincreasingthepotentialforcommercialisationoftheprojectsandhencehavebetterreturnsfromthefundsprovidedtotheseprojects.

3.5.2 IncludeAllocationwithinGrantforCommercialActivitiesIfthecommercialevaluationispositiveandtheapplicationisapproved,thenitisalsonecessarytoincludefundstoensurethattheprojectcanactuallybecommercialised.Itwilldefeatthepurposeiftheprojecthascommercialmeritbutnofundsareavailabletoexploitthispotential.CurrentlythefailurerateforR&Dishighbecauseevenwhenprojectsreachthepre-commercialisationorprototypestage,applicantsareunabletoexploittheirinventionsbecausetheycomeuptoabrickwallwherethereisnomoneyavailableforcommercialisation.EP26: WerecommendthatforallPre-Seed,R&DandPre-Commercialisationprojectsa30%portionofthegrantbeallocatedfor

commercialactivities.(SeealsoEP31forfurtherdiscussiononquantum)EP27:DefinitionandExamplesofCommercialActivities:

Bycommercialisationactivitieswemeanallowingtherecipientstoperform

initialcommercialisationactivitiesincludingthefollowing,whichshouldbe

allowed:i) Hiringorobtainingtheservicesofexperiencedexecutiveswith

experienceinsellingsimilartechnologyorproductstotheindustryto

beserved;ii) AppointingtheservicesofBusinessCoaches,MentorsandIndustry

Advisors;


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iii)Attendingexhibitions,tradefairs,technologyconventionsandothereventstogaintounderstandcompetitivelandscapeandalsotointeractandobtainmarketfeedbackfrompotentialcustomers.Grant

thereforetobeallocatedforfeestoaccesstheseeventsandtravel.Atthisstagehoweveritisrecommendedthateventsandtravelare

limitedtolocalonlyunlesstheentrepreneurcanjustifythebenefittobegainedfromattendinganoverseasevent.

iv) Obtainingservicesofexternalexpertse.g.IPregistration,MarketResearch(e.gFocusGroups),BusinessPlanning,LegalExpertsetc

v) Purchaseofmarketdataandcustomerdatabases.vi) Onlineandofflinemarketingactivities.vii)Capabilitydevelopmentprogramstoup-skillorre-skillpersonnel.

3.5.3 TrackingMechanismOnCommercialAspects

Toensurethatthegrantsarebeingutilisedtocreatecommercialvalueandarecontributingtothenation,theoutcomesandKPIsmustincorporatethemeasurementandtrackingofthevaluesthatarebeingcontributedbyeachrecipient.SomeprovidersalreadytracktheseoutcomesandcanprovidenotjustresultsbutalsoReturnonInvestments(ROI)ongrantallocations.Thisisnecessarytoensurethatallocationsaremeetingexpectations.ToensurethatthereiscompletetransparencyandtoenabletheevaluationofthesuccessofthefundsandtheAgenciesthatprovidethefundingtheseKPIs

andmeasurementsmustbepublishedforevaluation.EP28: KPIandTrackingofCommercialisationValues

WerecommendthatALLgrantsotherthanpureresearchgrantstracktheoutcomesofallgrantsprovidedovera24-monthperiodfromthedateof

completionofthegrantmilestonesforthefollowingoutcomes:

a) RevenuesderivedfromtheR&DorCommercialisationoftheprojectb) JobCreation-bothofknowledgeworkers(i.e.thosewithtertiary

educationorthosewithmorethan5yearsofexperienceANDearning

morethanRM4,000permonthinbasicsalary)andotherworkers.c) Improvementstobusinessperformancee.g.skillsformationor

enhancement,improvedproductivity,loweringofcostofsales,

internationalcertificationacquiredandimprovementsinproduct

qualityandstandardsetc.

d) Newinvestmentsacquiredfromthirdparties;e) InvestmentsmadeinIPandphysicalassetswhetherlocaloroverseas;f) Expansionofproductlinesornewerversionsofexistingproductsg) Establishmentofnewindustriesorsuccessfulcaptureofnewmarkets

whetherlocaloroverseas;

h) MergersandAcquisitions,Jointventuresorexpansionofsalesnetworksbothlocalandoverseas;


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i) Socialcontributionifapplicablej) Contributiontocorporateincomeinotherways

EP29 PublishROIInformation

AllfundprovidershavetoprovideROIongrantallocationsonanannualbasisANDmaketheinformationpublicfortransparencypurposesandalso

asabenchmarkforfutureallocationsofmoneytotheproviders.As

mentionedintheMacroRecommendationsinChapter2above,futureallocationsofmoneybytheGovernmentaretobemadebasedonmeritand

basedonROIofeachgrantprovideroronotheracceptablesuccessKPI.

3.6 LackofCommercialisationFunding

R9:ThecurrentlowROIfromtheGovernmentsinvestmentintheinnovativesectorisduetothelackofadequatecommercialisationfundsinthemarket.WerecommendthattheGovernmentincreasesthequantumandpercentage

ofcommercialisationfundingbothintermsoftotalfundsmadeavailableeachyearandalsoforindividualR&Dgrantswhichinmanycasesdonot

haveanycommercialisationfundsandthereforeprovideinnovatorsno

potentialtoexploittheseR&D.

3.6.1 CreateabalancebetweenR&DandCommercialisationFunding

Policiesshouldbemoreholisticandbalancetheneedbetweencreationandgrowthandexploitation.Currentlythereisnobalanceintheprovisionofgrants.MostofthegrantsareonlyprovidedforR&Dbutverylittleforcommercialisation.InfactthelargestamountsareonlyforR&DorPre-Commercialisationforprototypesbutnotcommercialisationpurposes(e.g.MOSTITechnofund,MDeCMGS,BiotechCorpsBionexusgrant).TheonlypurecommercialisationgrantsavailableareCradleFundsCIP500whichprovidesRM500,000forcommercialisationactivitiesandMTDCsCRDF(CommercialisationofR&DFund)whichprovidesbetweenRM500,000toamaximumRM4milliondependingonthetypeofR&DandthesourceoftheR&D.BiotechCorpsSeedfundprovidessomecommercialisationfundingbutisnotafullfledgedcommercialisationfund.FundsizeisamaximumofRM2.5million.AsmentionedintheMacroView,pastgrantpoliciesandsupporthavebeenseriouslyimbalancedmostlytowardsventureorR&DcreationwhilepoliciesforventuregrowthandR&Dexploitationwereseriouslylacking.Thisledtothecreationofentrepreneurialstartupsbutmediocregrowthofthesestartupsandmanypatentsandinventionsbutpoorexploitationofthesecreations.

Wethereforerecommendthefollowing:


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EP30:Allocate40%ofTotalAnnualGrantFundingtoCommercialisation,ExportandExpansionActivities

TheamountofcommercialisationgrantscurrentlydoesnotassistinthevaluecreationaspectofR&D.Henceweproposethatatleast40%ofallGovernmentgrantsaredirectedtowardsthecommercialisationofR&Dand

notjustR&Dcreation.

ThereforeweproposethatofthecurrentbudgetofRM2.5billioninthe10th

MalaysiaPlan,atleastRM1billionbeallocatedforactivitiesthatneedtobeconductedduringCommercialisation,ExportandExpansionstagesof

Growth.

Itisrecommendedthatthisallocationbedirectedto

A. IncreaseallocationstoexistingCommercialisationFunding(see

furtherEP31);AND

B. ToestablishnewCommercialisationGrantsandProgramsfor:i) AcquisitionofKeyExecutives(seefurtherEP32&EP33);ii) ExportRelatedSkillsEnhancementPrograms(seefurther

AppendixB)iii) GlobalMarketAccessProgram(seefurtherEP49);and

FurtherdetailsofalltheabovegrantsaredetailedinAppendixB

3.6.2 IncorporateCommercialisationActivitiesinallPre-Seed,R&DandPre-Commercialisationgrants

EP31:Allow30%oftotalfundingfromallexisting&futurePre-Seed,R&DandPre-CommercialisationGrantstobeallocatedforCommercialisation

Activities

Weproposethat30%ofallR&Dgrantsbeallocatedforcommercialisation

activities.This30%allocationistobespentonprescribedactivitiesonlywhereupto20%oftotalgrantfundscanbespentonobtainingpersonnel,

servicesofexpertsorcapabilityenhancementactivitiesandupto10%towardsotheractivities.

PleaseseeEP27aboveforsomeexamplesofcommercialisationactivities.AsdiscussedinEP25Inlinewithourviewthatallgrantevaluationshavebothtechnicalandcommercialevaluation,thereforeALLrecipientsmustshowcommercialisationcapabilityandcommercialvaluetoprovethattheycanexploittheirR&Dandcreateeconomicorsocialvalue.


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Theoneexclusionwouldbeforpureresearchgrants,butaslongasdevelopmentispartofthegrant,commercialvalueandcommercialisationbecomesanecessity.Toenableexploitationandcommercialisationactivitiestotakeplaceevenduring

thelatestageofR&Dandespeciallyinthepre-commercialisationstage,werecommendthat30%ofallPre-seed,R&DandPre-commercialisationgrantsbeallocatedforcommercialactivities.

3.6.3 IncreaseHumanResourceAllocationsinCommercialisationFunding

MoneyandTalentDrivesInnovation.Thewaytoincentivizeinnovation,any

SiliconValleyventurecapitalistwilltellyou,istobringcapitalandtalenttogether.Formostofhistory,peoplehavebeenadeptatkeepingthemapart.

MattRidleyinTheRationalOptimist,2010

Theproblemwithcurrentfundingmechanismsisnotjustthelackofmoneybutthatevenwhenmoneyismadeavailableverylittleofitisavailableforthehiringoftalent.Yet,withouttalentnotjustR&D,butevencommercialisationisnotpossible.Takeasanexample,theCradleCIP500CommercialisationFundofRM500,000.CIP500allowstherecipienttospendthemoneyovera12monthperiodbutonly

30%ofthemoneyisallocatedtohumanresources.Whilethisisadmirableandisoneofthebestfundsaround,stillthisonlyprovidesRM50,000forayearorRM12,500onlyamonthforhumanresources.InthemarketareallygoodMarketingorSalesManageralonewillcostyouRM10,000amonthnotincludingbenefitslikeEPFandSocso.Hencewiththisallocationonecannothiremorethanonecapabletalent.Worsestillifyouneedotherbusinessdevelopmentassistancethenyouhavetoforgothemostimportanttalentthatthecompanycompletely.Weneedtorealisethatpeoplearethecreativeforceineverybusinessandsuccessisaboutpeople.Ifwebelievethistobetruethenwhyisitthatwedont

allocatemoremoneytothehiringoftalent?WealsobemoanthefactthatM&Ctalentdonotjoinmoreinnovativecompaniestohelpthemsucceed,butthefactisthattheyarenotcheap.Goodtalentcostsmoney.Toovercometheproblemoflackofexperiencedtalentwerecommendthefollowing:EP32: Allowupto50%OfTotalcurrentCommercialisationFundingtobe

allocatedForHumanResources.

Thisallocationcanbespentonrecruitmentactivities,paysalariesoffull

timestafforcontractedknowledgeworkers,businesscoaches,industry


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expertsormentorsandcapabilityactivitiestoup-skillorre-skillhuman

resources.ControlscanbeplacedviareviewsofthetalentsCurriculumVitaetoensureexperienceandexpertiseintheseareastogetherwiththeprovision

ofproperdocumentationtoshowthatthetalenthasbeenproperlyhiredlikeEPFandSOCSOstatementsandthefilingofIncomeTaxscheduledpayments.

EP33: EstablishanewMatchingGrantforCompaniestoacquireHumanResourceTalents.

DuringtheExportandExpansionstagesofGrowthoneofthekeyrequirementsforsuccessisTalent.Thereforeinadditiontoincreasingthe

allocationforhumanresourcesincurrentavailableCommercialisationFunding,weproposeanewGranttobeestablishedspecificallytopayfor

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

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