Developing Local Capabilities

September 29, 2019by Mohd Zakwan Mohd Zabidi

The Shared Prosperity 2030 will be the thrust of the government’s policies and programmes in its bid to make Malaysia on a path of sustainable development that prioritises equitable growth of each value chain, class, community and geography to support a greater sense of harmony and stability among the people. The new economic model comprises three main objectives which includes to ensure the income gap and people’s wealth would be looked into, to create a more structured, progressive, knowledge-based and high-value economy; and to turn Malaysia into an important economic axis in Asia.

This requires strengthening the local industry capabilities and to embrace advanced technologies, innovation, and research and development. R&D is widely recognized to be the prerequisite of technological advance, and levels and rates of growth of R&D expenditures are viewed as reliable indicators of innovative capacity. Across the world, two-thirds to three quarters of all R&D activities are carried out in the private sector. Therefore, the private sector is not only the principal financing sector of R&D, it is also by far the main performer of R&D activities. The involvement of the private sector in research-driven activities is thus crucial for Malaysia’s future economic growth and competitiveness for various reasons.

Firstly, the private sector R&D can create wealth because they are closer to the market. By actively participating in R&D activities indirectly create the process of transforming knowledge into products and services that Malaysian and others in today’s global marketplace, need, want and will pay for.

R&D done in private sector will also strengthen the technical advances made possible by innovation which will allow them to improve productivity, succeed in competitive markets, and meet environmental and regulatory requirements. Although the private sector has traditionally developed research capabilities in house, they have also need to established collaborative links with other organizations, such as universities, and acquired the results of innovation from other enterprises through licensing or takeovers. Indirectly the involvement of the private sector in R&D could also generate high skills human capital which is needed for the country.

Various mechanisms were introduced globally in order to promote private sector R&D. Some of the widely used financial instruments includes subsidies/grants and tax incentives. For example a generation ago, the United States was one of the first nations to encourage private sector R&D through tax credits. Since then, a wide range of economists have agreed that every tax credit dollar stimulates anywhere from USD$1 to $3 in additional private investment on the part of U.S. companies. Unlike many other items in the tax code, R&D actually spurs investment and a greater return. In the case of Malaysia, there are numerous tax incentives to encourage private sector and institutions to carry out R&D activities. The main R&D incentives are granted in the form of Pioneer Status, Investment Tax Allowance and Double Deduction or tax exemption. Obviously, a new innovative approach needs to be implemented in order to enhance the private sector R&D activities for targeted foreign direct investment and also to enrich the direct domestic investment.

An innovative approach in order to encourage private sector R&D which was championed by MIGHT was the formation of Aerospace Manufacturing Innovation Centre (AMIC). The centre is jointly funded from the Government and industry which includes Airbus, Rolls Royce and CTRM. One of the significant features of AMIC is that the R&D that will be done in the university will be based on the industry needs and will able to provide an opportunity for the local industry to participate. AMIC will also be able to train local talent by conducting training courses at Masters and Doctor of Philosophy (PhD) levels in the field of aerospace technology.

AMIC is a Research & Development centre of excellence formed and bench marked after the model of Advanced Manufacturing Research Centre (AMRC) in Sheffield, United Kingdom. The AMRC with Boeing is a £45million partnership of the University of Sheffield and over 40 partner companies, which builds on the shared scientific excellence, expertise and technological innovation of the world’s leading aerospace companies, and world-class research within the University of Sheffield’s Faculty of Engineering. It develops innovative and advanced technology solutions for materials forming, metal working and castings. It also has internationally acknowledged research in the field of composite materials, an area crucial to the development of Boeing’s next generation aircraft. The AMRC’s success is built on an extensive partnership. It is situated on an Advanced Manufacturing Park, where it is co-located with other internationally significant research and technology transfer organisations. The AMRC has benefited directly from ongoing support and funding from both the public and private sector.

In the rail industry, MIGHT was instrumental to establish the Malaysian Rail Industry Consortium (MARIC), a consortium of local rail companies to enhance the local rail industry capability and capacity. The consortium will be a platform to assist these companies to enhance their capacity, competency and ability by working together or partnering with OEMs (original equipment manufacturers) to have the skill to bid for projects.

With government’s support through its localisation policy, the local rail industry has developed and achieved international standard and recognition. This is evident in local player’s involvement in three major projects under The Greater Kuala Lumpur Plan 2010. The projects were awarded based on the capabilities of MARIC members, together with each respective local and international rail partner. Through these projects, MARIC members expand their expertise through knowledge transfer such as involvement in after sales, MRO and export capabilities. It also accorded MARIC members credibility as engineering, procurement, construction and commissioning (EPCC) partners to the international original equipment manufacturer (OEM), enabling smart-partnership between various parties, locally and abroad.

Going forward, MARIC has a vision of expanding its organisation that would further benefit its members. Amongst them are incorporation of MARIC Incorporated and MARIC Trading House, establishment of Rail Industry Zone that includes research and innovation centre, warehouse and heavy engineering storage, and establishment of Rolling Stock Anchor Company, Technology and Innovation Anchor Companies and MARIC Product Focus Group.

Through these initiatives, MARIC is ready to achieve more with the government’s support and recognition. Through collaboration with international construction, engineering and financial giants, MARIC members can adapt easily to both western to eastern technology. Such exposure also inculcates awareness on the standards of quality and expectations of the local players and increase their capabilities such as managing high level maintenance, repair and overhaul of LRT Ampang Line, KLIA Express and KTMB ETS wagons. In addition, parts and components can also be produced locally with support and assistance from OEM and rail owners. Key operators such as Prasarana and KTMB has long embarked into vendor development programme where they identify special components to be locally manufactured while opening up windows of opportunities to grow abroad.

Achieving the right blend between the public sector and private industry is a complicated economic endeavour due to the fact that Malaysia is a small country with limited resources. But neither the private sector’s invisible hand nor governmental heavy-handedness can be the solution. It is true that the private sector cannot spur an innovation agenda without the government, but it is equally true that the government cannot replace private-sector market forces. It is therefore imperative that the public and private sectors start working together through MIGHT and together we can make it happen.

Mohd Zakwan Mohd Zabidi

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