Innovation in Malaysia: Strategy, Vision and Latest Developments

Interview with Mark Rozario, CEO of Agensi Inovasi Malaysia

Are you completely satisfied with the level of innovation and competitiveness of Malaysian companies?

Regarding our private sector today, if you look at what our Prime Minister has been stating in public regarding the 11th Malaysia Plan, from 2016 to 2020, the focus is going to be on how we can innovate and increase productivity. Therefore, we need the private sector to focus on these objectives as well. We have various programs, which are trying to facilitate this.

Tell us more about these programs. What needs to be done to improve innovation?

Agensi Inovasi has been set up as the National Innovation Agency by an Act of Parliament. We are here for 10 years.

We first address the ‘ecosystem of innovation’, and look at wealth creation as a whole, dealing with wealth creation opportunities for us as a country. In terms of the ecosystem for innovation, there are six core areas that we are looking at. Firstly, cultivating a thinking culture. This is looking at how we are going to equip the coming generation with higher-order thinking skills, tools that will help us become more innovative. We have a program called ‘I Think’, which introduces thinking skills in our schools, high-order thinking tools. We started with the introduction of the use of thinking maps – 8 different thinking maps that can be used by schoolchildren in any given situation. We are trying to move the schoolchildren away from rote learning. This program is currently being rolled out into all our 10,000 schools, working very closely with the Ministry of Education. We also have a design thinking school called Genovasi, which has a 10-week design-thinking program targeted at young working adults, both from the private sector as well as government ministries and agencies.  So, this is the area of cultivating a thinking culture.

We also have programs looking at bringing the industry and academia to collaborate and work more closely together. Steinbeis is a platform that allows companies to directly engage researchers to undertake development or research work for them. They are researchers from both public and private universities as well as our research institutes. They are allowed to spend 20% of their time taking on projects from companies and being paid for it.

They are also allowed to use the labs and equipment from our universities and research institutes for which they would be paying a rental. This helps the private sector to tap into the vast knowledge and expertise of these researchers; the researchers on the other hand not only get paid, but also get a better insight into what the industry requires as apposed to just doing their research in ivory towers.

The next area aims to transform strategic sectors. Here, we identify strategic sectors in the economy and try to find new wealth-creation opportunities. For example, we came up with a National Biomass Strategy, which looks into the opportunities for using the biomass being generated in the various sectors, primarily the palm oil sector. We are the second largest producer of crude palm oil and we generate about 80 million tons of palm oil biomass, in addition to the 18 million tons of crude palm oil. As a country, there are tremendous opportunities for us to use this biomass in much higher value-added industries.

There are opportunities to create new downstream industries in bioethanol, biochemical, and bioplastics – second-generation biofuels.  Therefore, we just mapped out the areas where these biomasses are available all over the country and worked out the cost to mobilize it. This is acting as a catalyst for the players in these new downstream industries globally to be looking at Malaysia and to see where we can create these new industries.

Finally, we are concentrating on innovating organizations. What needs to be done in the private sector? How can we get our private sector to focus on creating more opportunities for themselves? The direction in which technology is currently moving, disruptive innovations can come along and destroy whatever industry you are in.

Therefore, we have been collaborating with the private sector and sort of highlighting that ‘no matter what industry you are in, you need to look at innovation. You need to think about the new things you can develop ’. We have created some tools that show what it means to be investing in innovation. There are many intangible areas that companies need to concentrate on if they want to become innovative. It’s not just about doing R&D and creating IPs – Intellectual Property. It is much broader than that. When you look at the balance sheet of a company, all you see are tangible assets like plant and machinery, cash in the bank, but you would have no idea what they are doing to develop human capital, developing the relationship with suppliers and customers. All this comes under Intellectual Capital.

At the end of the day, companies that are more focused on developing all these intangible areas are more likely to come up with innovations, than companies that are just focused on building brick and mortar. Therefore, we have been developing these tools and some concepts on how to measure the returns from investing in these intangible areas.

Is that the National Corporate Innovation Index?

Not directly, but we created the National Corporate Innovation Index with the motive of not necessarily ranking companies. Ultimately, that is where we would like to head, but right now, we are trying to get companies to assess themselves using these tools. We are helping them to make self assessments along the lines of ‘what am I doing in these different areas and what should I be doing?’. Ultimately, our goal is to find out where these companies stand in this index, but right now, our goal is not to start ranking companies, but to look at what they should be doing in this space.

“Out of 28 million people, 305 domestic patents are granted in 2013.” This translates to one patent for every 100,000 people. Malaysia is one of the leading ASEAN countries, but it is behind the OECD average, which issues 8 to 10 patents for every 100,000 people. There is a lot of space to grow as far as patents are concerned, and the United States should be among the leading countries. This statistic actually states that Malaysia has not yet become a knowledge economy. How difficult is it to convince companies about the importance of innovation and patents? What is the long-term goal for Malaysia?

At the end of the day, it is just a number. We have been increasing the number of patents per capita population, but that is not our ultimate goal. Yes, we should try to keep increasing the number of patents that are being issued, but what is more important is how many of those patents actually get commercialized. Because at the end of the day, if you are just focused on creating more and more patents, if they just sit on the shelves and nothing is done with them, it is not going to benefit the country. What is more important is to see how we can increase the rate of commercialization. Many steps are being taken to achieve this.

For example, the 1DANA was a portal that was just launched by the Prime Minister last week. This has all information on the grants given out by the government, by 11 different ministries and 37 different government agencies under them, for promoting research, development and commercialization. The goal is to see how the whole funding landscape for RD&C (Research, Development and Commercialization) can be streamlined by reducing potential duplication, because we have 11 different ministries giving grants for RD&C. In this case, there is a possibility that some of the work will overlap each other. By streamlining the landscape, reducing the duplication, we can ensure that the money that the government is spending on RD&C can be utilized more efficiently.  

First, it ensures we are not putting all the money into one area, whether it is basic research or applied research or pre-commercialization or commercialization. We can try to ensure that there is a balance. Reducing the duplication ensures increase in the likelihood of coming up with more effective patents. Ultimately, with this streamlining, we are also increasing the rate of commercialization.

Other areas that can increase the rate of commercialization are the various funding efforts, the equity investment, how we help companies with innovative products and services, bring them to the market. We are also focusing on the IPs that are being generated by our universities and our research institutes and identifying those with a potential for commercialization and trying to match them with commercialization partners. Quite often, the researchers that create the IPs are very unlikely to be the persons who have the capabilities to commercialize them. Therefore, it’s best that we bring these parties together. A lot of effort goes into this as well.

We also have a platform for commercialization called PlaTCOM, which aims at helping the SME sector, which represents 97% of all the companies in Malaysia. It helps the sector to provide services like ideation, and walk it through all the steps from ideation to commercialization – from the point of having an idea, an IP to bringing it to the market. This is our focus as opposed to increasing the number of IPs and patents. It is really about how to increase the rate of commercialization.

What countries do you see as your benchmarks? You must be getting these ideas from somewhere – maybe your background, your education. How confident are you that you can change Malaysia with the agency under your management? What are some of your international networks? Where do you get these ideas?

What we are doing with our National Innovation Strategy and all 6 core areas that I mentioned, from cultivating a thinking culture all the way to catalyzing commercialization, as far as I know, we are the only country that is doing all this through one agency, the National Innovation Agency. Of course, there are many countries that have national innovation agencies or councils that primarily focus specifically on commercialization.  The ideas we have are a combination of things that many other countries are doing. Talking about benchmarking, there are many things that we can learn from some of those countries that have done particularly well in innovation.

Currently, Malaysia ranks 34th in the INSEAD Global Innovation Index. The top 3 are Switzerland, the UK and Sweden. These three countries rank quite highly in quite a number of similar industries. We do collaborate with the UK and Sweden in several areas. I think there is a lot that we can learn from how these countries have succeeded in innovation, in cultivating many innovative companies along the way. I would not say that we are trying to benchmark ourselves against specific countries, but we are trying to learn from some countries that have done well in certain areas.   

You of course want to be in the top 5 globally in innovation. When do you think Malaysia will be able to rank number 2 or 3?
 
What we are striving to do is to see how we can work our way up, but we have to be realistic. We are not saying, “We aim to be number 3”. We are not targeting specific areas in the industry. Our goals are internal. We are looking at our country itself, at what we need to achieve. For example, the stated goal for the country has been to become ‘a fully developed nation’ by 2020. This entails attaining a per capita income of USD 15,000 per capita GDP.

The things that we are doing as an agency are contributing to that. For instance, from technical viewpoint, there are the new wealth-creation opportunities through innovation and so on. Our overall goal is about creating wealth through innovation. I am talking about the agency, not the country, of course.

We feel that all that we are doing – from addressing the renovation of the ecosystem to taking up all the wealth-creation opportunities – if we achieve our goals in each of these areas, automatically we will be moving up the index.  It is not that we are specifically stating how we can move up the index. Our focus is really on specific initiatives we have taken. Ultimately, the result will speak for itself.

If you take the Global Innovation Index, it concentrates on 40 different areas. If you explored those areas, you can see specific areas with some weak points and maybe you could take some steps to improve them. However, it should really only be used as a guide. When we talk about wealth creation, it is not just about increasing the GDP, there are other things that also need to be addressed such as the healthcare system, crime, the means of improving the quality of life.

When we looked at the Global Innovation Index, one specific sub index within that is on GERD, Gross Expenditure on R&D. Malaysia ranks 34. This is for 2011, where the value of Gross Expenditure on R&D was 1.07% of GDP. South Africa was ranked 43 and Pakistan was ranked 74.

Do you see the percentage growing? What is your target?

Yes, certainly. We expect this number to grow to 1.6% in the next couple of years. Your statistic was for 2011, but by 2015 or 2016, we expect to see this number growing. The government itself has been increasing the allocations and the budget for research, development and commercialization. Just in the last budget for 2015, there was an additional allocation of RM 1.35 billion specifically for commercialization, so we certainly see this number increasing. However, as I mentioned earlier, the focus is really on how we can increase the rates of commercialization as opposed to just increasing the number of patents being generated.

I would like to ask you about the specific sectors with the highest potential return on innovation for companies in Malaysia and perhaps foreign investors. Which sectors that you have identified which promise to be very lucrative?

For Malaysia, we have 12 key economic areas. These range from the ENE (Electronics) sector to Healthcare. But speaking about specific areas that we identify in terms of innovation, I can give you one example of a program we are currently focusing on, which is an action plan for Graphene. It is a new material, just discovered about 10 years ago. It is the thinnest material known to man. It has the potential to change the properties of many other materials, from steel to rubber to drilling fluids. We have identified five industries that can potentially use graphene, create new products, and add much higher value to them. This is used in lithium ion batteries, conductive inks, rubber additives, plastic additives and Nano fluids.

Therefore, we are assisting companies in these five areas locally in Malaysia to see how they could use graphene to enhance their inherent qualities. Taking the example of rubber additives for instance, Malaysia is the largest producer of both synthetic and natural rubber gloves. It amounts to 60% of the global market share. Graphene could improve the properties of rubber gloves, making them thinner and stronger. This will create a new price point and new markets for these products. It may perhaps even increase the market share for Malaysia. That is just one example. There are many examples in each of those five areas that I mentioned. 

Can you name the 5 most innovative companies in Malaysia?

A list of the top 100 innovative companies in the world was announced recently. Only one Malaysian company made the list, which was DiGi, a telecommunications company. We have also had companies like Air Asia, which has won many awards. So, these two companies invariably occur to people. They do come up with many new innovations. If you look at Air Asia, they pionnered many new methods of generating new sources of revenue for themselves.

Amongst the large corporates, there is DiGi and Air Asia and Maybank in the banking sector. These companies are always finding new ways of doing business. I think we also need to look at some of the smaller companies we are trying to help that could potentially become very successful. One example is a company called iGene, that has developed digital autopsy, a first in the world. It is a Malaysian company; they have a contract from the UK government to roll out 18 digital autopsy centers across the UK. However, this is a technology, an innovation that has global potential. Every country in the world, every culture frowns on physical autopsies. If there is a way to reduce those numbers by doing digital autopsies, I think it will be welcome in many countries. The UK was the first to embrace this.

We also have a company that has developed LED fiber optics called Quantum Electro Opto Systems Sdn Bhd (QEOS). They have recently acquired a company in Silicon Valley that has developed a 60-gigahertz chip. This is the next generation of Wi-Fi. This company has a vast array of potential products that can come to the market using these technologies like LED fiber optics and the 60-gigahertz chips.

Another one is a company called Sekhar Research Innovations (“SRI”). They have developed a process to devulcanize rubber. This can have a big impact in the rubber industry, rubber tyres etc. Looking at the tyre industry, used tyres is a problem, not just in Malaysia, but everywhere. Used tyres are being burnt, polluting the atmosphere. Even in the US. Mostly for whatever energy contents that still remains in those tyres, but it pollutes the atmosphere.

But this company has found a way for the rubber in those used tyres to be devulcanised, meaning to separate rubber from the metal. The rubber component is taken through the devulcanising process, where you end up with rubber crumb, which is similar to virgin rubber. So it can be used again to produce tyres or any other rubber products. This company has just set up a plant. This could potentially change the way used tyres are being scrapped. It would now allow countries to start thinking about outlawing the burning of rubber tyres, because there is a solution now.

Any other more conventional companies that are interesting for us to know?

There are 12 companies we have invested in and are looking at how we can help them bring innovations to the market. I have already mentioned 3 – iGene, QEOS and SRI. Another example is a company called Anomax. Founded in 2010, Anomax was founded on the invention of IPCHS, which is an integrated plated circuit heat sink with industry leading thermal management performance. Substrates mostly have some form of plastic in them.

This company has developed a substrate that has a coating of ceramic and copper. They go through a plating process, so there is no element of plastic or glue in them. What this means is that the heat dissipation ability of the substrate is much higher, so you can make more efficient LED lights. This is something that will again increase the potential of the LED light industry.

Which industries or companies are resistant to change or innovation?

There are quite a few. These industries require a lot of manual labor. Malaysia requires a lot of foreign unskilled labor for our manufacturing industries. We need to try to move away from this dependence on foreign unskilled labor. This will involve looking at investing in innovation, productivity, in automating processes. The industries that are heavily reliant on foreign labor are the ones that need to change. They need to be looking at how they should be investing in automation, productivity increases and innovation.

Malaysia is known for its large public sector and civil service. In Malaysia there are 1.4 million civil servants. Traditionally the public sector is more resistant to change and innovation. How challenging is it to push innovation through the public sector? Innovation is something that the private sector should be doing and here we get the impression that the public sector is influencing the change and not vice versa.

As I mentioned, the reason why we were set-up as the National Innovation Agency is to act as a catalyst for the private sector. You are right. The private sector should be driving innovation. That is the very reason why we have been set up this way, to be here only for 10 years. We are here to get the private sector to be actively involved in many areas that we are engaged in now.

As far as the public sector is concerned, right from the top – from our Chief Secretary to the government down at the civil service level – there is a big push towards seeing how the government sector can embrace innovation. Every ministry has an innovation department. Individually, they are looking at how they can improve.

However, one of the things we are doing is the Design Thinking School, where we have a 10-week program targeted at young working adults aged 20 to 35. We started in the beginning of 2013. 60 % of the graduates in this program are from various government agencies and ministries. We get a very enthusiastic response from the individuals that go through this program. It teaches them how to use these design-thinking tools in their respective ministries.

Design-thinking is a way to teach innovation, because it is a process to come up with solutions to problems and issues that arise, by empathizing with your end user.  You actually put yourself in the place of your end user. So in the case of the government ministry, they would be thinking about the public that use their services. These are ways in which you can slowly try to make changes and use innovation to improve the level of service.