Malaysia in the new economy

“THE future is here. It’s just not widely distributed yet”.

Consumer experiences have been transformed by digital convenience. Online retail is well on its way to form the bedrock of private consumption while some e-commerce enterprises in the online retail space are among the most valuable companies in the world.

Guidance from the Ministry of International Trade and Industry indicated that e-commerce contribution to GDP stood at around 5.8% in 2016, far below China and United States’ respective contribution at around 21% and 35% each.

According to a consumer survey report by PwC in 2016, 48% of Malaysian consumers were reportedly making purchases online on a monthly basis, lagging behind South-East Asia’s and China’s average respondent survey rate of 55% and 91% respectively.

Therefore, the online retail space is no longer a new frontier but a reality for enterprises to remain relevant in business.

> Innovation – key driver to economic growth

There is a limit on how far the traditional concept of capital expansion and labour intensive production could drive the economy. Businesses need to make full use of innovative solutions in order to stay ahead, failing which it would be rendered irrelevant when competitors catch up.

According to the Bloomberg Innovation Index 2016 that takes into account the level of manufacturing activities and related research and development (R&D) intensity parameters, Malaysia ranked 25 out of 50 economies surveyed – still far away from being leaders in innovation.

Nonetheless, compared with regional peers, Malaysia is ahead of Hong Kong (ranked 37) and Thailand (ranked 47). Malaysia’s strength in the index is attributed to the relatively high proportion of manufacturing sector contribution to our economy compared with the other countries, which are more value-add services driven.

However, on patent activities and labour productivity, Malaysia ranked 39 and 37 respectively, underscoring the gap that we need to address.

Given our status as a middle-high income economy, it is only fitting that Malaysia continues to strive harder to climb up the league in global rankings.

> Need for more home-grown talents

Domestically, private consumption contributes up to 55% of gross domestic product (GDP). Therefore, the disruptive innovative businesses that are already on our shores such as Uber (for transportation), Airbnb (for accommodation) and PayPal (for transaction) have tremendous impact not only on how Malaysians consume but also on our economic production and distribution.

As innovative as these Internet-based companies are, part of their business models thrives on conventional economic concepts of means of production and the monopoly of market place.

Although the consumer is king, in business, the party that controls the enterprise essentially have overreaching influence on price decisions and industry trends.

Ultimately, it is not just about Malaysian consumers attaining the same Internet commerce penetration rate, but also Malaysian companies stamping our mark in this global Internet based commerce race.

Two decades ago, Malaysia acknowledged the importance of innovation in spurring economic growth. Cyberjaya was labelled the Multimedia Super Corridor (MSC), and targeted to become the “Malaysian Silicon Valley”.

Fast forward to 2014, efforts to promote Malaysia as a small medium enterprise and Internet start-up hub continued with the establishment of Malaysian Global Innovation & Creativity Centre (MaGIC).

MaGIC’s focus is to enable an entrepreneurial eco-system to accelerate the formation and growth of start-ups. From coding programmes and business pitch coaching sessions to business contact referrals, MaGIC can be a stepping stone for Malaysian entrepreneurs to thrive.

In fact, Budget 2017 delivered some good news to the development of this industry. An allocation of RM200mil from the Working Capital Guarantee Scheme will be given specifically to support start-ups.

For high technology start-ups, Foreign Knowledge Tech Entrepreneurs, a new worker’s pass, will be introduced to attract talents around the world to fill in the talent gaps in the country.

These are commendable initiatives by the government that speaks volume of its foresight on the future of enterprises. As a free market economy, the government is focused on making the right moves as an enabler and provider of both hard and soft infrastructure so that organic enterprise growth can materialise.

In fact, Malaysia has produced successful home-grown companies, such as Grab. Since its inception in 2012, it has already made its mark, rivalling Uber in key growth markets in the Asean region.

In addition, there are also incentives for the private sector to support home-grown Internet companies and SMEs to grow the domestic commerce scene. For instance, Alliance Bank organises the annual Alliance BizSmart SME Innovation Challenge, reaching out to promising young enterprises to develop their ideas through business coaching, provide mentoring sessions with leading Malaysian entrepreneurs and offer substantial prizes to the winners.

> The future has arrived

Looking ahead, the recent presentation of National Transformation 2050 (TN50) by Prime Minister Datuk Seri Najib Razak and the appointment of Jack Ma, executive chairman of Alibaba Group, as the digital economic adviser are exciting developments to push Malaysia into the digital economy.

While the Malaysian market may be small given our population size – relative to Indonesia among the region, for instance – it may not matter much as the idea of Internet-based commerce is borderless transaction and globalised trade.

Therefore, the barrier to business is only limited by our imagination.

The new economy of automation and pivot to value-add services can either be complementary or threatening to the traditional sectors of industrialisation and old ways of conducting commerce, depending on how we approach it.

Malaysia should not lose out in this race. The infrastructure for enterprises to thrive is already in place and we have a sizeable urban and young demographic that is willing to try new experiences (and also dish out consumer criticism at lightning fast speed through social media).

The 11th Malaysia Plan has already outlined the push for services sector contribution to GDP to increase from around 54.1% in 2016 to 56.5% in 2020, led by an expected 5.9% average annual growth in the wholesale, retail, accommodation and restaurant sub-sector.

There is definitely space for the digital economy, through innovative approaches, to prosper in this space.

Manokaran Mottain is the chief economist at Alliance Bank Malaysia Bhd.

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