Senior Lecturer
School of Business
Monash University
*email address protected*

School of Business
Monash University
*email address protected*


This paper examines Malaysia’s attempt to harness the power of innovation for economic development. It highlights the importance of innovation, and the importance of building National Innovation Systems (NIS) as transformative drivers of innovation outcomes, and evaluates Malaysia’s progress in charting an agenda of action for the future.


At the dawn of the twenty-first century, the speed and the nature of innovation have changed. Innovation today is no longer confined to the traditional trajectories of past centuries. It now happens at a different pace, in different locations, and is different in its nature and effect. Observation of recent innovations in the fields of nanotechnology,biotechnology, ICT, and new materials suggests that they share a
number of common features (Council of Competitiveness, 2005):

  • Each is a global phenomenon.
  • Each is multidisciplinary. It arises from the intersection of different fields or spheres of activity.
  • Each is an innovation multiplier – sparking innovation in other areas. It generates not just “value chains” but rich, multidimensional
  • Each has elements of emergence and openness. Its spread is not determined by one company or entity, but by the independent activities of many.
  • Each has a transformational force. It changes not just industries or markets, but often society, and the very way we live and work.

The nature of innovation is such that it requires the effort of a wide variety of disciplines and research. It therefore demands significant investment in coordination and management. A major failing in the science, engineering, and technology community to capitalize on their full potential, is each discipline’s obsession to maintain and strengthen only its own turf. Yet, in recent times, the most exciting research advances appear to have emerged from the interstices of two or more fields. Hence, care should be taken not to focus too narrowly on isolated funnels, since it would appear that the science and technologies emerging from narrow disciplines can multiply and grow through a process of cross-pollination and interaction. It is also not just about science alone. Social sciences are an integral part of this phenomenon by virtue of providing an understanding of the modes of creation, diffusion and impact of science and technology on society.

Many nations acknowledge that science, technology, and innovation are important tools for development. Yet their policy approaches diverge from this. Many stress science, technology, and innovation to generate new knowledge, whilst continuing to devise incentives and industrial policies that emphasize strengthening a narrow set of existing manufacturing capabilities, often at the low end of the value-added chain. These nations need to learn to balance short term competitiveness with long-term economic progress and vitality. In short, they need to focus attention on the use of existing technologies whilst building a foundation for long-term R&D activities.


At a national level, accumulating capital is good but not a sufficient condition to ensure long-term growth rates. Innovation and technology are needed by developing nations to escape from their reliance on exploitation of natural resources. Endogenous growth models in economic theory (Laeven et al, 2014; Caragliu and Nijkamp, 2014; Tang and Tan, 2013; Guloglu and Tekin, 2012;
Romer, 1990; Lucas, 1988) highlight the need for institutions and policies to promote innovation. The models and their empirical evidence show that innovation and the adoption of technologies is endogenous and driven largely by the combination of investments in science, technology, innovation and adequate policy frameworks. Economic improvement is largely a result of the application of knowledge in productive activities, as well as adjustment in associated social institutions. Innovation success in the modern age is rarely a phenomenon of a single individual working in isolation. Instead, innovations are nurtured and born from a facilitative environment. The environment is constituted from multiple agents and agencies working in symbiotic accord to facilitate a predisposition to acts of innovation. These taken together, at a country level, constitute what is commonly called the National Innovation System (NIS). The primary actors in the NIS contributing to economic growth are government, industry, academia, and civil society (Edquist 1997). Major technological innovations rarely occur without financial investment but, as noted earlier, funding alone is not sufficient for science and technology. The institutional mix of actors (eg. individuals, firms, the state, and other organizations), through complex interaction, define the milieu in which technological innovation occurs.

Malaysia’s economic achievements since independence in 1957 are remarkable by any standard. The country’s per capita income increased from US$200 in 1960 to US$10,687 in 2013 (Economic Planning Unit, 2013).

Over this period, Malaysia has transformed from an economy heavily dependent on exports of primary commodities (such as tin, palm oil, and rubber), to one that is driven primarily by the export of manufactured goods. In the 1970s, Malaysia began its transition into a middle-income country by gradually broadening its economic activities. In the following decades it transitioned from an economy primarily focused on the production of raw materials into one of the world’s leading electronics exporters. The sector was the primary driver of export growth during the transition period, and became Malaysia’s leading industrial sector in terms of investment, value-added, export and employment. In recent times, Malaysia has invested heavily in biotechnology and nanotechnology as the future drivers of economic development.

Today, manufactured goods account for around a third of the country’s GDP, and more than two thirds of the country’s exports (Trading Economics, 2015; Ministry of International Trade and Industry, 2014; The Edge Markets, 2015). At the initial stages of Malaysia’s industrial development during the 1960s and the 1970s, government policy on technology was oriented. There was considerable emphasis encouraging foreign direct investment in industries considered to be “high-technology”, such as the electronics industry. Also, during this period, priority was given to the development of a vibrant small and medium enterprise (SMEs) sector. Efforts to enhance the country’s science and technology (S&T) capacity started around the mid-1980s. This included public policies to improve the financing of innovation-related activities such as research and development either directly through grants or indirectly through tax incentives.

One measure of economic development and progress is the Gross National Income (GNI) per capita. Under this metric, Malaysia’s GNI per capita for 2011 was around US$8840. Malaysia’s GNI per capita is only about one tenth to one fifth of the GNI per capita of most of the OECD countries (The World Bank, 2015a). In terms of a general trend, individual wealth (income per capita) has improved year on year (The World Bank, 2015a). When adjusted for purchasing power, the income per capita for Malaysia stood at US$20,580, which is more than double the income per capita for China (US$9,940), and half of that for the Korean Republic (US$31,510) (The World Bank, 2015b) (see Figure 1). This is in line with Malaysia’s middle-income status relative to other countries.

There are significant differences between the structure of the Malaysian economy and the OECD economies. The most striking difference is in terms of the sectorial composition. In most of the OECD economies, the service sector accounts for more than 60% of the national product (measured by GDP) (IndexMundi, 2015). The agriculture sector accounts for less than 5% of GDP in most OECD economies, while the manufacturing sector’s share of the GDP is around 21-44% (IndexMundi, 2015). In the case of Malaysia, its service sector accounts for less than 50% of the GDP, while the agriculture and manufacturing sectors account for 12% and 40% of the GDP, respectively (IndexMundi, 2015).
Over fifty years of independence, Malaysia has made striking economic progress. The World Competitiveness Year Book placed Malaysia in 12th position for 2014, ahead of more developed nations such as the United Kingdom (16), Japan (21), South Korea (35), and New Zealand (20) (IMD, 2014). Science and technology are an important part in Malaysia’s bid for competitiveness. Unfortunately, there remain some weaknesses in Malaysia’s scientific infrastructure and innovation system. In a recent Global Innovation Index (GII) survey, Malaysia was ranked 33rd (from 143 countries) in 2014 (MASTIC, 2015).


Source: The World Bank, 2015b


Malaysia’s transformation has been guided by a set of advisory institutions that include the Science Advisor’s Office to the Prime Minister, established in 1984. The Office, headed by the President of the Academy of Science, Malaysia (ASM), incorporates the Malaysia Industry-Government Partnership for High Technology (MIGHT).

Other relevant organs include the National Council of Scientific Research and Development (MPKSN), chaired by the Chief Secretary to the Government; the MPKSN Secretariat, consisting of the Ministry of Science and Technology and Innovation, top civil servants from most ministries, universities, industries, and professional organizations; and two standing committees, one for policy formulation, headed by the Science Advisor of the Prime Minister’s Department, and the other for policy implementation, headed by the Secretary General, Ministry of Science, Technology, and Innovation. Other executive efforts include the advice of Malaysia’s Ministry of Education on improving science, technology, and innovation literacy. These efforts are guided by Malaysia’s strategic vision, Wawasan 2020.

Support for promoting innovation and R&D activities from the Government is through a number of plans and incentives. For example, the National Action Plan for Industrial Technology Development in 1990, the National Multimedia Plan in 1995, the Second National Science and Technology Policy in 2003, the National Biotechnology Policy in 2005, the National Innovation Model in 2007, the Green Technology Policy in 2009, the Digital Transformation Program in 2011, and the National Transformation Policy (NTP) in 2012.
The public funds offered for research to commercialization stages are as follows (MASTIC, 2013):
A) Creation Stage:

  • Malaysia Pre-Seed Fund Programme for ICT projects
  • ICONedu (Online Education Content Creation Grant) for the educational projects, especially for local SMEs and technopreneurs
  • ICONity (Online Social and Community Content Creation Grant) for the development of social and community content

B) Research Stage:

  • ScienceFund (covering Nanotechnology)
  • Biotechnology R&D Grant Scheme (covering Agro-Biotechnology R&D Initiatives (ABI), Pharmaceutical and Nutraceutical R&D Initiatives (IFNM), Genomic and Molecular Biology R&D Initiatives (MGI))

C) Development Stage:

  • TechnoFund
  • InnoFund
  • MSC Malaysia R&D Grant Scheme (MGS)

D) Commercialization Stage:

    • Commercialization of R&D Fund (CRDF)
    • Technology Acquisition Fund (TAF)
    • Biotechnology Commercialization Fund (BCF)
    • Industrial Technical Assistance Fund (ITAF)

The pattern of utilization is different for the different types of schemes. A select few are discussed below (MASTIC, 2013):

  • The applications for ScienceFund suffered a declining trend over the earlier years from 858 in 2008, to 732 in 2009, to only 440 in 2010. Nevertheless, the applications increased to 916 in 2011, and 2,191 in 2012. In 2012, the S&T core sector became the highest recipient in terms of grant applications and approvals.
  • The applications for ABI declined from 6 in 2008 to 1 in 2009. In 2010, 6 projects valued at RM6.6 million in total were approved. On the contrary, the applications and approvals for IFNM increased from 6 projects in 2008, to 9 projects in 2009. ABI decreased to 1 project valued at RM2 million in 2010. The applications for MGI increased from 2 in 2008, 4 in 2010, to 8 in 2011, and saw a decline to 1 project valued at RM0.4 million in 2012.
  • The applications for Technofund decreased from 287 in 2008, 253 in 2009, 27 in 2010, 174 in 2011, to 158 in 2012. The top three sectors across all years in terms of applications and approvals were the industry sector, biotechnology, and ICT. The Industry sector has been the leading recipient in Technofund. However, in 2012, the amount approved in biotechnology valued at RM16 million surpassed that of the Industry sector at RM12.4 million.
  • The total allocation for the Biotechnology Commercialization Fund (BCF) had risen from RM5 million and RM10 million in 2011 and 2012, to RM46.5 million in 2013. The project approval, however, was extremely low, at only 1 project with the amount of RM3 million in 2012, and 7 projects valued at RM18.9 million in 2013.


A balanced approach that strengthens and stimulates Malaysia’s national innovative capacity while engaging actively and collaboratively with the rest of the world is requisite for competitive success into the future.
To strengthen and sustain Malaysia’s competitiveness and progress into the twenty-first century, it is necessary to enact strategic action for innovation. Failure to do so will only leave the nation straggling in the race, as an “also ran”. Addressing the challenges to transform Malaysia’s ecosystem to one full of innovative vibrancy will require a multi-pronged approach.
Firstly, Malaysia must examine and embrace new strategies to sustain and strengthen its national innovation ecosystem. In order to compete with world leaders, it is necessary for Malaysia to first catch-up and then build strategies to lead. For this to happen, Malaysia’s education system, in terms of quality, must be second to none, especially in its research. Prerequisite to building research capability is a vigorous primary, secondary, and university education. Universities, both public and private, are key players only if they are active at the frontiers of advancing knowledge. In addition to education, it is necessary to ensure that the reflexes in Malaysian society nurture and support innovation. Malaysian society, its people, their lifestyle, business climate, and infrastructure, need to become a model for attracting innovators from all over the world. This means putting in place, amongst other things, intellectually challenging jobs and appropriately rewarding the best people. This requires upgrading R&D capability of the private sector. These priorities must dominate public expenditure and corporate investment since ultimately they will define the fundamental quality of Malaysian society.

Secondly, if Malaysia is to stand a chance to meet the goal of a truly innovative and transformative society, it must engage all the stakeholders of society in this effort. Government actions are important, but not sufficient. Industry, academia, and society all have major roles and responsibilities to fulfill.

Universities-industry-government constitutes the agency of Triple Helix, and they must come together to tackle a number of broad priorities that can be categorized as questions under fundamental components that underlie an effective NIS. Building on the biological metaphor, these components are like the bases [ie. adenine (A), guanine (G), Cytosine (C), and thymine (T)] that connect the individual DNA strands, and are the keys in shaping the code of success or failure. We identify the component bases that energize the NIS as 4Is: (1) Intellectual capital; (2) Investment; (3) Infrastructure; and (4) Initiative.

Intellectual Capital is the knowledge component base of the NIS. It includes knowledge creation, education, and skills:

    • What skills are required for the future well-being of Malaysia?
    • What does Malaysia need to do to retain the best home grown talent and attract the best brains from other corners of the world?
    • What type of training and education is necessary for Malaysia to improve its competitiveness?

Investment is the financial component base of the NIS. It includes funding of R&D, availability of capital and economic incentives such as tax breaks:

    • What adjustments need to be made to help capital markets value long-term innovation more highly than just purely short-term profits?
    • What does Malaysia need to do to provide ready capital for entrepreneurial activities?
    • How can incentives be used to increase early stage investment in SMEs?

Infrastructure is the physical component base of the NIS. It captures policy provisions and structures. It can include tangible factors such as logistics and the supply chain, and intangible factors such as regulatory systems, intellectual property protection, and trade policy:

  • What regulatory and legal reform is needed to support innovation and entrepreneurship in Malaysian society?
  • How can Malaysia improve its intellectual property regime to reward entrepreneurs for their efforts?

Initiative is the human component of the NIS. It is about the energy and commitment of entrepreneurs to take risks and pursue creative goals:


  • How can individuals be encouraged to engage in entrepreneurial activity?
  • How to develop people with creative mindsets and perseverance to live their dreams?
  • How to change the risk-attitudes of Malaysian, so that they dare to fail?



In engaging with these questions, the different stakeholders must come together and align their efforts. Borrowing from science the DNA double helix as an analogy, the partnership of university, government, and industry has been coined as the “Triple Helix”. The real question, however, is not how to describe the partnership, but to ask whether each of the partnership agencies have the wherewithal, foresight, and fortitude to be able to mimic the regenerative capability of its biological analogy contained within its primary base.


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MASTIC (Malaysian Science and Technology Information Centre)
Doctoral Student
Delft University of Technology
The Netherlands
*email address protected*
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Pei-Lee Teh is a Senior Lecturer with the School of Business, Monash University, Malaysia. She holds the degrees of Bachelor of Information Technology, Master of Management, and a PhD in Management. She is the Associate Editor of the Decision Sciences Journal of Innovative Education and the International Journal of Electronic Business, and a member of the Editorial Review Board of the Journal of Computer Information Systems, Industrial Management and Data Systems, International Journal of Modelling in Operations Management, and International Journal of Engineering Business Management. She is Chair of IEEE Malaysia Section Technology and Engineering Management Society (TEMS) Chapter. Her teaching and research interests cover management information systems, technology management, total quality management, knowledge management, entrepreneurship, gerontechnology, innovation and learning. She has published over forty refereed international journal and conference papers. Her work appears in journals such as Asia Pacific Journal of Management, Expert Systems with Applications, Journal of Computer Information Systems, Journal of Global Information Management, and Pacific Asia Journal of the Association for Information Systems

Pervaiz K Ahmed is currently a Professor in the School of Business, Monash University, Malaysia. He has published extensively in international journals. He was senior editor of the European Journal of Innovation Management, International Journal of Business Governance and Ethics, International Journal of Management Concepts and Philosophy, and serves on the editorial board of several international journals. His research interests include management of innovation, knowledge and learning, business governance and ethics.