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9th Malaysia Strategic Outlook
Conference 2007
Creating Global Competitiveness:
Roles for Business and Government
29 January 2007
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Speech by YB Datuk Seri Dr Fong Chan Onn
Minister of Human Resources
9th Malaysia Strategic Outlook Conference 2007
Creating Global Competitiveness:
Roles for Business and Government
Prince Hotel & Residence, Kuala Lumpur
29 January 2007
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Good afternoon. Your Excellencies, ladies and gentlemen, I greatly appreciate this opportunity to meet with you.
Let me also express my thanks to the organizer, the Asian Strategy & Leadership Institute for the arrangements
for this conference which is indeed timely as it will set the tone for the year. I believe that ASLI has organised
this event for the past 9 years, with great success. Congratulations!
We live in a rapidly globalising world. Globalisation has speeded up the flow of accelerated information flow and
resource allocation, and brought people, countries and organizations closer. However, globalisation has also
resulted in intensified competition. Businesses no longer compete locally, or even regionally. Global is the
keyword now.
Achieving socio-economic progress is primarily a function of contingent on a well-functioning private sector, with
businesses which are profitable and forward-looking, and management teams which are capable and
responsible. Therefore, how to create a business environment that is conducive to such growth and vibrancy is
a challenge to every government. The globalised economy has brought about intense competition that has
pushed nations to compete for higher standards of efficiency and quality. Assessing Malaysia’s competitiveness
is vital in an environment that is constantly changing. Any changes in the United States and the Peoples’
Republic of China will have both a direct and indirect impact on the Malaysian economy.
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The issue now is how Malaysia can gain a competitive edge, continue to increase the standard of living of its
people and to sustain economic growth in a new political economic environment. What strategies should the
public and private sectors adopt to enhance competitiveness? What are the factors that will determine
competitiveness? And how can Malaysia utilize its resources effectively in this challenging environment?
According to the World Competitive Yearbook 2006 by the International Management Development, Malaysia is
currently ranked 23 out of 61 countries. This is an improvement compared to 2005’s ranking of 28. No doubt
the current economic scenario has changed. But the analysis has shown a fair view of where we stand in the
international arena.
Nonetheless, according to the World Bank’s Ease of Doing Business Survey 2005, Malaysia was ranked only
21st, behind Singapore, which is ranked 2nd and Thailand, 20th. In the survey, Malaysia did not do well in the
categories of dealing with licences, registering property and enforcing contracts. Other than a world-class
infrastructure and a competitive package of incentives, international investors require an efficient policy
framework and a hassle-free operating environment.
Among the key issues which Malaysia will have to address is investment red tape. For example, property
transactions in Kuala Lumpur require 8 to 12 months to receive FIC and Land Office approvals compared to
less than seven days in some countries in the region. Hoteliers also complain that they require 75 different
licences to operate in Malaysia. MNCs also face difficulties in getting approvals for bringing in their own
specialised employees.
Ladies and Gentlemen,
We cannot deny that the assessment on competitiveness will continue to push Malaysia to re-think and
restructure economic fundamentals, and reposition businesses and government policies to handle unpredictable
events that may arise from the volatile globalised economy. We need to recognize and be aware of changes
taking place in the new economy. Businesses that are quick to recognize these changes will be the first to grab
the opportunities and those businesses that are slow to respond will be bound to face problems in the new
economy. At this juncture, allow me to briefly go through the definition of competitiveness and explain why
nations compete. I will also highlight key factors that will determine competitiveness and strategies to further
enhance competitiveness.
There are many interpretations of competitiveness. Some equate competitiveness to the performance of an
economy. The recent idea of sustainable growth takes both hard and soft attributes such as personal security,
education and raising standards of living. It promotes the idea that current growth should take account of the
impact on the future generation. The OECD has defined competitiveness as “the degree of which a company
can, under free and fair market conditions, produce goods and services which meet the test of international
markets, while simultaneously maintaining and expanding the real incomes of its people over the long term”.
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The fundamental of competition among the nations and enterprises is to increase the standard of living.
Enterprises are no doubt the main engines of a country’s competitiveness. In addition, government also plays
an important role in shaping the environment in which enterprises can operate effectively and efficiently, and
hence contribute to productive growth and competitiveness. Macroeconomics indicators have traditionally been
and still are significant today in determining and identifying growth factor and competitiveness. Growth conditions
such as aggregate savings and investment, private and government support in innovation, ideas across sectors
and those from foreign economies, sophistication of consumers driving productivity, quality of inputs, and the
suppliers help in the assessment of a nation’s competitiveness.
On the other hand, one cannot deny the important factors at the firm level that determine competitiveness. For
example, managerial skills, knowledge, education, marketing and uniqueness of products have an impact on
productivity. Firms with good strategies and operations, political stability and the quality of the microeconomic
business environment, coupled with sound macroeconomic policies will bring about economic growth and
enhance a nation’s competitiveness.
Ladies and Gentlemen,
Noting the importance to compete effectively for economic growth is undeniably the interplay of teamwork from
both the public and the private sectors, let us now explore the factors that are affecting competitiveness. Key
factors that affect competitiveness can broadly be classified into 3 levels:
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aggregate macroeconomics and growth conditions,
§
national level,
§
and firm level.
All these levels are not separate elements but complimentary to one another.
Firstly, macroeconomic indicators and growth conditions such as aggregate investments and savings, private
and public institutions that support innovations (academic, research institutes), ideas across sectors, ideas from
foreign economies (venture capital, tax laws, strategic alliances), intensity of rivalry, sophistication of consumers
driving productivity and local suppliers and their support in innovations have traditionally been and still are
important today in determining competitiveness.
At the national level, we have to explore the quality of the business environment. Michael Porter’s diamond
model has been popular in explaining four primary conditions that determine the competitiveness of a nation.
1.
Quality of inputs (human resources, physical infrastructure);
2.
Sophistication of supplier (components, machinery, clusters of related firms);
3.
Local demand for advanced products and processes,
4.
Rules and regulations governing the vitality of competition and incentives for
productive modes of rivalry.
The first condition-quality of inputs can be divided into basic and advanced factors. Basic factors would include
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the country’s physical resources, climate and geography and demographics. Advanced factors are a product of
investment by the individual, government and firms. The are:
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quantity, skills and cost of labour;
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knowledge stock such as technological knowledge, marketing knowledge,
managerial knowledge that affect the quantity and quality of the goods and services;
§
the amount and cost of capital resources that is available to finance industry;
§
the type, quality and user cost of the infrastructure such as transportation, health
care systems that affect the quality of life.
Sophistication of suppliers relate to supporting industries - vertical and horizontal support. Vertical support
relates to the presence of internationally competitive suppliers to ensure cost and delivery effectiveness.
Horizontal support relates to the presence of internationally competitive related industries to coordinate and
share activities with and encourage competition. Local demand factor is determined by the sophistication of local
buyers, the size and growth of demand, and the internationalization of demand. Structure of firms and rivalry
relates to management ideologies, company goals, employee motivation and the amount of rivalry.
The government plays an important role in the diamond model as government can influence all four Porter’s
determinants through a variety of actions like providing subsidies to firms directly or indirectly such as in
monetary form and infrastructure, tax codes, regulation of capital markets, and education policies that will affect
the skills of workers. Another point is on the role of chance in the model. Random events can either benefit or
harm a firm’s competitive positions. For example, technological inventions, acts of war and price shock.
Thirdly, firm level focuses on the quality on managerial skills, knowledge, physical capital, good marketing
practices, uniqueness of products and more.
Ladies and Gentlemen,
In the modern economy, nations do not compete with products and services alone but with brains. The ability of
a nation to build knowledge workers via a good education and training system is vital for competitiveness. How
a nation prevents a brain drain, and attract and retain talents is critical for prosperity and to compete in the
global markets. A well functioning and efficient financial system including an efficient and resilient banking and
payment system is important for competitiveness. It is also the key for financial system to contribute towards
competitiveness of the economy. At the same time, the resilience of the financial system should be able to
withstand the destabilizing shocks to the system.
Institutional developments will be important in ensuring sustainability of performance of an economy. One key
area is developing strong private and public institutions. Good corporate governance such as having effective
boards of directors, strong internal controls, reliable accounting systems, audits and enforcement to ensure
compliance are important.
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The 10 golden rules of competitiveness listed by The World Competitiveness Yearbook are:
a.
Create a stable and predictable legislative environment,
b.
Work on a flexible and resilient economic structure,
c.
Invest in traditional and technological infrastructure,
d.
Promote private savings and domestic investments,
e.
Develop aggressiveness on the international markets as well as attractiveness for foreign direct
investments,
f.
Focus on quality, speed and transparency in government and administration,
g.
Maintain a relationship between wage levels, productivity and taxation,
h.
Preserve the social fabric by reducing wage disparity and strengthening the middle class,
i.
Invest heavily in education and in the life-long training of the labour force.
j.
Balance the economies of proximity and globalization to ensure substantial wealth creation,
while preserving the value systems that citizen’s desire.
SMIs development, restructuring and reforms are important to promote SMIs to be competitive regionally. SMIs
constitute 92 percent of the manufacturing establishments. SMIs need to upgrade skills, manage appropriate
technology, secure market niches, expand industrial networking, and acquire knowledge and quality assurance
to ensure the creation of added value and competitiveness through productivity. In this respect, initiatives to
develop SMIs by a number of agencies are being reviewed to address issues of viability and survival after
AFTA.
We also need to close the knowledge gap to nurture creative and competitive human resources. Today, nations
do not compete on products and services alone but with brains, education and know-how. Competitiveness
relying on a cheap labour force is only temporary. Thus, building an educated and skilled workforce is
significant for competitiveness. In line with the greater focus on human capital development, a total of RM45.1
billion was allocated under the Ninth Malaysia Plan to implement the various education and training
programmes. To meet the Knowledge-economy requirements, human resource skills need to be upgraded and
to generate knowledge workers to meet industry demand.
In an increasingly competitive global economy, the ability to leverage on Science, Technology and Innovation
will become strategically more important in national development. Rapid advancements and the pervasive role of
STI in the global economy require that the nation build upon and enhance its capability and capacity in STI in
order to tap into potential wealth creating opportunities. Therefore, the Government has place greater emphasis
on capacity building and strengthening the National Innovation System to build upon leading-edge technologies
and know-how. Towards this end, the target will be to increase national R&D expenditure to 1.5 per cent of
GDP by 2010 with private sector expenditure of more than 70 per cent. In addition, measures will be
undertaken to achieve the target of 50 research scientists and engineers per 10,000 labour force by 2010.
Hence under the Ninth Plan, an allocation of RM5.3 billion will be provided for STI initiatives to strengthen the
NIS. In line with the focus towards downstream R&D activities and commercialisation, 67.9 percent will be
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allocated for R&D, technology acquisition and commercialisation of research.
Ladies and Gentlemen,
There is a need to enhance general corporate sector resilience by ensuring businesses remain agile and are
able to increase returns to shareholders and investors. The reorganization of business strategies and focus,
rationalization and consolidation of operations as well as process restructuring will optimize group strength
financially and operationally. One of the many important factors that determine a country’s competitiveness is
related to value system and cultural impact. The Asian value system is generally based on the Confucian
principles of hard work, loyalty, discipline, saving and education. This system is closely correlated to the support
of competitiveness. Where do Malaysians stand in view of our multiracial background? Given a multiracial and
multicultural background of Malaysians, I believe that we can create synergies that are supported by a good
value system and the right attitude that will further bring Malaysia to a higher level of productivity and enhance
competitiveness.
Ladies and Gentlemen,
The transition from a Production-economy to a K-economy requires a change in mindset. The Government will
continue to give priority to building knowledge workers. Policies, strategies and actions are taken to improve
skills and competencies of the workforce to meet the new challenges of the K-economy. Certainly this must be
complemented by the necessary changes of mindsets amongst the public sector employees and officials, in
order to move away from the traditional functions of governance and, of regulating business, to one of
partnership with business, motivated by the awareness of the need for the country, and the private sector, to be
highly competitive to meet the challenges of the market.
What is important is for the business community to continue to assume its role as the engine of economic
growth, optimizing on the opportunities created, and investing in activities which have been identified and
promoted by the government, both in the traditional and new sectors. The government’s commitment is to
continue to improve upon the public sector delivery system, at all levels of government, in order for it to
function effectively and efficiently as the facilitator of private sector endeavour.
Finally, the process of globalisation, and the advances in communications technology in particular, have brought
peoples of the world closer. But, this increasingly integrated world, at the same time, has also made people feel
an even greater need to defend and champion their particular belief-systems, values and principles at all cost.
Hence, in our country, we should never take our diversity for granted. Indeed, we are proud to say that we
have successfully managed our religious and ethnic diversity with consciousness and sensitivity. In matters of
race relations, we have managed to maintain harmony by an unwritten code of mutual respect and
accommodation. We celebrate our diversity, not simply because it gives us a good name internationally as a
working multi-cultural society, but because we know that this very diversity is in fact a source of our strength
and of our competitive advantage.
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Thank you.
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