Economic Competitiveness of the Nation

1. ASLI-SEDAR ROUNDTABLE DISCUSSION Saturday, January 14, 2006 Economic Competitiveness of the Nation By Datuk Paul Low Vice President Federation of Malaysian Manufacturers (FMM)

2. Economic freedom helps create real wealth Growth of real per Capita GDP, %, 1985-96 Average per capita GDP,$000s, 1996 Selected Countries Hong Kong, New Zealand, Singapore, Switzerland, U.K., USA $14.8 Argentina, France, Germany, Mexico, Spain $12.4 Botswana, Estonia, Greece, Hungary, South Africa, Sri Lanka $6.4 China, Egypt, India, Nicaragua, Pakistan, Tanzania $3.1 Algeria, Brazil, Nepal, Nigeria, Zimbabwe, Rwanda $2.5 Source: I. Gwartney & R. Lawson, Economic Freedom of the World, 1997 Annual Report Vancouver, Fraser Institute

3. The size of the global arena will have increased nearly 12-fold by 2027 US $ trillion $91 Local 5 13 Globalizing $28 $73 4 Global 18 6 1997 2027 (estimate) Source:The Mckinsey Quarterly, 1999, #4 “ Getting to Global

4. Average 1960s Average 1970s Average 1980s Average 1990s Average 1971-1990 Average 1991-2000 2000 2001 2002 2003 6.0% 7.5% 5.8% 7.1% 6.7% 7.1% 8.9% 0.3% 4.1% 5.3% Growth Performance of Malaysia Import substitution Export orientation Heavy industries High-tech Can past high growth rates be sustained?

5. Malaysia’s Competitiveness…Attracting Investments • Fifth most competitive country • Institute for Management Development, Switzerland • Seventh in world as FDI location for investments • UNCTAD • Top quartile of 145 countries on ease of doing business • The World Bank and International Finance Corporation • 15th out of 60 countries & Top 3 for outsourcing • A T Kearney • Heavy manufacturing ranked Malaysia 16th most attractive • Light manufacturing ranked Malaysia 9th most attractive

6. Malaysia’s Competitiveness…Trade • 18th leading exporter & 20th leading importer in world • WTO • Fourth most open economy • IMF • Trade accounted for 208% of GDP • Net exports contributed 2 percentage points to growth • Trade increased by 23.2% • Gross exports increased by 20.8% (2004) • Manufactured exports grew by 19.7%

7. Key Imperatives • Sustainable economic growth • Generating wealth • Income/ wealth disparity (NEP)

8. Key Drivers of Competitiveness • Globalisation and Internationalisation • Multiple location, multi cultural • Elimination of protection • Global sourcing (materials, services and expertise) • Integration of demand & supply chain (logistics, inventory mgt.) • Global brands, marketing and market customisation.

9. Key Drivers of Competitiveness • Knowledge based • Individual talent (creativity, intellectual property ) • Relational skills and transfer • Acquisition, development, adoption, contextualization and application • Execution know how and skills • Technology driven • Convergence and integration of discipline • Obsolescence, high pace of development • Intelligent process (software engineering)

10. Generating Wealth • Education opportunity to pursue preferred field of study • Support to pursue invention and commercialisation • Originator and risk taker to be rewarded • Institutions and system support (policies, incentives, grants etc) must have integrity and clarity of purpose • Non discriminatory – based on merit of each case and transparent

11. Income/Wealth Disparity (NEP) • Equity condition (ICA) • Joint venture • Quota Based affirmation action • Predetermine outcome open to manipulation • Move to merit base • Transparency in Government procurement

12. Competitiveness in Mindset- Change Trajectories Radical Change • Entire transformation • Enormous risks • Accept inevitability of change Creative Change • Constantly redeveloping assets and resources • Innovation in fits and starts Intermediate Change • Restructure key relationships • Unconventional ways to extract value from core resources, including diversify Progressive Change • Incremental build-up of resources and capabilities • Leveraging and sustaining • Carving out distinct positions

13. Change Trajectories…for Government Radical Change • Remove security of tenure from civil service and local authorities • Change mindset • Meritocracy in civil service • Service standard measurement Creative Change • Renewed professionalism • Institutionalised transparency • International competency • Dealing with negotiations Intermediate Change • Customer orientation • Track & trace approval/processing • Remove overlapping functions and fragmentation • Improve integrity Progressive Change • Integration & connectivity of government services • Declaration-based approvals • Improve maintenance • Standardisation of procedures

14. Change Trajectories…for Manufacturing Radical Change • Bankruptcy – mindset change • Knowledge sharing culture • R&D, innovation • Original equipment manufacturing Creative Change • Value pioneering – create demand • High-tech entrepreneurship • Technology & knowledge-driven culture • Global sourcing & collaboration Intermediate Change • Competitiveness • cost, quality, speed • Mercantile attitude - local companies • ICT adoption & literacy Progressive Change • Reverse investment – off shoring • Green productivity - resource recovery • Agile, adaptable, integrated & aligned supply chains • Branding

15. Change Trajectories… for Human Resource Radical Change • Immigration– a talent attraction function needed for growth • Education – creativity & merit Creative Change • International sourcing of knowledge to complement technology transfer and FDI Intermediate Change • Flexible hire and fire policies • Productivity linked wage system Progressive Change • Middle management of technical professionals who can design, innovate and adapt technology • Marketeers

16. Change Trajectories… for IT Industry Radical Change • IT talent pool • Coordinated IT applications eg event driven systems • Drive need for adoption • Creator of intellectual property Creative Change • Outsource IT workforce globally • Networked IT applications globally • Mass adoption • Licensed intellectual property Intermediate Change • IT literate workforce • Stand alone IT applications eg ERP • “Follow the herd” adoption • Make IT components Progressive Change • Skilled IT workforce • Interoperate IT applications eg supply chain management • Early adoption • Make IT products

17. Competitiveness in HRD "EXIT-DECISION" CRITERIA FOR FOREIGN INVESTORS ˜OPERATOR (ACTUAL) ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ • TECHNICAL MIDDLE MANAGEMENT (DESIRED) ˜ ˜ ˜ ˜ ˜ ˜ • TECHNICAL MIDDLE MANAGEMENT (ACTUAL) ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ WORTH TO FOREIGN INVESTORS ˜ ˜ THRESHOLD OF WORTH ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ ˜ TIME (YEARS) Courtesy of Prof Raj Balendra, University of Strathclyde

18. DESIGNERS TRAINING EXPERTISE Product Process Machinery Systems Postgraduate design & manufac-turing Original Mach. & System “Design & Manufacture” Engineers Engineering Under- graduate Problem- solving Design Design Technicians Technical Colleges Detailing Design Design Managers Non-engineer Under- graduate Manage Design Procedure Industrial Designers Art Colleges Product Modelling & Visualisation Recommendations…Graduates • Employability • Skills & values • Generic & technical – design • Right attitude & values • Industry exposure • Work in labs, R&D centres • Actual project assignments • 1-year in industry • Vacation training Courtesy of Prof Raj Balendra, University of Strathclyde