Comparative Analysis for R&D in Malaysia

November 2002

1.1 Malaysia’s Manufacturing Sectors

Malaysia’s overall manufacturing sector grew at an average annual growth of 9% from 1993 to 2000. Electrical and electronic products accounted for 21% of Malaysia’s total manufacturing assets in 1998. This was followed by the petroleum, coal, basic metal and nonmetallic mineral sector, which accounted for a combined total of 31% of the total manufacturing assets. The remaining 48% of all manufacturing assets was in textile, wood related products, chemicals, paper products & printing, fabricated metal products, transport equipments and machineries. 

Ownership of manufacturing assets can be categorised under foreign, local and public sector ownership. Though Malaysia is the world’s third largest exporter of electrical and electronic products, these manufacturing assets are mainly owned by foreign MNCs and in fact nearly half of the assets in the manufacturing sector in Malaysia are foreign-owned. Furthermore in the export-oriented high technology sectors, such as in electrical and electronic manufacturing, the assets are mostly foreign owned. However assets in low technology based manufacturing are mainly owned by local enterprises. 

Nearly 70% of Singapore’s manufacturing assets are in electrical & electronics, chemical products, transport equipment and machineries. Like Malaysia, the electrical and electronic sector accounts for a major proportion of the manufacturing assets but at a higher percentage at 43% in 1998. However, Singapore’s manufacturing activities are at the higher-end of the value chain than Malaysia as observed from its four major manufacturing activities by assets). This is a result of the Singaporean government’s intervention to develop valueadded export oriented manufacturing activities especially in areas of high technology due to its lack of natural resources. Since local enterprises initially lacked technical capabilities in manufacturing high technology products and a network of contacts in the international markets, the Singaporean government initially targeted foreign MNCs to invest in Singapore. As a result, assets in manufacturing in Singapore are mostly foreign MNC owned, while in Malaysia foreign ownership accounts for only half of the total assets. 

1.2 Malaysia’s Position on R&D in the Developing Countries

 The European Commission reported in 1997 that only 50 developing countries were actively involved in development of science and technology. Furthermore 98% of the developing world’s R&D spending, 95% of the scientists & engineers and 99% of the total number of patents from US and European Patent offices were from these 50 developing countries. However only 8 countries (South Korea, Taiwan, Singapore, China, Pakistan, India, South Africa and Brazil) had an R&D intensity of above 0.50%. 

Though Malaysia is the world’s third largest exporter of electrical and electronic products, the European Commission reported in 1997 that Malaysia’s R&D intensity and density of scientists & engineers was relatively low. The following scenario was reported in the European Commission’s report: 

  • R&D activities in high technology manufactured by foreign MNCs in Malaysia were mostly conducted outside Malaysia and often in their home countries.
  • Manufacturing by local enterprises were mainly in the low technology sector requiring minimal R&D activities.

The report indicated Malaysia’s neighbour, Singapore, had a higher R&D intensity than Malaysia and density of scientist & engineers that was 25 times higher though it had a population that was 7 times lower than that of Malaysia. Even Thailand and Indonesia, which had an R&D intensity that was lower than Malaysia, had a higher density of scientist and engineers than Malaysia. 

Assessing the number of patents produced from a country can be used as an indicator to measure a country’s progress or developments in R&D, though it does have its limitations. Among the 50 developing countries, South Korea and Taiwan had the largest number of patents registered by the US Patent Office in 1999. Even countries such as Singapore and South Africa had a higher number of patents than Malaysia. 

Though Malaysia had 30 registered patents with the US Patent Office in 1999, 13 were from foreign MNCs (mainly from Motorola) based in Malaysia while the remaining were from local enterprises or individuals. However there was a distinct difference in types of products and processes registered between Malaysia and Singapore: 

  • Patents registered in Singapore were mainly in high technology products and processes, which included semi-conductor devices, solid state devices, electrical connectors, computer graphics, chemistry & molecular biology, television, electrical discharge devices, electrical measuring & testing devices, electrical non-linear devices and radiation imagery chemistry.
  • Though technology products and processes were patented from Malaysia, many were for relatively low technology products and processes in foods, printing, buckles & buttons, metal fusion bonding, games using projectiles, cleaning liquids and horizontally supported planar surfaces.

1.3 Malaysia’s Expenditure on R&D

Singapore’s R&D intensity increased within a period of 20 years from 0.2 in 1978 to 1.76 in 1998 and compared favourably with many OECD countries. In fact Singapore’s R&D intensity was even higher than that of many developed countries such as Norway, Austria, Canada and Australia. Furthermore Singapore, Taiwan and South Korea were the only developing countries with R&D intensities above 1.0. It was estimated that sales of S$9.6 billion in 1997 and S$13 billion of products and services in 1998 in Singapore could be attributed to R&D performed in the country.

Though Malaysia’s R&D expenditure increased by 105% from 1997 to 1998, R&D intensity (0.39) remained low in comparison to Singapore. Furthermore Malaysia’s R&D intensity actually declined over a period of 4 years from 0.37 in 1992 to 0.22 in 1996 before the onset of the Asian economic crisis in 1997. Though R&D expenditure increased by 105% from 1997 to 1998, the Asian economic crisis (impacting Malaysia’s economy and financial status) subsequently affected interpretation of the country’s expenditure on R&D and R&D intensity: 

The Malaysian ringgit devalued by as much as 50% against major currencies such as the US dollar causing the local value of imports such as scientific equipments and machineries to rise.
Malaysia’s economic growth or GDP declined significantly by 7% in 1998, which had a further impact in increasing the country’s R&D intensity.

The private sector has played an increasing role in Malaysia’s R&D activities and has been the single largest investor accounting for nearly two-thirds of the total R&D investments in 1998. However, unlike Singapore, there is little information to gauge the sales revenue from the Malaysian private sector as a result of engaging in R&D. The second largest investor in R&D is the public sector consisting of government departments and research institutes followed by institutes of higher learning. This scenario in Malaysia follows similar patterns and proportions as those observed in Singapore. 

In 1992, the private sector contracted about 16% of their R&D expenditure to external agencies mainly conducted by foreign companies. However contracting R&D activities by the private sector declined to 9% in 1998 indicating increase in-house capabilities to conduct R&D. Contracting by the private sector to government research institutions and institutes of higher learning remain negligible and there is little contact to exchange ideas, knowledge, technique and development of common objectives. Malaysian enterprises account for the majority of the R&D expenditure in Malaysia. Though foreign companies own nearly half of Malaysia’s manufacturing assets and most of the assets in the high technology sector, they invest relatively little in domestic R&D. This is especially the case among Japanese, Korean and Taiwanese companies preferring to conduct R&D in their home countries. However the situation is reverse in Singapore whereby foreign companies are the major investors of R&D though Singaporean enterprises have been increasingly involved in R&D since 1998. 

Though investment in R&D is higher among local enterprises in Malaysia compared to Singapore, Malaysian enterprises have been mainly involved in relatively low technology based R&D activities. The main reasons for the scenario in Singapore are: 

  • Singapore’s small market has forced many Singaporean enterprises to seek international markets for export of their products. To remain competitive in the international markets, there has been a strong need for Singaporean enterprises to remain innovative through R&D.