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By Prof Wong Poh Kam. THIS article, published in SERI's Penang Economic Monthly of September 2009, discusses the shift towards innovation in various Asian economies in the last two decades. It also locates Penang as an important player in this industry in Asia, but despite the state's significant potential, it has under-invested in innovation. INTRODUCTION Over the last two decades, a number of Asian economies have made great strides in their economic development, achieved in large part through strong emphasis on developing their technological capabilities. Technological capability is the ability to use and innovate technologies to develop, make and deliver cheaper or better products and services. In essence, technological capability comprises 3 key elements: (a) operating capability; (b) process innovation capability; and (c) product innovation capability (Wong, 2003).
Technological capability is in turn crucial to a nation’s continual development of its industrial capability, which is fundamentally about developing and deploying progressively more advanced technological capability to expand / improve existing industries and create/enter new industries. While learning to use existing technologies is important in the early economic development phase, the capacity to innovate becomes more critical in later phases. The only way for an economy to sustain economic growth in the long-run is to continuously enhance her productivity and competitiveness (Porter, 2000). For late-comer nations, this necessitates catching-up with the more advanced nations in terms of industrial and technological capability. This catch-up process requires sustained investment in two phases of learning – first, acquiring the ability to do what others have done; and second, innovating new capabilities (technologies, products, services).
Furthermore, late comer nations also need to develop specialization in certain economic activities to differentiate from other competing nations/regions. Such specialization typically needs to be at a sufficient scale to achieve critical mass and agglomeration economies through industrial clustering.
This paper examines the shift towards innovation in various Asian economies in the last 2 decades, highlighting the key indicators of achievement made in science, technology and innovation by the three Asian Newly Industrialized Economies (NIEs) of Taiwan, Korea and Singapore and to some extent China and India. The paper will compare and contrast the performance of these economies with those of the ASEAN4 economies (Thailand, Indonesia, Malaysia and Philippines) in general and Malaysia in particular, to show that the latter has fallen significantly behind the three NIEs and in some cases the emerging economies of China and India. Implications of these observations for Penang’s economy are discussed. IMPLICATIONS FOR PENANG
Our analysis of available data indicates that Penang has significantly under-invested in innovation, despite being an economy that has achieved a relatively high level of manufacturing sophistication.
In comparison to Korea, Taiwan and Singapore, innovation activity and output levels are low, suggesting weaknesses in the local innovation system. Unless greater public investment is channeled to increase innovative capability development, Penang risks falling further behind the Asian NIEs and over-taken by China and India.
The success stories from the Asian NIEs reveal diverse strategies for technological development and economic catching-up (Wong and Ng, 2001, Wong and Ho, 2007b). This suggests the possibility and need for creative policy adaptation to the unique contexts of Penang. In particular, Penang can consider selectively adapting elements of the Korean, Taiwanese and Singaporean models that are more suited to her local context. This is indeed what China has done (in addition to adapting other models such as that of the Silicon Valley) in developing her own innovation strategies.
There is potentially a significant role that can be played by Penang’s overseas diasporas. Both Taiwan and Korea have tapped their large overseas diasporas to speed up technological learning and catching-up. Apart from attracting back highly skilled and entrepreneurial returnees, they also leveraged those who stay overseas to access technology, capital, markets and network contacts. Increasingly, China and India are also drawing on this rich resource to establish business links and to facilitate knowledge and technology upgrading.
The three Asian NIEs have achieved their economic success through a rapid catching-up of industrial and technological capabilities in specific industrial clusters where they have now become globally competitive (Wong and Ng, 2001, Yusuf and Nabeshima, 2008). The experience of these NIEs suggests the importance of adopting an industrial cluster development strategy, which entails promoting investments into selected industrial clusters to achieve sufficient scale and agglomeration economies. The increasing globalization of production in recent years is likely to lead to even greater importance of scale and geographic concentration (e.g. the concentration of electronics manufacturing in Guangdong, China, and souvenirs/gifts production in Zhejiang, China).
Penang and Malaysia are facing a situation of strong global competition for Direct Foreign Investments (DFI). The three Asian NIEs, Ireland, and more recently China and India, have established strong competitive positions as high tech DFI hubs. At the same time, other high tech hubs for DFI are emerging among the transition economies (e.g. Estonia) and Middle East (e.g. UAE). In addition, the continuing rapid rise of China, and more recently India, is threatening to cause an increasing range of high-tech DFI to bypass the ASEAN5 and other developing Asian economies, thus undermining the prospect of ASEAN5 to move up the technological ladder through attracting high-tech DFI.
To compete for DFI effectively, Penang needs to target specific industrial clusters that leverage on the existing competencies of the state and the natural resources in its regional hinterland. While more in-depth research is obviously needed to identify the specific potential clusters that Penang can hope to excel in, example of possible industrial clusters that come to mind might include the Marine & Agro-technology sector, Opto-electronics and Precision Engineering, as these are sectors where Penang has already built some foundations over the years. To strengthen the chosen clusters, Penang must invest heavily in the relevant supporting applied R&D and technology development institutions to support the innovation activities of the existing firms in these clusters, as well as to attract new innovative firms into these clusters.
Last, but not least, Penang needs to recognize that an important element in the rapid industrial development of the Asian NIEs is indigenous technology entrepreneurship, or the formation of new technology enterprises that have the potential to grow through introducing innovative products or processes for both the domestic and international export markets. Ultimately, the creation of new high tech industries can only occur if there is good supply of private sector entrepreneurs. Indeed, while public policies had played a facilitating role, the many successful companies that have emerged from Taiwan and Korea such as Acer, Hong Hai, HTC, Hyundai, Samsung and LG owe their success primarily to the entrepreneurial drive and visionary leadership of the respective founders.
Besides improving the technical contents of its educational system, Penang should also look into injecting an entrepreneurial dimension to its university research and education system, e.g. by offering educational program involving experiential learning of entrepreneurship among the science and engineering students, and by providing seed funding and mentoring of entrepreneurial start-ups by university professors and students. ** Republished with permission. This article first appeared in the September 2009, Volume 11, Issue 9 of the Penang Economic Monthly. This article is also included in the upcoming book, "Pilot Studies for a New Penang" (2009) by SERI.
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