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Note: This article was published in ‘The Edge Malaysia’, Malaysia’s leading business weekly on 20th July 2009 in my column entitled “Money & Entrepreneurship”.

Malcolm Gladwell tells a great story. His book, “Outliers” must be one of the best business books of 2008. The basic premise of his book is that people are successful not because of some great talent that they have or because they have very high IQs but because of the opportunities that they had, of being in the right place at the right time.

Take Bill Gates for example. How did he create Microsoft and end up being the richest man in the world? He’s brilliant, yes but so are thousands maybe tens of thousands of people in the USA, but why him? According to Gladwell, Gates was lucky enough to be born in 1955 which meant he was in his teens just when the computer revolution was taking shape. His parents were wealthy and because he was a bright child who got bored in public school his parents put him in an elite private school, Lakeside. It just so happens that in 1968, just when he joined Lakeside, the school bought a sophisticated computer terminal, the ASR-33 Teletype with a direct link to a mainframe in downtown Seattle. As owning an ASR and buying time on a mainframe was very expensive in those days, Gates was fortunate indeed to be at Lakeside. Hence he began programming at the ripe old age of 13, when most other teenagers were more concerned with pimples and hairspray.

Then, because Lakeside had a computer club he was given the opportunity of testing software developed by Computer Center Corporation a spinout of the University of Washington. He went on to do more computer work at the University, which had one of the more sophisticated computers in the US at that time. All of these honed his computer and programming skills which came in pretty handy in starting Microsoft.

His other great opportunity was his introduction to IBM. As Chairperson of the United Way Charity his mother Mary Gates met John Akers the CEO of IBM who mentioned that IBM needed someone to write the software for an operating system. She introduced her son Bill to Akers and Gates was given the job of writing the operating system for IBM, which was the beginning of the Windows operating system.

The final great opportunity that Gates had was that IBM was not insightful enough to keep the rights to the software that Gates developed for them. The thinking at that time was that hardware was more important than software and software had little value. IBM gave up the software to Gates and that was the final piece of the puzzle for Bill Gates.

Had Gates been born at a different time or went to a different school or if his private school did not have the ASR or if his mother had not met Akers or if IBM had decided to keep the IP rights to the software, there would be no Bill Gates the richest man in the world. Gladwell does not say this is luck, but the creation of the right opportunities is whats important.

That brings me to Malaysia and the Outlier principle. Perhaps we are not as successful in technology not because we don’t have the right skills or policies but perhaps we did not have the right opportunities and our timing was less than perfect.

Had Dr. Mahathir created the Multimedia Super Corridor in say 1986 instead of 1996, then perhaps Malaysia would be a great success today. The year 1996 was far too late to enable the creation of a technology industry, as it was at least two decades behind the US. The best of times for the technology industry when the giants of the industry like Microsoft, Dell, Amazon, Yahoo and many others were created was in the 1980s and early 1990s. The timing for the MSC was also bad because immediately after its launch the Asian Financial Crisis hit the region in 1997. It took 2 years for the region to recover and then disaster struck again with the “Dotcom Bust” in 2000. Then in 2001 we had the 9-11 terrorist attacks and again the global economy was hit. By the time Malaysia recovered from all these problems the opportunity to make it big in technology was lost.

Companies were also affected by all these economic turmoil. Many MSC companies were started in 1996 to 2000 and there was a tremendous buzz about the community, despite the 1997 Financial Crisis. However, the Dotcom Bust dealt a severe blow to fund raising for technology companies and many of the foreign Venture Capital firms that were investing in this region returned home. This curtailed funding and stopped the formation of larger technology companies. Again missed opportunities. Had we started in the late 1980s instead of 1990s we would have been able to ride the technology boom years of the 1990s and I am sure there would be many successful technology companies today.

Can the same be said for the Biotechnology and Green technology industries? Are we late in the game or are the best opportunities happening currently thus giving us a chance to make it big in these industries? If one explores the Biotech industry timeline (http://www.bio.org/speeches/pubs/er/timeline.asp) the Human Genome Project (HGP) was officially launched in 1990 while the Plant Genome project was started in 1989. The HGP was probably the start of the greatest race in Biotech history and the next 20 years brought forth so many discoveries in human healthcare, cloning technology, DNA sequencing and agro-technology. The Human Genome was completely mapped in 2002, 12 years after its launch and ahead of time. If you go to the link given above, you will see that there were probably 10 times more discoveries in the 1990s and 2000s than in all the decades prior to the launch of the HGP.

Malaysia, however, is just starting out on the road towards building a Biotech industry. While, opportunities still abound the lack of qualified and properly trained personnel and lack of quality Biotech education in our universities means by the time we are ready, it will be too late again for us. Yes, there will be some successes and I believe we should still build up this industry but the best years of the Biotech industry may be behind us by the time we are ready. For this industry finding the right niches would be the best thing for our country and that might be in Neutraceuticals or agro-technology.

Green technology is still in its infancy and probably holds out some hope for us, but the new Ministry of Energy, Green Technology and Water has to come up with policies and incentives soon because in the last 100 days since its formation we have still heard nothing in terms of Green technology. We are generally not known for our speed in policy formulation or implementation so unless something is done very soon, it will be too late again for us.

I don’t mean to disillusion everybody, but I believe Gladwell has some very important points in his book. Success does not come merely from talent or brains it comes because the talent and brains are in the right place at the right time or because we create the opportunities to be in the right place at the right time. Hence, our policy makers need to be more prescient, we need to look ahead into the future and look for the opportunities that will present itself over the next 10 to 20 years and then create openings for our Entrepreneurs to take advantage of these opportunities.

We cannot merely be followers of technology; we need to be creators of opportunities. Only then can Malaysia make the great leap forward to become a developed nation.

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Here is my latest article in the 20th April issue of Netvalue, The Edge (Malaysia) on what Malaysia needs to do to move up to developed nation status.

In his book ‘Capitalism, socialism and democracy’, Joseph Schumpeter set out the idea that innovation leads to gales of ‘creative destruction’ as it causes old ideas, technologies and equipment to become obsolete. He states that the question is not “how capitalism administers existing structures, … [but] how it creates and destroys them.” He believed that this creative destruction is the essence of continuous progress and improves the standards of living of the society at large.

I believe Malaysia is now at a crossroads, where the old economic order is becoming obsolete and a new economic order is necessary to continue the progress of the last 30 years and to improve the living standards of its citizens. The fact that we are at this crossroads today coupled with a global crisis of confidence and ebbing confidence in the leadership of this country is critical to the future of our new Prime Minister Dato Sri Najib Tun Razak as it is to the future of Malaysia itself.

However, knowledge that we are at such a crossroads affords us the luxury to change direction and that is what Najib has to do. He can be the architect of a new economy, based on innovation and creatively destroying the old economic order, so that the nation can set itself on a new direction of prosperity.

This change is similar to what former Prime Minister Tun Dr. Mahathir did when he came to power. Until the 1970s Malaysia was an agrarian economy dependent for its growth on rubber, cocoa and palm oil as well as tin mining. What he did was turn a small agrarian economy into a high growth industrial economy by adopting friendly export oriented policies and by encouraging the formation of export based manufacturing industries. He fostered this growth through a stable government and inviting foreign direct investments (FDI) in these industries.

However, the world has moved on and export manufacturing that is dependent on abundant low cost labour has moved to countries that are still relatively economically under-developed with large population bases like China, India and Vietnam. Malaysia with its smaller population and higher relative labour costs is slowly losing out with FDI moving to these countries in search of cheap labour.

The world has moved on, but we are still stuck in the 1980s mentality of labour intensive industries. Hence despite all the progress we have made in the last 30 years, we still have factory workers earning less than RM1,000 a month and University graduates still only earning between RM1,500 and RM2,000 a month upon graduation. Amazingly that was what it was in the 1980s and 1990s and it’s the same today. This simply means our citizens have made little economic progress in 30 years. So despite the many gleaming buildings and wonderful highways, to the majority there has been no economic progress, only economic stagnation, despite 30 years of economic growth.

The main cause of this is the policies we continue to adopt especially our dependence on labour intensive, low cost manufacturing and resource based industries. Let us be very clear about this: traditional manufacturing jobs have moved to other countries; our oil and gas and timber resources will be depleted in 10 to 15 years; there will be a glut of crude palm oil in 15 years time when Indonesia will probably produce 3 times our production of palm oil; tourism will be highly competitive especially with the integrated casino resorts in Singapore and tax free pioneer status and similar policies will be offered by just about every country in the region to attract FDI.

In 15 years we will be in no man’s land, competing with all our neighbours for the same FDI and highly choosy investors who will go where the offer is the best. That will mean the lowest cost offer. If we don’t do anything today, then the future for our children is very bleak indeed. I cannot imagine factory workers still earning below RM1,000 a month and graduates less than RM2,000 even after 2020, but that is the most likely outlook. Unless we do some creative destruction of our own economy, before it is destroyed by competition in the future.

So what should we do? Firstly we must not just pay lip service to the change agenda, we must instead make a constructive and conscious decision to turn our economy and our policies around completely. The focus of our future must be on a “brain economy”, where innovation and brain power is the cornerstone of economic policies.

We must gradually stop the hiring of cheap, low cost, under-educated labour that powers the labour intensive industries. Manufacturers must be told that over the next 5 years import of cheap labour will be phased out completely and only manufacturing that uses high technology and information technology will be encouraged. Existing manufacturing plants also have to upgrade their operations to high tech operations or lose their tax incentives. In future only high tech manufacturing FDI will be allowed.

Next we must look seriously at advanced manufacturing and follow the direction of Japan and Germany in using technology intensive plant and equipment for manufacturing and move up the value chain into design and development and phase out original equipment manufacturing (where someone else designs the product and owns the brand but we provide the low cost manufacturing base).

We must also increase the support and effort towards the information and communications technology (ICT) and Biotechnology industries. While the support seems adequate, it is not sufficient if we are to move to the next level of growth. After 12 years the Multimedia Super Corridor is maturing and we have created many ICT companies who are now exporting their products and services globally, we must increase the support given to these companies to grow even further. We have done well but we can and must do more.

The Biotechnology industry is now showing signs of success with more than 100 Bionexus companies (many of which are already profitable) and plenty of biotech and agritech R&D being done in our universities. These need to be commercialised but for it to happen technology and education industry policies need to be liberalised and this can only be led by the Ministry of Higher Education and Ministry of Science, Technology and Innovation. We need to be more progressive if we are to move our universities to the next level of commercialisation success. The R&D is being done, but commercialisation is being held back by poor policies and guidelines.

We also need to create more competition and we need to reward the progressive Universities by giving them more incentives to create new R&D&C (Research, Development and Commercialisation). For a brain economy to succeed we need to have the brains in the first place and here we need to improve the quality of education at all levels from schools to Universities. Just because more students have 20 A’s does not make them smarter, because it is not the number of A’s but the quality of the A’s that matter. Our standards must be improved and we must follow international standards not create our own lower standards just to show more A’s. By doing that we are doing a huge disservice to our children because their future will be impacted by the quality of their education.

The country must change and we must create an economy that is based on science and technology and on creativity and innovation. It is a very difficult proposition and it is precisely because of that that we must do it. If it is simple other nations will also imitate what we do and that creates competition like what we are facing today. But by taking the difficult road we can create high-level competencies and capabilities for our citizens and that will secure our future and create the “brain economy” we need to survive and prosper. Maybe then our factory workers will earn RM5,000 a month and not need to survive by selling goreng pisang and tosai to supplement their income. We owe that much to our children and that’s what the new PM should do.

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