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Malaysia innovation opportunities

by: Tatjana Guznajeva, Technopolis Group

Why should I read this document?

When confronted with the differences between your own market and the market of Malaysia you will likely feel that you have to adapt your product/service significantly to make it fit the preferences and expendable income of local people. While many may see this as a challenge this can also prove to be a great opportunity for your company! Adapting to a new market, like Malaysia, will allow your company to innovate. Not only will operating in Malaysia lead to new insights to be more successful in Malaysia, you will most likely also pick up on ideas to be more successful in your home market.
 
This document provides a short overview of innovation aspects, business opportunities and challenges in Malaysia. It will also give advice on best practices for starting and developing an innovative business venture, considering Malaysia’s country context. May it help you to explore Malaysia and lead you to innovation and success.

 

Opportunities and tips for innovation and doing business in Malaysia

  • Malaysia is the 4th largest economy in Southeast Asia, it has a business-friendly investment environment. Annually, the economy grows at 6.4% and domestic demand at 5% since 2015.
  • Malaysia has a large English-speaking population, good infrastructure and a well-established legal framework. Hence, it is relatively easy for European companies to do business and innovate in Malaysia.
  • Malaysia is shifting towards high technology sectors and capital-intensive business ventures. Cyberjaya is the first Malaysian cybercity and a global tech hub, the so-called Silicon Valley of the East. If you wish to benefit from this technology-oriented business community it is advisable to locate your company near the city, to join one of its projects or to establish business connections.
  • Malaysia has a good geographic location for trade and the country is part of the trade bloc ASEAN, which gives access to markets of Brunei, Burma, Cambodia, Indonesia, Laos, the Philippines, Singapore, Thailand, and Vietnam. In addition, through ASEAN, Malaysia has regional free trade agreements with Australia, India, China, Japan, South Korea and New Zealand.
  • Malaysia is a key player in the Islamic finance system, due to involvement of numerous financial institutions and dynamic economic growth. If you fulfil the criteria for receiving Islamic finance, you can enjoy numerous advantages of its developed market in Malaysia.
  • The energy sector in Malaysia constitutes around 20% of GDP, the country is the South East Asia’s second largest oil producer and the hub for oil field services in Asia. Oil and gas sectors are expected to grow and there is a large demand for technologies in the sector of renewable energy.
  • The government of Malaysia is supporting companies in the agri-food sector that are investing in R&D, innovation and technologies to stimulate improvement of quality, safety, nutrition and environmental sustainability.
  • E-commerce is expected to grow in Malaysia, as currently it represents 2% of all sales. The number of Internet users has reached 22 million and the country has nearly 150 mobile phones per 100 people. Hence, Malaysia has the infrastructure to explore opportunities in e-commerce and to use personal electronic devices for marketing, communication with partners and customers.
  • The region of Iskandar offers 100% tax exemption up to 10 years on the statutory income and 200% tax deduction on investment activities if a company operates in sectors of logistics, tourism, education, creative industries, food and agro-processing, financial or advisory services.
  • The shipbuilding industry in Malaysia is very strong. There are many business opportunities for companies that manufacture parts and components for ships, marine equipment and offer engineering, electrical services for system integration.
  • The biotechnology sector in Malaysia is rapidly developing to decrease reliance on fossil fuels and battle against climate change. The companies that have expertise in R&D, production, extraction or processing of algae-based biofuels have opportunities in Malaysia.
  • Malaysian consumers are increasing their spending on entertainment and luxury products. Hotel or restaurant business could find both local and foreign clients, due to a growing number of tourists, good infrastructure, interest in international and local cuisine.
 
 
On Level 2 you can find information about the innovation climate in Malaysia, while Level 3 will tell you more about business activities in Malaysia.
This page will tell you about the innovation ecosystem, major technology sectors, innovation and business practices in Malaysia.
 

Innovation ecosystem

Since 2013 the Malaysian government has increased its focus on innovation, science and technology development. The ScienceFund, TechnoFund and InnoFund are the three main organisations that provide finance, connecting research institutes and industry in Malaysia. Despite Malaysia’s rapid economic transition from primary to high-technology sectors the capabilities within science, technology and innovation sectors are, relative to the EU, still upcoming. Nevertheless, Malaysia is a country with a large potential for innovation and technological development.
At the moment, innovation in the industrial sector is relatively small, though export-oriented companies offer more inventive goods and services. The Malaysian government allocates funds for R&D, fosters clusters, science-industry linkages and social innovation. However, the lack of both public and private funding, coupled with the deficiency of needed skills represent the major barriers for enhancement of innovation capabilities. The research output has considerably increased in Malaysia over the last two decades, between 2001 and 2011 the number of scientific and engineering articles increased by 16% annually. Nevertheless, weak commercialisation of research findings prevents companies from benefiting from research.
In 1997, the Malaysian government established the tech city Cyberjaya that attracts investors, entrepreneurs and technology developers throughout the world. Among the factors that support innovation, science and technology development in Malaysia are rapid development of digital banking, Islamic finance and growing start-up ecosystem.
 

Innovation sectors and technology

The Malaysian government is trying to promote research in the following areas: bio- and nano-technology, aerospace, cybersecurity, energy and food security, automotive and health care. Despite a large number of public programs, most technological progress is achieved in the areas of ICT, electronics, renewable energy, engineering and biotechnology. The Innovation Incubator Centre has been particularly helpful in driving innovation and entrepreneurship in those sectors, due to facilities and services it provides.
 
Many companies in Malaysia are developing their products in special economic or industrial zones to reap advantages provided by public or private organisations, to reduce costs and to enjoy a larger sector-oriented business community. Tech companies are benefiting from the launch of Malaysia’s Digital Free Trade Zone, while financial companies are located in the banking centre of the country - Kuala Lumpur.
 
The majority of recently developed technologies in Malaysia are related to artificial technologies, blockchain and machine learning. In the area of social innovation, there are several initiatives that focus on crowdfunding.
 

Innovation culture and practices

Innovation is a relatively new term for most companies in Malaysia. In the past, foreign companies have been the major drivers of innovation by bringing new ideas, products and services to the market.  Currently, the majority of inventors are local, small, independent engineers/designers who are willing to test creative ideas, but struggle to get market access, due to lack of resources. R&D is primarily conducted in large Malaysian companies, mostly in the electronics, chemical and automotive sectors.
 
To promote innovation and entrepreneurial culture the government of Malaysia made the attendance of courses for development of entrepreneurial skills compulsory in all undergraduate programs. Several free, public programmes have been launched to stimulate critical and creative thinking in primary and secondary schools.
This page highlights major economic sectors and iconic products, shows business trends and explains how easy it is to do business in Malaysia. In addition, you will find a list of websites, which provide some hands-on information.
 

What is the country known for?

 
Sectors
The biggest sectors are: automobiles, furniture, electronics and electrical equipment, optical and scientific equipment, rubber and oil palm processing and manufacturing, petroleum and natural gas, pharmaceuticals, and medical technology.
 
The service sector is the major driver of the economy, as it accounts for 54.7% of GDP in 2017. The GDP shares of industrial and agricultural sectors are significantly smaller, namely 36.9% and 8.4%.
 
Iconic products
Iconic products are palm oil, rubber, cocoa, rice, crops, timber, pepper, machinery, medical apparatus, plastics, rubber articles, chemicals, and wood.
 

How easy is it to do business in Malaysia?

 
Based on the World Bank ranking:
 

Malaysia

EU average

Emerging markets average

Overall – ease of doing business

23

30

83
 
The overall ease of doing business in Malaysia is better than in the EU on average. Despite that the process of starting business involves several bureaucratic procedures and normally entails some delays, it is significantly easier in Malaysia to deal with construction permits, get electricity or credit, enforce contracts and register property than in the EU. Moreover, the regulatory environment is very strong in the country, therefore only two countries in the world protect minority investors better than in Malaysia. The overall business climate is very good and stable.
 
The payment of taxes, trade across borders, resolving insolvency are more complex than in the EU. The payment of taxes on average takes 133 hours in a year. Due to existing trade agreements, the costs of trade are very low for Malaysian entrepreneurs, however, a large number of documents should be prepared before crossing international borders. The process of resolving insolvency takes on average 1.5 years, therefore it ranks lower than in the EU.
 
In addition to above listed challenges, the process of public procurement is not always transparent, therefore there are some allegations about corruption. Due to relatively good education in Malaysia, there is an increasing emigration trend. This leads to competition for talent among companies and results in growing wages.
Business trends in Malaysia
The consumers in Malaysia are becoming more westernised and cosmopolitan, however, they are sensitive to prices and are brand-conscious. Comfort and convenience are becoming increasingly important for Malaysian customers, therefore food delivery services have experienced a steady demand. The goods that are expected to continue having high demand are electronics, footwear, clothing, beauty and personal care.
 
The use of credit cards is very popular, and the current generation of Malaysians prefer spending over saving. Research shows that three out of five people in Malaysia would buy expensive products, regardless of income uncertainty. Most people use credit cards while booking travels or buying luxury items.
 
The sharing economy is growing in Malaysia. Platforms like Airbnb, co-working spaces and other efficiency-oriented business ideas and models become increasingly popular. Malaysians are willing to cooperate with other companies, therefore the number of business partnerships, collaboration between corporate companies and start-ups, merger and acquisition activities is growing.
 
The focus on social innovation and social enterprises is expected to increase, due to government promotion of several initiatives, involvement of investors and public recognition of their importance. This trend is also confirmed by the growing number of start-ups that managed to raise money through crowdfunding.
 

More hands-on info

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Bibliography
 
Level 1:
The Innovation Policy Platform. (2018). Malaysia. Retrieved from: https://www.innovationpolicyplatform.org/content/malaysia
Koen, V., Asada, H. and Nixon, S. (2017). Malaysia’s economic success story and challenges. Retrieved from: https://www.oecd.org/eco/Malaysia-s-economic-success-story-and-challenge...
Freedman, G. (2017). Can innovative companies supercharge workforce development connections? Retrieved from: https://www.forbes.com/sites/gradsoflife/2017/12/21/could-salesforce-com...
Cyberjaya. (2018). Global Tech Hub on the Rise. Retrieved from: http://www.cyberjayamalaysia.com.my/about/the-story
Export.gov. (2018). Exporting to Malaysia – Market Overview. Retrieved from: https://www.export.gov/article?id=Malaysia-Market-Overview
Asia Focus. (2009). Islamic Finance: Malaysia’s Growing Role. Retrieved from: https://www.frbsf.org/banking/files/AF-Islamic-Finance-Malaysias-Growing...
Business Sweden. (2015). Uncapping Malaysia’s energy 7 environmental technology potential. Retrieved from: https://www.business-sweden.se/contentassets/beecd41ba38d4461a9ee9802ea1...
Kingdom of the Netherlands. (2016). Doing Business in Malaysia. Retrieved from: https://www.rvo.nl/sites/default/files/2017/12/Doing-Business-in-Malaysi...
Santander. (2018). Malaysia: distributing a product. Retrieved from: https://en.portal.santandertrade.com/analyse-markets/malaysia/distributi...
Shinewingtyteoh. (2016). Investing in Iskandar Malaysia. Retrieved from: http://www.shinewingtyteoh.com/wp-content/uploads/2018/05/Investing-in-I...
Enterprise Ireland. (2014). Access Malaysia. Retrieved from: https://www.enterprise-ireland.com/en/Export-Assistance/Market-Research-...
Company Incorporation Malaysia.com. (2017). 5 Business Opportunities in Malaysia in 2017. Retrieved from: https://www.companyincorporationmalaysia.com/blog/5-business-opportuniti...
 
Level 2:
The Innovation Policy Platform. (2018). Malaysia. Retrieved from: https://www.innovationpolicyplatform.org/content/malaysia
OECD. (2015). Boosting Malaysia’s National Intellectual Property System for Innovation. Retrieved from: https://books.google.nl/books?id=ZWecCgAAQBAJ&pg=PA21&lpg=PA21&dq=innova...
Cyberjaya. (2018). Global Tech Hub on the Rise. Retrieved from: http://www.cyberjayamalaysia.com.my/about/the-story
Malaysia Innovation Tour. (2018). Malaysia Innovation Tour 2018. Retrieved from: http://forums.theasianbanker.com/malaysia-innovation-tour-2018
Technology Park Malaysia. (2018). Innovation Incubation Centre. Retrieved from: http://www.tpm.com.my/tc/iic.php
Oxford Business Group. (2017). Digital economy in the spotlight as Malaysia commits to tech expansion and education. Retrieved from: https://oxfordbusinessgroup.com/news/digital-economy-spotlight-malaysia-...
Tariq, Q. (2018). Spotlighting five innovative startups in Malaysia. Retrieved from: https://www.thestar.com.my/tech/tech-news/2018/02/26/spotlight-on-five-i...
Facts and Details. (2013). Industries in Malaysia. Retrieved from: http://factsanddetails.com/southeast-asia/Malaysia/sub5_4e/entry-3697.html
Pawanchik, A. (2015). Building a culture of innovation: a Malaysian Perspective. Retrieved from: http://www.tii.org/public/plugins/news/documents/news/gestnewsdocuments/...
 
 
Level 3:
Facts and Details. (2013). Industries in Malaysia. Retrieved from: http://factsanddetails.com/southeast-asia/Malaysia/sub5_4e/entry-3697.html
WTEx. (2018). Malaysia’s top 10 exports. Retrieved from: http://www.worldstopexports.com/malaysias-top-10-exports/
TMF Group. (2018). Top 10 challenges of doing business in Malaysia. Retrieved from: https://www.tmf-group.com/en/news-insights/business-culture/top-challeng...
Chin, J. (2015). The costs of Malay supremacy. Retrieved from: https://www.nytimes.com/2015/08/28/opinion/the-costs-of-malay-supremacy....
Pgeon. (2018). 5 interesting startup trends to look for in Malaysia 2017. Retrieved from: https://blog.pgeon.delivery/startup-trend-malaysia-2017/
Santander. (2018). Malaysia: reaching the consumer. Retrieved from: https://en.portal.santandertrade.com/analyse-markets/malaysia/reaching-t...
Advanced. (2018). Type of Business in Malaysia. Retrieved from: http://www.advanced.com.my/content/type-business-malaysia
Vulcano Post. (2016). 10 trends that could make or break startups in the Malaysian scene for 2017. Retrieved from: https://vulcanpost.com/598244/startup-trends-malaysia-2017/
Last updated: 22.06.2021 - 13:29
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