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Malaysia's Progress with Startups

Jonathan Ortmans, President, Public Forum Institute

Malaysia transformed itself from a producer of raw materials in the 1970s into an upper-middle income country with a multi-sector economy by the late 1990s. The 1997 crisis significantly challenged this technology-exporting country, but it has since successfully sparked two main sources of economic resilience—foreign investment and new firm creation. To my surprise, Malaysian entrepreneurs I spoke with recently gave a great deal of credit to, of all actors on the stage, their government. Did government really do something right?

While governments set the rules and incentives, those trying to build more robust rates of new firm formation in their countries do not generally hold out much hope for any silver bullets from their public sector. The high point of most government programs is too often the day they are announced by high profile political leaders in the bright lights with cameras rolling! Malaysian leaders seem to have taken a more iterative and somber approach to some specific interventions in a national culture that, as was explained to me on my first visit there, did not embrace risk-taking and entrepreneurship easily.

Over the past five years, progress is evident. Although not yet a start-up economy, Malaysia’s entrepreneurialism is reflected in its entrepreneurship and innovation ranks: 34th out of 104 economies in the Legatum´s Entrepreneurship and Opportunity sub-index, 21st among 183 economies in the World Bank´s Doing Business rank, and according to leading advocates, nearly all universities now offer entrepreneurship as a subject. While entrepreneurship programs at universities around the world have mixed results, with 60% of the country’s population of 27 million people defined as youth, this is a step in the right direction.

But how much of this recent success has been driven by the public sector? Malaysia’s Prime Minister has put special emphasis on innovation and entrepreneurship as a central economic driver in the country’s ‘New Economic Model’ (NEM) - moving it closer to the heart of economic policy from the sidelines. And programs do abound. Government is now providing grants at the pre-seed and seed level, and introducing various policies to ease regulatory compliance for new businesses. As reported by the Mansfield Foundation, there are now plenty of supporting mechanisms for entrepreneurs in Malaysia, including physical infrastructure, business advisory services and access to capital. In fact, according to the World Bank, Malaysia is the top country in the ease of getting credit.

Entrepreneurs do seem to recognize the impact of these policies and programs on their decisions to take risks. A recent survey by Warisan Global, a local organization dedicated to advancing entrepreneurship, showed how pro-entrepreneurship policies and programs impact entrepreneurs’ path. One respondent pointed to the support for technology innovation by both the government and the private sector. He cited the example of MyIdeas, a program that encourages innovation and reaches out to all Malaysians, especially those who are internet-savvy. This respondent also highlighted that the Ministry of Science, Technology and Innovation (MOSTI) has now granted funding to over 180 research and development projects with startup potential.

Well-meaning policies, however, are not always strengths. The leader of Warisan Global, Dhakshinamoorthy Balakrishnan (Dash), explained to me that despite the strong intent by the government to create entrepreneurs, some of these initiatives are also weaknesses because they can create a dependent mentality or complacency. The Mansfield Foundation also pointed out that although there are many programs and financial support systems for entrepreneurs, they have not all been as effective as they should be. Problems include the frustrating red tape that entrepreneurs must face to apply to programs run by a variety of government agencies. And the large number of ministries and agencies involved has caused overlapping of functions leading to inefficiencies.

To its credit, the Malaysian government appears to recognize many of these problems and has begun to address them with the NEM, by streamlining programs and initiatives to foster entrepreneurship. Education and skills development have been made a priority and the funding landscape is being restructured to enhance financial support while reducing ‘dependent mentality’ and rent-taking. Further, a recently introduced Competition Act attempts to liberalize the economy and prevent monopolistic and anti-competitive actions by large corporations. And last May, Prime Minister Datuk Seri Najib Tun Razak sought new perspectives on fostering science and innovation to create new world class businesses by chairing the newly-formed Global Science and Innovation Advisory Council (GSIAC) at the New York Academy of Sciences on May 19, 2011. The Prime Minister, his national science advisors, and the Malaysian Ministers of Education, Energy, and Technology listened and interacted with an advisory team to get advice on developing sound policies for innovation. The GSIAC brought together 35 experts in different fields of science and innovation. He has taken many of these ideas to heart.

While not wanting to downplay all these efforts of government, the last few days in Kuala Lumpur have provided evidence of a new force at play here—the globalization of the startup communities. Malaysia has always been challenged through its friendly rivalry with its neighbor Singapore, which has set the bar high with some of the most advanced means of building a robust startup society. But Malaysia is now also more open-minded about looking to other models from around the world to advance its status as a place for startups. Such lessons from across the globe offer not only inspiration and ideas for nascent entrepreneurs, but are powerful motivators to government to ease a path for them to thrive.

This week, was launched as the country’s first not-for-profit entrepreneurial initiative founded as part of Global Entrepreneurship Week to catalyze, create and connect the next generation of high growth entrepreneurs in Malaysia with mentors and funders from overseas. Inspired by Startup America and similar initiatives in Chile and South Korea, the core elements of this initiative include global mentorship and business acceleration. The initiative, supported this week by the Prime Minister, was inaugurated with dozens of entrepreneurs from the United States visiting Kuala Lumpur.

As a country heavily involved in exporting, Malaysia was hit hard by the global downturn. Perhaps that makes its national “intent” to focus on removing barriers to startups and risk-taking an even more significant development in moving Malaysia along the road to recovery and high-growth entrepreneurship.

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