BBB3633 Malaysian Economics Prepared by Dr Khairul Anuar L5: Knowledge-Based Economy www.lecturenotes638.wordpress.com
Content of this lecture 1. Introduction 2. Rationale for K-based Economy 3. K-based Economy: An Overview 4. k-based Economy in Malaysia 5. K-Economy Strategies 2
1. Introduction Migrating into the borderless world and interconnected global spheres, economic activities have evolved into a whole new era of innovative information application. Emphasis is placed on intensifying the usage of information and knowledge in delivering the thrusts of the Malaysian economy policies. When facing a knowledge-based economy (k-economy), many challenges and obstacles in terms of competition and infrastructure are expected. They are the main barriers against providing greater accessibility and feasibility of knowledge usage to produce higher outcomes and at the same time increase productivity. 3
2. Rationale for K-based Economy The k-based economy provides the platform to sustain rapid economic growth and enhance international competitiveness Malaysia depended on capital investment to boost economic growth until the mid-1990s. Subsequently, a strategy to change from an input-driven to a productivity-driven mode was initiated due to the declining marginal productivity of capital. It advocates profit, productivity and state-of-the-art technology as the driving force behind a business success. 4
2. Rationale for K-based Economy To survive in the innovative economy era today, a nation has to have a clear strategy to respond promptly to changes, sustain continuous growth and ensure management of international trade. Knowledge has become an important producer of wealth in societies and organizations. Knowledge is the global public goods. Once knowledge is discovered and made public, there is zero marginal cost in adding more users. In addition certain extent, the creators or the inventors of knowledge are protected via instruments such as trade secrets protection and patents, copyrights, and trademarks. 5
2. Rationale for K-based Economy Organisations are building more intangible assets than tangible assets in this new era. The intangible assets are referred to as intellectual capital. Businesses are more concerned with the transfer of a company's tacit knowledge that is embedded in the staff than the observable assets, capital and land All these can be the basis for the company's competitive advantage. 6
2. Rationale for K-based Economy Looking at the macro level, there are various challenges coming down the line and waiting to strike any economy hard. It is imperative to be aware of the challenges that can be categorised into three main aspects. the first aspect of challenges is the changes in the rules of competition; the second aspect is competitiveness which depends on knowledge instead of factor input, and the third challenge ahead is building capability to contend with foreign competitors. 7
3. K-based Economy: An Overview The k-economy plays an important role in the economic structural evolution, from agro- production-based economy (p-economy) to industrial-technology-based economy. In the P-economy, supply chain management was important for cash flow, and managing the value chain is the key to keep business costs low. The new economy that has emerged from this information age is k- based economy which is truly global. There are no boundaries for any businesses and they can be located anywhere around the globe. The success of the k-based economy relies on the effectiveness of creating and utilizing knowledge. It enhances international competitiveness, strengthens the nation's innovation that leads to the creation of higher technology, and pushes the development of new products into the markets. 8
3. K-based Economy: An Overview Country's competitiveness is dominated by knowledge instead of merely factor input. The 5W plus 1H strategy (i.e., know-what, know-who, knowwhere, know-when, know-why and know-how) and competencies are being developed interactively. But it is difficult to measure tacit knowledge as it comprises know-how and know-who. Knowledge transmission from experiences is complementary to education, training and development. 9
3. K-based Economy: An Overview To put it into practice, organization must make knowledge more personal and delicate, and find ways to keep knowledge useful, observable, measurable and reward able. With the k-based economy as the platform for countries to engage in economic activities, there is the need for countries to become more receptive to know-how. In this, it is to increase skills and creativity to enhance competitiveness and stay ahead in the race for sustainability of wealth 10
3. K-based Economy: An Overview The k-based economy enables new entrants (lower-cost developing countries) to compete against established producers. Furthermore, the unique concepts of the k-based economy have enabled industrialized countries to increase their share in high-technology industries and stay ahead in the more dynamic economies. This can also enable the developing countries to keep up with the developed countries in terms of knowledge input of production for valueadded creations. It is always an issue that inventions in knowledge-based societies and online economy go hand-in-hand via force of electronic digital speed and the explosive utilisation of knowledge. The advent of internet as an instrument of e-business helps cost-cutting that is very much vital to conduct e-transactions. Falling costs of communications hardware and software create fertile environment for innovations in businesses of all sizes. 11
4. K-based Economy in Malaysia There are different phases of growth in Malaysia. In the 1960s, it was labour-driven economy with greater emphasis on primary commodities. 1970s, greater attention was given to assembly-type manufacturing 1980s, the focus was on medium technology manufacturing and services sector before productivity-driven growth was emphasized in 1995. Since the millennium, the centre of attention has been a knowledge-driven and technology-driven economy 12
4. K-based Economy in Malaysia Malaysia has established the MSC, an entity to assist the transformation of Malaysia from a p-economy into a k-economy, as well as an initiative that drives towards the creation of a k-based and information-rich society. The k-economy would strengthen Malaysia's capability to innovate, design and create indigenous technology and thus would provide the foundation for endogenously-driven growth. The launching of the National IT Agenda (NITA) and MSC marked the foundation for k-economy in the mid 1990s. The objective of NITA is to promote the utilisation and development of IT and covers areas like e-commerce. e-business, e-learning, e-public services, e-community and e-sovereignty. 13
5. K-Economy Strategies There is constant talk about new enterprises not only venturing into capital, but also translating the ideas of managerial know-how into businesses. Knowledge may be expensive to generate but there is little cost involved in diffusion as knowledge provides increasing returns when it is widely used. The focus of success is on creativity and wealth creation. Those proficient in the economies of information and knowledge, and the know-how to produce knowledge and information would become business magnates of the era. 14
5. K-Economy Strategies To develop the k-economy, concerted efforts must be made to put the building blocks in place. The k-based economy research for Malaysia was initiated at the National Information Technology Council (NITC) and Malaysian Institute of Microelectronic Systems (MIMOS) Berhad in October 1998 and it has focused on strengthening critical elements to support the economy. The major thrust of the k-economy development plan for Malaysia are set out in the Third Outline Perspective Plan (OPP3) for 2001 2010. They are summarised in the following slides. 15
5. K-Economy Strategies 1. Building knowledge manpower and worker productivity One of the key successes in the k-economy is to increase the capacity of trained labour force. This is through a comprehensive review of the education and training system, and the introduction of a system for life-long learning and brain-gain programme. Malaysia needs to focus on improving and upgrading the existing education system and shift the orientation from controlling workers to shaping an innovative and creative environment. 16
5. K-Economy Strategies 2. The role of human resource management (HRM) HRM should be able to boost workforce capability, through appropriate selection, training and rotation; help design high performance teams and help restore managerial focus on value creation, besides focusing on profitability. Those risk-taking and staff with initiative should be rewarded, refrain from punishing staff who make mistakes - instead we should be more supportive. Mutually respectful leader and hands-off bureaucratic mode of management or acts as consultants and policy advisors to top managers should be put-into practice. 17
5. K-Economy Strategies 3. Human Resource Development (HRD) The consequences of economic liberalization of HRD are as follows: Although productivity has increased and unemployment has declined, income inequality has been worsening generally under the free market regime. Inequality takes place when there is less government intervention in the economy system. Equity may be effectively redistributed through regulation. For instance, land reforms have been successfully emulated and land ownership given to balance income disparity. There are other subsidies such as housing, education and training that have helped to train skilled labour and raised competitiveness within the economies by narrowing wage differences and reducing inequality. 18
5. K-Economy Strategies Technological development is necessary for the sustainability of growth. Technology is necessary to upgrade the skills of the labour force and hence, it improves innovative systems and the standard of living as a whole 19
5. K-Economy Strategies 4. Intensifying Science and Technology (S&T) and R&D The key success in the k-economy is to enhance organizational learning and training in S&T. Hence, accelerating the process of R&D, intensifying R&D initiatives towards strengthening the national innovation system, as well as providing sufficient subsidies and loans for science education in both the government and private sectors are vital. S&T is the core competency area in the future of our nation. Despite the percentage of R&D expenditure to GDP by public sector and the number of scientists and engineers per million populations has been increasing, Malaysia remained ranked low relative to other countries. 20
5. K-Economy Strategies 5. Restructuring the financial system Enhance operational efficiency by providing appropriate types of financing for knowledge activities, making available the tools for macroeconomic management and withstanding the challenges associated with k-economy. 6. Innovation in products and services and continuous infrastructure improvement Realising the increasing competitive edge in the global marketplace both locally and internationally, increasing knowledge-content in agriculture, manufacturing and service sectors is crucial. The development of infrastructure must be accelerated to facilitate the development of k-based economy 21
5. K-Economy Strategies 7. Preparing the private and public sector for change There is a greater urgency to nurture creativity to boost k-economy in the corporate culture, while simultaneously identifying the opportunities that generate innovation. Omitting old-fashioned hierarchical styles of management is vital in order to become more proficient in the acquisition, utilisation, dissemination and management of knowledge. 8. Fostering ethical utilisation of knowledge Success in the k-economy requires creativity and higher-order cognitive skills. Most of the innovation and creativity is supported by the foundation of basic knowledge. In the long-run, those skills that find ways to foster creativity will have more success in the competition within the k-economy. Thus, bridging the digital divide among income, ethnic and age groups, and urban-rural communities across regions becomes crucial. 22
5. Recommendations K-Economy To possess a k-based economy, the government needs to create an environment for a fair, competitive marketplace which is unfettered by government regulations or incentives which would be counterproductive to this aim. Malaysia has to focus on key areas to strive for developed nation status. Among those areas are: 1. Human capital The need to prepare the people for the change on a massive scale that allows them to develop to their maximum via a dynamic and innovative education system. Attract and retain knowledge workers in the k-economy using several strategies, namely environment strategies, relationship strategies, support strategies, growth strategies and compensation strategies. 23
2. Transforming assets 5. Recommendations K-Economy Organisations have to transform assets into innovative, creative and competitive businesses. Firms have to create higher value-added jobs, both within the country and abroad, and make their domestic base stronger. Form a testing ground for innovations in technology. To achieve competitiveness, the government should promote technologyintensive industries and accelerate industrialization. Always be technologically proficient - able to adapt, innovate and invest. 24
3. Safety creation 5. Recommendations K-Economy It is important for the people to feel confident of embracing changes. There should be policies to guide them through the period of transition if they have to relocate. In this context, e-government might` take place, vis-a-vis how the government intensifies communication and works with the governed. 4. Developing natural resources Malaysia is rich with energy and natural resources. As China and India are providing enormous markets, they are expected to have a high demand for commodities, agriculture and food products from other countries. The prices will be driven upwards following huge demand 25
5. Recommendations K-Economy 5. Reduce ethnic constraints, but enhance religious and cultural values and thirst for knowledge to face competition globally. 6. Private sector Bring the private sector into the nucleus of a knowledge-economy that has tremendous potential, in terms of per capita expenditure on ICT. Build strong or powerful national brands, as well as opportunities to leverage off brand identities for export purposes. 7. Diversified and balanced economy Developing a matured and broad-based industrial sector, modem agricultural sector, efficient and productive service sector, as well as developing modem services sector. Adapt quickly to changing patterns of supply, demand and competition. 26