Following the steps of many early developing countries, IS industrialization was the earliest adopted strategy (Kam, 2012, p.14). The promotion of infant industries began upon suggestions from the World Bank after their mission visit in 1963 (Kam, 2012, p.14). The use of tariff and non-tariff protection at that time aimed at reducing the dependence on imported foreign consumer goods as well as encouraging domestic players to participate in the market (Kam, 2012, p.14). Initially, the policy was successful in diversifying the economy, reducing import dependence, creating employment, and improving economic growth. The contribution of the manufacturing sector to GDP expanded 4% from 1957 to 1969 (during the first MP 1965–1970). On average, production in the manufacturing sector increased 10.2% (2nd MP, 1971–1975).
Tariff protection was not commonly used during the initial years of industrial development (from 1958 to the mid-1960s). The government did not want to discourage imports, fearing it might lose tax revenue from importing companies. In addition, the government also worried that protectionism policies would increase wages and costs. It was 055 only after the establishment of the Action Committee on Tariff and Industrial Development CHAPTER (ACTID) in the mid-1960s that tariff and non-tariff protection measures were extensively 01 used. The effective rate of protection (ERP) increased for the rubber, electrical, and electrical Charting Malaysia’s Industrial Policy for the Future machinery industries (Edwards, 1975). In terms of industrial processing level, the ERP for consumer goods was almost twice that for intermediate goods by 1969. As a result, consumer goods had a higher growth rate than intermediate goods. The domestic market in this phase was insulated from external competition and protected behind tariff walls.
The success of IS policy was impeded by the limited size of the domestic market (Ariff and Hill, 1985). Industrial growth stagnated for several reasons. First, balance-of-payments problems were exacerbated by heavy imports of capital and intermediate goods (Kam, 2012, p.14). Second, the production surpluses under the IS strategy were not being spilled over to the export/international market (Alvi, 1996). Therefore, toward the end of the 1960s, the IS strategy was deemed unsustainable. Finally, the much-anticipated reduction in the unemployment rate was not materialized. From 1965 to 1970, the average annual unemployment rate grew 3.3%, and employment generation in the manufacturing sector was only 15% as compared to 29.5% in agriculture (2nd MP, 1971–1975). The switch from an IS to an EO strategy was due to both external and internal factors (Kam, 2012, p.14). The “Flying Geese”20 paradigm of the early 1960s elucidated the trend and opportunities for developing
20 In this model the catching-up process of industrialization of latecomer economies is attributed to three aspects: intra-industry aspect, inter-industry aspect and international aspect. It is the argument on the international aspect - relocation process of (specialization effect network and firms) between competition cost (input scale of in the manufacturing sector. Apart from subsidized facilities in the manufacturing sector. Apart from 21 economies from benefit clusters in located The LMW program extended beyond the proximity of the EPZs (Kam, 2012, p.15). p.15). extended beyond the proximity of the EPZs (Kam, 2012, The LMW program 3.1.2. Second Phase (1970-1980): EO Industrialization Strategy (Round 1) Industrialization Strategy 3.1.2. Second Phase (1970-1980): EO the in phase new a initiated 1968 Act Incentives Investment the of introduction The Internal factors, however, were strongly driven by sociopolitical issues. The mix of issues. The mix of sociopolitical were strongly driven by Internal factors, however, industries from advanced to developing countries - that is being discussed here (Kam, 2012, p.6). countries - that is being discussed here advanced to developing industries from division of labor) (Kam, 2012, p.15). and greater Firms p.15). However, since they were not located within the EPZs, they were unable to utilize 21 such as tariff exemption for imported intermediate goods. imports of Firms with LMW status were offered similar “privileges” such as duty-free 2012, materials, tax incentive measures, and minimized customs’ red tape (Kam, raw and LMWs provided appealing facilities for foreign investors to engage primarily in export- provided appealing facilities for foreign investors to engage primarily and LMWs to government the by efforts early the also were instruments These activities. centered effect create an agglomeration various investment incentives foreign investors in the EPZs also enjoyed and infrastructure, accelerated depreciation allowances on investment, and tariff protection (Menon, 2009). 2009). and tariff protection (Menon, depreciation allowances on investment, accelerated to host FDIs. economic environment main aim was to create an attractive The government’s foreign capital, and technology, hoped that foreign entry would bring in higher Policymakers new employment opportunities. Therefore, in an effort to attract FDI, two main instruments p.15). The EPZs (Kam, 2012, zones (EPZs) and LMWs were introduced: export processing export promotion era (Kam, 2012, p.15). The act offered various incentives such as company imported input procurements, investment tax credits, tax exemption, duty exemptions for 2012, p.14). The riot in 1969 pressurized the government to place extra emphasis on the the on emphasis extra place to government the pressurized 1969 in riot The p.14). 2012, was in anticipation that it strategy The switch to the EO NEP. affirmative action-oriented into and absorption of Bumiputeras opportunities would provide greater wealth generating the manufacturing workforce. manufacturing sector. for the ruling party also posed an early challenge in Malaysia different ethnic groups and income redistribution (Kam, acts between economic growth to perform balancing countries to open up their markets. IS industries cultivated under protectionism policies protectionism policies cultivated under IS industries markets. to open up their countries liberalizing by It was thought that globally. unable to compete inefficient and were often this and mitigate domestic competition might increase foreign entry market, the domestic problem and that the local economy might also reap the benefits from additional inflows in labor absorption into the technology acquisition, and increases of foreign capital, 056 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia the facilities provided within the zones (Kam, 2012, p.15). Under these instruments, the manufacturing sector itself underwent structural changes in the concentration of manufactured exports: from the food, wood, chemicals, and metal industries (in the 1960s) to the electrical and textile industries (Kam, 2012, p.15). E&E industries benefited most from EPZs: 89% of Malaysian exports in E&E goods were produced in EPZs (Warr, 1987). In comparison, firms with LMW status were smaller in size and better established in the labor- intensive textiles and garment industries (Kam, 2012, p.15). Since 1970, both industries have been the fastest growing industries in manufacturing exports. By 1980, the share of E&E in total manufacturing exports had increased to 41%, while that of textiles and apparel had increased to 8% (Bank Negara, 1990).
While economic growth in that period was impressive, many have questioned the role of EPZs in developing the domestic industries (Cho, 1990; Jomo, 1993). Not discounting the contributions made in employment creation, concerns were mainly targeted at the ability of EPZs to integrate with the local economy through the purchasing of domestic raw materials, capital equipment investments, or technology spillovers (Kam, 2012, p.16). The EPZs and LMWs created an export-intensive (and -exclusive) industrial enclave that catered 057 specifically for the international markets (Kam, 2012, p.16). With imported intermediate CHAPTER goods being exempted from import duty, EPZs were generally isolated from the domestic 01
economy. Simultaneously, there was also another industrial enclave operating under heavy Charting Malaysia’s Industrial Policy for the Future government protection. Tariff protection was justified under an “improved” infant industry protection argument under which they were protected until they were capable of competing internationally.22 The dual enclaves gave rise to the commonly observable “dualistic structure” of the Malaysian economy (Cho, 1990; Alvi, 1996).
Cho (1990) explained that this industrial structure was undesirable, because it created a geographical development divide in Malaysia (Kam, 2012, p.16). The higher government allocations for development in the West Coast states (where EPZs were located) had left fewer resources for the development of other areas (Kam, 2012, p.16). Second, industrial dualism might have affected economic efficiency through the misalignment of prices from producers between EPZs and local economies (Kam, 2012, p.16). Finally, the weak linkage creation between MNCs in EPZs raised questions as to whether the domestic economy had benefited in terms of technology spillovers and skill upgrading from the foreign presence in the economy.
Policymakers were more concerned about the third issue, as Asian economies were
22 However, the protection criteria gradually became more selective and reviews of the protection privileges were more frequent as development progressed (Second and Third Malaysian plan, 1971;1976). PROTON functioned as an anchor company for local industries to form for local industries to form functioned as an anchor company PROTON 23 These industries served as a base to develop indigenous technology as well as an avenue These industries served as a base to develop With buoyant oil revenues, the government decided to diversify the manufacturing manufacturing the diversify to decided government the revenues, oil buoyant With 3.1.3. Third Phase (1980-1985): IS Strategy (Round 2) IS Strategy Phase (1980-1985): 3.1.3. Third components were imported. However, as technologies and skills were transferred, backward linkages with local industries were linkages with local industries were backward transferred, as technologies and skills were imported. However, components were Program. Development formed under the Vendor slowly E.g. Proton cars use technology and components from Japanese car makers, Mitsubishi Motors. In early the stages, most parts and the stages, early Mitsubishi Motors. In car makers, Japanese from components and technology cars use Proton E.g.
to PROTON contrary to the usual competition/efficiency criteria. With such high “national 23 foreign partners. (car distribution domestic backward (parts and components suppliers) and forward linkages and entrepreneurial opportunities employment services). Although the efforts generated social toward skewed heavily was linkages these of development the firms, local for suppliers companies were given priority as restructuring purposes. Bumiputera-owned for the upgrading of labor skills. To address the problem of the lack of linkages between address the problem of the lack of linkages between of labor skills. To for the upgrading (The National a government project, PROTON foreign industries and local suppliers, from its Enterprise), was created in an attempt to acquire knowledge and skills Automobile public sector holding Heavy company, Industries Corporation of Malaysia (HICOM), was with foreign companies in the setting up of heavy formed in 1981 to forge partnerships petrochemicals, iron and steel, automobiles, and industries in selected areas such as equipment (Kam, 2012, p.17). transport activities into heavy industries. Infused with inspiration gathered from the successes of of successes the from gathered inspiration with Infused industries. heavy into activities capital- in heavily invested government the Policy), East Look the (under Japan and Korea 2012, p.17). In the early 1980s, the heavy industry and technology-intensive industries (Kam, through public sector investment (Alvi, 1996). A development was supported primarily to product diversification and linkage formation between industries in the manufacturing 1993). sector (6th MP Review, competitive EO producers. Various events had also exacerbated these limitations, such such limitations, these exacerbated also had events Various EO producers. competitive current account balances, and the recession in 1980, the negative as the world economic export prices and Due to the reduction in global of payments. of the balance deterioration to expand the variety of their of capital goods, producers were forced excessive imports focus in the 1980s was directed address these challenges, the policy To exported products. becoming increasingly competitive in the “third era of globalization” (Collier and Dollar, and Dollar, globalization” (Collier of era in the “third increasingly competitive becoming domestically thin of range limited to a small were either 1980s. EO industries 2002) in the EPZs producers in the linkages. Foreign weak local input products or had value-added there In addition, to the duty-free privileges. inputs due to import intermediate preferred was a lack of policy initiatives and enforcement to transform inefficient IS industries into 058 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia interests” at stake, these industries were promoted through heavy protective measures such as tariff protection, price control, government procurement provisions, import restrictions, and subsidized credit. Some have argued that PROTON and the National Automotive Policy failed because they favored inefficient local manufacturers and assemblers, while some inefficient but favored franchise operators only relied on approved permits for their trade.24
Despite being heavily protected, the successes of the heavy industries were insignificant. Apart from heavy financial losses, they were also unable to compete in international markets (2nd MP, 1971–1975) (Kam, 2012, p.17). While some have argued that market demand, be it domestic or local, was sluggish in the 1980s, the failure of the heavy industry program was attributed to reasons beyond market forces (Kam, 2012, p.17). First, an overprotective state-led industrialization strategy distorted market competitiveness, leaving firms operating under highly inefficient conditions. Second, since they were unable to compete globally, consumer products stemming from heavy industries (such as automobiles) faced the limitations of domestic market demands. Finally, heavy industries require high capital utilization and high-scale economies in which returns can only be realized in the long run. These industries suffered from a comparative disadvantage. Their operating costs 059 were higher than those of their international competitors, and technically, they were stifled CHAPTER by the long learning periods. 01 Charting Malaysia’s Industrial Policy for the Future Consequently, budget and current account deficits in 1982 widened by 13% and 16%, respectively. High operational costs also forced the government to spend excessively. An increase in fiscal profligacy pushed the economy into a “commodity shock” crisis period between 1985 and 1986 (Athukorala, 2010). For the first time, Malaysia’s GDP growth was reduced to a 1.1% contraction in 1985. The government realized that public-owned industries were underperforming, so it re-strategized its industrial policies (Kam, 2012, p.17). Subsequent strategies were therefore formalized to (again) move away from the IS framework. Like the previous EO regime, some industries were still being heavily protected; however, the government intensified its efforts to attract foreign investments into the lesser- protected ones. The initial step was to liberalize the restrictions on foreign ownership through the Promotion of Investment Act 1986. This inevitably started the second phase of the EO industrialization regime in Malaysia. The difference between this and the previous one lay in the government’s greater emphasis on “learning from the FDIs” and labor skill upgrading/creation (Kam, 2011, p.18).
24 https://www.thestar.com.my/business/business-news/2010/12/04/the-problem-with-proton/#tiOuhq2ylZ9BaUyA.99 (accessed on 11/04/2019). not do that products its of % 50 least at exports enterprise foreign the if permissible is equity foreign of 25 percent 100 Act, and NEM this To To address issues of theinefficiency, government introduced the PMP in 1991. The main Industrial development in Malaysia was guided by a 10-year IMP (IMP 1, 1985–1995), 1985–1995), 1, (IMP IMP 10-year a by was guided Malaysia in development Industrial 3.1.4. Fourth Phase (1986 and beyond): EO Strategy (Round 2), Industrial Upgrading, Upgrading, 2), Industrial (Round EO Strategy beyond): Phase (1986 and 3.1.4. Fourth focusing by economy to revive the the government in the mid-1980s prompted The crisis of competition with local firms (Kam, 2012, p.18). regardless products 80 % of its or if it exports compete with local industry, Under objectives of the PMP were 1) to lessen the financial and administrative burden of the of the burden objectives of the PMP were 1) to lessen the financial and administrative 25 1985 in an effort to promote growth and competition within the suppliers’ market. Equity foreign efforts included the relaxation of foreign equity guidelines where liberalization requirements export certain to subject equity 100% to up own to able now were investors (Kam, 2012, p.18). Investments Act 1986 (Kam, 2012, p.18). An additional five years of tax relief were offered to firms with high expenditure in fixed assets (RM25m), high contribution to and technology, Double deduction for export promotion the country. significant economic contribution to activities was offered, and export credit refinancing facilities were made available at low 1975 were relaxed after (4%). Regulations in the Industrial Co-ordination Act interest rates EO the regime were highlighted in the first IMP (1985–1995). IMP 1 advocated incentives first IMP (1985–1995). IMP 1 advocated incentives EO the regime were highlighted in the improvements in reinvestments, linkage formation, for export promotion activities with main investment the previous objectives, with these In line enhancements. and skill of Promotion the by replaced was 1968, Act Incentives Investment the instrument, policy Malaysia amended its industrial strategy. Malaysia path (Kam, 2012, p.18). industrial development which provided a blueprint for the nation’s to manufacturing the re-orient to Efforts implemented. been have IMPs three 1986, Since ones, such as labor-intensive production stages, abroad. This phenomenon is called This phenomenon is called production stages, abroad. ones, such as labor-intensive international production fragmentation, and it was a force that drove FDI inflows into low- this phenomenon has embraced Although Malaysia wage and labor-abundant countries. has intensified FDI outflows from developed Accord since the 1970s using the EPZs, the Plaza In an effort to capitalize on this phenomenon, East-Asian countries (especially Japan). Accord Accord intensifiedthe competition in themanufacturing trade. The devaluation of the US while Japanese exports were products relatively cheaper, dollar made US manufacturing Japanese In an effort to remain competitive, of its currency. the appreciation affected by or broadly defined producers from East-Asian countries “sliced up” their value chain into disadvantaged or comparatively stages and relocated the less profitable different production (again) on EO strategies (although, in reality, both strategies ran in parallel). The 1985 Plaza in parallel). ran both strategies in reality, (although, (again) on EO strategies 060 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia government and 2) to reduce the size of the public sector so that more resources could be made available to the private sector. Under the PMP, the government restructured state- owned enterprises (SOEs) and even privatized some in an effort to promote competition and increase productivity. On average, GDP has been growing at 9% since 1988. By 1990, the Malaysian government expressed its hope for the country to grow into having “developed country status” by the year 2020 through the Vision 2020 initiative (Kam, 2012, p.18). The initiative proposed nine strategic challenges that encapsulated every aspect of socioeconomic development, from economic prosperity to social identity and wellbeing. The “vision” seemed to be on its way when the economy continued to grow at 9% per annum before reaching a new milestone at 10% in 1996. Economic growth was so impressive that the World Bank dubbed it a “miracle” (World Bank, 1993).
3.1.5. Industrial Upgrading
The second IMP (IMP 2, 1996–2005) was formulated to upgrade the Malaysian manufacturing sector from a generally labor-intensive sector into a knowledge-based sector with higher value added (Kam, 2011, p.18). The plan was seen as a response to Krugman’s 061
(1994) critical (Fundamentalist) comments that growth in Asian countries was input driven CHAPTER rather than productivity driven. The increasing involvement of Malaysia in the global 01 fragmented production networks and the rise in manufacturing wages raised awareness Charting Malaysia’s Industrial Policy for the Future among policymakers of the perils of overdependence on low-cost assembly activities. The plan proposed two approaches: The Manufacturing ++ (plus plus) and the “cluster-based” approach (Kam, 2012, p.19). The Manufacturing ++ strategy focused on two issues shown in [Figure 1-5]. First, the domestic industry expansion focused on higher value-added activities along the value chain (e.g., R&D, product design, distribution, and marketing) (Kam, 2012, p.19). The second strategy was to lift the value chain by improving productivity growth.
The most significant development program in this period was a 15 km x 50 km multimedia hub for high-skilled and multimedia-compliant producers known as the Multimedia Super Corridor (MSC) in 1996. The project was paramount in representing the government’s commitment to moving toward being a knowledge-based nation. The IMP 2 also proposed eight industrial clusters to drive industrial development: E&E, transportation, chemicals, textiles and apparel, resource-based goods, materials and advanced materials, agro-based goods, and M&E (Kam, 2012, p.19). However, the success of IMP 2 was vague due to a lack of proper reviews on its progress. R&D activities and participation of local firms in high value- added activities of the global supply chain still remained low (only 0.5% of GDP). The 1997 Asian Financial Crisis also shifted much of the government development resources to recovery purposes. As a result, some development programs were halted and brought to the third IMP.
Increase Productivity Marketing
Distribution Assembling Activities along the value Activities Malaysia’s current position Malaysia’s Product R&D Value Value Re-illustrated from IMP 3. from Re-illustrated 3.1.6. National Transformation Policy 2011-2020: The NEM 3.1.6. National Transformation high- to move the country to The NEM (2010) is a “new” development blueprint crafted In the third IMP (IMP 3, 2006–2020) the government extended its effort to address global human capital and local talent, 3) Creating domestic competition, 4) Strengthening the publichuman capital and local talent, 3) Creating domestic competition, 4) Strengthening sector, 5) Transparent and market-friendly affirmative action, 6) Building a knowledge base of sustainability the Enhancing 8) and growth, of sources Enhancing 7) infrastructure, and cry for industrial growth. While some of the suggestions were merely repeating the old war income status by the year 2020 using various economic transformation programs (ETPs) (ETPs) programs the year 2020 using various economic transformation income status by reform initiatives (SRIs): 1) Reviving the private sector, 2) Improving eight strategic driven by Source: Source: such as enhancing productivity and competitiveness, generating new sources of growth, new sources of growth, generating productivity and competitiveness, such as enhancing industrial achieve to reinforced all were products Malaysian for market the expanding and in the economy. upgrading Plus” Strategy IMP 2 – Manufacturing “Plus Strategy, 1-5] Industrial Upgrading [Figure nation by the year 2020 (Kam, 2012, p.20). Two of the strategic thrusts, enhancing Malaysia’s Malaysia’s thrusts, enhancing 2012, p.20). Two of the strategic the year 2020 (Kam, nation by and companies into regional Malaysian nation and integrating trading position as a major to maintaining the EO strategy continual commitment Malaysia’s global networks, illustrate (Kam, 2012, p.20). Complementing IMP 3, the ninth MP (2006–2010) also specifically placed from 2006 to 2020. Strategies chain” as one of its national missions “moving up the value competitiveness. Although IMP 3 continued the industrial cluster strengthening plans from strengthening plans industrial cluster 3 continued the Although IMP competitiveness. IMP 2, additional elements such as inter-cluster linkage creation efforts were proposed as selectively on targets were imposed Quantitative strategies. main industrialization one of its different clusters.Ten strategic thrusts were suggested to steer Malaysia into a developed 062 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia upgrading, the model differs from the other policy documents by setting a clear tone for local inclusiveness and needs-based development strategies (Kam, 2012, p.20). Employing SRIs, such as the development of a transparent and market-friendly needs-based affirmative action program, is a novel approach to mitigating Malaysia’s economic slowdown (Kam, 2012, p.20). The second part of the NEM presents greater details on the policy measures embedded in the eight SRIs. The plan reiterates the importance of private-led economic transformation, enhanced innovation, public sector transformation, intensified human capital development, narrowed disparities (market-friendly affirmative action, etc.), and attention to mechanisms for policy implementation (Prime Minister’s Office of Malaysia).
3.2. Korea’s Industrial Policies in Transition Period
It is necessary to review Korea’s industrial policies in the transition period in order to provide the relevant policy recommendations. The industrial support system of Korea has been changed over time. Even though the IS industrialization policies contributed greatly to the postwar reconstruction and economic growth of Korea in the 1950s, it had several limitations. First, the domestic market was too small. It was difficult to achieve 063 a self-sustainable economy through industrialization centered on final consumer goods CHAPTER such as food, beverages, and textiles. In addition, the balance-of-payments problem was 01 serious due to the decrease of aid and the small size of the exporting sectors. Due to these Charting Malaysia’s Industrial Policy for the Future problems, the industrialization strategy changed from IS to EO in the mid-1960s. Dramatic export promotion policies were implemented, such as drastic exchange rate depreciation, implementation of a single floating exchange rate system, various tax reductions for exporting companies, export financing at low interest rates, and discounts on shipping and electricity rates.
3.2.1. Industrial Development in 1970s
In the 1970s, it was urgently needed to change the structure of the export industries due to the recession of the world economy in the late 1960s and the subsequent rise of developed countries’ protectionism. The Korean government selected six heavy and chemical industries (steel, shipbuilding, machinery, electronics, petrochemicals, and non-ferrous metals) as strategic industries. The reasons for fostering the heavy and chemical industries are as follows:
(1) The export of labor-intensive products had limitations due to the protectionism of developed countries and wage increases, while heavy and chemical products had high income elasticity of demand. military forces in Korea by one-third in 1971 and suggested further reductions. one-third in by military forces in Korea necessary to solve the chronic trade deficit problem. the chronic trade necessary to solve was security crisis There to the threat from North Korea. industry in response States reduced US of the United time. The Nixon administration consciousness at this had large forward and backward linkage effects,and they were regarded as essential growth. structure and sustainable of the industrial for the advancement elements It was necessary to develop the heavy and chemical industries to nurture the defense develop the heavy and chemical industries It was necessary to The heavy and chemical industries produced basic materials and capital goods that that goods capital and materials basic produced industries chemical and heavy The and capital goods was also of imports of intermediate goods The replacement In addition to the six target industries, direct tax cuts on the fertilizer, aviation industry, industry, In addition to the six target industries, direct tax cuts on the fertilizer, aviation Until the end of the 1960s, Korea’s industrial incentive policies concentrated on export export on industrial incentive policies concentrated Until the end of the 1960s, Korea’s In a press conference in 1973, President Park proclaimed the fostering of the heavy the heavy of the fostering in 1973, President Park proclaimed a press conference In (4) (2) (3) National Investment Fund Act was enacted to provide funds to the heavy and chemical chemical and heavy the to funds provide to enacted was Act Fund Investment National industries at a level lower than the market lending rate. In addition to financial support, the government established various specialized research institutes to promote technology Korean development and foster technical personnel for the heavy and chemical industries. exemptions for the export industry were abolished. facilities were allowed, and these industries mining, and power generation defense industry, of 1973, the were protected through various tariff and non-tariff barriers. In December tax exemptions for export income were abolished in 1973. Electricity rate discounts for discounts for abolished in 1973. Electricity rate tax exemptions for export income were in 1975. A tariff exemption for the import of raw export companies were also abolished materials for export was converted to a tariff reimbursement system in 1975. In addition, tariff exemptions were provided for the import of important industrial facilities, while tariff Japan achieved high economic development. Japan achieved high economic development. promotion. However, after the declaration of the promotion of the heavy and chemical example, direct policies changed from EO to IS. For industries, supporting development estimated to have an industrial development gap of 20–30 years. At that time, Japan had gap of 20–30 years. At that time, Japan had estimated to have an industrial development abroad to meet domestic demand while at the same to import and process resources from extremely utilize to had end, Japan this To imports. for exchange time preparing the foreign as possible. Japan adopted government-led limited resources and capital as efficiently industries, high-tech on concentrating By EO industrialization. to promote policies industrial and chemical industries and presented the long-term vision of achieving $1,000 per capita capita per $1,000 long-term vision of achieving the and chemical industries and presented country was Japan, and the two were 1981. The benchmarking income and $10b exports by 064 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Even though there are some critics of the government’s heavy chemical industrialization initiative, which began with the Presidential Declaration on the industrialization of the heavy and chemical industries in 1973, it played a critical role in upgrading Korea’s industrial structure to a new level. It is hard to deny that it has made a decisive contribution to the development of industries. In particular, there were two oil crises during this period. Despite the difficulties in securing enormous financial resources, the government’s commitment to pursuing the policy consistently contributed greatly to the development of the heavy and chemical industries.
There were also several complex factors in the successful development of the heavy and chemical industries. First, the entrepreneurs/exporters who succeeded in the 1960s took key roles in leading the heavy and chemical industries by actively participating in the government-led heavy chemical industrialization process. Second, the revolutionary improvement of agricultural productivity, referred to as the “Green Revolution,” indirectly supported the heavy and chemical industrialization. Third, the government directly selected the target industries and did not spare any kind of support for the selected industries. The government created a public industrial complex throughout the country, which provided the 065 favorable conditions to be located. The government also provided funds selectively in the CHAPTER form of policy financing. In addition, the government introduced a general trading company 01
system, which provided the conditions for these industries to become export industries. Charting Malaysia’s Industrial Policy for the Future
Unlike the labor-intensive industrial development of the 1960s, two important factors played a role in the process of fostering the heavy and chemical industries in the 1970s. One was to supply enormous amounts of energy cheaply to the heavy and chemical industries, and the other was to procure the technical personnel and technologies needed for the heavy chemical industry.
The first factor was energy. The second oil shock that occurred in the late 1970s hit the Korean economy hard. Finding new energy sources that could replace oil became the key task as oil prices skyrocketed. In order to find the solution, the Ministry of Power Resources, which deals only with energy issues, was made. As a result, the Korean government started to develop nuclear energy and related technologies. Nuclear power plants were built and provided a substantial portion of energy.
The second factor was technology. For the successful industrialization, the introduction and development of the necessary technologies was crucial. Starting in the 1970s, the Korean government emphasized the importance of cultivating functional/technical personnel and upgrading domestic research capacity. Based on the long-term plan, vocational schools and 3.2.2. Industrial Development in 1980s 3.2.2. Industrial Development The 1980s was a period of healing in the aftermath of the strong industry-specific policies From the perspective of structural adjustment, the 1970s heavy and chemical industry industry chemical and heavy 1970s the adjustment, structural of perspective the From Although the heavy and chemical industrialization achieved enormous economic growth, growth, economic enormous achieved industrialization chemical and heavy the Although The promotion of the heavy and chemical industrialization achieved great results in spite great results in achieved and chemical industrialization of the heavy The promotion “heavy and chemical industrial investment adjustment,” became hot issues of the economy as of the economy “heavy and chemical industrial investment adjustment,” became hot issues value) low oil price, low dollar a whole. The so-called three low phenomena (low interest rate, to re-enter that took place in the mid-1980s also gave opportunities for domestic industries same time causing the reduction of productivity improvements. while at the the market of the 1960s and 1970s. Industrial adjustment and industrial rationalization, characterized by by characterized of the 1960s and 1970s. Industrial adjustment and industrial rationalization, light industrial sector. As a result, the unemployment problem caused by the bankruptcy the bankruptcy problem caused by unemployment light industrial sector. As a result, the Third, this policy caused imprudent investment in of marginal SMEs became a social issue. development the hindered turn companies. This in insolvent in which resulted sectors, some of the financial sector. of preferential support to these industries for the purpose of the rapid growth of the heavy for the purpose of the rapid of preferential support to these industries such seeking companies between competition excessive result, a As industries. chemical and great deal of overlap and overinvestment. Second, the preferential treatment resulted in a heavy and chemical sector, which has a long on the enormous resources were concentrated investment turnover period, resulting in financial difficulties in other sectors, especially the by strong policy intentions. The intensive intervention of the government resulted in a high strong policy intentions. The intensive intervention by and industrial adjustment. allocation, efficiency, level of social costs in terms of resource support was provided in the form problems. First, government promotion policy has several it also brought many side effects. It contributed to the “unbalanced growth of the economy” areas. It also provided the momentum for the and rural and widened the gap between urban the in investment of promotion the Further, (chaebol).” power economic of “concentration heavy and chemical industries was driven not the by profit motives of the private sector but came from labor-intensive light industry products, but by the early 1980s, the share of heavy the but by light industry products, from labor-intensive came industry products. Since then, the products surpassed that of light and chemical industrial a industries have played automobile, shipbuilding, and machinery steel, petrochemical, economy. the Korean pivotal role in supporting government-funded research institutes (such as the Korea Advanced Institute of Science and Institute of Science Advanced the Korea institutes (such as research government-funded were established. Technology) of the many difficulties at the time. First, in the early 1970s, 80% of manufacturing exports 066 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Despite the positive evaluation, the investment adjustment of the heavy and chemical industries accelerated the concentration of economic power to chaebols through M&A. Monopolistic positions were given to certain companies by increasing entry barriers, which led to various adverse effects. In particular, there were insufficient follow-up measures to deal with excess facilities and disposal facilities. It was carried out in the direction of hindering the market function, which is the premise of smooth industrial adjustment. There was also a lack of reasonable criteria in the selection of industries and companies to be adjusted. Thus, the “investment adjustment of the heavy and chemical industries” can be evaluated as another example of excessive government intervention.
In the late 1980s, another major turning point in the development of Korea’s manufacturing industry was the enactment of the Industrial Development Act. The trend of industrial policy shifted from the selective intervention of specific industries to the functional support system. This change was in accordance with the global trend of economic liberalization. It was also desirable in the sense that it could reduce the government’s excessive direct intervention, which could lead to government failure. 067
The Korean government adopted the industry rationalization designation policy. CHAPTER The designation of the industries to be rationalized had three objectives: supporting 01 the rationalization of the recessed industries, fostering promising infant industries, and Charting Malaysia’s Industrial Policy for the Future improving industrial technologies. It specified the limits, roles, and deadlines of government intervention and secured concrete support measures such as the Industrial Development Fund. In this sense, this can be evaluated as a systematic formulation of industrial restructuring policies. This system institutionalized the support for industrial technology and productivity improvement. The investment-led development pattern was complemented by this. It is considered to have provided a basic foundation for the development of technology- intensive industries and for the efficiency improvement of industries.
However, the sudden changes of the industrial policies toward the private autonomous regime resulted in another form of excessive investment, because there was no proper system to check the reckless business expansion of large enterprises. This is also considered one of the factors that brought out the 1997 foreign currency crisis of Korea.
3.2.3. Industrial Development in 1990s
In the 1990s, the industry supporting system was established with the enactment of the Industrial Development Law (1986) and the abolition of the conventional individual industrialization law. At this time, functional and non-discriminatory industry supporting The two factors that have had the greatest impact on industrial development since since The two factors that have had the greatest impact on industrial development The rapid accumulation of financial assets and financial innovation changed the quality Until the mid-1970s, domestic capital was not sufficiently accumulated, and the structure and communication industry has developed dramatically. Third, the role of enterprises Third, the role of enterprises and communication industry has developed dramatically. of high-tech in technology development has been greatly improved. The development the limitations industries centering on IT has become an important opportunity to overcome Until that used extensive government intervention. of the previous development strategies the 1990s are technology development and market opening. Technology development has development has opening. Technology the 1990s are technology development and market emerged have that phenomena important most The 1990s. the since emphasized been on industry are as follows: First, the high-tech industries centering in the Korean the information information technology (IT) have started to develop in earnest. Second, expanded the sources of special banks and gradually reduced the discount rates and loans and loans reduced the discount rates and gradually expanded the sources of special banks compulsory the lowered government the (1997), stage third the In Korea. of Bank the of the policy banking system. Through this, the to SMEs and endeavored to abolish loan ratio fiscal funding. and grant into financial support system was transformed the share of government-led financing. In order to enhance the market function of finance government adopted a gradual the financial market, and prepare for the opening of the government-led of creation new the curb to taken was step first the 1993, In approach. the government (1994–1996), relies on fiscal funds. In the second phase financing that asymmetry. Rather asymmetry. than direct credit allocation, financial measures were used as indirect means of inducement. of financial markets. As a result, the government increased financial autonomy to reduce low interest rate policy and the government’s credit allocation for specific industries, were very effectivein accelerating economic growth. However, as the economy expanded both quantitatively and qualitatively in the 1980s, the problems of the government-led financial selected a specific sector without consulting policies began to appear. If the government policy failure would increase due to the information the private sector, the possibility of internationalization, and the changes in international norms further emphasized the the emphasized further norms in international changes the and internationalization, support systems. importance of functional of the financial market was weak. As a result, government-led financial policies, such as the systems were introduced, because despite the achievement of industry supporting policies policies supporting industry of achievement the despite because introduced, were systems environment. changing valid in the rapidly did not seem to be 1970s, such policies up to the support for than the selective whole, rather the industry as a support for The functional In particular, development of the economy. about the balanced could bring specific industries, of progress the functions, market of activation the sector, private the of autonomy the 068 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia the mid-1980s, Korea mainly achieved technology development by imitating advanced technologies, but in the 1990s, it did so by establishing its own technology development capabilities.
The rapid development of the information and communications technology (ICT) industry was the combined result of large investment by private companies and strong support of government. In 1994, the Ministry of Information and Communication was established and contributed to the construction of the national information highway, a high-speed internet network. In addition, the Information Technology Promotion Fund was prepared and reintroduced into ICT. The ICT industry became a new engine of growth in the Korean economy. R&D expenditure also increased very rapidly. The ratio of R&D to gross national product (GNP) rose from 1.7% in 1990 to 2.5% in 1997. Of the total R&D spending, the private sector accounted for more than 70% in the 1990s, which contrasted markedly with the years when the government and the public sector were primarily responsible for technology development.
The launch of the World Trade Organization (WTO) in 1995, the accession of the 069
Organization for Economic Cooperation and Development (OECD) in 1996, and the outbreak CHAPTER of the financial crisis in 1997 pushed the Korean industry to respond to market opening. 01 This market opening had the effect of providing new opportunities and challenges to Charting Malaysia’s Industrial Policy for the Future the manufacturing industry, which was already aiming for outward development, but in the case of the primary industries, such as agriculture, the speed and pressure of the restructuring increased, which caused a great deal of pain. In response to the market opening and globalization, the Korean manufacturing sector actively promoted “globalization of the industry” through active participation in GVCs.
However, the rapid globalization of the manufacturing sector also produced another side effect. The “polarization of industries” began to occur. In the past, domestic industries expanded as export increased. However, the virtuous cycles between export and domestic industries weakened slightly. As a result, even though exports were brisk, the trickledown effects of export decreased and the domestic economy became sluggish. “Growth without employment” became one of the top-priority issues in Korea.
3.2.4. Industrial Development in 2000s
The biggest challenge of Korean industry in the 2000s was to smooth the restructuring process between industries that adapt to the global trends of market opening and technology development and industries that do not adapt. In the case of the service industry, the proportion of producer services and social the proportion of producer services and social In the case of the service industry, Korea’s R&D investment-to-GDP ratio was 4.03% in 2011, which is much higher than those was 4.03% R&D investment-to-GDP ratio Korea’s Even though the government and private corporations have put significant effort into have put significant effort into corporations Even though the government and private Third, since the 1990s, the entire Korean economy has shown signs of de-manufacturing, of signs shown has economy Korean entire the 1990s, the since Third, Second, the government made efforts to nurture parts and materials. Until the 1990s,the Another challenge was to determine the “future growth engine.” For this purpose, the the this purpose, For growth engine.” the “future was to determine Another challenge Plan, Development Biotechnology the as such policies, technology-related new First, countries. is high in developed countries. services, which are expected to improve productivity, of other advanced countries. However, the level at which these R&D efforts actually lead to at half the level of the United States. In addition, it is pointed out income is staying royalty because the technological startup and technology that the productivity of R&D is very low, transfer of public research institutes in Korea is significantly lower than that of developed them. Third, the influence of chaebols is toogreat, which prevents SMEs from growing into the of development the to obstacles are factors These corporations. large and medium-sized industry. Korean finding newgrowth engines, anew industrygroup thatwill lead the Korean economy has concern are usually boiled down to the following three not yet emerged. The reasons for this which is directly linked is deteriorating, the economy factors. First, the growth potential of is heavily economy Second, the Korean of industry competitiveness. to the deterioration dependent on a small number of industries, and it is failing to find a new industry to replace sector has increased, the need to nurture the service industry as a new growth engine has the service industry as a new growth engine has sector has increased, the need to nurture which on fostering the knowledge service industry, increased. The government has focused service industries in the service industry. includes most of the high value-added Specialized Parts and Materials was enacted in 2001, and the policy basis was turned into into turned was basis policy the and 2001, in enacted was Materials and Parts Specialized base. making a global supply industry alone. As the portion of the service which has limited the role of the manufacturing Nano-Synthesis Technology Development Project, and Fusion Technology Development Plan, Development Project, and Fusion Technology Technology Nano-Synthesis were pursued in earnest. on Supporting but the Special Act policy centered on IS and localization, parts and materials government focused on three areas: nurturing new technology industries, developing the the developing industries, nurturing new technology areas: on three focused government the service industry. and nurturing materials industry, parts and 070 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia However, in Korea, the “living-type service” (e.g., “distribution” and “personal service”) accounts for a considerable proportion, making it difficult to improve productivity.
3.2.5. Industrial Support System by Policy Purpose
There are several representative tools for industrial support. First, the export support system has been an important tool. The export support financial system is composed of 1) trade finance to facilitate the supply of working capital for export companies, 2) export payment finance, which is mid-to-long-term consumer financing for the export of capital goods, 3) an SME fund for SMEs’ capital equipment, and 4) an export guarantee system. The export support tax system includes the deduction of export loss reserves, deduction of overseas market exploration reserves, deduction of overseas business loss reserves, deduction of overseas business income, deduction of foreign tax, and exemption of corporate income tax from overseas resource development investment.
Second, the technology development support system has been effective. Support for technology development is divided into fiscal funds, bank financing, and direct government 071 financing. Fiscal funds provide favorable conditions for certain sectors in terms of interest CHAPTER rates and availability compared to general commercial loans. Financial funds include the
Industrial Development Fund, Science and Technology Promotion Fund, Information and 01 Charting Malaysia’s Industrial Policy for the Future Communication Promotion Fund, Local SME Upbringing Fund, SME Foundation Fund, and Environmental Pollution Prevention Fund. Technology development funds supported in the form of bank financing include technology development funds of the Industrial Bank, SME Bank, and Kookmin Bank.
Third, the support system for investment promotion and industrial rationalization has also played a key role. The financial support system for investment promotion and industrial rationalization is mainly composed of overseas borrowing funds, industrial bank funds, and fiscal funds. Tax subsidies for investment promotion include specific capital investment tax credits, investment tax credits for productivity enhancement facilities, the deduction of social overhead capital investment reserves, and the deduction of investment reserves for energy conservation facilities. Shortening the life span of investment facilities and raising the amortization rate were also effective. The tax support system for industrial restructuring includes the tax exemption for industrial rationalization, exemption of corporation transfer tax, exemption of transfer tax for SMEs, and exemption of income tax for dividend income.
Fourth, the SME support system has been actively used. Financial support for SMEs is largely divided into short-term working capital support, restructuring-related Industrial Policies of Malaysia and Korea in the Era Era in the Korea of Malaysia and Industrial Policies Industrial Revolution of the Fourth In the Industry4wrd framework, Malaysia envisions itself as a strategic partner for for partner as a strategic envisions itself Malaysia framework, Industry4wrd In the 4.1. Fourth Industrial Revolution and Malaysia’s Industry and Malaysia’s 4.1. Fourth Industrial Revolution the National Policy on Industry is paved by into a digital economy transition Malaysia’s private partnership (PPP), and Technology – fostering a seamless and accelerated adoption accelerated and seamless a fostering – Technology and (PPP), partnership private These competitiveness. manufacturing enhance to SMEs) among (especially 4.0 Industry of research. shift factors are expected to mitigate the problems stated in Section 2.2 of this increase absolute contribution from the manufacturing sector to the economy by RM 392b, RM by economy the to sector manufacturing the from contribution absolute increase Index, in Global Innovation 30 ranking achieve top capacity and 3) improve innovation in the manufacturing sector to 30%. Efforts to 4) increase share of high-skilled workers and retaining achieve these goals hinge on the following shift factors: People – upgrading public– encourage to environments and processes business improving – Processes talent, smart manufacturing and related services in the Asia Pacific. Malaysia positioned itself itself positioned Malaysia Pacific. Asia the in services related and manufacturing smart for provider solutions a total and industry high-tech for destination primary the as of its Specific goals are created to guide and measure the progress advanced technology. 30%, 2) 2025 are as follows: 1) labor productivity growth by targets by Key transformation. increase Malaysia’s attractiveness as a preferred manufacturing location, create the right right the create location, manufacturing a preferred as attractiveness Malaysia’s increase and align existing and future development ecosystem for Industry 4.0 to be adopted and an industry capabilities in both a holistic Malaysia’s initiatives, and transform manner. accelerated shift to higher value-added processes, digitization, advanced manufacturing technologies, digitization, advanced manufacturing technologies, shift to higher value-added processes, and efficient resource utilization to drive competitiveness forward.The policy directionis The A-C-T). (or transform and create, attract, philosophies: three important on anchored technologies and processes and further 4.0 to Industry stakeholders purpose is to attract 4.0 (Industry4wrd). The policy provides the action plan for the manufacturing sector to the action plan for the manufacturing sector to 4.0 (Industry4wrd). The policy provides compared to the financial support system. compared to the financial 4. support, and comprehensive support. The short-term working capital subsidy program program capital subsidy working support. The short-term and comprehensive support, an SME fund, the credit guarantee by SME support commercial bill discounts, includes for SMEs support system fund. The tax a deductible business fund, and entrepreneurship includes a number of support systems such as the tax reduction for startup SMEs. However, of SMEs, utilization is not high accounting capacity and tax information due to the lack of 072 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia The state of the Malaysian digital economy was documented by the World Bank (2018). Despite the fact that internet access has tripled (2010–2015), digital technologies have not yet made a commensurate impact on business practices. Malaysia has less international internet bandwidth, fewer businesses with websites, and fewer secure servers compared to OECD countries. In addition, much of the digital economy is dominated by large firms despite programs to encourage adoption and innovation by SMEs.
Malaysia faces both demand and supply challenges in implementing Industry 4.0.
Demand and Supply Side Challenges in Implementing Industry 4.0Demand side challenges Description
Lack of awareness on impact and need for Industry 4.0 among SMEs on 1. Awareness opportunities and business models
Difficulty meeting customers’ expectations on customization and efficiency in 2. Innovation delivery; intellectual property (IP) issues across GVCs
Low digital adoption and limited use of automation among SMEs; lack of Digital readiness and 3. integrated and digital approach to data gathering along manufacturing and connectivity supply chains 073 CHAPTER Shortage in skills, talent, and knowledge in areas such as robotics and artificial 4. Skill enhancement intelligence (AI); limited foresight on required future skills 01 5. High cost of investment High costs required for adoption with uncertain returns Charting Malaysia’s Industrial Policy for the Future
6. Best practices Lack of market intelligence on best practices
Supply side challenges Description
Limited coordination among stakeholders; no platform or mechanisms to 1. Governance coordinate collaborative programs
Existing but underutilized funds; inadequate amount allocated for STEM 2. Funding and incentives education; lack of financial support and incentives for Industry 4.0 technology development
Limited local players supplying Industry 4.0 technologies; inability to compete with international players in terms of pricing; limited collaboration between 3. Ecosystem support academia and industry; shortage of experts in industry; insufficient local capabilities and capacities in providing cybersecurity solutions
Mismatch between training programs and industry needs; problems in retaining 4. Training providers talent
Standards and digital Lack of governance of technology through standards and compliance for 5. integration interoperability and quality across value chains
Gaps in physical infrastructure such as high-speed broadband and training 6. Infrastructure locations
Source: Industry4wrd (2018). Industry 4.0. There is also a need to address the possibility of certain jobs becoming address the possibility of certain jobs becoming Industry 4.0. There is also a need to match requires ensure an employment–skills obsolete. The need to constantly significant information sharing between the government, and industry, the education system. adopting Industry 4.0. Mechanisms need to be in place to upgrade their processes and to be in place to upgrade adopting Industry 4.0. Mechanisms need and security and its analysis will enable the skills. The management of data integrity and provide regulatory support. programs government to chart effective assistance value chains. A digitalized and connected infrastructure across service providers, across service providers, infrastructure connected and value chains. A digitalized manufacturing firms, and government agencies is critical to accelerating the transition the value chains to regulatory processes such as to Industry 4.0, from the suppliers in of goods. clearance approvals, licensing, certification, and manufacturing technologies and processes. Incentives linked with certain outcomes with certain outcomes linked processes. Incentives and technologies manufacturing ensure progress and impact. will be provided to manufacturing and supply across connectivity ensure to required is connections, Skill and talent upgrading and reskilling will ensure an adequate pool of talent to drive Regulation is required to increase awareness among the SMEs of the cost benefits of Infrastructure Infrastructure that enables the Industry 4.0 ecosystem, such as fast and secure data Funding and outcome-based incentives encourage companies to adopt new Recently, the wave of the Fourth Industrial Revolution has changed the policy direction the wave of the Fourth Recently, 4.2. Korea’s Smart Industry Innovation Strategy Smart Industry Innovation 4.2. Korea’s Access to smart technologies and standards is the last enabler. The understanding of the last enabler. The understanding of to smart technologies and standards is Access • • • To address these challenges, strategic enablers are proposed to facilitate the facilitate the proposed to enablers are strategic these challenges, address To • of the Korean government. Fundamental changes have occurred in production processes government. Fundamental changes have occurred in production processes of the Korean example, For weakened. has firms IT and firms manufacturing between boundary the as for interoperability, quality, and safety are crucial to support processes across the value value the across processes support to crucial are safety and quality, interoperability, for chains, optimize resources, and enhance productivity. and access to advanced Industry 4.0 technologies are the keys to unlocking the potential of potential the unlocking to keys the are technologies 4.0 Industry advanced to access and knowledge enables PPPs through labs digital/technology of establishment The 4.0. Industry The governance of technology through standards and compliance dissemination to industry. implementation of the Industry4wrd action plans. They are funding, infrastructure, infrastructure, funding, are They plans. action Industry4wrd the of implementation F.I.R.S.T). and technology (or skills and talent, regulations, 074 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Siemens stepped into a new business by establishing a digital factory. Global companies have innovated production processes by incorporating smart technologies, such as sensors, big data, and robotics.
“Time to market” has become the key competition factor. As a result, it is very important to secure the core competences of speedy business restructuring, early new product development, efficient prototype production, and optimal production systems. Economies of scope, rather than economies of scale, have become more important. The production method has changed from a mass production system to a flexible, customized production system. Soft power competition has become more important than price or quality competition. New types of startups are possible due to 3D printing and online distribution. In 2012, Industry 4.0 of Germany stimulated the adoption of smart factories. The Internet of Things (IoT)-based cyber physical system (CPS) platform has become the core element of the smart factory.
The Korean government announced Industry Innovation Strategy 3.0 in 2015. The three strategies for industry innovation are the 1) creation of a new fusion-type manufacturing sector, 2) enhancement of key base industries’ core competences, and 3) advancement 075 of manufacturing innovation infrastructure. However, deregulation is vital to promote CHAPTER the new promising sectors, such as bio-industry, share economy, and big data. It is very 01 hard to resolve the conflicts among interest groups in new areas. The Korean government Charting Malaysia’s Industrial Policy for the Future recognized the importance of new sectors and tried to adopt a negative system in these areas. The current Korean government slightly modified Industry Innovation Strategy 3.0 and announced Smart Industry Innovation Vision 2025 in 2017 and Smart Manufacturing Innovation Strategy for SMEs in 2018. It is necessary to get insight from Korea’s new smart industrial policy because Malaysia also actively started digitization.
Smart Industry Innovation Vision 2025 focuses on the manufacturing sector. The acceleration of destructive technologies and connectedness through AI and IoT will change the world. The production pattern will change from producer-driven mass production to consumer-driven multi-products and a flexible production system. As IoT and robots become connected with AI, destructive technologies will replace previous ones. New products and services will be created quickly, and border destruction among industries will be accelerated. In order to respond quickly to rapidly changing consumer demands, it is essential to switch to a customized flexible production system by adopting smart factories. 5,000(2017)). During this 5,000(2017)). During this → 2,800(2016) → 1,240(2015) → Base industries of smart factories have established a foundation for growth through through growth for foundation a established have factories smart of industries Base With the government-driven smart factory promotion policy, the deployment and and the deployment factory promotion policy, With the government-driven smart The Korean government is trying to catch up with the global trend of smart factories. The government is trying to catch up with The Korean 4.2.1. Importance of Smart Factories in the Fourth Industrial Revolution Industrial Factories in the Fourth of Smart 4.2.1. Importance all integrating by itself control can that factory intelligent an is factory smart A (e.g., SW, controllers, sensors, and robots) has rapidly increased. After the Smart Factory Factory Smart the After increased. rapidly has robots) and sensors, controllers, SW, (e.g., were constructed Suppliers’ Association was established in 2016, prototype smart factories and joint ventures for technology development between large firms and SMEs were made. decrease in defect rate, 16% decrease in cost, 35% decrease in delivery time. decrease in defect rate, smart KRW 300b the promoted government Korean the 2014–2016, During creation. market of smart factories factory expansion project. As a result, demand for the basic products upgrading of smart factories can actively proceed. By 2017, 5,000 smart factories (cumulative) 2017, By of smart factories can actively proceed. upgrading of SMEs were built (277(2014) 46% productivity, period, built-in performance results were as follows: 23% increase in competitiveness, is emphasized. The third trend is the changes of the professional workforce.competitiveness, is emphasized. The third IT and manufacturing of skills combined have who workers professional for demand The creative and flexible with experts, workers increased. Rather than technical has rapidly talent are needed. first trend is the deployment and upgrading of smart factories, which are moving from the second trend is the expansion of a common standard basic level to the advanced level. The individual than rather connectedness, of Competitiveness infrastructure. basic a as platform improvement through smart factories will offset the labor cost advantage of developing developing of advantage the labor cost will offset factories smart improvement through with compete to Korea for possible be will it expand, factories smart As countries. of and Energy (MOTIE) Industry, Ministry of Trade, developing countries such as China. The since 2014 so that SMEs can actively adapt has been promoting smart factory policies Korea Industrial Revolution. to the Fourth product planning and design, manufacturing, and distribution through IT, which allows it to which through IT, design, manufacturing, and distribution product planning and time. SMEs will need to establish products while minimizing costs and produce customized production of management integrated The future. near the in survive to factories smart productivity increase will data big and IoT on based logistics and services, processes, profit). In addition, productivity performance (e.g., sales and and improve management manufacturing and production processes with a digital automation solution to improve improve solution to a digital automation processes with and production manufacturing of processes the integrates factory smart The satisfaction. customer and quality, productivity, 076 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia The government also established a workforce training system to fortify the foundation for smart factories. The Korean government spread awareness about the necessity of smart factories through the “Smart Factory Academy.”
shows a short history of smart factories in Korea. Smart Factory History of KoreaDate Policies and Objectives
Government declared it would launch smart factory policies to promote innovation of small- and 2014. 6 medium-sized manufacturers
2014. 8 Korea Smart Factory Foundation (KOSF) designed Smart Factory Maturity Model defined by five levels
2014.10 KOSF launched pilot project providing smart factory systems for SMEs
Government analyzed pilot project and declared smart factory objective: by 2020, 10,000 SMEs will 2015. 3 have smart factories. Launched regular project providing smart factory systems for SMEs
Started to build demo factory with role of testbed for interoperability and interchangeability, 2015. 5 supporting to make solutions of supplies, pilot projects
Established first smart factory national standard, KSX-9001, 2016. 6 which included concepts, definitions, and vocabulary related to smart factories 077 2017. 4 Opened graduate school program and launched graduate school at three universities CHAPTER
2017. 5 Developed smart factory level measuring and status diagnosis program
2017.11 Government changed smart factory objective: by 2022, 20,000 SMEs will have smart factories 01 Charting Malaysia’s Industrial Policy for the Future 2017. 12 Provided over 5,000 SMEs with smart factory systems
Developed comprehensive smart factory policies, from fostering supply industries to satisfying 2018. 10 demand of manufacturers
Source: Bae (2019).
The KOSF designed the Smart Factory Maturity Model so that SMEs could easily diagnose their own status and take a systematic approach. The MOTIE and KOSF decided to develop a smart factory Software as a Service (SaaS) standard to increase the deployment of smart factories and enhance the competitiveness of the domestic cloud industry.
None products aggregation of 3M Decision-making making, and optimal control Definition of Operation and of Operation Definition Decision-making using real-time Decision-making using real-time 4M+1E real-time control automation, 4M+1E real-time control Real-time aggregation of 4M, decision- Real-time aggregation of one lot production of customized smart one lot production of customized Lot tracking and management of materials Lot tracking - Degree Real-time Real-time aggregation aggregation Automation Automation Real-time control Real-time control IoT Elements None Factor Methods 1M: Materials 4M+1E: Man, Machinery, 4M+1E: Man, Machinery, 3M: Man, Machinery, Materials 3M: Man, Machinery, 4M: Man, Machinery, Materials, Materials, 4M: Man, Machinery, Materials, Methods, Environment KOSF. Basic Smart Level ICT not Middle 1 Middle 2 4.2.2. Outline and Tasks of Smart Industry Innovation Vision 2025 of Smart Industry Innovation 4.2.2. Outline and Tasks all [Figure integrating that can control itself by A smart factory is an intelligent factory developed incentives to increase the participation of SMEs in the value chain. incentives to increase the participation construction of smart factories by the private sector, the Korean government introduced government introduced Korean the sector, private the by smart factories of construction that voluntarily constructed smart factories. a new certification system for companies lending institutions factory guarantee increasing smart Financial support is provided by voluntary smart factory construction. In addition, to alleviate the burden of companies’ providing R&D SMEs are strengthened by and the linkages between large corporations 1-6] shows the outline of Smart Industry Innovation Vision 2025, which consists of six Innovation Vision 2025, which consists of six 1-6] shows the outline of Smart Industry tasks. The first task is to build 30,000 smart factoriesby 2015. In order to induce voluntary Source: Source:
Levels of Smart Factories of 1-11> Levels Promotion of manufacturing innovation of SMEs Visions Securing competitiveness of base industries
Smart Factory 2017 2025
Goals Diffusion 5,000 companies 3,000 companies
Professional 8,500 persons 40,000 persons workforce
Supporting diffusion and upgrading
Building 30,000 smart factories by 2015 Promotion of smart factory enhancement 079 Strengthening competitiveness of base industries CHAPTER
Strategies & Tasks Securing base technology capabilities of smart factories 01 Market creation through diffusion of smart factories Charting Malaysia’s Industrial Policy for the Future Building alliances for overseas market entry
Securing expertise of smart factories
Fostering creative and IT-skilled workforce
Source: Smart Industry Innovation Vision 2025 (2017).
The second task is to promote the advancement of smart factories. The government will support the upgrading of SMEs’ factories by expanding representative benchmarking plants and by providing customized consulting for SMEs. For this purpose, leading model smart factories will be increased from 45 to 1,500 by 2025. In order to make various types of prototype smart factories by industry, the limit of financial support per factory will be increased from KRW 50m to KRW 200m. High-quality coordinators will provide comprehensive consulting for upgrading smart factories, and education for capacity building will be provided. By 2025, the Korean government plans to increase the number (share) of upper-middle smart factories from 45 (1.6%) to 1,500 (5%). 2025 1,500 (5%) 7,500 (25%) 21,000 (70%) 2016 45 (1.6%) 510 (18.2%) 2,245 (80.2%) Basic Middle 1 Middle 2 and above Middle 2 and Smart Factory Level Smart Factory Smart Industry Innovation Vision 2025 (2017). Smart Industry Innovation Numbers in parentheses denote shares. Numbers in parentheses The sixth task is to foster a creative and IT-skilled workforce. The Korean government government The sixth task is to foster a creative and IT-skilled workforce. The Korean The fifth task is to build alliances for overseas market The entry. government promotes The fourth task is to create a base industry market through the deployment of smart smart of deployment the through market industry base a create to is task fourth The The third task is to secure the base technology capabilities of smart factories. The Korean Korean smart factories. The base technology capabilities of to secure the is task third The Note: entering the Vietnam sewing industry, could be benchmark cases. entering the Vietnam sewing industry, create a to will cultivate 40,000 people with creative talent through customized training the overseas expansion of large-, medium-, and small-scale companies through “smart through “smart the overseas expansion of large-, medium-, and small-scale companies and experience. competitiveness have global Leading group companies factory alliances.” it is very hard Even though small but strong group companies have advanced technologies, for them to enter the foreign market due to legacy effects. Hence, the alliance of these two groups could have positive effects.For example, smart factory flagship businesses, suchas the price competitiveness of domestic companies, as is diversification of supply models. The various types of smart spreading by of the new market government will support the creation models. and individual construction smart factory factory models, such as cloud, clean energy, factories. The Korean government expects to create a KRW 2.5t base industry market during during market 2.5t base industry a KRW government expects to create factories. The Korean government recommends The Korean of smart factories. 2018–2025 through the deployment the with interoperate can that model package domestic a of utilization and development the Different packages will be recommended based on the standard platform (package model). support to order in recommended strongly is also purchase Joint factories. smart of levels companies. Domestic companies can use testbeds to check the compatibility of joint R&D use testbeds to check the compatibility of joint R&D companies. Domestic companies can products. and connectivity with global corporate achievements with international standards such as big data, CPS, smart factory sensors, and collaborative robots. By the year 2020, a a 2020, year the By robots. collaborative and sensors, factory smart CPS, data, big as such Connectivity R&D. technology base factory smart in invested be will 215.4b KRW of total test bed). (R&D, using demo factories by improved needs to be also competitiveness in order to strengthen connectivity R&D (R&D membership) will be increased Collaborative large and small that are jointly hosted by introducing the membership of demo factories by Source: Source: can do well, which Korea on R&D and testbeds in areas in government will concentrate
Target of Advancement of Smart Factories of Advancement 1-12> Target 4.2.3. Smart Manufacturing Innovation Strategy of SMEs
The global smart factory demand market is expected to grow at a compounded average growth rate (CAGR) of 8% until 2020. The equipment and ICT markets, which constitute the smart factory supply market, are expected to grow by an annual average of 7.8% and 8.1%, respectively.
In December 2018, the Korean government announced the Smart Manufacturing Innovation Strategy of SMEs. It will increase the manufacturing power of SMEs by 081 promoting smart innovation through “factory innovation,” “industrial cluster innovation,” CHAPTER and “workplace innovation.” The government announced that 30,000 smart factories would be built by 2022 and that KRW 1.2t would be allocated for this purpose. The vision of the 01 Charting Malaysia’s Industrial Policy for the Future Smart Manufacturing Innovation Strategy of SMEs is to realize a manufacturing powerhouse of SMEs through smart manufacturing innovation. The goals are to secure the world’s best factory competitiveness through factory innovation, to establish a manufacturing innovation base through industrial innovation, and to establish a permanent innovation system centered on the private sector and the region through the creation of a central workplace culture and innovation base.
Right after the announcement of the government’s manufacturing innovation strategy, Samsung Electronics announced that it would establish a “Smart Factory Support Center.” Samsung Electronics has extended the project for the construction of smart factories for SMEs to five years (2018–2022). In order to secure the self-sustaining power of SMEs in the era of the Fourth Industrial Revolution, Samsung Electronics will provide comprehensive support for securing human resources and technologies. Samsung Electronics, together with the Ministry of SMEs and Startups, will spend KRW 100b over the next five years in order to increase the number of SMEs with smart factories to 2,500.
Currently, Korea is focused on the diffusion of smart factories, so the development of smart factory-related equipment, software, platforms, and solutions is not enough. The lift to 2017). upstream aims May 24 that News, value-added program a Retail - higher in (ETP) (Malaysia Program particularly (NKEA) chain, Areas value Transformation the Economic Key across Economic the National 12 and capabilities E&E living, through and coordinating its implementation. The implementation and coordinating its implementation. of 26 cost 2020 Malaysia’s by the status addressing “strengthening to the high-income to NKEA corruption 12 country the Applicability of the Korean Experience of the Korean Applicability The practice of The medium-term practice economic planning (five-year plan) has been initiated since Malaysia introduced the Performance Management Delivery Unit (PEMANDU) (PEMANDU) Unit Delivery Management Performance the introduced Malaysia 5.1. Policy Coherence and Coordination of Malaysia and Coordination 5.1. Policy Coherence and coherence policy is policies industrial of factors important most the of One Transformation Program (GTP) - a program by the Government to address seven key areas concerning the people, ranging from from concerning the people, ranging areas key seven to address the Government by (GTP) - a program Program Transformation fighting the Of in this study. activities” is of interest Stemming from the National Transformation Policy 2011 – 2020, the National Transformation Program comprises the Government the Government comprises Program Policy 2011 – 2020, the National Transformation the National Transformation Stemming from
26 shows the current coordination process and mechanisms for planning and monitoring. shows the current coordination process and mechanisms for planning and matching specific the first MP in 1956–1960. The medium-term economic planning is done by development plans with the development budget (capital spending). (KPI), PEMANDU monitors the KPI of entry point projects (EPP) such as growing automation (KPI), PEMANDU monitors the KPI of PEMANDU was disestablished (2010) for the full list). (see ETP equipment manufacturing Delivery Unit (CDSU) taking over its role prior to as of March 1, 2017, with the Civil Service as CDSU is no longer operational, election, the election. Post-2018 general the 2018 general coordination. [Figure 1-7] administrative the new government pursues a new form of MDA Transformation Program (NTP) Program Transformation with PEMANDU and agencies (MDAs) ministries, departments, of the NTP is executed by bottlenecks. Using extensive consultative monitoring, and removing assisting in tracking, performance index and regular monitoring of key activities (through their signature “labs”) Korea’s rapid growth period. For the successful implementation of industrial policies, we the successful implementation of industrial policies, we growth period. For rapid Korea’s process and the coordination mechanism. need to understand the decision-making with the task of developing the National Department in 2009 within the Prime Minister’s coordination. Strong leadership and solid governance played very important roles during during roles important very played governance and solid leadership Strong coordination. and types of supporting projects by the ministries. However, it is also necessary to unify the step. step by to promote the integration supporting systems 5. government government needs to propose a long-term vision for smart manufacturing rather than offer and systems factory solutions smart Korean to develop and it is necessary blind support, SMEs. by used easily be can they that so environment manufacturing Korean the for suitable of based on the demand smart factories policies to support important to design It is very of the smart manufacturing stages to clearly divide the targets companies. It is necessary 082 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia At the current juncture (see Figure 1-7), the process begins at the Ministry of Economic Affairs (MEA) (formerly known as the Economic Planning Unit). The MEA will issue a circular to all MDAs to outline the broad macroeconomic growth targets. This will inform MDAs that the preparations for the five-year MP have been initiated. Federal ministries are required to submit their strategic planning and policy statements, which are valid for the next five years. For economic sectors, specific policy levers and targeted sectors are usually identified.
[Figure 1-7] Process and Mechanism for Planning, Development, and Monitoring
PARLIAMENT
Planning Hierarchy Monitoring Hierarchy Cabinet
Policy Economic National National Action Development Council Draft Action Council 083 Council CHAPTER
National Development National Action Planning Committee Working Committee 01 Charting Malaysia’s Industrial Policy for the Future
Draft Policy Evaluation Report Recommendation
Draft Ministry of Economic Affairs Implementation Coordination Unit, Policy Prime Minister’s Department
Draft Feedback
Inter-Agency Planning Group (IAPG) Evaluation Report Recommendation
Proposal General Framework
Ministry & Federal Agency Ministry & Development Action Committee
Circular State Government Federal Territory/State’s Action Committee Proposal
Circular District/Division’s Private Sector & NGO Proposal Action Working Committee
Source: Interview with MEA. Malaysia’s latest industrialization endeavor in 2018 is called Industry4ward. The The latest industrialization endeavor in 2018 is called Industry4ward. Malaysia’s Once the five-year development is approved, an Implementation Coordination Unit (ICU) Upon the NDPC’s approval, the plan is then tabled at the National Development Council approval, the plan is then tabled at the National Upon the NDPC’s After incorporating inputs from various MDAs, policy plans that are finalized at the at the policy plans that are finalized from various MDAs, inputs After incorporating Upon issuing the circular, the respective division(s) within the MEA will call for an Inter- will call for an within the MEA respective division(s) the circular, the Upon issuing chaired by the secretary-general of MITI, which will oversee various technical working technical working of MITI, which will oversee various secretary-general the chaired by enablers of the plan, activities based on the strategic groups to coordinate all stakeholder F.I.R.S.T). regulations, skills and talent, and technology (or namely funding, infrastructure, are as follows: The assigned MDAs Revolution.” Facilitating Malaysia’s Industry 4.0 transformation will require a combined will require a combined Industry 4.0 transformation Malaysia’s Revolution.” Facilitating academic facilities, and research industries, agencies, ministries and many across effort which Council, Industry4WRD institutes. The MITI will oversee and manage the Malaysia the is chaired by consists of members from the government and industrial sector and Minister of International Trade and There Industry. will also be a High-Level Taskforce policy. Industrial of the “Fourth development in the wake industrial policy addresses Malaysia’s under the Prime Minister’s Department will help the MEA monitor its implementation. help the MEA monitor its implementation. Department will under the Prime Minister’s The projects are financed under the development budget. The distribution of development to ensure projects are aligned to the the MEA for new projects budget is also handled by five-year medium-term plan. being further introduced in the Cabinet. the prime minister) before (a committee chaired by be tabled in the Parliament. the Cabinet, the plan will then Once approved by MEA level will be tabled in the National Development Planning Committee (NDPC), which Planning Committee (NDPC), which tabled in the National Development MEA level will be plan the of Approval ministries. federal all from secretaries-general all of comprised is the to secretary chief the by be chaired also will The meeting level. at this is required of top which is comprised Council, Action government. The recently formed Economic the to applicable where input provide also will captains, industry and ministers economic International Trade and Industry (MITI), along with affiliated agencies such as the Malaysia and and Small Corporation, Productivity Malaysia Authority, Development Industrial Corporation. Medium Development Agency Planning Group (IAPG) meeting to coordinate the policy planning process. The IAPG policy planning process. to coordinate the (IAPG) meeting Planning Group Agency for agencies responsible ministries and the MEA but involve are convened at meetings different sectors. The IAPG meeting is made up of differentMDA For members. example, for inviting the Ministry of meetings by sector, the MEA will host the industrial development 084 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia
Strategic Enablers of the Plan (F.I.R.S.T) Ⅰ Strategic Enablers MDAsF Funding Ministry of Finance (MOF)
• Strategy F1 MOF; MITI
• Strategy F2 Economic Planning Unit, MEA; Bank Negara Malaysia; Securities Commission Malaysia
I Infrastructure Ministry of Communications and Multimedia (KKMM)
• Strategy I1 KKMM
MITI; Malaysian Administrative Modernization and Management Planning Unit • Strategy I2 (MAMPU)
• Strategy I3 MITI; Malaysia Digital Economy Corporation (MDEC)
R Regulations MITI
• Strategy R1 MITI
• Strategy R2 MITI
MITI; MAMPU; Cybersecurity Malaysia; Malaysian Communications and Multimedia • Strategy R3 Commission (MCMC) 085
S Skills and Talent Ministry of Human Resources (MOHR); Ministry of Education (MOE) CHAPTER
• Strategy S1 MOHR; MOE 01
• Strategy S2 MOHR; MOE Charting Malaysia’s Industrial Policy for the Future
T Technology MESTECC
• Strategy T1 MESTECC; MOF; MITI
• Strategy T2 MESTECC; MOF; MITI
• Strategy T3 MESTECC; MOF; MITI; MOE
Source: Industry4wrd (2018). Ⅱ 4.0 programs. Descriptions Descriptions Descriptions Descriptions Descriptions priority sectors. transfer of knowledge. transfer technologies and processes. work in the Industry 4.0 environment. supply and manufacturing value chains. supply and manufacturing manufacturing and Industry 4.0 technologies. business processes among manufacturing firms. adoption of, Industry 4.0 technologies and processes. Industry 4.0 technologies adoption of, SMEs, assess and develop their Industry 4.0 capabilities. implement technologies, processes, and skills development. implement technologies, remove connectivity bottlenecks in adopting Industry 4.0 technologies. remove connectivity bottlenecks Establish and implement standards for interoperability, quality, and safety for smart quality, Establish and implement standards for interoperability, Establish digital/technology labs and collaborative platforms, especially PPPs, to create Establish digital/technology labs and collaborative ufacturing firms to help for Industry 4.0 and link them to manufacturing firms to help Involve service providers awareness and understanding, foster the adoption of new technologies, and facilitate the awareness and understanding, foster the adoption and activities in specific Industry 4.0 technologies and processes that support and advance specially designed for specific manufacturing sectors and support reskilling and upskilling. specially designed for specific manufacturing sectors Improve data integrity, standards, sharing, and security to facilitate seamless integration of standards, sharing, and security to facilitate seamless integration Improve data integrity, Ensure the availability of future talent by equipping students with the necessary skillsets to Ensure the availability of future talent by Intensify Research, Innovation, Commercialization, and Entrepreneurship (RICE) programs Intensify Research, Innovation, Commercialization, and Entrepreneurship (RICE) programs Enhance the capabilities of the existing workforce through national development programs through national development programs Enhance the capabilities of the existing workforce Increase awareness of the need, benefits, and opportunities of Industry 4.0 technologies and Increase awareness of the need, benefits, and opportunities Enhance the digitalization and integration of government processes and infrastructure along government processes and infrastructure of and integration Enhance the digitalization manufacturing value chains and support intra-ministerial coordination for effective Industry manufacturing value chains and support intra-ministerial Strengthen the digital connectivity in and between industrial, education, and training hubs to hubs to and training in and between industrial, education, Strengthen the digital connectivity Provide outcome-based incentives, including tax incentives, to encourage investments in, and investments to encourage tax incentives, incentives, including Provide outcome-based Create a platform and mechanism to help manufacturing and related services firms, especiallyCreate a platform and mechanism to help manufacturing Introduce dynamic and innovative financial products to encourage the adoption of Industry 4.0 financial products to encourage Introduce dynamic and innovative Industry4wrd (2018). Industry4wrd Funding Strategy I3 Strategy Strategy I1 Strategy I2 Strategy Strategy S1 Strategy S2 Strategy Strategy F1 Strategy F2 Strategy Strategy T3 Strategy Strategy T1 Strategy T2 Strategy Strategy R2 Strategy R3 Strategy Strategy R1 Strategy Technology Regulations It is not easy to apply the experience of Korea to Malaysia because the current global because the current global to Malaysia It is not easy to apply the experience of Korea 5.2. Applicability of the Korean Experience 5.2. Applicability of the Korean Infrastructure Skills and Talent environment is completely different from that of the 1970s. In addition, their political their political environment is completely different from that of the 1970s. In addition, situations, ethnic compositions, and historical experiences are very different. However, as Source: Source:
Strategic Enablers of the Plan (F.I.R.S.T) (F.I.R.S.T) Enablers of the Plan 1-14> Strategic The role of government and the success factors of Korea’s industrial policies are comprehensively analyzed in Kim (2019). The reform of the exchange rate system (i.e., the adoption of the unitary exchange rate system and the drastic devaluation of currency) and stable macroeconomic management played important roles in export promotion. Along with the exchange rate reform, the tariff exemptions of intermediate inputs and the export credit were very effective. Monitoring and communication were also emphasized. According to Kim (2019, p.108), “The government established a governance system for export promotion. It started the monthly export promotion meeting, in which the president and other participants monitored the progress toward the annual export targets, examined the issues, and decided on the necessary steps to meet the targets. The meeting enabled communication among stakeholders, including political leaders, bureaucrats, and market players. Most of all, the meeting increased public attention to the importance of export activities and allowed 087 all parties to share the perception on current economic situations and policy issues. While CHAPTER detailed policy measures changed over time, the export-led growth strategy continued until 01
the 1980s.” Charting Malaysia’s Industrial Policy for the Future
There are debates on the effects of government intervention for industrial development. However, Kim (2019, p.111) argues, “Industrial policy may play a role as a catalyst to complement the market. Private enterprises and the market would lead industrial development, but government could assist them by performing a coordinating role in public resource allocation, providing institutional arrangement, and maintaining macroeconomic stability. From this perspective, the important point is not what government does for industrial promotion but how it performs its task.” This is consistent with the argument of Rodrick (2004): “The analysis of industrial policy needs to focus not on the policy outcomes but on getting the policy process right.”
Kim (2019) regarded the following five points as the success factors of Korea’s industrial policy: 1) demand-driven approach to export promotion, 2) monitoring and feedback mechanism, 3) capacity of the Korean government for effective policy implementation, 4) industrial policies free from political considerations, and 5) reliance on private sector initiatives. These five factors seem to be applicable to Malaysia. Kim (2019, p.112–114). Fourth, Korea’s Fourth, industrial Korea’s policy was relatively unaffectedby political considerations. Economic sector initiatives to the greatest extent government relied on private the Korean Finally, Third, the Korean government had the capacity for effectivepolicy implementation. TheKorean Second, the government made serious efforts to monitor policy outcomes and feed the policy outcomes and feed the made serious efforts to monitor Second, the government First, the demand-driven approach to export promotion proceeded in a non-discriminatory way. way. proceeded in a non-discriminatory to export promotion approach First, the demand-driven to accumulate their productive capability and sharpen their competitive edge in the global market. to accumulate their productive capability and sharpen their competitive edge in the and the importance of motivating them with the right incentives. The strong incentive system with the right incentives. The strong incentive system and the importance of motivating them to enhance their productive and innovative exerted continuous pressure on private enterprises economic growth. In discussing the role of government, capabilities, which was the main engine of government did to promote industrial development and a list of what the Korean we usually make industrialistsfail to mention the underlying incentive system that continuously motivated domestic efficiency rather than regional balance was a more important criterion in policymaking. rather than regional efficiency potential of private enterprises understood the and policymakers top leadership possible. Korea’s government sent a coherent signal to the market and increased the market players’ compliance compliance players’ and increased the market market government sent a coherent signal to the incentives provide to funding the secure to able was government The policies. government with significant enough to make differences in market perceptions and consistent with the incentives of needed for legal and organizational frameworks firms and other related policies. It also established policy implementation. automatically in proportion to the firm’s export performance. Export promotion thus provided promotion thus provided export performance. Export to the firm’s automatically in proportion the signal to encourage market rewards, and these rewards amplified the performance-based based and was both market The non-selective incentive system growth of good performers. friendly industrial development could be called market Korea’s performance based. This is why and aggressively pushed firms toward export activities. even though the government set out targets results into the policy process. Based on the export targets, action plans were drawn up for the for the up plans were drawn process. Based on the export targets, action results into the policy and progress the monitored meeting monthly the Then, sector. private the and government prescribed remedies for any problems identified during themeeting. Export incentives were given It required banks to extend export credit automatically to all types of producers who could prove who could prove to all types of producers credit automatically banks to extend export It required products. This contributed to the that there was a demand for their export with letters of credit expansion of domestic industrial capacity. rapid Source: Source: Five Success Factors of Korea’s Industrial Policy of Korea’s Success Factors 1-1> Five Key Elements of Effective and Successful Industrial Policy
Elements Descriptions
1) Industrial - Strengthening the local firms’ industrial linkages to MNCs or to the global market should be capability a main goal of industrial policy. building of local - Steps should be taken to identify main obstacles local firms face and to help them overcome firms them.
- To take better account of demand conditions, it is critical for the government to maintain 2) Emphasis on close communication with market players. demand side - It is equally important to get accurate information on the economy, industries, and firms.
3) Coherence with - Industrial policy should be made coherent with macro-level policies. macro-level - It is important to tackle currency overvaluation and the inefficiency of SOEs before policies introducing industrial policy.
- Policy implementation should maintain consistency over a long period so that it can give a 4) Consistent clear signal to firms. and budget- - Firms’ compliance to policy is critical in ensuring policy effectiveness. supported policy - Policy implementation should also be based not only on strategies and action plans but also implementation on concrete measures and supporting budgets.
- The incentives given to market players should be performance based and able to amplify the 5) Performance- market signal, as was the case in Korea’s export incentives. based incentives - It is critical to institutionalize a transparent process to select the recipients and distribute the incentives to minimize room for corruption and political influence. 089
6) Strong - Policy implementation should be continuously monitored by a central authority. CHAPTER monitoring - The control tower should be given the authority for inter-ministerial coordination and have system the capacity to intermediate different interests of stakeholders. 01
Source: Summarized by Author from Kim (2019) p.116–117. Charting Malaysia’s Industrial Policy for the Future
shows the strengths, weaknesses, opportunities, and threats (SWOT) analysis of the Malaysian economy. Despite the relatively good infrastructure and master plans, the implementation (including monitoring) process needs to be improved. Threats Weaknesses Low domestic value added Low domestic on low-skilled foreign workers Dependence monitoring for export No clear targets and performance drain – mismatched, brain Talent innovation Low R&D, resources Inefficient allocation of Increasing re-export management Inefficient industrial complex sharing among agencies Limited data gathering & ASEAN neighbors Regional competition from adoption Lack of high-technology Overdependence on FDIs champions Lack of indigenous homegrown Risk of prolonged middle-income trap ------Strengths Opportunities Author. However, the success factors of Korea’s industrial policy are still relevant to Malaysia. In addition, the large-scale industrialization projects of Korea in the 1970s are not not are 1970s in the Korea of projects industrialization large-scale the addition, In The other difference is the political economy of ethnicity. The Korean government government The Korean of ethnicity. economy The other difference is the political There are two major differencesKorea between and The Malaysia. first is the differences technology, knowledge technology, Asian Nations (ASEAN) diversified Positive spillover from FDIs into domestic firms – Positive spillover from FDIs – Association of Southeast to regional market Access (e.g., halal, Islamic financing) Niche markets Industry4wrd FDI friendly, open economy open economy FDI friendly, Good infrastructure Political stability Good master plans & blueprints development Experience in industrial agreements (FTAs) partners – free trade Good trade Resource & non-resource based economy – based economy Resource & non-resource Location – strategic disasters (e.g., earthquakes) No severe natural ------In particular, strong coordination and planning mechanisms need to be explored. The way way need to be explored. The mechanisms planning and coordination particular, strong In those and implemented process) such decisions (decision-making made Korea which in decisions is still informative for Malaysia. recommended for Malaysia. As explained in Section 3, despite the success of the heavy and heavy the of success the despite 3, Section in explained As Malaysia. for recommended chemical industries, they created chronic and structural problems, such as inefficiencies of of economic power. the financial sector and the concentration affirmative action in employment in order to ensureregionally balancedgrowth. However, it does not regulate private ownership and property rights. These two differences need to be to Malaysia. of Korea considered when we apply the experience problems similar to those of resource-rich countries that have tended to select strategic strategic select to tended have that countries resource-rich of those to similar problems such as the availability of cheap inputs. industries based on supply side considerations, uses for sustainable growth. Korea vehicle a as has also emphasized “inclusive growth” in resources. Petroleum products and palm oil account for a substantial portion of the the of portion substantial a for account oil palm and products Petroleum resources. in resource-based of portion increasing the 2, Section in explained As economy. Malaysian has process is not smooth. Malaysia upgrading industries indicates that the industry Source: Source: SWOT Analysis of Malaysian Economy of Malaysian Analysis 1-16> SWOT Since Malaysia is eager to promote the IT industry, one of the key questions is what kinds of policies were effective during the transition period. Instead of directly allocating resources, the Korean government tried to enhance human capital and support R&D in the IT industry. Recently, the wave of the Fourth Industrial Revolution has changed the policy direction of the Korean government. In order to determine the applicability, Korea’s smart industry innovation strategy will be more carefully reviewed by considering the capacity of Malaysia.
6. Conclusion 091 CHAPTER
Malaysia can take the following implications from Korea’s experience. First, it is 01
necessary to reconsider whether the selection of leading industries is appropriate. Among Charting Malaysia’s Industrial Policy for the Future the 3+2 leading sectors, three main sectors (E&E, chemicals, M&E) are appropriate when we consider the share of each industry, the industry linkage effects (forward and backward), and the factor availability. However, aerospace and medical devices are selected based on other criteria, such as potential growth and higher value-added activities. Despite these future-oriented criteria, it is not clear whether these two industries can become leading industries in the future because the scope is too narrow (i.e., main products/services include medical rubber gloves, airplane maintenance and repair) and the growth potential is uncertain. The selection of leading industries could have a large impact on resource allocation. The experience of Korea in the 1970s suggests that government-led selection of a specific industry could result in market distortions. At this point, what is needed in Malaysia is not the selection of leading industries. Rather, it is necessary to create favorable conditions for private sector investment. Industrial upgrading within the prominent sectors is more important. Instead of direct control, it can be indirectly achieved by providing the core infrastructures, such as information communication networks. It is necessary to refer to the fact that Korea’s industrial policy has progressed in that direction since the 1980s.
Second, in order to determine future growth engines, we must fully consider the paradigm shift brought by the Fourth Industrial Revolution. Restructuring of industries Fourth, Malaysia has established numerous economic development strategies including including has established numerous economic development strategies Malaysia Fourth, Third, the growth strategy of the Industrial Fourth Revolution era may be different from because they do not know how to achieve success but because the plans are not properly are not properly because they do not know how to achieve success but because the plans solve this problem, it is necessary to make equipped with fulfillment mechanisms. To leader a top political a strong policy coordination mechanism. As in the case of Korea, case) needs to hold regular meetings with stakeholders (the prime minister in Malaysia’s pace. These plans list the ideal goals. Most of the plans are aiming at the most industrial policy. modern and advanced fields. The problem is that these plansare not performing well, not improvement for leading nations, given their extensive experiences with older technologies. improvement for leading nations, given however, the new technique allows them to use their Lagging nations have less experience; more productive than the old, If the new technique proves lower wages to enter the market. this possible. In data and platform utilization make leapfrogging of leadership occurs.” Big there Malaysia, is new growth potential in this field, as digitization is being driven atrapid a “A new technology may well seem initially inferior to older methods to those who have who have well seem initially inferior to older methods to those new technology may “A extensive experiences with those older methods. However, that initially inferior technology technological When adaptation. and improvement for potential more have well may the source of its own downfall. this form, economic leadership will tend to be progress takes to be an seem initially not does it occurs, innovation radical a when consequence, In mobile mobile payment using quick response (QR) codes on smartphones after 2013. However, might work in the A “leapfrogging” strategy both of them have been extremely successful. field of AI. Brezis and Krugman (1993) suggest a mechanism that explains this pattern of them, to According technology. in changes major occasional to response a as “leapfrogging” value. the development phase. Intermediate steps can be that of the past. There is no need to skip These applications started to support and Alipay. skipped, as seen in the cases of Wechat It is more important to nurture infrastructure and cultivate the necessary workforce than than workforce necessary the cultivate and infrastructure nurture to important more is It noted that new regulations appear of smart factories. It should be to set the target number is taking place very rapidly. industries emerge. Industry convergence especially as new the strengthen to important is It industries. new for way the pave not should Regulation is not to support costs but to create of SMEs. The goal of industrial policy innovation capacity is accelerated by creative and destructive technology development. There are rapid rapid are There development. technology creative and destructive by accelerated is and management, including production, the whole system, changes in and significant are between industries and the boundaries is connected, In the CPS, everything governance. process. The implication whole production AI will change the development of blurred. The should be provided for each level. factory policy is that appropriate support smart of Korea’s 092 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia including government officials. It needs to be noted that the monthly meeting presided by the president has had considerable effects. Monitoring and feedback mechanisms that were supported by budgets were quite effective in Korea. Malaysia also needs to establish holistic accountability from the planning phase right up to implementation, monitoring, and evaluation with performance-linked incentives.
Fifth, it is vital to reform GLCs, which occupy a large portion of the Malaysian economy. Khazanah, a sovereign fund, is investing in infrastructure such as power and aviation, where market failures exist. In the meantime, reform of Khazanah has been underway, but it is still incomplete. Khazanah is an organization that can actually invest in the development of new industries, so it can play an important role in the enforcement of industrial policies. However, new investment is not easy because it has the chronic problems of public corporations and there are too many stakeholders. Ultimately, it is necessary to find concrete ways to expand infrastructure investment in future-oriented industries. This will be possible to some extent through cooperation with global companies.
Finally, it is necessary to increase collaboration among government, academia, and 093 industrial sectors to reduce the mismatch of talent and curriculum. The engineering house CHAPTER model of Korea Polytechnic University (KPU) could be benchmarked for this purpose.27 In 01 addition, it is necessary to revamp the R&D funding mechanism to induce the private sector. Charting Malaysia’s Industrial Policy for the Future In order to avoid the middle-income trap, it is vital to increase the productivity through practical R&D and collaboration.
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097 CHAPTER 01 Charting Malaysia’s Industrial Policy for the Future 02 CHAPTER
Accelerating the Growth of the Digital Content Industry in Malaysia
Backhoon Song (Dongguk University) Muhammad Imran Kunalan Bin Abdullah (University of Malaysia)
1. Introduction 2. Digital Content Industry in Malaysia 3. Korea's Experience in the Digital Content Industry 4. Implications and Policy Recommendations
Keywords Digital Content Industry, Digital Industry, Small and Medium Enterprises (SMEs) Development, Non-Manufacturing Sector, Production Network Accelerating the Growth of the Digital Content Industry in Malaysia
Backhoon Song (Dongguk University) Muhammad Imran Kunalan Bin Abdullah (University of Malaysia)
Summary
The purpose of this research is to introduce Korea’s experience in the development of the digital content industry (DCI) to Malaysia and suggest relevant policy implications to develop and upgrade the Malaysian DCI. This study first grasps the current status of the Malaysian DCI and identifies the factors that impede its development. 099 CHAPTER
The DCI in Malaysia has been growing exponentially in recent years in line with the 02 global trend. Major players of the Malaysian DCI are animation and eSports development Accelerating the Growth of the Digital Content Industry in Malaysia companies. Some of them have developed their own intellectual property (IP) and successfully marketed in the Asia-Pacific region and globally. The Malaysian content market was worth about USD 7b in 2015. However, it is only one-tenth and one-seventh of the American and Korean market sizes, respectively.
In 2017, total sales of Korea’s content industries were about USD 100b, of which those of the digital content market were about USD 40b. The sizes of the major markets in the DCI were as follows (the latest digital industry data released is from 2015). Total revenue in the DCI, which was USD 30.4b in 2013, increased by 10.2% to USD 33.5b in 2014 and grew to USD 36.4b in 2015 (up 8.7% from the previous year). Looking at the size of sales by subsector based on 2015, the digital games sector was the biggest in the DCI. In 2015, it generated sales of approximately USD 7.79b, accounting for 21.9% of total digital content sales. Next was digital information content, which accounted for about 13.5% of total industry sales. Total revenue of this sector in 2015 was about USD 4.91b. Digital distribution platforms (USD 4.39b, about 12.0%), digital content solutions (USD 3.66b, about 10.0%), digital advertising (USD 3.41b, about 9.4%), digital broadcasting (USD 3.41b, about 9.4%), and e-learning (USD 3.17b, about 8.7%) were the next biggest sectors in the DCI. Third, we propose overseas network sharing cooperation between the Malaysia External between the Malaysia Third, we propose overseas network sharing cooperation Second, we suggest a joint venture between foreign distribution platforms and Malaysian foreign distribution platforms and Malaysian Second, we suggest a joint venture between Through the experience of developing the DCI in Korea, we provide five policy we provide five policy the DCI in Korea, Through the experience of developing The Malaysian DCI faces many challenges. First, it is difficult tofind policy documents Agency (KOTRA). Since the MATRADE does not have a wide overseas network to help network to help does not have a wide overseas Since the MATRADE (KOTRA). Agency will exporters, it is difficult to find foreign consumers. This problem potential Malaysian centers in 83 foreign trade 124 has which KOTRA, with build cooperation if they solved be overseas between the two organizations, sharing SMEs’ countries. Through cooperation will enable Malaysian content companies to reduce their reliance on foreign platforms such content companies to reduce their reliance on foreign platforms will enable Malaysian through the joint platform. and create diverse business opportunities as YouTube Promotion Trade-Investment Korea and the (MATRADE) Corporation Development Trade order to improve the accessibility of digital content in Malaysia, it is necessary to support it is necessary to support digital content in Malaysia, order to improve the accessibility of the development of a proprietary distribution platform. However, creating a portal or with the chance of success significant investment, and the requires distribution platform A short-term plan to reduce investment costs and the existing foreign platform is not high. platform. This risk of failure is to work with successful foreign companies to build a joint broadcasting companies to build a distribution platform targeting the Malaysian domestic domestic platform targeting the Malaysian broadcasting companies to build a distribution therefore relies on does not have a domestic distribution platform and Malaysia market. In DCI. the in produced services and products sell to platform distribution overseas an the emergence and development of other digital industries that have not yet developed. One the emergence and development of other infrastructure. DCI is so narrow is its poorly developed of the reasons the scope of Malaysia’s it will be able to industry, for the content builds a stronger infrastructure If Malaysia additional digital content businesses. broaden the diversity of the DCI and create workforce is often left unmet due to the unavailability of talent. left unmet due to the unavailability of workforce is often has to build a First, Malaysia this industry in Malaysia. implications for the development of of the existing digital industry but also for not only the development strong infrastructure small and medium enterprises (SMEs), whose needs extend beyond funding alone. Fourth, beyond funding alone. Fourth, whose needs extend medium enterprises (SMEs), small and development with competency content zone is needed that integrates an exclusive digital Fifth, being studios, etc.). (rendering, digital intermediary, facilities the provision of central to put their products and services, content companies lack resources small in size, digital skilled a for demand the Lastly, market. global the in IP, good-quality on based when even that articulate the and strategies tactics to support the DCI, possibly reflecting a lack of focus industry. overseeing the and agencies of ministries efforts and the multiplicity in policy generally institutions financial with struggle, a been has resources financial to access Second, are digital content players Third, a majority of the of the industry. lacking an understanding 100 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia market information and export support programs will help Malaysian SMEs to enter and expand their export markets. In order for Malaysia to introduce export support systems such as export incubators and export vouchers, the Malaysian government or the MATRADE must have a support network in several countries abroad.
Fourth, in the DCI, it is important that each company has its own IP. If a content creator serves only as a part of a global value chain (GVC) established by overseas content producers, it cannot be expected to create high added value. In particular, securing IP in the field of animation, where Malaysia is relatively competitive, is extremely important. Creating competitive IP requires substantial time and money. Therefore, for content companies to endure the long periods of IP creation and commercialization, the government must support research and development (R&D) tax incentives for companies with high potential to create their IP.
Finally, we suggest a talent exchange program between the two countries. In the fast- changing DCI, it is important to nurture the workforce and acquire the relevant skills in a timely manner. To create and commercialize IP in the DCI, well-established organizations 101 and systems capable of cultivating creators must be provided. Since Malaysia is experiencing CHAPTER a gap between industrial needs and university education, it needs some useful educational 02 programs for talent supply. In order to narrow this gap, the Korea Creative Content Agency Accelerating the Growth of the Digital Content Industry in Malaysia (KOCCA), a government organization for content industry assistance, built an education system called “One Campus” to connect universities and industries. It is necessary to learn how to cultivate the workforce through cooperation between KOCCA and the Malaysian content workforce training institute. By exchanging and training people between the two countries through One Campus and Content Korea Labs (CKLs) operated by the KOCCA, Malaysia will be able to train and secure future talents for its DCI.
1. Introduction
As the use of mobile products such as smartphones and tablet PCs is expanding and an internet environment capable of processing a large amount of data is being constructed, people can consume various types of digital content through the internet platform.
The digital content industry (DCI), a component within the services sector, has been growing exponentially in recent years. The typical activities of the DCI are development, production, and distribution of products and services that fall under categories such as games, e-books, animation, visual effects, virtual/augmented reality (VR/AR), distribution The Malaysian government recognizes non-manufacturing industries, especially government recognizes non-manufacturing The Malaysian 1 This study explores how the Malaysian DCI can gain international competitiveness can gain international competitiveness DCI This study explores how the Malaysian The content market in Malaysia was worth about USD 7b in 2015, and it was expected to USD 7b in 2015, and it was expected was worth about in Malaysia The content market The DCI industry, which started as a support component for other industries, has now has now for other industries, support component started as a which The DCI industry, 2-2 in p.23. Table (2018b)’s Refer to KOCCA and and financialassistance that supportthe growth of the DCI. Section Finally, 4presents the comparing the policies of the two DCI by policy implications for developing the Malaysian 1 and examine the roles and major policies of government agencies and private associations and examine the roles and major policies of government agencies and private performance of In addition, we evaluate the overall governing digital content in Malaysia. introduce We Korea. in of experience development DCI the examines 3 Section policies. these development of major policies of government and organizations that have helped the such as subsidies of government programs look at various aspects We the DCI in Korea. manufacturing industries. current the explores 2 Section Korea. in DCI the of experience development the through DCI DCI. First, we look at the achievements of the current Malaysian status of the Malaysian manufacturing sectors, there is also a concern that they will remain a single chain in global in chain single a remain will they that concern a also is there sectors, manufacturing independent companies. Recognizing than become competitive production networks rather government seeks of SMEs, the Malaysian the limitations of improving the competitiveness than sectors, especially the DCI, rather to promote SME development in non-manufacturing as electronics and chemicals. In particular, the Malaysian government recognizes that it government recognizes that it the Malaysian as electronics and chemicals. In particular, of small and medium a long time to develop or strengthen the competitiveness will take development plans in manufacturing sectors due enterprises (SMEs) through the national micro firms. which is dominated by industrial structure, to the nature of the Malaysian enhances the competitiveness of SMEs in government successfully Even if the Malaysian grow to USD 9b by 2019. However, as of 2015, the market size of Malaysian DCI is only one- only share, and is market largest content world’s size, which has the tenth of the US market the seventh largest in (about USD 50b), which is market about one-seventh of the Korean the world. such sectors manufacturing traditional than rather industries future promising as DCI, the keeping this industry on their strategic focus agenda for economic development. The The for economic development. focus agenda this industry on their strategic keeping industry has become a significant contributor to the economies of countries like the United the United Kingdom, and South Korea. States, China, Japan, platforms, and others related to creative industries. The DCI is also referred to as the to as the is also referred The DCI to creative industries. and others related platforms, sectors. is prevalent in these digital content since and media industry, entertainment countries in many The phenomenal growth has resulted globally. become mainstream 102 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia countries.
This study has the following limitations. This study attempts to take a macroeconomic approach to the development of digital industries in Malaysia but does not carry out micro studies on the effects of individual policies. In addition, the diversity and success of the Korean DCI are evaluated as a result of the efforts and development of the industry itself rather than as a result of the government policy of the Republic of Korea. Therefore, in this study, it is necessary to analyze the effects of successful government policies (e.g., policy to expand export of digital content, human resource development policy) and necessary conditions (e.g., infrastructure, distribution platform) together and propose relevant policy implications for the Malaysian DCI. These limitations should be addressed by future micro analyses.
2. Digital Content Industry in Malaysia
2.1. Overview of the Digital Content Industry 103 CHAPTER
The Malaysian DCI revenue growth is also accelerated by the exponential growth in 02 OTT video demand, game market demand, supply side growth, etc. Malaysian Digital Accelerating the Growth of the Digital Content Industry in Malaysia Economy Corporation (MDEC), the agency responsible to spearhead the Malaysian digital transformation initiatives has indicated that the digital content industry has posted a Compounded Average Growth Rate (CAGR) of 6% between 2013-2017. Newzoo, a games industry research firm in its 2017 edition of the Global Games Report has indicated that the CAGR of the games industry in SEA is around 13.1% and Malaysia is projected to contribute USD 689.2 million in 2017.
The DCI is prospering due to the increase in demand among consumers of digital content created by both the digital content consumer industries, such as movie and visual production houses and games development companies, and other sectors of the economy, such as education, manufacturing, and healthcare.
The growth opportunity for the DCI in Malaysia is also related to the digital transformation that the country has been experiencing over the last few years. The state of the digital transformation is depicted in the diagram below. Global Digital Report (2019). Global Digital Report (2019). The digital transformation led by technological advancement in the form of new technological advancement in the form of new led by The digital transformation The fast pace of technological advancement has also contributed to the growth of the DCI The fast pace of technological advancement modeling processes, has made the process more effective and cost efficient. Cloud technology since it now creates an option for games the growth of the games market, is also accelerating to be offered using the “as-a-service” model insteadWe of are the already means. traditional seeing the growth of platforms that offer gaming services. technologies such as cloud computing, improvement in internet infrastructure and and infrastructure internet in improvement cloud computing, as technologies such machine higher processing speed chipsets, artificial intelligence (AI) and connectivity, cloud- introduced newly The way. positive a in DCI the impacting is VR/AR and learning, which was predominantly used in the animation of movies and based rendering technology, directly. Technology players focused on creative industry technology have been continuously focused on creative industry players Technology directly. the DCI. needed by software and applications developing and upgrading Source: Source: Source: Source: 2-2] Malaysian Digital Content Consumption Growth [Figure [Figure 2-1] Malaysian Digital Headline Data 2019 Malaysian Digital Headline 2-1] [Figure 104 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Another technological advancement that can enable the growth of the DCI is the digitalized payment system. Consumers now have better payment options when they wish to subscribe to services or buy digital content online. The payment systems have become growth enablers. The industry players are now able to leverage big data technologies such as AI and machine learning to acquire a better understanding of their clients’ profiles, product preferences, buying patterns, and many more parameters that can be used to customize offerings to their clients. The eSports industry, which has generated a huge following, has a unique ecosystem that comprises both hard and soft components including platforms to play and view. It is a huge consumer of technology for creating online and offline experiences. The latest technology giant to jump into the gaming foray is Google through the introduction of the Google Stadia platform for gamers.
2.2. State of Play of the Digital Content Industry in Malaysia
2.2.1. Background
The DCI has progressed and evolved in tandem with the development of the 105
Multimedia Super Corridor (MSC) initiative by the Malaysian government in 1996. The CHAPTER MSC initiative is led by the Malaysian Digital Economy Corporation (MDEC), which was previously known as the Multimedia Development Corporation, an agency under 02 Accelerating the Growth of the Digital Content Industry in Malaysia the Ministry of Communication and Multimedia. The MDEC is mandated to develop, coordinate, and promote the digital economy, information and communications technology (ICT), and the pervasive use of ICT in Malaysia by both the public and private sectors. The companies are granted MSC status, which allows them to enjoy the 10 Bill of Guarantees approved by the government. The classification via industry clusters conceptualized during the inception of MSC are depicted in
. MSC Malaysia Industry ClustersINSTITUTIONS OF HIGHER LEARNING (IHLs) & INFOTECH INCUBATORS
Companies undertaking the study, design, development, Institutions of higher education or facilities that provide implementation, technical services or support, courses related to the content creation, Infotech, and marketing, or management of any computing-based communication fields. Incubators that house tenants information system involved in ICT & multimedia, biotechnology and/or bioinformatics
CREATIVE CONTENT TECHNOLOGIES (CCT) GBS
Companies involved in the creation of creative digital Businesses whereby common services are provided by content. This includes digital element manipulation a single organization leveraging economies of scale or to culminate in commercial products or services and a provision of services that is geographically removed the supply associated technological tools, services, and from the client platforms to support said activities
Source: Author. Malaysian games development companies have shown positive momentum as well well games development companies have shown positive momentum as Malaysian The industry is dominated by work-for-hire (WFH)-type activities. This signifies the The digital content exports grew at a rapid CAGR of 6.15% for the period of 2012–2016.5 of 6.15% CAGR rapid The digital content exports grew at a The digital content companies, originally known as CMM companies, have shown steady companies, originally known as CMM The digital content 2.2.2. Current State of the DCI 2.2.2. Current A total of 3,241 active MSC companies come under the purview of the MDEC. Out of these, the MDEC. Out of the purview of come under 3,241 active MSC companies A total of The IHLs the play talent The supply clusters role were for further the expanded industry. with a production support track record of more than 30 AAA titles using Malaysian talents. record of more than 30 AAA titles using Malaysian with a production support track AAA video games Industry experts and individuals across the gaming industry recognize as those with the highest development budgets and levels of promotion. Final Fantasy XV, pioneering IPs that managed to garner support from the Muslim world was Saladin, an an world was Saladin, the Muslim from pioneering IPs that managed to garner support fully was This 2003. early in TV Al-Jazeera with collaboration in developed series animated government. the Malaysian funded by industry and build a substantial base. Once the substantial base was established, the MDEC substantial base was established, the a substantial base. Once the build and industry and growth of intellectual property (IP) to strengthen changed gear to focus on the creation IPs that have reached global competitiveness. Some of the locally developed the industry’s Ali, Kuku Ejen Seafood, Saladin, Upin & Ipin, Boboiboy, the global stage are Chuck Chicken, Harajuku, Boing, Origanimals, Didi & Friends, and Hogie the Globehopper. One of the development and export. embarked The MDEC earlier. indicated activities of production-driven percentage higher phase to spur the growth of the in the initial foreign digital content players on attracting The forecasted export value in 2017 alone stood at RM 737.84m. MDEC, as the custodial the custodial at RM 737.84m. MDEC, as alone stood 2017 in export value The forecasted to facilitate export activities of these companies through promotion, continues agency, to support creative content and collaborations capabilities development programs, growth. The CMM cluster of companies has now morphed into the creative content and content and creative the into morphed now has companies of cluster The CMM growth. of these digital content companies are animation technology cluster. The primary activities mobile and new media, and games. Production and edutainment, production support, the industry. support is the biggest contributor for The MSC-status companies have created a total of 167,044 jobs and generated revenue of RM jobs and generated have created a total of 167,044 The MSC-status companies economy. 47.1b for the Malaysian there were 358 active CCTs as of February 2018. as of February 358 active CCTs there were in recent years. in the technology landscape changes and advancement virtue of the rapid by 106 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Unchartered, Tekken 7, Gears of War 4, Fable Legends, Street Fighter V, Dark Souls 3, and Bloodborne are some of the notable games created using Malaysian talents.
As stated earlier, the competition among digital content players became further heated by the growth of eSports. Gaming, which started as a console-based activity, has evolved to different platforms such as computers and tablets, and today, it is huge on smartphones. The improvement in connectivity has made gaming a mainstream activity through streaming options. The Malaysian gaming fraternity, especially eSports, is growing exponentially. The growth in Malaysian internet penetration has been pivotal to the proliferation of digital content usage and creation.
Beyond games, digital content has acquired a spot within film and TV series production. The digital content companies under the purview of MEDC and plays a supportive role to the Malaysian film industry directly on areas related to animation, visual effects and other digital content aspects consumed by the film producers.
The MDEC supports the growth of the film industry as well through co-production 107 incentives. Beneficiaries of this program include prominent local production houses like CHAPTER ASTRO Shaw (Ola Bola), Animonsta Studios (Boboiboy), and KRU Studios and foreign productions such as the Hi-5 TV series, Prey, and Asia’s Got Talent. 02 Accelerating the Growth of the Digital Content Industry in Malaysia
The Malaysian content industry has definitely benefitted from the various initiatives and incentives offered by the government to boost the sector. The chart below shows the revenue trend of the creative sector in the last few years, indicating a healthy CAGR of 6.15%. The diagram below gives a comprehensive view of the digital content ecosystem players in Malaysia. (Unit: %) 29% Edutainment Animation and 17% Games 17% Mobile and New Media 37% Production MDEC. The following is a non-exhaustive list of Malaysian digital content companies. These are of Malaysian The following is a non-exhaustive list 2.2.3. Key DCI Players in Malaysia DCI Players in 2.2.3. Key into those involved in animation and can be classified The majority of the players flourished, more jobs were created, and there was an elevation of skills and competencies The MDEC supported the growth of the digital content creation talent related to this industry. through its focused effortby collaborating on skills development with industry players and and talent supply chain, especially the IHL and technical-vocational education the Malaysian (TVET) institutions. training among the most active industry players. Some have developed their own IPs and successfully Some have among the most active industry players. marketed in the Asia-Pacificregion and These globally. companies collectively arealso the the DCI started with a pull for foreign As mentioned earlier, main job creators in Malaysia. of advantage taking Malaysia in operations support production up their set to players DCI industry As the the incentives provided through the MSC and create jobs for Malaysians. edutainment, games development, mobile and new media and productions support. mobile and new media and productions support. edutainment, games development, These companies are involved in activities ranging from work for hire (WFH) services to into production and marketing. development of own IPs and venture Source: Source: [Figure 2-3] Primary Activities of Malaysian Digital Content Companies Malaysian Digital Primary Activities of 2-3] [Figure 108 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia [Figure 2-4] Malaysian Creative Content Industry Revenue Trend (Unit: RM million)
5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2012 2013 2014 2015 2016 2017
Content Publishing (books, peridocals) 3,168 3,232 3,783 4,126 4,424 4,696
Motion Picture, TV programmes, 1,514 1,830 1,997 2,020 2,201 2,403 Creative media
Other contents media 2,922 3,119 3,366 3,586 3,823 4,142
Source: MDEC.
Key Digital Content Companies in Malaysia 109 CHAPTER Animation Game DevelopmentAnimonsta Studios Sdn Bhd Streamline Studios Malaysia Sdn Bhd Animasia Studio Sdn Bhd Lemon Sky Animation Sdn Bhd 02 Lemon Sky Animation Sdn Bhd Passion Republic Sdn Bhd Accelerating the Growth of the Digital Content Industry in Malaysia Inspidea Sdn Bhd Codemasters Studios Sdn Bhd Les Copaque Production Sdn Bhd BANDAI NAMCO Studios Malaysia Sdn. Bhd. Giggle Garage Wau Animation Digital Durian Prodigee Media Sdn Bhd KRU Malaysia Sdn Bhd Streamline Studios Malaysia Sdn Bhd Passion Republic Sdn Bhd iFlix Sdn Bhd
Source: Author.
With more than 350 active digital content companies, there is room for the industry to grow. The growth of these companies is dependent on the volume of production support businesses they are able to garner consistently. The headcount requirement tends to fluctuate from time to time. The mode of employment engagement also tends to skew to task-oriented hiring as opposed to the typical permanent or annual contractual hiring. Mobility among the employees in this industry has become the norm. Developing talent and managing the digital content industry talent needs a dynamic approach. Business Ventures Infrastructure Support Infrastructure Licensing/Merchandising SME / Incubation Talent Pool Talent Skills Development & Multimedia IP Protection the Creative Development of Content Industry Policies Market Access / Demand Generation Access Market Co-production Marketing Business Pitching/ MDEC. Funding & Incentives The positive market growth indicators based on global demand growth and consumption on global demand growth and consumption growth indicators based The positive market 2.3. The Building Blocks of the Malaysian Digital/Creative Digital/Creative of the Malaysian Building Blocks 2.3. The Development Industry Content a in creativity embracing requires sector any in growth that agreed generally is It Source: Source: depicts the key building blocks that will ensure the success of the industry. building blocks that will ensure the success of depicts the key 2-5] The Building Blocks of the Digital Content Industry [Figure for Malaysian digital content How industry. can Malaysia ride on the global digital content this industry? are the success ingredients to accelerate growth wave before it tapers? What Comprehensive analysis of the industry in this study. These are part of the points deliberated will give us a better insight on the salient ecosystem or the building blocks perspective below diagram The industry. the of growth the propel can that considerations and features of digital content. Technavio, a global research company in its Global Digital Content Market Market in its Global Digital Content a global research company of digital content. Technavio, 41% that mentioned also It 10%. of CAGR accelerating in indicated has 2019-2023 Report of the growth will be coming from the APAC region. Hence this signifies the opportunity components are creativity, sustainability, and benefits. Malaysia has an abundance of of has an abundance and benefits. Malaysia sustainability, components are creativity, is still on origins. Malaysia society with residents of varying creativity being a multicultural economic contributor and reaping the creativity into a sustainable the path of converting the benefits, and it has to the strike right balance between economic and aspirations societal wellbeing. sustainable manner that ensures both economic and societal benefits. The quintessential quintessential and societal benefits. The both economic ensures that manner sustainable 110 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia We will delve deep into some of the key components of the building blocks to acquire a better understanding of their importance and contributions toward developing the industry.
2.3.1. Policies & Tactical Interventions
A clearly defined industry development policy document that articulates the strategic and tactical approaches is critical. In the context of Malaysia, there is scant documentation that one can refer to for the DCI directly. This can be attributed to the lack of focus in the past and the spread of the industry in varying custodial agencies and ministries. We cite a few of the relevant policy and strategic intervention documents for reference below.
2.3.1.1. National Creative Industry Policy (NCIP) (Dasar Industri Kreatif Negara)
The diversity of the industry has always made it difficult to clearly define the industry as well. There are various definitions for the creative industry by global organizations such as the United Nations Conference on Trade and Development (UNCTAD). The Malaysian government has referenced the United Kingdom’s Department of Culture Media and Sport 111
(DCMS, 1998)7 definition of creative industries, since it is one of the most comprehensive in CHAPTER capturing a wide range of industry subcategories. The DCMS defines creative industries as
“Those industries which have their origin in individual creativity, skill and talent and which 02 Accelerating the Growth of the Digital Content Industry in Malaysia have a potential for wealth and job creation through the generation and exploitation of intellectual property.”
The Malaysian Ministry of Information, Communication and Culture was the custodian of the policy. The Malaysian NCIP is comprised of 14 subsectors grouped into three categories: CMM, Creative Cultural Arts, and Creative Cultural Heritage. The subgroups within the groups are listed below.
Sub-Grouping of Creative IndustriesCultural Heritage Multimedia Creative Industries Cultural Arts Creative Industries Creative Industries
Crafts Film & TV Visual Arts Museum Advertising Music Archives Design Performing Arts Restoration Animation and Digital Content Creative Writing Preservation Fashion and Textiles
Source: National Creative Industry Policy, Ministry of Information, Communication & Culture, Malaysia (2010). Step 3: A Welfare Fund for Arts Practitioners was created to ensure the wellbeing of Practitioners Fund for Arts Step 3: A Welfare Step 2: To spur industry growth, which is always challenged by financial constraints, Step 1: Amend the NCIP to make it more comprehensive and therefore more useful as it more comprehensive and Step 1: Amend the NCIP to make process and low interest rate. the talents those in the arts. This is critical because the industry is quite diverse and social safety net plans. involved are mostly freelancers who do not have any a functional foundation to support and accelerate the growth of the industry. accelerate a functional foundation to support and easy financing through local banks. and facilitate use government-allotted grants The banks offered these loans (to specific companies and projects) with a simplified 2.3.1.2. Creative Content & Infrastructure as National Key Economic Area (NKEA) Economic Area as National Key Content & Infrastructure 2.3.1.2. Creative government’s as part of the Malaysian A refreshed focus on the DCI came into play (3) (2) (1) The policy also takes into account the trickledown effects that this will have on creative It is a comprehensive document that considers the unique makeup and history of of history and makeup unique the considers that document a comprehensive is It skills within their field, global opportunities, and greater recognition for the task done. and greater recognition for the task done. skills within their field, global opportunities, creative the develop to approach three-step a outlined government the policy, the Under industry of Malaysia: level. and better job opportunities, chances to develop individuals. These effects include more prepare the facilities and infrastructure and create a conducive environment to encourage environment to encourage and create a conducive and infrastructure prepare the facilities IP of recognition and growth the on spur To 4) industry; creative local the of growth the develop and accreditation; 5) To and programs in the creative industry through training sources, grow information growth; and 6) To harness technology as a catalyst for industrial identity in the creative industry on a global symbolism, and national focus on local cultural of other nations while contributing to the growth of the nation’s economy and upholding and upholding economy nation’s contributing to the growth of the of other nations while a dynamic become 1) To NCIP: the of objectives main six are There cultures. Malaysia’s become Malaysia help to part its playing economy, nation’s the to contributing sector creative the creative industry into one that support the development of 2) To a high-income nation; and international levels; 3) To and sustainable at the national is competitive, advanced, Malaysia to ensure it serves its very specific creative community. The NCIP also made made The NCIP also community. specific creative it serves its very to ensure Malaysia are NCIP baseline features and content. The to digital media emphasis given explicit the Zealand, New Korea, South Singapore, UK, the from policies similar to referring by enhanced creative industry that rivals those a Malaysian The NCIP aims to encourage and Australia. 112 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Economic Transformation Plan driven by the Performance Management and Delivery Unit (PEMANDU). Creative content was embedded within the Creative Content & Infrastructure (CCI), one of the 14 NKEAs.
The PEMANDU, under its “Nurturing Malaysia’s Creative Content” program, targeted the creative industries to contribute RM3,014m (USD 750m) to national income and to create 10,422 jobs by 2020. The PEMANDU is aiming for an annual growth rate of 20% for content export and job creation as shown below.
[Figure 2-6] Digital Content Industry Jobs Creation (Unit: Number)
12,000 11,070 10,170 10,515 10,000 9,183 7,724 8,086 8,000 7,028 6,000 113
4,000 CHAPTER
2,000 02 Accelerating the Growth of the Digital Content Industry in Malaysia 0 2008 2009 2010 2011 2012 2013 2014
Source: PEMANDU Annual Report 2017.
The PEMANDU worked closely with the MDEC in driving the agenda. The MDEC served as the enabler and implementer support agency under the NKEA.
2.3.1.3. Communication & Multimedia Blueprint
Creative content industry players are poised to grow and generate more revenue, which will eventually trickle into the overall Malaysian economy. Hence, the government, through the MDEC and other relevant authorities, has carved out various initiatives and incentives to support the growth of this industry. The significance of the Malaysian government’s focus on this sector is depicted through the development of strategies, policy papers, and structural reforms and execution of targeted activities for this sector. The Ministry of Communication & Multimedia launched the “Communication and Multimedia Blueprint 2018–2015,” a strategic documented guideline to support and enhance the growth of this industry. The blueprint postulates a holistic stacked industry architecture for implementation.
Broadcast transmission transmission infrastructure Continuum
IaaS Cloud computing Wireless Encryption Manufacturing Retail channels Content production Content distribution (TV / radio, cinema, news) (TV / radio, Data Government communication Government service delivery Voice (e-Commerce, digital marketing) Procurement, billing and payments (Robotics, automation, Industry 4.0) (Robotics, automation, Industry (Broadcast messages, citizen inputs) Authentication and digital signature Authentication Open government and industry data Mainly consuming/increasingly producing Mainly consuming/increasingly (Film / TV / radio, apps, games, publishing) (Film / TV / radio, (e-Tax, e-immigration, e-education, e-health) e-immigration, (e-Tax, User access devices (smart phones, PCs, notebooks, TVs, media boxes etc.) User access devices (smart phones, PCs, notebooks, TVs, Fixed Network infrastructure (fibre, copper, HFC, satellites, wireless towers), facilities and spectrum (fibre, copper, HFC, Network infrastructure
and Post, freight parcels Network and infrastructure Government engagement Data and enablement platforms Digital economy Creative content Citizens and Citizens and communities KKMM Communication & Multimedia Blueprint (2018). These programs are expected to be complemented by other programs deemed fitby the - Enhancing Malaysian content beyond borders. - Enhancing Malaysian among others, is to achieve RM1.5b export revenue outcome, aspirational The blueprint’s - Revitalizing local content production and distribution The blueprint specifically focuses on catalyzing creativity as a strategic imperative that respective agencies and industry players. by 2020. The target is to reach RM2.0b by 2025. The following are some of the specific 2025. The following are some of the specific 2020. The target is to reach RM2.0b by by identified to support the growth of the industry as a whole. programs will be supported by policy thrusts, aspirational outcomes, and targets to be achieved in the outcomes, policy thrusts, aspirational will be supported by forthcoming years. Focused programs are also signified in the blueprint. The specific policy thrusts to catalyze creativity are as follows: Source: Source: [Figure 2-7] Stacked Industry Architecture 2-7] [Figure 114 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 2.3.2. Funding
The topic of funding has always been significant to DCI players. Access to funds seems to be one major pain point echoed by the majority of industry players. The stringent requirements imposed by the financial institutions have become a deterrent to the industry. The financial institutions’ lack of understanding of the nature of the industry is one major challenge.
Hence, government grants seem to be the key option for the digital content players who are mainly in the SME category. The digital content players are not able to garner good support from private equity players or angel investors. Only a handful has been successful despite various promotional efforts by the government through the MDEC. Some key factors that lead to the low funding support are as follows:
- The inability of the digital content players to produce collateral as a guarantee
- Financial instructions’ refusal to accept IPs as collateral
- Malaysia’s lag in IP valuation for DCI 115 CHAPTER - Lack of discipline by the industry players in utilizing the funding support extended.
The many cases of loan defaulters have led to negative perceptions among the financial 02
circle. Accelerating the Growth of the Digital Content Industry in Malaysia
- Inability to convince the financial institutions with a robust business model since the majority are WFH players with inconsistent revenue streams.
Based on the above, government intervention in funding seems to be the best option at the moment. Venture capitalists (VCs) normally have high expectations despite their greater appetite for risk. The VCs typically expect a return on investment (ROI) in the range of 20%. This poses a challenge for the WFH operators in the industry due to their lower profit margin. The government-supported VC, MyCreative Ventures, offers loans with competitive interest rates ranging from 6% to 8%. MyCreative Ventures funds the entire operational needs of the business as opposed to project funding. This requires the companies to create a comprehensive business plan with revenue streams and strategies on a five-year horizon. Furthermore, it is very pro-industry, and collateral is not mandatory for funding. Grants and subsidies from the government seem to be the most viable option to grow the industry at this juncture.
Listed below are some of the funding and incentive programs by custodial agencies and ministries for the DCI in Malaysia. VC Loan Loan Grant Grant Grant Conditional Fund Type MDV MICC) MICC) Banks Agency MAVCAP Nasional Simpanan Ministry/ MCMC (MICC) MDEC (MOSTI/ MDEC (MOSTI/ Scope Broadband technologies growth industry creative industries Conditional grant to fund Malaysian to fund Malaysian Conditional grant Largest venture capital company with Largest venture capital company focusing on information based content, focusing on information Financier and development facilitator for Fund to catalyse online content under the Fund to catalyse online content talent, hardware and software acquisition talent, hardware and software entertainment, e-commerce and education entertainment, e-commerce ICT, Biotech, Greentech and other emerging ICT, Funding for development of mobile content development of mobile Funding for investment in the ICT sector and other high- participation in international co-productions participation in international Integrated Content Committee for High Speed Content Committee for High Speed Integrated Conventional low interest loans to develop the Conventional low interest for animation and games. Funding focused \on for animation and games. MAVCAP ICON Fund ICON Fund Programme Development Grant) MAC3 Co-Production Fund MAC3 NCDG (Networked Content Content NCDG (Networked Malaysia Debt Venture Bhd Debt Venture Malaysia BSN Creative Industry Fund MDEC. 2.3.4. Infrastructure Support 2.3.4. Infrastructure competency The MDEC has established an exclusive digital content zone that integrates 2.3.3. Industry Development Support 2.3.3. Industry Development SMEs; hence, they need other are in Malaysia The majority of the digital content players 6 4 5 2 3 1 players to set up operations in Malaysia and spur the growth of the industry. in Malaysia to set up operations players development with the provision of facilities centralized (rendering, digital intermediate, HD, global attracting studio, etc.). The clustering and focused approach has been successful in as the company registers and secures MSC status. One of the main evaluation criteria set by by set status. One of the main evaluation criteria MSC secures and registers company the as The MDEC assigns a business plan. is the company’s the MDEC for MSC status application dedicated officer in to guide itsthe MSC company status application, including reviewing the business plan and providing guidance where anomalies are encountered. support beyond funding. The MDEC, being the one-stop agency to support industry growth, support beyond funding. The MDEC, soon as players content digital the with engagement initiates MDEC The role. vital a plays Source: Source:
Grants/Incentives for the Digital Content Industry Content Industry for the Digital 2-4> Grants/Incentives Another key challenge faced by the digital content players is marketing their products and services effectively and generating sales. Being small outfits, these companies lack the dedicated resources to market and promote effectively. A lot of energy is channeled into production operation. Budgetary constraints require them to be lean, without a dedicated focus on marketing. Due to the resource constraints, some of the created IPs fail to gather momentum in the digital content market despite their good quality. Many fail to establish a proper marketing team that can manage the IPs throughout the content marketing lifecycle, as depicted below.
[Figure 2-8] Content Market Lifecycle
STRATEGIZE Analyzing your audience’s interests to define a better content strategy
Understanding how to make your 117 PLAN content more unique CHAPTER
Understanding what content Optimizing content as 02 to amplify to optimize ROI you create it
AMPLIFY PRODUCE Accelerating the Growth of the Digital Content Industry in Malaysia CONTENT MARKETING LIFECYCLE
Understanding results Knowing when, how and ANALYZE PROMOTE and what to improve where to publish content
Source: Author.
Without a proper marketing function, the companies’ growth is stunted. The government has to step in through the MDEC to support the market access and demand creation requirement. The MDEC collaborated with multiple strategic partners globally to market and open up markets for Malaysian-made digital content. The MDEC was actively involved in supporting this through activating domestic, regional, and global platforms at trade events, including subsidizing companies to participate and showcase their products. This helped the digital content SMEs to expand their sales and marketing channels.
The trade missions improved Malaysia’s visibility as a potential destination for The nature of the business, which is dominated by WFH services, requires experienced 2.3.7. Digital Content Development Talent 2.3.7. Digital Content Development another hurdle: unavailability of quality talent The growth potential of the DCI faces - IP Creation Series (Games, Animation, Mobile Content, Interactive Comics); Mobile Content, Interactive - IP Creation Series (Games, Animation, (DST); - Digital Story Telling - Mentorship Programs; Content). (User-Generated - Community Programs 2.3.6. IP Creation Programs 2.3.6. IP Creation IP creation. IP on focus industry the for programs specific initiated also MDEC The talent. The industry expects the talent supply ecosystem, mainly the tertiary and TVET and TVET talent. The industry expects the talent supply ecosystem, mainly the tertiary institutions, to produce industry-ready talent. talent that can perform from day one. The companies lack patience for their new hires to go one. The companies lack patience for their new hires talent that can perform from day which they must get deliverables deadlines by They are bound by period. through a training industry-ready to their clients. Such circumstance adds further pressure in the search for demand skill mismatch that adds pressure to the industry. The slow pace of upskilling by the by upskilling of pace slow The industry. the to pressure adds that mismatch skill demand curriculums lead to the skill mismatch existing workforce and the lack of industry-relevant inclination demands a skilled workforce with a natural challenge. The uniqueness of the DCI for the industry and innate creative skills. Hiring of talent is based on portfolios created by the talent in most scenarios. that meets the demands of the industry. The labor market is being challenged by a supply– a by is being challenged The labor market industry. the of demands that meets the effect oncethe IP is translated into merchandise. The IPsnaturally become brand boosters is established, it Once the brand the ever-competitive market. in for the industry players The following are local and global markets. both is easier for the companies to penetrate creation: MDEC-initiated activities to support IP creation lets the industry players heighten their revenue and benefit from the multiplier from the multiplier heighten their revenue and benefit players creation lets the industry international international players to set up their operations in Malaysia, and the inflow of global players directly affectedthe growth of the DCI.This created the possibility forthe internal players industry sharing and manner. Knowledge in a synergistic collaborate to players and local technology transfer became a catalyst for growth. The WFH players benefitted the most through this effort. 118 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia The MDEC, together with the talent development ecosystem partners, has embarked on strategic talent development interventions to support the demand for quality talent. Interventions are made to enhance the skills of fresh hires and those presently working within the industry. The fast pace of technological advancements requires the interventions to keep up with this situation. Nevertheless, it has been a catch-up game due to the fast pace of industry transformation and adoption of new technologies.
Skilled talent attraction is challenged by virtue of the hiring dependency to tasks in demand based on the projects procured by the WFH services. The industry players are unable to offer job security, which makes the industry unattractive to quality talents. The low profit margin through WFH services operation prevents the industry players from offering competitive compensation and benefits to attract and retain quality talent. This is one of the hindrances for industry growth, and it necessitates an innovative approach.
2.4. Accelerating Growth – Way Forward
A coordinated framework to support the growth of the DCI is critical for Malaysia. An 119 analysis of the industry trends provides better insight and paves the way for the type of CHAPTER intervention required to support industry growth. 02 Accelerating the Growth of the Digital Content Industry in Malaysia The recent PWC report entitled “Content democratization: How the internet is fueling the growth of creative economies” has outlined the following trends that have a high impact on the industry transformation and lead to growth acceleration:
- Growth of digital content, especially paid digital content;
- Increased time spent by people consuming digital content and traditional content;
- Consumers’ direct contribution to creation of content through various digital platforms, which improves access for distribution of content;
- E-commerce allowing for the emergence of niche content creation to create and support their product distribution;
- Enablement of the spread of content across large and previously underserved populations through digital means;
- Growth in export market for content, as the better connectivity permits easier access to international markets, resulting in better yield;
- Rise in local content consumption;
- Introduction of personalization and customized offerings;
- Distributors’ monetization of digital, international, and long-tail content and building of ecosystem leadership government collaboration infrastructure Foster industry- Foster Develop a strong Develop skills and financing expansion invertment and Develop private Develop a global Foster innovation Foster and digital transition presence and market Author. more agile and cost-effective new business models. new business models. and cost-effective more agile The diagram below, which is referenced from Canada’s approach to support the approach to support the which is referenced from Canada’s below, The diagram Malaysia Malaysia has been allocating a significant amount of its budget for the DCI through the industry specifically have game industry specifically for the DCI as a whole and the The challenges highlighted How can we capitalize the trends indicated above to accelerate the How growth can of we the capitalize DCI? the An trends indicated above to accelerate Source: Source: [Figure 2-9] The Proposed Strategic Interventions Strategic 2-9] The Proposed [Figure growth of its DCI, is relevant to Malaysia. As highlighted, the recommendations below are are below As highlighted, the recommendations to Malaysia. relevant growth of its DCI, is been and is still doing, but greater rigor in government has similar to what the Malaysian is critical. tracking implementation, monitoring, and outcome MDEC MDEC and other agencies since the inception of the MSC agenda. However, Malaysia is yet to attain a significantrank as a digital content creation hub even in the region. Hence, the and follow through with renewed rigor are needed. revival of the “triple-helix” approach been addressed in general. However, there have been inconsistencies in implementation and initiatives are monitored for the the programs and a lack of follow through in ensuring right outcomes. authorities and agencies, like the MDEC, have already embarked on various programs and and on various programs have already embarked the MDEC, like authorities and agencies, a robust, heights, there is a need for growth. However, to reach greater initiatives to spur the which involves the all parties. A “triple-helix” approach, approach by focused, and collective will help the DCI to grow. and academia, industry players, day, government of the analysis of the current state of the industry and desktop research on the industry leads to the on the industry leads desktop research of the industry and the current state analysis of identification of the following six strategies that may assist in growing the DCI. The relevant 120 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia As a way forward, Malaysia needs to strengthen and follow through on specific programs and initiate a strategy that addresses the challenges and considers market exigencies to accelerate the growth of the sector. It has to be holistic in nature and address the following areas:
- Ecosystem Building;
- IPs, Branding, and Promotions;
- Investments, Market Access, and Business Collaboration;
- Funding and Incentives;
- Talent Development and Reskilling;
- Regional Cooperation.
One specific weak area of the Malaysian DCI is the pursuit of innovative research and development (R&D). Only a handful of the 300 plus companies has R&D capabilities for this industry. The existing tertiary education institutions are merely focused on churning out talents and do not have a focus on R&D despite their investment in the tools and technologies 121 that their students need to be familiar with for pursuing a career in the DCI. CHAPTER
The Malaysian DCI is still in the growth phase. The global market for the industry is 02 Accelerating the Growth of the Digital Content Industry in Malaysia an indicator that Malaysia has an opportunity to acquire a bigger share of the pie. The strengths, weaknesses, opportunities, and threats (SWOT) analysis has indicated the challenges and opportunities that Malaysia has to recognize and try to address in a strategic manner. The preliminary findings above coupled with the reference from the Korean experience will pave the way for industry acceleration. http://www.pewglobal.org/2018/06/19/social-media-use-continues-to-rise-in-developing-countries-but-plateaus- (2018), 2 Korea’s Experience in the Digital Content Industry the Digital in Experience Korea’s In 2017, total sale of Korea’s content industries was about USD 100b, of which the digital content In 2017, total sale of Korea’s Due to such changes in the mobile environment, the worldwide content market is is environment, the worldwide content market Due to such changes in the mobile 3.1. Overview of Korea’s Digital Content Industry Digital of Korea’s 3.1. Overview we first explain the DCI in detail, current status of the Korean Before covering the (accessed on Dec 21, 2018). across-developed-ones/#table Poushter classification criteria are shown in the table below. 2 content market was about USD 40b. As the DCI became more important and new content content new and important more became DCI the As 40b. USD about was market content the DCI classification. government rearranged products continued to emerge, the Korean In 2016, Korea systemically rearranged the vague industry classification and classified the information games, advertising, movies, broadcasting, music, comics, publishing, into DCI Detailed content, content solutions, communication, distribution platform, and e-learning. (USD 100b), Britain (USD 97b), France (USD 69b), Korea (USD 52b), Brazil (USD 39b), and Italy 52b), Brazil (USD Korea (USD 69b), (USD 100b), Britain (USD 97b), France content market, account for 77.8% of the world’s 10 largest markets (USD 38b). The world’s those top countries is striking. of the content industry of and the concentration constantly expanding. The size of the world content market in 2012 was USD 1,667b, but by in 2012 was USD 1,667b, but by world content market constantly expanding. The size of the in the United States is the largest market 24.8% to USD 2,081b. The 2016, it had grown by was about USD 780b, accounting for the size of the US content market As of 2016, world. (USD 177b), Germany China (USD 217b), Japan It is followed by 37.5% of the global market. usage rate is 69%. Lebanon (72%) is the only country with a higher rate than Korea, and the than Korea, with a higher rate is 69%. Lebanon (72%) is the only country usage rate Asian countries Many are the same as that of Korea. of the United States and Australia rates China (60%) have relatively low social media usage such as Japan (39%), Vietnam (53%), and rates. Netherlands, Sweden, Canada, the United States, the United Kingdom, Germany, France, and and France, Kingdom, Germany, the United States, the United Canada, Netherlands, Sweden, of developing countries such as India (25%), Indonesia Spain are as high as 90%, while those internet in differences These low. comparatively are (56%) Philippines the and (30%), environments affect the usagerates of social media in eachKorea’s country. social media digital environment, which is the basis of the DCI. The DCI is experiencing rapid growth, as experiencing rapid DCI is The DCI. the basis of the which is environment, digital internet an and rapidly spread have PCs tablet and smartphones as such products mobile been established. The penetration large amounts of data has environment for processing of rate smartphones in is Korea 94%, firstranking in the world, and the internet penetration the as such countries developed of ratios 96%. The at world the in highest is the rate 3. 122 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia
Korea’s Classification Criteria in Digital Content IndustryClassification Criteria
General Overall information e-book Reality Professional information Publishing Information Contents web-based novel Living information
Others(blog based service) Entertainment
General Textbook Cartoon Web-toon General TVET
Download and Streaming Others Music e-learning Others(phone sound etc) Textbook
TV Reality TVET
Cable TV Others
General IPTV Authoring tool Broadcasting Satellite TV Content Protection
Others(DMB) Mobile Solution 123
Reality TV(UHD, 3DTV etc) Content Solution Online Payment CHAPTER
General CMS Movie 02 Reality CDN Accelerating the Growth of the Digital Content Industry in Malaysia
Online/Mobile Others(Cloud Storage etc)
Digital Communication Communications Advertising Commerce(Open market, Online/ Others(TV commercial etc) Content Distribution mobile shop) Platform PC online game O2O(delivery application)
Game Mobile game Digital contents of performance/ exhibition Reality game Other digital contents
Animation Digital Animation Others
Source: Ministry of Science, ICT and Future Planning (2016).
The sizes of the major markets in the DCI are as follows (the latest digital industry data released is from 2015). Total revenue in the DCI, which was USD 30.4b in 2013, increased by 10.2% to USD 33.5b in 2014 and grew to USD 36.4b in 2015 (up 8.7% from the previous year). Looking at the size of sales by subsector based on 2015, the digital games sector is the biggest in the DCI. In 2015, it generated sales of approximately USD 7.79b, accounting for 21.9% of total digital content sales. Next is digital information content, which accounts for about 13.5% of total industry sales. Total revenue of this sector in 2015 was about USD 4.91b. 2015 1,960 1,109 1,053 7,968 4,906 4,385 3,656 3,413 3,409 3,168 36,414 (Unit: USD million) 979 982 2014 1,844 7,687 4,726 3,686 3,297 3,011 3,066 2,922 33,498 874 2013 1,779 1,011 7,073 4,389 3,132 2,903 2,710 2,658 2,649 30,406 Game Music Movie E-learning Advertising Broadcasting Total Content Solution Information Content Distribution Platform Other digital Contents Digital Industry Ministry of Science, ICT and Future Planning (2016). Ministry of Science, ICT and Future We apply exchange rate as USD 1 = KRW 1,100. rate apply exchange We 6 7 8 9 2 3 4 5 1 10 As can be seen from the statistics, when we look at the growth rate of the digital content growth rate the statistics, when we look at the As can be seen from Note: Table 2-6> Sales of Digital Content Industry Top 10 Sectors 2-6> Sales of Digital Content Industry Top Table Source: Source: < increased as well. Next, the growth of digital advertising is remarkable. The digital content increased as well. Next, the growth of young to broadcasting and cartoons, games, digital to access easy provides which market, such of consumers to advertisements digital making actively of result a as grown has people, content. many consumers to access them. Next, the growth of digital content distribution platforms distribution platforms Next, the growth of digital content consumers to access them. many is significant. This sector grew steadilyby about 18–19% from annually, aboutUSD 3.1b in mobile delivery applications, the advent of many 2013 to about USD 4.39b in 2015. With of consumer purchases the pattern In addition, as greatly expanded. has the online market has changed from offline to online markets, the scale of distribution platform business has market compared with the previous year as of 2015, digital comics shows the biggest biggest the shows comics digital as of 2015, year previous the with compared market because its absolute size is small. It it is not shown in the table below growth, even though about 24.6%) and to USD 113m in 74m in 2013 to USD 92m in 2014 (up increased from USD due to the availability of digital This result is interpreted as being 2015 (up about 22.4%). Daum, making it easy for platforms such as Naver and internet Korean cartoons through Digital distribution platforms (USD 4.39b, about 12.0%), digital content solutions (USD 3.66b, solutions (USD 12.0%), digital content (USD 4.39b, about platforms Digital distribution 3.41b, broadcasting (USD about 9.4%), digital (USD 3.41b, digital advertising about 10.0%), DCI. biggest sectors in the are the next (USD 3.17b, about 8.7%) and e-learning about 9.4%), 124 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Next, we examine the export status of the DCI in Korea. First, the total exports of the DCI were about USD 3.6b in 2012, and by 2015, they reached USD 4.44b, a huge increase of about 23.4% in three years. However, the share of exports in total sales of the digital content market is only about 10%, and the digital content market in Korea is currently dominated by the domestic market.
Digital games account for a large portion of Korean digital content exports. Digital game exports in 2015 amounted to about USD 3.51b, accounting for about 79.1% of total exports. This is followed by the information industry (USD 5.8b), content solutions (USD 190m), and digital animations (USD 130m). To date, diversity of Korea’s digital content exports has not been achieved.
3.2. Industry Overview by Supply Chain
In terms of the value chain of Korea’s content industry, distribution and service is the largest at 43.9%, followed by production at 34.2% and creation and planning at 21.9%.
125
3.2.1. Platform Industry CHAPTER
In order to sell digital content to consumers, it is very important for sellers to have 02 Accelerating the Growth of the Digital Content Industry in Malaysia a familiar and accessible distribution platform for consumers. No matter how good the produced content, it is useless without a platform to distribute it. Recently, global distribution platforms such as YouTube, Netflix, Amazon, and Facebook have been creating various new paradigms of content distribution that combine cutting-edge technologies such as Internet of Things (IoT), AI, VR, and AR. These global platform leaders are expanding the scope of their business through content creation and various forms of investment, beyond simple distribution of digital content.
Broadcast platforms are divided into three types: 1) internet protocol television (ipTV) services that deliver real-time broadcasting through the internet and provide video on- demand (VOD), 2) over the top (OTT) services that provide video content through internet networks, and 3) digital cable TV that transmits cable broadcasting in real time through real- time cable networks and provides VOD. The cable network, which is a traditional type of distribution platform in the broadcasting industry, has a disadvantage of providing a limited number of channels and charging a fixed monthly fee. On the other hand, since OTT services are not restricted by time and offer various types of content through various digital devices, the OTT platform is in the spotlight. Currently, consumers are required to download videos or use VOD services in order to access broadcast videos. However, the OTT-type platform 3 The comic platform is divided into published cartoons and digital cartoons. As of 2018, cartoons and digital cartoons. As of 2018, The comic platform is divided into published The game platform is divided into the traditional game platform based on console and PC game platform based is divided into the traditional The game platform In the music market, consumers have shifted their consumption pattern from purchasingconsumption pattern have shifted their consumers market, In the music II-3 in p.47. 18-32, Table See KOCCA 3 10th in the Apple App Store, fifth in Google Play, and ninth in Line Manga. In particular, and ninth in Line Manga. In particular, 10th in the Apple App Store, fifth in Google Play, are actively taking place, with Korea’s in Japan, sales and revenues in overseas markets and of downloads first and second respectively in terms Line Manga and Picoma ranked revenues. Manga and NHN Entertainment’s Comico. The Korean webtoon platform is considered to create positive effects not only on content distribution but also on secondary copyright and In the second quarter of 2018, stationery. and as toys additional related product sales such digital comic platforms. It was ranked in the world’s seventh overall Line was ranked Korea’s were first rendered on the Daum portal site in 2003. Since then, other portal providers site in 2003. Since then, other portal providers were first rendered on the Daum portal such as Paran, Naver, and Nate have also started to offer digital comics. These large portal platforms provide cartoons for free by default and pursue their profits through advertising. 60 webtoon platforms such as Resin Comics, Cacao In addition, there are currently about Line and Webtoon Line Naver’s by led is market export The Korea. in TopTun and Page, the global cartoon market was estimated at about USD 7b, of which published comics 7b, of which published comics was estimated at about USD the global cartoon market web or comics (digital digital comics hand, other the majority (85.7%). On the for account digital cartoons (webtoons) 14.3% of the total. Korean comics) account for about USD 1b or games and the mobile platform based on mobile applications. Compared to the global total to the global applications. Compared mobile on based mobile platform the games and platforms game traditional using sales game of the proportion in 2018, sales (USD 137.8b) 67.5b), while game sales through mobile applicationsaccounted for approximately 49% (USD accounted for 51% (USD 70.3b). from online streaming services. In 2016, the size of the world digital music market surpassed digital music market services. In 2016, the size of the world from online streaming that of the traditional music market for the first time. The gap later widened, and the size of traditional 14.4b, more than double the size of the in 2018 was USD the digital music market (6.8b). music market will become a major broadcasting platform as more users use real-time video frequently. more users use real-time platform as a major broadcasting will become has music online As platforms. music online through services music purchasing to CDs comes now revenue music digital the of 73% music, broadcast than access to easier become 126 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 3.2.2. Game Industry
As of 2016, Korea’s game market was estimated at about KRW 10,894b, of which online games and mobile games accounted for the largest portion. Online game sales amounted to about KRW 4,665b, and mobile game sales amounted to about KRW 4,330b, accounting for 42.6% and 39.7% of total sales, respectively. The sales from PC rooms, one of the unique aspects of the Korean gaming industry, amounted to KRW 1.466t, accounting for 13.4%. In addition, the proportions of video games, PC games, and arcade games are not that big. Although the proportion of online games is the largest, that of mobile games is increasing, while the ratio is decreasing year by year.
Korea’s game industry exports amounted to USD 3.3b in 2016, and its imports amounted to USD 157m. Looking at data from 2011 onward, the export of games is steadily increasing, but the rate of growth is gradually decreasing. On the other hand, imports of the game industry have steadily declined from USD 205m in 2011, and as a result, the trade surplus in the game industry is increasing. Exports to the Chinese cultural countries (China, Taiwan, and Hong Kong) accounted for the largest portion with 37.6% followed by Japan (18.4%), 127
Southeast Asia (15.6%), North America (11.4%), and Europe (10.3%). CHAPTER
As the statistics show, the game market is moving from online games to mobile games. It 02 Accelerating the Growth of the Digital Content Industry in Malaysia is the result of concentrating on mobile game development, which utilizes IPs that already succeeded in the online market, by utilizing the convenience of mobile applications.
Korean Game Industry Statistics (Unit: Billion won, million USD) 2011 2012 2013 2014 2015 2016Sales (KRW) 8,805 9,753 9,720 9,971 10,722 10,895
Online 70.8 69.9 56.1 56.6 49.2 42.6
Mobile 4.8 8.2 23.9 29.2 32.5 39.7
PC room 19.5 18.4 17.1 12.3 15.5 13.5
Share Video 3.0 0.7 1.0 1.6 1.6 2.4 (%) Arcade 1.7 1.7 1.7 0.9 0.8 1.0
PC 0.1 1.6 0.4 0.4 0.4 0.3
Export (USD) 2,378 2,369 2,715 2,974 3,215 3,277
Import (USD) 205 179 172 166 177 147
Source: KOCCA (2018), p. 54-66.
Detailed information server, software rental, internet fee the market service management service, payment Support for tenants (rent (80%), management fee (50%)), consulting, provision of test Support for tenants (rent (80%), management fee 2010-16) test (1,360 professionals by Government-certified professional qualification Not only supports production, but also promotes contents that are already produced in Not only supports production, games and start-up games (within 3 years) Supports export-type content trend information market language translation, Export market game support of servers, overseas marketing, operation support, Infrastructure game operation testing, marketing, Supports one-stop service such as consulting, game • • • • • • •
GSP Talent Policy Publishing Production Localization KOCCA (2018c), p.1100~1120. KOCCA Mobile Game Mobile Game 3.2.3. Animation Industry industry. game the to compared small relatively is industry animation Korean The The Korean government supports various policies related to the development of the of the to the development policies related supports various government The Korean Global Game Hub respectively. The largest export market is North America, with an export value of USD 69.7m, is North America, with an export The largest export market respectively. Exports Europe (21.3%) and Japan (19.4%). accounting for 51.4% of total exports, followed by to Southeast Asia are small (USD 0.6m in 2016) but have increased by more than five times since 2014. However, the animation industry has been growing steadily until In recently. 2012, animation The 2016. by 677b KRW to grew which 521b, KRW to amounted sales animation value chains: production, distribution, and online industry is composed of three major In (31%). distribution by followed total, the of 67% for accounts Production services. 7m, USD and 136m USD were industry animation the of imports and exports the 2016, Source: Source: qualifications test system. qualifications test Polices in Game Industry 2-8> Korea’s
Animation Industry Statistics (Unit: billion won, million USD) 2012 2013 2014 2015 2016Sales(KRW) 521 521 560 610 677
Production - - 378 426 452
Share Distribution - - 171 171 210
Online Animation Service - - 11 13 15
Value Added 220 219 222 218 222 (%) (42.2) (42.1) (39.6) (35.8) (32.9)
Export(USD) - - 116 127 136
Import(USD) - - 7 7 7
Source: KOCCA (2018d), p. 20-30.
Various central and local government organizations are supporting the improvement of the production environment of the animation industry and helping to increase exports. The Ministry of Culture, Sports, and Tourism (MCST) and the KOCCA are the leading supporters of the project. In addition, several local agencies such as the Seoul Animation Center, Gyeonggi 129 Provincial Promotion Agency, and Gwangju Information Culture Industry Promotion Agency CHAPTER provide various assistance programs for animation companies located in their regions. 02
As a member of the Asian Animation Summit, the Korean government is helping to Accelerating the Growth of the Digital Content Industry in Malaysia secure project partners in the animation industry. The Asian Animation Summit is jointly run by five countries: Korea, Malaysia, Indonesia, Thailand, and Australia. The animation support organizations all support the enhancement of production, exports, and workforce. In particular, the KOCCA submitted 1,260 cases in 2016 and 1,050 cases in 2017 through the Kidscreen Summit. The local government organizations in each region also actively support the exports of companies located in their regions. For example, Gyeonggi Provincial Promotion Agency operates online export support centers as well as offline support through trade fairs. In 2016, it achieved about USD 70m in exports through trade fairs. It also supports animation education at high schools and universities to train relevant experts.
3.2.4. Character Industry
As the animation and comic industries develop, the related character industry is also growing. Character industry sales increased to KRW 11.5t in 2016 from KRW 7.5t in 2012. In the same period, the value added increased from KRW 3.1t to KRW 4.3t. As of 2016, value- added production accounted for about 39% of total sales. The exports of the character industry have steadily increased. In 2016, it exported about USD 613m, while imports were 613 170 4,326 5,655 5,411 (39.1) 2016 11,066 551 168 3,987 5,087 4,994 (39.6) 2015 (Unit: billion won, million USD) 10,051 489 165 3,794 9,053 4,503 4,550 (41.9) 2014 3,477 8,307 (41.9) 2013 7,517 3,144 (41.8) 2012 Production Distribution (%) Sales(KRW) Export(USD) Value Added Value Import(USD) KOCCA (2018e), p. 20-30. KOCCA 3.3. Labor Market is being carried out in various places such as specialized Content education in Korea The government’s policy for the character industry, which used to be mainly focused which used to be mainly focused industry, policy for the character The government’s The largest export destination for character goods is North America. As of 2016, the of 2016, the North America. As goods is for character export destination The largest Share such as the Ministry of Education (MOE), the Ministry of Science and ICT (MSIT), and the (MSIT), and the such as the Ministry of Education (MOE), the Ministry of Science and ICT content the in needed talents develop and train jointly Labor and Employment of Ministry establishing by industry with universities and industries. The MOE is supporting universities to cultivate assisting universities is MSIT system. The education an employment-oriented high schools, community colleges, and universities. In Korea, central government agencies government agencies central high schools, community colleges, and universities. In Korea, projects, expanding the licensing of domestic characters, and helping to advance into and helping to advance into domestic characters, projects, expanding the licensing of by of SMEs in the export market is expanding the participation The KOCCA global markets. products overseas. For to advance character missions carrying out various expo and trade the United States, the United those from Germany, example, in 2016, 68 companies, including Kingdom, and China, participated in about 900 consultations. on creation, production, distribution, and export, has recently reflected the needs of and export, has recently reflected the needs of on creation, production, distribution, to discover and nurture various IPs of adding planning stages. In order the creators by creative strengthen to policies supportive implementing is government the characters, of the development The government also supports capabilities and build a business base. development character production through supporting character products by character Source: Source: 77million, 12.6%). Industry Statistics 2-10> Character
The Korean government has developed the National Competency Standards (NCS) to use in industries that demand a high level of creativity as the content. Through this policy of cultivating the content industry workforce, the government is attempting to switch from curriculum-based training to outcome-based training. However, the current educational content is mainly technical, such as content production, and education for planning and commercializing content is somewhat lacking. Korea has been conducting science, technology, engineering, arts, and mathematics (STEAM) education since 2011 based on the science, technology, engineering, and mathematics (STEM) education developed in the USA. In other words, it conducts fusion talent education through convergence between various majors, and it is cultivating human resources that are needed immediately in the DCI. Approximately 48.3% of primary education schools are conducting STEAM education. However, due to the university-oriented education, STEAM education does not cultivate 131 practical creative talents. On the other hand, more professional content education is CHAPTER being made in college. While there was only one university content-related department in 02
1990, there are now over 100. Within the universities, there exist various types of content Accelerating the Growth of the Digital Content Industry in Malaysia departments, such as social science dealing mainly with cultural content and engineering science for the production of digital content products. Despite the rapid growth of content- related departments in Korea, there still appears to be a gap between the human resources the industry desires and the college graduates.
In order to reduce the existing gap between universities’ talents and those needed by industries, the KOCCA, a government-sponsored organization, launched One Campus, an industry–academy-linked education program, in 2016, and it currently plans to expand campus operations nationwide. Most content companies are located around Seoul, so it is anticipated that the content companies located in the provinces will be able to solve the problem of the lack of proper workforce. One Campus provides many educational programs that cannot be provided by universities’ curriculums. This training program teaches not only how to create content but also how to commercialize developed content. In addition, by educating students in planning and storytelling, One Campus inspires them to create their own IPs.
One Campus consists of a hub institution and a platform institution. The hub agency manages business through a one-stop service and provides human and physical infrastructure. The platform agency nurtures talent through collaborative projects among 15 20 45 # of participants Contents research institute Seminars, special lectures Master and Ph.D. students students Master and Ph.D. Practical courses at KOCCA facility courses at KOCCA Practical Undergraduate and graduate students and graduate Undergraduate 12 credit course for Master and Ph.D. students 12 credit course for Master and Ph.D. Train the manpower by participating in content by the manpower Train development projects among university, industry, and industry, development projects among university, Program Special Course Regular Course KOCCA (2017), p.106-107. KOCCA Development Course 3.4. Technologies and Research Activities and Research 3.4. Technologies need that industries of nature the of because are essential DCI the in activities Research The programs offered by One Campus are listed below. In the first program, development development In the first program, are listed below. by One Campus offered The programs without the technology to create digital content. In this subsection, we examine essential examine essential without the technology to create digital content. In this subsection, we technologies and R&D activities for the development of DCIs. to develop new digital content constantly. It is impossible to develop the digital industry industry digital the develop to impossible is It constantly. content digital new develop to Source: Source:
Talent Programs by One Campus by Programs 2-11> Talent Using the results of a questionnaire survey of 850 digital content companies in Korea, 02
the relevance of each core technology in each sector was calculated, and this is shown in Accelerating the Growth of the Digital Content Industry in Malaysia the table below. The importance of computer graphics was greatest in many sectors. It was found that it was the most necessary technology in the movie, animation, broadcasting, and game sectors. On the other hand, the VR, AR, and five-sensory interaction technologies, which are the most advanced technologies in the smart content industry, seem to be used only in some sectors such as games, movies, and animations. After confirming the current position of the Malaysian content industry and the potential for future development identified through Section 2, we will be able to infer the technology field in which to invest intensively. (Unit: %) 5.4 1.8 7.1 0.8 4.4 3.8 3.9 0.0 0.0 6.9 0.0 0.0 13.6 11.4 11.8 smart Intelligent distribution 59 0.0 1.8 1.8 0.0 0.8 4.4 2.7 1.3 0.0 0.0 8.6 0.0 2.9 10.7 Five- sensory interaction 1.8 4.5 0.9 0.0 1.8 0.0 0.0 1.9 0.0 0.0 0.0 1.7 0.0 2.9 11.1 Hologram 3.5 1.8 2.4 0.8 6.6 0.0 19.6 45.5 11.8 15.6 12.3 14.3 27.6 50.0 17.1 graphic Computer 1.8 1.8 0.0 0.0 0.8 0.0 5.2 0.0 4.3 4.5 1.8 4.0 1.3 AR 15.6 14.3 4.1 0.0 0.0 0.0 4.3 0.0 2.6 1.8 6.4 1.3 0.0 VR 20.0 22.4 10.0 23.2 Total Game Music Movie Others Content Content Cartoon Solution e-learning Publishing Animation Ministry of Science, ICT and Future Planning (2016). p.175. Planning (2016). Ministry of Science, ICT and Future Information Broadcasting Advertisement Communication Of the companies engaged in the DCI in Korea, 21.3% of them have their own R&D 21.3% of them have their own R&D in Korea, Of the companies engaged in the DCI Distribution Platform accounted for about of companies 51% of with the five total companies. In addition, the ratio USD was about cost R&D average The highest. next the researchers (about 12%) was to 10 high at about 2,500. The R&D amount for information content and advertising was relatively movies (about USD 4,300) and broadcasting (about USD 3,400). USD 4,700, followed by organizations. Among them, content solutions, games, and comics were found to have high organizations. Among them, content for 46.9%, 35.1%, and 25.0%, respectively. percentages of R&D organizations, accounting The average number of R&D personnel was 6.6. Companies with less than five researchers Source: Source:
Core Technologies Relevance in Each Sector Relevance Technologies 2-12> Core 3.5.1. Government Organization and Law
In Korea, the MSIT and Digital Content Promotion Act are responsible for industrial policies and laws, respectively. The core government agency in content industries is the MCST. The MCST is also responsible for copyright and media policies of content products. On the other hand, the MSIT handles digital content.
The Online DCI Development Act, which was enacted in 2002, was revised in 2012 as the Content Industry Promotion Act. According to the basic plan set by the law, the government should have a system to allow the Content Industry Promotion Committee to finalize related laws. This committee establishes the basic direction of the policy for the development of the content industry and establishes the development policy for each field. It also plays a role in coordinating the duplication regulations existing in the content industry. In accordance with the Digital Content Promotion Act, the Content Financial Cooperative should be formed, and cooperation and autonomous economic activities should be promoted among content 135 companies. Accordingly, the Korea Content Financial Cooperative was established in 2013. CHAPTER In addition, the legal bases for the DCI are the Basic Law on Cultural Industry Promotion,
Telecommunications Business Law, Information and Telecommunications Industry 02 Accelerating the Growth of the Digital Content Industry in Malaysia Promotion Act, and Consumer Protection Act in Electronic Commerce.
3.5.2. Government Policies
In December 2018, the Korean government announced key strategies to strengthen the competitiveness of the content industry. The Korean government has set three core strategies: securing industrial competitiveness, expanding new markets and creating demand, and improving the process environment and entire industry system.
First, in order to strengthen the competitiveness of the DCI, the Korean government wants to 1) strengthen infrastructure and policy finance to reflect industry demand, 2) cultivate on-site talent and strengthen job support, and 3) cultivate new content and pursue technology R&D innovation. Among Korean content companies, about 92% have less than 10 employees, and these companies face difficulties in obtaining loans from financial companies because of their small size. To assist companies with insufficient collateral borrow money at low interest rates, the government is helping them borrow funds through government guarantee agencies such as the Korea Technology Guarantee Fund or the Korea Credit Guarantee Fund. To build an industrial infrastructure, the government is currently Third, the government aims to create a fair industrial environment and pursue drastic pursue drastic Third, the government aims to create a fair industrial environment and Second, in order to expand new markets and create new demand, it is necessary to 1) demand, it is necessary to 1) and create new Second, in order to expand new markets regulations. The Korean government must establish a legal basis to establish a distribution establish to legal basis must establish a government Korean regulations. The the Korea MSIT, the the MCST, as such agencies Government order of digital content. Commission together form the foundation Trade Communications Commission, and the Fair for the fair contract. intends to export Korean content through industry fairs and K-content expos. intends to export Korean environment fair a create 1) should government the end, this To innovation. institutional laws and for the content industry and strengthen the rights of creators and 2) innovate Korean wave Big Data to diversify overseas expansion and build a culture code database for wave Big Data to diversify overseas expansion Korean the The government plans to expand its six content business centers, including each country. expand in order to and the United Kingdom. Finally, United States, Japan, China, Indonesia, with the in connection markets the government is trying to expand its export the market, this end, the government wave, which is currently popular all over the world. To Korean devices, there are still gaps in the ability to consume digital content by region due to the region due to the to consume digital content by devices, there are still gaps in the ability government intends to create solve this problem, the To lack of related infrastructure. region. In addition, in content consumption by venues and clubs that can directly participate to produce content suitable for each region. Next, the government support is being provided Korean government will build a Hallyu Big Data Integrated Information System to provide create content demand and a local ecosystem, 2) pursue diversification of overseas markets and expand bilateral exchanges, and 3) utilize the new Korean wave (Hallyu). Despite the content easily due to the spread of online and mobile fact that consumers are able to access As of 2018, the total budget for content culture technology was only 0.3% of the total R&D was only 0.3% of the total R&D budget for content culture technology As of 2018, the total the development of government intensively supports The Korean support for the nation. and the development of and blockchain VR, AR, IoT, application technologies such as AI, are vital for future digital content. original technologies related to AR, which industry, academia, and research institutes jointly participate in each region. There were each region. There were institutes jointly participate in academia, and research industry, 2019. In this number to 15 by but the government hopes to expand four campuses in 2018, a for university credits while they work that gives students through the curriculum addition, third strategy between industry and academia. The it is strengthening the linkage company, and support R&D innovation. competitiveness is to nurture new content to enhance industry striving to increase the number of local Content Korea Labs (CKLs) and regional business regional business Labs (CKLs) and Korea of local Content increase the number striving to The direction 2022. each by respectively) to 15 now 10 and four, centers (there are incubation and talent employees’ potential nurturing to related is content digital strengthening of an industry–university will establish this end, the government job support. To strengthening the One Campus project in which In other words, it is promoting linkage system nationwide. 136 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia
Korean Government’s 3 Core Strategies for Content Industry Development3 Strategies Details
Strengthen infrastructure and policy finance to reflect industry demand Strengthening Industry Cultivate on-site talent and strengthen job support Competitiveness Cultivate new contents and pursue cultural technology R&D innovation
Create content demand and local ecosystem
Pursue diversification of overseas markets and expand bilateral New Market Expansion and exchanges Demand Creation Support the mutual growth of the related business by linking new- Korean wave
Create a fair environment for the content industry and strengthen the Fair Environment Improvement and rights of creators Institutional Innovation Innovate regulations and institutions to make private autonomy
Source: Korea Government (2018).
The following table shows the status of the Korean government’s cultural technology
R&D support. The Ministry of SMEs and Startups (MSS), MCST, MSIT, MOE, and Ministry 137 of Trade, Industry and Energy (MOTIE) are supporting R&D related to culture technology. CHAPTER Approximately USD 132m in government R&D funding was provided in 2013, and this 02 was expanded to approximately USD 174m in 2016. Among them, the MCST, MSIT, and Accelerating the Growth of the Digital Content Industry in Malaysia MOTIE have supported R&D resources of 43–49m USD, while the MSS and MOE have been supporting R&D funds with relatively small amounts.
Culture Technology R&D Support by Government Organizations (Unit: USD million) 2013 2014 2015 2016MSS 18.3 18.1 21.3 25.2
MCST 29.4 24.0 15.2 43.4
MSIT 41.5 25.0 51.8 48.3
MOE 5.6 9.2 10.2 8.7
MOTIE 37.1 57.3 53.2 48.6
Source: KOCCA (2018a). Implications and Policy Recommendations and Implications The Malaysian government has a manufacturing-oriented national development plan plan development national manufacturing-oriented a has government Malaysian The In addition to the game industry, the government’s efforts to strengthen the infrastructure the infrastructure to strengthen efforts government’s the industry, game to the addition In Korea’s PC room industry is a representative example. It is a business type that cannot be cannot that type business a is It example. representative a is industry room PC Korea’s One of the reasons the scope of Malaysia’s DCIs is so narrow is its poorly developed so narrow is its poorly developed DCIs is the scope of Malaysia’s One of the reasons 4.1. Strong Infrastructure 4.1. Strong DCI. the of development the for prerequisite a is infrastructure strong a Building involving industries such as the E&E, chemical, M&E, medical device, and aerospace and aerospace as the E&E, chemical, M&E, medical device, involving industries such industries. However, while these industries may be important to the overall economy of the composed of industrial structure is they are not SME-oriented industries. Malaysia’s country, on and develop it is necessary to concentrate 99% SMEs. In order for SMEs to grow rapidly, in the content market shift from real goods to digital goods, consumer demand for faster faster for demand consumer goods, digital to goods real from shift market content the in is them on based content digital of importance the and greater, becomes speeds internet day. by increasing day are urgently needed for the development of other industries such as the broadcasting of other industries such as the broadcasting are urgently needed for the development online streaming services. The Malaysian service) and various industry (especially the VOD investing a significant the inducement effect by government will be able to maximize patterns As consumption portion of its R&D budget to strengthen this digital infrastructure. found in other countries. In the Korean game industry, the PC room business has grown into game industry, found in other countries. In the Korean reason for its success is that a fast internet the third largest game platform. The fundamental the country. network was established throughout On the other hand, DCIs such as the distribution platform, advertisement, and e-learning distribution platform, advertisement, and e-learning On the other hand, DCIs such as the developed based on strong infrastructure. can be built and industries developed in Korea be will it industry, content the for infrastructure stronger a builds Malaysia if Therefore, and create additional digital content businesses. able to broaden the diversity of the DCI infrastructure. Among the various types of DCIs, the game and animation industries are animation industries are types of DCIs, the game and Among the various infrastructure. other words, even if a strong national infrastructure manufacturing-intensive industries. In content using only computers and related devices. is not built, these industries can create Malaysia’s DCI is dominated by games and animation. Currently, the DCI in Malaysia does does in Malaysia the DCI games and animation. Currently, is dominated by DCI Malaysia’s According to the content. fields other than game and animation other advanced not have any followed by DCI in Korea, in the 3, the game industry is the largest player statistics in Section solution industries. distribution platform, and content the information content, 4. 138 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia the industries in which SMEs can easily grow. One such industry is the DCI, and it seems that the need to build an infrastructure for it is urgent. Therefore, the Malaysian government will have to lay the foundation for the growth of SMEs by transforming the R&D government budget into infrastructure for the digital industry. By investing heavily in R&D government budgets to strengthen these digital infrastructures, Malaysia will be able to maximize the inducement effect.
4.2. Cooperation with Foreign Platforms and Portals
A comparison of the composition of the DCI between Malaysia and Korea reveals that Malaysia is specialized in games and animations with strong manufacturing characteristics in the DCI, while Korea is also developing various content industries at the same time. Moreover, various additional business activities are being done through distribution platforms developed in Korea. On the other hand, Malaysia does not have a domestic distribution platform, and it relies on an overseas distribution platform to sell products and services produced in the DCI.
139
For example, some animation companies have a unique business model that involves CHAPTER uploading videos on YouTube for free and receiving only advertising payments from
YouTube depending on the number of viewers. In other words, a substantial portion of sales 02 Accelerating the Growth of the Digital Content Industry in Malaysia is generated through indirect channels through advertising rather than via direct sales of intellectual property rights (IPR). It can be evaluated as a novel business model that utilizes a high-level distribution platform such as YouTube to reach the global market, but it can also be evaluated as a poor business model that is generated due to Malaysia’s lack of its own distribution platform.
This business model is very different from Korea’s business model. In Korea, there exist many online or mobile portals and distribution platforms such as Naver, Nate, Daum, and Kakao through which digital content creators can easily find consumers. In order to improve the accessibility of digital content in Malaysia, it is necessary to support the development of a proprietary distribution platform.
However, creating a portal or distribution platform requires significant investment, and the chance of success with the existing foreign platform is not high. A short-term plan to reduce investment costs and reduce the risk of failure is to work with successful foreign companies to build a joint platform. The Line, one of the Korean distribution platforms, is supplying a successful platform in Asian countries. We suggest a joint venture between the Line and Malaysian broadcasting companies to build a distribution platform targeting the Malaysian Malaysian SMEs that want to export will also face the same difficulties that Korean SMEs Government support for SMEs is provided through the MSS. For SMEs that want to open through the MSS. For Government support for SMEs is provided 4.3. Cooperation of Export Support with KOTRA of Export Support 4.3. Cooperation Development Trade External support is provided through the Malaysia export Malaysia’s investment. Through this study, we propose overseas network sharing cooperation between between we propose overseas network sharing cooperation investment. Through this study, Through countries. 83 in centers trade 124 operated has KOTRA The KOTRA. and MATRADE the and information market overseas SMEs’ sharing organizations, two the between cooperation SMEs to enter and expand their export markets. will help Malaysian export support programs face. In order for Malaysia to introduce export support systems such as the export incubator export the as such systems support export introduce to Malaysia for order In face. a have must MATRADE government or the Malaysian the programs, voucher and export time and countries abroad. Building such a network requires support network in several field research, and design development within the scope of the voucher. There is also a a also voucher. There is of the scope the within development design and research, field global SMEs enter the helps entry that e-commerce export market support system for or engage in export through SMEs can participate in exhibitions online e-commerce market. domestic and overseas platforms. 22 regions of 14 countries. Companies in the export incubator receive 5–80% of the rental rental the of 5–80% receive incubator export the in Companies 14 countries. of regions 22 and accounting consulting support as well as legal fee and can also receive marketing for exporters. Export vouchers are given program services. There is also an export voucher than $5m, and companies that receive vouchers can to companies with export earnings less spend them on expenses related to online and offline overseaspayments such as education, startups with innovative and global exporters. startups with innovative and global exporters. acquisition, and information but are struggling with budget constraints up overseas markets there are 299 incubators in Currently, program. the MSS is conducting an export incubator Promotion Agency (KOTRA). Korea has a variety of mechanisms and policies to support the and policies to support the has a variety of mechanisms Korea (KOTRA). Promotion Agency centers in 83 countries. Through 124 foreign trade has the KOTRA exports of SMEs. First, companies that want to export information to the this, it provides various types of market that companies domestic for programs support provides also KOTRA The countries. those to linking domestic opportunities to expand exports by want to be exporters, and it provides Corporation (MATRADE), which has the same functions as Korea’s Trade-Investment Trade-Investment has the same functions as Korea’s which (MATRADE), Corporation Malaysian domestic market that will eventually be extended to other Asian countries. Rather to other Asian countries. be extended that will eventually market domestic Malaysian value-added be able to create more will or portal, Malaysia its own platform than developing ultimately bring joint venture will platform. This a joint venture utilizing by industries webtoons, online payments, such as online shopping, opportunities, more business Malaysia and online advertising. 140 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 4.4. Securing Intellectual Properties (IPs)
The most important issue in the development of the DCI is how many IPRs are owned by content providers. If a content creator serves only as a part of a GVC established by overseas content producers, it cannot be expected to create high added value. In particular, securing IP in the field of animation, where Malaysia is relatively competitive, is extremely important. When animation producers produce and supply animations without securing their own IPs, they can only form a part of the value chain and create small value added in the production process. On the other hand, companies with their own IPs can create high value added and have a chance to sell additional products related to content as well as creating value added through sales of the content itself. For example, it is possible to generate other profit through sales of various industrial products related to IP (dolls, bags, clothes, stationery, etc.).
In order for existing enterprises or startups to generate IPs, active support from the government is needed. Creating competitive IP requires substantial time and money. In order for content companies to endure the long periods of IP creation and commercialization, the government must support R&D tax incentives for companies with 141 high potential to create their IPs. Korea’s R&D spending is more than 4% of total GDP, while CHAPTER Malaysia’s R&D spending is only 1.4%. Malaysia needs to increase its R&D expenditure to 02 upgrade the overall economy. When expanding R&D expenditure, priority should be given Accelerating the Growth of the Digital Content Industry in Malaysia to industries that can successfully utilize its R&D.
4.5. Talent Exchange Program
In the fast-changing DCI, it is important to nurture the workforce and acquire the relevant skills in a timely manner. To create and commercialize IP in the DCI, well- established organizations and systems capable of cultivating creators must be provided. Various educational institutions (mainly universities) are teaching content creation skills and related technologies. However, the question remains as to whether university education can be directly used in the DCI.
Korea has been aware of such problems and has come up with ways to resolve them. In order to narrow the gap between university education and industrial utilization, the KOCCA built the One Campus education system to connect universities and industries.
One Campus provides many educational programs that cannot be provided by universities’ curriculums. One Campus offers a wide range of education, including how to create IP as well as how to commercialize the developed content. One of the things that the Malaysian government should consider when raising the the raising should consider when government Malaysian that the things One of the It is necessary to learn how to cultivate the workforce through cooperation between the through cooperation to cultivate the workforce to learn how It is necessary areas. Most companies want to locate their businesses in Seoul or in the suburbs. As a result, Seoul or in the suburbs. As a result, want to locate their businesses in areas. Most companies contribute labs content digital The nearby. and Seoul in concentrated also is workforce the supply between Seoul and the provinces. to solving the disparity in demand and content workforce in the country is how to solve the labor shortage in the provinces. The The provinces. the in shortage labor the solve to how is country the in workforce content Through these the country. labs in major cities throughout digital content operates KOCCA local in demand supply and in disparity the eliminate seeks to government Korean labs, the KOCCA and the Malaysian content workforce training institute. Furthermore, through the through the Furthermore, institute. workforce training content and the Malaysian KOCCA certain will receive a workforce the Malaysian the two institutions, between cooperation to have the opportunity so that students will in Korea, the One Campus at training period of knowledge of the content industry. gain experience and 142 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia References
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CHAPTER Keywords Change, Structural Industrial Policy, Cyberjaya, Cyberjaya Industrial Cluster, Industrial Development 4. Policy Recommendations 2. Evaluation of Industrial Clusters of Cyberjaya in Malaysia 2. Evaluation of Industrial Clusters Industrial Parks Experiences in Developing 3. Korea's 1. Introduction Moonsung Kang (Korea University) Moonsung Kang (Korea Malaysia) Mohd Fadlee A Rasid (Universiti Putra Revitalizing Cyberjaya Revitalizing Development Strategies for Strategies Development 03 144 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Development Strategies for Revitalizing Cyberjaya
Moonsung Kang (Korea University) Mohd Fadlee A Rasid (Universiti Putra Malaysia)
Summary
This chapter analyzes the current status of Cyberjaya’s industrial clusters and then proposes government policies for revitalizing Cyberjaya in a way of establishing a better ecosystem of industrial clusters and more sustainable growth environment, based on Korea’s experiences in industrial development and related industrial policies. 145 CHAPTER
It turns out that one can positively evaluate factors of centripetal forces in Cyberjaya, 03 mainly in the categories of IT-related environment and activities of knowledge spillovers. Development Strategies for Revitalizing Cyberjaya However, the quality of universities in Cyberjaya would not be good enough to generate knowledge which can be commercialized by companies in Cyberjaya. In addition, there is no public research institutions in Cyberjaya. On the labor market, public transportation to Cyberjaya would be good enough for potential workers to commute to Cyberjaya. In addition, supplies of graduates from universities in Cyberjaya are enough to provide quantitative supplies of potential workers to companies in Cyberjaya, even though no data has been available to check how many graduates from universities in Cyberjaya have been hired by companies in Cyberjaya. However, IT project managers in Cyberjaya have been paid better than those in Kuala Lumpur and Petaling Jaya, presumably implying that higher salaries would lead knowledge workers to seek their jobs in Cyberjaya. As explained before, the quality of universities in Cyberjaya would be a concern in terms of the qualitative supplies of potential workers, but it turns out that graduates from MMU have been most preferred by companies in Cyberjaya. In addition, the Malaysian labor market has been facing at issues of brain drain and mismatch between supplies of skilled workers and demands of workers with specific skills, implying that the labor market needs to be restructured in a way of considering these two issues. On the matter of the linkages between buyers and sellers, it turns out that it is relatively convenient for customers to visit Cyberjaya. However, since companies make their locational decisions based on their industrial characteristics, Considering the Malaysian situation to provide policy recommendations of revitalizing revitalizing of recommendations policy provide to situation Malaysian Considering the One of the success factors of industrial park strategy is the efficient operation of the parks is the efficient operation park strategy One of the success factors of industrial Studying Korea’s experiences in developing industrial parks, one can realize that Korea’s that Korea’s experiences in developing industrial parks, one can realize Studying Korea’s In general, clustering would be dependent on factors of centrifugal forces, which make make which forces, centrifugal of factors on dependent be would clustering general, In Cyberjaya, this study chose three different industrial parks to conduct case studies: studies: this study chose three different industrial parks to conduct case Cyberjaya, The case study on Valley. Daedeok Innopolis, Guro Industrial Park, and Pangyo Techno park development, the government established a separate organization for the development organization for the development park development, the government established a separate management of and management of industrial parks to seek efficient development and Industrial Export Korea the established government Korean the specifically, More parks. of those industrial charge of development and operation which has taken Corporation, parks, but later has strengthened its functions of managing them. led economic growth, including efficient and continuous supplies of industrial sites and and sites industrial of supplies continuous and efficient including growth, economic led industries. clustering of national strategic of industrial agency that manages individual parks. In the early days through a separate policies have been effective in developingindustrial parks,by matching them with phased and industrial policies, to achieve the two ultimate policies, tailored to economic conditions national development. The development strategy goals of industrialization and the balanced on the successful promotion of government- of industrial parks had a positive impact hence air pollution has not been an issue of Cyberjaya. In conclusion, the centrifugal forces of Cyberjaya. hence air pollution has not been an issue though the authority needs to consider the have not been severe so far, even in Cyberjaya housing costs. rapidly rapidly increased by more than 50% in recent years, while the office rental rates have been Lumpur, the in Kuala old CBD new and those in the comparing with pretty competitive, however, the spacious area of Cyberjaya, Lumpur, and Selangor. Given fringe area of Kuala has been developed in an yet. Moreover, Cyberjaya it has never experienced congestion carbon emission from factories, and strongly regulating environment-friendly manner by including congestion and pollution. In addition, industrial clusters are generally designed designed clusters are generally and pollution. In addition, industrial including congestion to be developed within a specific area, designatedby the government or any public agency. in a specific area and a limited supply of land to developers there would be In general, On the matters each other for immobile factors. need to compete with hence stakeholders has cost housing the that showing outcomes, mixed have we Cyberjaya, in estates real of Cyberjaya started to be recognized as an ICT industrial cluster from Malaysian customers, customers, Malaysian from cluster industrial ICT as an recognized be to started Cyberjaya further. needs to be clarified subsector of ICT on any specific specialties even though externalities, negative include forces These the cluster. of be located outside to companies 146 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Daedeok Innopolis is relevant to Cyberjaya because the ecosystem in Daedeok Innopolis has been working well and hence it provides valuable lessons for Cyberjaya. There have been several key factors of the successful outcome in transforming Guro Industrial Park to Seoul Digital Complex: deregulation, the locational advantage of Seoul Digital Complex, network externalities, and the Korean government’s logical selection of strategic industries, particularly fashion and design sectors. Pangyo Techno Valley has also been successful in developing an innovative industrial cluster on high-technology, even including subjects of the fourth industrial revolution. The key factors of the success include the systemic plan designed by the public sector, differentiated and specialized plans, and the development of the ecosystem.
This chapter proposes ten policy recommendations to revitalize Cyberjaya in ways of enhancing effectiveness of its supporting system and incentive programs as well as improving its governance system. To strengthen centripetal forces in Cyberjaya, it needs to strengthen collaboration between universities and companies in Cyberjaya; upgrade universities in Cyberjaya or strengthen technological cooperation with universities outside Cyberjaya; and establish government-funded research institutions in Cyberjaya. Especially 147 in order to enhance the pooling effects of the labor market, the Malaysian government CHAPTER needs to transform the brain drain experiences to brain gain by strengthening REP or 03
making Cyberjaya-version of REP in the ICT sectors; and to strengthen vocational training Development Strategies for Revitalizing Cyberjaya and internship programs. In addition, it needs to consider industrial characteristics to select strategic industries.
In order to make incentive programs more effective, the Malaysian government needs to differentiate and customize incentive programs in Cyberjaya in order to attract more domestic and foreign investors. In addition, it needs to relax the ‘No Factory’ policy and expand the strategic industries, including Halal food industry and smart logistic services industry. In addition, the Malaysian government needs to establish a public agency to take care of all industrial parks in a more harmonious and systemic way, and to strengthen and expand the Cyberjaya Development Council in a more efficient and inclusive way.
1. Introduction
Malaysia has been striving to transform its economic structure from a primary-export- led economy to a more diversified, modern, and open economy over the last four decades. In the process of developing its economic structure in a technology-friendly way, the Malaysian government integrated an information and communication technology (ICT) plan in the The purpose of this study is to analyze the current status of Cyberjaya’s industrial clusters the current status of Cyberjaya’s The purpose of this study is to analyze In particular, Malaysia succeeded in attracting 43 multinational corporations (MNCs) (MNCs) corporations 43 multinational succeeded in attracting In particular, Malaysia The idea of a high-tech city similar to Silicon Valley began to crystallize into a practical into a practical began to crystallize Valley similar to Silicon of a high-tech city The idea from the textile industry in the 1960s to the digital content industry in the 2010s, and Pangyo from the textile industry in the 1960s to the digital content industry in the Valley. Techno parks and clusters, this chapter provides policy recommendations for Cyberjaya to be be to Cyberjaya for recommendations policy provides chapter this clusters, and parks Considering the vision of Cyberjaya revitalized in a more systemic and future-oriented way. focusing more on recent ones, rather cases by this paper selects Korean as an IT-themed city, of Daedeok Innopolis than ones developed in 1960s or 1970s, including the transformation Park Industrial Guro of transformation the cluster, innovation an to park science a from clusters of Cyberjaya by focusing more on centripetal and centrifugal forces that have and centrifugal forces that have focusing more on centripetal by clusters of Cyberjaya affected the formation of industrial clusters in Cyberjaya. It also assesses the effectiveness local companies to locate set to encourage government has of the policies that the Malaysian experiences in developing industrial Utilizing lessons from Korea’s themselves in Cyberjaya. and propose government policies for revitalizing Cyberjaya by establishing a systemic, long- by revitalizing Cyberjaya and propose government policies for development and experiences with industrial Korea’s term growth environment based on the industrial meet these objectives, this chapter evaluates related industrial policies. To building an industrial cluster, called Cyberjaya, in 1997. However, despite the successful studies, including Salman (2018), contend that active participation of local companies, some into a Cyberjaya been working enough to transform governmental intervention has not policy tools required for to analyze need the leading to planned, originally global ICT hub as in Cyberjaya. the sustainable growth of industrial clusters subsidies to businesses that met certain criteria such as technology level, job creation, and technology level, job creation, and that met certain criteria such as subsidies to businesses technology transfer. by companies MSC-Malaysia-status and 505 world in the countries developed from various create an optimal ICT hub to foster information technology (IT)-related soft industries by (IT)-related soft industries by ICT hub to foster information technology create an optimal and technologies and to provide technologies from foreign countries combining advanced develop and distribute multimedia for companies that want to a suitable environment provided various benefits government this end, the Malaysian To products and services. research and development (R&D) investment tax deductions, and such as tax exemptions, sixth Malaysia Plan (MP) of 1991–1995. (MP) of 1991–1995. Plan sixth Malaysia which aimed (MSC) in 1995, Super Corridor Multimedia so-called Malaysian plan, the to It was designed economy. in the knowledge-leading a major player Malaysia to make 148 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Section 2 of this chapter evaluates the current status of Cyberjaya in terms of how incentive programs have affected its performance and analyzes factors affecting its industrial clusters. We analyze centripetal and centrifugal forces that led to the formation of an industrial cluster in Cyberjaya, focusing more on knowledge spillovers and technological externalities; pooling effects of the labor market; linkages between buyers and sellers; real estate; and other negative externalities. In addition, Section 2 uses the cluster adaptive cycle model, developed by Martin and Sunley (2011), to evaluate the current status of Cyberjaya. Section 3 describes Korea’s experiences with developing industrial parks, focusing more on Daedeok Innopolis, Guro Industrial Park, and Pangyo Techno Valley. Given the evaluations of Cyberjaya and based on Korea’s experiences with developing industrial parks, Section 4 provides policy recommendations to revitalize Cyberjaya.
2. Evaluation of Industrial Clusters of Cyberjaya in Malaysia
2.1. Current Status of Cyberjaya 149 CHAPTER
The evolution of Cyberjaya, launched in 1997, from the vision of becoming Malaysia’s 03
Silicon Valley to a city developed and positioned by the government as the new global ICT Development Strategies for Revitalizing Cyberjaya hub, has been an inspiring journey. Fast forward to two decades later, Cyberjaya now has competitive advantages as a global ICT hub. In a press conference at an event in August 2018, Prime Minister Tun Dr Mahathir Mohamad, who created Cyberjaya as Malaysia’s first intelligent city in 1997, announced that the government would revive Cyberjaya to focus more on technology-based industries. He added that there could be a second wave of development in the MSC, driven by technological advances in the digital era. Since then, there have been various platforms and meetings highlighting the need to look back at Cyberjaya and revive some strategies for the future growth of Cyberjaya. This section of the report highlights the historical perspectives and original vision of Cyberjaya, the ecosystem of Cyberjaya driven by key stakeholders, the government policies, and the performance of the intelligent city.
2.1.1. History of Developing Cyberjaya
The inclusion of the national IT strategy in the seventh MP (1996–2000) marks the beginning of the MSC. The concept and the expectation of what the MSC would be for Malaysia were strategized as part of the seventh MP. The establishment of the 15-km- wide and 50-km-long Greenfield site, starting from the downtown area of Kuala Lumpur 6. Multiple transportation options 6. Multiple transportation 1. High-speed broadband access 2. Power redundancy 3. Security and safety 4. Environmentally friendly 5. Customer service The creation of MSC Malaysia was building from strength to strength, from Phase 1 of 1 of Phase strength, from to was building from strength of MSC Malaysia The creation Digital Economy (MDEC), 2014). The national transformation of MSC Malaysia has led to 58 to led has Malaysia MSC of transformation national The 2014). (MDEC), Economy Digital cybercities and cybercenters to date, as shown in [Figure 3-2] (MDEC, 2018). These certified and cybercenter performance standards cybercity locations that conform to MSC Malaysia criteria and standards, as shown below: have key MSC Malaysia cybercities or cybercenters to enjoy the full suite of 10 MSC Malaysia Bill of Bill of full suite of 10 MSC Malaysia the cybercities or cybercenters to enjoy MSC Malaysia encompass the whole of Malaysia to (BoGs). Phase 3 is expanding MSC Malaysia Guarantees introduction sees the phase also This cities. to global of MSC cybercities linkages creating and the birth of the Digital Malaysia leading into Framework of the Innovative Digital Economy are shown in [Figure 3-1] (Malaysia roadmap These phases of the MSC Malaysia program. part of the national rollout of cybercities and cybercenters. Cybercities and cybercenters are part of the national rollout of cybercities create to environments business well-functioning with areas Malaysia as MSC designated to ICT investors and to promote the growth their own ecosystems that can be attractive within operate to required are companies MSC-Malaysia-status companies. ICT of local MSC Malaysia from 1996 until 2003, growing into a global ICT hub in Phase 2 from 2004 until 2004 from 2 Phase in hub ICT global a into growing 2003, until 1996 from Malaysia MSC society in Phase 3 from 2011 until into a knowledge-based Malaysia 2010, and transforming 2020. In Phase 1, the first corridor of MSC Malaysia with four cybercitieswas established. which the web of corridors was growing as in Phase 2 was the next leap of MSC Malaysia in the global knowledge economy. The MSC was launched by Tun Dr Mahathir Mohamad on Tun Dr Mahathir Mohamad MSC was launched by The economy. in the global knowledge industries. The MSC for the growth of ICT and multimedia 1, 1997 as a special zone August and latest the using industries information-based the for center R&D the be to created was leading technologies. in the north to Kuala Lumpur International Airport (KLIA) in Sepang in the south, was to the south, was to in Sepang in Airport (KLIA) Lumpur International to Kuala in the north to aim to create MSC was supposed The in Malaysia. catalyst for IT development provide the World-class in Malaysia. industry supply for the multimedia of demand and both sides and develop high in the MSC to locate themselves encouraged companies were multimedia IT hub and a major player could be an and services so that Malaysia value-added IT products 150 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia [Figure 3-1] MSC Malaysia Roadmap
PHASE 1 PHASE 2 PHASE 3
Successfully Grow MSC Transform Malaysia create the Malaysia into a into a Knowledge- MSC global ICT Hub Malaysia base society
1996-2003 2004-2010 2011-2020 1st Corridor National Rollout National Transformation First 4 comprising Cybercities Cybercites and Cybercentres
Source: MDEC (2014).
The City of Cyberjaya lies at the heart of Malaysia’s MSC, as the nucleus of MSC Malaysia. Cyberjaya was launched in August 1997 and was positioned to become a global hub for ICT 151
industries. The 7,000-acre former oil palm plantation was named Cyberjaya, a high-tech city CHAPTER with a vision to replicate the innovativeness of Silicon Valley that stemmed from a study commissioned to McKinsey and Co in 1995 in setting up MSC Malaysia. In 1996, Nippon 03 Development Strategies for Revitalizing Cyberjaya Telephone and Telegraph (NTT) agreed to develop an R&D facility in Cyberjaya, which proved to be the project’s catalyst. Soon, other giants like Dell, HP, DHL, and Shell began to follow suit. With the global icons establishing their presence in Cyberjaya, the entire ecosystem began to form naturally. As MSC Malaysia was given priority in the eighth MP (2001–2005) to develop cybercities, Cyberjaya is one of the first four cybercities accorded with the MSC status besides Kuala Lumpur City Center (KLCC), Technology Park Malaysia (TPM), and Universiti Putra Malaysia-Malaysian Technology Development Corporation (UPM-MTDC). The aim was to design and develop Cyberjaya for living and working purposes for employees in IT industries. 1 Sarawak Pahang 1 1 Johor 1 45 Melaka Kedah 1 1 Perak 5 Klang Valley Penang MDEC (2014). The key developments in Cyberjaya can be divided into four general phases. The first phases. The first can be divided into four general in Cyberjaya developments The key Cyberjaya was developed to be the core of MSC Malaysia, a designated zone where a designated zone where Malaysia, was developed to be the core of MSC Cyberjaya timeframe amidst the rollout of new cybercenters to new qualified locations nationwide. amidst the rollout of new cybercenters to new qualified locations nationwide. timeframe sustained its competitiveness in the third phase, 2011–2013, before embarking Cyberjaya toward becoming a global technology hub, in December on the fourth phase, the transition to was government Malaysian the from mandate new the 2013, In 2014). (Cyberview, 2013 phase, 1996–2003, involved the efforts in establishing an ICT hub. Physical infrastructure infrastructure Physical an ICT hub. establishing involved the efforts in phase, 1996–2003, in Cyberjaya. was built to include fiber optic connectivity and a dual-feed power system hub. ICT a global become and grow to started Cyberjaya 2004–2010, phase, second the In the over recorded was startups and companies, local MNCs, of in the number Growth house prominent MNCs. Cyberjaya has the highest concentration of MSC-Malaysia-status MSC-Malaysia-status of concentration has the highest house prominent MNCs. Cyberjaya MNCs and 55 approved MSC designated premises that companies, inclusive of more than 30 (with a total and host 60% of data centers in Malaysia conform to the performance standards (MDEC, 2018). of more than 1 million ft2 floor space) that would make Malaysia a better competitor on the world stage. From the beginning phase a better competitor on the world stage. From Malaysia that would make has now over the years, Cyberjaya in 1997 to the growth and development of Cyberjaya been earmarked as a national ICT hub. A significantportion of MDEC growth is contributed companies and local ICT continues to catalyze investment of many Cyberjaya Cyberjaya. by technology entrepreneurs and global MNCs could enjoy attractive tax breaks and access breaks and access tax attractive could enjoy global MNCs and entrepreneurs technology ambitious The costs. nation developing at infrastructure and capital human world-class to one into a new knowledge economy, transformation project would spearhead Malaysia’s Source: Source: [Figure 3-2] MSC Malaysia 58 Cybercities and Cybercenters MSC Malaysia 58 Cybercities 3-2] [Figure 152 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia transform Cyberjaya into a global technology hub. This new hub was not to be limited to ICT and at the same time was to accelerate Cyberjaya’s global leadership in ICT. The new focus aimed to create high-tech jobs for Malaysians and to make Cyberjaya a preferred investment hub for technology companies while reaffirming Cyberjaya’s known position as a premier ICT hub. Since then, Cyberjaya has aspired to transform into a global technology hub in the face of local and global competition.
2.1.2. Infrastructure of Cyberjaya
The infrastructure development in Cyberjaya is guided by the Local Plan under the Sepang Municipal Council. A Local Plan is a written statement supported by implementation guidelines that explain in more detail the proposals by the local authority for development and land use to translate and refine the strategic policies of the Structure Plan. Accordingly, the latest Sepang Local Plan 2025 was provided to replace the previous development plans to meet the current and future needs and requirements, especially involving new developments, maintenance of environmentally sensitive areas (ESAs), and the provision of facilities and infrastructure in line with population growth. 153 CHAPTER
The City of Cyberjaya is under the District of Sepang, which has a sheer size of 152,958 acres or about 61,900 hectares. Administratively, this district area is further subdivided 03 Development Strategies for Revitalizing Cyberjaya into eight smaller areas known as planning blocks (BPs). The subdivision is basically to ensure that Sepang Municipal Council prepares a comprehensive development plan and has development control over its jurisdiction area. The City of Cyberjaya comes under BP 2, and according to Sepang Local Plan 2025, BP 2 is designated for residential and commercial development. Overall, Cyberjaya makes up about 4.6% of the total area of Sepang District. Cyberjaya or BP 2 is further subdivided into 12 small BPs, namely Cyber 1–Cyber 12 (see Table 3-2 and Figure 3-3).
The 12 small BPs and Cyberjaya map are shown in [Figure 3-6]. Cyberjaya City Center is situated at Cyber 3, and the central business district (CBD) is located at Cyber 12. Major universities such as University Islam Malaysia, Limkokwing University, and Multimedia University (MMU) are located at Cyber 1, 3, and 11, respectively. Meanwhile, commercial areas are located at Cyber 4, 5, 6, 8, and 12. Most residential areas are located at Cyber 1, 2, 3, 7, 9, and 10. Key stakeholders, such as Sepang Municipal Council, Cyberview, MDEC, and Setia Haruman, are located at Cyber 1, 8, 6 and 7, respectively (Sepang Municipal Council, 2017). 100 3.65 0.14 4.29 9.11 8.98 6.52 22.51 26.24 18.56 % of Total Area % of Total 10 254.24 298.56 634.24 624.75 453.46 1566.85 1826.35 1292.21 6,960.00 Size (Acres) Housing Total Area Total Commercial Water Bodies Water Light Industry Transportation Land Use Type Mixed Development Infrastructure & Utilities Infrastructure Institution & Public Amenities Sepang Municipal Council (2017). Open Spaces & Recreational Area Open Spaces & Recreational - Strategy 5: Planning of Public Amenities, Infrastructure, & Utilities (S5-6) 5: Planning of Public Amenities, Infrastructure, - Strategy - Strategy 1: World-Class Tourism (S1-9, S1-10) Tourism 1: World-Class - Strategy Town Development (S2-4, S2-8) 2: Efficient Land Use and - Strategy (S4-5) Public Transport 4: Integrated - Strategy The Sepang Municipal Council (2017) has also outlined development strategies for for strategies The Sepang Municipal Council (2017) has also outlined development The land use types in Cyberjaya as of 2016 are categorized as shown in
. 3-1>. in Breakdown of Existing Land Use in Cyberjaya of Existing Land Use 3-1> Breakdown Breakdown of Land Use According to ActivitiesType Categories/Activities
Housing • Non Strata • Strata
• Business & Services • Enterprise Commercial • Private Institutions
Light Industry • Enterprises
• Education Facilities • Religious Facilities • Community Hall/Stalls • Safety Services/Stalls Institution & Public Amenities • Hospital/Clinic/Polyclinic • Government • Graveyard • Public Higher Learning Institution
Mixed Development • Commercial & Housing
• Water Supply • Electrical Supply Infrastructure & Utilities • Gas Supply • Telecommunication • Sewerage System • Utilities Reserve
Transportation • Reserve Road/Highways/TLK/ERL/LRT
Open Spaces & Recreational Area • Open Spaces/Recreational Area
Water Bodies • River/Water Bodies/Drainage Reserve 155 Source: Sepang Municipal Council (2017). CHAPTER
The total live-in population of Cyberjaya in 2016 as reported in the Cyberjaya Smart 03
Low Carbon Action Plan 2025 (Sepang Municipal Council, 2017) was estimated to be 42,253 Development Strategies for Revitalizing Cyberjaya people. This number accounts for about 15.5% of the total population of Sepang District. From the total population of 42,253 people, around 24,661 people work in Cyberjaya, while the remaining balance of 17,592 people work outside of Cyberjaya. With the upcoming construction of the MRT2 line and two stations as well as the development of Cyberjaya City Center, it is expected that its population will be increased to 210,000 by 2020. The current population constitutes only 20.1% of Cyberjaya’s total planned population. According to data from Setia Haruman (2017), the current total population of people working and living in Cyberjaya is around 114,000.
Cyberjaya is a city built up on a strong foundation of contemporary and affordable infrastructure with an emphasis on sustainability. A total of around 30,000 homes in Cyberjaya were developed by 25 property developers of which around 4,000 affordable homes were completed. The total number of existing housing units in Cyberjaya is 15,278, while another 15,160 units are still under construction. Housing in Cyberjaya is broken down into two types: high-rise and landed. The high-rise housing dominates in Cyberjaya, contributing about 83% of total completed housing units (Sepang Municipal Council, 2017). Cyberjaya also offers customized space solutions with state-of-the-art facilities. In terms Sepang Municipal Council (2017). The infrastructure ecosystem in Cyberjaya covers various needs of its population. needs of its population. covers various ecosystem in Cyberjaya The infrastructure Source: Source: [Figure 3-3] 12 Small BPs and Map of Cyberjaya 3-3] 12 Small BPs and Map of Cyberjaya [Figure of office space, Cyberjaya has contemporary facilities and amenities with more than 99 than 99 with more facilities and amenities has contemporary space, Cyberjaya of office completed shops. completed and around 1,500 ft2 of office space with 13.53 million buildings According to data from Cyberview (2018), Cyberjaya has the second most affordable rates in Asia for renting office space; that is, rates Cyberjaya’s were at least 33% more affordable spaces across Asia in 2014. than most office and sewerage system. There are also recycling centers and a water reservoir in Cyberjaya Cyberjaya system. There are also recycling centers and a water reservoir in and sewerage 2014). (Cyberview, time of construction. Some of the notable features include a dedicated backup electricity electricity backup dedicated a include features notable the of Some construction. of time a district cooling system (DCS), and carrier neutral high-speed fiber connectivity, supply, Cyber 8 located in Cyber 6 (DCS 1) and data centers. There are two DCS plants in Cyberjaya of 40 multi- (DCS 2). The DCSs provide chilled water for the air-conditioning requirements manages its own solid waste management story buildings. As for the city utilities, Cyberjaya Besides the residential projects and office space, Cyberjaya has shopping centers, hotels, has shopping centers, hotels, office space, Cyberjaya Besides the residential projects and and commercial The hospital. a soon and universities, schools, outlets, food banks, data centers, and government offices. The includes R&D centers, industry infrastructure were built based on high-tech features at the and utilities in Cyberjaya infrastructure 156 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia In terms of communication infrastructure, there are two providers of telecommunication services: Telekom Malaysia Berhad and Setia Haruman Technology. ALLO (formerly known as Setia Haruman Technology) is also involved in the communication infrastructure for Cyberjaya. Cyberjaya is now connected to 1Gbps broadband with full mobile coverage of 2G, 3G, and LTE (4G). Cyberjaya was recently announced as one of the testbeds for the future 5G communication system.
Cyberjaya is located about 20 minutes from the city center of Kuala Lumpur, 30 minutes from Petaling Jaya and Shah Alam (Selangor state capital), 15 minutes from Putrajaya (federal administrative center of Malaysia), and 30 minutes from KLIA, the major air hub and gateway of Malaysia. Road connections around Cyberjaya are accessible via several highways and expressways. The upcoming MRT2 line will have two stops: Cyberjaya North and Cyberjaya City Center. The existing KLIA Transit to Putrajaya Sentral is connected to feeder buses from Cyberjaya Transport Terminal to Putrajaya Sentral (Sepang Municipal Council, 2017).
2.1.3. Governance System of Cyberjaya 157 CHAPTER
The governance system of Cyberjaya has been based on a multi-stakeholder administrative structure, where four key stakeholders were appointed to oversee distinct responsibilities, 03 Development Strategies for Revitalizing Cyberjaya as shown in [Figure 3-4]. Cyberview Sdn Bhd is a government-owned company, through the Ministry of Finance of Malaysia, responsible for providing infrastructure in Cyberjaya as a landowner of Cyberjaya and cybercity manager.
[Figure 3-4] Key Stakeholders of Cyberjaya
Sepang Cyberview Municipal Snd Bhd Council
Four Key Stakeholders
Malaysia Setia Haruman Digtal Sdn Bhd Economy Corporation
Source: MDEC (2014).
Under the lead of Cyberview Sdn Bhd as the cybercity manager, a supportive and supple ecosystem was developed to attract investors. This included providing a collaborative environment and incentives such as competitive rental rates, flexible repayment schemes, As Open to Cyberview to into a Cyberjaya transform Hub Global Technology Technology Hub Enabler Technology 2015 Now Global 2014 Blueprint Technology Hub Technology Cybercity Manager Drive growth of Cyberjaya as a premier ICT Hub 2011 Yesterday In 2013, "The Landowner of was romoved from Cyberjaya" the identity Facilitator Sell and lease land, construct buildings, support government certified ICT companies via development Cyberjaya 2005 The Landowner of Cyberjaya Past Cyberview (2018). Cyberview 1996 The Malaysian government established the MDEC, a government agency, in 1996. It was government established the MDEC, a government agency, The Malaysian The Sepang Municipal Council is a local government and approval authority for the local government and approval authority for the The Sepang Municipal Council is a The core roles of Cyberview now are focusing on investor relations services, industry relations services, industry now are focusing on investor The core roles of Cyberview Landowner Develop basic infrastructure Develop basic infrastructure in to enhance attractiveness Cyberjaya review of the Ministry of Communications and Multimedia Malaysia. One role of the MDEC One role of the review of the Ministry of Communications and Multimedia Malaysia. MDEC is ICT companies abroad to invest in MSC projects. In addition, the is to encourage also designed to provide various types of financial support in order to develop the corridors. into three mukims: Dengkil, Labu, and Sepang. Cyberjaya is located in Mukim Dengkil. into three mukims: Dengkil, Labu, and Sepang. Cyberjaya spearheading and promoting Development Corporation originally known as the Multimedia government owns and provides funds to the MDEC under the The Malaysian MSC Malaysia. District of Sepang. The Municipal Council is tasked with the responsibility of providing the responsibility of providing with is tasked District of Sepang. The Municipal Council Local 1976 the under residents Sepang of District all to amenities basic and services 171). As a local municipal council, Sepang Municipal Council is also (Act Government Act District is dividedresponsible for the development plan and community service plan. Sepang Source: Source: [Figure 3-5] Evolution of Cyberview [Figure innovative technology development within Cyberjaya. development within Cyberjaya. innovative technology and management. The evolution of and tech hub development development initiatives, 2018). in [Figure 3-5] (Cyberview, short 20-year history is summarized Cyberview over its building allowances, and customized solutions for investors based on their business business their on based investors for solutions customized and allowances, building a from evolved has Cyberview 1996, Since plans. growth and budgets, requirements, In 2013, Cyberview now a tech hub enabler. manager and to an active cybercity landowner commissioned a Global Technology Hub Blueprint study to carve out the technology competency for developed and to strengthen its core to be strategically strengths in Malaysia 158 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia The MDEC is also responsible for providing recommendations to the Malaysian government on legal institutions and ICT-related policies. The MDEC is also mandated to develop ICT industries and to encourage the use of ICT by coordinating with other government agencies in order to promote the digital economy in Malaysia.
Setia Haruman Sdn Bhd is the master developer of Cyberjaya entrusted with the responsibility of ensuring that Cyberjaya is properly planned and developed with world- class infrastructure and amenities to make it a sought-after location to attract MNCs to locate their businesses there. Setia Haruman also conducts construction projects to develop properties such as office buildings, sites for retail trading, and relevant housing units to meet the market demand.
Having the governance and regulations from multiple stakeholders in governing development in Cyberjaya poses a challenge that requires a regular coordination platform among these entities. Currently, Cyberjaya’s City Innovation Council coordinated by Cyberview that meets every quarter consists of the main stakeholders of Cyberjaya updating and aligning each other on Cyberjaya projects and initiatives. From the local authority and 159 approval perspective, a Cyberjaya Development Coordination Meeting (Mesyuarat Pelarasan CHAPTER Pembangunan Cyberjaya) chaired by Sepang Municipal Council is the platform to get related 03 approval and endorsement from the council on initiatives and implementation. Development Strategies for Revitalizing Cyberjaya
The Cyberjaya Development Council is a network comprising of agencies and industry players that work together to develop initiatives to support the successful implementation of initiatives that will elevate Cyberjaya into a global tech hub. The council provides valuable input in the form of perspectives, experiences, best practices, and marketing activities and coordinates the implementations of the key enablers. The council recommends the incentives for policy formulators to attract companies to Cyberjaya including tax benefits and financial grants. Small- and medium-sized enterprises (SMEs) are given support as the council establishes networks with venture capital and investment companies while identifying available funding support for SMEs and improving their infrastructure with relevant parties (Cyberview, 2018). Ownership Freedom of ownership Capital & Borrowings Freedom to source for borrowings and capital globally Knowledge Worker of foreign Unrestricted employment knowledge worker 3 4 2 Financial Incentives No income tax up to 10 years or investment tax allowance up to 5 years Infrastructure infrastructure Provide world-class physical 5 1 6 10 7 9 8 IP Protection One-Stop Agency Censorship Telco Tariff Telco Infra. Tenders Infra. MDeC as the one-stop agency No internet censorship Globally competitive contracts to web-shapers contracts telecommunication tariffs source for borrowings and capital globally. Companies are free to raise funds from funds from to raise are free Companies globally. capital and for borrowings source and currencies foreign in made are that funds transfer and capital international through licensed onshore banks. Companies are also free to borrow from traded Capital and Borrowings: MSC-Malaysia-status companies are given freedom to to companies are given freedom Capital and Borrowings: MSC-Malaysia-status MDEC (2014). Tender MSC Malaysia infrastructure MSC Malaysia Tender Intellectual property protection and cyberlaws (1) The benefits and incentives offered to the MSC companies under the BoGs can be be can BoGs the under companies MSC the to offered incentives and benefits The 2.1.4. Incentive Policies of Cyberjaya Policies of 2.1.4. Incentive at Cyberjaya incentives available the key Malaysia, epicenter of MSC is the As Cyberjaya categorized as financial and non-financial (Injau, 2011). The financial incentives available are as follows: Source: Source: [Figure 3-6] MSC Malaysia BoGs [Figure reflect the government’s commitment to providing an efficient environment for developing has government The in Malaysia. economy the digital subsequently and companies these with the groundwork for economic 10 BoGs that supplement MSC-status companies drafted in [Figure 3-6] (MDEC, 2014). success. The overview of BoGs is given domestic and foreign of investors. financialA incentivesrange is firms, provided and to attract and transfer are knowledge intensive in Cyberjaya allowed to operate in return, the companies an environment where MSC-status to local companies. In order to foster skills and technologies companies are given the best opportunities to flourish, the government of Malaysia affords rights, and privileges that BoGs. The BoGs are a set of incentives, Malaysia them with the MSC are applicable to companies having MSC status. MSC Malaysia utilizes its good infrastructure, infrastructure, utilizes its good MSC Malaysia having MSC status. to companies are applicable environment in order to attract and a well-functioning institutional various incentives, 160 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia residents and non-resident borrowers in ringgit and any foreign currency to finance their business operations. Non-residents investing in MSC-Malaysia-status companies are free to remit capital, profits, and dividends arising from their investments.
(2) Financial Incentives: MSC companies can choose either 100% exemption from taxable income for up to 10 years or an investment tax allowance that deducts 100% eligible capital expenditure for taxable income for capital expenditures incurred during the first five years of operation.
(3) Eligibility for R&D Grants: MSC-Malaysia-status companies with majority Malaysian ownership are eligible for R&D grants.
The non-financial incentives include the following:
(1) Infrastructure: The Malaysian government has committed to provide a world- class physical information infrastructure. The government will provide a beneficial environment for companies to carry out their business, conduct research, and 161
develop new technologies, applications, and products. The BoGs’ offer calls for MSC- CHAPTER Malaysia-status companies to locate and operate their business operations at an “MSC
Malaysia cybercity” or “MSC Malaysia Cybercenter.” 03 Development Strategies for Revitalizing Cyberjaya
(2) Knowledge Workers: Companies are guaranteed unrestricted employment of foreign knowledge workers. MSC-status companies must specify the number of knowledge workers (local and foreign) required to perform their MSC Malaysia-qualifying activities.
(3) Ownership: Freedom of ownership is guaranteed by exempting companies with MSC-Malaysia-status from local ownership requirements. There are no restrictions imposed by the government on the equity terms of companies operating in Malaysia. For companies involved in each sector, the regulatory authorities in each sector impose the equity terms and the paid-in capital conditions. However, MSC-Malaysia- status companies are exempt from the above regulations if the property is used for their operational activities, including the employees’ residence.
(4) Intellectual Property (IP) Protection: The government strives to establish a beneficial legal and regulatory framework for IP rights and cyber laws and ensure that laws are properly managed, followed, and enforced. ICT industries. expertise and track record in conducting similar successful projects elsewhere. record in conducting similar expertise and track serve as an effective one-stop office. The MDEC was established by the government to especially the development of MSC Malaysia, act as a one-stop center and to promote government may consider inviting leading companies, seeking to establish a global/ leading companies, seeking consider inviting government may major infrastructure MSC Malaysia’s to submit proposals for regional hub in Malaysia, based negotiation direct through made be can contract the in proposals The work. and its value proposition of such a company on a number of factors, including the telecommunications-specific tariffs compared to their competitors in Southeast Asia the competitiveness activities. In order to ensure to carry out MSC Malaysia-qualifying and reviewed, benchmarked, relevant tariffs are continuously of these enterprises, revised. materials or other illegal substances, for example, is banned by law. law. is banned by for example, or other illegal substances, materials published of set competitive a enjoy companies MSC-Malaysia-status tariffs. Duty-free Import: Companies pay no duties on the import of multimedia equipment. no duties on the Duty-free Import: Companies pay One-Stop Agency: The government is to provide an implementation agency that can an implementation agency that can The government is to provide One-Stop Agency: Infrastructure Tenders: As an incentive to attract investment in MSC Malaysia, the the Malaysia, MSC in investment attract to incentive an As Tenders: Infrastructure Censorship: No internet censorship is imposed, but the distribution of obscene of obscene but the distribution is imposed, No internet censorship Censorship: competitive telecommunications globally provides MSC Malaysia Tariff: Telco (9) status, companies in as part of MSC Malaysia In addition to the incentives given (8) (8) (7) (7) (5) (5) (6) accreditation bodies and standards. on their international and local sources of funding. There are also no restrictions on profit offers also Cyberjaya Cyberjaya. in companies for investments from arising repatriation an to access have companies which in environment a supportive in of being benefits the and knowledge sharing and access to international informational network for collaboration Cyberjaya have access to highly competitive financial incentives from numerous financial incentives from numerous have access to highly competitive Cyberjaya double deductions and funding. Double deductions government organizations, including of funding are also available for businesses and on R&D expenditure and availability in located to companies offered Other incentives their lifecycle. stages of at all projects include freedom from local regulations. There are no restrictions for companies Cyberjaya 162 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 2.1.5. Performance of Cyberjaya
This section looks into the landscape of companies and agencies operating in Cyberjaya. The trends of MSC-Malaysia-status companies since the beginning in 1996 are presented together with the industrial clusters of Cyberjaya. Although the majority of companies located in Cyberjaya are MSC-status companies, there are other categories of agencies, companies, and business entities operating in Cyberjaya.
In 2011, Injau reported that Cyberjaya was continuing to grow with a daytime population of 41,000 and an estimated number of knowledge workers of 28,000. In 2014, the figures continued to grow with 505 MSC-Malaysia-status companies in Cyberjaya, a recorded population of 70,000, and an estimated number of knowledge workers of 35,000. As of December 2018, there were 506 MSC-Malaysia-status companies in Cyberjaya: 43 MNCs and 463 non-MNCs. There were also 429 startups and 36 government agencies or GLCs. In 2018, Cyberjaya had a total population of 114,000 and an estimated number of knowledge workers of around 41,000 (Cyberview, 2018). The numbers of MSC-status companies located in Cyberjaya from 2012 until 2017 are shown in [Figure 3-7]. 163 CHAPTER [Figure 3-7] Number of MSC-Malaysia-Status Companies in Cyberjaya 03
520 Development Strategies for Revitalizing Cyberjaya 505 506 510 500 485 486 490 480 463 470 460 443 450 440 430 420 410 2012 2013 2014 2015 2016 2017
Source: MDEC (2018).
Having looked into the data and statistics on MSC-status companies located in Cyberjaya, the next task is to analyze the performance of MSC Malaysia nationwide. In the first year of its incorporation in 1997, there were 93 companies under the MSC Malaysia flagship. In the next leap of MSC Malaysia starting in 2003, the national rollout of MSC cybercity and cybercenter status to 14 new qualified locations saw the number of MSC-status companies increase at a higher rate. The trend continued as the aggressive rollout of MSC cybercity and cybercenter status to 19 new qualified locations nationwide began in 2011. As of December 2015 3,881 2014 3,632 6,992 2013 3,403 Government 2012 3,167 2011 2,954 2010 2,738 2009 2,520 37,615 2008 2,236 MSC Status 2007 1,994 2006 1,728 2005 1,421 2004 1,163 2,045 Non-MSC 973 2003 812 2002 620 2001 429 2000 299 1999 7,840 Commercial 196 1998 Sepang Municipal Council (2017); Setia Haruman (2017). MDEC (2016). Taking the period from 2012 until 2017 in order to see the contribution and performance and contribution the see to order in 2017 until 2012 from period the Taking 93 1997 Source: Source: [Figure 3-9] Breakdown of Number of Employment Opportunities in Cyberjaya Number of Employment of 3-9] Breakdown [Figure of Cyberjaya concerning MSC Malaysia, the percentage of MSC-status companies operating operating companies MSC-status of percentage the Malaysia, MSC concerning Cyberjaya of companies MSC-status number of the total 14% of is only between 12% and in Cyberjaya nationwide. Source: Source: [Figure 3-8] Number of MSC Malaysia Status Companies (as of December 31, 2015) 3-8] Number of MSC Malaysia Status [Figure 31, 2015, there were 3,881 companies with MSC Malaysia status operating at various various at status operating MSC Malaysia companies with there were 3,881 31, 2015, of MSC after the launch forward to 20 years nationwide. Fast and cybercenters cybercities companies MSC-status 4,556 were there and 1996, in Mohamad Mahathir Dr Tun by Malaysia 2018). 2017 (MDEC, as of December 164 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Looking into employment opportunities in Cyberjaya, the estimated total number of employment opportunities in Cyberjaya was 54,492 for 2014. [Figure 3-9] shows the breakdown of the number of employment opportunities according to company type. Statistics show that about 69% of total employment in Cyberjaya comes from MSC-status companies.
[Figure 3-10] Employment by MSC-Status Companies in Cyberjaya (Unit: Number)
42,000 41,000 40,637 40,056 40,000 39,574 39,000 37,615 37,830 38,000 37,000 36,000 35,000 35,230 34,000 165 33,000 CHAPTER 32,000 2012 2013 2014 2015 2016 2017 03 Development Strategies for Revitalizing Cyberjaya Source: MDEC (2018).
With this data, it can be observed that the MSC-status companies contribute the most to employment in Cyberjaya. The number of employment opportunities in Cyberjaya contributed by MSC-status companies continues to show an upward trend since a drop in 2014, as shown in [Figure 3-10].
The next task in assessing the performance of Cyberjaya is to look into the industrial clusters of Cyberjaya. In the early years, MSC-status companies were classified into four technology clusters based on MDEC-categorized business technology clusters: Information Technology (InfoTech), Shared Services & Outsourcing (SSO), Creative Multimedia Cluster (CMC), and Institutions of Higher Learning (IHLs) and Incubators. Currently, the industrial clusters of Cyberjaya are mainly based on MSC-Malaysia-status companies, which are grouped into four clusters representing the four major ICT focus areas: InfoTech, Creative Content & Technologies (CCT), Global Business Services (GBS), and IHLs and Incubators. 358 117 405 1,998 2,878 No. of Active Companies No. of Active 473 132 480 2,796 3,881 No. of Companies Awarded No. of Companies Total Cluster InfoTech IHL & Incubators Global Business Services MDEC (2016). Another vital parameter in assessing the performance of Cyberjaya is the importance of of Cyberjaya in assessing the performance Another vital parameter Some of the MSC-status companies that are operating in Cyberjaya are listed in
. Besides the four technology clusters from MSC Malaysia, another technology area area technology another Malaysia, MSC from clusters technology four the Besides 3-4>. for a environment a supportive offers Cyberjaya is startups. in Cyberjaya is known that as recorded by of startups in Cyberjaya and holistic startup ecosystem. The number vibrant were 20% of the population in Cyberjaya around and 429, Cyberview in 2018 was around early tech adopters. 2015, there were 2,878 active MSC-Malaysia-status companies, out of which 69% represented 2015, there were 2,878 active MSC-Malaysia-status cluster, and represented the CCT cluster, 14% represented the GBS cluster, 13% the InfoTech cluster (MDEC, 2016). 4% represented the IHLs and Incubators Malaysia-status companies located in Cyberjaya, of which 75% (372), 14% (71), and 11% 11% and (71), 14% (372), 75% which of Cyberjaya, located in companies Malaysia-status the Beyond Cyberjaya, and CMC clusters, respectively. SSO, (53) belonged to the InfoTech, technology the to according nationwide companies MSC-Malaysia-status of breakdown 31, As of December 3-12] below. MDEC is shown in [Figure the as reported by 2015 clusters in Source: Source: Breakdown of MSC-Malaysia-Status Companies by Technology Cluster Technology by Companies of MSC-Malaysia-Status 3-3> Breakdown MSC-Status Companies Operating in CyberjayaType Companies
• Ondelet Technology (MSC) Sdn Bhd • Fujitsu Telecommunication Asia Sdn Bhd Infotech • Techpeople Infotech Sdn Bhd • AJV Multimedia Development Sdn Bhd
• MEASAT Satelite Systems Sdn Bhd Creative Content & • MIG Pictures Sdn Bhd Technologies • Animonsta Studios Sdn Bhd • Addeen Multimedia Sdn Bhd
• IBM Global Delivery Centre (Malaysia) Sdn Bhd Global Business • Fujitsu (Malaysia) Sdn Bhd Services • Hewlett-Packard Multimedia Sdn Bhd • AIG Technologies (Malaysia) Sdn Bhd
• Multimedia University (Cyberjaya Campus) Institutions of • FTMS College Higher Learning • MAD Incubator Sdn Bhd • Limkokwing University College of Creative Technology (LUCT)
Source: Sepang Municipal Council (2017);MDEC (2016).
[Figure 3-11] Share of MSC-Malaysia-Status Companies and ICT Industry to GDP 167
(Unit: %) CHAPTER
12 03
9.4 9.5 9.8 Development Strategies for Revitalizing Cyberjaya 10 9 9 8 8
6
4
2 1.2 0.8 1.1 0.94 1.15 0.4 0 2012 2013 2014 2015 2016 2017 Year Share of ICT Industry to GDP Share of MSC Malaysia to GDP
Source: Injau (2011).
The ICT industry continues to be an important strategic industry for Malaysia’s economic growth, contributing RM 51b or 9.8% of real GDP in 2009. The share of both the ICT industry and MSC Malaysia to GDP in 2008 fell slightly from the previous year because of the impact of the Global Financial Crisis of 2008–2009. The share of MSC-Malaysia-status companies and the ICT industry to GDP for 2004–2009 is shown in [Figure 3-11] (Injau, 2011). The highest contribution of MSC-status companies to the Malaysian economy in the early days was in 2009, recorded at 1.15%.
(Unit: % ) 5.10 2012 3.50 2013 2011 3.20 2010 2.50 Cyberview (2014) and MDEC (2014). Cyberview In addition, the performance of MSC companies in Cyberjaya can be shown from the can be shown from the companies in Cyberjaya In addition, the performance of MSC Focusing on Cyberjaya, the contribution to Malaysia’s GDP in 2013 was more than 5%, 5%, GDP in 2013 was more than the contribution to Malaysia’s on Cyberjaya, Focusing The contribution of the ICT sector to the Malaysian economy for 2010–2017 is shown in 2010–2017 is shown for economy sector to the Malaysian of the ICT The contribution a total of RM 7.22b revenue was generated from MSC companies in Cyberjaya. As for the As for the from MSC companies in Cyberjaya. a total of RM 7.22b revenue was generated of performance The Cyberjaya. in Malaysia MSC to committed was 5.15b RM investment, in for 2012–2017 is shown revenue and investment of MSC-status companies in Cyberjaya [Figure 3-13]. Source: Source: In 2012, and the total amount of investment recorded. total amount of revenue generated 3-12]. GDP 3-12] Contribution of Cyberjaya to Malaysia’s [Figure industry showed an increasing trend, and it continues to expand. increasing trend, and it continues to industry showed an and it is forecasted to grow significantly as it increases its presence in various technologies. shown in [Figure for 2010–2013 is to the national economy Cyberjaya The contribution of [Figure 3-11]. The GDP from the ICT sector, termed ICTGDP, contributed around 11.7% to around 11.7% to contributed ICTGDP, the ICT sector, termed The GDP from [Figure 3-11]. program Economy Digital last eight years. Malaysia’s in the the national economy 13.4% to to the contribution of ICT since 2011. The over the years substantial progress has made to 16.5% in 2010. This at 18.3% in 2017 as compared was recorded national economy 168 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia [Figure 3-13] Revenue and Investment from MSC-Status Companies in Cyberjaya
14 13.24 12.53 12 9.37 10 9.04 8.66 8 7.22 8.02 8.22 6 6.91 7.28 6.35 4 5.15
2
0 2012 2013 2014 2015 2016 2017 Revenue (RM Bil) Investment (RM Bil)
Source: MDEC (2018).
The emergence of Cyberjaya as a global technology and ICT hub highlights the connection between vision and reality in developing future cities. Looking through a historical 169 perspective at the original vision and goals and the incentives and policies in place allows CHAPTER the performance of Cyberjaya to be evaluated. Strategies to revitalize the city perhaps need to consider the sustainability of initiatives for any future of growth of Cyberjaya. 03 Development Strategies for Revitalizing Cyberjaya
Having multiple key stakeholders created a governance challenge in accelerating the transformation of Cyberjaya. A clear distinction of roles is required between multiple entities governing development in Cyberjaya to avoid potential conflicts. Engagement with various experts and stakeholders of Cyberjaya confirmed that the lack of regular interaction of key stakeholders in a formal and official platform slowed the growth pace of frameworks and initiatives for Cyberjaya. A basic example is the challenge of gathering coordinated facts and figures of Cyberjaya. Data on the performance of Cyberjaya were not available at a single point of reference, as the key stakeholders delivered different performance indicators for the city.
Analysis of the current and future directions of Cyberjaya from the multiple stakeholders perhaps will require a matrix on how best to streamline their respective and various future directions toward the same targets and aspirations. As the local planning of Cyberjaya is within the authority of Sepang Municipal Council, the development and community service plan for the city shall link and align to the local policy goals. Sepang Municipal Council has formulated a local blueprint, Cyberjaya Smart and Low Carbon City 2025 (CSLC 2025) (Sepang Municipal Council, 2017), in supporting the Selangor State Government’s agenda. The action 2.2. Centripetal Forces of Industrial Clusters in Cyberjaya 2.2. Centripetal Forces between centripetal forces, a result of the interaction as occurs clustering In general, Observation on industrial clusters of Cyberjaya in terms of high-tech industry leads to a Cyberjaya Observation on industrial clusters of Since the launch of the Digital Malaysia program to drive the innovative digital economy economy to drive the innovative digital program the Digital Malaysia Since the launch of A recent mandate from the Malaysian government to transform Cyberjaya into a global a into Cyberjaya transform to government Malaysian the from mandate recent A pooling effects, which encourage companies to be located in a specific place where they can and linkages between buyers and sellers (Marshall, 1920). benefit from skilled workers; which cause companies to be located close to each other, and centrifugal forces, which cause which cause companies to be located close to each other, and centrifugal forces, groups: three into divided are usually forces of centripetal Factors be scattered. to them factors of allowing companies to derive various benefits from being close to each other, due to knowledge spillovers or other beneficial technological externalities; various labor market- into one of the satellite platforms for global BPO (Brooker, 2011; Brooker, 2013). Brooker, 2011; global BPO (Brooker, into one of the satellite platforms for help desk, service center, customer support and contact centers. This cluster, which is now help desk, service center, customer support known as GBS cluster did not reflect on research intensive or high-tech activities that would The MNCs seem to retain their R&D skills and technologies to local companies. transfer base and little technology transfer flow into Malaysia. Despite attempts to create Malaysia’s “Silicon Valley”, Cyberjaya is seen as a back-office location of BPO hub, and it has evolved initiatives to foster digital innovation (Digital Malaysia, 2012). (Digital Malaysia, initiatives to foster digital innovation supporting the business the clusters in MSC Malaysia discussion on the SSO cluster, one of IT global be to seem cluster this of functions core The industry. (BPO) outsourcing process in a more holistic way, the direction is to propel ICT adoption across all economic sectors, the direction is to propel ICT adoption across all economic sectors, in a more holistic way, digital Malaysia Seven Cyberjaya. beyond initiatives, and programs nationwide with as part of now been created around Klang Valley hub ecosystem co-working spaces have strategies strategies for Cyberjaya in each identified technology focus area were formulated. Phases of were rolled ecosystem in Cyberjaya the global technology hub building and strengthening out in an effortto establish positioning in future economy ecosystems. A smart city and a the uphold to pillars two the are empowerment citizen enable will that lab living thriving aspiration. global technology hub plans in CSLC 2025 are crucial as guidelines in implementing the right transformation the right transformation in implementing as guidelines CSLC 2025 are crucial plans in 2025. city by and low-carbon a smart making Cyberjaya agenda toward the mandate, positioning After another local policy and framework. technology hub is 170 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 2.2.1. Knowledge Spillovers and Technological Externality
As explained above, companies in an industrial cluster have a strong motivation to be located close to each other because they can learn something from each other and thereby enhance their technology and efficiency. In that sense, it has been important to have IT- related environments for knowledge spillovers, activities of knowledge spillovers, and advanced universities in Cyberjaya.
2.2.1.1. IT-Related Environment for Knowledge Spillovers
In 2014, Cyberjaya provided access to high-speed fiber optic internet with speeds of 100 Mbps through the Cyberjaya Metro Fibre Network. This is paired with globally competitive telecommunication tariffs as guaranteed by the National ICT agency. Currently Cyberjaya is on 1Gbps broadband connectivity to commercial and residential. There is free wifi citywide via Wireless Cyberjaya hotspots. Allo Technology Sdn. Bhd. (Allo), formerly known as Setia Haruman Technology Sdn Bhd, is an ICT service provider based in Cyberjaya. Setia Haruman Sdn Bhd is the master developer of Cyberjaya. The company has installed least 171
250km of fiber optic cable infrastructure in Cyberjaya. In addition, Cyberjaya has deployed CHAPTER initiative on Low Power Wide Area Network (LPWAN) using LoRa technology for smart city connectivity besides the 3G and LTE mobile coverage. Recently, it was announced that 03 Development Strategies for Revitalizing Cyberjaya Cyberjaya and Putrajaya were to become the first cities in Malaysia receiving 5G technology facilities when the service network’s pioneer test began with a tentative date of April 2019. Telco will carry out their respective 5G technology tests as part of this early phase.
2.2.1.2. Activities of Knowledge Spillovers in Cyberjaya
There were around 40 major tech and business events held in Cyberjaya from 2014–2018. The events involved talents of slightly more than 3,000 young learners and universities in tech education and robotics programs in and around Cyberjaya. There were more than 100 programs with companies and agencies in Cyberjaya during the 2014–2018 timeframe.
Other activities of knowledge spillovers in Cyberjaya include the Living Lab Accelerator startups program by Cyberview, which has produced around 11 cohorts of startups with more than 30 pilot projects. The program aims at acceleration of products or services through intensive mentorship, initial funds, network alliances, marketing, and access. Korea Sungkyunkwan University (100/70) (107/80) University Yonsei University (151/91) Hanyang Hee University (264/207) Kyung Chung-Ang University (397) Sogang University (435/331) Seoul National University (36/28) Seoul National University of Science & Technology Institute Advanced Korea (40/26) (KAIST) (83/80) and Technology Pohang University of Science University (86/61) Korea Malaysia QS Top Universities (http://www.topuniversities.com/). QS Top Numbers in the parenthesis are rankings of overall and engineering/technology. KAIST is located in Daedeok Innopolis. KAIST is located in and engineering/technology. of overall rankings are Numbers in the parenthesis In terms of the public transportation network, Cyberjaya is linked by three main three main by is linked network, Cyberjaya In terms of the public transportation 2.2.2.1. Public Transportation to Cyberjaya 2.2.2.1. Public Transportation 2.2.2. Pooling Effects of the Labor Market 2.2.2. Pooling Effects of the Labor they can have When companies are located close to each other in an industrial cluster, It can be compared with Korea’s Daedeok Innopolis, which has been developed over time Daedeok Innopolis, which has been developed It can be compared with Korea’s 2.2.1.3. Quality of Universities in Cyberjaya of Universities 2.2.1.3. Quality in terms of would not be competitive universities in Cyberjaya 3-5>, in
Petronas (521-530/221) Universiti Teknologi MARA (751-800/290) Universiti Teknologi MMU (801-1000) (N/A) University of Creative Technology Limkokwing Universiti Malaya (87/38) Universiti Malaya Note: transportation systems: bus services, the Dedicated Transportation System (DTS), and taxis/ (DTS), System systems: bus services, the Dedicated Transportation transportation two main bus providers, Nadi Putra is serviced by cabs. As for the bus services, Cyberjaya pooling pooling effectsof the labor market, whereby those companies have better access to skilled in studies factors of centripetal forces in terms of the labor market This subsection workers. Cyberjaya. performance and quality of universities in Cyberjaya. in Cyberjaya. performance and quality of universities to be an innovative industrial cluster in high-tech areas. As analyzed in the next section, section, next the in analyzed As areas. high-tech in cluster industrial innovative an be to whereas its 40th in the world, was ranked the best university in Daedeok Innopolis, KAIST, 26th in the ranked by beingof the engineering and technology field was even higher ranking needs to consider how to improve academic government world. In that sense, the Malaysian Source: Source: its ranking in the engineering and technology field was not identifiable. and technology field was not identifiable. in the engineering its ranking (QS Ranking, 2018) in Malaysia and Korea 3-5> Quality of Universities [Figure 3-14] DTS of Cyberjaya
173 CHAPTER 03 Development Strategies for Revitalizing Cyberjaya
Source: Cyberjaya DTS (http://www.cyberjayadts.com.my/).
2.2.2.2. Supplies of IT-Skilled Workers
According to ICT Satellite Account 2017, the ICT industry in Malaysia employed 1.09 million people and contributed 7.6% to the total employment. Employment in the ICT industry was dominated by ICT manufacturing, with a share of 37.7%, followed by ICT services (27.6%) and ICT trade (20.5%).
Looking into the supplies of IT-skilled workers within Cyberjaya, the total number of students for both undergraduates and postgraduate programs in Cyberjaya is estimated to be approximately 30,000 students studying at seven institutions (Cyberview, 2018). The seven institutions are Cyberjaya University College of Medical Sciences, FTMS College, Kirkby International College, Limkokwing University, Malaysia MMU, Universiti Islam Malaysia, and University Malaysia of Computer Science & Engineering. From these seven institutions, only four institutions have IT- and engineering-related programs, with approximately 60 undergraduate and postgraduate programs in total. 37.7% 411,000 persons ICT manufacturing ICT Trade 20.5% 224,000 persons ICT 2017 1.09m employment 14.2% 7.6% employment 155,000 persons Content & media Total employment Total Share of ICT to total 27.6% 14.5m persons ICT services 301,000 persons 2017 1.9% 1,092 0.7% 2016 1,702
2015 2.8% 1,064 Annual percentage change 2014 1,036 2.2% 2013 1.8% 1,014 996 2012 1.0% 986 2011 3.1% ICT Employment Department of Statistics Malaysia (2017). 956 A salary benchmarking reported by PIKOM in the ICT Job Market Outlook in Malaysia Outlook in Malaysia in the ICT Job Market PIKOM A salary benchmarking reported by 2.2.2.3. Wage Levels in Cyberjaya over Time in Cyberjaya over Levels 2.2.2.3. Wage indicates platform PayScale the using 2019 for snapshot wage and A quick comparison Unfortunately, no data is available to measure the number of employees from companies from companies of employees the number is available to measure no data Unfortunately, 2010 have been paid well. of Malaysia, as compared to Kuala Lumpur and Petaling Jaya. As shown in
, 3-6>, As shown in 175 CHAPTER 03
Source: PayScale in Malaysia (https://www.payscale.com/). Development Strategies for Revitalizing Cyberjaya 0.46 0.46 0.41 0.39 0.35 0.34 0.90 0.90 0.87 0.87 0.86 0.84 0.83 0.81 0.67 0.62 0.61 0.61 0.58 0.56 0.54 0.54 0.53 0.53 0.52 0.51 0.50 1.01 1.00 0.99 0.97 0.96 0.95 0.93 0.92 0.92 0.92 PPP (Unit: US$)
32,513 31,958 28,488 27,564 24,595 23,797 62,913 62,688 61,019 60.720 59,905 58,462 57,838 56.679 46,978 43,092 42,775 42,758 40,610 39,160 37,844 37,638 37,266 37,317 36,523 35.718 34,770 70,673 69,975 69,180 68,035 67,494 66,388 65,283 64,367 64,141 64,127 Manager of IT Project Average Salary Salary Average City Mandaluyang City Quezon City City Taguig New Delhi Ahmedabad Pasig City Christchurch Winnipeg Quebec City Petaling Jaya Manchester Belfast Leeds Edinburgh Jakarta Bangalore Pune Gurgaon Noida Hyderabad Manila Mumbai Makati Chennai Cebu Trivandrum Kolkata Hamilton Lumpur Kuala Wellington Birmingham Mississauga Vancouver Montreal Glasgow Halifax London, Ontario 69 70 71 72 73 74 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 38 39 40 41 42 43 44 45 46 47 1.15 1.15 1.14 1.08 1.07 1.06 1.06 1.05 1.05 1.03 1.02 1.25 1.24 1.22 1.22 1.20 1.20 1.19 1.18 1.17 1.17 1.16 1.43 1.35 1.35 1.35 1.32 1.31 1.30 1.29 1.27 1.27 1.27 1.65 1.49 1.45 1.44 PPP
80,644 80,563 79,433 75,659 74,990 74,509 74,131 74,018 73,767 72,161 71,415 87,587 86,975 85,650 85,495 83,976 83,976 83,000 82,837 82,097 81,590 81,186 99,767 94,730 94,216 92,279 91,953 90,699 90,098 88,986 88,756 88,520 100,498 115,678 104,562 101,612 100,863 Manager of IT Project Average Salary Salary Average City PIKOM, ICT Job Market Outlook 2017 (https://www.pikom.org.my/). PIKOM, Cyberjaya Toronto Edmonton Singapore Adelaide Johor Baru Ottawa Nottingham Austin London Seattle Jeddah Auckland Calgary Minneapolis Reading San Diego Denver Phoenix Gold Coast Canberra Boston Dallas Atlanta Philadelphia Los Angeles Chicago Houston Melbourne Brisbane Riyadh DC Washington Dubai New York Sydney Abu Dhabi Perth 8 9 3 4 5 6 7 1 2 35 36 37 30 31 32 33 34 24 25 26 27 28 29 19 20 21 22 23 13 14 15 16 17 18 10 11 12 Source: Source:
Average Annual Salary of an IT-Project Manager by City Manager by IT-Project Annual Salary of an 3-6> Average As explained above, IT project managers have been well paid in Cyberjaya. However, the Malaysian economy is experiencing a severe brain drain problem, whereby IT-skilled workers have been moving to foreign countries, especially Singapore. As pointed out by World Bank (2011), there is no data available to measure the size of brain drain in Malaysia, but it estimated that Singapore attracted 57% of the entire brain drain in Malaysia. The World Bank (2011) reported that the brain drain did not reduce the number of graduates domestically available, it would reduce the quality of the human capital stock in Malaysia.
In addition, supplies of skilled workers do not match the demand for workers with specific skills in the Malaysian labor market.1 This mismatch would reduce the motivation of companies, who need to make their locational decisions, implying that the labor market for IT-skilled workers in Malaysia needs to be restructured in a way reflecting both issues of brain drain and mismatch.
2.2.3. Linkages between Buyers and Sellers 177 CHAPTER 2.2.3.1. Convenience of Customers to Visit Cyberjaya 03 Development Strategies for Revitalizing Cyberjaya When a specific location is well known to customers as an industrial cluster for a certain commodity or service, customers just visit the place to purchase the commodity or to consume the service. From the sellers’ perspectives, they will be located in the specific location because they will thereby have easy access to the market and meet their buyers. Therefore, the industrial cluster will enjoy centripetal forces from the linkages between buyers and sellers.
As explained in the previous subsection, it is important to have public transportation to Cyberjaya for customers to visit Cyberjaya. In addition to its bus system and DTS, road connections into and around Cyberjaya are accessible via several highways and expressways. There are three highways/expressways linked within Cyberjaya area - Lingkaran Putrajaya, Lebuhraya Kuala Lumpur Putrajaya, and Putrajaya-Cyberjaya Expressway. Cyberjaya is also reachable by the rail transport system known as Express Rail Link (ERL). It is a rail linked from Kuala Lumpur Sentral to KLIA with a stop at Putrajaya & Cyberjaya station, connecting Cyberjaya via train services. However, stations of the railway system are a little far from Cyberjaya so that commuters need to take another transportation to visit Cyberjaya. While
1 This point has been identified in an interview with staff members in the Malaysian office of the World Bank Group. The interview was held in the Malaysian office of the World Bank Group on February 18, 2019.
2 February on MDEC in held was interview The industry. e-game the in companies with interview an in identified been has point On the labor market, public transportation to Cyberjaya would be good enough for for good enough be would Cyberjaya to transportation public market, labor On the However, the quality of universities in Cyberjaya would not be good enough to generate One can positively evaluate factors of centripetal forces in Cyberjaya, mainly in the the in mainly Cyberjaya, in forces centripetal of factors evaluate positively can One 2.2.4. Overall Evaluations on Centripetal Forces Evaluations 2.2.4. Overall Though it is convenient for customers to visit Cyberjaya, locational decisions of decisions of locational for customers to visit Cyberjaya, Though it is convenient 2.2.3.2. Industrial Characteristics 2.2.3.2. Industrial 19, 2019, attended by multiple companies from contents and e-game industries. multiple companies from 19, 2019, attended by universities in Cyberjaya are enough to provide quantitative supplies of potential workers workers potential of supplies quantitative provide to enough are Cyberjaya in universities 2 This research institutions in Cyberjaya will be compared with those in Korea in the next sections the in Korea in those with compared be will Cyberjaya in institutions research and policy recommendations on this matter will be discussed in Section 4. from In addition, supplies of graduates commute to Cyberjaya. to potential workers rooms to be improved in a way of enhancing knowledge spillovers. of enhancing knowledge rooms to be improved in a way are there addition, In in Cyberjaya. companies by commercialized be knowledge that can and universities of the weakness Therefore, Cyberjaya. in research institutions public no to utilize its well-functioning IT environment. In addition, Cyberview has been actively actively been has Cyberview addition, In environment. IT well-functioning its utilize to though Cyberjaya, spillovers within knowledge to generate events various operating Startups Program activities of Living Lab Accelerator Cyberview needs to actively advertise can recognize opportunities to learn new so that they to companies outside Cyberjaya have factors these two implies that It in Cyberjaya. knowledge from successful companies categories of IT-related environment and activities of knowledge spillovers. Though the and activities of knowledge spillovers. Though the categories of IT-related environment IT the recent development in 4G-based 5G technology, government needs to invest more in in order for IT companies to be located in Cyberjaya environment would be good enough preferring to be located in downtown Kuala Lumpur, where most e-game players live. most e-game players Lumpur, where in downtown Kuala preferring to be located However, Cyberjaya started to be recognized by Malaysian customers as an ICT industrial of ICT needs to be clarified further. subsector any cluster, though specific specialties on companies are also dependent upon industrial characteristics. In general, there are are there general, In upon industrial characteristics. dependent companies are also customers. Companies in those to have strong connections with industries that need to be located in Cyberjaya, have been reluctant the e-game industry, industries, for example buses and cabs remain the only form of public transportation within Cyberjaya at present, at within Cyberjaya transportation only form of public cabs remain the buses and Line) will soon (or the Sungai Buloh–Serdang–Putrajaya announced MRT2 the recently Lumpur. around Kuala bus lines in and and rail to existing and future connect Cyberjaya 178 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia to companies in Cyberjaya, though no data has been available to check how many graduates from universities in Cyberjaya have been hired by companies in Cyberjaya. However, IT project managers in Cyberjaya have been paid better than those in Kuala Lumpur and Petaling Jaya; presumably, higher salaries would lead knowledge workers to seek their jobs in Cyberjaya. As explained above, the quality of universities in Cyberjaya would be a concern in terms of the qualitative supplies of potential workers, but graduates from MMU have been most preferred by companies in Cyberjaya. In addition, the Malaysian labor market has been facing issues of brain drain and mismatch between supplies of skilled workers and demands of workers with specific skills, implying that the labor market needs to be restructured with consideration of these two issues.
On the matter of the linkages between buyers and sellers, it is relatively convenient for customers to visit Cyberjaya. However, since companies make their locational decisions based on their industrial characteristics, Cyberjaya started to be recognized as an ICT industrial cluster from Malaysian customers, though specific specialties on any subsector of ICT needs to be clarified further. 179 2.3. Centrifugal Forces of Industrial Clusters in Cyberjaya CHAPTER
Unlike centripetal forces, centrifugal forces induce companies to locate outside of the 03 Development Strategies for Revitalizing Cyberjaya cluster. These forces include negative externalities, including pollution and congestion, which have been problems due to severe concentration of economic activities in a specific location. In general, high rents in major cities would be a good indicator of the negative externalities, since competition for immobile factors deters clustering because the price of land is bid up in centers of activity.
2.3.1. Real Estates
Real estates are an important immobile factor to determine industrial clusters, because more severe competition on immobile factors will lead to increased prices of those factors.
The prices of high-rise condominium and serviced apartments are given based on Ringgit Malaysia per square foot price in
. The housing cost has rapidly increased by more than 50% during 2010-2015, as shown in. The average price of high-rise residential properties per square foot for medium-sized units was 228 RM in 2010, but it jumped to 352 RM in 2015, recording a 54.4% growth rate in five years. For landed residential properties in Cyberjaya, prices have been over 1 million RM per unit.3 This implies that potential residents 3 Oregeon Property Consultancy. 5 7 4 2 3 6 2 6 7 5 7 2 5 36 30 25 17 19 20 42 10 25 14 42 16 20 49 56 22 26 37 57 77 17 Count 447 471 630 607 241 257 275 299 349 349 333 281 300 299 323 305 323 317 321 360 302 633 666 674 339 369 397 446 228 237 258 281 336 352 Average Psf Average 2014 2015 2014 2015 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2013 2014 2015 2010 2011 2012 2013 2010 2011 2012 2013 2014 2015 Year Built-Up 463 - 906 sf 547 - 801 sf 558 - 676 sf 800 - 1,000 sf 1,013 - 1,050 sf 1,292 - 1,959 sf 1,001 - 2,000 sf
D'Pulze Cyberia Cyberia D'Melor Domain Crescent Scheme Shaftsbury Condominium Condominium Condominium Prices of High-Rise Residential Properties in Cyberjaya Residential Properties Prices of High-Rise Type Oregeon Property Consultancy. Property Oregeon Serviced apartment The office rents in Cyberjaya for the year 2018 can be compared with other areas in the Condominium Source: Source:
. The average rental rates of offices in Cyberjaya (4.10 RM per square feet per month in the 3rd quarter of 2018) have been cheaper than those in the new and old CBDs of Kuala Lumpur (new CBD: 7.58 RM; old CBD: 5.00 RM) as well as the fringe areas of Kuala Lumpur (5.75 RM). Though there are many different factors that affect office rental prices in a specific area, such as macroeconomic situations, distance to the downtown area, transportation, facilities of offices, availability of business services, financing, and surrounding environment, it is obvious that offices in Cyberjaya have price- competitiveness compared with other areas in the region of Kuala Lumpur and Selangor. Average Rental Rates of Offices over Regions (Unit: RM per sq ft/month) Grade 2015 2016 2017 2018 Location 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q KL CITY Prime A+ 11.94 11.94 11.94 11.94 11.94 11.94 11.94 11.94 11.94 11.94 11.94 11.94 11.94 11.94 11.94 Grade A 7.31 7.25 7.23 7.23 7.15 7.12 7.07 7.06 6.99 6.93 6.90 6.90 6.85 6.84 6.83 New CBD Grade B 5.32 5.33 5.33 5.33 5.30 5.30 5.24 5.23 5.19 5.18 5.16 5.16 5.14 5.14 5.15 Average New CBD 7.88 7.85 7.82 782 7.78 7.77 7.73 7.72 7.66 7.64 7.61 7.61 7.59 7.58 7.58 Grade A 5.63 5.63 5.51 5.51 5.47 5.47 5.45 5.41 5.39 5.36 5.36 5.28 5.26 5.25 5.28 Old CBD Grade B 4.67 4.67 4.67 4.67 4.67 4.67 4.64 4.60 4.48 4.48 4.41 4.41 4.41 4.41 4.41 Average Old CBD 5.28 5.28 5.20 5.20 5.18 5.18 5.15 5.12 5.06 5.04 5.02 5.00 4.99 4.97 5.00 181Overall Average 7.47 7.44 7.42 7.42 7.38 7.37 7.33 7.32 7.27 7.24 7.22 7.18 7.16 7.15 7.15 CHAPTER KL FRINGE Grade A 5.17 5.17 5.17 5.55 5.62 5.62 5.62 5.62 5.62 5.57 5.60 5.60 5.60 5.60 5.60
Damansara Heights Grade B 4.33 4.33 4.33 4.33 4.19 4.19 4.14 4.09 4.04 4.04 3.99 3.99 3.94 3.94 3.95 03
Average-DH 4.70 4.70 4.70 4.93 4.89 4.89 4.87 4.84 4.82 4.80 4.79 4.79 4.76 4.76 7.77 Development Strategies for Revitalizing Cyberjaya Grade A 6.72 6.72 6.72 6.70 6.72 6.72 6.72 6.73 6.73 6.73 6.73 6.73 6.75 6.75 6.79 KL Sentral Grade B 6.30 6.30 6.30 6.30 6.00 6.00 6.00 6.00 5.90 5.90 5.90 5.90 5.90 5.90 5.90 Average-KLS 6.63 6.63 6.61 6.61 6.57 6.57 6.57 6.58 6.56 6.56 6.56 6.56 6.57 6.57 6.60 Grade A 5.47 5.53 5.53 5.43 5.49 5.49 5.49 5.49 5.33 5.33 5.32 5.32 5.30 5.30 5.30 TTDI/Mont'Kiara Grade B 4.50 4.50 4.50 4.50 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.40 4.40 Dutamas Average-TTDI 5.25 5.30 5.30 5.30 5.25 5.25 5.25 5.25 5.18 5.18 5.17 5.17 5.15 5.15 4.16 Grade A 6.56 6.56 6.56 6.56 6.60 6.60 6.60 6.57 6.51 6.51 6.07 6.07 6.07 5.84 6.04 Mid Valley City/ Grade B KL Eco City Average-MVC/KLEC 6.56 6.56 6.56 6.56 6.60 6.60 6.60 6.57 6.51 6.51 6.07 6.07 6.07 5.84 6.05 Grade A 5.50 5.50 5.50 5.50 5.50 5.50 5.31 5.18 5.20 5.20 5.28 5.28 5.28 5.28 5.31 Bangsar South/ Grade B 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 4.80 Kerinchi Average-BS/K 5.26 5.26 5.26 5.26 5.26 5.26 5.18 5.10 5.13 5.13 5.19 5.19 5.19 5.19 5.21 Grade A 6.18 6.18 6.18 6.18 6.00 6.00 5.96 5.96 5.96 5.96 5.92 5.92 5.72 5.72 5.83 Pantai/Bangsar Grade B 5.32 5.32 5.32 5.23 5.23 5.23 5.14 5.14 5.03 5.03 4.94 4.94 4.94 4.94 4.94 Average-P/B 5.57 5.57 5.57 5.51 5.46 5.46 5.38 5.38 5.30 5.30 5.23 5.23 5.17 5.17 5.32 Overall Average 5.92 5.92 5.92 5.93 5.90 5.90 5.84 5.79 5.76 5.75 5.72 5.72 5.72 5.69 5.75 SELANGOR Grade A 4.93 4.91 4.91 4.91 4.91 4.91 4.86 4.86 4.86 4.83 4.84 4.84 4.84 4.84 4.85 Petaling Jaya Grade B 4.18 4.20 4.20 4.20 4.17 4.17 4.16 4.15 4.11 4.11 4.10 4.10 4.07 4.07 4.08 Average-PJ 4.47 4.48 4.48 4.48 4.46 4.46 4.45 4.44 4.42 4.42 4.43 4.43 4.40 4.40 4.43 Grade A 4.56 4.56 4.56 4.56 4.56 4.56 4.56 4.56 4.55 4.55 4.55 4.55 4.53 4.53 4.58 Subang Jaya Grade B 3.85 3.84 3.84 3.84 3.83 3.83 3.79 3.79 3.79 3.79 3.78 3.78 3.73 3.73 3.77 Average-SJ 4.16 4.15 4.15 4.15 4.15 4.15 4.13 4.13 4.15 4.15 4.15 4.15 4.11 4.11 4.15 Grade A 3.50 3.50 3.50 3.30 3.30 3.64 3.64 3.64 3.64 3.64 3.64 3.63 3.63 3.58 Shah Alam Grade B 3.50 3.50 3.50 3.50 3.50 3.50 3.40 3.35 3.35 3.35 3.35 3.35 3.35 3.35 3.35 Average-SA 3.50 3.50 3.50 3.50 4.42 3.42 3.53 3.52 3.52 3.52 3.52 3.52 3.51 3.51 4.48 4.29 3.93 4.10 4.22 4.29 3.96 4.10 4.20 4.29 3.96 4.10 4.20 4.27 3.96 4.10 4.22 4.27 3.96 4.10 4.22 4.26 3.96 4.09 4.22 4.26 3.96 4.09 4.21 4.27 3.96 4.10 4.22 4.27 3.96 4.10 4.22 4.28 3.99 4.12 4.25 4.28 3.99 4.12 4.25 4.28 3.88 4.06 4.24 4.28 3.88 4.06 4.24 4.28 3.88 4.06 4.24 4.28 4.05 4.15 4.28 However, Cyberjaya does not have these kinds of negative 4 Grade A Grade B Grade Average-CJ Average The Edge Markets (https://www.theedgemarkets.com/). The Edge Markets Given the spacious area of Cyberjaya, however, it has never experienced congestion yet. congestion experienced never it has however, Cyberjaya, of area spacious the Given On the matters of real estates in Cyberjaya, we have mixed outcomes, showing that the that showing outcomes, mixed have we Cyberjaya, in estates real of matters the On 2.3.3. Overall Evaluations on Centrifugal Forces Evaluations 2.3.3. Overall forces, of centrifugal on factors dependent would be clustering above, As discussed In addition, since Cyberjaya has been developed in an environment-friendly manner by in an environment-friendly manner by has been developed In addition, since Cyberjaya 2.3.2. Negative Externalities such as negative externalities, cluster does not have any as an industrial Cyberjaya as water pollution and skin diseases from increased use of chemicals in the silk industry; solid organic waste dumped in sewage in sewage dumped waste use of chemicals in the silk industry; solid organic increased as water pollution and skin diseases from sector. in the ceramic kiln use charcoal diseases caused by systems and open air in the cassava sector; and smoke and respiratory efficient nets. due to the use of more of ecosystems has happened in the fishery sector because of over-fishing Degradation Refer to Voeten and Naude (2014) for Vietnamese cases. Industrial clusters in Vietnam generated various types of pollution, such and Naude (2014) for Vietnamese cases. Industrial clusters in Vietnam generated Refer to Voeten Cyberjaya Overall 4 housing cost has rapidly increased by more than 50% in recent years, while the office rental Kuala have been quite competitive, comparing with those in the new and old CBD in rates Lumpur, and Selangor. Lumpur, the fringe area of Kuala generally designed to be developed within a specific area, designated by the government government the by designated area, specific a within developed be to designed generally or any public In agency. general, there is a limited supply of land to developers in a specific for immobile factors. need to compete with each other area and hence stakeholders which make companies to be located outside of the cluster. These forces include negative These forces include negative companies to be located outside of the cluster. which make and pollution. In addition, industrial clusters are externalities, including congestion Cyberjaya. Most industrial clusters, focusing on manufacturing or agricultural sectors, in sectors, in on manufacturing or agricultural Most industrial clusters, focusing Cyberjaya. related to pollution externalities negative mainly experienced developing countries have of ecosystems. or degradation externalities so far. City of Cyberjaya) with a population of about 43,000, congestion has been very rare within has been very rare of about 43,000, congestion with a population City of Cyberjaya) Cyberjaya. from factories, air pollution has not been an issue of strongly regulating carbon emission congestions or air pollutions, which makes companies spread out. Regarding congestion, congestion, companies spread out. Regarding pollutions, which makes congestions or air (152,958 acres for the owning an area of about 7,000 acres is very spacious, since Cyberjaya Source: Source: 182 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Moreover, Cyberjaya has been developed in an environment-friendly manner by strongly regulating carbon emission from factories, and hence air pollution has not been an issue of Cyberjaya. In conclusion, the centrifugal forces in Cyberjaya have not been severe so far, though the authority needs to consider the housing costs.
2.4. Effectiveness of Incentive Policies in Cyberjaya
2.4.1. Limitation of the Current Incentive Scheme
The key incentive programs available at Cyberjaya are those that are applicable to companies having the MSC status, as the BoGs are a set of incentives, rights, and privileges, described in Section 2.1.4. The BoGs are comprehensive and the government tried to include various incentive programs that MSC-status companies can enjoy, such as financial supports, R&D grants, and tax credits. In addition, they can have benefits from various rights and privileges, including their access to well-functioning infrastructure and one-stop agency, unrestricted employment of foreign knowledge workers, freedom of ownership, and no internet censorship. 183 CHAPTER As stated above, these incentives, rights, and privileges can be enjoyed by other companies with the MSC status, even if they are not located in Cyberjaya. In the sense, 03 Development Strategies for Revitalizing Cyberjaya it would be useless to estimate the actual effectiveness of incentive programs on the performance of companies in Cyberjaya, because incentive programs of the BoGs are also applicable to companies with the MSC status, regardless of their location. This implies that the additional benefits for companies in Cyberjaya would come from the infrastructure, which can be exclusively provided by Cyberjaya.
After interviewing companies in Cyberjaya, it is clear that the current tenant companies, already set up their site in Cyberjaya, have no complaints about the benefits they enjoy right now, implying that they have been quite satisfied with doing business in Cyberjaya. However, the current incentive scheme is not working well in terms of inviting new companies outside Cyberjaya. This means that the existing companies do not leave Cyberjaya, but no companies enter Cyberjaya.
In addition, Cyberjaya has a quite restrictive policy of target industries, which can be called a “No Factory” policy. It implies that companies in the manufacturing sectors having factories are not allowed to enter Cyberjaya. This policy was designed to limit carbon emission from factories and to develop an industrial park in an environment-friendly manner. However, the central government of Malaysia still focuses on development of key Cluster decline Cluster dstabilisation k Ω Cluster maturation Cluster d disappearance Cluster re-orientation α r Cluster Growth Cluster renewal or emergence/ replacement failure Cluster muntation f Martin and Sunley (2011). Martin and Sunley Constant cluster Given the current incentive scheme, as explained above, Cyberjaya seems to be stabilized Cyberjaya scheme, as explained above, Given the current incentive 2.4.2. Cluster Adaptive Cycle Model 2.4.2. Cluster Adaptive Therefore, the scope of the current incentive programs and key target industries would would target industries key and programs incentive the current of scope the Therefore, Source: Source: [Figure 3-17] Modified Cluster Adaptive Cycle Model [Figure developed in Martin and Sunley, where industrial parks or clusters can follow. Martin and Martin and where industrial parks or clusters can follow. developed in Martin and Sunley, of cluster evolution: (1) Custer Full Adaptive Sunley (2011) proposed six possible trajectories (5) Reorientation, Cluster (4) Stabilization, Cluster (3) Mutation, Cluster Constant (2) Cycle, and (6) Cluster Disappearance. Cluster Failure, and mature as an industrial park. One can explain the current path of Cyberjaya using a using a current path of Cyberjaya industrial park. One can explain the and mature as an Sunley (2011), which conceptualized cluster evolution newly developed model of Martin and and explained in [Figure 3-17] and
, there are alternative cluster evolutionary attract new companies to Cyberjaya. Related policy recommendations will be discussed in in recommendations will be discussed Related policy new companies to Cyberjaya. attract Section 4. manufacturing sectors, as discussed in Chapter 1, and hence it would be quite restrictive in be quite restrictive 1, and hence it would in Chapter sectors, as discussed manufacturing to Cyberjaya. new companies terms of inviting on how to want to focus more to be extended further if policymakers be limited and need 184 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Basically, industrial parks or clusters can have five phases in the life cycle: (1) emergence, (2) growth, (3) maturation, (4) decline, and (5) disappearance, which can be called the Classic Life Cycle trajectory, shown in , though it is possible that an industrial park or cluster will disappear after its emergence, as shown in [Figure 3-17]. However, some industrial parks or clusters have been successful in being replaced by a new cluster, following the Cluster Full Adaptive Cycle.Applying this model to Cyberjaya, we can evaluate the current status of Cyberjaya. Cyberjaya seems to either be in the phase of Cluster Maturation in the Cluster Full Adaptive Cycle or in the Cluster Stabilization, because the existing companies do not leave but no companies enter, given the current scheme of incentive programs. In the phase of Cluster Maturation in the Cluster Full Adaptive Cycle, Cyberjaya has been mature, showing that its resilience rises and then falls as it passes through phases of the cycle. In case of the cluster stabilization, the existing companies in Cyberjaya have been stabilized by upgrading their products and services. However, in either case, Cyberjaya is now at a crossroads because Cyberjaya may have internal rigidities or exhaustion of economies of scale effects in the near future. On the other hand, it would be unable to overcome external competitive shocks 185 or would remain potentially vulnerable to decline. CHAPTER 03 Development Strategies for Revitalizing Cyberjaya Possible mechanisms the basis of new cluster formation technological regime. There are high rates of spin- technological regime. There are high rates offs from existing firms and spin-outs from local research institutes or universities. Cluster has a high degree of resilience Though the cluster possibly experiences a phase of decline in scale, the remaining firms survive products and/or focusing on niche upgrading by segments. The cluster retains or prestige market a modest degree of resilience, but it remains to (further) decline potentially vulnerable into a new form The cluster in effect branches without going through a long period of decline. key a play The more innovative lead firms may reacting to role in this process, for example by or a rise of major competitors, saturation market activate or a technological breakthrough may reorientation The cluster fails to achieve sufficient critical mass, also share. Innovation may externalities or market falter. New firm formation is low and/or the firm is high, which deters new entrants failure rate The cluster experiences the same eventual atrophy and decline as in the full adaptive cycle pattern (see point 1 above), but inherited resources and competences are not sufficient or ill-suited to form Resilience rises and then falls as the cluster passes and then falls as the Resilience rises The cluster atrophies through phases of the cycle. rigidities or exhaustion because of either internal or it is unable to of increasing returns effects, competitive shock. But withstand major external capabilities and sufficient resources, inherited provide a basis for the competencies are left to based on related or emergence of new cluster cognate specialism innovate more or less Cluster firms are able to constantly mutates continuously and the cluster specialization and or widens in terms of industrial
Phases of evolution Phases of evolution and typical characteristics and typical and grow. Any remaining firms do not Any and grow. constitute a functioning cluster decline Emergence, growth, maturation, and elim ination. No conversion into or a new cluster. Classic life replacement by cycle trajectory in a much reduced and restricted form. The cluster might remain in this state for an extended period of time or Upon reaching or nearing maturation, upon the onset of early cluster decline, firms reorientate their industrial and technological specialisms, and new cluster emerges reonentation off The emergent cluster fails to take Emergence, growth, and constant Emergence, growth, and and technological change. The structural and evolves, cluster continually adapts development the successive possibly by activity. of related of new branches where basic This is particularly likely technology has a generic or general- purpose characteristics Emergence, growth and maturation, possibly though stabilization, by followed Eventual replacement by a new cluster. Eventual replacement by adaptive cycle. the archetypal Follows to is likely The replacement cluster upon resources and capabilities draw inherited from the old cluster
Martin and Sunley (2011). Martin and Sunley trajectory
Evolutionary Evolutionary 6. Cluster disappearance 5. Cluster failure 4. Cluster reorientation 3. Cluster stabilization 2. Constant cluster mutation 1. Cluster full adaptive cycle
Some Alternative Cluster Evolutionary Trajectories under the Model under the Evolutionary Trajectories Cluster 3-9> Some Alternative 3.1. Industrial Location Policies and Development in Industrial Parks
As analyzed by Cho (2012) and Kim (2008), the Korean government has taken a gradual approach to developing industrial parks by reflecting industrial development levels and economic development strategies for each period, as shown in
. In the 1960s, export-oriented industrial parks were developed to support export-led growth strategies, focusing more on so-called light industries, such as textiles and apparel, footwear, and wigs. Considering needs of supplying workers to labor-intensive industries, industrial parks were created in major populous cities, such as Seoul metropolitan area, Pusan and Daegu, in Korea. Summary of Korea’s Industrial Locational Policies over Decades1960s 1970s 1980s 1990s 2000s
Policy Export-Led Limit Seoul Knowledge- 187 Relocation Upgrading
Objectives Industrialization Metro Area Based Industries CHAPTER
Heavy and Industrial Tech-Intensive Software-Based Light Industries Chemical IT Industries 03 Structure Industries Industries Industries Development Strategies for Revitalizing Cyberjaya
Southwest Southwest Major Seoul, Daegu, Pusan, Coastal Area and Central Western Coastal Complex Locations Ulsan Provinces Area
Ulsan Industrial Major Ulsan Industrial Park, Daebul, Park, POSCO, Pyeongtaek, Urban, Industrial Guro Export Industrial Gwangyang, Gumi Industrial Jeonju Cultural Complex Parks Park Asan Park
Source: KICOX (2019).
Since the late 1970s, large-scale heavy and chemical industrial parks have been constructed to strategically build the foundation of the nation’s core industries, and these industrial parks were developed in selected locations, mainly cities of coastal areas, such as Ulsan and Pohang, due to the importance of port access considering industrial characteristics of those industries. Since the 1980s, small- and medium-sized industrial parks have been constructed nationwide to promote balanced national development and narrow the gap between regions. In the 1990s, the Korean government developed large-scaled industrial parks by selecting relatively less developed areas of Southwest provinces. In addition, tech- intensive industrial parks were developed as a response to the development of industrial transformation to high-tech industries. In the 2000s, Korea diversified development of 3,564 12,157 205,766 183,779 405,266 Exports (million US dollars) 1,400 55,076 586,579 413,250 1,056,305.4 Production (billion KRW) 9,688 896,151 149,128 1,102,028 2,156,995 (persons) Employment 602 7,321 38,930 53,933 100,786 (number) Companies Total Local Type National KICOX (2019). KICOX Urban High-Tech One of the success factors of industrial park strategy is their efficient operation through The history above shows that Korea’s policies have been effective in developing in developing effective been have policies that Korea’s above shows history The Especially during the 2000s, the establishment of regional innovation systems and and systems of regional innovation the establishment during the 2000s, Especially Agricultural/Industrial parks. More specifically, the Korean government established the Korea Export Industrial Industrial Export Korea the established government Korean the specifically, More parks. of those industrial charge of development and operation which has taken Corporation, parks, but later has strengthened its functions of managing them. a separate agency that manages individual parks. In the early days of industrial park park industrial of days early the In parks. individual manages that agency separate a organization for the development development, the government established a separate management of and management of industrial parks to seek efficient development and industrial parks, by matching them with phased policies, tailored to economic conditions policies, tailored to economic conditions matching them with phased industrial parks, by balanced and industrialization of goals ultimate two the achieve to policies, industrial and impact positive a had parks industrial of strategy development The development. national and efficient including growth, economic government-led of promotion successful the on industries. continuous supplies of industrial sites and clustering of national strategic Source: Source: complexes have been introduced, including industrial parks for culture-related sectors and parks for culture-related sectors and introduced, including industrial complexes have been telecommunication. as of 2018 in Korea 3-11> Diversification of Industrial Parks
The need for change in governance stems from the perception of the problem of distributed and fragmented governance as a separate corporation managed each industrial park. In the 1990s, the Korean government developed small-sized industrial parks and agricultural/industrial parks in order to achieve balanced national development over regions, creating more management organizations. A centralized approach to industrial complex management at the national level was adopted, and the functions supporting companies in the parks were strengthened. In addition, management bodies were required 189 to operate efficiently and effectively in various national projects to stimulate industrial parks CHAPTER and local economies. As a result, the KICOX, which has been operating major industrial 03
complexes, was established. Development Strategies for Revitalizing Cyberjaya 91,487 96,684 99,250 99,692 96,288 88,837 86,993 88,854 102,054 422,330 100,666 122,300 134,016 132,023 405,266 101,720 107,612 386,281 103,743 368,690 Exports (million US dollars) (million US 242,605.9 263,479.6 259,711.1 266,146.5 267,426.8 273,009.2 261,217.1 269,777.1 265,726.6 259,584.6 978,932.3 244,566.3 250,194.2 245,064.0 241,873.1 984,711.3 235,872.3 244,493.8 Production 1,066,294.2 1,056,305.4 (billion KRW) 2,152,285 2,166,289 2,156,995 2,163,663 2,165,601 2,156,995 2,160,761 2,157,284 2,136,348 2,131,246 2,157,284 2,166,289 2,155,339 2,160,761 2,076,162 2,099,934 2,169,316 2,152,426 2,137,967 2,119,319 (persons) Employment 94,094 95,050 96,260 96,587 97,284 99,075 85,789 92,615 88,913 88,932 88,683 92,615 96,260 93,377 85,789 81,039 82,052 82,389 100,786 100,786 (number) Companies 2018 2017 2016 2015 KICOX (2019). KICOX By the end of the quarter or year for companies and employment. Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter st st st st th th th th rd rd rd rd nd nd nd nd According According to KICOX (2019), Korea had 1,207 industrial parks as of the fourth quarter of 1 1 1 1 4 4 4 4 3 3 3 3 2 2 2 2 Note: sectors of industrial parks accounted for only 3 percent of the entire manufacturing sector insectors of industrial parks accounted for only 3 percent of the entire manufacturing number the 1970s, the In 1990s. the in percent 12.4 to increased this but 1970s, the in Korea in in industrial parks accounted for 2.3 percent of all workers of manufacturing workers in 1990. As of the manufacturing sector, but increased more than 10-fold to 27.8 percent 2018, including 44 national-type parks, 664 local-type parks, 27 urban high-tech-type parks, 2018, including 44 national-type parks, 664 local-type parks, 27 urban high-tech-type 3-12>, these parks have parks. As shown in
Recent Development in Industrial Parks in Korea in Industrial Development 3-12> Recent Summing up, Korea’s major industrial parks have served as the nation’s growth engine for major manufacturing sectors such as machinery, electrical/electronic products, automobiles, and steel products. Korea’s industrial parks contributed not only to the nation’s economic growth, but also to local job creation, regional economic revitalization, and the growth of urban areas, considering stages of industrial development and local characteristics. For example, the coastal industrial complex in the southeastern part of Korea was built in the 1970s to promote heavy and chemical industries in newly developed cities, such as Ulsan and Pohang, which played a pivotal role in terms of regional policy. In addition, the growth of industrial cities affected the surrounding areas, causing the growth and expansion of bed towns.
Looking back on the short history of industrial park development in Korea for more than 50 years from the early 1960s, industrial parks have played an important role in developing the national economy and have achieved remarkable performance and results. Korea’s 191 industrial parks led the development of the manufacturing sector and its national economy CHAPTER as well by the following factors: 03 Development Strategies for Revitalizing Cyberjaya First, Korea’s successful industrial park strategy is due to the strong will of the national leader and full support of the central government. In the early 1960s, South Korea had a strong presidential government. The president’s interest and passion were combined with competent government officials who implemented policy. The central administration system created a perfect environment for the central government to expand full and consistent support for the development of industrial parks. Since industrial park development is a large-scale program that requires a huge budget for accommodation and infrastructure construction, the president’s strong will and efficient administrative system have been an important factor in the successful development and implementation of policy.
The central government’s active budget allocation has also contributed to its success. In 1974, the Korean government assigned KRW 100b of its budget to the Industrial Base Development Corporation (IBDC), which was a 100%-government-owned corporation and was exclusively responsible for the development of industrial parks. The IBDC had the authority to grant tax exemptions for companies in the industrial parks and to set its own discretion to borrow a fund under the approval of the Minister. In particular, Korea’s heavy and chemical industrial complex development project was financed by the central government’s special account, and the IBDC operated public contract programs to develop However, Korea’s industrial complex model, which is recognized as a successful Finally, the establishment and efficient operation of industrial park management of industrial park management establishment and efficient operation the Finally, Third, Korea’s industrial park development strategy has been successful because the the has been successful because industrial park development strategy Third, Korea’s Second, one of the main factors contributing to the efficient implementation of industrial those parks. While infrastructure-based development had been effective in developing development had been effective in developing those parks. While infrastructure-based development, the industrial parks given a short period in the early stage of industrial parks government realized that it was more important to manage industrial Korean having a longer vision of industrialization. In the early stage, the Korean effectively, policy example, had several drawbacks. The main policy focus had been on the locational The main policy focus had been on the locational drawbacks. policy example, had several up 1960s from period the during developed were parks industrial major where decisions, parks, the Korean to 1990s. After making the locational decisions of establishing industrial than how to manage rather government had focused more on provisions of infrastructure, systems and organizations are needed to develop industrial parks more efficiently, it it to develop industrial parks more efficiently, systems and organizations are needed after parks industrial manage to organization systemic more establish to required is developing industrial parks. detailed roadmap for decades, considering the economic conditions and industrial structure detailed roadmap for decades, considering with a comprehensive and detailed vision. of Korea Since well-functioning of industrial park strategies. institutions is essential to the success policy was implemented based on long-term insights and detailed visions. The industrial industrial The visions. detailed and insights long-term on based implemented was policy mid- and long- closely with the government’s park development policy was implemented industry development policy strategic and the national term economic development strategy economic growth and enhance national to establish an industrial base for self-sustaining a with founded were parks Industrial development. industrial through competitiveness investments on some strategic areas. It was inevitable considering the government’s lack of lack the government’s areas. It was inevitable considering strategic investments on some financial but capability, effective in building a foundation for industrialization and growth with limited resources given a short period. park policies was the selection and application of industrial location policies tailored to location policies tailored to the selection and application of industrial park policies was of its economic development economic development. At the beginning the level of national through an unbalanced growth approach government adopted Korean the strategy, large methods that focused and used growth-polar development fostering specific industries, those projects in the 1970s. This approach enabled project developers to operate the project to operate project developers This approach enabled in the 1970s. those projects without the burden of significant initial investment or investment degradation. Despite its industrial resources in developing has invested government budget, the Korean limited state efficiency. parks to achieve 192 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia government had lessons from trial and error in developing industrial parks. An example would be over-investment in heavy and chemical industries in 1980s because the Korean government encouraged domestic companies to aggressively invest in heavy and chemical industries in 1970s, and the Korean government spent its governmental budget to build multiple industrial parks in the same industries. It led the Korean government to coordinate investment projects in heavy and chemical industries and to rationalize overlapped industries in 1980s.
Another drawback in the past was bureaucratic management for industrial parks until 1990s. The government-led development would be efficient in developing industrial parks in a short period of time, but the Korean government and public institutions had managed industrial parks without having any channel to hear voices of private stakeholders including companies located in industrial parks.
The next drawback was unbalanced regional growth over provinces and overcrowding of Seoul metropolitan area. The growth-driven development policy pursued until the mid-1970s caused overcrowding in Seoul metropolitan area and overpopulation in the southeastern 193 region, but less-developed areas experienced reduction of population and economic slow- CHAPTER down for a long time, weakening national integrity due to regional differences. 03 Development Strategies for Revitalizing Cyberjaya On the matter of current and future subjects, the Korean government faces at multiple challenges. With the emergence of knowledge-based economies, Korea needs to change the role of industrial parks in supplying industrial land to manufacturing sectors. It is important to build a complex by adding housing, R&D, and support services to existing industrial complexes centered on production functions. Various efforts should be made to build an eco- industrial complex by applying a new paradigm for green growth to industrial parks.
In addition, there are many industrial complexes over the age of 30 in Korea as industrial parks have been in operation for almost half a century. These complexes are losing competitiveness due to aging and lack of support facilities. Therefore, the Korean government needs to actively respond to this policy demand of renovating and revitalizing existing industrial parks. This challenge will be discussed further in the next subsection.
3.2. Case Studies of Improving Competitiveness of Industrial Parks in 2000s
Since the mid-1990s, IT sectors and knowledge-based services have been emerging as new major industries in the Korean economy, while its manufacturing industry started to face Considering the Malaysian situation to provide policy recommendations of revitalizing revitalizing of recommendations policy provide to situation Malaysian Considering the In addition to these changes in industrial location policies, the government has been also In addition to these changes in industrial In the 2000s, various problems arose, requiring more comprehensive and flexible and flexible comprehensive more requiring problems arose, various 2000s, the In of Guro industrial park is also relevant because it has been successful in transforming a a transforming successful in been has because it also relevant industrial park is Guro of adopting new needs of industrial park to a newly renovated industrial park by traditional a is it because relevant highly is Pangyo on study case last The transformation. industrial newly developed one and it focuses more on high-tech and game industries. Cyberjaya, we chose three different industrial parks on which to conduct case studies: studies: we chose three different industrial parks on which to conduct case Cyberjaya, The case study on Valley. Daedeok Innopolis, Guro Industrial Park, and Pangyo Techno because the ecosystem in Daedeok Innopolis Daedeok Innopolis is relevant to Cyberjaya study case The Cyberjaya. for lessons valuable provides it hence and well working been has technological competitiveness, rather than those industrial parks that have focused more on than those technological competitiveness, rather park industrial various operated also has government The products. manufactured simple eco- including development of measures, support and systems operation and management environmental preservation. industrial parks for development and parks developed in the 1960s and 1970s have deteriorated, the government has implemented implemented has government the deteriorated, have 1970s and 1960s the in developed parks to rebuild industrial One of them is restructuring. to support the park’s policies various development. competitiveness through structural parks developed in the 1960s and improve and R&D enhanced with groups industry fostering been government has the addition, In administrative activities and pleasant residential environments becomes more important important more becomes environments residential pleasant and activities administrative developed to meet those needs. industrial parks have been infrastructure, than physical national major As parks. industrial existing of competitiveness the improving on focusing diverse functions such as production, R&D support, business services, and housing services business services, support, R&D as production, diverse functions such and location development for supported diverse measures increased. The government created diverse industrial complexes such as high-tech advanced industrial structures, and zones and free economic zones, and expanded and medical clusters, foreign investment access to information and services needed for related systems and support. As easy have pursued green growth and development of environmentally friendly industrial parks. growth and development of environmentally have pursued green of industrial park was highlighted policies. In particular, a new type industrial location providing parks for demand the and industries knowledge-based of emergence the as challenges raised by industrial polarization. Moreover, it has been important for the Korean important for the Korean it has been polarization. Moreover, industrial by raised challenges structure to enhance its industrial growth engines and promote new to develop economy in a more efficient Inway. addition, sustainabledevelopment hasemerged as hota issue in problems issues of environmental to the globalized response with the practical connection policy location industrial and policy industrial Korea’s 2000s, the Since warming. global as such 194 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 3.2.1. Daedeok Innopolis5: Transformation from Science Park to Innovation Cluster
3.2.1.1. History of Daedeok Innopolis
In 1973, the Korean government started to construct the Daedeok Science Town on a site of 27.8km2 and its development costs were 1 trillion KRW provided by the government and the private sector. Daedeok is located in the central area of the Korean territory about 167km away from Seoul, the capital city of Korea. It is about an hour away from major cities such as Seoul, Daegu, and Gwangju, so it is convenient to interact with local government officials, industry officials, and researchers. As shown in
below, Daedeok Innopolis has been expanded over time by including zones of research, education, residential, venture business, pilot plants, local industrial park, manufacturing area, green-belt, area for future development, and military and defense-related industry. The Size and Zones of Daedeok InnopolisDaedeok Innopolis’ Total Area: 67.4km² Years Size Zone Name Contents Developed (km²) 195 CHAPTER Zone 1 Daedeok Science Park 1972–99 27.8 Research; Education; Residential
Zone 2 Daedeok Techno-Valley 2005 4.3 Venture Business; Pilot Plants 03 Development Strategies for Revitalizing Cyberjaya Local Industrial Park; Zone 3 Daedeok Industrial Complex 1988 3.2 Manufacturing Area
Zone 4 Green-Belt Area - 28.2 Green-Belt; Area for Future Development
Zone 5 Agency for Defense Development - 3.9 Military and Defense-Related Industry
Source: Innopolis (https://www.innopolis.or.kr/).
As analyzed Oh and Yeom (2012), the development history of Daedeok Innopolis can be divided into three different stages. At the first stage, Daedeok was developed as the first science park in Korea, which was the unique one playing the hub of science and technology having highly educated workforce in Korea at that time. The Korean government has a very clear intention to build Daedeok Science Park, hoping that it could serve as the key driver for enhancing Korea’s technological competitiveness to the world class. To meet this goal, the Korean government played an important role in developing Daedeok Science Park in the period of 1973-1989. After developing the Park, government-funded and public research institutions led R&D activities, then tried to share their knowledge, and then commercialized the knowledge developed with private companies in the Park.
5 ‘Innopolis’ is a compound word of ‘innovation’ and ‘polis (city)’. Oh and Yeom (2012). Oh and Yeom Since 2005, SMEs having strong technical competiveness started to actively participate competiveness started to actively participate Since 2005, SMEs having strong technical In the second stage, private research institutions and startups in high-tech sectors started high-tech sectors started and startups in research institutions stage, private In the second in the world. established with responsibility of supporting and managing the Innopolis and has conductedhas and Innopolis the managing and supporting of responsibility with established of managing the Innopolis. These include commercializing R&D outcomes four strategies for ecosystems venture building institutions, research government-funded by developed outside in the Innopolis with companies companies in the Innopolis, sharing best practices a standard cluster the Innopolis, and creating foreign-friendly business environment to be into the ecosystem in Daedeok and hence the Korean government responded to the government responded to the hence the Korean into the ecosystem in Daedeok and by into Daedeok Innopolis, Daedeok Valley transforming by emergence of those SMEs was the Innopolis Foundation to this Act, in 2005. According enacting “Innopolis Special Act” Source: Source: such as public research institutions and academic and educational institutions, had worked worked had institutions, educational and academic and institutions research public as such and well-functioning ecosystem. collaborative together showing a Decades of Daedeok Innopolis over 3-18] Development [Figure to lead R&D activities during the period of 1990-2004 in Daedeok Valley, which was called was called which Valley, in Daedeok the period of 1990-2004 activities during to lead R&D invest to aggressively private sector started this period, the During Valley. after Silicon and (BT) Biotechnology as well as IT of sectors mainly in activities, R&D in money their institutions, other activities, R&D led had sector private the Though (NT). Nanotechnology 196 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 3.2.1.2. Current Status of Daedeok Innopolis
As of 2017, Daedeok Innopolis has been successful in establishing ecosystem of technology-related industries with government and public research institutions, universities, government and public institutions, and companies as shown in
. A total of 26 government-funded research institutions, seven universities, and more than 1,700 high- tech SMEs, are considered to be one of the most favorable areas of living in this area. In addition, residents of Daedeok Innopolis are about 11% of PhD level researchers in Korea majoring in engineering and natural sciences. In Daedeok Innopolis, technology, companies, and residents live together in a more harmonious way, and business and research activities are carried out efficiently and conveniently. However, beyond that, creativity is a world- class innovation cluster that boasts the dynamic and prosperous level of production of IP application products based on strong R&D investment. Daedeok Innopolis has very convenient facilities for technology commercialization in specialized industries such as IT, BT and NT, with research institutes and universities. Institutions in Daedeok Innopolis 197Research Non-Research CHAPTER Public Public Other
Private 03 Year Gov’t- National Non- Firms Total
Research Subtotal Subtotal Development Strategies for Revitalizing Cyberjaya Funded Edu. & Public Gov’t Public Profit Inst. Research Inst. Research Inst. Inst. Inst. Inst. Inst.
2005 24 5 3 7 39 9 6 3 18 687 744
2007 25 5 3 7 40 9 7 13 29 898 967
2009 25 6 3 7 41 9 10 18 37 1,006 1,084
2011 27 7 3 8 45 9 11 21 41 1,306 1,392
2012 27 7 3 8 45 9 11 21 41 1,312 1,398
2013 27 7 3 9 46 9 14 23 46 1,484 1,576
2014 27 7 3 9 46 10 14 23 47 1,516 1,609
2015 26 7 3 9 45 10 14 23 47 1,613 1,705
2016 26 7 3 9 45 10 14 22 46 1,669 1,760
2017 26 7 3 9 45 10 14 23 47 1,784 1,876
Source: Innopolis (https://www.innopolis.or.kr/).
Daedeok Innopolis has many successful examples of government-funded, public, and private research institutions working together with companies to commercialize the technology they developed. These include commercializing technology of CDMA (Code Division
Key Role Key Global business infrastructure (management facilities, local governments, and international organizations) Collaboration among among Collaboration firms, HEIs, and research institutes industrial Strategic local projects led by governments
Main Features etc. business incubation space, technology support, marketing support and other business incubation space, technology support, marketing professional support was provided. science park and local governments. specific are managed by commercialization, and technology transaction centers of regional innovation. customized education professionals: specialized education programs, and etc. programs industries, multi-purpose sites and innovation cluster: clusters of strategic industries. Clusters of strategic industries are created by the cooperation between the cooperation industries are created by Clusters of strategic technology Business activities such as technology marketing, was established as the core of regional platform. The Techno-park prepared future oriented strategy. Industry Planning Team The Strategic R&D experts and to support to train education programs Integrated Land-use system to promote business activities and R&D activities in the An innovative cluster to be created to promote the growth of strategic growth of strategic An innovative cluster to be created to promote the among firms, HEls and research institutes is enhanced. network The collaborative of innovative clusters. Local governments should actively support the creation and local governments. central Regional innovation projects are conducted by in addition to providing A support system for business incubation activities: ------
& Oh and Yeom (2012). Oh and Yeom R&D As shown in
, Daedeok Innopolis has various stakeholders, including including various stakeholders, 3-14>, Daedeok Innopolis has As shown in Functional Features of Innovation Cluster Model of Innovation 3-15> Functional Features . management, as shown in 3.2.2.1. History of Guro Industrial Park
The Korean government established Guro Industrial Park in Seoul in 1964 as the first national industrial park in Korea. This park started to focus more on Korea’s strategic industries at that time, which were mainly labor-intensive ones, including garment, textile and clothing, simple assembly of metals and so on. In the 1960s and 1970s, Guro Industrial Park played a very important role in exporting about 10% of total Korean exports (Jeong and Choi, 2013).6
However, since late 1980s the Korean government started to develop local industrial parks in order to achieve a policy goal of more balanced regional development and hence most companies started to leave Guro Industrial Park, leading the Park to face hollowing- out effects. The situation had been getting worse because competitiveness of labor-intensive industries had been getting weaker due to developing countries in the world started to pick up their export performance using their cheap labor costs. As Jeong and Choi (2013) 199 analyzed it using the Cluster Adaptive Cycle Model, discussed in the previous section, Guro CHAPTER Industrial Park had moved through the path of “emergence”, “growth”, “sustainment”, and
“decline” starting from the 1960s and up to the late 1990s. This led to the path of Cluster 03 Development Strategies for Revitalizing Cyberjaya Disappearance without being replaced by a new cluster.
3.2.2.2. Transformation of Guro Industrial Park to Seoul Digital Complex
The Asian financial crisis of 1997 was the tragic event to Guro Industrial Park, leading big companies in the Park, such as Daewoo Inc., Hanil Synthetic Inc., and Saegae Corporations, to be bankrupt [Park (2008)]. After realizing the situation in Guro Industrial Park, the Korean government set a plan to transform and revitalize it to a renovated industrial park focusing more on high-tech. To implement this plan, the Korean government amended the Act of Industrial Location and Establishing Factories to provide a better institutional support by relaxing burdensome regulations of developing industrial parks. Following the amendment to the act, companies in non-manufacturing sectors and conducting R&D activities have been allowed to locate in the Park. Whereas the Korean government set four target industries, such as high-tech, fashion & design, venture, and other knowledge-based sectors, it also changed the name of Guro Industrial Park to Seoul Digital Complex in 2000.
6 This chapter focuses more on transformation of Guro Industrial Park to Seoul Digital Complex. For the details of the successful outcomes of Guro Industrial Park, refer to Park (2008). In addition to the quantitative success of Seoul Digital Complex, it has been successful in In addition to the quantitative success of Seoul Digital Complex, it has been In addition, its impact on employment has been positive because the employment employment the because positive been has employment on impact its addition, In 3.2.2.3. Performance of Seoul Digital Complex 3.2.2.3. Performance of Seoul Digital Digital Complex, IT-related companies Guro Industrial Park into Seoul After transforming To revitalize the Complex, the Korean government allowed private developers of real developers of real government allowed private the Korean revitalize the Complex, To Before the transformation, the Guro Industrial Park had been thought of as a slum, but been thought of as Park had the Guro Industrial transformation, Before the mainly doing knowledge-based business, Seoul Digital Complex has successfully transformed transformed mainly doing knowledge-based business, Seoul Digital Complex has successfully into a knowledge-based cluster. clothing industries, into industrial clusters focusing more on high-tech, fashion and design, clothing industries, into industrial clusters focusing more on high-tech, fashion were non- and knowledge-based industries. As of 2018, 56.4% of companies in the Complex 21.9% electrical and electronic sectors, accounting for manufacturing sectors, followed by the Complex are to the total number of companies. Since non-manufacturing companies in in the stage of “decline” based on a life cycle model, has been successfully transformed to the the to transformed successfully been has model, cycle life a on based “decline” of stage the in cluster (Jeong and Choi, 2013). stage of “re-emergence” as a new industrial sectors such as textile and an industrial park, which was based on traditional transforming was only 849, but this jumped to 11,911 in 2013, which is a 14-fold increase. was only 849, but this jumped to 11,911 This 33,086. 2001, in figure that of time 4.9 is which 2014, in 162,656 was Complex the in interesting because Guro Industrial Park, which was performance in the Complex has been started to locate in Seoul Digital Complex because high-tech companies have utilized because high-tech companies have utilized started to locate in Seoul Digital Complex the Complex within Seoul. Since private developers relatively cheap cost of locating into factory buildings, Seoul Digital Complex has have been allowed to build apartment-type in the Complex and hiring more people. in having more companies located been attractive of companies located in Seoul Digital Complex in 2001As shown in [Figure 3-18], the number registration taxes and property taxes for five years. taxes and property registration an enjoy benefits of developing they can enjoy factory buildings so that estate to build apartment-type government addition, the Korean expensive area such as Seoul. In real estates in a very Complex, including 50% rebates of to companies newly located in the provided tax credits now it has been successfully renovated into a revitalized place. In the Seoul Digital Complex, the Seoul Digital place. In renovated into a revitalized been successfully now it has the KICOX built a venture center to attract and to support companies in the Complex by and patent issues, tax matters, accounting, focusing more on consulting services, providing internet services. as ICT environment including high-speed management, as well 200 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia [Figure 3-19] Development of Seoul Digital Complex (Unit: Number)
180,000 14,000 160,000 12,000 140,000 10,000 120,000 100,000 8,000
80,000 6,000 Companies Employment 60,000 4,000 40,000 2,000 20,000 0 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Companies Employment
Source: KICOX.
3.2.2.4. Key Factors of Success 201 CHAPTER
There have been several key factors of this successful outcome in transforming Guro 03
Industrial Park to Seoul Digital Complex. The first is deregulation. To achieve a policy goal Development Strategies for Revitalizing Cyberjaya of more balanced regional development, the Korean government set a very restrictive regulation limiting the total number of factories in Seoul metropolitan area in order to limit any further expansion of Seoul and to provide more opportunities for development to local areas. However, to revitalize Guro Industrial Park, the Korean government relaxed its regulations by excluding apartment-type factories from the total number of factories in Seoul metropolitan area and allowed private real estate developers to build apartment-type factory buildings. In addition, the Korean government also reduced regulations by allowing manufacturing sectors to locate in Seoul Digital Complex.
The second factor of the success is the locational advantage of Seoul Digital Complex, which is located in Seoul. Seoul has been developed well, especially in terms of knowledge- based infrastructure, including top universities, R&D centers of major companies, resident areas of highly educated workers, knowledge-based public institutions, and highly advanced financial institutions for R&D funds. Utilizing this locational advantage, Seoul Digital Complex has been a perfect spot for high-tech and knowledge-based clusters.
The third factor of the success is network externalities. Industrial clusters of those selected industries in Seoul Digital Complex have been working well due to the locational 3.2.3. Pangyo Techno Valley 3.2.3. Pangyo Techno Valley 3.2.3.1. History of Pangyo Techno led was built during 2005–15 as a ten-year development project, Valley Pangyo Techno The last but not least factor of the success is the Korean government’s logical selection logical selection government’s is the Korean The last but not least factor of the success City, Gyeonggi City, Province. However, the local government of Gyeonggi Province has been in intensively nurturing the area as a Valley, responsible for developing Pangyo Techno “global R&D hub”. The vision of being a global R&D hub had been specified to focus more on converging technologies from various fields. IT as well as IT-related R&D, by the local government of Gyeonggi Province. In the early 2000s, the Korean IT industry industry IT Korean the 2000s, early the In Province. Gyeonggi of government local the by and hence the had started to show positive performance in terms of production and exports, government realized the importance of R&D activities in order to be continuously Korean new a decided to build government the Korean competitive in the future. Therefore, Seongnam Town, New Pangyo in MNCs high-tech of centers R&D attract to park industrial have their own brands and develop their businesses to undertake high value-added work, high value-added work, to undertake and develop their businesses have their own brands That Asia. East in chains value regional their of hubs being after design, and fashion as such their own developing countries in East Asia to make is, they use manufacturing facilities in in the Complex. companies of fashion items originally designed by brands sectors of garment, textile, and clothing. Utilizing their knowhow in those sectors Utilizing their knowhow in those sectors sectors of garment, textile, and clothing. very logical to move up into the fashion and design accumulated over decades, it has been sectors. While it would not be profitable to simply manufacture garments,textile, clothing, countries in East Asia, companies in those sectors and apparel due to low-cost developing and commercialize the information collected. and commercialize and design sectors. As described previously, industries, particularly the fashion of strategic including mainly industries, on labor-intensive more focused had Park Industrial Guro According to Park (2008), apartment-type factory buildings have been one of the key factors key the of one been have buildings factory apartment-type (2008), Park to According externalities. This is because Complex to experience positive network for companies in the companies in the Complex more those factories in the Complex provides the building style of provides a locational platform to meet and work together and then opportunities to easily on their business and to utilize Complex in order to collect information companies in the advantage as described above. Collaboration among companies in the same and similar and similar in the same among companies Collaboration as described above. advantage Seoul in themselves locate to decide to companies for factors key of one been has sectors Digital Complex. According to a survey done by KICOX in 2007, 29% of companies in in the after being located synergy effects experience positive responded to the Complex Complex and then working together with other companies in the Complex (KICOX, 2007). 202 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia The area was constructed on a 661,925m2 site in Pangyo New Town, consisting of three types of land: invited research sites, general research sites, and research-supportive sites. Three public support facilities, including Global R&D Center, Public Support Center, and Industrial-Academic R&D Center, have been asked to support tenant companies.
The second stage of the Pangyo Techno Valley started in November 2015 and will end in December 2019. On a 430,000m2 site in Pangyo, the second project is under construction, which will focus more on subjects of the Fourth Industrial Revolution, including artificial intelligence (AI), Internet of Things (IoT), 3D printing technology, and autonomous driving technology.
3.2.3.2. Performance of Pangyo Techno Valley
As described previously, Pangyo Techno Valley is different from other national industrial parks because it was led by the local government. However, the Valley has been quite successful in inviting major R&D centers from foreign and domestic companies, such as Samsung Tech One, SK Chemicals, Ahn Lab, NHN, Cacao, Nexon, and so on. As shown in
. Pangyo Techno Valley has 1,270 tenant companies and approximately 70% of 203 tenant companies are in the IT industries. They hired 74,738 workers in 2016, and public CHAPTER institutions have 388 staff in the Valley. The sales of companies in the Valley increased from 54.0 trillion KRW in 2013 to 79.3 trillion KRW in 2017. Over sectors, the IT sector had the 03 Development Strategies for Revitalizing Cyberjaya highest amount of sales, 49.4 trillion KRW, in 2017, followed by the NT sector with 9.0 trillion KRW, the BT sector with 8.1 trillion KRW, and the culture technology (CT) sector with 6.0 trillion KRW. It also turns out that 1,101 companies (86.7%) in the Valley are SMEs, followed by middle-sized companies (82 companies, 6.5%) and large companies (45 companies, 3.5%). In addition, 8.7% of tenant companies in the Valley are foreign-invested.
Key Performance of Pangyo Techno Valley2013 2014 2015 2016 2017
IT 487 643 862 1,038 865
BT 80 103 137 141 150
CT 150 87 42 63 158 Tenant Companies NT 13 11 11 12 17
Others 140 158 69 52 80
Total 870 1,002 1,121 1,306 1,270
Employees (Persons) 58,188 70,577 72,820 74,738 N/A
Sales (trillion KRW) 54.0 69.4 70.3 77.5 79.3
Source: Pangyo Techno Valley (http://www.pangyotechnovalley.org/). KAIST, Electronics and Telecommunications Research Research Electronics and Telecommunications KAIST, 7 The local government also established innovation support centers, such as the Startup as the Startup The local government also established innovation support centers, such The local government also realized the importance of the ecosystem for the success of the importance of the ecosystem for the success of The local government also realized Since the local government included the demands of potential stakeholders to the plan to the plan the demands of potential stakeholders Since the local government included 3.2.3.3. Key Lessons from Pangyo Techno Valley Pangyo Techno from Lessons 3.2.3.3. Key high-tech an innovative successful in developing has been Valley Pangyo Techno in the ICT field. 7 Valley. in the Pangyo Techno the Autonomous Driving Laboratory The AICT decided to operate Campus, Gyeonggi Center for Creative Economy and Innovation, Global R&D Center, to to Center, Global R&D Innovation, and Creative Economy for Gyeonggi Center Campus, their business. support high-tech companies in starting up, growing, and internationalizing the Startup Campus has ICT-related organization, industrial organizations, and Especially, companies startup support then and other each with cooperate to agencies ICT-specialized research institutions in Korea, such as Advanced Institute of Convergence Technology (AICT) Technology Convergence of Institute Advanced as such Korea, in institutions research of the Seoul National University, Institute (KETI). Electronics Technology Institute (ETRI), and Korea the Valley, which focuses more on the subjects of the Fourth Industrial Revolution, because Industrial Fourth which focuses more on the subjects of the the Valley, are vital activities hence R&D and industries their of initial stage are in the subjects these commercializing the technology developed. Therefore, in developing new technologies and of ecosystem the establishing of supports various include to decided government local the major of laboratories and research centers and inviting this field in startups innovative of establishing the Valley, the plan was helpful in inviting companies and startups which are the plan was helpful in inviting of establishing the Valley, 3D Revolution, such as AI, IoT, Industrial the Fourth doing their business in the subjects of as described before. and autonomous driving technology, printing technology, tenant companies and relevant stakeholders, even in the stage of planning the Valley. the Valley. even in the stage of planning and relevant stakeholders, tenant companies demands the local government, reflected those set by the Valley, The plan of establishing collected from potential stakeholders. Valley was initiated, planned, and developed by the local government of Gyeonggi Province, the local government and developed by was initiated, planned, Valley of process In Korea. of government central the with cooperated and consulted it though other from it differentiate to how on focused government local the Valley, the planning Fourth the of subjects and high-tech in specialize to decided and parks industrial existing potential of voices hear to tried government local the addition, In Revolution. Industrial industrial industrial cluster, even including subjects of the Fourth Industrial Revolution. The firstkey before, Pangyo Techno the public sector. As described plan designed by factor is the systemic 204 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 3.3. Government Support System for Industrial Parks
Since the development of industrial complexes requires a huge amount of cost and infrastructure, Korea introduced various support systems to promote the construction and revitalization of industrial parks. In addition, when industrial parks are developed, the government provides various benefits, as the development of industrial parks has a significant ripple effect on the local economy, as shown in [Figure 3-20]. The Korean government mainly provides benefits to companies that were re-located in the parks, as well as to developers of those parks. The support system for developers is designed to partially support the costs of developing industrial parks and to apply those relevant laws and regulations for relatively easier acquisition of sites to be developed as industrial parks. This support scheme includes construction costs for major roads and environment-related facilities in industrial parks; construction cost of water supply facilities and sewage- and waste-disposal facilities; land purchase cost for constructing apartment-type plants (city or flat-bedded plants); development costs, infrastructure costs, and land purchase costs for agricultural and industrial parks; expenses for access roads, power, communication facilities, etc.; research expenses for cultural assets; cases deemed particularly necessary 205 for the development of backward areas; and cases where a business operator wants to lease CHAPTER land in an industrial park that has not been exploited. 03 Development Strategies for Revitalizing Cyberjaya [Figure 3-20] Korea’s Support System for Developing Industrial Parks
Support system for development of industrial parks
Support system for developers Support system for resident enterprises
Financial support/ Support for land Tax and financing Installation of welfare Payment of expenses development support facilities
Restriction on Support Low- Subsidy Acceptane Exercise of Support Adjacent Welfare Service Public disposition for interest for public of advance the land for Tax living and facilities administrative of building of financing facility payment expropriation operating redemption facilties medical for and treatment national/ intrastructure expense right fund facilities producers facilities public land
Source: Cho (2012).
In general, the project operator is required to recover the costs incurred by the development of an industrial park by selling the development park. However, developers In addition to the tax credits, the government provides various modes of support to provides various modes of support to In addition to the tax credits, the government After developing industrial parks, the Korean government has focused on how to attract attract to how on focused has government Korean the parks, industrial developing After Support should first be provided by the state, local government, or suppliers of such or suppliers of such the state, local government, be provided by Support should first and market development of SMEs; and low-interest funding for tenant businesses in the in the businesses funding for tenant and low-interest of SMEs; development and market and urban high-tech industrial parks. general on development of national key industries, technology development, quality improvement, on development of national key of expenses operating and expenditure capital for support industries; high-tech and in businesses small for support parks; agriculture-specialized in companies tenant the Act, The Small Business Promotion accordance with The Small Business Startup Support Act, products and support for manufacturing and The Small Business Purchase Promotion Act, such as a 100% deduction for both registration and acquisition taxes and a 50% deduction and acquisition taxes and a 50% deduction such as a 100% deduction for both registration for property taxes. companies in industrial parks, such as financial support in accordance with applicable laws companies to those industrial parks by providing various incentives to companies. There are providing companies to those industrial parks by in industrial parks, which are designed to ease the various support systems for companies government to those parks. The Korean them attract investment burden of companies and provides various tax benefits, based on the SpecialTax ControlAct and the LocalTax Act, projects for small businesses for industrial use. State and local governments can reduce use. State and local governments can reduce projects for small businesses for industrial development complex industrial of execution rapid the for necessary, if costs, exempt or projects. electricity. The government operates electricity. a financial support system to ease the financial burden tax exemptions, such those developers will have various specifically, of developers. More tax, when they purchase land to develop tax, and property as acquisition tax, registration industrial parks. State or local governments could provide financial support to efficiently industrial parks, and to promote land lease businesses to develop industrial parks, to attract as well as relatively low interest rates for financing their purchases of land. for financing their purchases low interest rates as well as relatively facilities with regard to the infrastructure necessary for efficient development of industrial and telecommunications, railways, roads, water supply facilities, parks, including ports, cannot develop industrial parks in a less advantageous location because the development because the development location in a less advantageous industrial parks cannot develop roads, to construct cost for public facilities portion of the a substantial project includes of the part government is paying that sense, the In water, and sewerage. industrial parks is cost of agricultural/industrial the land acquisition costs. In addition, development subsidized as well. The Korean government provides tax benefits to companies in the parks 206 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 4. Policy Recommendations
4.1. Policies for Effective Supporting System and Incentives
As analyzed in the previous sections, Cyberjaya would be in the stage of cluster maturation or cluster stabilization in [Figure 3-17], introduced by Martin and Sunley (2011). Absent any factor to act as a catalyst, Cyberjaya will eventually decline in the long run. This implies that Cyberjaya as an industrial cluster, in effect, needs to be reborn into an upgraded one without going through a long period of decline. That is, Cyberjaya needs to move from a mature period to a phase of emergence and renewal.
As discussed above, Cyberjaya needs to focus more on how to enhance knowledge spillovers by generating positive technical externalities. In addition, we identified two issues from the labor market: brain drain and mismatch. In order to enhance the pooling effects of the labor market, Cyberjaya needs to respond to these two issues. For the linkage between buyers and sellers, though the public transportation to Cyberjaya has been developed well, it would take more time for customers to visit Cyberjaya compared to other areas such as 207 Bangsar South. Moreover, frequent communication and closer relationship with customers CHAPTER are very important in some industries, for example, the e-game industry. These factors are 03
critical for companies to make locational decisions. Development Strategies for Revitalizing Cyberjaya
For issues of incentive programs, the BoGs, as described in the previous sections, are a set of incentive programs, but these programs are also applicable to MSC-status companies, whether they are located in Cyberjaya or not. In addition, the scope of strategic industries in Cyberjaya is quite restrictive because the authority sets a “No Factory” policy. Since Cyberjaya has been developed over time in an environment-friendly way, it has focused mainly on pollution-free industries. However, manufacturing technology has improved a lot in recent years. This report will deal with these two issues and propose policy recommendations.
4.1.1. Knowledge Spillovers and Technical Externality
4.1.1.1. Strengthen Collaboration between Universities and Companies in Cyberjaya
As empirically analyzed by Kim and Ahn (2017), technological cooperation with universities is more important than physical infrastructure for developing high-tech industries in Korea. After analyzing its ecosystem in Cyberjaya, the ecosystem of technology cooperation in Cyberjaya has been relatively weak. There has not been technological
Upgrade Universities in Cyberjaya or Strengthen Technological Cooperation Cooperation Technological Cyberjaya or Strengthen Universities in Upgrade with Universities outside Cyberjaya As discussed in the previous sections by showing
, it was evaluated that 3-5>, it was evaluated that showing However, it is not easy and simple to upgrade universities in a given short period. Alternatively, the Malaysian government needs to consider how to strengthen technological cooperation of companies within Cyberjaya with universities outside Cyberjaya. This is because Malaysia has very competitive universities outside Cyberjaya, including Universiti Malaya, Universiti Kebangsaan Malaysia, Universiti Putra Malaysia, Universiti Sains Malaysia, Universiti Teknologi Malaysia, and Universiti Teknologi Petronas. When companies in Cyberjaya are encouraged to cooperate with universities outside Cyberjaya, it would be likely to raise opportunities of technological cooperation, leading to well-functioning ecosystem of technological cooperation. It implies that internal linkages in an industrial cluster are definitely important, but the cluster needs to have cooperative networks with universities outside the cluster. Therefore, for the knowledge spillovers in Cyberjaya, we need to strengthen Local Buzz and External Pipelines.8 209
4.1.1.3. Establish Public Research Institutions in Cyberjaya CHAPTER
Based on Korea’s experience in developing new technology and commercializing 03 Development Strategies for Revitalizing Cyberjaya the technology developed for companies in industrial parks, the Malaysian government needs to establish government-funded or public research institutions within Cyberjaya. As described previously, Daedeok Innopolis has many successful examples in which government-funded, public, and private research institutions cooperated with companies in the Innopolis to commercialize the technology they developed, including commercializing technology of CDMA, which has been a global standard of wireless communication; WiBro; terrestrial DMB; the Korean-style nuclear reactors; the Korean-made global drug Factive; and the Korean-made (Arirang) satellites. Especially, 4-Mega DRAM was developed by ETRI, a government-funded research institution, in 1986, and later it was commercialized by cooperating with Korean producers of semiconductors.
However, there is no public research institution in Cyberjaya. Public research institutions, regardless of whether they are associated with universities, have been a critical factor of economic catch-up, as analyzed by Mazzoleni and Nelson (2007). Given that technological innovation has been quickly changing and the scientific foundation of modern technology is becoming more important for the future of commercializing technology, these
8 The author used words of Local Buzz and External Pipelines, by reflecting ideas from Bathelt, Malmberg and Markell (2004). To transform brain drain to brain gain, the Malaysian government needs to to needs government Malaysian the gain, brain to drain brain transform To 9 4.1.2.2. Designate Cyberjaya as a Special Zone with a Discrimination-Free Area 4.1.2.2. Designate Cyberjaya as a Special Zone with a Discrimination-Free reasons for brain et al. (2011), one of key Bank (2011) and Tyson to the World According Focusing more on Cyberjaya, one can consider making “Cyberjaya-version of REP” to of REP” to one can consider making “Cyberjaya-version more on Cyberjaya, Focusing The Malaysian government has the so-called “Returning Expert Programme (REP)”, (REP)”, Programme Expert “Returning so-called the has government Malaysian The 4.1.2.1. Transform the Brain Drain to Brain Gain to Brain Drain the Brain 4.1.2.1. Transform describing Malaysia, in drain brain of issue the well documented (2011) Bank World The 4.1.2. Supplies of IT-Skilled Workers: Brain Drain and Mismatch Drain Brain Workers: 4.1.2. Supplies of IT-Skilled drain in Malaysia would be some deeply rooted features of Malaysia’s political economy political economy Malaysia’s of features rooted deeply some be would Malaysia in drain a revised version policy, Melayu rights and a Ketuanan and education, such as Bumiputera 9 (https://rep.talentcorp.com.my/). Returning Expert Programme skilled experts abroad if they return to Malaysia and decide to stay in Cyberjaya. and decide to stay skilled experts abroad if they return to Malaysia Malaysian experts back from abroad. Malaysian of setting the Cyberjaya-version By foreign-based IT-skilled experts to Cyberjaya. attract IT- to Malaysian application criteria in the ICT sectors, we can provide various incentives which provides various incentives to experts who meet application criteria, set by the the by set criteria, application meet who experts to incentives various provides which government. more application criteria in order to attract reducing strengthen and expand the REP by to this issue in order to continuously supply skilled workers to strategic industries. In that industries. In that to strategic supply skilled workers to this issue in order to continuously which Drain, for Reverse Brain interested in programs sense, most developing countries are left their home countries and moved to developed refers to the return of professionals who or knowledge to experiences returning, those professionals can utilize their After countries. help their home countries develop further. that it is a symptom in a globalized world, not a problem. However, from perspectives of governments need to respond their of skilled workers, developing countries facing shortages with companies in Cyberjaya to strengthen knowledge spillovers and technological and technological to strengthen knowledge spillovers Cyberjaya with companies in Cyberjaya. externality within institutions will increase in importance in the future. Mazzoleni and Nelson (2007) found found and Nelson (2007) Mazzoleni the future. in in importance will increase institutions of development the to contributed have institutes research public and universities that Accordingly, conomic fields. national and e competence across of technological various forms or government- of public recognize the importance needs to government the Malaysian so that they can cooperate and to establish those institutions funded research institutions 210 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia of Bumiputera. As an alternative to mitigate the brain drain in Malaysia, the Malaysian government can consider designating Cyberjaya as a special zone with a discrimination-free area, where companies are required to hire IT-skilled workers based on their talents without any race or religious discrimination. In doing so, Cyberjaya can be a test bed to apply this non-discrimination policy and then recognize its economic and social impacts.
4.1.2.3. Strengthen Vocational Training and Internship Programs
Zakariya (2017) found that there has been a job mismatch in Malaysia as well as in Cyberjaya.10 After a dramatic increase in the number of graduates from higher educational institutions (HEIs) in Malaysia, there has been a mismatch between the skills supplied by those HEIs and those demanded by companies in the labor market. Tan et al. (2017) also found that there had been an expectation gap in the engineering sectors, where the skills that companies in the engineering sectors expected are different from those that workers have.
To solve this mismatch, Cyberjaya needs to strengthen vocational training programs, 211 where Cyberview needs to operate and strengthen vocational programs to educate potential CHAPTER workers on appropriate skills that companies demand. In addition, Cyberview needs to link the vocational training programs with internship programs so that potential workers can 03 Development Strategies for Revitalizing Cyberjaya acquire the skills demanded by companies in conducting their internships.
4.1.3. Linkages between Buyers and Sellers
The public transportation to Cyberjaya has been well developed so that customers can easily access Cyberjaya. As discussed in the previous sections, however, some industries need to have strong connections with customers and, hence, geographical proximity to the places where most customers live would have a top priority for companies in these industries. As explained before, the e-game industry is a good example because companies in this industry need to communicate more frequently with players of their games by checking prompt responses of players about newly developed games and upgrading their games by reflecting comments from players.
Given this fact, Cyberjaya needs to consider industrial characteristics when it selects strategic industries to be invited to Cyberjaya; hence, incentive programs need to be designed to reflect these industrial characteristics, which will be discussed in the next
10 According to the interviews with staff of the World Bank and companies in Cyberjaya done by the author, we identified job mismatch in Cyberjaya. Summing up, the Malaysian government needs to differentiate incentive programs to differentiate incentive programs government needs Summing up, the Malaysian The current incentive programs in Cyberjaya would be “one-size-fits-all” ones for for ones would be “one-size-fits-all” in Cyberjaya The current incentive programs 4.1.4.1. Differentiate and Customize Incentive Programs in Cyberjaya Programs and Customize Incentive 4.1.4.1. Differentiate they are located in Cyberjaya, MSC status, regardless of whether Companies with an 4.1.4. More Effective Incentive Programs 4.1.4. More in vocational training or internship programs. After surveying companies in different After surveying companies in different or internship programs. in vocational training industries to check their needs, the authority can differentiate and customize its incentive place, so that more companies will a more attractive making Cyberjaya thereby programs, select Cyberjaya. differentiated way. In process of customizing incentive programs, the authority needs to the authority needs to In process of customizing incentive programs, differentiated way. who are interested in locating themselves in hear demands from potential companies Cyberjaya. These incentive programs include not only financial ones but also administrative would be interested in the example, industries, consuming more electricity, support. For cost of while electricity, industries, hiring workers with a specific skill, would be interested Cyberjaya—that is, it needs to customize and tailor incentive programs in Cyberjaya to meet in Cyberjaya incentive programs is, it needs to customize and tailor Cyberjaya—that characteristics. considering individual industrial needs of companies by when it designs them in a characteristics reflecting industrial and customize them by companies in Cyberjaya, without considering industrial characteristics of companies in in companies of characteristics industrial considering without Cyberjaya, in companies have not been unique in Cyberjaya This implies that those incentive programs Cyberjaya. industries strategic of those did not consider industrial characteristics and that policymakers industrial cluster, the as a well-functioning In process of developing Cyberjaya in Cyberjaya. of target industries in characteristics government needs to consider industrial Malaysian Presumably, this would reduce motivations of companies to locate into Cyberjaya. In that In that into Cyberjaya. motivations of companies to locate this would reduce Presumably, sense, the Malaysian government needs to consider how to differentiate incentive programs Cyberjaya. from those for MSC companies outside in Cyberjaya are eligible for incentive programs that can be provided by the Malaysian government. government. the Malaysian that can be provided by programs are eligible for incentive subsection. The industries where geographical proximity to customers is a top priority are are priority top a is customers to proximity geographical where industries The subsection. to visit time for customers more it would take because located in Cyberjaya to be unlikely South. areas, such as Bangsar than other Cyberjaya 212 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia 4.1.4.2. Relax the “No Factory” Policy and Expand the Strategic Industries
Cyberjaya has been developed in an environment-friendly manner, selecting non- manufacturing sectors, such as strategic industries, without building any factories. In fact, it was a global trend to develop industrial parks in an environment-friendly manner when Cyberjaya was initiated, and it was a right decision to develop it in that way. However, manufacturing technology has been improved a lot in recent years and some manufacturing sectors can produce their products generating less pollution than before. In high-tech industries, companies nowadays have efficient technology to produce their products, for example 3-D Printing technology and a smart factory. Moreover, environmental technology to reduce pollution has also developed a lot in recent years. Given these changes in technology, the Malaysian government needs to relax the “No Factory” Policy and hence to expand strategic industries in order to invite more companies from more diverse industries.
For example, the agro-food industry would be a promising one in Malaysia. Given Malaysia’s Islamic culture and strategic location, geographically and culturally close to
Indonesia and the Middle East, the Halal food industry can be a candidate of new strategic 213 industries in Cyberjaya because it generates less pollution. Moreover, if the Halal food CHAPTER industries can be linked with the cultural-contents industry in Cyberjaya in some ways, then 03 the collaborations will generate a huge synergy effect and hence both industries will have a Development Strategies for Revitalizing Cyberjaya better export opportunity.
In addition, the halal food industry can be also linked with smart logistic services to deliver the food products to be exported to foreign countries, by utilizing the well-developed and efficiently functioning transportation infrastructure in Cyberjaya. In that sense, the smart logistic services industry can be another candidate of strategic industries in Cyberjaya.
4.2. Policies for Efficient Governance
In terms of the governance issues in Cyberjaya, Cyberview has played a very important role in developing and managing Cyberjaya since it was initiated. In addition, Cyberview has managed efficiently the multi-stakeholder administrative structure with three other key stakeholders, Sepang Municipal Council, Setia Haruman, and MDEC. Based on Korea’s experience in developing industrial parks, however, the Malaysian government needs to establish a more systemic governance system to take care of all industrial parks. Furthermore, Cyberjaya itself needs to develop a more inclusive governance system, by reflecting previous policy recommendations. 4.2.2. Expand and Strengthen the Cyberjaya Development Council in a More the Cyberjaya Development 4.2.2. Expand and Strengthen Inclusive Way Development Council has played the Cyberjaya In a governance system of Cyberjaya, Therefore, the Malaysian government needs to establish a public agency to manage to establish a public agency to manage government needs Therefore, the Malaysian Given the belief that industrial parks in a country need to be developed in a way way a in developed be to need a country in parks industrial that belief the Given 4.2.1. Way Systemic in a More All Industrial Parks Agency to Manage a Public Establish actively government Korean parks, the in developing industrial experience Given Korea’s Cyberjaya, and hence the Cyberjaya Development Council needs to be expanded by inviting Development Council needs to be expanded by and hence the Cyberjaya Cyberjaya, and public research institutions if they are established universities in and outside Cyberjaya as recommended in this report. an important role in networking key stakeholders in Cyberjaya. It has provided various It has provided various in Cyberjaya. stakeholders an important role in networking key activities, and marketing inputs, in the forms of perspectives, experiences, best practices, however, previously, proposed As Cyberjaya. in companies tenant and agencies key to with universities in and outside needs to strengthen technological collaborations Cyberjaya all industrial parks. After establishing the agency, the government needs to guarantee the the the government needs to guarantee the agency, all industrial parks. After establishing balance between the agency and individual agencies of industrial parks by clearly defining harmonious and systemic mechanism to develop and their job description in order to set a manage all industrial parks in Malaysia. competition among them would generate positive outcomes under certain circumstances, outcomes under certain circumstances, positive competition among them would generate there would be inefficiencyif they were developed not in harmoniousa directionthat the a risk of overlapped investment in industrial government set. In addition, there is Malaysian to lower efficiency. focusing on the same industries, leading parks by government or public institution to take care of all industrial parks in Malaysia in process in process care of all industrial parks in Malaysia institution to take government or public Cyberjaya, of issues beyond is recommendation This policies. industrial its implementing of governance systemic more a establish government to Malaysian the for critical it is very but vision. harmonious a more with parks industrial managing and developing in mechanism have their own sovereignty to manage them and the Though individual industrial parks can government established the KICOX, a public institution to develop and manage industrial government, in 1997. the Korean policies set by parks under the industrial needs to establish a government policies, the Malaysian of matching its industrial considered industrial policies at that time and then it tried to operate industrial parks in parks in industrial operate then it tried to at that time and industrial policies considered Korean the so, doing of process In policies. industrial Korean matching of line same the 214 Korea’s Industrialization and Structural Reform: Practical Lessons for Development of Malaysia Furthermore, the Cyberjaya Development Council needs to strengthen its role in operating Cyberjaya. Having active collaboration with Cyberview, the Council needs to evaluate activities in Cyberjaya, including effectiveness of incentive programs; technological collaborations among companies, universities, and public research institutions, and their performance; public transportations; housing and office rental costs; vocational training and internship programs; performance of tenant companies; and grievance of tenant companies. This will enhance the governance of Cyberjaya in a more efficient and inclusive way.
Summary of Evaluations and Policy RecommendationsCategory Subcategory Evaluations Recommendations
- Strengthen collaboration between - 4G-based IT Environment is good universities and companies in enough, but more investment in 5G Knowledge Cyberjaya technology Spillovers and - Upgrade universities in Cyberjaya or - Actively operating various events to Technological strengthen technological cooperation generate knowledge spillovers Externality with universities outside Cyberjaya - Relatively poor quality of universities - Establish government-funded in Cyberjaya research institutions in Cyberjaya
- Transform the brain drain - Good public transportation to experiences to brain gain: Centripetal 215
Cyberjaya Strengthening REP or Making CHAPTER Forces - Quantitative supplies of IT-skilled Cyberjaya-version of REP in the ICT Pooling Effects of workers sectors the Labor Market - Good salaries for IT-skilled workers - Designate Cyberjaya as a special zone 03
in Cyberjaya with a discrimination-free area Development Strategies for Revitalizing Cyberjaya - Brain Drain and Mismatch - Strengthen vocational training and internship programs
- Relatively convenient for customers Linkages between to visit Cyberjaya - Consider industrial characteristics to Buyers and - Need to consider industrial select strategic industries Sellers characteristics
- Housing costs have rapidly increased Real Estates in recent years Centrifugal - Pretty competitive office rental rates None Forces Other Negative - No congestions Externality - No air pollution
- Differentiate and Customize Incentive - BoGs are applicable to MSC-status Programs in Cyberjaya companies outside Cyberjaya - Relax the “No Factory” policy and Incentive Programs - Cyberjaya is currently in the Cluster expand the strategic industries: Halal maturation or cluster stabilization Food Industry, Smart Logistic Services stage Industry
- Establish a public agency to manage - Four key stakeholders: Cyberview, all industrial parks in a more systemic Sepang Municipal Council, Setia Institutional Governance way Haruman, MDEC - Expand Cyberjaya Development - Cyberjaya Development Council Council in a more inclusive way
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Ministry of Economy and Finance (MOEF) Sejong Government Complex, 477, Galmae-ro, Sejong-si 30109, Republic of Korea Tel. 82-44-215-7741 www.moef.go.kr
Korea Development Institute (KDI) Namsejong-ro, 263, Sejong-si 30149, Republic of Korea Tel. 82-44-550-4114 www.kdi.re.kr
Asian Development Bank (ADB) 6 ADB Avenue, Mandaluyoung City 1550, Metro Manila, Republic of the Philippines Tel. +63-2-8632-4444 www.adb.org
Knowledge Sharing Program (KSP) www.ksp.go.kr
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