How will NEM create value?

I joined the Ministry of International Trade and Industry (Miti) in January 1992 after returning from pursuing but not having completed my PhD. Miti did even not know I was to report for duty.

As it was the first day of the month and year, I was ushered to an official meeting called a ‘morning assembly’ with the minister. The chief of administration introduced me to the secretary-general and some senior staff, and I was assigned to be deputy director of multi-lateral trade.

Within about six months, I was reassigned to the newly-created Policy and Research Division with the assignment of preparing and releasing the first Miti report on international trade and industry. About two years later, I was promoted to director of industrial policy.

My first assignment was to review the First Industrial Master Plan (IMP1, 1985-1995), which carved out Malaysia’s accelerated industrial development agenda for the manufacturing sector.

We were re-evaluating the successes and failures and recording some of the achievements.

The only problem was it was being done much after the fact, as the policy period was ending by 1995. Only after assuming the assignment did I find out a sad reality – that three previous directors had lost their jobs on this unfulfilled assignment which had been requested by the minister since mid-1992.

With a maverick for an immediate boss, we focused on getting our project done. It was not too difficult as both my boss and his boss were trained in the Royal Military College. In true military style, once an objective is set, we are trained to achieve it by hook or crook.

With IMP1 review done, we introduced the IMP2 by October 1996 with the central thesis and tagline ‘Manufacturing Plus Plus’ (MPP). The term was coined by the head of Malaysian Institute of Economic Research, our primary consultant for the study.

The MPP Agenda was premised on the concept of ‘value added’ and the ‘value chain’ contributions of the different links and actors in the ‘manufacturing value chain’. The ‘value-chain’ was not an original economics concept but rather a managerial accounting concept popularised by Professor Michael Porter, the strategy management guru who wrote ‘Competitive Advantage of Nations’.

His simple thesis, apart from the ‘diamond’ evaluation framework, was the fundamental logic that value additions are premised on value enhancing relationships. These networks of relationships he called ‘clusters;’ a relationship network of business partnerships that agglomerate their mutual value additions by growing the net value of the entire cluster in terms of contributions towards new value creation.

The cluster operated as a whole system. Porter’s unit of analysis was therefore groups; and initially focused his thesis on nation-states, having studied it within regions of certain geographies and specific industrial clusters in Italy.  

In short, a value add is when your business partner adds value to what you are doing by offering some value or making a unique value proposition which adds to the current value. This holds true whether it involves any of the ‘4Ps’ of Philip Kotler’s marketing model, or the value-up and cost-down of the Blue Ocean strategy language. 

Regardless of specific business strategy, the net result for the group, is a cluster of positive and value-adding relationships, which can make the nation-state (or any geography of relationships) more competitive than others.

Value multiplication

Within the IMP2, we propositioned two value chain curves. The first showcased the different value contributions of the current chain of relationships and what constituted the lowest value for the manufacturing process industry. The value-added was achieved as one moved backwards or upstream into R&D and product design and patents/IPs in the manufacturing process.

The other option for Malaysian industries was to move downstream into the value chain with improved marketing, logistics and branding.  But that was only the first curve, defining only existing manufacturing relationships based on FDI-driven investments and usually with foreign ownership of patents and IPs held by them.

The second option, a higher and more ambitious value chain curve, required a quantum leap in value addition processes. A newer principle of value multiplication was implied.  For example, when the Multimedia Super Corridor (MSC) was launched, it was seen by the architects as a value multiplication opportunity.

Why? In 1996, when the MSC and the seven flagship applications were launched, there were pockets of similar applications in small measures and in different parts of the world but no global market for such tested, proven and fail-proof products or applications.  

For example, no country had an e-government system that was ‘productised’ and transferable to another part of the world. This e-government application was therefore a value multiplication opportunity for Malaysia, if we could roll-out a solid and productisable e-solution. The government offered a home-based opportunity to pilot and market all such applications. Sadly, we failed to utilise this.

All seven flagship applications never became a value multiplication model of the second curve.  All remained only rent-seeking licensing-based value-add applications and therefore, only a kampong-quality application!  No foreign partners would put their state-of-the-art applications into a new potential unequal partnership. In fact, there was never a real or serious partnership.

In the same way, more value-addition models of relationships premised and based on rent-seeking economics cannot make for a New Economic Model (NEM).

Real and new economics must come from world-class applications which can ignite and challenge the global community’s imagination for solutions to every day and real problems, if not totally brand new ones.

Such new value creation requires moving away from a focus on simple manufacturing towards investing through technology innovations by creating own patents, trademarks and Ips.

My questions for the Malaysian Industrial Development Authority (Mida) are this: While the PM has announced a change in name – from ‘industrial’ to ‘investment’ by year’s end under a corporatisation scheme – how will this make Mida newer? What really will be the new value creation which cannot come from foreign direct investment?

How will Mida encourage the convergence of Malaysian investments working with local technology inventors or innovators to make products and services which solve problems for the world?

Can we seek to facilitate this new value creation under the NEM? I still do not see this reflected in the NEM.