3rd Kuala Lumpur International Trade Forum

Leadership in the Marketplace through Creativity and Innovation

Assalamualaikum Warahmatullahi Wabarakatuh

Salam Sejahtera

Beta bersyukur ke hadrat ILAHI kerana dengan izin dariNya juga, Beta dapat berangkat untuk menzahirkan titah utama di Kuala Lumpur International Trade Forum yang ke-tiga ini. Beta amat menyanjungi usaha yang dirintis oleh Perbadanan Pembangunan Perdagangan Luar Malaysia (MATRADE) dalam menganjurkan forum ini.

  1. It is a pleasure for me to be here this morning to deliver this address at the Third Kuala Lumpur International Trade Forum. The theme of this forum is ‘Leadership in the Marketplace through Creativity and Innovation’, which is very timely given the highly uncertain economic and business landscape we live in. I therefore welcome this opportunity to share with you some of my thoughts – not as a business practitioner but as a keen student of economic development and the processes it entails.

The current business environment

  1. The marketplace is more globalised, seamless and competitive today than at any time in the past. Three decades ago, geographical distance was a significant barrier to business activity. Domestic markets were protected with a variety of trade and non-trade measures. Today the market is a global one with everyone competing for everyone’s business everywhere. Tariffs and non-tariff barriers have come down, and the Internet is providing a digital platform for entrepreneurs to build their businesses with reduced costs. This means that many businesses can reach and supply global markets instantaneously. Accelerated technological advances have also substantially improved industrial productivity and have allowed suppliers to produce an unprecedented array of products and services.
  2. The result is the ‘commoditization’ of market offerings. Most businesses that exist today sell something that can easily be bought from someone else leading to price-wars and reduced profit margins. Every day, the consumer is deluged with a wide spectrum of virtually indistinguishable goods and services, which begs the question: Why should they choose one product over another if not because of price? Under the current economic climate, with resources even more constrained, competition even more severe and demand less than supply, it appears that businesses need some stroke of ingenuity to ensure that they survive and prosper.
  3. Many of the standard management and organisational practices that have been propagated extensively in the past – such as cost-cutting, improving customer service and expanding distribution networks – are no longer enough. Every producer is doing them. And every producer must do them just to be able to stay in the game. But a business cannot rely on these run-of-the-mill practices alone if it wants to stand out.

The innovation imperative

  1. The key to substantial and sustainable growth lies in creativity and innovation. Creativity is the ability to generate new ideas or concepts, or new applications of existing ideas or concepts. Simply put, it is the ability to create something that has never before existed. An idea can be creative without being innovative but innovation presupposes creativity. Innovation is the transformation of an idea into something useful. In business, innovation has the potential to alter consumer preferences and behaviour. It has the power to change the customer experience and change business landscapes. Consider the impact made upon the market by corporations such as Google, Sony, Apple, Nokia and Ikea.
  2. Innovative entrepreneurship also plays an important role in ensuring socio-economic wellbeing. Joseph Schumpeter, one of the first economists to develop theories of entrepreneurship, argued that innovative entry by entrepreneurs into the market is the force that sustains long term economic growth. He referred to entrepreneurs as “wild spirits”, and the process of outdoing the ideas of contemporaries as “creative destruction”. He recognised that small businesses can be as innovative as big ones, and that innovation is as likely to arise from university dorm-rooms as from boardrooms.
  3. Policy-makers are now turning their attention to promoting entrepreneurship as the engines of job-creation and long-term economic growth. Start-ups have accounted for almost all of the net job creation in the United States over the last two decades. In the developing world, new technologies are helping to break the cycle of poverty by creating jobs and helping small businesses flourish[1]. Innovation and innovative start-ups could very well be the antidote to rising global unemployment, and the elixir to raising standards of living and ensuring long-term prosperity.

The challenge for Malaysian businesses

  1. Today, Malaysia finds itself caught in a middle-income trap – squeezed between low-cost labour-intensive economies, and technology-driven knowledge-intensive economies. Malaysia is fast losing its comparative advantage in the export of labour-intensive manufactured products. And simply importing cheaper labour to feed this sector is doing nothing to propel the economy up the value chain. To secure future growth, Malaysia needs to compete with countries with high technological capabilities – the likes of South Korea, Japan and even China. It can only do this through innovation and technological breakthroughs. While the government is all set to provide the necessary assistance, the responsibility rests with business entities to forge their paths to becoming more competitive in the global marketplace.
  2. The challenge for Malaysian businesses today is to emerge from a situation of mediocrity. Malaysia ranks 24th out of 133 countries according to the Global Competitiveness Report 2009-2010, published by the World Economic Forum[2]. Topping the list are Switzerland, the US and Singapore. The countries ahead of Malaysia in the rankings are at the innovation-driven stage of development. They no longer rely on existing technologies. Firms in these countries design and develop cutting-edge products and processes to sustain a competitive edge.
  3. For this to happen there must of course be an environment that is conducive to innovative activity – where there are solid institutions, where people are healthy and sufficiently educated, where markets are efficient, where infrastructure is well-developed. According to the Global Competitiveness Report, there must also be sufficient investment in research and development, the presence of high-quality scientific research institutions, extensive collaboration in research between universities and industry, and the protection of intellectual property. In this time of crisis, it will be important to resist pressures to cut back on research and development spending that is so critical for sustainable growth[3].
  4. Given these prerequisites, Malaysia does have the makings to be well on its way to becoming an innovation nation. It has already begun to do so in some respects. Malaysia has established itself as a premier centre for Islamic finance and the originator of Islamic bonds or sukuk. It is also fast-becoming a hub for Islamic fund management services, Islamic banking and takaful and re-takaful, apart from being a centre for Islamic finance education, training, research and consultancy. Malaysia has also brought value to the global halal production market. The Malaysia International Halal Showcase (MIHAS), managed and promoted by the Malaysian External Trade Development Corporation (MATRADE), has gained worldwide recognition as the largest exhibition of halal products and services, giving Malaysia the opportunity to emerge a market leader in this field.

Forging a new path

  1. Having said this, business innovation in Malaysia is still relatively low. But this indicates tremendous opportunity and plenty of room to grow. The first step is to recognise that innovation originates with people. Good ideas can come from anywhere at any level of the organisation. The Google Corporation well exemplifies this. All engineers at Google are encouraged to spend 20 percent of their work time on projects they are personally passionate about. Google calls this ‘Innovation Time Off’. Evidently, 50 percent of Google’s new offerings including Gmail, Google News, Orkut and AdSense originated from these independent endeavors[4]. Ideas can also come from outside the organisation. Many progressive organisations are turning to open-source innovation, particularly in the field of software design and development, where ideas are solicited from software engineers and programmers all around the globe via the internet, thus multiplying the source and accelerating the pace of idea flows.
  2. Innovation must provide practical value for it to be widely accepted in the market. Some innovations are market-pioneering or futuristic. They are “cool products” that often shoot beyond what buyers are ready to accept and pay for. According to studies, more than 90 percent of market-pioneering products fail in the market[5]. On the other hand, the most successful innovations are those that are aligned with other business fundamentals such as utility, cost, delivery channels and price.
  3. Innovation is not just the preserve of large corporations and there is no shame in starting small. Many innovation sensations such as the personal computer, the air-conditioner, soft contact lenses and overnight postage were sparked off by small firms and by individuals. The key is to keep a keen eye on new global opportunities and to work hard at finding a market space to thrive in. Indeed, the amount of work required to transform an insight into something marketable cannot be underrated. It requires significant investment of time and resources on research, analyses and planning.
  4. My second point is that Malaysian organisations must commit to continuous reinvention of their products and services. Management guru Peter Drucker once remarked, “Every organization has to prepare for the abandonment of everything it does.” Indeed, resting on one’s laurels is a sure way to slide into complacency and defeat at the hands of an innovative competitor. Companies like Intel and Gillette have policies of making their own products obsolete. With each new product launch, they are already working on the product that will supersede it. Managers in every organization have a responsibility to initiate and direct change and to find innovative ways to deliver products and services, even if it means discontinuing existing lines and creating something entirely new.
  5. This is not to imply however that one should abandon core competencies, which brings me to my third point. Core competencies give us an inherent edge and we should keep building on them for as long as they are relevant in the market. But if they are no longer relevant, we should then commit to developing new ones that are. Agriculture has long been a stronghold for Malaysia. It remains a very relevant sector globally given changing demographics and concerns over food security. However its importance is not reflected in its modest contribution to GDP of less that 10 percent. New national initiatives are now looking at ways to transform this sector into a technology-based food-production industry – one that is efficient, market-driven and commercially viable enough to fulfil domestic demands and exports while boosting income levels of farming communities.
  6. This leads me to my fourth point which is that business innovation is not limited to products and services. A firm can also innovate by using innovative strategy. Air Asia is an excellent case in point. Air Asia did not offer the market a new product or service; neither did it introduce new technologies. It instead took an existing industry – air travel – and injected into it bold and innovative strategy to make it more accessible, flexible and convenient. This has allowed Air Asia to experience rapid growth. It now dominates market space and has become an award-winning airline and the largest low-cost carrier in Asia.
  7. My final point is about moral responsibility. While business entities are and must remain profit-seeking, they must at the same time exercise their moral obligation to the market they serve. There have been pharmaceutical products released on the market that have had damaging side-effects on users. The financial sector saw the introduction of innovative financial instruments, which have introduced greater risk and volatility. The manipulation of these products and lax regulation eventually led to a catastrophic worldwide financial crisis which we are only now beginning to come out of. Innovation cannot therefore be totally driven by the unbridled search for profit. There must also be an eye for the greater good.

Conclusion

Ladies & Gentlemen,

  1. The economic downturn has forced us take an earnest look at ourselves and question our strengths, advantages and ability to withstand economic pressures. The challenge now is to pick-up, revive and forge ahead. Forums such as these have proven to be useful platforms – conduits for us to meet and take stock of where we are and how we should proceed. More importantly, it gives us the chance to ask what more we can and must do to contribute to the general well being of our economy and our people. I commend the Malaysian External Trade Development Corporation (MATRADE) for organising this forum and for being unrelenting in steering Malaysian businesses towards competitive advantage in the global marketplace.
  2. I wish all of you an enlightened deliberation at today’s forum and may you find success in your present and new business endeavours. To all foreign participants, I hope you will find Malaysian hospitality warm, friendly and in abundance.

Thank you.

  1. “Fish out of Water” in The Economist October 31-November 6 2009, p. 74. ↑
  2. World Economic Forum (2009), The Global Competitiveness Report 2009-2010. ↑
  3. Ibid. ↑
  4. Mayer, Marissa. “Stanford University Entrepreneurial Thought Leaders’ Seminar Series”, 17 May 2006. ↑
  5. Gerard Tellis and Peter Golder (2002) Will and Vision (New York: McGraw Hill) ↑
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