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MALAYSIAN INNOVATION ECOSYSTEM: A REVIEW OF THE

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 Malaysian Innovation Ecosystem: A Review of the Literature

MALAYSIAN INNOVATION ECOSYSTEM: A REVIEW

OF THE LITERATURE

M.Y., Sulaiman1, A., Abdullah2 and N.A., Othman3

1
Malaysian Industry Government Group For High Technology,
Prime Minister’s Department, 63000 Cyberjaya,
Selangor, Malaysia.
2
Faculty of Manufacturing Engineering,
Universiti Teknikal Malaysia Melaka, 76100 Durian Tunggal,
Melaka, Malaysia.
3
Faculty of Technology Management and Technopreneurship,
Universiti Teknikal Malaysia Melaka, 76100
Durian Tunggal, Melaka, Malaysia.

Email: *1yusoff.sulaiman@gmail.com; 2abuabdullah60@gmail.com;

3
farrie.akma@gmail.com

ABSTRACT: The capability to innovate and to bring innovation successfully

to the market will be a crucial determinant of the global competitiveness of
nations over the next decade. Knowing the importance, Malaysia has started
to prioritise its national agenda by embedding innovation as one of the major
theme of its national economic model. Building a sustainable and supportive
ecosystem is one of the keys to ensure an efficient growth strategy. By
succeeding in building the sustainable self-reliant innovative system needed,
the country aims to become a fully developed nation strategically positioned
in the regional and global economic landscape. This paper provides a review
of the literature on current status of Malaysian innovation eco-system. The
paper concludes that innovation eco-system is essential to nurture innovation
in organisation.

KEYWORDS: Innovation Ecosystem, New Economic Model (NEM), Government

Transformation Program (GTP), National Innovation System (NIS), Small and
Medium Enterprises (SMEs).

1.0 INTRODUCTION
Innovation is the heartbeat of modern economies. In emerging
economies, innovation is a powerful engine for development and for
addressing social and global challenges. Innovation is mandatory for
organizations to survive in the high technology atmosphere of the 21st
century. In today’s globally competitive environment no firm, large
or small, can survive without innovation. However, the paradox of
innovation is that while it is driven by competition, it cannot flourish

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Journal of Advanced Manufacturing Technology

without taking into account the environment in which one innovates.

This means that the ecosystem must support and not repress innovation.
The actors in the ecosystem must have access to the right conditions that
encourage and stimulate them to innovate. This difficult balance can
be achieved through co-operation. Innovation no longer depends only
on how firms, universities, research institutes and regulators perform,
but on how they work together. The success of any innovation-driven
growth strategy depends on the ability to attract a large community
of creative organisation and individuals from different fields. This
includes education, entrepreneurs, and universities. The government
too is an important component of the innovation eco-system. In the case
of Malaysia, innovation is still at its early stage. Creating a high income
jobs where the people can benefit from a competitive economy and a
better way of life in the New Economic Model, three key principles
emerged clearly; high income, sustainability and inclusiveness.

These three principals will drive Malaysia economic progress to

become a fully developed nation; a competitive economy strategically
positioned in the regional and global economic landscape,
environmentally sustainable and a quality of life that is all inclusive
and encompassing. The aim of this paper is therefore to provide a
review of the literature on current status of the innovation eco-system
in the context of Malaysia. It will explore the ways in which Malaysian
government nurture innovation eco-system for the development of
Malaysian economic growth.

2.0 INNOVATION DEFINED

There are likely as many definitions of “innovation” as there are experts.
The term covers a broad spectrum of business activity and can be
applied to new or improved products (as at Microsoft and Nintendo),
processes (as at Toyota, Walmart, Procter & Gamble), experience (as
at Disney, Google, Target), or business models (as at Hewlett Packard,
Reliance, or Goldman Sachs). Table 1 presents various definitions
of innovation from researchers, organisations and countries that
are heavily involved in studying and focusing on innovation. These
definitions take different perspectives, depending upon the needs of
the organisation or researcher, and over time include more nuances, as
the process becomes better understood.

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 Malaysian Innovation Ecosystem: A Review of the Literature

Table 1: Innovation definitions

Innovation is “the commercial or industrial application of something new - a new
product, process or method of production; a new market or sources of supply; a
new form of commercial business or financial organisation.” Schumpeter, Theory of
Economic Development
Innovation is the intersection of invention and insight, leading to the creation of social
and economic value. Council on Competitiveness, Innovate America, National
Innovation Initiative Report, 2004
Innovation covers a wide range of activities to improve firm performance, including
the implementation of a new or significantly improved product, service, distribution
process, manufacturing process, marketing method or organisational method.
European Commission, Innobarometer 2004
Innovation success is the degree to which value is created for customers through
enterprises that transform new knowledge and technologies into profitable products
and services for national and global markets. A high rate of innovation in turn
contributes to more market creation, economic growth, job creation, wealth and
a higher standard of living. 21st Century Working Group, National Innovation
Initiative, 2004
Innovation is the productive renewal in the form of new goods or services, new
business models or markets, new processes or organisation of production, new
competences or input sources. Vinnova, 2004
An innovation is the implementation of a new or significantly improved product (good
or service), or process, a new marketing method, or a new organisational method in
business practices, workplace organisation or external relations. Innovation activities
are all scientific, technological, organisational, financial and commercial steps which
actually, or are intended to, lead to the implementation of innovations. OECD, Oslo
Manual, 3rd Edition, 2005
Innovation - the blend of invention, insight and entrepreneurship that launches
growth industries, generates new value and creates high value jobs. The Business
Council of New York State, Inc., Ahead of the Curve, 2006
The design, invention, development and/or implementation of new or altered
products, services, processes, systems, organisational models for the purpose of
creating new value for customers and financial returns for the firm. Committee,
Department of Commerce, Federal Register Notice, Measuring Innovation in the
21st Century Economy Advisory, April 13, 2007
Innovation means any idea or knowledge in whatever form which brings about
changes in the form of product, service or process resulting in positive impact to
the economy, business, public service delivery system, social well-being or the
environment. Malaysia Innovation Agency (AIM) Act, 2010

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Journal of Advanced Manufacturing Technology

3.0 GROWTH THROUGH INNOVATION

3.1 The Role of Innovation on Country’s Growth

Innovation is the engine that drives economies and country’s growth
[1]. Countries support innovation to ensure dynamic economic
advancement and prosperity, to gain competitive advantage
internationally [5], and to improve the quality of life of their citizens
and those of other nations. The latter is fostered through international
collaboration, especially in research and development.

Innovation is already an important driver of growth in some countries.

Firms in several OECD countries now invest as much in intangible
assets, such as research and development (R&D), software, databases
and skills, as in physical capital, such as equipment or structures. Much
multifactor productivity (MFP) growth is linked to innovation and
improvements in efficiency.

Figure 1: OECD Multi-Factor Productivity Growth,

1995-2000 and 2000-2005

Figure 1 shows that preliminary estimates indicate that in Austria,

Finland, Sweden, the United Kingdom and the United States,
investment in intangible assets and MFP growth together account for
between two-thirds and three-quarters of labour productivity growth
between 1995 and 2006, thereby making innovation the main driver of
growth. Differences in MFP also account for much of the gap between
advanced and emerging countries. This suggests that innovation is also
a key source of future growth for emerging economies.

This economic challenge coincides with increasing political pressure to

meet various challenges, such as climate change, health, food security,
or access to clean water, many of which are global in nature or require

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 Malaysian Innovation Ecosystem: A Review of the Literature

global action. These challenges cannot be dealt with by any single

country and require better co-ordination of effort by countries and
through both supply and demand-side interventions.

Innovation is crucial for solving such problems in an affordable and

timely manner. In the absence of innovation, addressing climate change,
for example, will be considerably more costly. Moreover, innovation
driven growth makes it easier for governments to make the necessary
investments and undertake the policy interventions to address these
challenges.

3.2 Innovation and SMEs

Today, small and medium-sized enterprises (SMEs) form the backbone
of most of countries’ economies. In Europe, SMEs represent 99 percent
of all businesses, providing jobs to more than 100 million people. In
Asia, SMEs constitute the essence of many industries as they tackle
with the present global economic meltdown. In different parts of the
world, entrepreneurships have been assimilated in the mainstream to
carry out proper intervention strategies in development.

Having understood the importance role of SMEs in contributing the

countries’ economies, it is therefore essential to understand why SMEs
should adopt innovation strategies. Today’s model company is not
just the firm that delivers the best deal on the table; consumers are
even more impressed by organizations with a great sense of creativity
on innovative products and services. In the highly dynamic market,
consumers will certainly demand for efficient products, services and
processes across all sectors, and the player that fails to keep up with
the pace is doomed to lose its competitive advantage. 

Innovation
offers SMEs a huge opportunity to save costs, expand to new markets,
create new jobs, and reduce pressure on the competitive environment.
Beyond boosting a firm’s corporate image and profits, riding the tide of
innovation enables SMEs to maintain a high level of legitimacy given
the emergence of an array of innovation requirement imposed by
governments and international organizations.

Innovation is still a new phenomenon yet it is expanding quickly across

many countries. The greatest challenge among governments is how to
spur enabling innovation factors that allows SMEs to easily explore
and pursue their innovative ideas. The forces of technology and global
competition have created a revolution that encourages organisation to
seek new ways to reinvent themselves. Greater emphasis is now being
placed on organisational innovation [2].

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Journal of Advanced Manufacturing Technology

4.0 INITIATIVES PROMOTING MALAYSIAN

INNOVATION

4.1 Malaysian Science, Technology and Innovation Governance

This section briefly reviews the conceptual models of innovation
systems that will form the basis for the development of innovation
indicators in this paper. Figure 2 illustrates the Malaysian Science,
Technology and Innovation Governance. The innovation drive is led
by the Prime Minister who is the promoter, motivator and marketer
of Malaysian innovation outcomes. The Science Advisor to the Prime
Minister provides regular advice and inputs to the Prime Minister on
matters and issues pertaining to science and technology. The Science
Advisor chairs the National Science and Research Council (NSRC)
that prioritise R&D activities in the public sector and universities,
encourages public-private-academia collaborations, and endorses new
STI-related policies and acts, amongst others.

Figure 2: STI Governance – The Malaysian Experience

4.2 National Innovation Model

The National Innovation Model (NIM) was introduced in Malaysia in
2007. The main objective of NIM was to shift Malaysia from a resource-
led economy to an innovation-led economy with significant global
presence, driven largely by domestic private enterprise and activity
in Malaysia (DDI), to meet the objectives of the Vision 2020. Since the

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 Malaysian Innovation Ecosystem: A Review of the Literature

introduction of IRPA in the mid-1980s, the scientific community has

pursued aggressively the Research and Development (R&D) path in
creating the inputs for innovation without giving much attention to
the market needs and the result is a dismal level of commercialisation
success. In order to address the outcomes, NIM introduced the market
pull approach for short and medium-term results, complementing the
longer-term target from the technology push approach.

Figure 3 shows how the NIM addresses the innovation value chain
through the technology-push and market-pull approach while
addressing the market, technology and funding risks. NIM recommends
the following policy prescriptions for the nation’s innovation-led
economy initiative.

• Shift to an innovation-led economic strategy

• Pursue aggressively market-driven innovation (MDI), continue to
actively support technology-driven innovation (TDI)
• Focus government’s role on risk mitigation to assist private sector
drive for MDI
• Expand incentives / grants for entrepreneurs to acquire technology
• Adopt new venture capital (VC) model
• Conduct programs in Malaysia in entrepreneurship, innovation
risk management and mindset change with university / industry in
collaboration.

Figure 3: National Innovation Model [4]

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Journal of Advanced Manufacturing Technology

4.3 National Innovation System (NIS)

As in [3] has defined the NIS as the set of distinct institutions which
jointly and individually contribute to the development and diffusion
of new technologies and which provide the framework within which
governments form and implement policies to influence the innovation
process. As such, it is a system of interconnected institutions to create,
store and transfer the knowledge, skills and artifacts that define new
technologies.

Figure 4: The Innovation Value Chain

It is critical for a country like Malaysia that is geared towards an

innovation-led economy to clearly define and adopt an NIS that is
reflective of its public, private and academic structure. The concept
of the innovation system stresses that the flow of technology and
information among people, enterprises and institutions is key to
an innovative process. As shown in Figure 4, an NIS contains the
interaction between the actors who are needed in order to turn an idea
into a process, product or service on the market.

5.0 ENHANCING MALAYSIAN INNOVATION

ECOSYSTEM
The innovation ecosystem is the environment formed by the community
of organizations, corporations, governments, and academia. As well,
this includes the innovation-influencing factors within the ecosystems,
including policy and education systems. This ecosystem plays an
essential role in improving countries’ global competitiveness by driving
growth and increasing productivity.

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 Malaysian Innovation Ecosystem: A Review of the Literature

Figure 5: The Innovation Ecosystem – Malaysia [6]

Figure 5 illustrated the Malaysian innovation eco-system. For

innovation to flourish, the environment in which one innovates has
to be optimum. This means that the ecosystem must support and not
repress innovation. The actors in the ecosystem must have access to the
right conditions that encourage and stimulate them to innovate. This
is a difficult balancing act as there are so many factors that have to be
looked at and addressed.

The success of any innovation-driven growth strategy depends on

the ability to attract a large community of creative individuals from
different fields. Entrepreneurs, a large component of the innovation
eco-system, have to be supported with skills that will foster innovation.
These skills are typically found in the larger companies or in Multi-
National Corporations (MNCs). The innovation ability of global giants
like Nokia or Samsung or Apple has to trickle down to our SMEs, so
that the eco-system is balanced and remains healthy.

Universities are the cornerstones of the innovation eco-system and

have major roles to play. In developed countries, there is an active two-
way flow of talent between universities and industry. This has enabled
the infusion of innovation methodologies and best practices from
industry into academia, resulting in universities becoming the hotspots
of innovation.

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Journal of Advanced Manufacturing Technology

6.0 CONCLUSION
Malaysia highlighted innovation as one of its pillar to achieve its goal to
be a middle income nation by 2020. By putting the concept at the centre
of the government transformation program, policymakers focus part of
their energy to build a sustainable innovative ecosystem to support the
country’s development.

The concept of innovation system stresses that the flow of technology

and information among people, enterprises and institutions is key to
an innovative process. It contains the interaction between the actors
who are needed in order to turn an idea into a process, product or
service on the market. By giving priority to education, developing
analytic skills amongst youth, supporting local SMEs development and
empowering entrepreneurs, Malaysia is capitalizing on lessons from
existing innovative environment and structures its unique ecosystem
taking into accounts the country specific nature.

ACKNOWLEDGMENTS
YBhg Dato’ Sri Dr Zakri Abdul Hamid, Science Advisor, Prime Minister
Office;
Dr Paul Cunningham, Director, Manchester Institute of Innovation
Research, Manchester Business School;
Ms Kate Barker, Manchester Institute of Innovation Research,
Manchester Business School;
Prof Zamri Mohamed, Dean, UTM Perdana School.

REFERENCES
[1] N. Bagchi “A Comparative Analysis of the Factors for Fostering Innovation
in BRICS Countries from 1995 to 2009”. ASCI Journal of Management, Vol.
41, No. 1, pp. 1-20, 2011
[2] T. C. Ling and A. Mohd Nasurdin, “The Influence of Knowledge
Management Effectiveness on Administrative Innovation among
Malaysian Manufacturing”, Asian Academy of Management Journal, Vol. 15,
No. 1, pp. 63-77, January 2010.
[3] S. Metcalfe, The Economic Foundations of Technology Policy: Equilibrium and
Evolutionary Perspectives in P. Stoneman (ed.), Handbook of the Economics
of Innovation and Technological Change, UK: Blackwell, 1995.
[4] Minister of Science, Technology and Innovation, http:// www.innovation-
nation.com.my/files/presentation_by_maximus_johnity_ongkili.pdf,
2007.

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[5] L. Morris,” Three dimensions of innovation”, International Management

Review, Vol. 9, No. 3, pp. 5-11, 2013.
[6] National Economic Advisory Council, Malaysia, “New Economic Model
for Malaysia”, 2009.

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