Oct 29, 2003

Malaysia's MSC shows signs of life

By Chee Yoke Heong

KUALA LUMPUR - With Prime Minister Mahathir Mohamad just days away from stepping down - loudly, as it turns out, after having got his foot into it by accusing the Jews of running the world - one of his most cherished projects appears tenuously on the road to success against long odds. Or, unlike some of his other projects, it at least doesn't appear doomed to outright failure.
That is the Multimedia Super Corridor (MSC), an area the size of Singapore that stretches from the world's tallest buildings - for now - the Petronas Twin Towers in Kuala Lumpur, to the futuristic Kuala Lumpur International Airport to the south, wiping out hundreds of hectares of oil palm, rubber and tin mines, the symbols of the old Malaysia.
Perhaps nothing is quite so emblematic of the 78-year-old prime minister's single-minded drive to vault his country to the world's technological forefront. And, like so many of his projects, including the national car, the end result is probably to be determined sometime well into the future. Other projects, like steel production, have been disasters.
Launched six years ago with much fanfare, the ambitious scheme was at the heart of Mahathir's vision to drive Malaysia to industrialized status by 2020. The aim was to lure information technology (IT) and communications companies from around the world, especially from the advanced countries, to create Asia's Silicon Valley, which Mahathir boasted would be a "global gift to the information age".
A fired-up Mahathir embarked on a series of road shows to industrialized countries in 1997 to win support for the MSC, the success of which depends heavily on his leadership but the future of which is now questionable upon his departure. The idea was to entice world-class corporations such as Microsoft to invest in the MSC, a high-tech wired region that was to emulate and compete with other similar initiatives that were already taking place elsewhere in Singapore, Taiwan and India.
It promptly ran into a buzz saw - first the Asian financial crisis of 1997-1998, which caused international investors to flee the region in droves. That was followed by the collapse of the global equities bubble in 2000, along with the concomitant collapse of the dotcom bubble, which left even more economic wreckage strewn around the high-tech landscape. This was the biggest blow because so many of the IT industries that Mahathir had hoped to lure were now going out of business in the developed world. The severe acute respiratory syndrome (SARS) epidemic earlier this year was yet another setback.
To skeptics, Malaysia, with a population of 25 million, would be hard put to pull off with such an ambitious plan given its limited technological know-how, the lack of top high-tech research and development (R&D) universities to provide a stream of graduates and ideas for high-tech companies and the absence of a network of venture capitalists to fund start-ups firms - ingredients regarded as essential for becoming a world-class IT center.
But typically, Mahathir never wavered. Despite the financial crisis and the other global and macroeconomic problems, plans for the project charged ahead amidst gloomy projections and questions about the rationale for continuing to put resources into the MSC during an economic recession. Instead, in 1998, Mahathir proclaimed that the project was a year ahead of schedule.
The plan had its beginnings in the form of a proposal made to Mahathir by the consultant firm McKinsey. The proposal asserted that Malaysia's development strategy, which was heavily focused on manufacturing, imposed a ceiling on potential gross domestic product (GDP) far below that envisaged by Vision 2020, the country's far-reaching development plan. By developing information industries and leapfrogging into the Information Age, McKinsey argued, Malaysia's GDP potential would be greatly enhanced, allowing the country to achieve its development targets.
The incentive package offered by the MSC - 10-year tax breaks, liberalized ownership rules, globally competitive telecom tariffs, unlimited hiring of foreign knowledge workers and promises not to censor - is considered the most comprehensive in the region and is a main catalyst in attracting companies and talent. Other countries such as Hong Kong and Singapore are said to have followed the MSC model.
Though a Microsoft offer to relocate its Southeast Asian headquarters to the MSC did not materialize, more than 900 companies have been given MSC status against a 2003 target of 500. Some 17,800 people are employed, with Malaysians representing 82 percent of total knowledge workers, an indication that the government met its promise to highlight Malaysia's ability to provide the necessary number of knowledge workers needed for the industry. The number is expected to rise to 21,000 for 2003 and 23,000 for 2004.
The less spectacular news, however, is that the majority of the companies are local, with only 59 foreign ones having committed some amount of investment to the project. And only a handful of such companies have moved into Cyberjaya, the so-called "intelligent" city and heart of the MSC that was envisaged as a community of cutting-edge technology and a test bed for the world's information technology giants.
Nonetheless, Cyberjaya is finding a niche as a regional outsourcing center and hub for international companies like HSBC and Ericsson. Cyberjaya has also managed to attract other world class companies like Shell Information Technology International, NTT, DHL, British-American Tobacco, Prudential, Standard Chartered Bank, EDS, IBM, Satyam, Unisys and BMW. In addition, a number of home-grown companies have also set up shop.
Despite the macroeconomic problems, sales and export components are higher than expected, the government says. The fourth MSC Impact Survey recently revealed that developments had resulted in tangible economic benefits in the form of revenue, employment created and innovation. Expenditure of MSC-status companies is reported to be more than RM3.61 billion in 2002, with spending projected to increase further by 23 percent in 2003. As a result, total sales are expected to jump from RM5.83 billion in 2003 to RM7.98 billion in 2004.
Based on information provided by more than 600 MSC companies in the survey, projected revenue for 2003 is RM6 billion. Of this, about RM1 billion will be from the export market. In addition, about 70 percent of these companies are expected to be profitable.
For Mahathir and those officials involved, such data is enough to proclaim the MSC a resounding success. "If that is not success, then what is success?" Mahathir told reporters recently. "'We are familiar with people telling us that what we are doing is wrong, but it has been shown that they will have to swallow their words later on."
It is against this backdrop that Mahathir recently launched the second phase of the project (2003 to 2010), a considerably grander plan that would see a wider nationwide rollout, with state governments establishing mini-MSCs throughout the country and linking up with cybercities worldwide.
According to Narayanan Kanan, senior vice president of the Multimedia Development Corporation (MDC), the government body that manages the development of the MSC, the MSC hopes to achieve a web of corridors with 250 world-class companies that will include establishing global standards in flagship applications, a harmonized global framework of cyberlaws and four to five cities linked to other global cybercities.
This would address to a certain degree another problem - the reluctance of some companies to relocate physically to the corridor. They have not been keen to pack up their bags and move to the MSC primarily because of the inconvenience of doing so, with some pointing out that their clients are located outside the corridor.
It hasn't been all smooth sailing. A widely touted "E-village" is perhaps one of the major failures. The original plan was to build a film studio and entertainment village complex in the MSC that would involve transfer to the E-village of London's Leavesden studios' expertise, where Star Wars: Episode 1 - The Phantom Menace was made.
But the plan fell through when the company that was given the contract to develop the project ran out of cash, forcing the MDC to issue US$7 million in loan stocks to raise funds. The project was called off and the MDC is currently in talks with another company to develop the E-village site. Even if development restarts, it is certain to be much more modest.
The MDC itself has its share of problems. In the past year it was significantly restructured, with nonperforming units and subsidiaries closing down. Employee numbers were also frozen and a human resources audit was started to facilitate staff redeployment in an exercise that its chief executive officer Mohamed Arif Nun described as "one helluva ride".
Will the ride be any easier from now on? The jury is still out on what happens when Mahathir goes. But for now the MSC can bask in its initial success, albeit in a small manner, with plenty of big challenges stretching ahead and without its cheerleader, guru, fundraiser and political champion to root for it. He leaves at the end of the month.