A series of economic reforms launched in 2010 aim to support Malaysia to reach its goal of lifting itself out of the middle-income trap and into the ranks of high-income economies by 2020. As part of the Economic Transformation Plan (ETP), the government established Agensi Inovasi Malaysia (Malaysian Innovation Agency, AIM) to lead policies and strategies related to innovation.

Additionally, innovation and research and development (R&D) have been identified as crucial to success in five of the 12 National Key Economic Areas (NKEA) targeted for transformation, including oil and gas and palm oil, as part of a strategy to move from labour-intensive to knowledge-based industries.

Over the past few years, policymakers have sought to make the country more conducive to innovators and risk-takers. The 11th Malaysia Plan (11MP), which lays out Malaysia’s economic path until 2020, describes innovation as one of its “game-changers”. The 11MP report said, “Effective application of innovation in the economy will increase Malaysia’s competitiveness and productivity, especially through collaboration between research and business.”

A Thinking Culture

The 2015 Global Innovation Index (GII) ranked Malaysia as an innovation outperformer, alongside China, Mongolia and Vietnam. The GII said the country had made significant progress in areas such as financing, commercialisation and business sophistication. In 2015 Malaysia moved up to 32nd out of 141 countries, compared with 33rd out of 143 countries in 2014. In the World Economic Forum’s (WEF) “The Global Competitiveness Report 2015-2016”, Malaysia rose to 13th out of 140 economies in terms of business sophistication and 20th place on innovation, where it was ranked highly for its capacity for innovation, availability of scientists and engineers, and company spending on R&D.

However, the WEF showed Malaysia’s score lagging in terms of patent applications, the quality of its scientific research institutions and university-industry collaboration. The GII also noted that innovation was held back by a number of weaknesses, including the country’s poor performance on the Programme for International Student Assessment, an international assessment of 15-year-olds in maths, science and reading. Malaysia has acknowledged the need to overhaul its education system to nurture critical thinking skills (see Education chapter).

Both are at the heart of the Malaysian Education Blueprint 2013-25, which seeks to raise standards in schools, and the Malaysia Higher Education Blueprint 2015-25, which focuses on tertiary education. “Cultivating a thinking culture” is also one of six approaches to innovation identified by AIM. “The source of the problem is that we are too focused on rote learning,” Naser Jaafar, chief operating officer of AIM, told OBG. “It is about memorisation. That was fine before, but now we need to start infusing thinking skills.”

New Initiatives

AIM’s programmes, such as i-THINK, Genovasi and a partnership with International Baccalaureate (IB), are designed to complement ongoing reforms in schools to enhance thinking skills among primary and secondary school students, as well as to nurture design-oriented thinking among graduates. The idea is to ensure that the next generation of Malaysians have the skills, qualities and aptitude to thrive in a 21st-century workplace.

Under the i-THINK programme, AIM works with the Ministry of Education to foster higher-order thinking skills in classrooms and provide teachers with the training they need to help their pupils solve problems, identify opportunities and make effective decisions. From a pilot group of 10 schools in 2012, the programme has been extended to 1000 schools. As of the end of 2015, the programme has trained a total of 144,397 teachers via face-to-face training and through the online teacher training platform – the Kursus i-THINK Dalam Talian (KiDT). The country’s goal for IB is to create 10 government schools that can be seen as “centres of excellence” for the programme and provide support and guidance to other schools in the system. Naser told OBG that two schools had already secured IB certification as of April 2016. Meanwhile, the International Science, Technology and Innovation Centre for South-South Cooperation, was set up in 2006 under the auspices of UNESCO to provide additional insight into how science education can be improved in Malaysia. The agency will also support the introduction of “enquiry-based science education”, a system that was first developed in France. A pilot project by the Academy of Sciences in Malaysia involving four Selangor schools and funded by Ministry of Science, Technology and Innovation (MoSTI) found that teachers were more motivated and children did better in exams under this system.

Transforming Education

Under the 11MP, critical thinking programmes, including i-Think and Genovasi, will be accelerated. Science and mathematics will also be given priority in schools as exams are restructured to include project work and problem-solving questions. Efforts are also under way to improve English skills and the level of employability among Malaysian graduates. The government is maintaining its graduate employability programmes and encouraging closer collaboration between industries and higher education institutions to develop structured internship programmes.

ICT courses will also be made compulsory at the lower secondary level and offered as an elective during upper secondary to ensure that all students have a sound grounding in the subject before they go onto tertiary education. The syllabus for ICT will also be revised to include computational thinking, programming languages, hardware and software design, databases and information retrieval. Meanwhile, Genovasi, created by AIM, is the country’s only college dedicated to “design thinking” methodology, with the ultimate goal of nurturing Innovation Ambassadors who can influence and guide other young Malaysians in terms of innovation. The programme is targeted at Malaysians up to the age of 35 and offers courses focused on problem solving that take place twice a week for a period of 10 weeks. In 2015, 907 Innovation Ambassadors graduated from the Innovation Ambassador Development Programme.

Innovation & Society

The government also sees the need for innovation in the provision of public services, some of which have become extremely costly. Its goal is to nurture partnerships between the public and private sectors to develop more innovative solutions to social issues such as homelessness and elderly care, with the government providing the seed funding as a way to encourage private sector investment. Such social financing schemes would mean cost-savings for the government and enable private firms to have a more meaningful impact on society than a typical corporate social responsibility project. According to the 11MP plan, funding under this goal will be operated on a “payment by results” approach, with private social impact investors providing funding for community organisations and non-governmental organisations to implement social services and being reimbursed by the government once the agreed-upon targets have been met. The government envisages its role in such programmes as a facilitator, with the risk burden more effectively shared.

Other society-based programmes include UR eka and Social Public-Private Partnership (SPPP), which are platforms that give people the opportunity to share ideas and attract funders and customers. UR eka focuses on younger adults, giving them an opportunity to take an idea through to implantation and aims to find 2500 new ideas every year, with 25 solutions implemented thus far. UR eka ideas so far have included solutions to crime problems and road safety. The SPPP is an initiative under the National Blue Ocean Strategy designed to address social disparities by delivering high-value impact at a lower cost. The new social service model enables the government and private sector to collectively move forward towards developing projects in the social sphere. A total of seven companies are partnering with the government to pilot the SPPP projects.

University & Industry Collaboration

In recent years, Malaysia has managed to strengthen R&D within the economy, recording an increased number of citations in scientific journals, producing more doctoral graduates, and stepping up collaboration between academia and industry. MoSTI’s budget rose from RM1.3bn ($321.8m) in 2015 to RM1.5bn ($371.3m) in 2016. The 2016 budget also offers new tax incentives for small and medium-sized enterprises (SMEs) that incur R&D expenditure of up to RM50,000 ($12,400) in any year from 2016 to 2018. As its initiatives take hold, Malaysia expects gross expenditure on R&D to reach 2% of GDP by 2020, with businesses accounting for 70% of R&D spending. However, the hefty deficit in royalties and licensing fees suggests the country still needs to address a continued inability to turn academic research into commercial products and services, according to the GII. The country’s score on royalty and licence fee payments over the period from 2011 to 2015 fell from 57.5 to 0.6, with its ranking dropping from 11th to 51st over the same period. In light of this fall, the 2015 GII report noted, “The chronic deficit in royalty and licensing fee receipts and payments demonstrates that Malaysia still relies heavily on foreign technology and services. Polices are needed to transform Malaysia from a technology-importing country to a technology-exporting one.”

Working Together

Policymakers have introduced a number of programmes to bring together university researchers and industry, including SMEs. The initiatives are aimed at overcoming the lack of trust that has traditionally hindered collaboration. “There is the potential that if they do come together, they can create something wonderful,” said Naser.

Modelled after the Stuttgart-based Steinbeis Foundation, the Steinbeis Malaysia Foundation was launched in 2014 and provides a platform for SMEs, which often lack a R&D budget, to consult a network of experts to resolve issues. Some 30 companies partnered with Steinbeis Malaysia in 2015. Steinbeis Malaysia is of particular importance because it allows smaller companies that have neither the funds nor personnel to support their own R&D unit an opportunity for collaboration. The Collaborative Research in Engineering, Science and Technology (CREST) programme was set up in 2012 as a public-private initiative centred on the electronics industry. Working closely with industry and academia, CREST promotes research based around certain cluster programmes and has approved 86 projects since 2012, covering areas including wafer fabrication, power amplifiers and electrostatic discharge failure.

Total funds given out under CREST since 2012 amount to RM74m ($18.3m), with 65% of this coming from businesses. Some 60 projects are expected to be completed between 2016 and 2018. The GII report stated, “By making it a requisite for universities to engage with the industry when seeking public R&D grants. Scientific research at universities is increasingly targeted at commercialisation.”

Unearthing Potential

Pro-active initiatives are also under way to exploit research that universities might not have realised had commercial potential. The Malaysian Innovation Hub (MIH) was set up in 2015 to investigate universities’ research findings that might have commercial potential and to connect them to private companies interested in turning discoveries into viable products. In November 2015 MIH announced it had identified 50 potential products and now aims to visit private universities.

To further support commercialisation, Malaysia has also been strengthening its environment for intellectual property (IP). Khazanah Harta Intelek Malaysia, for instance, is a centralised repository of IP arising from government research programmes. It has benefitted from its close bilateral relationships with developed nations. Under the Newton-Ungku Omar Fund, for instance, the British Council is running programmes in conjunction with a number of Malaysian agencies, including the Malaysian Industry-Government Group for High Technology. The fund supports research visits for early career scholars and provides grants to establish links between institutions and businesses that can drive development.

Transforming Strategic Sectors

In commercial agriculture, the National Biomass Strategy 2020 was launched at the end of 2011 to help create “wealth from waste,” as Naser described it to OBG. By 2020 the government hopes the strategy will exploit the waste created by the palm oil industry, creating more than 60,000 jobs and a contribution to gross national income of RM30bn ($7.4bn). The strategy is focused mainly on Sabah and Sarawak, which produce the bulk of Malaysia’s palm oil and, therefore, have the most biomass.

Malaysia is also looking to exploit the potential of graphene, a carbon material that is a single atom-thick and a million times thinner than a human hair and which is both a remarkably strong and highly efficient conductor of heat and electricity. Graphene is derived from graphite, a crystallised form of carbon and one of the world’s most abundant elements. The material is extremely new, but has already attracted significant interest in the EU, where the $1.3bn Graphene Flagship has been established, as well as in the UK, where the government is funding a $353m graphene research centre. Malaysia also launched the National Graphene Action Plan 2020 in 2014 and is conducting research on its potential application in five priority areas, including lithium-ion batteries, plastic additives and rubber products. Graphene also has potential uses in electronics, according to Naser.

Innovative Organisations

With all the strategies and assistance measures in place, the government is also trying to encourage its companies, particularly smaller SMEs, to see the value of innovation to their businesses. The National Corporate Innovation Index (NCII), launched in 2012, measures innovation at 18 government-linked and 14 publicly listed companies. The NCII is used to assess the return on innovation (ROI) for each company. This ROI, which is applicable across a broad range of companies, focuses on investments that create intangibles, such as IP, and seeks to move beyond business as usual, while still adhering to recognised accounting practices. Some 200 companies participated in 2015, with 400 companies targeted for 2016. Naser told OBG that the scheme is designed to nudge companies towards embracing innovation by giving them the opportunity to learn from others.

Boosting Commercialisation

Malaysia first started implementing policies related to science, technology and innovation back in the 1980s as it began to industrialise, and its first direct funding to boost research was launched in 1988 when MoSTI started the Intensification of Research in Priority Areas grant. Since then, funding and support for all areas of the innovation process – creation, R&D and commercialisation – have expanded. But despite the expansion of these initiatives and a relatively sophisticated business environment, there is still room for improvement in commercialising research.

AIM plans to address the problem with a series of initiatives to make it easier for researchers and firms to turn their discoveries into businesses. PlaTCOM Ventures, a joint initiative with SME Corporation Malaysia, provides assistance across the commercialisation process, from IP services to legal advice, and is targeted at SMEs. Innovation is seen as crucial to the government reaching its goal of raising SMEs contribution to GDP to 41% by 2020, but SMEs are also the companies in Malaysia that are less likely to have the money to fund innovation and its commercialisation. There is potential funding from PlaTCOM Angels Group, a network of high-net-worth individuals scouting for start-ups and small companies, as well as a number of other government agencies. Another programme, 1DANA, began in 2014 and is designed to keep track of government R&D spending and minimise overlap; there are 14 ministries, including 45 different agencies that are eligible for such funds.


This series of reforms and innovation-focused programmes should help the country in its goal of becoming a high-income economy by 2020. In recent years, policymakers have worked to make the business environment more conducive to innovators. Along with wider economic growth, these programmes should see an uptick in collaboration between universities and businesses. The 11MP game-changers are designed to improve competitiveness and productivity, as well as enhance the role of private sector in the delivery of innovative services.