Asian Wall Street Journal
September 22, 2000

Malaysia's Own 'Silicon Valley' Shows Progress and Problems


CYBERJAYA, Malaysia -- Othman Yeop Abdullah, the man in charge of developing
Malaysia's Multimedia Super Corridor, has been sharing the limelight with
some global techno-heavyweights this month.

Having just hosted a passel of visiting industry luminaries -- including
Acer Inc.'s Stan Shih and Compaq Computer Corp.'s Michael Capellas -- Tan
Sri Othman joined Bill Gates last week to open a Microsoft building in the
new technology zone. There, a beaming Mr. Gates endorsed the Malaysian
initiative as "awesome!"

So why does Tan Sri Othman feel as if he's under siege?

"So much investment has been made, so many promises have been uttered,"
frets the executive chairman of the Multimedia Development Corporation, or
MDC, the agency that oversees the super corridor. "Now we have to make sure
that four or five [Malaysian companies] become world-class players to lend
credibility to the project," he says. "Otherwise, it's just another
high-tech park."

That's a startling admission from the chief promoter of Malaysia's
much-hyped plan to build its own Silicon Valley. The four-year-old project
has already swallowed $3.7 billion in state funds. Now, it's at a critical
juncture: Can the initiative achieve its original goal of transforming
Malaysia's economic base from manufacturing to technology -- leapfrogging
more developed nations -- or will the super corridor become an isolated
technological showpiece with little real impact on the rest of the country?

While tech-industry executives applaud Kuala Lumpur's commitment, they also
wonder if bureaucrats should continue to micromanage the corridor's
development. Governments may be good at building infrastructure, they say,
but state planners aren't usually proficient at predicting the next hot
technology, or at encouraging the risk-taking culture that powers the New

Igniting Innovation

What Malaysia needs to do now, some industry gurus say, is to encourage its
own start-ups and urge its old-economy companies to embrace e-commerce.
Start-ups are more apt to hatch innovative ideas than the big, established
tech concerns the super corridor was originally designed to attract, they
argue. To fund such efforts Malaysia needs to bring in experienced venture
capitalists who can better spot potential winners, instead of relying on
government agencies to dole out money.

How to build a high-tech seedbed is an issue that resonates in developing
economies from Dubai to Singapore, where governments are also driving
large-scale technology initiatives. "The ambition was to do in five years
what others took decades to do," says Nikolai Dobberstein, associate
principal at McKinsey & Co. in Malaysia. The consulting firm worked with
Prime Minister Mahathir Mohamad's government to draft the super corridor
blueprint unveiled in 1996. Mr. Dobberstein says the idea that a strong
government can kick-start technological innovation remains sound, but adds:
"We hyped it all up, and we're not living up to expectations."

Nobody's saying there's been no progress. Through Asia's 1997-98 economic
meltdown and a political crisis over the sacking, arrest and prosecution of
ex-deputy prime minister Anwar Ibrahim, Malaysia has been busy laying down
high-speed telecommunications cables and power lines, erecting buildings,
drafting cyber-laws and handing out contracts to get government offices,
schools and hospitals online.

Slow Start

The super corridor -- a 15-by-50-kilometer strip of real estate -- begins at
the 88-story Petronas Twin Towers in Kuala Lumpur and stretches south to the
city's new international airport. Within its borders is a new federal
administrative capital called Putrajaya, with its monumental neo-classical
buildings surrounded by artificial lakes carved out of a former palm oil
plantation. There, staffers at the Prime Minister's Department are being
trained to replace typewriters and paper with computers and software.

Close by is Cyberjaya, a purpose-built software development center complete
with a new, state-run Multimedia University. Much of Cyberjaya still
resembles a giant construction site, its broad, newly tarred highways
crisscrossing bare red earth sprouting the odd tuft of grass. The town's
current population is about 8,000, with university students and staff
accounting for some 5,000. The MDC says it expects Cyberjaya's population to
grow to 20,000 by mid-2001 when more buildings and houses are completed, and
to eventually reach 240,000 people.

At the moment, however, there aren't any shops, schools or housing estates
to entice people to move in. Those already working here endure a daily
commute by car of up to an hour each way, or an even longer journey by bus.
The austere conditions mean many start-ups are reluctant to move to
Cyberjaya, making it difficult to nurture the cluster effect -- with its
vibrant exchange of ideas -- of places such as Silicon Valley.

While the infrastructure is slowly falling into place, when it comes to
creating innovative new technology, "nothing much has happened," concedes
Dinesh Nair, director of research and development at WorldCare Health
(Malaysia) Sdn. Bhd. The company is a subsidiary of a U.S. concern with a
government contract to electronically transmit medical images of sick
villagers to consultants in urban hospitals.

Malaysia has yet to embrace New Economy values such as doing away with old
hierarchies and tolerating failure, Mr. Nair suggests. Right now, "ideas
from young people are pushed aside just because they are young," he says.

Nor has the super corridor buzz spread to many Malaysian business people,
notes Cheong Yuk Wai, chief executive of MyBiz International Group. MyBiz,
whose shareholders include Citigroup Inc. and A.T. Kearney Inc., runs a
portal for small and midsized companies to promote and sell a diverse range
of products. But of the 370 firms MyBiz has signed up, only 30 to 50
actively solicit business online while the rest "sit and wait," says Mr.
Cheong. "Are people talking about a knowledge economy? Does a child get
excited? Do businesses get excited? That hasn't happened," says Mr. Cheong,
who is also a member of the government's policy-shaping National Information
Technology Council.

'Snowballing of Dissent'

William Miller, a retired Stanford University computer science professor who
has helped Asian governments, including Malaysia, formulate technology
policy, puts Malaysia "pretty low on the scale of a technology originator."
Dr. Miller hosted Dr. Mahathir at Stanford four years ago when the Malaysian
prime minister promoted the super corridor project in Silicon Valley. He
remains a staunch supporter of the idea. But when it comes to technology
innovation, he ranks Malaysia behind Singapore, Japan, Korea, Taiwan and
even some parts of China. Dr. Miller says he can't name any Malaysian
technology companies that look like they have the potential to become global

"The next two years will be very critical," warns Dr. Miller. "They have to
get capital support, have to learn how to get global."

In Malaysia, growing public impatience for tangible results has led to what
Al-Ishsal Ishak, an MDC board member who runs his own Web solutions company,
Neuroweb Sdn. Bhd., calls a "snowballing of dissent." Criticism of the MDC's
management has been popping up from unexpected quarters, including
Malaysia's usually docile media. That's turned up the heat on Tan Sri
Othman, a soft-spoken 59-year-old career bureaucrat who has served as
secretary-general of the Ministry of Primary Industries and as a university

Earlier this month, the New Straits Times, a pro-government newspaper not
known for its investigative journalism, ran a prominent article suggesting
that Tan Sri Othman would soon leave the MDC, attributing the purported
scoop to an unnamed source. The MDC swiftly denied the report and announced
that Tan Sri Othman's contract had been extended by another two years. But
the incident underscored the public perception that all was not well within
the super corridor.

While businesspeople are generally supportive of Tan Sri Othman, they
complain privately that some other MDC officials are inexperienced and
arrogant -- traits that put off some companies looking to set up shop here.
Tan Sri Othman doesn't dispute such criticism. He says the agency has
started training staffers on how to handle clients, acknowledging that
foreign companies "have so many choices, they can go and invest somewhere
else." Tan Sri Othman also says the MDC is "at a stage where you need new
blood," but says that he will stay at its helm for at least another two

The MDC's oft-cited gauge of progress is the growing number of companies
with Multimedia Super Corridor status -- 362 at last count, of which about
60% are small and midsized Malaysian companies. Such companies have to
promise they will conduct research and development activities within the
corridor. In return, they enjoy perks, including a 10-year exemption from
corporate taxes, the right to bid for contracts to provide infrastructure,
hardware and software for government offices, schools and hospitals, and the
freedom to bring in foreign computer programmers with a minimum of red tape.

But since the MDC is also the agency that confers super corridor status, the
number of concerns qualifying is hardly an objective measure of the
project's success. Of the 362 companies, 46 haven't started operations,
while a number are dormant, according to the MDC.

In a survey of 209 super corridor companies conducted in April, the MDC
concluded that these companies collectively will have invested a total of
1.8 billion ringgit ($473.7 million) by 2001. "On a global scale, it's just
not significant," says one industry analyst.

Drying Well of Investment

A new Malaysian stock exchange, modeled after the Nasdaq Stock Market, is
supposed to attract high-tech start-ups, but that hasn't caught on either.
After 17 months, the Malaysia Exchange of Securities Dealing and Automated
Quotation, known as Mesdaq, has just two listings. At Internet networking
functions around Kuala Lumpur these days, start-up companies talk instead of
raising funds in Singapore or Hong Kong.

Still, the MDC likes to promote the fact that world technology titans
continue to show interest in the super corridor. At the MDC's annual meeting
of its international advisory panel earlier this month, 29 members including
Mr. Shih, Mr. Capellas, Silicon Graphics Inc. Chairman and Chief Executive
Bob Bishop, Fujitsu Ltd. Chairman Tadashi Sekizawa and Sun Microsystems Inc.
Chief Scientist John Gage sat down with Dr. Mahathir in Cyberjaya. Behind
closed doors, the advisers told the prime minister that Malaysia needs to do
more international marketing and to churn out more skilled workers,
including specialized lawyers and accountants to support the tech industry.

But the continued foreign interest hasn't translated into big investments.
Bill Gates, also a member of the advisory panel, didn't make it to the
meeting, but he swung through a week later to open a new center for training
software developers in Cyberjaya. Mr. Gates said the corridor had the
greatest "scale and commitment" of similar initiatives he'd seen outside the
U.S. He likened the potential synergies of the Multimedia University and
Cyberjaya to that of Stanford University and Silicon Valley. Microsoft
pledged to invest 10 million ringgit in the next five years to work with the
university to train developers.

Yet the size of Microsoft's Malaysian investment is miniscule compared with
what the software giant is investing elsewhere. In India, Mr. Gates's next
stop after Malaysia, he said Microsoft would invest $50 million in the next
three years at its development center in Hyderabad. In Cambridge, England,
Microsoft is setting up a $80 million research lab.

So what do critics think the Malaysian government should be doing? Some say
it's time for the MDC to let the private sector to play a bigger role,
particularly in kicking in venture capital. In neighboring Singapore, for
example, while the government has set up a $1 billion venture capital fund,
it's leaving investing decisions to professional venture capitalists,
including some from Silicon Valley.

But in Malaysia, traditional venture capitalists are more used to funding
manufacturing companies and have been slow to put money in technology
start-ups. So have risk-averse banks.

As a result, the MDC's venture capital subsidiary has wound up in a key
funding role for local concerns. The unit, MSC Venture Corp. Sdn. Bhd.,
launched a 120 million ringgit fund in June 1999. MSC Venture has since
disbursed 20 million ringgit to seven companies. Critics complain that's too

Tan Sri Othman says the blame is misplaced. He says many of the Malaysian
start-ups seeking money have weak management teams and inadequate business
plans. And he dismisses the possibility of farming part of the funds to
professional venture capitalists, saying that would be "completely
abdicating [our] role."