Reinventing Competitive Advantages for Malaysia

(adapted from article publised by Edward in the 'Malaysian Business Magazine', 16 May 2002)

Malaysians have been preoccupied with the financial crisis of 1998.
Between 1999 and 2000, everybody was sucked into the so-called Internet
boom. The early part of 2001 was dominated by party politics, and in the
later part of that year and early 2002, everyone was getting excited about
the `war on terrorism'.

During this period, there has been a quiet but profound revolution going
on in our region that is threatening the survival of our country and the
livelihood of every Malaysian - the rise of China as an economic power.
Unlike the `war on terrorism', this issue is closer to home and more real
to us, needing us to address it urgently.

In a country like Australia, you will find that almost all manufactured
goods and textile products are now made in China. The Chinese-made goods
are increasingly going up-market into high-technology products. In the
process, many local businesses are being sidelined or are being forced to
wind up. You can hardly see any textile company or low-cost electronic
goods manufacturer operating out of Australia today. The Australian
experience is fast replicating itself in most Asean countries, including
Malaysia.

To add salt to the wound, China is not only competing for consumers'
pockets, but is also a magnet for global investment capital, attracting
not only investments from multinationals with bases in Malaysia, but also
local Malaysian companies.

Malaysia's economic survival is facing a great challenge. Never in
Malaysian history has the competition been so extensive and devastating
before. China's threat directly affects the survival of our core industry
- manufacturing. Malaysia is still a world leader in exporting commodities
such as tin, rubber and timber. Although Malaysia economy is supported by
increasing commodity value, more than half of our exports are manufactured
goods, the impact will be tremendous.

We had traditional competitors such as Singapore, Thailand and Indonesia
in the same industry but they are nowhere near the scale and reach of
competition from China. Especially now that China has joined the World
Trade Organisation (WTO) and the China-Asean Free Trade area has been set
up, the competition can only get tougher.

What are we going to do to stay competitive in this seemingly
unstoppable trend? Using a hard-line approach such as stopping the outflow
of investments by imposing penalties or introducing tariff barriers to
Chinese goods is something that the Taiwanese Government has done, and
failed. Using the soft approach such as providing more tax concessions or
financial incentives to foreign firms in something similar to the
Multimedia Super Corridor (MSC) is another option, but that has only
achieved mixed results so far.

There is no simple answer to this question. It is almost impossible to
stop local businesses from importing Chinese goods or investing in China.
Furthermore, it makes no long-term business sense to do so. Historically,
a closed economy will eventually lose out. Various reasons argue against
closing the economy; losing out on business competitiveness and facing the
retaliation of the global community, among others.

There is no sliver bullet to the threat of China's growing economic
power. Many countries are still scratching their heads to come up with a
strategic plan to counter the threat from China. Some countries have
responded by concentrating their efforts on building on their existing
strengths, and riding on China's economic wave by complementing their
strength with that of China's. For example, Singapore is repositioning
itself as a service hub and increasingly integrating itself to China's
knowledge network and service industry.

The current China-Asean free trade zone concept is the first step to
overcome this problem. In theory, the free flow of goods and services
would, in the long term, increase business transaction volumes within the
free trade zone, boosting the economies of all the countries within the
zone in the process. Unfortunately, there will be short-term pain as less
competitive companies will go bust and be replaced by stronger businesses
that have a market niche in their respective countries. The free trade
area will be a win-win solution for all, but in the short term, there will
be some casualties.

It seems that the answer to China's threat lies in the following key
words: `market niche' and `tuned-in'. Malaysia has to find a market niche
in order to stay in the game and ride on China's growing economy. There
will be pain, but we have to act fast to shorten those painful times.
Malaysia also has to find a way to `tune-in' or integrate into China's
economy to leverage on its growth.

The days when Malaysia relied on its low-cost labour, cheap land, tax
breaks and abundant mid-level worker skills as key competitive advantages
are long gone. China offers a spectrum of far cheaper workers at various
skill levels and massive tax breaks. In addition, its growing middle-class
is getting more attention from international and local investors. It is no
longer viable for Malaysia to compete with China on financial grounds
alone. In this context, there is no choice but to jump on the bandwagon of
our neighbouring countries going into high value-added products and
services.

This means Malaysia has to go up-market into high technology and
business services areas. We have to find a market niche. If tin, rubber
and palm oil are unique to Malaysia, then we should channel more energy
into R&D, commercialisation, marketing and business services related to
these commodities to safeguard the current lead position.

If multiculturalism is our key strength, then we should capitalise on
the people connection to mould networks of friendship and business
relationships into tools to develop the tourism and education industries.

Malaysia's ambition to build a completely new high-tech multimedia
industry in the form of the MSC is commendable. This industry cluster
could turn out to be the single most important competitive advantage of
Malaysia in the coming years. The MSC might have run into some hiccups
recently because of the global economic downturn, but the idea is still
brilliant and strategically sound. The only thing lacking is the execution
of the strategy. There is a lack of marketing and a lack of incentives to
attract skilled workers to the MSC. There are at least five similar high-
tech clusters around the world with similar themes but with far better
working environments and incentives. There is still a lot of
administrative red tape pertaining to visa applications and import
restrictions. And the manufactured image of Malaysia as an inward- looking
and conservative nation as portrayed by certain foreign media is also
hindering the chances of the MSC succeeding. All these issues have to be
ironed out for us to move forward.

Identifying industries to be developed is one half of the formula. The
other half is to weave Malaysia into China's economic landscape.
Investment into and from China should be encouraged. And as both economies
become more integrated, there will be effects of the coupling economic
growth.

Malaysia is at a crossroad now and is facing the greatest challenge
since independence. It's time to throw away political differences among parties
and focus on the urgent issue threatening the Malaysian economy. China's growing
economy presents risks, but it could be a chance for Malaysia to reinvent
itself too. In Chinese, `risk' is a two-character word representing
`danger' on one hand and `opportunity' on the other. We must seize the
opportunity which lies ahead while treading on the risks involved.

Your views will be much appreciated.

The Death of Strategy Consulting?

The Death of Strategy Consulting?
In the era of internet proliferation, information can be sourced easily via the net. The consulting process involves understanding client business problems, gather information, synthesize information, analyse problems and propose solutions. Part of the strengths of strategy consulting firms are the ability to leverage and reuse information or knowledge obtained in previous engagements (stored in knowledge database). Increasingly, these information could be obtained easily via internet. Clearly, information are no longer the main differentiation between consutling firms. Non-informational factors such as client relationships buliding, innovative ideas are becoming more important. The issue is, as more and more businesses are run by former consultants or managers/leaders who are savvy in consulting parlance, the requirement to hire strategy consultants becomes less. With more and more businesses opt to hire strategy implementation consultant (e.g IT & supply chain consultant) rather that pure strategy formulation consultant, would this signals the decline of strategy consulting?