There should also be mentioned specific external factors for Malaysian firms such as size and their location, customer target group and partners as well as the level of competition within the field. However, these factors should be examined for every firms separately and won't be analyzed in frame of this thesis as they play crucial role for the transformation of one particular firm but not the whole economic system.

Diagram № 1

The interaction of different factors, encouraging implementation of innovations in Malaysia*

Internal factors

General internal factors

Specific internal factors for Malaysian firms

External factors

*Elaborated by the author.

2.2 Governmental policies for the development of Knowledge-based Economy

When examining in details each factor influencing the development of Knowledge-based economy, effective governmental activities should be first pointed out. Different empirical researches conducted by Asian and European scientists show that foreign and domestic investors are primarily interested in the regulatory framework because they prefer to invest in countries with low-risk political regimes and good investment climate. Economic incentives in form of reasonable tax laws and regulations, financial initiatives, liberal investment policy which includes various investment incentives and flexible intellectual property regulations create modern and competitive business environment. All mentioned factors are crucial both for the attraction of foreign direct investment, the accumulation of new knowledge and generally for the transformation of Malaysian economy.

One of the most important indexes of governmental effectiveness which in turn affects the creation of the favorable investment climate is political stability. Malaysian government has managed to maintain steady political system which has the ability to control the processes of social change and function effectively even under the pressure of various crises such as inter-ethnic clashes in May 1969, the Asian financial crisis of 1997-1998, a sharp drop in demand for semiconductor products in 2001 and the global financial crisis of 2008-2009.

One of the main factors, which forms an effective system of economic management is the rational strategy of industrial development. To achieve this, the government elaborates the long-term General plans for development for 15-20 years and short Five-year plans, which identifies the priority economic and social tasks. To be more precise, immediately after independence in 1957 the major task for the Malaysian government was to create favorable conditions for the development of local business. At the same time the country was actively seeking for foreign investment, which had been used as a tool for economic growth. This program became a part of the "New Economic Policy", implemented in 1971. It was aimed to overcome economic disparities among the three national communities living in Malaysia, namely among Malay, Chinese and Indian people.Tyurin V.A. The history of Malaysia. Short essay, Moscow, ed. Nauka,1978, page 243. The program was further specified in the Second (1971-1975) and Third (1976-1980) five-years plans. The author wants to note that almost all the goals of the plans have been achieved. According to former Prime Minister Mahathir Mohamad, "Malaysia has the political will and ability to implement comprehensive plans that are made by theorists and planners, and the government is responsible for their implementation in front of the electorate."Pakhomova L.F. Models of prosperity: Singapore, Malaysia, Thailand, Indonesia, Moscow, ed. Academy of the Institute Oriental Studies, 2007, p.73.

In contrast to the developed countries which started to invest in the adoption of new technologies after the Second World war, the government of Malaysia started to mark out the goal of the transition to the Knowledge-based economy only in the mid-1990s. As the developed countries were able to invest more in the period after the Second World War, in 1990s Malaysia also had the opportunities to direct more capital to the development of technology. The high economic growth opened the new possibilities for Malaysia. Namely, in the period before the Asian financial crisis 1997-1998, the rates of economic growth in this country were among the highest in the world. For instance, the average per capita growth in Malaysia in the period from 1989 to 1992 was 9.1 per cent and in 1993 it increased to 9.9 per cent, while in 1996 the indicator reached the peak of 10 per cent.The World Bank, World Development Indicators,

http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?page=3, (Accessed 10.03.2014).

Overall, science and technology as well as research and development make up the most important basis for the creation of Knowledge-based Economy. That is why these spheres need to be promoted in the society and more investment should be directed into them. However, in the beginning of the implementation of the strategy of the transformation of Malaysia into the Knowledge-based Economy the investment on the Malaysian research and development was quite low compared with other Newly Industrialized countries. In 1998 Malaysia's expenditure on research and development was only 0.4 per cent of GDP.The World Bank, World Development Indicators, http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS (Accessed 01.02.2014). What is more, a significant proportion of this expenditure accounted for the agricultural sector. Furthermore, the rate of R&D expenditures to GDP in South Korea accounted to 2.34 per cent in 1998, while in Singapore it was 1.75 per cent at the same year.The World Bank, World Development Indicators, http://data.worldbank.org/indicator/SE.TER.ENRR (Accessed 01.02.2014) The low level of investment into science was partly because of the lack of a significant mass of national scientists and engineers. In 1998, the number of scientists per one million of population was only 153 people, Ibid. compared with the Second Outline Perspective Plan target of 1,000 scientists and researchers per one million population by 2000.

In 1996 Malaysia began implementing the National IT Agenda (NITA) and the Multimedia Super Corridor (MSC) strategy. Besides, more steady efforts had also been taken in the development of human resources, infrastructure, finance sector as well as science and technology.

In this part of the research, the author wants to examine National IT Agenda more profoundly. Generally, NITA provides the framework for the utilization and wide spreading of information and communication technology all over the country in order to transform Malaysia into a developed nation according to the goals of the Vision 2020. This strategy was developed by the Malaysian Prime Minister, Mahathir Mohammad in 1996. The main decisions of the development of this strategy were taken by the national IT Committee, comprising members from the public, private and community-interest sectors.

The strategy was aimed to change the current governance structure into the framework, which involves the partnership between the public, private and community-interest sectors. Besides, the strategy emphasizes the development of the five spheres of Malaysian transformation into the E-World, to be more precise E-Community, E-Public Services, E-Learning, E-Economy and E-Sovereignty.The official web-site of the Ministry of Science, Technology and Innovation in Malaysia, National IT Agenda, http://nitc.mosti.gov.my/nitc_beta/index.php/national-ict-policies/national-it-agenda-nita (Accessed 03.02.2014).

The main NITA objective is to utilize IT technologies in order “to transform Malaysian society into an information society, then to a knowledge society and finally to a values-based knowledge society”.Cited from the Official web-site of the Ministry of Science, Technology and Innovation in Malaysia, National IT Agenda,http://nitc.mosti.gov.my/nitc_beta/index.php/national-ict-policies/national-it-agenda-nita (Accessed 02.03.2014). With the motto "Turning ripples into tidal waves",Ibid. NITA was implemented for the development of people, infostructure and values that provide equity for all Malaysians. As it explained in the strategy of that policy, the "ripples" should be understood a special governmental initiatives for the creation of the information environment.

One of the major projects initiated by the National IT Agenda is the Demonstrator application grant scheme which should foster all Malaysians to utilize new advanced opportunities implemented by the government. In order to substantiate this policy the government increased investments in science. In 2012 investment in science increased to 1.07 per cent of GDP, while the number of researches per one million was around 1,643, compared to 499 in 2004.The World Bank, World Development Indicators,

http://data.worldbank.org/indicator/SP.POP.SCIE.RD.P6?page=1, (Accessed 17.05.2014).

Although certain initiatives were made in 1990s, the main emphasis on the improvement of the competitiveness of the economy and on the creation of Knowledge-based Economy through the implementation of programs for the improvement of the quality of education was made in the Eighth five-year plan of the development of Malaysia (2001-2005). In the mentioned policy the attention was focused on strengthening the innovative capacity and the initiation of new opportunities for the growth of labor productivity. In addition, at that stage the government had actively attracted foreign direct investment in the country, which brought not only financial resources, but also modern technologies.

Malaysian government also elaborated separate strategies of development in different sectors. According to the Third Industrial Master Plan (2006-2020), there were identified specific high tech industries for development, namely electronics and electrical engineering, biotechnology, production of medical devices, machinery and equipment as well as metal production. The favorable conditions for attraction of foreign investment were created in these industries even earlier. To be more precise, foreign investors received tax and regulatory exceptions in exchange for a massive transfer of new technologies. They were assisted during the process of obtaining the necessary permits and licenses, as they were faced with fewer bureaucratic obstacles. By 2005, the preferential status received more than 200 Malaysian and 150 international companies.Malaysian Economic Planning Unit, Annual Report 2006, http://etp.pemandu.gov.my/annualreport2006 (Accessed 03.02.2014). Along with the creation of favorable terms in these industries, Malaysia aims to develop information technology and encourages foreign companies to participate in the project Multimedia Super Corridor. All these initiatives are made in frame of the Vision 2020, which target is to transform Malaysia into a fully developed and high income nation by the year 2020.

With the implementation of new strategy, Malaysia has increased scientific researches in the modern spheres of the economy. According to the Malaysian statistics, in 2012 62.7 per cent of research were done in the ICT sphere, 10.8 per cent fall on engineering and agricultural science accounts only for 5.8 per cent, while in 1990s the percentage in this sphere was two time higher.Ibid.

Rational approach of the Malaysian government to the socio-economic development on the basis of planning in conjunction with market mechanisms enabled Malaysia to achieve high economic performance, providing an opportunity to characterize it as an economically and politically stable country.

Formed after the April 3, 2009 the new government of Najib Razak confirmed the intention of Malaysia to follow the course of the previous Prime Minister Abdullah Ahmad Badawi, who was aimed to make structural reforms to strengthen the economy of the country. After 2009 the government continued to implement the short and long-term plans of the development of the country. In particular, there was developed The Tenth Five-year Plan for the Development of Malaysia (2011-2015). Its primary objectives are to achieve stable and rapid economic growth, industrial development and information along with improvement of the quality of human capital and standards of living, reduce the crime level and enhance environmental protection. There were also included the goals of stimulation of the private sector, trade promotion and investment flows, including the foreign capital.

Thus, the ability of Malaysia to set and achieve goals, even when the leadership of the country is changing, as well as balanced economic development have beneficial effect on transformation of the Malaysian economy into the Knowledge-based one, as they give businessmen and investors confidence in the fulfillment of given obligations by the government. In addition, as it was described above after 1990s the technological advancement of the county, increase of productivity as well as human development and the creation of special institutions are included in the main targets of the governmental plans. These facts confirm the main aspect of the new sub-field of the neoclassical economic model and the transformation of Malaysia to the Knowledge-based economy.

2.3 Creation of favorable legal base and special economic incentives for the innovative economy

In order to achieve the goal to become a fully developed country by the year 2020 and create favorable condition for the Knowledge-based economy, Malaysia has to transform its institutional and legal bases.

The openness of Malaysian system for new technologies through cooperation with international enterprises emphasises the adoptions of innovations. That is why this country creates favorable conditions and guarantees for foreign direct investments, that are regulated by special legislative acts, namely Decree about enterprises of "new" type 1958, the Law of Promotion of the Investment 1968, the Act of the coordination of industrial development 1975 and Investments Act 1986, Tax Allowance Act, Free Zones Act 1990, Digital Signature Act 1997, Copyright (Amendment) Act 1997, and etc. According to these laws, restrictions for the transfers of profits abroad are almost completely taken away from the investors, besides Malaysian government accepted the obligation to pay compensation in case of nationalization of enterprises.

There were also established the special institutional bodies in order to plan the development and regulate the inflow of capital, namely the Security Commission and the Committee on Foreign Investment. According to these institutions, private foreign investors can open, absorb or inherit the management of companies in Malaysia as well as open mixed enterprises, meaning that companies' capital is owned by businesses or government agencies of different countries.

Although considerable benefits have been given to all companies investing in Malaysian economy, high technology companies, "High technology company is a company engaged in promoted activities or in the production of promoted products in areas of new and emerging technologies", - Cited from Malaysian Investment Development Authority, http://www.mida.gov.my/env3/index.php?page=manufacturing-sector-2 (Accessed 23.02.2014). strategic projects and priority sectors of the economy are granted particular benefits. Such kind of business generally comprise long-term capital investments, have high levels of technology, are integrated in the economy and have considerable impact on the economy. According to the Malaysian government such kind of activities are comprised in the six groups such as

1) Design, development and manufacture of advanced electronics and computing;

2) Professional, medical, scientific and measuring devices or parts;

3) Biotechnology;

4)Advanced materials (polymers and biopolymers, nano particles and others);

5)Alternative energy technology;

6)Iron and steel.Malaysian Investment Development Authority, List of promoted activities and products for high technologies companies which are eligible for consideration of "pioneer" status and Investment Tax Allowance, Appendix II, 2.03.2012, from http://www.mida.gov.my/env3/uploads/images/invest/invest-pdf/APP2_02032012.pdf (Accessed 23.02.2014)

Among the special incentives the major ones for the innovative industries is the Pioneer Status.

In accordance with the Investment Act regulation, which entered into force in 1986, foreign companies operating in certain sectors, namely manufacturing, agriculture and tourism, as well as companies that use components made in Malaysia for the production, can be awarded "pioneer" status for a period of five years with the possibility of extension for some sectors for another five years. A company granted "pioneer" status enjoys a partial exemption from the payment of income tax, paying on only 30 per cent of its income. In addition, special incentives for the export of industrial products were adopted. To be more precise, the revenue of exporters were exempted from income tax in that part of the profits, which is equivalent to spending on overseas advertising products as well as to the negotiation and concluding of contracts.Pakhomova L.F. Models of prosperity: Singapore, Malaysia, Thailand, Indonesia, Moscow, ed. Academy of the Institute of Oriental Studies, 2007, p.86.

However, to obtain special benefits the high technology company must meet certain criteria. First, the rate of expenditure on research and development should be at least 1 per cent of the gross sales per year. In Malaysia the government gives three years from the date of operation of the company to fulfill this requirement. Second, scientific staff with degree and a minimum five years experience should account for at least 15 per cent of the company's total workforce.Ibid.

Favorable conditions created for foreign and domestic companies operating in the new spheres of the economy contributed to the transformation of Malaysia into the Knowledge-based Economy, to the attraction of the most innovative international companies and to the increase of the investments into the most productive spheres. Overall, FDI inflows increased from 584 million in 1981 to 4.3 billion in 1996 and to 9 billion in 2012, that is mean more than in 18 times.UNCTAD, World Investment Report 1997, p. 276 from http://unctad.org/en/docs/wir1997_en.pdf.

Moreover, for companies in the strategic innovative spheres, "pioneer" status gives income tax exemption of 100 per cent of income also for the period from five to ten years. Capital allowances which were not used during the granted privileged period could be carried forward and deducted from income of the company after the pioneer period.Ibid.

For the attraction of new technologies the creation of free economic zones plays a very important role. To facilitate this process, the Free Zones Act came into force in 1990. According to it, goods and services may be "brought into, produced, manufactured or provided in a free zone without payment of any customs duty, excise duty, sales tax or service tax". The most important point of the Act is that goods which are brought into a free zone shall be deemed to be exported from Malaysia and goods brought out of such kind of zones which should be deemed to be imported into Malaysia.Official Portal of the Attorney Generals Chambers of Malaysia, Lows of Malaysia, Act 438, http://www.agc.gov.my/Akta/Vol.%209/Act%20438.pdf, (Accessed 23.02.2014).

In 1998 the government issued the Communications and Multimedia Act in order to transform Malaysia into a major global centre of multimedia information in Southeast Asia. According to this Act, Malaysian government should promote the national policy objectives for the multimedia sector and establish the Knowledge-based Economy. In addition, different initiatives, such as the computerization of rural schools and provision of Internet access in strategic locations, have been taken in order to reduce the digital divide between the city and the village.

Despite the described measures, till today the gap in the income distribution and in the quality of life is quite wide, so the government has to fasten its programmes. For example, the gap between rural and urban area is evident in the broadband penetration and the Internet access. In the eight states such as Johor, Kedah, Kelatan, Pahang, Perak, Terengganu, Sabah, Sarawak the level of penetration was below the national average of 66 per cent of the whole population broadband penetration rate,Ministry of Science, Technology and Innovation Malaysia, Broadband penetration rates by states, http://nitc.mosti.gov.my/nitc_beta/index.php/ict-indicator/broadband-penetration-rates-by-state, (Accessed 26.02.2014). while in several areas the figure was two times higher than the average result. For instance, the broadband penetration rates in Pinang which is one of the most developed territories in Malaysia, accounts for 84 per cent while in the Federal territory of Kuala Lumpur the same rate was 119 per cent of the citizens of the state in 2013, meaning that some individuals have several connections to the Internet.Ibid. Besides, in less developed states the majority of the population knows only Malay language, that is why they are unable to read any content in English. This factor restricts their possibilities in the Internet and limits opportunities for the implementation of IT technologies.

One of the features of the Malaysian policy is a requirement for foreign and local companies to cooperate with Bumiputera (native people of Malaysia). The minimum share of Bumiputera in the joint stock should be not less that 30 per cent from 1971.

However, since 2009 it was allowed for foreign companies to have 100 per cent ownership of 27 service sectors except for the health care, social services, tourism, transport and business services. This privilege was also given to the headquarters of companies, international commercial centers that deliver the goods to different countries, as well as to the leading research organizations.Suruhanjaya Sekurity Malaysia, Bumiputera Requirements for listed companies, http://www.sc.com.my/bumiputera-equity-requirements-for-public-listed-companies/, (Accessed 23.02.2014)

Earlier, in 2007 there was formed a special committee called Pemudah (from Malay - facilitation). Its main task is the identification and evaluation of major bureaucratic obstacles for private business in Malaysia and elimination of them for increasing the effective interaction between public authorities and the private sector.Official portal of Pemudah, http://www.pemudah.gov.my/home (Accessed 23.02.2014). The effectiveness of the established institution is proved by the statistics. According to the World Bank Ease of Doing Business report 2014, Malaysia is ranked 6th from 189 countries of the survey, earlier being in the 12th position in 2013 and 25th in 2007 when Pemudah was established.Newspaper The Star, A Malaysian global ambition realized, issue from 13.10.2013, http://www.thestar.com.my/Business/Business-News/2013/10/31/An-ambition-realised.aspx.

In the same 2007 year the National Bank of Malaysia had removed restrictions on the loans for the purchasing of commercial and non-commercial estate for foreign investors.

To meet the international standards for the protection of intellectual rights, Malaysia entered into the major universally recognized organizations, such as the World Intellectual Property Organization (WIPO), the Paris Convention and Berne Convention which govern intellectual property rights. In 2006 Malaysia acceded to the Patent Cooperation Treaty. In addition, Malaysia is also a signatory to the TRIPS Agreement signed under the auspices of the World Trade Organization (WTO). Therefore, Malaysia's intellectual property rights regime is in compliance with international best practices and provides adequate protection to both local and foreign applicants. In the list of examined countries Malaysia is between Hungary, Spain, Oman and Check Republic. According to the International Property Rights Index 2012, Malaysia is ranked 36th out of 130 countriesReport of Intellectual Property Right Index 2012, http://www.internationalpropertyrightsindex.org/, (Accessed 26.02.2014). in terms of intellectual property protection and has one of the strongest IP regimes not only Asia but in the whole world.

As Malaysia is a member of the WTO, it must abide by the minimum standards of IP protection set in the trade-related aspects of intellectual property rights-TRIPS. Therefore, in the year 2000, the Malaysian parliament amended the Digital Signature Act 1997, Copyright Act 1987, the Patents Act 1983, the Trademark Act 1976, as well as legislation on layout designs of integrated circuits and geographical indications in order to bring Malaysia into compliance with its obligations under the WTO TRIPS Agreement.

In the mid 1990s, when the strategy of the Knowledge-based Economy was just implemented, several legislations were revised and new ones established, including the Digital Signature Act 1997 which regulates the use of digital signatures.Official Portal of the Attorney Generals Chambers of Malaysia, Laws of Malaysia, Act 562, p.9 http://www.agc.gov.my/Akta/Vol.%2012/Act%20562.pdf (Accessed 23.02.2014). In the same year the points about the misuse of computers were consolidated in the Computer Crimes Act. According to this Act, a person makes the system of the computer insecure if he or she "alters or erases the program or data, copies or moves files to the unknown storage". Official Portal of the Attorney Generals Chambers of Malaysia, Laws of Malaysia, Computer Crimes Act, p. 7, http://www.agc.gov.my/Akta/Vol.%2012/Act%20563.pdf (Accessed 23.02.2014)

In 1997 Malaysian government approved the Copyright (Amendment) Act to promote a high level of consumer confidence in service delivery and to ensure security in the information transmission services. According to this act, Copyright is broken by any person who circumvents any technological measures that are used by authors in respect of their works, which are not authorized by the authors or permitted by law.World Intellectual Property Organization, Laws of Malaysia, Act A994 Copyright (Amendment) Act 1997, p.6, http://www.wipo.int/wipolex/en/text.jsp?file_id=128853, (Accessed 24.02.2014). Besides, any person cannot remove any electronic rights management informationAccording to the Copyright (Amendment) Act 1997, “rights management information” means information which identifies the works, the author of the it and the owner of any right in the work, or information about the terms and conditions of use of the work, World Intellectual Property Organization, Laws of Malaysia, Act A994 Copyright (Amendment) Act 1997, p.6, http://www.wipo.int/wipolex/en/text.jsp?file_id=128853, (Accessed 24.02.2014). without authority as well as distribute and show to the public the content of works or copies of it. It's very important that the Amendment Act makes illegal unauthorized transmission of copyright works by the Internet. The owner of the work has the exclusive right to control "the transmission of it to the public through wire or wireless means ".Cited from World Intellectual Property Organization, Laws of Malaysia, Act A994 Copyright (Amendment) Act 1997, p.6, http://www.wipo.int/wipolex/en/text.jsp?file_id=128853, (Accessed 24.02.2014).

As far as Malaysian IP system is concerned, there are two main regimes which are currently in force such as Patent law and Plant Variety Protection (PVP) law. Patent law refers to the Patents Act 1983, supplemented by the Patents Regulations 1986, while Plant Variety Protection law in Malaysia is governed by the Protection of New Plant Varieties Act 2004, supplemented by the Protection of New Plant Varieties Regulations 2008. These two methods of protection will be discussed in turn.

The Patents Act 1983 and the Patents Regulations 1986 govern patent guarding in Malaysia. According to Intellectual Property Corporation in Malaysia, a patent is an exclusive right granted for an invention, which is a product or a process that provides a new way of doing or offers a new technical solution to a problem.The official portal of Intellectual Property Corporation, Patent Division, MyIPO, http://www.myipo.gov.my/web/guest/paten (Accessed 27.02.2014). An applicant may file a patent application directly if he or she is a resident in Malaysia. A foreign application can only be filled through a patent agent registered in Malaysia acting on behalf of the applicant. Similar to legislations in other countries, an invention is patentable if it is "new, involves an inventive step and is industrially applicable."Cited from the official portal of Intellectual Property Corporation, Patent Division, MyIPO, http://www.myipo.gov.my/web/guest/paten-statistik (Accessed 27.02.2014). In accordance with TRIPS, the Patents Act stipulates a protection period of 20 years from the date of filing an application.

Overall, the enhancement of legal and regulatory expertise with a focus on intellectual property is a key to the continued growth and progress of Knowledge-based Economy.

Another important advantage for the competitiveness of the Malaysian economy is a reasonable tax system, which was finally formed by the mid of 1990s. In this country foreign entrepreneurs use the same rules of taxation as the national business. Namely, they pay direct and indirect taxes at the same rate as the local business. In addition, foreign investors directing their capital in the high tech industries, receive various tax incentives. The most common form of tax benefits are the tax holidays for the firms that invest in new or "pioneer" industries. Foreign firms receive a full or partial exemption from corporation tax for a period from 2 to 15 years. That is mean that the main purpose of the system is to stimulate capital inflow in priority industries which are contributing to the implementation of national development strategies and transformation of Malaysia into the fully developed nation.

According to World Bank estimates, in 2014 Malaysia is on the 36 position out of 189 surveyed countries for the efficiency of the tax system. Among the Southeast Asian countries Malaysia occupies the 3rd place after Singapore and Brunei and 7th among the countries of Asian Pacific region.The World Bank, Doing Business 2014 On-line, Economy ranking,

http://russian.doingbusiness.org/rankings(Accessed 27.02.2014). Thus, the tax system in Malaysia is one of the most conducive and attractive for both domestic and foreign businessmen especially investing in the new spheres. To be more precise, the income tax is less than 17 per cent, at the same time the mandatory contributions that are not included in this category of tax accounts for only 1.4 per cent, while the average sum of this kind of taxes in East Asia and Pacific region amount to about 6.9 per cent. The total tax rate, which consists of allowances that the company must pay after the second year of operation, account for the 34 per cent of commercial profits. In the future, Malaysia plans to reduce more the tax rates to attract new investors and to develop further innovative industries.

Among other stimulus, used by Malaysian government for the creation and implementation of new technologies, are awards and exhibitions for the innovative firms. For example, from 2006 Malaysia is holding the exhibitions "Malaysia Technology Expo" where the researchers, scientists and innovators can show their inventions. The most prestigious prize in this country is the Prime Minister's Innovation Award which is given to public sector enterprise to recognize innovations that are significant and bring high impact to the country. The winner is rewarded a cash prize of RM 1 million (303 thousands of U.S. dollars).Malaysian Administrative Modernization and Management Planning Unit,

http://www.mampu.gov.my/web/en/recognition, (Accessed 09.03.2014).

One more advantage of the Malaysian government is the creation of the entrepreneurial spirit which enable businessman to implement innovations in order to remain competitive not only in the domestic market but also in the global arena. Malaysia's relatively high entrepreneurialism is reflected in the innovation rank conducted by the Legatum Prosperity Index. In 2013 Malaysia was on the 44th position out of 142 economies.Legatum Prosperity Index, http://www.prosperity.com/#!/asia, (Accessed 09.03.2014). Overall, in the period from 2009 to 2013 Malaysian level in this ranking was quite stable, growing only by 1 position from 43 level in 2009.Legatum Prosperity Index, The country profile, Malaysia, http://www.prosperity.com/#!/country/MYS, (Accessed 09.03.2014). However, it doesn't mean that this country moves forward very slowly. The stable position in the ranking is mainly due to including of 32 new states in the 2012 Prosperity Index, while three of these new countries were placed above Malaysia. Malaysia's performance is boosted by a flourishing high-tech industry. High-tech exports constitute over 43 per cent from manufactured exports in 2013.Ibid. The capacities of business are facilitated by a government that is looking for ways to advance entrepreneurship through new policies. For instance, according to the World Bank estimates, in 2014 Malaysia is the first country in the world for the ease of getting credit.The World Bank, Doing Business Report On-line, Economies ranking, http://russian.doingbusiness.org/rankings, (Accessed 09.03.2014). In the author's opinion, the greatest example of the importance the public sector places on entrepreneurship is the adoption of a "New Economic Model" in 1971 for Malaysia where the entrepreneurship was made the key driver of the economy with special emphasis on innovation and the business capacity of all nation without regard of nationality.

The openness of Malaysia to the innovation processes and the implementation of external sources through cooperation with other countries enable this country to adopt the Knowledge-based Economic model faster. Malaysia is an active member of various international organizations, including the Organization of the Islamic Conference, the Association of Southeast Asian countries, a member of the Asia-Pacific Economic Cooperation (APEC) and the World Trade Organization (WTO). The country has bilateral investment treaties and agreements on avoidance of double taxation"The avoidance of double taxation is the mitigation or elimination of levying of tax by two or more jurisdictions on the same declared income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes)", - Wikipedia, Double taxation, http://en.wikipedia.org/wiki/Double_taxation (Accessed 17.05.2014). with more than 60 countries, including Russia. Along with this, Malaysia signed Investment Guarantee Agreements"Investment guarantees are an insurance mechanism of the investments at both the State and the private level. It is aimed at restitution, which was caused to a foreign investor because of the events that could affect the cost investments" - N. Erpyleva, Bulletin of the Russian Ministry of Justice, http://www.palata.ru/ (Accessed 07.11.2013). with around 70 countries of the world. According to them, Malaysia is under an obligation not to nationalize the property of foreign companies without adequate compensation.

To eliminate further barriers for the investment in the Knowledge-based industries, improve market access for exports of primary commodities, manufactured products and, increasingly, services, as well as to deepen economic cooperation Malaysia has concluded Free Trade Agreements (FTA) Free Trade Agreement is a "treaty between two or more countries to establish a free trade area where commerce in goods and services can be conducted across their common borders, without tariffs or hindrances but capital or labor may not move freely. Member countries usually impose common external tariff on trade with non-member countries", - Business Dictionary On-line,

http://www.businessdictionary.com/definition/free-trade-agreement.html#ixzz2umoKgH6O, (Accessed 02.03.2014). with particular countries. While Malaysia continues to act according to the multilateral trading system under the World Trade Organization, this country is also pursuing regional and bilateral trading arrangements to implement the multilateral approach to trade liberalization. Nowadays FTAs comprise not only liberalization and market opening measures, but also include incentives for investment, and establishment of the balance in the intellectual property rights. At 2014 Malaysia signed six bilateral agreements with Japan, Pakistan, New Zealand, Chile, India and Australia. Malaysia is also negotiating about the signing of the Free Trade Agreement with Turkey.Ministry of International Trade and Industry of Malaysia, Free Trade Agreement, Malaysia's FTA involvement, http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_8ab55693-7f000010-72f772f7-46d4f042, (Accessed 02.03.2014). This country also enjoys generalized system of preferences (GSP) from the European Union, Norway, Switzerland, Belarus, Russian Federation and Turkey.

At the regional level, as one of the major members of the Association of Southeast Asian Nations (ASEAN) and signatory of ASEAN Free Trade Area agreement (AFTA), Malaysia intends to eliminate import duties on all products and consequently create an integrated market with free flow of goods within the Southeast Asian region. This regional organization has concluded Free Trade Agreements with China, Japan, Korea and India, Australia and New Zealand. These agreements help to enhance the competitiveness of Malaysian exporters and through technical cooperation and collaboration improve Malaysian capacities in the high tech spheres.

The efficiency of the FTAs can be seen in the example of Japan. The agreement with this country was signed in July 13, 2006. In the period from 2006 to 2010, the total volume of trade between Malaysia and Japan increased by 14 per cent, achieving RM 133 billion (38 billion U.S. dollar) in 2012 compared to RM 113 billion (32 billion U.S. dollar) in 2005. Moreover, Malaysian exports to Japan increased in two times from RM 51 billion (14.5 billion U.S. dollars) in 2005 to 101 billion (28.8 billion U.S. dollar) in 2012.Department of statistics, Malaysia, Press Release Malaysia External Trade statistics,http://www.statistics.gov.my/portal/images/stories/files/LatestReleases/trade/bi/Sept13/External_Trade_Sept13_BI.pdf, (Accessed 08.11.2013).

In order to attract new technologies and implement them to the production process as well as to encourage the development of export-oriented industries there were created free economic zones. They started to develop in 1990 when there were signed a Bill about the establishment of Free Economic Zones and Free industrial zones. Free industrial zone gives "export-oriented manufacturing companies duty free import of raw materials, component parts, machinery and equipment required directly in the manufacturing process, as well as minimal formalities in exporting their finished products", - Malaysian Investment Development Authority, Invest in Malaysia, Infrastructure support, http://www.mida.gov.my/env3/index.php?page=industrial-land, 02.03.2014. Their advantage is that the raw materials and equipment may be freely imported to the territory with minimal customs formalities. This advantage is essential for foreign investors, as most of the enterprises established in those territories, use imported raw materials and components. Moreover, in that kind of zones manufacturers are not obliged to pay an income tax or it is insignificant. In 2014 in Malaysia there are 17 free trade zones and 18 free industrial zone.Ministry of International Trade and Industry of Malaysia, Free Trade Agreement, Malaysia's FTA involvement, http://www.miti.gov.my/cms/content.jsp?id=com.tms.cms.section.Section_8ab55693-7f000010-72f772f7-46d4f042, (Accessed 02.03.2014).

Because of the fact that the economy of Malaysia is largely export-oriented and dependent on international trade and foreign technologies, which are the most important "engines" of economic growth. Their creation contributes to the implementation of high tech technologies, development of the export base, facilitation of trade and attraction of foreign investment due to the introduction of measures of elimination of bureaucratic procedures. These agreements include initiatives to protect intellectual property, as well as economic cooperation in such areas as competition policy, standardization for produces goods, collaboration in the field of information and communication technologies, research and developments along with the development of small and medium-sized businesses and "paperless" trade.Official Malaysia's Trade and Industry Portal, Free Trade Agreement, http://www.miti.gov.my (Accessed 02.03.2014). In turn, investors have the opportunity to explore new markets, produce closer to the consumer and have access to the good infrastructure. Along with the mentioned facts, investors could significantly reduce the costs connected to the export and import duties.

2.4 Education and training

Another major pillar of the Knowledge-based Economy is an effective and productive educational system which raises the competiveness of the economy in the global market and helps to cope with the global changes. Namely, the affect of knowledge accumulation increases productivity and indicates that a reasonable education system is essential to provide knowledge transfer in the society and create the innovative culture.

Skilled and comparatively inexpensive labor of Malaysia is capable to implement complex tasks and projects and consequently have an opportunity to compete with developed countries, because the cost of labor force in Malaysia is lower that the most industrial countries. The average salary in the developed European industrial countries in 2011 (the year of the latest research) was about 5,000 dollars per month in Denmark, 3,857 dollars in Netherlands and 3,608 dollars in Germany,European Comission, Eurostat, Average Gross Annual Earning,

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?title=File:Average_gross_annual_earnings_in_the_business_economy,_2008%E2%80%9311_%281%29_%28EUR%29_YB14.png&filetimestamp=20131205175143, (Accessed 02.03.2014). while in Malaysia it was 4 times lower, being on the average 800-900 U.S. dollars.Newspaper Utusan Malaysia, Kadar gaji sudah mencukupi, Issued 19/01/2011 from http://www.utusan.com.my. Thus, investing in Malaysia, even despite the fact that the cost of the workforce is gradually increasing, remains profitable for foreign investors.

2.5 Chinese business and links with overseas Chinese

According to the author's point of view, the local Chinese population contribute to the attraction and implementation of new technologies, creation of favorable investment and business climate and hence the expansion of multinational corporations and, furthermore, to the overall economic development of the country.

Ethnic Chinese population lives in many Southeast Asian countries. According to the author, there can be revealed the specific dependence between the proportion of the Chinese population and level of economic development of the state. In those countries where the percentage of the Chinese population is higher, economic performance is better. Thus, the country with the best macroeconomic indicators is Singapore. In 2012 GDP per capita in this state is 51,709 U.S. dollar, while the share of China's population of about 77 per cent. Malaysia has the second level of economic development in the region. Its GDP per capita in 2012 is amounted to 10,432 dollars, while the share of the Chinese population in Malaysia is about 27 per cent. In other Southeast Asian countries the rate of the Chinese population is relatively lower and their economic performance, in particular, income per capita are much smaller than that of the above mentioned countries. For example, GDP per capita in Thailand is 5,480 dollars, and the proportion of the Chinese population is 12 per cent, in Indonesia GDP per capita accounts for 3,557 dollars (the percentage of Chinese is 3 per cent), in the Philippines the same indicator is around 2,586 dollars, while the share of Chinese population in this country is about 1.5 per cent, and in Vietnam where live 3 per cent of ethnic Chinese, GDP per capita is around 1,755 US dollars.

Diagram №2

GDP per capita and the share of the Chinese population in the total population of the country, 2012*

*Estimated from: The World Bank, The World Development Indicators, http://data.worldbank.org/indicator (Accessed 15.11.2013) and Department of statistics Malaysia, Foreign communications review, http://www.statistics.gov.my/portal/images/stories/files/LatestReleases/trade/bi/Sept13/Foreign_communications.pdf, (Accessed 15.11.2013).

Considering all stated above, the special business qualities of the Chinese population, high organizational and business cohesion should be noted. Thus, both in Malaysia and Singapore business community for decades was united under the auspices of the Chamber of Commerce, which is a kind of monopoly formation. Participants of such body are always ready to provide assistance to their members, to exchange business information, including inter-regional one and apply sanctions against offenders.

Due to the special business qualities, Chinese population generally refers to the most secured and well-off population. Thus, in Malaysia, after independence in 1957 the average per capita monthly income for Malay population was RM 134 (47 U.S. dollars), for Chinese was RM 288 (96 U.S. dollars). In 1979 the figure changed, Malay's per capita income was RM 492 (243 U.S. dollars), while Chinese income was RM 938 (446 U.S. dollars). In 2004, the average monthly income for Malays reached RM 2,711 (729 dollars), while the Chinese income was RM 4437 (1168 dollars). In the latest year of the given statistics, in 2010, the figure for Malay was RM 2,820 (909 dollars) per month, and RM 4,569 (1,474 dollars) for the Chinese population. While the income gap between the two communities declined, the Chinese population is still better off than the Malay.Compiled by the Author from: Department of Statistic Malaysia, http://www.statistics.gov.my.

Diagram № 3

The average monthly income of Chinese and Malay populations in Malaysia 1957-2010(U.S. dollars)*

*Estimated from: Department of Statistic Malaysia, The Current situation and population projection 2011-2040, http://www.statistics.gov.my (Accessed 10.03.2014).

Having higher income, the Chinese segment of the population, in contrast to the Malay population, invested more money in business and technological equipment, which give additional opportunities for rapid growth to the ethnic Chinese. For example, in Malaysia in 1980 capital of Malay citizens accounted for 8 per cent, while the Chinese capital amounted to 39,2 per cent. In addition, Chinese investments are mostly directed to high-tech industries and in service sector. Malaysian Chinese also have close ties with the Chinese bourgeoisie from other countries, which give them an opportunity to borrow the most advanced technologies from them and implement them.

For example, the ethnic Chinese account for around 80 per cent of corporate assets in Indonesia, 45 per cent in Malaysia, and about 90 per cent in overall assets in manufacturing in Thailand. Furthermore, the report Malaysia's 50 Richest Man 2014 by Forbes Asia shows that among those 50 richest in Malaysia, 37 of them are ethnic Chinese. Among top 10 richest men in Malaysia, eight of them are Chinese, one Indian and another one is Malay. The richest person in Malaysia is Robert Kuok, who is a very influential businessman in Asia ranked 76 the richest man in the world with his estimated net worth around 11.5 billion U.S. dollars.Forbes, Profile about Robert Kuok, ://www.forbes.com/profile/robert-kuok/, (Accessed 02.03.2014). The mentioned businessman has palm oil and shipping businesses in Malaysia and Hong Kong, while his nephew, Kuok Khoon Hong who is based in Singapore, cofounded and chairs the palm oil giant Wilmar International company. Overall, the example of this businessman proves the conclusions given above.

Thus, having a "business grip" and the sufficient capital to create the appropriate conditions for business in Malaysia and actively cooperating with the Chinese population in other countries, ethnic Chinese contribute to the creation of a favorable business and investment climate in the country and build the Knowledge-based Economy.

The countries of Southeast Asia with the highest percentage of Chinese population also have the best international rankings. According to the World Bank, in 2014 Singapore is ranked first in the world for ease of doing business, the second in the region is Malaysia and Thailand has the 3rd place. In addition, Singapore leads in terms of investor protection, Malaysia is on the second position and third place belongs to Thailand. These countries also have high ranking concerning the world trade. The first place in the world in 2013 has Singapore, third has Thailand and Malaysia is on the fifth position.The World Bank, Doing Business On-line, Economies ranking, http://russian.doingbusiness.org/rankings, (Accessed 02.03.2014). It is important to mention that in the recent two years the ranking of Singapore and Thailand didn't change while Malaysia has straighten its positions. When being in the 8 place in the business ranking in 2013, in 2014 Malaysia improved its position to the 6th.