Knowledge Economy

Rationale for the Knowledge-based Economy in Malaysia. Creation of favorable legal base and special economic incentives for the innovative economy. The comparison of Malaysian case with the Russian one. Chinese business and links with overseas Chinese.

Рубрика Экономика и экономическая теория
Вид дипломная работа
Язык английский
Дата добавления 09.07.2016
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Despite the fact that the role of the Chinese population in the socio-economic development of countries is undeniable, it is dual and contradictory.

The regional communications of Chinese bourgeoisie give an advantage over the native population in local control, not only in terms of the capital flows but also in terms of operations with goods. This is the basis for the formation of the so-called "black market" of foreign exchange, smuggling operations and shadow economy in the Southeast Asia. These issues are the subject of concern of the government and are associated with high capital losses, reduced taxes and customs revenues. The illegal trade also leads to the theft of natural resources and undermines planned regulatory functions of the state. In addition, despite the fact that according to Transparency International, Singapore is ranked third in the world after Denmark and New Zealand, both in Singapore and in Malaysia there are secret Chinese societies, which control illegal operations. According to the estimates of this organization, Malaysia is 50th in this list in 2013, while in 2012 it was in 49th position, in 2010 it was in 56th place, in 2007 in 43rd, in 2003 in 37th.Global Corruption Report 2004, 2008,2011, 2012, 2013, 2014 from www.transparency.org/publications. Despite the position of Malaysia is fluctuating, there can be seen a gradual increase in the level of corruption, which means that there is a criminal stratum in the country.

Historically, the Chinese secret societies were associated with the mainland China, as the ancestors of the Chinese population were immigrants to Southeast Asia from this country. There is also a strong link between ethnic Chinese in Southeast Asia with Hong Kong and Taiwan. Despite the fact that the Chinese populations in Southeast Asia are also citizens of these countries and their capital is also considered to be local, but under the influence of the secret societies, the capital of ethnic Chinese is directed to those industries that benefit not the entire local population, but only to the country's ethnic Chinese and also to the secret community or their clan. These industries include mining, trade, banking and services. Thus, it appears that the Chinese investment, despite the fact that they have the status of domestic, are almost comparable to foreign ones, besides their inflow depends on both the internal situation in the country and on external circumstances as some of them are subjected to the interests of Chinese companies, which are abroad.

Thus, the Chinese investment and the influence of the Chinese population on the one hand contribute to the economic development of Malaysia, because the specific business qualities of the Chinese people help to create the favorable business climate, which in turn bring advanced technologies, foreign experience and effective management as well as raise the standard of products and facilitate their access to the world markets. On the other hand, the "openness" of Malaysian economy to the international capital flows, as well as close relationship with the Chinese population abroad may be dangerous for the financial and socio-economic stability of the country and may increase Malaysian dependence on the external market. These facts slow the process of the formation of one cycle of reproduction system on the national basis.

2.6 Creation of good infrastructure

economy business innovative incentive

One of the crucial factors for the creation of favorable business climate, increase of the profitability of domestic and foreign trade as well as for the implementation of innovation technologies is infrastructure.

One of the most important components are the transportation links. Although the transportation system was created gradually in Malaysia, the major changes can be seen from the second half of the 1990s. In the Seventh Five-Year Plan (1996 -2000) for the development of infrastructure there were allocated RM 24 million or 8 million U.S. dollars and during the implementation of the Eighth Five-Year Plan (2001-2005) investments in this sphere reached RM 27 million or nearly 9 million U.S. dollar.Pakhomova L.F. Models of prosperity: Singapore, Malaysia, Thailand, Indonesia, Moscow, ed. Academy of the Institute of Oriental Studies, 2007, p. 96.

Overall, the transportation system in Malaysia is a competitive advantage of this country. For example, the system of highways is one of the best in the world. The total length of roads is around 150 000 km where approximately 75 thousand km is paved roads, including 1600-1800 km of high-speed roads.

It is important that in Malaysia different forms of transportation complement each other. For instance, highways are complemented by railway system that plays an important role in the freight cargo as well as connect all major cities of the country. Although the overall length of the railway network in Malaysia is relatively small which is only about 1665 kilometers,The World Bank, World Development Indicators, http://data.worldbank.org/indicator/IS.RRS.TOTL.KM, (Accessed 09.03.2014). the efficiency of this kind of transportation and freight volume is gradually increasing because of the introduction of container terminals and the use of special tanks for liquid substances like fuel, latex and palm oil.

Maritime transport has traditionally played an important role in the economy of Malaysia. First of all it is due to the geographical position of the country, which is surrounded almost from all sides by the sea. Nowadays, more than 90 percent of Malaysian trade is carried by sea through seven international ports, namely Penang, Klang, Johor, Tanjung Pelepas, Kuantan, Kemaman Port and Bintulu in Sarawak. To provide the maximum loading capacity and minimal demurrage of vessels during loading and unloading, all international terminals are equipped with modern facilities.

In addition, Malaysia has well developed air traffic, which is very important for the transportation of new technological products, goods of electronic and electrical industry as well as lightweight ICT equipment, pharmaceuticals and food stuffs. There are six modern international airports in the country, the largest of them is the Kuala Lumpur International Airport (KLIA). Strategically located, it is surrounded by four big cities such as Kuala Lumpur, Shah Alam, Seremban and Malacca. The average capacity of the airport is 40 around million passengers and over 1.2 million tons of cargo per year.(Malaysian Airports, http://www.malaysiaairports.com.my/index.php/international, (Accessed 09.03,2014).According to expert estimates, the complementation of the new terminal in 2020 will increase the passenger traffic to 60 million and the tonnage of goods to 3 million tons.Kuala Lumpur International Airport (KLIA) http://www.klia.com.my, (Accessed 09.03.2014).

The complementarily of the transportation system is the distinctive factor of Malaysian system which is essential for the communications not only between the parts of the peninsula, but also for international shipping operations, which in turn create favorable conditions for the attraction of new technologies.

The implementation of the Knowledge-based Economy is impossible without the stable and regular power supply. Globally, Malaysia stands at 21 position in the ranking out of 189 economies on the ease of getting electricity. In addition, in Malaysia the cost of connection to the electricity supply is lower than generally in the Southeast Asian countries. To be more precise, Malaysia is on the 4th place among Southeast Asian countries for the cost of connection to the mains electricity networks. The connection costs which are calculated as the percentage of Malaysian per capita income, amounted to 95.5 per cent in 2011. The Singapore is on the first position in this ranking as costs of connection to the mains supply in this country account for 34 per cent of per capita income. In contrast, Cambodia occupies the last position among the Southeast Asian countries, where the cost of connection is 3,062 per cent of per capita income in 2011. However, it is necessary to consider the differences in incomes of the population. For example, per capita GDP in Malaysia in 2011 amounted to 10,058 U.S. dollars, while the figure in Singapore was significantly higher - 47,268 U.S. dollars, in Cambodia the figures were much lower, being only 878 U.S. dollars. Thus, the cost of connection to the mains networks in Malaysia in 2011 amounted to 9,605 U.S. dollars, while in Singapore the figure was 1.7 times more - 16,071 dollars. In Cambodia in 2011 the cost of the same procedure is 26,884 U. S. dollars.Estimated by the author using the data from The World Bank, World Development Indicators,http://data.worldbank.org/indicator/NY.GDP.PCAP.CD, 09.03.2014 and The World Bank, Doing Business 2012, Economy Profile: Malaysia, The World Bank, Doing Business 2014, Economy Profile: Malaysia, p 33-35. Thus, based on the actual cost of connection, it can be concluded that low payment for this service is a competitive advantage of Malaysia that helps to implement the Knowledge-based Economy.

All in all, Malaysia has elaborated its own model by combining initial cultural and geographical factors with different external and internal drivers, thus creating favorable conditions for the promotion of science and technology. This country offers different range of incentives for domestic and foreign companies seeking to invest in technologically new projects which are profitable for the development of the country and contribute to the transformation of Malaysia into the Knowledge-based Economy.

3. The characteristics of the Knowledge-based Economy in Malaysia

3.1 The first stages of the development of the Knowledge-based Economy. Malaysian Multimedia Super Corridor

There are different phases of growth in Malaysia. In 1950s Malaysian economy was highly dependent on the extraction of natural resources such as tin, iron and rubber. In that period of time around 80 per cent of export accounted for these goods. Tyurin V.A. The history of Malaysia. Short essay, Moscow, ed. Nauka,1978, p.139. The structure of GDP also reflected the dependence of economy on natural resources as in 1958 around 43 per cent of GDP accounted for the primary sector of economy where was engaged more the 75 per cent from the whole labor force. In order to diversify the production sector, save foreign currency and increase the share of manpower employed in the industrial sector, there was proclaimed the import-substitution strategy which main goal was to decrease the dependence of the country from import commodities. In order to attain these purposes, during the period of the realization of the framework from 1957 to 1968 there were created labor-intensive industries producing simple consumer goods to substitute similar production from abroad. For the successful realization of the strategy, there were introduced special tariff restrictions on the foreign production which were essential for the protection of the Malaysian domestic market. The implemented policy brought sufficient results. There was diversified the structure of employment as well as the rates of economic growth rose significantly. Although in the period of import-substitution the country had significantly decreased the rate of poverty from 53 per cent in 1957 to 34 in 1970s, Ibid. the number of persons who lived below the poverty line was high. At the same time, there remained the problem of disparity among three major ethic groups because ethic Chinese continued to dominated in all business spheres.

After the creation of the basis in the industrial sphere, this country switched to the export-orientation strategy in order to straighten further the industrial sphere and decrease the impact of agrarian sector. To be more precise, in 1969 Malaysia has proclaimed the New Economic policy which was aimed to reconstruct the Malaysian economy. The main goals of the policy were to diminish and then to eliminate poverty, to increase the employment of all Malaysians, to overcome the disparity among the three ethnic groups, to change the distribution of labor force by the industries, increasing the employment in the modern sectors. The government was also intend to change the ratio of Malay, non-Malay and foreign capital in the total amount of equity capital. In order to achieve these goals Malaysia didn't have the sufficient domestic resources that is why there was crucial for this country to create favorable conditions for foreign companies and develop production basis for export.

The undertaken strategy let Malaysia to improve significantly the economic situation in the country. In the period from 1969 to 1996 the average rates of economic growth was one of highest in Asia around 7-8 per cent per year. The high rates of economic growth and the change in economic structure gave an opportunity to decide social problems. Malaysia succeeded to decrease further the level of poverty from 34 per cent of population who lived below the level of poverty in 1970 to 17 per cent in 1990. There was also significantly improved the infrastructure because good transportation links and communication are essential for the export of production to foreign countries.

In addition, in the end of the strategy in 1996 Malaysia has succeeded to achieve the level of the middle-income country and to improve significantly all economic indicators, while the economic structure was changed from an agrarian to the industrial one. At the end of the framework realization, Malaysia has succeeded to change the distribution of labor in the economic sectors, increasing to 60 per cent the rate of labor engaged in the manufacturing sector, while the sector itself accounted for 43 per cent of GDP. Although some aspects of the strategy were completed, in some points Malaysia didn't achieve sufficient results. There remained the dominance of Chinese business, while the rate of Malaysian presence in the corporate sector rose very slowly. Despite the increase in the employment in the manufacturing, most of population was still poorly educated and was engaged in the low-cost assembling production. Moreover, Malaysia was still dependent on import as most of components for the manufacturing industries were imported from abroad.

In order to develop the economic system further, From the mid-1990s Malaysia started to implement the strategy of the Knowledge-based Economy and emphasize the productivity and technology driven economy. The main targets of the mentioned framework are to establish multimedia environment and a test-bed for the development of science and technology which will enable Malaysia to become the fully developed and technologically advanced nation.

The implementation of the Vision 2020 suggests the adoption of the innovative technologies in the country. When the idea of transformation of Malaysia into the innovative economy was proclaimed, the state didn't t have sufficient conditions for its implementation. In this regard, the government of Malaysia has introduced the concept of creation of a separate research centers across the country, which numbers should be increasing from year to year. And by the end of the program the innovation centers should be open all across the country, which in consequence will allow to create an innovative economy by gradually increasing the number of these centers, enlarging and uniting them together.

The Malaysian Multimedia Super Corridor (MSC) was the earliest strategic center that had been undertaken by Malaysian government in frame of the Vision 2020. One of Multimedia Super Corridor's key efforts is to provide the necessary facilities and technical skills for local and foreign businesses through its flagship applications and business services.

The construction of the corridor began in 1992. Four years later the Multimedia Super Corridor program was opened by the fourth Malaysian Prime Minister Mahathir Mohamad on the February, 12 1996. MSC Malaysia is designed to improve the information and communication industries in Malaysia as well as to contribute to the national economic development. It has designed with good infrastructure and packaged with favorable incentives for investors. Namely, the basic physical infrastructure, including the telecommunications infrastructure with the speed of 2.5 gigabits per second to 10 gigabits per second in the MSC, was completed in mid-1999. Unit Perancang Economi Malaysia Jabatan Perdana Menteri, Developing Malaysia into a knowledge-based economy, Malaysia, Kuala-Lumpur, 2013, Chapter 5, p. 124 from http://www.epu.gov.my/c/document_library/get_file?uuid=e8b18de7-0f6c-4a17-8fab-e4a8f504ddd8&groupId=283545 This facilities provided the corridor with the very fast data transmission and Internet service. In addition there were constructed five innovation centers, such as Kuala Lumpur City Centre, Kuala Lumpur Tower, Technology Park Malaysia, Cyberjaya and Malaysian Technology Development Corporation which is located at University Putra.

For attraction the innovative firms which consequently will help to implement in Malaysia the best practices of the world in MSC there were created special conditions. Eligible companies had received special MSC status that gives certain privileges. "MSC Malaysia status is recognition by the Government of Malaysia through the Multimedia Development Corporation (MDeC), for ICT and ICT-facilitated businesses that develop or use multimedia technologies to produce and enhance their products and services", - Official portal Multimedia Development Corporation, What is MSC Malaysia status?, http://www.mscmalaysia.my/isv, 05.04.2014. For the financial incentives, the companies with this status are given five-year exemption from income tax, or a 100 per cent investment tax allowance (ITA) on new investments. MSC status companies are also eligible to refund the taxes paid on the re-exported components for multimedia products manufactured in Malaysia using dutiable components.

A very important non-financial incentive that was given to MSC-status companies is that they can employ foreign workers without any restriction. This condition should improve the quality of management in Malaysian companies and increase the level of competition, that will enable Malaysian production contend in the global level.

To enjoy the benefits of MSC status, the companies must reach special criteria. To be more precise, they must be providers or heavy users of multimedia products and services, hire a large number of knowledge workers, "Knowledge workers are workers whose main capital is knowledge and who are engaged primarily in acquisition, analysis, and manipulation of information. Typical examples may include software engineers, doctors, architects, scientists, public accountants, lawyers, and teachers", - Wikipedia, http://en.wikipedia.org/wiki/Knowledge_worker, (Accessed 05.04.2014). help to intensify the technology and knowledge transfer to Malaysia, or otherwise contribute to the development of the MSC and the Malaysian economy.

The development of the MSC Malaysia was initially planned under three phases. The first phase (1996-2003) included laying out world-class ICT infrastructure to attract international and local companies. Under this phase, Cyberjaya and Putrajaya were established as the world's intelligent cities. During the first phase five cyber-cities had been developed and more than 1,000 companies and universities have been granted MSC Malaysia status. Ultimately, seven major MSC Malaysia flagship initiatives were launched, with 22,000 high-value jobs created as well as generated revenue worth of 3 billion U.S. dollar. Official portal of the Multimedia development Corporation, MSC Malaysia National Roll Out, http://www.msc.com.my/topic/12073058488660, (Accessed 12.02.2013).

The second phase of development (2004-2010) was aimed to link up all five cyber-centers with other parts of Malaysia and finally to link with other Cyber-cities throughout the world in order to develop a web of corridors and clusters of excellent ICT and multimedia companies. Ibid. In June 2004 the MSC Malaysia cyber-city and cyber-centre status was extended to other cities outside the original designated area in order to spread the benefits throughout the country. Thus, MSC Malaysia cyber-centre status was awarded to Bayan Lepas Free Industrial Zones in Penang and Kulim Hi-Tech Park in Kedah. The newspaper Utusan Malaysia, www.utusan.com.my, issue 24.07.2004. The expansion of MSC Malaysia to other cities also promotes local ICT industry and enhances adoption and usage of domestic ICT product and services to the society.

MSC is still growing in its size. From 2003 to April 2014 the number of companies with Malaysian Multimedia Super Corridor status grew by 15 per cent annually, up to 2,524 companies. Estimated by the author from statistics given on the Official portal of Multimedia Development corporation, http://www.msc.com.my/topic/12073058488660, (Accessed 05.04.2014). MSC status gives considerable privileges to companies, that is why their amount is constantly rising. To be more precise, only from January to April 2014 MSC status there was given to 20 companies, in 2013 the total number of new companies was 230, in 2012 it was 207, while in the beginning of the project in 1997 only 37 companies might use MSC benefits. In 2012 MSC Malaysia-status companies posted total revenues of 7.7 billion US dollar. Out of this figure, total exports amounted to 2.2 billion US dollar.Talent management for digital economy, Malaysia, Kuala Lumpur, 2013, p.6,

http://www.mscmalaysia.my/sites/default/files/people-development/Talent_Conference_2013/1%20Talent%20Management%20for%20Digital%20Economy.pdf In the same year MSC Malaysia accounted to 1.2 per cent of the Malaysia's GDP, with the ICT sector accounting for around 9.5 per cent. Ibid. The percentage is the highest apart Singapore in Southeast Asia, however it is still lower that indicator for the advanced Asian countries. For example, in Japan in 2012 ICT sector accounted for 17 per cent of GDP. Digital Malaysia, Kuala-Lumpur, 2013, p. 1 http://www.digitalmalaysia.my/wp-content/uploads/2013/08/FA-AnnualReport-22082013-BI.pdf

Lastly, the third phase (2011-2020) aims to expand Malaysia's ICT connections globally, transforming the nation into a Knowledge-based Economy and society, as planned in Vision 2020. Under this phase, the focus on the development should be directed to existing MSC cyber-cities as well as to newly identified MSC cyber-centers in Perak, Melaka, Johor and Sarawak. This development is expected to attract more that 250 global multinational corporations. The number of MSC status companies is projected to increase from 1,421 in 2005 to 4,000 by 2015 generating 100,000 jobs nationwide and 1,400 intellectual properties. Official portal, Malaysian Multimedia Super Corridor,

http://www.mscmalaysia.my/invest_in_msc_malaysia/partner_with_us (Accessed 12.02.2014).

It is very important to add that MSC Malaysia will not be successful without the involvement of transnational companies because foreign direct investments directed in the ICT field in Malaysia are still dominating and thus crucial for the development of this sphere. Moreover, foreign investments in the MSC has succeeded in creating jobs, encouraging start-ups project, training skilled worker, transferring technology and opening up international markets.

Table 1

Selected Multimedia Super Corridor Indicators (2001-2015)*

Categories

2001

2005

2015 (Forecast)

MSC-status companies (number)

- Locally owned

- Foreign owned

- Joint-venture (50-50)

621

410

198

13

1,421

1,033

349

39

4,000

2,678

1,123

199

Job creation (number)

- Knowledge workers

- Others

14,438

12,169

2,269

38,882

26,522

12,360

100,000

85,219

14,781

Investment (billion US dollar)

1.05

1.704

4

Revenue (billion US dollar)

-

2.404

23

Exports (billion US dollar)

-

0.524

0.830

IPs registered (number)

-

119

1400

*Source: Economic planning Unit, Ten Malaysian Plan, Malaysia, 2012, http://www.epu.gov.my/

MSC is focused on several “flagship” projects created for rapid technological development. These projects serve as a global tester for innovative solutions for Malaysian conditions. The areas targeted for intensive development are Electronic Government, Multi-purpose Card, Smart Schools, Telemedicine, and Clusters. These initiatives will be described more profoundly below. Ministry of Science, Technology and Innovation Malaysia, MSC Flagship Applications, http://nitc.mosti.gov.my/nitc_beta/index.php/key-ict-initiatives/msc-flagship-applications, 06.04.2014.

Electronic government also known as e-government will be analyzed first. Overall, it was designed to deliver more effectively and efficiently services to the public and link together governance, information and communication technology, business process and citizens at all levels of government. Since this initiative was put into practice in Malaysia, tremendous efforts have been made to improve innovative capacity in the public sector and necessary governmental investments were made. From 1996 to 2013 142 million US dollar has been spent to develop E-Government applications. Most apparent step is the creation of facilities for the organization of the electronic flow of information in the national and international levels.

However, in the beginning of the implementation of the project there were two factors that were slowing the development. First, institutional and organizational progresses were not equally developed all around the country, which reduce the effectiveness of information delivery. Another factor was the unequal accessibility of rural and urban citizens to computers and Internet services. Therefore, this new system of governance was firstly aimed to improve affordability of modern devices and even distribution of services all around the country.

There can be marked out three research institution that analyze the effectiveness of electronic innovation in the public sector.

The first is Brown University survey which explores the services and materials available online at national government websites.

Another research institute is the Japanese Waseda Institute of e-Government, which is placing the emphasis on the field of the effectiveness of governmental reforms. The study is based on twenty eight indicators, including the development and accessibility to the modern communication services and the level of investments in this sphere.

The third survey is the United Nations research which analyzes not only the availability of online services but also the channels of their delivery and governmental strategies for the implementation of innovative technologies. Specifically, the research is aimed to be a tool for measuring progress of developing countries in the implementation of e-Government services.

Overall, the analysis given by the three institutions have diverse results. All of them emphasize different study objectives and the researchers use various methodologies. That is why the outcomes of each study helps to understand deeply the country's e-service performance.

When analyzing the ranking given to Malaysia by these institutions, the results do not always coincide. The Brown University survey placed Malaysia at rank 84th in 2004. Global E-government report 2004, p.15, United States, Brown University, Center for Public Policy http://www.brown.edu/academics/taubman-center/sites/brown.edu.academics.taubman-center/files/uploads/egovt04int.pdf. According to the analysis of Brown University, in 2005 Malaysia's rating was comparable to Rwanda, Samoa and Kenya, which showed that despite a comfortable income, Malaysia was still not able to compete in the field of innovative services. Ranking moved up considerably to 32nd in 2006 Global E-government report 2006, p.10, United States, Brown University, Center for Public Policy http://www.brown.edu/academics/taubman-center/sites/brown.edu.academics.taubman-center/files/uploads/egovt06int.pdf. and enhanced further in 2007 to the 25 position.Global E-government report 2007, p.12, United States, Brown University, Center for Public Policy http://www.brown.edu/academics/taubman-center/sites/brown.edu.academics.taubman-center/files/uploads/egovt07int.pdf. The improvement in 2007 made Malaysia's performance comparable to countries like Finland and the Netherlands. Unfortunately, this University stopped to publish the latest finding, but the given trend shows that Malaysia has been considerably improving its innovative capacity.

Rankings provided by the United Nations were generally constant, placing Malaysia at rank 42 in 2004 and moving it up 2 points in 2012 from 193 countries. United Nations, E-Government Survey 2012, p.39,

http://unpan1.un.org/intradoc/groups/public/documents/un/unpan048065.pdf. In 2012 (the latest year of published research) the United Nations surveys place Malaysia among countries with higher economic indicators, for example Saudi Arabia, Sweden and New Zealand.

The analysis given by Waseda University records very high results of Malaysia in the innovation sphere. Thus in 2004 Malaysia was at 9 position, which grouped Malaysia with advanced countries such as Hong Kong, Japan, Australia, Sweden, Finland, Singapore, Canada, and the USA. Later in 2012 Malaysia was at rank 23rd from 55 analyzed countries and in 2013 dropped one point. Waseda University, The 2012 Waseda University International e-Government, Japan http://www.e-gov.waseda.ac.jp/images/Press%20Released%20on%20e-Gov%20ranking%202012.pdf. In 2012-2013 the ranking reduced slightly but Malaysia remained among the ICT advanced countries like Spain, Israel, Hong Kong. All in all, the surveys place Malaysia among countries with GDP per capita of approximately 50 percent more than in the analyzed country. This finding says that Malaysia is developing very fast in converting available resources towards ICT development.

Overall, the Waseda University and United Nations research give the most reasonable view of Malaysian e-government performance. In addition, UN research also revealed the digital divide between rural and urban areas in Malaysia. The Brown University findings, on the other hand, in 2004 placed Malaysia on extremely low positions in comparison to its investments and programmes.

Another initiative within MSC in Malaysia is the multi-purpose card or as it is called in Malaysia - MyKad. It is the compulsory identity document for Malaysian citizens above 12 years old. This system was introduced in 2005 by the National Registration Department as a replacement for the High Quality Identity Card (Kad Pengenalan Bermutu Tinggi).

Malaysia became the first country in the world to use an identification card that incorporates both photo identification and fingerprint biometric data on a computer chip incorporated in a plastic card. Knight, Will. Malaysia pioneers smart cards with fingerprint data, Journal New Scientist, Malaysia, Kuala-Lumpur, 21 September, 2001. While the main purpose of the card is a proof of citizenship other than the birth certificate, MyKad may also serves as a driver's license, an ATM card, an electronic purse and a public key if the bearer chooses to activate these functions.

The realization of this modern project needs sufficient investments. In the period from 2005 to 2013 290 million US dollars has been directed in MyKad project, including 193 million for purchase of 22 million smartcards for Malaysian citizens. Ministry of science, Technology and Innovation Malaysia, http://nitc.mosti.gov.my/nitc_beta/index.php/key-ict-initiatives/msc-flagship-applications. This initiative shows not only the progressive view of Malaysian government on the modern documents but also the innovative capacity of country as well as a reasonable approach to the ecological issues as MyKad helps to reduce paper work. In addition, the biometrics technology ensure secure and accurate access to the information keeping on the card.

For the implementation of modern technologies which are one of the main goals of Vision 2020, Malaysia should transform its educational system. According to this concept, Malaysia should develop a sustained, productivity-driven growth, which will be achievable only with a technologically literate, critically thinking labor force prepared to be competitive in the international arena. At the same time, Malaysia's National Philosophy of Education calls for “the developing of the potential in individuals in an integrated manner in order to produce citizen who are intellectually, spiritually, emotionally, and physically balanced and harmonious.” Ministry of education Malaysia, Integrated Curriculum for secondary schools, p.15, http://www.moe.gov.my/bpk/sp_hsp/sains/kbsm/hsp_sc_f2.pdf

The project has been started to realize by creating a group of 90 pilot smart schools by 1999 and by 2020 all Malaysia's schools should become smart. Abdul Shah, Developing Malaysia into a knowledge-based economy, Chapter 5, 2011, p. 124, Selangor, Malaysia. Initially, four subjects such as the Malay language, the English language, Mathematics and Science are introduced in the smart schools using the latest technology as well as methods and techniques of teaching and learning. In addition, all materials are provided in the form of software designed by the Centre for the development of Curriculum (Pusat Pemkembangan Program Sekolah with the Ministry of Education. Preliminary Report, Malaysia Education Blueprint 2013-2025, Ministry of Education, Selangor, 2012, p. 18, http://www.moe.gov.my/userfiles/file/PPP/Preliminary-Blueprint-Eng.pdf. To function effectively, the smart school will also require appropriately skilled staff and well-designed supporting processes.

According to the Malaysian government, the catalyst for this transformation in education sphere is the technology supported smart schools which are one of the four major MSC flagships. The changes in the educational system will involve the implementation of new culture and practices in schools, moving away from memory-based learning to an education that stimulates thinking and creativity in all students and is based on more equitable access. It will also require students to exercise greater responsibility for their own education. That is mean that school is the way to ensure that every student is able to achieve its full potential in the different learning styles. Consequently, by realizing this project Malaysia is creating a pool of talent and competitive workforce which will be able to cope in the future with a high-value job positions which makes up the core of the Knowledge-Based economy.

The Ministry of Education of Malaysia has received one of the highest budget allocations for the realization of its goals. From the beginning of the project Smart schools in 1997 till 2012 government has invested a total of 2.2 billion US dollar on different initiatives. Preliminary Report, Malaysia Education Blueprint 2013-2025, Ministry of Education, Selangor, 2012, p. 3, http://www.moe.gov.my/userfiles/file/PPP/Preliminary-Blueprint-Eng.pdf. There is no doubt that in the first years of the strategy Malaysia had admirable results. In 2011, Malaysia achieved near universal enrolment at the primary level at 95 per cent. Youth literacy has risen from 88 per cent in 1980 to 98 per cent in 2013. The World Bank, World Development Indicators, http://data.worldbank.org/indicator/SE.ADT.1524.LT.ZS (Accessed 18.05.2014).

The expenditure on education as a percentage of total government spending is also high, being 16 per cent in 2011. In comparison with ASEAN countries Malaysia is the second after Thailand, almost doubling this indicator during the recent years. In comparison, the countries-members of the Organization for economic cooperation and development have on the average only 8.7 per cent of government spending.UNESCO, The Global Monitoring Report 2013/2014, France, 2014, p. 95, 127, http://unesdoc.unesco.org/images/0022/002256/225660e.pdf

Another important project within MSC is telemedicine. It was launched to improve the standards of healthcare system and up-grade the quality of information about health, teleconsultation and help to create a lifetime health plan. The implementation of this concept is impossible without the information technologies which are the nucleus of the Knowledge-based Economy. That is why all patients' data in frame of the project should be transformed in the electronic form, while this is necessary for obtaining an individual's medical history during initial contact with a doctor because this process often consumes a big amount of a practitioner's time.

In order to regulate this initiative, special law called the Telemedicine Act was implemented. According to it, only a person who holds a valid practicing medical certificate can practice telemedicine in Malaysia. Laws of Malaysia, Telemedicine Act 1997, p. 6, http://www.agc.gov.my/Akta/Vol.%2012/Act%20564.pdf.

This initiative gives the most important benefits for rural communities as there might be limited medical expertise and resources. Moreover, patients no longer need to travel to consult medical specialists in urban areas where is often all modern facilities are concentrated. This fact consequently bring significant savings.

The government has been paying a big attention to the development of this project, directing sufficient investments in this sphere. The total investments in the undertaking accounted for 11.9 million US dollar from October 2000 when the project was started to have been realized to 2013, including 0.9 million for initial pilot. Ministry of science, Technology and Innovation Malaysia, http://nitc.mosti.gov.my/nitc_beta/index.php/key-ict-initiatives/msc-flagship-applications (Accessed 16.02.2014) However, some bad primary conditions such as poor access to infrastructure and under-developed critical enablers still limit the use of telehealth projects. Another shortcoming of the concept is the lack of observable evidence for ordinary citizens about the cost effectiveness and efficiency of applications.

All in all, although Malaysia only begins to develop this project and consequently direct significant allocations in it, telemedicine has a variety of applications in different spheres, such as patient care, education, research, administration and public health and has particular benefits in the rural areas.

3.2 Development of clusters in Malaysia

Over the last decades, there can be witnessed the significant growth of linkages and cross-company interactions within specific locations, called clusters. According to the Harvard Business review, “clusters are geographic concentrations of interconnected companies and institutions in a particular field” ,Michael E. Porter, Clusters and the new economics of competition, Harvard Business Review, Boston, Nov/Dec 1998, p. 78. representing the entire industrial chain from suppliers to the finished production, including supporting services and special infrastructure.

These technological agglomerations are closely linked to the development of the Knowledge-based Economy in Malaysia. Moreover, when Malaysia started to develop manufacturing sector in 1970s, it became crucial for this country to cope with advanced modern technologies and to establish special high-tech areas and incubation centers where modern research and development facilities might be set up. Later, additional projects, such as new economic corridors were created to attain higher value-added production.

In addition, in Malaysia most of companies which are producing innovative commodities are little in size and have small capital outlay. In order to unite the efforts of small and medium-size enterprises in building core competencies and to make them the part of the global production networks and supply chains, there was created a policy to relocate these firms to special industrial zones or agglomerations which unite together linked industries.

In Malaysia clusters are identified basing on several factors, namely commitment of the state authority and infrastructure quality, customer-centric management and favorable business environment to attract investment, the number of knowledge workers as well as the proximity to universities and R&D centers. Mohamed Ariff , New Perspectives on Industry Clusters in Malaysia, Chapter 9, Malaysian Institute of Economic Research, Kuala-Lumpur, p.3, 2008 from

http://www.eria.org/publications/research_project_reports/images/pdf/PDF%20No.3/No.3-9-Malaysia.pdf. Among others success factors for cluster development are strategic location, liberal trade policy, efficient telecommunication systems, and ongoing process of research and development activities. There should also be mentioned that for strengthening the managerial human capital in clusters along with advanced technologies there should be introduced special training programmes for workers. The imported technology and practices should lead to the reduction of capital-using and encourage productivity.

The special programme of reforms should provide the enabling environment for clusters on the way of enhancing the economic growth in the targeted industries such as modern agriculture, namely palm oil and related products, information and communications technology, electrical and electronics, oil and gas, that is mean those industries where Malaysia has essential competitive advantages in order to become a world leader.

Although different initiatives where implemented, in Malaysia there is still a gap in development of clusters in rural and urban areas. Clusters in urban areas give firms special benefits from the scale of economic activity and developed infrastructure network. In the densely populated areas it is also observed the greater specialization of agglomerations, which correlates with better economic performance. According to the statistics, the productivity of urban clusters is three times higher than in rural areas.

Diagram № 4

Distribution by territories of urban GDP contribution in Malaysia, U.S. dollars, 2010*

*Source: The Economic Planning Unit Prime Minister Department, The Tenth Malaysia Plan, 2010, Kuala-Lumpur, Malaysia, p. 56, http://www.pmo.gov.my/dokumenattached/RMK/RMK10_Eds.pdf

According to the diagram, Kuala-Lumpur contributes approximately three times more that GDP of the second most developed territory - Johor and eights time more of GDP than any other economic agglomeration in Malaysia. This figure is explained because Kuala Lumpur offers better infrastructure and hence is more attractive for creative knowledge workers and firms. Based on the 2013 Economist Intelligence Unit's liveability index, Kuala Lumpur ranks 78th out of 140 world capitals included in the research. The Economist, Global Liveability Ranking and Report August 2013, United Kingdoom,

http://www.eiu.com/public/topical_report.aspx?campaignid=Liveability2013 So, the distribution of technological development in Malaysia is still not balanced. Most of high-tech infrastructure is concentrated in the Klang Valley and in the main urban centers such as Kuala Lumpur, Pulau Pinang, Johor Bahru, Kuching and Ipoh. The imbalance in the distribution of technologies makes the gap between the city and village wider. Thus, there is a need for policies to correct these deficiencies.

There should also be mentioned that clusters unify in itself both competition and cooperation which occur in different dimensions and among different players. Clusters affect competition in three ways. First, by increasing the productivity of companies located in the cluster. Second, by enhancing innovation, which supports future productivity growth. And third, by stimulating the formation of new businesses, which strengthens the cluster itself. In addition, integration in the cluster allows companies to function more productively by obtaining necessary information, technologies and coordinating with related enterprises. Another positive feature of cluster is the better access to educated workforce. Furthermore, cluster offers a good supplier base with lower transaction costs which in turn eliminates importing costs and delays.

One more important characteristic of clusters is complementarily which means the complementation of one product by another in meeting customers' needs and optimizing collective productivity. Other complementarities arise in marketing. A cluster frequently improves the reputation of place where it is located, thus enhancing the level of recognition of the products. Beyond reputation, clusters have a variety of joint events and programs, such as advertizing of the cluster, trade magazines and marketing delegations.

In Malaysia the promotion of clusters has become an integral part of its industrial policy according to the country's Second Industrial Master Plan (1996-2005). Ministry of International Trade and Industry, Second Industrial Master Plan, , Kuala-Lumpur, 1996, p.29. http://www.miti.gov.my/cms/storage/documents/cea/com.tms.cms.document.Document_599a9ac8-c0a81573-272f272f-895c0ad0/1/annual%20report%20miti%20201996_edit.pdf. For this country the development of a local knowledge-based industrial cluster presents a major challenge to the government. This strategy continues to be important in the Third Industrial Master Plan (2006-2020).

From the beginning of the implementation of this project in Malaysia several industrial clusters have emerged in different parts of the country. For example, electronics industries tend to cluster in Penang, furniture and palm oil industry in Johor, and ICT and machinery in the Klang Valley.

In the last ten years Malaysia has built five new big economic agglomerations, namely Iskandar Development Region (IDR), Northern Corridor Economic Region (NCER), Eastern Corridor Economic Region (ECER), Sabah Development Corridor (SDR) and Sarawak Corridor of Renewable Energy (SCORE).

These corridors cover several existing industry clusters. For example, the IDR in Johor encapsulates various resource-based industries, electronics and electrotechnical engineering, furniture and textiles.

Although there can be mentioned general conditions for the growth of clusters, any industry has special incentives for the development. For example, the attractiveness of the palm oil industry clusters lies in its renewable energy source and cost competitiveness compared to crude oil. Malaysia has the first integrated biodiesel plant in the world, capable of producing biofuel and related subsidiary products. Various incentives such as tax reduction, special industrial building allowance and reinvestment deduction are given to promote this industry.

While special economic territories are developing, there can be mentioned that there some impediments including the lack of skilled labor, rigid custom procedures and the disparity in terms of accessibility of the telecommunications networks. For example, for the technological readiness, Malaysia was 25th out of 142 analyzed countries in 2011. The middle level of technological readiness contributes to the modest ranking of Malaysia among other countries. According to the researchers, Malaysia needs to improve its ranking in three areas, namely, international internet broadband penetration (Malaysia was ranked 83rd out of 183 countries in 2013), broadband internet subscriptions (68th) and mobile broadband subscriptions (64th). Ministry of science, Technology and Innovation Malaysia, http://nitc.mosti.gov.my/nitc_beta/index.php/key-ict-initiatives/msc-flagship-applications (Accessed 19.02.2014). Besides, the distribution of innovative territories is unequal, while the lowering of corporate taxes should encourage more investment into Malaysia as well as the creation of regional networking centers, business parks, and certification centers.Michael E. Porter, Clusters and the new economics of competition, Harvard Business Review, Boston, p. 76.

All in all, Malaysia is promoting itself as an Information and Technology center in Asia. The considerable growth of this sector with active government participation was one of the noticeable feature of the economy of the country during the last decade. The implementation of new technologies and creation of special innovative centers and clusters offer enormous opportunities through improved productivity and economic performance and the creation of new infrastructure. However, it also brings with it certain adjustments for the improvement of initial conditions and for the completion of the transformation of the economy into the Knowledge-based one.

3.3 Building the knowledge-manpower in Malaysia

In order to achieve the goals of the Vision 2020, to improve productivity of the economic system, become the fully developed nation and transform the economic system into the Knowledge-based Economy, Malaysia has to invest in the development of skilled labor force and correspondingly cultivate the qualitative education system.

With a growing emphasis on the new technologies there was elaborated the special term for the skilled labor force - knowledge worker. According to the Third Industrial Master Plan of Malaysia, knowledge workers should prevail in Malaysia. However, still there is no one generally accepted definition of this concept. The opinion of experts about this notion is varying. For example, Peter Drucker claims that "a knowledge worker fulfills abstractly defined tasks and applies knowledge in a flexible and creative way". Another distinguished feature mentioned by him is the continuous innovation and learning. Drucker, Peter F, Management Challenges of the 21st Century. New York: Harper Business, 1999, http://www.redalyc.org/pdf/1551/155118195009.pdfAlong with Pr. Dr. Drucker, the researcher Robert Reich has outlined that knowledge worker is engaged in non-standardized problem-solving, while using a range of analytic tools.

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