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Archive for August, 2011

THE IGNORANCE PERIOD

When I was in the university, clueless I was on middle income trap.

How could a country with plenty of resources is still trap in the middle income segment? (to see how far we are behind: Malaysia GDP = USD 256 billion while US GDP = USD 14 trillion, China = USD 5.6 trillion).

During my tenure as the student leader, I championed causes with other student leaders in other universities to lower the burden of rakyat. We persuaded the govt to maintain subsidies for petrol, sugar, etc. Little did we pause and think, where do this money come from and how much money do we have?

Even upon graduation, I understand DS Idris Jala’s presentation on the importance of subsidy elimination but I couldn’t understand fully.

Until now.

WHAT I REALISED AS A RAKYAT

The reality is our government wouldn’t be forever rich with cash to fuel our subsidy demands.

The subsidy given to us is paid by someone.

Who is that? It is paid mainly by you taxpayers, borrowers (yes government need to borrow money) & receipts from government ventures (those company owned by govt like Khazanah).

Don’t for a second think your tax or corporate tax is enough to cover our subsidy demands. Imagine how many cents we take from each litre of petrol.

Every litre of petrol you consume, someone is paying for it.

To add to our addiction, some local graduates are not working hard enough to enhance their capabilities.

So what? I still get a job anyway right?

When graduates have less capabilities, it forces companies to hire someone else, which adds to cost.

It forces companies to focus on firefighting, take shortcuts (hire cheap foreign labour), do not innovate, hence in the long run, we lose in terms of cost (imagine using your grandma’s aircond and your aircond today. Which one consume more power and cost?).

To make it worse, since 1980s, we have adopted policies of bringing in cheap labour to work.

So what? Good for business right? No, in the long run.

Cheap labour means companies are not forced to innovate hence they are dependant on foreign workers (easy way out).

That makes the demand for high skilled workers like graduates, a no issue for them.

Imagine a welding company can get foreign labours to weld it. But…… Imagine a welding company which utilizes advanced machinery to weld stainless steel with no need of foreign labour. Obviously this company needs graduates to look after the machinery which would give higher income to the graduate.

To make it even much much much worse, as a result of dependence on cheap labour, companies do not see the point to innovate, hence MSC companies are finding it hard to market solutions like CRM, cloud computing, ERP, etc.

Simply put, these companies are not forced to innovate to compete and they don’t care.

Some don’t even see the need to use technologies to upgrade their competitiveness to reduce costs and increase profitability.

There needs to be someone to tell them how to reduce costs from all angle; operations, finance, admin, etc. Not just IT!

Hence all of us are trapped in the middle income trap.

Except for entrepreneurs who succeed and investors who speculate (like those that buy properties, many of them using debt on debt).

CORRUPTION

This completes the cycle.

Everytime a greedy big bad wolf “crony” gets a job, he hikes up the price of the contract and the government needs to pay more.

When the government pays more, they need to use money from? Taxpayers, borrowers and government receipts lah!

So the government has less money to spend on other useful things.

And when these cronies dress down their accounts and implement tax reduction measures, government do not get back the money that was given to them through the contract!

Then all of us have less money.

And how about those contracts given under a special under-table arrangements?

When it is not given via merit / capabilities, it is given to someone without the skills, we lose out.

Why? They get the money, we get the contract, fair la! No.

Each money spent on non-competitive companies result in less innovation because there is no one to compete! So these companies get cheap labour, alternative ways to save up cost, without building human capital and innovation.

Hence, the middle income trap again.

THE WEAK POINTS

It all happens in a loop.

We are SO RICH with resources yet we waste it. I am truly sad of us being in the middle income trap. I want us out, ETP is really the driving force now but little do we realise, the driving force is actually us the rakyat. But when will we realise this?

So the weak points:

  • Our government is rich but we milk them with our subsidy.
  • Graduates who do not raise their capabilities adds to non-competitiveness of our firms.
  • Non-competitive firms go for shortcuts: foreign labour, etc.
  • Usage of cheap costs measures (foreign labour) results in companies which do not care about innovation.
  • Companies selling high-tech solutions couldn’t make it when companies do not want their solutions.
  • Cronies jacking up prices from government contracts result in less money for government to spend on other good projects.
  • Contracts awarded based on preference, leads to non-innovative culture which leads to middle income trap.

I know there are more problems, FDI, but this is something that can make sense to the ordinary Malaysian why we are in the middle income trap.

RECOMMENDATIONS

  • Force companies to innovate by limiting foreign labour in the long run.
  • Focus on commercialization of our research output in universities so that industries can use them. At the moment, getting research grants are more important than commercialization.
  • Offer subsidy or ITA / pioneer status to companies for commercialization capital investment.
  • Force students to enhance their capabilities by tying up CGPA with practical jobs performance, innovation reflection and financial literacy.
  • Get corporate leaders to be mentors to student leaders rather than focus on politicians in its entirety.
  • Rid off corruption through pre-requisites and standards in contract awards (if no ISO 9001, GMP, no contract). – must take into account the industry capabilities as a whole and use median standards.
  • Increase grants for standards like SME Corp.

I know some of these recommendations are already out, but it is not being emphasized with a big FOCUS. Like imagine if the PM talks about ETP, then everyone would talk about it. So he should champion these things. At the moment the issue is IMPACT. How many research projects are commercialized with the current implementation plan? If you can give me a good answer then you win. But I don’t see my SME peers adopting Malaysian technology from universities en masse.

WHAT I COULD DO, PANDAI AJE RECOMMEND

Well, I would aim to increase innovation to reduce costs & increase profitability as per below:

  1. Utilize cloud computing with proven companies like Xero, Salesforce to reduce the need to hire an accountant, telemarketer.
  2. Increase productivity through documents collaboration to eliminate the need for secretaries and many admin clerks.
  3. Use high technology equipments such as blast chillers, sous vide, to eliminate waste and increase profits.
  4. Research and pair up with universities to come up with a robotic kitchen to reduce kitchen overheads.
  5. Focus on employing high performance workers with high salaries with dividend schemes.
  6. Get all grants from governments which focus on standards and work automation with the aim of reducing costs, not complicating things.
  7. Lower price down to compete with competitors through cost advantage infrastructure and force other competitors to innovate as well.

Just my 2 cents.

Not meant to bang the government or support the opposition. Just some thoughts to improve the country and it must start with something. So I’ll start the culture and if others wanna do it, please by all means because I would love to see Malaysia be no 1. Malaysia Boleh! Not “Malaysia Boleh” as of those Bolehland genre.

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