Private sector should invest more in R&D

GLOBAL spending on research and development (R&D) has reached a record high of almost US$1.7 trillion (RM7.6 trillion), according to the Unesco Institute of Statistics. Of that, about 10 countries account for 80 per cent of spending on R&D and these are mostly the G20 members (19 countries and the European Union)

In industrialised countries it is the norm for the private sector to be heavily involved in R&D to improve and refine products. This applies to almost everything, from shipbuilding and other heavy industries to aerospace and automotive sectors, and basic human necessities such as food and toiletry products.

One country that inevitably comes to mind when it comes to private R&D in spurring industrialisation is South Korea. It is said to have achieved in three decades what it took the Western industrialised countries more than a century to do. But how did it do that?

When the Korean War ended in 1953, the country was poorer than most countries in the world, with a per capita gross domestic product (GDP) of US$67. Today it is a global economic power with a per capita GDP comparable to that of Spain or Italy.

South Korea’s “economic miracle” can be attributed to its strategy of investing in R&D. This investment, along with prioritising spending on the infrastructure and education sectors, was essential to the emergence of large companies such as Samsung, Hyundai Motors, Hynix, and GM Daewoo Auto, among others.

Its ratio of R&D spending to GDP was 4.55 per cent last year, the highest in the world. The year before, the total amount of its R&D investment reached almost US$70 billion, up about 13.5 per cent in 2016 and the fifth largest in the world after the United States, China, Japan and Germany. 

Corporations spent over US$55 billion on R&D, accounting for almost 80 per cent of total R&D investments, followed by public research institutes (US$8.5 billion, about 12 per cent), and universities (US$6 billion, representing 8.5 per cent). 

According to the Malaysian Investment Development Authority, to remain competitive in the world economy Malaysia needs to constantly create new sources of growth. To do that requires an increase in the nation’s R&D and innovation.

The government has put in place various grants and other incentives to encourage companies across a wide spectrum of industries to embark on R&D. Such industries include electrical and electronics, machinery and equipment, chemical, medical and aerospace.

Currently, Malaysia spends 1.3 per cent of its GDP on R&D. It was remarked recently that Finland spent three times less than we do but produces more innovations. Are we getting value for money out of the money spent?

Thirty per cent of Finland’s workforce consists of graduates from the Science, Technology, Engineering and Mathematics (STEM) stream.

The Academy of Sciences Malaysia puts a target of having 500,000 STEM graduates, but we now have only 68,000 such graduates.

The irony is that the highest number of unemployed graduates here is from STEM. Apparently, the reasons given by employers for not hiring these graduates include their lack of communication and language skills in addition to a deficit in critical thinking.

Malaysian companies should invest a large share of their profits in R&D to ensure that their products remain competitive for the global market. They should also employ more local graduates.

To cite an example, the world’s largest rubber glove manufacturer, Top Glove Corporation Bhd of Malaysia, owes its success to its commitment to R&D. The company plans to increase its annual R&D allocation beyond its current RM60 million, a sum that already represents about 12 per cent of profits before taxes. 

As emphasised by executive chairman Tan Sri Lim Wee Chai, it will continue to invest in R&D because “there’s no future without research”.

The writer is a Distinguished Fellow of the Washington DC-based Global Federation of Competitiveness Council.

This article was published by

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