Technology: Exporting high-tech materials and products

This article first appeared in Enterprise, The Edge Malaysia Weekly, on December 25, 2017 - December 31, 2017.
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Malaysia is home to many high-technology companies that export their products globally. In fact, the electrical and electronics (E&E) industry — which includes semiconductors, solar and light-emitting diodes (LEDs) — is the country’s biggest export contributor, according to the Department of Statistics.

Making up RM251.44 billion or 36.4% of the country’s RM690.25 billion in exports for the year to September, the E&E industry’s markets outside of Malaysia are thriving due to the high consumption there, says Datuk C L Yoon, managing partner at Penang-based Businesswise Consulting Sdn Bhd. 

“Most of these companies, especially those dealing with higher-end materials, such as polymers and thermal interface materials, are export-oriented. There is very little market for them here. These companies manufacture their products here, but export them either directly or through multinational companies operating here,” he says. 

Dr Rezal Khairi Ahmad, CEO of NanoMalaysia Bhd, concurs. He says the limited consumption of high-tech materials and products in Malaysia is forcing SMEs to venture abroad. “It is no longer a choice. It is a definite need. We only have a population of about 32 million, and not all of them can be converted into their consumers,” he adds.

“There are a lot of stories of home-grown tech companies that have been successful overseas, but not in Malaysia. One of our own consulting companies — Nanopac, which is manufacturing nano solar panels — has been commercially successful in China, Vietnam, Thailand and India, but has had minimal success in our own market. Another company, which is manufacturing LEDs, has penetrated New Zealand and other overseas markets, but has yet to do so in the local market.”

Rezal says there are even companies that boomerang products back to the country and label them as South Korean or Chinese products, despite the fact that the intellectual property is from Malaysia. This may be partly due to the dismissive attitude in the country towards local innovations. 

“The moment people see the ‘Made in Malaysia’ tagline or get to know that the innovation was developed in the country, they become sceptical. It does not help that some of the government-linked companies procure products from the big players instead of supporting local SMEs,” says Rezal. 

Identifying opportunities

According to Yoon, it is not difficult for Malaysian SMEs to venture out of the country as there are ready markets all over the globe. However, the challenge is that most of these companies are small. This means their R&D centres are not as big and advanced as those of the bigger players. 

“As they are manufacturing or selling high-tech materials or products, there are a lot of niche markets they can penetrate. The volumes are small, but it is fairly easy to get interested customers,” says Yoon.

“The difficult part begins when there is interest because the companies will have to go through a fairly long development process. It is not as simple as ‘I have a product, so I can sell one to you’. They need to spend a lot of time, effort and money to develop cutting-edge technology products and solutions for customers. 

“For example, nowadays, there are many electric car manufacturers that need advanced materials to protect the electronics and batteries from high-heat engines. While this is a huge opportunity, it will take a while for local SMEs to develop a product that is suitable. That is the why less competition does not mean less difficult.”

He adds that to look for niche markets, local SMEs can leverage various platforms such as technology forums and automotive shows that are regularly held in cities all over the world. They could also establish a dynamic internet presence, which means that local SMEs looking to broaden their business will need to be very internet and branding savvy and use online platforms to connect with other people in R&D.

“It is not hard to get connections, but very hard to realise the value of the connections in the industry because these people are unsure of what they want. There will be moments when they need a specific thing, and if you are already connected, you will get the first-mover advantage to supply it. That is when you realise the value and importance of these connections,” says Yoon.

“This industry is not a high-volume one that requires heavy marketing. The volumes are low and the products are complex. Thus, SMEs will need to be ahead of the curve. For example, if you started supplying materials for electric cars a few years ago and suddenly the rest of the industry catches on, the surge in demand will greatly benefit you because you are already in the game.”

However, there are risks to being in the spotlight. No longer being in a niche market means that SMEs will have to defend themselves against the bigger companies looking to capture some market share, says Yoon. 

“Initially, the bigger companies are not threats. But once the market becomes big enough to attract their attention, they will try to compete with the incumbents. This will be a limitation because local companies generally do not have the kind of capabilities needed for a fair fight,” he says. 

What to do and where to go 

High-tech Malaysian SMEs that have yet to export will have to evolve before they can venture overseas, says Rezal. As it can be a long and arduous process, he suggests that SMEs create smart partnerships with local players in the countries they are planning to expand to. This will not only make the process faster but also more efficient and cost-effective. 

“Recently, we started to tell SMEs they do not need to centralise their business activities. We are in a shared and connected economy, where the collaborative model works best no matter what industry they are in. By creating a network of value and a proper supply chain, they get a slice of the market share faster, which will be very good if they are seeking first-mover advantage,” says Rezal. 

Before doing this, however, it is very important for SMEs to make sure they have a strong intellectual property rights (IPR) strategy, he says. This is especially if they are planning to penetrate markets such as China, where the IPR management is loose. 

“Not having an IPR strategy before planning for exports is like a suicide mission, especially for technology companies. They will be skinned alive,” says Rezal.

“With a good IPR strategy, the company may fail, the business may collapse, the management may go. But the IPR stays. It can be used as collateral — the company can repatriate it, license it out or develop it further.” 

Additionally, SMEs should be aware of complementing technologies that could support their product penetration and have an understanding of blue ocean and red ocean strategies, as well as other academic processes they need to go through to complete the internationalisation process. “If they need help or market knowledge, they can always seek facilitation through the Malaysia External Trade Development Corporation (Matrade) or Malaysian Investment Development Authority (Mida). Of course, agencies that have been set up by the government such as NanoMalaysia are also able to provide information on the market landscape and steer them in the right direction and connect them with the right investors in the economic regions they are trying to penetrate,” says Rezal. 

While Europe and the US are still very big markets for local tech companies, China and other emerging markets are starting to become good markets for Malaysian exports, says Yoon. “You cannot compete with China companies in the lower-end products. But there is good opportunity in the higher-end materials and products. They do copy products quickly, so having proper intellectual property in place and being extra cautious is necessary.”

Rezal agrees, adding that emerging markets such as India, Vietnam and Iran are currently fertile ground for Malaysian tech companies. “Developed markets are already saturated. They even have non-tariff barriers to protect their local innovations and products, whereas emerging markets are very proactive in getting exports. There is a mutual need for economic activities to relocate to these countries and they are very hungry for new innovation,” he says.

“Russia, for example, has a lot of programmes to facilitate tech transfer. In fact, it has been going around to various agencies such as ours to express interest in working with local SMEs.”