Reboot: How the Anwar Ibrahim government can jumpstart Malaysia’s Startup Ecosystem 

  • Tap brightest of the over 100k international students in Malaysia 
  • Encourage use of Malaysian solutions & spark virtuous cycle of innovation

The authors, Aaron Sarma (2nd from left, seated) and Dr V Sivapalan (3rd from left) with the first cohort of startups their Scaleup Malaysia invested in, Feb 2020. They are urging the government of Prime Minister Anwar Ibrahim to hit the Reboot to drive Malaysia's startup ecosystem to greater heights.

As we move in various circles both locally and when we travel abroad, one theme seems to commonly surface - the Malaysian startup ecosystem is lagging behind. Yes, we’ve had phenomenal success with Carsome, Aerodyne and the like but as a whole it seems we are still playing catch-up. 

This gives the new unity government led by Prime Minister Anwar Ibrahim an interesting opportunity. They can make hard choices but they can do it with the benefit of hindsight. As we prepare for the upcoming budget announcement we felt that this would be a good opportunity to revisit some of the policies and ideas that have worked in the past and advocate for their continuation or expansion. This new government can hit reset and reboot our ecosystem to accelerate it - Onwards and Upwards! 

In this 2-part article we would like to make a few key recommendations that the government needs to attend to urgently to at least get a headstart on fixing the ecosystem. In part 1 we will cover talent and market access and in part 2 we cover the ever important matter of funding and we get into some hard talk about where we are as an ecosystem. 


Talent: Great people build outstanding companies

Malaysia's talent deficit is a topic that has been widely discussed, but it is not as dire as some may believe. Yes, we do have a "talent loss" problem, where many of its brightest minds leave the country in search of better opportunities. The good news is that this can be addressed. 

One of Malaysia’s listed construction companies that is highly innovative gives scholarships to talented Malaysians they have identified to attend some of the top universities in the world. These bright sparks are now working for the company’s innovation office developing and implementing some cutting edge technologies. Companies like Petronas and many of the multinationals in Penang have some really bright local talent as well.

The best way to combat “brain drain” is through “brain gain.” Just look at what the USA, Israel, and Singapore have implemented. The vast majority of successful firms in those markets aren’t operated by locals. Side note: Many of the top Unicorns in Singapore have Malaysians in their management team. 

Here are 6 recommendations we hope the new government can consider:

Recommendation #1: We have many foreign students that study at local private and public universities - over 100,000 at last count. Allow the brightest foreign students who obtain a second-class honours bachelor's degree and above, a masters or Ph.D to stay and work in Malaysia. Give them a two-year visa and allow them to work or build a startup. If successful, give them a ten-year visa.

Recommendation #2: The government and many large corporations sponsor students to study abroad and then bond them for 5 years or more. Sometimes these students cannot find jobs with the sponsors as there may not be any vacancies. Allow bonded students who studied abroad and could not find jobs with their sponsors to join startups to fulfil their bonds.

Recommendation #3: Make it easy for startups to hire foreign talent and bring them to Malaysia by simplifying the visa application process and setting clear guidelines. The Malaysian Technology Entrepreneur Program and De Rantau programmes are good policies. We just need to simplify, promote and get more talent in the market. 

Recommendation #4: Create an Asian scholar program and provide scholarships for bright students from Asia, bonding them to work or create startups in Malaysia. We did this many years ago when we brought students from Central Asia to study here. The CEO/CTO of one of Dr. Sivapalan’s investee companies is from Kyrgyzstan. He came here under a scholarship to study at University Islam Antarabangsa and he is a brilliant talent. It’s time we restarted this program.

Recommendation #5: Make it easier for foreigners to set up VC funds in Malaysia by having a specific visa for investors, as most funds have a 10-year lifetime. The Managing Partner of Indelible Ventures, who has worked with us at ScaleUp Malaysia on our 3rd Cohort had an unbelievably difficult time trying to bring foreign money to invest in Malaysian startups. He was able to do it through pure perseverance. Imagine how many Kevin Brockland’s have given up and how many Malaysian startups missed an opportunity to receive an investment as a result. 

Recommendation #6: Incentivise prototyping of ideas for the creation of new startups. We should start exposing our school students to entrepreneurship. In fact, we should have demo days for them to showcase their ideas even at that young age (17 and below). And this should go on even when they are in university. Silicon Valley has largely been built on the talent that has come out of Stanford University. Just imagine how many great ideas are incubating in universities all over Malaysia. 


Market Access: Technology Adoption & Distribution At Scale

The second issue is to create greater market access opportunities for our technology creators and to also encourage SMEs to adopt more technology. We have heard it mentioned many times that we should not just be a nation of technology buyers but technology creators. This kind of thinking falls short of revealing the solution. When the market buys, the market will create. As a matter of policy we should encourage the use of Malaysian solutions locally and its export internationally. We need to overcome both the scepticism in local products and the lack of funds to purchase these technologies. When we do this, we create a virtuous cycle of innovation which benefits multiple stratas of the economy. Here are 3 policy recommendations to address this:

Recommendation #7: The SME Digitisation Grant that was implemented during the pandemic was extremely successful in encouraging broad based adoption in SMEs. The government should continue providing matching grants for the purchase of local technology, with an increased budget of US$22.9 million (RM100 million) per year and up to US$4,580 (RM20,000) on a 1:1 matching basis per company for any registered and approved technology product or solution through MDEC.

Recommendation #8: A double tax benefit up to RM100,000 per company should be given to larger companies that adopt more expensive technologies to improve productivity and analytics for their businesses, especially in manufacturing. This will encourage more medium and large companies especially in manufacturing to adopt robotics and machine based technologies like Internet of Things (IoT) which leverage 5G to improve productivity and analytics for their businesses.

[RM1 = US$0.229]

Recommendation #9: A "Buy Malaysian First" policy should be implemented for public listed companies, government linked companies, and the government to buy local technologies to create a culture of supporting local technology providers. In China, South Korea and Japan they always buy from local providers first and only if no one can provide it locally will they source from foreign suppliers. This has become a culture in these countries and we must create this same culture in Malaysia starting with the government, GLCs and PLCs.

Dr V Sivapalan and Aaron Sarma are startup ecosystem leaders in Malaysia, with Dr Sivapalan having been involved in the startup scene since 1999.

Tomorrow: Funding - fuel for the fire


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