Malaysia Must Accelerate Transition Into High Value, Innovation-led Industries To Be Competitive - Academic

KUALA LUMPUR, Dec 8 (Bernama) -- Malaysia must accelerate its transition into high-value and innovation-led industries if it wants to strengthen long-term economic competitiveness, Nottingham University Business School assistant professor of business economics Dr Tan Chee Meng said today.

He said  Malaysia cannot afford to remain a mid-level assembler in global supply chains and must build its own research, design and branding capabilities.

“We do not want to just be putting parts together. We want to have enough research and design technology to be a brand of our own,” he told Bernama.

Tan was one of the panellist at Bernama TV's The Nation programme alongside IPPFA Sdn Bhd investment strategist and country economist Mohd Sedek Jantan on "Malaysia's Economic Future: What 2025 Tells Us About The Next Five Years".

He added that Malaysia lagged behind regional peers in research spending, with Singapore investing US$25 billion in research and development compared to Malaysia’s US$600 million so far.

To raise wages and attract higher-quality investments, Tan said Malaysia must shift more resources toward high-value sectors such as ICT, green technology, electronics and AI-related industries, instead of relying heavily on retail, logistics and real estate-driven foreign direct investment. 

He added that higher wages can only materialise when industries generate higher margins.

“If you want higher wages, you need to create higher value. Companies can only pay more when their profit margins are big enough,” Tan said.

He added that Malaysia is moving in the right direction but must intensify its focus on industries central to a tech-driven economy, noting that such a shift would help reduce structural wage distortions and strengthen the country’s competitiveness.

Meanwhile, Tan said the 19 per cent tariff imposed by the United States on Malaysia since August opened a strategic opportunity for Malaysia to deepen cooperation areas including rare earths, an area increasingly important to US defence and green technology supply chains.

Malaysia secured significant tariff exemptions under a recent US trade deal, with over 1,000 products receiving zero per cent tariff, including palm oil, rubber, cocoa and pharmaceuticals. 

Tan said the US is actively seeking rare earth supplies from Japan, Australia and Malaysia, adding that Malaysia’s advantage hinges on improving extraction and recycling capabilities.

“We need to have better extraction technology and then better recycling technology that I think the Americans are willing to share with us. We should also diversify,” he added. 

Earlier during the programme, Tan said Malaysia’s strong export position remains an advantage, but the country must prepare for rapid shifts in global demand and changes in geopolitical dynamics that could reshape supply chains heading into next year. 

Tan said Malaysia and ASEAN have attracted multinational firms seeking to diversify production away from China due to prolonged US–China tensions. 

He noted, however, that this advantage is not guaranteed with a potential easing of US–China tensions after the current US administration could alter supply-chain decisions, with implications for economies that have benefitted from the current geopolitical realignment.

Given this possibility, Tan said Malaysia must not rely solely on its export strength or its position as a substitute for China. 

-- BERNAMA