Understanding the regional innovation support systems in developing ...

INTERNATIONAL DEVELOPMENT PLANNING REVIEW, 35 (1) 2013 doi:10.3828/idpr.2013.4

Abdul Fatah Amir, Thiruchelvam K. and Boon-Kwee Ng

Understanding the regional innovation support systems in developing countries: the state of Sabah in Malaysia This paper presents empirical research on the regional dimensions of Malaysia’s innovation system in one of the less-developed regions, namely, Sabah. Case studies on government organisations, public research institutions, universities and firms were undertaken to investigate the level of interactions (both intra- and inter-) of the innovation system at the regional level. The findings reveal that these interactions are negligible or almost absent. Such weak interactions have led to static levels of technological capabilities of firms operating in the regions. This paper argues that Malaysia’s national innovation systems need to ensure that local and regional dimensions are incorporated into fashioning appropriate strategies to enhance technological capabilities at the regional level. Above all, an institutional framework that is responsive and flexible to the needs of the region must be in place. Keywords: regional innovation, innovation systems, knowledge, government policy, industrial policy

Introduction Issues pertaining to the development of technological capabilities in developing countries have been extensively discussed in the literature (see Lall, 1990; Shahidullah, 1991; Bell and Pavitt, 1992; Cooper, 1994; Sharif, 1999; Lundvall et al., 2009). In response to these issues, governments of developing countries have adopted various strategies to enhance and manage their technological capabilities. The concept of the National Innovation Systems (NIS) that emerged in the mid-1980s has been adopted as an appropriate means of achieving this end. Such a concept is specifically concerned with the creation, diffusion and utilisation of knowledge through the interactions of various organisations and institutions within national boundaries (Freeman, 1987; Lundvall, 1992; Metcalfe, 1995). However, within national boundaries are regions (in other words, sub-national areas), which have increasingly become the focal points for innovation policy arising from spatial characteristics in facilitating the development, accumulation and diffusion of knowledge (Asheim and Isaksen, 1997; Groot et al., 2001; Storper, 1995). Abdul Fatah Amir is Director at the Sabah Biodiversity Centre, Kota Kinabalu, Sabah, Malaysia; email: abdfatah. [email protected]; Thiruchelvam K. is Visiting Professor at the Universiti Teknologi Malaysia, Perdana School of Science, Technology and Innovation Policy, Kuala Lumpur, Malaysia; email: [email protected]; Boon-Kwee Ng is Senior Lecturer at the Department of Science and Technology Studies, Faculty of Science, University of Malaya, Kuala Lumpur, Malaysia; email: [email protected] Paper submitted May 2012; revised paper accepted August 2012

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Transferring NIS framework into the regions, however, is not without problems. Different regions respond differently, indicating a uniqueness of context in which the NIS operates (Evangelista et al., 2002; Howells, 1999). In this sense, one cannot just simply assume that a region is a ‘micro-national system’ (Wiig, 1999). For the NIS to perform at the regional level, it should be embedded within a region with close relationships with the Regional Innovation Systems (RIS) (Cooke et al., 1998). The importance of forging such linkages with the RIS was highlighted by Hassink (2001) in his study on innovation support in Korea. On the other hand, the regionalised innovation support system (RISS) is the knowledge generation subsystem of the RIS (OECD, 2004). Primarily aimed at supporting regional technological capability, RISS is commonly found in many developed countries, such as Burden-Wurttemberg in Germany and Emillia-Romagna in Italy (Hassink, 2001). However, it is important to note here that there is no best model of an innovation support system that could be emulated from elsewhere (Edquist, 1997). Another central issue pertaining to innovation studies concerns the use of the innovation systems framework in developing countries, which has been raised by Arocena and Sutz (2000), Gu (1999) and Intarakumnerd et al. (2002). These studies argue that the concept of NIS was based on empirical work performed in advanced industrialised countries. Policymakers in developing countries need to take into account the fact that the NIS concept for developing countries is ‘ex-ante’, which is opposed to an ‘ex-post’ concept in developed countries. In other words, NIS in a developing country is not identical to NIS in a developed country, and it is specifically related to its development level. It is important to connect the level of NIS development with the level of economic, structural and institutional development. Indeed, Lundvall et al. (2009) explicitly admits that the narrow mode of NIS – which mainly focuses on the production and use of codified scientific and technical knowledge (or research and development (R&D) efforts) – is of limited relevance when it comes to understanding the innovation problems pertaining to less-developed economies. Alternatively, Lundvall postulates that the second mode of NIS studies, which is based on the broader mode, is applicable in understanding the dynamics of innovation in developing countries. This is a broader mode of NIS, embracing DUI (Doing, Using and Interacting), which relies on informal processes of learning and experience-based know-how (Jensen et al., 2007). Such informal processes are the main features that characterised the dynamics of innovation in developing countries. Therefore, the broader mode of NIS serves as a basic framework of analysis in this paper. We favour the broad definition of innovation systems (Lundvall et al., 2009) and the ten important activities for innovation (Edquist, 2005), since they are more appropriate for developing economies.1 Such approach allows us to better capture the 1

According to Edquist (2005) and Lundvall et al. (2009), the ten important activities for innovation systems – namely, research and development, competence building, formation of new product markets, articulation of


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Understanding the regional innovation support systems: the case of Sabah, Malaysia

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innovation content in the context of developing countries than if it is defined strictly in terms of the scope of intensive science and technology-based research. This paper aims to examine the issue of innovation systems interactions at the less developed regional level, particularly how the NIS (specifically, the knowledge system) impacts on the technological capability building of a less developed region. It addresses two significant issues: first, the importance of knowledge building in developing countries, in which perception of innovation differs between developed and developing countries (Lundvall and Johnson, 1994). Knowledge, as well as being used for radical innovation, is also used incrementally in developed economies, in order to improve technological capability (Lall, 2000). However, such an approach is lacking in developing countries (Shrivastava, 1984). Therefore, the ways that knowledge is accumulated and, no less importantly, what factors hamper the development of a knowledge base are key issues to be explored from the perspective of developing countries. Second, studies related to NIS are few in developing countries (Intarakumnerd et al., 2002). In the area of regionalised NIS, such literature is also lacking, except for the works of Hassink (2000; 2001), Hwang and Ward (2001) and Kim and Nugent (1994). Studies about the impact of the governance of the national support system on the regional knowledge base-building process are limited or even not available. Based on these observations, this paper hopes to contribute to this sparse literature by adding new insights into the study of public governance of national innovation support systems at the regional level from the perspective of a less developed region. The paper is organised into six parts. The first part introduces the background of the paper. A brief introduction on the concept of RIS and NIS is examined in the second part, which also discusses the concept of RIS as a policy action tool used to govern such learning processes. The third part describes the research methods used in this paper. The fourth part provides a brief description of R&D in Malaysia, which is then followed by the findings of a case study on interactions of RISS in Sabah, which is one of the states of Malaysia which is located on the northern portion of the island of Borneo. The final part discusses policy implications.

Regional innovation systems in a state – governance of the innovation system In recent years, the concept of RIS has been extensively examined in the literature for new insights that could assist policymaking for regional competitiveness (such as Fromhold-Eisebith, 2007; Asheim et al., 2011; OECD, 2011). RIS, in this sense, is seen as a policy response to the increasing importance of regions as a level of economic user needs, creation and changes of organisations, networks around knowledge, creating and changing institutions, incubating activities, financing innovation and consultancy – provide some guidelines on the execution of heuristics assessment on the innovation patterns at various levels.


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coordination (Asheim and Isaksen, 2002). An RIS is a policy action that is based on the adoption of a system approach, in response to the increasing importance of regions as loci of economic coordination (Asheim and Isaksen, 2002; Asheim and Vang, 2004). The concept of RIS, with emphasis on knowledge flow through interorganisation relationships, is parallel to that of an NIS (Wiig, 1999; Chung, 2002). Therefore, in order to understand the concept of an RIS, an explanation of NIS is a good starting point, so as to analyse its principal mechanisms (Doloreux, 2002). Indeed, NIS and RIS do not function independently from each other, but mutually rely on each other’s strengths and specific system qualities in order to productively interact (Fromhold-Eisebith, 2007). The concept of NIS has assumed increasing currency as knowledge has been recognised as the most fundamental resource for innovation in the contemporary economy (Lundvall, 1992). However, for knowledge to have an impact on the economy (Stoneman, 1995), it needs to be widely diffused (Lundvall and Johnson, 1994). Knowledge diffusion is a social process, as it involves people residing in institutions or organisations who can impede or facilitate such diffusion (Edquist, 1997). Institutions delineate the rules of the game (North, 1990; Menard, 1995), that is, the ‘regulator type’ of establishments that have ‘routine’ ways of doing things determine what is accomplished in a particular context (Nelson, 2002). Organisations are formal structures with an explicit purpose, which are consciously created; they are players or actors (North, 1990; Edquist and Johnson, 1997). The need to emphasise the RIS has emerged from the realisation of the importance of locally bound assets – both tangible and intangible – for the creation of innovation that requires the spatial proximity of agents (Fromhold-Eisebith, 2007). The definition of an NIS and an RIS differ on the term ‘embeddedness’, which denotes actors’ interconnectedness within a geographical location. Since this paper deals with the innovation support system, it will therefore focus on the supportive system that provides innovation support to firms in their technological development efforts. The paper also follows Hassink’s (2001) definition of embeddedness that deals with the nature of relationships among innovation support organisations at the regional level. RIS is a policy action for enhancing localised learning. However, within a federation, regions are not independent entities, as they can be shaped by power structures beyond their boundaries. For example, regions are linked with elements of super ordinate governance – the nation-state or the supranational institutions (Braczyk et al., 1998; Asheim and Vang, 2004). Therefore, depending on the strength of regions in terms of regional-state political autonomy and its production system (Dabinett and Gore, 2001), the character of an RIS would differ (Howells, 1999; Asheim et al., 2003; Koschatzky, 2003). As regions are not identical in terms of functional or politicaladministrative spatial units (Koschatzky, 2003) and also in terms of competitive and comparative advantage (Maillat and Kebir, 2001), we can accept the premise that


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RIS may vary accordingly (Howells, 1999). Thus, a ‘one size fits all’ policy approach is incompatible when addressing issues of knowledge diffusion and adoption at the regional level (Tödtling and Trippl, 2005). Given the variations in RIS, Cooke (1998) asserts that governance issues assume importance in shaping how policies are executed and mechanisms are established at the regional level. According to Cooke (1998; 2002), three types of governance of an innovation system are largely found in the public sector – that is, the top-down, bottom-up and integrated models. In this regard, Cooke and his colleagues postulate that the government dimension – initially developed for technology transfer purposes – can generate three different types of RIS, namely grassroots, networks and dirigiste (see Cooke et al., 2004). Although RISS is commonly found in many developed countries (Hassink, 2001), Figure 1 A general model for an innovation support scheme in a developing country Source: Adapted from Hwang and Ward (2001)

Target group

Support stage

I. General information

II. Technological advice

Mainly regionally initiated agency Technology following SMEs

Technology dynamic SMEs

III. Joint R&D projects

Mainly regionally oriented agency

Mainly nationally initiated agency

Universities and public research institutes

Large firms


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there is no best model of an innovation support system that could be emulated from elsewhere (Edquist, 1997). Nevertheless, the literature does offer a general innovation support model, as shown in Figure 1. According to this model, public support organisations can be found in the three support categories, namely, general information, technological advice and joint R&D projects. These supports form the knowledge base supporting small and medium enterprises (SMEs) with respect to technical advice, training programmes, information services, entrepreneurship development, grants and loans (for start-up through expansion, technological acquisition and modernisation), technology transfer and R&D (Kim and Nugent, 1994; Hwang and Ward, 2001). For more complicated technological problems, such SMEs will be referred to either universities or public research institutions (Kim and Nugent, 1994; Hassink, 2001). In this regard, the roles of universities need to change to support industrial needs, such as undertaking industrial R&D, participating in technology parks and incubation programmes and also providing entrepreneurial training (Juma and Lee, 2005). The following descriptions provide more in-depth reviews on the theoretical foundations of RISS in the regional innovation development, particularly from the perspectives of knowledge generation and dissemination within the context of spatial innovation. Regional barriers to knowledge development Regions, as Isaksen (1998) observes, will possibly have to confront three types of barriers in the process of knowledge development. The first barrier refers to ‘organisational thinness’, that is, a lack of local actors, such as a sufficient number of firms, and of an adequate knowledge infrastructure to support collective learning (Asheim and Isaksen, 1997). In such regions, only a few technological complementarities and user-producer relations can be observed. Such organisational thinness might be the result of misguided policy in terms of the region’s decision-making powers, financial resources or policy orientation (Tödtling and Kaufmann, 1999). The second type of barrier is fragmentation, where regions may have a number of firms in a specialised industry, as well as a relevant knowledge infrastructure, but are deficient in mutual trust, due to lack of cooperation among actors. Interaction may exist, but not to an extent that establishes dense local relations (Isaksen, 2001). The third kind of barrier is the ‘lock-in’ situation, which refers to regions that are locked into outdated technology, in which no new product innovations are being promoted and thus have become uncompetitive (Cooke, 1998). The barriers discussed above are also closely related to the region’s capacity to manage its innovation system, in terms of its financial capacity and in designing, developing and managing policies that underpin the mobilisation of resources for innovation (see Hassink, 1996; Cooke et al., 1997; 1998; Cooke, 2001).


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Regional capacity to govern As Cooke et al. (1997, 481) argue: ‘the greater the degree of the regional government’s financial jurisdiction and bank control in the regional area, the more regionalisable financing of innovation could be’. This would have implications for the autonomy of a regional government in carrying out its policy goals according to its specific economic requirements. In addition, the capability of a region to mobilise resources for innovation-related activities also depends upon the availability of its budget, as well as its autonomy. A low-budget regional government will therefore have less room to plan and set actions for promoting its own resources. In a situation like this, when a regional government seeks funding beyond its jurisdiction (for example, from a central government fund), the terms of such decentralised funding and its degree of spending autonomy would influence the formulation of its own spending policy. The more a regional government has the autonomy to spend, the greater will be its freedom and its capacity to boost its planned regional innovation activity. Opportunities to manipulate such activities are even greater if regions have the authority to impose tax through public spending and the fiscal system (Hassink, 1996; Cooke et al., 1997). Policy approach for addressing regional knowledge demand The intervention of nation-states, in terms of resources for technological development, is important. This rationale follows the subsidiarity principle that applies to the intervention role of the next higher level of government, if the lower government in the federalism system is not capable of providing such resources (Koschatzky, 2005). This principle is not simply that the higher level of government has the right to intervene, rather that it has the duty to do so. In this respect, it is about relationships between the two levels of government in a federal system. In response to these, the policy approach that always gets adopted by the nation-state is the regionalisation of science and technology (S&T) infrastructure, such as universities and public R&D bodies, and also the provision of grants for S&T promotion. The role of policy is significant in establishing a framework for promoting knowledge development processes by providing conditions for supporting synergy among those involved (Diez, 2001; Hassink, 2001). Public governance of the innovation support system Effective governance emphasises the modes of interdependence among institutions and actors that are involved in collective actions, that is, they are more of a heterarchy than a hierarchy (Stoker, 1998). They are seen to be operationally autonomous, but due to their mutual interdependence on resources, they are actually structurally coupled (Jessop, 1998). In this sense, as Benz and Furst (2002, 24) suggest: ‘learning


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must therefore be combined with a process of collective (political) action that relocates resources or changes institutional structures’. This would suggest that the issue of coordination among such actors is important to address (Howells, 2005; Nischalke and Schöllmann, 2005; Tödtling and Trippl, 2005). The purpose of coordination is to ensure that actors are working together or working in harmony and aiming to achieve certain outcomes (Wilson and Souitaris, 2002). Since actors depend on limited resources (for example, funds) for their activities, coordination is also meant to manage such interdependencies. The coordination issue also surfaces when actors are not communicating with each other, resulting in a redundancy of activities (for example, different actors provide similar programmes to a similar target group). The concern here is the optimisation of the usage of such activities, so it can be expanded more widely. Coordination also matters when actors have conflicting goals arising from different purposes, which are guided by the policy of their establishment to which they belong (see Malone and Crowston, 1994; Peters, 1998). In the top-down (or dirigiste) approach, the central government plays a dominant role in this type of governance through coordinating, funding and driving regional innovation and R&D activities (Hassink, 2001; Cooke et al., 2002). One of the important reasons that nation-states adopt a centralised type of control over societal resources can be attributed to the relationship between economic growth and state power (Tsai, 1999; Drezner, 2001). This relationship motivates states to strive for a better position by becoming leaders in certain technological competencies, in order to stay competitive in the international arena (Thomson, 1990). For latecomers in economic development, centralisation assumes primacy, since the regions lack the capacity to fund and implement development policies, as exemplified by Japan during its era of catching up (Drezner, 2001). As innovation initiatives are derived from the central government, the regional governance of the innovation system is analogous to the ‘dirigiste’ concept (Cooke, 1998; Hassink, 2001). The top-down approach has been heavily criticised for its inability to perform as RIS, and it is labelled as the biggest obstacle to achieving regional development goals (Bass, 1997). The integration between national and regional agencies in the process of implementing innovation-related initiatives tends to be introverted. For instance, in his study on Korea’s regions, Hassink (2001) discovered that cooperation was low among agencies and between agencies and local firms. Although coordination appears to be potentially high (because of the ability of the central government to guide and plan), in reality, it is often weak (Hassink, 2001). He notes that a lack of coordination and interaction between national and regional governments has resulted in fragmented and overlapping functions. Similarly, Abe (1998) observes that the low numbers of linkages between branch subsidiaries and local firms in the Japanese Technopolis Plan are due to their strong vertical links with their central management. It has also been observed by Bass (1997) that coordination is hindered at the


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regional level, due to vertical administration at national ministerial levels in Japan. The deployment of resources to the regions has therefore been affected, because of lack of cooperation at the regional level. The top-down approach has also been found to be irresponsive to regional economic demand (Hassink, 2001; Abe, 1998). In short, given such an introverted orientation, the regionalisation of support structures, from the national level down, does very little to expose the regions to a learning mode. Institutional thickness is not really a prerequisite, but the organisation and coordination of such dense institutions is important for fostering endogenous learning (Abe, 1998; Howells, 1999). On the contrary, the bottom-up (or grassroots approach) is regionally initiated. The core argument underlying this approach is that regional competitiveness and economic development are best enhanced if regional actors are given greater policy autonomy (Hassink, 2001). Such regional policy initiation and implementation will stimulate localised learning processes, which geographical, social and cultural proximity can help to reinforce (Asheim and Isaksen, 2002). The interrelationships between the actors can be termed as extroverted and territorially embedded, since technological adaptation and learning take place in a territorial context (see Storper, 1995). This kind of model is therefore more responsive to region-specific economic demands. However, it would seem that a bottom-up approach is useful for realising localised learning, only if decentralisation is allowed by the central government (Kee, 2005). Here, decentralisation is seen as a movement of power from the centre to the periphery (Brown, 1990).

Research methods A qualitative case study research methodology was used to examine the phenomena. A less developed region – namely, the state of Sabah – was selected as the case study of this study. The selection of the region was driven by the intention of this study to achieve theoretical and lateral replication, particularly in the context of less developed regions in developing countries. Data was collected using a combination of techniques, such as semi-structured interviews and secondary sources of data, including documentation and archival searches. This information was gathered from a purposeful sample (Miles and Huberman, 1994; Patton, 2002) of regional and national policymakers, public technological skill-support organisations, public research organisations, public universities and public financial institutions (Cooke, 2001). A total of 38 in-depth interviews were conducted by the first author with the senior executives of national and regional public support agencies, universities, public finance institutions, policymakers and industry practitioners in the selected region (the state of Sabah) during the period of 2007 to 2008. In general, this paper tries to answer the main research question: Why, and how, does the RISS impact upon the regional knowledge-based building process? To drive the study, as well as guiding the exploration of


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Table 1 Types of data gathered from interviews and documentations Data objectives

Type of data by methodological sources Interviews

Documentations/archivals

To examine support system nature of function

The organisation of support agencies Nature and functioning of support organisations Funding orientation Research orientation Technological support orientation

Objectives of establishment Organisation’s mission Budget allocation/expenditure for technological development annually List of R&D projects undertaken List of programmes/activities being implemented

To examine interorganisational relationship

Nature of actors’ cooperation in regions Content of relationship Strength of relationship

Number of joint-projects undertaken annually Establishment of formal Working Group/ committee Budget allocation/expenditure for supporting inter-agency cooperation Number of conventions organised annually Existence of regional/national organisational structures devoted to networking efforts

To examine inter-organisational coordination

Overlapping of tasks Inter-organisations competition The process in initiating programmes/ projects related to regions’ knowledge base development

Content of programme Objective of programme Establishment of formal Working Group/ committee for programmes/projects formulation

Source: Authors

this research question, three key research issues have been developed: (1) how does support, in terms of functions and resources for innovation of the RISS, impact on building the regional industrial knowledge base?; (2) how does RISS synergy, in term of its intra- and inter-relationships and their coordination, impact on building the regional industrial knowledge base?; (3) what are the factors that impact on the orientation of support and synergy of the RISS at the regional level? The specific type of data that was gathered from interviews and documentation is presented in Table 1.

Overview of R&D and NIS in Malaysia Malaysia’s science, technology and innovation institutional framework is of relatively recent origin. A number of research institutions were established in the early part of the last century to support the country’s interest in tropical medicine, rubber and timber. Over the years, more R&D institutions followed, particularly focusing on agricultural activities, in tandem with the nation’s development priorities. In recent times, institutions focusing on the development of information and communication technologies and biotechnology were established, so as to ensure that the country is


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well prepared to utilise these technologies. The national gross expenditure on R&D (GERD) has shown a steady increase since 1996. From RM 549.3 million in 1996, it grew more than six-fold to reach RM 3.65 billion in 2006 (MASTIC, 2009). Most of the R&D expenditure was accounted for by states on the peninsular of Malaysia, where most of the manufacturing industries are located. The R&D expenditure in Sabah accounted for only 1.6 per cent of the total national R&D expenditure in 2006 (Day and Muhammad, 2011). The national research intensity (i.e. the GERD/GDP ratio) is still low at 0.64 in 2006 (MASTIC, 2009). As in other spheres of administration, management of R&D in Malaysia is highly centralised. The government has launched a number of initiatives, policies and programmes over the past two decades to strengthen Malaysia’s capabilities in science, technology and innovation. Despite these initiatives, Malaysia’s R&D intensity, as mentioned earlier, remains low, and the number of researchers per 10,000 labour force is small (17.9 in 2006) when compared to countries such as Korea, Taiwan and Singapore (MASTIC, 2009). Although a national innovation model was launched in 2007, linkages between industry and public research institutions, including universities, continue to remain poor, despite government efforts to promote them. Such a poor state can be attributed to reluctance by industries to engage with the public bodies in areas that are deemed proprietary by them. Such weak linkages are even more pronounced in states such as Sabah, where manufacturing is not the leading sector.

The regionalised national innovation infrastructure interactions – a case study of Sabah A case study was carried out in one of the states in Malaysia – namely, Sabah. The selection of the region was based on its status as a less-developed region in the country. Data for this study was collected by in-depth interviews with various relevant actors at regional and national levels, as well as secondary sources of data. To examine the impact of innovation support systems on regional knowledge base building, three aspects of the public governance of the innovation system found in the literature were employed, namely, support system orientation, inter- and intra-institutional relationships and cooperation and coordination of innovation support initiatives at the regional level. A brief on Sabah’s industrial profile and innovation support infrastructure is presented next.

Sabah’s industrial profile Sabah gained its independence from British colonial rule with the formation of Malaysia in 1963. With a population of about 2.5 million on 73,997 square kilometres of land, it is divided into five administrative divisions. The West Coast division


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consists of Kota Kinabalu (the state capital), Ranau, Kota Belud Tuaran, Penampang and Papar; the interior division comprises Beaufort, Kuala Penyu, Sipitang, Tenom, Nabawan, Keningau and Tambunan; the Kudat division consists of Kudat, Kota Marudu and Pitas; the Sandakan division comprises Sandakan, Kinabatangan and Beluran; and the Tawau division comprises Tawau, Lahad Datu, Kunak and Semporna. The population density of the state of Sabah was only 4.4 people per square kilometres in 2010. This made Sabah one of the lowest densely populated regions among all of the states of Malaysia. Primary sectors (such as the agriculture, mining and quarrying sectors) dominate the state’s economic profile. Sabah is the largest producer of cocoa and palm oil in the country. The manufacturing sector’s contribution to the nation’s GDP was only about 1.7 per cent in 2010 (see Table 2). In terms of industrial activities, Sabah’s manufacturing sector is characterised by four subsectors, namely wood and wood products, food, furniture and fixtures and basic and fabricated metal products. The region’s industrial activities are predominantly upstream, rather than downstream, and exported products are mostly either in crude Table 2 Selected demographic and regional economic data for Sabah, 2010 Demographic and regional economic Population (million)

[1]

Geographical size (square kilometres)[1] Population density (per square kilometres)[1]

Sabah 3.21 73,631 44

GDP growth 2008–2010 (%)[2]

2.4

Share of country’s GDP (%)[2]

5.6

Sectoral share of the country (%)[2] Agriculture

17.9

Mining & quarrying

13.6

Manufacturing

1.7

Construction

2.8

Services

5.1

% Distribution of economic activity in the state [2] Agriculture

22.9

Mining & quarrying

16.9

Manufacturing Construction Services

7.9 1.4 50.4

Import duties

0.5

Share of country’s GDP (%)[2]

5.6

Source:


DOS (2011a) DOS (2011b)

[1] [2]

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Table 3 Sabah’s innovation support profile Innovation support infrastructure

Main activity

Main regionally devised support organisations

Science & Technology Unit

• Public awareness programmes • Biological conservation programme

Forestry Research Institute

• Forest R&D

Department of Environmental Conservation

• Enforcement • Awareness programme

Wildlife Department

• Enforcement • Research

Department of Fishery

• Marine and resource research • Aquaculture and industry research

Department of Agriculture

• Research and technological development

Sabah’s Skill Training Centre

• Industrial skill training

Human Resource Development Department

• Skill development

Universiti Malaysia Sabah

• Fundamental research • Science promotion • Academic

Universiti Teknologi MARA

• Academic

Malaysia Cocoa Board

• Cocoa R&D

Malaysia Palm Oil Board

• Palm oil R&D

Standards and Industrial Research Institute of Malaysia

• Industrial technological support • Entrepreneurial support

Malaysia Agricultural Research & Development Institute

• Agricultural-based technological support • Entrepreneurial support

Malaysia Timber Industrial Board

• Timber industry technological support

National Productivity Corporation

• Entrepreneurial support

Industrial Training Institute

• Engineering-based training

Institut Kemahiran MARA

• Industrial technical training

Polytechnic

• Industrial technical training

SME Corporation

• Financial support

SME Bank

• Financial support

Main nationally devised support organisations

Source: Authors


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form or simple manufactured products (such as palm oil, crude petroleum, plywood and plain and sawn timber). Sabah’s industrial profile is also dominated by SMEs. The state’s industrial profile is dominated by small and medium enterprises (SMEs), which accounts for about 65 per cent of the total manufacturing projects. The contribution to employment by SMEs is only 36 per cent, as compared to 64 per cent by the larger scale industries (Abdullah, 2003). In terms of patterns of investment, it very much relied on domestic investment, as the foreign investment share was only within the range of 1 to 8 per cent throughout the period of 2000 to 2006 (Abdul Fatah, 2008). Sabah’s industrialisation process can be seen in its effort to create industrial agglomeration in specific locations. The best example is the establishment of the Kota Kinabalu industrial park (KKIP).

Sabah’s innovation support infrastructure Table 3 lists the main actors that support Sabah’s innovation activity. This support is initiated by either the federal government of Malaysian (nationally initiated) or the state government of Sabah (regionally initiated). In general, national-based organisations dominate the support framework in three important areas, namely, R&D in cocoa and palm oil; technological support and human resources development; and entrepreneurial development and finance. On the other hand, the regional-based support initiatives are limited to areas such as environmental-related activity, agriculture-based research and industrial-skill training. Each of the regionalised support organisations are introduced by different ministries of the central government. Drawing upon the framework as illustrated in Figure 1, the RISS in Sabah can be consolidated into the following three categories: (1) General information – the support for general information, such as matters concerning commerce and industry, are confined to member-based industrial organisations. This kind of support is mainly given by regionally based business associations, such as the Federation of Sabah Manufacturers, the Sabah Timber Industries Association, the Sabah United Chinese Chamber of Commerce, the Sabah Bumiputra Chamber of Commerce and the Kota Kinabalu Chinese Chamber of Commerce and Industry. As member-based organisations, their roles are mainly to collect and disseminate information to members, such as issues related to rules and procedures when doing business, as imposed by the government. (2) Technological support – there are limited regional organisations that play a significant role in providing technological support for innovation activities in Sabah, namely, the Sabah Skills and Technology Centre, the Technical Training Institute and Commerce of the Human Resource Development Department and the SEDCOVEST Holdings Sdn. Bhd. The Sabah Skills and Technology Centre provide technological skill support through its range of training courses to the


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industry. As for financial support, although there are two major regional-based financing institutions available in Sabah, namely, the Sabah Credit Corporation and the Sabah Development Bank, their businesses are mainly in the areas of personal loans and loans for hire purchase, housing and projects. Project loans primarily cover housing estates and shop and house development, upstream agricultural-based businesses, setting-up of light industrial businesses, such as auto repair workshops, sawmills, printing presses and boatyards, and also professional firms. (3) Research support – research activities are carried out by three major organisations, that is, the Forestry Research Centre, the Department of Agriculture Sabah and the Department of Fisheries Sabah. The Forestry Research Institute’s main activity is research in support of sustainable forest management in Sabah. However, out of its 53 research programmes, there are almost none that could be related to industrial wood-based technology development. The Departments of Fisheries and Agriculture are under the purview of the Ministry of Agriculture and AgroBased Industry. One of the main characteristics of these initiatives at the regional level is that their research is more focused towards supporting the upstream activities of the industries.

The non-industrial nature of RISS interactions The focus of interactions among RISS in the region under study (that is, Sabah) is more towards non-industrial R&D. Interactions such as those in the areas of environmental assessment for big firms, biological conservation research, dissemination of information and technical advisory services and organising courses were more evident. The study did not find evidence of collaboration among actors of the RISS that was directed towards specific industrial development in that region. Interactions were limited to providing placements for students for practical purposes and also for upstream agricultural biotechnology. Even though there were some collaborations on product development (for example, in regards to cocoa), such interactions were undertaken on an ad hoc basis. The analysis of interactions between RISS and other national or regional support organisations did not indicate any initiative towards generating knowledge for industrial development in that region. In this regard, there were no projects or programmes initiated either by national or regional R&D organisations specifically formulated for industrial development. There were some indications of linkages established between such actors in the form of meetings. Such linkages, however, were primarily used as avenues for discussing the organisation of seminars, conferences, road-shows and the like and for discussing programmes requested by regional actors for their upstream agriculture development programmes.


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Two types of categorisation – ‘introvert’ and ‘extrovert’ – can be used to describe the orientation of the interactions of the RISS. The regional universities’ interactions can be described as being an ‘introvert-type’ as the interactions were mainly for gaining knowledge meant for enhancing the organisation’s competency in academic matters. However, the regional universities failed to play their expected leadership roles as knowledge providers in that region, which could have provided them with extensive feedback on their academic programmes. As for the other actors in the RISS, their orientation can be described as ‘extrovert’, as their missions were specifically to provide support for industrial development through linkages with relevant regional actors. However, further analysis revealed that these linkages were focused more on upstream agriculture activities. The findings revealed that such a non-industrial focus of the R&D organisations was strongly influenced by regional factors and was also due to the way in which the R&D organisations were governed at the centre.

Intra- and inter-relationships The data analysis revealed that such intra-relationships were almost non-existent. If there were any intra-relationships, they were limited to certain categories of support that can be characterised as weak, uncoordinated and less technologically oriented. Table 2 shows that although the national system demonstrated some intra-relationships, they were primarily concentrated on non-technological related knowledge development issues. The data from the interviews did not provide strong indications that industrial technological-related issues were the main focus of such relationships. No projects or programmes that were jointly initiated or formulated for industrial developments were found during the data collection phase. Nonetheless, there was some indication of relationships in relation to capacity building. Although it was not meant for regional industrial technological development per se, this could benefit the industry to a certain extent, in terms of the effective flow of knowledge, due to the improvement of the delivery system of the national system. The analysis found that individual organisations did not communicate to each other in terms of the rationalisation of support programmes. Similar support initiatives and programmes, especially in technological skill support, were limited. Although overlapping was considered good by one of the senior officers of the training providers (as some of the courses were popular among applicants and could not be fulfilled by a single institution), it could be anticipated that the region’s limited job market for engineering-based industries would not be able to absorb excessive supply. Therefore, support was wasted towards supplying skills that were insignificant for regional economic demands. Although there was some communication between the training providers, this was limited to discussing the similar issues they were facing,


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such as linkages with industries, but they did not exchange information about the programmes they were duplicating. According to some training providers, the issue of task duplication was not their concern (as they were only implementing), rather, it was the responsibility of their respective central offices. In terms of inter-relationships, inter-relationships were more evident in the case study of Sabah. However, such relationships were also characterised as weak, uncoordinated and less industrially technological types of orientation. Inter-relationships were mostly focused on issues pertaining to environmental research and the assistance of regional organisations in running programmes on agricultural upstream development. The national system was also involved in the co-organising of events, such as road shows, promoting support programmes to the public and industries. Nevertheless, some evidence was found relating indirectly to technological development which related to organisational capacity building, as some of the regional managers and senior officers of national support organisations stated: ‘… we are here to provide support … in terms of technology’; ‘… they [regional organisations] don’t have enough staff to train a new technique and technology … so they will invite [the national support organisation]’; ‘… they [the regional organisation] will collaborate with us to train their manpower’. Although inter-relationships were more evident than intra-relationships, such relationships were weak and uncoordinated. Mostly, the relationships were established on ad hoc basis, which was largely based on need, as a regional manager of a national support organisation stated: ‘A permanent committee to look for projects, at the moment none … just ad-hoc … they will only summon when new projects are launched … so there was no dialogue’. Another regional manager of a national support organisation responded, when asked during an interview on how a joint programme was handled: ‘ad hoc basis … we create a special committee to run the programme’. He further added: ‘It would mean every collaboration with agencies we have one platform [committee]’. Also, relationships were also mostly informal, as a regional manager of a national support organisation responded: ‘none formal collaboration so far … we haven’t started collaboration’. Coordination was also problematic between the national and regional systems. Such coordination problems were more evident in the technological support stage, where several national agencies were found. In response to a question pertaining to this issue, a regional manager of the national agencies lamented: ‘the [regional ministry] also doing the entrepreneur development, then we set up a committee on entrepreneur development under the [another regional ministry]. Then, under [a regional agency] also plays a role for entrepreneur development’. He further added: ‘I don’t see anybody that coordinate … that really a coordinator’. With regards to this issue, a regional manager of a national support organisation said: ‘… there was no synergy …’. Such a lack of coordination between regional agencies and national agencies was also


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Table 4 Main features of intra- and inter-relationships of innovation support systems in Sabah Observed phenomena

Intra-relationships

Inter-relationships

Orientation

• Most of the researchers focused on agricultural-related issues, such as upstream biotechnology • Organisations were also providing places on industrial training for students • They participated in organising events for promoting individual • agency’s support programmes to the public • There were discussions pertaining to tackling problems, such as how to improve industrial relations • Organisations provided assistance in capacity building on service delivery to industries

• Most of the researchers focused on agricultural-related issues, such as environment, marine and forestry • They provided advice on agricultural upstream • They participated in organising events for promoting individual agency’s support programmes to the public • They provided assistance in enhancing organisational capacity in human resources development of regional support organisations

Strength

• Less collaborations were taking place • Collaborations were mostly informal • Networks were mostly handled on an ad hoc basis

• Less collaborations were taking place • Collaborations were mostly informal • Networks were mostly handled on ad hoc basis • They were dependent on requests for support from the regional government

Coordination

• Performing quite similar technological skill support programmes • No communication pertaining to the formulation of support programmes among support organisations • Performing quite similar tasks • Resources for support activities were not shared among support organisations • Conducting a similar programme at the same time

• The organisations were providing quite similar technological skill support programmes • There were no communications • pertaining to the formulation of support programmes among support organisations • There were several organisations performing quite similar tasks • Some organisations were doing similar courses in entrepreneur development • There was an isolated example of sharing resources

Source: Authors

indicated by another manager of a national agency: ‘we need a special committee for developing Sabah’s agro-based industry. Departments that can offer input for example on technology, on marketing and on grants, so we can discuss issues on the spot’. The coordination problem was also obvious among R&D organisations. Even though this observation is related to non-industrial R&D interactions, it might have policy implications for industrial R&D interaction in the future. The findings revealed


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the individualist behaviour of R&D organisations in the region, as lamented by a regional manager of a national research institute: ‘The main problem I observed among research institutes is that they don’t share with other research institutes. So, it’s a bit difficult for this country to expand its R&D to a higher level due to the individualistic behaviour of research institutes’. Different organisational missions and research objectives also contributed to this, as a regional manager of a national research institute asserted: ‘Among the reasons for less interaction is that they [research organisations] have different goals and objectives’. The findings of the intra- and inter-relationships of the RNISS in Sabah are summarised in Table 4.

Inflexible orientation There were six national organisations that could be categorised under the R&D infrastructure (see Table 3). Industrial R&D was not their main activity. When asked about why the organisation did not focus on industrial R&D, the reason given was that their mission was not just to serve the specific regional interests, but national interests as well. The universities stated that their mission was not explicitly aimed at supporting specific sectors of the economy, but more towards achieving academic excellence. Addressing the needs or problems of the local industry was not part of their agenda. Instead, the staff members were preoccupied with teaching duties and had little or no connection with related industries. The lack of attention paid to building linkages with industry through formal R&D activities has clearly undermined the region’s capability to support its industrialisation initiatives, because most of the resources, such as researchers and research funds, were geared towards agricultural-based R&D. While there were three major regional R&D organisations, namely, the Agriculture Department, the Fisheries Department and the Forestry Department, the analysis on each of the organisations official websites and responses from interviews showed that they were undertaking upstream R&D, rather than more application-driven downstream research. By concentrating on this area of R&D, this study observed that regional R&D organisations have limited technological capabilities to participate in, or perform, industrial R&D. Besides the absence of industrial R&D organisations, another conspicuous feature of the RISS organisations in Sabah is their ‘go it alone’ stance. Many projects in these research organisations were undertaken individually, without any collaboration with other actors in the innovation system. Different organisational missions and research objectives have contributed to this lack of cooperation. Even though this observation was related to non-industrial R&D interactions, it might have policy implications for industrial R&D interactions in the future. The findings also revealed that the SMEs’ perceptions about the roles and functions of the RISS organisations have hampered


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their interactions with these organisations. They perceived that the R&D functions of the RISS organisations did not suit their needs, thus negatively impacting on their interest to interact. It could be inferred that such interactions could have been boosted, if the roles and functions of such RISS organisations were effectively being promoted. The findings revealed that little was done by the research organisations themselves to disseminate their services to potential clients. In general, the region’s industrial base is weak, as indicated by its low manufacturing sector contribution to GDP (see earlier discussion) and the predominance of primary products in its export composition (Institute for Development Studies, 2005). The weak industrial profile of the state has, to a large extent, influenced the RISS to become non-industrial in focus. Closely related to this situation was the firms’ lack of resources, such as human capital and financial strength, which have reduced their capabilities to adopt new technologies, thereby further hampering their interactions with the R&D organisations. The absence of regional players in industrial R&D underscores the need for a regional S&T policy to steer, among others, the development of industrial R&D priority areas for that region. In the absence of a regional S&T policy, there was no driving factor from regional players to RISS organisations for engaging in industrial R&D activities. Given the region’s focus on the primary sector, the national policy strategy followed accordingly – that is, support for regional development that was based on the region’s resources and economic activity, as described in Malaysia’s Third Outline Perspective Plan, 2001–2010 (Economic Planning Unit, 2001). Thus, it can be concluded that the non-industrial orientation of R&D organisations was a consequence of the regionalisation of the central government’s development support policy. The above findings suggest that efforts to strengthen industrial activities in the region will have to address a number of deficiencies, including the weak capabilities of the existing firms; the poor orientation of the regionalised research organisations; the absence of regional policy on science, technology and innovation; and weak institutional coordination at the regional level. These deficiencies cannot go unattended if the region harbours any ambition of improving its industrial base. The final section of this paper provides some directions as to how such a poor state of affairs can be improved.

Discussion and policy implications Dynamic interactions among the various actors in the region are crucial for knowledge development, accumulation and diffusion of technological capabilities. A RIS is a vital policy tool for improving regional competitiveness by facilitating knowledge flow to regional firms for their innovation-related activities. This knowledge flow is enhanced through embeddedness of the key knowledge-generating and deployment


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institutions at the regional level. Such embeddedness was absent in the region under study, as the operations of the regional research organisations were defined by objectives established at the national level. Also, the effectiveness of an RIS would vary according to the level of regional-state political autonomy, as well as the underlying socio-economic profile and resource endowments of the organisations. Malaysia’s NIS is essentially top-down in orientation. The RIS in the region under study was almost non-existent in the case of industrial technology, as the regionalised research organisations had almost negligible linkages with local industry. Given their national focus, the regionalised research organisations failed to contribute to the development of local absorptive capabilities in industrial technology among the local firms. Such a situation substantiates Lall’s (2000) argument that technological capability of a nation (or region) depends on the inter-relationships between the elements that comprise the innovation system. Unless this deficiency of weak linkages is addressed, the manufacturing sector in Sabah will continue to be in the doldrums. In short, the weak interactions in the region under study are a consequence of a number of factors, including, among others, the region’s weak industrial base; the weak knowledge competency of the local industry; the absence of a coherent regional policy; the rigid orientation of the regional research organisations; and the weak customer focus of the regionalised organisations. Drawing upon the main findings discussed above, this paper raises a number of managerial and policy implications, as follows: (1) policy learning – in a multi-governance environment that pervades an innovation system, policy-making is no longer the purview of the elite at the national level. Instead, it requires cross-national attention. The process of policy-making should be seen as a dynamic process – that is, interactive and iterative between actors from various groups at both national and regional levels – in order to have an adaptable and accountable innovation policy. Such policy learning should ensure that particular needs of the regions be addressed and that a ‘one size fits all’ innovation policy is not only inadequate, but ineffective; (2) institutional autonomy – the RISS organisations that were examined in this case study were driven by centrally formulated missions for satisfying national interest. Some of the nationally defined activities of these organisations may not be compatible with the region’s requirements. Accordingly, it becomes important for the RISS organisations to be empowered with a certain degree of autonomy in designing their activities to address regional needs. By doing so, the RISS organisations would become more embedded in the regions that they were operating within and help to promote a vibrant innovation ecosystem; and (3) horizontal coordination – the case study underscores the importance of having an institutional mechanism with the authority and competency to drive the regional innovation agenda. Such an institution would help to nurture and coordinate coordination issues at a regional level, thereby enhancing interactions and knowledge flow among the various actors in the region. The absence


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of such an institution in the case study has contributed towards an almost non-existent regional innovation system. It is important to remember that successful innovation is not the product of R&D alone, but requires the interplay of other complementary elements of the system, including training, financing, innovation support and production. These elements alone would not necessarily guarantee the effectiveness of such a regional innovation system. Instead, as argued throughout this paper, the inter-relationships between the various elements in the system engaged in producing, diffusing and utilising knowledge is vital to a well-functioning regional innovation system. Such inter-relationships do not happen by chance. Instead, they must be made to happen. And making them happen requires innovations in policy-making itself.

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