In the responding sample, the share of innovative firms is in two industries considered medium-low technology industries – the manufacture of plastic products (not elsewhere). Manufacture of leather, leather products, leather and fur substitutes, excluding shoes and wearing clothing In terms of the distribution of innovative companies by industry, the manufacture of fabricated metal products, machinery and equipment had the largest number of innovative companies ( 86 companies or 39.6% of the innovative companies).

Based on the 3-digit industrial classification, of the 86 innovative companies in the manufactured metal products, machinery and equipment industry, 38 companies were in the manufacture of electrical machinery, apparatus, appliances and supplies (Table 4.2).

FIGURE 3.3: INCIDENCE OF INNOVATION AMONGST THE MANUFACTURING SURVEY SAMPLE RESPONDENTS

Technological Innovation in the Manufacturing Sector

Introduction

This is due to the medium to high and high technology nature of the industry, which includes the production of metal products, machinery, electrical machinery, apparatus, devices and supplies, transport equipment, professional and scientific, measuring and control equipment. 20 331 Processing of wood and wood and cork products, except furniture; production of products from straw and knitting materials. 322: Manufacture of clothing, except footwear 323: Manufacture of leather, leather products and substitutes 331: Manufacture of wood, wood products and cork.

332: Manufacture of furniture and accessories 341: Manufacture of paper and paper products 342: Printing, publishing and related industries 351: Manufacture of industrial chemicals. 351: Manufacture of Industrial Chemicals 354: Manufacture of Miscellaneous Petroleum and Coal Products 355: Manufacture of Rubber Products 356: Manufacture of Plastic Products, Ng Subtotal. 381: Manufacture of fabricated metal products, Machinery 382: Manufacture of Machinery Other than Electrical 383: Manufacture of Electrical, Machinery, Apparatus, Appliances and Supplies.

351: Manufacture of industrial chemicals 354: Manufacture of various products from petroleum and coal 355: Manufacture of rubber products 356: Manufacture of plastic products, Nec 369: Manufacture of non-metallic mineral products. 383: Manufacture of electrical machines, appliances, equipment and supplies. 384: Manufacture of transportation equipment. 385: Manufacture of professional, scientific, measuring and control equipment.

FIGURE 4.2 INNOVATING COMPANIES BY EMPLOYMENT SIZE, TURNOVER, OWNERSHIP STRUCTURE, AND AGE

Profile of Innovative Companies

Innovation: Patterns and Activities

The large companies with an employment size of 250 and more had the largest number of companies involved in simultaneous product and process innovations during the reference period (13). Among a list of several objectives, improving product quality was the most important objective for innovation activities. Another interesting observation regarding the innovation target is the importance placed on improving production flexibility (85 companies), which likely helps explain the number of process innovations undertaken by the industries.

The client or customer was the most important source of information for innovation, as indicated by just over half of the companies (118 companies). Consistent with the findings that most innovations occurred internally, sources within the company were the second most important source of information about innovation. Competitors, suppliers and other companies within the group as a source of information for innovation were reported by an almost equal number of companies (respectively 85, 62 and 57 companies) as very important.

In order to provide an insight into the innovation activities of companies in Malaysia, it is essential to examine the extent to which there is collaboration on innovation. Suppliers of equipment, materials, components or software were also important as partners for innovation, as indicated by 25 companies.

FIGURE 4.3: TYPOLOGY OF INNOVATION BY INDUSTRY, EMPLOYMENT SIZE, TURNOVER, AGE AND OWNERSHIP STRUCTURE

Resources Devoted to Innovation

In order to examine the role of government policy in inducing innovation in the manufacturing sector, various types of government support and assistance are included in the study. Research findings indicate that among the different types of support and incentives, duty-free importation of machinery was most commonly applied as reported by 88 companies (Figure 4.8). Commercialization of R&D funds was the least popular in which only 7 companies made use of it in the process of carrying out innovation.

Only 59 companies reported on the overall usefulness of various state supports and incentives. This suggests that the entire range or crowd of support should be re-examined to keep up with the competitive dynamics. In addition, the mechanism for providing incentives and assistance may need to be re-examined to increase its usefulness.

With growth strategies geared towards the knowledge economy, human capital requires more attention than it currently has.

Impact of Innovation

The industry with the highest percentage of innovation intensity was the textile, clothing and leather industry, in which an innovation intensity of 6.1% was observed. The highest intensity of innovation is followed by wood and wood products, including the furniture industry with a 3.8% innovation intensity. In terms of employment size, large firms with 250 or more employees had the lowest level of innovation intensity (1.23%).

It is surprising to find that the small firms had the highest level of innovation intensity of 3.6%. Contrary to expectations that SMEs are limited by financial, personnel-related or informational factors that are crucial for innovation to take place, the sample companies in this survey showed that the SMEs have a higher innovation intensity compared to the large ones. Regarding age, there is no clear pattern regarding innovation intensity and the age of companies although it appears that the newer companies had a higher innovation intensity compared to the more established firms.

The fully locally owned firms had a higher percentage of innovation intensity (2.3%) compared to the fully foreign owned firms which showed an intensity of 1.5%. Another approach to measuring innovativeness is through patent and industrial design applications and the number awarded under each category. The findings of the study show that the number of applications for both patents and industrial designs was low.

Ten companies had applied for a patent and seven companies were granted a patent. There were three companies that had applied for four or more patents and two companies had been granted the number applied for. For industrial design, only three companies had applied for an industrial design and two companies reported that they had awarded an industrial design.

Again, the time lag between application and approval may be the factor that explains the difference in the number of applications and approvals. Two companies had applied for four or more industrial designs and two companies reported that they had been granted the number they applied for. Measures of effectiveness and efficiency Another indicator of the impact of innovation is the use of measures of effectiveness and efficiency.

FIGURE 4.11: INNOVATION INTENSITY BY INDUSTRY, EMPLOYMENT SIZE, AGE AND OWNERSHIP STRUCTURE, 1999

Factors Hampering Innovation

22 342 Publishing, printing and reproduction of recorded media 23 354 Production of coke, petroleum derivatives and nuclear fuel 24 351 Production of chemicals and chemical products. 32 38321 Manufacture of radio, television and communication equipment and apparatus 33 385 Manufacture of medical, precision and optical instruments, watches and clocks 34 384 Manufacture of motor vehicles, trailers and semi-trailers.

Public Policies to Encourage Innovation

Introduction

Technological innovation is a key component of economic competitiveness in this era of globalization and rapid technological change. The economic fate of countries will depend heavily on the extent of technological innovation they can create and exploit for commercial activities. Therefore, there is a growing need for countries to monitor the state of their technological innovation compared to other countries around the world.

Benchmarking technological innovation offers policymakers the opportunity to assess the technological gap between their country and others. It provides the impetus and guidance for policies and actions that can be undertaken to address the current technology gap. This chapter presents a comparison between Malaysia and selected countries in terms of the level and pattern of technological innovation.

Data available for comparison are very limited in countries that have conducted innovation surveys in recent years. Data from other countries used for such comparisons are mainly taken from the Community Innovation Survey-Second (CIS-2) conducted by countries in the European Economic Area (EEA). As explained in Chapter 2 of this report, the methodology underlying the Malaysian National Innovation Survey (NIS) is very similar to that used in the CIS-2.