CHAPTER 8

DIGITAL ECONOMY
 LEARNING OUTCOMES

1. To describe the concept of digital economy

2. To identify the policies and problems
related to digital economy
3. To describe the concept and framework of
MSC
4. To analyze the various incentives to attract
foreign investment in MSC
to identify the flagship of MSC
 Introduction

• During the era of new millennium, all the

countries around the globe have started to
re-think a new model of economy to
stimulate their economic growth in order to
achieve competitive advantage in the
international market while improving the
socio-economic status and well being of
their citizens.

• The initial idea was started in the US in early

1990s under the theme of New Public
Management.
 Cont…

• Malaysia being the fast developing country

needs to sustain its growth and be part of
the competitive nations in international
trading and investment.

• Therefore the country launched various

policies and programs since early 1990s
under the premiership of Tun Dr Mahathir
and it was continued and by the next Prime
Minister.
 What is Digital Economy

• The convergence of telecommunications,

information technologies and electronic media has
made possible new forms of economic interaction

• The k-based economy also known as information

society. Malaysia is moving towards the k-economy
from production based economy (p-economy).

• K-economy leads to a rapid rate of economic

growth that enhance international competitiveness,
strengthen nation’s innovation that lead to the
creation of higher technology and development of
new products into the markets.
• There are no boundaries for any businesses and
they can be located anywhere around the globe.

• The Internet is the cause of the new economy.

• Organization are building more intangible assets

than tangible assets in this new era.

• The intangible assets are referred to as intellectual

capital (Industries that produce information and
knowledge products).
• The fact that you are using computer and technology in your
day to day life.

• Example: doing assignments, sending emails to friends, looking

for additional materials for lectures notes etc. – means you are
part of the digital economy.

• Knowledge based society – important and online economy

goes hand in hand for any countries that adopt new
economy via forces of electronic digital speed and the
explosive utilisation of knowledge.

• The advent of internet as an instrument of e-business help cost

cutting that is very much needed to conduct e-transactions.
 How The Digital Economy Benefited The
Economic Sector

• From production-based to knowledge-based, the

manufacturing sector will have to gear up to adjust
Manufacturing to the rapid change in technological advancement
Sector by improving its products through R & D and
enlarging the pool of knowledge workers.

• Service related activities are typically skill-based and

not investment intensive, they are ideal sources of
growth for countries with scarce capital and a large,
Services qualified workforce.
Sector • It is generally believed that in the k-economy, the
information-related industries and knowledge-
intensive industries will play a pivotal role
 The Importance of Digital Economy

1)Efficiency and Effectiveness: both efficiency and

effectiveness can be improved via use of knowledge
and ICT. It can increased the quality of products and
services.

2)Equity: the distribution of development benefits

throughout all the society.
3) Globalization – to be in the race of globalization,
no countries can escape from engaging itself into
the digital economy era.

• Globalization can creates no option to countries

but have to acquire and use of the latest
technology and knowledge and also can create a
competition with foreign companies / industries.

• Otherwise, the country will be out of the game and

as a result its people will suffer with the backward
development.
4)Widen the range of products – digital economy
opens up the global market and as a result, more
and more choices are created for consumers.

• In addition, producers are becoming more creative

and innovative in using their resources to produce
variety of goods and services.

• Eg. The palm oil and rubber is used by more

industries to produce a lot of varieties.
5)Building company surveillance – this is the outcome
of engaging in digital economy. By increasing the
global networking thru the use of knowledge and
ICT, countries not only becoming more competitive
but also building their surveillance against both
internal and external shocks.

6)Information Sector – knowledge and information has

become an important of production in the era of
digital economy. The new information can be
shared, modified, improved and used to enhance
the outcome and output produced.
 Malaysian K-economy: Who Plays The
Role?

• The role of public sector

• The role of private sector
• Knowledge workforce
• The role of public sector
- Creating vision and strategy to drive the forces of
the knowledge intensified economy, make available
research funds to promote and enable
entrepreneurs to produce goods and services for the
k-economy.

- Eg. Telecommunications: link up the clusters within

MSC

- ICT Strategic Plan Vision – Towards Quality Public

Service Delivery through use of ICT and Multimedia
• The role of private sector
• Universities - both public and private
universities play an important role as an
institution for higher learning.

• Bring the private sector into the nucleus of a

knowledge economy in terms of per capita
expenditure on ICT
 Knowledge workforce
• Multimedia Development Corporation (MDC)
define knowledge workers with at least five years
of professional experience in multimedia or IT and
possess a university degree or diploma.

• Knowledge workers must possess necessary

expertise and technical experience, the key
element to man operations and management of
start-up and MSCs.
- K-economy has created a growing need for
knowledge workers who will form the backbone of
the future.

- Knowledge workers are versatile, highly skilled and

are able to leverage and build knowledge to
produce useful action with very strong and analytical
skills. They are flexible, with a high tolerance of
ambiguity.

- Research and development (R&D) - Innovation is one

of the keys to success in a k-economy and it is R&D
that determines innovation – k-workers are needed
• Digital economy mostly deals with the ordering and
fulfillment of transactions by using computing
technologies. Example would be an economy where e-
commerce is heavy used like where people are able to
buy their groceries, clothes, and other things just through
online. Internet as a tools

• But in a knowledge based economy, knowledge or know-

how is the commodity. Most often, knowledge-based
economy are also digital already but it is not a
requirement. Example would be medical tourism (where
the best care is available at a certain city), education
tourism (the best education provided in certain2 country),
or where a city’s laborers are more sought after because
of their expertise compared to other laborers.
MULTIMEDIA SUPER
CORRIDOR
(MSC)
 WHAT IS MSC?

• MSC Malaysia is Malaysia’s national ICT initiative designed to attract

world-class technology companies while grooming the local ICT
industry.
• Fully supported by the Malaysian Government, MSC Malaysia has
led the nation’s transformation towards a K-Economy over the past
decade and a half. MSC Malaysia is your gateway to the ICT
industry in Malaysia and the region. (MSC Malaysia, 2015)
• Established in 1996 by Tun Dr Mahathir Mohamed
• Area covers 15 km wide and 50 km long which starts from the
Petronas twin towers, KL City Center (KLCC) down south to the site
of KL International Airport (KLIA)
• Is a gateway to growing profits in Asia’s booming information and
communications technology markets
• A long term strategic initiative (1996-2020)
• Involves partnership between the Government and the private
sector
• MSC Malaysia is for: ….changing the way we life and work….
• 15x50 km garden
corridor south of Kuala
Lumpur.

• Special bill of
guarantees, cyber
laws, policies and
practices tailored to
enable residents to
achieve the full
promise of multimedia.

• World-class physical
infrastructure and next-
generation 2.5-10
Gigabit multimedia
network
 Three Phases of the MSC
Phase 1 (1996 – 2003)

Phase 1 - Successfully create the MSC

vMDEC created the MSC - – One super corridor

vAttract a core group of world class companies
vLaunch seven flagship applications
vEstablish the framework of cyber laws
vEstablish Cyberjaya as the world first intelligent
city
Phase 2 (2003 – 2010)
Link MSC to other Cybercities in Malaysia & Worldwide.

vMDEC would link the MSC with other cyber cities in

Malaysia with the world
vCreate a web of corridors and establish more
clusters of world class companies
vSet global standards in flagship applications
vHarmonies cyber laws within the global society
Phase 3 (2010 – 2020)
MSC going global

vMalaysia will be transformed into a

knowledge-based society
vAll across Malaysia
vMore than 500 world class companies
 MSC Framework
To achieve Vision 2020, an integrated framework of MSC is
singled out. The framework consists of 3 great aspects:

1) Telecommunications &
Communications
• MSC need to be supported by high
capacity of network infrastructure that
integrated with the reliable logistic hub
(MSC and their trading partners)
2) Policies and Cyber Laws

• To provide a realistic regulatory framework of cyber

laws and intellectual property laws to facilitate the
development of IT and multimedia environment
• The Copyright Environment Act 1997, the Digital
Signature Act 1997, the Computer Crimes Act 1997,
the Telemedicine Act 1997, the Communication
and Multimedia Act 1998.
• Seventh Malaysia Plan (1996 – 2000) – investment to
ICT based high productivity economy, large scale
management, service sector development,
promotion of science and technology, promotion
of MSC development
• Eight Malaysia Plan (2001 – 2005) – promoting of ICT
and multimedia development, solving digital divide,
surviving in competitive market, ICT based higher
education, collaboration between universities
3) International eco-friendly environment and
lifestyles

• KLCC – multipurpose center; commercial,

recreational, entertainment
• KLIA – aerospace industry, regional and international
logistic hub
• PUTRAJAYA – federal government’s new
administration capital
• CYBERJAYA – hub of technology business
• Multimedia University (MMU)
• Modern transportation and highway systems
• Ports
• Electricity infrastructure
 8 FLAGSHIP APPLICATIONS

• To entice a cluster of world class companies to develop

leading edge applications, products and services in the
MSC area

1) Electronic government – MAMPU

2) Smart school – Ministry of Education
3) Telemedicine – Ministry of Health
4) Multi-purpose card – Ministry of Home Affairs
5) Research and development cluster – Ministry of Science,
Technology and Environment
6) Worldwide manufacturing webs – Ministry of International
Trade and Industry
7) Borderless marketing – Multimedia Development
corporation
8) Technopreneur Development Flagship - Entrepreneur
Development Programme
 MSC “Flagship” Applications

MSC Flagships
Multipurpose Card
E-Government Vision

Electronic Government
Smart Schools
“To transform
R&D Cluster administrative
process and service
delivery through the
Telehealth Technopreneur use of IT and
Development
multimedia”

To Leapfrog Malaysia
Borderless
E-Business Worldwide into the Information Age
Manufacturing Web
Marketing
Centre
 MSC MALAYSIA STATUS COMPANIES

• What is the MSC Malaysia Status? Well for one, it is

your passport to a host of privileges reserved for
ICT and ICT-facilitated business. It is also a mark of
world-class service and achievement.

• This status is awarded to both local and foreign

companies that develop or use multimedia
technologies to produce or enhance their
products and services, and for process
development.

• Eg. Intell, Anax global Sdn. Bhd, Asia Pacific

Digital Technologies – Infotech, Creative
multimedia
vEnd of chapter 8

vTq
 CURRENT ISSUES &
DEVELOPMENT
CHAPTER 9
 LEARNING OBJECTIVES

• By the end of Chapter 9, all of you should be

able to:
• Understand the rationale and objectives of
Privatization Policy in Malaysia
• Understand the rationale and benefits of
globalization to Malaysia
• Examine and assess the current issues
happened
 CURRENT ISSUES

• Alert with current issues that affects our economy,

society and nation
• Eg: COVID-19
• Economic crisis
• Health issues
 IMPACTS OF THE COVID-19 PANDEMIC TO THE
MALAYSIAN ECONOMY
i. High unemployment rate – 4.7% the highest (relate with
poverty) - Insufficient savings, Lack of social protection,
Income shock and sudden job loss due to the COVID-19
outbreak, Increased cost in basic goods and amenities –
continuous increase in the price of goods and services
(nothing is free).
ii. Depreciation in Malaysian Ringgit against USD
iii. Relative level of economic health is determined by the foreign
exchange rate - Weaker exchange rates will lead to cost-push
inflation as the cost of imported raw materials are rising
iv. Fall in the number of tourist arrivals in Malaysia
v. Negative impact to service sector (hotels, restaurants,
education, etc.)
vi. Crime issues increased – mental and depression among
society
• In 2019, the unemployment rate of Malaysia is 3.3%
which means there are 508,200 individuals
unemployed. The COVID-19 pandemic has seriously
impacted the Malaysian economy. This can be
shown by comparing the unemployment rate in
Malaysia.

• In January 2020, the unemployment rate is 3.2% but

there is a continuous increase in the unemployment
rate until May 2020 and it reaches 5.3% (826,000
individual).
• On the other hand, the relative level of economic health
can be determined by the foreign exchange rate. This is
because the foreign exchange rate plays a fundamental
role in a country’s level of trade.
• Malaysia’s exchange rate for March 2019 is RM4.08 in
exchange for 1 USD and it has depreciated to RM4.26 in
exchange for 1 USD in July 2020 - Weaker exchange rates
will lead to cost-push inflation as the cost of imported raw
materials are rising.
• This will impact almost all the sectors especially the
manufacturing sectors in Malaysia as most of the
machineries are imported from China and Japan.
• Its affects the purchasing power of Malaysian Ringgit as
more Malaysian Ringgit is required to exchange for the US
Dollars. This means that living standards of citizens in
Malaysia decrease due to lower purchasing power.
• One of the sectors in Malaysia that is severely impacted by the
COVID-19 pandemic is tourism sector.
• The tourism sector in Malaysia plays an important role in
boosting economic growth by promoting foreign spending on
goods and services in Malaysia. If the number of tourists
continuously decreases, some of the tourism industry will be
forced to shut down due to unbearable losses and unable to
pay workers’ salaries.
• At the same time, other non-essential sectors were also forced
to cease their operations during the MCO. For instance, the
economic activities in the manufacturing and construction
sectors were put on hold in order to control the spread of
COVID-19 in Malaysia.
• That is why financial support from the government to the
affected sectors is import
• Encouraging consumer spending on the local businesses - to
increase domestic support to local businesses – buy Malaysia
product campaign etc
PRIVATIZATION POLICY IN MALAYSIA

žThe concept of privatization started way back in

late 70s when many develop countries like US and
UK privatized their government own entities in order
to enhance the effectiveness and efficiency of
those organizations.

žDefined as the transfer of the public sector activities

and functions to the private sector
 DEFINITION OF PRIVATIZATION

• The transfer of the public sector activities and

functions to the private sector.

• It involves 3 essentials organization related

components: management responsibility, assets
and also personnel

• Malaysia first implemented privatization in 1983

• The first project being upgrading of public road into

a tolled road bypassing in town of Klang.
 OBJECTIVES OF PRIVATIZATION

žTo relieve the financial and administrative burden

of the government – government can save lot
money by privatizing sectors which are owned by
the government

žTo improve efficiency and increase productivity –

organization run by private sector is far more
efficient and effective compared with operated by
the government. This is due to the objectives of the
business profits vs welfare
 CONT…

žTo reduce the size and presence of the public

sector in the economy – this will give the
government the opportunities to concentrate on
the administration of the government and the
country

žTo help meet national development targets –

participation by both the government and private
sector will speed up the national development
targets and goals. Injection of more knowledge,
expertise, capital and technology will help to realize
this objective
 TYPES OF PRIVATIZATION

• By section – namely government sectors which are

services based that had been transferred to the
private sector. Example, Airod Co. Sdn. Bhd

• Trade oriented– whereby the government still holds

the company but the capital concepts are
privatized. Example, Tenaga Nasional Berhad.

• By choice – mainly the government sectors that are

partly privatized. Example, Port Klang Sdn. Bhd
 CONT…

• By contract – whereby the private sector would

prepare the services for the government. Example,
rubbish burning by DBKL

• By mortgage – where by the facilities provided by

the government would by rented by the private
sector. Example, Malaysia Airlines and TV3

• Foreign participation - Expertise needed, due to

nature of business requires global linkages
POLICY: THE PRIVATIZATION MASTER PLAN

• Was introduced in 1991

• To guide the implementation of the programs
• It has 5 main objectives
• It outlined several methods of privatization such as:
• Sale of equity, management contract, BOT, BOO,
BO, MBO
 FACTORS CONTRIBUTING TO A
SUCCESSFUL PRIVATIZATION
• Determination and commitment
• Need to change
• The spirit of Malaysia Incorporated
• Transparency
• Administrative Separation
• Two way Proposals
• Exclusive Negotiating rights
• Generous Initial Terms
• Sensitive to Public Response
• Vision 2020
• Tariffs and Regulatory Authorities
 GLOBALIZATION

• Globalization is defined as the process by which

businesses create value by leveraging their resources
and capabilities across borders and includes the
coordination of cross border manufacturing and
marketing strategies.

• Globalization - in its simplest form, means a more

connected world. Globalization is the movement
and integration of goods and people among
different countries. Globalization is driven by
international trade and aided by information
technology.
 ADVANTAGES

• Extension and expansion of markets

• Exploitation of resources overseas
• Taking advantage of economies of scale
• Acquiring economies of scope (joint venture &
collaboration)
• Divert resources from local to foreign markets
• Going overseas is a learning process- need to
rethink and relearn the strategies
 DRIVERS OF GLOBALIZATION

• Market drivers:
a. Common consumer needs- Coke, McDonald's,
KFC
b. Global channels- Carrefour ,Toys R Us,
c. Global branding - IBM , Toyota, Kodak
d. Lead Countries – US for soft wares, Japan for E & E
products
CONTINUE..

• Cost drivers-
• Economies of scale-
• Low cost production
• New product development cost

• Competitive drivers
a. To lead the market
b. To increase the quantity of production
c. To achieve economies of scope

• Government drivers
• IT and ICT
 PREPARING FOR GLOBALIZATION

• What the local industries and government should

do to prepare for globalization of our goods &
services?

• Organization – Corporate competencies

• Supply Chain restructuring
• Leadership and management capabilities
• Globalizing the corporate culture
 CHALLENGES

• The challenge of responsive to change –

develop, manage, predict
• The challenge of the scale of output required
– ss & dd, how to respond, compromise to the
output required.
• Technical capacity – information age, staffing
structure, skill required
• The problem of functional and geographical
coordination
• The challenge of taking account of the future
TRANSFORMATION OF THE ECONOMY

• Theory by Alvin Toffler: Trying to describe how

globalization takes place.
• Type of the Economy:
1) Agriculture
2) Industrial
3) Information
 AGRICULTURE

Inputs : Land, Labor, Capital

Process: Cultivation
Outputs: Crops
Innovation: Use of animal, mechanization
 INDUSTRIAL

• Inputs: Land, labor, capital, entrepreneur

• Process: Manufacturing, processing
• Outputs: Capital Assets, industries, physical products
• Innovation: Mechanization, research, specialization
 INFORMATION

• Inputs: Land, labor, capital, entrepreneur,

information, knowledge
• Process: Manipulation, Control
• Outputs: Knowledge products, k. Industries, k.
Capital
• Innovation: Informationalism, Virtual processes,
networks
 CONCLUSION

• Globalisation is the increasing connections between

places and people across the planet, established
through trade, politics and cultural exchanges, and
helped by technology and transport.

• Globalization is about the interconnectedness of

people and businesses across the world that
eventually leads to global cultural, political and
economic integration.
• Ends of chapters

• Good luck for your final test and hopefully we not

see each others in a same code – ADS504

• TQ so much…