By Rosalind Chua
* This article is taken from the March issue of “Penang Economic Monthly”, published by the Socio-economic and Environmental Institute (SERI), Penang, now out at all good bookshops and newsagents.
MARCH 3 – During the 1970s, Penang’s industrial sector helped transform the state’s economy, providing in the process a blueprint for Malaysia’s rapid industrialisation. Since then, industry and Penang have been intricately linked.
When the new state government took charge two years ago, observers expressed concern that politics and fragile federal-state relations would have an adverse effect on Penang’s ability to continue to attract investments.
In an interview with Penang Economic Monthly, Invest Penang’s executive committee chairman, Datuk Lee Kah Choon (pic), elaborates on the organisation’s growing role and how it now offers existing and potential investors value-added services.
Can you give us a brief overview of Invest Penang?
The main reason Invest Penang was set up was for industrial promotion. The Industrial Division of the Penang Development Corporation (PDC) used to be responsible for this. In 2004 PDC decided that it would not continue with that function anymore, and this led to the birth of Invest Penang.
Penang has a large industrial sector; therefore industrial promotion is a must. Someone has to do it! Industrial promotion requires a lot of financial support and Invest Penang is a cost-driven centre in the sense that our main objective is to attract people to come in, to invest in Penang so that the state will benefit.
Invest Penang is a not-for-profit entity of the state government. This is why funding for the organisation is so important. We cannot stop our work just because funding doesn’t come in. We need to run our administration. We also have to run our promotions arm which incurs relatively expensive costs; we have to bring investors out here to provide them valuable market exposure and encourage potential investors to invest in Penang.
Rain or shine, we have to do this. But of course we are working very hard to do more with less.We have cut down a lot on our expenditure, for example our travel expenses. We all travel on economy class flights now, rather than first or business class. That alone has made a huge difference, and instead of one trip we can now make two! In terms of accommodation we have also made some adjustments, and stay in three-star hotels; all we really need is a clean, safe place to stay. Luxury is not a consideration. Aside from internal cost-cutting measures we are also working on more collaboration with our international counterparts. For instance when we were promoting Penang in Hong Kong we worked with the Hong Kong Trade Office. We also work with private organisations like MNCs in Penang that have factories or offices worldwide, to see what we can do with them and for them.
In the last couple of years our scope has expanded significantly into the services sector. Why?
When we examined the economic structure of the state we saw that the ratio of services to manufacturing was 60:40. It is very important for Invest Penang to move into promoting the services sector and not just confine ourselves to industrial promotion. The Chief Minister is the chairman of Invest Penang and he drives us and gives us direction. The state has also set up two advisory panels – the Penang Industry Advisory Panel and the Penang Services Advisory Panel – which provide us feedback on how to move the Penang economy.
When you joined Invest Penang two years ago, what did you feel was the biggest challenge?
Internally, we had to get our direction right and at that time I felt we had to“flatten” the organisational structure. Before I joined there was a CEO, a COO and for a small organisation with about 20 staff members this was not ideal. So we revamped the structure and created a new general manager’s post, which helped to stretch our budget.
The next challenge was to expand the scope of our reference from industrial promotion to include the services sector without escalating our expenditure. In other words we now have to do a lot of multi-tasking!
Then there was also the challenge of maintaining the investment flow into Penang, especially with the change of state government. My feeling is that the change of state government wasn’t such a big deal to the investment community in Penang; most of these people don’t want to get involved in local politics as they are all business people first and foremost. I did feel that they were very positive about the change, in the sense that it was driven by the people.
In terms of strategy was there a dramatic change when you took over Invest Penang?
No. I don’t believe in overhauling systems and doing things 180 degrees differently. After all, I believe in continuity. We wanted to carry on with business “as usual” but to do things more efficiently. The biggest change was really to widen our scope of business to include the services sector.
We are also in the midst of setting up various centres to assist Penang’s industry. I have mentioned the two advisory panels. Due to the 2009 financial crisis we were concerned about rising unemployment so we set up a Career Assistance and Training (CAT) Centre, where we work hand in hand with other agencies including the Penang Skills Development Centre (PSDC).
We’re very conscious that Invest Penang shouldn’t duplicate the role of other state agencies, so as far as training is concerned we leave that to PSDC. What we do is provide a jobmatching service at the CAT Centre. The state government has allocated a budget of RM10mil to provide assistance to the unemployed as well as school-leavers. The rationale behind this is, if we don’t take care of school-leavers they could end up unemployed. We have come up with attachment programmes that are run by PSDC to give them practical hands-on training in the hope that they will be able to enter or reenter the workforce after their attachment.
We have also set up Penang Investment and Tourism offices; we have a centre at the Kuala Lumpur International Airport to publicise Penang to local and international travellers. We also have a representative in Singapore who assists us in reaching out to potential Singaporean investors.
Aside from these developments, is there any Invest Penang initiative you’re very optimistic about?
Yes, our new Small and Medium Enterprises Market Advisory Resource & Training (SMART) Centre is an important initiative for Penang. Invest Penang feels that the smes play a crucial role in the local economy. Although the 27,000 or so Penang-based SMEs are the backbone of the economy, many of them have yet to fully realise their potential and become global players in their own right.
The environment that the SMEs operate in is highly competitive; they simply can’t pay the sort of salaries that MNCs can afford and they also lack funds for R&D activities. Although the federal government has tried to do something for the smes through financial grants and has even set up an SME bank, the feedback I receive is that these initiatives are not working as there are problems concerning lack of information, implementation and red tape.
In response to this, the state government through Invest Penang set up the SMART Centre. It’s a relatively new venture and we’ve only recently signed a tenancy agreement for it. At the centre,
SMEs will be able to access data on market intelligence, business advisory information and training services. Its focus will be research on the supply chain because we feel there is a very big gap in terms of the knowledge of what we have and what we can do in Penang.
MNCs may not be aware of what we can do locally, and the SMEs do not know what the MNCs require to a certain extent. So far, when companies actively seek out information about one another in Penang, it’s through word of mouth. We want to create an open, transparent platform so that anybody who is interested in investing in Penang can do their background research at the SMART Centre.
It will offer its services free of charge so membership is not an issue. Of course we would like to involve as many stakeholders as possible in order to publicise the centre and to ensure that knowledge and experience are shared. Research is an important part of the centre because every industry has its own supply chain. We want to investigate each industry’s manpower needs, the existing supply chains as well as the supply chains that we don’t have. This is a large undertaking and we don’t just want to focus on industry, we also want to examine the supply chain of the service industry as well.
What’s your evaluation of Invest Penang’s performance over the last two years?
I don’t know whether I’m the right person to speak on that (laughs). Invest Penang is a forward-looking, active organisation constantly looking to attract new investments, to assist existing investors and also to take the initiative to “plug the gaps” with our new centres. We are taking on greater responsibility and I feel that we are making Invest Penang more and more relevant to the investment community in Penang.
For 2008, industrial investment in Penang surpassed the RM10bil mark according to mida statistics. For 2009, Penang will just break the RM2bil mark, but this figure is for industrial investment only and does not include the services sector. In 2009 a number of hotels opened in Penang, among them Hard Rock Hotel, Eastin and Tune Hotels which are not captured in the investment figures. Similarly the expansion of the Loh Guan Lye Specialists Centre and Suntech Building, among others, will boost the local economy. But all these are not included in the 2009 figure.
What challenges does Penang face in terms of attracting investment?
I feel that the challenges faced by Penang are actually those the nation faces as a whole. When we talk to potential investors we’re not just thinking about how to attract them to Penang and that’s it, our job is done. It’s not like that! Most investors will have a long-term plan for the next five, 10, 15, 20 years. They want to grow and they want to have a clearly defined road map to achieve this growth.
Take Intel, for instance; they came to Penang in 1972 and have been here for 38 years! When we look at these long-term players, we have to understand that we also need to have a long-term plan for them. Invest Penang’s challenges go beyond state boundaries, as there are many factors beyond the control of the state government. I would say that the bulk of issues is not within the state government’s jurisdiction – the two areas where the state government has reasonable influence are confined to land and religious matters. I would say that the main challenges are (in no particular order) security, education, and the ease of doing business, which is closely linked to corruption.
These are the three issues that I think are beyond Invest Penang; if Malaysia doesn’t do well in these three areas this will pull down Penang. As far as education is concerned are we producing enough quality graduates in enough quantity? Can we provide investors with a well educated, highly skilled workforce?
Let’s look at security; a lot of the products and components manufactured in Penang have values greater than gold, so good security is essential. Imagine if a container of chips got lost after leaving the manufacturing plant in Penang – the monetary value of the consignment is one thing, but the damage to Penang’s reputation is another. Most organisations employ just-in- time (JIT) manufacturing so if we lost something in Penang, we would hold up production somewhere else in the world!
Corruption is, of course, a big issue because it adds to the costs of doing business. Investors want the entire process of investment to be as transparent and straightforward as possible so they know the real costs upfront. Hidden costs such as corruption make any planning or projections difficult.
Is there a conflict between state and federal machinery vis-à-vis attracting investment to Penang?
Perhaps that might come into play on the political side of things, but as far as I’m aware we are all working towards the same goal – the financial well-being of the people of Penang and Malaysia as a whole. Both are intertwined after all; if Penang does well then of course Malaysia will benefit.
For Malaysia to progress a lot of changes need to be made irrespective of which party is in charge. Especially in the three areas I highlighted that are related directly to investment. I feel that something is very wrong with the national political climate, otherwise the country wouldn’t be in the state it is now. As we move up the value chain and become more globalised we have to move to a more transparent platform rather than continue doing things that are far from international norms.
Look at the education system – we’re flip-flopping here and there. Even the name of the national language is still referred to as Bahasa Melayu and not Bahasa Malaysia, which is very political. We need to think things through carefully before any announcements are made and we must not allow politics to trap our mindsets. Shifting our mindsets is more important and long-lasting than merely changing parties or governments.
But to go back to the question, Invest Penang works with many local and federal government agencies including the Malaysian Industrial Development Authority, the Multimedia Development
Corporation, the Malaysian External Trade Development Corporation and the PDC. When working with potential investors it’s important to value-add for their benefit which is why we need to work closely with all these agencies. We coordinate the various stakeholders to conclude the deal for the benefit of Penang!
Does competition from other established and emerging South-East Asian economies worry you?
I’m a very globalised person; I don’t see competitors all around! I see other countries and regions as complementary It’s very simple, Penang doesn’t compete with Singapore or even Kuala Lumpur because these are first-tier cities and we’re unable to do a lot of the things that they can. In effect it’s like comparing apples and oranges.
However Penang is a hub for the northern region of Malaysia, southern Thailand and northern Sumatra and we complement each other in terms of business. I’ve always believed that when Penang advances, the surrounding areas also advance and grow. In a regional context, when Singapore grows, Penang can also benefit thanks to the spillover effect. Once Singapore’s new integrated resorts open, we have to think about how we can tap into this and divert some of the tourism traffic to Penang. This isn’t something that Invest Penang will be directly involved with, as we don’t want to create an overlap with the state’s tourism agencies. However, we’ll be more than willing to play a supporting role when the time comes!
What are your thoughts on Penang’s future?
I’m very excited about Penang’s future prospects but I’m also concerned about where the country is going. I sometimes feel that Penang and Malaysia are not moving at the same pace; we have all the potential and all the ingredients for success, but at the federal level, Penang is not being fully promoted. I don’t think that the federal government is getting the most out of Penang yet.
We have a human resource problem in the sense that many Malaysians feel that there are more opportunities overseas for them than within the country. This makes it increasingly difficult to move up the value chain. If we continue to let this brain drain happen we are not going to get anywhere. We need to give top executives and professionals a reason to stay. It’s hard to retain the most able workers and to encourage them to stay in the state and the country. We need to take active action to bring these people back home, to make it easier for them to return. This is the reality. Companies and nations cannot grow unless they can retain able workers.
Despite these challenges you remain optimistic about Penang’s strengths to attract investment …
I am a very realistic person and I can appreciate that there will always be challenges ahead. That’s life. Yet, Penang has tremendous advantages in place, we have a highly trained and skilled workforce which has been built up over a considerable period of time. Of course if we could attract more Penangites home that would be better!
The state is also very internationalised, thanks to its rich trading history, and it has a mature supply chain. The cost of doing business in Penang is still very competitive and we offer locals and expats alike excellent quality of life with a low cost of living. When you take all these factors into consideration, it’s hard not to be optimistic about Penang!
*Editor’s note: A Key Performance Index task force has recently been set up to coordinate the various departments of the stateowned Penang Development Corporation (PDC). Led by Chief Minister Lim Guan Eng, the group will include PDC director Datuk Lee Kah Choon, former PDC general manager Datuk Chet Singh, PDC GM Datuk Rosli Jaafar, deputy GM Julian Candiah and PDC Properties general manager Wan Zailena Noordin. This reform, considered “urgent” by the government, is meant to enhance communication between the various sectors within the PDC and between the PDC and state and external agencies; develop employee capacity and optimize the use of existing resources.
* This article is taken from the March issue of “Penang Economic Monthly”, published by the Socio-economic and Environmental Institute (SERI), Penang, now out at all good bookshops and newsagents.
