First, a little background  

After five centuries of colonisation, Malaysia declared independence in 1957. Singapore, also a former British colony, gained independence in 1963 and briefly joined the Federation of Malaysia before becoming an independent sovereign state in 1965. Both nations have since pursued their unique economic and developmental paths. We thought it would be a useful exercise to contrast their tech ecosystems. 

Today, Malaysia boasts a diverse economy, boasting contributions from diverse sectors like manufacturing, agriculture, services, oil and gas, palm oil, and rubber. Its technology sector, particularly notable in semiconductor and integrated circuit manufacturing, accounts for a significant proportion of total exports.  

By contrast, resource-starved Singapore has a highly developed, service-oriented economy with a strong emphasis on finance, trade, logistics, and tourism, complemented by a sophisticated manufacturing sector focused on electronics, chemicals, and precision engineering.  

Economically, Singapore has consistently outperformed Malaysia with higher GDP growth rates, attributed to its strategic location, low corruption levels, regulatory certainty, and pro-business policies.  

Malaysia’s tech scene 

Southeast Asia may be buzzing with innovation, but Malaysia's tech scene lags its peers, despite multiple Government initiatives over several decades. While the rear-view mirror provides a stark contrast with its cousin Singapore, we think that’s about to change. Let’s start by looking at the numbers. 

The number of registered VC firms in Malaysia jumped from 9 in 2017 to 20 in 2022, with VC investment gyrating, peaking at $12.99bn in 2021 then declining in 2022, despite the Malaysian government putting a lot of capital to work.  

DealStreetAsia tells us that in 2023, Series A and B rounds respectively totalled $26m, with 38% allocated to Series A and the rest to Series B rounds while Series D rounds reached $149.9m. Not exactly a goldrush, was it?  

In its 2021 roadmap, MOSTI (the Malaysian Ministry of Science, Technology and Innovation) identified five key roadblocks: a shortage of private capital, a shortage of talent, ecosystem gaps, a lack of regulatory certainty and a lack of scale. 

Where are the unicorns? 

You can count the number of Malaysian tech companies that have achieved much-vaunted unicorn status – a US$1bn valuation – on a couple of fingers. It certainly hasn’t been a unicorn factory. 

Grab, the Southeast Asian superapp, started life in Malaysia but moved its head office and grew up in Singapore. The online marketplace for cars, Carsome is truly a unicorn and has stayed in Malaysia. Is there anything else on the horizon? The local pundits say maybe it’s local drone success story, Aerodyne. But thereafter, the pickings are quite thin. 

That’s in sharp contrast to Singapore's thriving startup scene, which has produced more than a dozen unicorns (and as many as 26 at the peak of the most recent tech valuation cycle).  

Lessons from Carsome's success 

Carsome’s success demonstrates that Malaysia can create billion-dollar tech companies. Founded in 2015, the company has become the top online marketplace for used cars in Southeast Asia, operating in Malaysia, Indonesia, Thailand, and Singapore. Its success comes from its complete service, offering everything a buyer or seller of a used car could need. This includes thoroughly checking the car (with a 175-point inspection!), helping transfer ownership, and even sorting out financing. Carsome also sets itself apart by offering extended warranties and money-back guarantees on all car purchases, which builds trust and makes the platform transparent.  

It achieved unicorn status in July 2021 after raising $290mn in funding, and perhaps, trailblazing for those who follow. Its innovative approach and ability to take hold of a regional market are inspiring for other Malaysian tech businesses, proving that there are great opportunities in the country's growing tech scene.  

Government interventions 

The Malaysian Government is no stranger to launching bold strategies to support the tech sector.  

Back in 1996 it launched the Multimedia Super Corridor (MSC), aiming to position the country as a formidable global player in the IT industry. Strategically located, the corridor stretches from Kuala Lumpur to the International Airport, attracting significant global tech enterprises like Microsoft and IBM.  

In 2021 came the MOSTI Report, as well as the government’s Malaysia Digital Economy Blueprint, a map for transforming Malaysia into a more digital economy. The government pledged US$10bn to fire up the digital economy, identifying key industries (like agriculture, manufacturing, and healthcare), key proven technologies to focus on (cloud computing, artificial intelligence, cybersecurity, big data analytics, and Internet of Things) and some emerging areas of interest (blockchain, robotics, augmented reality/virtual reality, 5G, and advanced materials).  

Malaysia also announced another Big Hairy Audacious Goal in 2021: to attract 50 Fortune 500 tech companies to set up shop in the country, and nurture five new unicorns – all by 2030. The country is also making a play to become a regional data hub. 

Then came the recent KL20 Summit last month, with a comprehensive package of initiatives designed to catalyse Malaysia’s tech sector: a three-step plan to make Malaysia a tech leader by 2030 by attracting startups from around the world, by enticing foreign VCs to establish offices in Malaysia, and by rolling out incentives to make it easier for foreign startups to set up shop. There’s a special economic zone with China, potentially opening doors to a massive new market, and there’s even a Semiconductor Strategic Plan, aiming to attract big investments in designing and making chips.  

MAVCAP was launched. The Malaysian Venture Capital Activity Platform aims to bring the ecosystem together: government and private funding sources, a network of Malaysian VC firms, and experts and advisors. And now we have mystartup.com.my, a Government-instigated one-stop online platform giving startups access to resources, mentors, funding, and even help with regulations. It’s intended to be a central hub where founders, investors, tech talent, and government agencies can all connect, work together, and streamline the startup journey.  

Arguably the most important initiative is to nurture local Malaysian tech talent with programs like the Innovation Pass, and a special work visa for skilled workers, showing the Government's dedication to building a strong talent pool.  

KL20 

We have heard all of this before, you may well think. Critics like TechinAsia report a sizeable gap between the country’s ambitious goals, and its digital readiness.  

But KL20 kicked off on a realistic note, with recognition by Prime Minister Datuk Seri Anwar Ibrahim that the country needs to learn from past mistakes. 

Economy Minister  Rafizi Ramli, meanwhile said, "We want Malaysia to be the go-to place for early-stage and growth capital, a centre for world-class entrepreneurs and skilled talent, and a home for world-leading startups to launch, grow, and scale."   

Ramli acknowledged the role of Government is to create the framework for the tech ecosystem, instead of investing in Government-owned companies.  Rather, its role is to ease regulatory burdens, make it easier for foreign funds to invest, attract international talent, and upskill Malaysia’s workforce.    

All of this is clearly a huge wish list for a country that’s currently behind the game. But even if some of it sticks, Malaysia’s tech ecosystem will be much better off.  

The cost advantage 

Malaysia, Inc has one mighty advantage over its cousin Singapore: its cost structure. 

With each Singapore dollar worth approximately 3.5 Malaysian ringgit, and Singapore's median monthly wage sitting at around SGD 4,680 versus an equivalent of SGD 888 in Malysia, the cost of living and doing business in Malaysia is substantially lower than in Singapore.  

There are of course all sorts of counter arguments in favour of Singapore – better infrastructure, its highly educated workforce, its rule of law and so on – but the cost differential really counts for something when you’re building a tech ecosystem. 

Where to from here? 

KL20 represents a step change in approach by the Malaysian government – one that recognises how being proactive about the creation of the ecosystem is just as important, if not more so, than investing funds into VCs. In theory, this approach should create a collaborative environment where everyone, Malaysian or international, can contribute to the country's tech scene.   

At North Ridge Partners we are optimistic that the chances of success are higher this time around, although we do acknowledge that the proof is in the pudding. And this particular pudding is going to be in the oven for quite some time before we taste success.  

We figure there are two possible responses to this new paradigm – sit back and watch, or get involved.  

We attended KL20 with our partner, GP Bullhound, who announced they are setting up a funds management operation in Kuala Lumpur. At North Ridge Partners we think the combination of a bold new strategy and an attractive cost structure is compelling enough to set up an office there. So, we’re in. Watch this space. 

  

Postscript: we’re working our way around Southeast Asia’s tech ecosystems. Our next dive will be into Indonesia’s prolific, innovative tech scene.