KUALA LUMPUR: In 2017, Malaysia’s promised Silicon Valley, Cyberjaya, completed its 20 years. This article provides a snapshot of this centrally planned city, once dubbed ‘Silicon Valley of the East’.
Agglomeration economies are characterised by co-location benefits and external economies of scale which are exhibited in geographical concentration of firms. Michael Porter, the author of The Competitive Advantage of Nations, considers these concentrations, called clusters, a fundamental competitive advantage of nations.
This marks the ascent of clusters in the history of both industrialised economies and newly industrialised nations. An industrial cluster is a set of industries related through buyer-supplier and supplier-buyer relationships, or by common technologies, common buyers/distribution channels or common labour pools.
Successful clusters may arise due to geographical, historical and institutional factors. Evolution of clusters is helped by access to a pool of skilled local labour and suppliers; local infrastructure and transport network, emergence of codes of conduct and trade practices; and close (physical) proximity of firms and institutions which can facilitate a ‘Marshallian industrial atmosphere’, of tacit knowledge flows between (local) actors/firms and the exchange of ideas, generating positive externalities.
Clusters are usually nurtured rather than ‘launched’ by government intervention. Often, the government’s role is to set up infrastructure and institutional support for cluster development after its birth.
What if a government ventures to create and launch a cluster rather than nurture it? Does such a kind of “launched” cluster exhibit same kind of features and advantages which are displayed in the “nurtured” clusters? Can we replace spontaneous order behind evolved clusters with a central plan to create new clusters?
In 1997, on 2,800 hectares of mostly undeveloped land, 40km south of Kuala Lumpur, Cyberjaya was launched- adjacent to another ‘created’ city, Putrajaya, the administrative capital of Malaysia.
Cyberjaya was envisioned as a place which “will be a designated zone where technology entrepreneurs and global multinationals enjoy attractive tax breaks, access to world-class human capital and infrastructure, at a developing nation’s costs”. It was thought that this ambitious project would spearhead Malaysia’s transformation into a new knowledge economy.
The incentives included providing a collaborative environment through competitive rental rates, flexible repayment schemes, building allowances and customised solutions for investors based on their business requirements, budget, and growth plans.
Big players did arrive, starting from Nippon Telephone and Telegraph and followed by Dell, HP, DHL and Shell. To date, 71% of Cyberjaya’s land has been developed, is under construction, or in planning stages. About 85,000 people live here. From a mere 21 pioneering companies, Cyberjaya is today home to more than 800 companies, of which 40 are global and regional multinationals.
Let’s look at the other hand of the economist.
In 2014, the authorities published a new roadmap, “Global Tech Hub Blueprint”, which also acknowledges challenges that are faced by Malaysia’s Silicon Valley or in fact “Silicon Valley of the East”, as it was once dubbed.
After 20 years and billions of dollars, a list of these challenges is educative: “stiffening competition from local and regional hubs, talent shortage especially in high technology applications, lack of a soft infrastructure –for a liveable township, and hard infrastructure needs upgrade, lack of funding, incomplete eco system and poor linkages between research and businesses, lack of transfer of technology from MNCs to local counterparts, lack of support for SMEs, poor governance and potential conflict of interest in the institutions, and lack of clear vision”.
Out of 85,000 residents, one-third are students. The MNCs are present, but most of them use the discounted space as call centers and customer support. Cyberjaya has not become the hub of new “discoveries” and few will now believe its potential to place Malaysia on the world map of information and communication technology innovations.
Cities like Silicon Valley are not created, but nurtured. Central planning rarely works and never works in the long run. As Pakistan is ambitiously planning to launch more than 50 industrial clusters along the CPEC route, it should also incorporate lessons from such policies around the world. Successful clusters cannot be created just by earmarking a piece of land and by erecting some factories. Successful clusters should be based on an existing competitive advantage of a location, common trade practices and networks which can be multiplied by appropriate policy framework.
The writer is founder of PRIME Institute, and is currently based in Kuala Lumpur, with Institute for Democracy and Economic Affairs (IDEAS)
Published in The Express Tribune, November 20th, 2017.