MALAYSIA has set its eyes on becoming a high-income economy by 2020 and the way to get there, every party seems to agree, is to invest in innovation.
Innovation can be a catalyst for the growth and success of businesses, enabling them to provide better products and services, and thus, move up the value chain.
But local small and medium enterprises (SME) have been relatively slow to adopt innovation as a means of growth.
Notably, SMEs have limited resources to go above and beyond their daily operations, unlike larger firms that have annual allocations and a dedicated team to look into research and development (R&D).
Nonetheless, 3M Malaysia Sdn Bhd managing director Michael Wu opined that SMEs have to look into innovation to remain competitive, not just in the local market, but also in the global arena.
“SMEs make up about 99% of the companies in Malaysia and they need to move up for the economy to grow. So, we need to see how we can help this 99% move up.
“Malaysian SMEs are actually quite innovative and have invested a lot in innovation. Entrepreneurship is quite strong here. And today, we see many of our customers expanding their R&D base here, which is a good sign,” Wu said.
Culture of innovation
3M is known for its culture of innovation. The US-based conglomerate started out as a mining firm in 1902, but has since produced more than 60,000 products built on innovation. Perhaps some of its more familiar products are its Scotch tapes and Post-it Notes.
In Malaysia, 3M has worked with various industries to innovate and provide solutions for companies to improve their products and processes.
For example, in the electronics industry, 3M produces Carrier Tapes for local semiconductor firms to assist them in assembling miniature components efficiently. Malaysia is among the top exporters of semiconductors with an industry estimated to be worth about US$32bil (RM101.6bil).
Wu explained that innovation does not necessarily translate to new products on the shelf. Innovation may also come in the form of process improvements that lead to better efficiencies and lower production costs for companies.
Based on his observations, Wu noted that 60% of companies that 3M Malaysia worked with invest heavily in R&D. Of this portion, 40% of the companies carry out R&D to improve their efficiency.
Wu believes 3M Malaysia has the expertise and resources to help SMEs accelerate their R&D efforts and provide them with relevant solutions. 3M Malaysia also has laboratories that accommodate accelerated tests that enable customers to gauge test results in the long term.
Typically, 3M’s new ideas come about when customers bring up their “pain points”. 3M Malaysia then sets its innovative wheels in motion to come up with a working solution for their partners and clients.
At other times, the company will seek out customers and bring its lab over to them to convince them of the need to innovate to move up the economic value chain.
No doubt the cost of innovating is a concern for SMEs, but investing in innovation need not always come at a hefty price. Wu notes that there is a way to allocate resources efficiently to get the most out of a limited budget.
“It is important to align your investments with the market so that with your available budget, the hit rate for your investment will be higher. We are going for quality and not quantity. Prioritise your investment to find the best available opportunity.
“And most importantly, don’t start from scratch. The market won’t wait for you to come up with a solution. Someone else will come in and fill the gap. Look for available technology and build on it so that you can hit the sweet spot faster. From there, you can combine and create your own technology.
“We understand that it is not easy for SMEs to invest in R&D. So we want to partner with them to help them. We have a strong network of technical teams in many countries so our partners need not start their R&D from scratch. They can leverage on our network and our resources,” he said.
Quantifying innovation
The results of R&D do not come overnight. And very often, it is hard to tell if a company’s expenditure in research is worthwhile.
But it is important to determine how well a company is turning its investments in new products or services into additional profit for the company. This also indicates how efficient its R&D spending is.
3M allocates about 6% of its revenue for R&D annually. And every year, the company sets a target to ensure that 30% of its revenue is generated from products introduced in the past five years to judge whether its R&D money is being spent wisely.
“Thankfully, new products have been generating more than 30% of our revenue every year. We track the sales of our new products for five years because every product has a cycle and needs time to start producing profit.
“Likewise, SME companies need to put in place proper measurements to quantify proposed projects. You can’t invest in everything. So you need to develop a review system to ensure quantifiable returns,” Wu said.
He added that 3M can also help customers look into the measures to quantify return on innovation investments.
“Our business model at 3M is built on innovation. And we are ready to partner with local businesses to see them move up the value chain in line with the government’s 2020 vision of becoming a high-income nation. Now is the time to invest in innovation to get there,” he said.
