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The Star
3 days ago
- Business
- The Star
MALAYSIA'S NEXT SCRABBLE MOVE
FOR a country to flourish and succeed, it should be able to achieve sustained economic growth. It must move beyond basic production and begin creating more complex, high-value products. This requires not only exploring new areas of growth, but also shifting from a reliance on comparative advantage, as coined by David Ricardo, to building complexity advantage, as advocated by Ricardo Hausmann. However, Malaysia's 'National Beta' – the ability to generate returns utilising our inputs of land, labour, and capital – remains mixed. Our inputs currently deliver moderate, broad-based outcomes, rising living standards, maturing infrastructure, an expanding middle class, but muted returns on capital. Despite our structural strengths, Malaysia must move up the ladder within the global supply chains – from basic production to more complex, high value activities in order to transition to high-income status, where Malaysia must raise its GNI per capita from US$11,670 to at least US$13,935, in line with the World Bank's threshold. Achieving this will require accelerating innovation, enhancing industrial capabilities, and expanding into higher-value segments of the global economy. The Scrabble theory of economic development To understand the nature of this phenomenon, imagine a game of Scrabble. When you form short words like 'cut', 'tin' or 'man' using common letters like the vowels of 'a', 'e', 'i', 'o' and 'u', you get low points. These are the legacy sectors from the Roaring 90s – plantations, basic manufacturing and commodities – that continue to play a role. But to get higher points, one needs to form more complex, higher-value words using 'q', 'x' and 'z', letters harder to manage but yield far more points. This is likened to the emerging sectors: Robotics, semiconductors, advanced manufacturing, among others. Malaysia has been forming the same words with the same old letters. To compete, we must also explore new letters, while also exploiting existing ones. That means investing in new capabilities, new institutions and new return streams, while optimising existing companies. The scarcity of new 'letters' in Malaysia is evident in the inertia of our capital markets. Over the past 15 years, only a third of FBM KLCI constituents have changed, with banks, utilities and plantations still dominating the index. In contrast, the S&P 500 has seen a higher turnover rate, driven by the rise of digital and AI-led businesses. To revitalise Malaysia's capital markets, we need more than just growth, we need a renewal — pipeline of new firms which operate in the sectors of the future. More new firms among top-listed companies, underpinned by a shift toward future-oriented sectors, is no longer optional. It is a transformation we must now deliberately cultivate. The hotel economy: Hosting without rooting Much of Malaysia's constraints comes from the model that brought us here. For decades, we relied on foreign direct investment (FDI) to industrialise. We offered low-cost labour, stable governance and geographic advantage. Multinational corporations (MNCs) 'checked in', setting up assembly plants and service centres. But they leave without planting deep roots. Profits were repatriated, R&D remained offshore and decision-making stayed in headquarters far away. Even after checking into our 'hotel economy', MNCs retained ownership of the capital, know-how and value creation – with profits and returns captured abroad, often appearing in the S&P 500, instead of the KLCI. We became a stopover, not a destination for deep capacity-building. This model exploited what we had: Labour, land, capital; but did not meaningfully grow our national champions and capabilities. We must harness what we have and grow what we don't. Without strategic domestic capacity, FDI can reinforce dependency rather than resilience. Rewiring for resilience: We must simultaneously explore and exploit To move forward, the nation must shift from a system that only exploits what we already have to one that also explores what we have yet to become. Exploitation focuses on improving existing assets, cost optimisation, incremental upgrades, dividend extraction. Exploration requires risk-taking, experimentation and bold bets on the unknown. The key is doing both simultaneously, which is aptly captured by the metaphor of a tree. The tree of ambidexterity: Rooting stability, reaching for renewal A healthy tree has roots that represent the core (70%) of stable sectors and institutions that deliver services, dividends and reliability. The trunk or stump (20%) supports adjacent growth areas that connect the core to future possibilities. The branches (10%) are fragile and risky, but essential for upward growth and renewal. Thriving economies and institutions maintain these ratios, which reflects the thinking of Michael Tushman and Charles O'Reilly – pioneers of the organisational ambidexterity theory on how to exploit existing strengths while exploring new frontiers. At Khazanah, this philosophy guides how capital is allocated, both across exploit and explore activities. At the core 70%, we manage strategic holdings that benefit all Malaysians. Investments in Tenaga Nasional power the nation, airports and airlines connect us to global markets, telecommunications expand digital access and banks deliver financial inclusion and generate stable returns. The adjacent 20% supports firms helping Malaysia move up the value chain. These are the mid-tier companies in the semiconductor ecosystem and regional enablers like UEM Lestra in green energy and Iskandar's infrastructure. In the exploratory 10%, we place bold, long-horizon bets through venture capital (VC), not tied to any one outcome, but open to frontier areas such as Web3 and artificial intelligence. This is where Jelawang Capital comes in. Jelawang Capital: Rooting the future, branching out Launched in October 2024 under Dana Impak, Jelawang Capital is Malaysia's national fund-of-funds to catalyse the next generation of innovators and fund managers. It addresses the early-stage capital gap, aims to strengthen the venture ecosystem and fuel the risk appetite of Malaysia's capital providers. By June 2025, Jelawang moved from blueprint to execution through two anchor programmes: The Emerging Managers Programme (EMP) commits up to 30% of fund size (capped at RM50mil) to local VC fund managers to boost traction and co-investor confidence. While the Regional Managers Initiative (RMI) backs foreign VCs with global reach to attract their portfolio companies into Malaysia and link our startups to international capital. This dual strategy is deliberate – local VCs understand Malaysia's regulatory environment and founder journeys. Foreign VCs bring scale, structure and cross-border access. Both are vital to support the growth of innovative Malaysian companies. This approach helps uplift Malaysia's 'National Beta' by offering startups paths to grow globally to address the muted public market returns and limited dynamism. Jelawang blends local and global capital, roots and branches, into one catalytic platform. It is also a Scrabble strategy in action, combining different letters. No single manager, fund, or country has all the letters. But together – 'x' from Kuala Lumpur, 'q' from Shenzhen, 'm' from Penang, 'z' from San Jose – we can build longer, stronger economic sentences. That's the essence of improving our national collective knowhow — unlocking more productive combinations by pooling diverse capabilities. This is exactly what VC enables. VC-backed entrepreneurs reorganise land, labour, capital and ideas into new engines of growth. They raise Malaysia's 'National Beta': Our capacity to extract more value from what we already have. They create the firms that will drive tomorrow's exports, jobs and resilience. These firms need capital that embraces risk. Through Jelawang, we aim to make that risk-taking possible, so more founders can build boldly and more value stays rooted in Malaysia. Systemic reform: From one tree to a forest However, Khazanah cannot solve this alone. Jelawang Capital is just one spark. A true innovation economy needs the full capital stack to shift. Today, most government-linked investment companies (GLICs) lean heavily on exploitation, harvesting dividends and preserving legacy portfolios to meet their return requirements. We must exploit smarter, not just for dividends, but to boost local ROEs and reinvest for future growth. These exploit roles are necessary, but when they dominate, exploration is crowded out, capital stagnates. Exit paths close. Talent leaves. Competitive jobs for young people dwindle. A national rebalancing of capital If we want a more vibrant and future-ready economy, we must rebalance capital across the nation. Every GLIC, pension fund and allocator should reflect on its own explore-exploit mix. This does not mean abandoning safety. Exploitation activities like investing in mature, stable companies provide the financial returns and institutional resilience needed to support Malaysia's long term national goals of higher productivity, which translate to higher income per capita. Just as important is making room for discovery, investments in VC, tech transfer, growth-stage companies and mission-aligned capital. Conclusion: Writing the next sentence The Malaysia of the future cannot be written with the same letters we've always used. It will require new letters, new entrepreneurs and new institutions. That is what Jelawang Capital aims to ignite, even if we start small – a more innovative, connected and self-sustaining national economy. The question is not whether we can afford to explore. It is this: Can we afford not to?
Bloomberg
12-06-2025
- Business
- Bloomberg
Odd Lots: Ricardo Hausmann on What it Takes to Win a Trade War
The focus of Trump's trade policies is clearly China. There are tariffs on everyone, of course, but it's the growing Chinese manufacturing might, and the various perceived risks associated with that, which have catalyzed this impulse to rethink how America trades with the rest of the world. But can the US actually move the manufacturing center of gravity? On this episode we welcome back Harvard Professor Ricardo Hausmann. We've had him on before to talk about the importance of economic complexity -- the capacity to build complex things -- in measuring the wealth of nations. On this episode we use that lens to discuss tariffs and the trade war, and the risks that the new administration's policies will play in reducing our capacity to build the most advanced things.
Miami Herald
01-04-2025
- Business
- Miami Herald
There's no need for a trade war; America's already won it. By a lot.
"Other countries are understanding because they have been ripping us for 50 years; they have been ripping us off right from the beginning." Stop me if you've heard this before, although I assume you have. The quote from President Donald Trump might be only a few hours old, but it's part of a decades-long view he's held on America's place at the center of the postwar boom in global trade. Don't miss the move: Subscribe to TheStreet's free daily newsletter In the president's telling the U.S. has selflessly, and naively, opened its markets to foreign competitors, which in turn have taken advantage of that generosity by undercutting American manufacturers with goods made with cheap labor and subsidized by tax breaks. On the flip side, American companies are prevented from competing on a level playing field in international markets by a dastardly devised mix of tariffs, trade barriers, stealth taxes and tree-hugging environmentalists. He narrowed his "ripping off" timeline to just 40 years in weekend interview with NBC News, but the theme has remained constant for much of the past month: April 2 will be "Liberation Day" and America will once again rule the global trading world. There's only one problem. It's already doing U.S. economy long ago realized that the real juice from the "consumption + investment + government spending" squeeze would come from services, not manufacturing. And it has enjoyed unparalleled success since the global pandemic and left its international rivals, China included, wallowing in the dust. Ricardo Hausmann, a trade expert and Harvard professor who once ran the university's Center for International Development, notes that while the U.S. had a $1.2 trillion deficit in trading of goods, it carries a $278 billion surplus in services. Services, of course, generate a much wider profit margin than goods; think of Apple's (AAPL) 46% gross margin in tech versus the 30.7% for ExxonMobil (XOM) (the biggest U.S. exporter) in petroleum and the paltry 12.5% for General Motors (GM) , the biggest U.S. automaker. Related: Goldman Sachs analysts overhaul S&P 500, GDP targets as Trump tariffs bite So while the U.S. has a trade deficit in goods, it's still earning more - a lot more, in fact - by selling services. U.S. companies generated $632 billion in overseas profits last year, 82% more than the $347 billion foreign companies earned in the U.S. In a recent piece for Project Syndicate, Hausmann says that using U.S. stock valuations, "the value of US investments abroad can be estimated at $16.4 trillion," which are now suddenly a "far more attractive target for retaliation than tariffs on US exports." They're also making more money with the same amount of people: European companies employed around 4.7 million people in the U.S. last year, while American companies were directly responsible for around 5 million jobs across the EU, the United Kingdom and Switzerland. That certainly explains why the S&P 500 has shed some $5 trillion in value over the past month, amid the worst first-quarter performance for the benchmark in five years, as investors not only awaited details of Trump's April 2 tariff plans but also braced for the inevitable reprisals from the country's biggest trading partners. China is already defining its own line of attack with new restrictions on Nvidia, tied to environmental regulations, as well as indirect support for competitors of Apple in the world's biggest smartphone market. Related: Tariff uncertainty triggers record change to U.S. stock market outlook Europe is reportedly preparing a similar strategy, with reports suggesting the region's powerful Competition Commission could accelerate probes into Microsoft (MSFT) , Google parent Alphabet (GOOGL) and Facebook parent Meta Platforms (META) . Putting the immediate profits of America's biggest companies at risk in the hope that manufacturing jobs will somehow return over the next few years (or possibly longer) seems like a bad bet. It'll seem even worse if, as many market observers expect, blunt-force tariffs on everything from cars to drugs to lumber and French wine will stoke inflation while the disruption to global supply chains slows the domestic economy. (Sound familiar?) America doesn't need this trade war. It's already reaping massive rewards in terms of cheap goods, reliable foreign investment, lower government borrowing costs and growing corporate profits. More Economic Analysis: Gold's price hit a speed bump; where does it go from here?7 takeaways from Fed Chairman Jerome Powell's remarksRetail sales add new complication to Fed rate cut forecasts Are there unfair practices? Sure. India's protectionism needs a massive overhaul, China's intellectual property theft has gone unpunished for too long, and Europe's self-imposed role as the global tech policeman has become tiresome and, quite frankly, entirely too personal. But those are all issues best solved in collective negotiations (the kind that Trump hates) rather than through unilateral sanctions (which he loves, as they present the chance to strike "deals" for which he can claim credit). America won this trade war a long, long time ago. Revisiting the battlefield won't make anyone richer. Related: Crushing the dollar won't solve America's debt problem. It'll make it worse The Arena Media Brands, LLC THESTREET is a registered trademark of TheStreet, Inc.
