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[2775] Before you kick the low-tech sectors…

The idea that Malaysia needs to graduate from low-tech, low-skill sector to high-tech, high-skill sector is well-rehearsed. If you have been reading my blog long enough, you will know that I am not a fan of such narrative.

I consider it as a feel good rhetoric as if there is a switch somewhere that turns everything low-tech to high-tech where most if not everybody is a high-tech workers. I also think the narrative appeals to our xenophobia, peppering ugly racism with some kind of economic rationale as if it would make it less racist.

Recently, I came to think of yet another reason why I am opposed to the low-tech, high-tech story.

When you think of it, many low-tech sectors are the base of high-tech sectors. Without the unsexy low-base supply chain, the high-tech sector just cannot exist because these high-tech sectors depend on input of these low-tech firms.

Consider Penang with all of its Intel, National Instrument, Dell, Honeywell and many other so-called high-tech anchor companies. What support them are the smaller guys producing relatively unsophisticated components. Without these smaller guys, which are low-tech (admittedly, not as low tech as spinning cloth or harvesting the paddy field or palm oil, but low-tech nonetheless), these famous names would not be here in the first place.

If you forcefully kick these so-called low-tech out, the question is, where would the high-tech guys source their inputs? If they have to source it from abroad, would that increase their logistics cost? Would the high-tech guys move to where the inputs are?

Sure, we have a global supply chain but in many cases, like the auto sector near Bangkok and the electronics sector in Penang, it is the hubs that draw on local resources before joining the global supply chain. The existence of the hub depends on whether the economy can support it. It does not exist in vacuum. And it is the unsexy low-tech sector that provides the support the hub needs.

A lot of people who favor the narrative of low-tech to high-tech also forget in many ways, the low-tech sector is the incubator for high-tech firms. Many high-tech firms were originally producing ”stupid electronics”, the basic components that require only high school knowledge of physics, chemistry or general science. But they experimented later, turning themselves from dumb manufacturers through ”trial and error” to high-tech ones with actual ”research and development” arms.

Globetronics for instance used to produce just LEDs and ICs for Intel in the old days. I do not think anybody would dare call LED high-tech but it went on to support higher-value products for Intel. Now, Globetronics produces multiple components more complicated that ICs and LEDs, feeding other higher-value electronics manufacturers all around the world.

This is not only applicable to the electronics industry. I cited electronics because it is a large component of the Malaysian economy.

Other I can probably cite safely is the rubber industry, specifically glove manufacturers. I have never visited these manufacturing plants and you would think making rubber gloves are so low-tech, but I know equity analysts covering several Malaysian glove manufacturers and the name Hartalega pops up as a high-tech glove manufacturer, focusing on automation and productivity.

Also, there is a reason why these glove manufacturers are in Malaysia. Southeast Asia — Indonesia, Malaysia and Thailand — are the largest producers of rubber in the world. That is such a low tech.

In Sarawak where I was several months back, without passing judging on the politics there, many big local contractors were merely cheap builders meeting Cahya Mata Sarawak’s needs. Now, firms like Shin Yang, Naim and KKB are more than just that contractor some big guys would call for petty civil work. They are not exactly high-tech but the point is that they have graduated to do more complicated structures.

Like I said, low-tech is the incubator for high-tech sectors.

Besides, it requires a big investment and experience to run big high-tech. These people, a lot of people want to run before they learn to walk. We do not have to crawl and take a hundred years to get things right but these low-tech sectors are where we can do our trials and errors, before doing our “research and development”.

By Hafiz Noor Shams

For more about me, please read this.

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