ONE of the major structural weaknesses of the economy that our economic and government transformation programmes is trying very hard to address is the continuing decline in net trade the difference between exports of goods and services and imports.

This is crucial if we are to make ourselves a developed economy by 2020 with an income of US$15,000 per person by then, our true north for our transformation programme.

Based on our track record in recent years, it is possible that we can achieve the minimum threshold of a high income economy by 2020. We might even get there by 2018. However, if we want to achieve even higher income status and be a developed economy beyond 2020, we need to deal with the competitiveness of our exports and improve our net trade position. It would be no exaggeration to say that it is the biggest hurdle in our pursuit to catch up with the most successful economies in the world. And yet this is the most difficult part of transformation because it needs major reorientation in thinking and action on the part of our manufacturers and service providers.

But first let me explain why net trade is so very important to increasing incomes. The gross domestic product or GDP is the measure of all goods and services produced in the country. Most of the time it relates quite closely to income if prices of the products don't fall.

For simplicity, let me describe the Malaysian economy from the demand side of the equation. GDP is basically the sum of three components domestic demand, investment and net trade. The first is basically consumption of goods and services by the private sector and government; the second represents investments made by both the private and public sector; and the third is simply exports minus imports. When we export, income comes into the country from overseas and therefore adds to demand and hence income. The converse is true of imports where demand is for external production and therefore leakage of income. Simply put, if the other two components remain steady but net trade falls, then the overall economy slows or falls accordingly.

Right now, going by Bank Negara's first-quarter figures, it is abundantly clear that the problem is net trade. While expectations for the full-year GDP growth are 5%-6%, the growth for the first quarter (Q1) of this year was just 4.1%. The first GDP component, domestic demand, rose 8.2% while investment went up 13.2%. But net exports fell 36.4% from the same quarter a year ago. In the first quarter (Q1) of last year, net trade declined 25.9%. For the full year 2012, it declined 31.7%. Based on the Finance Ministry's report, export of oil and gas has declined by 11.3% due to maintenance shutdown and lower production in some fields. That said, it also shows that our total export is somewhat dependent on oil and gas. We need to expand other exports to improve the robustness of our net trade.

According to Bank Negara, private consumption recorded a strong growth of 7.5% (Q4 2012: 6.2%), driven by sustained income growth and favourable labour market conditions. This was further supported by the implementation of the minimum wage policy. Growth in public consumption, however, moderated to 0.1% (Q4 2012: 1.2%), amidst lower spending on supplies and services.

Private investment grew by 10.9%, supported by continued capital spending in the domestic-oriented manufacturing and consumer-related services sub-sectors, in addition to the on-going implementation of projects in the oil and gas (O&G) sector. Public investment expanded by 17.3%, on higher capital spending by public enterprises in the O&G, utilities and telecommunication sectors, while the Government development expenditure was channelled mainly into the transportation, education, and trade and industry sectors.

Services sector

On the supply side, growth in the manufacturing sector slowed, weighed down by the weak external conditions. Despite the weakness in trade-related activity, the services sector continued to expand, driven largely by sub-sectors catering to the domestic market. Economists like to say that this decline in net trade is because of weak external demand caused by global problems but I would like to challenge that. Yes, the US and Europe are growing slowly but not so China or India or Brazil or Russia. There are other markets there which we can penetrate.Not just that, if we are nimble enough to adapt and change, we can respond to the needs of a market place that is evolving know thy market and you shall be able to mine opportunities.

Our industries and service producers must attune themselves to the reality that there is a huge market out there instead of getting bogged down with the Malaysian market and fighting for whatever government contracts that are available.

Malaysia can learn from the South Korea. In the last 20 years, their companies started to innovate. The likes of Samsung, Hyundai and others began to innovate. Their CEOs, managers and their employees looked in detail at all their products and compared them against the best in the World. They redesigned their products to make sure that their products to meet or beat the best World standards. They put on price tags on their products which gave global consumers real value for money. They marketed and sold their products globally. That is the secret!

Let me bring in another example that is in vogue lately. Who would have predicted a few years ago that South Korea could produce a global pop star, PSY and also get its K-pop music to have global appeal? But the South Koreans did it. They did not quarrel about government contracts. They did not complain incessantly about everything that was not perfect around them. They simply focused on innovating their products and services to be the best in the world and focussed on marketing and selling them in the global market.

Let me remind those who are so engrossed with politics to move on. Of course, the Government must continue to transform. It needs to keep on improving governance and fight corruption. No matter how much we bark at one another for the fault lines that exist in our society, such as corruption and lack of justice, the fact remains that we have to ask the simple questions: What are we doing whether you are a CEO, manager and an employee to radically innovate our products and services to be the best? And what are we doing to globally market and sell our products and services in markets such as Europe, US, China, India and the Middle East? That's a lesson we can learn from South Korea. That is the same lesson we can learn from Germany, Sweden and Switzerland, to name a few successful countries.

It's more than time and long overdue to move out of our little pond which is becoming crowded with too many big fish. We need to look out to the wide expanse of blue ocean that spans the globe. I know there are many Malaysian companies who fight tooth and nail to lobby for the Government to protect them and stop liberalising many economic sectors. If we do not liberalise our market, then other global markets will not open for us. So, we are hindered from global expansion.

There are Malaysian companies that think that there is only panacea ie ask the government-linked companies (GLCs) to stop operating, then they will take over the local market. And their companies will prosper “ever after” like in a fairy tale. There is a fallacy in this logic: it is just transferring value (not adding value) from a GLC to a private companies within the Malaysian market.

Petronas

Let me give a few examples of Malaysian companies who are making it out internationally. Petronas is a big success story for Malaysia, domestically and internationally. Petronas's success is due to its great leaders and competent employees. Past leaders included high calibre people such as the late Tan Sri Azizan Zainal Abidin as chairman andTan Sri Hassan Merican, former president/CEO. Now, we have a high calibre leaders such as Tan Sri Sidek as chairman, Tan Sri Shamsul Abbas as president/CEO and his 1 Malaysia management team. They have very competent and committed employees. Globally, Petronas has exploration and production presence in over 22 countries in South-East Asia, the Middle East, Central Asia, Latin America and Africa. Recently, it has expanded its footprint into Canada.

Axiata, one of our GLCs, is making waves internationally. It is now one of the largest Asian telecommunications companies focused on high-growth low-penetration emerging markets. They are led by a dynamic duo ofTan Sri Azman Mokhtar as chairman and Datuk Seri Jamaludin Ibrahim, as MD/CEO. I know there are people who make it a habit to criticise GLCs, for reasons only known to themselves. Instead, we should be encouraging them to grow and expand their global outreach. Look at what SP Setia is doing in London by partnering with Sime Darby, a GLC, and the Employees Provident Fund to come up with a truly world-class integrated development at Battersea after others had given up on it. GLCs and private companies must learn to work together and get the best out of each other to become world beaters. They should not push each other out.

YTL have proven themselves overseas in beating many international bidders in 2002 and for successfully operating Wessex Water Services Ltd in UK for many years since then. YTL, via Wessex Water, is a water supply and sewerage utility company serving an area of the South West of England, covering 10,000 sq km including Dorset, Somerset, Bristol, most of Wiltshire and parts of Gloucestershire and Hampshire.

Look at what AirAsia and Tan Sri Tony Fernandes have done and how their entrepreneurial spirit has travelled far and wide and made the brand a truly Asia-wide one and an increasingly recognised worldwide.

Let me give a example of small enterprise that is making waves internationally. Nik Shazwan Nik Azam, an entrepreneur who ownsCeriatone Amplification Sdn Bhd is manufacturing hardwired tube guitar amplifiers. In an interview with The Edge, he said that he worked “16-hour days for the past seven years”. Obsessed with amplifiers, together with his partner and highly competent employees, they keep on innovating tube amplifiers for a niche global market. They market their products to 70 countries, including US, Europe, Australia and Japan. They now have 40 ceriatone models. When he was just starting out, Nik made a custom made tube amplifier for me. To this day, it is still my favourite tube amplifier. To be clear, Nik does not rely on Government contracts and he does not rely on Government incentives to do his business. He is a fine example of a young man, who decided to enter the tough world of business and is sticking it out there through continuous innovation.Of course, there are many other examples. It is these companies that are answering the critical questions ie how to radically innovate and how to beat competition in the global market. They are flying the Malaysian flags.

So, what is my big point? Yes, we have some examples but we don't have enough. Let me repeat: My big point is we still do not have enough and we are still a long way away from becoming global champions. The world economy is struggling but now is the time to put the pieces in place to make an impact when it picks up. Look at Korea and how well they have done with companies like Samsung rivalling Apple, even when the global economy is still struggling. Yes, its not easy, it takes guts too but more than guts as well. We have to be able to compete. That means opening up, that means dismantling barriers, that means setting international standards, all of which are being undertaken through transformation programmes. These are some of the structural reforms initiatives that we are pursuing under the Economic Transformation Programme.

That means better education, an improved education system at all levels to produce the skills to power us into becoming world beaters, again something we are addressing through transformation.If we can supply our own goods and services as much as possible and identify the unique customer value, make the products to provide the value and price it correctly, we will increase net trade and GDP considerably. Our manufacturers and service providers simply must realise that if they become internationally competitive, the world is their oyster, especially if they can roll with punches (read slowing demand overseas) and come back transformed, stronger and ready to do battle.

Done right, there's plenty of money to be made in marketing the right products at the right prices to the world markets.