Digital Free Trade Zone must stay true to its raison d'être

• Inter-agency co-operation, which has been a struggle in the past, is absolutely needed
• Low maturity of private sector stakeholders; bulk of SMEs contribute to a minor portion of GDP

THE launch yesterday of the world’s first digital free trade zone (DFTZ) located in Malaysia has elicited some feedback from industry players in Malaysia who are eager to see the initiative work.

“Naturally, all industry players hope that it will work,” says Technopreneurs Association of Malaysia (TEAM) president Fadzli Shah to Digital News Asia when contacted. Fadzli outlined some critical success factors for the DFTZ to work.

The first, he says, is inter-agency co-operation. “DFTZ as a catalyst to trade, coupled with digital adoption cuts across many ministries, agencies and industries. Inter and intra-agency collaborations are key to seeding and nurturing an ecosystem at the DFTZ.

“This has been a struggle in the past so we hope communications are open and collaborative rather than competitive in order to make the DFTZ a compelling and easily understood proposition for the industry players,” he explains.

Secondly, an issue is the low maturity of the majority of private sector stakeholders. According to Fadzli, as Prime Minister Najib Razak pointed out during the launch, the majority of SMEs contribute to a minor portion of GDP.

“It would be naive to think that they are ready to take on digital adoption and high-skilled integration. We hope that the programmes to train and on-board the SMEs of the industries are realistic and with a strong follow-through.

“For example, you cannot assume a manufacturer from Terengganu will just plug into the DFTZ and start shipping orders to China. It has to be systematic, getting their capacity up, market access to our local/urban buyers and potentially consolidating similar manufacturers/service providers to be able to source from and supply to Asean and China,” he opines.

Fadzli (pic, above) also fears the ‘big boys clubs’ syndrome. He notes that Jack Ma proposed that all the initiatives in the DFTZ should benefit SMEs and young people.

“But as evidenced at the launch, it’s all the big companies and GLCs in attendance. We hope there will be knowledge transfer from Alibaba’s process excellence and that must empower smaller businesses to grow, rather than awarding large contract and allocations to current industry titans.”

He also expressed disappointment that the industry was not consulted for the DFTZ. “This has been a huge disappointment. Many in the industry have commented on the then supposed DFTZ, most were never consulted. But it’s still early in the game, we hope the public sector realises that without private sector buy in this is just an industrial area 50km outside the city centre.

“If you rely on a ‘build and they will come’ mantra, you have to accept that propositions become much more difficult over time. We have had Cyberjaya, Putrajaya, Technology Park Malaysia struggle to attract businesses and population. I’m also not a huge fan of tax incentives, the current ones are not well-marketed, and even when companies adopt them it’s difficult to convince staff and partners to relocate (consider Cybercity/Cybercentre issues over the last 10 years). Well you aren’t able to attract the best talent, no amount of tax incentives can compensate if you don’t meet revenue growth.”

He further commented that TEAM has been going down to the ground or ‘turun padang’ and that they know that taking stock of the current industry challenges cannot be done with focus groups or surveys.

“Industry players have also been so jaded by the lack of follow through by agencies that they would rather get back to work rather than participate in industry-agency dialogue. Even more so, the disconnected staff of the agencies are merely painting ideal case scenarios in the proposal/blueprints of DFTZ.

“If you want something that will work and serve the needs of businesses, be ready to go door-to-door and engage them, because businesses who are serious about growth are not able to engage with agencies, you’d be lucky to even identify the right person-in-charge.”

He explains further: “Through our experience and also those of local companies who have asked TEAM to assist, we have found that many agencies (not all, but most) are so compartmentalised that there is little info shared between departments, effectively working in silos. And these compartmentalisation is not marketed outward so when you go to an agency it’s fairly difficult to identify who you should be talking to beyond a general industry category type identifier.

“And because they don’t open upon between departments, any department you land on can’t point you to another which is more relevant. This is at the working level and you have to assume most businesses have to engage at the working level and not the executives.”

Chief executive officer of 1337 Ventures Bikesh Lakmichand (pic, above) had something to say about what will make the DFTZ work. When asked what needs to be in place to make it work, he replies: “Well we definitely need as many of the platforms to be part of the DFTZ. At the moment the pilot is with the Alibaba platform. Will it work? Well yeah, if they can provide a quick turnaround time for fulfilment- this gives any exporter a leg up from their competitor offering similar products in the region.”

When asked what incentives should be in place to encourage SMEs to be part of the DFTZ, Bikesh says that he doesn’t think you need any more incentives than the ones already available as part of a typical free trade zone.

“If you're importing in products it's already tax free, and now you get your products out faster with less hassle especially around customs.”

Commenting further on the DFTZ, he says: “As Jack Ma also stated, you still need to have great products to be exported for this to be amplified via the DTFZ. If your products are crap, this won't make your crap fly off the warehouse shelves any faster.”

For the uninitiated, the DFTZ was launched on March 22 in Kuala Lumpur. The DFTZ has physical and virtual zones to facilitate SMEs capitalising on the convergence of exponential growth of the Internet economy and cross-border e-commerce activities, Malaysia Digital Economy Corporation (MDEC) said in a statement.

DFTZ is expected to boost to the country’s e-commerce roadmap, which aims to double the nation’s e-commerce growth and increase gross domestic product contribution to US$47.68 billion (RM211 billion) by 2020.

As part of the DFTZ, Alibaba Group will establish an e-hub in Malaysia -- the first outside of China -- under its Electronic World Trade Platform (eWTP) initiative, together with MDEC and other parties.

The launch of the DFTZ saw the signing of four memorandums of understanding covering the establishment of an e-fulfilment hub near the Kuala Lumpur International Airport, a one-stop online cross-border trading services platform, co-operation in e-payment and financing, and development of e-talent training.

In a statement, Alibaba Group executive chairman Jack Ma said: “I laid out the vision for eWTP last year, and we as a company have taken on the responsibility to make this a reality. The first e-hub under the eWTP outside of China will go a long way towards making global trade more inclusive and provide much needed support to a hugely important constituent: SMES and the younger generation.

“With innovation throughout the supply chain, support from governments and important private sector collaborations, we will achieve our aim of enabling SMEs and young people to thrive and enjoy the fruits of the next phase of globalisation.”

In addition, the Catcha Group on March 22 also announced the launch of Kuala Lumpur Internet City (KLIC), which is part of the DFTZ initiative. The Catcha Group is the main driver and master developer of the KLIC, which will be the premier digital hub for the DFTZ.

To be located in Bandar Malaysia, the KLIC will span 5 million square feet built over a 15-year period with an estimated gross development value of US$1.13 billion (RM5 billion). The development aims to house around 1,000 Internet-related companies as tenants and become a hub to over 25,000 tech professionals.

In a statement, Catcha Group co-founder and group CEO Patrick Grove (pic, above) commented: “I’m extremely excited to be creating one physical location that brings big, dynamic Internet companies, aspiring entrepreneurs, educational institutions, incubators, accelerators, venture capitalists and government agencies together.

“With all the key Internet players based within a close proximity of each other and supported by the DFTZ, Malaysia will become the centre of gravity for the Internet ecosystem of Asean.”

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