Redefining innovation to alleviate graduate unemployment

Massive R&D expenditures are not needed to create an idea economy

Unemployment, particularly among graduates is rapidly increasing in Malaysia. According to a Minister in the Prime Minister’s Department, Abdul Wahid Omar, graduates aged between 20-24 number around 161,000 out of the 400,000 unemployed within the country.

Up to 40% of the total unemployed in Malaysia are university graduates, while close to half the graduates of public universities are working in mismatched occupations, totally unrelated to their formal training.

While aggregate unemployment in Malaysia stands at 4%, youth unemployment is around 10%. The story is very similar in Indonesia where youth unemployment is the highest within ASEAN.

Similarly, in Thailand, 40% of graduates, particularly those from the social sciences remain unemployed for long period of time, numbering more than 360,000. Some sources put this figure at 50%.

This is a chronic problem in a region that has aspirations to grow and become ‘developed’. It also suggests that there may be failings and mismatches with what is being taught at universities, and what is needed by graduates in the real world after they graduate.

One of the faults of the education system maybe in the assumptions made about what type of business students should be prepared for in the future. Higher education, supported by the dogma of ‘technology and innovation’ talked so much about by the ‘management gurus’ of the world, has led business schools to be orientated towards training students for ‘hi-tech’ business management.

Under this assumption, a firm utilizes a new technology, undergoes a proving phase, and invests resources, money, and time into commercializing it, i.e., the traditional technology to marketplace model, which is high risk and requires resources far beyond what the average entrepreneur has access to.

The reality is that graduates who become entrepreneurs are more likely to open a coffee shop, mobile phone stall, do some e-business, or something else requiring little innovation and resources.

The ‘copy-cat’ ‘me-to’ syndrome is a major infliction of new enterprise start-ups in the region.

Thus there is a big mismatch between what a business school teaches and what a student requires to open and operate a business. Alternatively, at the very least, a student has paid big money and spent a lot of time learning things they don’t really need in their future careers.

Both ways this is a mismatch.

This requires a complete reframing of what is taught. The basic assumptions behind what a business school teaches needs redefining.

Technology and innovation is projected as something complex. Universities have professors in innovation, and different branches of technology have different faculties teaching these disciplines.

Rather than falling into the ‘hype’ of technology and innovation, it’s important to know what these words actually mean.

According to the Oxford Dictionary, ‘technology’ is simply scientific knowledge used in practical ways in industry. ‘Scientific’ is simply a way of doing something or thinking in a careful and logical manner. ‘Innovation’ is the introduction of new things, ideas, or ways of doing things.

If we further examine some of the words around technology and innovation, we find that ‘invention’ means the introduction of new things, ideas or ways of doing things, and ‘novelty’ means the quality of being new.

This helps us to reframe the paradigm of technology and innovation around the potential business activities unemployed graduates would be capable within their resources to undertake.

‘Technology’ is simply scientific knowledge used in practical ways in industry

However, another assumption needs to be broken down. The belief that new businesses require large capital needs to be re-examined. The way business finance is taught in business schools often leads to the belief that start-up costs are beyond the reach of most. Whereas a careful entrepreneur needs to learn that one does not spend money unless they absolutely need to spend it.

This is where a great amount of thinking time should be spent on how to put off paying for something until its really needed.

So many new businesses spend so much time spending money, they forget about the basic drivers of their business, products and customers.

Therefore. rather than be a hero and take the risk of spending money on a new venture, as traditional textbooks would have it, test concepts first to lower risk.

A good entrepreneur is one who lowers the incidence of risk, rather than takes risks beyond what is acceptable.

Again, counterintuitive to what is normally believed in business schools.

It’s time to relook at small business again. Not the ‘copy-cat’ type that we see all over. What is needed is a kick-start of new innovative micro-enterprises which differentiate their products, come up with novel service processes, and utilize new business models.

This could be as simple as baking and selling pies, undertaking home deliveries of organic vegetables, or conducting handyman or car service home visits.

What is important is that potential entrepreneurs find an incongruity, shortage of local supply, unmet demand, a change in local demographics that creates new needs and wants, or look for solutions to problems. Then a business model can be created with a set of strategies to push a new product that potential consumers may see value in, and offer new product choices.

Innovation is about new and existing businesses creating new products, new processes, and new business models. It’s not about hi-tech.

With high graduate unemployment, there is a need to go back to encouraging innovative micro-SMEs. This can be a new source of innovation within this region.

University research has not to date made any substantial mark on the region’s innovation. A lot of R&D time, money, and effort have been wasted. Foreign direct investment (FDI) will not bring the type of indigenous innovation needed to benefit a diverse proportion of the population. Most technology brought by foreign companies is proprietary technology, which is highly secretive or patented. The government linked companies (GLCs) in Malaysia will not create the innovation needed to benefit the region. They are more interested in profit making than community benefit.

Business innovation within the ASEAN region will not likely be of the high-tech variety.

The future innovation of ASEAN is going to come from micro-SMEs and public policy needs to take this into account and realign to the needs of graduate micro-entrepreneurs.

Governments need to realize this to kick-start this latent source of growth.

The great advantage is that micro-enterprises in Indonesia, Malaysia, and Thailand are under the GST/VAT threshold, which is a massive incentive potential new enterprises don’t have in developed economies.

This is an effective subsidy on innovation.

The standard of living quality will improve with more micro-SMEs offering a much more diverse range of goods and services than before. Choice improves quality of life through adding variety into what is available within a society, something not measured by economists.

Promoting innovative micro-SMEs is an extremely cost effective innovation policy that government’s can pursue. Massive R&D expenditures are not needed to create an idea economy. Funds can be diverted into training and education as the grassroots community level.

Idea driven micro-enterprises can be the next source of growth within the ASEAN region. In societies where the youth are now very choosy about what jobs they take up, this may be the best policy option for governments to take.

Published in the Asian Correspondent 9th December 2015

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