The Pitch Deck: Where are the Malaysian ‘Magnificent Seven’?

The Pitch Deck: Where are the Malaysian ‘Magnificent Seven’?

This article first appeared in Digital Edge, The Edge Malaysia Weekly on June 24, 2024 - June 30, 2024

If you’re an ardent follower of the Nasdaq or New York Stock Exchange, you will know that the term “Magnificent Seven” refers to the top seven technology stocks listed on the US stock exchanges, namely Amazon, Apple, Alphabet (which owns Google), Meta Platforms (Facebook’s parent), Microsoft, Nvidia and Tesla. Almost all of these stocks are valued at over US$1 trillion (RM4.7 trillion), with the exception of Tesla.

These seven stocks are so dominant that they constitute nearly 30% of the market capitalisation of the S&P 500 index, which includes the top 500 listed companies in the US markets. Remarkably, their combined market capitalisation exceeds that of all the listed companies in China, France, Canada, the UK and Japan. Notably, these are all technology companies, most of which did not even exist 30 years ago!

Even in China, market dominance of technology companies is evident, with Tencent Holdings leading the pack. E-commerce giants Alibaba and Pinduoduo also rank among the top 10 listed companies.

In contrast, Bursa Malaysia presents a different picture. The top 10 companies here are predominantly banks, industrial firms, and oil and gas entities, mainly Petronas subsidiaries. The sole “technology” company in this group is CelcomDigi, a telecommunications firm.

Where are the tech companies on Bursa Malaysia? Why are they so dominant in the US and China but almost non-existent in Malaysia?

Malaysia launched its technology initiative in 1996 with the Multimedia Super Corridor. Despite nearly 30 years of tech initiatives, the country has little to show for it, both among listed and unlisted local tech companies. We could have had Grab, but it was lost due to the lack of willing investors to fund them within the country.

It is a rather unfortunate predicament for Malaysia’s tech industry. While technology companies dominate stock exchanges and economies in other parts of the world, Malaysia remains stuck in the 1900s, with banks and industrial firms still dominating Bursa Malaysia. It is as if time has stood still in Malaysia.

So, can we create our own “Magnificent Seven”, “Fabulous Four” or even “Tremendous Three” tech companies to dominate the local bourse? What would it take to achieve this?

Support local tech — they need the revenue

First, it is about time that we — public and private sectors included — support local technology companies by buying local products and services. It is astonishing — and rather mind-boggling — how often large government-linked companies (GLCs) and public listed companies (PLCs) choose to pay significantly more for foreign technology when local alternatives are just as good. They willingly spend five to 10 times the price for foreign products but refuse to invest in local options.

Some use the excuse that local companies are not in the Gartner Magic Quadrant (GMQ) — a service that evaluates technology products based on their vision and execution — to justify not buying local. This is utter nonsense.

Getting on the GMQ requires a significant financial investment, effectively a protectionist measure ensuring that only large foreign companies, which can afford the listing fee, are evaluated and listed. Consequently, many chief information officers (CIOs) only purchase products from these listed companies.

It is time for CIOs to conduct their own evaluations of local products and stop relying solely on the GMQ as the trusted platform for selecting vendors. If the government is serious about supporting local tech, it should use its influence with GLCs, PLCs and government entities to ensure they perform unbiased evaluations when choosing vendors. Relying exclusively on the GMQ will always put our companies at a disadvantage, which is certainly not the way to support local technology.

Local tech companies can offer many products that are just as good as or better than foreign products. Moreover, they need the revenue.

Fund local tech FIRMs

It is terribly challenging for local tech companies to secure funding, particularly venture capital funding. There’s a shortage of local venture capitalists (VCs), and even the few available lack substantial funds needed for significant investments.

While Penjana Kapital Sdn Bhd and its eight funds have notably increased the presence of VCs locally, this effort should not stop there. We must strive to expand the number of local VCs and ensure they have sufficient funds to bolster the local start-up ecosystem.

The recent announcements at the KL20 Summit, where the government introduced a RM3 billion semiconductor fund and a RM1 billion start-up fund, are promising initiatives.

I look forward to the implementation of these measures, but it is crucial to extend support to local VCs alongside foreign ones. Local VCs are driven not solely by profit but by their passion for Malaysia and their patriotism.

Help export our technology

Local companies cannot rely solely on domestic sales; they must also export their tech products and solutions.

Agencies like the Malaysia External Trade Development Corporation (Matrade) and Malaysia Digital Economy Corporation (MDEC) should enhance their support for local tech companies, aiming to increase exports tenfold.

However, it is not only the responsibility of these agencies; founders themselves must be brave enough to venture into export markets. The demand for technology is soaring, especially with the transformative potential of artificial intelligence (AI) and machine learning to enhance productivity. It is time to expand beyond local markets and seize global opportunities.

Be brave, go for high-margin markets

Founders must not only focus on regional markets but also on global ones, as some markets offer significantly higher margins and lucrative opportunities.

Opting for easy markets may lead to thin margins. It is essential to be bold and target bigger, high-value markets. By doing so, you can build a far more valuable company with the extra margins gained.

Build global products, use the latest technologies

Today, building great technology is becoming increasingly affordable. With numerous tools available, and even AI aiding in coding, costs are further reduced. But this presents a double-edged sword, as it also means competitors can develop products at a lower cost.

Nevertheless, instead of worrying about competition, one should focus on embracing the newest technologies and creating products that deliver immense value to customers. AI has the potential to enhance productivity in ways we may not fully comprehend yet, and leading companies are leveraging AI to shape the future of products for global markets. It is time for local tech founders to follow suit.

I have great faith in local entrepreneurs. I believe they have the capacity to develop exceptional products and create highly successful companies. However, they need to be both brave and strategic. Their focus should be on the customer, striving to create products that exceed expectations and deliver 10 times the value.

Ultimately, success hinges on the customer and the value offered to them. Can we cultivate seven Malaysian companies capable of conquering the world? Absolutely. We possess the talent and passion, but what we need are founders with ambition, gumption and a hefty dose of guts.

So, let’s be bold and embark on the journey to build magnificent companies right here in Malaysia.

Dr Sivapalan Vivekarajah is co-founder and senior partner at Scaleup Malaysia Accelerator (scaleup.my) and adjunct professor at Sunway University’s School of Science and Technology. He is also the author of Supercharge Your Startup Valuation.

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