http://www.asiaweek.com/asiaweek/
technology/article/0,8707,170516,00.html

AUGUST 17, 2001

Field of Dreams

Mahathir Mohamad envisioned a merger of Silicon Valley with Hollywood in rural Malaysia. What he got was great infrastructure, a real estate development and a movie soundstage. But some entrepreneurs are building success on their own terms

By WILLIAM MELLOR

Ibrahim Abdul Ghaffar is hardly the best advertisement for the brave new world of the Multimedia Super Corridor, Prime Minister Mahathir Mohamad's attempt to replicate both Silicon Valley and Hollywood in the jungle south of Kuala Lumpur. The portly propertydeveloper with a penchant for karaoke, Jaguar cars, and burly bodyguards, was early last year awarded one of the MSC's most prestigious projects: creation of a $790-million high-tech film studio and a Disneyesque theme park complex called the Entertainment Village.

Just last September, Ibrahim seemed on top of the world. To celebrate completion of the initial phase of the E-village, the first of eight state-of-the-art soundstages, he hosted a gala extravaganza featuring Jackie Chan. But by May, development of the massive project had ground to a halt, raising questions about whether Ibrahim and his partners ever had sufficient expertise or financing to carry it off. Says Don Groves, regional editor of the influential entertainment industry bible Variety: "There's no secret that the Entertainment Village is a white elephant. The wrong people were given the job."

The Multimedia Super Corridor seems like yet another example of Mahathir's checkered development strategy: give well-connected, if inexperienced, local players like Ibrahim a franchise to build and operate a major project meant to boost the country to developed nation status. All too often those grand schemes come up short. But fortunately for Malaysia, another story is unfolding amid the MSC mess. A small number of young, self-made technopreneurs are proving Malaysia can develop Silicon Valley-style start-ups. Some are competing globally in such highly competitive sectors as airport management systems. Even the new Multimedia University is successfully selling content to Europe. Says a senior Asian diplomat in Kuala Lumpur: "The MSC represents the best and worst of business in Malaysia."

The E-village debacle certainly qualifies as among the messiest. Originally, development of the village was awarded to Datuk Keramat Holdings (DKH), a public company of which Ibrahim was vice chairman. The DKH group owns London's Leavesden studios, where Star Wars: Episode 1-the Phantom Menace had just been made. The plan was to transfer Leavesden's expertise to the E-village. But following a power struggle that led to Ibrahim being removed from the DKH board, the Multimedia Development Corp., the government body that runs the MSC, took the E-village away from DKH and gave it to Ibrahim alone. This despite the fact that Ibrahim no longer had access to Leavesden's know-how.

Ibrahim's private company quickly ran short of cash and the MDC issued $7 million in loan stocks. Now the government agency is attempting to find new investors with the funds to restart development on a more modest scale. Two mentioned, Lim Goh Tong of the Genting gaming group and reclusive Syed Mokhtar Al-Bukhary, a Mahathir favorite, are among Malaysia's richest men. But even they would be hard-pressed to resurrect Mahathir's dream.

The silver lining is that the travails of the E-village add weight to calls for a change of direction at the MSC. Five years after its inception and on the eve of the annual meeting of its high-powered international advisory panel, Asia's most ambitious high-tech "siliclone" is under scrutiny as never before. Claims of cyber cronyism and overspending have angered many Malaysians. Competition from other high-tech zones, both for investors and increasingly scarce knowledge workers, is intense. Although Microsoft's Bill Gates has described the MSC as "awesome," neither he nor any other U.S. tech titan has made a major investment there.

A consultants' report leaked to a regional newspaper describes the MDC as too bureaucratic and says the corridor has made no significant impact on the economy. Even the normally sycophantic local press are upset. "The MSC has lost its competitive edge of being first to market," declared New Straits Times columnist A. Shukor Rahman recently.

Mahathir himself has acknowledged that the MSC, which has so far cost $4 billion, has not met expectations. Now the MDC is promising a more focused plan. Officials speak of the need to create global companies if the MSC is to be more than just another tech park. Says MDC deputy chief Mohamed Arif Nun: "The next five years are going to be very challenging. We have got to build heroes, not manufacture them like the Spice Girls."

So far, what the MDC has built is an extraordinary piece of infrastructure. Stretching 50 kilometers south from the world's tallest buildings, the Petronas twin towers in Kuala Lumpur, to the new international airport, the MSC is a fantastic work in progress - a bizarre mix of futureworld and untouched rural Malaysia spread over an area 10 times the size of Hong Kong Island.

Peeping between rolling hills swathed with rubber trees and oil palms are the green onion domes and blue and red tile roofs of two new cities - Putrajaya, Malaysia's purpose-built and architecturally stunning federal capital, and Cyberjaya, the hub of tech business and home to the Multimedia University.

Linking these new cities with Kuala Lumpur and the airport is a network of multilane highways. Just as important are the hundreds of kilometers of digital fiber-optic cable laid beneath the roadside. The cables form an information superhighway giving high-speed Internet connections throughout the 15-km-wide corridor. And still the construction goes on. The economic crisis only slowed it down. The Prime Minister and his department have already moved into Putrajaya. The home and foreign ministries will follow soon.

Despite the skepticism about the MSC's future, 8,000 people are already working in Cyberjaya, which six months ago was a ghost town that had won the nickname Siberia. Now developers are having the last laugh. A fast-selling apartment block is called Cyberia - ria in Malay means happy. A rapid train service will arrive later this year.

The jury is still out on whether Cyberjaya will reach the 250,000 population projected by 2020, but the university is filling up as students recognize the opportunity created by a chronic shortage of knowledge workers - this year's class has 6,000. And the government has plenty of incentives to dangle before local and foreign companies - 10-year tax holidays, freedom to hire foreigners, exemption from capital controls and foreign ownership limits, and possible access to the MDC's own venture capital funds. Thus far 541 companies employing 20,000 have received MSC status.

But aside from the tax holidays, the incentives amount to little more than an effort by the government to create in the corridor the sort of business environment that should exist nationwide. And in return MSC members eventually will have to set up shop there as the government tries to create a highly artificial local version of Silicon Valley. The MSC's creators are unrepentant, insisting the zone is essential to attract the best international and local companies. Says technocrat Arif: "If you want to get the best girl at the ball, you have to wear a good tuxedo."

Unlike previous generations of Malaysian businessmen, the country's best technopreneurs are not so easily wooed. They would be foolish not to accept the incentives on offer, but most simply want to operate on a level playing field to prepare them for taking on global competitors. "We have had nothing from the MSC - that's why we have come so far today," quips Suhaimee Abu Hassan, whose XYBASE Technologies recently saw off U.S. rivals to win a $4-million contract for flight information and gate management systems at Boston's Logan airport.

Mark Chang, CEO of online recruiter JobStreet.com, fears a move to the MSC could be disastrous. Chang set up his company in Penang in 1995 and worries he will lose key staff if he has to uproot. He is puzzled by the logic of the demand to relocate. "Location should not be a factor," he says. "Isn't that what the Internet's all about?" Instead of one big MSC, Chang asks, why weren't smaller ones set up around the country?

XYBASE's Suhaimee believes he knows the answer to that. "It's a real estate development," he declares. Suhaimee, who prefers to keep his office at the Tropicana golf resort in suburban Kuala Lumpur even though he has MSC status, may be partly right. The major developer inside the MSC is a consortium of Malaysia's biggest builders. Rents can be double those in town. The MDC retorts that the price is much less than Singapore. But that does not impress N. Gunananthan, of e-enabler Smart Transact. "We're not in Singapore, we're in Malaysia and by our standards rents are high," he says.

Similarly, Gunananthan is not rapturous about the incentives the MSC offers. He agrees he would not be able to do business without MSC status because of exchange and capital controls imposed on non-MSC businesses, but adds: "In some other countries you wouldn't have those controls on you anyhow." Still, he has no regrets about becoming the first tenant in Century Square, the commercial heart of Cyberjaya, even though he has to provide dormitories for employees because the public transportation is still inadequate.

The MSC has other defenders too. Alex Kong, of Asia TravelMART, and Wei Chuan Beng, of REDtone Technologies, insist the MSC has been crucial to their success. And both declare they aspire to become the global companies the MDC seeks to produce.

Such talk would hearten Mahathir, who believes the MSC is essential for Malaysia to transcend its dependence on manufacturing that is increasingly moving to cheaper centers such as China. But it won't begin to make up for the way the big players have slighted his dream. When Mahathir set up the MSC in 1996 with two technocrats and half an accountant borrowed from the Rubber Research Board, he believed he could attract the world's top tech and film companies.

That vision took him to Los Angeles, where he checked into the movie stars' favorite home-from-home, the stately pink Beverly Hills Hotel. Mahathir's entourage was disappointed the only "star" they saw was Ali McGraw. But the prime minister had better luck in meeting Tinseltown's moneymen. And he appeared to have hit the jackpot when all the biggest names in the world of high tech from Bill Gates down turned up to listen to him.

Many of these techno titans are sworn enemies, but they were united in their gushing enthusiasm for the MSC. Some 40 of them, including Gates and Oracle's Larry Ellison, agreed to serve on an international advisory panel and it was reported, to Singapore's dismay, that Microsoft would make Malaysia its regional headquarters.

Then the Asian financial crisis hit. Malaysia kept building and Japanese telecom giant NTT moved into Cyberjaya. But while most of the big U.S. tech players eventually opened offices, few had more than a token presence. Microsoft has just nine employees in the MSC. Its investment: a puny $2.5 million over five years compared with $50 million in India.

The Entertainment Village isn't likely to tempt Hollywood either - at least for the time being. When Asiaweek visited it, only security staff could be seen at the desolate site, a former tin mine. Ibrahim did not return calls. Although Genting has denied involvement, a rescue deal appears imminent. The other reported savior, Syed Mokhtar Al-Bukhary, is already a prominent player in the MSC, having secured the e-procurement contract for Putrajaya for one of his companies, Commerce Dotcom. He is not commenting.