This article first appeared in Forum, The Edge Malaysia Weekly on March 27, 2023 - April 2, 2023

In Malaysia and around the world, new businesses stimulate the economy, attract investments and create jobs. The value created by start-ups approaches the GDP of a G7 economy, and funding for start-ups reached US$445 billion (RM1.96 trillion) in 2022. That was 35% less than in 2021 but significantly more than in 2020 — and a healthy sum considering the exceptional volatility and grave challenges of the pandemic.

Established companies, recognising opportunities to capture new value pools, are launching ventures of their own. Indeed, eight in 10 business leaders in Malaysia see new business building as a top 10 priority, according to a new survey by McKinsey & Company, and companies that made business building a top strategic priority grew more quickly than their peers in 2022.

Investors often reward companies for these launches, which nearly double the enterprise value of reported new business revenues on average compared with core business revenues. Employees and communities can also benefit. Companies typically need to develop new capabilities to offer new products and services, for example, which can spur them to raise salaries to attract the right talent and train employees to help them master new skills. Entrepreneurs in Malaysia are especially interested in building new businesses to provide sustainable products or services, which could drive economic growth with minimal harm to the environment.

Among the approximately 100 business leaders who responded to the survey in Malaysia, nine in 10 reported that they had launched at least one business in the last 12 months — and two in 10 had launched three. About 40% said they had invested at least US$100 million in building new businesses and 60% intend to invest more this year than they did in 2022.

We asked respondents to explain how they built new businesses. We discovered that the majority of successful parent companies — and the new businesses they spawn — share key characteristics.

Like many leading firms around the world, most of the outperformers in Malaysia rely on customer-centric, data-driven approaches to identifying opportunities and developing new business models. With a strong organisational identity and a clear purpose, they make decisions quickly and work in agile ways.

Few go it alone. Many join or build ecosystems or marketplaces to harness the strengths of multiple companies, digitise sales and delivery channels, and make physical products or hardware.

Malaysia has what it needs to build valuable new businesses across industries: visionary corporate leaders, a supportive government, a large pool of people comfortable conducting business in English (significantly more than in most other countries in Southeast Asia and East Asia), natural resources and key roles in international supply chains, including banking, automobile and electronics manufacturing, energy and agriculture.

But to seize these opportunities, most companies still face significant obstacles, including limited access to funding, due in part to the country’s relatively small venture capital ecosystem. To grow quickly, most new businesses in Malaysia need to serve larger markets outside the country. And finding and retaining the talent required to thrive in an increasingly digital marketplace continues to be a major challenge, not just in Malaysia but also around the world.

The government is working to further improve the new venture capital ecosystem and provide more support for entrepreneurs and companies seeking to start new businesses and grow. Examples include the Malaysia Digital Economy Corporation; the Cradle Fund, which provides funding, mentoring and other support for early-stage start-ups; and the National Entrepreneur and SME Development Council, which provides funding, training and networking opportunities to promote and develop the entrepreneurship ecosystem.

Established companies also have important roles to play in addition to identifying new opportunities and launching new ventures:

• They can invest in start-ups through corporate venture capital programmes for strategic or financial reasons. Hong Leong Bank, for example, has worked with dozens of start-ups to foster innovation and rethink financial services.

• Like innovative companies around the world, they can host their own incubation and acceleration programmes to help turn visions into reality. The Selangor Accelerator Programme, for example, provides start-ups with training, mentorship, acceleration services, networking, pitching and funding opportunities.

• They can forge new partnerships and launch collaborative efforts to share ideas and capabilities without the costs, risks or delays inherent in mergers and acquisitions. Car-sharing is on the rise in Malaysia, for example, thanks to alliances among auto manufacturers, tech companies and insurers.

The opportunities are ripe for ambitious business leaders in Malaysia to sow the seeds of start-ups and other new ventures. If they can join forces with lenders, investors, the government and academia, they can create the right conditions for a flourishing new crop of businesses.

Vivek Lath is a partner in McKinsey & Company’s Singapore office. Nimal Manuel is a senior partner in its Kuala Lumpur office, where Sahil Malik is a senior expert.

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