ACADEMIC SESSION 2024/2025

OTHMAN YEOP ABDULLAH GRADUATE SCHOOL OF BUSINESS

UNIVERSITI UTARA MALAYSIA KUALA LUMPUR

FIRST SEMESTER SEPTEMBER 2024/2025 (DC241)

BDMF8023 SEMINAR IN GLOBAL ECONOMY

GROUP ASSIGNMENT

COMPARATIVE ANALYSIS OF GLOBAL COMPETITIVENESS 2024:

MALAYSIA VS. JAPAN

PREPARED FOR

PROF. DR. MOHD ZAINI ABD KARIM

PREPARED BY

NO NAME MATRIC NO
1 EFRIADIANSYAH SYAMSUAR 908073
2 PAVITRA MUNIAN 908187

DATE OF SUBMISSION

15TH DECEMBER 2024

 Table of Contents

1.0 Overview of the Global Competitiveness Index (GCI) .................................................. 1

1.1 Key Features ..................................................................................................................... 1

1.2 Purpose of the GCI ........................................................................................................... 1

1.3 Methodology .................................................................................................................... 1

1.4 Significance of the Four Main Factors ............................................................................. 2

2.0 Malaysia and Japan at a Glance (2024 Rankings) .......................................................... 3

3.0 Methodology of the Global Competitiveness Index ....................................................... 4

4.0 Global Competitiveness in Focus: A Comparison of Malaysia and Japan Across Four
Main Factors .............................................................................................................................. 4

4.1 Economic Performance .................................................................................................... 4

4.1.1 Domestic Economy ....................................................................................................... 5

4.1.2 International Trade ........................................................................................................ 6

4.1.3 International Investment ................................................................................................ 7

4.1.4 Employment .................................................................................................................. 7

4.1.5 Prices ............................................................................................................................. 8

4.2 Government Efficiency .................................................................................................... 9

4.2.1 Public Finance ............................................................................................................. 10

4.2.2 Tax Policy .................................................................................................................... 10

4.2.3 Institutional Framework .............................................................................................. 11

4.2.4 Business Legislation.................................................................................................... 12

4.2.5 Societal Framework..................................................................................................... 13

4.3 Business Efficiency ........................................................................................................ 13

4.3.1 Productivity and Efficiency ......................................................................................... 14

4.3.2 Labor Market ............................................................................................................... 15

4.3.3 Finance ........................................................................................................................ 16

4.3.4 Management Practices................................................................................................. 16

 4.3.5 Attitudes and Values .................................................................................................... 17

4.4 Infrastructure .................................................................................................................. 17

4.4.1 Basic Infrastructure ..................................................................................................... 18

4.4.2 Technological Infrastructure........................................................................................ 19

4.4.3 Scientific Infrastructure ............................................................................................... 19

4.4.4 Health and Environment.............................................................................................. 20

4.4.5 Education ..................................................................................................................... 21

5.0 Key Challenges for Malaysia and Japan ....................................................................... 22

6.0 Strategies for Malaysia to Catch Up with Japan ........................................................... 23

6.1 Increase R&D Investment .............................................................................................. 23

6.2 Enhance Education Systems........................................................................................... 23

6.3 Foster Public-Private Partnerships ................................................................................. 24

6.4 Strengthen Institutional Frameworks ............................................................................. 24

7.0 Conclusion: Closing the Gap ........................................................................................ 24

REFERENCES ........................................................................................................................ 26
1.0 Overview of the Global Competitiveness Index (GCI)

The Global Competitiveness Index, developed by the World Competitiveness Center at the
International Institute of Management Development, is an important tool used for assessing the
variables that impact the success of a nation's economic growth and productivity in the long
run. The GCI assesses several characteristics related to competitiveness and provides important
implications about how countries may enhance economic performance, which is crucial for
achieving sustainable development.

1.1 Key Features

The GCI is a global competitiveness benchmarking report that assesses 67 economies in terms
of national competitiveness in 2024. In total, the assessment reached 6,612 C-level and mid-
level managers from various businesses between March and May 2024. Such wide reach
ensures that the index represents today's managerial thoughts and business realities, which can
serve to a great extent the process of understanding the competitive situation.

1.2 Purpose of the GCI

The key purpose of the GCI is to establish the strengths and weaknesses of national economies.
Policymakers can take this information as an indicator for developing initiatives that enhance
competitiveness. Furthermore, by facilitating the understanding of organizations in the
competitive dynamics of different markets, the GCI is a useful tool that helps them make
informed decisions about operational and investment plans.

1.3 Methodology

The GCI combines quantitative data from reliable sources, such as the World Bank and the
International Monetary Fund, with qualitative survey data from executives. The scoring is done
from 0, the worst, to 100, the best, allowing simple comparisons across countries. Economic
Performance, Government Efficiency, Business Efficiency, and Infrastructure are the four main
components of national competitiveness rated by the GCI.

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1.4 Significance of the Four Main Factors

The four key determinants that compose the GCI on the aggregate performance of
competitiveness are economic performance, government efficiency, business efficiency, and
infrastructure. The aforementioned variables embrace specific pillars to measure considerable
aspects of the performance of a country. The economic performance measures such indicators
as domestic economy, international trade, international investment, employment, and prices.
Government Efficiency investigates such things as public finance, tax policy, institutional
frameworks, business regulations, and the societal environment. Business Efficiency takes into
consideration issues like productivity and efficiency, labor market, finance, management
practices, attitudes, and values. At the same time, Infrastructure assesses the quality of basic
infrastructure, technical infrastructure, scientific infrastructure, heal and environment, and
education. Concentrating on aspects such as the improvement of institutional quality or the
development of educational systems to build a more resistant and flexible economy,
policymakers can apply the GCI framework to identify areas where investment or improvement
is needed. In addition to assessing competitiveness, this all-encompassing method acts as a
roadmap for countries looking to strengthen their economic position and sustainability in the
face of global difficulties (IMD, 2024; World Economic Forum, 2024).

Illustrative 1: The 4 Main Factors of Competitiveness (Malaysia vs Japan)

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2.0 Malaysia and Japan at a Glance (2024 Rankings)

The GCI 2024 allows a comparative analysis between Malaysia and Japan, two economies
geographically proximate to each other but with sharply different levels of competitiveness.
This year, Malaysia ranks 34th, down from 27th in the year 2023. It further reveals several
problems that Malaysia has, particularly in areas regarding quality and productivity in
education. Japan, on the other hand, ranks 38th, down from 30th the previous year, highlighting
continued demographic concerns and restrictive labor market policies that impede adaptability
to changing economic conditions (IMD World Competitiveness Centre, 2024).

Illustrative 2: Malaysia Rank Over Time Vs Japan Rank Over Time

Malaysia leads in basic infrastructure, ranking number ten globally, due to significant
investments in areas of transportation and connectivity, as well as a competitive pricing
environment that is ranked second, contributing to an increase in both domestic and foreign
corporate activity. Challenges remain, however, in areas such as education, which is ranked
44th and needs adjustment to better meet the requirements and expectations of industry, and
business legislation, ranked 50th, still offering regulatory barriers. Japan, on the other hand,
leads in institutional framework and innovation, scoring 90/100 for governance and 94/100 for
innovation capacity, cementing its position as a technological leader (IMD World
Competitiveness Centre, 2024). Despite these advantages, Japan has challenges due to an aging
population and rigid labor market rules, which endanger its labor supply and economic agility.
This comparison underlines the infrastructural and business environment strengths of
Malaysia, while highlighting its need for education and regulatory reforms; similarly, Japan's
need for demographic and labor market concern to keep up with competitiveness.

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3.0 Methodology of the Global Competitiveness Index

The GCI adopts a unique dual methodology in combining subjective observations from more
than 6,600 CEOs with an objective quantitative dataset from trusted sources like the
International Monetary Fund and the World Bank. The joint method gives a broad review of
national competitiveness by adopting macroeconomic measures like GDP growth and inflation
with subjective responses in government efficiency and infrastructure. GCI ranges from 0 to
100 and thus provides a lucid benchmark for country comparisons. In all, it measures four
important aspects of competitiveness: economic performance, efficiency of government,
efficiency of business, and infrastructure. This helps policymakers to gain relevant insights that
may help them make long-term strategic decisions to increase national competitiveness
(International Monetary Fund, 2024).

4.0 Global Competitiveness in Focus: A Comparison of Malaysia and Japan Across Four
Main Factors

The GCI is an effective methodology applied to assess the essential attributes that influence a
country's economic performance and global competitiveness. The GCI comprises four main
factors: economic performance, government efficiency, business efficiency, and infrastructure,
which all combine to provide a very complete picture of the competitive landscape of any given
country.

4.1 Economic Performance

With an overall score of 62.5, Malaysia took the 8th rank in the 2024 IMD GCI on Economic
Performance, while Japan slipped down to 21st with a score of 55.1 points. Malaysia would
stand better, provided it is not passing through all these adverse situations like political
instability and currency depreciation that have become strong barriers to the country's
economic prospects. By contrast, Japan will be better positioned due to specific reforms,
economic diversification, and initiatives to stimulate innovation. These changes underline the
urgency of more vigorous reforms on Malaysia's part to ensure sustainable growth, while
Japan's resilience through smart adjustments. In this respect, a closer look shall be drawn at the
economic performance sub-factors: domestic economy, international trade, international
investment, employment, and prices, as these are vital elements of both countries in driving

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competitiveness. The following analysis will shed light on the economic forces that influence
their ranking and performance within the broader global context.

Illustrative 3: Economic Performance Ranking between Malaysia and Japan

4.1.1 Domestic Economy

Japan ranks fifth in the 2024 IMD GCI in Domestic Economy with 60.4 points because of the
solid industrial output, strong domestic consumption, and appropriate fiscal policy. The
Japanese domestic economy would be stronger because this is a country that adapts well to a
host of economic issues, for instance, managing the problem of an aging population or
increasing participation in the labor market. Malaysia ranks 35th, with a score of 48.1, citing
political instability, foreign reliance on exports, and currency depreciation among major issues.
These features, along with inflationary pressures, have impacted the performance of Malaysia's
economy in comparison to the relatively resilient economy of Japan.

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 Illustrative 4: Domestic Economy comparison between Malaysia and Japan

4.1.2 International Trade

Malaysia ranked 17th in the 2024 IMD GCI ranking for International Trade with an
accumulated score of 53.8. This is evidenced by its diversified export basket including
electronics, palm oil, and petroleum, while strategically being a key player in the South-Eastern
part of Asia in world commerce and regional supply chains. Japan, on the other hand, ranks
44th with a score of 43.2, owing to issues such as a shrinking population, limited domestic
resources, and the slow expansion of free trade agreements. These concerns have hampered
Japan's capacity to sustain its past international trade dominance (IMF, 2024).

Illustrative 5: Malaysia and Japan’s positions in terms of International Trade

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4.1.3 International Investment

According to the 2024 GCI, there is a large difference between Malaysia and Japan regarding
international investment. Malaysia ranked 28th with 47.2 points, because of its favorable
policies and environment for Foreign Direct Investment (FDI). Located in Southeast Asia,
Malaysia has strategic advantages due to its investments in technology and manufacturing in
relation to global demand (World Bank, 2024). While Japan has a good industrial base to rely
on, comparative ratings are 34th position with a score of 45.7, including constraints such as a
shrinking population, expensive labor, and its unwillingness to open up areas like agriculture
to foreign investors-issues that have prevented this country from becoming an attractive haven
for international investment. Thus, this gap suggests how the competitive investment climate
in Malaysia is much more welcoming as opposed to the Japanese limitations.

Illustrative 6: International Investment (Malaysia vs Japan)

4.1.4 Employment

Malaysia and Japan have different employment performances in the 2024 IMD GCI. Malaysia
ranked 18th with 54.5 points, which denotes that the labor market has been relatively stable,
but wage growth and productivity still face some challenges. Despite a good economic
environment, the country is dealing with difficulties related to a skills mismatch in particular
sectors, which seriously limits the potential for employment development to develop further.
Japan, however, ranks sixth with 65.0, due to its highly efficient labor market and strong
employment policy that focuses on high participation and low unemployment. Workforce skill

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development in highly sophisticated technologies and innovation-driven sectors has paid off
well for the country in the labor market performance (IMF, 2024; OECD, 2024). This gap
underlines that stronger labor market changes are required in Malaysia to improve employment
outcomes, while Japan's performance shows successful employment initiatives.

Illustrative 7: Comparison in terms of Employment (Malaysia vs Japan)

4.1.5 Prices

The prices between Malaysia and Japan are pretty different in the 2024 IMD Global
Competitiveness Index. Malaysia ranks second with 70.5 points, since it has low inflation and
stable prices, meaning a lower cost of living for enterprises and consumers. The effective
pricing structure is conducive to competition in the local market and attracts foreign
investment. By contrast, Japan stands 55th with a rating of 37.9. It is constrained by a high cost
of living attributed to limited natural resources, increased wages, and expensive housing in the
cities. The good news for Japan is that while pricing pressures diminish consumer purchasing
power, its economy stays on strong footing, still, this factor would tend to make for less ideal
business conditions than they could be (OECD 2024; IMF 2024). Malaysia's relatively better
pricing system also contributes greatly to its competitive advantage in the sector over Japan.

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 Illustrative 8: Price Comparison between Malaysia and Japan

4.2 Government Efficiency

The Government Efficiency subfactor of the 2024 IMD GCI has shown some significant gaps
between Malaysia and Japan. Malaysia ranks 33rd, slipping by four positions because of
lingering problems in the areas of public finance, tax policy, and institutional frameworks. In
these sectors, political uncertainty and delays in reform have adversely affected the efficiency
of the government as a whole. Japan, however, remains in 42nd position and faces similar
challenges in terms of delayed public funding and tax reforms, though having a strong
institutional framework and business legislation. The country's difficulties with enhancing
government efficiency stem from its inflexible regulatory framework and late adaptability to
changes in society (OECD, 2024; IMF, 2024) provide more information. Both countries need
further reforms to enhance government agility and competitiveness in the global environment.

Illustrative 9: Ranking between Malaysia and Japan for Government Efficiency

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4.2.1 Public Finance

Malaysia and Japan are quite different with regard to how their public finances function.
Malaysia stands in the 35th place with a score of 45.8, indicating a fairly decent public finance
system. The Malaysian government still faces the constant problem of fiscal deficit and public
debt management. Even though the government has proceeded to increase fiscal transparency
and governance, it is still severely affected by political instability, along with the requirement
for deeper fiscal reforms (World Bank, 2024; IMF, 2024). Japan, however, is ranked 64th with
a score of 26.5, indicating high fiscal concerns. Japan's high levels of public debt, aggravated
by the aging of the population and poor development, hinder its ability to effectively implement
fiscal changes. The country's reliance on public borrowing, along with limited fiscal expansion
options, has put severe strain on its financial stability (OECD, 2024; IMF, 2024). These
discrepancies highlight how important it is that both countries' public finance systems are
strengthened so that economic sustainability and competitiveness can be achieved in a longer-
term context.

Illustrative 10: Comparison between Malaysia and Japan for Public Finance

4.2.2 Tax Policy

Malaysia ranks 11th in Tax Policy, as its score of 62.6 indicates a tax environment that is fairly
conducive. The country is assisted by tax reforms that help boost efficiency, enhance
compliance, and spur economic growth on the back of a lowered tax rate for corporations and
tax residents. A well-established tax system within Malaysia has made it appealing for foreign
investment, yet challenges such as increased efficiency in tax collection and compliance remain
apparent. Japan, however, ranks 43rd with a score of 42.0, indicating significant problems with

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its tax policy. While Japan has a sound infrastructure for taxation, its high corporate tax rates
and an aging population have strained its social security system. These factors have been
detrimental to achieving a growth-friendly and competitive tax structure (OECD, 2024; IMF,
2024). Malaysia's stronger tax policy puts them ahead of Japan in this respect, but both
countries require additional reforms to increase efficiency and sustainability.

Illustrative 11: Malaysia and Japan comparison for Tax Policy

4.2.3 Institutional Framework

Malaysia ranks 31st in the Institutional Framework, with a score of 50.1, showing continued
issues with transparency, regulatory enforcement, and bureaucratic inefficiencies, all of which
can impede company operations and investor confidence (IMD, 2024; openness International,
2024). Malaysia has to strengthen its governance systems in order to establish a more stable
and hospitable business environment. Meanwhile, Japan ranks 26th with a score of 52.6, due
to solid institutional frameworks defined by low corruption levels and high public trust in
government institutions. The OECD, 2024; World Bank, 2024, have noted that Japan's solid
institutional system has continued to promote economic growth and global competitiveness.

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 Illustrative 12: Institutional Framework (Malaysia vs Japan)

4.2.4 Business Legislation

Malaysia is ranked 50th in the Business Legislation subfactor, with a score of 37.0, showing a
poor legislative environment that is full of complicated regulations and onerous laws, which
make corporate operations difficult to carry out and deter investment. Japan is ranked 40th with
a score of 43.4, showing a rather better corporate legislative environment in which the rules
are clear and more efficient. Yet, though Japan's position in this ranking is not yet very high, it
guarantees more stability in operation. Both countries have to pursue more reforms since that
is the key way in which their business legislative frameworks can be improved for better
economic competitiveness and a friendlier environment for investment and entrepreneurship
growth.

Illustrative 13: Business Legislation (Malaysia vs Japan)

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4.2.5 Societal Framework

Malaysia ranks 42nd in the Societal Framework subfactor, with a score of 42.7, reflecting
serious problems in social cohesion and inclusiveness. Income inequality and limited access to
quality education and health are undermining the competitiveness of the country, thus
underlining the pressing need for measures to promote social equity and community
involvement. In contrast, Japan is ranked 27th with 49.6 points, showing a more enabling
societal setting with close social bonds and functional support systems. The commitment of
Japan to the "Society 5.0" project exemplifies how it tries, through technology, to find solutions
for social problems and contribute generally to quality of life. However, Japan faces great
challenges in terms of demographics and social policy inclusivity.

Illustrative 14: Societal Framework Comparison between Malaysia and Japan

4.3 Business Efficiency

Malaysia scored 41.5 and ranked 40th in the Business Efficiency factor, falling eight places
from last year, while Japan ranked 51st with a score of 30.8, down four places. This decline
indicates persistent problems with productivity and efficiency, labor market optimization, and
management methods. These results again suggest that Malaysia should further enhance
operational effectiveness and people-related initiatives to improve overall business success.
Despite having a mature economy, Japan faces significant issues in enhancing corporate
productivity, especially in aligning management practices to the requirements of a rapidly
changing global environment. Both countries are recommended to take steps to eliminate these
inefficiencies and create a more competitive economic climate.

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 Illustrative 15: Malaysia vs Japan (Business Efficiency)

4.3.1 Productivity and Efficiency

Malaysia ranks 53rd in the Productivity and Efficiency subfactor, scoring 33.1, with a high
level of activity in its startup ecosystem but often hindered by red tape in setting up firms.
Simplification of laws and encouragement of entrepreneurship through government incentives
could greatly enhance dynamism and innovation in many fields. At the same time, Japan ranked
58th with 29.1 points and revealed that although it has mature industries that focus on high-
quality production processes, this country accepts disruptive innovations more slowly than its
competitors in the world market. For developing an entrepreneurial mindset, Japan should take
measures toward stimulating startups, which contribute to increased speed within established
entities and the attraction of newcomers to the market. Both countries need to find a way out
of these problems to enhance production and productivity and emerge more competitive
internationally.

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 Illustrative 16: Malaysia vs Japan (Productivity and Efficiencies)

4.3.2 Labor Market

Malaysia ranks 34th in the labor market factor, which is 47.3. The score represents a
competitive labor market with a diversified workforce and growing job prospects. Yet,
challenges are still evident, especially in skill mismatches and the need for stronger labor
market policies to enhance productivity and employment. Japan, meanwhile, is ranked 51st
with a score of 40.4, suggesting that even with a very low unemployment rate of 2.4%, it still
suffers. Though the job-to-applicant ratio in Japan shows there are more available jobs than
workers, it faces several challenges, such as an aging workforce and slow adaptation to modern
employment practices, which can hinder overall efficiency in the labor market. Addressing
these labor market difficulties is important for both countries as they try to enhance their
competitiveness and spur long-term economic growth.

Illustrative 17: Labor Market Comparison (Malaysia vs Japan)

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4.3.3 Finance

The finance subfactor shows significant differences between Malaysia and Japan. Malaysia
ranks 36th with a score of 48.7, indicating a strong banking sector but a lack of venture capital,
which reduces funding opportunities for entrepreneurs who want to grow their businesses
rapidly (IMD, 2024). Japan, on the other hand, ranks 19th with a score of 57.4, thanks to world-
class capital markets and strong global integration, which give firms a wide range of financing
choices. This environment promotes innovation-driven growth and helps enterprises compete
on a global scale (IMD, 2024; World Bank, 2024). It would address Malaysia's financial
constraints and the focus of Japan on the development of innovative financial structures for
both countries to improve their competitiveness.

Illustrative 18: Comparison between Malaysia and Japan in terms of Finance

4.3.4 Management Practices

Management practices show a sharp difference between Malaysia and Japan. Malaysia ranks
42nd, with a point of 40.9, meaning the country shows difficulties in maximizing the efficiency
of their management using appropriate organizational structures and effective leaders who
manage to adapt businesses to changing circumstances. However, in sharp contrast, Japan
stands at 65th with a score way down, reaching 24.4 points, showing even further difficulties
in adapting management practices to an emerging global economy. Despite its global reputation
for technical innovation, Japan's management practices seem to lag behind, particularly in
terms of agility and entrepreneurial leadership. Both countries have to make management
techniques a priority in order to come up with better decision-making processes and long-term
growth (IMD, 2024; World Bank, 2024)

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 Illustrative 19: Malaysia vs Japan (Management Practices)

4.3.5 Attitudes and Values

Another critical subfactor showing substantial differences between Malaysia and Japan is
Attitudes and Values in the 2024 IMD Global Competitiveness Index. Ranked 40th, with a
score of 41.6, Malaysia shows a somewhat positive attitude toward entrepreneurship and
innovation. There are still some issues with social values and work culture. Japan, on the other
hand, is ranked 57th with a considerably lower score of 28.4 and thus exhibits a more rigid
cultural framework that can thwart entrepreneurial energy and innovation. Its relatively low
score suggests that in Japan, the conventional culture of work hampers its ability to adapt to
emerging global trends and entrepreneurial dynamics. To effectively compete in the expanding
global economy, both nations should work on fostering a culture that fosters increased risk-
taking, innovation, and flexibility (IMD, 2024; World Bank, 2024).

4.4 Infrastructure

In the 2024 IMD Global Competitiveness Index, the Infrastructure factor, which covers basic
infrastructure, technical infrastructure, scientific infrastructure, health and environment, and
education, indicates that Malaysia and Japan have similar yet different performances. Malaysia,
which continues to rank 35th with a score of 49.7, confronts hurdles in furthering infrastructure
development, notably in terms of technology and scientific infrastructure, despite the fact that
its health and education systems remain competitive. Japan, on the other hand, ranks 23rd with
a score of 63.2, which reflects its strong infrastructural systems, particularly in technology and

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science, as well as excellent healthcare and educational structures. Japan's high position
emphasizes its advanced infrastructure, which fosters innovation and economic progress. For
Malaysia, continued investment in technological and scientific advancements will be essential
to enhance its competitive edge, while Japan's infrastructure strength enables its continued
global economic integration and innovation leadership. (IMD, 2024; World Bank, 2024).

Illustrative 20: Infrastructure (Malaysia vs Japan)

4.4.1 Basic Infrastructure

Malaysia excels in basic infrastructure, ranking 10th with a score of 57.6, showcasing
substantial achievements in transportation, utilities, and connectivity that drive economic
integration and efficiency. Conversely, Japan, at 41st with a score of 45.3, reflects a solid yet
comparatively lower emphasis on this area, despite its advanced urban infrastructure. Both
nations, however, recognize the importance of continued investment to address evolving
technological and logistical demands.

Illustrative 21: Comparison between Malaysia and Japan (Basic Infrastructure)

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4.4.2 Technological Infrastructure

Malaysia secures the 29th spot with a score of 49.9 in technological infrastructure, reflecting
its efforts to enhance digital connectivity and foster a technology-driven economy. Despite
limited R&D spending at about 1.1% of GDP, Malaysia is making strides through improved
collaborations with the private sector, focusing on joint ventures and initiatives targeting high-
tech industries to boost innovation. On the other hand, Japan ranks 35th with a score of 48.0,
showcasing its global leadership in patents per capita and significant investments in R&D.
These developments propel technical progress in fields like robotics and artificial intelligence.
It shows that while Malaysia is willing to cut the gap in digital access, Japan is now trying to
further accelerate its digital transformation toward a solid technological foundation for the
country. Both understand that technology infrastructure is central to economic growth and
further enhancing innovation.

Illustrative 22: Malaysia vs Japan (Technological Infrastructure)

4.4.3 Scientific Infrastructure

Malaysia ranks 31st in scientific infrastructure, scoring 44.7, reflecting the fact that the country
has grown regionally within ASEAN but has insufficient global links, thus limiting the
possibility of international knowledge exchange and innovation transfer. Japan is one of the
successful ones in this category, ranking tenth with a score of 70.0, thanks to its strong
worldwide collaborations with big multinational firms and renowned universities, fostering
research competitiveness and technological developments. Both countries recognize the need
for strategic enhancement of their respective scientific infrastructures to catalyze innovation

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and, consequently, long-term economic growth, while Malaysia is expanding global
relationships and Japan leverages existing global cooperation.

Illustrative 23: Scientific Infrastructure (Malaysia vs Japan)

4.4.4 Health and Environment

Malaysia ranks 42nd for health and environment with 41.5 points and has made considerable
improvements in recent years, especially in accessing healthcare within urban areas, while its
rural areas are still facing large service delivery challenges, necessitating further investment to
achieve more equitable access to health among all population groups. Japan is ranked 12th with
61.3 points and is renowned for its progressive health system, whose universal cover
contributes to the longevity of its life expectancy. Nonetheless, as Japan's population ages, the
country faces increasing issues in elder care, making it critical to address these changing
demands for long-term success in health and environmental results.

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 Illustrative 24: Health and Environment Comparison between Malaysia and Japan

4.4.5 Education

Malaysia ranks 44th in education, with a score of 42.2, and initiatives to develop technical
education programs are ongoing. However, low postgraduate enrollment rates impede the
development of advanced skills required for higher-value businesses. It will be important to
strengthen vocational training programs to align workforce capabilities with market demands.
Japan, on the other hand, is ranked 31st with a score of 51.6 and has a highly trained workforce
with a strong emphasis on Science, Technology, Engineering, and Mathematics (STEM)
education, which fosters innovation across all sectors. While Japan has made progress, it faces
the challenge of rapid technological development and needs to invest continuously in lifelong
learning efforts to maintain its economic edge.

Illustrative 25: Malaysia vs Japan (Education)

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5.0 Key Challenges for Malaysia and Japan

Malaysia and Japan have some unique problems that affect their competitive advantage in the
global economy. One of the major drawbacks of Malaysia is market size. Although strategically
positioned in the ASEAN region, which provides access to the neighboring economies,
Malaysia's relatively small domestic market limits its growth potential compared to larger
economies like Japan (World Bank, 2023). This limits the scale of local firms and, in turn, their
global competitiveness. More regulatory inefficiencies translate to increased bureaucratic
bottlenecks in this context of entrepreneurial activities. Complicated rules and prolonged
approval processes can significantly discourage company growth, particularly in expanding
and innovative startups (OECD, 2024). To realize these challenges, Malaysia has to embark on
streamlining the regulatory environment to create a more conducive business climate that
encourages entrepreneurs and foreign investments. There is also a mismatch in the supply of
labor in Malaysia's labor market, where educational attainments are often not aligned with
industrial requirements, especially in advanced areas. The gap is further widened by a lack of
vocational training programs that source the skills needed for the emerging sectors. As the
demand for highly trained workers increases, Malaysia needs to increase investment in
education and vocational training to ensure its workforce can continue to meet the changing
demands of the global economy (UNDP, 2024).

Japan, however, is suffering from demographic problems, particularly an aging population.

This has led to a decline in the workforce due to the rapid growth of the aging population,
which is highly risky to economic growth and productivity. Therefore, policymakers should
ensure that older people are integrated into the workforce and incentivized, as well as attract
younger talent. Another challenge is labor market flexibility in Japan. The rigidness of its labor
market rules makes it difficult to adapt and innovate, thus making it hard for enterprises to
adjust to market changes and technological improvements. Labor market reforms are quite
essential in developing a more dynamic environment that can meet the country's needs in
innovation and competitiveness (OECD, 2024). Finally, despite its technological superiority,
Japan's delayed acceptance of disruptive technology is causing anxiety. While Japan stands out
in many technological domains, the integration of state-of-the-art technologies related to
artificial intelligence and automation is considerably behind its global competitors in most
industries. To continue to be competitive, Japan must quicken the pace in employing these
technologies to further improve productivity and maintain its edge in technical innovation.

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Both countries need to address these challenges strategically if they are to enhance their global
competitiveness. While Malaysia needs to overcome the constraints of market size and improve
its regulatory and educational frameworks, Japan has to adapt its labor market and embrace
disruptive technologies to hold its economic position in the future.

6.0 Strategies for Malaysia to Catch Up with Japan

Although Malaysia ranks slightly higher than Japan in the 2024 Global Competitiveness Index,
Japan excels in infrastructure, scientific research, institutional frameworks, and education.
Malaysia could close the gap by increasing R&D investments (OECD, 2024), improving
education systems to better align with market demands (World Bank, 2023), fostering public-
private partnerships to drive innovation (World Economic Forum, 2023), and strengthening its
institutional framework to improve regulatory efficiency (IMD, 2024). These methods would
help Malaysia increase its competitiveness and approach Japan's advanced economic status.

6.1 Increase R&D Investment

Malaysia's current Gross Expenditure on R&D (GERD) is only 1%, much lower than Japan's
3.41%. To close this gap, the Malaysian government has set a target of increasing GERD to
3.5% by investing RM26 billion per year, with the goal of encouraging private sector
investments of up to RM60 billion in 2030. Malaysia intends to encourage innovation and
strengthen its competitiveness in the global economy by focusing on high-tech industries such
as biotechnology, renewable energy, and digital technology (World Bank, 2023; Ministry of
Science, Technology, and Innovation Malaysia, 2023).

6.2 Enhance Education Systems

To boost Malaysia's competitiveness, it is critical to focus on enhancing educational

achievements, particularly in STEM subjects, so that they better fit with business demands.
There will be increased enrollment in postgraduate programs, leading to a very competent
workforce that will drive innovation in many fields. This will help in closing the gap between
education and industry, leading to a talent pool that can support high-tech companies and
contribute to economic growth (The World Bank, 2023; Ministry of Education Malaysia,
2023). Improving the quality of vocational and technical training programs will also be
important in addressing the gaps in skills and flexibility of the labor market.

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6.3 Foster Public-Private Partnerships

For Malaysia to be able to market its Research and Development (R&D) results effectively,
there is a need for collaboration with industry leaders. This will enable R&D to be translated
into useful products and services, which drive economic growth. Initiatives such as the
Malaysian Innovation Index (MII) are important in this process since they assess innovation
levels among states. The MII delivers insights that will enable targeted interventions, allowing
regional inequities and innovation activities to fall in line with the general aims of the nation.
Activities are crucial for the building up of a much stronger, more competitive innovation
ecosystem-one that encourages collaboration among the corporate sector, academia, and
government (Malaysia Digital Economy Corporation, 2023; Ministry of Science, Technology,
and Innovation, 2023).

6.4 Strengthen Institutional Frameworks

Strengthening institutional structures is key to improving the business conditions in Malaysia.

Increasing transparency and reducing bureaucratic inefficiencies could create a better business
environment for the government, thus improving investor confidence. These reforms have the
potential to attract more FDI, hence increasing economic development and competitiveness.
For example, activities like streamlining regulatory processes and ensuring fair competition are
critical in building a stable climate that attracts long-term investments (World Bank, 2023;
Malaysian Investment Development Authority, 2023). Strengthening governance mechanisms
will be critical to promoting Malaysia as a more appealing location for both domestic and
foreign investors.

7.0 Conclusion: Closing the Gap

While Malaysia is ahead of Japan in the 2024 Global Competitiveness Index Ranking at 34th
versus 38th, Japan still outperforms Malaysia in scientific infrastructure, technological
innovation, and healthcare systems. Malaysia might utilize its strategic position in ASEAN as
a means to establish broader regional and global trade relationships. Working with global
technology leaders on knowledge transfer will enhance local innovation while investing in
school especially in the areas of STEM subjects and postgraduate study-will develop the skills
relevant to the future employment market. In addition, better healthcare infrastructure and
corporate transparency will help to further improve investor confidence and productivity.

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Lastly, much emphasis should be directed towards the identified key areas that would assist
Malaysia in overcoming challenges and providing necessary reforms to strengthen its position
in the global economic platform.

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 REFERENCES

ASEAN Secretariat. (2023). ASEAN economic community.

Asian Development Bank. (2024). Asia development outlook 2024.

Bernama. (2024). Malaysia targets higher R&D investments to be on par with developed

countries.

International Trade Administration. (2024). Malaysia - Trade agreements.

International Monetary Fund. (2024). World economic outlook.

IMD World Competitiveness Center. (2024). Global competitiveness index 2024. International

Institute for Management Development.

Malaysian Investment Development Authority (MIDA). (2024). Malaysia targets higher R&D

investments.

Ministry of Education Malaysia. (2023). Education statistics.

Ministry of Finance Malaysia. (2023). Economic report.

Ministry of Finance Malaysia. (2024). Budget 2024: Key highlights.

OECD. (2024). OECD economic surveys: Japan 2024. Organization for Economic

Cooperation and Development.

United Nations Development Programme. (2024). Human development report 2024.

World Bank. (2024). World development indicators.

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