Cambodia lags behind many of its regional neighbours in terms of overall development, but growth has been rapid over the past decade because of increases in trade, tourism and foreign direct investment (FDI). It is still dominated by agriculture and garment manufacture, and employment growth has helped to reduce poverty. There is little technological sophistication and innovation has played an insignificant part in economic development, as many factors conspire to undermine firms’ capacity to become competitive and innovate. The country’s fragile infrastructure is a deterrent to inward investment, its information and telecommunications infrastructure is expanding but still at an early stage of development, and its legal and financial institutions are not geared towards innovative entrepreneurial activity. As a consequence, Cambodia’s innovation performance is weak. There is very little expenditure on R and D, the number of researchers is low, publication levels are modest, albeit growing, and patenting is extremely rare. Current policies focus on product diversification, trade expansion and efforts to increase FDI. There is no explicit focus on science or innovation policy, though general improvements to the business environment are likely to improve framework conditions for innovation. The establishment of an Accreditation Committee for degrees awarded by higher education institutions (HEIs) and a National Training Board to oversee the development and implementation of a national plan for vocational education and training should also improve the quality of educational provision and strengthen the human resource base. The relative immaturity of the country’s innovation system suggests that it is too early for innovation to be at the heart of its short-term plans for development. Continued expansion via trade and inward investment and efforts to upgrade the general business and educational environments must take priority. But there is tremendous scope for short-term plans to be informed by long-term visions that prioritise actions likely to facilitate the country’s eventual transition to a modern, innovation-oriented economy. This will call for an approach to policy formulation that emphasises the co-ordination of seemingly disparate policies towards a common goal. In particular, the further development of the educational sector will need to prioritise science, engineering and entrepreneurship; industrial policy will need to prioritise cluster developments, spillovers and product diversification that involves the manufacture of higher value-added goods; and science and innovation policies will need to move towards centre stage if a suitable infrastructure for scientific and innovative activities is to emerge.

Indonesia has risen to become a middle-income economy through appreciable levels of economic growth which have relied to a large extent on exports of natural resources and good trade links with leading global economies. However, Indonesia’s GDP per capita remains relatively low (poverty remains a social problem) and it has only attracted modest levels of foreign direct investment (FDI). It has not developed a technologyintensive industry structure and imports of high-technology products outweigh exports. Increases in total factor productivity (TFP) have contributed to economic growth, but TFP growth levels have been lower than in competitor countries. Similarly, FDI is flowing into high- and medium-technology sectors, but input levels are low compared to those elsewhere, and many of its regional neighbours appear to be modernising their economies more rapidly and effectively. Until recently, government policies tended to neglect the development of an adequate scientific and technological base and framework conditions for innovation, but there is now a new emphasis on policies and mechanisms designed to stimulate innovation-led growth, with mechanisms freshly in place to oversee their co-ordination. Data capable of determining the effectiveness of these measures, however, are scarce. Significant improvements in infrastructure will be required to realise the government’s growth ambitions – ICT infrastructure in particular is poor relative to much of the region – and other barriers to entrepreneurship and business risk holding back rapid knowledge-based economic development. The rapidly expanding higher education system is one means by which the innovation potential of Indonesia could be better harnessed, although the current momentum in this and other policy areas needs to be maintained in order for Indonesia to catch up with the capabilities of neighbouring countries and other competitors, and to continue its economic development

An industrial sector based on the manufacture and export of the technology-based products of multinational enterprises (MNEs) has fuelled Malaysia’s rise to a middleincome country. Electronics, particularly semiconductors, account for 40% of exports, followed by automobiles and parts, and a burgeoning services sector features tourism as well as Islamic banking and finance. Among Southeast Asian countries, Malaysia generally ranks second after Singapore in economic competitiveness. Like Indonesia, Thailand and the Philippines, Malaysia used foreign direct investment (FDI) and export-led manufacturing to emulate the success of the first wave of East Asian Tigers. Growth slowed, however, following the Asian economic crisis of 1997, and the slowdown persisted until the global financial crisis made matters worse. Currently Malaysia shows some signs of recovery, but there is still concern that the recovery may be difficult. MNEs in Malaysia mostly confine themselves to manufacturing and assembly activities. There is little research and development (R and D) or technology transfer and technical spillover from foreign to domestic firms. The country also suffers from a continuing shortage of skilled labour. Consequently, there is little innovativeness in the economy as a whole. Moreover, the domestic economy has seen declining private investment and stagnating productivity growth, coupled with a lack of competition in sectors such as services. This has led to fears that Malaysia is caught in a “middle-income trap” that can only be overcome by a stronger emphasis on innovation as a driver of economic growth. The Tenth Malaysia Plan (2011-15) and the New Economic Model (NEM) stress human capital development and improvements in innovation capacity. Substantial investments have been made in telecommunications infrastructure such as the Multimedia Super Corridor (MSC). The Plan emphasises the need to intensify research activities and outputs from universities and public research institutes, and to enhance their links with private companies in order to maximise commercialisation opportunities. Local content, R and D and technology transfer provisions for MNEs should be strengthened and incentives for firm training increased. The positive implications for growth of the NEM structural reform agenda are threatened by an increasing brain drain and the fiercely competitive regional environment for trade and foreign investment.

As a relative latecomer to industrialisation and technological development in the global economy, Singapore has made significant progress in developing its science, technology and innovation (STI) capability over the near half century since full political independence. This effort was initially based on evolving a national system of innovation that emphasised attracting and leveraging global multinational corporations (MNCs) to transfer increasingly advanced technological operations to Singapore, and developing infrastructure and human resources to absorb and exploit new technologies rapidly. In the last decade or so, however, the country has started to shift towards a more balanced approach, with increasing emphasis on developing its own R and D and innovation capability. While the government has played a significant “developmental state” role in guiding S and T capability development as an integral part of its overall economic development strategy, the emergence of a more vibrant technological entrepreneurial community is likely to be critical to Singapore’s continuing transition from technology adopter to innovator. Moreover, even though Singapore’s national innovation system (NIS) is certainly the most advanced in Southeast Asia and there is an opportunity to further consolidate its role as the region’s innovation hub, its geographic proximity and strong business and cultural links to the two major emerging markets in Asia, China and India, offer both opportunities and risks. As a small economy, the key challenge is for Singapore to move nimbly and strategically to stay ahead of regional competitors in capability development in selected S and T technology clusters. Its continuing ability to attract global talent, especially innovative and entrepreneurial talent, is crucial to achieving this, even as it seeks to nurture greater entrepreneurship and innovation among its local population.

Thailand has joined the ranks of middle-income countries, but further growth will have to come from innovation and efficiency improvements in the manufacturing and services sectors. Since the 1980s, economic performance has depended on foreign investment and exports. Thailand has become a key production base for global automotive and electronics firms from Japan, the United States and Europe. The agricultural sector employs over 40% of workers and Thailand continues to be one of the world’s largest rice exporters. Services carry great potential for growth, but tourism has been threatened by political instability. Economically, Thailand is in a “middle-income” trap. On the one hand it is under pressure from lower-cost but more dynamic economies such as China, India, Viet Nam and Indonesia; on the other, it is threatened by the more technological, learning-intensive economies of the original four Asian Tigers (Singapore; Korea; Hong Kong, China; and Chinese Taipei). The government has adopted a dual track policy to enhance the capabilities of Thai firms while increasing international competitiveness by expanding foreign investment, exports and tourism. The cluster concept, focused on automobiles, food, fashion and software, underpins industrial and innovation policy. Programmes to encourage R and D and technology development have had limited results. Thailand has derived few technological capabilities from multinational firms, which primarily transfer technology embodied in equipment. Levels of R and D spending, S and T workers and patents are below those of Thailand’s principal competitors. Thailand can boost performance in the long term by improving the skills level of the labour force, investing in ICT infrastructure, and better co-ordinating and implementing S and T policies. Upgrading the country’s innovative capabilities depends, in part, on enhancing the quality of teaching and research at Thai universities, investing in targeted public research facilities, and providing R and D incentives to foreign and local firms. To move beyond labour-intensive parts production and assembly, firms in Thailand’s manufacturing sector will need to strengthen collaborative innovation linkages.

Starting with economic reforms in 1987, Viet Nam has pursued an export-led growth strategy based on more open markets and increased foreign direct investment. Despite marked economic progress, however, Viet Nam is still a low-income developing country that is ranked lower on competitiveness indices than most of its neighbours in the Southeast Asian region. Viet Nam remains the second largest exporter of rice and coffee in the world and its agricultural sector employs 52% of workers, but technology-based exports constitute a small share of total exports. Due to fewer international links, Viet Nam suffered relatively less than other countries in the region from the Asian financial crisis in 1997 and the global economic crisis in 2008. Government actors dominate all aspects of science and technology and research and innovative activity in both the public and private sectors is limited. There is a strong case for streamlining and clarifying the role of government S and T agencies, while the country would benefit from centres of research excellence focusing on public health and environmental goods. The expanding tourism sector and agricultural niches could also be targeted areas of research and development. Priority sectors such as information and communications technology (ICT) continue to develop well and Viet Nam is now attracting investments from multinational enterprises in information technology. Along with continued economic reforms and international integration, there is scope for the state’s role to change from that of a main innovation actor to that of an innovation catalyst. Continued economic growth in Viet Nam and its ability to compete in global markets will depend on increasing investments in education and technology-based production. The national innovation system (NIS) needs to be strengthened in terms of public research, incentives to private R and D, and technology transfer and linkages between the public and private sectors, particularly with foreign firms.

This paper is prepared by a Southeast Asia (SEA) specialist at the Institute for Asia and Pacific Studies, Chinese Academy of Social Sciences, in the context of the OECD Review of Innovation in Southeast Asia. It examines the current state and main trends in China’s economic relationships with Southeast Asian countries, particularly those concerning science, technology and innovation (STI).* Relations between China and SEA countries, especially economic, have developed rapidly since the 1997 East Asian financial crisis. The paper assesses the development of these bilateral economic relationships, primarily in the area of STI, over the last ten years. Section A.1 reviews current economic, trade and investment relations between China and each of the SEA countries, with a brief overview of their evolution and examination of predictions regarding the development of relations in the coming decade. Section A.2 discusses China’s strategy and policy vis-à-vis the SEA region and the region’s main economies. China considers SEA countries as crucial regional partners and hopes to deepen bilateral economic, trade and investment relationships with them in the coming decades. Section A.3 discusses existing relationships in the areas of STI, such as bilateral agreements and academic exchanges over the period 1999-2009. Section A.4 analyses the favourable factors, including political and economic aspects, and the constraints that influence the current state of science and technology (S and T) exchanges and co-operation between China and SEA countries. It appears that there have been significant achievements in the area of bilateral economic relationships, but relatively little progress in bilateral technological relationships. Section A.5 discusses future trends and directions in China’s relationship with the SEA countries in STI. It is likely that the coming decade will see relatively strong progress in technological relationships. Section A.6 discusses the role of technology assistance (S and T diplomacy) in future S and T relationships with the SEA countries. Due to certain restrictions, China’s technology assistance to SEA countries will be less than that of Japan or other more advanced economies in the East Asian region in the near future. However, it will play an increasing role in constructing bilateral economic relationships. Section A.7 sums up the main findings.