BUSINESSWEEK ONLINE : MARCH 22, 1999 ISSUE
INTERNATIONAL -- ASIAN COVER STORY

The Casualties Lying Along the Super Corridor (int'l edition)


Few Malaysian entrepreneurs had more riding on the success of the Multimedia Super Corridor (MSC) than Leong Seng Keat. As general manager of local startup NetCard Corp., he was one of the first Malaysians to participate in Prime Minister Mahathir Mohamad's attempt to create a new Silicon Valley. Setting up operations in 1997, he rented a 1,100-square-meter office and hired more than 100 employees to design Web sites, develop applications for Internet-based telephony, and create Net kiosks--stations similar to public telephone booths that offer access to the Internet. Then he waited for the action to begin.

It never did. Today, the NetCard office is quiet. Leong has been forced to make painful cuts. Just 35 employees now work in one-third the office space. They enter by a side door, through a darkened lobby where an empty receptionist's desk and large corporate logo are reminders of brighter days. Leong has given up plans for computer telephony, concentrating just on Net kiosks. ''We have to accept that the business environment has changed,'' he says.

The MSC's woes have hit Malaysian companies like NetCard hard. While Mahathir wanted to attract multinationals to the MSC, he also wanted to promote local companies so they could benefit from technology transfers. Some 87 companies--half the number licensed to operate in the MSC--are Malaysian. Many are struggling to survive.

SCARED OFF. Even in the best of times, venture capital was hard to raise in Malaysia. Then, Mahathir's imposition of currency controls last September frightened off many would-be investors. Malaysian entrepreneur Alex Kong knows that firsthand. He is CEO of Asia Travel Network, which helps travel agents do business on the Net. Just days before Kong was about to secure $5 million from foreign investors, Mahathir announced the controls. Kong quickly got a call canceling the deal. ''They were really scared,'' he says.

Currency controls also scuttled fund-raising for one of Malaysia's hottest Internet companies. Darryl Carlton, a 42-year-old Australian, founded Biztone.com, which develops and distributes Java-based accounting software over the Internet.

Carlton tries to create a relaxed atmosphere for the 40 people at headquarters, an old warehouse in a Kuala Lumpur suburb. In one corner is a ping-pong table; in another, a punching bag. Yet he's plenty tense himself. Carlton had lined up $1 million in capital from Japan's Nomura Jafco last year. ''The check was supposed to be cut on Sept. 1,'' says Carlton--the day Mahathir announced the controls. It didn't come. Carlton says his Japanese investors are interested again, but the delay has cost him precious time.

As they look for funds, Malaysian companies also feel the lure of Singapore. Biztone.com is relocating its sales and professional staff there: The government has promised to subsidize companies that use the company's software.

Kuala Lumpur is countering with its own venture fund. ''We need to provide support at the startup level,'' says Othman Yeop Abdullah, executive chairman of Multimedia Development Corp., the government agency in charge of the MSC. Companies should not hold their breath, though. At $13 million, the fund pales in comparison with competitors'. Hong Kong, for example, recently launched a $100 million fund.

Another source of funding may be in the pipeline. Plans for the MSC called for a NASDAQ-style second stock exchange catering to tech companies. MESDAQ was supposed to start last year. But the launch has been pushed back to an unspecified date, and just four of Malaysia's MSC companies will be listed. NetCard had been planning to go public on MESDAQ, but Leong can't picture that happening anytime soon. ''Over the next five years, we definitely hope for better,'' he says. The other 86 Malaysian companies in the MSC do, too.

By Bruce Einhorn in Kuala Lumpur

To read a letter to the editor about this story, click here.

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