What Catalytic Capital Truly Means: Understanding the Smile Curve and How Malaysia Advances

For decades, Malaysia’s economic success story was built on its ability to attract investment, create jobs and become a trusted manufacturing hub for the world. Factories were built, exports surged and the country emerged as one of Asia’s rising economies. Yet today, Malaysia faces a new challenge: how to capture more of the value it helps create. 

Embarking on this journey requires considerable time and resources, but it is crucial if the country is to advance from merely hosting value to actually owning it. 

To understand this challenge, it helps to examine two powerful concepts discussed by Khazanah Nasional’s Chief Investment Officer and Jelawang Capital Chairman, Datuk Hisham Hamdan: the “hotel economy” and the “smile curve” in the 2025 Khazanah Report. 

Together, these concepts explain why Malaysia must move beyond simply hosting economic activity and instead build greater ownership, innovation and technological capability. They also illustrate why initiatives to elevate the venture capital ecosystem undertaken by Jelawang Capital are important to strengthening Malaysia’s long-term economic future. 

Understanding the Hotel Economy

Imagine a luxury hotel bustling with activity. Business leaders gather in meeting rooms, investors negotiate major deals in the lounge and entrepreneurs strike partnerships over coffee. The hotel serves as the venue, while providing services that make these interactions possible.

However, while billion-ringgit agreements may be concluded inside the hotel, the hotel itself captures only a small fraction of the value generated. Most of the profits, ownership and strategic benefits belong to the parties doing business there. This is the essence of the “hotel economy.”

For many years, Malaysia has successfully acted as a host for global manufacturing and multinational investment, as evidenced by our success as a regional backend hub for semiconductor packaging. Foreign companies have set up factories, employed Malaysian workers and exported products worldwide. 

While this creates jobs and economic activity, the highest-value elements such as intellectual property, product design, research and strategic decision-making often remain in the hands of overseas headquarters. 

Malaysia benefited from economic activity but ultimately captured only part of the total value created. This raises two questions: how much of this value does Malaysia truly keep, and how can we capture more?

The challenge is not to stop attracting foreign investment, but to ensure that more ownership, expertise and long-term value remain within the country. 

The Smile Curve, Explained

A second concept to understand where Malaysia is positioned as an economy is through the “smile curve.”

Imagine a curved smile or a ‘U’ pattern. At both ends of the smile are activities that generate high value and high profits. On one side are research, innovation, intellectual property creation and technological advances. On the other side are assembly, distribution and after-sales services. 

At the bottom of the curve sits manufacturing and assembly work. While these activities are essential, they often generate thinner margins because they can be replicated more easily and compete mainly on cost. 

Malaysia’s position among the Smile Curve (2000 vs. 2019) from Marcopolo.org analysis

Malaysia’s industrial growth has historically been concentrated near the bottom of this curve and saw marginal gains over the past two decades. On the other hand, the country developed the necessary expertise and became highly competitive in manufacturing, supported by strong infrastructure, industrial parks and skilled workers. This model fuelled decades of growth and helped transform Malaysia into a major export economy. 

But the global landscape has shifted. Lower-cost countries such as Vietnam and Thailand now compete aggressively for manufacturing investment, making it harder for Malaysia to rely solely on assembly and production. The country needs to move up the value chain to avoid becoming stuck in the middle. In other words, it needs to move up to higher-value ends of the smile curve.

According to the article, Malaysia is caught between being too costly to compete purely on labour and not yet positioned strongly enough at the high-value ends of the curve. 

Why Ownership Matters

The difference between hosting value and owning value is crucial.

A country may manufacture a sophisticated product, yet the largest profits often flow to whoever owns the patents, controls the technology or manages the global brand. A semiconductor component can be assembled in one country, but the economic benefits may largely accrue elsewhere if the design, software and intellectual property are owned overseas.

That is why economic development today is increasingly about creation and ownership of ideas. Technology and innovation take precedence over merely participating in production.

Datuk Hisham uses another analogy from economist Ricardo Hausmann: economic development is like a game of Scrabble. Infrastructure, roads and factories are the “vowels” that every economy needs. However, it is the rarer “consonants” such as deep technical knowhow, advanced research capabilities, entrepreneurial talent and intellectual property that enable countries to form more valuable combinations and compete at the highest levels. 

Malaysia already possesses many of the foundational vowels. The next stage is acquiring more of these high-value consonants. 

Why Startups and Venture Capital Matter

This is where venture capital becomes critical.

Many of the world’s most valuable companies began as startups pursuing new technologies, business models and products. Venture capital provides the risk-tolerant funding that allows these young companies to experiment, innovate and scale before profitability is achieved.

But this kind of funding is, by design, difficult to provide well. Backing a company before its technology, its market, or its team has been proven is a different kind of work than financing something already established. Banks need predictable repayment. Public markets need quarterly results. Very few institutions are structured to wait years for an outcome that isn't guaranteed.

Of every ten companies a fund manager backs, most will not return the capital invested in them. The few that do carry the rest. That is not a flaw in how venture capital works. It is how venture capital works, and it is precisely why doing it well requires real discipline, not less of it. 

A strong venture capital ecosystem does more than create successful businesses. It develops founders, attracts talent, generates intellectual property, creates high-value jobs and builds entire innovation ecosystems. 

In practical terms, it helps countries move toward the high-value ends of the smile curve. 

Cultivating promising startups requires a long-term commitment. Building homegrown champions capable of competing globally is a direct result of truly catalytic capital. 

What This Means for Malaysia

Jelawang Capital's current mandate extends this same approach across sectors and geographies, ensuring that high calibre startups receive the support they deserve. SkyeChip Bhd received early stage venture capital backing by Ilham Capital and LionX Ventures, two fund managers supported by Jelawang Capital. Aonic, a Malaysian dronetech startup backed by Kairous Capital, now operates across 15 countries, holds major contracts with Malaysian plantation groups, and is profitable.

Granite Asia-backed Galatek Technologies, a semiconductor equipment and vision-AI company, is now expanding its manufacturing footprint in Penang with a sizeable investment commitment of $100 million.

Neither SkyeChip nor Aonic looked inevitable in the beginning. That is what foundational investing actually requires: backing a specific team, at a specific stage, well before the market, or the outcome, is settled.

Jelawang Capital’s Role

As Malaysia’s National Fund-of-Funds and part of Khazanah’s Dana Impak, Jelawang Capital seeks to strengthen Malaysia’s venture capital ecosystem through initiatives such as the Emerging Fund Managers’ Programme (EMP) and the Regional Fund Managers’ Initiative (RMI). To date, approximately RM300 million has been mobilised, alongside RM30 million crowded in from external co-investors for fund managers under the EMP.

Jelawang Capital does not invest in startups directly. It backs credible, disciplined fund managers who make these calls, long before the outcome is clear, so that companies like these can get the early support that lets them build. Venture capital isn’t just about patient capital, but also disciplined fund selection, strong governance, rigorous due diligence and active portfolio oversight.

Malaysia's next chapter of development will not be written simply by attracting more economic activity. Success will depend on whether the country can own more of the value generated from that activity.

The hotel economy reminds us that hosting value is not the same as capturing it. The smile curve shows that the greatest rewards increasingly belong to those who innovate, design, build brands and own intellectual property. 

It is slow, often invisible work. Some companies may not succeed, but others will go on to change how an entire industry operates, and in doing so, help Malaysia own a little more of what it builds, rather than simply hosting it.

As Datuk Hisham put it in his essay: "Not every effort will reach maturity. But that is not failure. It is the price of building something authentic."