Malaysia is a country in transition-a multiracial community where Islam is the state religion, but where secular society takes its social cues from Hollywood and MTV.

Not yet 50, Malaysia is on the fast track. Rapid economic growth has produced a generation of well-educated, affluent consumers. So forget past images of rubber plantations and smiling palm oil suppliers.

Malaysia is now developing a high-tech sensibility. Digital satellite broadcasting debuted last fall: 22 TV channels and eight radio channels from the All-Asian Satellite Television and Radio Co. (ASTRO), a government-invested service whose reach extends from India to Taiwan. And ASTRO thinks big. It aims to position Malaysia as the broadcasting and information center for Southeast Asia. Plans include delivering a wide range of interactive services, including home banking, home shopping, stock-exchange information and Internet access. ASTRO’s home is a "multimedia super corridor" zone south of Malaysia’s capital, Kuala Lumpur, which is planning to become a regional center for developing leading-edge multimedia and IT technologies. What accounts for this media boom? Part of the inspiration comes from a work ethic and management style adapted from the Japanese. Investments from companies such as Sony and Matsushita have helped Malaysia learn to expand its economic capabilities.

All this gives the phrase "Made in Malaysia" a new meaning. The leisurely subtropical way of life is passe; this is the Silicon Valley of tomorrow-with a catch.

Malaysia’s advertising industry is saddled with outdated regulations that keep it on a regional slow track. At issue are Made in Malaysia (MIM) regulations, first introduced in the early ‘80s to encourage the development of a professional film production and ad industry. They are increasingly out of sync with the world of satellite broadcasting, multimedia and the Internet.

In brief, the rules stipulate that commercials must be produced by and feature Malaysian citizens; filming, film processing and all post-production work must be done in Malaysia, though an exception may be made for commercials promoting overseas tourist destinations. Moreover, at least 80 percent of total production costs must be spent in Malaysia. Prior approval from the Ministry of Information is needed before any foreign film footage can be incorporated into a commercial. And up to 20 percent foreign footage may be permitted, at the ministry’s discretion.

Agencies agree that initially, the government’s rules did help to develop a strong, well-equipped film production industry in Malaysia, which is often considered a precursor to creating a flourishingcommercial industry. Now, however, these rules isolate the local ad industry from exposure to, and competition with, advertising created elsewhere. "Without the challenge competition brings, there is no stimulus to excel," says Tom Freitag, Ogilvy & Mather’s president in Malaysia, who believes the quality of Malaysian TV advertising is falling. "You can’t elevate yourself unless you know how good your competition is." Ray Dempsey, president of McCann-Erickson Malaysia, agrees. "It is insulated here," he admits.

In addition, the regulations increase costs for advertisers who wish to run regional or global campaigns with the same creative work, since spots must, by definition, be reshot Malaysian style.

But "sometimes there are high production value spots that can’t run in Malaysia because they can’t be duplicated locally. So the industry doesn’t get a fair look at what worldwide competition is," Dempsey notes. The discussion centers on the future of a small but growing ad industry and a market of 20 million consumers who are of increasing interest to marketers. Survey Research Malaysia reports that ad spending in Malaysia has grown from $168 million in 1985 to $960 million last year, a gain of 471 percent! And almost one-third of the total ad budget is spent on television.

But despite the growth in profits, MIM regulations have failed to keep pace with a changing advertising landscape. For instance, infomercials that run three minutes or longer are spared the Made in Malaysia (MIM) ruling. "Advertising agencies and their clients have been voicing dissatisfaction over these double standards," says Harmandar Singh, director of Sledgehammer Communications, a creative consultancy. According to Singh, somewhere along the way, infomercials became classified as short programs, as opposed to regular commercials, thereby flying under the MIM radar.

Pressure is mounting against MIM, nonetheless, in order to make Malaysia a regional player in satellite TV broadcasting. "For ASTRO to grab a piece of the action, our broadcast policy has to be flexible [enough] to accommodate foreign-made ads and our approval system efficient enough for speedy clearance," says Singh. "The economic reality is that you need open skies, open airwaves," says Dempsey.

Such a change may be in the cards. "It is one of the privileges of satellite TV to have commercials coming into the country without any permission," says Datuk Mohamed Rahmat, minister of information, who is reportedly considering changing the regulations to allow foreign commercials on satellite.

One stated goal of MIM certification procedure is to "protect the public and national interest. [MIM] was created to reflect government’s responsibility towards problems of values from the practice of openness without responsibility." The authorities tryto filter out what they call VHSC (violence, horror, sex and counterculture), potentially corrosive aspects of Western culture

In short, MIM rulings are designed to protect Malaysian values and keep ads that might offend Islamic sensitivities or cause friction in a multiracial society off air. For this reason, ASTRO is the only satellite service the government wishes its citizens to view. "Inevitably, we will open our sky, but just a little, with the use of a specific satellite dish approved by the ministry," says Rahmat.

Though ad executives don’t question the need to support the social mores, and respect the values of Malaysia’s different ethnic groups, they feel it’s time to review MIM policies.

"The regulations need to be updated," says Shafri Mohamad, creative director of Bates Malaysia, who believes the government would stop regulating the industry if it could rely on the ad industry to regulate business "in a responsible manner." That may prove to be a challenge. "We’re not together enough, we’re not fighting for the right issues.

People hear about the creativity of Thailand, Japan, Hong Kong, Singapore; but Malaysia is a black hole by comparison." Mohamad thinks the Malaysian advertising industry is lacking in two key areas: First, having a degree of responsibility and maturity in policing its own affairs, and second, being able to address common industry issues distinct from the individual commercial opportunities each agency faces.

"People are coming into the [advertising and commercial production] industry just for money; they are not thinking of the craft," he laments. "Production values aren’t good enough, ideas aren’t good. Everybody blames it on the restrictive regulations, but that’s just an easy way out," Mohamad says. Still, its a young ad industry in a young country, building its future from a rich tapestry of diverse ethnic and religious values. Harsh judgments reflect both an impatience for change and the speed of development in a world where not everything moves at the same speed.

"There’s both social responsibility and advertising craftmanship. How we link them is the issue. We can create a bird of paradise or we can fall into a deep and dark chasm. The Malaysian ad industry is in transition," says Azizul Kallahan, chairman of Spencer Azizul Advertising and a senior figure in the industry.

Regulations designed to protect local advertising industries aren’t unique to Malaysia. For years, Korea enforced regulations that kept foreign-made commercials off the air. Then, in 1993, J. Walter Thompson successfully challenged Korean policy in order to run an IBM spot made in the U.S. The regulations ended. "Creative standards in Korea went up once we began to see and compete with international creative work in our own market," says Dong-Wook Kim, JWT Korea director.

Malaysia may follow Korea’s example, thereby making its own contribution to the richness of Asia’s diverse advertising culture.