Chapter 3
The
emergence and evolution of multinational corporations (MNCs) from Malaysia
The emergence
of Malaysia-based multinational corporations: Economic and political
development
style='mso-bidi-font-weight:bold'>
style='font-family:Arial'>Transformation from the British Colonial period to
the 1970s
style='font-family:Arial;mso-bidi-font-weight:bold'>To understand the origins
of Malaysia-based MNCs is to understand the economic and political history of
Malaysia (formerly known as Malaya on that particular of time) as a British
colonial heritage. The cession of Penang by Sultan of Kedah to the British East
India Company in 1786, the formation of the Straits Settlements uniting
Malacca, Penang and Singapore in 1826, the designation of this settlement as
Crown colony in 1867, and the independence of Malaya from the British in 1957,
had important implications on the emergence of the first Malaysian-based
multinational corporations.
style='font-family:Arial'>Historically, in general, the development of the
Malaya economy was largely a function of the British Colonial Administrative
State interest and attention (Edmund and Jomo, 1997). Prior to 1957, the
Malaysian economy was heavily dependent on primary products
EN-US;mso-fareast-language:EN-US'>specifically tin and rubber to generate
growth, and employment. The prosperity of many British trading companies namely
Sime Darby Corporation, London Tin Corporation, Anglo Malayan Tin Limited,
Kinta Kellas Tin Mining Limited and Malayan Tin Dredging Limited derived from
these two main products. A
diversification into palm oil began in the late 1960s, and about the same time,
forest resources in the form of saw logs and swan timber proved to be the
leading primary commodities. During British control, a well-developed system of
public administration was established, public services were extended and
large-scale rubber and tin production was developed (Edmund and Jomo, 1997).
Immigrants from China and India were brought to Malaysia for construction of
public works and also as labourers in production sectors. They were not only
needed as additional manpower but also for their skills and technology. In
comparison with the indigenous population, they were found to be more advanced
in nature and highly developed (Lim, 1967).
Development strategy: From
export-oriented to import-substitution industrialisation
style='mso-bidi-font-weight:bold'>
style='font-family:Arial'>The 1960s for Malaysia was an era of import
substitution (Federation of Malaysian Manufacturers, 2003). During this period,
Malaysia was faced with the problem of high unemployment when it rose to more
than 8 per cent. At the same time, the economy depended largely on the export
of primary commodities such as rubber and tin which rendered the country
susceptible to price fluctuations in the world markets. There was the added
problem of income disparity among its population. The need to diversify the
economic base was therefore imperative.
style='font-family:Arial'>The Government’s support during the 1960s was limited
to providing a favourable climate for private investment. In addition to the
provision of tax incentives, the Government provided infrastructure such as
industrial estates, power and telecommunication facilities. The Malaysian
Industrial Development Authority (MIDA) was established in 1967 to promote and
coordinate industrial development in the country. The Pioneer Industries
(Relief from Income Tax) Ordinance in 1958 was replaced by the Investment
Incentives Act 1968 which provided a wider assortment of tax incentives. During
the 1960s, the private sector was left to assume the lead role in determining
the pattern of industrial development and this resulted in the establishment of
industries such as food, beverages & tobacco industries, printing and publishing
industries, building materials industries and chemical & plastic
industries, basically for the domestic market.
According to Kokko (2002),
EN-US;mso-fareast-language:EN-US'>import substitution strategy was the dominant
strategy from the 1950s until about 1970s, although trade barriers were
significantly lower than in other developing countries. The average effective
rate of protection was around 7 percent, compared with a range of 25 to 92
percent in other economies at a similar level of development (World Bank
1993:134). One reason for the relatively mild protection was the colonial
tradition of a liberal stance to trade and industry (Athukorala and Menon
1997:64), but the political structure of the country was also an important
determinant. The majority ethnic Malays dominated politics but had relatively
little economic power, whereas the ethnic Chinese controlled most modern sector
activities but had little political power. The bias against agriculture was
also less serious than in many other countries, because of the economic and
political importance of the mining and plantation sector.
From import substitution
industrialisation to export-oriented strategy
The era
of 1970s and thereafter saw the implementation of the export-oriented strategy
in Malaysia. After an initial period of import substitution, Malaysia has
gradually turned to more open and export oriented policies. The 1980s and 1990s
saw the successful entrance of Malaysia into the world export market
characterized by a much more complex international environment than in the last
few years (Kokko, 2002).
Economic
growth during this time was the result of this policy shift from import
substitution to export promotion (Ramasamy, 2000). By promoting exports,
initially with primary commodities and later with manufactured goods, Malaysia
became an active global player. The proportion of exports to GDP, even as late
as 1987 was 55.7 percent. In 1999, however, the size of exports was much larger
than GDP at 107.4 percent. On the import side, in 1987, the proportion was 39.4
percent, while in 1999 it was 83.3 percent. Malaysia, thus, can be considered
to be among the most open economies in the world.
industrialization for Malaysia proceeded relatively smoothly, according to
Ramasamy, even though the above shift did not involve the introduction of a
neutral trade regime (i.e., first-best trade reforms). However, even during its
import-substituting phase, Malaysia has never discriminated strongly against
other traded goods nor did it overvalue its currency as was the case in other
developing countries pursuing import substitution policies. Though there was a
wide divergence in its tariff rates, Malaysia's overall simple average tariff
rate on manufactured goods was relatively low. Malaysia also did not make much
use of non-tariff barriers (NTBs) to protect its manufacturing sector (Naya
1988: 87).
promoting manufactured exports was the establishment of export-processing zones
(EPZs) in the early 1970s. In these EPZs, the exporting companies were allowed
to import duty-free raw materials, parts, and components subject to the
requirement that their entire output would have to be exported. Aside from
Singapore, which can be considered as one whole export-processing zone,
Malaysia has been the most successful country among the ASEAN countries in
effectively operating its EPZs within the context of a relatively open economy,
an able and generally honest bureaucracy, and a location strategy which linked
these EPZs in an efficient way to the country's good transport infrastructure
(Hill 1997: 8).
established its EPZs at a time when internationally integrated production of
electronics goods was growing rapidly. Under this production system vertically
integrated electronics transnational corporations (TNCs), particularly from the
U.S., relocated the labor- intensive processes in the chain of the whole
production process of an electronics product to low wage production sites in
Southeast Asia, particularly Malaysia, because of its good physical
infrastructure and its liberal foreign investment regime which allowed foreign
investors to establish fully-owned subsidiaries (Hill 1997: 8; Helleiner 1973:
26-31).
export-oriented industrialization has been criticized as they are basically
export enclaves, generating little, if any, local linkages. The reason for this
is that virtually all the plants in these EPZs are basically highly
import-intensive assembling operations, thus generating neither significant
domestic value nor extensive backward linkages with the local economy. On the
other hand, EPZs are useful in providing job opportunities for low skill labour
as well as in establishing a country's international reputation as a reliable
exporting country by virtue of its reliance on TNCs (Hill 1995: 12).
The development of New Economic Policy
style='font-family:Arial'>The New Economic Policy (1970-1990), otherwise known
as NEP, came into effect during this period to address racial and regional
imbalances in ownership and control of wealth (Kokko, 2002). According to
EN-US;mso-fareast-language:EN-US'>Shamsul (1997), the NEP can be said to be the
product of the effort of Tun Razak, who was Prime Minister at the time, and his
“back room boys,” comprised of Malay bureaucrats, academics, and technocrats,
most of whom were also responsible for the successful organization of the
Kongres Ekonomi Bumiputera in 1965 and 1968. In fact, a group of them produced
a book called Revolusi Mental (1970), edited by Senu A. Rahman, in an
attempt to provide a kind of a conceptual framework for a plan of action for
the future of the Malay cause. The 1969 ethnic riot also encouraged many
Malaysians to search for explanations, and many books were published with that
intention.
In the
NEP, it was specifically mentioned that within two decades (1971–90) the
successful implementation of the policy should create a community of Malay
entrepreneurs. This was to be done not only through direct government
intervention and economic support but also through an aggressive training and
educational strategy to create much needed professionally trained Malay
manpower. Malays were to participate in various fields that they had not
ventured before, positions involving “mental production” processes such as
bureaucrats, company executives, technocrats, academics, accountants,
electronics engineer, information technology specialists, and a host of other
professions demanding high or specialist education and training. Within two
decades, the implementation of the NEP has successfully created and expanded
the Malay middle class and new rich. In fact, many of its members have become
extremely rich and are now active corporate players in the country and
globally.
However,
according to Shamsul (1986), the NEP, through the implementation of its first
objective of “poverty eradication,” has also created many new rural-based Malay
entrepreneurs. Most of them are not involved in “mental production” process,
like their educated urban counterparts. They are usually involved in the
traditional, manually oriented small and medium businesses, such as
construction, manufacturing of food products and handicrafts goods, in
wholesaling of primary commodity items, or in retail activities. Most of these
emerging Malay new rich have been politically active or connected to the local
UMNO, and some of them are top district-level UMNO politicians. They have
managed to turn rural development projects, initially aimed at eradicating
poverty, into rich financial resources for themselves, by establishing their
own companies and then awarding them lucrative government contracts. However,
without the support, both capital and skill of local Chinese tycoons, the rural
Malay new entrepreneurs could never have achieved their present level of
success, and certainly not within such a short time. Of course, the Chinese towkays,
like their Malay partners, benefited tremendously, in financial terms, from
this fulfilling and harmonious interethnic relationship (Gomez 1990, 1991,
1994).
Moreover,
under the NEP, manufacturing firms with more than 25 employees were required to
get a business license, which was not granted unless NEP ownership and
employment guidelines were followed. Malays were also granted privileged access
to subsidized credit, share ownership, and business opportunities in the
private sector (Athukorala and Menon 1997:65).
The
impact of the NEP was notable. With an average growth rate of 8 percent, GDP
doubled between 1971 and 1980. Foreign investment inflows to the export
processing zones grew rapidly and manufactured exports expanded at a rate of
nearly 29 percent per year between 1971 and 1980 (Linnemann 1987: 369). By
1980, 70 percent of manufactured exports originated in the export processing
zones. Yet, Malaysia remained primarily a raw material exporter: manufactures
only accounted for 19 percent of total exports. The slow structural changes in
industry and export composition were seen as a reason to promote state-owned
heavy industry. The first step in this direction was the establishment of the
Heavy Industries Corporation of Malaysia in 1980. The government provided the
Corporation’s initial capital of USD 57 million and guaranteed subsequent
credits at subsidized rates, as well as protection from imports and favorable
government procurement. Over the following years, the Heavy Industries
Corporation set up several joint ventures with foreign firms, in areas like
petrochemicals, iron and steel, cement, paper and paper products, machinery,
building materials, and transport equipment. By the mid-1980s, Malaysia had 867
corporate public enterprises, more than a third of which were in manufacturing
(Athukorala and Menon 1997:65). Altogether, they accounted for some 20 percent
of GDP at the time.
style='font-family:Arial'>Development and Characteristics of Indigenous
Malaysian Multinationals
style='font-family:Arial;mso-bidi-font-weight:bold'>
Early Contribution by the
Chinese Community
According
to Shamsul (1997), Chinese migrants flocked into Malaysia since the
mid-nineteenth century. Many locals, particularly Malay nationalists, felt that
these migrants took away some opportunities that should have been made
available to them. The Malay nationalists argued that before the coming of
these migrants, including the European colonialists, Malays enjoyed a period of
economic independence and were involved in sophisticated commerce dealings.
Native commerce, they argued, was arrested and indigenous economic development
marginalized by colonial subjugation and immigrant encroachment, hence
contributing to Malay economic backwardness.
Mahathir,
in a series of articles written for the Sunday Times (September 1948–
April 1950), also lamented about exploitation done by Chinese middlemen to
rural Malays in dealing with property, land, and money issues. This was the
time when most plantations, mining, and even the urban commercial sector, was
dominated by the Chinese, along with the British nationals.
Dominance by the Government
Controlled
Torii
(1997) remarked that the most salient feature of the mode of implementation of
the NEP was, as Tun Razak himself enunciated, the government’s “direct
involvement or participation in economic activities” in such forms as direct
intervention into the market by state administrative agencies and the
establishment of joint ventures using state funds. All existing studies agree
that state intervention in the economy was the most important characteristic of
the NEP. The second characteristic was that under the NEP, the area of state
intervention was expanded from agriculture and rural development as in the
1960s into the industrial and commercial sectors. Emphasis was placed on the
fostering of bumiputera enterprises and entrepreneurs in the commercial and
industrial sectors. The third characteristic, which reflected the first, was
the establishment of systems for the creation of individual Malay shareholders
as a means to achieve the goal of restructuring equity ownership in favor of
Malays (Faaland, Parkinson, and Saniman
1990).
Dominance by politically
influential businessmen
style='mso-bidi-font-weight:bold'>
Shamsul
classified the Malaysian contemporary elite into two distinct classes: the
“old,” manually oriented middle class (e.g., small business people and the
self-employed) and the “new,” mentally oriented middle class (e.g.,
professionals and bureaucrats). The latter is mainly based in big cities, such
as Kuala Lumpur, Penang, Johor Bahru, Kuching, and Kota Kinabalu. But the
former is based both in big cities and in rural towns and villages. There is a
noticeable difference between these two categories of middle classes. Those in
the “old,” manually oriented middle class, most of whom are rural based, seemed
to be dominated by the rentier kind, comprised of individuals who have little
or no previous background in the world of business. Most of them are children
of Malay peasants. They or their family members are not seriously involved in
business except as “sleeping partners” to Chinese towkays, earning large
sums of money as commissions for getting government contracts using their
politi-cal positions or contacts. They are between forty-five and fifty years
of age, with a secondary school education but an enormous political power base,
built at the local level over years of working and living in the rural areas.
They became rich and joined the middle class through the business of
development projects for the rural poor.
Shamsul labeled them as “accidental entrepreneurs”
because they did not have any family background or experience in the world of
business and commerce nor their children later became entrepreneurs. They
struggled and survived to remain in the middle class mainly through political
patronage and money politics. In short, their material success was solely
dependent on their political success. According to a retired cabinet minister,
such politicians will “ . . . continue to buy political positions in order to
create more money thus creating more opportunities for himself and his clan to
continue to remain in power.” They are caught in a vicious circle of money
politics, or, in Frederick Bailey’s term, the politics of “stratagems and
spoils.”
Shamsul
called them the Malay rentier middle class politicians. Their position is
described as telor dihujung tandok (literally, an egg perched
precariously on a sharp horn), and their success or survival is largely
dependent on personal resource, initiative, and deception. Their rise and
continued existence as a class of economic and political middleman, who are not
highly educated but are extremely influential and powerful in rural areas,
survived heavily on patronage politics which now takes the form of money
politics within the UMNO (Gomez 1990).
The Evolution of
Malaysia-based multinational corporations: International expansion and outward
investment
Development of Malaysian multinationals
style='font-family:Arial;mso-bidi-font-weight:bold'>Malaysia is becoming a
favorite location of multinational corporations (MNCs) for regional
manufacturing-related operations, according to Malaysian International Trade
and Industry Minister Dato' Seri Rafidah Aziz. Reportedly, as of the end of May
2003, the Malaysian Government has approved 636 representative offices, 335
regional offices, 52 operational headquarters and 47 international procurement
centres (IPCs). Rafidah further said that the Government would continue to
facilitate foreign firms wishing to established service-related operations in
the country.
style='font-family:Arial'>Distribution of Malaysia Outward investment (1970 –
present)
style='mso-bidi-font-weight:bold'>
abroad is about US$1 billion. A larger portion of these investments (between 57
and 83 percent) have gone to other Asian economies while a relatively smaller
portion to the developed Organisation for Economic Cooperation and Development (
EN-US;mso-fareast-language:EN-US'>OECD) economies. Specifically, Malaysia’s
investment mainly went to Singapore and Australia. Its investments in other
ASEAN economies accounted for about 7 percent.
style='font-family:Arial;color:black'>Experts say that Malaysia's outward
investments in the past 12 years have gone on a rollercoaster ride. They began
low in number and declined some before rising and reaching its peak. The
decline in outward investments, according to many, is due the slowing economy
in the United States. They say that Malaysia’s outward investments will only
continue to improve only if U.S. economy improves.
style='font-family:Arial'>Present and Future Challenges
Ramasamy
said that with the advent of globalization, the Malaysian domestic market is
only temporary. The true potential of a company, he says, can be proven only if
it is not swept away by the currents of globalization. As a matter of fact,
firms need not go overseas to compete with foreign multinationals. Many experts
agree that local firms should benchmark against successful multinationals and
find a niche in the local that these MNCs have overlooked.
Moreover,
experts said that there is a need to emphasize the need to build on cultural
strengths rather than clashing with its weakness. The strong inter-personal
relationships that exist in the Malaysian setting, as is in the case of Latin
America, need to be capitalized to create a new business culture which will
emphasize cooperation rather than competition. This, they said, goes on to say
that mindset change can only be acquired by “internal motivation, not by
external injection”. In other words, managers have to be convinced that a mind
set change is inevitable if they want to survive in the globalization process.
Once the commitment is there, the question of how to change is secondary. This
can be done by practicing more a democratic style of management and control
(for example, listening more to subordinates, allowing more participation and
involvement of subordinates etc.) and undergoing relevant training (confidence
building, team building etc.).
Summary
Malaysian economic journey, from the nation’s transformation from the British
colonial period, to its shifts in development strategy: from export-oriented to
import-substitution industrialization in the 1960s, then returning to
export-oriented strategy in the 1970s, and finally, to the establishment of the
New Economic Policy. These phases in Malaysia’s economic development were not
without the main actors that played major roles in their respective eras: there
were the Chinese immigrants in the early days, the government, and the
influential businessmen-politicians. The evolution of these Malaysian MNCs were
also tackled, specifically their expansion and outward investments.
economists on Malaysia MNCs potential in surviving the globalization era. With
this, experts said that there is a need to emphasize the need to build on
Malaysian cultural strengths rather than clashing with its weakness. The strong
inter-personal relationships that exist in the Malaysian setting, as is in the
case of Latin America, need to be capitalized to create a new business culture
which will emphasize cooperation rather than competition.
Athukorala,
P. and J. Menon. 1997. Export-Led Industrialisation, Employment and Equity: The
Malaysian Case. Agenda, Vol. 4
(1), 63-76.
italic'>Business Times.2000. Malaysia Gaining Favour among MNCs.
CIA World Factbook.
(9 April)
Malaysia’s political economy: politics, patronage and profits. Cambridge University
Press: Cambridge: United Kingdom.
Faaland,
J., J. R. Parkinson, and R. Saniman. 1990. Growth and Ethnic Inequality: Malaysia’s New Economic Policy. Kuala
Lumpur: Dewan Bahasa dan Pustaka.
Federation
of Malaysian Manufacturers. 2003. The Malaysian Economy.
Gomez, E.T. 1990.
Investments.Kuala Lumpur: Forum.
Gomez,
E.T. 1991. Money Politics in the
Barisan Nasional. Kuala Lumpur: Forum.
Gomez,
E.T. 1994. Political Business:
Corporate Involvement of Malaysian Political Parties. Townsville,
Australia: James Cook University of North Queensland.
Hill, H. 1995, ASEAN
Industrialisation: A Stocktake, Paper presented at the Seminar '50 Tahun
Indonesia Merdeka dan 40 Tahun Fakultas Ekonomi Universitas Gadjah Mada, Yogyakarta,
15-16 September.
Hill, H. 1997. Rapid
Industrialisation in ASEAN: Some Analytical and Policy Lessons, Mimeo.
Kokko, A. 2002. Export-Led Growth in East Asia:
Lessons for Europe’s Transition Economies. European Institute of Japanese Studies. Stockholm
School of Economics. Paper prepared for
the Workshop on Asia-Pacific Studies
in Australia and Europe: A Research Agenda for the Future, Australian
National University, 5-6 July 2002.
modern Malaya. Oxford University Press: Kuala Lumpur, Malaysia, pp. 230.
Linnemann,
H., ed. (1987), Export-Oriented
Industrialization in Developing Countries, Singapore University Press;
Singapore.
Mohammed,
M. series of articles written for the Sunday
Times, September 1948– April 1950.
Naya, Seiji, 1988, The Role of Trade Policies in the Industrialisation
of Rapidly Growing Asia Developing Countries, in : Hughes, 1988, pp. 65-94.
Rahman,
S.A. 1970. Revolusi mental (Mental
revolution). Kuala Lumpur: Utusan Publications.
Rahman,
S.A.. 1986. From British to Bumiputera
Rule: Local Politics and Rural Development in Peninsular Malaysia. Singapore:
Institute of Southeast Asian Studies.
Ramasamy, B. 2000. Gear up for globalization: Practical Guidelines for
Managers.
Ramasamy, B. and V.T. Viana. 1995. ASEAN’s Foreign
Direct Investment into the People’s Republic Of China. Discussion Paper No.
95.12 - September 1995.
Shamsul,
A.B. The Economic Dimension of Malay Nationalism -The Socio-Historical Roots of
the New Economic Policy and Its Contemporary Implications. The Developing
Economies, XXXV-3 (September 1997): 240–61.
Takashi,
T. 1997. The new economic policy and the United Malays National Organization -
With special reference to the restructuring of Malaysian society.The Developing
Economies, XXXV-3 (September 1997): 209–39.
Wie, T.K. n.d. Export-Oriented Industrialisation And Foreign Direct
Investment n the ASEAN Countries. United Nations University.
World
Bank.1993. The East Asian Miracle:
Economic Growth and Public Policy, Oxford University Press for the World
Bank; New York.
CHAPTER 2
COUNTRY MULTINATIONAL CORPORATIONS:
LITERATURE REVIEW
Multinational Corporations: The Theoretical Explanation of MNC
General Theories of Multinational Corporation
bold'>i.
The Pioneering Work of Stephen Hymer: The
Industrial Organisation Theory
bold'>ii.
The Transaction Cost Theory to the
Internalisation Theory
bold'>iii.
The Product Life Cycle Theory
bold'>iv.
Dunning Eclectic Paradigm
bold'>v.
A Selected View of MNCs Theories: FDI and
Country Development
Corporations: from developed Country: the Theoretical Explanation
The
origins of trade and industry are innate to the history of mankind who, as soon
as he learned to walk on his two feet, discovered the value of moving in teams
and packs similar to the animals they hunted for food back in the prehistoric
times. As humans became more civilized, they developed the social order which
only humans can do as rational beings. Within the social order, man developed
the underpinnings of society through roles, protocol, work assignments, rights,
duties and responsibilities thereby creating the human society. As the
societies’ functions were initially internal and for survival, roles and functions
revolved around these. Later, and with sporadic contact with other like small
societies, human beings blended into a more homogenous community with slightly
altered roles until the land and its resources which they occupied could not be
cultivated to support the lifestyle of the community – thus communities tended
to be nomadic until they found a place that could sustain their livelihood
while maintaining contact with the outside world: the river systems.
The
roadmap that history presents to humankind was born on the riverside: these
were considered the highways to the rest of the world and this is why such
waterways as the Ganges,
Canal, the Chinese Yellow River, the Amazon,
and
places in history. These water highways paved the way for indigenous goods per
tribe or civilization to be traded with other cultures, other tribes – other
nationalities. The galleon ships of
and
the Chinese merchant junks as well as the dreaded sea pirates were proof that
there was riches to be found in the water-based commerce. However, a system had
to be in place to facilitate the trade such as the discovery of the barter
concept, and later the concept of currency which was usually salt, gold or
common precious minerals. These later evolved into more complex economic
principles – such as overseas trading.
As
early as 2500 BC, Sumerian merchants found in their foreign commerce that they
needed men stationed abroad to receive, to store and to sell their goods. The
famed conquistadors of the Indian people – the British – had their East India
Company chartered in
during the 1600 and established branch overseas. The mid-seventeenth century
saw the English, French and Dutch mercantile families sending relatives to
to represent their firms. It was only in due time that the American colonists
discovered in their own foreign trade that it was desirable to have agents and,
on occasion, branch houses in important trading centers to warehouse and to
sell American exports.
History
also describes the Virginia Company which was chartered in 1606 by King James I
to establish the first permanent English settlement at
as “the first foreign direct investment in
1624. The period of 1875-1914 is identified by historian Mira Wilkins as “the
rise of truly large-scale foreign investments in the private sector” including
“more foreign direct investments than most subsequent commentaries have
recognized”. Wilkins identified two types of these investments as one being a
carrier of potentials for control but having a fragile if not negligible home
office with little capacity beyond that of raising capital while the other one
would be more akin to today’s multinational companies which provide extension
of a company and its operating organizational and competitive advantages.
The
domains where multinationals were normally involved in where in railways,
mining, tramways, water, gas, electricity, banking, insurance, finance, land
plantations and even manufacturing – most of them being infrastructure projects
that one can see as key operational and competitive advantages of the developed
nations during the industrial revolution. These infrastructure projects have
been conceived with the ancient concept of trade in mind. The key transport
systems of railways and tramways were mere conduits of transferring the
produced goods from the farm to the international marketplace via land, sea and
later, by air in the different ports. The infrastructure and distribution
projects of water and electricity made sure the production of the goods were
done efficiently and with proper irrigation, power and electricity. The
financial intermediaries made sure the working capital for the farm and
manufacturing sectors during the industrial revolution were kept in place while
the continuous mining of precious elements ensured the valuation of the loans
as well as financial instruments were viable when presented to the market. By
adopting this complex interplay of strategies of the developing countries
during the industrial revolution, the world as we know it today is composed of
countries that have been able to implement properly said strategies and become
developed countries. Of course, the strategies would not have had their share
of losses particularly during a time when there was a need for strong political
will, a dedicated and committed leadership as well as conducive cultures and
natural resources able to support such strategy. It can be seen in other
countries that tried the same strategy but lacked a strong leadership or a
favorable culture – even a country that can accommodate laying the
back-breaking groundwork for railways and telecommunication lines especially
within intense warring factions or geographic and archipelagic constraints:
that the strategy had to integrate with the nation’s strengths and abilities to
be led toward development.
The
American and European economies were at the forefront of the industrial
revolution – with capital intensive projects focusing on enhancing the
competitive advantage of their nations and a rich source of natural resources,
they were able to perfect their craft within their backyard using their own
indigenous resources. They each propelled their economies through public
flotations, bonds, money market placements, financial derivatives including
options and securities although records other than these such as the Latin
American and Asian economies, particularly those of China and Japan, have not
been considered in the literature of US economic history. The American and
European development model was grounded on very strong antitrust policy, market
competition and private ownership. However, the industrial giants of the time
also realized that with their exploding economies and advances in sciences and
the arts, their intrinsic local natural resources could be imperiled which led
them to exploit and look outward: their immediate neighbors and more
importantly: their colonies.
The
American and European colonies at that time were very rich in key ingredients
for the expansion of the industrial revolution not only within their boundaries
but to outside territories as well. The arrogance and pride of the white race
coupled with their more advanced weaponry and gadgets made a formidable stance
versus the colored race of the rest of the world.
counterparts from the rest of the world was their perceived supremacy and
management of this perception vis-à-vis other trading partners, even those it
did not trade with always had a fair share of market perception of the
Caucasian traders from its other contemporaries who may have traded with the
whites.
The era
of puritanism especially in the conquest of the whites over the Indian
inhabitants of the virgin Americas as well as the issue of black slavery during
the two world wars was very pronounced and provided a strong backdrop to the
statement that British, American and European supremacy, although hinged on a
gentleman’s agreement amongst themselves, was pervasive and affected the growth
of their respective economies although history proves that as each party adopts
its own strategy i.e. America becomes unifies its domain to become the United
States of America (hereafter referred to as USA in this chapter) while the
British adopts a monarchy controlled by Parliament and Europe adopts the more
laissez faire style amongst its member countries and each country strategy has
its own resultant socio-political economy.
The
American and European economies are largely developed economies and as such
have much to protect which is how the propensity to create a strong military
competence arose. The Depression in the 1930’s was a result of the absence of
any real threat to the ballooning economy of America and Europe that
overindulgence and overspending contributed to an overheated economy thereby
reducing the value of such revered assets as mining inventories, precious
metals – most of which undermined the commercial value of the marketplace.
Given
that the developing nations were expanding their territories across the globe,
seeking more indigenous cultures to conquer and annex, the developing entities
created two power blocks: the Central Powers of Germany, Austria and Hungary
versus the Allied composed of Britain, France and Russia. Their respective
alliance structures, imperial rivalries and mutual distrust escalated a minor
conflict into the Great War struck at
during the assassination of Austrian’s crown prince sometime in 1914. It was
only when the Central Powers downed three
merchantmen three years into the war that the
sheer number as well as firepower of the
contingent contributed to a compromise for peace resulting in the oppressive
Treaty of Versailles in 1919, imposing stringent sanctions on
rest of the Central Powers.
After
the momentary peace offered by the respite from the previous world war –
despite being localized in Northern American and European territories, the
industrial revolution continued to bear much industry to the extent of easy
credit leading to widespread stock speculation in local and offshore
activities, having not fully recovered from the war. Further, economic policies
under the English and European economies created domestic overproduction and
less foreign trade resulting in the implosion of the Great Depression for the
respective countries as well as for the whole
America
Allied forces were perceived by the embittered Germans regarding the sanctions
of the Versailles Treaty that launched the second World War – and that helped
the English economies, particularly the Americans, to recover using military
and defense spending.
Slightly
prior to these events in history, a small archipelago in the Southeast Asia was
slowly studying and imbibing the developmental models of its bigger
contemporaries in the Northern hemisphere of the globe.
rising from a largely feudalistic society with shoguns and warlords keeping the
governance of its empire and evolving into a Meiji empire or “enlightened rule”
where intellect and learning was sought throughout the world in order to
establish the foundation of the empire. Japanese rule was a combined effort of
government and businesslike commitment to adopted strategy by all sectors of
society. With surprising perspicacity,
which was one of their objectives, depended on industrial power, technical
knowledge, and administrative efficiency and that it would not be enough to
merely acquire Western armaments. Thus, they embarked upon a broad and
intensive program of economic, political and even social reform with impetus
mainly driven by the government. The Japanese borrowed several models from the
developed countries: the French prefectural system of local governance, the
German national railway system model versus the local-based railway system of
Western countries, the German national and excellence training for technology
and engineering, the US banking model of having several national banks issuing
business notes and currency versus the British central bank model where only
the central bank issues said notes and currencies to control the inflation and
lastly – the penchant for total quality excellence in production of US
Industrial Engineer William E. Deming in the early 1950’s. Of the four borrowed
models, it was the
banking model that failed for
after the Bank Act of 1872 which spurred several expensive rebellions for
resulted in a restructured banking system. What followed was a depletion of
natural resources particularly gold, silk and tea which enamored the British
colonizers in the first place amidst farmers and working class who took to more
luxurious lifestyles given their previous victories in economic policy
improvements. This was when the capital-rich Westerns loaned finances to simple
Asiafolk such as
in order to indebt the country and become a de facto annex to its burgeoning
empire.
When
the Germans launched their offensive on the weakened economies and spirits of
the western world, they used superior weaponry, blind-loyalty to the supremacy
of the Aryan race and a promise of rich spoils for its allies – among which was
debt-ridden
Further that the Great Depression intensely affected
due to its borrowed banking and financial model that was interpreted by the
anti-American Japanese as a devious and underhanded manner of acquiring an ally
thru indebtedness unlike the Germans and the French who allowed relative
freedom in letting
adopt its accordant operational model of railways and governance respectively.
The effects of World War 2 left deep scars in the German and Japanese economies
in 1945 – one of which was used by
surpass the growth of the world developed leaders to become one of them.
A key
component of the war’s aftermath was the agreements made between
victorious countries. Concern with US reactions did not prevent some Japanese
from desiring to amend their new constitution – particularly the contentious
provisions that made not the emperor but the people – sovereign, and that
denied
the right to wage war. A resultant budgetary savings from military resources
was immediately realized compared to other recovering economies. The war also
enabled the spectrum of political parties within
Democratic Party (LDP) and the small but growing Communist party. The previous
efforts to broaden the educational system in
proved instrumental in rebuilding
growth during the postwar era. The previous cooperation between government and
business was strengthened by lessons learned in the war and the Ministry of
International Trade and Industry (MITI) evolved to be the cementing factor
between government and the large family-owned businesses called zaibatsus which
were similar to the Korean chaebols. Government was given a very deliberate
role in focusing on which economic policies to pursue, which industries to
develop, and which ones to cease supporting – all of which were followed and
supported by the zaibatsus. Government and zaibatsus determined the basic
industries and goods that had to be protected which included rice and staple
food items attributable to its culture. Strong protectionist policies were set
up as well as complex tax and distribution schemes which were applied even to
later Japan-exported value-added products such as VCRs, tape recorders, and the
like.
One of
the industries severely affected by the war was the steel industry which was
maximized by the Japanese in making weapons and armaments. These were now
highly unutilized but presented a key component in
opportunity for building not only its foundations and infrastructure but also
those of others affected by the war. With the penchant for discipline and
excellent workmanship which was augmented by the Total Quality Management
principle from an American who was rejected by his own countrymen, W.E. Deming
taught the Japanese the tools of zero wastage, effectiveness and efficiency in
production, manufacturing as well as in basic service industries, Japan’s leaders
saw the opportunity to use its steel industry components as building blocks to
economic supremacy. From being a swollen military production facility, the
steel industry produced high quality metal for shipbuilding, skyscrapers,
houses, automobiles and airplanes. The grade and quality of the steel
outstripped those coming from the
more bulky and heavy. The technological training of Japanese students abroad
applied their skills in
steel mills churning slabs and sheets of metal – importing their raw materials
from around the world and adding value by using already existing and
continuously improving production facilities and practices. Parallel to this,
the Western counterparts were experiencing postwar boom in terms of sale of
preventive firearms – those which would be used only for last resort purposes
based on agreements made after the war. World economies also progressed under
the cloak of peace and the start of the cold war simply made the viability of
weapons manufacture a continually viable economic activity.
In this
context, the multinationals of the West and those of the East had key
characteristics: the West had the more sophisticated technology and
mass-produced commodities being marketed to the whole world where most were
still annexes of its previous conquests but made legal under the operation of
law while the East had more direct-materials and indigenous products that were
marketed usually through western intermediaries. However, Japan, among the
Asian countries, was exceptional since it went beyond its core competitive
advantage of high-quality grade steel making, distribution, procurement and
pricing by moving into higher value-add manufacturing such as technology and
automobiles. Of course, the accompanying shortages in food, energy, raw
materials and foreign exchange and the rampant postwar inflation led forced
laborers from
the nation’s coal industry which in turn threatened the manufacturing and
transportation industries and increased the country’s dependence on imports.
Since Japan’s chief sources of raw materials: China, Manchuria and Korea, were
closed to Japanese trade postwar, Japan had to turn to western suppliers who
were more expensive and usually required letters of credit from
western-accredited Japanese financial intermediaries. This was the situation of
as it deliberately focused on its steel industry.
By
1975, Japan produced 113 million tons of crude steel, approximately 16% of
world steel output or 20% of all world steel exports done by its zaibatsus - an
amount approximately equal to US steel production that year which indicated
Japanese steel industry’s phenomenal postwar growth and development. The
country which was able to pay its international debt, pull ahead of
and
in terms of GNP, develop a world-respected work-ethic and limited imports to
only the most essential products. By 1983,
had the unique problem of an unprecedented large world trade surplus which was
fueled by the growth of three key industries in
autos. By 1987,
registered a nearly one hundred billion trade surplus, the largest surplus for
any country in history which was offset only by and equivalent amount in long
term capital outflows per annum.
Fast
forward to the present time, the emergence of American and Western
multinationals may have been explosive during times when strong military
spending was important – even as recent as the September 11 attack on the Twin
Towers where smaller nations have expressed inadequacy of their superior’s
ability (US) to protect itself, how much more can it provide for other less
developed countries? Although the technology aspect has always been the
compelling advantage of the western world, its application for the defense and
monitoring tasks of governance are largely attributable to military
applications, despite the erstwhile commercial functions its has been touted to
perform. As for the Japanese emergence of its indigenous multinationals, they
have focused on the commercial and higher value-add commodities such as
electronics and automobiles, veering away from the basic industries which could
be copied by similar emerging economies as had been done by Korea which focused
more on shipbuilding than automobiles given its accessibility to nearby ports
and given an inherited competence from the postwar era. Given that the Japanese
were highly disciplined and trained in quality management, they countered the
American atomic bomb in
their adaptable constituency and economic prowess – to become the economic
superpower of the 1980’s.
2.3 The
Emergence and International Expansion of Developing Countries Multinationals:
Theoretical Review
The Emergence of Developing Country MNCs: The ‘First Wave’ of
Literature
The
Expansion of Developing Country MNCs: The ‘Second Wave’ of Literature
Literature on Developing Country Multinationals
and Developing Countries
Behavior and
Characteristics – Multinationals in Developed and Developing Countries exhibit
the basic behavioral components and characteristics in their commercial
objective: to engage in commerce beyond their sovereign borders where such
economic activity shall net a favorable return of expenditures on the said
overseas investment.
The timeline of history has shown that trade and
commerce have always had the resultant beneficial outcome in mind for the owner
of such proposed transactions. The proactive party has historically occupied
the position of power in negotiations of transactions thereby resulting in a
net gain compared to the more passive recipient of the transaction who,
although may gain from the deal, such gain may not be comparable to that of the
initiator. To illustrate, developed countries are assumed to have more mature
infrastructure systems: physical as well as intellectual and legal infrastructure.
Their characteristic penchant for banding together and leading cooperative
efforts stem from the basic learnings of history that more heads are better
than one especially in a collaborative effort where it is clear that the
positions of power will benefit the most and ably determine the outcome to
their advantage. Thus, the GATT, WTO and United Nations, among other
collaborations, develop from painful losses in the world wars and use the
operation of common law – despite and in spite of sovereign laws governing each
nation in the world. The developing nations are thus at a perceived
disadvantage in that by operation of law and of peer pressure to be admitted
into the communities of countries participating in world trade, they have to be
accredited, accepted and vouched for as if in an old boy’s exclusive club or
even the pre-pubescent treehouse of western boyhood years.
Multinationals in developed countries are perceived
to be remnants of the time when the human race was starting to master its world
– thereby gaining first to market strategies which also carried the priority
rights over discovered channels or complementary systems or products to their
already expanding empire. The general characteristic and behavior of western
multinationals were therefore expansive in their focus rather than
complementary given that their innate culture was one of annexing, expanding
and colonizing – gaining for itself for the pure purpose of ownership,
expansion and exploitation. It is only recently with the resurgence of
globalization, wide media coverage and more benevolent multinationals that
aspects such as corporate responsibility and commitment to community
development are being imbibed. These shall be discussed further in the
succeeding section.
Business
Strategies and Performance – It should be considered that Developed Countries
were Developing countries at one time and while applying similar strategies,
the variable factors such as timing, leadership, resources and environmental
conditions at the very least could spell the difference from a successful
implementation of business strategies or a failure.
The previous section mentioned about the expansive
focus on the strategies of multinationals from the previous developed nations –
which have been stymied by the globalization and digitization of technology
that enables an idea to be spread at the speed of thought throughout the world
in an instant. Multinationals at this point have blurred – either deliberately
or not – since the world has sensitized itself to the sins of the past which
dealt with racism, prejudice and divisive behavior. Multinationals have been
defined by ownership in the past although by virtue of globalization, the
boundaries have blurred except for a few who remain to be very strong at
certain localities particularly when location is a prime competitive advantage
for the multinational company.
In the past, western multinationals were
very aggressive in adopting international strategies mainly for expanding their
market and searching for low-cost production facilities outside their expensive
factories. This still takes place particularly for labor and basic capital
outlay projects that do not require much technology or infrastructure
dependence such as the migration of factories into the sweat-factories of
and
operations that require more coverage in terms of market, a sophisticated but
lesser costing area of operations, business process outsourcing of non-core
competencies, coupled with strong infrastructure but relatively accommodating
legal systems – plenty of potential multinational sites fall into this
category. This is the current strategy being adopted by a more sensitized
developed country with multinational expansion plans – or even transplanting
plans similar to when many multinationals transferred their regional
headquarters from Hong Kong to
before the turnover to
in 1997.
The current strategy of multinationals,
both from developed and developing countries, is to be more sensitive to a
globally politically correct way of setting up and dealing with its
multinational efforts. Whereas the less competitive times during the early
1900’s to the 1980’s offered countries and companies to adopt industry specific
strategies without regard for the others, or core-competency of business
dictating economic development, versus technology driven or even human-capital
competency strategy, the 2000’s offer similar but more niche areas to develop
since the developed countries have led in the development of the more basic
areas and that more value-added industries and activities are needed to spur
the next leapfrog in world economic development.
As presented in the beginning of this
section, the same business strategies may be in play but the how, in what
context, who is playing the cards and other variable factors should be
considered but with a similar viewpoint that Japan did after the war: it gave
itself an honest appraisal of its strengths, weaknesses, opportunities and threats,
plus a key factor of its strong government-business cooperation that withstood
the restructuring challenges in order to attain Japan’s collective vision. In
essence, the success of Mitsubishi, Sony, Toshiba, Toyota, Nissan and the other
initially Japanese-born zaibatsus who are in their own right multinationals
with co-owners in the United States, England, and Britain – is the success of
Japan.
Structure –
Business sense dictates that the structural bias of a multinational depends
largely on the purpose for which it was set up. The developing countries’
multinationals were set up vis-à-vis the legal parameters available during that
time which were: agencies, sole proprietorships, partnerships and corporations.
Any multinational office or branch would fall within the confines of these
legal structures, differing only in the description of the main purpose in the
area of operations. The usual office structure of owner and worker was
embellished as time went by given the different mandates of the overseas
offices. Most of them also took off from the military hierarchy where a chain
of command and accountability was established for reportorial, monitoring and
management purposes of satellite offices. In fact, the first multinationals
were military outposts that had to be outfitted with defensive measures in case
of hostilities. The evolution of this structure came to pass as the industrial
revolution necessitated more productive hands, feet, and parts of a persons
body that could be employed to produce a good for commerce. These were later
replaced by machines and automation until the term systems became all
encompassing as descriptive of monitoring and management tools.
Present day multinationals have blurred in
ownerships since the strategies employed were not for mere operational
efficiencies but also, as offshoot of being business entities, for tax
efficiency purposes. In this sense, a multinational can be set up to be in the
tax-haven areas of the Bahamas or Cayman Islands but actual operations in a low-cost
Asian locale with marketing and sales in the Western hemisphere and human
resource a combination of tax-haven/flexible taxation locale in South or Latin
America. Regardless, the multinational is still dictated where the seat of
power resides: and that is a philosophical debate this paper does not intend to
discuss.
Conclusion and Research Propositions
thesis adopts a non-comparative approach in analyzing and examining the
expansion and development of indigenous Malaysian multinational corporations.
It seeks to understand the mechanism that allows the selected firms to
strengthen their strategies and core competencies in order to become a respected
global player. In essence, this thesis proposed (as
discussed in the proposal in chapter 1) that the developing country
multinational’s strategy in competing with their competitors is not solely
dependent on the technology accumulation process, as has been suggested by the
conventional literature on developing country multinationals, but it is also
dependent on the variety of resources and other advantages enabling their
growth at home and on the international level. This portion of the
discussion has also shown that strategies which may have worked before for
other countries and multinational corporations may not work for the emerging
Malaysian multinational since other factors which are yet to be discussed in
the remainder of this paper have to be seriously considered in drafting the
combined strategic plan of Malaysian Multinational Incorporated.
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