1) Identify the factors which account for the growth of the manufacturing industry in Malaysia and assess their relative importance.

Malaysia is classified as one of Asia’s NICs on the basis of its rapid economic development. Along with its southern and northern neighbours Indonesia and Thailand, Malaysia is classified as a “second wave” Asian Tiger, rather than a first like South Korea and Singapore are. It is more than 30 years since multinational companies, with headquarters in North America, Western Europe and Japan, began relocating and expanding units of production in selected Asian countries to take advantage of lower costs of production. As a result this has accounted for the growth of manufacturing industry in Malaysia.
The first factor that explains the economic miracle of industrial growth in any of the Asian countries is cheap labour. During the 1970s, increasing personal prosperity in MEDCs fuelled the growth of the consumer society, which in turn accelerated the demand for a wide range of electrical and other household goods and clothes. These are either assembled in factory production lines, or are made using high inputs of labour. Cheap labour was a vital factor in terms of kick-starting the revolution of Malaysia’s manufacturing industry, it offered many large companies the incentive to locate there in the first place, such companies as; Hewlett Packard, Bosch and Fairchild - delivers energy efficient power semiconductor, analog, discrete & optoelectronic devices for power management.
In addition, the progressive improvements in transport, especially the jet aircraft for the transfer of executives and managers, and containers for the movement of goods, greatly reduced the inconvenience and costs associated with long distances between markets and company headquarters. Also, the fact that mainland Malaysia is a peninsula and had well-established ports such as Georgetown on Penang, has been an immense benefit. Transport in any mode is key for a country to industrialise, whether it be on water, or by air. It offers Malaysia the opportunity to distribute produce all over the world, and becoming globally competitive because of it emphasising its importance to the country’s advancement.
While the explanation for manufacturing growth should always be firmly placed on low costs of production in Malaysia and other LEDCs, cheap labour alone is never enough to explain industrial growth. After all, there are many countries in the world with cheaper labour costs than those in Malaysia. Quality of labour matters just as much; a certain level of universal education in the country is required, which is a major reason why multinationals have been more willing to invest in Asia than in Africa, and why they haven’t deserted Malaysia in recent years now that wage rates there are higher than in some competitor countries in Asia, notably Vietnam, India and China. In a world of rapidly changing industrial technology, semi-skilled labour that is not too expensive is an increasingly valuable commodity.
The attitude of a country’s government is of fundamental importance to overseas investors. The government of a country is usually responsible for the provision of the basic infrastructure of public services and transport, without which no modern society can hope to thrive. Economic growth and political stability go together. Dr Mahathir Mohamad the Prime Minister of Malaysia has held power since 1981 and is now Asia’s longest serving elected leader. He has overseen economic growth and increased prosperity, while maintaining unity between the majority Malays and the Chinese and Indian minority groups. His forceful coalition-building skills have meant that, while he has been Prime Minister, Malaysia has avoided the ethnic and religious turmoil that afflicted previous Malaysian administrations and that have in recent years contributed to economic decline in neighbouring Indonesia. Dr Mohamad’s autocratic style has meant that in the view of some he has gone too far on occasions, as in the restrictions placed upon the freedom and rights of individuals. However, he has based growth in Malaysia on a clear industrial policy, at first attracting investment from overseas, and then following this up by strongly promoting the development of locally owned industries, when necessary through protection and laws to give these home-grown industries privileges compared with foreign investors.
One of the characteristics of countries undergoing takeoff in economic development is that manufacturing growth, although rapid, is concentrated in just one or two growth poles. Within Malaysia, industries, which are mainly geared to serving the domestic market, such as food and drink and household goods, are located in and around the capital city, Kuala Lumpur, which has an inland location. The export-orientated growth industries, dominated by electronics but also including electrical goods, machinery, equipment and textile industries, are concentrated south of Georgetown, along the eastern side of the island of Penang, close to the port and the road bridge connecting Penang to the mainland and international airport. This specialisation has been an essential feature of Malaysia’s manufacturing industry growth.
The evolutions of the industrialisation in Malaysia were distinguished into four main phases since it was initiated in early 1970s. They are: export-oriented industrialisation based on export-processing zones in the early 1970s, import-substitutions industrialisation based on heavy industries in the early 1980s, liberalisation and a second round of export push in the late 1980s and a sustained shift towards more market-oriented policies in the 1990s. And lastly, moving towards higher level of global competitiveness emphasising on transforming and innovating the manufacturing sector in the millennial. Emphasise will be focused on service sector and establishing linkages among cluster.
The former approach had served the country well in the early stages of Malaysia’s drive to achieve industrialise. However as the process of industrialisation process became more difficult, the government decided that an industrial plan-oriented approach should be prepared to strengthen the process. A plan was formulated to guide the development of the manufacturing sector in Malaysia between 1986 and 1995. It provided a framework for ensuring a more diversified and integrated manufacturing sector and establishing the foundation for its sustained growth. One of the principal objectives of manufacturing development was to lay the foundation for developing towards an advanced industrial economy by increasing indigenous technological capability and competitiveness. Towards the end of the plan, various industrial development policies, strategies and programmes were designed and successfully implemented.
In conclusion, the factors previously mentioned; cost and quality of labour, transport government initiatives and incentives made Malaysia an investment centre from Asian NIEs such as Japan, South Korea, Taiwan and Hong Kong are very important factors which account for the growth of the manufacturing industry in Malaysia. Around 70% of foreign direct investment in the 1990s was recorded as a result. Foreign direct investment inflow to selected manufacturing sector from these economies has recorded a double digits growth during that period. By 1990, strong growth from manufactured product contributes around 27% of GDP and around 20% of total employment. Moreover, export growth during that time contributes up to 60%, the highest number ever recorded in after the recession in mid-1980s. This meant the start of a massive scale manufacturing industry and consequently a booming economy, which just stress how important those factors are – they have given a country a globally competitive position.