Malaysia in the International Business

Introduction

Globalization has resulted in many socio- economic and political, technological and cultural changes in the world. It has resulted in the internationalization of the national economies through migration, capital flows, FDIs, trade and the spread of technology. In this paper, I attempt to explore the effects of globalization and economic progress on developing nations. Here I take the specific case of Malaysia to understand the effects of globalization on developing nations.

History and background of Malaysia

Malaysia has a rich and a diverse cultural history. The Malay lands of Rich natural resources have been home to many ethnicities. The Malay Peninsula was home to Chinese and Indian kingdoms in between 2nd and 3rd Centuries CE. The Buddhist kings of Ligor are known to have ruled the country in around the 11th century.

The ancestors of the people that now inhabit the Malaysian peninsula first migrated to the area between 2500 and 1500 B.C. Those living in the coastal regions had early contact with the Chinese and Indians; seafaring traders from India brought with them Hinduism, which was blended with the local animist beliefs. As Muslims conquered India, they spread the religion of Islam to Malaysia. In the 15th century, Islam acquired a firm hold on the region when the Hindu ruler of the powerful city-state of Malacca, Parameswara Dewa Shah, converted to Islam. (Pearson Education)

The British established their first colony in Malay Peninsula in 1786 when the Sultan of Kedah leased and Island to the British East India Company. With the Anglo-Dutch treaty of 1824, Much of Malaysia was controlled British colonized most part of the Malay Peninsula. The British introduced rubber plantations in this region from Brazil. With the industrialization in the west and increased popularity of automobiles, Rubber was a major export from the British colonies in Malaysia.

The Japanese occupied Malaysia during the Second World War. Malaysia witnessed a growing nationalist movement during this period. This prompted the British to establish a semiautonomous federation of Malaya in 1948. However the communist nationalists took up a resolution to quell the foreign powers out of their country. They declared a state of emergency which lasted till 1960.

Malaysia was formed in 1963 when the former British colonies of Singapore and the East Malaysian states of Sabah and Sarawak on the northern coast of Borneo joined the Federation. The first several years of the country’s history were marred by a Communist insurgency, Indonesian confrontation with Malaysia, Philippine claims to Sabah, and Singapore’s secession from the Federation in 1965. During the 22-year term of Prime Minister MAHATHIR bin Mohamad (1981-2003), Malaysia was successful in diversifying its economy from dependence on exports of raw materials to expansion in manufacturing, services, and tourism. (CIA)

The Malaysian economic growth story

Malaysia along with other Southeast Asian countries such as Singapore has been a center for trade for many centuries. Malaysia saw high trading activity in commodities like porcelain and spices much before Singapore rose to prominence. The British introduced rubber and palm oil trees for commercial purposes in Malaya; when they took control of the region. Eventually Malaysia became the largest producer of rubber, tin and palm oil in the world. Malaysia was one of the major sources of many raw materials to the world along with these three commodities.

With Malaysia becoming independent, its Government started implementing economic five year plans. Trying to imitate the economic success stories of the Asian Tiger economies like South Korea, China, Taiwan and Singapore; Malaysia set itself on a path to convert itself from an economy dependent of agriculture and mining to an economy that is driven by manufacturing. Heavy industries flourished in Malaysia in a matter of years with Japanese investments in the region.

By the late 1960s, Malaysia was torn by rioting directed against Chinese and Indians, who controlled a disproportionate share of the country’s wealth. Beginning in 1968, it was the government’s goal to achieve greater economic balance through a national economic policy. (Pearson Education)

The government introduced a controversial “New Economic Policy” with which it aimed to eradicate poverty. It main intention was to eliminate the association of race with economic function. Success or failure of this polity is a much debated topic. This policy was replaced by National Development Policy in 1990. The National Economic Policy discriminates and favors the ethnic Malays over other races. This gives them a preferential treatment in terms of education, employment, business, etc…

The Asian financial crisis shook the country in 1997. The Prime Minister Dr. Mohammad Mahathir refused to follow the economic prescriptions from the IMF and the World Bank. He refused to accept any assistance from these foreign institutions. He instead opted for fixed exchange rates and capital controls. The Malaysian currency was pegged to the US Dollar. The success of these measures was seen in the late 1999 when Malaysia was set on a path to economic recovery.

As with other countries affected by the crisis, there was speculative short-selling of the Malaysian currency, the ringgit. Foreign direct investment fell at an alarming rate and, as capital flowed out of the country, the value of the ringgit dropped from MYR 2.50 per USD to, at one point, MYR 4.80 per USD. The Kuala Lumpur Stock Exchange’s composite index plummeted from approximately 1300 points to around 400 points in a matter of weeks. After the controversial sacking of finance minister Anwar Ibrahim, a National Economic Action Council was formed to deal with the monetary crisis. Bank Negara imposed capital controls and pegged the Malaysian ringgit at 3.80 to the US dollar. Malaysia refused economic aid packages from the International Monetary Fund (IMF) and the World Bank, however, surprising many analysts. (Wikipedia, 2009)

Malaysia chose to adopt a managed float system in July 2005 abandoning its earlier fixed exchange rate system.

The current economic status of Malaysia

2000 2005 2007 2008
World view
Population, total (millions) 23.27 25.65 26.55 26.99
Population growth (annual %) 2.3 1.8 1.7 1.7
Surface area (sq. km) (thousands) 329.7 329.7 329.7 329.7
Poverty headcount ratio at national poverty line (% of population) .. .. .. ..
GNI, Atlas method (current US$) (billions) 80.18 133.45 170.49 188.06
GNI per capita, Atlas method (current US$) 3,450 5,200 6,420 6,970
GNI, PPP (current international $) (billions) 194.35 287.49 351.21 370.83
GNI per capita, PPP (current international $) 8,350 11,210 13,230 13,740
Economy
GDP (current US$) (billions) 93.79 137.95 186.72 194.93
GDP growth (annual %) 8.9 5.3 6.3 4.6
Inflation, GDP deflator (annual %) 8.9 4.6 5.2 10.3
Agriculture, value added (% of GDP) 1 8 10 ..
Industry, value added (% of GDP) 48 50 48 ..
Services, etc., value added (% of GDP) 51 42 42 ..
Exports of goods and services (% of GDP) 120 117 110 ..
Imports of goods and services (% of GDP) 101 95 90 ..
Gross capital formation (% of GDP) 27 20 22 ..
Revenue, excluding grants (% of GDP) 18.5 .. .. ..
Cash surplus/deficit (% of GDP) -3.0 .. .. ..
States and markets
Time required to start a business (days) .. 30 24 13
Market capitalization of listed companies (% of GDP) 124.7 131.4 174.4 96.0
Military expenditure (% of GDP) 1.6 2.3 2.1 2.0
Mobile cellular subscriptions (per 100 people) 22 76 88 100
Internet users (per 100 people) 21.4 48.6 55.7 62.6
Roads, paved (% of total roads) 76 78 .. ..
High-technology exports (% of manufactured exports) 60 55 52 ..
Global links
Merchandise trade (% of GDP) 192.1 185.3 173.1 182.8
Net barter terms of trade (2000 = 100) 100 101 100 ..
External debt stocks, total (DOD, current US$) (millions) 41,874 51,981 53,717 ..
Total debt service (% of exports of goods, services and income) 5.6 5.6 4.6 ..
Net migration (thousands) 498 150 .. ..
Workers’ remittances and compensation of employees, received (current US$) (millions) 981 1,281 1,803 1,920
Foreign direct investment, net inflows (BoP, current US$) (millions) 3,788 3,966 8,456 ..
Official development assistance and official aid (current US$) (millions) 45 27 200 ..

(The World Bank)

Malaysia is a state oriented market economy. The government through its economic plan plays a significant reducing role in guiding the economic activity of the country. The Malaysian economy is the 29th largest in the world in terms of Purchasing power parity. It had a gross domestic product of 194.93 in 2008 and it was growing at a rate of 4.6% per annum.

The country has a labor force of 11.09 million which is ranked as 46th in the world. Currently only 13% of the Malaysian labor force is into agricultural sector. While 36% of the labor is in the industrial sector, a major portion of about 51% is into services. The unemployment rate in here was 3.3% in 2008 as compared to 3.2% in 2007. The government revenues in 2008 were $48.49 billion and the estimated expenditures in the same year were $58.85 billion. In Malaysia, approximately 30% of the goods are price controlled and the 2008 estimate of the inflation was 5.4% while it was just 2% according to 2007 estimates. The commercial bank prime lending rates in Malaysia is 6.08%. The market value of publicly traded shares was valued at $187.1 billion by the end of Dec 2008.

The major agricultural products of the Malaysia are rubber, timber, pepper, coconuts, cocoa and rice. The major industries here are rubber and oil palm processing and manufacturing, tin mining, petroleum production, electronics, smelting, agriculture processing, and refining. The exports of Malaysia were valued at $198.7 billion in 2008 and the country is ranked 22nd in the world in terms of exports. The major export commodities of the country are chemicals, natural gas, electronic equipment, wood and wood products, textiles, rubber and palm oil. The imports of the country were valued at $154.7 billion according to 2008 estimates and Malaysia is ranked 29th in the world in terms of its imports. Malaysia mainly imports steel products, vehicles, iron, plastics, petroleum products, machinery and electronics. Its major import partners are China, Japan, Singapore, US, Thailand, Germany, Indonesia and South Korea.

Effect of globalization on Malaysia

On major institutions

Globalization has lead to weakened regional institutions like the APEC (The Asia Pacific Economic Cooperation) and the ASEAN (Association of Southeast Asian Nations). Many questions were raised about APEC’s future relevance when it was not able to forge a response to the financial crisis.

Globalization has led to instability of the currencies and the financial markets. The local banks of Malaysia like the Proton Saga have seen increased competition form the multinational foreign banks.

On the rural sector

In the case of Malaysia, globalization has resulted in opening up of large areas of fertile land for oil palm and rubber plantation. As a result, the indigenous people’s right and culture have been eroded to make way for development which benefits local elite and consumers abroad. (Dass, 2002)

The Malaysian agricultural sector along with those of many other developing countries is suffering due to the globalization. The paddy farmers are not getting proper price to sell their produce in the market as the market prices of rice have fallen due to the increased inflow of rice imports from other countries. On the contrary, the demand for palm oil fluctuates with the global palm oil prices. This provides a good price for palm oil producers in times of higher global demand and a lesser price during lesser demand.

T hough majority of the countries are feeling the effects of globalization recently, the concept and effects of globalization are nothing new to the Malaysian economy. When the British introduced rubber and palm oil plantations in Malaysia, they brought with them many laborers from countries like India to work on those plantations in order to compensate for the shortage of local labor force. Although many of the workers left the country after their tenure of work; many stayed by. Eventually in the 1960s much of Malaysia’s businesses were owned by the Chinese and the Professional jobs like Doctors and Lawyers were taken up by Indians; leaving the local Malays only few agricultural jobs. It was this parity that lead to rioting in the late part of the 60s. However the current scenario in Malaysia is totally different. Thanks to the constant effort of the government in terms of its policies (New economic policy and National development policy) and initiatives. However the current government following the foot prints of other Asian tigers like China is now reducing its regulatory role due to liberalization and globalization.

Challenges and opportunities facing Malaysia

Tourist Arrivals & Receipts to Malaysia
Year Arrivals Receipts (RM)
2008 22.0 Million 49,561.2 Million
2007 20.9 Million 46,070.0 Million
2006 17.45 Million 36,271.1 Million
2005 16.4 Million 31,954.1 Million
2004 15.7 Million 29,651.4 Million
2003 10.5 Million 21,291.1 Million
2002 13.2 Million 25,781.1 Million
2001 12.7 Million 24,221.5 Million
2000 10.2 Million 17,335.4 Million

(Toursim Malaysia )

With the spread of globalization and the dissolving of the national borders, Malaysia is actively trying to promote and market itself as one of the most attractive tourist destinations for people all over the world. With its campaigns such as Malaysia – Truly Asia, and through its constant efforts it has been able to remain as one of the popular tourist destinations. This is reflected in the number of tourist inflow or arrivals to the country every year. It has been constantly increasing year by year as can be seen in the above table.

170 thousand rooms, 180 hotels & 70% occupancy. US$15 billions, the Malaysian Tourism income 2007, the second national income after industry (Arabian Business, 2008)

This is a country that depends mainly on tourism. It might not be a successful business model for a country to thrive on tourism. The industry could be affected by any negative events. The best example was seen when the Malaysian tourism industry was worst affected due to SARS (Severe Acute Respiratory Syndrome). Apart from the erratic nature of this industry towards its contribution to the national income, there are many countries competing with Malaysia to be the tourist hot spots.

Malaysia has the advantage of being in a strategic location which connects the continents of Asia, Australia, Africa, and America. Thus it could become an attractive sea port adopting the Singapore model. Unlike Singapore, Malaysia does not have the shortage of space. Thus Malaysia has a huge potential to become a trading hub for the economic activities across the globe.

Other interesting facts about Malaysia

  • LEMBAH Bujang in the foothills of Gunung Jerai is believed to be the location of an old Malay Langkasuka empire, holding ruins that may date back 1,500 years.
  • “TUN” is the most senior federal title and there can be no more than 25 living recipients at any one time.
  • THE largest cave chamber in the world is the Sarawak Chamber in Gunung Mulu National Part in Sarawak, which can easily accommodate a Boeing 747-200
  • MALAYSIA shares with Qatar the world’s lowest death rate of respiratory diseases, at 7.5 death per annum per 100 000 people.
  • SABAH (in Malaysia) is home to the Rafflesia, the largest flower in the world.
  • There are more than 60 sub-ethnic groups in Sabah and Sarawak.
  • BURSA Malaysia, formerly known as the Kuala Lumpur Stock Exchange, dates back to 1930 when the Singapore Stockbroker’s Association was set up to deal in securities in Malaya.
  • THE Belum rainforest has more Malayan tigers per square kilometer than any other animal sanctuary here.
  • THE largest insect egg in Malaysia comes from the 15 cm Malaysian Stick Insect (Heteopteryx dilitata), which lays eggs that measure 1.3 cm, making them larger than a peanut.
  • MALAYSIA produces a meager 15 feature films annually but churns out 300 to 400 television dramas and serials. There are 250 movie theaters and cineplexes nationwide.
  • ONLY 0.85% of 218,004 people in Malaysia use broadband services.
  • The life expectancy of Malaysian men and women in 1957 was 55.8 years and 58.2 years respectively. Today, it is 71 for men and 74 for women.
  • MALAYSIA is home to 14,500 species of flowering plants and trees, more than 200 species of mammals, 600 species of bids, 140 species of snakes and 60 species of lizards.
  • MALAYSIA has 18 ports: Bintulu, Kota Kinabalu, Kuantan, Kuching, Kudat, Labuan, Lahad Datu, Lumut, Miri, Pasir Gudang, George Town, Port Dickson, Port Kelang, Sandakan, Sibu, Tanjung Berhala, Tanjung Kidurong and Tawau.
  • AT 421 metres high, the Kuala Lumpur Tower is the fourth tallest in the world and tallest in Southeast Asia.
  • PENANG’S St. George Church, built in 1818, is the oldest Anglican church in Southeast Asia.
  • MANY global brands are produced in Malaysia, including Intel Pentium chips and Brooks Brother’s shirts.
  • THE longest King Cobra in the world, measuring 5.54 meters, was captured alive in Port Dickson in April 1937 but later grew to 5.71 meters in captivity in London Zoo.
  • Penang Bridge, the longest bridge in South East Asia
  • The word ringgit means “jagged” in Malay, and originally referred to the separated edges of Spanish silver dollars widely circulated in the region.
  • SEVENTEEN-YEAR-OLD Kok Shoo Yin became the first Malaysian citizenship certificate holder when he received the document on Nov 14, 1957. (Kgomez)

Conclusion

Malaysia has felt both positive and negative effects of globalization on its economy. On one side its agricultural sector and banks have suffered. On the other hand the Malaysian hardware and electronics industry is one of the top producers and suppliers in the world. Globalization has lead Malaysia to become one of the major tourist destinations of the world. Thus globalization has shown a combination of effects on a developing economy like Malaysia. As time passes by, Globalization will have more positive effects on this economy than the negative effects.

References

Arabian Business. (2008, May 8). INDUSTRY PRESS RELEASES. Retrieved Nov 21, 2009, from

Arabian Business: http://www.arabianbusiness.com/press_releases/detail/18041

CIA. (n.d.). Malaysia. Retrieved Nov 21, 2009, from CIA – The World Fact Book:

https://www.cia.gov/library/publications/the-world-factbook/geos/my.html

Dass, R. P. (2002, Apr). Globalization: Effects in Asia and Beyond. Retrieved Nov 21, 2009, from Christian

Conference of Asia: http://www.cca.org.hk/clusters/egy/resource/rpd-global.htm

Kgomez. (n.d.). 48 Interesting facts about Malaysia. Retrieved Nov 21, 2009, from kgomez:

http://www.kgomez.com/malaysia/

Pearson Education. (n.d.). Malaysia: History, Geography, Government, and Culture. Retrieved Nov 21,

2009, from infoplease: http://www.infoplease.com/ipa/A0107751.html?pageno=1

The World Bank. (n.d.). Data Profile. Retrieved Nov 21, 2009, from World Bank: http://ddp-

ext.worldbank.org/ext/ddpreports/ViewSharedReport?REPORT_ID=9147&REQUEST_TYPE=VIEWADVANCED

Toursim Malaysia . (n.d.). Tourism Malaysia. Retrieved Nov 21, 2009, from tourism.gov.my:

http://www.tourism.gov.my/corporate/research.asp?page=facts_figures

Wikipedia. (2009, Nov 18). Malaysia. Retrieved Nov 21, 2009, from Wikipedia:

http://en.wikipedia.org/wiki/Malaysia

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