Malaysian trade minister on industry and globalization

In this exclusive interview with Malaysia’s Dato’ Seri Rafidah Aziz, Honourable Minister of International Trade and Industry, Minister Aziz shares perspective with VentureOutsource.com on regional and global forces shaping the electronics contract manufacturing sector in Asia; Malaysia’s role in industry, trends in industry, thoughts on free trade, and more. Transcripts from that discussion follow.

VO: The economies and infrastructure for many Asian countries are expanding. Rapidly for some countries. Can you please share with our readers some of the things Malaysia is doing to attract and secure successful business engagements with multi-national companies (MNC) interested in doing business in the greater Asia region while, at the same time, other countries in the region such as India and Vietnam have also begun to compete to attract some of the same MNCs? What would you list as two (2) of the primary characteristic that help differentiate Malaysia’s value proposition the most from other Asian countries?

Minister Aziz: Malaysia achieved its best performance attracting investments in the manufacturing sector in 2006. A total of 1,077 manufacturing projects were approved with investments amounting to US$12.5 billion. Of this, US$5.5 billion (43.9 per cent) were from foreign investments. The sustained inflow of foreign investments contributed toward achievement of the investment target we set under the Third Industrial Master Plan (IMP3), 2006-2020, at US$7.5 billion per annum.

Based on the IMD World Competitiveness Yearbook 2006, Malaysia’s overall competitiveness, for countries with populations greater than 20 million, improved to the 8th position in 2006 from the 10th position in 2005. Malaysia’s position in the four key competitiveness factors were Economic Performance (6th position), Government Efficiency (5th), Business Efficiency (6th), and Infrastructure (11th).

Despite competition intensifying, Malaysia has managed to maintain its position among leading global trading nations. According to WTO International Trade Statistics, Malaysia was the world’s 19th largest exporter in 2006, accounting for 1.3 percent of global merchandise exports. This places Malaysia ahead of some developed countries such as Switzerland, Sweden, and Australia, and developing countries such as India, Thailand, and Brazil.

 

Malaysia Minister of Trade - Datu' Seri Rafidah Aziz Datu’ Seri Rafidah Aziz
Honourable Minister of International Trade
and Industry of Malaysia

 

 

 

 

 

 

Foreign investors continue to show confidence in Malaysia through new investments and expansion / diversification in the country. Malaysia’s political and economic stability and its educated, hardworking, and multi-lingual workforce are some of the primary reasons for foreign investor confidence.

Malaysia’s success in industrial development is also due to the government’s pro-business policies and its ability to respond to investor needs by ensuring facilities and incentives for investments are in place to support smooth business operational activities in Malaysia. The government is giving greater emphasis to the continued improvement of the public sector delivery system in order to ensure the cost of doing business in Malaysia remains competitive.

Other measures introduced by the government to further promote investment include the reduction of corporate tax from 28 percent in 2006 to 27 percent in 2007 – to 26 percent in 2008.

The government has been encouraging MNCs to move up the value chain into technology-intensive industries and to undertake research and development; design and development, distribution, and marketing activities. MNCs have responded to these initiatives with many having expanded; restructured, and upgraded their operations in Malaysia.

Competition for foreign direct investments (FDI) has intensified with the emergence of China, India, and Vietnam in this region of the globe. We are, however, of the belief Malaysia has its own strength to continue to attract quality investment in areas we have targeted in the Industrial Master Plan, IMP3, launched last year.

 

VO: Electrical and electronic products are key to the Malaysian economy, comprising the most critical segment of Malaysia’s manufactured goods exports. The government recognizes FDI is important. What do you feel are three (3) key steps the Malaysian government is taking to protect Malaysia’s electronics outsourced contract manufacturing industry?

Minister Aziz: The electronics industry is the leading industry in the manufacturing sector in Malaysia. The industry in Malaysia today consists of more than 900 companies in operation, producing a wide range of electronics products.

In 2006, Malaysian electronics product exports totaled US$74.0 billion, representing 57.4 percent of the total manufacturing exports. During the period of January-February 2007, exports of electronic products amounted to US$10.8 billion. Malaysia’s 35 years of experience in this industry has created a pool of technical talents and expertise; and continues to attract new investments in this industry.

The success of the electronics contract manufacturing industry is due to the competitive cost of doing business in Malaysia. A wide range of tax incentives is also offered by the government to encourage investment in manufacturing activities. Companies which are given tax incentives qualify for partial or total relief from payment of income tax for a specified period of time.

Incentives for high technology companies includes ‘Pioneer Status’ which amounts to an income tax exemption of 100 percent on statutory income for five years; or an ‘Investment Tax Allowance’ which is 60 percent, on qualifying capital expenditures, for five years.

Malaysia also has strong intellectual property protection in place and is committed to safeguarding intellectual property on inventions. To ensure intellectual property protection in Malaysia is in line with international standards and provides protection for both local and foreign investors, Malaysia is a party to the following international treaties:

  • Convention Establishing the World Intellectual Property Organization (WIPO), 1967 – in force on January 1, 1989;
  • Paris Convention for the Protection of Industrial Property (1883) – in force on January 1, 1989;
  • Berne Convention for the Protection of Literary and Artistic Works (1886) – in force on October 1, 1990;
  • Trade Related Aspects of Intellectual Property Right (TRIPS) Agreement – signatory since January 1, 1995; and the
  • Patent Cooperation Treaty (PCT) 1970 – in force on August 16, 2006.

Malaysia also has an abundant, highly-skilled, and trainable workforce. The government works to help ensure the availability of highly-skilled workers under the country’s respective development plans to support the growth of R&D activities and expansion of contract manufacturing.

Under the Ninth Malaysia Plan (2006-2010), investment in human capital development is given greater emphasis as a measure to sustain the country’s economic growth and move the economy up the value chain. This is done in collaboration between the public and the private sectors. During the Plan period, the government has allocated a sum of US$13.3 billion for education and training.

 

VO: As the need increases for technology MNC supply chains to become more global, what are some of the characteristics defining Malaysia’s current ‘infrastructure’ that help MNC executives to meet the global supply chain demands of their organizations and their customers?

Minister Aziz: The government recognizes the importance of providing good infrastructure to attract and build investor confidence. Malaysia has a well-developed infrastructure, one of the best among newly-industrialized Asian countries. Among the attractive factors include:

  • well-developed physical infrastructure. For example, transportation and telecommunications facilities, excellent airport and port facilities, utilities and industrial land, to cater for the needs of investors;
  • development of the Multimedia Super Corridor (MSC) to spearhead the growth of the ICT sector. Special incentives are provided under the MSC Bill of Guarantees for companies, these include:
    • Pioneer Status with a tax exemption of 100 per cent for 10 years or Investment Tax Allowance of 100 per cent for 5 years;
    • R&D grants;
    • duty-free import of multimedia equipment;
    • intellectual property protection and a comprehensive set of cyberlaws; and
    • world-class physical and IT infrastructure.
  • financial infrastructure, consisting of banking systems and non-bank financial intermediaries, including development finance institutions. The SME Bank (Bank Perusahaan Kecil & Sederhana Malaysia Berhad) was established in 2005 to enhance the capacity and capability of small and medium enterprises (SME), through access to financing by SMEs;
  • adequate legal infrastructure on intellectual property protection, bankruptcy and environmental protection;
  • availability of broadband infrastructure at competitive costs, allowing for greater use of e-commerce platform and e-business standards, including RosettaNet, a series of e-business standards, which can be used to streamline a company’s supply chain by enabling greater collaboration and improved communication between trading partners, domestically and internationally; and
  • enhanced use of electronic trade facilitation to act as common platforms to provide the necessary connectivity among the trade community, permit issuance agencies, and supply chains to interact; collaborate, and transact electronically.

As a result of this infrastructure, companies are able to lower costs of production through just-in-time production and efficient inventory management. All points of entry for goods are also now being e-enabled — making declaration and clearance of goods more efficient. Companies are thus now more integrated with global supply chains.


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