SEU 228 Malaysian Economy - Manufacturing, FDI & Sustainability
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Manufacturing, FDI & Sustainable Manafacturing
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SEU 228 Malaysian Economy - Manufacturing, FDI & Sustainability
- 1. SEU 228 Ekonomi Malaysia: Sektor Pembuatan, FDI & Kelestarian Compiled by Dr. Radziah Adam Guest lecture on April 16th, 2015, DK Z
- 2. Learning Outcomes: At the end of this session, learner(s) will be able: a) To explain the link between industrialization and contributions of the manufacturing sector as well as FDI in Malaysia b) To review the pattern & strategy of Malaysia’s industrialization with emphasize on the role of the government & FDI in manufacturing sector c) To explain the concept of sustainable manufacturing
- 4. What is industrialization? • Industrial sector is defined to include mining, manufacturing, construction, utilities and transportation. Do watch: The Industrial Revolution: History of Industrialisation https://youtu.be/4zlkB0sfDUY?list=PLKGe4uoUdoh8R byB-lABJLqUPQrmM2_Kx
- 5. Stages of Industrialization & FDI http://www.grips.ac.jp/teacher/oono/hp/course/lec07_industry/stages.gif
- 6. WHAT IS MANUFACTURING? INPUT • K • L OUTPUT • Final @ consumer goods • Intermediate @industrial goods Creation of new commodities @ in value addition Manufacturing & processing of items Physical transformation
- 7. MALAYSIA STANDARD INDUSTRIAL CLASSIFICATION (MSIC) 2000 Primary Sector Secondary Sector Tertiary @ Services Sector
- 8. MALAYSIA STANDARD INDUSTRIAL CLASSIFICATION (MSIC) 2000 http://statistics.gov.my/dosm/uploads/files/4_Portal%20Content/3_Methods%20%26%20Classifications/3_Codes%20%26%20Classifications/3_Economic%20Classifications/msic2000.pdf
- 11. Sectoral Shares of GDP (est. 2014) Agriculture Industry Services https://www.cia.gov/Library/publications/the-world-factbook/fields/2012.html Agriculture 9.3 Industry 34.7 Services 56 Malaysia’s GDP driven mainly by services, manufacturing sectors Read more: http://www.theborneopost.com/2012/04/20/malaysias-gdp-driven-mainly-by- services-manufacturing-sectors/#ixzz3XRRhrd2g
- 12. Foreign vs. Domestic: Sectoral Investment, 2013 Source: http://www.mida.gov.my/env3/uploads/PerformanceReport/2013/IPR2013
- 13. Foreign vs. Domestic: Sources of Manufacturing Investment, 2013-2012
- 14. New investment in Manufacturing Industries, 2013
- 16. Source of FDI in Manufacturing, 2013
- 22. Industrialization in Malaysia Stages Strategies 1867-1957; colonial rule export of agricultural products and minerals, mainly rubber & tin, under free market a. 1957 (independence) - late 1960s import substitution industrialization (ISI) b. Early 1970s (10 years) new focus on export oriented industrialization (EOI); BUT limited linkages between foreign & domestic firms c. 1981 - 1986 second round of ISI d. 1987 – 1997 (pre-crisis) return to EOI e. from 2006 onwards move towards global competitiveness 22
- 23. Industrialization in Malaysia 23Source: Rokiah Alavi, 1996, Industrialisation in Malaysia: Import Substitution and Infant Industry Performance, Routledge.
- 24. Industrialization: Stage a. ISI • to encourage foreign investors to set up production, assembly & packaging plants in the country to supply finished goods previously imported from abroad • the government directly & indirectly subsidized the establishment of new factories & protected the domestic market (Jomo, 1993) 24
- 25. Industrialization: Stage I - ISI • government focused on the development of infrastructure & the rural sector, while industrialization was left to the private sector • enacted the Pioneer Industries (Relief from Income Tax) Ordinance (PIO) of 1958, & also created the Malaysian Industrial Development Finance Corporation, which was responsible for providing investment capital & for the development of industrial estates 25
- 26. Industrialization: Stage I - ISI • ISI helped to diversify the economy, to reduce excessive dependency on imported consumer goods & to utilize some domestic natural resources. • Created opportunities for employment & contributed to economic growth (Alavi, 1996). 26
- 27. a. ISI (1957-1968) • Substitute imported consumer goods with local production (to reduce import leakage & generate employment) • Use of fiscal incentives (subsidies & taxes) as industrial promotion tools; provision of extensive infrastructure (industrial estates, power & communication facilities) Tariff protection not used extensively(1958-mid 1960s) due to: • Govt feared deterring imports, which was a major source of revenue • Rubber and tin producers were worried that increase import duties would increase costs and pressure wage increases 27
- 28. a. ISI (1957-1968) • Contribution of manufacturing to GDP increased from 8% (1957) to 9% (1960-1965) but rose to 12% (1969) • Growth rate of manufacturing 10.2% in 1960s 28
- 29. SETBACKS OF ISI • Dependence on import of capital & intermediate goods aggravated BOP • Linkages with rest of the economy was weak & limited • Did not create enough employment opportunities & unable to reduce unemployment rate substantially. Employment grew slowly because screw driver industries only introduced final touches to consumer goods production to enjoy the incentives. • Small domestic market. No pressure to seek foreign markets & unable to compete in overseas markets. In 1970, manufacturing only accounted for 12% of overall exports. 29
- 30. Industrialization: Stage b. EOI • outward looking export orientation to revive manufacturing growth & employment absorption • 1971: FTZs were established. Duty free import parts & components and export products without customs formalities • Rising competition & production costs in DCs were driving foreign assembly & processing operations away to LDCs Cheap & docile labour important – labour regulations tightened to favour transnational operation (TU not allowed in electronics industry until 1989 & thereafter only in-house unions were permitted) • 75% of FTZ are foreign-owned & industries involved are mostly EO industries, e.g. E&E products, textiles, food manufacturing 30
- 31. Industrialization: Stage b. EOI • 1975: Industrial Coordination Act to provide coordination & orderly development of manufacturing activities. To encourage joint venture projects to increase Malaysian participation • Although protectionist policies were blamed for inefficiency& lack of competitiveness of IS industries, they were further strengthened during EO phase to enable industries to develop and meet foreign competition 31
- 32. SETBACKS OF EOI • Firms in the FTZ could import parts & components duty free - encouraged firms to use imported parts • By the end of 1970s govt recognised that the export of manufactured good was limited to a narrow range of products and there was minimum integration between IS and EO sectors. • Absence of linkage between domestic economy and FTZ • Policy discourages FTZ firms from making downstream investment since these investments would not enjoy the same incentives as those in FTZ 32
- 33. Industrialization: Stage c. ISI2 • Heavy industries established (inspired by success of Japan, South Korea) • To broaden the industrial sector; promote greater linkages with domestic economy; to provided basis for acquisition and development of indigenous technology. • Active government participation in country’s industrial development (PROTON and Perwaja Steel) • Promoted industries (Proton, Perwaja Steel, Kedah Cement) by use of tariff and quotas, duty exemptions, other investment incentives, e.g. pioneer status 33
- 34. SETBACKS of ISI2 • Poor performance in 1980s due to economic slowdown & finally recession in 1985. Falling commodity price, appreciation of yen & rise in yen-denominated debt service, slowdown in electronics export, rise in imports (infrastructural & heavy industry items) aggravated current account balance • Recession in 1985/86 & Heavy Industries Corporation of Malaysia (HICOM) encountered problems (excess capacity, market glut, heavy debts). • The promoted heavy industries during IS2 phase- high-capital intensity, long gestation period, substantial economies of scale. • Costs of production & management were high relative to international competitors. The markets were small • Lack of linkages with other sectors 34
- 35. Industrialization: Stage d. EOI2 • Initial failure of IS2 and recession of 1980s forced govt to renew emphasis on foreign capital and EO from 1986 to generate investment and employment. • Policies concentrated on providing incentives and infrastructure development. • Processing of approvals simplified • Tax and tariff holidays • Exporters allowed greater access to subsidized interest (4%) credit prior to or upon shipment of products 35
- 38. 38 What’s next?
- 39. 39
- 40. What & Why of FDI
- 41. What is FDI? • a category of international investment that reflects the objective of a resident in one economy (the direct investor) obtaining a lasting interest in an enterprise resident in another economy (the direct investment enterprise); ≥10% of the ordinary shares @ voting power (IMF, 1993) 41 http://economics.dstcentre.com/The%20Changing%20Role%20Of%20FDI%20In%20The%20Malaysian%20Economy%20By%20Azmi%20Shahrin.p df
- 42. Why? Role of FDI in Malaysian Economy 1. to generate economic growth by increasing domestic capital formation 42
- 43. Why? Role of FDI in Malaysian Economy • “FDI has been an important source of economic growth for Malaysia, bringing in capital investment, technology & management knowledge needed for economic growth.” Using time series data (1970-2005), there is significant relationship between economic growth & FDI inflows in Malaysia (Mun, Lin, & Man, 2008). 43
- 44. Why? Role of FDI in Malaysian Economy (Karimi & Yusop, 2009): • “No strong evidence of a bi-directional causality & long-run relationship between FDI & economic growth (1970- 2005). This suggests that FDI has indirect effect on economic growth in Malaysia.” 44
- 45. Crowding Out? Do public investment and FDI crowd in or crowd out private domestic investment in Malaysia? • Using multivariate cointegration techniques, both public investment & FDI are found to be complementary to, rather than competing with private domestic investment (PDI). (Ang, 2009) 45
- 46. Why? Role of FDI in Malaysian Economy 2. to fuel export growth 46
- 47. Why? Role of FDI in Malaysian Economy (Goh, Wong, & Tham, 2013): “findings reveal that inward FDI conforms to the observed pattern of a complementary relationship between FDI and trade” 47
- 48. Why? Role of FDI in Malaysian Economy 3. to facilitate the transfer of new technology “FDI provides the fastest and most effective way to deploy new technologies in developing host countries (UNCTAD 2000)” • indirectly through licensing, reverse engineering, adaptation & eventually innovation by MNCs 48
- 49. Why? Role of FDI in Malaysian Economy 49http://competitiveness.in/wp-content/uploads/2012/02/FDI-MNEs_Mind_Map.jpg
- 50. Why? Role of FDI in Malaysian Economy 4. lead to higher employment through the expansion of the economy & job creation 50
- 51. Why? Role of FDI in Malaysian Economy 5. as the agent of transformation in the Malaysian economy 51
- 52. Why? Role of FDI in Malaysian Economy (Karim & Ahmad, 2009): Poverty Reduction “The empirical (data for 1984-2005) results show that the FDI coefficient has a statistically significant negative sign, suggesting that the poverty incidence could be reduced by increasing FDI inflows into the (13+1) Malaysian states.” 52
- 53. Why? Role of FDI in Malaysian Economy FDI, Growth & the Environment: Impact on Quality of Life in Malaysia • benefits and costs of FDI? • “The results indicated that environmental Kuznets curve exists and foreign direct investment increases environmental degradation.” (Hitam & Borhan, 2012) 53
- 54. Sustainable Manufacturing “Sustainable manufacturing is all about being resource efficient, and that can be about reducing costs, which can be about reducing the amount of materials from an input perspective or reducing the cost in terms of disposal costs. Source: http://www.manmonthly.com.au/features /understanding-environmental- sustainability-in-manu
- 56. Definition: "Sustainable manufacturing is a systems approach for the creation and distribution (supply chain) of innovative products and services that: minimizes resources (inputs such as materials, energy, water, and land); eliminates toxic substances; and produces zero waste that in effect reduces green house gases, e.g., carbon intensity, across the entire life cycle of products and services." The US Department of Commerce’s Sustainable Manufacturing Initiative defines 'sustainable manufacturing' as: A technical version of this definition is as follows : "the creation of manufactured products that use processes that minimize negative environmental impacts, conserve energy and regular resources, are safe for employees, communities, and consumers and are economically sound."
- 62. What are the benefits of sustainable manufacturing? Source: http://www.oecd.org/innovation/green/toolkit/48704993.pdf
- 63. Interested to find out more? Let’s do research… Source: http://www.sciencedirect.com/scie nce/article/pii/S092552731100217 9
- 64. Learning Outcomes: At the end of this session, learner(s) will be able: a) To explain the link between industrialization and contributions of the manufacturing sector as well as FDI in Malaysia b) To review the pattern & strategy of Malaysia’s industrialization with emphasize on the role of the government & FDI in manufacturing sector c) To explain the concept of sustainable manufacturing
Editor's Notes
- This template can be used as a starter file to give updates for project milestones. Sections Right-click on a slide to add sections. Sections can help to organize your slides or facilitate collaboration between multiple authors. Notes Use the Notes section for delivery notes or to provide additional details for the audience. View these notes in Presentation View during your presentation. Keep in mind the font size (important for accessibility, visibility, videotaping, and online production) Coordinated colors Pay particular attention to the graphs, charts, and text boxes. Consider that attendees will print in black and white or grayscale. Run a test print to make sure your colors work when printed in pure black and white and grayscale. Graphics, tables, and graphs Keep it simple: If possible, use consistent, non-distracting styles and colors. Label all graphs and tables.
- What is the project about? Define the goal of this project Is it similar to projects in the past or is it a new effort? Define the scope of this project Is it an independent project or is it related to other projects? * Note that this slide is not necessary for weekly status meetings
- Day Dreaming Video Template (Intermediate) To reproduce the effects on this slide, do the following: On the Home tab, in the Slides group, click Layout, and then click Blank. On the Insert tab, in the Images group, click Picture, and then in the left pane of the Insert Picture dialog box, click the drive or library that contains the picture. In the right pane of the dialog box, click the picture (classroom) and then click Insert. With the image selected, under Picture Tools, on the Format tab, in the Picture Styles group, click the arrow at the bottom right to launch the Format Picture dialog box. In the Format Picture dialog box, select Size in the left pane, under Size and Rotate in the right pane set Height to 7.5” and Width to 10”. Close the Format Picture dialog box. On the Home tab, in the Drawing group, click Arrange, point to Align, and then do the following: Click Align Center. Click Align Middle. On the Home tab, in the Drawing group, click Shapes, and then under Rectangles, click Rectangle (first option from the left). On the slide drag to draw a rectangle. Under Drawing Tools, on the Format tab, in the Shape Styles group, click the arrow at the bottom right to launch the Format Shape dialog box. In the Format Shape dialog box, select Size in the left pane, under Size and Rotate in the right pane set Height to 5.5” and Width to 10”. In the Format Shape dialog box, select Fill in the left pane, under Fill in the right pane select Gradient Fill. Under Gradient stops, click Add gradient stop or Remove gradient stop until two stops appear on the slider. Customize the gradient stops as follows: Select the first stop on the slider, and then do the following: In the Position box, enter 0%. Click the button next to Color, and then under Theme Colors select White, Background 1 (first row, first option from the left). Select the last stop on the list, and then do the following: In the Position box, enter 100%. Click the button next to Color, and then under Theme Colors select White, Background 1 (first row, first option from the left). In the Transparency box, enter 100%. Close the Format Shape dialog box. With the rectangle selected, on the Home tab, in the Drawing group, click Arrange, point to Align, and then do the following: Click Align Center. Click Align Top. To reproduce the video effects on this slide, do the following: For the middle video, on the Insert tab, in the Media group, click Video, and then click Video from File. In the left pane of the Insert Video dialog box, click the drive or library that contains the video. In the right pane of the dialog box, click the video that you want and then click Insert. Select the video. Under Video Tools, on the Format tab, in the Video Styles group, click the arrow to the right of Video Shape, under Callouts select Cloud Callout (first row, fourth option from left). Under Video Tools, on the Format tab, in the Video Styles group click the arrow in the bottom right corner to launch the Format Video dialog box. In the Format Video dialog, click Border Color in the left pane, under Border Color in the right pane, click Gradient Line. Under Gradient stops, click Add gradient stop or Remove gradient stop until three stops appear on the slider. Customize the gradient stops as follows: Select the first stop on the slider, and then do the following: In the Position box, enter 0%. Click the button next to Color, and then under Theme Colors select Blue, Accent 1, Lighter 40% (fourth row, fifth option from the left). Select the second stop on the list, and then do the following: In the Position box, enter 50%. Click the button next to Color, and then under Theme Colors select Blue Accent 1, Lighter 60% (third row, fifth option from the left). Select the last stop on the list, and then do the following: In the Position box, enter 100%. Click the button next to Color, and then under Theme Colors select White Background 1 (first row, first option from the left). Also in the Format Video dialog, click Border Style in the left pane, under Border Style in the right pane, set Width to 1.25 pt. Then in the Format Video dialog, click Shadow in the left pane, under Shadow in the right pane, click the arrow next to Presets and select Offset Diagonal Bottom Right (under Outer, first row, first option from left). Then set the Blur to 15 pt. In the Format Video dialog box, click Size in the left pane, under Size and Rotate in the right pane set Height to 2.24”, Width to 4.01”, and Rotation to 3°. In the Format Video dialog, click Position in the left pane, under Position on Slide in the right pane, set Horizontal to 2.85” and Vertical to 1.02”. Close the Format Video dialog box. Select the video, click and drag the Yellow Adjustment Handle to boy’s head in middle of picture. With the video still selected, on the Animations tab, in the Animation group, select Play. Also on the Animations tab, in the Timing group, click the arrow to the right of Start and select With Previous. On the Animations tab, in the Advanced Animation group, click Add Animation, select Wipe. Also on the Animations tab, in the Timing group, click the arrow to the right of Start, select With Previous, and set Duration to 01.00 seconds. For the left video, on the Insert tab, in the Media group, click Video, and then click Video from file. In the left pane of the Insert Video dialog box, click the drive or library that contains the video. In the right pane of the dialog box, click the video that you want and then click Insert. Under Video Tools, on the Format tab, in the Video Styles group, click the arrow to the right of Video Shape, under Callouts, select Cloud Callout (first row, fourth option from left). Under Video Tools, on the Format tab, in the Video Styles group, click the arrow in the bottom right corner to launch the Format Video dialog box. In the Format Video dialog, click Border Color in the left pane, under Border Color in the right pane click Gradient Line. Under Gradient stops, click Add gradient stop or Remove gradient stop until three stops appear on the slider. Customize the gradient stops as follows: Select the first stop on the slider, and then do the following: In the Position box, enter 0%. Click the button next to Color, and then under Theme Colors select Blue, Accent 1, Lighter 40% (fourth row, fifth option from the left). Select the second stop on the list, and then do the following: In the Position box, enter 50%. Click the button next to Color, and then under Theme Colors select Blue Accent 1, Lighter 60% (third row, fifth option from the left). Select the last stop on the list, and then do the following: In the Position box, enter 100%. Click the button next to Color, and then under Theme Colors select White Background 1 (first row, first option from the left). Also in the Format Video dialog, click Border Style in the left pane, under Border Style in the right pane, set Width to 1.25 pt. Then in the Format Video dialog, click Shadow in the left pane, under Shadow in the right pane, click the arrow next to Presets and select Offset Diagonal Bottom Right (under Outer, first row, first option from left). Then set the Blur to 15 pt. In the Format Video dialog box, click Size in the left pane, under Size and Rotate in the right pane set Height to 2.16” Width to 3.96”. In the Format Video dialog, click Position in the left pane, under Position on Slide in the right pane, set Horizontal to 0.03” and Vertical to 0.2”. Close the Format Video dialog box. Select the video, click and drag the Yellow Adjustment Handle to child’s head on left of picture. On the Animations tab, in the Animation group, select Play. Also on the Animations tab, in the Timing group, click the arrow to the right of Start and select With Previous. On the Animations tab, in the Advanced Animation group, click Add Animation, select Wipe. Also on the Animations tab, in the Timing group, click the arrow to the right of Start and select With Previous and set Duration to 01.00 seconds. For the right video, on the Insert tab, in the Media group, click Video, and then click Video from file. In the left pane of the Insert Video dialog box, click the drive or library that contains the video. In the right pane of the dialog box, click the video that you want and then click Insert. Under Video Tools, on the Format tab, in the Video Styles group, click the arrow to the right of Video Shape, under Callouts, select Cloud Callout (first row, fourth option from left). Under Video Tools, on the Format tab, in the Video Styles group click the arrow in the bottom right corner to launch the Format Video dialog box. In the Format Video dialog, click Border Color in the left pane, under Border Color in the right pane click Gradient Line. Under Gradient stops, click Add gradient stop or Remove gradient stop until three stops appear on the slider. Customize the gradient stops as follows: Select the first stop on the slider, and then do the following: In the Position box, enter 0%. Click the button next to Color, and then under Theme Colors select Blue, Accent 1, Lighter 40% (fourth row, fifth option from the left). Select the second stop on the list, and then do the following: In the Position box, enter 50%. Click the button next to Color, and then under Theme Colors select Blue Accent 1, Lighter 60% (third row, fifth option from the left). Select the last stop on the list, and then do the following: In the Position box, enter 100%. Click the button next to Color, and then under Theme Colors select White Background 1 (first row, first option from the left). Also in the Format Video dialog, click Border Style in the left pane, under Border Style in the right pane, set Width to 1.25 pt. Then in the Format Video dialog, click Shadow in the left pane, under Shadow in the right pane, click the arrow next to Presets and select Offset Diagonal Bottom Right (under Outer, first row, first option from left). Then set the Blur to 15 pt. In the Format Video dialog box, click Size in the left pane, under Size and Rotate in the right pane set Height to 2.49” and Width to 4.00”. In the Format Video dialog, click Position in the left pane, under Position on Slide in the right pane, set Horizontal to 6.00” and Vertical to 0.07”. Close the Format Video dialog box. Select the video, click and drag the Yellow Adjustment Handle to child’s head on right of picture. On the Animations tab, in the Animation group, select Play. Also on the Animations tab, in the Timing group, click the arrow to the right of Start and select With Previous. On the Animations tab, in the Advanced Animation group, click Add Animation, select Wipe. Also on the Animations tab, in the Timing group, click the arrow to the right of Start, select With Previous, and set Duration to 01.00 seconds.
- The following slides show several examples of timelines using SmartArt graphics. Include a timeline for the project, clearly marking milestones, important dates, and highlight where the project is now.
- Di dalam dekad 50-an dan 60-an, program perindustrian di negara ini dijalankan sebagai usaha untuk mempelbagaikan ekonomi negara yang pada masa itu amat bergantung kepada getah dan bijih timah. Memandangkan harga kedua-dua komoditi ini tidak stabil, kerajaan telah melancarkan program perindustrian untuk mencetuskan perkembangan ekonomi yang lebih pesat dan stabil. Dasar pembangunan perindustrian pada masa itu adalah tertumpu kepada industri-industri yang bercorak gantian import.
- Sejak tahun 70-an, kerajaan di samping mempelbagaikan ekonomi telah menitikberatkan pertumbuhan industri yang lebih pesat untuk menampung keperluan pekerjaan dan Dasar Ekonomi Baru (DEB). Dalam hal ini, tumpuan telah diberikan kepada industri-industri yang berasaskan eksport dan industri yang mengunakan ramai buruh.
- Mulai tahun 80-an pula, program perindustrian negara mengalami satu lagi perkembangan meneeusi penggalakan industri berat. Ini bertujuan untuk memperkukuhkan lagi asas perindustrian negara dan menambahkan kemahiran rakyat di bidang teknologi yang lebih tinggi. Ia juga bertujuan untuk mempercepatkan lagi proses perindustrian. Kerajaan memainkan peranan secara langsung di dalam merancang, melaksana, membiayai dan mengurus industri-industri berat memandangkan sektor swasta tidak mampu menanggung perbelanjaan atau menghadapi risiko dalam mengendalikan projek-projek yang bukan sahaja melibatkan modal yang besar, tetapi juga hanya dapat memberi pulangan dalam tempoh masa yang panjang.
- Quality is more important than quantities of FDI
- Services sector could also benefit from foreign investments.
- Prepare slides for the appendix in the event that more details or supplemental slides are needed. The appendix is also useful if the presentation is distributed later.
- What is the project about? Define the goal of this project Is it similar to projects in the past or is it a new effort? Define the scope of this project Is it an independent project or is it related to other projects? * Note that this slide is not necessary for weekly status meetings