A reply to The Star's article on "Academia call-up for ex-top guns" (Published in The Star 12/8/2006)

Academia call-up for ex-top guns

As a scholar and teacher, I strongly support the content of the above headlines published by The Star on the 11th August 2006. I can draw from my own experience as a lecturer in the UK that increased collaboration between universities and industries can be beneficial in many ways. Some of the main benefits for students include relevance of theories through practical examples, knowledge of industry issues, industrial placement and job opportunities; and for academics, the benefits include potential funding opportunities, research access and relevance of research for practitioners. While most universities in the UK actively seek collaboration with managers in the industry, the process tends to be selective and formal in terms of ensuring that there are mutual benefits for the university, industry and students. In brief, this process operates under the Knowledge Transfer Partnerships (KTP) scheme, with the main priority on knowledge and technology transfer among the aforementioned three parties. But, as far as the idea of recruiting experienced civil servants or managers to lecture university students, this is not a common practice particularly not for top UK universities. From the university’s perspective, the main difficulties of this idea are: (a) whilst practitioners bring with them the wealth of knowledge about hands-on experience, there is a need to blend pedagogical needs with theories and achieve a balance of theoretical insights, application of knowledge and evaluation models for students self-development; (b) practitioners are concerned with current and/or ‘live’ problems whereas academics could be engaged in either application or basic research. This presents two incompatibilities – the first is that most practical problem or solution is context-specific and future graduates need to acquire the ability to bridge this gap of applying conceptual models to a new or different situation. Secondly, theories without substance are also problematic and academics need to engage industry experts for enriching students’ learning experience and for better conceptualisation of real-world dynamics. And (c) the environment is constantly changing, what used to work in practice may not be the case for future graduates (managers) and hands-on solutions need to consistently put to test in empirical research. This could limit the role of industry experts, where there is a need to acquire research skills, and to scientifically measure and generalise real-world phenomenon. Thus, it is not surprising that the British higher education coined the idea of KTP in order to encourage collaboration between universities and industries. I am sure that Datuk Mustapa Mohamed would have considered the above for raising the Higher Education standards and employability of graduates.

Retaining top academics and learning from foreign university systems (Published in the Star 23/9/2006)

Retaining top academics and learning from foreign university systems

I would like to refer to your article entitled ‘Abdullah asks for ideas to check brain drain’ published by The Star on the 23rd September 2006.

I share our PM’s views about seeking feedback from Malaysian students of what they seen and experienced at foreign universities as one of the ways to improve working conditions and retain academics of local universities. As a Malaysian who has studied and been working in the UK, I would like to add to the discussion: the first is that a competitive salary package is a basic necessity for retaining top academics. It is not the most important factor and yet, if such basic needs were not fulfilled, one would find it difficult to focus on higher level needs or simply be contented with one’s expectations. Not to mention, good scholars and/or top academics are people with specialised and rare knowledge, and therefore they are likely to be highly marketable or always in great demand. This leads to my second point that it’s necessary to attract top academics to work in Malaysia both local and foreign academics. Many new or aspiring local academics would be able to learn from experienced teachers and researchers. Malaysian universities must therefore adopt an open door policy for high calibre academics and cultivate a research-oriented environment. This requires change in our higher education policy stance with significant emphasis on research, and investment in human capital and research facilities. The change would affect the way academics work, the structure of a university, and the allocation of government funds. To this effect, research and teaching activities should be monitored and evaluated independently by a panel of top academics. My third and final point is that the effectiveness and relevance of foreign university systems should not be overemphasized. In brief, no one institution is perfect and every environment (country) is different. Malaysia is unique, multicultural and in the vicinity of China and in the region of fastest economic growth. Altogether, they present many potential contributions to academia, and plenty of research avenues for growth and knowledge development, which are ideal for attracting and retaining top academics. In the face rapidly changing environments, we need to be proactive in spotting talents and recognise top researchers’ contribution – as we all know that no amount of learning, training and investment in infrastructure can substitute scholars with vision and leadership.

Reflections on Malaysia’s Economic Progress and Wealth Distribution: Some Key Questions to Policy Makers

Reflections on Malaysia’s Economic Progress and Wealth Distribution: Some Key Questions to Policy Makers


The People have delivered their verdict on the recent Malaysia’s 12th general election and it is time for all bickering about political rhetoric to take a back seat. In the midst of chaotic restructuring and constant backstabbing of politicians, the opposition could loose focus on turning the election manifestos into reality and serving the people.

Economic wellbeing and progress of the nation is one of the main reasons for the people’s dissatisfaction with the ruling government (BN), which transpired to a historic election defeat. In a crude sense, our economic malaise especially economic and wealth distribution is not the sole responsibility of the current PM but has been simmering under the various positive headlines with politically motivated agenda of the previous premier. To the uninitiated, poverty may not be physically visible as one observes our surroundings but when one probes and examines the deeper fabric of socio-economic deprivations and inequalities, the voice of dissatisfaction is loud and clear particularly for those in the lowest income group, where poverty is affecting them in a vicious circle on future generations in terms of education and knowledge, health service and proper nourishment for child development, and economic opportunity. This is even more profound when one removes government subsidies on basic commodities such as oil. The result is disheartening, as the use of subsidies and short-term tax incentives for attracting foreign direct investment to propel domestic economic growth is unsustainable in the long term. There are also greater socio-economic gaps between the working class and the middle class (not to mention the upper class). The indirect effects are marginalisation of certain groups of the population, creating various social problems such as community integration (e.g., recent protests of the Indian community), turning to crimes and vices for living, and downward spiralling standards of living for the majority. So, to our leaders, what measures of economic and wealth distribution are in place to redress this economic imbalance and distribute economic wealth to the lowest population strata of economic wellbeing?

Unfortunately, there is no clear cut solution as economic, health and education policies are intertwined. Within the economic framework, economic and wealth creation and distribution are mainly driven by national economic policy across resource-based industrial and agricultural sectors, e.g., conventional government projects are meant to stimulate job markets, growth, consumer demand etc. from industry to micro-market or consumer level. Setting corruption aside for another discussion, we could start by revisiting past and examining current and future economic policies. In this context, one would need to reflect on some of the following basic economic questions and brief comments whilst policies are being analysed and formulated:
What did we learn from past economic policies?
Over the last two decades, Malaysia’s economic focus in terms of trade and export incomes has tended to shift from agricultural resources to industrialised manufacturing (see: Malaysia’s Industrial Master Plans (IMP). Initially, from the look east policy of attracting foreign direct investment (re:Japan) and MNCs plants locational decision with various tax incentives, though some sceptics would argue that excessive red tapes hampered this effort. Despite some success in attracting major MNCs (Japanese and Western corporations), the economic impetus stopped short of knowledge transfer initiatives and creation of new industries and opportunities. Evidently, the rise of China and India (not to mention competitive neighbouring labour markets in the Far East Asia Region) has caused policy makers to question the role and value of MNCs in job creation, and technology and knowledge transfer. With the exception of Proton (though debatable and its global market position in under threat), there is little evidence of development and accumulation of intellectual assets through concerted and effective past economic policies. The question is how foreign capital inflows, and both direct and indirect investments have resulted in adequate distribution of wealth in terms of knowledge transfer (such as technical knowledge and managerial skills) to blue and white-collar workers.

During the period of economic boom in the mid 1990s, the government have also championed information technology and knowledge based industries such as the creation of MSC. This has been a worthy economic investment, though it had not been carefully planned and implemented. In addition, the timing was wrong in terms of human capital and infrastructure development, e.g., there was no systematic policy in encouraging and developing ICT knowledge at all levels of education. The lack of investment in technology-related and technical knowledge has been a critical shortcoming when potential investors and companies evaluate and make their investment choices, and decisions vis-à-vis other countries. So, what will the government do to nurture and create opportunities for future generations, who are likely to be relying more on knowledge-based industries?

After the Far East Asian economic crisis and various circumstances (September 11, bird flu, tsunami, etc.), one could argue that the government seemed to have lost its economic focus (e.g., incoherent economic direction in the Ninth Malaysia Plan) and hence, the search for new and major infrastructure projects took place, which resulted in the Iskandar Development Region (IDR) project in Johor. Amid growing criticisms of economic stagnation during the period of 2004-2006, the government fumbled and resorted to driving internal economic demands through construction and real estate sectors, agricultural sectors, and extension of the Visit Malaysia Year campaign. The post September 11 event has also facilitated the growth of Middle East investors in real estates and medical care services, and the idea of Islamic Banking hub. The idea of medical tourism was also put forward despite glaring basic health concerns of the national health policy for the people, e.g., the government could do more to educate people about the health risks of smoking. There has also been substantial investment in petrochemical and chemical based products driven by natural resources in the face of increasing world demand of oil and chemical-based products. While these industrial sectors are important to the economy, the government had been reactive or ad hoc (as opposed to proactive) in charting the strategic development of the economy. For example, what resources were allocated to help small and medium-sized enterprises (SMEs) and local businesses in developing skills and knowledge of modern agricultural techniques particularly with regards to previous economic plans? In what ways the current economic emphases are building on previous investments in MSC projects, industrial clusters and knowledge-based industries?

Furthermore, the Iskandar Development Region (IDR) (as much as a welcome boost of capital injection) baffled the geo-economic and strategic logic of effective allocation of scarce resources. Although this can be seen as an attempt to distribute resources to other states in the country, the IDR project is arguably a wrong strategic and investment decision in terms of the following points (which can be discussed further in another article): (a) diseconomies of scale whereby investment in existing industries and infrastructure is counterproductive and non-competitive when the region has little slack resources. (b) When the choice of strategic position (location) may not be advantageous in terms of the presence of existing industries and services to support demand of technical skills, and the labour market is relatively small compared to other states. Also, not to mention there is little consideration of geography and population, and topography of the region, e.g., had the region been prone to flooding? (c) When our neighbour, Singapore has established networks and advanced industries (Gulati et al., 2000). The thought of benefiting from economic spillover effects is also a non-runner – as Singapore focuses on highly technical industries such as financial hub services and international seaport services. (d) When the cost-benefit and opportunity cost analysis had not been carefully examined, e.g., the use of existing strategic/national infrastructure airport, seaport and administration. (e) When human capital development in a progressive manner from existing industrial regions had not been fully capitalised, e.g., there is a steep learning curve in the region that will further curtail skills upgrade in the extant industries. (f) When our economic bi-lateral relationship with Singapore had not been carefully managed, promoted and professionally developed. (g) When previous economic projects had not been integrated or further revised to capitalise on time compression diseconomies as opposed to inefficient allocation of resources. (h) When FDI strategy mainly promises asset appreciation without transfer of technology or knowledge – further questioning the government policy of carefully planned distribution of economic wealth in the long term.

Have ordinary citizens benefited from the period of economic boom or growth from the mid to late 1990s? If not, what went wrong and what lessons can be drawn to prevent such recurrence?
Unfortunately, only a minority of people reaped the rewards of the long gone boom period in the Asia region. Again, most would argue that this is due to deeply entrenched corruption, nepotism and cronyism in awarding projects, siphoning state resources, and misusing funds and abusing of power. I would refrain from the topic of corruption and clean governance to focus on economic and wealth distribution.

In a buoyant economic climate, one would expect the government to reinvest revenue growth and savings, improve national and foreign reserves, upgrade strategic infrastructure, and distribute economic benefits taking a long-term view. To a large extent, these key foundations for improving the standard of living and average national income of the population had not been exploited for the majority of ordinary Malaysians. First, can the government account for specific economic wealth distributed across Malaysian states and communities? If so, who have been the beneficiaries? Have the people who live in villages, small businesses and blue-collar workers benefited? It is true that there have been growth in the construction and property sectors. But they are exclusive to several developers with privilege government approvals. Importantly, real estate development derives from natural resources (lands) and employs foreign cheap labours. There is no creation of sustainable value in terms of human capital development. There are also questions on the effective use of natural resources, quality of developments and sustainability of townships in terms of the effects on the environment. Of particular concern is that the people in low-income groups have been sidelined and they remain impoverished in the share of economic wealth. Second, the government had the opportunity to bolster the country’s national and foreign reserves. Yet, it is questionable that the Bank Negara and policy makers had used domestic and export growth to maintain a healthy currency-money ratio without risky exposure to credit expansion and retirement of bank notes, as evident in capital control measures in the aftermath of Asia financial crises. In addition, the monetary base had not appeared to be in balance, as growth in foreign reserves from trade surplus were not exploited to counter monetary effects and purchase of foreign assets. This could have stabilised our currency and balance trade liabilities but the Malaysian Ringgit depreciated unfavourably. To the laypeople, had the government implemented appropriate fiscal measures, the cost of goods would not be exposed to unhealthy inflationary pressures (e.g., wages had not increased as rapidly as prices of goods) and the people would have a higher purchasing power and hence raise their standard of living. Third, due to haste and poor planning (perhaps also self-interest or personal gains) major infrastructure projects (highways, skyscrapers, airports, etc.) had not been appropriately funded. The treasury could have channelled revenues from major corporations (e.g., tax windfalls) and natural resources (e.g., oil) to finance basic infrastructure such as highways instead of passing on the ever increasing and eternal costs (e.g., toll fees) to the people. Although privatisation of certain national assets may improve service quality, there is lack of competition in government projects as well as complicated bureaucracy serving further barriers for the functioning of perfect markets. Furthermore, some mega projects were excessively expensive (I omitted names) and fully funded by the government, as opposed to funding basic infrastructure for the people especially in the context of a developing country. Most importantly, for the ordinary people, there has been too much window dressing at the national and state level when residential roads and associated public services (from clearance of rubbish to uneven roads with pot holes) remain mostly unattended. Again, most infrastructure development comes at a high price without proper planning, affecting local communities financially, socially and environmentally.

How competitive is our public services and infrastructure in attracting FDI?
The creation and distribution of economic wealth are influenced by the performance of public services, government aids and infrastructure. Substantial inroads have been made to promote efficient and high quality public services to the people as well as potential investors. But much more remains to be done especially public transport services, health care services and local council services. If the public complained about the standard of such services, it would be questionable that the standard is competitive for attracting foreign investors. One instance is the poorly planned LRT system without sensible forethought of current and future requirements, e.g., short platform, limited and/or fixed capacity, flawed urban and traffic reduction strategy. This is clearly hampering the capital’s competitiveness and discouraging the public from using our LRT system in the city. On this note, I strongly advise the present coalition (Pakatan Rakyat) to avoid benchmarking the KL system and carry out its own feasibility study. Not to mention, we have all heard of irresponsible bus companies rendering transportation services. The implications are not only far-reaching in terms of attracting investors and tourists but also dire, as public safety is unduly compromised. Another area where improvement is long overdue is the provision of efficient banking and financial services. Whilst the banking industry has consolidated in recent years, the standard of service particularly to local businesses is variable and inconsistent (if not substandard by international ratings). For example, there is shortage of trained personnel in providing financial advice on both basic and complex financial instruments and customers usually need to queue for hours to be seen. This is counter productive to the economy, which would defeat all the efforts put into attracting foreign businesses. There is a need for more competition, compliance to an acceptable level of service set by financial services authorities and government support in competitive measures. The government have been making many headlines about investment in public services and positive inflows of FDI. But to many observers, there are gaping concerns with the competitiveness of our public services. In a nutshell, the government and relevant authorities need to address and improve public services and implement visible improvements. Obviously, one would argue that there have been improvements but as long as our public services remain below par compared to rival nations, the government have not yet delivered for the people. In the context of economic and wealth distribution to the poor and marginalised, basic amenities and public services are the backbone for facilitating entrepreneurial pursuit – whereby Malaysians can be more progressive and competitive through efficient support of basic public services.

What forms of support and incentives that the government provide for SMEs (if so, have such incentives been accessible to ordinary Malaysians)?
Small and medium-sized businesses are the foundations of thriving local economies and with the right policy the people would not only benefit but also create stability and value in the economy. For example, are there effective measures in improving the agricultural and farming industries in terms of quality and productivity? This could help alleviate shortage of basic commodities such as rice and flour (at least in the short to medium term) and underline domestic economy stability. Malaysia is a fortunate country endowed with the abundance of natural resources, tropical climate suitable for agricultural activities, and surrounded by the ocean with huge potential marine lives export. But years of neglect, lack of strategic vision and under investment meant that the resource-based of a nation’s competitive advantage had been overlooked. Did the government consider the associated opportunity costs when finalising the successive IMP 1, 2 and 3? Even, if there had been investments in the agricultural sectors, they were lacking in economic convictions and competitiveness measures. The federal government have been too preoccupied with industrialisation (see no. 1) and loose sight of the varied nature of economic resources particularly in building on existing resources in the East Malaysia. We could only look back the years of loss opportunity for the people across different states (not necessarily in the capital) to improve their living standard through investment in technology, production techniques, sustainable agricultural activities and business skills for SMEs – benchmark against regional and international standards. The government only recognised this in the Ninth Malaysia Plan and tried to reposition the agricultural and agro-based industry. One could also argue that this is a reactive response, as the country’s reliance on manufacturing competitiveness is dwindling without substantial technical and knowledge transfer strategy in the early years of IMP 1 and 2. In terms of strategic and economic planning, the implications are costly due to scale effects and diseconomies (e.g., playing catch up in the regional market, network barriers, marginal costs) and the Ninth Malaysia Plan can be criticised for the absence of clear strategies to circumvent these negative effects.

Furthermore, piecemeal solutions, sheer planning without strategic vision and poor implementation have negative social and economic implications. For example, what are the complementary economic effects of activities related to industrialisation, agriculture, financial and professional services, tourism, and ICT and knowledge-based services? Evidently, the tourism development (re: the Visit Malaysia Year Campaign) has been poorly coordinated with various substandard ancillary services, e.g., see some of the letters of dissatisfied tourists published in The Star. Many sectors of local businesses are ill prepared and the government campaign falls short of providing relevant aids (e.g., service training, international marketing) to enable small businesses to share the benefit of invisible income from tourism activities. Most critically, the negative word-of-mouth affects future business and competitiveness of this industry – dampening efforts to create economic wealth for many businesses.

In the effort of driving the agricultural industry, there are also underlying social and economic issues mainly due to conflicting resource demands particularly for skilled and trained labour markets. For example, the constant labour/population migration to the capital and industrial states, and perceived economic disincentives in the agriculture-based sectors is creating a myriad of social and cultural problems. There is no clearly visible government action in managing and balancing these demands at the state and national levels through its economic and human resource strategy. This affects the movement of labour and skills development with long-term consequences for the people’s social and economic wellbeing.

What measures have the government put in place to explore and exploit Malaysia’s strategic and cultural position of two major growing economies in Asia, India and China?
Malaysia’s foreign economic policy with regards to India and China remains relatively under tapped from a strategic viewpoint. Despite our geographical proximity, advantage of language and cultural similarity, and established networks with commonwealth countries (serve as potential economic and business conduits), there is no evidence of systematic economic initiatives in helping Malaysian businesses to see the bigger picture of economic rewards and how Malaysia could leverage its economic position. In particular, what did the government do to promote Proton in China and India? This would not be restricted to selling our national cars but extend to the exchange of technology and knowledge development, e.g., in parts and components manufacturing, joint ventures and strategic alliances. In effect, we could create and add value to related local manufacturers and suppliers, and spur domestic economy. As both India and China are experiencing tremendous growth in the motor vehicle industry the government need to be proactive and implement market-driven strategy (Day, 1994) to form business partnerships and attract potential investors. There are also ample business opportunities in other industries such as construction and real estate. What did the government do to help our construction companies to compete with overseas rivals? For example, the Korean construction industry is benefiting from the growth in China with knowledge of relationship development and marketing strategy (Eng and Wong, 2006; Eng and Spickett-Jones, 2007; Eng et al., 2008) despite not having the language advantage. The tourism industry would also benefit from the increasing wealth of these countries. But various government agencies in the tourism sector are lackadaisical, overlooking obvious provision of basic leisure services for these markets, e.g., language assistance at airports and major tourist attractions.

Government policy could help small and medium-sized business entrepreneurs explore and develop their business in China and India. The representatives from the MCA and MIC could support local business entrepreneurs and build economic ties using the advantage of language and culture such as through specific foreign business missions and conventions. There are also benefits for the halal food industry in targeting Muslim population in China. As a nation of multicultural society, this advantage is readily accessible to ordinary Malaysians and can be leveraged through informed business and marketing strategy. Despite our experience from the success of organising the Commonwealth games (albeit in a smaller scale), the government could have been bold and competitive in helping local businesses to bid for potential projects of the Beijing Olympic Games. The rapid pace of growth in China and India also creates opportunities for our petroleum and chemical business in terms of energy consumption of consumers and industrial markets. The focus of government foreign economic policy on these emerging economic powers would generate a far more pronounced economic effect with longer term economic growth compared to investment in other markets.

Clearly, scarce human and economic resources of our country need to be allocated to the most effective use in maximising return-on-investment. The government need to be selective in developing its portfolio of foreign economic ties and strategic in creating economic benefits especially in addressing wealth inequalities. While the Ninth Malaysia Plan noted the importance of moving the economy up the value chain, it is hard to find any specific action plans at local levels, and metrics for performance and control of strategy in the published document. In brief, value creation on the global commodity chain is progressive and highly influenced by marketing skills such as branding (Gereffi, 1999; Humphrey, 2004; Cheng et al., 2005; Eng et al., 2007, 2008). Information technology application alone would not result in higher value-added services but the stock and combination of intellectual and human capital assets as well as knowledge of resource development are essential for successful upgrading on the value creation chain (Helfat and Peteraf, 2003). Furthermore, economic conditions would moderate this economic aspiration, e.g., the scope and intensity of competition could stimulate innovation (Porter, 1980). This depends on the functioning of an efficient market (e.g., transparent and competitive rather than based on quotas) with appropriate mechanisms to deregulate and privatise major industries. A highly bureaucratic business environment would only serve to jeopardise efforts of eradicating economic inequalities in the long-term. This is simply because markets are dynamic (Teece et al., 1997) and at a minimum, protective measures would limit exposure to competitive knowledge.

Is the current economic development parallel with human capital investment and/or education policy? In other words, is the country over relying on both spectrum of the labour market (skilled and unskilled) as well as experiencing high levels of brain drain?
As discussed above (no. 1), the pace of human capital development is lagging behind industrialisation (re: first-class infrastructure third-class mentality quoted in the Ninth Malaysia Plan). The economy is also over-relying on cheap labour and suffering from high levels of brain drain. The implications are not only resulting in the increased of socio-economic inequalities but also negative consequences for knowledge transfer and acquisition at both ends of the labour-market spectrum, i.e., government policy would not be motivated to upgrade foreign-labour skills and knowledge development is transient without continuity at the higher level. Unskilled and poor people would be left in doldrums to fend for themselves whereas the rich entrepreneurs would hit stagnation in terms of business development opportunity (e.g., a typical family business/ownership aspiration).

The government education policy is non-competitive in terms of awarding scholarships and university places. At the very least, this cultivates complacency at all levels of the national education system and at worst, this produces incompetent graduates affecting wellbeing of future generations. Although more Malaysians have obtained tertiary and higher education degrees, foreign multinationals seemed prefer to recruit non-government sponsored graduates or foreign personnel. In a u-turn strategy of sponsoring students abroad, the government encourage Malaysians to study at local universities by setting up many new universities and/or granting university status to many former local colleges. But many Malaysians questioned the standard of our universities against other international institutions (e.g., against Singapore’s universities) especially after our recent poor performance in the world university rankings. Some universities attempted to fix this problem by rotating senior management rather than instigating a systematic investigation to enhance higher education standards. Unsurprisingly, the government admitted to the widening inequality of income in the Ninth Malaysia Plan despite the increased levels of education across the board. If the country’s education standard had not been on par with overseas institutions, the majority of students that graduate from local institutions would be at a disadvantage in competitive job markets. Put simply, for future generations (managers, engineers, doctors etc.) to survive successfully in the changing environment the government should not compromise or cut corners when it comes to investment in education. The people who are most vulnerable or to lose are those in low income groups. It is time for the government to take actions – not be hesitant or intimidated by certain self-interest individuals. Furthermore, academic resources are not strictly immobile and they are tradeable in competitive markets (Black and Boal, 1994).

The above questions are not exhaustive and merely scratching the surface of basic economic issues in the functioning of markets and distribution of economic wealth. The government’s past economic records and current economic policies are in tatters. I urge stronger and more informed opposition from the Pakatan Rakyat, and the current government to listen to the people. One has to examine methodically across industry sectors using relevant indicators and analytical tools for the context of our country. The interrelated nature of policy formulation and decision-making in public sectors means that economic performance is not bound to standard economic measures but include cultural and behavioural phenomenon. To fellow Malaysians, I hope that the extent to which we assess changes and judge the government and the coalition (opposition) would be on tangible outputs rather than policy per se. And to the Malaysian media, I extend my support for greater information and press freedom where reporting would be independent, timely and accurate, so that, the people are informed and empowered to drive democratic changes from the elected and relevant government representatives.

Bibliography

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6. Malaysia: Proton, is there light at the end of the tunnel? part 2

The financial concern about Proton is not about sustaining or improving performance but it is about whether the company will be able to survive in coming years. The easiest solution is to seek an established partner in the industry and form an alliance to share knowledge and access to international markets. In this vein, Proton has been courting with foreign car manufacturers in the hope of agreeing to an alliance. To date, this effort has been futile and time is running out for Proton to find a mutually beneficial partner. Furthermore, most international auto car makers have consolidated their position and formed partnerships with each other. Proton is left with not many options to bargain or obtain a major stake in its future alliance if it happens to materialise. It is time for Proton to ask themselves: (1) why previous attempts to strike an alliance with various foreign car manufacturers have failed? (2) Is it wise for the company to further pursue this strategic option? (3) If not, what are alternative strategic options? (4) and what is required in the short and medium term to stablise the company? Firstly, Proton is not in a position to negotiate favourable terms mainly because its market performance in foreign markets is poor. But as a national symbol and pride, Proton failed to see that no foreign partners would forego majority stakes to the company or Khazanah Nasional Bhd, the owner of Proton. In short, if Proton were to find an alliance partner, perhaps it would be more successful to operate under the control of a foreign firm. If this is an untenable idea, Proton should scrap its ambition to go global, at least in the short and medium term. Secondly, Proton is overlooking its strategic assets in the attempt to enter new foreign markets and survive local and international competition. An alliance with a foreign partner may not be the right decision as the automobile industry is overcrowded with major players and the industry is required to consolidate. The future of this industry is one that dominated by a few large and niche players. Whilst Proton is the owner of Lotus, Proton could have combined its strategic ambition to match Lotus brand name and technological superiority. Since Proton is positioning itself in the lower middle and budget car markets, it is hard to see how would the acquisition of Lotus is deployed to its maximum advantage. Time is a critical element to Proton's survival, the company needs to restructure its operations in order to achieve financial success and restore shareholders' confidence. Clearly, a detailed strategic analysis would position Proton's core competencies and eliminate or withdraw from its weak business areas in the marketplace. For instance, if Proton has the largest market share in domestic market, it needs to build on its success and improve its financial success. Since Proton's reliability has suffered compared to Korean cars, Proton must respond to critics - whether through improved customer service, quality, performance, added value and design. Presumably, Proton has the advantage of local knowledge and understanding of customer needs and preferences. In addition, its national brand could be used to leverage customer loyalty and enhance customers' trust of Proton cars. Instead, Proton has overlooked its most important source financial stability - local markets, that could serve as a base of image and brand for exporting to Asia and other continents. Also, Proton seemed to rush its new product development process without considering many aspects of customers, competition, technology, resource implications and market position. For example, its new cars are often positioned in the upper end of budget conscious buyers in Europe against established European and Japanese rivals but failed to convince potential buyers in terms of added value whether through fuel economy, realibility, customer service, package of options, design for European customers and brand name. In this instance, Proton has little competitive edge to out-compete Korean manufacturers, with good marketing campaigns emphasising on value for money, design and local preferences such as diesel engines and quality interiors. Given the current trend of declining domestic market share and looming AFTA, Proton needs to strengthen its hold on local markets rather than dissipating resources aimlessly. What international prospect does Proton has if it can't even survive in its home market? Domestic performance has wider implications for perceived quality and reliability of Proton's products. It is through domestic performance that the management at Proton demonstrate their ability to cope with foreign competition and attract potential foreign investors and possible partners. But the size of domestic markets for long-term financial growth should not be over-emphasised but it provides a strong base for local economy such as employment, technology transfer, and for Proton to logically capitalise on its local networks in the Far East Asia and henceforth extend its logistics further a field.

5. Malaysia: Proton - is it a terminal decline? part 1

At the moment of writing, Proton, a national car project and one of the main pillars for our economy, is reeling with the need to find a breakthrough for its products/cars and facing a daunting economic prospect with the looming free-trade pact agreed to by the 10-member Association of Southeast Asian Nations in 2008. The recent decision of Volkswagen AG to scrap plans for a partnership with Proton Holdings Bhd to jointly assemble cars for domestic and export markets adds further uncertainties as to whether Proton will survive as a viable auto maker in an increasingly competitive business environment. Proton has been receiving preferential treatment in Malaysia through a protected market from foreign competitors. But this treatment is due to end by 2008. Also, the company is currently facing intense competition from both domestic and foreign car makers. For example, Japanese and Korean car makers are competing head-on with Proton's models in terms of reliability and pricing. On the whole, Proton's performance in both domestic and international markets is dismal. The company was established as part of the Vision 2020 for Malaysia to achieve an industrial nation status. It was hailed and perhaps it's still a national pride but Proton's future is very bleak. There are two critical questions: (1) how did Proton find itself in such a mess? and (2) what can be done to turnaround its financial performance? To address the first question, it is necessary to examine Proton's history, it can be said that Proton has been able to survive through its preferential treatment in Malaysia and high taxes imposed on imported foreign cars. As a result of this, the company capitalizes on pricing as its main competitive tool to win market share from foreign car manufacturers. But for export markets, Proton has not been able to establish its brand and competitive position as a major player. Added to this, with technological innovations, rising costs of inefficient manufacturing techniques employed by Proton, recent approval of AP to allow more foreign cars into domestic market, eminent arrival of AFTA and foreign manufacturers locating themselves in the Far East and forming partnerships to increase efficiency - Proton is experiencing a terminal decline. Against this backdrop, there are concerns about Proton's management competence. For example, its attempt to penetrate European markets has been unsuccessful mainly due to lack of knowledge about European markets. In this instance, there is no evidence that Proton understands basic European preferences of styling and interior of a car, and other competitors' strengths. Proton could have achieved some success through careful marketing research and well thought out marketing strategies. Also, it seemed that Proton has not been able to leverage Lotus's technology and design to establish its new models. In brief, the company needs to take a total revamp of its strategy if it were to compete successfully in both domestic and international markets. This leads to the second question....

4. Malaysia: changing economic environments

Following from previous postings, it can be argued that one of the main reasons affecting our economic competitiveness and its benefits for ordinary Malaysians is the weakness of our strategic planning. With changing economic conditions and competitive arenas, it is futile to execute and implement economic plans and objectives yesteryear. At present, what appeared to be driving our economy forward is a mixture of adhoc and offensive economic strategies such as those mentioned in article (2). In light of our current economic growth in terms of GDP, one might argue that there is no cause for concern and our economy is progressing upwards and onwards on the right trajectory. My main concerns are our future competitiveness, lessons drawn from the past and tangible benefits to our people. In particular, the large majority of our population is not reaping the rewards of our economic growth or what seemed to be exclusive wealth endowed by small quarters - these are issues to be addressed urgently. Furthermore, examples of poor strategic planning are abound: Proton, MAS, MSC project, KLIA, etc. These companies and/or projects are facing a grim economic outlook mainly due to changing economic conditions, poor marketing and management incompetence. Major economic projects were once funded through strong economic growth and FDI but with markets becoming ever more competitive, companies seemed to be in status quo. There is also the attitude problem of living in denial and Malaysians like to profess the saying that 'we can' or 'Malaysia boleh.' In reality, our government and economy are facing tough times and ordinary people are facing the brunt. We could have avoided some of the challenging economic times by being more alert to global networks of interdependent economies and markets. For instance, we are strategically located in the Far East to help European markets to tap into the region's markets especially China's. Moreover, we could have had the vision that knowledge and technology transfer, and skills upgrade be our economic priority during the years when foreign investments were booming such as from Japanese and European manufacturing firms. The irony is that although the government learned from earlier mistakes, we are still knocking on the same window of opportunity when it had shut on us - and is gone forever. There is no vision in our economic direction and strategy. Vision is not an innate ability but it is someone who has a broad multicultural perspectives, an understanding of major global strategic drivers, a strategist and negotiator, a profound knowledge of management, and an analytic mind. The PM of Malaysia needs to assemble his cabinet ministers with such people or surrounds himself with independent experts rather than some bureaucrats or think tanks that at worst may have ulterior motives or slow and inflexible in responding to urgent execution of time critical strategies.

3. Malaysia: lessons from the past...

In order to achieve the Vision 2020, Malaysia needs to sustain an annual GDP growth of about 8 percent for years leading up to 2020. Although it is easy to blame the halt of a high economic growth to the Asian financial crisis, one must also realise the spectacular economic growth in mid 1990s was not sustainable. During the period of healthy economic growth, there was no evidence that investment in productive factors contribute to a mark increased in productivity and/or improved technological competence or knowledge. There was no explicit contingency plan or strategy for Vision 2020 in the event of an economic slowdown. Instead our economy relied on capital injections from foreign investors and government projects to drive high employment market and demand for local services. Foreign investors or multinationals were once attracted to Malaysia through a host of tax benefits. Unfortunately, most investments benefiting from our attractive tax benefits and cheap labour market did not lead to transfer of technology, technical know-how or innovation - which are essential for a sustainable economic growth. The government of Malaysia recognised that our human resources are not equipped with the knowledge or management competence to absorb and acquire the skills and technology from foreign investments. The government responded with a bold education strategy of providing scholarships and sending Malaysian students abroad to obtain higher education qualifications. The government also invested heavily in improving the transportation networks in Kuala Lumpur (e.g., new airport, ligh rail transport) or the federal state (e.g., Cyberjaya and Putrajaya) as part of the strategy to enhance our competitiveness. In brief, there were many other projects initiated by the government in the hope of increasing our economic growth. As with any investment, it is necessary to assess its return-on-investment particularly to our people in terms of raising our standard of living and economic well-being. Whilst there have been many success stories in terms of standards of living about our improved infrastructure in Kuala Lumpur, these are limited to a minority of our population in Malaysia. At the same time, the public transportation system in the capital has not really resolved or eased traffic congestions. This affects not only our productivity and competitiveness but also questions our initial strategic planning. Returning to the government education strategy of sending many Malaysian students abroad, to date, there is no evidence that this strategy has paid off especially the government and multinationals continue to recruit foreign managers to hold key position in an organisation. There is also no sign of high demand for any specific skills or talents of students graduating from abroad. On the contrary, the government embarked on what seemed to an u-turn strategy of educating Malaysians at home by setting up many new local universities or granting licences for local private higher education institutions. By and large, our economic strategy has for the most part failed to materialise and there was no contingency strategic plan to prepare for adverse economic circumstances.

2. Malaysia: taking stock of our FDI.

Before I proceed from my last posting, it's worth examining our current sources of foreign direct investment. Although our economic path prior to the Asian financial crisis has relied heavily on industrial exports (e.g., microchips, computer hard disks, foreign investment in manufacturing plants) and petrol-chemical products (e.g., Petronas), the rise of China and India in exports and competitive labour markets in global economy has somewhat shifted our economic focus to other industries such as tourism (e.g., Visit Malaysia Year campaign), real estates especially post September 11 in attracting Middle East investors, Islamic Banking hub, financial services through re-structuring and gradual deregulation of the financial industry and corporate governance and export of higher education by granting colleges to convert their status to become a university. The government of Malaysia has been actively seeking investors to promote the above industry sectors as a way of increasing and improving FDI. But these sectors are very competitive. Importantly, the shift from attracting foreign manufacturers to more service-based resources of the country is inevitable - not because of China or India but mainly due to our country lack (1) skilled labour, technical know-how, (2) domestic demand, and (3) added value services such as strategic location of airport or seaport. These will be addressed in later discussion.
Not to mention, domestic economy has also played a part in sustaining the economy mainly through demand in properties, national cars and domestic goods and services. For example, property prices have appreciated steadily over recent years except in 2005, where there is indication that the property market is over-supplied. Coupled with this, the interest rates are not as low as in the early 2000s and there has been high inflationary pressure of oil prices.
Thus, our major sources of FDI consists of a mixture of industrial exports (manufacturing-based), tourism and other resources noted above.

1. Malaysia: What's our economic strategy?

Let's start by shedding some light on what is our economic strategy? Whilst every economy is a mixture of different productive outputs, it is important to identify our major GDP contributors. Since early 1990s, the Malaysian economic strategy has been about becoming an industrialised nation based on IT and manufacturing competencies. For example, there have been active emphases on attracting foreign investors to locate their manufacturing plants in Malaysia and Vision 2020 focuses on technology and knowledge with agricultural industries receiving less recognition than industrial manufacturing. Clearly, economic vision and strategy are evolving and the government of Malaysia has shifted emphases over time but the main pillar of economic focus of the country has been on industrialisation, be it through efforts to promote the country as a financial- or technology hub. The term 'industrialisation' is used loosely here to distinguish between agriculture and industry-based economies. The national car project, Proton is part of the country's strategic plan to compete in a manufacturing/industrial sector. So, it is quite clear that Malaysia is following the path of economic strategy leaning towards exporting industrial-based products, attracting foreign investments in manufacturing and developing competence based on technology to generate economic incomes. On reflection, we will ask ourselves whether we have got our economic plan right? if so, to what extent our strategy helps ordinary Malaysians? if not, in hindsight what could have been done? and what future strategic plan could we propose?

Malaysia: Progress for our people

I'll be writing about economic strategy for my country, Malaysia. My postings will be based on my understanding of global economy, international strategy and competition. I grew up in Malaysia but now I live and work in London. I always keep abreast of current economic events in Malaysia as well as global economy. My main reasons for starting this web blog are:

• to start a debate about improving the national competitiveness of Malaysia.
• to question our economic progress and its benefits for ordinary Malaysians.
• to propose strategies on which Malaysia will improve its economic competitiveness.
• to share my views and welcome others to contribute to my analyses.

Since it would be an impossible task to cover every aspect of economic strategy in one posting, I would attempt to structure my postings according to their importance for achieving the above. I must also point out that following postings are solely my views, with no hidden agenda but only to benefit people in Malaysia.