China - A powerful economic threat
I just returned from a trip to Australia and I must say that it really opened my eyes to the real threat posed by the emergence of the powerful Chinese economic machine. China is no longer an emerging economy, it is in fact the single largest threat to the economies of South East Asia especially Malaysia.
I remember in previous overseas trips from Europe to America to Australia, Malaysian made products were available in many shopping centres. Now, everything is made in China. I could not find a single Malaysian made consumer item in any of the shopping centres in Australia.
The threat of China is not only as a low cost producer. Vietnam, Myanmar, Indonesia and India are also low cost producers, yet there are very few products from these nations on sale. Other than being a low cost producer, China is also savvy at marketing its products. Chinese companies now dominate the garments industry and if one studies historical trends, most nations, including Malaysia, moved from garments to higher value products in 10 to 20 years. This time span is even shorter today. China has also started moving into electronics and higher value products.
What does this have to do with the New Economy?
Consider Singapore. It has been moving aggressively into high end manufacturing especially electronics over the last 10 to 15 years. Today it is a successful electronics manufacturing centre for American and European multinationals. It is also in technical recession due to the slump in electronics. The first response of all these multinationals? Close down the plants and move to low cost nations, preferably China.
Even the tax and financial incentives offered to these MNCs are never enough to keep them if labour and operational costs make the difference between profitability and liquidation. The ultimate goal of all nations is to increase the per capita income of its citizens and keep GDP growing at reasonable rates. The time will come when labour and operational costs are too high and companies move along.
It is happening in Singapore, soon it will happen in Malaysia. We are fortunate to have lower costs than Singapore, but the message of Dato Craig Barret CEO of Intel is clear. At present he is satisfied that the benefits of Penang and its lower costs still justify continuity of the Intel facility in Malaysia, however, the hidden message is that if there is a more compelling reason to move then he will do it. The corporate mantra of MNCs is maintaining profitability. The bottom line is all that matters.
We must learn the Singapore lesson. Too much dependence on a single industry can be crippling especially if that industry can be easily replicated elsewhere. Manufacturing and assembly can be done anywhere by anyone. Malaysia too is very similar to Singapore. Most of the companies in Penang are assembly plants. Statistics prove that we import most of the key components from overseas like Japan and Taiwan and merely reassemble them here for re-export. This is a dangerous situation to be in.
Malaysia is the “Lucky Country”. Just when electronics are in a slump, higher crude oil and palm oil prices will save the nation. When palm oil was down, manufacturing saved the day. How long can we depend on luck and the grace of the Almighty.
It is time for a rethink of overall policy.
We are already a key electronics manufacturing (or more likely assembly) centre with large multinationals like Intel, Dell, Sony and Samsung. However, to ensure that they do not move the facilities elsewhere, we must devise new policies and new businesses.
The New Economy is also about new technologies and designs. Malaysia must move away from assembly to design and development. Intel has started this by announcing that it will set up a Design and Development (D&D) centre in Malaysia to compliment its facility in Penang.
Assembly can be done by anyone even in countries with low education levels. However for D&D there is a requirement for higher levels of education especially in electronics and engineering. Malaysia has among the highest literacy rates in Asia, yet the number of high quality engineers and science graduates is very low.
Malaysia needs to emphasise policies and incentives to move higher up the value chain. Although the Government has been talking about this, nothing concrete has been done and Foreign Direct Investments have still been in manufacturing and assembly plants.
Government grants too need to be reviewed. The current grant process emphasises smaller scale R&D and not on the scale required to be a major player in D&D. The Government must take the lead here and set-up special R&D and D&D centres in the major Universities like Universiti Sains Malaysia and the Multimedia University specialising in fields like chip design, robotics, electronics and photonics.
We also need to create training and education with greater emphasis on R&D and D&D. The training must encompass not only University students but also employees of MNCs and other major corporations.
We need to work closely with major Universities like Massachusetts Institute of Technology, Oxford and other European and Japanese Universities that specialise in R&D and D&D. The current foreign Universities in Malaysia concentrate on the usual IT and business courses and this is a dire waste of the resources of these Universities.
The Government must take the lead to invite the major research based Universities to Malaysia and set-up special Departments and Faculties solely based on research. Funds must be provided for research and this will attract talent from overseas to move their research to Malaysia. Research funding is a major concern of all researchers and if the Malaysian Government is willing to fund high-level research based on our needs then we can attract the best brains to Malaysia. The spill over effect of this is the education of the Malaysian population.
Malaysia is an attractive place to work and research but we must be very focused and targeted in the type of research being done. Semiconductor technology is the key to keeping the massive electronics industry in Malaysia and we should work towards producing very high value chips not merely assembling them.
In the future we must move from semiconductors to other electronic products.
It is time for us to take the lead in research before nations like Singapore and India attract the best to them. As we speak these nations are plotting their future strategy. We should not be left behind and we should not be followers. We can and must be leaders.
16 August 2001
I remember in previous overseas trips from Europe to America to Australia, Malaysian made products were available in many shopping centres. Now, everything is made in China. I could not find a single Malaysian made consumer item in any of the shopping centres in Australia.
The threat of China is not only as a low cost producer. Vietnam, Myanmar, Indonesia and India are also low cost producers, yet there are very few products from these nations on sale. Other than being a low cost producer, China is also savvy at marketing its products. Chinese companies now dominate the garments industry and if one studies historical trends, most nations, including Malaysia, moved from garments to higher value products in 10 to 20 years. This time span is even shorter today. China has also started moving into electronics and higher value products.
What does this have to do with the New Economy?
Consider Singapore. It has been moving aggressively into high end manufacturing especially electronics over the last 10 to 15 years. Today it is a successful electronics manufacturing centre for American and European multinationals. It is also in technical recession due to the slump in electronics. The first response of all these multinationals? Close down the plants and move to low cost nations, preferably China.
Even the tax and financial incentives offered to these MNCs are never enough to keep them if labour and operational costs make the difference between profitability and liquidation. The ultimate goal of all nations is to increase the per capita income of its citizens and keep GDP growing at reasonable rates. The time will come when labour and operational costs are too high and companies move along.
It is happening in Singapore, soon it will happen in Malaysia. We are fortunate to have lower costs than Singapore, but the message of Dato Craig Barret CEO of Intel is clear. At present he is satisfied that the benefits of Penang and its lower costs still justify continuity of the Intel facility in Malaysia, however, the hidden message is that if there is a more compelling reason to move then he will do it. The corporate mantra of MNCs is maintaining profitability. The bottom line is all that matters.
We must learn the Singapore lesson. Too much dependence on a single industry can be crippling especially if that industry can be easily replicated elsewhere. Manufacturing and assembly can be done anywhere by anyone. Malaysia too is very similar to Singapore. Most of the companies in Penang are assembly plants. Statistics prove that we import most of the key components from overseas like Japan and Taiwan and merely reassemble them here for re-export. This is a dangerous situation to be in.
Malaysia is the “Lucky Country”. Just when electronics are in a slump, higher crude oil and palm oil prices will save the nation. When palm oil was down, manufacturing saved the day. How long can we depend on luck and the grace of the Almighty.
It is time for a rethink of overall policy.
We are already a key electronics manufacturing (or more likely assembly) centre with large multinationals like Intel, Dell, Sony and Samsung. However, to ensure that they do not move the facilities elsewhere, we must devise new policies and new businesses.
The New Economy is also about new technologies and designs. Malaysia must move away from assembly to design and development. Intel has started this by announcing that it will set up a Design and Development (D&D) centre in Malaysia to compliment its facility in Penang.
Assembly can be done by anyone even in countries with low education levels. However for D&D there is a requirement for higher levels of education especially in electronics and engineering. Malaysia has among the highest literacy rates in Asia, yet the number of high quality engineers and science graduates is very low.
Malaysia needs to emphasise policies and incentives to move higher up the value chain. Although the Government has been talking about this, nothing concrete has been done and Foreign Direct Investments have still been in manufacturing and assembly plants.
Government grants too need to be reviewed. The current grant process emphasises smaller scale R&D and not on the scale required to be a major player in D&D. The Government must take the lead here and set-up special R&D and D&D centres in the major Universities like Universiti Sains Malaysia and the Multimedia University specialising in fields like chip design, robotics, electronics and photonics.
We also need to create training and education with greater emphasis on R&D and D&D. The training must encompass not only University students but also employees of MNCs and other major corporations.
We need to work closely with major Universities like Massachusetts Institute of Technology, Oxford and other European and Japanese Universities that specialise in R&D and D&D. The current foreign Universities in Malaysia concentrate on the usual IT and business courses and this is a dire waste of the resources of these Universities.
The Government must take the lead to invite the major research based Universities to Malaysia and set-up special Departments and Faculties solely based on research. Funds must be provided for research and this will attract talent from overseas to move their research to Malaysia. Research funding is a major concern of all researchers and if the Malaysian Government is willing to fund high-level research based on our needs then we can attract the best brains to Malaysia. The spill over effect of this is the education of the Malaysian population.
Malaysia is an attractive place to work and research but we must be very focused and targeted in the type of research being done. Semiconductor technology is the key to keeping the massive electronics industry in Malaysia and we should work towards producing very high value chips not merely assembling them.
In the future we must move from semiconductors to other electronic products.
It is time for us to take the lead in research before nations like Singapore and India attract the best to them. As we speak these nations are plotting their future strategy. We should not be left behind and we should not be followers. We can and must be leaders.
16 August 2001
posted by Dr. Siva at 11:12 PM
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