Friday 29 Mar 2024
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KUALA LUMPUR (Dec 3): What does Taiwan, Malaysia, and South Korea have in common when it comes to manufacturing?

Well, all three began their industrialisation phase at around the same time. But sadly, the similarity seems to end there.

Unlike Taiwan and South Korea, which have crafted out their own success stories as they move up the ladder to high-end manufacturing, Malaysia has been stuck in a rut with no change in its manufacturing value for the last 10 years, wrote The Edge Malaysia writer Tan Siew Mung in the publication's latest cover story for the week of Dec 5-Dec 11.

Many are familiar with Taiwan's journey to success: its information technology firms were considered low-end original equipment manufacturers (OEM) in the 1970s and 1980s, which turned out to being among the world's best original design manufacturers (ODM) in just about 20 decades as they develop and design products for Western brands. 

By the turn of the millennium, Taiwan had progressed further from ODM to original brand manufacturing, designing, manufacturing and marketing products under its own brand names.

South Korea's story as it advanced into high-end manufacturing needs even less introduction. The word 'Samsung' just about sums it up.

But what happened to Malaysian manufacturers during this same time? While manufacturing's shrinking contribution to gross domestic production or GDP shrunk -- from 31% in 1999 to 23% in 2015 -- is likely due to a policy focus shift to the services sector, why did its weighted average of value-added per unit of gross output stagnate for the past 10 years?

In other words, its manufacturing didn't move up the value chain by much. And the country seems to be on the losing end too when it comes to attracting investments into the sector.

Ironically, even its service-focused neighbour, Singapore, is seeing its manufacturing sector fast becoming a magnet for foreign direct investment (FDI). Already crowned the region’s financial hub, the island state attracted US$111.39 billion in manufacturing in 2014 compared with Malaysia’s US$1.42 billion and Thailand’s US$4.73 billion.

Turn back over the Causeway and you will see that other than being recognised as the world’s largest rubber glove manufacturer, Malaysia does not have much to shout about in the industry.

Asian Development Bank lead economist of trade and regional cooperation, Jayant Menon, too observes little progress has been made in Malaysia’s manufacturing sector.

“As it did in its early post-colonial phase, Malaysia is moving back to processing its agricultural and mineral resources. The only difference is that the commodities themselves have changed. Once it was rubber and tin, now it is oil palm and petroleum,” Jayant told the weekly.

He said if Malaysia is to realise its aspirations and enjoy the living standards of an advanced or high-income nation, then it needs to arrest the structural degeneration into low-productivity, low-wage activities currently seen in its manufacturing sector.

Jayant said Malaysia needs to improve its business environment to revive private investment in the manufacturing sector to stem its contraction and to allow
it to regain its share of GDP pre-Asian financial crisis.

“The regeneration of manufacturing is unlikely to take place without an overhaul of current policy settings. One key challenge is to deal with the proliferation of government-linked corporations or GLCs that now crowd out private investment in most sectors of the economy, including manufacturing.

“The government has recognised this problem but greater efforts need to be made to increase GLC divestment,” he added.

Most economists opine that there are few options left for Malaysia to be cost-competitive. Pressure from the world's manufacturer China notwithstanding, it's also facing mounting competition from the likes of emerging Asean members like Vietnam.

The country has got to be more competitive in terms of quality and strong enough to outweigh its lack of cost-competitiveness, thus becoming more attractive to FDIs.

But it seems that local manufacturers are facing an uphill battle. What ails the industry? What are the hurdles it faces? And why does MIDA say manufacturers themselves have not done enough to move up the value chain?

Pick up a copy of The Edge Malaysia today to find out more.

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P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.

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