Instrumento: secuencia didáctica

In the early 1980s, the term newly industrializing countries was applied to a few fast growing and liberalizing Asian and Latin American countries. Because of the widespread adoption of market based policies by most developing countries, the term `newly industrializing countries’ has now been replaced by the broader term `emerging market economies’. An emerging economy can be defined as a country that satisfies two criteria: a rapid pace of economic development and government policies favouring economic liberalization and the adoption of a free market system (Arnold & Quelch, 1998). In 1999, The International Finance Corporation (IFC, 1999) identified 51 rapid growth developing countries in Asia, Latin America, Africa and the Middle East as emerging economies, including Malaysia. In addition to these fast followers, following the classification of the European Bank for Reconstruction and Development (ERBD, 1998) 13 transition economies were added to the list, including China and Russia. The pace of political change and the size of economic gains have not been uniform across the 64 emerging market economies. The rapid and widespread adoption of market based policies by emerging economy governments raises important issues for the strategies adopted by private enterprises, both domestic and foreign. In fact, the 21st century has been referred to as the century of Pacific Asia (Tung, 1994).

In spite of this evidence, the literature of international business regarding developing markets tends to be very limited, although lately a few countries and regions such as China and Mexico have been attracting the attention of academic researchers (Yadong,

1999; Kotabe et al., 2000). What is even more striking is that, according to Govindarajan and Gupta (2000), in the next 20 years the economic centre of gravity of the world will shift toward these countries. During this period of time these Big Emerging Markets (BEMs) are expected to be the homes of a number of large players in the world’s 500 largest companies. These changes in the international economic environment are expected to accelerate in the coming years due to the fast growth of BEMs relative to developed countries, as well as the strategies of multinational firms benefiting from economies of scale and locational advantages.

At the same time as domestic policies are becoming more market oriented, emerging economy governments are opening their countries to foreign markets and joining regional trading associations such as AFTA (Asean Free Trade Area). New relationships between foreign and domestic enterprises are emerging as strategic alliances replacing export processing zones and subcontracting arrangements. Alliances with Malaysian firms can be seen a gateway into other Asian markets allowing foreign firms to leverage their existing alliances into avenues for future collaboration. Given these factors, Malaysian firms are likely candidates for cross border alliances. Malaysian firms seeking to find new markets for their products will search for partnerships in the western hemisphere and Europe and firms from these regions will seek ways to tap into Malaysia’s growing economy. Enterprise strategies in emerging economies are therefore facing strong environmental pressures for change, yet this change is neither smooth nor automatic nor uniform across different markets.

Malaysia is an Asian country that has emerged as a major participant in the world economy during the last two decades. As a result, competition between Malaysian and foreign firms in global markets is increasing. Malaysia is a country that relies heavily on exports for economic expansion. Its economic expansion is related to its evolution from an agricultural based country in the early 1960s to an industrialized one in the 1980s and is vigorously supported by government policies through its interventionist approach since independence from Britain in 1957 (Economic Analytical Unit, 2005).

Policies were implemented by the government over a wide range of activities from distributing the nation’s wealth to industrial development. Government support in the form of national and industrial policies can motivate certain forms of industrial development. Except for a few dogmatic conservative market economists, there is now widespread acknowledgement of the crucial, pro-active role of the state in East Asian late industrialization. It is increasingly clear that there has been considerable variation in the role, nature and extent of government intervention, and that these have changed over time (Jomo; Deyo, 1987). The focus of macroeconomic management through the 2001 to 2005 planning period was on low and stable inflation, an adequate level of national savings, a balance of payments surplus, a stable exchange rate, debt sustainability, fiscal prudence and strong and unencumbered external reserves (Economic Planning Unit, 2003).

From 1980 to 1995, Malaysia, Singapore and Thailand more than doubled their real income per person while the US’s increased by only 20 per cent (Sarel, 1997). This led Rowan (1998, p.1) to comment that their record of development is exceptional, not only

in comparison to other developing regions but in world history. Although the 1997 financial crisis may to some extent have discredited the Asian miracle, the East Asian countries’ leap from poverty and economic and technological backwardness over a period of less than 40 years has been something of a “miracle” (World Bank, 1993; Stiglitz, 1996, 1998; Sachs, 1997; Nelson and Pack, 1999; Booth, 1999). The facts on the high growth performance of the Newly Industrialized Countries (NICs), including Malaysia, are not in dispute. They are acknowledged by proponents and critics alike. What is in dispute is the interpretation of these facts and their significance for development theory and policy.

The main objectives of this chapter are: (1) to highlight economic growth in Malaysia paying particular attention to productivity growth; (2) to analyze the main factors and policies that are responsible for growth as well as several issues that are considered restrictive on business activities in Malaysia; (3) to explain the changing phases of the Malaysian economy and the various achievements and conundrums since independence. Emphasis is given on the historical account of the changing economic environment, comparative advantage and the shift from an agriculture based economy to a manufacture based economy. More importantly, the economic framework and industrialization strategies that have guided the Malaysian economy into success are clearly outlined. An account of the management of the various economic cycles, crises that have hit the economy and the impact of these crises on the economy are also dealt with. To give a more comprehensive understanding of the Malaysian economy, discussions on issues of manpower, privatization, financial, multimedia development and Vision 2020 are also

included. The thrust of the argument centre around the assumption that an economy is a complex dynamic system and there are strong interactions among selected variables.

2.1 An Overview of Malaysia’s Economic Performance

Figure 2.1

Per capita GNI for Malaysia – US$ Atlas method, 1970 to 2002

0 500 1000 1500 2000 2500 3000 3500 4000 4500 5000 1970 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 US $

Source: World Bank, 2003

Malaysia is currently experiencing a transitional process towards the production structure of the developed economies. This transitional process has led to rapid output growth after political independence in 1957. Prior to establishing the New Economic Policy in 1970, Malaysia was predominantly a commodity based economy, relying on rubber and tin. There was also a program of import substitution, manufacturing consumer goods for the domestic market. The New Economy policy saw a policy switch by the Malaysian government, pursuing a two pronged policy approach of export promotion and import substitution. By the mid 1970s, electronics, electrical products, textiles, clothing and food manufacturers were all making export gains (Ariff, 1991). They increased from 11

percent of total exports in 1970 to 60 percent in 1990. In part, the New Economic Policy provided a blueprint for an active policy to raise Malay participation in business (details to be discussed later on). The Malaysian Government was aided in its development plans by an increase in oil revenue; between 1973 and 1977, total government revenue more than doubled, and the share of oil in the revenue take increased from 1.5 per cent to 11.4 per cent. Within 10 years, per capita income had more than quadrupled, albeit from a low base (Figure 2.1).Concomitantly, the Malaysian middle class has grown both in size and affluence. Thus, by the 1990s Malaysia was approaching the status of a newly industrializing economy (Islam and Chowdhury, 2000). Figure 2.1 indicates how far Malaysia has come since 1970 but more importantly, how far it still has to go. Economic growth over the past three decades has been substantial enough to ensure per capita income is larger than Indonesia, the Philippines and Thailand (World Bank 2003). However, per capita income remains much lower than Singapore, illustrating the scope of the task ahead for Malaysia to achieve its development goals.

In the early stages, Malaysia’s GDP grew at an average rate of 5.1% in the 1960s and 7.8% in the 1970s making it one of the fastest growing economies in Asia. In the 1980s, the Malaysian economy continued to grow, albeit at a lower average rate of 5.9% due to the global recession in 1985-1986. With the recovery of the world economy, the Malaysian economy grew rapidly from 1991-1995 at an average rate of 8.7% per annum. The growth momentum over the next five years from 1996-2000 was disrupted by the severe contraction in 1998 arising from the East Asian financial crisis. Malaysia’s GDP had expanded at an average rate of 8.7% per annum during the period from 1996-1997

before registering a negative growth rate of 7.4% in 1998. Efforts by the government to resuscitate the economy starting from mid-1998 succeeded in generating an average growth rate of 7.2% during the period from 1999-2000. Since then, output has recovered, with the exception of 2001 where the international dotcom contraction adversely affected growth. Overall, the economy grew better than expected at an average of 4.7 per cent per annum during the period (Figure 2.2).

Figure 2.2 GDP growth in Malaysia

Source: Ministry of Finance 2005

From 2002 to 2004, the Malaysian economy recorded a creditable performance despite the unprecedented volatility in the global economy as well as uncertainties arising from international terrorism, wars in Afghanistan and Iraq, and the outbreak of the Severe Acute Respiratory Syndrome. Through fiscal stimulus and accommodative monetary

policies, the government was able to sustain growth due to the expansion in domestic demand and promotion of domestic sources of growth. From a GDP growth rate of only 0.4% in 2001, the Malaysian economy recovered strongly to register growth rates of 4.2% and 5.2% in 2002 and 2003 respectively.