L A I SLA DE P HILAE —E L D RAMA S AGRADO DE I SIS Y DE

US$ mil 1973 1975 1980 1984 1985 1951-1985 Malaysia 126 52 146 142 79 1,125 per cent 3.6 1.6 3.1 1.4 0.6 1.3 Asean 625 856 921 906 935 13,469 per cent 17.9 26.1 19.6 8.9 7.7 16.1 North America 913 905 1,596 3,544 5,495 26,965 per cent 26.2 27.6 34.0 34.9 45.0 32.2 Europe 337 333 579 1,937 1,930 11,002 per cent 9.7 10.2 12.3 19.1 15.8 13.2 China 0 0 12 114 100 287 per cent 0 0 0.3 1.1 0.8 0.3 World 3,491 3,280 4,693 10,155 12,217 83,649 per cent 100 100 100 100 100 100

Source: Bank of Japan, cited by Tsuneo Nakauchi in 'Asean Way ahead and Japanese Investment and trade with Asean: Mac 1987.

In absolute terms, the values of Japanese

investment shows a definite declining trend in the first half of 1980s (Table 1.9). In relative terms, that is, the proportion of Japanese investment in Malaysia to total Japanese overseas investment, a declining trend is also evident in the 1970s and in the early 1980s.

Japanese investment in Malaysia in relative terms

declined from an insignificant 3.0 per cent in 1973 to be almost negligible in 1985. On the other hand in the same period, an increase, at least in absolute terms was recorded for Japan's investment in the advanced

industrialized countries of Europe and the United States (Table 1.9). It appears that Japanese overseas

investment is not guided by consideration of altrusim. The following discussion will consider the various

features of Japanese investment in Malaysia and their impact on Malaysia's development priorities discussed earlier.

The first characteristic of Japanese investment in Malaysia is that it takes the form of joint ventures. This is also the general practice of most other foreign

investors in Malaysia. In the period 1971-1979 a total of 1577 foreign investment projects were approved by the government. Out of this total about 126 projects or 8 per cent of the total approved projects were wholly foreign owned while the remaining 92 per cent or 1451

40

projects were joint ventures. Of the 287 Japanese projects approved in the same period 12 per cent

(36 projects) were wholly Japanese owned while the

remaining 88 per cent (253 projects) were joint venture 41

projects. Furthermore not only do Japanese investors prefer joint ventures, they also show a preference for minority equity participation. For investment up to

1979, in 60 per cent of Japanese joint ventures,

42 Japanese equity participation was less than 50 per cent. In this respect Japanese investment differs from

investment from other large foreign investors. For example in 75 per cent of United States' joint ventures in 1979, United States investors held majority equity

43 participation.

The prevalence of joint ventures as the common form of investment in Malaysia can be attributed in part to the guidelines of the NEP. The guidelines require companies producing for the domestic market to have at least 51 per cent Malaysian equity. In this regard, Japanese investors' preference for joint ventures and their generally minority equity participation is in conformity with the NEP requirements. However having minority equity participation does not mean that the Japanese investors do not have effective control of the joint venture. In fact there is no direct relationship between equity participation and effective control. Effective control instead is achieved by other means namely management contracts, technical and licensing agreements, trade mark and patent rights and turnkey operations. A statistical analysis for the period

1970-1979 found that Japanese firms did indeed employ 44

all the devices mentioned above. Having effective control enables the Japanese to determine the various aspects of the investment, i.e., the location, type of industry and the choice of production techniques which is to their interest rather than that of the host

country. For example, Japanese investment is concentrated in the textile and electronic industries because the

Japanese have demonstrated technological superiority 45

over other investors. On the other hand Japanese

»

investment is marginal in export-oriented industries because these industries threaten 'production at home' and increase competition in the competitive international markets. Overall then the possession of effective

control, not withstanding their minority status in a joint venture, would imply that the nature and character of Japanese investment in Malaysia would promote Japanese interests and these need not necessarily coincide with Malaysia's aims and aspirations.

Another consideration on equity participation is the target set out in the NEP. Firms are required to set aside at least 30 per cent of their equity for Bumiputras. Based on observation of Bumiputra equity

share in the Japanese projects approved between 1980-1982, there is a discernible trend in recent years towards

46

increased Bumiputra equity participation. However

with regard to the appointment of dealers, Japanese firms have yet to achieve the 30 per cent Bumiputra target

in the distributive trade.

The second feature of Japanese investment in Malaysia is that it is concentrated in the manufacturing sector. In 1980 47.1 per cent of Japanese firms were involved in manufacturing, 24.6 per cent in trading and commerce, 9.1 per cent in construction and engineering, 2.1 per cent in mining and the rest in finance, insurance

48

and other services. In fact Japan is a major investor in the manufacturing sector (Table 1.10). As at December 1985 Japan accounted for 27.47 per cent of the total

investment in the manufacturing sector and was only 1.17 percentage points behind the United Kingdom.

Within the manufacturing sector there is

another form of concentration. The bulk of the Japanese investment is in two main industries, namely textile and textile products, and electrical and electronic products (Table 1.11).

Other than the manufacturing sector, there is also Japanese investment is resource-based industries. Among the activities where there is Japanese interest

are steel mills, tin factories, cement works and sawmills. Japanese investment in these industries is part of

Japan's long term strategy to secure a constant supply of natural resources inputs for its industrial needs. When Malaysia embarked on heavy industrialization

Japanese investors participated actively in many of the major projects. These include the M$ 455 million sponge

iron and steel billet plant in Trengganu which is a 47

TABLE I.10

MALAYSIA : FOREIGN INVESTMENT IN COMPANIES IN PRODUCTION