Monday, August 9, 2010

A (Mostly Correct) Historical View Of The Electrical & Electronics Trade In Malaysia

Dr Fong Chan Onn describes Malaysia’s historical love affair with E&E exports:

Reviving the golden goose

Malaysia has to go the extra mile to offer investors better terms than our competitors. The country must keep its ears to the ground and be open to the needs of new-wave entrepreneurs…

…Our love affair with electronics began in the early 1970s when Craig Barrett of Intel, who was scouting for a suitable location for his factory outside of the US, landed in Penang. Tun Dr Lim Chong Eu, then Chief Minister of Penang, heard that he was coming and gave immediate instructions that the roads from George Town to Bayan Lepas be tarred by the following day, ahead of Barrett’s site visit.

Sure enough, the very next day the roads were all ready, as workers toiled all night for the site inspection. So impressed was the CEO of Intel to the responsiveness of the government that he agreed without hesitation that Penang would be his first factory outside of the US.

The rest, as they say, is history.

He makes the case that capital controls imposed in 1998 and over confidence in our success has led to us missing out on inward FDI in the E&E sector – that's certainly one possible and persuasive interpretation of the data. To that I would also add one thing, which is our relative lack in building competitive domestic E&E producers compared to say Acer and Asus in Taiwan, and Samsung and LG in Korea (anybody remember MEC?).

I've noted before that E&E exports essentially peaked in 2006-2007 (RM billions;2000:1-2010:6):


That would fit with the scenario that Dr Fong is painting, though his contention that electronics producers are “footloose” suggests a much faster pace of hollowing out then has actually occurred. He also makes one whopper of a factual error with respect to Intel (“Intel Penang remained its sole factory outside of the US for nearly 30 years until the emergence of China and Eastern Europe”) – Intel’s presence in Malaysia predated their entry into the Philippines by only a couple of years. I’d also add that design and manufacture of the iPhone was initially based in Singapore, not China.

But these minor quibbles aside, he makes some good points that are well worth reading. On the other hand, I’m dubious about the desirability to scratch for more E&E FDI, especially the labour-intensive MNC-driven sort. Unless we’re talking about building competitive local champions (fat chance of that happening now), that will only delay our transition to a high-income economy.

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