The 8th South Asian Management Forum 2004

- Developing Synergies: Facing Management Challenges Together

LUMS, Lahore (Pakistan): November 29 – December 2, 2004

Globalization and Firm Competitiveness –

Selected Case Studies of Local Exporting Companies in Malaysia

Dato’ Dr. Sayed Mushtaq Hussain

Professor
Executive Development Centre
Universiti Utara Malaysia (UUM)
06010 Sintok, Kedah
Malaysia
Telephone: 60-4-9285102
Fax: 60-4-9285767
E-mail: smhussain12@hotmail.com

1
 Globalization and Firm Competitiveness -
Selected Case Studies of Local Exporting Companies in Malaysia

Sayed Mushtaq Hussain

Universiti Utara Malaysia

Abstract

Globalization of markets and increased factor mobility has significantly enhanced competitive pressures
on firms. In today’s open and liberalized world, firms rather than nations have become the main players,
bringing economic progress and development to the people. Hence, their ‘competitiveness’ is of prime
concern to all stakeholders, including the government and the people of a nation.

The process of globalization is to continue with technological progress and economic development.
Technological advances, liberalization of financial markets and trade in services will further increase the
liberalization of the world economy. All of this will bring new opportunities for trade and investment,
value creation, and market development. At the same time, globalization is bound to increase
competition and pose a challenge for firms to survive and grow in the new and fast changing technological
and business environment. This challenge seems to be quite formidable for the local exporting industries,
which, in most cases, directly face the global competition.

The purpose of this paper is to identify the impact of globalization on local exporting firms and analyze
their response in coping with the new challenges which globalization poses to them. Our interest in the
local exporting firms is also based on the premise that the existing business support models have outlived
their effectiveness and need to be re-oriented to meet the new challenges of globalization. This is
particularly relevant for the small and medium manufacturing firms, which lack resources and
organizational capabilities to operate in the fast changing global environment. Case studies for the
Malaysian local exporting firms are used to provide a specific context for a well-globalized economy from
the developing world. The paper concludes with some important policy recommendations, which may
broaden the scope of economic management in developing countries.

Introduction

Globalization has led to the integration of economic markets. This, coupled with rapid
technological advancements, is changing the way production and business activities are being
organized. Nowadays, major products are seldom made in one country as the production
system is being internationalized. Design, production, marketing, distribution and services
are split into various components and located in many countries to benefit from the
differences in factor costs and quality. According to the United Nations Trade and
Development Report, 2000 [20], about 30% of the world’s merchandize exports originate
from the global supply chains, which are largely dominated by the big/well established
transnational companies (TNCs). The new production system is being facilitated by the low
(and still falling) cost of transportation and rapid advances in the information and
communication technologies (ICTs).

2
In the open and liberalized global economy, firm ‘competitiveness’ has become a major
challenge, as firms have to compete not only with other firms but also with the entire
production system, involving many firms and countries/locations. This challenge is quite
serious to developing countries, which are still in their early stages of development and lack a
strong technological and business foundation.

Malaysia is one of the fast integrators in the World economy. The country has adopted an
open policy to foreign trade and investment and made remarkable progress in infrastructure
development, economic growth, technology acquisition and development, and education.
The country adopted a strategy of export-led growth and took a number of measures to attract
foreign direct investment (FDI). As a result, the country achieved a phenomenal progress in
export expansion. This can be seen from the fact that Malaysian exports valued 3 billion
dollars in 1973. By 2000, it expanded to 98 billion dollars. In terms of the export share in
the world market, Malaysia ranked 35th in 1973. Now it occupies 18th position.

The bulk of the Malaysian exports (84%) are composed of manufactured goods. Within the
manufactured goods category, about 18% are resource-based and 74% non-resource-based.
The largest contribution is made by the electrical and electronic products (66%), which are
mainly made by/or for the foreign firms. Other important export items are petroleum and
chemicals (10%), wood and rubber products (4%), metal products (4%), food and beverages
(3%), and textile, clothing and footwear (3%). Major export markets are Singapore, USA,
European Union, Japan and China.

The WTO, AFTA and other regional arrangements will further liberalize trade, intensifying
competition both in the domestic as well as international markets. The emergence of China,
India and other countries in the global economy will also increase competition for Malaysia
[9]. To face these challenges, Malaysia plans to enhance national competitiveness in the
global economy. Government proposes to create a pro-business environment that supports
wealth creation. Economy-wide efficiency and productivity is to be raised by promoting the
fuller use of installed infrastructure capacity and improving the delivery system. At the firm
and industry levels, initiatives are to be taken to increase productivity so as to reduce the cost
of production and raise the quality of the product/service. Also local firms are expected to
improve their marketing capability and further develop direct access to export markets.
Efforts are to be made to increase the participation of local manufacturers in the global
supply chain in selected sectors.

The manufacturing sector in Malaysia has a large number of small and medium size
enterprises (SMEs). Only a small proportion of SMEs is engaged in export business. Most
of the SMEs are in resource-based industries such as food, textiles, wood-based industries,
metal and light engineering industries. The Small and Medium Industries Development
Corporation (SMIDEC) has a number of programmes to support the development of SMEs
and enable them to penetrate export markets. The progress, so far, has been rather limited.

For Malaysia to continue with the success of its economic miracle, regional/international
businesses are important. To achieve this, a lot more has to be done to attract and retain
world-class companies as well as improve the ‘competitiveness’ of the local companies.

3
The purpose of this paper is to identify some of the major factors, which contribute to ‘firm
competitiveness’ and propose strategies and programmes, which may enhance the
competitiveness of the local exporting firms in Malaysia.

Firm Competitiveness and Its determinants

Firm Competitiveness

Firm competitiveness has been defined as the ‘ability to produce goods and services that meet
the test of international competition, while the citizens enjoy a standard of living that is both
rising and sustainable’ – definition by Laura D’Andrea Tyson: quoted by Samitha Fawzy [5,
p.1]. Other definitions are similar, though some emphasize ‘productivity’ growth of one firm
relative to others as firm competitiveness.

Definition of firm competitiveness may differ, but there is a consensus among experts that
competitiveness of firms, industries, regions and nations is an important feature of the world
economy. It not only affects the pattern of production, investment and trade, but also
influences the relative standard of living of many countries.

Firm competitiveness somewhat differs from the competitiveness of nations – it is basically a

zero sum game. Firms gain at the expense of other firms when competing. Also, when firms
are not competitive, they will be out of business, though countries may still exist (probably in
poverty and under economic distress).

In the competitive business world, firm competitiveness has become more complex as firms
may compete in price, quality and customer services. To acquire competitive edge, the firms
have to be concerned about –

 Quality and Reliability – show a strong commitment to quality, flexibility, design,

reliability, and accessibility.

 Technology, Organization and Market – combine technology, managerial

entrepreneurship, employee skills, business organization, and software to service
markets and interact with customers and suppliers.

 International Standards – follow/observe international standards for product safety,

health and environment, corporate governance, etc.

Outside the firm, many other factors influence its competitiveness. Some of these are listed
in the following.

4
Business Environment

Outside the firm, the national business environment substantially influences firm’s ability to
compete. The national business environment can have positive effects if it encourages
competition among firms and provides incentives for investment, innovation, and enterprise.

Role of the Government

The role of the government is particularly important in providing the basic infrastructure and
favourable business environment. Macroeconomic stability, rule of law and fair practices,
transparency and accountability, pro-business and private sector orientation, simple
administrative rules and procedures are some of the important requirements for creating
favourable conditions for business and investment. These factors help to reduce business
risks and lower the cost of doing business.

Networking and Alliances

Firm’s competitiveness can be substantially improved through networking and alliances.

These can be used in research and development (R&D) for new products, create new markets,
learning, and meeting customer needs. Under these arrangements, two or more companies
collaborate and complement each other, using their best competencies. Firms can also
develop a mechanism for improving innovation capacity through collaborative projects with
network members.
Innovation Capacity

With the recent technological revolution, technology has become the most important factor
determining the competitiveness of firms and industries. Firms with strong innovation
capacity have a better chance to cope up with technological change and maintain (and even
improve) its competitiveness. Innovation, in its broad sense, is defined as any newly
developed idea. It includes – both improved technology and better methods of doing things.
Innovations may be manifested in new products or services, improved quality, new ways of
production, packaging, marketing or distribution, new supply sources, new organization or
systems [19, p. 149]. Innovation capacity refers to a continuous improvement of the overall
capacity of firms to generate innovation for developing new products to meet market needs.
The innovation capacity heavily depends on the continuous supply of innovation resources
(i.e. skilled and technical staff, R&D activity, leadership and culture) and the accumulation of
innovation knowledge. Organizational environment plays a crucial role in developing
innovation capacity. Hierarchical organizational structures are found inadequate for building
innovation capacity to meet the challenges of globalization, i.e. customization of product
development and global linkages of product markets.
Learning

Knowledge is a strategic asset of a firm. Learning in a learning organization can be a source

of competitive advantage. With networking and relational clusters, firms have better
prospects of learning from one another. It improves competitiveness and is difficult to
emulate by competitors.

5
Knowledge is generally dispersed – within the organization and outside. Both the external
and intrafirm knowledge is needed to be integrated with a view to improving the firm
competitiveness in the market. This requires a proper technology management effort, which
can generate key firm competitive advantage, when guided by a market orientation [8, p.2].

Sustaining and Renewing Advantage

To remain competitive, the firms have to properly balance cooperation and autonomy aspects
of business (managing interrelationships), manage strategic change (building learning
organization), and keep on re-defining advantage. Among all the essential elements, probably
re-defining advantage is the most crucial in the fast changing global business environment.
This requires TQM and continuous quality improvement (CQI), business process
reengineering, use of manufacturing and information driven technologies, and building an
organization, which places greater reliance on employees for their ideas, insights and skills.
Also, a close relationship with suppliers and customers is vital for sustaining and improving
firm’s competitiveness [17].

Globalization and Firm Competitiveness

Globalization is affecting firm competitiveness in many ways. It affects competitiveness

through exports as well as imports. Exports compel firms to meet the competition at the
international level. National markets become global as these are opened to international
competitors through imports. Globalization of an industry take place when a firm produces
in one country (to gain cost advantage) and sell in several countries, creating competition for
all the firms in the industry.

Globalization may also affect the firm directly if the firm’s value chain is decomposed and
dispersed around the world to gain cost and market advantage. As a result, globalization
contributes to the development of a global marketplace with intense competition. At the
same time, the dispersal of the production activities helps firms to be cost-effective by
benefiting from the differences in factor costs and quality. Globalization has also encouraged
‘outsourcing’ and broadened the options for transportation, warehousing and marketing.
With careful production planning and logistics management, firm’s competitiveness can be
improved substantially with the ‘new’ economies of globalization.

The globalization of markets, industries and firms has made cost a critical element of
competition. Larger firms are likely to benefit more in view of their ability to have
economies of scale and scope as well as reap the ‘new economies of globalization’ due to
their size-advantage to spend, invest, and coordinate worldwide operations. However, in
their search for larger markets and opportunities, they tend to leave behind many unattended
and unsatisfied market segments. These can be effectively exploited by smaller firms, which
have the necessary flexibility to respond to the smaller, and more neglected market
opportunities (i.e. niche markets). To exploit this potential, highly sophisticated strategic
analyses of markets/industries are needed. Small and medium sized firms lack the necessary
expertise and financial resources to undertake this task. However, the governments can play
a useful role in filling this gap and supporting the small and medium enterprises.

6
Perspective on Firm Competitiveness – Selected Case Studies – Manufacturing Sector in
Malaysia

The manufacturing sector is the leading sector of the Malaysian economy, with a share of
30.6% in the GDP. It is also the largest contributor (83-85%) to total exports. In terms of
composition, resource-based industries account for 43.4% of the sectoral value-added, while
the non-resource based industries account for the balance 54.7%. Important industries in the
resource-based industrial category are petroleum, chemicals, food and wood and rubber based
industries. In the non-resource based industrial category, electrical and electronics (28.3%)
and transport equipment (13.7%) have a very substantial share as shown in the following.

Major Indicators of the Manufacturing Sector

Indicator 2000 2003 2001 – 2003

Mfg. Value added 67,250 70,225 199,479

(RM million in 1987 prices)
Annual growth rate (%) 18.3 6.5 1.5
Share to GDP (%) 32.0 30.6 30.3
Share to total export (%) 85.2 83.0 84.3
Share to total employ. 27.6 27.9 27.3

Source: Mid-term Review of the Eighth Malaysia Plan 2001-2005. Economic Planning
Unit, Prime Minister’s Department, Malaysia

The export structure of the manufacturing sector, however, shows a significantly different
pattern (Table 1). Resource-based industries account for only 17.5% of the sectoral exports.
The major contribution is made by the non-resource based industries, most notable being the
electrical and electronic products (66.2%). Other industries make only a small/modest
contribution – petroleum and chemicals, wood and rubber products, textile, clothing and
footwear, metal products, etc.

The performance of the manufacturing sector has been greatly influenced by external factors
including the global economic slowdown and the decline in the electrical and electronic
sector in 2001. To minimize the impact and maintain competitiveness, a number of measures
were taken by the Government. The stimulus packages included a careful review of the
affected industries, further liberalization of FDI policy, tax incentives and greater access to
funding. In view of the emerging competitive global environment, Malaysian planners
envisage a further strengthening of the manufacturing sector and accelerating the shift to high
technology and knowledge-based industries. In addition to the policy of attracting FDI,
emphasis will be placed on local investment and strengthening of the SMEs. Local
manufacturers are to be encouraged to participate in the global supply chain by establishing
strategic alliances with foreign manufacturers [9].

The Government of Malaysia maintains an extensive institutional framework to

promote/support manufacturing sector and strengthen SMEs. About 40 agencies and 18
ministries are involved in this gigantic effort. Assistance programmes include infrastructure

7
development (roads, ports and airports, electricity and water, industrial land/zones and
support services), tax incentives, financial schemes for export development, grants for R&D,
technical studies, product/market development, consultancies, training, etc.

Given the fact that Malaysia has already achieved a great success in building industrial and
commercial infrastructure and in creating a favourable business environment, further
improvements in export competitiveness will largely come from the strength and dynamism
of the exporting firms. To come up with effective support programmes, the first step should
be to assess the situation on the ground vis-à-vis firm ‘competitiveness’ in the changing
global environment.

To get a first hand assessment of the issues and problems on the ground, a study was made of
12 companies (listed in Table 2) in May-July 2004. The selection of companies was based on
their reputation of being successful and dynamic enterprises. Preference was given to local
companies, as the foreign companies pose a more complex situation due to their transnational
character. Special consideration was, however, given to the size distribution of the sample to
reflect the output structure of the exporting industries. Seven firms of the sample belong to
the SMEs category. Five firms, mainly engaged in the manufacture of electrical/electronic
products and wood-based products, are large in size.

Personal interviews were arranged with the Senior Management of the sample companies to
discuss ownership structure, business activities and employment, export items and markets.
The sample companies were also asked to give their views on globalization, firm
competitiveness vis-à-vis other companies at home and abroad, government support and
export incentives, problems faced and strategies to strengthen the local exporting industries in
Malaysia. In addition to the twelve sample companies, meetings were held with the
Malaysian Industrial Development Authority (MIDA) – main Agency dealing with
investment promotion and industrial development, and the Small and Medium Development
Corporation (SMIDEC) in order to ascertain their perspective on globalization and
Malaysia’s competitiveness for the various types of exporting industries. Two Divisions of
the MIDA, namely Resource-based Industries and Electrical/Electronic Industries Divisions
were involved in providing the required information. The SMIDEC provided information
regarding SMEs registered with the Agency for assistance and support. Generally speaking,
the response from the private and public sectors was extremely good. Although the sample is
selective, it is believed that we have covered a good cross-section of the exporting local
firms.

The results of the study are briefly summarized in Table 3 and 4.

More notable conclusions are –

 Size - sample firms in the ‘small’ size category have, on the average, a workforce of
25-50 persons, medium size category 120-200 persons, and large size category 250
and above. The size categories are, however, based on the investment criterion – up
to 2.5 million Malaysian Ringgit (RM) investment for SMEs (RM 3.80 = 1.00 US
dollar)

8
 Export Items - export items are finished products, except in two cases. Some of them
are based on assembly type operations; giving low value-added in the production
process.

 Value-added - value-added is generally low in electronic products (20-30%) and

simple wood-based products. Value-added is relatively high in food, furniture and
engineering products (50-70%).

 Source of Technology – in 10 (out of 12 cases), the source of technology is firm’s own

or/and machinery suppliers/vendors. Only in 2 cases, the source of technology is
exclusively foreign.

 R&D Facilities – R&D facilities are lacking in most of the sample firms.
Modest/small scale R&D activities are reported in 4 cases and full-fledged R&D
section in 1 case. In other cases, design/development centers/sections exist at small to
medium scale.

 Globalization Challenges – all sample firms experienced the impact of globalization

in terms of increasing competition and shrinking profit margins. In the field of
electronics and wood/metal-based furniture, costs were becoming a big issue due to
the price competition from China and other countries in the Region. The firms
producing food products are small and lack market information and marketing skills.
Firms engaged in engineering products face uncertain demand conditions. Rising cost
of raw materials and labour problems are reported by the food and furniture
manufacturing firms.

 Export Market Entry – most firms have entered the export market through special
contracts with foreign firms as part of their outsourcing/sub-contracting programme.
In other cases, direct marketing is done. In the case of food products, direct selling
and wholesalers/Agents are used.

 Business Alliances-Networking – 7 firms (out of 12) reported business alliances.

Networking was found only in one case – that too, on the supply side (i.e. raw
materials). In 5 cases, business alliances/networking were totally non-existent.

 Government Support – in most cases, government support was reported to be in the

form of tax incentives. However, in the case of small firms, government support in
the form of buildings, infrastructure, and grants for machinery were also reported.

 Management – professionals (manager plus technical staff) run large and medium size
firms. The small firms are managed by the owner-manager.

 Strategic Management Plan (SMP) - Large and medium firms had (formal) strategic
management plans (SMP), which make them forward looking. With 1-2 exceptions,
these were based on in-housing planning work. In the case of small firms, the SMPs
were informal and prepared/conceived by the entrepreneur himself. Most of these
plans are based on short-term thinking and vague facts and figures.

9
  Strategy to Cope up with Globalization – firms facing tough competition in the global
market is all thinking to ‘move up the value chain’ or shift to higher value products.
These firms are threatened with low cost products from China, Thailand and Vietnam.
Competition from India has not been reported by any of the sample firms. Some
firms have indicated a cost cutting strategy by improving productivity and achieving
higher levels of efficiency. In the case of businesses, experiencing low profit
margins, remedy was sought in high volumes – which in turn requires large
investments in plant and machinery as well as a secure market. This is especially the
case with furniture. Other strategies included quality improvement and enlarging the
market/customer base. Firms producing food products and engineering goods fall in
this category.

 Future Plans – future plans include expansion and diversification in the case of large
and medium firms, while quality improvement and market development were
indicated by the small firms, which are mostly in food business. Furniture firms are
keen to improve their product design and go for market development for high value
products.

 Labour – sample firms in the category of electronics, wood and metal furniture use
cheap labour for their production operations. In many cases, foreign labour from
Indonesia, Myanmar, and Bangladesh is employed. Main considerations for hiring
foreign labour are to keep the labour costs low in production operations as well as
achieve stability of operations. Local workers (at low wage rates) are in short supply
and show high turnover rates.

Firm Competitiveness in Malaysian Exporting Industries – Strategies for Enhancement

In this section, strategies and programmes are proposed to enhance the ‘firm competitiveness’
of local exporting companies. Some of the measures are of general nature and can also be
applied to other types of industries/firms.

Information Support

Globalization brings constant change – technologies, products, markets, business

environment, customer needs and preferences, competitors, are all changing. The
technological and business information, at home and abroad, is vast and complex. The local
exporting firms, particularly SMEs, are handicapped by the lack of full information about
their business and technologies. This is due to the limited access to the sources of
information and the costs involved in securing and analyzing the information. For local firms
to function efficiently and innovate, basic information on present and future developments is
essential.

Our rapid survey shows that the SMEs in export business are operating with limited
information about international markets and technologies, which are in the offing. As a
result, firm’s ability to develop competitiveness on a sustainable basis is adversely affected.
To fill this gap, the government needs to take steps to conduct specialized/strategic studies

10
with the help of experts and provide the relevant information to the industry for guidance.
The public-private partnership in this venture would be very useful.

Research and Development (R&D)

Research and development (R&D) activities for the sample firms, with few exceptions, were
either non-existent or at a neglible level. Even the design and development centers were
staffed thinly and provided with limited financial and other resources. To improve firm
competitiveness, a major effort is required to strengthen the R&D activities both at the firm
level and the industry level. The present system of providing R&D grants to companies may
not be adequate as R&D activities require high-level technical staff, leadership, strong drive
and long-term focus. These elements may be lacking in some of the SMEs. On the other
hand, locating R&D activities in government institutions, as a support to exporting industries,
has a different set of problems – bureaucratic organizations lack drive, interest and focus. To
find better ways of serving the exporting industry/firms, a new set of incentives and
organizational structures are needed.

Networking & Alliances

Networking and business alliances are extremely important for developing countries in order
to pool resources and create economies of scale. Regional and international networking and
alliances are particularly useful in business and enterprise development, R&D activities, and
science and technology and market development. Exporting SMEs can greatly benefit from
networking and strategic alliances for market development, while the large firms will find it
useful for technology acquisition, R&D, learning, product development, and marketing.
Regional blocks such as the ASEAN should cooperate in preparing member countries for
global business development in key industries.

Management Education

A thin layer of management staff runs most of the SMEs in the sample. Large firms are
engaged in producing low-value products or are engaged in assembly type operations. The
managerial staff is small in number, and in many cases, have engineering and technical
background. To improve efficiency and raise productivity of the exporting firms in general
and of SMEs in particular, basic management education and training will be very useful.

Role of the Government

The government has a crucial role to play in enhancing the competitiveness of firms and
industry. Government should ensure that markets work efficiently and, in the case of any
market failure, remedial actions are taken in time. Firms need clear and simple rules. A
stable macroeconomic environment, efficient institutions, and elimination of red tape, are
essential to the creation of a favourable business environment for firms to operate and grow.

The government should rely more on the private sector and play only a facilitating role. In
the context of exporting industries, supportive role is needed in conducting studies and
organizing consultancies, knowledge acquisition and development, export promotion, and
strengthening education and training. Public-private sector partnership should be encouraged

11
to meet the challenges of globalization. The government also has a role to encourage
networks/alliances for the development of science and technology, human resources, and
markets in the region and outside.

Institutions

The institutions relating to the development activity are geared to investment promotion,
development administration and economic growth. Malaysia has already made significant
progress in achieving these objectives. As a way forward, the development model for
Malaysia should change in favour of building a science and technological base, innovation
capacity, business development, exports, and human resources, and efficient markets. For
this, the institutions need to change their orientation and strategies. Also the operational
capabilities of the existing institutions will have to be reoriented.

In the case of the manufacturing sector, there is a need to consolidate the institutional
framework, which, at present suffers from multiplicity and fragmentation. Technical tasks
and business-oriented support activities should be handled by competent professional staff
rather than bureaucrats. The government activities should respond more promptly to
issues/problems faced by the industrial firms.

Focus on the Firm

Business development strategies at the firm/industry level are generally lacking in developing
countries. Most strategies and programmes are macro/sectoral in nature and aim at attracting
investment or promoting industrial development. Fiscal and monetary policies are well
suited to create a favourable environment for business and industry, but are inadequate to
assist business development at the firm level. Since the firms in developing countries are not
at par with MNCs in developed countries, it is important to introduce strategies and
programmes to strengthen promising firms and promote well-selected businesses for the
global market. However, innovative programmes and strategies are needed for this purpose.

General Support for Development

The Asian development model has emphasized factor accumulation and technology transfer
(through capital goods, FDI and licensing) as a means of achieving economic growth. The
model has been successful in generating high rates of GDP growth. But, in the long run, the
Asian economic model may not generate economic growth unless factor productivity
improves. Some analysts have rightly emphasized the need to shift the policy from factor
accumulation to technical change, from emulation to innovation, and from perspiration to
inspiration [4, p.15]. It is noted that the contribution of Total Factor Productivity (TFP) to
GDP growth was only 20-36% in some of the Asian countries compared to 50-80% recorded
for developed countries. The TFP comes from technology and technical change – which are
the result of innovation activity.

Due to the development strategies of the past, most of the public sector institutions are geared
to investment promotion. FDI and technology purchases received high priority. As a result,
the indigenous innovation system and policy focus lagged behind. To advance the

12
development process further, the need to improve the innovation systems is very urgent. For
this purpose, firm level and state level actions are required.

In modern industries, the most important ingredient for success is the K-workers. Greater
investments are needed in intangible assets (R&D, technology, managerial, entrepreneurial,
and employee skills, business organization, market development, and software) to gain
flexibility and long-term competitiveness [5, p.7]. The SMEs lack resources to invest in
people, R&D, and market development. All of these investments have externalities, which
makes it less attractive for a small firm to invest. The government should provide support to
SMEs to undertake these activities and increase their intangible assets and further accumulate
export-related business knowledge. Special strategies and programmes should be evolved to
help SMEs acquire knowledge and train their workforce.

The general education and training system should also be oriented towards ‘quality’ and
‘specialized skills’ needed by the changing economy. A strong link up between the industrial
sector and academic/training institutions is needed to further improve the standards and make
education and training activity more relevant for business and industry.

Business Support Model

According to the United Nations Report on Trade and Development [20], the exports of 20
most dynamic products showed an average growth of 12.9%, as compared to an overall
growth of 8.4% for the world exports {Table 5]. This led to their share in total world exports
to rise from 9.5% in 1980 to 22.6% in 1998. The developing countries, particularly the NIEs,
benefited as well. The tremendous growth for the 20 most dynamic products comes from
improved market access, income-elastic demand and technological advances, which led to
cost reduction and quality improvement.

One lesson, which is apparent from this study, is that the developing countries, which aim at
achieving high growth for their export, will have to take a bite on these ‘dynamic products’.
Some of these are technology intensive, while others require a good assessment of consumer
needs and preferences. In addition, rising standards of living bring about demands for many
well known products, i.e. electrical/electronic products, consumer durables, automobiles,
lifestyle clothing, shoes, foods, pharmaceuticals, etc. To gain ‘competitiveness’ in these
products requires technology, innovativeness and creativity as well as information support.
The business support models used now and before, emphasize development of basic
infrastructure, investment incentives, and training. Also, the support programmes are
designed to serve/support sectors and industries. The focus on the firms is lacking or is weak.

In view of the results of the rapid survey of exporting firms in Malaysia and the information
on world exports – their structure and trends – it is suggested that the existing business
support models should change in favour of the firm, providing a greater information support
and incentives for technology development, innovation and market development. The public
sector delivery system also needs to be reviewed for its effectiveness and costs. New
institutional managements are needed to make the business support programmes goal-
oriented and more cost effective.

13
Regional Cooperation and Networking

It is apparent from the above that regional cooperation and networking among the official
Agencies and firms can create synergies and strengthen firm’s scarce resources. Some of the
benefits of acting together lies in generating market and technical information, strengthening
R&D, restructuring production systems/supply chains and making them more efficient and
cost effective, enlarging markets and building fruitful links with suppliers. The future firms/
organizations are supposed to be highly networked. In this context, the firm competitiveness
is best served with regional cooperation and networking. South Asia and East Asia are ideally
suited for building some of these links.

References

[1] Brown, Roger. 2001. ‘How We Built a Strong Company in a Weak Industry’. Harvard Business
Review. February 2001, pages 51-57.
[2] Burton, Alan. 1999. Knowledge Capitalism. Oxford University Press.
[3] Dimitratos, Pavlos and Spyros Lioukas & Sara Carter, 2004. ‘The Relationship Between
Entrepreneurship and International Performance : The Importance of Domestic Environment’.
International Business Review. Volume 13, pages 19-41.
[4] Eichengreen, Barry. 2002. ‘ Capitalizing on Globalization’. Asian Development Review. Volume 19,
Number 1.
[5] Fawzy, Samitha (Ed). 2002. Globalization and Firm Competitiveness in the Middle East and North
Africa Region. The World Bank.
[6] Fisher, Stanley. 2002. ‘Globalization and its Challenges’. Richard T. Ely Lecture. American Economic
Association Papers and Proceedings. AER Vol. 93 No. 2.
[7] Ghemawat, Pankaj. 2002. ‘Economic Evidence on Globalization on Markets. Harvard Business Review.
Vol. 9, pages 701-715.
[8] Ghingold, Marry and Bruce Johnson. 1998. Intrafirm Technical Knowledge and Competitive
Advantage : A framework for superior market driven performance. Journal of Business and
Industrial Marketing. Vol. 13, Issue 1.
[9] Government of Malaysia 2003. Mid-Term Review of the Eights Malaysia Plan, 2001 – 2005. Economic
Planning Unit, Prime Minister’s Department Malaysia.
[10] Huang, Yasheng. 2002. ‘Perspectives on Globalization’. Harvard Business Review. Vol. 9, pages 701-
749.
[11] Hussain, Sayed Mushtaq. 2004. ‘Firm Competitiveness and the Challenges of Globalization – Selected
Case Studies from the IT Industry in Malaysia’. Paper published as Proceedings of the 8th
International Conference on Global Business and Economic Development. Guadalajara, Mexico.
7-10 January. Pages 815-824.
[12] Jorgenson, Dale W and Kevin J. Striroh. 1998. ‘Productivity Growth: Current Recovery and Longer-
Term Trends’. American Economic Review. Volume 89, No. 2.
[13] Kim, Inchul. 2002. ‘Korea’s Economic Develoment Strategies’. Paper presented at the Seminar on
Learning from South Korea – Sustaining Growth in a Dynamic Environment, Sunway Convention
Centre, Kuala Lumpur. 10 October.
[14] Lee, Jooh and Berhe Habte – Giorgis. 2004. ‘Empirical Approach to the Sequential Relationship
Between Firm Strategy, Export Activity, and Performance in US Manufacturing Firms’.
International Business Review. Volume 13, pages 101-129.
[15] Narendran, Rajeshwari and V. Narendran. 2004. ‘Managing Business in a Volatile Environment: A
Tight Rope Walk on Business Ethics, Values and Trust. Paper published (pages 1134-1139) as
Proceedings of the 8th International Conference on Global Business and Economic Development,
Guadalajara, Mexico, 7-10 January.

14
[16] Papula, Jozef and Emila Papulova. 2004. ‘Strategy of Small Manufacturing Firms in a Changing
Environment’. Published (pages 1088-1090) as Proceedings of the 8th International Conference on
Global Business and Economic Development, Guadalajara, Mexico, 7-10 January.
[17] Pitts, Robert A. 2000. Strategic Management – Building and Sustaining Competition Advantage
(second edition). South Western College Publishing.
[18] Schulders, Guy. ‘The Role of Asia in the New World Economic Order : New Opportunities and New
Challenges for World Markets’. Paper published (pages 53-62) as Proceedings of the 8th
International Conference on Global Business and Economic Development, Guadalajara, Mexico,
7-10 January.
[19] Szeto, Elson. 2000. Innovation Capacity: Working Towards a Mechanism for Improving Innovation
within an Inter-organizational Network. The TQM Magazine Vol. 12, No. 2
[20] United Nations. 2002. Trade and Development Report, 2002 - Developing Countries in World Trade.
UNCTAD, Geneva.
[21] United Nations. 2002. World Investment Report – Transnational Corporations and Export
Competitiveness. UNCTAD, Geneva.

TABLE 1: EXPORTS OF MANUFACTURED GOODS 2000 – 2003

(RM MILLION)

INDUSTRY 2000 % 2003 %

Resource-based 42,925 13.5 53,443 17.5
Food 4,509 1.4 6,429 2.1
Beverage & Tobacco 1,207 0.4 1,531 0.5
Petroleum Products 8,131 2.6 9,490 3.1
Chemical & Chemical Products 15,011 4.7 21,430 '7.0
Rubber Products 4,695 1.5 5,204 1.7
Wood Products 6,801 2.1 6,429 2.1
Non Metallic Mineral Products 2,571 0.8 2,930 '1.0
Non-Resource based 252,382 79.4 226,370 73.9
Textile Clothing & Footwear 10,433 3.3 8,572 2.8
Manufacturers of Metal 8,618 2.7 11,633 3.8
Electrical & Electronic Products 230,429 72.5 202,797 66.2
Transport Equipment 2,902 0.9 3,368 1.1
Other Manufacturers 22,601 7.1 26,328 8.6
Total 317,908 100.0 306,141 100.0
Total (US$) 83,660 80,563
% of Total Gross Exports 85.2 83.0

Source: Economic Planning Unit, Prime Minister's Department Malaysia,

Mid-Term Review of the Eighth Malaysia Plan, 2001 - 2005

15
TABLE 2: LIST OF FIRMS SURVEYED

______________________________________________________________________________
Name Type of Business Size Market

1. Aquakimia Sdn Bhd Water treatment plants/ Small 70% local

(Subang Jaya, Selangor) equipment (machinery/ 30% export
engineering)
2. BCM Electronis Corporation Electronics (telecommu- Large 100% exports
Sdn Bhd (Kulim High Tech cation accessories)
Park, Kedah)
3. TFS Electronic Manufacturing Electronics Large 100% exports
Services (Prai FTZ, Penang)
4. Eng Teknologi Sdn Bhd Precision Machine and Large 100% for
(Bayan Lepas Ind. Zone, Engineering Design (water projects large
Penang) heater/computer component) export market
5. Heveaboard Sdn Bhd Chip board (rubberwood) Large 60% local
(Gemas, Negri Sembilan) 40% export
6. Heveapac Sdn Bhd Furniture Large 80% export
(Seremban, Negri Sembilan) 20% local
7. Ambang Dorongan Sdn Bhd Frozen foods (Nani’s brand Small Local – main
(IKS KEDA, Jeniang, Kedah) Malaysian delicacies) market
Export – small
part of output
8. Onlyone Zuza Food Industries Food processing Small 75% local
Sdn Bhd (KEDA Ind. Estate, (local sauces) 25% export
Napoh, Kedah)
9. Domica (Bukit Pinang, Kedah) Furniture (metal & wood- Medium30% local
based) 70% export
10. Timber Tone Industries Furniture (wood) Medium100% export
Sdn Bhd (Bakar Arang Ind.
Estate, Sg. Petani, Kedah)
11. Furtech Furniture Mfg. Sdn Furniture (bedroom set) Medium50% local
Bhd (Kg. Putat, Jitra, Kedah) 50% export
12. Global Gloves PVC Gloves Small 100% export
(Padang Meha Ind. Estate,
Pendang Serai, Kedah)
____________________________________________________________________________
Source: Identified with assistance from the Malaysian Industrial Development Authority (MIDA) and
the Small and Medium Industries Development Corporation (SMIDEC)

16
 TABLE 3 : BASIC INFORMATION ON EXPORTING COMPANIES SELECTED FOR STUDY

Code Work Size Export Value- Type of exp. Source of R&D/Development Problems Faced
Force Market Added Items Technology Centre With Globalization
E-1 1,600 Large 100% 20% Assembled Own/vendors Engineering dev.centre Opportunities to grow with outsourcing by
multinational but competition has reduced
margins
E-2 500 Large 100% 25-30% Final product US/technology Dev. & design centre Global market, one price. Pressure to
leaders reducing cost
E-3 50 Small 30% 60-70% Final product Own Modest R&D activity Demand fluctuations and competition due to
changing technologies
E-4 380 Large 50-60% 50% Components Own/vendors R&D/Dev. Centre Competition, labour costs/high turnover
W-1 240 Large 40% 28-30% Semi-finished Own/vendors R&D Section Price competition, availability and price of
products raw material
W-2 1,200 Large 80% 50% Finished products Own/machinery Dev./Design Centre World competition, supply of raw material
suppliers
W-3 90 Small 100% 50% Finished products Own Development Centre Competition from China
W-4 24 Small 100% 20-30% Final product South Africa Small R&D activity Competition from China
F-1 200 Medium 70% 30% Final product Own Development Centre Competition from China, cost of raw material
F-2 120 Medium 50% 20-30% Final product Own Small R&D activity/ Competition from China, Thailand and Mexico,
Development Centre margins low
F-3 30 Small Negligible 60% Final product Own NIL Lack of information on export markets
F-4 38 Small 25% 30% Final product Own/government NIL Lack of export market information and market
support

17
TABLE 4: BASIC INFORMATION ON EXPORTING SAMPLE COMPANIES

Code Export Market Business Alliances/ Present Govt. Management Strategic Strategy to Cope Future
Entry Mode Networking Support Management Plan Up with Globalization Plans
E-1 Direct/contract Alliances - Yes Yes: Land Manager/technical Formal SMP Shift to higher value products, Cost cutting/alliances/
staff cut costs/high volumes value enhancement
E-2 Contract Yes - for technology Yes : land, tax Manager/technical Formal SMP Move up the value chain, Link with more customers
incentives, infra. staff build expertise
E-3 Contract Yes - informal Yes : tax/export Owner/manager Formal SMP Cost cutting, diversity business, Expansion/quality improve
incentives networking for market ment/build customer base
E-4 Contract NIL Yes : tax Manager/technical Formal SMP Cost cutting, customer base, New material (to replace
incentives staff new products expansion ruber wood)
W-1 Direct/contract Yes : with own group Yes : tax Manager/technical Formal SMP R&D and cost cutting Expansion/diversification
of companies incentives staff
W-2 Agent/contract Alliances - Yes Yes : tax Manager/technical Formal SMP Efficiency/large volume Upgrading equip/expansion/
incentives staff diversification
W-3 Direct NIL Yes : tax Manager Informal SMP Shift to higher value products/ Product innovation, service
incentives marketing improvement
F-1 Direct/Wholesaler NIL Yes : tax Owner/manager Informal SMP Move up to high end products Quality improvement/R&D/
incentives design innovation
F-2 Direct/Wholesaler NIL NIL Owner/manager Informal SMP High volume/upgrade products Explore markets/expansion/
diversify
F-3 Contract NIL Yes : Blg., infra., Owner/manager Formal SMP by Learning/government support Quality improvement
tax incentives,
grant for entrepreneur
machinery
F-4 Dealers Yes- supply side Yes : land, inf. Owner/manager Formal SMP by Quality improvement Expansion/diversification
tax incentives entrepreneur

18
TABLE 5 : EXPORT VALUE GROWTH AND SHARE IN TOTAL EXPORTS OF THE 20
MOST MARKET-DYNAMIC PRODUCTS, 1980-1998
(Per cent)

Share in
Average Annual Share in total
Total
Export Value exports
SITC World
Product Group Growth dev. Countries
Code Exports
1980
1980-1998 1998 1980 1998

776 Transistors and semiconductors 16.3 1.0 4.0 1.9 7.7

752 Computers 15.0 0.9 3.4 0.2 5.0
759 Parts of computers and office machines 14.6 0.7 2.3 0.3 3.6
871 Optical instruments 14.1 0.1 0.3 0.0 0.3
553 Perfumery and cosmetics 13.3 0.2 0.5 0.1 0.2
261 Silk 13.2 0.0 0.0 0.0 0.0
846 Knitted undergarments 13.1 0.3 0.6 0.8 1.4
893 Plastic articles 13.1 0.6 1.2 0.6 1.1
771 Electric power machinery 12.9 0.3 0.6 0.2 0.8
898 Musical instruments and records 12.6 0.3 0.7 0.2 0.5
612 Leather manufactures 12.4 0.1 0.1 0.1 0.2
111 Non-alcoholic beverages 12.2 0.1 0.1 0.1 0.1
872 Medical instruments 12.1 0.2 0.4 0.1 0.2
773 Electricity distribution equipment 12.0 0.4 0.7 0.3 1.0
764 Telecommunications equipment, and parts 11.9 1.5 3.0 1.7 2.9
844 Textile undergarments 11.9 0.2 0.3 0.8 0.8
048 Cereal preparations 11.9 0.2 0.4 0.1 0.2
655 Knitted fabrics 11.7 0.2 0.3 0.1 0.6
541 Pharmaceutical products 11.6 1.1 2.0 0.4 0.6
778 Electrical machinery 11.5 1.1 1.7 0.7 1.5

9.5
20 most dynamic products
12.9 22.6 14.1 28.7

Memo item :

World exports 8.4

15.4
Developing country exports
11.3 24.3

Source : United Nations Trade and Development Report 2002. Table 3.1, page 55.

19