As argued by Michael
Borrus in older article, the different production network strategies of US and
Japanese electronics firms in East Asia are likely to have had a causal impact
on their global competitive performance. Although it is not possible to make
causal inferences about competitive performance at the global level from financial
performance at the level of subsidiary operations in Singapore, it is interesting
to note that US electronics firms appear to have reported higher profitability
performance than Japanese firms, at least in the most recent years for which
data are available. As can be seen from Table 7.6, of the seventeen large US
and forty-four large Japanese electronics manufacturing firms in Singapore for
which data are
available, the US firms registered significantly higher return on sales and return on assets performance than Japanese firms did over the
three-year period from 1992/3 to 1994/5. Although it is possible that part of
this difference may be due to differences in transfer pricing and other international
accounting practices of US and Japanese firms, the data are at least not
inconsistent with the argument of Borrus at the global level.
The emergence of
indigenous electronics firms
As mentioned in the
first section, the role of indigenous firms in Singapore’s electronics industry
had been negligible until the 1980s. Unlike Taiwan and Hong Kong, Singapore
lacked an initial injection of experienced manufacturing entrepreneurs from
mainland China during the early years of political independence. Neither did
Singapore send large numbers of students to the United States for training in
electronics technology as did Taiwan, Hong Kong, and South Korea. The influx of
foreign manufacturing investments did provide training and exposure to a large
number of Singaporean engineers and technicians, but much of this was in
manufacturing process technology, not in product technology know-how, which, by
and large, still resided in the corporate headquarters in the United States,
Japan, and Europe. It is thus not surprising that the transfer of technological
know-how through these manufacturing investments translated first into the
development of indigenous firms in the electronics contract manufacturing and
supporting industries, rather than
Foreign investment
Malaysia opened itself
to foreign investment soon after gaining independence from Britain in 1957.
Under an import substitution policy, tariffs were raised and tax benefits
granted to selected industries. Because of the limited domestic market and requirements
for taking on local partners, the response of foreign investors was disappointing.
With the Investment Incentives Act of 1968 and the Free Trade Zones Act of 1971,
Malaysia adopted a formula that had been used elsewhere in the region: to make
itself an attractive platform for export-oriented investment through exemptions
from various taxes and duties. Electronics was made a “pioneer industry” in
1971. Exporting manufacturers were offered up to ten years of tax exemption,
freedom from joint venture requirements, subsidized industrial estates, free
trade zones investment guarantees, and
unhindered profit repatriation. FTZ firms were also kept union-free for many
years 3 In 1981, government leadership was taken over by the current Prime
Minister Mahathir Mohamad. He installed a Japan-style technocracy, emphasizing
the development of heavy industry as part of a “Look East” policy aimed at assimilating
the lessons of Japan and Korea . In the mid-1980s, a downturn in world prices
for the country’s commodity exports, coinciding with a drop in foreign and
domestic investment, seriously undermined the new policy. The government
responded by easing the restrictions and strengthening the incentives for both
foreign and domestic investors. Japanese electronics firms were at the
forefront of the subsequent wave of FDI. After approximately ten years of
expansion by the Malaysian electronics sector, Asian financial crisis has posed
a new challenge to the country’s policymakers. The trading value of the
Malaysian Ringgit was caught in the wake
of Thailand’s July 1997 decision to stop defending its currency. From the level
of roughly RM 2.5 to the dollar, which had held since 1992, the currency’s
value slid steadily to as low as RM 4.7 to the dollar in early 1998. Malaysia’s
leadership responded in September 1998 with the unorthodox imposition of
capital controls and a fixed exchange rate of RM 3.8 to the dollar. Whereas the
capital controls affected the country’s access to loans and portfolio
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