In this section, we will
review the available data on affiliate behaviors on five dimensions: linkages
to local firms, human resources development, higher valueadded activities,
capital deepening, and management autonomy. Each subsection will provide
background on relevant Malaysian policies, after which the available evidence
will be used to provide a preliminary evaluation of the hypothesis of national
differences between investors.
Capital deepening
Although one of the
primary goals of the export-oriented policies introduced in 1968 was increased
employment, capital investment also received favorable treatment. For example,
after the expiration of a firm’s “pioneer” tax-free status, all fixed assets
could “be depreciated as if they were new” over five years 21 In 1986, the
government created the Investment Tax Allowance, which grants allowances up to
100 percent of capital expenditure on approved projects. Accelerated
depreciation was still permitted for other “qualifying” capital expenditures These allowances were alternatives to pioneer status,
and did not distinguish between simple expansion and labor-saving investment. A
push toward greater automation came with the 1996 budget, which doubled the fee
imposed on firms for the use of foreign workers, from RM 600 to RM 1, 200 per
year in the case of semi-skilled employees Given that the 1994 average annual wages in
the consumer electronics sector were RM 10,260 this tax was non-trivial. American
IC firms are generally considered to be the most highly automated in the
electronics sector. The percentage of production machinery that was automated
at AMD rose from nil in 1978 to over 80 percent by 1990 Intel assembles three times as many chips as
it did ten years ago with the same number of workers By contrast, the consumer electronics sector
is less automated. Rasiah reports that worker-machine ratios in European
consumer electronics firms in Penang are
We used evidence from a
Malaysian case study to explore the extent to which nationality might determine
affiliate behavior. The summarizes the findings and lists the probable causes
of observed national differences. It shows that nationality mattered for
linkages with local suppliers, for management practices, and, possibly, for
capital deepening. In each case, the Japanese practice may be less conducive to
Malaysian growth than if a more American-style practice were substituted. The
implication for Malaysian policy-makers is not, of course, that one nationality
of investor should be favored over another. Rather, the findings should be used
to direct efforts where they will do the most good. It may be hard to convince
a Japanese subsidiary to install a local employee as managing director, but
Japanese firms are likely to respond well to exhortations to work.
Nationality and production networks
The debate about whether there are differences between Japanese and US FDI has
a long if not altogether distinguished history. Many of the arguments made by
early commentators, such as Kojima’s distinction between the tradeenhancing nature
of Japanese FDI and the trade-undermining characteristic of US FDI, and Ozawa’s
emphasis on the importance of relative factor endowments in driving Japanese
FDI, have not withstood the test of time and empirical examination The question
posed by Mason and Encarnation “Does
Ownership Matter?” continues to be a popular question in examining foreign
investment and production networks. By the mid-1990s, a large literature
pointed to significant differences in the way in which Japanese and American
firms had organized their production networks in East Asia in the previous
decade For convenience, we group these
differences under four headings: the localization of management; sourcing of
components and capital goods; replication of production networks; and
distribution of R&D activities.
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