Research Korner: Hutchison Whampoa Case Study

CHAPTER 1   INTRODUCTION: PURPOSE OF THIS THESIS       1.0  Introduction   This chapter intends to highlight the reasons and rationale for the study of this thesis. It shall be divided into five parts. The first part shall be defining the objectives and aims of the study. In this part, a discussion on the setting of the study shall be looked into. An argument and clarification of terms and terminologies used in this research is presented in section 1.2, followed by the discussion on the contributions and significance of the study in section 1.3. A brief explanation of the research methodology being applied for this thesis is presented in section 1.4 and finally, in section 1.5 presents a summary of the parts and chapters to be covered in this study.   1.1  The Research Objectives and its Aims Theory and research concerning the process of internalisation and multinationality of firms to create competitive advantage has been given significant attention by many scholars and researchers in the areas of international business, international marketing, and business strategy in describing internationalisation production and marketing activities. The process started in the early 1970s, when American industry began to reschedule their level of foreign direct investment (FDI) activities after the Second World War due to the second oil crisis, the increased cost of production, and the imbalance of resources (Coase, 1937; Dunning 1971, 1973a and 1973b, 1977, 1979, 1985, 1993a and 1993b; Vernon, 1966 1971, 1979; Buckley and Casson, 1976, 1985; Chandler, 1969, 1990; Prahalad and Doz, 1987; Yip, 1989; Marina, 1996; Casson, 1987; Hennart, 1982, 1991; Rugman, 1981; Teece, 1983, 1986; Ghoshal, 1987; Ohmae, 1987; Prahalad and Hamel, 1990; and Reich, 1991). Most of these studies were conducted in the well-developed established countries namely North America, the Western European Community, and Japan. As expected, these studies exhibit a clear Western perspective on the process of internalisation expansion of firms to create competitive advantage and have advanced a view that takes into account the more successful economies of the world. Such business expansion involves assorted issues, such as processes of moving abroad and modes of entering foreign markets. Though these studies have helped, firms gain insight into how to achieve and attain competitive advantage, and maintain global essence; however, the focused and interest of the works are on the multinationals from industrialised developed countries. There is only a meagre quantity of study into multinationals from developing countries[1]. In spite of this little attention, the interest of the study on developing country multinational commenced in the end of the 1970s and early 1980s (Wells, 1983; Lall, 1983, 1984; Ting, 1985). In the 1990s, renewed attention has been given to the topic of MNC growth with the effort of scholars and researchers namely, Aggarwal and Agmon, 1990; Ho, 1992; Tolentino, 1993, 1997, 1999, 2000; UNCTAD, 1993, 2000; Ulgado et. al., 1994; Nagesh, 1995; Cantwell, 1997; van Hoesel, 1997a and 1997b; Dunning et. al., 1997; Yeung, 1994, 1995, 1997, 1998a and 1998b; Pavida and Zeithaml, 1998; Mirza, 2000; and Mathews, 2000, in considering their studies on multinationals from developing countries. However, most of their studies are focused on the East Asian newly industrialised countries (NIC’s) for instance country like Hong Kong, Taiwan, South Korea, Thailand, and Singapore. Very little is known about multinational corporations based in Malaysia, leaving the gap for the study of this thesis.  The current studies are also limited in their scope as centre and attention has been given to describe and explain the emergence of developing countries multinationals into the world market (Yeung, 1995; Lim, 1996; van Hoesel, 1997a; Tolentino, 2000), which are dominated by a handful of well-known East Asian multinational corporations such as Acer Group, Tatung Group (Taiwan), DBS Group (Singapore), Hutchison Whampoa and HSBC Group (Hong Kong), Daewoo Group, Samsung Group, Hyundai Group (South Korea) and other Asian chaebols[2] or keiretsu. Based on the published information from the UNCTAD World Investment Report (2002) of the top ten outflows from Asia developing countries in 2001 as shown in table 1.1, Singapore was ranked first, followed by Hong Kong, Taiwan, Republic of Korea, China, India, Turkey, Iran, Kuwait, and Malaysia was ranked tenth (UNCTAD 2002).     Table 1.1:       Top 10 Ranking of Foreign Direct Investment Outflows: Developing Asia and the Pacific 2000-2001     	 		 		 		  		 		Countries 		 		 		  		 		                   2001                   		 		 		(Billions of US dollars) 		 		 		  		 		2000 		 		(Billions of US dollars) 	 	 		 		 		Singapore 		 		 		10.0 		 		 		5.0 	 	 		 		 		Hong Kong, China 		 		 		9.0 		 		 		59.0 	 	 		 		 		Taiwan Province of China 		 		 		5.4 		 		 		6.7 	 	 		 		 		Republic of Korea 		 		 		2.7 		 		 		5.0 	 	 		 		 		China 		 		 		1.8 		 		 		0.9 	 	 		 		 		India 		 		 		0.8 		 		 		0.4 	 	 		 		 		Turkey 		 		 		0.5 		 		 		0.9 	 	 		 		 		Republic of Iran 		 		 		0.45 		 		 		0.5 	 	 		 		 		Kuwait 		 		 		0.3 		 		 		-0.3 	 	 		 		 		Malaysia 		 		 		0.25 		 		 		2.0 	                                                                                                      Source: World Investment Report 2002   In the world’s top 100 multinational corporations based on their foreign assets (see table 1.2), one of the Malaysian multinational corporations – Petroleum Dagangan Berhad (Petronas) was ranked ninety-ninth, and ranked fifth in representing developing country multinationals. Of the top 50 largest multinationals from developing countries as registered by the United Nations, Petronas Dagangan Berhad again, followed by Amsteel Berhad, Sime Darby Berhad, Berjaya Group Berhad and Hume Industries Berhad were in the list representing Malaysia (UNCTAD 2002). This data proves that the presence of Malaysia as one of the key players in contributing outward direct investment by their multinational corporations in developing countries.     Table 1.2:       Ranking of Malaysian MNCs by Foreign Assets in Developing Countries,                         2000.   	 		 		  		 		 		Millions of US Dollars 	 	 		 		  		 		 		Assets 		 		 		Sales 	 	 		 		 		Ranking in Developing Countries 		 		 		  		 		Corporation 		 		 		  		 		Industry 		@ 		 		 		  		 		Foreign 		 		 		  		 		Total 		 		 		  		 		Foreign 		 		 		  		 		Total 	 	 		 		 		5 		 		 		Petronas 		 		 		Petroleum 		 		 		7 690 		 		 		36 594 		 		 		11 790 		 		 		19 305 	 	 		 		 		34 		 		 		Amsteel 		 		 		Diversified 		 		 		1 143 		 		 		3 453 		 		 		544 		 		 		1 416 	 	 		 		 		41 		 		 		Sime Darby 		 		 		Diversified 		 		 		878 		 		 		2 417 		 		 		1 751 		 		 		2 887 	 	 		 		 		43 		 		 		Berjaya Group 		 		 		Diversified 		 		 		832 		 		 		3 352 		 		 		954 		 		 		2 052 	 	 		 		 		50 		 		 		Hume Industries 		 		 		Construction 		 		 		593 		 		 		1 178 		 		 		931 		 		 		1 341 	                                                                                                      Source: World Investment Report 2002 @         The classification for companies follows the United States Standard Industrial          Classification     Therefore, the study of Malaysian multinationals should be included in the current literature on multinational corporations from developing countries. The dominant representation of multinationals from other East Asian MNCs risks biasing the existing literature with growth assumptions that may not necessarily apply to emergence of MNCs from other developing countries, and in Malaysia particularly.  The third gap that has been addressed by the existing literature are examples of multinational corporations from well-known East Asian firms based in countries such as Hong Kong, Singapore, Taiwan, China and South Korea which share a common Chinese ethnic cultural background (Nagesh, 1995; Hamilton, 1996; Lim, 1996; Young, Huang and McDermott, 1996; Weis, 1996; Dobson, 1998; Peter, 1998) as an empirical evidence to the current pool of the literature. These societies are more homogeneous compared to Malaysia, and for that reason, the tendency to emphasise cultural ethnicity may result in unfair judgement in terms of the influence of multinational corporations from developing countries. This is the weakness of the current literature, which considered being insufficient to explain the emergence of MNCs from developing countries leaving a gap in the existing studies to be tackled and further explored. Compared to other East Asian countries, Malaysia has its own uniqueness that may not apply to other developing countries in the same way as they face different business environmental, political influence and cultural circumstances. The country consists of a few ethnic groups, which include Malay, Chinese, Indian, and other ethnicities, which may not resemble in other developing countries. The main ethnic group in Malaysia are Malays[3] who consider themselves indigenous, and represent 65.1 per cent of the 24.5 million population as at 2002[4]. They are the paramount group controlling both the political sphere and the bureaucracy. The Chinese, being the second largest ethnic group are essentially the domestic capitalist class, and have played, and continue to play a decisive role in business since the 1950s. They represent 26.0 per cent of the total population. The Indian and other ethnicities represent 7.7 per cent and 1.2 per cent respectively of the ethic mix. However, since the 1970s, the Malaysian government has given significant and special attention towards the involvement, and participation of the Malay ethnic group into business (see critical assessment by Edmund and Jomo, 1997). Although one of the reasons for the government is to reduce poverty and restructuring of Malaysian society under the New Economic Policy (NEP) which has been implemented since 1971- 1990, follows by National Development Policy (NDP) since 1991 – 2000, and National Vision Policy (NVP) since 2001 till 2010, but the main objective behind it, is to groom the ethnic Malays middle and business classes into business. In her own words, Yeung (1994: 7), stressed that “…[T]he presence of ethnic minority groups per se possesses no casual power to explain the transnational operations of the Chinese and Indian enterprises. If the presence of these ethnic ties is casual in inducing FDI, why then does not the Malay community, the dominant group in Southeast Asia, generate large volumes of foreign investment within the region?” Therefore, this thesis will encompass this issue. Examples of these indigenous Malaysian multinationals controlled by the bumiputera are companies such as, Petroleum Nasional Berhad (Petronas), Perusahaan Otomobil Nasional Berhad (PROTON), Tenaga Nasional Berhad (TNB), Telekom Malaysia Berhad (TELEKOM), and other conglomerates. Finally, the existing studies are more focused on the emergence and internalisation of the multinational corporations per se in developing countries without concerning the importance involvement of the government in supporting their home country multinationals. As proposed by Stopford and Strange (1991) based on developmental model of interactions comprising firm-firm, state-state, and firm-state relationships termed as triangular nexus as shown in Figure 1.1, the State and firms must work closely as a ‘package’ characterised by complex and dynamic interactions between the two sets of institutions in order to grow, and not to work alone as single entities.     Figure 1.1:      The Triangular Nexus of Relationships between States and Firms                                                                              Source: Stopford and StraSource: Stopford and Strange (1991: Figure                                         Source: Stopford and Strange (1991: Figure 1.6)                                                                                                     As such, given these gaps as argued in the current sets of the literature on developing country multinationals, provide a basis for defining the research problem. The nature of the problem is two-fold:   1.      How to explain the internationalisation pattern and process of the Malaysian-based multinational corporations, and nature of their strategies as compared to their predecessors (multinationals from developed countries), and to make a valuable contribution to the Malaysian economy.         2.      What type of strategic interventions as a source of business enhancement that need to be made by the Malaysian government and their respective bodies to facilitate and underpin development of indigenous Malay multinational corporations in order to growth domestically, and compete internationally, and the way(s) in which these interventions and the required contributions can be measured.   Therefore, the aims of this thesis are to gain a deeper insight into how the internationalisation pattern of the selected leading indigenous Malaysian-based multinational corporations, and to get a better understanding of their investments activities. Furthermore, this thesis also intends to investigate the interaction process between these multinationals, and their relationship with the home government in shaping, structure and developing business plan and policies.   In order to serve these aims, it would be appropriate to conduct depth interviews with senior executives in multinational corporations with headquarters in Malaysia, and with related ministries and government agencies. This is basically, to discuss historical development of the firms’ internationalisation process and to find out the present status of these corporations as to ensure continuous growth and the gain of competitive advantage in the global market.   1.2  Clarification and Argument of Terms and Terminologies 1.2.1        The Multinational Corporations Since this thesis is centred on the study of ‘Multinational Corporation’ (MNC) in a developing country, it is appropriate to first define the term to dwell on the possible source of confusion. The imperative to control resources and know-how as well as to secure access to overseas markets has driven some firms to engage in foreign direct investment (FDI) and gradually or potentially to become multinational corporations. Widespread use of this term MNC commenced in the early 1960s (Hymer, 1979; Jones, 1996). Since then, a variety of definitions have been offered and are widely known and used in the literature[5]. In fact, David E. Lilienthal[6], who was a Director of the Tennessee Valley Authority and Director of the Atomic Energy Commission at that time, was first to introduce the term ‘Multinational Corporation’ in 1960 by. At a symposium held on the Occasion of the Tenth Anniversary of the Graduate School of Industrial Administration, Carnegie Institute of Technology, David Lilienthal (1960: 119), distinguished between portfolio and direct investment and then defined “multinational corporations – which have their home in one country but which operate and live under the laws of other countries as well….” It is of interest that from the start, the multinational corporation was defined in terms of jurisdiction and potential jurisdictional conflict. The term ‘Multinational Corporation’ is distinct from ‘International Corporation.’ The latter term was used to designate a company with a strong national identification. A multinational corporation consists of the parent company, (normally the head office based in their home country) and its affiliates (either subsidiaries or associates in other countries abroad). The parent company owns some percentage of the share capital in order to be able to exercise control; that is, its overseas activities were an extension of its domestic functions and its decision-making centre remains at home (Wilczynski, 1976: 1). Since then, various hypotheses and additional terminologies have been formulated to encompass the nature and character of this ‘newly discovered species’.             Most scholars and researchers in international business (Vernon, 1971; Buckley and Casson, 1976; Todaro, 1989; Dunning, 1993a, 1993b; Glynn, 1993; Caves, 1996; UNCTAD, 1997; Dicken, 1998) have provided various definitions of the term ‘multinational corporation’. The adoption of different definitions is clearly understood that there are differential objectives and functions by individual researchers. According to Dunning (1993a, 1993b), a multinational corporation is “an enterprise that engages in foreign direct investment, and owns or controls value adding activities in more than one country”. The United Nations prefer to use the label ‘transnational corporation’ where this refers to all enterprises which control assets: - factories, mines, sales offices and the like, in two or more countries (UNCTAD, 1978: 158). The study on multinational corporation terms also reviewed that the definition can vary according to structural criteria, performance characteristics, or behavioural characteristics (Robock and Simmonds, 1989). They further indicated that MNC is a cluster of firms, being controlled by headquarters and simultaneously with the operation being spread to other countries around the world. Thus, multinational corporations or transnational corporations are enterprises that control and manage production facilities in at least two countries (Caves, 1996). According to Caves (1996), the use of term ‘enterprise’ is to direct attention of the top level of management whereby ‘company’ focuses on the controlled subsidiary of another firm. In this regard, MNC traditionally means a company that holds an equity interest and sits at the intersection of production, international trade, and cross border investment (Glynn 1993: 65-90).   Walters and Blake (1992) weakly defined MNCs as all firms, industrial, service or financial doing international business of all types within a myriad of international structures. The term is sometimes qualified by specifying and explaining that firms should have a certain minimum level of overseas activities, either in terms of the number of countries in which they operate or the proportion of production, assets, or employment overseas and they should be of a certain minimum size. A. D. Chandler (1961) showed in his study, Strategy and Structure, the process by which a corporation develops from an initial small workshop through progression to a large factory, and then to a series of factories nationwide in scale. During this evolution and development, the importance of central office as well as the number of its department increases. The greater the size of the firm, the larger and more subdivided the operations of this central office become. Moreover, the power and responsibilities of this central office will rise according to their new structure. Similarly, Dicken’s define MNCs as “a firm, which has the power to co-ordinate and control operations in more than one country, even if it does not own them” (Dicken, 1998: 8). Generally, multinational corporations do own assets in foreign countries. This definition on the other hand, implies that multinationals do not have to own productive assets abroad in order to be able to control. They however, can have control by getting involved in legally collaborative relationships across national boundaries. One of the unique characteristics of multinational corporations compared to other firms is the flexibility of the company to transfer and relocate resources across borders through its affiliates global network (Kogut, 1983). Figure 1.2 illustrates the global evolution model where multinational corporations normally start their business in a domestic market, and than expand abroad throughout the world and become a global player (Schultz and Kitchen, 2000). Dunning (1993b) refers global companies as “enterprises that engage in value-adding activities in all of the major regions in the world and possess an integrated strategy towards these activities”. Figure 1.2:      The Global Evolution of a Company                                                                                                                                                                                                              Sources: Schultz and Kitchen (2000: 24) Multinational corporations (MNCs) have been a source of controversy ever since the East India Company developed the British taste for tea and a Chinese taste for opium. Karl Marx's Das Kapital was written in part as an attack on international capitalism. Gaining positions of competitive strength has become more important in an environment that has become increasingly global and competitive (Vandermerwe and Chadwick, 1991). Moreover, deregulation in the likes of financial services has ushered in a new era of global competition and quick competitive reactions. The size and importance of the service sector has grown considerably   Organizational strategy has long been viewed as the challenge of matching internal resources and strengths with the opportunities existing in the environment. This is perhaps best summarized in the seminal framework of Learned, Christensen, Andrews, and Guth (LCAG) (1969. Thus, the task of strategic management is viewed in terms of the interplay of the personal values of management with the firms' skills and resources, and of how these are matched to environmental opportunities/threats and broader societal expectations.   1.2.2        Competitive Advantage and Business Strategy Conceptually, in order to perform, and grow in either a national or a global business environment, a business needs to possess some form of ‘competitive advantage’ and apply a unique ‘business strategy’. Competitive advantage is about how a firm actually puts the generic strategies (i.e. cost leadership, differentiation, and focus) into practice (Porter, 1980, 1985, 1990). It concerned with developing a value-creating strategy by uniquely combining of valuable firm resources (Barney, 1991) and skills (Day and Wensley, 1988). Likewise, Keegan (2002: 4) refer ‘competitive advantage’ as an offer made by a firm’s that is most attractive to customers. It occurs when a firm have an advantage of exclusive or unique assets and resources that are not available and hardly to replicate to their current or potential competitors (Dunning, 1988, 1993a). Dunning’s refers to this term as ‘ownership advantage’, which constitute assets that are capable and competent to generate income streams that could compensate for higher costs in order to operate abroad. The definition by Dunning covers a broader range of meanings including tangible and intangible assets and resources (i.e. plant, location, capital, market knowledge, technological, managerial and entrepreneurial skills). Although ‘ownership advantage’ is commonly used in an international context, the term has been used interchangeably with ‘competitive advantage’ on many occasions and events, locally and internationally. As supported by Dunning, ‘ownership advantage’ is an asset owned by particular enterprises and could be applying either in the domestic operations or elsewhere (Dunning 1993a: 77). Similarly, Dunning (2000) referred to ‘ownership advantage’ as assets unique (i.e. superiority skills, and resources) to one firm relative to another, without limiting the use of the term to any context and perspective. In order to make a clear distinction, this thesis combined the uses of ‘ownership advantage’ and ‘competitive advantage’ terms as synonyms and interchangeably, and it applies to both domestically and/or internationally. It refers to a variety of ownership advantages of resources that could be beneficial to the firm’s development. A ‘business strategy’ term can be defined as a determination of the firms to achieve their long-term goals and objectives (Chandler 1961: 13). Generally, it is about managing organisation, basically business (Rumelt, Schendel et. al., 1994). It involves the ways of firms adopted the courses of action, and the allocation of resources to carry these goals. Different firms face different strategic situation. The understanding of the ‘business strategy’ term has been conceptualised from different angle and perspective (Pearce, Robbins and Robinsons, 1988). Hofer (1975) and Mintzberg (1978) refer ‘business strategy’ to the strategy methods that a firm selects in order to compete in marketplace. The purpose of selecting specific business strategy methods is to exploit external environmental opportunities and organisational to create sustainable competitive advantages and to improve the competitive position of the firm (Bourgeois 1980, Robinson and Pearce 1988). Following the above scholars’ definition, this thesis refers to ‘business strategy’ as a plan of action carried out tactically by firms to achieve their business objectives in order to sustain and grow in national and global market.   Clarifying the above key terms is important, as it will become a central task and crux of this thesis in debating how Malaysian multinationals expand their operation abroad and realign their operations and strategies to ensure they are competitive in the global market.   The potential to confer a competitive advantage is not inherent in all resources (Wernerfelt, 1989) but, rather, in only those that meet a rigorous set of conditions (Barney, 1991, Peteraf, 1993). The first condition is that the resource must be valuable--it must provide the opportunity to exploit some environmental opportunity or neutralize some threat. Resources are considered valuable when they enable a firm to conceive of or implement strategies that improve the firm's efficiency or effectiveness (Barney, 1991). Some authors construe value in terms of meeting a key buyer need (Aaker, 1989; Coyne, 1985). In addition, resources must have the characteristic of rareness. If valuable resources are possessed by a large number of competitors or potential competitors, they no longer represent a source of competitive advantage. Third, there must be the condition of imperfect mobility of resources. Where resources are easily traded between competitors, no competitive advantage can be maintained. Imperfectly mobile resources include those that are idiosyncratic to the firm (Williamson, 1979), those for which property rights arc not well defined (Dierickx and Cool, 1989), or those that are co-specialized assets (Teece, 1986). Furthermore, the imperfect mobility of assets is a critical factor in service businesses as people are the key assets in many cases, and their high mobility frequently results in the loss of accounts and the emergence of new competitive threats as in the case, for example, with personnel employed by advertising agencies and moving to other ones.   Finally, for an advantage to be sustained, resources must be imperfectly imitable (Barney, 1991) or provide some ex-post limits to competition: That is, subsequent to a firm gaining a superior position and earning rents, forces must exist that limit competition for those rents (Peteraf, 1993). It was noted above that innovations such as the development of a new type of account by a retail bank or a new advertising style by a creative department frequently results in a host of imitations from competitors. For a firm to be in a position to exploit a valuable and rare resource, there must be a resource position barrier preventing imitation by other firms (Wernerfelt, 1984). Sustaining a competitive advantage over a period of time requires the presence of isolating mechanisms that prevent imitation. Several such barriers that have been cited in the literature include causal ambiguity (Reed and DeFillippi, 1990) and uncertain imitability (Lippman and Rumelt, 1982), where the drivers of success are difficult to identify.  The process of asset stock accumulation within the firm may also prevent imitation.   Attempts to restrict and limit the definition of multinational corporations may lead to more difficulties than when a more general definition is used (Jones, 1996: 4). Therefore, for the purpose of this thesis, a broad and basic definition of multinational corporations will be adopted. It refers to a corporation that engages in foreign production through its affiliates located abroad, and controls their activities (assets and/or exert influence in the decision making process) and business strategies that transcend national boundaries. This thesis will use the term ‘MNC’, ‘multinational companies’, ‘multinational enterprises’, or ‘multinationals’ as synonyms and interchangeably.   1.3  Contributions and Significance of the study This research promises to contribute to the understanding on how the emergence and evolution of indigenous Malaysian-based multinational corporations and how various sources of strategies, policies and plans are being implemented in restructuring their domestic and international expansion activities. The primary objective of this study is to provide new insight into the research agenda of competitive strategy for multinational corporations in Malaysia specifically, and to developing countries generally. For that reason, it is hoped that this thesis will partially bridge the empirical gap in the present literature of multinationals from developing countries. The specific contributions of this study could be described as follows:   a.       Most of previous studies on competitive strategy in multinational corporations have been conducted in the well-established industrialised countries (North America, Western Europe Community, and Japan) and East-Asian newly industrialised countries (South Korea, Taiwan, Singapore and Hong Kong). A majority of developing countries particularly in the Southeast Asia countries, namely Indonesia, Thailand, the Philippines and Malaysia are excluded from this research. This study wishes to verify the underlying dimensions of competitive strategy for indigenous Malaysian-based multinational corporations and reflect what can be learned from these companies. The results of this study should expand the knowledge base of competitive strategy and may identify potential areas for future research;   b.      Previous studies on strategic operations of MNCs have tended to gained data and focus from the parent companies (headquarters) and all its affiliates without looking at the formation and involvement of plans and strategies from the government perspective of that respective country to support their local firms business. This approach is convenient but may be misleading due to the gap between these both organisations (home government and multinational corporations). The results of this study should provide empirical evidence of how both institutions could work together in supporting their businesses and investment activities domestically and internationally;   c.       A third objective of this thesis is to make an additional contribution to the existing literature due to the cultural and political gaps, and environmental differences between Malaysia and other developing countries as mentioned earlier in section 1.1, which may overshadow to the overall development of these firms;   d.      A final objective of this study is to reveal what can be learned from the experience of these Malaysian multinationals in expanding their operation abroad, opening the intellectual horizons to go beyond the conventional studies from developed country multinationals.   1.4  Research Methodology This section will explain the various proposed ways that will undertaken to carry out this empirical research. Details of the research method will be further elaborated and explained in Chapter 4 – Research Methodology. According to Earl and Robert, 1975; Hakim, 1992; Yin, 1994, de Vaus, 2001, there are several conventional approaches and designs of doing social science research. It includes experiments, surveys, archival analysis, longitudinal design, observations, case studies and economic modelling. Each type of strategy has its advantages and weaknesses depending on the: (a) form of research question being chosen; (b) the control of a researcher over the behavioural events; and (c) the focus on contemporary events as opposed to historical phenomenon.   For the purposes of this thesis, the best approach to be considered for selection is either - used of an experimental method, a survey or by means of case studies. The reasons for selecting these three approaches to be in the highest lists of being a research method and strategy is as follows:   (a)    This study is to focus on the issues that involve the dynamic changes of internationalisation expansion of multinationals, where it is an on-going issues and real-life context to the world economy. According to Yin’s (1994: 6), these three research methods are the best approaches since they focus on contemporary events and current phenomenon.   (b)   Another important condition to be considered before the final selection of research strategy is the type of research questions. Yin (1994) suggested that if the research questions are exploratory, particularly when “how” or “what” questions are being posed, the best approach is - an experiment, history or case study research. Since this study is based on this situation, therefore it is likely to favour a researcher to select this strategy as the preferred research method. In addition, case study offers the best prospect for advancing knowledge about organisational process (Eisenhardt, 1989; Yin, 1989).   (c)    Except for experiment, a further distinction between survey and case study is the extent of the researcher to access to actual behavioural events (Hakim, 1992; Yin 1994; de Vaus, 2001). Most of the sources of evidence to support this thesis will base on archival documents, observations, and interviews. Thus, it is appropriate for a researcher to follows this strategy (survey or case study) as it seems to support the conditions.   1.4.1        Scope of the Research  This research covers indigenous multinational companies with headquarters in Malaysia, which are still considered as emergent and nascent MNCs. Each chosen company will represent certain industries in Malaysia in respective sectors namely product, service, manufacturing, and financial services.  The rational for selecting of these companies are briefly discussed and Chapter 4 of Research Methodology will elaborate further in details.                                                      An example of companies such as Perusahaan Otomobil Nasional Berhad (Proton), Malaysian Airlines System Berhad (MAS), Sime Darby Berhad (SDB), Tenaga Nasional Berhad (TNB), Telekom Malaysia Berhad (Telekom), Malayan Banking Berhad (Maybank), Petronas Dagangan Berhad (Petronas), Edaran Automobil Malaysia Berhad (EON) and Padi Beras Nasional Berhad (BERNAS), which are considered as Malaysian indigenous multinationals and are being dominated and controlled by the bumiputera may be selected as cases for this research. One of the important factors to be considered in the selection of these companies to be a sample for this study is the pioneer position of these firms in their respective industries and their dominant role in the domestic Malaysian market. For instance, Perusahaan Otomobil Nasional Berhad or Proton was ranked Malaysia largest carmaker and ranked number three out of top one hundred Malaysia’s companies in terms of turnover. Likewise, Tenaga Nasional Berhad (TNB) or National Electricity Board (NEB) was ranked the largest firm in electricity company with more than RM 54.0 billion or approximately USD 14.2 billion[7] assets and also ranked the first in terms of their turnover in year 2001 / 2002 (Malaysian Business 2002). Table 1.3 shows the general profile of the selection companies for the study.   Table 1.3:       Profile of the Selected Companies for the Cases 	 		 		 		  		 		 		Company 		 		 		Group 		Revenue 2001/2002 		 		(RM 		Millions) 		 		 		Year 		Incorporated 		 		 		  		 		Core 		Industries 	 	 		 		 		 		Perusahaan 		Otomobil Nasional Berhad (Proton) 		 		 		 		  		 		 		10, 307.7 		 		 		 		  		 		 		1983 		 		 		 		  		 		 		Automotive 		Manufacturer 	 	 		 		 		 		Tenaga 		Nasional Berhad (TNB) 		 		 		 		  		 		 		15, 375.1 		 		 		 		  		 		 		1990 		 		 		 		Electricity 		Service Provider and related services 	 	 		 		 		 		Telekom 		Malaysian Berhad (Telekom) 		 		 		 		  		 		 		9, 673.2 		 		 		 		  		 		 		1984 		 		 		 		 		Telecommunication Service Provider and related services 	 	 		 		 		 		Malayan 		Banking Berhad (MBB) 		 		 		 		  		 		 		7, 403.2 		 		 		 		  		 		 		1960 		 		 		 		Financial 		and Banking services 	 	 		 		 		 		Malaysian 		Airlines System (MAS) 		 		 		 		  		 		 		8,695.2 		 		 		 		  		 		 		1971 		 		 		 		  		 		 		Airlines 		Services 	 	 		 		 		 		Petronas 		Dagangan Berhad (Petronas) 		 		 		 		  		 		 		67, 181 		 		 		 		  		 		 		1983 		 		 		 		  		 		 		 		Petrochemicals, oil and gas 	 	 		 		 		 		Sime Darby 		Berhad (SDB) 		 		 		 		  		 		 		12, 053.1 		 		 		 		  		 		 		1978 		 		 		 		  		 		 		 		Diversification 	 	 		 		 		 		Edaran 		Automobil Malaysia Berhad (EON) 		 		 		 		  		 		 		7, 548.3 		 		 		 		  		 		 		1984 		 		 		 		  		 		 		Distributor 		of Motor Vehicles 	 	 		 		 		 		Padi Beras 		Nasional Berhad (BERNAS) 		 		 		 		  		 		 		n.a 		 		 		 		  		 		 		1994 		 		 		 		  		 		 		Food 		Productions 	     The second criteria of these companies to be selected as a sample of study are based on individual firm’s contribution as the most active outward investors in their respective industries. On top of that, their recognition in business performance in terms of profitability, and management proficiency will also be taken into consideration in any selection process.   Finally, the selection of samples for this study has to do with the accessibility of a researcher to the firm’s resources and the availability of secondary data.   Because this thesis is about the internationalisation expansion of Malaysian multinational corporations and the developmental of their strategy, it is appropriate at the outset of this thesis; the form of theoretical framework is based on the developing country multinational literature. However, limited and deterministic interpretations inherent in the literature propel this thesis to refer to two other schools of thought - the integration works from both developed and developing countries scholars.   1.4.2        Research Design This research is a qualitative study that will be based on actual cases. It is based on exploratory research that will involve depth interviews (the content will evolve over time), with senior executives of specific Malaysian multinational corporations in determine the key business strategies for the expansion of their firms. Apart from that, depth interviews (the content further will evolve over time) will also be conducted with related ministries such as: the Ministry of International Trade and Industry (MITI), the Ministry of Entrepreneurial Development (MED), and also with government bodies such as: Bank Negara Malaysia (Central Bank of Malaysia), Kuala Lumpur Stock Exchange (KLSE), Malaysia Industrial Development Agency (MIDA), Malaysian Industrial Development Finance (MIDF), Malay Chamber of Commerce (MCC); and the Federation of Malaysia Manufacturers. The main objective is to identify the type of strategic interventions as a source of business enhancement that need to be contribute by these organisations to the Malaysian MNCs.   Some secondary data from archival documents will also be used in this research such as, information on company backgrounds or organisational profile, company annual reports, company brochures, books, newspaper or magazine reports, and other related information as and when required and needed to support this thesis.   1.4.3        Selection of Sample and its Limitation As discussed in sub-section 1.4.1, Malaysia’s Top 100 Corporations edition 2001/2002 from Malaysian Business Magazine will be used as the basic guide for the selection of the specific companies. This magazine contains a compilation of data on the 100 most successful and profitable companies in Malaysia. It is annual Malaysian published company information that ranks Malaysia’s 100 largest companies by turnover, net profit and shareholders funds. On the other hand, Securities Commission - a self-funding statutory body under the Ministry of Finance (MoF), and established under the Securities Commission (SC) Act 1993, will also be contacted for verification on the information published in the book. Bank Negara Malaysia, a Central Bank for Malaysia, Kuala Lumpur Stock Exchange (KLSE), and related agencies will be contacted in order to gain access on the latest and published data on outward direct investment for these Malaysian multinationals.   A basic limitation or constraint of this study is that, it requires access to detailed confidential information about specific companies. This, however, may not always be possible.   1.4.4        Data Collection and Analysis                   This research will draw upon three independent streams of information and triangulate them to check for accuracy. Three streams include:   (a)    internal company documents written at the time of the events described in the cases;   (b)   publicly available documents, also from the time of the events; and   (c)    interviews with key employees and/or actual participants in the events.   In order to get useful results, the following steps will be taken for each case:   (1)   The Pre-Research Phase: The goal of this stage is to understand the company backgrounds. It entails the performance of an industrial competitive analysis, corporate competitiveness, and reviewing existent literature on the company.   (2)   Company Documents Collection: The purpose of this activity is to collect and compile all documents, both internal and external, written at the time of the event.   (3)   Interview Data Collection: Depth interviews with senior executives and related stakeholders and government officials will be conducted, focusing on questions (the content further will evolve over time) that cannot be answered by resorting to secondary information and the related questions that might be posed as a result of the study of the case histories.   1.4.5        Assumption of Research The assumptions of this research are as follows:   a.       all participants or interviewees are familiar with their work and operations.   b.      the responses of the participants or interviewees accurately reflect their perceptions and feelings.   c.       the views of the participants or interviewees represent and correspond to their organisation.   1.5  Organisation of the Thesis The development of each chapter will be based upon discussion with supervisor. Proposed for chapter outline is as follows (details of each chapter will be further developed based on the argumentation of this thesis): -   1.      Purpose of the Thesis 1.1.   The Research Objectives and its Aims 1.2.   Clarification and Argument of Terms and Terminologies 1.2.1.      The Multinational Corporations 1.2.2.      Competitive Advantage and Business Strategy 1.3.   Contributions and Significance of the study 1.4.   Research Methodology 1.4.1.      Scope of the Research 1.4.2.      Research Design 1.4.3.      Selection of Sample and its Limitation 1.4.4.      Data Collection and Analysis 1.4.5.      Assumption of Research 1.5.   Organisation of the Thesis   2.      Review of Related Literature 3.      Methods And Procedure 3.1.   Method of Research to be Used 3.2.   Sampling Technique 3.3.   Respondents of the Study 3.4.   Instruments to be Used 3.5.   Validation of the Instrument 3.6.   Administration of the Instrument 3.7.   Statistical Treatment of the Data   4.      Presentation, Interpretation, and Analysis of Data   5.      Summary, Conclusion and Recommendation 5.1.   Summary 5.2.   Conclusion 5.3.   Recommendations 6.      Bibliography   References: Aaker, D.A. "Managing Assets and Skills: A Key to Sustainable Competitive Advantage." California Management Review, 31, 1 (1989), 91-106.   Barney, J.B. "Firm Resources and Sustained Competitive Advantage." Journal of Management, 17, 1 (1991), 99-120.   Cool, K., and Schendel, D. "Strategic Group Formation and Performance: The Case of the U.S. Pharmaceutical Industry." Management Science, 33, 9 (1987), 1102-1124.   Coyne, K. "Sustainable Competitive Advantage: What It Is, What It Isn't." Business Horizons, 29, 1 (1985), 54-61.   Dierickx, I., and Cool, K. "Asset Stock Accumulation and Sustainability of Competitive Advantage." Management Science, 35, 11(1989), 1504-1511.   Learned, E.P.; Christensen, C.R., Andrews, K.R.; and Guth, W. Business Policy. Homewood, IL: Irwin, 1969.   Lippman, M., and Rumelt, R.P. "Uncertain Irritability: An Analysis of Interfirm Differences in Efficiency under Competition." Bell Journal of Economics, 13, 1 (1982), 418-453.   Peteraf, M.A. "The Cornerstones of Competitive Advantage: A Resource-Based View." Strategic Management Journal, 14, 3 (1993), 179-191.   Reed, R., and DeFillippi, R.J. "Casual Ambiguity, Barriers to Imitation and Sustainable Competitive Advantage." Academy of Management Review, 15, 1 (1990), 88-102.   Teece, D.J. "Firm Boundaries, Technological Innovation and Strategic Management." In L.G. Thomas, III (ed.), The Economics of Strategic Planning. Lexington, MA: Lexington Books, 1986, pp. 187-199.   Vandermerwe, S., and Chadwick, M. "The Internationalisation of Services." In C.H. Lovelock (ed.), Services Marketing. London: Prentice-Hall, 1991, pp. 48-58.   Wernerfelt, B., and Montgomery, C.A. "Tobin's" q and the Importance of Focus in Firm Performance."American Economic Review, 78, 4 (1988), 246-250.   Williamson, O.K. "Transaction-Cost Economics: The Governance of Contractual Relations." Journal of Law and Economics, 22, 2 (1979), 233-261. 	 	 		 		 		 		[1] 		Some of the literature used the term multinational from Third-world 		countries (see Wells, 1983; Tolentino, 1993, Dunning, van Hoesel and 		Narula, 1997). It refers to domestic firm with head-office in developing 		countries, which control assets and/or exert influence in the 		decision-making process of one or more cross border subsidiaries and/or 		affiliates (Yeung, 1994). For a complete statement on its significance, 		see section 1.2 in this thesis. 	 		 		 		 		[2] 		Chaebol is the name given to the large Korean conglomerates 		similar to the keiretsu in Japan 	 		 		 		 		[3] 		Malay or Bumiptera (in Malay language), means “sons of the soil”. The 		growing terminology usage of the term “Bumiputera” especially after the 		implementation of New Economic Policy (NEP) in 1969 has given it a more 		specific connotation, which its meaning has been narrowed specifically 		to mean the Malays. Therefore, the usage of the terms Malay or 		Bumiputera will be used interchangeably in this thesis. 		 		 		  	 		 		 		 		[4] 		Department of Statistics, Malaysia (http://www.statistics.gov.my) 		 		  	 		 		 		 		[5] 		The earliest example quoted in the 1976 supplement to the Oxford English 		dictionary is from The Economist for 17th 		October 1964. 		 		  	 		 		 		 		[6] 		Parentage of the term was first pointed out by Baran P. A., and Sweezy 		P. A., “Monopoly Capital: an essay on the American economic and 		social order” (Great Britain: Penguin Books, 1966: 192). Fieldhouse 		D. K., (1986), corroborates Lileinthal’s first use of the term and 		provides an interesting intellectual history of the development and use 		of multinational enterprise in “The multinational: a critique 		of a concept”, in Teichova A., et. al., (eds.) “Multinational 		enterprise in historical perspective”, (Cambridge: Cambridge 		University Press, 1986: 9-29). 		 		  	 		 		 		 		[7] 		Since 1997, Malaysia had adopted exchange controls which make the local 		currency Ringgit is pegged at a fixed rate of one US Dollar to 3.80 		Ringgit.

THESIS CHAPTER 1: THE EMERGENCE AND EVOLUTION OF MULTINATIONAL CORPORATIONS (MNCs) FROM MALAYSIA

CHAPTER 1 INTRODUCTION: PURPOSE OF THIS THESIS 1.0 Introduction This chapter intends to highlight the rea...