Research Korner: MNC's

Thesis Chapter 3 The emergence and evolution of multinational corporations (MNCs) from Malaysia

Chapter 3 The emergence and evolution of multinational corporations (MNCs) from Malaysia   The emergence of Malaysia-based multinational corporations: Economic and political development    Transformation from the British Colonial period to the 1970s To understand the origins of Malaysia-based MNCs is to understand the economic and political history of Malaysia (formerly known as Malaya on that particular of time) as a British colonial heritage. The cession of Penang by Sultan of Kedah to the British East India Company in 1786, the formation of the Straits Settlements uniting Malacca, Penang and Singapore in 1826, the designation of this settlement as Crown colony in 1867, and the independence of Malaya from the British in 1957, had important implications on the emergence of the first Malaysian-based multinational corporations. Historically, in general, the development of the Malaya economy was largely a function of the British Colonial Administrative State interest and attention (Edmund and Jomo, 1997). Prior to 1957, the Malaysian economy was heavily dependent on primary products specifically tin and rubber to generate growth, and employment. The prosperity of many British trading companies namely Sime Darby Corporation, London Tin Corporation, Anglo Malayan Tin Limited, Kinta Kellas Tin Mining Limited and Malayan Tin Dredging Limited derived from these two main products. A diversification into palm oil began in the late 1960s, and about the same time, forest resources in the form of saw logs and swan timber proved to be the leading primary commodities. During British control, a well-developed system of public administration was established, public services were extended and large-scale rubber and tin production was developed (Edmund and Jomo, 1997). Immigrants from China and India were brought to Malaysia for construction of public works and also as labourers in production sectors. They were not only needed as additional manpower but also for their skills and technology. In comparison with the indigenous population, they were found to be more advanced in nature and highly developed (Lim, 1967).   Development strategy: From export-oriented to import-substitution industrialisation The 1960s for Malaysia was an era of import substitution (Federation of Malaysian Manufacturers, 2003). During this period, Malaysia was faced with the problem of high unemployment when it rose to more than 8 per cent. At the same time, the economy depended largely on the export of primary commodities such as rubber and tin which rendered the country susceptible to price fluctuations in the world markets. There was the added problem of income disparity among its population. The need to diversify the economic base was therefore imperative. The Government’s support during the 1960s was limited to providing a favourable climate for private investment. In addition to the provision of tax incentives, the Government provided infrastructure such as industrial estates, power and telecommunication facilities. The Malaysian Industrial Development Authority (MIDA) was established in 1967 to promote and coordinate industrial development in the country. The Pioneer Industries (Relief from Income Tax) Ordinance in 1958 was replaced by the Investment Incentives Act 1968 which provided a wider assortment of tax incentives. During the 1960s, the private sector was left to assume the lead role in determining the pattern of industrial development and this resulted in the establishment of industries such as food, beverages & tobacco industries, printing and publishing industries, building materials industries and chemical & plastic industries, basically for the domestic market. According to Kokko (2002), import substitution strategy was the dominant strategy from the 1950s until about 1970s, although trade barriers were significantly lower than in other developing countries. The average effective rate of protection was around 7 percent, compared with a range of 25 to 92 percent in other economies at a similar level of development (World Bank 1993:134). One reason for the relatively mild protection was the colonial tradition of a liberal stance to trade and industry (Athukorala and Menon 1997:64), but the political structure of the country was also an important determinant. The majority ethnic Malays dominated politics but had relatively little economic power, whereas the ethnic Chinese controlled most modern sector activities but had little political power. The bias against agriculture was also less serious than in many other countries, because of the economic and political importance of the mining and plantation sector.   From import substitution industrialisation to export-oriented strategy The era of 1970s and thereafter saw the implementation of the export-oriented strategy in Malaysia. After an initial period of import substitution, Malaysia has gradually turned to more open and export oriented policies. The 1980s and 1990s saw the successful entrance of Malaysia into the world export market characterized by a much more complex international environment than in the last few years (Kokko, 2002). Economic growth during this time was the result of this policy shift from import substitution to export promotion (Ramasamy, 2000). By promoting exports, initially with primary commodities and later with manufactured goods, Malaysia became an active global player. The proportion of exports to GDP, even as late as 1987 was 55.7 percent. In 1999, however, the size of exports was much larger than GDP at 107.4 percent. On the import side, in 1987, the proportion was 39.4 percent, while in 1999 it was 83.3 percent. Malaysia, thus, can be considered to be among the most open economies in the world. The shift to an export-oriented pattern of industrialization for Malaysia proceeded relatively smoothly, according to Ramasamy, even though the above shift did not involve the introduction of a neutral trade regime (i.e., first-best trade reforms). However, even during its import-substituting phase, Malaysia has never discriminated strongly against other traded goods nor did it overvalue its currency as was the case in other developing countries pursuing import substitution policies. Though there was a wide divergence in its tariff rates, Malaysia's overall simple average tariff rate on manufactured goods was relatively low. Malaysia also did not make much use of non-tariff barriers (NTBs) to protect its manufacturing sector (Naya 1988: 87). Malaysia's major device, according to Ramasamy, for promoting manufactured exports was the establishment of export-processing zones (EPZs) in the early 1970s. In these EPZs, the exporting companies were allowed to import duty-free raw materials, parts, and components subject to the requirement that their entire output would have to be exported. Aside from Singapore, which can be considered as one whole export-processing zone, Malaysia has been the most successful country among the ASEAN countries in effectively operating its EPZs within the context of a relatively open economy, an able and generally honest bureaucracy, and a location strategy which linked these EPZs in an efficient way to the country's good transport infrastructure (Hill 1997: 8). Malaysia also benefited from the fact that it had established its EPZs at a time when internationally integrated production of electronics goods was growing rapidly. Under this production system vertically integrated electronics transnational corporations (TNCs), particularly from the U.S., relocated the labor- intensive processes in the chain of the whole production process of an electronics product to low wage production sites in Southeast Asia, particularly Malaysia, because of its good physical infrastructure and its liberal foreign investment regime which allowed foreign investors to establish fully-owned subsidiaries (Hill 1997: 8; Helleiner 1973: 26-31). Malaysia's reliance on EPZs during its early stage of export-oriented industrialization has been criticized as they are basically export enclaves, generating little, if any, local linkages. The reason for this is that virtually all the plants in these EPZs are basically highly import-intensive assembling operations, thus generating neither significant domestic value nor extensive backward linkages with the local economy. On the other hand, EPZs are useful in providing job opportunities for low skill labour as well as in establishing a country's international reputation as a reliable exporting country by virtue of its reliance on TNCs (Hill 1995: 12). The development of New Economic Policy The New Economic Policy (1970-1990), otherwise known as NEP, came into effect during this period to address racial and regional imbalances in ownership and control of wealth (Kokko, 2002). According to Shamsul (1997), the NEP can be said to be the product of the effort of Tun Razak, who was Prime Minister at the time, and his “back room boys,” comprised of Malay bureaucrats, academics, and technocrats, most of whom were also responsible for the successful organization of the Kongres Ekonomi Bumiputera in 1965 and 1968. In fact, a group of them produced a book called Revolusi Mental (1970), edited by Senu A. Rahman, in an attempt to provide a kind of a conceptual framework for a plan of action for the future of the Malay cause. The 1969 ethnic riot also encouraged many Malaysians to search for explanations, and many books were published with that intention. In the NEP, it was specifically mentioned that within two decades (1971–90) the successful implementation of the policy should create a community of Malay entrepreneurs. This was to be done not only through direct government intervention and economic support but also through an aggressive training and educational strategy to create much needed professionally trained Malay manpower. Malays were to participate in various fields that they had not ventured before, positions involving “mental production” processes such as bureaucrats, company executives, technocrats, academics, accountants, electronics engineer, information technology specialists, and a host of other professions demanding high or specialist education and training. Within two decades, the implementation of the NEP has successfully created and expanded the Malay middle class and new rich. In fact, many of its members have become extremely rich and are now active corporate players in the country and globally. However, according to Shamsul (1986), the NEP, through the implementation of its first objective of “poverty eradication,” has also created many new rural-based Malay entrepreneurs. Most of them are not involved in “mental production” process, like their educated urban counterparts. They are usually involved in the traditional, manually oriented small and medium businesses, such as construction, manufacturing of food products and handicrafts goods, in wholesaling of primary commodity items, or in retail activities. Most of these emerging Malay new rich have been politically active or connected to the local UMNO, and some of them are top district-level UMNO politicians. They have managed to turn rural development projects, initially aimed at eradicating poverty, into rich financial resources for themselves, by establishing their own companies and then awarding them lucrative government contracts. However, without the support, both capital and skill of local Chinese tycoons, the rural Malay new entrepreneurs could never have achieved their present level of success, and certainly not within such a short time. Of course, the Chinese towkays, like their Malay partners, benefited tremendously, in financial terms, from this fulfilling and harmonious interethnic relationship (Gomez 1990, 1991, 1994). Moreover, under the NEP, manufacturing firms with more than 25 employees were required to get a business license, which was not granted unless NEP ownership and employment guidelines were followed. Malays were also granted privileged access to subsidized credit, share ownership, and business opportunities in the private sector (Athukorala and Menon 1997:65). The impact of the NEP was notable. With an average growth rate of 8 percent, GDP doubled between 1971 and 1980. Foreign investment inflows to the export processing zones grew rapidly and manufactured exports expanded at a rate of nearly 29 percent per year between 1971 and 1980 (Linnemann 1987: 369). By 1980, 70 percent of manufactured exports originated in the export processing zones. Yet, Malaysia remained primarily a raw material exporter: manufactures only accounted for 19 percent of total exports. The slow structural changes in industry and export composition were seen as a reason to promote state-owned heavy industry. The first step in this direction was the establishment of the Heavy Industries Corporation of Malaysia in 1980. The government provided the Corporation’s initial capital of USD 57 million and guaranteed subsequent credits at subsidized rates, as well as protection from imports and favorable government procurement. Over the following years, the Heavy Industries Corporation set up several joint ventures with foreign firms, in areas like petrochemicals, iron and steel, cement, paper and paper products, machinery, building materials, and transport equipment. By the mid-1980s, Malaysia had 867 corporate public enterprises, more than a third of which were in manufacturing (Athukorala and Menon 1997:65). Altogether, they accounted for some 20 percent of GDP at the time.   Development and Characteristics of Indigenous Malaysian Multinationals Early Contribution by the Chinese Community According to Shamsul (1997), Chinese migrants flocked into Malaysia since the mid-nineteenth century. Many locals, particularly Malay nationalists, felt that these migrants took away some opportunities that should have been made available to them. The Malay nationalists argued that before the coming of these migrants, including the European colonialists, Malays enjoyed a period of economic independence and were involved in sophisticated commerce dealings. Native commerce, they argued, was arrested and indigenous economic development marginalized by colonial subjugation and immigrant encroachment, hence contributing to Malay economic backwardness. Mahathir, in a series of articles written for the Sunday Times (September 1948– April 1950), also lamented about exploitation done by Chinese middlemen to rural Malays in dealing with property, land, and money issues. This was the time when most plantations, mining, and even the urban commercial sector, was dominated by the Chinese, along with the British nationals.   Dominance by the Government Controlled Torii (1997) remarked that the most salient feature of the mode of implementation of the NEP was, as Tun Razak himself enunciated, the government’s “direct involvement or participation in economic activities” in such forms as direct intervention into the market by state administrative agencies and the establishment of joint ventures using state funds. All existing studies agree that state intervention in the economy was the most important characteristic of the NEP. The second characteristic was that under the NEP, the area of state intervention was expanded from agriculture and rural development as in the 1960s into the industrial and commercial sectors. Emphasis was placed on the fostering of bumiputera enterprises and entrepreneurs in the commercial and industrial sectors. The third characteristic, which reflected the first, was the establishment of systems for the creation of individual Malay shareholders as a means to achieve the goal of restructuring equity ownership in favor of Malays  (Faaland, Parkinson, and Saniman 1990).   Dominance by politically influential businessmen Shamsul classified the Malaysian contemporary elite into two distinct classes: the “old,” manually oriented middle class (e.g., small business people and the self-employed) and the “new,” mentally oriented middle class (e.g., professionals and bureaucrats). The latter is mainly based in big cities, such as Kuala Lumpur, Penang, Johor Bahru, Kuching, and Kota Kinabalu. But the former is based both in big cities and in rural towns and villages. There is a noticeable difference between these two categories of middle classes. Those in the “old,” manually oriented middle class, most of whom are rural based, seemed to be dominated by the rentier kind, comprised of individuals who have little or no previous background in the world of business. Most of them are children of Malay peasants. They or their family members are not seriously involved in business except as “sleeping partners” to Chinese towkays, earning large sums of money as commissions for getting government contracts using their politi-cal positions or contacts. They are between forty-five and fifty years of age, with a secondary school education but an enormous political power base, built at the local level over years of working and living in the rural areas. They became rich and joined the middle class through the business of development projects for the rural poor. Shamsul labeled them as “accidental entrepreneurs” because they did not have any family background or experience in the world of business and commerce nor their children later became entrepreneurs. They struggled and survived to remain in the middle class mainly through political patronage and money politics. In short, their material success was solely dependent on their political success. According to a retired cabinet minister, such politicians will “ . . . continue to buy political positions in order to create more money thus creating more opportunities for himself and his clan to continue to remain in power.” They are caught in a vicious circle of money politics, or, in Frederick Bailey’s term, the politics of “stratagems and spoils.” Shamsul called them the Malay rentier middle class politicians. Their position is described as telor dihujung tandok (literally, an egg perched precariously on a sharp horn), and their success or survival is largely dependent on personal resource, initiative, and deception. Their rise and continued existence as a class of economic and political middleman, who are not highly educated but are extremely influential and powerful in rural areas, survived heavily on patronage politics which now takes the form of money politics within the UMNO (Gomez 1990).   The Evolution of Malaysia-based multinational corporations: International expansion and outward investment Development of Malaysian multinationals Malaysia is becoming a favorite location of multinational corporations (MNCs) for regional manufacturing-related operations, according to Malaysian International Trade and Industry Minister Dato' Seri Rafidah Aziz. Reportedly, as of the end of May 2003, the Malaysian Government has approved 636 representative offices, 335 regional offices, 52 operational headquarters and 47 international procurement centres (IPCs). Rafidah further said that the Government would continue to facilitate foreign firms wishing to established service-related operations in the country.   Distribution of Malaysia Outward investment (1970 – present) According to Ramasamy, Malaysia’s investments abroad is about US$1 billion. A larger portion of these investments (between 57 and 83 percent) have gone to other Asian economies while a relatively smaller portion to the developed Organisation for Economic Cooperation and Development (OECD) economies. Specifically, Malaysia’s investment mainly went to Singapore and Australia. Its investments in other ASEAN economies accounted for about 7 percent.   Experts say that Malaysia's outward investments in the past 12 years have gone on a rollercoaster ride. They began low in number and declined some before rising and reaching its peak. The decline in outward investments, according to many, is due the slowing economy in the United States. They say that Malaysia’s outward investments will only continue to improve only if U.S. economy improves. Present and Future Challenges Ramasamy said that with the advent of globalization, the Malaysian domestic market is only temporary. The true potential of a company, he says, can be proven only if it is not swept away by the currents of globalization. As a matter of fact, firms need not go overseas to compete with foreign multinationals. Many experts agree that local firms should benchmark against successful multinationals and find a niche in the local that these MNCs have overlooked. Moreover, experts said that there is a need to emphasize the need to build on cultural strengths rather than clashing with its weakness. The strong inter-personal relationships that exist in the Malaysian setting, as is in the case of Latin America, need to be capitalized to create a new business culture which will emphasize cooperation rather than competition. This, they said, goes on to say that mindset change can only be acquired by “internal motivation, not by external injection”. In other words, managers have to be convinced that a mind set change is inevitable if they want to survive in the globalization process. Once the commitment is there, the question of how to change is secondary. This can be done by practicing more a democratic style of management and control (for example, listening more to subordinates, allowing more participation and involvement of subordinates etc.) and undergoing relevant training (confidence building, team building etc.).   Summary This literature review provided an overview of the Malaysian economic journey, from the nation’s transformation from the British colonial period, to its shifts in development strategy: from export-oriented to import-substitution industrialization in the 1960s, then returning to export-oriented strategy in the 1970s, and finally, to the establishment of the New Economic Policy. These phases in Malaysia’s economic development were not without the main actors that played major roles in their respective eras: there were the Chinese immigrants in the early days, the government, and the influential businessmen-politicians. The evolution of these Malaysian MNCs were also tackled, specifically their expansion and outward investments. Finally, this review gathered the opinions of economists on Malaysia MNCs potential in surviving the globalization era. With this, experts said that there is a need to emphasize the need to build on Malaysian cultural strengths rather than clashing with its weakness. The strong inter-personal relationships that exist in the Malaysian setting, as is in the case of Latin America, need to be capitalized to create a new business culture which will emphasize cooperation rather than competition. References Athukorala, P. and J. Menon. 1997. Export-Led Industrialisation, Employment and Equity: The Malaysian Case. Agenda, Vol. 4 (1), 63-76. Business Times.2000. Malaysia Gaining Favour among MNCs. CIA World Factbook.  www.odic.gov/cia/publication/factbook/idex.html (9 April) Edmund T. G. and Jomo K. S.1997. Malaysia’s political economy: politics, patronage and profits. Cambridge University Press: Cambridge: United Kingdom.   Faaland, J., J. R. Parkinson, and R. Saniman. 1990. Growth and Ethnic Inequality: Malaysia’s New Economic Policy. Kuala Lumpur: Dewan Bahasa dan Pustaka.   Federation of Malaysian Manufacturers. 2003. The Malaysian Economy. Gomez, E.T. 1990. Politics in Business: UMNO’s Corporate Investments.Kuala Lumpur: Forum.   Gomez, E.T. 1991. Money Politics in the Barisan Nasional. Kuala Lumpur: Forum.   Gomez, E.T. 1994. Political Business: Corporate Involvement of Malaysian Political Parties. Townsville, Australia: James Cook University of North Queensland. Hill, H. 1995, ASEAN Industrialisation: A Stocktake, Paper presented at the Seminar '50 Tahun Indonesia Merdeka dan 40 Tahun Fakultas Ekonomi Universitas Gadjah Mada, Yogyakarta, 15-16 September. Hill, H. 1997. Rapid Industrialisation in ASEAN: Some Analytical and Policy Lessons, Mimeo. Kokko, A. 2002. Export-Led Growth in East Asia: Lessons for Europe’s Transition Economies. European Institute of Japanese Studies. Stockholm School of Economics. Paper prepared for the Workshop on Asia-Pacific Studies in Australia and Europe: A Research Agenda for the Future, Australian National University, 5-6 July 2002.   Lim C. Y. 1967. Economic development of modern Malaya. Oxford University Press: Kuala Lumpur, Malaysia, pp. 230.   Linnemann, H., ed. (1987), Export-Oriented Industrialization in Developing Countries, Singapore University Press; Singapore.   Mohammed, M.  series of articles written for the Sunday Times, September 1948– April 1950. Naya, Seiji, 1988, The Role of Trade Policies in the Industrialisation of Rapidly Growing Asia Developing Countries, in : Hughes, 1988, pp. 65-94. Rahman, S.A. 1970. Revolusi mental (Mental revolution). Kuala Lumpur: Utusan Publications.   Rahman, S.A.. 1986. From British to Bumiputera Rule: Local Politics and Rural Development in Peninsular Malaysia. Singapore: Institute of Southeast Asian Studies. Ramasamy, B. 2000. Gear up for globalization: Practical Guidelines for Managers. Ramasamy, B. and V.T. Viana. 1995. ASEAN’s Foreign Direct Investment into the People’s Republic Of China. Discussion Paper No. 95.12 - September 1995.   Shamsul, A.B. The Economic Dimension of Malay Nationalism -The Socio-Historical Roots of the New Economic Policy and Its Contemporary Implications. The Developing Economies, XXXV-3 (September 1997): 240–61.   Takashi, T. 1997. The new economic policy and the United Malays National Organization - With special reference to the restructuring of Malaysian society.The Developing Economies, XXXV-3 (September 1997): 209–39. Wie, T.K. n.d. Export-Oriented Industrialisation And Foreign Direct Investment n the ASEAN Countries. United Nations University. World Bank.1993. The East Asian Miracle: Economic Growth and Public Policy, Oxford University Press for the World Bank; New York.

Thesis Chapter 3 The emergence and evolution of multinational corporations (MNCs) from Malaysia

Chapter 3 The emergence and evolution of multinational corporations (MNCs) from Malaysia The emergence of Malaysia-based multinat...

THESIS CHAPTER 2 ON DEVELOPING COUNTRY MULTINATIONAL CORPORATIONS: A SURVEY OF THE LITERATURE REVIEW

CHAPTER 2   DEVELOPING COUNTRY MULTINATIONAL CORPORATIONS: A SURVEY OF THE LITERATURE REVIEW                                      2.0 Introduction   2.1 Emergence of Developing Country Multinational Corporations: The Theoretical Explanation of MNC 2.1.1     General Theories of Multinational Corporation   i.              The Pioneering Work of Stephen Hymer: The Industrial Organization Theory ii.            The Transaction Cost Theory to the Internalisation Theory iii.           The Product Life Cycle Theory iv.           Dunning Eclectic Paradigm v.            A Selected View of MNCs Theories: FDI and Country Development   IDP and Stage Theory: Side by Side   2.2 the Emergence and Evolution of Multinational Corporations: from developed Country: the Theoretical Explanation       The origins of trade and industry are innate to the history of mankind who, as soon as he learned to walk on his two feet, discovered the value of moving in teams and packs similar to the animals they hunted for food back in the prehistoric times. As humans became more civilized, they developed the social order which only humans can do as rational beings. Within the social order, man developed the underpinnings of society through roles, protocol, work assignments, rights, duties and responsibilities thereby creating the human society. As the societies’ functions were initially internal and for survival, roles and functions revolved around these. Later, and with sporadic contact with other like small societies, human beings blended into a more homogenous community with slightly altered roles until the land and its resources which they occupied could not be cultivated to support the lifestyle of the community – thus communities tended to be nomadic until they found a place that could sustain their livelihood while maintaining contact with the outside world: the river systems.   The roadmap that history presents to humankind was born on the riverside: these were considered the highways to the rest of the world and this is why such waterways as the Ganges, Mississippi, Rio Grande, Panama Canal, the Chinese Yellow River, the Amazon, Hudson and Nile, among others, have never lost their places in history. These water highways paved the way for indigenous goods per tribe or civilization to be traded with other cultures, other tribes – other nationalities. The galleon ships of Spain and Portugal, the Chinese merchant junks as well as the dreaded sea pirates were proof that there was riches to be found in the water-based commerce. However, a system had to be in place to facilitate the trade such as the discovery of the barter concept, and later the concept of currency which was usually salt, gold or common precious minerals. These later evolved into more complex economic principles – such as overseas trading.   As early as 2500 BC, Sumerian merchants found in their foreign commerce that they needed men stationed abroad to receive, to store and to sell their goods. The famed conquistadors of the Indian people – the British – had their East India Company chartered in London during the 1600 and established branch overseas. The mid-seventeenth century saw the English, French and Dutch mercantile families sending relatives to America and the West Indies to represent their firms. It was only in due time that the American colonists discovered in their own foreign trade that it was desirable to have agents and, on occasion, branch houses in important trading centers to warehouse and to sell American exports.   History also describes the Virginia Company which was chartered in 1606 by King James I to establish the first permanent English settlement at Jamestown as “the first foreign direct investment in America” which went bankrupt by 1624. The period of 1875-1914 is identified by historian Mira Wilkins as “the rise of truly large-scale foreign investments in the private sector” including “more foreign direct investments than most subsequent commentaries have recognized”. Wilkins identified two types of these investments as one being a carrier of potentials for control but having a fragile if not negligible home office with little capacity beyond that of raising capital while the other one would be more akin to today’s multinational companies which provide extension of a company and its operating organizational and competitive advantages.   The domains where multinationals were normally involved in where in railways, mining, tramways, water, gas, electricity, banking, insurance, finance, land plantations and even manufacturing – most of them being infrastructure projects that one can see as key operational and competitive advantages of the developed nations during the industrial revolution. These infrastructure projects have been conceived with the ancient concept of trade in mind. The key transport systems of railways and tramways were mere conduits of transferring the produced goods from the farm to the international marketplace via land, sea and later, by air in the different ports. The infrastructure and distribution projects of water and electricity made sure the production of the goods were done efficiently and with proper irrigation, power and electricity. The financial intermediaries made sure the working capital for the farm and manufacturing sectors during the industrial revolution were kept in place while the continuous mining of precious elements ensured the valuation of the loans as well as financial instruments were viable when presented to the market. By adopting this complex interplay of strategies of the developing countries during the industrial revolution, the world as we know it today is composed of countries that have been able to implement properly said strategies and become developed countries. Of course, the strategies would not have had their share of losses particularly during a time when there was a need for strong political will, a dedicated and committed leadership as well as conducive cultures and natural resources able to support such strategy. It can be seen in other countries that tried the same strategy but lacked a strong leadership or a favorable culture – even a country that can accommodate laying the back-breaking groundwork for railways and telecommunication lines especially within intense warring factions or geographic and archipelagic constraints: that the strategy had to integrate with the nation’s strengths and abilities to be led toward development.   The American and European economies were at the forefront of the industrial revolution – with capital intensive projects focusing on enhancing the competitive advantage of their nations and a rich source of natural resources, they were able to perfect their craft within their backyard using their own indigenous resources. They each propelled their economies through public flotations, bonds, money market placements, financial derivatives including options and securities although records other than these such as the Latin American and Asian economies, particularly those of China and Japan, have not been considered in the literature of US economic history. The American and European development model was grounded on very strong antitrust policy, market competition and private ownership. However, the industrial giants of the time also realized that with their exploding economies and advances in sciences and the arts, their intrinsic local natural resources could be imperiled which led them to exploit and look outward: their immediate neighbors and more importantly: their colonies. The American and European colonies at that time were very rich in key ingredients for the expansion of the industrial revolution not only within their boundaries but to outside territories as well. The arrogance and pride of the white race coupled with their more advanced weaponry and gadgets made a formidable stance versus the colored race of the rest of the world.  The stance which also set the US and European counterparts from the rest of the world was their perceived supremacy and management of this perception vis-à-vis other trading partners, even those it did not trade with always had a fair share of market perception of the Caucasian traders from its other contemporaries who may have traded with the whites.   The era of puritanism especially in the conquest of the whites over the Indian inhabitants of the virgin Americas as well as the issue of black slavery during the two world wars was very pronounced and provided a strong backdrop to the statement that British, American and European supremacy, although hinged on a gentleman’s agreement amongst themselves, was pervasive and affected the growth of their respective economies although history proves that as each party adopts its own strategy i.e. America becomes unifies its domain to become the United States of America (hereafter referred to as USA in this chapter) while the British adopts a monarchy controlled by Parliament and Europe adopts the more laissez faire style amongst its member countries and each country strategy has its own resultant socio-political economy.   The American and European economies are largely developed economies and as such have much to protect which is how the propensity to create a strong military competence arose. The Depression in the 1930’s was a result of the absence of any real threat to the ballooning economy of America and Europe that overindulgence and overspending contributed to an overheated economy thereby reducing the value of such revered assets as mining inventories, precious metals – most of which undermined the commercial value of the marketplace.   Given that the developing nations were expanding their territories across the globe, seeking more indigenous cultures to conquer and annex, the developing entities created two power blocks: the Central Powers of Germany, Austria and Hungary versus the Allied composed of Britain, France and Russia. Their respective alliance structures, imperial rivalries and mutual distrust escalated a minor conflict into the Great War struck at Sarajevo during the assassination of Austrian’s crown prince sometime in 1914. It was only when the Central Powers downed three US merchantmen three years into the war that the USA sided with the Allies. The sheer number as well as firepower of the US contingent contributed to a compromise for peace resulting in the oppressive Treaty of Versailles in 1919, imposing stringent sanctions on Germany and the rest of the Central Powers.   After the momentary peace offered by the respite from the previous world war – despite being localized in Northern American and European territories, the industrial revolution continued to bear much industry to the extent of easy credit leading to widespread stock speculation in local and offshore activities, having not fully recovered from the war. Further, economic policies under the English and European economies created domestic overproduction and less foreign trade resulting in the implosion of the Great Depression for the respective countries as well as for the whole North America and European states. It was during this time that the Allied forces were perceived by the embittered Germans regarding the sanctions of the Versailles Treaty that launched the second World War – and that helped the English economies, particularly the Americans, to recover using military and defense spending.   Slightly prior to these events in history, a small archipelago in the Southeast Asia was slowly studying and imbibing the developmental models of its bigger contemporaries in the Northern hemisphere of the globe. Japan was rising from a largely feudalistic society with shoguns and warlords keeping the governance of its empire and evolving into a Meiji empire or “enlightened rule” where intellect and learning was sought throughout the world in order to establish the foundation of the empire. Japanese rule was a combined effort of government and businesslike commitment to adopted strategy by all sectors of society. With surprising perspicacity, Japan saw that military strength, which was one of their objectives, depended on industrial power, technical knowledge, and administrative efficiency and that it would not be enough to merely acquire Western armaments. Thus, they embarked upon a broad and intensive program of economic, political and even social reform with impetus mainly driven by the government. The Japanese borrowed several models from the developed countries: the French prefectural system of local governance, the German national railway system model versus the local-based railway system of Western countries, the German national and excellence training for technology and engineering, the US banking model of having several national banks issuing business notes and currency versus the British central bank model where only the central bank issues said notes and currencies to control the inflation and lastly – the penchant for total quality excellence in production of US Industrial Engineer William E. Deming in the early 1950’s. Of the four borrowed models, it was the US banking model that failed for Japan after the Bank Act of 1872 which spurred several expensive rebellions for Japan and resulted in a restructured banking system. What followed was a depletion of natural resources particularly gold, silk and tea which enamored the British colonizers in the first place amidst farmers and working class who took to more luxurious lifestyles given their previous victories in economic policy improvements. This was when the capital-rich Westerns loaned finances to simple Asiafolk such as Japan in order to indebt the country and become a de facto annex to its burgeoning empire.   When the Germans launched their offensive on the weakened economies and spirits of the western world, they used superior weaponry, blind-loyalty to the supremacy of the Aryan race and a promise of rich spoils for its allies – among which was debt-ridden Japan. Further that the Great Depression intensely affected Japan due to its borrowed banking and financial model that was interpreted by the anti-American Japanese as a devious and underhanded manner of acquiring an ally thru indebtedness unlike the Germans and the French who allowed relative freedom in letting Japan adopt its accordant operational model of railways and governance respectively. The effects of World War 2 left deep scars in the German and Japanese economies in 1945 – one of which was used by Japan to heal itself quickly and surpass the growth of the world developed leaders to become one of them.    A key component of the war’s aftermath was the agreements made between Japan and the victorious countries. Concern with US reactions did not prevent some Japanese from desiring to amend their new constitution – particularly the contentious provisions that made not the emperor but the people – sovereign, and that denied Japan the right to wage war. A resultant budgetary savings from military resources was immediately realized compared to other recovering economies. The war also enabled the spectrum of political parties within Japan to be one of two: the Liberal Democratic Party (LDP) and the small but growing Communist party. The previous efforts to broaden the educational system in Japan proved instrumental in rebuilding Japan and fueling its miracle growth during the postwar era. The previous cooperation between government and business was strengthened by lessons learned in the war and the Ministry of International Trade and Industry (MITI) evolved to be the cementing factor between government and the large family-owned businesses called zaibatsus which were similar to the Korean chaebols. Government was given a very deliberate role in focusing on which economic policies to pursue, which industries to develop, and which ones to cease supporting – all of which were followed and supported by the zaibatsus. Government and zaibatsus determined the basic industries and goods that had to be protected which included rice and staple food items attributable to its culture. Strong protectionist policies were set up as well as complex tax and distribution schemes which were applied even to later Japan-exported value-added products such as VCRs, tape recorders, and the like.   One of the industries severely affected by the war was the steel industry which was maximized by the Japanese in making weapons and armaments. These were now highly unutilized but presented a key component in Japan’s economy resurrection. Japan saw the opportunity for building not only its foundations and infrastructure but also those of others affected by the war. With the penchant for discipline and excellent workmanship which was augmented by the Total Quality Management principle from an American who was rejected by his own countrymen, W.E. Deming taught the Japanese the tools of zero wastage, effectiveness and efficiency in production, manufacturing as well as in basic service industries, Japan’s leaders saw the opportunity to use its steel industry components as building blocks to economic supremacy. From being a swollen military production facility, the steel industry produced high quality metal for shipbuilding, skyscrapers, houses, automobiles and airplanes. The grade and quality of the steel outstripped those coming from the US and German counterparts, being more bulky and heavy. The technological training of Japanese students abroad applied their skills in Japan’s steel mills churning slabs and sheets of metal – importing their raw materials from around the world and adding value by using already existing and continuously improving production facilities and practices. Parallel to this, the Western counterparts were experiencing postwar boom in terms of sale of preventive firearms – those which would be used only for last resort purposes based on agreements made after the war. World economies also progressed under the cloak of peace and the start of the cold war simply made the viability of weapons manufacture a continually viable economic activity.   In this context, the multinationals of the West and those of the East had key characteristics: the West had the more sophisticated technology and mass-produced commodities being marketed to the whole world where most were still annexes of its previous conquests but made legal under the operation of law while the East had more direct-materials and indigenous products that were marketed usually through western intermediaries. However, Japan, among the Asian countries, was exceptional since it went beyond its core competitive advantage of high-quality grade steel making, distribution, procurement and pricing by moving into higher value-add manufacturing such as technology and automobiles. Of course, the accompanying shortages in food, energy, raw materials and foreign exchange and the rampant postwar inflation led forced laborers from Korea and China crippling the nation’s coal industry which in turn threatened the manufacturing and transportation industries and increased the country’s dependence on imports. Since Japan’s chief sources of raw materials: China, Manchuria and Korea, were closed to Japanese trade postwar, Japan had to turn to western suppliers who were more expensive and usually required letters of credit from western-accredited Japanese financial intermediaries. This was the situation of Japan as it deliberately focused on its steel industry.   By 1975, Japan produced 113 million tons of crude steel, approximately 16% of world steel output or 20% of all world steel exports done by its zaibatsus - an amount approximately equal to US steel production that year which indicated Japanese steel industry’s phenomenal postwar growth and development. The US could then feel the emerging dominance of a country which was able to pay its international debt, pull ahead of Britain, France and West Germany in terms of GNP, develop a world-respected work-ethic and limited imports to only the most essential products. By 1983, Japan had the unique problem of an unprecedented large world trade surplus which was fueled by the growth of three key industries in Japan: steel, electronics and autos. By 1987, Japan registered a nearly one hundred billion trade surplus, the largest surplus for any country in history which was offset only by and equivalent amount in long term capital outflows per annum.   Fast forward to the present time, the emergence of American and Western multinationals may have been explosive during times when strong military spending was important – even as recent as the September 11 attack on the Twin Towers where smaller nations have expressed inadequacy of their superior’s ability (US) to protect itself, how much more can it provide for other less developed countries? Although the technology aspect has always been the compelling advantage of the western world, its application for the defense and monitoring tasks of governance are largely attributable to military applications, despite the erstwhile commercial functions its has been touted to perform. As for the Japanese emergence of its indigenous multinationals, they have focused on the commercial and higher value-add commodities such as electronics and automobiles, veering away from the basic industries which could be copied by similar emerging economies as had been done by Korea which focused more on shipbuilding than automobiles given its accessibility to nearby ports and given an inherited competence from the postwar era. Given that the Japanese were highly disciplined and trained in quality management, they countered the American atomic bomb in Nagasaki and Hiroshima by unleashing the economic bomb in the US by virtue of their adaptable constituency and economic prowess – to become the economic superpower of the 1980’s.   2.3 The Emergence and International Expansion of Developing Countries Multinationals: Theoretical Review (i)            The Emergence of Developing Country MNCs: The ‘First Wave’ of Literature (ii)          The Expansion of Developing Country MNCs: The ‘Second Wave’ of Literature   2.4       Summary of the Literature on Developing Country Multinationals   2.5 the Comparison of Multinationals from Developed and Developing Countries (i)            Behavior and Characteristics – Multinationals in Developed and Developing Countries exhibit the basic behavioral components and characteristics in their commercial objective: to engage in commerce beyond their sovereign borders where such economic activity shall net a favorable return of expenditures on the said overseas investment.   The timeline of history has shown that trade and commerce have always had the resultant beneficial outcome in mind for the owner of such proposed transactions. The proactive party has historically occupied the position of power in negotiations of transactions thereby resulting in a net gain compared to the more passive recipient of the transaction who, although may gain from the deal, such gain may not be comparable to that of the initiator. To illustrate, developed countries are assumed to have more mature infrastructure systems: physical as well as intellectual and legal infrastructure. Their characteristic penchant for banding together and leading cooperative efforts stem from the basic learnings of history that more heads are better than one especially in a collaborative effort where it is clear that the positions of power will benefit the most and ably determine the outcome to their advantage. Thus, the GATT, WTO and United Nations, among other collaborations, develop from painful losses in the world wars and use the operation of common law – despite and in spite of sovereign laws governing each nation in the world. The developing nations are thus at a perceived disadvantage in that by operation of law and of peer pressure to be admitted into the communities of countries participating in world trade, they have to be accredited, accepted and vouched for as if in an old boy’s exclusive club or even the pre-pubescent treehouse of western boyhood years.    Multinationals in developed countries are perceived to be remnants of the time when the human race was starting to master its world – thereby gaining first to market strategies which also carried the priority rights over discovered channels or complementary systems or products to their already expanding empire. The general characteristic and behavior of western multinationals were therefore expansive in their focus rather than complementary given that their innate culture was one of annexing, expanding and colonizing – gaining for itself for the pure purpose of ownership, expansion and exploitation. It is only recently with the resurgence of globalization, wide media coverage and more benevolent multinationals that aspects such as corporate responsibility and commitment to community development are being imbibed. These shall be discussed further in the succeeding section.   (ii)          Business Strategies and Performance – It should be considered that Developed Countries were Developing countries at one time and while applying similar strategies, the variable factors such as timing, leadership, resources and environmental conditions at the very least could spell the difference from a successful implementation of business strategies or a failure.   The previous section mentioned about the expansive focus on the strategies of multinationals from the previous developed nations – which have been stymied by the globalization and digitization of technology that enables an idea to be spread at the speed of thought throughout the world in an instant. Multinationals at this point have blurred – either deliberately or not – since the world has sensitized itself to the sins of the past which dealt with racism, prejudice and divisive behavior. Multinationals have been defined by ownership in the past although by virtue of globalization, the boundaries have blurred except for a few who remain to be very strong at certain localities particularly when location is a prime competitive advantage for the multinational company. In the past, western multinationals were very aggressive in adopting international strategies mainly for expanding their market and searching for low-cost production facilities outside their expensive factories. This still takes place particularly for labor and basic capital outlay projects that do not require much technology or infrastructure dependence such as the migration of factories into the sweat-factories of China, Tibet and Latin America. However, for multinational operations that require more coverage in terms of market, a sophisticated but lesser costing area of operations, business process outsourcing of non-core competencies, coupled with strong infrastructure but relatively accommodating legal systems – plenty of potential multinational sites fall into this category. This is the current strategy being adopted by a more sensitized developed country with multinational expansion plans – or even transplanting plans similar to when many multinationals transferred their regional headquarters from Hong Kong to Singapore before the turnover to China in 1997.   The current strategy of multinationals, both from developed and developing countries, is to be more sensitive to a globally politically correct way of setting up and dealing with its multinational efforts. Whereas the less competitive times during the early 1900’s to the 1980’s offered countries and companies to adopt industry specific strategies without regard for the others, or core-competency of business dictating economic development, versus technology driven or even human-capital competency strategy, the 2000’s offer similar but more niche areas to develop since the developed countries have led in the development of the more basic areas and that more value-added industries and activities are needed to spur the next leapfrog in world economic development.   As presented in the beginning of this section, the same business strategies may be in play but the how, in what context, who is playing the cards and other variable factors should be considered but with a similar viewpoint that Japan did after the war: it gave itself an honest appraisal of its strengths, weaknesses, opportunities and threats, plus a key factor of its strong government-business cooperation that withstood the restructuring challenges in order to attain Japan’s collective vision. In essence, the success of Mitsubishi, Sony, Toshiba, Toyota, Nissan and the other initially Japanese-born zaibatsus who are in their own right multinationals with co-owners in the United States, England, and Britain – is the success of Japan.   (iii)         Structure – Business sense dictates that the structural bias of a multinational depends largely on the purpose for which it was set up. The developing countries’ multinationals were set up vis-à-vis the legal parameters available during that time which were: agencies, sole proprietorships, partnerships and corporations. Any multinational office or branch would fall within the confines of these legal structures, differing only in the description of the main purpose in the area of operations. The usual office structure of owner and worker was embellished as time went by given the different mandates of the overseas offices. Most of them also took off from the military hierarchy where a chain of command and accountability was established for reportorial, monitoring and management purposes of satellite offices. In fact, the first multinationals were military outposts that had to be outfitted with defensive measures in case of hostilities. The evolution of this structure came to pass as the industrial revolution necessitated more productive hands, feet, and parts of a persons body that could be employed to produce a good for commerce. These were later replaced by machines and automation until the term systems became all encompassing as descriptive of monitoring and management tools.   Present day multinationals have blurred in ownerships since the strategies employed were not for mere operational efficiencies but also, as offshoot of being business entities, for tax efficiency purposes. In this sense, a multinational can be set up to be in the tax-haven areas of the Bahamas or Cayman Islands but actual operations in a low-cost Asian locale with marketing and sales in the Western hemisphere and human resource a combination of tax-haven/flexible taxation locale in South or Latin America. Regardless, the multinational is still dictated where the seat of power resides: and that is a philosophical debate this paper does not intend to discuss.   2.6         Conclusion and Research Propositions In view of the above criticisms, this thesis adopts a non-comparative approach in analyzing and examining the expansion and development of indigenous Malaysian multinational corporations. It seeks to understand the mechanism that allows the selected firms to strengthen their strategies and core competencies in order to become a respected global player. In essence, this thesis proposed (as discussed in the proposal in chapter 1) that the developing country multinational’s strategy in competing with their competitors is not solely dependent on the technology accumulation process, as has been suggested by the conventional literature on developing country multinationals, but it is also dependent on the variety of resources and other advantages enabling their growth at home and on the international level. This portion of the discussion has also shown that strategies which may have worked before for other countries and multinational corporations may not work for the emerging Malaysian multinational since other factors which are yet to be discussed in the remainder of this paper have to be seriously considered in drafting the combined strategic plan of Malaysian Multinational Incorporated.   References: 1.    Multinationals and the Developing Countries, Louis T. Wells Jr. Journal of International Business Studies, Vol, 29 Issue 1, 1998 2.    Report from Japan 1972 – Part II. Herbert P. Bix. Bulletin of Concerned Asian Scholars. Vol 4, Issue 4, 1972 3.    How MNCs choose entry modes and form alliances: the China Experience. David K. Tse, Yigang pan & Kevin Y. Au. The Journal of International Studies. Vol 28, Issue 4, 1997 4.    Uncertainty, imitation, and plant location: Japanese multinational corporations, 1990 – 1996. Witold J. Henisz & Andrew Delios. Administrative Science Quarterly. Vol 46, Issue 3, 2002 5.    Multinational Corporations. John Stopford. The Foreign Policy. Issue 113, Winter 1998 6.    Multinationals, Intracorporate Competition, and Regional Development, N.A. Phelps & C. Fuler. Economic Geography, Vol 76, Issue 3, 2000 7.    Statistics on Foreign Direct Investment and Multinational Corporations: A Survey. Anna M. Falzoni. University of Bergamo, Centro Studi Luca d’Agliano and CESPRI, May 15, 2000 8.    Foreign Direct Investment and the operations of multinational firms: concepts, history and data. Robert E. Lipsey. National Bureau of Economic Research, 2001 9.    Expansion Strategies of US multinational firms. Gordon H. Hanson. National Bureau of Economic Research, 2001 10. Foreign Direct Investment in the Restructuring of the Japanese Economy. Magnus Blomstrom, Denise Konan & Ronal E. Lipsey, National Bureau of Economic Research, 2000 11. The Development of the Japanese Steel Industry. Patricia A. O’Brien, Harvard Business School, Harvard College. 1987 12. Japan: The Meiji Restoration. Audrey T. Sproat, Harvard Business School, Harvard College, 1974 13. Japan: Confronting Economic Maturity? Patricia A. O’Brien, Harvard Business School, Harvard College, 1988 14. University of Berkeley Online Library (www.lib.berkeley.edu/)

THESIS CHAPTER 2 ON DEVELOPING COUNTRY MULTINATIONAL CORPORATIONS: A SURVEY OF THE LITERATURE REVIEW

CHAPTER 2 DEVELOPING COUNTRY MULTINATIONAL CORPORATIONS: A SURVEY OF THE LITERATURE REVIEW ...

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 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...