Malaysia in the Era of Globalization #36

By M. Bakri Musa

Chapter 5: Understanding Globalization (Cont’d)

Missing the Japanese Lesson

In truth many misread the Japanese success story. As Harvard’s Michael Porter observes in his book, The Competitive Advantage of Nations, the successful Japanese companies that now dominate global markets – the Sonys, Olympus, and Toyotas – had survived rigorous competition at home. They competed aggressively among themselves and only the most vigorous, those who have mastered the art of satisfying their customers and reducing the costs, go on to conquer the world. Meanwhile their “protected” industries – their banks and other financial institutions – are wallowing in misery, unable to compete beyond their shores.

As a result of its commitment to foreign trade, Malaysia enjoyed a boom in direct foreign investments in the 1980s and 90s. These later investors were chiefly in manufacturing, especially semiconductors. They were welcomed because, quite apart from the employment opportunities provided and foreign exchange earned, they spread the “Made in Malaysia” brand names worldwide. Malaysians also discovered that being a factory worker, even a foreign-owned one, was much more agreeable to working the land under the blistering sun. Indeed those foreign employers, yes even those companies owned by our former colonizers, were much more enlightened and generous with their benefits than native ones!

Thus it was a no-brainer for Malaysian policymakers to welcome foreign investors even if it that meant abandoning long accepted dogmas. For example, during the recession of the mid 1980’s, the government saw fit to relax the stringent rules on Bumiputra ownership and employment in order to attract foreign investors. Foreign investors were now no longer derisively labeled as capitalists or exploiters of workers; rather they were much-welcomed employers and contributors to the nation’s well being.

Having seen the tangible benefits of direct foreign investments and trade, Malaysia felt encouraged to liberalize further its markets. The initial steps were tentative and tepid, and consisted of mainly dismantling the massive barriers and tariffs. Later, foreigners were allowed total ownership of enterprises that catered exclusively for exports.

Remarkable things happened. For one, local industries forced to compete with imports were now producing better quality products. For another these investors, especially the Americans, transferred their superior technology and expertise onto local hands. These early successes emboldened the government to free up other sectors like financial and capital markets. Local companies could now tap foreign capital and likewise, foreign funds could flow easily into Malaysia. These liberalization steps notwithstanding, the government still controlled the financial sector and other “commanding heights” of the economy.

With the subsequent free flow of capital, Malaysia took off. With foreign portfolio managers now tracking the local stock market, the Kuala Lumpur Stock Exchange (KLSE) index zoomed; so too the local economy, especially real estate, fueled by the easy availability of foreign loans. The skyline of Kuala Lumpur was reshaped almost daily with the sprouting of new skyscrapers. Foreign lenders, smitten by their earlier successes, were rushing to lend lest they would be left out of this latest El Dorado. The herd mentality took hold, with money managers compelled to seek borrowers in Malaysia. Every little project could now get funded regardless of its economic sense.

Alas, all that came to a crushing halt with the economic crisis of 1997. The bubble burst.

For Malaysia the end results were essentially these: its currency devalued by about 40%; economic growth sputtered; and its high-flying corporate players grounded. But the most significant casualty was that the tentative liberalization steps came not only to a crashing halt but were reversed. Malaysia instituted strict capital controls and declared its currency illegal abroad. The economic consequences were severe enough, but the more significant impact was on the collective Malaysian psyche. Foreigners are now looked upon again with deep suspicion; viewed as the new colonizers and as the cause of the crisis.

There is no shortage of analyses on this crisis. But economic post-mortem lacks the certitude and finality of the medical variety. The debate continues. One feature is not disputed – the distrust of foreigners resurfaced.

The seeds of such suspicions however, had been sown much earlier, during the liberalization phase and the coming of the third wave of foreign investors. This third wave, symbolic of globalization, was made up not of planters, miners, or manufacturers as with the first two waves, rather of “knowledge workers.” To use the phrase of President Clinton’s Labor Secretary Robert Reich, they are the highly valued “symbolic analytic” workers: consultants, professionals, investment bankers, venture capitalists, and others. Their services were already highly developed and efficient in the West; thus they targeted the vast virgin territories of the Third World for their next conquest.

What galls Malaysia and other developing countries is that unlike earlier investors who seemed to bring tangible beneficial results to the host nation, these later investors appear to just rake in the profits. Western bankers and portfolio managers would invest in Malaysian companies, reap the profits, and then move on. To the uninitiated, they appeared to come into the market, speculated on some shares, and then walked off with their bounty. What Malaysians did not realize was that these foreign funds buoyed the KLSE index and the shares of many local companies. With the increased value of those shares these companies could leverage their equities to get even more loans. But when the crisis hit, foreign investors fled, chased away by among other things, capital control.

The KLSE tanked, losing nearly 80% of its value in dollar terms. Companies that had leveraged themselves precariously had to unload their shares. That in turn created a downward pressure on stock prices. Nearly five years later the KLSE index is just barely halfway up to its highest point just before the crash. It will remain sluggish until foreign money returns.

This third wave of investors brought with them only their superior skills, symbolized by their ever-present laptops. Although their services were needed badly, they also ended up exposing the inadequacies of local talent and institutions. Thus when these new foreign enterprises easily captured local markets with their innovative products and superior services, their local competitors were reeling. When Citibank issued credit cards and consumer loans to civil servants based solely on the security of their job (a niche hitherto ignored by local banks), not only was it a huge success but it also irritated local banks. As the government and members of the ruling elite own these local banks, it did not take long before Citibank would be accused of unfair competition, and legislations introduced to curb its expansion.

This scene would be repeated with other financial institutions like brokerage and insurance companies, as well as other sectors. The professions too were quick to jump in to curb the inflow of foreign experts, under the pretext of maintaining “local standards.” The Bar Association was making threatening noises when the government was planning to open up the legal service to foreign competition. When the prestigious multinational law firm Baker & McKenzie was contemplating a branch in Kuala Lumpur, there was a huge outcry from local lawyers. Never mind that the vast majority of local firms are nothing more than one-lawyer operations and thus cannot even begin to comprehend the needs of modern multinational corporations. Nor are local lawyers trained in the intricacies of international law, or familiar with the new financial products and services that are being hawked by these new companies of the K economy. Fields like cyber laws, patent laws, and intellectual property rights that are the concerns of the new economy are not even taught in local law schools.

Instead of looking at these foreigners to upgrade local services and skills, Malaysians (agitated and aided by their leaders) view them instead as rapacious predators. There is mortal fear that the likes of Citibank and Bank of America if left unchecked would devour local banks. Similarly, the Merrill Lynches and Charles Schwabs would wipe out the country’s creaky and inefficient securities industry. Money managers like Fidelity and Templeton Funds, with their aggressive marketing and efficient services, would crush local competitors. The fact that local consumers prefer these companies with their more superior services and products is completely ignored by the authorities.

Malaysians, like consumers everywhere, look for the best value for their hard-earned cash. They could not care less who provide the services. But the authorities, stuck in the old school of economics and unable to unshackle themselves from their nationalistic mentality, insist that banks, insurance, brokerage firms, and other commanding heights of the economy remain under local control.

Like their manufacturing counterpart earlier, the local financial sector was protected from aggressive foreign competition. And just like the earlier manufacturers, the finance sector remains flabby, inefficient, and poorly managed, unable to graduate to the next level that increasingly sophisticated Malaysians have come to expect. Thus while international banks could clear foreign money drafts almost immediately, local banks would take weeks, all the while profiting from the free “float” at the expense of customers.

Next: Trading in Money

  1. #1 by dagen on Thursday, 14 October 2010 - 10:11 am

    Hold your tongue one second bakri. Lets go local first.

    Read the chinese paper this morning. Floor slab in a certain alor setar primary school caved in and injured several primary school kids.

    Umno, where is your priority? Stop feeding and fattening cronies with mega projects and start looking after the people with better schools, secure busses/coaches and safer neighbourhood.

    Err but pls leave cintanegara out. He has his rambutans.

  2. #2 by BoycottLocalPapers on Thursday, 14 October 2010 - 11:28 am

    Mahathir’s Look East Policy can’t work in Malaysia because the majority of Malaysians prefer to look to the Middle East.

    Many Malaysians prefer to send their children to religious schools in Pakistan or Arab countries instead of sending their children to study in pork-eating countries like Japan and South Korea.

    When non-bumiputeras are getting better jobs than they do, they will become envious and jealous of the non-bumiputeras.

    The government should stop giving scholarships to students who are taking useless courses that could not contribute to the development of Malaysia.

  3. #3 by k1980 on Thursday, 14 October 2010 - 2:17 pm

    Sorry to be off-topic but it involves the lives of innocents

    Project the speedometer reading of the bus onto a screen in front of the bus so that passengers can read it. Also hang a hammer on the front seat so that the passengers can use it to knock out their speeding driver.

  4. #4 by k1980 on Thursday, 14 October 2010 - 3:00 pm

    After “mahatik the musical”, we are having the a one-act propaganda show “1malaysia 1 sandiwara 1 facade”

    facade= An artificial or deceptive front: ideological slogans that were a façade for geopolitical power struggles.

  5. #5 by boh-liao on Thursday, 14 October 2010 - 3:58 pm

    Our Loh Si Mah has been busy promoting herself as d 1st Lady n busy acting as a world leader n path setter, leading d inaugural First Ladies Summit (gobalization mah)
    Looks like she managed 2 con first ladies (real ah?) fr Africa to attend d Summit
    Wonder who paid 4 d Summit? Loh Si Mah’s own pocket or taxpayers 2 syiok herself?

    Loh Si Mah is mad with Forbes magazine n may ask NR 2 ban its sale here
    How dare Forbes magazine ranked Michelle Obama as d most powerful woman in d world
    N Loh Si Mah was not even ranked in d world’s 100 most powerful women, celaka Forbes

    Well, wait 4 Forbes list on politician wives n C4, still got chance lah

  6. #6 by Loh on Thursday, 14 October 2010 - 8:57 pm


    Did the First Lady of Malaysia, the Permaisuri Agong, attend the first lady summit?

  7. #7 by dagen on Friday, 15 October 2010 - 8:42 am


    Ya. Ya. She attended. Our First Lady Raja Permaisuri Agong Fat Mama Ros was there.

  8. #8 by raven77 on Friday, 15 October 2010 - 9:39 am

    Its the jagoh kampong thingy…

    Local standards must be..err…maintained..even if it is drafted by gobloks and monkeys..

    When Citibank and Al Rajhi lent directly to civil servants even if they were bankrupt, CTOSed or CCRISed…..they did their research right by holding onto the security of their jobs…

    The same civil servant who approaches Hong Leong, RHB, CIMB, etc etc etc…will be shown the door because the clerk..(yes the clerk)….at the counter caught the blink on the computer screen that the potential borrower has a CTOS entry….never mind that it has been paid eons ago….but as long as you have the entry…blacklist! No lending…Fine…

    Why then complain if HSBC, Stan Chart, Al Rajhi, Citibank lend, monitor, help the borrower and eventually have their money returned with a profit to boot….?????

    Our local banks have now created a massive property bubble that will burst sometime next year.dont know if Malaysia will survive that…

    Jagoh Kampong and the referee is the maha penghulu…Ibrahim Perkasa….

    If Penang, Sabah or Sarawak declare independance…people will immediately migrate to these new countries….

  9. #9 by k1980 on Friday, 15 October 2010 - 11:22 am

    #8 by raven77

    South Sudan is going to break away from Khartoum and become independent in 2011.

  10. #10 by loveandgratitude on Friday, 15 October 2010 - 12:26 pm

    Malaysia Brain Drain is Singapore, US, UK, Australia, NZ, EU, China, India, Etc GAIN.

    Malaysia should be STANDING TALL amongst China, Japan, S Korea, Singapore, HK, etc in ASIA by now, if…….only…….. TDM was Enlighten enough during his reign of 22 long years. Sigh!

  11. #11 by JohnMathew on Friday, 15 October 2010 - 1:55 pm

    The stock market Malaysia operations continued as the Stock Exchange of Malaysia and Singapore (SEMS) after Singapore seceded from Malaysia in 1965.


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