Malaysian automotive industry - the way forward
IT IS customary that the economic transformations among developing nations will follow the sequence; from a state-managed economy and privatization of major state-owned services to market liberalization and finally to a globalized economy.
Malaysia began to transform its economy with the implementation of The New Economic Policy (NEP) in the early 1970s while the nation was still a resource-based country depending largely on its rich natural resources; rubber, tin, timber, oil, etc. The NEP envisioned a just social and economic transformation to elevate poverty as well as the fair sharing of the nation's wealth among its populace.
Tertiary education for the young was instrumental as a means to expedite the economic transformation while agricultural activities were intensified and unused land was acquired for palm oil production. Progress made during the 1970s' era set the foundation for further economic transformation to take place beginning 1980.
Most economic activities then were centered in Peninsular Malaysia where land was limited for extensive use in the agriculture sector, such as palm oil. And with the growing number of highly-educated youngsters towards the end of the 1970s, the nation needed to create more employment opportunities in other sectors.
Industrialization was the obvious choice in order to provide more jobs for the highly qualified younger populace, many of whom were science, engineering and business-related graduates. The inception of the "Heavy Industry Corp of Malaysia" (HICOM) in 1980 to spur iron and steel manufacturing in the country marked the beginning of Malaysia's industrialization process as well as the privatization of the Malaysian economy.
Subsequent establishments of downstream assembling industries such as Proton Holdings Bhd, and later Perodua, HICOM-Honda, HICOM-Yamaha and Modenas were with the objective of consuming the iron and steel output and other resource based manufacturing within the country. Small and medium industries mushroomed transforming raw materials into parts and components required by the assembling industries.
In support of the industrialization process, under the "Malaysia Incorporation" concept, state-owned utilities and services establishments such as; power generation and supply, water supply, telecommunication, seaport operations, roads and highways operation, airport, public buildings and amenities development and management were privatized.
The initiatives were aimed at expediting nation-building by minimizing bureaucracy, increasing efficiency and expediting development, henceforth creating more job opportunities and opportunities for private-funding participation.
The government remained a shareholder and all new corporations established under HICOM were subjected to governmental scrutiny by virtue of it being the biggest shareholder.
Success was eminent of the Malaysian privatization economy reflected by its high annual growth rates of more than eight per cent achieved in mid 1980s.
More prominence was shown by the automotive sector where the total local passenger car production, which was merely 80,000 units in 1985, later attained a total of more than 330,000 units in 1997, while total industry volume of both passenger and commercial vehicles attained more than 440,000 in the same year, outpacing the figures in the neighboring countries.
Capturing more than 70 per cent of the local passenger car market, both Proton and Perodua were on the road to success as major automotive players in the local scene. The automotive sector then was one of the major job providers for the young populace, nurturing them towards becoming skill workers able to further enhance the industrialization endeavor of the nation.
The rapid progress of the automotive sector was short lived by the onset of the financial crisis in Asean (Association of Southeast Asian Nations) in late 1997.
Sudden devaluation of the ringgit shocked both the economists and the entire business community and the effect was especially devastating for the automotive sector which was still in a developmental stage.
Although higher percentage of the components were localized, the critical and complex components such as engine and transmission system were still on the importation list. Most initiatives to localize these components were put on hold as the investment quantum required for the development of these component industries were becoming uncertain.
The effect of the crisis has altogether altered the landscape of the automotive industry retarding the technological progress as well as imparting uncertainties in the local automotive financing structure and market scenario.
The crisis is now history but the incident had put the government in a predicament to set the right timing to liberalize the automotive sector, acknowledging the importance of the sector towards nation-building and industrialization.
Liberalization of the automotive industry is imminent for Malaysia to maintain its strong ties within the business communities in the Asean region and the world at large. It is a tough balancing act between trying to maintain and to grow local manpower capabilities, pursuing national advancement in science, engineering and technology, and to develop other desirable parameters prerequisite for the industrialization endeavor, but at the same time having to facilitate an open market access for more able and stronger automotive players to operate within the same market.
To sustain whatever the nation has achieved over the last 30 years, competitiveness among the local automotive players is key and as such any liberalization initiative will need to consider the prescribed desirable industrialization parameters are to the Malaysian advantage.
Liberalization promises an increase in foreign direct investment, accessibility to technology licensing, and increase in consumption and export opportunity, which are all relevant to generate growth within the automotive sector.
However implementation of the economic liberalization framework needs to consider possible setbacks like increased dependence on foreign nations, particularly in automotive engineering and technology, imbalanced development within the automotive sector and little employment created for the unskilled and semi-skilled workforce.
Liberalization of the Malaysian automotive industry is inevitable and is imminent, and local automotive players have no alternative but to expedite implementation of all prerequisites for them to be competitive to face the challenges of liberalization of the automotive industry.