Mahathir: Go big, dominate market

IT is well-known that Malaysia became industrialised through foreign direct investment or FDI. Malaysia was actually among the first to do this. Prior to this the newly independent countries were unwilling to give a role to foreigners in the development of their countries.

But the Malaysian policy showed that FDI did not result in the foreigners controlling the economy. Instead the country became industrialised quickly.

Seeing this many other countries followed suit. Today there is a struggle to attract FDI. And Malaysia is unable to attract FDI as well as before when we were able to offer relatively cheap labour and tax incentives. Other countries now offer cheaper labour and better incentives. It is time Malaysia find other ways to develop its economy.

It is noted that some of the most successful development has taken place in Japan, Korea and China. These countries do promote foreign direct investment. But they are less dependent on FDI. Instead we see them going into industries that were monopolised by the developed countries.

They dared to do this because they felt that the advantage they had should be exploited by themselves.

The first advantage they had was a big domestic market. By controlling imports their domestic industries would be protected. They could sell even the early, low quality products in the domestic market. Over time their products improved and they could enter the international market to compete with foreign products.

They went into the manufacture of “white” goods for the kitchen. Today they have ousted European and American products in this field.

But the domestic market was not the only advantage they had. They had abundance of low cost labour. Their products were cheaper and were able to compete with costly imports and later in the international markets.

Their Governments were supportive, legislating needed laws to protect local products. Additionally, cheap loans were made available. Even land was made available.

Technology was a problem. Nationals were sent abroad to work in foreign countries and to study in foreign universities. Gradually technology was acquired. Most of these foreign – trained workers, scientists, and top executives were foreign trained.

The most important area is manufacturing. It is important to know how things are made. Automation and robotics were acquired and installed in local production lines. Very quickly local industries were able to mass produce sophisticated products for the world market.

Support from banks and the Government enabled the industries to grow. The Korean car for example was not of international standards. But supported by the local market the industry grew and became able to be mass produced. With the advantage of cheap labour, the cars achieved good quality acceptable to the international market.

Malaysians seemed not to have noticed that very early Malaysia had gone into industries to serve the world market.

Perhaps the first was the pineapple canning industry. Under the British the empire’s market was reserved for the products of the Empire. It was called imperial preference.

Then came rubber and oil palm. Large tracts of Malaysia’s forest were sold or leased to largely British companies. Very quickly the Malaysian rubber and oil palm estates dominated the world market.

But the large estates were mainly British owned. The locals could not copy as they were not given enough land to go big and dominate the market. The locals were small players. It was only after independence that the locals could acquire the big estates. Had they realised the importance of size, Malaysian companies would probably be big like the Japanese Zaibatsu or the Korean Chaebols.

Still Malaysians have shown that they have the capacity to be big and dominate the world market. This happened by accident with the glove industry.

Taking advantage of the supply of rubber, glove making industries were started. Then came Covid-19 pandemic. The demand for gloves grew by leaps and bounds. The local glove-makers responded.

Today Malaysia is the biggest supplier of gloves in the world.

We missed the opportunity to become the biggest producer of other rubber products in the world. We made tyres for motor vehicles. But we supply only a small number. Perhaps the quality does not meet the special need of tyres for different use. But we can set up big research laboratories.

But besides tyres there are hundreds of rubber products which sell by the millions. We need to go into them in a big way.

We also produce palm oil, but largely we export the oil raw. It is time that we add value to our palm oil exports.

However, it is not necessary that we go big only when we have the raw materials. We can import the raw materials or the parts and components and re-export them as finished products.

The most important thing is to go big. The corporation must be locally owned or majority locally owned.

We need to master electronics. We have a microchip producer – Silterra. Investments in microchip is big. But the Government can help. Today Korea and Taiwan monopolise this industry. And the returns are very big.

If we go into big industries and dominate the market, much of the returns will accrue to Malaysia. We can still cater for foreign direct investments but we will not be dependent on them for the growth of our industries and economy.

Tun Dr Mahathir Mohamad