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84 Outward Foreign Direct Investment by Small and Medium-sized Enterprises from Malaysia Firm-specific factors (e.g. history, contacts, vision of the company's founder or CEOs and investment opportunities) play a role in influencing Malaysian companies to venture overseas. Government support such as investment missions, incentives and institutional facilities have facilitated Malaysian companies to invest abroad. • Market-seeking. Seeking new markets and growth opportunities abroad are key factors encouraging Malaysian OFDI (e.g. Opus International and CIMB). The slowdown in the domestic construction activities, for example, has encouraged Malaysian firms to seek growth and business opportunities overseas (e.g. Industrial Concrete Products). Investments by some GLCs have been motivated by the need to forge close links with some countries, and to exploit growth opportunities and markets overseas (Khazanah National, Petronas and Sime Darby). Many of the GLCs, especially in construction, have been constrained by the reduction in public investment in domestic construction and have been forced to look abroad for growth. Regional developments have also exerted influences on Malaysia’s OFDI, particularly in ASEAN. The ASEAN Free Trade Area (AFTA) and ASEAN Investment Area (AIA) have raised the level of integration of ASEAN members and have contributed to intra-ASEAN investment flows Box 1. Petronas Petronas is a leading Malaysian oil corporation. Its corporate vision is to become a leading oil and gas multinational. Petronas expanded its activities overseas since the early 1990s. It now has over 100 affiliates and associated companies with interests in more than 30 countries. It is involved in a wide range of petroleum activities, which range from upstream exploration and production of oil and gas, to downstream oil refining, marketing and distribution of petroleum products, trading, gas processing and liquefaction, gas transmission pipeline operations, marketing of liquefied natural gas, petrochemical manufacturing and marketing, shipping, automotive engineering and property investment. Its first overseas operation was in Viet Nam in 1991. Overseas operations now cover countries not only in Asia but also in Africa, Latin America and the Middle East. Petronas international operations cover both upstream and downstream activities and in some countries (e.g. Egypt, Cameroon, Indonesia, Sudan and Vietnam) it has both upstream and downstream operations. Petronas international operations are motivated by the need to enhance and sustain Malaysia’s oil and gas reserves through exploration and production. The location of its overseas investment is determined by geology, i.e. the likely supply and existence of petroleum resources including resource-rich countries in Africa. The growing size of the markets in Africa, especially in sub-Sahara Africa and the Indian Ocean rim are additional determinants of its international investment activities. Its overseas operations have made Petronas more competitive through access to oil and gas reserves abroad, strengthen its business profile, gain sizable foreign currency cash flows which strengthens the balance sheet. Investing overseas, therefore, had added to the company’s total oil reserves. Source: Petronas. (ASEAN Secretariat 2001). Some Malaysian companies have significant investments in ASEAN. They include Petronas, Sime Darby, Guthrie, Golden Hope Plantations, CIMB, Globetronics Technology, Cosmopoint, Delcom, Malaya Glass, Sapura, TRI-Cellular and YTL Corp. Malaysian companies are also buying assets in the neighbouring countries and further afield to ensure quick access to markets, production facilities and natural resources. For instance, Malayan Banking acquired a bank in the Philippines, Batu Kawan acquired a 12.5 per cent stake in Chemical Industries Far East (Singapore), Top Glove acquired a 70 per cent stake in Great Glove (Thailand), Petronas acquired a 10.9 per cent stake in Yetagun Oil (Myanmar), YTL Corp bought a 35 per cent stake in Jawa Power (Indonesia), Amsteel Corp acquired a 50 per cent stake in Parkson Venture (Singapore) and DRB-HICOM acquired PT Bina Mitra Serasi Haluan (Indonesia). • Resource-seeking. Investment in the agriculture and mining/petroleum sectors has been motivated by the need to exploit petroleum (Petronas) and other resources in the countries that have such natural resources, including agricultural land and workers (Sime Darby and Guthrie). • Efficiency-seeking. Competition and pressures on costs from competitors play a role motivating
Malaysian firms to go abroad (e.g. Royal Selangor and Press Metal). The rise of China has been instrumental in pushing Malaysian OFDI. China’s huge market and ample low cost labour have attracted many Malaysian firms. Other low cost neighbouring countries such as Viet Nam have also pressured Malaysian firms to venture abroad to improve competitiveness as well as taking advantage of investment opportunities provided by these countries. D. OFDI and implications for enterprise competitiveness There is no systematic documentation of information on the performance of OFDI by Malaysian firms. This hampers reliable assessment on the competitiveness of Malaysian firms abroad and the extent in which investing overseas had contributed to the overall competitiveness of Malaysian firms. However, available information indicates that there have been some mixed performances. Some firms have reported that they have increased production and are expanding, implying that their overseas operations are competitive; and have increased their corporate image as international firms. Top Glove and Ingress, which were once small firms, have reached a critical size thanks to the overseas operations. Some businesses overseas have failed. The main implications on competitiveness are examined below: • Market expansion. Many Malaysian firms have expanded and are making plans to expand their capacities overseas. These firms are optimistic in increasing their market shares abroad. Plantation companies such as Guthrie, Golden Hope Plantations and IOI have made significant investments overseas. Their long experience in plantation activities in Malaysia and the exploitation of these advantages contributed to developing their operations abroad. Royal Selangor - a company that has Box 2. Telekom Malaysia CHAPTER VII 85 Telekom Malaysia Bhd has been expanding overseas. Through TM International, Telekom has acquired interests in Bangladesh, Cambodia, India, Indonesia, Pakistan, Singapore, Sri Lanka and Thailand. Telekom overseas investments contributed an operational profit after tax of $110 million in 2004 compared to $105 million in 2003. Its overseas investments have boosted its total assets. Its market capitalization increased in August 2005 when Dialog Telekom Ltd. was listed on the Colombo Stock Exchange, the largest initial public offering (IPO) in Sri Lanka, which accounted for about 15 per cent of the stock exchange’s total market capitalization. Dialog Telekom holds about 60 per cent of the market share. Dialog Telekom has 500 base operations serving 1.5 million subscribers and it has invested $20 million to replicate critical network elements and Third Generation (3G) commercial trials are also under way. Source: Telekom Malaysia (www.tm.com.my). remained competitive in its specialized line of products - has diversified overseas, focusing on modernizing its products lines through new designs, raising quality and products range. Globetronics Technology and Press Metal invested in China to increase competitiveness and to gain access to the Chinese market. Given the saturated market and increased competition at home, investing abroad has helped Malaysian companies increase their market reach and in diversifying their markets. Companies involved in infrastructure and construction activities have expanded overseas such as Road Builders and YTL Power. According to a study by JP Morgan, Malaysian contractors have increased their order books thanks to overseas contracts and operations. Jobs secured overseas, mainly in India, West Asia and increasingly in Indonesia, totalled $1.86 billion compared to $1.21 billion for domestic projects. • Revenues and profits. Investing abroad has been profitable for some Malaysian companies, which experience an increase in their share of overseas revenues and profits to total revenues and profits. For instance, Wah Seong Corporation earns the largest part of its revenues overseas. 56 One of the main reasons for the increase in Malaysian OFDI in 2004 was the significant rise of reinvested earnings in the non-banking sector as a result of higher profits earned by Malaysian companies abroad (Department of Statistics 2005). Companies successful in bidding for overseas projects have increased their profitability, including their market valuation. For instance, IJM Corporation took part in a Malaysian consortium comprising five member firms bidding to build a highway valued at more than RM1 billion in Islamabad, 56 See “Wah Seong: Corporate Profile» (http://www.wahseong. com/nonflashsite/aboutWahSeong/corporateProfile.asp)
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United Nations Conference on Trade
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Preface The landscape of internatio
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