Global Players from Emerging Markets: Strengthening ... - Unctad

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86 Outward Foreign Direct Investment by Small and Medium-sized Enterprises <strong>from</strong> Malaysia Pakistan. Its overseas projects have constituted more than 50 per cent of its projects by end- 2005. It has a current order book valued at RM3 billion for projects in India and West Asia, which accounts for 40 per cent of the total value of jobs. Its success in international ventures has led IJM to emerge as a strong contender in the international arena in the construction and construction-related industries. 57 Solutions Engineering Holdings, a manufacturer of teaching equipment for engineering educations, have reported plans to increase its overseas revenues by expanding its operations to China and Pakistan, anticipating an increase of its revenue to at least 30 per cent by 2010. It plans also to expand operations into Southeast Asia and West Asia to increase efficiency and profitability. Specialized requirements for food products have provided a competitive edge to some Malaysian manufacturers. The halalbased food products for the Muslim market/ clientele have provided such a competitive edge and some companies have expanded their operations overseas to tap new markets. The EuroGroup of Companies, based in London, which is Malaysian controlled set up a halal hub in Swindon. 58 In services, some Malaysian services companies have increased their total revenues and profits as a result of OFDI. For instance, Telekom Malaysia’s overseas investments have increased its total assets, expanded its markets and strengthened its position as a leading telecommunications company in the Asian region (box 2). 59 Dialog Telekom Ltd. where Telecom Malaysia International (the Telekom’s investment holding arm) owns a 87.7 per cent equity interest was recently listed on the Colombo Stock Exchange. Telecom overseas investments have contributed to its overall performance – operational profit after tax of $110 million in 2004, compared with $105 million in 2003. In financial services, Public Bank has expanded to Cambodia, Lao PDR, Sri Lanka and Viet Nam. In insurance, Equator Life Science Ltd. has strengthened its presence in Europe by forging an alliance with the Netherlands-based RH Van Leeuwen Beheer BV and owned a 70 per cent equity stake in a joint venture company, Equator Europe BV. The Gadang Holdings group, an infrastructure development company, has expanded its business overseas. 60 It won a bid for a 57 “IJM Corporation Berhad Core Business: International Ventures” (http://www.ijm.com/) . 58 See “Euro Group to set halal hub in Swindon”, Business Times, 8 August 2005 (http://www.halaljournal.com/artman/publish/ article_331.shtml) and http://www.mida.gov.my/beta/news/ view_news.php?id=2030. 59 See http://www.tm.com.my. 60 See http://www.gadang.com.my. water treatment and distribution concession project in Indonesia, which is expected to contribute sales of RM3 million per year to the group. PECD Bhd., a construction and engineering group, won a contract to supply gas engine generators and auxiliary equipment in East Java, Indonesia. The company also built and installed liquefied petroleum gas (LPG) storage facilities for PT Bakti’s LPG Terminal Facility, in West Java. However, some Malaysian companies have also experience losses and found it difficult to operate in different regulatory frameworks and cultural environment. The Telekom Malaysia investment in Ghana is an illustration of these constraints. • Corporate image. Sithru (Malaysia) with its joint venture partners was successful in its bid for a low-cost housing project in Ghana valued at $1.5 billion. 61 Going abroad has not only helped secure contracts and markets but has also help increased the international image of some Malaysian companies. However, not all Malaysian enterprises that have invested abroad have been successful. Some had expressed difficulties operating overseas and others had ceased operations in host countries because of unsustainable losses and projects failure. As seen above, Telekom Malaysia had divested its interest in some countries in Africa – among others- because of changing corporate international strategy focusing on geographic regions closer to home (box 3). 62 The lack of detailed planning for internationalization, including appreciating the extent of the risks associated with operating in different business culture, social environment and labour practices were some common factors (see for example the case of Ramatex Textiles factory closed down in Namibia). Other reasons include unanticipated level of competition and inadequate investment feasibility assessment. E. OFDI policy measures and support facilities Generally, economic policies, laws and regulations in Malaysia support Malaysian enterprises investing abroad. The Government encourages Malaysian firms to venture overseas and to develop world class Malaysian owned companies (MITI 1996). The planners and policy makers have at an early stage raised the issue of growing competition for Malaysian manufacturing industries and the competitiveness threats to exports of Malaysian 61 See “Sithru bags RM331m Ghana deal”, MIDA Industry News, 31 October, 2005 (http://www.mida.gov.my/beta/news/ view_news.php?id=2260). 62 “Telekom Malaysia quitting Africa”, African Advanced Level Telecommunication Institute (http://www.afralti.org/tech2.html).
Box 3. Telekom Malaysia’s investment in Ghana CHAPTER VII 87 Telekom Malaysia (TM) invested in Ghana Telecom (GT) in 1997 when the company launched the first privatization. TM took a 30 per cent stake in GT through G-Com Ltd., in which it had a majority interest. Under the investment scheme, TM was awarded a technical assistance and management contract. It had significant board representation and controlled the management of GT. Under the arrangement, TM was expected to improve the host country’s telephone services and install some 40,000 landlines by 2002. TM invested heavily in GT after it was privatized and tripled the number of telephone lines in Ghana. After a good start, it faced operation difficulties due to deteriorated domestic economic conditions and the lack of clear sectoral regulations and delays in establishing the Telecommunications Board. The earlier technical and consultancy services agreement between GT and TM was not renewed after its expiration in February 2002. TM faced substantial losses ($100 million) as it bought expensive equipment in US dollars but earned revenues in depreciated Ghanaian cedis, because of the devaluation and the industry wide downturn. Investment dispute between TM and the Government of Ghana rose when TM lost its management control of GT. TM paid $50 million in 2000 as down payment to purchase a further 15 per cent stake of GT that did not materialize. The down payment was not returned to TM. In July 2002, the Ghana Government terminated the employment of the Malaysian managing director and appointed an Interim Management Committee to oversee and manage GT. In March 2004, the Ghanaian Government admitted that it would soon have to pay $50 million to TM as compensation. In 2004, TM filed an international arbitration proceeding against the Ghana Government in the Hague to recover the value of its share in GT, and allegation on dispossession and loss of control of its investment to an amount of $174 million. The investment dispute was settled amicably in May 2005. Telekom Malaysia announced that upon full payment of the settlement sum, it would transfer its stake of 30 per cent in GT to the Ghanaian Government. Sources: “Telekom Malaysia wants it’s $50 mil back”, GhanaHomePage Business News, 24 May 2002 (http:// www.ghanaweb.com/ghanahomepage/economy/artikel.php?id=24345); “Ghana battles with Telekom Malaysia”, BBC News (World edition), 6 January 2003. (http://news.bbc.co.uk/2/hi/business/2632509. stm); “Telekom Malaysia to seek international arbitration”, GhanaHomePage General News, 1 November 2002 (http://www.ghanaweb.com/ghanahomepage/economy/artikel.php?id=28975); “Update on Telekom Malaysia’s investment in Ghana: Government of Ghana admits US $50m liability to Telekom Malaysia, TM News Release, 31 March 2004 (http://www.tm.com.my/about_tm/ newsroom/2004/040331_2.htm); “Govt wants to pay $50 million for GT, but…”, GhanaHomePage Business News, 1 April 2004 (http://www.ghanaweb.com/ghanahomepage/economy/artikel. php?id=55064); “Telekom Malaysia, Ghana Govt Settle Dispute Over Ghana Telecom”, AFX News Limited, 9 May 2005 (http://www.forbes.com/technology/feeds/afx/2005/05/09/afx2012175. html); “Ghana-Telekom Malaysia dispute settled”, GhanaHomePage Business News, 9 May 2005 (http://www.ghanaweb.com/ghanahomepage/economy/artikel.php?id=81010); “Asian Foreign Direct Investment in Africa: Towards a New Era of Cooperation among Developing Countries”, UNCTAD (forthcoming). manufactured products. Therefore, the policy position on OFDI has been shaped by the manufacturing sector’s need to sustain the growth of manufacturing industries. Initially, policy makers were concerned that a too liberal approach to OFDI would lead to sizable capital outflows. The increasing global competition on products and markets has influenced the Government’s shift to supporting OFDI. Policy makers have in recent years been much concerned with seeking out new sources of growth for the economy and enterprise internationalization has been welcome. Aside <strong>from</strong> a liberal OFDI policy environment, the Malaysian Government is also supporting OFDI through various institutional support facilities and fiscal incentives. To support Malaysian SMEs that invest abroad, the Government has launched a one billion RM fund. 63 Some private sector organizations such as the Malaysian South-South Association and Malaysian South-South Corporation Berhad (MASSCORP) have also played a role in facilitating and contributing to Malaysian investments overseas. The main regulations concerning FDI are reviewed below: Prudential regulations. The Central Bank issues main regulations that have a direct bearing on Malaysian OFDI. They include: the Central Bank of Malaysia Act 1958 (Revised 1994), Banking and Financial Institutions Act 1989 (BAFIA) and 63 “RM1 billion Fund to Assist SMEs Venture Overseas” 17 May 2006, New Straits Times.
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United Nations Conference on Trade
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Preface The landscape of internatio
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