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of Malaysian Brands and Incentives to Acquire
a Foreign Company. One of the most important
supports for OFDI is that income remitted to
Malaysia by resident companies, non-resident
companies and non-resident individuals (other
than companies in the banking, insurance,
air and sea transportation sector)is exempted
from tax. IRB does not enforce any kind of
outward remittance tax. This greatly simplifies
the process of operating and controlling
international subsidiaries, relative to countries
which have some form of remittance tax system.
Under the agreements for the Avoidance of
Double Taxation, income such as business
profits, dividends, interest and royalties that
are derived in one country and remitted to
another country is taxed in one country only.
Malaysia has double taxation agreements with
55 countries.
F. Conclusion
Malaysia is a growing source of FDI to
many developing countries, particularly in Asia and
Africa. The prospects for further increase in OFDI
is promising in light of industrial development and
structural changes in Malaysia’s economy, including
growing competition from inside and outside the
country that will push more Malaysian firms to invest
abroad. As Malaysian firms in the manufacturing
industries move up the value chain and become more
skill and technology-intensive, firms in the labour
intensive and lower end of the production value chain
will increasingly find the need to establish productive
capacities in low cost location to improve or maintain
competitiveness. For these firms, investing abroad
is crucial for their survival. The support of the
Government and the institutional facilities provided
by the various specialized agencies will give the
added impetus for enterprise internationalization.
Greater economic integration within ASEAN will
encourage Malaysian enterprise to regionalize as
will the establishments of the various free-trade area
arrangements with partner countries. The improved
policy environment and the increase capacity and
capability of Malaysian firms to internationalize will
play a significant role in this regard.
Relatively few Malaysian SMEs invest
overseas because of constraints including the lack
of managerial capacity, higher risks and access to
finance. In particular, they often lack the knowledge
on overseas markets, legislations and policies on FDI
in the host countries. They also lack capacity and
understanding on international business activities
and risks associated with FDI. Their limited financial
resources also restrict their ability to venture
abroad. Most SMEs need fiscal incentives and other
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assistances to venture abroad, including advice and
coaching. Larger firms on the other hand are relatively
less constrained by finance. They have the advantage
of the backing and support of the Government in their
overseas ventures, particularly the GLCs.
While there are success stories of Malaysian
enterprise internationalization through OFDI there
are also stories of failures. The success stories of
Malaysian SMEs such as Top Glove, Ingress and
Munchy Food Industries that grew from small entities
to large enterprises has shown that OFDI can increase
competitiveness.
The lack of capacity, information and appropriate
approaches in managing risks of internationalization,
including “impulse drive” to go
abroad had contributed to internationalization failures
by Malaysian enterprises. It is important that these
limitations be addressed to facilitate and ensure more
successes of Malaysian enterprise internationalization.
The Government could consider adopting measures to
increase the pool of efficient and competitive SMEs
capable of producing goods and services demanded
internationally and in supporting business linkages
at home. Through institutional support and capacity
building, these homegrown competitive Malaysian
SMEs should then be encouraged to internationalize
through OFDI.
While policies can influence the nature and
scope of Malaysian OFDI, a clear distinction should
be made between State-owned and private firms. A
number of distinct policy issues need to be considered
and assessed. For private firms, the attractiveness of
different policies can differ. Interviews conducted
by the author suggest that for some private firms,
fiscal/tax incentives for OFDI are not important
and the benefits are often applicable only in the
short-term. Some companies are of the view that
grants and soft loans are move attractive than other
incentives to facilitate investing overseas. Apparel
manufacturers and enterprises in the wood products
industry expressed the view that both soft loans and
incentives can assist their internationalization. A
few consumer electronics companies with trading
offices in China, Hong Kong (China) and Thailand,
indicated that grants would be very important to
assist them set up overseas operations, especially
for building brands.
Government assistance in the form of fostering
government-to-government relationship was considered
important for investors in the automotive
components and parts industry. Companies in the
rubber products and packaging industries consider
that government-to-government negotiations for
favourable investment policies and trade agreements