Foreign investment, technology transfer
Foreign investment has been more than just a catalyst for economic growth and integration in the Asia Pacific region. It has also become the driving force behind the increasing migration across national borders of "high-skilled" workers and technology, raising a number of policy issues.
Malaysia, as one of the fastest growing economies in the region, is also experiencing this new phenomenon, as shown in a recent report by the PECC (Pacific Economic Cooperation Council). The Malaysian Industrial Development Authority (MIDA), a government agency set up by an Act of Parliament, is responsible for promoting and coordinating industrial development. All manufacturing firms with shareholder funds of RM2.5 million (about US$975,500) and above or employing 75 or more full-timers need to apply to MIDA for a license and practically all foreign investment proposals are large enough to have to do so.
Direct foreign investment totaled RM9.3 billion (about US$3.6 billion) or 40 percent of total paid-up capital, foreign and local in 1991. The major investors are from Japan, Singapore, the United States, Chinese Taipei and the United Kingdom. Total employment of the larger manufacturing firms was 700,000 workers of whom 1.4 percent were non-Malaysians but it is not easy to establish employment by multinational companies alone. However, two important employment generating sectors, namely electronics and textiles, are heavily dominated by direct foreign investment.
Current guidelines on employment of expatriates for the manufacturing sector stand at five expatriate posts for new investment where the foreign paid-up capital is US$2 million and above. Where foreign paid-up capital is RM0.5 million, one key post is approved. For executive posts, which require professional qualifications and experience, expatriates can be employed for a maximum of ten years, subject to the condition that Malaysians are being trained to take over. For non-executive posts, which require technical skills and experience, expatriates can be employed for up to five years, again with Malaysians being trained to succeed them.
All technology transfer agreements of manufacturing firms are approved by MIDA to ensure that local parties are not unfairly restricted, national interests are protected and fees, where applicable, are commensurate with the level of technology. Over 2,000 agreements were signed between 1988 and 1992, most of which were technical assistance agreements. The electrical and electronics sector had the largest number of agreements followed by the chemical sector. The largest number of agreements was signed with Japan, the United Kingdom and the U.S.
It is difficult to assess the effectiveness of technology transfer although it appears that there has been minimum cost and maximum effectiveness with the regulations. A survey on technology transfer conducted among 49 Japanese firms established the following: * Parent firms have considerable control over joint ventures and subsidiaries and the foreign partner/parent firms handle most crucial decisions on product choice, production techniques, marketing and managerial decisions; * Investments are motivated by the need to expand or control market shares, both international and domestic rather than investment incentives; and * The electronics industry has not produced any technological spin-offs for local industries and that local subcontractors supply less than 25 percent of inputs.
Recent studies are more optimistic. One suggests that the electronics industry not be footloose and that it take root in the local economy, despite cheap unskilled labor no longer being an important input. Another suggested that the electronics industry has a vested interest in the Asia Pacific region, which is a growing market. (rlt)