KUALA LUMPUR, Nov 19 — Malaysia has strong participation in non-equity mode (NEM) exports and connected strongly with the global value chains of transnational corporations (TNCs), the Asean-Japan Centre (AJC) said.
According to AJC’s paper, NEM operates in the country through the following modalities and industries: subcontracting in electronics and textiles and apparels, contract farming in agriculture and food processing, franchising in hotels, fastfood chains, and retail stores.
“Out of the four leading export products from Malaysia — electric and electronics (E&E) products, oil and gas, palm oil and textiles and apparel — the first and last were driven by foreign direct investments (FDI) or NEM or a combination of both,” said the paper titled “Non-Equity Modes of Trade in Asean: Promoting New Forms of Trade between Japan and ASEAN” series focusing on Malaysia.
Since the 1970s, Malaysia has been a major exporter of electric-electronics products and still offers great growth potential for the country.
However, the paper said despite becoming an upper middle-income country, Malaysia’s economic activities were largely confined to low and medium value-added activities and the country has yet to transition to high value-added activities.
AJC recommends NEM-related strategies, including linking up with TNCs’ global value chains as suppliers through the operations of local firms and training of national workers.
It also suggested that development of high-level capabilities in management, inventory and quality control and production technology to meet TNC standards and demands and rapid technological upgrading of local firms.
“(Malaysia should) provide initiative for local firms to upgrade beyond OEM to original design activities; and local firms to launch new businesses to stimulate sales growth, job creation and exports,” it said.
The paper said the volume of direct and indirect electronic exports through NEMs was around 70 per cent of total exports in 2018, showing an increase from 66 per cent in 2015.
“Subcontracting in the electronics industry grew significantly beginning in the 1990s as competition drove TNCs to outsource components and parts to local firms to lower costs.
“During this period, major electronics companies dedicated themselves to peripheral aspects of research and development, product design and brand management,” it added.
Subcontracting has also expanded into low-value added industries such as apparel, footwear, and toy industries as Malaysian NEMs have grown to manufacture apparel and accessories with local brand names such as Padini, with main export markets like the United States, Japan, Turkey, Indonesia, and China.
— Bernama
