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INTERNATIONAL BUSINESS GFMA2023

FDI in Manufacturing Industries in Malaysia


PREPARED BY: Beh Chai Nee Sim See Min Teo Kexin Chan Han Seong Sow Jiann Hwang Lim Yong Eow 212919 212947 212972 213001 213012 213047

PREPARED FOR: MRS HARTINI BT HUSIN

DATE OF SUBMISSION: 11st December 2013

Table of Contents
1.0 1.1 1.2 2.0 3.0 3.1 3.2 3.3 3.4 3.5 4.0 5.0 6.0 6.1 6.2 7.0 7.1 7.2 7.3 7.4 7.5 8.0 9.0 10.0 Introduction ....................................................................................................................... 1 Concept and Definition of Foreign Direct Investment.................................................. 1 Trends and Prospect of Foreign Direct Investment in Malaysia .................................. 2 The Importance of FDI on Malaysia Economic Growth ............................................... 5 Factors Influence Inwards and Outwards of Foreign Direct Investment .................... 7 Economic Growth ........................................................................................................... 7 Market Size ..................................................................................................................... 7 Inflation Rate .................................................................................................................. 8 Exchange Rate ................................................................................................................ 8 Trade Openness .............................................................................................................. 9 Malaysian Government Policies to Promote Foreign Direct Investment ................... 10 Foreign Direct Investment in Manufacturing Sector ................................................... 13 Positive and Negative Effect of FDI ............................................................................... 15 Positive effects of FDI .................................................................................................. 15 Negative effects of FDI................................................................................................. 15 Recommendation to Increase Foreign Direct Investment in Malaysia ....................... 17 Government Policy ....................................................................................................... 17 Infrastructure ............................................................................................................... 17 Incentive ........................................................................................................................ 17 Information Technology............................................................................................... 18 Supply Chain ................................................................................................................ 18 Conclusion ........................................................................................................................ 18 Bibliography..................................................................................................................... 20 Appendix .......................................................................................................................... 22

1.0 Introduction 1.1 Concept and Definition of Foreign Direct Investment FDI is the investment which involving the bringing foreign money into a corporation that operates in a foreign country. To be more detail, FDI refers to the investment of asset such as factories, technologies and etc. into domestic services and goods but this did not include the investments in share markets from foreign country. FDI usually done by joint ventures, mergers and acquisitions, Greenfield investments or building new facilities. FDI is different with portfolio investment which portfolio investment is an investment of securities in other country. The securities included stocks, debenture and bonds. In economic term, FDI is the net inflows of investment to gain a lasting management interest in a company operating in an economy other than that of the investor.1 According to OECD iLibrary (2013), the lasting management interest represent the existence of a last long relation between the company and the investor and a substantial degree of influence by the investor on the governance of the company. Basically, to shows the influence of investor, one have to own of at least 10% of the voting.

"FDI, net inflows (BoP, current US$) | Data | Table". Data.worldbank.org. Retrieved 2013-11-02.

1.2 Trends and Prospect of Foreign Direct Investment in Malaysia FDI has been the focus of attention in emerging and developing countries. Thus, government is trying hard to attract foreign investors by provide attractive incentives to tap these investments to lower unemployment accelerate modernized in industrialization, spur economic growth, and improve living standards. According to the Economy Watch (2010), FDIs have become one of the biggest economic driver of globalization, accounting for over had of all cross-border investments. No doubt, Malaysia was involved to these global shifts in economic flows. FDI has played an important role in the development of Malaysian manufacturing industries. Malaysias rapid industrialization was also due to the early openness to the inflows of FDI. Various multinational corporations (MNCs) which are involved in direct investment toward Malaysian manufacturing sector had brought in technology, job creation and business experience that had contributed to the development of manufacturing sector and economic growth (Beaumont 1990). Beside this, these MNCs also helped Malaysia to enhance their competitive advantages in manufacturing export in the word market by improving their product qualities (Yusof, 1990). Before Malaysia independence, Malaysia likely to concentrate in mining, plantations, agricultures, commercial enterprises and utilities. After Malaysia is independence, the pattern changed by diversified investment inflow to agricultural crops and manufacturing and expanding current activities. While during 1960s, it paid attention on the development of import-substituting industries but switched to export-oriented industries in 1970s (Lin 1994; Sulong 1990). Significant progress was seen during the 1980s where new joint venture projects with the state owned company were initiated, under the govern of Dr. Mahathir Mohammad. Furthermore, with the enforcement of the Investment Act in 1986, Malaysia gained a huge influx of FDI in the manufacturing sector. This policy offered many incentives such as expanded investment tax allowances for expansion projects, pioneers status tax holidays, the introduction of Free Trade Zones, tax deduction for export promotions, and other types of incentives to attract attention of FDI. Malaysia also improved trade liberalization in the late 1980s by losing the limitation over capital
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ownership of foreign companies hence improving the FDI flows into Malaysia (Urata, 1994). Malaysia was one of the most active ASEAN countries in liberalizing its investment regime in the manufacturing sector to attract FDI during the 1980s and 1990s. According to Athukorala & Wagl (2011), throughout 1980s till 1990s, the aggregate FDI inflow into ASEAN countries raised drastically from US$3 billion to US$30 billion. While, Singapore still is the biggest recipient of FDI among ASEAN countries, while Malaysia successfully accounted for 25% of the aggregrate inflows among ASEAN countries. Based on the outcome of Technique for Order Preference by Similarity to Ideal Solution (TOPSIS) method which usually applied in ranking ASEAN countries in term of capacity and attraction for FDI in 2005, Malaysia ranked at the second while Singapore leading us. (Karimi, Yusop, and Law, 2010) This reflects that Malaysia is one of the popular country for FDI. As shown from Figure 1, it found out that Malaysias FDI net inflows which is Balance of Payment (BoP), current US$ were falling from 1992 and reach into a lowest point in 2001 with a total amount of FDI net inflows of approximate US$ 500 million. Since 1980s, this is the lowest amount Malaysia got. Since 1992, the average FDI net inflows was reducing. But, from 2002 till 2006, the average FDI net inflows was improve. However, the FDI net inflows decreased drastically till approximately US$1,500 million in 2009 from approximately US$8,500 million in 2007 due to global financial crisis. Surprisingly, FDI in Malaysia were able to increase in 2010 as the FDI inflow increased drastically and reached a net amount of approximately US$ 9,500 million. Total FDI inflow2 into Malaysia in 2011 has increased for 12.3% to RM 32.9 billion compared with only RM 29.3 billion in year 2010. The manufacturing sector shared the largest share of FDI inflows, which 50.1% of total FDI inflows is from manufacturing sector, followed by the services sector (27.3%), mining and quarrying (22.2%) and agriculture, forestry and fishing (0.4%). While according to The Stars (2013), most of the foreign investments approved from January-July 2013 were the electrical and electronic products (RM7.4bil), basic metal products (RM3.4bil), petroleum products (including petrochemicals) at RM2.3bil, food
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Department of Statistic, Malaysia

manufacturing (RM1.6bil), transport equipment (RM1.1bil), non-metallic mineral products (RM903.1mil) and chemicals and chemical products (RM465.3mil). Figure 1: Malaysia Total FDI Inflows (Balance of Payment, Current US$) : 1970 2010

Source: World Bank (2011): World Development Indicators (Edition: April 2011). ESDS International, University of Manchester.

2.0 The Importance of FDI on Malaysia Economic Growth Malaysia economic growth since 1960 and it was very stability before Asian financial crisis happened due to the policies promoting the foreign investment. Moreover, the investment has decreased due to Asian financial crisis happened in the year of 1997. This crisis was affected Malaysia economic badly and causing the economic growth decreased to -6.8%. However, the investment was much higher in year 1998 than 1997 due to the investor confidence had improved. Malaysia started with the introduction of Investment Incentives Act 1968 and during the second Malaysia Plan (1971-1975), it established Free Trade Zones. From that, Malaysia became as a second largest FDI recipient among Asian economies during the year of 1995 at US$5.8 billion due to it has attracted a lot of investment which flow into Asia. Therefore, FDI is an important source that contributes to the stability of Malaysia economic growth. FDI has brings in several benefits on Malaysia economic growth and one of the benefit is that FDI could create more employment in the country. For those less-developed countries that lack of fund for the investment in their own or other countries, FDI able to help these countries to develop and improve their living standard by creating more employment for their citizens in that country. Thus, FDI in Malaysia has brought the benefit to create jobs for the citizens and also helps the countrys economic. According to Mohd Nazari Ismail (2001), he states that FDI play an important role in Malaysia economy especially in the manufacturing sector such as electronic industry. Therefore, it is able to create more jobs and generating the export. The result of FDI towards employment are in direct or indirect. The direct effect happen is when a foreign multinational enterprise recruits a number of host-country citizens whereas the indirect effects is when a jobs are created in local suppliers as a result of the investment and increased the spending by employees of the multinational company when the jobs are created. Next is resources transfer effects that FDI is important on Malaysia economic growth as it is an export-oriented and always helps to transfer the technology to Malaysia that
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foreign multinationals have contributed to the development of the technical capabilities of the locals. However, advance technology use by the investors in the production will give train to the labours in the skill and it will increase the productivity and fulfil the satisfaction of the consumers yet to increase the demand in the market. Furthermore, FDI also brings in the capital investment and management knowledge needed for the economic growth. It will bring in the capital to invest in Malaysia and also increase the existing stock of knowledge by transferring the knowledge through transfer the skills, labour training as well as the transfer of new organizational and managerial practice. Thus, the foreign managers trained in the new management skills or knowledge can often help to increase the efficiency of the operations or management in Malaysia. The other benefit is balance-of-payments effects. Balance-of-payments for a country is an important policy issue to the host countrys government. This is because of the countrys balance-of-payments accounts show both its payment and also the receipts from other countries. FDI able to help the country while Malaysias current account is in deficit and selling the assets to the foreigners. There are two ways to help the country which are the effect can be to improve the balance-of-payments for Malaysias current account if FDI replace for the imports of goods and services whereas for the second way is when the multinational enterprise uses a foreign subsidiary to export the products to other countries. Therefore, FDI plays an important role on Malaysia economic. Thus, the Malaysian government has to care the important of the FDI contributed to the economic growth as FDI can help to create more employment in the country, sources transfer such as capital and technology that will trained more skilled labour in Malaysia to increase the productivity. Last but not least, is also helps in balance-of-payments of the country.

3.0 Factors Influence Inwards and Outwards of Foreign Direct Investment 3.1 Economic Growth Besides recognizing the importance of FDI to growth, economic growth itself frequently act as an important determinant for FDI inflow into the host country. (Benacek, Gronicki, Holland, & Sass, 2000). Speed growth of an economy able to attract more FDI through multi-national companies (MNCs) as they have new profit opportunities. (Hansen & Rand, 2006) MNCs with several ownership advantages will invest in foreign country to gain locational advantages, while both advantages can be captured effectively by internalizing production through FDI. (Dunning, 1995) Gross domestic product (GDP) growth rate represents stability and steadiness of economic policies, and the effectiveness of the government institutions which are priority look into international trades. According to Zhang (2001), it is able to stimulate the levels of aggregate demand for investments for both foreign and domestic to rise. 3.2 Market Size Market size reflects the economic situations and potential demand for the countrys production. According to Asiedu (2002), it was an indicator that will result the amount of foreign direct investors investment for the country. Stock for FDI for the country which have smaller markets is no doubt expected to be smaller compare to those of the large market. Investors easily get attracted to the big and rapid expanding market. (Sharma & Bandara 2010) According to Awan, Khan, & Zaman, (2011), the first key to attract foreigner intention to invest in a country for sure is the size of market although there are several causes that might affect foreign investors decision making. Market that unable to expand speedy and small does not give any intrinsic attractiveness to the foreigner. The country will be more effective and efficient in exploitation of economic of scale and fully utilizing their resources if the market size of a country is large enough. (Charkrabarti, 2001) Thus, the market size country that is small enough will unable to compete in

comparison to such countries that able to attract more investors which has a big market size (Medvedev, 2012). As mentioned above, according to Asiedu (2002) market size is a significant key in determining FDI inflows in a country. Yet, it is not the only element that will influence FDI. Medvedev (2012) argued that the trade barrier and policy of a country will highly affect the FDI inflow to the country even though when the market size is big enough. According to Nurudeen, Wafure, & Auta, (2011), despite the country size that is big, foreign investors are not willing to invest in the country that have less perceivability on the economy. 3.3 Inflation Rate According to past research regards econometric result, it discovered that inflation rate bring a bad sign and is important to FDI. In other words, low inflation rates has a higher chance in attracting FDI into developing countries. However, several researchers argue that inflation rate and FDI can bring a positive relationship. Higher inflation rate brings a higher price levels and able to increase in the production level of the host country and attraction of investments from foreign country, which cause a raised expected level of profitability (Srinivasan, 2011). Conclusion, inflation rate bring both positive and negative influence on FDI depends on the inflation rate and perception of foreign investor. 3.4 Exchange Rate Devaluation of exchange rate in the host country will indirectly rise the FDI of the host country. In other way, when the host countrys exchange rate drop, the FDI for the country increase. This indicates that when a countrys exchange rate rise, it is hard to attract the foreign investors to invest as it has a high dollar price in the market when the targeted country has a stronger currency. Thus, investor will prolong their investment period until the currency devalues because this will bring a better profit to their investment. According to Barrell & Pain (2006), this shows that there is a significant time lag between FDI movement and exchange rate volatility.

However, according to the research from Campa (1993) discovered that devaluation of exchange rate in the host country will lead to decrease the FDI in the host country. This is because investors believe that devaluation of exchange rate in the host country will decrease the profitability in terms of the home currency. 3.5 Trade Openness According to Aqeel & Nishat (2005), the competition for inward FDI in a lot developing countries raised due to the ongoing process of integration of the world economy and liberalization of the economies. Beside this, the controls and restrictions over operations of foreign firm and the entry are now being substituted by selective policies aiming at FDI inflows. The liberalization of the economies refer to the openness of the trade or economy and it is one of the popular variables in illustrate the FDI inflows for a country. Trade openness is important and able to bring a positive effect on FDI inflows. FDI of the country is mainly depend on a countrys readiness to agree foreign investment. The result is same with the study above where trade openness show positive significance to FDI (Chantasasawat, Iizaka and Siu, 2010). The study also mention where the openness of a country includes both nontariff and tariff. The reduction in various types of trade barriers able to raised FDI of a country.

4.0 Malaysian Government Policies to Promote Foreign Direct Investment According the data from Malaysia, FDI in the 1980s contributed to its economic growth large. Because using low waged labor, but it has tried in haste to attract low waged workers of the surrounding countries to mitigate wage increase pressure. Other than that, it also attempt to boost its industrial structure and create high value added product in the short term due to sharp wage rises starting in the 1990s. In order to achieve the catch phrase "WAWASAN 2020" to join the rank of the developed countries, the Malaysian government policy is promote its foreign investment attraction to be focused on manufacturing industrial structure, enhancing trade exports, achieving national economic independence, and export enhancing FDI has been denoted as the "engine to growth" in the private sector (Jayasankaran 1995). About all, promote the manufacturing industrial structure is the most imminent task. FDI is dealt with in the industrial policy dimension. Thus, investment in labor intensive or low value added industries is not even authorized or permitted as domestic Malaysian investment. Without further ado, lets us discuss about the ways of Malaysian government policy to promote in FDI. First of all, the government encourages promote to foreign direct investors with a tax holiday of up to 10 years for investments for the new industries and to assure the repatriation and convertibility of profits and capital. At the same time to attract FDI, developing countries have typically used various favourable tax policies to gain competitive advantage. According the both Mintz (1990) and Shah (1995) mention, tax holidays have been especially prevalent in the 1980s since they provide new foreign investors a low-tax regime for a qualifying period on the presumption that a company needs time to establish good levels of profitability. For examples: In 1975, the Industrial Coordination Act fixed new equity participation guidelines that required a substantial majority of Malaysian ownership of new import-substitution industries catering to the domestic market and using local technology 70% Malaysian ownership was stipulated for export industries. Imported raw materials could be 100% foreign owned for export industries. Some of these restrictions were eased under the fifth Malaysia plan (198690).

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The Promotion of Investment Act of 1986 allowed 100% foreign ownership if a company exported at least 50% of its product and did not compete with local industry, or if it exported at least 80% of its product regardless of competition.

In the case of Malaysia in the late 1980s, tax holiday effective tax rates on investments were even above the effective tax rates in the post-holiday period. (Mintz. 1990)

The implications the tax holidays for FDI are important to both domestic and international tax policy. To attract FDI, Malaysia have typically use tax policies where it will beneficial to capital importing countries by increasing the both the supply of capital as well as introducing improved management, manufacturing products and technology transferred from abroad. Promotion of Investment Act (PIA), 1986 FDI as an important driver underlying the strong growth performance experienced by the Malaysian economy. Mohammad Sharif and Zulkornaian (2009) stated that in order to attract a bigger inflow of FDI, the Malaysia government introduce a lot policy incentives including to allow a larger percentage of foreign equity ownership in enterprise under the Promotion of Investment Act (PIA), 1986. While Hooi (2008) stated that in recently, its market oriented economy, combined with an educated multilingual workforce and a welldeveloped infrastructure, has made Malaysia one of the largest regional and global recipients of FDI. At the same time, inflow of foreign direct investment to the manufacturing sector attributed by the speedy industrialisation of the country. Several manufacturers taken the advantage of the countrys capabilities by outsourcing their manufacturing activities to the companies in Malaysia or having their own company in Malaysia. The large influx of foreign investments into the manufacturing sector was important in its transformation from an agricultural economy to an industrialized economy (Azmi Shahrin). In addition, in the early 1970s, the inflow of FDI was only US$94 million but raised hugely in 1996 with US$7,297 million. However, it decreased to US$2,714 million in
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1998 as the happening of 1997 financial crisis but recovered considerably with the highest FDI inflows of US$8,403 million in 2003 as Malaysia can maintain its attractiveness as a FDI location under the Promotion of Investment Act (PIA). Malaysian Government create FDI in the import-substitution phase 1960s and early 1980s to cater for the domestic market. The strategy was used by the government policy via joint venture programmes to promote both local and foreign participation to invest in the manufacturing industrial sector. After implementation, there was a large increase in FDI between the periods 1980 to 1995 with a total volume of RM120 billion. At the same time period, the average growth of domestic investment it was 55.2 per cent, and FDI was 45.8 per cent. This showed the commitment and trustiness of foreign investors to invest in the country (Bank Negara Malaysia, 1996).

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5.0 Foreign Direct Investment in Manufacturing Sector The manufacture industry play importance role in economy growth to the Malaysia economy. In the year 1978, manufacturing dedicated to 19.8 per cent of GDP. GDP increase from manufacturing sector to 26.4 per cent in year 1990. The GDP increase steadily, the GDP from manufacture sector increase from 26.4 per cent to 33.4 per cent in year 2000. The manufacture industry contributes significant to Malaysia export too, such as export manufacture goods, machinery, transportation equipment and miscellaneous manufacture article in the year 1978 and the total export contribute 39.9 per cent. In the year 1990, the total export increase 53.6 per cent and in year 2000, it contributed 77.7 per cent of total export. Nowadays, Malaysia known as one of largest exporters of semiconductor device, there are known as electrical goods and appliance. In addition, the manufacture Malaysia brings a significant amount employment to the economy too. The manufacture contribute 15.5 per cent of total employment in year 1978 and increase to 19,9 per cent in the year 1990. In the year 2000, total employment contribute by manufacturing industry is 22.8 per cent. The manufacturing plays an important role in technology for transfer and foreign exchange earning to the country. The main source of FDI In the manufacturing Malaysia changed over time. Japan, United Kingdom and United State were the main sauce FDI in the manufacturing industry in Malaysia in the period 1978-1979, the total FDI was 55.1 per cent. In 1980s, Japan was the main source FDI in manufacture industry, the second was Singapore, third was United Kingdom and the fourth was United State. In the early 1990s, Taiwan became main source FDI in manufacture Malaysia but in the period of middle 1990 until 2000, the US was the most important source in Malaysia. The main sector of FDI Malaysia was mainly in the sector of electrical, electronic, petroleum and food. There was 78.3 per cent of total FDI in the manufacturing in the period 1978 until 1979. The main sector FDI Malaysia was changed to electrical, electronic, chemical and nonmetallic in the 1980s. In the year 1990, electrical, electronic, chemical and petroleum were main sector for FDI manufacture in Malaysia. In the year 2000, electrical and petroleum were most important sector for attract FDI manufacture Malaysia.
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Since 1978 until 2000, electrical, electricity, petroleum and chemical were main sector to attract FDI in Malaysia, it is because of no trained worker well, less intensive technology and are more depend on imported input. This was lead problem of manufacture associated with narrow base, vulnerability to external fluctuations as well as low value added. In order to solve these problems, our government has been given incentive such as fiscal and monetary and invested equipped necessary infrastructure. In the other hands, the appreciation of Japanese Yen caused trade conflict of Japan and Asian newly industrialism economies (NIEs) with the US and Europe Union Countries. In the middle 1980s, the wage rate in Japan and Asian NIE, was increase among others, it have contribute big relocation of labor intensive industries , specific electrical and electronic from Japan and NIEs to Malaysia.

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6.0 Positive and Negative Effect of FDI 6.1 Positive effects of FDI Firstly, FDI flows provide an important window through which firms can avoid soaring production costs at home and find attractive market aboard. Secondly, according to Demekas et al. (2005) since FDI flows are non-debt creating financial commitment, they are the most preferred instruments of financing external current account deficits particularly in developing countries Thirdly, FDI flows stimulate growth positively by lowering the costs of research and development through stimulating innovation in the host country (Graham and Wada 2001; Sanchez-Robles and Calvo 2003). FDI to be an important vehicle for transfer of technology, contributing to growth more than domestic investment (Borensztein et al. 1998). Fourthly, in presence of adequate absorptive capacities, FDI can have positive effects on domestic employment (Lall 2002) in addition to leading to higher rates of human capital accumulation, hence, a potential for future growth processes and accelerated technological transfer over time. FDI can be an important channel for bringing knowledge and integration into global production chains which are badly needed for successful exports strategy by developing countries. Inward FDI has been a significant source of knowledge transfer in management skills, technology and international linkages for Indonesia, Malaysia, the Philippines and Thailand. (Yussof and Ismail 2002). Furthermore, Aron (1999) argued that, through training of workers and hands-on learning, FDI raises the skills of local manpower, thereby raised their productivity level. Besides that, according to Borensztein et al. (1998) stated that FDI flows can accelerate technology diffusion and transfer to domestic firms and the labor force, productivity spillovers and enhanced competition. Slaughter (2002) reported a strong positive correlation between skill upgrading and the presence of local affiliates of U.S. MNCs. 6.2 Negative effects of FDI The technological spillovers thus lead to positive effects on domestic firms, however, there may exist a competition effect which works in the opposite direction. Foreign entry disturbs the current market equilibrium and could force domestic firms to produce less output which lead to increase their average cost curves, at least if average cost curves are
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downward sloping, which would be the case if production involves a substantial fixed cost. Ricci (2006) demonstrated that for a small countries or currency areas, exchange rate volatility has a long-run negative effect on net inward FDI flows. Similar evidence was reported by Kozo and Shujiro (2004), who claimed that a depreciation of the currency of the host country attracted FDI while high volatility of the exchange rate discouraged FDI. However, Barrell et al. (2003) found that increased exchange rate correlation would divert the FDI from a larger market to a smaller market. This is because as exchange rate correlation converges towards one; exchange rate risk diversification becomes a weaker determinant of location at the same time as other factors like rate of return become more relevant. Although Lui et al. (2006) found that weaker domestic currency will attract more inward FDI because it reduces the funding costs in source country, they do not accept the conjecture that sharp depreciation can bring benefits from FDI if this also leads to higher exchange volatility.

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7.0 Recommendation to Increase Foreign Direct Investment in Malaysia FDI is important to every country. This is because FDI have many advantages such as increase economic development; increase the competitiveness in domestic country, developing the country and so on. Therefore, ways to increase the FDI is require. There is some recommendation to increase the FDI in Malaysia. 7.1 Government Policy There is some recommendation for the policy maker in Malaysia. The government must improve the existing policy so that can encourage the foreign investor to be more confident to invest in our country. Government can decline the trade and investment barriers to attract investor to invest in our country. For example, government can

decrease the tariff and increase the quota import to the investor. Decrease the tariff and increase the quota import that will increase the profit of the investor. So, the FDI will increase too. Besides, policy maker must be aware about the factor will lead to negative influence because that will influence the FDI flows to the country. 7.2 Infrastructure The level of infrastructure in the host country refers to the quality of roads, railroad, dependable energy and telecommunication availability, credit and banking facilities and other financial, legal and transport system (Wilhelms, 1998; Griffin & Pustay, 1999). Infrastructure plays an important role to FDI for a country. Cheng & Kwan (2000) also found that quality of infrastructure as a very important factor influencing FDI in China. More efficient infrastructure provided the more FDI. This is because the infrastructure especially with the high technology that can reduce the cost for the investor to buy the infrastructure then the profit they obtain will become more. Thus, with the provided infrastructure, the interest of the investor invest in our country will increase. For instance, government can provide more quality infrastructure the manufacturing sector needed, in Sabah and Sarawak such as transportation and telecommunication infrastructure. This is because Sabah and Sarawak also have the potential to become the choice that foreign investor to be invest. Then the FDI in manufacturing sector will increase. 7.3 Incentive
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Government have provided many incentives to the foreign investor to improve the FDI. The incentives such as tax incentive, incentive for manufacturing sector, incentive for agriculture sector and so on. Decrease in tax incentive undoubtedly will increase the FDI in Malaysia. Besides, the government could not only focus on mega investor but small and medium size investors also need to emphasize. This is because normally the small and medium size investor will not ask for more incentive compare with the mega investor will ask for more incentive then they will consider investing in our country. 7.4 Information Technology One of the advantage of the Information technology system is the information technology can decrease the cost of communication. With the lower communication cost, the investor can made management of the investment more easily and effectively. Thus, government should provide an effective information technology system to attract the foreign investor invest in our country. According to the statistic of the World for Fastest Broadband Speed Test, Malaysia is in ranks 112 in the world. Thus, government must improve the internet speed in order to increase the efficiency of the business. So the investor will consider investing in our country because their management of the business will become more effective with the more effective information technology system. 7.5 Supply Chain An effective supply chain management can full fill the customer satisfaction via decrease of the costs and the price of the product. Thus an effective of the supply chain management is important. This is because if our country has very effective supply chain management then the investor will consider making an investment in our country. This is because the more effective supply chain management the more profit they can earn. Then the FDI in our country will increase.

8.0 Conclusion
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After discuss several perspective regarding foreign direct investment such as the importance of FDI, the positive and negative effect of FDI and recommendation to increase FDI. Our group member get a better understanding and wider knowledge regarding how FDI brings a huge impact to our country economic growth. In a nutshell, FDI is a key tool to drive whole world economy which brings almost winwin situation to both host and home country. Without the presence of FDI, the economy around the world will still far from what we have right now. Thus, we should carefully utilize FDI in order to stimulate a further economic growth for the country without violating any ethical or legal issues between the host and home country.

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9.0 Bibliography Bank Negara Malaysia (1996), Survey of Manufacturing Companies, Kuala Lumpur. Brakman, S., & Garretsen, H. (2008). Foreign Direct Investment and the Multinational Enterprise. London: The MIT Press. Cheng, L. K., & Kwan, Y. K. (2000). What are the determinants of the location of FDI? The Chinese experience. Journal of International Economics, 51, 379-400. Davison, D. (2013, August 27). Malaysia Ranks 112 in the World for Fastest Broadband Speed Test. Retrieved from http://leapingpost.com/2013/08/27/malaysia-ranks112-for-fastest-broadband-speed-tests/ Dunning, J. H. (1989). Transnational corporations and growth of services: Some conceptual and theoretical issues. New York: United Nations. Dusa, J. (2007). Malaysian Foreign Direct Investmen and Growth: Does Stability Matter? Journal of Ecnomic Cooperation, 28,2, 83-98. Griffin, R. W. & Pustay, M. W. (1998). International Business: A managerial perspective (2nd ed), Massachusetts: Addison Wesley. Gomes-Casseres, B., & Yoffie, D. B. (1993). The International Political Economy of Direct Foreign Investment. England: Edward Elgar Publishing Limited. Har, W. M., Teo, K. L., & Yee, K. M. (2008). FDI and Economic Growth Relationship: An Empirical Study on Malaysia. International Business Research Vol 1, No 2, 11-17. Hill, Charles, W.L, Wee, C.H & Udayasankar, K. (2012). 8th ed. International Business: An Asian Perspective. New York: McGraw Hill. Hooi, H.L. (2008). The Impact of Foreign Direct Investment on the Growth. International Applied Economics and Management Letters 1(1) , 41-45. Jayasankaran. (1995). Malaysian Economic Policy and FDI. Retrieved from http://www.reocities.com/TimesSquare/1848/malay.html Konings, J. (2000). The Effects of Direct Foreign Investment on Domestic Firms: Evidence from Firm Level Panel Data in Emerging Economies. Leuven, Belgium: William Davidson Institute. Mintz, Jack M. [1990], Corporate Tax Holidays and Investment, The World Bank Economic Review, 4(1), 81-102. OECD iLibrary: Statistics/OECD Factbook/2013/FDI. (2013). Retrieved from FDI: http://www.oecd-ilibrary.org/sites/factbook-2013en/04/02/01/index.html?itemId=/content/chapter/factbook-2013-34-en
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Ong, K. X., P'ng, G. T., Poon, D. C., Tan, L. Y., & Yong, K. C. (2012). Factors Affecting FDI Decision in Malaysia. Kampar: Universiti Tunku Abdual Rahman. Shah, Answar [1995], Fiscal Incentives for Investment and Innovation, Oxford University Press, United Kingdom. Sung Hoon. L. (n.d.). FDI Policy and Incentives. Promotion Agency: Korea Trade Investment. Tanggapan, D., Geetha, C., Mohidin, R., & Vincent, V. (2011). The Relationship Between Economic Growth and Foreign Investment in Malaysia: Analysis Based on Location Advantage Theory. International Journal of Economics and Management Sciences Vol. 1, No. 2, 24-31. Watch, E. (2010, June 30). FDI. Retrieved from FDI: http://www.economywatch.com/foreign-direct-investment Wilhelms, S. K. S. (1998). FDI and its determinants in emerging economies. African Economic Policy (Paper-Discussion Paper, No. 9, USAID, Washington D.C. Wong Hock Tsen,(2006). FDI in manufacturing industry of Malaysia: Empirical study. Malaysia: University Malaysia Sabah. Yol, M. A., & Teng, N. T. (2009). Estimating the Domestic Determinants of FDI Flows in Malaysia: Evidence from Cointegration and Error-Correction. Jurnal Pengurusan 28, 3-22. Zulkornoin Yusop, (1992). Factors influencing FDI in the manufacturing sector of Malaysia. Malaysia: UPM

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Appendix

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