Research Articles Base: Malaysia Topics

THE MALAYSIAN PALM OIL INDUSTRY

The Malaysian Palm Oil Industry Introduction             Oil palm is among the most essential species of genus Elaeis that is part of the Palmae family. It is an erect monoecious plant, which generates separate female and male inflorescences. Cross pollination is utilized to grow oil palm along with weevil, its main pollinating agent. Within the oil palm industry, the aim of most producers is to improve their total yield in terms of the oil’s content, quality, height increment as well as tolerance to diseases. According to  (2000), various planting materials are also being produced by the industry in order to meet the industrial and market needs for oil palm. These include the development of dwarf palms, production of high unsaturated oil with increased iodine content, production of high lauric oil as well as development of oil with increased carotenoid value. Aside from these, the palm oil industry has also embarked on various genetic engineering efforts in order to improve the production of oil palm worldwide.             Malaysia is the world’s largest palm oil producer and exporter in the world. In addition to obtaining the highest revenue from oil palm production, the country also has the latest technology, research studies and agencies that support the industry’s further advancement. Despite being a leader in the world, Malaysia also encounters several hurdles and challenges that directly affect the output of its oil palm industry. In order to maintain its global status in terms of palm oil production and trade, the country, its major producers and relevant agencies must work together in order to overcome these business issues. In order to develop appropriate strategies, it is essential that the situation of the industry is analyzed. Thus, in this paper, the analysis of the Malaysian palm oil industry’s strengths, weaknesses, opportunities and threats will be conducted. The results of the analysis will then be used to develop useful recommendations that would improve the palm oil industry’s global status.   Industry Overview             The commercial production of oil palm in Malaysia started as early as 1917. However, it was not until the 1960s when large-scale cultivation of the product was done; this was in fact part of the diversification strategy of the Malaysian government so as to lessen the country’s reliance on rubber goods. Since then, the plantation for palm oil production had increased significantly in the country. Based on 2001 statistic report, nearly three and a half million hectares makes up the total area planted with oil palm in Malaysia. Fifty-nine percent of this is at the Peninsular Malaysia, 29% in Sabah and 10% in Sarawak. In terms of geographical distribution, Pahang, Johor and Sabah were considered the largest oil palm growing Malaysian states. Expansion of the oil plantation in Peninsular Malaysia had decreased due to the increasing limitation of new areas for oil plantation; thus, future expansion efforts would be concentrated on Sarawak and Sabah. Should there be a continuous growth country’s palm oil industry, it has been said that Sarawak’s oil palm area would reach up to a million hectares by 2010 (, 1998).             Along with the increased oil palm plantation area in the country, annual production of palm kernel and palm oil in Malaysia has also increased considerably. Sabah, Johor and Sarawak also served as the largest oil palm producers. Increased production in the coming years is expected from these states as additional planted areas mature. The continuous growth of Malaysia’s oil palm production allowed the industry to become a major economic contributor, especially to the country’s export revenue. The industry also played an important role during the late 1990s financial crisis when Malaysia’s gross domestic product was very low. The contributions of the oil palm industry have also been significant in the eradication of poverty in the country. Land and state development agencies had coordinated with the industry in order to put up settlements for people below the poverty line (, 2000).     SWOT Analysis             While the industry shows great potential for future growth and development, it is still vulnerable to several factors that could cause its decline. This then makes the analysis of the industry’s internal and external environment imperative. The analysis of the industry’s environment can be done through SWOT analysis. Situational analysis, where the SWOT technique is applied, is an integral procedure and a very powerful tool for businesses in an industry to instigate effective business plans. The situational analysis aims to comprehend the environmental as well as the organizational influences that surround a particular business or industry. There are actually two parts of situational analysis, both are equally significant. The internal situational analysis focuses on the identification of the company’s distinctive competencies, expected growth, their assets as well as their liabilities. The internal analysis also illustrates the core values of a company, and in what ways can these values be enhanced or beneficial to the market plan ( 2002). The evaluation of the internal environment of the company involves the analysis of the company’s structure, culture and resources. On the other hand, the external situational analysis is focused on the analysis of the business or industry’s customers, market and competitors. Relevant information regarding the company’s market segments, their competitor’s relative weaknesses and strengths as well as the industry as a whole. An analysis of the industry takes a look at factors that have a more direct bearing on the business. Hence, in addition to analyzing the competition other groups must be similarly evaluated to ascertain that no opportunities or threats within the environment are overlooked (, 1994). Below is the SWOT analysis for the Malaysian palm oil industry:   Strengths - The Malaysia palm oil industry is considered the largest in the world. Approximately 61% of the total world exports and 51% of the total world production of palm oil is accountable to the country’s palm oil industry. Based on the 2002 reports, 11.9 million tons of palm oil had been produced by Malaysia, indicating a growth of 6.4% compared to the production value of the previous year (, 2004). This is considered a strength as this enables the industry to cover local and major global markets. In fact, having a significant percentage for world exports indicates Malaysia’s strong hold for global palm oil demands.             The country has indeed, a number of significant patrons abroad. Among its major market are the Pakistanis. For several years, Pakistan has bee Malaysia’s major consumer and importer of palm oil. About 1,100,000 to 1,540,000 tonnes of palm oil are imported by the country from 1988 to 1993. This makes the country the second largest importer of Malaysian palm oil during this time. China was also among the country’s major importer (, 1996). The Ukranian market is also considered as Malaysia’s primary consumer. Ukraine now accounts a considerable portion of palm oil exports, resulting to a market value of €180 million. In 2003, half a million tons of palm oil were exported to Eastern Europe; the Russian market accounted for 300,000 tons whereas 100,000 tons went to the Ukranian market ( 2004). The Malaysian Palm Oil Council (MPOC) also noted that Malaysia is also distributing palm oil to about 90 countries worldwide ( 1996).   - The Malaysian palm oil industry is greatly supported by its local government. In order to help the industry maintain its strong global presence and overcome business challenges, the Malaysian government openly supports the palm oil industry by developing essential agencies and legislations. One of which is the establishment of the Malaysian Palm Oil Board (MPOB). This was formed by merging Palm Oil Registration and Licensing Authority (PORLA) and Palm Oil Research Institute of Malaysia (PORIM); the merger was done under Act 582 or the Malaysia Palm Oil Board Act 1998. The board’s main responsibility is to help develop the country’s palm oil industry by conducting researches relevant to pal oil plantation, production, extraction, processing, use, consumption and marketing (, 2000).             Aside from the MPOB, the country’s palm oil industry is also supported by the MPOC; this department on the other hand, is in charge of conducting promotional and educational activities in order to enhance the image of palm oil and palm oil products. The aim of the department is to improve palm oil’s marketability as well as to gain higher confidence among local consumers ( 2006).   - Palm oil itself is a resource that is used for the production of diverse products. The oil has a unique composition, making it a versatile resource for the production of food, chemical, pharmaceutical and cosmetic products. In the food industry, it is the prime choice for producing solid fat products such as margarine and shortening. The oil is also used for frying various snack foods. It is also a useful resource for producing detergents, surfactants and soaps; it is also used for fatty alcohol, fatty acid, glycerol and other derivative production to make various industrial, cosmetic, household and pharmaceutical goods. This indicates that the Malaysian palm oil industry cannot only gain revenue from distributing the oil itself but also in supplying various manufacturers of the said product lines. This makes palm oil an indispensable resource for both local and international consumers.   Weaknesses - The industry is very much vulnerable to uncontrollable affective factors. Aside from economic issues, changes in the weather patterns worldwide can affect Malaysia’s palm oil plantation and production. The effects of these weather changes had been demonstrated by the El Nino incident from 1996 to 1997 that caused a 6.5% reduction in palm oil production in 1998. It has also predicted by a study that more frequent occurrences of El Nino and La Nina would be experienced in the next 20 years (, 1999).   Opportunities - The support of the country’s government and agencies to the industry is an opportunity for uncovering useful research findings that would promote further growth. This opportunity is further stressed by several development noted by MPOPC. For instance, the department was able to discover a food and nutrition technology that would help improve pal oil’s image especially to the American market (2002). The MPOB has also been working with the Amersham Pharmacia Biotech (AP Biotech) in order to use the microarray technology, which can be useful in ensuring the competitiveness and viability of Malaysia’s palm oil business ( 2000).. Threats - The oil palm industry in Malaysia faces significantly growing competition with other foreign producers. Among its great contenders is Indonesia, which is considered the second largest producer in the world for palm oil. In 1994, Malaysia was able to achieve a 6.4% growth rate from its palm oil exports. However, though Indonesia distributed a smaller amount of oil to global markets, it was able to achieve a considerably higher growth rate of 10.7% ( 2004). According to  (2000), Indonesia’s competitiveness within the palm oil industry is also indicated by its well-managed plantation and low cost of production. The Malaysian palm oil industry is also threatened by the presence of other oil producers that distribute oils and fats at a lower price.   - The country is also experiencing lower land availability for future expansion for oil palm plantation. As indicated in the overview of the Malaysian palm oil industry, the availability of the land for planting palm oil is becoming more and more limited, especially in Peninsular Malaysia. In Sarawak, more land is available for plantation expansion; nonetheless, land tenure relevant to the Native Customary Rights (NCR) can be a problem to the development of the industry in the future.   - Shortage of labor is one of the main threats of the palm oil industry in Malaysia. This is considered a major constraint as the industry largely depends on foreign staff. There had been efforts done in order to minimize labor needs such as mechanizing milling and filed operations; however, it has been found that progress on this was slow. Moreover, it will be difficult to develop technologies that would address other labor-intensive operations such as the harvesting process.   Recommendations             From these SWOT findings it is clear that there will be several factors that would hinder the enhancement of the global operations of the Malaysian palm oil industry. Based from this, certain problems that affect the industry had stood out. The following recommendations could possibly assist the industry to ensure future progress and growth:   <li class="MsoNormal" style="text-align: justify; line-height: 200%"> MPOB should consider conducting researches that would protect palm oil plantation areas from the extensive impact of weather changes. This would prepare the industry should the forecast does occur. This could be a new plantation or storage breakthrough for palm oil. The government agriculture department should also consider developing alternatives for palm oil companies in the country if there would be major reduction in palm oil production. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> MPOC should exert greater efforts in finding other global markets for Malaysian palm oil companies. Moreover, as this agency is focused on palm oil education, extensive efforts should be done to promote the nutritional value and health benefits of palm oil. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Palm oil companies should continuously conduct their own researches. They should consider improving their respective research and development sectors if necessary. This recommendation should be done to promote constant development of new products that requires palm oil. This would help in making palm oil popular in other parts of the world. This could also help in meeting other needs of local and foreign consumers. Aside from being an advertising medium, development of new products can help the Malaysian palm oil industry in overcoming major competition in the business.</li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> The government of Malaysia should consider making legislations regarding land use. This would help in protecting the land for future expansion palm oil plantation. Other states that could be used for plantation can also be identified to increase land availability. The country should also consider finding land areas abroad that is conducive for growing palm oil. The Malaysian government and its labor department should also develop relevant workforce regulations. For instance, rather than depending on foreign laborers, the country can promote the recruitment of local employees. </li> <li class="MsoNormal" style="text-align: justify; line-height: 200%"> Palm oil companies could employ useful technologies that would enhance palm oil production and global distribution. This will support the industry’s aim to achieve greater profit and market growth.</li>     References: Credit:ivythesis.typepad.com

THE MALAYSIAN PALM OIL INDUSTRY

The Malaysian Palm Oil Industry Introduction Oil palm is among the most essential species of genus Elaeis that is part of t...

THESIS CHAPTER 1: THE EMERGENCE AND EVOLUTION OF MULTINATIONAL CORPORATIONS (MNCs) FROM MALAYSIA

Source: Stopford and StraSource: Stopford and Strange (1991: Figure                                         Source: Stopford and Strange (1991: Figure 1.6)                                                                                                     As such, given these gaps as argued in the current sets of the literature on developing country multinationals, provide a basis for defining the research problem. The nature of the problem is two-fold:   1.      How to explain the internationalisation pattern and process of the Malaysian-based multinational corporations, and nature of their strategies as compared to their predecessors (multinationals from developed countries), and to make a valuable contribution to the Malaysian economy.         2.      What type of strategic interventions as a source of business enhancement that need to be made by the Malaysian government and their respective bodies to facilitate and underpin development of indigenous Malay multinational corporations in order to growth domestically, and compete internationally, and the way(s) in which these interventions and the required contributions can be measured.   Therefore, the aims of this thesis are to gain a deeper insight into how the internationalisation pattern of the selected leading indigenous Malaysian-based multinational corporations, and to get a better understanding of their investments activities. Furthermore, this thesis also intends to investigate the interaction process between these multinationals, and their relationship with the home government in shaping, structure and developing business plan and policies.   In order to serve these aims, it would be appropriate to conduct depth interviews with senior executives in multinational corporations with headquarters in Malaysia, and with related ministries and government agencies. This is basically, to discuss historical development of the firms’ internationalisation process and to find out the present status of these corporations as to ensure continuous growth and the gain of competitive advantage in the global market.   1.2  Clarification and Argument of Terms and Terminologies 1.2.1        The Multinational Corporations Since this thesis is centred on the study of ‘Multinational Corporation’ (MNC) in a developing country, it is appropriate to first define the term to dwell on the possible source of confusion. The imperative to control resources and know-how as well as to secure access to overseas markets has driven some firms to engage in foreign direct investment (FDI) and gradually or potentially to become multinational corporations. Widespread use of this term MNC commenced in the early 1960s (Hymer, 1979; Jones, 1996). Since then, a variety of definitions have been offered and are widely known and used in the literature[5]. In fact, David E. Lilienthal[6], who was a Director of the Tennessee Valley Authority and Director of the Atomic Energy Commission at that time, was first to introduce the term ‘Multinational Corporation’ in 1960 by. At a symposium held on the Occasion of the Tenth Anniversary of the Graduate School of Industrial Administration, Carnegie Institute of Technology, David Lilienthal (1960: 119), distinguished between portfolio and direct investment and then defined “multinational corporations – which have their home in one country but which operate and live under the laws of other countries as well….” It is of interest that from the start, the multinational corporation was defined in terms of jurisdiction and potential jurisdictional conflict. The term ‘Multinational Corporation’ is distinct from ‘International Corporation.’ The latter term was used to designate a company with a strong national identification. A multinational corporation consists of the parent company, (normally the head office based in their home country) and its affiliates (either subsidiaries or associates in other countries abroad). The parent company owns some percentage of the share capital in order to be able to exercise control; that is, its overseas activities were an extension of its domestic functions and its decision-making centre remains at home (Wilczynski, 1976: 1). Since then, various hypotheses and additional terminologies have been formulated to encompass the nature and character of this ‘newly discovered species’.             Most scholars and researchers in international business (Vernon, 1971; Buckley and Casson, 1976; Todaro, 1989; Dunning, 1993a, 1993b; Glynn, 1993; Caves, 1996; UNCTAD, 1997; Dicken, 1998) have provided various definitions of the term ‘multinational corporation’. The adoption of different definitions is clearly understood that there are differential objectives and functions by individual researchers. According to Dunning (1993a, 1993b), a multinational corporation is “an enterprise that engages in foreign direct investment, and owns or controls value adding activities in more than one country”. The United Nations prefer to use the label ‘transnational corporation’ where this refers to all enterprises which control assets: – factories, mines, sales offices and the like, in two or more countries (UNCTAD, 1978: 158). The study on multinational corporation terms also reviewed that the definition can vary according to structural criteria, performance characteristics, or behavioural characteristics (Robock and Simmonds, 1989). They further indicated that MNC is a cluster of firms, being controlled by headquarters and simultaneously with the operation being spread to other countries around the world. Thus, multinational corporations or transnational corporations are enterprises that control and manage production facilities in at least two countries (Caves, 1996). According to Caves (1996), the use of term ‘enterprise’ is to direct attention of the top level of management whereby ‘company’ focuses on the controlled subsidiary of another firm. In this regard, MNC traditionally means a company that holds an equity interest and sits at the intersection of production, international trade, and cross border investment (Glynn 1993: 65-90).   Walters and Blake (1992) weakly defined MNCs as all firms, industrial, service or financial doing international business of all types within a myriad of international structures. The term is sometimes qualified by specifying and explaining that firms should have a certain minimum level of overseas activities, either in terms of the number of countries in which they operate or the proportion of production, assets, or employment overseas and they should be of a certain minimum size. A. D. Chandler (1961) showed in his study, Strategy and Structure, the process by which a corporation develops from an initial small workshop through progression to a large factory, and then to a series of factories nationwide in scale. During this evolution and development, the importance of central office as well as the number of its department increases. The greater the size of the firm, the larger and more subdivided the operations of this central office become. Moreover, the power and responsibilities of this central office will rise according to their new structure. Similarly, Dicken’s define MNCs as “a firm, which has the power to co-ordinate and control operations in more than one country, even if it does not own them” (Dicken, 1998: 8). Generally, multinational corporations do own assets in foreign countries. This definition on the other hand, implies that multinationals do not have to own productive assets abroad in order to be able to control. They however, can have control by getting involved in legally collaborative relationships across national boundaries. One of the unique characteristics of multinational corporations compared to other firms is the flexibility of the company to transfer and relocate resources across borders through its affiliates global network (Kogut, 1983). Figure 1.2 illustrates the global evolution model where multinational corporations normally start their business in a domestic market, and than expand abroad throughout the world and become a global player (Schultz and Kitchen, 2000). Dunning (1993b) refers global companies as “enterprises that engage in value-adding activities in all of the major regions in the world and possess an integrated strategy towards these activities”. Figure 1.2:      The Global Evolution of a Company                                                                                                                                                                                                              Sources: Schultz and Kitchen (2000: 24) Multinational corporations (MNCs) have been a source of controversy ever since the East India Company developed the British taste for tea and a Chinese taste for opium. Karl Marx’s Das Kapital was written in part as an attack on international capitalism. Gaining positions of competitive strength has become more important in an environment that has become increasingly global and competitive (Vandermerwe and Chadwick, 1991). Moreover, deregulation in the likes of financial services has ushered in a new era of global competition and quick competitive reactions. The size and importance of the service sector has grown considerably   Organizational strategy has long been viewed as the challenge of matching internal resources and strengths with the opportunities existing in the environment. This is perhaps best summarized in the seminal framework of Learned, Christensen, Andrews, and Guth (LCAG) (1969. Thus, the task of strategic management is viewed in terms of the interplay of the personal values of management with the firms’ skills and resources, and of how these are matched to environmental opportunities/threats and broader societal expectations.   1.2.2        Competitive Advantage and Business Strategy Conceptually, in order to perform, and grow in either a national or a global business environment, a business needs to possess some form of ‘competitive advantage’ and apply a unique ‘business strategy’. Competitive advantage is about how a firm actually puts the generic strategies (i.e. cost leadership, differentiation, and focus) into practice (Porter, 1980, 1985, 1990). It concerned with developing a value-creating strategy by uniquely combining of valuable firm resources (Barney, 1991) and skills (Day and Wensley, 1988). Likewise, Keegan (2002: 4) refer ‘competitive advantage’ as an offer made by a firm’s that is most attractive to customers. It occurs when a firm have an advantage of exclusive or unique assets and resources that are not available and hardly to replicate to their current or potential competitors (Dunning, 1988, 1993a). Dunning’s refers to this term as ‘ownership advantage’, which constitute assets that are capable and competent to generate income streams that could compensate for higher costs in order to operate abroad. The definition by Dunning covers a broader range of meanings including tangible and intangible assets and resources (i.e. plant, location, capital, market knowledge, technological, managerial and entrepreneurial skills). Although ‘ownership advantage’ is commonly used in an international context, the term has been used interchangeably with ‘competitive advantage’ on many occasions and events, locally and internationally. As supported by Dunning, ‘ownership advantage’ is an asset owned by particular enterprises and could be applying either in the domestic operations or elsewhere (Dunning 1993a: 77). Similarly, Dunning (2000) referred to ‘ownership advantage’ as assets unique (i.e. superiority skills, and resources) to one firm relative to another, without limiting the use of the term to any context and perspective. In order to make a clear distinction, this thesis combined the uses of ‘ownership advantage’ and ‘competitive advantage’ terms as synonyms and interchangeably, and it applies to both domestically and/or internationally. It refers to a variety of ownership advantages of resources that could be beneficial to the firm’s development. A ‘business strategy’ term can be defined as a determination of the firms to achieve their long-term goals and objectives (Chandler 1961: 13). Generally, it is about managing organisation, basically business (Rumelt, Schendel et. al., 1994). It involves the ways of firms adopted the courses of action, and the allocation of resources to carry these goals. Different firms face different strategic situation. The understanding of the ‘business strategy’ term has been conceptualised from different angle and perspective (Pearce, Robbins and Robinsons, 1988). Hofer (1975) and Mintzberg (1978) refer ‘business strategy’ to the strategy methods that a firm selects in order to compete in marketplace. The purpose of selecting specific business strategy methods is to exploit external environmental opportunities and organisational to create sustainable competitive advantages and to improve the competitive position of the firm (Bourgeois 1980, Robinson and Pearce 1988). Following the above scholars’ definition, this thesis refers to ‘business strategy’ as a plan of action carried out tactically by firms to achieve their business objectives in order to sustain and grow in national and global market.   Clarifying the above key terms is important, as it will become a central task and crux of this thesis in debating how Malaysian multinationals expand their operation abroad and realign their operations and strategies to ensure they are competitive in the global market.   The potential to confer a competitive advantage is not inherent in all resources (Wernerfelt, 1989) but, rather, in only those that meet a rigorous set of conditions (Barney, 1991, Peteraf, 1993). The first condition is that the resource must be valuable–it must provide the opportunity to exploit some environmental opportunity or neutralize some threat. Resources are considered valuable when they enable a firm to conceive of or implement strategies that improve the firm’s efficiency or effectiveness (Barney, 1991). Some authors construe value in terms of meeting a key buyer need (Aaker, 1989; Coyne, 1985). In addition, resources must have the characteristic of rareness. If valuable resources are possessed by a large number of competitors or potential competitors, they no longer represent a source of competitive advantage. Third, there must be the condition of imperfect mobility of resources. Where resources are easily traded between competitors, no competitive advantage can be maintained. Imperfectly mobile resources include those that are idiosyncratic to the firm (Williamson, 1979), those for which property rights arc not well defined (Dierickx and Cool, 1989), or those that are co-specialized assets (Teece, 1986). Furthermore, the imperfect mobility of assets is a critical factor in service businesses as people are the key assets in many cases, and their high mobility frequently results in the loss of accounts and the emergence of new competitive threats as in the case, for example, with personnel employed by advertising agencies and moving to other ones.   Finally, for an advantage to be sustained, resources must be imperfectly imitable (Barney, 1991) or provide some ex-post limits to competition: That is, subsequent to a firm gaining a superior position and earning rents, forces must exist that limit competition for those rents (Peteraf, 1993). It was noted above that innovations such as the development of a new type of account by a retail bank or a new advertising style by a creative department frequently results in a host of imitations from competitors. For a firm to be in a position to exploit a valuable and rare resource, there must be a resource position barrier preventing imitation by other firms (Wernerfelt, 1984). Sustaining a competitive advantage over a period of time requires the presence of isolating mechanisms that prevent imitation. Several such barriers that have been cited in the literature include causal ambiguity (Reed and DeFillippi, 1990) and uncertain imitability (Lippman and Rumelt, 1982), where the drivers of success are difficult to identify.  The process of asset stock accumulation within the firm may also prevent imitation.   Attempts to restrict and limit the definition of multinational corporations may lead to more difficulties than when a more general definition is used (Jones, 1996: 4). Therefore, for the purpose of this thesis, a broad and basic definition of multinational corporations will be adopted. It refers to a corporation that engages in foreign production through its affiliates located abroad, and controls their activities (assets and/or exert influence in the decision making process) and business strategies that transcend national boundaries. This thesis will use the term ‘MNC’, ‘multinational companies’, ‘multinational enterprises’, or ‘multinationals’ as synonyms and interchangeably.   1.3  Contributions and Significance of the study This research promises to contribute to the understanding on how the emergence and evolution of indigenous Malaysian-based multinational corporations and how various sources of strategies, policies and plans are being implemented in restructuring their domestic and international expansion activities. The primary objective of this study is to provide new insight into the research agenda of competitive strategy for multinational corporations in Malaysia specifically, and to developing countries generally. For that reason, it is hoped that this thesis will partially bridge the empirical gap in the present literature of multinationals from developing countries. The specific contributions of this study could be described as follows:   a.       Most of previous studies on competitive strategy in multinational corporations have been conducted in the well-established industrialised countries (North America, Western Europe Community, and Japan) and East-Asian newly industrialised countries (South Korea, Taiwan, Singapore and Hong Kong). A majority of developing countries particularly in the Southeast Asia countries, namely Indonesia, Thailand, the Philippines and Malaysia are excluded from this research. This study wishes to verify the underlying dimensions of competitive strategy for indigenous Malaysian-based multinational corporations and reflect what can be learned from these companies. The results of this study should expand the knowledge base of competitive strategy and may identify potential areas for future research;   b.      Previous studies on strategic operations of MNCs have tended to gained data and focus from the parent companies (headquarters) and all its affiliates without looking at the formation and involvement of plans and strategies from the government perspective of that respective country to support their local firms business. This approach is convenient but may be misleading due to the gap between these both organisations (home government and multinational corporations). The results of this study should provide empirical evidence of how both institutions could work together in supporting their businesses and investment activities domestically and internationally;   c.       A third objective of this thesis is to make an additional contribution to the existing literature due to the cultural and political gaps, and environmental differences between Malaysia and other developing countries as mentioned earlier in section 1.1, which may overshadow to the overall development of these firms;   d.      A final objective of this study is to reveal what can be learned from the experience of these Malaysian multinationals in expanding their operation abroad, opening the intellectual horizons to go beyond the conventional studies from developed country multinationals.   1.4  Research Methodology This section will explain the various proposed ways that will undertaken to carry out this empirical research. Details of the research method will be further elaborated and explained in Chapter 4 – Research Methodology. According to Earl and Robert, 1975; Hakim, 1992; Yin, 1994, de Vaus, 2001, there are several conventional approaches and designs of doing social science research. It includes experiments, surveys, archival analysis, longitudinal design, observations, case studies and economic modelling. Each type of strategy has its advantages and weaknesses depending on the: (a) form of research question being chosen; (b) the control of a researcher over the behavioural events; and (c) the focus on contemporary events as opposed to historical phenomenon.   For the purposes of this thesis, the best approach to be considered for selection is either – used of an experimental method, a survey or by means of case studies. The reasons for selecting these three approaches to be in the highest lists of being a research method and strategy is as follows:   (a)    This study is to focus on the issues that involve the dynamic changes of internationalisation expansion of multinationals, where it is an on-going issues and real-life context to the world economy. According to Yin’s (1994: 6), these three research methods are the best approaches since they focus on contemporary events and current phenomenon.   (b)   Another important condition to be considered before the final selection of research strategy is the type of research questions. Yin (1994) suggested that if the research questions are exploratory, particularly when “how” or “what” questions are being posed, the best approach is – an experiment, history or case study research. Since this study is based on this situation, therefore it is likely to favour a researcher to select this strategy as the preferred research method. In addition, case study offers the best prospect for advancing knowledge about organisational process (Eisenhardt, 1989; Yin, 1989).   (c)    Except for experiment, a further distinction between survey and case study is the extent of the researcher to access to actual behavioural events (Hakim, 1992; Yin 1994; de Vaus, 2001). Most of the sources of evidence to support this thesis will base on archival documents, observations, and interviews. Thus, it is appropriate for a researcher to follows this strategy (survey or case study) as it seems to support the conditions.   1.4.1        Scope of the Research  This research covers indigenous multinational companies with headquarters in Malaysia, which are still considered as emergent and nascent MNCs. Each chosen company will represent certain industries in Malaysia in respective sectors namely product, service, manufacturing, and financial services.  The rational for selecting of these companies are briefly discussed and Chapter 4 of Research Methodology will elaborate further in details.                                                      An example of companies such as Perusahaan Otomobil Nasional Berhad (Proton), Malaysian Airlines System Berhad (MAS), Sime Darby Berhad (SDB), Tenaga Nasional Berhad (TNB), Telekom Malaysia Berhad (Telekom), Malayan Banking Berhad (Maybank), Petronas Dagangan Berhad (Petronas), Edaran Automobil Malaysia Berhad (EON) and Padi Beras Nasional Berhad (BERNAS), which are considered as Malaysian indigenous multinationals and are being dominated and controlled by the bumiputera may be selected as cases for this research. One of the important factors to be considered in the selection of these companies to be a sample for this study is the pioneer position of these firms in their respective industries and their dominant role in the domestic Malaysian market. For instance, Perusahaan Otomobil Nasional Berhad or Proton was ranked Malaysia largest carmaker and ranked number three out of top one hundred Malaysia’s companies in terms of turnover. Likewise, Tenaga Nasional Berhad (TNB) or National Electricity Board (NEB) was ranked the largest firm in electricity company with more than RM 54.0 billion or approximately USD 14.2 billion[7] assets and also ranked the first in terms of their turnover in year 2001 / 2002 (Malaysian Business 2002). Table 1.3 shows the general profile of the selection companies for the study.   Table 1.3:       Profile of the Selected Companies for the Cases 		  		 		Company 		Group 		Revenue 2001/2002 		(RM 		Millions) 		Year 		Incorporated 		  		Core 		Industries 		 		Perusahaan 		Otomobil Nasional Berhad (Proton) 		 		  		 		10, 307.7 		 		  		 		1983 		 		  		 		Automotive 		Manufacturer 		 		Tenaga 		Nasional Berhad (TNB) 		 		  		 		15, 375.1 		 		  		 		1990 		 		Electricity 		Service Provider and related services 		 		Telekom 		Malaysian Berhad (Telekom) 		 		  		 		9, 673.2 		 		  		 		1984 		 		 		Telecommunication Service Provider and related services 		 		Malayan 		Banking Berhad (MBB) 		 		  		 		7, 403.2 		 		  		 		1960 		 		Financial 		and Banking services 		 		Malaysian 		Airlines System (MAS) 		 		  		 		8,695.2 		 		  		 		1971 		 		  		 		Airlines 		Services 		 		Petronas 		Dagangan Berhad (Petronas) 		 		  		 		67, 181 		 		  		 		1983 		 		  		 		 		Petrochemicals, oil and gas 		 		Sime Darby 		Berhad (SDB) 		 		  		 		12, 053.1 		 		  		 		1978 		 		  		 		 		Diversification 		 		Edaran 		Automobil Malaysia Berhad (EON) 		 		  		 		7, 548.3 		 		  		 		1984 		 		  		 		Distributor 		of Motor Vehicles 		 		Padi Beras 		Nasional Berhad (BERNAS) 		 		  		 		n.a 		 		  		 		1994 		 		  		 		Food 		Productions     The second criteria of these companies to be selected as a sample of study are based on individual firm’s contribution as the most active outward investors in their respective industries. On top of that, their recognition in business performance in terms of profitability, and management proficiency will also be taken into consideration in any selection process.   Finally, the selection of samples for this study has to do with the accessibility of a researcher to the firm’s resources and the availability of secondary data.   Because this thesis is about the internationalisation expansion of Malaysian multinational corporations and the developmental of their strategy, it is appropriate at the outset of this thesis; the form of theoretical framework is based on the developing country multinational literature. However, limited and deterministic interpretations inherent in the literature propel this thesis to refer to two other schools of thought – the integration works from both developed and developing countries scholars.   1.4.2        Research Design This research is a qualitative study that will be based on actual cases. It is based on exploratory research that will involve depth interviews (the content will evolve over time), with senior executives of specific Malaysian multinational corporations in determine the key business strategies for the expansion of their firms. Apart from that, depth interviews (the content further will evolve over time) will also be conducted with related ministries such as: the Ministry of International Trade and Industry (MITI), the Ministry of Entrepreneurial Development (MED), and also with government bodies such as: Bank Negara Malaysia (Central Bank of Malaysia), Kuala Lumpur Stock Exchange (KLSE), Malaysia Industrial Development Agency (MIDA), Malaysian Industrial Development Finance (MIDF), Malay Chamber of Commerce (MCC); and the Federation of Malaysia Manufacturers. The main objective is to identify the type of strategic interventions as a source of business enhancement that need to be contribute by these organisations to the Malaysian MNCs.   Some secondary data from archival documents will also be used in this research such as, information on company backgrounds or organisational profile, company annual reports, company brochures, books, newspaper or magazine reports, and other related information as and when required and needed to support this thesis.   1.4.3        Selection of Sample and its Limitation As discussed in sub-section 1.4.1, Malaysia’s Top 100 Corporations edition 2001/2002 from Malaysian Business Magazine will be used as the basic guide for the selection of the specific companies. This magazine contains a compilation of data on the 100 most successful and profitable companies in Malaysia. It is annual Malaysian published company information that ranks Malaysia’s 100 largest companies by turnover, net profit and shareholders funds. On the other hand, Securities Commission – a self-funding statutory body under the Ministry of Finance (MoF), and established under the Securities Commission (SC) Act 1993, will also be contacted for verification on the information published in the book. Bank Negara Malaysia, a Central Bank for Malaysia, Kuala Lumpur Stock Exchange (KLSE), and related agencies will be contacted in order to gain access on the latest and published data on outward direct investment for these Malaysian multinationals.   A basic limitation or constraint of this study is that, it requires access to detailed confidential information about specific companies. This, however, may not always be possible.   1.4.4        Data Collection and Analysis                   This research will draw upon three independent streams of information and triangulate them to check for accuracy. Three streams include:   (a)    internal company documents written at the time of the events described in the cases;   (b)   publicly available documents, also from the time of the events; and   (c)    interviews with key employees and/or actual participants in the events.   In order to get useful results, the following steps will be taken for each case:   (1)   The Pre-Research Phase: The goal of this stage is to understand the company backgrounds. It entails the performance of an industrial competitive analysis, corporate competitiveness, and reviewing existent literature on the company.   (2)   Company Documents Collection: The purpose of this activity is to collect and compile all documents, both internal and external, written at the time of the event.   (3)   Interview Data Collection: Depth interviews with senior executives and related stakeholders and government officials will be conducted, focusing on questions (the content further will evolve over time) that cannot be answered by resorting to secondary information and the related questions that might be posed as a result of the study of the case histories.   1.4.5        Assumption of Research The assumptions of this research are as follows:   a.       all participants or interviewees are familiar with their work and operations.   b.      the responses of the participants or interviewees accurately reflect their perceptions and feelings.   c.       the views of the participants or interviewees represent and correspond to their organisation.   1.5  Organisation of the Thesis The development of each chapter will be based upon discussion with supervisor. Proposed for chapter outline is as follows (details of each chapter will be further developed based on the argumentation of this thesis): -   1.      Purpose of the Thesis 1.1.   The Research Objectives and its Aims 1.2.   Clarification and Argument of Terms and Terminologies 1.2.1.      The Multinational Corporations 1.2.2.      Competitive Advantage and Business Strategy 1.3.   Contributions and Significance of the study 1.4.   Research Methodology 1.4.1.      Scope of the Research 1.4.2.      Research Design 1.4.3.      Selection of Sample and its Limitation 1.4.4.      Data Collection and Analysis 1.4.5.      Assumption of Research 1.5.   Organisation of the Thesis   2.      Review of Related Literature 3.      Methods And Procedure 3.1.   Method of Research to be Used 3.2.   Sampling Technique 3.3.   Respondents of the Study 3.4.   Instruments to be Used 3.5.   Validation of the Instrument 3.6.   Administration of the Instrument 3.7.   Statistical Treatment of the Data   4.      Presentation, Interpretation, and Analysis of Data   5.      Summary, Conclusion and Recommendation 5.1.   Summary 5.2.   Conclusion 5.3.   Recommendations 6.      Bibliography   References: Aaker, D.A. “Managing Assets and Skills: A Key to Sustainable Competitive Advantage.” California Management Review, 31, 1 (1989), 91-106.   Barney, J.B. “Firm Resources and Sustained Competitive Advantage.” Journal of Management, 17, 1 (1991), 99-120.   Cool, K., and Schendel, D. “Strategic Group Formation and Performance: The Case of the U.S. Pharmaceutical Industry.” Management Science, 33, 9 (1987), 1102-1124.   Coyne, K. “Sustainable Competitive Advantage: What It Is, What It Isn’t.” Business Horizons, 29, 1 (1985), 54-61.   Dierickx, I., and Cool, K. “Asset Stock Accumulation and Sustainability of Competitive Advantage.” Management Science, 35, 11(1989), 1504-1511.   Learned, E.P.; Christensen, C.R., Andrews, K.R.; and Guth, W. Business Policy. Homewood, IL: Irwin, 1969.   Lippman, M., and Rumelt, R.P. “Uncertain Irritability: An Analysis of Interfirm Differences in Efficiency under Competition.” Bell Journal of Economics, 13, 1 (1982), 418-453.   Peteraf, M.A. “The Cornerstones of Competitive Advantage: A Resource-Based View.” Strategic Management Journal, 14, 3 (1993), 179-191.   Reed, R., and DeFillippi, R.J. “Casual Ambiguity, Barriers to Imitation and Sustainable Competitive Advantage.” Academy of Management Review, 15, 1 (1990), 88-102.   Teece, D.J. “Firm Boundaries, Technological Innovation and Strategic Management.” In L.G. Thomas, III (ed.), The Economics of Strategic Planning. Lexington, MA: Lexington Books, 1986, pp. 187-199.   Vandermerwe, S., and Chadwick, M. “The Internationalisation of Services.” In C.H. Lovelock (ed.), Services Marketing. London: Prentice-Hall, 1991, pp. 48-58.   Wernerfelt, B., and Montgomery, C.A. “Tobin’s” q and the Importance of Focus in Firm Performance.”American Economic Review, 78, 4 (1988), 246-250.   Williamson, O.K. “Transaction-Cost Economics: The Governance of Contractual Relations.” Journal of Law and Economics, 22, 2 (1979), 233-261. <div style="mso-element:footnote-list"> <div style="mso-element:footnote" id="ftn1"> 		 		 		[1] 		Some of the literature used the term multinational from Third-world 		countries (see Wells, 1983; Tolentino, 1993, Dunning, van Hoesel and 		Narula, 1997). It refers to domestic firm with head-office in developing 		countries, which control assets and/or exert influence in the 		decision-making process of one or more cross border subsidiaries and/or 		affiliates (Yeung, 1994). For a complete statement on its significance, 		see section 1.2 in this thesis. </div> <div style="mso-element:footnote" id="ftn2"> 		 		 		[2] 		Chaebol is the name given to the large Korean conglomerates 		similar to the keiretsu in Japan </div> <div style="mso-element:footnote" id="ftn3"> 		 		 		[3] 		Malay or Bumiptera (in Malay language), means “sons of the soil”. The 		growing terminology usage of the term “Bumiputera” especially after the 		implementation of New Economic Policy (NEP) in 1969 has given it a more 		specific connotation, which its meaning has been narrowed specifically 		to mean the Malays. Therefore, the usage of the terms Malay or 		Bumiputera will be used interchangeably in this thesis. 		 		  </div> <div style="mso-element:footnote" id="ftn4"> 		 		 		[4] 		Department of Statistics, Malaysia (http://www.statistics.gov.my) 		  </div> <div style="mso-element:footnote" id="ftn5"> 		 		 		[5] 		The earliest example quoted in the 1976 supplement to the Oxford English 		dictionary is from The Economist for 17th 		October 1964. 		  </div> <div style="mso-element:footnote" id="ftn6"> 		 		 		[6] 		Parentage of the term was first pointed out by Baran P. A., and Sweezy 		P. A., “Monopoly Capital: an essay on the American economic and 		social order” (Great Britain: Penguin Books, 1966: 192). Fieldhouse 		D. K., (1986), corroborates Lileinthal’s first use of the term and 		provides an interesting intellectual history of the development and use 		of multinational enterprise in “The multinational: a critique 		of a concept”, in Teichova A., et. al., (eds.) “Multinational 		enterprise in historical perspective”, (Cambridge: Cambridge 		University Press, 1986: 9-29). 		  </div> <div style="mso-element:footnote" id="ftn7"> 		 		 		[7] 		Since 1997, Malaysia had adopted exchange controls which make the local 		currency Ringgit is pegged at a fixed rate of one US Dollar to 3.80 		Ringgit. </div></div> </div> Credit:ivythesis.typepad.com

THESIS CHAPTER 1: THE EMERGENCE AND EVOLUTION OF MULTINATIONAL CORPORATIONS (MNCs) FROM MALAYSIA

Source: Stopford and StraSource: Stopford and Strange (19...