Global Crisis and Country's Competitiveness: Lessons from Indonesia and Malaysia

By Setyawan, Anton A. | European Research Studies, July 2011 | Go to article overview

Global Crisis and Country's Competitiveness: Lessons from Indonesia and Malaysia


Setyawan, Anton A., European Research Studies


1. Introduction

The global financial crisis in 2008-2009 has varying impacts for countries in South East Asia. The crisis began from the failure in the US financial market in the late 2007 and then it has a contagious effect to many countries related to US economy. United States and European economy suffer the worst downturn since the 1930 depression. Their economic policy to overcome the downturn is to give fiscal stimulus in the market, especially the financial market. The result is clear that the US and European economy start to recover, even though there is a debate in the speed of the process.

Indonesia and Malaysia are known as two Southeast Asia countries which have a different characteristic in their economics structure. Economy contracted sharply in Malaysia. Malaysia experienced minus 8 percent of their GDP growth during 2008, and it still continues in the first quarter of 2009. In this country, the private consumption and investment has also fell because of the global financial crisis.

Indonesia has a different experience in the 2008 global financial crisis. Instead of suffering a downturn, Indonesia's GDP grows 5.8 percent in 2008. This country shows a positive growth in private consumption. The domestic market of Indonesia leads the country's economy out from the crisis. Indonesia, along with China and India survived from the crisis and become the savior of Asia economy (Son and San Andreas, 2009).

In the academic discussion, the issue of national competitiveness is a very important for economic development. In fact, many economies in the world try to have the most competitive nation to gain superior economic performance. Many studies conducted by strategic management and economics scholar discuss the role of competitiveness of a country to their economic performance. Fahy (2002) suggest that organizations and country have to build their global competitive advantage in order to survive in the age of globalization. He suggests that organizations and country must optimize their resources to gain global competitive advantage. Pillania (2009) studies shift of competitiveness in the world economies from United States and Europe to the new economies called BRIC (Brazil, Russia, India and China). The study concludes that the role of BRIC in world economies becomes more important. Herciu and Ogrean (2008) study the effect of macro economic indicator to national competitiveness in several countries and multinational companies in the world. The result shows that most of macro economic indicators were explain the national competitiveness in those countries. Jasimuddin (2001) studies the competitiveness of Arab Saudi by using Porter Model of Competitiveness. In his work, he adopted all of four factors of competitiveness in the model; they are actor conditions, demand conditions, related and supporting industries, and firm strategy, structure, and rivalry. This study also uses Porter Model of Competitiveness to analyze the effect of global financial crisis to the competitiveness of the country.

World Economic Forum, a leading economic institution in the world has proposed a competitiveness report of 133 countries in the world. It called the Global Competitiveness Index (GCI). The report becomes guidance for many investors to decide which country in the world they would like to invest in. Malaysia is a South East Asia country which have good ranking in the competitiveness report. Malaysia was in 26 positions, while Indonesia was in the 50 position in World Competitiveness Report 2006.

Those two countries are in the same region in South East Asia and their economic sectors are also closely related. The different impact of the global financial crisis to Indonesia and Malaysia is an interesting issue to discuss. Malaysia has better Global Competitiveness Index (GCI) than Indonesia. In the time of 2008 global crisis those two countries were nearly collapsed, while Indonesia economy was survived and still has a positive growth.

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