Malaysia's Blueprint for Industrialization

By bin Mohamad, Mahathir | Presidents & Prime Ministers, July 2000 | Go to article overview

Malaysia's Blueprint for Industrialization


bin Mohamad, Mahathir, Presidents & Prime Ministers


During the colonial period Malaysia, or rather Malaya, was the biggest producer of tin and rubber in the world. There was hardly any manufacturing industry. Practically all manufactured goods had to be imported.

After independence in 1957, the problem of unemployment became more serious as the tin and rubber industries provided few job opportunities. The only way to create jobs was to go into manufacturing.

But Malaysians had no experience in manufacturing, no technology, no capital and no management know-how or marketing skills. In those days countries wishing to industrialize had to depend on local entrepreneurs willing to risk the little capital they had and buy or steal technology or pay prohibitive royalty. There was no way for them to produce and compete in the international market.

Japan was about the only country which successfully industrialized on its own. But Japan had indigenous skills in various crafts and was familiar with metals. Most countries, and certainly Malaysia, had no such background. Besides the colonial masters ensured that we were limited to producing commodities. Over time we believed that producing manufactured goods required some kind of extraordinary skills and even some magic which was beyond us.

But early after independence we realized that unless we could create jobs for our people we would be faced with serious social and political problems. We would in fact become poorer and poorer and be worse off than when we were colonies.

The little industrialization that we managed by ourselves was in import substitute products. But what we produced with our primitive factories were inferior to imports and invariably cost more. We had to impose high import duties in order to protect our products. This only deprived our people of much needed manufactured goods to improve their standard of living. Wages and incomes could not rise, so that the local market could not absorb local products in sufficient volumes to increase production efficiency. There was no way to export our inferior goods as they could compete neither in quality nor in price.

It seemed that Malaysia was doomed to remain a producer of natural commodities and to remain backward and poor. But we decided to change our mindset and to invite foreigners to use Malaysia as an industrial base for their products for the world market. However we were not too confident that our workers could master the skills of manufacturing.

At that time the Japanese were producing and marketing superior and cheap goods for world markets. The Europeans with their high cost of labor etc. could not compete with the Japanese. To lower their cost they had to move to low labor cost countries. And so Malaysia's offer of a cheap manufacturing base was hesitantly accepted.

To make manufacturing in Malaysia more attractive the Government offered a ten years tax holiday during which time there would be no corporate tax or tax on products exported to foreign markets. Bureaucratic hassles were minimized and illegal gratification of any kind was strictly dealt with.

The foreign investors soon found that the skillful, low-paid and disciplined Malaysian work force enabled them to reduce their cost and make their products competitive. The investments increased tremendously and soon Malaysian exports of manufactured goods exceeded exports of rubber, tin and even petroleum. Today 80 per cent of Malaysia's exports are made up of high-value electronic and electrical goods.

Initially Malaysia encouraged labor intensive industries so as to reduce unemployment. The policy was so successful that today we have almost two million foreign workers, a large number of whom work in foreign manufacturing companies.

But the benefits to Malaysia go beyond that. Malaysians acquired skills in manufacturing, in the management of sophisticated manufacturing facilities and systems and in marketing. …

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