Chapter 5 The Industrial Sector

Chapter 5
THE INDUSTRIAL
SECTOR
PREVIEW
 Explain the role of the industrial sector in the

Malaysian economy.
 Discuss the industrialization development policies
and the various Industrial Master Plans (IMPs).
 Explain the role of small and medium industries
(SMIs) and heavy industries.
 Explain the role of foreign direct investment (FDI)
in the Malaysian economy.
 Identify the issues faced by the industrial sector.
Malaysian Economy All Rights Reserved

© Oxford Fajar Sdn. Bhd. (008974-T), 2014 1– 3
INDUSTRIAL DEVELOPMENT
OF MALAYSIA
 Early 1950s: Very little manufacturing activity;
small contribution to GDP; focus was more on
agriculture.
 Import Substitution (1957–1970): Pioneer
Industries Ordinance introduced; MIDF and MIDA
formed; the Investment Incentive Act introduced to
promote manufacturing activities.
 Export Orientation (Post 1970s): Export promoted
aggressively; Investment Incentives Act introduced
in 1968; importance of foreign direct investment
(FDI) emphasized.
INDUSTRIAL DEVELOPMENT
OF MALAYSIA (cont.)
 Heavy Industries (Post 1980s): Heavy industries
established; active government participation in
industrial development (setup of PROTON and
Perwaja Steel Sdn. Bhd.); the Promotion of
Investments Act introduced; the Industrial Master Plan
(1986–2020) formulated.
 High Technology Industries (Post 1990s): Action Plan
for Industrial Technology Development (APITD)
established to encourage the development of industrial
technology. The emphasis was on developing
indigenous technological capabilities, encouraging
R&D activities, and developing strong SMIs.
ROLE OF THE
INDUSTRIAL SECTOR
 Increased contributions to the Gross Domestic
Product (GDP), employment and exports
 Modernization of the economy, widening industrial
and economy bases
 Plays an important role in downstream activities
 Creates linkages between heavy industries and
SMIs
 Transferring of technology through foreign and
domestic investments
 Creates many opportunities and linkages with other
sectors
INDUSTRIAL DEVELOPMENT POLICIES:
FIRST INDUSTRIAL MASTER PLAN
(IMP1), 1986–1995
 The Industrial Master Plan (IMP): Initiated to

provide a medium- and long-term policy
framework to spearhead the development of a
more diversified and integrated manufacturing
sector.
 Objectives of the IMP1:
– To accelerate the growth of the manufacturing
sector, in order to ensure a continued rapid
expansion of the economy, and to provide a
basis for meeting the social objectives
consistent with the NEP
(IMP1), 1986–1995 (cont.)
– To promote opportunities for the maximum and
efficient use of the nation’s abundantly endowed
natural resources
– To build up the foundation for leap-frogging towards
an advanced industrial country in the information
age, by increasing indigenous technological
capability and competitiveness
 Strategies of the IMP1:
– To implement an outward-looking industrialization
policy
– To develop resource-based and non-resource based
industries for the export market

(IMP1), 1986–1995 (cont.)
– To develop heavy industries to support the export
market
– To develop and use the integrated information
services system
– To develop technology and a skilled workforce
– To accelerate the development of SMEs
– To strengthen the respective institutions responsible
for the development of the manufacturing sector
– To restructure the existing industrial incentives
scheme, so as to increase its efficiency and
competitiveness
SECOND INDUSTRIAL MASTER PLAN
(IMP2), 1996–2005
 Objective of IMP2: To transform the manufacturing sector
into a resilient, broad-based and internationally competitive
sector.
 Two new strategies were introduced:
– Manufacturing plus-plus strategy
– Cluster-based industrial development
 Key strategic thrusts:
– Global orientation
– Enhancing competitiveness
– Improving requisite economic foundation
– Malaysian-owned manufacturing companies
– Information-intensive and knowledge-driven processes
THIRD INDUSTRIAL MASTER PLAN
(IMP3), 2006–2020
 The IMP3: A 15-year blueprint for industrial
development in Malaysia, riding on the theme,
Malaysia—Towards Global Competitiveness.
Emphasizes transforming and innovating the
manufacturing and services sectors in an integrated
manner towards attaining developed nation status
under Vision 2020.
 Outlined 10 strategic thrusts under three broad
spectrums:
– A) Development initiatives
• Enhancing Malaysia’s position as a major trading
nation
(IMP3), 2006–2020 (cont.)
• Generating investments in targeted growth areas

• Integrating Malaysian companies into the regional
and global networks
• Ensuring industrial growth contributes towards
equitable distribution and more balanced regional
development
– B) Promotion of growth areas
• Sustaining the manufacturing sector’s contribution
to growth
• Positioning the services sector as a major source
of growth
(IMP3), 2006–2020 (cont.)
– C) Enhancing the enabling environment

• Facilitating the development and application of
knowledge-intensive technologies
• Developing innovative and creative human capital
• Strengthening the role of private sector
institutions, including trade and industry
associations
• Creating a more competitive business operating
environment through effective institutional support
and efficient government delivery system

DEVELOPMENT OF SMALL
AND MEDIUM INDUSTRIES IN
MALAYSIA
 Small and medium enterprises (SMEs) are:
– The backbone of industrial development in
Malaysia’s economy
– Generally dominated by domestic companies
– Defined as having annual sales turnover not
exceeding RM25 million or employing full-time
employees not exceeding 150 people
 Role of SMEs:
– Creating employment opportunities, especially in
the services sector
MALAYSIA (cont.)
– Strengthening industrial linkages
– Contributing to development and modernization
of manufacturing sector via widening and
deepening of industrial base
– Training ground for tomorrow’s entrepreneurs
 Challenges faced by SMEs:
– Limited access to finance and capital.
– Human resource constraints—lack of skilled
workers.

MALAYSIA (cont.)
– Limited capability to meet market liberalization
and globalization challenges.
– Limited capacity for technology management
and knowledge acquisition.
– Occupying sites that are not approved to be
used for industrial purposes.
– Underutilization of technical assistance, advisory
services and other incentives.
– Poor integration and linkages with large
industries.

ROLE OF HEAVY INDUSTRIES
IN MALAYSIAN ECONOMY
 Heavy industries: Implemented to facilitate economic
linkages, induce technology diffusion and broaden the
industrial sector—in 1980, the Heavy Industries
Corporation of Malaysia (HICOM) was formed. Some
projects involved: the cement industry, Perwaja Steel
Sdn. Bhd., PROTON and oil refinery.
 Role of heavy industries:
– Greater utilization of natural resources
– Enhancement of technological capability
– Development of inter-industry linkages
– Employment creation

FOREIGN DIRECT
INVESTMENT (FDI)
 Foreign direct investment (FDI) refers to a company
from one country making a physical investment into
building a factory in another country.
 To qualify as FDI, the investment must afford the
parent enterprise control over its foreign affiliate.
 The Department of Statistics, Malaysia (2008) defined
FDI in the country as the holding of at least 10% of the
total equity in a resident company by a non-resident
direct investor.
 FDI constitutes a long-term investment that has lasting
interest and control of a resident entity in a nation by a
foreign investor.
CHALLENGES IN THE
INDUSTRIAL SECTOR
 Large industrial technological gap
 Lack of domestic Research and
Development (R&D)
 Weak industrial linkages
 Narrow manufacturing base
 Inadequate use of natural resources
 High costs of production
 Absence of SMEs’ role in the industrial
sector

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Chapter 5 The Industrial Sector

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Chapter 5

 Explain the role of the industrial sector in the

Malaysian Economy All Rights Reserved

 The Industrial Master Plan (IMP): Initiated to

FIRST INDUSTRIAL MASTER PLAN

• Generating investments in targeted growth areas

– C) Enhancing the enabling environment

Malaysian Economy All Rights Reserved

Malaysian Economy All Rights Reserved

Malaysian Economy All Rights Reserved

Malaysian Economy All Rights Reserved

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