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 "FDI. 1 . FDI refers to the investment of asset such as factories. to shows the influence of investor.1 According to OECD iLibrary (2013). The securities included stocks. Data. FDI is different with portfolio investment which portfolio investment is an investment of securities in other country.worldbank. one have to own of at least 10% of the voting. 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.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. net inflows (BoP. current US$) | Data | Table". To be more detail.1. debenture and bonds. mergers and acquisitions. 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.0 Introduction 1. Basically. into domestic services and goods but this did not include the investments in share markets from foreign country. technologies and etc. Retrieved 2013-11-02. “Greenfield investments” or building new facilities.org. FDI usually done by joint ventures. In economic term.

No doubt. plantations. commercial enterprises and utilities. Sulong 1990). the introduction of Free Trade Zones. and improve living standards.2 Trends and Prospect of Foreign Direct Investment in Malaysia FDI has been the focus of attention in emerging and developing countries. job creation and business experience that had contributed to the development of manufacturing sector and economic growth (Beaumont 1990). Before Malaysia independence. Malaysia also improved trade liberalization in the late 1980s by losing the limitation over capital 2 . Malaysia gained a huge influx of FDI in the manufacturing sector. According to the Economy Watch (2010). Beside this. Significant progress was seen during the 1980s where new joint venture projects with the state owned company were initiated. FDIs have become one of the biggest economic driver of globalization. pioneers status tax holidays. Malaysia was involved to these global shifts in economic flows. spur economic growth. agricultures. Thus. Malaysia likely to concentrate in mining. under the govern of Dr. tax deduction for export promotions. While during 1960s. accounting for over had of all cross-border investments. After Malaysia is independence. Furthermore. these MNCs also helped Malaysia to enhance their competitive advantages in manufacturing export in the word market by improving their product qualities (Yusof. and other types of incentives to attract attention of FDI. 1990). the pattern changed by diversified investment inflow to agricultural crops and manufacturing and expanding current activities. Various multinational corporations (MNCs) which are involved in direct investment toward Malaysian manufacturing sector had brought in technology. FDI has played an important role in the development of Malaysian manufacturing industries. government is trying hard to attract foreign investors by provide attractive incentives to tap these investments to lower unemployment accelerate modernized in industrialization. Mahathir Mohammad. it paid attention on the development of import-substituting industries but switched to export-oriented industries in 1970s (Lin 1994. This policy offered many incentives such as expanded investment tax allowances for expansion projects.1. with the enforcement of the Investment Act in 1986. Malaysia’s rapid industrialization was also due to the early openness to the inflows of FDI.

According to Athukorala & Waglé (2011).500 million in 2009 from approximately US$8. while Malaysia successfully accounted for 25% of the aggregrate inflows among ASEAN countries. Malaysia 3 .ownership of foreign companies hence improving the FDI flows into Malaysia (Urata.4bil). 1994). 2010) This reflects that Malaysia is one of the popular country for FDI. the average FDI net inflows was improve. While according to The Stars (2013). Total FDI inflow2 into Malaysia in 2011 has increased for 12. Since 1992. But. petroleum products (including petrochemicals) at RM2. current US$ 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. Surprisingly. the FDI net inflows decreased drastically till approximately US$1. Yusop.3% to RM 32. Since 1980s. Singapore still is the biggest recipient of FDI among ASEAN countries. forestry and fishing (0. FDI in Malaysia were able to increase in 2010 as the FDI inflow increased drastically and reached a net amount of approximately US$ 9. As shown from Figure 1. While. Malaysia ranked at the second while Singapore leading us. 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 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.500 million. However. food 2 Department of Statistic. throughout 1980s till 1990s. and Law. basic metal products (RM3. The manufacturing sector shared the largest share of FDI inflows. (Karimi.3 billion in year 2010. the aggregate FDI inflow into ASEAN countries raised drastically from US$3 billion to US$30 billion. mining and quarrying (22. from 2002 till 2006.500 million in 2007 due to global financial crisis. the average FDI net inflows was reducing.2%) and agriculture.1% of total FDI inflows is from manufacturing sector.3%). it found out that Malaysia’s FDI net inflows which is Balance of Payment (BoP). which 50.4bil). most of the foreign investments approved from January-July 2013 were the electrical and electronic products (RM7.3bil.9 billion compared with only RM 29. followed by the services sector (27. this is the lowest amount Malaysia got.4%).

non-metallic mineral products (RM903. University of Manchester.3mil). Current US$) : 1970 – 2010 Source: “World Bank (2011): World Development Indicators (Edition: April 2011).1bil). transport equipment (RM1.1mil) and chemicals and chemical products (RM465.6bil).” 4 .manufacturing (RM1. Figure 1: Malaysia Total FDI Inflows (Balance of Payment. ESDS International.

it is able to create more jobs and generating the export. it established Free Trade Zones. FDI in Malaysia has brought the benefit to create jobs for the citizens and also helps the country’s economic. FDI is an important source that contributes to the stability of Malaysia economic growth. Thus. Moreover. Therefore. 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. FDI able to help these countries to develop and improve their living standard by creating more employment for their citizens in that country. Therefore. Malaysia started with the introduction of Investment Incentives Act 1968 and during the second Malaysia Plan (1971-1975). 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.8 billion due to it has attracted a lot of investment which flow into Asia.2. From that. However. Malaysia became as a second largest FDI recipient among Asian economies during the year of 1995 at US$5. This crisis was affected Malaysia economic badly and causing the economic growth decreased to -6.0 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. the investment has decreased due to Asian financial crisis happened in the year of 1997. According to Mohd Nazari Ismail (2001).8%. the investment was much higher in year 1998 than 1997 due to the investor confidence had improved. The result of FDI towards employment are in direct or indirect. he states that FDI play an important role in Malaysia economy especially in the manufacturing sector such as electronic industry. 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 5 .

Thus. This is because of the country’s balance-of-payments accounts show both its payment and also the receipts from other countries. Balance-of-payments for a country is an important policy issue to the host country’s government. Therefore. sources transfer such as capital and technology that will trained more skilled labour in Malaysia to increase the productivity. Furthermore. 6 . 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. FDI plays an important role on Malaysia economic. There are two ways to help the country which are the effect can be to improve the balance-of-payments for Malaysia’s 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. 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.foreign multinationals have contributed to the development of the technical capabilities of the locals. FDI able to help the country while Malaysia’s current account is in deficit and selling the assets to the foreigners. 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. Thus. is also helps in balance-of-payments of the country. Last but not least. FDI also brings in the capital investment and management knowledge needed for the economic growth. 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. The other benefit is balance-of-payments effects.

it was an indicator that will result the amount of foreign direct investors’ investment for the country. and the effectiveness of the government institutions which are priority look into international trades. 3. 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. (Hansen & Rand.3. the market size country that is small enough will unable to compete in 7 . 1995) Gross domestic product (GDP) growth rate represents stability and steadiness of economic policies. Khan. Investors easily get attracted to the big and rapid expanding market. According to Zhang (2001). Stock for FDI for the country which have smaller markets is no doubt expected to be smaller compare to those of the large market. Speed growth of an economy able to attract more FDI through multi-national companies (MNCs) as they have new profit opportunities. while both advantages can be captured effectively by “internalizing” production through FDI.1 Economic Growth Besides recognizing the importance of FDI to growth. (Sharma & Bandara 2010) According to Awan. 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. Gronicki. Holland. (Benacek.2 Market Size Market size reflects the economic situations and potential demand for the country’s production. 2001) Thus. (Charkrabarti. it is able to stimulate the levels of aggregate demand for investments for both foreign and domestic to rise. 2006) MNCs with several ownership advantages will invest in foreign country to gain locational advantages. (2011). & Sass. 2000). economic growth itself frequently act as an important determinant for FDI inflow into the host country. Market that unable to expand speedy and small does not give any intrinsic attractiveness to the foreigner. According to Asiedu (2002). & Zaman. (Dunning.0 Factors Influence Inwards and Outwards of Foreign Direct Investment 3.

Conclusion.comparison to such countries that able to attract more investors which has a big market size (Medvedev. 3.3 Inflation Rate According to past research regards econometric result. 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. Wafure. 8 . 2012). several researchers argue that inflation rate and FDI can bring a positive relationship. According to Nurudeen. 2011). However. 3. 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. (2011). it discovered that inflation rate bring a bad sign and is important to FDI. according to Asiedu (2002) market size is a significant key in determining FDI inflows in a country. In other words. 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. when the host country’s exchange rate drop. Yet. the FDI for the country increase. Thus. which cause a raised expected level of profitability (Srinivasan. it is not the only element that will influence FDI. This indicates that when a country’s exchange rate rise. this shows that there is a significant time lag between FDI movement and exchange rate volatility. As mentioned above. despite the country size that is big.4 Exchange Rate Devaluation of exchange rate in the host country will indirectly rise the FDI of the host country. inflation rate bring both positive and negative influence on FDI depends on the inflation rate and perception of foreign investor. In other way. According to Barrell & Pain (2006). investor will prolong their investment period until the currency devalues because this will bring a better profit to their investment. foreign investors are not willing to invest in the country that have less perceivability on the economy. low inflation rates has a higher chance in attracting FDI into developing countries. & Auta.

9 . 3. The study also mention where the openness of a country includes both nontariff and tariff. 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. 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.However. 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. Trade openness is important and able to bring a positive effect on FDI inflows. the controls and restrictions over operations of foreign firm and the entry are now being substituted by selective policies aiming at FDI inflows. This is because investors believe that devaluation of exchange rate in the host country will decrease the profitability in terms of the home currency. The reduction in various types of trade barriers able to raised FDI of a country. Beside this.5 Trade Openness According to Aqeel & Nishat (2005). FDI of the country is mainly depend on a country’s readiness to agree foreign investment. 2010). Iizaka and Siu. The result is same with the study above where trade openness show positive significance to FDI (Chantasasawat.

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. but it has tried in haste to attract low waged workers of the surrounding countries to mitigate wage increase pressure. enhancing trade exports. FDI in the 1980s contributed to its economic growth large. According the both Mintz (1990) and Shah (1995) mention. Thus. lets us discuss about the ways of Malaysian government policy to promote in FDI. investment in labor intensive or low value added industries is not even authorized or permitted as domestic Malaysian investment.4. For examples:  “In 1975. achieving national economic independence. 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. Because using low waged labor. developing countries have typically used various favourable tax policies to gain competitive advantage. 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. FDI is dealt with in the industrial policy dimension.”  “Imported raw materials could be 100% foreign owned for export industries.” 10 .0 Malaysian Government Policies to Promote Foreign Direct Investment According the data from Malaysia. Without further ado. In order to achieve the catch phrase "WAWASAN 2020" to join the rank of the developed countries. First of all. the Malaysian government policy is promote its foreign investment attraction to be focused on manufacturing industrial structure. Other than that. About all. and export enhancing FDI has been denoted as the "engine to growth" in the private sector (Jayasankaran 1995). Some of these restrictions were eased under the fifth Malaysia plan (1986–90). 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. At the same time to attract FDI. promote the manufacturing industrial structure is the most imminent task.

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). tax holiday effective tax rates on investments were even above the effective tax rates in the post-holiday period. While Hooi (2008) stated that in recently. 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. In addition. the inflow of FDI was only US$94 million but raised hugely in 1996 with US$7. or if it exported at least 80% of its product regardless of competition. manufacturing products and technology transferred from abroad. Several manufacturers taken the advantage of the country’s capabilities by outsourcing their manufacturing activities to the companies in Malaysia or having their own company in Malaysia. However. its market oriented economy. has made Malaysia one of the largest regional and global recipients of FDI. (Mintz. “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. in the early 1970s.714 million in 11 . 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). Promotion of Investment Act (PIA). 1990)” The implications the tax holidays for FDI are important to both domestic and international tax policy.297 million. inflow of foreign direct investment to the manufacturing sector attributed by the speedy industrialisation of the country. Mohammad Sharif and Zulkornaian (2009) stated that in order to attract a bigger inflow of FDI. it decreased to US$2. 1986.”  “In the case of Malaysia in the late 1980s. At the same time. To attract FDI. combined with an educated multilingual workforce and a welldeveloped infrastructure. 1986 FDI as an important driver underlying the strong growth performance experienced by the Malaysian economy.

8 per cent. there was a large increase in FDI between the periods 1980 to 1995 with a total volume of RM120 billion.2 per cent.1998 as the happening of 1997 financial crisis but recovered considerably with the highest FDI inflows of US$8. This showed the commitment and trustiness of foreign investors to invest in the country (Bank Negara Malaysia. 12 . Malaysian Government create FDI in the import-substitution phase 1960s and early 1980s to cater for the domestic market. 1996). After implementation. At the same time period. the average growth of domestic investment it was 55. 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. and FDI was 45.403 million in 2003 as Malaysia can maintain its attractiveness as a FDI location under the Promotion of Investment Act (PIA).

In addition. The GDP increase steadily. the total FDI was 55. In the early 1990s. transportation equipment and miscellaneous manufacture article in the year 1978 and the total export contribute 39.1 per cent. the total export increase 53. electrical and petroleum were most important sector for attract FDI manufacture Malaysia. In the year 1990. Nowadays.4 per cent in year 2000. Malaysia known as one of largest exporters of semiconductor device.6 per cent and in year 2000. the GDP from manufacture sector increase from 26. The manufacture contribute 15. Japan was the main source FDI in manufacture industry.5. There was 78. The main source of FDI In the manufacturing Malaysia changed over time. manufacturing dedicated to 19. In the year 2000.8 per cent. Taiwan became main source FDI in manufacture Malaysia but in the period of middle 1990 until 2000. third was United Kingdom and the fourth was United State. there are known as electrical goods and appliance. In 1980s.0 Foreign Direct Investment in Manufacturing Sector The manufacture industry play importance role in economy growth to the Malaysia economy. chemical and petroleum were main sector for FDI manufacture in Malaysia.4 per cent in year 1990. the US was the most important source in Malaysia. electronic. total employment contribute by manufacturing industry is 22. The manufacture industry contributes significant to Malaysia export too. The main sector FDI Malaysia was changed to electrical.5 per cent of total employment in year 1978 and increase to 19. electronic. In the year 1990.9 per cent. GDP increase from manufacturing sector to 26. In the year 1978. United Kingdom and United State were the main sauce FDI in the manufacturing industry in Malaysia in the period 1978-1979.4 per cent to 33. 13 . electrical. it contributed 77.7 per cent of total export. machinery. electronic. such as export manufacture goods.9 per cent in the year 1990. the manufacture Malaysia brings a significant amount employment to the economy too. the second was Singapore. chemical and nonmetallic in the 1980s. The manufacturing plays an important role in technology for transfer and foreign exchange earning to the country. The main sector of FDI Malaysia was mainly in the sector of electrical.8 per cent of GDP. In the year 2000. Japan.3 per cent of total FDI in the manufacturing in the period 1978 until 1979. petroleum and food.

electricity. In order to solve these problems. 14 . In the other hands. This was lead problem of manufacture associated with narrow base. it have contribute big relocation of labor –intensive industries . less intensive technology and are more depend on imported input. the wage rate in Japan and Asian NIE. it is because of no trained worker well. was increase among others.Since 1978 until 2000. vulnerability to external fluctuations as well as low value added. In the middle 1980s. electrical. our government has been given incentive such as fiscal and monetary and invested equipped necessary infrastructure. petroleum and chemical were main sector to attract FDI in Malaysia. specific electrical and electronic from Japan and NIEs to Malaysia. the appreciation of Japanese Yen caused trade conflict of Japan and Asian newly industrialism economies (NIEs) with the US and Europe Union Countries.

(2005) since FDI flows are non-debt creating financial commitment. MNCs. FDI can have positive effects on domestic employment (Lall 2002) in addition to leading to higher rates of human capital accumulation. FDI flows stimulate growth positively by lowering the costs of research and development through stimulating innovation in the host country (Graham and Wada 2001. through training of workers and hands-on learning. 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. Secondly. 6. Slaughter (2002) reported a strong positive correlation between skill upgrading and the presence of local affiliates of U. in presence of adequate absorptive capacities. they are the most preferred instruments of financing external current account deficits particularly in developing countries Thirdly.0 Positive and Negative Effect of FDI 6. contributing to growth more than domestic investment (Borensztein et al. according to Demekas et al. (Yussof and Ismail 2002). hence. FDI raises the skills of local manpower. at least if average cost curves are 15 . technology and international linkages for Indonesia. Fourthly. there may exist a competition effect which works in the opposite direction. Malaysia. FDI flows provide an important window through which firms can avoid soaring production costs at home and find attractive market aboard. Furthermore.2 Negative effects of FDI The technological spillovers thus lead to positive effects on domestic firms.S. according to Borensztein et al. Inward FDI has been a significant source of knowledge transfer in management skills. productivity spillovers and enhanced competition. thereby raised their productivity level. Besides that. Aron (1999) argued that. FDI to be an important vehicle for transfer of technology. (1998) stated that FDI flows can accelerate technology diffusion and transfer to domestic firms and the labor force. 1998). Foreign entry disturbs the current market equilibrium and could force domestic firms to produce less output which lead to increase their average cost curves.6.1 Positive effects of FDI Firstly. Sanchez-Robles and Calvo 2003). the Philippines and Thailand. a potential for future growth processes and accelerated technological transfer over time. however.

This is because as exchange rate correlation converges towards one. 16 . they do not accept the conjecture that sharp depreciation can bring benefits from FDI if this also leads to higher exchange volatility. 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. (2003) found that increased exchange rate correlation would divert the FDI from a larger market to a smaller market. (2006) found that weaker domestic currency will attract more inward FDI because it reduces the funding costs in source country. exchange rate volatility has a long-run negative effect on net inward FDI flows. exchange rate risk diversification becomes a weaker determinant of location at the same time as other factors like rate of return become more relevant. Ricci (2006) demonstrated that for a small countries or currency areas. Barrell et al. Although Lui et al.downward sloping. which would be the case if production involves a substantial fixed cost.

railroad. 7. Griffin & Pustay. More efficient infrastructure provided the more FDI. The government must improve the existing policy so that can encourage the foreign investor to be more confident to invest in our country. For example. with the provided infrastructure. 1998. credit and banking facilities and other financial. Thus. policy maker must be aware about the factor will lead to negative influence because that will influence the FDI flows to the country. government can decrease the tariff and increase the quota import to the investor. dependable energy and telecommunication availability. Government can decline the trade and investment barriers to attract investor to invest in our country. legal and transport system (Wilhelms. Besides. This is because FDI have many advantages such as increase economic development. Decrease the tariff and increase the quota import that will increase the profit of the investor. For instance. government can provide more quality infrastructure the manufacturing sector needed.3 Incentive 17 . developing the country and so on.1 Government Policy There is some recommendation for the policy maker in Malaysia. Cheng & Kwan (2000) also found that quality of infrastructure as a very important factor influencing FDI in China. 7.7. 7. Therefore. in Sabah and Sarawak such as transportation and telecommunication infrastructure. 1999).2 Infrastructure The level of infrastructure in the host country refers to the quality of roads. So. This is because Sabah and Sarawak also have the potential to become the choice that foreign investor to be invest. the FDI will increase too.0 Recommendation to Increase Foreign Direct Investment in Malaysia FDI is important to every country. the interest of the investor invest in our country will increase. increase the competitiveness in domestic country. Infrastructure plays an important role to FDI for a country. Then the FDI in manufacturing sector will increase. ways to increase the FDI is require. 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. There is some recommendation to increase the FDI in Malaysia.

incentive for manufacturing sector. 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.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.0 Conclusion 18 . 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. This is because if our country has very effective supply chain management then the investor will consider making an investment in our country. Besides.4 Information Technology One of the advantage of the Information technology system is the information technology can decrease the cost of communication. 7. The incentives such as tax incentive. Then the FDI in our country will increase. 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. the government could not only focus on mega investor but small and medium size investors also need to emphasize. Thus. This is because the more effective supply chain management the more profit they can earn. Decrease in tax incentive undoubtedly will increase the FDI in Malaysia. 8. 7. the investor can made management of the investment more easily and effectively. government must improve the internet speed in order to increase the efficiency of the business. incentive for agriculture sector and so on. Thus.Government have provided many incentives to the foreign investor to improve the FDI. Malaysia is in ranks 112 in the world. With the lower communication cost. Thus an effective of the supply chain management is important.

the economy around the world will still far from what we have right now.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. Thus. FDI is a key tool to drive whole world economy which brings almost winwin situation to both host and home country. Our group member get a better understanding and wider knowledge regarding how FDI brings a huge impact to our country economic growth. 19 . Without the presence of FDI. In a nutshell. 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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0 Appendix 22 .10.