Malaysia s Export Market: Trends, Prospects and Challenges

Transcription

1 Malaysa s Export Market: Trends, Prospects and Challenges by Chandran V.G.R a Veera Pandyan b Karunagaran Madhavan a a Department of Economcs, Faculty of Busness and Management, MARA Unversty of Technology b Department of Busness, Faculty of Busness and Management, MARA Unversty of Technology ABSTRACT Ths study examnes the trends, prospects and challenges of Malaysa s export market growth between usng the dynamc shft-share method. Two prevalent regonal ssues n the recent years that have been the concern of the polcy makers n Malaysa have been nvestgated. Frst, realzng that Malaysa s hghly dependent on ts export as the engne of growth, the study analyzed the growth of each export product and nternatonal market access of these products at 2- dgt SITC level for four major categores of manufactured exports. The results ndcated that overall, Malaysa has a strong net shft n the chemcal (SITC 5) and machnery and transport equpments (SITC 7) especally n offce machnery (SITC 75) and electrcal (SITC 77) products n the major markets. Secondly, due to the growng competton n nternatonal trade, the study also assessed the degree of competton between Malaysa, Chna and ASEAN-4 countres exportng to the major markets. In general the results revealed that Chna and other ASEAN countres have an mpact on the poston of Malaysa as an exporter of manufactured products. It was concluded that Chna poses stff challenges to Malaysa n the major markets such as EU, US and Japan. However, Chna also promses opportuntes for Malaysa to export certan products to ts own market. Keywords: Trade, Compettveness, Net Shft, and Export Structure Ths project paper s funded by Insttute of Research, Development and Commercalzaton, MARA Unversty of Technology, Malaysa. Ths s a revsed verson of a paper that was presented at the Natonal Conference on Research Fndngs at Rvera Bay Resort Malacca, Malaysa, February 21, 24

2 1. INTRODUCTION Over the three decades Malaysa has shown remarkable economc performance as a result of ts outward lookng strateges. Malaysa lke other frst-generaton tgers (Korea, Tawan, Sngapore and Hong Kong) has used exports as ts engne of growth and development snce the 197. Malaysa s economc growth contnued to mprove after the economc crss n 1997 wthn an envronment of low nflaton and unemployment. Malaysa made a shft from the largely mportsubsttuton pror to the 197 s to lberal outward orented trade regme. (Shazal Abu Mansor et al, 2) The most promnent sector contrbutng to the export earnngs was manufacturng whch accounted for 79% of the total export earnng and nearly 29% of Malaysa s Gross Domestc Product (GDP). (Chandran V.G.R. et al, 23b) Recent developments n trade flows and foregn drect nvestment (FDI) has a remarkable mpact on the Malaysan drecton of trade and structure. The major advancement was the rse of Chna to a poston of economc domnance n Asa as well as the world. The second wave of ths advancement comes wthn the ASEAN members as trade lberalzaton and the mplementaton of ASEAN Free Trade Agreement (AFTA), has made the nternatonal trade more compettve. A number of studes have analyzed the export market growth usng the shft share method. For example, Peter Wlson (2) noted that apart from Sngapore, Thaland has emerged as a new dynamc ASEAN economy, whch became more compettve across a broad range of manufactured goods. Thaland s clearly seen to have swtched from a low profle producer to a hgher valueadded manufacturng producer between On the other hand, research by Herschede Fred (1991) suggested that ASEAN as a whole suffers the most n the Japanese market because of Chna s entry. In addton, Khalfah (1996) has studed the export market growth of Malaysa. However, most of the studes have focused on the export market growth as a whole wthout any specfc reference to Malaysa or the mplcaton of Chna towards the export market growth of Malaysa. Ths study therefore, s a probe for further nsghts, n an attempt to fll the research gap n ths area by assessng the export market growth of Malaysa.. 2. OBJECTIVES The man purpose of ths study s to examne Malaysa s market access and product compettveness for each market and to assess the mpact of ASEAN-4 and new entry of Chna on the export performance of Malaysa. In specfc the objectves of the study are as follows 1. To assess the effect of dfferences n growth of varous export products to a market compared to other markets 2. To dentfy whch export market are of growng or dmnshng sgnfcant to Malaysa s overall export growth 3. To assess the degree of competton n dfferent market access of Malaysa, ASEAN-4 and Chna 3. METHODOLOGY Two verson of shft share method were used n ths study. The frst verson 1 of shft share follows the natonal average growth rate and the second verson compares changes n Malaysa s exports wth the correspondng exports of a selected group of reference economes 2. Shft share analyss requres measurements on a varable of nterest (n our case the exported product) for each market (mported countres) at the begnnng and end of a specfc perod of analyss. For each of the 1 For a mathematcal representaton of both the method refer to Appendx A 2 Reference economes are the total exports of Malaysa, Chna and ASEAN-4. Due to the space constrants the explanaton of the second verson was lmted to ts mathematcal expresson that can be found n the appendx. However t s smlar to that of the frst verson and the only dfferences was t uses the reference economes growth rate (total of all competng economes). Net shft s attrbuted to three source of dvergence namely ndustry mx effect, the compettve effect and the nteracton effect. 2

3 export market an expected growth fgure known as share effect s computed based on the average growth. The share effect shows the value of export of a partcular market as f the market has grown at the rate of the overall export of Malaysa. The share effect fgure wll then be compared wth the actual growth of a market to dentfy the dfferences. The dfferences wll then be labeled as net shft. If a country gan market shares over the perod then the net shft wll be postve and vce versa for countres losng market share. The net shft may have been caused by three source of dvergence know as Industry Mx Effect, Regonal Effect and Interacton Effect. Industry Mx Effect (IME) shows the dfference between the products or composton of export to a market and the composton of the Malaysan total exports. If a partcular export market s growng faster than the natonal average t may be due to the concentraton of a rapd growth n certan products. A postve effect wll occur when the proporton of the export to a market n a fast growng product s greater than the proporton of Malaysa s overall export n these products. Regonal Effect (RE) shows the dvergence n growth of varous export products to a market compared to other markets. The dfference n growth rate of ndvdual products between the markets can contrbute to an overall growth n the export market share. Postve regonal effect means that the rate of growth n ndvdual products to a market s hgher than the country s overall export growth n these products and vce versa for the negatve regonal effect. Interacton Effect (IE) combnes both the ndustry mx effect and regonal effect. It measures the dfferences n mx products to varous markets nteractng wth dfference n growth of product exports to these markets. A postve effect results when exports are ether concentrated n fast movng products or not concentrated n wth those slow movng products. 3.1 DATA AND TIME FRAME The estmaton of the shft share analyss model for the Malaysan export market requres data on export of Malaysa for each market. Export data was obtaned from the Department of Statstcs. The export data ncluded n ths study was at 2 dgts Standard Internatonal Trade Category (SITC) level. The tme frame selected for the study s from 199 to 21. In addton data was also obtaned from the Internatonal Trade Center (COMTRADE), Unted Naton n order to make comparson on the export compettveness of Malaysa and the reference economes. The tme frame appled for ths purpose was from Snce ths study uses the shft share analyss the growth rates were calculated yearly 3. Sx major markets was selected from the purpose of the study namely European Unon 4 (EU), Newly Industrals Economes 5 (NIE), Unted States of Amerca (US), Japan, Chna and four Assocaton of South East Asan Natons 6 (ASEAN-4) 4. TRENDS AND PROSPECTS OF MALAYSIA S MANUFACTURED EPORTS Ths secton ams to estmate the contrbuton of export by ndustry 7 /product secton. Hgh export growth of Malaysa s attrbuted to the presence of certan ndustry/product when t has outperformed ts counterparts at the natonal scale (known as postve net shft), whereas export declne n another ndustry s attrbuted to performance, whch has been weaker than at the natonal scale (known as negatve net shft). 3 Year by year changes were only used to analyze the performance of each products by ndustry and the performance of Malaysa to that of the reference economes. In analyzng the performance of products to the major markets two tmeframe were captured namely from and due to the avalablty of data. 4 EU ncludes Austra, Belgum, Denmark, Fnland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Span, Sweden & Unted Kngdom 5 NIE ncludes Korea, Hong Kong and Tawan 6 ASEAN ncludes Sngapore, Thaland, Indonesa and the Phlppnes 7 For the purpose of convenence the term ndustres and products are used nterchangeably. Both mples the same meanng 3

4 4.1 Chemcal Industry Chart 1 decomposes Malaysa s net shfts 8 n export of the chemcal products. As s evdent Malaysa s chemcal products have mantaned a largely postve net shfts from the year wth excepton of 1991, 1993 and (Asan economc crss). Among the top performng chemcal products are organc chemcal (SITC 51) and plastc prmary forms (SITC 57). It s noteworthy that organc chemcal (SITC 51) n partcular alcohols/phenols/derves (SITC 512) has a brghter future, as ts performance s better off compared to the natonal scale and future development of ths ndustry should be emphaszed. Another ndustry, whch has mantaned a strong postve net shft durng the study perod, s plastc prmary forms (SITC 57) especally styrene prmary polymers (SITC 572). Indeed better support and polcy development should be stream lned to these products. For example, Malaysa could learn from Sngapore where t has launched a multmllon-dollar research center and managed to attract sx of the world s top multnatonal pharmaceutcal companes. (Busness Montor Internatonal, 24) Ths was done n antcpaton that electroncs ndustry wll be replaced by chemcal 9 and bomedcal (pharmaceutcals and medcal scence) as the real engne of growth n the future. CHART 1: NET SHIFTS OF CHEMICAL INDUSTRIES 51-Organc Chemcal 52-Inorganc Chemcal 53- Dyeng & Tannng 54-Medcnal 55-Essental Ols 56-Fertlzers 57-Plastc Prmary Forms 58-Plastc Non-prmary Forms 59-Chemcal Materals 1% 8% 6% 4% 2% % -2% -4% -6% -8% -1% Source: Author s calculaton One pecularty was the emergence of chemcal materals (SITC 59) especally durng the year , however n recent years (after 1996) ts performance has declned as t was outperformed by organc chemcal (SITC 51). On the other hand, fertlzers (SITC 56) and medcnal (SITC 54) products are below the performance level of the natonal scale. TABLE 1: CHEMICAL INDUSTRIES NET SHIFT BY MAJOR MARKETS PRODUCT (SITC) EU NIE US JAPAN CHINA ASEAN 51-Organc Chemcal GAINER GAINER GAINER SURVIVOR SURVIVOR GAINER 52-Inorganc Chemcal LOSER GAINER LOSER SURVIVOR LOSER SURVIVOR 53-Dyeng & Tannng GAINER SURVIVOR GAINER LOSER LOSER GAINER 54-Medcnal LOSER LOSER LOSER LOSER LOSER LOSER 55-Essental Ols GAINER LOSER SURVIVOR LOSER SURVIVOR LOSER 56-Fertlzers LOSER LOSER GAINER LOSER LOSER LOSER 57-Plastc Prmary Forms GAINER LOSER GAINER GAINER GAINER GAINER 58-Plastc Non Prmary GAINER LOSER SURVIVOR SURVIVOR GAINER GAINER 59-Chemcal Materals LOSER LOSER LOSER GAINER GAINER LOSER Source: Author s Calculaton Losers - ndustres that suffered through declnes n net shft or gans earler on but declnes n the end; Survvors - ndustres whch experences no change n net shft or experenced declned ntally and sharp ncrease later on; Ganers - ndustres, whch experenced ncreasng net shft throughout the perod of study. Note: Net shft s calculated on two ntervals namely and In terms of market access (Table 1), NIE has been an unfavorable market for the chemcal products as most of the ndustres have performed below the natonal growth rate. The only ganers n the 8 The chart shows percentage of net shft whch s calculated by dvdng the net shft for each ndustry wth the total shft of the chemcal ndustres and multply by 1 9 Research dentfed chemcal ndustres as a potental sector for Sngapore. Further nformaton refer to, Tng Su Chern et al., Assessng Sngapore s Export Compettveness Through Dynamc Shft-Share Analyss. 4

5 NIE are organc chemcal (SITC 51) and norganc chemcal (SITC 52). However, n the Chnese market, plastc prmary forms (SITC 57), plastc non-prmary (SITC 58) and chemcal materal (SITC 59) are the most promsng products wth hgh postve mprovement of net shft between and Malaysa s overall chemcal exports recorded strong postve net shft to the market of EU, US and Chna. Ths was due largely to the overwhelmng postve ndustry mx effect and postve regonal effect. Ths suggests that Malaysa has a favorable structure to all the major markets where export to a market was concentrated on those products wth faster than average overall export growth. 4.2 Sem Manufacturers 1 Overall sem manufacturers performed the worst among the manufacturng products compared to the growth rate at the natonal scale. Ths s evdenced by the negatve net shft n most of the products n SITC 6 throughout the year of the study except for the year 1992,1993, 1996 and 21. The prospects for the export of sem manufactures n Malaysa are not any brghter especally for soft manufactured product such as paper and artcles of paper (SITC 64) and textle & fabrc (SITC 65) as these tems have relatvely low prce tags. In addton to ths many of the developed countres levy quotas 11 on most of these soft manufactures. The stuaton wll be made worst, when US and European Unon drops all textle quotas (covered under the Mult-Fber Arrangement) for the World Trade Organzaton (WTO) members on January 25 especally n textle ndustres 12 (Matthas Knappe, 23). Further Malaysa wll face a stff competton as ths ndustry only depends on unsklled workforce where Chna has the cost advantage 13. Proper strateges should be taken by the Malaysan government and exporters to reap the beneft of the US and EU market by keepng n mnd that late entry would flood these markets wth the products of Chna and other major exporters. Another strategy that Malaysa could focus on s to target the low trade barrer countres to boost the export of these products. It s evdent that n average the frst ter NIEs and some of the developed naton such as New Zealand appled on average a lower tarff. It s also mportant to note that n developng countres, protecton s on average much hgher than the developed natons and f developng countres could ntegrate ther trade amongst themselves, sgnfcant mprovement could be made n most of the labor-ntensve products. As such the mplementaton of AFTA would be seen as an opportunty for Malaysa to penetrate the ASEAN markets especally n textle. However all these can only be done f Malaysa could enter the markets earler and mprove ts product dfferental n terms of qualty and desgn. Based on Chart 2, n the year 1992, 1993 and 1996, cork and wood (SITC 63) shows a postve shft ndcatng that ths ndustry has grown faster than the average manufactured export growth. The best performng products are veneer/plywood/etc (SITC 634) and wood manufactures (SITC 635). In recent years the trend has shown a dfferent pcture where n the year 21 exports of ron and steel (SITC 67) 14 and manufactures of metal (SITC 69) performed exceptonally well as t has contrbuted to the overall postve net shft. Ths mght be the result of the ncrease n world demand for ron, steel and metal durng that partcular year. 1 Includng Iron and Steel and Textle 11 Textles, clothng, leather and rubber products, footwear and travel goods are subject to tarff peaks n Canada and the Unted States; and leather, rubber, footwear and travel goods n Japan. In the EU, tarff peaks concern manly agrcultural products, but leather, rubber, footwear and travel goods are the most affected categores wthn manufactures 12 In Malaysa n terms of the share of manufacturng export n total merchandse export; 65-Textle s the second largest ndustry wthn SITC 6 after 63-Cork and Wood manufacturers. Ths s followed by 69- Manufactures of metals. However n recent years contrbuton of these ndustres are declnng. (Chandran V G R, et al.) 13 World Bank estmated that Chna s export share of apparel to jump to 45% once all quotas are lfted. In addton, Chna wll be a major player as n average the labor cost n apparel ndustres are $73 per month followed by a qucker delvery of ts goods wth the help of Tawan and Hong Kong s tradng companes. In an antcpaton of end of the quotas, companes lke Gap and Nke are searchng for new supplers n Chna. (Busness Week, December 15, 23) 14 However the net trade balance ndcated a hgh porton of mports n Iron and Steel suggestng the ndustry s hgh relance on mports. For further nformaton refer to Chandran V.G.R. et al., Export Specalzaton, Concentraton And Intra-Industry Trade: Evdence From Malaysa. 5

6 CHART 2: NET SHIFTS OF SEMI MANUFACTURERS 61-Leather 62-Rubber 63-Cork & Wood 64-Paper & Artcles of Paper 65-Textle & Fabrcs 66-Non-metalc Mnerals 67-Iron & Steel 68-Non-Feruous Metals 69-Manufactures of Metal 1% 8% 6% 4% 2% % -2% -4% -6% -8% -1% Source: Author s Calculaton At frst glance, t s notceable n Table 2 that performance of the sem manufacturers n the ASEAN and NIE was declnng as all the products performed below the natonal growth level. Ths was due to the poor performance of SITC 63 (-28.3%), SITC 65 (-33.2%) and SITC 67 (-13.68%) to the market of NIE and SITC 67 (-44.19), SITC 65 (-37.1%) and SITC 63 (-31.1%) to the market of ASEAN. TABLE 2: SEMI MANUFACTURERS NET SHIFT BY MAJOR MARKETS PRODUCT (SITC) EU NIE US JAPAN CHINA ASEAN 61-Leather GAINER LOSER LOSER SURVIVOR LOSER LOSER 62-Rubber LOSER LOSER LOSER LOSER LOSER LOSER 63-Cork & Wood GAINER LOSER LOSER LOSER SURVIVOR LOSER 64-Paper & Artcles of Paper SURVIVOR LOSER SURVIVOR GAINER LOSER LOSER 65-Textle & Fabrc LOSER LOSER LOSER LOSER GAINER LOSER 66-Non-Metalc Mnerals LOSER LOSER SURVIVOR LOSER LOSER LOSER 67-Iron & Steel SURVIVOR LOSER LOSER LOSER GAINER LOSER 68-Non-Feruous Metals LOSER LOSER LOSER LOSER GAINER LOSER 69-Manufactures of Metal SURVIVOR LOSER LOSER GAINER SURVIVOR LOSER Source: Author s Calculaton In addton breakdown of the net shft of Malaysa s sem manufacturers export shows that Malaysa has an unfavorable overall ndustry mx effect to all the major markets. In contrast SITC 63, 65, 67 and 68 was well establshed wth postve gan n the Chnese market provdng a new opportunty for sem manufactures to explore. Indeed Chna s accesson nto WTO mples greater opportuntes for Malaysa n exports of these products, as Chna s protecton wll fall rapdly. However greater competton may come wthn ASEAN namely Indonesa whch has an abundance of natural resources. 4.3 Machnery and Transport Equpments Industry It s nterestng to note that n SITC 7, offce machnes (SITC 75) have been one of the most mportant ndustry as reflected n ts sgnfcant postve net shft n 2-dgt SITC category. From Chart 3 t can be noted that offce machnes mantan postve net shft through the perod of study except n 21. Even durng the Asan economc crss offce machnes (SITC 75) reman robust wth strong postve net shft. The man contrbutors n offce machne ndustres are offce machnes (SITC 751), computer equpments (SITC 752) and offce equpment parts and accessores (SITC 759). 6

7 CHART 3: NET SHIFTS OF MACHINERY AND TRANSPORT EQUIPMENT INDUSTRY 71-Power Generatng Machnery & Eq. 72-Machnery Specfc Purpose 73-Metal W orkng Machnery 74-General Industral Machnery 75-Offce Machnes 76-Telecommuncatons 77-Electrcal Machnery 78-Road Vehcles 79-Other Transport Eq. 8% 6% 4% 2% % -2% -4% -6% -8% Source: Author s calculaton Secondly, electrcal machnery (SITC 77) shows a better performance compared to other products. The electrcal machnery ndustry mantans the postve net shft followng the contrbuton of electrcal power transmsson equpment (SITC 771), electrc crcut equpments (SITC 772). Besdes offce machne (SITC 75) and electrcal machnery (SITC 77), the telecommuncaton (SITC 76) shows strong growth from and from The contrbutng factor s that these two products are the world s fastest growng products. The above serves the evdence that Malaysan manufacturng sector especally n SITC 7 s reorented away from unsklled labor ntensve towards technology ntensve and skll based ndustres. Indeed the Malaysan total export of hgh technology ndustres 15 has shown dramatc mprovement from 39.4% n 1993 to 57.38% n 21 whereby 21.4% comes from the computer ndustry and 33.33% of telecommuncaton ndustry n the year 21. (Chandran V.G.R, 23) These ndustres are hghly vulnerable as Malaysa reles hghly on the Japanese FDI. Two mmedate threat may post Malaysa; Frstly, f Japanese decdes to redrect ther nvestment elsewhere. 16 Secondly, s the emergence of old NIE s especally Korea and Tawan whose compettveness are mprovng and treatng the poston of Japanese manufactures 17. However Malaysa has the frst mover advantage n computer-offce machnes ndustres relatve to Chna and other ASEAN economes except Sngapore. It s also mportant to note that these ndustres have hgher prosperty n the near future wth the establshment of the Multmeda Super Corrdor flagshp as more know-how and research and development would supplement the ndustres. Even the ncreased market globalzaton and rapd advances n telecommuncatons and nformaton technology have gven a boost to the volume of computer and telecommuncaton parts. To contnuously mantan the compettveness of these products some mportant measures should be taken by the government of Malaysa. Frstly, these products are relatvely low prced whch means there s an urgent need to acheve economes of scale to be a survvor. Secondly, more effort s needed n attractng FDI n these ndustres as many frms such as Seagate, Motorola and Solectron are plannng to shft ts producton elsewhere n Asa 18 (Busness Montor Internatonal). Thrdly, the government should play a bgger role n encouragng the potental ndustres by 15 The groupng of hgh technology ndustres were done based on the OECD classfcaton that ncludes Aerospace, Chemstry, Computers-Offce Machne, Electrcal, Non-Electrcal Machnery, Pharmacy, Scentfc and Telecommuncaton. (Percentage shown are out of total manufactured exports) 16 However key Japanese companes such as Fujtsu, Htach, Matsushta, NEC and Sony stll prefer Malaysa as an attractve locaton due to the fact that technology decson may be costly to reverse and long years of human resource development n Malaysa that are not easy to substtute elsewhere. Despte that Malaysa may face severe competton wthn ASEAN especally Sngapore. 17 Companes lke Samsung of Korea and others have managed to penetrate the market for mcrochps and flat panel dsplay, whch was prevously domnated by Japanese. 18 Penang once the pllar of Malaysan electronc ndustres has seen a slow down. Example, Solectron, equpments makers for Csco Systems has already transferred assembly of computers and moble phone to Chna. 7

8 halvng the mport dutes for materals and equpments needed for the producton of computer and telecommuncaton parts. Fourthly more specfc products should be dentfed to streamlne the polcy development to encourage these ndustres. For example, Korea has now dentfed the rechargeable batteres ndustry and pumped 1.5 bllon, as one of ther 1 strategc products that t hopes wll drve the country s economc growth. From Table 3, the key players n all the major markets of Malaysa are offce machnes (SITC 75) followed by machnery for specfc purpose (SITC 72). Due to the current economc downturn telecommuncatons (SITC 76) s losng ts ground to the market of EU, NIE, US and ASEAN. Chna emerges as a new potental market for a broad range of machnery and transport products namely SITC 72, 74, 75, 76, 77 and 79. TABLE 3: MACHINERY & TRANSPORT EQ. NET SHIFT BY MAJOR MARKETS PRODUCT (SITC) EU NIE US JAPAN CHINA ASEAN 71-Power Generatng Machnery & Eq. LOSER GAINER LOSER LOSER LOSER LOSER 72-Machnery Specfc Purpose GAINER GAINER GAINER LOSER GAINER GAINER 73-Metal Workng Machnery SURVIVOR LOSER GAINER LOSER LOSER LOSER 74-General Industral Machnery LOSER LOSER LOSER LOSER GAINER LOSER 75-Offce Machnes GAINER GAINER GAINER GAINER GAINER GAINER 76-Telecommuncatons LOSER LOSER LOSER SURVIVOR SURVIVOR LOSER 77-Electrcal Machnery SURVIVOR GAINER LOSER LOSER GAINER GAINER 78-Road Vehcles LOSER LOSER LOSER LOSER LOSER LOSER 79-Other Transport Eq. LOSER GAINER LOSER GAINER GAINER LOSER Source: Author s Calculaton Two hghest net shfts were for 75 (46.6%) and 77 (48.45%). The overall postve net shft for the market of EU, NIE, and Japan was attrbuted to the postve IME and detaled examnaton of the net shft suggested that favorable overall IME were due to the strong performance of SITC 75 (12.6%) and SITC 77(238%) to the market of EU, SITC 75(48.2%) and SITC 77(15.8%) to NIE, SITC 75(253%) to Japan. 4.4 Clothng and Other Consumer Products It can be sad that the furnture ndustres (SITC 82) have mantaned a postve net shft relatve to the performance of other ndustres n , and 1999 (Chart 4). Ths can be attrbuted to the government s effort n shftng the wood based ndustry from low value raw materals to hgh value-added products such as furnture under the Industral Master Plan (IMP) whch was launched n CHART 4: NET SHIFTS OF CLOTHING AND OTHER CONSUMER PRODUCTS 81-Prefabrcated Buldngs, Santary & Plumbng 83-Travel Goods, Handbags 85-Footwear 88-Photographc Eq. 82-Furnture & Parts 84-Apparel & Clothng 87-Professonal, Scentfc & Controllng 1% 8% 6% 4% 2% % -2% -4% -6% -8% -1% Source: Author s calculaton Indeed government has made every effort 19 to promote downstream processng actvtes especally n manufacturng of furnture n order to meet the demand from overseas as well as the domestc 19 Furnture manufacturng s subject to a mnmum set of procedures and regulatons, movng towards deregulaton. The government have also encourage the partcpaton of ndgenous people by establshng sx furnture vllage whch s equpped wth machnery, kln 8

9 market. However the future performance of the furnture ndustres does not look good as n recent years ts performance has been below the natonal growth rate. An nterestng trend to be noted s that Professonal, Scentfc and Controllng (SITC 87) are mprovng over tme especally n recent years(chart 4). Most of these ndustres are more of the hgh technology ntensve and have also shown a great mprovement n the contrbuton to the total manufactured exports. TABLE 4: CLOTHING AND OTHER CONSUMER PRODUCTS: NET SHIFT BY MAJOR MARKETS PRODUCT/SITC EU NIE US JAPAN CHINA ASEAN 81-Prefabrcated Buld, Santary & Plum LOSER LOSER GAINER LOSER LOSER SURVIVOR 82-Furnture & Parts GAINER LOSER LOSER LOSER GAINER LOSER 83-Travel Goods, Handbags LOSER LOSER LOSER LOSER LOSER LOSER 84-Apparel & Clothng LOSER LOSER LOSER LOSER GAINER LOSER 85-Footwear LOSER LOSER LOSER LOSER LOSER LOSER 87-Professonal, Scentfc & Controllng SURVIVOR GAINER GAINER GAINER GAINER GAINER 88-Photographcs SURVIVOR LOSER SURVIVOR LOSER SURVIVOR SURVIVOR 89- Msc. LOSER LOSER LOSER LOSER SURVIVOR LOSER Source: Author s Calculaton Based on Table 4, t s not a surprse to fnd that SITC 87 performed well n all the markets as noted earler. Ths technology ntensve ndustry should therefore be gven consderable attenton as t has the potental of beng the export leader of Malaysa. Overall the clothng and other consumer goods do not promse a good future for Malaysa except n the Chnese market where t mantans a postve net shft that was due to strong postve regonal effect. In total 5 out of 9 ndustres performed well n the Chnese market. The poor performance of ths ndustry to the other markets s due to the negatve ndustry mx effect. 4.5 OVERALL MARKET PROSPECTS Malaysa lke any other developng country, whch reles on export, can beneft from nternatonal economc ntegraton f ntegraton polces and creaton of an envronment of equal competton for all forms of Malaysan enterprse are mplemented n a sound manner. The cost and beneft wll largely depend on the compettveness of the Malaysan ndustres. Effort to ncrease the compettveness should ndeed be focused and reorented towards those ndustres mentoned earler n the study. In addton creatng a favorable ncentve based envronment for export of the dynamc ndustres should obvously be the frst prorty of the government. Indeed Chna has promsed many opportuntes for a number of ndustres as mentoned n the earler secton. In fact Chna as a whole has become one bg market wth a large overall net shft 2 compared to the other markets n the In addton Malaysa should take advantage of Chna s nterest n multlateral agenda settngs, proposng free trade agreement wth ASEAN. 21 The dentfed ndustres n EU, US, Japan, NIE and ASEAN market should be further enhanced f Malaysa wanted to mantan ts compettveness. 4. EPORT COMPETITIVENESS BETWEEN MALAYSIA, CHINA AND ASEAN- 4 Ths secton summarzes the results of the dynamc shft share analyss of Malaysan export performance compared wth the reference economes namely Chna, Sngapore, Thaland, Indonesa and the Phlppnes. The need for ths secton was trggered due to the fact that recent development such as trade lberalzaton, globalzaton, Chna s accesson nto WTO and dryng plants, fnshng center, furnture showrooms and marketng support to encourage the small scale ndustres to nvolve n the export market 2 Overall net shft refers to the total net shft of all ndustres (total manufactured exports) 21 Chnese Prme Mnster, Wen Tabao sad that by 25 Chna s trade wth ASEAN would more than double to reach or surpass $12 bllon, the level of US-ASEAN trade n the year 22. Chna feels less vulnerable nternatonally nowadays than ther predecessors as they are wtnessng the rse of Chna from actvely nvolvng n nternatonal arena. 9

10 knowledge economy, has forced Malaysa to face ncreasng competton especally from the ASEAN countres and Chna (Chandran V.G.R. et al., 23a). For example, Sngapore has successfully attracted foregn makers of semconductors and lqud crystal dsplays. Indonesa serves as an assembly base, hghly compettve n most of the labor-ntensve ndustres whle the Phlppne has jumped nto the bandwagon of technology ntensve products. Thaland has also attracted nvestment recently and become establshed as a producton base for consumer-electroncs products. On the other hand, Chna has become promnent as the number one destnaton for nvestors. As Chna becomes the world s leadng suppler of mass-produced goods, Malaysa wll have to be optng for nche products of hgh qualty and prestge. Ths secton wll evaluate the level of competton between these countres by analyzng the export performance of each country to a specfc market. The evaluaton s done by examnng the evoluton over tme of the net shft for each country n each one-dgt product categores to the markets of the EU, US, and Japan. Indeed ths study also evaluates the performance of ASEAN countres to the Chnese market as Chna promses huge demand wth expanded purchasng power and the populaton advantage. 5.1 Net shft to European Unon, US and Japan Southeast Asa has been mprovng ts poston as the emergng manufacturng exporters n recent years. Durng the 198s and 199s, Malaysa, Chna and other ASEAN countres (especally Sngapore, Thaland, Phlppnes and Indonesa) became more nterdependent n trade n smlar products and n markets such as the EU, USA and Japan The export performance of the competng naton to a market s partly determned by how well the naton has performed f t has partcpated n the reference economy. Appendx B, C and D shows the net shft of each naton n the EU, US and Japan market European Unon As shown n Appendx B, Malaysa shows worryng trends of export to the EU market as ts performance s manly under the ablty of the reference economes except that t shows postve mprovements n the chemcals (SITC 5) and machnery and transportaton equpments (SITC 7) between It has been noted that as a whole Chna has outperformed the other countres n recent years n the EU market. Ths s ndcated by the postve overall net shft n SITC 6 and 7 from and SITC 8 from It appears that as a whole Malaysa s losng ground, at least at the one dgt level, n the EU markets. She was fndng t dffcult to mantan her compettve poston as an emergng manufacturng exporter n these categores, a poston that was subsequently made even more dffcult wth the presence of Chna as the world factory. Many prevous studes showed that Chna has the comparatve advantage n the labor-ntensve ndustres. However by lookng at the data we can conclude that Chna s becomng stronger n the overall manufacturng ndustres and t s also buldng ts capablty n medum and hgher technology ndustres. (Shown by a postve net shft n SITC 7) It s dffcult to pnpont as whch ndustres are sgnfcantly contrbutng to Chna s domnant presence n SITC 7 snce the data s aggregated at one dgt level, however n the ntal nvestgaton t was found that Chna s export of hgh technology products 22 sgnfcantly mproved from merely 5.76% n 1993 to 2.46% n Unted States of Amerca Our results showed that Malaysa s man challenge s Chna and to certan extent Phlppnes as ther manufactured exports to the USA were expandng. The man rval over the perod of analyss has been Chna, whch acheved sgnfcant postve export deferental (net shft). The worst performer n the USA market s Sngapore where t obtans most negatve net shft (except n n SITC 7 and n SITC 5). (Appendx B) 22 Hgh Technology Industres ncludes Aerospace, Chemstry, Computer, Electrcal, Non-electrcal, Pharmacy, Scentfc and Telecommuncaton. 1

11 Malaysa appears to have acheved some lmted success especally n SITC 7 from and whereas other manufactured exports have a negatve net shft. Although Chna s exports of SITC 7 have been growng at a faster rate than the reference economes wth hgh postve compettve effect (CE), her IME has generally been lower as her SITC 7 s not well establshed compared to other reference economes. Malaysa on the other hand enjoys a stronger IME suggestng that the exports structure of Malaysa s concentrated on the fast growng SITC 7 n her exports compared wth reference economes. (Chart 5) CHART 5: DECOMPOSITION OF NET SHIFT: SITC 7 Chna s Decomposton of Net Shft Malaysa s Decomposton of Net Shft IM E CE IE IM E CE IE Source: Author s calculaton Japan In the Japanese market, Chna domnates the SITC 8 as a whole compared wth other reference economes. Chna s strong IME and CE n SITC 8 bascally attrbuted to the postve net shft n SITC 8. The pattern of Malaysa s export of SITC 7 s n favour as the net shft shows a postve sgn durng the years of study except n and 21. However one dstngush pattern between Malaysa and Chna are that durng the Asan economc crss Chna has performed well compared wth others economes. Another economy that has done well s the Phlppnes as t has grown to be a new rvalry for Malaysa n SITC 7 to Japan especally durng perods. (Appendx C) 5.2 Key Remarks Three key conclusons emerge from the above fndngs. Frstly the challenge posed to Malaysa by Chna. Chna has become the promnent rvalry for Malaysa n exportng to the US market n partcular for SITC 5,6 and 8.To the market of EU agan Chna s performng better than Malaysa n SITC 6, 8. Only after 1996 n both the markets (USA and EU), Chna shows a great mprovement n SITC 7 except between the years where Malaysa s net shft s far better off than Chna. Secondly, the emergence of Phlppnes n SITC 7 poses a new threat to Malaysa. Phlppnes manufactured exports have performed mpressvely (shown by a postve net shft) n the US, EU and Japanese market from Realzng that Malaysa and Phlppnes specalze n the same product category the presence of Phlppnes should be vewed crucal. Indeed many of the same Mult Natonal Corporatons (MNCs) such as Intel, Texas Instruments, NEC, Fujtsu and others nvested n physcal facltes, tranng and technology actvty n both countres. However, Phlppnes export compettveness are very narrow, domnated by one product group especally semconductors. Phlppnes s ndustry mx effect (IME) was exceptonally weak compared wth Malaysa. Ths suggests that Phlppnes s exports have a lower concentraton n the fast growng ndustres. In addton, Malaysa has a much longer record of SITC 7 exports compared to the Phlppnes and ths provdes some ntal advantage for Malaysa n attractng FDI (The FDI flows n Malaysa are much hgher than n Phlppnes). Indeed the nfrastructure and poltcal stablty whch s vtal for the development of Machnery and Transportaton Equpments lke electrcal, 11

12 electroncs, telecommuncaton are well establshed n Malaysa However, Malaysa should be extra cautous of the performance of Phlppnes snce Phlppnes s relatvely better off n terms of labor cost, mprovng value added, sklled labor, Englsh speakng workforce and avalablty of engneers and scentst. For example, shop floor average wages are $2-25 per month compared to $3-35 n Malaysa. New graduate engneer earns an average of $4-5 n the Phlppnes compared wth Malaysa $8-1. (Sanjaya Lall, 2) Thrdly, the domnance of Indonesa especally n resource based ndustres of SITC 6 and Sngapore n SITC 7 have to a certan extend poses challenges for Malaysa n the EU, US and Japanese markets. 5.3 Net shft to Chnese Market Gven the recent economc development and wth the accesson of Chna nto WTO many have vewed Chna as a threat to the other natons due to Chna s cost advantage n manufacturng ndustres. However wth the huge market n Chna, one could also vew Chna as the potental market to boost exports especally wth the rapd growth of ncome n Chna. Numerous studes have shown that ndustral countres are lkely to beneft from Chna s accesson nto the WTO. In addton, Malaysa could also play a sgnfcant role f Malaysa s export serves as a complement to the ever-growng ndustres n Chna. Malaysa would be able to create opportuntes to capture the fast expandng market of Chna. The former Prme Mnster of Malaysa, Mahathr Mohamed once quoted; Malaysa wll have a share n the wealth that wll be generated n Chna. It s up to us to dentfy how we can beneft from Chna s new found wealth. From the analyss, several nterestng observaton can be made; The analyss suggested that Malaysa s SITC 7 (Machnery and Transport Equpments) exports have performed exceptonally well between and ganed postve net shfts compared wth the other reference economes such as Sngapore, Thaland, Indonesa and Phlppnes. (Appendx C) Ths may ndcate Malaysa s capablty n explorng the Chnese s market especally wth the ever growng demand for electrcal and electroncs products to supplement the other ndustres. Thus, the ablty to captalze on ths opportunty s mportant to enable Malaysa to gan a foothold as an mportant export center for machnery and transportaton. Indeed at ths moment, hgh technology based ndustres lke offce machnes could gan more market access n Chna due to ther low compettveness and hgh concentraton of Chna s producton on low-level manufacturng. In comparson, Indonesa was the worst performer n SITC 7 durng the entre perod of study. The close compettors of Malaysa to the Chnese market are Sngapore and Thaland, whch also show a postve net shft except n the year , for Sngapore and for Thaland. Another rvalry that may threaten the Malaysan poston s Phlppnes that enjoyed postve net shft durng The decomposton of the overall net shft (net shft) nto ts source of dvergence helps to dentfy the sources of changes n export compettveness of SITC 7. Malaysa s postve net shft durng s manly due to the contrbuton of the Compettve Effect. Meanng to say that Malaysa s growth rate n SITC 7 s more dynamc and Malaysa has the compettve advantage n SITC 7 n relaton to the reference economes. (Chart 6) 12

13 CHART 6:BREAKDOWN OF MALAYSIA S NET SHIFT TO CHINA (SITC 7: MACHINERY AND TRANSPORT EQUIPMENTS) IM E CE IE Source: Author s Calculaton In SITC 6 and 8, Malaysa performed relatvely badly compared to other reference economes untl 1998 but slghtly narrowed the gap durng Thaland has emerged as a leadng export performer n SITC 6 and Sngapore has better poston than the reference economes untl 1998 n the export of SITC 8 to the Chna market. Destnaton for Malaysan nvestors are more concentrated n Sngapore, Unted States, the Unted Kngdom, Northern Ireland and Hong Kong. Investment n Chna consttuted 1.5% of total Malaysan nvestment abroad n 1992 and 6.8% and 1.9% n 1996 and 1999 respectvely. A way to mprove performance of Malaysan export s to tap the opportunty n Chna by seekng cooperaton wth Chna. Cooperaton should be establshed by dentfyng the degree of complementartes between Chnese and Malaysan ndustres. Focus should be drected to SITC 7 especally n hgh technology based ndustres such as electroncs and telecommuncaton realzng that Chna wll take several years to fully calbrate ts polces and enjoy the benefts of WTO. Indeed Chna stll has many of ts own problems such as barrers to the dstrbuton of goods, regulatory ssues and dffcultes n establshng jont ventures wth local partners, domnaton of State Owned Enterprses (SOE) (Palanca Ellen H., 21). However, Malaysa should be selectve, as many companes have encountered constrants such as choosng the rght partner, lmted manageral talent, and dffcultes n fndng approprate local nput, bureaucracy, and an underdeveloped legal nfrastructure 6. CONCLUSION Ths research has provded some nsghts on the performance of Malaysa s export ndustres from It s evdent that Chemcal and Machnery equpments especally Offce machneres such as computer parts and other electronc and electrcal products have mantaned a better market access n the major markets such as US, EU, Chna and Japan. On the other hand the clothng and sem manufacturers such as leather, rubber, paper and others experence a declnng market share suggestng a change n the pattern of export structure as a whole. The fndngs also ndcated that Chna s accesson nto the WTO has strongly ncreased ts market share threatenng the poston of Malaysa n the major markets. In addton most of the labor-ntensve products such as clothng and apparel relatvely face hgher competton not only from Chna but also from other ASEAN countres especally Indonesa. Despte the challenge that Chna poses there s also evdence that Chna can be a potental market for Malaysa especally for the hgh technology products and certan resource based ndustres. However the opportuntes that Chna promses can only be utlzed f Malaysa can facltate the sourcng strateges by supportng regonal trade ntatves. Regonal cooperaton to strengthen supply chan could beneft by enablng Malaysa to take maxmum advantage of preferental market access. Further polcy mprovements as suggested n the research are essental n mantanng the survval of the exportng ndustres especally concernng the hgh technology ndustres. 13

14 REFERENCES Barff, R. and Prentce, L.K., 1988, Dynamc Shft-Share Analyss, Growth and Change, Vol.19, No.2, pp.1-9 Busness Montor Internatonal, 24, Manufacturng Turns to Medcal Scence, Busness Montor Internatonal Monthly Report, Vol. 15 No.1 Chandran V.G.R, (Forthcomng), Internatonal Market Entry of Hgh Technology Industres of Malaysa. Chandran V.G.R., Devga Vengadasalam, Karunagaran and Veera Pandyan, 23a, ASEAN Trade: The Relatve Revealed Comparatve Advantage of ASEAN Manufactured Exports , Proceedng for Internatonal Conference Asa Pacfc Busness Envronment : Innovatve Responses to Regonal, Auckland Unversty of Technology and MARA Unversty of Technology Chandran V.G.R. and Veera Pandyan, 23b, Export Speclzaton, Concentraton and Intra- Industry Trade: Evdence from Malaysa, Jurnal Akademk, 3, pp Davd D. F, Gullerma E. Perry, Denel Lederman and Wllam F. Maloney, 22, From Natural Resources to The Knowledge Economy: Trade and Job Qualty, The World Bank: Washngton D.C. Herschede, F., 1991, Competton Among ASEAN, Chna and the East Asan NICs: A Shft- Share Analyss, ASEAN Economc Bulletn, 7(3), pp Khalfah, N. An, 1996, Identfyng Malaysa s export market growth: A shft-share analyss, Asa Pacfc Development Journal (3)1. pp Matthas Knappe, 23, Textle and Clothng: What Happens After 25? Internatonal Trade Forum Issue 2. Rajah Rasah, 22, Systematc Coordnaton & Human Captal Development: Knowledge Flows In Malaysa s MNC Drven Electroncs Clusters, Unted Natons Unversty and INTECH Dscusson Paper Seres No Sanjaya Lall, 2, Export Performance and Compettveness n the Phlppnes, Queen Elzabeth House, Unversty of Oxford Workng Paper No. 49. Shazal Abu Mansor and Alas Radam, 2, ASEAN Industral Cooperaton and Intra ASEAN Trade: The Malaysan Case, Workng Paper 9 Unversty Putra Malaysa. Palanca Ellen H., 21, Chna s Economy Growth: Implcatons to the ASEAN, Phlppnes APEC Study Centre Network Dscusson Paper No UNDP, 23, Human Development Report, 23. Wlson P., 2, The Export Compettveness of Dynamc Asan Economcs , Journal of Economc Studes, 27(6), pp World Bank, 22,Trade and Development Report 22. World Bank, 23, World Development Indcators

15 APPENDI A Ths appendx provdes a smplfed equaton of the frst verson of shft share analyss whch analyses product and market growth. Mathematcal exposton of the above s; AC = SE + IME + RE + IE t - t 1 =. t 1 + t 1 j. t. t 1 t t. t 1 t t 1 5 Where t = Export of product to market j. j t = t = Exports of all product to market j t = t Export of product to all markets = Total Exports + t t. + j. Note: 1- Actual Export Change 2- Share Effect 3- Industry Mx Effect 4- Regonal Effect The smplfed second verson of shft share analyss follows the reference economes growth rate, whch s the modfed verson of the Esteban-Marqullas shft-share model. It s defned as: AC = Actual Change Share Effect: SE = j P r G r Industry Mx Effect: ISE = j( P - P r) G r Compettve Effect: CE = j P r (G - G r) Interactve effect: IE = j ( P - P r) (G - G r) AC = SE + IME + CE + IE Where j = total exports to US from compettor (country) j P = proporton of total exports to the specfc market from country j accounted for by exports n ndustry category of country j G = growth rate of exports from ndustry category n country j P r = proporton of total exports to specfc market from the reference economes (combned Malaysa, Chna, and ASEAN-4) G r = growth rate of exports to specfc market from ndustry category of the reference economes AC= actual exports change of country j durng the perod Share effect s the change n a partcular export product that would have been experence f these exports had grown at the same rate as the reference economes (Total exports of Malaysa, Chna and ASEAN-4). Any dfference n the actual export growth and the share effect s the attrbuted to three possble source of export dvergence; The Industry Mx Effect (IME), Compettve Effect (CE) and Interacton Effect (IE). The summaton of these three sources of dvergence s called as Net Shft or Export Dfferental. IME shows how much of the export dfferental s due to a dvergence between the competng economy s structure compared to the reference economes. CE shows how much of the export dfferental s due to a dfference between the export growth rate of the partcular country and the reference economes. IE shows how much of the export dfferental s attrbuted to a combnaton of the IME and CE. In short IME measures economc structure of a naton and CE measures the compettveness of a naton compared wth the reference economes. 15

16 APPENDI B ONE-DIGIT SITC MANUFACTURED EPORTS NET SHIFT a to EUROPEAN UNION b and US NET SHIFT TO EU SITC NET SHIFT TO EU SITC NET SHIFT TO US SITC NET SHIFT TO EU SITC NET SHIFT TO US SITC NET SHIFT TO US SITC NET SHIFT TO EU SITC NET SHIFT TO US SITC Source: Based on author s calculaton (SITC Internatonal Trade Center Database) a. Actual change n exports mnus the change that would have occurred had the competng economy/country been a small verson of the reference economy (Combne Chna, Indonesa, Malaysa, Phlppnes, Sngapore & Thaland) b. EU: Austra, Belgum, Denmark, Fnland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Span, Sweden & Unted Kngdom

17 APPENDI C ONE-DIGIT SITC MANUFACTURED EPORTS NET SHIFT to JAPAN and CHINA NET SHIFT TO JAPAN SITC NET SHIFT TO JAPAN SITC NET SHIFT TO CHINA SITC 7 Indonesa Malaysa Phl Sngapore Thaland NET SHIFT TO JAPAN SITC NET SHIFT TO CHINA SITC 5 Indonesa Malaysa Phl Sngapore Thaland NET SHIFT TO CHINA SITC 8 Indonesa Malaysa Phl Sngapore Thaland NET SHIFT TO JAPAN SITC NET SHIFT TO CHINA SITC 6 Indonesa Malaysa Phl Sngapore Source: Based on author s calculaton (SITC Internatonal Trade Center Database) Thaland