Manufacturing Industry—Malaysia

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Manufacturing Summary

Manufacturing Industry—Malaysia

The manufacturing industry in Malaysia became a significant contributor to the country's economy in the postindependence period beginning in the 1960s. During the colonial period, the country had been a major producer of raw materials, namely, tin and rubber. Secondary industries then were related to tin, rubber, timber, foodstuffs, and petroleum.

Historical Overview

Tin smelting started in Kuala Lumpur in the early 1880s. In 1885, a reverbatory furnace was in operation in Telok Anson (now Telok Intan), Perak (now a state in Malaysia), for smelting low-grade ores. The Straits Trading Company erected smelting plants on Pulau Brani (c. 1887) and at Butterworth (1902) in Penang state. A Chinese-owned smelter at Datuk Keramat that started operation in 1897 was bought by the Eastern Smelting Company.

Oil was struck at Miri, Sarawak, in 1910. A Shell-owned distillation plant for crude oil at Lutong came into operation in mid-1919 to serve the needs of the oilfields of Miri and Seria, Brunei. The Borneo Company processed gold by utilizing the cyanidation process at its plants in Bau (1899) and Bidi (1900) in Sarawak.

Some light-engineering works involved motor repairs of machinery in tin mining, irrigation, and transportation (road and rail) equipment. Service maintenance of locomotives and coaches was an industry supporting the transportation sector. The manufacture of consumer goods (soap, matches, etc.) for domestic consumption was on a very small scale. There were also indigenous handicraft and cottage industries (textiles, foodstuffs, etc.). Beginning in the 1960s concerted efforts and programs were implemented to promote and develop the manufacturing industry in the country.

Contemporary Status

The manufacturing sector is now a dynamic and flourishing component of the national economy, accounting for about one-third of the gross domestic product (GDP) as shown in Table 1.

The electrical, electronics, and machinery-products industries experienced rapid growth and expansion during the 1970s. Malaysia progressed from assembling electrical goods and machinery to manufacturing a wide range of these products by the 1980s. The electronics industry is the largest in the region, and Malaysia is the leading exporter of semiconductor components to the United States. Multinationals like Intel, AMD, Sony, Sharp, Motorola, and others are well entrenched with huge amounts of capital investments.

The Rubber Industry

Complementing its market position as the world's major producer and exporter of natural rubber, Malaysia

**TABLE 1**
**Gross Domestic Product (GDP): Sectoral Performance, 1999**
	Growth	Share of GDP	Contribution to growth
SOURCE: Ministry of Finance, Malaysia (1999/2000).
Agriculture, Forestry, and Fishing	4.6	9.4	10.1
Mining	–1.2	7.6	–2.3
Manufacturing	8.9	29.2	68.0
Construction	–3.6	3.7	–3.4
Services	2.4	54.6	31.3
Less imputed bank service charges	3.7	7.4	6.4
Plus import duties	21.6	2.9	12.7
GDP	4.3	100.0	100.0

also leads in the manufacture of latex goods. The manufacture of rubber-based products has attracted a constantly growing number of foreign manufacturers and investors, including Goodyear of the United States, Viking Askim of Norway, Ansell of Australia, BDF Beiersdorf AG of Germany, Pirelli of Italy, Sagami of Japan, Dongkuk Techco of South Korea, and others.

The Food Industry

The food, beverages, and tobacco industries are the province of small- and medium-scale (SMIs) establishments. Food manufacturing continues to be heavily dependent on imported inputs. Efforts are being undertaken to encourage import substitution in this sector.

The Petroleum Sector

Optimism is high for the petroleum industry and the manufacture of related products. From its beginning in Lutong in 1919, Malaysia had five oil refineries by 1998: two are owned by PETRONAS (Petroliam Nasional Berhad), the national petroleum company, two by Shell, and one by Exxon Mobil. The PETRONAS-owned Liquefied Natural Gas (LNG) plant at Bintulu, Sarawak, which started operation in 1983, is the world's third-largest LNG exporter. The Association of Southeast Asian Nations (ASEAN) Bintulu Fertiliser plant, an ASEAN joint-venture project that commenced operation in 1985, is reputedly the world's largest in terms of production-train capacity. Another joint venture, the Middle Distillate Synthesis plant that converts natural gas into diesel, kerosene, solvent, and so on, is a project by PETRONAS, Shell Gas BV, Mitsubishi Corporation, and the Sarawak state government. It started production in 1993. There are also several petrochemical industries operating under PETRONAS.

Heavy Industry

The heavy-industry sector can trace its beginnings to the period of large-scale tin mining in peninsular Malaysia from the mid-nineteenth century. The manufacture of cast-iron parts for tin mines was important then. When railways were introduced, steel casting of replacement parts for locomotives and coaches was undertaken by this sector. In 1967, the country's first integrated commercial steel mill (Malayawata Steel Bhd.) was established. Foreign vehicle giants like Toyota, Honda, and Volvo have had assembly plants in Malaysia since the 1960s. Two national car projects and one national motorcycle project boosted the heavy-industry sector. Malaysia has emerged as a producer and exporter of motor vehicles since the appearance of the Proton Saga (1985), Perodua Kancil (1992), and Modenas Kriss (1995). In Malaysia, Proton held more than 60 percent of the market share for automobiles throughout the 1990s.

A customer examines a pirated VCD copy of a Star Wars movie at a stall in Jakarta in May 1999. At the time, the government had initiated a campaign to shut down the video piracy industry. (AFP/CORBIS)

The Chemical Industry

The chemical industry in Malaysia continues to rely on imported intermediate chemical and petrochemical products in production ranging from household items to material inputs for the rubber, palm-oil, and timber industries. The chemical-industry sector has a conspicuous foreign participation, including ICI, Unilever, Colgate Palmolive, Borden, Exxon Mobil, Shell, and Mitsubishi Chemical Industries.

The Timber, Textile, and Plastics Industries

The timber-based industries manufacture a wide range of wood products including sawn timber, plywood, prefabricated houses, doors, window frames, wall panels, fiberboard, particleboard, wood briquette, wood wool, timber moldings, veneer, and block board. Furniture and wood fixtures are produced for the domestic and foreign markets.The textile industry focuses on textiles and yarn production and garments and knitwear that cater for local and international markets. The industry is dominated by local enterprise.The manufacturing sector also produces plastics (containers, pipes and hoses, electrical components), precision products (surgical, dental, photographic, optical), palm oil–based products (margarines, shortenings), clay-based products (bricks, ceramic articles), and leather goods.

Industrial Organizations and Government Organs

The Federation of Malaysian Manufacturers (FMM, 1968) focuses on creating and sustaining a dynamic business environment. Its membership of more than two thousand is representative of the various subsectors of the Malaysian manufacturing industry. The FMM Institute of Manufacturing offers skills training. FMM operates and manages the Malaysian Product Numbering System as well as being the authorized body for issuing and endorsing certificates of origin.The manufacturing industry in Malaysia comes under the purview of the Ministry of International Trade and Industry (MITI). Specifically the Industrial Policy Division and the Industries Division in MITI oversee the promotion and development of the manufacturing sector. Other related government organizations and agencies include the Malaysian Industrial Development Authority (1965), Malaysian Industrial Development Finance Berhad (1960), and Malaysian Industrial Estates Sdn Bhd (1964).In concert with the National Development Policy, the Second Outline Perspective Plan (1991–2000) and the Seventh Malaysia Plan (1996–2000), the Second Industrial Master Plan (IMP2) targets the manufacturing sector as a major contributor to the national economy. The industrial sector is entrusted with the pivotal task of propelling the country toward industrialization and sustainable economic growth and development. IMP2 emphasized the strengthening of Malaysia's industrial base as well as diversifying the export of manufactured products. The promotion of foreign investment in the manufacturing sector will continue to be adopted as one of the pivotal strategies in developing and expanding the sector.