Infrastructure and Geographical Positioning of Manufacturing Firms in Malaysia

Abstract

This paper focuses on infrastructure in Malaysia from the viewpoint of both industrial policy and location strategy of manufacturing firms. A part of this study is based on the result of the questionnaire survey which the author conducted to the firms located in industrial estates in Malaysia. The New Economic Policy was implemented in Malaysia after ethnic riot in 1969. One of the main aims of the policy was to mitigate regional disparity in economic development at that time. As one of the methods for it, Malaysian government undertook a strategy of industrial dispersion through establishing industrial estates in all states. Until then industrial estates had been located in the western side of Peninsular Malaysia. Although the strategy should have mitigated regional imbalances in Malaysia, new infrastructures, such as highways, ports and free trade zones, have been mainly established along the existing western part of the Peninsula. The government has relaxed regulations concerning foreign direct investment since 1986. As a result, foreign-affiliated firms accelerated their investment in Malaysia. Most of the companies have been located in industrial estates, in particular, along the main highways. It is found that there are several large industrial estates with more than fifty firms and a lot of small industrial estates with a couple of firms. Many of the latter are located in the less developed areas. One of the most important road networks in Malaysia is the North-South Highway which runs from Kedah to Johor. The construction of the highway was completed in 1994. The effect of Malaysian highway development is the building of three networks in and around the country. These are the intra-regional network, the inter-regional network and the Malaysia-Singapore network. The result of the questionnaire survey shows that 70% of the companies of electric and electronic industry have been located in three states : Penang, Selangor and Johor. Foreign-affiliated firms have appraised "existence of infrastructure" as a positive motivation to invest in Malaysia as well as "low labour costs", "political stability" and "investment incentives". In fact, they have made a great contribution upon Malaysian industrialization. One of the most important factors among infrastructure by which they decided to select the present location is the exsistence of "roads". As the result of foreign direct investment, we can see the clustering of manufacturing firms in urban areas. Malaysia has recently promoted high-tech industries and supporting industries. Such a cluster, certainly, are playing an important role in promoting both types of industries.