International Strategic Alliances in Malaysia: The Case of Australian Companies

1. International Strategic Alliances in Malaysia: The Case of Australian Companies Ahmad Bashawir Abdul Ghani PhD University Utara Malaysia

2. Abstract • Presents the finding of an exploratory study into the motives and experiences of Australian firms participating in international strategic alliances in Malaysia

3. International Strategic Alliances • Numerous definition abound. • At the outset, ISA connotes a process of inter organizational linkages or networks. • Used interchangeably with concepts such as business networks, strategic partnering, collaborative arrangement, JV (equity and non equity) • Hamilton et al. (1996) : A durable relationship established between two or more independent firms involving the sharing or pooling of resources to create a mechanism (corporate or otherwise) for undertaking a business activity or activities of strategic importance to one or more of the partners for their mutual economic advantage.

4. Introduction • New Economic Policy superseded by New Development Policy in 1991. • Framework to achieve Vision 2020. • Raising workforce quality • Developing expertise in sophisticated industries • Relaxed many FDI restrictions imposed by the NEP such as equity and licensing requirements.

5. FDI in Malaysia • The most prevalent mode of FDI in Malaysia is participation in international strategic alliances. • Disconcerting – inflexibility, poor integration, mistrust and conflict as well as economic and political instability and complex privatization practices.

6. Important questions • The pace of FDI resulted in many firms to move quickly to grasp opportunities • Contradict traditional models – gradual and incremental growth. Need to be re-examined. • By no means assured that the performance expectations of Australian firms will be realized. • From host government – need to understand the motives and intentions of foreign firms in order to ensure that host economic and societal goals are attained.

7. Process of Internationalization • Stages Model • Incremental decision/stepwise fashion • Absence of market knowledge • Aharoni (1996) “A process of incremental adjustment to changing conditions rather than the optimum allocation of resources underlying economic model”.

8. Process of Internationalization • Reid (2003) opined that international involvement is contingent on market opportunity, firm resources and managerial philosophy, best considered as an adaptive process. • Ohmae (2005) turbulence environment requires firm to engage in simultaneous launch rather than gradual roll out.

9. Motives for Internationalization • Aharoni (1996) – internal drivers (motivations, possession of unique products), external drivers (competitive pressures and pursuit of market opportunities) • Ang (2007) contends that there are four main types of FDI, resource seeking, market seeking, efficiency seeking and strategic asset seeking

10. FDI in Malaysia • Most widespread is IJV. • 1999 to 2002, Malaysia received $4.1 billion. • Success Factors: market economy, privatization, trade with Western countries, entrepreneurial atmosphere (Australian Government , 2005), proximity to ASEAN countries, low cost labor, favorable foreign investment legislation, tax concessions, freedom to repatriate profit etc.

11. Methodology • Out of 34 only 19 satisfactorily completed (63.3%) response rate. • Australian companies involved in ISA in Malaysia. • Spanned a range of industrial sectors: industrial goods, consumer products, service organizations.

12. Findings • Support for Dunning, Chowdhury (2005) views that FDI is driven by market and resource seeking motives. • Importance of political imperative (Doz, Duasa 2007) stable economic and political conditions.

13. Findings • Stable economic and political conditions 1 • Growth potential of Malaysia market 2 • Profit potential 3 • Government support 4 • Geographical location 5 • High skilled labor 6 • Low labor cost 7 • Government tax incentives 8 • Low cost of acquiring Malaysian companies 9 • Overall risk reduction 10 • Economies of scale 11 • Sources of new materials 12

14. Problems Encountered • Overall state of Malaysian economy 1 • Hostile financial environment 2 • Unclear and changeable government priorities 3 • Lack of specific and stable legislation 4 • Difficulties in valuing Malaysian companies 5 • Infrastructure problems 6 • Difference in accounting systems 7 • Commitment from Malaysian partners 8 • Lack of market information 9 • Unsatisfactory performance of Malaysian suppliers 10

15. Results • Provide considerable support for the view that many companies leapfrogged the stages approach to entry into the Malaysian market. • Rapid major market presence and or to pre-empt competitors induced firms to enter initially through ISA. • As many as 58% of firms had no prior trade experience in Malaysia, while 37 % had no previous presence of any kind in Malaysia and South East Asia generally.

16. Managerial Implications • Exploratory due small sample size. Nevertheless indicative. • It would appear that going it alone in an incremental, step wise fashion is not appropriate and that firms need to be able to develop the skills and competencies for successful strategic alliances, collaborative and network arrangements. • Key success factor is the speed at which firms can identify market opportunities and develop ISA arrangements. • Important first mover advantages-exploit growth potential. Followers better to consider sequential motives due to reaction from initial entrants. • Valuable insights foreign firms can expect throughout the region.

17. Conclusion • Important to take note that countries in South East Asia though frequently grouped together are very different politically, culturally and economically. • Need to rethink the appropriateness of a stages model of internationalization in the current global environment. • Critical role to be played by the host government-conducive environment.

18. Public Policy Factors • Stable political system • Free market and free international trade • Efficient, honest and non-intrusive bureaucracy. • Focus on macro economic policies to attract investment rather than resorting to incentive led strategies. • Setting the right regulatory environment. • Investing in education and training. • Protection for private and intellectual property. • A national market for the product and service • Experienced workers • Trained management • Infrastructure • Diplomatic links