Introduction
Malaysia, a small and open economy, is a multiracial country that is well known for its natural resources such as minerals, forestry as well as agriculture (Thomas White Organization 2010). In the earliest years the major productions from Malaysia are tins and rubbers. In the 1840s, Malaysia's tin has contributed to almost half of the world's tin sectors and in the early 20th century Malaysia's rubbers became the most exported product leading to an economic boom for the country. In 1991, Tun Dr. Mahatir bin Mohamad the 4th Prime Minister introduced the Vision 2020 to encourage the country to visualize a far-sight economic development in Malaysia (Huq 1994) . Soon, Malaysia's economy was on the rise, drawing attention of investors all over the world. However in 1997, Malaysia met up with a major economic crisis that was known as the Asian Financial Crisis which has caused many investors to loss their confidence in the Malaysian market. But soon, in the year 1999, Malaysian economy was in a recovery mode, slowly bringing back foreign investors' confidence back into the country. After the major economic crisis passed, Malaysia's economy was back to its healthy and stable condition (K.S 2001).
Importance of Foreign Direct Investment (FDI)
One of the strongest contributions to the growth and performance of Malaysia's economy is the Foreign Direct Investment (FDI). In the early 1970s the government introduced the Investment Incentives Act 1968 making Malaysia a free trade country. With the export incentives given to foreign investors, the FDI began to grow in the late 1980s. By bringing in more inflow from the FDI, a larger percentage of foreign equity ownership in enterprise was given to investors. The FDI in a country projects an image of globalization. It helps in increasing the efficiency to utilize the world's scare resources. With the presence of FDI in a country, it helps to bring in capital, new technology, intangibles such as organizational and managerial skills, and marketing networks. Besides that, it helps in bringing in competitions, innovations, job creations that will assist in the growth of the economy. In Malaysia, The Malaysian Industrial Development Authority (MIDA) is one of the contributors that attracted FDI into Malaysia. With that, manufactured goods exported have taken up to 80% of Malaysia's total exports in the year 2005. Thus, the FDI plays an important in the development of a country's economy. (World Trade Organization 1996)
Strength
Political
The political stability in Malaysia is important to attract more foreign investors to the country. There are three major races that can be found in Malaysia which are Malay, Chinese and Indian community. In May 1969, there was a major racial conflict that has lead Malaysians to live rather harmoniously with each other in order to prevent another racial riot from happening again. Since then, races of different kinds can be seen working, helping, joking together. The political power in Malaysia is mainly controlled by Malays which are known as the Bumiputera. However the government parties such as United Malays National Organization (UMNO), Malaysian Chinese Association (MCA) and Malaysian Indian Congress (MIC) is formed as one government known as the Barisan Nasional (BN). With these three parties, each race has their own representatives to resolve any racial conflicts and thus giving the country a more harmonious community (Malaysia Truly Asia n.d.).
Economic
The economic trend is to provide a picture of the economic growth in Malaysia. The Gross Domestic Product also known as the GDP is to measure the country's total output. The economic in Malaysia has been in a slowdown. However, in this year of 2010, Bank Negara Malaysia has announced that the GDP is expected to exceed 6.0 per cent. The first half of the economic growth was rebounded up to 9.5 per cent compare to previous year in 2009 that has a negative of 5.1 per cent. According to the central bank governor Tan Sri Dr Zeti Akhtar Aziz, there is a high possibility that the economy will continue to grow even though there is a slowdown among their trading partners with other developing countries. Since the economy is financially strong, it is expected that there would be a continuous steady inflow from FDI (Business Times 2010).
The company tax rate that has been taxed since the year 2009 is at 25%. Any income generated by local company which performs activities such as banking and insurance business and sea and air transport undertakings has to pay the tax imposed, other than that there is in no need of paying the tax as income is derived out of Malaysia is not taxable and it will become a withholding tax in the other countries (MIDA 2010).
As for the inflation rate in Malaysia, it has been accelerating since the month of March 2010. The latest inflation rate, which is in the month of July 2010 reached up to 1.90% compared to the month in March 2010 which is 1.30% (Malaysian Inflation Rate 2010). According to Bloomberg, the affected costs are the food and transport areas (Adam 2010).
Moreover, the current exchange rate, September 21st, 2010 for Malaysia against US Dollar is at 3.1370. According to bank governor Tan Sri Dr Zeti Akhtar Aziz, the Malaysian Ringgit has been appreciating over the past years almost up to 9% (Star Business News 2010).
Social and Cultural
Malaysia is a multiracial country that consist of the Malay, Chinese and Indians. Each culture has their unique traditions. The Malays for example celebrates Hari Raya, the Chinese celebrates Chinese New Year and the Indians, Depavali. Many religions can also be found in Malaysia too. For instance, the major religion that is known in Malaysia is the Christianity, Buddhism, and Islams. Each religion practices their prayers and celebrations in Malaysia harmoniously (Dalat n.d.).
The various races and uniqueness of this country has attracted many foreign investors to Malaysia. Such as investors that comes from China, India and Middle East. Foreign investors from these countries find it easier to set up a corporation in Malaysia as they are able to communicate easily with the locals. For examples, Chinese will be able to communicate with investors from China, Indians to investors from India and Malay to Middle East. Although there are differences in each race and culture, however the community stays together as one.
Malaysia itself has already welcomed investors from China, India and Middle East. The Malaysian Industrial Development Authority (MIDA), gladly invites more Chinese investors to explore , trade and invest in Malaysia. For instance China has set up a company known as Wenzhou a enterprise that was set up in Malaysia has become a well-known company in Malaysia. Even Indians from India can be found investing in Malaysia. According to MIDA, India's firm is set to invest in companies that involves in pharmaceuticals and biotechnology in Malaysia. Not forgetting Investors from Middle East has also invested in Malaysia such as setting up Islamic Banks (Business Times 2010).
Technology
Malaysia is one of the Asian countries that are moving into a technology-driven and high tech production based showing that Malaysia has its potential to develop and invent new technologies despite the financial crisis that were faced in 1997 (Mun Chow Lai 2004). There are many technology companies in Malaysia and one of them is the Malaysia Technology Development Corporation (MTDC). MTDC provides integrated ventures capital solutions for new ideas and inventions (Malaysian Technology Development Corporation 2007).
The technology in Malaysia is slowly advancing that by the year 2020, The agriculture National Key Economic Area known as the "NKEA", expects that Malaysia will transform the agriculture sector into an agribusiness, which will not only provide employment opportunities for those in rural areas but also a boost in the country's Gross National Income (GNI). Furthermore, the health NKEA targets to develop more pharmaceuticals, health travel and medical technology products that will boost the market in the economy (Bernama 2010).
Additionally, Malaysia has also shown a develop network of Highways. The highway such as seaports and airports throughout the peninsula has provided efficiency to many industries. Even the telecommunication with the latest digital and fire optics technology has made Malaysia's telecommunications to be an impressive expansion for the past few years (MIDA 2010).
Labour
In Malaysia, investors benefits from getting more diligent, disciplined, educated and trainable labourers. Every Malaysian youth in terms of education has to go through at least 11 years of school education level, thus allowing investors to find it easier to train these in youth in new skills. As the demand for technically trained workers increases, the government has taken the initiatives to increase the number of much more learned and educated students in that field. Besides that, the relationship of both employer and employee are much more harmonious. The productiveness are relatively high even though the labour cost in Malaysia are quite low (MIDA 2010). According the labour statistic recently, the labor force has been on the rise since year 2003. Comparing to the year 2009, the labour force in Malaysia was at 11,090,000 but in the year of 2010, it has raised up to 11,290,000 (CIA World Factbook 2010).
Challenges
The competition Malaysia faces with other Asian countries has been stable and increasing in the past years. However, in the year 2010, according to the World Economic Forum (WEF) the global competitiveness index in Asia pacific countries has slipped two places down to 26th position as compared to previous report which was at the 24th place. Likewise, in the previous years of 2008 and 2009, Malaysia was reported in a declining situation. It was also reported that the four main areas which are the higher education, training institutions, technological readiness and labour market are the cause that as contributed in the declining rate of the Malaysia's competitive performance. Besides that, the health concerns such as malaria, HIV/AIDS and other disease are also contributors to the fall (Damodaran 2010).
Additionally, in the fields of politics, any instability in politics of the country would lead to a lost or a hold in foreign investors unless the political conditions are stable again (Lim 2010). In this current year 2010, Malaysia has been facing many political issues as the oppositions are getting stronger resolving in state conflicts with the federal governments. For example, according to the views of Deputy International Trade and Industry Minister, ever since the opposition has been criticizing the Barisan Nasional in the year 2008 and 2009, it has caused foreign investors to hold back leading to a drop of 81%. Thus the stabilization of politics is important to attract foreign investors again (Bernama 2010) .
Recommendations
Malaysia is a beautiful country full of natural resources that has more potential to develop and grow. However to achieve economically, one of the main contributions comes from foreign investments. There are many challenges that the country needs to resolve to increase the inflow of foreign investors.
Since the higher education, training institutions, technological readiness and labour market are the cause that as contributed in the declining rate of the Malaysia's competitive performance, Malaysian government must take the initiatives to prevent those higher educationists not the leave the country. This can be done by giving those educated citizens better benefits and prospect in order to prevent any brain drain by other countries. This is also to ensure security in firms so that young highly educated groups are able to be innovative in new ideas for the country so that competitors are attracted to compete in Malaysian markets. As for the health situation which is also a factor to the declining rate of competitions in the market, the health ministry must take immediate action when diseases are discovered in the country and show steps of prevention to keep the country in a healthy condition. By doing so, it brings a sense of securities for foreign investors and attracting them to invest in this country.
As mentioned above, Malaysia faces some political issues that has slowed down the numbers of foreign direct investors or even put them to a halt. Even though conflicts may occur politically, however the situation should be handled honestly to capture back the trust of the Investors. The government must be prepared to accept the people's and the oppositions' criticism as a means of improving rather than retaliation by denying. A strong government must make certain that peace and harmony is their priority in order to ensure foreign investors that their investments are in safe hands.
Conclusion
In conclusion, to attract more foreign investors from China, India and Middle East, immediate steps by the government must be taken because if a crisis were to prolong, investors will likely shy away from the country. By having a stability of the politics, economics, social and cultures, technologies and labour, these foreign investors will not hesitate to invest as they would find it confident to invest in a country that is in a stable condition.
