The need for Malaysia to open up

The need for Malaysia to open up

Recently, Malaysian Automotive Association (MAA) president Aishah Ahmad said that Malaysia was already trailing Thailand in the automotive race. Malaysia is still protecting its market from foreign intrusion and it seems that the move has backfired. According to Aishah, though the MAA had agreed to accept the Common Effective Preferential Tariff agreement, the malaysian government still imposed an import duty on the parts or CKD packs from the Asean countries. She added that Thailand too was also putting some sort of restraint on products from the neighbouring Asean countries. Thailand refused to accept the CEPT agreement and was imposing the normal rate of around 33 percent of import duty for CKD packs. The Thai government was also refusing to give the Form D for products imported from Thailand. Form D is used to declare that the product falls under CEPT, which means it is eligible for a lower tax rate, from 0 to 5 percent. Aishah explained that the MAA had already brought up this issue with MITI. The Malaysian government is still discussing the issue with the Thai government. Malaysia has also brought up this issue with the Asean committee to help solve the problem. Ideally, the Asean situation is to have manufacturers having plants in different countries in the regional bloc, with each plant focusing on a specified product, which can be exported at the same tax rate to all member countries.

Whatever the compliance to AFTA rules and other regional agreements, Thailand seems to be on the right track now. Manufacturers from all parts of the world are setting up plants in Thailand. Thailand has also embarked on a project that sees the country as the regional automobile hub by 2010. The project, dubbed the “Detroit of Asia”, calls for having six automobile companies in the country, as well as having auto parts suppliers and related government agencies. The first goal of the project is to make Thailand the ninth biggest automobile manufacturing country in the world. They are currently in 15^th position. Thailand is also poised to reach 70 percent of local-value-added manufacturing for the industry while 400 billion baht worth of spare parts are projected to be exported.

While Malaysia is still trying to get its own automotive industry streamlined, Thailand is already taking advantage of China’s booming economy and its massive automotive market. Last year, Asean countries produced more than 1.5 million vehicles, with Thailand accounting for half that amount. Almost 33 percent of Thailand’s production was exported. While Thailand looked to be on the agenda of foreign automobile industry investors, Malaysia looked to be losing out to its foreign neighbours in this aspect.

It is Aishah’s belief that Malaysia should not be focusing on the domestic market. According to her, AFTA permits the Malaysian market to compete on a level playing ground, opening up a bigger market for the automotive industry. She remarked that if Malaysia did not open its market now, manufacturers from other countries would obviously go to neighbouring countries. Like Thailand, Malaysia should be aiming for the China market instead of being intimidated by it. The current situation where Malaysia is looking inward to protect the local industry might actually result in a wastage of its resources. The main objective of encouraging national car manufacturers is to create a healthy automotive industry, which is able to compete globally. However, the only active manufacturer that is doing so is Proton, which can now produce its own vehicles, including the engine. Eventhough it took Proton quite some time to do this, the objective has been achieved.

The other local manufacturers are basically slightly better than assemblers. Despite carrying ‘Made in Malaysia’ stickers, the cars receive minor engineering or R&D (Research and Development) treatment locally. Some even have local content as low as 20 percent only. If Malaysia still feels the need to protect the local manufacturers, something should be done to ensure that made-in-Malaysia cars are truly made locally, with higher local content. Failure to do so would only corrupt the market even further. Opening the market would actually be the best way to spur the growth of the local automotive industry, with Proton having been quoted as saying that it is prepared for the coming AFTA.

Nevertheless, the fact is that Malaysia has the talent, infrastructure, and the connection that it needs to become the major automotive hub in the region instead of Thailand. Malaysia has the skilled labour, modern facilities, modern infrastructure, highly talented engineers, creative stylists, and supporting industries to overcome Thailand. Malaysia even has Malaysians working abroad with major automotive companies, with Proton admitting that their personnel have been approached by the bigger companies.

Malaysian export strategies would have to be adjusted to cater to different requirements if local companies are to maintain their successful performance even after the trade barriers are removed. Due to price competitiveness and the different consumer preferences, there is no guarantee that Malaysia’s products that have been successful in the domestic market will find the same level of success in other Asian countries. As a result, Malaysian companies need to modify their product design, branding and product presentation as well as marketing and promotional strategies, in addition to research and development, and human resources development. In order to reap the full benefits of AFTA, local companies must be prepared to make necessary changes and respond quickly to the varying scenarios in the new business environment.