University of Bradford eThesis This thesis is hosted in Bradford Scholars – The University of Bradford Open Access repository. Visit the repository for full metadata or to contact the repository team © University of Bradford. This work is licenced for reuse under a Creative Commons Licence. RESOURCE-BASED INDUSTRIALIZATION in PENINSULAR MALAYSIA: A CASE STUDY of the RUBBER PRODUCTS MANUFACTURING INDUSTRY C. C. GOLDTHORPE PhD 2009 RESOURCE-BASED INDUSTRIALIZATION in PENINSULAR MALAYSIA: A CASE STUDY of the RUBBER PRODUCTS MANUFACTURING INDUSTRY Christopher C GOLDTHORPE submitted for the degree of Doctor of Philosophy Development and Economic Studies School of Social and International Studies University of Bradford 2009 Christopher C Goldthorpe Resource-based industrialization in Peninsular Malaysia: a case study of the rubber products manufacturing industry Abstract Keywords: economic history; development studies; Malaysia; industrialization; rubber manufacturing; foreign direct investment; dualistic structure; export-orientation; technology transfer. This economic history and examination of the rubber products manufacturing industry in Peninsular Malaysia contributes to the subject of resource-based industrialization in the field of development studies. The development of the industry is traced from the 1920s to 2005 when the Second Industrial Master Plan came to an end. The findings are that local interests control 80 per cent of the industry, with foreign direct investment in the remaining 20 per cent, either as subsidiary companies of overseas manufacturers or in joint ventures with Malaysian investors. The industry has a dualistic structure, with foreign-owned and joint venture companies typically being more heavily capitalized and employing a larger workforce than wholly Malaysian-owned companies. Foreign and joint venture enterprises are more likely to export a greater volume of production than local firms. Nevertheless, the industry as a whole has a strong export-orientation and Malaysian-based exporters sell into markets worldwide. A detailed examination of the industrial components production sector by means of a questionnaire indicates that Malaysian producers rely on the Malaysian Rubber Board for the transfer of manufacturing technology. Technology transfer in the foreign and joint venture sector is from parent companies and joint venture associates overseas. The conclusion is that the rubber manufacturing industry is vertically integrated with local production of natural rubber used as raw material to produce a range of goods for sale to domestic and international markets. The 80 per cent Malaysian component indicates a stable domestic industry ably supported by local technology resources. Table of Contents Acknowledgements xiii List of Acronyms xiv Map of Peninsular Malaysia xvi Chapter Page 1 Background to the Study 1 1.1 Introduction 1 1.2 Research Question 3 1.3 World Rubber Industry 5 1.4 Structure of Thesis 7 2 Review of Theories in Development Economics 10 2.1 Evolution of Development Economics 10 2.1.1 The Political Economy of Development 2.1.2 Structuralism and Neo-Classicalism 2.2 The Structuralist School 13 2.2.1 Cold War Rivalry 2.2.2 Balanced Growth Models 2.2.3 Hirschman’s Theory of Linkages 2.2.4 Trade Pessimism Theory 2.2.5 Theories of Dualism and Enclave Development 2.2.6 International Dependency Theory 2.2.7 Role of Agriculture i 2.3 The Neo-Classical School 20 2.3.1 Geo-Political Influences 2.3.2 Neo-Classical Theories 2.3.3 Endogenous Growth Theory 2.4 International Trade and Industrialization Theories 23 2.4.1 Comparative Advantage 2.4.2 Heckscher – Ohlin Model 2.4.3 Porter Trade and Industrialization Theory 2.4.4 Technology 2.4.5 Product Cycle Theory 2.4.6 Export-Orientation vs Import Substitution 2.4.7 Import Substitution Industrialization Policies 2.4.8 Export-Oriented Industrialization Policies 2.4.9 Globalization 2.4.10 Role of Government 3 The Political Economy of Malaysia 33 3.1 Introduction 33 3.2 Historical Background 33 3.3 The Economy of Colonial Malaya 36 3.4 Japanese Occupation: 1942 – 1945 40 3.5 Pre-Independence Years 42 3.6 Independence and the Formation of Malaysia: 1945 – 1965 44 3.7 Post-Independence Economic Policy 46 3.8 Agricultural Development Strategy 47 3.9 Post-Independence Political Settlement 49 3.10 New Economic Policy: 1970 – 1990 51 3.11 National Development Policy and Asian Currency Crisis 53 3.12 Conclusion 55 ii 4 The Development of Manufacturing Industry in Malaysia 56 4.1 Industrialization under British Rule 56 4.2 Industrialization in Post-Independence Malaysia 62 4.3 Export-Oriented Industrialization under the New Economic Policy 65 4.4 Heavy Industries Promotion: 1980 – 1985 70 4.5 First Industrial Master Plan: 1986 – 1995 72 4.6 Second Industrial Master Plan: 1996 – 2005 75 4.7 Role of Government 76 4.8 Conclusion 77 5 Rubber Manufacturing in Malaysia 79 5.1 Introduction 79 5.2 Natural Rubber Production 80 5.3 Exports and Imports of Natural Rubber 81 5.4 Rubber Goods Manufacture: 1920 – 1970 84 5. 5 Rubber Goods Manufacture: 1970 – 1985 89 5.6 Rubber Goods Manufacture: 1985 – 2005 91 5.7 Dualistic Structure 97 5.8 Linkage Effects 98 5.9 Conclusion 99 6 Research Questions and Methodology 102 6.1 Introduction 102 6.2 Research Questions and Objectives 103 6.3 Methodological Approach and Positive Epistemology 105 6.4 Triangulation 107 6.5 The Political Dimension 108 6.6 Ethical Issues 110 6.7 Research Context 112 6.8 Study Population 115 6.9 Selection and Definition of Data Sets 115 iii 6.9.1 Tyre Industry 6.9.2 Latex Products Industry 6.9.3 General Rubber Products Industry 6.10 Research Issues: Reliability of Data 119 6.11 Secondary Data: Entire Industry Analysis 119 6.11.1 Survey Questions 6.12 Secondary Data: Industrial Products Sector Analysis 123 6.12.1 Survey Questions 6.13 Primary Data Analysis 125 6.13.1 Postal Survey Questions 6.14 Survey by Questionnaire 127 6.15 Postal Survey Population 128 6.16 Design of Postal Survey 129 6.17 Testing of Questionnaire 130 6.18 Pilot Survey 131 6.19 Questionnaire 131 6.20 Legitimacy 132 6.21 Administration of Survey 134 6.21.1 Basic Decisions 6.21.2 Logistics in Bradford 6.21.3 Logistics in Kuala Lumpur 6.21.4 Survey Timetable 6.22 Questionnaire Response Rate 136 6.23 Coding for Computer Analysis 136 6.24 Statistical Techniques 137 6.25 Issues in Statistical Analysis 140 6.26 Weaknesses in Research Method 142 6.27 Conclusion 144 iv 7 Overview of Rubber Manufacturing Industries 145 7.1 Introduction 145 7.2 Location of Rubber Industry Factories 145 7.3 Classification of Rubber Industries 146 7.3.1 Malaysian Rubber Board and Study Classification Systems 7.3.2 Tyre Industry 7.3.3 Latex Products Industry 7.3.4 General Rubber Products Industry 7.4 Profile of Rubber Manufacturing Industries 149 7.5 Results of Analysis 151 7.5.1 Question 1: Ownership 7.5.2 Question 2: Source of Foreign Investment 7.5.3 Question 3: Date of Establishment 7.5.4 Question 4: Capitalization 7.5.5 Question 5: Workers Employed 7.5.6 Question 6: Large and Small/Medium Enterprises 7.5.7 Question 7: Volume of Export Sales 7.5.8 Question 8: Number of Export Companies 7.5.9 Question 9: Export Markets 7.6 Conclusion 162 8 Industrial Products Sector: Results and Analysis 165 8.1 Introduction 165 8.2 Secondary Data 167 8.2.1 Question 1: Ownership 8.2.2 Question 2: Source of Foreign Investment 8.2.3 Question 3: Date of Establishment 8.2.4 Question 4: Capitalization 8.2.5 Question 5: Workers Employed 8.2.6 Question 6: Large and Small/Medium Enterprises 8.2.7 Question 7: Volume of Export Sales v 8.2.8 Question 8: Export Markets 8.3 Primary Data 176 8.3.1 Question 1: Ownership 8.3.2 Question 2: Source of Foreign Investment 8.3.3 Question 3: Large and Small/Medium Enterprises 8.3.4 Question 4: Volume of Export Sales 8.3.5 Question 5: Export Markets 8.3.6: Question 6: Source of Natural Rubber 8.3.7 Question 7: Source of Synthetic Rubber 8.3.8 Question 8: Source of Compounding Ingredients 8.3.9 Question 9: Suppliers of Compounding Ingredients 8.3.10 Question 10: Source of Machinery and Equipment 8.3.11 Question 11: Malaysian Rubber Board Technology 8.3.12 Question 12: Sources of Technology 8.3.13 Question 13: Malaysian Rubber Board Technical Assistance 8.3.14 Question 14: Sources of Technical Assistance 8.4 Conclusions 189 9 Other Manufacturing Sectors: Results and Analysis 193 9.1 Introduction 193 9.2 Pneumatic Tyre Sector 193 9.3 Motor cycle/Bicycle/Solid Tyre and Inner Tube Sector 198 9.4 Dipped Goods Sector 199 9.5 Latex Other Products Sector 208 9.6 Low Technology General Goods Sector 211 9.7 Footwear Sector 214 9.8 Compounding and Retreading Materials Sector 217 9.9 Conclusion 220 vi 10 Summary of Findings 221 10.1 Introduction 221 10.2 Structure 222 10.3 Export Sales 228 10.4 Industrial Products Sector 230 10.4.1 Structure 10.4.2 Exports 10.4.3 Linkage Effects 10.4.4 Technology Transfer 10.5 General Conclusions 239 11 Discussion and Conclusions 242 11.1 Introduction 242 11.2 Political Economy Context 243 11.3 Development Policy Issues 245 11.3.1 International Trade Theory 11.3.2 Porter Model of Trade and Industrialization `` 11.3.3 Balanced Growth Model 11.3.4 Direct Foreign Investment 11.3.5 Globalization 11.4 Policy Implications 252 11.4.1 The Political Imperative 11.4.2 Policy towards Foreign Investment 11.4.3 Utilization of International Agencies 11.5 Limitations of the Study 258 11.5.1 Government Policy towards Foreign Researchers 11.5.2 Capital/Labour Ratio 11.6 Further Research 260 11.6.1 Additional Work on Capital/Labour Ratios 11.6.2 Additional Analysis of Data 11.6.3 Industrial Products Sector vii 11.6.4 Latex Products Industry 11.6.5 Research into Export Markets 11.6.6 Comparative Studies 11.7 Role of Rubber Manufacturing in Industrialization 263 Technical Appendix 267 1.