DRAFT ONLY

Chinese-Bumiputerapartnership in

technology-basedindustries in post NEP

and post NDP Malaysia1

Chin Yee Whah, Ph.DUniversiti Sains Malaysia, Penang, Malaysia

Email: ywchin@usm.my

Paper to be presented at the ThirdInternational Conference of Institutes andLibraries for Chinese Overseas Studies,"Maritime Asia and the Chinese Overseas,1405-2005", Singapore, 18-20 August2005.

Abstract: This paper discusses Chinese­Bumiputera partnership in technology­based industries in post NationalEconomic Policy (NEP) and post NationalDevelopment Policy (NDP) Malaysia.Throughout the NEP (1971-1990) and theNDP (1991-2000) period, the governmentof Malaysia has been trying to social­engineer a Bumiputera Commercial andIndustrial Community (BClC). Toexpedite the development of the BClC,The Associated Chinese Chambers ofCommerce and Industry of Malaysia(ACCCIM) was also asked to help transferChinese entrepreneurial skills toBumiputera. An important strategy at themicro-level was to encourage jointventures with local Chinese investors inthe technology-based manufacturingsector. The jointventures were expected toserve as vehicles for the transfer of

1 The author acknowledges with thanks UniversitiSains Malaysia, Penang which provided me with aresearch grant that has resulted in this paper.

technical and managerial know-how toBumiputera partners.

The objective of this paper is toexplore and to explain some keysociological aspects of the development ofChinese-Bumiputera partnership int~chnology-based industries. This paperdIscusses the advances, constraints andprospects important to the development ofChinese-Bumiputera partnership, as wellas the business practices and managementof inter-ethnic joint ventures. This paperalso provides understanding of the socialdynamics of inter-ethnic business?artnerships at the level of the increasinglyImportant SMl sector, which is largelydominated by the Chinese.

Keywords: Chinese, Bumiputera, andpartnership

BackgroundThis paper will discuss the recentimportant developments in Chinese­Bumiputera partnerships in technology­based industries encouraged by theGovernment under the NationalDevelopment Policy (NDP). Oneimportant macroeconomic strategy of the~P ~1991-2000) to keep MalaysiamternatIOnally competitive was torestructure industry towards moretechnologically sophisticated and betterquality products that are integrated withthe markets of the developed countries. Inline with this strategy and in order toadvance the Bumiputera Commercial andIndustrial Community (BClC), theGovernment encouraged and providedassistance to Bumiputera entrepreneurs toventure . into the strategic aerospace,automot1v~, machinery and engineering,petrochemIcal and telecommunicationssectors (Malaysia 1996: 13). To enable thetransfer of entrepreneurial skills toBumiputera, an important strategy at themicro-level was to encourage jointventures with non-Bumiputera or foreign

investors. A special effort was undertakenby the Government to encourage theformation of these joint ventures in orderto expedite the development ofBumiputera entrepreneurship. The jointventures were expected to serve asvehicles for the transfer of technical andmanagerial know-how to Bumiputerapartners. It was envisaged that Bumiputera'technopreneurs' would become active insuch sectors as advanced electronics,equipment/instrumentation, biotechnology,automation and flexible manufacturingsystems, electro-optics and non-linearoptics, advanced materials and softwareengineering, food production and foodprocessing, aerospace, optoelectronics andalternative energy sources production(Malaysia 2000: 43).

ObjectivesThe main objective of the this paper is toexplore and to explain some keysociological aspects of the development ofChinese-Bumiputera partnership and majorissues related to this joint venture intechnology-based industries. This studywill investigate company profiles anddocuments, in order to discern: (i) year ofestablishment, share capital formation, andinter-ethnic equity sharing; (ii) thechairpersons, directors, and CEOs of thejoint ventures so as to determine thestructure ofpower in the company; (iii) thepartners' personal and social profiles, asseen from their professional qualificationsor business experiences, and connectionsto government; (iv) the extent ofacquisition of technology and know-howin the technology-based industries; (v)types of industries and products; and (vi)the years ofpartnership to trace the growthof companies such as annual turnover andprofit. By investigating these variousaspects, it is hoped that we can draw suchconclusion on the development,sustainability and long-term prospects ofinter-ethnic Chinese-Bumiputerapartnerships.

Literature review

Since the end of the 1980s, inter-ethnic'integration' in business operations hasimproved especially in the industrial sector(Rasiah 1997: 11, 15). Just integration butthere was no co-operation inmanufacturing sector yet. However, todate, there has been very little integrationof Chinese-Bumiputera joint ventures atthe SMI level and in technology-basedindustries.

The few sociological studies ofSMIs include those by Rugayah Mohamed(1994), Sia (1994) and Chin (2004).Rugayah's study provided structuralanalyses of two Sino-Malay businessorganizations in food-catering servicesindustries and leather-shoes manufacturingindustries. She discussed two firms thatinvolved both Chinese and Bumiputerapartners that hold share equity andresponsibility. Both companies wereestablished at a time when Malaysia'seconomy was fast growing. Sia's studywas a briefprofile ofa company, majority­owned and managed by Bumiputera staffof Yeo Hiap Seng (M) Berhad. Thiscompany operates independently from YeoHiap Seng (M) Berhad and the rationalwas to capture the Bumiputera segment ofthe drinks market. Chin's study ofChinese-Bumiputera partnerships showsnotable shifts in such joint ventures frominvolvement mostly in construction tomanufacturing that has resulted insignificant acquisition of technology andknow-how. These new 'strategic'partnerships, officially endorsed as'genuine' joint ventures, initiated by theGovernment in 1995, signal not only amajor evolution in the character ofChinese-Bumiputera partnerships but alsosignificant outcomes for governmentpolicies and the efforts of the businesscommunities. Chin's findings contrast withthat of Gomez (2002), whose study ofownership patterns of long-establishedfirms of the top 20 companies in the KLSE

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in 2000 argued that inter-ethnic businessrelationships may not be sustainable andcannot be state-driven.

With so few studies of SMI inter­ethnic joint ventures available, it isnecessary to conduct forth investigations.This study attempts to fill that gap,especially, it focuses on developments inChinese-Bumiplitera SMI joint-venturesfrom a sociological perspective that paysattention, among other things, to questionsof culture and SME management, workrelationships, ethnic equity considerations,and responses to the Government'sencouragement for participation in newindustries and strategic partnerships.

Methodology: concept and methodsThe concept of partnership here refers toboth parties holding share equity anddirectorships in the company. The termBumiputera includes Malays and natives;and Chinese refers to Chinese Malaysian.This study is different from other studieson "Sino-Malay economic cooperation inMalaysia" that involved Bumiputera­Taiwanese co-operation (Toh, 1994). Thispaper focuses on the small and mediumtechnology-based enterprises in themanufacturing sector that are privatecompanies, limited by shares.

The data obtained in this researchis subjected to statistical and qualitativeanalyses. One of the difficult tasks in thisresearch is to identify the Chinese­Bumiputera partnership companies,especially in the manufacturing sector. Aninterview was conducted with thechairperson of the Genuine Joint VenturePromotion Council (GJVPC) cum Deputy.Secretary-General of the AssociatedChinese Chambers of Commerce andIndustries of Malaysia (ACCCIM).Information acquired from the interviewhelped to clarify the nature and scope ofChinese-Bumiputera partnership inbusiness today.

The subsequent data collectionstarted with a list of fifty Chinese­Bumiputera joint venture companiesobtained from the bulletin of theACCCIM. Out of these fifty companies,32 are technology-based manufacturingcompanies. However, only 23 companiesare listed in the Registry of Companies'(ROC) computer database and record.Later search of joint venture companieswere acquired through the Small andMedium Industries DevelopmentCorporation (SMIDEC). We requested theofficer at SMIDEC to select companiesthat are joint venture in their database. Theofficer was kind to provide us a list of over300 joint venture companies. A systematicsearch of over 250 company profiles anddocuments in the SMIDEC list was thenconducted at the ROC between May 2004and June 2005. Out of these 250companies, only 121 companies areChinese-Bumiputera companies in varioustypes of business; the rest are joint venturecompanies either with foreigners or withother ethnic groups. From the 121 jointventure companies, 68 companies thatwere involved in different types oftechnologies were selected for this study.A number of companies in this study havestopped submitting reports to the ROC,and were classified as inactive. Thereforesuch companies cannot be found in theROC's computer database and are storedat the ROC's archive. Many hours werespent digging out old files and viewing themicrofilms to acquire the necessaryinformation for these inactive companies.Over all, a longitudinal approach was usedto collect data to permit the observation ofdirectors, shareholders, and capital sharesof joint venture companies for over anextended period. The internet was alsoused to collect additional information onthese companies.

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Distribution ofLocation and Industry

Table 3: Distribution of Companies byLocation

joint ventures increased gradually duringthe NEP and NDP years, and reached itspeak towards the early 1990s. Due to the1997 financial crisis and difficulties insecuring bank loans, fewer joint ventureswere established thereafter. Twenty-threeof these companies were establishedthrough the GJVPC under the auspices ofthe Ministry of Entrepreneur Developmentin three different phases in 1995, 1997 and19982

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LocationThe distribution of industry by location inTable 3 shows that the majority of the jointventures were established in the KlangValley located in the state of Selangor andthe Federal Territory of Kuala Lumpur,Malaysia's major economic hub. Of theremainder, 10 joint ventures are located inPenang. Out of the 43 joint venturesestablished in the Klang Valley, 17 areinvolved in the electrical and electronics(EE) sector, five in the basic metals andfabricated metal sector, five in theautomotive sector, and four in the paper,printing and publishing sector.

68

1107112292141

Number of companiesYearKedahPenangPerakKe1antanTerengganuPahangSelangorlohorKuala LumpurSabahTotal

Year Number ofcompanies

Total 68

1960-1969 01970-1979 11980-1988 61989-1996 391997-2003 22

Table 2: Distribution of Companies byBeginning Year of Partnership

Year Number of Companies

Table 1: Distribution of Companies byYear of Establishment

Total 68

1960-1969 11970-1979 61980-1988 81989-1996 421997-2001 11

From these 68 companies, 33 werestarted and owned by the Chinese, and sixstarted and owned by the Malays. Later on,all of these 39 companies incorporatedother partners of different ethnic groups.The other 26. started as joint-venturecompanies at the date of incorporation.The analysis of the beginning year ofpartnership is shown in Table 2.

Distribution of the year ofincorporation and the beginning yearofpartnershipCross tabulation of the number ofcompanies by year of establishment inTable 1 shows that most companies wereincorporated between 1989 and 1996, aperiod of rapid economic growth inMalaysia before the 1997 financial crisisset in. The average GDP growth rateduring these periods was 9.1% (Jomo1998).

Data analysis

The only joint venture companyestablished in the 1960s was started by theChinese and entered into partnership withMalay partners only in 1993. Thedistribution also shows that inter-ethnic

Penang is well known as a 'SiliconIsland' where many multinationalsemiconductor companies have set up their

2 See Chin (2004) for details of the 23 joint venturecompanies.

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Table 4: Distribution of Companiesby Industries

the fourth case, an engineer was engagedin a company that produces precisionmetal stamping, tension springs, andtension and compression springs.

These four cases indicate that thefour Malay partners involved possessedtechnical and technological knowledgewhich they brought into the joint ventureswith Chinese partners. Moreover, nine ofthe 68 joint ventures also involvedforeigners partnering Chinese Malaysiansand Malays. All of these companies areinvolved in heavy industries: three in themetals sector that manufacture highprecision metal, tooling, and stamping ofengineering components; two in theautomotive sector, two in the EE sectorthat produces capacitors and air­conditioners and one in the rubber productsector that make rubber compound andmoulded rubber parts. One of the foreignpartners was Korean while the others were

. Taiwanese. It is likely that thesepartnerships probably involved sometransfer of skill and technology from theforeign partners. However, there is lack ofqualitative data to assert that these fourcases are joint ventures that involved realcontribution of knowledge and skill fromthe Malay partners.

plants. Out of the 10 joint venturecompanies operating in Penang, six are inthe basic metals and fabricated metalsector3

, three in the EE sector and one inthe automotive sector. The location of themajority of joint ventures in the KlangValley and Penang has to do with theavailability of the most developedinfrastructure facilities and economicopportunities in these two areas.

IndustryOverall, the joint ventures are mostlyinvolved in the heavy industry, especiallyin the EE sector (22), basic metals andfabricated metal sector (16), automotivecomponents sector (7), plastics products(4), chemicals (3) and rubber products (2).Only a few joint ventures were engaged inthe light industries: food processing (1),paper, printing and publishing (5), andwood and furniture (2).

Being involved in the heavymanufacturing sectors, skill, knowledgeand technologies are fundamental. It isdifficult to trace the source of technologyaccumulation and/or the peopleresponsible for technology accumulationin these companies. The company searchshows that there are two Malay partnerswho have the title 'DR' (whether they aremedical doctors or Ph.Ds is not clear).There are two other qualified engineers,one carrying the 'IR' title. These four holddirectorships and shares in four differentcompanies. In the first case, Dr. Ibrahim isthe director of a company thatmanufactures trim and form machineryand precision engineering tools, dies, andmoulds for the semiconductor, electricaland electronic industries. In the secondcase, Dr. Ishak: is a director of amanufacturing company that engages inmetal stamping, tools and dies casting. Thethird case, involving an 'IR in a paper,printing and publishing company, while

3 In 2004, there were 301 metal productscompanies in Penang (SMIDEC).

Year

Food ProcessingRubber ProductsPaper, Printing and PublishingBasic Metals and Fabricated

Metal ProductsAutomotive ComponentsPlastics ProductsElectric and ElectronicsWood and FurnitureIndustrial Chemicals and

Chemical ProductsConstructionMiscellaneousTotal

Number ofcompanies

125

1674222

32468

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