Commentary by Abd Ghani Hamat

AT a time people in Europe are talking about e-democracy, it feels rather awkward to be writing about the factory shopfloor. But if the country is serious about emerging as a developed nation, it should not be having a run-of-the-mill manufacturing industry strategy.

The fact that MNCs (multi-national corporations) first landed on Malaysia’s shores almost half a century ago and today it's competing against the likes of Vietnam and the Philippines for manufacturing FDIs (foreign direct investments) points to something important that is amiss in our strategic planning.

It suggests a blind spot is blotting our vision of manufacturing. Could it be the one that lured export-dependent Malaysia into the so-called middle-income growth trap, unable to compete with low-cost producers but not innovative enough to rival developed countries?

Cost consideration not withstanding, the country has to find answers to questions like why it's losing its lustre among MNCs. Why hasn't the country managed to convince more of them to locate higher-end manufacturing activities, and research and development work here? Crucially, why haven't local companies grown with the MNCs and become a major factor in convincing them to remain here?

By right, after more than four decades of association with the MNCs, we should not be crying about smaller FDIs in manufacturing. Instead, we should be helping existing MNCs relocate labour-intensive activities to neighbouring low-cost countries, if that is what the MNCs want, and tag along with them as well as focus on high-end activities at home.

Unfortunately, the country is not ready to take that road, simply because it doesn't have the capacity to move up the manufacturing technology ladder. This is reflected somewhat in its intermediate goods import bill.

Over the years many reasons have been put forward for the state of affairs, including erroneous presumptions about technology transfer.

Critics say technology transfer is good in theory but never works in business. They point to the failure of local companies with foreign strategic partners to make much of their partners' technological prowess. It's a valid argument up to a point but it doesn't explain the entire issue.

That Proton is only now showing signs of stirring and Modenas' small engine remains stuck to the moped has little to do with their respective technology partners.

The malaise was then blamed on brain drain. Hence, for some years now the country has been talking about bringing back the talents that have found job satisfaction and better compensation overseas.

The assumption is that these gifted people can help industries innovate and render our products competitive in the global marketplace. Ideas are great but they have to be converted into marketable products.

In the meantime, the government gives out all manner of grants and incentives to industrial innovation and industrial production. Yet, the country hasn't made any stride in manufacturing of the kind achieved by Taiwan and Korea.

What has been the oversight?

Some say the country lacks a tradition of technological innovation, but that's exactly what it is trying to do — trying to create a culture of innovation.

One impediment that is constantly missing from such arguments is the absence of tool-processing industry, except die-casting and mould making.

Will Korea and Taiwan be technologically where they are now if they had not invested in precision tool-making industry, particularly in machine tool?  

Precision tools, gauges and instruments are not only useful on shopfloors but also for research labs if new technology is to be developed on a regular basis.

Precision-tooling industry is very capital intensive but the impact of its absence cuts across cost, time and quality of research work, especially those involving external collaborations. Ultimately, it determines the strength of the country's industrial base.

Way back in 1993, when Vision 2020 was a big buzzword, Tenaga Nasional Bhd executive chairman Tan Sri Ani Arope wrote that Malaysia could not continue to depend on imported or transferred technologies, "as that will render us always lagging behind developed nations".

"Thus to become fully developed and industrialised in the year 2020, Malaysia will have to be technologically proficient and independent... to be able to adopt and adapt, innovate and invent," he wrote in a newspaper article.

The country will not be able to "adopt and adapt, innovate and invent" and build the competitive edge if it doesn't have a dependable tool-making industry.

The challenge for the government is to change the mindset of corporates by not being party to ethos of seeking the easy way to get rich via simple manufacturing processes.

A glance at the 12 industries emphasised under the Third Industrial Master Plan (IMP3, 2006-2020) doesn't suggest the country is headed that way, despite its stated objective "to achieve long-term global competitiveness through transformation and innovation of the manufacturing and services sectors".

There is nothing in the plan to suggest that the development of instrumentation, machine tool or even pneumatic tool industry is a key to nurturing industrial innovation.