Journal of Contemporary Asia
Vol.39,No.4,November2009,pp.530–541
Malaysia’s Textile and Garment Firms at the Crossroads
RAJAH RASIAH
Faculty of Economics and Administration,University of Malaya,Kuala Lumpur,Malaysia
A BSTRACT This paper discusses the development of the textile and garment industry in Malaysia,and its sustainability through an assessment of trade balance and trends and changes in technology.Foreign textile and garmentfirms were identified by the Malaysian government as some of the key import-substituting and,later,export-orientated industries for promotion. The industry expanded strongly to become a major contributor to manufacturing employment, value-added and exports over the period1968-97.Rising material and labour costs,and increas-ing competition following the termination of the Multi-Fibre Arrangement quotas,quickened the absorption of automation and other advanced process technologies in manufacturing from the 1990s.However,the lack of co-ordination in government policies to stimulate the co-evolution of critical complementary industries,such as advance
d materials and cutting-edge machinery and equipment,in addition to imports of foreign unskilled labour,has restricted the shift towards high-end operations.Hence,employment,exports and value-added of the textile and garment industry has contracted since2000.
This paper examines the causes of development and contraction of the textile and garment industry in Malaysia.The textile and garment industry expanded rapidly from the late1960s until the1990s asfirms–foreign initially,later followed by local–utilised the Multi-Fibre Arrangement(MFA)quotas and low wages to supply export markets.1Although the industry was still promoted by the government in2008,it has faced a contraction since2000following competition from China and the least developed countries(LDCs),which are enjoying preferential access to developed markets.The removal of the MFA quotas in2004further accentuated the contraction in employment and value-added in the textile and garment industry in Malaysia.
The central question cutting through the paper is,thus,whether the industry has undergone sufficient upgrading and upward movement in the global value chain to remain as an important contributor to manufacturing value-added,employment and exports in Malaysia.The rest of the paper is organised
as follows.The next section discusses the forces that explain the relocation of the textile and garment industry in Correspondence Address:Rajah Rasiah,Faculty of Economics and Administration,University of Malaya,
Malaysia’s Textile and Garment Firms at the Crossroads531 Malaysia.This is followed by a section that examines the growth of the industry in the country and another that evaluates the dynamics of widening and deepening in the industry.Thefinal section presents the conclusions and implications.
火烧的寂寞简谱Confluence of the Global and National
Modern textile and garment manufacturing in Malaysia existed during the Japanese occupation over the period1941-45,but these capabilities were destroyed by the end of the Second World War.Thefirst modern factory since was a foreign textile factory,which started to supply the domestic market in1957in Johor(Tan,1989: 2).2The imposition of tariffs onfinal goods(including garments)after the Pioneer Industry Ordinance(PIO)in1958attracted thefirst wave of textile and garment firms to Malaysia.
However,after the initial cycle of growth,including in textile and garment manufacturing,foreign direct investment(FDI)declined from1961owing to a saturated domestic market.As the limits of import-subst
itution industrialisation (ISI)in a small market became obvious,the government enacted the Investment Incentives Act(IIA)in1968to start export-orientation.However,it was not until the opening of Free Trade Zones(FTZs)from1972–providing excellent basic infrastructure,security,efficient customs co-ordination and tariff-free operations–that export-orientatedfirms began to relocate to Malaysia(Table1).Where FTZs were neither desirable nor possible,the government established Licensed Manu-facturing Warehouses(LMWs)to service individualfirms(McGee,1986).These firms were also awarded tax holidays over a minimum offive years.The early foreign participation in export-orientated activities in Malaysia was concentrated on textiles as Japanese manufacturers,such as the Toray group of companies and Kanebo, relocated to access quota privileges and to jump tariffs to access third country markets(Rasiah,1993)and electronics assemblers who sought cheap and malleable labour at secure locations endowed with good basic infrastructure and tax exemptions.
有你真好惠子FDI,including in textile and garment manufacturing,became an integral part of the government’s development policy to create jobs and alleviate poverty and inequality(Malaysia,1971).Government estimations showed that49%of house-holds in Malaysia in1970were living below the poverty line(Hasan,1980:43).Also, ethnic inequality had worsened in the1960s–the Chinese:Malay mean inc
ome inequality had risen from2.0:1.0in1957-58to2.2:1.0in1967-68;the non-Malay: Malay differential had risen from1.8:1.0in1957-58to1.9:1.0in1967-68(Edwards, 1990:table10).
Hence,government strategy in Malaysia took advantage of global developments to attract textile and garmentfirms from Japan and Hong Kong,in particular,but also from the USA and Europe throughfinancial incentives and other inducements (Rasiah,1995;Shoesmith,1986).Until around1983brand holders still undertook some manufacturing in Malaysia.
In the period1981-85the government attempted to promote heavy industrialisa-tion through a second round of import-substitution policies(Table1).As the focus shifted to the creation of Malaysian enterprises through initially joint ventures with
renewed in this period.Perwaja and Proton were two of the most celebrated government-launched firms that were born out of this initiative to produce steel and cars,respectively,through a tie up with Mitsubishi (see Jomo,1985).The heavy expenditure outlays to finance these industries,as well as the North-South highway that was started in the early 1980s in the face of falling commodity prices and the appreciation of the yen-denominated loan,undermined the Malaysian economy.Coming in the wake of a cyclical downturn in the electronics industry,Malaysia’s GDP collapsed to 70.9%in 1985(Rasiah,1988).
The government depreciated the ringgit and revived generous incentives to stimulate FDI in 1986through the Promotion of Incentives Act and the first Industrial Master Plan.This second round export-orientated industrialisation (EOI)strategy,launched alongside import-substituting heavy industrialisation,benefited considerably from external developments (Table 1).The appreciation of the yen and the currencies of the Asian tigers following the Plaza Accord of 1985and the withdrawal of the Generalised System of Preferences from the latter in February 1988,drove a massive amount of FDI from these countries and Japan to Southeast Asia in the second half of 1980s and the first half of the 1990s.Malaysia was a major beneficiary of this influx of firms.In addition to electronics,garment and knitting firms relocated extensively from Taiwan and Hong Kong to Malaysia in this period,thereby pushing up the foreign ownership share of textile and garment equity in Malaysia (Figure 1).In fact,Malaysia’s GDP growth exceeded 8.8%per annum over the period 1988-95(Malaysia,1996).
The growing exhaustion of labour reserves and overheating of infrastructure caused by the massive expansion in manufacturing drove the government to introduce policies targeted at technological deepening through the 2nd Industrial Master Plan of 1996(Table 1).Several instruments were created in the 1990s to stimulate upgrading in firms:the Human Resource Development Fund,the Ma
laysian Technology Development Corporation,the Multimedia Super Corridor,the Malaysia Industry Government High Tech mechanism and the National Information Technology Council.However,a lack of focus,vision and performance Table 1.Industrial strategies and trade orientation,Malaysia,1958-2008
Phase Trade orientation Period of dominance Policy instruments
1Import substitution 1958-72Pioneer Industries Ordinance,19582Export orientation 1972-80Investment Incentives Act,1968Free Trade Zone Act 1971
3Import substitution 1981-85Heavy Industries Corporation of Malaysia (HICOM)1980
4
Export orientation
1986-2008
1st Industrial Master Plan 1986Promotion of Investment Act,1986Action Plan for Industrial Technology Development (APITD)19902nd
Industrial Master Plan,19963rd Industrial Master Plan,2006
Source :Compiled by author.
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Malaysia’s Textile and Garment Firms at the Crossroads533
心碎了无痕Figure1.Foreign ownership share,textile and garment,Malaysia,1968-2004.
Source:Compiled from Malaysia1(various issues)
and Ishak,2001;2003).In fact,there were provisions to support the co-evolution of industries complementary to upgrading in textile and garment manufacturing–for example,materials and computer-controlled machinery and equipment–but these industries hardly developed because of poor co-ordination.The3rd Industrial Master Plan of2006retained the clustering strategy but has been fraught with a lack of action-orientated strategic plan.
The share of foreign equity in overallfixed assets continued to rise from2000 because of a contraction in local investment from the late1990s arising from a combination of relocation out as well as closures(Figure1).Foreignfirms enjoying ownership,access to global value chains and sophisticated technological support from their parent sites have managed to sustain efficiency improvements to retain substantial garment manufacturing still in Malaysia.
Development of the Industry
The government strategy of raising employment,production and exports through, inter alia,inviting foreignfirms met its objectives as both rose strongly from the late 1960s.Rapid expansion in the industry helped drive employment and value-added until the mid-1990s.However,it will be shown that
a lack of co-evolution of critical complementary industries,such as materials,and auto-controlled machinery and equipment,has undermined the capacity of industry to sustain growth after2000. This section discusses the growth and contraction of the textile and garment industry in Malaysia.The period1997-2000was deliberately dropped because of data problems that arose following thefinancial crisis of1997-98.The government encouragedfirms to retrench illegal and legal foreign workers to reduce the burden of the crisis on local workers.Official statistics show as if no retrenchments of朴施厚整容
534R.Rasiah
Employment
The initial expansion in employment in textile and garmentfirms since the late1960s was stalled in the early1970s owing to fears that the massive influx of electronics firms in that period would dry up the labour market and raise wages(see Rasiah, 1993).The textile and garment industries’contribution to manufacturing employ-ment rose strongly in the second half of the1970s and the second half of the1980s (Figure1),which attracted a huge influx of export-processingfirms that expanded foreign ownership in the textile and garment industries.It was in this period that Toray began establishing op
erations in Malaysia when Penfibre and Penfabricfirst started manufacturing(the remaining three,Pentley,Woodard and Pensangko were established later.Of the three,thefirst two were also engaged in textile production). Except for the period1979-85,employment in the textile and garment industry grew strongly over the period1971-97(Table2).The industries’employment contribution in the manufacturing sector exceeded13%in the period1972-90(Figure2).The industry grew until1997before contracting in2000-05(Table2).
The contraction in employment is expected to continue despite substitution from low wage foreign labour from Indonesia and Bangladesh.Rising production costs and the removal of MFA quotas that ended in2004has already driven abroad both local and foreignfirms to low-cost locations endowed with preferential access to the developed markets.Cambodia is the main destination for Malaysianfirms relocating out in the1990s,accounting for6.7%of textile and garment equity in2007.3 Value-added and Exports
Production of textile and garments grew strongly over the period1970-2000with the exception of a fall in1974and a slowdown in1978-83(Figure2),which is Table2.Average annual manufacturing employment growth,Malaysia1971-2005(%) Sector1971-791979-851985-901990-972000-05 Food,beverages and tobacco10.5 1.6 1.6 4.3 4.7 Textiles and garments12.6 5.212.4 1.670.1 Wo
od and furniture8.5 2.010.79.6 1.2 Paper,printing and publishing9.4 2.97.87.6 2.5
78.59.4 5.3 6.3 6.5 Chemicals,petroleum,coal
and plastics
Rubber16.671.216.1 2.9 5.4 Non-metal minerals 6.5 6.4 2.58.6 1.9 Basic metals710.79.57.39.27.9a Fabricated metals8.1 1.510.511.6
Machinery except electric8.670.614.714.10.1 Electrical machinery44.7 2.021.614.6 5.4 Transport equipment13.9 4.3 5.811.7 4.7 Other manufactures76.012.417.38.2 5.4 Manufacturing13.2 2.212.19.5 5.1 a Data for industries of basic and fabricated metals only available jointly in2000and2005.
Malaysia’s Textile and Garment Firms at the Crossroads535 corroborated by Table3over the period1968-97.In fact,both the sub-industries of textiles and garments enjoyed double-digit annual growth rates in real value-added in the periods1971-79and1985-97.The contraction in value-added over the period 2000-05appears quite dramatic asfirms losing MFA quotas began to relocate
3).
scooter演唱会operations abroad(Table Array Figure2.Textile and garment employment,export and production,Malaysia,1970-2005 Table3.Average annual manufacturing value-added growth,Malaysia,1971-2005(%)
Sector1971-791979-851985-901990-972000-05 Food,beverages and tobacco27.5 5.8 3.97.3 3.6 Textile and apparel24.69.620.78.674.8 Wood and furniture23.0 1.015.615.40.3 Paper,printing and publishing19.510.714.213.4 2.9 Chemicals 6.523.2 6.111.78.3 Petroleum,coal and plastics729.059.28.517.0 3.1 Rubber34.073.115.810.49.7 Non-metal minerals15.315.37.912.2 2.2 Basic metals75.017.112.811.5 2.6 Metal products21.1 3.916.218.27.1 Machinery and equipment25.90.628.223.2 2.4 Electrical machinery46.411.421.121.3 2.1 Transport equipment25.911.618.216.77.5 Other manufactures 2.716.023.27.58.4 Manufacturing26.17.912.915.6 4.1 Growth computed fromfigures deflated with the producer prices of1990.
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