Mnc and Foreign Direct Investment in Malaysia

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Multinational Corporations (MNCs) and Foreign Direct Investment (FDIs) in Malaysia Over the Past Decade: A Detailed Look at their Determinants, Patterns and Effects.   1.1 Multinational Corporation and Foreign Direct Investment in Malaysia Primarily, Multinational Corporations or also known as MNC is defined as a firm that has an extensive involvement in international business, owning or controlling facilities in several different countries other than its home country. In other words, firm or group that derives a quarter of its revenue from operations outside of its home country is considered as a MNC. Typically, these types of companies have offices or factories in different countries and continents, but they are controlled by a centralized head office that is responsible for the coordination of the global management. For such companies, the expansion and penetration into foreign market can commonly be achieved via exporting, licensing, joint venture and also foreign direct investment. Foreign direct investment or also called as FDI is a term that is commonly and closely linked to MNC and it is described as an investment made by a company or entity that is based on country into a company or entity based in another country. In order for a firm or corporation to become multinational, they must first acquire a controlling stake in foreign firm. This can be achieved by newly creating a foreign firm (international Greenfield investment), acquiring an existing foreign firm through international merger and acquisition and also through joint ventures. Inflows of FDI into a host country greatly affect the overall development of its economy due to the fact that FDI provides external source of capital, management skills, new technologies and also job opportunities. Since Malaysia first opened its door to FDI in the early 1960s, Malaysia has been receiving a steady arrival of MNC from around the world (Bernama 2012), including from Asian countries and as further as European countries and the United States. Malaysian Industrial Development Authority (MIDA), have reported that more than 4000 foreign international companies have set their presence in Malaysia as their offshore base (MIDA, 2009). Among the MNC that have the presence in Malaysia are Dell, Intel, Shell, GlaxoSmith Kline (GSK), Schlumberger and many others. Besides the capital city of Malaysia, Kuala Lumpur, other states that have successfully attract MNCs and investors include Penang and Johor Bahru. According to time Magazine, in the manufacturing industry, Penang is featured as among the preferred destinations for MNCs due to several factors such as logistics and geography. This is also in line with the Federal Government initiative to develop Penang into the third metropolis in the country, after Klang Valley and Johor Bahru. 1.2 Determinant As mentioned before, from the time Malaysia undergone into the transformation from an agricultural-based nation to manufacturing-service based nation and from the opening of its door to FDI, the number of MNC present in Malaysia has shown an increasing pattern. According to Business Times (2012) Malaysia has emerged as the fifth most popular destination for FDI in Asia in the year 2011, with an increase of 31.5 per cent from 2010 to US$11.97 (RM 37.83 billion). At 44 per cent, manufacturing sector continued to be the major contributor to FDI inflows, followed by service sector (35 per cent), mining and quarrying (20.1 per cent), and also forestry and fishing at 0.3 percent (Business Times 2012). Malaysia is also showing a positive outlook as the Economist Corporate Network’s Asia Business Outlook Survey 2012 have shown that half of the 500 multinational companies were planning to increase their investment in Malaysia in the year of 2012. The survey done also revealed that in the aspect of investment priorities for those MNCs, Malaysia is now ranking at number seven out of 12 Asian countries, while in terms of market attractiveness...
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