Japan's Relations with Malaysia and China in the Context of Foreign Direct Investment in Malaysia's

Why Japan Must Take a More Proactive Role in Malaysia's Development

Part (A) – Case Study: Why Japan Has to Step Up with Malaysia?
Recent developments in Malaysia international economic policy must be of interest to Japan. Prime Minister Mahathir Mohammad five-day official visit to China on April 2019 seeks to bolster the bilateral ties between China and Malaysia is surely being watched closely by Japan. Tokyo must be carefully trying to unwrap what lies within this trip with a view to discerning the implications.
Unlike the previous government that sees China as an investment partner of choice in large-scale infrastructure development projects in Malaysia, the new Pakatan Harapan (PH) government led by Mahathir has announced the cancellation of three mega infrastructure projects in which state-owned Chinese enterprises were involved, citing the government’s current fiscal constraints as the reason. If China’s past records are to be set aside, it does not matter whether China, the United States, or even Japan undertake investment of Malaysia’s mega projects. All would be fine so long as the terms of financing is in Malaysia’s favour, jobs are created for Malaysian, the technology transfer that would be accomplished as well as the multiplier effects and the economy grows. But nothing is as straightforward as that.
So why does Malaysia’s tilt to China matter to Japan? For one, Japan has had a long and comfortable relationship with Malaysia. Japan has been a partner in Malaysia’s development history. Right from the late 1950s, Japan has assisted Malaysia in innumerable ways through its many agencies, the Japan International Cooperation Agency (JICA) being one of them. Also, Japanese foreign direct investment (FDI) in Penang in the 1960s helped establish the country as a hub for the electrical x. Japanese manufacturers in the E&E and automotive sectors have been committed investors in Malaysia. The ‘Look East’ policy that Tun Mahathir heralded marked the zenith of Malaysia-Japan ties. The extent of Japanese investment in Proton may have come as a disappointment to Mahathir, but that did not mar the relationship. In the context of this background, it is only natural that they be worried if their business interests can continue to enjoy good days.   
Going forward, Japan will have to review its policy towards Malaysia. Japan must take, and be seen to be taking a more proactive role in Malaysia, guiding its path to developed country status. In many areas, Japanese expertise is as good as that of China’s, maybe with a longer history of experience. A project like the Digital Free Trade Zone however, is not within Japan’s expertise on the software side, but the communication, electrical and electronic aspects are up their alley. Other infrastructure projects could be undertaken by Japanese companies. There is no doubt that JICA for instance, has assisted Malaysian companies in the past. New avenues must be further explored that are in line with national development goals. The needs of the private sector, specifically the SME sector, have to be identified and their requirements served.  
Japanese companies can contribute towards technology transfer, technology upgrading and research and development (R&D). This can be done by establishing research and high-tech training centres in Malaysia that will explore science and technology policy, national security, trade and economic cooperation. It will have to serve defined markets, for instance, the automotive or air-conditioning industries. Collaborations with third-party countries will also be very helpful. Japan can collaborate with India, for example, to provide expertise and skill-upgrading in space technology. Joint ventures with Australia can, in a similar vein, be explored.
Japan’s involvement in Malaysia has to change course. Japan is presently seen as a passive executor of the US’s policies. This is insufficient; it has to be seen as having a mind of its own and as having an interest in guiding Malaysia towards developed country status. The image of Japanese companies in Malaysia is one of multinational corporations (MNCs) that are here for their self-interest. The corporate social or national responsibility component has to be stepped up and given more prominence.  
It is only with greater and more visible presence that Japan will be able to stand out as a partner in Malaysia’s development. The competition with China cannot be won only with lower prices; there are other aspects that have to be tapped.
[Source: Nambiar, S. (2019). Malaysia: An Economy at the Edge of Transformation. SIRDC, Malaysia]  
Required:
1.Critically evaluate whether foreign direct investments (FDIs) from China and Japan benefit the Malaysian economy in the longer term.                                 
2.From the article above, it is understood that “Japanese foreign direct investment (FDI) in Penang in the 1960s helped establish the country as a hub for the electrical and electronics (E&E) industry. Japanese manufacturers in the E&E and automotive sectors have been committed investors in Malaysia”.
Using Dunning’s eclectic paradigm, evaluate THREE (3) determinants that influence decisions made by Japanese firms to invest in Malaysia.                                                                                               
3.Referring to the above article, “…………..it does not matter whether China, the United States or even Japan undertake investment of Malaysia’s mega projects”. But in reality, economists such as Shankaran Nambiar (2019) argues that all investments cannot be treated alike.
Do you agree with the above statements mentioned? Provide necessary justifications to support your arguments.                                            


 
Part (B): Economic Report Writing
Drawing on the relevant examples from various sectors of the economy as well as an extensive review of literatures, you are required to critically assess a manager’s choice of inputs in the production of goods and services is determined by (i) the technology of the production process; (ii) the prices of the inputs of production and (iii) the set of incentives facing the given producers.