International Strategic Alliances in
Malaysia: The Case of Australian
Companies
Ahmad Bashawir Abdul Ghani PhD
University Utara Malaysia
Abstract
• Presents the finding of an exploratory study
into the motives and experiences of Australian
firms participating in international strategic
alliances in Malaysia
International Strategic Alliances
• Numerous definition abound.
• At the outset, ISA connotes a process of inter
organizational linkages or networks.
• Used interchangeably with concepts such as business
networks, strategic partnering, collaborative
arrangement, JV (equity and non equity)
• Hamilton et al. (1996) : A durable relationship established
between two or more independent firms involving the
sharing or pooling of resources to create a mechanism
(corporate or otherwise) for undertaking a business
activity or activities of strategic importance to one or
more of the partners for their mutual economic
advantage.
Introduction
• New Economic Policy superseded by New
Development Policy in 1991.
• Framework to achieve Vision 2020.
– Raising workforce quality
– Developing expertise in sophisticated industries
– Relaxed many FDI restrictions imposed by the NEP
such as equity and licensing requirements.
FDI in Malaysia
• The most prevalent mode of FDI in Malaysia is
participation in international strategic
alliances.
• Disconcerting – inflexibility, poor integration,
mistrust and conflict as well as economic and
political instability and complex privatization
practices.
Important questions
• The pace of FDI resulted in many firms to move
quickly to grasp opportunities
• Contradict traditional models – gradual and
incremental growth. Need to be re-examined.
• By no means assured that the performance
expectations of Australian firms will be realized.
• From host government – need to understand the
motives and intentions of foreign firms in order to
ensure that host economic and societal goals are
attained.
Process of Internationalization
• Stages Model
– Incremental decision/stepwise fashion
– Absence of market knowledge
– Aharoni (1996) “A process of incremental
adjustment to changing conditions rather than the
optimum allocation of resources underlying
economic model”.
Process of Internationalization
• Reid (2003) opined that international
involvement is contingent on market
opportunity, firm resources and managerial
philosophy, best considered as an adaptive
process.
• Ohmae (2005) turbulence environment
requires firm to engage in simultaneous
launch rather than gradual roll out.
Motives for Internationalization
• Aharoni (1996) – internal drivers (motivations,
possession of unique products), external
drivers (competitive pressures and pursuit of
market opportunities)
• Ang (2007) contends that there are four main
types of FDI, resource seeking, market
seeking, efficiency seeking and strategic asset
seeking
FDI in Malaysia
• Most widespread is IJV.
• 1999 to 2002, Malaysia received $4.1 billion.
• Success Factors: market economy,
privatization, trade with Western countries,
entrepreneurial atmosphere (Australian
Government , 2005), proximity to ASEAN
countries, low cost labor, favorable foreign
investment legislation, tax concessions,
freedom to repatriate profit etc.
Methodology
• Out of 34 only 19 satisfactorily completed
(63.3%) response rate.
• Australian companies involved in ISA in
Malaysia.
• Spanned a range of industrial sectors:
industrial goods, consumer products, service
organizations.
Findings
• Support for Dunning, Chowdhury (2005) views
that FDI is driven by market and resource
seeking motives.
• Importance of political imperative (Doz, Duasa
2007) stable economic and political
conditions.
Findings
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Stable economic and political conditions
Growth potential of Malaysia market
Profit potential
Government support
Geographical location
High skilled labor
Low labor cost
Government tax incentives
Low cost of acquiring Malaysian companies
Overall risk reduction
Economies of scale
Sources of new materials
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Problems Encountered
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Overall state of Malaysian economy
Hostile financial environment
Unclear and changeable government priorities
Lack of specific and stable legislation
Difficulties in valuing Malaysian companies
Infrastructure problems
Difference in accounting systems
Commitment from Malaysian partners
Lack of market information
Unsatisfactory performance of Malaysian suppliers
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Results
• Provide considerable support for the view that
many companies leapfrogged the stages
approach to entry into the Malaysian market.
• Rapid major market presence and or to pre-empt
competitors induced firms to enter initially
through ISA.
• As many as 58% of firms had no prior trade
experience in Malaysia, while 37 % had no
previous presence of any kind in Malaysia and
South East Asia generally.
Managerial Implications
• Exploratory due small sample size. Nevertheless indicative.
• It would appear that going it alone in an incremental, step
wise fashion is not appropriate and that firms need to be able
to develop the skills and competencies for successful strategic
alliances, collaborative and network arrangements.
• Key success factor is the speed at which firms can identify
market opportunities and develop ISA arrangements.
• Important first mover advantages-exploit growth potential.
Followers better to consider sequential motives due to
reaction from initial entrants.
• Valuable insights foreign firms can expect throughout the
region.
Conclusion
• Important to take note that countries in South East
Asia though frequently grouped together are very
different politically, culturally and economically.
• Need to rethink the appropriateness of a stages
model of internationalization in the current global
environment.
• Critical role to be played by the host governmentconducive environment.
Public Policy Factors
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Stable political system
Free market and free international trade
Efficient, honest and non-intrusive bureaucracy.
Focus on macro economic policies to attract investment
rather than resorting to incentive led strategies.
Setting the right regulatory environment.
Investing in education and training.
Protection for private and intellectual property.
A national market for the product and service
Experienced workers
Trained management
Infrastructure
Diplomatic links