MBA ECO6073 Assignment: Case Study on Japan-Malaysia Economic Dynamics

This assignment for the Economics for Managers course (ECO6073) presents a comprehensive analysis of the economic relationship between Japan and Malaysia, focusing on foreign direct investment (FDI). The assignment is divided into two parts: a case study examining why Japan needs to strengthen its economic ties with Malaysia, and an economic report exploring production processes, input prices, and incentives. The case study analyzes the impact of Japanese FDI on Malaysia's economic development, contrasting it with China's investment strategies and the Malaysian government's evolving foreign policy. The assignment also applies the eclectic paradigm (OLI model) to explain Japanese firms' investment decisions in Malaysia, considering ownership, location, and internalization advantages. The student also explores Malaysia's efforts to diversify its economic partnerships, including its stance on trade with the EU and its evolving relationship with China. The report includes a literature review and discusses expected outcomes, providing a detailed understanding of the economic dynamics between the two countries.

Running head: ECONOMICS FOR MANAGER
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Name of the Student
Name of the University
Author Note

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Table of Contents
Part (A) – Case Study: Why Japan Has to Step Up with Malaysia?..........................................2
Answer to Question 1:............................................................................................................2
Answer to Question 2:............................................................................................................4
Answer to Question 3:............................................................................................................7
Part (B): Economic Report Writing...........................................................................................8
The technology of the production process.............................................................................8
The prices of the inputs of production...................................................................................9
Set of incentives facing the given producers........................................................................11
Literature Review.................................................................................................................12
Expected Outcome...............................................................................................................13
References................................................................................................................................14

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Part (A) – Case Study: Why Japan Has to Step Up with Malaysia?
Answer to Question 1:
“Foreign direct investment” plays an significant role in the development of an
economy of any country, Malaysia is also trying to attract foreign investment in the country
to develop its economic condition as foreign direct investments directly impact on the
infrastructural development and the employment rate by creating job opportunity. Malaysia
has long term relationship with japan over the years and now the new government want to
create a string relationship with china so that its dependency on japan can be reduced. Japan
contributed in the economic development of Malaysia since 1950 by developing many
technological hubs and also in the development of infrastructure facilities in the country.
Malaysia got help from Japan in various ways through its various agencies, the “Japan
International Corporation Agency” is one of the significant project that helped Malaysia to
set up many business organizations, from which huge employment opportunity occurred and
developed the economy of Malaysia (Aftab et al., 2016). Further the Japanese foreign
investment in Penang in the 1960 assist the country to become a hub for the electrical x. the
manufacturers of Japan in the “E&E” and automotive sectors have continuously make
investment in Malaysia. There are look east policy which the prime minister manifest the
summit of “Malaysia- Japan Ties”. These initiatives taken by Japan has played a most
important role in the improvement of the economic development of the country and also to
make the foreign direct investment policy of Malaysia as a major success.
Although in the current days it has been seen that the role of japan become passive
and the country is not taking any aggressive investment decision that can accelerate the
growth rate of the economy of Malaysia. A project like the “digital free trade zone”, but on

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the software side the Japanese technology is not that effective. But in the communication,
electrical and electronic aspects the Japanese technology is same as that of the Chinese
technology. It can be said that JICA has played a very vital role in assisting the companies in
Malaysia. Although Japan has to make more contribution in the new sector sin Malaysia
particularly in the SME sector huge foreign investment is required (Aziz, Ahmad &
Zainuddin, 2017). Japanese companies have to make contribution in the technology transfer,
technology up gradation and in the field of development and research. This can be made only
by developing research and highly advanced technology centers in Malaysia that will give
new dimensions in the field of technology and science national security trade and economic
collaboration.
It can be clearly observed that Japan has made immense contribution in the economic
development of Malaysia but in the modern days Japan’s role has to be shifted from passive
investment to an active investor. The multinational companies of japan in Malaysia has to
take more social initiatives rather than fulfilling their financial objective.
China on the other hand is a slow but steady investor in Malaysia. The FDI policy of
china towards Malaysia is conservative in nature and in the past since 1987 to 2009 china
never make huge investment in Malaysia, but in 2006 a sudden change has been observed in
the Chinese policy and they started to make huge investment in the steel projects in Malaysia
(Baharudin et al., 2019). But that investment again falls down in the year 2007-08 due to
global economic crisis.
China played an important role in the development of the intra-regional trade and
vertical specialization, the areas which are growing rapidly in the modern economic
condition. The vertical specialization means that china imports raw materials from Malaysia
and manufacture final products which are again exported back to Malaysia. In the modern

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days the vertical specialization has become very popular in china and the exports of china
contain a large quantity of raw materials that are imported from Malaysia.
Other than that China has also assured the Malaysian government that they will
continuously make a positive impact on the growth rate of Malaysia due to the huge prospect
of the Malaysian market and the liberty that has been given by the Malaysian government to
trade freely with them. China become trend setter of autonomous liberalization of the as it is
the largest liberalizer of the local economy (Bahmani & Aftab, 2017). China and the other
Asian high performer countries make free trade within themselves and Malaysia has also
become a part of this initiatives.
Moreover, the enhancement in the number of Malaysia’s capital goods components
and primary products has been consumed by china. Within a short period of time china and
Malaysia has been able to create a strong relationship between them for which china make
both direct and indirect influence on the economic condition of Malaysia, in which the
indirect effect comes from the process in which the Malaysian economic condition get
manipulated by the Chinese investment and trading practices and the direct effect results
from the strong bilateral trade and investment relationship of both the countries. In a single
word it can be said that china has made a great impact on the economic condition of Malaysia
through the foreign direct investment policies.
Answer to Question 2:
The eclectic paradigm is also known as the ownership location and
internationalisation model or the OLI model this is a model that is based on the concept that
when an organisation can look for foreign direct investments and whether such FDI policy
will be beneficial for them or not. The assumption of this paradigm is that the organisations

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will not make transactions in the open market if the price of the same actions is not higher
than the local or domestic market.
The eclectic paradigm takes a comprehensive approach to examine the complete
relationship and the interactions of the various elements of a business. This model provides a
strategy for the expansion of the operation of the business through FDI (Damiati et al., 2016).
The main objective is to identify whether a particular process can give more value than the
other national and international choices that are available to create goods or to render
services.
As the business is looking for the option that is more cost effective and at the same
time does not compromise with the quality of the products or services, they can use the
eclectic paradigm to make an assessment of the scenario that exhibits potential.
The three key factors of the eclectic paradigm have been analysed that influence
Japanese firm to make investment in Malaysia
The first consideration is the ownership advantages, which covers the points like the
proprietary information and different owner4ship rights of an organisation. These may
include the factors like the branding, copyright trade mark or the rights of patent, in addition
to that the utilisation of the management and internal skills that are available. The ownership
advantages are regarded as an intangible benefit that an organisation can get from another
organisation (Chung, 2017). This includes the advantage that can be gained from the
reputation and reliability of the other organisations. In this regard it can be said that the
Japanese companies can get these intangible benefits from the market of the Malaysia and
can take the advantage of the reputation of the Malaysian comp0anies in their local market
can capture the local market and can generate economic value from such investments (David

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et al., 2017). Thus in this context it can be said that the Japanese companies can get a major
advantage to invest in Malaysian companies.
Locational advantages
The second necessary requirement for taking decisions regarding investment in a
foreign country is the locational advantage that can be available. Companies must evaluate
that whether they will get any locational advantage from the organisations of another
company so that their cost can be reduced to a certain limit (Gunn, 2020). The main objective
of the companies is to generate resources at cheap costs and without facing any problems of
transport. Location advantage can be referred to natural or created resource, but in both the
aspects it is fixed in nature, so while making a partnership with a foreign investor it is very
essential that the locational benefits are evaluated and if any barrier occurs then in such cases
free trading relationship will not be possible between these two countries.
Japan and Malaysia does not have any conflict between them so it is quite natural that
the Japanese firms will get all the locational advantages that are essential to create an
effective business relationship between the organisations of japan and Malaysia.
The third and the most important consideration is the internalisation advantages, it is
the aspect that give signal to the organisations to produce a particular product within the local
boundaries of the country or to make an international partnership (Ibrahim et al., 2017). It is
often observed that it’s become more profitable for an organisation to produce goods from a
different country rather than from the local market. If the organisation want to make an
outsourcing of its production activities or its services it is essential to make negotiation with
the foreign country and that will only be possible if the organisation of the foreign country
can meet the needs of the organisation that wants to do business with the foreign organisation
(Lee, Nguyen & Sy, 2017). In this case cost effectiveness plays a significant role as the

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company which wants to outsource its activities will like to assess the economic benefits that
the organisation will get by doing the production process in the particular foreign country
(Mak, 2017). In this aspects the availability of skilled labours and the relaxation that the local
government is ready to provide becomes the decisive factor for the company that wants to
make investment.
In this aspect it can be said that the Japanese companies will get the advantage if local
skilled employees of Malaysia and also the government of Malaysia will provide them all the
cost effective benefits of that they can make active investment decisions in this country.
Answer to Question 3:
With the emergence of the new government Malaysia is trying to reduce its
dependency on the courtiers like China, Japan, and USA and want to create an image of its
own in front of the world economy (Omar & Ishak, 2017). The government take several
initiatives that can make it possible for the country to take steps to improve its economic
condition and can build up new relationship with other countries like Australia or India. On
their recent days the country has taken a bold objection to EU the country has make a
statement that if EU does not buy palm oil from Malaysia then they will not buy jet planes
from them (Rasnan et al., 2016). These bold actions indicate that the government is taking
some initiatives to mark their impression on the other developed countries in the world.
China and Russia also have to depend on Malaysia for importing palm oil. But it can be
observed that such actions of Malaysia will not change the decision of EU.
In regards to the foreign policy with china the recent government has taken some hard
decisions that includes closer of three investment projects in which several Chinese
companies want to invest (Yeon et al., 2018). The goverment5 of Malaysia criticise china for
its neo-colonialist ways. The prime minister has changed his decisions regarding the

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infrastructure projects and bring some modifications from which Malaysia will get more
economic benefits (Ruiz et al., 2017). It became clear to the new government that china is not
giving any benefit on these projects. But in the reality the government realised that taking too
much hard decisions on the foreign investment policies and making unfavourable relationship
with china or japan will not be beneficial for the country as the country is suffering with high
debts and the domestic economy of the country is not showing any progress in the last few
years. In such situation making bad relation with country like china who have made big
investments in the infrastructure and already the most reliable partner in trade and commerce
will put a negative impact on the economic growth and Malaysia may have to suffer for that
(Sakawi & Ismail, 2017). In this aspect it can be said that the statement of the Shankaran
Nambair that different investments should be treated differently is very accurate and the
government should realise that the investment made by the Japanese companies should be
utilised to develop the electrical and electronics market while the Chinese investment should
be utilised for the development of the infrastructure, and seeing the recent poor economic
condition of the country it will not be correct to say that whether china , USA or japan
undertake investment in Malaysia’s mega project.
Part (B): Economic Report Writing
The technology of the production process
In the recent times, if someone do talk about the production process, then it does
include the production technology, where there is machinery that help in creating the physical
product, which is possible for the organization. It does means a workshop which does have a
more elaborate operation that does use the machines and assembly lines (Prajogo et al.,
2018). There are several workshops, in which there is more importance of the capital means
which is on the simpler workshops which do tends to the lesser volume of production, but

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less cost to gather where there are higher production operations which does need more
complex and expensive machines.
The inputs that are used to produce final products are called as factors of production.
These are the inputs that a firm need to endeavor to make profit by making products and
services. “Factors of production” include labor, land, capital and entrepreneurship (Akhtar,
2016). Land is the resources from the nature that a firm makes a use of it to produce goods
and services to make profit. Labor is linked with human resources; capital involves manmade
resources. All these factors of production are important for production purpose of a firm.
At the time of investing in the production technology, there have to be focus on the
small business that will help in making the best dollar where there is return on investment,
that does confines to a reasonable budget for that production unit (Tsai et al., 2017). It has
been stated in several research that, in terms of the small businesses there is success when the
profit is been generated, which in numbers can be seen that it three out of every five years.
There is a general rule, which is for the small businesses, it does take more than 2 years to
reimburse the investment in the capital in the “production technology”, thus the business does
exceed that it’s the ideal maximum production budget (Ardito et al., 2018). This is not
specifically means that there is no need of the smaller to medium business, it can happen that
there can be adoption of some practices which is in the larger scale production, that will be
suited from their need or capabilities.
The prices of the inputs of production
The factors of production are usually the resources that an organization does uses in
generating the profit through the production of goods and services. The main four categories
of production are the land, labour, capital and entrepreneurship (Veit et al., 2017). Through
there are several debated which has been done between the “capitalism” and “socialism”

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which is related to the possession of primary production factor. The production function so
states that there is a boundary or the frontier which will represent the limit of output that is
been obtained from the feasible combination of inputs (He et al., 2018). Some of the
organizations do use the production function, that helps in determining the output which will
produce the price of capital and labour. It also provides the information, which is about rising
and falling the returns of scale and the “marginal products of labour” and “marginal products
of capital”.
Land takes into account any of the natural resources such as coal, water, crude oil,
natural gas or gold. All these resources are the gift from the nature and these are the products
which are involved in the production of products and services (Irisarri et al., 2016). Labour
includes the amount of workers accomplish which makes a contribution to the procedure of
production. They all use any tool or machine used to create products or services. Capital may
vary throughout each industry. An example can be of a computer scientist who uses a
computer so that she can create a program; here the computer that she has been using is the
capital. Again, pans and pots have been used by a chef so that he can deliver a product
and service, here the pans and pots are the capital used by the chef. Now, an entrepreneurship
associates these production factors to make a profit (Lee, Chen & Nichols, 2016). An
example is an entrepreneur takes together labour, gold and machinery to make jewellery. All
the risks and rewards is being taken by the entrepreneur which come with making a good or
service.
Most of the schools of economics categorise the same kinds of production factors
which are labour, land, capital and entrepreneurship. According to monetarists, neoclassical
and Keynesian schools of thought, they are mostly interested about who must possess the
production factors and their parts in growth of the economy (Hakimi, Zahraee & Rohani,
2018). “Marxist” and “neo-socialist schools” make an arguement that the production factors

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must be national and that growth mainly originates from labour and capital. The most capital-
intensive school is the Austrian school which suggests that the construction of the
production factor fixes the business cycle.
The principal debate between “capitalism” and “socialism” is about the possession of
the main production factors. According to the “Capitalists”, the production factors which are
privately owned, is a necessary condition for competition, innovation, and sustained growth
of the economy (Dharma et al., 2016). “Socialists” and “Marxists” claim that accrued capital
which are private that leads to unchecked wealth inequality and the concentration of power in
the hands of a few business persons. The Austrian method pressures that it creates a real
difference whether producers build houses or set down railroad tracks.
For example, there is use of fertilizer which does help in the improving crop
production in the farms and in gardens, but sometimes there is adding of more fertilizers
which will help in the improvement of the yield per unit of fertilizer and the excesses
quantities which can be reduced through the yield (WOLNIAK et al., 2017). There are also
some of the examples, where there is addition of more workers to the job which will help in
the assembling of car on the factory floor.
Set of incentives facing the given producers
There is a general issue that has been faced by many of the producers, which is by
both the private and public firms through which there is allocation of costs of common
facilities which is among the different products and services which is produced. There are
several cost accounting methods which will help in creating incentives among the managers
that is within the firm, which can be happened in changing the production function to their
advantage. It is for both desirable and reasonable which is a method reward that does