Cross Cultural Management

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Malaysia will continue to build resilience by:

1) Increasing competitiveness through productivity enhancement, raising the quality of the workforce and greater application of knowledge.

2) Ensuring sound economic fundamentals and strong financial and corporate sectors.

3) Stimulating private investment as well as attracting quality FDI.

4) Promoting new sources of growth in the manufacturing and services sector.

5) Pursuing effective macro-economic management with fiscal prudence.

It is expected that prospects for the Malaysian economy will remain favourable in the short-term, supported by both external and domestic demand growth. As such economic growth in 2006 is expected to strengthen to 5.5%.

For the medium-term, the Government is formulating new policy directions and strategic thrusts under the Third Industrial Master Plan (2006–2020), the Ninth Malaysia Plan (2006–2010) and the second phase of Vision 2020

The Policy Framework for Investment

The Policy Framework for Investment (PFI) helps governments to mobilise private investment in support of sustainable development, thus contributing to the prosperity of countries and their citizens and to the fight against poverty. The Framework was developed at the OECD by representatives of 60 OECD and non-OECD governments in association with business, labour, civil society and other international organisations and endorsed by OECD ministers. It offers a list of key questions to be examined by any government seeking to create a favourable investment climate.

The Framework is a flexible instrument that allows countries to evaluate their progress and to identify priorities for action in ten policy areas: i) investment, ii) investment promotion and facilitation, iii) trade, iv) competition, v) tax, vi) corporate governance, vii) promoting responsible business conduct, viii) human resource development, ix) infrastructure and financial sector development, and x) public governance. Three principles apply throughout the Framework: policy coherence, transparency in policy formulation and implementation, and regular evaluation of the impact of existing and proposed policies.

By encouraging a structured process for formulating and implementing policies at all levels of government, the Framework can be used in various ways and for various purposes by different constituencies, including for self - evaluation and reform design by governments and for peer reviews in regional or multilateral discussions. A Toolkit was created to offer practical guidance on how to implement the PFI.

The PFI recognises that creating a good investment climate involves the interaction of governments, firms and other stakeholders, and concerns both output and factor markets. Too often, governments focus narrowly on the costs of doing business or on investment promotion without paying sufficient attention to the bigger picture. Creating a good business climate requires efforts by government to: expand market opportunities for new entrants; improve public service delivery and policy effectiveness, in part through public consultations; improve the availability and quality of inputs and the efficiency of capital and labour markets; facilitate access to imported inputs, whether through trade policy reform or through targeted import exemptions; foster innovation and technology transfer by making markets more competitive and by protecting intellectual property rights; and encourage firms to play their part through voluntary codes of corporate governance and responsible business conduct, and through training of local employees and linkages with local suppliers.

The objective of a good investment climate is not just to increase investment but also to improve the flexibility of the economy to respond to new opportunities as they arise – allowing productive firms to expand and uncompetitive ones (including state-owned enterprises) to close. The government also needs to be nimble: responsive to the needs of firms and other stakeholders through systematic public consultation and able to change course quickly when a given policy fails to meet its objectives. It should also create a champion for reform within the government itself. Most importantly, it needs to ensure that the investment climate supports sustainable and inclusive development.

The PFI was created in response to this complexity, fostering a flexible, whole-of government approach which recognises that investment climate improvements require not just policy reform but also changes in the way governments go about their business.

The government is aware of the challenges and has begun to address them

The Malaysian government is keenly aware of these challenges and has set itself an ambitious goal of becoming a high-income economy by 2020 which will require a doubling of private investment as a share of GDP between 2010 and 2020. Initiatives have proliferated to achieve these objectives, most notably the New Economic Model (NEM) developed by the National Economic Advisory Council (NEAC) which was inaugurated by the prime minister in 2009. Strategic initiatives include the Economic Transformation Programme to stimulate private investment and the Government Transformation Programme to make the government leaner and more consultative, with measurable targets in the form of National Key Result Areas and Strategic Reform Initiatives. There are well over 100 different recommendations outlined in the NEM, with a new Performance Management and Delivery Unit created to ensure that reforms are implemented.

In almost all of the areas covered by this Review, the government has undertaken policy reforms and created or revamped institutions to ensure that the reforms deliver results. A Special Task Force to Facilitate Business (PEMUDAH) was created in 2007, comprising public officials and corporate leaders to simplify business operations and thereby successfully to improve Malaysia’s ranking in the World Bank’s Doing Business report. The Malaysia Productivity Corporation is spearheading a comprehensive review of business regulations to improve processes and procedures. The investment promotion agency was renamed the Malaysian Investment (formerly Industrial) Development Authority (MIDA) to reflect its wider remit to promote services as well as manufacturing. The Putrajaya Committee on GLCs (Government Linked Companies) High Performance was created to lead the GLC Transformation Programme. A new Malaysian