Lesley Moore, Kuala Lumpur
Multinationals Increase
Local Product Content
In March 1996, Sony Corp announced that it planned to source components
from Malaysian companies for its 73 factories worldwide. Sony Corp chief
executive officer Norio Ohga said Sony is looking towards sourcing locally
instead of depending on Japan for its materials.
Addressing a Sony sponsored procurement forum in Malaysia recently, Ohga
says his company recognized the significant growth of the Malaysian component
industry in recent years and would make it a top priority to promote procurement
of local parts. The shift in policy to source locally is also expected help
tip the trade balance scales in favor of the host country, says Ohga, adding
that Sony is expected to lend its expertise to establish the component suppliers
and ensure the company's high production standards are met.
Sony Malaysia comprises five manufacturing plants, three of which are in
Perai and two in Bangi, with a combined workforce of about 18,000. Products
manufactured include television sets, audio and video equipment, and computer
parts and components including floppy disk and CD-ROM drives, all of which
are marketed worldwide.
In 1995, Sony Corp's Malaysian operations contributed about US$3.6 billion
of the US$44 billion in worldwide sales of the global electronics firm.
The firm anticipates a 10% increase in sales this year.
Sony Electronics Malaysia Sdn Bhd managing director T Tokita says the group
currently imports an average of 50% of its components from Japan. The remaining
50% is sourced locally, of which 20% is derived from Malaysian companies
and the rest from foreign-owned suppliers in the country.
Tokita says local content for new products is lower than those that are
more mature. "New products contain about 20% locally-sourced components
while for matured products, about 55% to 60% of the components can be sourced
locally," he says, adding that the parts procured locally are mostly
plastic components while the more specialized high-tech parts are imported.
Masaaki Saito, general manager for the material division for both Sony TV
Industries (M) Sdn Bhd and Sony Video (M) Sdn Bhd, says the companies were
keen on sourcing locally to reduce costs. "We also need not maintain
a large inventory of components as they would be easily and quickly available,"
says Saito.
Sony Malaysia was an early supporter of the government's Vendor Development
Program (VDP), which encourages multinational companies to adopt and nurture
local companies as component suppliers, and has enlisted the services of
15 local component suppliers under the plan. But, Saito says, these suppliers
offer only the lower technology parts and components. "We want more
high-tech parts from them as well," he says.
In recent years, Sony has also become increasingly reliant on local expertise
and design compared to its early years when it was solely dependent on Japanese
engineers.
Sony Malaysia currently sponsors local engineers to be trained in Japan,
Europe and the US. It has also established a television design centre in
Bangi, Selangor and is in the midst of establishing a floppy disk drive
design centre in Perai, Penang.
Sony is not unique in its position. Other Japanese giants such Matsushita
Electric Industrial Co Ltd and Sharp Roxy Corp, firmly entrenched in Malaysia,
are pursuing similar strategies in the region.
Addressing a seminar recently, Matsushita Electric Industrial Co Ltd director
of operations for Asia, Oceania and the Middle East Katsuro Sakakibara said:
"Business in Asia is becoming more self-contained from research and
development to production to marketing."
Sakakibara says Matsushita, the world's largest consumer electronics company,
sold 44% of its Asia-made products locally in 1994 with 25% exported to
other Asian countries without production bases. "We see Asia as a place
not only to produce, but to market our products," he says.
Multinationals are also slowly and surely striving to increase local content
in design for its products. Sharp Roxy Corp recently announced the release
of its latest range of midi-compo products which was entirely locally designed
and developed at its R&D centre in Sungei Petani, Kedah. Shipped to
the US in March, the new product, which combines the features of a radio,
cassette player and compact disc player, comes in three models priced between
US$179 and US$229.
This year , Sharp Roxy Corp Malaysia Sdn Bhd plans to hire more staff, install
state-of-the-art Computer-Aided Design (CAD) equipment and double its yearly
allocation of US$1 million for the two-year-old R&D facility. The group,
which comprises six companies, expects sales to grow about five to 10% this
year, up from the US$1.6 billion in 1995.
Problems Inhibit Industry Growth
Industry observers say the local electronics industry faces a number of
limiting factors hampering its growth in the coming years. Among these are
over-reliance on imported capital, raw material and intermediate goods,
the lack of transfer of technology from foreign to local firms, lack of
investment in research and development, and shortages of both skilled and
unskilled labor with increased competition among employers for the scarce
workers.
Sanwa Research Institute chief economist Takashi Sobata noted the advance
of Japanese manufacturers into Asia started in Singapore and Malaysia because
of relatively good infrastructure. But limited population and local demand
and rising labor costs are pushing investments into neighbouring Thailand,
Indonesia, Myanmar, Vietnam and the Philippines, he says.
Sobata says Japanese companies are also expected to face escalating competition
from the planned import tariff cuts under the ASEAN Free Trade Agreement
(Afta). The Association of Southeast Asian Nations (ASEAN) aims to gradually
whittle down tariffs to between zero and five percent from the year 2000
to 2003. Another factor to affect manufacturing trends in the coming years
is the withdrawal of the Generalized System of Preferences (GSP) by the
US government.
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