Julian Matthews, Kuala Lumpur

Taiwan Investors to Profit on Ringgit's Fall

Taiwanese investors are keen on pumping in new investments into Malaysia despite the regional financial climate.

Taipei Economic and Cultural Office representative to Malaysia, Paul Tso, said the country is seen as a choice destination for investment.

Taiwanese investors are expected to capitalize on the devaluation of the ringgit, depressed stock market, fall in property prices and lower labor costs.

Helping Financing

Tso said to ease financing, two Taiwanese banks have already established offshore operations in Labuan island, Malaysia's International Offshore Financial Centre located off Sabah.

"Two more are likely to follow suit. These banks will allow for more funding for investors keen on Malaysia," he said.

Tso said there are presently more than 1,500 companies with Taiwanese equity in Malaysia with total investments exceeding US$8.3 billion, he said.

Taiwanese investments peaked during 1988 to 1994, when investors poured in money in a variety of projects particularly in contract manufacturing.

According to the Malaysian Industrial Development Authority, investments in approved electrical and electronics manufacturing projects for that seven-year period totalled 4.23 billion ringgit (about US$1.7 billion).

Investments, however, tumbled dramatically from that year on, from a high of 1,031.9 million ringgit in 1994, to a paltry 64.2 million ringgit in 1997 (see chart).

One factor that may have contributed to the decline was the emergence of China as a new low-cost industrial base, and its openness to foreign investment.

Malaysia also introduced new investment policies which were skewed towards attracting only capital-intensive, high-tech manufacturing and turning away labor-intensive projects.

The labor squeeze and rampant job-hopping may have also forced some Taiwanese companies to shut down and move elsewhere.

In Penang, at least eight Taiwanese factories ceased operations within the industrial parks set up by the Penang Development Corp (PDC) from 1994 to 1997. Only four new plants were opened by Taiwanese investors during that period.

Largest Foreign Investor

Taiwan still represents the largest foreign investment country in Penang operating 74 factories in the PDC parks, and employing 16,237 people in 1997.

Existing export-oriented Taiwanese plants in Penang find they have benefitted from the ringgit's freefall and the subsequent retrenchments by other plants.

A year ago, computer peripheral maker Acer Technologies (M) Sdn Bhd was forced to transfer its keyboard manufacturing operation to China as sourcing for staff had become a critical problem.

"The recent downturn, however, has widened the pool of available work force and we've had no staffing problems at all levels," said the company's financial controller Max Cheng.

For contract manufacturer ASE Electronics (M) Sdn Bhd, a subsidiary of Advanced Semiconductor Engineering Ltd of Taiwan, the currency depreciation has been a boon.

"Our sales are denominated in US dollars and most of our customers are US-based companies. There is more savings in overheads for wages and utilities," said ASE Malaysia financial controller L H Choong.

ASE has enjoyed year-on-year high revenue growth primarily because of the global outsourcing trend, said Choong. "Revenue has grown in leaps and bounds. 1997 was a very good year for the company and we expect this to continue in the coming years," she said.

ASE will spend about US$40 million in equipment and expansion of its production facilities in the Bayan Lepas free industrial zone in Penang this year. "We are committed to Malaysia and have continued to increase capacity every year," she said.

Choong said the company's most recent investments included equipping a ball grid array (BGA) packaging line, building a new five-storey administration office cum warehouse, and the purchase of an additional 1.92 hectares of land for expansion.