Spatial and structural patterns of manufacturing industry in West Malaysia from 1957-1975 : A case study in industrial geography.

SPATIAL AND STRUCTURAL PATTERNS OP MANUFACTURING INDUSTRY

IN WEST MALAYSIA PROM 1957 - 1975: A CASE STUDY IN

INDUSTRIAL GEOGRAPHY

Mahinder Santokh Singh

A thesis submitted for the degree of Doctor of Philosophy

School of Oriental and African Studies, University of London

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ABSTRACT

The theme of this thesis is an assessment of the impact of the manufacturing sector on the national and regional economies of West Malaysia and an evaluation of the factors determining the spatial and structural patterns of manufacturing at the macro- and micro-levels.

The industrial policy of the Government is

viewed in the context of the economic problems confronting a newly independent nation: :, characterised by an open

dualistic economy. The district-level distribution and industrial structure that- have emerged are evaluated. An analysis is made of the assumptions implicit in the plan for rapid industrial growth, that, spatially balanced development and an industrial structure conforming to the resource endowment can thereby be attained.

Subsequent industrial strategy with its well- defined social and economic priorities is examined.

Since the spatial organization and behaviour of industry is partly the result of the individual f i r m ’s decision­ making and response to industrial policy, the entre­ p r e n e u r s ’ motives for investing in manufacturing and the

selection of sites are analysed within the framework of location theory.

The industrial pattern that has resulted is evaluated. Changes in the Indus try--mix are noted. A centripetal pattern of industrial growth is revealed. The policy of achieving regional equality based on industrial decentralization is examined in the light of

the major factors that determine industrial location. The hypothesis that equitable distribution of manufacturing industry involves the minimising of

socio-economic differences between regions is tested at the district-level in a canonical correlation. A

regional hierarchy is derived on the basis of socio­ economic structure and acquired industrial assistance.

The relationship between industrial location and socio-economic structure is further examined in the analysis of commodity flow patterns. A dichotonous clas­ sification of commodity flows is derived. A system of regional and subregional production centres is revealed, patterns of spatially mutual interactions and industrial

linkages are derived from the analysis of commodity i n t e r f l o w s .

Finally, alternative industrial policy measures and an industrial strategy based on an integrated system of regional growth centres are examined.

ACKNOWLEDGEMENTS

I would like to express my gratitude to Mr. R.W, Bradnock, my supervisor for his invaluable

guidance and encouragement throughout the entire project. I am also very grateful to Dr. R. Ng, my co-supervisor for his assistance in computer work and statistical analysis.

Special thanks are due to m y ■c o l l e a g u e s , Dr.! Kamal Salih and Dr. Zia Haq whose assistance in com­ puter techniques and constructive criticisms and guidance while on field-work in Malaysia were extremely useful. Assistance provided by Miss Khoo Yokekuan is noted with t h a n k s .

I would also like to acknowledge with thanks all assistance and services rendered in the collection of data by the staffs of the State Development Corporations in West Malaysia, the Malaysian Industrial Development Finance Limited, the Federal Industrial Development Authority, Economic Planning Unit, the Department of

Statistics and the Highway Planning Unit. In connection with the field interviews the assistance of Miss Lim

Piao Li, Messrs Chong Sin Nin, Raj Armugam, Shim Kim Siang and Soloman of the various State Development Corporations and the cooperation of the managing directors of the

manufacturing establishments, i n t e rviewed, is greatly appreciated.

I am grateful to the School of Oriental and African Studies for providing a financial grant for fieldwork in West Malaysia.

Staff of the Computer Centre of Universiti Sains, Malaysia and the Staff of the Computer Centre of University of

London; Mr. Ahmad Endut for cartographic assistance; and Mrs. V. Williams for typing the thesis.

Last, but not least, for many reasons, besides those that are self-evident, I am the most indebted to my husband and children to whom this work is dedicated.

6 CONTENTS PAGE ABSTRACT 2 ACKNOWLEDGEMENTS . . 4 LIST OP TABLES • 9 LIST OF ILLUSTRATIONS 16

APPENDIX: LIST OP TABLES 21

CHAPTER

I INTRODUCTION: INDUSTRIAL LOCATION IN THE WEST MALAYSIAN CONTEXT

Theoretical Aspects ... 23 Different Forms of Empirical Studies.... 26 Theoretically and Empirically Derived

Framework of this Study . . 28 II EVOLUTION OF THE MANUFACTURING SECTOR

Background to the Study Area ... 34 | The Case for Industrialization ... 39

Government Policy and Measures to Promote Industrial Development ... 47 III THE INITIAL PHASE OF INDUSTRIAL

i

DEVELOPMENT 1957-1968

Definitions ... 61 The Growth Performance of the Manufacturing Sector 1957 to 1968 ... 63 The Spatial Patterns ... 88 Spatial Structure of Manufacturing

Industry ... 107 Combining The Different Measures of

Industrialization ... 120 An Evaluation of the Patterns ... 123

The Investment Incentives Act of 1968 .. 131 IV STRATEGIES FOR INDUSTRIALIZATION UNDER

THE NEW ECONOMIC POLICY

The Economic And Social Problems Arising from the Growth of the Manufacturing

Sector ... 137 The Strategy of the New Economic

Policy ... 149

Policies Defined to Achieve the New

Page

CHAPTER

V ENTREPRENEURS' DECISION-MAKING ' SPACE AND PERCEPTIONS

Introduction ... 177

Data Collection and Methodology ... 180

Motives for Investing in Manufacturing ... 185

Motives for Investing: Economic Induce­ ments to Private Investors 190

Factors of Industrial Location ... 19^

VI THE POST 1969 INDUSTRIAL PATTERN The Growth Performance of the Manufacturing Sector ... 208

Regionalization on the Basis of Manufacturing Indicators ... 219

Potential Impact of Industrial Projects Approved from 1970 to mid 197^ on the Spatial and Structural Pattern of Manufacturing Industry ... 2^7 Pioneer Industry ... 283

An Appraisal of Growth and Structure ... 287

VII SOCIO-ECONOMIC AND POLICY FACTORS OF INDUSTRIAL LOCATION Regional Income Measures ... 299

Relationship between the Level of Manufacturing and the District per Capita Gross Domestic Product ... 308

Socio-Economic Measures ... 309

Public Policy Indicators ... 319

The Component Analysis ... 323

Regionalization on the Basis of Socio- Economic and Industrial Policy Components ... 336

Canonical Correlation between M a n u ­ facturing and Industrial Policy and Socio-Economic Components ... 3^2 Multiple Regression Analysis ... 351

s

Page

CHAPTER

VIII PATTERNS OP INTERACTING REGIONS'

Interregional Commodity Plows ... 359

The Data for the Analysis ... 365

Principal Component Analysis ... 368

Commodity Plow Patterns ... 376

Results of the Analysis and the Validity of the Hypotheses Generated ... 395

Relationships between the Patterns of Outflows and Inflows ... 398

Implications of Spatial Interactions on Industrial Location and Regional Development ... 4 1 3 Results of the Three Approaches '... 415

IX CONCLUSIONS 420

APPENDIX 432

LIST OF TABLES

Sectoral Contribution to Employment, 1957* Contribution of Various Sectors to Gross Domestic Product (percentages).

Net Exports and1 Net Imports 1957.

Relationship between the Period of Tax Exemption and Qualifying Values - Pioneer Industry Ordinance 1958,

Percentage Share of Major Sectors to Gross Domestic Product from 1957 to i9 6 0 .

Performance of the Industrial Sector in Developing Countries, Classified as

Small-/ Exoort

Primary-/Oriented Countries.

Average Annual Increase In Value Added of Manufacturing Compared with the Growth in Other Sectors and Gross Domestic Product. Sectoral Contribution to Gross Domestic Product in Percentages from 1961 to 1 9 6 8 . Sectoral Contribution to the Increase in Gross Domestic Product within certain P e r i o d s .

Employment by Major Sectors, 1957-1967* Average Annual Increase in Employment in Different Sectors, 1957-1967;in

Percentages.,

Sectoral Contribution to Increase or Decrease in Employment, 1957-1967. Page lil *J2 54 65 67 73 76 78 81 82 86

Table 3.9

3.10

Percentage of Manufacturing Establishments of Different Employment Size in Districts Cate­ gorized by their Percentage Share of all West Malaysian Manufacturing Units, 1 9 6 8 . Estimated Contribution of Manufacturing Establishments of Different Employment Size to Districts Classified by the Share of Full­ time Paid Employment in the Manufacturing Sector, 1 9 6 8 .

District-Level Contribution to Value Added in Manufacturing, 1968 .

Industrial Structure of Groups of Districts Categorized According to Industrial

Diversity, 1 9 6 8 .

The Rank of Districts based on their Mean Ranks on Four Indicators: Number of Manu­ facturing Establishments, Range of Industrial Activity, Full-Time Paid Employment and

Value Added in Manufacturing, 1 9 6 8 .

Contribution of Major Industry Groups to Value Added in Manufacturing, 1 9 6 8 .

Growth Index of Different Industries between 1963 and 1 9 6 8 .

Statistics on Pioneer Industries, 1963 and 1 9 6 8 .

Investment Incentives Act 1968 - A Summary. Evolution of An Industrial Pattern

and the Influencing Factors.

10 Page 94 104 106 111 122 124 127 129 133 136

Table 4.1 4.2 4.3 4.4 4.5 4.6 4.7 5.1 5-2 5.3 5.4 5.5 5.6

Ownership of Share Capital of Limited Companies in West Malaysia, 1969.

Ratio of Net Capital Expenditure to

Operating Surplus by Ownership of Manufac­ turing Industries in West Malaysia, 1 9 6 8 . Ownership of Assets in Modern Agriculture and Industry, Peninsula Malaysia, 1970. Share of Manufacturing in Gross Domestic Product and Total Employment, 1971-1990. List of Industrial Estates in West Malaysia with Premium, Quit Pent and Lease Period Applicable in Each Case.

List of Planned New Townships in West Malaysia.

Relationship between Period of Tax

Exemption and Qualifying Terms in Locational Incentive Areas, 1973.

Sample: Industrial Survey, 1975

Locational Factors: Industrial Survey, Derived Motives for Investing in Manu f a c ­ turing in West Malaysia.

Frequency Response by Rank Order of Five Factors: Industrial Survey.

Frequency Response based on the Five S i g ­ nificant Location F a c t o r s : Industrial S u r v e y .

Frequency Response based on Five Significant Location Factors by Industrial Estates and Free Trade Zones.

Page 142 145 148 152 157

160

?

Table 5.7 5.8 5.9

5.10

Frequency Response based on Five Significant Location Factors by Broad Industrial

C a t e g o r i e s .

Frequency Response based on Five Significant Location Factors by Employment Size of Plants. Frequency Response based on Five Significant Location Factors by Capital and Ownership of Capital.

Frequency Response based on Five Significant Location Factors by Local or Foreign Component of Raw Materials and/or Local or Foreign

Market of Each Plant.

Contribution of the Major Sectors to Gross Domestic Product at Factor Cost in Current Prices, 1968-1974.

Average Annual Increase in Value Added: Manufacturing and Other Sectors.

Employment by Major Sectors, 1970.

Sectoral Contribution to the Increase in Gross Domestic Product and Increase in Employment between 1967 and 1970.

A Comparison of the Achievements of the

Manufacturing Sector in 1973 with the Targets Outlined for the Plan Period, 1971-1975.

Correlation Coefficient Matrix of M a n u ­ facturing Indicators.

Eigenvalue' • and Percentage of Variance Extracted by the Components.

12 ■ Page 204 205 206 207 210 211 215 216 218 225 229

Table 6.8 6.9

6.10

6.11

Eight Groups of Districts according to the Level of Manufacturing in 1970.

District-Level Distribution of Approved Projects in the Manufacturing Industry, 1970 to June 1974.

Degree of Dispersion of Approved Projects into the Eight .Groups of Districts In Descending Order of Importance on the Manufacturing Scale in 1970.

Comparison of Dispersion of Approved Projects in Areas Designated Development Areas and Other Areas.

Distribution of Approved Manufacturing Projects by Incentives Granted, 1970 to mid-1974.

Nature of Incentives Granted to Projects Approved, 1970 to mid-1974.

Industrial Structure of Approved Projects, 1970 to mid-1974.

Nature of Incentives for Approved Projects of Different Industry Groups, 1970 to mid-1974.

Contribution of Approved Projects of Dif­ ferent Industry Groups to Estimated

Employment, 1970 to mid-1974. Page 2 30 235 249 257 261 267 2 70 272 273 275

Table

6.18

6.20

7.4

7.5

C o n t r i b u t i o n ,to Estimated Employment by Projects Approved between 1970 and mid-1974.

Contribution to Estimated Employment by Projects Approved with Incentives and without Incentives, 1970 to mid-1974. Distribution of Estimated Employment

likely to be created by Industrial Projects Approved in 1970 to mid-1974.

West Malaysia: Employment and Capital Structure of Companies Awarded Pioneer Certificates by Industry Groups as at Dec. 1973.

Employment, Industry Grouping and Capital Structure of Companies Awarded Pioneer Certificates, Classified by Districts as at 31.12.1973.

Sectoral Employment as a Percentage of the D i s t r i c t s ’ Total Employment, 1970. Correlation Matrix of Forty-Five Socio- Economic and Industrial Policy Indicators.

Components Extracted: Principal Component A n a l y s i s .

Matrix of Component Loadings.

Regional Hierarchy of Districts based on Socio-Economic Characteristics aided by Industrial Policy Measures.

Canonical Yariates, Canonical Components Structure and Redundancy Measures.

14 Page 277

278

Table Page

7.7 Multiple Regression: Relationship between Socio-Economic and Policy Components and each of the Manufacturing Components. 8.1 Correlation Matrix of Commodity Flows. 8.2 Principal Components and Percentage of

Variance Extracted.

8.3 Varimax Rotated Component Structure. 8.-4 Canonical Variates in Commodity Inflow

and Outflow Analysis.

8.5 Canonical Variate Structure, Variance Extracted and Redundancy Measures of C o m p o n e n t s . 353 370 372 373 400 402

16

4o LIST OF ILLUSTRATIONS

Figure

2.1 Major Towns, Districts and States of (West Malaysia) Malaya, 1957.

2.2 West Malaysia: Relief and Drainage.

2.3 The Operational Outline of the Economy at the Time of Independence.

3-1 Indices of Growth in Real Value of Each Sector in Current Prices at Factor Cost from 1957- 1 9 6 8 .

3.2 Indices of the Trend in Employment of Major Sectors Based on Figures for 1957* i. 1962 and 1967.

3.3 District-Level Distribution of all , Manufacturing Establishments, 1 9 6 8 .

3.4 District-level Distribution of Non-Factory Size Manufacturing Establishments, 1 9 6 8 . 3.5 District-Level Distribution of 'Manufac­

turing Establishments Employing Below 20 Full-Time Paid Employees, 1968.

3.6 District-Level Distribution of Manufac­ turing Estbs. Employing 20-49 Full-Time Paid Employees, 1 9 6 8 .

3.7 District-Level Distribution of Manu f a c ­ turing Estbs. Employing 50-99 Full-Time Paid Employees, ,1 9 6 8 .

3.8 District-Level Distribution of Manufac­ turing Estbs. Employing over 100 Full- Time Paid Employees, 1 9 6 8 .

Page 35 36 38 75 84 91 93 97 98 99

100

Figure 3.9

3.10

16

.1

A Profile of. Manufacturing Activity by Districts, 1968.

District-Level Contribution to Estimated Full-Time Employment in the Manufacturing Sector as Percentage of the Total, 1968. Industrial Estates, Free Trade Zones and Designated Development Areas - December 1974.

Regional and Urban Development Schemes and New Townships.

Growth Trends in Real Value of Each Sector and the Gross Domestic Products at Factor Cost, 1957 to 1974 (According to 1967 Prices). Graph Showing Percentage of Variance

Extracted by Different Components in the Principal-Component Analysis.

Spatial Variations in the Level of Manufac­ turing 1970 (Based on the Scores of

Component I).

Spatial Variation in Capital Intensity and Productivity of the Manufacturing Sector, 1970 (Based on Scores of Component II). Changes in Industrial Productivity Brought About by an Increase in the Ratio of Labour to Capital between 1968-1970 (Based on

Scores of Component III).

Changes in Industrial Productivity Resulting from an Increase in Capital Input between 1968-1970 ( Based on Scores , of Component IV)

Page

108

102

Figure 6.7 6 .8a 6 .8b 6.9

6.10

6.11

Comparison of Scores on Capital Intensity

and Productivity of the Manufacturing Districts with Districts Contribution to Manufacturing,

1970.

A Comparison of the Rank Order of Districts by the Level of Manufacturing 1970 (Component

One) With the Rank Order by Level of M anu­ facturing, 1 9 6 8 .

A Comparison of the Districts' Level of Manufacturing 1970 with the Rank Order of Districts by Level of Manufacturing in 1 9 6 8 . A Comparison of the Distribution of Projects Approved in 1970 and 1971 with the Rank Order of Districts by their Contribution to Manufacturing 1970.

A Comparison of Distribution of Manufacturing Projects Approved in 1972 and 1973 with the Rank Order of Districts by their Contribution to Manufacturing in 1970.

A Comparison of the Distribution of All

Manufacturing Projects Approved between 1970 and June 1974 with the Rank Order of Districts by their Contribution to Manufacturing in

1970.

Lorenz- Curves for Industrial Dispersion of Newly Approved Projects in Spatial Groups of Different Levels of Manufacturing 1970.

Figure 6.13 6.14 6.15

6.16

Newly Approved Industrial Projects in Districts Classified 'Development Area' and 'Non-Development A r e a ' .

A Comparison of the Indices of Industrial Dispersion of Approved Projects for 1970 and mid 1974 between Development Area and All Districts of West Malaysia classified According to the Level of Manufacturing in 1970.

The Distribution of Approved Manufacturing Projects with Incentives and without

Incentives from 1970 to mid 1974 According to the Rank of Districts in Descending Order

of Contribution to Manufacturing in 1970. 268 Distribution of Estimated Employment of

Manufacturing Projects Granted Approval between 1970 and mid 1974 According to the Rank Order of Districts by their Contri­

bution to Manufacturing in 1970. 2 8], R e l a t i v e .Levels of Gross Domestic Product

Per Capita, Districts of West Malaysia, 1970. 305

Component Scores - Component I. 331

Component Scores - Component II. 332 Component Scores - Component III. 334 Component Scores - Component IV. 335 Regionalization on the Basis of Aggregate

Scores on Four Components of Socio-Economic

Structure a n d -Industrial Policy. 337 Classification of Districts on Canonical

Figure

8.1 Map Showing Zones and Centroids Used as Basis for Commodity Flow Patterns.

8.2 The Pattern of Commodity Flows for

Consumer Non-Durable Products and Inputs (Component 1).

8.3 The Pattern of Commodity Flows for Resource-Based Manufactured Goods and Processed Commodities (Component 2). 8.4 The Pattern of Commodity Flows for

Manufactures based on Imported Raw Materials or Components (Component 3). 8.5 The Pattern of Commodity Flows for Bulky

Manufactured Goods (Component 4).

8.(5 The Pattern of Commodity Flows for Very Bulky Resource-Based Products (Component 5).

I

8.7 The Pattern of Commodity Flows for Grain and Manufactured Grain Products (Com­ ponent 6 ) .

8.8 Interacting Regions on Canonical Variate I. 8.9 Interacting Regions on Canonical Variate II. 8.10 Interacting Regions on Canonical Variate III. 8.11 Interacting Regions on Canonical Variate IV.

20 Page 367 377 381 384

386

APPENDIX: LIST OF TABLES Table A3.1 A3.2 A3.3 A3. 3a K3.3b A3.4 A3.5 A 3 .6 A3.7 A 3 .8 A3.9

The Malaysian Industrial Classification. Five Categories of Industrial A c t i v i t i e s . West Malaysian Gross Domestic Product by Sectors $ million in Current Prices at Factor Cost, 1957-1974.

Indices of Growth of Each Sector and the GDP in Current Prices at Factor Cost, 1957-1974 (Base Year = 1957).

Indices of Growth in Real Value of Each Sector and GDP at Factor Cost (Constant Price = 1987 price).

West Malaysia Employment by Sectors. Methodology on the Computation of a List of Manufacturing Establishments by

Location, Size and Industrial Activity,

1968

.

District-Level Distribution of Industrial Establishments of Different Employment Sizes, 1 9 6 8 .

A Breakdown of Districts* Manufacturing Establishments by Employment Size, 1968

(Percentages).

District-Level Distribution of Establish­ ments According to Broad Industry Groups. District-Level DIstrlbution of Manufacturing Activity, 1 9 6 8 . Page 432 434

436

Table A3.10 A6.1 A7.1 A7.2 A7.3

Contribution to Full-Time Paid Employment in Manufacturing by Establishments of Different Employment Size, 1968.

Participation of State Development Cor­ porations in Manufacturing Activity. Value Added in Production Sectors and Gross Domestic Product, Districts of West Malaysia, 1970.

Spatial Inequality in Income.

Spatial Urban and Economic Disparities, West Malaysia, 1970.

CHAPTER I

INTRODUCTION: INDUSTRIAL LOGAT IOH IN THE WEST MALAYS IAN COP TEXT

The main objectives of this study are

1 * to analyse the spatial and structural patterns of manufacturing industry in West Malaysia from the time of independence to the present, with the intention of evaluating the impact of the sector on the national and regional economies against the social and economic

objectives of the West Malaysian industrial policy; 2 * to identify the major factors that determine the spatial distribution and structure of the manufacturing industry in West Malaysia*

The approach adopted in this thesis draws on theoretical and empirical contributions made to the study of industrial location. ■

1.1. Theoretical Aspects

Theoretical contributions to the study have been made mostly by economists rather than geographers, and pre-date the First World War. But industrial loca­ tion implies the existence of spatial relationships, interrelationships and patterns, so that, although

industrial production is an economic activity,, the field i

of study is by definition part of geography.

1. Hamilton, 'Models of Industrial Locstionyin M o d e 3.5 of Geography. Edited by Oliorley, R.J. and Haggett, P. Part i and III, University pauerbacks P. 361.

2^ The earliest approach to the subject is

1 1

usually traced to Alfred Weber who sought to explain plant location by abstracting from demand and explaining it as a product of spatial cost differences. He derived what is termed the least-cost analysis.

The second approach is the locational inter­ dependence or market approach. It attempted to seek a location at w h ich revenue is greatest and attempted to portray a situation of equilibrium under conditions of imperfect competition by introducing variations in demand. It also attempted to analyse demand in a spatially dis­ tributed market instead of the punctiform market of the

2 least-cost location.

The third conceptual development in the 1950's

in location theory was the development of the behavioural approach. It attempted to integrate least-cost and

locational inter-dependence approaches. Greenhut, Pred and Hamilton are a few of t h e ,contributors. This approach attempted to analyse industrial location by emphasising the impact of inter-dependence between firms. Concepts of agglomeration or deglomeration were, thus, introduced. This approach also introduced a theoretical re-orienta­ tion to accommodate suboptimal behaviour, implying a need to relax the profit maximization assumption.

1. Smith, D .r.I., Industrial l o c a t i o n . An Economic Geo­ graphical Analysis, John Jiley and Sons. P . 115-119* 2. Hoover, E.M., The Location of Economic A c t i v i t y ,

McGraw-Hill Economics Handbook o’eriF s 7 * ^ 9 4 8 .

3. Pred, A.., behaviour and l o c a t i o n : foundations for a Geographical ana D y n a m i c ' Lo'caTion, Part I. Lund Series in Geography.

Personal considerations were introduced in the concept of maximum satisfaction in plant site selection.

The behavioural approach also attempted to

integrate location theory with other branches of economic activity. Walter Isard built up a body of theory and analytical tools to assist in the understanding of the

operation of economic processes in the real world,

drawing upon the concepts outlined above and integrating them w ith economics of localization and urbanization to

2 explain agglomeration.

A synthesis is achieved by incorporating earlier industrial location theory and central place theory.

More recently, theoretical models have also been constructed to provide a basis for solving problems in industrial planning. In an attempt to provide a

logical approach to location problems, industrial location phenomena have been set in the context of economic

systems, political systems, settlement hierarchies and

historical and technological backgrounds, be they regional, national or inter-nation.^

1. G-reenhut, M . , Plant Location in Theory and in r r s c t l c e . University of North Carolina Press, Chapel Hill.

1956. P. 175-76; 262-83.

2. Isard, 7/., location ana Space-lconomy« M.I.T. Press. 1956. P. 268-272.

3* Isard, 7/*, Op.c i t . . P. 270-2711 and S m i t h , D . M ., O p . c i t ., P . 130-137.

4-. Hamilton, P.E.I., Models of Industrial location Op.c i t .. P. 361-4-24T"" :

1 *2 Different Forms of Empirical Studies

Despite the progress of industrial location theory from the abstract to concepts applicable to reality, a large proportion of empirical studies on the subject has been undertaken with the purpose of gaining a general understanding of locational factors, and patterns rather than for testing theoretical con­

cepts. Although it is often claimed that an idiographic approach tends to dissipate rather than integrate the body of location theory and practice, this criticism is unjustified. Before the recent development of con­ ceptual, models which relate industrial location to a spatial economy, it v/as difficult to generate testable hypotheses. The goals of the theoreticians have been iquite different from the goals of the researcher inter­

ested in empirical work. In addition, problems of obtaining appropriate data were encountered. Identifi­ cation for example, of a least-cost location for a

particular industry required a large amount of accurate data, of a kind that could only be obtained by direct inquiry of existing firms.

Furthermore, finding the optimum location for one firm at one point in time is often of little help in explaining the areal distribution of a whole industry, wh ich may be the end product of a long process of evolu­ tion and which contains firms of different size, techno­ logy and entrepreneurial skill.

However, these criticisms do not negate the use of theory as a framework. Empirical investigations based on different theoretical concepts have taken

various forms of analysis. These can be categorised into four main groups.

The first category of research studies consist of empirical identification of variations of single input

1

cost surfaces namely of labour, land, construction materials and taxes. Comparative locational advantages were measured directly in terms of a real variation in the cost of purchasing inputs or input. The main issue in these studies was how far the abstract concept of cost surface could be given empirical identity by applying theory to practical solutions. The limitations of these studies in explaining industrial patterns are obvious.

Another category of research studies is centred

2

on the behaviour of a particular industry. Analysis of comparative locational costs were concerned with compara­ tive advantages of alternative sites w i t h respect to inputs and demand. The theory of the firm ¥/as used to explain location patterns.

As a corollary to this group of studies is the analysis of the behaviour of individual firms or groups of firms under given assumptions in order to answer two

1. Examples of these studies are found in Smith, I).LI., Industrial L o c a t i o n . Op.cit., P . 279-295*

2. Theodore, Herman. Cultural Pactors in the Location of the Swatow lace and Needlework Industry.

AAAC, Vol. 4 6 ,_ 195-6. P. 1.22-128.

Hoover, E.I.I. Location Theory and the Shoe and Leather In d ustries, Harvard University Press, Cambridge. TU3 7 .

questions: \ What to produce? and where to produce? Empirical regularities were used to construct theoreti­

cal models analysing location and production decisions. The problem these analysts faced, however, was how to proceed from the individual action to the general loca­ tion patterns except under extremely simplified circum­ stances.

In keeping with the recent developments in theory is the fourth category of studies which is con­ cerned, primarily, w ith the total observed pattern. Explanations are sought for the patterns of industrial

action,, not in isolation, but as phenomena inter-related w i t h the spatial patterns of economic activity and land- use in general and other social and political forces. This approach draws heavily from theoretical concepts and overcomes the criticisms of location theory as a "static construction".

- 1.3 Theoretically and Empirically Rerived Framework of this Study

The approach adopted in this thesis illustrates three methods used in industrial geography, namely, the

1. Examples of this approach are: Leslie Bienes, Locational factors and Locational developments T r T T h e oovieiTTTbemica 1 Industry< The university

of^Shicago, DeparLTient ox Geogx-aphy, Research Paper No. 119, 1969*

Britton, ’Regional Analysis and Economic G e o g r a p h y 1, A case study of l.Ianui'acturing in ' The^Bristol Region. B e l l ’s Advanced Economic

historical, regional and factor methods. 5*his approach 't

is most suited to the objectives outlined earlier. The first one,stresses the evolutionary aspects of the manu­ facturing sector. It examines the responses to the dynamic forces of political and economic changes and social aspirations. The second method involves the

description of regional patterns. The regional industrial profile, w h i c h is likely to show regional contrasts, is also analysed. The cause and effect of the growth of the manufacturing sector can he related to the linkages within the diverse patterns of land-use, economic activity and resource endowment in each region and among regions. The third method examines the major factors w h ich influence the location of individual firms, such as raw materials, energy, labour and markets. The importance of these

factors is analysed from the e n t r e p r e n e u r s ’ own locational evaluation. It would have been appropriate to follow

this analysis with comparative costs analysis of the major elements w h ich constitute total costs, but lack

of cost and price data imposed strict limitations on the use of this method in the study area.

To facilitate the use of both macro- and micro- levels of analysis, the firm is taken as the unit of study and the district is chosen as the unit area of study at the sub-national level.

The choice of the district rather than the State or the urban centres is guided by a number of considerations. Although data at the state level are readily available intra-state variations in land-use, socio-economic structure and level of manufacturing

30

would render sucli an analysis meaningless. Furthermore, in the past rigid compartmentalisation^spatially, of rural and urban development schemes was pronounced.

Planners have failed to regard the impact of such schemes as complementary or as holistic within the space economy. The two types of schemes have not been planned w i t h

common terms of reference. An analysis confined to

urban centres would omit industrial growth in the rural- urban fringe areas; it would also isolate possible

resource areas and markets from the production centres. Hence, to overcome these limitations, a district-level study is designed. It is the smallest unit area for

which substantial data are available and it is hoped that at the district-level different aspects of development could be merged to provide an integrated regional approach in development planning.

Within this framework the study is organised as follows:

In the second chapter the industrial policy of the West Malaysian Government and the need to foster industrial growth are analysed in the context of the economic problems confronting a newly independent nation w hich has been dependent on two export-oriented primary

commodities, rubber and tin.

The overall performance of the manufacturing sector and the district-level distribution and structure of the manufacturing sector that emerged at the end of the initial policy of free-enterprise are examined

(Chapter.3)• The notion of growth in the manufacturing sector is evaluated along two distinct lines, namely,

of the national economy and the regional contribution and spatial distribution. In this chapter, too, the different ways of meas u r i n g growth performance of the manufacturing

sector, without resorting to data - summarising techniques are examined. The weaknesses of single measures are also outlined.

In- chapter four the weaknesses of the assumptions made in the initial national industrial p o l i c y are d i s ­

cussed. The assumed complementarity b e t w e e n rapid industrial growth and the growth of an industrial structure that would create adequate employment and achieve equity objectives are analysed. The n e w industrial strategy with well- defined social and economic objectives that followed the

civil disturbances in the country is outlined in this chapter.

The success of the n e w industrial strategy rests, partly, on the ability to attract investments into the

manufacturing sector. In chapter* 5, using a micro-level approach, the motives for investing in ma n u f a c t u r i n g are analysed from the entrepreneurs' decision-taking. These findings are then compared with the measures adopted b y the Government to motivate private investors.

In the same chapter, attention is focussed on the behaviour of the firm in understanding some of the

processes of industrial location. A m u l t i -factor c l a ssifica­ tion is derived f r o m empirical studies on the factors

influencing plant location. The characteristics.of a sample of industrial sites in Vest Malay s i a are summarised

in terms of the industrialists' locational evaluation.

In chapter 6 the subsequent p a t t e r n and structure of industrial growth is analysed and evaluated against the objectives ment i o n e d earlier. A n attempt is also made to classify districts in terms of the level of manufacturing attained.

In chapter 7 explanations for the spatial

variations in the growth of the manufacturing sector are sought in the socio-economic structure and the effects of industrial p o l i c y measures. Regi o n a l i z a t i o n b a sed on socio­ economic structure and implemented industrial p o l i c y

measures Is attempted. The Government's objective is to achieve regional equality b y decentralising Industry. In this context the hypothesis is advanced that equitable distribution of manuf a c t u r i n g industry rests on the p r e ­ requisite of m i n i m i s i n g distances along the socio-economic scale. This hypothesis is tested in a canonical correlation in Chapter 7*

In chapter 8 functional interrelationships b e t w e e n regions are illustrated in the p a t t e r n s of

commodity flows. These relationships are analysed.

National and regional subsystems are identified b a s e d on supply and demand patterns and the extent of market areas of different distr i b u t i o n and/or production centres. The r elationships bet ween out-flowrs and inflows of commodities are also evaluated in the context of regional complementarity.

Finally, b ased on the findings of the regional approach and that of the firm, changes in industrial p oli c y measures are suggested to reconcile the social and

determining industrial location.

The conclusions of this study are summarised in Chapter 9*

54 CHAPTER II

E VOLUTION 0? THE blANUFACTTIRING- SECTOR

2 .1 B a c kground to the Study Area

*1

West Malaysia or Peninsula Malaysia constitutes a total area of 50,700 square miles made up of eleven

2 states which are further subdivided into seventy-one administrative districts (Pigure 2,1). The spatial

distribution of the major towns and state capitals shown on the same figure displays a west coast bias resulting from historical precedent and the physical configuration of the country. Pigure 2.2 shows that the mountainous backbone in the centre of the peninsula not only pre­ cludes settlement in the interior but it also isolates the coastal plains and the foothills of the east coast from those of the west coast. Thus a majority of the population is confined to the coastal plains and the foothills in the west.

West M a l a y s i a ’s economic position at the time of independence in 1957 can be summarised as a classical

3

case of "an open dualistic economy" with heavy dependence on two commodities for export and reliance on imports

1. Prior to the formation of Malaysia in September 1963 it was known as the Federation of Malaya. These terms would be used interchangeably in the text. 2o In the 1957 Population Census reference is made to

71 districts. The district of Selama was merged with Larut and Matang in the 1970 Population Census. Hence, for purposes of comparability the adjustment

is made f rom the start.

3. Paauw, U.S. and Pei, C.H., 'The Transition in Open Pualistic E c o n o m i e s , Theory and Southeast AsiaTT*

E x p e r i e n c e , Hew Haven and London, Yale University Press. 1973, p . 1 0 .

Fig: 2.1 MAJOR TOWNS, DISTRICTS AND STATES OF (WEST M A L A Y S IA ) MALAYA. 1957 V .... P5RUSV U • ^ --- \ .S URAAN6KAWI \ ,KUBANG^padan(.: V/J V PASU . TERAP \ /v, •'•v.j \/> Jf" •> d°

SCALE: A8 M iles To i Inch

' N i , KOTA l ,

SETAR

V r“ ‘“)

KULIM District Name

O 10 _ 20 TOWN O 20 _ 50

-O

o

O

9

j

<?/'\

kfi Ailfi KUALA'— '•

LUMPUR- . . . , , > I .. jajukiti JELEBU 1 r " \ __/~-n e g.eri J V ^ i - S ' E . M ' 8 ' I L A N S E R E M B A N ^ i _ KUALA K U A LA L'ANGAT ) \ „ O j l r < ° P^ - s / ^ V I.REMBAU / ' 5 PORT DICKSOn’J T A M P! N ) u^.(— ALORxOAJAH ) E L A K J ^ C r ^ 7 MELAKA TENGAH J L. * L KUALA TERENGGANU , ULU ) TERENGGANU MARANG M -G . Gx A E R □UNGUM J E R A N T U T K E M A M A N CUANTAN A * -\ ..N P E K A N •> S E G A M A T v-'*.. -x JASIN MUAR KELUANG M E R S tN G BATU PA HAT , - i KOTA \ TINC-Gt . JOHOR ' • B A H A R lT v PONTIA

56

Fig: 2 2 W E S T MALAYSIA: R E L IE F AND D R A IN A G E

S .P a t> a " ^

for most of its manufactured goods and substantial portion of its food. The dominance of agriculture is discernible from its role in all major aspects of the economy, namely, the creation of employment, pro­ duction for exports, contribution to savings, financing of imports, repatriation of profits abroad, and its contribution to gross domestic product.

■Within the agricultural sector dualism exists. One component is the commercialised agricultural sector dominated by foreign capital, and the other component is the traditional subsistence agricultural sector which is isolated and associated with under-employment, low

1 productivity and rural poverty.

D u a l i s m also exists between the agricultural and the non-agricultural sectors which are linked by the foreign sector as shown in figure 2.3* Exports in the form of primary products flow from the commercialised agricultural sector to the foreign sector while the

earnings finance the imports of the manufactured goods and foodstuffs from the foreign sector for the non- agricultural sector. As a direct link the non-agricul­ tural sector supplies goods and services to the commer­ cialised agricultural sector. These goods include items such as fertilizers and engineering products. Service facilities include repairs and servicing of factory equipment used in agricultural processing. Together these two sectors comprise the modern enclave.

Sou rc e: E xt rac te d fro m P d a u w & F ei o p . c it ., P. 4 . 38 ID to z o D N -j O — n o c n §_-j o r o co ^ — ! — ! ^ X X

^ m m

~o m o

2

X o

m c

m rn

o o

On the basis of such an operational system it is not surprising that half of the country's labour force in 1957 was engaged in primary production (Table 2.1), However, only one-quarter of the labour force was involved

in food production, mainly wet rice cultivation at sub­ sistence level. The dominant crop was rubber which was grown on plantations and smallholdings. The former was controlled by foreign enterprise while the latter was locally-owned. A very small acreage was devoted to oil palm, coconut and pineapple cultivation.

The primary sector, namely commercial agriculture and raining produced more than two-thirds of the gross

domestic product (Table 2.2) and rubber and t i n scombined* accounted for over 80 percent of the net export earnings.

In direct contrast, the food producing agricultural sector could not meet the country's requirements even in the staple item of its diet, namely, rice. This is clear from the list of imports (Table 2.3); and imports of foodstuffs, as a consequence, constituted a third of the value of imports.

Thus, the economy was faced w ith the problem of extreme dependence on two export items, and after independ­ ence measures to get away from the colonial pattern of the economy was the first priority.

2*2 The Case for Industrialization

It cannot be disputed that West llalaysia's

function as the world's largest producer and exporter ox two main primary raw materials, rubber and tin, brought

4o

(Table 2.1

1957

Industry

Total

Percent

(

000

)

Agriculture, forestry, Hunting

& Pishing

572.8

26.94

Agricultural products requiring

substantial processing

'

672.0

31.61

Mining & Quarrying

58.5

2.75

Manufacturing

135-4

6.37

Construction

68.1

3-20

Electricity, Gas, Water &

Sanitary Services

.11*5

0.54

Commerce

195*2

9-18

Transportation, Storage &

Communications

74.8

3-52

Services

319-7

15*04

Industry not specified

18.1

0.85

Total

2126.1

100.00

DOMESTIC P R O D U C T (PERCENTAGE)

Composition

1955

1956

1957

1. Agriculture, Forestry,

Hunting &, Pishing

41.4

37-8

36.8

2. Mining & Quarrying

5*9

6.8

_6.5

3• Industry

12.5

'

12.6

12.6

i) Manufacturing

8.9

8.6

8.4

ii) Construction

2.3

2.6

2.7

iii) Power

1.5

1.4

1.5

4. Services

40.0

42.8

44.0

i) Transport &

Communications

5.0

3.3

3.4

ii) Other Services

37*0

39.5

40.6

Total

100.0

100.0

100.0

Gross Domestic Product

#m (million) (Market Price)

4992

5060

5126

Source: Compiled from the N ational

Table 2:3 NET EXPORTS M B NET IMPORTS 1957

Net Exports

Percent

Rubber

68*7

Tin

19.4

Iron Ore

3-6

Palm Oil & Kernals

2.7

Copra & Coconut Oil

1.9

Canned Pineapples

1.1

Sawn timber

1.6

Others

1.0

Total

100.0

Net Imports

Percent

Rice

9*3

Other Poods

20.8

Drinks & Tobacco

6.1

Petroleum Products

9*0

Textile Manufacturers

6.7

Machine & Machine Products

8.7

Transport Equipment

6.0

Metal Manufactures

4.0

Chemicals

6.7

Other Manufactures & Other

Materials

22.7

Total

100.0

Source: ¥.M. Corden and H.V. Richter, Malayan Trade

Statistics - Entreport Trade in T.H. Silcock &

E.M. Pisk Ced.) The Political Economy of

--Malaysian economy had reached a relatively advanced stage in the level of per capita income,1' w hich amounted to U.S. ^250 in 1957. Based on a relatively prosperous primary producing economy the country had also hecome accustomed to a high standard of living with easy imports of a wide range of manufactured goods as reflected in the list of imports in table 2.3* But it is important to stress here*that, although the market for manufactured goods was created, production of these goods locally was limited to a very narrow range of consumer goods, handicrafts and ancillary industries which sprang up with and were dependent upon the primary

industries of agriculture and mining. Cottage industries were concerned with the production of small quantities

of hand-made consumption goods in everyday u s e . These were a part of the Malay self-subsistence * economy, the products of these industries going towards satisfying the meagre needs of the local kampong (village) popula­ tion, but these industries have never been important in

2 the industrial economy of the country.

The cause for industrial backwardness lay in the "international division of labour which made the

country economically dependent upon the industrially developed ... countries, and turned it into a buyer

1* International Bank for Reconstruction and Development (1 .3.R.D .), 'Re p ort on Be gnomic D e v elopment of M a l a y a ', John Hopkin Press, Baltimore, T O p B T p. 20.

A

of industrial goods and a supplier of raw materials." In fact,the p o l i c y of comparative advantage in p r i mary p r o d u c t i o n was carried to its extreme "by m a i n t a i n i n g

a condition of l a i s s e z - f a i r e . Complete absence of effective p r otective measures led to the decline in importance and disappearance of cottage indus t r y when factory-made m a n u f a c t u r e d goods b e g a n to flood the market. Only the b a t e k and local luxury industry (silver and gold works) remai n e d b u t continued p r o d u c t i o n at a very small

scale

Import duties that existed before independence were b a s e d on a system of preferential rates for imports

f rom B r i tain and the C o m m o nwealth to protect their imports against competitive goods from the non-Common-

w e alth countries. R i d z u a n states that in a large number of cases goods from the C o m m onwealth territories entered

free of tax. For non- C o m m o n w e a l t h imports, the ad v a l orem rate varied f rom 10 percent to 25 percent.^ This aim of

p r o t e c t i o n was d i f f erentiated from the second function of revenue c o llection which was achieved b y imposing tariffs on a f e w commodities such as liquor, tobacco, textiles, p e t r o l e u m and sugar.

1 . C u k o r , G .. Strategies of I n dustrialization in the D eveloping C o u n t r i e s , translated b y C. Hurst and Companyi l^/dl p . 7 •

2. Ooi Jin Bin, O p . c i t ., p.

323-3. R i d z n a n b i n A k i l , "Growth, Structural Change and Employment C reation in 'tEe Halayarr~Hanur.'acruring I n d u s t r 1 es since I n d e p e n d e n c e ." A n u n p u b l i s h e d Ph.D. thesis, University of Hull, 1972. p. 17*