Rasiah - Government-Business Coordination and Small...

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Government-Business Coordination and Small Enterprise Performance in the Machine Tools Sector in Malaysia Rajah Rasiah Small Business Economics 18 : 177–195, 2002. 2002 Kluwer Academic Publishers. Printed in the Netherlands. ABSTRACT. This paper compares the performance of small and medium size subcontractors in the machine tools industry in two different states of Malaysia, Penang and Kelang Valley. It is shown that while Penang has developed a fairly successful small and medium subcontracting industry, Kelang Valley has not. The difference in performance (measured by value-added) is due in part to differences in the extent and quality of government-business coordination. In contrast to Kelang Valley, the relatively autonomous state government of Penang took a pro-active approach to business development and provided support to its small and medium enterprises (mainly Chinese-owned) in the form of public training and market- information exchange. 1. Introduction Small and medium industries (SMIs) continue to draw considerable attention in economic debates. In addition to the scope and flexibility offered by smallness, SMIs have also been considered by a number of analysts in Malaysia as better alloca- tors of resources (see Chee, Lee and Foo, 1981; Chee, 1986). However, the performance of SMIs in the manufacturing sector has been overshad- owed by a general decline in establishments and employment over the period 1978–95 (see Figures 1 and 2). While a lack of support by the govern- ment dominated their operations in the 1970s and early 1980s, the late 1980s have seen strong support both through subsidies (e.g., preferential loans, tax exemptions, and promotion campaigns). Yet, the majority of SMIs have performed rela- tively poorly when compared to large foreign firms. The relatively smaller role played by SMIs in Malaysian manufacturing can be partly attributed to the structure of manufacturing as well as politics in the country. First, large export-oriented manufacturing firms in Malaysia are dominated by foreign ownership competing at the technology frontier globally, while local ownership has dominated SMIs. Second, the allocation of state support to alleviate poverty and inequality in the country took on ethnic dimensions with state subsidies being directed largely at indigenous startups with little entrepreneurial experience and weak business networks. However, the success of firms in particular settings cannot just be explained by size. Inter alia , industry differences and the coordination networks firms embed also explain why firms succeed in some places and fail in others. The latter has become increasingly important following the growing knowledge disparity (creation and appropriation) between sites, which is particularly significant in the electronics and related industries where the miniaturization process and product cycles have been developing exponentially. The competitiveness of firms is not just determined by the actions of the individual firms, but also the whole network (relationships) they are tied to.
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Rasiah - Government-Business Coordination and Small...

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