New Technology Blues

Malaysia

Economic News

22 Jul 2010
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An international legal fracas this week has resulted in appeals for prime ministerial intervention, as Malaysia's electronics industry tries some hasty damage control.



Malaysian firm Amica Technologies filed a lawsuit in the US federal courts in late December over the termination of a contract to consult on the Advanced Microchip Design and Training Centre Project (AMDTC).



The firm is seeking $200m in actual and punitive damages from 15 plaintiffs, including the Ministry of Finance, the Malaysian Technology Development Corporation (MTDC), and the former prime minister, Dr Mahathir Mohamad.



Amica's president, Mohammad Minhaj Khokhar, handed a letter to Prime Minister Abdullah Badawi on January 19 in what he claims was a bid to calm the situation.



"I passionately appeal to the prime minister to grant a half-an-hour meeting and have this matter resolved," the Amica chief told the press. "I plead to him to intervene to bring sanity to an insane situation, which is becoming costly day-by-day."



The episode has its origins back in 2001, when the government formed the company Kumpulan Modal Perdana (KMP) and mandated it to manage the Venture Capital Fund for Technology Acquisition. They invested RM76m of a total RM190m in the implementation of the AMDTC as part of the Multimedia Super-Corridor (MSC) project.



According to reports in the state news agency, Bernama, the mandate was approved by Dr Mahathir. Amica, a Malaysian MSC status company, was then contracted to be the consultants in information technology (IT) and multimedia applications on the project.



As well as this, Amica had signed a 1999 agreement with the MTDC Microchips Design company to set up and implement the AMDTC and a commercial design house to train workers for the semiconductor industry.



Not all went well with KMP though, which by 2003 had lost over RM66. This meant Amica had to continue to pay for the establishment of the project, an amount which Bernama quoted as RM30 over eight years. Amica and KMP terminated their contract in April 2003.



Amica's request to the current prime minister is for the re-establishment of this original mandate, so as to re-establish the Malaysian microchip design industry. The firm also wants to obtain a small amount of the total damages - less than 5% of the total claim, according to Amica's boss.



The company also alleges that projects were in fact hijacked, resulting in huge losses with no progress to show. They also claim the partnership was unfairly terminated without reimbursement.



The defendants have filed to have the dispute arbitrated in Malaysia, but failing his plea to the prime minister, Amica expects to pursue the matter in the US courts.



"If the motion succeeds it will be a temporary thing as there will be appeals to the supreme court," the company's president explained. "I'm a reluctant participant in this legal action. I was pushed into it by the actions and unjust behaviour of MTDC, KMP and other opportunists."



Meanwhile, some sector watchers have noted that the Amica chief's name has been linked to MSC projects that never got off the ground before, in particular a DVD manufacturing plant. However, the question for international observers is whether this kind of problem is endemic to government-backed projects in the MSC.



Linking the rapidly growing electronics market to the IT sector was part of a deliberate strategy intended to try and create the linkages which it was believed would ensure the survival of the sector.



Thus in the late 1990s, the second industrial master plan laid out strategic directions aimed at addressing weaknesses in the electronics industry, such as the lack of linkages both internationally and within the sector, and the small number of Malaysian firms. The main thrust of these remains in today's industrial policy.



With the aim of strengthening the value chain, the government sought to encourage multinational companies (MNCs) to set up integrated manufacturing centres (IMCs), which were required to undertake research and development to enjoy certain incentives.



To deepen the supply chain, the government itself initiated the manufacture of key components which were seen as "missing links" within the sector, whilst efforts were made to reduce the dependence on key imports by moving fabrication to Malaysia.



Climbing to a higher technological plane was also one of the goals, as Malaysia had to acquire core technologies and competencies in the design of specialised circuits and wafer fabrications facilities, other missing links in the sector.



Thus with the hope of building on the increased linkages to IT and multimedia, the government incorporated consideration of the development of the electronics industry into its plans for the MSC. Projects such as AMDTC were launched under this integrated strategic drive.



Whilst the strategy had to weather the storm of a global retreat from IT due to the general economic downturn in the first few years of the millennium, it seems these forces were not necessarily the determinant of successful projects. Nonetheless Malaysian electronics and IT firms are finding their feet and carving a niche for themselves internationally, although not perhaps in the guise of a completely integrated industry.



The impact of this project's failure is not just some high profile legal action and headlines though. The Amica president himself spelled the problem out clearly when he announced his hope that the prime minister would re-establish the mandate.



"I will keep fighting for this mandate as it is a matter of principle," he explained. "I could have created 250,000 jobs... [brought] in billions to the national economy [as well as] human intellectual capital that can be used for economic prosperity and real technology development."



Points surely worth noting in Kuala Lumpur.

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