Case Of Malaysias Forest Products Industry example essay topic

Malaysia is among the countries in Southeast Asia which has experienced remarkable economic growth and industrialization in the past decade. It is unique in that its success is not a result of adopting any one model for development. Rather, Malaysias government identified its goals and sought to create a country-specific model of development suited to their needs for growth. An example of this is the Malaysian governments increase in exports of manufactured goods rather than concentrating on natural resource commodities as suggested by the World Bank and International Monetary Fund. (pg. 6, HBS) Unlike its neighbor Singapore, Malaysia is blessed with an abundance of natural resources. Although its exports of natural resource commodities have declined in recent years in favor of manufactured goods (pg. 6, HBS), Malaysias natural resource industry remains an important part of the countrys economic and political agenda. Malaysias Forest Products Industry It is difficult to ignore the fact that 60% of Malaysia is covered with natural forest and that timber generates more foreign exchange than any other natural resource in Malaysia.

The Malaysian government recognized the economic potential of the forest product industry early in the decade and proceeded to play a key role in further developing and promoting this particular sector of its economy through a concessions system and the encouragement of downstream industries. The Concession System granted logging rights to private parties in exchange for royalties paid to the Malaysian government (pg. 11, HBS). Granting logging concessions to private parties also allowed Malaysias government to generate interest in the forest products industry while maintaining a degree of control over the areas and particular use the timber could be logged for. This system did not prove to be very effective in the hands of private interest groups in search o increased profits. With only 1,600 employees to patrol the undeveloped forest areas, the Sarawak Forest Department found it difficult to prevent illegal logging (pg. 12, HBS).

Protection of domestic markets from foreign competition is a common practice among industrializing countries. In the case of Malaysias forest products industry, the government encouraged local production of lumber, furniture, and other wood products through the restriction of exporting unprocessed logs. This was known as downstream industries. The encouragement of downstream industries was another important agenda for the Forestry Department of Peninsular Malaysia, a government branch for the overseeing of Malaysias forest products industry. "The idea that the forests could be used as a springboard for downstream integration, or resource based industrialization appealed to many Malaysian officials". (pg. 13, HBS) To these officials, downstream integration allowed for the employment of a large percentage of the market labor force as well as a decrease in the amount of timber needed to produce jobs and export revenues. (pg. 13, HBS) To further encourage downstream int! e.g. ration, the Malaysian government granted tax breaks, subsidies, and other incentives to domestic manufacturers. The Problem Developing industries which deal with the production of natural resource products are very likely to be placed in the international spotlight by drawing criticism from environmental groups around the world.

Such is the case for the Malaysian government as explained in the Harvard Business School case study in which Malaysian prime minister Mahathir bin Mohamad was faced with media scrutiny regarding his countrys forest product industry during a visit to the United States. Being a country that is heavily dependent on foreign investment for its economic growth, Malaysia could not afford to simply ignore the criticism its country receives from westerners whose investments they are attempting to attract into the country. The problem lies in differing views on the side of western environmentalists and the Malaysian government. Western Critics Although Malaysia contains only 2 - 3% of the worlds tropical forests (pg. 3, HBS), the biological potentials and environment potentials found in its rainforests are a cause for concern among western environmentalists.

These environmentalists are quick to point out that often times, the welfare of the environment is far from the minds of those governing a newly industrializing country seeking to capitalize on its possession of valuable natural resources. According to the London Rainforest Movement and the Singaporean and Malaysian British Association, "the rapid destruction of the Sarawak rainforest means that a hugely rich natural laboratory with vast potential for the health of humankind will be destroyed FOR EVER". (pg. 3, HBS) Where an environmentalist may see the medical and environmental values of a living forest, the Malaysian government sees a commodity perfect for foreign exchange and economic growth. The environmentalists also accuse the Malaysian government of condoning acts such as forest "mining" (pg. 3, HBS) in which the amounts of timber harvested exceed the growth of the remaining timber, and interference in the rights of indigenous people living within the forests. According to western critics, the most effective way of creating change in Malaysias forest products industry would be to initiate a worldwide boycott of Malaysian wood products to which the Malaysian government strongly opposed. The Malaysian Government Despite the accusations from western environmentalists and critics of exploitation of Malaysias rainforests, the countrys government insists they have taken significant steps in ensuring the long term preservation of the forests through new techniques, research and development, and the establishment of special committees and task forces. According to the Forest Research Institute of Malaysia (FRIM), Malaysia is currently exploring alternatives to conventional logging techniques such as helicopter logging.

The advantage of this method of logging is a reduction in forest disturbance because the need to construct roads is minimized. This system would also minimize soil erosion which leads to flooding. The Forest Research Institute of Malaysia (FRIM) was established to develop guidelines for forestry management and biodiversity conservation. The National Forestry Policy 1978 (revised 1992) was established to "conserve and manage the forest through sustainable management and maintain its important roles in the national economy and preservation of environmental stability" ( ).

This document details specific strategies the Malaysian government seeks to achieve in protecting its rainforests. However, western environmentalists question the effectiveness of such a well intentioned document without the proper resources to enforce them with. Possible Solutions It is difficult to adopt and enforce policies restricting Malaysias use of its resources because of its importance of sustaining economic growth and development as a newly industrializing country. From reading the case study and researching current information regarding Malaysias forest policy on the World Wide Web, there is no doubt that the Malaysian government is aware of the international concern of its forest products industry.

In recent years, the Malaysian government has sought to diversify its industries. The success of Malaysias forest conservation policies greatly depends on its ability to succeed in increasing exports of various manufactured goods as well as attracting greater foreign investment. In the meantime, there are several possibilities the Malaysian government can explore in convincing the international community that its efforts in forestry are sincere. In terms of the concession system in the logging industry, one possibility would be to make it more difficult for private parties to obtain logging concessions by having the Malaysian government demand higher royalties in return. The increase in revenue can then be redirected to aid efforts in policing the rainforest in order to prevent illegal logging practices.

A first step for both the Malaysian government and western environmentalists would be to hold a forum to discuss relevant issues of concern with one another rather than relay disagreements and criticisms through the international media. By holding a forum involving both representatives from the Malaysian government and various environmental groups, the international spotlight is briefly taken off the accusations which would then allow for free discussions towards a solution both sides are satisfied with..