CONTENTS

NO. 1.0 2.0 3.0 3.1 3.2 SYMPTOMS INTRODUCTION DEFINITION OPPORTUNITY OF FDI TRANSMISSION OF TECHNOLOGIES HUMAN CAPITAL ENHANCEMENT AND DEVELOPMENT TO HOST COUNTRY SPILLOVER AND LINKAGE OF FDI EMPLOYMENT EFFECT OF FDI CONTRIBUTION TO CAPITAL INVESTMENT AND CAPACITY OF FDI CHALLENGES OF FDI PIRACY INCREMENTAL OF FDI CULTURAL CONFLICT HUMAN RIGHTS VIOLATIONS THREATEN SMALL SCALE INDUSTRIES DIMINISHED OF AGRICULTURE-BASED ECONOMY CONCLUSION ACTIVITY GANTT CHART PAGE 2 3 4 4 7

3.3 3.4 3.5

9 10 12

4.0 4.1 4.2 4.3 4.4 4.5

13 13 15 18 20 22

5.0 6.0

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FOREIGN DIRECT INVESTMENT (FDI)

1.0 INTRODUCTION Foreign direct investment (FDI) has grown dramatically as a major form of international capital transfer over the past decade. Between 1980 and 1990, world flows of FDI which defined as cross-border expenditures to acquire or expand corporate control of productive assets. FDI became a major of net international borrowing for the Japan and United States because this country is the worlds largest international lender and the borrower, respectively. Direct investment has grown even more rapidly of late within Europe. Theories predict the scale and scope of multinational enterprises by looking to differences in the competitive advantages across firm or country that might lead to the extension of corporate control across borders. So, for example, better technology, management capability, and product design; stronger consumer allegiance and greater complementarities in production or use of technology can allow a domestic firm to control foreign assets more productively than would a foreign firm and could therefore predicate direct investment. In many cases, these theories also explain why an enterprises alternatives to FDI-domestically based production or licensing of foreignbased production are less efficient than direct control of foreign based operation.

2.0 DEFINITION Foreign direct investment (FDI) is the process whereby residents of one country (the source country) acquire ownership of assets for the purpose of controlling the production, distribution and other activities of a firm in another country (the host country). The International Monetary Funds Balance of Payments Manual defines FDI as an operating investment that is made to acquire a lasting interest in an enterprise operating in an economy other than that of the investor, the investors purpose being to have an effective voice in the management of the enterprise. The United Nations 1999 World Investment Report (UNCTAD,1999) defines FDI as an investment involving a long-term relationship and reflecting a lasting interest and control of a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise, affiliate enterprise or foreign affiliate). The term long-term is used in the last definition in order to distinguish FDI form portfolio investment, the latter characterized by being short-term in nature and involving a high turnover of security.

3.0 OPPORTUNITY OF FDI

Malaysia is a very open, trade dependent economy. Both contribution and hindrance could be result at the same occasion. The current global crisis prompts Malaysia to review its policy on trade, something that is of importance since it is a small open economy. Malaysias growth has been highly dependent on trade and the inflow of foreign direct investment (FDI). 3.1 TRANSMISSION OF TECHNOLOGIES Technology transfer is a crucial and dynamic factor in social and economic development. Technology has been transferred intentionally or unintentionally. On one hand, more developing countries are pursuing economic policies open to trade and foreign investment. On the other hand, developing countries have become important players in the world economy, as producers, as consumers, as investors and as destinations for cross-border investment. Sometimes, a generator of technology has acquired a competitive advantage by undertaking the dissemination of products, processes and maintenance systems (Bradbury, 1978). Sometimes, a recipient (or transferee) has done much better than the original innovator. For example, it was the Chinese who invented gunpowder, but to the Europeans who used it and developed it for world conquest. Sometimes the technology has taken a new form at each transfer, absorbing local traditions of design or local market preferences and there is value added during the process of technology transfer.

The two words technology transfer seem to convey different meanings to different people and different organizations. Technology transfer is defined in the Work Regulations of the United Nations, as the transfer of systematic knowledge for the manufacture of a product or provision of service (Yu, 1991). It has been defined in many other ways. According to Abbott, (1985), it is the movement of science and technology from one group to another, such movement involving their use. Traditionally, technology transfer was conceptualized as the transfer of hardware objects, but today also often involves information (e.g., a computer software program or a new idea) that may be completely devoid of any hardware aspects. Research into technology transfer has matured from the early period of emphasis on the technology itself, through general management objectives to the current state of development where interest has arisen in the appropriateness and effectiveness of the technology transfer. It has been identified that without knowledge transfer, technology transfer does not take place as knowledge is the key to control technology as a whole. Knowledge transfer is crucial in the process of technology transfer. Therefore, the focus of the paper is to address the fundamental element of technology transfer knowledge transfer. Knowledge transfer is about connection, not collection and that connection ultimately depends on choice made by individuals (Dougherty, 1999). It is worth noting that this form of transfer in particular may well be a two-way process between the transferor and the transferee.
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Knowledge transfer is also an increasingly popular term in the literature as writers attempt to highlight the human aspect of knowledge management. This natural transfer, or unstructured exchanges and informal exchanges, are vital to a firm's success. It is of great significance for an organization to be able to capture and use the knowledge inside managers' heads. Maitland (1999) argues that the crucial factor in determining a

company's competitive advantage is its ability to convert tacit knowledge into explicit knowledge through organizational learning. Polanyi (1967) considered human knowledge by starting from the fact that we know more than we can tell. In general, knowledge consists of two significant components, namely explicit and tacit. However, the greater the extent to which a technology exists in the form of the softer, less physical resources, the greater the proportion of tacit knowledge it contains. Tacit knowledge, due to its non-codifiable nature has to be transferred through intimate human interactions (Tsang, 1997). Therefore, with technology transfer knowledge transfer of FDI in Malaysia. I strongly believe that it would increase the inflow of foreign direct investment in my home country especially to the manufacturing sector. Based on my research, Malaysia is now host to more than 5000 foreign companies, including multinational corporations. Many manufacturers have taken advantage of the countrys capabilities by outsourcing their manufacturing activities to Malaysian companies or setting up their own operations in Malaysia. Many companies have since expanded and diversified their operations reflecting their continued confidence in the ease environment of the country.

On the other hand, new technology bringing from neighborhood helps the origin country the increase the level of competition in a market. As a result, it gave the indication that Malaysia is moving forward to a developed nation. 3.2 HUMAN CAPITAL ENHANCEMENT AND DEVELOPMENT TO A HOST COUNTRY Human capital enhancement may be related in various ways to the issue of the transfer of technical knowledge, management technique and also training. Foreign Direct Investment (FDI) can be a medium for acquiring skills, organizational and managerial practices. When a country receives some type of foreign direct investment, it means that human capital becomes more educated through training. Foreign direct investments in the country allows for funding to train the employees and make them more efficient and able to perform more complex jobs. Thus, the human development of the country as a whole can be increase. A developing countries need to have reached a certain threshold of development to be able to fully absorb new technologies. However, some country are shortage of good instructors in transferring practical knowledge about newest technology to trainees as some instructors can only give theoretical lectures but not practical ones. But, with the foreign direct investment, foreign firms will invest in training and provide lecturer/instructor who is able to transfer their practical technical knowledge such as machinery processing, mechanical metal sheet processing, and electric control of trainees. As a result, local employees will become more educated through training and that employees are able to perform more advanced operations. For an example, Vietnam has

started industrialization for only a short time, thus to some extent, the shortage of instructors who could accumulate enough knowledge and experiences is understandable. However, with foreign direct investment, FDI enterprises, whose are accumulating sufficient practical knowledge and experiences can transfer the skill and speed up industrial skill development of Vietnam. This human development can be expected to lead to higher productivity and profitability as a direct result of the increased capacity of the employees to perform their tasks. In addition, foreign direct investment (FDI) has direct effect on the skill levels of the workforce of a host country. Foreign firms will made significant investments in skill development of a country, if the educational system had not prepared local workers adequately for the level of industrial competition they would now face. The investments that were made normally will across the entire skill-set, from entry, assembly lineworkers to managing directors. Therefore, local company can up skill their workers and can get managerial expertise from foreign direct investment. Moreover, as foreign companies are typically more skill intensive than domestic firms, they could further develop the skills of the domestic workforce and upgrade employees quality. In sum, foreign direct investment (FDI) will in turn contributing to transfer oftechnical knowledge, management technique and skillupgrading of a host country. Employees of a host country in which there is a Foreign Direct Investment (FDI) can get exposure to globally valued skills and the training and skills up gradation can enhance the value of the human resources of the host country.

3.3 SPILLOVERS AND LINKAGES OF FDI We take into account sectoral fixed effects, control for non-random selection of FDI recipients and employ the semi-parametric estimation method suggested by Olley and Pakes (1996) to account for endogeneity of input demand and firm exit. Our results can be summarized as follows. We find robust empirical evidence of positive spillovers from FDI taking place through backward linkages but no spillovers occurring through horizontal channels. In other words, firm productivity is positively affected by the sectorsintensity of contacts with multinational customers but not by the presence of multinationals inthe same industry. The data also indicate that domestic firms tend to benefit more from backward linkages than firms with foreign capital. Further, we find support for the hypothesis that spillovers take place in the presence of a moderate technological gap between domestic andforeign firms but not when the gap is large or when local firms are more productive than their foreign competitors or the difference between the two groups is negligible. As expected, the results suggest that firms supplying mainly the domestic market are more likely to benefit from backward spillovers from FDI than those with extensive export experience, since the latter already have frequent contacts with foreign clients located abroad. This study is structured as follows. In the next section, we briefly discuss FDI inflows into Lithuania. Then, we describe our data and the methodology. Technology Gap Matter for Spillovers through Backward Linkage is the extent of backward linkages between multinationals and domestic suppliers ofintermediate goods is likely to depend on the technological sophistication of domestic firms insupplying sectors.

As numerous case studies (see Moran, 2001) indicate, multinationals frequently provide support in terms of technology, advice on organization of the production process and quality control training to their suppliers. If, however, local firms are much less advanced than suppliers of the multinational in its home country, their ability to learn may be limited and the multinational may prefer to import intermediate inputs instead or to source from foreign companies present in the intermediate sector. In such a situation, there will be little scope for interactions between multinationals and domestic suppliers. On the other hand, if domestic firms are more or equally productive as their foreign counterparts, there is little roomfor learning from a multinational customer. These two factors are illustrated in the graph below, which suggests that learning is most likely to take place in the presence of a moderate gap between local and foreign firms. In this study, we test whether this is also the case with spillovers through backward linkages, which is a plausible hypothesis. The presence of spillovers through backward linkages and to examine whether these effects are sensitive to the magnitude of technological between domestic and foreign firms.If we take into account sectoral fixed effects, control for non-random selection of FDI recipients and employee the semi paracmetic estimation method suggested by Olley and Pakes (1996) to account for endogeneity of input demand and firm exit.

3.4 EMPLOYMENT EFFECT OF FDI

The government responded by trying to boost investment and spending. To attract foreign investment, the government introduced new incentives under the Promotion of
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Investments Act 1986, cut down on red-tape, opened up new industrial zones and modernised the infrastructure. The government initiatives coincident with the revaluation of the yen in 1985 encouraging a large number of Japanese manufacturing firms to lower production costs by off-shoring production units to Southeast-Asia. The large inflow of foreign investment, while very effective in reviving the economy, is not, by itself, a long term solution to economic development. At the primary level, it has to be accompanied by several domestic developments such as a transfer of technology to local firms, the development of local production capacity and sourcing of inputs and the development of local human resources. Generally, if indigenous enterprises fail to take advantage and benefit from foreign firms, then the economy may well get stuck as a labour intensive export-manufacturing platform for multinational companies. For a country with a small population like Malaysia, inviting labour intensive foreign investment creates a tight labour market which threatens to increase labour costs. In 1979, Singapore dealt with the same issue by allowing wages to rise thereby pushing out labour intensive industries in favour of more technology intensive investment. This allowed for a general increase in wages and lifestyles of workers and has, a generation later, produced a highly skilled workforce able to support high-tech instead of labour intensive industries. The Malaysian government, on the other hand, responded to the labour problem by the large scale recruitment of foreign workers. Bowing to pressure from major corporations, about rising workers wages, the government began to import labour thereby

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slowing wage increases among blue collar workers. By the end of 1996, the migrant labour population had reached an estimated 2.5 million. The important of this article is that policy makers should pay close attention to those factors that negatively affect FDI flows. One important finding is the negatively relationship between FDI flows and export of goods and services in both the short run and long run. Policymakers need to review the tariff system and any other barriers that may act to inhabit a smooth FDI flows into the country. These measures can increase the confidence of foreign investors in Malaysian economy making the country, in the long run, a favorable investment in the region.

3.5 CONTRIBUTION TO CAPITAL INVESTMENT AND CAPACITY OF FDI

The name "Foreign Direct Investment" usually brings to mind a significant contribution of FDI to domestic investment and to capital inflows. However, there has been a lot of Scepticisms concerning the contribution of FDI to these engines of growth. As noted by Froot (1993), FDI (the purchase by a domestic resident of a controlling stake in a foreign company) actually requires neither capital flows nor investment in capacity. Management under portfolio equity ownership may be plagued by a free-rider problem. Under disperse ownership, if an individual shareholder does something to improve the quality of management, the benefits will accrue also to all other shareholders, see Oliver Hart. In contrast, FDI investor, who is endowed with management skills and gains control of the firm, has better incentives to pursue proper monitoring of management, and will be in better position to micro manage the firm. Furthermore, based on possessing
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"intangible capital" in her source country, the FDI investor can apply more efficient management standards in the host country compared to domestic investors. Thus, the unique advantage to FDI, that has only recently been explored, is the potential for superior micromanagement, based on the specialization in niches of industry. Anticipating this fine-tuned investment schedule, the value of the firm to the potential FDI investor is larger than the reservation value to the original owner, and the corresponding bid value to potential domestic investors. Therefore, FDI investors will outbid domestic investors for the firms in the domestic industry. Competition among potential FDI investors will drive up the price close to the price which reflects the upgraded management of the firm. The initial domestic owners will gain the rent, which is equal to difference between the FDI investor's shadow price and the initial owner's reservation price.

4.0 CHALLENGES OF FDI

Contrary with what had FDI given towards human and societies were sometimes results a reluctantly unexpected outcome. What would be the next discussion part for FDI clearly the setbacks of it that contributes in a negative way and ultimately results in a loss towards the societies as a whole. Setbacks, in other words are challenges of FDI that has come all the way with opportunity. This must brought to the table for handling well. 4.1PIRACY INCREMENTAL OF FDI The challenges of increase piracy-pirated goods brought by neighborhood have been up to USD 200 billion in 2005. This total does not include domestically produced

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and consumed counterfeit and pirated products and the significant volume of pirated digital products being distributed via the Internet. Counterfeiting and piracy are terms used to describe a range of illicit activities linked to intellectual property right (IPR) infringement. The work that the OECD is conducting focuses on the infringement of IPRs described in the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) it includes trademarks, copyrights, patents, design rights, as well as a number of related rights. Counterfeiters and pirates target products where profit margins are high, taking into account the risks of detection, the potential penalties, the size of the markets that could be exploited and the technological and logistical challenges in producing and distributing products. Counterfeit and pirated products, previously largely distributed through informal markets, are infiltrating legitimate supply chains, with products now appearing on the shelves of established shops. Internationally, free trade zones, which are areas where international traders can store, assemble and manufacture products that are moving across borders with minimal regulation, are of increasing concern. Passing merchandise through such zones provides opportunities for parties to sanitize shipping documents in ways that disguise their original point of manufacture. They also allow parties to essentially establish distribution center for counterfeit and pirated goods, with little or no IPR-related enforcement actions being taken. Within the zones, goods can be repackaged with counterfeit trademarks, prior to being exported to other economies, and place of origin can be falsified to reduce enforcement scrutiny at their destination.

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The overall degree to which products are being counterfeited and pirated is unknown, and there do not appear to be any methodologies that could be employed to develop an acceptable overall estimate. The clandestine nature of many counterfeiting and piracy activities, the general lack of indicative data and the difficulty in detecting counterfeit and pirated products contribute to difficulties in this regard. Analysis has therefore focused on international trade, where data, from customs authorities, are more abundant. Counterfeiting and piracy are illicit activities in which criminal networks and organization crime thrive. The items that they and other counterfeiters and pirates produce are often substandard or even dangerous, posing health and safety risks to consumers that range from mild to life threatening. The illegal activities undermine innovation, which is the key to economic growth. The economic gains that some consumers experience by knowingly purchasing lowerpriced counterfeit or pirated products need to be considered in a broader context; many consumers do not experience such gains, they are worse off. The effects of counterfeiting and piracy are more pronounced in developing economies, which is where infringing activities tend to be highest, due, in part, to relatively weak enforcement.

4.2 CULTURAL CONFLICT Culture is definedas an integrated system of learned behavior patterns that are characteristic of the members of any given society. Thus culture can be seen as being

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made up of a number of elements such as language, religion, values and attitudes, manners and customs, material elements, aesthetics, education, and social institutions. These elements, and variations in them from one nation or region to another, can also be viewed as the sources of cultural differences and conflict. When the cross-border mergers and acquisitions (M&A) happens, it becomes the prime task to integrate resources and operations. The companies have different cultures, values, and operating style due to their different backgrounds and external environment. The cultural differences arising from cross-border M&A are not limited to those on the company level, but also on the national level. The clash of cultures can arise from different countries, nationalities, or companies. Company culture is very important, for it correlates to a companys strategy and employees performance with the fast development of cross-border M&A and other kinds of foreign direct investment (FDI), cross-cultural management becomes a key role in management process because of cultural differences and conflicts. Cultural differences of nations are found in attitudes toward nature, rules, status and power, ideas of individual and group, time, the modes of communicating and thinking, and interpersonal relations. There are several differences when comparing Malaysia culture with Western culture. For instance, most Malays are aware of Western ways so the handshake is normal but there may be slight differences, Malay women may not shake hands with men. Besides, if you give food to Malays, it must be halal. In addition, Malay women are disallowed to wear veil during working time in some multinational company (MNC)
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otherwise she will be fired from her job. This action will violate ethical norms of Malays. It can be concluded that cultural differences exists between Malaysia and the West. Cultural integration eliminates conflicts arising from cultural differences by organizing and merges the values, psychological states, and behavior modes of different communities. Cross-border M&A cultural integration seek to reduce cultural differences as much as possible in the acquired company. In general, the following problems should be solved in cultural integration of crossborder M&A. First, it should coordinate the cultural differences of peoples and states to promote understanding and communicating between the different communities in one company and to avoid the negative influence arising from the different thinking models, behaviors, and values. In other words, the multinational company (MNC) should respect the culture of the acquired company and try to understand the culture. The company should not use fixed values to judge the other companys culture, but should combine the companys strategic significance with its culture. Communicating with each other effectively and understanding each other culture is the most effective way to eliminate cultural conflicts. Second, it should coordinate the different company cultures to eliminate the barriers in leadership styles, communication models, personnel system, performance appraisals, and social security benefits. Third, it should establish the companys core values by integrating diverse cultures to improve the companys creativity and competitiveness. Fourth, the effective integration of the companies cultures could provide conditions beneficial for the integration of operations.

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4.3HUMAN RIGHTS VIOLATIONS Human rights are "commonly understood as inalienable fundamental rights to which a person is inherently entitled simply because she or he is a human being. Human rights are thus conceived as universal which applicable everywhere and egalitarian (the same for everyone). These rights may exist as natural rights or as legal rights, in both national and international law. Human rights can be classified and organized in a number of different ways; at an international level the most common categorization of human rights has been to split them into civil and political rights, and economic, social and cultural rights. Human rights violations occur when actions by state (or non-state) actors abuse, ignore, or deny basic human rights (including civil, political, cultural, social, and economic rights). Furthermore, violations of human rights can occur when any state or non-state actor breaches any part of the Universal Declaration of Human Rights (UDHR) treaty or other international human rights or humanitarian law. Malaysia has experienced some human right violations from foreign investors in the manufacturing sector such as U.S investor. Since Malaysia lack of a minimum wage rate, it may be a contributory factor for these violations, meanwhile it also violates the International Labor Convention rule, which is requires all cities to establish a minimum wage. However, some foreign investors took advantage of this problem causing certain Malaysians to suffer hardships and abuses from them.
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The Malaysian government has been criticized for failure to enforce workplace health or safety laws. Workers employed by foreign-owned electronic companies sometimes work in poor conditions. Situations have been reported where huge electronic industries lacked proper ventilation and workers were subjected to various forms of health hazards. In the early 1980s, many Malaysian women working in electronic factories began to experience hallucinations and seizures this particularly happened after standing for long hours on the assembly line in electronic industries. International labor standards are not really enforced and institutions set up to observe companies do not work efficiently in most developing countries. American companies investing in Malaysia have been criticized as for being the worst violators of workers rights in Malaysia. In 1986, General Instrument Corporation warned the Malaysian Minister of Labor that if the local employees ever formed a union the corporation would sell its opticelectronic business and close down the Malaysian Plant. In our opinion, in efforts to eliminate violations of human rights, building awareness and protesting inhumane treatment has often led to calls for action and sometimes improved conditions. Each country is responsible for protecting human rights within its own borders. But, in case of FDI, when our countrys rules and regulations are unable to protect the human rights of the citizens, then the world community has a responsibility to step in and ensure that these rights are protected. Besides that, education about human rights must become part of general public education. Public should have the responsibility to increase knowledge about their rights in work place. Especially, members of the police

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and security forces have to be trained to ensure the observation of human rights standards for law enforcement. In addition, government should provide free legal consultant to help public when they face human right violation problem. To uphold human rights standards in the longterm, their values must permeate all levels of society. Besides that, external specialists can also play their role in order to offer legislative assistance and provide guidance in drafting press freedom laws, minority legislation and laws securing gender equality. They can also assist in drafting a constitution, which guarantees fundamental political and economic rights. 4.4THREATEN SMALL SCALE INDUSTRIES SMEs are based on annual sales turnover and number of employees of the SMEs. A broad definition of SMEs is provided, along with specific definitions for micro, small and medium enterprises. For wider coverage, businesses are considered as SMEs as long as they meet either the threshold set for annual sales turnover, or in terms of the number of full-time employees. SMEs means a company has a paid up capital in respect of ordinary shares of less than or equal to RM 2.5 million at the beginning of basis period. Today, the status of SME has been threatened by multinational company (MNCs). MNCs have large economic and pricing power due to their large sizes. They do not have much problem with regards to financial capital and can hence resort to using advertising which is a costly affair. Also, these companies are global players who have their operations spread across countries and have effective supply chains which enable
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them to have economies of scale which smaller players in the domestic market of the host country cannot compete with. MNCs produce cheaper products due to their high volume of production and decrease the cost per unit and more visibility due to the higher amounts of advertising and have been known to push out smaller industries out of business. In term of competition, lower import tariffs, quotas and other non-tariff barriers have the effect of increasing foreign competition in the domestic market, and this is expected to push inefficient or unproductive local firms to try to improve their productivity by eliminating waste, exploiting external economies of scaleand scope, and adopting more innovative technologies, or to shut down. The openness of an economy to international trade is also seen as increasing plant size which is, scale efficiency, as local firms adopt efficient technologies, management, organization and methods of production. Besides that, one of threaten by MNCs is they reducing availability of local inputs of SMEs. Eliminating export restrictions on unprocessed raw materials will increase exports of the items at the cost of local industries. It can thus be expected that international trade liberalization that increases foreign competition in the domestic market will hurt some inefficient or uncompetitive SMEs. In our opinion, to protect SMEs our government should increase the import tariffs. For example, restrict some product that local companies have large number of production import into our country. Besides that, our government can also increase the import quotas to protect SMEs. For example, increase the import quotas of foreign car such as Toyota, Audi, Volkswagens and Honda. So that, our local brand which is Proton and Perodua can compete with them in term of price.

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Besides that, government should give subsidy to the local SMEs companies to reduce their production cost so that they can sell the product at lower price to compete with product of MNCs and survive in the market. In our opinion, government should declare a rule that all MNCs invest or operate in Malaysia should purchase the raw material in our country to increase our country income.

4.5 DIMINISHED OF AGRICULTURAL-BASED ECONOMY Foreign direct investment (FDI) played a major role in the transformation of the agriculture-based Malaysian economy into one which is largely based on high-technology manufacturing activities. However, the extent of technological spillover from FDI-driven growth has not been all encouraging in Malaysia, as it has been in Taiwan, Korea and Singapore. The emergence of China as a more favorable destination for FDI than Malaysia has also posed a further challenge to the Malaysian economy. Malaysia can no longer rely on low-wage cost advantage and the provision of incentive schemes to attract FDI. Moreover, the emphasis on a knowledge-based economy and increasing complexity of technologies require Malaysian firms to acquire new knowledge and competencies. Malaysia has adopted best practice networking strategies to assist firms to meet these needs and enhance their technological capabilities. These strategies include high-tech cluster development based on the Silicon Valley model, technology incubators, science parks, venture capital funds and other instruments under technology policy within the national innovation system (NIS) framework.

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Although the first science park was set up in 1988, it was not a science park in the true sense of the term because it was housed in a small building with hardly any sciencebased activities in it. The first proper science park was in fact launched in 1996. Malaysias bid for transition to a knowledge economy would, however, greatly depend on the ability of the country to harness the creative and innovative capacity of its people through the provision of a policy environment amenable to the development of entrepreneurship and the growth of investment in R&D. It is significant that Malaysias competitiveness ranking had dropped from sixteen in 2004 to twenty-eight in 2005 in the face of the countrys strong export performance like high FDI inflow. The implication is that Malaysia had lagged behind technologically in relation to other countries during this period. In recent years, a combination of factors have colluded to make attracting FDI more challenging. Key among them is the rising labor cost. Malaysia no longer has cheap labor and the people are becoming more selective about jobs. Understandably so because the average Malaysian is more educated, has higher expectations and needs a higher income to cope with the rising cost of living. At the same time, the poor and low-income countries of the region are becoming more open and stable, and are offering the kind of incentives that Malaysia can no longer match. China and India are economic regions by themselves. Then there are Indonesia, Thailand, Vietnam, Cambodia, Laos and Myanmar, who offer cheap labor, an abundance of land and a large domestic market, which Malaysia does not have.

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One very positive aspect of industrialization that is often neglected or not fully realized is the shift away from land-based development. Had industrialization not been introduced, much more of the country's tropical rainforest would have been cleared to make way for agriculture. The shift from agriculture to industry has saved the forests. But we have to admit that we have become a bit too settled and sedentary due to our huge economic success. Not only are we not as hungry for success as we were in the 1970s through to the 1990s, but our economy has also since then been ravaged twice by economic recessions, first in 1997- 98 due to the Asian Financial Crisis and in 2008-09 due to the US subprime crisis. While these crises had major effects on our economy, they also exposed the weaknesses and shortcomings of our economic system, in particular, those pertaining to regulatory measures, the quality and adaptability of the workforce and more recently, the perception that the country is less stable politically. Thus, there's a need to understand and address these changes. Not the least important is the fact that while we want foreign investors to continue to bring their capital and expertise to our country, we have a situation where our own capitalists are taking their companies private and sending their capital abroad. Globalization brings with it increased competition and more opportunities for trade. However, the competition that comes with globalization, more than being viewed as a challenge that provides opportunities, is often seen as a threat. This is particularly obvious in the case of Malaysia, which has resorted to protectionism in the case of its automobile industry. The case of the automobile industry to illustrate a policy can retard

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the potential of an economy such as Malaysias which depend so heavily on FDI and international trade.

4.0 CONCLUSION
From the perspective of Malaysia in term of Foreign Direct Investment (FDI) as a whole, it could be prominently seen that the number of opportunity and challenges offered the same amount of endeavor to be coped. In addition, Malaysia has been an encouraging economy to foreign investors either from Asian or European. The reinvestment and the new capital injection among the present foreign companies specified their assurance in Malaysia investment. The FDI could aid in a huge accomplishment of a positive side movement that a fore mentioned such as the transmission of technologies. Put in the other way, the movement is also be derived from the negative side of FDI which will harm each nation in long-term. It has always endeavored to maintain the competitiveness of FDI determinants. Many policy instruments had been set up. The Malaysian government has improved the value of the present determinants and is considering new strategies to attract to FDI.

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GANTT CHART
ACTIVITY / CALENDAR FIRST MEETING DISCUSSION ABOUT THE CHOSEN TOPIC SECOND MEETING ANALYSE THE TOPIC REQUIREMENTS THIRD MEETING ALLOCATION PART TO EACH INDIVIDUAL DATE OF SUBMISSION FOR GROUP CHECKING COMPILATION OF ASSIGNMENT 15 NOV 2011 22 NOV 2011 29 NOV 2011 6 DEC 2011 13 DEC 2011 20 DEC 2011

FINAL DATE OF SUBMISSION

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