Monday, March 14, 2005

Penang, Day 2

While walking on the south end of the beach at Penang, I encountered an ex-pat Malaysian man now residing in the UK. A warm and funny old guy, he noted my Vietnam infantry hat and jokingly asked if I was still fighting the war. We talked for a while and I’m somewhat annoyed with myself that I didn’t get a photo of the man.

He offered several insights that helped shape my impression of Malaysian multiculturalism, particularly as it affects the country’s economy. We were discussing my client’s prospects for outsourcing textile manufacturing and he pointed out how the balance of ethnic power in Malaysia would play a role in hiring, although I later learned during a tour of Dell’s facilities in Penang that these rules applied to public institutions, such as government agencies and universities. Roughly 30% of managers must be Malaysian, and that means of Malay descent, rather than nationalized Malaysians including ethnic Chinese, Indians, Indonesians, etc. Such rules represent an interesting nuance in globalism. Every country has its own take on economic protectionism, particularly as it relates to the bull in the global economic China shop that is China, and this, I reckon, is Malaysia’s version of it.

The old man and I talked for a while longer about the trade imbalance between the US and its Asian partners and much of the discussion centered on China as an economic force of nature and of the attempts by smaller Southeast Asian countries, like Vietnam, to hem in the red bull or, at best, withstand its onslaught. It seems undeniable that this century could see the US cede its global hegemonic status to China as an expanding middle class there gets a taste for open consumerism and thus capitalism. The persistent tension is whether the country can liberalize quickly enough to accommodate its burgeoning middle class.

In Malaysia, he observed, much of the capitalist-style individual competition is driven hardest by ethnic Chinese, an irony considering the Malay contempt for communism. Perhaps that’s not so ironic, if you place that phenomenon in the context of the historically aggressive industriousness of US immigrants, who account for the vast portion of entrepreneurial activity stateside.

At Dell’s facilities, we learned quite a bit about the labor environment in northern Malaysia. Vigorous competition for foreign direct investment exists not only at the national level, but also at the state level. Think of the concessions afforded to Mercedes, Nissan and BMW by, respectively, Alabama, Mississippi and South Carolina. Presumably states hope to make up the concessions from the rising tax base. While it was unclear if incentives are targeted at specific industries, the state of Penang has attracted more than its share of technology companies, such as Dell and Sony. Following a labor crunch in the early 1990s, competition for labor seems to have stabilized as the local population surged to meet the demand. At Dell’s factory, which churns out 35,000 products a day – mostly laptops – (48 per worker per day, not counting overtime), annual salaries for line workers begin at $700, although that can vary greatly, as overtime can average 30 hours a week with hourly rates averaging 1.5x to 2x standard rates.

Sweatshop activists and outsourcing opponents will likely howl at such rates, but my fellow beachcomber, a native of Malaysia’s rural countryside, expressed amazement at how the country’s newfound wealth had trickled through to his birthplace, where new construction and homebuilding had rendered the area almost unrecognizable to him. To be sure, all the old forms of commerce predominate – everything from fishing to guava juice stands, but it’s impossible to ignore how the inflow of money from sons and daughters working everywhere from local factories to abroad in Japan and the US has catapulted the region’s standard of living. “Vietnam will learn,” he observed.

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