EVALUATING AND PREDICTING THE FUTURE OF A PROTECTED INDUSTRY

Abstract

Over the last 20 years, the automotive industry in Malaysia has been heavily protected as a result of high tariff and non tariff barriers imposed by the government. Protectionism has enabled the development of national motor vehicle manufacturers as well as national automotive component suppliers. The barriers to trade effectively shielded national companies from foreign competition. Not surprising that this has led to dominance of the automotive industry by national companies, however without strong foreign competitors, the efficiency of national auto manufacturers and suppliers remains low. This low efficiency and the challenges and threats related to global competition have led the government to maintain its protectionist regimes into the 21st century. On the other hand, pressure from sources promoting globalization and free-trade such as AFTA and the WTO are mounting and the government may soon be forced to make some changes to its current regime. This thesis is meant to provide the reader with a broad picture of the dynamic Malaysian automotive industry’s current situation, the forces that influence it, and especially, the future situation that should prevail and its effect on the dimensions of the industry. We developed two models in this research in order to assist us through our task. Those models were named the protected industry model and the anticipating the future of an industry (AFI) model. According to our findings, we judge that the government will timidly begin reduce its grasp over the automotive industry by reducing the level of non-tariffs barriers especially those related to components manufacturers. This will allow the national car manufacturers to enjoy a high level of protection still for some years while keeping foreign competition aside for additional years. Components manufacturers will however have to cope with the situation and make their way through a more challenging and competitive market. This could ultimately be done with the assistance of foreign companies. All in all, the customers will be the ones that will have to be the most patient since high prices and a lower level of quality are all that they can expect for the next five years.