Clusters Key to Malaysia's Future Economic Development

In the Global Competitiveness Report 2002-2003 of the World Economic Forum (www.isc.hbs.edu), Malaysia was ranked 27th out of 80 countries in terms of growth competitiveness.

The ranking suggests the relative strength of Malaysia’s ability to return to a sustained growth path upon a global recovery.

It was lagging far behind the United States and Finland, the top two countries, and its Asian neighbours, Taiwan and Singapore, which came in third and fourth respectively.

How is a nation’s competitiveness measured? What makes a country more or less competitive than another?

Michael E. Porter, a key figure in the Global Competitiveness Report, said competitiveness is determined by productivity – how a nation uses its human, capital and natural resources. It is “not what industries a nation competes in” but rather how firms compete in those industries, he said. Productivity in a nation is a reflection of what both domestic and foreign firms choose to do in that location.

Malaysia has fared well, considering that it has weathered the Asian economic crisis of 1997-98 better than most of its Asian neighbours. It also has in place a sound macroeconomic, political, legal and social structure, all of which are the foundations for productivity and growth.

Yet Malaysia is not quite there in terms of global competitiveness.

Porter’s focus on Malaysia’s competitive agenda for 2003 at a recent conference in Kuala Lumpur elicited an important area for attention: cluster development.

Engaging in cluster development is probably the next big step Malaysia could take to raise its productivity, and hence its global competitiveness. This, Porter argued, was because “competitiveness ultimately depends on improving the microeconomic capability of the economy and the sophistication of local companies and local competition.”

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