THE OPENING OF WESTERN DIGITAL, Kuala lumpur, 17 October 1996

Mr. Chuck Haggerty, chairman of Western Digital Corp Mr. Joseph Phillip, MD Western Digital Malaysia It is encouraging to note that Western Digital has continued to expand its production capacity in Malaysia, as evidenced by this new extension. In fact, investors' confidence in the Malaysian economy has continued to be very strong. In the first seven months of this year, the proposed capital investment of projects submitted to MIDA increased by 116 per cent. The sustained uptrend in investors interest in Malaysia indicate that our macroeconomic policies have been very supportive of private sector enabled investors to thrive in an increasingly competitive global market.

While we are encouraged by our ability to attract and retain foreign investment, we are also aware that the products of the multinationals still have high import content. The import of intermediate goods as a percentage of manufactured exports stands at about 85%, while about half of the value of investment is in the form of imported capital goods. The import content would be even higher if foreign services were included. Lack of inter-industrial linkages between multinationals and the domestic industries, particularly the small and medium-scale industries (SMIs), has been identified as a major reason for the high import content of production activities in Malaysia. To address this, the Government has taken a number of initiatives to develop the SMIs to enable them to become reliable and cost-effective suppliers of parts and components and related services to the larger industries, including multinationals.

One of the vehicles to foster this development is the Vendor Development Programme, which is aimed at encouraging greater intergration and linkages between the SMIs and the larger industries. The number of SMIs involved in the programme recently increased to 90. Multinational companies should consider participating in this Programme to further integrate themselves into the industrialisation process as this will help to deepen further Malaysia's industrial and technology base as well as increase the local content of manufactured output. I am encouraged at being informed that Western Digital has taken efforts to increase the local content of its output by sourcing its input requirements locally. Such efforts augur well for a more meaningful and beneficial partnership between the host country and foreign investors.

To increase domestic value-added, companies in Malaysia must enhance the value chain of their manufacturing process and extend their focus beyond assembling and manufacturing of components. Infact, manufacturing companies in Malaysia should become integrated manufacturing and marketing companies. The manufacturing sector must develop its technological and R&D capabilities so that Malaysia can be in the forefront of product and process innovation, capable of designing as well producing home grown components and manufacturing equipment. In this context, the Government will continue to encourage the private sector to develop and broaden its R&D capabilities, as these capabilities will be the catalyst for further broadening of the technology base and competency which are crucial for maintaining if not improving Malaysia's competitive position in the global market. The recent corporatisation of SIRIM and the proposed corporatisation of MIMOS by late this year should help to generate more market-driven R&D activities. To encourage companies to undertake R&D activities in approved research institutions, including local universities, double tax deduction incentive has been provided for expenses incurred on R&D effective from the year of assessment 1996. In the electronics industry, we are promoting the development of wafer fabrication to propel Malaysia onto a higher plane of technology development in this field. The industry will increase the skills associated with the maintenance of sophisticated equipment such as robotics, encourage R&D in the design and fabrication of wafers and promote linkages with support industries. In my 1996 budget speech, we had indicated our preparedness in giving a number of concessions to investors in this industry.

I am confident multinational companies such as Western Digital can and will help to widen the industrial base of the Malaysia economy by developing the technological and R&D capabilities of Malaysians. This can be achieved by intensifying human resource development and imparting the much needed technical know-how to their local employees so that &D and product development can eventually be done in Malaysia. In addition, multinationals could help train potential local suppliers, particularly the SMIs, in designing and producing parts of the desired specifications for their use. Once the local capability is developed, multinational companies can source high quality input locally at competitive costs while,at the same time, help to enhance the local content of their output.

Manufacturing companies in Malaysia must continue to undertake strategic adjustments in order to ensure they remain competitive and have the capacity to compete under changing environment. It is no longer sustainable for Malaysia to compete by relying on cheap foreign labour. Industries must shift towards a more efficient and technology- intensive production process in order to reduce unit labour cost as well as contribute towards better utilisation of existing human resources.

I now take the pleasure of officiating the opening of this Western Digital factory.

Thank you