The Dawn Raid

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Adapt or Divest? The New EconomicPolicy and Foreign Businesses inMalaysia (1970-2000)Shakila Yacob & Khadijah Md Khalid

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Adapt or Divest? The New EconomicPolicy and Foreign Businesses inMalaysia (1970-2000)Shakila Yacob and Khadijah Md Khalid

This study explores the interplay between state policies and business strategies of foreign

firms in Malaysia during and in the aftermath of decolonisation. Drawing from newly

released British and US sources, this study demonstrates that distrust of state enterprises

as well as antagonism towards Chinese speculators were significant factors in shaping the

business strategies of targeted British firms under the New Economic Policy (NEP) in

Malaysia. In addition, the business culture of some British firms served only to harden

misperceptions and strengthen the resolve of the government to implement the NEP

fully. Finally, in cushioning external shocks, firms embarked on a diversification strategy

not only to multiply, but also to acquire differing portfolios in developed economies.

Despite this familiar framework of mistrust and tension, this paper goes on to address

the real firm-specific differences in the response to the NEP. As for the other foreign

firms, they were nonetheless prepared to share assets, expertise and human resources

with Malaysian enterprises through joint ventures. Such a varied response demonstrated

the agility of foreign businesses in responding to state policies.

Introduction

Much has been written about economic nationalism and the Malaysian economy in the

post-colonial era, and the NEP’s impact on foreign and local, in particular Chinese,

businesses.1 Indeed new terms were introduced to help explain and clarify the

efforts of the Malaysian government in restructuring the economy, including ‘localis-

ation’, ‘Malayanisation’ and later ‘Malaysianisation’, ‘indigenisation’, ‘bumitisation’2

Correspondence to: Shakila Yacob, Department of History, Faculty of Arts & Social Sciences, University of

Malaya, Jalan Lembah Pantai, 50603 Kuala Lumpur, Malaysia. Email: [email protected]; Khadijah Md

Khalid, The International Institute of Public Policy and Management (INPUMA), University of Malaya.

Email: [email protected]

ISSN 0308-6534 print/1743-9329 online/12/030459–24http://dx.doi.org/10.1080/03086534.2012.712413 # 2012 Taylor & Francis

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and others.3 A number of scholars, such as Nicholas J. White, Susan M. Martin, Geof-

frey Jones, James V. Jesudason, and Lim Mah Hui, have focused their attention on the

impact of localisation and Malay(a)sianisation on European firms, particularly British

ones.4 The field of literature relating to the impact on US businesses has also been

covered.5 The NEP has been portrayed as an expression of Malaysian-style economic

nationalism where the strength and capacity of the domestic capital is built through

new opportunities exclusively geared for the sake of local entrepreneurs and also to

reduce foreign equity which had previously controlled the economy.

The NEP, in conjunction with other factors, contributed to the divestment and release

of equity ownership (and, in some cases capital flight) in Malaysia since the 1970s. These

included a general shift by foreign investors post Second World War, particularly British

investors, to industrialised nations in Western Europe and the US, precipitated mainly by

the lack of political stability and policy certainty in ex-colonies. Scholars such as Dunning

and Lundan, Jones, Dunning and Stopford and Turner, in describing the evolution of

international business, highlighted the general shift of global firms towards the developed

market economies of Europe and North America. The shift to the industrialised West and

diversification into other areas of investment was in response to the political risk and the

volatile commodity sector of the host country.6

The process of decolonisation had threatened the continuing existence of foreign

businesses, at least in its traditional form, and the emergence of Communist ideology,

including in the Southeast Asian region, as an alternative response to colonialism

exacerbated the unease. In addition, since the 1970s the volatile world rubber and

tin prices had impacted on the profitability of the two major commodities in the

country. Furthermore, to cushion the risk of external shock, firms started to

embark on a diversification strategy not only to multiply, but also to acquire differing

portfolios. The attitude of the ‘old stagers’, in particular long-established British firms,

which found difficulty in coming to terms with the policy changes and a more robust

and unabashed political outlook as well as stiff competition from domestic businesses,

in particular Chinese, was also a principal cause for equity divestment.7

Nonetheless, there were a number of ‘old stagers’ from continental Europe and the

United States for example, who had continuing trust and confidence in the Malaysian

leadership and who maintained and even expanded their business activities in Malay-

sia. These foreign concerns were prepared to share assets, expertise and human

resources with local companies through joint ventures (JVs). These firms succeeded

in exploiting the economic potential of Malaysia as a rapidly developing country

and consequently were able to build up their assets and expand their presence

throughout the more lucrative Southeast Asian region.

Using newly released documents and unexploited sources from British and US gov-

ernment archives, including access to the Central Intelligence Agency (CIA) records

(using the Freedom of Information Act, commonly known as FOIA) this work differs

from other studies which have been constrained by a lack of access to such in-depth

materials. The London Metropolitan Archives provide access to recently released

materials on British businesses in Malaysia, in particular, Harrisons & Crosfield.

News and business reports from various publications were also used in this study.8

460 S. Yacob and K. Md Khalid

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While previous works concentrated mainly on the NEP from a broader economic

perspective,9 this study almost uniquely takes into consideration other European as

well as American multinationals. Although this study is limited to the long and

well-established foreign firms in the plantation, mining and trading sectors, the find-

ings suggest that a separate study to investigate further the response of foreign firms to

the introduction of the NEP in other sectors such as public services, banking10 and

manufacturing is well warranted. Firms operating in other industries responded dif-

ferently to state intervention in the highly competitive post-colonial economic

environment in Malaysia. At the same time, other foreign concerns, particularly

from Japan and the United States, were eager to participate.11

This article opens with a brief outline of the NEP and a short introduction of the

public agencies (now known as government-linked companies or GLCs) that played

a crucial role in its implementation. This is followed by an analysis of the response

by British firms to the challenges emanating from the new policy regime. A short dis-

cussion follows on other European and foreign companies which maintained their

presence and voluntarily chose to operate within the new restrictions. The question

of why and how British firms, in contrast to other European and American companies,

reacted differently to the NEP is therefore explored. This article breaks new ground by

outlining the firm-specific differences in response to state intervention in an economy

mainly dominated by British firms. Following this, some systematic explanations are

provided to shed light on the different strategies of those firms. The conclusion sum-

marises and revisits the reasons behind the varied responses of the foreign firms to the

NEP.

Economic Nationalism the ‘Malaysian Way’: Moderate State Intervention—The

New Economic Policy (NEP) Takes Shape

Economic strategy in post-independent Malaysia (Malaya until 1963) embarked on a

different trajectory from its neighbours in Southeast Asia during the heyday of de-

colonisation. There were no attempts at nationalisation of foreign businesses, includ-

ing the more established concerns. In contrast, on gaining independence from Britain

in 1948, Burma (now Myanmar) expropriated foreign interests in teak and other

natural resources. During the era of the ‘Burmese Way to Socialism’ (1962–88)

state control had extended to trade and shipping concerns once dominated by the

British.12 In Indonesia, the fledgling independent government not only seized and

confiscated Dutch assets in 1957 and 1958, but also expelled the existing business com-

munity in a bid to ‘de-colonise’ the economy and ensure local dominance.13 This

process known as ‘Indonesianisasi’ is, according to J. Thomas Lindblad, an important

concept to comprehend in order to understand issues relating to economic de-coloni-

sation, nationalisation and policy orientation in Indonesia.

However, the Malayan government during the first decade after independence

adopted a laissez-faire approach, with little state interference in the key economic

sectors still under the dominance of ex-colonial as well as other foreign capital,

such as plantations (rubber) and mining (tin), and generally paid only lip service to

The Journal of Imperial and Commonwealth History 461

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the notion of uplifting the socio-economic conditions and resolving the plight of

ethnic Malays.14 Malay nationalists, however, were becoming more assertive in the

mid-1960s and called for the curtailment of foreign equity ownership.15

It is generally agreed that the government under Tunku Abdul Rahman had been

too liberal towards foreign investors and capitalists.16 During Tunku’s adminis-

tration, the presence of foreign, particularly British, businesses continued to be tol-

erated and even encouraged, largely as their capital and expertise were considered

important to the development of the economy. As such, local scholars such as

Jomo Kwame Sundaram, Lim Mah Hui and Hua Wu Yin contended that Malaysia

would remain an underdeveloped ‘client state’ or ‘neo-colony’. Later, these scholars

linked the NEP with the marginalisation of Chinese businesses, and argued that, if

the government had fostered the potential of the existing Chinese businesses or

co-opted their involvement in helping Malay businesses to thrive, then the

country would not have needed to depend on foreign capital to develop the

economy.17

Nonetheless, according to Nicholas J. White, post-independence crony capitalism

showed that big Chinese businesses helmed by H. S. Lee, T. H. Lim, Lee Hoy Seng

and Robert Kuok, for example, were able to secure various business opportunities

to the exclusion of British firms.18 White further argues that, although British firms

were not expropriated during the Tunku’s administration, British firms began to

lose influence compared to local entrepreneurs, especially Chinese, who were extre-

mely well connected with the ruling coalition, Alliance (Perikatan). Already in the

1960s, prior to the introduction of the NEP, British rubber businesses were worried

that local Chinese speculators could succeed in taking over.19

For instance, Lee Loy Seng, a senator from the Malay[si]an Chinese Association

(MCA) in the 1970s gained control of KL-Kepong, a British firm from 1969 to1972,

held 25 per cent ownership of Highlands & Lowlands, a subsidiary of Barlow Holdings

and became the proprietor of one of the largest foreign rubber plantations in Malay-

sia.20 It is therefore clear that, even before the period of the NEP, foreign firms had

already been threatened by the existence of the Chinese business-political nexus

with the ruling coalition dominated by the United Malays National Organisation

(UMNO) representing the Malays and in which the MCA—as the ethnic Chinese com-

ponent member—was a senior partner. As such, these Chinese business entrepreneurs

had already enjoyed a ‘head-start’ in the developing economy over their Malay com-

patriots. 21

Even though existing firms were not affected, the government had begun to restrict

the sale of land to British firms. In turn, the strategy of British firms was to become

holding companies while relegating operational control to the subsidiaries.

In addition, there were efforts to form mergers purportedly to prevent fierce compe-

tition and also to pre-empt takeovers by Chinese businesses. For example, Boustead

and Barlow formed Boustead Ltd (1960) to manage their import-export business

and Boustead Estates Agency Ltd (Barbeal) for rubber plantation activities in

1966.22 British firms also began to invest their surplus capital in other sectors which

are as, if not more, profitable within and outside Malaysia.


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With the announcement of the introduction of the NEP in 1970 and its official

launch in 1971 by the Razak administration, foreign businesses, especially those that

were British-owned, were further shaken and uncertain as to their future.23 The objec-

tives of the NEP included reducing foreign-owned equity from approximately 70 per

cent to 30 per cent. Alongside the strategy to reduce foreign equity was the intention to

boost bumiputera participation in business and commerce through the purchase of

shares by local investors and their transfer to entities set up by the Malaysian govern-

ment on behalf of the Malay community.

When the NEP was being planned and implemented, there was still some confusion

among Malaysian administrators as the policy outline lacked specific details. This gave

rise to concerns among civil servants in the UK, at the Ministry of Overseas Develop-

ment, Foreign Commonwealth Office, Board of Trade, Bank of England and also, and

not least, at the British High Commission in Kuala Lumpur. From early on, British offi-

cers adopted a negative attitude towards the NEP, and they voiced their worries that the

policy would lead to undue discrimination against British firms in Malaysia. 24

In fact, similar sentiments about discrimination against British business interests

were already being expressed by the mid-1960s. For example, the Rubber Growers

Association (RGA), Malayan Chamber of Mines and the Malaysian Commercial

Association expressed concerns on the subject of Malaysianisation in the rubber and

tin sectors. While some Malaysian ministers adopted a conciliatory approach and

tried to convince British businesses that nationalisation was never the option, there

were others who took a more ‘hard-line’ attitude, although this did not reflect the offi-

cial stance of the Malaysian government.25 Dato’ Seri Dr Mahathir Mohamad (who

was deputy prime minister of Malaysia 1976–81) acknowledged that the actions of

these ‘overzealous government officials’ made it difficult for the government to

implement the NEP.26 However, by the mid-1970s, despite the apprehension, RGA

(together with its member companies) took steps to reconcile with the NEP objectives.

For instance, in 1975, RGA formed a voluntary understanding with Dato’ Musa Hitam

(as the minister for the Ministry of Primary Industries) to meet the 30 per cent NEP

target by 1990.27

In the same year, the Industrial Coordination Act (ICA) was introduced whereby

bumiputera equity participation was made legally compulsory. The Bumiputera Par-

ticipation Division of the Ministry of Trade and Industry was responsible for

holding the shares through the ICA with the view of transferring them to individual

bumiputeras at the appropriate time. Without a doubt, such legislation raised concerns

among foreign investors, no doubt heightened by the tough de-colonisation policies in

other recently independent countries such as Myanmar and Sri Lanka. Subsequently,

the managements of these foreign companies were faced with challenging decisions

about whether to continue investing in Malaysia, and, if so, how to comply with gov-

ernment directives on the process of ‘Malaysianisation’.28

Alongside agencies such as the Urban Development Authority (UDA), Malaysian

Industrial Development Authority (MIDA) and People’s Trust Council (MARA),

Pernas played a significant role. Under its founding president, Tengku Razaleigh

Hamzah, sometimes known as ‘Father of the Malaysian Economy’, Pernas laid solid


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foundations for the participation of the Malays in equity ownership.29 Razaleigh was

said to be also instrumental in ensuring the passage of the ICA (1975) which helped to

win him support from the UMNO grassroots as a Malay nationalist. Subsequently he

was appointed minister of finance in which post he served from 1976 to 1984.30 By this

time, Razaleigh had consolidated his links with influential Chinese businessmen who

represented the second phase of the politics-business nexus in the country. In many

ways the ‘royal’ Tengku Razaleigh was also seen as having some distinct similarities

with the Tunku, whose credibility was also tarnished by his so-called ‘pro-Chinese

stance’.31 These tycoons included Khoo Kay Peng of Malaysian United Industries

(MUI) and Lee Loy Seng of Kuala Lumpur Kepong Plantations who benefited signifi-

cantly from their close ties with Razaleigh much to the annoyance of the Malay

Chamber of Commerce.32 Strangely, it was the patronage of Razaleigh in his role as

the ‘Father of Bumiputera Economy’ that enabled a clique of Chinese business

barons to flourish under (and despite) the NEP.33

During the NEP’s early years, Pernas set up eight subsidiaries by 1974 and

attempted to forge joint ventures with Japanese, American and European firms,

but by the late 1970s its focus had switched to existing foreign share ownership in

Malaysia, especially in the commodity sector. In April 1978, the National Equity

Company (PNB) and Bumiputera Investment Foundation (YPB) were co-founded.

YPB acted as the investment planning unit and decision-maker for PNB, providing

interest-free loans to enable PNB to acquire company shares through the mediation

of the Ministry of Trade and Industry as well as other public agencies and GLCs. By

April 1981, PNB had moved into unit trust investment through its subsidiary,

Amanah Saham Nasional Berhad (ASNB). By 1980, PNB, on behalf of bumiputeras,

had invested nearly RM2.1 billion in 674 companies representing some 8.2 per cent

of company equity ownership, though bumiputera ownership in fact was only 4.2 per

cent. The growth of non-Malay ownership, however, doubled in the 1970s to RM10.6

billion and to 40 per cent by the 1980s, largely due to the reduction of foreign-owned

equity.34 By 1978, foreign ownership of the corporate sector had dropped to 46 per

cent from 61.7 per cent particularly in the non-renewable natural resource-based

industries.35

Since the majority of these foreign enterprises were British-owned, these entities

became primary targets for Pernas and PNB, particularly those long-established

firms that had been operating since colonial times and were involved in tin and planta-

tions. Such an approach was consistent with the desire to de-colonise the Malaysian

economy. In addition, there was an added motivation in that these British firms

held large land banks in contrast to the small holdings of other European plantation

firms. The land banks were emblematic of the colonial legacy and therefore a political

affront to the Malaysian government which could no longer be ‘overlooked’. Beyond

that, the scale of the land banks represented strategic value vis-a-vis the developmental

agenda of the country. Understandably, smaller firms such as UP did not escape the

‘radar of the nationalists’.36 Indeed, from the perspective of the nationalist, size of

the plantations did not really matter; what mattered most was ownership and the

economic benefits to the country (see Table 1).


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With the appointment of Mahathir as prime minister in July 1981, when the

implementation of the NEP was already in its second decade, the taking over of

British firms reached its climax, especially in the plantations sector. It was at this

time that relations between the governments of Malaysia and Britain had also

entered a new phase marked by intense challenges. Unlike his predecessors, Mahathir

had never studied in Britain, and, curiously, hailed from a professional background

which was not considered normative for politicians. Instead of studying law, he gradu-

ated as a physician. Mahathir also did not belong to the aristocracy nor was he

a pure-blooded Malay and his somewhat abrasive style was considered arrogant and

condescending by government members of the former colonial ruling power.37

Indeed, Mahathir reportedly once told a British diplomat: ‘We owe you nothing.

You came here for your own reasons and left when it suited you.’38 Mahathir’s anti-

British sentiment could be traced back as early as the British proposal to establish

the Malayan Union in 1946. 39

‘Mahathir’s sustained vendetta’ against the United Kingdom and his refusal to be

seen as ‘dancing attendance upon the Queen’ affected relations with other white Com-

monwealth countries, particularly Australia. He refused to attend the Commonwealth

Heads of Government Meeting (CHOGM) in Australia a few weeks after stepping into

office although the meeting presented a venue for Malaysia to raise her dissatisfaction

with UK’s policy toward Commonwealth students which led to the termination of

subsidised fees for 16,000 Malaysian students.40 Thus, Mahathir’s personal attitude

towards the British—whom he blamed for a lingering colonial mentality—was to be

characteristically manifested in the implementation of the NEP by the 1980s. The

process of economic de-colonialisation vis-a-vis the British was still an unfinished

business under Mahathir’s early premiership. As a passionate nationalist, he was impa-

tient at the outcome of the pace of the NEP and, hence, the 7 September 1981 Guthrie

‘dawn raid’ (see below in the ‘All Change’ section) must be seen in that light.41

By October of 1981, Mahathir had launched the ‘Buy British Last’ campaign to

encourage Malaysians to buy more local products. It became compulsory for all pro-

curement of British goods and services for use by the federal government to be

approved by the Prime Minister’s Department. The British government estimated

that contracts worth 40 million pounds sterling intended for British companies

were vetoed by Mahathir.42 Dunlop, for example, eventually decided in 1982 to sell

its subsidiary, Dunlop Malaysia Industries, to local interests after the Malaysian gov-

ernment contract to supply lorry tyres was awarded to its US competitor, Goodyear.

Table 1 Acreage: British and European Plantation Companies, c. 1981

British European

Guthrie Corporation Ltd 120,000 hectares United Plantations 13,000 hectaresHarrisons & Crosfield 85,000 hectares Socfin 28,000 hectaresSime Darby Bhd. 77,000 hectares Unilever (Pamol Plantations

Sdn Bhd)14,000 hectares

Sources: Yacob and White, ‘“Unfinished Business”’, 2; Davenport-Hines and Jones, British Business in Asia, 186.


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Concerned at the potential of missing out on future contracts worth 1.25 billion

pounds sterling in Malaysia’s rapidly developing economy, the Thatcher government

sent its foreign secretary, Lord Carrington, in February 1982 to initiate discussions

with Mahathir.43 Interestingly, Mahathir announced his Look East Policy to encourage

emulation of the Japanese and, to some extent at least, South Korean models of indus-

trialisation in Malaysia, which was officially launched on 8 February 1982, the same

day Lord Carrington was scheduled to meet Mahathir. This move further sidelined

British investment in the country.44 At the meeting, Mahathir told Lord Carrington

‘that much of the country’s economic problems today were a legacy of the British colo-

nial rule’. He said that if the British could not help solve Malaysia’s problems, the least

they could do was to ‘show understanding and sympathy for its efforts to build a

united nation through NEP’.45 Prior to Carrington’s visit, John Smith, the secretary

of state for trade during the Callaghan labour government, along with a select

group of British businessmen, had met with key Malaysian ministers, including

Prime Minister Hussein Onn, in 1979 to rebuild both political and economic ties

between the two countries.46

Britain took various steps to try to mend relations with Malaysia, including assisting

Malaysian students to study in Britain, approving more landing rights for Malaysian

Airlines and ensuring that Malaysian officials visiting Britain were accorded the

highest honour.47 In reality, the direct intervention of the Malaysian government in

the economy soon became less frequent with the fall of the world commodity prices

in the 1980s, but by that time many of the British firms were already under the

control of Malaysian public agencies.48

All Change: British Businesses React to the New Challenges

The Malaysian government, backed by policy legitimacy and institutional apparatus,

directly intervened to ensure compliance by the British companies with the Malaysia-

nisation process, which was considered a logical development of the de-colonisation

period. Subsequently, most of the British firms affected were bound to the same

outcome—short, middle or long term—namely, surrender of ultimate control. In

other words, that British ownership eventually departed from the Malaysian scene

was the common factor or norm.

However, there were differing or divergent responses by the British companies,

which were shaped and determined by the various measures undertaken by the Malay-

sian government to wrest control. Thus, how British ownership departed from Malay-

sia was determined by firm-specific influences such as ownership, size, growth and

diversification strategies, including state regulatory mechanisms. The Malaysian gov-

ernment used various mechanisms to intervene: first, by forming joint ventures or

partnerships, as seen in the formation of the Malaysian Mining Corporation Bhd

(MMC); second, through long and protracted negotiations, as in the case of Sime

Darby; third, by hostile takeovers such as the ‘dawn raid’ at the London Stock

Exchange in relation to Guthrie in September 1981; and, fourth, by a long-drawn-


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out and eventually voluntary divestment, as seen in the case of Harrisons & Crosfield

in 1989 (see Table 2 below).49

In the tin sector, Pernas, for example, used its subsidiary Pernas Securities Sdn Bhd

to form New Trade Winds for the purpose of taking over London Tin Corporation, a

large mining conglomerate. This takeover was arranged on the advice of the invest-

ment bank, N. M. Rothschild and Sons Ltd.50 After the takeover, New Trade Winds

changed its name to Malaysian Mining Corporation Bhd (MMC) and formed a

global alliance with Charter Consolidated Ltd, an Anglo-American group engaged

in funding mining investment and holding important mining interests in Malaysia

and South Africa.51 In 1981, PNB owned 71.35 per cent of MMC’s interests from

Trade Winds and, because PNB also owned 34.9 per cent of Malayan Tin Dredging,

it merged the two companies on 10 October 1981, subsequently owning 56.15 per

cent of MMC. This merger, in effect, made MMC the world’s largest mining

company, with a net annual contribution of 22 per cent of the Malaysian tin

output. Malaysia’s lion’s share of the world tin supply amounting to 40 per cent

aroused swirling allegations of a possible tin cartel in the making, dubbed as

‘TINPEC’. Fears were heightened when Maminco, a private marketing firm, was set

in 1981 to handle the distribution system directly, in effect skirting the London

Metals Exchange.52 In contrast to the British firm, London Tin Corporation, Pacific

Tin (formerly Yukon Gold Company), the sole US tin firm in Malaysia, cooperated

with the new government policies and formed a joint venture through the Selangor

State Economic Development Corporation (SEDC) with Kumpulan Perangsang Selan-

gor Berhad (KPS), a GLC owned by the state of Selangor. This led to the formation of

Perangsang Pasifik (Malaysia) Sdn Bhd, which had formerly been a fully owned sub-

sidiary of Pacific Tin in 1979—Timah Pasifik (Malaysia) Sdn Bhd.53

Following the successful acquisition of London Tin Corporation and the control

over the tin industry, plans were afoot on takeovers of large British plantations. The

first target was Sime Darby, a British plantations firm formed in 1910 by William Mid-

dleton Sime and Henry Darby.

The Pernas stake in Sime Darby propelled bumiputera equity share from 5.6 per cent

in 1975 to 19 per cent by 1977. Tan Siew Sin, a former minister of finance and son of

Tan Cheng Lock who was a close associate of the two founders of Sime Darby, was

appointed as the first Malaysian executive chairman.54 His appointment was largely

due to Tan Siew Sin’s family’s established interests in the British-Malaysian

company. At the same time, shareholders in Asia also appointed three new directors

to join the new board in an attempt to place Sime Darby under direct control of

Kuala Lumpur. The internal struggle in the appointment of a new board for Sime

Darby received wide coverage in foreign papers and magazines and was closely fol-

lowed by foreign investors in Malaysia.55 It was widely depicted as an attempt by

the Malaysian finance minister, Tengku Razaleigh, with the assistance of Rothschild’s

London merchant bank, to introduce ‘backdoor nationalization’ and supporting

Malay economic nationalism.56 It was, however, an isolated case and did not constitute

a change of policy by the Malaysian government towards foreign investment. Indeed,

Sime Darby must bear at least some of the blame for the internal board struggle due to


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Table 2 The New Economic Policy: Foreign Business Strategies and Outcomes

Foreign Firms Origins Year /Place established Strategies OutcomeYear

divested

RubberSime Darby British 1910 (Melaka); rubber Business as usual Acquisition (board struggle) 1976Guthrie British 1821 (Singapore); trading Adapt and accommodate: Guthrie

Ropel Bhd (incorporated 21 June1966)

Acquisition (dawn raid) 1981

Harrisons &Crosfield

British 1844 (Liverpool); 1907 (KualaLumpur office); rubber

Adapt and accommodate: HarrisonsMalaysian Plantations

Acquisition; divest; new sectors and indeveloped economies; 1998 namechanged to Elementis plc

1989

United StatesRubberCompany

American 1892 (Connecticut); 1920(Malaysian AmericanPlantation)

Uniroyal Plantations Malaysian Ltd(1968)

Divest; (plantations acquired by theGuthrie Group); focused onmanufacturing

1984

UnitedPlantations

Danish(familyfirm)

1906; Jenderata Rubber Company(Perak); 1966 UnitedPlantations Bhd.

Sold controlling interests to KumpulanFima in 1982; bought backcontrolling share in 1991

Still in operation

Socfin Belgian(familyfirm)

1880s; Socfin Plantations Sdn.Bhd.

Business as usual Divest; focus on plantations inIndonesia and Africa

2004

TinLondon Tin

CorporationLondon 1925 (London); formerly Anglo-

Oriental Mining CorporationBusiness as usual Acquired by New Tradewinds Sdn Bhd. 1981

Yukon GoldCompany

American(familyfirm)

1920; Pacific Tin ConsolidatedCorporation (1937)

Joint venture; with KumpulanPerangsang Selangor; PerangsangPasifik (Malaysia) Sdn Bhd

Divest; new sectors; 1985 known asZemex Corporation

1993

TradingBehn Meyer German

(familyfirm)

1840 (Singapore) Joint venture; Felda (FPM Sdn Bhd.) in1980

Still in operation

AutomobileFord Malaya American

(familyfirm)

1926 (Singapore); Ford MotorCompany of Malaysia (1972)

Joint venture; with Pernas Sime Darby1981; controlling interests in 2000.

Still in operation

Sources: Yacob, ‘Model of Welfare Capitalism?’; annual reports and bulletins of various companies.

468S.

Yacoban

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the less than perfect reputation and confrontational personality of the main players, as

well as the firm’s reluctance to fulfil the requirements of the NEP.57 In 1979, Pernas

gained control of the company and formed Sime Darby Bhd, moving the headquarters

from Britain to Malaysia. The following year the company was listed on the Kuala

Lumpur Stock Exchange.

The transparent taking over of Sime Darby by Pernas contrasted with the tactics

employed by PNB to take over Guthrie, one of the largest British plantations.58 This

British firm was only forced out in a ‘dawn raid’ whereby PNB made a surprise tactical

assault by way of acquiring additional shares without the prior knowledge of the con-

trolling shareholders in the UK. On 7 September 1981, PNB succeeded in buying up 8

million shares, or 50.41 per cent of the total, in less than four hours on the London

bourse without the prior knowledge or consent of the Guthrie management.59

Hence, this action was an indirect intervention by the Malaysian government

through a parastatal company.

PNB’s success in ‘bringing back’ Guthrie was linked to the role played by its chair-

man and ex-governor of Bank Negara, Ismail Ali (Mahathir’s brother in-law), who had

also actually been considered as the prime mover behind Sime Darby’s acquisition

rather than Tengku Razaleigh.60 The event came after protracted negotiations and

the failure of Guthrie Ropel Sdn Bhd which was set up as a subsidiary by Guthrie Cor-

poration Ltd ( a merger of Guthrie Estates Agency Ltd group of plantation firms in

1965) to conform to the Malaysianisation requirements. In 1984, the Guthrie

Group went on to gain ownership of the entire assets of Uniroyal Malaysian Planta-

tions (formerly United States Rubber Company), signalling the end of American

rubber interests in Malaysia.61 The United States Rubber Company (USRC), a

rubber producer in the US which invested in rubber plantations, faced similar chal-

lenges from the policies of the post-independent government in Malaysia. However,

although policies such as the requirement for localisation had seemed insurmountable

for many British concerns, USRC was not unduly affected since its involvement in the

plantations was not as extensive as, for example, that of many British firms. Since the

1920s, the core focus of USRC was actually in manufacturing activities rather than

plantations or rubber production.

Following the surprise takeover of Guthrie, other British firms bowed to the

pressure of Malaysianisation and entered into negotiations. Highlands & Lowlands,

Barlows and Harrisons & Crosfield sold their respective controlling stakes and even-

tually divested their Malaysian operations by 1976, 1983 and 1990 respectively.

Perhaps they had seen the writing on the wall and knew it was only a matter time

until inevitably the remaining British interests in the commodities sector, which

had so well provided for colonial Britain with natural resources, would be taken

under full control of the former colony. The two patriarchs of Barlows, John and

Thomas, were already in their twilight years and this may have influenced their

decision, but, after clinging on as minority shareholders unable any longer to influence

the company’s decisions, they finally succumbed completely to Malaysianisation and

sold their remaining stake in 1983.62


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The last British company to become Malaysianised, ‘the biggest fish of all’, was

Harrisons Malaysian Plantations Bhd (HMPB).63 The latter was formerly known as

Harrisons Malaysian Estates Plc (HME) and comprised three rubber plantations

dubbed the three sisters: Golden Hope, Petaling and London Asiatic.64 Harrisons &

Crosfield (H&C) were first movers in the investment for rubber estates in Malaya

(1903), and by 1914 had come to acquire the largest rubber plantations in aggregate

or total, including in the Dutch East Indies.65 In a strategic move to cushion the

impact of unstable world rubber prices and reduce the risk of over-reliance on a

single commodity, H&C diversified into palm oil and consequently contributed to

the introduction of the industry to Malaysia.

The localisation effort of the third largest plantation company in Malaysia was a

drawn-out process, however. There were ongoing negotiations with Malaysia’s

Foreign Investment Committee (FIC), Prime Minister’s Department, Ministry of

Finance, Bank Negara and the Ministry of Trade and Industry for six years from

1976 but these failed to reach a resolution.66 Harrisons & Crosfield had voluntarily

devised two schemes to allow for 10 per cent bumiputera participation to ‘show

their commitment to the spirit of NEP’ and ‘responsibilities to their shareholders’.

The first scheme was however defeated in the face of a takeover bid for Golden

Hope by Genting Highlands and associates (a minority shareholder) in February

1977. The company’s fear of this bid was revealed in a poem on Golden Hope.

Amidst the Genting Highlands

Small men with eyes that slope

Conceived a stealthy war-plan

To snare our Golden Hope

With ringgits from casinos

And dollar premium

The stolid British planter

They schemed to overcome.67

This led H&C to form HME and eventually HMPB; the second scheme which even-

tually failed due to the fallout between the FIC and HME. The FIC insisted that

majority of the directors of HPB should be non-executive while H&C asserted that

the composition of the board ‘must be a matter for the company’, although HME

had earlier agreed that the board of HPB should have a ‘Malaysian flavour’, and the

appointment of a Malaysian chairman. In addition, the FIC insisted that the ‘inert

shareholders’ (mainly in the UK) be issued with HPB shares. H&C, on the other

hand, maintained that ‘they should continue to hold shares in a UK company and

thus be given shares in HME’. Last but not least the two parties could not agree on

the price of the new issue of shares in HPB.68

Finally, the company ‘capitulated’ to Malaysianisation pressures and approached

PNB in early 1982 to discuss the possibility of a takeover of majority stake.69 H&C,

which previously had owned 80 per cent of the company’s equity, retained only 30.3


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per cent in the new company and by 1990 had released all interests to PNB (see Table

2).70 The company then became known as Golden Hope Plantations Bhd. Sub-

sequently, PNB became the largest plantations owner in the world with 200,000 hec-

tares both in Malaysia and in other countries.71 Following its strategies of

diversification into new sectors, H&C proceeded to sell its stake in the Malayalam

Plantations (India) and disposed its trading businesses in Malaysia, Singapore,

Hong Kong, Taiwan, New Zealand and the USA.72

Thus, it is important to note that both Guthrie and Harrisons & Crosfield took

steps to adapt to the NEP requirements. As mentioned earlier, in view of the dom-

estic rivalry from Chinese businesses and the lack of clarity and assurance from the

government over the NEP, British firms set up holding companies to safeguard their

interests. However, subsidiaries were set up to meet the NEP objectives, as seen in

the case of Guthrie and Harrisons & Crosfield. The latter set up Guthrie Ropel Sdn.

Bhd., while the former established Harrisons Malaysian Estates (see Table 2). While

the British firms viewed these subsidiaries as ‘small’ steps taken to accommodate

the NEP, the Malaysian government perceived these actions as ‘half-hearted’

attempts at ‘Malaysianisation’ and perhaps as a type of delaying tactic. On the

other hand, it could be contended that the British firms had no intention of per-

manently obstructing the implementation of the NEP. Rather it was this paternalis-

tic attitude or strong sense of colonial mission that sought to cushion or mitigate

the ‘Malaysianisation’ impact of the NEP on the ground or assumption that Malay-

sia still needed dominant British participation in the economy. Indeed, the HC

chairman, T. J. Prentice, ‘frankly confesses that the group may have been too intro-

vert in its attitude toward outsiders’.73 And thus the strategic direction of the newly

restructured firms remained in the hands of the British and not the Malaysian

parastatals.

In addition, the failure by British firms to re-invest their profits in Malaysia in

favour of investment in overseas ventures, and refusal to embrace the NEP, caused

grave concern in the Malaysian government. H&C, for example, diversified into

food production and industrial chemicals in Europe (including Britain), Australia

and the US.74 Similarly, Sime Darby decided to invest further overseas in 1974, acquir-

ing a lift-manufacturing company in Britain and securing an interest in the manufac-

turing of garbage collection trucks in Belgium on the basis that it needed to forge a

foundation in western technology.75

It was certainly a factor in the motivation for the takeover of British firms by the

public agencies.76 Somewhat paradoxically, those British firms that chose to divest

from Malaysia in preference for investment in other overseas ventures, often found

it impossible to vie for a viable market share in what were highly competitive environ-

ments. Hence, unable to fulfil the demands of shareholders for quick returns or adapt

to the challenges in new fields of investment, by the 1990s many of these firms had not

experienced the success they had hoped for.77

British firms which refused to participate in the post-colonial economic develop-

ment of the country exposed a weakness in their management. It is without question

that there existed a kind of colonial cultural hangover which led individuals in these


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firms to refuse to contemplate partnerships with the Malaysian government agencies.78

One of the earliest British trading firms to let go of their stake as a result of their refusal

to share ownership with local companies was Boustead Ltd when they released all their

holdings in 1976 to an Asian bank. Other company directors of British concerns

refused to relinquish control, but rather attempted to slow down the process of

selling the shares, until finally being forced to participate by the late 1970s. Required

as a pre-condition of ‘Malaysianisation’ to appoint Malaysian directors to their com-

panies, some British concerns attempted to appoint high-ranking government officials

whom they regarded as being pro-British and therefore sympathetic to their cause.79

Still, it should be noted that a number of British companies did attempt to embrace

‘Malay(a)sianisation’ by appointing Malays at the managerial level,80 although for

many these attempts were half-hearted and slow, and eventually led to the decision

to divest from Malaysia.81

However, some large British multinationals, such as Levers, Malaysian Tobacco and the

Anglo-Dutch firms, Shell82 and Unilever, generally supported the NEP agenda and criti-

cised the obstinacy of the ‘old’ British firms.83 Like this new British FDI, a number of firms

from Japan, Singapore, Hong Kong, Taiwan and the US came to invest in Malaysia in the

1970s and 1980s. They were attracted to various tax exemptions, privileges and even some

generous packages in terms of equity offered by the Malaysian government as part of

wide-ranging incentives to attract foreign direct investment (FDI) to Malaysia.

Choosing to Stay: Foreign Businesses Adapt

A number of foreign firms continued to maintain their presence in Malaysia with

business links based on trust, friendship and common interests. These firms contrib-

uted to the economic development of the country, both in the pre- and post-colonial

period in terms of capital formation, technology transfer, managerial capacity, welfare

of workers, marketing strategies and research and development (R&D). The pressure

to comply with the process of localisation did not necessarily mean the inevitable

migration of foreign investment. Among the foreign firms that were capable of build-

ing up a strong alliance were Unilever (Anglo-Dutch), Behn-Meyer (German), United

Plantations (Scandinavian) and Ford (American).

In the early 1970s, Unilever looked upon Malaysia as an attractive FDI destination

compared to most other countries in Asia, as well as other developing economies in

Africa and Latin America. Malaysia was ranked highly due to zero government inter-

vention in the form of price control, import control, production control, dividend

limitation, borrowing limitation, easy transferability (remittances) and salary

control (except only for expatriate employment).84 Unilever was quick to understand

the business-state dynamics in Malaysia. By setting up a joint venture between its

subsidiary Pamol Plantations Sdn. Bhd. and Sabah Land Development Authority,

Unilever managed to expand its estate holdings to 14,000 hectares in Sabah. In

addition, Unilever investments in ice-cream factories and product innovation such

as non-refrigerated margarine successfully captured the attention of Malaysian consu-

mers in the 1980s.85


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Cooperation between United Plantations (UP) and Food Industries of Malaysia Bhd

(FIMA) was the focus of Susan Martin’s study, The UP Saga. The taking over of UP by

the FIMA Group in 1982 through cordial negotiations, despite their being ongoing for

nine months, was in stark contrast to the previous hostile takeovers of British firms.86

After the takeover the subsequent joint venture between UP and the FIMA Group was

extremely successful in the field of plantations and production of palm oil. This could

be attributed in large measure to the stature of FIMA chairman, the late Tan Sri Haji

Basir bin Ismail,87 and Borge Bek-Nielsen who had served with the company for 32

years.88 It was a smart move by Basir Ismail to retain Bek-Nielsen as the senior execu-

tive director of the company and crucial to the continuing success of the company,

including being able to obtain 30,000 acres of additional land bank for plantation.

The two pivotal figures maintained a close relationship and boosted the company’s

performance. In 1990, FIMA was privatised and in 1991 the Malaysian government

allowed the original shareholders together with their new business associates,

Aarhus Oliefabrik, to buy back their majority stake in UP.89 It is clearly exemplified

in the case of UP that the need for partnership and common consent in a developing

country, such as Malaysia, is vital for the continuing growth of a foreign company.

According to Bek-Nielsen, ‘No other nation has treated foreign interests better.’ He

stressed, ‘The Malaysians have paid well and given fair treatment.’ 90

Behn Meyer was established in Singapore in 1840, and opened a branch in Penang in

1891.91 The German parent company, Arnold Otto Meyer, was established only in

1857. With the adoption of the Alien Enemies Act 1914 by the British colonial govern-

ment in Malaya during the First World War, Behn Meyer had all its properties, includ-

ing plantations and valuable real estate, confiscated and lost its strong position in the

shipping business. The company’s many properties were again confiscated during the

Second World War and these property losses were considered the ‘biggest hurt’ to the

company.92 The British government blocked German FDI into Malaya for ten years

post Second World War (1945–55). Thus, Behn-Meyer & Co (M) Sdn Bhd was estab-

lished in December 1959. In line with the Malaysian government requirements, in par-

ticular the NEP, Behn Meyer, though this was ‘not voluntary’, accommodated the NEP

targets.93 In 1972, a joint venture, BM Engineering Sdn Berhad, was formed between

Arnold Otto Meyer in Hamburg, Pernas Engineering and Munck of Norway.94 In the

next four years, the Behn Meyer Group ventured into agricultural sector and formed

Pertanian Meyer Majubumi Sdn Bhd. A joint venture was also forged between Behn

Meyer Group and KPM Niaga, a trading subsidiary of Bank Pertanian. In 1980,

Behn Meyer formed a joint venture with the Federal Land Development Authority

of Malaysia (FELDA) to form FPM Sdn Bhd with a factory based in Pasir Gudang

to produce fertiliser. 95

This was rather different from the monopolistic approach undertaken by the British

chemical giant, ICI, which formed a fertiliser plant and became a pioneer in the indus-

try in the early 1960s.96 By 1993, Behn-Meyer had restructured its business to diversify

into a myriad of manufacturing activities such as dyestuffs, chemicals, fertilisers,

photographic and office equipment. Unlike some British firms which did not leverage

on their first-mover advantage in Malaya, Behn Meyer had succeeded in building up a


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strong network of businesses in the region based on the commercial platform carefully

forged and fostered in Singapore since 1840.97 In June 2000, a change of corporate

name from Arnold Otto Meyer to Behn Meyer Holding Ag & Co. KG. took place to

ensure that the company was known by a uniform name worldwide.98

In the automotive sector, Ford Malaysia (originally Ford Malaya when it first started

out in Singapore in 1926) also continued to operate its assembly lines in Malaysia and

the region. Until 1965, the Ford factory in Singapore supplied cars to Malaysia. Two

years after the separation of Singapore in 1965, Ford, Chrysler and British Leyland

entered the automotive market in Malaysia through a partnership with the Singa-

pore-registered Wearne Brothers, an Australian trading firm which had long been

involved in the assembling of cars in Malaysia through its subsidiary, Associated

Motor Industries of Malaysia (AMIM). The British Motor Corporation had since

1959 (prior to its merger with British Leyland in 1968) expressed its lack of interest

in setting up a local assembly in Malaysia.99

In 1972, Ford Motor Company Sdn Bhd (Ford Malaysia), a subsidiary of Ford US, was

established with a paid-up capital of RM23 million. In 1981, consistent with the demands

for localisation, a joint venture between Ford US and Pernas Sime Darby was forged.

Pernas Sime Darby (PSD) Holdings succeeded in buying the Wearne Brothers Group

in 1981.100 The acquisition of Wearne Brothers and its assembly plant, AMIM, was also

a source for national pride. Pernas Sime Darby owned 49 per cent of the equity in Ford

Malaysia. In 1984, once again in line with the objectives of the NEP, Ford reduced its

share to 30 per cent and the following year, a new name, AMIM Holdings Sdn (Pte)

Bhd (Ltd), was used. By 2000, Ford US came in to rescue AMIM Holdings from the

impact of the Asian financial crisis in 1997. With this, the share of Ford US rose to 49

per cent and AMIM became known as Ford Malaysia Sdn (Pte) Bhd (Ltd).

These case studies clearly demonstrate the different strategies adopted by other foreign

firms in response to the NEP. These companies took on a new strategic role as ‘synergists’

or business partners. They were able, as Martin notes, ‘to negotiate agreements for shared

Asian-European ownership and control’ in contrast to the ‘typical agency-house strategy

of reluctant compliance with nationalist regulations’.101 As such, this type of company

was able to survive the challenges of the two world wars, the Emergency, the ‘throes’

of de-colonialisation and post-Independence administrative and policy changes.

Conclusion

The response of foreign businesses to the NEP varied, not only from one firm to another

(including structure and size), but also in the context of the industry they were involved

in. Government policies may either stifle or promote foreign businesses. This study,

however, demonstrates that there were no consistent or uniform responses by these

business concerns when faced with new challenges during the period of state-led growth.

The divestment and departure of targeted British firms that eventually ‘succumbed to

the pressures’ of the NEP were complex and not due to any singular cause. The NEP was

one of the myriad of factors rather than the ultimate root explanation of why the British

firms concerned left Malaysia. In addition to the NEP, there were external determinants


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that prompted and encouraged British firms to reconsider their established position in

the country. The diversification of portfolios has been deemed necessary by the firms to

hedge against growing political risks in the region and slump in commodity prices made

all the more precarious and volatile by a spike in global oil prices (which impacted on the

supply chain). It is precisely due to this adverse external environment, combined with

the NEP considered as representing the internal environment, that the British firms

were, intriguingly, caught between ‘a rock and a hard place’—a dilemma that finally

‘broke the camel’s back’ for many (though not all) of the targeted firms.

These British firms were under more pressure to ‘Malaysianise’ than their other

European or American counterparts. This is not surprising given that the ‘Big

Three’ (Sime Darby, Guthrie and H&C), for example, comprised the majority of plan-

tation firms. These large-scale firms dominated and in effect controlled the commod-

ities industry which was the mainstay of the Malaysian economy then.

Some of these firms, however, did not immediately withdraw in response to the pro-

mulgation of the NEP, but considered bargaining with the Malaysian government to

mitigate rigid terms and conditions. Nonetheless, the negotiations were protracted

and any compromise was deemed implausible (by both parties). Thus, the next step

was for the firms such as H&C to divest and leave the country. Guthrie was subjected

to a ‘dawn raid’ that finally displaced a majority equity from the British and simul-

taneously effecting a reversal of ownership to Malaysian control.

These ‘old’ British firms with large institutional UK shareholdings had an obligation

to their shareholders. Thus their situation was quite different from that of family-

owned or single ownership businesses, as seen in the case of the Danish United Planta-

tions, German firm Behn Meyer or even the American Ford. These firms maintained

their presence and chose to operate within the new restrictions rather than obstruct

the Malaysianisation agenda.

Furthermore, the British firms were inevitably associated with British colonialism—

the stark reminder, emotional or visceral, could hardly be ignored or overlooked.

Indeed, the colonial mentality persisted post-Merdeka (the period in the aftermath

of independence in 1957)—thus influencing the decision to eventually adopt a ‘stra-

tegic withdrawal’. This is unlike the newer British firms which have a different outlook

and are unencumbered by colonial baggage. These firms such as Unilever could well be

categorised as ‘economic cosmopolitans’ where the lines between national affiliation

and investment were distinct rather than blurred. They are not nostalgic about the

colonial past. There were other long-established European and American firms

which continued to operate in Malaysia. This implied that the terms and conditions

of the NEP allowed for existing foreign firms to expand their businesses, including

establishing joint ventures with local partners. Such ‘space’ is due largely to the

NEP’s goal of gaining ownership of the economic resources.

Acknowledgements

The authors wish to acknowledge the generous funding received from the University of

Malaya and the hospitality provided by the Louisiana State University where earlier


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drafts of the paper were written. Many thanks go to John V. Lombardi, Geoffrey Jones,

Nick White, Greg Sibley, Jason Loh Seong Wei and the anonymous reviewers for their

valuable suggestions and comments.

Notes

[1] Gomez, Chinese Business; Gomez and Jomo, Malaysia’s Political Economy.[2] Low Kam Yoke in her thesis differentiated between the two stages of acquisitions: the

Malaysianisation stage involving the transfer of control and the relocation of headquartersfrom London to Kuala Lumpur of target companies and the bumitisation stage which necessi-tated conforming to the requirement of equity ownership and corporate control as outlinedby the NEP. Low Kam Yoke, ‘Political Economy’, 94–95. ‘Bumitisation’ refers to the processwhereby bumiputeras (sons of the soil) are given preference in the control and participationof the Malaysian economy. This may take the form of equity ownership or employmentopportunities at the managerial level.

[3] Malaysianisation involved and entailed two vital aspects: first, the accumulation of capital onbehalf of bumiputeras; second, the appointment of bumiputeras at the decision-making andmanagerial levels.

[4] Jones, Merchants to Multinationals; Jones and Wale, ‘Diversification Strategies’; Jesudason,Ethnicity and the Economy; Lim Mah Hui, Ownership and Control; White, Business, Govern-ment and ‘Gentlemanly Capitalism and Empire’; Martin, UP Saga; Davenport- Hines andJones, eds, British Business in Asia.

[5] Yacob, ‘The New Economic Policy; see also the epilogue in Yacob, The United States and theMalaysian Economy.

[6] Dunning and Lundan, ‘Institutions and the OLI Paradigm’; Jones, Multinationals and GlobalCapitalism; Dunning, ‘The New Geography’; Stopford and Turner, Britain and theMultinationals.

[7] The ‘old’ firms refer to foreign businesses which had been established in the Malay Peninsula(many of them headquartered in Singapore) since the nineteenth century.

[8] This study has benefited from various business articles published in the now defunct FarEastern Economic Review (hereafter FEER), The Financial Times, The Straits Times, TheNew Straits Times and The Wall Street Journal.

[9] The series of articles by Japanese scholars in The Developing Economies, for example, focuseson the historical background, objectives and policy issues, and a number of case studies ofBritish businesses. Horii, ‘Disintegration of the Colonial Economic Legacies’, 281–313; seealso Chan, The New Economic Policy.

[10] The Malaysian government began to shift public accounts into local banks in the 1960s whenpreviously it had been the monopoly of British banks. In addition, from 1965 foreign bankswere restricted from setting up further branches in Malaysia. Jones, British MultinationalBanking, 294–95. Another work on the banking sector in Malay(a)sia that goes beyond thecolonial period but focuses mainly on the Hong Kong and Shanghai Banking Corporationis King, ed., Eastern Banking. See in particular, Chee Peng Lim et al., ‘History and Develop-ment’. These works, in need of updating, do not provide a detailed study on the Malaysianbanking sector and touch only very briefly on the competition between domestic andforeign banks and challenges faced by British banks in Malaysia, but nonetheless couldprovide the basis for further discussion and evaluation of the impact on NEP in the Malaysianbanking sector.

[11] British economic decline in the 1970s and 1980s was well noted. See Porter, CompetitiveAdvantage, 482–507.

[12] Perry, Myanmar (Burma), 25, 79.


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[13] The current publication on decolonisation in Indonesia is Lindblad, Bridges to New Business,which contains extensive analysis of Indonesia’s economic metamorphosis up to the height ofits indigenisation programme.

[14] Hart, ‘The New Economic Policy and Redistribution’, 47.[15] The convening of the First and subsequently Second Bumiputera Economic Congress, in 1965

and 1968 respectively, enabled the nationalists to draw upon and demonstrate politicalsupport from the Malay business community itself for urgent government action. Many ofthe policies of the NEP, a pivotal epoch in Malaysian economic history and marking adrastic shift in direction towards state-sponsored capitalism, were actually inspired by andderived from the proposals and resolutions of the Bumiputera Economic Congresses. Bahar-uddin, From British to Bumiputera Rule, 190.

[16] See Puthucheary, Ownership and Control; Drabble, An Economic History of Malaysia.[17] Jomo, A Question of Class and Growth and Structural Change; Lim Mah Hui, Ownership and

Control; Hua Wu Yin, ‘Class and Communalism in Malaysia’.[18] White, British Business, Chapter 2.[19] White, ‘Beginnings of Crony Capitalism’, 409; British Business, 65.[20] Yacob and White, ‘“Unfinished Business”’, 919–60; Gomez, Chinese Business, 157–59.[21] In fact, after the Second World War, UMNO grassroots members had voiced their concerns

about the influx of Chinese capital amounting to USD50 million from mainland China tothe Malay Peninsula, which gave a comparative edge to local Chinese businesses to enhancetheir economic dominance. ‘Submission by Abdul Majid Haji Mohamed in O/C EconomicAffairs, Penang UMNO to Tuan Haji Abdul Wahab, Dato Panglima Bukit Gantang, Ipoh,19 September 1946’. UMNO Papers, UMNO/SG, 82/1946, Arkib Negara Malaysia (hereafterANM).

[22] White, introductory chapter in British Business.[23] Abdul Razak became Malaysia’s second prime minister after parliamentary democracy was

restored to the country in 1970. From 1969 to 1970, due to the 13 May communal clashesin Kuala Lumpur, Malaysia came under a state of ‘Emergency’ under Razak in his capacityas the chairman of the National Operations Council (NOC)—the de facto government ofthe day. Reid, ‘Kuala Lumpur Riots’, 258–78.

[24] The National Archives, London (hereafter TNA) DO 189/588, File No. AED 110/30/1,Malayanisation (including employment of expatriates in business), 1964–66.

[25] Ibid.[26] London Metropolitan Archives [hereafter LMA], CLC/B/112/MS37394/003, Address deliv-

ered to the Malaysia and Singapore Commercial Association by Tan Sri Sir Claude Fenner,RGA representative in Kuala Lumpur, London, 2 June 1977.

[27] LMA, CLC/B/112/MS37394/003, papers collected in 1989 by Guy Nickalls for GreatEnterprise: A History of Harrisons and Crosfield Ltd, including some original documents,c. 1948–80, copies of press cuttings and notes from company employees.

[28] TNA, FCO 15/2075, note prepared by Henry Barlow and given to Mr Squire in a meeting on 2June 1975.

[29] Pernas was formed in 1969 through the Companies Act (1965), with a paid-up capitalamounting to RM11.25 million, comprising the contribution of the Ministry of Finance(MoF), Bank Negara Malaysia and Bank Bumiputera Malaysia Berhad (BBMB). See, USNational Archives & Records Administration (hereafter NARA), American Embassy, KualaLumpur to Secretary of State, Washington DC, ‘GOM unveils plans to buy control ofLondon Tin’, April 1976 in electronic telegrams, 1 Jan.1976–31 Dec. 1976, RG 39, CentralForeign Policy Files, State Department Cables.

[30] The objectives of Pernas were to invest in sectors which were capable of generating lucrativereturns, to participate in joint collaboration or joint ventures in which it is the main


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shareholder, to control operations and to ensure that bumiputeras are appointed in all levels ofmanagerial positions.

[31] Khadijah Md. Khalid, ‘Malaysia-Japan Relations’, 131, fn. 156.[32] Ibid., 130.[33] Heng Pek Koon, ‘The New Economic Policy’, 275; Crouch, Government and Society, 209; Gill,

Razaleigh, 60.[34] Hugh Peyman, ‘A Dividend for the People’, FEER, 23 Jan. 1981, 52.[35] TNA, FCO 15/2506, ‘Malaysia’s NEP’, report by the Sir Donald Hawley, the British High

Commissioner at Kuala Lumpur, 3 Aug. 1979.[36] Martin, ‘Globalization’.[37] ‘Malaysia’s Mahathir: The Man and His New Election Mandate’, 4 Jan. 1982, iv. CIA,

Washington, DC; Wain, Malaysian Maverick.[38] Alain Cass, ‘Britain Tries to Clear the Air: Carrington in Malaysia’, Financial Times, 8 Feb.

1982, 15.[39] ‘The British came back but not as the Malays had cast them. They came back not as protectors

of the Malaysia they used to be, but showed instead every intention to wrest everything awayfrom the Malays.’ Mohamad, The Malay Dilemma, 30.

[40] ‘Malaysia’s Mahathir’,, 4 Jan. 1982, 5–6. CIA, Washington, DC.[41] For an impact of the raid on the Indian plantation worker, see Sivachandralingam Sundara

Raja, ‘The London Dawn Raid’, 74–93.[42] Cass, ‘Britain Tries to Clear the Air’, Financial Times, 8 Feb. 1982, 15..[43] For a detailed explanation of the issues involved in the tense relations between Malaysia and

Britain, see Yacob and White, ‘“Unfinished Business”’, 17–22.[44] Kershaw, ‘Anglo-Malaysian Relations’, 640–41; Chew Huat Hock, ‘Changing Direction’, 351–

53; Khoo Boo Teik, Paradoxes of Mahathirism, 54–57.[45] New Straits Times, 9 Feb. 1982.[46] TNA, FCO 15/2497, ‘Visit to Malaysia by the Secretary of State for Trade (John Smith MP)’,

6–7 Jan. 1979,[47] Cass, ‘UK Seeks to Improve Malaysian Relations’, Financial Times, 20 Jan. 1983, 3.[48] Chin, ‘The State of the “State”’, 1044.[49] Esman, ‘Ethnic Politics’, 404.[50] This company was then appointed to be adviser to PNB and became involved in the takeover

offer to British companies by public agencies.[51] Gale, Politics and Public Enterprises, 116–26; Saruwatari, ‘Malaysia’s Localization Policy’, 377.[52] ‘Malaysia Tilting at Foreign Economic Interests’, 3 Jan. 1982, 6. CIA, Washington, DC.[53] The company, newly named Zemex in 1985, relinquished all its interests in Malaysia in 1993.

Pacific Tin Annual Report 1976–93.[54] White, ‘Beginnings of Crony Capitalism’, 389–417.[55] For a detailed view on the Sime Darby board struggle, see Drabble and Drake, ‘British Agency

Houses’, 324–45.[56] ‘Battle for Sime Darby’, FEER, 3 December 1976, p. 38. The US viewed the Sime-Pernas

struggle as a battle between plantation interests and ‘old’ British firms and the Malaysian gov-ernment which did not involve other sectors and as such had no impact on future foreigninvestments in Malaysia. NARA, American Embassy, Kuala Lumpur to Secretary of State,Washington DC, ‘Battle for Sime Darby’, Nov. 1976 in electronic telegrams, 1 Jan. 1976–31Dec. 1976, RG 39, Central Foreign Policy Files, State Department Cables.

[57] This was the view of the American Ambassador in Kuala Lumpur pertaining to US invest-ments in Malaysia. NARA, American Embassy, Kuala Lumpur to Secretary of State, Washing-ton DC, ‘Fight between GOM and Sime Darby’, Dec. 1976 in electronic telegrams, 1 Jan.1976–31, Dec. 1976, RG 39, Central Foreign Policy Files, State Department Cables.


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[58] Yacob and White, ‘“Unfinished Business”’, 2; see also Davenport Hines and Jones, BritishBusiness in Asia, 186; James Bartholomew, ‘A New Chapter for Sime’, FEER, 19 Dec. 1980, 61.

[59] ‘Malaysian State Firm Buys Control of Guthrie Corp’, The Wall Street Journal, 8 Sept. 1981.[60] Mahathir also mentioned that Ismail Ali was the main player in securing the takeover of

Guthrie. Interview with Mahathir, 27 July 2007. See also Yacob and White, ‘“UnfinishedBusiness”’.

[61] The major asset of Uniroyal (Kumpulan Jerai) comprised five rubber estates owned since the1920s. For the history of company investments in the Southeast Asian region, includingMalaysia, see Yacob, ‘Model of Welfare Capitalism?’.

[62] Hugh Peyman, ‘Who Buys Barlow and Why?’, FEER, 20 Jan. 1981, 60–62.[63] ‘Guthrie only the First in Sime’s New Shopping List’, The Straits Times, 11 Jan. 1974, 17.[64] Ray Maughan, ‘End of an Era in Malaysia: Harrisons & Crosfield Loses “Jewel in its Crown”’,

Financial Times, 3 June 1982.[65] This firm then invested in the logging or timber sector and, in 1920, a joint venture was

formed with the British North Borneo Company in Sabah. This firm was also one of theBritish companies to be involved in manufacturing related to rubber investment in the pro-duction of latex. Subsequently, Linatex, the latex product, was introduced by the firm. SeeJones and Wale, ‘Merchants as Business Groups’, 375.

[66] ‘Estate Sectors Makes News with Mergers’, New Straits Times, 31 Dec. 1982.[67] LMA, CLC/B/112/MS37394/003.[68] Ibid.[69] Jeffrey Segal, ‘Sunset on British Estates’, FEER, 11 June 1982, 120–22.[70] Rogayah Haji Mat Zin, ‘Malaysians Reverse Investments’, 491–92.[71] Jeffrey Segal, ‘Home to Hard Times’, FEER, 1 Oct. 1982, 92–33.[72] Jones and Wale, ‘Diversification Strategies’, 96–97.[73] Gerald Colverd, ‘Harrisons’ “Easy Compass”’, Investor’s Review, 12–25 May 1978, 10.[74] Anthony Rowley, ‘Malaysian Government Buys into Plantation Group: Cheap at the Price’,

FEER, 16 March 1989; Segal, ‘Sunset on British Estates’, FEER, 11 June 1982, 121.[75] ‘Malaysia: Socking it to Swine Bobby’, The Times, 24 Jan. 1974.[76] Chew Huat Hock, ‘Changing Directions’, 352.[77] Jesudason, Ethnicity and the Economy, Chapter 4; Jones, Merchants to Multinationals, 346–47.[78] White, British Business, 215–16.[79] Kershaw, ‘Anglo-Malaysian Relations’, 636; Drabble and Drake, ‘The British Agency Houses’,

324; Junid, British Industrial Investment, 134–45.[80] Tunku Aziz was among the first Malays to be appointed as trainee executive with Guthrie.

Tunku Aziz, of the Kedah royalty, was considered as ‘one of them’ and always received thebest of treatment from Guthrie’s management. Due to his upper-class upbringing and hisBritish education as well as his acceptance of British culture, he was looked upon as somewhatof an Anglophile. Interview with Tunku Abdul Aziz Ibrahim, 16 Aug. 2008.

[81] White, British Business, 16–18, 216–17.[82] Shell demonstrated remarkable flexibility in their strategic directions when faced with ultra-

nationalistic policies in the Middle East and the Venezuelan oil sector. See, Sluyterman,Keeping Competitive in Turbulent Markets.

[83] TNA, DO 189/588, File No. AED 110/30/1, Malaysia: employment of expatriates in business(1964–1966).

[84] Jones, Renewing Unilever, 155.[85] Ibid., 167–69.[86] Wong Sulong, ‘Companies and Markets: International Companies and Finance—United

Plantations Lays a Path’, Financial Times, 13 May 1982, 26.[87] The late Basir Ismail also held the posts of chairman of Petronas, National Padi and Rice Auth-

ority, London Rubber Growers Association, Malaysian Rubber Growers Association,


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Association of Banks in Malaysia and the University Malaya Council and so on. Obituary:‘Basir Dies of Heart Attack at 79’, The Star, 20 Jan. 2007.

[88] Chris Sherwell, ‘United Plantations—Anatomy of a Painless Political Takeover’, FinancialTimes, 14 Nov. 1983.

[89] Martin, ‘European Plantation Firms’.[90] Sherwell, ‘United Plantations’, Financial Times, 14 Nov. 1983.[91] For a comprehensive reading of the formation and development of this company, see the two

volumes by Helfferich, Behn, Meyer & Co., Founded in Singapore. To follow the developmentsof the German firm in Penang, see, Nasution, More than Merchants.

[92] Interview with Juergen Friele, former executive director (1984–89) and consultant (1989 to1997) for Behn Meyer, 16 Aug. 2010.

[93] Ibid.[94] ‘String of Success, Now Another “First”‘, The Straits Times, 7 Sept. 1972, 18.[95] Behn Meyer Memorandum, 1976; Behn Meyer Group in Singapore & Malaysia since 1840,

Company Brochure, 1995.[96] The support of the Tunku for the multinationals indirectly led to the downfall of the minister

for agriculture and cooperatives, Abdul Aziz Ishak, who wanted small cooperatives to managethe urea fertiliser project. Had this project been given the approval of the Cabinet and finan-cially backed by the government, it would have been inimical to the interests of ICI. See White,British Business, Chapter 2.

[97] To learn more about the strategies of this German family firm in Malaysia, see, Yacob, ‘Trans-Generational Renewal’.

[98] Behn Meyer Holding AG Company Announcement, Hamburg, June 2000. Courtesy ofJuergen Friele.

[99] White, British Business, 176–77.[100] For the history of Wearne Brothers, see Fyfe, Wheels in Malaya; for the cooperation between

Wearne and Ford Malaya, see Yacob, ‘Keeping the Wheels Moving’.[101] Martin, ‘Globalization and the End of Empire’.

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The Dawn Raid

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