1. INTRODUCTION

Manufacturing sector in Malaysia began to grow rapidly since the early 1980s when the country witnessed the transition from an agricultural economy to one based on industry. In addition, Malaysia began to implement a strategy to diversify its economy with the goal of becoming the country focused on economic activities with higher added value, and also reduce excessive focus on commodity upstream, namely tin and rubber. From that Malaysian government launch industrial policy in 1980s there are National Industrial Policy and Industrial Master Plan and has achieved remarkable growth. This major shift happen when the country realize that they needs to reduce dependence on imports, and the need to create technology-based sectors to ensure the success of the national economy. Today, the manufacturing industry is the fastest growing industry and become one of the country’s economic development factors.

In the past, economic development in Malaysia is moving up from light industries to more capital and knowledge-intensive industries. Today, the challenge is to move from low-value-added to high value-added activities within or across industries. The high value added activities is to improves the value of products or services to customers. For examples, high value added activities include designing products, delivering products, processing customer orders and improving product quality.

1. BACKGROUND OF MANUFACTURING SECTOR

The manufacturing sector has existed from the colonial era, but its contribution is small at the time, which is about 8% of national income. The economy at that time was dependent on the production of raw materials, especially tin and rubber for export. The industrial sector is only focused on the processing of ore into ingots, tin, and it is dominated by companies belonging to the British. Until 1929, Malaya was producing 50 % of world production of tin ingots. In addition, there is also evidence that before the year 1940, manufacturing activities involving other products were also carried out on a small scale. These activities are confined to areas like Penang British administration, Province Wellesley and Malacca.

Export industry for 1940 only amounted to a total of 450,000 tin, but tin was increased to 1,800,000 in 1959. During the colonial period, without any government intervention to promote the development of the manufacturing sector. But in the late 1960s, the importance of process outputs estate industry has been steadily decreasing since his place was taken by the food processing industry. There are other industries that began to grow, involving goods, non-durable consumer goods, consumer durables, capital goods such as electrical and non-electrical machinery and transport equipment. During this period, a policy known as import substitution policies have been introduced. The aim of import substitution policy was introduced in order to reduce the outflow of money, to meet domestic demand. Goods previously imported are now encouraged to produce their own in states. Thus, the focus is on light industry produce soaps, beverages, footwear, clothing and rubber products. In the late 1960s, import substitution industries switch from consumer goods to the production of capital goods and intermediate goods.

From 1963 to 1968, its importance in terms of contribution to value added and employment in the manufacturing sector, which is very different variety. Product groups of food, rubber and wood still maintain their dominant position in terms of their contribution to the manufacturing sector. The basic metals, textiles and electrical machinery set the fastest growing, with an annual growth rate of over 30% per annum. Most of this increase is due to the substitution of imports and domestic market development. Resource-based manufacturing activities such as timber and rubber increased only modestly.