The new core paradigm is a massive mindset shift in awareness from profit maximisation using cheap labour and single sourcing worldwide towards the ability to survive through intense competition (such as the threat posed by Chinese involution), sudden rule changes from national security and geopolitical measures, and greater regionalisation and diversification due to reshoring, nearshoring and friendshoring of both production and distribution networks. You deal only with suppliers and customers you can trust, so you are willing to tolerate higher costs for dependability in times of volatility.
Geopolitics and state-business governance models are converging towards three regional blocs: North America, Europe and the Indo-Pacific, because governments are beginning to treat GVCs as national security assets, resulting in tech decoupling, differing standards and rules, and ensuring each bloc retains size and scale in power.
The Global South must survive by being able to compete and cooperate within different ecosystems in semiconductors, artificial intelligence (AI), quantum technology and key resources such as rare elements so that they can trade with or supply all parties without offending anyone up to the pain threshold of new sanctions.
This paradigm shift is accelerated by the digital and tech transformation from AI and robotics, which are creating a digital divide between those who are reforming fast and those who are slow to adapt. The reality check of total war is total self-interest. For example, the US is willing to discard cumbersome compliance rules on sustainability and environmental, social and governance standards to make American businesses less cost- and regulation-bound.
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Non-American companies must therefore decide whether they meet or exceed such standards to satisfy the growing demand for green and inclusive products and services, or just ruthlessly go for profit at all costs.
Malaysia looks clearly like a winner in this global reconfiguration, being small, neutral and strategically located, with the capacity to capture niches in advanced manufacturing and become a leader in carbon capture, ecotourism and promoting global trade through the Regional Comprehensive Economic Partnership, Asean and other trading arrangements.
Malaysian companies can only take advantage of this window of opportunity by becoming ruthlessly realistic about their own strengths and weaknesses, using AI and robotics to move away from cheap labour and low-quality markets towards high-value areas that are at low risk of tech security sanctions. They must seek full digital visibility, where managers can track and monitor sensitive data along the whole value chain to examine and manage risks from non-compliance, vulnerabilities and choke points in production, distribution and finance.
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This “know yourself, know your rivals” approach suggests that Malaysian companies must understand bloc-based trading rules, whereby they can quickly exploit opportunities and avoid risks.
There are two imperatives in the Malaysian state-market nexus. First, the Malaysian bureaucracy must appreciate that the internal social engineering-driven New Economic Policy model is now operating in an external geopolitical warfare context, where industrial policy and state-backed business are norms, not aberrations. The state must be a partner with business in strategising how to survive and then thrive in an era of ruthless competition from neighbours, allies and rivals alike. The world is not moving towards deregulation; it is re-regulating to ensure that nation-states can compete in a “winner-takes-all” race. Those who are divided or distracted by this ruthless competition will be marginalised. Capital and talent will drift to centres that offer rewards for risk-taking.
Second, the business sector must be clear-sighted that fully relying on governments for subsidies and cheap labour is non-viable in the medium to long term. Good corporate social responsibility in retraining and reskilling all workers, prioritising Malaysians rather than relying on imported cheap labour, is good for resilience and inclusivity and, ultimately, profits.
Malaysia’s real dilemma is how it should operate within the context of a resource-rich curse. Resource-rich economies suffer from what is known as the Dutch Disease, where the arrival of new-found resources causes massive upward exchange rate revaluation, giving a boost to consumption by debt and then loss of manufacturing skills, which can then become a curse when the oil revenue runs out.
In the late 1970s, oil resources came on-stream in three countries with different backgrounds — Norway, the UK and Malaysia. Norway and the UK benefited hugely from North Sea oil and gas. The Norwegians with foresight created the Norges Fund — which saved excess foreign exchange earnings from oil proceeds by keeping an appropriate exchange rate policy — which today is the largest sovereign wealth fund in the world, equivalent to 4.1 times GDP, and earns annual revenue that can keep Norwegians in fiscal health with well-funded pensions. Norway retains an important manufacturing and high-quality tech and services sector that can still compete globally in niche areas.
Malaysia used the oil proceeds to fund its investments in infrastructure, subsidised manufacturing with cheaper energy, used imported labour and funded Permodalan Nasional, which is an important government-linked investment corporation that plays a major role in Malaysian capital markets. As oil revenues fall due to basically flat oil and gas production, the contribution towards fiscal revenue is declining in relative terms.
The worst performer is the UK. Under Margaret Thatcher’s free market philosophy, the pound sterling was allowed to rise to benefit the financial sector and real estate markets, whereas British industries became hollowed out. Until today, after Brexit, the UK is struggling with growing fiscal deficits and government debt, declining oil revenue and the inability to compete in global manufacturing at scale.
This lesson from the Dutch Disease is that long-term development requires not merely policies under a stable global order but also strategies that change with changing times. It is about clear-eyed strategies on how to position your economy and long-term efficiency and resilience against ruthless global competition and geopolitics. Small economies have to stay nimble, flexible and adaptable against giants that are slower to change. The devolution of growth engines to states such as Johor, Sarawak, Penang and Sabah, which are beginning to adopt different approaches to growth using their own comparative advantages, is clearly the way of the future.
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But how different states can cooperate and how state-federal and government-business synergy can be cultivated to the nation’s advantage is a conversation that is being drowned out by non-stop political squabbling and noise.
With the resignation of Sir Keir Starmer, Great Britain will have had six prime ministers since Boris Johnson resigned in September 2022. Behind the political fragmentation are failed economic strategies and fragile political leadership. That is the fate of nations and companies which do not appreciate the brutality of today’s geoeconomics.
Andrew Sheng writes on global issues from an Asian perspective
