Up to the 1990s, the Malaysian defence industry had by and large been limited to small industries supplying common user items and a handful of large companies which while carrying out substantial work for the military, such as locally built ships and maintenance and servicing of aircraft, such work were ancillary to their core civilian businesses. However, this changes due to several factors that required and resulted in the defence industry being greatly expanded.

Firstly, there was the then Prime Minister Mahathir Mohamad’s Vision 2020 goal of making Malaysia a fully industrialized and technologically advanced nation by 2020 and in line with this goal was the development of Malaysian industries especially the aerospace and defence industries via transfers of technology and offset programmes brought about by making such transfers and offsets as condition for defence purchases from foreign countries.

This was coupled with the economic growth in Malaysia and the increasing education of the Malaysian populace resulted in a workforce that was not only more skilled and knowledgeable and could handle both management and technical issues but also existed in sufficient numbers to fuel the economic growth. It also led to more of the population pursuing specific and specialized skills and knowledge paths in order to be competitive in the employment market and the fact that there was a demand in such locally in contrast to the past where job competition was limited and there being little demand for certain knowledge and skills. As such, the conditions were ideal to allow a defence industry to grow.

Secondly, was a change in the strategic thinking as to the role of the Malaysian Armed Forces. Up to the late 1980s, the armed forces by and large had been focused on the counter-insurgency role due to the need to suppress the remnants of the communist insurgency. The changes though as there was a realization that the armed forces would have to deal with conventional, external threats and thus it would have to transform from a largely infantry based army supported by a brown water navy and air force to modern armed forces with both the navy and air force becoming service arms with greater roles than primarily existing to support army operations as had been the case.

However, the transformation had a price as naturally this meant new and more sophisticated equipment had to be purchased and it became clear that it was no longer financially feasible to largely rely on foreign companies not only for procurement but also for support and maintenance due to the increasing number of high-tech and complex equipment and items being used by the armed forces. Thus, turning to local defence companies made fiscal sense.

Moreover, defence matters were also being scrutinized and debated in the public sphere and thus any defence spending would be questioned by a public that was becoming increasingly pacifistic and not able to see the value of defence spending. By turning to local defence companies, the government was able to justify certain procurement by pointing out that the procurement would provide employment and work for local industries other than national security.

Conversely, the depreciation of the Malaysian ringgit, end of 1990’s actually encouraged more companies to venture into the defence and aerospace industry, particularly in serving as partners or subcontractors to foreign firms as the exchange rates and lower labour costs would lead to a higher profit margin, indeed lower labour costs actually led to foreign defence companies seeking Malaysian companies as joint venture partners, subcontractors or national/regional maintenance support centres. Since the Malaysian government made an offset package in the form of local participation or transfer of technology as a condition in any significant military purchase from overseas, any foreign company wishing to sell its equipment in Malaysia was duly bound to assist the local defence industry as such. By and large, the results have been positive with Malaysian defence companies and their foreign partners both enjoying successful partnerships and Malaysian defence companies have gone on to successfully win additional work unrelated to the offset packages which gave then their initial start while producing their own products.

The defence industry has grown somewhat steadily till now but it is still and industry in need of a structured development along with more involvement by the government. The organizational umbrella for the Malaysian defence industry is the Malaysian Defence Industry Council (MDIC) which was created in 1999 to serve as a forum for the defence industry. MDIC headed by the defence minister and comprised of government officials and the heads of local defence companies. Under the council they are six working groups dealing with the six specified defence industry fields deemed strategic by the Malaysian government: Aerospace, Maritime, Weaponry, Automotive, Information Communications Technology (ICT) and Common-user Equipment, each being headed by a representative from the companies in the defence industry.

The Malaysian government has also formulated the Defence Industry Blueprint which lays down the strategy and policies for development in the six fields of which there are five areas of common emphasis for each field, namely the development of human resources and competencies, technology development, industrial development, self sufficiency and international marketing.

Government has since 2004 implemented “The Guidelines for Long Term 5+5” contracts arrangement to encourage local companies to participate in the defence sector as a common complaint was that local defence contract did not provide enough guaranteed long term work security. The contract would be given to local companies for five years with a subsequent two year contract followed by a final three year contract subject to the company performing in compliance with the contract during each phase and thus providing the company with long term work security and at the same time ensure that defence companies involved in such an arrangement would still be held to certain standards and not be given a free passage in the manner a long term exclusive contract would. This was primary concern for the military which feared that companies with such a contract would have no incentive to perform adequately throughout the tenure of the contract.

Malaysia defence industry is still new when we compare with other well established foreign defence industries but it’s growing steadily with the guidance from the government and cooperation from defence industry either from local or foreign. Malaysia defence industry is moving forward on right path.