No.

Items Pages

1. 1.1 Company Background

1.2 Vision & Mission Statement
1.3 Company Objective
1.4 Type of Insurance Product
1.5 The Interrelationship & Interdependency of Insurance
products in context of expanding ASEAN market.
1.6 The Role of agents in distribution of insurance services
in Global Business
1.7 International Business Strategy
1.8 Conclusion
2. 2.1 Introduction
2.2 Classical Theory
2.2.1 Mercantilism
2.2.2 Absolute Advantages
2.2.3 Comparative Advantages
2.2.4 Factor Endowments
2.3 OLI Theory
2.3.1 Ownership
2.3.2 Location
2.3.2 Internalization
2.4 Resource Based View
2.5 OLMA (Ownership, Location, Mode of entry, and
Adjustment)
2.6 The Product Life Cycle Theory
2.7 New Trade Theory – Economies of Scale
2.8 Foreign Direct Investment (FDI)
2.7 Conclusion
3. 3.1 Introduction (One Belt One Road Policy)
3.2 Industry
3.3 Advantages for the Host Country
3.5 Disadvantages for the Host Country
3.6 Conclusion
1.1 COMPANY BACKGROUND

LPI Capital Bhd, that known as London & Pacific Insurance Company Berhad
which is the investment company that was incorporated on 24 May 1962 . On 1 may
1999, LPI was transfer the whole insurance business to Lonpac Insurance Bhd.
Lonpac Insurance Bhd was fully owned by LPI Capital and it was incorporated in
Malaysia on 12 July 1994. In Malaysia, Lonpac Insurance Bhd was operates at 21
branches that around Malaysia. The board of director of Lonpac Insurance Bhd is Tan
Sri Dato’ Sri Dr. Teh Hong Piow and the headquarter of the Lonpac Insurance Bhd at
Jalan Sultan Sulaiman, 50000 Kuala Lumpur, Malaysia.

On September 2005, the Malaysian Rating Corporation Berhad (MARC) has

been confirmed that the Lonpac Insurance has at "AA" that a strength rating which is
the financial are stability and trustability in insurance industry. On September 2017,
the A.M. Best Company, Inc. has been confirm that the Financial at the A- level that is
Strength Rating which is excellent and the Lonpac has the Long-Term Issuer Credit
and the Rating is "a-". The rating of the company are reflect to the strong adjustment
of capital and it is very strong record of operating performance. Lonpac's have the
strong adjustment of capital that support by a consistent and strong internal capital.
Lonpac Insurance is the one highest company insurance in Malaysia's that generate
non-life market, and its performance has been very strong compared with other
company insurance based on variety of measures.

1.2 VISION AND MISSION STATEMENT

The vision of this company is more priority on insurance solutions provider. The
mission is the company is focus to provide innovative insurance products and give the
excellence service that supported by customer and the company aim to provide their
insurance needs as a easy channel for all consumer. Besides, the aim of the company
is to create a good environment for the people that is fair, caring and accountable. The
insurance company drive is to create value for stakeholders, to achieve the company
vision and mission and strive for sustainability through financial and technical strength
based on recognised and proven standards.
1.3 COMPANY OBJECTIVE

The objective of Lonpac Insurance Bhd is to have a strong moral and ethical
values, democratic, liberal and tolerant, caring, economically just and equitable,
progressive and prosperous by achieve a society needs. That which is perfectly reflect
the principles of Corporate Social Responsibility ("CSR").

1.4 TYPE OF INSURANCE PRODUCT

Lonpac Insurance Bhd presently offers insurance product and services to give
more benefit and best coverage at best prices to the consumer. In product insurance
there offers the personal insurance and business insurance which is in personal
insurance there have insurance in health, fire, motor and personal accident and for the
business insurance there offers insurance in bond, engineering, fire, health, and
liability, marine, miscellaneous, motor, package and personal accident. Besides, the
services that given to the consumer such as e- assist, home-assist and travel assist.

i) PERSONAL INSURANCE

The personal insurance in health that have three types which is MediSecure
Centurial, MediSecure Plus 2015 and MediSecure Booster. Every type of health
insurance is different coverage such as MediSecure Centurial is an individual medical
insurance product that providing for expenses due to hospitalisation or surgery and
the additional benefit payable include organ transplant, medical report, outpatient
cancer treatment and outpatient kidney dialysis and the certainty of the coverage is
guaranteed renewability, no unilateral amendment, no per disability limit and no
lifetime limit, no age limit and no portfolio withdrawal condition.

MediSecure Plus 2015 and MediSecure Booster, is a major medical insurance

product providing ‘Top-Up’ insurance for those whose hospitalisation and surgical
insurance is inadequate to meet current healthcare costs. It is a policy of resource
which will only make payment after all other medical insurance policies have been fully
apply and all avenues of compensation from other basic medical insurance policies.
The product may also serve as a very affordable basic hospitalisation and surgical
insurance policy for those who are prepared to self-fund the amount of the deductible.
 Fire insurance, there have two types which is householders and houseowners.
This is a packaged policy that covers buildings or contents of private house against
fire and other danger. It also provides cover for the owner against legal liability to the
public who accidents that caused by defect of the buildings. Besides, this policy covers
the loss or damage to the building or contents of residential houses, flats and
condominiums by fire, explosion, earthquake, flood and other natural disaster.
Besides, liability insurance is for the golfter, this insurance that covers to the third
parties for damage to property or bodily injury that arising from accident caused by the
insured while playing or practising Golf at any recognised Golf Course and including
any litigation costs.

In LONPAC Insurance there have the private vehicle insurance, three types
which is comprehensive insurance, third party fire and theft insurance and third party.
This policy give secure to consumer liabilities to the third parties for injury or death,
damage to third parties property and accidental or fire damage the vehicle or theft the
consumer vehicle. Besides, there have a personal accident insurance which is there
have an ABPA which is all benefit personal accident, easy travel, flexicare PA, car
protector insurance, reclaim, travel net and secure protector. This all of this insurance
can make the individual life feel safety and secure.

ii) BUSINESS INSURANCE

Besides, there have a Business Insurance which is bond, engineering, fire,

health, and liability, marine, miscellaneous, motor, package and personal accident.
The bond insurance there have type of insurance which performance bond and
advance payment bond. This both of insurance provide the guarantees to the principal
of a project that they will financially compensated as a result of failure.

The engineering Insurance is boiler insurance, civil engineering completed

risks, contractor all risks, deterioration of stock, electronic equipment, employer liability
insurance, erection all risks. Machinery insurance, machinery insurance loss profit,
storage tank, workmen compensation insurance. This all insurance of engineering will
cover for the factory loss or damage and workers while working which is death or
bodily injury.
 Besides, the fire insurance there have the various type which is consequential
loss, industrial all risks and insurance of growing trees. The fire insurance is the policy
that cover the loss or damaged that insured caused and it different to consequential
loss that provides protection against financial. The industrial all risks, this is a
comprehensive packaged policy that cover material damage such as cover the
accidental physical loss or damage to the property and business interruption that cover
financial loss that arising from business interference. The insurance of growing trees
is the policy that covers palm oil or rubber or cocoa trees against damaged by fire or
lightning whether accompanied by fire or not.

Health, there have two type of insurance which is group hospitalisation &
surgical and Medisecure. The health insurance that used to pay back for the medical
expenses due to illness, diseases or accidents and it is the health plan that guaranteed
and no lifetime limit for the consumer. In Liability Insurance there have various type of
insurance for the consumer which is comprehensive general liability, directors &
officer’s liability, management liability, products liability, professional indemnity and
public liability. The comprehensive general liability is the policy that secure the insured
for all sums which the insured becomes a legally liable to pay as compensation
because of bodily injury or property damage as a result of loss in connection with the
insured business.

Besides, directors & officer’s liability is the policy that protect the director and
officers from loss effect from claims made on them in the discharge of duties on behalf
of company. The management and product liability is the policy of any loss which the
insured is legally liable to pay by reason of any claim such as for a wrongful act by the
management and product liability is the policy that give secure to the insures upon all
sum insured that shall be legally liable based on the person injury or illness, loss or
damage to the property that caused defect to the insured product.

The professional indemnity and public liability is the policy that give compensate
to the insured on his legal liability which may arise because of any negligent act, error
or omission that occur while carrying the duties and it is legally liable for accident that
caused by any negligent act of the insured while employment during the course of his
business. There have a marine insurance which is good in transit, marine cargo and
marine hull. This insurance covers the loss or damage of goods or ship while transit.
There have a personal accident to the employee that covers the employer and
employee upon the death, bodily injury with or without medical expenses and
temporary disable benefit. Motor insurance there have the commercial vehicle that
covers the insured against theft or damage the vehicle that caused by accident, fire,
impact bodily injury and other damage to third parties.

1.5 THE INTERRELATIONSHIP AND INTERDEPENDENCY OF INSURANCE

PRODUCTS (ASEAN MARKET)

ASEAN that known as the Association of Southeast Asian Nation. This

association is for political and economic organization that aimed primarily at promoting
economic growth and regional stability among its members. There are consists 10
member states which is Indonesia, Philippines, Singapore, Thailand, Brunei, Laos,
Myanmar, Cambodia, Vietnam including Malaysia. The ASEAN countries is in under
AFTA which is a trade agreement by the association of Southeast Asian nations
supporting local manufacturing in all ASEAN countries.

In AFTA, there have a Common Effective Preferential Tariff Scheme (CEPT)

and Asian Trade in Goods Agreement (ATIGA). The function of CEPT is to achieve
the goals of AFTA and it is an agreed affective tariff to ASEAN and the function of
ATIGA is to integrated market and production base with a free flow of goods. AFTA
agreement give benefit to all ASEAN countries which is reducing tariffs, eliminating
quotas and reducing non-tariff barriers this benefit can give the objective of AFTA be
achieve and can make the business in Southeast Asian countries be more expanding
and at globalization.

There are many similarities between Malaysia and ASEAN countries such as
Philippines, Thailand and Indonesia. In Indonesia there have an approximation
similarity of dialect which is in Malay and it can give easier communication between
two countries to achieve advancement in the business. This is because the
approximation similarity of dialect in both country make easier to have a good business
communication and it easily to understand. So it will give effectively to the expanding
the business.
 Besides, the similarity between Malaysia, Indonesia, Philippines and Thailand
is there are both tropical countries which located in the region of Southeast Asia. This
countries placed at the Khatulistiwa equator that have two seasons which is raining
and dry season and it give the land at the Khatulistiwa area have a productive soil and
more plants can be grown such as paddy, palm tree, banana tree and others plant.
Besides, the main similarities in this country is the main food is rice which is the crop
that grow in flood condition and deep for at least a month that always productive in the
ASEAN countries.

In other similarities in the Indonesia, Philippines and Thailand countries with

Malaysia is about the business cultures. The cultures that had been used in this
countries is similar with Malaysia which is they use the e-commerce business which
online business to increase their profit and attract more customer to buy the product
then using the social media site such as Facebook, Blog or Instagram that can makes
the marketing much easier and cheaper. Besides, this countries used a network
marketing business to expanding their business and to be easier to achieve the goals.

This is because when there have a good company or a big company it is easy
to expanding the company and do not have to worry about the product licensing, taxes,
the logistic and even paying the rent of the office or warehouse. There use a face to
face business which it easy to business relationship between other company and it
allowing to make better social opportunities to bond with clients or co-workers and it
easy to make a good communication.

The similarities of Indonesia, Thailand and Philippines with Malaysia is about

religious, in Indonesia, Thailand and Philippines there have a various of religious which
is Islam, Buddhists, and Christian. Besides, the design of the place to prayer such
mosque, church or temple have a similarity between this countries. It show that
countries there have a various of religious that can give easier to another countries
come and open business at the ASEAN countries this is because there have no limited
requirement to open the business caused of the religious in the ASEAN countries.
Besides, the population of muslim is second highest in the Indonesia, Thailand and
Philippines compare with other religious this can make the entrepreneur from Malaysia
easy to expand the business with the existing similarities.
1.6 ROLES OF AGENT IN DISTRIBUTION OF INSURANCE IN GLOBAL
BUSINESS
Insurance agents is the key in making the insurance acceptable by the clients.
Clients usually will think that insurance is such a waste so they will not sign up for
insurance. Even the world has changed and the lifestyle already changed, there are
few groups of clients that are not interested in insurance. The agents of insurance are
the one who needs to break the mentality among the clients that insurance is such a
waste.

The roles of agents in distribution of insurance in global business is by having

a good relationship with the agent’s existing and prospective clients. By having a good
relationship with them, the clients will trust and convinced to sign up for insurance with
the agent. Agents should provide clients with necessary information required so it will
make the clients aware of what they will sign up for. It is important for clients to know
the insurance benefits and how it will help them to cover anything.

Agents should have general awareness about the markets as it is important for
them to convince clients. Convincing clients is not as easy as they thought unless they
are aware with the markets and know how to convince clients about their insurance. If
a customer asks about the best plan and what does it benefits them, the agents should
provide advisory on the issues. The agents should not only know about their insurance
plan but they should know the current news on insurance. In order to sells more
insurance products, the agents should know exactly what the insurance are all about
and be confident when talking to client.

The best way to advise clients on insurance is by direct selling as it will be

easier for agents and clients to discuss. Face to face discussion will be more effective
and understandable for clients. If in global, hire agents from the region so it will be
easier for the agent and client to communicate as they are from the same country.
Communication is the key in increasing sales of insurance.
1.7 STRATEGY FOR EXPANDING
Every business needs strategy to achieve their highest profits. Expanding their
business to international also one of the way to increase their profits. In insurance
industry, strategy that they need to use is related to how to attract more clients to use
their insurance. There are still a lot of community does not know the benefits of
insurance.

The first strategy that can be used by our company is transnational strategy.
Transnational strategy is a strategy where it still adapts with the region’s cultural
preferences and offered the same concept of our insurance company. When we
expand it in Indonesia, Thailand and Philippines, we will make sure the clients have
the same feelings towards our products just like in the home country. We will keep the
same products to the new countries as they will also can get the same benefits but the
products can be different based on each country as they might have different
preferences.

Other than that, the strategy that can be use is global standardization. It is a
strategy where our company can use the same products and marketing strategy that
can be use for internationally and can work within different cultures and countries to
promote our products. Our company will use the same name, procedures and benefits
to standardize our products to be accepted in the different countries and cultures. Our
country with Indonesia, Philippines, and Thailand has the same demographic
concerns as we are basically having a lot of similarities. Standardize it will make our
company save time and money in marketing since we will not have the individual
marketing strategies in every region.

Next, using localization. Localization is where our products are following the
local preferences as needed by the clients in each region might be different. It can be
easily shown if we want our products to be heard by Indonesians, we need to make
our language of explaining it to the clients in Indonesian language. Same goes to other
countries. Other than that, it will be a challenge for our company to compete with their
local insurance company, so in order to compete with them, we will change our
products based on the local culture. In Indonesia, they do farming and plantation. So,
we will introduce an insurance that will cover their farm or land. This is how we can
compete with their local company.
 Nowadays, there are no barriers around us as we can approach someone else
via internet even though they are far away from us. Online approaches can be said as
agents use social medias platform to attract clients. According to Miguel R. Camus
(2018), 67 million people in Philippines according to a report by London, United
Kingdom based consultancy, We Are Social. They are the second highest place after
Thailand. This shows that our company can attract them from the internet as they
spent using internet for 9 hours and 29 minutes a day on the internet while Thailand
spent 9 hours and 38 minutes. This shows that it will be effective for agents to use
social medias for promoting the insurance.

1.8 CONCLUSION

In the conclusion, the role of agents in the expanding process is very important
as the agents is the person who will interact with clients. The strategy that the company
can use also will affect the growth of the company and it will increase the company’s
profit too. The strategy used must be related with the interdependency and
interrelationship of the countries that the company planning to expand to the country
so the strategy will be successful and company can achieve their targeted goals in the
region.

2.1 INTERNATIONAL TRADE THEORY

Definition of the free trade or also called as laissez-faire can be define

according to Economics Concepts (2010), free trade is a policy of unrestricted
international exchange of goods is known as the policy of free trade. The definition of
international trade according to DN Hassan (2014), international trade refers to as the
transfer of goods and services which include capital goods from one country to
another.

2.2 Classical Theory

There are theories that researchers will explain based on the evolution of
international trade theory. First theory is the classical theory where there are 4
categories, Mercantilism, Absolute Advantage, Comparative Advantage and
Heckscher-Ohlin theories. The first theory was introduced in England in the mid
sixteenth century and it says a country must export more than imported in order to
maintain trade surplus so the country can gain benefits, thus the country can increase
its national wealth. According to Samia Rekhi (n.d), mercantilism was known by
different names in different countries. It also known as “Restrictive System” because
of the policies that consisted numerous restrictions and regulations on commerce.

2.2.1 Mercantilism

Mercantilism disadvantage is it is viewed as a zero-sum game. According to

Tevjan Pettinger (2017), mercantilism is a philosophy of a zero-sum game where
people benefit at the expense of others. Mercantilism activity example can be shown
as the England Navigation Act of 1651 prohibited foreign vessels engaging in coastal
trade. All exports to Europe needed to pass through England and re-exported to
Europe.

2.2.2 Absolute Advantage

After flaws of mercantilism, a new theory of international trade occurs and
introduced by Adam Smith which is absolute advantage. According to Smith (1776),
countries should specialize in the production of goods for which they have an absolute
advantage and trade these for goods produced by other countries. Absolute
advantage theory is a theory that refer to the efficiency of a country to produce
products at a lower cost per unit than another country that can produce the same
product. A country with absolute advantage can decide which product they can
specialize in producing products and in return, purchase goods and services from
other countries so both entities can benefit from the trade. Example of countries that
use absolute advantage according to BC Campus (2018), Chile is one of the world’s
richest copper mines, and Guatemala have climates that suited for growing coffee.
Therefore, Chile will provide copper and Guatemala will produce coffee and they can
trade.

2.2.3 Comparative Advantage

Next theory is the comparative advantage theory that pioneered by David

Ricardo in the eighteenth century. He argued that when a country focus on the industry
that has the most comparative advantage, the country can boost its economic growth.
According to Kimberly Amadeo (2018), comparative advantage is when a country
produces a good or service for a lower opportunity cost than other countries because
high opportunity cost is not worth to trade even though the country is efficient to
produce it. If a country is not a country that is best at producing products, but the
products have low opportunity cost for other countries to import. In other words,
comparative advantage does not look at how efficient a country can produce but it is
based on how worth the product produced by a country to be trade off. Example for
this theory is England was able to produce cheap cloth and wine but Portugal had the
right conditions to make cheap wine and produce cloth. Ricardo predicted that England
should stop making wine and Portugal should stop making cloth. Ricardo was right
because Portugal made more money by trading its wine for England’s cloth and vice
versa. It would have cost England to make all wine needed because of its lacked the
climate and Portugal didn’t have the manufacturing ability to make cheap cloth.

2.2.4 Factor Endowments

Move on to the next theory, it is a theory from Swedish economists who are Eli
Heckscher (1919) and Bertil Ohlin (1933). This theory starts when the Ricardian theory
ends. According to Smriti Chand (2018), Ohlin’s theory says that to determine the
differences in trade are the factor endowments rather than differences in productivity.
For example, some countries have plenty capital while the others have an abundance
of labour. The exchange of commodities by transferring the factors that abundant to
locations where got scarce. It can be shown by the activities of international trade
between China and Germany (UK Essays, 2013). China will export toys and clothes
to Germany because it has low labour cost while Germany will export cars to China
because to produce cars, it requires heavy industrial machinery and construction
equipment.

2.3 Ownership, Location, and Internalization Theory (OLI)

According to John H. Dunning (2010), this article describes the origins, and
traces the subsequent evolution of the eclectic paradigm from the mid-1950s to the
present day. It does so in the light of the changing characteristics of MNE activity and
of the global economic scenario. The article concludes by asserting that the eclectic
paradigm still remains a powerful and robust framework for examining contextual
specific theories of foreign direct investment and international production.
2.3.1 Ownership
According to Vahagn S. Asatryan and Haemoon Oh (2008), this exploratory
study conceptualizes psychological ownership (PO), a state in which individuals feel
as though the target of ownership is theirs, and investigates how customers form PO
toward a company. Considering the PO is a new concept to hospitality research, the
study develops and empirically validates a conceptual model of PO and a PO
measurement scale in the context of the restaurant industry. The model incorporates
fundamental human relationship variables, such as sense of belonging, identification,
and perceived control, as the antecedents of PO. The model also relates PO to several
practically important consequences, such as relationship intentions, word-of-mouth
communications, competitive resistance, and willingness to pay. The results generally
support the proposed mediating role of PO between the antecedents and
consequences, consistent with the initial conceptualizations. This study discusses the
potential that PO may play in enhancing loyalty and relationship marketing research
in the hospitality and tourism industry.

2.3.2 Location

According to The Editors of Encyclopaedia Britannica, location theory, in

economics and geography, theory concerned with the geographic location of
economic activity; it has become an integral part of economic geography, regional
science, and spatial economics. Location theory addresses the questions of what
economic activities are located where and why. The location of economic activities
can be determined on a broad level such as a region or metropolitan area, or on a
narrow one such as a zone, neighbourhood, city block, or an individual site.

2.3.3 Internalization

According to Peter J. Buckley (1988), the paper explores the difficulties of

testing the internalization approach in the modern theory of the multinational
enterprise. The structure of the theory is elaborated and the conclusion drawn that
testing cannot occur at the most general theoretical level but that the theory requires
careful restricting assumptions to be placed on it to allow rigorous testing. Several
empirical circumstances would constitute refutation if they could be shown to hold.
However, the use of unconventional cases or outliers does not constitute disproof.
More rigour is required in formulating and testing the theory but the current verdict on
the theory must be “not disproven”.

2.4 Resource Base View (RB)

The Resource-Based (RB) Theory, by contrast, can be seen as an “inside-out” process
of strategy formulation. We start by looking at what resources the firm possesses.
Next, we assess their potential for value generation and end up by defining a strategy
that will allow us to capture the maximum of value in a sustainable way. The process
is summarized in the graph below:

A Resource-Based Approach to Strategy Analysis: A Practical framework

4. Select a strategy which best

exploits the firm’s resources and Strategy
capabilities relative to external
opportunities.
3. Appraise the rent generating
potential of resources and Competitive 5. Identify
capabilities in terms of resource
a) Their potential for sustainable Advantage gaps which
CA need to be
b) The appropriability of their filled. Invest
returns.
2. Identify the firm’s capabilities: in
What can the firm do more replenishing
effectively than its rivals? Capabilities ,
Identify the resources inputs to augmenting
each capability, and the and
complexity of each capability. upgrading
the firm’s
1. Identify and classify the resource
firm’s resources. Appraise base.
Resources
strengths and weaknesses
relative to competitors. Identify
opportunities for better ion of
resources.
2.5 OLMA Theory
According to Stephen Guisinger (2010), theorists using the eclectic
paradigm have drastically restricted their analytic scope to the firm and its subsidiaries,
rarely exploring more finely grained firm structures, such as business processes. By
contrast, organisational theorists examining multinational firm behaviour have
employed a richly differentiated array of firm structural forms though without
developing a precise delineation of the international business environment. Eclectic
researchers are adept at handling environmental, but not structural, complexity, while
the reverse seems true for organisational theorists. This study extends the eclectic
paradigm by incorporating higher levels of environmental and structural complexity
through two methods, a deconstruction of the multinational firm into business
processes; and a more complete definition of the international business environment,
called geovalent elements. The paper argues that an enhanced eclectic paradigm
called OLMA (for Ownership, Location, Mode of entry, and Adjustment) provides the
complete set of concepts needed for studying the modern multinational firm.

2.6 The Product Life-Cycle Theory

The product life-cycle theory is the theory of Raymond Vernon as products
mature both the location of sales and the optimal production location will change
affecting the flow and direction of trade. For example, the size and wealth of the U.S.
firms a strong incentive to develop new products. Initially, the product would be
produced and sold in the U.S, as demand grew in other developed countries, U.S.
firms would be to export. Demand for the new product would grow in other advanced
countries over time making it worthwhile for foreign producers to being producing for
their home markets. U.S. firms might set up production facilities in advanced countries
with growing demand, limiting exports from the U.S., as the market in the U.S. and
other advanced nations matured, the product would become more standardized, and
price the main competitive weapon. If cost pressures were intense, developing
countries would acquire a production advanced country. Production become
concentrated in lower-cost foreign locations, and the United States became an
importer of the product.

2.7 New Trade Theory

New trade theory suggests that the ability of firms to gain economies of scale
unit cost reductions associated with a large scale of output can have important
implications for international trade. Through its impact on economies of scale, trade
can increase the variety of goods available to consumers and decrease the average
cost of those goods. Without trade, nations might not be able to produce those
products where economies of scale are important. Next, markets are large enough to
support the production necessary to achieve economies of scale. So, trade is mutually
beneficial because it allows for the specialization of production of a greater variety of
products at lower prices. For example, Hewlett and Packard started their computer
business and the success of HP attracted more IT firms to that area. It is not because
of the benefits but it get more network benefits of being around with other IT firms.

2.8 Foreign Direct Investment (FDI)

Foreign direct investment (FDI) occurs when a firm invests directly in new
facilities to produce and/ or market in a foreign country. The firm becomes a
multinational enterprise. It can be in the form of greenfield investments, the
establishment of a wholly new operation in a foreign country, and acquisitions or
mergers with existing firms in the foreign country. The flow of FDI refers to the amount
of FDI undertaken over a given time period. Outflows of FDI are the flows out of a
country. Inflows of FDI are the flows of FDI into a country. The stock of FDI refers to
the total accumulated value of foreign-owned assets at a given time.

Most cross-border investment is in the form of mergers and acquisitions rather

than greenfield investments. Firms prefer to acquire existing assets because mergers
and acquisitions are quicker to execute than greenfield investments. It is also because
easier and perhaps less risky for a firm to acquire desired assets than build them from
the ground up, and firms believe that they can increase the efficiency of an acquired
unit by transferring capital, technology, or management skills.

FDI is shifting away from extractive industries and manufacturing, and towards
services. The shift to services is being driven by the general move in many developed
countries toward services, the fact that many services need to be produced where they
are consumed, a liberalization of policies governing FDI in services, and the risk of
Internet-based global telecommunications networks.

Exporting is producing goods at home and then shipping them to the receiving
country for sale. For example, exports can be limited by transportation costs and trade
barriers, FDI may be a response to actual or threatened trade barriers such as import
tariffs or quotas. Licensing is granting a foreign entity the right to produce and sell the
firm’s product in return for a royalty fee on every unit that the foreign entity sells.
Internalization theory (aka market imperfections theory) suggests that licensing has
three major drawbacks compared to FDI. Next is firm could give away valuable
technological know-how to a potential foreign competitor, does not give a firm the
control over manufacturing, marketing, and strategy in the foreign country. Lastly is
the firm’s competitive advantage may be based on its management, marketing, and
manufacturing capabilities.

2.9 Conclusion

International trade is defined as trade between two or more partners from

different countries in the exchange of goods and services. In order to understand
International trade, we need to first know and understand what trade is, which is the
buying and selling of products between different countries. International Trade simply
globalization the world and enable countries to obtain products and services from other
countries effortlessly and expediently. International trade is becoming a way of life for
an increasing number of businesses. As there are many business risks and
uncertainties associated with trading outside domestic markets, organizations require
secure partnerships, and understanding of the local needs of its customers, while
having the global coverage to ensure it can provide solutions to business problems
wherever in the world they occur.
3.1 INTRODUCTION OBOR POLICY

One Belt One Road (OBOR)

One Belt One Road (OBOR) is the combination of the Silk Road Economic Belt
and The 21st Century Maritime Silk Road that proposed by Xi JinPing (the president of
China) during a speech in Indonesia in late 2013. According to the Endeavour
Education Centre

Limited (2017), OBOR has been covered more than 60 countries with 44 million
of people which occupied the 63% of population in the world.
This development strategy is to connect the China with Central Asia, Europe
and Indo-Pacific littoral countries. The initial focus has been infrastructure investment,
education, construction materials, railway and highway, automobile, real estate, power
grid, and iron and steel.
3.2 INDUSTRY OR PRODUCT

Huawei Technologies (Malaysia) SDN BHD [Industry]

There are so many products or industries that China done in Malaysia. For an
example, the Huawei Technologies (Malaysia) SDN BHD which is one of the
information technology and communications industry in Malaysia country.

According to the reporters of Free Malaysia Today website (FMT), China’s

Huawei Technologies opened its regional headquarters in Kuala Lumpur, Malaysia on
26 October 2016 (Wednesday). This due to Malaysia have the opportunity in
development of information and communication technology which could attract more
consumers.

Huawei is one of the leading ICT solution provider in the world which had
invested 3.6 million dollars in Malaysia to establish the South Pacific Customer
Solutions Innovation and Integration Experience Center (CSIC) for the cloud storage,
networking and a big data laboratory uses.

According to the report of Nikkei Asian Review (NAR) in 2016, Malaysian

government had proposed a plan that the information and communication technology
of those local colleges will be train by Huawei as an adviser with their professionals.
Huawei says 300 students will be trained at the regional center per year which was
officiated by former Prime Minister of Malaysia, Najib Razak. This plan could help
Malaysia training those talents in development of digital economics.
 Other from that, Najib Razak said so estimated 20% of increasing in ICT
investment could produce 1% of gross domestic product growth for a country.
However, the figure would higher than 1% which is 1.4% for Malaysia.

3.3 IMPACT FOR THE HOST COUNTRY (MALAYSIA)

The One Belt One Road (OBOR) that proposed by Xi JinPing have two
important element which are the belt and road. The starting point of the “belt” is China,
Xi’an and the belt line will heading west go through many European countries to
Rotterdam, then to the United Kingdom (UK); the starting point of “road” will be held
at Fuzhou, the capital of southeastern China's Fujian province, go through South
China Sea, the Straits of Malacca, Indian Ocean, Red Sea, Mediterranean Sea, and
last arrived in Venice. Malaysia is the part that involved in hub of the “road”.

OBOR includes railway transportation cooperation known as the Trans-Asian

Railway Network, which formed by Central Line, West Line and East Line. The mid-
line departs from Kunming, China, south to Bangkok, Thailand, then to Kuala Lumpur
and Singapore; the east line departs from Kunming to Hanoi, Ho Chi Minh City, Phnom
Penh and Bangkok. Malaysia is the important node of the Trans-Asian Railway
Network and become an important part of the construction of the fourth world
economic belt by China and its neighbors. If this project done well, the populace in
Malaysia can take the high speed rail from Kuala Lumpur to Beijing, and go west
through those European countries to London.

3.4 ADVANTAGE FOR MALAYSIA

First, the OBOR policy could promote the both (China and Malaysia) regional
economic cooperation. With the linking between China and ASEAN at sea and on the
road, it could bring out the connection of regional network and this created an
integration effect to make China and ASEAN mutually beneficial and common
development.

Second, OBOR policy helps to enhance the construction of interconnected

infrastructure and actively promote the construction of land, sea and air
interconnection to support China-Malaysia cooperation in infrastructure such as
railways, highways, ports, aviation, and the marine economy.

Third, the OBOR policy able to expand bilateral trade (China and Malaysia) and
actively expand trade in high-tech and high value-added products, especially
communications, bio-pharmaceuticals, automobiles, halal products and green
technology products.

3.5 DISADVANTAGE FOR MALAYSIA

The Vice-President (Datuk Dr. Siti Ruhaini Dzuhayatin) of Mighty Native

Organisation pointed out that they are worried that Chinese investors that are from
China will introduce a large number of Chinese workers from China after the
investment in Malaysia, this action causes the Malaysians get into unemployment
situation and aggravation unemployment rate in Malaysia.

He said that the influx of Chinese from China into Malaysia will also bring social
problems to the country. Due to the foreigner from other countries, those foreign
workers could bring the problems of criminal activities or illegal immigration happen.

3.6 CONCLUSION
One Belt One Road (OBOR) policy is a big project that proposed by Xi JinPing
but the power of other countries is needed to accomplish it in a successful way.
Although it brings a lot of benefits to so many countries, but some people will think it
in negative ways.
As a conclusion, this Belt and Road Initiative brings a lot of potential either in
positive or negative impacts to the country. But even all the problems couldn’t escape,
there is still another way to solve the problems. For the word of “success”, there is a
“risk” hide behind it.
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