Malaysia-West Asia relations and foreign direct investment: proposal for an ummah network based on social capital concept

Abstract

Research on foreign direct investment (FDI) often ignores the psychology aspect of relationship. The role of relationship is embedded in Bourdieu's social capital, believing that networking and friendship could be valuable factors for attracting business. In macroeconomic context, international relations could be an important determinant in attracting foreign investment. Manifestations of this conceptualization are guanxi and "Bamboo network" in Chinese business culture. Applying to Malaysia international relations with Islamic countries of West Asia, an "Ummah network" can be established to enable win-win situation in investment decision. This is in contrast with the rational behaviour of profit maximization motive of the classic school of thought. In reality, foreign investors with higher degree of negotiation power may seek maximum incentives at the expanse of the welfare of the host country, thus evaporating any possibility of win-win outcome. Given close relationship between Malaysia and Islamic countries of West Asia through Islam brotherhood and membership of Organization of the Islamic Conference (OIC), Malaysia is in the best position to utilize its social capital to attract mutually beneficial FDI rather than giving excessive incentive to profit maximization oriented investors. Furthermore, growing tension and suspicion between Western world and Islamic countries strengthen Malaysia's position to build up long term investment relationship with West Asian countries. Hence, this paper aims to argue that relationship based incentive could help attract FDI from West Asia. Specifically focus on investment from West Asia as case study, this paper also aims to argue that relationship-based incentive is better than monetary-based incentive. The ultimate objective of this paper is to propose a framework for the establishment of a relationship-based "Ummah network" between Malaysia and West Asia.