Malaysia is obviously not the most efficient nor the most productive assembler of cars. Using a relevant international trade theory, rationalise Porsche's choice of Malaysia as
its assembly hub. Briefly describe the theory before applying it to this situation. (6 marks)
Application to Porsche's Decision in Malaysia
Porsche's choice of Malaysia as an assembly hub can be rationalized through the following factors that align with the Theory of Comparative Advantage and Location-
Specific Advantage.
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Strategic Market Accoss
Southeast Asia represents a fast-growing automotive market. By assembling cars in Malaysia, Porsche gains easier access to this region, avoiding tariffs and import taxes on
fully assembled vehicles. Countries in the Association of Southeast Asian Nations (ASEAN) have agreements that reduce trade barriers within the region, making Malaysia a
strategic location for production to cater to ASEAN markets.
Cost Savings
While Malaysia may not be the most efficient producer compared to countries like Germany or Japan, it offers lower labor and operational costs, which help reduce production
expenses. This cost advantage could be a crucial factor for Porsche when considering pricing competitiveness in the region.
Favorable Regulatory Environment
Malaysia has developed policies to attract foreign investment in automotive manufacturing, such as tax incentives and relaxed regulations. This allows companies like Porsche
to establish assembly facilities at a lower initial cost, enhancing profitability and reducing the opportunity cost of assembling cars elsewhere.
Logistics and Infrastructure
Malaysia has a well-developed infrastructure for manufacturing and exporting, with efficient shipping ports and supply chain logistics. This logistical advantage can significantly
reduce the time and cost of getting cars to consumers in Southeast Asia, Australia, and other nearby markets.
Customisation for Local Markets
By assembling cars in Malaysia, Porsche can tailor vehicles to meet specific market demands in Southeast Asia. Local assembly allows for faster response times to market
needs, adjusting features and specifications that cater to regional preferences and regulations.
