Imperial icons to Malaysian flagships: The fall of British business in Malaysia

Professor Nicholas J. White, School of Humanities and Social Science, Liverpool John Moores University, United Kingdom

As late as 1974, 17 years after Malaya's independence, the United Kingdom (UK) remained Malaysia’s largest overseas investor. British direct investment of US$640 million towered above the US$180 million of Japan and the US$100 million of the United States (Davenport-Hines and Jones, 1989, p. 7). By 1986, however, as Malaysia’s economy diversified away from primary commodities, Britain had slumped to third place in its foreign direct investment (FDI) league table, behind Japan and Singapore. Japan’s FDI centred heavily on the growing electronic and electrical manufacturing industry, while that from Singapore was due to its increasing trade and economic integration with Malaysia.

Principally, however, the investment downturn was a consequence of the Malaysianization of British assets in primary production, which had their origins in the colonial era, and particularly in rubber and oil palm plantations and in tin mining. Leading imperial firms that were localized included London Tin and Sime Darby in 1976, Guthrie in 1981, Barlow in 1982, and Harrisons & Crosfield (H&C) between 1983 and 1989 (Shakila Yacob and Khadijah, 2012; Glew and Chander Velu, 2020). This article explores three interrelated causes of this rapid fall of British business power in Malaysia—economic nationalism, changes in Anglo–Malaysian relations, and evolving business strategies.1

Economic nationalism, Malaysian style

Malayanization—or takeovers of British-owned corporations—was a crucial element in achieving the restructuring aims of the New Economic Policy (NEP) of 1971. The NEP was a vast socioeconomic engineering project designed to correct ethnic economic imbalances inherited from the colonial era, especially the marginalization of the Bumiputera (Malays and other ‘indigenous’ groups) in corporate ownership. It was formulated after the ethnic riots of May 1969, believed caused by inter-ethnic political tensions, particularly Malay frustration at growing income disparities between Malays and non-Malays. With increased government management of the economy, the NEP era saw the rise of giant government-linked corporations such as PERNAS (the National Corporation) and Permodalan Nasional Berhad (PNB, the National Investment Corporation) as inheritors to British business.
Sime Darby's godown, Jalan Ampang, Kuala Lumpur, 1931.
Sime Darby@110, February 2021

Existing studies have largely focused on the NEP’s ‘domestic’ context and consequences in terms of interracial relations and cronyism—one collection, for example, does not include a chapter on foreign investors (Gomez and Saravanamuthu, 2012). Yet, as a Japanese scholar reminds us, ‘government policy … was directed at the inherited colonial economic system which the public enterprises broke down in the process of buying up British capital investment and accumulating Bumiputera capital’ (Saruwatari, 1991, p. 384). Theoretically, the NEP's 30:40:30 corporate ownership ratio (30 per cent Bumiputera, 40 per cent non-Bumiputera Malaysian, and 30 per cent foreigner) was to be achieved by 1990 through growth in new Bumiputera assets. Yet the ‘Young Turk’ Malay technocrats charged with implementing the NEP appreciated it was nearly impossible to quickly expand Bumiputera corporate assets from a tiny base of 2 per cent in 1970. Future Finance Minister Tengku Razaleigh Hamzah recalled when head of PERNAS in the early 1970s quizzing Ismail Ali, head of the central bank and chairman of PNB after 1978, and Raja Mohar, special economic adviser to Prime Minister Hussein Onn (1976–1981), ‘How do you grow if I can’t buy?… I will be stunted like how I am today’. It was politically impossible to expropriate Malaysian Chinese assets. Hence, Ismail and Mohar advised Razaleigh to ‘acquire the companies that don’t belong to the citizens of the country’.2

The scaling back of the foreign sector also presented opportunities for non-Bumiputera. Malaysian Chinese entrepreneurs ‘collect[ed] good pickings as the British sold up’ (McVey, 1992, p. 172; Khadijah, 1999, p. 68). Chinese and Malay aspirations could be combined as in the PERNAS-led boardroom coup at Sime Darby in the mid-1970s, which overthrew the British expatriate directors, and after which ex-Finance Minister Tan Siew Sin became the first Malaysian chairman. On the other hand, inter-ethnic rivalry and the success of Malaysian Chinese in asset accumulation spurred a more aggressive charge against British firms by the Malaysian government. The Fourth Malaysia Plan (1981–1985) revealed that Bumiputera share ownership had reached only 12.4 per cent in 1980, four points behind target. By contrast, the share of non-Bumiputera Malaysian ownership had risen from 34 per cent in 1971 to 40 per cent in 1980, that is, non-Bumiputera interests reached the NEP target 10 years ahead of schedule (Archives New Zealand, 1981).

Slow progress by Malay investors led to the much-celebrated ‘Dawn Raid’ on Guthrie shares on the London Stock Exchange. On the morning of 7 September 1981, PNB acquired majority control of the premiere plantation group, partly because it desperately needed assets for redistribution to low-income Bumiputera investors in its highly popular unit trust scheme, launched in April 1981 (Shakila Yacob and White, 2010, pp. 946–8; White, 2018, pp. 175–97).

Such dramatic pro-Malay gestures were also crucial for the political ambitions of economic nationalists like Razaleigh to boost their grassroots popularity. This was a tendency spurred on by factionalism within the ruling United Malays National Organisation and by competition for the Malay vote from the Pan-Malayan Islamic Party. As Prime Minister Hussein Onn confessed in January 1979:

If there is silence for a time, [the Malay majority in the rural areas] become suspicious, nervous that nothing is being done. They begin to think the NEP is a fiasco (FEER, 1979).

The Guthrie "Dawn Raid"
 New Straits Times, September 9, 1981 

Nevertheless, Malaysia’s economic nationalism was simultaneously underpinned by wider macroeconomic considerations going back to James Puthucheary’s seminal publication Ownership and Control in the Malayan Economy (Puthucheary, 1960). He argued that Malaya’s independence was a sham because the commanding heights of the economy remained dominated by foreign, principally British, investors. London-centred agency houses like H&C certainly made huge profits through controlling not only production but also shipping and marketing of Malaysian commodities (Koike, 2017). Local ownership, therefore, offered Malaysia both greater leverage of its primary commodity exports in the global economy and earning potential. Hence a botched attempt in the early 1980s to break the alleged marketing ‘cartel’ operated by the London Metal Exchange as Malaysian tin production was consolidated into the world’s largest tin-mining company, the Malaysia Mining Corporation (Jomo, 1990, p. 73; Mahathir Mohamad, 2012).

In emphasizing PNB’s majority control of Harrisons Malaysian Plantations (HMP) after 1983, the new chairman, Ismail Ali, stated that ‘as a company owned and controlled by Malaysians, [HMP] should be much more responsive to the social and economic situation in the country’. The Malayanization of management and the board accelerated, and preferential opportunities for Bumiputera businesses were introduced in HMP’s vendor policy. There was also to be a new marketing effort in the high-growth economies of Northeast Asia, encouraged by Prime Minister Mahathir’s ‘Look East’ policy (see below). Changes in marketing policy reaped massive direct savings on selling commissions paid ahead, amounting to over RM1 million yearly, while HMP now favoured Malaysian-registered shipping and insurance in transporting its products, thus meeting government policy efforts to stem the drain of ‘invisible’ earnings overseas.3 Tan Tat Wai, who worked with Ismail Ali at Bank Negara and served as a director of PNB-controlled companies, recalled that

Tun [Ismail] was keen to expand Guthrie and Harrison’s palm oil refining operations downstream which, at the time, was still dominated by European interests. He wanted to enhance value adding in the supply chain and to have more direct access to the end consumer markets.4

Anglo–Malaysian relations on the rocks

The takeovers also need to be seen in the context of strained Anglo–Malaysian relations. The rot set in, ironically, during the Anglophile administration of Tunku Abdul Rahman, Malaya's/Malaysia's first Prime Minister. In 1966, the UK’s refusal of additional defence and development aid to Malaysia led to the end of Commonwealth preferences for British imports. In November 1967, the 14 per cent devaluation of the pound sterling against the US dollar hit Malaysia especially hard, given the country’s concentration of currency reserves in sterling. There followed in January 1968 Britain’s decision to accelerate its military withdrawal from ‘East of Suez’ at a time when Malaysia was still reliant on the UK for external defence (White, 2003, pp. 229–31). Britain’s abandonment of its Commonwealth ally appeared confirmed in July 1972 with the sterling float,—denounced by Finance Minister Tan Siew Sin as ‘de facto devaluation’ (Bank of England Archive, 1972; White, 2017, p. 222). Then came Britain’s entry into the European Economic Community in 1973 and a de-emphasis on Asian interests. UK Foreign Secretary David Owen admitted to Hussein Onn in 1977 that British governments

...had been obsessed over the past 15 years or so ...with entering the European Community ...[Owen] regretted the tendency, which had developed over the last few years, to neglect our former links with countries like Malaysia.5

Tun Tan Siew Sin, Malaya/Malaysia's first Finance Minister, and later first Chairman of Sime Darby
Malaysia Today, 4 August 2018 
Under Prime Minister Margaret Thatcher, antagonism mushroomed after a hike in fees in 1980 for overseas students studying in UK universities adversely affected thousands of Malaysians. Meanwhile, in the wake of the Guthrie Dawn Raid, changes to London Stock Exchange rules made it more difficult for Malaysian government-linked corporations, and similar enterprises, to mount such offensives. It appeared to the Malaysian government that Britain was obstructing Malaysia’s development aspirations. Anglo-sceptic Prime Minister Mahathir launched a ‘Buy British Last’ campaign in December 1981 and a ‘Look East’ policy three months later in which Malaysians were encouraged to emulate the economic model of Japan and the Republic of Korea, and embrace their values and work ethic. These East Asian ‘tiger’ economies appeared to provide a better fit for Malaysia’s state-led economic development strategy than did Thatcher’s lauding of free enterprise (Khadijah, 1999, pp. 71–89).

Appreciating the wider threat to British trade and consultancy opportunities by continuing to support the ex-colonial agency houses, the UK’s Foreign & Commonwealth Office (FCO) encouraged firms such as H&C and Unilever to comply with the NEP (National Archives, UK). By the early 1980s, senior officials in Whitehall sought a modernized, equal relationship with Malaysia more befitting the post-colonial age. This attempt was in part because by 1982, the Central Intelligence Agency appreciated that Britain lacked clout in the country, given that London ‘no longer has a large financial stake in its former colony, and Kuala Lumpur does not fear the economic consequences of alienating British interests’ (Central Intelligence Agency, 1982, p. 5).
Irrespective of foreign-policy shifts, Britain was not a solid economic anchor anyway, given its parlous economic performance in the 1970s. Tan Siew Sin complained in April 1972 to a UK Treasury official about a British rate of inflation ‘normally associated with a developing country’, trade unions ‘as powerful as the Government’, and a dangerous predilection for ‘stop-go economics’ (White, 2017, p. 223).

Business strategy and reaction

The transition to Malaysian ownership was not smooth and uncontested, however. While the UK macroeconomy had substantial issues, British business groups in Malaysia demonstrated entrepreneurial dexterity by strengthening control of their assets from the 1960s through mergers and the creation of pyramid structures topped by holding companies. Moreover, British managerial dominance in rubber, tin, and palm oil continued to benefit from a historical legacy of complex webs of cross shareholdings and interlocking directorships that allowed control of associated and satellite companies that the Malaysian agencies frequently did not fully own (Drabble and Drake, 1981, pp. 314–18; White, 2004, pp. 4–9).

Further reorganizations in the 1970s only served to confirm the Malaysian government's perspective that British firms were obstructive and insincere about Malaysianization and about delegating decision-making from London. During 1977, the merger of H&C’s leading plantation companies—the so-called ‘Three Sisters’—was identified as ‘a move to satisfy Malaysian demands for a degree of Malaysian interest’ (Quigley, 1978). Nevertheless, despite rationalization, a ‘spider’s web’ of cross holdings continued to allow H&C managerial control (Bartholomew, 1978). Indeed, ‘through a string of share issues and acquisitions’ H&C had ‘made itself immune to unwelcome approaches’ (Bartholomew, 1980). A similar scheme to merge four plantation companies in the Barlow group during 1979 was characterized by financial circles in Kuala Lumpur as designed ‘to ward off “predatory Chinese interests” or efforts by Bumiputra … institutions to carve off slices of the Barlow empire’. At a time of high land values and commodity prices, the Barlow family directors also ‘gambled on the consolidation’ as a ‘method of self-protection’ (AWSJ, 1979).

Further, what often prompted intervention by Malaysian agencies was the knowledge that the investment houses were siphoning off profits to diversify outside Southeast Asia rather than reinvest locally. Dennis Pinder’s trial for criminal breach of trust in 1975 revealed that the former chief executive of Sime Darby had squirrelled away Malaysian-earned profits in a hedge fund in the Bahamas. The secret stash was designed as compensation for Sime Darby’s expatriate managers ‘should they be affected by political disruption or nationalization of the group’s assets’ (Straits Times, 1975). Accepting the ‘domino theory’ about the fall of Southeast Asia to communism, especially after American forces fled Vietnam in the mid-1970s, Guthrie executives sought alternative industrial investments in supposedly safer western economies.6 By 1977, sales from Guthrie’s Malaysian plantations were just one-quarter of the parent company’s total income (Saruwatari, 1991, p. 380). As with Dunlop and the divestment of its plantation interests, Guthrie also frustrated the Malaysian authorities in 1981 by selling its trading business to Malaysian Chinese interests, thus accentuating ethnic corporate imbalances (Shakila Yacob and White, 2010, p. 957).

Despite geographical diversification, however, the agency houses refused to surrender majority control of their holding companies in London. PNB’s boss, Ismail Ali, revealed to the British High Commissioner after the Dawn Raid that Guthrie had proposed a sale of 49 per cent and retention of 51 per cent in British hands. Finance Minister Razaleigh said it should have been the other way round, and hence ‘all the bad blood that followed could have been avoided for the sake of this 2 per cent’. However, as an FCO senior official appreciated, this mouse-sized 2 per cent would have mammoth consequences because it would have meant loss of overall control by British investors.7 As John Gullick, a non-executive director of Guthrie in 1981, explained, as a public company with obligations to existing British shareholders, the directors ‘did not think that retaining only a minority stake would be satisfactory’ (Shakila Yacob and White, 2010, p. 934).

In contrast, Japanese companies, which were becoming increasingly present in the Malaysian economy, were prepared to accept minority shareholdings in joint ventures, and were also more responsive to calls to invest in the growing manufacturing sector, which was prioritized in national development plans (Khadijah, 1999, pp. 69–70).

Some British firms with a tradition of local integration, notably J. A. Russell, producer of Malaysia’s celebrated Boh Tea, proved better able to adapt. Expatriate family control survived through accommodating PNB with a 26 per cent share and a further 4 per cent stake for existing and ex-employees (Wong, 2010; The Star, 2005). Concurrently, powerful institutions in the City of London spied opportunities in Malaysianization. The premiere merchant bank, Rothschild, developed a close working relationship with Tengku Razaleigh during PERNAS’s corporate manoeuvres against London Tin and Sime Darby and was a trusted confidante to PNB in the swoop on Guthrie (Shakila Yacob and White, 2010, pp. 953–4; Shakila Yacob and Khadijah, 2012, p. 467).
Malaysianization: the oil palm industry in Malaysia in the 1980s


Three interlocking factors—Malaysia’s particular brand of economic nationalism, the changing nature of Anglo–Malaysian relations, and businesses’ own strategies—account for the demise of British firms in natural resources. It is difficult to quantify which of these factors was the most important but, without the determination of the Malaysian state to restructure the country's economy and society through Malaysianization and Malayanization, the end of British corporate domination probably would not have happened so fast. Nevertheless, the strained nature of Anglo–Malaysian relations, exacerbated by the intransigence of many British business groups, fired Malaysianization, making a cooperative Commonwealth partnership between Britain and Malaysia less likely.

Further reading:

Archives New Zealand. 1981. AATJ/W3566/7428/462/29/6/6/4/2/1. New Zealand High Commissioner, Kuala Lumpur to Secretary of Foreign Affairs, Wellington, 1 May 1981.

Asian Wall Street Journal [AWSJ]. 1979. ‘Four Rubber Plantation Firms Take Step Toward Conforming with Malaysianization’. Issue: 22 June 1979.

Bank of England Archive. 1972. ‘Negotiating Brief: Malaysia’. OV 44/245, London. 5 July 1972.

Bartholomew, J. 1978. ‘Fighting for the Empire’. The Financial Times. Issue: 24 January 1978.

________ 1980. ‘Back into the Battle’. Far Eastern Economic Review. Issue: 23 March 1980.

Central Intelligence Agency. 1982. Freedom of Information Act, Electronic Reading Room, EA 82-10038. ‘Malaysia: Tilting at Foreign Economic Interests: An Intelligence Assessment’. March 1982, p. 5.

Davenport-Hines, R.P.T. and Jones, G. (eds). 1989. ‘British Business in Asia since 1860’ in British Business in Asia since 1860. Cambridge: Cambridge University Press. p. 7.

Drabble, J. H. and Drake, P. J. 1981. ‘The British Agency Houses in Malaysia: Survival in a Changing World’. Journal of Southeast Asian Studies. V. 12 Issue 2, September 1981, pp. 297– 328.

Far Eastern Economic Review [FEER]. 1979. ‘The Inner Thoughts of Hussein Onn’. Issue: 26 January 1979.

Glew, R. and Chander Velu. 2020. ‘Malaysianization and the Barlow Boustead Estates Agency’. Journal of the Malaysian Branch of the Royal Asiatic Society. V. 93 (1), No. 318 (June 2020), pp. 43–66.

Gomez, E. T. and Saravanamuthu, J. (eds). 2012. The New Economic Policy in Malaysia: Affirmative Action, Ethnic Inequalities and Social Justice. Singapore: NUS Press.

Jomo K. S. (ed.). 1990. ‘Malaysia’s Tin Market Corner’ in Undermining Tin: The Decline of Malaysian Pre-eminence. Sydney: Transnational Corporations Research Project. p. 73.

Khadijah Md. Khalid. 1999.Malaysia-Japan Relations: Explaining the Root Causes of the Pro-Japan Orientation of Malaysia in the Post-1981 Period. PhD thesis, School of Oriental and African Studies. London: University of London.

Koike, K. 2017. ‘Managing Agency Capitalism and Malayan Rubber: Harrisons & Crosfield, Ltd. (1900–1940)’. Journal of the Malaysian Branch of the Royal Asiatic Society. V. 90 (1), 312 (June 2017), pp. 73–100.

Mahathir Mohamad. 2012. ‘Tin Cartel’. 23 July 2012. (

McVey, R. 1992. ‘The Materialization of the Southeast Asian Entrepreneur’ in Ruth McVey (ed.), Southeast Asian Capitalists. Ithaca: Southeast Asia Program, Cornell University. p. 172

Puthucheary, J. J. 1960. Ownership and Control in the Malayan Economy (Singapore: Eastern Universities Press).

Quigley, D. 1978. ‘Plantations: Clearing a Way Through the Undergrowth’. Times. Issue: 25 January 1978.

Saruwatari, K. 1991. ‘Malaysia’s Localization Policy and its Impact on British-owned Enterprises’. The Developing Economies. V. 29, 4 (December 1991), pp. 371–386.

Shakila Yacob and Khadijah Md. Khalid. 2012., ‘Adapt or Divest? The New Economic Policy and Foreign Businesses in Malaysia (1970-2000)’. Journal of Imperial and Commonwealth History. V.40, 3, pp. 459–482.

Shakila Yacob and White, N. J. 2010. ‘The “Unfinished Business” of Malaysia's Decolonisation: The Origins of the Guthrie “Dawn Raid”.’ Modern Asian Studies. V. 44, Issue 5, September 2010, pp. 919–960.

The National Archives of the United Kingdom (undated.) TNA, FCO 15/3264-9.

The Star. 2005. ‘Jolly Good Tea and Company’. Issue: 4 September 2005.

Straits Times. 1975. ‘Pinder Trial Opens’. Issue: 1 April 1975.

White, N. J. 2003. ‘The Survival, Revival and Decline of British Economic Influence in Malaysia, 1957–70’. Twentieth Century British History. 14(3), pp. 222–242.

________ 2004. British Business in Post-Colonial Malaysia, 1957–70: ‘Neo-colonialism or ‘Disengagement’?. London: Routledge.

________ 2017. ‘The Settlement of Decolonization and Post-Colonial Economic Development: Indonesia, Malaysia and Singapore Compared’. Bijdragen tot de Taal-, Land- en Volkenkunde. v. 173, Issue 2–3, pp. 208–241.

________ 2018. In Trust: A History of PNB. Petaling Jaya: MPH Group Publishing Sdn. Bhd.

Wong, Y. T. 2010. ‘More Than a Tea Planter: John Archibald Russell and His Business in Malaya, 1899–1933’. Journal of the Malaysian Branch of the Royal Asiatic Society. V. 83 (1), (June 2010), pp. 29–51.

1 With Professor Shakila Yacob, Universiti Malaya, the author is completing a full-length monograph on British investment in Malaysia during the 1970s and 1980s, to be published by Routledge.

2 Interview with Tengku Razaleigh Hamzah, Kuala Lumpur, 17 July 2013 cited in Nicholas J. White, In Trust: A History of PNB, Petaling Jaya: MPH, 2018, p. 198.

3 Speech at the opening of Harrisons Malaysian Plantations Seminar, 18 October 1984 reproduced in PNB, Towards a Shared Vision: Beyond Conventional Wisdom, Kuala Lumpur: PNB, 2007, pp. 164–5 cited in White, In Trust, pp. 259–60.

4 Interview with Dato’ Dr Tan Tat Wai, Kuala Lumpur, 15 August 2017 cited in White, In Trust, pp. 259–60.

5 TNA, FCO 15/2237, Record of conversation, 15 June 1977.

6 Letter to the author from Mark Gent (Guthrie chief executive in Malaysia, 1969–1979 and chairman in London, 1979–1981), 21 April 2003.

7 FCO 15/3268, note by William Bentley, 2 July 1982.

c/o Asia-Europe Institute
University of Malaya,
50603 Kuala Lumpur

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