Forest Policy in Malaysia
Malaysia is among the countries in Southeast Asia which has experienced remarkable economic growth and industrialization in the past decade. It is unique in that its success is not a result of adopting any one model for development. Rather, Malaysia’s government identified its goals and sought to create a country-specific model of development suited to their needs for growth. An example of this is the Malaysian government’s increase in exports of manufactured goods rather than concentrating on natural resource commodities as suggested by the World Bank and International Monetary Fund. (pg.6 , HBS)
Unlike its neighbor Singapore, Malaysia is blessed with an abundance of natural resources. Although its exports of natural resource commodities have declined in recent years in favor of manufactured goods (pg. 6 , HBS), Malaysia’s natural resource industry remains an important part of the country’s economic and political agenda.

Malaysia’s Forest Products Industry
It is difficult to ignore the fact that 60% of Malaysia is covered with natural forest and that timber generates more foreign exchange than any other natural resource in Malaysia. The Malaysian government recognized the economic potential of the forest product industry early in the decade and proceeded to play a key role in further developing and promoting this particular sector of its economy through a concessions system and the encouragement of downstream industries.
The Concession System granted logging rights to private parties in exchange for royalties paid to the Malaysian government (pg. 11, HBS). Granting logging concessions to private parties also allowed Malaysia’s government to generate interest in the forest products industry while maintaining a degree of control over the areas and particular use the timber could be logged for. This system did not prove to be very effective in the hands of private interest groups in search of increased profits. With only 1,600 employees to patrol the undeveloped forest areas, the Sarawak Forest Department found it difficult to prevent illegal logging (pg. 12, HBS).
Protection of domestic markets from foreign competition is a common practice among industrializing countries. In the case of Malaysia’s forest products industry, the government encouraged local production of lumber, furniture, and other wood products through the restriction of exporting unprocessed logs. This was known as downstream industries. The encouragement of downstream industries was another important agenda for the Forestry Department of Peninsular Malaysia, a government branch for the overseeing of Malaysia’s forest products industry. "The idea that the forests could be used as a springboard for downstream integration, or ‘resource based industrialization’ appealed to many Malaysian officials." (pg. 13, HBS) To these officials, downstream integration allowed for the employment of a large percentage of the market labor force as well as a decrease in the amount of timber needed to produce jobs and export revenues. (pg. 13, HBS) To further encourage downstream int!
egration, the Malaysian government granted tax breaks, subsidies, and other incentives to domestic manufacturers.

The Problem
Developing industries which deal with the production of natural resource products are very likely to be placed in the international spotlight by drawing criticism from environmental groups around the world. Such is the case for the Malaysian government as explained in the Harvard Business School case study in which Malaysian prime minister Mahathir bin Mohamad was faced with media scrutiny regarding his country’s forest product industry during a visit to the United States. Being a country that is heavily dependent on foreign investment for its economic growth, Malaysia could not afford to simply ignore the criticism its country receives from westerners whose investments they are attempting to attract into the country. The problem lies in differing views on the side of western environmentalists and the Malaysian government.

Western Critics
Although Malaysia contains only 2 - 3% of the world’s tropical forests (pg.3, HBS), the biological potentials and environment potentials found in its rainforests are a cause for concern among western environmentalists.
These environmentalists are quick to point out that often times, the welfare of the environment is far from the minds of those governing a newly industrializing country seeking to capitalize on its possession of valuable natural resources. According to the London Rainforest Movement and the Singaporean and Malaysian British Association, "the rapid destruction of the Sarawak rainforest means that a hugely rich natural laboratory with vast potential for the health of