I is often argued that foreign firms operating in less developed countries have greater X-efficiency than their local counterparts. However, little empirical evidence has been presented to substantiate this claim. This paper attempts to fill part of this gap, first, by presenting data on the level of capital utilisation in Malaysian and foreign firms in Malaysian manufacturing and, second, by testing the importance of X-efficiency in determining differences in the utilisation levels of the two categories of firms. The extent to which capital is utilised is an important part of economic efficiency, for an increase in capital utilisation can result, ceteris paribus, in lower unit costs of production and a higher rate of economic growth.