Situated in Southeast Asia, Malaysia is one of the rising Asian economic giants thanks to its sound economic approaches and its strategic placement in Malaya Peninsula. The country has experienced rapid development over the past 60 years moving from a third world country to as a primary commodities exporter to become one of the countries with the strongest industrial base for foreign electrical and electronics multinational companies (PWC 3). The country has additionally benefitted from high oil and gas prices, given its position an oil and gas exporter. However, the Malaysian government recognized the fault in overreliance on petroleum as the main source of foreign exchange. Over the past 10 years, consequently, the country has moved from its petroleum reliance to becoming a regional hub for financial and IT services, tourism and logistic sectors (PWC 3). From receiving great inflows of foreign direct investment (FDI) in the 70s, Malaysia has come of age as an economic haven, and has received accolades as an innovative international Islamic financial center (Mun Lin and Man 11; PWC 3). Perhaps it is the sound economic policies, business environment and culture, as well as the relative ease of doing business that have led to the country’s economic development, as well as it world renown reputation as a center for regional expansion into the Association of Southeast Asian Nations (ASEAN). An additional explanation for the rise of Malaysia as a business hub is its “Truly Asia” mix of ethnicities including the Malay, Chinese, and Indian population that occupy the vast country. In view of Malaysia’s rapid development, this paper seeks to present the reasons for interest in Malaysia, its economic and trade environment, the political, legal and regulatory environments as well as explore relevant current events that may affect doing business in the country. The paper will also delve into reasons for business success in Malaysia; give a proposal for a business in Malaysia, in addition to presenting business opportunities in the country.
Reason for Interest
Over the past few decades, Malaysia has experienced phenomenal economic growth, which has enabled the country move from being one of the poorest to becoming one of the fastest growing economies in the world. Currently, Malaysia ranks 29th in the countries with the largest economies by purchase parity, having a $357.9 billion GDP in 2007 and currently has a $9,546 Gross Domestic Product (GDP) per capita (Karimi and Yusop 3; PWC 12). Moreover, Malaysia is an open economy, heavily reliant on business, and has had a continued growth of its GDP at an average of 6.4% annually since 1970 (Karimi and Yusop 3; PWC 12). Such an open market and constant exponential growth in the country’s economy warrant interest in the country, particularly for business prospects.
Malaysia is evidently an upper middle-income economy with one of the highest purchasing powers in Asia. Although the country’s consumers are price-sensitive, they also have great concerns on quality of products in addition to being brand conscious (PWC 12). Moreover, aside from their demand of quality, the consumers enjoy shopping, as is one of the consumer past times. Even more interesting in the country is the median age that is 26 years. From a marketing point, Malaysia presents great opportunities for manufacturers and service providers. Shopping being a past time means that consumers are more likely to make impulse purchases, coupled with the consumers’ knack for high quality products and services and the median age, business can easily make sales to the consumers, especially after establishing a brand. Interest in Malaysia, therefore, is it high purchasing power, exponential growth, open market, and the promise it hold for businesses wishing to operate in the country.
Economic and Trade Environment
Malaysia operates within an open economy. The open economy is a result of on-going economic reforms, which have done well to improve the country’s competitiveness and ease of doing business. The reforms in the economic legislation have helped push the country’s economic growth over the past three decades (Al-Amin et al. 20). Among the indicators of the good economic environment include the blossoming manufacturing sectors, which are contributing immensely to the current economic growth, with a significant share in the country’s GDP. Other industries that are equally contributing to the economic growth are electronics, crude oil, palm oil and timber, all of which are export goods. The goods add value to the country’s exports and are testament to the country’s diversification of its exports in both market and products (Al-Amin et al. 20).
Malaysia’s robust economic growth hinges on a background of a framework of liberal trade and investment in addition to generous use of functional and selective industrial policies (Al-Amin et al. 20). The country’s industrial development and economic supremacy, therefore, is an outcome of the shift the country made leaning towards market-based policies and amendments in its industrial policies introduced since it began its trade liberalizations in the 80s (Al-Amin 20). Reforms in the regulations have also included the financial sector, which has eased the limits in foreign ownership of parts of the financial subsector. Economic reforms in ownership of investment in the country repealed the bulk of domestic equity requirements restricting foreign ownership and investment.
Malaysia has perhaps one of the most liberal trade environments in Asia, following the trade reforms that the country instituted in the 80s. The country’s current trade regime is especially open, even though some nontariff barriers limiting the totality of trade freedom remain at play. The country cut its import tariffs by close to half since 1993, and between that year (1993) and 1997, Malaysia had reduced the duties of both agricultural and items to either their bound rates or lower that the bound rates (Al-Amin et al 21). For instance, in 1996, the country reduce excise on 1,031 industrial items to levels lower than the bound rates (Al-Amin et al 21).
The liberal trade environment has been a boon for the country given the high levels of FDI that have come into the country. In the period between 1992 and 1996, when the country reduced its excise duties, investment in the country averaged 40 percent of the GDP, with the bulk of this invest coming from abroad (Al-Amin et al 21). The investment was especially in the manufacturing sectors of the economy, where currently more than half of the companies’ equity has foreign owners. The country encourages investment through a plethora of tax and non-tax incentives. The trade liberalization efforts have borne fruit for the country, which has seen escalation in imports and exports. Highlighting the escalation are trade statistics, which indicate that import and exports were averagely 86% and 110% of GDP growth between 2001 and 2005, with forecast showing improved prospects in the same (Al-Amin et al 21).
Review of Culture
Malaysia is a multicultural country composed of Malaysians, Indians and Chinese. For this reason, anyone doing business with the Malaysians must be careful to note the difference among the three groups. Each of the three groups has different cultural orientations, and prior knowledge of the group one is to meet for any business dealing is important. Like most Asian countries, Malaysia is a highly hierarchical society, and respect of rank and social status are of utmost importance (Gorrill 2). In any business dealing, therefore, foreigners must send representatives of similar rank to the Malaysian counterpart, failure to which may sour the business dealing, especially when a person of junior rank is the representative.
Religion plays an important role in the lives of the Malaysians. Malaysia culture hinges on religious an array of values borrowing from Hindu, Buddhism and Islam, with a heavy reliance on fatalism. The concept (fatalism) denotes the belief wherein success, failure, opportunity, and misfortune are all a preserve and squarely rest on God’s prerogative (Gorrill 2). The belief in the Supreme Being therefore affects business, and it is unwise to schedule any business meeting on Friday, since it is a worship day. Even more is that business decisions, while based on hard facts and evidence in the west, are subject to personal feelings and the individual’s faith (Islamic). Feelings, faith and emotions therefore take center stage in informing business decisions, and for this reason may take longer given the personal attachment they tend to hold (Gorrill 2). Additionally, given the dominance of Islam in the country, handshakes at the time of meetings should be firm; this is however with the exception of females, who must initiate the handshakes. Islam frowns upon public touching of the opposite genders; hence the reason males do not initiate handshakes with females in any business meeting. In the event the woman does not initiate the handshake, a slight bow with the right hand on the heart suffices as greetings.
Relationships are equally of great importance for the Malaysians. Mutual respect within the highly hierarchical society therefore demands that when doing business, and especially on the first meeting, one does not go straight to the items of business. Thus, building of relationships help in building respect and trust, and the possibility of developing a business relationship. The role of relationships is perhaps evident in job promotions, where while performance is important, good relationship and respect is additionally a great determinant of such job promotions (Gorrill 2). Building relationships is also a way of ensuring continued harmony, tolerance, courtesy, harmony and face (not embarrassing one in public). Courtesy, among the other values, demands avoidance of direct answers (particularly negative ones) as a way of saving face, preventing disagreements and cultivating harmony; three particularly important aspects of the culture.
Political, Legal and Regulatory Environment
Malaysia is a constitutional monarchy, where the country comprises 13 states and three federal territories including Labuan, Kuala Lumpur and Putrajaya. Of the 13 states, nine are monarchs headed by hereditary sultans, serving as the constitutional heads of the states (PWC 9). The other four states on the other hand, are appointed heads, who serve fixed terms as constitutional heads. Perhaps most important for business is political stability ascertained by the democratically elected government, which works smoothly with the constitutional monarchs. The Malaysian government is especially committed to developing the country’s economy evidenced by the numerous legislations aimed at making the country more liberal and open to foreign investment. Economic development is in the blueprint of the political class. Therefore, The Malaysian government put measures in place to encourage higher inflows of FDI into the country. Apart from the policy and legislative incentive mentioned above, the government also allowed larger percentage ownership of foreign equity in companies through the Promotion of Investment Act (PIA) of 1986 (Karimi and Yusop 5). Most recently (2010) the Malaysian government launched the ETP (Economic Transformation Program) aimed at transforming the country into a high-income economy by 2020 (Fah et al. 1483). ETP looks to achieve the feat by creating more than 3.3 million jobs, as well as advance the country’s reputation as a service-based economy. To ensure the success of the program, the government has involved both the private sector and the business community in the program, as a measure against the pitfalls of previous programs that were government-driven without the involvement of the private sector and the business community (Fah et al. 1483).
The country respects and follows the rule of law, with the common law and sharia law coexisting. The pluralism of the law hinges on its colonial legacies under the British Common Law. Before the establishment of the colonial system, sharia law applied. However, after gaining its independence, they infused the two, while work side by side. Legal and civil cases go to the common law, while any offences against Islamic law are tried in sharia courts (PWC 10).
In line with its open economy policy, Malaysia’s regulatory environment continues in its effort to better the business climate for both local and foreign investors. The regulatory environment ensures ease in doing business by making it easier for companies to pay their taxes online (World Bank). International institutions such as World Bank and the International Monetary Fund have lauded Malaysia’s regulatory environment, giving it high scores in several ease of doing business metrics.
Relevant Current Events
The Malaysian government is currently facing a scandal, where the government is defaulting on the payment debts to its investors. The government established fund, 1 Malaysia Development Bhd. (1MDB), began defaulting on the payment of bonds issued by the government last year to a tune of $1.75 billion (Lamar). The default in payment by the Malaysian government causes worry, especially to investors and trade partners, who worry about the fate of their investment in the government. Such blunders are bound to cause a dip in the Malaysian government’s strong reputation, in addition to alienating investors who may not feel safe investing in subsequently issued government bonds. The repercussions of such action may be stripping the government of requisite funds for its investment programs, thereby failure to attain its goals and financial obligations.
Despite its free economy policy, Malaysia has seen some promising business fail to take off or shut down after years of operation. One of the businesses that had to close shop was Rayani Air, an airline service launched in 2015, and was sharia compliant. Rayani Air offered halal food, no alcohol and had its crew wear modest clothing (BBC). The company, which had two Boeing 737-400 planes, about 50 crew and 8 pilots could not continue its operations in the country due to lack of financial and management capacity for operation. Moreover, the airline had flaunted several conditions of its Air Service License, and at the time it folded its operations, it was not able to refund passengers that had booked flights. The airline cited pulling out of investors as the main reason that they could not refund passengers. The cash-strapped airline had additionally been rocked with a strike from its pilots, who the company had not paid.
Another company that failed in Malaysia was Mega TV; the first pay-TV licensed by the Malaysian government, and which started its operations in 195 (Thomas 154). The company offered 5 pay channels on its service with rebroadcast of CNN, YNT/Cartoon Network, ESPN, Discovery and HBO. The company, however, censored some of the programs and news items aired on the channels, which were considered sensitive to the government and its ASEAN neighbors (Thomas 154). The company enjoyed monopoly over the pay-TV segment, until the launch of Astro, which had (Astro) initial exponential growth due to the number of channels it offered. Thus, while Mega TV positioned itself as offered world news through CNN and movies on HBO, it only had five channels in comparison with the 22 channels offered by Astro (Thomas 154). Mega TV’s subscriptions declined causing it to end its transmissions in 2001 (Thomas 154).
Proposed Business in Malaysia
Malaysia has earned the reputation of an innovation hub, and according to Euromonitor, the country is poised to continue in its growth trajectory given the rising domestic demand and export activity. With this growth, businesses, institutions and individuals will look to upgrade their computers, especially laptops (Euromonitor). Another category of computer users projected to grow in demand is gamers and computer peripherals. According to Euromonitor, gaming computers and other peripherals such as VR (virtual reality) are increasing in popularity, as more games and computers include support for the peripherals, and as gamers demand the devices to achieve the optimum gaming experience (Euromonitor). A business in computers and computer peripherals therefore has promising prospects in Malaysia. Even more is that besides a computer business, there is a niche market for computer assembly, especially for the gamers who require higher computer specifications than in the ready-to-use pieces offered by shops, and where the higher configurations are offered, prices are usually restrictively high. Selling assembled computers, not just to gamers, but other users with particularly high specifications, therefore, offers a viable business opportunity.
Present Opportunities in Malaysia
Franchising offers one of the greatest opportunities in Malaysia. With projected economic growth, customers that demand quality in goods and services, are brand conscious, and with a median age of 26, franchising presents business opportunities. Franchising some of the world’s biggest brands such in fast food as Burger King, McDonalds and KFC; in apparel such as Next, Gap, Gucci and Versace; in convenient stores such as Target and 7 Eleven present great opportunities for business people. Moreover, creating and building an own brand, especially one that is Islamic-centric such as one that sells halal food presents a great opportunity for building the brand, since there is available market, and the customers have a high purchasing power.
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