Doing business in Malaysia
Historically, for a long time Malaysia did benefit from it's geographical position as a trade hub between different nations. Well-placed geopolitically, mainland part of Malaysia follows the coast among with one of the most strategically vital shipping routes on the globe. Malaysia has used its geographical location as an advantage in order to turn into one of the biggest exporters of several resources, such as tin, rubber and palm oil.
Malaysia has managed to quickly transform its economy from dependence on raw materials and agriculture to a quite modern, competitive country. Services and manufacturing sectors now estimate roughly 75% of country's GDP (51% in services and 22% in manufacturing in year 2014), while agriculture sector currently estimates roughly 9% percent of the GDP.
Malaysian market overview
Malaysia's overall trade worth back in year 2015 estimated US $376 billion. China remains Malaysia's top trading partner having almost 16% market. The second place belongs to the Singapore having about 13% market share, closely followed by the European Union having 10%. Almost 55% of Malaysia's imported goods are brought from eastern part of Asia, with the largest part being imported from China. Other countries with global economy (the United States, EU, and Japan) estimate for 26% of the overall imports in Malaysia.
Business challenges you might face
Malaysia often restricts free trade industries with special protection, for example, the automotive and agricultural sectors. The country is willing to protect strategic industries by setting higher duty rates and various excessive taxes. Malaysia is using a system of import permissions in order to lower imports in protected domestic sectors.
Government restrictions disturb foreign participation in different sectors of economy, including government issued contracts; financial, business, and banking services; and telecommunications. Quite often it is compulsory to maintain a local business partner, usually a Bumiputra (ethnic Malay-owned) company, in order to effectively compete in the market.
Malaysia's level of economic development is a key factor for both consumer and business demand for products and services. Malaysian consumers are quite price sensitive, despite that they are currently used to several decades of rapid economic development. As a result, consumers are attracted to and are familiar with global brand products, high standards of education, quality healthcare products and services, as well as eco-friendly and bio-clean products. The World Bank currently considers Malaysia an upper-middle income country.
Malaysian market entry strategy guide
Many international businessmen think that using services of a local distributor or agent is one of the most efficient first steps to be taken in order to enter the Malaysian market. A local distributor is usually responsible for taking care of custom issues, dealing with the local wholesalers and retailers, marketing the goods directly to big corporations having a big share on the market, as well as taking care of after-sales service. International service providers usually also do benefit from dealing with local partners.
Sales directly to the Government of Malaysia, Government Linked Companies (GLC), or for procurement in strategic sectors of economy constantly favors Malaysian agents or a joint business partners that are classified as a Bumiputra (Malay) company. The word Bumiputera itself defines a group of people who are ethnically Malay. A company can be classified as a Bumiputra company, in case it meets the following requirements:
- Incorporated under the Companies Act, 1965;
- Share capital starting from RM 25,000;
- Shareholders are 100% Bumiputra;
- Board of Directors are controlled by at least 51% by Bumiputra;
- Upper management are at least 51% Bumiputra;
- Supporting Staff are at least 51% Bumiputra.
In sectors of economy, which are not considered strategic neither are controlled by the government, companies, agents, or distributors should be selected strictly based on competitive considerations. However, since the Malaysian market is a very relationship-oriented market, having a local presence or local agent can influence the final outcome.
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