Exploring Malaysia: Opportunities, misconceptions and challenges

Neoh Yi Liang, Regional Director (Kuala Lumpur) from Enterprise Singapore sheds light on doing business in Malaysia

1. What are some of the latest developments in this particular market right now?

Malaysia's GDP in 2017 stood at RM1.35 trillion, a 5.9% increase from 2016. ^This marks the 7th year running where Malaysia has enjoyed GDP growth of above 4%. The result can be largely attributed to strong performances in the services (e.g. retail and financial etc) and manufacturing sectors (eg E&E, Chemical etc).

^The 14th General Election concluded on 9 May 2018 with an unprecedented victory for the Pakatan Harapan (PH) coalition. Led by Prime Minister Dr. Mahathir Mohamad, the federal government has embarked on a campaign to alleviate the cost of living by reducing consumption taxes and raising minimum wages, and reduce federal expenditure by reviewing mega infrastructure projects.

While projects involving public financing may be delayed, private investments, including those from China, continue to flow into Malaysia.

2. What are some of the biggest opportunities? Why should Singapore businesses consider entering?

Malaysia's close proximity and cultural similarities to Singapore have made it a natural first stop of investment and expansion for many Singapore companies, especially the SMEs. Singapore faces various constraints and many companies find that Malaysia offers resources that are complementary.

While many manufacturing activities commonly take place in familiar regions such as Johor Bahru, Penang and Selangor, there are emerging regions on the east coast of Peninsula Malaysia such as Kuantan which could also represent relatively untapped manufacturing potential.

On the other hand, Kuala Lumpur is the hub for Malaysia's economic activity in the professional services sector, where Singapore companies may wish to site their Malaysia head offices in. On the whole, the aforementioned synergies and the private sector's positive impression of Singapore's capabilities has resulted in various fruitful business collaborations.

With a total population of 31.4 million and a large middle class, multi-ethnic Malaysia represents a sizeable demand market with opportunities in consumerism, such as retail, F&B, healthcare, education, and e-commerce. The government's strong commitment to preserve its heritage and culture also makes it a prominent hotspot for tourism and hospitality, especially in areas including Johor Bahru, Klang Valley, Kota Kinabalu, Kuching, Malacca and Penang.

The large youth population and the rising adoption of smartphones also present opportunities in the digital economy, especially for technology start-ups.

3. What are some misconceptions that businesses have about this market?

A misconception is that business opportunities are only present in the oft-mentioned states of Peninsula Malaysia, notably Johor Bahru, Kuala Lumpur, Penang and Selangor. Malaysia comprises 10 other states and two federal territories, including East Malaysia, which have been relatively underserved.

This relative absence of competition could mean opportunities for Singapore companies to capture consumer demand or other benefits, such as state manufacturing incentives. Nevertheless, it is important to adapt one's business strategies to cater to the various states' individual characteristics such as population size and mix, consumer affluence and preferences, as well as preferred industries and activities.

4. What are some of the biggest challenges that businesses would face and how can they overcome these challenges?

The regulatory environment can be relatively challenging as the securing of licenses may require both state and federal approvals. There are a number of foreign investment promotion agencies (federal-, regional-, state-, ministry-level) with varying responsibilities. Therefore, we suggest that Singapore companies engage well-connected local partners with a strong knowledge of local business practices, or engage consultants with specific expertise to help them navigate the business environment.

With the new federal government, changes to certain government policies are to be expected. Revisions to existing labour regulations pertaining to foreigners, an increase in the minimum wage, and the re-introduction of the sales and services tax are some policies that have been raised. Companies should take into account these potential cost factors into their business decisions and financial planning.

Companies interested in Malaysia can work with Enterprise Singapore to better understand the current business landscape and challenges of setting up in the market.

5. What's your top advice for SMEs thinking of entering this market?

Singapore companies typically compete based on quality and reliability associated with the Singapore brand, or unique and niche offerings as opposed to price, due to higher production costs in Singapore. Hence, it is critical to clearly articulate their value proposition vis-à-vis local competitors to substantiate the difference in prices. Once a sufficient consumer base is built, Singapore companies can consider capitalising on the economies of scale and more favourable cost conditions to produce in the market.

While Malaysia and Singapore can be quite culturally similar, it remains important to take note of the nuances of cultural dissimilarity and be sensitive to business preferences. Malaysian business owners and professionals generally spend time and effort to build relationships and trust before working together, thus frequent face time and local presence would help build rapport and mutual trust.

With regard to the managing of their human capital in Malaysia, Singapore companies should also be cognizant of differing characteristics amongst different states. These differences may also have an influence on the working habits of employees from different states (eg Central regions vs Eastern Coast etc).

It is also important for Singapore companies to create meaningful jobs with opportunities for training and up-skilling. Doing so would enable Singapore companies to build positive relations with the local authorities, and add to their long-term goal of growing the country.

For more market insights on ASEAN and information on how Enterprise Singapore can work with your business to venture to the region, please visit www.enterprisesg.gov.sg/ASEAN