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International Business Expansion:
MALAYSIA
Ashley LaTorre, Tina Wong, Ahmad Nizamuddeen, Tracy Chen, Shayne Zhou
Professor Eydis Olsen
INTB 200
MAY 2014
Micro Analysis
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“In present day America and other nations around the world Globalization is the
answer to economic success. Globalization is defined as “the shift toward a more
integrated and interdependent world economy” (Charles W.L Hill, “What is
Globalization?”). This a trend that is occurring rapidly and is not leaving any time soon.
Countries not adopting the trend are not as successful as countries that are. A great
example of globalization gone right is China. Because they are adapting to a more global
economy and adopting a more free-market economy their GDP has increased
dramatically and now has the position of the second largest economy in the world (The
World Factbook, “China”). One main contributor to China’s economic success was the
increase in Foreign Direct Investments or FDI. FDI increased from $2 billion to $100
billion annually.
Our team would like to show the same hope that other nations saw in China to
Malaysia. It starts with the success of one multinational corporation in another country to
inspire other corporations to also place their foot in another country. We want to lend a
helping hand in the move towards a more integrated world economy because we believe
there is great potential in realizing our global opportunities and acting on them. We
believe our opportunities rest in Malaysia’s food industry through the further expansion
of fast food. The International Business Expansion of American food in Malaysia could
be successful because of our views of other fast food expansion success such as
McDonalds, Papa Johns, and Subway etc.
Any time a new company is introduced to a new state or country that company
needs to consider the benefits and challenges of considering such expansion. Thankfully
we are not the first American company to expand to Malaysia so there is not too much
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adversity to face but this also prevents great obstacles. We are going to assess these
questions that can help us come to our conclusion on whether we should or should not
expand to Malaysia.
The benefit of doing business in Malaysia is that we would be competing in a
market that is not as advanced as the food industry in America where fast food is
common. We believe there are benefits in contributing to the expansion of the concept of
fast food but geared more to Malaysian culture. We believe if we can combine the
American business ideas of faster food is better food and Malaysian popular food we
believe it would give us a competitive advantage over our other American competitors.
We can do this by successfully recruiting local chefs and business executives to work
with us during this expansion and also by immersing our executives into the culture
beforehand to learn more about Malaysian culture.
With entering a market that has already experienced American food corporations
and business ethics there could be preconceptions of how we might due business. Before
some communist countries opened themselves to the free market economy they had their
beliefs about American business ethics and it was the foundation of these beliefs that
influenced countries in deciding to limit or completely ban Foreign Direct Investment
from other countries. Though there are already existent American and other global
companies in Malaysia, there could already be certain stereotypes about our business
practices.
Another challenge that we face by expanding to Malaysia is the cultural
differences between American and Malaysian culture. While American food is
considered more fattening, salty, and savory, Malaysians love their spices, grains and
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greens (Mark Wiens, “The 10 Most Delicious Malaysian Foods: Have You Tried
Them?”). This poses a great challenge because as an ethnically diverse group of
executives we are use to the ways of cooking foods specific to our culture and we have to
understand what the Malaysian public enjoys and wants. It is crucial to our success that
we immerse ourselves in Malaysian culture to learn the ways of Malaysian cooking.
Thankfully our business partner Ahmad is a native to Malaysia and can help us to easily
adapt to the way they live and introduce us to the things they love and enjoy.
Macro Analysis
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Location wise, Malaysia is a country with a population of 29.24 million people,
which is located at Southeastern Asia. It can be separated into two parts; Malaysian
Peninsula and East Malaysia bordering Thailand, Singapore and Brunei respectively. Its
major industries that play an important role in stabilizing its economy are mainly palm oil
and petroleum. “Malaysia currently accounts for 39 % of world palm oil production and
44% of world exports”- (Malaysian Palm Oil Industry website). Rubber production and
petroleum industries in Malaysian Peninsula and logging in East Malaysia also have been
great contributors to its economy.
Malaysia is very rich with cultures as Malaysians come from various types of
background and races. Demographically, Malaysia consists of “50.1% Malay, 22.6%
Chinese, 11.8% indigenous, 6.7% Indian, 0.7% other races as of 2010”- (The World
Factbook, CIA official website). Malaysia, which has a GDP per capita of $14,800 can be
considered a newly industrialized country. Its economic system is a “growing and
relatively open state-oriented and newly industrialized market economy”- (Princeton.edu
website).
Malaysia and all other Asian nations such as Thailand, Singapore and Brunei have
been undergoing economic boom and rapid development since the late 20th centuries.
Malaysia uses Malaysian Ringgit (RM) as its currency and currently is traded for 3.10
RM for a US dollar. According to 2014 Index of Economic Freedom, Malaysia is ranked
9th out of 42 countries in the Asia–Pacific region and made very impressive
improvements in seven of the 10 economic freedoms including financial freedom,
investment freedom, labor freedom, and business freedom. (Heritage.com website)
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Malaysian government has always played an important part to strengthen and
stabilize its economy. One of the most remarkable actions that has been taken is the
creation of the New Economic Policy, which was published in 1971. It is essentially a
policy that leads to transforming Malaysia into from the third world country status being
a developing country (Wawasan 2020). It also functions to eradicate poverty to the fullest
extent and to separate the economic function with races (historically, Malays worked in
the suburbs for agriculture, Chinese worked for tin mining in the city and Indians worked
in rubber production in the villages).
On the other hand, the government also implemented another policy called
National Vision Policy in 2001 essentially as a guide for the development of Malaysia. It
functions to push economy towards higher-technology production. Malaysia has always
been known as a very politically stabled country. Fundamentally, Malaysia practices
federal representative democratic constitutional monarchy system. The King (Yang
Dipertuan Agong) is a head of the country and the Prime Minister heads the government.
The Barisan National (BN) party has been in government ever since independence. The
party also merged with MCA (Malaysian Chinese Association) and MIC (Malaysian
Indian Congress) to strengthen its position.
In terms of Malaysia’s financial market, “Malaysia continues to maintain a liberal
foreign exchange administration (FEA) policy which are mainly prudential measures to
support the overall macroeconomic objective of maintaining monetary and financial
stability while safeguarding the balance of payments position- (Malaysian Investment
Development Authority official website). For foreign investors, they have the freedom to
invest in direct or portfolio investment in any form of Malaysian Ringgit (RM) assets.
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“The benchmark interest rate in Malaysia was last recorded at 3 percent. Interest
Rate in Malaysia averaged 2.93 Percent from 2004 until 2014, reaching an all time high
of 3.50 Percent in April of 2006 and a record low of 2 Percent in February of 2009”(Trading Economics website). The Central Bank of Malaysia (Bank Negara) reports the
interest rate in Malaysia. They are also responsible for deciding the interest rate decision
on regular basis.
Up until now, Malaysia has always worked to stabilize and strengthen its
economic performance in so many ways including joining quite a number of international
organizational memberships such as Association of Southeast Asian Nations (ASEAN),
World Trade Organization (WTO) and Asia-Pacific Economic Cooperation (APEC).
These organizations have a really big influence on helping Malaysia’s economic
performance throughout the years by providing a lot of opportunities to the Malaysian
economy.
By year 2013, Malaysia hit the highest-ever Foreign Direct Investment at RM38.8
billion, exceeds its record in 2011, which was RM37.3 billion. The FDI of Malaysia
recorded in 2013 showed an increase in all sectors of the economy and was spread out all
over the nation. Other than satisfying FDI record within the nation, Malaysia was rated
the 16th best investment destination by the United Nations Conference on Trade and
Development (UNCTAD) in 2013. It is also one of the top 20 economies with the highest
FDI rates of return.
The government offers supportive policies towards foreign investors. For
instance, the foreign investors hold 100% of the equity in all investment in new projects,
as well as investment in expansion projects. Foreign companies in the manufacturing
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sector are also allowed to employ expatriates where certain skills not available in
Malaysia. Other supportive policies related to taxes as well as tariffs are explained as
follows.
Taxes
Following tables show the overall tax policies related to FDI in Malaysia. The
company tax is 25%. In the United States, the Federal tax rates on corporate taxable
income vary from 15% to 35%. Sales tax and service tax are all relatively below 10%.
One benefit might be the Malaysian government imposes considerable capital allowance.
The administration gives both initial and annual capital allowance, which the rates vary.
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Malaysia has average tariff of 5%. As for food industry, the tariff is 2.28% for
preparations of meat, of fish, or of crustaceans. The preparations of vegetables, fruits,
nuts or other parts of plants have a tariff of 1.69%. Overall, the foods, beverages and
tobacco faced a mean tariff of 5%, which is 10% less than the average for all such tariffs.
GDP
Malaysia is a rapidly developing economy in Asia. Malaysia, a middle-income
country, has transformed itself since the 1970s from a producer of raw materials into an
emerging multi-sector economy. The Government of Malaysia is continuing efforts to
boost domestic demand to wean the economy off of its dependence on exports.
Nevertheless, exports - particularly of electronics - remain a significant driver of the
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economy. Picture below provides - Malaysia GDP Growth Rate - actual values, historical
data, forecast, chart, statistics, economic calendar and news.
From the data above, we can see in the last quarter of 2013, Malaysian economy
expanded at a faster pace of 2.1 percent over the previous quarter, up from 1.7 percent in
the previous three-month period.
Unemployment rate
From the data above, we can see the unemployment rate of Malaysia for is around
3.0 – 3.4. Since from 1998-2014, the highest unemployment rate for Malaysia is 4.5, the
lowest one is 2.7. Comparing with the past time, Malaysian’s performance for 2014 is not
bad.
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Gini coefficient
Gini coefficient is commonly used as a measure of inequality of income or wealth.
The Gini coefficient measures the inequality among values of a frequency distribution. A
Gini coefficient of zero expresses perfect equality, where all values are the same. A Gini
coefficient of one expresses maximal inequality among values. In 2012(newest), the Gini
coefficient is 0.431. Comparing with the other Asian country, it is still in a relatively high
level.
Minimum Wage
As part of the government´s drive to transform the country into one of the highsalary nations, Malaysia has implemented its first nation-wide minimum wage in 2013, a
raise of 65% in basic salary, according to The New Straits Times Malaysia. The
workers get a minimum salary of up to Riggit 900 per month, up from Ringgit 546, in
most parts of Malaysia. The salary of those recruited as general workers can't be less than
Ringgit 900 (US$294) per month in peninsular Malaysia and Ringgit 800(US$261) in
Sabah, Sarawak and the Federal Territory of Labuan. The new pay scale does not include
subsistence allowance and overtime pay.
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Major trading partners and investors
Here are top 10 trading partners and investors for Malaysia. From the data, we can
see The United States is the largest foreign investor in Malaysia. American companies are
particularly active in the energy, electronics, and manufacturing sectors. The cumulative
value of U.S. private investment in Malaysia exceeds $10 billion. The United States is
Malaysia's largest trading partner and Malaysia is the tenth-largest trading partner of the
U.S. Annual two-way trade amounts to $49 billion. The United States and Malaysia
launched negotiations for a bilateral free trade agreement (FTA) in June 2006. As of 2010
the two sides have yet to conclude an FTA despite eight rounds of talks.
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Overall
There are advantages and disadvantages for foreigner investment in Malaysia.
Advantages:
1. America and other nations around the world Globalization is the answer to
economic success. Globalization is defined as “the shift toward a more integrated
and interdependent world economy
2. The government offers supportive policies towards foreign investors. For
instance, the foreign investors hold 100% of the equity in all investment in new
projects, as well as investment in expansion projects.
3. The GDP grown of Malaysia is not creditable impressive, it is on recover stage.
Malaysian government trying to ease policy to attach more foreigner policy in
order to recover and improve GDP.
4. Even the unemployment rate is not into an emergency situation, but still not
outstanding comparing with the other developing countries. The Malaysia
government will not reject a chance to increase job positions.
5. The United States and Malaysia have long-term friendly cooperation. The United
States is the largest foreign investor in Malaysia. And America is increasing the
investment yearly.
Disadvantages:
1. Government tries to transform Malaysia into a high-salary country. The
minimum wage of Malaysia is 9.81, which is higher than America. This
disadvantage will increase the cost of sales.
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2. Malaysia is the cultural differences between American and Malaysian culture.
While American food is considered more fattening, salty, and savory,
Malaysians love their spices, grains and greens
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Strategy
When we are talking about International business strategy refers to plans that guide
commercial transactions taking place between entities in different countries. Typically,
international business strategy refers to the plans and actions of private companies rather
than governments; as such, the goal is increased profit.
Expand our food industry in Malaysia, business strategy played an important roll in
our decision making part. We need to consider the actual environment in Malaysia. It is
located in south Asia, which pretty close to the equation. Malays, Chinese and Indians
influence the food there. Their unique location and population groups made their food
industry different than other countries in Asia. In this case to developing our new food
industry in Malaysia, thinking about provide something that can be made from Malaysia's
own fruits or vegetables is important. This can help us to make sure that the food we
provide is made in locally and always fresh to eat.
Since there are already food industry in Malaysia, what types of food are we going
to provide with which type of restaurant became important. In this case, competitive
strategies are being considered compare with their local business. Competitive strategies
are concerned with doing things better than rivals. To be competitive a firm shouldn't just
copy the ideas of rivals. They should seek to out compete rivals. There are two main
ways of being competitive. First of all, by selling goods at lower prices than our rivals.
This is possible when a firm is the market leader and benefits from economies of scale.
Second of all, Secondly, by differentiating your product from those of rivals - which
enables you to charge a higher price if desired.
The food industry is divided into two main segments. At one end of the market are
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the premium price category firms such as high-end restaurant that concentrate on
differentiation. They offer better service to passengers, more types of food and more
individualized attention. At the other end of the market the emphasis is on being the low
cost producer and is exemplified like food truck. Those focuses on cheap food with lower
cost that also provides costumer food without any services after.
Beside what types of food industry we are going to expand, the food material is
always important in this industry. On the one hand, if we use local crops we can help
their local economics, on the other hand if we can provide some new products that made
by local crops but people never taste before, that will be a brand new way to build our
reputation in that area. Our business strategy is that using local crop to make new
products that makes people like it. Our food are provide in different types of restaurant
that rely on the local economics and also how much people willing to pay about it.
Mixing eastern and western way to cook is another good way to develop our food
industry in Malaysia as well. Building our business there at the same time bring a brand
new type of food that people never experienced before. At the same time, lower our price
into this brand new market is also a great way to start our international food industry in
Malaysia as well, then we build our reputation on it to be highly competitive in their local
business.
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Works Cited
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<http://www.heritage.org/index/country/malaysia>.
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"Malaysia's FDI Hit Record High in 2013." Malay Mail Online. N.p., n.d. Web. 14 May
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<http://migrationology.com/2011/04/10-best-malaysian-foods/>.
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