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Country Analysis: Malaysia

Group Project: Part II

Prepared for:

Professor Tong

Prepared by:

Langston Hines

Rhonda Ridgell

Alisa Derks

AbdullahAlshetwi

Date:

October 2, 2014

Introduction

Many companies that enter foreign markets fail because they do not understand the culture of the people. We at Dick’s Sports Goods have done our research and are ready to enter Malaysia! The process was long but in the end it will be well worth it. Some of the steps we had to take to understand the Malaysian culture were learning the consumer market, economic profile, business culture, and political environment.

Our target market for Malaysia is sports enthusiast, marketing efforts directed towards young children all the way to adults who are interested in athletic and outdoor activities. We plan to target a similar market in Malaysia as our market in the United States. We feel that using the same target market as in the United States can be successful with some adaptations to our products. Demographics play a major role when trying to learn the culture of a foreign market. As of July 2014 Malaysia had an estimated population of greater than thirty million. That thirty million is divided into several different ethnic groups such as 50% Malay, 23% Chinese and 16% other. Most of the population (72.8%) is located in urban areas in cities such as Kuala Lumpur (capital), Klang and Johor Bahru.

Next thing was to figure out the consumer market. As in recent news articles Malaysia has become one of the wealthiest emerging economies. Which means the country is making more money and the consumers have more money to spend. When looking at the market we had to find out where some of our potential customers shop. One example, Klang Valley, which has an estimated population of about seven million people, is the most developed retail market. As in the United States, Malaysia has shopping malls and different types of shopping centers. We think these shopping malls will be a great way to enter the foreign market. Klang Valley is home to some of the best available malls in Malaysia, and getting into one of them will be very beneficial to our business. One thing we researched and will be aware of is the two main consumer groups they have and we are ready to implement different strategies for each group. The one group, “The Bumiputera,” which describes the Malay race and other people indigenous people, and the other is Malaysian-Chinese. Both groups have different buying patterns.

Economic Profile

Malaysia first started out solely producing raw materials and is now an emerging multi-sector economy. “By 2020, Malaysia wants to have high-income status and move farther up the value-added production chain by attracting investments in Islamic finance, high technology industries, biotechnology, and services.” (Index Mundi) The Prime Minister, NajibRazak, created a program called the Economic Transformation Program (ETP), which strives to increase Malaysia’s economic growth. Main exports that are very important in Malaysia’s economy are electronics, oil, gas, palm oil, and rubber. “As an oil and gas exporter, Malaysia has profited from higher world energy prices, although the rising cost of domestic gasoline and diesel fuel, combined with sustained budget deficits, has forced Kuala Lumpur (Malaysia’s capital) to begin to address fiscal shortfalls, through initial reductions in energy and sugar subsidies and the announcement of the 2015 implementation of a 6% goods and services tax. The oil an gas sector supplies about 32% of government revenue in 2013.” (Index Mundi) The central bank of Malaysia, Bank Negra, has substantiated foreign exchange reserves, and has decreased the risks of being exposed to the global financial crisis. To help the Malaysian economy, “Najib launched the new Bumiputra Economic Empowerment Program (BEEP), policies that favor and advance the economic condition of ethnic Malays.” (Index Mundi)

Below, is a table including Malaysia’s GDP, GNP, and PPP: (Trading Economics)

As you can see from the table above the GDP for Malaysia is 312.44 billion, which increased from the previous year. The GNP is 186.70 billion, which decreased from the previous year. The GDP per capita (PPP) is 22,555.79 dollars, which increased from the previous year. The wealthiest in the Malaysia community are the ethnic Chinese and they hold most of the economic power in Malaysia. Malaysia has had some trouble with the economic downturn, which affected the exporting of goods significantly. Overall, Malaysia is ranked number six on Bloomberg’s Top 20 Emerging Markets Ranking, which means they are in good standing in the emerging markets category. (Bloomberg)

Business Overview

Doing business in Malaysia is very different then doing it here in the United States. There are several aspects you need to take into consideration when doing business with people from other countries. Malaysia is a country filled with diversity and the people there are said to usually be very polite and honest. A major concept is “face,” which embraces good qualities and character (Destination Malaysia, 2014). Face can be lost by insulting, criticizing or putting a group to shame, but can easily be redeemed with courteous acts. When meeting and greeting new people it is essential that they shake your hand first. Their traditional handshake or Salam consists of both hands but without the grasp. Hugging and kissing unless it is to your spouse is considered inappropriate, and doesn’t take place in a work setting. When dressing for success it is important that not too much skin is showing. Since Malaysia is mainly a Muslim country they tend to dress very modestly. Business cards are usually exchanged after you are introduced; it is considered good mannered to have it translated to the preferred language. Inspecting the business card before putting it into your wallet or purse is considered proper and respectful. Most business is done at restaurants or followed up for a lunch or dinner. It is expected that you reciprocate any dinner with a dinner in the future of equal or greater value. Usually spouses are not involved in business deals or meetings because it is reflected as unprofessional (Destination Malaysia, 2014).

Business Do’s and Don’ts

There are certain Do’s and Don’ts you must be aware of when coming into Malaysia. When meeting new people from Malaysia it is extremely valuable to smile (Destination Malaysia, 2014). Another common gesture is placing the right hand over the left breast signifying “I greet you from the heart.” Also pay close attention to attire and make sure it is always appropriate. The color yellow should be evaded because it indicates royalty. Using your right hand is essential, the left hand is considered dirty and can be impolite. Typically men and women do not shake hands, rather nod or bow. When entering a person’s home taking your shoes off is required and a simple form of reverence. Ethnic relations or political systems are a very touchy topic and should typically be avoided. Even if someone was to make a comment regarding one of those matters, it is important that you do not pick sides. When planning a business meeting try and stay away from Fridays that is the day reserved for Muslim’s to spend praying. Lastly, names and titles, address Malaysians by their title and surname. Some individuals don’t have surnames and therefore take their fathers name as a title (Destination Malaysia, 2014). If you follow the guidelines on what is appropriate regarding business etiquette, Malaysians are great and loyal people to do business with.

General U.S. relationships with Malaysia

The present period shows the U.S-Malaysia relationship is at its deepest level when compared to prior years. Their partnership is strongest on the political arena, especially in combating terrorism. Malaysia has reciprocated in many ways such as providing grounds for training of the US Navy Seals in their territory. Counter-terrorism, socio-cultural ties; due to the ever budding cultural and educational links between the two sovereignties’, and economic ties; fostered by the role US can and is playing in helping Malaysia in achieving first-world status are the most dominant themes in the bilateral-relationship (Sodhy, 2007).

The economic tie is the most constant theme; foreign investment has grown by leaps and bounds bolstered by the private sector especially with the US and this has encouraged US companies to invest in the country. We as Dick’s Sporting Goods saw a niche in the sports and fitness market and decided to invest in the sector. The decision was widely influenced by the country’s relation with the US and reassured by President Obama’s recent visit to bolster trade relations; elevating the bilateral relations to a comprehensive partnership and securing the economic ring.

Export prospects to Malaysia

For future prospects, both President Barrack Obama and Prime Minister Datuk Seri NajibTunRazak will have to be on the same page. Malaysia is at its strongest vis-à-vis the US in its economy.  But the relative positions and strengths’ of markets can change. There is a possibility that other leaders may assume power in the near future and the relationship may thus not be so cordial (Chandran, Pandiyan&Madhavan, 2004).

We have laid up strategies to adjust to the future if the policies change but if both nations maintain their cordial relationship; there will be fewer problems with anti-free trade policies. We expect to expand and diversify our products through adapting to the ever changing trends in football, athletics and outdoor activities to widen our scope in the country and increase our profit margins.

Malaysia’s Restrictions on Imports

The state requires an import license handed out by the pertinent bureau. Import tax on sports equipment is 10% and the duties are vary on consumption and composition. There is also a20% import tax and 10% sales tax on any fabrics subject to quantity and fabric type. An import tax of 15% and a 10% sales tax is imposed on shoes; a key commodity for us. A list containing the packages, with a hallmark of the pertinent company is compulsory (Athukorala&Menon, 1995).

Conclusion

Overall, Malaysia is an appealing market to open a business in. Malaysia is ranked on Bloomberg’s Top 20 list of emerging markets, and is an easier country to start a business in. Obstacles could happen with the economic downturn, but we can manage through the difficulties. With the programs that the Prime Minister has established and Malaysia’s emerging market we believe that Dicks Sporting Goods would be a huge success in the Malaysian community.

 

References

· Athukorala, P., &Menon, J. (1995). Developing with foreign investment: Malaysia. Australian Economic Review, 28(1), 9-22.

· Chandran, V. G. R., Pandiyan, V., &Madhavan, K. (2004, April). Malaysia’s export market: trends, prospects and challenges. In National Conference on Research Findings, Riviera    Bay Resort, Malacca, Malaysia (February).

· Destination Asia. Destination Malaysia. (2014) Retrieved on 30, September 2014 from http://www.destination-asia.com/malaysia/about/etiquette/

· Sodhy, P. (2007). Malaysia-US Relations. Malaysia’s Foreign Policy, Continuity & Change,ShahAlam: Marshall Cavendish (Malaysia) Sdn Bhd.

· Trading Economics. Malaysia Gross National Income. (2014) Retrieved on 30, September 2014 from http://www.tradingeconomics.com/malaysia/gross-national-product

· Index Mundi. Malaysia Economy Profile 2014. (2014) Retrieved on 30, September 2014 from http://www.indexmundi.com/malaysia/economy_profile.html

· BBC News Asia. Malaysia Profile. (2014) Retrieved on 30, September 2014 from http://www.bbc.com/news/world-asia-pacific-15356257

· Bloomberg. The Top 20 Emerging Markets. Retrieved on 30, September 2014 from http://www.bloomberg.com/slideshow/2013-01-30/the-top-20-emerging-markets.html#slide16

· "Malaysia." - Country Profile. N.p., n.d. Web. 01 Oct. 2014http://www.indexmundi.com/malaysia/#Demographics

· "Malaysia: Opportunities in Its Dynamic and Diversified Consumer Market HKTDC." Malaysia: Opportunities in Its Dynamic and Diversified Consumer Market HKTDC. N.p., n.d. Web. 01 Oct. 2014.

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