Entering into Malaysian Market by Australian Biodiesel Group Limited - Case Study Example

Table of Contents Table of Contents 1.0 Introduction 3 2.0 Political Environment 4 2.3. Analysis 4 3.0 Legal Environment 5 3 Import Export Laws5 3.2. Legislation relevant to Industry 5 3.3Analysis 5 4.0 Economic Environment 6 4.1. Interest rates 6 4.2. Inflation Rates 6 4.3. Exchange Rates 6 Analysis 6 5.0 Socio-cultural Environment 7 5.1Hofstede’s Cultural Dimensions 7 5.1.1. Collectivism Vs Individualism 7 5.1.2Power Distance 7 5.1.3Uncertainty Avoidance 7 5.1.4. Time Orientation 7 5.1.5. Quality Vs Quantity 7 Analysis 8 6.0Technological Environment 8 6.1Technological infrastructure 8 6.2. Communication Network 8 6.3. Logistic Networks 8 Analysis 8 SWOT Analysis 9 Strengths 9 Weaknesses 9 Opportunities 9 Threats 9 Recommendations 9 Bibliography 10 9.Phang, Stephanie “Malaysia raises rates to suppress inflation” International Herald Tribune, February 22, 2006. 10 1.0 Introduction Before we discuss about entering into Malaysian Market, it is of great importance that a brief description of the company. Australian Biodiesel Group Limited (ABGL) is one of the highly regarded and experienced biodiesel plant design and Operational Service provider companies in Australia. (ABGL 2008). Biodiesel is a renewable fuel which is often mixed with other forms of fuel such as gasoline in order to achieve reduced price, high performance as well as producing an enviornment friendly fuel. ABGL is listed on Australian Stock Exchange and operates one of the largest biodiesel producing plants within Australia. (ABGL 2008). The company is considered as one of the highly sophisticated companies in country due to its state of the art Modular Continous Transesterification Process which allowed it to construct and commission 160 million liter production capacity during 2006. (ABGL 2008). Company operates on B2B business model and resells its product i.e. biodiesel to different fuel blenders for onward resell to commercial, government as well as retail users within the country. ABGL is intending to further exploit growth opportunities into those markets. As a part of its future expansion plans, the company is planning to enter into Malaysian Market where it intends to assist different project developers in setting up biodiesel plants by entering into a project which will allow it to manufacture its entire product in Malaysia. This report will present an in-depth analysis of the five major factors which ABGL must consider before entering into Malaysian Market as a part of its future expansion. 2.0 Political Environment 2.1 Government Stability Malaysia witnessed one of the most predictable and stable political government in the region with Dr. Mahathir Mohammed at the helm of affairs for almost 22 years however after his resignation in 2003, country’s political system does not seem to stable and predictable as country’s political leaders are still facing strong differences in create a potential replacement of Dr. Mahathir. (Jacques, 2008). 2.2. Government Relations Malaysia is a Federal parliamentary Monarchy with Prime Minister as the head of the State. The country is a multiple party in nature with more than 25 registered political parties actively participating in the politics of the country. Australia and Malaysia share a very frictional history of relationship between them as historically the relations did not remained cordial however recent initiatives signaled change into the relationship of both the countries. The trade ties are increasingly becoming friendlier and there is now significant cross border trade between both the countries. (Baker, 2004). 2.3. Analysis Malaysia achieved unprecedented economic growth in past and is often considered as a leading economy within Muslim world. Being in closer proximity with Australia, country provides one of the most lucrative options to build good economic relations. Though, during Mahathir’s era, relations were not that cordial however, subsequent political change has paved the way for more cordial relationships between both the countries. As such country offers a better economic prospect to penetrate the new market space available. 3.0 Legal Environment 3.1 Import / Export Laws With the association of Malaysia in World Trade Organization, Malaysia has enacted many important changes into its trade laws to facilitate trade liberalization between member countries. It has also amended its previous laws to accommodate intellectual property rights as well as contain unfair trade practices. Further, it also streamlined its legal procedures for making foreign direct investment into country by removing various barriers which now allow importers and exporters, a fair level playing field to operate within this market. (Hood 2001). Though country still lacks a coherent and comprehensive competition policy however, it still boasts one of the swift and sound legal laws and procedures to facilitate international players. (Zaidan 2004). 3.2. Legislation relevant to Industry As such there are no industry specific regulations present in the country. Since biodiesel is an emerging market and most of the countries have yet to catch up the new phenomenon therefore major legislation with respect to this particular industry is currently not prevalent in the county. 3.3Analysis Country’s economy is one of the soundest in the region and has been made possible only due to the trade liberalization and formation of laws which allowed the facilitation of international trade. Since Malaysia is very much a part of WTO therefore legal environment is not such a big challenge for the company to face. Since our company will be intending to make capital investment into the country therefore we are confident that company will not face major legal hurdles in order to penetrate the Malaysian Market. 4.0 Economic Environment 4.1. Interest rates Due to strong domestic demands, Malaysia has been able to contain its interest rates at 3.5%. The recent efforts of the Central bank are mostly directed at controlling inflation in the country and all the monetary policy measures including management of interest rates is related with inflation. (Charalambous 2008). 4.2. Inflation Rates Higher inflation rates are often associated with interest rates. (Jayaraman, 2008). As discussed above, the country’s current economic focus is now on containing inflation as there were some episodes where higher inflationary trends were witnessed however current trends suggest that inflation in country has remained below 2%.(Phang,2006). 4.3. Exchange Rates The official currency of Malaysia is Ringgit. According to official rates as appeared on website of Malaysia’s central bank, one Ringgit is equivalent to 2.3610 AUD.1 Analysis Country recorded one of the highest growth rates in the region in past. It has still relatively stable economic environment in place with major economic indicators still in favor. For ABGL, Malaysia is relatively a lesser economic risk as compared to making investment into another country in the region. The stability in exchange rates, low inflationary pressures as well as favorable exchange rates provide a good opportunity for company to enter into this market. 5.0 Socio-cultural Environment 5.1 Hofstede’s Cultural Dimensions 5.1.1. Collectivism Vs Individualism Malaysians are considered as mostly collective in their thinking whereas it has been observed that individualism in Australia is around 90 %.( Robbins, S. P. et al. 2000, 145) 5.1.2Power Distance Australia is considered as country with higher degree of societal equality whereas in Malaysia, it is 104.(Boulton, 2004) 5.1.3Uncertainty Avoidance Australia hold an uncertainty avoidance which is in average range as compared to Malaysia where ability to accept uncertainty avoidance is low. 5.1.4. Time Orientation Australia’s time orientation for long term is low whereas for short term it is high however Malaysia’s score are still unknown as no significant research study has been conducted. 5.1.5. Quality Vs Quantity According to Robbins, S. P. Et al. (2000, 149), Quantity in Australia is in mid range with score ranging just above 60 i.e. 61 whereas no such studies have been done yet for Malaysia. 5.2. Language and Communication Malay is the national language of the country however English is also considered as professional language therefore for an Australian company, language will not be a much bigger barrier. Analysis Malaysia is a predominately a Muslim country with entirely different sets of cultural values and power structure as compared to Australia. 6.0Technological Environment 6.1Technological infrastructure Malaysia has developed a sophisticated technological base because of its trade liberalization policies. These policies allowed foreign companies to import new and innovative technologies into this country therefore Malaysian project developers for Biodiesel will not face much trouble in finding suitable technology at home/ 6.2. Communication Network Due to technological relocation, Australia has developed one of the most sophisticated communication networks in the region. Communication networks in Malaysia include fixed line telephony, mobile phones network, Internet including broadband networks etc. (BMI 2008) 6.3. Logistic Networks Economic growth in the country allowed Malaysia to develop strong logistic network comprising of many important highways, motorways and roads. Analysis Economic growth in the country and relocation of most of the foreign companies’ manufacturing facilities in the country allowed Malaysia to develop a very sound and one of the most sophisticated technological environments in the region. SWOT Analysis Strengths ABGL is most experienced and technologically sophisticated companies in Australasia region therefore it will capitalize on its state of the art business model to enter into Malaysian Market. Weaknesses Recent food crisis may reduce the production capabilities of biodiesel producing firms because more agricultural resources will be utilized for food purposes rather than converting them into biodiesel. Opportunities Volatile nature of oil prices would allow ABGL to capture more market as supplier of alternative fuel. Threats Development of alternative fuel technologies other than biodiesel may create significant risk for AGBL. Recommendations Malaysia is one of the most lucrative markets with strong potential to grow in that segment of the market which is not yet fully grown into the country. Biodiesel produce strong growth possibilities therefore for AGBL, a Greenfield project in Malaysia would be a better option to enter into the market because Malaysia’s economic as well as legal environment is too supportive of the foreign investors to make an entry. However, It is also important that the firm must take into consideration the more external events such as food crisis, high prices of foods and oil into account before making investment into the country. Bibliography 1. ABGL. "Company Information." Australian Biodiesel Group Ltd. 2008. http://www.abgbiodiesel.com/company_info.asp (accessed November 11, 2008). 2. Baker, Mark “Boost for Malaysian relations” The Age, June 11, 2004 3. BMI. The Malaysia- Telecommunication Report 2008. Research Report, New York: Business Monitor International , 2008. 4. Boulton, J “Hofstede’s cultural dimensions” Jeff Boulton. April 15, 2004. http://jeffboulton.ca/BBB%204M1%20Hofestede.doc. (accessed November 11, 2008). 5. Charalambous, Peter. "Malaysian Interest rate remains unchanged." Investment Markets. Feb 25, 2008. http://www.investmentmarkets.co.uk/20080225-1658.html (accessed November 11, 2008). 6. Hood, Ron. Malaysian Capital Controls. World Bank Policy Research Working Paper, New York: World Bank, 2001. 7. Jayaraman, T. K. 2008. Central banks and inflation. The Fiji Times, June 12. Proquest. http://proquest.umi.com.dbgw.lis.curtin.edu.au/pqdweb?did=1492845871&sid=5&Fmt=3&clientId=22212&RQT=309&VName=PQD (accessed November 11, 2008). 8. Jacques, Martin “Malaysia is a rare multiracial success. But its stability is being put to the test”, The Guardian, August 14, 2008. 9. Phang, Stephanie “Malaysia raises rates to suppress inflation” International Herald Tribune, February 22, 2006. 10. Zaidan, Zalita. "Report on Structural Reform." APEC. Chile: Ministry of Foreign Affairs of Japan, 2004. 1-4. Read More