The Federation of Malaysia: Country Profile - Case Study Example

THE FEDERATION OF MALAYSIA – COUNTRY PROFILE Geographical and demographical characteristics Malaysia, or else the Federation of Malaysia, is divided into two main parts – the peninsular Malaysia and the east Malaysia (also known as Borneo, see also Figure 1 and 2 below). On the other hand many small islands also belong to the country (Oxford Business Group, 2007). The country’s population has been estimated in accordance with a recent report (Fedex. 2007) to 24,821,286 millions of people. The currency of the country is the Ringgit Malaysia (RM) and its capital is Kuala Lumpur. It should also be mentioned that the time zone applied in the country is that of Greenwich Mean Time (GMT) – GMT + 8 hours. One of the main characteristics of Malaysia is its ethic diversity. Because of the existence of millions of immigrants, in Malaysia there are many languages used in daily activities. In this context the following four languages are spoken in Malaysia (Fedex. 2007): Malay, English, Chinese and Tamil. An issue that should be noticed is the fact that ethnic Malays ‘constitute just over half of the population’ (Oxford Business Group, 2007). Because of the existence of many different ethnic minorities in Malaysia, the country is characterized by an extensive cultural and ethical diversity. This fact can be positive for foreigners that wish to activate commercially in Malaysia. The structure of the society and the economy favour the foreign investments in the country while the legal and commercial framework related with the commercial activity have been adapted in order to serve this perspective. Figure 1 – Malaysia (source: Foreign and Commonwealth Office, UK, 2007) 2. Government – Structure of public authorities The government of Malaysia is based on a dynamic political scheme in which the most powerful person is considered to be the Prime Minister – despite the fact that the regime of the country is monarchy. The rest of the country’s political authorities are categorized as follows: There is the Upper House of the Parliament (also called Senate) which is composed of Senators (Foreign and Commonwealth Office, 2007). The country is also divided in thirteen states each of which has a particular Assembly which is somehow ‘autonomous’ towards the central government having a Minister and a Government. In this way all the regions of the country are appropriately governed having the power to introduce and apply its own regulations within its territory. The structure of authorities (as described above) and the plans for development applied especially the last 5 years in the country has promoted its role as a powerful financial centre of South East Asia. On the other hand, the government has introduced a privatisation program which favours the commercial activity both for locals and foreigners (by delegating specific industrial sectors in firms of the private sector). However, most of the firms operating in the country are still state – related (either directly or indirectly controlled by the government). In the financial sector all issues are regulated through the intervention of Bank Negara Malaysia, which is the country’s central bank. Despite the continuous effort to create a friendly commercial environment (referring especially to foreign investors) Malaysia still remains a country where all commercial activities are state related while initiatives by individuals and firms in the private sector are not appropriately enforced (in fact in some cases are opposed). In order to change the conditions applied for foreign investors within its market, Malaysia made a series of changes in its existed legal framework by promoting foreign ownership and implementing ‘a range of incentives to attract investors in priority areas such as operational headquarters, regional distribution centres and international procurement centres’ (Australian Government, Malaysia, 2007). All the above efforts focus on the increase of foreign investment in the country; however there are still many issues to be reviewed in order for such a target to be achieved. 3. Economy Malaysia is among the countries with the highest rate of annual financial development in the greater South East Asian region. The country is a member of many international organizations and participates in several international protocols and conventions like the ‘Convention on International Trade in Endangered Species (CITES), the Association of South East Asian Nations (ASEAN), the Common Preferential Trade Agreement (CPTA), the Asia Pacific Economic Cooperation (APEC)’  (Fedex. 2007) and so on. At the same time Malaysia is a member of the World Trade Organization (WTO). The last five years the economy of the country faces a continuous growth. There was just a decline in the financial development of the country during the 2001; however since then Malaysia has been developed at an extremely high level (in its economy but also in all financial and industry sectors). In fact a relevant research showed that ‘apart from a blip in 2001, the economy has continued to grow robustly since then: by 5.2% in 2003 (despite SARS), 7.1% in 2004, 5.3% in 2005, 5.9% in 2006 and an expected 6% in 2007’ (Foreign and Commonwealth Office, 2007). Moreover, the country’s financial sector faces a continuous growth especially through the liberalization that has been recently applied in the banking sector. Under these terms, it has been found that ‘Malaysia has one of the highest standards of living in SE Asia, largely because of its established industrial sector which propelled the country to an 8%–9% yearly growth rate from 1987 to 1997’ (The Federation of International Trade Associations, 2007). In the years that followed – as already explained above and apart from 2001 – the financial growth of the country continued reaching an extremely high level. Another issue that should be mentioned regarding Malaysian economy is the fact that the country has a noticeable production of oil (approximately 4.2bn barrels as a reserve) while the natural gas reserves are ‘estimated at 87trn cu ft of gas’ (Oxford Business Group, 2007). Generally, it could be stated that Malaysian economy has been transformed from a ‘commodity-based economy (mainly exporting rubber and tin) to one focused on manufacturing’ (The Federation of International Trade Associations, 2007). Currently, the country’s industry is considered to contribute to the GDP almost 50%. More specifically, the following products have been proved to be the most representative ones within Malaysian industry: a) semiconductor devices, b) electrical goods, and appliances’ (The Federation of International Trade Associations, 2007) while the government’s plans regarding the development of industry includes the expansion of country’s industrial activity in high-tech products. One of the main challenges that the country is called to face in modern market is the incorporation in its economy and its legal framework of the ideas and the principles imposed by globalization. In fact, it is noticed by Beeson (2000, 335) that ‘like every other nation that has opened itself up to or tried to integrate with the international economy, Malaysian policymakers must attempt to deal with the following three elements of globalisation: the internationalisation and expansion of financial markets; the transformation of global production processes; and the re-configuration of political authority’. In accordance with the above, the government of Malaysia should take all the appropriate measures in order to make its economy competitive within the global market. 3.1 Agricultural Production As already stated above, Malaysia is divided into two main parts (west and east): ‘the western part of the country lies on the Malay Peninsula to the south of Thailand; the eastern part consists of two states, Sabah and Sarawak, which lie on the northern side of the island of Borneo; the landscape in both east and west is similar, characterised by high mountains and fast rivers flowing down to coastal plains’ (New Agriculturist on line, 2007). Because of its geographical structure, the country is appropriate for the cultivation of a range of varieties. One of the most important agricultural products of Malaysia is palm oil. In fact the country produces ‘over half of the world’s palm oil’ (Oxford Business Group, 2007). Other products of this kind are ‘cocoa, timber, pepper, pineapple and sugar cane’ (Oxford Business Group, 2007). It should be noticed that the agricultural production of Malaysia has been improved the last years because of the introduction and application of innovative plans and techniques and the development of technology in all stages of production. On the other hand, the climate of the country could be characterized as very hot and wet while the humidity can reach extremely high levels. Moreover, ‘annual monsoons cover the west coast from September through December and the east coast from October until February’ (Oxford Business Group, 2007). The above climate conditions are of high importance for all farmers in the country. Figure 2 – Malaysia (source: World Health Organization, 2007) 4. Structure and characteristics of food market The food market in Malaysia has been developed in all each aspects. In the last 5 years the influence of the Western lifestyle and the increase of the standard of living of Malaysians have led to the radical growth of food services sector as eating out has become a popular choice for Malaysians. On the other hand, it has been found that ‘in Malaysia, consumer foodservice is highly fragmented, with numerous brands and companies and tens of thousands of outlets up to 2006, like QSR Brands Sdn Bhd which managed to remain the top player with its 549 outlets, thanks to its KFC, Pizza Hut and Rasa Ayamas brands’ (Beeson, 2000, 335). The preference of local population for specific type of food, e.g. chicken has led to the development of specific brands (in this case of KFC) across the country. Malaysia, as already explained before has a significant agricultural production. Apart from this, the countries fisheries are facing a continuous growth. In other words, Malaysia can be – up to a level – autonomous regarding the production of material necessary for food. However, the development of food services sector requires also the production of material that can cover the needs of many different cultures; a target that is difficult to be achieved. For this reason, Malaysia imports food-related products in order to respond to the needs of its food market. It should be noticed here that the country’s food processing industry cannot respond to the needs of the internal market and for this reason the country has become a ‘net importer of processed food’ (Australian Government, Processed Food to Malaysia, 2007). In fact, there is a series of products which could be characterized as an ‘opportunity’ for any potential foreign entrepreneur looking to invest in the food market of Malaysia. These products are: (Australian Government, Processed Food to Malaysia, 2007) ‘a) flour based products such as pasta, biscuits, pre-mixes, frozen pastries and chocolate confectionery; b) cereal-based products such as breakfast cereals, muesli and rolled oats; c) pure fruit juices, orange juice concentrates, frozen vegetables, edible nuts and canned fruit; d) condiments, seasoning and sauces and so on’. The country is also an exporter of processed food in products like ‘fish and fish products, livestock and livestock products, fruits and vegetables, and cocoa-based sectors’ (Asean Sources, 2007). As for the livestock industry, a relevant research showed that ‘Malaysia is an exporter of poultry meat. However, the country is still a net importer of meat products, particularly beef and mutton; the processing of chicken meat has backward linkages to the poultry sector and this represents more than 60 per cent of the total meat processed’ (Asean Sources, 2007). Generally, it could be noticed that many sectors of the country’s food market are still open for foreign entrepreneurs who are looking for a profitable investment in the Malaysian market. References Oxford Business Group. 2005. Malaysia, country profile. Available at http://www.oxfordbusinessgroup.com/country.asp?country=35 [10 October 2007] Foreign and Commonwealth Office. 2005. Malaysia, country profile. Available at http://www.fco.gov.uk/servlet/Front?pagename=OpenMarket/Xcelerate/ShowPage&c=Page&cid=1007029394365&a=KCountryProfile&aid=1018965335747 [10 October 2007] The Federation of International Trade Associations. January 2007. Malaysia. Available at http://www.fita.org/countries/malaysia.html [10 October 2007] World Health Organization. 2007. Malaysia. Available at http://www.who.int/countries/mys/en/ [10 October 2007] New Agriculturist on line. Malaysia. Available at http://www.new-agri.co.uk/02-4/countryp.html (Fedex. 2007) Fedex. Malaysia, country profile. Available at http://www.fedex.com/us/international/irc/profiles/irc_my_profile.html?gtmcc=us [10 October 2007] Australian Government. 6 July 2007. Malaysia, Available at http://www.austrade.gov.au/default.aspx?ArticleID=4503#Country%20overview [10 October 2007] Australian Government. 18 July 2007. Processed Food to Malaysia. Available at http://www.austrade.gov.au/Processed-food-to-Malaysia/default.aspx [10 October 2007] Beeson, M. (2000) Mahathir and the Markets: Globalisation and the Pursuit of Economic Autonomy in Malaysia. Pacific Affairs, 73(3): 335-338 Asean Sources. 14 May 2007. Malaysian Food Products Industry. Available at http://www.aseansources.com/jsp/malaysia_food_products.jsp [10 October 2007] References (Business Plan) Au, K.Y., Pan, Y., Tse, D.K. (1997). How MNCs Choose Entry Modes and Form Alliances: The China Experience. Journal of International Business Studies, 28(4), 779-794 Aulakh, P.S., Kotabe, M., Sahay, A. (1996). 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