World Wide International Logistics, Inc.: Investing in Malaysia - Case Study Example

World Wide International Logistics, Inc.: Investing in Malaysia

Globalization is changing the way companies perceive and utilize their supply chains for competition and gaining of market share. For multinational manufacturers and retailers, third-party logistics providers have taken a continually crucial role to facilitate international trade and supply chain expansion for the multinational retailers and manufacturers. In an ever-expanding distribution network of consumers, retailers and manufacturers need rapid delivery supply channels to meet the demands and the pressure of the ever burgeoning prosperity and intensifying competition for new markets. World Wide International Logistics Inc. is one company that guarantees the expertise, reach, reliability and flexibility that is needed by multinational corporations. As globalization brings in pressure to for corporations to expand into emerging markets, logistic companies like International Logistics Inc. also have to expand and gain presence in emerging markets to gain global presence. According to Agility , three of the major emerging markets for logistics companies to venture in are India, China, and Brazil. However, Agility quickly links Chinese economy to a slowdown and high possibility of a ripple effect. Additionally, Agility links expansion into India to high levels of poverty, corruption, inequality, gaping infrastructure deficit, and sporadic energy provision. World Wide International Logistics Inc. should venture into the Malaysian market in its 2016 expansion strategy.

The location of Malaysia gives it fundamental strengths that favour it as a strong logistic link to Asia. The major strengths are its economic growth, its strategic location geographically, its regional supply chain linkages, and strong transportation services.

In terms of location, Malaysia is situated in the middle of nations that contribute about 30 percent of the total global GDP that constitutes of ASEAN countries like India, Japan, and Korea. One advantage with these nations is that they are approximately six hours flight time. To this effect, Malaysia is highly likely to increase its flight volume through capturing freight in the region and serves as a consolidation and distribution area to other ASEAN nations and beyond. In terms of economic growth, in 2014, Malaysia recorded an economic growth of about 5.3% worth at about RM830. Malaysian economic growth is driven by a substantial increment in the extent of both public and private consumption. Sustained inflows of foreign investment are also a major contributing factor to the economic growth. Besides the foreign inflows and domestic consumption, Malaysia’s economy is anticipated to grow by about 5.5% and 6.3% annually until 2020. The anticipated growth will remain steady in all economic sectors. For instance in 2014, income from trade in Malaysia accounted for RM1.45 Trillion in 2014 and the anticipated annual growth is 4.7% by 2020. The Malaysian trade growth was also attributed to the Asian trade growth prospects.

Located within several other Asian nations, Malaysia has a strong regional supply chain linkage. For instance, there are numerous multinational companies headquartered in the nation. Among such multinationals are Dell, Schlumberger, Microsoft, IBM, Seagate, Siemens, IBM, BMW, Toyota, Keppel Corporation, Siemens, and Temasek Holdings. The presence of these great companies in Malaysia is a sign that Malaysia is connected to and is part of a global supply chain destination. The presence of multinationals in Malaysia drives the demand for efficient logistic services. Regional supply chain linkages are expected to grow stronger through proactive government efforts to attract and retain investment through continued support for bilateral and multilateral initiatives.

According to the Ministry of Transport Malysia , has a strong transportation network and is ranked 25th in Global Enabling Trade Report 2015. The ranking was mostly in the transportation services category given the nation’s highly ranked transport infrastructure quality at 14th position, and the quality of transport services at 26th position. The highly ranked transportation services in Malaysia are evident in the nation’s remarkable annual growth between 2009 and 2013 ranking at about 6.9% sea freight volume; 6.8% road freight volume; and 6.1% rail volume. Malaysia is characterized by state-of-the-art international seaports and container hubs like Port Klang, efficient and reliable road transport that plays a crucial role in domestic distribution where it connects railway stations, airports, and seaports. Finally, Malaysian rail freight contributes to high volumes of cargo distribution from Southern Thailand.

The Ministry of Transport Malaysia ranks the nation as amongst the many characterized by an upcoming and aggressive upper-middle class income class. Other nations with an upcoming upper-middle class include China, South Africa, Turkey, and Thailand. Within the regional standing, the World Bank’s Logistics Performance Index of 2014 ranked Malaysia as the 25th nation out of 160 countries that led economies with upper-middle-income nations. Malaysia ranked above China and Thailand, making it a better investment ground compared to the China. In terms of cross-border trading, Malaysia ranked 11 out of 189 economies. The ranking followed benchmarking with nations such as Thailand, Indonesia, Hong Kong, and Singapore. Compared to other nations in the region, Malaysia’s trade cost per container is much lower compared to other selected nations except Singapore. Additionally, compared to Hong Kong, Malaysia had 2.6 times longer procedures of involved in the construction of a warehouse. Finally, shippers into Malaysia required 11 days to complete procedures involved in exportation. Conversely, only 8 days are required to complete the importation procedures. The export and import times are close to twice the amount of time needed for exportation and importation into Singapore.

Despite its strengths, Malaysia as a logistics and supply chain investment nation has had to address and is still addressing several issues and challenges to effectively support the logistics industry. The three major categories are service competence that impend the capability of the logistics industry, transport infrastructure that hinders connectivity, and trade facilitation that hinders logistics industry efficiency. For instance in transport infrastructure in Malaysia has been characterized by competing transport facilities, bottlenecks in the connectivity of hinterland due to poor roads causing inaccessibility, and insufficient alternate modal options due to underutilized rail freight given poor services and lack of last mile connectivity. In terms of poor service competence capability, Malaysia has for long experienced limitations in the capabilities of service providers, lack of skilled human capital, low adoption of technology, and challenges on institutional framework. In Malaysia, most of the existing logistics services providers focussed on offering basic services such as outbound and inbound transportation, freight forwarding, and warehouse storage. Malaysian service competence is also limited to lack of a champion to assist in the promotion of additional logistics activities like container depot, and this prevents orderliness in the development of the nation’s logistic sector. Finally, the logistics sector in Malaysia lacks expertise in supply chain network as most graduates fail to identify with careers opportunities in the industry. The efficiency of trade facilitation in Malaysia has been characterized by poor cargo clearance coordination thus attributing to additional time for importation and exportation procedures. In addition, trade in Malaysia has been characterized by low compliance to international standards especially for cut flowers and perishables where compliance to existing Malaysian standards is optional, and voluntary.

In order to reinforce its position in the logistics industry, Malaysia’s action plan constituted of five strategies. First, strengthen the institutional and regulatory framework. This strategy sought to streamline the nation’s logistics industry through promotion of coordination, efficient and sufficient regulations, and proper data management. To this effect, the Ministry of Transport was assigned the role of the champion agency to lead through integrated development and planning. Besides having a champion, the Malaysian institutional and regulation framework aimed at improving collaboration and coordination among stakeholders for optimum resources use and elimination of overlaps. For instance, heavy vehicle registration has been characterized by long processes of up-to five months and this is bound to change. In order to streamline the adequate monitoring of the various forms of commodities moving through rail and road systems, Malaysia has invested in a centralized freight sector database that assesses origin-destination flow matrix by commodity.

Secondly, Malaysia is on the path to enhance its trade facilitation mechanism through reduction of issues in cargo clearance delays and other issues causing prolonged processes of obtaining vehicle licences, landing permits, and goods. Through enhancing trade facilitation mechanisms Malaysia anticipates reduction in delays encountered in cargo clearance, improvement in the regulations causing impediments to the growth of freight volumes in air, sea, and rail; and increasing compliance levels with trading partners’ market regulations. Impediments like higher operational costs at some entry points and too much documentation with numerous permit issuing agencies (PIAs) are also being addressed to guarantee smother import and export processes.

Thirdly, Malaysia strategized on infrastructure and freight demand development. Continued upgrading of rails, roads, and airports in Malaysia is attributed to a continually upgrading transport network that spur’s people’s and good’s mobility. Though there are plans to continually improve its infrastructure, Malaysia is ranked as the having the best transport infrastructure in the region characterized by world class airports and ports that support trade and business activities. Improvements involve increasing domestic connectivity to serve the growing maritime ports, attracting cargo from other ASEAN region to prevent underutilization of Malaysian sector. Other improvements on freight and infrastructure are addressing bottlenecks at hinterlands, and establishment of freight hubs at strategic locations.

Fourthly, Malaysia’s strategy to reinforce technology and human capital focuses on leveraging ICT to offer seamless cargo movement, accelerate cargo clearance, and enhance logistic services. In addition, Malaysia seeks to improve its capacity to attract, nurture, and retain skilled talent within its logistics industry and reinforce professional capacity building to increase the capability of logistics service providers to compete at global levels. Malaysia has for long experienced a severe shortage in skilled track drivers due to lack of interest in the job, absence of social recognition, and relatively low pay. Finally, Malaysia seeks to review the need for improved and continued accreditation to raise the logistics service provider’s quality in the nation.

Finally, Malaysia has focussed on internationalizing logistics services. Currently, most logistics providers restrict themselves to internal services, and demonstrate low or no readiness to venture into external markets. Low readiness to venture into external markets is linked to poor networking to successfully internationalize, and absence of proper knowledge and understanding of export markets particularly the small logistics players. Consequently, it has been difficult to venture into the global market.

The limitations of local logistics companies to inbound and outbound transportation, freight forwarding, and warehouse storage arouse a great need to offer integrated services like cross-docking, labelling, on-site services, and packaging. Additionally, there is a niche that requires specialized logistics services in the healthcare, oil and gas, and high-tech electrical and electronics industries. Venturing in Malaysia would guarantee a specialized logistics services and could be in the form of affiliations with local partners, investment in Malaysian logistics facilities, or geographic expansion and venturing into business within Malaysia.

The identified country for investment by World Wide international Logistics Inc. has been identified as Malaysia. The potential in Malaysia as a potential market for logistics investment is attributed to the nation’s strategic location within the ASEAN nation. Malaysia is characterized by world class ports and airports, and continually developed rail and road transport that increase the connectivity of the nation. The nation also ranks higher than China in terms of economic growth making it attractive for foreign investors. Furthermore, the fact that most multinationals have sought to place their headquarters in China, a neighbouring country, have increased regional competition that has seen the Malaysian government seek to transform the nation’s hubs into gateways. To assist in attaining its vision, Malaysia established five strategies to improve its logistics industry. The strategies seek to strengthen human capital and technology, international logistics services, growth of freight demand and infrastructure, reinforcing trade facilitation mechanisms, and reinforcement of regulatory and institutional framework. The strategies are anticipated to improve the state of importation and exportation procedures, improve collaboration and coordination, facilitate freight data management and improve last-mile connectivity among others.