Pestle and Swot Analysis of Malaysia Business Environment - Case Study Example

Individual Business Report To Senior Manager Rio Tinto Senior Management Team Introduction Rio Tinto a mining company that is based in Australia is seeking to expand its business to Malaysia. The company’s objective is to increase its total shareholder return through sustainably developing, finding, processing, and mining the natural resources1. With this in mind, the company seeks to fulfill its objectives through investment in Malaysia. In order to effectively invest in Malaysia, the company has to have firsthand information of the political environment in Malaysia. The information can only be gotten through PESTL and SWOT analysis of Malaysia business environment. Recommendations will be based on the information from the PESTEL and SWOT analysis of Malaysia. PESTL Analysis Political Environment The political ground has a great influence on the regulation of the Malaysian nation. The political form of Malaysia is that of a federal constitutional monarchy characterized by a parliamentary democracy. The operation of the Malaysian government is under the responsibility of the Prime Minister. There is presence of political parties that run for the control of the government. In the last 20 years, the Malaysian government has been fairly stable although the political arena continues to be volatile. Malaysia has good trade relations and agreements with South Korea, Europe, China, Vietnam, North Korea, and United States (U.S.); however, strong relations are found in Europe and U.S. Malaysia is a member of the United Nations (U.N.) and ASEAN (Association of Southeast Asians Nations). Membership to ASEAN has assisted in the stabilization of the Southeast Asian nations and it has enabled these nations to cooperate well with each other. Malaysia has made a substantial improvement in addressing structural weaknesses that emerged during the Asian crisis; this has been addressed by promoting financial and corporate restructuring. An investment regime and a more liberal trade can contribute greatly to Malaysia’s sustained economic recovery and long term economic development. Analysis indicates that Malaysian government allows foreign investment in manufacturing. Policy formulated encourages joint ventures projects between the foreigners and Malaysia. In 1986, the Malaysian government relaxed conditions regarding foreign expatriate staff and equity. Presently, there is no equity conditions imposed on the projects that export more than 80% of their output for particular products that have a maximum limitation of foreign equity. Political analysis further indicates that Malaysia Government Policy imposes tax on a number of industries but in the years 1987 and 1988 it withdrew 5% sales tax exemptions for several industrial and agricultural products. Economic Environment Analysis done indicates that since 1989 Malaysia has continuously recorded an economic growth of over 8%; this consistence economic growth was expected to last for a number of years. In 1995 GDP increased by 9.2%; however in the first quarter of 1995, there was an 8 percent drop in growth. According to the analysis, the economic recovery is greatly attributed to the strong growth in exports especially the export of electronics and electrical products to the United States which is taken to be Malaysia’s principle trade and venture partner. The inflationary pressures continue to be benign; this state has made the central bank and Bank Negara to follow the policy of low interest rate2. Most analysts state that Malaysia should have the ability to expand its economic growth following consumer demand and the recovery of investments from the crisis. However, Malaysia’s economy growth resumed in 2002 and 2003 after the stall in 2001; the stall was highly influenced by the decreased demand for the Malaysian exports. In 2002, Malaysia experienced an actual GDP growth of 4.1%, this was due to the 0.3% decline in the real gross domestic product in 2001. Malaysia’s economic success is based on the growth of a dynamic manufacturing sector that is export oriented and it is responsible for one third of the GDP and above 70 percent of the total exports. Malaysia also gets its benefits from foreign investments from various countries (which include; Japan, Singapore and Taiwan). A number of incentives such as the quality of labor force the prolonged political stability have attracted the foreign companies3. Socio-cultural Environment The socio cultural aspect of Malaysia consists of two sections; the East Malaysia and West Malaysia also referred to as Malaya or Peninsular Malaysia. There are two states; the states of Sarawak and Sabha. West Malaysia occupies 31 percent of the country and makes up 81 percent of the whole population of West Malaysia. A big proportion of the population lives on the west coast and 60 percent of it are of Malay (indigenous) descent, 25 percent are Chinese and 10 percent are Pakistani or Indian. In East Malaysia, the Ibans (Sea Dyaks), indigenous people and Chinese make up the bigger proportion of the population; the two communities consist of about three fifths of the total population. Conflicts between the ethnic groups particularly between the Chinese and Malays have played a significant role in the history of Malaysia. Islam is the national religion and majority of the Malays are Muslims. The majority of the Indians are Hindu and the majority of the Chinese are Buddhists. The official language of Malaysia is Bahasa Malaysia (Malay); at times English is used in the legal system of Malaysia. Other languages widely spoken include Tamil, Chinese (in particular Mandarin), and other regional ethnic dialects and languages4. Technological Environment Analysis indicates that Malaysia has the technology, infrastructure, trade advantages, and manufacturing capabilities that will ensure its continued development. Domestic investments have increased through the development of technology. Malaysia aims at advancing technological centers and technological innovations. The Technology Park of Malaysia is set to accelerate R&D developments in electronics, information technology, resource-based technology, aerospace, materials technology, defense, telecommunications technology, microelectronics, and biotechnology. The Malaysian Technology Development Corporation (MTDC) offers seed capital to companies that are seeking to invest in Malaysia. Malaysia also emphasizes on interregional technology transfers and investment5. Legal Environment Malaysia being one of the ASEAN member countries, the legal environment is greatly influenced by these countries. A company seeking to invest in Malaysia has to be conscious of the changes in the terms of the government legislations within these ASEAN member nations6. SWOT Analysis of Malaysia Strengths The standards of corporate governance in Malaysia have enormously improved since the financial crisis that happened in Asia during the later years of 1990s – the improvement has been significant in majority of the neighboring nations. Foreign companies and foreign manufacturing companies seeking to do business in Malaysia are welcomed with open arms and offers by the government such as lavish concessions and tax breaks. Weaknesses Subsidization of prices by the state is a persistent and peripheral part of the normal economic life in Malaysia. Conducting any form of business in Malaysia requires one to well-connected politically. In other words, politics play a significant role in the Malaysian business environment. Big construction projects and in particular big contracts for the foreign construction firms are not likely to be offered a priority by the current Malaysian government as they were during the previous governments under the leadership of Prime Minister Mahathir Mohamad7. Opportunities The chance to invest in the Malaysian state assets is set to improve. The government is not very keen in matters pertaining to investment, if it keeps hold of the present circumstances, the probability of investing in its state shareholdings will not happen. Malaysia is very eager to compete in the global banking sector although it presently does not have a domestic champion. With close to 10 main institutions in its market, there is a high possibility for bank consolidation. Threats The shipping lanes and the waterways surrounding Malaysia continue to pose a great threat of terrorism and piracy and thus Malaysia is at great risk of losing its race for the foreign investment against China. Majority of the notable foreign companies have shifted their production from Malaysia to other areas within the Asian region. These companies include Penang (it was once the core electronic industry in Malaysia), Motorola, Solectron, and Seagate8. Recommendations From the SWOT and PESTEL analysis of Malaysia, the company has more opportunities or chances to effectively invest in Malaysia although there are areas that the company has to be keen on. The company has to be aware of the following: The political environment of Malaysia is volatile although there are incentives that attract foreign companies to invest in the country. This is one area that the company has to be keen on. The technological and economic environment is stable and the nation has been experiencing significant growth in the past years. The quality of labour is also excellent. This is an advantage to the company since there are more opportunities for growth and investment. The main religion is Muslim and the official language is Bahasa Malaysian; the two if not taken care of can have negative impact on the company’s success. The corporate social responsibility of the company has to be in line with the above mentioned items if it has to effectively invest in Malaysia. Bibliography “About Us.” Rio Tinto. Accessed July 20, 2011. http://www.riotinto.com/index_aboutus.asp. “Comparative Case Study Between Malaysia And Thailand: The Effect Of Globalization On Developing Countries.” Case Studies Samples. Last modified April 2009. http://casestudiessamples.blogspot.com/2009/04/comparative-case-study-between-malaysia.html. Admin. “Strategic Analysis.” ASEAN Society. Last modified April 29, 2009. http://www.asean-society.org/asean/strategic-analysis/. SRM University. “Marketing Plan for Tata Nano.” SRM University. June 23, 2009. http://www.srmuniv.ac.in/downloads/marketing-plan-for-tata-nano.pdf. Read More