Malaysia International Trade - Case Study Example

of your Paper April 19, A Case Study of Malaysia Malaysia came to international business limelight during the 22-year reign of Prime Minister Mahathir bin Mohammad. This was a time when the nation started to diversify its economy from being dependent on exportation of raw materials to the development of manufacturing, services, and tourism. The reign of Prime Minister Mohamed Najib bin Abdul Razak has made further progress on pro-business advances. The nation is now a multi-sector economy and is making an attempt to become a high-income nation by 2020 (CIA, 2015). In this paper, a concise discussion is undertaken on Malaysia. The focal point of this discussion is international trade as it relates to Malaysia. International Trade International trade forms an integral part of Malaysia’s income. This section examines the nature and value of exports and imports, balance of trade, trading partners, and trading blocs as they relate to Malaysia. Nature and Value of Imports and Exports The nation makes imports as well as exports. The exports and imports play a vital role in sustaining the economy of the country and will go a long way in achieving the objective of the nation becoming a high-income nation. To start with imports, the country imports the following commodities: “electronics, machinery, petroleum products, plastics, vehicles, iron and steel products, and chemicals” (CIA, 2015, p. 1). MATRADE (2015), the official portal of Malaysian External Trade Development Corporation, shows that electrical and electronic products are the major import accounting for up to 27.9 per cent of the total imports; check Fig. 1 in appendix more details. Imports into Malaysia come from the following countries: “China, Singapore, Japan, the US, Thailand, South Korea, Indonesia” (CIA, 2015, p. 1). China and Singapore are the major importers contributing 17% and 13.2% in that order of the total Malaysian imports. Estimates made by the World Fact Book put the value of Malaysian at $186.7 billion for the year 2013 and $193.6 billion for the year 2014. The trend seems to be that of rising value of imports and that will work towards an unfavourable balance of trade. Imports play a role in exchange rate and therefore it is in order to give a brief of the exchange rates. For 2014, the exchange rate was 3.24 ringgits for one US dollar, for 2013, it was 3.15, and for 2012, it was 3.09. The implication here is that Malaysian economy has been having a favourable trade of balance against the US. Apart from that, it is worth noting that the huge imports that the makes make a huge negation to the gross domestic product (GDP) of the country; it is estimates to be a negation of around 73.7 per cent (CIA, 2015). Secondly, exports have formed a strong pillar for the Malaysian economy. The commodities exported include “semiconductors and electronic equipment, palm oil, petroleum and liquefied natural gas, wood and wood products, rubber, textiles, chemicals, and solar panels” (CIA, 2015, p. 1). According to the MATRADE (2015), manufactured goods form the bulk of Malaysian exports followed distantly by mining and agricultural goods (Fig 2 gives the details of the exports for the year 2014). Considering the trend starting the year 2013 towards 2014 (Fig 3), the mining sector seems to be promising in the future. However, some work needs to be done to avoids the sharp down spikes as evidenced in the month of July, 2014 (MATRADE, 2015). The export partners are “China, Singapore, Japan, US, Thailand, Indonesia, and Hong Kong” (CIA, 2015, p. 1). China, Singapore and Japan are the major markets for the Malaysian exports. The estimation of the value of exports for 2013 was $219.2 while for 2014 it was $231.3 billion. Malaysians exports make a meaningful contribution of 83% to the GDP. Balance of Trade Balance of trade is record of a nation’s trade in goods and services. Defined, balance of trade is the difference between the value of exports and imports. When exports are more in value than imports, it is said to be favourable balance of trade or simply a positive trade balance. On the other hand, when the value of imports become more than that of exports, then a negative trade balance is recorded (Sahlan, Hussein and Abdullah, 2008, p. 91). International trade is a major asset to the Malaysian economy. The economy has experienced trade surplus consistently since 1998. This has been due to the increased exports of electrical and electronics products. In February 2015, a trade surplus of 4522.61 MYR million was recorded. Starting from 1970 up to the present time, Malaysian balance of trade averages at 2984.02 MYR million; in fact, it has been increasing favourably (Fig. 4). The highest record was in the month of May 2008 when it peaked at 15767.47MYR million. On the other hand, the lowest record was the month of June 1997 for an amount of -2880.61 MYR million (Fedec and Sousa, 2015). Trading Partners The Ministry of Finance Malaysia (2015) fronted 20 leading trade partners with Malaysia. These are China, Singapore, Japan, the US, Hong Kong, Republic of Korea, Taiwan, Thailand, Indonesia, Philippines, Germany, Netherlands, the UK, India, Pakistan, United Arab Emirates, Saudi Arabia, Iran, Australia, and New Zealand. According to MITI (2012), Ministry of International Trade and Industry, the ten most active trading partners are China, Singapore, Japan, USA, Thailand, Taiwan, South Korea, Indonesia, Australia and Hong Kong (Fig. 5 presents details). For the years 2010 and 2011, Malaysia enjoyed a positive trade balance with China however from 2012 through 2014, the trade balance has been negative indicating value of exports from China have been more than the imports. For Singapore, Japan, the US, Hong Kong, Netherlands, India, Iran, Australia and New Zealand, the trade balance has been positive from 2010 through 2014. Malaysia has been enjoying favourable balance of trade with these nine countries. However, for other trading partners such as Saudi Arabia, Germany and Taiwan, Malaysia has suffered a negative trade of balance starting the year 2010 through 2014. For the rest of the trading partners, the balance of trade has been shifting in between negative and positive (Ministry of Finance Malaysia, 2015). Trading Blocs Malaysia has partnered with a number of countries around the world to form trading blocs. Some of the notable trading blocs to which Malaysia belongs include APEC, CAIRNS group, and ASEAN. The Asia-Pacific Economic Cooperation (APEC) members have pledged to facilitate free trade among themselves. It consists of 21 members who total contribution of the wok trade is quite significant (APEC, 2015). Another bloc is the Cairns group which was formed in 1986 (Cairns Group, 2015). Yet more, there is also the Association of Southeast Asian Nations (ASEAN) bloc (ASEAN, 2015). There are many benefits that Malaysia enjoys from being part of these trading blocs. For instance, by being part of the ASEAN bloc, Malaysia enjoys a greater market for its exports. Also, the bloc makes it possible to bargain competitively with other trading blocs and this benefit trickles down to every member state of the bloc. Further, there is an acceleration of economic growth, social progress and cultural development among the member states. It is also worth noting that the bloc stands for peace and stability in the region covered by the member states. In such a manner, it is possible for member countries to enjoy peace which is essential for international trade (ASEAN, 2015). As illustrated by the benefits that Malaysia enjoys from the ASEAN bloc, it is clear that trading blocs are an integral part in trade and in deed in Malaysia’s success in international business. Globalization Globalization refers to the breakdown of international barriers towards a unified interaction among states in different fields including trade, economy, educations and politics. Globalization has significantly changed the trading pattern of Malaysia. Through opening up of international boundaries, the nation has access to great market opportunities beyond its immediate neighbouring states. The advancement of technology has added to the advantage of globalization because business transactions can be undertaken across the world from Malaysia. Globalization has brought about changes in Malaysia’s population and wealth distribution. Large cities in Malaysia have particularly gained from globalization. This is particularly because the cities have become the focus of multinationals for investment purposes. Increased industrial activities have led to opening up of remote areas and consequently more job opportunities have been created for the local population. This is evidenced by the increased GNP per capita from RM 4,426 in the 1990s to RM14, 584 in 2000s (Rostam, Jali & Toriman, 2010). Globalization has been its drawbacks. One such is creation of regional imbalance. In Malaysia, the region referred to as Klang-Langat Metropolitan is high industrialized and population in this region have access to job opportunities. As a result the region is well developed. However, this has created a rift in wealth among the haves and have-nots. The rift creates a polarization of economy and urbanization and is likely to create a regional imbalance. Gaps in income and socioeconomic well-beings of people in one country are known to cause rifts and consequently this may have a huge negating impact on efforts towards national integration (Rostam, Jali & Toriman, 2010). SWOT Analysis Malaysia has made much progress from taking advantage of international trade. The following SWOT analysis shows the opportunities it has and areas of improvement upon which the nation can exploit. Strengths First, Malaysia offers investors an educated workforce. The English language is widely spoken. Therefore, it is easy for investors to pump in their resource and invest in the nation. Secondly, the physical infrastructure is good with well-maintained highways and seaports. Transportation therefore is not an issue and this facilitates international trade. Thirdly, the country has a huge reserve of natural resources ready to be exploited. Lastly, the living condition for expatriates is standard and industrial relations are harmonized implying there only occur few trade disputes if any (Political & Economy Risk Consultancy, 2011). Weakness Policy formulations are complicated by racial relations. Further, the political leadership has been monotonous for a long time being led two individuals for such a long time. This brings in uncertainty in case of change in political leadership. Lastly, corruption in the government is a huge problem that scares foreign investment (Political & Economy Risk Consultancy, 2011). Opportunities Malaysia has signed pledges with key trading blocs. Its market for exports therefore continues to grow. The nation has also been moving up the value chain industries and has invested in high-technology, high value-added industries. Lastly, the government is instituting policies that are attracting foreign investment; for instance, the nation has become the world’s largest market for sukuk (Political & Economy Risk Consultancy, 2011). Threats The political environment presents the greatest threat. For instance, if the political opposition is to take over in the next election, it is not known how they will lead since their governing capabilities have never been tested before. Further, religion and ethnic tensions have a potential for causing social and political instability (Political & Economy Risk Consultancy, 2011). Recommendation The nation should aspire to make maximal use of its resources. For instance, some of the imports can be manufactured within the country since the raw materials are available. All that is required is setting up the necessary industries to undertaken the manufacturing. Therefore, products such as petroleum products and plastics should not be important but rather manufactures within the nation since the country mines crude oil. This will go a long way to turn the balance of payments into a favourable one and thus improve its currency exchange rate. Further, it is worth noting that the country imports some form of electronics while at the same time exporting other types of electronics. The same case applies for chemicals. It is therefore possible that the country can upgrade its capacity to manufacture all the electronics and chemicals instead of importing some of the chemicals and electronics from other economies. References MATRADE, 2015. Malaysian External Trade Development Corporation. [Online] (updated 19 April, 2015) Available at: [Accessed 19 Apr. 2015]. Fedec, A. & Sous, A., 2015. Malaysia Balance of Trade. [Online] (updated 19 April, 2015) Available at: [Accessed 19 Apr. 2015]. Sahlan, R., Hussein, A., & Abdullah, M., 2008. Trade balance and J-Curve Phenomenon in Malaysia. Journal Ekonomi Malaysia, 42, 91-104. Ministry of Finance Malaysia, 2015. Malaysia’s Trade with Major Trading Partners. [Online] (updated 19 April, 2015) Available at: [Accessed 19 Apr. 2015]. ASEAN, 2015. Association of South East Asian Nations. [Online] (updated 19 April, 2015) Available at: [Accessed 19 Apr. 2015]. APEC, 2015. Asia-Pacific Economic Cooperation. [Online] (updated 19 April, 2015) Available at: [Accessed 19 Apr. 2015]. Rostam, K., Jali, M. F., & Toriman, M., 2010. Impacts of Globalization on Economic Change and Metropolitan Growth in Malaysia: Some Regional Implications. The Social Sciences, 5(4), 293-301. Political & Economy Risk Consultancy, 2011. Emerging Asia SWOT Report. [Online] (updated 19 April, 2011) Available at: [Accessed 19 Apr. 2015]. MITI, 2012. Malaysia: Top Trading Partners, August 2012. MITI Weekly Bulletin, 209. (updated 19 April, 2012) Available at: [Accessed 19 Apr. 2015]. CIA, 2015. The World Fact Book. [Online] (updated 19 April, 2015) Available at: [Accessed 19 Apr. 2015]. Cairns Group, 2015. The Cairns Group. [Online] (updated 19 April, 2015) Available at: http://cairnsgroup.org/Pages/default.aspx [Accessed 19 Apr. 2015]. Appendix Figure 1: Top 10 Major Import Products, 2014 Figure 2: Top 10 Major Export Products, 2014 Figure 3: Year-on-Year Export Growth Trend of Main Sectors, 2014 Figure 4: Malaysia Balance of Trade (1970 - 2015) [source: Fedec and Sousa, 2015] Figure 5: Malaysia, Top Trading Partners [Source: MITI (2012)] Read More