The policy of free trade has led to the formation of new markets and hence increased business cooperation all over the world. Countries from different continents have forged cooperation so as to increase their markets and also diversify their imports to cater for their citizens. As a result, countries have tried to modify their business environments so that they attract investors and other business organizations. Asia has been on the forefront in this issue of business cooperation. Many countries have witnessed the signing of regional and bilateral agreements to promote trade and industrial cooperation. Accordingly, Malaysia is one of the countries that have tried to reform their business environments so that foreign investors could be lured into the country. This paper will therefore try to analyze the business environment in Malaysia. It will identify its physical location, its demographics, business laws and the regulatory agencies in the country. Finally, the paper will conclude by pointing out the types of foreign businesses that could do well in Malaysia and those that would not prosper.
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Location and Topography
Malaysia is one of the southeast Asian countries. Its neighbors include Indonesia (South), Thailand (North), and the Philippines on the Eastern border. In terms of size, Malaysia is relatively a large country. It accounts for 329,758 square kilometers making it slightly larger than the fourth largest state in the United States, New Mexico. Being a federation, Malaysia is comprised of 13 states divided into two distinct regions which are Peninsular or West Malaysia and East Malaysia. Peninsular Malaysia is made up of 11 states, while East Malaysia accounts for two states. The region of East Malaysia is located on the Borneo Island and is separated from the Peninsular Malaysia by the China Sea at a distance of 640 kilometers (Encyclopedia of Nations, 2008).
Kuala Lumpur is the capital city of Malaysia and is located in the Peninsular Malaysia at about 300 kilometers from Singapore. However, the metropolitan region has witnessed overcrowding hence forcing the government to develop a new capital in Putrajaya to serve as an administration center. Malaysia boasts of its strategic location. It is situated on the Strait of Malacca which serves as the major connection sea-route for Europe, Asia, Far East and the Middle East (Encyclopedia of Nations, 2008).
Improved health services and longer life expectancy have caused the population of Malaysia to double up in 2000 as compared to the sixties. The population was estimated at 21,793,000 in 2000. 25.3 was the estimated birth rate per 1,000 people during the same year, while the death rate stood at 5.25 per 1,000 people. The growth rate was therefore 2.01 leading to an estimate of about 31 million people by the year 2020 if the variables remained constant. Basing on the topography of the country, about 81% of the population is situated in Peninsular Malaysia while the rest, about 4.2 million people are situated in East Malaysia. This population accounts for a population density of about 129 people per square kilometer and 20 people per square kilometer in Peninsular Malaysia and East Malaysia respectively (Department of Statistics, 2001).
This population is comprised of Malays and their diverse indigenous groups, which account for a total of 58%, followed by the ethnic Chinese who account for 26%, with the Indian descendants coming third at 9 percent, leaving the remaining percentage to the various other groups. This social set up was a British formation after they encouraged the migration of the Chinese into the country. The general population of Malaysia can be rated as young because about 35% of the population is below fourteen years while less than 4% of the population is more than 65 years. Witnessing a belated urbanization, only 28.8% of Malaysians were living in urban areas in the 70s. 1999 witnessed slightly more than half of the population, 57% living in urban areas and the current estimate points out that more than 70% of Malaysians will be living in urban areas in the next 10 to 15 years (Department of Statistics, 2001).
Malaysia is a country that values religion. Accordingly, Islam has been elevated as the official national religion. It comprises most of the Malays and some Indian descendants. On the other part, the Chinese are mostly Buddhists while a majority of the Indian descendants are Hindus (Department of Statistics, 2001).
For lovers of a natural world, Malaysia is heaven on earth. This country boasts of almost every sort of plants and animals. These include Mangroves from low lands to the high altitude mountain oaks. It’s a fact that three quarters of Malaysia is covered by trees and forests that are natural. This is an area almost equal to the whole size of the United Kingdom. With diverse species of animals and plants, a person can walk in a continuous canopy for hundreds of miles. In Dipterocarp forest in Borneo, a half kilometer walk allows one to view more than eight hundred different tree species. This is without the inclusion of the diverse and stunning varieties of flowers, insects, ferns and birds (Geographia, 2006).
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Malaysia is also home to some rare animals including Sumatran rhinos, clouded leopards, monitor lizards, Malaysian tiger, the orangutan and the sun bear. It is also notable that the forest is one of the planet’s oldest beating the Congo and the tropical Amazon. Besides the thrills of the forest game parks, visitors can also experience other forms of fun including river swimming, camping under giant tropical trees, bird watching, fly-fishing, mountain climbing, big game stalking, etc (Geographia, 2006).
In addition, there are tranquil Malaysian offshore islands that offer calm and peace from the turbulent world with their legendary beauty. These islands include Pulau Langkawi and Pulau Tioman which have acquired international accreditation for being among the favorite holiday destinations (Geographia, 2006).
The Malaysian national flower is the Hibiscus and their national bird is the rhinoceros hornbill. The national foods include roti canai, nasi lemak and char kuey teow (Geographia, 2006).
Primary Industries in Malaysia
Mining and manufacturing form the largest part of the Malaysian industrial sector. Among the natural resources that have export significance are tin, oil and gas. From the colonial era to the eighties, the country remained the largest producer of tin in the world. It was later dethroned in the 90s by Brazil and Indonesia. The mining industry is further favored by the location of most of the mines in the Peninsular Malaysia hence facilitating the transportation of the minerals to the seaports which are located close to the mines. Affected by the world market fluctuations, the production of tin fell from 36,812 metric tones to 22,376 metric tones from 1994 to 1998 (Jomo & Greg, 1999).
On the other hand, the production of crude oil and natural gas has been increasing in the country. In 1999, the country produced a total of 693,000 barrels of crude oil on a daily basis. Further more, liquefied natural gas was produced at a rate of 3.8 cubic feet each passing day. Most of the high quality oil is extracted in Sarawak, Sabah and Terengganu regions which account for 40 operational mining fields. The crude petroleum and gas are refined by the five refineries in Malaysia. Gas production has witnessed a steady increase since the nineties making it sufficient, not only for the domestic but also international markets. The major markets for the Malaysian gas have been Taiwan, Singapore and South Korea. In 1999, Malaysia was ranked the as the thirteenth largest gas reserves in the world and twenty-second in oil reserves (Jomo & Greg, 1999).
Despite this, the role of the mining sector in Malaysia cannot be taken as the core economic actor in the economic development. The contribution of this sector to the country’s GDP was only 7.3% in the year 1998. Furthermore, the sector employed a mere 39,000 people which is less than 1% of the total labor force. However, if well exploited, this sector could be more prolific. This is attributed to under-exploited mineral fields in the regions of East Malaysia. The regions of Sabah and Sarawak are highly rich in bauxite, ilmenite, gold, copper and iron ore. In addition, the offshore coasts are highly rich in high quality oil and gas. If well exploited, the country could offer great business opportunities in the mining sector (Jomo & Greg, 1999).
The manufacturing sector in Malaysia has a more important role in the country’s economy as compared to its mining counterpart. It accounts for about 29% of the GDP and offers employment to 27% of the total workforce. These were the statistics of 1999. The contribution to the GDP had grown since the 70s from 20.2% to 29% in the 90s. As per that period, the United States remained the highest investor in the Malaysian manufacturing sector with total investments worth US$1.37 billion. Most of this investment was in the chemical, electrical and electronic industries (Jomo & Greg, 1999).
The flourishing transport sectors that include seaports and railways were the major contributors to the development of the manufacturing sectors in Malaysia. It was also accelerated by the entrepreneurial skills in the regions of Pinang and Kelang valleys. Initially, this sector consisted of oil refinery, light industries and assembly of machinery. This was later changed after the support from other countries, which eventually resulted in the formation of electric assembly and the sector of electronics. In cooperation with Japan’s Mitsubishi, the government of Japan launched the national automobile industry which produced the Proton car. The car was eventually launched on the international market in the late 80s. In the 90s, the manufacturing industry advanced to the production of export-oriented electronics and hence involved itself in the production of silicon wafers, semiconductors, etc (Jomo & Greg, 1999).
Engaging in a foreign investment in Malaysia is not an issue of simply deciding to put up an industry. There are agencies that are meant to regulate the investments. These agencies therefore ensure that all the investors within the different sectors are operating legally and within the specifications provided. The legislature has enacted different Acts that are meant to regulate the investment decisions of foreign investors. These include Acts like the Industrial Coordination Act of 1975. Other agencies include the Companies Commission of Malaysia, which deals with the annual accounts for the registered companies, the Malaysian Industrial and Development Authority (MIDA) and the MITI deal with the licensing of companies engaged in the manufacturing sectors. The Petroleum National (PETRONAS) is the agency that deals with the rights to mine and explore for minerals in Malaysia. The Committee on Wholesale and Retail Trade (CWRT) deals with the approval of any foreign involvement in wholesale and retail trade. The construction industry development Board registers all the investors interested in Malaysia be they local or foreign (Kenneth David & Company, 2004).
The Malaysian Business Law
The Malaysian business law is made up of several specifications that must be well understood before investing in the country. To start with, the law states that writing addressed from a person to the other will be defined as a bill of exchange. The writing has to be signed by the person giving it and should specify the demand to be paid and the given duration of time. In addition, the law dictates that in the case of a dispute, the disputants should refer the case to the court of law for efficient settlement. Ten working days after a direct sale contract are referred to as the ‘cooling period’ according to the Malaysian business law. During this period, the purchaser can withdraw the offer and not be liable for breach of contract. He will be protected under section 2 of the direct sales Act 1993. The purchaser must serve a rescission notice to qualify under this (Malaysian Institute of certified secretaries and accountants, 2004).
Being a Muslim country, ‘riba’ or interest is not allowed. As a result, all Islamic banks are not allowed to charge the ‘riba’ or interest. Risk prima facie passes with property according to the Malaysian laws. This means that the buyer will incur all loses and damages once the property has passed into his hands. This is important because the person in whose hands the property is the only one allowed to use a third party in case of damage. If not withdrawn or revoked, a communicated offer remains open. A revocation can only be offered before the acceptance communication is passed. Not after that (Malaysian Institute of certified secretaries and accountants, 2004).
Breach of contract can be sorted out through rescission of contract, injunction, damages, specific performance or Quantum meruit. Offering a false description of gods is a crime under the Trade Descriptions Act 1972. If convicted, the person pays a sum of money not exceeding RM 100,000 or three years’ imprisonment. This is for the first time offender. The second time or subsequent offenders will pay RM 200,000 or six years in prison. Finally, the law specifies the duties and obligations of the buyer and seller. While the seller’s duty is to provide the goods, the buyer is obligated to receive them and pay for them. This happens provided the terms of the contract are made. Should the goods provided be outside the expected description, the buyer can accept those fitting the description and reject the rest, or he can resort to reject the whole consignment (Malaysian Institute of certified secretaries and accountants, 2004).
Multilateral and Regional Agreements
Malaysia is currently in a several regional and bilateral agreements. Several others are still being negotiated. The country has engaged in Free Trade Agreements so that higher levels of liberalization are achieved. This also enhances investments, facilitates trade, and protects intellectual property rights. The country also wants to engage in FTAs so that it seeks for new markets, facilitates trade and economic development, enhance its competitiveness and finally build capacity through collaboration and technical cooperation. Currently, the country has concluded FTA agreements with Japan and Pakistan. Regionally, Malaysia has bilateral agreement with the partners of the ASEAN. These countries include India, Japan, Korea and China. It also includes New Zealand and Australia (Ministry of International Trade and Industry, 2009).
Basing on the information provided, there are businesses that are likely to do well in Malaysia while others might fail. The mining industry would be the most appropriate business opportunity for a company that intends to invest in Malaysia. This is because the mining sector has been under exploited. Most of the minerals including iron ore, copper, and bauxite which exist in East Malaysia have not been exploited. In addition, the population is a young one providing enough labor force for the mining industry. Therefore, with enough capital and expertise, the mining sector provides the most lucrative business opportunity in Malaysia. On the other hand, the electronics industry might also offer a business opportunity. Unfortunately, this sector has been greatly exploited. It might result in a very stiff competition and hence lead to failure. In addition, the established companies have acquired their market niche which could make it difficult to penetrate the market. Therefore, Malaysia is a lucrative business region for companies that are involved in the mining sector. There are greater chances of success in the relatively less exploited sector as compared to the manufacturing industry.
Department of Statistics, Malaysia. (2001). Latest statistical releases. Web.
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Economist Intelligence Unit. (2000). Country Report: Malaysia. London: Economist Intelligence Unit.
Encyclopedia of Nations. (2008). Malaysia: Country Overview.
Geographia. (2006). Malaysian Culture.
Jomo, K. S., and Greg Felker. (1999). Technology, Competitiveness, and the State: Malaysia’s Industrial Technology Policies. London: Routledge, 1999.
Kenneth David & Company. (2004). Business regulations in Malaysia.
Ministry of International Trade and Industry. (2009) Malaysia’s FTA involvement. Web.
Malaysian Institute of Chartered Secretaries and Administrators. (2004). Malaysian Business Law. Web.