Each year, the U.S. Commercial Service Malaysia produces a Country Commercial Guide. This guide presents a comprehensive look at Malaysia’s commercial environment, reviews economic and political conditions and trends, identifies commercial opportunities for U.S. exports and investment, and also the overall investment climate in Malaysia. CCGs are prepared annually at U.S. embassies for use by U.S. businesses and U.S. government organizations, and they represent the combined efforts of several U.S. Government agencies.
Below are summaries of select elements of our CCG-Malaysia. For a copy of the guide, or for further details on doing business in Malaysia, please email email@example.com.
For centuries, Malaysia has profited from its location at a crossroads of trade between the East and West, a tradition that carries into the 21 st century. Geographically blessed, peninsular Malaysia stretches the length of the Strait of Malacca, one of the most economically and politically important shipping lanes in the world. Capitalizing on its location, Malaysia has been able to transform its economy from an agriculture and mining base in the early 1970s to a relatively high -tech, competitive nation, where services and manufacturing now account for 90% of GDP (56% in services and 34% in manufacturing in 2014.
This history and transformation have driven several reasons why U.S. companies should consider exporting to Malaysia: Widespread English, relaxed foreign exchange, ability to repatriate capital and profits, a well-established legal framework, excellent infrastructure, and an affinity for United States products. In addition, a high rate (96%) of U.S. visa approvals and a 10-year maximum validity visa make it easy for your business partners to travel to the United States.
In 2014, U.S.-Malaysia bilateral trade was an estimated US$4 8.4 billion counting both manufacturing and services,1 ranking Malaysia as the United States’ 19th largest trade partner. Malaysia is America’s second largest trading partner in Southeast Asia, after Singapore. The U.S. was Malaysia’s fourth top export destination in 2014 (behind China, Singapore and Japan).
The U.S. merchandise trade deficit with Malaysia rose by more than seven percent to $17.5 billion in 2014 from $14.3 billion in 2013 – U.S. goods exports held steady at US$13.0 billion, but goods imports from Malaysia grew to US$ 30.5 billion. In 2013, the U.S. held a $1.1 billion trade surplus in services, with $3.0 billion in exports and $1.9 billion in imports (up from $2.5 billion and $1.4 billion, respectively, in 2012).
The U.S. has consistently been one of the largest foreign investors in Malaysia, with significant presence in the oil and gas sector, manufacturing, and financial services. The stock of U.S. foreign direct investment (FDI) in the Malaysian manufacturing sector was nearly $15 billion in 2012, up from $13.9 billion in 2011. According to the Malaysian central bank, Bank Negara Malaysia , the United States was the fifth largest source of new FDI to Malaysia in 2013 with $2.8 billion in new investments.2 Factoring in investments among foreign affiliated subsidiaries in the financial and oil and gas sectors would make U.S. FDI in Malaysia significantly higher (perhaps more than $30 billion).3 The stock of Malaysian FDI in the United States was $1.7 billion in 2012, with a 2013 increase of approximately $114 million in manufacturing investment, and $635 million overall.
Malaysian economic growth showed strength in 2014, growing about 5.9%, compared to 4.7% in 2013, 5.6% in 2012, and 5.1% in 2011. Most analysts expect growth to slow to between 4.5 and 5.0 percent in 2015 as the economy faces increasing headwinds from rapidly declining oil and gas prices and continued downward pressure on the ringgit, while the government struggles to rein in the budget deficit.
The oil and gas sector, including substantial resources located in contested areas in the South China Sea, is the most important and largest source of income for the Government of Malaysia, accounting for around thirty percent of government revenue. Though a net oil importer, Malaysia remains the world’s second-largest natural gas exporter, with Liquefied Natural Gas (LNG) exports reaching nearly $18 billion in 2013.
In a January 20, 2015, speech, Prime Minister Najib acknowledged the need to further cut the government budget, while noting that the country would not meet its earlier goal of reducing the deficit to three percent in 2015. A trade-dependent, upper middle income country, with a per capita income of over $10,000, Malaysia has benefitted from previously high commodity prices and sustained investment (especially from U.S. firms) into its electronics and oil and gas sectors. Facing potential downgrades from international ratings agencies due to a persistent fiscal deficit, the government reduced fuel and other subsidies last fall , and it instituted a goods and services tax in April to reduce its dependence on oil - related revenues.
The Government of Malaysia actively continues to manage the development and industrialization of the Malaysian economy. This includes facilitating infrastructure projects through significant state investment, fostering a close alliance between government and the private business sector, and designing and implementing a variety of policies and programs to bolster the overall economic environment, with special attention to the economic status of the ethnic Malay and other indigenous majority, known collectively as the Bumiputra (sons of the soil).
Malaysia’s level of economic development drives both consumer and business demand for products and services. Consumers, though price sensitive, have been accustomed to several decades of strong growth and are attracted to enhancing their quality of life through higher quality consumer goods, educational and healthcare products and services, and environmental and life style offerings. Strong economic development and foreign investment growth drives business -to-business and business-to-government sales as the economy works its way up the value chain of production.
In 2010, the GOM embarked on four different economic programs to spur additional investment: the New Economic Model (NEM) platform to reform economic policy, the Economic Transformation Programme (ETP) intended to stimulate foreign and domestic private investment, the Government Transformation Program (GTP) to decrease corruption and improve Malaysia’s social safety net, and the Tenth Malaysia Plan (10MP) to guide public sector capital expenditures. The NEM proposes reforming ethnic biases in business ownership and social safety net programs, improving government delivery, reducing the cost of doing business, and divesting state enterprises.
The ETP in particular will continue to generate opportunities for U.S. business through the remainder of the decade. The program intends to make Malaysia a fully developed economy by 2020. It includes a number of large infrastructure projects, including expansion of the existing light -rail network, construction of a full commuter rail system (one line under construction and two additional lines planned), a number of large projects in the oil, gas and petrochemical sectors, and development of a major metropolitan area in the south.
To facilitate investment, the 2010 reforms also removed Foreign Investment Committee (FIC) investment guidelines, which eliminated FIC approval requirements for transactions involving acquisitions of interests, mergers, and takeovers of local companies by domestic or foreign parties.
The Malaysian franchise industry continues to represent a unique opportunity for brands able to succeed in what is becoming a crowded space. The industry registered a healthy 20% growth in 2012, and almost 36% of the franchises operating in Malaysia are foreign franchises. U.S. franchises account for around 33% of the total. See Franchising section, below.
In October 2010, Malaysia joined the United States and seven other countries in negotiations for a regional Trans Pacific Partnership (TPP) free trade agreement. The Peterson Institute predicts that Malaysia will obtain the second greatest (The Government of Malaysia reports per capita GDP in nominal U.S. dollars at $10,538.) economic benefit from the TPP (behind Vietnam), with annual export gains of over $40 billion and income gains of $24 billion raising national GDP by 5.6% by 2025.
Most exporters find that using a local distributor or agent is the best first step for entering the Malaysian market. A local distributor is typically responsible for handling customs clearance, dealing with established wholesalers/retailers, marketing the product directly to major corporations or the government, and handling after-sales service. Exporters of services generally also benefit from use of partner.
Sales to the government: Government Linked Companies (GLC), or priority sectors require a local agent and/or a joint venture partner, usually a Bumiputra -owned firm or “Bumi.” The Malaysian government makes use of offsets and other measures to encourage technology transfer, particularly in defense procurements.
Direct involvement by the U.S. company and demonstrations of long-term commitment to the local market are essential for contracts of significant size. For strategic or large- scale market entry, companies typically find they are treated more favorably when they are willing to establish a local office, hire Malaysians, engage in training, undertake some amount of local assembly or production, or at least plan regular and frequent trips to maintain relationships and presence.
For further details on Doing Business in Malaysia, U.S. companies and U.S. commercial organizations may send an email to firstname.lastname@example.org to get a copy of our most recent Country Commercial Guide (CCG). Exclusively for our U.S. clients and partners, this guide presents a comprehensive look at Malaysia’s commercial environment, reviews economic and political conditions and trends, identifies commercial opportunities for U.S. exports and investment, and also the overall investment climate in Malaysia. CCGs are prepared annually at U.S. embassies and represent the combined efforts of several U.S. Government agencies.