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Doing Business in Malaysia

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 office.kualalumpur@trade.gov.

Market Overview

For centuries, Malaysia has profited from its location at a crossroads of trade between the East and West, a tradition that carries into the 21st 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 75% of GDP (51% in services and 24% in manufacturing in 2013).

  • In 2013, U.S.-Malaysia bilateral trade was an estimated US$44.2 billion counting both manufacturing and services,1 ranking Malaysia as the United States’ 20th 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 to $14.3 billion in 2013 from US$13.1 billion in 2012 – U.S. goods exports grew to US$13.0 billion, but goods imports from Malaysia totaled grew faster, to US$27.3 billion. In 2012, the U.S. held a $1.1 billion trade surplus in services, with $2.5 billion in exports and $1.4 billion in imports.
  • 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 $15 billion in 2012, up from $13.9 billion in 2011; and the stock of Malaysian FDI in the United States was $1.7 billion. Factoring in investments among foreign affiliated subsidiaries in the financial and oil and gas sectors would make U.S. FDI significantly higher (perhaps more than $30 billion).2
  • Malaysian economic growth moderated in 2013, dropping to 4.7% from an impressive 5.6% in 2012 and 5.1% in 2011. Growth is more than 6% for the first half of 2014. Bank Negara Malaysia (Malaysian Central Bank) has modified its full year 2014 growth forecast to 5.5% and forecasts similar growth for 2015.

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).

Market Challenges

Duty rates and systems of import permits in protected industries, such as automobiles and motorcycles, combined with excessive excise taxes, continue to block open trade in these sectors.

  • Government restrictions hamper foreign involvement in several areas, including: government procurement contracts; financial, business, and professional services; and telecommunications. In many cases it is imperative to have a local partner, usually a Malay-owned Bumiputra company, to effectively compete in the market.
  • Malaysia continues to express a commitment to protecting and enforcing intellectual property rights (IPR), and has made important progress in the past few years. However, concerns remain about reports of the widespread availability of pirated and counterfeit products in street markets and over the internet. In addition, the United States continues to urge Malaysia to provide effective protection against unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data (such as data generated to obtain marketing approval for pharmaceutical products). The United States also urges the country to provide an effective system to address patent issues expeditiously in connection with applications to market pharmaceutical products. Insufficient IPR protection will impact the country’s goal of increasing foreign investment in new areas, such as biotech and other R&D-intensive industries.
  • In the World Bank’s global Doing Business 2014 report, Malaysia surged up to 6th place overall among the 183 economies covered in the survey, following strong progress since 2005.3 It moved to 6th from 8th in 2013, 14th in 2012 and 18th in 2011. Malaysia’s most improved ranking was in the standardized indicator where it ranked worst: “dealing with construction permits.” This indicator is still its toughest challenge, but it moved from 99th place to 43rd. It also moved from 28th to 21st in “getting electricity,” and from 19th to 16th in “starting a business.” Malaysia’s other problem rankings are “enforcing contracts” (30th), “registering property (35th), “paying taxes (36th), and “resolving insolvency” (42nd).

Market Opportunities

  • According to the CIA World Factbook, Malaysia’s per capita income in 2013 using Purchasing Power Parity (PPP) is US$17,500 and its purchasing power is among the highest in Asia.4
  • 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 lifestyle 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.
  • Malaysia has joined the United States and seven other countries in negotiations for a regional Trans Pacific Partnership (TPP) free trade agreement.
  • For more information on best prospects, please see Chapter 4: Leading Sectors for U.S. Export and Investment.

Market Entry Strategy

  • Most exporters find using a local distributor or agent 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 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 office.kualalumpur@trade.gov 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.

1 Bilateral merchandise trade was $40.3 billion in 2013, and bilateral services trade was $3.9 billion in 2012, the most recent year for which figures are available.

2 The reason for the $30 billion estimate is that Malaysian investment figures do not include investments in “primary” sectors, i.e., they exclude oil and gas, and services. They also only cover investments since the 1980s. To put these estimates in context, two U.S. companies alone—Exxon and Intel—have cumulatively invested $9 billion in Malaysia between them.

3 http://www.doingbusiness.org/data/exploreeconomies/malaysia

4 The Government of Malaysia reports per capita GDP in nominal U.S. dollars at $10,687.