Investing In Malaysia
Market Entry Strategy
Most exporters find using local distributors an easy 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 aftersales service. Sales to the government require a local agent and/or a joint venture partner. Additionally, direct involvement by the U.S. company and demonstrations of longterm commitment to the local market are essential for contracts of significant size.
Using an Agent or Distributor
Many exporters designate a Malaysian-based trading company as their local sales agent responsible for handling customs clearance of imported goods, for dealing with established wholesalers and/or retailers, for marketing the product directly to major corporations or the government, and for handling after-sales service. In some cases, especially when selling to the government, a Malaysian distributor is required.
Establishing an Office
A number of international accounting and consulting firms are located in Kuala Lumpur, which can assist with the procedures and requirements for setting up a business in Malaysia. AmCham (American-Malaysian Chamber of Commerce) can be a useful resource for those interested in setting up an office or plant. The following information is intended to provide a guideline for establishing an office, and is not meant to substitute for qualified legal and consulting services. The primary concerns for those considering setting up an office or factory in Malaysia are registration and taxes, labor, wages, rental/construction prices, utilities, and insurance.
Registration of Foreign Companies
Foreign companies interested in doing business in Malaysia must register with the Companies Commission of Malaysia (CCM), formerly known as the Registrar of Companies (ROC). The same registration procedure applies whereby an application must be submitted on Form 13A to the CCM in Kuala Lumpur or any of its branch offices in Malaysia, with a payment of RM30 (U.S. $8.60). If the intended name of the foreign company is available, the application will be approved and the name reserved for three months. Fees, including application and name reservation, depend on nominal share capital and range from RM 1,000 to RM 70,000 (U.S. $286- 20,000). The Malaysian Industrial Development Authority (MIDA) website lists a pecific breakdown of fees. Upon approval, applicants must lodge the following documents with the CCM:
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A certified copy of its Certificate of Incorporation (or a document of similar effect) from the country of origin;
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A certified copy of its Charter, Statute or Memorandum and Articles of Association or other instrument constituting or defining its constitution;
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A list of its directors and certain statutory particulars regarding them (Form 79);
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Where there are local directors, a memorandum stating the powers of those directors;
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A memorandum of appointment or power of attorney authorizing one or more persons resident in Malaysia to accept on behalf of the company, service of process and any notices required to be served on the company;
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A statutory declaration in the prescribed form made by the agent of the company (Form 80).
The appointed agent undertakes all acts required to be done by the company under the Companies Act 1965. Any change in agents must be reported to the CCM. Every foreign company shall, within a month of establishing a place of business or commencing business within Malaysia, lodge with the CCM for registration a notice of the situation of its registered office in Malaysia using the prescribed form. A foreign incorporated company must file a copy of its annual return each year within one month of its annual general meeting. Within two months of its annual general meeting, the company must file a copy of the balance sheet of the head office, a duly audited statement of assets used in, and liabilities arising out of, its operations in Malaysia, and a duly audited profit and loss account.
Taxation
Most income of companies and individuals accrued in, derived from, or remitted to Malaysia is liable to tax. However, income remitted to Malaysia by non-resident companies and individuals is tax-exempt, except in the case of the banking and insurance business, and sea and air transport undertakings. A company is considered a resident in Malaysia if the control and management of its affairs are exercised in Malaysia.
Capital allowances are given on qualifying capital expenditures. Initial allowances are given only once while annual allowances are given every year using the straight-line method. Some of the items accorded allowances are shown below. For plant and machinery, companies are advised to verify with the Inland Revenue Board on the specific items that qualify.
Labor Standards
The Employment Act of 1955 (Amendments 1998) is the main legislation on labor standards in Malaysia. Normal work hours are not to exceed 48 hours per week or eight hours per one day. A paid maternity leave of 60 days must be granted, as well as ten paid holidays, annual leave of 8 to 16 days, paid sick leave 14 to 60 days per year and overtime pay of time-and-a-half for normal work days, two-times for rest days and threetimes for public holidays.
Under the Employees Provident Fund Act 1991, minimum contributions of 11% of employees' monthly wages and 12% of employers' monthly wages are compulsory. The Social Security Organization (SOCSO) administers social security schemes for workers earning wages not exceeding RM 2,000 (U.S. $572) per month. The Human Resources Development Fund (HRDF) operates on the basis of a levy/grant system where contributing companies can apply for grants to subsidize the costs incurred in training their Malaysian employees. Mandatory contributions of 1% of monthly employee wages must be made by manufacturing companies that employ 50 or more Malaysians and companies employing from 10 to 50 employees and with a paid-up capital of RM2.5 million (U.S. $715,000) and above. Any expatriate on staff requires a work permit. Obtaining a permit may take from two to three weeks with a fee ranging from RM200 - RM300 (U.S. $57-86) per month payable in advance for one year.
Wages
There is no national minimum wage law applicable to the manufacturing sector in Malaysia. Basic wage rates vary according to location and industrial sector, while supplementary benefits, which may include bonuses, free uniforms, free or subsidized transport, and performance incentives, vary from company to company. Wage rates can be found on the MIDA website. Most companies provide medical benefits to both executives and nonexecutives. Personal accident insurance is more commonly provided than life insurance and coverage is generally RM 100,000 (U.S.$28,571) or above (senior-middle executive) and RM 50,000 (U.S. $14,286) or below (non-executives).
Franchising
The U.S. accounts for over 70% of foreign franchise sales in Malaysia, followed by the U.K., Taiwan, Singapore, and Australia. U.S. franchises dominate the fast food and restaurant industry and include Kentucky Fried Chicken (KFC), McDonalds, A & W, Burger King, Starbucks, Seattle's Best Coffee, Dunkin Donuts, Pizza Hut, Domino Pizza, Shakey's Pizza, Kenny Rogers Roasters, Long John Silvers, Dairy Queen, TGIF, Chilis, Hard Rock Cafe, Planet Hollywood, Baskin Robbins, Haagen Dazs, Swensons, Famous Amos, Auntie Anne’s, and Outback Steak House.
According to the Franchise Act 1998, all franchisers that are selling their franchises in Malaysia are required to register with the Registrar of Franchise (ROF), which is under the Ministry of Entrepreneur Development. U.S. franchisers that are selling their franchises in Malaysia have to submit the following documents to ROF to get approval for registration: 1) letter of intent, 2) company profile, 3) sample of franchise agreement, 4) copy of latest audited accounts. Officially, it takes one month to get an approval from ROF, but normally it takes at least three months. It is usually easier for foreign franchises to get approval for registration with ROF compared to local franchises. However, there are incidences in which applications from foreign franchises have been rejected. When an application has been rejected, the franchisers can appeal.
Direct Marketing
Over the last ten years Malaysia has used technology to more effectively target its broad consumer base, using improved databases to achieve one-to-one marketing. Direct marketing in Malaysia is now on par with other developed consumer societies, and includes a full range, from technology driven Internet banners and SMS messaging to traditional billing inserts. For a list of direct marketing firms, contact the Direct Marketing Association of Malaysia (DMAM).
Joint Ventures & Licensing
Some exporters find it advantageous to establish their own subsidiary in Malaysia to directly handle sales, distribution, and service. While this provides more direct control, it requires a commitment of capital and the identification of suitable local joint venture partners. The selection of a joint venture partner is perhaps the single most important decision made by a potential investor in Malaysia.
All partnerships must be registered with the Companies Commission of Malaysia (CCM) under the Registration of Businesses Ordinance 1956. Partners are both jointly and separately liable for the debts and obligations of the partnership should its assets be insufficient. Formal partnership deeds may be drawn up governing the rights and obligations of each partner, but this is not obligatory. U.S. exporters interested in establishing a joint venture should contact MIDA for more information about other government policies that may affect contract arrangements within their specific industry. MIDA may also be able to assist with the identification of a suitable partner. Any firm intending to establish a local office should secure the services of a local attorney.
Selling Factors & Techniques
When marketing general consumer goods, U.S companies should keep in mind the cultural norms and standards of the Malaysian population, as well as the fact that Malaysia is a multiethnic country (Malays, Chinese, and Indians constitute 90% of the population, while the other 10% is composed of various indigenous groups). For example, a majority of the population is Muslim which means that certain food products must be "halal" (meaning lawful and permissible to use/consume in Islam) in order to appeal to a larger market. It is also advisable to conduct some research on the possible implications of advertising or promotional activities before initiating them in Malaysia. U.S. food and other consumer goods are primarily marketed to the rapidly growing urban middle class, and so tend to occupy the upper end of the local retail price spectrum. While value for dollar/ringgit is important, the "brand name" status of certain products appeals to a segment of Malaysians with a higher level of purchasing power. However, the same techniques used to market upscale goods and services in the U.S. may not be as effective in Malaysia.
Sales of equipment and material for a specific industry, such as electronics, depend heavily on specialized trade fairs, publications, and visits by company representatives. Sales to the government or for large-scale projects involving major equipment require extensive high-level contact by local representatives and visiting company representatives. Major companies with investments in Malaysia or interest in significant export sales also engage in continuing programs of company image building through articles and advertising in local business journals, sponsorship of conferences and other events, and participation in public-private sector consultative bodies. U.S. exporters face strong competition from producers such as China, Australia, India, Thailand, Holland, New Zealand, and Indonesia when marketing agricultural products. Although the Malaysian market is price sensitive, price is not the only factor that determines the success of U.S. exporters operating within the Malaysian agricultural market. Developing strong business relationships with local industry players (including importers), maintaining the availability and the quality of the produce, effective promotional campaigns, and targeting the right markets are other important marketing factors to consider when operating in Malaysia.
Electronic Commerce
It has only been in the last few years that Malaysians have slowly adopted e-commerce. Commercial banks were among the initiators of e-commerce deployment in Malaysia, with other sectors following suit. The national air carrier Malaysia Airlines and its lowcost competitor Air Asia now both provide on-line reservation systems. Transactional security over the Internet remains a major concern of Malaysian consumers and Malaysians are slowly being educated and eased into e-commerce as a way of doing business.
Trade Promotion & Advertising
Advertising approaches differ according to the market sector. For consumer goods, advertising techniques include the full range of television, radio, newspaper, outdoor advertisements and other approaches. Extravagant product launches, once deemed necessary only in Singapore, are becoming the norm. Due to health/religious concerns, there are prohibitions on most types of advertising for tobacco and alcoholic beverages. There are six nationwide TV channels in Malaysia: two government channels (TV1 and TV2) and two private channels (TV3, Channel 8, Channel 9 and NTV7). Most television channels broadcast programs in the local language (Bahasa Malaysia), as well as in English, Mandarin, and Tamil. As to pay TV, there are currently three providers (Astro, MiTV, and Fine TV). The TV market has some 5 million viewers, including 1.47 million ASTRO subscribers.
Malaysia has several English-language newspapers, the largest being the New Straits Times and the Star. The primary business-oriented paper is the Business Times, published by the New Straits Times group. The major Malay-language newspapers are Utusan Malaysia and Berita Harian, while the largest Chinese papers are Sin Chew Pit Poh and Nanyang Siang Pau. There are also Tamil and other language newspapers. Business-oriented magazines include Malaysian Business, Malaysian Industry, and the Malaysian Investor. Published news on Malaysia can be accessed through various sites including www.malaysianews.net and www.asiadragons.com/world/malaysia. A brief list of local firms that provide professional services and have expressed interest in working with U.S. companies can be found on the Commercial Service KL website. U.S. firms can also advertise themselves on the same site through the Featured US Exporter service.
Domestic trade fairs (as well as trade fairs in Singapore) also provide U.S. firms with an opportunity to increase brand awareness and find trade partners. The following is a list of trade exhibition centers: Kuala Lumpur Convention Centre, Malaysian International Exhibition & Convention Centre, Midvalley Exhibition and Event Services, Putrajaya Convention Centre, Putra World Trade Centre, Sunway Pyramid Convention Centre, Malacca International Trade Centre, and Mahsuri International Exhibition Centre (in Langkawi). Major trade event organizers include: ABC Exhibitions, AMB Exhibitions, CIS Network, Interexpo, Mines Exhibition Management, Protemp Exhibitions, and Trade-Link.
Pricing
A number of factors should be taken into consideration when determining appropriate product prices. Some factors to consider are the exchange rate (3.5 RM = U.S. $1 at the time this report was published) and applicable taxes and duties. There may also be some government regulations for certain industries that affect the price charged to customers and other end-users. Another factor to consider is the standard of living in Malaysia. The country is one of the most affluent in the Southeast Asia region, which means that higher-priced products and services have a niche market. However, prices of general consumer goods should reflect the lower cost of living and purchasing power of the average Malaysian. MIDA maintains a table of prices of select consumer goods (click on “Living in Malaysia”).
In addition, U.S. exporters should generate a price survey of competitor products and services from both domestic and international firms. The U.S. Commercial Service in KL can assist exporters by providing a Customized Market Research report that specifically identifies competitive factors within the market sector or industry.
Sales Service & Customer Support
Malaysian customers, both corporate and individual, expect high-quality sales service and after-sale customer support like many other customers in markets worldwide. While it is not often necessary to establish a local branch or subsidiary, it is usually crucial for U.S. companies to have a local agent (especially those that are interested in exporting products or operating services on a continual basis). This agent should be available for clients to contact immediately should any problems arise.
Protecting Your Intellectual Property
Trademark counterfeiting is a major problem in Malaysia and impacts a broad range of industries, including: optical media, apparel and luxury goods, tobacco, and electrical items. Though Malaysia is a party to international agreements to protect intellectual property (including the WIPO, Berne and Paris Conventions, among others), it is recommended that a company register its patents and trademarks with the appropriate Malaysian agencies and authorities. Because intellectual property rights are private rights, the U.S. government can provide only limited direct assistance and cannot provide American companies with legal advice or advocate on a company’s behalf where a matter is before a court or administrative agency. Once a company decides to pursue a remedy, the U.S. government will monitor the case, if requested to do so by the company. The U.S. government cannot intervene in these cases, however we can inquire about their status or contact government officials about concerns related to the effective administration of legal remedies available to IP holders as a general matter. To report an IPR-related trade complaint or get more information, call 1-866-999-4258. In addition, the Department of Commerce’s Trade Compliance Center (TCC) actively monitors and tracks trade barrier complaints filed by U.S. businesses. As well, the TCC maintains a trade barrier toolkit on its website, which provides comprehensive advice on dealing with trade problems.
Due Diligence
Several firms gather information and publish reports on Malaysian companies, including Rating Agency Malaysia, United Management Services, and D&B Information Services (M) Sdn. Bhd. For major corporate transactions, financial advisors and lawyers can perform due diligence. Publicly listed companies are required to publish audited financial results, which can be checked prior to entering into business agreements. In smaller transactions, letters of credit are a standard requirement of potential customers, while bank references and track records can be checked prior to appointing agents.
