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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. Malaysia leveraged its strategic location to become one of the largest producers and exporters of tin, rubber and palm oil. Malaysia has been able to transform its economy from overdependence on raw materials and agriculture to a relatively high-tech, competitive nation. Services and manufacturing now account for nearly 75 percent of GDP (51.2 percent in services and 22.9 percent in manufacturing in 2014), while agriculture accounts for 8.9 percent, according to the World Bank.

Malaysia’s population was 31.3 million as of December 2015. According to Bank Negara Malaysia (Malaysia’s Central Bank), Malaysia’s GDP in 2015 was valued at US$296.7 billion. In 2016, Malaysia GDP growth is projected be 4.4 percent. GDP growth was 5.0 percent and 5.9 percent in 2015 and 2014, respectively. Malaysia is continuing efforts to boost domestic demand and reduce the economy's dependence on exports. Nevertheless, exports - particularly of electronics, oil and gas, palm oil and rubber - remain a significant driver of the economy. Gross exports of goods and services constitute more than 80 percent of GDP, with 15.8 percent of Malaysia’s exports going to China, its top trading partner. China’s weakened demand and falling global commodity prices have slowed Malaysia’s prospects for economic growth.

  • In 2015 and 2016 Malaysia’s currency, the ringgit, faced downward pressure due to declining exports and strained government finances. For example, in 2014, the average exchange rate for the Malaysian Ringgit against the US Dollar was US$1=RM3.27, whereas the 2015 and 2016 (Q1-Q2) average was exchange rate was US$1= 3.9 and US$1=RM4.10, respectively. Malaysia’s economic headwinds have made the government’s attempts to rein in the budget deficit more challenging. This has a dampening effect on consumer sentiment and spending.
  • Malaysia’s total trade for 2015 was US$376 billion. China is the top trading partner with 15.8 percent market share. Next is Singapore with 13.0 percent market share, followed by the EU with 10.1 percent, the U.S. with 8.8 percent, Japan 8.7 percent, Thailand 5.9 percent, Taiwan 4.1 percent, Indonesia 4.1 percent, South Korea 3.8 percent, Hong Kong 3.3 percent, and India 3.2 percent. 54 percent of Malaysia’s imports came from East Asia, with the largest share from China. The advanced economies (the United States, EU, and Japan) accounted for 26 percent of imports.
  • Though overall Malaysian Foreign Direct Investment (FDI) to the US is relatively low at US$1.587 billion, Malaysia was the fifth fastest-growing source of Foreign Direct Investment (FDI) into the United States in 2014 (by UBO).
  • Malaysia is an attractive destination for U.S. exporters. In addition to Malaysia’s attractive business environment and market potential, top reasons why U.S. companies should consider exporting to Malaysia include widespread English usage, relaxed foreign exchange, ability to repatriate capital and profits, a well-established legal framework, good infrastructure, and an affinity for United States products.
  • Malaysia has a high (96 percent) U.S. visa approval rate, and a 10-year maximum validity visa makes it easy for your business partners to travel to the United States.
  • Malaysia is a signatory to the Trans-Pacific Partnership Agreement (TPP). Malaysia’s Parliament was the first to ratify the TPP. The TPP is pending ratification by the other signatories; once ratification is complete the TPP will enter into force. The TPP will establish an FTA among all 12 countries with a total market of 800 million people and a combined GDP of US$27.5 trillion. TPP members include: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, Vietnam and Japan. The full text of the TPP and fact sheets on the agreement can be found here: https://ustr.gov/tpp/.

Market Challenges

  • Malaysia restricts open trade in protected industries, such as the automotive and agricultural sectors. Malaysia protects domestic industries by imposing higher duty rates and excessive excise taxes. Malaysia also uses a system of import permits or licenses to reduce imports in protected and strategic 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 Bumiputra (ethnic Malay-owned) company, to effectively compete in the market.
  • Malaysian officials continue to make progress in establishing fair and adequate protection of IPR. Although challenges remain, Malaysian officials have augmented their resources to combat online piracy and have sustained their efforts to deny access to piracy websites, taking down infringing content on domestic sites, and conducting raids and arrests of Malaysians either operating or posting links to sites with pirated content. The Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC), responsible for IPR enforcement, has been largely dependent upon complaints from companies to take action on transshipments of pirated goods.

In the World Bank’s global Doing Business 2016 report, Malaysia ranked 18th place overall among the 189 economies covered in the survey. The 2016 ranking is a slight decrease from 2015, where Malaysia ranked 17 out of 189 economies. Malaysia’s lowest topic rankings are in “registering property” (38th), “enforcing contracts” (44th), “trading across borders” (49th), and “resolving insolvency” (45th). Many of aforementioned market challenges will be resolved or improved under the TPP. Under TPP, Malaysia has committed to eliminate tariffs or substantially improve market access on imports from the United States through tariff reductions and tariff-rate quotas. Further, the TPP Agreement sets strong and balanced standards on IPR protection and enforcement. Under TPP, Malaysia will also make significant improvements to its services markets.Market Opportunities

  • Despite the fact the Malaysian economy is facing some turbulence, Malaysia has solid growth prospects and a rising middle class. In 2015 Malaysia’s per capita GDP was US$9,556.8 (current U.S. prices), when adjusting for purchasing-power-parity (PPP), Malaysia’s 2015 per capita GDP is US$26,314.8. Its purchasing power is among the third highest in ASEAN, after Singapore and Brunei.
  • Malaysia’s level of economic development drives both consumer and business demand for products and services. Its consumers, though price sensitive, are accustomed to several decades of strong growth. Thus, they are attracted to and are familiar with international branded products, better education, quality healthcare products and services, as well as ecological lifestyle offerings. The World Bank classifies Malaysia as an upper-middle income nation.

Through the Economic Transformation Program (ETP), the Malaysian government remains committed to reaching high-income status by the year 2020. This initiative includes a commitment to attract investment in “National Key Economic Areas” (NKEA)1 and a commitment to improving Malaysia’s infrastructure, especially its transportation infrastructure in East Malaysia (Sabah and Sarawak). Planned projects include the below:

  • Development and upgrading of the 2,083 km Pan Borneo Highway that connects Sabah, Sarawak, and Brunei. Estimated value: RM16.6 billion; estimated completion date: 2021
  • Sungai Besi-Ulu Klang Expressway (SUKE), a 31.8 km expressway linking Sg. Besi, Alam Damai, Ampang-KL Elevated Highway and KL Middle Ring Road. Estimated value: RM5.3 billion; estimated completion date: Unknown
  • The Bandar Utama-Klang Valley light rapid transit (LRT) line is slated to be the third LRT system in Klang Valley. The LRT is currently in the planning stage and will stretch 36-kilometers with 25 stations. Estimated value: RM9.3 billion; estimated completion date: 2020
  • The MRT Sungai Buloh-Serdang-Putrajaya Line (MRT2) is the mass rapid transit line servicing the Sungai Buloh-Serdang-Putrajaya area. The line is part of a larger mass transit project aimed at connecting the Klang Valley. Construction commenced in 2016. Estimated value: RM28 billion; estimated completion date: 2022
  • Development of the Cyber City Centre in Cyberjaya, with an investment of RM11 billion over a period of 5 years
  • A 1,300 hectare Aeropolis KLIA to be developed that is expected to attract RM7 billion in investments.

Market Entry Strategy

  • 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 local partner.
  • Sales to the Government of Malaysia, Government Linked Companies (GLC), or for procurement in priority sectors favor local agents and/or a joint venture partners that are classified as a Bumiputra (Malay) company. The term Bumiputera refers to individuals who are ethnically Malay. A Bumiputra company is defined as a company that fulfills the following criteria:

o Established under the Companies Act, 1965

o Paid-up capital of at least RM25,000

o Shareholders are 100 percent Bumiputra

o Board of Directors are at least 51 percent Bumiputra

o Managerial and Professional Staff are at least 51 percent Bumiputra

o Supporting Staff are at least 51 percent Bumiputra

  • The Malaysian government and GLCs make use of offsets and other measures to encourage technology transfer, particularly in defense procurements. The Government of Malaysia and GLCs also look favorably on U.S. companies that have a long-term presence in the local market. Therefore for strategic or large-scale market entry, U.S. 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.
  • In sectors that are not government dominated, companies, agents, or distributors should be selected based on competitive considerations (e.g. technical grounds or product knowledge). However, since the Malaysian market is a very relationship-oriented market, having a local presence or local agent can influence the final outcome.

Trade Barriers and Standards

Malaysia's ease of trading across borders remains highly ranked in international comparisons. However, is it not a free and open market. Malaysia’s import barriers are aimed at protecting the environment and strategic sectors as well as maintaining cultural and religious norms.

Technical barriers such as halal certification for the importation of meat and poultry are regulated through licensing and sanitary controls. All imported beef, lamb, and poultry products must originate from facilities that have been approved by Malaysian authorities as halal or acceptable for consumption by Muslims.

Pork and pork products may be imported into Malaysia only if Malaysia's Department of Veterinary Services (DVS) issues a permit authorizing its importation. Each consignment of pork and pork products must be accompanied by a valid import permit issued by the Malaysian Quarantine and Inspection Services, Malaysia (MAQIS) permitting the importation of pork and pork products into Malaysia. The permits are granted on a case-by-case basis and are sometimes refused without explanation.

In 2011, Malaysia implemented a food product standard MS1500:2009 which sets out general guidelines on halal food production, preparation and storage, which many exporters consider it much stricter than the multilaterally-agreed Codex Alimentarius halal standard. This new standards require slaughter plants to maintain dedicated halal facilities and ensure segregated transportation for halal and non-halal products. Malaysia also requires audits of all establishments that seek to export meat and poultry products to Malaysia, an issue on which the United States has raised concerns.

In January 2012, the Malaysian Department of Standards implemented MS2424:2012 General Guidelines on Halal Pharmaceuticals, a voluntary certification scheme. The guidelines enabled manufacturers of pharmaceutical products to apply for halal certification and established basic requirements for manufacturing and handling.

Malaysia is not party to the WTO Government Procurement Agreement, and as a result foreign companies do not have the same opportunity as some local companies to compete for contracts, and in most cases are required to take on a local partner before their bids will be considered. In domestic tenders, preferences are provided to Bumiputra (Malay) suppliers over other domestic suppliers. In most procurement, foreign companies must take on a local partner before their tenders will be considered. Procurement also often goes through middlemen rather than being conducted directly by the government, or is negotiated rather than tendered. International tenders generally are invited only where domestic goods and services are not available.

The services sector constitutes 51.2 percent of the national economy and has been a key driver of economic and job growth in Malaysia in recent years. Since 2009, Malaysia has liberalized 45 services sub-sectors., Malaysia allows 100 percent foreign equity participation in private hospital services, medical specialist clinics, department and specialty stores, incineration services, accounting and taxation services, courier services, private universities, vocational schools, dental specialist services, skills training centers, international schools, vocational schools for special needs. The Malaysian government added an 18th sub-sector of quantity surveyors services. In November 2014, the Lower House of the Parliament passed amendments to laws governing architectural services, quantity surveying services, and engineering services, which eased restrictions on foreigners working in these professions in Malaysia. The amended legislation on architectural services came into force in June 2015. The Ministry of Works is expected to finalize its review of the amendments affecting quantity surveying and announce the beginning of implementation in early 2016. Under the Trans-Pacific Partnership Agreement (TPP), Malaysia made significant improvements its services markets.

Malaysia has an export licensing system. In some sectors, Malaysia maintains tax programs that appear to provide subsidies for exports. In other cases, the goal is to restrict exports of specific commodities. For products such as textiles, export licenses are used to ensure compliance with bilateral export restraint agreements. For other products, such as rubber, timber, palm oil, and tin exports, special permission from government agencies is required and the country taxes these exports to encourage domestic processing. Malaysia is the second largest producer and exporter of palm oil and palm oil products. Malaysia accounts for approximately 39 percent of world palm oil production and 27 percent of world trade in vegetable oils. In March 2016, Malaysia raised its tax on crude palm oil (CPO) exports to 5 percent ending a duty-free policy held since May 2015. The reintroduction of the export tax is aimed at discouraging the export of CPO and to encourage local refinery. Refined palm oil and products made from palm oil are not subject to export taxes.

For a full report on trade barriers in Malaysia, please see the U.S. Trade Representative’s (USTR) 2016 National Trade Estimate Report on Foreign Trade Barriers: https://ustr.gov/about-us/policy-offices/press-office/reports-and-publications/2016/2016-national-trade-estimate.

Business & Etiquettes

Malaysia has a multicultural and multiracial population consisting of Malays, Chinese, Indians, and indigenous peoples. Although Malaysia's ethnic mix is generally harmonious, the various communities remain largely separate and ethnic/religious tensions exist. With such a varied ethnic composition, there is a diversity of religions. The official religion is Islam, but it is common to see temples, mosques, and churches within the same area.

Business customs in Malaysia do not differ fundamentally from those of the U.S. Compared to some other Asian countries, the traits of frankness, openness, and punctuality are valued relatively more in business negotiations and dealings. Ongoing personal contact is very important. However, visitors should be aware of differing religious and cultural traditions for each ethnic group. For example, Malay Muslims may feel uncomfortable in business or social functions where alcohol or pork is served, and visitors should take note that items (such as business cards) should always be presented or received using the right hand.

Holidays

The first thing to consider when planning business travel to Malaysia is whether or not any local holidays may occur during the trip, and whether they will disrupt the normal flow of business. If offices are not open, appointments may not be scheduled as easily. All states and territories in Malaysia observe federal holidays, and in addition each state observes its own respective local holidays, such as birthday celebrations of its Sultan and the current King. In 2014, there were 42 official federal and state holidays. The Malaysian Prime Minister’s Department announces federal and state holidays through the Cabinet. The Malaysian Employer’s Federation provides a useful set of links to 2016 holidays (http://www.mef.org.my/public/knowledgecentre_ph.aspx). The holidays observed by the U.S. Embassy are can be found on the Embassy website at https://my.usembassy.gov/holiday-calendar/

Malaysian government offices are open five days a week, Monday through Friday, in all states except Kedah, Kelantan and Terengganu. Saturdays and Sundays are considered weekends and offices are closed during these days.

The typical hours of operation for offices in Malaysia are as follows:

Putrajaya and Kuala Lumpur:

8:00am to 5:30pm

Other States: 8:00am to 5:00pm

On Fridays, the lunch break is usually from 12:15pm-2:45pm to allow the Muslims to perform their prayers.

Kedah, Kelantan, Johor and Terengganu

Working days are from Sunday through Thursdays. Fridays and Saturdays are considered weekends. The typical operating office hours in these states are:

Sundays to Wednesdays: 8:00am to 4:45pm
Thursdays: 8:00am to 4:30pm

Additionally, travelers should be aware that Friday is the holy day for Muslims, and government offices close from 12:00-2:45 on Fridays. It is usually difficult to schedule meetings on Friday afternoons, especially with government agencies.

Malaysia does not practice daylight saving time, and is UTC +08:00 (EST + 12 hours) in spring/summer and UTC +9.00 (EST + 13 hours) in the fall/winter.

Bank Operation Hours

Most banks are open five days a week. However, some banks in shopping complexes or selected branches operate 6 days a week.

All States except Terengganu, Kelantan, Johor and Kedah

Monday - Thursday: 9:15am to 4:30pm
Friday: 9:15am to 4:00pm
Sunday: Closed

Terengganu, Kelantan, Johor and Kedah

Sundays - Wednesdays: 9:15am to 4:30pm
Thursdays 9:15am to 4:00pm
Fridays - Saturdays: Closed

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