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Doing Business in Malaysia

Each year, the U.S. Commercial Service Malaysia produces a Country Commercial Guide (CCG). 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 73 percent of GDP (51 percent in services and 22 percent in manufacturing in 2017).

Malaysia’s GDP projection for 2018 is 5.3 percent while the 2017 GDP was 5.9 percent, 2016 GDP growth was 4.2. Prior to this, Malaysia’s GDP growth in 2015 was 5 percent, 6 percent in 2014, and 4.7 percent in 2013. Malaysia is an oil and gas producing country and the government budget is impacted by the price movement of this commodity.

Over the past few years Malaysia’s currency, the Ringgit (RM), experienced downward pressure; however, since the beginning of 2018, it has been strengthening to US$1 = RM3.94. In 2013, the average exchange rate for the Malaysian Ringgit against the US Dollar was US$1=RM3.12. In 2014, US$1=RM3.30. In 2015, it was US$1=RM3.90. For 2016, it averaged around RM4.15 and in 2017 it hovered around US$1 to RM4.30. The lower exchange rate impacted Malaysia’s economy and the government has been taking financial policy steps to strengthen its currency. The weaker ringgit and slower growth dampened consumer sentiment and spending throughout 2016 and into early 2017.

Malaysia’s per capita income was RM42,930/ US$10,732 (Department of Statistics Malaysia). Translated in purchasing power per capita terms, it is the third highest in ASEAN, after Singapore and Brunei, at approximately US$28,700. 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.

By December 2017, Malaysia reported it population size to be 32 million. According to Bank Negara Malaysia (Malaysia’s Central Bank), Malaysia’s 2017 GDP is RM1,353,381 million (US$338,345 million). Looking back, its 2016 GDP was RM1,230,121 million (US$298,573 million), RM1,062,805 million (US$272.5 million) in 2015, and RM1,012,506 million (US$306,820 million) in 2014. The World Bank classifies Malaysia as an upper-middle income nation.

Malaysia’s total trade for 2017 was $413 billion. This is a 15.2 percent increase in value compared to 2016. Malaysia’s top trading partners:

Malaysia Total Trade with Top 10 Partner Countries

2017

Partner Country

 

 

US$

%

World

   413,186,433,771.00

  100.00

China

      67,749,211,689.00

  16.40

Singapore

      53,213,540,405.00

  12.88

United States

     36,760,557,967.00

  8.90

Japan

      32,240,278,085.00

  7.80

Thailand

      22,982,448,057.00

  5.56

Taiwan

      18,279,200,438.00

  4.42

Indonesia

      16,898,516,403.00

  4.09

Korea South

      15,165,616,094.00

  3.67

Hong Kong

      14,423,358,471.00

  3.49

India

      14,307,314,224.00

  3.46

Source of Data: Department of Statistics Malaysia

 

According to the Bureau of Economic Analysis, in 2016, the U.S. direct investment positon in Malaysia was US$13.9 billion, a decrease of 7.2 percent from 2015. The direct investment position from Malaysia in the United States was $1.1 billion, a decrease of 11.1 percent from 2015. In 2016, Malaysian FDI in the U.S. is in these sectors: wholesale trade, computers and electronic products, food, primary and fabricated metals, professional, scientific, technical services, information, transportation equipment, finance and insurance, depository institutions, holding companies and other manufacturing, and other industries. In 2015 (latest available data), U.S. affiliates of Malaysian-owned firms employed 2,400 U.S. workers.

Market Challenges

In the World Bank’s global Doing Business 2018 report, Malaysia ranked 24th on ease of doing business among the 190 economies covered in the survey (a decrease from its 2017 rank of 23). The Doing Business Report highlights reforms that impacted all of the indicators used in the report. For Malaysia, reforms relating to getting credit, protecting minority investors, and trading across borders were noted as making it easier to do business. Malaysia was credited with strengthening access to credit by adopting a new law that established a modern collateral registry; minority investor protection was improved through the requirement for more corporate transparency; and importing and exporting was made easier through the infrastructure and equipment improvements at Port Klang.

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 using a local partner.

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

  • Established under the Companies Act, 1965
  • Paid-up capital of at least RM25,000
  • Shareholders are 100 percent Bumiputra
  • Board of Directors are at least 51 percent Bumiputra
  • Managerial and Professional Staff are at least 51 percent Bumiputra
  • 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 the priority sectors procurements. The Government of Malaysia and GLCs also look favourably 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 favourably 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). 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 totally free and open market. Malaysia’s import barriers are aimed at protecting the domestic market 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). 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 standard requires slaughtering 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 system. 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 often goes through middlemen rather than being conducted directly by the government. The procurement can also be negotiated rather than tendered. International tenders generally are invited only where domestic goods and services are not available.

The services sector constitutes 51 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. 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.

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 taxes are assessed on these exports to encourage domestic processing. Although still maintaining its second position as a global supplier of palm oil and palm oil products, Malaysia is slowly being challenged by other new exporters such as Colombia, Italy, UAE and Denmark, posting a decline of 21.4 percent in its export of palm oil as compared to 2016. The total global production of palm oil and related product for 2017 was 69.9 million metric tons. Malaysia exported USD $9.7 billion worth of palm oil and palm oil products in 2017 or capturing 29percent of the global market.

In January 2018, the government suspended the 5percent export tax for three months due to falling Crude Palm Oil (CPO) prices to prevent stockpiling and the decline in both price and exports. A calculated palm oil reference price of RM2,250.00 (US$580) per ton was used as a threshold and any price above this price will incur a tax. It was also a political move to boost exports of CPO to keep small-holder (FELDA) farmers happy.

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.

Trade Standards

Overview

The Ministry of Science, Technology and Innovation’s Department of Standards oversees standards in Malaysia. As the National Standards Body its mandated function is to spearhead the Strategic Reform Initiatives – Competition Standards & Liberalization (SRI-CSL) while ensuring the competencies of Standards Development Agencies (SDAs). It does this through ongoing monitoring and technical training to develop credible Malaysian Standards (MS) in compliance with set guidelines.

Overview

Standards are widely used in all sectors of Malaysian society, and the national standardization system uses a consensus process to develop new standards, allowing manufacturers, traders, consumers, government, and others to provide input and consideration into the development process. Malaysia adheres to the WTO's “Standard Code" on Technical Barriers to Trade. SIRIM Berhad, formerly known as the Standards and Industrial Research Institute of Malaysia, is the government-owned company providing institutional and technical infrastructure for the Government.

Standards

Working closely with other Standards Development Agencies (SDAs), Conformity Assessment Bodies (CABs) as well as the various Advisory Committees, the Malaysian Standards is a market-relevant standards developed and published to ensure quality, safety & environmental protection as well as to gain global competitiveness for the industry at large. It is also developed to be on par with international excellence and relevant to individual sectors, catering to the specific needs of the industry.

The Standards Malaysia accreditation system is in accordance to the international standard, MS ISO/IEC 17011 to ensure that the accreditation services provided are impartial, non-discriminatory and credible. The Standards Malaysia accreditation system is set up through 3 operational levels i.e.:

  • strategy and policy,
  • decision, and
  • assessments to ensure fair and impartial accreditation.

 

The Standards Malaysia Accreditation services ensure non-discriminatory review and is open to and accessible by any conformity assessment body, irrespective of government or private bodies that fulfills the accreditation conditions. These accreditation conditions are specified and published by Standards Malaysia Conformity Assessment Bodies (CABs) and include the testing & calibration laboratories, certification bodies and inspection bodies.

Testing, inspection and certification

The Department of Standards Malaysia (Standards Malaysia) is Malaysia’s national standards body and national accreditation body. Its goal is to provide confidence to various stakeholders, through credible standardization and accreditation services for global competitiveness. SIRIM, the government-owned company providing institutional and technical expertise to the government is a member of International Laboratory Accreditation Cooperation (ILAC).

Foreign exporters are required to conform to the same standards that domestic producers must follow. Malaysia certification requirements do not impose undue burdens onto U.S. exporters or products. U.S. testing laboratories are able to operate in Malaysia as long as they comply with the domestic regulatory requirements.

Publication of technical regulations

Malaysia is a member of the World Trade Organization (WTO). Under the WTO Agreement on Technical Barriers to Trade (TBT Agreement), members are required to report all proposed technical regulations that could affect trade with WTO member countries. Notify U.S. (www.nist.gov/notifyus) is a free, web-based e-mail registration service that captures and makes available for review and comment key information on draft regulations and conformity assessment procedures. Users receive customized e-mail alerts when new notifications are added by selected country(ies) and industry sector(s) of interest and can also request full texts of regulations. This service and its associated web site are managed and operated by the USA WTO TBT Inquiry Point housed within the National Institute of Standards and Technology, part of the U.S. Department of Commerce.

Contact Information

Department of Standards Malaysia

Century Square, Level 1 & 2,
Block 2300, Jalan Usahawan,
63000 Cyberjaya,
Selangor Darul Ehsan,
MALAYSIA

Tel: +60 (3) 8318 0002
Fax: +60 (3) 8319 3131
Email : central@jsm.gov.my

Website: http://www.jsm.gov.my/

SIRIM Berhad

1, Persiaran Dato' Menteri, P.O. Box 7035,
Section 2, 40700 Shah Alam, Selangor,
Malaysia

Tel: +60 (3) 5544 6000
Fax: +60 (3) 5544 6694

Email: web@sirim.my

Website: http://www.sirim.my/

SIRIM QAS International n Bhd

Building 8, SIRIM Complex

No. 1 Persiaran Dato’ Menteri

Section 2, P.O. Box 7035

40700 Shah Alam

Selangor

Malaysia

Tel: +60 (3) 5544 6400

Fax: +60 (3) 5544 6810

Email: qas_marketing@sirim.my

Website: http://www.sirim-qas.com.my/

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 United States. 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 and 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 2018 there were 31 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 2018 Public Holidays . The holidays observed by the U.S. Embassy are can be found on the Embassy website at USEmbassy 2018 Holidays.

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, travellers 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.


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