Research Paper on Malaysia
Most of us have come across the phrase “Malaysia Truly Asia” in many different advertisements aired across several channels. The phrase in itself is very credible as without a doubt this country through its rich culture and diversity has captivated the minds of thousands of businessmen from across the globe. From state of the art business infrastructure to a thriving tourism industry the country is in the renowned throughout the world. With its impressive economic and financial performance, Malaysia is swiftly becoming the choice for global businesses as a regional hub. This is because the country has been consistent in providing a hospitable and a growth-oriented environment with a sound political arena which would foster economic growth and accomplishment.
Malaysia is a relatively open economy and according to the International Monetary Fund ranked 30th amongst the largest economies of the world. This Southeast Asian country witnessed an economic boom in the late 20th century and categorizes amongst the newest industrialized countries. The country also ranks 24th in Ease of doing business with strengths in getting credit, investor protection and trading across borders.
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Malaysia is rich in natural, human and technological resources and its strategic location along the Strait of Malacca and the southern South China Sea makes it an ideal doorway into the emerging South East Asian market. The growth rates of the country which are highlighted by an annual real GDP of 6% and a commendable GDP per Capita of $15,300 as in 2008. Agriculture contributes 9.7% to the GDP whilst industry and services contribute a staggering 44.6% and 45.7% respectively.
Malaysia has been successful in diversifying its economy from the dependence on raw material exports to vast expansion in manufacturing, services and tourism. The country is rich in tin, petroleum, timber, copper, iron ore, natural gas and bauxite. However, since 2003 the country has seen major investment in value-added production in medical and pharmaceutical products. The exports of electronics continue to be the driving force in the economy. Being an oil and gas exporter, Malaysia has profited from higher world energy prices. The Malaysian Ringgit, which was unpegged from the US Dollar in 2005, has seen considerable appreciation until recent years. The Central Bank maintains healthy foreign exchange reserves and its strict regulations have protected the country from contact with riskier financial tools and the global financial crises.
Malaysia’s export commodities include palm oil for which the country holds the title of largest exporter in the world, rubber, timber and rice are other agricultural products exported by the country. Investment in rubber and oil palm processing and manufacturing, light manufacturing, electronics, tin mining and smelting, logging and the timber processing industries has been high and constitute for a major chunk of the country’s industrial infrastructure.
Being a middle-income country, Malaysia has successfully transformed itself to a multi-sector economy. It is ranked second in terms of economic welfare in the South East Asia region after Singapore. The country, according to its five-year national development plan chalked out in April 2006, the country will be undertaking a series of ambitious development plans to further promote and attract business investment in the country.
Malaysia is an open economy, with the political framework functioning as a constitutional monarchy. The system of government is based upon the Westminster system because of the British colonial rule that once subsisted in the region. Government policies that create a business environment overflowing with opportunities and growth have prepared Malaysia as an excellent manufacturing and export base in the region. Although the government exercises executive power, businesses in Malaysia are free from internal control. There is a freedom of speech and an effective legal system and sufficient legislations to protect private property exist. The banking system is a highly centralized management system with high involvement of the Central Bank. This is one reason why the country has not yet been hurt by the global financial crises. Despite the existence of selective capital controls, Malaysia’s current account has remained fully convertible this is of added advantage to the business community. Importers and exporters have sufficient access to foreign exchange to fulfill their requirements. The Central Bank has also shown flexibility in exercising these capital control measures to cater effectively to businesses. Furthermore, supportive government policies such as liberal equity policy whereby foreign investors can hold up to 100% equity in projects that export 80% of production, incentives to employ expatriates and attractive tax incentives have further complimented growth. Tax incentives include the Investment Tax Allowance, Reinvestment Allowance, Incentives for High Technology Industries and Incentives for Strategic Projects and Incentives for the Setting-up of International/ Regional Service-based Operations to name a few along with lower corporate and individual tax rates of 25% and 27% respectively. Moreover, attractive subsidies are also provided towards the production of higher value-added goods and services. The government focus has majorly been towards the production of electronics, pharmaceutical, medical, food processing, petrochemical and machinery and equipment. Thus, the Malaysian government has and continues to play an important role in the country’s economic development.
Despite the unpleasant circumstances of 2008, the Malaysian economy registered a growth of 4.6% based on GDP. This was supported by a growing domestic demand and continued expansion in consumption. This growth is likely to stay for a while; the economy is expected to record positive growth through 2009 as well. The country is moving-up the value chain and is currently focusing on drawing high technology, high value-added, knowledge based and skill intensive industries. Importance is also being given to research and development activities.
Foreign Direct Investment is also a major source of development in Malaysia. This is because of the fact that Malaysian market is an open market with tariffs averaging 15% only, almost non-existent non tariff barriers and foreign exchange controls. Moreover Malaysia is one of the top 5 recipients of Foreign Direct Investment throughout the world. Malaysia recorded a record breaking FDI in 2008 that stood at a staggering $12.9 billion. Therefore clearly, the country has been a secure haven for investment and returns on investments are more than satisfactory.
The interest rates in Malaysia remained steady at 3.5% up till December 2008 when the country based on the economic performance but on December 2008 the interest rate was decreased to 3.25% and the statutory reserve requirement was also reduced from 4% to 3.5%. The adverse global conditions have started to affect the country but its affects would be minimal given the scale of growth in this middle-income economy.
All income of companies and individuals accrued in, derived from or remitted to Malaysia are liable to tax. However, income remitted to Malaysia by resident companies, non-resident companies (other than companies carrying on the business of banking, insurance, air and sea transportation) and nonresident individuals are exempted from tax. Apart from income tax, there are other direct taxes such as real property gains tax, and indirect taxes such as sales tax, service tax, excise duty and import duty. Moreover incentives are available for newly established industries and for certain capital investments. Capital gains taxes are levied on real estate as well. Real estate is also a booming market, foreign investment in real estate is promoted by the government and major construction is being undertaken across the country. The real estate in Malaysia is high quality but at a lower cost as compared to other major countries. The cost of living is also low while the quality of life and standard of living are maintained. In addition to this, the countries transport and communication infrastructure is also remarkable.
The Malaysian Ringgit, which was unpegged from the US Dollar in 2005, has seen considerable appreciation until recent years. This new value for the peg of the ringgit to the U.S. dollar has held to the current time while Malaysia’s external accounts have strengthened significantly. With these capital controls, speculative selling of the ringgit became more difficult and costly and National Bank of Malaysia was subsequently able to lower interest rates as it re-established control over its monetary policy. Also, the government established three institutions to speed recovery of the financial system weakened by the Asian crisis that hit the region in 1997. Inflation on the other hand was kept on the lower side until recently. Given the rising fuel prices the inflation rates for 2008 stood at 5.9% whereas in 2006 they stood at 3.9% but nevertheless the cost of living in Malaysia is on the lower end of the ladder.
The country also has an unemployment rate of 3.9% which is quite low but is expected to rise to almost 5% given the world recession. The Stock Market on the other hand operated by Bursa Malaysia provides equities, derivatives, offshore and Islamic products.
The Malaysian society promotes freedom of speech as long as it is within the boundaries of laws and regulations. Lots of importance is given to education, the country has a high literacy rate. The rights of each individual are respected and the ability for each person to make a good living is unrestricted. Malaysia is a multicultural society with many Indians, Chinese, Europeans, American, Australians, Thais as well as Malaysians of mixed ethnic and national backgrounds forming this multi-cultural and multi-ethnic society. Despite this diversity, the country hardly faces and minority conflicts and every sect respect the culture, religion and rights of others. Therefore with this diversity there is a mix of consumers to cater to and to further diversify products and services. The National Culture policy fabricated in 1971 has three principles as guidelines for ‘national culture’ which are to be incorporated and followed by all businesses.
Malaysia is categorized by a rich environment with lush green tropical rainforests teaming with wildlife on one hand to crystal clear beaches on the other. The country has a vast coastline lined with beaches, a tropical climate with plenty of rainfall every year to boost agriculture, and a diverse terrain from coastal plains to mountains and hills. This diverse landscape gives Malaysia the edge in the Tourism Industry. It comes in the top three commonwealth countries with the highest number of tourist arrivals. Therefore, it is the land of opportunity for investors in resorts and hotels across the country as occupancy rates average 70%. However there are certain issues in this category. Malaysia is witnessing high rates of logging, air pollution from industrial and vehicular emissions, water pollution and large scale deforestation. Therefore companies must abide by the international environmental agreements signed by Malaysia such as Ozone Layer Protection, Marine Life Conservation and Biodiversity to name a few.
The country has the same set of laws for years which is mainly based on the common law legal system i.e. justice and dispute resolution throughout the population. The legislation is enacted uniformly across the country.
Corruption laws are in place but are not that effective. Corruption in key institutions, political parties and legislatures continues to exist but the government’s efforts to curb this problem have either failed or ineffectively implemented. An Anti-Corruption agency was set up in 1967 but its role has become more prominent lately when the Malaysian mafia system has gained a strong position in the country especially in Kuala Lumpur.
The protection of Public Health and Safety is quite satisfactory in Malaysia with strict laws in place and regularly monitored. For e.g. all food products are to be inspected thoroughly before being sold out into the market. Ingredients must be outlined clearly as Muslims do not eat pork and Hindus do not eat beef.
Moreover there are strict environmental laws regarding the disposal of industrial waste, emissions etc which need to be followed by companies else heavy fines are charged. More awareness is being created and the business community is being urged to play a part. The country is now actively developing policies and programs to create public awareness on environmental issues, preservation of the natural resources and ecology, as well as land conservation. Many environment organizations are being set up to further curb the problems.
On the other hand the National Labor Advisory Council, a tripartite forum, has introduced a set of guidelines for a productivity-linked wage system to ease cooperative negotiations of wage agreements. There is no legal minimum wage but higher wages are given to more qualified personnel so that they can afford the basic necessities of life.
International Trade and Malaysia
Malaysia is one of the most vibrant economies in South East Asia. With its market size and purchasing power, ideal location, favorable environment and excellent policies make it an ideal country for international trade. Malaysia has a well-developed infrastructure and strong industrial linkages with supporting industries, thus providing an excellent business environment. As a trading partner the country has bright prospects.
The Malaysian economy is an upper-middle income economy of more than 28 million people and a commendable GDP rate and the economy has grown at an average of 5% per year over the past ten years. Why wouldn’t any country want to trade with a country with such a strong economic, financial and political background?
With a positive investment environment, good relations between the government and businesses and few limitations to imports, the country is set to be amongst the favorite trading partners of any country. The largest trading partner of Malaysia is the United States with trade consisting largely of electrical goods and manufactured electronics. Given the lower costs of doing business whilst maintaining quality is another factor that gives Malaysia the edge as a potential trading partner.
The Malaysian government has maintained an open-trade policy regime over the years. Trade and investment barriers have been low in Malaysia as compared to Singapore and Hong Kong. The Tariff system in Malaysia is based on the lower end with tariffs ranging from 15-20%. Tariffs on motor vehicles is however higher due to protectionist policies for the local car manufacturer Proton. Moreover standardization, testing, labeling and certification of all products is undertaken and ensured at all levels. Export subsidies are also provided; under the export credit-refinancing scheme operated by the Central Bank, financing is provided to exporters at concretionary rates. Other forms of various subsidies are also provided regularly.
Malaysia as I stated before is an attractive site for Foreign Direct Investment. With a high GDP growth rate, lower unemployment and inflation rates, supportive government policies, an educated workforce, developed infrastructure, vibrant business environment and a good quality and low cost of living make it an ideal location for FDI.
Malaysia has a strong presence in cross-national cooperation and agreements,
regional trading blocs, FTAs and other forms of international economic integration. The country is also a member of 60 international organizations including the Asian Development Bank (ADB), Association of South East Asian Nations (ASEAN), International Labor Organization (ILO), United Nations (UN), World Health Organization (WHO) and the World Trade Organization (WTO) to name a few. It also boasts free trade agreements with major economies such as China, Japan, Korea, India and Australia. This eliminates any barriers and trade between these nations and Malaysia has witnessed a boom.
To conclude I would like to repeat the quote we started with “Malaysia Truly Asia”. Without a doubt Malaysia is the true depiction of the continent of Asia. It is remarkable how a country with a way smaller population and area than major competitors like India and China can have so much to offer. Where your investments give you a higher return, where your business is inevitably going to boom, whether it be a beach resort or a food processing plant in the plains, Malaysia is the place to be.
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