Malaysia celebrated Merdeka – Independence from Britain 50 years ago – in September, while I was in Kuala Lumpur (KL). In a half-century, Malaysia has used its position as an east-west crossroad to transform its economy. KL built the Petronas Towers, for a time the world’s tallest buildings, not as a boast but as an expression of authentic modernity and emergence as a global commercial center. Mid-American businesses, however, have overlooked Malaysia as a substantial opportunity.
The 10th largest trading partner of the United States, Malaysia has a large and growing middle class with purchasing power among the highest in Asia. Malaysia buys more exports per capita from US manufacturers than Germany, France or Japan. US franchisors (including KFC, Dunkin Donuts, Starbucks and Famous Amos) dot cityscapes with their logos. US brands have solid acceptance and earn a premium.
I asked leading businesspeople, “Is Malaysia a developed or underdeveloped country.” All said that it is in between, and closing in on developed status. 70% of its population lives in cities, fueling the country’s growth rate and burgeoning wealth, along with the country’s vast oil resources. Rural poverty reduces the average GDP of Malaysia’s 25 million people to about US $5,200, but this is far above the norm for Southeast Asia (although well behind singularly successful Singapore).
Malaysia exports US$31 billion to the US and imports US$13 billion from the US. This imbalance will narrow if US exporters awake to Malaysian potential and become aggressive in targeting this market. Great oil wealth has been used to complete a brilliant new capital city on the fringe of KL called Putrajaya, the world’s most modern government center. Public funds will now be increasingly directed to other public infrastructure, which represents a major opportunity for US suppliers of goods and services in that sector.
The US Commercial Service rates the following as top prospects for US exports to Malaysia: higher education, tourism, water and wastewater treatment equipment, municipal solid waste management, plastic materials and resins, information and communication technology and biotechnology. In each case, Malaysians seek to complete modernization and become a knowledge-based economy. These needs fit perfectly with the range of talent and businesses of greater Cincinnati. The Malaysian model is not like China’s march to be manufacturer of the world, but more like what Ireland achieved in Europe by concentrating on intellectual capital.
There are particular advantages to Malaysia for US business that differ from much of Asia. From its British colonial heritage, Malaysia acquired English language fluency and a common law legal system comfortable to Americans. The majority Islamic population is moderate and urbane, and so provides a solid bridge to middle eastern and other nations to the west of the country. With wage rates less than half that of adjacent Singapore, Malaysia presents a mid-priced but well-skilled work force for serving South East Asia, with its vast population.
The Malaysian ringgit is a managed currency that floats within a narrow range of the US dollar. It has strengthened in the past two years from 3.8/1 to 3.2/1, making US exports increasingly more affordable to Malaysian buyers.
To succeed in the Malaysian market, US exporters should work with local trading companies, distributors or sales agents. Some succeed through strategic alliances or teaming arrangements with local partners (e.g., to win infrastructure projects). The Petronas Twin Towers were built one by a Japanese and the other by a Korean company, in tandem with a Malaysian developer. Registration is required (at a modest cost) to start a Malaysian presence, through a representative office, branch or subsidiary.
Tariffs on imports have been high but are declining, averaging now about 8.5%. The 2004 US/Malaysia Trade and Investment Framework Agreement provides a way to improve market access for US firms through government to government dialogue. Malaysia is on the list of next countries with which the US would like to have a Free Trade Agreement, although that is at least several years away.
Four podcasts about Malaysian business are available at www.fbtglobal.com. (Podcasts, click on “hear”).
Joe Dehner chairs the Southern Ohio District Export Council and the International Services Group of Frost Brown Todd LLC. He may be contacted for more information at 513-651-6949 or jdehner@fbtlaw.com.
