Business services to Malaysia
(Last updated: 3 Apr 2013)
Trends and opportunities
The Market
The Malaysian Government wants to transform Malaysia into a knowledge based economy by 2020 and sees business services as a key component of its push to achieve developed nation status by the end of the decade. In 2012, business services contributed RM20 billion to the Gross National Income (GNI) and this figure is expected to more than triple to RM78.7 billion by 2020. Between 2000 and 2010, the contribution of business services to Malaysia’s GDP grew by 7.9 per cent a year, making it the second fastest growing sector of the Malaysian economy (Pemandu – 2012 Economic Transformation Programme Annual Report).
The business services sector encompasses a large number of industries and professions, including accountants, lawyers and tax experts, and the Government wants to make Malaysia a major hub for Islamic finance. Malaysia also requires skilled architects, engineers and designers to assist in industries as diverse as construction, aerospace and automotive. In addition there is a growing need for IT services, and expertise in outsourcing and future growth areas like green technology services.
Given the breadth of business services and the need to generate big results fast, the Malaysian Government is focusing on the sub-segments that have the highest potential to raise GNI and those in which Malaysia’s products and services are differentiated and have the ability to capture market share aboard. Business services is one of the 12 key economic areas identified in Malaysia’s Economic Transformation Programme (ETP), which sets out the Government’s policy priorities for propelling the country up the global value chain. The Malaysian Government has identified 11 high-potential business services under the ETP, which it wants to proactively develop through a range of policies and initiatives. Companies looking to export services in these areas, listed below, are encouraged to contact Austrade to find out more about the opportunities that might be generated:
- medical services
- environmental engineering
- creative services
- project management
- accounting services
- systems integration
- IT consulting
- outsourcing
- civil and mechanical engineering
- oil and gas engineering
- architecture
Around 90 per cent of companies listed on Bursa Malaysia (the Malaysian stock exchange) fall into the category of small to medium enterprises (SMEs). The volume of services necessary to support these companies will continue to grow. For example, IT services spending, excluding telecommunications, is forecast to reach US$1.8 billion in 2013 and US$2.9 billion by 2017 (BMI Information Technology Report Q1 2013). The table below provides a breakdown of the SME sub-sectors in Malaysia:
Distribution of SMEs in services sector by sub-sector and size - 2011
(Source: SME Corp, SME Census 2011)
A major focus for Malaysia in the short to medium term will be the on-going liberalisation of the SME sector. The proliferation of SMEs is likely to result in an increasing level of mergers and acquisitions and greater linkages between SMEs and larger firms, in an effort to enhance productivity, foster competition and position companies to benefit from economies of scale and product differentiation. Consolidation of the SME sector will also provide opportunities for business consultants and advisers. Currently SMEs are predominantly concentrated in the bottom-end of the value chain, in low to medium value-added activities. Only a few sophisticated SMEs are present in high value-added activities, which is where most business services sit. Therefore there is a big opportunity for Australian and Malaysian SMEs to collaborate and venture into medium and high value-added activities.
As the business services sector is knowledge-intensive, availability of high quality talent is critical for success. Malaysia faces multiple challenges in building and retaining a skilled workforce within the country to support the growth of business services. Another hurdle is the cost of bandwidth, which is a critical enabler of IT-enabled business services, such as data centres and outsourcing services. Unfortunately Malaysia’s internet bandwidth cost is higher than other regional hubs, reducing the international competitiveness of Malaysia’s business services companies. While some of these issues may frustrate Australian companies seeking to set up in Malaysia, they also present opportunities.
Opportunities
In addition to the focus areas under the ETP, The Ministry of International Trade and Industry has already liberalised 17 services sub-sectors, paving the way for foreign companies to move into the following areas:
- telecommunications including the ability to apply for a network service provider or network facilities provider licence
- technical and vocational schools, including for students with special needs
- international schools
- private universities
- private hospitals
- medical specialist clinics
- dental specialist clinics
- department and specialty stores
- incineration services
- accounting, including auditing and taxation
- skills training centres
- courier services
- legal services
- architectural services
- engineering services
Recently the previous foreign equity ownership participation restriction of 30 per cent in these industries was increased, and foreigner equity ownership participation can be as high as 100 per cent depending on the sub-sector. For more information regarding the liberalisation of these services sub-sectors, companies are encouraged to visit the Malaysian Investment Development Authority (MIDA) website.
The table below summarises the value chains in each of the National Key Economic Areas under the ETP. Opportunities for Australian companies exist especially in those areas that will facilitate a shift from low to high value added activities, as this will be the country’s focus over the next decade and beyond. The highlighted sectors in the table are those areas where the Malaysian Government will be concentrating its assistance for SMEs, but all areas present opportunities for Australian exporters.
Value chains in each of the National Key Economic Areas
(Source: SME Corp, SME Masterplan 2012-2020)
As a small country, Malaysia’s supply of talent is dwarfed by regional giants China and India. It is estimated that China has a total pool of 1.6 million engineers, compared with just 49,000 in Malaysia. Likewise, India has a pool of around 2.3 million finance and accounting professionals compared with Malaysia’s 83,000 (Pemandu, ETP website). In view of the challenges in building and retaining a skilled workforce within the business services industry, the Malaysian Government has set aside RM8.1 billion to fund business opportunities within the services sector, in creative multimedia content (by developing infrastructure and capabilities to incubate growth of creative human capital), the accounting sector (by developing a three-tiered accreditation scheme for tax and courses in taxation) and talent retention (by setting up research collaboration and a business intelligence system to facilitate regular analyses of skills gaps). Talent is a key structural component of any knowledge-intensive economy. This is recognised by the Malaysian Government, which has placed education at the centre of its transformation to developed-nation status, presenting significant business opportunities for Australian education providers.
Competitive Environment
To date Australia has not been a significant player in providing business services to Malaysia, but the tariff reductions for Australian companies under the Malaysia-Australia Free Trade Agreement (MAFTA), which entered into force on 1 January 2013, particularly around majority ownership of local firms, present a range of opportunities.
While the cost of setting up regional offices in Malaysia is cheaper than in Singapore or Hong Kong, in areas that are monopolised by local players, like financial services, companies that might otherwise consider Malaysia still tend to look elsewhere. However, many prominent MNCs and large corporations have chosen Malaysia to establish their regional and global operations, mostly due to attractive investment incentive packages, including tax incentives, and liberal policies on foreign equity participation and employment of expatriates. Companies like IBM are able to qualify for Multi-Media Super Corridor (MSC) status, which is an ICT initiative designed to attract world-class technology companies to set up their businesses in Malaysia. To promote MSC status, Malaysia is encouraging local companies to source capital and borrow funds globally, allowing duty-free importation of multimedia equipment and enhancing intellectual property protection. More information can be found on the MSC website at www.mscmalaysia.my/.
In 2011, a total of 112 new regional establishments were approved to be set up in Malaysia with investments of RM291.8 million (Source: Malaysian Investment Development Authority ). Some of the multi-national companies that have set up their operational headquarters in Malaysia include IBM, Hewlett-Packard and E-Storm from the United States, Siemens and Nordenia from Germany, IBA Health and Ansell from Australia, and Diagonal Consulting Group and G4S Management from the United Kingdom.
Tariffs, regulations and customs
The MAFTA has created significant benefits for Australian companies looking to venture into Malaysia. Full details of the MAFTA benefits can be found on the Department of Foreign Affairs website at www.dfat.gov.au/fta/mafta/. A brief summary is as follows:
Australia’s offer to Malaysia
- Financial services – allowing foreign banks to offer services to Australian enterprises, although it does not allow them to raise deposit funds in Australia or undertake business within Australia unless they are an authorised bank or have been established as a money market corporation or subsidiary.
- Professional services – allowing 100 per cent ownership in legal services (excluding natural persons), accounting, auditing and book-keeping services, taxation services, architectural services, engineering and integrated engineering services, dental services as well as computer and related services.
- Other business services – allowing 100 per cent shareholdings including advertising services, market research and public opinion polling services, management consulting services as well as services incidental to agriculture, hunting, forestry, fishing, mining and energy distribution.
- Tourism and travel related services – allowing 100 per cent ownership.
- Transport services – allowing 100 per cent ownership for majority services.
Malaysia’s offer to Australia
- Financial services – allowing 70 per cent ownership in investment banking and direct insurance services, 100 per cent equity holdings in investment advisory companies and up to 70 per cent in both corporate finance advisory and financial planning companies.
- Professional services – allowing 100 per cent ownership in accounting, auditing and book-keeping services, 100 per cent ownership in management and consultant services (excluding financial management consulting) and 51 per cent ownership in taxation services.
- Other business services – allowing 51 per cent ownership in advertising services, 70 per cent ownership in market research and public opinion polling services and 70 per cent ownership in management consulting services in non-conventional energy, agriculture and fishing as well as environmental management.
- Tourism and travel related services – allowing 70 per cent shareholdings in hotel, tourist resort and restaurant services as well as travel agencies and tour operators.
- Transportation services – allowing 51 per cent ownership in international maritime transportation services and 100 per cent shareholdings in maritime agency services.
- Environmental services – allowing 51 per cent ownership in services including wastewater management, cleaning services of exhaust gases, noise abatement services and nature and landscape protection services.
- Others – allowing 30 per cent ownership in skills training services for automated manufacturing technology, advanced materials technology, biotechnology, information technology and avionics and aviation technology
Manufacturing support services is another area of opportunity for Australia. The Malaysian Government is promoting the following areas to enhance value creation for this sector: research and development, renewable energy and energy conservation and efficiency, engineering design, integrated logistics services, integrated market support services, cold chain facilities, sterilisation, central utilities facilities and technical, vocational and science training. Service providers undertaking these activities are eligible to apply for tax incentives in the form of Pioneer Status (PS) and the Investment Tax Allowance (ITA) for a period of 5 to 10 years. For more information about tax incentives, companies are encouraged to visit the Malaysian Investment Development Authority’s website at www.mida.gov.my/env3/.
Marketing your products and services
Market Entry
Australian companies who are interested in exploring opportunities in Malaysia’s automotive sector are encouraged to work with local organisations where appropriate. Partnering with local organisations (following extensive research and due diligence) will give a competitive edge to Australian companies to leverage off local expertise, knowledge and networks. Malaysian companies are generally open and receptive to new products and services and Australian companies with new technology and good technical know-how, design and testing capabilities are in high demand from the local industry. However, long-term success will require an Australian company to put in the time to build trust and rapport. If you are planning to export to Malaysia, be prepared to visit Malaysia regularly, follow up on previous visits, learn about local cultural issues and prepare information packs to profile your company, and your products and services.
Distribution Channels
Australian companies wanting to distribute their products or services in Malaysia should consider working with local service providers in Malaysia. Partnerships, joint ventures and consultancy routes are the most effective distribution channels.
Australian companies should consider working closely with industry associations to build networks and strategies to distribute products and services. Those most relevant to the business services sector include the Federation of Malaysian Manufacturers, the Malaysian Institute of Accountants, the Malaysian Association of Tax Accountants and the Malaysian Institute of Architects.
Links and industry contacts
Business services-related resources
Malaysian Institute of Accountants – www.mia.org.my
Malaysian Association of Tax Accountants – www.mata.org.my
Malaysian Institute of Architects – www.pam.org.my
Federation of Malaysian Manufacturers – www.fmm.org.my
Government, business and trade resources for Malaysia
Malaysian Government Official Portal – www.malaysia.gov.my/EN/Pages/default.aspx
Malaysian External Trade Development Corporation (MATRADE) – www.matrade.gov.my/
Malaysian Investment Development Authority (MIDA) – www.mida.gov.my/env3/
Ministry of Foreign Affairs – www.kln.gov.my/web/guest/home
Ministry of Trade and Industry (MITI) – www.miti.gov.my/cms/index.jsp
Bursa Malaysia (Stock Exchange) – www.bursamalaysia.com/market/
Central Bank of Malaysia (Bank Negara) – www.bnm.gov.my/
Economic Planning Unit (EPU) – www.epu.gov.my/home#=e
Royal Malaysian Customs Department – www.customs.gov.my/index.php/en
Australia Malaysia Business Council – www.ambc.org.au
Malaysia Australia Business Council – www.mabc.org.my
OECD – www.oecd.org/countries/malaysia/
The World Bank – www.worldbank.org/en/country/malaysia
The International Monetary Fund – www.imf.org/external/country/MYS/index.htm
Please note: this list of websites and resources is not definitive. Inclusion in this list does not imply endorsement by Austrade. The information provided is a guide only.
Contact details
The Australian Trade Commission – Austrade – is the Australian Government’s trade, investment and education promotion agency.
Through a global network of offices, Austrade assists Australian companies to grow their international business, attracts productive foreign direct investment into Australia and promotes Australia’s education sector internationally.
For more information on how Austrade can assist you, contact us on:
Australia ph: 13 28 78 | Email: info@austrade.gov.au
A list of Austrade offices (in alphabetical order of country) is also available.