Business services to Malaysia
Trends and opportunities
Malaysia continues to retain its attractiveness as a leading global business services location, given the country’s continued ability to provide cost savings for buyers with a depreciated currency and its capacity to serve global markets.
The Malaysian Government’s ambition is to transform the country 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. The services sector was the highest contributor to the nation’s gross domestic product (GDP) with 53.5 per cent in 2015 (Source: Bank Negara Malaysia 2016). The services sector is expected to grow at 6.8 per cent per annum and contribute 56.5 per cent to the GDP in 2020, and provide 9.3 million jobs (Source: Malaysian Investment Development Authority 2016).
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 that Malaysia is now an upper middle-income country, with higher average wage levels, the government is promoting foreign investments in higher-value-added businesses such as manufacturing and service industries. Manufacturing, services and construction sectors were the prime movers for SMEs, contributing 85.5 per cent to the GDP in 2015 (Source: Department of Statistics Malaysia 2016).
The business services sector 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
- civil and mechanical engineering
- oil and gas engineering
Around 90 per cent of companies listed on Bursa Malaysia (the Malaysian stock exchange) are 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 A$3.9 billion by 2017 (Source: Business Monitor International 2015).
A major focus for Malaysia in the short to medium term will be the ongoing 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. This provides 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, high quality talents are very much in demand. 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, stunting 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.
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.
Since 2009, the government has gradually liberalised foreign participation in the services sector to attract more foreign investment. Following the removal of certain restrictions on foreign participation in industries ranging from computer-related consultancies, tourism, and freight transportation, the government in 2011 began to allow 100 per cent foreign ownership across the healthcare, retail, and education sectors as well as professional, environmental, and courier services. Some limits on foreign equity ownership remain in place across in telecommunications, financial services, and transportation. For more information regarding the liberalisation of these services sub-sectors, companies are encouraged to visit the Malaysian Investment Development Authority (MIDA) website.
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.
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 (Source: Pemandu, ETP website).
In efforts to build and retain 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.
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) present a range of opportunities, particularly around the majority ownership of local firms.
While the cost of setting up regional offices in Malaysia is cheaper than in Singapore or Hong Kong, potential companies may seek to establish an office elsewhere when sectors such as finance and oil and gas are monopolised by local players.
However, many prominent MNCs and large corporations opt to establish their regional and global operations in Malaysia due to attractive investment incentive packages, including tax incentives, and liberal policies on foreign equity participation and employment of expatriates.
In 2015, a total of 224 new regional establishments were approved to be set up in Malaysia with investments of A$2.5 billion (Source: Malaysian Investment Development Authority 2016). Some of the MNCs that have previously 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, Fonterra from New Zealand and Diagonal Consulting Group and G4S Management from the United Kingdom.
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 encourages 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.
Tariffs, regulations and customs
The MAFTA has offered 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.
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 five to 10 years. For more information about tax incentives is available on the Malaysian Investment Development Authority website.
Marketing your products and services
Australian companies who are interested in exploring opportunities in Malaysia’s business services 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. Australian exporters must 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. Exporters will also need to understand local licensing requirements, as some sectors such as legal services place restrictions on foreign practitioners.
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
Federation of Malaysian Manufacturers
Malaysian Association of Tax Accountants
Malaysian Institute of Accountants
Malaysian Institute of Architects
Government, business and trade
Australia Malaysia Business Council
Bursa Malaysia (Stock Exchange)
Central Bank of Malaysia (Bank Negara)
Economic Planning Unit (EPU)
The International Monetary Fund
Malaysia Australia Business Council
Malaysian External Trade Development Corporation (MATRADE)
Malaysian Government Official Portal
Malaysian Investment Development Authority (MIDA)
Ministry of Foreign Affairs
Ministry of Trade and Industry (MITI)
Royal Malaysian Customs Department
The World Bank
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. The content is for information and carries no warranty; as such, the addressee must exercise their own discretion in its use. Australia’s anti-bribery laws apply overseas and Austrade will not provide business related services to any party who breaches the law and will report credible evidence of any breach. For further information, please see foreign bribery information and awareness pack.
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