International Business - Final Project

ENTERING THE RETAIL INDUSTRY IN MALAYSIA

ANALYSIS PREPARED BY:

KARIM KHAIDIYILIN LIU

LIU YEJEFF LUI

PRESENTATION OVERVIEW

Strategic Planning

Environmental Analysis

Competitor Analysis

PHYSICAL FACTOR: LOCATION

PHYSICAL FACTOR: EAST AND WEST MALAYSIA

PHYSICAL FACTOR:POPULATION DENSITY

PHYSICAL FACTOR: MARKET CONNECTIVITY

PHYSICAL FACTOR: MARKET CONNECTIVITY

PHYSICAL FACTOR: SUMMARY

Market is well connected to major economies

• Market is concentrated on specific region of the country

Good logistics for business is possible

• Fierce competition could exist since sellers and buyers are concentrated in the same area

SOCIO-CULTURAL FACTORS: RACIAL COMPOSITION

67.4

24.6

7.3

0.7

Malay

Chinese

Indians

Others

SOCIO-CULTURAL FACTORS: RELIGION

61.3

19.8

9.2

6.3

1.7 0.7

1

Islam

Buddhism

Christianity

Hinduism

Others

Atheist

Unknown

SOCIOCULTURAL FACTOR: HOLIDAYS

• Malaysia celebrates 10 different national holidays (Eid Celebration, Chinese New Year,

Christmas, Diwali, etc.,)

• Countless other states holiday

• Holidays = Sales & Shopping

SOCIO-CULTURAL FACTORS: AGE DISTRIBUTION

SOCIO-CULTURAL FACTORS: SIGNIFICANCE

Culturally diverse market –Firms needs to cater local needs and taste

Various holidays and celebrations leads to event based sale – intense price war could occur

Young population – potential to ecommerce is greater

FINANCIAL FACTOR: INTEREST RATE

3.25

0.25

4.92

3.25

0

1

2

3

4

5

6

Malaysia US

Benchmark

Lending

Last Revised Lending Rate: Malaysia (2011) , USA (2012)

FINANCIAL FACTOR: PAYMENT SYSTEM

• Streamlined interbank transfer via MEPS –Malaysia Electronics Payment System

• MEPS controls every aspect of implementation and standard of electronic payment

• Other relevant payment service providers are Visa and MasterCard

FINANCIAL FACTOR: SIGNIFICANCE

• High lending rate and no capital gain tax could affect mode of financing

• Reliable payment system eases transaction and leverage the potential for e-commerce

POLITICAL AND LEGAL FACTOR: FDI

Stance of FDI: Aims at liberalizing the economy together with advancing local business.

Therefore, all FDI related merger, acquisition, expansion and etc., must have permission from

MDTCC

POLITICAL AND LEGAL FACTOR: FDI

• Ownership: Malaysian must own 30% of stake for first 3 years of incorporation

• Workforce: Should be reflective off all racial composition of Malaysians

• Product Composition: 30% of the sale space must be occupied with local products.

• No FDI in convenience store, mini market, provision shop and etc., with <3000sqm

POLITICAL AND LEGAL FACTOR: EMBARGO

As leader of Organization of Islamic Countries (OIC), Malaysia does not do trades with Israel.

Some of Israeli related firms face seasonal anti-Israel boycott.

POLITICAL AND LEGAL FACTOR: NATIONALISTIC SENTIMENT

POLITICAL AND LEGAL FACTOR: SIGNIFICANCE

Rigid and political and legal requirements poses challenges to firms in several aspects such as supply chain, management & administration,

funding and others.

MACROECONOMICS FACTOR: GNI

• Income Level : Upper Middle Income

MACROECONOMIC FACTOR: GDP

MACROECONOMIC FACTOR: CONSUMER PRICE INFLATION

MACROECONOMIC FACTOR: CONSUMER CONFIDENCE

MACROECONOMIC FACTOR: CONSUMER SPENDING

MACROECONOMICS: TAX RATETax USA (%) Malaysia (%)

Corporate 35 25

Sales 9.60* 6

Social Security – Employer** 7.65 13

Social Security – Employee** 7.65 11

Total 59.9 55

Capital Gain (Equity) 0 %– 20% 0%

*National Average (Forbes,2012)**Including Medicare

MACROECONOMIC FACTORS: EASE OF DOING BUSINESS

World Bank, 2014

MACROECONOMIC FACTOR: SIGNIFICANCE

Overall, firms does not face too much challenge since the factors such as tax rate, inflation and

economic growth remains stable.

OTHER FACTOR: TOURISM

OTHER FACTOR: TOURISM

• Tourism contributed MYR 47B to GNI (2012)

• Tourist arrival for 2012 was 25.03 M

• Generated MYR 60.0 B in tourist receipts

• Tourists contributed 30% of retail revenue

OTHER FACTOR: TOURISM

November - January

OTHER FACTOR: TOURISM

June – Sept

OTHER FACTOR: TOURISM

OTHER FACTOR: SIGNIFICANCE OF TOURISM

• High tourism activities allows firms to make more profit

• Also promotes competition and forces retailers to be more competitive and creative

in terms of marketing, cost structure and others.

OTHER FACTOR: INTERNET PENETRATION

OTHER FACTOR: INTERNET PENETRATION

OTHER FACTOR: INTERNET PENETRATION

OTHER FACTOR: INTERNET PENETRATION

OTHER FACTOR: INTERNET PENETRATION

• In Malaysia, only 0.8% of retail business was done online and it is expected to increase to 1.4% by 2016.

“The MRCA does not see the emergence of the online shopping as a threat towards their brick and mortar

businesses”.

Nelson Kwok, President of Malaysian Retail Chain Association

OTHER FACTOR: SIGNIFICANCE OF HIGH INTERNET PENETRATION

• High internet and mobile penetration, coupled with young population and good payment

system, could boost the underdeveloped e-commerce segment.

COMPETITOR ANALYSIS: KEY PLAYERSParent Company Subsidiaries Operation Style

Tesco (UK) Tesco (M)** Hypermarkets

Dairy Farm (HK) Giant Hypermarkets

Cold Storage Supermarket

Guardian Health and Beauty

Aeon (JPN) Jusco Hypermarket

Carrefour* Hypermarket

Berjaya Corp (M) Parkson Department Store

Econsave Hypermarket/Supermarket

7-Eleven Convenience Stores

Rocket Internet (GER) Zalora Online Fashion Store

Mudah.my (M) Mudah.my Online Marketplace

MYDIN (M) Mydin Wholesale Wholesale

*Was originally a subsidiary of Carrefour (FRN) but bought by Aeon in 2012.** Offer full online shopping

COMPETITOR STRATEGY: OWNS SHOPPING MALL

COMPETITOR STRATEGY: OWNS SHOPPING MALL

COMPETITOR STRATEGY: REBRANDING OF PRODUCT & BULK PACKAGING

COMPETITOR STRATEGY: REBRANDING OF PRODUCT & BULK PACKAGING

COMPETITOR STRATEGY: AGRESSIVE PRICING & EVENT BASED SALE

COMPETITOR STRATEGY: VOUCHER & MEMBERSHIP CARD

STRATEGIC PLANNING: OVERALL STRATEGY

?Culturally diverse market

Strong nationalistic sentiment

Legally required to include 30%

local products Strong cultural

sensitivity

Various cultural and

religion celebration

STRATEGIC PLANNING: OVERALL STRATEGY

MULTIDOMESTICCulturally diverse market

Strong nationalistic sentiment

Legally required to include 30%

local products Strong cultural

sensitivity

Various cultural and

religion celebration

STRATEGIC PLANNING: OVERALL STRATEGY

Durian Fruit

STRATEGIC PLANNING: OVERALL STRATEGY

Halal Logo

STRATEGIC PLANNING: ENTRY METHOD

?30% citizen ownership

30% of the product must be

local product

Culturally diverse market Fierce

competition in concentrated

markets

Steep learning curve

STRATEGIC PLANNING: ENTRY METHOD

PARTNERSHIP&

JOINT VENTURE30% citizen ownership

30% of the product must be

local product

Culturally diverse market Fierce

competition in concentrated

markets

Steep learning curve

STRATEGIC PLANNING: ENTRY METHOD

STRATEGIC PLANNING: FINANCING

?

No capital gain tax for

equity

30% stake must be

owned by local citizens

High lending rate - 4.92%

STRATEGIC PLANNING: FINANCING

Equity Financing

No capital gain tax for

equity

30% stake must be

owned by local citizens

High lending rate - 4.92%

STRATEGIC PLANNING: FOCUS SEGMENT

Online Marketplace and Online

Store

High Internet Penetration

Young Population

Good Payment System

High Mobile Penetration

Low Competition

in Online Segment

Reference

• Euromonitor

• Asia Pacific Retail Handbook

• World Bank

• Department of Statistics Malaysia

• Malaysian Communication and Multimedia Commission

• E-commerce Milo

• Bank Negara Malaysia (Central Bank of Malaysia)

• Malaysia Retail Chain Association