Malaysia - Commercial Guide
Distribution and Sales Channels

Discusses the distribution network within the country from how products enter to final destination, including reliability and condition of distribution mechanisms, major distribution centers, ports, etc.

Last published date: 2020-08-19

U.S. exports to Malaysia move through a wide variety of sales channels, depending on the product or service. U.S. export wholesalers typically sell food and other consumer goods to Malaysian general import houses, which then handle distribution to supermarkets and other outlets. Significant equipment sales to corporations in both the public and private sectors require local presence and local agents, as well as active engagement of corporate leadership. It should be noted that Bumiputra (ethnic Malay) firms are given preference in securing government priority sector contracts and privatization projects.

Capital equipment is almost always handled by in-country representation, either through locally hired firms or a corporate representative in Malaysia. Electronic components are purchased directly from the United States by the major U.S. and other multinational companies with manufacturing facilities in Malaysia. Much of that business is intra-firm. A large number of retail outlets and local and international consulting companies handle computer software. Many software companies have offices and joint ventures in Malaysia.

Using an Agent to Sell US Products and Services

Most exporters find that using a local distributor or agent is the best first step for entering the Malaysian market. A local distributor is typically responsible for handling customs clearance, dealing with established wholesalers/retailers, marketing the product directly to major corporations or the government, and handling after-sales service. Exporters of services generally also benefit from the use of a partner.  Sales to the government, Government Linked Companies (GLC), or priority sectors require a local agent and/or a joint venture partner, usually a Bumiputra owned firm. 

Under the New Economic Policy (NEP) formulated in the 1970s to eradicate poverty and to correct racial economic imbalance, capital ownership structure was segmented as follows:

Sendirian Berhad (private limited company/LLC)

  • Malaysian companies require a minimum of two shareholders, two directors, and a company secretary; the directors and company secretary must be resident in Malaysia. The company secretary must also be professionally qualified or licensed in the country.

Bumiputera companies

  • Bumiputera companies are established through the same process as the Sdn. Bhd., but are characterized by
    • 100 percent equity ownership by ethnic Malays
    • 51 percent or more of the board seats filled by ethnic Malays and
    • 51 percent of the workforce being ethnically Malaysian.

Branch office

  • To register a branch of a foreign company in Malaysia, only a registered office and authorized agent are required;
  • This structure removes the requirement for two shareholders, which means that overseas companies may receive the entire benefit of their Malaysian sales without the use of a nominee;
  • The need for only one authorized agent also simplifies the LLC’s requirement for two resident directors;
  • Like with most branches, the tradeoff for these benefits is that responsibility for the branch’s liabilities lies with the parent company.

Representative office

  • There is no minimum requirement since this business entity is only used for support services and is not profitable.

Joint Venture

  • A foreign entity can access the Malaysian market through several options.
    • Incorporate a company with 100 percent foreign ownership.
      • This is limiting as they will be excluded from directly participating in priority sectors tenders/activities
    • A joint venture with a Malaysian partner, in which case the local company will have at least 50 percent ownership over the respective company.
      • In this particular case, the company should have a paid-up capital of at least RM 350,000.
      • while the minimum authorized capital should be RM 500,000.  

The 30-40-30 ratio applies to public listed companies only.  So far, there is no stipulation from the government to change the ratio.  

Establishing an Office

The primary concerns for those considering setting up an office or factory in Malaysia are registration, taxes, labor, wages, rental/construction prices, utilities, and insurance. 

Several international accounting and consulting firms located in Kuala Lumpur can assist with the procedures and requirements for setting up a business in Malaysia. The American-Malaysian Chamber of Commerce (AMCHAM) can be a useful resource for U.S. firms interested in setting up an office or plant. The Malaysian Investment Development Authority (MIDA), a Malaysian government entity, works to attract and support foreign direct investment in Malaysia.  It is also advisable to seek more specific information from qualified legal and consulting services.

Franchising

The Malaysian franchise industry continues to achieve healthy growth. The growth rate as of October 2019 is 7.6 percent. The franchise industry contributed RM30.03 billion/ US$8.07 billion to the country’s GDP in 2018 (latest available data). The initial 2020 forecast for the franchise sector is RM35 billion/ US$8.3billion, but this industry estimate will decrease significantly in the wake of the pandemic. As of October 2019, 906 current domestic and international franchise brands are registered with the Malaysian authority. 

Approximately 30 percent of the total franchise concepts in Malaysia are foreign-owned. Foreign franchise concepts market share for three quarters of 2019 is 36 percent. There is a 4 percent exit of franchise companies from the market Malaysian franchisees, and investors are increasingly more selective on franchise concepts. Niche concepts with unique value propositions would be of interest to the Malaysian franchisee. On the food and beverage front, authentic Asian food and beverage concepts are in high demand.  This trend has relegated the western food concept counterparts with a lack of interest from both investor and consumers (burgers, western-styled sandwiches, pizzas, pasta dishes, etc.), except for prominent brands. Chinese Hot Pot concepts are trending in high demand- so much so that the dominant hotpot player Haidilao is doing well in the market. A big part is also to Mainland Chinese Dramas, and variety shows are gaining popularity in-country, and this influences the local cuisine offerings. Korean food concepts have reduced in popularity recently. However, South Korean popular culture, music, tv dramas and variety shows are a significant influence in Malaysia’s culinary adventure. On the beverage front, Taiwanese milk tea, bubble tea, milk with brown sugar are trendy. 

Perbadanan Nasional Berhad (PNS) is a corporatized government entity tasked as the lead agency in developing the Franchise Development Program. It is under the purview of the Ministry of Domestic Trade and Consumer Affairs. Even though PNS mainly focuses on encouraging home-grown franchise concepts, they are open to exploring collaboration with foreign franchises. The agency’s function is to identify, acquire, launch, facilitate, and encourage both local and international franchise brands. PNS is leaning towards lower-cost service sectors as the next prime mover for entrepreneurs.

In Malaysia, franchising is governed by the Malaysian Franchise Act 1998. This Act applies to the sale of franchises throughout Malaysia. All franchisers that are selling their franchises in Malaysia are required to register with the Registrar of Franchise (ROF). A franchise amendment bill was introduced in June 2012 and has been in operation since January 1, 2013. The bill works to strengthen administration and enforcement of franchise law, and it amends the Franchise Act to ensure the Act is consistent and up to date with current franchise development. 

As over 60 percent of the Malaysian population is Muslim, U.S. food and beverage related franchise companies that intend to sell to Muslim consumers should be aware of Halal requirements. Halal is defined as what is permissible under the Islamic Sharia Law. Malaysian standard MS1500:2400 is used in the production, preparation, and handling of halal food. This standard prescribes the practical guidelines for the food industry on the preparation and handling of halal food. It serves as an essential requirement for food production and food trade or business in Malaysia. It is used by JAKIM (the Department of Islamic Development Malaysia) as the basis for certification. JAKIM is Malaysia’s halal certifying body, and its practices, standards, and testing are often unclear, making it difficult for foreign companies to advance the certification process. As of Feb 2019, JAKIM recognizes three halal certification bodies in the United States: Islamic Food and Nutrition Council of America (IFANCA) with a Halal Research Center based out of Chicago and one based out of Park Ridge, Illinois, and Islamic Services of America (ISA) based out of Cedar Rapids, Iowa. As of the writing of this report, the new Malaysian government is reviewing JAKIM. Their final decision will determine the next steps on Malaysia Halal Certification.

Direct Marketing

In recent years social media and online platforms are an increasingly essential channel for marketing and maintaining real-time connections with consumers.  More recently, more companies have turned to online channels as a way to reach consumers more broadly, Facebook, Twitter, and LinkedIn have high penetration in Malaysia, and are growing as the social media platforms of choice for targeted marketing.

Joint Ventures/Licensing

Some exporters find it advantageous to establish their subsidiary in Malaysia to handle sales, distribution, and service directly. While this provides more direct control, it requires a commitment of capital and the identification of suitable local joint venture partners. The selection of a joint venture partner is perhaps the most critical decision made by a potential investor in Malaysia. Licensing maybe a more comfortable option for U.S. exporters as the daily management of the business is handled by the Malaysian licensee. Although there are some licensing of services and trademarks in-country, it is not very prevalent other than in the franchising sector, and that is a relatively small market share. All partnerships must register with the Companies Commission of Malaysia (CCM) under the Registration of Businesses Ordinance 1956. Partners are both jointly and separately liable for the debts and obligations of the partnership. Formal partnership deeds govern the rights and obligations of each partner, but this is not obligatory.

U.S. exporters interested in establishing a joint venture should contact the Malaysian Investment Development Authority (MIDA) for more information on other government policies that may affect contract arrangements within their specific industry. MIDA may also be able to assist with the identification of a suitable partner. Any firm intending to establish a local office should secure the services of a local attorney.

Express Delivery

​​​​​​​Major global express delivery firms are actively doing business in Malaysia. Express delivery or “courier” companies in Malaysia need to obtain a courier license to provide related services.  As of 2020, a total of  116 courier services licenses were issued by the Malaysian Communications and Multimedia Commission (MCMC). Below are some of the various express delivery firms in Malaysia.

International shipping fees and delivery times differ from one company to another. Customs clearance delays may cause interruptions in the process of delivering international inbound and outbound goods, especially time-sensitive goods. Operators that comply with customs clearance procedures and requirements will be able to minimize the risk of having their assets held by enforcement authorities for too long.

Due Diligence

Several firms gather information and publish reports on Malaysian companies, including Rating Agency Malaysia, Malaysian Rating Corporation, United Management Services, and D&B Information Services (M) Sdn. Bhd. For significant corporate transactions, financial advisors and lawyers can perform due diligence. Publicly listed companies are required to publish audited financial results, which are checked before entering into business agreements. In smaller transactions, letters of credit are a standard requirement of potential customers, while bank references and track records are checked before appointing agents.  The U.S. Commercial Service can also assist exporters by providing an International Company Profile report, which can include a visit to the office, an updated financial statement, and, if appropriate, a recommendation by a current supplier or customer. Please contact your local U.S. Export Assistance Center for pricing and details (US Export Assistance Center Offices).