Malaysia - Commercial Guide
Market Challenges

Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.

Last published date: 2020-08-18

The Malaysian marketplace is facing significant headwinds due to the global pandemic, a fluid political situation, and rising U.S.-China trade tension. As a result, Malaysia’s real GDP is projected to contract by 5.1% in 2020, the slowest rate of growth since the global financial crisis in the 90s.

According to the Economic Intelligence Unit, the external sector is expected to shrink for a second successive year due to the country’s exposure to China, Malaysia’s largest export market, in addition to the anticipated recessions in the United States and EU.  Regarding service exports, Malaysia is expected to contract considerably amid ongoing travel restrictions and a decrease in international tourism.  Despite loose monetary circumstances, an anticipated decline in local and foreign investor sentiment will result in a deep contraction in investment spending.  The government’s fiscal and monetary stimulus set in place will help contain the damage but may not prevent the Malaysian economy from entering into a recession as well.  

On the political front, the situation in Malaysia remains fluid despite the formation of a new coalition government and the appointment of a new prime minister.  The previous administration collapsed on February 24, 2020, in part due to infighting over who would succeed Mahathir Mohamad as Prime Minister.  Muhyiddin Yassin, who served as Minister of Home Affairs during the previous government, was named the new prime minister just as the pandemic struck Malaysia.  In this political landscape, policymaking will be curtailed in the near term due to the administration’s effort to limit the opposition’s attempts to launch a vote of no confidence by minimizing parliamentary sessions.  Furthermore, the administration’s slim majority will become a challenge when trying to implement its legislative agenda, raising the risk of a snap general election at the end of calendar year 2020 or early 2021.  

Other structural polices by the government hamper foreign involvement in several areas, including government procurement contracts; financial, business, and certain professional services (military, defense, security, and oil and gas); and telecommunications.  In many cases, it is imperative to have a local partner, such as a Malay-owned “Bumiputra” company for government-procurements, to compete in the market effectively.  The identification, assessment, and selection of these Bumiputra partners become a decisive factor in the success of a foreign company’s commercial engagements.  

Finally, while the previous administration made improvements in the implementation of transparent and fair procurement practices, the government is still confronted by corruption scandals and obscure procurement decision-making.  In some instances, there are sufficient checks and balances to bring visibility to procurement malpractices.  In the assessment of procurement applications, the lack of know-how on life-cycle costing presents challenges to foreign companies offering quality products at higher price points compared to competitors’ lower-cost alternatives.    
Sources:
- Economic Intelligence Unit (EIU) Country Reports