Malaysia Opportunities

Opportunities at a Glance

Malaysia is the quiet economic player in the ASEAN region. While the country is admittedly overshadowed by Singapore’s economic strength, Indonesia’s size, and Thailand’s tourism industry, Malaysia is still uniquely positioned to act as a future powerhouse within the region.

Founders enjoy :

  1. Fast start: Uber social consumers, high enough internet and mobile penetration, low advertising costs equate to a relatively easy startup build.
  2. Sustainable growth:: 10 years tax-free for tech companies, global talent hub (foreign work visas can be obtained in approximately 2 weeks), follow on financing and government grants available, and a high quality of life at an affordable cost of living.
  3. Proven exit potential: SE Asia’s top IPO companies 5/7 started in Malaysia, with their core operations still in country, the biggest exit in history for SE Asia is also a Malaysian company.

Malaysia has the advantage of a far lower overhead than Singapore, as well as superior governance and infrastructure over Indonesia. It is also centrally located from major markets and economic centers like India, China, Singapore, and Indonesia. Another benefit is the multilingual workforce puts Malaysia ahead of most of ASEAN and competitively against the Philippines and Singapore.

While there are still challenges in areas such as market size and lack of venture capital investments in Malaysia, the advantages make it a difficult country to ignore. Malaysia is certainly worthy of consideration when evaluating where you want the hub of your tech startup to be.

In addition, the Malaysian government has proactively set up incentive programs to attract international investment (from multinationals to startups) in the area of high-tech manufacturing, internet startups, biotech, film industry, tertiary-level education, among many others.

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Startup Market Saturation

Malaysia scores an average of 1.72 on market saturation on 58 business models that are commonly seen in other parts of the world. This number indicates that the Malaysian market is on the verge of becoming semi-mature.

As a comparison to its neighboring countries, Philippines and Indonesia are generally considered to have more opportunities available, Thailand and Vietnam have less opportunities available.

Insert image: http://cdn.techinasia.com/wp-content/uploads/2014/03/startup-opportunity-map.jpg

SOURCES

http://www.techinasia.com/opportunity-map-country-startups-southeast-asia/

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Competitive Advantages

Low-Cost Overhead & Corporate Hub Proximity

A major advantage of setting up a business in Kuala Lumpur is its strategic location. Malaysia is an hour away (by plane) from the over 7,000 multinational companies that operate in Singapore. Malaysia has lower cost-of-living with at least 40% of savings to that in Singapore (while many business leaders claim up that it is up to 3x less epenmsive to operate in Malaysia over Singapore). As a business owner in Malaysia, you have the advantage of being next door to major potential customers, while bearing half of the cost.

Looking beyond Singapore, Kuala Lumpur is a fantastic logistics hub that puts you in touch with over 800 million Asians within a two-hour flight radius. As Kuala Lumpur is the main hub for Air Asia, it has become a gateway to the rest of the Asian market - from India to China and Indonesia.

SOURCES

http://www.expatistan.com/cost-of-living/comparison/singapore/kuala-lumpur

http://www.cnbc.com/id/100418370

Work Visa for MSC-status Startups

For startup companies that qualify under Malaysia's Multimedia Super Corridor (MSC) program, the door is open to utilizing Malaysia as an operational HQ to hire talent from the near-abroad (Indonesia, Vietnam, Philippines) and beyond. There are no limitations imposed on the number of foreign work visas issued.

Established tech companies have used their MSC status to quickly and easily attract regional and international talent, made partly possible again, by the ease of which you can acquire an employment visa (typically within 2 weeks).

SOURCES

http://www.mscmalaysia.my/whymscmalaysia_status

Competitive Infrastructure

According to the 2011 World Economic Forum, Malaysia ranks as the second best in infrastructure among its ASEAN neighbors. Only Singapore outranks Malaysia in infrastructure, while Thailand comes in at a close third.

SOURCES

http://www.imf.org/external/pubs/ft/wp/2013/wp1341.pdf

http://business.inquirer.net/81138/philippines-scores-low-in-infrastructure-in-wef-competitiveness-ranking-dpwh

Tolerable levels of corruption

Globally, Malaysia is ranked in the lower third of countries in terms of perceived government corruption. While corruption exists, the requirement of administering bribes to facilitate business is highly unlikely for most startup businesses.

Based on Transparency International, Malaysia ranks 53 among 175 countries, which puts it close to South Korea (46) and Turkey (53). Outside of Singapore, Malaysia outranks its neighbors in transparency; In contrast, the Philippines is ranked 94, Thailand 102, and Indonesia 114.

All that being said, corruption does exist but is more widely seen when extremely lucrative contracts and/or very large sums of money are involved. Common stories reported include bribing officials to speed up court processes. To access a popular story of this kind, click below source to read an “open letter.”

SOURCES

http://www.transparency.org/country#MYS_DataResearch

http://cpi.transparency.org/cpi2013/results/

http://amanz.my/2011/04/tidak-telus-teratotech-menolak-geran-skmm/

Tax Incentives & Tax Holidays

For certain industries, both startups and established corporations may find that they are eligible for tax holidays (up to 10 years) under MDEC (mostly for technology-focused startups) and MIDA (mostly for large corporations).

A newer and more aggressive incentive initiated was the creation of a large development region called Iskandar located in Johor. Iskandar is just a bridge away from Singapore. Foreign companies in key industries such as business process outsourcing, film, biotech, and others are eligible for a 10-year tax holiday and other incentives if based here.

SOURCES

http://www.iskandarmalaysia.com.my/foreign-investment-overview

Multilingual Workforce to Support a Regional Hub

Given the Malaysia’s multi-ethnic nature and vernacular schooling system (Tamil, Mandarin, and Malay-based instruction), it is no surprise that residents speak at least two languages. This gives Malaysia a strategic advantage as an operational hub for startups that can reach out to Tamil-speaking, Mandarin, and Malay/Indonesian (and of course, English) markets around the world.

Do note, however, that this does not mean full fluency in both languages. It is not unusual to meet a Chinese Malaysian who is fluent in English but has limited conversational Malay and Mandarin skills. In contrast, one may find an Indian Malaysian with fluency in Tamil, English, and Malay, and merely conversational in several Chinese dialects. In either case, such language skills help push the Malaysian workforce ahead of other countries.

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Competitive Disadvantages

Lack of Hunger

The education system unfortunately, does not equip its students to be innate problem solvers. Since Malaysia has become a ‘comfortable country’ with basic needs subsidized by the government, it has removed the 'hunger' factor. Moreover, parents usually take care of the youth and provide a good support system financially. Furthermore, there exists many agencies offering financial aid for entrepreneurs. These factors can be seen as fostering complacency and dampening the competitive spirit.

Brain Drain Causes Bigger Talent Crunch

Though Malaysia produces an abundance of talent for their workforce, much of that talent leaves the country to work and/or live in Singapore (sibling rivalry) or in countries overseas such as Australia or Canada. A 2011 World Bank report cited that 2 out every 10 university-educated Malaysians have moved to OECD countries and Singapore. Over 80% of this Malaysian diaspora is said to be of Chinese descent.

While this can put pressure on finding local talent, it also presents some unique opportunities:

  • The ability to expand your business network by working with Malaysians who have moved abroad
  • Hiring internationally-experienced talent, specifically Malaysians who have studied and worked abroad but returned to their Malaysian homeland

SOURCES

http://www.themalaymailonline.com/malaysia/article/facing-brain-drain-taiwan-looks-to-poach-malaysian-students

http://www.bbc.com/news/world-asia-22610210

http://www.themalaysianinsider.com/sideviews/article/ge14-500000-malaysian-voters-in-singapore-to-generate-friction-james-gomez

Uneven Education System

Malaysia is home to a growing list of foreign universities such as Newcastle University, University of Nottingham, Monash University and Manipal International University. Malaysia is also renowned as the 11th largest education exporting country with over 90,000 international students in Malaysia.

Malaysia is also known for its very uneven educational system — in both overall quality and method of instruction. The Malaysian government has been addressing this quality issue for some time. For example, in 2010, the Ministry of Higher Education had deregistered 15 private colleges and revoked the establishment of 27 private colleges for poor quality.

Given this issue, startups are suggested to rely not on local diplomas and certification but rather rigorous interview processes that include formal testing (practical examinations for corresponding skillsets) for best results in selecting the best candidate for a job.

SOURCES

http://education.bernama.com/index.php?sid=news_content&id=545666

http://en.wikipedia.org/wiki/ListofuniversitiesinMalaysia

http://library.perdana.org.my/Digital_Content/PLF/PDS/PDS12%5B1009757%5D.pdf

Uneven Government & GLC Bureaucracy

Foreign startups working with local Malaysian governments involved in investment and incorporation such as MIDA (Malaysian Investment Development Authority) and MDC (which manages MSC status companies) will enjoy an effective and efficient support system.

However, other government departments and government-linked companies (such those in telecommunications or electricity) will experience a different level of service. The use of runners and agents who speak Malay (Bahasa Melayu) fluently are sometimes required to cut through the red tape and to quickly get the myriad of paperwork passed through.

English Literacy: Widely Spoken, but Low Proficiency

English is widely spoken and understood in country. A 2012 study by IALS showed a +93% basic English literacy rate among Malaysian secondary students. What this stat doesn’t reveal is though English maybe widely understood, professional-level English proficiency is severely lacking.

In 2012, the Malaysian Ministry of Education stated:

Poor english proficiency among fresh graduates has, since 2006, also been consistently ranked as one of the top five issues facing Malaysian employers.

For high-level English proficiency, startups should focus on recruiting Malaysians who have previously attended English-based universities abroad or hire foreign talent from neighboring countries like the Philippines or even as far as Europe.

SOURCES

http://www.ukm.my/ppbl/Gema/GEMA%20vol%2012%20(1)%20Special%20section%202012/pp3551.pdfhttp://www.ijssh.org/papers/168-A10042.pdf

http://www4.unescobkk.org/nespap/sites/default/files/Preliminary-Blueprint-ExecSummary-Eng_0.pdf

http://kedah.uitm.edu.my/v1/images/stories/industriallinkages/uitmpress/voa612011/6120118.pdf

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Challenges

  • Lack of interest in funding startups - investors are more inclined to go for the “safe route” and invest in franchises instead
  • Lack of public data for validation purposes - Malaysia’s equivalent to the US Census Bureau is outdated and haphazardly done

SOURCES

http://www.quora.com/Startups-in-Malaysia/What-are-the-biggest-problems-for-entrepreneurs-in-Malaysia

Small Market Constraint

While Malaysia is over five times larger than its city-state neighbor Singapore, it is still constrained by it’s small market size. Startups can use the multi-ethnic diversity of Malaysia (Malays, Chinese, and Indians) as a test market, but they will soon need to venture outside Malaysia for further growth.

Malaysia has a population of over 28 million people, one of the smallest countries among its larger neighbors (66.8 million in Thailand, 246 million in Indonesia, 96.1 million in Philippines). In contrast, the Jakarta metro area has over 29 million people.

The smaller market means that Klang Valley, the metro area that includes Kuala Lumpur, is the only large market in Malaysia. Johor is the second largest metro area with a population of 1.8 million but with only half the household income of Kuala Lumpur.

Despite its smaller population, Malaysia has the potential to become a powerful business hub to reach out to the greater ASEAN region given its proximity to other asian countries. For a startup to succeed over the long term in Malaysia, the company must scale to other markets.

SOURCES

http://www.digitalnewsasia.com/insights/malaysian-startups-and-the-vc-perception-barrier

http://www.statistics.gov.my/portal/images/stories/files/LatestReleases/household/HIS2012Eng.pdf

http://en.wikipedia.org/wiki/Johor_Bahru

http://en.wikipedia.org/wiki/Kuala_Lumpur

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Full Startup Market/Competitor Analysis

Here is the full competitor analysis on the commodity startup opportunities in Malaysia.

Please note, the data in this section will change over time. If you have an update, please let us know!