7 Aug 2014
Malaysia Goes Global: The Hong Kong Benefit
Malaysian SMEs are expanding overseas via Hong Kong, leveraging the city’s strengths as a gateway to the Chinese mainland, along with its transparent business environment, flexibility and credibility.
Malaysia is taking a lead among the emerging markets of Southeast Asia. A country of some 30 million people, it has flourished in terms of retail modernisation and consumer sophistication, especially when compared with a number of its ASEAN peers, such as Indonesia, Vietnam, Cambodia and Myanmar. Its per capita income of around US$10,000 is the third highest among the 10-nation ASEAN group, after Singapore and Brunei. Tellingly, it also ranked sixth out of 180 economies in Doing Business, a recent World Bank report on the ease of doing business in different markets. Malaysia has now attracted a substantial number of multinational corporations (MNCs) and well-known overseas brands and retailers, while having nurtured its own brands, including a number in the food and beverage (F&B), lifestyle products and manufacturing sectors.
It is clear that many established Malaysian companies have successfully ventured outside of the country’s relatively small domestic market. This has seen them penetrate both the wider regional market, as well as making inroads into the United States, Europe and Middle East. Yet, many of Malaysia’s small and medium enterprises (SMEs), while keen to expand, suffer from a lack of knowhow when it comes to navigating the complex dynamics of regional markets, in particular the Chinese mainland.
During a meeting with a business consultant based in Johor Bahru, a Malaysian city in close proximity to Singapore, it was pointed out that many Malaysian companies are finding marketing products overseas a frustrating process. The consultant cited the example of one pharmaceutical company that had invented a product and had high hopes of selling it abroad. Ultimately, however, the company was overwhelmed by the difficulties involved with bringing it to market. Additionally - and most significantly - the need to secure intellectual property (IP) protection was also clearly identified, particularly with regard to trading on the mainland. Those Malaysian companies looking to target the China market can, therefore, draw on the support of business partners and professional service suppliers in Hong Kong, many of whom are well acquainted with the mainland.
A gateway to China
Though Malaysian exports to China have expanded at a double-digit rate over the past few years – particularly with regard to intermediate electronic goods and those made on an OEM basis (original equipment manufacturer) for foreign brands. While many Malaysian companies produce well-designed, innovative and high quality products, China’s complicated market environment can prove a challenge for Malaysian brands, and only a handful have been able to establish a strong foothold. Bonia, a Malaysian fashion brand, for instance, exited the China market in 2012 as a result of these difficulties. With its huge population and fast-growing consumer demand, China is undeniably a choice target for Malaysian brands. Therefore, Bonia just recently indicated that it is looking to return to the China market with the hope of identifying the right business partner.
As a time-proven and preferred gateway to the mainland, Hong Kong can assist Malaysian companies, especially SMEs, by building a strong brand image and helping nurture a rapport with Chinese consumers. The chances of success of these companies will be immeasurably improved in light of this professional support, an indication of the immense potential demand for such services.
At the same time, Hong Kong service suppliers in the areas of management consulting, design, marketing, logistics, distribution, IP and financial services, are advised to take the initiative and look to identify such Malaysian companies. It may be that such businesses lack the knowledge and resources to target export markets on their own. Every year, there are a number of Hong Kong trade shows and conferences that attract those ASEAN companies with their sights set on China. These include Malaysian enterprises that have leveraged the Hong Kong platform to exhibit, source or meet business partners. Such events provide a great opportunity for Hong Kong service suppliers to identify the business needs of Malaysian companies. In addition, staying in touch with Malaysian business associations and institutions may offer another route to identifying potential service users.
Established Malaysian companies in Hong Kong
A number of established Malaysian companies have already used Hong Kong as a platform for realising their regional or international expansion plans. Kerry Group, formerly a Johor Bahru-based food trading company, for instance, reinvented itself as an international business conglomerate after moving its base to Hong Kong. It now has interests in real estate, hospitality, logistics and food processing. Genting Hong Kong (a subsidiary of the Genting group), Guoco Group (a subsidiary of the Hong Leong Group) and Parkson have all adopted Hong Kong as a fundraising platform, listing on the Hong Kong Stock Exchange (HKSE) in order to expand in the region, particularly in China.
Malaysian manufacturers move up the value chain
Malaysia has long been one of the most popular production bases in Asia for MNCs, particularly in the electronics and electrical sector. Despite rising labour costs, it is still home to many blue-chip MNCs, such as Intel, which has set up high value-added production centres (including R&D and design) and brought substantial technological expertise to the country.
Meanwhile, the Malaysian government is determined to upgrade the country’s manufacturing sector and is looking to encourage capital-intensive and export-oriented production. On a fairly regular basis, the government has rejected FDI projects that rely primarily on labour-intensive manufacturing. In the process, Malaysia has promoted the development of a number of its emerging industrial clusters, including aerospace, composite materials, LED and medical devices. In additional moves, export oriented Free Industrial Zones (FIZs) and licensed manufacturing warehouses (LMW) have now been established to promote exports, with incentives provided to those manufacturers who export a certain percentage of their products.
Against this background, Malaysian manufacturers have moved up the value chains, putting money into automation, increasing capital intensity and strengthening product innovation. Aside from being just OEM producers for foreign brands, some have started to build their own brands and product lines. Owing to the limited size of the Malaysian domestic market, these manufacturers are keen to expand into other countries and regions. Notably, many of these ambitious companies are SMEs.
After meeting with SME manufacturers in Penang and Johor Bahru, it would appear that many of them have already established trade links with their counterparts on the mainland. Despite this, they still employ Hong Kong platforms, especially when conducting small-order trades or providing related services (after-sale services). They regard Hong Kong as having a transparent business environment, where flexibility and credibility are guaranteed. Moreover, there was a consensus that Hong Kong could function as a regional distribution and business operations centre, offering a range of services to help them better market products in the Asia-Pacific region, particularly on the mainland.
Malaysia’s homegrown stars
Aside from its advanced manufacturing sector, Malaysia is also keen to see its food and beverage (F&B) industry emerge as a global player. The government’s Malaysia Kitchen Programme (MKP) was launched to promote Malaysian restaurants overseas and to create demand for Malaysian cuisine. In collaboration with restaurant operators, this integrated and multi-pronged programme is currently being rolled out globally.
MyKuali – an instant noodle success
Sky Thomas Food Industries Sdn Bhd (Sky Thomas), a popular seasonings and pastes manufacturer, established its instant noodles brand “MyKuali” in May 2013. Its first product, Penang White Curry Instant Noodles, soon proved a success. Ramen Rater, an authoritative website that ranks instant noodles from all over the world, judged Penang White Curry Instant Noodles to be the best instant noodles of 2014. MyKuali entered the Hong Kong market in late 2013, with exclusive distributorship handled by Wellcome. The deal came after the company showcased its products at a Hong Kong food fair.
MyKuali’s reputation has grown quickly, partly due to its distribution and marketing strategy. Its management adopted an export-first policy in order to target as many overseas markets as it could, despite the risk of running short of production capacity domestically. While it has now stepped up production, MyKuali notes that the relative shortage of supply in Penang and other Malaysian cities created a “hunger marketing” effect among consumers, making the product even more sought after.
Social media also played a vital role in the success of MyKuali, creating brand recognition worldwide. There have been numerous online reviews of MyKuali products, including on platforms such as Facebook and several culinary blogs, where lively discussion of recipes and how to cook noodles are found. This has, inevitably, made the products even more popular.
Another Malaysian F&B success story is Old Town White Coffee (Old Town), which operates more than 230 cafes in Malaysia, Singapore, Indonesia and China (three outlets). As with many other international F&B brands, Old Town has expanded its network through franchising and international licensing. As a highly-regarded licensing hub, Hong Kong can help fast-expanding Malaysian F&B companies, such as Old Town, find the right partners and master licensees in the region and beyond.
|Malaysia External Trade Development Corporation |
|Tel: (+603) 6207 7077|
Fax: (+603) 6203 7037
|Malaysian International Chamber of Commerce and Industry||Tel: (+603) 6201 7708|
Fax: (+603) 6201 7705
|Malaysia-China Chamber of Commerce||Tel: (+603) 9223 1188|
Fax: (+603) 9222 1548
|Malaysian Franchise Association||Tel: (+603) 2697 1557|
Fax: (+603) 2697 1559
|Malaysian Association of Brand and Image Consultants||Tel: (+603) 5023 6063|
Related information: Malaysia infographics