Supermarket Expansion Into Malaysia
A supermarket chain based in the United Kingdom is considering expansion to Malaysia. There are several factors to consider before the chain determines that expanding their stores to this market is an effective decision. The business environment of Malaysia is considered to help make this determination. To facilitate this discussion, a brief overview of the country is given. This is followed by a PESTEL Analysis, which reviews the country's political, economic, social, technological, environmental, and legal factors that may affect expansion.
Overview of Malaysia:
Malaysia's history is rife with political struggles. The country was under the control of Britain and Japan, prior to garnering their independence in 1957. The Federation of Malaysia was formerly founded in 1963, with Singapore, Sabah and Sarawak joining the federation. Two years later, Singapore seceded from the federation and became an independent country. It wasn't until 1981, and the election of Prime Minister Mahathir Mohamad, that Malaysia began to successfully diversify their economy. Instead of relying primarily n the export of raw materials, Malaysia began to expand their manufacturing, services and tourism segments. Today, the country's rapid industrialization as resulted in one Southeast Asia's most vibrant economies ("Country Overview," 2010).
PESTEL Analysis:
Political Factors
Some of the primary political forces, in Malaysia, until 1973 was the Alliance, the United Malays National Organization, the Malaysian Chinese Association, and the Malaysian Indian Congress. As the country transitioned to freedom, riots broke out around the country, pitting, Chinese against Malays. Because of the riots, an interim government was created. By 1973, the Barisan Nassional (BN) replaced the coalition, by receiving 70% of the votes. In 1982, the prime minister called an election and, once again, the BN won decisively, in both the state assembly and lower house of parliament elections. The BN retained control in the 1986 elections in the parliamentary districts as well as the peninsular state assemblies ("Political Conditions," 2010).
The late 1990s and early 2000s saw much political upheaval. In 1998, financial crisis struck the nation. National currency value dropped and the banking sector collapsed. Politically, economic reforms were advocated with some implemented. The same year saw the Deputy Prime Minister Anwar fired due to corrupt and immoral conduct. He, and several of his supporters, were detained without trial, under the Internal Security Act. Later, in 1999, he was convicted and sentenced to six years in jail. He was also found guilty of sodomy. Anwar insisted these charges were fabricated as a means of removing him as a political rival to Mahathir. In 2002, further controversy occurred with new illegal immigrant legislation ("Political Conditions," 2010).
Terrorism has been a continuing concern for the nation. "In January 2003, Malaysian police arrested two men, including a member of the country's military, on suspicion of belonging to a militant Islamic group linked to al-Qaida" ("Political Conditions," 2010). Religious schools have been accused of teaching hate instead of religion, which led to the ending of their state subsidy. Opponents of the Internal Security Act called for the law to be replaced, in favor of legislation modeled after Western anti-terrorism laws. However, despite the governent's concern regarding terrorism and religious extremism, they did not show solidarity with the United States on the Iraq War. In 2009, these concerns were exacerbated by still murky political waters, with recent Prime Minister Abdullah Badawi resigning over faltering popularity, autocratic stances and repression of his political opposition. Despite these challenges, Country Watch awards Malaysia a score of 9 out of 10 in political stability, due to the "country's record of peaceful transitions of power, ability of a government to stay in office and carry out its policies vis a vis risk credible risks of government collapse" ("Political Risk," 2010).
Economic Factors
Economically, Malaysia is one of the most vibrant economies in Southeast Asia. Over the past three decades, the country has transformed itself into a global manufacturing force, with manufacturing accounting for more than 30% of Malaysia's GDP. The country also is a global timber and rubber producer and dominant palm oil producer ("Economic Overview," 2010). However, their strong dependence on exports meant the country was hit hard by the global economic crisis.
Weakened external demand negatively affected consumption and private investment in the later half of the 2000s. In 2008, economic growth in Malaysia had slowed significantly, with it turning negative in 2009. Large fiscal stimulus packages have been employed by the government as a means of mitigating the impact of the output contraction of businesses and households. Despite this challenge, economic contraction was not as severe as anticipated. Widening fiscal deficit and improving economic conditions has...
From 2004 to 2007, Malaysia's real GDP average rate of growth was 6.1%. In 2008, it slowed to 4.6%. By 2009, GDP growth had tuned negative to -1.7% ("Economic Overview," 2010).
Social Factors
Located in Southeast Asia, Malaysia is comprised of two noncontiguous regions: East Malaysia, on the island of Borneo, and West Malaysia, on the Malay Peninsula. The country is divided into 13 states, with 11 located on Peninsular Malaysia. With over 29 million people total, approximately 15 million live in the lowlands of Peninsular Malaysia ("People," 2010). The population continues to grow at approximately two percent per year, with nearly 34% of the population being under the age of 15 ("Key Data," 2010).
There is great cultural diversity in Malaysia, with the country's four primary ethnic groups that include the Malays, Indians, Chinese, and indigenous people. There are also Americans, Europeans, Australians, Middle Easterners, Eurasians, and Thais. The Malaysian people have a healthy life expectancy of more than 73 years. The literacy rate for those age 15 or older is 88.9% ("People." 2010). According to Country Watch, Malaysia ranks 16th out of 103 in the human poverty index, with less than eight percent of the population living below the poverty level ("Human Rights," 2010).
Technological Factors
According to Lai and Yap (2004), "Malaysia is an emerging Asian economy aspiring to move towards a technology-driven and high-tech production-based pattern of development and thus replicate the experience of the newly industrializing economies (NIEs) of Asia. In fact, Malaysia has been categorized in the group of countries that have the potential to create new technologies on their own" (53). The last two decades has seen rapid technological development in NIEs, and Malaysia has much in common with these other developing countries, including location, economic regimes and trade structures.
However, Lai and Yap (2004) surmise that the importing wholesale of technological development model, from another NIE, would be non-optimal for Malaysia. They continue to note that there is no single strategy od technological development that can guarantee success. The route to development needs to be adapted to Malaysia's unique characteristics and should use the country's past successes in pursuing technology-based economic growth.
Environmental Factors
Malaysia's focus has certainly been on economic development. However, due to this rapid industrialization process, their environment has suffered. Malaysia has become one of the world's largest timber exporters, which has raised significant deforestation concerns. Their timber harvesting has been conducted over recent decades without employing sustainable timber development methods. Associated problems due to this deforestation includes siltation of rivers and erosion. These then have ancillary effects on the natural habitats in these areas ("Environmental," 2010). Of particular concern is East Malaysia in Borneo.
In 2007, Malaysia signed joint legislation, with Brunei and Indonesia, in an effort to promote ecological conservation. This trilateral "Rainforest Deforestation" agreement, also known as the "Heart of Borneo," protects a large part of Borneo, to conserve rare species of plants and animals and preserve this unique biodiversity. In addition to deforestation, Malaysia faces air pollution issues, as a result of increased industrial and vehicular emissions. Water pollution from raw sewage is also a concern. Lastly, poaching is a threat to wildlife, in addition to the threat wildlife experiences from deforestation and its effects.
Legal Factors
Common law is the basis for Malaysia's legal system. British and other Commonwealth legal concepts are still a pervasive force in the Malaysian court system and, as such, are still relied upon and cited frequently. For businesses looking to enter the Malaysian market, there are several pieces of legislation that are often relevant. The Companies Act of 1965 was derived from Australian legislation. The Special Administration is a formal insolvency process created in 1998, as a means of supplementing the countries older restructuring and insolvency laws, in a direct response to the challenges of the Malaysian banking sector, following the Asian Financial Crisis of 1997 ("Legal Issues," 2001). These laws, and other Western-based legal laws and processes, are more expansion friendly than other Asian countries.
Porter's Five Forces:
The pure competition model implies risk-adjusted return rates should be constant across industries and firms. However, there are different industry forces that can affect an organization's ability to sustain differing levels of profitability. Porter's Five Forces details five forces that an organization must take into consideration as they operate within an industry. Theses include: rivalry among industry competitors, threat of substitutes, the bargaining power of end users and channels, the bargain power of suppliers, and the barriers…
