Kuala Lumpur is gaining the attention of global investors as a preferred principal location to grow their business in the region and globally. According to EY's latest investor guide "KL calling: dynamic, digital, diverse", MNCs, from insurance services to advanced technology innovators, have also relocated their Asia Pacific “high-value, high-impact” central operating models to the capital, leveraging Industry 4.0 technologies and the information and communications technology talent pool.
Meanwhile, Malaysia's next-generation sectors attracting global investors include digital e-platforms and Internet of Things (IoT). EY predicts Malaysia's eCommerce sector to grow to nearly RM42 billion between 2018 and 2022, with a compound annual growth rate of 17%. Supportive government policies and policy frameworks such as the National Fiberisation and Connectivity Plan (NFCP), National eCommerce Strategic Roadmap and Malaysia Smart City Framework have facilitated the eCommerce and digital economy growth in the country.
Numerous regional eCommerce players have established their regional distribution centers, e-fulfillment hubs and distribution warehouses in KL. Alibaba Group, for example, rolled out its electronic World Trade Platform (eWTP) in Malaysia three years ago. The eWTP is the first outside of China and is part of the Digital Free Trade Zone (DFTZ) spearheaded by the Malaysian Digital Economy Corporation (MDEC). The hub offers Malaysian SMEs the infrastructure for doing commerce with services encompassing eCommerce, logistics, cloud computing, mobile payment and talent training. Separately in 2018, the group said it will continue investing in Malaysia despite former Prime Minister Mahathir Mohamad saying he will review China-related projects. This came a few months after it opened its Malaysia office.
On the IoT front, EY also said Kuala Lumpur is advancing to become a smart city, leveraging IoT-based solutions including AI and big data analytics to generate real-time traffic tracking using video and image recognition technologies. The implementation of Malaysia’s NFCP provides higher speed and quality connectivity to accelerate Kuala Lumpur's digital economy.
Besides foreign companies setting up offices, The Edge recently reported that Japanese companies are diversifying their investments in Malaysia by entering the digital tech and halal food industries, among others. Additionally, to drive Malaysia's position as the heart of Digital ASEAN, MDEC and Huawei tied up in July to spearhead this initiative and share best practices, with Huawei taking the lead in providing technical and business advisory strategies and support.
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What makes Malaysia so appealing?
Citing the AT Kearney Global Services Location Index 2019, EY said Malaysia is ranked in the top three due to her favourable business environment, competitive labor costs and productivity of skilled professionals. Meanwhile, Malaysia was ranked 12th in the World Bank’s Ease of Doing Business 2020, coming in first for lowest cost of living and second in market competitiveness and digital readiness. Its total approved foreign direct investment in 2019 amounted to RM82.4 billion.
Additionally, Malaysian consumers are also mature in terms of digital adoption and their naturally global attitude, Joseph Chua, chief commercial officer of Aiken Digital, said. He explained that Malaysians in 2020 have an open attitude towards new brands, especially if they provide a superior digital experience to the existing offering. As such, the likes of Alibaba can readily introduce them to products and services without too much friction. Moreover and the cost differential versus Singapore, for example, makes the market an ideal sandbox for big brands to set up operations at relatively low cost and scale easily outside of China.
Agreeing with Chua on the aspect of cost is Wladmir Silva, APAC chief development officer, head of consumer, Grace Blue Partnership, who said the establishment of Malaysia's DFTZ opened new avenues for foreign investment, including for tech firms. Besides strengthening its position as a logistics hub, operational costs and labour costs play a significant role in attracting foreign firms to Malaysia. Additionally, Malaysia also has a valuable commodity - landmass - thus accommodating some firms that require land space, such as fulfilment centres for eCommerce, Silva explained.
Aside from cost, digital adoption and landmass, Malaysia also shares features with other countries, especially China. According to Mark Greeven, professor of innovation and strategy IMD Business School in Switzerland and Singapore they are high local diversity, plenty of SMEs and a strong state. As such, this is not an unfamiliar environment for foreign firms, especially Chinese tech companies such as Alibaba, Huawei, Tencent and TikTok.
"Alibaba and Huawei are looking for large populations to leverage their own scale and platforms to offer their services. In particular, Alibaba is playing a big numbers game, i.e. with small population it is just not as attractive to let machine learning get used to new local consumer behaviour, which with Malaysia’s population size it is," Greeven explained.
Meanwhile, Malaysia's traits of diversity and plenty of SMEs also appeal to Tencent and TikTok, Greeven said, except that Malaysia's religious context influences the extent to which people will use video services such as Tiktok, highly entertainment focused, or social gaming on Tencent’s platforms.
"One interesting aspect is that Ant Insurance is based on community interest. It is a community insurance where everyone signs up to be part of the coverage of each other. This is Sharia compliant and a really interesting business model for Malaysia’s insurance industry," Greeven added.
Digital upskilling is great, but what are the specific areas to look out for?
Safe to say, the country's appeal to foreign investors will not wane anytime soon. As such, local companies and Malaysians alike need to continue upskilling themselves to remain relevant. Earlier this week, MDEC unveiled a Digital Skills Training Directory to help assist youth job-seekers and the unemployed. According to CEO Surina Shukri, the directory will function as a guide for Malaysians in choosing the digital courses that meet their career needs.
Meanwhile, the government is also offering a 50% matching grant of up to RM5,000 per company for companies that adopt these key digitalisation areas - digital marketing and sales, electronic point of sale system, eCommerce, procurement, HR payroll, remote working and accounting and tax. The matching grant will be worth RM500 million over five years, limited to the first 100,000 SMEs applying to digitalise their business operation.
Malaysia is certainly on the right path when it comes to digital upskilling and in tune with current market needs. According to Greeven, it is important to continue building digital skills, especially in the areas of analytics and AI. That said, the country also needs to ensure it has a competitive pay scale, which can be a hurdle for attracting and retaining talent.
Likewise, Grace Blue Partnership's Silva also pointed out that Internet of Things, machine learning, AI and 3D printing are some growing technologies that companies will be keeping an eye on in the next decade. Other industries besides technology that are also thriving include renewable energy, medtech and forestry, to name a few.
"The ongoing pandemic has improved the acceptance of remote workers. This provides an excellent opportunity for the younger generations to work remotely for companies that do not have a physical presence in the country. But it also means that they will also face competition from talented workers in different countries," he added.
Although Malaysia's DTFZ, Green Technology Financing Scheme and its growing focus on Industry 4.0 is helping propel the country ahead, there is a fundamental component that is core to future growth: investment in education and skill development as well as re-skilling the existing workforce.
Education and skilling are paramount not only to Malaysia but to every country that wants to thrive in the next decade when competing with a global workforce.
According to the 2020 IMD World Digital Competitiveness Ranking, Malaysia was ranked 31out of 63 countries in terms of employee training, 33 in total public expenditure on education and 40 in higher education achievement. Meanwhile in the talent aspect, Malaysia was ranked 30 for digital and technology skills, and 32 for international experience. That said, it topped the list for graduates in sciences and was ranked fourth when it came to the number of women with degrees.
Malaysia the core market for livestreaming
Meanwhile, the trend of livestreaming has deeply penetrated the Chinese market, so much so that Chinese universities are offering live streaming modules. Tianjin University, for example, launched a live stream marketing training camp for those in Gansu Province and taught local villagers, shopkeepers and community-level officials ways to become experts at marketing their goods, the university's website said.
Aiken Digital's Chua said Malaysia will be a core market for the growth of this form of content marketing. Paired with the expansion of 5G, live content whether short or long-form will be critical to the future marketing mix of winning brands in the region. Understanding how to tap into these opportunities will stand any Malaysian in good stead, Chua said.
That said, as much as welcoming foreign investment is critical to national growth, nurturing organic domestic business is equally important. "We know that digital is the future of every business, whether traditional or new wave. Incentivising the growth of local digitally native businesses will enable Malaysia’s industry to adapt more quickly to new technology and extract value from it," he added.
The markets that take the lead globally do not always lead in terms of invention, they are just more effective at application of technology.
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