Economic Base

In the last stages of moving from an agricultural base (Palm Oil, plantations, etc) to an industrial base, with accompanying major immigration to the major cities of Kuala Lumpur and Penang. Increasing salaries and costs in the last 10 years and increasing competition from China and Indo-China means the days of rationalising an export base on the basis of cheap labour fodder are over. Electronics/IT, Construction and Manufacturing are the major industries.

Consumer Market

Ten years of fast growth last decade has created an increasingly wealthy Malaysian middle class, and more progress has been made at reducing poverty than in several other Asian countries. Malaysian consumer demand was not as affected by the Asian crisis as Indonesia and Thailand, but affordability remains very low compared to Singapore, Hong Kong, and East Asia due to relatively low salary levels. This is partly offset by lower prices for automobiles and housing for example than Singapore, but discretionary income is much lower for the broad middle class. Demand for Western commodities was high until recent Ringitt devaluations, but will certainly decrease for a couple of years, especially with government "encouragement" to "buy Malaysian". Malaysians are very brand and "prestige" conscious, and often base purchasing decisions on information from close associates and family. Special deals, free gifts, and discounts also have some measure of success in marketing campaigns.

Political Stability

Prime Ministers Mohamad Mahathir's ruling government is as strong as it ever has been, due to the international shift to conservative policies caused by insecurity from the terrorist attacks in the USA. This inscurity, and the preference for stability and sitting political figures was magnified to a large degree in Malaysia, where Mahathir has characterised the main opposition party (PAS) of more fundamental Muslims as 'dangerous' for many years. The most obvious implications of 7/11 in Malaysia has been the decimation of support for PAS among those who swung to them "for change" in the last election, and also amongst other member parties of the opposition front (Keadilan the DAP) who worked with them during the aftermath of the Anwar sacking.

Extremely stable politically during the last 20 years of first steady growth and then one of the fastest in the world until late 1997. Politics remains dominated by UMNO, the Malay based party which receives widespread support regardless of religion, ethnicity, or urban/country residence, with Mahathir at its helm for a couple of decades. It is by far the major component of the Barisan Nasional (BN) co-alition that rules Malaysia, other parties being smaller and considerably less influential Chinese and Indian based parties and some provincial parties based in Malaysian Borneo (Sarawak and Sabah).

Mahathir attracted almost universal respect among Malaysians until the Asian crisis and the sacking of Anwar. That respect remains among many, though the fall-out from the decisions the Malaysia elite had to make to protect their own interests at that time has caused concern among many other Malaysians. The Anwar sacking fuelled the rejuvenation of the Islam-based PAS party, who made major electoral gains in Northern states, indeed wresting one, Terangannu, from the ruling Barisan Nasional government. The clean out of Anwar and his supporters caused concerns among traditional and rural Malays who saw their representation in UMNO and the BN being decimated.

The opposition Chinese-based DAP party which previously boasted strongholds in Penang and other urban areas where Chinese business has a strong profile, joined with the opposition coalition (BA or Barisan Alternatif) in fighting the recent election on a pro-Anwar reformasi appeal. Unlike PAS, the result was a political disaster for the DAP, whose traditional Chinese supporters were unnerved by their liason with PAS, or were frightened by the racially-based fear campaign run by the ruling elite at election time. The final major force in Malaysian politics is Keadilan (Justice Party), led by Anwar's wife, theoretically multi-racial but in practice more of a Moslem party. While initially, Keadilan could boast significant power and support, defections of Anwar supporters who joined in the wake of the sacking retuning to UMNO, and splits emanating from the very rocky process of moving from a one issue Reformasi/Anwar/anti-Mahathir party to a broader agenda, has brought with it significant loss of support. The educated middle class of Malaysia, from which Keadilan were expecting support, still prefer the imperfect, but historically successful BN coalition.

Malaysians have seen major increases in prosperity in the last two decades, and while that growth continues, will continue to support what has worked for them in the past financially, rather than base their support on less tangible ideals of political democracy. BN should be expected to retain control in the short to middle term. Concerns on a move to Islam conservatism, which would indeed cause major changes to how international business works with Malaysia have been overstated by the international press due to misunderstandings of the make up of Malaysian society, and also by the government itself, which needs to reinforce the difference between a "progressive, tolerant" form of Islam as practiced by UMNO, and the more radical religious based policies of PAS.

Any opposition party has difficulties at present due to the government control of traditional and broadcast media and other communication outlets, as well as Malaysian's generally conservative and apolitical nature. Nevetheless UMNO will be forced to take on some of the more moderate policies of PAS to guard against defections, while the Chinese component parties of BN continue to put pressure on UMNO to relinquish some control to themselves. After all, the last election was won on the votes of Chinese and Indians who shifted the alleigance to the BN, buffeting the loss of Malay voters, who for the first time, retuned more votes for the opposition parties rather than givernment parties.

Politics remains more stable in Malaysia than Thailand for example, and certainly Indonesia, but this stability depends largely on the ability of UMNO to change, and even re-invent itself after dominating Malaysian politics for so long.

Religion and Ethnicity

Malaysia remains predominantly Muslim, (around 60%), and Islam is the national religion, but in the great majority of cases, Malaysian Muslim leaders are tolerant of other religions and customs. Radical Muslim elements have been quickly marginalised in the past few years, especially after 7/11. By definition, all native Malays (Bumiputra.. ..literally.."sons/daughters of the earth"), are Islam.

The importance of the Malay vote is of course essential to political power, leading to some confusion over Mahathir's claims that Malaysia was "already an Islam state", in order to bring back to his more moderate Islam party those who may have defected to PAS, whose platform includes the imposition of an Islam state in Malaysia. Mahathir treads an unstable rope (remarkably well at present) on questions of the separation of religion and state. So far, his high popularity alone is winning over questions of logic.

However, in the capital of Kuala Lumpur, and in provincial Penang, the more commercial Chinese, relatively recent immigrants to Malaysia, outnumber Malays, and have become a major force in the industrialization and economic growth of Malaysia, dominating business, while Malays dominate politics and administration. However, it is easy to overstate the Chinese domination of Malaysian business. Extablished Malay businessmen are a major business force, especially given close relationships with political and social interests, and a major program to encourage Bumiputra entrepreneurs has spawned a lively and increasing influence of Malay business at lower and middle levels as well. With increasing privatisation, expect Malay CEO's to continue heading these newly privatised businesses.

Nevertheless the reduction of benefits given to Bumiputra's is inevitable. The positive discrimination (affirmative) policies have not been as successful in spreading wealth and to some extent has created a new exclusive class of Malay businessmen, who Mahathir himself calls "good cronies". While successful in reducing racial tensions for many years, these policies have tended to reduce rather than increase incentive for all racial sectors. The government knows this and has recently begun to soften up the populace for the coming blows, by a carefully manged trickle of announcements from the DPM down, that "globalization will force us to review our policies", highlighting the advantages of the scheme in the past and that "these privelages can't be expected to last forever", and raising of the issue of a non-bumiputra becoming PM.

The third largest grouping is Indian, highly visible in the legal profession, and also in import/export and trading.

Language

English is widely spoken, especially in business, and in urban areas. However, due to mainly political efforts to increase the usage of the national language over the past 10 years or so, many are realising that the level of English competence, especially among business people is lacking, and not helping competitiveness with Singapore in particular. Currently a debate is being conducted through newspapers on the need to increase English language skills. After Singapore, Malaysia has possibly the best levels of English in the region. Bahasa Malaysia or more correctly "Bahasa Melayu" - literally "the language of the Malays", is the national language which all but a minority of Chinese whose families emphasise Mandarin/Cantonese and English, speak well. Illiteracy is almost eradicated with a strong lower to middle level education system.

Foreign Operations

Foreigners from other parts of Asia and the West are generally welcomed, though an increasing mood of nationalism in the past 5 years has seen stricter laws on work permits. The widespread use of English and an understanding by Malaysians of Western and other Eastern business practices due to a mixture of a legacy of English colonialism and an openness to Japanese, Korean, US and European business, reduces some of the "culture clash" problems experienced in many other Asian countries. Facilities for "Mat Salleh's" or other Asian foreigners means expatriate life in Malaysia is easier.

The wake of the crisis however and the government's criticism of Westerners and foreigners has created an increased mistrust of Westerns working and doing business in Malaysia, according to several informal and subjective readings. This should not be over-emphasised, and even if this change has occured in reality, it is more likely to be short term rather than long term. As Mahathir has become more secure politically in the last year, he has found less need for his often emotional anti-Western rhetoric of the years before.

Currency controls and other restrictions employed by the government to defend themselves against the negative effects of the new global economy were in place for several years but are slowly being lifted. These financial controls of course do have an effect on the value of investments in Malaysia, and the details as they affect your industry and situation must be addressed early in your planning. While controls have been established to target currency speculators and very short term investments, there are some implications for all foreign (and local import-export) business while these remain.

Malaysia has a much lower cost of living than Singapore and Hong Kong, and property prices are relatively lower (though high compared to Western countries). Salaries are lower, and employee skills are good, though, on average they do not reach the levels of Singaporeans. This has to be balanced however with a general shortage of staff. Quality of phone lines and internet access speeds are improving rapidly, and utilities are dependable. Kuala Lumpur does suffer from an infrastructure that struggles to keep up with growth however, with a major traffic jam problem, unreliable public taxi services, ande poor levels of customer service in the majority of government offices and some private businesses alike.

A regional office in Kuala Lumpur for many regional operations is a very attractive option, when tallying up the above. For one, Microsoft has moved their regional office from Singapore to Malaysia several years back.

Business Practices

The use of guanxi or "connections" in business is as prevalent in Malaysia as other Asian countries. Understanding how guanxi works is critical to successfully doing business in Malaysia. Building personal relationships with partners is central. The late 1980's saw the golf club replace the karaoke club as the most popular business entertainment vehicle to getting to know partners, suppliers and customers. Dining in clubs, of course, always remains popular

Corruption still exists in Malaysia, but there are major efforts at present to eradicate it. Low salaries for public offices and political posts means that a certain amount of "under the counter" payments and gifts/benefits raise total income to more liveable levels. It also occurs at high levels. Bribery payments are still common for lessening the time it takes to do things, in areas such as work permit approvals, customs clearances, and building approvals.

While salaries may seem initially quite low, a large number of public holidays, reflecting observance of the major religions represented in Malaysia, generous employee benefits, and a generally "laid back" work ethic, adds to costs here. A Chinese New Year/Aidilfitri extra month bonus is the norm and at middle to higher levels, contractural bonuses of 3 months are not uncommon, with further "month" bonuses on a performance basis. The total salary/benefits package sometimes doubles the salary alone and more. The prestige value of club memberships and cars is highly valued by managers and employees. The level of perks and bonuses have decreased since the 1988 crisis, but there will be pressure for these to be reintroduced as perceptions of recovery increase.

Decision making is slower in both business and government compared to Western countries, and signing contracts, especially with government related companies, can be labourious. Red tape still rules, and customer service at government departments is slow, confusing, and frustrating. Malaysian companies generally close down during lunch, rather than working shifts. It is commonly accepted that you should never phone at lunch time as even the secretaries will not be there - a reflection of the almost sacred importance of food to the Malaysian! Malaysians like to establish a long term, sometimes even personal relationship, and appreciate foreigners working 'within the system'. Many things that can be accomplished via phone, fax, email, or 'representatives' in Western countries or even Singapore and Thailand require personal attendance and obligatory queuing in Malaysia.

Titled people (Tan Sri, Datuk, Dato etc.) should always be addressed by their honorific. Malaysians seem a very easy going friendly people, but take care as many take offence easily when their position and titles are not given the respect they deserve in Malaysia. Don't let the informal environment trap you into ignoring protocol. One thing Malaysians have inherited and seem unwilling to give up from their colonial days is the British pre-occupation with titles and class.