Tim Harcourt finds Malaysia is still a good location for turtle watching, but it’s also a rising export market for Australian SMEs.
The east coast of Malaysia is enjoying a mining boom. An Australian company, Grange Resources, has announced a $400 million joint export venture. This is welcome, as Australia’s foreign investment in Malaysia to date has been disappointing.
According to James Wise, Australia’s High Commissioner in Kuala Lumpur, it’s been pretty much one-way traffic. "Malaysians invest heavily in Australia, but with the exception of Blue Scope Steel, Leightons, Ansell, and CSR building materials, we’ve been spread pretty thin. This new project by Grange Resources is most welcome here," he said.
So why is Australian business interest beginning to turn the corner in Malaysia?
The first reason is economic. While Malaysia suffered the Asian financial crisis of 1997-99, it bounced back quickly and Australian exports recovered along with it. According to Australia’s Senior Trade Commissioner, Peter Kane, there is a great deal of confidence around Malaysia’s immediate future, too. "Malaysia has great infrastructure, IT (through the multimedia ‘super corridor’) and increasing levels of tertiary education. Accordingly, Australian exporters are likely to do well in the Malaysian market," he says.
The IT sector is still strongly focussed on the US (which slowed locally after the dot-com crash), but according to Arlina Ariff, a senior economist at Bank Negara Malaysia (Malaysia’s Central Bank), "intra-Asian trade has grown so strongly that this is less of a concern now". Furthermore, Ariff explains, Malaysia is investing new sectors. "We are moving further up the value chain, particularly as the interior regions of China are playing a larger role in low cost manufacturing. Areas like agribusiness, professional services, technical education and (Gulf States related) financial services are now becoming more important in shaping Malaysia’s economic future," she said.
According to Ariff, Malaysia’s economic fundamentals are in good shape. GDP grew at around 5.8 percent last quarter, headline inflation is 3.1 percent, and unemployment is three percent. "Our growth rate is in the right range for a ‘mature’ developing economy, but we have to constantly adapt to the new challenges thrown up by globalisation," she says. In many ways, Malaysia can be admired. As well as bouncing back from the Asian financial crisis and the dot.com crash, it must be remembered that it is still quite a small country (of only 26 million, just a little bigger than Australia’s population). Economically speaking, it’s around the size of Queensland but it has still managed to become the US’s 10th largest trading partner. No doubt this makes Malaysia a good trading partner in terms of the South East Asian region but also for strong links—particularly in Islamic finance—with the Middle East as well.
The second reason has been the mooted free trade agreement between Malaysia and Australia. This follows hot on the heels of agreements with Singapore and Thailand, and a proposed Association of South East Asian Nations (ASEAN) framework with Australia and New Zealand. Both South East Asia and Australia know they have complementary economic interests that can be further advantaged through deeper economic integration. Prime Minister John Howard visited Malaysia in November to help advance the cause of a Malaysia-Australia Free Trade Agreement (MAFTA).
And a final reason could be that a large number of Australian exporters sell to Malaysia. This could well build a foundation for further investment, joint ventures and strategic alliances. According to research conducted by Austrade and the Australian Bureau of Statistics (ABS), there are 3,285 Australian exporters with Malaysia as a destination. This makes Malaysia seventh in terms of all global destinations and it ranks second among the ASEAN economies behind Singapore, with 5,612 exporters, but ahead of Indonesia (2,511), Thailand (2,219) and the Philippines (1,437). This shows Malaysia’s potential for small and medium-sized enterprises (SMEs) wishing to export. As pointed out by Peter Kane, there are "at least 225 Australian businesses operating throughout Malaysia, and this is likely to rise with closer trade ties with Australia".
Kane points to agribusiness, professional services and resources as three potential growth areas for Australian exporters in Malaysia.
So what of the future? MAFTA and the mooted ASEAN-Trans Tasman link will certainly help but there are good commercial reasons why the links will strengthen. At a recent APEC Study Centre conference on Malaysia-Australia trade relations, Nicholas Coppel, Department of Foreign Affairs and Trade (DFAT), pointed out that healthcare, education, and financial services will be areas where more Australian businesses will partake in Malaysia’s economic development. "With incomes rising in Malaysia, more and better education will be demanded. Australian healthcare providers are likely to follow in the success of the Australian education institutions and establish a presence in Malaysia," he explained. In addition, collaborative projects, such as the Grange Resources investment, will be part of this Australian expansion into Malaysia.
Of course, this is all very welcome but among all this economic activity let’s hope that there is still enough room for the Giant Turtles to lay their eggs on Turtle beach!
* Tim Harcourt is chief economist for Austrade, and author of Beyond Our Shores www.austrade.gov.au/economistscorner
Fact file:
Population: 26 million (2005)
Gross domestic product (GDP): US$147 billion (2006 IMF/EUI forecast). The Malaysian economy grew by 5.9 percent (real GDP) for the year to June 2006, up from 5.2 percent in 2005, underpinned by strong private sector activity. The manufacturing (up 8.4 percent to June 2006) and services (up 6 percent to June 2006) sectors continued to be the main contributors to growth.
Government: Malaysia is a parliamentary democracy. It has a federal constitutional monarch with a bicameral federal legislature and unicameral state legislatures. Nine of the 13 states have hereditary rulers (eight Sultans and one Rajah) who share the position of King (Agong) on a five-year rotating basis. The King’s functions are purely ceremonial since constitutional amendments in 1993 and 1994.
Trade with Australia: Malaysia is Australia’s second-largest trading partner in ASEAN. In the 2005-06 year, exports to Malaysia equalled 1.7 percent of our total exports ($2.54 billion), making it our fourteenth highest export market. Imports make up 4 percent of our total imports ($6.75 billion), and total trade is around $9.29 billion. Major exports include crude petroleum ($2.1 billion), computers ($995 million), education-related travel ($597 million), transportation ($424 million), copper ($360 million), and telecommunications equipment ($343 million).
Australia and Malaysia have a double taxation agreement.
Case study: Exporting to Malaysia
When husband and wife team, Laurie and Rosemary Bere-Streeter first decided to get into the goat game, they had no idea where the business was going to take them. And when their first export order came, little did they realise that just fours years later, export sales would account for around 98 percent of the company’s revenue.
"We’ve changed enormously," Rosemary understates. Starting with just their own stud stock, now Chevredor export of animals for the whole e
astern seaboard. It’s not a bad change, too, considering the goats were originally brought in simply to ‘clean up’ felled timber that was left from the pair’s fledgling furniture building business.
But it hasn’t all been smooth sailing, from the fire that wiped out facilities worth $100,000 and drought driving up the price of feed to changing quarantine regulations and remnant vegetation laws. To make it through the tough times, Chevredor recognised the need to add export to the mix on a more strategic level than their first ad-hoc export, and constantly innovates their services and product offering to cater to a variety of needs in the market. In the early years, this involved changing the breed of goat on offer, to more recently becoming licensed with AQIS as a registered pre-export quarantine facility, and soon to be adding a new frozen embryo offering.
Rosemary says Austrade was instrumental in ensuring their success in Malaysia. "Current Malaysian protocol did not allow goats to be sourced from above the 26th parallel. This effectively ruled out Queensland," she says. "We had to convince the Malaysian authorities that goats from Queensland, selected and tested in accordance with their requirements, didn’t pose a health risk."
To do this, the company had to gather information from AQIS and DPI veterinary officers and present their case to the Malaysian authorities through Austrade Kuala Lumpur, AQIS, and the Malaysian buyer. "Ultimately, the government contacts developed through Austrade in Australia and in our target market, helped us seal the deal," she adds.
Although the first Malaysian buyer found them, this market has become a major focus for the business. The Malaysian government lends huge support to the agricultural sector, spending enormous amounts for local goat farms. This means Malaysia now makes up for around 80 percent of the export business, although Rosemary admits this is very "time orientated".
As well as dealing with the Malaysian government, there are other issues Chevredor has to deal with in this market. When they invite new clients to their facilities to understand the whole farming and delivery process, Rosemary admits they made mistakes with not considering the different culture, even with basics such as serving halal food, and recognising some Malays aversion to dogs.
Inviting customers to the farms not only is a chance to meet and greet, it also offers opportunities for the customers to see exactly how the supply chain can affect the delivery of some orders. As Chevredor supplies from farms in Queensland and NSW, this makes the process a little tougher, and customers can appreciate this more when they visit the farm. "We work everything out on paper, but things can change when you’re dealing with animals," Rosemary explains of the deals that can go awry.
Other logistic concerns Rosemary says they need to be aware of the differing health restrictions and protocols of each market, even if flights are only stopping over in particular destinations. For example, agriculture orders from Queensland need to be shipped via a southern port (Sydney or Melbourne), before stopping off in Auckland and Los Angeles when necessary for refuelling. Cargo then must meet the health protocol for importing animals for these destinations, even if they aren’t being offloaded in that country.
Chevredor only sends live animals by air, as airfreighting is more likely to result in what Rosemary describes as "acceptable losses", as opposed to greater concerns with losses associated with sea freight.
These days, much of the marketing for new and existing markets involves attending overseas trade exhibitions. Sending stud goats to exhibitions helps, too, especially when they win. "It backs up the quality we say we can provide," Rosemary says.
And in researching new markets, Austrade has proved invaluable, providing credential checks on potential clients, phone link ups, market delegations and recommendations.
— Camille Howard
