Malaysia is the most developed country in Southeast Asia after Singapore with a quickly growing eCommerce market. Here, companies like Alibaba have great goals to expand in Malaysia, developing logistics as well as marketing capabilities.
The country might not be as big as Indonesia, which is another promising market. Yet, conducting business here is transparent by comparison and easier as you can communicate in English.
But, entering a new market is always challenging if you have a piece of limited knowledge, especially in Asia. In this article, we cover the most important topics when entering the Malaysian eCommerce market.
- Market Entry Strategy
- Malaysia Market Entry Obstacles
- Market Entry Research
Market Entry Strategy
It’s crucial to have a robust market entry strategy to assure correct setups, market segmentation, and potential pitfalls. Market entries can also perform differently depending on the sales channel, whether it’s offline or online.
The local brand awareness of a company, the sales goals, and the overall plan will determine the financial contribution and time needed. Below you can find three typical market entry options and details.
Initial Marketing Campaigns
Companies often manage initial marketing campaigns to test markets and detect potential sales patterns. Initial marketing campaigns can be performed both offline and online, companies get increasingly interested in the latter option.
It’s not strange, as it can be complex and challenging to manage the complete setups necessary when importing and selling products domestically. Selling cross-border or with the help of third parties have become the standard.
A good option to test a market is to sell cross-border. In China, companies utilize marketplaces like Tmall Global, stocking products in Hong Kong and letting third parties manage complete setups.
Unfortunately, the market for cross-border sales isn’t as developed in Malaysia like China. Instead, most buyers prefer to buy from local sellers, not rarely with cash-on-delivery options (COD).
Not only will shipping costs increase if you sell cross-border, but the lead times will also be longer as well. Lazada has also imposed strict product restrictions for cross-border sales, at least for the time being.
For example, brands can generally not sell products such as food, beverages, supplements, and similar. Exceptions might be made if the brand already imports products to Malaysia and has a local presence.
Domestic eCommerce Operation
Larger brands often prefer to sell locally. This means that you set up a legal entity, register and import the products, and list them on the domestic domains.
The reason is simple: You can reach a broader audience. As mentioned, Southeast Asians typically prefer local buyers, unless they really like a product that cannot be offered by local sellers.
Some big brands sell both cross-border and on domestic marketplaces, to maximize sales.
Selling on domestic eCommerce marketplaces comes with certain challenges that we will review later in the article.
Malaysia Market Entry Obstacles
Entering a new market always comes with unexpected obstacles, for the foreign eyes. Below are common obstacles that you should be aware of before a market entry.
Exporters have to pay the relevant import duties and fees. The government provides much information online in comparison to other Southeast Asian countries, which helps.
The so-called Sales and Service Tax (SST) was introduced in 2018 and replaced the Goods and Services Tax (GST). The rate is 0%, 5%, or 10% and the GST was previously set to 6%.
Keep in mind that products such as alcohol and pork are subject to exceptionally higher duty rates. Be sure to confirm what the specific duty rates are for your products prior to importation.
Market entries come with setup costs, including incorporation, service providers, import duties, and more. Set up costs can be significant in some markets and depending on the provider. We will cover this topic later in this article.
Product Standards & Labeling Requirements
Products sold in Malaysia have to follow local labeling regulations. Food labels, for example, must be written in Malay or English but can include any translation/original label in any other language.
This is a common practice in most countries, no matter if it’s a developing or developed country.
Local requirements are somewhat similar to foreign ISO standards, yet unique compliance checks and registrations have to be made. Below you can find a couple of labeling standards used for products sold in the market.
Example: Food Packaging
All food products must be labeled according to the Food Regulations 1985. Companies cannot sell or advertise foods that are non-compliant in the labeling. The regulation was updated in August 2020 the last time.
Other important regulations released by the Malaysian Ministry of Health Department include:
- Food (Amendment No.4) Regulation (an amendment to the above regulation released this year)
- General Food Labeling Guideline
Market Entry Research
In this section, we review important items to review as part of the market entry research process. Keep in mind that these are examples only and you should conduct a pre-market entry study to confirm other items.
Lazada is the home of many eCommerce marketplaces, some of the old and some new. Before you choose one or more marketplace, you must confirm if they meet your demands and goals.
For instance, if you plan to sell cross-border, the marketplace has to accept cross-border sellers. It should preferably have advanced cross-border operations, to make the setup and management easier.
The setup fees are comparatively low on most marketplaces and negligible for larger companies. As a result, I won’t cover this item in detail. Payment methods should also be studied well in advance.
Lazada is the biggest eCommerce marketplace in Southeast Asia and is available in most countries here. Owned by Alibaba Group, Lazada was established in 2012 and has the most advanced cross-border platform.
Lazada is widely used in Malaysia and with the widest product assortment. There are a variety of payment options for buyers, including cash-on-delivery (COD) and mobile payments.
Lazada will most likely be the first website you start selling on in Southeast Asia.
Keep in mind that buyers generally prefer local merchants, thanks to the shorter and less costly deliveries. Also, there are product restrictions for cross-border sellers, including food, beverages, and supplements.
Shopee is the second-most popular eCommerce website in Southeast Asia. It’s popular thanks to its wide product assortment and low shipping costs. Shopee plans to expand to other regions and will launch in South America.
The same as for Lazada, the setup costs are negligible on Shopee and the fees to hire relevant eCommerce agencies as well. The market is far less competitive and complex compared to the Chinese eCommerce market, for instance.
Shopee will most likely be your first and/or second option if you start selling in Malaysia. Keep in mind that you can sell on both marketplaces, one doesn’t necessarily have to exclude another.
Setup fees can make up a large part of the project budget and finances must be allocated for market entry research, product registrations, marketing, and more. Shipping and import tariffs will also contribute to these initial costs.
Your selection of sales channels (offline/online) and whether you sell cross-border or domestically will have a great impact on the setup costs.
Competitor Cost Analysis Research
It’s recommended to let a third party analyze competitors’ products and their pricing. However, you can also conduct basic competitor analysis on your own.
As a first step, you can simply visit the different marketplaces and see what other brands offer and the pricing.
This will give you a good overview and insights regarding how much you should charge for your products.
Shipping & Logistics
The shipping and logistics options will also differ depending on if you sell cross-border or domestically, for example. Cross-border sellers on Lazada store their products in Lazada’s fulfillment center in Hong Kong.
If you import the products to Malaysia and sell them domestically, you will most likely use a fulfillment center in Malaysia. This can help you to shorten delivery lead times and reduce costs.
There are both benefits and disadvantages of selling cross-border and domestically. Cross-border sellers can sell to multiple countries and stock all the products in Hong Kong, for instance.
Even if the sales volumes per country might be lower, the total might be higher.
Companies often incorporate in Malaysia to become the importer of record and to be closer to the market. By having a local entity, you can hire local staff and even run your own warehouse, if that’s what you prefer.
While it’s pretty straightforward to incorporate in Malaysia, it’s worthwhile to review the requirements beforehand.
Below you can find the general requirements when you open a local entity in Malaysia.
- Having a minimum of one subscriber to the company’s shares (Section 14 CA)
- Having a minimum of one resident director (Section 122)
- Having at least one company secretary in Malaysia
Below are the documents needed when setting up a local company:
- The proposed name of your company
- Primary business activities of your company
- Copies of all the directors’ and shareholders’ identification cards or passports
- Latest residential proof of address
- Information about minimum paid-up capital
- Percentage of shareholding for each shareholder involved