Malaysian Entrepreneurship: Market Analysis

Facts:

GDP – USD$303.5 billion (2012)

GDP growth – 5.6% (2012)

GDP breakdown – Services: 48.3% / Industry: 40.2% (2012)

Inflation rate – 1.7% (2012)

Pros: Proactive supportive government/ Highly successful startup history/ Able to take advantage of Singapore’s networks/ Cheap, well-connected regional hub

Cons: Lack of global expansion/ Resource-based economy/ Singapore as a competitor/ Lack of mentors/ Brain-drain

Malaysian entrepreneurship in the Malaysian market

Thinking of expanding into untapped markets? Be sure to have a good analysis of what exactly are the different advantages and disadvantages of the startup scene before diving into Malaysia. Here, we look into some of the pros and cons: 

Market Analysis – Pros:

• Due in large part to the proactive steps the government has taken to build a positive infrastructure for the Malaysian entrepreneurship scene has even come to grow foreign startups that find Malaysia an easier place to grow their business than back home. One very interesting example I came across is Jim Buck, the CEO of Mardil Medical. Finding sources of funding drying up in the US, Jim Buck turned to the Malaysian government-funded VC, Agensi Inovasi Malaysia, successfully raising $5m. He now plans to build a research office in Malaysia. Interestingly, this has all been done without the need to move his headquarters away from his US base in Minnesota. Jim Buck now credits the Malaysian startup environment for his growing success. As he puts it, ‘These are very educated, sophisticated, hungry people that want to do good, that realize they’re on the brink of major growth’. In large part from its significant petroleum wealth and its desire to undertake a much-needed overhaul to diversify and qualitatively improve its economy, sources of funding in Malaysia are not about to run out any time soon. In fact, an additional fund of at least RM $200m (USD $63m) have been added to both public and government VC agencies for the year 2014 alone.
• Malaysia has seen a lot of success in its startup economy, with famously successful startups such as Groupsmore (acquired by Groupon in 2011) and iCar.com as some examples. It is in fact an open secret that the largest and most successful tech companies of South-East Asia is not in the populous Philippines or Indonesia, nor the wealthy Singapore, but rather in Malaysia. It might surprise you to find out that 4 out of 5 of the top tech startups in South-East Asia are actually started by Malaysians or a Malaysian-listed company.
• Being close to Singapore, Malaysia is uniquely positioned to take advantage of its resources for talent, mobility and funding. This is something that the Malaysian government has actively recognized and is quickly moving to take advantage of. With its first stage to be completed in 2016, Iskandar Malaysia is a special economic zone roughly 15km away from Singapore. With abundant land (3x size of Singapore) and tax incentives, Malaysia is well poised for foreign companies to settle in to take advantage of the benefits of Singapore’s networks and Malaysia’s conducive infrastructure.
• Especially in today’s climate, with an exceptionally strong Singapore dollar and a much-devalued Malaysian ringgit, Malaysia is an extremely competitive place to function, especially for foreign companies hoping to leverage on any foreign funds they might bring. On this point, foreign companies can rest assured on being connected to the rest of the world. Malaysia is a large airline hub for Asia and the Middle East, with the best budget airline in the world, AirAsia.

Market Analysis – Cons:

• With a population of roughly 30m and an urban population of roughly 20m, Malaysia is not that small of a market opportunity. However, there exists a reluctance and lack of foresight to expand beyond this border. A regional and global expansion mentality is lacking from the Malaysian entrepreneur psychology and would represent a hurdle when attracting foreign investment or co-operation.
• Malaysia has traditionally been a highly successful economy that revolves around its great wealth of natural resources. The state-owned petroleum company, Petronas, has been ranked by Fortune magazine as the most profitable company in Asia, with around USD$160b in assets. As a result of this however, the Malaysian economy has yet to experience any serious signs of diversification, driven largely by its reliance on resources. This has created a spall over the startup economy, since startups are traditionally ICT-based, which have a much greater impact on service-industries. It is thus only natural to see the Malaysian startup scene following the given trend, with more talent and resources focusing towards specific local industries, such as petrochemicals and religious finance.
• At the same time, while much can be created out of the relationship between Malaysia and Singapore, Malaysia is losing out on one of its key resources when compared to Singapore. This resource is that of talent. Many talented Malaysians move to Singapore,particularly because of its proximity. Malaysians seeking better prospects in Singapore are such a common phenomenon that two out of three of our interns in Agence Tesla are a product of such migration (Disclaimer). Furthermore, Singapore has a much better networking infrastructure due to the abundance of multinational firms as well as its booming expatriate community.
• There exists an unfortunate lack of successful entrepreneurs turned mentors that can give advice and direction to the growing generation of young entrepreneurs. This is a fact that is frequently bemoaned by many at local networking events. At the Global Youth Entrepreneurship Summit in Kuala Lumpur, the popularity of the US mentors and presenters could be clearly felt. Many entrepreneurs in Malaysia would welcome fresh and mature voices in their startup ecosystem.
• Politically, Malaysia has been afflicted by potential ethnical issues that we discussed here before. By instituting the New Economic Policy (NEP) that explicitly favors the native Malay population, Malaysia has alienated much of its Chinese and Indian minority population. Many of these minorities have turned to other countries, such as Singapore and Australia to seek their fortune, resulting in a considerable brain drain. The Economist reported that of the 1 million Malaysians that had left the country by 2011, 60% of skilled emigrants among them cited “social injustice” as an important reason for leaving Malaysia. This brain drain naturally leaves Malaysia a less attractive place to set up a business, especially one requiring tech expertise.

TOP STARTUPS IN MALAYSIA

ICARASIA

iCar Asia owns and operates ASEAN’s No. 1 network of automotive portals, reaching over 4.8 million car buyers every month

LELONG

Lelong.com.my functions as an auction site, with a local flavor, that powers a robust and secure avenue for trading in Malaysia

TOP PEOPLE TO KNOW IN MALAYSIA

Nazrin Hassan

CEO

Cradle Fund Sdn Bhd

Early stage technology funding specialist and policy evangelist for early stage innovation ecosystems in Malaysia, since 2001

Linkedin

Bjoern L. Herrmann

Founder and CEO

Compass

An expert on data products, data driven decision making, education, innovation, entrepreneurship and organizational development

Linkedin

MALAYSIA

LINKS & RESOURCES

• Malaysian Entrepreneurship: Market Analysis
• A history of Malaysian business startups
• Malaysia as a Startup Hub! What are the next steps?
• Malaysia startup ecosystem: build it, and they should come