Market Entry Plan For Oil And Gas Equipment Export To Malaysia

Social-economic considerations for doing business in Malaysia

There are many considerations that need to be made when considering which business to engage in and in which market. The major social-economic considerations include factors that include  the demographics of the country, the political stability, the legal framework of the target country as well as other factors. Making the right decision is guided by first studying the target market then making a market entry plan that is underpinned by the socio-economic considerations. The market plan should as much as possible be comprehensive enough to capture the essence of the market dynamics of the target country. This presentation is on the entry plan of an individual entrepreneur in trying to enter the Asia Pacific Nation of Malaysia.

The entry strategy is the export of machinery and equipment to be used  in the oil and gas prospecting industry which is expanding in Malaysia. The oil and gas sector is very promising especially in the deep and ultra-deep water oil and gas exploration.(Business Wire, 2016). The machinery that will be exported will be for use in the blowout preventer systems, multilateral well completion and cementing equipment. Several companies are already prospecting in Johor and Sabah including the national oil company-PETRONAS.

Malaysia is located in South East Asia and consists of three federal territories with a total landmass of over 300,000 square kilometers. The maritime neighbors of Malaysia are Vietnam and Singapore while sharing a land border with Thailand.(OECD, 2013). The capital city is Kuala Lumpur while the federal government is located at Putrajaya and the current population is around 30 million which makes it an attractive market for doing business. The major ethnic group is Malay with a sizeable Chinese population, while the most practiced religion is Islam.

The economy is diversified which includes manufacturing and the  export of raw materials such as palm oil for further processing. The country is a leading exporter of palm oil, natural gas as well as electrical parts. (Oxford Business Group, 2014).The economy has performed well consistently with rates of growth averaging at 5% for several years.(Jaafar, 2012). The government has played a proactive role in giving guidance in macro-economic reforms that has attracted major investments such as Tesco and IKEA. (Cho & Mun, 2013).The new oil reserves discovered in Northern Borneo has potential for increased production and this makes it a good market for the machinery to be exported.

The ethnic Malay form the biggest ethnic group in Malaysia with around 67% and is followed by the Chinese at 24%. The remainder of the total population is filled by the smaller ethnic groups  that are part of the multi ethnic mix. The Chinese are the dominant ethnic group in commerce and business while the ethnic Malay is dominant in government administration and the military.(Malaysia: Doing Business and investing in Malaysia  Guide, 2012). The most populous city is Kuala Lumpur at more than 1.5 million residents and is followed by George Town at close to 800,000 residents. The major religion practiced is Islam, followed closely by Buddhism and Christianity.

Overview of Malaysia’s economy and industries

Malaysia operates with an elective monarchy that is federal in nature and adopts a government system that is closely linked with the British form of government. The Cabinet exercises authority and is led by a Prime Minister who runs the government. Malaysia is a strong-multi party democracy and has been ruled for 25 years by the Barisan Nasional party which contributed to its stability over the years. The government does not tolerate corruption and this makes it attractive for investment. Transparency has ranked the country positively in the International Corruption Perception Index.

The use of English as the major medium of communication makes it easier for investors who come from countries where English is the official language.(Cotton, 2013). The country celebrates more public holidays than any other country in the Asia Pacific region and companies entering this market have to adapt accordingly. The government policy of bumiputra is widening the gaps between ethnic Malays and the rest of the ethnicities and this portends disaster in the future if not addressed. (Singhapakdi et al, 2013). There are also elements of extremism by segments of the population who practice Islam. There is a policy that regulates operations of foreign companies in order to guard against exploitation of local workers.

The country has a legal system that is based on the British common law which is the same as the Australian legal system. It is also influenced by sections of the Indian law (criminal code) and Australian land law (Torrens system). Entering this market is attractive because the legal systems are similar to the Australian system in interpretation.(Bhasin, 2010). This will be useful when it comes to writing and signing of contracts and in the future in case of litigations that may arise. (Yu & Thorson, 2010).Initial contracts that need to be signed can be drafted in Australia and used in Malaysia without the need to amend or with minimal amends.

Malaysia emphasizes on providing quality education to its citizens in order to be competitive globally. There are “smart schools” which are geared to tap creative talent and harness it within the economy. A new cyber city “Cyberjaya” is dedicated to the development of IT as well as providing support services within the greater economy ( Malaysia-Japan Academic Scholar Conference, In Ab, H. K., In Ono, O., In Bostamam, A. M., & In Ling, A. P. A. (2014). A highly trained and skilled workforce is important to ensure that the initial training for the machinery will be sustainable and available from the local workforce. Technical knowledge transfer becomes easier when working in a country like Malaysia due to the basics of a strong technical framework.

Political and legal factors for doing business in Malaysia

The Malaysia –Australia Free Trade Agreement which was signed in 2012 and became operational in 2013 eliminated more than 96% of tariffs on goods imported from Australia and which also reciprocated by allowing duty-free entry of goods into Australia. This agreement opens a wide door for business entities to do business in Malaysia due to the reduced trade barriers.(Wong, 2012). Australia has been one of the most significant foreign direct investors in Malaysia and therefore enjoys a special trading status with Malaysia.

The country has put in place barriers to protect certain strategic industries such as the automotive and motorcycle industries by using excessive taxation on excise duty. Other measures implemented to protect delicate local industries include a system of import permits and rates payable for duty. ( Paul, 2011).Government contracts and certain other business opportunities are difficult to get into without having a local partner- a bumiputra.

The government in 2009 liberalized more than 25 service subsectors which previously had required conditions of equity in order to operate. These sub-sectors are in social services, health, tourism and transport.  (Goswani, Matoo & Saez, 2012).The official currency the ringgit is trade-weighted to the major trading partners and is not manipulated or controlled by the government giving bit stability for trading in terms of foreign exchange hedging.  This makes it a prospective  destination for investment.

The market entry plan includes the following planned activities:

1. Marketing Mix – Product, price, promotion, distribution
2. Planning budget- Planning assumptions, Estimates
3. Sales forecast
4. Timeline and Activities- commencement and completion
5. Implementation and Control

Product

This would involve registering the product with the relevant government agency so as to begin the export of the machinery to companies operating in the oil sector. Being the sole distributor of machinery to Asia Pacific nations, I have the exclusive rights to sell within these nations with the relevant contracts from the manufacturing company based in Australia.

Price- The pricing will be discounted in order to gain a foothold within the sector. Being the entry level, the price has to be attractive when compared to the competition.(Gordon, 2012). There will be a price variation depending on the distance from the proposed center of operation which will be Sabah. I propose to work with one local distributor who will actually be tasked with warehousing and physical delivery.

Promotion- One of the entry points of promotion is to promote the company products through the trade shows on the oil and gas sector that are held yearly in Malaysia, in order to get visbility.(Holbrook, Lehman & Schmitt, 2016). The local dealer chosen will be given incentives to do promotion using their local networks about the company products. (Crawford, Deale & Merrit, 2013). A brochure with the company products will be prepared and translated into the local Malay language to be distributed to all the potential companies working in the oil and gas sector.

Distribution- The distribution will focus on a single channel since the products being exported are for a target industry which does not have a lot of operators. The local distributor who will be chosen will be one with a proven track record of success with a strong sales and marketing department. Preferably it should also have access to personal contacts in the target companies. The technical competence to communicate to the end-user is a must as well as the existing range of products they are distributing which need to be complementary.

Education and workforce in Malaysia

Planning Budget

Planning assumptions- The budget has to make provision for developments that may arise and which are not planned for during the initial period of marketing.(Khan, 2014). The firm chosen to print brochures for marketing may adjust their price upwards, the cost of living may rise with transport and accommodation costs may rise.

Budget Estimates

The budget will primarily focus on the printing of brochures for distribution to the different oil and gas companies operating in Malaysia. The other cost will be the upgrading of my website to fit more with the profile of a company that is global with features that will make it appropriate for trading transnationally. The other cost implication will be the local distributor whose marketing budget needs to be boosted as they will be the local driver of the marketing plan.

Sales Forecast

The sales forecast should project on the expected returns over a period of four years. This is done by calculating the difference in the cost of goods and the sale price in order to be able to determine if there is a break-even over the period. This will also include the operating expenses in calculating the break-even point over the five years.

The timeline will use a timetable to identify each activity and deadlines for completion.

Activity 1: Identifying suitable local partner as distributor. Timeline should be one week after arriving in Kuala Lumpur and using local referrals about the leading equipment distributors in the oil and gas sector. Several meetings with two or three distributors can be arranged to propose the business idea and sign a contract.

Activity 2: Registering products with the relevant government body. This should be done within two days as the system is automated.

Activity 3: Registration of a local trading company. This should take a maximum of three days using a local lawyer to do the paper work.(American Association of University Professors, 2014).

Activity 4: Target market visit. I will visit at least two oil and gas companies to glean information that may not be available on their websites and to also introduce my company. This should be within two days with each company being assigned one day.

Activity 5: Printing of brochures and handing them over to the local distributor. This will take about one week from the design to the final delivery by the printer.

The implementation and control will be constituted of three components which are establishing standards, measuring performances against standards and correcting deviations from standards. The standards established will be on making the equipment gets visibility and is positioned on the premise of efficient and timely after sales service.(Sandkuhl, 2014). The local distributor will be required to meet certain standards in doing the local marketing which should conform to the accepted standards of the company in Australia. Measurement will be made according to the sales volume attained versus the marketing distribution for each year. Deviations from the targets set for the four years will require a change of operational strategy or a change of the local partner.

Market entry plan activities

One of the challenges of doing business in Malaysia is the government policy that favors ethnic Malays and discriminates against ethnic Chinese and Indians who could be strategic partners in entering the market. The government policy may prove a hindrance when forced to choose between a distributor whose ethnicity is Malay, Indian or Chinese. The three distributors may have different levels of competence or one may have a comparative advantage over the other. The main decision to use one over another one will rest on the bumiputra policy so as to ensure my company has the best opportunity to get contracts with the national oil company. This may look unethical but is a business reality that is made with the best interests of the company in mind.

Even though the distributor may have had success in introducing and selling other brands, they may not be as aggressive in marketing this brand as it may reduce a product or similar brand in their portfolio. (Eurasia Business and Economics Society &Bilgin, 2016).The distributor may also be lethargic due to the time it may take to get market awareness and this could slow down the momentum of market penetration. The distributor terms of sales of their present brands may be different from the brand I am introducing as they may be dealing directly with the manufacturer which is different from my terms.

Approaching the manufacturer to ask for discounts in price for the new market may be a challenge as they might decide to enter the market and export directly. This may prove a challenge in having an impact in the new market if the prices I am offering cannot much ex-factory prices. This may the equipment and machinery being exported less competitive in the new market.

Taking time to establish a new office will need my personal attention as it is a delicate transition that requires my skills set. The time taken off from overseeing the local operations may impact the local operations negatively as the local staff may become lax in their job performance. This international transition is delicate not to warrant delegation and this may prove to be challenge in the first year of operation.

The overseas transition will require a substantial investment of financial resources which is projected to become after the third year. Drawing on financial reserves from the home operation may put the company at a risky operational position in case of unseen emergencies in the home operation in Australia.(Smith, 2010). Market instability that may result in financial losses may affect the overall market entry plan due to the unforeseen market instability back home.

Price

In conclusion, the ability to successfully enter into a new market calls for several activities which together will lead to a successful entry. The country in question needs to be analyzed from several points of consideration. This includes the totality of the socio-economic considerations that are important for an investor to factor in before deciding to invest. The market entry plan looks at the opportunities, the challenges and then embarks on the actual market planning. The product pricing and distribution channels chosen are important to position the company strongly in the market. The ability to work within a timetable and monitor the implementation process will lead to a successful market entry plan.

References

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