Retailing is a commercial transaction in which a buyer intends to consume the good or services through personal, family or household use. Retailers are business firms engaged in offering goods and services directly to consumers.
In Malaysia, the supervision of the wholesale and retail sector falls under the supervision of the Ministry of Domestic Trade and Consumer Affairs (MDTCA) through the Committee on Wholesale and Retail Trade. The Committee was set up in 1995 to regulate and supervise the industry, including foreign participation in the sector. Approval from the Committee is needed for foreign companies wanting to set up wholesale or retail operations locally and for the opening and relocation of branches.
FIC and MDTCA show flexibility on the shareholder structure. But exceptions are examined on a case by case basis. The other conditions on foreign investment in the industry include:
- Incorporation of their wholesale and retail operations locally
- Minimum capital requirements of Malaysian Ringgit (MYR) 1 million for specialty outlets, MYR5 million for supermarkets and MYR50 million for hypermarkets and FIC guidelines on purchase of property by Malaysians and foreign interests.
Guidelines for New Hypermarkets
Effective from April 2002, the government has approved a new set of guidelines for applications to open new hypermarkets in Malaysia:
- The minimum capital requirement has increased from MYR10 million to MYR50 million.
- Applications to build outlets should be submitted two years in advance.
- New hypermarkets cannot be built within a 3.5 kilometer radius of a housing area or a city center.
- Operations should be free-standing, which means hypermarkets must operate in their own buildings and not as part of any other complexes.
- A socio-economic impact study has to be conducted by the local authorities in the proposed area before any application is considered. The cost of the study would be borne by the applicants.
- Applications will only be considered for locations with a population of 350,000 or higher.
- Floor space should not be less than 8,000 square meters and a counter must be set up in every 1,000 square meters.
Challenges Ahead in the Retail Industry
Most Malaysian retailers are not geared up to meet the challenges of the effects of globalization in Asian countries. They have inadequate resources and insufficient knowledge to compete with International powerhouses. The meager financial resources and the inability to withstand the deflationary pressure of the market have put the local retail operators in a fix, whether to downsize, merge or exit the industry.
ASEAN Free Trade Area (AFTA) allows local retailers to source for merchandises from countries such as Thailand and Indonesia. They do not have to rely on local distributors who have been imposing strict credit terms and trading conditions on them since the Asian financial crisis. On the other hand, regional trade liberalization poses great threats to small and medium-size retailers in Malaysia. They include provision shops, sundry shops and mini-markets. Without the resources and bargaining power to source for cheaper food products in the region, these retailers will not be able to withstand the full impact of AFTA. They may be forced to close down eventually.