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Retail industry in malaysia and saudi arabia

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Retail industry in malaysia and saudi arabia

  1. 1. 2012Comparative Analysis of Retail Industry of Malaysia and Singapore ParitoshKashyap
  2. 2. Comparative Analysis of Retail Industry of Malaysia and SingaporeRetail industry is the part of the economy which is involved in selling finished products to theend users. Retail shops could be found in wide range of formats, ranging from large hypermarkets and department stores, to small convenience stores and general stores. It primarilyincludes six sub categories: - food & general retail, fashion apparels, fast food restaurants, fastmanufacturing consumer goods (FMCG), luxury products and electronic appliances &consumer durables.All across the globe, both in the developed as well as developing world- retail industry plays apivotal role in the national economies. It has a wide range of direct as well as indirect economicsignificance- ranging from mass level employment generation (both urban and rural) to bringspeed and efficiency into the entire supply chain system.The given report comparesretail sectors in Malaysia and Saudi Arabia- one an emergingeconomy and a constitutional monarchy from South East Asia and other an oil rich IslamicMonarchy from the Gulf. Both the nations share similarities across various socio-cultural as wellas demographic parameters andhence provide a good case to do comparative analysis. Theywill be compared across following parameters- economics, retail industry outlook, policy framework, tourism, demographics and transportation.Economics, demographics & infrastructureThe following part compares Malaysia and Saudi Arabia, across few of the general economic,demographic and infra-structure related parameters.ParitoshKashyap Page 1
  3. 3. Comparative Analysis of Retail Industry of Malaysia and Singapore 8 7 7.2 6.8 6.5 6 5.8 5.4 5.3 5 4.8 4 4.2 3.8 World 3 3.2 Malaysia 2 2 Saudi Arabia 1 0 0.1 0.2 -1 2002 2004 2006 2007 2008 2009 2010 -1.6 -2 -3Fig 1: Shows the GDP growth rate of Malaysia and Saudi Arabia vis- a-vis, world’s growth rate. Malaysia SAUDI ArabiaGDP (us $ billions, 2010) 237.8 434.67GNI (US $, ppp, 2009) 13, 550 22,750FDI ( us $ billions, 2010) 9.5 21.56Inflation (Consumer price, %, 1.7 5.32010)Table 1: Compares Malaysia and Saudi Arabia across various economic parameters. Source:World Bank Malaysia Saudi ArabiaInternet penetration (%, 2010) 55.3 41Mobile subscription (%, 2010) 121 188ParitoshKashyap Page 2
  4. 4. Comparative Analysis of Retail Industry of Malaysia and SingaporeElectric power consumption 3,614 7,427(kwh/capita, 2009)Table 2: Compares Malaysia and Saudi Arabia across parameters related to infrastructure.Source: World Bank.Retail industry outlookMalaysiaMalaysia, an upper middle income country according to World Bank, enjoys a robust andgrowing retail sectors.According to Business Monitor International-total retail sales in Malaysiawere estimated at US $ 33 billion in 2009. Like other Asian countries it has penchant forgigantic malls and hypermarkets and is dominated by players such as Giant (domestic), Tesco(UK) and Care four (France). The retail sector in Malaysia is fueled by large proportionurbanized middle class (50% of the population) with high disposable income; a large proportionof youth (42% aged between 10 and 34, as on 2008) and high tourist arrival. Tourism accountsfor 30% of retail consumption in Malaysia. (RECON, 2008)ParitoshKashyap Page 3
  5. 5. Comparative Analysis of Retail Industry of Malaysia and Singapore 12 9.8 10 10.1 8.9 8.5 7.9 8 5.8 6 Retail Growth 5.3 4.8 GDP Growth 4 2 0 Q1 Q2 Q3 Q4Fig 2: shows the growth in retail sales vis-a-vis GDP growth rate for 2010. Source:Thestaronline.com 140 1600 120 120 14001400 1200 1200 100 1000 80 800 60 55 600 No. of outlets 40 33 480 516 400 sales (US$ millions) 23 350 19 20 200 0 0Fig 3: shows the number of outlet and total sales for major retailer in Malaysia for 2009. Source:Malaysia retail annual report, USDA Foreign Network.ParitoshKashyap Page 4
  6. 6. Comparative Analysis of Retail Industry of Malaysia and SingaporeSaudi ArabiaSaudi Arabia is the biggest Gulf country and the biggest economy in the Middle East and NorthAfrica region (MENA) region. The region is marked by growth in retail space, youngdemographics, high tourist arrival and change of role of women in social sphere. Saudi Arabia,the biggest and one of the freest economies in the region is considered as one of the most fertilemarket for the retail industry. Rapidly growing population, brand conscious youngdemographics (45 percentage of population aged 20-44) and high level of disposable incomewill be key drivers for the industryin the kingdom. After oil, banking and telecom; retail is thefourth largest industry in the country, both in terms of number of, establishments as well asemployees. It earned a total of US $ 55 billion from retail sales in 2008, up from US $ 37 billion in2004. The market is dominated by small retail stores, though big retailers both domestic andinternational players are trying to up their ante in the much fragmented retail industry.parameters ValueTotal retail sales (2011, us $ billions) 69Retail sales per capita (2010, us $) 2,260Percentages of GDP (2010) 17Retail space (2008,million sq m) 2.4Table 3: Shows values for various retail industry related parameters. Source: JONES LANGLASALLE, AMEinfo.comParitoshKashyap Page 5
  7. 7. Comparative Analysis of Retail Industry of Malaysia and Singapore 80 69 70 60 55 50 46.8 40 37 30 20 10 0 2004 2008 2009 2011 (estimated)Fig 4: Shows the retail sales of Saudi Arabia, in billion US $ over the last few years. Source:AMEinfo.comPresence of majorretail brands in Malaysia & Saudi ArabiaThe following part of the report will compare the presence of few of the leading retail brands inMalaysia and Saudi Arabia. The no. of outlets in some of the cases has been described inbrackets.brands Category Malaysia Saudi ArabiaWal- mart hypermarket No NoCarefour hypermarket Yes (18) Yes, franchiseParitoshKashyap Page 6
  8. 8. Comparative Analysis of Retail Industry of Malaysia and Singapore operated (11)Tesco Hypermarket Yes YesMetro Hypermarket No (acquired) NoBenetton Fashion retail Yes (15) Yes (18)Gucci Fashion retail Yes (2) Yes (4)Emporio Armani Fashion retail Yes YesSwatch Luxury watch Yes (13) Yes (80)Kfc Fast food Yes YesMcdonalds Fast food Yes YesSubway Fast food Yes (94) Yes (39)Harvey Nichols Up-Market retail No YES (1)Saks fifth avenue Up-market retail No Yes (2)Table4: shows the presence of some of the major retail brands in Malaysia and Saudi Arabia.Source: Mystore411.com and othersPolicyOne of the key pillars for the growth of any industry in a country is policy and regulatoryframework. An open and market oriented policy framework are more likely to stimulategrowth and development in the long run. The following part of the report will compareMalaysia and Saudi Arabia across general business environment as well as policy frameworkpertaining to retail industry.General business environmentParitoshKashyap Page 7
  9. 9. Comparative Analysis of Retail Industry of Malaysia and SingaporeSaudi Arabian economy is marked by liberal economic policies and free market mechanismsstimulating foreign investments. The kingdom has biggest oil reserve outside Soviet Union andUSA and like other Gulf counterparts, aims at diversifying its economy into industrial andservice sector. The state generally does not interfere with the inflow and outflow of capital. Itincentivizes businesses by providing favorable tax exempts, subsidies, provision of land at lowprice, exemption of custom duties on export etc. (Al A, 2007)In line with Saudi Arabia, Malaysian economy is also marked with investor friendly businessenvironment. During 1970s, when Malaysian economy was primarily based on mining andagriculture, govt. took diversification measures backed with centralized planning. During 70s to90s like other Asian Tigers, Malaysia recorded a strong economic growth. In the present timealso govt.plays a pivotal role in the economy but gradually it is reducing. One of the remarkablefeatures of Malaysia economy is availability of easy credits.In order to do a comparative analysis of business environment in Malaysia and Saudi Arabia,“Doing business ranking” will be used. It is a ranking prepared by World Bank andInternational Finance Organization. Economies are ranked on their ease of doing business from1 – 183. A high ranking on the ease of doing business index means the regulatory environmentis more conducive to start and operate of a local firm. This index averages the countryspercentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to eachtopic. The rankings for all economies are benchmarked to June 2011. (Doing business, 2012)Ease of doing business Malaysia (rank) Saudi Arabia (rank)parametersParitoshKashyap Page 8
  10. 10. Comparative Analysis of Retail Industry of Malaysia and SingaporeOver all Ease of doing 18 11businessStarting a business 50 10Dealing with construction 113 4permitGetting electricity 59 18Registering property 59 1credit 1 48Paying taxes 41 10Table 4: Compares the ranking of Malaysia and Saudi Arabia across various “Ease of doingbusiness” parameters. Source: “Doing Business” report.Other than credit, Saudi Arabia spectacularly overshadows Malaysia in all other parameters.However in terms of credit, Malaysia has a numerouno position across all the 183 economies.With a rank of 11, Saudi Arabia is behind just two other Asian economies- Hong Kong (2) andKorea (8).Retail business environmentMalaysiaThe key elements of retail industry (especially pertaining to foreign investments) policies ofMalaysia are as follows (MDTCC, 2010)ParitoshKashyap Page 9
  11. 11. Comparative Analysis of Retail Industry of Malaysia and Singapore Aims at modernization of the industry, ensuring growth of the local business at the same time All foreign involvements in retail sector including, acquisition & merger, expansion, relocation, buying, taking over etc; require permission from Ministry of domestic trade, cooperative and consumerism (MTDCC). Work force should be reflective of overall racial composition of Malaysian population. It should ensure development of local inhabitants or Bumiputera. Regulatory framework for Hypermarket-minimum capital required is US $15.95 million (RM 50 million), at least 30% stake should be provided to Bumiputera within 3 years of incorporation, minimum floor space should be 5000 square meters and 30% of space needs to be allocated for Bumiputera SME product. Regulatory framework for Departmental store-minimum capital required is US $6.38 million (RM 20 million), and 30% of space needs to be allocated for Bumiputera SME product. Foreign investment is not allowed in the following- super market/ mini market (<3000 square meters), provision shop, convenience stores, fuel station with convenience stores, etc.Saudi ArabiaThe key elements of retail industry (especially pertaining to foreign investments) policies ofSaudi Arabia are as follows: Retail being one of the few sectors in Saudi Arabia, where 100 percent foreign ownership is not permitted. As per the guidelines last revised in 2004, the maximum limit for foreign ownership in retail sector is 49 percentages. Any company in Saudi Arabia with foreign investment, requires a foreign investment license.ParitoshKashyap Page 10
  12. 12. Comparative Analysis of Retail Industry of Malaysia and Singapore Franchising a popular concept used in the Kingdom. Franchise owners need to be local inhabitants and not 3rd party. Many of the leading retail brands such as Baskin Robins, McDonalds, and Burger King etc operate in the Kingdom in franchise arrangement.TourismAlong with local inhabitants tourism inflow also helps in boosting retail sales. Both Malaysiaand Saudi Arabia are successful tourism destination. Religious pilgrimage is the key driver ofSaudi tourism whereas its Malaysian counterpart depends on exotic beachfront resorts, festivalsand medical tourism. The following chart compares tourist inflow of Malaysia and SaudiArabia. 30 24.6 25 23.6 22 20.9 20 17.4 16.4 14.76 15 Malaysia 11.5 10.9 10.9 Saudi Arabia 10 8.04 8.62 5 0 2005 2006 2007 2008 2009 2010Fig 5: Compares the annual inflow of foreign tourists in millions,for Malaysia and Saudi Arabia.Source: Tourism Malaysia and Indexmundi.ParitoshKashyap Page 11
  13. 13. Comparative Analysis of Retail Industry of Malaysia and SingaporeDemographicsDemographic profile is one of the key drivers of the retail industry worldwide. A young,vibrant and well aware population ensures high spending on retail.parameters Malaysia Saudi ArabiaPopulation (million) 28.73 27.45Urban population (%) 72 82Literacy (%) 88.7 78.8Median age 26.8 25.315-64 age groups(%) 65.4 67.6Table 5: Compares Malaysia and Saudi Arabia across demographic parameters. Data are for theyear 2010. Source: CIA World Fact book.TransportationA good transportation network, especially high volume of private motor vehicles ensure thegrowth and development of out of town hyper markets. In the absence of motor vehicle peopletend to visit nearby retail stores only.A well-developed transport and logistics network does not only help in sales but also ensuresbetter functioning of big hyper market chains. In the absence of good logistic, big hypermarketchains are unlikely to import and circulateretail items in large volume effectively.Parameters Malaysia Saudi ArabiaParitoshKashyap Page 12
  14. 14. Comparative Analysis of Retail Industry of Malaysia and SingaporeMotor vehicles density (per 641 336100)Gasoline cost (1 liter, us $) 0.65 0.13Road length 72, 400 173,000Air transport freight (million 2577, ranked 13th in 2005 1021, ranked 25 in 2005tons per km)Container port traffic (teu) 12,027,050 ; ranked 7th in 2005 897, 167; ranked 51st in 2005Table 6: compares Malaysia and Saudi Arabia across transportation parameters (most recent byyear). Source: nationmaster.com, numbeo.comConclusion The report has compared Malaysia and Saudi Arabia across various parameters- economics, retail industry outlook, policy frame work, tourism, demographics and transportation. As discussed earlier, both the nations offer a great case to study. They have their own share of agreements as well as disagreements. Some of the key conclusionsdrawn are as follows: In both the countries, retail sector is important constituent of the national GDP and is witnessing high annual growth. The high growth of the retail sector is fuelled by higher disposable income, high percentages of youth and vibrant tourism sectors. Malaysia is considered as a high middle income country where as Saudi Arabia on account of high oil and natural gas reserve is one of the rich nations in the world. Marked with high per capita income, it is a more fertile ground for luxury retail.ParitoshKashyap Page 13
  15. 15. Comparative Analysis of Retail Industry of Malaysia and SingaporeBoth are luring big retail brands to operate in their country. Saudi Arabia is a better destinationthan Malaysia in terms of a number of ease of doing business parameters such as – dealingwith construction permit, getting electricity, registering property, taxation etc. Malaysia’sstrength lies in the easy credits and high FDI in retail; 70 % against 49 % in Saudi ArabiaMalaysia has better infrastructure, logistic as well as telecommunication infrastructure, bothconsidered as a backbone for developing a vibrant retail sector. Saudi Arabian strength lies inavailability of gasoline at dirt cheap price and high availability of electricity.Reference 1> RECON, 2008, Malaysia: a gateway to South East Asia, 2> Al Amri, 2007, doing business in Saudi Arabia, available at <http://www.alamri.com/DOING%20BUSINESS%20IN%20SAUDI%20ARABIA.pdf> 3> Doing Business, 2011, home page, available at http://www.doingbusiness.org/rankings 4> MDTCC, 2011, Guide lines for foreign participation in the distributive trade, available at <http://www.kpdnkk.gov.my/kpdnkk-theme/images/pdf/WRT_Guideline.pdf>ParitoshKashyap Page 14

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