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Establishing in Malaysia the Impact of Cultural Factors J ÖNKÖPING I NTERNATIONAL B USINESS S CHOOL JÖNKÖPING UNIVERSITY Establishing in Malaysia The Impact of Cultural Factors Master thesis within Business Administration Author: Dohlnér, Lisa Grom, Karin Tutor: Dal Zotto, Cinzia Jönköping June 2006 Acknowledgement The authors would like to express their deepest gratitude to Kamala A. Yeap, lec- turer at the School of Business and Law, INTI College Malaysia, for her help and guidance that made this study possible. The authors would also like to express their appreciation to the representatives of the companies interviewed for their contribution to this study, as well as Tomas Dahl, trade commissioner at the Swedish Trade Council, and Helena Sångeland, Swedish Ambassador at the Swedish Embassy. The authors would also like to thank their tutor Cinzia Dal Zotto for her support and supervision. Jönköping, June 19th 2006 _________________________ _________________________ Lisa Dohlnér Karin Grom i Master’s Thesis within Business Administration Title: Establishing in Malaysia – The Impact of Cultural Factors Author: Dohlnér, Lisa Grom, Karin Tutor: Dal Zotto, Cinzia Date: June 2006 Subject terms: Foreign direct investment, culture, Malaysia, establishment, SME Abstract Malaysia is one of the developing countries in the world that is on the verge to become de- veloped (Internationella Programkontoret, 2003). In 2004, Malaysia had a growth rate around 7% (United Nation Statistic Division, 2005) and it is implied that the Malaysian market is continuously growing. One factor that can increase the growth rate in Malaysia is foreign direct investments (FDI), which is, according to Chino (2004), one factor of sus- tainable growth. It has been noticed that the world is getting smaller and more companies are looking for opportunities outside the country boarders and in this situation Malaysia is an attractive alternative for establishment. The purpose of this study is to investigate and deepen the understanding of cultural factors affecting the establishing process for Swedish companies in Malaysia, and through that cre- ate an awareness that can simplify the establishing process. To answer the purpose of this study, a qualitative research has been used. Interviews with Swedish companies newly established in Malaysia have been performed. The respondents have been asked about the establishing process in Malaysia and the Malaysian culture. Ad- ditional interviews with the Swedish Trade Council and the Swedish Embassy have also been performed. The interview guides have been based on theories about FDI, the estab- lishment process and culture. Hollensen’s market entry strategies, Hollensen’s network model and Hofstede’s cultural dimensions are the main theories used throughout this study. The authors have found through this study that the different ethnic groups in Malaysia are highly influential on the business environment and that foreign companies establishing in Malaysia have to be aware of this situation. The multicultural society is an advantage for Malaysia, through the locals’ ability to adapt to different cultures and the many different languages in the country. However, foreigners moving to Malaysia need to be aware of the special treatment of the Malays and how that affects the business environment. Two main problems have been found by the authors; the Malaysian bureaucracy and the locals unwill- ingness to let foreigners into their networks. This can be problematic for foreign compa- nies, but can be handled through the help of governmental functions such as MIDA or MSC, or through a company secretary or auditor. Through this visualization of the cultural factors that affect the establishing process of Swedish companies in Malaysia, the authors hope to minimize the risk of them running into the same problems and obstacles. ii Table of Contents 1 Introduction ................................................................................ 1 1.1 Background to the Study ........................................................................1 1.2 Background of Malaysia .........................................................................2 1.3 Problem discussion ................................................................................2 1.4 Purpose ..................................................................................................3 1.5 Delimitations...........................................................................................3 1.6 Definitions...............................................................................................3 1.7 Structure of the Study.............................................................................4 2 Methodology............................................................................... 5 2.1 Qualitative or Quantitative ......................................................................5 2.2 Research Approach................................................................................5 2.3 Interview Technique ...............................................................................6 2.4 Sample ...................................................................................................8 2.5 Data Coding ...........................................................................................9 2.6 Quality of the Study ..............................................................................10 3 Theoretical Framework............................................................ 12 3.1 Foreign Direct Investment ....................................................................12 3.2 The Establishing Process .....................................................................13 3.2.1 Hollensen’s Market Entry Strategies.....................................................13 3.2.2 Hollensen’s Network Model ..................................................................16 3.3 Culture..................................................................................................17 3.3.1 Cultural Layers .....................................................................................17 3.3.2 Elements of Culture..............................................................................18 3.3.3 Hofstede’s 4 + 1 cultural dimensions....................................................19 4 Empirical Findings................................................................... 21 4.1 Secondary data ....................................................................................21 4.1.1 FDI in Malaysia.....................................................................................21 4.1.2 Regulations and Guidelines..................................................................22 4.1.3 Costs of Establishment.........................................................................24 4.2 Interviews with the Companies.............................................................25 4.2.1 Free2move Asia Sdn Bhd.....................................................................25 4.2.2 Company A...........................................................................................29 4.2.3 STIL Trading Malaysia Sdn Bhd...........................................................32 4.2.4 Aptilo Networks Sdn Bhd......................................................................34 4.2.5 Syntronic Sdn Bhd................................................................................36 4.2.6 Tropi-Call Sdn Bhd ...............................................................................40 4.3 Additional Interviews.............................................................................43 4.3.1 Swedish Trade Council.........................................................................43 4.3.2 Embassy of Sweden.............................................................................47 4.4 Summary of the Interviews and the Additional Interviews ....................50 5 Analysis .................................................................................... 51 5.1 The Establishing Process .....................................................................53 5.2 Culture..................................................................................................56 6 Conclusions ............................................................................. 60 iii 6.1 Method Reflections...............................................................................61 6.2 Suggestions for Further Research........................................................61 References..................................................................................... 63 Appendices Appendix 1 Interview Guide Appendix 2 Additional Interview Guide Appendix 3 Hofstede’s Cultural Dimensions - Malaysia Tables Table 1.1 Definition of Small and Medium Enterprises (SMEs) by the European Union (Europa, 2003). ............................................................................4 Table 2.1 Companies interviewed.......................................................................9 Table 4.1 Cost of human resources in Malaysia (Malaysian Industrial Development Authority, 2006b) ............................................................25 Table 4.2 Summary of most important factors found in the interviews and the additional interviews .............................................................................50 Figures Figure 1.1 Structure of the study.........................................................................4 Figure 3.1 Inward FDI indicies (UNCTAD, 2002). .............................................13
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