Parallel markets and economy in Malaysia

While the Malay market will continue to grow in size and value, the non Malay market will continue to shrink. As an entrepreneur, you must not ignore the potential of the Malay market, which will continue to expand in size and with continuous rising disposable income. Businesses that cater only to the non-Malay markets will suffer from market shrinkage so it is advisable to reset your thinking.

AFTER 10 years of writing this column in The Star, I have decided to call it a day. Since 2011, I have discussed and shared my experiences as an entrepreneur in a small and medium enterprise (SME). I would like to close this column with some personal thoughts for you to mull over as we move into a new year.

Being a Muslim-majority country with a large minority of non-Muslims (30%), the Malaysian economy has always been demarcated along ethnic and religious lines.

National markets means goods and services that can be consumed by all races. The education market for schools has been divided into national type and vernacular schools.

Now we have public universities with a majority Malay population and private universities primarily for non-Malay students.

As an entrepreneur, your first consideration in your business model should be which target market should I focus on? Your goods and services offered will be based on your market choice – national, halal or non-halal.

If you are selling fast-moving consumer goods, you can’t ignore the Malay market. Based on demographics, the Malay market is the biggest segment in the low-income, middle-income and high-income markets. If you want to penetrate national markets, your products (especially food) will have to be halal certified and your advertising campaigns geared towards an increasingly Islamic culture.

Going forward, I see a more polarised market by race, basically two parallel economies running side by side, intersected by national brands which will have to cater to Islamic values.

While the Malay market will continue to grow in size and value, the non Malay market will continue to shrink. As an entrepreneur, you must not ignore the potential of the Malay market, which will continue to expand in size and with continuous rising disposable income.

Businesses that cater only to the non-Malay markets will suffer from market shrinkage so it is advisable to reset your thinking. You can make a living by staying in a shrinking market but you will not make big money if you do not venture out of your comfort zone.E-commerce

E-commerce in our marketing books is just an alternative distribution channel to reach the end-consumer.

There are B2B and B2C distribution models. Depending on the type of products, you have the choice of selecting your ideal distribution channel. It can be a hybrid model of traditional and e-commerce, or strictly e-commerce.

For those who have been active in e-commerce, you would know that there are similar distribution and advertising costs versus traditional distribution channels. The only difference is you are selling directly to consumers and in the long run, you have better control of your destiny.

For long term survival, sustaining a consistent brand presence is vital when you are online.

You have to continually evolve your digital presence in tandem with the changing popularity of social media platforms from Facebook to Twitter to Tik Tok.

It is an exhausting exercise for old entrepreneurs like me but the young generation of entrepreneurs will excel. This is their future.

For hybrid models like offline retail coupled with online e-commerce, price maintenance across both channels will be the key to success.

Retail sales as the core and online sales reaching out to new customers in new geographical territories would be a safe strategy. Otherwise you will risk alienating the retail core in pursuit of increasing online sales.

In this scenario, you must be prepared to go fully online with your business model.

I would recommend that entrepreneurs follow Nestle as a case study, arguably the biggest retailer both online and offline.Challenging headwinds for SME’s. Over the past 30 years, we have seen major government intervention into the economy, creating highly regulated markets where government linked companies’ have moved into strategic industries creating stiff competition for private enterprises.

The past few years have seen the authorities making changes to local licensing regulations.

To bypass the licensing requirement, my advice is to set up a virtual shop to peddle your goods and services. This might not be the perfect solution but at least you will have the peace of mind.

As the SME community (like all countries) constitutes the backbone of the local economy, it also provides employment opportunities to millions of employees.

The SME businesses are the biggest customer base for many key industries from banking to insurance, from property development to shipping, from cars to usage of the highways and byways.

If the SMEs are discouraged from reinvesting into the local economy, we will suffer a systemic shrinkage of economic activities and high unemployment.Inequality in wealth distributionLike many capitalist countries, the rich are getting richer and the poor are getting poorer. In Malaysia, we have similar problems.

Understanding broad economic policies and data is crucial to entrepreneurs for strategic planning and business models. Luxury goods will find a small pool of consumers with unlimited budgets and on the other end of the food chain, there will be a big pool of price conscious consumers always looking for value buys.

This is where our local SME’s will be vulnerable when the e-commerce space is fully opened to international players like Taobao and Alibaba whose seamless logistics network will be able to deliver low-priced manufactured goods to your homes with one click on your phone. It is a scary thought.

I predict a boom in local kopitiams, mamak restaurants, gerai makanan as the mass poor turns to low priced nourishment. The ‘value for money’ market segment will continue to grow as disposable income grows slower than inflation.

Conclusion and farewell

I have always written from my heart and some readers might not agree with my views. I hope my views have stirred some intelligent conversation among like minded entrepreneurs who have gone through a different journey. To each their own.

I offer no apologies. No offense given and no offense taken.

This column has given me an immeasurable joy in sharing my thoughts and I am forever indebted to The Star for allowing my indulgence. My heartfelt thanks to Jagdev Singh Sidhu, the StarBiz editor for his guidance and superb editing.

To all entrepreneurs, I wish you every success and a smooth road ahead. Goodbye.

Tan Thiam Hock is an entrepreneur. The views expressed here are the writer’s own.