HEADLINES and social media channels are dominated by domestic small and medium enterprises (SMEs) that are facing intense pressure from foreign cross-border trade platforms, which use low factory-direct pricing, heavy subsidies, and localised digital ecosystems to bypass local intermediaries and undercut domestic retail margin.
The phrase “We are too exhausted,” reflects the widespread fatigue and sense of powerlessness felt by many SMEs struggling with rising operating costs and high-intensity competition from foreign companies and cross-border online platforms (direct manufacturers/factories to consumers) in the local market.
Cross-border eCommerce and digital trading platforms have completely changed the rules of global trade by bypassing traditional middlemen, slashing launch times from months to weeks, and achieving deliveries in days, and connecting makers (factories) directly to international buyers through tech-driven supply chains, and on-time delivery through efficiently-run logistics operators.
Small brands can enter foreign markets with little money; achieve a wider global reach as consumers with Internet access can buy items from anywhere.
Digital platforms track user clicks, searches, and purchases in real time. They use this data to see what buyers want right now, help the producers/sellers show relevant products and change prices fast.
In 2024, Malaysia’s business-to-consumer (B2C) transactions recorded eCommerce income of RM374.7bil, registering a compound average growth rate (CAGR) of 14.1% per annum from RM140bil in 2019, pre-Covid-19 pandemic.
According to Ken Research, Malaysia ranks third among regional peers in cross-border import gross merchandise value, reaching approximately US$2.45bil with 54% shoppers’ participation.
Thriving market
The cross-border import eCommerce market is projected to rise from US$2.45bil in 2025 to US$5.43bil by 2031.
For the 2020 to 2025 period, the market value had expanded by a CAGR of 21.4% due to accelerated digital adoption, broader marketplace assortment and parcel-network scaling.
Major platforms driving this sector include Shopee, Lazada, and TikTok Shop, backed by robust mobile commerce and digital wallet adoption.
Direct Chinese import platforms are Taobao, AliExpress, with Temu and its sister platform Pinduoduo are sending shockwaves across South-East Asia through factory-vendor-consumer direct pricing, free cross-border shipping on micro-transactions, and aggressive marketing as well as ultra-low prices.
This model undercuts traditional local wholesalers and smaller retailers, igniting intense regional competition and regulatory scrutiny.
Cross-border trade platforms act as a double-edged sword. They give domestic SMEs bypassing domestic limits and market directly to global consumers through low entry barriers and low-cost digital tools.
Yet, they also create intense foreign competition from direct-to-consumer overseas manufacturers and pricing pressure for local shops and competition.
One of the negative pressures come from direct competition and unfair pricing. Direct from factory-manufacturer-vendor foreign sellers to consumer bypassing standard intermediaries (such as local importers, wholesalers, and retail chains) and compliance costs often undercut local retail prices.
There are concerns about an uneven playing field as foreign online sellers frequently avoid the high local overhead costs in the host economy such as physical retail rent, warehousing, and local labour compliance that domestic SMEs must bear.
Unlicensed digital platforms and social media networks create unfair advantage, hurting strictly regulated and compliance-bound local businesses, retail shops, and warehouses.
Local intermediaries, small retail shops, and local warehousing or logistics providers can suffer a decline in volume as trade shifts entirely to foreign-controlled digital loops.
As foreign online platforms bypass or dis-intermediate local middlemen, it causes a loss of tax revenue as foreign platforms pay less tax compared to local stores.
There are possibilities of people losing their jobs as local shops close down due to running losses; reduced rental income as the shop owners cease operations and where local delivery drivers and warehouses face tough price cuts.
Domestic banking services, advertising agencies, and accountants can also lose clients.
While the reality is that domestic SMEs cannot resist severe pressures from low-cost cross-border online platforms, mitigating the impact of aggressive cross-border eCommerce platforms requires a mix of updated tax and competition policies.
It also requires tightening tax laws on low-value imports, updating platform accountability regulations, national digital adoption grants, and local supply chain upgrades.
Market openness reduces trade barriers, drives global commerce, and lowers costs for households and enhances overall consumer welfare.
But it requires structural safeguards to prevent local industries from being overwhelmed by unmanaged foreign competition, unfair cost and tax disparities.
Local businesses need a level playing field with domestic defence, and equal compliance rules for foreign cross-border sellers and large tech platforms operating with lower prices, minimal tax burdens, and lighter regulatory oversight.
The government and related agencies can consider the following regulatory approaches.
Tax and customs adjustments
The tax harmonisation to close loopholes on low-value goods (LVG) and review import thresholds for the overseas factory-to-consumer goods facing the same tax burdens as local retail goods.
Currently, under the LVG tax regime, online purchases from registered foreign sellers do carry a 10% sales tax; and for items under RM500 (de minimis threshold), no import duties apply.
It is proposed that to reduce the de minimis threshold for import duty from RM500 to RM50 to remove unfair price advantages.
Tighter checks on direct-to-consumer parcels to prevent untaxed, non-compliant foreign goods from flooding domestic markets is also needed.
There is a need to set minimum price limits for certain imported goods sold directly by foreign sellers to shield domestic producers from ultra-cheap items.
Enforcing strict import rules requiring foreign business models to use official local distributors rather than direct-to-consumer shipping will be crucial.
Platform accountability and gatekeeper power
It is proposed to require high-volume online sellers exceeding a prescribed sales threshold (e.g. RM1mil annually) to be registered as a Malaysian business entity and appoint a local representative responsible for regulatory compliance and consumer protection matters.
The regulators must also closely monitor predatory pricing or aggressive below-cost pricing and heavy capital subsidies used by foreign entities to distort local retail markets.
This requires stricter scrutiny and enforcement of domestic business competition laws to penalise selling below cost to eliminate local competitors as well as to curb unfair gatekeeper power and market distortion by dominant tech platforms.
Consumers’ safety regulations
It is also key to require online platforms to prominently display safety and health certifications for safety-critical products, prohibiting sales practices that unduly pressure consumers into immediate purchases.
These include the establishment of a Malaysian authenticity portal where consumers and mechanics can verify product certification by scanning a QR code; and design frameworks to hold overseas platform operators liable under local standards and require authorised local representation.
While domestic SMEs build up their eCommerce capabilities, we need a balanced eCommerce ecosystem in empowering local businesses to gain prominence in our own marketplaces.
Domestic SMEs must build niche branding and localised service. These include shifting focus towards unique local goods, high-touch or specialised goods and services that mass-market overseas factories cannot replicate, backed by faster last-mile delivery, personalised customer care, and experiential retail that foreign direct shipping cannot match.
SMEs competitiveness and digital upgrading
The eTRADE 2.0 programme, spearheaded by the Malaysia External Trade Development Corp (Matrade), has supported more than 2,000 micro, small and medium enterprises (MSMEs) through matching grants, training, technical guidance and capacity-building initiatives.
Participating companies have expanded into 163 export markets, generating RM438.7mil actual export sales, with Asean remaining the main export destination (contributes about 30% of total market share).
At least 852 new products were listed on international eCommerce platforms, with ready-to-eat food, beverages, pharmaceutical and cosmetic products, household goods and plastic products being among the best-performing categories.
Like governments in the United States, Europe, and Indonesia, which have introduced regulatory measures to counter cross-border direct factory-to-consumer market distortion, and predatory pricing, the government has a responsibility to ensure consumers continue enjoying the benefits of eCommerce platforms.
This must be done without compromising on any trade practices that unfairly eliminate competitors, abuse market position, or ultimately harm consumers in terms of the safety, quality of products and the country’s business ecosystem.
Malaysia is actively developing a comprehensive eCommerce Bill to address cross-border trade distortions affecting local MSMEs, covering the aspects of regulatory gaps, platform accountability, foreign seller compliance, consumer protection, transparency of seller and product information.
It will also cover dispute resolution mechanisms and enforcement methods against entities without a physical presence in Malaysia.
Lee Heng Guie is the executive director of the Socio-Economic Research Centre. The views expressed here are the writer’s own.
