Retail industry in malaysia and saudi arabia

2012
Comparative Analysis of Retail
Industry of Malaysia and
Singapore

ParitoshKashyap

Comparative Analysis of Retail Industry of Malaysia and Singapore

Retail industry is the part of the economy which is involved in selling finished products to the

end users. Retail shops could be found in wide range of formats, ranging from large hyper

markets and department stores, to small convenience stores and general stores. It primarily

includes six sub categories: - food & general retail, fashion apparels, fast food restaurants, fast

manufacturing 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 a

pivotal role in the national economies. It has a wide range of direct as well as indirect economic

significance- ranging from mass level employment generation (both urban and rural) to bring

speed and efficiency into the entire supply chain system.

The given report comparesretail sectors in Malaysia and Saudi Arabia- one an emerging

economy and a constitutional monarchy from South East Asia and other an oil rich Islamic

Monarchy from the Gulf. Both the nations share similarities across various socio-cultural as well

as demographic parameters andhence provide a good case to do comparative analysis. They

will be compared across following parameters- economics, retail industry outlook, policy frame

work, tourism, demographics and transportation.

Economics, demographics & infrastructure

The following part compares Malaysia and Saudi Arabia, across few of the general economic,

demographic and infra-structure related parameters.

ParitoshKashyap Page 1


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
-3

Fig 1: Shows the GDP growth rate of Malaysia and Saudi Arabia vis- a-vis, world’s growth rate.

Malaysia SAUDI Arabia

GDP (us $ billions, 2010) 237.8 434.67

GNI (US $, ppp, 2009) 13, 550 22,750

FDI ( us $ billions, 2010) 9.5 21.56

Inflation (Consumer price, %, 1.7 5.3

2010)

Table 1: Compares Malaysia and Saudi Arabia across various economic parameters. Source:

World Bank

Malaysia Saudi Arabia

Internet penetration (%, 2010) 55.3 41

Mobile subscription (%, 2010) 121 188



Electric 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 outlook

Malaysia

Malaysia, an upper middle income country according to World Bank, enjoys a robust and

growing retail sectors.According to Business Monitor International-total retail sales in Malaysia

were estimated at US $ 33 billion in 2009. Like other Asian countries it has penchant for

gigantic 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 proportion

urbanized middle class (50% of the population) with high disposable income; a large proportion

of youth (42% aged between 10 and 34, as on 2008) and high tourist arrival. Tourism accounts

for 30% of retail consumption in Malaysia. (RECON, 2008)



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 Q4

Fig 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 0

Fig 3: shows the number of outlet and total sales for major retailer in Malaysia for 2009. Source:

Malaysia retail annual report, USDA Foreign Network.



Saudi Arabia

Saudi Arabia is the biggest Gulf country and the biggest economy in the Middle East and North

Africa region (MENA) region. The region is marked by growth in retail space, young

demographics, 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 fertile

market for the retail industry. Rapidly growing population, brand conscious young

demographics (45 percentage of population aged 20-44) and high level of disposable income

will be key drivers for the industryin the kingdom. After oil, banking and telecom; retail is the

fourth largest industry in the country, both in terms of number of, establishments as well as

employees. It earned a total of US $ 55 billion from retail sales in 2008, up from US $ 37 billion in

2004. The market is dominated by small retail stores, though big retailers both domestic and

international players are trying to up their ante in the much fragmented retail industry.

parameters Value

Total retail sales (2011, us $ billions) 69

Retail sales per capita (2010, us $) 2,260

Percentages of GDP (2010) 17

Retail space (2008,million sq m) 2.4

Table 3: Shows values for various retail industry related parameters. Source: JONES LANG

LASALLE, AMEinfo.com



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.com

Presence of majorretail brands in Malaysia & Saudi Arabia

The following part of the report will compare the presence of few of the leading retail brands in

Malaysia and Saudi Arabia. The no. of outlets in some of the cases has been described in

brackets.

brands Category Malaysia Saudi Arabia

Wal- mart hypermarket No No

Carefour hypermarket Yes (18) Yes, franchise



operated (11)

Tesco Hypermarket Yes Yes

Metro Hypermarket No (acquired) No

Benetton Fashion retail Yes (15) Yes (18)

Gucci Fashion retail Yes (2) Yes (4)

Emporio Armani Fashion retail Yes Yes

Swatch Luxury watch Yes (13) Yes (80)

Kfc Fast food Yes Yes

Mcdonalds Fast food Yes Yes

Subway 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 others

Policy

One of the key pillars for the growth of any industry in a country is policy and regulatory

framework. An open and market oriented policy framework are more likely to stimulate

growth and development in the long run. The following part of the report will compare

Malaysia and Saudi Arabia across general business environment as well as policy framework

pertaining to retail industry.

General business environment



Saudi Arabian economy is marked by liberal economic policies and free market mechanisms

stimulating foreign investments. The kingdom has biggest oil reserve outside Soviet Union and

USA and like other Gulf counterparts, aims at diversifying its economy into industrial and

service sector. The state generally does not interfere with the inflow and outflow of capital. It

incentivizes businesses by providing favorable tax exempts, subsidies, provision of land at low

price, exemption of custom duties on export etc. (Al A, 2007)

In line with Saudi Arabia, Malaysian economy is also marked with investor friendly business

environment. During 1970s, when Malaysian economy was primarily based on mining and

agriculture, govt. took diversification measures backed with centralized planning. During 70s to

90s like other Asian Tigers, Malaysia recorded a strong economic growth. In the present time

also govt.plays a pivotal role in the economy but gradually it is reducing. One of the remarkable

features 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 and

International Finance Organization. Economies are ranked on their ease of doing business from

1 – 183. A high ranking on the ease of doing business index means the regulatory environment

is more conducive to start and operate of a local firm. This index averages the country's

percentile rankings on 10 topics, made up of a variety of indicators, giving equal weight to each

topic. The rankings for all economies are benchmarked to June 2011. (Doing business, 2012)

Ease of doing business Malaysia (rank) Saudi Arabia (rank)

parameters



Over all Ease of doing 18 11

business

Starting a business 50 10

Dealing with construction 113 4

permit

Getting electricity 59 18

Registering property 59 1

credit 1 48

Paying taxes 41 10

Table 4: Compares the ranking of Malaysia and Saudi Arabia across various “Ease of doing

business” 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) and

Korea (8).

Retail business environment

Malaysia

The key elements of retail industry (especially pertaining to foreign investments) policies of

Malaysia are as follows (MDTCC, 2010)



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 Arabia

The key elements of retail industry (especially pertaining to foreign investments) policies of

Saudi 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.



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.

Tourism

Along with local inhabitants tourism inflow also helps in boosting retail sales. Both Malaysia

and Saudi Arabia are successful tourism destination. Religious pilgrimage is the key driver of

Saudi tourism whereas its Malaysian counterpart depends on exotic beachfront resorts, festivals

and medical tourism. The following chart compares tourist inflow of Malaysia and Saudi

Arabia.

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 2010

Fig 5: Compares the annual inflow of foreign tourists in millions,for Malaysia and Saudi Arabia.

Source: Tourism Malaysia and Indexmundi.



Demographics

Demographic 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 Arabia

Population (million) 28.73 27.45

Urban population (%) 72 82

Literacy (%) 88.7 78.8

Median age 26.8 25.3

15-64 age groups(%) 65.4 67.6

Table 5: Compares Malaysia and Saudi Arabia across demographic parameters. Data are for the

year 2010. Source: CIA World Fact book.

Transportation

A good transportation network, especially high volume of private motor vehicles ensure the

growth and development of out of town hyper markets. In the absence of motor vehicle people

tend to visit nearby retail stores only.

A well-developed transport and logistics network does not only help in sales but also ensures

better functioning of big hyper market chains. In the absence of good logistic, big hypermarket

chains are unlikely to import and circulateretail items in large volume effectively.

Parameters Malaysia Saudi Arabia



Motor vehicles density (per 641 336

100)

Gasoline cost (1 liter, us $) 0.65 0.13

Road length 72, 400 173,000

Air transport freight (million 2577, ranked 13th in 2005 1021, ranked 25 in 2005

tons per km)

Container port traffic (teu) 12,027,050 ; ranked 7th in 2005 897, 167; ranked 51st in 2005

Table 6: compares Malaysia and Saudi Arabia across transportation parameters (most recent by

year). Source: nationmaster.com, numbeo.com

Conclusion

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.



Both are luring big retail brands to operate in their country. Saudi Arabia is a better destination

than Malaysia in terms of a number of ease of doing business parameters such as – dealing

with construction permit, getting electricity, registering property, taxation etc. Malaysia’s

strength lies in the easy credits and high FDI in retail; 70 % against 49 % in Saudi Arabia

Malaysia has better infrastructure, logistic as well as telecommunication infrastructure, both

considered as a backbone for developing a vibrant retail sector. Saudi Arabian strength lies in

availability 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>


Retail industry in malaysia and saudi arabia

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