retail industry in malaysia and saudi arabia

Paritosh Kashyap

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 compares retail 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 and hence

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.

Paritosh Kashyap Page 1


2002 2004 2006 2007 2008 2009 2010

-4

-2

0

2

4

6

8

5.4

6.8

5.86.5

4.8

-1.6

7.2

0.1

5.3

3.2

2

4.2

0.2

3.8

WorldMalaysiaSaudi Arabia

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,

%, 2010)

1.7 5.3

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 (kwh/capita,

2009)

3,614 7,427

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)



Q1 Q2 Q3 Q4

0

2

4

6

8

10

12

7.9

5.8

9.8

8.5

10.1

8.9

5.34.8

Retail GrowthGDP Growth

Fig 2: shows the growth in retail sales vis-a-vis GDP growth rate for 2010. Source:

Thestaronline.com

Tesco

Carrefo

ur

Jaya J

uscoMyd

in DFI0

20

40

60

80

100

120

140

0

200

400

600

800

1000

1200

1400

1600

3323 19

55

120

480350

1200

516

1400

No. of outletssales (US$ millions)

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 industry in 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



2004 2008 2009 2011 (estimated)0

10

20

30

40

50

60

70

80

37

55

46.8

69

Fig 4: Shows the retail sales of Saudi Arabia, in billion US $ over the last few

years. Source: AMEinfo.com

Presence of major retail 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)

Table 4: 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

parameters

Malaysia (rank) Saudi Arabia (rank)

Over all Ease of doing

business

18 11

Starting a business 50 10

Dealing with construction

permit

113 4

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 numero uno 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.

2005 2006 2007 2008 2009 2010

0

5

10

15

20

25

30

16.417.4

20.922

23.624.6

8.04 8.62

11.5

14.76

10.9 10.9

MalaysiaSaudi Arabia

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 circulate retail items in

large volume effectively.

Parameters Malaysia Saudi Arabia

Motor vehicles density

(per 100)

641 336

Gasoline cost (1 liter, us

$)

0.65 0.13

Road length 72, 400 173,000

Air transport freight

(million tons per km)

2577, ranked 13th in 2005 1021, ranked 25 in 2005

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 conclusions drawn 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>


http://www.kpdnkk.gov.my/kpdnkk-theme/images/pdf/WRT_Guideline.pdf

http://www.doingbusiness.org/rankings

http://www.alamri.com/DOING%20BUSINESS%20IN%20SAUDI%20ARABIA.pdf

http://www.alamri.com/DOING%20BUSINESS%20IN%20SAUDI%20ARABIA.pdf

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