Institutional Channels in Malaysia

Economic slowdown affects institutional markets

Malaysia’s economy is expected to see slower growth in 2016, arising from the declining Malaysian currency, weak exports and political instability. Furthermore, the Goods and Services Tax (GST), introduced in 2015, is still poorly received by consumers. This will greatly impact companies across institutional markets, as end-users control and limit spending on contract services and also further reduce using services from service providers.

Distributors play important roles in institutional markets

Most manufacturers refuse to sell products to end-users directly because it is troublesome to do so in single units or small quantities. By engaging distributors in different regions to sell products, manufacturers can spread their products in a wider territory, as well as selling products in mass quantities. International companies in particular rely on distributors and their sales representative to advertise and promote their products, as local distributors better understand the requirements and adapt to local cultures.

Rising labour cost impacts employee numbers

The Minimum Wages Policy has raised the basic wages of all employees to a minimum of MYR900 in Peninsular Malaysia and MYR800 in Sabah, Sarawak and Labuan. This means that employees in Malaysia have the right to expect a minimum basic wage. Foreign labour costs have increased continuously due to stricter rules and complicated processes; therefore players need to look for cheaper supply in mass recruitment. This has negatively impacted contract services, especially contract cleaning and foodservice, areas in which locals are less interested in working.

Outsourcing trend for both public and private establishments

Outsourcing in Malaysia increased across several institutional channels such as healthcare, lodging, restaurants and the government. The Malaysian Government had to cut spending on its public institutions and increasingly outsource non-core business activities due to the economic slowdown. The majority of the larger companies are keen on planning to save on overhead costs in order to ensure operational efficiencies, therefore some services and products were increasingly outsourced, particularly foodservice and cleaning.

More focus social work services over the forecast period

It is expected that social work services will grow more strongly than other institutional channels over the forecast period. As Malaysia increasingly becomes an ageing society, demand for social assistance for the aged and special categories of persons with limited ability for self-care will tend to increase. In 2016 only 85,000 individuals have participated in the 1Malaysia Retirement Savings Scheme since it was introduced in 2010. As the majority of individuals remain unprepared for retirement, it is likely that we will see more welfare and guidance facilities, community centres, or even day facilities for the homeless introduced over the forecast period.

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