Understanding Malaysia

Cultural intelligence is key to achieving sustainable business outcomes. Being able to read cultural clues and respond appropriately helps develop relationships, communicate effectively and build trust. While cultural and communication norms are changing as virtual modes of engagement increase, core cultural values remain an important factor in business. Not understanding the particularities of doing business in Malaysia can lead to missed opportunities, delays and lost engagements.

Communication

As is common throughout Southeast Asia, the Malaysian style of communication can be indirect. Small talk is important to establish trust and build a relationship. Australian businesses should be patient and polite and, where appropriate, adjust communication styles to suit Malaysian counterparts. Malaysia is a multi-ethnic, multicultural, multi-religious and multilingual society. Indigenous Malays—or Bumiputera—Malaysian Chinese and Malaysian Indian are the three largest groups among the country’s population. Islam is the dominant religion amongst Malays, Buddhism amongst Malaysian Chinese, and Hinduism amongst Malaysian Indians. There is also a small minority of Christians. It is important to understand cultural differences between these groups when communicating and developing relationships. English is spoken widely, but knowing a few words and idioms of the official language, Malay, can help grow relationships.

Indirect communication is often as important as the spoken word. Australian businesses should be mindful to moderate tone when speaking and show respect through words and body language. Malaysians prefer to avoid conflict and business people should avoid overt anger or confrontation. Listening is as valuable as speaking, as Malaysians will seldom provide a direct negative answer but will give clues to their intentions through carefully chosen words and expressions. Silence before speaking can also signify respect.

When shaking hands, it is important to be mindful of cultural norms regarding physical interaction between men and women. A visiting businessman should wait for the woman to extend her hand first. If she does not, he should bow slightly with his hand on his heart as a sign of respect. Visiting businesswomen should not be surprised if men do not offer to shake their hand. She should wait for them to extend their hand first to avoid any uncomfortable situations.

It is important to value personal space in business meetings. Aside from shaking hands, it is inappropriate to engage in physical contact with strangers, and older and more senior people should be given more physical space as a sign of respect. Pointing with a finger and showing the soles of feet or shoes is disrespectful. Hands placed on the hips or in pockets during a business conversation may be interpreted as a display of disinterest. 

Discussions on topics unrelated to business such as family, holidays, food and festivals is important to establish trust and build a relationship. Maintaining consistent communication with Malaysian stakeholders through multiple channels, including meetings, phone calls and social media, is key to building relationships and understanding cultural context. The use of instant messaging apps, particularly WhatsApp, as well as Messenger, Telegram and LinkedIn when doing business is widespread in Malaysia.

Relationships

Building a strong relationship and developing trust with any business partner is important in Malaysia. Relationships are built between individuals rather than groups, and personal connections can determine many aspects of commercial operations and impact future business opportunities. Negotiations in Malaysia may be slower than in Australia, but it is important to invest time and patience and use regular face-to-face and electronic communications to grow confidence and loyalty. Informal commitments may be made in such conversations. However, unless followed by a formal written note, any such commitments should not be used to confirm agreements.

Business meetings are an important part of relationship building in Malaysia. They may be friendly or formal, depending on the type of business involved. Business cards are indicative of respect, and both hands should be used to give and receive any business card. Many Malaysian counterparts may now also request a connection via LinkedIn or Facebook.

Navigating culture in business – the importance of core cultural values

Hierarchy

Malaysian society and business culture is guided by hierarchy and particular respect should be shown for elders and those in positions of seniority. Seniority within organisations often determines responsibility for decision making and should be considered when engaging in business or administration.

Younger Malaysians are less particular about decorum than older generations, but will still adhere to many traditions and conventions, especially in the presence of superiors or elders. Positions of power and authority are highly valued and revered. Although the most senior person should be consulted most frequently, it is important to consult all people in a room when reaching a business decision.

Malaysia is a group-oriented culture. Malaysians value their role as a team member and identify themselves first as part of a group, then as an individual. The group that Malaysians identify most with is the family unit. As such company and teams operate with family values and bring a paternalistic approach to management. Individuals may be uncomfortable if too much focus is placed on them. Be prepared for individuals to be reluctant to speak out before having an opportunity to consult with their group.

The importance of partnerships

Successfully navigating the Malaysian business landscape often requires local talent, expertise and partnerships, especially when dealing with local businesses. Local partners can help with establishing a Malaysian office or entity and navigating stakeholder considerations. The food and beverage, METS and health and medical sectors can especially benefit from deploying local agents or distributors.

Identifying a potential partnership requires establishing business relationships that can facilitate introductions - a strong network of contacts often provides the basis for productive partnerships. After a potential partner has been identified, due diligence is essential. This includes understanding a company’s customers and clients reach across Malaysia and the broader region, support for product localisation, and in-market reputation. It is essential to undertake reference checks and risk assessments before formalising any local partnerships.

It is important to establish if subcontractors are involved when building partnerships, as liability and accountability rests with the partner and may not apply to underlying subcontractors. Upfront determination of any relationships and potential inclusion in any partnership agreement may ensure non-dilution of value. External advice may be needed in such cases.

Partnerships with government-linked investment companies, government-linked companies or conglomerates can also be complex to negotiate and maintain. Companies may wish to consult with the Department of Foreign Affairs and Trade (DFAT) or the Australian Trade and Investment Commission (Austrade) for advice before engaging in such partnerships.

Due to the size and nature of the Malaysian market, it is usually advisable to work with one dedicated partner to avoid conflicts of interest or compromising a relationship. Before making a final decision, it is important to meet with any potential partner in-market. This will provide an opportunity to assess their knowledge of the market and market presence. A partner’s network, contacts and depth of experience in the target sector will be key to identifying quality opportunities. For a more detailed understanding of business culture, business etiquette and building long term and sustainable partnerships to deliver strong business outcomes visit the Asialink Business Academy.

While Malaysia offers opportunities for informed and well-prepared Australian businesses, doing business overseas can involve a range of new risks. These should be identified and mitigated as much as practicable – and managed carefully once business operations are established.

Risk factors in Malaysia

Economic – including the potential for government default (sovereign risk), fiscal, monetary and exchange rate risk.

Malaysia’s economic outlook is stable, with a BBB+ and A- rating from Fitch and S & P, respectively. This reflects improvements in the nation’s economic prospects and strong FDI inflows against high public debt and a low revenue base.

Despite historically strong economic growth, Malaysia has high levels of income inequality that may compromise its pathway to becoming a high-income nation. Its ability to improve income distribution and sustain economic growth is also impeded by its limited tax collection capacity. Companies should be mindful of the potential risks this poses for long term economic growth.

Potential mitigations for foreign exchange risk include forward contracts, foreign currency options and utilising foreign bank accounts and loans to manage currency inflows and outflows. Seek advice on the level of currency risk and potential mitigations.

Political – including the potential for political instability and restrictive government policies.

Political risk in Malaysia is low. While the nation has strong governance and institutional frameworks in place, a period of high turnover in government from 2018 to 2024 increased political uncertainty. The country ranked 62nd out of 137 nations for political transformation in the 2024 BTI Transformation Index, which measures a country’s democratic effectiveness.

Consider performing political risk due diligence for any major investments and be mindful of political affiliations of potential partners. For significant investments, political risk insurance may provide potential mitigation.

Corruption – including the potential for bribery, embezzlement and conflicts of interest.

Malaysia ranks 57th out of 180 countries on Transparency International’s Corruption Perceptions Index, with a score of 50 out of 100, and remains above the regional average. In recent years, several high-profile corruption cases have been reported. These have led to increased global scrutiny of the country’s approach to corruption and demands for improved transparency.

Companies should familiarise themselves with Australia’s foreign corruption and bribery legislation and ensure they have a robust anti-corruption strategy before entering any foreign market.

Regulatory – including the potential for regulations that increase the cost of doing business, reduce the attractiveness of an investment or change the competitive landscape.

In Heritage International’s Index of Economic Freedom Malaysia ranks 44th out of 184 countries globally and 7th out of 39 countries in the Asia-Pacific Region. Malaysia’s regulatory environment is well-institutionalised but can be prone to inefficiency. The country’s monetary freedom score, business freedom score and labour freedom score are all well-above the world average.

A trusted local partner can help you understand, navigate and secure complex regulatory processes.

Intellectual property (IP) – including the potential for weak or underdeveloped IP protections and enforcement mechanisms.

Malaysia ranks 28th out of 55 nations scored in the U.S. Chamber of Commerce’s Global Innovation Policy Center International IP Index. Government agencies provide clear pathways to enforcement of IP but the government does not currently offer the standard Regulatory Data Protection terms to all new products.

Registration for patents, trademarks and copyrights can help mitigate IP risk. Continual product development and brand updates can deter counterfeiting. There are also technology solutions such as RFID tags and QR codes to authenticate products.

Geopolitical – including the potential for trade relationships, security partnerships and territorial disputes to impact business activities.

As a key trading partner of both the U.S. and China, Malaysia has remained neutral when it comes to tensions between the two nations. It has downplayed its competing maritime claim with China in the South China Sea. Malaysia is also working to strengthen trade relationships with surrounding nations to reduce the impacts of geopolitical risk in the region.

Boards and leadership teams should familiarise themselves with geopolitical issues that may impact a business and, if relevant, develop plans in response to potential scenarios. Companies may also wish to seek external advice.

Supply chain – including the quality of infrastructure, levels of corruption, corporate governance, supply chain visibility and timeliness.

Supply chain risk in Malaysia is moderate. FM Global’s Resilience Index ranks Malaysia 45th out of 130 countries, with a score of 70 out of 100. Malaysia’s logistics network is reasonably secure and efficient, ranking 32nd out of 130 countries globally.

Potential mitigations include supplier diversification, holding additional inventory, and implementing new operating models and processes, such as third-party and fourth-party logistics. Advice from a local partner can help to navigate a complex logistics environment. Technology can provide improved analytics, sensors and automation.

Climate – including the potential for extreme weather events and rising sea levels to impact trade routes, supply chains and infrastructure.

While Malaysia is less vulnerable to climate hazards than many of its peers, the nation is still susceptible to flooding and vector-borne diseases because of climatic conditions. Rising temperatures, droughts and floods could threaten key crops like cacao, rubber and palm oil and exacerbate inequality. The Notre Dame Global Adaptation Initiative ranks Malaysia 50th out of 187 nations in terms of climate vulnerability and 57th in adaptation preparedness.

Identifying and mitigating climate change risks–including their socioeconomic consequences–should be embedded in all elements of a company’s strategy and operating model.

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