Internationalisation is becoming an increasingly important avenue for Malaysian companies and workforce to capture growth beyond the domestic market. Malaysia’s recent Free Trade Agreements (FTAs) provide industries the chance to be part of a larger consumer market. However, foreign companies are also increasing their presence in the Malaysian market. This changing environment is affecting the construction industry and it will need to be able to adapt and respond to greater competition and scrutiny.
Case for Change
There are three critical issues to be addressed under the Internationalisation Thrust:
1. Increasingly competitive domestic market, especially with the presence of foreign players
Foreign players have increased their presence in the Malaysian construction industry, as evidenced by the 10% increase in foreign contractor market share from 2013 to 2014. With Japan leading the way with the highest proportion of foreign contractor market share, these firms are gaining ground across a variety of projects, namely specialized and highly technical projects across Malaysia; indicating the increasing competitiveness from foreign players within the industry.
The opening up of the Malaysian market due to globalization has served to intensify the competitive landscape , especially due to the significant number of Free Trade Agreements (FTAs) entered into by Malaysia over the past decade which reduces barriers to competition. Several new FTAs have been planned such as the Trans-Pacific Partnership Agreement (TPPA), putting further pressure on local players to improve their competitive capabilities. This also creates urgency for local players to become familiar with international standards and specifications pertaining to building materials, quality, workmanship, safety and sustainability so as to compete effectively against the aforementioned threat.
2. Limited access to enablers to support international expansion, including financing
The main hindrance to Malaysian companies winning overseas projects and securing working capital overseas are the gaps in overseas financing from both private and government sector. Public sector funding is limited based on restrictions imposed on country and company, whereas large firms face financing challenges in obtaining project loans, especially if the target market is considered ‘high risk’.
Domestically too there are financing issues, typically encountered by SMEs who often face difficulties in meeting loan risk assessment criteria and accurately planning project finance requirements, which lead to a higher risk of projects running into losses before completion and in turn impacting credibility.
3. Limited number of Malaysian players participate in construction projects abroad
Challenges in the form of sparse market intelligence and lack of market access have led to difficulties in Malaysian firms being able to successfully win overseas projects. Even though there is currently a strong domestic demand in the industry it is important not be over reliant on it but create a deeper understanding of overseas markets, build cross border networks and gain international experience in order to benefit from the thriving global construction market.
The CITP aims to nurture ‘Malaysian Champions’, companies with the potential to be industry leaders, to lead the charge both locally and globally; raising the profile of the Malaysian Construction Industry in the global market. Therefore the outcomes for 2020 would be cultivating 50 companies to achieve G8 status with 10 companies going on to achieve the 5* SCORE rating co-developed by the CIDB and SME Corp., which would qualify them as among the highest performers in the industry. The CITP also aims to get 10 more construction related companies to win overseas bids and enter the global market through export services.
Overall they hope to guide local companies to win back market share both domestically and overseas in order to contribute to the HIGH INCOME GOAL.
Malaysian champions leading the charge locally and globally
The Internationalisation thrust aims to develop Malaysian champions who will ‘lead the charge’, i.e. further penetrate the domestic and international market.
Three critical issues that obstruct progress will be addressed under this thrust:
- Increasingly competitive domestic market, especially with the presence of foreign players
- Limited access to enablers to support international expansion, including financing
- Limited number of Malaysian players participating in construction projects abroad
To address these challenges, the CITP Internationalisation thrust puts forward three core initiatives:
Initiative I1: Internationalise construction practices and standards
Initiative I2: Strengthen access to financing for Malaysian champions going abroad
Initiative I3: Support consortia formation and strengthen overseas market intelligence
Initiative I4: Intensify contractor’s capacity and capability building