AWA: Academic Writing at Auckland

Country Selection and Risk Analysis Report- Malaysia and New Zealand

Malaysia is one of the oldest South East Asian countries that NZ maintains strong diplomatic relations with for over 70 years now. According to NZ Foreign Affairs and Trade, Malaysia is one of the fastest growing export markets within NZ’s top ten largest trading partners. In 2016, the total trade in goods between the two countries stood at $2.6 billion, $848 million being NZ’s exports to Malaysia including milk powder, diary spreads, malt extract and lamb and mutton (NZ MFAT, n.d).Total trade worth between NZ and Malaysia totalled NZ$3.4 billion as of

March 2018 (NZTE, 2018). Malaysia’s business environment is also attractive, globally ranking 26^th in 2018–2022. ASEAN economy is also expected to grow by an average annual rate of 4.8% into future years (EIU, 2019a). There is a future in continuous strong trade relations following the Malaysia NZ Free Trade Agreement (MNZFTA) enforced in August 2010, additional to the ASEAN Australia NZ Free Trade Agreement (AANZFTA) 99.5% of tariffs on NZ to Malaysia exports were also eradicated. Compared to the AANZFTA, ROO requirements became simpler, providing easier trading and more agreements and cooperation in trading rules, improving market access for NZ services providers and potential emerging export opportunities. (NZ MFAT, n.d)

I’d like to bring to attention NZ’s bottled water industry. In comparison to the global bottled water market, NZ’s water bottling industry is relatively small with around 52 companies producing around 163 million litres of bottled water annually (NZ Beverage Council, n.d). Despite this, there is potential in growing NZ’s bottled water exports to Malaysia. Majority of Malaysia’s water supply used for domestic, industrial and agricultural needs are dependent of rivers. Unfortunately, the number of polluted rivers had increased from 158 in 2005, to 362 in 2014, leaving only two clean rivers recorded (See Graph 1). The DOE reveals the causes of increased water pollution are commercial and industry activities and management of waste landfill zones. Domestically supplied bottled water thus contains more chemicals as needed for filtration treatment of pollutant chemicals so that the water is of standard to consume (Ng, 2016).

NZ Drinks Ltd based in Pokeno, established in 2010, is now NZ’s largest capacity water plant with the ability to produce over 200 million bottles annually. Their main brand Pure NZ, is also made of 100% recycled plastic (rPET) in commitment to the company’s sustainability and environment focuses. NZ Drinks holds both the Australasian Bottled Water Institute Inc’s Certificate of Audit Compliance, and National Programme Level 3 Registration from the Waikato District Council (NZ Drinks Ltd, 2019). Tony Vesper (2018), director of NZ Drinks, boasts that their Pure NZ label is “the country’s fastest growing still water brand”, “with annual sales across our portfolio increasing at 139%...”. We can expect that following their growth in demand, production capacity and efficiency will continuously be developing. Furthermore, new technology from Krones, Germany, gives them the capability of producing 28,000 600ml 100% recycled bottles, filled with water every hour (Supermarketnews, 2018). These are the main strengths of NZ Drinks, which reflect into the opportunities capable of this firm to enter Malaysia’s market.

This development is a good opportunity for NZ Drinks start exporting into Malaysia, since they have the technology and capability for larger productions. Furthermore, their use of rPET is an attractive skill Malaysia would potentially be interested in. Their PET water plant in Pokeno reuses 1000 tonnes of recycled plastic yearly, saving 220 million plastic bottles from the landfills every year (Stuff, 2018). With increasing pollution and growing landfills, recycling plastic into reusable plastic bottles could become a step to reducing the Malaysia’s overall pollution. This opens up opportunity for NZ Drinks to not only export to Malaysia but potentially branch out into their market.

The main risk directly affecting NZ Drinks’ entry into Malaysia is their restrictions and limitations to foreign investment and business ownership. The water industry is included in the list of industries subject to restrictions on foreign investment. Prior regulatory approvals are required before initiating business operations and sector-specific regulations within the water industry imposes restrictions on foreign ownership of a company’s equity. The bumiputera ownership is a provision policy that safeguards a minimum of ownership to Malaysia’s indigenous ethnic groups (Lim, et al., 2019). Liability of foreignness is apparent in these policies, posing disadvantages towards foreign firms in their experience in a host market. The liability is described as the “additional costs of doing business abroad”, costs being both tangible and intangible (Zamborsky, 2019). Thus, entering the Malaysian market through a joint venture is most beneficial for NZ Drinks. NZ Drinks can enter and gain access to local markets with reduced risk, as risk is shared in forming international joint ventures (See Text 1). For example, the opportunity for larger production and development of projects is more attainable when the financial risk is shared. Resources are also shared, enhancing R&D development and efficiency with new technology at minimal costs (Yan & Luo, 2016).

Another risk for NZ Drinks in Malaysia is if its river quality improves in the near future, demand for imported water will decrease. This is a direct environmental risk for NZ Drinks whilst being a positivity for Malaysia. There is currently a Water Resource Bill in draft by the Land, Water and Natural Resources Ministry, aiming to solve Malaysia’s water pollution crisis. The bill will require the support of all state governments to control, manage and enforce water resources. The Department of Irrigation and Drainage (DID) have built facilities treating river waters and launch of the Integrated River Basin Management (IRBM) strategy aims to keep water clean, improve environmental conservation and decrease flood risks (Straitstimes, 2019). However, improvement from these efforts are yet to be seen and even if Malaysia’s water supplies clear up near the future, with the proposed joint venture market entry strategy, it would be in the local firm’s interest to continue a merged business with NZ Drinks for the rPET technology and sustainable business practices beneficial to the country. There is opportunity to create comparative advantage in the 100% recycled plastics aspect in NZ and Malaysia. As mentioned previously, Malaysia could use NZ Drinks’ technology to recycle their plastic waste to reduce pollution.

The US-China trade war is an indirect economical threat, increasing global trade risks. As this trade war slows global growth, inflation is expected to rise, global trade to decrease and global economic growth to slow. Indirectly, these effect could change Malaysia’s economic market and business environment (See Table 1). The EIU has ranked this trade war as the top risk to global economy 2019 (See Graph 2) (EIU, 2019). Yet, because this risk indirect, the effects will be minimal especially if NZ Drinks form a joint venture with a local firm in Malaysia. Any financial costs and risks to the business and environment due to this trade war can be reduced through shared equity. Any liability of foreignness against NZ Drinks will also be lessened as opposed to entering the Malaysian market independently.

References

EIU. (2019a). Malaysia. The Economist Intelligence Unit Limited. Retrieved May 16, 2019, from https://country.eiu.com/malaysia

EIU. (2019b). The Top 10 Risks to the Global Economy 2019. CFO Innovation Asia, N.PAG. Retrieved May 22, 2019, from http://search.ebscohost.com.ezproxy.auckland.ac.nz/login.aspx?direct=true&db=buh&AN=134962499&site=ehost-live&scope=site

Lim, K., Khong, S., Looi, J., Alagaratnam, S., Tan, S., Kuek, P., & Skrine. (2019, January 01). Doing business in Malaysia: Overview. Retrieved May 21, 2019, from https://uk.practicallaw.thomsonreuters.com/7-504-4991?transitionType=Default&contextData=(sc.Default)&firstPage=true&comp=pluk&bhcp=1

Ng, C. (2016). Going with the flow: Bottled natural mineral water and drinking water in Malaysia. UTAR Agriculture Science Journal, 2(3), 30-38. Retrieved May 17, 2019, from http://eprints.utar.edu.my/2246/1/Going_with_the_flow_-_bottled_natural_mineral_water_and_drinking_water_in__Malaysia.pdf

NZ Beverage Council. (n.d.). An-Overview-of-Water-Bottling-in-New-Zealand[PDF]. NZ Beverage Council. Retrieved May 9, 2019, from https://www.nzbeveragecouncil.org.nz/assets/PDFs/9ee61a0436/An-Overview-of-Water-Bottling-in-New-Zealand.pdf

NZ Drinks Ltd. (2019). Sustainability. Retrieved May 17, 2019, from https://www.nzdrinks.co.nz/sustainability/

NZ MFAT. (n.d). Malaysia. Retrieved May 8, 2019, from https://www.mfat.govt.nz/en/countries-and-regions/south-east-asia/malaysia/

NZTE. (2018, August). Malaysia Market Guide[PDF]. NZ Trade and Enterprise. Retrieved May 16, 2019, from https://www.nzte.govt.nz/-/media/NZTE/Downloads/Export-Assistance/Market-guides/Malaysia-market-guide.pdf

Straitstimes. (2019, April 30). Malaysia aims to pull the plug on water pollution with comprehensive Bill. Retrieved May 22, 2019, from https://www.straitstimes.com/asia/se-asia/malaysia-aims-to-pull-the-plug-on-water-pollution-with-comprehensive-bill

Stuff. (2018, September 4). Waikato water bottling plant to use recycled bottles in production line. Retrieved May 21, 2019, from https://www.stuff.co.nz/business/106807613/waikato-water-bottling-plant-to-use-recycled-bottles-in-production-line

Supermarketnews. (2018, September 03). NZ LARGEST BOTTLED WATER PRODUCTION LINE OPENS. Retrieved May 21, 2019, from http://supermarketnews.co.nz/nz-largest-bottled-water-production-line-opens/

Yan, A., & Luo, Y. (2016). Conceptualization and Formation Motives In International Joint Ventures: Theory and Practice: Theory and Practice (pp. 3-14). Routledge. Retrieved May 23, 2019, from https://content.taylorfrancis.com/books/download?dac=C2014-0-40194-1&isbn=9781315501321&format=googlePreviewPdf

Zamborsky, P. (2019). International Business and Global Strategy (2nd ed.). BookBoon. Retrieved May 22, 2019, from https://bookboon.com/

Appendix

Graph 1.

(Ng, 2016)

Graph 2.

(EIU, 2019b)

Text 1.

Joint ventures or international joint ventures is the cooperation of firms from different countries who operate across cultural and national boundaries. Five main reasons why firms choose conduct international business through joint ventures is the push and pull factors from the government experienced by the local and overseas firm, to gain access to the international market, to share risks, to access and incorporate outside resources (Yan & Luo, 2016).

Table 1.

(EIU Digital Solutions. (2019). Malaysia. Retrieved May 23, 2019, from https://country.eiu.com/malaysia)