International Marketing Management - Malaysia's Sme Expansion Plans

International Marketing Management

Malaysia's SME Expansion Plans

Executive Summary

The main objective of this study to highlight the various challenges that Malaysian palm oil company is facing while entering into the international market. This study covers the key challenges related to the funding of their international operation especially with factors like political and government interventions. This study also analyzing the strategies to reduce the risk related to the international marketing strategies and also mentions how the Malaysian company can select their target market with some important methods.

Company's Overview

The United Plantation Bhd is the media type organization in Malaysia. The core functioning is the cultivation and processing of palm oil, coconut and the other plantation crops. All the subsidiary companies are indulged in the activities such as; processing palm oil and manufacturing, distributing of end products. This is providing in the form of edible oils, cooking oils, edible oils and in any other products. The United Plantation is having the total plantation in around 40,855 hectares. The main objective of the company is to cultivate oil palms (90%) and coconuts (10%). The company operates around 6 palm oil mills in the country. The total CPO (crude palm oil) production of the company is reported at 1.90 lakh tonnes annually.

The BDM ( Business Development Manager ) of the United Plantation Bhd mentioned that performing the sustainable business in Malaysia is very much tougher due to strong norms related to land acquisition along with the mounting prices cost of maintenance of the land and plants in the country . Therefore, they realize that strong global demand for palm oil in other countries along with lucrative export prices of palm is providing the company to explore new opportunities in overseas market. The manager of the company is planning to invest in countries such as Indonesia, Papua New Guinea and in some parts of Africa. This will also benefit the company to earn strapping revenue from their matured palm oil.

The Group has embarked on a large replanting programme in Malaysia in 2013 in accordance with its replanting policy which has reduced production from our Malaysian plantations. This drop is somewhat compensated by the production from our Indonesian estates which has increased significantly year on year. It is therefore anticipated that the Group's overall production in 2013 will be marginally better vis-à-vis 2012.

But expanding their operations in not a easy task in the current situation due to change in duty structure by government , labor problems related to wages and taxes related to value added products causing some challenges for the BDM of the United Plantation Bhd. The manager has to analyze all the international business aspects before entering in to the overseas.

Challenges for the Company to Fund their Expansion in Overseas Market

The manager of the company realizes that funding for domestic operations, i.e. between the units of the domestic business are generally easy as they anticipate all the issues prior to any of the investment. But if his company is planning to foray into new countries than they have to encounter with various challenges related funding of the expansion program. The company has access all the constraints that may have a direct significance of their operations.

A. Political Constraint: The political constrain can block the transfer of funds either overtly or may be covertly. The overt block is related to non conversion of currency and government control on currency conversion. The convert blockage related to the dividends, heavy tax and some delay by bureaucrats.

B. Tax Constraints: These constraints are related to complicated tax structure of different governments through whose jurisdiction the fund might be routed. This might discourage the company's to route their funds by the number of tax collectors in every step of jurisdictions.

C. Transaction cost: The much of the transaction cost is related to the exchanging the currency from one exchange rate to another route. These are normally related to the difference between the bid/ ask and the efficiency of the foreign banks. The most of the banks are charging nominal fees on conversion. This will discourage the company to transfer some of their cash dividends to their foreign subsidiary. Levitt (1983) mentioned that sending the funds into two directions are always posses a strong transaction cost that to be paid by the company.

D. Liquidity Constraints: The issues related to liquidity needs in the foreign countries also causing some problems from the company. Their requirement of the money for funding their operations is depending on the availability of quality banks in the foreign country along with some of the relationship of the company with foreign banks is the key challenge for any of the company.

However, the Malaysian government provides the strong financial support of all the SME firms like United Oil to fund their expansion overseas. The Multi-Currency Trade Financing (MCTF) has been introduced by the Malaysian EXIM Bank to enable the smooth financial transactions of all the companies. With this all the SME exporters can easily finance with working capital from banks without furnishing any kind of collateral and also from all the transactions which involve an Irrevocable Letter of Credit issued for the overseas buyers. The man of the government is to encourage their exports in the ASEAN, OIC and also in G-15 countries. This will also enable the SMEs to access the banks' pre and post-shipment working capital trade financing without any collateral. The banks are also providing the Multiple facilities such as Supplier Credit, in which exporters can easily execute all the orders in hand, the Overseas Contract Financing (OCF), Overseas Project Financing (OPF), the Buyer Credit, which consist of loans granted to foreign buyers of Malaysian goods and services, the Malaysia Kitchen Financing Facility, designed to finance the establishment of Malaysian restaurants overseas, and MCTF.

Therefore, the manager of the company has to critically analyze all the major constraints while expanding their business to other countries. Like in Indonesia and African countries, the government is providing