EXPORT CAPABILITIES OF MALAYSIA'S HOUSING DEVELOPERS ...

EXPORT CAPABILITIES OF MALAYSIA’S HOUSING DEVELOPERS IN THECONTEXT OF GLOBALISATION AND LIBERALISATIONAbdul Rashid Abdul Aziz

INTRODUCTIONExtension of NAPREC research conducted from 2004-2006.For the purpose of this paper, desk research was conducted.This paper dwells on ‘why’, ‘what’, ‘where and ‘how’ ofinternationalisation of Malaysian housing developers.Is there a limit to their overseas operations?

PRESENT SCENARIOSubprime and credit crisis in the USA in 3Q 2008.Domestically, some Malaysian contractors still reeling from AsianCrisis of a decade ago.Overseas, development projects were affected (e.g. LBS Bina’s projectin Zhuhai).“We are excited about the project but we pulled the breaks as thereis uncertainty in the market place, affecting buyer sentiments. If youwant to go to a place like Vietnam, you have to be prepared and themarket has to be ready. We are ready to launch but we will wait andsee how the market reacts over the next few months.”Lee Liam Chye, Group Chief Executive Officer, 2010Perdana Parkcity Sdn Bhd

COMPARING PRE-2005 and POST-2005Some seasoned players still visible internationally:Asia Pacific Land Bhd, Bandar Raya Development Bhd, GoldenPlus Holdings Bhd, IJM Corporation Bhd, MUI Group, MulphaInternational Bhd, Selangor Properties Bhd, Sime Darby Bhd,Sunrise Bhd and Sunway City BhdSome early movers no longer active internationally:Acmar International Group, Country Heights, Land and GeneralBhd, Mahajaya Bhd, MRCB and Nam Fatt Corp Bhd

COMPARING PRE-2005 and POST-2005New international players:Berjaya Land Bhd, Gamuda Bhd, IOI Properties Bhd, Ireka CorpBhd, LBS Bina Group Bhd, Perdana Parkcity Sdn Bhd, SP SetiaBhd, Selangor Dredging Bhd and YTL CorpSome never ventured abroad despite early announcements:Bina Puri Holdings Bhd, Metro Ikram, Safuan Group Sdn Bhd,Talam Corp BhdThe overall impression is that there have never been as manyMalaysian housing developers operating abroad concurrently as atthis present point in time.

MOTIVE FOR INTERNATIONALISINGTHE ‘WHY’ DIMENSIONMotive Mean S. D.. Level of importanceTop mgmt decision 4.63 0.52 Very Imp.Increase firm profitability 4.38 0.93 Imp.Sustain firm growth 4.25 1.04 Imp.Improve firm image 4.00 0.54 Imp.Incentives by host country government 3.75 0.89 Imp.Growing overseas markets 3.75 0.89 Imp.Diversify firm markets 3.63 0.92 Imp.Counter housing cycle in Malaysia 3.50 0.93 Imp.Exploit firm resources 3.50 0.93 Imp.Saturated home market 3.25 0.89 Mod. imp.Initiatives from the home government 3.25 1.49 Mod. imp.Improve firm market share 3.25 1.17 Mod. imp.Utilise language & cultural similarities 3.00 0.93 Mod. imp.Respond to Mal. competitor moves 2.75 0.89 Mod. imp.Foreign developer entering Malaysia 2.38 0.74 Little imp.From 1.0 to less than 1.5= unimportant, from 1.5 to less than 2.5= little importance, from 2.5 to less than 3.5=moderately important, from 3.5 to less than 4.5= important, from 4.5 to 5.0 = very important

THE ‘WHY’ DIMENSIONMOTIVE FOR INTERNATIONALISINGOn top management decision to be regional/ international players:MAH SING GROUP - From 0% in 2010 to 30% by 2015.PERDANA PARKCITY SDN BHD“For me, the sooner we get into actualising our vision to be aregional player the better it would be for the company.”Lee Liam Chye, Chief Executive Officer, 2010Perdana Parkcity Sdn Bhd GroupYTL LAND & DEVELOPMENT BHD – “serious international player.”SUNWAY CITY BHD – From < 5% in 2010 to 30% by 2015.

THE ‘WHY’ DIMENSIONMOTIVE FOR INTERNATIONALISINGOn saturated home market:“The Group needed to look overseas for expansion as Malaysiawas too small for the company….”Tan Sri Dato’ Seri Dr Jeffry Cheah, Chairman, 2005Sunway GroupOn utilising language and cultural similarities:Selangor Dredging Bhd’s foray into Singapore.

THE ‘WHY’ DIMENSIONTOP MANAGEMENT CHARACTERISTICSManagement characteristic Mean S. D. Level of importanceWilling to take firm to the int. markets 4.25 0.46 Imp.Has international experience 4.13 0.64 Imp.Considers international markets important 4.00 0.54 Imp.Uses a lot of time in planning int. operations 3.87 0.35 Imp.Visits targeted foreign markets 3.75 0.89 Imp.Wants to succeed internationally 3.75 1.28 Imp.Internationalisation is desirable 3.63 0.52 Imp.Higher education 3.38 0.52 Mod. imp.Different functional background 3.25 0.71 Mod. imp.Substantial resources allocated to int. 3.25 0.89 Mod. imp.Int. is the only way to achieve growth objectives 3.13 0.99 Mod. imp.Top mgmt. consists of young members 2.63 0.92 Mod. imp.From 1.0 to less than 1.5= unimportant, from 1.5 to less than 2.5= little importance, from 2.5 to less than 3.5= moderatelyimportant, from 3.5 to less than 4.5= important, from 4.5 to 5.0 = very important

COMPETITIVE ADVANTAGESTHE ‘WHAT’ DIMENSIONCompetitive advantage Mean S. D. Level of importanceUnderstanding foreign market potential 4.50 0.54 Very imp.Large financial capital 4.25 0.46 Imp.Understanding house buyers’ demands 4.13 0.99 Imp.Superior & innovative prop. dev. skills 4.13 0.35 Imp.HQ-overseas coordination 4.00 0.54 Imp.Firm’s name and image 4.00 0.54 Imp.Relationship w. local and central auth. inhost countries3.88 0.84 Imp.Business relationship with host country 3.88 0.84 Imp.Large experience & capable workforce 3.87 0.35 Imp.Part of a larger group 3.87 1.13 Imp.Business relationship with M’sian firms 3.63 0.52 Imp.Previous international expertise 3.63 0.52 Imp.From 1.0 to less than 1.5= unimportant, from 1.5 to less than 2.5= little importance, from 2.5 to less than 3.5=moderately important, from 3.5 to less than 4.5= important, from 4.5 to 5.0 = very important

COMPETITIVE ADVANTAGESTHE ‘WHAT’ DIMENSIONOn understanding foreign market potential:SP Setia Bhd preferred joint venture with locals to enable themto have a clear understanding and correct market perception ofthe property marketTeow Leong Seng, Executive Director, 2007SP Setia BhdOn large financial capital:In April 2007, Ireka Corporation Bhd listed on the London StockExchange Aseana Properties Limited (ASPL), the first Malaysianproperty fund to be listed there.

COMPETITIVE ADVANTAGESTHE ‘WHAT’ DIMENSIONOn business relationship with host country firms:“IJM will stick to the same strategy as in the past, which is to gointo any country as a contractor first and then findingopportunities to develop properties there.”Krishnan Tan, CEO and MD, 2007IJM Corpn Bhd

COMPETITIVE ADVANTAGESSize does matter:Billionaire club:SP Setia Bhd and Sunway BhdTHE ‘WHAT’ DIMENSIONMergers and acquisition:In 2007, Sime Darby Bhd, Kumpulan Guthrie Bhd and Golden HopePlantation Bhd merged.I & P Group Sdn Bhd combination of I & P Bhd, Pelangi Sdn Bhd andPetaling Gardens Sdn Bhd.In 2007, RB Land Holdings Bhd merged with IJM Properties tobecome IJM Land Bhd

COMPETITIVE ADVANTAGESTo list or not to list?THE ‘WHAT’ DIMENSION“As a listed company, you are compelled to fix things short termand that does not go well with township developments. Intownship, we always fix things on long-term consideration.”Lee Liam Chye, Group Chief Executive Officer, 2010Perdana Parkcity Sdn Bhd

LOCATIONAL CONSIDERATIONSTHE ‘WHERE’ DIMENSIONLocational consideration Mean S. D. Level of importanceAvailability & cost of land 4.88 0.35 Very imp.Size of market 4.75 0.46 Very imp.Political stability 4.75 0.46 Very imp.Purchasing power 4.75 0.46 Very imp.Local land & development laws 4.62 0.52 Very imp.Cost of doing business 4.50 0.54 Very imp.Market growth 4.50 0.54 Very imp.Stable & functional banking system 4.50 0.54 Very imp.Level of infrastructure 4.38 0.52 Imp.GDP growth 4.25 0.46 Imp.Policies on FDI 4.25 0.71 Imp.Taxation rate 4.25 0.71 Imp.Level of quality 4.13 0.35 Imp.Housing policies 4.13 0.64 Imp.Bureaucratic efficiency 4.13 0.64 Imp.From 1.0 to less than 1.5= unimportant, from 1.5 to less than 2.5= little importance, from 2.5 to less than 3.5=moderately important, from 3.5 to less than 4.5= important, from 4.5 to 5.0 = very important

LOCATIONAL CONSIDERATIONSTHE ‘WHERE’ DIMENSIONLocational consideration Mean S. D. Level of importanceLabour laws 4.13 0.35 ImpExchange rate 4.13 0.64 ImpConstruction standard 4.00 0.000 ImpCompetition in the industry 4.00 0.000 ImpSize of the industry 4.00 0.000 ImpPercentage of urban population 4.00 0.76 ImpGrowing population 4.00 0.76 ImpLabour costs 4.00 0.54 ImpTechnological capacity 3.88 0.35 Imp.Availability of trained workforce 3.88 0.64 Imp.Availability of arbitration laws 3.63 0.52 Imp.Bilateral agreement with Malaysia 3.63 0.92 Imp.Language and cultural similarity 3.50 0.76 Imp.Signing of free trade agreement 3.50 0.76 Imp.Previous venture by other int. firms 3.38 0.74 Mod. imp.From 1.0 to less than 1.5= unimportant, from 1.5 to less than 2.5= little importance, from 2.5 to less than 3.5=moderately important, from 3.5 to less than 4.5= important, from 4.5 to 5.0 = very important

THE ‘WHERE’ DIMENSIONDEVELOPED ECONOMIES VS DEVELOPING ECONOMIESDeveloped economiesPolitical stability, high purchasing power, transparent rulesand regulations, effective banking system, governmentefficiency.“You know what kind of business environment you are goinginto.”Interviewee, Company A1Local developers dominate market, flat populationgrowth, slow urbanisation.

THE ‘WHERE’ DIMENSIONDEVELOPED ECONOMIES VS DEVELOPING ECONOMIESDeveloping economiesAbdundant inexpensive land, market growth, first moveradvantage possible.Unstable political backdrop, weak economy, low purchasingpower, high inflation, ambiguous regulations, inadequateland laws and legislative regime, poor banking system,rampant corruption, poor support services.

THE ‘WHERE’ DIMENSIONThere is a notable contrast between the countries Malaysian housingdevelopers entered in the 1990s and in the present decade.In the 1990s:Albania (Penang Shipbuilding Corporation Bhd), Chile(IJM), Mauritius (Country Heights), South Africa (Country Heightsand MRCB), Namibia (Malaysian Construction Ventures (Overseas).In the present decade:Vietnam, Singapore, India and ChinaIsolated few to Canada (Sunrise Bhd), Japan (Asia Pacific Land),Libya (Berjaya Land).In 1990s, mainly politically driven. In the present decade, commercialimperative takes precedence.

THE ‘WHERE’ DIMENSIONPromising markets, 2006Country PercentageChina 27Australia 18Indonesia 18Middle East 18New Zealand 9Vietnam 9Singapore 9Brunei 9India 9Burma 9East Timor 9

THE ‘WHERE’ DIMENSIONIf survey is conducted today, the results are likely to change.Vietnam, China, Singapore and Indonesia are likely to be favouritemarkets.Sunway City Bhd targets China, India , Vietnam and other emergingmarkets.Mah Sing targets Vietnam, China, Singapore, Australia and Indonesia.SP Setia is looking at China, India, Pakistan and Middle East.“We strongly believe in the future of Vietnam… What we saw inMalaysia 20 years ago as well as China in the last 10 years made usbelieve Vietnam will soon follow suit.”Lai Voon Hon, CEO, 2010Ireka Development Management Sdn Bhd

THE ‘HOW’ DIMENSIONModes of market entryMode Mean S. D. Level of importanceOwn-firm initiative 3.75 0.71 Imp.Alliance with host country firms 3.63 0.52 Imp.Invitation from host countrygovernmentGovernment to governmentagreementAlliance with Malaysian firmsAlliance with third countryfirms3.25 0.71 Mod. imp.2.50 0.76 Mod. imp.2.25 0.46 Little imp.2.00 0.54 Little imp.From 1.0 to less than 1.5= unimportant, from 1.5 to less than 2.5= little importance, from 2.5 toless than 3.5= moderately important, from 3.5 to less than 4.5= important, from 4.5 to 5.0 = veryimportant

THE ‘HOW’ DIMENSIONIf the survey is repeated today, the order is likely to differ:Government-to-government agreement is almost unheard ofcompared to Tun Mahathir era.Own-firm initiatives likely to be overtaken by alliances with hostcountry firms (Acmar International Group in China, MulphaInternational Bhd in Australia).Alliance with Malaysian businesses remain highly uncommon(YTL /LP World Sdn Bhd).Alliance with third country parties remain highly uncommon(YTL/Lehman Brothers, Land and General Bhd/ Far EastConsortium).

THE ‘HOW’ DIMENSIONExpansion through associate companies in third countriesremain rare (MUI Properties Bhd/Hong Kong Morning StarResources Ltd, Berjaya/Berjaya Leisure (Cayman) Ltd, HongLeong Group/Guocoland Ltd).Acquisitions of host companies getting popular (MetacorpBhd/Whitsundays Pty Ltd, Mulpha International/FKP Ltd,Metacorp Bhd/Wingcon Development Ceylon (Private) Ltd,MRCB/ Yes 88 Pty Ltd, Ireka/ Nam Long Investment Corporation,Gamuda Bhd/ Tan Thang).

THE ‘HOW’ DIMENSIONRESOURCES DERIVED FROM LOCAL PARTNERSResources Mean S. D. Level of importanceExchanging of market information 3.13 0.64 Mod. imp.Sharing of technical expertise 2.88 0.99 Mod. imp.Facilitating introduction to markets 2.87 0.35 Mod. imp.Sharing of human resources 2.62 0.74 Mod. imp.Sharing of plant and machineries 2.25 1.04 Little imp.Sharing of financial resources 2.13 0.64 Little imp.From 1.0 to less than 1.5= unimportant, from 1.5 to less than 2.5= little importance, from 2.5 toless than 3.5= moderately important, from 3.5 to less than 4.5= important, from 4.5 to 5.0 = veryimportantGiven the current propensity of Malaysian housing developers to tieupwith locals, the possibility is that the scores given are likely to behigher if the survey is conducted today.

THE ‘HOW’ DIMENSION“Normally when we choose our JV partner, it must be someone withdifferent expertise/ strengths so that we can complement each other.Obviously the partner has to have access to good land bank,whether they own it or they can get access to it. We are trying to belike Capitaland.”Monica Voon, Group Financial Controller, 2007Ireka Corp Bhd“We are currently identifying suitable partners for our overseasprojects there. We need to take into account a whole range offactors and the most important criterion we are looking for is thatthe joint venture partner should be a reputable and large developerwith extensive knowledge of the market.”Interviewee, NAPREC, 2006

IS THERE AN OPTIMUM INTERNATIONAL REACH?Data from UK and USA suggests yes – 4 or 5 countries concurrently.Capitaland operates in 110 cities in 20 countries.

CONCLUSIONCommendable that some Malaysian housing developers haveventured overseas so early in their corporate lives.‘Malaysia Boleh!’

CONCLUSIONabdulrashid.abdulaziz@gmail.com