Comparative Analysis of Retail Industry of Malaysia & Saudi Arabia

Fig 1: shows an eXtra store, Saudi Arabia’s leading electronic retail. Source:  alroyya.com

Retail industry is the part of the economy, involved in selling finished products to the end users. Retail shops could be found in wide range of formats, ranging from large hyper markets and department stores, to small convenience stores and general stores. It primarily includes six sub categories: - food & general retail, fashion apparels, fast food restaurants, fast manufacturing consumer goods (fmcg), luxury products and electronic appliances & consumer durables.

All across the globe, both in the developed as well as developing world, retail industry plays a pivotal role in the national economies. It has a wide range of direct as well as indirect economic significance- ranging from mass level employment generation (both urban and rural) to bringing, speed and efficiency into the entire supply chain system.   

The given report intents, comparing retail sectors Malaysia and Saudi Arabia; one an emerging economy and a constitutional monarchy from South East Asia and other an oil rich Islamic Monarchy from the Gulf. Both the nation, share similarities across various socio-cultural as well as demographic parameter. Hence provide a good case to do comparative analysis. They will be compared across following parameters- economics, retail industry outlook, policy frame work, tourism, demographics and transportation.  

Economics, demographics & infrastructure

The following part compares Malaysia and Saudi Arabia, across few of the general economic, demographic and infra structure related parameters.

Fig 1: shows the GDP growth rate of Malaysia and Saudi Arabia vis- a-vis, world’s growth rate.

Table 1: compares Malaysia and Saudi Arabia across various economic parameters. Source: World Bank

Table 2: compares Malaysia and Saudi Arabia across parameters related to infrastructure. Source: World Bank.

Retail industry outlook

Malaysia

Malaysia, an upper middle income country according to World Bank, enjoys a robust and growing retail sectors. According to Business Monitor International, total retail sales in Malaysia were estimated at US $ 33 billion, in 2009.  Like other Asian countries it has penchant for gigantic malls and hypermarkets and is dominated by players such as Giant (domestic), Tesco (UK) and Care four (France). The retail sector in Malaysia is fueled by large proportion urbanized middle class (50% of the population) with high disposable income; a large proportion of youth (42% aged between 10 and 34, as on 2008) and high tourist arrival. Tourism accounts for 30% of retail consumption in Malaysia.  (RECON, 2008)

Fig 2: shows the growth in retail sales vis-a-vis GDP growth rate for 2010. Source: Thestaronline.com 

Fig 3: shows the number of outlet and total sales for major retailer in Malaysia for 2009. Source: Malaysia retail annual report, USDA Foreign Network.

Saudi Arabia

Saudi Arabia is the biggest Gulf country and the biggest economy in the Middle East and North Africa region (MENA) region. The region is marked by growth in retail space, young demographics, high tourist arrival and change of role of women in social sphere. Saudi Arabia, the biggest and one of the freest economies in the region, is considered as one of the most fertile market for the retail industry. Rapidly growing population, brand conscious young demographics (45 percentage of population aged 20-44) and high level of disposable income will be key drivers for the industry, in the kingdom. After oil, banking and telecom; retail is the fourth largest industry in the country, both in terms of number of, establishments as well as employees. It earned a total of US $ 55 billion, from retail sales in 2008, up from US $ 37 billion in 2004. (PR Log, 2009) The market is dominated by small retail stores, though big retailers, both domestic and international players, are trying to up their ante in the much fragmented retail industry.     

Table 3: shows values for various retail industry related parameters. Source: JONES LANG LASALLE, AMEinfo.com 

Fig 4: shows the retail sales of Saudi Arabia, in billion US $, over the last few years. Source: AMEinfo.com

Presence of major retail brands in Malaysia & Saudi Arabia

The following part of the report will compare the presence of few of the leading retail brands in Malaysia and Saudi Arabia. The no. of outlets, in some of the cases, has been described in brackets.

Table 4: shows the presence of some of the major retail brands in Malaysia and Saudi Arabia. Source: Mystore411.com and others

Policy   

One of the key pillars for the growth of any industry in a country is policy and regulatory framework. An open and market oriented policy framework are more likely to stimulate growth and development in the long run. The following part of the report will compare Malaysia and Saudi Arabia across general business environment as well as policy framework pertaining to retail industry.

Retail business environment

General business environment

Saudi Arabian economy is marked by liberal economic policies and free market mechanisms stimulating foreign investments. The kingdom has biggest oil reserve outside Soviet Union and USA and like other Gulf counterparts, aim at diversifying its economy into industrial and service sector. The state generally does not interfere with the inflow and outflow of capital. It incentivizes businesses by providing favorable tax exempts, subsidies, provision of land at low price, exemption of custom duties on export etc.  (Al A, 2007)

In line with Saudi Arabia, Malaysian economy is also marked with investor friendly business environment. During 1970s, when Malaysian economy was primarily based on mining and agriculture, govt. took diversification measures backed with centralized planning. During 70s to 90s, like other Asian Tigers, Malaysia recorded a strong economic growth. In the present time also govt. plays a pivotal role in the economy, but gradually it is reducing. One of the remarkable features of Malaysia economy is availability of easy credits.

   

Malaysia

The key elements of retail industry (especially pertaining to foreign investments) policies of Malaysia are as follows (MDTCC, 2010)

·         Aims at modernization of the industry, ensuring growth of the local business at the same time

·         All foreign involvements in retail sector, including; acquisition & merger, expansion, relocation, buying, taking over etc; require permission from Ministry of domestic trade, cooperative and consumerism (MTDCC).

·          Work force should be reflective of over all racial composition of Malaysian population. It should ensure development of local inhabitants or Bumiputera.

·         Regulatory framework for Hypermarket-minimum capital required is US $15.95 million (RM 50 million), at least 30% stake should be provided to Bumiputera within 3 years of incorporation, minimum floor space should be 5000 square meters and 30% of space needs to be allocated for Bumiputera SME product.

·         Regulatory framework for Departmental store-minimum capital required is US $6.38 million (RM 20 million), and 30% of space needs to be allocated for Bumiputera SME product.

·         Foreign investment is not allowed in the following- super market/ mini market (<3000 square meters), provision shop, convenience stores, fuel station with convenience stores, etc.           

Saudi Arabia

The key elements of retail industry (especially pertaining to foreign investments) policies of Saudi Arabia are as follows:

·         Retail being one of the few sectors, in Saudi Arabia, where 100 percent foreign ownership is not permitted. As per the guidelines, last revised in 2004, the maximum limit for foreign ownership in retail sector is 49 percentages.

·         Any company in Saudi Arabia, with foreign investment, requires a foreign investment license.  

·         Franchising a popular concept used in the Kingdom. Franchise owners need to be local inhabitants and not 3^rd party. Many of the leading retail brands such as Baskin Robins, McDonalds, and Burger King Etc operate in the Kingdom in franchise arrangement.   

Tourism

Along with local inhabitants, tourism inflow also helps in boosting retail sales. Both Malaysia and Saudi Arabia are successful tourism destination. Religious pilgrimage is the key driver of Saudi tourism, whereas its Malaysian counterpart depends on exotic beachfront resorts, festivals and medical tourism. The following chart compares tourist inflow of Malaysia and Saudi Arabia.

 Fig 5: compares the annual inflow of foreign tourists in millions, for Malaysia and Saudi Arabia. Source: Tourism Malaysia and Indexmundi.

Demographics

Demographic profile is one of the key drivers of the retail industry worldwide. A young, vibrant and well aware population ensures high spending on retail.   

Table 5: compares Malaysia and Saudi Arabia across demographic parameters. Data are for the year 2010. Source:  CIA World Fact book.

Transportation

A good transportation network, especially high volume of private motor vehicles, ensures the growth and development of out of town hyper markets. In the absence of motor vehicle people tend to visit nearby retail stores only.    

A well developed transport and logistics network does not only help in sales but also ensures better functioning of big hyper market chains. In the absence of good logistic, big hypermarket chains are unlikely to import and circulate retail items in large volume, effectively. 

Table 6: compares Malaysia and Saudi Arabia across transportation parameters (most recent by year). Source: nationmaster.com, numbeo.com

Conclusion

The report has compared Malaysia and Saudi Arabia across various parameters- economics, retail industry outlook, policy frame work, tourism, demographics and transportation. As discussed earlier, both the nations offer a great case to study. They have their own share of agreements as well as disagreements. Some of the key conclusions drawn are as follows:

·         In both the countries, retail sector is important constituent of the national GDP and is witnessing high annual growth. The high growth of the retail sector is fuelled by higher disposable income, high percentages of youth and vibrant tourism sectors.

·         Malaysia is considered as a high middle income country, where as Saudi Arabia, on account of high oil and natural gas reserve, is one of the rich nations in the world. Marked with high per capita income, it is a more fertile ground for luxury retail.

·         Both are luring big retail brands to operate in their country. Saudi Arabia is a better destination than Malaysia in terms of a number of ease of doing business parameters such as – dealing with construction permit, getting electricity, registering property, taxation etc. Malaysia’s strength lies in the easy credits and high FDI in retail; 70 % against, 49 % in Saudi Arabia

·         Malaysia has better infrastructure, logistic as well as telecommunication infrastructure, both considered as a backbone for developing a vibrant retail sector. Saudi Arabian strength lies in availability of gasoline at dirt cheap price and high availability of electricity.

Reference

1>    RECON, 2008, Malaysia: a gateway to South East Asia,

2>    Al Amri, 2007, doing business in Saudi Arabia, available at < http://www.alamri.com/DOING%20BUSINESS%20IN%20SAUDI%20ARABIA.pdf>

3>    Doing Business, 2011, home page, available at http://www.doingbusiness.org/rankings

4>    MDTCC, 2011, Guide lines for foreign participation in the distributive trade, available at < http://www.kpdnkk.gov.my/kpdnkk-theme/images/pdf/WRT_Guideline.pdf> 

5>    Masterintelligence.com, 2011, Master card worldwide consumer confidence index, available at < http://www.masterintelligence.com/ViewRegionReport.jsp?hidReportTypeId=2&hidRegionId=1&hidUserId=null>

The Rocket Science of understanding “consumer INDIA”

                                             

 Science of shopping: The Indian context

Real innovations are usually hard to find. There are plenty of tomes that have been written about innovation. It means two simple things: Sharp consumer insights backed by courage of conviction. Of these, the latter is usually just as important in India. Would you agree?



Way back in 2001, Kishore Biyani tried his hand at big-box retailing. Till then, most retailers had stuck to the department store format — or opened supermarkets, particularly down South. In Kolkata, Biyani opened his first Big Bazaar, a soups-to-nuts hypermarket. Within the first week, Biyani knew that he had found the Holy Grail. In the very first week, the store pulled in one lakh customers generating a daily turnover of Rs. 1 crore on some days. “I’ve found the pan Indian model of retail,”. He was right.


An Irishman when asked to define trousers gave the following reply, “'trousers' was singular at the top and plural at the bottom!”. It also holds true for consumer India. From the top we are a one billion capacity consumer base, but when seen through multiple lenses we do find a great deal of diversification. There are many aspects like the demographic, cultural and the social trends and identifies the strategic themes and approaches that businesses must think about when addressing Consumer India.


Let us consider two identities, Balwinder Singh; a farmer who has devoted his life in agriculture to feed his family and himself. The second one would be Sumit Arora; an investment banker and an alumni of ivory league B-school. Now how important is the word SENSEX in Balwinder’s life, the answer is very simple… “zero”. Whereas for Sumit it’s a part of his bread & butter. Sumit again is least bothered if the monsoon delayed by a month or so, but ask Balwinder, his whole livelihood may change if there is a delay in monsoon. I quoted this example to brief you about how diversified India is as a country.


Keeping all the above aspects into consideration, imagine the amount of pressure various companies would be in, in order to make the consumer feel the tempt to buy its product. The bargaining power of consumer India is so high, that a small mistake could prove fatal. But still the companies fight & fight with one another and leaves no stone unturned in gaining consumers attention.


“Retailing” is the word which caught up pace in last three to four years. The events of the last 15-18 months have provided a steep learning for the retail and consumer product industry. While the last decade (2000-2009) has seen significant addition to consumption and retail market, it is expected that consumption is likely to double in India over the next 5 years, (nominal growth of Rs 33.75 lakh crore). There is going to be significant changes in the overall consumption basket hence brands in low involvement categories would be under the increasing threat of commoditization. Profitable growth would be the emphasis for retailers and investors in the time to come. We expect that in the next 5-10 years, the scale of business opportunity and pace of change would be fundamentally different from what it has been in the past. This calls for almost every company to go back to the strategy drawing board and develop a vision for the next decade in order to emerge as a successful player in the consumer and retail sector. Companies have switched gears and are targeting on this sector to maximize the sales & to brand them to the core. Important thing to consider here is that, out of all the footfalls generated how a company maximizes on its objective.There is a science involved in this. Now the brand manager of the company needs to understand this science to help the sales figure grow at a brisk pace. This science is well explained by Paca Underhill in this book “The Science of Shopping”. The book is divided into three parts: the mechanics of shopping – these involve how customers react to the physical layout and the staff activities in the store, etc; the demographics of purchasing – this part deals with different behaviors of segmented market based on sexes and ages; and the final part engages in the dynamics of shopping – how shoppers respond psychologically to the placement of merchandise, the packaging, and other product features

According to Paco;

1. The retail environment must tailor fit to the physical and anatomical abilities and other needs that are common to all people. Where shoppers go, what they see and how they respond determine the very nature of their shopping experience. In other words, build and operate the retail environment that fits the highly particular needs of shoppers and you’ve created a successful store

2. Underhill went all the trouble of getting his facts right through practical research studies such as observing actual shoppers’ behaviors and talking to the CEOs and retail managers. The result? Consumer behavior + economics = profitability.

3. Shoppers and potential customers have certain ways of walking through stores and how they look at the visual signs. They use the five senses and they want verification with their whole body before buying a product. If you understand such behaviors, you acquire huge competitive advantage.

4. Women and men shop differently. As quoted from the book, “men are from Sears’s hardware, women are from Bloomingdales’”. Men are likely to go into a store, look at a large shelf of items, pick one, and quickly leave. Women on the other hand are actually more information-intensive, reading the label before making a purchase

If we juxtapose the concept given by Rama Bijapurkar in her book “We are like that only” to that of Paco Underhill’s “ Why we buy”; we can say that things in India can be summon up if the companies have a thorough understanding of what exactly a customer wants and what factors influence him to take a decision. Easier said than done, companies are still finding it hard to understand this.



A consumer doesn't take anything away: he doesn't actually consume anything. Giving the same thing to a thousand consumers is not really any more expensive than giving it to just one.



……. “Linus Torvalds”

Blog written by "Anurag Chatterjee"
MBA Student
Mumbai Business School