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< BACHELOR ACCOUNTING>

< JAN 2021>

< BBNG 3103 >

< INTERNATIONAL BUSINESS >

MATRICULATION NO : <960828016204001>

IDENTITY CARD NO. : <960828016204>

TELEPHONE NO. : <018-4654028>

E-MAIL  : <KERTTANA28@GMAIL.COM>

LEARNING CENTRE : <JOHOR>

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                                                    Content                                                  
Pages              

1.0 Introduction to international business and its significance

to Malaysian economy …………………………………………………. 3-5

2.0 Factors that influence the success of international business …………… 5-9

3.0 Risks faced by Malaysian firms involved with international business …… 9-11

4.0 Conclusion…………………………………………………………… 12-13

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1.0 Different nations all over the world are experiencing and essential change in the way they

deliver and market various items, products and services. The national economies that were

accomplishing the objective of self-sustainability are currently developing route towards

International Business. The factor for this crucial change is the development of correspondence,

innovation, communication, infrastructure. Business activities done across national borders is

International Business. The International business is the purchasing and selling of goods,

commodities and services outside its national borders. Such trade modes might be owned by the

state- or privately-owned organization. The organization explores trade opportunities outside its

domestic national borders to extend their own business activities, for example, manufacturing,

mining, construction, agriculture, banking, insurance, health, education, transportation,

communication and so on. The economy of Malaysia is the sixth largest in Southeast Asia

according to the International Monetary Fund 2020. It is also the 39 th largest economy in the

world. Malaysia is a mature oil and gas producing country. Malaysia’s refined petroleum

was exported mostly to Asian countries. Among its fastest-grown customers between 2017-

2018 were China, Vietnam and Bangladesh. PETRONAS is the national oil company, which

is fully owned by Government and has the ownership rights and control of the country’s

petroleum resources. Prospects for the Malaysia’s oil and gas industry are bright, especially

in deep water and ultra-deep-water areas, where only half of identified exploration acreages

have been explored. Only a few of the discovered deep-water fields have been develop for

production. Malaysia is ranked as the world’s 24th largest procedure of oil and 14th largest

procedure of gas. Until 1990 the exploration was limited to shallow waters, but subsequently

16 deep water fields have been discovered. The first oil well in Malaysia was discovered by

Shell in 1910 in Miri, Sarawak. Until 1963, shell was the only oil company operating in this

area. In 1968, shell began production at the first offshore oil field. Some years, later Esso

received a license to undertake exploration activity in the Malay Peninsula. By 1974,

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Malaysia’s output of crude oil was about 81000 barrels per day. To prevent foreign

companies getting too much control over oil exploration, the Malaysia Government

established a state-owned oil company, PETRONAS, in August 1974. The company entered the

downstream industry for the first time in 1976 and in the same year Malaysia became a net

exporter of oil. The oil reserves were estimated to be about 2.84 billion barrels early in the 1980s.

Still it was officially predicted that by the late 1980s Malaysia would be net oil importer. When

the oil prices fell dramatic during 1986, Malaysia’s income from exported oil decreased by more

than a third, even though the volume of exports rose by 16 percent. In 1989 PETRONAS had

however signed 22 new contracts with 31 companies from 11 countries. Resources Malaysia’s

proven reserves of crude oil are 4 billion barrels and 2.35 trillion cubic meters of natural gas.

Most of the oil reserves are located off the coast of Peninsular Malaysia and are considered of

high quality. Much of the natural gas production comes from Eastern Malaysia, especially off the

shores of Sarawak. Next, Malaysia is a maritime nation which is heavily dependent on shipping

for trading purpose. About 95% of Malaysia’s international trade is seaborne, which makes

shipping and the maritime sector a very important component of the national economy. Malaysia

is one of the three countries that control the Strait Malacca, an 805-kilometre passage between

Malaysia and the Indonesian island of Sumatra. The straits are the main shipping channel

between the Indian Ocean and the Pacific Ocean and connects the major Asian economies such

as China, India and Japan. The Malaysian shipping sector is heavily coloured by the energy

industry and most activities are related to the national oil company, Petronas. Malaysia is ranked

21st in terms of global fleet size, and Malaysian ship-owners control 1.06 percent of the global

capacity in terms of DWT. Aquaculture is one of the fastest growing food production system in

the world. A great amount of output is being produced in South-East Asia. In Malaysia, the

aquaculture sector provides vital source of animal protein, promotes rural development, and

reduces poverty by providing employment. The fisheries sector has for decades played an
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important role as a major supplier of animal protein to the Malaysia population. Par capita

consumption of fish is quite elevated at about 59kg in 2016, which is one of the highest in the

world. A large portion of the fish produced in the country is consumed domestically. Today

Malaysia is net importer of fish in terms of volume and a net exporter in monetary terms. The

aquaculture sector is recognized a vital component of Malaysia’s national food production, and

the Department of Fisheries has identified aquaculture as an important sector for future

development. Finally, as of 2017, Malaysia is the fifth largest producer and exporter of natural

rubber. Rubber manufacturers in Malaysia include local smallholders, plantations,

multinationals and joint ventures with the United States, Europe and Japan. Malaysia has a total

rubber area of 1.07million hectares, out of which 7.21percent is owned by plantation companies.

Ninety percent of production is accounted by smallholders who generally hold less than 40 acres

of agricultural land. Malaysia also produces specialty rubber such as the epoxidized natural

rubber (Ekoprena) and deproteinized natural rubber (Pureprena) that can be used in green tires

and high-performance engineering products to capitalize on the growing preference for natural

and renewable materials. Malaysia rubber products are exported to more than 190 countries. For

example, USA, China, UK, Japan and so on. USA and EU (EU27) remained the largest markets

for Malaysian rubber products, accounting for a combined 53% share of total exports of rubber

products. Malaysia remains the world’s leading supplier of medical gloves (examination and

surgical gloves), supplying more than 50% of the global demand. Malaysia is also one of the

world’s leading suppliers of condoms, latex threads and catheters.

2.0 Cultural is one of the factors that influence the success of international business. Culture is a

key ingredient in the management of international business. Often multinational corporations

(MNCs) operate in different cultural environments characterised by foreign languages, beliefs,

values and lifestyles. Culture can be a liability of foreignness and could pose as a risk to the

MNC’s success abroad. Language mistakes and blunders are embarrassing and often
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unnecessary, for example careless translation in advertising slogans or products labels. Some

examples of language mistakes in cross-cultural marketing illustrate how crucial language is in

international business. For example, in Chinese the Kentucky Fried Chicken slogan “finger-

lickin’ good” came out as “eat your fingers off”. For non-verbal language, facial expressions and

hand gestures can have different interpretations in different cultures and often complicate

international communication. Some examples of silent language blunder and lack of cultural

awareness, for example an American executive refused an offer of a cup of coffee from a Saudi

businessman. Such a rejection is considered very rude and the business negotiations were

terminated. Furthermore, religion influences attitudes towards consumption, business practices

and social organisation. How religion can influence international business for example, in the

Islamic market, Nokia launched a mobile phone that shows Muslims the direction towards

Mecca, Islam’s holiest site. Heineken, the Dutch brewing giant, rolled out the non-alcoholic malt

drink, Fayrouz. Furthermore, China is Malaysia’s largest trading partner for many years since

Year 2008 and further establishes the long-term relationship after construct the Malaysian-China

Kuantan Industrial Park. In future, these two nations will have many trading and expected to face

more challenges in international business. China is very particular in “Guanxi” which stands for

building relationship with business partners. Furthermore, Malaysia is facing the challenges of

cultural issues when conducting international business with different nations. This issue generally

can be categorized based on Hofstede’s four culture dimensions which are power distance,

individualism, uncertainty avoidance and masculinity. Analysis had shown that Malaysia is very

different in these four dimensions compared to European Union and United States of America.

Malaysia always scores high in power distance and masculinity whereby western business

partners are low in these dimensions. It creates the challenges for Malaysia in future international

trade and investment since they are having closer trading relationship in coming years. Finally,

cultural plays important role in international business because it involves sensitive issues such as
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religious, norms and customs. Political environment one of the factors that influence the success

of international business. Political instability makes it difficult for foreign investment and any

operation that uses the resources in a country. According to Ranganathan and Reuters (2015), the

political scandal linked to the country’s Prime Minister has caused foreign investors pull up to 1

billion USD out of Malaysia in September 2015. They also mentioned a huge government bonds

worth approximately RM11 billion are due in year 2015 which on average 45% owned by

foreign investors. They are expected to pull their cash out instead of re-invest in Malaysia for

following years. It has reduced the Malaysia competitiveness in international business. This

serious scandal has affected the country future position in international business since foreign

investors’ confidence levels might be reduce. Malaysia in future international business will be

affected which not only for foreign investors, but also affect local government linked enterprise

that going abroad. The country’s foreign exchange reserves have dropped to the lowest since year

2008 which many analysts believe it is part of the political side effect (Bloomberg Business,

2015). As a result, for long term effect from political risk towards international business, there are

many huge foreign investments opportunities have withdrawn such as cold LPG storage facility

which consists of billion dollars investments. Political risk has ended up with reducing

Malaysia’s competitiveness in future international trade and investments. Besides, the lack of

unified government planning will also hinder the international business. The poor collaboration

between local and federal governments is the concerns for international investments since the

uncertainty will trigger the confidence from global market. Malaysian Economy is factor that

influence success of international business. There are few external factors affecting and the

foreign capital outflow (Saleem,2015). Similar global economics scenario was experienced in

2007 to 2008 due to the rise of oil and diesel prices caused by supply disruptions and higher

demand and one of the consequences of the global financial crisis was the hike of material prices

(Hamilton,2019). In Bank Negara Malaysia Annual Report 2015, since September 2014, the
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continuous depreciation if the ringgit has increased concerns about the risk of higher inflation in

Malaysia. The ringgit depreciation fosters the inflation in the country and the weaker ringgit not

strengthened or improved import or exports as per what happened to Malaysia in 1977 due to

Asian Financial Crisis (AFC). Furthermore, inflation influences a country’s exchange rate. When

there is inflation, the value of currency falls. The purchasing power of currency is reduced.

Generally, country with low inflation rate will have a relatively stable and strong currency.

MNCs prefer to invest in economies with low and stable inflation rate which are conductive for

economic growth while high inflation indicates economic instability, rising costa and poor

control of the economy by the government. Goods produced in the country will be expensive and

this leads to high export prices. This may have a negative impact on FDI. Besides, economic

factor is created a big challenge for Malaysia in its future international business market. Some

example which is Malaysia is a net exporter of crude oil which the country has experienced good

profits for past decades. However, the drop in the oil price is uncertainty in future has keep

reducing the country’s competitiveness. For example, Malaysia’s international trade for crude oil

has been reduced from RM19 billion in Year 2008 to RM6.5 billion in Year 2014. It results in

lower oil export revenues causes negative net trade of RM1 billion. In future, the oil price may

continuous drop and weaker the country income. Export market attractiveness which product

quality is the most important factor that influencing success of international business, if a

company intended to achieve a reasonable level of export performance, then product quality was

essential and conformity to some international standard was an advantage, particularly when

negotiating tenders. Having decided on the specific market they intend to sell to exporters must

endeavour to provide a comprehensive range of products to service the market, since major users

would prefer to award tenders to suppliers who can supply most of their requirements. For

example, a tyre supplier who can also offer tubes and other related accessories would stand a

better chance of being successful when negotiating a contract. Exporting is a highly competitive
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business. The export price must be fully competitive before reasonable volumes can be obtained.

In order to remain fully price competitive, it is essential to obtain regular feedback on

competitor’s prices. It is also important to review one’s own production costs at frequent intervals

for example, quarterly so that any downturn in raw material costs or changes in productivity can

immediately be reflected in pricing, with a view to keeping export products competitively priced.

There are many different methods of distribution in overseas markets. These can be through

distributors, dealers, commission agents or via direct sale to end-users and there is no hard and

fast rule to determine which of these methods of distribution is the best alternative. The type of

product and the volume of business largely determine the choice and the degree of specialisation

required in marketing the product. In order to maintain firm’s position in export market, it is

necessary to keep up to date with trends and technology developments.

3.0 There are several risks faced by Malaysian firms involved in international business:

DELAY IN SHIPMENTS

Malaysia’s Top Glove Corporation Bhd, the world’s largest glove maker, expects a product

shortage as demand from Europe and United States spikes because of the widening Covid-19

coronavirus outbreak is exceeding its capacity. The company has extended shipping times to

cope with the demand surge, executive chairman Lim Wee Chai told Reuters. Lim said orders

received in the past weeks, mainly from Europe and the United States, were almost double

the company’s production capacity. Some of the customer normally order 10 containers a

month but on covid-19 pandemic they increase to 20 containers. The delivery affected by the

period that have reduced the operations. Top Glove Bhd has seen 20 of its factories in Meru

temporarily stop production while the remaining eight have been operating reduced capacity

because of the Covid-19 outbreak among its workers. Other manufacturers affected include
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Ipoh-based electronics manufacturer Salutica Bhd, Senawang-based glove maker Careplus

Group Bhd and automotive leather seat manufacturer Pecca Group Bhd.

LABOUR SHORTAGE

Travel restrictions to prevent the spread of Covid-19, the disease caused by the new

coronavirus, are causing labour shortages, for example at Malaysia’s palm plantations. The

world’s second-biggest palm oil producer relies on foreigners for 70% of its plantation

workforce, drawing mainly from neighbouring Indonesia and from South Asian countries.

The Malaysian government said the country’s plantation, including palm, was short by

500,000 workers (May 2020). Furthermore, migrant workers are an important part of

Malaysia’s economy and failing to protect their jobs which affect the survival of Malaysian

firms. In Malaysia, thousands of migrant workers have reportedly lost their job. The

International Labour Organization, the United Nations’ labour agency, said in a report that

there were cases of migrant workers being unfairly terminated or not getting paid when

Malaysia’s nationwide coronavirus lockdown was first imposed in March 2020. Several firms

are heavily dependent on migrant workers, including manufacturing, construction,

agriculture, forestry and fishing. That dependence is particularly acute among low-skilled

roles, with nearly half of those jobs filled by foreign workers. Malaysia’s local workforce has

become more educated over the last decade, so Malaysians have been employed in skilled

and semi-skilled jobs leaving migrant workers to fill much of the low-skill gap.

SUPPLY CHAIN SHOCKS

COVID disruption, the manufacturing and food & beverage industry noted vulnerability to

supply chain shocks as one of their major worries. With an increasingly connected and hyper-

converge economy, the pandemic has surfaced the risks of being internationally dependent
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for key production resources. Food-related industries are struggling to cope with demand

spikes and supply chain disruption. With more than a quarter (26%) of food-related

businesses being family-owned, they face the highest risks of going out of business. When

asked how long their business can financially stay afloat and weather the impact of COVID-

19, about a third of the firms from food & beverage (34%), entertainment & tourism (33%)

and advanced manufacturing (31%) reported that they could only stay afloat for 1 to 3

months.

INTERNATIONAL ARBITRATION

Although the Asian International Arbitration Centre has closed its Kuala Lumpur premises to

comply with the MCO, the operation of the case management team remains available online.

Registrations of new arbitrations are allowed but not for adjudication. Other leading

arbitration centres in Asia, such as the Singapore International Arbitration Centre and the

Hong Kong International Centre, are offering virtual meetings potions to aid parties affected

by Covid-19. From a global perspective, have seen hearings cancelled or postponed due to

COVID-19, but it is possible to conduct hearings virtually or through documents only

arbitration. The possibility of holding virtual hearings depends on the complexity of the case,

the number of people involved, location and language, and numerous other practical issues.

There is no great difficulty in holding virtual hearings for straightforward arbitrations

involving minimal witnesses, one or two factual witnesses and on expert witness only. It is

materially more difficult to hold a virtual hearing for a bilingual arbitration proceeding where

instant translation is required. As a global business community, the arbitration sector affected

and parties willingness to compromise and collaborate be crucial to keep proceedings going.

STOCK DOWN
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Crude palm oil production shrank 13.51% from October to 1.49 million tonnes, its lowest

since March 2020. Malaysia’s palm oil end-stocks in November fell to a more than three-year

low as production slumped and exports fell more than expected. Malaysia’s crude palm oil

(CPO) stocks slumped 19.2% to 583,761 tonnes in December 2020, from 722,451 tonnes in

November (Malaysia Palm Oil Board). Processed palm oil stocks shrank by 18.85% month-

on-month to 681,120 tonnes during the month, compared with 839,307 tonnes in the

preceding month, the board said in its monthly report on the palm oil industry performance

for December 2020. CPO production slid 10.59% m-o-m to 1.33 million tonnes from 1.49

million tonnes Nov, while palm kernel output was 11.41% lower at 310,204 tonnes from

350,144 tonnes in November 2020. Palm oil exports gained 24.66% to 1.62 million tonnes in

December 2020 versus 1.3 million tonnes in the previous month, while oleochemical exports

slipped by 5.915 to 246,844 tonnes from 262,392 tonnes. Meanwhile, biodiesel exports

jumped 111,34% to 42,913 tonnes, compared with 20.305 tonnes in Nov 2020, while palm

kernel oil exports added 58.64% to 145,551 tonnes from 91,747 tonnes in the preceding

month.

4.0 In conclusion, International business is a much wider term and includes both trade and

production of goods and services across frontiers. Furthermore, Malaysia’s economy is facing

dropped recently. However, the country is still considered healthy and strong. The vision to

become high income country by Year 2020 is uncertainty due to many external factors. The

country’s position in international market affects its competitiveness in global trading and

investment. Therefore, it is important to build strong relationships with trading partners to

increase the country’s GDP. Malaysia has done well in thus area by working many countries

to shape the healthy international business. There are many factors that influence the success

of International business. When the world is getting globalize, distance between trading

partners are closer and many considerations need to be taken care. Factors that influence the
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success of International business which categorized into cultural, political environment,

economic and export market attractiveness. Each of the factors has huge impacts on

international business which affect the country’s competitiveness in global market position.

Besides, the risks faced by Malaysia firms involved with international business as a result of

the Covid-19 pandemic is delay in shipments, labour shortage, International arbitration and

stock down. Risk usually refers to unanticipated or negative variations in revenues, cost,

profit and market share, international risk generally can be defined as the danger firms face of

limitations, restrictions, or even losses when engaging in international business.