INTEGRATED BUSINESS ASIA II

Risk Analysis: Socks in Malaysia

INT1 - Group 3

Legal Risk
1. Commercial regulations (customs, labelling, packaging).
At the ASEAN level, Malaysia has 6 regional FTAs with China, Korea, Japan, Australia,
New Zealand, India and the ASEAN Free Trade Agreement (AFTA), including Indonesia.
These arrangements provide for a lower or zero tariff (tariff concession) on exports and
imports of goods and components allocated in the form of FTAs.

There are no special regulations concerning the textile and fashion goods packaging in
Malaysia. Although, the languages that Malaysia permitted on the labelling and
packaging of goods are only English and Malay. The unit of measurement that should be
used is the metric system. It is not compulsory to include the mark of origin or the term
“Made in” in the labelling or packaging. Under the labelling requirements, the importing
agent must classify all imported consumer goods (a label put on after going through
Customs).

2. Language regulations.
As mentioned above, it is compulsory for imported goods to have either English or Malay
as the languages in the labelling or packaging of the goods.

3. Possible requests for documents and customs procedures.

The minimum import documents required to be submitted to the customs for the
clearance of imports consists of Import Declaration, Bill of Lading (B/L) or Air Waybill,
Invoice, Packing List, Import License (if applicable), Certificates of Origin (if applicable),
and Other relevant documents such as catalogue, product ingredients, etc.

Inward manifest (JKED 4) must be lodged at customs office upon arrival by agent /
captain of vessel / aircraft (S.52 & S 56). Time of presenting JKED 4 for vessels is within
24 hours after arrival, for aircraft is at time of arrival for rail is at time of arrival to produce
railway bill or waybill. Inward manifest lists out the details of goods to be unloaded into
the country for importation purposes. Manifest is submitted by way of e-manifest

Custom declaration is to be submitted electronically via CIS* Dagang Net. Based on the
Section 78 & 81 of the Customs Act 1967, the submission limit for dutiable goods is
within 1 month and for non-dutiable goods is within 10 days after the arrival of vessels.
Also based on the Section 79 & 87, the declaration have to give a full and true account

4. Possible recourse in the case of delays or non-payment.

 The risk of delays and non-payment of the imported goods could be countered by using
irrevocable letters of credit for payment. In this case, the importer banks could assist the
payment process with the importers by signing a contract with the importers where the
importers have to reimburse for the amount stated in the letter of credit within the period
stated in the agreement.

5. Commercial laws, sales contracts, rights of creditors and debtors, bankruptcies,

negotiation tools.

Malaysia Department of Insolvency (MdI) is the government agency that handles

bankruptcy cases and affairs. Winding-up companies as well as the administration of
deregistered associations and trade unions are also controlled by the MdI. The major
objectives of MdI are asset discovery, asset realization, debt ascertainment, and
payment distribution to the creditor.

Natural or Geographic Risks

1. The Frequency of Natural Catastrophes
Figure 1
Pacific Ring of Fire
As a country that is located in the pacific
ring of fire, Malaysia are often spared
severe natural disasters such as
earthquakes, volcanic eruptions, typhoons,
floods, landslides, and severe haze.
Additionally, the country’s position near the
equator resulted in a hot and humid climate
at around 27°C , with average rainfall of
250 centimeters in a year.

Air pollution is one of the natural disasters that is

underrated in Malaysia. As we can see in Figure 2
that we cannot even spot the green Air Pollution
Index (API) that indicates good air in Malaysia.
With an averagely moderate air pollution, Malaysia
is still struggling to overcome the air pollution issue
in the southern part of the country where most of
the area has unhealthy for sensitive groups and
unhealthy in general. In result, it is not rare to have
schools being cancelled because of the severe
Figure 2
haze occurrence. API Index Distribution in Malaysia
 In a wider scope, below are the effects of the disasters by the total number of people
affected and how much it damages the country.

Table 1 Table 2
Major Disaster in Malaysia by total Major Disaster in Malaysia by
number of people affected damages (in thousand USD)

With the occasional rate of storm that resulted in a

severe flood, it costs Malaysia more than
thousands of people and thousands of Dollars.
This is mainly due to its climate characteristics as a
tropical country, but greatly accelerated by climate
change. However, Malaysia already has an
established legal system in handling such natural
disaster issues. With careful search and rescue,
alongside the health services, media, support,
security control, welfare, and warning alerts, the
system is distributed into 3 different strata, where
the Disaster Management and Relief Committee
are ranked from the highest to lowest secretariat as
follows: district, state, and national. Each body has
its own line of coordination that is well-arranged and generates effective policy and
strategic planning.

2. Extent and availability of the transportation networks

In terms of Malaysia’s infrastructure, including roads, rails, and ports, they have shown a
major development in the last few decades, particularly in projects of expansion and
technological advancements. For example, the 869 km North-South Expressway from
Johor Bahru in the south of Peninsular Malaysia to Padang Besar on the Thai border in
the north is a multi lane dual carriageway road. As for rails, the urban rail system in
Kuala Lumpur is in the process of being expanded and new urban railways will be
constructed in other towns in the country. Additionally, the development of new ports
(such as Port of Tanjung Pelepas and West Port) and the construction of additional
berths at existing terminals, the ports sector of the country has undergone a massive
expansion in capacity. With that being said, the aforementioned development did not
result in any geographical risk, but rather a competitive market risk.
Market Risks
1. The main competitors
The main competitor in Malaysia is Soka Malaysia. Soka itself is manufactured in
Indonesia. However, they don’t manufacture the product by themselves. With 27.2K
Followers on Instagram. They sell their products Online through Instagram and
E-Commerce such as Shopee. Their products are sold through Reseller and Dropship.
Which contribute to a lot of their sales and exposure. This Reseller and Dropship method
in Malaysia has always been known to be very successful and this can be proven on
how Soka sold in Malaysia. They claim themselves as a “halal” socks which really
caught Malaysian people attention since Malaysia is a muslim populated country. We
couldn’t find their market share, however we did find an article where Soka Indonesia
stated in 2019 that the total value of the contract of the Soka halal socks export to
Malaysia’s is USD 2 million.

2. Working methods and commercial ethics.

Malaysia has a business code of ethics which is called as Rukun Niaga. The Malysian
Business Code of Ethics objective is the main principle that needs to be applied by all
traders for the benefit of consumers as well as trades. The officials have established six
Rukun Niaga, as follow:
a. Honesty in Business Dealing
b. Responsible Towards Customer, Society and Environment
c. Geniality Towards Fellow Human
d. Moderation in Business Dealing
e. Fair Treatment of Customer
f. Zeal in Making the Business a success.

3. Regulations regarding business practices

Below are all the laws and regulations that are enforced by the Malaysian government
surrounding the business practices that all businesses in the country need to obey.
 Malaysia has a Advertising Standards Advisory called (ASA) which can be summed up
into several points below:
i. All advertisements should be legal, decent, honest and truthful.
ii. Advertisements must project the Malaysian culture and identity, reflect the
multi-racial character of the population and advocate the philosophy of
RUKUN NEGARA.
iii. Advertisements must not identify or typecast each particular racial group
or sex with vocations, traditional values and backgrounds.
iv. Advertisements must comply in every respect with the Law, common or
statute.
v. All advertisements should be prepared with a sense of responsibility to
consumers and to society.
vi. All advertisements should conform to the principles of fair competition as
generally accepted in business.
vii. No advertisements shall bring advertising into disrepute or reduce
confidence in advertising as a service to the industry and to the public.
viii. Advertisements must be clearly distinguishable as such.

4. The legal status of the client: individual, partnership, incorporated company, etc.
Limited partnership (CV)

5. Continuity of operations

Leadership / Order of Succession

No Name Position

1 Syabella Triana Budiono Chief Executive Officer

2 Nadia Raniya Hameeda Chief Operations Officer

3 Alya Sofia Chief Financial Officer

4 Maria Gracia Primaningtyas Chief Marketing Officer

5 Hasna Nadhira Chief Human Resources

Officer

Vital Files, Records, and Databases

No Files/Records/Databases Form of Location Back Up

Record Location

1 Competitor analysis Electronic Google Docs Google Drive

 2 Suppliers logbook Electronic Google Docs Google Docs

3 Buyer analysis Electronic Google Docs Google Docs

6. Reasons for the firm’s success: Is it due to one person’s efforts or to the overall
structure of the organization?
It is necessary for every individual in the firm to put out their best efforts in their assigned
job or tasks, since this would create a huge impact on the overall performance of the firm
and the firm’s output in the end. Though individual’s competency is needed, a strong
structure of organization within the firm also would support the whole activities and
processes of the firm’s operation.

7. The company’s commitments and management policy.

Despite all the strategic planning in management policy, commitment will always be the
measure of its validity. Without commitment in each member’s company, not even the
best policy ever made is yet to be fulfilled. Henceforth, the gap between commitment and
policy is the market risk that every company should take into consideration, where the
commitment both as individual and group are urgently needed to be encouraged.

8. Payment practices and reputation (client and supplier references).

The Supplier offers two payment systems to the Store/Reseller: the Buyout system and
Consignment. Consignment is a form of sales cooperation carried out by the owner of
the goods or product (consignor) with the store or reseller (consignee). This system is
carried out by entrusting goods to the reseller to be sold at the shop by sharing profits or
commissions. Meanwhile, Buyout is a system where the Reseller / Store pays all the
products in advance to the supplier. Based on the supplier's perspectives, they prefer to
use the Buyout system because it could avoid stores which might do a return because it
doesn’t sell well or hard to be collected.

Commercial Risks
1. Product quality
They have produced socks made of bamboo fiber as raw material. These bamboo fiber
socks have properties such as eliminating foot odor, reducing the spread of skin
diseases, reducing sweat on the feet, and others. Other than that, they use varieties of
materials for their socks depending on the socks price, from the cheap to the premium
fabric. Moreover, their product quality can be proven on how many international brands
have worked and manufactured by them

2. Conformity to specifications
 Our Supplier product already has ISO 45001: 2018 Certification which is the world's
international standard and already exported to a lot of countries including the European
Countries. We believe that Specifications wouldn’t be a problem for our supplier product
especially to a country like Malaysia. Our supplier has also already been to a lot of
countries including Malaysia to attend international trade exhibitions. Our supplier
product packaging has also included Name/trade mark of manufacture;
ii) Number of pairs in each batch;
iii) Total number of batches in the package; and
iv) Fibre composition and proportion.

3. Delivery schedules
As for the delivery schedules, The Supplier can make about 2500 Dozens of Socks each
month or 30,000 pieces/ month . But, since the pandemic, the international Delivery /
Shipping has been delayed. On average, the shipping from Indonesia ( Jakarta ) to
Malaysia ( Port Klang) usually takes not more than a week. But recently, it could take up
to 3 weeks. This might be caused by the drop in Indonesia Export to Malaysia or the
change of regulation.

4. One of the most common problems is physical damage to the goods caused by
fortuitous circumstances which involve accidents during handling and
transportation. These risks can be insured.
Yes, we believe that since our product isn't a product like Food and Beverages. It is
easier to make sure that the logistics would handle it way more properly. We might also
provide more packaging just in case there's damage on the packaging.

5. The obligations of one of the trading partners do not disappear because of the
default or failure of his opposite number.
To avoid this kind of issue, we will ask our overseas buyer to pay in advance to avoid
credit risks, because payment is received up front before the ownership of the goods is
transferred, or Letters of credit We will only offer a trusted party for both the supplier and
buyer. a bank guaranteeing that a buyer’s payment to a seller will be received on time
and for the correct amount and it is one of the most secure payment methods available
to international traders.

Financial Risks
1. The foreign exchange fluctuations.
Currency value may change over time and it will affect the exchange rate. We are an
Indonesian company which is selling in Malaysia, therefore our customer would pay with
Ringgit, and we have to convert the profit into Rupiah. If the Ringgit appreciates in value
against Rupiah before we convert those profits, it will increase the number of Rupiah we
receive and vice versa.
 MYR to IDR exchange rate history (2021)

https://www.exchangerates.org.uk/MYR-IDR-spot-exchange-rates-history-2021.html

Highest exchange rate: 3509.1128 IDR on 01 Jan 2021.

Average exchange rate: 3472.4883 IDR.
Lowest exchange rate: 3441.6432 IDR on 06 Feb 2021

2. Financial risks caused by partners

Being a trading house means you must connect and build relationships with suppliers
and buyers. If not done carefully, this can also be one of the causes of financial risk.
When the partner has a lack of knowledge for international customs and practices, it may
lead to the trading house not being able to receive goods from suppliers or paid by
buyers.

To avoid this risk, we need to choose trustable partners, in which one of the ways to do
this is by seeing their reputation and experience. If they have the experience of
export/import, they would know the international trade customs and we could avoid
having internal financial problems.

Political/Regulatory Risks
1. Does the country tend to be politically unstable?
 According to this graph, 2.5 on the scale means strong political stability and -2.5 means
weak political stability. Thus, with Malaysia’s scores fluctuating within the range of 0 to
around 0.25, Malaysia can be said to be neither stable or unstable, leaning towards a
more stable political climate.

2. Is a revolution or political coup likely to happen?

Not likely, although in recent years Malaysia’s had a tumultuous year in 2020. The root of
the problem goes back to the past 1MDB scandal that tore Malaysia, and ending with
former Prime Minister Mahathir Mohammad surprisingly joining forces with his old
political rival Anwar Ibrahim. The duo came out as victors in the 2018 election,
overturning the then-incumbent party of Barisan Nasional. Mahathir Mohammad
promised to hand over his power to Anwar Ibrahim in two years, but the date and the
technicalities were still unknown. This, coupled with the fact that another feud is brewing
in Mahathir Mohammad’s coalition which comprises multiple parties with different
ideologies, caused the tension in Malaysia leading up to late February 2020.

3. Is there a history of armed conflict between the country and its neighbours?
Not in the recent years. Recent armed conflicts that Malaysia’s been involved in are
military collaborations in order to prevent conflicts in other countries such as the
Operation Ocean Shield in which countries collectively band to fight and capture
Somalian pirates. Armed conflicts with neighbors such as Indonesia hadn’t happened
since 1966 when Indonesia opposed the creation of Malaysia.
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