General Environment Analysis

Economic Forces Malaysia shipping industry recorded on of its best ever performances in recent years with shipping companies reporting unprecedented increase in revenues and profits. Malaysias economic growth on international trade is well-documented. An estimated 90% of this trade is carried in whole or in part by way of seaborne transport. Little wonder than that demand for shipping services in Malaysia is booming, in line with its ever-expanding trade volume and reach. Shipping has emerged as a strategic sector and an important contributor to the nations economic prosperity. Malaysias shipping industry had a bright potential due to its strategic location in a dynamic economic region and along key shipping lanes connecting East-West trade. Malaysia has emerged as a leading maritime nation in terms of merchant shipping capacity, contributing 1.05 percent or 11.56 million DWT to the global merchant fleet capacity. Demand for shipping is rising fast, in tandem with its growing trade. This is a remarkable achievement for Malaysias economic growth was largely powered by shipping sector. This is because shipping sector offers a cheap mode of transportation, helping to open up larger markets. Third Industrial Master Plan (IMP3) introduced by the government has set a target for the logistics industry to increase the total marine cargo by more than 300% and has projected the sector will contribute 12.1% to countrys GDP by 2020.

Technological Forces The business in a country is greatly influenced by technological development. The technology adopted by the shipping industries determines the type and quality of services to be produced. Technology has improved customer service and demand. This is especially true of modern communication technology, because online databases enable vast quantities of information to be shared easily and quickly between businesses and their customers. Information and Communication Technology is extensively employed in MISC to automate work processes and to collect key business information. There is a clear IT guideline on ICT risk assessment and mitigation. The guideline spells out the risk management process by identifying the risk exposures, assessing and analyzing the effect of the exposures and deriving a set

of measures to manage and treat the identified risks. MISC is well equipped with the latest and advanced technology in improving work and decision making process. It has also been entrusted to manage change and organizational restructuring resulting from new systems to ensure smooth implementation. Shipping industry has being innovative in the service offering through a modern and efficient fleet, while keeping abreast with the latest technological and operational changes in the industry. It is vital for continued growth and success in the shipping sector. Political Forces Malaysia Government had introduced the countrys cabotage policy, which reserves domestic shipping to Malaysian registered vessels. A vessel that services the Malaysian oil and gas fields must be registered as a Malaysian ship and must hold a domestic shipping license. Government strongly support and sustained to greater investment in the industry, development and participation of talented human capital, emergence of more competitive local players and further growth of the shipping industry. The revenue generated by the industry for the government and its overall contribution to the economy, policymakers would be prompted to introduce specific policies and more incentives to players in the sector. The development of the shipping sector in Malaysia has been closely linked to the national maritime policy, which was for the nation to achieve greater self sufficiency in shipping services and reduce the heavy outflow of freight payments. Malaysia provided full tax exemption on shipping profits in order to catch up with the more established shipping nations. Most shipping companies pay no tax or minimal tax. In Budget 2012, it was proposed that the current 100% exemption of shipping income be scaled down to 70%. Although ostensibly Malaysian shipping companies would now be subject to an effective tax rate of 7.5%, a more detailed review of the proposal reveals possibly a more draconian reduction of the incentive. Indication that the Government was reviewing the incentive became apparent when the findings of the Strategic Reform Initiatives Lab were made public during the Economic Transformation Programme. Social, Cultural and Demographic Forces Social, cultural and demographic forces are the forces that will affect demand for shipping companys services. Nowadays, for 21st century trends, there are more

educated consumers like to choose efficient and lower price service to transport their goods. Consumers will seeks the most convenience way to transport their goods depend on the time given. For example, consumers who want to transport vegetables or fruits will go for air transport in order to preserve the freshness of the vegetables and fruits. Whereas, for those who want to transport non perishable products like clothes, steel, electronics products and others will prefer to be shipped as the transportation cost is lower. Most local consumers will prefer using local shipping company as the rate of tax exemption or tax reduction is lower than non local shipping company.

Analysis of Competitive Forces Porters Five Forces Analysis Threat of New Entrants Rivalry among Existing Firms Threat of Substitute Products Bargaining Powers of suppliers Bargaining Power of Customers Threat of New Entrants Shipping business is a profitable business because it involved large profits. However this would seem easy but practically it is more difficult and virtually impossible to establish in shipping business. This is because it involves large capital investments. Shipping business is a high competitive industry in order to gain large market share. Thus, potential entrants have to ensure the sufficient financial resource since having large capital will be a competitive advantage to compete. In Malaysia, there is still having many shipping companies which are involved in this business. Rivalry among Existing Firms Rivalry exists in every business field. It is the most powerful of the five forces and focus on competitive advantage strategies. Intensity of rivalry may arise when the competitors want to lead in a high growth industry. Businesses which are lack of differentiation are associated with high intensity of rivalry. Thus, competitors must be able to differentiate its business compare to other competitors. Indeed, brand identification tends to constrain a rivalry. In Malaysia, competition among domestic Medium High Low Low High

competitors is strong. MISC is still leader among shipping companies in Malaysia whereas port of Singapore is a leader in South East Asia. Threat of Substitute Products Substitution factor is foremost important especially when something is going wrong in organization and competitors are waiting to catch that opportunity for their benefit. The price and service are the core factors which affects the buying behavior of customers. Substitution may also result because of change in quality of service, increase in freight rates and increase in transit time. Consumers have become more demanding in good quality service and lower price service. Thus, shipping services are good quality service and lower price service which compare to air transport. Bargaining Power of Suppliers The more powerful a seller is relative to the buyer, the more influence the seller has. This influence can be used to reduce the profits of the buyer through more advantageous pricing, limiting quality of the service or shifting some costs onto the buyer. (e.g. shipping costs). Large number of suppliers and few substitutes affects intensity of competition. The backward integration can gain control of suppliers. We can see that the labour force in Malaysia still have limits in work force. Besides, the fuel is easy to find and there are a number of contractors to build port facilities and provide equipment. So, it can be said that the bargaining power of suppliers is weak. Bargaining Power of Consumers A group of buyers will be considered as powerful when they able to force down prices, demand higher quality and play competitors off against each other. There are more high demanding of shipping services and it create high competitive among competitors nowadays. Consumers power is higher because the price for shipping is lower than air transport.