Globalization, urbanization and digital tsunami: Grab opportunity

(全球化 城市化 数码海啸: 攫取商机)

Rapid development of digital technology, particularly information and communication technology (ICT) enables movement of information and facilitate communication. Perhaps, biggest impacts of ICT are towards marketing and online business. Question is whether online business (also beneficiary of globalization) is a complement or substitute to traditional bricks-and-mortars business? Then, can Malaysian businesses, especially the small and medium enterprises avoid the threat from foreign online giants while utilizing ICT to expanse their businesses?

Two unique success stories are worth to be analyzed. First is Alibaba/Tao Bao, the first Asian online business that poses big threat (or even possibility to replace) the American giants like Amazon and Ebay. Second is Xiaomi, where their business model is revolutionary and seems being followed by Apple too.

Alibaba/Tao Bao: New Online Giant

“The world’s greatest bazaar” – this was the headline The Economist gave to Alibaba in their article 23^rd May 2013.  Subsequent comparisons of Alibaba groups with Amazon and eBay (see Table 1) will prove that Alibaba is indeed “greatest” in term of merchandise volume. For year 2102 comparison – before Alibaba listed public, volume of goods traded through Alibaba is even more than Amazon and eBay combine. However, Amazon still leads in term of revenue while eBay’s profit is the highest.

Table 1: 2012 Financials (US$ billion) Comparison

	Revenue	Net Profit / Loss	Gross Merchandise Volume
Alibaba	4.1	0.5	171.2
Amazon	61.1	- 0.04	87.8
eBay	14.1	2.6	67.8

(Source: The Economist, 23^rd May 2013)

Two prominent companies in Alibaba’s group are Tmall and Taobao. The former facilitates “business-to-consumer (B2C)” while the later engages in “consumer-to-consumer (C2C)” e-commerce business. The Economist reported Tmall capturing 51% of B2C market in China in 2011. Taobao’s C2C China market share is a whopping 90%. No doubt that Alibaba group will change the global landscape of online business and therefore worth further analysis.

A report entitle “E-commerce in China: Taobao” (available at www.dwastell.org/MSc/Group6.pdf) did a SWOT analysis on Taobao. Listed as strength are “lower entry cost”, “accurate market position”, “developed instant message software (WangWang, QQ)” and “safety payment intermediary (Zhifubao)”. Comparing to Malaysia, we also have all of those strength except “market position” where China have huge domestic population. Zalora (Malaysia online business) does have its relative strength like fast delivery (1 to 3 days) and handle their financial transaction and delivery. Yet, Zalora and other Malaysian e-commerce businesses seem restricted to domestic market which is too small for economies of scale. Products sold are also rigidly focused on apparels and electronics while Alibaba’s e-commerce companies even sell islands! Some companies went online as a complement to their brick-and-mortar business. For examples, Tesco, Pakson, Bata and IKEA online segment is an added choice of service for their customers and not for replacing their stores. Generally, it is believe that their in-store sales is far more than their online sales.

Xiaomi’s Business Model

In a workshop, a Chinese daily chief editor stunted the audience with the story of Xiaomi’s business model. Xiaomi smart phones and other telecommunication-related products are sold online directly by the company. Setting a date and exact time for bidding, this business model can do without dealer, brand representative or reseller shops. Imagine all brands do the same. How many big reseller shops will be closed? Will buyers still need to shop at phone kiosks that now mushrooming all over Malaysia? Direct online purchase, whether for smart phone or extended to all retail transactions, will safe distribution cost where its benefit can be passed to consumers for lower selling price. This Xiaomi model may revolutionize business activities but as a result, it can kill off many small and medium (SME) traditional bricks and mortar retail businesses in Malaysia. In contrast, lots of huge benefits are waiting for Malaysian SME and retail businesses if they can tap the global market and reduce operating cost through digital technology, especially online business. However, we must first learn the skill to swim fast enough before digitalization waves drown us.

A recent development may encourage (or scare) our local companies to act faster. Apple Watch was launched for exclusive online sales only. Even though in-store pick up option will be available soon, this Apple Watch online sales method mirrored Xiaomi. If big brand like Apple started to test this business model, who else want to miss out?

Urbanization and Youth

Urbanization moves people from rural to city and from one country to another (usually from relatively lesser developed to more developed). This resulted in concentration of population in city center and thus bring along the issue of high cost of living, inadequate public welfare, concentration of purchasing power and labor supplies. Domestic migration may also cause income inequality between rural and urban and intra-inequality due to urban poverty. Meanwhile, international migration causes brain drain problem and variety of social-political issues.

In September 2013, Datuk Dr. Rahamat Bivi, Director General of Economic Planning Unit highlighted eight challenges on urban development. There are social exclusion (urban poverty and vulnerable group), inadequate social amenities (education and health), inadequate housing (particularly for middle and low income groups), youth unemployment, high cost of living, crime rate, environment (congestion and pollution) and illegal foreign workers. Most of those challenges are affecting Malaysian youth either directly or indirectly.

Table 1 shows that unemployment rate between urban and rural is about the same. Only Negeri Sembilan, Penang and Selangor recorded significant differences. Urban unemployment in Sabah is even higher than rural. All these statistics indirectly indicate stressful living condition in urban and yet 60% of migration in 2010-2011 are from youth age groups of “15 – 24” and “25 – 34”, see Table 2.

Table 1: Unemployment Rate (%)

	Year 2012		Average (2000 - 2012)
	Urban	Rural	Urban	Rural
Malaysia	2.9	3.3	3.2	3.7
Johor	3.2	3.0	2.8	2.9
Kedah	2.3	3.5	3.2	3.6
Kelantan	2.3	2.3	2.9	2.9
Melaka	0.5	0.7	1.6	1.7
Negeri Sembilan	2.9	3.4	3.3	3.7
Pahang	2.7	2.9	2.8	3.1
Pulau Pinang	1.9	2.6	1.9	2.5
Perak	3.0	2.9	3.3	3.8
Perlis	3.7	4.1	3.2	3.5
Selangor	2.3	3.2	2.8	3.7
Terengganu	3.1	3.0	3.3	3.1
Sabah	6.1	4.6	6.5	5.0
Sarawak	3.7	3.3	4.5	4.1
Kuala Lumpur	2.7	NA	2.8	NA
Labuan	4.4	5.0	5.0	5.5

Table 2: Migration (2010 – 2011)

Age group	Female	Male	Total
65 & above	1.7	0.7	1.2
45 - 64	5.4	7.4	6.5
35 - 44	9.4	12	10.8
25 - 34	28.5	31.8	30.3
15 -24	31.5	27.9	29.6
1 - 14	23.4	20.2	21.7

(Source: Migration Survey 2011, Department of Statistics Malaysia)

Urbanization helps industrialization and service sector development that are concentrated in urban. In turn, it helps economic growth. However, issue of inequality income distribution, unskilled youth labor, high cost of living, urban safety and other issues will drown youth before they can developed into productive human resources.

Super-City: Solution for Youth Brain Drain to Singapore?

Even thought cities in Malaysia provide lots of job opportunities, wages is relatively too low as compare to Singapore. Addition, cost of living is higher. A Malaysian fresh graduate likely earnings between RM2500 and RM3000 working at metropolitan like Kuala Lumpur, Butterworth and Johor Baharu. Salary at other cities (like Muar, Kajang or even Ipoh) is less than that amount. Compare to Singapore, Malaysian fresh graduate most likely can earn at least S$2000 (equivalent RM5400) and easily increases to S$2500 (RM6750) after few years. Bear in mind Ringgit could depreciate further against Singapore dolor in future and thus, widen this salary gap.

Lunch could cost you at least RM10 in Kuala Lumpur city center but lower to about RM5 in other cities. Cost of living in Singapore’s Central Business Districts (like Orchard, Marina and Raffles) is high. However, lunch at Woodland, Jurong and Yishun (common working places for Malaysians) could be as little as S$3.00.

Malaysia needs “super-city”, not just big city. Big city provides jobs but super city provides very high paid jobs that match Singapore’s salary scale. This can be achieved by concentrating on high value-added businesses especially high value service sector like finance and information technology. Employment selection should be professional and emphasized on merit and not base on race, family ties, friendship, political link or cronyism. Only then we can have the best and most productive employees at every level of employments that worth high salary.

Big city like Kuala Lumpur consist mostly offices with high rental (thus high cost of living) and congested traffic. Super-city should be livable with mixture of offices and housings as well as efficient public transport. Urban development or town planning (where Malaysia seems failed) should be long term and sustainable.

Conclusion

Globalization, urbanization and digitalization – either individually or collectively – do bring both threat and opportunity. Like it or not, Malaysia has been facing this “triple-impacts tsunami”, which is not only inevitable but will grow stronger and stronger. Thus, the important question is whether Malaysia is “swimming gracefully” or “drowning awkwardly” in globalization-urbanization-digital tsunami. Fast and appropriate actions or policies should be taken in order for Malaysian swim into the benefit of this triple-impact tsunami rather than drown.

[Chinese version published at Nanyang Press, 18th May 2015. Available online at http://www.nanyang.com/node/701429. This English version may be slightly different from the Chinese online/printed newspaper version]