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What does the Digital Free Trade Zone mean for Malaysia?

NEW STRAITS TIMES, MALAYSIA, 26/08/2017.

The Straits of Malacca has played a key historical role in China’s silk trade, even today the region still plays a dominant and important role in the Maritime Silk Road and as key gateway and technological hub to the Asean region. Akin to flourishing ties between the Sultanates and China then, so too do we see today the results of flourishing ties in the region with Malaysia in prime position to capitalise on it all.

Alibaba, the Chinese tech conglomerate, has come in as one of Malaysia’s strategic partners to establish the Digital Free Trade Zone (DFTZ) in the country. There is a misconception that DFTZ will be exclusively with Alibaba. Far from it, DFTZ is a massive undertaking, with Alibaba being the first of many investors. The DFTZ will have implications and consequences in both the long term and short-term — in October, to be specific.

While there has been much discussion regarding how eCommerce has affected traditional brick-and-mortar outlets, there is no denying that eCommerce is giving businesses access to a much larger potential market. According to Malaysia Digital Economy Corporation (MDEC) chief executive officer Datuk Yasmin Mahmood, it is “mind-boggling to see how the retail experience has been improved upon through the use of the latest technologies such as virtual reality and the Internet of Things (IoT).”

“This all points to the conclusion that embracing eCommerce is of fundamental importance to the survival and growth of retail businnesses, which means that Malaysia has even set up massive initiatives to do this. In fact, our country has already started preparing for this, with 25 agencies and ministries coming together under the National eCommerce Council to look at exactly how to respond to and take advantage of the situation,” she said.

How does that affect SMEs? “Currently, eCommerce is growing — but it's growing at a rate of between 10 and 15 per cent. If we do a projection at those figures, it means many of our companies are going to be disrupted, that our small and medium-sized enterprises (SMEs) may not find a place the new world of trade if they do not change with the times,” she said.

“It’s undisputable that eCommerce is becoming the mainstream; in fact, it’s becoming the baseline for retail performance — and this is reflected by the fact that people do not even call it eCommerce anymore, they just call it commerce. The future of commerce is eCommerce, no question about it,” said Datuk Yasmin.

Regarding how SMEs can leverage on eCommerce, she said that there are basic steps that all of them generally need to take. This starts off with a digital presence — in the form of easy-to-use social commerce and marketing on platforms like Facebook and Instagram and some basic website building. “At the next level, which is eCommerce, these businesses have to look into making their websites even more sophisticated with payment gateways The final level is about using eCommerce to create and sustain cross-border trade,” she said. 

How MDEC can help SMEs. MDEC has always been serious about helping SMEs, and it is imperative that SMEs be given both the opportunity and support to help them because cross-border trading is very difficult — even for multinational corporations.

Following on from this, a review of our Customs and logistics framework is necessary to position Malaysia as a regional hub for eCommerce logistics. “We (MDEC) recently launched a very important initiative, called the “Go eCommerce” portal. The whole idea behind this initiative is that now every SME can obtain their own online dashboard, an assessment of their status and advice and training,” she said.

There are approximately 70 online courses, and MDEC is integrating these courses across industries instead of recreating them. The DFTZ is the main initiative that MDEC holds to be of paramount importance for the country in achieving its eCommerce ambitions. Being the most visible of all MDEC’s undertakings at the moment, the DFTZ can have a massive impact on trade in Malaysia. 

Malaysia’s regional rivals are also vying for the attention of global giants like Alibaba market, to help them lay the foundations of a vibrant eCommerce marketplace and act as a base for the ecosystem.

“We know that China and India are coming up, so what is stopping us from becoming the New Malacca in the presence of eCommerce? What do we have to fix to achieve this goal? One thing we need to look at first is eFulfillment — a physical fulfillment,” said Datum Yasmin.

According to her, eCommerce — which is part of the parcel-based logistics versus container-based logistics argument — requires a very different kind of handling.

Shipping 1,000 items in one container to one location. is very different from shipping 1,000 items to a thousand different locations, to a thousand different customers, and being prepared to have at least 25 per cent of the goods returned undelivered or lost in transit.

Comprehensive infrastructure for the region Malaysia is starting with an Aeropolis first, because it is a natural step forwards; eCommerce is, to a large extent, all about logistics by air. However, the real opportunity for Malaysia lies in trans-shipment.

“eCommerce is going to be so big that the trans-shipment of market places coming to use Malaysia as a hub of goods — coming in, distributing goods, repackaging them, like an ultra-customisable shopping cart that has an astounding capacity — will require a whole different kind of logistics,” she said. “Currently, the Aeropolis only deals with air-to-air — but eventually, we will also have to bring in the sea and the land,” she added.

“We are really optimised and primed for that eventuality — and we can even get neighbouring countries on board too. That, then, is one promise that needs to be fulfilled: to convert Aeropolis into a DFTZ eLogistics hub — and a lot of work is happening right now to fulfil that purpose,” she said.

Creating efficient systems. Prime Minister Datuk Seri Najib Razak has mandated that DFTZ needs to have an service-level agreements three hours 90 per cent of the time. MDEC has actually directly studied the cargo flow at the Kuala Lumpur International Airport (KLIA), looking not only at the physical aspects, but also at the processes in order to see if the required mandate can be achieved.

“We are pleased to report that it is possible — which means full commitment and efforts to ensure delivery. There can be no question of failure, given that all the important stakeholders eyes are on us,” said Datuk Yasmin. There is also a need for a platform that will integrate all the service providers, like Alibaba and OneTouch, with the other principals in the system.

Inclusivity and integration are key. “In getting SMEs on board. MDEC needs to make sure that all these SMEs are all inclusive. We want to make sure that we take the people who are already doing export, and then we need to show them how can they use DFTZ to export into China — and we need to involve not only the bigger ones, but also the small traders as well,” she said.

Datuk Yasmin also added that ultimately, what we want is to look at how many SMEs are going to be successful using DFTZ, doing exports. “On the other hand, we also are thinking about how do to bring in more investors, who will come into the logistics play. Certainly, Alibaba is committed — but they are not the only one. In order to do so, we have to make sure that our house is world-class — and that is a strong incentive for us to achieve this objective,” she said.

“Encouragingly, our efforts are proving to be fruitful, as Malaysia is once again attracting interest. MDEC is already talking to many other marketplaces, as well as to many other logistics players. All this points to exciting times for both MDEC and for the country — and MDEC is proud of the fact that it is doing this for the country,” she concluded.