Still early days for DFTZ
Behonce Beh 
Healthfood products such as birds nest are in high demand from China buyers

THE Digital Free Trade Zone (DFTZ) went live with much fanfare in November, promising SMEs an opportunity to capitalise on the internet economy and cross-border trade.

For starters, it is projected the DFTZ will increase SME export to US$38 bil (RM155 bil), create over 60,000 jobs and support US$65 bil worth of goods moving through the hub by 2025.

The DFTZ encompasses a few components, namely an e-Fulfilment hub and e-Services platform.

The hub will serve as a cluster of facilities for customs clearance, warehousing and logistics to facilitate trans-shipment air cargo volumes.

The e-Services platform integrates trade facilitation by offering services of financing, last mile fulfilment, insurance and digital marketing among others.

Over 1,900 SMEs are said to be onboard the DFTZ programme and are already using the services offered.

For now, SME players are divided on how the DFTZ can truly benefit their businesses.

On one hand, exporters do see significant demand from China but industry players are sceptical over its long-term impact.

For home-grown bird’s nest producer Yanming Resources Sdn Bhd, the biggest change for the company since taking part in the DFTZ, aside from quintupling sales, is the ease of managing transaction.

For starters, Yanming raked in sales worth RM15 mil on 11.11 Singles Day last year compared with only RM3 mil in 2016.

Its director Henry Fam says DFTZ is also instrumental in reducing shipping costs and hastening payments.

“Prior to this [DFTZ], we did not have much choice in terms of logistics partner as we only had one courier provider to ship goods to China.

“The DFTZ opens up our options as there are now four providers we can choose from. I managed to save about 50% of my logistics cost by choosing one with the best price and service,” explains Fam.

In terms of payment, the e-Services platform assisted Yanming Resources to set up an international bank account in China to collect deposit and payments in renminbi (RMB).

“It used to take a long time when we traded in US dollars and our customers had to request to convert RMB to USD in order to pay us.

“Having a RMB account reduces the waiting time as payments can be done promptly by our customers,” says Fam.

When asked whether China is responsive towards Malaysian products, Fam explains quality and product safety remains the top priority.

“China buyers are looking for a few items from Malaysia, including healthcare products such as health tonics and herbal preparations.

“It is important to comply not only with our Malaysian health and food safety regulation, but also meet the criteria set by the Chinese government,” he says.

Local regulations for manufacturing consumables include having a Good Manufacturing Practice-certified facility that meets Hazard Analysis and Critical Control Point (HACCP) standards.

For Yanming, it too is bound by the regulations set by the Health Ministry and the Agriculture and Agro-Based Industry Ministry.

Before entering China, the company has to obtain approval from the Certification and Accreditation Administration of the People’s Republic of China (CNCA) in terms of complying with food safety regulations.

While some may argue such certification and documentation mean extra cost, SMEs cannot escape the fact that buyers are not keen to purchase from businesses that do not have such accreditation.


A closer look

Though exporters like Yanming remains optimistic, local business associations are keeping an eye on the bigger picture of how DFTZ can impact SMEs. 

The Associated Chinese Chambers of Commerce and Industry of Malaysia’s SME and Human Resource Development committee chairman Koong Lin Loong argues while market access is important, identifying and meeting market needs outweighs short-term goals.

“The question is whether there is a demand for our products. There is no point listing ourselves on a platform when there is no demand,” he points out.

Malaysian businesses must first up their game by selling products of quality and appeal; moving themselves from offerings that are of low value or inferior in quality.

“We cannot rely on selling low-priced items to an international market. We have to be of competitive quality and brand,” adds Koong.


Explore export markets

Meanwhile, Bumiputra Retailers Organisation (BRO) president Datuk Khairol Anuar Mohamad Tawi fears that while DFTZ enables Malaysians to explore the export market, it could increase the influx of parallel imports to our shores.

“This is the first DFTZ outside of China and can operate differently in terms of cultures, geography and governance.

“Some members argue parallel imports could be much cheaper than what we produce locally,” he says.

Online shopping, though mostly a positive experience, can come with its own fair share of issues as unscrupulous parties may ship items in a quality that is not reflected online.

“Shopping online opens up the possibility of importing inferior quality goods. There have been instances where the samples sent over are of good quality, but when the final order comes in, the quality drops significantly,” says Khairol of his members’ experiences in online purchases.

He suggests the government have a firm regulatory framework in place to ensure the quality of products coming in “as we do not want junk coming into our shores”.

Though there are opposing views towards DFTZ, one common view is the need for Malaysian SMEs to move up the value chain and compete beyond low price.


Alibaba’s Malaysia footprint

ALIBABA Group founder Jack Ma says its strategy is not to globalise Alibaba’s business, but want to globalise e-commerce by enabling SMEs to access markets beyond their borders.

Ma's strategy for Alibaba in Malaysia is not to do business locally, but to help SMEs trade abroad

Alibaba Group is supporting the Digital Free Trade Zone (DFTZ) initiative by opening the KLIA Aeropolis DFTZ Park, Alibaba’s first regional e-Fulfilment hub outside China.

The hub offers SMEs access to services which encompasses ecommerce, logistics, cloud computing, mobile payment and talent training.

“We are not interested to buy and sell in Malaysia; we are interested to help Malaysians SMEs do business locally and abroad. Our focus is to build that business infrastructure in Southeast Asia,” he adds.

The infrastructure cuts across the Malaysian supply chain network through various product offerings in the areas of payment (Alipay), online marketplace (Lazada), Cloud computing (AliCloud), and logistics (Cainiao).

Another Alibaba product that will arrive this month is an enterprise messenger that allows SMEs to connect with one another over an encrypted platform.

With a presence in most facets of the e-commerce network, one could seek refuge knowing that Alibaba may provide a one-stop solution to an SME’s e-commerce need or potentially monopolising the supply chain.

Ma says the hub will not only facilitate trade between Malaysia and China, but extends also to trade between Malaysia and the Oceania nations, namely Australia and New Zealand in the coming five years.

Data from Alibaba reveals that the top product categories of Malaysian SMEs found on their platform include food and beverage, beauty and personal care, furniture, health and medical products and also packaging and printing.

This article first appeared in Focus Malaysia Issue 266.