LAST Thursday was a happy day for Prime Minister Datuk Seri Najib Razak. He was visibly pleased and excited when he and Alibaba Group founder Jack Ma launched Malaysia’s Digital Free Trade Zone (DFTZ) at a glitzy event in Kuala Lumpur.
A jovial Najib disclosed that the DFTZ deal was sealed within 10 minutes when the two met in Beijing last November.
Both men talked up the benefits of Malaysia having a DFTZ last Thursday, promising that it will help local small and medium enterprises (SMEs) get into cross-border trade by leveraging technology.
There are three components to the DFTZ, with each bearing a link to the crucial pieces of the e-commerce puzzle.
The first two components — the e-fulfilment logistics hub and the e-services platform — will be carried out in collaboration with Alibaba. The third component, namely Kuala Lumpur Internet City, will be driven by regional internet firm Catcha Group (see table for more details on the DFTZ).
At this point, the finer commercial terms and operational details of the workings of the components are still being worked out.
Still, the question remains: Who really stands to gain from this DFTZ?
The clear immediate winner from this much-publicised deal is Alibaba, which has its tentacles in commerce, payment and financial services, logistics, cloud computing and other services.
As part of the DFTZ, Alibaba is set to use the former Low Cost Carrier Terminal in Sepang as its logistics hub to serve its e-business in Southeast Asia.
Alibaba’s logistics affiliate Cainiao Network and regional e-commerce subsidiary Lazada will collaborate with the LCCT’s owner, Malaysia Airports Holdings Bhd (MAHB), to upgrade facilities before commencing operations by year end.
In an interview with The Edge, Malaysia Digital Economy Corp Sdn Bhd (MDEC) CEO Datuk Yasmin Mahmood stresses that the DFTZ is a long-term vision with clear deliverables for the short, medium and long term.
The immediate deliverable is the first phase of the e-fulfilment hub at the old LCCT by year end.
“They are committed to making this a regional hub ... they want to use Malaysia as the regional hub for the Alibaba traffic,” says Yasmin.
Alibaba is the undeniable leader in e-commerce. Its portfolio of e-commerce companies makes it the world’s largest retail e-commerce firm in terms of gross merchandise volume (US$580 billion).
The group’s two largest marketplaces are the Taobao Marketplace, which is China’s largest mobile commerce platform, and Tmall.com,
China’s largest third-party platform for brands and retailers. Beyond China, Alibaba has Tmall Global for cross-border imports, AliExpress for cross-border exports and Lazada, which is Southeast Asia’s leading e-commerce platform.
Alibaba has articulated its ambition to grow beyond China, and Southeast Asia is one market that it is intent on reaching. The regional logistics hub fits right into its plan.
Alibaba CEO Daniel Zhang says the group is starting with the existing 20-acre former LCCT, with the option of expanding to an adjacent 90-acre tract.
The e-fulfilment hub is also a boost for MAHB’s ambitious KLIA Aeropolis plan, which has cargo and logistics as one of its three core areas of focus. Essentially, MAHB is getting the Alibaba endorsement for its vision of making Malaysia a regional logistics hub.
In the plan, KLIA Aeropolis has stated its aim of bringing to life its air cargo and logistics blueprint in an expanded Free Commercial Zone of over 50ha and become a regional e-commerce hub.
MAHB declined to comment when asked about the commercial terms of the deal and the leasing arrangement.
The government recently announced that goods bought online will be exempted from tax in the DFTZ so long as the goods are worth RM1,200 and below, a higher threshold than the earlier RM500 price range.
Pos Malaysia Bhd will also be part of the e-fulfilment hub as it is running its warehouse and logistics business out of the old LCCT. At this point, it is not certain how other logistics players like GD Express Carrier Bhd will fit into the picture.
In an immediate note on the DFTZ, AmInvestment Research maintains its neutral view on the logistics sector even as it says the DFTZ will be positive for the long-term growth of MAHB and Malaysia’s broader logistics sector.
Nevertheless, the research house says it is still too early to quantify the impact of the DFTZ.
What about SMEs?
Logistics and Alibaba aside, the grand promise of the DFTZ is that it will bring Malaysia’s SMEs to a much larger global e-marketplace.
MDEC, which is spearheading the DFTZ, says the zone will facilitate a seamless cross-border transaction experience and enable small businesses to export their goods to a wider market.
The DFTZ will be an e-hub under Alibaba’s Electronic World Trade Platform (eWTP) initiative, which Ma proposed last June at the St Petersburg International Economic Forum.
The DFTZ is touted as the first e-hub under the eWTP outside China and the first time two countries are connected. It will be connected to the China (Hangzhou) Cross-border E-commerce Comprehensive Pilot Free Trade Area.
Ma has been a vocal proponent of lowering trade barriers and providing the youth and small businesses more equitable access to global markets. The idea is that e-commerce hubs could act as special trading areas that connect different markets around the world.
What this means is that Malaysian SMEs can use the e-services platform to sell their products to companies in China.
As the groundwork is laid, Yasmin urged SMEs to get ready to grab the opportunity. As she puts it, it is not only about developing good products but also about tuning to the export markets and familiarising themselves with the use of e-commerce to sell to a larger market.
“What we want SMEs to realise is that they not only have to look at e-commerce onboarding but also how to do exports. In the past, for SMEs to do exports, it was rather difficult,” she says, adding that according to SME Corp data, the number of SMEs with online presence has grown from 7% to 2014 to 32% last year.
At a glance, it seems encouraging. But it is understood that the figure includes small businesses with any sort of digital marketing initiative such as social media presence, and those that are already actively doing business online.
It remains to be seen how many Malaysian SMEs will benefit from the DFTZ. Ultimately, it depends on whether these companies can make the best of the e-services platform to grow their sales.
On that note, Yasmin concedes that a lot of work still needs to be done to ready the SMEs for export-oriented e-commerce.
For one, Alibaba will be working with SME Corporation Malaysia and Malaysia External Trade Development Corporation (Matrade) towards this end, she adds. “Get on it, that’s the only way for our SMEs to grow bigger. Our market is very small, we need to go global.”
Citing government data, Yasmin notes that SMEs currently contribute only 37% to the national gross domestic product. They can and should do so much more, she says.
She points out that the SMEs can leverage existing strengths, particularly halal goods as well as electrical and electronic products.
For now, Malaysia has an early start on the eWTP partnership, but it is not going to be the only country partner over the longer term. This is because Alibaba is also courting other countries to come on board.
Ma told a press conference last Thursday that he was also focusing on other developing regions, chiefly South America and Africa. Apart from that, he said, the Alibaba team was already in Indonesia and the Philippines to see what could be done there.
When asked, Ma declined to say how much tangible investment Alibaba is bringing to Malaysia to support the DFTZ.
He said the group was preparing a “big fund” for its eWTP ambition but declined to mention specifics.
“We go round by round. It’s not about money solving the problem. We not only talk about money. We bring partners, we bring tech,” Ma said after the Global Transformation Forum, where he was one of the speakers.
“Let’s change the concept of investment. Money investment [and] how large it is, is more like last century’s concept. Of course, real estate developments come to Malaysia and bring a lot of money.
“But what Malaysia needs, I think, is technology and the way people think, the way people do business. Connecting Malaysia with China is a huge investment.”
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.