Malaysia’s Digital Free Trade Zone goes live: Here’s a Deep Dive on the ROIs

AvantiKumar | Nov. 6, 2017
How will the rapidly launched Digital Free Trade Zone (DFTZ) in Malaysia actually break through cross-border challenges and lift SMEs into the digital economy?

Photo 1 DFTZ goes live

Photo (official): (From left) Malaysian Prime Minister Dato' Sri Najib Tun Razak and Alibaba Group Executive Chairman Jack Ma hit the gong to signal the first eWTP hub outside of China has gone live-in Malaysia..

 

  Just a few months ago in March of this year, the Malaysia's prime minister Dato' Sri Mohd Najib Tun Abdul Razak and Alibaba Group's founder and executive chairman Jack Ma officially announced the Digital Free Trade Zone (DFTZ), an initiative eyeing the explosive growth of eCommerce in Asia and across the globe.

The idea to form a global digital economy enablement hub in Malaysia took just a few minutes only to hatch. "I want to share here that it took us only ten minutes to agree on this project - but I had been thinking about this for more than 10 years. And I am pretty sure that the prime minister had also thought about this for a long, long time. Only when the opportunity comes, when the chance come, can we make it happen - and we did it," said Ma during the initial announcement. [See - Computerworld Malaysia's "Deep Dive with Jack Ma on Malaysia and the Digital Silk Road"]

Implementation by government agencies, with Malaysia Digital Economy Corporation (MDEC) in the vanguard, along with Malaysia Airports, POS Malaysia, Alibaba and other players, is maintaining the same top gear with the Phase 1 of DFTZ now going live.

On Friday (3 November), Malaysia's prime minister  and Jack Ma opened the first ever eWTP (electronic world trade platform) hub outside of China at a Kuala Lumpur ceremony, which also flagged off 1900 export-ready small and medium enterprises (SMEs).

At the ceremony, Najib said DFTZ is expected to increase SME goods export to US$38 billion, create more than 60,000 jobs and support US$65 billion worth of goods moving through DFTZ by 2025.
 
"SMEs have the power to transform the economy," he said. "They are ambitious, nimble, and have the potential to create high value employment. They have the power to move Malaysia to become a high-income nation."

It's about simplifying eCommerce

"Back in March, I said Malaysia is set to make it easier for SMEs to do cross-border trade," Najib explained. "This is the primary purpose of DFTZ. It is simplifying eCommerce by bringing together government agencies, eMarketplaces, logistic and payment providers all on one platform."

To look behind the acronyms and to better connect the dots, it's useful to consider local eCommerce briefly: In Malaysia, the eCommerce sector - considered a vital driver of  Digital Malaysia - was originally slow to take off despite rapidly increasing Internet penetration rates from about 2015. At that time, just 5 percent of Malaysian businesses had any form of digital presence.

Today, local eCommerce is in a different position:  According to a recent report by BMI Research, Malaysia's eCommerce market is expected to grow to RM16.3 billion this year alone.

The Malaysian government has also tagged 2017 as 'The Year of the Internet Economy', and there has been a marked increase of efforts to catalyse cross-sector digital business.

Even without cross-border trade, the Malaysian market represents a digital population in excess of 20 million people. With high-speed Internet access now increasingly available, the country now also has a stable and developed infrastructure, lending further credibility to the potential for eCommerce growth.

"In Malaysia right now, on one of the famous platforms, the ratio of sellers to buyers is something like 1:15. This means that for each seller there are fifteen buyers," MDEC's chief executive officer Datuk Yasmin Mahmood (On left in photo below) had said to Computerworld Malaysia earlier this year.

DFTZ goes live (inc MDEC)

Photo: Alibaba Group Executive Chairman Jack Ma and Malaysian Prime Minister Dato' Sri Najib Tun Razak survey a model of the future regional eCommerce logistics hub to be developed by Malaysia Airports Holdings Berhad and Cainiao, Alibaba's logistics affiliate.

On the geographical front, Malaysia sits at the heart of ASEAN, which has a population of more than 625 million. "eCommerce is the new way of trade. There is no way that Malaysia as a global trading country can ignore eCommerce. For all merchants out there; SMEs, sellers, our consumers are buying eCommerce," she said. [See - Computerworld Malaysia's feature on "Why DFTZ will double Malaysia's SME exports]

"It is also about empowering SMEs to do cross-border commerce and trade. Through the DTFZ, we hope that Malaysian SMEs will have greater ease in conducting cross-border transactions and logistics handling," Yasmin explained.

"All these initiatives and more work towards one single goal common goal and that is to help SMEs overcome complex regulations, processes and barriers. In turn, this will further encourage businesses and traders to connect and collaborate in cross-border trading," she added.

[See also - Malaysia's battle plan for digital disruption: part 1 of an exclusive with MDEC's Datuk Yasmin  and Disrupting the disrupters in Malaysia: part 2 of an exclusive with MDEC CEO Datuk Yasmin]

What is phase 1?

How will the rapidly launched Digital Free Trade Zone (DFTZ) in Malaysia actually break through cross-border challenges and lift SMEs into the digital economy?

During the recent event, the prime minister and Ma launched the KLIA Aeropolis DFTZ Park, which Alibaba's first regional eFulfillment hub (eWTP) outside of China. Malaysia will be a regional hub that will be part of the eWTP and also will be connected to the upcoming regional hubs in other regions.
 
The eFulfilment hub at KLIA Aeropolis DFTZ Park is expected to double the growth in Malaysia's air cargo volume from the current level of about 700,000 tonnes a year to 1.3 million tonnes a year within 10 years, according to an official statement released last Friday.
 
With ground-breaking enhancements, KLIA Aeropolis DFTZ Park will "optimise border clearance and handling from 6 hours to 3 hours with 90 percent Service Level Agreement (SLA), and improve Cargo Terminal Operations (CTO) from 4 hours to 90 minutes."
 
The statement also said the eFulfilment hub is "equipped with latest technology, including sorting, shelving and pick-pack facilities, Lighting Industrial Units (LUI) that allow minor repairs and assembly prior to shipping goods, customs inspection and quarantine area and category specific facilities such as secure warehouse, temperature controlled storage and other facilities."

The eFulfilment Hub will be developed over two phases. "The first phase will be at the KACT1, refurbished and operated by POS Malaysia to serve Lazada amongst other eCommerce players. The second phase will be a greenfield development over a 60-acre plot to be jointly developed by Malaysia Airports and CAINIAO Network, the logistics arm of Alibaba. This will be operational in 2020."

Meanwhile, the eServices Platform will manage cross-border trade more efficiently and leverage on the seamless services through an integrated trade facilitation platform that provides access to eCommerce ecosystem players (financing, last mile fulfilment, insurance, digital marketing, and others.
 
As the next phase of expansion, DFTZ will support other major modes of transport in a phased manner to cover sea and rail. 
 
The benefits

 SMEs are offering products and services that include Food & Beverage, Beauty & Personal Care, Furniture, Health & Medical, Packaging & Printing, Apparel, Agriculture, Rubber & Plastics, and Automobiles & Motorcycles.

The DFTZ initiative will:

For SMEs, the benefits are expected to include:

On a final note, why Malaysia? Ma answered: "Since day one of our collaboration, Malaysia has never failed to impress me. I would like to take this opportunity to congratulate the Malaysian Government and all involved in turning DFTZ into a reality. The Electronic World Trade Platform (eWTP) initiative's goal is to build an inclusive and innovative global trading platform for SMEs, young people and consumers. We are proud to share this vision with DFTZ. I believe that this is the beginning to a long-standing strategic partnership between the two nations. Alibaba Group definitely plans to stay and strengthen our presence here."

To see more about Digital Malaysia, go to:

The latest edition of this article lives at Computerworld Malaysia