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Malaysia Digital Free Trade Zone to Boost E-commerce Growth

By Market Research Malaysia | Posted May 27, 2019

As a joint undertaking between the Malaysia Digital Economy Corporation (MDEC) and China’s Alibaba Group, Malaysia formally launched the Digital Free Trade Zone (DFTZ) initiative in 2017. This aims to further explore e-commerce development in the country, as well as positioning Malaysia as a leading logistics center for global marketplaces. The zone is opening opportunities for companies both in Malaysia and other countries in Southeast Asia to leverage a platform that can enhance their competitiveness and market access. Furthermore DFTZ is also set to develop an internet ecosystem in Malaysia, driving innovation in e-commerce industry and digital economy.

DFTZ’s Key Components

The DFTZ is constituted of three main components, including e-fulfillment and hub satellite hub ad physical zones, and e-services as virtual zones. The e-fulfillment hub is closely located to Kuala Lumpur Internet City Aeropolis (KLIA), strategically developed to serve as a centralized aviation, air cargo, as well as logistics facility for Malaysia and Southeast Asia region in removing barriers to trade. As for satellite hub, it is developed to operate as a digital platform for local and global e-commerce players targeting the Southeast Asian market. The hub offers several facilities, including offline-to online showrooms, training centers and open space areas for entrepreneurs into the internet ecosystem.

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While the e-services offers integrated digital e-services for businesses to operate from the DFTZ, providing efficient management of cargo clearance and other processes related to cross-border trade. Furthermore, the DFTZ seeks to support SMES in gaining better access to dynamic supply chain ecosystem that is usually open to large corporations. SMEs based in Malaysia’ DFTZ will get a geographically-strategic location, unified government platform, an an integrated digital e-services platform, also access to traffic from Alibaba’s other marketplaces, including Tmall and Taobao.

E-commerce Landscape in Kuala Lumpur

As a renowned destination for expats to live in, the capital city of Malaysia is even transforming into a melting pot for the world. Going into e-commerce, Malaysia is ready with its network infrastructure and government’s support for the industry. Kuala Lumpur is also among the top e-commerce cities in Asia, along with other cities in the region, such as Jakarta, Shanghai, Osaka, and many more, based on our latest report, “Top E-Commerce Cities in Asia”.

E-commerce in Kuala Lumpur is driven by its infrastructure readiness and government initiative as world’s first digital free trade zone, positioning Kuala Lumpur as a regional hub for e-commerce logistic and gateway. The city with 7.4 million population has 86% internet penetration rate, 96% smartphone penetration rate, as well as 85% digital banking penetration rate. The technology adoption rate makes Kuala Lumpur as one of the highest compared to other Asian metropolitan cities. This number has also pushed the internet usage with people spending an average of 13 hours on their devices.

In spite of being a key gateway in the region, the report also found that lacks of trust in online retailers, particularly on product reliability and safety of payment mechanisms, can pose a challenge for the growth of e-commerce industry in Malaysia’s capital, Kuala Lumpur. According to the report, Malaysia is also still struggling to cut the high logistic cost and a fairly low credit card penetration rate with USD 3.03 charged for every kilogram of goods delivered.

Download the full report on Top E-Commerce in Asia

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