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Tourism In Malaysia Essay

Tourism means activities that occur when tourists travel and staying in places outside their usual environment for not more than a year for business, leisure and etc. It is the second largest foreign exchange earner, after manufacturing.

Positive impact of tourism industry on economy
1. Contributed to foreign exchange earnings
Tourism expenditures and the export and import of related goods and services generate income to the host economy and can stimulate the investment necessary to finance growth in other economic sectors.

Some countries seek to accelerate this growth by requiring visitors to bring in a certain amount of foreign currency for each day of their stay

2. Contribution to government revenues
Government revenues from the tourism sector can be categorized as direct and indirect contributions.

Direct contributions are generated by taxes on incomes from tourism employment and tourism businesses, and by direct levies on tourists such as departure taxes.

Indirect contributions are those originated from taxes and duties levied on goods and services supplied to tourists.

3. Employment generation
Tourism generates jobs directly through hotels, restaurants, nightclubs, taxis, and souvenir sales, and indirectly through the supply of goods and services needed by tourism-related businesses.

4. Improved in Infrastructure
Local government to make infrastructure improvements such as better water and sewage systems, roads, electricity, telephone and public transport networks, improve the quality of life for residents as well as facilitate tourism.

5. Contribution to local economies
Tourism revenues are often used to measure the economic value of protected areas.

Not all tourist expenditures are formally registered in the macro-economic statistics.

Money is earned from tourism through informal employment such as street vendors, informal guides, rickshaw drivers, etc.

The positive side of informal or unreported employment is that the money is returned to the local economy, and has a great multiplier effect as it is spent over and over again.

Negative impact of tourism industry on economy
1. Leakages
A leakage occurs in tourism when money is lost from a destination area.

It is also called the amount of money that is drained out of an area due to tax payments, profits and wages paid outside the area and expenditure for imports.

This could be happened because of:

the hotels are owned by companies that operate in other countries and the profits are taken away from the local area. tourists demand standards of equipment, food and other products that the host country cannot supply. larger travel and tourism companies buy their goods and services centrally in order to get the best prices

2 type of leakages
Import leakage – This commonly occurs when tourists demand standards of equipment, food, and other products that the host country cannot supply. Export leakage – Multinational corporations and large foreign businesses have a substantial share in the import leakage. Often, especially in poor developing destinations, they are the only ones that possess the necessary capital to invest in the construction of tourism infrastructure and facilities

2. Infrastructure cost
Tourism development can cost the local government and local taxpayers a great deal of money. Cost is taken from tax revenues

3. Increase in prices
Extra charges may be levied on the local community to finance facilities and services for visitors. Through their taxes, local people may have to pay for facilities such as tourist information centres and museums, which are primarily for the benefit of tourists. Increasing demand for basic services and goods from tourists will often cause price hikes that negatively affect local residents whose income does not increase proportionately.

4. Decline Of Traditional Employment And Seasonal Unemployment

Tourism development can lead to the loss of traditional jobs, when workers move from industries such as farming, forestry, mining and fishing into service jobs in tourism.

Seasonal unemployment can be a problem in tourist destinations that are not active all year round, putting extra strain on local and national government resources.

Challenges of tourism

1. Crime

Although there is crime in most countries, in Malaysia there is a higher chance of being a victim of crime because tourists are targets or crime. The most common crime involves thieves snatching bags and speeding away on motorbikes. People were concerned about security issues in the wake of the terrorist attack

2. Over-development

Resident business owners seek to capitalize on the economic windfall of tourism through increased construction. unplanned development of tourist areas contributes to degradation in environmental quality such as deterioration of water quality, air, noise and damage to natural sources


Political protest can cause decrease in tourism.

ex: Thailand.

Political crisis started form Nov last year, Bangkok has seen a sudden decrease in tourism. According to the TAT, if nothing is done to curb the political unrest, Thailand’s tourism industry might face a huge loss in the coming high season from November 2014 to March 2015.

4. Competition by other countries

Other countries like Egypt has one of the seven wonders in the world. Great wall of China in China and other main attraction like Colloseum, Taj Mahal and others. we are not that famous compared to other countries.

due to lack of advertisements about Malaysia in their countries.


The tourism industry in Malaysia is regarded as one of the second largest foreign exchange after manufacturing sectors. Tourist industry has seen as income and earnings generated in many developing countries. Factors affecting tourism industry

1. Safety and comfort

Safety and comfort factors include a safe beach environment, which provides good accommodations and services, complete and comfortable as well as having wide selection of food and souvenirs, made of this factor as the main factor for visitors to visit

2. Facilities provided

facilities provided, such as garbage collection, public toilets, recreation facilities and playgrounds.

factors of tourists to come to a certain tourist destination is because of good and systematic transport links, and the allocation of time as well their knowledge of the place they visit.

The Malaysian capital now has good transportation links, including a network of highways and suburban rail lines and three mass transit lines, while the new international airport is an architectural triumph

3. Natural attraction

A visit to the Malaysian rain forest – the oldest in the world – is usually high on the list of visitors to the country. Along the rivers of Sarawak and Sabah are some highly unique native communities where people live in longhouses – entire villages housed under a single long roof. These are fast becoming major attractions for adventure travellers looking for unusual and authentic holiday experiences

Recovery Phase(1999-current)
Currency exchange rate: 1 USD= 2.427 MYR(1997) & 1 USD= 3.279 MYR. Malaysia able to recover in 1999 was supported by:

a) accommodating macroeconomic policies which focus on domestic economy. b) create the asset management company called “Danaharta” to overcome the problem of Non-Performing Loan(NPLs) among the bank sector. c) creation of government-backed re-capitalization agency which is called “Danamodal”. d) increase in investors’ demand and global demand for electronic . Although there is a depreciation of yen and regional currency in the early April 2001 which cause short term of capital outflow and the outbreak SARS and the Iraq war in 2003 did not adversely affect the growth of the Malaysian economy as the government took effective pre-emptive action. In May 2003, Malaysia government introduce the 4 new strategies to stimulate economic growth :

i. promote private sector investment
ii. strengthen nation’s competitiveness
iii. develop new sources of growth
iv. enhance the effectiveness of the delivery system.

Malaysia Economy Background

Malaysia was a strong performer in economic growth within the South-East Asia region in the early and mid-1990s. However, the country’s economy was hit hard during Asia Economic Crisis, which began in July 1997 started from Thailand. The crisis caused Malaysia economy contracted by 7.4 percent, and the Ringgit slipped by more than 40 percent until the country decided to implement currency and capital control, as well as pegged it currency- RM3.80 to USD1. However, the economy was able to recover strongly, particularly in 1999 and 2000, as the result of increased government spending and highly increased export sector. Malaysia had successfully to register averaged annual GDP growth rate at 5.9 percent since 2001. The country economic growth are transforming from depending on government spending and exports to become more driven by investment and private consumption, especially in the services sector.

Malaysia had taken the initiatives to reconstruct it economy, especially financial sector since 1997 Asia Financial Crisis. This enabled Malaysia’s economy did not hurt badly by the global financial crisis which began on November 2008 in US. However, the country’s economy is facing several problems internally and externally. These include of potential decreasing exports demand, higher commodity prices (due to Quantitative Easing (QE) Policy- worldwide, and Quantitative Easing 2 (QE2) – US), lower competitiveness in attracting FDI inflows, and challenges in gaining the high income country status.

Importance of FDI

1. Additional source of capital
The inflow of capital in the form of FDI allow host economics to invest in production activities Help to expanded host countries economics

2. Promoted exports and trade
The shift in exports in Malaysia reflects the structural information from being predominantly agriculture-based to predominantly industry-based Malaysia were able to shift quickly towards a manufacturing-based economy essentially through large inflows of export oriented FDI

3. Transfer new technology to the host country
FDI provides the fastest and most effective way to develop new technologies in developing host conutry It involves sharing skills, manufacturing methods and even entire facilities. It can also refer to the knowledge passed by scientific research institutions.

4. Creation of New Jobs
FDI created job opportunities investors build new corporations in these countries they create new job opportunities. This leads to an increment in income and the development of competition. reduce the poverty rate in a developing country.

Negative of FDI (CON)
1. Environment issues
FDI is concentrated in natural resource sectors of developing and less developed countries. Most of these countries have a less strict or non-existent regulatory regime. Sometimes countries deliberately attempt to exempt or loosen their regulatory requirements to attract FDI. 蓄意免除或放松自己的监管要求 However, while these countries can benefit from positive effects of investment, the negative effects of FDI on host country’s ecosystems and environment might bring disaster in the long run

2. Balance of effect payment
An increase in FDI inflows from the home country will result in an increase in imports in the host country from the home country. Foreign firm bring in own raw materials or intermediate goods from their country to host country As more investment flows in, the host country economy becomes more and more dependent on the production technology of MNE’s (multinational enterprises) home country. The host country will have to import more inputs and intermediate goods from the MNE’s home country, which might constrain the development in the domestic industry. If these investments are not export-oriented, the host country can suffer from trade deficits

3. Increase industry concentration
Multinational firms monopolize local-market
Local firms with small capital and lower technology cannot compete with the multinational firms

4. Disadvantages of capital inflow
Investment of a foreign company with its new technologies and products has several disadvantages for local businesses. New products arriving at lower prices create competition and force local businesses to lower their prices and reorganize their operations in terms of costs. Local businesses may lose their customers or even their business relations with other companies as they start cooperating with the new foreign one

Challenges of FDI
1. Rules and regulations
Foreign investors must consider regulations in Malaysia before making an investment There are list of sectors that government set the maximum foreign ownership up to 49% MSC Malaysia and Iskandar Malaysia allowed the foreign ownership up to 100%

2. Labour
To ensure smooth production and operation, foreign investors need to look at qualified and adequate supply of labour The plight of Malaysian skilled labour means that foreign investors need to bring other nationalities to work in their company in Malaysia

3. Legal and copyright issues
Although Malaysia has tight law regarding the copyright and patent, duplication and fakeries are not uncommon For example, Malaysia is one of the top 10 countries in software piracy percentage of total software used This brings an impact towards the software and gaming industry

4. Ethics issues
Foreign investors especially from Western countries need to aware of the differences and sensitivity in Malaysian culture Four states in Malaysia have the weekends on Friday instead of Sunday Any statement that touched the sensitivity such as religion and culture differences can jeopardise the foreign investors’ image even investment itself

Strategy to attract FDI into Malaysia
1. Business infrastructure
the better the infrastructure of the host country, the more attractive it is to FDI a good infrastructure will facilitate production activities as well as the distribution of output highway, airport, telecommunication

2. Human capital
The availability of skilled labour in the host country is a direct requirement of the multinational firms and affect the volume of FDI Msia have to skill up gradation through better training and efficient management

3. Market size
The larger the market size of the host country, the more attraction it is to FDI A large market size is conductive to an increase in demand for products and services, allow achievement of economics of scale

4. Political stability
Stable political condition in Malaysia help to reduce corruption, conflit and crime rate Social and political unrest 动荡 will lead to inflation volatility Investor lost confidence

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