Main risk comes from imbalance in market power, says academic
PETALING JAYA: Local food and beverage (F&B) operators are facing growing pressure from foreign brands, which experts warn could push Malaysian small and medium-sized enterprises (SME) out of the market if stricter competition safeguards are not enforced.
From predatory pricing to loopholes in existing regulations, the rapid expansion of international F&B chains is raising alarm bells across the industry.
Economists and SME leaders say the challenge is not the presence of foreign brands but how their dominance could undermine domestic entrepreneurship and consumer choice in the long term.
Universiti Teknologi Mara senior lecturer in economics Dr Mohamad Idham Md Razak said foreign operators bring competition, investment and consumer choice, which are generally positive for efficiency and innovation.
“But if growth becomes concentrated among foreign players while local SME struggle to survive, this could weaken domestic value creation, reduce local entrepreneurship and make the ecosystem less resilient.”
He emphasised that the main risk is not the presence of foreign players but an imbalance in market power.
On whether stricter guidelines are warranted, he said well-calibrated rules on pricing behaviour, franchising practices and market entry could correct distortions without signalling protectionism.
“Stricter guidelines are justified if they are designed to ensure fair competition rather than exclude foreign players.”
He added that predatory pricing by large operators could pose long-term risks.
“In the short term, consumers may benefit from lower prices, but over time such practices could push local competitors out of the market, reduce choice and eventually allow dominant players to raise prices.
“This undermines a healthy trade ecosystem and weakens domestic industry.”
To maintain fair competition while supporting SME viability, Malaysia must strengthen enforcement of competition laws while helping SME improve competitiveness.
“Policies that support SME scaling, integration into supply chains and participation in e-commerce on fair terms would allow local firms to compete on quality and innovation rather than price alone.”
He also suggested that Malaysia could learn from countries such as South Korea, Japan and countries in the European Union, which combine strong competition law enforcement with targeted SME support.
Last week, the government announced that it is reviewing its guidelines on foreign F&B brands, following concerns raised by an MP that the expansion of foreign chains could threaten the survival of local SME.
Domestic Trade and Cost of Living Deputy Minister Datuk Dr Fuziah Salleh said the review would focus on the 2020 Guidelines on Foreign Participation in the Distributive Trade Services, which the ministry has identified as outdated and containing loopholes.
Among the issues under review is the minimum outlet size required for specialised F&B outlets before approval is granted, part of the ministry’s effort to protect domestic SME while maintaining a competitive market.
SME Association of Malaysia president Dr Chin Chee Seong said the review is timely.
“It isn’t just about identifying loopholes; it’s about revisiting the definitions and terms used in the 2020 guidelines.
“Right now (in the review), the wording is problematic. It uses phrases such as ‘you are expected’ or ‘you are required,’ but there is no ‘must’.
“In other words, foreign companies aren’t strictly obliged to follow the requirements.”
He explained that some foreign outlets could bypass rules designed to protect SME.
“One of the rules says if an F&B outlet exceeds 5,000 sq ft, an impact study is required to show it won’t negatively affect local SME.
“Many outlets open small stores below the threshold, so they bypass the impact study. Once operational, some engage in predatory pricing, (which is) lowering prices to undercut local businesses.”
He added that technology gives foreign operators an advantage.
“Many leverage IT and digital platforms; online ordering, delivery apps and so on.
“Local SME often lack the resources to build such platforms, which puts them at a disadvantage.”
