Economic Decision Making in the Hospitality Industry

This report analyses the economic condition of Malaysia from the perspective of tourism and hospitality industry. It covers factors like GDP, interest rate, population growth, capital accumulation, and more to find opportunities to build this sector. The report also provides recommendations based on infrastructure development, economical incentives, education and training, and local impacts on business to improve the tourism sector of this country further.

Running head: ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Economic decision making in the hospitality industry
Name of the university
Name of the student
Author Note

1ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Executive Summary:
In this report, the economical condition of Malaysia has been described from the perspective
of tourism and hospitality industry. Through analysing various factors like gross domestic
product, interest rate, population growth, capital accumulation and so on, the report has
intended to find various positive opportunities to build this sector. At the end, the report has
described about the East Malaysia and its various prospects to develop this hospitality
industry over there.

2ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Table of Contents
Introduction:...............................................................................................................................3
Overview of Malaysia:...............................................................................................................3
The role of government in Malaysia:.........................................................................................7
Tourism Development:.............................................................................................................11
Business development in the East Malaysia:...........................................................................15
Conclusion:..............................................................................................................................17
References:...............................................................................................................................18

3ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Introduction:
The world has consisted with both developed and developing countries. Based on
some basic economic indicators like gross domestic product, per capita income, standard of
living and industrialization, this classification has been done. The country, which has low
infrastructural facilities along with low Human Development Index (HDI) compare to other
countries like the U.S.A, is referred as developing country (Jamali & Carroll, 2017). Malaysia
is also considered as developing country, which has ranked 59 in Human Development Index
(Tan, Chuah & Luu, 2018). Thus, this report has intended to analyze the economic condition
of this country. For this, it is essential to take an overview of this country based its various
factors that can influence its stage of development along with the historical economic trend
and future growth forecasts. The supply of natural resources, capital accumulation, and
growth of population along with technological progress can be described under stage of
development. Moreover, some macroeconomical factors like GDP growth, interest rates,
value of currency and balance of trade, are required to analyse. This analysis can help to
understand the role of government within Malaysia. Furthermore, this report is going to
provide some recommendations based on infrastructure development and economical
incentives along with education and training, which can help to improve the tourism sector of
this country further. In this context, market has also played significant role to attract people
all over the world. In addition to this, local impacts on business and various strategies to
develop tourism and hospitality sector has also described. For this, the report has discussed
about the potential customers who can help to promote the concerned business sectors.
Overview of Malaysia:
Malaysia, situated in Southeast Asia, is consisted with thirteen states along with three
federal territories. The South China Sea has separated this country in two segments, which
are, east Malaysia and Peninsular Malaysia. The country has ranked 44 as the most populous

4ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
country, all over the world (Yong, 2017). The economic condition of this country is better
compare to other developing countries through developing its tourism sector by offering
brilliant scenery and excellent beaches. Hence, it is beneficial to analyse those factors that
can indicate the stage of development of this country.
Supply of natural resources: Malaysia has possessed with huge amount of natural resources
in the field of agriculture, minerals and forestry. Consequently, the country has exported
various natural and agricultural products among which the most valuable product is
petroleum (Zakaria, Ibrahim & Othman, 2017). In addition to this, Malaysia has also
exported other natural products like palm oil and natural rubber along with cocoa, pineapple,
pepper and tobacco.
Figure 1: Crude oil production in Malaysia
Source: (Tradingeconomics.com, 2018)
Malaysia has also possessed sufficient reserved of oil barrels to export to other
countries. From figure 1, it can be seen that the oil production in this concerned country has
increased significantly after 2014 (Tradingeconomics.com, 2018). Hence, the rank of this
country based on oil reserve is forth worldwide after China, India, and Vietnam. In addition

5ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
to this, the gas reserved of this country is also high, for instance, in 2014; Malaysia has
contained proven natural resource of 83 trillion cubic feet (Zakaria, Ibrahim & Othman,
2017).
Capital Accumulation: Through its primary sector along with industrial and tertiary sectors,
Malaysia has earned sufficient amount of capital, which can be invested further for producing
more output (Latif, Yusoff & Tan, 2017). Hence, this in turn has influenced Malaysia to
develop its economic condition, significantly.
Figure 2: Capital accumulation of Malaysia
Source: (Tradingeconomics.com, 2018)
Figure 2 has represented the capital accumulation o Malaysia since 2008. According
to this figure, it can be stated that the trend of investment is this country has increased
significantly, which is turn has helped the Malaysia to accumulate huge amount of capital.
Population growth: Population is another important factor that indicates the stages of
development of Malaysia (Samad & Mansor, 2017). The per capita income is chiefly
depended on this economical factor. Hence, at a stable level of national income, increasing
number o population can lead the country’s per capita income to decrease further. This in turn

6ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
has forced the country to lower its economic condition. On the other side, decreasing trend of
population is good for an economy.
Figure 3: Population growth trend of Malaysia
Source: (Tradingeconomics.com, 2018)
According to figure 3, it can be stated that the population growth of this country has
decreased significantly since 2012. Hence, from this consequence, it can be stated that the
country is developing its economic condition gradually.
Technological progress: The last but not the least factor is technological progress. Through
technological innovation, a country can increase its total production by large amount along
with good quality. However, for technological progress, capital accumulation is required.
Through its technological progress, Malaysia has developed its information technology (IT)
sector (Jin, Duan & Tang, 2018). At present, this country is become one of the biggest IT
Hub. Moreover, with technological progress, the infrastructural facility of Malaysia has also
been developed. With strong telecommunication networks and international ports, Malaysia
has represented a significant technological progress.
Hence, all factors have positively indicated that Malaysia has improved its
economical condition strongly for the last ten years. Through analysing the historical trend of

7ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
each factor, it can be said that the country can develop its future condition as well
(Tradingeconomics.com, 2018). Hence, future growth forecast is also required to understand
this situation. From the trend of GDP, it can be estimated that the GDP growth rate of
Malaysia is going to increase in future but at a slower rate. However, the unemployment rate
along with inflation and GDP of the government can also increase further and this is not good
for the country.
The role of government in Malaysia:
To develop the economic condition of a country, the government has played
significant role. By adjusting its natural resource with affective fiscal and monetary policies,
the government of Malaysia can influence the GDP, interest rates, currency values and
balance of trade in a positive way. Moreover, environmental policies and good standard of
living has also indicated the economical development of Malaysia.
The Gross Domestic Product (GDP) of Malaysia:
Figure 4: GDP growth trend of Malaysia
Source: (Tradingeconomics.com, 2018)
In figure 4, the GDP growth rate of Malaysia has been shown. From this figure, it can
be said that the economical condition of this country has remained at a stable position. Due to

8ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
financial crisis, this rate has declined significantly between 2008 and 2010
(Tradingeconomics.com, 2018). However, during the post crisis era, the country has
successfully maintained a stable position.
Interest Rates:
Figure 5: Interest rate of Malaysia
Source: (Tradingeconomics.com, 2018)
Based on figure 5, it can be said that the Central Bank of Malaysia has kept its interest
rate almost unchanged since 2012 (Tradingeconomics.com, 2018). This in turn has helped
domestic economy of this country to maintain a steady growth rate along with lower
inflation.

9ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Value of the Ringgit:
Figure 6: Value of Ringgit in terms of 1 U.S.D
Source: (Fred.stlouisfed.org, 2018)
Figure 6 has represented changing values of Ringgit (MYR), the Malaysian currency,
in terms of the U.S dollar. According to this trend, it can be said that the value of MYR has
decreased after 2014 (Fred.stlouisfed.org, 2018). The chief cause behind this currency
depreciation is the decrease in price of crude oil in global market. This depreciation in turn
has negatively influenced the country import any foreign products as it has become costly
while export has become comparatively cheaper than before. On the contrary, the demand for
domestic market has increased significantly, as these have become cheaper compare to
foreign products.

10ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Foreign debt:
Figure 7: Gross external debt of Malaysia
Source: (Tradingeconomics.com, 2018)
The amount of gross external debt of Malaysia has increased drastically since 2009
(Tradingeconomics.com, 2018). This phenomenon is not desirable for any country as it
creates huge pressure on the domestic economic system. The chief reason behind this
increasing trend of public debt is balance deficit within the country’s balance of trade.
Environmental factors:
Malaysia has experienced enormous numbers of environmental issues due to pollution
and deforestation. The government of Malaysia has taken various steps to recover its
environmental condition. For instance, the government has maintained the Air Pollution
Index (API) to measure the air quality of the country. In addition to this, the country has
signed various multilateral environment agreements related to biodiversity, for instance, the
Convention on Biological Diversity (Grigg et al., 2017). Malaysia has become the member
of other agreements that deal with important wetlands protection, climate change, biosafety
and haze and lows of the sea.

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Personal well-being of citizens:
Figure 8: Happiness Index of Malaysia
Source: (countryeconomy.com, 2018)
The above figure has represented the happiness index of Malaysia. Based on this
figure, it can be said that the wellbeing of citizens are improving in this country. The world
happiness-ranking of this country has also increased over the last five years. In 2017, the
country has ranked 42 while, in 2016, it has ranked 47 worldwide (countryeconomy.com,
2018). For constructing this index, some parameters are considered, viz., health, income, life
satisfaction, work-life balance and safety and so on and those in turn have represented the
well-being of citizens.
Thus, from the above discussion, it can be said that the government of Malaysia has
great contribution on the country’s economical development. Hence, the economical
condition of this country has remained at a higher and stable position compare to other
developing countries, all over the world.
Tourism Development:
The tourism sector of Malaysia has contributed significant amount to the country’s
gross national income (GDI) (Mosbah, & Al Khuja, 2014). However, the government of this

12ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
country can develop various sectors, which can influence the tourism and hospitality industry
of this country positively.
Infrastructural development: The country has possessed one of the most developed
infrastructures all over the Asia. With its strong telecommunications network along with
transport one, the country has developed its infrastructural facilities to a large extend.
Transport network of Malaysia has constructed through road, rail, air and sea (Zhao & Li,
2018). Hence, the country has already contracted its infrastructural facilities that can support
its tourism and hospitality industry.
Economics incentives: The government of Malaysia has generated some positive economic
environments from which economic incentives can be generated. For instance, the
government has abolished income tax on some companies, which are expanding their
business in less developed parts of this country. This tax exemption in turn has facilitated
domestic and international investors to invest their money in the business sectors (Hee,
Kamaludin & Ping, 2016). In addition to this, the government can reduce taxes on tickets
along with transportations that connect various tourism sectors of Malaysia. This further can
generate economic incentives for tourists.
Education and Training: Education and training is important factors that lead the tourism and
hospitality sectors of a country to develop further. Proper educations help an individual to
communicate with people of other countries efficiently. Most of the tourists have come across
the world, for which, Malaysia has experienced cross-cultural communications. Proper
education can support the citizens of Malaysia to adopt this mixed cultural activity quickly
(Zhao & Li, 2018). In addition to this, proper training related to hospitality and tourism sector
is also requires to make skilled employees. Malaysia has founded various colleges, which
provide courses related to this sector.

13ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Figure 9: literacy rate in Malaysia (aged between 15 and 24)
Source: (Uis.unesco.org., 2018)
According to figure 9, it can be said that the literacy of Malaysia has increased
steadily since 1975 (Uis.unesco.org., 2018). Consequently, this increasing trend has helped
the country to expand its tourism and hospitality sector properly.
Marketing: Malaysia has possessed large scale of biodiversity containing around 20% animal
species all over the world (Wilson et al., 014). Different kinds of species can be seen in
different parts of the country. In addition to this, geographical diversity can also be seen
within this country. Those, in turn helped the country to attract tourists worldwide.

14ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Figure 10: Number of international tourists arrived in Malaysia
Source: (Data.worldbank.org, 2018)
The above figure has represented a trend of international tourists, arrived in Malaysia,
since 2008. From this figure, it can be stated that the number of tourists has increased
significantly throughout the year. This number has decreased by small amount between 2014
and 2016 (Data.worldbank.org, 2018). However, later it has increased again. Thus, it can be
stated that the country has positive market conditions for its tourism and hospitality sectors.
Large numbers of tourists have helped the hotel companies to boost up their business. In this
context, the government can also play significant role to promote this sector further. For
instance, by providing financial supports, the government can help various small-scale hotel
companies to expand their business by large extend and also to advertise their hotels in
international market. Through utilizing that financial assistance, those concerned companies
may successfully compete with other large-scale companies in the market.
Hence, the government may solely help the country to expand the tourism and
hospitality sector of Malaysia noticeably. The government can also create a positive
environment to develop this concerned sector through other methods. For instance, it can
organize a global campaign featuring the diversity of Malaysia, and this in turn can attract

15ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
people of other countries to visit over there. In addition to this, educational sector has also
played a significant role to promote the economical condition of this tourism sector as large
number of international students may come into this country for pursuing higher education.
This in turn has helped Malaysia’s tourism and hospitality sector to develop further.
Business development in the East Malaysia:
East Malaysia is also referred as Sarawak, Sabah and Labuan. This part of the country
is situated on island, where the number of population along with their economical condition
is very low compare to the Penang or Kuala Lumpur. The physical nature of this part has
consisted with mountain rain forest and lowland rain forest. Moreover, 5 highest mountains
of Malaysia along with the highest one, that is, Mount Kinabalu can be seen over here. In
addition to this, East Malaysia has Banggi island, Mulu Caves and the Gunung Mulu National
Park, where each of them has huge geographical importance (Hanifah et al., 2018). Hence,
the tourism and hospitality sector can earn huge advantage for conducting their business in
this part of the Malaysia.
Type of business and potential customers:
As the east Malaysia has possessed large scale of natural diversity, it can help tourism
and hotel sectors to expand their business in those parts. Being underdeveloped, the
infrastructural facilities along with education, training and marketing have remained
underdeveloped as well (The, Teh & Jolis, 2018). Hence, to develop those parts, financial
supports are required. However, governmental aid can play the chief role to promote this
sector significantly. By providing proper financial support and infrastructural facilities, the
government can attract international tourists and this in turn may help this sector to earn more
revenue.

16ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Attracting local finance:
Economical condition of East Malaysia is not developed. Due to underdevelopment
and low level of education along with absence of other facilities, this part has remained
unable to expand their business significantly (Zhao & Li, 2018). However, by providing
economics incentives, the government can attract local persons to invest their money for
earning higher amount of profit.
Legislation and planning issues:
The government may provide financial assistance and tax exemptions to those
producers, who are willing to start their business in any part of the East Malaysia (Hanifah et
al., 2018). To promote those tourists sectors, the government can promote advertisement in a
proper way. Hence, proper planning and legislation are required for developing business of
tourism and hospitality sector.
Staffing, skills of local residents:
Due to lack of education, most of the local residents have remained uneducated.
Moreover, absence of training courses related to tourism and hospitality sector have made
impossible for companies to hire skilled staffs from any part of the East Malaysia (Mosbah &
Al Khuja, 2014). For this, this portion of the country requires proper educational facilities
along with some vocational courses to get a job form this concerned sector.
Economic flow:
After the development of tourism and hospitality industry, this part of the country can
enjoy large scale of economies. This is because, by constructing the concerned sector, the
government or a company can help to develop economic condition of this segment of
Malaysia (Zhao & Li, 2018). Moreover, this sector can increase the opportunity of
employment generation and infrastructural facilities. Hence, local community can receive
positive flow of economics.

17ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
Conclusion:
Thus, the report has discussed about the economical condition of Malaysia by
considering some factors that can indicate the stages of development of this country, for
instance supply of natural resources, capital accumulation and the number of population by
considering their historical trends and tendency to grow in future. Moreover, the country’s
GDP growth rate, interest rate and value of the currency in terms of the U.S dollar have also
been considered to understand the role of government on this sector. At the end, East
Malaysia has been considered to analyze the future prospective of this region regarding the
tourism and hospitability sector.

18ECONOMIC DECISION MAKING IN THE HOSPITALITY INDUSTRY
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