Is Malaysia the Next Boom?
China and Singapore built their competitive edges in the global economy through manufacturing goods for more developed nations.
Now the workforces in both countries are facing the same problem Americans faced as jobs moved overseas.
Costs, shipping distances and regulations are increasingly pushing companies to move into Malaysia.
Iskandar, an 850 square mile zone, is just across a narrow strip of water from Singapore. Malaysia is pushing its many advantages for factories looking to relocate.
Land prices are far lower and electricity costs are about half of Singapore's rates. Tax incentives are also abundant.
Singapore has shifted to high-wage, high-skill manufacturing, along with banking and other financial services. However, China is exposed to a loss of business.
China once provided a significantly cheaper labor, but after explosive wage growth over the last decade, it is now on par with Malaysia:
Chart courtesy of American Century.
Without a labor cost advantage, all of China's risks come to the foreground. It takes too long to get goods delivered, rising operating costs threaten profitability in the long-term and there is too much risk of interference from corrupt local politicians and rioting workers.
Singapore-based firms already account for 15% of the business in the Iskandar business area. Firms from Spain, Japan, the Netherlands and Germany have already shifted production into the area as well. Construction companies from the United Arab Emirates are working on housing and commercial projects.
Take Tastyfood Industries as an example. The company has opted to expand in Malaysia instead of Singapore or China. The company could have paid 30 times more for land in Singapore. If it expanded in China, it would have to spend way more on four hour flights to bring products to the market, as opposed to a 30 minute local trip.
Tastyfood founder and managing director Joseph Lim stated: “It's not easy to manage a manufacturing company in Singapore unless you are in high-tech, high value-added businesses like pharmaceuticals.”
At the same time, "Doing business in China also carries a lot of risks, although things have been improving there."
That leaves Malaysia in a sweet spot right in the middle, and international businesses are starting to take notice.+13
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