Malaysia favourite investment destination of Singapore firms

PETALING JAYA: Malaysia is the favourite among Asean countries to attract investments from Singaporean companies, according to the HSBC-commission report by the Singapore Business Federation.
Companies from the neighbouring country have chosen Malaysia as the destination of choice for expansion due to the ease of doing business, in which Malaysia ranks at No. 24 globally, and for its growing consumer market.
The report surveyed 1,036 Singaporean contacts of which 86% were SMEs (small and medium enterprises). 77 of the respondents indicated their interest to expand within Asean, for which Malaysia was the leading choice. “Whilst Malaysia’s growing consumer base is already well recognised by Singapore corporates, the report shows that many businesses are looking to double down on our demographic dividends,” said HSBC Malaysia’s country head of Commercial, Andrew Sill.
He added that Malaysia’s strong manufacturing sector which is now entering a more technologically advance phase with automation and innovation and modern infrastructure makes it a suitable location to base the “revenue-making operations”, while treasury and office functions could operate out of Singapore.
In addition to that, Malaysia ranks at No. 212 compared to Singapore at No. 24 in the world’s most expensive destinations index. The young, educated and cost-effective workforce was also seen as an attractive factor.
According to the Iskandar Regional Development Authority between 2006 and 2016, Singapore was the second largest inbound investor in the Iskandar region after China (RM36.35 billion), with an investment totaling to RM21.54 billion, while Asean collectively accounted for 9% of the total inbound investments into Iskandar.
The Malaysian Investment Development Authority said in 2017, Singapore was the third largest source of investment after China and Switzerland.
Despite the positive sentiments on Asean Economic Community and the Asean Free Trade Agreement, the lack of accessible, clear information about these initiatives act as a barrier for companies reaping the benefits.
The report found that 60% of the companies operating in Asean markets operates via distributor networks, subsidiaries or joint ventures, of which Malaysia accounted for a third of the regional penetration level.
“Singapore based SMEs can make a significant contribution to Malaysia’s economy as they look to expand beyond their domestic markets and can benefit from the cross-border activity that was previously seen as the domain of larger companies, said Sill.
Noting that expanding into any market is never a straight line process and there will be inevitable bumps along the way, especially for SMEs that may not have the resources to fully navigate the difference. Sill said companies will require a deep knowledge of the market, trusted network connection and financial processes that are flexible and digitally capable of handling the nuances of multiple jurisdiction.
Circumventing these complexities can be done with the selection of right partners and advisers which could also present opportunities for SMEs from both countries.