Over the last five decades, the Malaysian economy has been transformed from a commodity-based economy to a manufacturing and services-oriented economy. To achieve a developed nation status by year 2020, concerted efforts have been undertaken since the mid-1990s to meet the changing needs of the nation and investors.
The New Economic Model (NEM), Economic Transformation Programme (ETP) and the 11th Malaysia Plan (11MP) which contains policy directions and strategies have been outlined to provide the necessary framework for the country’s future focus and direction.
The Malaysian Investment Development Authority (MIDA), the government principal agency for the promotion of manufacturing & services sectors has played a pivotal role to the transformation of the Malaysian economy into a vibrant economy led by the manufacturing sectors through various policy recommendations and the aggressive marketing approach undertaken to attract FDI.
Malaysia today is one of the world’s top locations for offshore manufacturing and service-based operations as reflected in the presence of companies such as B. Braun, Infineon, Linde, Honeywell, Siemens, BASF, Osram, Intel, Mercedes-Benz, Samsung, Panasonic and Bosch. The presence of MNCs has stimulated the development of local supporting industries. With the rise of local vendors, more foreign companies are attracted to Malaysia to avail themselves to the supply chain and ecosystem that have been created over the years. Many of the existing foreign companies have also continued to show their confidence in the country’s potentials as an investment location by expanding and diversifying, particularly in high technology projects.
Malaysia is a vibrant investment destination. Other than manufacturing, the Malaysian government is also strengthening the services industries as part of its strategy to diversify and improve the competitiveness and resilience of the economy of the country. Business and professional services, distributive trade, construction services, education and training services, tourism services, health services, ICT services and logistic services are among those activities promoted.
In strengthening our position as a preferred regional investment destination, the Government has introduced the new Principal Hub incentive. This will support Malaysia’s continuous growth in the services sector as well as positioning Malaysia as part of the global integrated supply chain. Companies can use Malaysia as a base for conducting their regional and global operations to manage, control, and support their key functions. The Principal Hub activities include management of risks, decision making, strategic business activities, trading, finance, management and human resource. This incentive is intended to complement the increasing trend of global off-shoring activities by encouraging foreign companies to leverage on Malaysia’s position in the ASEAN and Asia Pacific regions. Among some renowned companies that have set up their regional establishments in Malaysia include Heidelberg, Henkel, BMW, Schlumberger, Oleon, Philips, Arla, Roland, Intel, San Disk, Halliburton, Vale and Eppendorf.
Malaysia is also a regional centre for shared services. Most of these establishments in Malaysia are engaged in business process outsourcing (BPO) activities, including provision of shared services such as data entry, transaction processing and document management, customer contacts such as call centres, telemarketing and customer service, common corporate functions such as finance/accounting, human resource, IT, and technical support as well as R&D services to support their operations in the Asia Pacific region.
Malaysia’s world class infrastructure, good connectivity, strategic location within ASEAN, attractive investment incentive packages and liberal policies on foreign equity participation are amongst the compelling reasons cited by the MNCs for their decision to locate their regional and global establishments in this country. Encouraged by the country’s investor-friendly business environment, multinational corporations from more than 80 countries have invested in over 8,000 companies for their offshore location in manufacturing and related services operations.
The attractiveness of Malaysia’s financial environment, people skills and availability, and business environment have boosted Malaysia’s ranking in various international business benchmarks in recent years. The Global Competitiveness Report 2014-2015, released by the Switzerland-based World Economic Forum, ranked Malaysia 20th among 144 economies. In the World Bank’s Report on the Ease of Doing Business 2014, Malaysia is ranked 18th among 189 countries. In IMD’s World Competitiveness Yearbook Report in 2015, Malaysia was ranked 14th most competitive nation among 60 economies.
In this year’s Baseline Profitability Index (BPI), a ranking of destinations of attractiveness for foreign investors by US’s Foreign Policy Magazine, Malaysia jumped 5 rungs from 11th in 2014 to the 6th position. This ranking, which covered 110 countries across six continents reaffirms that Malaysia is an attractive profit centre in this region for investors. Bloomberg has also rated Malaysia as the world’s 5th most promising emerging market in 2015 and the only ASEAN country in its top 10. Malaysia’s sterling performance in these rankings is testimony to its achievements and will fuel more investments into the country.
The Malaysian Government is adopting a more focused and targeted approach in attracting quality investments in new growth areas within emerging technologies, high value added industries, high technology, capital intensive and knowledge intensive industries. The key sectors that the Malaysian Government would like to invite investments include advance electronics, oil & gas, medical devices, aerospace industry, information and communications technology, renewable energy, machinery and equipment, and services industries.
Despite the intense global competition for foreign direct investments, Malaysia still has what it takes to entice foreign investments, and the country remains a profit centre in Asia. One only has to speak to the top officials from some of the multinational corporations operating in the country to learn about their experiences of doing business in the country.