Malaysia - Moving Forward Up the Global Value Chain

The tide today is turning. In the past, there has always been a steady stream of companies that chose Malaysia for build-up and expansion, but the stream is now increasing at a greater rate with more new explorations for mutual benefit.

The country continues to exhibit very strong fundamentals. Despite the current global financial crisis, Malaysia is optimistic of a 5 percent GDP growth this year. Malaysia's resilience is a product of decades of sound macroeconomic policies. Malaysia's balance of payments goes from strength to strength, as does the country's financial system. These fundamentals are a hallmark for Malaysia, a hallmark that has provided a sound business environment for investors.

The new Malaysia still keeps a firm eye on these fundamentals. At the same time, the world has changed rapidly, and companies need to respond to this challenge. As every country finds its niche in the world, Malaysia, too, has had to reflect on its direction and its vision for the future. Fortunately, the achievements of the last few decades have put the country in good stead for the next level of development. From its strong fundamentals, the new Malaysia seeks to gradually restructure the foundation and the drivers of growth, in order to occupy a higher position in the global value chain.

This means that first, Malaysia is shifting from low-end manufacturing toward activities that better leverage its strengths and natural advantages. This translates into invigorating certain sectors such as agriculture, agro-based industries, and biotechnology, to take advantage of Malaysia's fertile bio-resources.

In short, the re-branding of Malaysia means shifting the basis of growth towards more high-value activities that leverage its natural advantages and strengths. These activities will be driven by a higher emphasis on human performance and productivity gains.

For the most part, Malaysian manufacturers have focused their efforts on the low value-added segment. With strong competencies in production and assembly and substantial talents in fabrication and product testing, the country has remained a relevant player in the global manufacturing industry, particularly the electrical and electronics sector, over the years. Yet intense competition from other regional contenders has prompted Malaysia to expand its manufacturing philosophy once again.

Recognizing that there are opportunities to strengthen the industry on either end of the value chain, the government has identified the need to enhance the E&E sector competencies in conceptualization, design, product segmentation, marketing, sales, and distribution. In doing so, the industry will keep pace with global demand, as well as further its export significance to include more products and technologies.

Analysts are confident that Malaysia's E&E sector continues to be a preferred location for international and regional investment as the government endeavors to increase the industry's valued-added profile.

Considering the volatility of the global environment today - as well as the seeming attractiveness of other places in Asia and beyond - Malaysia makes for a powerful and competitively valued gateway to Asia. With a stable socioeconomic environment located in the heart of the region and first-class physical infrastructure, combined with a trained and trainable work force, Malaysia offer a conducive and competitive business environment for investors. Investors and companies that have located to Malaysia found it ideal as a base in Asia, be it as an operational headquarters, distribution hub, center for shared services, or a place to do design and R&D.

The government has a long-standing policy of encouraging foreign investment into Malaysia. Although Malaysia is seeking to promote domestic investment and home-grown companies, the government has no intention of reducing foreign investment inflows. The development of domestic players as being highly complementary to the global supply chain of established global corporations specifically welcomes partnerships in value-added activities such as agriculture, manufacturing, and manufacturing related services.

Shared services outsourcing (SSO) has also become a critical element in today's business world. The fastest growing segment of the SSO industry is the outsourcing of business operations offshore, especially to countries where cost of operations is lower. Already today, Malaysia shines because it can offer cutting-edge sophistication at a fraction of the cost comparable with the lowest overall cost in the region.

Today, many international corporations have made Malaysia their center for shared services, particularly to consolidate services for their branches and subsidiaries in the Asia-Pacific region. These include Hong Kong and Shanghai Banking Corporation, DHL, BMW, Shell, Intel, IBM, and Ericsson. Being in a strategic location in the ASEAN and East Asian region also stands Malaysia in good stead to be a competitive regional hub.

These firms are experiencing for themselves what Frost & Sullivan, A.T Kearney, and as McKinskey & Co have reported - that Malaysia is a global leader in SSO operations and has consistently been ranked as the third-most attractive destination for SSO behind only India and China. Malaysia has expertise in niche sectors such as finance, energy logistics, and technology, thus enabling Malaysia to deliver high-quality, specialized services compared to other destinations that offer generic services and solutions providing a higher level of service and advanced solutions that meet the increasingly complex sourcing and multi-sourcing needs of global companies.

The SSO industry in Malaysia is expected to yield US$2 billion in revenue and employ more than 300,000 people by 2012.