By KEVIN WONG / Pic By TMR

Foreign manufacturers are abandoning Malaysia after it tightened rules for foreign workers in favour of countries where labour is still cheap like Laos, Vietnam and Cambodia.

Economist Dr Hoo Ke Ping said most multinational corporations (MNCs) in Malaysia had relied heavily on foreign labour which has become more expensive recently after the country introduced tighter regulations that have pushed the cost of hiring.

“In light of how Malaysia has implemented stringent regulation to reduce intake of foreign workers into Malaysia, the cost for foreign labour has increased.”

“This will eventually lead to MNCs to pack their bags and move to countries where labour is cheaper, such as Vietnam and Cambodia,” Hoo said.

Last September, Immigration Department DG Datuk Seri Mustafar Ali said that the department would be more stringent with new foreign worker applications, as a move to curb the surplus of foreign workers.

The Malaysian Reserve (TMR) reported yesterday that some 40 foreign companies have ceased operations in Malaysia and shifted to other countries since 2013.

International Trade and Industry Minister Datuk Seri Mustapa Mohamed said the companies that have moved out of Malaysia are mainly labour-intensive firms.

In a parliamentary written reply, Mustapa said the drop in sales and demand, as well as the weak market environment are among the factors for companies to transfer their operations elsewhere.

Hoo said external reasons, such as the recent flash floods in Penang, may force many factories to halt all their operations.

This would only further deter any future MNCs which are looking to invest in the country.

“Not only fresh and new MNCs, the current and older ones will be also looking for a way out of Penang as the floods have become a major issue for the state,” he said.

Meanwhile, there could be other reasons why MNCs are ceasing their operations to move to other countries.

For example, tobacco manufacturer British American Tobacco (M) Bhd has decided to cease its operations because of the falling sales due to high duties and the significant increase in illegal cigarettes.

Additionally, hard-disk maker Seagate Technology plc and computer data storage firm Western Digital Corp would be relocating the bulk of their operations to Thailand to reduce manufacturing costs.

Economist Dr Bajoyai Bardai said the government should persuade MNCs to remain in Malaysia by providing sustainable incentives.

“We need to stop this trend somehow and to conduct a thorough study on existing MNCs operating here to gauge their views about the operations in Malaysia and to anticipate their next move. With new strategies and incentives, we could then keep them from leaving Malaysia,” he told TMR.

While India has big potential, he said the country has yet to open up to foreign investors.

On the other hand, China, despite its attractive lure, has yet to alleviate foreign investors’ hesitation to enter and operate in the country.

“With that, Malaysia still has the capacity to retain its charm as a foreign investment destination, provided we can provide a conducive economic and business environment. Also, the country has to improve its ranking on the Corruption Index, as well as stabilising the currency,” he said.

“At the same time, they should also find out the factors that could affect their decision to leave Malaysia. A series of programmes on investment retention and incentives need to be initiated to ensure Malaysia remains as an important investment and operational hubs for the MNCs,” he said.

Using the US’ new tax reform under the Trump administration as an example, Bardai believes this could pose an adverse effect on Malaysia.

“This is because, unlike Japan, the US has yet to grant Malaysia the ‘tax sparing benefit’ which exempts income from the US corporate tax, even if the income has been exempted from tax here.

“And if there are good incentives on the home ground, the American MNCs will always be better off going after those incentives rather than be here in Malaysia,” he said.

Former World Bank economist Lim Teck Ghee also shared similar views, saying: “The government needs to do a full and open inquiry into this very serious development as foreign investment flows have been a key factor accounting for Malaysia’s economic growth.

“Any large scale exodus of MNCs leaving the country will have negative ripple effects on employment, technology transfer and investors’ confidence.”