Global companies turn to Malaysia due to US-China trade war

Several companies have also chosen Malaysia as the destination for their 1st manufacturing site in South-East Asia


THE US-China trade war has forced global companies to re-evaluate their operations and supply lines, which could view Malaysia favourably for business continuity.

Putra Business School associate Prof Dr Ahmed Razman Abdul Latiff said the increasing tariff war between US and China will push Chinese manufacturers to consider setting up their factories in Malaysia to circumvent any new tariff imposed.

“Malaysia could also present itself as an alternative destination for US manufacturers to obtain their imported supplies and products as they would be affected by the imposed tariff due to their heavy reliance on the Chinese market,” he told The Malaysian Reserve (TMR).

Although there would be competitions from other markets within the Asian region such as Vietnam and South Korea, Ahmed Razman said Malaysia has the advantages such as a larger number of skilled workers, a business-friendly government and less bureaucratic procedures in terms of investment and trading opportunities.

“Some potential industries that Malaysia can offer to both countries are palm oil, solar power and electrical and electronic (E&E) components,” he said.

Despite the unfavourable circumstances that the trade war entails, MIDF Amanah Investment Bank Bhd senior analyst Imran Yassin Mohd Yusof said Malaysia could gain from the decentralisation of the global supply chain.

On the short-term impacts, Imran Yassin noted that E&E products such as industrial process control equipment, electrical machinery and domestic appliances would suffer the most from the trade war.

Small and medium enterprises (SMEs) that operate on a bigger scale would also endure the most of the trade war due to their exposure to external trade activities, said Imran Yassin as large SMEs are driven by the exports market.

“Of course, we have to bear in mind that these are the short-term impacts.

“In the medium term, Malaysia could benefit from the decentralisation of the global supply chain, with potential companies relocating to Malaysia to lower the disruption that will be caused by the trade war,” he told TMR recently.

According to data from the Department of Statistics Malaysia (DoSM), Malaysia registered a lower net inflow in foreign direct investment (FDI) in the first quarter of 2020 (1Q20), amounting to RM6.4 billion compared to RM19.4 billion registered in 1Q19.

On a monthly basis, FDI increased 18.5% from RM5.4 billion registered in 4Q19. As at end of 1Q20, FDI registered a value of RM689.6 billion.

The US was the main contributor for FDI into the country totalling RM1.7 billion, followed by Singapore (RM1.3 billion) and Ireland (RM1.1 billion).

The top sectors contributed to the FDI in the 1Q was manufacturing which totalled RM5.9 billion while mining and quarrying as well as services totalled RM0.5 billion and RM0.1 billion respectively.

DoSM also recently revealed that FDI into the country increased 3.1% to RM31.7 billion in 2019 versus RM30.7 billion, while direct investment abroad rose 26.5% to RM26.1 billion last year.

Chief statistician Datuk Seri Dr Mohd Uzir Mahidin (picture) said the higher FDI was due to injection of equity from Japan to Malaysia, mainly in health activity.

The top three countries that contributed to FDI in Malaysia last year were Japan, Hong Kong and the Netherlands.

Several companies have also chosen Malaysia as the destination for their first manufacturing site in South-East Asia.

Switzerland-based electronics manufacturing services provider Enics AG will have its factory in [email protected] Airport City Industrial Park, Johor. The manufacturing facility which will be constructed by AME Elite Consortium Bhd is expected to be completed by the beginning of 2021.

The company’s spokesperson told TMR that the decision was made after careful consideration and Malaysia can serve as a gateway to growing South-East Asia and global markets.

“Presence of material suppliers, availability for manufacturing machinery servicing and good logistics availability are important factors when choosing the location of a new manufacturing site, and Malaysia ticks all of these boxes,” she said, adding that Malaysia also provides well-educated and competent talents for the company.