Malaysia outperforms top economies in cost of doing business

The country continues to be a prime manufacturing hub for investors despite uncertainties in the current landscape

by S BIRRUNTHA / pic by BLOOMBERG 

MALAYSIA is ranked fourth among 17 economies in an assessment comparing the economy’s competitiveness as a manufacturing hub in terms of cost of doing business (CoDB) according to a recent study by KPMG.

The study puts Malaysia ahead of other Asian countries like China, Japan, Vietnam and India.

KPMG Malaysia managing partner Datuk Johan Idris said Malaysia continues to be a prime manufacturing hub for investors despite uncertainties in the current landscape.

“This is especially significant in our new reality, where operational stability and cost containment are central in every company’s long-term business survival.

“The results in this study only substantiate what Malaysian businesses already know and are proud of,” he said in a virtual media briefing together with InvestKL yesterday.

The study also indicated Malaysia’s ranking on the CoDB index resulted from high scores on the primary cost index where Malaysia tied with China, Mexico and Vietnam, at the top of the chart.

Malaysia had outperformed on three factors, namely hourly compensation costs, real estate costs and corporate tax rates.

Johan said an immediate effect from the Covid-19 pandemic has seen companies around the world relooking their supply chains.

“A study by McKinsey & Co estimates that 16% to 26% of global exports, worth US$2.9 trillion to US$4.6 trillion (RM19.32 trillion), could move to new countries over the next five years if companies reshuffle their supplier networks.

“KPMG’s study proves we have the factors in place to aid Malaysia in moving up the production value chain,” he noted.

He added that by acting with agility and building on its resilience, Malaysia can maintain its competitive advantage and remain a preferred destination for high-quality investments.

Additionally, the promising results of the study also supported the government’s focus on reviving Malaysia’s investment climate.

Malaysian Investment Development Authority recently stated that Malaysia recorded a total of RM64.8 billion worth of investments in the manufacturing, services and primary sectors for the first six months of 2020 despite multiple headwinds on the global front.

The manufacturing sector attracted the largest portion of approved investments for the first half of 2020, contributing more than half (55.1%) or RM35.7 billion.

InvestKL CEO Muhammad Azmi Zulkifli said Malaysia offers a thriving ecosystem for companies looking to locate their operations.

“We are boosted by our access to markets, world-class connectivity, infrastructure and highly skilled talent.

“Greater Kuala Lumpur (KL) pivots towards ‘Industries of the Future’, and there is a strong focus on advanced manufacturing and services which aims to push the industry up the value chain towards high-impact, high-tech and sustainable activities,” he noted.

Muhammad Azmi also emphasised that transformation in these challenging times is vital and urged companies to seize opportunities through diversification, technological upgrading, creativity and innovation right here in Greater KL.

“We seek to attract and facilitate more investments such as these to support the government’s vision of IR4.0 and to stimulate the economy further,” he said.

The joint study by KPMG and the Manufacturing Institute in the US entitled “Cost of Manufacturing Operations Around the Globe”, provides a current assessment of how the manufacturing sector in the US compares in competitiveness to its main trading partners.

This study evaluates a total of 23 cost factors that impact the cost of operations of a business.

These factors include costs that directly impact a firm’s bottom line and factors that affect overhead costs and the ability to operate efficiently, typically related to the business environment or ease of doing business.

The overall CoDB index scores are determined at an equal weightage of the primary and secondary costs.