At a time when the global economy is still in tenuous post-pandemic recovery mode, Malaysia may have an ace up its sleeve to bolster its own flagging economic fortunes. Will it play its cards right?
Several recent developments appear to present a very real opportunity for Malaysia to attract companies to relocate their regional headquarters here. Regional headquarters bring welcome foreign exchange to the host country as they are typically cost centres that have to be funded. They hire local staff which can lead to the transfer of knowledge and other skills.
The mere presence of numerous regional headquarters enhances a country’s international image. Top executives of major corporations usually visit their regional headquarters whereas time constraints often cause them to bypass smaller individual country operations. Malaysia would have the added advantage that regional headquarters would create demand for residential and commercial properties, which would help the property industry in the country. This multiplier effect is well-known in countries who have successfully enticed multinationals to set up regional headquarters inside their borders.
In the 1970s and 1980s, as major multinationals increasingly expanded their operations in this part of the world, many chose to locate their regional headquarters in Hong Kong. Singapore soon realised the benefit of hosting these headquarters and developed a range of policies designed to attract multinational corporations to establish them in their country. Their efforts were helped by the reversion of Hong Kong to China in 1997 and subsequent civil unrest more recently, and today Singapore is reportedly home to many hundreds, if not thousands, of regional headquarters. Malaysia has shown some interest in targeting them, but their efforts have not been that successful and the total number here is apparently still small.
Now, rising prices in already-expensive Singapore have made it one of the most costly cities in the world in which to live. Singapore may border Malaysia, but there is a significant difference in the cost of living with Singapore ranking among the world’s most expensive cities while Kuala Lumpur is considered one of the world’s cheaper places to live. Given that KL is only about 300 km north of Singapore, its geographic location presents no problem for a regional headquarters. It may have fewer flights than Singapore, but still has good connectivity to the rest of Asia and the world. More regional headquarters would only serve to improve Malaysia’s already robust air connections.
Several factors make it timely to consider being more proactive in trying to encourage companies to consider Malaysia for their headquarters
First, it is relatively easy to relocate a regional headquarters and move it to another country. During my years at American Express, they relocated their Asia Pacific regional headquarters several times.
Second, many companies have been cutting costs due to the long Covid pandemic and, given the still-fragile state of the global economy, even large companies are expected to continue to keep a close eye on their expenses. Moving a headquarters to a lower-cost country can produce material savings for the corporation without adversely affecting their ability to manage the region.
Third, recent dramatic increases in rental prices in Singapore — with plenty in the 30 to 40% range in recent years — have alarmed expats and companies doing business there. Since the beginning of last year, however, rentals have risen even more sharply with average prices for some private residential properties increasing almost 50% since the beginning of last year. In fact, a recent survey conducted by several business chambers in Singapore among their members found that over half the expats who had to renew their leases since early last year faced increases exceeding 40%. Office rentals are also rising in Singapore, so most regional headquarters are facing a significant increase in their operating costs with no comparable offset in revenues.
Fourth, the same survey found that over two-thirds of the companies surveyed said they would be ready to relocate their staff out of Singapore if costs do not go down. This would imply that many companies are willing to consider relocating if the argument is compelling.
Unfortunately, many expats in Singapore do not have an especially positive view of this country. Malaysia has often suffered from negative international press, some of which is justified and some of which is arguably frivolous and perhaps biased. Indeed, Singapore media frequently carry negative stories about Malaysia, and since most expats in Singapore do not have cars, they rarely join the tourist traffic which crosses the causeway each day to see first-hand the many attractions of this country.
Malaysia also faces a growing problem with its perceived attitude towards expats with many thinking it no longer welcomes them. This was confirmed by a survey we conducted last year. The treatment of expats during the pandemicl and especially the MM2H visa holders and the revised terms for that visa, combined with reports of tougher requirements for employment passes combine to make people think the country no longer welcomes expats. Ironically, PKR (the current government), when it was in opposition last year urged the then government to adopt a friendlier approach to foreign residents who bring capital into the country. However, even though they are now in power, no changes towards this previously held goal have transpired yet, most likely because there have so many other issues to address.
Looking at all the above factors, it would seem there is a major opportunity for Malaysia to adopt a more friendly approach to foreigners and actively try to attract more regional headquarters to locate here, both of which could have very real benefits for the country’s economy.
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