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| July and August 2014
Manufacturing Hubs Across Southeast Asia
Malaysia
Boostedby an average annual GDP growth rate of 4.68 percent between
2000 and2014,Malaysiahas transformed itselfwithina short spanof time
to become a diverse multi-sector economy. With its central location in
Southeast Asiamaking it an ideal base for regional ambitions, thismarket-
oriented economy remains an investor favorite. Malaysia offers a vibrant
and dynamic business atmosphere distinguished by its pro-business
policies, comparatively stable economic and political environment,
sophisticated financial facilities, andwell-developed infrastructure.
Malaysia’smanufacturingindustryconstitutesapproximately25percentof
GDP and as such is a significant driver of the economy.TheQ1 2014 sales
valueofthemanufacturingsectorexpandedby10.9percentyear-on-year
to reach approximately US$69 billion. The leadingmanufacturing sector
by some margin is electrical and electronic products, which constitute
32.9percentofMalaysia’sexports.Abroadrangeofproductsareexported
within this category, such as high-end consumer electronics, information
andcommunicationtechnology(ICT)products,andphotovoltaiccellsand
modules.Otherkeyexportsectorsincludepetroleumproducts,chemicals
andchemical products,machinery, appliances, andparts, andoptical and
scientific equipment.
Malaysia as an investment prospect is oftenmisinterpreted as primarily
beingacost-competitivealternativetoSingapore.Whilemanykeybusiness
costs are significantly lower inMalaysia than in its regional neighbor—for
example, the average monthly income of workers in the manufacturing
sector is US$875 in Malaysia versus US$3,375 in Singapore—this
simplification of matters drastically underestimates the benefits of doing
businessinMalaysia.Malaysiawasrankedastheworld’sbestmanufacturing
destination by global property agent Cushman &Wakefield in their 2014
ManufacturingIndex,whichassessedcountriesin30sub-categoriesbased
on three principle criteria: costs, risks, and conditions.
Malaysia is also narrowing the gap with Singapore in terms of ease of
doing business, having jumped from 12th to sixth in the most recent
WorldBankDoingBusiness report—makingMalaysia the secondhighest
ranked ASEAN country. In addition, the country’s infrastructure is among
themost developed in Southeast Asia and investors can take advantage
of significant incentives in select industries.
The Malaysian government has recently been looking to Singapore
and other Asian countries for inspiration on how to further advance its
economy. In line with the goal of achieving high-income status by 2020
under the Economic Transformation Programme (ETP), the government
hasencouragedinnovation-basedgrowthsimilartothatseeninSingapore,
Hong Kong, South Korea, and Taiwan in an attempt to move further up
thevalue-addedproductionchain.Malaysiahasalsotakeninspirationfrom
theChinesemodelbyimplementingjointventurebusinessparkswithtax
incentives for resident companies.
Thailand
Thailand, ASEAN’s second largest economy after Indonesia, provides
investorswithanidealplatformforexportmanufacturing,aswellasoffering
access to the country’s booming domestic consumer market. Despite
its current state of political turbulence, Thailand’s open, market-oriented
economy continues to be an attractive investment proposition.
The Thai economy, traditionally based on agricultural exports, has
dramatically transformed itself within the past few decades, and today
industry and services constitutemuch larger shares of the economy. The
manufacturing sector remains concentrated around Bangkok, yet the
previous government created several development zones throughout
the country in a bid to decentralize the sector.
With a value of around US$120 million, manufacturing constituted
approximately33percentofThailand’sGDPin2013,thehighestpercentage
of any ASEAN country by a significant margin. Key segments within
manufacturingincludejewelry,electronicappliances,garments,computers
and parts, furniture, petrochemicals, and automobiles. Thailand is also
rapidly moving into higher value industries, such as green automobiles,
high value electronics, and ICT.
Thailandhas actedas amanufacturinghub for Japanand theU.S., among
others, for decades, and is home to a highly skilled labor force. As of this
year, the minimum wage rate per day is fixed at THB300 (US$9.25) with
an average monthly wage for a worker in the manufacturing sector of
approximately US$360 in Q1 2014—an increase of 44 percent from Q2
2011.Thecountry’sunemploymentrateof0.94percentisoneofthelowest
in theworld, which can result in upward pressure onwages.
Inlate2011,Thailandwasbatteredbytheworstfloodsin70years,crippling
its manufacturing sector. This affected 60 of Thailand’s 77 provinces,
especially Bangkok and its five surrounding provinces, where many key
industrial estates are located. Nevertheless, the flood crisis highlighted
the resilience of the Thai economy, which had recovered by 2012 due to
governmentstimulusprogramsandstrongdomesticdemand.Sincethen,
government investment of US$11.7 billion into floodmitigation projects
has been critical in restoring andmaintaining investor confidence.
Despite a military coup in May, Thailand continues to host a friendly
and manageable business environment. The country features excellent
infrastructureandisstrategicallylocatedatthecrossroadsofSoutheastAsia,
China, and India.Thailand’s appeal as a production base is enhanced by a
number of free trade agreements and significant investment incentives.
Moreover, Bloomberg recently namedThailand the fifthmost promising
emerging market in the world, and the second in Southeast Asia after
Malaysia.
