Kuala Lumpur, Malaysia
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Kuala Lumpur, Malaysia Southeast Asia’s rising star An investor’s guide With strong foundations in place for stable and sustainable economic growth in Malaysia, the time is ripe for multinational companies (MNCs) to capitalise on Greater Kuala Lumpur’s potential as a gateway to Asia. Kuala Lumpur International Airport (KLIA) photograph courtesy of Malaysia Airports Holdings Berhad 2 Kuala Lumpur – an Asian gem Over the past decade, Asia has demonstrated not just growing influence in the global economy, but increasingly has emerged as an alternative engine of growth, surging ahead of the West. The region has earned admiration, and even envy, for its resilience throughout the 2008/09 global economic downturn. It has strengthened its prowess, now backed by economic powerhouses China, India and Southeast Asia. Asia’s attractiveness to foreign investors can be attributed to a number of reasons: as a whole, the region is rich in natural resources, is home to a large population Tan Theng Hooi offering attractive consumer market potential, and offers capabilities in diverse Country Managing Partner economic activities which includes high-value service industries such as banking, Deloitte Malaysia telecommunications, oil and gas, healthcare, education and tourism. As the world began to turn its attention to this bright spot amid the gloom, the question arises: where in Asia should investors be regionally headquartered? While China in the past decade has been the destination of choice for multinational companies looking to establish themselves in Asia, the flood of investors into the country has pushed up costs thus making it a less attractive destination than before. Traditional headquarters locations like Hong Kong, Singapore and Shanghai are proving to be high cost centres with talent bottlenecks. Then a ray emerges in Kuala Lumpur – a cost effective centre with much talent and facilities for control tower activities. As this publication illustrates, Deloitte sees Greater Kuala Lumpur as the ideal base for companies seeking to extend their operations not only into Malaysia itself, but also throughout the entire region. With traditional expertise in areas such as manufacturing and commodity production, Malaysia’s growth story has become even more compelling in recent years. This largely is due to the country’s national transformation efforts, which have instituted civil service and economic reforms and positioned the country as a business- friendly destination. These measures have, in turn, resulted in the creation of myriad opportunities that foreign investors and MNCs can wisely use to their advantage. With strong foundations in place for stable and sustainable economic growth in Malaysia, the time is ripe for MNCs to capitalise on Greater Kuala Lumpur’s potential as a gateway to Asia. As a global leader in audit, tax and business advisory services, Deloitte offers leading expertise in establishing your presence in Greater Kuala Lumpur, and looks forward to joining you in optimising your investment potential in Asia. Best regards, Kuala Lumpur, Malaysia Southeast Asia’s rising star 3 4 Content Why and where Why Greater in Asia? Kuala Lumpur? 9-20 53-72 Greater Kuala Deloitte – your guide Lumpur – to investing in Greater your bridge to Asia Kuala Lumpur 21-38 73-86 A nation’s transformation 39-52 Kuala Lumpur, Malaysia Southeast Asia’s rising star 5 Executive summary Chapter 1 Chapter 4 Why and where in Asia? Why Greater Kuala Lumpur? Asia can no longer be ignored by regional investors. Greater Kuala Lumpur today is more than just Even so, this can be a daunting and overwhelming an export-oriented manufacturing centre: it is a region with individual countries at different levels of metropolis thriving on a platform of diverse economic maturity. This chapter proposes that investors take activities. In addition, with a dependable supporting a closer look at Southeast Asia as a regional market, infrastructure, a successful transformation programme which is expected to rival the size of China’s in the and excellent government support to develop the medium- to long-term. region as a hub centre for Southeast Asia, investors need to take a closer look at the benefits offered by Greater Kuala Lumpur. The comparatively cheap costs of living and doing business is another reason investors Chapter 2 should see Greater Kuala Lumpur as an attractive Greater Kuala Lumpur – investment destination. your bridge to Asia Southeast Asia is one of the fastest growing regions in the world and investors from all over are rushing Chapter 5 to capitalise on its strong domestic market and intra- regional trade ties. Nevertheless, investors face a key Deloitte – your guide to investing decision in deciding where to invest in Southeast Asia, and this chapter shows why Greater Kuala Lumpur is in Greater Kuala Lumpur the ideal location to set up a regional platform. With Although Malaysia is not a difficult place to do attractive financial and tax incentives, and strategically business, Deloitte believes that any entry into a new located in the heart of the region, Greater Kuala market can be daunting owing to unfamiliarity with Lumpur is an ideal hub for your regional management the local culture and regulations. As a global consulting and trading activities. services provider, Deloitte can help guide investors through the entire process, and help clients make the most of all that Greater Kuala Lumpur has to offer. This chapter explores some of the services offered by Chapter 3 Deloitte in relation to investing in Greater Kuala Lumpur A nation’s transformation and how it can optimise business models. Malaysia, in particular, Greater Kuala Lumpur is undergoing an ambitious programme of change tailored to raise the level of Gross National Income to high-income status by 2020. The National Transformation Programme is expected to drive private consumption in the country as well as regionalise Malaysia’s traditional economic sectors including the financial, palm oil and manufacturing industries. It will also see further development of greenfield, high-value service sectors such as tourism and healthcare, thereby creating new markets and opportunities for investors. 6 Highlights Malaysia’s GDP growth rate (2011 – 2012) 8 7 6.4 6 5.7 5.6 5.3 5.1 5.2 5.1 5 4.3 4 3 2 1 0 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 Source: Department of Statistics Malaysia Malaysia and Greater Kuala Lumpur by the numbers 2nd In ASEAN Economist Intelligence 3rd Unit, Hot Spots: Largest Benchmarking Economy in 10th Global City Business ASEAN AT Kearney 2012 FDI 12th Confidence Ease of Doing 14th Index Business World Bank, IMD World Source: World Bank – Doing Business Report Doing Business Competitiveness IMD World Competitiveness Yearbook Report 2013 Yearbook AT Kearney’s 2012 FDI Confidence Index Global Competitiveness Index 2012 – 2013 The Economist Big Mac Index (comparative price of a Big Mac burger in US$) Country Ranking (126 Score participating countries) (out of 7) 2 5.67 Country Price of Big Mac (US$) 9 5.47 US (base) 4.33 10 5.40 Hong Kong 4.33 Tokyo 4.09 25 5.06 Singapore 3.50 Thailand 2.59 29 4.83 Indonesia 2.55 China 2.45 38 4.52 Malaysia 2.33 50 4.40 Source: World Economic Forum Source: The Economist Big Mac Index July 2012 Kuala Lumpur, Malaysia Southeast Asia’s rising star 7 Asia emerged from the global financial crisis with its standing strengthened, and is expected to become the largest economic region within the next two decades. This reflects its high degree of integration into global trading and financial systems, and a growing internal momentum. – International Monetary Fund 8 Chapter One: Why and where in Asia? Asia’s growing influence in the world economy should come as no surprise to anyone. With the old world economies still teetering on the question of recovery, Asia has pulled ahead of the pack, which is still dealing with the fallout from the global financial crisis. Despite the continent’s impressive expansion and raw potential, Asia is a coalition of heterogeneous countries at different levels of market maturity. The fact that the continent continues to grow unrelentingly is more a testament to the strength of its member countries than of Asia writ large. Therefore, the location of investment within Asia will affect returns. Two well-known destinations are the Asian Tigers—China and India. In terms of growth potential, China and India are arguably unrivalled. However, they each have their own shortcomings, which may pose unacceptable levels of risk for investors without sufficient scale. In China’s case, its popularity as an investment destination has prompted soaring levels of foreign direct investments (FDI), which have increased costs and lowered returns. Chinese regulatory policies have also remained frustratingly opaque, thereby creating risks for foreign investors who depend upon clarity and consistency in government regulation. Meanwhile, the vast potential of India is still undermined by security issues and poverty. Although the South Asian nation is taking steps to remedy these obstacles, the slow progress over the past 20 years suggest that these issues are structurally ingrained, and will require greater reform efforts than are currently evident. 10 Member countries of Asia Pacific Economic Cooperation (APEC) Russia Canada South Korea United States Japan of America China Hong Kong Taiwan Mexico Thailand The Philippines Vietnam Malaysia Brunei Singapore Papua New Indonesia Guinea Peru Australia Chile New Zealand Asia-bound investors should also be aware of economic groups within Asia such as the Asia Pacific Economic Cooperation (APEC) and the Association of Southeast Asian Nations (ASEAN). Country participation in economic groups is particularly beneficial as these groups are dedicated to creating integrated trading networks. Kuala Lumpur, Malaysia Southeast Asia’s rising star 11 Asia Pacific Since the late 1980s, 21 Asia Pacific nations have come together under the APEC banner to promote free trade and economic cooperation throughout the region.