This article first appeared in The Edge Financial Daily on August 21, 2018

KUALA LUMPUR: Overall investment in Asean is expected to rise among Singapore-based companies, with Malaysia becoming one of the largest beneficiaries, according to a HSBC-commissioned report by the Singapore Business Federation.

“Malaysia’s growing consumer market and relative ease of doing business are driving these expansion plans. Based on the report, Malaysia is also a clear favourite destination for internationally-oriented Singapore-based companies,” HSBC said in a statement yesterday.

The report sought the insights of 1,036 Singapore-based companies regarding their interest in Asean expansion. Eighty-six percent of those surveyed were considered small and medium enterprises (SMEs), defined as those with annual turnover of S$100 million (RM298.91 million) or less than 200 workers.

Among the surveyed companies expecting to enter or further expand overseas in the next two years, Malaysia, along with Indonesia, was the most commonly cited country (36% of respondents indicated Malaysia).

According to the Malaysian Investment Development Authority, Singapore was Malaysia’s third largest source of investment after China and Switzerland last year.

“The growing consumer market and general ease of [doing] business and [making] investment are key drivers of Malaysia’s inbound investment. According to the report, 80% of respondents with Malaysian expansion cited potential customer demand, with 75% highlighting the ease of building relationships and 73% referring to its overall investment climate,” said HSBC.

“While Malaysia’s growing consumer base is already well recognised by Singapore corporates, many businesses are looking to double down on our demographic dividend,” said HSBC Malaysia head of commercial banking Andrew Sill.

“Beyond the consumer piece, Malaysia’s manufacturing — while [it is] already strong — is now entering the higher-end space of automation and innovation, developing more complex and diverse products.

“So, while many corporates may base their treasury and other back-office functions in Singapore, a lot of revenue-making operations are being driven out of Malaysia. This is only expected to ramp up, with Malaysia widening along the supply and value chain,” Sill added.

Notwithstanding their very strong interest in Asean expansion, the surveyed companies expressed concerns over some of the obstacles they faced when venturing into the region, including uncertain economic and political conditions in Asean, the lack of knowledge on market opportunities and customer requirements, and difficulty in getting permits and licences as potential barriers to expanding in the region.

“Singapore-based SMEs can make a significant contribution to Malaysia’s economy as they look to expand beyond their domestic market and can benefit from the cross-border activity that was previously seen as the domain of larger corporates,” said Sill.

“However, entering and expanding in any market are never a straight-line process, and it is inevitable that there will be bumps along the way, particularly for SMEs which may not have the resources to fully navigate differences in political and business cultural norms in neighbouring countries.”