KUALA LUMPUR (Nov 3): Malaysia is ranked fourth among seventeen economies in an assessment comparing the economy’s competitiveness as a manufacturing hub, outperforming others in the region such as China, Japan, Vietnam and India, according to a recent study by KPMG.
“Malaysia is one of the most promising countries [to be a prime manufacturing hub for investors despite uncertainties in the current landscape],” Datuk Johan Idris, managing partner of KPMG in Malaysia, said at a virtual media briefing held today.
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 doing business (CoDB).
Notably, the overall CoDB Index scores are determined at equal weightage of the primary and secondary costs. In a nutshell, primary costs are those that can be measured in cost terms of dollars, which includes expenses such as wages, utilities, real estate costs, and taxes, while secondary costs are factors that impact overhead costs and the firm’s ability to operate efficiently.
The study indicates that Malaysia ranked at the top of the chart, tied with China, Mexico and Vietnam in terms of the Primary Cost Index, which the country had outperformed on three factors: hourly compensation costs, real estate costs and corporate tax rates.
On the Secondary Cost Index, however, the study shows that Malaysia is ranked at 11th, among the 17 countries. Johan noted that there are areas where Malaysia can do better in terms of competitive advantage, improving secondary costs by improving quality of labour as well as infrastructure costs.
“While primary costs are critical to drive investment decisions, secondary cost factors are important as these are driven by government policies. It’s crucial for the Malaysian government to continue its efforts to strategically improve the secondary [cost] factors, in particular quality of labour and infrastructure, to remain competitive,” said Johan.
This will then also present Malaysia a great opportunity to move up the production value chain.
Despite being ranked as first under the primary cost index, Johan said Malaysia not only has to improve from the secondary costs perspective but also has to continuously improve the primary cost to maintain its advantage.
Additionally, Johan noted the China +1 strategy as important for global manufacturing hubs in their supply chain management.
“The immediate effect from the Covid-19 pandemic has seen companies around the world re-looking into rebalancing their global supply chains in order to remain futureproof,” said Johan.
Citing a study by McKinsey, Johan said it is estimated that 16-26% of global exports, worth US$2.9 trillion to US$4.6 trillion, could move to new countries over the next five years if companies reshuffle their supplier networks.
The Malaysian Investment Development Authority (MIDA) recently said 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.