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Malaysia's Industrial Growth Complements Global Supply Chain

MIDA Insights - Services

The trend of supply chain convergence has strengthened Malaysia’s role as a Global Hub. Many MNCs such as Volkswagen, Nestle, IDT and IKEA have leveraged on Malaysia’s strategic location and efficient trade infrastructure to serve their growing business in the Asian market.

Malaysia has certainly evolved as a dynamic business location. Having traditionally grown its economy through the manufacturing sector, Malaysia has developed a broad and diversified manufacturing base.

Leveraging on this, the Government began to promote manufacturing – related services such as International Procurement Centre (IPC) and Regional Distribution Centre (RDC) activities in the early 2000s to encourage MNCs and local companies to further expand their operation in Malaysia. The Government also sought to create seamless infrastructure to support the distributive trade activities of these companies by building the capabilities of local logistics service providers in providing integrated logistics services.

Due to the Government’s promotional initiative, many MNCs and local companies began to centralise value-added activities such as bulk – breaking, repackaging and relabeling under their IPC and RDC establishments.

Many MNCs and local companies further ascended their value chain by undertaking more strategic functions such as supply chain management, business planning, R&D and engineering in the country. This is driven by Malaysia’s commitment towards Free Trade Agreements (FTAs), implementation of regulatory reforms, promotion of technology and creation of knowledge workers. These companies who have established operations are referred to by the Government as ‘Global Operation Hub’ companies.

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A notable company which has a Global Operation Hub in Malaysia is Intel. Intel Malaysia was established in 1972 in Pulau Pinang. With an initial workforce of only 100 employees, Intel Malaysia has now become one of its Group’s largest and most diverse sites out of the United States. Intel Malaysia began its operations by undertaking shared services and manufacturing-related activities such as logistics and warehousing. The company soon developed the role of Intel’s Global Service Centre, undertaking functions such as R&D, thereby significantly contributing to the Group’s innovation and development of a broad product range including microprocessors, chipsets, network processors, and microcontrollers. As at today, Intel Malaysia employs over 3,000 local employees.

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Another prime example is B. Braun which has been operating in Malaysia for 47 years. B. Braun Malaysia started its operation as the Group’s first production plant for the Asia Pacific. The company then expanded its role as an International Procurement Centre to support 17 countries across the region. Today, B. Braun Malaysia is recognised as the Global Center of Excellence for Intravenous Access products, including R&D and production technology.

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Due to the rising trend of Global Operation Hubs, the Government introduced the Principal Hub scheme in 2015 to encourage companies to undertake a more diverse scope of activities and place their key decision personnel in Malaysia. The Principal Hub scheme complements Malaysia’s competitive advantages as a Global Hub, which includes strategic connectivity within the booming Asian market, strong talent pool with multilingual skills and sound trade infrastructure.

Such global establishments have an enormous impact on Malaysia, particularly as they are one of the most significant contributors to investments and jobs creation to the country’s services sector. Global establishments also increase Malaysia’s export activities which lead to the substantial utilisation of the country’s ports and local logistics services. This can be seen in the case of Broadcom’s Global Distribution Centre which exports 90% of the Group’s products via Penang International Airport, supporting local logistics service providers.

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Another notable company is IKEA which is committed to establishing its Regional Distribution Centre in Malaysia to support IKEA retail stores across ASEAN. These global establishments, undoubtedly, propel Malaysia’s position as a business hub, as they attract major brand companies and their extensive supply chain network to establish their operations in the country.

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Most importantly, these establishments lead to the creation of high skilled employment as well as knowledge and technology transfer to Malaysian companies. This is observed in industries such as electrical and electronics (E&E), where MNCs hire Malaysian employees and engage local vendors to undertake design, development and testing activities in new areas of technology.

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Last Updated : Thursday 22nd October 2020