Malaysia’s Second Chance As Manufacturing And Supply Chain Hub In Asean

Weeks ago, I blogged about Malaysia as a Supply Chain Refuge And Investment Hub In Asean when the US China Trade War broke out: See https://jlpwneedlawyer.wordpress.com/2018/07/16/making-the-us-china-trade-war-work-for-the-new-malaysia-as-a-supply-chain-refuge-and-principal-investment-hub/

As the drums of trade war rolled on, international logistics players have since reported the relocation of production lines by their China based manufacturing clients to Vietnam, Malaysia and other parts of South East Asia. See https://www.forbes.com/sites/kenrapoza/2018/07/30/trade-war-casualties-factories-shifting-out-of-china/#40023b28103e

A few days ago, I caught up with clients in the furniture industry in Malaysia. Having done a number of furniture manufacturers’ IPOs in the past and assisted their expansion into Vietnam, the reports of what is happening on the ground took me by surprise.

The standard arguments about Vietnam and other emerging economies having lower minimum wage and other significant cost advantages over Malaysia are well reported and acknowledged.

The big surprise is the speed and scale of change resulting from the US China Trade War have caught Vietnam and other emerging economies unprepared in terms of available manufacturing facilities, and more critically, the ensuing logistics and transportation bottlenecks.

Port limitations and inadequate roads in these emerging economies have rendered them incapable of carrying the staggering loads of shifting supply chain production from China. The resultant logistics and connectivity mess will take months, if not years to resolve.

And that pushes Malaysia right into the manufacturing and supply chain limelight. In the 1990s, we were a thriving and prosperous manufacturing location before China joined WTO in 2003 and its manufacturing economy took off. Malaysian manufacturing relocated into China for lower wages and costs as well as access to the growing China market.

Now that the reverse flow of supply chain production is happening, existing factories, roads, ports and other manufacturing and logistics infrastructure in Malaysia are available to absorb and cope with the sharp and sudden migration and influx of production from China.

With our Ringgit currency at historic lows and a new government open to reforms and change, the 100% foreign ownership of local manufacturing companies now permitted is a strong magnet for China based manufacturing companies to shift their production south to Malaysia.

This time round, Malaysia’s second chance came when the country could no longer rely on its oil and gas resources to develop the country. Years of mismanagement and the huge one trillion ringgit national debt now require a realistic, disciplined and competitive Malaysia to ensure its survival and recovery.

As the new government catches Malaysia’s second wind and rolls out its reforms and support for private sector enterprise, Malaysia as a manufacturing and supply chain hub in ASEAN will manifest its rebirth in the immediate future.