The economic shocks brought on by the Covid-19 pandemic have forced manufacturers worldwide to reevaluate their supply chains.
After the pandemic is over, the world will look decidedly different. What started when supplies from China were disrupted and continued when global demand was drastically reduced following the global economic shutdown exposed many production and supply chain vulnerabilities worldwide.
Companies looking to diversify their supply chains after the pandemic could consider an ASEAN country like Malaysia which offers a good combination of cost effectiveness and competitive business growth. ASEAN countries are usually not as affected by the US-China trade war. BMW, Volkswagen, IKEA, Daikin, Osram, Hershey, Zalora and Daiso are just some of the multinational companies that have established their regional operations in Malaysia since 2003.
In 2020, IKEA planned to build a RM908 million (€189 million) regional distribution and supply chain centre in Malaysia, which would manage an inventory of 9,500 stock keeping units worth RM6.6 billion (€1.37 billion) annually.
The centre would adopt the structure and technology of IKEA’s biggest regional distribution centre in Germany, and will also be among the top 10 largest regional distribution centres of the IKEA Group globally
Malaysia’s advantages as a potential destination for a regional logistics hub include it’s business-friendly policies and infrastructure development.
Malaysia’s Digital Free Trade Zone (DFTZ) is Alibaba’s first global e-trade platform outside of China. It provides both physical and virtual zones for SMEs to take advantage of the internet economy’s exponential growth in facilitating cross-border e-commerce.
The DFTZ puts Malaysia on the map as a regional e-fulfilment hub for stock inventory and customers orders in the Asian region.
“IKEA’s decision of selecting our country as a base to support retailers in Malaysia, Singapore, Thailand, Indonesia, Vietnam, Philippines and India underscores the strategic fit of this country in supporting IKEA’s overall growth strategy in the ASEAN region,” said International Trade and Industry minister, Mustapha Mohammad.
Potential Regional Distribution Centre (RDC) Locations
Considerations for regional hubs in Malaysia would have to include Kuala Lumpur, Johor and Penang. The KLIA airport is close to Port Klang and centrally located between Thailand and Singapore. It offers both air-land and sea-land logistics options.
Regional hubs in the Southern state of Johor are close enough to Singapore to leverage Malaysia’s lower labour costs while serving Singapore’s markets.
Setting up a regional centre in Malaysia would be an obvious choice since the cost is one-third to set up compared to Singapore’s.
Penang would be an ideal location for a regional hub of electronics, electrical, machinery and equipment manufacturers. The state attracts the third highest FDI inflow in manufacturing in Malaysia, 50% of the country’s electronics and electrical, machinery and equipment industries.
The state’s supportive investment policies and ecosystem via InvestPenang and the Penang Development Corporation are a major draw for tech and healthcare providers.
LAM research, a U.S. semiconductor company pledged RM1 billion to Penang in February 2020 despite the Covid-19 pandemic crisis.
There are many beneficial policies and incentives for companies to set up a Regional Distribution Centre (RDC) in Malaysia:
FACILITIES ACCORDED TO RDC
- 100% equity holding by the promoter;
- expatriate posts will be approved based on the requirements of the RDC;
- open one or more foreign currency accounts with any licensed
commercial bank to retain its export proceeds, without any limit
imposed; - enter into foreign exchange forward contracts with any licensed
commercial bank to sell forward its export proceeds, based on its
projected sales;
TAX INCENTIVES ACCORDED TO RDC
An approved RDC company is also eligible for the following tax incentives:
- full tax exemption on its statutory income for 10 years;
- dividends paid from exempt income is exempted from tax in the hands of
the shareholder
However, to qualify for the above incentives, an approved RDC company must
also fulfill the following additional criteria:
- it must have an annual sales turnover of at least RM100 million;
- sales to domestic market is limited to 20% of sales turnover and if sales
to domestic market exceeds 20%, the additional sales will not be tax
exempt; - sales to FZs and LMWs are considered as domestic sales.
Thanks to our established network across ASEAN and links to EU countries, TOP Beraten is strategically positioned to connect our worldwide clients to diversified markets in the region.
