Greater KL’s Incentives, Skilled Workforce Draws Nearshoring, Friendshoring, and Greenshoring Investments - Spotlight Greater KL

Greater KL’s Incentives, Skilled Workforce Draws Nearshoring, Friendshoring, and Greenshoring Investments

The past few years have been incredibly disruptive on global supply chains: the US-China trade tensions, followed closely by the Covid-19 pandemic and now Russia’s stalemate in Ukraine, have upended corporate expansion plans worldwide like never before.

In response, investors have taken innovative approaches to offshoring by adopting nearshoring, friendshoring, and even greenshoring plans:

Nearshoring is a form of offshoring in which an organisation recruits employees from a neighbouring country and outsources its manufacturing or supply chain to a nearby country. Nearshoring financial benefits include avoiding having to pay import tariffs on goods, similar time zone allowing better communications, as well as lower logistics costs.

Friendshoring, meanwhile, is distinctly political. The US government, for example, has stressed its intention to obtain components and raw materials from ‘friendly’ countries with shared values to increase the security of domestic production and reduce dependencies on non-allied countries.

For capital-intensive industries like automotive manufacturing, nearshoring may also act as greenshoring, which involves shifting the focus from low-cost overseas production to sustainable manufacturing closer to home. In addition to saving on transport costs and import duties, greenshoring results in a low-carbon supply chain, both in sourcing materials from suppliers and distribution networks to customers.

Greater KL is a prime nearshoring, friendshoring and greenshoring hub for corporations targeting consumers in the Asia Pacific, thanks to its stable business environment and Malaysia’s independent and principled foreign policy.

To date, Malaysia has signed and implemented a total of 16 free trade agreements (FTAs), comprising seven bilateral FTAs and nine regional FTAs. Notably, in 2022, Malaysia implemented two mega-FTAs namely Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

Collectively, in 2022, trade with countries covered by both the regional and bilateral FTAs accounted for 67.3% of Malaysia’s total trade which was valued at RM1.916 trillion. Exports to FTA countries amounted to RM1.07 trillion, while imports totalled at RM847.06 billion, marking a surplus of RM221.94 billion.

In addition to driving trade, Malaysia’s status as signatory to both the Chinese-led RCEP and the Western-focused CPTPP makes it a prime nearshoring candidate for companies looking to invest in Southeast Asia and the Asia Pacific while remaining neutral amidst the trade tensions between global economic superpowers such as the U.S., the European Union, and China.

Tax Incentives for Investors and C-Suite Employees
Malaysia’s recent Budget 2023 extended all existing tax incentives, including the popular Principal Hub incentive, to December 31, 2025. Meanwhile, companies that relocate their operations to Malaysia will enjoy tax incentives, along with a tax rate of 15% for C-suite executives until 2024. This incentive recognises that nearshoring initiatives will initially include expatriate staff to help set up regional hubs in the first few years and aims to reduce the tax burden on both investors and staff essential to their expansion.

Moving E-Bike Manufacturing from China to Greater KL
Both Chinese and foreign MNCs explored moving their manufacturing bases to Greater KL in friendshoring moves in the heat of the US-China trade war. One such company is the US electric scooter company Thamlev. In October 2022, the company moved its manufacturing capabilities from China to Balakong in Greater KL, part of an RM100 million investment in light electric vehicle manufacturing. This move allowed Thamlev to avoid paying 25% duties if they imported from China to the US.

Australian Food MNC Makes Greater KL Its Asia Hub
Australian food manufacturer The Arnott’s Group (TAG) is behind household sauce brands like Prego and Kimball and derives RM1 billion in revenue from its Asian consumers (a quarter of total revenue). Its latest nearshoring initiative to get closer to its Asian consumers led TAG to choose KL as its Asia hub in August 2022.

Greater KL’s status as a global leader in halal certification, as well as its pool of skilled talents, aligns with TAG’s focus to drive halal certification for its brands in a new Greater KL manufacturing hub for export worldwide and across Asia (which has over a billion Muslim consumers).

SLB Asia Center for Reliability and Efficiency
US global technology and oilfield services company Schlumberger (SLB) doubled down on its investment in Greater KL with a greenshoring initiative in 2015: its Asia Center for Reliability and Efficiency (ACARE) in the Port Klang Free Zone.

ACARE is dedicated to advanced maintenance and servicing of oil and gas technologies for Asia Pacific and plays a central role in SLB’s rollout of new technologies and systems across Asia. Its location in Port Klang, along the busy Straits of Malacca, gives its engineers and technicians quick and carbon-efficient access to SLB customers and oilfields across the continent.

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