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INTERNATIONAL BUSINESS

GROUP ASSIGNMENT

Title:

Discuss of Singapores Business Environment, Infrastructure, Facilities,Competitiveness and Potential Businesses with the Compare of Malaysia

Instructor: Dr. Arun Kumar Tarofder

Group member: Feezal MGT(H)00204 861028-43-5343 Wong Kok Dik MGT(H)00138 880716-11-5689Heng Su Wan MGT(H)00129 870907-23-5510Ding Hu MGT (H) 00197 G18525890

Due date: 24 April 2009

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Content:

Introduction 1

Business environment 3Political 3

Economic

Social 6

Technological 9

Infrastructure 13

Transportation Infrastructure 13

Communication Infrastructure 17

Energy and Water Distribution Infrastructure 18

Facilities 20

Foreign Direct Investment (FDI) 20

Business Intensive 25

Trade theory 32

Absolute advantage 33

Comparative advantage 35

Heckscher-Ohlin Trade Model 36

Suggestions of Potential Business 38

Malaysia - Infrastructure Development 38

Entertainment 40

Singapore - Education 41

Healthcare 42

Reference 45

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INTRODUCTION

Malaysia and Singapore are both prosperous countries situated in the heart of South East

Asia, they are connected by Johor-Singapore Causeway, a 1,1056-metre causeway that links the

city of Johor Bahru in Malaysia across the Straits of Johor to the town of Woodlands in

Singapore. It serves as a road, rail, and pedestrian link, as well as water piping into Singapore.

History of Malaysia and Singapore is strongly intertwined. Singapore was once in the

Malaysian Federation during 1963 but separated two years later and became independent.

Singapore subsequently became one of the worlds most prosperous countries with strong

international trading link and with per capita GDP equal to that of the leading nations of Western

Europe and this make it one of the Four Asian Tigers. Malaysia on the other hand is made up of

two parts Peninsular and Borneo. It is a country with variety of natural resources, and under the

leading of the Prime Minister Dr. Mahathir (1981-2003); Malaysia successfully diversified its

economy from dependence on exports of raw materials to expansion in manufacturing, services

and tourism. Both countries are large trading partner to each other after the U.S.

When choosing a country to do business, we need to look into many important areas such

as an economys proximity to large markets, the qualities of its infrastructure services, and the

security of property from theft and looting, the transparency of government procurement,

macroeconomic conditions or the underlying strength of institution and etc. According to Doing

Business 2009, a report done by The World Bank shown that Malaysia is ranked 20 out of 181

selected economies in ease of doing business while Singapore is the top ranked economy.

Today these two export-oriented countries is facing certain level of pressure as

multinationals move manufacturing from their nations to cheaper plant in China, India, and other

low-cost sites. To stay competitive both government are seeking to reinvent and fine-tune itsstrategies to find a suitable modality to stay competitive amid the challenging external economic

scenarios. Businesses that have targeted these two countries will need to investigate the potential

investment and business opportunities, and do strategic planning to promote growth and

profitability.

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COMPARISON OF BUSINESS ENVIRONMENT BETWEEN

MALAYSIA AND SINGAPORE

Understand the dynamics of the business environment is a complex but important process

for a global company. In todays world business environment is constantly changing and its

volatility is increased by the threat of competition and changing business cultures.

Development across a range of factors such as political, economic, culture and technological

are largely outside the control but potentially have both a positive and negative impact on

the business. Any business strategy needs to take account of all these forces so that

opportunities and threat can be identified and the organization can navigate its way to

success by matching its internal strengths to external opportunities. Following is the

comparison on business environment of Malaysia and Singapore based on the four main

external factors: political, economic, culture and technology.

P OLITIC AL

In all countries, but particularly those with authoritarian political system, leadership succession

can be a critical politic problem. It becomes a political risk to the foreign business entity when

procedures for a smooth transition of political leadership have not been constitutionally

established or have not gained legitimacy among the elite or among the people at large. A shared

commitment to the system (particularly from the interested groups and political parties of the

middle class) contributes to the prospect of social stability and ensures certain continuity at the

level of government where doing business usually matters.

The system of government in Malaysia is closely modeled on that of Westminster

parliamentary system, a legacy of British colonial rule. In practice however, more power is

vested in the executive branch of government than in the legislative, and the judiciary has been

weakened by sustained attacks by the government during the Mahathir era. Since independence

in 1957, Malaysia has been governed by a multi-party coalition known as the Barisan Nasional.

Singapore on the other hand is a parliamentary democracy with a Westminster system of

unicameral parliamentary government representing different constituencies. Although

Singapores laws are inherited from British and British Indian laws, including many elements of

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English common law, the government has also chosen not to follow some elements of liberal

democratic values. The Peoples Action Party (PAP) has been the ruling party in Singapore since

self-government was attained.

Although Malaysia and Singapore remain under authoritarian rule, capital is still very

subservient to the state. There is however a significant differences in political business links in

these two countries. In Malaysia, UMNOs easy access to funds from business tends to be

abused by influential leaders to consolidate power, while number of politicians who have

ventured into business because they have been privy to state rents has increased considerably.

This is not the case with the ruling Peoples Action Party which does not depend on business for

funds, while corruption is rather limited in Singapore.

The state control over the financial sector had been important in terms of determining the

growth of particular economies sectors and certain corporate enterprises. However there are

some notable policies differences between Malaysia and Singapore that influenced form of

corporate development. In Singapore, while incentives to upgrade and develop high technology

were provided primarily to multinational corporations (MNCs), large public enterprises were

created to enter targeted economic sectors. The Malaysians government actively cultivated MNC

investment in manufacturing, especially in more technologically sophisticated, export-oriented

industries, while simultaneously developing local capitalists by providing lucrative rents, along

with bank credits on favorable terms, to a select well-connected business elite.

Despite an activist industrial policy, the Singapore government has not historically been

responsive to the interested of the domestic private sector. Indeed, domestic capital has been

overshadowed by multi-national corporation (MNCs) and state-owned enterprises (SOEs),

known in Singapore as government-linked companies or GLCs. These SOEs have generally been

held accountable to implicit, not publicized performance standards and have not become the

locus of private rent-seeking or patronage either. The city-states reputation for clean

government and efficient administration is well deserved.

In Malaysia, political parties in the ruling coalition have owned or controlled major

enterprises. The extent of direct political party ownership of companies has, however,

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diminished considerably since the late 1980s. During this period, with active privatization, state

ownership of companies has also been reduced, though political control over business has taken

on more subtle forms. Politicians now have significant control over major firms. The concept of

political business is used here specifically to analyze the evolving links between politicians and

large-scale enterprises, with special emphasis on the changing pattern of ownership and control

ties of politically well-connected companies.

Below are some others comparisons of political factors in both countries:

Malaysia Singapore

Malaysia employment is governed by the

Employment Act 1955 which regulates the

minimum terms and conditions for services

earning RM1,500 per month and below. TheAct also provides for payment of

compensation covered by the Employee Social

Security Act 1069 for injuries caused by

arising from employment.

The Industrial Act regulates the procedure for

collective bargaining and negotiation. The

National Wages Council, which comprises

representative from employer group, employeeunions and the government, sets guidelines for

wage increases each year. The Employment

Act sets minimum working conditions for

employees earning up to S$1,600 per month.

The Article 153 of the Federal Constitution

upholds special privileges for bumiputeras.

Malaysia has not sign the United Nations

International Convention on Elimination All

Forms of Racial Discrimination (CERD).

Government lack of practical enforcement in

the anti-discrimination law. There is some

discrimination on race, language and disability

in employment and the hype about Foreign

Talents has made a big discrimination against

local workers.Whether resident or not, a company is

assessable on income accrued in or derived

from Malaysia. Income derived from source

outside Malaysia and remitted by a resident

company is not subject to tax, except in the

case of banking and insurance business and

sea and air transport undertakings. A tax rate

of 28% is applicable to both resident and non-

resident companies.

Both resident and non-resident companies are

subject to tax on income derived in Singapore

and on foreign income received in Singapore.

The taxable income earned by both resident

and non-resident companies is subject to tax at

rate of 26%. Reduce rates or total exemption

may be available by way of tax incentives.

On 8 March 2006, Malaysia and U.S.officially launched FTA. Malaysias trade

policy focuses on greater integration into the

world economy and enhancing its goal as a

trading nation. It policies are aimed at

developing higher value-added activities in

manufacturing. Improving services delivery

The U.S. - Singapore Free Trade Agreementwas launched on 16 November 2000. It

expands U.S. market access in goods, services,

investment, government procurement,

intellectual property and provides for

groundbreaking cooperation in promoting

labor rights and environment.

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and increasing human capital to support the

development o a knowledge based economy.

On most favored nation basis, Malaysias

average tariff rate is 8.1%- nearly twice the

4.9% of U.S. Under an FTA, exporters in eachcountry would face the same tariff rates and a

more level playing field for U.S. businesses

shipping merchandise to Malaysia.

Singapore guarantees zero tariffs on all U.S.

goods, and the FTA ensures that Singapore

cannot increase its duties on any U.S. product.

In service, the U.S.-Singapore FTA provides

that broadest possible trade liberalization.

Market access in services is supplanted by

strong disciplines on regulatory authority

E CONOMY

All businesses are affected by national and global economic factors. National and global interest

rate and fiscal policy will be set around economic conditions. The climate of the economy

dictates how consumers, suppliers and other organizational stakeholders such as suppliers and

creditors behave within society. In this global business world organizations are affected by

economies throughout the world and not just the countries in which they are based or operate

from. A truly global player has to be aware of economic conditions across all borders and needs

to ensure that it employs strategies that protect and promote its business through economic

conditions throughout the world.

Over the past 30 years, Malaysias economy has diversified considerably. From one

based primarily on mining and agriculture, the manufacturing sector, principally electronics and

electrical products, is now the major engine of growth. Other industries include plastics and

chemical, food processing, tin, pal oil processing, wood rubber and petroleum production and

refining. On the other hand, Singapores economy relies heavily on exports, primarily in

electronics and manufacturing, and successive administrations have set a path to establish

Singapore as South-East Asias financial and high-tech hub. The government also hopes to

establish a new growth path that will be less vulnerable to the global demand cycle forinformation technology products.

Below are comparison of some economical statistic between Malaysia and Singapore:

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Malaysia Singapore

GDP $397.5 billion $240 billionGDP growth 4.6% 1.2%

GDP per capita $15,700 $52,000

GDP by sectoragriculture: 9.7%; industry: 44.6%;services:45.7%

Agriculture: 0%, industry: 32%,services:66.8%

Inflation 5.8% 4.3%Labour force 11.2 million 2.96 million

Labour force byoccupation

services: 51%, industries: 36%;agriculture:13%;

Financial, business and otherservices: 39%, manufacturing 18%,transportation and communication11%, construction 6%, other 26%

Unemployment 3.7% 2.3%

Main industries

Peninsular Malaysia rubber andpalm oil processing andmanufacturing, light manufacturing,

electronics, tin mining and smelting,logging and processing timberSabah palm oil farming, tourism,petroleum production, and logging.Sarawak agriculture processing,petroleum production and refining,logging.

Electronics, chemicals, financialservices, oil drilling equipment,

petroleum refining, rubberprocessing and rubber products,processed food and beverages, shiprepair, offshore platformconstruction, life sciences, entrepottrade

Exports $195.7 billion f.o.b $235.8 billion f.o.b

Main exportpartners

U.S. 15.6%, Singapore 14.6%, Japan9.1%, China 8.8%, Thailand 5%,Hong Kong 4.6%

Malaysia 12.9%, Hong Kong 10.5%,Indonesia 9.8%, China 9.7%, US8.9%, Japan 4.8%, Thailand 4.1%

Imports $156.2 billion f.o.b $219.5 billion

Main importpartners

Japan 13%, China 12.9%, Singapore11.5%, U.S. 10.8%, Taiwan 5.7%,Thailand 5.3%, South Korea 4.9%,Germany 4.6%, Indonesia 4.2%

Malaysia 13.1%, US 12.5%, China12.1%, Japan 8.2%, Taiwan 5.9%,Indonesia 5.6%, South Korea 4.9%

Singapore economic growth has been maintaining a steady rate. On February 14, 2007

national government of Singapore had announced an economic growth rate of 7.9% for fiscal

2006. There are a number of factors responsible for economic development in Singapore. A

principal reason is increasing demand for electronic products all around world. Singapore, being

a major producer of electronic goods, has been able to use this demand for their countrys benefit

and overall economic progress. Other industries in Singapore have also contributed to

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Singapores economic well-being through their impressive business in sectors like

pharmaceuticals, financial services and manufacturing.

Malaysia economic date states that in 2008 fiscal GDP of Malaysia, as per purchasing

power parity, was $397.5 billion and GCP, as per official exchange rate was $214.7 billion.Malaysia economic data also revealed that in same year real growth rate of Singapore GDP was

5.5%. Agricultural sector of Malaysia contributed 9.7% of national GDP in 2008 and industrial

sector came up with 44.6%. Maximum contribution of 45.7% came from services sector.

Economic forecast of Malaysia projects that gross domestic product of Malaysia will

show a growth rate 0.9% in 2009. Export demand, as per Malaysia economic forecast will

contract 5%, which may bring risk to economic scenario of Malaysia. This may have negative

impacts on domestic demand, which has been shown to become weaker. Unemployment will

give a downward pressure on private consumption that will rise up to 2.5% in financial year

2009. However, there will be decline in private-sector activities, which are expected to rise to

4.5%.

In Singapore, as per economic forecast for 2009-10 fiscal, PAP which is ruling Singapore

at present would still be in power. They would be tested as Singapore continues to face

recession. Economic forecast Singapore says that national government of Singapore would be

implementing a fiscal policy that would be focusing on expansion. This would be done in order

to assist economy as well as shortening duration of recession and limiting its impact. Since

Singapores national government has decent amount of financial reserves at its disposal, it has

able to maintain its normal levels of spending.

SOCIAL

When a firm operates in an international business environment, as an individual is bound by the

society in which he lives, it needs to understand the importance of society. Social class is an

important part of the society. In most western societies, these classes are classified as upper,

middle and lower. The level of perception of each class and their frequency of buying goods

differ from one country to another.

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Strategically located where the Indian Ocean meets the South China Sea, Malaysia and

Singapore is situated on major trade and immigration routes in the region. Early immigrants

brought wealth as well as their own unique cultural heritages and religions. This diversity has

remained in place through the centuries up until today. These countries have significant

economic freedom and encourage economic investment.

Kuala Lumpur is a busting metropolis where towering skyscrapers overlook primitive

longhouses; Singapore is a densely populated city-state, is one of Asias Four Tigers and is

Southeast Asias most important seaport, financial centre and manufacturing hub. Malaysia and

Singapore are both multi-cultural, with main mix between Malays, Chinese and Indians. They

have steamy tropical climate and diverse cuisine. Malaysia is known for its natural beauty due to

the tropical location and the diverse cultural influence, and Singapore is known for its

cleanliness, strict social policies, and the worlds most modern airports.

Malaysia Singapore

Population 27,730,000 4,017,733

Population growth rate 1.78% 1.42%

Ethnic groups

Malays and Bumiputera (65%),

Chinese (26%), Indians (8%),

other 1%

Chinese (75.2), Malays (13.6),

Indians (8.8), other 2.4%

Languages Malay (official language),Chinese, Tamil

English, Malay, Mandarin and

Tamil (they are all official

languages.)

Religions

Islam (60.4%), Buddhism

(19.2%), Christianity (9.1%),

Hindu (6.3%), Traditional

Chinese religion (2.6%), others

(2.4%)

Buddhism (42.5%), Islam

(14.9%), No religion (14.8%),

Christianity (14.6%), Taoism

(8.5%), Hinduism (4%), Sikhism

(0.39%), other religions (0.25%)

Age structure

0-14 years: 32.2%

15-64 years: 62.9%

65 years and over: 4.8%

0-14 years: 15.6%

15-64 years: 76.1%

65 years and over: 8.3%

literacyTotal population 88.7%, male

92% and female 85.4%

Total population 89.1%, male

95.1%, female 83.0%

Average household

monthly income

Malaysia is classified as an upper-

middle income country. The

Singapore is classified as high

income country. The average

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average income is RM3,011 and

growth is 6.8% per annum.

income is S$4,943 and the growth

rate is 4.9%

Malaysian spend a high percentage of their household income on food, groceries and

personal care items, ranking third out of the ten major economies in the Asia-Pacific region.

Malaysians on average spent RM505 per month on food and groceries, with just under half of

that on fresh food like meat, fruits and vegetables. Singaporeans, have shift their spending patters

in the past five years, reflecting a more affluent society where consumers are willing to spend

more to finance their desire lifestyle. However, they are relatively conservative in their

expenditure on retail goods compared to Malaysian. The lower household disposal income can

be attributed to the high level of indebtedness due to car and house mortgage loans.

TECHNOLOGYCAL

High technology has become like a force of nature. It transforms the economy, school,

consumer habits, and the very character of modern life. Investors pour money into it; parents

urge their children to study it; communication vies to attract its factories; decorators adopt it as a

style; politicians push it as a panacea. Changes in the technological environment have had some

of the most dramatic effects on business. A company may be thoroughly committed to aparticular type of technology, and may have made major investments in equipment and training

only to see a new, more innovative and cost-effective technology emerge.

Malaysia is an emerging Asian economy aspiring to move towards a technology-driven

and hi-tech production-based pattern of development and thus replicate the experience of the

newly industrializing economies (NIEs) of Asia. In fact, Malaysia has been categorized in the

group of countries that have the potential to create new technologies on their own.

With a gross expenditure on R&D (GERD)/GDP of less than 0.5% during the period

1990-2000, certainly Malaysias R&D investment was considered as insignificant. The two

common internal factors that limit R&D activities in Malaysia are insufficient financial resource

and lack of skilled R&D personnel. Inadequate market research has also been cited as an

important external factor that greatly curtails R&D activities in the private sectors.

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The progress of technological upgrading in Malaysia trails far behind Singapore, one of

the reasons might be Malaysias strategy lacks specific policy instruments to engineer positive

spillovers from MNCs that mostly operate in the manufacturing sectors. Actually this can be

contributed to its weak technology-based SME sectors that are of paramount importance to

technology diffusion. MNCs in Singapore are reputed to undertake not only R&D locally but

applied and possibly even basic research, although it is typically Government-induced. For

instance, the Local Industries Upgrading Program in Singapore has successfully encourages

MNCs to adopt a group of SMEs and transfer technology and skills to them.

Singapores information technology industry is well positioned to tap into the new

business opportunities of the digital age. An early mover in IT, Singapore today ranks as the

third most network-ready country in the world and No.1 in Asia, according to the World

Economic Forums Global Information Technology Report 2007/8. Aside from excellent

infrastructure, IT companies from across the value chain are drawn to Singapore because of its

robust intellectual property protection regime, good logistics connectivity, and easy access to

global talent. Today, more than 80 of the worlds IT software and services companies are in

Singapore.

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COMPARISON OF INFRASTRUCTURE BETWEEN


Infrastructure is important for the services it provides. Infrastructure provides services that

support economic growth by increasing the productivity of labour and capital thereby

reducing the costs of the production and raising profitability, production, income and

development. Infrastructure investment can increase productivity by promoting efficient

resource allocation through easier access for labour and materials to particular localities, and

allowing alternative activities, employment opportunities and investment to emerge.

Infrastructure also provides the necessary economies of scale for urban agglomeration.

Effective infrastructure such as energy, water distribution, transport, communication iscrucial to Malaysia and Singapores productive capacity and grow prospect.

TRANSPORTATION INFRASTRUCTURE

Transport infrastructure plays an important part in economic growth and globalization.

Transportation infrastructure like airports, seaports, roads and bridges are all important to a

country in terms of attracting investment and business and to a company when it is time to

decide where to locate an investment, build a factory, and establish a regional office. How easy a

country is to travel to and the modernity and efficiency of its airport and seaports is alwayssomething a company and its executives need to consider. From the colonial era, Malaysia and

Singapore inherited relatively well-developed transport network. After achieving independence,

both governments made considerable efforts and large investments in expanding its highways,

railroad, seaports, and airports.

Road and Highway

Malaysia is served by a network of 94,500 kilometers of primary and secondary roads, 70,970

kilometers of which are paved. This includes 580 kilometers of superior quality expressways,

which connect Kuala Lumpur with Singapore and with major seaports and other destinations.

However, the transportation system is still underdeveloped in East Malaysia (Sabah and

Sarawak), with most of the roads in Peninsular Malaysia. Beside that the Thailand border is also

well developing on the Malaysian side. On the other hand, Singapore the roadcondition is very

favorable. This small city-state is served by a network of 3,122 kilometers of highways, 99% of

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which are paved. The causeway and the second link are connected to Malaysia. Traffic

congestion is well managed with the traffic monitoring and road pricing schemes. Some degree

of waiting for customs clearance and inspection is unavoidable at the border points.

In response to the growing number of cars, Malaysia and Singapore government invested

in development of the public transport system. Malaysia government has modernize the

countrys railways and the construction of a light rapid-transit system in Kuala Lumpur; and to

control traffic congestion and rising air pollution, Singapores government invested significant

sums in public transport, especially the mass transit system. Singapore also restricted private car

usage using different measures, including taxes and Certificates of Entitlement.

Railway and Commuter Rail System

Malaysia has a railway system of about 1,800 km, part of which was planned for privatization in

1998-1999. In 2000, only 148 km of railways were electrified. The major tracks run from

Singapore to Kuala Lumpur, and further to Pinang and Bangkok (Thailand). However, the

railways are unevenly distributed. There is only one railway track of about 134 km in East

Malaysia (in Sabah). Rail transport in Malaysia comprises heavy rail (high speed rail), light rail

transit (LRT), monorail, funicular railway line and commuter. Malaysias only high speed-rail

line which was constructed by Express Rail Link Sdn Bhd operates in two train services which

are known as KLIA Express and KLIA Transit. This rail line is operates the 57 kilometers

standard gauge line between Kuala Lumpur and Kuala Lumpur International Airport and this linemay not be defined as high-speed because the maximum speed used is 160km/h.

Aerotrain is the light rail transit system that available at Kuala Lumpur International

Airport. It is a simple people-mover system that running along two 1,286 meter guiderails

between the Main Terminal Building and Satellite Building. Monorail is an 8.6 kilometers long

which by KL Monorail Sdn Bhd. It was built to serve the central business, hotel and shopping

district of Kuala Lumpur. Monorail is dual guide way, straddle-beam, fully elevated, 5 power sub

stations, 1 depot and 12 monorail trains. Commuter, also known as KTM Komuter is an

electrified commuter train service operated by Keretapi Tanah Melayu Berhad. Primary goal of

KTM Komuter is to provide service to people in Klang Valley, with the ultimate aim of reducing

congestion in the city. The frequency of the service is every 15 minutes during the peak and

every 20 or 30 minutes in the off-peak.

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Singapore railways station is in a good condition. Basically this country has no railways

station service except commuting lines which this railways is been owned by Malaysia. There

are three main types of rail transport in Singapore which are an international rail connection

operated by Malaysian company Keretapi Tanah Melayu, a rapid transit system collectively

which known as Mass Rapid Transit (MRT) and Light Rail Transit (LRT). Both MRT and LRT

are operated by the two biggest public transport operators SMRT Corporation and SBS Transit.

Mass Rapid Transit (MRT) is a rapid transit system that forms the backbone of the railway

system in Singapore. It has 66 operating stations with 113.2 kilometers of lines and operates with

standard gauge. Every station is equipped with General Ticketing Machines (GTMs), a

Passenger Service Centre, LED and plasma displays. Light Rapid Transit (LRT), in Singapore

functions as feeders to the main MRT network. There are various forms of light urban rail

systems such as monorail, Sentosa Express and Changi Skytrain.

Seaport

Malaysias seaports were established during the colonial ear and served as merchant ports as well

as British naval bases. The major ports are Kelang, George Town, Penang, and Kuantan on the

Peninsula, and Kota Kinabalu and Kuching in East Malaysia. During the last few decades, there

ports were expanded to serve rapidly-growing Malaysian exports and imports. The West Port of

Port Kelang has seen RM2.2billion worth of combined (private and government) investment,

while there has been RM2.8 billion worth of investment in the Tanjung Pelepas Port. Each port

has an advanced and sufficient facility including the EDI (Electronic Data Interchange) systems

and ample handling capacity to meet the present demand of people that use the ports. The benefit

in using this system is that both this electronic communication between the department within in

the organization or company can now be easily reach out to the companies or the trading

partners.

Throughout the colonial era, the port of Singapore was an important military based and

commercial seaport. After gaining independence, Singapore maintained its status as an important

regional transport hub. Singapore port consists of PSA (Port of Singapore Association) and alsoJulong Container terminals. Its seaport is believed to be one on the worlds busiest ports in

tonnage terms, with 140,922 vessels making up a shipping weight of 858 gross tons calling at the

port and total container traffic of 15.14 million 20-foot equivalent units. It also has one of the

largest commercial shipping registers in the world. The ports are not a simple financial

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advantage, but this port is been create for the economic requirement owing to the fact that this

country is lack of natural resources and land.

Competition has grown between Malaysia and Singapore for servicing international ships

and handling containers, although 40% of Malaysias international trade was handled through

Singapore until recently. In 1998 Malaysias seaports handled 83 million metric tons of cargo. In

late 2000, there was an announcement that the worlds largest container line, Maersk-Sealand,

intend to move its regional trans-shipment operation from Singapore to the Malaysia port in

Johor.

Airport

Malaysia has also promoted development of aviation in order to serve growing tourism and

business needs. Malaysia has 32 airports with paved runways, and 83 airports with unpaved

runways. All the major airports such as Kuala Lumpur International Airport, Penang Airport and

airport in Johor Bahru, Kota Kinabalu, Kuching, and Langkawi are being used for the

international logistic. All these airports presently have sufficient cargo-managing capacity, and

good operation of the management activities. Their facilities also include a plaza business centre

that offers Internet and fax service. The largest of them, the US$3.2 billion state-of-the-art Kuala

Lumpur International Airport, was opened in 1998. It is capable of handling 25 million

passengers and 1.2 million tons of cargo annually. U.S. firms, including Harris, FMC, Adtranz,

and Honeywell, have been awarded contracts to supply passenger trams, jetways and informationsystems for this new airport. Malaysia transformed its national partly-privatized air carrier,

Malaysian Airlines, into a world-class company, operation a fleet of about 100 aircraft.

The Singapore government has invested heavily in the development of aviation, signing

air service agreements with 90 countries, including open skies agreements with the U.S., New

Zealand, and Brunei Darussalam. The Civil Aviation Authority of Singapore (CAAS) oversees

and regulates development in this sector. There were 9 airports in Singapore in 1999. The largest

is Changi airport (a subsidiary of CAAS), which hosted 61 airlines and handled 23.8 million

passengers in 1998 alone, making Singapore one of the major airports in the region. The 47-

hectare Changi Airfight Center handled 1.43 million tons of air freight movement in 1998. The

government planned to invest a further S$1.5 billion upgrading the airport facilities in the first

decade of the 21st century. At this international airport, high standard is been set to ensure that all

the entire ground supervisor need to deliver world class services to the cargo agents and also all

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the shipper while the cargo clearance through the customs checkpoints remains seamless and

well-organized. Singapore Airline (SIA) was created in 1972 after the split of Malaysia-

Singapore Airline. SIA and its subsidiary, SilkAir, operated 87 aircraft, employed 18,800 people,

and carried 12 million passengers a year in 1998. In 1998, SIA was ranked fourth in terms of

international freight measured in ton-kilometers, and eighth in international passenger-

kilometers.

COMUNICATION INFRASTRUCTURE

Telecommunication services in Malaysia are provided by several competing companies. The

largest is Telecom Malaysia, which formerly had a state monopoly in the sector. The quality of

telecommunication service is up to international standards, thank to an inflow of private

investments and the governments initiatives in developing this sectors. In 1998, the Malaysian

government announced the development of the multi-billion-dollar Multimedia Super Corridor

(MSC). This ambitious project, 15km wide and 50 km long, and stretching from Kuala Lumpur

to the new international airport, is planned to become a Malaysian Silicon Valley. The MSC

included 2 smart cities, employing a high-technology environment, high-capacity

telecommunication, sophisticated infrastructure, and even electronic government.

The telecommunication infrastructure of Singapore spans the entire city-state. Its

development level is high, with close accessibility to the infrastructure from nearly all inhabited

parts of the island and for all of the population, with exceptions. Telecommunication services in

Singapore remain under state control. Telephone service is provided by the state-controlled

Singapore Telecom (ST). In 1998, these countries have developed 55 million phone lines, beside

that 47 million of which also served other telecommunication devices like computers and

facsimile machines. The underwater cables that they create have been use by this three country

that is Malaysia, Philippines and also Indonesia. The government has attempted to end STs

monopoly; in 1997 STs monopoly on mobile and pager services came to an end. In 1998, there

were 8 Internet service providers in the country and 458.4 computers per 1000 people, which is

more than in the United States. In 2000, the Singapore government announced an S$1.5 billion

investment over 3 years into the e-Government Action Plan, which should enable Singaporeans

to access a wide range of online services.

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ENERGY AND WATER DISTRIBUTIONV INFRASTRUCTURE

In Peninsular Malaysia, electrical power is supplied by the predominantly state-controlled

Tenaga Nasionalcompany. Due to the rapid industrial development and growing demand for

electricity, considerable efforts were made to privatize the national utility company and develop

private initiatives to build and operate new power generating plants. To this end, a private

consortium, the Independent Power Providers (IPPs), was established. Malaysia has sufficient

reserves of oil, gas, and coal to meet its energy needs. Additionally, in East Malaysia there is

huge potential for building hydroelectric power plants, but their development will require

considerable investment. In the mid-1990s, the Malaysian government considered building the

Bakun Hydro-electric Dam, which would have been one of the worlds largest dams, in Sarawak;

the controversial plan was abandoned, however, due to financial difficulties. In 1998, Malaysia

produced 57.45 billion kilowatt hours (kWh), 94% of which was produced using fossil fuel and5.22 % by hydroelectric power plants. The entire water supply distribution system in Malaysia

comprises more than 91,247 km of water pipes of which 45,746 km or 50% are asbestos cement

pipes. The old pipes manifested in the frequent pipe bursts, leaking mains and the distribution

systems, and consequently led to losses to the operator as well as poor water quality to the

consumers.

Unlike Malaysia, Singapore is fully reliant on imports of mineral fuel for domestic

consumption, and there imports accounted for 9.3% of merchandise import in 1996. This makes

the country vulnerable to unfavorable fluctuations in world oil prices. Electric power is produced

from fossil fuel at 3 power stations. Electricity production was recorded at 28.586 billion

kilowatt-hours (kWh) in 1998. The water resources of Singapore are especially precious given

the small amount of land and territory in Singapores geography while having a large urban

population in the city-state. Without natural freshwater lakes, the primary domestic source of

water in Singapore is rainfall, collected in reservoirs or water catchment areas. Prior to the

opening of the Marina Bay reservoir, rainfall supplied approximately 50% of Singapores water,

which should now be about 67% due to the additional catchment area. The remainder is importedfrom Malaysia, recycled from waste water (producing NEWater) and produced via desalination.

This four tap strategy aims to reduce reliance on foreign supply and to diversity Singapores

water source.

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COMPARISON OF BUSINESS FACILITIES BETWEEN


FOREIGN DIRECT INVESTMENT

Foreign Direct Investment (FDI) is investment in a country by foreign citizens, often involving

majority stock ownership of an enterprise, it often lauded for bringing economic growth and

know-how developing countries. The important of FDI offer a window into why Singapore and

Malaysia, for instance, seem to be worried about the ascendance of China while firms in Taiwan

and Hong Kong have reaped enormous benefits from Chinese economic expansion. Singapore

and Malaysia rely on labor-intensive FDI to develop their export capabilities; it brought forth

both resources and business opportunities in the form of an export contract.

FDI in Singapore

Foreign investors in Singapore were mainly attracted to financial services and manufacturing

sectors. Almost two fifths (38.7% of $141.0 billion) of total FDI was attributed to financial

services while manufacturing constituted about a third of 29.9% or $108.9 billion of investment

stock in Singapore as at end 2006. Wholesale & retail trade, hotels & restaurant (18.2%) and

transports & storage (6.2%) were popular with foreign investors. Example:

2005 ($ mil) 2006 ($ mil) Share in 2006 (%)

Total 323,821 363,935 100

Manufacturing 103,666 108,852 18.2

Wholesale & Retail Trade, Hotels & Restaurants 56,592 66,090 18.2

Transport & Storage 17,652 22,605 6.2

Information & Communication 3,693 2,943 0.8

Financial services & Insurance services 121,659 140,986 38.7

Real estate, rental & leasing services 8,274 10,046 2.8

Professional & technical, administrative & support services 10,939 10,884 3.0

More than fourth-fifth (81.5% or $114.9 billion) of FDI in financial & insurance services

were concentrated in investment holding companies. There were also significant foreign interest

in banks (7.0%) and insurance services (4.9%). Manufacturing FDI in Singapore was mainly

attracted to pharmaceuticals (35.2%), electronics (29.7%) and petroleum (13.2%). The stock of

FDI in pharmaceuticals remained firm at $38.3 billion as at end of 2006. Electronics FDI grew

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by 8.6% to hit a total of $32.3 billion while investment in petroleum edged up 2.9% to reach

$14.3 billion. Example:

2005 ($ mil) 2006 ($ mil) Share in 2006 (%)

Manufacturing 103,666 108,852 100

Pharmaceutical products 38,680 38,335 35.2Electronics product 29,796 32,348 29.7

Petroleum product 13,938 14,337 13.2

Chemical product 7,459 7,683 7.1

Financial & insurance services 121,659 140,986 100

Investment holding cost 95,418 114,868 81.5

Banks 9,741 9,903 7.0

Insurance services 5,683 6,979 4.9

By 2006, the bulk of Singapore FDI originated from Europe and Asia. Europe accounted

for almost half (47.2% or $171.9 billion) of overall FDI while about a quarter (22.4% or $81.5

billion) of total investment was actually attributed to Asia countries. Other key sources of FDI

were South, Central America and Caribbean (16.3%) and North America for (10.9%). United

Kingdom and Switzerland remained dominant sources of European investment in Singapore as at

end of 2006. Norway, France & Germany were other principle Europeans sources with

significant investment in Singapore. Investment from UK, Netherlands and Switzerland were

concentrated in transport & storage and financial services. Example:

2005 ($ mil) 2006 ($ mil) Change (%)

Europe 139,987 171,860 22.8

United Kingdom 49,593 54,782 10.5

Netherland 32,142 48,272 50.2

Switzerland 22,273 27,018 21.3

Norway 8,566 14,782 72.6

Germany 8,189 8,035 -1.9

France 7,004 8,062 15.1

The return on FDI in Singapore was 20.5% in 2006. Major source countries, with the

exception of United Kingdom and Japan enjoyed higher yields in 2006. Investment from Asia

recorded better returns of 12.6% in 2006 compared to 11.4% in 2005. Taiwanese investors

experienced significantly higher return of 13.1% in 2006. Compared to 2005, Malaysian and

Japanese investment in Singapore attracted lower yields of 9.4% and 12.1% respectively in 2006.

European investors saw a slight dip in return on FDI in Singapore in 2006. Investment from

United Kingdom eased to 4.8% in 2006 while Swiss and Dutch investment generated higher

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yields of 29.5% and 24.3% respectively. The return on investment from United States improved

marginally from 32.8% in 2005 to 34.8% in 2006. Example:

2005 (%) 2006 (%)

Total 20.5 20.5

Asia 11.4 12.6Japan 12.7 12.1

Malaysia 10.8 9.4

Taiwan 4.6 13.1

Hong Kong 17.4 28.3

Europe 19.5 17.4

United Kingdom 18.0 4.8

Netherlands 20.7 24.3

Switzerland 25.9 29.5

Norway 9.1 11.5

United States 32.8 34.8

FDI in Malaysia

Foreign investors continue to find Malaysia as an attractive place for investments particularly in

the manufacturing sector with Malaysia recording a 38% increase in approved FDI amounting to

RM46.1 billion in 2008 from RM33.3 billion in 2007. This represented the fifth consecutive year

of growth in FDI with RM20.2 billion in 2006, RM17.9 billion in 2005 and RM13.1 billion in

2004, reflecting foreign investors confidence that Malaysia will remain as a preferred location

for business operations. Example below shows the top five sources of FDI in Manufacturing:

Country 2008 (RM billion) 2009 (RM billion)

Australia 13.11 1.69

USA 8.67 3.02

Japan 5.59 6.52

Germany 4.44 3.76

Spain 4.16 0.04

The increase in FDI in 2008 was mainly attributed to the high level of investment in the

basic metal products and the electronics and electrical industries with the combined FDI of

RM37.7 billion or 82% of total foreign investments. The basic metal products industry accounted

for RM20.4 billion while RM17.3 billion came from the electronics and electrical industries.

Other major areas of interest to foreign investors include petroleum products including

petrochemicals with RM1.25 billion, chemicals and chemical products with RM1.22 billion and

food manufacturing for RM1.1 billion.

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Foreign interest in new projects also continues to increase to RM34.2 billion last year

from RM17.3 billion in 2007, which was double the approved FDI in 2006 of RM9.2 billion.

Existing foreign investors continue to reinvest and expand their operations in Malaysia especially

into higher value added products. In 2008, foreign investment in expansion and diversification

projects amounted to RM11.9 billion of which the electronics and electrical industries accounted

for RM6.48 billion.

Australia emerged as the largest source of FDI in the manufacturing sector in 2008 with

RM13.1 billion in approved investments, due to a major new project with investment of RM12.5

billion to produce unwrought aluminum. The other significant area that had attracted Australian

interests was the transport equipment industry with total approved investments of RM278.6

million. United States was the second largest source of FDI in 2008 with RM 8.7 billion, a close

to two-fold increase from the RM3 billion recorded in 2007. The American interests wereconcentrated in the electronics and electrical industries with total investments of RM8.1 billion

which RM3.2 billion was for a new project to undertake the design, development and

manufacture of silicon photovoltaic wafer, cells, modules and panels.

The third largest source of FDIs was Japan with approved investments of RM5.6 billion, which

were in basic metal products for RM3.0 billion or 53.6% and electronics and electrical industries

for RM1.6 billion or 28.6%. Germany remain an important source of FDI in 2008, with the total

investments of RM4.4 billion compared with RM3.7 billion in 2007and Spain came in as the

fifth largest source of FDI in 2008, mainly due to approved investment of RM4.2 billion in a

joint venture project to produce of stainless steel slabs, stainless steel black coils, hot rolled

stainless steel sheets and coils.

Malaysia success in attracting FDI was endorsed by United Nations Conference on Trade and

Development recent preliminary report, which showed that total FDI inflows into Malaysia

increased from USD8.4 billion in 2007 to USD12.9 billion in 2008, ahead of other countries like

Thailand, Singapore and Indonesia, which all recorded negative FDI growths, while China had a

growth of 10.6%. The significant numbers of foreign manufacturing companies operating in

Malaysia have contributed significantly to employment, technology transfer and the growth of

local supporting industries and in particular, the manufacturing related services such as logistics,

banking and insurance sectors. Malaysian government continues to promote FDI, while at the

same time encouraging domestic investments. The reason is to ensure that Malaysian

entrepreneurs actively participate in the country's industrial development. Various policies and

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measures have been put in place to sustain the country's competitiveness as well as to remain an

attractive location for investors. Example:

Liberalization of

investment policies

Foreigners are now allowed to hold up to 100% equity in the

manufacturing projects and manufacturing related services

activities

Enhancement of the

government delivery

system

The process for approval of manufacturing licenses has been

further streamlined and simplified over the years, whereby

unnecessary and cumbersome conditions have been removed

Promotion of new growth

areas within the

manufacturing sector

To promote FDI into higher value-added, high technology and

knowledge-intensive projects in the manufacturing sector such as

ICT, biotechnology, optics, photonics, nanotechnology, medical

devices and advanced materials

Promotion of the services

sector

To promote services activities which have extensive linkages to

the economy such as shared services, business process

outsourcing (BPO), regional establishments, environmental

management services, business management services and

logistics

Provision of focus &

competitive incentives

Continue to provide competitive fiscal and non-fiscal incentives

to promote quality investments into high technology, capital

intensive, knowledge-based industries, R&D activities and

manufacturing-related services sector

Reviewing current

investment legislations

The Industrial Coordination Act, 1975 and Promotion of

Investment Act, 1986 are periodically reviewed in order to create

a more business friendly environment to meet current and future

industrial development scenarios

Currently, the government also continues to undertake strategies and aggressive promotional

efforts to highlight the investment climate and opportunities in Malaysia in the manufacturing

and its related services sector including Trade and Investment Missions and Specific Project

Missions (SPMs) to capital exporting countries. To enhance Malaysias competitiveness, the

Government has also put in place with some strategies. Example:

Streamlining of government policies and the public services delivery system

Raising competitiveness in terms of quantity and cost

Continuous upgrading infrastructure

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Upgrading quality of workforce

Ensuring availability of skill workers

Higher technology utilization

Enhancing productivity and quality systems

BUSINESS INCENTIVES

Incentive provided by Singapore and Malaysia have played an important role in attracting FDI

which in turn has spurred economic development and export growth. It often appear to be an

easy solution to complex economic problems, with a quick and immediate victory, public

officials are tempted to use incentive because they are some of the few tools they have appears toinfluence private investment, which is real engine behind a regions economy.

Business Incentive in Singapore

Economic Development Board (EBD) is the lead government agency responsible for executing

strategies to enhance Singapores position as a global business centre and grow the Singapore

economy. They attract economic opportunities and job for the people of Singapore and help

shape their countries economic future. They are a one stop agency which facilities and support

local and foreign investors in both manufacturing and services sectors as they move up the value

chain to achieve higher sustainable returns and seek out new business opportunities. While

Singapore commands global leadership in many areas, EDB focus on expanding and extending

existing industry verticals. Exploring new growth areas will contribute towards creating good

jobs and sustaining our competitiveness. While interacting with investors and promoting

investments, EDB will provide feedback to other government agencies to ensure that the

infrastructure and public services remain efficient and cost competitive. This will ensures that

Singapore maintains a premier pro-business environment.

EDB has a comprehensive list of incentive and development schemes to assist everyone in

expanding their business. The schemes range from assistance in manpower development,

technological or equipment upgrading, to R&D, intellectual property and industry development.

The schemes are available in:

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Equipment and Technology

The schemes for the equipment and technology can be dividing into approved foreign incentive

(AFL) and investment allowance (IA). Through AFL investors can Grants full or partialexemption on withholding tax on interest payments to non residents, and IA is a capital

allowance to offset the costs of qualifying equipment within a set period

Business Development

The schemes for the business development can be dividing into Development Expansion

Incentive (DEI) and Script Screen (S2S). DEI is a tax incentive; it provides preferential corporate

tax rates on all qualifying profits above a predetermined base within a set of period; S2SProvides partial grants to support production budgets or commissioning fees. It supports the

development of creative and technical talents in content production.

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Innovation, R&D and Intellectual Property

The schemes for the Innovation, R&D and Intellectual Property can be dividing into ApprovedRoyalties Incentives (ARI) and Innovation Development Schemes (IDS). ARI provide full or

partial exemption on withholding tax for royalty payments or technical assistance fees payable to

non-residents. This includes royalties fees and contributions to R&D costs paid for the transfer

of technology and knowledge to Singapore; IDS provides co-funding to support innovation in

products, processes and applications. Eligible project costs include expenditure on manpower,

equipment, intellectual property and professional services.

Headquarters Management

The schemes for Headquarters management can be dividing into Region and International

Headquarters Award (RHQ/IHQ). It encourages companies to use Singapore as a base.

Customized package of tax incentives or grants under the Regional Headquarters (RHQ) Award

or International Headquarters (IHQ) Award helps to meet the needs of the investors.

Industry Development

The schemes for the Industry Development can be dividing into Development Expansion

Incentive (DEI) and Pioneer Incentives. DEI provides preferential corporate tax rates on all

qualifying profits above a pre-determined base, for a set period, and Pioneer Incentive give tax

exemption on qualifying profits for up to 15 years and Encourages the introduction and growth

of new industry technologies, knowledge or skills

The government has also established a number of incentive programs to help companies to

strengthen capabilities, improve efficiency and explore new opportunities in their business. Some

programs cater to the needs of start-ups and local enterprises, while others are designed for

global companies with large-scale needs such as the set up of regional headquarters in

Singapore.

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Business Incentive in Malaysia

Supported by a market oriented economy and pro-business government policies, Malaysia offers

investors a dynamic and vibrant business environment with the ideal prerequisites for growth and

profits. Malaysia adopted a common definition of SMEs to facilitate identification of SMEs inthe various sectors and subsectors and this will facilitated the Government to formulate effective

development policies and the provision of technical & financial assistance. To provide greater

financial accessibilities, the Government through its agencies offers various grants and incentive

to the SMEs. Partial grants are provided to strategic technology, market development, process

and quality improvement, finance product and skills upgrading.

The type of grant and incentive given by these agencies are:

Small & Medium Industries

Development Corporation

(SMIDEC)

Matching Grant for Business Start-ups Matching Grant for Product and Process Improvement

Matching Grant for Enhancing Product Packaging

Grant- Loan facility

Grant for Enhancing Marketing Skills of SMEs

Financial Assistance Scheme for SMEs in the Services

Sectors

Malaysia External Trade

Development Corporation(MATRADE)

Matching Grant for Market Development

Malaysia Productivity

Corporation (MPC)

Quality Management Programs

Productivity Management Programs

Human Resources Programs

Production Management Programs

International Programs

Business Management Excellence Programs

Malaysia Industrial

Development Authority

(MIDA)

Main incentives for manufacturing companies

Incentives for high technology companies

Incentives for strategic projects

Incentives for small scale companies

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Incentive to strengthen industrial linkages

Incentives for the manufacture of machinery and equipment

Ministry of Entrepreneur and

Co-operative Development

(MECD)

Franchise Development Assistance Scheme

MARA Business Financing

Franchise Financing Scheme

Equity Financing

Direct Access Guarantee Scheme

Small Entrepreneur Guarantee

Integrated Loan Scheme

Ministry of Agriculture and

Agro-Based Industry (MOA)

Fund For Food (3F)

Ministry of Science,

Technology and Innovation

(MOSTI)

Enterprise Innovation Fund (EIF)

Science Fund

Soft loan for machinery and equipment

Ministry of Rural Region

Development

Rural industrial programs

Malaysia Technology

Development Corporation

(MTDC)

1. The Technology Acquisition Fund (TAF)

2. Commercialization of R&D Fund (CRDF)

Malaysia Venture Capital

Management Berhad

(MAVCP)

Cradle Investment Programs : Microsoft Partnership

Venture Capital Financing

The example below shows other incentives that did not mention elsewhere and may be

applicable to manufacturing, tourism, agriculture, management, research & development,

information & communication technology sectors.

Industrial

Building

Allowance (IBA)

IBA is granted to companies incurring capital expenditure on the construction or

purchase of a building that is use for specific purposes including manufacturing,

agriculture, facilities and hotels that are register with the Ministry of Culture, Arts

and Tourism. Such companies are eligible for an initial allowance of 10% and

annual allowance of 3%

Industrial To encourage the construction of more buildings in Cyberjaya for use by MSC

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Building

Allowance for

Buildings in MSC

status companies, IBA for a period of 10 years will be given to owners of new

buildings occupied by MSC status companies in Cyberjaya. Such new buildings

include completed buildings but are yet to be occupied by MSC status companies

Incentives For

Export

Double Deduction for the Promotion of Exports

Single Deduction for the Promotion of Exports

Double Deduction on Export Credit Insurance Premiums

Special Industrial Building Allowance for Warehouse

Double Deduction on Freight Charges

Double Deduction for the Promotion of Malaysian Brand Names

Deduction of

Audit Fees

To reduce the cost of doing business and enhance corporate compliance, expenses

incurred on audit fees by companies are deemed as allowable expenses for

deduction in the computation of income tax. The incentive is effective from the

year of assessment in 2006

Tax Incentives for

Venture Capital

Industry

Currently, venture capital companies (VCCs) have the option to choose between

the following incentives:

a) Income tax exemption for 10 years for investing at least 70% of its investment fun

companies (VCs) in the form of seed capital, start-up or early stage financing

b) Deduction for income tax purposes equivalent to the value of investment made in

With effect from the year assessment of 2007, to increase funding in seed capital,

VCCs investing at least 50% of their investment funds in VCs in the form of seed

capital are eligible for income tax exemption for 10 years

Tax Incentives for

Mergers &

Acquisitions of

Listed Companies

To encourage public listed companies to expand and compete globally, stamp

duty and real property gain tax (RPGT) exemptions are given on M&A

undertaken by companies listed in Bursa Malaysia. This exemption is given to

M&A approved by the Securities Commission from 1 October 2005 to 31

December 2007 and such M&A should be completed no later than 31 December

2008

Incentive for

A Malaysian-owned company that acquires a foreign-owned company abroad to

acquire high technology for production within the country or to acquire new

export markets for local products is eligible for income tax deduction equivalent

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Acquiring a

Foreign Owned

Company

to the acquisition costs for five years

This incentive is in the form of an annual deduction to ascertain the adjusted

income of the locally-owned company, and any unutilized deduction can be

carried forward until fully utilized

Incentive for

Acquiring

Proprietary Rights

Capital expenditure incurred in acquiring patents, designs, models, plans,

trademarks or brands and other similar rights from foreigners qualify as a

deduction in the computation of income tax. This deduction is given in the form

of an annual deduction of 20% over a period of five years

Incentive for

Environment

Protection

Equipment

Companies using environmental protection equipment will receive an initial

allowance of 40% and an annual allowance of 20% on the capital expenditure

incurred on such equipment and the full amount can be written off in three years

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COMPETITIVENESS OF MALAYSIA AND SINGAPORE

BASED ON TRADE THEORIES

Competition is the norm surrounding trade and all international business relationships in a

world that has operated to carry out its transactions under a free-trade banner.

International competitiveness, within the context of trade in goods and services, refers to a

nations trade advantage vis--vis the rest of the world. According to Global

Competitiveness Index (GCI 2008-2009) which define competitiveness as the set of

institutions, policies, and factors that determine the level of productivity of a country,

Malaysia was ranked 21st and Singapore was ranked 5th out of 134 selected countries.

Singapore, at 5th place, is the top-ranked country from Asia on the strength of its

institutional environment, moving up two places from last year as a result of a strengthening

across all aspects of the institutional framework. Singapore also places among the top two

countries for the efficiency of all of its markets goods, labor, and financial ensuring the

proper allocation of their factors to their best use. Singapore also has world-class

infrastructure, leading the world in the quality of its port and air transport facilities. But

Singapores overall ranking is constrained by its domestic market size and mixed

performance in the macroeconomic stability.

Malaysia, at 21st place, also benefits from the excellent functioning of its goods, labor,

and especially financial markets. Labor markets are well evaluated for their efficiency, with

a strong relationship between productivity and pay as well as good cooperation in labor-

employer relations. Goods markets are assessed as efficient with strong competition and

business-friendly taxation. The financial market continues to perform well, clearly well

recovered from the 1998 financial crisis, and is ranked 16th internationally for its

sophistication, with a sound banking sector and a relative ease of access to various forms offinance for business development. Other strengths include the quality of the countrys

transport infrastructure and its strong business sophistication and innovative potential, which

have contributed greatly to the countrys growth over recent years. On the other hand,

efforts should be made in the area of education, where attainment rates at the secondary

level remain low; and also in addressing the relatively poor health of the workforce. Finally,

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greater fiscal discipline would better ensure the future, with repeated government deficits to

build up substantial government debt over the years.

The theories being used here to explain competitiveness of Malaysia and Singapore are

theory of absolute advantage, theory of comparative advantage and Heckscher-Ohlin TradeModel. Here, the competitiveness of Malaysia and Singapore will be explained based more

on the trade relation between these two countries as one of the basic assumptions underlying

conventional trade theory said that trading relations are restricted to two countries each

having a fixed stock of factors of production.

ABSOLUTE ADVANTAGE

The theory of absolute advantage holds that nation can increase their economic well-being by

specializing in the production of goods they can produce more efficiently than anyone else. To

compare Malaysia and Singapore in term of absolute advantage is not an easy task because there

is no clear absolute advantage in Singapore in relative with Malaysia, but since the

biotechnology industry in Singapore is more competitive than in Malaysia, it can be compare to

the advantage of natural resource in Malaysia.

Malaysia is well-endowed with natural resources, the liquefied natural gas (LNG) is the

largest export commodity in natural resource total exports of LNG soared by 51.0% to RM8.0

billion in 2009. Singapore on the other hand, is a leading drug making country; it has been

making global drug makers an alluring offer for the past two years. Pharmaceutical now account

for more that 16% of the countrys manufacturing production. The pharmaceutical export of

Singapore is US$13.4 billion and for Malaysia is US$131 million, meanwhile the production of

natural gas in Malaysia is 64.5 billion cu m but Singapore do not produce natural gas. Hence,

Singapore has an absolute advantage in the production of drug and Malaysia has an absolute

advantage in the production of natural gas.

Beside liquefied natural gas, due to Malaysias well-endowed with agriculture, forestry

and mineral, Malaysia have many other absolute advantage in natural resource compared to

Singapore which only have 692.7 sq km of land with little natural resource. In term of

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international competitiveness, Malaysia has absolute advantage in many agriculture production

compared to most country, for example palm oil (world rank 1st), cocoa (world rank 9 th, 0.9% of

world production), natural gas (world rank 15 th), petroleum (world rank 26th).

Owing to the limited land area, agriculture is not so important to Singapore but becauseof its nodal position and historical development it continue to functions as an important trading,

processing, and financial center for the regions agricultural commodities. Singapore also has

other absolute advantages such as houses the third-largest oil refinery in the world with capacity

of 1 million barrels a day, largely corruption-free government (ranked 4th in Worldwide

Corruption Perceptions ranking), skilled work force, and advanced and quality overall

infrastructure (ranked 2nd globally).

COMPERATIVE ADVANTAGE

A country has a comparative advantage in the production of a good if it can produce that good at

a lower opportunity cost relative to another country. It explains how trade can create value for

both parties even when one can produce all goods with fewer resources than the other. The net

benefit of such an outcome is called gain from trade.

Malaysia and Singapore both have comparative advantage in producing electronic

components over global market. Almost two thirds Malaysias net exports compete with

Chinas, including a wide range of electronics. In the past six year, despite strong Chinese net

export growth in this market, Malaysia significantly increased its exports in the majority of these

competing sectors. Hence, Chinese competition does not appear to be damaging Malaysias

manufacturing export sector and could well be strengthening it. Although its complimentarily

with China currently is lower than that of other regional economies, Malaysia also is benefiting

from Chinas increased demand for resource and components. Singapore on the other hand, has a

strong technological edge over China; it continue to move rapidly out of more labour intensivesectors where China is strong, focusing on higher technology exports. This ongoing restructuring

is increasing Singapores trade complementarities with China. Singapore is well placed to take

advantage of Chinas growth by exploiting its complementarities, including by exporting

components and capital goods and accessing Chinas low cost exports to supply its mature

consumer market.

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(in US$ mn) 2002 % change 2003 % change 2004 % change 2005

Malaysia 38,571 7.1% 41,318 11.1% 45,905 3.3% 47,435

Singapore 36,383 8.3% 39,396 11.9% 44,101 3.1% 45,477

Malaysia and Singapore Electronics Production 2002-2005 (Source: Global Electronics Report, Scottish

enterprise, March 2006; UOB calculations)

Other productions that Singapore has comparative advantage over Malaysia are radio, TV

and communication equipment, shipbuilding, petroleum refineries, coal and petroleum products,

printing. Malaysias comparative advantages over Singapore are in production of aquaculture

products, automobile product and agriculture products.

HECKSCHER-OHLIN TRADE MODEL

In recent years more sophisticated theories have emerged that help clarify and extend our

knowledge of international trade. The Heckscher-Ohlin theory holds that countries will produce

and export products that use large amounts of production factors that they have in abundance,

and they will import products requiring large amounts of production factors that they lack. The

theory is useful in extending the concept of comparative advantage by bringing into

consideration the endowment and cost of production factors. However, the factor endowment

theory has some weakness. One weakness is that some countries have minimum wages laws that

result in high prices for relatively abundant labor. As a result, they may find it less expensive to

import certain goods than to produce them internally. Another weakness is that countries like

United States export relatively more labor-intensive goods and import capital-intensive goods, an

outcome that appears surprising.

In term of the Heckscher-Ohlin model, Malaysia and Singapore economies have

increasingly specialized in capital-intensive products as their high rates of investment made

physical and human capital more than more abundant. During the early period of the nations

development, Malaysias unexploited of labour force contributed to the relative abundance of

labour for agricultural activities. On the other hand, capital was relatively scarce and level of

production technology and skills were considerably low. This created a price relative favoring

the production of agricultural commodities. The economic position of the country now is

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considerably different in many aspects of resource endowment and levels of production

technology and skills.

Singapores chief resource is its human resource, and the entire economy is dependent on

the proper management and utilization of this resource. Singapore is a small export basedeconomy which depends on its efficient and effective utilization of input resources to produce

goods and services (such as banking and tourism) that are competitive in the international

market. Singapore is constrained by a relatively small workforce (2.96 million in 2008), and

must increasingly rely on technology to bring about higher labor productivity. The economic

restructuring policy introduced in 1979 was, and still is, directed at reducing dependence on

labor-intensive industries.

The ration of labour input in labour intensive sectors to labour input in capital intensive

sectors of 2.29 for Malaysia is not only comparable to Singapore, but also shows that there is

twice as much labour in labour intensive goods compared to that in the capital intensive goods.

Malaysia export competitiveness can be improved by adopting two measures: first,

increasing labour productivity through capital augmentation in the economys capital stack,

particularly in the export oriented sector. Special attention needs to be given to enlarging the

pool of skilled, professional and technical workers so that the countrys exports contain more

human capital, and can at least match that of imports. Second, there is a need to diversity the

export composition requires the countrys production to explore new product lines that have the

competitiveness advantage. Evolution in the domestic production structure creates dynamic

comparative advantage in the economy which is reflected in the countrys international trade.

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SUGGESTION OF POTENTIAL BUSINESS IN SINGAPORE AND MALAYSIA

Potential business can be define as having enough resources but it still did not be transformedto be profit because it does not be exploited or there are some obstacles, but in future, there

might be opportunity to make it become profit. Global economy is going to be very

challenging over the next couple of years. Malaysia and Singapore, in this coming few years,

will not be favorable for most of the new business due to recession. When starting business in

this economic condition, the business in recession-proof industries will have slightly

privilege. According to successful Singapore and Malaysia entrepreneurs, there six industries

that can survive in recession, provided being manage properly, they are, F&B, shelter, energy,

education, entertainment (depend on the business) and healthcare industry. Out of four

businesses suggested below, three are from those industries.

POTENTIAL BUSINESS FOR MALAYSIA

1. Entertainment Rock Climbing

A suggestion business for Malaysia is sport entertainment business - Extreme Park. The

components for the extreme park will be indoor wall climbing complex (IWCC), Skate Park and

Bike Trial. The focus is becoming the first mover in developing advance IWCC in Malaysia.

Some features of IWCC are size of 2,100 sq with colourful climbing wall stretching 42m

wide, 42m long and 20m high. To cater for novice and expert climbers, the wall is dividing into

the beginners wall, competition wall, and speed climbing wall, advance wall and boulder.

Meanwhile, kids can also experience the fun of climbing by attempting to clamber up the kiddie

wall. IWCC will include basic facilities like warm up rooms, changing rooms, administrative

block, cafeteria, kitchen area, parking bays and equipments rent.

This is a potential business because in recent years, wall climbing has gone from extreme to

mainstream. Each year, more and more people are trying this exciting sport. The key to IWCC

success will be to make indoor wall climbing appealing to the largest cross section of population.

This can be achieving through the few strategies. Example:

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Create an ultra safe environment with properly train staff

Making the gym group friendly

Provide new climber with instruction and encouragement

Ensure that the fun factor is high in order to generate strong word of mouth marketing

One of the key attributes of IWCC is that a person does not need to have previous climbing

experience in order to be a customer. IWCC will services the recreation and climbing needs for

the individuals and family member. Customers will be broken into three focus segments

consisting of children, college students and adults. It is important to note that experienced

outdoor climbers will not be the focus of marketing for IWCC. Children between the ages of five

and eighteen represent the greatest potential for revenue. College students are another focus

group for IWCC. By drawing in one college student, he or she will often return with one more

friends on the next visit. In IWCC, we will focus on providing a fun, safe environment for both

new and experienced climbers to improve their climbing skills.

All ages will be welcome to climb at IWCC. However children will be the major focus of

the business. By focusing on bringing children to IWCC, we can establish a strong future

customer base. This is because climbing is often a lifelong sport, and the earlier we can bring in a

potential climber, the longer they will have him or her as a customer.

From the marketing side, the business will promote the benefits of wall climbing in

helping to develop body function, reduce stress and bring joy to customers. Since this activities

challenging yet rewarding, this will be the market attracting factor as Malaysias culture fix it

nicely. To enlarge the market size, the business will be design to suit different age group and

their needs, and claim this activity as an activities for anybody and everybody. Potential side

business will be added in, for example course, training, competition, new community. They will

not only satisfy market needs and but also create larger influence of climbing culture in

Malaysia. The potential diversification of this business is creation of related sport business,

which is Skate Park and Bike Trail. They are both activities that can be easily adopted byMalaysia culture; proper design of business strategy will make them another market capturing

new business. The business will have potential to introduce Malaysian to the world outdoor

games community and this will make Malaysia become one of the top extreme park venues in

the Asian country.

2. Infrastructure development Railway

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Development of infrastructure is an essential factor that effect growth of economic. Though it

was known that generally Malaysia has good infrastructure, yet infrastructure of some place in

Malaysia is still under development. It seems like a shortcoming of states like Sarawak and

Sabah, but from the business point of view it can means a potential business.

The business of developing infrastructure have high potential in working out as the rural

state have high demand on transportation facilities that can convenient them. Sarawak is the

largest state in Malaysia with population of 2.5 million. Recently Sarawaks government has

launched the project Sarawak Corridor of Renewable Energy (SCORE) for development of the

states. SCORE is a major initiative undertaken to develop the Central Region and transform

Sarawak into a developed State by the year 2020. The core of the corridor is the energy

resources, particularly hydropower (28000MW), coal (1.46 billion tones), and natural gas (40.9

trillion square cubit feet) found abundantly within the Central Region.

The SCORE will allow Sarawak to price its energy competitive and encourage

investment of energy-intensive industries that will act as triggers for the development of a

vibrant industrial development in the corridor. The potential business here is capitalize in the

SCRORE areas on infrastructure development, which is build a railway link between Similajua

and Tanjung Manis to facilitate the transportation of goods in the SCORE.

The business is highly potential due to the increasing demand of railway transportation

that supports SCORE. The railway would be built in the SCORE areas to support the economic

development and build in main city with higher concentration of population. In long term the

states will increase investor from other part of Malaysia and other country, which can later boost

up the economics of the states and support varies industry by provide upgraded service.

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POTENTIAL BUSINESES IN SINGAPORE

1. Education Investment Education

Singapore has several competitive advantages that position it well as a global education hub.

These include a strategic geographical location, reputation for educational excellence, a vibrant

business hub (which presents opportunities for institutional-industry collaboration), and a safe

and cosmopolitan environment. However, there are various constrains, including regulation at

various educational levels, lack of a quality assurance system for the private commercial schools,

high land and building costs, lack of a central agency to market Singapores educational service

overseas, and onerous student visa requirements. By overcoming these constraints, Singapore

can capture a larger share of the global educational market, and increase educational servicescontribution to GDP from the existing 1.9% of the GDP to a projected 3 to 5% in 10 years.

Education is one of the Singapores core competencies and an area where they can

compete in the global market. As such, they could consider a more comprehensive and concerted

approach towards developing the education industry. The 1985 Economic Committee identified

education as a service sector to nurture and promotes because of its revenue growth potential, net

worth to the economy, and export earnings potential. While the economic potential of the

education sectors was recognized, socio-political concerns limited efforts to promote this sector

and develop education as a business. The suggestion business here is set up of commercialize

specialty school which specialize in investment education.

In Singapore, commercial and specialty schools are vibrant private-sector driven

segment, with good domestic and international demand. They have been identified as having

good growth potential However, the players are fairly fragmented, and quality of course offering

is uneven. The proposed strategy is to build a high-quality school which enrolling local people

from all level and international investors are welcomed. Complementing the school would be

smaller niche schools offering world class investment course in diverse disciplines, from realestate investment to specialized U.S. option trading. The school would be emphasize on short

term trading courses that can at the same time open to graduates for review. The key to building

this business lies in removing the developmental hurdles and market inefficiencies, putting in

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