Malaysia ranks fourth in Asia as a destination for investment by global multinational companies (MNCs)

Popular investment spot in Asia
Published: 2013/01/08

While Malaysia will see its level of investment rise, executives at Western firms say they are concerned they are investing too little.

KUALA LUMPUR: Malaysia ranks fourth in Asia as a destination for investment by global multinational companies (MNCs), according to 2013 Asia Business Outlook Survey (ABOS).

The survey, done annually by The Economist Corporate Network, revealed concern about under-investment by global companies in Asia.

“Just over 40 per cent of global multinational companies plan to raise their investment in Malaysia in 2013, making the country the fourth most popular investment destination in Asia,” the survey noted.

But while Malaysia will see its level of investment rise, executives at Western firms said they are concerned they are investing too little.

The survey also revealed how regional business leaders are investing in and managing their operations in the Asia Pacific (Apac) region.

The 2013 survey, released yesterday, suggested that executives are buoyant about Asia in general, with almost half of respondents (47 per cent) saying expectations for their business in the region have risen over the past 12 months (as against 15 per cent for which they have fallen).

Companies are predicting that sales will grow at a faster rate in 2013 than last year for every Apac market excluding Japan.
Given higher growth rates in Asia than other parts of the world, the region is rapidly gaining importance in the portfolio of operations at most global MNCs.

For the 170 non-Asian companies in the survey (those with headquarters outside the region), Asia’s share of global revenues rose from 19 per cent in 2011 to 22 per cent in 2012.

Companies expect this figure to reach 32 per cent by 2017.

But despite the optimism, 44 per cent of respondents said their firms are not hiring and investing at the right rate to capture the potential of Asia’s growth.

While the growth rates that companies are recording in Asia may look impressive by Western standards, the ABOS survey suggested a more measured interpretation.

For many global MNCs, their rate of sales growth in many Asian markets is lagging behind the underlying rates of economic growth.

Justin Wood, director of Southeast Asia at The Economist Corporate Network, said: “For the past couple of years, we have been picking up a gentle warning from Asia’s international business leaders to their global headquarters.

“This year it has risen to a clarion call. International business is simply not investing enough to keep pace with Asia’s expansion.

“The message just isn’t getting through to London, New York and other global HQs. Too many Western boardrooms see impressive rates of sales growth coming out of Asia, and feel they are doing enough in the region.

But when viewed correctly, growth rates in Asia are often lower than they should be, and suggest widespread under-investment. While many Western businesses are in the race, they are off the pace.”

Other key points highlighted by the survey are:

* Although non-Asian companies may be under-investing in Asia, they are gradually shifting management focus towards Asia. Thirty-eight per cent now have a board member in the region, double the percentage in 2008. More than half now have at least one global business unit head in Asia.

* While China dominates thinking, the Association of Southeast Asian Nations (Asean) bloc is being taken more seriously; 45 per cent of respondents now have an Asean strategy.

* The gap between China’s performance and that of the rest of Asia is widening. As China’s growth continues, companies are looking inland to tier 2, 3 and 4 cities for sales. However, many are not decentralising operations fast enough.

* The role of Hong Kong and Singapore as the region’s traditional management hubs for global MNCs is under threat of overheating.

* The way that global MNCs run their Asia Pacific operations is changing. One important trend is a realisation that Asia is becoming too big to manage as one region. Increasingly, China is being seen as a standalone territory, and managed separately to the rest of the region.

* The shortage of international school places in Hong Kong is affecting the city’s ability to attract and retain both business and talent. This raises questions about Hong Kong’s international competitiveness and its position as a regional hub in the future.

* Indonesia continues to attract investment – coming a close third behind China and India – but corruption is a major concern for most businesses operating in the country.

* Despite much talk of the importance of frontier markets, the business community remains cautious. Between 30 per cent and 40 per cent of companies said they have no interest in Myanmar, Laos, Cambodia and Mongolia.

* Vietnam’s fall from grace is reflected in a drop from fourth to sixth in the list of favoured investment destinations in Asia.

Source: Business Times

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