INTERNATIONAL BUSINESS

GROUP ASSIGNMENT

Title:

Discuss of Singapore’s 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 880716-11-5689
Heng Su Wan MGT(H)00129 870907-23-5510
Ding Hu MGT (H) 00197 G18525890

Due date: 24 April 2009

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Content:

Introduction 1
Business environment 3
Political 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 world’s 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 economy’s 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 its
strategies 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 today’s 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.

POLITICAL

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
Singapore’s 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 People’s 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, UMNO’s 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 People’s 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-state’s 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
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. The
Act also provides for payment of
compensation covered by the Employee Social
Security Act 1069 for injuries caused by
arising from employment.
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).
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.
On 8 March 2006, Malaysia and U.S.
officially launched FTA. Malaysia’s 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
Singapore
The Industrial Act regulates the procedure for
collective bargaining and negotiation. The
National Wages Council, which comprises
representative from employer group, employee
unions 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.
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.
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.
The U.S. - Singapore Free Trade Agreement
was 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.
Singapore guarantees zero tariffs on all U.S.
On most favored nation basis, Malaysia’s
goods, and the FTA ensures that Singapore
average tariff rate is 8.1%- nearly twice the
cannot increase its duties on any U.S. product.
4.9% of U.S. Under an FTA, exporters in each
In service, the U.S.-Singapore FTA provides
country would face the same tariff rates and a
that broadest possible trade liberalization.
more level playing field for U.S. businesses
Market access in services is supplanted by
shipping merchandise to Malaysia.
strong disciplines on regulatory authority

ECONOMY

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, Malaysia’s 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, Singapore’s economy relies heavily on exports, primarily in
electronics and manufacturing, and successive administrations have set a path to establish
Singapore as South-East Asia’s 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 for
information technology products.

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

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 Malaysia Singapore
GDP $397.5 billion $240 billion
GDP growth 4.6% 1.2%
GDP per capita $15,700 $52,000
agriculture: 9.7%; industry: 44.6%; Agriculture: 0%, industry: 32%,
GDP by sector
services:45.7% services:66.8%
Inflation 5.8% 4.3%
Labour force 11.2 million 2.96 million
Financial, business and other
Labour force by services: 51%, industries: 36%; services: 39%, manufacturing 18%,
occupation agriculture:13%; transportation and communication
11%, construction 6%, other 26%
Unemployment 3.7% 2.3%
Peninsular Malaysia – rubber and
palm oil processing and Electronics, chemicals, financial
manufacturing, light manufacturing, services, oil drilling equipment,
electronics, tin mining and smelting, petroleum refining, rubber
logging and processing timber processing and rubber products,
Main industries
Sabah – palm oil farming, tourism, processed food and beverages, ship
petroleum production, and logging. repair, offshore platform
Sarawak – agriculture processing, construction, life sciences, entrepot
petroleum production and refining, trade
logging.
Exports $195.7 billion f.o.b $235.8 billion f.o.b
U.S. 15.6%, Singapore 14.6%, Japan Malaysia 12.9%, Hong Kong 10.5%,
Main export
9.1%, China 8.8%, Thailand 5%, Indonesia 9.8%, China 9.7%, US
partners
Hong Kong 4.6% 8.9%, Japan 4.8%, Thailand 4.1%
Imports $156.2 billion f.o.b $219.5 billion
Japan 13%, China 12.9%, Singapore
Malaysia 13.1%, US 12.5%, China
Main import 11.5%, U.S. 10.8%, Taiwan 5.7%,
12.1%, Japan 8.2%, Taiwan 5.9%,
partners Thailand 5.3%, South Korea 4.9%,
Indonesia 5.6%, South Korea 4.9%
Germany 4.6%, Indonesia 4.2%

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 country’s benefit
and overall economic progress. Other industries in Singapore have also contributed to

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Singapore’s 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
Singapore’s 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 Asia’s “Four Tigers” and is
Southeast Asia’s 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 world’s most modern airports.

Malaysia Singapore
Population 27,730,000 4,017,733
Population growth rate 1.78% 1.42%
Malays and Bumiputera (65%),
Chinese (75.2), Malays (13.6),
Ethnic groups Chinese (26%), Indians (8%),
Indians (8.8), other 2.4%
other 1%
English, Malay, Mandarin and
Malay (official language),
Languages Tamil (they are all official
Chinese, Tamil
languages.)
Islam (60.4%), Buddhism Buddhism (42.5%), Islam
(19.2%), Christianity (9.1%), (14.9%), No religion (14.8%),
Religions Hindu (6.3%), Traditional Christianity (14.6%), Taoism
Chinese religion (2.6%), others (8.5%), Hinduism (4%), Sikhism
(2.4%) (0.39%), other religions (0.25%)
0-14 years: 32.2% 0-14 years: 15.6%
Age structure 15-64 years: 62.9% 15-64 years: 76.1%
65 years and over: 4.8% 65 years and over: 8.3%
Total population 88.7%, male Total population 89.1%, male
literacy
92% and female 85.4% 95.1%, female 83.0%
Average household Malaysia is classified as an upper- Singapore is classified as high
monthly income middle income country. The income country. The average

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 average income is RM3,011 and income is S$4,943 and the growth
growth is 6.8% per annum. 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 a
particular 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 Malaysia’s 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 Malaysia’s 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.

Singapore’s 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 Forum’s 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 world’s IT software and services companies are in
Singapore.

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 COMPARISON OF INFRASTRUCTURE BETWEEN

MALAYSIA AND SINGAPORE

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 is
crucial to Malaysia and Singapore’s 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 always
something 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 road condition 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
country’s railways and the construction of a light rapid-transit system in Kuala Lumpur; and to
control traffic congestion and rising air pollution, Singapore’s 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. Malaysia’s 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 line
may 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
Malaysia’s 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 also
Julong Container terminals. Its seaport is believed to be one on the world’s 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

15
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 Malaysia’s international trade was handled through
Singapore until recently. In 1998 Malaysia’s seaports handled 83 million metric tons of cargo. In
late 2000, there was an announcement that the world’s 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 information
systems 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 government’s 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 ST’s
monopoly; in 1997 ST’s 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 Nasional company. 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 world’s 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 and
5.22 % 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 Singapore’s 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 Singapore’s water,
which should now be about 67% due to the additional catchment area. The remainder is imported
from 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 Singapore’s
water source.

18
 COMPARISON OF BUSINESS FACILITIES BETWEEN

MALAYSIA AND SINGAPORE

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

19
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 35.2
Electronics 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

20
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 12.6
Japan 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.

21
 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 were
concentrated 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

22
measures have been put in place to sustain the country's competitiveness as well as to remain an
attractive location for investors. Example:

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

Liberalization of
manufacturing projects and manufacturing related services
investment policies
activities

Enhancement of the The process for approval of manufacturing licenses has been
government delivery further streamlined and simplified over the years, whereby
system unnecessary and cumbersome conditions have been removed

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

Promotion of new growth
knowledge-intensive projects in the manufacturing sector such as
areas within the
ICT, biotechnology, optics, photonics, nanotechnology, medical
manufacturing sector
devices and advanced materials

To promote services activities which have extensive linkages to

the economy such as shared services, business process
Promotion of the services outsourcing (BPO), regional establishments, environmental
sector management services, business management services and
logistics

Continue to provide competitive fiscal and non-fiscal incentives

Provision of focus & to promote quality investments into high technology, capital
competitive incentives intensive, knowledge-based industries, R&D activities and
manufacturing-related services sector

The Industrial Coordination Act, 1975 and Promotion of

Reviewing current Investment Act, 1986 are periodically reviewed in order to create
investment legislations 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 Malaysia’s 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

23
 ○ 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 to
influence private investment, which is real engine behind a region’s economy.

Business Incentive in Singapore

Economic Development Board (EBD) is the lead government agency responsible for executing
strategies to enhance Singapore’s 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:

24
• 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 partial
exemption 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; S2S
Provides partial grants to support production budgets or commissioning fees. It supports the
development of creative and technical talents in content production.

25
• Innovation, R&D and Intellectual Property

The schemes for the Innovation, R&D and Intellectual Property can be dividing into Approved
Royalties 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.

26
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 in
the 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:

• Matching Grant for Business Start-ups

Small & Medium Industries
Development Corporation
(SMIDEC)
• 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 • Matching Grant for Market Development

Development Corporation
(MATRADE)

• Quality Management Programs

Malaysia Productivity
Corporation (MPC)
• Productivity Management Programs
• Human Resources Programs
• Production Management Programs
• International Programs
• Business Management Excellence Programs

Malaysia Industrial • Main incentives for manufacturing companies

Development Authority • Incentives for high technology companies
(MIDA)
• Incentives for strategic projects
• Incentives for small scale companies

27
 • Incentive to strengthen industrial linkages
• Incentives for the manufacture of machinery and equipment

• Franchise Development Assistance Scheme

• MARA Business Financing

Ministry of Entrepreneur and • Franchise Financing Scheme

Co-operative Development • Equity Financing
(MECD) • Direct Access Guarantee Scheme
• Small Entrepreneur Guarantee
• Integrated Loan Scheme

Ministry of Agriculture and • Fund For Food (3F)

Agro-Based Industry (MOA)
Ministry of Science,
Technology and Innovation
(MOSTI)
• Enterprise Innovation Fund (EIF)
• Science Fund
• Soft loan for machinery and equipment

Ministry of Rural Region • Rural industrial programs

Development
Malaysia Technology 1. The Technology Acquisition Fund (TAF)
Development Corporation 2. Commercialization of R&D Fund (CRDF)
(MTDC)
Malaysia Venture Capital • Cradle Investment Programs : Microsoft Partnership
Management Berhad • Venture Capital Financing
(MAVCP)
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.

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

Industrial purchase of a building that is use for specific purposes including manufacturing,
Building agriculture, facilities and hotels that are register with the Ministry of Culture, Arts
Allowance (IBA) 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

27
Building status companies, IBA for a period of 10 years will be given to owners of new
Allowance for buildings occupied by MSC status companies in Cyberjaya. Such new buildings
Buildings in MSC include completed buildings but are yet to be occupied by MSC status companies
• 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

Incentives For
Export • Double Deduction on Freight Charges

• Double Deduction for the Promotion of Malaysian Brand Names

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 of
deduction in the computation of income tax. The incentive is effective from the
Audit Fees
year of assessment in 2006
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 funds in ve
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 VCs
Tax Incentives for
Venture Capital With effect from the year assessment of 2007, to increase funding in seed capital,
Industry 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

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

Tax Incentives for
duty and real property gain tax (RPGT) exemptions are given on M&A
Mergers &
undertaken by companies listed in Bursa Malaysia. This exemption is given to
Acquisitions of
M&A approved by the Securities Commission from 1 October 2005 to 31
Listed Companies
December 2007 and such M&A should be completed no later than 31 December
2008
A Malaysian-owned company that acquires a foreign-owned company abroad to
acquire high technology for production within the country or to acquire new
Incentive for export markets for local products is eligible for income tax deduction equivalent

27
 to the acquisition costs for five years
Acquiring a
Foreign Owned This incentive is in the form of an annual deduction to ascertain the adjusted
Company income of the locally-owned company, and any unutilized deduction can be
carried forward until fully utilized

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

Incentive for
trademarks or brands and other similar rights from foreigners qualify as a
Acquiring
deduction in the computation of income tax. This deduction is given in the form
Proprietary Rights
of an annual deduction of 20% over a period of five years
Incentive for Companies using environmental protection equipment will receive an initial
Environment allowance of 40% and an annual allowance of 20% on the capital expenditure
Protection incurred on such equipment and the full amount can be written off in three years
Equipment

27
 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
nation’s trade advantage vis-à-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
Singapore’s 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 of
finance for business development. Other strengths include the quality of the country’s
transport infrastructure and its strong business sophistication and innovative potential, which
have contributed greatly to the country’s 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,

27
 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 Trade
Model. 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 country’s 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 Malaysia’s 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

28
international competitiveness, Malaysia has absolute advantage in many agriculture production
compared to most country, for example palm oil (world rank 1st), cocoa (world rank 9th, 0.9% of
world production), natural gas (world rank 15th), petroleum (world rank 26th).

Owing to the limited land area, agriculture is not so important to Singapore but because
of its nodal position and historical development it continue to functions as an important trading,
processing, and financial center for the region’s 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’ Malaysia’s net exports compete with
China’s, 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 Malaysia’s
manufacturing export sector and could well be strengthening it. Although it’s complimentarily
with China currently is lower than that of other regional economies, Malaysia also is benefiting
from China’s 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 intensive
sectors where China is strong, focusing on higher technology exports. This ongoing restructuring
is increasing Singapore’s trade complementarities with China. Singapore is well placed to take
advantage of China’s growth by exploiting its complementarities, including by exporting
components and capital goods and accessing China’s low cost exports to supply its mature
consumer market.

28
 (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. Malaysia’s 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 nation’s
development, Malaysia’s 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.

Singapore’s 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 based
economy 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 economy’s 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 country’s 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 country’s 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 country’s 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 transformed
to 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 beginner’s 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 Malaysia’s 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 by
Malaysia 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 Sarawak’s 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 Singapore’s 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 services’
contribution to GDP from the existing 1.9% of the GDP to a projected 3 to 5% in 10 years.

Education is one of the Singapore’s 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 real
estate 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
place a quality assurance framework, and promoting collaboration between the different players.

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This would then allow the players to flourish and respond to the market’s needs, and this grows
the business organically.

The business has gained privilege in penetrating Singapore since Deputy Prime Minister
and Chairman of the Monetary Authority of Singapore (MAS), Mr Lee Hsien Loong encouraged
Singaporeans to become more self-reliant in their financial affairs in this new and changing
environment. A key level of the strategy is to attract local and foreign investors for development
of investment skill, as these people would be more watchful in current economic fluctuation.
Besides that, establish of quality assurance system help the business to upgrade the quality of the
offerings, introduce transparency in the marketplace and in the long run, safeguard and upkeep
the school’s reputation as a hub for investment education. One possibility is to adopt from
existing standards (e.g. the Singapore Quality Award) and involve both the private and public
sectors to map the framework, key performance indicators and critical improvement processes.

Meeting the manpower requirements to grow the investment education business would be
a key challenge, given Singapore’s small talent pool and the many competing needs. Meeting
need of professionals could be done by recruiting from overseas in the short term, and increasing
the local training capacity in the long term.

2. Healthcare – Hospital

In Asia, the resource of medical treatment is limited, most countries, such as China, Indonesia,
Philippine, Vietnam, Cambodia, are still lack of medical treatment, especially in the
sophisticated and advanced medicine. On the contrary, the World Health Organization ranked
Singapore's health care system sixth best in the world and the highest ranked system in Asia. In
addition, 13 hospitals and medical centers in Singapore have obtained Joint Commission
International (JCI) accreditation. JCI is the international; arm of United states-based Joint
Commission on accreditation of Healthcare Organizations, the main hospital accreditation
agency in the US.

With its offering of internationally-accredited healthcare facilities, skilled medical

expertise and competitive prices, Singapore attracts medical travelers from all over the world.
Patients come from neighboring countries, such as Indonesia and Malaysia, and patient numbers
from Vietnam, South Asia, the Middle East and China are growing. Patients from developed

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countries such as the United States and the UK are also begun to choose Singapore as their
medical travel destination for relatively affordable health care services in a clean cosmopolitan
city. Every year, more than 4000,000 international patient visit Singapore for a whole range of
healthcare services. Some come from health screening, others for eye, heart and brain surgeries
or cancer treatment. Whether their needs are basic or complex, patients find assurance in
Singapore’s world-class health system which emphasizes safety and pushes the boundaries of
excellence.

Healthcare demand is related to population size, life expectancy and purchasing power.
On all these counts, the potential growth in regional demand for healthcare service is promising.
Asia’s population will expand from 3.2 billion in 2002 to 5.6 billion in 2050. In line with this
trend, consumer expenditure on healthcare service and healthcare goods is expected to double.
While there is no reliable estimate on the actual market size of Asian patients seeking healthcare
services overseas, a reasonable proxy is the 4.8 million high income Asian households with
income above US$50000 p.a. this number will continue to grow, considering the medium-term
growth outlook of 3-5% for Southeast Asia and 5-7% for China and India.

With Singapore’s healthcare being highly-regarded by Asian patients, there is tremendous

potential for Singapore healthcare companies to bring their expertise to other Asian countries,
and especially to China, so that patients from the region can obtain high quality healthcare
services and medical treatments from Singapore providers closer to home. Singapore has the
resource and capability to expand healthcare business to overseas, business of exporting
Singapore’s healthcare system to China have high chance of success in international medical
platform.

The fastest emerging country, China, with 1.5 billion people is still short of health care
resources, and the medical treatment can not develop correspondingly. China's urban health-care
system is faced with rising costs and an outmoded delivery system that limits access to service,
as Chinese society undergoes a rapid transition from a planned to a market economy. Current
trends include a massive migration to cities, and the government owned hospitals and private
clinics cannot bring enough healthcare treatment. The Capital Institute of Pediatrics in Beijing,
reports that 56 % of urban residents are unsatisfied with the current system. Eighty-four percent
of people find it difficult or inconvenient to get medical help. The Ministry of Health reports that
up to 41 % of city dwellers don't get medical help when they are sick.

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 From the policies view point of the China’s government, they allowed foreign investment
own less than 70% stock share of one hospital. Hence Singapore has opportunity to expand their
healthcare service to China. Virtually, Singapore investment group has invested few hospitals in
China, for instance, the Victoria Woman's Hospital in Sichuan province of China, which is
invested by Pacific (Singapore) Hospital Investment Management Co., Ltd. The chain of Maria
Woman Hospital is invested and managed by Singapore Chong Jun hospital management group.

Singapore can seek to exploit the healthcare market in China by partner China companies
or healthcare institution in medical joint ventures, as well as to provide expertise, service and
products, including infrastructure development, hospital/integrated facilities management, health
care IT system, healthcare training, biomedical research and health promotion. Coupled with
Singapore’s reputation for their medical excellence, there is strong potential for partnership
between Singapore healthcare players and China healthcare companies and institutions. With
capability to provide market demand in quality healthcare, the business have high chance in
becoming successful.

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References:
Bibliography:

David M. Raddock. Navigating new market abroad: charting a course for the international
businessperson Edition: 2, Rowman & Littlefield, 2001.

Edmund Terence Gomez. Political Business in East Asia. Routledge, 2002.

Trade Facts. Office of the United States Trade Representative March 2006

Teofilo C. Daquila. The Economies of Southeast Asia: Indonesia, Malaysia, Philippines,

Singapore and Thailand. Nova Publishers, 2005.

Michael E.Porter and Klaus Schwab. The Global Competitiveness Report 2008-2009. World
Economic Forum Geneva, Switzerland 2008.

Oleksandr Movshuk. Internatonal Trade, Technology and Changing Comparative Advantage: A

comparative Study of Transition Economies (1988-1998).

Hendrik Van Den Deng, Joshua J. Lewer. International trade and Economic Growth. M. E.
Sharpe, 2006.

Alan M. Rugman, Simon Collinson, Richard M. Hodgetts. International Business 4th Edition.
McGraw-Hill, Inc. 2006.

World Wide Web:

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sencyclopedia.co http://www.busine
m ss.gov.sg

http://www.singst http://www.smein
fo.com.my
at.gov.sg
http://www.miti.g
http://www.undp. ov.my/
org.my www.mida.gov.m
http://www.unctad y
.org www.matrade.go
http://thestar.com. v.my
my
www.gov.my
http://www.statisti
cs.gov.my

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