With global trade tensions continuing the same course, despite a global pandemic, we have come across many multinational corporations looking to reinforce their supply chains by relocating some manufacturing to Southeast Asia. Along with Vietnam and Thailand, Malaysia is a frequent candidate. Here are some things to consider when looking at Malaysia.
Malaysia is often a prime candidate for such supply chain reengineering projects. They have an availability of natural resources, skilled workers, language capabilities (most Malaysians are bi or tri-lingual), developing infrastructure, relative proximity to China, ASEAN based suppliers and customers, and ease of doing business relative to cost (Malaysia ranks 2nd behind Singapore amongst Southeast Asian countries and 15th in the world according to the World Bank’s 2019 report).
Several other reasons for Malaysia’s attractiveness are:
- Export oriented economic policy: Export focused investors can benefit from a variety of investment schemes. Aerospace, heavy industry, renewable energy and high-tech goods are in particularly high demand.
- Licensed Manufacturing Warehouse (LMW): Manufacturers wishing for more flexibility may choose to consider a LMW scheme, providing that they meet the minimum 80% export requirement.
- Free Trade Agreements (FTAs): Malaysia has regional and bi-lateral FTA arrangements with most major APAC trading partners, including all of ASEAN, India, China, Japan, South Korea, Australia and New Zealand.
Here are three things that companies need to consider if they are thinking about moving their manufacturing.
- Duties: From a compliance perspective, while tariffs on most imported goods have been significantly reduced in the last 10-15 years, many raw materials can attract higher rates of duty. As a result, Malaysian Customs can be aggressive with enforcement in this area, making it essential that your trade compliance elements are in order, starting with localised HS classification.
- Risk: In addition, businesses must ensure the risks of manufacturing in Malaysia do not outweigh the benefits. Malaysia has very strict strategic export controls regulations, which follows a Wassenaar style of category code (ECN) classification. Regulating exports of strategic military and dual-use controlled goods has been in place since 2010, while its Customs regulations have been modernized in 2020, increasing certain penalties in some areas whist giving Customs wider ranging enforcement powers in others.
- Compliance: A well-developed Compliance Program, as with many countries, is the key to operating in Malaysia. One option is to consider the Authorised Economic Operator (AEO) scheme. Setting up the internal compliance infrastructure to be eligible for such an accreditation is, of course, time and resource intensive, but lucrative with respect to tangible benefits and processing speed incentives.
If you need assistance in Malaysia or elsewhere, Tradewin is here to help. Let us handle the details