The Insider's Guide to Sourcing in Malaysia
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- Author: SVI Content Team
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Malaysia has steadily climbed the ranks to become a manufacturing hub in Southeast Asia. Its rapid development, coupled with a stable political environment and robust infrastructure, has caught the attention of businesses worldwide.
So, what drives the country to grow? What are the main industries in Malaysia? We’ll present you with things you want to know when outsourcing to Malaysia, including the advantages, challenges, and key industrial regions in Malaysia. Ready to discover the manufacturing picture there?
Part 1. Why Do We Outsource to Malaysia?
Malaysia is one of the most powerful countries in Southeast Asia. Its development and stable economy attract lots of companies outsourcing and investment, especially in the manufacturing sector. That brings out the question: What are Malaysia’s advantages?
1. Skilled and English-proficient Workforce
Malaysia stands out in Southeast Asia for its English proficiency, ranking third in the region. Approximately 50% of the population is capable of communicating in English, which facilitates smoother business interactions and reduces potential language barriers.
2. Business-friendly Environment
Globally recognized for its conducive business environment, Malaysia ranks 12th in the world for ease of doing business. The nation’s transparent regulations, streamlined processes, and supportive government policies make it an attractive destination for foreign investments and manufacturing setups.
3. Robust Infrastructure
With over 500 industrial parks and zones spread across the country, businesses have vast options to set up their operations. Furthermore, the country invests in improving logistics networks and infrastructure development to ensure efficient transportation of export goods.
4. Strategic Geographical Location
Along the Strait of Malacca and bordering economic hubs like Singapore, Thailand, and Indonesia, it serves as a crucial maritime transit point. The country has 7 federal administrated ports, the largest one being Port Klang. This positioning not only facilitates easy access to these markets but also ensures on-time delivery with efficient shipping routes to other countries.
5. Advanced Manufacturing Sectors
There are three pillars that dominate the manufacturing sector: electronics and electrical products, machinery and equipment, and chemicals. The nation’s prowess in these areas has led to high-quality production standards, attracting businesses that prioritize quality and innovation.
6. Malaysia’s Free Trade Agreements (FTAs)
Malaysia has bilateral FTAs with nations including Australia, Chile, India, Japan, New Zealand, Pakistan, and Turkey. What’s more, as a member of the Association of Southeast Asian Nations (ASEAN), the agreements, known as ASEAN+1 FTAs, expand the trade horizons for Malaysia.
These all help businesses with reduced trade barriers and access to broader markets.
Part 2. What Are the Main Industries in Malaysia Manufacturing
The manufacturing sector in Malaysia contributes to the country’s development and attracts capital. What is exported from Malaysia? Below are the top 10 exports in the Malaysian industry in 2023.
- E&E products (electrical and electronic products)
- Petroleum products
- Chemical products
- Palm Oil
- LNG
- Machinery and equipment
- Optical, technical, and medical apparatus
- Iron & Steel products
- Rubber, rubber articles
- Aluminum
Breakdown of Three Key Industries in Malaysia
Electronics and Electrical Products
Malaysia has carved a niche for itself in the global electronics and electrical market. The country is renowned for producing a wide range of products, from semiconductors and integrated circuits to consumer electronics like televisions and radios. Additionally, Malaysia is a significant player in the production of solar panels and other renewable energy equipment. Major multinational corporations have set up their manufacturing bases here, capitalizing on the skilled workforce and advanced technological infrastructure.
Machinery and Equipment
The machinery and equipment sector in Malaysia is diverse and expansive. It encompasses the production of specialized machinery for various industries, including agriculture, construction, and mining. The country also manufactures metalworking machines, general industrial machinery, and equipment for power generation. With a focus on innovation and quality, Malaysian-made machinery is exported worldwide, meeting the stringent standards of developed markets.
Chemicals and Petrochemical Products
Malaysia’s chemical and petrochemical industry is a cornerstone of its manufacturing sector. The country produces a broad spectrum of chemicals, from basic petrochemicals like ethylene and propylene to specialty chemicals used in various industries. Malaysia is also a significant producer of oleochemicals, derived from its abundant palm oil resources. The petrochemical complexes, strategically located near oil refineries, ensure a steady supply of raw materials, making the production process efficient and cost-effective.
Part 3. Major Industrial Areas in Malaysia
Here’s a list of industrial areas in Malaysia for your reference when developing your sourcing strategies:
1. Selangor (Peninsular Malaysia)
Often referred to as the industrial heartland of Malaysia, Selangor, on the west coast of Peninsular Malaysia, is not just the richest state in terms of GDP but also the most developed.
The state is home to a myriad of industries, ranging from electronics and machinery to chemical products and automotive. Its infrastructure is top-notch, with numerous industrial parks, a well-connected transportation network, and proximity to Malaysia’s primary port, Port Klang.
2. Penang (Peninsular Malaysia)
Known as the ‘Silicon Valley of the East’, Penang’s geographical location on the northwest coast of Peninsular Malaysia, along the Strait of Malacca gives it a strategic advantage for trade and shipping. The state is a hub for electronics and electrical manufacturing, housing several tech giants and semiconductor companies.
Its Free Industrial Zones, particularly in Bayan Lepas, have attracted a significant amount of foreign direct investment.
3. Johor (Southern Malaysia)
Situated at the southern tip of Peninsular Malaysia, Johor is the third largest state of the country’s GDP. With its proximity to Singapore, Johor is a hub for electronics, petrochemicals, and machinery.
The Iskandar Malaysia development corridor in Johor is a testament to its rapid industrial growth, attracting both local and international investors with its modern infrastructure and business-friendly policies.
Part 4. Challenges of Manufacturing in Malaysia
1. Uncompetitive Labor Costs
While Malaysia’s workforce is skilled, its labor costs are higher compared to countries like Vietnam or Indonesia, which may affect cost-sensitive businesses.
The monthly minimum wage:
🇲🇾 Malaysia: MYR 1,500 (US$337)
🇻🇳 Vietnam: VND 3,450,000 to 4,960,000 (ranging from US$135 to US$195)
🇮🇩 Indonesia: IDR 2,036,000 to 5,067,000 (ranging from US$127 to US$317)
2. Limited Labor Availability
Despite its skilled population, Malaysia faces challenges related to the availability of labor. In 2023, the population of Malaysia is about 34 million, while the total labor force is 17 million. It is limited by population base, especially when compared to larger Southeast countries like Vietnam (approx. 98.86 million) or Indonesia (approx. 277.5 million).
Part 5. How to Overcome the Challenges with SVI Global
While pondering where to source your products, outsourcing to Malaysia is a great option, as it is a rising and competitive manufacturing hub. Positioned in Southeast Asia, Malaysia is well-placed to connect with global markets. Its exports, such as semiconductors and electronics, are prime examples of its manufacturing prowess.
Besides the FTAs, strong infrastructure, experienced workforce and business-friendly environment, Malaysia stands out as a preferred choice for global companies looking to optimize manufacturing and sourcing operations.
SVI Global: Your Sourcing Solution in Malaysia
The global supply chain is turbulent, and filled with uncertainties. SVI Global, as a sourcing company in Malaysia in this field for decades, we have the deep expertise in not only helping you do sourcing in Malaysia but importantly, can reduce the sourcing risks by diversifying your supply chain in other countries like Vietnam, Indonesia or Mexico if you do.
