Investors set up a company in Malaysia because Malaysia is a cost-effective location for international entrepreneurs especially compared to Singapore. This is due to lower wages and overheads. Business costs are kept low due to low inflation for the last 10 years (inflation averaged 2.5% in 2007), and lower import costs caused by the strengthening ringgit currency.

Malaysia has boasted annual trade surpluses since 1997. Because of the importance of exports to the Malaysian economy, its export infrastructure is modern. From 1986-2005, Malaysia allocated 20% of all development expenditure to transport infrastructure including roads, rail, ports and airports. Consequently, Malaysia’s road network, particularly in Peninsular Malaysia, is modern, helping the free flow of goods across the country and to ports. In addition, the Malaysian rail system around the capital Kuala Lumpur is efficient and quick. Some entrepreneurs cite good transport links as being a prime advantage when they set up a company in Malaysia.

To stimulate international trade, Malaysia has free trade agreements (FTAs) with only Japan and Pakistan, while FTAs with Australia, Chile, New Zealand, South Korea and the USA are under negotiation. Through FTAs, Malaysian goods are exempt from or enjoy reduced tariffs when imported to its trading partners, particularly with fellow Association of South East Asian Nations (ASEAN) member states. The limited network of FTAs is a disadvantage to most investors who set up a company in Malaysia to conduct import-export business. That said, Malaysia is a member of the World Trade Organisation (WTO).

Malaysia is also Southeast Asia’s second-largest oil and gas producer, with crude oil output in 2007 at 670,000 barrels per day. Some investors set up a company in Malaysia to win oil and gas-related contracts and concessions.

As a resource-rich country, the economy benefits from high commodity prices, especially for crude oil and palm oil. Malaysia produces 47% of the world’s palm oil, which generates export revenues of US$11 billion (7% of GDP). In 2007, international crude palm oil prices reached US$730 per tonne.

Malaysia also lies close to strategic regional trading routes. Peninsular Malaysia, for example, lies in the same time zone as major southeast Asian trading economies such as Singapore and Hong Kong, as well as China, and only 2 hours ahead of India.

However, labour-intensive manufacturing industries in Malaysia are at a large cost disadvantage to their counterparts in India and China. For example, average wages in the Malaysian manufacturing sector are up to 60% higher than in China or India, a factor caused partly by Malaysia’s small population and low unemployment rate, which restricts labour availability and forces companies to import more expensive foreign labour. To highlight this, in 2008, 500,000 of the 800,000 palm oil plantation workers in Malaysia are foreign, typically from India, Bangladesh and Myanmar.