This article first appeared in Forum, The Edge Malaysia Weekly on April 3, 2023 - April 9, 2023

Last month, the announcement by Amazon Web Services (AWS) that it was planning to invest RM25.5 billion in Malaysia by 2037 was greeted with domestic excitement and helped the new government garner some positive headlines internationally. At the end of 2022, Edgepoint, a Malaysian-based company, announced its continued expansion in the Philippines as part of its larger strategy to be a key player in the Asean tower telco and infrastructure space. This announcement, understandably, received far less media coverage.

While foreign direct investment (FDI) inflows will continue to be an important driver of the economy and creator of well-paying jobs, the opportunities for Malaysian and Malaysian-based companies to expand abroad, especially in Asean, should be given due attention as part of a new strategy and narrative for Malaysia to project its economic influence beyond our shores.

As Malaysia transitions to a high-income nation, it is only natural that many of its corporations would want to expand abroad to seek new market opportunities, diversify their revenue base and acquire new technologies and capabilities. We have seen some successful expansion strategies undertaken over the past two decades by some of our government-linked companies (GLCs) and large listed corporations.

Axiata — through Edotco, its tower telco arm — has expanded to nine countries across Asia. CIMB is now one of the largest banking groups in Asean after strategic acquisitions and expansions in Indonesia, Thailand, the Philippines and Cambodia. Sime Darby Bhd and Kuala Lumpur Kepong Bhd (KLK), with a long history of operations in Indonesia, continue to expand their upstream and downstream businesses there. But the story of expansion abroad has been an uneven one, without a clear and consistent direction from key government ministries and agencies.

The domestic narrative with regard to US-China tensions is that Malaysia should take advantage of the current geopolitical situation to attract more FDI to our shores. While this is an important narrative to communicate, we should not forget the opportunities for external expansion and investments by Malaysian companies in the region that accompanies these FDI flows.

Unlike in the past, where FDI inflows were tied to the supply chain and markets of many of the sending countries and to China — think what solar photovoltaic (PV) panels manufacturers from the US producing these PVs in Malaysia meant for the US market using parts from China — current FDI inflows into Malaysia may be part of a larger process of decoupling from China and of greater regionalisation of supply chains in different Asean countries.

For example, components and parts for the electric vehicle (EV) supply chain are finding their way into Asean because of the presence of natural resources in Indonesia, automotive manufacturing capabilities in Thailand and Malaysia and distribution and financing via Singapore. China’s EVE Energy and South Korea’s Samsung SDI both announced large investments in Malaysia recently to produce EV batteries. EV battery production in Indonesia will also grow due to export restrictions on some of the raw materials, such as nickel.

Malaysian automotive parts manufacturers can tap this regional supply chain by providing components to the EV battery and car makers not just in Malaysia but to other Asean countries. Our exports of automotive parts and components reached almost RM15 billion before the pandemic, a fact that is not well known outside the industry. Instead of competing against VinFast, a recent Vietnamese entrant into the EV market, our companies can be the suppliers of its automotive components and parts.

Capital inflows to the region due to domestic policies in China, together with the growing economic strength of the Asean economies, have opened opportunities in the services and technology sectors in the region. Unicorns such as Sea, Grab and GoTo have emerged as some of the largest technology players in the region with operations and services across multiple channels in key Asean markets. Carsome, Malaysia’s first unicorn, has shown the way for how a home-grown start-up can expand into Asean markets as part of its growth strategy. Other players in the technology space are trying to do the same, partly to justify higher valuations from venture capital (VC) and private equity (PE) companies.

Despite the more challenging landscape for VC/PE fundraising, the long-term potential of the Asean market is still attractive to investors. Private capital inflows into Singapore over the past few years have reached historic highs. Malaysian companies can benefit from some of the deployment of this private capital but only if they can demonstrate their capabilities of venturing beyond the Malaysian market.

What steps can be taken to build this new strategy and narrative for Malaysian companies to invest abroad?

First, there must be a more concerted effort by the relevant government ministries, such as the Ministry of International Trade and Industry (Miti), to provide regular platforms for Malaysian companies, especially mid-tier companies, that have successfully ventured abroad to share their experiences with others.

RK Malaysia is a Penang-based manufacturer of motorcycle chains and sprockets that acquired a Japanese company in 2010 whose products are used by MotoGP racing bikes. It has steadily expanded its presence into various Southeast Asian markets and has its own distribution network in Vietnam and Cambodia. I only got to know of them because I visited their factory and was briefed by the owner when I was deputy minister at Miti.

Merimen is a home-grown start-up that went on to capture the dominant share of the automotive insurance claims processing market in Malaysia before its entry into the Singapore market. After it was acquired by Silverlake Axis, a Singapore public-listed company, in 2013 and subsequently renamed Fermion, it continued its expansion into other key markets in Southeast Asia as well as to Hong Kong and Japan.

I am sure there are more examples of such success stories involving Malaysian companies that have flown under the radar. The owners and executives of these companies may be willing to act as mentors and even business partners for other companies wanting to expand into new markets in the region.

Second, Malaysian GLCs or large listed companies may have to act as pioneer or anchor investors, especially in challenging markets such as China or India, to pave the way for other smaller companies to invest abroad. This model has been used with some degree of success by large South Korean conglomerates that bring small and medium enterprises (SMEs), which are part of their domestic supply chain, when they invest abroad. Of course, the challenge here is that the SMEs, which are part of this ecosystem, may not be able to compete internationally outside the “protective” umbrella of these large investors.

There is the additional challenge as well as opportunity of providing properly structured financing via institutions such as EXIM Bank Malaysia for such overseas ventures. One of my biggest regrets as deputy minister of Miti was not being able to find the right Malaysian companies to invest in the China-Malaysia Qinzhou Industrial Park (CMQIP) in Guangxi despite the availability of land and other financial incentives from the provincial government in China.

Third, there should be long-term plans and processes put in place to act as enablers for Malaysian companies to invest abroad. This requires proper coordination between government agencies and the private sector, in Malaysia as well as abroad. The hastily put together memorandum of understanding (MoU) signing ceremony between Malaysian companies and their Indonesian counterparts on potential investment opportunities in the new Nusantara capital project during Prime Minister Datuk Seri Anwar Ibrahim’s visit to Jakarta in January is a good case in point.

In addition to a one-off event, a longer-term plan would involve briefing sessions in Malaysia by representatives of the Indonesian Investment Promotion Centre and the Nusantara Capital Authority, arranged by the Malaysian Investment Development Authority (Mida) or Malaysia External Trade Development Corporation (Matrade). It would involve feedback from Malaysian companies already operating in Indonesia, especially those with experience in Kalimantan. It would involve many follow-up meetings after the MoU ceremony, including by future ministerial and corporate delegations to and from Indonesia.

Ultimately, this new strategy and narrative for Malaysian investments abroad needs to tie back to domestic priorities. Such investments can generate more profits for these Malaysian companies that can be re-invested for future growth and innovation. They also result in the creation of better job opportunities for individuals working for these companies, which include many Malaysians. To make this happen, the current script focusing predominantly on FDIs must be rewritten.

Prof Dr Ong Kian Ming is director of the Philosophy, Politics and Economics (PPE) Programme at Taylor’s University and former deputy minister of international trade and industry

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