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ADVERTISING SUPPLEMENT THURSDAY, APRIL 30, 2015 | 1INTERNATIONAL NEW YORK TIMES.

PRINCIPAL HUBS | Consolidating services

Greater Kuala Lumpur as home for multinationals’ regional base in Asean

BUSINESS ENVIRONMENT | Access and infrastructure

A strong, cost-competitive ecosystem for global companiesCOMPETITIVENESS | The Asian edge

Significant tax and cost advantages

QUALITY OF LIFE | The Chamber of Commerce view

Greater KL offers ‘best overall package’ for foreign executives

M ultinational corporations establishstrategic regional bases to consol-idate management services

across countries and better optimize re-sources, capabilities and cost. In a principalhub, MNCs go one step beyond internationalprocurement, regional distribution and busi-ness process outsourcing, says ZainalAmanshah, chief executive officer of In-vestKL, an investment promotion agencythat provides MNCs end-to-end facilitation,helping them identify business opportunitieswhile strengthening their competitivenessregionally and globally from Greater KualaLumpur. They also actively manage, controland support high-value activities and keyfunctions, including risk, decision-making,strategic business activities, trading, fi-nance and human resources.

InvestKL and the Malaysian governmentare attracting MNCs with a suite of customizedincentives to help them establish successfulprincipal hubs in Greater Kuala Lumpur.

In April, Malaysia’s Minister of Internation-al Trade and Industry announced the detailedguidelines of the principal-hub incentive thatwas first introduced under the Malaysia 2015budget, affirming the government’s commit-ment to attracting more MNCs’ regional oper-ations to Malaysia. The new principal-hub

incentive offers a three-tier corporate tax rateof 0 percent, 5percent and 10percent for upto 10 years. The incentive requirements in-clude high-skilled job creation, execution of re-gional functions and activities, and minimumannual business expenditures.

This incentive is a game changer and willfurther enhance Malaysia’s strategic posi-tion as a principal-hub location, especiallywith Malaysia as the chair of the Associationof Southeast Asian Nations in 2015.

‘‘Asean is the third pillar of growth in Asia,alongside China and India,’’ says Zainal,‘‘and is the seventh-largest economy in theworld, with a combined gross domesticproduct of $2.5 trillion. Home to apopulation of 633 million, a relatively youngpopulation where close to 60 percent areless than 40 years of age, Asean benefitsfrom an emerging middle class with growingspending power.’’

As chair of Asean, adds Zainal: ‘‘Malaysialooks forward to elevating Asean by elimi-nating import duties, liberalizing the servicesand investment sectors, removing tradebarriers, enhancing work in other areas suchas intellectual property rights, competitionpolicy, consumer protection and taxation,and strengthening economic connectivitywithin the region.’’

Asean is a prime business zone, the re-sult of existing free-trade agreements withChina, Japan, India, Australia and New Zea-land, and interconnectivity between memberstates. Local and regional companies arealso flourishing, with Asean trade hitting anall-time high of $2.5 trillion in 2013, andintra-Asean trade making up 25 percent ofthe total.

‘‘Through the implementation of theAsean Economic Community and severalupcoming FTAs, the region will also enhancepartnerships with major economies such asthe United States and the European Union,’’says Zainal.

The move has been welcomed by foreignchambers of commerce in the Malaysiancapital. ‘‘With the new principal-hub incen-tives, MNCs have received another strongsignal that the Malaysian government isaware of and specifically addresses the is-sues at hand,’’ says Alexander Stedtfeld, ex-ecutive director of the Malaysian-GermanChamber of Commerce and Industry.

Stedtfeld estimates that almost 100German companies are already based inGreater Kuala Lumpur, operating mainly inthe automotive industry, electronics,chemical manufacturing, logistics, insur-ance, finance and engineering.

Sanjeev Nanavati, president of the Amer-ican Malaysian Chamber of Commerce(Amcham), says that strengthening tradeand commercial ties between the UnitedStates and Malaysia has encouraged morebusinesses to establish headquarters inGreater Kuala Lumpur. The area is already ahost for U.S. companies such as AIA, Amer-ican Express, Boeing Aerospace, Citibank,ConocoPhillips, Dell, ExxonMobil, GeneralElectric International, Google Malaysia, Hew-lett-Packard, Procter & Gamble and TexasInstruments.

Attracting MNCs’ regional headquartersto Greater Kuala Lumpur is part of Malay-sia’s Economic Transformation Program,launched by the government in September2012 to raise the nation’s economic statusto high-income level. The government esti-mates that it will require $444 billion ininvestment to create 3.3 million jobs andraise per capita income to at least $15,000by 2020, meeting the World Bank’sthreshold for high-income nations.

In the plan, MNCs will serve as anchortenants, generating significant revenue, cre-ating a large number of jobs and strengthen-ing the local business ecosystem.

Since 2011, InvestKL, tasked by the gov-ernment to attract 100 large MNCs to invest

G reater Kuala Lumpur has become areliable location for establishing aprincipal hub and a serious compet-

itor to other well-known Asian locationssuch as Hong Kong and Singapore, saysMatthew Andrew, partner and Asia-Pacificleader of operating-model effectiveness atthe Asia-Pacific tax center of Ernst &Young.

‘‘Malaysia offers a highly educated andmultilingual work force, a good transporta-tion system and communications infrastruc-ture, and guarantees protection of intellec-tual property,’’ he says.

Andrew adds that it also offers multi-national companies considerable tax ad-vantages: ‘‘The common type of incentivesMalaysia offers are threefold: corporate

tax exemption, investment allowance andimport-duty relief.’’

Specifically for headquarters or corpo-rate support activities, says Andrew, Malay-sia offers incentives for operational head-quarters, international procurement centersand regional distribution centers.

‘‘These incentives not only grant tax ad-vantages,’’ says Andrew, ‘‘but also allowMNCs to clear any work-permit issues forexpatriate employees and any foreign-exchange-related issues to transfer cash inand out of Malaysia. From a tax perspec-tive, it is noteworthy that these incentivesprovide not only a reduced tax rate, butalso the possibility of full income-taxexemption on qualifying income in certaincircumstances.’’

He notes that when choosing a locationfor a principal hub, MNCs consider variouscosts according to their needs, such aslabor, office space and warehousing, intel-lectual property protection, data security,utilities and general cost of living.

‘‘Based on our experience,’’ he says, ‘‘wenotice that Greater Kuala Lumpur is becom-ing a more and more realistic option for mul-tinationals. MNCs are genuinely interestedin knowing more about Greater Kuala Lum-pur and its advantages, especially becausethe city has more competitive labor andlease costs than either Singapore or HongKong. This is becoming an increasingly im-portant factor at a time when Asia is seeingslowing revenue growth opportunities fromAustralia and China.’’n

I n choosing a location for a regional orstrategic base in the Asia-Pacific region orSoutheast Asia, German companies take

a careful approach, meticulously assessingthe options, says Alexander Stedtfeld, exec-utive director of the Malaysia-German Cham-ber of Commerce and Industry.

‘‘Greater Kuala Lumpur’s and Malaysia’smain strength is in its best overall package,’’says Stedtfeld. ‘‘In other countries, while taxmay be lower, investment incentives higheror the general cost or salary levels lower,Malaysia ranges within the top three to fivein most relevant areas.’’

The factors he cites apply to Malaysia asa whole, such as a welcoming culture for for-eign business, a stable economic and politi-cal environment, a strong industrial baseand prudent fiscal and budget policies. Headds: ‘‘Greater Kuala Lumpur offers espe-cially high scores in infrastructure, the avail-ability of highly qualified people and a broadbase of relevant agencies which were spe-cifically set up by the government to supportprivate business.’’

His opinions are echoed by the AmericanMalaysian Chamber of Commerce. ‘‘GreaterKuala Lumpur’s business-friendly environ-ment is the greatest value proposition forAmerican businesses,’’ says Amcham’s pres-ident, Sanjeev Nanavati. ‘‘Competitive tax in-centives, the availability of highly qualified lo-cal talent, existing and ongoing infrastructureimprovements and continued support fromlocal, state and federal governments to main-tain stable and transparent regulations andpolicies are factors that play a decisive rolefor multinational companies establishingheadquarters in Malaysia’s capital.’’

He adds: ‘‘The possibilities for innovativecollaborations with Malaysian companiesand public organizations headquartered inGreater Kuala Lumpur facilitate industryleaders in sharing international best prac-tices with the public and private sector, help-ing to improve the local supply chain. Thenew principal-hub initiative provides custom-ized incentives that promote investment op-portunities through centralization of busi-ness activity and cost competitiveness, andimproves the overall quality as well asspeed of doing business through consolida-tion.’’

Gilles Waeldin, vice presi-dent of the Malaysian FrenchChamber of Commerce and In-dustry, adds: ‘‘While most ofthe neighboring countries canbe attractive for specific oper-ations, Greater Kuala Lumpuris gradually taking over fromSingapore as a regional head-quarters location for MNCs’ re-gional management opera-tions, including strong logistic-hubcapacities.’’

How does Greater Kuala Lumpur stackup in terms of quality of life for expatriate ex-ecutives? ‘‘Having arrived in Kuala Lumpurin 2008, and looking back at my living andworking experience in other Asian capitals, Iam sure that expats cherish the samethings that my family and I do,’’ saysStedtfeld. ‘‘Getting around with a car inGreater Kuala Lumpur or out of the city tothe western or eastern coasts is usuallyquick and hassle-free. Some of the otherfactors making Greater Kuala Lumpur and

its surroundings a highly livable place are awide selection of international schools anduniversities, attractive housing at competi-tive costs, appealing shopping and enter-tainment outlets and, last but not least, adelectable range of culinary delights reflect-ing the diverse cultural and ethnic environ-ment of Malaysia.’’

Says Waeldin: ‘‘Greater Kuala Lumpur isa very cosmopolitan city where families canenjoy a high level of comfort, including af-fordable international schools and groceriesfrom all over the world. The central position

of Greater Kuala Lumpur allowsfor easy escapes from the cityto the surrounding greenery andsandy beaches.’’

Amcham’s Nanavati adds:‘‘Greater Kuala Lumpurprovides MNCs with a highstandard of living comparedwith other cities in the region. Inaddition to modern and effi-cient infrastructure, expatsemployed by MNCs enjoy

Greater Kuala Lumpur’s dynamic society,with its unique cultural heritage and livelymulticultural environment. The cost of livingin Greater Kuala Lumpur is relatively af-fordable compared with other metropolitancities in Asia.’’n

Greater Kuala Lumpur: Magnet forprincipal hubs was produced by theT Brand Studio international department anddid not involve the International New YorkTimes reporting or editorial departments.It was sponsored by InvestKL. Text byJENNIFER EVELAND.

‘Greater KualaLumpur provides

MNCs with ahigh standard ofliving comparedwith other cities

in the region’

G reater Kuala Lumpur offers compa-nies a multipronged strategy focusingon key considerations for the location

of a principal hub by a multinational company:access to market, strong infrastructure, talentavailability, cost competitivenessand a competitive tax regime.

‘‘When it comes to regionalexpansion, MNCs want an op-timized solution,’’ says Zainal.‘‘They want better control overtheir physical presence or entit-ies by centralizing main func-tions and teams that undertakestrategic services and businessfunctions in the region.’’

Strategically located in theheart of the Association of South-east Asian Nations, Greater Kuala Lumpurprovides easy access to the region’s markets.Asean encompasses a population of 633 mil-lion, with a combined gross domestic productof $2.5 trillion, a 5 percent to 7 percent eco-nomic growth rate and a growing middle class.Malaysia is one of Asean’s strongest econo-mies and has strong historical and culturallinks to China, India and the Middle East.

Within Asean, Greater Kuala Lumpur is aleading air and sea hub, with four internationalairports, including Kuala Lumpur InternationalAirport, ranked the third-busiest airport inAsean by international cargo traffic and thefourth-busiest airport in Asean by internationalpassenger traffic. It takes only four to sixhours to reach key Asian business centerssuch as Hong Kong, Shanghai and Tokyo.Malaysia’s capital is also connected to the re-gion via major shipping ports, including PortKlang, the 12th-busiest port in the world, aswell as numerous highways and an upcominghigh-speed railroad that will connect GreaterKuala Lumpur to Singapore in 90 minutes.World-class warehousing facilities include 2.7million square feet (250,838 square meters)of warehousing space and 1,645 acres (666hectares) of free-trade zones.

Amid world-class infrastructure, the cityhas created a fluid business ecosystem withone of the region’s most competitive workforces. Each year, Greater Kuala Lumpur’s 39public and private universities produce150,000 skilled and multilingual graduatesfrom a variety of disciplines. Ranked the mosttalent-competitive country in Asia by the IMDWorld Talent Report 2014, the country alsoboasts the top ranking in English proficiency inAsia, according to Education First 2014.

Greater Kuala Lumpur’s cost advantagesinclude competitive residential, commercialand industrial property rentals, cost-effectivetalent and generally lower operations costs.

According to InvestKL, the cost of doingbusiness in Greater Kuala Lumpur is as little

as one-third of that in Singapore. CBRE Re-search shows that office rental rates in KualaLumpur are the lowest in the Asia-Pacific re-gion, lower than those in Singapore, HongKong, Bangkok and even Ho Chi Minh City.

With cheaper world-class hotelroom rates and affordable inter-national school fees, Kuala Lum-pur comes in at 115th in Mercer’sCost of Living Survey 2014, whichranks cities by expensiveness,well below Singapore and HongKong, which ranked fourth andthird, respectively.

Malaysia’s competitive tax re-gime offers advantages based onthe type and scale of activities un-dertaken and includes 72 com-

prehensive double-tax agreements tomitigate cross-border taxation, with another12 under negotiation. Free-trade agreementsare extensive, with bilateral agreements

covering the world’s major economies andAsia’s regional blocs.

‘‘Greater Kuala Lumpur is also fast be-coming the regional financial center in Asean,’’says Zainal, ‘‘with many local and foreignbanks having regional headquarters in thecity. This provides MNCs greater flexibility in fi-nancing and international trade. Greater Ku-ala Lumpur also leads in the Islamic financeenvironment. The upcoming Tun Razak Ex-change financial center will complement theexisting finance scene and leverage Malay-sia’s niche in Islamic finance.’’

By the close of 2014, 74percent of Malay-sian-listed companies were classified asShariah-compliant, with market capitalizationof more than 1 trillion Malaysian ringgit, or$276.4 billion. According to the Malaysia Inter-national Islamic Finance Center, Malaysia isthe largest market for Islamic bonds, orsukuk, in the world, accounting for 66percentof global issuances.n

A new incentive further enhancesGreater Kuala Lumpur’s strategic position

as a principal-hub location.

Zainal Amanshah, chiefexecutive of InvestKL.

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in Greater Kuala Lumpur, has assistednearly 50 MNCs to establish their regionalheadquarters.

‘‘Greater Kuala Lumpur is one of the mostcost-effective cities in the region for MNCs tooperate a principal hub, compared withSingapore or Hong Kong,’’ says Zainal. ‘‘Not

only is Greater Kuala Lumpur one of the leastexpensive cities to live in, it is the secondeasiest place to do business in Asean,ranked by the World Bank Group in 2015,and is the second most competitive globalcity in Asean according to the Economist In-telligence Unit’s Hot Spots 2025 report.’’n

GREATER KUALA LUMPUR AS A PRINCIPAL HUB LOCATIONGreater KL’s competitive advantage

EXCELLENT ECOSYSTEM

Location

● At the heart of Asean

● Easy access to Chinese and Indian

high-growth markets

● Growing middle-class population

● 6th in ease of doing business among

183 countries (World Bank, 2014)

Logistics● Kuala Lumpur International Airport connects

to over 79 Asia-Pacific cities● Free-trade zones and warehouse storage

Stable financial system● 4th among 189 countries for investor protection

(World Bank, 2014)● Liberal foreign-exchange administration policies● Islamic financing hub

Talent availability● English-proficient talent to support global

business growth● Multilingual talent to support regional business growth● Attractive foreign talent programs

Cost competitive● Cost of doing business is one-third of Singapore's

and Hong Kong's (InvestKL, 2014)● Least expensive in the region for office rental rates

(CBRE Research, 2014)● Competitive cost of talent

QUALITY LIFESTYLE

Affordable quality living

● 115th in cost of living out of 211 cities

(Mercer, 2014)

● Luxurious residential housing with

world-class facilities

● Award-winning golf courses

● 4th best shopping city worldwide (CNN, 2013)

Quality education● 37 international schools● 39 universities

World-class health care● World’s best hospital for medical tourists:

Prince Court (MTQUA, 2013)● 3rd best and most affordable health care

provider in the world (International Living

Annual Global Retirement Index, 2014)

Cultural melting pot● Cosmopolitan culture● Within an hour’s drive of greenery

and beaches● Numerous recreational activities

Safe environment● Free from natural disasters such as

earthquakes or typhoons

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Greater Kuala LumpurMagnet for principal hubs

BENEFITS OF A PRINCIPAL HUB

Quality and speed can beimproved at lower cost

Addressing transfer-pricingpolicy and passing theBase Erosion and Profit

Shifting (BEPS) test

A tax-efficient location with athree-tiered corporate taxation

rate, specifically 0%, 5% and 10%depending on eligibility

Better sharing of services (R&D, payroll,accounting, logistics and quality control),

technology and commercialization of products

Centralization of functions, activities, riskmanagement and intangibles by virtue ofnatural business evolution or aquisition

GREATER KUALA LUMPUR AS A PRINCIPAL HUB

The principal hub is a REGIONAL hub as a centralized base for conducting regionaland global business operations, and for managing, controlling and supporting keyfunctions, including risk management, decision-making, strategic business activities,trading, finance, management and human resources.

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