TRADITIONALLY, Singapore has been often referred to as a "Red Dot" that is geopolitically well-placed, making it the central trading hub and a crucial connector between Asean and the global market. With its robust infrastructure, great business-friendly atmosphere and geography, Singapore has been inviting multinational corporations (MNCs) from all over the world. Meanwhile, Southeast Asia's economic landscape is changing quickly, where countries such as Malaysia, Indonesia and Thailand are fast rising to be formidable rivals. Each of them is racing to be the new special economic zones in the region. Each of them has its special strengths to attract foreign investments and nurture homegrown companies.
For instance, Malaysia will focus on its digital economy and manufacturing sector. In a bid to attract MNCs, the Malaysian government has introduced incentives in the form of tax breaks and grants. This may be supplemented by initiatives like the Digital Free Trade Zone, which apparently encourages e-commerce and digital logistics.
On the other hand, Indonesia is also a potentially strong competitor, having rich natural resources and an ample domestic market. It has almost doubled its commitment to infrastructure projects, comprising the construction of a Trans-Sumatra Toll Road and developing new industrial parks, which can give a more business-friendly environment. Thailand also showed a touch of its own in this regard through its most ambitious EEC Project, which conceptualizes the turning of the country's heartland into a high-tech hub by significantly improving connectivity, infrastructure and incentives offered to investors.
These cities — Singapore, Jakarta, Bangkok, Kuala Lumpur (KL), Ho Chi Minh City, Hanoi, Manila and Cebu — offer varying degrees of opportunities vis-à-vis the competitiveness of their economies.
Against this competitive backdrop, Manila and KL are two of the more interesting business hubs, both with pluses and minuses of their own. One of the more interesting is Manila, the capital of the Philippines. It has the benefit of being based at the center of a country renowned for its beautiful islands and corresponding strong tourism sector.
Moreover, the labor cost in Manila is cheap compared to that in Singapore, which again attracts firms to conduct their business in Manila. The English-speaking population of this city also adds to the list of positive factors for its establishment as an international business hub because the linguistic advantage will be a stepping stone to better communication and operation.
On the flip side, Manila has some serious negative issues related to cross-border capital controls, red tape and corruption. In Transparency International's Corruption Perceptions Index, it is positioned rather low; there are substantial reforms required in such things. Such obstacles notwithstanding, Manila could well become one of the largest trade and business hubs in the world.
There is a need to work on transparency, simplify bureaucratic procedures and finally deal with corruption. Next would be to improve its shipping and port infrastructure, as this would give it a competitive advantage since business operations are integrally linked with effective logistics and transportation.
It has an even more solid business environment in KL, with developed infrastructure and a strategic location in Southeast Asia. It has sound legal regimes as well. Malaysia is ranked 12th in the World Bank's Ease of Doing Business. Accordingly, Malaysia provides a very conducive climate toward doing business. While KL cannot be as cost-friendly as Manila, strong connectivity and a pro-business government help it catch up. Its well-developed infrastructure and a stable political climate gave it an edge over many other places and made it more than just attractive to foreign investors. However, in an effort not to be left behind in this regional race, Malaysia needs to continue to innovate and offer competitive incentives.
While these weaknesses exist, Manila's strengths are real and its potentials are immense. In 2023, the Philippine economy grew by 5.7 percent. Its domestic demand remains strong. Some macroeconomic reforms and improvements in the business environment are ongoing. Manila can make the most of its low labor cost and English-speaking human capital to draw greater foreign investments. Other major benefits are the dynamic, young population, virile manpower and the developing consumer market in the Philippines. While Manila is at the heart of Southeast Asia, it certainly does have natural attractions and tourist appeal increasing the appeal as a business center.
In a nutshell, although Singapore remains the top business hub in Southeast Asia, rising performances of peers in Manila and KL hint at shifting regional economic fortunes. For Manila, competitive labor costs, English-speaking talent with good yield, and a strategic location present great opportunities if the city can surmount the challenges caused by its bureaucratic and regulatory nature. The political environment of KL is also stable, with well-developed infrastructure, which makes it a strong competitor. Therefore, although both cities can attract investment from the global market, some strategic improvements and a host of reforms are needed if they are going to realize their aspirations of turning themselves into major business hubs in Asia.
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