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UNIDO’s Report on Penang Industrial Transformation

Thursday, March 5th, 2009

Despite the global economic downturn, Penang remains an attractive investment centre in Asia Pacific region. According to recently released United Nations Industrial Development Organisation’s (UNIDO) Industrial Development report 2009, Penang is one of the top 10 dynamic industrial cluster locations in the world.

The United Nations Industrial Development Organisation’s (UNIDO) Industrial Development Report 2009, had rated Penang, along with Buenos Aries, Southeastern Brazil, Phnom Penh, Los Lagos (Chile), Qiaotou, (China), Chennai, Jakarta, Vientiane and Otigba in Nigeria, as the leading locations.

Penang industrialization journey

Penang industrialization journey

Some of the indicators that placed Penang as a robust location were, excellent basic infrastructure, strong cluster networks between firms and intermediary agencies such as the Penang Development Corportation (PDC) and the Free Trade Association of Penang. Below are the extract of the report on Penang Malaysia - An export-processing zone grows up;

Penang is the largest of the three major regional electrical-electronics clusters in Malaysia. It was Malaysia’s first export processing zone (EPZ), opened by the Government in 1972 to attract foreign electrical goods and electronics firms. The electrical-electronics industry has been the leading source of MVA, employment and exports in Penang since 1980.

Penang began as an “artificial agglomeration”. It was the outcome of activist Government policies designed to attract international investors. A formal clustering policy was adopted in Malaysia with the introduction of the Second Industrial Master Plan in 1996. The cluster approach was designed so as to develop greater linkages and complementarities between transnational investors and local industries.

In Penang, excellent basic infrastructure—good transport services, power supply, water supply and telecommunications—was combined with superior provision of social services, such as public health facilities and schools, to make the region attractive to skilled workers and managers. Institutional reforms were also introduced to improve the performance of the security and customs services within the EPZ. Drawn by these investments and financial incentives, Japanese, European and giant North American firms, such as Hitachi, Sony, Siemens, Advanced Micro Devices, Hewlett Packard, Intel, National Semiconductor, and Seagate, moved to Penang. The agglomeration of these flagship firms helped stimulate the development of local supplier firms.

Penang has benefited particularly from the development of public and public-private organizations aimed at solving coordination problems for firms in the cluster. Strong networks exist between firms and basic infrastructure organizations, such as the Penang Development Corporation. Producers’ organizations, such as the Free Trade Association of Penang and chambers of commerce, also figure prominently in promoting the exchange of information among firms.

Penang’s manufacturing structure is moving towards higher value-added activities. Over time transnational corporations in the cluster have moved from low to high value-added activities and have been replaced in the value chain by local firms. In the 1980s, local firms were mainly involved in assembly. By the 1990s, some had diversified into other activities and become global players. Even small and medium industries are directly involved in exports (Ariffin and Figueiredo, 2004). Complementary industries, such as machine tools and plastics, have also developed. The technological development of local firms stimulated the transformation of flagship firms, such as Intel, Motorola, Advanced Micro Devices, Fairchild, Hewlett Packard and Dell, into designing activities.

There is evidence of substantial cohesion and information exchange among firms in the electronics cluster. Supplier, distributor and customer relationships are stronger within the electronics cluster than for other firms in the same geographical zone. The Penang Development Corporation has helped to nurture linkages in advanced electronics, advanced materials, environmental engineering, high-technology and high value-added components with potential suppliers and distributors (Rasiah, 1994). Labour market externalities are potentially large.

The electronics cluster in Penang employs more engineers and managers than other manufacturing subsectors in Penang (Rasiah, 2002). The Penang Skills Development Centre has played an important role in providing firm-oriented skill training, adding to the thickness of the labour market. Tailor-made educational programmes (based specifically on industrial requirements) have been effective in reducing the gap between education providers and the industry. Firms without internal training centres (unlike Komag, Intel and others that have their own colleges and universities) are currently relying on these tailor-made programmes (Rasiah, 2007). Many industry managers, however, stress the need for local institutions (especially local universities) to upgrade their educational content based on industry needs.

Penang’s electrical-electronics cluster has clearly been the most successful of the ten agglomerations studied, in terms of the evolution of its industrial structure. Pecuniary externalities arising from infrastructure and the labour market, combined with knowledge spillovers from foreign-owned firms to large local firms and finally to smaller local firms, have resulted in the development of a very dense supplier-user network and considerable production-sharing.

However, the increasing technological sophistication of the cluster seems to have created a coordination problem that may inhibit further technological upgrading. Not surprisingly, surveys reveal that decisions by large firms to produce more sophisticated products and to outsource some of their existing production within the cluster influence the decisions of smaller local firms to invest in technological upgrading.

Smaller local firms are only willing to invest in new technologies and products after outsourcing contracts are secured. Large firms, for their part, are reluctant to transfer their product lines and do so only when they are convinced that local firms are technologically capable of producing the products.

Full text of the UNIDO’s report (in PDF format) is available here.

In another recent report by KMPG International Advisory-Exploring global frontiers: The New Emerging Destinations; Penang has been listed as one of the world’s top Information Technology (IT) – Business Process Outsourcing (BPO) locations. According to the survey, Penang is among top 31 countries worldwide as IT-BPO destinations. Among the key drivers that made Penang favourable IT-BPO destinations are its government’s strong focus in promoting the industry, the Multimedia Super Corridor status and creation of the Software Consortium of Penang (ScoPe) and the availability of skilled English Speaking personnel to facilitate multi-lingual service delivery. The 10 countries in Asia-Pacific include Brisbane, Changsha, Hangzhou, Ahmedabad, Jaipur, Nagpur, Penang, Davao City, Iloilo City, Ho Chi Minh City.

Penang is the first state in Malaysia outside Multi Super Corridor (MSC) to be officially granted the Cybercity status, providing a high-tech growth platform for the state of Penang. Penang Cybercity 1 (PCC1), covering an area of about 923 hectares at the south-eastern of Penang Island,  includes Bayan Lepas Industrial Park, a portion of Bayan Baru area, and Queensbay as well as PDC’s upcoming Bayan Mutiara development along the Sungai Nibong coastal area. More related articles on Penang Industrial at Penang as outsourcing and training hub and Expanding SME in Penang.

For map guide on Penang Industrial development, click here.

Mainland Penang offers competitive industrial land costs ranging from RM15 per square foot to RM30 per square foot(USD4 to USD8 per square foot)  in major industrial parks whilst rental rates for ready purpose built industrial space ranges from RM0.80 to RM1.50 per square foot (USD0.20 to USD0.40 per square foot) per month for industrial buildings with floor sizes ranging from 100,000 sq ft to 300,000 sq ft.

Besides this, Penang Island is one of the popular destinations for second homes under Malaysia, my second homes programme(MM2H). Penang Ranks top ten Asia’s most liveable city.

For advisory on industrial property investments in Penang, email to us at Izrin & Tan Properties Sdn. Bhd or call us at +604 6588333 (Penang Office) or +603 92839782 (Kuala Lumpur Office) and we would be pleased to assist.

How to refinance your home loans smartly

Friday, February 20th, 2009

As competition is heating up amongst the commercial banks for banking on home loans, more new home loan promotions and competitive refinancing packages are available in the market to entice homeowners to refinance their existing loans. Following the latest cut of interest rates by Malaysia’s central bank, most commercial banks have already revised their base lending rates (BLR) from 6.75% to 5.75-6.0%. Update : The Malaysia’s central bank has cut interest rate again on 24th Feb 2009, BLRs of commercial banks have further revised lower to 5.55% - 5.60%. With interest rates trending lower, it is a good time to review, restructure and refinance your existing loans. There are several good reasons that home owners would benefit from switching their loans to a new loan with lower interest rates;

1. Lower your monthly installment payment
2. Debt Consolidation
3. Using the Existing Equity in the Home
4. Shorten the term of your home loan
5. Combine a first and second mortgage
6. Reduce the interest you pay over the life of the loan
7. Switch from conventional housing loan with variable rate to a fixed rate loan or Islamic loan (or vice versa)
8. Eliminate MRTA mortgage insurance

Before opting to refinance, it is important for home owners and property investors to consider the savings or benefits of refinancing vis-a –vis the costs of refinancing. Do your own break-even analysis between long term savings and refinancing costs to determine whether the savings really outweigh the costs of  refinancing or otherwise. More at Making sense of mortgage refinancing and Should I refinance now ?.

However, there are circumstances whereby refinancing might not give you the maximum savings such as when you have short remaining years to retire your loan etc Refer why say no to refinancing.

For Malaysia home owner as well as property investors who are uncertain of holding the property for long term or you have plans to sell off the property in the near term, not all refinancing packages will provide you the best refinancing benefits. Refinancing packages with features of “Zero-Entry Cost” or “Zero-Moving Cost” may not necessarily the best option, depending on your financial needs. Under such packages, although you are not required to pay any processing fee, legal fees, stamp duty, valuation fees upfront, the loans are subject to higher interest rates and imposition of exit fees or early redemption penalty up to 5% of the loan amount (vary from bank to bank) in the event that you choose to redeem your loan within the lock-in period of 5 years. Example if a house owner has to redeem his loan of RM200,000.00 within the lock-in period, he has to pay 5% of exit fees ie RM10,000.00!!!

We have come across property sellers who were stuck with loans with lock-in period and only realised that if they decide to take up a good deal offered by interested buyer, they have to pay the exit fees for redeeming the loan prematurely. On the other hand, if they choose to wait until the expiry of lock-in years ie after 5 years to avoid payment of exit fees, they might lose the opportunity of capitalising gains or losing the sale due to changing market conditions. For investment properties, the better alternative is to look for refinancing packages with no exit fees or shorter lock-in period which give you more flexibility in terms of selling / renting,  though initially you may have to pay slightly higher interest rates and documentation costs, it is still better than paying exit fees which could end up diluting your capital gains.

Below is a simple checklist to guide you on home loan refinancing :-

1 Get information on the current mortgage

For the current mortgage, you should be able to get the following information from the bank:

- the outstanding balance or ringgit amount left on the mortgage;

- the remaining number of years on the mortgage; and

- the interest rate on the loan.

2 Get information on the new loan

For the new loan, you should get information on the following:

- the terms or the number of years of the new loan; and

- the interest rate on the new loan.( the latest interest rate can be as low as BLR - 2.4% )

3 Get the costs of refinancing

The costs you are likely to encounter when refinancing include:

- processing fee or application fee;

- credit check fee;

- legal fees;

- stamp duty;

- disbursements fee;

- valuation fees; and

- redemption fees (if applicable)

4. Shop for best refinancing loan packages that suit you.

- Find out the latest home loan promotions by various lenders in Malaysia :-

-Malaysia Home Loans - What’s New (January 2009)

-Conventional home loan packages

-Islamic Home Financing Packages

-other home loan packages offered by non-bank lenders; AIA, ING

For advisory on property investments in Kuala Lumpur and Penang, email to us at Izrin & Tan Properties Sdn. Bhd or call us at +604 6588333 (Penang Office) or +603 92839782 (Kuala Lumpur Office) and we would be pleased to assist.

New housing scheme by SP Setia in Penang Island

New housing area in Prai