Introduction

Penang, a state located in northern Malaysia, is known as one of the country's leading industrial and economic centres. The industrial sector is a vital part of Penang's economy, and the state has a long history of attracting foreign investments and promoting technological advancements. Penang's well-developed infrastructure, supportive government policies, and skilled workforce make it an attractive destination for businesses seeking to expand their operations in the Southeast Asian region.

(a) Brief overview of the size and scale of manufacturing and industrial real estate in Penang and its demand

Penang is a key hub for manufacturing and industrial activity in Malaysia, with outstanding records of investment and growth in this sector. The state boasts a diverse range of industries, including electrical and electronics, semiconductor, medical devices, and aerospace, and is home to numerous multinational corporations and local enterprises.1 The size and scale of manufacturing and industrial area in Penang is significant, with a range of industrial parks and zones offering various types of facilities and infrastructure to support businesses.2

These manufacturing and industrial areas can be categorized into various segments such as industrial estates, technoplex areas and the Free Industrial Zone (FIZ).3 Districts such as Bayan Lepas, Mak Mandin, Prai, Seberang Jaya, Bukit Minyak, and Bukit Tengah represent the Penang Industrial Area. The FIZ and technoplex areas are mainly focus at Bayan Lepas, which are situated in the metropolitan region and close to the Penang International Airport in Bayan Lepas. In the recent years, Penang has vigorously developed the Batu Kawan Industrial Park with targeted size of 465.8 hectares and is expected to house over 160 companies, both multinational and local.

Demand for industrial real estate in Penang remains strong, driven by the state's strategic location, favourable business climate, and well-developed supply chain networks.4 Over the span of years, there has been a particular focus on the development of high-tech and advanced manufacturing facilities.5 The manufacturing and industrial sectors are the backbone of Penang's economy, contributing approximately 47.3% of the state's gross domestic product (GDP) in 2021.6 In the same year, Penang recorded a triumphant high export value at RM354 billion, with electrical and electronic products being the most total exports. Penang's export value rose to RM291 billion in January to August 2022, making up 29% of Malaysia's total exports.7 The electronics industry is one of the key drivers of Penang's economy, with major multinational corporations such as Intel Corporation, Micron Technology Inc, AMD and Lanco Integrated having established operations in the state.8 The automotive sector is also growing, with several automotive-related companies such as Bosch, Continental, Boon Siew Honda, Infineon and OSRAM, having set up production facilities in Penang.9

Penang, having celebrated its 50th anniversary of the state's industrialisation, promises to improve the state of its liveability, talent availability, and the readiness of its physical and digital infrastructure, all of which are essential to maintaining its status as the Silicon Valley of the East and Malaysia's economic powerhouse.10

(b) Factors why businesses or companies should acquire and start their manufacturing or industrial factory in Penang

There are several compelling factors why businesses or companies should consider starting their manufacturing or industrial operations in Penang. First and foremost, Penang offers a strategic location with excellent access to regional markets in South East Asia and a well-developed transportation and logistics infrastructure.11 The logistic industry in Penang is able to provide crucial support to the growth of these industries due to the presence of transportation infrastructure such as the Penang International Airport as well as seaports at the North Butterworth Container Terminal (NBCT) and the Butterworth Deepwater Wharves (BWCT), and comprehensive modern road and rail networks. The state has also put emphasis on the use of public transportation through bus rapid transit (BRT) which aims to serve as an integrated transport system across Penang and may ease future employee accessibility from their residence to business hubs and locations.

The familiarity and adaptability of the local contractors with the rapid growth of the industrial sector allows them to provide construction labour assistance for businesses setting up their facilities and factories, as well as maintenance work. The state also has a highly skilled workforce by emphasising education from an early age. The state has implemented a number of incentives to encourage student enrolment in science and Technical and Vocational Education and Training (TVET) in order to meet the demands of a skilled workforce in the face of Industrial Revolution 4.0, such as bridging student enrolment through work-study TVET programmes that allow students to earn while studying. Additionally, businesses are encouraged to collaborate with the institutional education in Penang in any way that will benefit both fields, such as Jabil Circuit's collaboration with Universiti Sains Malaysia (USM) to train their employees to be citizen data scientists who generate models that leverage predictive or prescriptive analytics. This is one of the company's ways to ensure that existing employees stay up to-date with new technologies, processes, and requirements.

Penang is well equipped with a favourable business climate and has set up GBS Focus Group Penang Chapter in 2019 as a platform for industry players to share information and ideas, as well as serving as a medium to discuss any concern and challenges related to the industry. Through this platform, businesses are keen to adopt intelligent operations involving digitalisation, cloud storage, big data, and block chain awareness. This platform also aims to provide consultation and act as advisor to businesses.

Additionally, Penang has a long history of investment and growth in the manufacturing and industrial sector, being among the top five recipients of manufacturing foreign direct investment for the past 10 years. Among the foreign investors are the United States as the primary investor country and followed by the second-largest from Singapore, and others such as United Kingdom and Taiwan. The state is also a home to more than 350 multinational corporations and 4000 local enterprises.12 Finally, the state government is actively investing in the development of new infrastructure, technologies, and talent, making Penang an ideal location for businesses seeking to leverage the latest advances in Industry 4.0 and green technology.13

(c) Class of special economic zone in Penang

Penang has established a designated zone to support different types of businesses and economic activities. For example, free industrial zones (FIZ) are designated areas where businesses can import raw materials and export finished goods without paying customs duties or taxes.14 These zones are designed to promote international trade and attract foreign investment15 and is exempted from Customs Act 1967, Excise Act 1976, Sales Tax Act 2018 and Services Tax Act 2018. Bayan Lepas FIZ is one of the oldest and largest industrial parks in Malaysia, offering a range of facilities and infrastructure to support high-tech manufacturing and logistics.16 The gazettement of the NBCT as a free commercial zone represents a significant boost for Penang's economy. The NBCT, located on the mainland side of Penang, is a major hub for container shipping and is expected to attract a range of businesses to set up operations within the free commercial zone. This move is expected to provide a significant boost to Penang's economy, as the zone will create jobs and attract investment in the region.17

Industrial parks are designated areas that are developed specifically for industrial use. In Malaysia, specialised industrial parks have been created to meet the demands of various industries, including small-scale, halal, furniture, biotechnology, technology-intensive, and R&D businesses.18 The Batu Kawan Industrial Park is a newer and rapidly growing hub for advanced manufacturing, logistics, and research and development.19 Meanwhile, the Penang Science Park located in Simpang Ampat is established to offer a range of facilities and support services for research and development, as well as for high-tech and biotech industries.20

These economic zones play a critical role in driving Penang's economic growth and development and are well-positioned to support the diverse needs of businesses across a range of industries.

Understanding the acquisition policies and regulations of the lands in Penang

In Malaysia, the responsibility for land affairs lies with the state governments which makes it easier for states to manage the growth and advancement of the industrial sector within their respective states. Companies that are interested in building and relocating their businesses may first identify the nature of their businesses and suitable zones or location for setting up facilities. Pursuant to this, Penang has committed to preparing and ensuring that essential infrastructure such as roads, drainage, and utilities (electricity, water, and telecommunications) are in the proper place, easily accessible, and appropriate for the targeted businesses. For example, a biochemical factory must be located in a safe area with separate drainage and equipped with a waste disposal system.

In addition to the zone category, the type of land or the real estate can be divided into freehold or leasehold lots for up to 60 years or 99 years periods. This is covered by the National Land Code which acts as the primary legislation that governs the ownership and use of land in Malaysia.21 In contrast to leasehold, freehold land is owned outright by the buyer in perpetuity.

Accordingly, businesses may opt to buy a ready built factory or go for a vacant land. Both choices involve number of steps, firstly the intended buyer should conduct a thorough due diligence, which may include land survey and soil investigation and tests, to ensure there are no issues or restriction in interest with the land.22 After identifying a proper location and lot, buyer may then proceed with the services of a lawyer and other professionals when required. Once the buyer has negotiated the price and terms of sale, the necessary legal documentation must be completed and payment made to the land's owner. Buyers should also be aware of associated taxes and fees, such as stamp duty and transfer fees.

Additionally, it is important to verify that the land has all the necessary approvals, permits and certificates to avoid any legal complications.23 Without the need to require state consent for land with no restriction in interest, this process may be completed within 3 to 4 months. If the land requires consent of the state authority, the process may take up to 6 months to complete. A simpler process can be taken if the company opts to lease the available facility for a period of years. This can be done via a lease agreement incorporating necessary terms and conditions duly advised by the solicitors.

Penang State Government's incentive for foreign investments

(a) Tax incentive to relocate factory or service facility to Malaysia

The government offers a range of tax incentives to encourage businesses to relocate their factories or service facilities to Malaysia, including an incentive that offers new manufacturing investment a 10-year period of 0% tax rate, as well as an investment tax allowance of up to 100% for three years on qualified existing Malaysian companies relocating their overseas operations to Malaysia.

These incentives are designed to support companies in the manufacturing, services, and high-tech sectors, and help to drive job creation and economic growth in the state. In addition to these tax incentives, the state government also provides other forms of support, such as the establishment of Project Acceleration & Coordination Unit (PACU). With its strategic location, favourable business climate, and supportive government policies, Penang offers a compelling destination for businesses looking to expand their operations in Asia.24

(b) State's active engagement in STEM education

The Penang state government is also actively engaged in promoting STEM education in the state through a range of initiatives, including the Penang STEM 4.0 Initiative, which covers a number of key programs and facilities.25 The Penang Skills Development Centre (PSDC) is a program offering training and certification in a range of advanced manufacturing and engineering disciplines, as well as facilitating industry-academic partnerships to support research and development.26 Another key program is the Penang Science Cluster (PSC), which provides hands-on learning experiences and mentorship opportunities to students and teachers, as well as hosting science fairs and competitions such as the Penang International Science Fair (PSF) to showcase the latest innovations in science and technology.27

Finally, the Penang Future Foundation provides scholarships and support to high-achieving students in STEM fields, helping to build the talent pipeline for the state's future growth and development.28 Through these initiatives and programs, the Penang State Government is helping to foster a culture of innovation and learning, and positioning the state as a hub for science, technology, and engineering in the region.29

Conclusion

In conclusion, acquiring manufacturing or industrial lands in Penang requires an understanding of the relevant laws and regulations, as well as the various types of land and economic zone available for industrial use. Businesses seeking to invest in Penang's manufacturing and industrial sectors can benefit from the state's favourable business climate, supportive government policies, and skilled workforce. Investing in manufacturing and industrial sectors in Penang offers a strategic location in the heart of Southeast Asia. The state has a robust supply chain network, a stable business environment, and a thriving ecosystem of local and multinational companies. With a growing emphasis on sustainability and digitalization, Penang's manufacturing and industrial sectors are well-positioned to continue attracting global investment and driving economic growth.

Footnotes

  1. Invest Penang. https://investpenang.gov.my/manufacturing/
  2. Penang Economic Summit 2022: The Post-Pandemic Economic Reset. Penang Institute. 2 December 2022. https://penanginstitute.org/publications/issues/rapporteur-notes-penang-economic-summit-2022-the-post-pandemic-economic-reset/
  3. Fauziah Che Leh; Trends And Policy Implications Of The Location Selection Of Electric And Electronic Firms In Malaysia. (Malaysia, May 2016)
  4. Penang focuses on manufacturing, services sectors with high added-value. MIDA. 30 May 2022. https://www.mida.gov.my/mida-news/penang-focuses-on-manufacturing-services-sectors-with-high-added-value/
  5. Penang: The Silicon Valley of the East. https://www.semi.org/en/sea-newsletter-penang-the-silicon-valley-of-the-east
  6. Ong Wooi Leng. Penang's Economy in the Immediate Post-Pandemic Period: Excelling in a Challenging Environment. Penang Institute. 24 September 2022. https://penanginstitute.org/publications/issues/penangs-economy-in-the-immediate-post-pandemic-period-excelling-in-a-challenging-environment/#:~:text=Penang's%20economic%20landscape&text=The%20manufacturing%20output%20expanded%20significantly,pie%20with%20the%20services%20sector.
  7. More manufacturers expected to relocate to Penang in 2023. Penang Property Talk. 2 November 2022. https://www.penangpropertytalk.com/2022/11/more-manufacturers-expected-to-relocate-to-penang-in-2023/
  8. US-based Manufacturer Lanco Opens New Facility at Batu Kawan Industrial Park. Invest Penang. 8 December 2022. https://investpenang.gov.my/us-based-manufacturer-lanco-opens-new-facility-at-batu-kawan-industrial-park/
  9. Bosch's Investment to entrench Penang's position in the Automotive Electronics. Invest Penang. https://investpenang.gov.my/wp-content/uploads/2020/06/Industry-Info_Bosch.pdf
  10. 50th Anniversary of Penang's Industrialisation: State Recognition Dinner 2022. Invest Penang. https://investpenang.gov.my/press-release-50th-anniversary-of-penangs-industrialisation-state-recognition-dinner-2022/
  11. Why Invest in Penang. Invest Penang. https://investpenang.gov.my/why-penang/
  12. Penang Set To Be An Innovation Supercluster for Manufacturing. https://www.nst.com.my/news/nation/2022/05/801073/penang-set-be-innovation-supercluster-manufacturing
  13. Scenario Planning: Possible Futures for Penang's Economy in 2030. https://thinkcityinstitute.org/wp-content/uploads/2021/11/Penang-Scenario-Planning.pdf
  14. Malaysia Free Trade Zones. https://www.tetraconsultants.com/jurisdictions/register-company-in-malaysia/free-trade-zones/
  15. Free Zone in Malaysia. https://www.industrymalaysia.com/free-zone-in-malaysia/
  16. Bayan Lepas Free Industrial Zone (FIZ). Wikimapia. http://wikimapia.org/40053169/Bayan-Lepas-Free-Industrial-Zone-FIZ
  17. Penang Port's NBCT gazetted as a free commercial zone. Penang Port. https://www.penangport.com.my/media-center/announcements/february-2021/penang-port%E2%80%99-nbct-gazetted-as-a-free-commercial-zo
  18. Infrastructure Management. MIDA. https://www.mida.gov.my/setting-up-content/infrastructure-support/
  19. Farah Solhi. Penang set to be an innovation supercluster for manufacturing. New Straits Times. 31 May 2022. https://www.nst.com.my/news/nation/2022/05/801073/penang-set-be-innovation-supercluster-manufacturing
  20. Penang Science Park. https://directorsdirectory.com/penang-science-park/
  21. Real Estate Law. Baker Mckenzie. https://resourcehub.bakermckenzie.com/en/resources/global-corporate-real-estate-guide/asia-pacific/malaysia/topics/real-estate-law
  22. How To Buy Land In Malaysia. JP Land. https://jp-land.com/how-to-buy-land-in-malaysia/
  23. PropertyGuru Editorial Team. Here's How You Can Buy Vacant Land In Malaysia!. PropertyGuru. 24 June 2022. https://www.propertyguru.com.my/property-guides/buy-vacant-land-malaysia-13369
  24. Attractive tax incentive for company relocating to Malaysia. Invest Penang. https://investpenang.gov.my/attractive-tax-incentive-for-company-relocating-to-malaysia/
  25. Why Invest in Penang. Invest Penang. https://investpenang.gov.my/why-penang/
  26. The Premier Learning & Development Institution. PSDC. https://www.psdc.org.my/about/our-story
  27. About Us. PENA Science CL. https://www.pscpen.com/about-us/
  28. Press Statement Penang Future Foundation ("PFF"). Chief Minister's Official Website. 25 March 2019. https://cm.penang.gov.my/index.php/en/all-stories/360534-press-statement-penang-future-foundation-pff
  29. Penang Future Foundation – Initiatives. Invest Penang. https://investpenang.gov.my/penang-future-foundation/

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