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    Jan 20, 2014

    SMEs rethink Iskandar plans as costs rise

    SOME Singapore businesses are finding out that Iskandar Malaysia, touted as a more cost-effective destination for them, is no longer that cheap.

    The rapidly rising land costs there, in addition to inadequate infrastructure and manpower challenges, are forcing some home-grown small and medium-sized enterprises (SMEs) to rethink their plan to set up shop in the southern development corridor of peninsular Malaysia.

    The Iskandar Malaysia website said commercial-land prices there are expected to have gone up by at least 10 per cent in the course of last year alone; at the start of the year, land there had cost up to about RM400 (S$154) per square foot.

    But some Singapore SMEs say the quantum of the rise cited is a conservative estimate.

    When Mr Tommy Lim, the chairman of manufacturing company Tri-Star Industries, was looking to acquire more land to add to his 20,000 sq m of factory space near Pasir Gudang, he was shocked to be quoted S$300 per sq ft for an industrial space in the Iskandar region, which he said was "almost comparable to Singapore rates".

    He revised his plans and invested in new machinery to scale up production at his existing factory instead.

    Craftech Printing Services was turned off setting up in Iskandar by the lack of available talent there. Its general manager, Mr Paul Lim, told The Business Times that the company has chosen to stay put in Singapore.

    But it is not as if this was the easy option. To remain here would entail dealing with high business costs and a tight labour market, which is why some companies bite the bullet and consider going to the Malaysian economic zone - its challenges notwithstanding.

    Mr Lim said: "In Singapore, there are constraints on land and labour, and it is also too expensive to produce here."

    Referring to Iskandar's shortfalls in terms of skilled manpower and security, he said "these are things you get used to", because cost remains the prime factor.

    Among the companies that have already moved to Iskandar is precision-engineering company Grand Team Technologies, which has a 1,000 sq ft facility in Ang Mo Kio; it is also awaiting the completion of its factory in an industrial park in Kempas, a suburb of Johor Baru, and is scouting for another site for possible expansion.

    Mr Jason Ng, the company's managing director, said the high costs and tight labour market in Singapore are eating into his company's profits. He acknowledged that Iskandar is beset with its own manpower issues, but said that, for operations needing fewer than 50 employees, such as his, this is less of a challenge.

    Recognising that SMEs here may still need to move away from Singapore to survive, the Singapore Manufacturing Federation last week launched a website to help companies here expand into Iskandar and the Riau islands of Indonesia.

    The one-stop Business Expansion Programme portal features a self-assessment tool, and provides information and case studies to help SMEs draw up their moving plans.

    The portal is expected to help them reduce the initial cost in expanding - a factor that may help SMEs overcome the rising cost pressures in Iskandar.