The world’s 7th largest economy in 2014 and expected to become the 5th largest by 2018, Southeast Asia is a focus of global economic growth and opportunity due to an expanding middle class, increasing exports and the enactment last year of two trade pacts, the Trans-Pacific Partnership (TPP) and the ASEAN Economic Community (AEC). Of the 11 countries that make up the Association of Southeast Asian Nations, Malaysia is the 3rd largest, following Singapore and Brunei Darussalam.

In the short term, factors such as declining oil prices, the devaluation of the ringgit and slower export growth have reduced Malaysia’s rapid growth. Malaysia’s GDP rose 4.7% in 2015, according to the World Bank, decelerating due to lower commodity prices, China’s economic slowdown and weaker domestic demand. In 2016, GDP is forecast to increase 4.5%.

Nonetheless, the mid-term outlook suggests new growth drivers. The TPP is expected to add 8.0% to the country’s economic growth and boost exports 20.1% by 2030, according to a January World Bank report, due to the export advantages Malaysia will have over nonmember countries in the region. Electrical and electronic products represented 36% of Malaysian exports last year. Chemicals and chemical products, and petroleum products each accounted for 7%. In 2014, exports of goods and services accounted for 76% of GDP, according to the World Bank.

With the aim of increasing productivity and innovation, last summer, the country announced its 11th Five-Year Plan, covering 2016–20. The plan aims to increase investments and grow exports, with a transition to the manufacturing of more complex products and an increasing quality of life. One goal is to grow R&D as a percentage of GDP from 1.13% in 2012 to 2.0% in 2020.

To serve the region’s evolving manufacturing base and increasing investments, instrument and lab product companies are expanding their presence in the country. Last year, QIAGEN, Shimadzu and Waters announced new or expanded operations in Malaysia, targeting industrial, applied and research markets, ranging from oil production to food testing to life science research applications.

To capitalize on growth opportunities in Asia, Waters opened direct operations in Malaysia last October for both its Waters and TA Instruments Divisions. The Malaysian subsidiary has 20 employees, according to Mike Harrington, PhD, senior vice president of Global Marketing at Waters. “Nearly 80% [are] in customer facing sales, service and support roles,” he told IBO. “With solid demands and adoption for advance analytical technologies in diverse markets segments, Malaysia is a very competitive environment where customer support and understanding is becoming more and more important.”

The primary end-markets served by Waters in Malaysia are pharmaceuticals and biopharmaceuticals, food production, petrochemicals, palm oil and government research institutes. Demand for analytical instrumentation is primarily driven by the export sector, according to Dr. Harrington. “Companies such as Biocon (India), Sanyo (Japan) and Oncogene (India) have all set up manufacturing facilities in the last 2–3 years to serve the ASEAN region. All of these companies require analytical technologies as their QC and development departments.” As part of its National Key Economic Areas program, the Malay government is promoting generic drug manufacturing and production of Halal pharmaceuticals. However, the country’s manufacturing base is already well established. “Historically, Malaysia has one of the highest chromatography, MS and thermal analysis installed bases in the ASEAN region,” he said.

Although it is too early to gauge the impact of the TPP on Waters’s business in the country, according to Dr. Harrington, it can be expected to increase exports. He cited food, petrochemicals and pharmaceuticals as three sectors that could be positively affected. More stringent standards in addition to greater volume could impact testing. “One example would be the increasing regulations and vigilance around food safety and security adopted by many of the countries targeted for Malaysian exports,” he noted. “Also, the TPP is likely to bring increasingly stringent control and regulation on goods traded between the partners.”

In addition to the trade agreement, the Malaysian government continues to expand incentives for foreign and direct investment. “The Malay government is incentivizing industry through its domestic direct investment efforts for such activities as R&D initiatives, compliance programs, technology licensing and purchasing, and testing/certification efforts,” explained Dr. Harrington. “We are seeing these initiatives along with growing regulations in palm oil, food security and pharmaceutical applications.”

Shimadzu opened direct operations for its Analytical and Measuring Instrument business division (AIM) in Malaysia early last year. The new subsidiary also incorporates the company’s existing direct business for medical equipment. The Malaysia facility includes manufacturing, an application lab, sales and support. The total facility will be 945 m2 in size. Shimadzu estimated Malaysian revenue for AIM to reach $15.1 million by 2018, or nearly 75% of the subsidiary’s total sales. Shimadzu sells certain analytical instruments, such as HPLCs, direct in the country, but continues to use distributors for other types of systems, such as XRF and XRD spectrometers. Manufacturing of products, initially HPLCs and UV-Vis spectrometers, for sale in the region are scheduled to begin this year.

The subsidiary has 19 AIM employees, according to Stanley Tan, Senior Manager of Shimadzu Malaysia. As he told IBO, the major private sector end-markets for AIM in the country are the palm oil, pharmaceutical, petrochemical, food and beverage, and rubber and plastics industries. The fastest growing sectors are palm oil, and rubber and plastics. Major public end-users are academia, R&D and regulatory enforcement, which is the fastest growing. “Malaysia is a rapid growing market since the Malaysian government is working actively to achieve its Vision 2020,” said Mr. Tan. Launched in 1991, Vision 2020 is the government’s ambitious plan to become a developed economy by 2020. Investments related to the plan have been a stimulus for government spending on analytical instruments. “Fiscal spending and investment of the private sector on R&D, higher education, and extensive regulations aimed at fulfilling Malaysia’s Vision 2020 are the greatest contributors,” he said.

DKSH, a CHF 10.1 billion company ($10.5 billion = CHF 0.96 = $1), provides market expansion services, including sourcing, marketing, logistics and distribution, for companies across a range of industries, specializing in Asia. The company’s Scientific Instrumentation business serves analytical instrument companies such as Agilent Technologies, elementar and Malvern Instruments. “For sales excellence, we provide our clients with wide market coverage to reach the highest number of potential customers through a systematic sales approach,” explained Robert Puschmann, managing director, Technology, Singapore & Malaysia for DKSH Scientific Instrumentation. “In terms of service excellence, we provide warranties, spare parts stocking, repairs, sampling, leasing and preventive maintenance to our customers. This sales and service excellence is supplemented by laboratories to demonstrate equipment with the aim of bringing the applications from our clients to our customers.”

According to Mr. Puschmann, the Malaysian market is characterized by two types of instrumentation segments, general instruments and instruments for specific applications. “The market for general purpose equipment, such as HPLC, GC, UV-Vis and AAS [atomic absorption spectrometry] is very broad. In contrast, equipment for specific applications such as XRD, XRF and particle sizers deserves niches and results in smaller market sizes.”

DKSH has an over one hundred year history in Malaysia. Reflecting on this market’s changes in recent years, Mr. Puschmann told IBO, “Customers, independent from industry type or sector, are consistently seeking partners who can offer services that complete the value chain, whether this is application development, sampling, training or logistics.” This has benefited DKSH Scientific Instrumentation. “We increasingly see customers’ needs to source all of their products and services from one partner, and this is where DKSH’s advantage lies. Laboratory solutions along the entire value chain have become more important.” He added, “We at DKSH go one decisive step further, by offering various services from design and construction of entire laboratories (including furniture) to consumable sales of relevant equipment within the laboratory. We see more customers searching for a single contact point who can support the service management of all their equipment, independent from the supplier, for their laboratories.”

Another change has been a diversity of the customer base. “Until recently, growth in Malaysia was mainly driven by heavy government investments in education, oil and gas and infrastructure. While this is still true, we are increasingly seeing more small and medium-sized enterprises—or SMEs —understand and give importance to the value of producing high quality and reliable equipment as they are being requested by customers in both the local and export markets.”

The country’s 11th Five-Year Plan began this year, creating new opportunities related to domestic investments. “For scientific instruments, this will create opportunities within the cement sector, propelled by demand from the development of new metro lines, within the oil and gas industry by the RAPID [Refinery and Petrochemical Integrated Development Project], one of the largest investments made in the past 20 years, and within the health care sector due to increased government spending to upgrade facilities and instruments,” explained Mr. Puschmann.

He also expects the TPP to play a role in growing instrument demand in the country, as foreign countries’ products will have greater opportunities in the market. “With Malaysia being the second largest palm oil producer in the world, we see the potential to increase efficiencies and yield through analytical technologies for agriculture, also driven by the emerging middle class.”