BUSINESS TRENDS

Singapore loses shine as Southeast Asia base for multinationals

Japanese and European companies weigh setting up elsewhere over costs

Singapore has long been a hub for Japanese companies' regional headquarters. (Photo by Fumika Sato)

FUMIKA SATO, Nikkei staff writerApril 10, 2024 07:10 JST

SINGAPORE -- Multinational corporations are increasingly locating some Southeast Asian regional headquarters functions outside Singapore to save money and pursue expanded opportunities.

For Japanese companies, Singapore remains the leading hub for Southeast Asian headquarters. But Sakata Inx, a maker of printing ink, established a regional head office in Malaysia this February.

The regional headquarters will oversee business in South Asia and Southeast Asia, including India, Thailand, Vietnam and Indonesia, with operations to begin in late 2024 or early 2025.

Sakata Inx already had a market presence Southeast Asia but had not set up a regional headquarters there until now. The new head office "will make it easier to serve customers in Asian countries," a company representative said.

The new headquarters is expected to add an extra 1 billion to 2 billion yen ($6.6 million to $13.1 million) to operating profit under the company's medium-term business plan through 2026. "Tax advantages" were the deciding factor in choosing Malaysia, a spokesperson said.

Malaysia's proposed fiscal 2024 budget introduced "global service hub" tax incentives for locating regional headquarters there, including preferential income tax rates of 5% to 10% for up to a decade.

Thailand is another leading candidate for drawing regional headquarters. The country is often picked in conjunction with plans to expand production and sales.

Nissin Foods Holdings moved its Southeast Asian headquarters from Singapore to Thailand in 2020. The Thai government is also working to lure multinationals via tax incentives.

Among Japanese companies with regional headquarters in Singapore, 31% had partly relocated their functions to another country or were considering doing so in a poll released this March by the Japan External Trade Organization. The share was up significantly from 7.4% in the fiscal 2019 survey.

Instead of shifting all headquarters functions out of Singapore, many Japanese companies have favored relocating specific functions, such as sales or corporate planning.

Thailand was the most popular destination among respondents that had moved or were considering moving functions to another country, with 19 companies. Malaysia came in second, with five.

"Thailand has a concentration of production sites, and there is activity to relocate sales functions away from Singapore and its small market," said Keisuke Asakura, deputy managing director at JETRO's Singapore office.

With office rents and other costs on the rise in the city-state, Asakura said that "partial relocations to Thailand are expected to accelerate for the purpose of reallocating functions, rather than full transfers."

Japanese companies are not alone in expressing concerns about Singapore's rising costs. In a 2023 survey by the European Chamber of Commerce in Singapore, 69% of respondents said they would be willing to move some personnel out, given the rising cost of operations.

Singapore still has the advantage in location, language proficiency and financial services. It does not appear that the city-state will be dethroned as the prime spot for regional headquarters.

A string of companies led by financial groups have moved from Hong Kong to Singapore since the Hong Kong protests of 2019. With Singapore, the exodus will likely be limited to sales and similar functions for the time being.