AS Southeast Asia rises in economic prominence, business leaders may be increasingly drawn to the region as a promising market for expansion. With Malaysia positioning itself as a strategic entry point, I sat down with Prime Minister Datuk Seri Anwar Ibrahim to discuss how the country’s resources and regional connections can benefit firms seeking to establish a presence there.

Why Southeast Asia is an Economic Powerhouse

The Association of Southeast Asian Nations (ASEAN) is a political and economic union of 10 Southeast Asian states, representing over 672 million people. Over the past decade, ASEAN has demonstrated remarkable economic growth, with an average annual GDP increase of 4.2% from 2013 to 2022, culminating in a total GDP of approximately $3.6 trillion. This growth has positioned ASEAN as the third-largest economy in Asia and the fifth-largest globally, behind only the U.S., China, Japan, and Germany, according to data.

Within this dynamic regional landscape, Malaysia exemplifies ASEAN’s economic appeal, attracting a record $74 billion in approved foreign direct investments (FDI) in 2023—the highest in its history. By mid-2024, the country had already secured an additional $36 billion, further cementing its pivotal role within ASEAN and highlighting the region’s attractiveness to global investors.

Prime Minister Anwar described ASEAN to me as a “vital trade platform,” offering “simplified access to ten markets in Southeast Asia.” He highlighted Malaysia’s central role within the bloc, emphasizing its initiatives to streamline trade flows and reduce bureaucratic hurdles to attract foreign investment. Malaysia’s strategic geographic position, he explained, also enables broader trade opportunities with non-ASEAN partners, including India and Australia.

Having reviewed Prime Minister Anwar’s analysis, Chidiebere Ogbonnaya—a professor of human resource management at King’s Business School, King’s College London—concluded that Malaysia’s commitment to trade facilitation reflects a broader global trend of governments strategically positioning themselves to integrate into and maximize the benefits of global value chains.


How Malaysia Fits into Regional Trade Dynamics

“Countries like Malaysia are leveraging their location and policy frameworks not only to attract investment but also to embed themselves within the production networks of advanced and emerging economies,” Ogbonnaya told me in an interview. He suggested that Malaysia exemplifies the theoretical framework of global value chain integration, where state-led initiatives and strategic geographic positioning enable firms to streamline cross-border operations, integrate into regional production systems, and enhance their participation in interconnected global economies.

To fully capitalize on Malaysia’s position within ASEAN and its broader trade connections, businesses must adopt a targeted approach. Engaging with Malaysia’s trade agreements is a critical first step, allowing firms to benefit from reduced tariffs, harmonized regulations, and streamlined customs procedures. These agreements provide a competitive edge, especially for sectors such as manufacturing, technology, and logistics.

Collaborations with local small and medium-sized enterprises (SMEs) offer another practical pathway. SMEs are often deeply integrated into local supply chains and have a nuanced understanding of regulatory requirements, such as halal certification in the food and beverage sector or sustainability standards in manufacturing. By partnering with SMEs, foreign firms can gain on-the-ground insights while building the operational flexibility needed to adapt to local and regional demands.

Government resources also play a crucial role in facilitating market entry. Agencies like the Malaysian Investment Development Authority (MIDA) and InvestKL provide businesses with access to market intelligence, tax incentives, and connections to key industry players. Engaging with these agencies early can help firms navigate Malaysia’s regulatory landscape while aligning their strategies with government-backed growth initiatives in high-priority sectors, such as digital technology and green energy.


Examining Malaysia’s Digital Economy

Malaysia has identified digital innovation as a key driver of its economic growth, with specific attention to high-value sectors like semiconductors and advanced technology. Data from Budget 2025 highlights substantial foreign investment in Malaysia’s digital economy, with nearly $17 billion contributed by AWS, Google, and Oracle. These investments highlight Malaysia’s integral role in global supply chains, exemplified by data from the first nine months of 2024, during which 14% of its semiconductor exports were directed to the United States.

Efforts to expand Malaysia’s digital economy are tied to its broader economic strategy, which aims for the digital sector to contribute at least 25% to GDP by 2025. Free Malaysia Today reported that this target could be surpassed, reflecting a rapid uptake of digital solutions across sectors. The country’s emphasis on comparative advantage, particularly in semiconductor manufacturing, aligns with global economic trends prioritising technological self-sufficiency. In his research, Ogbonnaya found progressive shifts in institutional systems can buffer against economic pressures, driving performance, social well-being, and sustainable growth. When done right, these innovations can address socio-economic challenges like unemployment and instability in labor markets, building resilience in competitive global markets.

For businesses considering digital expansion, Malaysia offers a skilled workforce, established infrastructure, and access to regional value chains. Firms entering the digital economy should identify sectors aligned with their expertise, such as fintech or green technology, and leverage government-backed innovation programmes to minimise barriers to entry. Partnerships with local technology hubs or research institutions can further streamline integration into the market. After all, these collaborations often provide a dual benefit of cost efficiency and access to emerging talent pools.

But while Malaysia’s digital economy shows promise, companies should remain aware of potential challenges, including regulatory frameworks that differ from those in Western markets. A nuanced understanding of local policies will be essential for firms aiming to scale their digital operations effectively.


Opportunities and Challenges for International Firms

Malaysia’s broader economic strategy offers multiple opportunities for foreign businesses, but these come with challenges that warrant careful consideration. On the one hand, the country’s infrastructure and regulatory stability provide a solid foundation for firms seeking regional headquarters or production bases. Its focus on skilled workforce development complements these efforts, ensuring businesses have access to talent capable of meeting industry demands.

However, firms must critically evaluate the potential risks of operating in a region marked by economic disparities and evolving political dynamics. While Malaysia’s political leadership has taken steps to stabilise the business environment, changes in regional trade policies or global market fluctuations could impact long-term strategies. Businesses should also consider cultural and regulatory nuances that may require operational adjustments.

To address these challenges effectively, companies should invest in comprehensive market research and establish robust contingency plans. Engaging with advisory services and industry networks can help firms anticipate challenges and adapt their strategies accordingly. Rather than viewing Malaysia as a standalone market, businesses should position it as part of a broader Southeast Asia strategy, taking full advantage of ASEAN’s interconnected economies.


Weighing Opportunities and Challenges

Malaysia’s positioning within ASEAN presents a compelling case for businesses aiming to enter Southeast Asia, but success will depend on strategic decision-making. Specifically, while Malaysia offers several advantages, including its geographic location, digital economy, and established infrastructure, these benefits must be assessed within the context of broader market dynamics. Firms that approach the region with a balanced understanding of both opportunities and constraints will be better positioned to thrive.

And so, Prime Minister Anwar Ibrahim’s emphasis on trade facilitation and economic partnerships highlights Malaysia’s regional relevance. Nevertheless, businesses should prioritise analytical evaluations of Malaysia’s policies and market conditions rather than rely solely on government-promoted narratives. By integrating Malaysia into a larger regional strategy, firms can unlock its potential as a gateway to Southeast Asia while navigating the complexities of an increasingly interconnected global economy.



The above article by Benjamin Laker is republished from the Forbes website.

Benjamin Laker is a university professor who writes about leadership.