Oct 1996

Asia Inc

BUSINESS -- Asia's best business city -- Kuala Lumpur

By Salil Tripathi

Paradise Lost?

Navigating his car through the crowded streets of Kuala Lumpur, Malaysian architect Puvan Selvanathan remembers the time, barely a decade ago, when a ride across town was like a journey through a lush forest. Today, a jungle of another kind surrounds him -- of glass and concrete, with bulldozers pushing mountains of earth, clearing the way for yet another office tower.

Surveying the dusty landscape of K.L., watching trucks carry armies of skinny Bangladeshi workers, Selvanathan shakes his head and says: "This place has changed so rapidly. I feel nostalgic at age 28, while I'm supposed to feel that way when I'm 72!"

Life seems to be on permanent fast-forward in K.L. The Malaysian capital is basking in its ninth successive year of 8 percent growth as it marches firmly toward two key goals: hosting the Commonwealth Games of 1998, by which time some major urban infrastructure projects should be completed; and 2020, the target year set by Prime Minister Mahathir Mohamad for Malaysia to achieve developed-nation status.

K.L. has come a long way from the tranquil rubber plantations of times gone by. Today's congested city streets are lined with the offices of high-tech multinationals such as Matsushita, Motorola and Esso and probably more big-ticket urban-planning projects than any other capital city in Asia.

Situated at the heart of Southeast Asia, the city is a natural crossroads for three great trading nations of the next century, China, India and Indonesia. And its low-cost, relaxed environment comes up a winner compared with Singapore's escalating costs, Bangkok's strained infrastructure, Hong Kong's political uncertainty and Sydney's remoteness.

Though K.L. remains mired in serious problems -- visa restrictions for non-nationals, a dearth of skilled labor, traffic jams and occasional power outages among them -- they seem to have had little effect on foreign investment in Malaysia, which reached $3.64 billion in the first six months of this year -- nearly equaling 1995's total of $3.65 billion. Leading the way is Japan, with commitments of $840 million in 1995. Matsushita Corp. alone has more than a dozen consumer-electronics plants spread across the country. Rising domestic incomes have created an eager market: Last year, average income among Malaysia's 20 million citizens topped $10,000 on a purchasing-power-parity basis, one of the highest levels in Asia.

These days, the honey pot drawing foreign investors is K.L.'s astonishing number of infrastructure projects. Apart from the 40-hectare K.L. City Center (KLCC) project, which includes the world's tallest buildings, the twin Petronas Towers, other plans include an $8 billion national administrative capital named Putrajaya (about 25 kilometers south of K.L.) to be ready by 2005; a $3.6 billion international airport southeast of the city due for 1998; a $3 billion light-rail system to be completed in 1999; and a host of multi-use developments with futuristic names like Linear City, Vision City and Berjaya Star City.

Though some analysts are questioning whether K.L. is taking on too much at one time and whether it can possibly sustain such fast growth and low inflation (currently less than 4 percent), the immediate effect has been an unprecedented construction boom creating thousands of jobs and placing the city firmly on the map of global infrastructure companies and engineering consultants. Says Francis Yeoh, managing director of YTL Corp., one of Malaysia's biggest development companies: "K.L. is no longer a strange city to the foreigners. It's now pronounced correctly."

Murray & Roberts Contractors of Johannesburg is one of the converted. After economic sanctions on South Africa were lifted, it didn't take long for British-born naturalized South African Bob Harvey, managing director of the company's regional office, to choose K.L. as his base. "It's the cheapest city to live in and operate out of," he says. Singapore wasn't much of an option. "Goodness, the costs!" exclaims Harvey. "We found it incredible to have to buy a certificate to buy a car."

The new airport is also a selling point for K.L. "The future will be very different from the past," says frequent flyer John Smurthwaite, regional director for Southeast Asia of Frank Small & Associates, a Sydney-based market-research group. "Soon we'll have the most modern airport in the region." Between the airport and the KLCC will be a "multimedia supercorridor" -- K.L.'s multibillion-dollar plan to attract high-tech companies involved in computers, communications and electronic media. Mohd. Azzman Shariffadeen, director-general of the Malaysian Institute of Microelectronic Systems, a division of the Ministry of Science, Technology and the Environment, envisions a 40 km by 15 km corridor that will attract manufacturers of electronic components and silicon wafers, plus service companies involved in animation, imaging and other multimedia industries. "The corridor is our magnet," he says. After a meeting in June with Prime Minister Mahathir in Seattle, Microsoft Corp. Chairman Bill Gates promised to set up his regional headquarters in K.L.

For all the bragging rights associated with such megaprojects, Malaysia's road to 2020 still has deep potholes for foreign companies. One of the most serious is the difficulty of obtaining work visas for non-nationals. In short, the bureaucracy is overwhelmed by such peculiarities of a borderless economy as expatriate wives who want to work, women heading regional offices and non-American heads of American companies.

If Malaysia's bureaucrats aim to teach foreign executives the virtues of patience, it's being stretched to the limit. Since processing work permits can take up to a year, expatriates routinely enter the country on two-month tourist visas but travel frequently enough so as not to overstay their permit.

For some jobs, employers still need to fill out 13 copies of forms, and the Immigration Department rejects people without saying why. One multinational consulting firm was shocked to learn that its application for a foreign manager was rejected because he would report to a Malaysian. The official logic: If a department head can be a Malaysian, surely her subordinate should be one too.

Aseh Che Mat, deputy director general of the Immigration Department, flatly insists that his staff clears every application in four weeks. When faced with stories of delays, he says companies that hire clumsy agents are to blame. Still, change is clearly necessary. In March, a group of Indian engineers working on a Malaysian railway project saw a colleague arrested for not carrying his passport. The fact that the passport was at the immigration office for a permit renewal cut no ice with the police. Says Noordin Sopiee, director general of the Institute of Strategic and International Studies in K.L.: "We need to do one thing -- make it easier for skilled foreigners to come in."

Once newcomers arrive, though, they may confront some unexpected problems. Power outages, though sporadic, are spectacular in scope -- in early August, a peninsula-wide 17-hour blackout cost manufacturing businesses an estimated $50 million in lost productivity, causing considerable embarrassment to the Mahathir government, which had announced plans for the multimedia supercorridor just two days earlier. Serpentine traffic jams are another fact of life, reflecting tremendous growth in the number of vehicles on the road. Car production has doubled over the past five years, to a total of 230,000 units last year, 150,000 of them state-supported Protons.

At such times, neighboring Singapore, with its smoother traffic flows and almost faultless infrastructure, looks enticing. Yet K.L.'s significant cost savings -- prime office rents, for example, are a third of those in Singapore -- combined with a growing sophistication are helping it catch up. Says a Singapore-born publicist working in K.L.: "Frankly, I don't notice any difference between K.L. and Singapore."

Government attitudes, however, are a different matter. Says New Zealander Keith Hawke, whose company, Valiant Point Sdn. Bhd., makes TV programs and videos: "In Singapore, if your form is not filled out correctly, you have to do it again -- that's the law, no more discussion. Here at least they smile."

One of the first things newcomers observe is how the government's policy to promote bumiputras (Malays and other indigenous Malaysians) affects corporate decisions. Foreign companies, for example, are often informally advised to acquire bumiputra business partners in order to grease bureaucratic wheels. And ethnic-Chinese companies have long been involved in "Ali-Baba" partnerships, involving sleeping Malay partners. These days, many seem to take the pro-bumi policies in their stride. As one ethnic-Chinese businessman says: "The economy is booming, and we're all doing fine. There are no problems. I can't think of a country where so many races are living together so happily."

New investors can take comfort in Malaysia's British-style legal system and the K.L. Stock Exchange -- the third-biggest in Asia -- which will soon begin allowing foreign companies with "substantial" Malaysian ownership to list shares. The banking industry is modern, though no new licenses have been issued since 1979 and new foreign banks are nudged toward Labuan island, the offshore financial center in East Malaysia where outstanding loans now total about $6 billion against deposits of $3 billion (see "The Empire Cashes In," Asia, Inc., July 1996).

Last year, the government announced tax cuts for foreign companies setting up operational bases, matching the 10 percent tax rate of Singapore. "We copied the Singapore regulations," admits a senior bureaucrat. "We know Singapore is ahead of us, but the cake is large enough. If we won't give tax incentives, nobody will come."

As the tax reduction shows signs of attracting new companies, K.L. is becoming more cosmopolitan and sophisticated. Cellular phones are affordable. Signboards at bus stops teach simple phrases in foreign languages, including Korean, Japanese, German and French. Spoken English, though little used in government offices, is generally of an acceptable standard. When he first arrived, Karamvir Singh Bisht, an Indian engineer, was surprised by the English proficiency in Malaysia. "I'd like to, but I find I don't need to learn Malay," he says.

Political stability is a point of pride. The ruling Barisan Nasional (National Front) coalition has been in power since 1955, and today runs all but one of 13 state governments. Arguably, the government grants more room to its critics than do some of its neighbors, but censorship is still prevalent in this conservative country. Up until now, private individuals have not been allowed to own satellite dishes, though this is expected to change soon.

In a city where 30 percent of the population is ethnic Chinese and almost 10 percent Indian, local publications block out many references to race, religion, politics and other topics deemed too sensitive for public distribution. Foreign magazines, for example, are often told to cover up photos that depict women's breasts, even if the picture accompanies an article on cancer or artistic masterpieces.

Still, for all the restrictions, Malaysia-born Faridah Stephens, managing editor and director of Men's Review, a monthly that is risque by Malaysian standards, says she has taken liberties and gotten away with them. There are no real taboos, she claims. One just requires common sense.

Censorship aside, K.L. is known within the region for its relaxed local culture. As in Manila, residents know how to enjoy life and are quick to laugh at pressure-cooker Hong Kong and Singapore. At street level, the colonial buildings of old K.L. sit comfortably amidst the glass and chrome skyscrapers. Yet people in some of the older communities in the heart of the city, like the Malay enclave of Kampung Baru and the run-down Chow Kit, stubbornly refuse to budge from their prime real-estate. Walking the streets, visitors are easily transported back to an older K.L., redolent with the smell of durian and the shrill cries of cagey salesmen pitching virility products.

That landscape makes the city more human. Asks Matthew Geiger, an analyst with PhileoAllied Securities Sdn. Bhd.: "In which Asian city do [non-nationals] have the easiest access to local culture? It's K.L. In Singapore and Hong Kong, being an expat can act as a barrier, because of their bigger expat populations."

Though Muslim-majority K.L. has never been famous for its nightlife, there are a growing number of after-hours venues. Foreigners congregate at watering holes and trendy restaurants in the Bangsar area, a world apart from the claustrophobic feel of Hong Kong's Lan Kwai Fong or the unabashed sleaze of Bangkok's Patpong.

Upscale shopping centers like Starhill and Lot 10 are as chic as any in Singapore, boasting top brand names -- often at cheaper prices than in the Lion City. Says Peter Bostock, who runs BoMo Public Relations Sdn. Bhd.: "There's nothing that I can buy at [London department store] Harrods that's not available here. K.L. used to have this ulu [rural] feel about it, but look at it today!"

Posh new condominiums reflect this new sophistication. The rolling green hills that surround Kenny Hills or Damansara Heights may make residents forget they are city-dwellers. Three-bedroom apartments in prime complexes rent for about $2,000 a month, and executive-quality houses for $3,000-$5,000.

Weekend trips are easy to arrange, be they to the hills of Pahang state, the tea estates and orchards of Cameron Highlands or Malaysia's beaches. "If you're an executive who plays golf, then K.L. is better than Singapore," claims Chua Ma Yu, chairman of the Waterfront Group. "K.L. has three night golf courses, where you can play up to midnight," he says. And with corporate memberships ranging from $18,000 to $30,000, access to top clubs is cheaper than in land-scarce Singapore or Hong Kong.

For all its local pleasures, K.L. remains ulu for aficionados of Western culture, though things are improving. YTL's Yeoh, an opera buff who in 1994 flew in famed tenor Luciano Pavarotti to perform for invited guests at his upscale resort on Pangkor Island, admits: "Earlier, Malaysians were too busy with economic growth. But now the K.L. symphony is being revived and a national theater is being built."

Malaysia hasn't allowed its state religion, Islam, to alter lifestyles of the non-Muslims who live there. Unlike in some West Asian countries, where non-Muslim women employees can be sent home to change if they dare to wear skirts above their ankles, there is remarkable religious tolerance in K.L. There are occasional cases of insensitivity, though. On Palm Sunday in 1994, Malaysian authorities arrested suspected illegal Filipino maids as they gathered at churches.

In the end, though, the easy flow of life is one of K.L.'s best qualities. For a city that's rising so quickly, as architect Puvan Selvanathan notes, continued harmony, not to mention quality of life, may be one of the most towering goals of all.