SINGAPORE companies have been doing business in Johor for decades, but the past couple of years has seen a veritable stampede by firms rushing to set up operations there, particularly in Iskandar.
These firms are going across the Causeway because of rising business costs and an ever-tightening supply of labour at home. But their rush to move to Iskandar is driving up land costs and competition for labour there.
Nonetheless, the business environment in Iskandar is still not as tough as it is in Singapore for many firms and banks say they are seeing a steady stream of companies, both big and small, which are planning to relocate or expand their operations there.
At OCBC Bank, loans to Singapore small and medium-sized enterprises (SMEs), which are either setting up operations in Iskandar or already operating there, doubled last year from the year before.
The bank predicts that loans to such firms will increase by another RM500 million (S$207 million) this year and by three times over the next two years.
United Overseas Bank has seen a similar surge in Iskandar-related activity among its corporate clients. It forecasts that loans to foreign companies in Malaysia will double over the next three years.
DTZ South-east Asia chief operating officer Ong Choon Fah said Singapore firms occupy a substantial part of industrial estates in Iskandar.
"There was one I visited that was 70 per cent occupied by Singapore companies," she said.
Overall trend data is not easily available, but there has been a big jump in industrial prices as a result of all this interest, she added.
"For a long time, the focus was on residential property but, nowadays, more and more people are interested in developing industrial space in Iskandar," she noted.
"Some are developers, but some are end-users themselves, such as SMEs."
A big hurdle these SMEs face in building their own factories in Iskandar is the many layers of procedures that they have to go through, Mrs Ong said.
"Some SMEs are not clear on the rules, so if they had a one-stop centre to help them with applications, permits and licences, that would help them a lot," she said. "Right now, they have to go around and do everything themselves."
Companies should also take note that they will not be free to hire as many foreign workers as they like in Iskandar.
"For companies which are new to Malaysia, it's a bit difficult to get foreign workers because you don't have a track record," said Mr Joe Chong, chief executive of Malaysia-based SQM Chartered Accountants.
"There's no quota here but if you want to apply for foreign workers, you have to justify your needs by showing your operational and financial track record."
A company that is setting up its first factory in Iskandar would have to hire Malaysian workers first and build up a track record, before gaining approval to ramp up its workforce with foreigners.
An alternative in the meantime is to "outsource" their work. There are contract agencies in Malaysia which provide workers for various jobs. These workers remain in the employ of the agencies and can be outsourced full-time.