MALAYSIA - The Iskandar region has long been touted as a cheaper destination for Singapore companies grappling with escalating costs at home, but the shine seems to be fading.
Industrialists cite the rising cost of real estate and labour, a lack of skilled workers and low labour productivity as among the reasons holding them back from shifting to the sprawling development across the Causeway.
"I've heard that it's difficult to hire skilled labour... Also, most of our customers are in Singapore and we would have to deal with Customs fees and longer lead times if we were there," said Mr Johnny Mok, assistant general manager of electronic component assembly firm Add-Plus.
Mr Mok visited Iskandar, which at 2,217 sq km is three times the size of Singapore, to scope out opportunities. But he eventually decided the company should stay put in Singapore.
It is a similar story for Mr Paul Lim, managing director of Craftech Printing Services. He has had to cope with a 10 per cent rise in rent every two years for the company's MacPherson premises, yet remains unconvinced that shifting to Iskandar is the solution.
"We have considered the possibility, but the workmanship and attitude of workers in Singapore tend to be better," said Mr Lim.
Mr Kurt Wee, president of the Association of Small and Medium Enterprises, said the association is "extremely conservative towards moves to Iskandar".
"It hasn't been an entirely successful low-cost venue... When people move there, it's a whole new set of problems," he added.
Wages, for instance, are only 10 per cent to 20 per cent lower than those in Singapore, and sometimes even on a par due to the tight labour supply, said Mr Wee.
Iskandar's proximity to Singapore also makes it tough for firms to hire Malaysians, as many tend to prefer working here and being paid in Singdollars, said Mr Victor Tay, chief operating officer of the Singapore Business Federation.
OCBC economist Wellian Wiranto said productivity levels in Malaysia have yet to catch up with wages. Coupled with rising inflation and government policies put in place to cool the property market, this is "likely to put a bit of a dampener on investor sentiment", he added.
In addition to wages, the rising cost of space in Iskandar is also giving companies pause.
Demand for sites was strong in the first half of last year as the buzz about the region drew companies, said Mr Wong Hsun-Min, head of business banking at RHB Bank Singapore.