Malaysia, Rising Startup Tiger of Asia

While not on the agenda, Malaysia seemed so close. I was already in Hong Kong with time to spare. The four hours to Kuala Lumpur, or KL as it’s known, was a relatively short hop compared to the excessively long NYC to Hong Kong flight. Why not go?

I found a tour that arranged flights, hotels, meals, and itinerary for a full week across Peninsular Malaysia. The tour covered Melaka, Port Dickson, Genting Highlands, KL, and a few other spots. I figured this would be the quickest way to experience a good portion of Malaysia

Turns out I was wrong. I ended up on a mostly Chinese-speaking tour. We ate only at Chinese restaurants. Most of our tour stops involved visiting warehouse factory shops. I smelled of smoke for weeks after walking through the casinos in Genting.

I plotted my escape in KL. I met up with some family connections and finally discovered the real Malaysia at a hawker centre in the middle of the city. I had found home in big bowls of laksa, rich beef rendang, smokey sticks of satay, and charred ikan bakar covered with sambal sauce. After exploring the streets of KL, I camped out in Pangkor Island scootering across the island on my rented 150cc moped.

It would be years later beforeI found my way back to Malaysia earlier this year. I had the pleasure of hosting an impromptu meetup in KL, gathering fifty startup founders and developers to a low-key bar in Chinatown. The conversations during the event and in meetings afterwards gave me a much better perspective on rapidly expanding startup community in Malaysia.

Malaysia has seen some inspiring startup success stories over the past dozen years. Carsome became Malaysia’s first unicorn startup in 2021. The Southeast Asia superapp Grab became the region’s first decacorn, and while headquartered in Singapore, began operations as MyTeksi in Malaysia in 2012. Seeing the need for more startup innovation in the nation, the government launched the Malaysia Startup Ecosystem Roadmap (SUPER) in 2021, setting ambitious goals to create a more vibrant and economically impactful startup ecosystem.

When compared to other ASEAN nations, Malaysia has much to offer. Though a smaller nation of 34 million people separated into two land masses, it has punched above its weight in terms of economic growth and living standards. KL is a modern, bustling, and cosmopolitan city with towering skyscrapers, including the second tallest building in the world. There are world-class resorts in Desaru, Langkawi, and Penang. The country is a wonderfully diverse mix of cuisines, languages, art, and culture. The economy has grown at a steady 5.1% year over year for the past decade (disregarding COVID), and low unemployment and inflation rate. According to the World Bank, within a single generation, Malaysia has transitioned from an upper middle-income economy to being on the cusp of achieving high-income status.

Much of this success in a relatively short amount of time is due to the diversification of its key industries. While heavily reliant on commodities and agriculture in previous decades, Malaysia now has a vibrant manufacturing and financial services sectors. Malaysia has also become a regional technology powerhouse, built on the foundation of the MSC Malaysia (Multimedia Super Corridor) launched in 1996 to transform Malaysia into a global tech hub through tax incentives, IP protections, and high-speed connectivity.

Over the last few visits to Malaysia this year, I could sense there was enormous opportunity for business here. Beyond just the glittering Petronas Towers, impressive malls, and well-connected transportation systems, there is an entrepreneurial energy and hustle in KL and other emerging hubs like Penang and Kuching. I could see why more people were launching tech startups in Malaysia, but what were the reasons they were doing that in Malaysia versus elsewhere?

I decided to reach out to my network in Malaysia to gather their thoughts on why they believe Malaysia is a great place to launch and grow a startup. Below are some of the top reasons from most mentioned to least by over sixty respondents covering founders, investors, ecosystem leaders, and government officials to a survey on Malaysia’s startup ecosystem.

Cost Advantages: The Foundation for Longer Runways

The most frequently cited reason for choosing Malaysia is its significant cost advantages. Unlike its more expensive neighbors, Malaysia offers entrepreneurs the ability to stretch their capital further. Operating costs, from office space to daily expenses, are substantially lower than in nearby Singapore for example. This cost efficiency extends to staffing, with competitive salary structures. All of this helps startups to extend their runway while developing their product.

Talent Pool: A Multilingual, Tech-Savvy Workforce

Malaysia's second biggest draw is its talent pool. The country has one of Asia's highest English proficiency rates outside of Singapore, but also has multilingual capabilities in Chinese, Tamil, Hindi, Malay, and many other international languages. Many respondents also described the workforce as hardworking and agile. The talent pool is particularly strong in technical areas, with expertise in semiconductor and hardware, and a growing community of tech founders and software builders bringing global experience into Malaysia.

Government Support & Ecosystem: A Growing Network of Resources

There has been significant support from the government for startups. The launch of MYStartup Single Window and the Malaysia Startup Ecosystem Roadmap (SUPER) shows the country's long-term commitment. Organizations such as MDEC and MaGIC (now rebranded as MRANTI) have been instrumental in providing resources for early-stage startups, while government funds like Khazanah Nasional and EPF bolster a growing venture capital landscape. New players like Antler are also entering the market, adding to the network of incubators and accelerators. Lastly, major tech companies including AWS, Microsoft, and Google have been investing in Malaysia, with AWS opening a data center this year, and Google and Microsoft committing to data center launches within the next couple of years. Nvidia is also partnering with Malaysian power conglomerate YTL to build AI data center infrastructure in the country.

Strategic Location & Market Access: Gateway to ASEAN

Malaysia's position in Southeast Asia makes it an ideal launch pad for regional expansion. Its strategic location, combined with strong infrastructure and air connectivity, provides easy access to larger ASEAN markets. The country's unique cultural and business links to major markets like China, Indonesia, and India create natural advantages for cross-border growth.

Infrastructure & Business Environment: A Solid Foundation

The country offers entrepreneurs a strong foundation with well-developed digital and physical infrastructure. The business environment is governed by British common law, providing familiar legal frameworks for international founders. Political stability, business-friendly regulations, and straightforward company setup processes make it easier for startups to establish themselves.

Regional Development: Beyond the Klang Valley

While the Klang Valley remains Malaysia's primary startup hub, significant development is happening across the country. Sarawak, for instance, has ambitious plans to build 500 high-value tech startups by 2030, supported by multiple Digital Innovation Hubs across different cities. Penang is the second largest startup hub in Malaysia with 150 startups that gave rise to success stories like Jobstreet (bought by SEEK) and Piktochart. The country is also developing specialized ecosystems in hardware and semiconductors (for example, Vitrox and Inari), and growing capabilities in GenAI/AI, agritech, travel tech, and renewable energy.

While these are all compelling advantages for startups, founder in Malaysia still experience significant roadblocks to building and scaling their startups. That same survey asked about the key challenges faced by startups located in Malaysia, shared in the following responses.

The Funding Puzzle: Limited Last Stage Capital

Founders consistently point to funding limitations as a major hurdle. Local investors and VCs tend to be risk-averse compared to their regional counterparts. The funding gap becomes especially acute at the Series B stage, hampering regional expansion plans. While grants are available, they involve multi-month processes with multiple approval layers.

The Talent Conundrum: Brain Drain and Skills Gap

Malaysia produces high quality talent but retaining them has been difficult. Many specialized professionals, especially in AI, machine learning, and data science, are drawn to better paying opportunities in Singapore or overseas. This brain drain creates competition for the remaining talent, driving up costs for resource-constrained startups. The situation is further complicated by bureaucratic hurdles in hiring foreign talent, with work permit processes often described as slow and complex.

Red Tape: Navigating the Regulatory Landscape

Bureaucratic processes remain a significant pain point. Founders report spending valuable time navigating complex company setup procedures, dealing with multiple agencies, and managing paperwork requirements like "wet signatures" and notarizations. The paperwork adds up with one founder noting that it, “cost us $20,000 USD to setup Labuan entity!” Banking procedures, particularly for foreign entrepreneurs, can be especially challenging, with some nationalities reporting significant difficulties in opening business accounts.

Ecosystem Growing Pains: The Collaboration Gap

There's disjointed collaboration between government, academia, and the private sector. Some view the government’s efforts as merely a “pat on the back” and that officials do not have a realistic understanding of the ecosystem. This can be observed in the confusing number of state-level initiatives creating a fragmented support system that is difficult for founders to navigate. Furthermore, Malaysia has few established startup success stories and founders with global scale-up experience to provide mentorship for newer startups.

Regional Competition: The Singapore Shadow

While the country offers cost advantages, Singapore has done a better job in drawing startups to build in Singapore. Founders cited that Singapore offered greater access to capital, more legal transparency, lack of corruption, and less red tape. Some founders noted the key to unlocking Malaysia’s advantage is to “earn in USD and spend in MYR”, which can overcome the allure of Singapore and other high-cost startup hubs despite the inefficiencies.

Despite these challenges, most founders remain optimistic about Malaysia. Like the Malaysian tiger, it is a country is small but mighty. As one respondent noted, "The ecosystem is in motion, it's now or never and Malaysia is in a good place to ride the wave and shine."

The ecosystem is still developing its late-stage funding capabilities, and there's a need for more success stories in tech startup scaling. As one successful founder advised, "Most startups are very focused on the Malaysia market, which is a bit of a wasted opportunity... The key for us was to be global from day one while operating in Malaysia." This approach offers a blueprint for leveraging Malaysia's distinct advantages.

However, for entrepreneurs looking to start their journey, test their product, and expand across Southeast Asia, Malaysia offers compelling advantages that make it increasingly attractive for startup founders. The country's mix of cost efficiency, talent availability, and strategic location, combined with government support, positions it well to become a key hub in Southeast Asia's startup landscape. As one founder said, "Malaysia can be a powerhouse for regional expansion, with communication, adaptation, and execution capabilities that top certain talents.”

If you are building a startup in Malaysia, what have you found to be the best aspects of building in Malaysia? What have been the biggest obstacles? What resonated most for you in this post?

MARK BIRCH

This is an extra serving of Founders in the Cloud this week, taking a few weeks to pull the data and research together to create this startup ecosystem report of Malaysia.

The most important input that made this report possible though was from my wonderful and gracious network in Malaysia. Over sixty people took time out of their day to respond to this survey and freely share their views. While some wished to remain anonymous, I wish to thank and acknowledge the following people for their support:

Abdou Sairi, Abdul Herbli, Ahmed Shochin, Azmi Yaacob, Ben Bagg, Chris Birrell, Curry Khoo, Dave Chew, Devan Arumugam, Diego Rojas, Edwin Fong, Elaine Khoo, Eliza Thea Topaz, Eugene Gan, Fabian Tan, Fernando Carrasco Schirmer, Gerardo Salandra, Hafiz Zainudin, Jason Sosa, Johnny Teoh, Justin Tiew Senn, Kevin Brockland, Khalil Nooh, Leo Tan, Melly Ling, Navin Danapal, Raheel Zubairi, Ridhwan Ramli, Sonia Ng, Stark Liew, Tzu Ming Chu, Valentin Boré, Vin Lim, Wan Azlan Wan Mansor, Warren Leow, Yuhwen Foong, Zehan Teoh.

I would also like to give a huge shout out to Javier Ruiz, who has been a stalwart in supporting the startup ecosystem in Malaysia as well as a friend and guide to me in diving deep into this topic.

Next week I will be back on the normal schedule with an update about my amazing week in Kaohsiung for HackerHouse Taiwan!