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Penang eyes foreign companies to set up IT operations

KUALA LUMPUR -- Penang, an island north of Peninsular Malaysia, is home to a growing number of multinational companies setting up back office operations, lured by offers of tax breaks and abundant local talent.

     Hong Kong-based Kerry Logistics Network is the latest to open an information technology services center, joining more than 20 companies already there, including AirAsia, Citigroup, Dell and Wilmar International. The IT center will serve the integrated logistics company's operations in Southeast Asia as it expands in the region. China and Hong Kong account for nearly 60% of its sales currently.

     "We chose Penang because we needed an important point to serve Southeast Asia," said George Yeo, chairman of Kerry Logistics, during a press conference on Monday in Penang. As an offshore support center, it will serve the company's operations in the region, thereby achieving operational efficiency at lower cost, he added.

     Kerry Logistics is one of the companies controlled by Malaysian-born businessman Robert Kuok. His holdings also include plantation giant Wilmar and Shangri-La Hotels.

     Malaysia has been ranked the third most preferred outsourcing location after India and China by AT Kearney, a global consulting firm. Penang, in particular, has been trying to promote services sector such as business outsourcing operations and tourism. The opposition-ruled state is already a manufacturing hub for electronic goods, led by multinational companies including Western Digital, Intel and Toshiba.

     Last year, Penang, Malaysia's second-largest state in term of population, signed a 1.3 billion ringgit ($300 million) joint venture deal with Singapore's state investment company Temasek to develop a back office project in Bayan Baru, southwest of the island. The project entails the construction of 150,000 sq. meters of office space to meet the need for business outsourcing and IT-related operations. Singapore-based companies in particular are expected to utilize the facilities when they are complete in 2019.

     The state received 4 billion ringgit in investment between 2009 and 2014 from companies that set up shared business services. The government estimates that number will increase by 60% in the next three years. "Penang builds its strength around its existing competencies," said Lim Guan Eng, Penang's chief minister. "We need to attract the best international companies here."

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