The crowded walkways of the Bukit Bintang district and its traffic-logged roads which lie on one of the busiest intersections of the Golden Triangle – Kuala Lumpur’s business and finance hub – bear all the hallmarks of a typical leisure and retail centre. While Malaysian shoppers and tourists stream out of the Pavilion Mall, which is the district’s glitzy shopping centre and home to foreign retailers such as Prada, Gucci, H&M and Gap, workers from neighbouring office blocks head into food outlets, from the Hutong Food Court, which serves up local Malay dishes, to US fast-food chain McDonald’s.

Bukit Bintang, which is one of Kuala Lumpur’s main shopping districts, has the hustle and bustle that is typical of city centres in most large metropolises. Yet the large influx of visitors to the district has been part of the longer term resurgence of Kuala Lumpur’s rapidly growing retail industry.

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While the Pavilion Mall, which is only just two years old, attracts close to 70,000 visitors a day according to the research firm Bursa Market Place, the Suria KLCC Mall, which is located at the entrance of the Petronas Twin Towers just a brief train ride away from Bukit Bintang, is a popular haunt for newly minted Malaysian millionaires and high-net-worth visitors from neighbouring countries such as Thailand and Indonesia, as well as countries further afield such as the United Arab Emirates and Kuwait in the Middle East. Situated in the Petronas Twin Towers, which is the most sought-after residential and commercial real estate building in Kuala Lumpur, Suria KLCC has become well known as a high-end shopping mall, hosting foreign brands such as Cartier and Versace, as well as local luxury shops such as BritishIndia.

Retail growth 

Although in recent years Malaysia’s robust GDP growth, which the World Bank estimated to be 4.7% for 2013, has been largely attributed to its oil and gas sector, with the country's electronics, tourism and financial services industries also playing an important role, the retail and wholesale sector has increasingly become a key contributor to Malaysia’s economy.

Kuala Lumpur been firmly at the heart of this, as retail sales in the city grew by 6% in 2012 according to the commercial property and real estate services advisor CBRE. Moreover, data from greenfield investment monitor fDi Markets shows that this sector has increasingly attracted foreign investors who, in response to low consumer confidence in Europe and North America, are becoming more and more attracted to dynamic and growing centres such as Kuala Lumpur. Indeed, in 2013 greenfield FDI into Malaysia's consumer products sector grew by 77%.

While the impressive growth in Malaysia's retail sector can be partly attributed to rising incomes among the country's growing middle and upper classes, a look around at the multitude of shoppers in Kuala Lumpur’s malls reveals external revenues from tourists is also a key source of growth. Being home to just 1.6 million people, Kuala Lumpur has historically relied on external trade and foreign demand for its products. Although boosting the wholesale and retail industries has featured prominently as part of the national government’s Economic Transformation Programme (ETP), the emergence of Kuala Lumpur as an international retail hub has been partly down to the government’s efforts to leverage the city’s historic appeal as a centre of trade, positioned at the crossroads of south-east Asia.

The heart of Malaysia

Located in the west of the Malaysian peninsula, Kuala Lumpur has historically been a hub of migration and trade in south-east Asia. Literally meaning 'muddy river confluence' in Malay, Kuala Lumpur was founded in 1857 at the meeting of the Gombak and Klang rivers, and it begun as a small tin-mining town which exported its produce to neighbouring regions. Heavily reliant on its external trade ties, Kuala Lumpur attracted migrants seeking work and it evolved to become a melting pot of cultures.

A large migrant labour force plays an indispensable role in driving the city’s economy, and while Kuala Lumpur is host to 1.6 million permanent residents, the city’s total population swells to more than 2.5 million people during the day as workers predominantly from Greater Kuala Lumpur and the surrounding Klang Valley commute to the city for work. Kuala Lumpur is made up of 40% ethnic Malays, 40% Chinese Malays, 10% Indian Malays and the rest are a mix of other ethnicities according to travel guide producer Insight Guides.

Although Kuala Lumpur historically experienced relative prosperity initially under UK colonial rule and in the aftermath of the departure of the British in 1957, after Singapore separated from Malaysia in 1965, Kuala Lumpur struggled for decades to compete with the city-state as a destination of choice for foreign businesses. Being smaller and having a more integrated infrastructure than Kuala Lumpur, Singapore grew more rapidly to become south-east Asia’s leading business and financial services centre for foreign multinational enterprises.

Low-cost destination

Yet as the costs of living and employing local talent has rapidly increased in Singapore in recent years, Kuala Lumpur has worked to market itself as an alternative and lower cost destination for global businesses. While Singapore was ranked as the least competitive destination in south-east Asia by professional services firm Deloitte, when it comes to the cost of commercial office space, Malaysia was ranked as one of the most competitive. Moreover, while financial services consultancy Mercer ranked Singapore as among the most expensive cities for businesses in Asia, with prime office space estimated to cost an average of $1130 per square metre, the prime office space cost in Kuala Lumpur was $505 per square metre.

As a result, Kuala Lumpur has experienced a significant resurgence in interest from foreign firms in recent years, leading it to be ranked among the top 10 emerging global cities according to professional services firm AT Kearney.

“Kuala Lumpur ranked at number 10 on our emerging cities outlook, which was because in the past five years the [Malaysian] government heavily invested in making Kuala Lumpur much more liveable, and it built better infrastructure to support its growth,” says Ooi Joon Leong, a partner at AT Kearney. “Kuala Lumpur has its attractions, and being based here gives you a lot more value relative to Singapore.”

Kuala Lumpur’s relatively low costs when it comes to rent have attracted talent from around south-east Asia, seeking employment in the city. While the cost of living deters many young workers from seeking employment in Singapore, Kuala Lumpur has become home to a rapidly growing population of highly qualified graduates.

“The cost of living [in Kuala Lumpur] is one-third of what one finds in Singapore and the Malaysian government spends RM40bn [$12.3bn] a year on subsidies, which makes life comfortable,” says John Meinhold, a senior partner at AT Kearney. In addition, the government’s continued investment into expanding Kuala Lumpur’s international airport has made it a well-connected trading hub with the rest of the region, making it significantly cost effective for firms established in the city to do business in neighbouring countries.

Being a maximum of five hours away from all 10 Association of South-east Asian Nations (Asean) members, Kuala Lumpur has become a highly attractive headquarter location for international enterprises seeking a cheap yet well-connected location from which to access market opportunities in the Asean region, according to Sy Wong, the managing director of gas supplier Linde Malaysia. “Geographically speaking, Malaysia is now very much in the epicentre of the Asean region,” says Mr Wong. “It is notable that one can reach all 10 Asean countries [within] five hours. Moreover the government has placed several incentives to make Kuala Lumpur internationally competitive, so this city is very well placed to rise in the coming years.”

Economic transformation

Another significant factor behind the rise of Kuala Lumpur has been the central government’s efforts to improve the city's operating environment through launching a targeted transformation programme. Launched in 2010 as part of Malaysia's National Transformation Programme, with a view to shifting Malaysia from a ‘middle-income’ to a ‘developed’ country by 2020, the ETP has implemented a host of initiatives to reduce constraints that businesses face when doing business in Kuala Lumpur and Malaysia.

Created to ensure that Malaysia’s economic growth is based on a sustainable and competitive economic model, the ETP incorporates two crucial elements. The first are the 12 national key economic areas (NKEAs) in which growth will be encouraged. These NKEAs include the sectors of oil, gas and energy; financial services; wholesale and retail; palm oil and rubber; tourism; electrical and electronics; business services; communications content and infrastructure; education; agriculture; healthcare; as well as the geographic areas of Greater Kuala Lumpur and Klang Valley. The second are the six strategic reform initiatives, which comprise policies formulated to promote a competitive business environment.

As part of its goals to enhance Greater Kuala Lumpur’s economic growth by attracting 100 of the world’s leading firms – in the process creating 320,000 jobs – by 2020, the Malaysian government has worked to establish a greener and more liveable city replete with iconic attractions and architecture to rival that of Singapore.

“Like any city, Kuala Lumpur it has its good points and its bad points,” says Stewart Forbes, the executive director of the Malaysia International Chamber of Commerce and Industry. “Nevertheless, much has been done to make Kuala Lumpur an extraordinarily liveable city. Things work well here, generally speaking, and Kuala Lumpur provides investors and their families with a very high standard of living.”

For its efforts, Kuala Lumpur has experienced a considerable boost in its appeal as an alternative headquarter location in the Asean region to Singapore. The decision by the World Bank to rank Malaysia as the sixth-placed county in its 2014 'Doing Business’ ranking reflects Kuala Lumpur’s importance as an entry point for businesses.

The down side

Critics maintain that a key concern in Kuala Lumpur is that economic progress has not been broad based and poverty remains a challenge. The poverty rate in Kuala Lumpur stands at 2.3%, below the national average of 7.5%, but economic exclusion remains a concern. Moreover, while the Malaysian government has extensively invested in developing the city’s transport infrastructure, a common complaint among business people is that this development still has not kept up with its economic growth.

Also, while the government has been vocal in promoting Kuala Lumpur as a headquarter hub in south-east Asia for foreign firms, Mr Meinhold at AT Kearney maintains that there is a disconnect between the rhetoric supporting foreign investment and the bureaucratic barriers when it comes to hiring foreign nationals.

“We bring in a lot of consultants from Europe for a long project, for instance, and they have to get a working permit to do that,” says Mr Meinhold. “Yet we still experience a lot of difficulties in getting this done and it’s a hassle. Petty crime is also an issue – lots of our friends have had their handbags snatched and their car windows smashed, so that is a negative.”

Yet Mr Meinhold is quick to add that far from being a challenge that is specific to Kuala Lumpur, such issues are present in many large metropolises, and much is still being done to improve the city.

“These problems are being addressed and as such they are becoming less of an issue – in fact with regards to security, I still feel safer walking through most parts of Kuala Lumpur at night than I would walking in South Auckland, Sydney and even London," he says.

"What attracted me to live here is that Kuala Lumpur has so many other advantages. English is one of the top languages – if you go to an office in Bangkok, for example, everybody generally speaks Thai. Add to that a legal system founded on the basis of the English system. Since I moved here more than 21 years ago, Kuala Lumpur, and Malaysia as a whole, has consistently grown except for one hiccup. While in Europe and the US, growth these days is at 1% or 2%, this city is growing well above this. The opportunities are here – much more than in the rest of the world.”