Recent moves by companies such as Gardenia and H&M to shift some operations from Singapore across the Causeway have put the spotlight on Malaysia’s growing appeal as a more affordable base for businesses facing high costs and a tight labour market in the city state.

But while the trend may look like an easy win for its neighbour – bringing investment, jobs and spillover opportunities – analysts say the gains could come with trade-offs, as an influx of firms drives up competition for skilled workers and risks leaving lower-skilled staff further behind.

The shift also points to a wider regional recalibration, with other Southeast Asian economies such as Vietnam and Thailand positioning themselves as alternatives for companies moving lower-cost or labour-intensive functions out of Singapore.

On May 20, food manufacturing company Gardenia announced it was shifting its bakery production from Singapore to Johor Bahru, resulting in 141 employees being laid off.

The company said the move was part of an ongoing effort to improve operational efficiency and remain competitive amid an increasingly challenging global environment.

Earlier this month, Malaysian media reported that fast fashion retailer H&M would relocate its Southeast Asian headquarters from Singapore to Kuala Lumpur, affecting close to 80 roles in the city state’s office.

Wye Chung Khain, an associate professor of economics at Universiti Kebangsaan Malaysia, said Kuala Lumpur was a “highly complementary partner” to Singapore, given the lower costs offered by Malaysia’s tax incentives and cheaper labour and land costs.

“Malaysia’s larger population may also contribute to a higher availability of English-speaking, tertiary-educated youth specialising in human resources, finance, IT support and legal operations,” he added.

In March, drink companies Yeo’s and Asia Pacific Breweries Singapore (APBS) announced they were moving production to facilities in Malaysia and Vietnam.

Yeo’s said the shift would streamline production and use capacity more efficiently but its Singapore site would remain its headquarters and logistic hub.

Heineken, who owns APBS, said the brewery’s facility in Singapore would be redeveloped to support regional logistics and product development.

Brian Lee, an economist at Maybank Securities, noted that rising production costs were prompting Singaporean firms to relocate labour and land-intensive production activities overseas, while retaining knowledge or capital-intensive operations locally.

Analysts say firms most likely to relocate include those in industries such as food and drink, manufacturing, data centres and cloud infrastructure.

“Back-office corporate functions have been offshored to more....