Co-written by Jeremy Tan, CEO of Core Invest Institute & Bull Bear Vector
Malaysia’s Budget 2025 includes a pivotal introduction of the New Investment Incentive Framework, focusing on high-value activities rather than product-specific incentives. This framework will be implemented in the third quarter of 2025 and represents a shift in how Malaysia supports business growth and competitiveness. For micro, small and medium-sized enterprises (MSMEs), this offers an opportunity to enhance their economic moat—a concept popularized by Warren Buffett—by leveraging government support and strategic advantages like economies of scale, network effects, and switching costs.
In Part 1, we looked at key highlights of the budget for MSMEs in general and how they stand to benefit from the New Investment Incentive framework. In this post, we will examine the benefits for MSMEs in specific industries and how businesses can use this period (October 2024 to July 2025) to improve their economic moat and align themselves with Malaysia’s growth strategy.
Budget Highlights for MSMEs by Industry
Investment Tax Allowance for Smart Logistics Activities
SMEs involved in logistics can capitalize on this allowance, focusing on creating smart, tech-enabled logistics systems. This incentivizes SMEs to modernize their operations, improving efficiency and reducing costs—a key aspect of building a cost advantage, one of Buffett’s economic moat strategies. By investing in advanced logistics, SMEs can differentiate themselves and enjoy a long-term competitive advantage.
For example: SMEs in logistics can invest in AI to reduce costs by optimizing several key areas of their operations:
1. Route Optimization
AI-powered route planning tools can analyze vast amounts of real-time traffic, weather data, and delivery schedules to suggest the most efficient delivery routes. By reducing travel time and fuel consumption, businesses can significantly lower operational costs. Companies like UPS use AI to save millions by reducing delivery routes and fuel usage.
2. Predictive Maintenance
AI systems can predict when delivery vehicles will require maintenance based on data from sensors and historical performance, preventing breakdowns that could disrupt operations. This reduces costly repairs and the downtime associated with unexpected breakdowns.
3. Warehouse Automation
AI-driven robotics and automated sorting systems can streamline warehouse management by improving accuracy and reducing labor costs. Automated guided vehicles (AGVs) and robotic arms can handle inventory efficiently, decreasing the need for manual labor.
4. Demand Forecasting
AI can improve demand forecasting by analyzing historical data, market trends, and external factors like economic conditions. Accurate forecasts reduce overstocking or understocking, optimizing inventory management and cutting costs associated with excess stock or stockouts.
5. Autonomous Delivery
AI is key in developing autonomous vehicles and drones for last-mile delivery, which can reduce human labor costs. Companies like Amazon are exploring drone deliveries, which could drastically cut costs for SMEs in logistics, especially for smaller, high-frequency shipments.
6. Smart Contracts with Blockchain Integration
AI can be used to manage smart contracts in logistics using blockchain technology. This reduces administrative overhead by automating tasks like billing and contract enforcement, ensuring transparency and reducing the costs associated with human errors and disputes.
By investing in these AI technologies, SMEs in logistics can reduce operational costs, improve service efficiency, and remain competitive in a rapidly evolving industry.
Increased Allocations for Sustainable Palm Oil and Latex Production
SMEs in the agriculture sector will benefit from increased allocations aimed at sustainability and productivity improvements. These incentives provide a unique opportunity to scale up operations and adopt more sustainable practices, further lowering costs and improving yields.
Companies can also increase switching costs for buyers who favor sustainable products, creating loyal customer bases.
Khazanah Nasional’s RM1 Billion Fund for the Semiconductor Industry
SMEs in the semiconductor supply chain stand to gain from this fund, especially those involved in R&D, materials sourcing, and technology innovation. Semiconductor firms can develop a *network effect*, where the value of their business increases as more firms adopt their solutions or rely on their components. This network-driven economic moat is crucial in tech industries, as seen with companies like Intel or Nvidia.
Conclusion
Learning from an Industry Leader
An excellent example of how government incentives can benefit businesses is Tesla’s rise in the U.S. Tesla took advantage of government policies like electric vehicle (EV) tax credits, R&D subsidies, and green energy incentives to grow its market share rapidly. The company built an economic moat by creating *intangible assets* in the form of brand reputation for innovation and sustainability, as well as *network effects* through its supercharger infrastructure. These advantages, coupled with strong government support, allowed Tesla to dominate the EV market and expand globally.
MSMEs in Malaysia can follow a similar trajectory by leveraging the New Investment Incentive Framework and government initiatives to build sustainable competitive advantages.
Planning for Success Amid Tough Times
MSMEs play a crucial role in the national economic landscape, and with the right strategies, they can navigate challenging times and contribute significantly to the nation’s GDP. The New Investment Incentive Framework provides a rare opportunity for businesses to build sustainable economic moats and secure long-term growth. However, MSMEs need to plan carefully, align their products and services with high-value activities, and forge strong partnerships to push through challenges.
The key to success is not just in taking advantage of the incentives but in building robust business models that can thrive even when government support is scaled back. With the right strategic planning and focus on creating value, MSMEs can contribute to a stronger, more resilient Malaysian economy.
Investors seek companies that continuously enhance and strengthen their economic moat because these firms can maintain long-term competitive advantages, leading to sustained profitability and market dominance. A strong economic moat, such as cost advantages, network effects, or strong brand recognition, helps protect a company from competitors, allowing it to preserve its market share, increase pricing power, and generate higher returns over time. Companies that consistently build on their moat are better positioned to withstand market fluctuations, making them attractive for long-term investments.
By focusing on high-value activities, leveraging incentives, and building strong economic moats, MSMEs can ensure they remain competitive and contribute to Malaysia’s overall growth trajectory. Planning and foresight today will lay the foundation for success in the coming years.
Jeremy Tan is the CEO of Core Invest Institute and Bull Bear Vector, both financial education and analysis firms based in Singapore, focused on empowering investors and traders with tools, strategies, and insights. He is also an investment manager for a long-short GEM private fund and a seasoned stock and options trader delivering 43% ROI.
Core Invest Institute: This institute is dedicated to teaching value investing principles and options trading to help individuals build long-term and short-term wealth. It offers various courses and resources on understanding financial statements, assessing company valuations, and developing investment strategies based on fundamental analysis.
https://coreinvest.me
Bull Bear Vector: This AI platform offers advanced trading strategies with a focus on technical analysis. It helps investors make informed decisions in both bull and bear markets. Bull Bear Vector provides tools that help traders identify trends, patterns, and key market indicators to optimize their trading decisions. The firm caters to those looking to capitalize on short-term market movements while managing risk efficiently.
https://bullbearvector.com