[SINGAPORE] Businesses that are looking to set up shop in Iskandar Malaysia to escape the tight labour market here may face a similar set of problems across the Causeway - a lack of skilled labour to support their operations.

The dearth of human capital tops the concerns of Singapore businesses looking to move to the Iskandar region, said Malaysian International Trade and Industry Minister Mustapa Mohamed. He was in Singapore yesterday to meet companies looking to expand or relocate there.

Mr Mustapa told reporters that he had met with the chairman and 12 board members of the Singapore Chinese Chamber of Commerce and Industry (SCCCI) and separately with six Singapore-owned SMEs yesterday to address concerns they had about moving to Iskandar.

"Labour keeps cropping up (in discussions)," said Mr Mustapa. He noted that the companies he spoke to did not have too many issues otherwise but the lack of skilled personnel stood out. He said it was a universal problem.

Nevertheless, it is a pressing concern for Singapore SMEs looking to expand there because there is "no point setting up business there if you cannot get people to work", said Chan Chong Beng, president of the Association of Small and Medium Enterprises (ASME) here. However, he said that the shortage of workers in Iskandar is not surprising, considering that Malaysia as a whole is facing a dearth of skilled manpower and even Kuala Lumpur has not been spared.

Part of the problem with Iskandar is that a high proportion of the skilled labour in Johor already plies daily to Singapore to work here. "The lack of manpower there is a very important issue as most of the skilled labour nearby is already coming to Singapore to work," explained Douglas Foo, CEO of Sakae Holdings whose plans to move there hinge on this issue being resolved.

"We need to convince some of our colleagues (in Singapore) to assist (in reducing their demand of skilled labour here) if we are to move forward with our plans," he added.

Mr Chan agreed that the inflow of skilled Malaysian labour into Singapore hampers ASME members' plans to expand into Iskandar. But he said that some SMEs here are exploring ways to overcome this structural problem.

"A lot of SMEs here are asking their Malaysian labour here, especially those that travel into Singapore every day, to stay in Johor and work in their operations there instead. In return they are even offering to continue to pay them in Singapore dollars," Mr Chan said.

In the interim, SMEs here are even asking their Singapore staff to work in their Iskandar operations, although Mr Chan admits that this will not be a sustainable solution in the long term.

Shifting the supply of labour from Singapore to Johor may just add more pressure to the already tight labour market here. And paying workers in Malaysia in Singapore dollars or sending Singapore workers to work there will only increase the cost of labour in Iskandar, which could ultimately erode the cost advantage Iskandar has to offer.

According to Mr Mustapa, the Malaysian government recognises the problem and is taking steps to address it. These include working with companies to identify Malaysian university graduates and training them in the required specialised skills.

It's not just the SMEs that are worried. Even large companies here, that are looking to Iskandar as a cheaper cost alternative, are hesitating in moving because of the labour shortage, Shankar Iyer, the former chairman of the Singapore International Chamber of Commerce (SICC) told BT.

The problem may only worsen as the Iskandar region develops due to the increased demand for labour, especially if infrastructure does not grow adequately.

"If you look at Nusajaya and Medini, there are very impressive projects coming up, but the problem is basically manpower in general, not just skilled labour, and part of this is because there is inadequate infrastructure to bring the people in from the rest of Johor," said Mr Iyer, who is chairman and CEO of The Iyer Practice.

As Iskandar grows, the rise in SMEs there, both domestic and foreign, will increase the demand for manpower. There are almost 70,000 SMEs registered in Johor now, with 85 per cent of them operating within Iskandar.

As at the end of the first quarter of 2013, the cumulative committed investment coming from Singapore into Iskandar Malaysia stood at 6 billion ringgit (S$2.4 billion). According to Ismail Ibrahim, the chief executive of Iskandar Regional Development Authority (IRDA), out of this amount, as much as 5 billion ringgit of investments into Iskandar are from Singapore manufacturing companies, most of them SMEs.