Market Longevity: How A Country Becomes A Datacenter Hub

By Justin Heyes. 7th July 2024

Malaysia is being heralded as a datacenter powerhouse in Southeast Asia, with projections showing that in a few years as more capacity comes online Johor Bahru alone will surpass Singapore. In fact, if all planned capacity comes online across Asia, Malaysia will only be surpassed by the larger countries of Japan and India (CNBC, 2024). As the country continues to attract investment owing to its ample resources, and friendly policies towards digital development such as the Green Lane Pathway, now is not the time to become complacent, but instead to look at ensuring this continued success.

Learning From Leading Markets

Traditionally the three largest hubs in the region have been Singapore (876 MW current live capacity), Japan (892 MW current live capacity) and Hong Kong (613 MW current live capacity), their longevity as the go to markets has been impressive, and lessons can certainly be learned as to what made them so successful. While the reasons for why development in each of those countries may be different to Malaysia’s own origin point, identifying the common traits that have made them so successful and appealing to investment, could be the key to driving further development and long-term benefits for Malaysia.

Singapore’s Success

Looking first at Singapore, the country’s prominence as a datacenter hub can be attributed to its value as a financial institution, early development of stable infrastructure and notably its three landing stations, with 17 active subsea landing cables connecting the to the EU, American and NEA markets. This connectivity has seen the country viewed as a strategic point for development, however in recent years the sheer growth in live capacity required has found the country struggling to accommodate this demand, if purely from a logistical standpoint of being a small island country, with limited resources and space. While the country has limitations as to how much further datacenter development can grow, Singapore has continued to be on the forefront of innovations and policies such as the Green Data Center Standard, to maximize its available resources.

Hong Kong’s Maintained Prominence

Similarly, Hong Kong’s ascent to prominence is as a financial hub, with a stable grid and its development of landing stations and international data traffic routes. While the country is currently in a similar position to Singapore in terms of simply being too small a nation to expand much further beyond its current capacity, Hong Kong has had more of advantageous approach to datacenter developments, being early adopters of a wholistic approach to the industry, with policies regulating power efficiency standards, building practices and sensible policies pertaining to power allocation, where power is allocated however unused power within three years of operations, is reclaimed. This has enabled the country to claim back unutilized power supply to enable new projects and avoid discussing a moratorium. Hong Kong also has projects in place, where they utilise some space for the development of AI for the country itself and has in recent years seen projects such as the traffic and foot traffic management systems come to fruition.

Japan’s Continuing Growth

Japan’s political stability and reliable electricity supply is appealing to the global investors looking to expand their datacenter portfolios in Asia. Japan also has fantastic international connectivity and has taken proactive steps in opening more of the country to development, with the Japanese government announcing subsidies of up to JPY45bn, to be distributed over the next four years to encourage further development outside of Tokyo. However, the revised Labor Standards Act in Japan will limit the amount of overtime that construction laborers are permitted to undertake, adding to the already existing strains on resource and lead times as well as cost escalation which is slowing development and causing concern for investors.

Looking To Malaysia

What Malaysia seems to be lacking comparatively to the three other developed countries, is something they all have in common, a direct connection to international markets through their own established subsea cable routes and landing stations. While this can be accounted for due to progress in this area being halted under the Cabotage Policy, there is a real and urgent need for Malaysia to look at developing its own direct access points into the country, to continue developing further demand and growth.

Malaysia may also want to consider adopting Japan’s policy for broadening development to more than one region of the country, through incentives. While Singapore and Hong Kong are pragmatically unable to do so, Japan has realized that the concentration of development with 85 percent of Japan’s server space within the Greater Tokyo or Osaka/Kansai area, is neither sustainable nor utilizing the space and resources the country has efficiently and is incentivizing this.

With strong infrastructure an abundance of land Malaysia could expand digital development outside of Johor. This enables further development and investment and provides an option. If Malaysia is still hesitant to develop landing stations, development in Kedah could service the landing stations in Southern Thailand creating a new hub like the one that has grown from servicing Singapore. This is an exceptionally appealing prospect with dark fibre already pulled from the landing stations, scalable power and water, as well as being located in one of the most optimal areas for renewable energy development through solar farms.

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