Companies are increasingly shifting operations from Singapore to more affordable regional hubs like Malaysia due to rising costs and tight labor markets. While this benefits neighboring countries, analysts warn of potential trade-offs from increased competition.

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....