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July 29, 2026

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Asia

What Network School’s closure tells foreign investors about doing business in Malaysia

The saga shows foreign investors need to understand Malaysia’s multi-layered regulatory system and navigate domestic political and geopolitical sensitivities, analysts say.

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JOHOR BAHRU: The Johor government’s decision to shut down digital nomad community Network School’s campus in Forest City is unlikely to affect the investment plans of global technology giants such as Microsoft, Google and Oracle, but may give pause to smaller investors and entrepreneurs considering Malaysia as a base, analysts say.

This is because tech behemoths’ investments typically involve long-term capital commitments, a high level of due diligence and close coordination with federal authorities, business consultants add.

But for smaller industry players, Network School’s fate in Malaysia shows how efforts to build a “creative ecosystem” may quickly unravel when politically contentious issues surface, as an observer put it.

Last week, Johor authorities ordered Network School to cease operations after revoking the business licence of its operator.

The Iskandar Puteri City Council (MBIP), which oversees business licensing in Forest City – a sprawling commercial and residential development – said investigations found the company had breached licensing conditions and failed to comply with the approved use of the premises, warranting enforcement action under its by-laws.

The community, which had hundreds of participants from countries like Russia, Canada and India, was founded by American investor Balaji Srinivasan, the former chief technology officer of cryptocurrency exchange Coinbase.

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Balaji Srinivasan, former chief technology officer of Coinbase, speaks during the SALT conference in Manhattan, New York City, on Sep 14, 2022. (Photo: Reuters/David ‘Dee’ Delgado)

Scrutiny of Network School stemmed from allegations that Israeli nationals were among its participants and had entered Malaysia using passports issued by other countries. But officials have not uncovered any travel-document offences so far.

Malaysia does not have diplomatic relations with Israel and bars Israeli passport holders from entering the country.

Analysts said the case holds several lessons for foreign investors: The importance of ensuring full regulatory and licensing compliance, understanding the division of powers between Malaysia’s federal and state governments, and recognising the country’s sensitivity to issues involving race, religion and the Israeli-Palestinian conflict.

“The lessons (for companies) are that reputational exposure on Israel-Palestine, Iran, or 3R-adjacent issues can trigger enforcement scrutiny and investment-freezing caution even when the allegations (turn out to be unsubstantiated),” said Johor urban planning expert and property consultant Samuel Tan.

The term “3R” refers to race, religion and royalty, issues traditionally deemed sensitive in Malaysia.

“Investors must avoid ambiguity in public branding or programming that could be read as (being) insensitive to race, religion or royalty. (There) is a much lower tolerance (threshold on these topics) domestically than most foreign investors expect,” Tan said.

WILL NETWORK SCHOOL EPISODE HURT MALAYSIA’S REPUTATION?

Network School’s closure has been criticised by some in the global technology community, who said it sends an unsettling signal about Malaysia’s openness to startups and digital nomads.

In a commentary for Malaysian news outlet The Vibes, Australian political commentator Murray Hunter said the closure “sends a chilling message” and suggests that “even modest attempts to build a creative ecosystem in Johor can be throttled”.

“This is not just a local loss. It risks deterring high-tech investors and the growing global community of digital nomads, estimated at 30–35 million and expanding rapidly,” Hunter wrote, arguing that digital nomads generate spillover benefits through local spending, entrepreneurship and knowledge transfer.

On LinkedIn, Network School alumnus Aaron T, an AI and blockchain strategist who said he spent time there in 2024 and 2025, said it would be “a great loss” if Network School ultimately redirected its capital and operations elsewhere.

The episode could have wider implications for tech startups built on blockchain technology and cryptocurrency that are considering a presence in Malaysia, he added.

Before the order to cease operations, Balaji himself had said the episode would be closely watched by technology executives – including those from Google, Amazon, Apple and Microsoft, as well as crypto firms such as Coinbase and Solana – who were thinking of expanding into the country. His post on Jul 16 on X was titled, “Should the global tech community continue investing in Malaysia?”

He claimed Network School had invested over RM100 million (US$24.5 million) in its Forest City campus and employed dozens of Malaysians, both directly and indirectly.

Last week, Balaji announced on X that Network School had signed a memorandum of understanding with Kazakhstan for a new campus, describing it as “a haven for global techno-optimism” that would actively recruit international talent.

Johor authorities confirmed on Monday that Network School has not appealed the revocation of its licence.

A Network School workspace is seen in Forest City, Johor, on Jul 16, 2026. (Photo: CNA/Zamzahuri Abas)

Despite the criticism, analysts said the episode is unlikely to materially affect Malaysia’s ability to attract large-scale technology investments.

Malaysia has secured multibillion-dollar investments from Microsoft, Google, Amazon Web Services and Oracle in recent years, largely centred on cloud infrastructure, artificial intelligence and data centres.

Viewfinder Global Affairs geopolitical consultant Adib Zalkapli said such firms operate under a vastly different commercial and regulatory framework.

“These multinational corporations operate on an entirely different scale. The Network School, by contrast, is a relatively small player with limited influence in the broader tech ecosystem,” he said.

“Its exit from Malaysia is unlikely to prompt major tech companies to reconsider their investments in the country or trigger a broader withdrawal from the market.”

The multi-billion dollar investments Malaysia has attracted differ fundamentally from Network School’s, in that they involve long-term capital commitments, extensive regulatory due diligence and close coordination with federal agencies before projects are approved, analysts said.

The Network School “fallout” was an “immigration optics” problem coupled with “genuine licensing non-compliance”, said property consultant Tan.

“The hyperscalers’ risk profile is a different regulatory conversation entirely, and one Malaysia has actively de-risked for these companies,” said Tan, referring to reducing uncertainties and costs for these firms by offering special financial incentives and infrastructural readiness.

Economist Sedek Jantan of IPP Financial Advisers agreed, noting that global technology firms typically make investment decisions over horizons of 10 to 20 years rather than in response to a single incident.

“Overall, I do not believe this episode fundamentally alters Malaysia’s investment proposition,” he said.

“While it may create short-term uncertainty and attract public attention, the country’s long-term competitiveness will continue to be determined by the strength of its economic fundamentals, institutional quality and ability to provide investors with a predictable, transparent and business-friendly operating environment.”

LESSONS FOR FOREIGN INVESTORS

The Network School saga offers two key lessons for foreign investors entering Malaysia, analysts said.

First, investors need to fully understand the country’s multi-layered regulatory system. Second, they need to know the importance of navigating domestic political and geopolitical sensitivities.

Unlike many foreign investors who deal primarily with federal agencies, Network School operated within a regulatory environment where responsibilities were split among different levels of government, analysts noted.

Business licences and land-use approvals fall under Johor’s local authorities while immigration, visas and foreign participants are regulated by the federal Home Affairs Ministry.

Johor executive councillor Mohd Jafni Md Shukor said on Monday Network School had applied for a business licence that was “very different from the actual operation”, resulting in breaches of its licensing conditions.

“That is why we terminated and cancelled it,” he said.

Adib of Viewfinder Global Affairs said there appeared to be no obvious grounds to reject the project when it was first proposed, but regulatory concerns emerged later.

Network School also struggled to manage perceptions surrounding its broader philosophy, analysts said.

It is inspired by Balaji’s concept of the “Network State”, which envisions digitally connected communities eventually seeking diplomatic recognition from existing governments.

While Balaji has consistently argued that such arrangements should be achieved only through negotiation with sovereign states, critics in Malaysia questioned how the concept would sit alongside the country’s strong emphasis on its sovereignty.

During a recent appearance on the Keris & Silicon podcast hosted by former Malaysian politician Shahril Hamdan, Balaji rejected suggestions that Network School sought to “extract sovereignty from existing nation states”, saying governments and digital communities could instead cooperate through “consensual negotiation”.

A man walks past Network School’s showcase of its workspace concept in Forest City, Johor, on Jul 16, 2026. (Photo: CNA/Zamzahuri Abas)

Analysts said the ideological debates overlapped with domestic political sensitivities after the allegations involving Israelis surfaced, and there was renewed scrutiny of Balaji’s previous use of the term “tech Zionism”.

Although Balaji had said the phrase referred to building communities around shared ideas rather than territorial claims, the term carried particular sensitivities in Malaysia, where public opinion on the Israeli-Palestinian conflict remains highly charged.

Sedek of IPP Financial Advisers said the episode shows that companies investing in Malaysia must increasingly treat geopolitical developments and domestic socio-political issues as core business risks rather than peripheral concerns.

These “material non-market risks”, he said, “increasingly influence investor confidence, customer behaviour, regulatory expectations and corporate reputation, and therefore should be managed with the same level of discipline as financial, operational and cybersecurity risks”.

Tan said the case shows that companies in Malaysia must understand the political and cultural context in which they operate, particularly on issues involving race, religion, royalty and the Israeli-Palestinian conflict.

“For businesses with any perceived tie to these fault lines, documentations such as passport/visa records, staff nationality disclosures are important so that a viral allegation can be refuted quickly and publicly, since the reputational-damage window is what does the harm, not the eventual finding,” he said.