Malaysia's Ambitions in the Semiconductor Industry
Malaysia has set its sights on becoming a key player in the global semiconductor industry, aiming to move beyond being a global benchmark base to the top of the industrial chain. This ambition is driven by a desire to capitalize on its existing strengths and attract foreign investment, particularly amidst the ongoing trade tensions between China and the United States.
Historical Role and Current Standing
Malaysia already plays a significant role in the semiconductor industry, dating back to the 1970s when it established a free industrial area in Penang. Currently, Malaysia is responsible for approximately 13% of the world's chip testing and packaging. There are over 50 semiconductor and chip manufacturers operating in the country, including major players like Boton, Intel, and Mecha. Penang alone is home to more than 30 chip companies, including Microsoft's special application chip design department and Intel's Aertra. This established presence has made Malaysia the fifth-largest semiconductor exporter in the world, according to the Korean Foreign Trade Investment Promotion Agency.
Challenges and Need for Acceleration
Despite its current standing, local economic experts believe Malaysia needs to accelerate its efforts to compete with the world's strongest players. The country's current strength lies in the medium-low end of the semiconductor supply chain, and most enterprises are small to medium-sized. Furthermore, the semiconductor industry is highly competitive, and other countries are also adapting to the challenges presented by the Sino-US trade war. The key to success will depend on which country can develop and adapt the fastest.
Advantages and Policy Initiatives
Malaysia's Prime Minister Anwar has demonstrated a strong commitment to developing the semiconductor industry. The country possesses several advantages that attract international semiconductor factories.
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Technology and Cost Advantages: Malaysia boasts a large pool of skilled technology talent, lower operating costs, and a weaker currency, making its exports more price-competitive. Its political and economic stability, English proficiency, and relatively cheap labor also contribute to its attractiveness.
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Policy Advantages: The Anwar government has introduced a series of policies to attract investment, including tax relief, land benefits, and research and development subsidies.
The government is also investing heavily in renewable energy sources, such as solar power, to provide a more sustainable energy supply for high-tech industries. These industries can access renewable energy through renewable energy permits, purchase agreements, and green electricity pricing.
Ambitious Goals and Recent Developments
Following investments in wind farm testing and supply chains, Prime Minister Anwar has proposed a 10-year high-tech chip development plan. This plan aims to leverage Malaysia's location and stable economic environment to become a chip design and high-end manufacturing center, a key pillar in global energy and chip manufacturing.
Last year, Anwar announced plans to build the largest IC design area in Southeast Asia in Malaysia, with the goal of attracting at least RM500 billion (NT$3.4 trillion) in semiconductor investment. In March of this year, a cooperation agreement was reached with British chip company Arm for up to 10 years, worth a total of US$2.5 billion, to develop a large-scale AI chip project. The ultimate goal is to move from chip manufacturing to the higher value-added segments of the semiconductor chain.
In the future, Malaysia aims to handle the entire chip production process, from design and manufacturing to testing and packaging, for sale worldwide. Arm will also establish its first Southeast Asian office in Kuala Lumpur to expand its market presence in East Asia and Australia. This cooperation marks an important step in the second wave of Malaysian semiconductor development. Over the next 10 years, in addition to obtaining technical authorization for chip design, Malaysia plans to train 10,000 IC design engineers, establish at least 10 local chip design companies, and achieve an annual revenue of $2 billion. The goal is to produce self-made chips within seven years.
The Impact of the Sino-US Trade War
The Sino-US trade war has presented both opportunities and challenges for Malaysia.
For the past 50 years, Malaysia has exported significant quantities of chips to the United States for use in various products, including pens, mobile phones, cars, toys, and medical equipment. Approximately 65% of electronic products exported by Malaysia are produced locally by American companies. Last year, Malaysia exported a total of $16.2 billion to the United States, accounting for nearly 20% of US semiconductor imports.
However, proposed tariffs on semiconductor imports by the United States to promote domestic production threaten Malaysia's exports. While there is no clear tariff policy in place, any tariffs will affect Malaysia's export direction and overall economic growth.
Malaysia's Neutral Stance and Focus
The Malaysian government emphasizes that its goal is not to surpass the United States or other technology powers but to become a central player in the global semiconductor industry. The Vice Minister of Investment, Trade and Industry stated that the semiconductor industries in Malaysia and the United States can form a mutually beneficial relationship.
Prime Minister Anwar has maintained a neutral stance between China and the United States, emphasizing open and honest interaction with both countries based on common interests and mutual respect. While this neutrality is sometimes challenging to maintain, both countries are vital to Malaysia's economic growth, with the United States being a major source of foreign direct investment, especially in technology, and China being its largest trading partner.
This neutrality has faced challenges. For example, a decision to use Huawei's deep-slot chip for an AI-based facility was quickly reversed, illustrating the delicate balancing act Malaysia faces.
The Talent Challenge
In addition to navigating geopolitical complexities, Malaysia also needs to address the challenge of attracting and retaining talent. As companies accelerate digital transformation, the demand for high-tech professionals, such as AI engineers, data scientists, and network security experts, is increasing rapidly. However, the salary levels in the Malaysian technology industry are significantly lower (30-50%) compared to Singapore and Australia. This salary gap incentivizes many skilled workers to seek employment opportunities in other countries, potentially hindering Malaysia's economic growth and contributing to the middle-income trap. Reports of stagnant salary growth for engineers further exacerbate this issue.
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