GOING HI-TECH: The Malaysian electronics sector grow from the 1970s when the government realised the importance of the sector as a driver for the overall Malaysian economy. Now, Malaysia has the opportunity to position itself as a world class semiconductor and solar cell manufacturing destination
KUCHING: Malaysia has the opportunity to emerge as a world class front end semiconductor manufacturing destination if more attention is given to high-value activities such as research and development (R&D) or high-end manufacturing.
The electronic industry thus far has been focusing on the lower value end of the market, said Cory D’Abreo, International Investor country publisher, adding that initiatives to move the industry upwards could position Malaysia as a world class semiconductor and solar cell manufacturing destination.
In 2010, the electronic sector contributed an average of 40 per cent of the total overall export revenue for the country with key export markets being the US, China and Singapore. It was expected to account for 38 per cent of employment in various roles, with the majority supporting manufacturing activities.
“2010 was a growth year for the Malaysian manufacturing sector, largely driven by strong external demand and improved global sentiments. This growth was lead by the electronic and electrical (E&E) sector which registered a robust growth in production,” D’Abreo added.
For the first nine months of 2010, E&E products export reached US$59.7 billion (RM189 billion) and accounted for 39.5 per cent of total exports. The major category, integrated circuits, dominated with 26.9 per cent of total exports of E&E products.
However, increased competition from neighbouring countries such as Vietnam and Thailand due to their lower manufacturing costs had caused a decline in low cost electronics manufacturing in Malaysia.
Meanwhile, in the higher end market, Singapore and Taiwan continued to dominate as the key investment destination for companies in the higher value sector.
“The significant proportion of Malaysia E&E activities lie in lower value device assembly rather than high value activities. High value activities such as water fabrication and electronics design continue to lag behind Singapore and the result of total value added per worker is only comparable with China,” D’Abreo commented.
As such, within the Economic Transformation Programme (ETP) initiatives, the government had highlighted several entry point projects which aimed to deliver high growth projects to bolster the Malaysian economy.
Under the National Key Economic Area (NKEA), the ‘Northen Corridor’ with its established hub of multinational companies for semiconductors was poised to grow further with plan for expansion in solar and LED manufacturing.
The southern region in Johor, which had lower costs and closer proximity to Singapore, was primed for intensive E&E manufacturing. Sarawak, on the other hand, had large reserves of natural resources including silica, able to develop these assets to be a global centre for silicon substrate manufacturing, he added.
“The strength of Malaysian E&E industry lies within the assembly, testing and packaging sector, which has been the bulk of the Malaysian exports. However, it is the sector that is seeing the greatest competition from other countries which can offer lower operating costs,” said D’Abreo.
“It is therefore a desire of the ETP initiative to offer a suitable operating environment to foster industry growth and encourage the emergence of activities within the higher value activities, namely R&D and water fabrication,” he added.
Several schemes and training grants were already in place to encourage companies to train workers in state of the art technologies. Local universities were also encouraged to seek industry collaborations to ensure graduates were equipped with the skills needed to support the hi-tech industries.
“On top of that, closer bilateral relations with Singapore could also promote cross investments and allow Singaporean companies to relocate to Johor to take advantage of the cheaper costs,” D’Abreo explained.
Therefore, with the advent of the ETP programme, investment in high technology activities and job creation for high income economy was expected to receive great attention and incentives from the government.