This is the value Malaysia’s new semiconductor task force wants to capture. The good news is that Malaysia already has a mature chip cluster. Major chip makers including NXP, Infineon and Texas Instruments have been operating in the country since the 1970s.
Intel, for example, established its first offshore site in Malaysia in 1972 and has invested more than US$5 billion in the country since then. Together, these chip firms have transformed Malaysia into a semiconductor hub, contributing to 23 per cent of US semiconductor trade in 2022.
Although China dominates APT services, commanding 38 per cent of the global market share, recent US restrictions to block its chip access are already reshaping the industry landscape. Some major chip makers have already begun diversifying their production outside China to comply with US export control rules.
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There’s a global semiconductor shortage and this is why it matters
There’s a global semiconductor shortage and this is why it matters
Malaysia’s mature semiconductor ecosystem makes it a prime destination. In 2022, Advanced Semiconductor Engineering, the world’s largest APT firm, began constructing a new semiconductor assembly facility in Penang. In the same city, Intel started building its first overseas plant for advanced 3D chip packaging, while Bosch opened one of Asia’s most advanced testing facilities last August.
Two months later, Micron unveiled its cutting-edge assembly factory in the country and will invest an additional US$1 billion in the next few years. This inflow of chip investment is so strong that DHL Express is building new logistics centres around Penang.
Malaysia can leverage its growing strength in the chip supply chain’s back-end stage to attract front-end manufacturing investments. Given its well-established APT cluster, Malaysia can make a strong pitch to chip makers on supply chain resiliency.
For instance, the semiconductor task force can highlight that chips produced in Malaysian facilities can be delivered to an APT firm by land rather than sea. That proximity will lower chip makers’ exposure to extreme supply chain disruptions, such as a potential blockade of the Taiwan Strait by Beijing.
Meanwhile, Malaysia’s recent proposal to court electric vehicle (EV) investments can further encourage chip makers to increase their presence in the country. That is because, compared to a car with an internal combustion engine, an EV has greater reliance on software; it needs around twice as many chips to power it.
That makes the EV industry a critical end market for chip makers. The Semiconductor Industry Association estimates that the automotive sector will represent 14 per cent of the average growth in chip sales by 2030. The automotive chip market has already experienced 28 per cent year-on-year growth in 2022, hitting US$69 billion.
For chip makers, investing in Malaysia can enable them to profit from this growing pool of revenue. In fact, investments in chip production and EV manufacturing are mutually reinforcing. Malaysia’s semiconductor task force can use this virtuous cycle to propel the country’s climb up the value chain.
Even so, the main challenge lies in human capital. Malaysia faces a labour shortage of around 1.2 million workers. Because of that, some chip makers in the country are having to turn away potential customers. But as Malaysian lawmaker Liew Chin Tong pointed out, the country has sufficient talent – the problem is low salaries.
Malaysia’s already won over Tesla and Amazon. Will Google, Microsoft be next?
The average salary for engineers and technicians in Malaysian manufacturing was 2,200 ringgit (US$460) in 2021 compared to S$2,000 (US$1,500) in Singapore. That disparity has caused a sustained outflow of Malaysian talent.
Worse, chronic low pay continues to discourage Malaysian students from pursuing STEM education in the fields of science, technology, engineering and mathematics. For example, Malaysia’s engineer-to-population ratio stood at one to 170 in late 2022, whereas the average rate in developed countries was around one to 100.
Several countermeasures have been put in place. At the domestic level, the Malaysian government has funded the Penang GBS Industry Academy to reinforce collaboration between universities and the industry in expanding the country’s technical talent reservoir. Its New Industrial Master Plan 2030 sets out plans to double the median manufacturing wage by 2030.
At the international level, Malaysia and the United States have agreed to strengthen supply chain resiliency through joint efforts in technical assistance and capacity building. Looking forward, the semiconductor task force can contribute to the growing US-Malaysian partnership in two ways.
Externally, it can serve as the primary channel of communications between the US and Malaysia, tracking regulatory developments in Washington and promoting Malaysia as a reliable ally of the US chip industry. Internally, the task force can integrate key resources for chip production, including water, electricity and human capital.
External engagement with the US will help inform internal strategic planning. The task force was assembled at the right moment. The Silicon Valley of the East is ready to strike back.
Chin Hsueh is a Master of Science in Foreign Service candidate at Georgetown University
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