In the evolving landscape of global manufacturing, Malaysia is positioning itself as a pivotal player in the semiconductor industry, capitalizing on the shift in dynamics caused by the ongoing U.S.-China tensions. With a rich history in the semiconductor ‘back end’ processes, including assembly, testing, and packaging, Malaysia is now attracting significant investments from global chip giants, aiming to diversify their operations away from geopolitical uncertainties.
According to Kenddrick Chan, the head of the digital international relations project at LSE IDEAS, Malaysia boasts about five decades of experience in semiconductor manufacturing, especially in the latter stages of the production process. This extensive experience, combined with well-established infrastructure, places Malaysia in a unique position to leverage the current global need for diversification in semiconductor manufacturing.
Semiconductors, the critical components at the heart of modern electronics, from smartphones to cars, have become a focal point in the technology competition between the U.S. and China. This scenario has prompted companies to seek alternative locations for their manufacturing bases, with Malaysia emerging as a preferred choice.
In a significant move, American chip giant Intel announced in December 2021 its plans to invest over $7 billion in Malaysia to establish a chip packaging and testing factory, with production set to commence in 2024. This decision underscores Malaysia’s appeal, attributed to its diverse talent pool, robust infrastructure, and well-developed supply chain, as highlighted by Aik Kean Chong, Intel Malaysia’s managing director. Intel’s journey in Malaysia began in 1972 with an assembly site in Penang, marking the start of a long-standing relationship bolstered by subsequent investments.
Similarly, GlobalFoundries, another U.S. semiconductor heavyweight, inaugurated a hub in Penang in September to bolster its global manufacturing operations. This initiative is supported by the regional government’s forward-thinking policies and strong industry ecosystem, as noted by Tan Yew Kong, senior vice president and general manager of GlobalFoundries Singapore.
Germany’s leading chipmaker Infineon and Neways, a principal supplier to Dutch semiconductor equipment manufacturer ASML, are also expanding their footprint in Malaysia. Infineon’s announcement in July 2022 to build a third wafer fabrication module in Kulim and Neways’ recent decision to construct a new production facility in Klang further solidify Malaysia’s position in the global semiconductor landscape.
- Intel: Over $7 billion investment for a new factory, starting in 2024.
- GlobalFoundries: Opened a hub in Penang for global operations support.
- Infineon: Announced a third wafer fabrication module in Kulim.
- Neways: Planning a new production facility in Klang for ASML.
Yinglan Tan, founding managing partner at Insignia Ventures Partners, attributes Malaysia’s attractiveness to its skilled labor force in semiconductor packaging, assembly, and testing, coupled with competitive operating costs. These factors make Malaysia’s exports globally competitive, further enhanced by the current position of the Malaysian ringgit.
Malaysia commands 13% of the global market share in chip packaging, assembly, and testing services. Despite a global downturn in chip demand, the Malaysian Investment Development Authority reported a marginal increase in semiconductor device and integrated circuit exports to 387.45 billion Malaysian ringgit ($81.4 billion) in 2023.
The country is also seen as a strategic ‘plus one’ location by Chinese firms looking to diversify their production bases, according to Datuk Seri Wong Siew Hai, president of the Malaysia Semiconductor Industry Association.
In response to the evolving industry landscape, Malaysia is not content with its stronghold in the ‘back end’ of chip manufacturing. The Malaysian government, under the vision of Investment, Trade, and Industry Minister Zafrul Aziz, is aiming to expand its capabilities into the ‘front end’ processes like wafer fabrication and photolithography. This ambition led to the formation of a national semiconductor strategic taskforce in January, aiming to enhance the country’s semiconductor ecosystem and attract further investments.
The U.S.-China tech war, with semiconductors at its core, has prompted other countries, including India and Japan, to woo foreign firms for local semiconductor manufacturing. India’s approval of three semiconductor plants and TSMC’s expansion into Japan exemplify the global race to secure a position in the semiconductor supply chain, independent of geopolitical tensions.
While Malaysia stands to gain from the current global dynamics, challenges such as brain drain could hinder its progress. The departure of skilled workers in search of better opportunities poses a significant threat to sustaining and growing the semiconductor industry domestically.
However, initiatives by the Malaysian government to attract skilled Malaysians back to the country, as emphasized by Prime Minister Anwar Ibrahim, along with efforts to upscale the local workforce, signal a proactive approach to overcoming these obstacles.
Malaysia’s strategic positioning in the semiconductor industry, supported by its historical expertise, favorable economic conditions, and proactive government policies, marks it as a key player in the global shift towards diversified semiconductor manufacturing. As companies and countries navigate the complexities of the U.S.-China technology rivalry, Malaysia’s role as a reliable and competitive manufacturing hub is set to expand, offering a beacon of opportunity and growth in the high-tech sector.
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