The universe which requires computing power would have chips fitted on it. The amount of chips being used now has doubled compared to a decade ago, not to mention the chips that are fitted on electric vehicles and, Malaysia hasn’t really entered the artificial intelligence era as yet which will phenomenally increase its use.
“Amid all this, Malaysia is right at the centre of the global chip making supply chain. Malaysia’s electrical and electronics (E&E) sector, of which semiconductors are a major output, comprises about 7% of the nation’s gross domestic product (GDP), accounting for 38.2% of Malaysia’s total exports in 2022, said Deputy Minister of Investment, Trade and Industry Liew Chin Tong while speaking at the Malaysian Semiconductors Industry Association (MSIA) National E&E Forum 2023 today (Nov 6).
“Our semiconductor industry holds 7% of global market share and contributes to 23% of United States’ semiconductor trade, a fact that is not widely acknowledged in the United States although I did hear it myself from Gina Raimando, the US Secretary of Commerce, when I visited Detroit this May, that when factories in Malaysia were shut down during Covid-19 lockdowns, the automotive industry in Detroit had to cease operating, too.
At the forum Liew shares four observations about Malaysia’s semiconductor industry, firstly, scaling higher and more complexity Malaysia produces 13% of global back-end semiconductors output, doing very well in chip assembly, packaging, and testing; and electronics manufacturing services (EMS).
“We welcome more investments into both the back-end and the front-end parts of the semiconductors value chain. The New Industrial Master Plan 2030 (NIMP 2030), which was unveiled by Prime Minister Datuk Seri Anwar Ibrahim on 1 September, aspires to see more front-end activities such as integrated circuit (IC) design, wafer fabrication, semiconductor machinery and equipment manufacturing,” he said.
Recent announcements of investment by Intel (US$7 billion), Infineon (€5.04 billion) and Texas Instruments (US$3 billion) showed that Malaysia is well positioned to scale higher and engage in more complex activities, which is central to NIMP 2030.
Liew said he would like to acknowledge the back-end manufacturing of semiconductors is very relevant too as advanced packaging is increasingly a sophisticated trade, and the back-end manufacturing helps Malaysia to occupy an indispensable part in the global supply chain.
Local champions such as Inari, Globetronics and Carsem are notable in this area. Some like to claim that when it comes to trade, it doesn’t matter whether we sell potato chips or microchips, as long as our absolute GDP and export figures are strong.
That is far from the truth, Liew said, as Microchips have the potential to generate far greater value addition, with a stronger multiplier effect through a boost in productivity and innovation, which is why semiconductors and the E&E sector are an important focus area under the NIMP 2030.
Second, the precision engineering industry is the unsung hero.
The global semiconductor industry in Malaysia has also created a number of very successful companies specialising in automation, such as Greatech, ViTrox, Pentamaster and Walta, just to name a few.
They were known as precision tooling or precision engineering and many other names. And because most of them produce under non-disclosure agreements (NDAs), not many people know their collective capabilities.
Many Malaysian companies are still heavily dependent on unskilled foreign labour to make things by hand, and refuse to automate, fearing that machines from Germany or Japan are too expensive. Many do not believe that we have the capability to produce automated machines at the level of Germany or Japan.
“Malaysia has manufacturers who can make very sophisticated automation machines and, importantly, they form the critical and highly resilient Malaysian supply chain for the semiconductor industry. The precision engineering industry deserves more attention than it currently receives,” he said.
Third, the semiconductor industry should lead in creating good jobs for Malaysians.
The extremely competitive semiconductor industry is conscious of costs from its very beginning, as Chris Miller explained in Chip War. And it was this consciousness of costs that brought the semiconductor industry first to Hong Kong in the early 1960s and subsequently to Singapore, Taiwan and Penang.
Liwe cited it was Miller who pointed out that in the mid-1960s, Hong Kong’s 25-cent hourly wages were only a tenth of American wages but were among the highest in Asia.
“Taiwanese workers made 19 cents an hour, Malaysians 15 cents, Singaporeans 11 cents, and South Koreans only a dime.” (Chip War, pp54) I quoted this paragraph to show that once upon a time, wages in Malaysia were higher than in Singapore. I have heard too often that the semiconductor industry complains that there isn’t enough talent in Malaysia. For those who know me, you have probably heard my reply in Parliament when this question was raised: “Malaysia has no talent problem, Malaysia has a pay problem.”
While Liew acknowledged that the government needs to do more in STEM education and to prepare a more robust talent pipeline in schools and universities, the most crucial mindset shift we need now is to acknowledge that the Malaysian and Singapore labour market is a single labour market, and that if you pay ⅔ of Singapore pay, you can get any talents you wish to have.
Within the same labour market, the semiconductor industry is also losing a massive number of technicians and operators to gig work because of low pay.
Malaysia is a rare case in which manufacturing median wage is lower than that of general median wage. In 2022, general median wage was RM2,424 while manufacturing median wage was RM2,205.
The New Industrial Master Plan 2030 aspires to see by 2030, manufacturing median wage will reach RM4,510. I hope with a paradigm shift, the semiconductor industry will lead in helping Malaysians to get better jobs and better pay. Fourth, “G to G” collaboration on semiconductors Within the structure of the Government of Malaysia, the semiconductor industry is seen as a private venture by investors.
Hence, within the structure of the Ministry of Investment, Trade and Industry, the semiconductor industry is seen as the domain of Malaysia Investment Development Authority (MIDA), without much policy guidance from MITI. The same goes to most governments around the world until a few years ago. In the last two years, as a result of requests from industries and due to the intense strategic competitions over semiconductor and AI, many governments are belatedly building the policy infrastructure and capabilities to coordinate policies and to shape outcomes.
The CHIPS Act and the bans on export of advanced chips by the United States are the most significant examples. In my capacity as Deputy MITI Minister, I have received a policy expert on semiconductor from the Foreign Ministry of a government. Foreign Ministry!
In 2022, Malaysia and the US signed a Memorandum of Cooperation on Semiconductor Supply Chain Resilience. Last week, the Dutch Prime Minister Mark Rutte visited Malaysia and Vietnam with 25 businesses. Almost all of them were from the semiconductor and tech sectors.
“In his bilateral meeting with the Prime Minister, it was decided that a G-to-G dialogue on semiconductors will be set up between Malaysia and the Netherlands. He believes that with the help of MSIA, industry players and policy thinkers, the Government of Malaysia and specifically MITI will gradually build up stronger policy leadership in this realm, beyond just treating the semiconductor industry as an investment.
The semiconductor industry players – are in the most intense, interesting and important industry of our time. Your ideas and products have huge consequences for the nation and may the world. I wish you well and every success, Liew added.
