Amidst escalating political tensions between the USA and China, Malaysia has emerged as a significant hub for semiconductor production in the region. Over the past year, the state of Penang has attracted $12.8 billion in foreign direct investments, with both Western and Chinese companies establishing manufacturing facilities there.
A recent analysis by the Financial Times focused on Malaysia's burgeoning business landscape in electronic component production. Western companies are venturing into Malaysia to lessen their reliance on China, while Chinese companies are compelled to relocate from their homeland due to pressure from Western clients. This shift is influenced by the reliance of American chip manufacturing equipment on components produced by Chinese suppliers. With the US government aiming to reduce the concentration of production facilities in China, American contractors are turning to neighboring countries, with Malaysia standing out as a promising destination for such relocations.
The establishment of chip testing and packaging facilities by foreign companies such as Intel, AMD, Renesas, and Keysight Technologies in Malaysia dates back to as early as 1972. Malaysia has become the largest exporter of electronics to the US, holding a 20% market share, despite chips only being tested and packaged within its borders. The Malaysian government aims to build the country's first silicon wafer processing plant, but out of the planned 80 such facilities, none have materialized in Malaysia. Conversely, Chinese manufacturers are actively relocating to Malaysia, with Penang State alone hosting 55 establishments, a significant increase from the 16 prior to the US-China trade conflict.
Chinese companies are luring staff from existing Malaysian companies with salaries 30% above market rates and additional perks like free meals. Furthermore, joint ventures between Chinese and Malaysian businesses are being established to obfuscate the Chinese origin from Western clients. Malaysia is also witnessing the emergence of processor developers, with Shanghai-based StarFive Technology planning to develop RISC-V architecture chips locally.
A key challenge for Malaysia's semiconductor industry is the shortage of skilled workforce, as local universities only produce around 5,000 engineering professionals annually, while the economy demands 50,000 engineering positions yearly. In Penang, land prices have surged by over 60% in two years due to space constraints for new ventures in the state, leading to traffic congestion and infrastructure challenges. Despite minimal subsidies for the semiconductor sector, Malaysian authorities are exploring international best practices and considering the necessity of establishing advanced silicon wafer processing plants in the country.
