E&E industry – the golden goose of Malaysia


  • Business
  • Saturday, 13 Jul 2019

Kenanga Research believes that the semiconductor industry will stay resilient with the global sales continuing to show healthy momentum.

IT is not business as usual in the electrical and electronics (E&E) industry in Malaysia.

The buoyant E&E industry has been the mainstay and strength of the manufacturing sector and economy, with enhanced export competitiveness over the past four decades.

It is currently facing challenging times, both on the domestic and external fronts.

Some of that robust momentum has been lost. Misperceptions of the expected role of the E&E industry in a developed Malaysian economy have surfaced among policymakers while Malaysia’s global place as the preferred E&E investment destination now stands at odds.

It is not sheer coincidence that Malaysia stands as the seventh largest E&E exporter in the world today. As a gateway to trade, the E&E industry continues to be a key driver of industrial development and contributes significantly to GDP growth, export earnings, investment and employment. In short, Malaysia’s rapid industrialisation and high ranking among the top group of trading nations in the world were mainly contributed by this industry.

The E&E industry remains the leading segment in the manufacturing sector which produces semiconductors, electronic equipment for industries and electronic products for customers worldwide.

Last year, this industry contributed 38% of the total exports with a trade surplus of RM119bil, which marked the highest among all the sub-sectors for the manufacturing sector. The trade surplus has entered into the 253rd consecutive month since the Asian financial crisis, due to export-orientedness of E&E, as measured by the more than 45% contribution to the overall manufacturing exports.

The almost RM120bil surplus level in the E&E industry equals the total overall trade surplus for 2018!

Not only does this reflect that the E&E industry is the only sub-sector in the manufacturing sector that has a trade surplus, it also shows clearly that without the industry’s contribution, Malaysia would register a trade deficit. Worse still, it could also lead to a current account deficit that does not augur well for Malaysia’s sovereign ratings.

Here is where the crucial question arises. Can the economy power ahead without the contribution of E&E? Certainly not, based on the successful growth of the ecosystem that has been in place, one which multinational corporations (MNCs) played a crucial role.

The MNCs kept pace by reinvesting in the state-of-the-art technology, and made the manufacturing and its processes much more productive, with added automation and computing power. Hence, the manufacturing processes deal with the intricacies of the high-end technology from micro to nano, and the testing of such complex products.

Semiconductors will continue to spearhead the growth of the industry on the back of demand in the usage of mobile devices, storage devices, opto-electronics, embedded technology, data analytics, artificial intelligence and 5G.

With the government’s push, E&E emerged as a strategic industry, which led to a wave of investments and a reversal in the unemployment level, not to mention multiplier effects. In a recent study on the electronics industry by Universiti Tunku Abdul Rahman, it was reported that in 2017, the added value at constant price was RM67.75bil and the employment was at 485,000. In 2015, the output multiplier for the electronic sector was ranked at 2/36.

This industry started in 1972 from labour-intensive semiconductor assembly to test manufacturing and diversified into storage, LEDs, solar, contract manufacturing, medical devices, industrial electronics, avionics, front-end fab as well as design and developments, especially in both integrated circuits (ICs) and embedded system designs. As the E&E industry grow and diversify, it has also developed clusters of SMEs and large local companies in precision machining, equipment development and assembly, and automation. Many of such companies are doing business globally and many are also listed on Bursa Malaysia. Thanks to the Industrial Trade and Industry Ministry and Malaysian Investment Development Authority for their positive roles and efforts.

That Malaysia gained recognition as one of the choicest industry cluster locations in the world has been a clear reflection of the comparative advantage Malaysia held over the neighbouring countries, in terms of its part in global E&E.

After 40 years in the country, policymakers must now rethink how best to enable these companies with strong policy advocacy and to encourage them to continue to invest in the country, especially in the face of stiff competition as well as the current data-centric phase for ICs. Topping the urgent priority list is Malaysia’s lack of follow-up strategy to boost the competitiveness of the E&E and policies have not kept up with the rapid changes.

Most of the time the government looks at an industry from value-added contributions, which is output minus input. The higher the number, the higher the added value. However, in the E&E industry, the supply chain is global and not just local, which is why it is said, “the world is flat” as the components and input materials are not necessarily from the country producing the product. There are also numerous dimensions in assessing the value of an industry and of all these, talent development is notably the most significant.

For example, in the semiconductor industry, the technology evolves from micro to nano technology. For each improvement in technology, new advanced machines are needed and the workforce needs to be re-trained to handle such complex equipment and manufacturing processes. The same can be said of other E&E sub-sectors when new technology is introduced.

Malaysia can proudly attest that as new manufacturing processes are continually developed, we have engineers capable of handling this development, not to mention the homegrown leaders to run the relevant operations.

Malaysians have shown that they are now capable of managing regional or global operations from Malaysia as well as global supply chains including price negotiations with vendors around the world. Other high paying jobs include managing global logistics hubs, regional and global shared services in finance, IT and human capital.

How much value does one put into new technology, talent development, global leadership skills, complexities of operations and design and developments especially since Malaysians have shown that they have the capabilities to learn and manage such challenges.

We have done extremely well in the past. Penang, for instance, is testimony of global recognition as one of the top 10 dynamic industrial cluster locations in the world, thanks to its strong and efficient supply chain with world-class capabilities and proven track record.

Not only was there a network of over 3,000 well diversified and competent local suppliers, but soon came along to local electronic manufacturing service companies which are into wafer processing, package assembly, RF final testing, design and manufacture of equipment and devices for the semiconductor and electronics packaging industries.

Despite having some of the top techno manufacturing companies on the Malaysian shores for the past four decades, we have sadly fallen behind the curve in terms of design and development (D&D) and innovations. These areas could have otherwise pushed us up the value chain.

As the backbone of the manufacturing sector, the E&E industry needs to turn to a fresh page so as to draw more foreign attention to this significant cluster.

Can Malaysia afford to lose ground in this industry? Is what we have achieved thus far, good enough? What is the new narrative to propel the E&E industry to new heights and to be recognised as a leading E&E centre of the world?

Datuk Seri Wong Siew Hai is the E&E Productivity Nexus Champion for the Malaysia Productivity Corp. The views expressed here are solely the opinion of the writer.


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