Rejuvenating the E&E industry

Attraction down south: Singapore has attracted many big names from the E&E industry.

FOR more than four decades, the electrical and electronics (E&E) industry in Malaysia has flourished.

In 2018, the industry accounted for 45.6% of manufactured exports and 38.2% of total exports. This growth had emanated from foreign direct investments by multinational corporations (MNCs), which eventually led to the development of domestic support industries. Recently, some of these domestic players have even been listed among the top 200 Forbes Asia companies.

However, global competition has challenged Malaysia’s position as an investment choice for E&E.

The industry is now at the crossroads, facing a new reality check which shows that the ecosystem in Malaysia is losing in terms of comparative advantage to win deals for companies when they compete for new production lines involving higher value-added products. Malaysia’s importance in the global electronic supply chain is also being challenged.

“High investment opportunity for E&E sector in Penang due to US-China trade war” was the title of a recent article by a local daily.Indeed, Malaysia has been projected to benefit from this war, especially in the light of companies moving out of China. However, our ability to attract high-end investments is still limited.

This brings us to the question of “what is Malaysia’s strategy for the E&E industry, to propel it to the next level?” We need to keep pace with other countries such as South Korea, Taiwan and China in frontier technologies industry. The answer lies in policy advocacy which provides focus and drives growth.

Today, the general perception of the industry is that policy makers are more interested in revenue generation through tax collection than encouraging and developing a frontier industry that will sustain the national economy in the years to come. It is imperative to note that without government support, companies cannot reach the forefront of the high-tech industries.

The fast pace of world events continuously affects business decisions.

Therefore, policy makers must now rethink and revisit policies to draw and sustain investments. Action must be taken to set new benchmarks to move the industry forward. Three examples close to home are China 2025, Taiwan Innovation Strategy and Singapore’s Smart Manufacturing with emphasis on E&E.

Down south, Singapore has attracted many big names from the industry and has become the preferred location for regional and global headquarters of MNCs. Like Singapore, many countries have continued to provide strong support with incentives for the companies to expand.

Incentives to grow companies should be based on outcomes, innovation, technology, complexity and job creation.

In order to encourage the existing companies to reinvest and grow, as well as new foreign direct investments (FDIs), Malaysia needs to streamline and consolidate the numerous agencies giving out incentives. The recent UTAR E&E study recommends that incentives approval process needs to be more effective and decisions made in a timely manner.

The Malaysian Investment Development Authority’s National Committee on Investment needs to be empowered to make decisions and be accountable for outcome. The current Promotion of Investment Act (PIA) 1986 was last updated in 2012 and it needs to be updated regularly as advancement in technologies and the E&E landscape are changing rapidly.

As an example, the integrated circuit design and development (D&D) is not included in the PIA and thus fall under the Income Tax Act. This does not help in our effort to encourage more companies to be involved in D&D and go up the value chain.

Over the years, Malaysia’s strength has been in production technology but NOT product technology, which involves innovation, D&D. This in turn affects the level of manufacturing and impacts on creation of high value chains and better paying jobs.

Taiwan and South Korea powered their economic growth through technological innovations by local companies. Malaysia needs to do the same and a positive step towards improving the ecosystem is to establish the Manufacturing Innovation Centre (MIC) by transforming MIMOS into an organisation like Industry Technology Research Institute (ITRI) of Taiwan.

ITRI engages in applied research as well as providing technical services and assists companies to innovate, design and commercialise products, processes and equipments.

Talent remains a crucial issue in the development of the E&E sector. It is sad that many Malaysians are being attracted to other countries as there is no strategy to retain such talent. Policy intervention is really needed. Singapore not only attract our talents through Asean scholarships but also hire the top students when they graduate.

With the number of students taking science and engineering reducing, there are just not enough engineers for the industry. The competition on talent is very intense. Malaysia does not encourage the private sectors to hire foreign engineers studying in Malaysia who wish to work and contribute to the country. We need a policy change. Malaysia really need a holistic strategy in manpower planning that will support the needs of the industry. This could be done through scholarships and industrial upskilling while the quality of education is being improved.

While our talent is being drawn away, the current policy of a 20% limitation on foreign workers (FW) is reducing Malaysia’s attractiveness for high value foreign investments. It is more important for Malaysia to evaluate and enhance the supply chain that Malaysia needs and the high value technology we wish to attract rather than putting a 20% FW criteria into the decision making process. Flexibility should be built to avoid losing opportunities that is coming from the US China trade war as well as new opportunities in AI (artificial intelligence) systems, IoT (Internet of Things), 5G and automotive.

Reality can be painful and the E&E industry in Malaysia is at the crossroads.

On one hand we are struggling to compete but on the other hand, we are not acting pro-actively to draw and grow investments. This is an anomaly that the government must address if we are serious about defining, supporting and building a highly respected 21st century E&E industry. It is no longer business as usual and the recommendation for policy review must be treated with urgency.

The views expressed here are solely that of the writer.

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