Insight - Seeking govt support for a strong rebound

Datuk Seri Wong Siew Hai is president of Malaysia Semiconductor Industry Association and champion, E&E Productivity Nexus (EEPN).

MALAYSIA is recognised as an important part of the global semiconductor supply chain. Approximately 7% of the global semiconductor trade flows through Malaysia.

The semiconductor assembly and test (back-end) constitute about 13% of the global capacity.

In 2020, the electrical and electronics (E&E) sector contributed RM386bil (39.4%) to Malaysia’s total exports, 6.8% to the national gross domestic product and provided 575,000 jobs.

For the first half of 2021, the E&E sector exports grew to RM213.7bil, an increase of 28%, year on year, despite the pandemic.

As per the World Semiconductor Trade Statistics, the global semiconductor sector is expected to grow by 20% in 2021 and forecast to increase by an additional 10% in 2022.

Currently, there is a shortage of semiconductor and electronic products, mainly due to the pandemic, the acceleration of the digital transformation (especially with online businesses worldwide) and further driven by the set-up of critical infrastructure, 5G, AI, IIOT, medical equipment, devices and other electronics products.

This shortage issue was compounded with the shutdown of the wafer fab factories in Japan due to fire, in Austin, in the United States, due to weather conditions, in Taiwan due to drought and more recently from another fab closure in Germany due to power outage.

The blockage of the Suez Canal in March 2021 also contributed to the disruptions in the semiconductor supply chain.

Of recent times, many multinational companies missing their quarterly or yearly financial forecasts have named Malaysia in media reports as one of the problems.

Also, the shutdown of car manufacturing factories in the US, Europe and Japan mentioned that it was mainly due to the inability of the electronics factories in Malaysia to ship the semiconductor components needed for assembly.

Despite the increase in the number of Covid-19 cases, the Malaysian government has weighed the impact of lives and livelihood, and allowed electronic factories to operate at 60% headcount, since semiconductor and electronics systems were classified as essential services.

In the meantime, the government had accelerated the vaccination programme through Pikas, and by allowing companies to set up on-site vaccination centres, as well as the set-up of common site vaccination centres.

To date, more than 80% of Malaysia Semiconductor Industry Association (MSIA) member companies have completed their first dose vaccinations on their employees and about 60% are fully vaccinated.

Of the 60% companies, at least 80% of employees are fully vaccinated with many exceeding 90% or even 95%.

The government has allowed those factories with more than 80% fully vaccinated employees, to operate with a 100% headcount.

As such, the shipment of semiconductor components continues to increase to meet the huge backlog of customers’ orders that have been building up over the last one year.

Even with increased vaccination rates, the companies are still faced with shutdowns due to Covid-19 cases identified in factories with their self- funded intensive testing. This is despite having taken strict measures in enforcement of Standard Operating Procedures (SOPs) and even after being shutdown for 14 days earlier, impacting the disruption of the supply chain.

The challenge is how do the companies prevent employees with positive cases from going into the factory. The companies need to find a way to keep their factories open.

Malaysia has accelerated its vaccination programme successfully this year.

About 93% of the country’s adult population has gotten at least their first dose and 81% are fully vaccinated. For the entire population, 68% have taken at least their first dose and 58% are fully vaccinated.

We see a continuing relaxation of rules in the community as society moves from “pandemic” to “endemic.” Further relaxations are expected, but we are very concerned about the continuing and repeated interruptions to the industry. Every week factories are being shutdown.

So, for factories with more than 80% of their employees fully vaccinated, we recommend that the Ministry of Health not shut down these factories if there are positive cases but instead conduct contact tracing and to quarantine those affected. This is in line with the “endemic” approach. Shutdowns are for companies that are not complying with SOPs.

We further recommend that the government supports regular testing to keep the factories open. In some European countries, their governments provide free antigen testing to keep factories running.

We need to do the same here in Malaysia as the aim is to keep factories operating and the economy going. If not, allow all testing to be Sosco claimable.

We need to permit factories to remain open and seize the opportunity to ship supplies and fulfil customers’ orders. We should not allow these orders to be diverted to other countries.

The recent MSIA survey showed that the E&E companies are expanding. Of our members, 16 companies reported that they have or will invest in land, building and estimated capital expenditure of at least RM4bil with built-up areas of more than four million sq ft and will provide new 4,600 jobs over the next two years.

Meanwhile, due to the overwhelming demand, new products and technology transfers, MSIA members need to hire at least 14,000 factory workers, 2,400 engineers, 1,600 support staff and 450 expatriates in the next six months to support their growth.

Malaysians will also gain technical expertise with the expatriates here.

However, it has been a challenge to employ factory workers, technicians and engineers.

Most companies face challenges to hire local workers, as the attrition rate for new hires is as high as 70% over a three-month period. To reduce the attrition rate, most companies give retention incentives for the workers to stay.

Currently, the companies are mainly doing extensive virtual interviews. Those who are selected will go for Covid-19 tests but there are some who do not show up when they are due to report for work.

With the tight labour situation, the companies are chasing the same labour pool and many workers are not keen to work outside their home states.

Companies are using agents to help them hire workers from other states but with unsatisfactory results. Overall, the costs of hiring and training have increased significantly. MSIA would like to urge the government to reconsider the freeze on foreign labour and to allow the restart of hiring foreign workers.

Only companies that can comply with Act 446 on accommodation and ensure strict compliance to SOPs should be allowed to hire foreign workers.

Without the required workforce, the companies are missing out on the opportunities. This is one low hanging fruit to speed up the recovery of the economy.

We understand the government’s concerns on the increased numbers of foreign workers in the country. There are about one million legal foreign workers, which is less than 10% of the country’s workforce. However, there are about 1.5 million to three million illegal foreign workers in the country.

The main issue is not the legal foreign workers but the illegal foreign workers, over which we have no control.

The government needs a strategy and execution plan to register all illegal foreign workers and help them find employers. Then, these workers need to be registered. Those that are unable to find employment need to be deployed home.

Meanwhile, the enforcement and the border controls should be tightened. For engineers, it is already a constraint today, especially with so many new E&E investments announced over the last one year, all of these requiring many engineers.

Malaysia needs a strategy to use other countries’ talents, in the same way that the United States, the United Kingdom, Singapore, China, and Taiwan have attracted many Malaysians.

Malaysia is a significant player in the global semiconductor industry. The country is now in focus as it plays a crucial role in the global supply chain.

The Belfer Centre of Science and International Affairs, Harvard Kennedy School (2020) reported that Malaysia is one of the top 10 countries in the world contributing to the semiconductor supply chain.

In light of this, Malaysia needs to take positive actions to not only keep the factories open but also be competitive and a location of choice for the E&E investments.

Malaysia cannot afford to have companies divert their customers’ orders, new products, and technologies to other countries. The opportunity to recover and rebound strongly is here.

The ball is in our court. We need to act fast.

Datuk Seri Wong Siew Hai is president of Malaysia Semiconductor Industry Association and champion, E&E Productivity Nexus (EEPN). The views expressed here are the writer’s own.

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