Boost EMS sector in Sarawak

Ge-Shen Corp Bhd CEO Louis Lau says in order for the EMS sector to thrive, competent human resources with the right skills are needed.

IT is heartening to note that Sarawak’s new leadership wants to venture into high-tech industries such as semiconductors.

While this aspiration deserves a big applause, one sector that also needs attention is electronic manufacturing services (EMS), which is slightly lower down the value chain than semiconductors but an easier first step into high-tech manufacturing.

In countries such as Malaysia and Vietnam, EMS companies are benefitting from the trade war between the US and China, which seems unlikely to end any time soon.

EMS offers numerous opportunities for places like Sarawak, but some basics must be in place first.

Infrastructure like international airports, highways, industrial parks, workers quarters, ports and good logistics systems are of course very important on a macro level.

Sarawak should also address the issue of cabotage laws. Materials and semi-finished components will be sourced from around the world, including China. These will cost at least 10% to 20% more under existing cabotage laws.

The lead time to secure the imported components will also increase. Any delays can result in the bullwhip effect, making it even costlier and eroding competitiveness. Bullwhip effect is when small fluctuations in demand at the retail level can cause progressively larger fluctuations in demand at the wholesale, distributor, manufacturer and raw material supplier levels.

A reliable supply chain and a network of competent partners are also crucial to the survival of the EMS sector.

Competencies within the supply chain include machine and technology suppliers, technical support, and maintenance experts. Efficiency and productivity are key factors in EMS. Competitiveness can be compromised by anything that takes a long time or is physically distant.

Any disruption in the supply chain will raise costs resulting in higher prices for customers.

In order for the EMS sector to thrive, competent human resources with the right skills are also needed.

Many EMS companies need engineers to fill a variety of roles, including project engineers, mechanical engineers, electrical engineers and quality control engineers. Only with these in place, can an EMS factory become efficient and of high quality.

There are several ways Sarawak can build a thriving EMS industry:

  • Create more free trade zones so companies can become more efficient and competitive without cabotage laws.
  • Give entrepreneurs easy access to government agencies through one-stop platforms so they can focus on building their businesses rather than having to deal with red tape.
  • Provide incentives for Sarawakians to return and help their state fulfil its dream of creating high-value industries and jobs. Incentives can include unlimited reinvestment allowance, 20-year pioneer status, matching grants, export allowance, and grants for events and exhibitions on top of what Matrade is doing.
  • Set up industry-led training centres, partially financed by the state. To produce the right skill set of workers, these training centres need industry input.

Semiconductor challenges

In the semiconductor industry, the back-end sector is undergoing a significant technology leap which will see a lot of technology becoming obsolete.

We need to keep up with these changes. The closer a company is to the semiconductor value chain, the higher the capital intensity that is needed to play in that space.

Without a high level of investment, the company can become irrelevant quickly. The rate of development can be accelerated by having an anchor company, or a few anchor companies with a good track record.

We will then have to compete for talents who are highly sought after globally, such as in China, the Netherlands, Taiwan and the US, which are all pushing hard to have semiconductor independence.

This article first appeared in Star Biz7 weekly edition.

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