E&E sector presents new key growth areas with the rise of tech and high-value sectors
27 Feb 2024
Contributed about 5.8% to the GDP in 2023, the sector is targeting RM120b by 2025 in GDP growth and RM495b in export earnings
Malaysia’s major involvement in the electric and electronic (E&E) sector, especially the semiconductor industry, is propelling new growth areas, as more companies are moving into more knowledge-intensive, hi-tech, innovative and higher-value-added activities.
In the region, Malaysia is among the major players in the expanding E&E market, acts as the catalyst for the development of other industries and enhances the supply value chain.
Malaysian Industrial Development Finance Bhd (MIDF) head researcher Imran Yassin Md Yusof said the semiconductor industry is projected to remain a key driver of the E&E sector in Malaysia which will intensify through the advancements in technology as its driving force.
New growth areas the E&E manufacturers are currently exploring include e-commerce, automation, Internet of Things (IoT) and artificial intelligence (AI), accelerating the move towards IR4.0 both at industrial and societal levels.
Today, IoT is pushing demand for more advanced semiconductor devices such as sensors, resistors and transceivers, to help the industry to adopt digitisation and digitalisation aimed at improved productivity, profit and competitiveness.
“In one particular area, the rise of IoT and connected devices has significantly influenced the E&E sector, leading to increased demand for smart and interconnected solutions,” he told The Malaysian Reserve (TMR).
He believed that AI is now seen as a new supporting ecosystem as the possible future trend in the semiconductor industry evolves across electronics manufacturing services, communication technologies and smart devices.
“Moving forward, we expect the demand for advanced semiconductor products for applications like 5G, IoT and AI is expected to drive growth,” he said.
It is noted that the E&E industry is producing 13% of global back-end semiconductors, driving 40% of the nation’s export output and contributing about 5.8% to the GDP in 2023.
With ambitious targets set at RM120 billion by 2025 in GDP growth and RM495 billion in export earnings, the industry is a catalyst for Malaysia’s economic progress.
“Looking at global trends, the development of AI and the need for advanced chips is expected to drive development going forward.
“Although some would say it is still in its infancy stage, we could witness a breakthrough in this field soon,” Imran added.
However, given the nation’s E&E sector still very much relies on the external chain and global influence, Imran said the sector needs a resilient supply chain as it faces challenges related to global supply chain disruptions, affecting the production and distribution of electronic components.
“Last year saw the E&E sector performing weakly from an export perspective. We believe that this was due to slower demand, particularly in consumer electronics, where our local E&E is part of the value chain.
“We also saw lower demand coming out of China. All of this could be due to either slowing end consumer demand or the draw-down of inventories by companies, or both,” he said.
Despite that, Imran expects the situation to recover due to better demand and restocking activities this year.
Investment and Building More High-Tech Facilities
In developing the sector, a balance between attracting investments and ensuring sustainable growth is pivotal, without neglecting the interests of the community of investors and workforce in line with the evolving industry trends and global economic shifts.
At this juncture, Malaysia is also recognised as being an investment-friendly nation with the policy implementation, on top of providing investment incentives, and research and development (R&D) grants which saw a success in creating an environment that fosters competitiveness and innovation.
As it gears toward high technology, Malaysia also elevates itself as the hub for manufacturing growth with the establishment of industrial parks and zones specifically tailored for the sector that contributes to the development.
This includes the development of high-tech parks such as Kulim Hi-tech Park in Kedah as a hub in creating a robust industrial economy focusing on high-tech manufacturing, advanced technologies and R&D activities, as well as the rise of Cyberjaya as the global tech hub.
The government through the Malaysian Investment Development Authority (MIDA) has been encouraging manufacturers to establish more R&D, and design and development centres; centres of excellence; global procurement centres; logistic centres and operational headquarters in Malaysia.
Not only that, through the New Industrial Master Plan 2030’s mission-based champions, Malaysia is also set to explore more high-end segments of the semiconductor supply chain namely integrated circuit design and wafer fabrication.
At its core, this vision seeks to create an abundance of high-value job opportunities, transforming Malaysia’s reliance on relatively low-cost foreign labour.
Growing Presence and Friendly Investment Policy
Many multinational semiconductor companies have established a presence in Malaysia, chosen over our infrastructure, skilled workforce, competitive costs and strategic location in the Asia-Pacific region.
The E&E sector is also diverse, encompassing various subsectors such as semiconductors, electronic components, telecommunications equipment and consumer electronics which allows Malaysia to participate in multiple aspects of the global supply chain.
Bosch Malaysia MD Klaus Landhaeusser said Malaysia has built up an unparalleled eco-system for semiconductors which has assembled important players in the value chain.
“For example, it brings the Bosch semiconductor manufacturing network much closer to the upstream processes of packaging companies, such as outsourced semiconductor assembly and test vendors, and customers in the important Asian market,” he told TMR.
Apart from Malaysia’s geographical location, backed by a well serviced by all primary air and shipping lines, the country’s economy remains resilient and rests on strong fundamentals, while implementing investment-friendly policies.
“These are the factors attracting foreign investors, giving rise to Malaysia being an essential player in the E&E ecosystem. This is also the main reason why Bosch remains committed to the Malaysian market,” Landhaeusser added.
As of Dec 31, 2022, Bosch has made a total of €86.2 million (RM446.52 million) investment in Malaysia and in August 2023, recently launched a new plant, the Bosch semiconductor backend site, which reflects the evolution of the E&E sector over the years.
Landhaeusser said currently, only one-fifth of the plant is built at a cost of some €65 million and Bosch intends to invest a further €285 million at the site by the middle of the next decade.
In short, a total of €350 million is planned for this facility until 2035.
Through its new and existing manufacturing plants in Penang, Bosch — as a key player — will continue to strengthen its position, inventing E&E-related products such as producing mobility electronics, power tools and semiconductors to enhance the quality and efficiency of living.
“With the new plant addition, Penang is now home to the largest number of manufacturing facilities in a single country for Bosch in South-East Asia.
“This facility is one of Asia’s most advanced test centres to perform final testing of automotive chips and sensors,” Landhaeusser added.
Landhaeusser also believed that the future integration of AI will present numerous business potentials in new growth areas for the E&E manufacturers including smart manufacturing and smart energy efficiency solutions, connected devices and IoT, autonomous systems and more.
“AI-powered predictive maintenance systems can help E&E manufacturers anticipate equipment failures before they occur, enabling proactive maintenance activities and reducing costly downtime,” Landhaeusser said.
R&D and Retaining Tech Talent
As investors continue to come in and intensify competitive situations regionally, human capital readiness is equally important to ensure a skilled workforce to meet the need for technological advancement.
This requires close coordination among the private sector, the Human Resources Ministry and the Higher Education Ministry to bridge skill gaps effectively.
In this regard, another important player in the manufacturing sector, ams OSRAM Malaysia, believed that deeper involvement in research is needed to fast-track the evolution, which subsequently helps semiconductor companies to retain top talents aggressively.
“As the research accelerates, there will be more engagement with local semiconductor eco-systems to source materials and equipment technologies for advanced manufacturing,” its spokesperson said in response to an inquiry from TMR.
This will also allow the local institutes and universities to supplement scientific and technical knowledge.
“To prepare better, the industry must work closely with national and local governments to motivate the youths to consider science, technology, engineering and math careers and at the same time work with local companies to operate at world-class levels to support the semiconductor ecosystem,” it said.
The group believed that Malaysia should learn from the pandemic and current geopolitical tension by renewing its focus on building a balanced supply chain that balances between local and regional or global suppliers.
“Malaysia must seize this opportunity to build upon its 50-year history and encourage entrepreneurship or start-ups to support and participate in the whole semiconductor industry,” it added.
Technically, it opined that Malaysia is reaching the end of “Moore’s Law” and the industry is rapidly adopting “advanced packaging” where multiple chips are combined in single packages that go into phones, cars, drones, watches and other applications.
“Malaysia’s strength in semiconductor packaging can be leveraged to thrust Malaysia to the forefront of this fast-growing sector,” it added.
Source: The Malaysian Reserve
