‘Opening’ the Taiwanese window for Malaysia’s industrial upgrading
13 Dec 2022
Major foreign investors in Malaysia in the 1990s, Taiwanese businesses have rekindled their interest in the country over the past few years. The US-China trade war, higher production costs in China, Beijing’s zero-Covid policy, reorganisation of the semiconductor supply chain via the Chip 4 Alliance and the latest heightening of tensions in the Taiwan Strait all provide a strong rationale for Taiwanese businesses to recalibrate their existing strategy of banking on China for the production of global consumer goods. Instead, the future trend of Taiwanese investments will be based on a two-pronged approach that serves to capture both China and the global markets separately. By diversifying their know-how, capital and technologies into Southeast Asian countries, Taiwanese investors are circumventing the supply chain disruptions emanating from acute geopolitical rivalry and the fluctuating situations on China’s domestic front.
In the case of Malaysia, the renewed interest of Taiwanese investors has been evidential in recent statistics provided by Malaysian Investment Development Authority (Mida). From 1980 to 2021, Taiwan was the eighth largest source of manufacturing foreign direct investments (FDIs) for Malaysia, just behind heavyweights — the Netherlands, Singapore, Japan, the US, China, South Korea and Germany. Within the same period, a total of RM42.39 billion (US$13.98 billion) investment value from Taiwan was recorded in Malaysia’s manufacturing sector, resulting in 2,577 investment projects and 386,762 jobs for all Malaysians thus far. If measured by the number of investment projects and number of jobs created, only Japan and Singapore surpassed Taiwan in both categories — an indicator that Taiwanese investments are contributing significantly to Malaysia’s economic development and local employment. With the reopening of borders in the post-pandemic period, more Taiwanese investments are expected to flow into Malaysia in the coming months.
Recent Taiwanese high-value investments
What is worthy of note, however, is beyond these quantitative figures. In recent years, the quality of Taiwanese investments into Malaysia has increased, the most representative of them being the Ally Logistics Property (ALP) and Wiwynn Corp. With smart warehousing solutions that are unrivalled by any logistics giants in the world, ALP offers a one-stop centre for customers to “share their stockpiled goods” through the use of advanced software that is able to tailor-make the packaging needs of the customers as well as allowing them to trade their goods in the smart warehouse without the need for transport. By reducing complicated warehouse management into fluid and efficient processes, ALP’s OMega smart warehouse facility in Bukit Raja (Selangor) is slated to draw RM4.14 billion of investment value and create 3,000 skilled job opportunities for Selangorians and beyond.
The other is Wiwynn Corp, which has the potential of making Malaysia the regional hub for the production of infrastructures for global hyperscale data centres. Like the ALP, Wiwynn Corp is another prominent Taiwanese conglomerate that is bringing in RM500 million in investments for its rack integration and printed circuit board (PCB) plants in Senai, Johor. In all, the two plants are expected to produce 1,600 skilled job opportunities for the people of Johor, and Wiwynn is even exploring the possibility of offering skilled training for the graduates of Universiti Teknologi Malaysia (UTM) in the near future.
Keeping the leading edge
As noted by the “Standard Chartered for Borderless Business: Taiwan-ASEAN Corridor” survey in 2021, the arrival of these high-end Taiwanese investments is an indicator that Malaysia continues to be an attractive destination despite the absence of diplomatic relations since 1974. That said, such status is not without its set of challenges ahead: the rise of Vietnam as a strong competitor for Taiwanese high-value investments; the deficit of a local technical workforce in Malaysia; and lack of technological upgrading among Malaysian small and medium enterprises (SMEs) within the manufacturing sector. In order to respond to these challenges, there are three measures which Malaysia should take to keep its leading edge in the region.
First, Malaysia should encourage local higher education institutions (HEIs) to establish high-impact vocational programmes with the Taiwanese investors on the local scene. As highlighted by the Federation of Malaysian Manufacturers (FMM), a shortage of skilled manpower is the long-standing problem affecting Malaysia’s economic recovery in the post-pandemic era. With business costs that are higher than Vietnam’s, having a large pool of technical manpower remains Malaysia’s best bet to keep its leading edge against its northern neighbours.
But with Vietnam vigorously capitalising on the large presence of Taiwanese investors to train and employ their workforce through the list of 70 vocational programmes established with Taiwan’s HEIs, there is no way for Malaysia to continue its business-as-usual approach. Instead, Malaysia has to up the game and distinguish itself from Vietnam through strategic deliberations on specific training programmes in high-end industries that have existing Taiwanese investments but lack the skilled workforce to man the operation lines. One potential entry point would be establishing tailor-made vocational programmes (including job placement arrangements) for industries that are related to semiconductor production, considering that Malaysia is deeply connected to the semiconductor supply chain as the lower- to medium-end producers.
Second, as a traditional destination for Taiwan’s investments, Malaysia’s ties with the Taiwanese business community can be traced to the 1980s. Malaysia should utilise this unique advantage to attract more Taiwanese big names — especially those high-end manufacturing companies — to choose Malaysia over its neighbours as their investment destination.
Since Malaysia has a sizeable pool of Taiwanese companies that supply their lower- to medium-end goods to top clients in the manufacturing supply chain, Mida could readily enlist the support of the Taiwan Chamber of Commerce and Industry in Malaysia (TWCHAM) to network with these manufacturing giants and bring them to Malaysia for high-value investments. Joint business matchings, seminars and even sports competitions are the events that Mida can consider co-organising with TWCHAM in the long run.
Lastly, Malaysia has to ensure that Malaysian SMEs are benefiting from a certain level of technological transfer through cooperation with the Taiwanese companies. Given that Taiwanese technologies are cheaper, reliable and transferrable to the local partner companies in the long term, Malaysia should capitalise on these three advantages to achieve industrial upgrading in the manufacturing sector. As in Taiwan’s case, having a huge pool of SMEs is absolutely crucial in providing low- and medium-end support to Taiwanese manufacturing giants that dominate the higher echelon of the supply chain. Likewise, Malaysia can draw valuable lessons from the Taiwanese experience by building a strong pool of local SMEs that place technological transfer as their cornerstone for any industrial cooperation with the Taiwanese companies.
Faced with an increasingly disruptive regional order today, both Taiwan and Malaysia can benefit from each other by strategising their business cooperation for mutual benefit. Whereas Malaysia acts as a buffer for Taiwanese investors who wish to diversify their production away from mainland China in order to continue serving the global consumers, the former should take this opportunity by “opening” the Taiwanese window further. This entails attracting Taiwan’s know-how, capital and technologies into Malaysia to upgrade the country’s manufacturing industries.
Lee Chee Leong is senior lecturer at the Institute of China Studies (ICS), University of Malaya. Lin Kai Min is president of the Taiwan Chamber of Commerce and Industry in Malaysia.
Source: The Edge Markets