Technology (Page 75)

Semiconductors are quickly becoming both the new oil and a new source of global conflict. Today, everything that requires computing power has chips fitted, from weapons to watches and cars. The artificial intelligence era is only just beginning, which will inevitably lead to even greater use of semiconductor chips.

Malaysia is right in the middle of the global chip-making supply chain. The electrical and electronics sector comprises about 7% of Malaysia’s GDP, with semiconductor devices and electronic integrated circuits alone making up a quarter of total exports, totaling 387 billion ringgit (US$83.5 billion) in export value in 2022.

As the world’s sixth largest semiconductor exporter, Malaysia holds 7% of the global market share and contributed to 23% of US semiconductor trade in 2022.

Malaysia is welcoming more investment into the semiconductor value chain. The country has an established presence in chip assembly, packaging and testing as well as electronics manufacturing services, producing 13% of global back-end semiconductor output.

The New Industrial Master Plan (NIMP) 2030 aspires to see more front-end activities such as integrated circuit design, wafer fabrication, semiconductor machinery and equipment manufacturing in Malaysia.

Recent announcements of investment by Intel ($7 billion), Infineon ($5.5 billion) and Texas Instruments ($3.1 billion) show that Malaysia is well positioned to scale and engage in more complex activities.

Unfortunately, many Malaysian companies, especially small and medium enterprises, are still dependent on unskilled foreign labor and are reluctant to automate. Many do not believe that Malaysia has the capability to produce automated machines or precision tools at the level of Germany or Japan. 

But the global semiconductor industry in Malaysia has also created a number of successful local companies specializing in automation solutions, such as Greatech, Pentamaster and Walta. 

They are known for handling precision tooling or precision engineering, and together with ViTrox, a Malaysian company providing automated optical inspection systems for semiconductors, form a critical and highly resilient Malaysian supply chain for the semiconductor industry.

The semiconductor industry often complains that there is not enough talent in Malaysia. But Malaysia ultimately has a salary problem, not a talent problem. Many of Malaysia’s skilled workers, such as engineers and technicians, pursue employment in Singapore where the pay is better. 

Low pay is a systemic issue that creates a vicious cycle of inadequate skilled job creation. Malaysia is a rare case in which the median monthly wage in manufacturing (2,205 ringgit) is lower than the median monthly wage (2,424 ringgit).

Engineers are not immune from this problem. A 2022 report by the Board of Engineers Malaysia found that over a third of engineering graduates had a starting salary of less than 2,000 ringgit per month as of 2021, while 90% of engineering graduates earned less than 3,000 ringgit per month. For a single adult household in Kuala Lumpur, this is scarcely enough to get by.

An unintended consequence of low wages in the electrical and electronics sector is that students are discouraged from pursuing full-time tertiary education or employment in STEM fields. 

Malaysia’s engineer-to-population ratio stood at 1:170 in late 2022, below the aspirational target of 1:100. Those who decide to pursue STEM careers often end up pursuing other forms of employment to supplement their incomes, such as gig work. 

Many of Malaysia’s engineering graduates also choose to work in Singapore, where they can expect to make around S$2800-3400 (approximately 9,750–11,840 ringgit) per month as an entry-level engineer.

Admittedly, this is a chicken-and-egg problem. Malaysia needs to invest more in STEM education in its schools and universities, as well as technical and vocational training, to prepare a more robust talent pipeline. But most importantly, Malaysia needs to pay its skilled workers better to address long-standing issues in the sector, including the brain drain and underemployment.

The NIMP 2030 aspires to see the manufacturing median wage double from 2,205 ringgit per month as of 2022 to 4,510 ringgit per month by 2030. Alongside the efforts to move up the value chain in front-end and back-end semiconductor activities, Malaysia can be even more ambitious and aim for engineering wages in the electrical and electronic sector to rise further.

Until a few years ago, most governments around the world saw the semiconductor industry first and foremost as a private venture. Within the Malaysian government, the semiconductor industry was under the de facto domain of the Malaysian Investment Development Authority, a government agency responsible for promoting investment.

Since 2021, many governments have belatedly begun building the infrastructure and capability to coordinate policy and shape outcomes. The United States’ CHIPS Act and bans on the export of advanced chips are the most significant examples.

In 2022, Malaysia and the United States signed a Memorandum of Cooperation on Semiconductor Supply Chain Resilience. The memorandum provides guiding principles to strengthen collaboration, transparency and trust between the two governments.

Beyond treating the semiconductor industry as an investment, Malaysia should gradually build up stronger policy leadership. With stronger collaboration among key stakeholders, including industry players, policy thinkers and the government, Malaysia can begin to think more strategically about the most interesting and important industry of our time.

Liew Chin Tong is Member of the Malaysian House of Representatives who serves as Deputy Minister of Investment, Trade and Industry. He is the Deputy Secretary-General of the Democratic Action Party and Member of Parliament for Iskandar Puteri.

This article was originally published by East Asia Forum and is republished under a Creative Commons license.

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