Media Statement by Dr. Ong Kian Ming, Deputy Minister of International Trade and Industry (MITI) on the 30th of July, 2019
In part 1 of my media statement, I explained the importance of the E&E industry to the larger Malaysian economy and how this sector has evolved over time. In Part 2 of my statement, I will highlight some of the key challenges and opportunities for this sector in Malaysia in the context of global trade and economic uncertainties.
- Capturing new and higher value-added investments from existing players
An investment by a new company worth RM100m, especially if it is a well-known global brand, can generate more publicity in Malaysia compared to a re-investment by an existing player worth RM1 billion. In some ways, this is understandable given our larger fascination with new, bright shiny objects compared to older and duller toys, so to speak. But as the saying goes, “a bird in hand is (sometimes) worth two in the bush” meaning to say that we should not forget the importance of existing players while we aggressively pursue new investments.
Many of the existing players in the E&E industry in Malaysia are well-known multinational companies (MNCs) with operations in many countries. And these companies can choose between various locations, including Malaysia, for their future expansion plans. The attractiveness of tax and other related incentives would be one the factors influencing global HQ investment location decisions. The challenge here is for the respective management teams in Malaysia to make a pitch to their global HQs for these new investments in competition with their colleagues from other countries. The pushback from the Malaysian authorities which the local teams are facing is to show that their investments involve higher value-added products and processes deserving of new incentives.
In the long-run, the overall contribution of FDI inflows in the E&E sector has been well documented from increasing the level of economic complexity (which is another way of measuring the amount of value-added for the outputs), to having a higher than average productivity growth compared to other industries and the gradual upskilling of its workforce over time. But on a case-by-case basis, many MNCs have to face an alternative narrative which says that Malaysia has been too generous and not discerning enough with regards to its tax incentives leading to some MNCs seemingly enjoying reinvestment allowances in perpetuity.
The restructuring of the National Committee of Investments (NCI) to process the various investment incentives applications with co-chairs from MITI and MOF should increase the processing speed and the rate of approvals of some of the applications from existing MNCs. But more needs to be done in order to capture the opportunities from investment relocation and diversification that is happening as a result of the US-China trade and technology conflict.
- Growing the technology and R&D base of the Large Local Companies (LLCs) and supporting SMEs
While we must take advantage of opportunities to capture additional investments from the existing MNCs, we must also give due attention to growing and strengthening the LLCs and supporting SMEs in this sector. The impression that the government gives disproportionate attention, incentives and grants to the MNCs should be corrected. LLCs have and will continue to enjoy access to matching grants from the MIDA-administered Domestic Investment Strategic Fund (DISF) which has supported R&D and training activities for many local companies in the E&E sector including Ground Data Solutions and Vitrox, before it was listed.
Government and industry partnerships to grow the R&D and technology base of the LLCs in the E&E sector will continue so that the LLCs can continue to move up the value chain. Indeed, many of the LLCs are already investing their own resources in R&D-related activities as part of their service offerings to their MNC customers and part of their internal strategy to expand their activities beyond the scope of contract manufacturing. The challenge here is to align the speed of DISF grant approval and disbursement with the investment and production timeframes of the LLCs.
At the SME level, many of the programs and initiatives by the government moving forward will be related to Industry 4.0. The focus here will be to slowly but surely onboard the local SMEs to adopt Industry 4.0 pillars systematically so that productivity and quality of their manufacturing processes can be enhanced. The challenge here is to get ownership and top management buy-in to start their I4.0 journey since many are still reluctant to move towards this direction.
- Talent development at the R&D level and also at the technician & operator level
One consistent area of feedback from industry is the shortage of talent in the E&E sector both at the top end – design engineers and researchers, for example – as well as at the bottom end – machine operators and technicians. Linked to the issue of talent is the demand for foreign labour.
It is beyond the scope of this statement or even MITI to address the issue of low enrolment in Science, Technology, Engineering and Mathematics (STEM) degrees and courses at the post-secondary level. But in the short term, there are a few initiatives which can be undertaken to address the talent shortage in the E&E industry.
Firstly, more dual training and learning programs can be introduced to make jobs in this sector more attractive to potential machine operators and technicians. Such industrial training and learning programs exposes students to practical hands-on knowledge and allows them to be paid while they are studying. This is also a good job-matching opportunity for companies which are involved in such programs.
More private sector trainers and providers should be encouraged to enter this field. Dreamcatcher, a Penang-based company which provides technical training to the E&E industry, also has TVET specific programs which are already in existence.
MITI is also working with the Ministry of Human Resources (MoHR) to introduce Industry 4.0 specific courses and programs. Such programs will also benefit the E&E industry from a talent development perspective.
It would also be useful if a more complete and holistic career development pathway can be mapped out for operators and technicians so career progression can be seen and understood right from the beginning. With greater automation, the skill set and wages for the operators and technicians will also increase in tandem.
At the top end, public and private sector initiatives, such as the Innovate Malaysia Design competition which is geared towards the E&E industry, can be proliferated to recruit talented engineers into the industry.
The government is always open to new ideas in this area for win-win solutions to be identified. Having concrete proposals is far more useful than just complaining about the lack of talent in the industry.
- Integrating various players from China into the local E&E ecosystem
Chinese capital and investments in the E&E industry have already come to Malaysia albeit using different business models.
Tongfu Microelectronics (TFME), which is listed on the Shenzhen Stock Exchange, acquired AMD’s operations in Penang in 2016 and has steadily increased its investments and production in Penang. This is the Mergers and Acquisition (M&A) model of investment where an existing facility and operations are acquired by a China-based entity. More recently, in 2018 a Hong Kong listed company offering electronics manufacturing services (EMS), VTech, acquired the factory operations of Pioneer Corporation based in Muar, Johor.
Jinjing Group, a glass manufacturer, set up shop in Kedah in order to manufactured and sell solar glass to the solar PV manufacturers in the vicinity. The partnerships formed with some of the MNCs in Penang and Kedah in the solar PV sector was the essential factor that drew this company to Malaysia in the first place.
The number and amount of Chinese investments in this industry is expected to grow significantly as a result of the US-China trade and technology conflict which is not likely to abate anytime soon. Malaysia must find ways to integrate these Chinese E&E players into the local ecosystem so that they can grow together with the existing MNCs and LLCs.
- Adjusting to shifts in the Global Supply and Value Chain
In the past, when the trend of globalisation was expected to continue unabated, the global supply and value chains were expected to become more complex, diversified and long as logistics and communication costs decreased significantly. But according to a recent report in The Economist, the global supply chain is expected to undergo significant transformation including becoming shorter, smarter and faster.
In Malaysia, we have to keep track of and anticipate how these trends will play out domestically. We may not, for example, be able to capture the more labour intensive portions of the Apple value chain that was reported to be partly relocating out of China (Vietnam, India and perhaps Indonesia have greater access to affordable labour) but we can benefit in higher technology areas such as providing the machines which can test the various components which go into the IPhones, for example.
We should expect more disruptions to occur in this space in the face of greater global uncertainties with regards to the overall trade and investment climate. We may be able to gain from some of these shifts as the economies in Asia are still the fastest growing in the world and if regional supply chains have to be created as a result of these trade and investment frictions.
- More Strategic Industry Research, Advocacy and Promotion
Lastly, even though the E&E industry in Malaysia has grown by leaps and bounds over the years, the level of strategic industry research, advocacy and promotion, both domestically and internationally can be improved significantly.
The E&E Productivity Nexus (EEPN) under the Malaysian Productivity Corporation (MPC) has undertaken a number of initiatives to push for the development of the industry as a whole and this has to be recommended and shared widely.
Other strategic initiatives which can be carried out include collaborative academic research in order to showcase the achievements and document some of the challenges faced by the industry in Malaysia. Media exposure, industry newsletters and educational institution engagement by the industry are among some of the initiatives which can be enhanced.
Finally, even though some industry players know of the strategic importance of Malaysia, and particularly of Penang, to the global E&E ecosystem, much more work needs to be done to promote and sell this story overseas.
challenges are many but so are the opportunities. The work has to speed up!
 “Complexity & Growth: Malaysia’s Position and Policy Implications”, Brenda Cheah Wenn Jinn and Mohd Shazwan Shuhaimen” Bank Negara Malaysia, March 2018 (http://www.bnm.gov.my/index.php?ch=en_publication&pg=en_work_papers&ac=60&bb=file)
 “Is Malaysia Experiencing Premature Deindustrialisation?” Tengku Mohamed Asyraf, Devendran Nadaraja, Afif Shamri and Rubin Sivabalan, Box Article, Bank Negara Malaysia Quarterly Bulletin, pg.19-25 (http://www.bnm.gov.my/files/publication/qb/2019/Q1/1Q2019_fullbook_en.pdf)
 “Rethinking Investment Incentives” Mohd Shazwan, Nurul Hana Ahmad Ghazali, Kevin Wong Tho Foo, Loke Po Ling and Sarah Syamimi Mohd Suhaimi. Bank Negara Malaysia Staff Insights, 2017/12, November 2017 (http://www.bnm.gov.my/index.php?ch=en_publication&pg=en_staffinsight&ac=55&bb=file)
 http://www.mida.gov.my/home/funds-or-incentives-under-domestic-direct-investment-(ddi)-initiatives/posts/?lg=EN and http://www.mida.gov.my/home/administrator/system_files/modules/photo/uploads/20161230151858_NovDec2016.pdf