Editor’s note: Offshore manufacturing will remain part of the electronics industry’s strategy even as on- and near-shoring efforts increase. Market proximity matters. The Asia-Pacific region spent $400 billion on consumer electronics alone in 2020.
Malaysia has been utilized for outsourced manufacturing of goods for the world, be they low or high tech, for decades. Major brands moved their manufacturing to one of the so called “Asian Tigers” in the 1970s and 80s and Malaysia remains a competitive location.
While Malaysia has been steadily growing its manufacturing industry and its skill base the world has been chasing low-cost labor and increasing its supply chain dependency on China. The U.S. trade war with China, the pandemic and more recently supply chain issues have shown the risks of an “all your eggs in one basket” approach. Many global brands are looking to a “China +1” strategy or a more regional strategy. This is just one of many factors that emphasize the value of mature reliable manufacturing geographies like Malaysia.
There are five compelling reasons to manufacture in Malaysia:
Talent and experience
There has been endless discussion about component shortages this year which mask an equally challenging global shortage – talent. A skilled labor shortage is prompting wage inflation, disruptions, uncertainty and potentially a loss in competitiveness. Few places are feeling this more acutely than China and for that reason countries like Malaysia with a mature manufacturing ecosystem and a first- rate education system are benefitting.
Malaysia’s academic establishment has been turning out graduate-educated engineers for decades and the labor squeeze is less intense than its neighbors.’ The challenge of talent shortages isn’t restricted to China — it’s a real issue that could impact emerging nations as well as the U.S. and Europe.
Reliable economy and exchange rates
A major factor affecting the price of manufactured goods is exchange rates and economic stability. Malaysia’s exchange rates have been much less volatile than many. Malaysia’s central bank on March 30 trimmed its 2022 economic growth forecast to between 5.3 percent and 6.3 percent. The country’s economic recovery will be slightly offset by the impact of the Ukraine conflict. Bank Negara Malaysia (BNM) had previously projected the economy would grow between 5.5 percent to 6.5 percent in 2022, as borders and businesses reopen following the lifting of coronavirus restrictions. This is a minor adjustment.
Exports are also expected to rise 10.9 percent in 2022 on higher global demand and stronger commodity prices, despite supply chain disruptions.
“Malaysia must seize digital transformation opportunities, which are key for the country’s economic recovery efforts and can support the nation’s future economic resilience,” said Datuk Seri Mustapa Mohamed, Minister in the Prime Minister’s Department (Economy). “Under the country’s MyDigital initiative, Malaysia aims to become a technologically advanced digitally driven country and a regional leader in the digital economy by 2030. The digital economy is expected to contribute 22.6 percent to Malaysia’s gross domestic product and create 500,000 new jobs by 2025.”
The electronics industry is developing its own automation solutions and embracing the digital transformation associated with trends like Industry 4.0.
A modern ESG approach
Trust is becoming even more important in the supply chain as consumers and brands look to their manufacturing partners to “do the right thing” when it comes to the environment and the society in which they operate, as well as ensuring they meet the relevant governance needs. This means it is increasingly important for suppliers to ensure they have the right policies and the right reporting structures in place.
For example, the German Supply Chain Act insists that companies look several levels down their supply chain to ensure compliance. As with many things German, this could be adopted across Europe impacting global supply chains.
Malaysian public-listed companies (PLCs) are faring well in environmental, social and governance (ESG) factors among their ASEAN peers, according to research by PwC and Capital Markets Malaysia. The nation is promoting sustainable investing.
Foreign direct investment
The number of substantial manufacturing projects by foreign investors in Malaysia continues to grow year on year. In 2020 there were more than 1,000 approved projects with investment rising to RM91.3 billion ($20 billion), of which more than 62 percent came from overseas.
More recently, Intel announced it would invest $7 billion in a new chip-packaging and testing factory in Malaysia, creating 9,000 jobs and continuing the development of Malaysia’s semiconductor supply chain. In August 2021, leading wafer fabrication equipment company Lam Research officially opened its new manufacturing plant at Batu Kawan with an investment of RM1 billion ($227 million). The facility, which is the company’s largest production facility, has an 800,000-square-foot built-up area.
This followed other semiconductor investments including Ultra Clean in Penang and Medical Device company Dexcom, a global leader in continuous glucose monitoring (CGM) for people with diabetes, headquartered in California, which chose Batu Kawan Industrial Park, Penang, as its third manufacturing site.
With so much disruption and turmoil in the supply chain, it makes sense to look at countries that have been able to combine decades of experience and tradition with a sharp focus on developing solutions fit for the future. Malaysia has been successfully manufacturing for the world for many years and expects more of the same as nations emerge from the pandemic.