15-3-2024 (KUALA LUMPUR) Amidst the towering construction cranes that surround the brand-new plant in Kulim’s industrial park, legions of workers hired by the Austrian tech giant AT&S are already gearing up to produce at full capacity by the year’s end. Outfitted in head-to-toe coveralls, oversized safety glasses, and hard hats, they resemble the industrious worker bees from the movie “Minions,” colour-coded by function: blue for maintenance, green for vendors, pink for janitors, and white for operators.
AT&S is just one of the numerous European and American companies that have recently decided to move or expand their operations in Malaysia’s electrical and electronics manufacturing mecca. The American chip giant Intel and the German corporation Infineon are each investing a staggering £5.5 billion. Nvidia, the world’s leading maker of chips powering artificial intelligence (AI), is teaming up with the country’s utilities conglomerate to develop a £3.4 billion AI cloud and supercomputer centre. Texas Instruments, Ericsson, Bosch, and Lam Research are all expanding their presence in Malaysia.
This boom is a testament to how geopolitical friction and competition are reshaping the globe’s economic landscape and driving multibillion-pound investment decisions. As rivalries between the United States and China over cutting-edge technology simmer and trade restrictions pile up, companies – particularly those in crucial sectors like semiconductors and electric vehicles – are seeking to strengthen their supply chains and production capabilities.
“It was clear after 20 years of investment in China, we needed to diversify our footprint,” said Andreas Gerstenmayer, chief executive of AT&S, which manufactures high-end printed circuit boards and substrates that serve as the foundation for advanced electronic components powering AI and supercomputers. The company’s site search began in early 2020, just as warnings about a dangerous new coronavirus in China were spreading.
After scouting 30 different countries across three continents, AT&S settled on Malaysia. Southeast Asia’s strategic position in the South China Sea and longstanding economic ties to China and the United States make the region an attractive place to set up shop. Nations like Thailand and Vietnam, AT&S’s second choice, are also aggressively courting semiconductor firms to expand, offering tax incentives and other lures. However, Malaysia has the advantage of a head start.
The country has been riding the tech wave since the 1970s when it energetically courted some of the world’s electrical and electronic superstars, like Intel and Litronix (now ams Osram, headquartered in Austria and Germany). It created a free-trade zone on the island of Penang, offered tax holidays, and built industrial parks, warehouses, and roads. Cheap labour was an additional draw, as was its large English-speaking population and a government supportive of foreign investment.
“Malaysia’s history in the back end of making semiconductors was one of the primary draws,” Gerstenmayer said. “They are quite aware of what the needs of the semiconductor industry are, and they have a well-developed ecosystem in the universities, education, labour force, supply chain, and more. Support from the government was another attraction.”
Tengku Zafrul Aziz, Malaysia’s minister of investment, trade, and industry, said foreign investment began to pick up in 2019, driven by the widening use of semiconductors in everything from automobiles to medical devices. “There’s 5,000 chips in one car,” he said.
After the COVID-19 pandemic revealed devastating weaknesses in global supply chains, interest in Malaysia as an additional source soared. This trend accelerated as great power conflicts bubbled over, with both China and the United States moving to forge their own reliable semiconductor supply chains and support other critical sectors like renewable energy and electric vehicles.
“U.S. and European companies and even Chinese companies wanted to diversify out of China,” Zafrul Aziz said. China, too, is locating production facilities outside the mainland, in part to sidestep U.S. sanctions, in a “China plus one” strategy.
Worries about Taiwan, the world’s largest producer of semiconductors and a source of growing friction between China and the United States, have further fuelled investment in Malaysia, he said. Malaysia is already the world’s sixth-largest exporter of semiconductors and packages 23 percent of all American chips.
“For a country of this size to be having that big an impact on the global semiconductor market is quite fantastic,” said David Lacey, director of advanced development and services at Osram, one of the world’s largest lighting companies.
The proximity of so many tech companies also exerts a gravitational pull. In Penang and Kulim, connected by two long, snaking bridges, there are more than 300 companies. “Everything is here,” said Eric Chan, a vice president and general manager at Intel in Malaysia. After half a century, that network and infrastructure are not easily duplicated.
Chan also mentioned the government’s crucial cooperation during the pandemic in keeping factories open. Foreign direct investment was nearly £31 billion last year, more than twice the total generated in 2019.
“Most of our big investments have happened in the last two years,” said Mario Lorenz, managing director in Malaysia for the German logistics company DHL Supply Chain. “We followed the trend.”
Inside DHL Supply Chain’s newest global distribution centre, Penang Logistics Hub No. 4, are bespoke orange and blue shelves specifically designed to handle the heavy, oversized crates used by a semiconductor company. Four new supply chain facilities are in the works in Malaysia.
While Malaysia’s track record has been mostly in the back end of the semiconductor supply chain – including packing, assembling, and testing components – activities traditionally considered less complex and of lower value, the industry’s focus on packaging smaller chips (chiplets) more tightly together to increase computing power is increasing the value and technical complexity of those activities.
Intel is building its first overseas facility for advanced 3D chip packaging in Malaysia. “When you bring in cutting-edge technology, there is a ‘ripple effect,'” said AK Chong, a vice president and managing director of Intel in Malaysia. This development will attract dozens of new businesses and help advance the entire skill set of the labour force.
Such advancements will require a huge expansion of utilities like green energy, sanitation, water, and a 5G digital infrastructure – a challenge for any country, particularly one whose history has been marred by a multibillion-pound corruption scandal involving its sovereign wealth fund. Even so, several company executives expressed confidence in Malaysia’s role in the supply chain.
“They have projects to provide green energy by building up big solar farms,” Gerstenmayer said. “Malaysia is on a good path to becoming a hot spot in the electronics industry globally.”
As the tech giants continue to pour investments into Malaysia amid the ongoing US-China rivalry, the nation is emerging as a global hub for cutting-edge technology, capitalising on its strategic location, well-developed infrastructure, and supportive government policies.
