MALAYSIA has a very short window to attract more Foxconn of the world to set up semiconductor bases here. Industry observers share with NST BUSINESS possible measures and repercussions if we miss the boat.

Malaysia has been a hub for the electrical and electronics (E&E) industry since the late 1960s or early 1970s, particularly in terms of the prevalence of assembly and test factories for the semiconductor sector.

While the country continues to expand into equipment manufacturing and wafer fabrication, today there is much competition.

Many countries in the region are eyeing the same foreign direct investment (FDI) due to the high growth seen in the semiconductor sector.

COST COMPETITIVE & STANDING OUT

Malaysia needed to be cost competitive and figure out a way to stand out from the crowd, to continue to be a key E&E and semiconductor hub for the region, industry observers said.

"Government support is crucial. There are tremendous opportunities for Malaysia's semiconductor industry, be that as it may, what is lacking is the capacity to capitalise on global opportunities," one of them said.

"It will take a 'village' to propel Malaysia's semiconductor industry to world standards. It can only happen with multi-party cooperation and support," the insider added.

Industry observers are also of the view that local industry leaders must be encouraged to maintain and strengthen their footing in the global semiconductor market.

Malaysia must avoid being overlooked for offshoring or worse, having companies offshoring to other more attractive countries.

"It's an opportune time to position Malaysia as THE location for semiconductor fabrication," the observer said.

"Malaysia has a unique combination of robust infrastructure, a strong talent pool, stability, extensive connectivity, strategic location and political neutrality."

Indeed, with years of experience in the industry, Malaysia's strong talent pool is readily available to support the potential FDI into this sector.

Industry observer indicated that domestic direct investment (DDI), particularly for the fast-growing semiconductor industry, needed to grow in tandem with FDI if Malaysia's hold on the sector was to improve.

"As technology continues to evolve alongside rising demand, now is the time to take market share from other countries by ramping up Malaysia's production capacity, particularly in the 8.0-inch and 12-inch wafer space," a technology expert noted.

"A good example was Foxconn's announcement that they were going to build and operate a new 12-inch wafer fabrication plant in Malaysia together with Dagang NeXchange Bhd."

The expert added that the positive spillover effect could be enormous and it can also create an entire ecosystem base including design houses, assembly test facilities, material suppliers and equipment supplier hubs.

LESSON FROM GLOVE MARKET CRASH

Industry observers warned that Malaysia must learn its lesson from the crash of the glove market.

"Malaysia has a very short window to act. Without investment in growth now, Malaysia may miss the boat and end up fighting for space in an overcrowded market," another observer said.

"Malaysia must maintain the diversity of its economy; it cannot rely on only one or two engines of growth. We cannot afford a situation of the Foxconn of the world going elsewhere. Our neighbours are just waiting for the opportunity to capitalise on our inability to lock on these types of investments," he added.

Industry observers also remarked that plants of this scale could not be built overnight. It was a long-term investment for Malaysia's future.

With semiconductors being the "new oil", it is incredibly important for Malaysia to be able to capitalise on future opportunities.

Worse, if capacity was not built now, investors would not wait and would take the opportunity to build capacity elsewhere, they added.

HOW OTHER NATIONS ACT

To demonstrate how other nations see tremendous value in the semiconductor market, they are offering various incentives to ensure that they remain attractive to investors.

In July 2022, the US Senate voted in favour of the CHIPS Act. This bill will provide US$52 billion in assistance funds for semiconductor manufacturers to carry out production in the US, along with an industry-wide 25 per cent tax credit for investments and research/workforce development grants.

India's government has approved a deal to spend US$30 billion to position the country as a global hub for electronics manufacturing, with semiconductors as the foundational building block.

Its government will provide up to 50 per cent co-funding for fabs and cover up to 50 per cent of eligible expenditure for 100 semiconductor design companies.

Singapore's Economic Development Board, meanwhile, is looking to win its fair share of investments in semiconductor assembly and integrated circuit design, focusing on the semiconductor value chain of activities.

South Korea's "K-Semiconductor Belt" offers investment tax credits on semiconductor R&D up to 50 per cent and facility investments up to 20 per cent to attract more than US$450 billion in private sector investment in the domestic semiconductor industry by 2030.

Japan's Ministry of Economy, Trade and Industry will offer subsidies worth up to 476 billion yen (US$3.5 billion) for a semiconductor plant being built in Kumamoto prefecture by Taiwan Semiconductor Manufacturing Co, Sony Group and Denso.

"If the government wants FDIs like this to come in, then the logical move is to provide some sort of grant to kick things off,"the observer concluded.