The semiconductor industry has been compared to the new "oil" that can change the global economy. Despite being located right in the middle of the global chip manufacturing supply chain, Malaysia has not been able to accelerate because of the "chicken and egg" story related to wages.
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| Intel, the world's largest semiconductor maker by 2023, has announced a 10-year, $6.8 billion investment to expand its chip packaging and testing operations in Malaysia. (Source: Reuters) |
The world's 6th largest semiconductor producer
Semiconductors are fast becoming the new “oil” and a source of new global conflicts of interest. Today, everything that requires computing power is equipped with chips, from weapons to watches to cars. The era of artificial intelligence (AI) is just beginning, which will inevitably lead to even more widespread use of semiconductor chips.
Malaysia is at the heart of the global chip manufacturing supply chain. The electrical and electronics sector accounts for about 7% of GDP, with semiconductors and electronic integrated circuits alone accounting for a quarter of total exports, reaching a total export value of RM387 billion ($83.5 billion) by 2022.
As the world's sixth-largest semiconductor exporter, Malaysia holds a 7% global market share and contributed to 23% of US semiconductor trade in 2022.
The Southeast Asian nation is welcoming more investment in the semiconductor value chain. It has a strong foothold in chip assembly, packaging and testing as well as electronics manufacturing services, producing 13% of global “back-end” semiconductor output (“back-end” refers to the stage after the basic components of a semiconductor chip have been created through the circuit fabrication process – “front-end”).
Malaysia’s New Industrial Master Plan (NIMP) 2030 expects more “front-end” activities, such as integrated circuit design, wafer fabrication, and semiconductor machinery and equipment manufacturing.
Recent announcements of investments from Intel ($7 billion), Infineon ($5.5 billion) and Texas Instruments ($3.1 billion) show that Malaysia is well positioned to scale up and engage in more complex operations.
The problem for Malaysia right now is that many companies, especially small and medium enterprises, still rely on unskilled foreign labor and are reluctant to move to automation. Few believe that Malaysia has the capacity to produce automated machinery at the level of Germany or Japan.
The story of "the chicken and the egg"
Malaysia does not have enough high-quality human resources to develop the semiconductor industry. But the reality is that Malaysia has a salary problem, not a human resource problem. Many skilled Malaysian workers, such as engineers and technicians, choose to work in Singapore, where salaries are higher.
Low wages are a systemic problem in Malaysia’s economy, leading to a vicious cycle where the market creates jobs but there are not enough skilled workers. Malaysia is a rare case where the average monthly wage in manufacturing (RM2,205, or $476) is lower than the average monthly wage (RM2,424, or $523).
A 2022 report by the Malaysian Council of Engineers found that more than a third of engineering graduates earned starting salaries below RM2,000 ($432) per month as of 2021, and 90% of engineering graduates earned less than RM3,000 ($648) per month. For a single adult in Kuala Lumpur, this is barely enough to make ends meet.
This situation has resulted in Malaysian students being reluctant to pursue full-time higher education or work in STEM (science, technology, engineering and mathematics) fields. By the end of 2022, Malaysia’s engineer-to-population ratio was 1:170, lower than the desired target of 1:100.
Admittedly, this is a “chicken and egg” problem, and Malaysia needs to invest more in STEM education in schools and universities, as well as technical and vocational training to prepare a more abundant pool of talent. But most importantly, Malaysia needs to pay its skilled workers better to address longstanding problems in the sector, including “brain drain” and labor shortages.
The NIMP 2030 strategy expects average wages in the manufacturing industry to double from RM2,205/month (US$476/month) in 2022 to RM4,510/month (US$974/month) in 2030. In addition to efforts to move up the value chain in the back-end and front-end stages of semiconductor manufacturing, Malaysia could be even more ambitious and aim to further increase the level of engineering salaries in the electrical and electronics sector.
In 2022, Malaysia and the United States signed a Memorandum of Understanding (MoU) on Semiconductor Supply Chain Resilience, which sets out guiding principles to enhance cooperation, transparency, and trust between the two governments.
In addition to viewing the semiconductor industry as an investment, experts say Malaysia should gradually build stronger policy leadership. With strong collaboration between key stakeholders, including industry players, policymakers and the government, Malaysia can begin to think more strategically about this important and exciting industry of the future.
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