MAEI survey reports on state of electronics industry in Malaysia, suggests future directions

The Malaysian American Electronics Industry (MAEI), an industry committee of the American Malaysian Chamber of Commerce (AMCHAM), released the 2013/2014 Annual Survey Report in June together with the Malaysian Investment Development Authority (MIDA) which reflects the state of the electrical and electronics (E&E) industry as shared by 20 member companies.

World semiconductor revenue is forecast to increase by 5.4% to US$332.5 billion in 2014, surpassing the historical high of US$300 billion in 2011. For 2014, Bank Negara projected that Malaysia’s GDP growth will be between 4.5% and 5.5%. Despite this positive global forecast, Malaysia’s E&E industry faces several challenges. 

Companies are facing higher costs of doing business, and thus are moving toward more outsourcing, lighter factories, or foregoing factories completely. Additionally, companies voiced that faster and greater growth will require serious government support for capable talent, and development of the E&E ecosystem.

In the face of these challenges, MAEI companies continue to demonstrate positive trends in 2013. Strategic initiatives such as the increase in D&D expenditure and workforce, the doubling of engineers, and the increase in local subcontracting are expected to continue into 2014 as MAEI companies move toward higher value added activities.

“The continued growth of the E&E industry relies on a business friendly environment, industry experience and infrastructure, capable talent, and the country’s overall economic competitiveness. Its important to note that major contributors to Malaysia’s positive export growth in 2013 included strong commitment by ASEAN countries, improved demand, growth in export of manufacturing sectors, as well as higher imports by free trade agreement partners,” said Sanjeev Nanavati, President of AMCHAM.

Dato’ Azman Mahmud, the Chief Executive Officer (CEO) of the Malaysian Investment Development Authority (MIDA) noted that investments in Q1 of 2014 have already surpassed total investments in 2012. “MIDA approved a total of 118 E&E projects with investments of RM9.8 billion in 2013 compared with 112 projects with investments of RM3.9 billion in 2012. The total investments approved in the E&E sector for the first quarter of 2014 accounted for RM4.3 billion. 

"The projects approved from January-March 2014 are expected to generate about 5,200 job opportunities, with 93% employment opportunities created in managerial, supervisory, technical and skilled manpower categories that offer higher incomes to Malaysians. About 1,600 or 31% were for executive positions requiring tertiary or technical qualifications, including for E&E and production engineers, and another 62% of the job opportunities were for skilled workers with vocational or industrial training.”

“We are excited that MNCs, particularly American companies in the E&E industry, continue to not only expand their operations horizontally but also extend the vertical integration of their operations by incorporating higher end activities, particularly on advance research, design and development (D&D). This provides opportunities for the local talent pool to be engaged in new product development and leading edge technologies. Besides the positive economic benefits to Malaysia in the form of high income employment opportunities for Malaysian citizens, this development will also increase the usage of local infrastructure, financial services, information technology, utilities and logistics services for local businesses, among many others,” Azman added.

Highlights of the report include:

• MAEI companies continue to be a major contributor to the Malaysian economy, with exports totaling RM54.8 billion in 2013, comprising 8.3% of Malaysia’s total export and 11% of total manufacturing exports. 
• MAEI companies reported increasing corporate expenditures, rising 4.4% in 2013, with capital expenditure rising by 12.9% (RM2.37 billion). 
• Salaries and D&D expenditures contribute significantly to annual corporate expenditures at 62.3% or RM6.7 billion. 
• MAEI members continue to place high emphasis on hiring qualified Malaysian workers. MAEI members employed over 67,000 workers in 2013, 89.6% of which are Malaysian nationals, constituting 9.1% of total workers in Malaysia’s E&E industry. 

The survey also showed that MAEI companies are contributing to the growth of a knowledge economy with expansion of the D&D workforce and D&D expenditure, as well as growing regional and global responsibilities. D&D expenditure increased in 2013 by 52% (RM3.73 billion) from 2012, while D&D employees increased by 21.7% in 2013, and 56.7% over the past five years. Among the more than 2,250 employees in supply chain management, services and support, and sales and market exploration, 42% are involved in global operations, and 13% in regional.

Finally, trends indicate that MAEI companies are helping Malaysia to become an important hub regionally and globally by moving toward high value added development, including the evolution toward manufacturing 'plus plus' and more service oriented operations. Data shows a growing number of companies are venturing into other operations including business support, D&D and sales, with five companies already maintaining regional or global headquarters in the country as of 2013.

According to Dato’ Wong Siew Hai, Chairman of MAEI and Honorary Governor of AMCHAM, these highlights bring Malaysia’s E&E industry to crucial crossroads. “How do we strategically position the industry to move forward to high paying jobs, high value added and high tech work? We must face key challenges of talent and strategic incentives to develop capabilities within the entire ecosystem. Many countries look to Malaysia as a model, so we must progress faster, move up the value chain and compete with global players.”

In line with Malaysia’s 2020 goals, MAEI members have identified key strategies for the growth of the E&E industry, a major driver of the Malaysian economy, aimed at making Malaysia a global design and development hub with attractive supply chain management.

1. Talent development: A strong commitment by the government to increase knowledge-based human capital, including improved training in English, D&D, and engineering, is crucial for future growth.

2. Industry diversification: MAEI recommends promoting manufacturing plus plus, with an emphasis on higher value activities to drive high impact economic growth and improve investment by E&E companies.

3. Ecosystem development: Government incentives and strategic programmes to effectively support SMEs, and encourage collaboration with MNCs will allow more Malaysian companies to compete globally.

4. E&E Strategic council: A focused team constituted by public and private experts can help the industry develop goals and strategies, implement plans, and monitor progress.

Dato’ Wong concludes, “Can Malaysia make a breakthrough and compete in the global race? We can if we stay focused, do the right thing for the country, optimize our talent and practice meritocracy. With this broader vision, we can move forward together.”

The Malaysian American Electronics Industry (MAEI) is an industry committee within AMCHAM. The committee aims to enhance member-government relations, highlight members’ contribution to the Malaysian economy, and advocate changes and improvements needed to elevate the competitiveness of Malaysia, especially the E&E industry.