“Market Watch 2012” Electrical & Electronic Industry in Malaysia General information about Malaysia Malaysia is centrally located within the Association of South-East Asian Nations (ASEAN). Consisting of two regions separated by the South China Sea — the Malaysian Peninsula and the states of Sabah and Sarawak on the island of Borneo — Malaysia is a federation of 13 states and three federal territories. The former British colony gained its independence in 1957. Since Independence, Malaysia has adopted the political system of a parliamentary democracy with a constitutional monarch whose position is rotated every five years between each of the nine hereditary state rulers. The political scene has been characterized by an extra-ordinary degree of political stability and continuity through an encompassing national coalition of political parties. Its territory comprises approx. 330,000 sq km, four fifths of which are covered by tropical rainforest. Due to its bio-diverse range of flora and fauna offering excellent beaches and brilliant scenery, the country is one of the region‘s key touristic destinations. Malaysia is a multi-ethnic, multicultural and multilingual society with 28.66 million members. Ethnic Malays make up the majority of the population at 57.1% followed by Chinese at 24.6%, Indian at 7.3% and other local ethnicities at 11%. The Malaysian constitution guarantees freedom of religion, although Islam is the largest and official religion. Approx. 61.3% of the population practice Islam, 19.8% Buddhism, 9.2% Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional Chinese religions. The official language of Malaysia is Bahasa Malaysia, but English as well as Chinese are the business languages. Economical Overview Malaysia is a dynamic country which is constantly evolving. Being a middle-income country, Malaysia has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy spurred on by high technology, knowledge-based and capital- intensive industries. Malaysia‘s Economic Performance ranking improved to 7 th place out of 59
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“Market Watch 2012”
Electrical & Electronic Industry in Malaysia
General information about Malaysia
Malaysia is centrally located within the Association of South-East Asian Nations (ASEAN).
Consisting of two regions separated by the South China Sea — the Malaysian Peninsula and the
states of Sabah and Sarawak on the island of Borneo — Malaysia is a federation of 13 states and
three federal territories. The former British colony gained its independence in 1957. Since
Independence, Malaysia has adopted the political system of a parliamentary democracy with a
constitutional monarch whose position is rotated every five years between each of the nine
hereditary state rulers. The political scene has been characterized by an extra-ordinary degree of
political stability and continuity through an encompassing national coalition of political parties.
Its territory comprises approx. 330,000 sq km, four fifths of which are covered by tropical
rainforest. Due to its bio-diverse range of flora and fauna offering excellent beaches and brilliant
scenery, the country is one of the region‘s key touristic destinations. Malaysia is a multi-ethnic,
multicultural and multilingual society with 28.66 million members. Ethnic Malays make up the
majority of the population at 57.1% followed by Chinese at 24.6%, Indian at 7.3% and other local
ethnicities at 11%. The Malaysian constitution guarantees freedom of religion, although Islam is
the largest and official religion. Approx. 61.3% of the population practice Islam, 19.8% Buddhism,
9.2% Christianity, 6.3% Hinduism, and 2.6% practice Confucianism and other traditional Chinese
religions. The official language of Malaysia is Bahasa Malaysia, but English as well as Chinese are
the business languages.
Economical Overview
Malaysia is a dynamic country which is constantly evolving. Being a middle-income country,
Malaysia has transformed itself since the 1970s from a producer of raw materials into an
emerging multi-sector economy spurred on by high technology, knowledge-based and capital-
intensive industries. Malaysia‘s Economic Performance ranking improved to 7th place out of 59
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
2
economies this year compared with 12th position in 2007.1 It is one of the 20 largest trading
nations worldwide and was headed of Taiwan, Sweden, Canada, Australia, the United Kingdom
and Switzerland.2 The World Competitiveness Yearbook 2011 Report released by the Institute for
Management Development (IMD) continued to rank Malaysia as among the top 5 most competitive
nations in the Asia-Pacific region, taking 6th position in the 20 million population category and 2nd
position after Taiwan in the GDP per capita less than US$20,000 category.3 Moreover, the country
is the 21th largest exporter among all trading nations worldwide.
Strategically located in the heart of South-East Asia, Malaysia offers a cost-competitive location
for investors intending to set up offshore operations in order to manufacture advanced
technological products for both regional and international markets. In addition, Malaysia has a
market-oriented economy which is supported by pro-business government policies. Last year, the
Malaysian Government launched the Economic Transformation Programme (ETP) which is
managed by PEMANDU (Performance Management & Delivery Unit) under the patronage of the
Prime Minister.4 The ETP identifies 12 National Key Economic Areas (NKEAs) which are drivers of
economic activities that have the potential to materially contribute to the growth of Malaysia. Its
objective — also known as ―Vision 2020‖ — is to transform Malaysia into a ―high income country‖
by year 2020. The programme will lift Malaysia‘s Gross National Income (GNI) to US$523 billion by
2020, and raise per capita income from US$6,700 to at least US$15,000, meeting the World Bank's
threshold for high income nation.5 To achieve the targets set, Malaysia needs an annual growth of
GNI of 6%. There are plans to revitalize Malaysia's private sector, to grow the service sector from
58 to 65% and to create 3.3 million new jobs.6 The Government will also introduce other
transformation plans in 2012.7
In Malaysia, the 2011 GDP growth edged lower to 4.0 percent year-on-year due to a weaker
domestic demand. Further implementation of ETP projects and a RM232.8 billion 2012 Budget
1 “Malaysia’s economy attains 7th position”, New Straits Times, 20th May 2011. 2 Ibid. 3 Ibid. 4 See www.pemandu.gov.my . 5 Forbes.com, 21st September 2011. 6 Ibid. 7 “Malaysia Budget 2012 Main Highlights”, www.financesentral.com accessed on 21st November 2011.
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
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tabled by Prime Minister Datuk Seri Najib Razak will boost domestic demand, but unlikely to
5.1%, iron & steel products 4.3%, optical & scientific
equipment 3.2%, processed food 2.2%, other products
20.8%
Imports - partners: Japan 12.6%, China 12.6%, Singapore 11.4%, USA
10.6%, Thailand 6.2%, Germany 4.0%
Unemployment rate: 3.0% (2011)11
Average wage 2011: Project manager IT: RM8,415, lecturer/speaker:
RM3,459, mechanical engineer: RM3,070, account
executive: RM2,572, plantation worker: RM85012
8 Malaysian Economic outlook by Malaysian Institute of Economic Research (MIER), www.mier.org.my/outlook accessed on 21st
November 2011 & “Malaysia Budget 2012 Main Highlights” (Finance Sentral 2011). 9 Malaysia External Trade Development Corporation (MATRADE), www.matrade.com.my . 10 Malaysian Institute of Economic Research (MIER), www.mier.org/outlook/ accessed on18th November 2011. 11 Bank Negara Malaysia, Economic and Financial Data for Malaysia, last updated on 14th November 2011.
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
4
Population below poverty line: 3,6%13
Bilateral Trade: Malaysia & Germany
Malaysia is EU‘s second largest trading partner inside ASEAN, behind Singapore, with bilateral
trade in goods reaching 31.9 billion Euros in 2010 and the EU‘s 22nd largest trading partner.
Germany enjoys intensive trade relations with Malaysia and is one of the main foreign investors in
Malaysia, while among members of the European Union, Germany is Malaysia‘s leading trade
partner.14 Besides, Malaysia ranks 2nd as a consumer of German products among the ASEAN
countries.
The Electric & Electronic Industry in Malaysia
Introduction to the Electric & Electronic Industry
The strong E&E industry in Malaysia is a result of the Government‘s initiatives to promote labor-
intensive and export-oriented industries. Since the establishment of the first semiconductor plant
in Penang in 1972, Malaysia has become a major global manufacturing hub for the electrical and
electronics industry, as attested by the large number of multinational companies (MNCs) from
USA, Japan, Europe, Taiwan and Korea which have chosen Malaysia as their base. Unsurprisingly,
the E&E sector has grown into Malaysia‘s largest contributor to output, employment, investments
and exports (35% of total exports15)16.
The presence of leading electronic manufacturing services (EMS) companies such as Flectronics,
Solectron, Celestica, Jabil, Plexus and Sanmina-SCI provides opportunities for local companies to
be part of their supply chain in the supply of equipment, materials, parts and components, and
dedicated services such as contract design, burn-in testing, failure analysis and rapid prototyping.
Other local supporting industries focus on activities such as moulds, tools and dies, metal
Nowadays, there are more than 50 companies operating as contract manufacturing services (CMS)
or EMS companies.
12 www.payscale.com/research/MY/Conutry=Malaysia/Salary accessed on 21th November 2011. 13 Index Mundi, www.indexmundi.com/g?r.aspx?v=69 accessed on 18th November 2011. 14 http://ec.europa.eu/trade/creating-opportunities/bilateral-relations/countries/malaysia/ accessed on 21st November 2011. 15 Dato’ Noharuddin Nardin, Chief Executive Officer of MATRADE, trademart magazine, May/June 2011 16 Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
5
The key to sustaining a healthy growth within this key sub-sector is surely automation and
harnessing innovation talents that can take the E&E industry to the next level17.
Major sub-sectors of the E&E industry include
Electronic components
Industrial electronics
Consumer electronics
Electrical products
Top Malaysian companies based on market capitalization in E&E sector
Company Market capitalization in mln US$
Revenue in mln US$
Malaysian Pacific Industries 299 464
Hong Leong Industries 272 933
Panasonic Manufacturing Malaysia 206 175
Unisern 173 370
ETI Tech Corporation 156 25
Table 1 - Top Malaysian companies based on market capitalization in E&E sector18
Malaysia‘s success can be attributed to a winning combination of pull factors: a stable
government, good economic policies, topnotch infrastructure and a skilled knowledge workforce.
As a result, Malaysia has developed significant expertise for the manufacture of a wide range of
semiconductor devices, high-end consumer electronic and information and communication
technology products19. Based on the Malaysian Industry Development Authority‘s (MIDA) records,
from a total of just four companies with 577 employees and a total output value of RM25 million
in 1970, today the E&E industry has expanded to more than 1,695 companies with total
investment of RM108 billion and a workforce of more than 600,000 people20.
Investment-Projects Approved by E&E Sector
Domestic Investment (US$) in mln
Foreign Investment (US$) in mln
Total Proposed Capital Investment (US$) in mln
Jan. - Oct. 2011 419.4 2.450.7 2.870.0
2010 471.2 3.844.9 4.316.1 Table 1 - Investment-Projects approved in the E&E sector
21
17 Dato’ Noharuddin Nardin, Chief Executive Officer of MATRADE, trademart magazine, May/June 2011 18 Bloomberg, December 2010 19 Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013 20 Malaysian Investment Development Authority (MIDA) www.mida.gov.my, 15.12.2011 21 Malaysian Investment Development Authority (MIDA) www.mida.gov.my, 15.12.2011
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
6
Performance of the Electric & Electronic Industry
In 2010, the E&E industry is the leading sector in Malaysia‘s manufacturing sector, contributing
significantly to the country‘s manufacturing output (31%, in 2008: 29.3%), exports (48.7%, in
2008: 55.9%) and employment (33.7%, in 2008: 28.8%).
The gross output in 2010 of the industry totaled RM166.2 billion or US$55.8 billion (in 2008:
RM167.2 billion or US$53.9 billion), exports amounted RM249.8 billion or US$83.8 billion (in 2008:
RM233.8 billion or US$75.4 billion) and the industry created employment opportunities for
336.408 people (in 2008: 296,870) 22.
Chart 2 - Malaysia's export Index in E&E sector (2008 = 100%)
23
Siemens, Bosch and Infineon are just some of the well-known companies, who have moved their
production to Malaysia. Based on a statement by The German Electrical and Electronic
Manufacturers‘ Association (ZVEI), Asia will stay the growth region of the future, with China
leading the pack. Smaller nations like Malaysia will get their fair share of this development if
they continue to offer economic and political stability.
The industry has moved up the value chain into the manufacture of high-end products and has
moved away from labour-intensive to more capital-intensive operations. The capital investment
per employee (CIPE) ratio showed a growth from RM79,149 per employee in 1995 to RM333,830
per employee in 2000 and RM578,469 per employee in 2007. These include intensification of
research and development efforts and outsource non-core activities domestically.
22 Malaysian Investment Development Authority (MIDA) www.mida.gov.my, 15.12.2011 23 OCBC Bank, www.ocbc.com, 20.12.2011
0
50
100
150
Jan
-09
Mar
-09
May
-09
Jul-
09
Sep
-09
No
v-0
9
Jan
-10
Mar
-10
May
-10
Jul-
10
Sep
-10
No
v-1
0
Jan
-11
Mar
-11
Malaysia Export of E&E by Index (Sep. 2008 = 100), OCDC Bank
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
7
Malaysia’s Exports and Imports in the E&E Sector
Diagramm 1 - Malaysia's Exports to World by Product (HS Code) in mln US$ and %Change
\
Diagram 1 – Malaysia’s Imports and Exports of E&E Products24
85XX Electrical machinery and equipment and parts thereof; sound recorders and reproducers,
television image and sound recorders and reproducers, and parts and accessories
8517 Telephone sets, including telephones for cellular networks or for other wireless networks
8527 Reception apparatus for radio-broadcasting
8528 Monitors and projectors
8529 Parts suitable for use solely or principally with the apparatus of headings 85.25 to 85.28.
8534 Printed circuits.
8536 Electrical apparatus for switching or protecting electrical circuits
8537 Boards, panels, consoles, desks, cabinets and other bases
8541 Diodes, transistors and similar semiconductor devices
8542 Electronic integrated circuits.
8543 Electrical machines and apparatus
Table 2 - HS Code as use in Diagramms above
Electronics Sector
Accounting for almost 90% of the E&E industry in Malaysia, the electronics sector is the main
contributor to Malaysia`s gross domestic product (GDP) growth. More than 1.600 companies have
emerged within the electronics industry, encompassing three broad subsectors i.e. electronics
components, consumer electronic and industrial electronics25.
24
WTA, World Trade Atlas, 05.01.2012 25
Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
8
Diagram 2 - Malaysia's production of Electronics 2005-2010 in mln RM26
Figure 1 - Malaysia's Exports of Electronic Products in 2010 in Million RM27
Over the years, Malaysia's electronics industry has developed significant capabilities and skills for
the manufacture of a wide range of semiconductor devices, high-end consumer electronic and
information and communication technology (ICT) products. International Trade and Industry
Minister Datuk Seri Mustapa Mohamed said upon realization of the already signed memoranda
following the 10th Malaysian plan, the partnerships had the potential of generating RM1.9bil in
investments over the next five years and creating 6,500 new jobs by 2020.
Electronic Components
The electronic components are the most important sub-sector and accounted for 44.6 per cent of
the total investment approved in the electronics sector in 2010.
Within the electronics components subsector, semiconductor devices are the largest contributor,
comprising more than 30% share of the E&E exports. Malaysia is currently the world‘s leading
location for semiconductor assembly and test operations, with more than 70 mostly multinational
companies (MNCs) specialising in these devices28
. Semiconductor products constituted of export
26
Yearbook of World Electronics Data Volume 2 2011 27 Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013 28 Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013
Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013 38
Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
12
Figure 2 - Malaysia's Exports of Electrical Products in 2010 in mln RM39
The major electrical products produced are household appliances such as air-conditioners,
refrigerators, washing machines, vacuum cleaners and other electrical appliances. There are
presently more than 381 companies producing a wide range of products such as household
electrical appliances, wire and cables and electrical industrial equipment. These are mainly local
companies such as Pensonic, Leader Cable and Tenaga Switchgear. Manufacturing activities in the
electrical industry have evolved from mere assembly to design and marketing of ‗local' brands for
the regional and global markets. The capital investment in this sub-sector amounted to RM13.2
billion (US$4.4 billion) for the year 201040.
Other sub-sectors experiencing rapid growth are the automotive electrical sub-sector which is
fuelled by the advent of intelligent driving systems. The automotive connectors market is tipped
to be the fastest growing segment in the global automotive electrical products market, expected
to records a compound annual growth rate (CAGR) of over 11% in the 2001-2010 periods41.
Another must-watch segment for automotive electrical products is the automotive batteries
market, which is estimated to account for the market share of 19.8% in 2009, and is the second
largest segment in the automotive electrical products industry42.
Towards greener Technology
Malaysia recognizes the enormous growth potential of the solar energy sector and is putting in
place attractive incentives and support facilities to realize its development. Malaysia is ready to
create a globally competitive solar industry cluster. To date, Malaysia has attracted five foreign
direct investments, worth up to RM13.8bil, to set up solar PV manufacturing facilities in Malaysia.
These include US-based companies First Solar Inc at the Kulim Hi Tech Park (KHTP) and US-based
39
Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013 40 Malaysian Investment Development Authority (MIDA) www.mida.gov.my, 15.12.2011 41
Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013 42
Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013
15100
6000
6100
Malaysia's Exports of Electrical Products in 2010 in mln RM
Industrial electrical
Electrical components
Electrical consumer
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
13
SunPower Corp in Malacca, the China-based ReneSola in Johor Baru, the German company Q-Cells
in Selangor Science Park 2, and the Japanese firm Tokuyama Corp in Sarawak.
With the current unprecedented increase in fuel costs and the impact of global warming, the
demand for renewable energy and also energy efficient products and systems is booming. With an
estimated growth of 20-25 % per annum, a bright future exists for this sector of the industry.
Realising the potential, the Ministry of Energy, Green Technology and Water is putting special
efforts in the solar energy sector in the country and has launched several programmes such as
Malaysian Energy Efficiency Improvement Programme (MIEEIP) and Centre for Education and
Training in Renewable Energy and Energy Efficiency (CETREE) and the Feed-in Tariff for
renewable energy production. This project is aimed at intensifying the usage of rewable energy
or solar energy as an alternative source of electricity as well as to jump start local capabilities
and development of the solar industry in Malaysia. Since its launching, MIDA and Malaysian Energy
Centre have been collaborating to further promote the industry by identifying major players to
invest in the country.
The first approach is the most intuitive. Large researches show that there are energy saving
potentials up to 80% in lighting, 30 % in ventilation, 10 % in lifts and escalators, 70 % in water and
space heating and 80 % in cooking equipment43. With the ever growing energy costs it is only a
question of time until the investment capital is outpaced by the amount of saved energy costs. In
this context such initial investment can face both risks at once and contribute to both an
economical and ecological advancement.
Performance contracting is an alternative that may help to overcome the barriers of the capital
investment and therefore minimizing the associated risks. It leverages the energy saved for
installing energy efficient equipment and throughout that pays for the capital investment. The
charged energy service company measures and verifies the saved energy costs which will be
shared between the owner and the company to payback the project costs. The performance
contract runs until the total payback of the initial project costs.
These two ways underline the growing possibility and ability of Malaysian electrical & electronic
companies to face two contrasting problems at once. But besides facing difficulties they create
knowledge and experience for the growing global key market in the future.
43
The Electrical and Electronics Association of Malaysia, http://www.teeam.com/
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
14
Outlook
With a sterling track record of nearly four decades, the future of the E&E industry in Malaysia
looks bright. Industry players involved in both the front-end and back-end of the semiconductor
supply chain informed encouraging demand trend. The overall demand for solid-state drives is
very promising and based on the growing needs of the enterprise solid-state drive industry, as
well as consumer solid-state drive devices. Flash memory applications such as secure digital
cards, USB flash drives and MP3 players will continue to be the drivers of growth. The country has
the intellectual and physical resources to provide for its continuity, evidenced by the ever-
increasing pool of MNCs who have shifted their key products, processes and other manufacturing
related activities from their home bases to Malaysia, as well as the many success stories of local
companies44.
Figure 3 - Malaysia's Market Development and Forecast in E&E Subsectors in mln US$45
44
Malaysia External Trade Development Corporation (MATRADE), Electrical and Electronics Directory 2011-2013 45
Yearbook of World Electronics Data Volume 2 2011
1
10
100
1000
10000
100000
2007 2008 2009 2010 2011 2012 2013
Malaysia Market development and Forecast by E&E Subsectors in mln US$, Yearbook of World electronics Data, Volume 2, 2011
Electronic Data Processing Office Equipment Control & Instrumentation
Medical & Industrial Communication & Radar Telecommunications
Consumer Components TOTAL
“Market Watch 2012”, Electrical & Electronic Industry in Malaysia
15
Important Malaysian Electrical & Electronic Trade Fairs 2012