Written by Sophia Chang, she is a former research intern with the Economics and Business unit at the Institute for Democracy and Economic Affairs (IDEAS)

The Semiconductor Landscape in Malaysia 

Semiconductors play an important role in Malaysia’s economy. The country’s involvement in the industry dates back to more than 50 years ago and continues to exert significant influence today in back-end operations, commanding 13% of global assembling, testing, and packaging worldwide (MPC, 2023). As outlined in the National Industrial Master Plan 2030 (NIMP 2030) and National Semiconductor Strategy (NSS), Malaysia strives to position itself as a global semiconductor leader by moving up the value chain towards front-end processes, such as integrated circuit (IC) design and wafer fabrication. However, the nation may not be able to achieve these goals without first tackling a critical issue: the talent shortage.

The Talent Shortage in Malaysia

One key provision of the NSS is to foster 60,000 highly skilled Malaysian engineers and establish at least 10 Malaysian companies specializing in front-end processes, in addition to 100 semiconductor-related companies (NSS, 2024). In 2024, MITI stated that Malaysian universities are only producing about 5,000 engineers annually, though a KPI study points out that the total E&E graduate output is actually four times this amount (Rahim and Sivashanmugam, 2024). While there may not appear to be a lack of talent, the same study more critically indicates that there is a significant underutilization of the graduate pool, with several students frequently experiencing vertical and horizontal mismatch with the jobs they pursue. 

Alongside the statistic that 60% of Malaysian employers have expressed concerns about retaining their top talent, it is evident that another major challenge is low talent retention (Digital News Asia, 2023). In particular, Malaysian engineers may seek employment in other countries such as the US, attracted by higher USD salaries which, when converted to Malaysian ringgit, offer significantly greater value. For this reason, there must be a mechanism to ensure that Malaysian engineers will return to Malaysia to support the growth of the domestic semiconductor industry. 

What is being done? 

Most of Malaysia’s efforts to fulfill its NSS and NIMP 2030 goals thus far have relied heavily upon foreign direct investment (FDI) to foster economic development through technology transfer.  In 2022 alone, 99.2% of investments in electrical components were FDIs, while only 0.8% were domestic investments (MIDA, 2022). Under one policy, the government intends to offer tax breaks, subsidies, and visa exemption fees to attract global tech companies and investors capable of developing and sustaining Malaysia’s plan to build the largest IC design park in Southeast Asia (CNA, 2024). 

There have also been a few initiatives aimed at fostering collaboration between foreign multinational corporations and local talent development, such as a memorandum of understanding between Intel and UOW Malaysia (The Star, 2024) and the establishment of MIMOS Academy, a program that will nurture “future tech pioneers” (Pocket News, 2024). While these initiatives are certainly impressive, it is equally important for Malaysia to promptly strengthen connections with countries who already possess expertise and high market share in the semiconductor industry, as this will facilitate the process of moving higher up the value chain in the long-term, especially in an increasingly competitive semiconductor market among Southeast Asian countries facing similar circumstances.

The potential of a Malaysia-Taiwan partnership

The key positioning of Taiwan in the semiconductor supply chain, as well as its established complementary economic relations with Malaysia, make the island nation a logical and highly valuable partner to help Malaysia realize its NSS and NIMP 2030 goals. Taiwan is a key player in the front-end the semiconductor supply chain, supplying nearly 90% of chips for several major US companies, and additionally plays a significant role in back-end processes alongside Malaysia, Vietnam, the Philippines, and China (Arcuri & Lu, 2022; BCG & SIA, 2021)

In 2021, Taiwan was Malaysia’s fifth-largest trading partner, and trade between the two economies has steadily grown since the mid-1990s (GTI, 2024). This two-way trade has been dominated by E&E products, with Taiwan’s technological strengths in front-end chip production pairing strongly with Malaysia’s labor efficiencies in back-end operations. The two countries can continue to capitalize upon this lucrative partnership if Taiwan further invests in Malaysia’s local talent development and talent mobility, facilitating movement up the value chain.  

Taiwan has also already sought to expand its supply chain operations towards ASEAN countries under the 2016 New Southbound Policy (NSP), a policy that recently elected President Lai Ching-te reaffirmed during his foreign policy platform address in October 2023 (Sang, 2024). In turn, Taiwan’s commitment to the NSP implies that the Malaysian government does not need to expend the NSS or NIMP 2030 budget on creating financial incentives for Taiwanese companies to invest in Malaysia’s tech industry.  

Expanding Opportunities Through Higher Education 

Instead, the Malaysian government should provide funding towards scholarship opportunities for Malaysians to study engineering or gain short-term job experience in Taiwan. Existing studies demonstrate that collaborative workplace and higher education settings can facilitate knowledge sharing and creation between individuals (Han et al., 2022). By the time E&E graduates enter the workforce, it is critical that they have both experience and interest in the sector to ensure that their specialized degrees are fully utilized, and expanding the borders of education would help Malaysians build social capital within the semiconductor industry. In turn, these fostered connections can lead to significant benefits, such as increased access to a professional network and a heightened awareness of industry norms.

Taiwan already provides several programs to foster international talent in the semiconductor industry. For example, the Taiwan Experience Education Program (TEEP) launched by Taiwan’s Ministry of Education partners with universities overseas and currently offers 40 opportunities for students to immerse themselves in the semiconductor field (TEEP). Additionally, Taiwan may prove to be a uniquely suitable environment for students from Malaysia, a country whose population is around 60% Muslim, due to Taiwan’s increasing involvement in the global halal market with over 1,000 Taiwanese businesses obtaining halal certification as of 2023 (GTI, 2024).

Malaysian universities and students alike may be incentivized to participate in these programs through mere exposure to the opportunity at organized events, such as the Taiwan Higher Education Expo hosted in April 2024 (MOE Taiwan, 2024). Social media has also been demonstrated to play an important role, with 67.9% of TEEP survey participants stating they learned about higher educational opportunities in Taiwan via the “Internet or online social networking” (TEEP, 2023). The Malaysian government may partner with third-party civil service organizations dedicated to educational reform and media personalities to create engaging content that will inform students about educational opportunities abroad in Taiwan.

With regard to the challenge of talent retention, one suggestion is for Malaysia’s Ministry of Higher Education to set up a government contract, whereby students sponsored to study or complete an internship abroad in Taiwan are required to return to Malaysia to work for a local semiconductor company for a certain period of time. This arrangement not only provides Malaysian engineers with a valuable international experience to build social capital and industry expertise, but also instills a sense of obligation to repay the government’s investment by contributing to the growth of domestic semiconductor industries. The Bolashak scholars program from the Republic of Kazakhstan and Science without Borders program from Brazil have previously implemented similar programs that provide valuable insights about both the benefits and lessons that should be taken into consideration for future initiatives modeled off their programs (University World News, 2014).

Conclusion

To ensure that Malaysia fulfills its NSS and NIMP 2030 goals of moving up the global semiconductor value chain and fostering home-grown semiconductor companies, it is essential to continue collaborative efforts with Taiwan, a strong player in the front- and back-ends of the semiconductor industry. While it is noted that fostering stronger ties with Taiwan could be risky given the imminent threat of a blockade or invasion by China, Taiwan’s geopolitical circumstances are an even greater motivation for its semiconductor companies to establish strongholds in other countries, such as Malaysia, to ensure the proliferation of their businesses. 

Given Taiwanese semiconductor companies’ expansion into Southeast Asia under the NSP and strong existing economic relations between Malaysia and Taiwan, the Malaysian government can divert more funding towards creating opportunities for Malaysian engineers to gain valuable experiences abroad in Taiwan to build social capital and industry expertise. In turn, these engineers can repay the government’s investment by contributing to domestic companies upon return to Malaysia.

The views expressed in this article are solely those of the author and do not necessarily represent the views or positions of IDEAS Malaysia. All opinions are the author’s own.