China manufacturing exodus, US trade war tariffs spur investment in Malaysia’s ‘Silicon Valley’

Malaysia’s electronic industry has seen a surge in investment as US and Chinese companies look to escape tariffs placed on each other’s products

Reliable infrastructure, established supply chain and skilled workforce give it an edge over other parts of Southeast Asia as manufacturing hub, Malaysian companies say

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The Malaysian island of Penang has seen a surge of foreign investment over the past 18 months, with companies operating in China scrambling to take advantage of its long-established electronics sector and evade US tariffs that have been slapped on hundreds of millions of dollars of Chinese exports. Illustration: Brian Wang

Published: 9:00am, 31 Jan 2020Updated: 11:17am, 31 Jan 2020

Nearly two decades after losing its shine to China, the “Silicon Valley of Southeast Asia” is regaining its competitive edge as a growing number of multinational firms look to Malaysia to escape the effects of the US-China trade war.

The Malaysian island of Penang has seen a surge of foreign investment over the past 18 months, with companies operating in China scrambling to take advantage of its long-established electronics sector and evade US tariffs that have been slapped on hundreds of millions of dollars of Chinese exports.

With China “no longer cost competitive” for some businesses, enquiries about establishing factories or relocating operations to the Southeast Asian nation have been rising, said Heng Huck Lee, CEO of Globetronics, which designs and manufactures a range of electronic products for multinational firms.

“In the last 18 months Penang has been a very active location, with lots of Chinese manufacturers, lots of US companies, looking into relocating and expanding their facilities here,” Heng said. “If you were to look back into 2019, Penang’s foreign direct investment was the highest in many, many years.”

At its factory in the Bayan Lepas Free Industrial Zone, Malaysia’s first free-trade zone, Globetronics’ employees dressed in white spacesuits, slippers and masks move about rows of state-of-the-art die attachment machines used to bond semiconductors to circuit boards. At the end of the production line, the tiny sensors will be shipped to a client in the US to be used in phones and tablets.

Trade tensions between the world’s two largest economies have been good for business, Heng said. Customer orders have increased over the past year and a half since the tariff war began, and so had enquiries from potential clients. A US partner with two manufacturing bases in China had even relocated part of its operation to Globetronics’ third factory in Kuala Lumpur due to the “urgency” of the tariff situation, he added.

“I think 2020 is going to be better than 2019,” said Heng, who is also a member of the government’s Malaysian Investment Development Authority’s (Mida) electronic advisory committee. “Whatever we are seeing directly and indirectly today, Malaysian manufacturing companies should continue to see some additional spillover.”