Malaysia needs to move upstream both vertically and horizontally to enhance its global share of semiconductor exports and market presence, according to a policy paper by the Institute of Strategic & International Studies (ISIS) Malaysia. This approach involves advancing assembly, testing, and packaging capabilities and moving towards integrated circuit (IC) design and wafer fabrication.
Vertical Upstreaming
Upstreaming vertically refers to improving assembly, testing, and packaging (ATP) capabilities. For instance, developing advanced packaging processes in the Outsourced Assembly and Testing (OSAT) sector can significantly enhance Malaysia’s value in the semiconductor supply chain.
- Advanced Packaging: Malaysia already has a 13% foothold in traditional testing and packaging. Enhancing these capabilities to advanced packaging can increase Malaysia’s participation in the global semiconductor industry. Companies like ASE Technology and Intel are already developing advanced packaging capabilities in Malaysia.
- Incentives and Investments: Targeted incentives and government support are necessary to develop advanced ATP capacities. Facilitating greater investments in this area can help Malaysia gain momentum in the global semiconductor market.
Horizontal Upstreaming
Horizontal upstreaming involves moving towards the front-end of the value chain, such as IC design and wafer fabrication. This shift can unlock significant economic value, with a fabless integrated device manufacturer capturing up to 57% of the value in the supply chain, compared to only 6% for OSAT.
- Integrated Circuit (IC) Design: To increase capacity in IC design, Malaysia must address talent shortages and build proficiencies in this sector. This involves exploring knowledge-transfer, training, and wage policies to attract multinational companies (MNCs) and universities.
- Wafer Fabrication: Investing in wafer fabrication capabilities is another crucial step towards horizontal upstreaming. This requires enhancing existing facilities and developing new ones to meet global demand.
Policy Recommendations
The policy paper “Malaysia’s Semiconductor Ecosystem Amid Geopolitical Flux” by Farlina Said and Angeline Tan outlines several recommendations to support Malaysia’s upstream growth in the semiconductor industry:
- Talent Development: Focus on growing talent in IC design through knowledge-transfer programs, training initiatives, and attractive wage policies.
- Public-Private Partnerships: Strengthen existing partnerships and create new ones to support small and medium enterprises (SMEs) in the larger manufacturing ecosystem.
- Research and Development (R&D): Emphasize building R&D capabilities to foster innovation and business synergy.
- Targeted Incentives: Provide specific incentives for players to access the capital and training necessary for advanced ATP capacities.
- Government Coordination: Address geopolitical risks through coordinated responses from the Ministry of Investment, Trade, and Industry and the Ministry of Foreign Affairs.
- Strategic Investments: Invest in enhancing existing facilities while developing new ones to support IC design and wafer fabrication.
Addressing Geopolitical Risks
The US-China tech rivalry presents potential geopolitical risks for Malaysia’s semiconductor industry. A coordinated response from the Ministry of Investment, Trade, and Industry and the Ministry of Foreign Affairs is necessary to mitigate these risks and ensure the industry’s growth.
Conclusion
To strengthen its position in the global semiconductor market, Malaysia must move upstream both vertically and horizontally. By enhancing its ATP capabilities and advancing towards IC design and wafer fabrication, Malaysia can significantly increase its market share and export potential. Implementing targeted strategies, fostering talent development, and addressing geopolitical risks are crucial steps in this journey.
