Construction cranes still surround the brand new factory at the Kulim Industrial Park in Malaysia. But domestically, legions of workers hired by Austrian tech giant AT&S are already gearing up to produce at full capacity by the end of the year.
Decked out in head-to-toe overalls, with oversized safety glasses and hard hats, they resemble the worker bees in the movie “Minions,” but their color is coded by function: Blue for maintenance. Green for sellers. Pink for doormen. White for operators.
AT&S is just one of a flood of European and American companies that have recently decided to relocate or expand operations in the electrical and electronics manufacturing mecca of Malaysia.
US chip giant Intel and German company Infineon are investing $7 billion each. Nvidia, the world’s leading maker of chips powering artificial intelligence, is teaming up with the country’s utility group to develop a $4.3 billion cloud and supercomputing artificial intelligence center. Texas Instruments, Ericsson, Bosch and Lam Research are expanding into Malaysia.
The boom is evidence of how much geopolitical friction and competition is reshaping the planet’s economic landscape and driving multibillion-dollar investment decisions. As rivalries between the United States and China over cutting-edge technology simmer and trade restrictions pile up, companies — particularly those in critical sectors such as semiconductors and electric vehicles — are scrambling to bolster their supply chains and manufacturing capabilities.
AT&S had manufacturing facilities in Austria, India, South Korea and China – its largest plant – when it began looking for a new location.
“It was clear after 20 years of investing in China, we needed to diversify our footprint,” said Andreas Gerstenmayer, CEO of AT&S. The company manufactures high-tech printed circuit boards and substrates, which serve as the basis for advanced electronic components that power artificial intelligence and supercomputers.
The search on the company’s website began in early 2020, just as warnings of a dangerous new coronavirus began to spread in China. AT&S scouted 30 different countries on three continents before settling on Malaysia.
Southeast Asia’s strategic location on the South China Sea and longstanding economic ties with China and the United States make the region an attractive place to set up shop. Nations such as Thailand and Vietnam, AT&S’s second choice, are also aggressively wooing semiconductor companies to expand, offering tax incentives and other lures.
But Malaysia has the advantage of starting capital.
The country has been riding the tech wave since the 1970s, when it vigorously courted some of the world’s electrical and electronic superstars, such as Intel and Litronix (now am Osram, with headquarters in Austria and Germany). He created a free trade zone on Penang Island, offered tax holidays and built industrial parks, warehouses and roads. Cheap labor was an added advantage, as was its large English-speaking population and stable government.
Malaysia’s history on the back of semiconductor manufacturing was one of the main draws, Mr Gerstenmayer said.
“They know very well what the needs of the semiconductor industry are,” he said. “And they have a well-developed ecosystem in universities, education, workforce, supply chain” and more. Support from the government was another attraction, he said.
Tengku Zafrul Aziz, Malaysia’s Minister of Investment, Trade and Industry, said foreign investment started to pick up in 2019 due to the expanding use of semiconductors in everything from cars to medical devices. “There are 5,000 brands in a car,” he said.
After the Covid-19 pandemic exposed devastating weaknesses in global supply chains, interest in Malaysia as an additional source soared.
This trend accelerated as great power conflicts broke out.
Both China and the United States have moved to build their own reliable semiconductor supply chains, in addition to supporting other critical sectors such as renewable energy and electric vehicles.
“US and European companies and even Chinese companies wanted to diversify outside of China,” said Mr Zafrul Aziz. China is also setting up production facilities outside the mainland, in part, some say, to circumvent US sanctions. It is a “China plus one” strategy.
Concerns about Taiwan, the world’s largest semiconductor producer, have further fueled investment in Malaysia, he said. The island is a source of growing friction between China, which claims Taiwan as part of its territory, and the United States, which supports it politically.
Malaysia is already the world’s sixth largest exporter of semiconductors and packs 23% of all US chips.
“For a country of this size to have such an impact on the global semiconductor market is pretty fantastic,” said David Lacey, director of advanced development and services at Osram, one of the world’s largest lighting companies.
Seated at a large conference table at the University of Science Malaysia in Penang, he quickly showed the technology around the room. “There’s a TV, there’s lights, there’s a projector, there’s phones,” he said. “You can guarantee there’s an element of Malaysia somewhere.”
The proximity of so many tech companies also exerts a gravitational pull. In Penang and Kulim, connected by two long, snaking bridges, there are more than 300 companies.
“Everything is here,” said Eric Chan, vice president and general manager of Intel Malaysia. After half a century, this network and infrastructure is not easily duplicated.
Mr. Chan also referred to the government’s critical cooperation during the pandemic to keep factories open.
Foreign direct investment was nearly $40 billion last year, more than double the total generated in 2019.
Mario Lorenz, managing director in Malaysia for German logistics company DHL Supply Chain, said “most of our big investments have been made in the last two years”.
During this period, the semiconductor sector has grown to dominate the company’s operations in Malaysia. “We followed the trend,” he said.
Inside DHL Supply Chain’s newest global distribution center, Penang Logistics Hub No. 4, there are special orange and blue racks specially designed to handle the heavy, oversized boxes used by a semiconductor company.
Four new supply chain facilities are under construction in Malaysia.
Malaysia’s history has been mostly at the back end of the semiconductor supply chain — which includes packaging, assembly and testing of components — activities traditionally considered less complex and of lower value.
But now the industry’s focus on packing smaller chips – chiplets – closer together to increase computing power is increasing the value and technical complexity of these activities.
Intel is building its first overseas facility for advanced 3-D chip packaging in Malaysia. When you introduce cutting-edge technology, there’s a “ripple effect,” said AK Chong, Intel’s vice president and CEO. in Malaysia. This growth will attract dozens of new businesses and help advance the entire skill set of the workforce.
Although such developments will require a massive expansion of utilities such as green energy, sanitation, water and a 5G digital infrastructure, several company executives said they are confident in the Malaysian government’s commitment.
“They have projects to provide green energy by creating large solar farms,” said AT&S’s Mr. Gerstenmayer. “Malaysia is well on its way to becoming a global electronics industry hot spot.”
