Penang, Selangor, and Johor to spearhead Malaysia’s global tech hub transformation

By Mary Alavanza

MALAYSIA: The growing demand for tech has intensified the battle for tech talent in Asia and across Malaysia, as it aims to become a global tech hub.

The three states—Penang, Selangor, and Johor—are set to enhance Malaysia’s end-to-end supply chain for front-end chip manufacturing, integrated circuit design, and data centres, ensuring that the country’s economy scales up.

However, beyond the talent search, including the need for more engineers, locals have expressed concerns about the region’s long-term sustainability of tech growth. The expansion of the semiconductor industry brings with it an increased demand for water and energy resources.

Penang, the “Silicon Valley of the East,” is leading Malaysia’s semiconductor charge. With over 50 years in the semiconductor industry, Penang has become a hotspot for multinational corporations (MNCs), hosting more than 350 firms.

According to Penang’s Chief Minister, Chow Kon Yeow, the state is poised to be the first in Southeast Asia to have a complete supply chain for front-end chip manufacturing.

“It is time we start looking 50 years ahead. Following the US and China strategic competition, we do receive a lot more inquiries, but we are also selective.

We do our due diligence on companies intending to invest here so that they fit into the ecosystem and fill the gaps in certain sectors we don’t have,” he told CNA Insider.

Malaysia is currently the sixth-largest semiconductor exporter globally and holds 1 per cent of the assembly, testing, and packaging market. So far, the country has mainly focused on backend activities.

Now, Penang is looking to attract US$115 billion (about RM492 billion) in investments by 2030 by tapping into the front end. However, it needs to upgrade the current infrastructure to meet the rising demand for water and electricity first.

A massive overhead power transmission line is expected to be ready by the end of the year to help meet the growing electricity demand. This new transmission line, part of a 275 kV project, will deliver a capacity of 2,000 MW from the mainland to Penang Island.

Currently, the island’s peak demand is around 800 to 1,000 MW. The new capacity will also support upcoming developments, such as Silicon Island and the industrial area expansion.

Besides needing more energy, the state is tackling a critical water shortage. The spike in water demand between 2019 and 2023 has strained resources, coinciding with the semiconductor boom.

The state has committed RM1.18 billion to water infrastructure projects to address this issue and ensure a stable supply until 2030. A stable supply of water and electricity is vital for the semiconductor industry, as even brief outages can lead to millions of dollars in losses.

Meanwhile, in Selangor, the Klang Valley is set to boost integrated circuit (IC) design as part of the national semiconductor strategy.

This urban area, including Kuala Lumpur, is home to many young professionals, with over 9 million Malaysians under 40. The government aims to establish one IC design park each year for the next five years and to create at least five unicorns valued at over US$1 billion by 2030.

However, Malaysia is facing a shortage of skilled labour in science and technology.

Currently, the country produces about 5,000 engineering graduates annually, far below the 50,000 needed for the semiconductor industry, on top of the number of students already pursuing science, technology, engineering, and mathematics (STEM)

To address these challenges, the government aims to produce 60,000 engineers in the next five years to meet the growing demand from the semiconductor sector.

CNA Insider reported that each IC Design Park needs 400 to 600 engineers trained in computer science, electronics, and mechanical engineering.

According to Malaysian Economy Minister Rafizi Ramli, “The proximity to Klang Valley, which is a financial centre, is very important, and also the proximity to the talent pipeline, as most of the country’s top education institutions are in Klang Valley.”

However, he noted that “the greatest challenge is getting the talent pipeline in place,” as it’s quite “tricky.” Currently, many MNCs are also stepping in to help create their own talent pool for IC design.

The state of Johor is also becoming a crucial player in Malaysia’s tech ambitions, attracting data centres and manufacturing facilities. The state has received the highest investment in data centres, with over 50 applications submitted and 10 already operational.

Asher Link, managing director of Singapore-based Princeton Digital Group, noted the phenomenal growth of the first phase of their 130-megawatt data centre, built within a year, thanks to strong support from Malaysian authorities.

While this may help boost Malaysia to be a global tech hub, the rapid data centre expansion in Johor has raised concerns among locals. Locals are worried about the long-term sustainability of these projects, as this means more energy and water consumption.

However, Samuel Tan, CEO of Olive Tree Property Consultants, said, “The issue is implementation.

The authority must ensure operators here come up with proposals and implement them to ensure they use green technology that is friendly to the environment and does not harm people or the environment.”

Malaysian Investment, Trade, and Industry Minister Tengku Zafrul Abdul Aziz added, “Everybody is going for it. For us, it’s important that we support all the states equally. We want this positive tension to result in more investment in Malaysia.” /TISG