By Collins Chong Yew Keat

KUALA LUMPUR, Malaysia: Semiconductors are critical components found in everything from smartphones to automobiles, have regained their critical importance in global geopolitical contests and are at the forefront of the US – China rivalry on technology and supremacy in the power equation.
Amidst new momentum of top foreign firms in diversifying investments and focus in China with new geopolitical risks and in light of internal  socio-economic and demographic challenges in the country, Malaysia is poised to strengthen its role and position as the new regional hub for critical sectors, especially the chips industry and critical resources.
There is a growing role of Malaysia in changing the dynamics of the scramble for  semiconductor supremacy and in the new geopolitical contests. 
The long standing technology, economic, trade and geopolitical rivalries between Washington and Beijing have benefitted the region and particularly Malaysia in regaining the lost dominance and foothold it once held in the field of chips and semiconductor.
While US and European firms are keen to diversify out of China, Chinese firms are doing the same to avoid the aftermath of US sanctions and locating facilities outside of the mainland as part of the China plus one strategy.
Concerns on the long term durability of Taiwan’s prowess in the semiconductor sector with increasing geopolitical and security volatilities have also fuelled further focus on Malaysia, now already the world’s sixth largest exporter of semiconductors, and packages 23% of all American chips.
The Asean region stands to benefit from the global Beijing-Washington rivalry too, where ASEAN’s semiconductor exports reached US$165 billion in 2022, a huge increase compared to US$52 billion in 2017.
Malaysia is seeking to attract more investments to help its semiconductor industry move up the value chain in the chips industry, particularly for chips used in electric vehicles. It has a mature semiconductor ecosystem.
Once seen as the Silicon Valley of the East, Malaysia was a leader in chipmaking during the 1970s but lost ground to South Korea and Taiwan in the 1990s with the rise of Samsung and Taiwan Semiconductors Manufacturing Co. (TSMC).
During its heights, Malaysia  courted some of the world’s electrical and electronic superstars, like Intel, created a free-trade zone on the island of Penang, offered tax holidays, and built the necessary infrastructures. Cheap labour and the English speaking population and environment were the draws. However, different demands now and in the future demand a new approach.  
The country controls 13 percent of the global market for packaging, assembly, and testing services for semiconductors and is the world’s sixth-largest exporter of semiconductors. The semiconductor industry contributes to an estimated 25 percent of Malaysia’s GDP.
Malaysia has all the necessary potential and support factors in capitalising on this new drive by the West to diversify its investments in this sector, and the country has the ground and governmental support that transcends systemic barriers, giving Malaysia the edge as compared to other regional players.
Malaysia is seen as a crucial link on the supply chain of the semiconductor industry.
Malaysia is benefitting from the increased diversification of supply chains, as firms seek to hedge their risks as the US slaps sanctions on China’s chip industry, banning China’s access to high end chips and critical components including AI chip design.
In navigating the complexities of the global semiconductor landscape, Malaysia is well-positioned to capitalize on emerging opportunities, driving growth, and innovation, and solidifying its standing as a vital player in the ever-evolving electronics industry.
US chip giant Intel and Germany’s  Infineon are each investing US$7bil (RM32.81bil). Intel’s US$7 billion expansion will include the construction of an advanced 3D chip packaging facility — Intel’s first overseas facility for 3D chip packaging. Nvidia, the world’s leading maker of chips powering artificial intelligence, is working with local companies to develop a US$4.3bil (RM20.15bil) artificial intelligence cloud and supercomputer center. Texas Instruments, Ericsson, Bosch and Lam Research are all expanding in Malaysia. Bosch opened one of Asia’s most advanced testing facilities last August.
Microsoft has also recently pledged a US$2.2 billion (RM10.5 billion) investment in artificial intelligence and cloud computing in Malaysia to help develop the country’s AI infrastructure.
All these portray the increasing long term appeal of the country’s critical sectors in the field. Strategic geographical positioning and location of ports provide the critical factor, in serving as the strategic connecting point between the East and West and in having a secured and sustainable supply chain and resource security.
Other factors include a quite well-developed  education and talent production system in the universities and labour force and supply chain, despite rooms for improvements.
Malaysia  enjoys the dividend of past and current well-established infrastructure with around five decades of experience in the ‘back end’ of the semiconductor manufacturing process. This creates a convenient and supportive pathway for a greater and easier elevation to the next stage of the advancement stage of the chips industry.
Operational flexibility and sound risk management provide added boosts.
Solid manufacturing strength and logistic advantages serve as considerable risk management factors too.
Malaysia also has the advantage of a well established APT cluster, providing alternative fallback in the supply chain and delivery processes in avoiding risk exposures to supply chain disruptions caused by potential hard power conflicts.
New efforts to make Malaysia as the hub for digital technology and electric vehicle (EV) investments can be an added appeal for chip firms to bolster their presence here, with connected demands and mutually beneficial to both industries.
Malaysia will need to focus on talent development and cultivation in critical thrust areas especially in AI and machine learning (ML).
Current facilities in Penang and Kulim, dubbed as Silicon Valley of the East have long served as the backbone of the chips industry in the country, but in order to move up the value chain, more concerted and future driven transformations and stimulus of hard assets and human capital expertise are needed, in meeting the new demands of the high end chips industry.
A consolidated and transcending approach by the federal government with the right and equal focus and synergy of support system by the state governments are crucial in enabling similarities and alignment of efforts and policies, and to ensure the best and maximized outcome for the country.
With reliable and modern infrastructure, physical assets and regulatory and tax frameworks, and the needed human capital, the future growth potential for these critical sectors remains attractive and resilient.
However, systemic gaps still exist in the human capital and availability of skilled workforce.
The foreign policy outlook and traditional focus on non-alignment and with the upcoming leadership as the Asean Chair on 2025 all raise the stabilizing factor, but most importantly, the intent to climb the value ladder in these new sectors of digital and green economy and the returns from this critical chips industry to the local socio-economic outlook and the multiplier economic impact are the most vital pushing factors in transforming the economic dynamism and value chain.
In escaping from the middle income trap, the drive towards a new economic structure that is based on high impact technology and digital sectors and the inflow of quality investments with ripple  impact on raising incomes and providing technology and expertise transfer remain pertinent.
Enhancing Malaysia’s  potential for semiconductor innovation will create a ripple impact on investments in research and development, especially in Artificial Intelligence (AI).
It will also lead to improvements in critical areas including the education sector and in having more top talents in high impact science fields, including having more scientists and engineers which will help support the country’s new drive towards technological and scientific transformation and having increased focus on the importance of STEM.
Malaysia’s engineer-to-population ratio stood at 1:170 in 2022, still below the national target of 1:100. The focus on the chips industry can help to transform this.
Malaysia enjoys the perks of having the historical heads up in the manufacturing and electrics and electronics industries for decades, setting the path in elevating the appeal factor for foreign firms in continuing this investment drive.
However, the chips industry in Malaysia is still largely at the lower and middle tier of the spectrum with packaging and assembly, with Taiwan, South Korea and the US leading the high end chips production and now India joining the fray in positioning itself strategically in the scramble for this prized industry.
As Malaysia hopes to gain ground by leveraging on this new opening amidst continued trade tensions between the U.S. and will need to move beyond assembly and testing into the valued added line of production including wafer fabrication and integrated circuit design.
The gap that still exists in this dichotomy and chain of value added chips line will need to be strategically positioned, and the government has moved to address this with a concerted all of nation and industry approach.
The focus will be on the “front end” of the chip manufacturing process, instead of just the “back end.” This will require a new strategic approach in getting the mutual partnership with key established firms with Taiwan and the US.
Although the journey is long and the process is still at the initial stage, bold new moves in having this new approach in collaboration must begin.
The setting up of the Semiconductor Strategic Task Force is a reflection of this ambition to maximise the returns of the chips industry to the country, realizing that while the country has advantages as compared to other regional powers in this fierce competition for the needed value adding investments in this field, critical gaps still exist especially in moving Malaysia up in the power and influence equation of the chips sector.
Malaysia’s New Industrial Master Plan (NIMP) 2030 offers a complementing support to the Strategic Taskforce. The NIMP 2030 is hoped to encourage more front-end activities in elevating the country’s position towards these new frontiers.
For this to happen, the right environment for the setting up and transfer of skills and expertise from assets to human capital and the needed supportive chain of comprehensive domains of the needed factors for this to operate at the needed level of chips production, especially in the new frontiers of cutting edge chips of below 5nm.
Challenges remain in the country’s readiness to feed the mammoth transformation needed to support the high end semiconductor industry. Central to these shortcomings is the shortage of skilled talent and workforce and high employee turnover rates. The pace of development in the country  requires an estimated 50,000 electrical and electronics engineers per year.
However, Malaysia has a deficit of some 1.2 million workers and has been suffering from brain drain with the outflow of talents and expertise.
The semiconductor sector in the country is reliant on foreign players in sustaining the industry with major global firms operating in utilising our existing bases and infrastructures, lacking the presence of locally groomed firms which are capable of carving a global market presence that can compete at the top level with established firms including Samsung and Qualcomm.
As the country faces increased competition from regional peers in this field especially Vietnam and Thailand, it will need a strategic transformation in the urgency and consolidation of efforts and policies in producing the needed capacities in manufacturing and sustaining a skilled workforce with  future driven synergy of government policies.
Despite the  challenges, the country is still considered one of the three production hubs in Asia for semiconductors, along with South Korea and Taiwan.
Competition has been fierce, and India and Japan have now joined the fray in courting top firms to set up bases on their soils in their efforts to be major chip hubs alongside Taiwan, South Korea and the US.
India has approved plans for three semiconductor plants with investments of more than $15 billion while the world’s largest contract chip maker TSMC opened its first Japan factory as it tries to diversify from Taiwan amidst risks from the US-China tensions.
Malaysia has the past, current and future strong points and openings to capitalize and leverage on the current strategic outlines and geopolitical realities to seize on the moment to propel the advancement in this and related fields but must be swift and strategic in its consolidated policy on the chips and critical technologies sectors. 
*Collins Chong Yew Keat is a Universiti Malaya foreign affairs and security strategist.*