Malaysia, explained.
A replica of the ARM electronic chip board at a ceremony launching a partnership between Malaysia and ARM Holdings in Kuala Lumpur, Malaysia, 5 March 2025 (Hari Anggara/NurPhoto via Getty Images)
Ambition alone will not be enough to climb the global semiconductor value chain.
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Can Malaysia’s semiconductor industry stream upwards?Can Malaysia’s semiconductor industry stream upwards?
In the cut-throat world of semiconductors, it seems Malaysia has carved out a special niche. As a subcontractor in the assembly, testing, and packaging of semiconductor chips, Malaysia has positioned itself as a global leader in backend chip processing.
However, Malaysia continues to play a relatively minor role in the more advanced segments of the semiconductor value chain, particularly in areas such as advanced packaging technologies and integrated circuit design, domains that remain firmly dominated by the United States, Taiwan, and China. In light of Malaysia’s ambitions under its 2024 National Semiconductor Strategy to ascend the value chain and its recent acquisition of UK-based ARM chip design blueprints, a critical question emerges: can Malaysia’s semiconductor industry overcome its downstream dependency and cut a path towards upstream capabilities?
Beyond the talent gap, Malaysia also suffers from insufficient R&D infrastructure and a lack of access to advanced design tools.
Malaysia’s New Industrial Master Plan 2030 outlines strategies to strengthen the country’s industrial base and foster innovation-led growth, but its presence in higher segments of the value chain, particularly in the manufacturing of electronic components, consumer electronics, and computer equipment, remains relatively limited. In the area of integrated circuit design, Malaysia has a low to medium presence, indicating a developing but still nascent capability. Meanwhile, research and development activities are marginal in areas such as electronic components, consumer electronics, and electrical equipment, highlighting a critical gap in upstream innovation.
To address this, the country’s National Semiconductor Strategy aims to propel Malaysia up the value chain through a comprehensive long-term plan. Central to the strategy is a government commitment of RM25 billion over ten years, allocated for capital grants, workforce training and development, construction of dedicated semiconductor industrial parks, and establishment of advanced packaging facilities. While the blueprint outlines an ambitious and necessary roadmap to strengthen Malaysia’s semiconductor ecosystem, implementation has so far been sluggish.
Key bottlenecks include the acute shortage of skilled labour and domestic technological limitations. Although the strategy sets a target to train 60,000 engineers to meet industry demands, tangible progress has been minimal. The country still struggles with a persistent mismatch between education outputs and industry requirements, as many university curricula and Technical and Vocational Education and Training programs remain outdated and poorly aligned with the fast-evolving demands of the sector.
The United States CHIPS Act was signed in August 2022 (Hannah Foslien/Biden White House/Official White House/Flickr)
This challenge is further compounded by a steady outflow of talent, driven largely by wage differentials and more attractive career prospects abroad, particularly in neighbouring Singapore, which offers significantly higher salaries and boasts a more mature advanced semiconductor ecosystem. Beyond the talent gap, Malaysia also suffers from insufficient R&D infrastructure and a lack of access to advanced design tools.
The recent acquisition of ARM chip design blueprints for local manufacturers is a promising step towards breaking free from Malaysia’s long-standing downstream ceiling. There is growing optimism that the country may finally be able to move up the semiconductor value chain, with encouraging signals that the government is ready to back the industry in this strategic shift.
However, persistent structural challenges continue to hold the industry back. While the ARM deal includes plans to train 10,000 engineers for the integrated circuit design sector, there is no clear roadmap for how this will be achieved.
Even if Malaysia succeeds in producing its own chip, finding a stable and competitive export market will remain a challenge.
Adding to the challenge are external pressures in an increasingly protectionist global landscape. The United States, Malaysia’s largest semiconductor export market, is boosting domestic production under the CHIPS Act, while Taiwan’s TSMC is investing US$100 billion to establish advanced manufacturing facilities on US soil. Meanwhile, China is doubling down on investments in its own domestic integrated circuit design capabilities. These developments risk sidelining Malaysia’s role in the global semiconductor supply chain.
At the same time, global giants such as Nvidia, Qualcomm, and AMD dominate the market with significant technological and financial advantages. As a result, even if Malaysia succeeds in producing its own chip, finding a stable and competitive export market will remain a challenge. Moreover, even with access to ARM chip design blueprints, integrated circuit design is complex and resource-intensive, requiring deep expertise in engineering, physics, and mathematics. The question is whether local players possess the technological capabilities and human capital necessary to translate these blueprints into commercially viable, cost-effective products.
Ultimately, there are two likely outcomes. In one scenario, a handful of local firms successfully leverage the ARM blueprints to develop locally made circuits or chips that can serve niche or lower-end segments of the global supply chain. In the other scenario, the industry finds it difficult to develop designs that are both competitive and economically viable, leading to a limited impact on Malaysia’s position in the semiconductor ecosystem.
Malaysia’s entry into the integrated circuit design space is a bold and necessary move, signalling ambition and a desire to elevate the country’s role in the global semiconductor industry. But ambition alone is not enough. Without resolving deep-rooted structural issues, the country risks falling short. The next few years will be critical in determining whether Malaysia can break the downstream curse.
About the author
Doris Liew
Doris Liew is an economist at IDEAS Malaysia, specialising in ASEAN’s economic development, regional and international trade dynamics, labour economics, poverty and inequality, and public finance.
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