With growth in many sectors of manufacturing, Malaysia is turning up the heat on some of its regional competitors.

With a population of more than 30 million, 61% of which are considered middle-income or upper-income consumers, Malaysia is one of the most developed nations in Southeast Asia. In coming years, manufacturing is expected to be a core driver of economic growth, though there are some indications that growth may slow somewhat in the short term; a slight reduction in regional demand and a strengthening US dollar are expected to lead to moderate growth in electronics manufacturing and other export driven areas, according to the central bank, Bank Negara Malaysia (BNM). The growth rate in Malaysian manufacturing was 4.9% and is expected to be marginally lower in 2016. In 2015, manufacturing accounted for nearly 45% of net FDI in Malaysia and was the single largest sector recipient. Likewise, manufacturing received 55.2% of all direct investment originating in ASEAN countries in the same period. Strong manufacturing exports are expected to help Malaysia record yet another trade surplus in 2016. Gross manufacturing exports grew nearly 6.5% in 2015 and are forecast to grow by 5.6% in 2016, according to the CBM.

According to the Malaysian Investment Development Authority (MIDA), the manufacturing sector approved 553 investment projects between January and September of 2016. These projects alone have the potential to generate more than 47,000 new jobs. Additionally, there was nearly MYR40.7 billion worth of investment in the sector, of which more than MYR19.4 billion came from foreign investors and MYR21.26 billion from domestic investors. Singapore, Japan, China, Germany, and the Netherlands accounted for the largest number of foreign investment projects in the industry, accounting for 73, 41, 22, 17, and 16, respectively. However, according to total capital invested, the ranking composition somewhat shifts; according to MIDA the top-five foreign sources of investment were the Netherlands, China, the UK, Singapore, and Japan, representing investments of MYR3.03 billion, MYR2.49 billion, MYR2.18 billion, MYR1.73 billion, and MYR1.62 billion, respectively.

Electronics and Electrical

Electronics manufacturing remains a key piece of Malaysia's industrial makeup, and the sector has seen growth in recent years. According to the BNM, electronics accounted for nearly 35% of Malaysia's exports to ASEAN countries. With the global rise of smartphones and tablets, many Malaysian firms in this sector have shifted their operations away from the traditional PC market, focusing on these new high value-added products instead. This has also meant a rise in firms focusing on cloud infrastructure, according to the BNM. Additionally, Malaysia has taken a much larger piece of the automotive semiconductor pie, and safety trends in the automobile manufacturing sector are expected to underpin more growth in semiconductors in the future. Between 2011 and 2013, the share of semiconductor sales to the PC subsection declined from 32.6% to 30.1%, while sales to the automotive sub sector grew from 8.3% to 9.3%, cloud computing grew from 5.5% to 7.3%, consumer electronics grew from 15.4% to 16.3%, and industrial electronics grew from 4.2% to 5.1%, according to the BNM.

The development of the Internet of Things (IoT) is also expected to catalyze growth, allowing Malaysia to leverage its years of knowhow and expertise in the electronics and electrical manufacturing sector. In order to ensure the sector is able to take full advantage of global shifts in the marketplace, the Malaysian government has unveiled a number of plans meant to direct both public and private investment and effort. The National IoT Strategic Roadmap and the National Aerospace Blueprint 2015-2020 are two of the most important development initiatives, and they are expected to help concentrate on value-added, high tech manufacturing.

Machinery and Equipment

Machinery and equipment manufacturing is an integral component of Malaysia's industrial strength, and the sector can be broken down into four main classifications: 1) power generating machinery, 2) metalworking machinery, 3) specialized process machinery or equipment, and 4) general industrial machinery and equipment, components, and parts. Malaysia's Third Industrial Master Plan (2006-2020) identified a number of core development areas—including: boosting Malaysia as a production, trade, and distribution hub for machinery and equipment; increasing the level of technical expertise and specialization within the sector; and reinforcing the institutional support infrastructure of the sector, to name a few—and great strides have already been made. According the most recently available statistics from the Ministry of International Trade and Industry, it approved 74 new projects with the potential of creating almost 4,000 new jobs. Additionally, investment totaled more than MYR744 million, almost MYR493 million of which was from local sources. In order to stimulate more investment in this area of the economy, the Malaysian government has unveiled a generous incentive scheme that includes a five-year 70% income tax exemption for companies that meet a 40% value-added threshold.

Chemicals and Chemical Products

One exciting area that has a great deal of promise and growth potential is green chemical biorefining. MYBiomass is a leading light in this area, and the firm is a PPP that aims to produce high-value green chemicals that originate from biomass. In an exclusive interview with TBY, Puvaneswari Ramasamy, CEO of MYBiomass, explained the vision that potential biorefining and manufacturing have for Malaysia and the world. “Biomass as the chemical composition that gives great potential to producing materials and chemicals that could otherwise be made from fossil-routes. Thus, in addition to providing a more robust economic configuration, mass adoption of similar concepts to what MYBiomass envisions throughout the nation may potentially provide some level of security against uncertain reserves of fossil-based resources," said Puvaneswari. “We intend to function as a catalyst for green technological development and create the right ecosystem for other players to join the nascent industry." By positioning itself as a global leader in the manufacture of green and sustainably produced chemicals, Malaysia is signaling its willingness to be a global leader in the effort to marry business interests and environmental realities, ensuring the livelihoo

d of hundreds and thousands of SMEs while being responsible stewards of the earth.

Malaysia's abundant supply of petrochemicals has also been a boon for its domestic plastics manufacturing activities. This dynamic and forward-looking sector operates across a number of fields and can be broken down into four major sub-sectors: packaging, electrical and electronics, automotive components, consumer products, and industrial products. In 2015, there were 1,837 companies operating in the plastics sector.


Food processing is another integral part of Malaysia's economic base, and the industry offers a wide variety of products offered for domestic and international consumption. According to the United States Department of Agriculture's Foreign Agricultural Service, the Malaysian food processing industry is expanding by an impressive 5% a year, and dairy, baked goods, and processed fish are leading the charge. More than 6,000 SMEs are engaged in food manufacturing, and they contribute slightly more than 10% to country's total manufacturing output. Additionally, a number of large multinational firms have established regional manufacturing operations in the country. According to MIDA, the industry contributed MYR18 billion worth of goods to the Malaysian economy and exported products to over 200 countries.

Fish processing and canning, processed meats, confectionary, canned fruits, vegetables, dairy products, noodles, bread, and other baked goods are the most vital areas of operation in the food-processing sector. Fish and fish-based products, noodles, and meat processing are, respectively, the largest sub-sectors, according to the USDA, and most of the fish-based products are export-oriented. According to MIDA, edible products and preparations accounted for MYR5.6 billion worth of exports, cocoa and while cocoa preparations accounted for MYR4.1 billion. While Malaysia domestically produces all the poultry, pork, and eggs it needs for its food manufacturing industry, it imports nearly 80% of its beef requirements. The vast majority of dairy products are also imported, as well as all wheat used in noodle and bread manufacturing. While Malaysia processes more cocoa than any other country in Asia, it must import nearly 95% of all cocoa beans, and much of its sugar and sweeteners.

Private sector firms are confident that Malaysia can continue to be an industry leader in food manufacturing, and they believe the country's position can be further solidified if certain key issues are addressed. In an exclusive interview with TBY, Tan Hee Keat, Managing Director of HACO Asia Pacific, a leading food manufacturer, explained where efforts should be directed. “Malaysia can still be competitive and businesses flourish in the current ecosystem if investments are focused on high-value added technology," said Keat. “One major concern for the kind of manufacturing business we are in is the availability of skilled labor, and a serious gap exists for many professions, especially engineers and technicians." Ironically, the industry has become a victim of its own success, expanding so successfully that it has reached the labor market's current capacity. To address these shortages, government leaders and industry officials are discussing a slew of programs. As the industry moves forward, it will be stimulated by the country's healthy business landscape, far-reaching government incentives, developments and changes in consumer preferences, income, and demographics, global product awareness, robust industry infrastructure, and a burgeoning retail sector that can bring more products to more consumers.