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Chapter 1 Malaysia: A Country Profile

Introduction to Malaysia
Malaysia is a federal constitutional monarchy in Southeast Asia. It consists of thirteen states and three federal territories and has a total landmass of 329,847 square kilometers (127,350 sq. mi) separated by the South China Sea into two similarly sized regions, Peninsular Malaysia and Malaysian Borneo. Land borders are shared with Thailand, Indonesia, and Brunei, and maritime borders exist with Singapore, Vietnam, and the Philippines. The capital city is Kuala Lumpur, while Putrajaya is the seat of the federal government. The territories on Peninsular Malaysia were first unified as the Malayan Union in 1946. Malaya was restructured as the Federation of Malaya in 1948, and achieved independence on 31 August 1957. Malaya united with Sabah, Sarawak, and Singapore on 16 September 1963, with si being added to give the new country the name Malaysia. However, less than two years later in 1965, Singapore was expelled from the federation. Since independence, Malaysia has had one of the best economic records in Asia, with GDP growing an average 6.5% for almost 50 years. The economy has traditionally been fuelled by its natural resources, but is expanding in the sectors of science, tourism, commerce and medical tourism. Malaysia contains the southernmost point of continental Eurasia, Tan Jung Piai. Located in the tropics, it is a mega diverse country, with large numbers of endemic flora and fauna. It is a founding member of the Association of Southeast Asian Nations and the Organization of Islamic Cooperation, and a member of AsiaPacific Economic Cooperation, the Commonwealth of Nations, and the NonAligned Movement. Malaysia is a federal constitutional elective monarchy. The system of government is closely modeled on that of the Westminster parliamentary system, a legacy of British colonial rule.[48] The head of state is the Yang di-Pertuan Agong, commonly referred to as the king. The King is elected to a five-year term by and from among the nine hereditary rulers of the Malay states; the other four states, which have titular Governors, do not participate in the selection. By informal agreement the position is systematically rotated among the nine, [48] and has been held by Abdul Halim of Kedah since December 2011.[49] The King's role has been largely ceremonial since changes to the constitution in 1994, picking ministers and members of the upper house.[ Legislative power is divided between federal and state legislatures. The bicameral federal parliament consists of the lower house, the House of Representativesand the upper house, the Senate.[51] The 222-member House of Representatives is elected for a maximum term of five years from single-member constituencies. All 70 senators sit for three-year terms; 26 are elected by the 13 state assemblies, and the remaining 44 are appointed by the King upon the Prime Minister's recommendation.[3] The parliament follows a multi-party system and the government is elected through a first-past-the-post system. Since independence

Malaysia has been governed by a multi-party coalition known as the Barinas National. A founding member of the Association of Southeast Asian Nations (ASEAN)[64] and the Organization of Islamic Cooperation (OIC),[65] the country participates in many international organizations such as the United Nations,[66] the Asia-Pacific Economic Cooperation,[67] the Developing 8 Countries,[68] and the Non-Aligned Movement (NAM).[69] It has chaired ASEAN, the OIC, and the NAM in the past. [3] A former British colony, it is also a member of the Commonwealth of Nations.[70] Kuala Lumpur was the site of the first East Asia Summit in 2005.[

Malaysia is a relatively open state-oriented and newly industrialized market economy.[115] [116] the state plays a significant but declining role in guiding economic activity through macroeconomic plans. Malaysia has had one of the best economic records in Asia, with GDP growing an average 6.5 per cent annually from 1957 to 2005.[3] In 2010 the GDP (PPP) was $414,400 billion, the 3rd largest economy in ASEAN and 29th largest in the world The infrastructure of Malaysia is one of the most developed in Asia.[209] Its telecommunications network is second only to Singapore's in Southeast Asia, with 4.7 million fixed-line subscribers and more than 30 million cellular subscribers.[210][211] The country has seven international ports, the major one being the Port Klang. There are 200industrial parks along with specialized parks such as Technology Park Malaysia and Kulim Hi-Tech Park.[189] Fresh water is available to over 95 per cent of the population. During the colonial period, development was mainly concentrated in economically powerful cities and in areas forming security concerns. Although rural areas have been the focus of great development, they still lag behind areas such as the West Coast of Peninsular Malaysia.[212] The telecommunication network, although strong in urban areas, is less available to the rural population.[210]

Malaysia's road network covers 98,721 kilometers (61,342 mi) and includes 1,821 kilometers (1,132 mi) of expressways.[2] The longest highway of the country, the North-South Expressway, extends over 800 kilometers (497 mi) between the Thai border and Singapore. The road systems in East Malaysia are less developed and of lower quality in comparison to that of Peninsular Malaysia.[213] Malaysia has 118 airports, of which 38 are paved. The country's official airline is Malaysia Airlines, providing international and domestic air service alongside two other carriers. The railway system is state-run, and covers a total of 1,849 kilometers (1,149 mi).[2] Relatively inexpensive elevated Light Rail Transit systems are used in some cities, such as Kuala Lumpur.[214] The Asean Rail Express is a railway service that connects Kuala Lumpur to Bangkok, and is intended to eventually stretch from Singapore to China

Chapter 2 Economy and Demographics of Malaysia

A Brief overview:
The Economy of Malaysia is a growing and relatively open state-oriented and newly industrialized market economy.[6] [7] The state plays a significant but declining role in guiding economic activity through macroeconomic plans. In 2007, the economy of Malaysia was the 3rd largest economy in South East Asia and 28th largest economy in the world by purchasing power parity with gross domestic product for 2008 of $222 billion[8] with a growth rate of 5% to 7% since 2007[9] In 2010, GDP per capita (PPP) of Malaysia stands at US$14,700.[10] In 2009, the nominal GDP was US$383.6 billion, and the nominal per capita GDP was US$8,100.[11] The Southeast Asian nation experienced an economic boom and underwent rapid development during the late 20th century and has a GDP per capita of $14,800, being considered a newly industrialized country.[12][13] On the income distribution, there are 5.8 million households in 2007. Of that, 8.6% have a monthly income below RM1,000, 29.4% had between RM1,000 and RM2,000, while 19.8% earned between RM2,001 and RM3,000; 12.9% of the households earned between RM3,001 and RM4,000 and 8.6% between RM4,001 and RM5,000. Finally, around 15.8% of the households have an income of between RM5, 001 and RM10, 000 and 4.9% have an income of RM10, 000 and above.

According to World Bank, Malaysia ranks 24th in Ease of doing business. Malaysia's strengths in the rank include getting credit (rank 3rd), protecting investor (ranked 4th) and doing trade across borders (ranked 21st). Weaknesses include dealing with licenses (ranked 105th). The study ranks 178 countries in all aspect of doing business.[93] In the investor protection category of the survey, Malaysia had scored a perfect 10 for the extent of disclosure, nine for director liability and seven for shareholder suits. Malaysia is behind Singapore, Hong Kong and New Zealand in investor protection category of the survey.

Malaysia is an important trading partner for the United States. In 1999, two-way bilateral trade between the U.S. and Malaysia totaled U.S. $30.5 billion, with U.S. exports to Malaysia totaling U.S. $9.1 billion and U.S. imports from Malaysia increasing to U.S. $21.4 billion. Malaysia was the United States' 10th-largest trading partner and its 12th-largest export market. During the first half of 2000, U.S. exports totaled U.S. $5 billion, while U.S. imports from Malaysia reached U.S. $11.6 billion. The Malaysian Government encourages Foreign Direct Investment (FDI). According to Malaysian statistics, in 1999, the U.S. ranked first among all countries in approved FDI in Malaysia's manufacturing sector with approved new manufacturing investments totaling RM5.2 billion (US$1.37 billion). Principal U.S. investment approved by theMalaysian Investment Development Authority (MIDA) was concentrated in the chemicals, electronics, and electrical sectors. The cumulative value of U.S. private investment in Malaysia exceeded $10 billion, 60% of which is in the oil and gas and petrochemical sectors with the rest in manufacturing, especially semiconductors and other electronic products.

Chapter 3 Current Statistics and Demographics

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Parameter GDP Manufacturing production Index Inflation Unemployment Exports BOP Imports M1 M2 M3

Particulars 5.2 5.3 3.2 3.1 6.0 -6.3 6.7 258223.9 Million RM 1215078.6 Million RM 1242620.2 Million RM 28728607 26.8 1.567 21.08/1000 4.93/1000 72 73.79 990/1000 15.02/1000 88.7

Note Q4(2011-12) Q4(2011-12) Q4(2011-12) Q4(2011-12) Q4(2011-12) Q4(2011-12) Q4(2011-12) 15.1 Q4(2011-12) 14.6 Q4(2011-12) 14.4 Q4(2011-12) July 2011 2011 2011 July 2011 2010 2011 2011 2011 2011

11 Population 12 Average age 13 Population growth rate 14 Birth Rate 15 Death rate 16 Urbanization 17 Life expectancy 18 Sex ratio 19 Infant mortality rate 20 Literacy 21 Source: Department of statistics, Malaysia & CIA World Factbook, 2012

Chapter 5 Electronics Industry in Malaysia

Introduction to the Electric & Electronic Industry


The Electric & Electronic (E&E) Industry is Malaysias leading and most liberalized industry. Over the last three decades, Malaysia has developed to a major global manufacturing base for the electronics industry. The E&E industry in Malaysia started in the early 1970s as a result of the Governments initiatives to promote labor-intensive and export-oriented i n d u s t r i e s . With the establishment of the first semiconductor plant in Penang in 1972, the electronics industry has developed rapidly to become the largest industry within the manufacturing sector and contributes significantly to the countrys exports and employment. In this context, total employment opportunities created by the industry amount to 296,870 people. Based on the Malaysian Industry Development Authoritys (MIDA) records, from a total of just four companies with 577 employees and a total output value of RM25 million in 1970, today the E&E industry has expanded to more than 1,695 companies with total investment of RM108 billion and a workforce of more than600,000 people. International Trade and Industry Minister Datuk Seri Mustapa Mohamed said upon realization of the already signed memoranda following the 10th Malaysian plan, the partnerships had the potential of generating RM1.9bil in investments over the next five years and creating 6,500 new jobs by 2020.

Performance of the Electric & Electronic Industry A market-oriented economy combined with a young, educated workforce, an excellent infrastructure, and a government committed to maintaining a business-friendly environment, has been Malaysia's formula for success in attracting investments into country's electronics sector. Malaysia is now home to MNCs from the USA, Japan, Europe, Taiwan a n d K o r e a , m a n u f a c t u r i n g products r a n g i n g f r o m s e m i c o n d u c t o r devices t o consumer and industrial electronics. says the Malaysian Industrial Development Authority (MIDA). The electronics industry is the strongest sector in Malaysia's manufacturing sector with remarkable effect on the country's manufacturing output (29.3 per cent), exports (55.9 per cent) and employment (28.8 per cent). In 2008, the gross output of the industry totaled RM167.2 billion (US$53.9 billion), exports amounted to RM233.8 billion (US$75.4 billion) and the industry created employment opportunities for 296,870 people. Over the years, Malaysia's electronics industry has developed significant capabilities and skills for the manufacture of a wide range of semiconductor devices, high-end consumer electronic and information and communication technology (ICT) products. Electronics manufacturers in the country have continued to move-up the value chain to produce higher value-added products. These include intensification of research and development efforts and outsource non-core activities domestically. Siemens, Bosch and Infineon are just some of the well-known companies, who have moved their production t o Malaysia. Based on a statement by The German Electrical and Electronic Manufacturers Association (ZVEI), Asia will stay the growth region of the future, with China leading the pack. Smaller nations like Malaysia will get their fair share of this development if they continue to offer economic and political stability. Malaysia has developed the Multimedia Super Corridor (MSC), which brings together a legislative framework, a high capacity of global telecommunications and a logistics framework, and eco-friendly surroundings to create the ideal environment for the growth of multimedia industries. The industry has moved up the value chain into the manufacture of high-end products and has moved away from labor-intensive to more capital-intensive operations. The capital investment per employee (CIPE) ratio showed a growth from RM79, 149 per employee in 1995 to RM333, 830 per employee in 2000 and RM578, 469 per employee in 2007. The presence of many large multinational corporations (MNCs) has created a very sizeable local market for the components a n d supporting i n d u st ry. The presence of leading electronic manufacturing services (EMS) companies such as Electronics, Solectron, Celestica, Jabil, Plexus and Sanmina-SCI

provides opportunities for local companies to be part of their supply chain in the supply of equipment, materials, parts and components, and dedicated services such as contract design, burn-in testing, failure analysis and rapid prototyping. Other local supporting industries focus on activities such as moulds, tools and dies, metal stamping, surface treatment, plastic injection moulding and M&E (Mechanical & Electrical). Nowadays, there are more than 50 companies operating as contract manufacturing services (CMS) or EMS companies. Major sub-sectors of the E&E industry include Electronic components Industrial electronics Consumer electronics Electrical products

Electronic Components Products and activities which fall under this sub-sector range from semiconductor devices (which include fabricated wafers, ICs and IC design) to passive components (such as capacitors, resistors, connectors, inductors, crystal quartz and oscillators); printed circuits and other components (such as storage media, substrates and connectors, disk drive parts, PCBs and metal and plastic parts/components for E&E applications). Electronics components are the most important sub-sector and accounted for 58.7 per cent of the total investment approved in the electronics sector in 2008. Majority of the investments were from foreign sources. The sub-sector is dominated by the semiconductor players, mainly undertaking packaging, assembly and test. In fact, semiconductor devices make up the largest share of the electronic components sub-sector and have attracted leading semiconductor companies in microprocessors, microchips, power ICs, linear ICs, opto-electronics devices and other logic and discrete devices. These companies include MNCs such as Intel, AMD, Free scale Semiconductor, Avago, Infineon, Qimonda, Toshiba, STMicroelectronics, Texas Instruments, STATS ChipPAC, Spansion, National Semiconductor, Fairchild, Renesas and NEC, and Malaysian- owned companies such as Carsem, Globaltronic, Omega, Unisem, AIC Semiconductor and Ids Electronics.

Industrial Electronics This is a fast growing sub-sector driven by rapid developments in digital and wireless technologies. The market growth for ICT is expected to be driven by the trend towards mobile technology for communications and data transfers. The markets for more matured products such as PCs and software are also expected

to register significant growth. The Eastern European and Asian markets for ICT are expected to register double-digit growth. Presently, there are more than 150 manufacturers of industrial electronic products, including 52 in computers and computer peripherals, 80 in telecommunication equipment and 19 in optics and photonics products. The majority of the manufacturers i n these segments are multinational c o m p a n i e s (MNC). Most of the MNCs are world leading technology companies and undertake integrated manufacturing and service activities. The presence of the MNCs has led to the establishment of local supporting activities such as specialized machinery and equipment, moulds and dies and metal and plastic parts.

Consumer Electronics The time when manufacturers introduced more and more features to their products to capture sales i s o v e r . 2009 a n d 2 0 1 0 a r e t h e y e a r s when many new p r o d u c t developments provided not only good features, but also attractive designs. This trend will, according to Euro monitor International, set new standard for product development in the years to come. Besides this general statement there are further key trends in the consumer electronics branches such the arrival of the broadband internet in rural areas, the production of green technology, multi- functional smartphones and digital music. All these trends have three main driving forces: the enlargement of the consumer electronics market towards the rural areas, the governmental Energy Efficiency Incentives which grants tax redemptions up to 10% for new products that meet the defined terms of the incentive, and the young people going business. Judged by the company share in 2009 according to Euro monitor International, main players in the consumer electronics market are Samsung (10.3%), Nokia (7.3%), Logi Computer Peripherals (6.5%) and Acer Technologies (6.2%). Hewlett- Packard, Sony, Dell, Microsoft and Sony Ericson are placed in the midfield (4-6 %), Apple, Panasonic, Canon, Motorola and others following with distance (<3 %). The strongest volume growth rate from 2004 to 2009 was registered for in car entertainment (123.4 %), followed by computers and peripherals (112.5 %). Further fastgrowing groups are portable as well as in- home consumer electronics. Products were mostly sold at store- based retailers as well as through nongrocery retailers. Mixed retailers register a growth of percentile retail volume of three percent meanwhile specialist retailers report a fall of the same amount.

The strongest volume growth rate from 2004 to 2009 was registered for in car entertainment (123.4 %), followed by computers and peripherals (112.5 %). Further fast- growing groups are portable as well as in- home consumer electronics. Products were mostly sold at store- based retailers as well as through non- grocery retailers. Mixed retailers register a growth of percentile retail volume of three percent meanwhile specialist retailers report a fall of the same amount.

Electrical Products The electrical products sub-sector can be categorized into three segments, namely industrial electrical equipment, electrical components and electrical household appliances. There are presently more than 400 companies producing a wide range of products such as household electrical appliances, wires and cables and electrical industrial equipment and other electrical products. The major electrical products produced in Malaysia are household appliances such as air- conditioners, refrigerators, washing machines, vacuum cleaners and other electrical appliances. Manufacturing activities in the electrical industry have evolved from mere assembly to design and marketing of local' brands for the regional and global markets. The solar industry is growing in this sub-sector. Malaysia recognizes the enormous growth potential of the solar energy sector and is putting in place attractive incentives and support facilities to realize its development. Malaysia is ready to create a globally competitive solar industry cluster. To date, Malaysia has attracted five foreign direct investments, worth up to RM13.8bil, to set up solar PV manufacturing facilities in Malaysia. These include US-based companies First Solar Inc at the Kulim Hi Tech Park (KHTP) and US-based Sun Power Corp in Malacca, the China-based ReneSola in Johor Baru, the German company Q-Cells in Selangor Science Park 2, and the Japanese firm Tokuyama Corp in Sarawak. With the current unprecedented increase in fuel costs and the impact of global warming, the demand for renewable energy and also energy efficient products and systems is booming. With an estimated growth of 20-25 % per annum, a bright future exists for this sector of the industry. Realizing the potential, the Ministry of Energy, Green Technology and Water is putting special efforts in the solar energy sector in the country and has launched several programmers such as Malaysian Energy Efficiency Improvement Programme (MIEEIP) and Centre for Education and Training in Renewable Energy and Energy Efficiency (CETREE). This project is aimed at intensifying the usage of renewable energy or solar energy as an alternative source of

electricity as well as to jump start local capabilities and development of the solar industry in Malaysia. Since its launching, MIDA and Malaysian Energy Centre have been collaborating to further promote the industry by identifying major players to invest in the country.

Towards greener Technology Replacement of existing or aged equipment and the use of performance contracting are considered particularly under the current financial situation. In this current environment, more efforts are required in order to ensure a sustainable environment for our future generations, st a t e s Dr. F. C. Chan. With the world establishing an ever stronger eco- consciousness and the government launching plans to head Malaysian economy towards greener technology it is undisputed where the electric & electronical industrys future will be shaped. However, the industry is facing two major risks today that are unfortunately also opposing each other: the climate change and the financial tsunami (Dr. F.C. Chan, 2009). One hand, the existing equipment needs to be replaced, further investments in sustainable and eco- friendly research and development needs to be done. Other hand, the money for that needs to be raised. Malaysian companies have found two approaches to that dilemma: Credit based or internal financing through the saved energy costs and performance contracting. The first approach is the most intuitive. Large researches show that there are energy saving potentials up to 80% in lighting, 30 % in ventilation, 10 % in lifts and escalators, 70 % in water and space heating and 80 % in cooking equipment (TEEAM, June 2010, S. 57). With the ever growing energy costs it is only a question of time until the investment capital is outpaced by the amount of saved energy costs. In this context such initial investment can face both risks at once and contribute to both an economic and ecological advancement. Performance contracting is an alternative that may help to overcome the barriers of the capital investment and therefore minimizing the associated risks. It leverages the energy saved for installing energy efficient equipment and throughout that pays for the capital investment. The charged energy service company measures and verifies the saved energy costs which will be shared between the owner and the company to payback the project costs. The performance contract runs until the total payback of the initial project costs. These two ways underline the growing possibility and ability of Malaysian electrical & electronics companies to face two contrasting problems at once. But b e sid e s f a c i n g difficulties they create knowledge and experience for the growing global key market in the future.

Economic Transformation Programme (ETP) Malaysia government has launched Economic Transformation Programme (ETP) on 25th Oct 2010 which ETP is anchored on 12 National Key Economic Areas (NKEAs), which are drivers of economic activities that have the potential to materially contribute to the growth of Malaysia. This Programme aims to strengthen Malaysias E&E capabilities across the value chain, particularly in higher value-added upstream activities. Our focus will also be on attracting more leading multinational companies to operate in Malaysia and creating more Malaysian champions.

Semiconductors: The efforts in this important part of the E&E sector have been typically in areas with lower value-add such as test and assembly. We will follow a strategy of building on the strong foundations in mature technology semiconductor f a b rica t ion and expanding into advanced packaging and design of integrated circuits as well as supporting the growth of substrate manufacturers.

Solar: With a strong start in solar and solid experience in the similarly structured semiconductor industry, Malaysia has a promising future in a promising technology. By 2011, we will have the third largest market share in the world. A concerted effort to increase the number of silicon, wafer, cell and module producers will allow us to leap into second place of a much larger industry by 2020.

Light-emitting diodes: Malaysia has a strong lead in solid state lighting, one of the fastest growing segments. We need to move up the value chain from packing and testing to chip and application research and development by creating a cluster of international and domestic companies.

Industrial electronics: Industrial electronics involves the manufacturing of precision equipment used in industrial and commercial settings. Test and measurement, wireless

communication, t ra n sm issio n and distribution and automation markets are the most attractive for further development.

Electrical home appliances: Malaysia has been successful domestically with the development of strong local home appliance companies. The next step is to grow scale and build a strong international distribution network.

Outlook: The financial crisis has had a significant impact on the electrics and electronics industry. Due to tightened consumer budgets little money was spend on unnecessary items, mainly consumer electronics products. This forced retailers and manufacturers t o lower their prices in order to maintain sales in their markets. Even the necessary products such as computers recorded much weaker growth than in previous years since companies and private citizens postponed their investments to more prosperous times expected in the future. With the global economy slowly recovering itself these investments start to be done. Mixed with the fast pace of new product developments that are characteristic for the electrical & electronics sector, it is expected to face a stable future. The consumer electronics can be seen as an example for the whole sector when Euro monitor International mentioned: new product developments in late 2009 and early 2010 promise an optimistic forecast for consumer electronics. Products such as tablet computers, strong laptops aiming to be desktop- replacements, 3D televisions and BD Live players, will set the n e w s t a n d a r d for t h e i n d u s t r y and k e e p consumers interest. Furthermore, consumers will benefit the most from this trend as they will be able to enjoy many innovative products, while the late adopters will be happy to see prices of existing products drop quickly with the fast pace of new product developments. electrical & electronics sector, it is expected to face a stable future. The consumer electronics can be seen as an example for the whole sector when Euro monitor International mentioned: new product developments in late 2009 and early 2010 promise an optimistic forecast for consumer electronics. Products such as tablet computers, strong laptops aiming to be desktop- replacements, 3D televisions and BD Live players, will set the n e w s t a n d a r d for t h e i n d u s t r y and k e e p consumers interest. Furthermore, consumers will benefit the most from this trend as they will be able to enjoy many innovative products, while the late adopters will be happy to see prices of existing products drop quickly with the fast pace of new product developmen

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