Asia-Pacific

Taiwan Invests in Penang as Semiconductor Supply Chain Shifts

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By Patrick Chen/Tiffany Wong

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The Malaysian state of Penang is attracting billions of dollars of foreign direct investment, including from Taiwan, as it positions itself as an attractive low-end value chain manufacturer and also scales up its facilities.

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Advantech, a leading Taiwanese computer manufacturer, has been making waves in the ASEAN region by customizing industrial computers tailored for local buyers. The company's engineers are showcasing their latest products, which are now being produced at their newest service center in Penang, Malaysia. Advantech’s strategic move to Malaysia aligns with a broader industry shift, where companies are reducing reliance on China due to rising labor costs and increasing risks of trade barriers and supply chain disruptions. 

Malaysia: An Attractive Option for Advantech 

Malaysia has emerged as an ideal location for companies like Advantech to expand operations. Vincent Chang, managing director for ASEAN at Advantech, explains the reasons for investing in Penang: 

"Considering factors like the multiracial society, strong educational system, abundant talent and proficient English capabilities, we decided to invest in Penang to establish a shared service center covering the entire ASEAN region." 

This decision reflects Malaysia's appeal as a regional business hub, with its diverse workforce and favorable business environment. 

Foreign Direct Investment (FDI) Surge in Penang 

In 2023, Penang set a record with US$12.8 billion in foreign direct investment (FDI), surpassing the combined total from the previous decade. Multinational companies, drawn by Malaysia’s stable business climate and strategic location, have been pivotal in this growth. Companies like Intel, AMD and HP have been present in Penang for decades, transforming the state into a tech hub known as the "Silicon Valley of the East." 

Bayan Lepas: Malaysia’s First Free Trade Zone 

Bayan Lepas Science Park, Malaysia's first free trade zone, was established in the 1970s and remains a key driver in attracting major global companies. This industrial area houses many big names in the technology sector, fueling Penang's reputation as a regional tech powerhouse. Long-term investors like Intel, which has been operating in Penang for over 50 years, continue to expand their presence in the area. 

Penang’s Evolution as a Tech Leader 

Penang’s evolution as a leader in the tech industry has been supported by government incentives and infrastructure investments. According to Wen Chong Cheah, a research analyst at the Economist Intelligence Unit, Penang’s infrastructure has improved significantly over the years. The Malaysian government has been actively working on projects to upgrade the state's infrastructure, including rail links and enhancements to the electricity supply, which are expected to bring further benefits to the region. 

Malaysia’s National Semiconductor Strategy 

In May 2023, Malaysia launched its National Semiconductor Strategy, aiming to move up the value chain in the tech sector and address talent retention challenges. However, analysts caution that these efforts will take time to yield significant results. In the interim, Penang’s investment agency, InvestPenang, is diversifying the state’s economic base beyond semiconductors to buffer the impact of fluctuations in the semiconductor market. 

Diversifying Penang’s Economy 

Loo Lee Lian, CEO of InvestPenang, emphasizes the importance of this strategy: 

"We brought in tech industries, we brought in food industries because these industries are not so cyclical. We hope that while the semiconductor cycles happen to be low, these other industries will be able to buffer those shocks." 

This diversification is seen as a way to stabilize Penang’s economy and maintain growth during downturns in the semiconductor industry. 

A Promising Future for Penang and ASEAN 

As global trends in chipmaking shift, Penang is attracting growing interest from Taiwanese companies like Advantech. This momentum is expected to solidify Penang’s position as the resilient “Silicon Valley of the East,” potentially reshaping the global semiconductor supply chain and providing new opportunities for growth in the ASEAN region. 

With its advantageous location, growing tech infrastructure and strategic initiatives, Penang is poised to play a critical role in the future of Southeast Asia’s tech industry, offering a promising environment for both local and international businesses.