E&E industry Seeks Government Support For a Strong Rebound, Strengthen Foundation For Gangbuster Growth
By Wong Siew Hai September 24, 2021
- 1H2021 sees E&E exports at US$51.1 bil, an increase of 28% YoY
- Need to hire engineers from other countries, keep sector competitive
Malaysia is well recognized as a key part of the global semiconductor supply chain. Approximately 7% of global semiconductor trade flows through Malaysia. Our semiconductor assembly and test (back-end) constitutes an even larger portion at 13% of global capacity.
In 2020, the Electrical & Electronics (E&E) sector contributed US$92.2 billion (RM386 billion) (39.4%) to Malaysia’s total exports, 6.8% to national GDP and provided 575,000 jobs.
For the first half of 2021, the E&E sector exports grew to US$51.1 billion (RM213.7 billion), an increase of 28%, year on year, despite the pandemic. As per the World Semiconductor Trade Statistics (WSTS), the global semiconductor is expected to grow by 20% in 2021 and forecasted to increase by an additional 10% in 2022.
Malaysian disruptions ripple across the globe
Currently, there is a shortage of semiconductor and electronic products, mainly due to the pandemic, the acceleration of the digital transformation (especially with online businesses worldwide) and further , driven by the set-up of critical infrastructure, 5G, AI, IIOT, medical equipment, devices and other electronics products.
This shortage issue was compounded with the shutdown of the wafer fab factories in Japan due to fire, in Austin USA due to weather conditions, in Taiwan due to drought and more recently from another fab closure in Germany due to power outage. The blockage of the Suez Canal in March 2021 also contributed to the disruptions in the semiconductor supply chain.
Of recent times, many multinational companies missing their quarterly or yearly financial forecasts have cited challenges faced in their Malaysia operations as contributing factors. Also, the shutdown of car manufacturing factories in the US, Europe and Japan mentioned that it was mainly due to the inability of the electronics factories in Malaysia to ship the semiconductor components needed for assembly.
Keeping factories running at speed
Despite the increase in the number of Covid-19 cases, the Malaysian Government has weighed the impact of lives and livelihood, and allowed the electronics factories to operate at 60% headcount, since semiconductor and electronics systems were classified as essential services.
In the meantime, the government has accelerated the vaccination program and by allowing companies to set up on-site vaccination centres, as well as the set-up of common site vaccination centres. To date, more than 80% of the Malaysia Semiconductor Industry Association (MSIA) member companies have completed their first dose vaccinations on their employees and about 60% are fully vaccinated.
Of the 60% companies, at least 80% of employees are fully vaccinated with many exceeding 90% or even 95%. The government has allowed those factories with more than 80% fully vaccinated employees, to operate at 100% headcount. As such, the shipment of semiconductor components continues to increase to meet the huge backlog of customers’ orders that have been building up over the last one year.
Even with increased vaccination rates, the companies are still faced with shutdowns due to Covid-19 cases identified in the factories with their self-funded intensive testing. This is despite having taken strict measures in enforcement of Standard Operating Procedures (SOPs) and even after being shutdown for 14 days earlier, severely disrupting the supply chain. The challenge is how do the companies prevent employees with positive cases from going to work. Companies need to find a way to keep their factories open.
Malaysia has accelerated its vaccination program successfully, receiving global acknowledgement. 93% of the Malaysian adult population has taken at least one dose and 81% are fully vaccinated. For the entire country, 68% have taken at least their first dose and 58% are fully vaccinated.
We see a continuing relaxation in the community as society moves from living with the pandemic to accepting it as being endemic. Further relaxations are expected in general, but we are very concerned about the continuing and repeated interruptions to the industry where each week sees some factories being shutdown.
Recommend MOH not shut down factories with over 80% vaccinated staff
So, for factories with more than 80% employees fully vaccinated, we recommend that the Ministry of Health not to shut down these factories if there are positive cases but instead to conduct contact tracing and quarantine those affected. This is in line with the “endemic” approach. Shutdowns are for companies that are not complying with SOPs.
We further recommend that the Government supports regular testing to keep the factories open. In some European countries, their governments provide free antigen testing to keep the factories running. We need to do the same here in Malaysia as the factories keep the jobs and the economy going. If not, allow all testing to be SOSCO claimable. We need to permit the factories to remain open and seize the opportunity to ship supplies to and fulfill customers’ orders. We should not allow these orders to be diverted to other countries.
Strong growth with RM4bil capex, 4.6k new jobs but hiring is challenging
A recent MSIA survey showed that E&E companies are expanding. Of our members, 16 companies reported that they have or will invest in land, building and capex of at least RM4 billion with built up area of more than 4 million square feet and will provide 4,600 new jobs over the next 2 years.
[RM1 = US$0.239]
Meanwhile, due to the overwhelming demand, new products and technology transfers, MSIA members need to hire at least 14,000 factory workers, 2,400 engineers, 1,600 support staff and 450 expats in the next 6 months to support their growth. Malaysians will also gain technical expertise with the expats here.
However, it has been a challenge to employ factory workers, technicians and engineers. Most companies face challenges to hire local workers, as the attrition rate for new hires is as high as 70% over a 3-month period.
To reduce the attrition rate, most companies give retention incentives for the workers to stay. Currently, the companies are mainly doing extensive virtual interviews. Those who are selected will go for Covid-19 tests but there are some no shows when they are due to report for work.
Urging government to restart the hiring of foreign workers
With the tight labour situation, the companies are chasing the same labour pool and many workers are not keen to work outside their home states. The companies are using agents to help them hire workers from other states but with unsatisfactory results. Overall, the costs of hiring and training have increased significantly.
MSIA would like to urge the government to reconsider the freeze on foreign labour and to allow the restart of foreign workers hiring. Only companies that can comply with Act 446 on accommodation and ensure strict compliance to SOPs can be allowed to hire foreign workers. Without the required workforce, the companies are just missing out on the opportunities. This is one low hanging fruit to speed up the recovery of the economy.
We understand the government’s concerns on the increased numbers of foreign workers in the country. There are about one million legal foreign workers, which is less than 10% of the country’s workforce. However, there are about 1.5 million to 3 million illegal foreign workers in the country. The main issue is not the legal foreign workers but the illegal foreign workers, over which we have no control.
The government needs a strategy and execution plan to register all illegal foreign workers and help them find employers. Then, these workers need to be registered. Those that are unable to find employment need to be deployed home. Meanwhile, enforcement and border controls should be tightened up.
To remain competitive, hire engineers from other countries
For engineers, it is already a constraint, especially with so many new E&E investments announced over the last year, all of these requiring many engineers. Malaysia needs a strategy to use other countries’ talents, in the same way that the USA, UK, Singapore, China, and Taiwan have attracted many Malaysians.
Malaysia is a significant player in the global semiconductor industry. It is now in focus as it plays a crucial role in the global supply chain. The Belfer Centre of Science and International Affairs, Harvard Kennedy School (2020) reported that Malaysia is one of the top 10 countries in the world contributing to the semiconductor supply chain. In light of this, Malaysia needs to take positive actions to not only keep the factories open but also be competitive and a location of choice for the E&E investments. Malaysia cannot afford to have companies divert their customers’ orders, new products, and technologies to other countries. The opportunity to recover and rebound strongly is here. The ball is in our court. We need to act fast!
Wong Siew Hai is President, Malaysia Semiconductor Industry Association (MSIA) and Champion, E&E Productivity Nexus (EEPN)