An evolving sector The electrical/electronics (E&E) industry in Southeast Asia is seeing a transformation, due to the formidable threat from low-cost, highvolume producing countries like China and Vietnam. This has led the more mature markets in the region, like Singapore and Malaysia, to move up the value chain and embrace R&D efforts to stay ahead of the competition. contract and OEM manufacturing, with R&D and design capabilities, others have made significant investments by moving into high-end sectors. Yet, even more processors have extended their manufacturing footprint to enhance their global competitiveness, by setting up facilities in lower cost producing countries like China and in the neighbouring country of Malaysia. A strong base of these globally competitive suppliers is critical to supporting complex manufacturing in Singapore, where design work is mainly undertaken now. Once products have been validated, production is often transferred to the larger manufacturing operations in Malaysia and China.
Slinging in heavy research “artillery” The electronics sector is veering towards ultra-low powered or self powered laptops, PDAs and mobile phones. And this will be made possible with power management and cutting-edge energy harvesting technologies, which are critical elements for power optimisation and higher energy efficiency in electronic devices. The industry is also faced with further miniaturisation and multi-functionality in devices, making the designing of integrated circuits (ICs) even more complex. To cater to this need, IC producing country Singapore will have to pump up its investments into R&D, which is an integral part of the electronics industry. The country already has the full value chain of R&D activities, catering to component-level IC and semiconductor design activities. To differentiate itself from other countries in the region and move away from a “pure” manufacturing base label, the country is building up its human resources by training them with strong capabilities in the research domain. Last year, a S$50 million IC design house, which will design ICs and systems for applications in medical/clean technology and consumer electronics, was unveiled. The country’s Economic Development Board (EDB) has also identified new growth areas for the industry, which are green electronics and bioelectronics, and research areas will have to be aligned with these growth markets to keep up with the sector. This is a far cry from the early days when domestic processors started off by supporting the electronics and hard disk drive (HDD) sectors with simple parts and components. In tandem with the transformation of the manufacturing landscape in the country, home grown suppliers deepened their capabilities and diversified into new growth areas, such as aerospace, oil & gas, medical devices and complex equipment. While some processors have progressed from providing simple injection moulding services to
A need to move up further in the value chain But whereas Singapore has set itself a target – that of developing its E&E industry into a reasearch based one – Malaysia is still floundering in this area. The E&E industry remains a strong component of Malaysia’s manufacturing sector, contributing significantly to its output (30%), exports (56%) and employment (29%). Just like Singapore, the country has developed significant capabilities and skills for the manufacture of a wide range of semiconductor devices, high-end consumer electronics and information and communication technology (ICT) products. The electronics components market, meanwhile, is the most important sub-sector and accounted for 58.7% of the total investments approved by the Malaysian Industrial Development Authority (MIDA) in 2008. A majority of the foreign players produce semiconductor components and undertake packaging, assembly and testing. Though it constituted 91.5% of the total exports of electronic components, or 38.4% of the total electronics exports in 2008, this sector is volatile and was markedly affected by the global economic slowdown last year. In the electrical products section, there are around 400 companies in the country producing a wide range of products such as household appliances (white goods), 3
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Electrical/electronics industry wire and cables and industrial equipment. This is a mature industry that has evolved from being a mere assembly and OEM manufacturing line to that of an ODM supplier base. Local manufacturers are beginning to design and market homegrown brands to the regional and global markets. In fact, in 2008, Malaysia exported E&E products to a tune of US$3.8 billion. However, of late, Malaysia’s dominance in the E&E sector has been dented by the large pool of labour and lower wages offered by countries like China and Vietnam. And though R&D is the mainstay of the consumer electronics sector, which is dominated by mainly Japanese and South Korean multinationals, the country needs to further deepen its E&E industry beyond low-cost, low-skill and low valueadded manufacturing. For example, in manufacturing ICs, design and fabrication account for 80% of the revenue. However, multinationals are largely involved in assembly and testing – a process that generates around 10% of IC revenue. Thailand plays catch up Thailand has narrowed the gap in infrastructure development, compared to Malaysia, and this made the country an attractive investment hub for the E&E sector. The country has also benefited from the economic integration of regional markets and other free trade agreements (FTAs) in the electrical appliance sector. In fact, it is Southeast Asia’s largest electrical appliance production base, with air conditioners and refrigerators leading the way. Boasting 800 electrical appliance factories, the country is a hub of production for Japanese, South Korean, European and US multinationals and the vast majority of components and parts, including many plastic and rubber ones, are sourced from local suppliers. Thailand is also a leading manufacturer of HDDs that employ precision plastic parts. Even with the global economic conditions last year, the country’s Board of Investment (BOI) says there was an unexpected surge in potential investment projects, especially in the E&E sector. This, it says, is considered a reassurance that the country remains an interesting investment destination in the eyes of foreign investors, despite the internal and external hurdles, such as the Map Ta Phut impasse and the global economic slowdown. In fact, last year, around 219 projects worth Bt100.9 billion applied for investment incentives given by the BOI. These projects are focused on the manufacturing of HDDs, memory storage equipment, digital camera parts, car electronics and white goods. Vietnam to impress upon competitiveness The electronics sector is another industry that keeps coming up on Vietnam’s economy radar. In fact, it will have an export turnover of US$5.2 billion this year and is targeting a growth of 30% per annum, according to the Vietnam Electronics Industries Association (VEIA). Investments from multinational companies are seen as key to reaching the stated objectives of the industry, which is made up of many small and medium sized firms. The opening up of the domestic retail market last year to foreign E&E product suppliers has also raised the bar for local producers. VEIA says that the country needs to promote the advantages of its retail network availability (domestic consumption is improving due to the rising affluence of the population); improve after-sales service to increase its market share in the regional sector as well as promote cooperation and joint ventures between manufacturers and dealers. ◆ 4 I n j e c t i o n M o u l d i n g A s ia • M A R C H 2 0 1 0
IMA features issue March 2010