Silicon Valley is often portrayed as the world’s hub of technological innovation, a home to industry giants such as Google, Apple, and Intel, and a symbol of creativity and progress in the digital age. It’s no wonder that many countries strive to replicate its winning formula in building their own technology hubs. One that has managed to stand out is Penang, Malaysia.
Covering just about 1,000 km² and with a population of 1.8 million, Penang may be small in size, but its role in the global semiconductor industry is remarkably large. In 2019 alone, Penang accounted for 5% of global semiconductor exports. Its title as the “Silicon Valley of the East” is far from a mere marketing slogan, it reflects Penang’s strategic position in the global technology supply chain.
Big Ambitions from the State Leader
In 2023, Penang’s Chief Minister, Chow Kon Yeow, unveiled an ambitious vision: to position Penang as a global technology hub that excels not only in backend manufacturing but also in front-end semiconductor production.
“It’s time we start looking 50 years ahead. Penang is set to lead the nation in moving up the value chain,” he declared. His target aligns with Malaysia’s National Semiconductor Strategy, launched in May 2023, which aims to attract US$115 billion in investments by 2030, with Penang as its primary growth engine.
The focus spans wafer fabrication, integrated circuit (IC) design, advanced testing and packaging, and the development of artificial intelligence technologies. This ambition is not merely about maintaining Penang’s reputation as the Silicon Valley of the East, but also about expanding its influence in the global technology industry.
From Traditional Port to Global Tech Powerhouse
Penang’s transformation began in the 1970s when Malaysia established its first free trade zone. This strategic move successfully attracted eight prominent multinational corporations (MNCs), including Intel, Hewlett-Packard (now Keysight & Agilent), Bosch, AMD, Osram, Renesas, Clarion, and National Semiconductor.
Their arrival laid the foundation for a robust supporting industrial ecosystem. What began as a low-cost manufacturing base gradually evolved into a center for research and development, design, knowledge-based solutions, advanced manufacturing, and global business services.
Consistently Rising Exports
Penang’s electrical and electronics (E&E) sector has experienced rapid growth. Between 2014 and 2019, E&E exports rose by an average of 12% annually, reaching RM210 billion (US$51 billion). Exports of professional, scientific, and control instruments—including medical technology—also grew by an average of 15% per year, hitting RM23 billion (US$6 billion) in 2019.
Since 2014, the E&E and professional instruments sectors have contributed 77–82% of Penang’s total annual exports, and accounted for as much as 50% of Malaysia’s exports in these two categories. When the COVID-19 pandemic struck, Penang’s exports did not decline; instead, they grew by 7% in 2020 (RM310 billion) and a further 14% in early 2021.
A Magnet for Global Investment
Penang’s strategy of focusing on Industry 4.0 and sustainable investments has paid off. The value of investment per new job created surged sixfold between 2012 and 2020.
From 2019 to 2020 alone, Penang attracted RM31 billion (US$7.5 billion) in manufacturing investments, with 88% channeled into the E&E, equipment, and medical technology sectors. Major companies such as Lam Research, Bosch Group, Ultra Clean Holdings, Dexcom, and Smith+Nephew have established operational bases here.
Producing World-Class Companies and Talent
Penang has also nurtured homegrown technopreneurs, many of them former engineers at multinational corporations, who went on to build globally recognized companies such as Experior, Oppstar Technology, and Skyechip, all specializing in IC design and testing for international clients.
Human capital development remains a top priority. Since 1989, the Penang Skills Development Centre (PSDC) has trained more than 200,000 workers. The state government is also aligning university curricula with industry needs, offering scholarships through the Penang Future Foundation, and implementing various STEM education programs.
Impressive Economic Performance
In 2023, Penang’s GDP reached MYR 11.6 billion, accounting for 7% of Malaysia’s total GDP, with a per capita GDP of MYR 72,586—well above the national average. The labor force participation rate stood at an impressive 70%.
Key sectors include electronics, metals, chemicals, rubber, and plastics. In the E&E sector alone, Penang contributed 58% of Malaysia’s E&E exports, valued at MYR 34.11 billion in 2023.
Infrastructure and Land Expansion
The surge in industrial activity drove water demand between 2019 and 2023 to grow at a pace equivalent to a decade’s worth of normal growth. To meet this demand, the state government invested MYR 1.18 billion in three new water treatment plants and reservoirs.
Additionally, the large-scale Silicon Island reclamation project began in September 2023, with completion targeted for 2032. This project will create new land dedicated to future high-tech industries.
Reclaiming the Title of Silicon Valley of the East
Malaysia is currently the world’s sixth-largest semiconductor exporter, though the majority of its activities remain in backend processes such as assembly, testing, and packaging—holding a 13% share of the global market.
With over US$5.6 billion in government funding aimed at upgrading the industry to front-end manufacturing—including wafer fabrication, IC design, advanced testing, and high-level packaging—Penang is well positioned to lead this transition.
Coupled with the “China Plus One” trend, where companies diversify production away from China, Penang’s strategic position as a high-tech manufacturing hub in the region is stronger than ever.
