Malaysia’s effort to take its chip industry upstream marks a key first step for the Southeast Asian nation in achieving its goal of becoming a highly industrialized nation, analysts said.

Southeast Asia’s third-largest economy will launch in July the largest integrated circuit (IC) design park in the region. Malaysian Prime Minister Anwar Ibrahim said on April 22 that the park will have world-class anchor tenants and collaborate with global companies such as the Cambridge-based Arm Holdings, one of the world’s biggest chip design firms.

Julia Goh Mei Ling, a senior economist at UOB Malaysia, said it is “very crucial” for Malaysia to move up the semiconductor industry value chain and develop “high-impact” sectors like IC design, wafer fabrication and digital technologies as they can contribute more to the nation’s GDP.

More important, Goh said this will help Malaysia achieve its goal of becoming an industrialized nation by 2030, which was envisioned in the country’s New Industrial Master Plan 2030.

“The establishment of IC design parks will not only boost the national income and create high-paying jobs, (it) will also enhance a resilient and sustainable electronics supply chain in the (Southeast Asian) region,” Goh told China Daily.

Chin Yew Sin, president of the Malaysia Strategy Research Center, a Kuala Lumpur-based think tank, said the semiconductor industry accounts for about 1.75 percent of Malaysia’s GDP. He estimated that this share would rise to more than 2 percent after the IC design park is established.

“Right now, our semiconductor industry is mainly based on OEM (Original Equipment Manufacturing). With the setting up of this IC Design Park, Malaysia will become (an) ODM (Original Design Manufacturing) player in the (global) semiconductor industry,” Chin said.

Geoffrey Williams, director of Williams Business Consultancy in Kuala Lumpur, said the park can create more business and job opportunities. However, Malaysia needs workers with more advanced coding and design skills to tap such opportunities.

Malaysia has long been a key player in the semiconductor industry, with the sector accounting for 7 percent of the nation’s total trade. But the country has been largely confined to the assembly, testing and packaging segments. They represent the lower end of the supply chain and thus have limited profitability, analysts said.

The ASEAN+3 Macroeconomic Research Office (AMRO) said a report last month that Malaysia “must quickly seize opportunities” in chip design to move up the semiconductor value chain as competition intensifies.

But the Singapore-based think tank said the design industry is knowledge-intensive and has high barriers to entry. AMRO said Malaysia can create a cluster of homegrown chip design houses through strong collaboration among industry players, government and academia to develop entrepreneurialism, innovation and talent.

The planned IC design park will be located in the western Malaysian state of Selangor. Companies located in the park will benefit from tax breaks, subsidies, free work visas, and other incentives.

Apart from promoting the park, the Malaysian government has also created the National Semiconductor Strategic Task Force in February and is currently formulating a Semiconductor Strategy Plan.

Goh of UOB said electrical and electronics products account for over 40 percent of Malaysia’s total exports in 2023 — which is higher compared to most Southeast Asian countries.

Moving up the semiconductor value chain through the establishment of the IC design parks will help maintain Malaysia’s position in the global semiconductor sector, she said.

Goh said the global semiconductor and electronics market is expected to double in size, reaching 5.4 trillion ringgit ($1.14 trillion) by 2030. She said this will give Malaysia’s semiconductor players more opportunities to increase their production and profit margin in new growth areas, and eventually lift the country’s GDP value.

Williams, the business consultant in Kuala Lumpur, said Malaysia has to also set its sights on industries which have bigger value-added opportunities, such as tourism and the micro and small businesses.

“The problem with the focus on expensive experiments such as this (park) is that the risk and return may not justify the investment and takes resources from low-cost but high income activities which can also be technology driven,” he said.