InvestPenang on the Past, Present and Future of Penang’s Industrialisation

By Beh May Ting

August 2022 FEATURE
main image
Advertisement

IN CONJUNCTION WITH the 50th anniversary of Penang’s industrialisation, the State, supported by InvestPenang and Penang Development Corporation (PDC) is hosting a year-long event around 13 focused themes to demonstrate Penang’s successful transformation and forward-looking plans. Dr Beh May Ting of Penang Institute spoke to Dato’ Seri Lee Kah Choon, Special Investment Advisor to the Chief Minister of Penang and Dato’ Loo Lee Lian, Chief Executive Officer of InvestPenang, to discuss the State’s investment trends in the past and present and the economic outlook for Penang in the coming years.

BMT: It has been half a century since Penang industrialised its economy, how has the investment trend in the state evolved over the years?

LKC: 50 years ago, we started off with import substitution. In 1969, there was a change of government and Penang’s free port status was revoked. As a result, the state faced high unemployment. Thankfully, the British had left Penang with an excellent education system where proficiency in Mathematics, Science and languages was very well-entrenched. This attracted the Eight Pioneers[1], who felt that Penang was a good place for them to source talent to support their ventures into this part of the world, to invest here.

Over time, we progressed from labour-intensive manufacturing to knowledge-based manufacturing. As we helped the companies to grow, the companies too continuously trained our people. The spillover effect created a strong, technology-savvy talent pool in Penang which then drew even more new companies to Penang. Those were from 1972 to the 1990s. In the early years, the Vietnam War was still ongoing and so Malaysia and Penang were an oasis in terms of stability for investors.

In 1997, Hong Kong was returned to the Chinese government and Deng Xiaoping opened up the Chinese market to the international community. This triggered an expansion of businesses in China and many companies in Penang such as Intel and Motorola began looking for new opportunities to move into China. The talent pool in Penang, who have been trained over the years, were chosen to spearhead the MNCs’ new plants in the Chinese market. That was another surge of exposure for the Penang talent pool that was beneficial not only in terms of knowledge but also contacts and human resource.

Now, as we enter the Industry 4.0 phase, technology is converging at a higher level. For example, just five to 10 years ago, we relied on many single-purpose gadgets such as cameras, tape recorders and phones but now, all these are combined into one device in a smartphone. Pretty soon, it is highly likely that mobile phones will be taken over by something totally new. All this is possible because the fundamental platform in Penang’s industrialisation is in electronics.

Dato’ Seri Lee Kah Choon, Special Investment Advisor to the Chief Minister of Penang.

BMT: In recent years, especially in the last two years with the pandemic, what sort of structural changes and evolution have occurred in the business ecosystem? How have these changes affected Penang?

LKC: As far as Penang and the convergence of technologies are concerned, the demand has never waned, even throughout the pandemic. If anything, the pandemic accelerated technological adoption and saw increased demand. People working from home and having virtual meetings have become a way of life now.

BMT: Penang has a stellar reputation of manufacturing excellence in the last 50 years. How does InvestPenang plan to help maintain this stature in the coming years?

LKC: It is a joint effort from many parties.

There are two main challenges that Penang faces in its manufacturing industry which affect its industrial independence and way forward. First of all, as a manufacturing centre, Penang has a very small area of land and a relatively small population. For instance, compared to Singapore, although we have roughly the same land size, we have a much smaller population. Compared to Hong Kong too, while our land area may be bigger, Hong Kong has a much denser population. I am comparing these three places because we share similar historical and economic backgrounds – all three cities started with trade and although Hong Kong has gone into finance while Singapore and Penang are focused on manufacturing, we all have thriving business and service sectors as well.

Secondly, we are dependent and constrained by federal policies.

That said, compared to Singapore, we have a bigger talent pool to tap into if we look at Malaysia as a whole, and a larger hinterland. Penang is also well-connected to the international ecosystem. With our advantages, we should be looking beyond Malaysia and at Southeast Asia as our hinterland. With that, as well as our constraints and opportunities in mind, our plan forward will be to maintain and expand our global presence as well as enhance and solidify Penang’s position in the E&E sector.

BMT: What are InvestPenang’s long-term plans and how will these coincide with the strategic targets in Penang2030?

LKC: Penang2030 is about family, environmental sustainability and economic wellbeing. When we started our industrialisation journey 50 years ago, we were pushed into it because of mass unemployment. We were economically dislocated when we transitioned from a trading-based economy into the wilderness of manufacturing; we were just groping in the dark.

Luckily, it worked out for us and we have continued striving in this direction ever since. The state economy is an important component of the Penang2030 vision; it is closely related to the ability to live well and in a good environment, as well as to be financially sound. Of course, we must also ensure that in our pursuit for affluence the environment is protected. Quality of life is key. Penang is lucky that electronics is a relatively clean industry compared to others.

---

BMT: Since the establishment of InvestPenang in 2004, what are some of its most notable impacts, and which are you most proud of?

LLL: Helping the industry to move up the value chain and diversifying into other industries. The E&E sector has always been the main draw in Penang, so we focused our efforts into diversifying into equipment and front-end manufacturing in the medical technology industry. Of course, the work also involved a lot of strategising, planning and facilitating.

We have also added other divisions and developed various initiatives in InvestPenang such as SMART Penang Centre (providing assistance to SMEs) and Penang CAT Centre (for talent attraction and retention). In 2015, we started @CAT to spearhead and develop Penang’s tech start-up and entrepreneurship ecosystem.  We are always moving into new frontiers by looking at what the latest technologies are and bringing those investments into Penang.

Personally, our proudest achievement is facilitating in the development of Batu Kawan. When we started 10 years ago, Batu Kawan was completely vacant but today we have about 160 companies, many of which are top-notch companies. Our strategies are clear: we proactively target specific companies that will take Penang to future technologies and create high-value, high-income jobs. These companies and their products go through very rigorous evaluation criteria and they are all carefully curated. We also know very clearly what not to bring in.

Dato’ Loo Lee Lian, Chief Executive Officer of InvestPenang.

BMT: Penang experienced steady gross domestic product (GDP) growth and stellar performance in terms of investments despite challenges posed by the pandemic. How did InvestPenang manage this impressive achievement?

LLL: For every project that we bring in, we go through a very thorough due diligence process to ensure that the products and projects we bring in are all very resilient to any economic downturn. If we had brought in companies that are very cost-sensitive, once costs go up and the company is not able to maintain its operations or productivity, they fail. For example, the med-tech industries have about 80% gross profit margin, so even during the pandemic, the companies did well. We reject projects that produce low-end products, are low value and have too much labour content.

BMT: What are some of the short-term plans that InvestPenang has for both domestic direct investments (DDI) and foreign direct investments (FDI) in Penang coming out of the pandemic?

LLL: We want to grow the state’s talent pool. Our strategy is to attract 150,000 talents in 5 years and to increase the number of STEM talents in the state.

BMT: InvestPenang’s initiatives such as the SMART Penang Centre (aiding SMEs), Penang CAT Centre (for talent attraction and retention) and i4.0 seed fund (a catalyst for early-stage tech start-ups) provide well-rounded attention for different stakeholders in the business ecosystem. What are your thoughts on the uptake of these initiatives and how effective have they been?

LLL: We are doing our best but a lot of it depends on federal policies. What we are doing at the state-level is just scratching the surface. For the talent initiative to be very successful, changes must be made to federal policies. For example, we have been urging the Ministry of Education to increase university intakes for engineering faculties as there is a huge talent gap in engineering.

We also consistently give feedback to the federal government to relax visa policies for skilled talents, such as integrated circuit design software engineers, because we need to have them come in to train local talents. We try our best and we are successful to a certain degree but to make a big impact nationally, national policy changes are required.

BMT: Being at the helm of InvestPenang, what would you like to see InvestPenang achieve in the long term (in the coming 25 years)?

LLL: For any state agency, not just InvestPenang, we must continue to be pro-business and maintain our relationship with our investors. We hope to be able to continue our role in giving feedback and advising the State on industrial policies. State industrial policies are paramount to decide what kinds of jobs and GDP performance the state achieves. It should be apolitical and serve the government of the state while being courageous and strategic in making certain stands, even if some decisions may not be popular at that point of time. Therefore, I hope that we continue to be courageous, to have the foresight to make the best decisions for the state and to keep a firm understanding of global trends.

Footnote:

[1] Intel, Hewlett-Packard (now Keysight Technologies and Agilent Technologies), Robert Bosch, AMD, Litronix (now ams OSRAM), Hitachi (now Renesas), Clarion and National Semiconductor (no longer present in Penang following a corporate M&A exercise).

Beh May Ting

is an urban anthropologist and a senior analyst in Penang Institute. She draws professional and personal inspirations from the finer things in life.


`