US-China trade war: A wafer-thin opportunity for Malaysian E&E players

• E&E industry needs to take advantage of shifting demands now, says panel.
• “I don’t see Penang or Malaysia doing enough”

AEMULUS chief executive officer Ng Sang Beng, envisages a marketing campaign for the E&E industry in Malaysia, similar to what Visit Malaysia year was for tourism.

He would like to see the government play a bigger role in promoting Malaysia's long-standing semiconductor industry compared to what is happening now.

"(We) spend like two hundred thousand just to do a roadshow," said Ng, "but Matrade is probably giving us two flight tickets, accommodation for three or four days... that's about it."

Meanwhile, Broadcom Global Operations senior vice president Ooi Boon Chye, also lamented the lack of dialogue between the government and industry in this matter. "I'm unfortunately a little unhappy that the state hasn't really done anything to understand this situation or to really take advantage of it."

Both these comments were made at a recent panel at the recent CREST Open Day forum in Penang titled, "Trade War Forum: How Does Industry Adapt and Capitalise" that discussed opportunities arising from the US-China dispute.

"The war has already started," said Ng. Aemulus, which designs and assembles automated test and measurement instruments, saw their FY19/18 gross profits falling 7.1% on-year due to lower sales in the Malaysia and China markets, as customers reacted with caution to the trade war between the US and China.

Ooi elaborated, adding that "worldwide demand will soften maybe for six to 12 months, primarily because the supply base is shifting". However, he also acknowledged that this probably will only be in the short-term. “Given time, other companies are going to come in and pick up the slack."

“I don’t see Penang or Malaysia doing enough”

There is a window of opportunity. According to Nomura Research, Malaysia is poised to be the fourth biggest beneficiary of trade diversion as a result of the US-China trade war. "American (E&E) equipment makers are not allowed to sell or they are not allowed to renew their licenses in China," confirmed Ng. "That actually has opened up an opportunity",

Being a neutral party in the trade wars provides opportunities. "Malaysia sitting in the middle, we should actually lobby both sides," stressed Ooi. "On one hand we try to tell the Americans that if you were in China, now come to Malaysia," he said, "For the Chinese, say that now you're being banned, we can supply to you!"

But the panel cautioned that as far as the E&E industry is concerned, this opportunity will not just conveniently wash up on local shores. Instead the industry needs to step up to take the initiative.

"I don't see Penang or Malaysia doing enough," warned Ooi. As an example, he talks about going to Hanoi and seeing "millions of square feet" of production space currently being built there. "I really haven't seen the size of investment that says we are capturing what is happening."

Ooi sees other issues on the ground. "(Firstly), there's not enough direct labour, and the fact that the government does not want to approve foreign workers will set us back dramatically," he said. "Number two, we're not deep enough in our (E&E) supply chain."

When asked whether cheap labour in other countries undercuts Malaysia's competitiveness, Ooi disagreed flat out. "Malaysia is very cost competitive," he insisted, adding the country has an edge in this area over Thailand and the Philippines.

In addition, while acknowledging that countries like Vietnam are cheaper, he opined, "Vietnam has a lot of people, but we have a lot of brains", referring to decades of experience in the semiconductor industry

A short-term issue with a short-term opportunity

These are advantages that Ng believes gives Malaysian E&E companies good reason to promote themselves. "We should actually look at increasing the marketing activities, double up, triple up," enthused Ng.

"By end of July we will do a roadshow of our products in Shanghai and will invite all the semiconductor companies (there), saying (we can be) a replacement for American companies."

Nevertheless, time is of the essence, especially given the term limits imposed on US presidents, and consequently, its stance on trade disputes. "This is a really a short-term thing to address short-term issues," reminded Ng, which presses the need for the E&E industry to move quickly now.

"Who knows?" agreed Ooi. "Maybe this will blow over in a couple of months." – and then, the opportunity will be lost.