Anas Alam Faizli Magna Est Veritas Prae Velabit – The Truth is Mighty and will always Prevail!
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Competitiveness is no longer about cost. It is about capability. It is about occupying the highest value segments of the supply chain.
For decades, Malaysia’s economic model was built on efficiency. We could produce at lower cost, deliver at speed, and integrate seamlessly into global supply chains. That model worked. It helped transform Malaysia into one of Asia’s most open economies, with trade exceeding 130% of GDP, and positioned the country as a key manufacturing hub.
But that model is now under strain.
Because cost advantage does not last. It moves from Japan to South Korea, from South Korea to China, and increasingly from China to Vietnam, India and beyond. And when it moves, so does production.
This is the reality of downstream industries. They follow cost, incentives and scale. They can be replicated, relocated and replaced. Once replaced, what will then be left of Malaysia aside from our depleting natural resources?
Malaysia now sits at that exact inflection point.
Malaysia remains deeply embedded in global manufacturing. Electrical and electronics exports reached approximately RM575 billion in 2023, accounting for more than 40% of total exports, while the country contributes an estimated 13% of global semiconductor assembly, testing and packaging activity. In the same year, Malaysia attracted about RM188 billion in approved investments, much of it concentrated in manufacturing.
These are significant achievements.
But they raise a more important question.
How much of that value do we actually capture, and how secure is it?
To understand this, consider the case of the iPhone.
A breakdown of value distribution from studies by the Asian Development Bank and reported by the Wall Street Journal shows that only a small fraction of an iPhone’s total value accrues to the country where final assembly takes place, typically estimated at less than 5%. The majority of value is captured by countries supplying high value components such as Japan, South Korea and Germany, as well as by the United States through design, intellectual property and brand ownership.
This reflects a broader structural reality. Studies by the Organisation for Economic Co operation and Development and the World Bank show that approximately 70% of value in global value chains is captured in upstream activities, including design, research and development, and advanced components.
Assembly is necessary.
But it is not where value accumulates.
This is the central challenge facing Malaysia.
For decades, global manufacturers were attracted to Malaysia by competitive labour, subsidised energy, tax incentives and a stable operating environment. These advantages helped build industries.
But they also come with a structural limitation.
The barriers to entry for assembly and mid value manufacturing are relatively low. Another country can offer lower wages. Another jurisdiction can provide more aggressive incentives. Another location can replicate production lines with increasing ease.
When that happens, production shifts.
And when production shifts, value leaves.
This is not a future risk. It is a pattern already observed across industries, from textiles to electronics, as manufacturing has moved progressively across geographies over the past four decades.
What remains, and what endures, are upstream capabilities. This must be a wake up call for every concerned Malaysian.
These are far harder to replicate. They require deep technical expertise, sustained R&D investment, integrated ecosystems, and long term capital commitment. This is why countries that control upstream segments retain strategic advantage, while those anchored in downstream activities remain exposed to constant displacement.
Malaysia’s industrial structure reflects this tension.
In semiconductors, Malaysia is a global leader in assembly and testing, yet remains limited in wafer fabrication, chip design and equipment manufacturing. Taiwan commands more than 60% of global foundry market share, while South Korea dominates memory chips through sustained upstream investment and R&D spending exceeding 4% of GDP.
In pharmaceuticals, Malaysia has built strength in generics manufacturing, yet upstream capabilities such as biologics and drug discovery remain limited. National R&D expenditure remains at approximately 1% of GDP, compared to 4% to 5% in South Korea and over 3% in Taiwan. In absolute terms, Malaysia’s R&D spending remains below USD10 billion annually, a fraction of the levels seen in major innovation economies. Meanwhile, Bangladesh has grown its pharmaceutical exports to over USD2 billion annually, supported by coordinated industrial policy and export strategy.
In renewable energy, Malaysia manufactures solar modules and components, yet upstream control lies in polysilicon, battery materials and energy storage technologies. China today produces more than 90% of global polysilicon, anchoring itself at the most strategic point of the solar value chain. Global clean energy investment exceeded USD1.7 trillion in 2023, according to the International Energy Agency, with a growing share concentrated in upstream technologies. Indonesia, recognising this shift, is positioning itself within the EV battery ecosystem through coordinated resource and industrial policy.
A similar pattern can be observed in the automotive sector. Malaysia has built strong national brands in Proton and Perodua, supported by decades of industrial policy and a domestic vendor ecosystem. Local content in selected models can exceed 40%, reflecting meaningful participation in manufacturing.
However, upstream capabilities remain limited. Core technologies such as engine platforms, advanced powertrains, automotive semiconductors, and precision machine tools are still largely sourced from global partners. As the global automotive industry transitions toward electric vehicles, software defined systems and battery technologies, with EV sales exceeding 10 million units globally in 2023, value is increasingly concentrated in areas where Malaysia has yet to establish strong footing.
Across sectors, the pattern is consistent.
Malaysia participates.
Malaysia assembles.
Malaysia produces.
At low value.
But Malaysia does not consistently capture or retain value.
And more importantly, much of what we do today can be replaced.
This is not due to a lack of capital. Malaysia’s major institutional investors, including the Employees Provident Fund, Khazanah Nasional, Permodalan Nasional Berhad and Kumpulan Wang Persaraan, collectively manage close to RM2 trillion in assets, broadly equivalent to the size of the economy.
Nor is it due to a lack of policy. Malaysia has introduced multiple strategic frameworks, including the New Industrial Master Plan 2030 and the National Energy Transition Roadmap.
The issue lies in alignment, clarity of direction and the willpower to act.
Capital is deployed within institutional mandates. Policy is designed within sectoral silos. Execution is distributed across multiple actors. Each part functions, but not always in a coordinated manner that builds cumulative upstream capability.
An analogy may help illustrate this.
Malaysia’s economy today operates like a highly efficient contractor that builds complex infrastructure for others. The projects are delivered on time, within cost, and to a high standard. The capability is real.
But ownership of the asset, the design, the intellectual property, and the long term revenue often sits elsewhere.
Over time, this creates a structural imbalance. We build, but we do not fully benefit from what is built. We participate in value chains, but we do not control them.
That is the difference between activity and ownership.
Countries that have successfully moved upstream did so deliberately. Singapore aligned capital, research institutions and industrial policy to build capabilities in advanced manufacturing and life sciences. Taiwan invested in bridging institutions that connected R&D to industry. South Korea coordinated policy, capital and corporate strategy to move into high value sectors.
They did not rely on cost.
They built capability.
Malaysia must now do the same.
Moving upstream requires deliberate choices. The country must identify where it can build defensible advantage and commit to these priorities over decades. It also requires alignment of capital. Even allocating 5% to 10% of Malaysia’s RM2 trillion capital base would unlock RM100 billion to RM200 billion in patient capital for strategic sectors.
At that scale, the constraint is not resources.
It is direction.
Equally important is the development of ecosystems. Upstream capability does not emerge from isolated projects. It requires deep linkages between universities, research institutions, industry and investors.
Ultimately, the question is not whether Malaysia can remain competitive.
The country has already demonstrated that it can.
The question is whether Malaysia is prepared to move beyond being an efficient participant in global value chains, and become a creator of them.
Because in the next phase of global competition, nations will not be defined by how well they assemble.
They will be defined by what they own.
And upstream is where ownership begins.
I have long believed that Malaysia has the capability to excel at this level. Not just to participate in global industries, but to shape them.
My hope is that we choose that path, to invest in capability, to build our own technologies, and to create industries that future generations of Malaysians will not just work in, but lead.
* This article first appeared on The Edge 27 April 2026
