State of Penang, Malaysia

State of Penang, Malaysia

2 – ASSESSMENT AND RECOMMENDATIONS

Assessment and recommendations

Penang: Moving up the value chain

With a population of 1.77 million Penang is the leader in manufacturing activities and the growth centre for northern Malaysia. In 2007, 200 multinational corporations had large scale operations in Penang, making it the second growth centre in Malaysia, after the Klang valley. Manufacturing of electrical and electronic (E&E) goods have generated a dynamism for the last 25 years, keeping Penang’s GDP growth ahead of the national average, above 7% between 1970 and 2005. The major contributors to Penang’s growth rates are E&E manufacturing and services, such as utilities, telecommunications and tourism. Penang is an international tourist destination famous for its historic and scenic attractions and its diverse cultures with the Malay, Chinese and Indians constituting the major ethnic groups. Penang’s advantageous low cost and low wage scenario has been highly successful in its strategy to maximise opportunities in the global manufacturing chain. Since the adoption of export-oriented strategies, Penang has been exporting consumer products targeted at advanced economies. But the regional economy is at a crossroads: Penang is no longer a high growth economy and a low cost centre. Following the current economic crisis, Malaysia’s traditional market will wane as consumers in the advanced economies are not able to consume as much as they used to. China, India, Indonesia and Vietnam produce cheaper consumer goods than Malaysia, having paved the way to frugal innovation. Penang’s economic sustainability is threatened not only by low-cost countries but also highlyskilled countries with research and design capabilities in the region – Singapore and Taiwan. Multinational corporations have started moving

away, their independence from the local economy giving them the flexibility to move to locations with lower costs. Both federal and state...