Malaysia is a high-middle-income country. On the other hand, Nichia is a mid-sized non-listed Japanese company. Why is there a comparison between them? What is the lesson to draw? The parallel is that both of them wanted to enter into the High-tech industry, and they did. However, this is a high disparity in their approach. Moreover, it clarifies the sharp dissimilarity between the approaches taken by advanced industrial and developing countries. It also explains the underlying cause of growth traps facing developing countries. Hence, it’s worth investigating the contrast between Malaysia’s labor and Nichia’s idea for the high-tech industry.
Malaysia’s entry into the high-tech industry is a Government led approach. As opposed to adding value through ideas, the focus has been on developing infrastructure and providing incentives for selling labor to multinational companies. In contrary to it, aspiring Nichia was a small private company in the 1960s. As opposed to labor and infrastructure advantage, it created the entry and emerged as the global leader in LED lighting through scientific discovery and ideas.
Review of Malaysia’s journey of high-tech
As far as export revenue is concerned, Malaysia is a shinning high-tech star in South Asia. Its export has grown to over $90 b billion over the last 50 years. The journey started in the late 1960s with the initiative of the Chief Minister of Penang. To arrest growing unemployment reaching 17 percent, Penang declared the 1,400-acre (5.7 km2) Bayan Lepas Free Industrial Zone. Chief Minister Lim Chong EU led this initiative for leveraging the global electronics sector to absorb the state’s excess semi-skilled workforce.
To tap into the high-tech electronics industry, Malaysia pursued a three-pronged strategy. It began with the liberalization of import-export tax by declaring free trade zone (FTZ). FTZ is basically a geographic area where goods may be landed, stored, handled, manufactured, or reconfigured and re-exported under specific customs regulations and generally not subject to customs duty. It was followed by physical infrastructure development, comprising of purpose-built industrial land having well-developed roads, power supply, telecom facilities, and airports. The next one was to offer skill development training to make the workforce suitable for targeted, productive activities.
Malaysia’s entry as a labor service provider to foreign firms
To get the advantage of low-cost labor, multinational firms started showing interest in Malaysia’s such offerings. Intel was among the anchor investors. In 1972, Andy Grove led a delegation to visit the factory site at Penang. On the way of visiting the factory being built in the paddy field, he found his car caught in the muddy road. Subsequently, he and his team walked to the site. Within a short period, Intel’s $1.6 million factory came into operation. Intel’s journey in Malaysia started in sourcing low-cost labor for bonding silicon chips. The young Malaysian workforce started looking through a high-definition microscope to align fine wire with junction points of Silicon chips and establish connections by pressing a button for projecting ultrasonic energy.
Scaling up the initial entry
Upon following the footstep of Intel, other multinationals started showing up. To make Malaysia welcoming to global high-tech firms for sourcing labor, Government and private initiatives started turning paddy fields into well-developed industrial zones. Other facilities, including roads and airports, also drew attention. Over the last 60 years, as far as infrastructure is concerned, Malaysia did a wonderful job. Moreover, Penang’s success was replicated in other parts of the country, turning Penang’s contribution to 22% of Malaysia’s total high-tech export outputs.
Over the last 50 years, Malaysia observed the growth of its high-tech sector. The growth is reflected in both the number of multinationals and the expansion of their footprints. Among the 300 multinationals sourcing labor from Malaysia, there are reputed names like Intel, AMD, Hewlett-Packard, Clarion, National Semiconductor, Hitachi, Osram, and Bosch. Many of them have also expanded their initial investment by many folds. For example, Intel has scaled up an initial investment of $1.6 million to over $4 billion. Intel’s seven factories now employ 9,000 workers.
Scaling-up in the value chain
Although Malaysia witnessed a significant expansion of its high-tech sector, the nature of value addition has not changed. To date, multinationals are sourcing labor to perform tedious jobs of semiconductor bonding, testing, component assembling, and end-user level product assembling. During this half-century-long journey, Malaysia has not succeeded in developing any home-grown high-tech multinational. Moreover, Malaysia could not figure out how to empower its workforce to produce ideas instead of offering labor to multinationals. Still, to date, Malaysia is a labor supplier to the global value chain of the high-tech industry. Such failure of graduation from labor to idea supplier is also a major cause for Malaysia being caught into the middle-income trap.
Review of Japan’s Nichia sheds light on Malaysia’s labor and Nichia’s Idea for high-tech
Nichia started its journey in 1956, as a fine chemical producer. In the 1960s, it was in the business of producing phosphor materials. Fluorescent light bulb and cathode ray tube producers were using Nichia’s phosphor to create thin layers on the inner side of glass tubes. However, in the 1970s, Nichia predicted the evaporation of the market of phosphor. The emergence of LED lighting and LCD display screen would make phosphor material irrelevant to the lighting and display makers. Hence, instead of being disrupted by the uprising of substitution around emerging technology core, Nichia decided to enter into the LED lighting industry.
Unlike Malaysia’s labor-centric making strategy, Nichia wanted to enter into this industry through knowledge and ideas. However, the LED was in a primitive form in the 1970s, even after 10 years of its commercial production, as indicator lamps, in 1968. The issue was in the difficulty to produce a perfect blue LED. Therefore, white light was not a feasible option out of LED. However, Nichia set an eye on overcoming this barrier for entering into LED lighting industry. It started sponsoring R&D by recruiting Shuji Nakamura. It was Mr. Nakamura’s first job after graduation from the University of Tokushima in 1979 with an M.Eng degree in electronic engineering. Subsequently, his research led to the discovery of scientific principles for inventing high-precision blue LED. Finally, in 1993, Nichia demonstrated perfect white light emitting from the LED.
Along with acquiring patents of this invention, Nichia also acquired patents from outside to secure its entry and strong position in the LED lighting industry. Nichia’s this entry strategy out of scientific discovery and invention led to Mr. Nakamura’s winning of the Nobel Prize in 2014.
The emergence of new entrant Nichia as the world’s best and largest player in the LED lighting industry
In the 2010s, 20 percent of global energy consumption was for lighting. It’s predicted that the replacement of energy-hungry incandescent and fluorescent, by highly energy-efficient LED, will lower lighting energy consumption as low as 4 percent. On the other hand, “LED lamps last 10 times longer than fluorescent bulbs and 100 times longer than traditional incandescent tungsten filament bulbs.” General Electric, one of the biggest players, “forecasts that LEDs will account for about 70 percent of a $100 billion market by 2020.” Along the way, Nichia has emerged as the leader because of its advantages in manufacturing technology, patents, and brand names. Apart from maintaining a large market share in the backlight market, Nichia has also been very active in the high-class automotive lighting market. At the end of 2016, Nichia ranked top-revenue packaged LED supplier, with 12.9% market share, followed by Osram and Lumileds.
Malaysia’s labor and Nichia’s Idea for high-tech–worth taking a lesson
This comparative analysis between Malaysia and Nichia’s entry and growth strategy in the high-tech industry offers a valuable lesson about the development of the industrial economy. Natural resources, labor, infrastructure, and ideas are major production inputs to economic value creation. In developing countries, industrial economic development is invariably led by the Government. Governments develop infrastructure and offer incentives to commercialize labor and natural resources by adding value to imported ideas. Both multinationals and their local firms are after taking advantage of it. Hence, after the journey of 50 years, Malaysia is still adding value to high-tech products through labor. There has been no progress to upgrade to add value through knowledge and ideas.
On the other hand, in addition to Governments, individual and private firms take a different route in advanced countries. In addition to labor and natural resources, they focus on creating the entry and expanding the footprints by discovering knowledge, the invention of technologies, and generating design ideas. Nichia is no exception in Japan. There are many other companies like it. Moreover, individual Japanese pursued the relentless journey of perfection by linking their Craftsmanship-based tinkering to scientific discovery-based invention and Innovation for creating high-tech success stories. Hence, it’s worth investing in Malaysia’s labor and Nichia’s Idea for a high-tech entry and growth strategy.
