GEORGE TOWN, Oct 25 — Penang may be called the Silicon Valley of Malaysia, but these days this may very well refer to breast implants rather than computer chips.
Once reliant on its electronics and electrical (E&E) manufacturing sector, the northern has since diversified into other fields especially the services sector that includes both traditional tourism and the nascent medical tourism sector
“Our tourism industry has contributed towards the state’s economy as visitors to Penang have increased from about 131,000 a month in 2007 to 198,000 a month in 2012 and 201,000 a month for the first quarter of 2013,” Penang Institute director Steven Sim said pointed out.
The weaker ringgit also attracts tourist spending from around the region and China, in particular.
The state’s medical tourism is also flourishing with a projected growth of 10 per cent annually.
In 2009, Penang contributed about 57 per cent or RM164 million to the country’s medical tourism industry, and in 2010, the figure increased to 66 per cent or RM218 million.
But that is the silver lining; the reality is that the state’s lynchpin E&E sector has slowed due to the weaker demand from abroad.
Sim admitted that that there was a downward trend in the state’s exports between 2009 and 2012 due to the subprime crisis in US and the euro zone crisis.
“The number of outgoing cargo from Penang fell 36.7 per cent to 6.2 million kg per month at the end of 2009 as compared to an average of 9.8 million kg of cargo per month in 2007,” he said.
The figures for the first quarter of this year showed a small increase where the cargo export averaged at about 7.8 million kg per month.
But another piece of good news is that manufacturers in the state have been bracing for the slowdown to be able to minimise the fallout.
According to Free Industrial Zone Penang Companies Association (Frepenca) president Heng Huck Lee, most of the E&E companies are still faring well.
“Many of our members projected a stable and improved quarter for the current and next quarters,” he said in an interview recently.
He also noted that there were no retrenchments while no Frepenca members have yet announced any voluntary separation schemes.
Another reason for the resilience was that many firms here are moving up the value chain and diversifying into segments with more demand.
“Our quarterly survey showed that up to 80 per cent of our members are increasing their investments in new product development and new technology,” he said.
“While manufacturing activities continue to form the core business of these companies, the ratio of high income jobs created is also increasing,” he added.
Many of these companies are becoming vital research and development (R&D) extensions to their respective headquarters other than branching out into other fast growing technology segments such as smart devices, LED and sensors.
“Manufacturing jobs may be reduced but since many are moving into new products and R&D that support the medical and automotive industries, the outlook remains very good for them especially in the generation of high income jobs,” he said.
These factories are weathering the downturn pretty well due to their solid core operations so the future outlook for these companies will remain stable.
“There is a general projection that there still should be a small percentage of growth next year, but in single digit only,” he said.
Other than the services sector, Sim said the state is now at a stage where it is attracting high value-added industries such as high-tech manufacturing and R & D in fields like medical devices, bio-technology, bio-pharmaceutical, sustainable energy and business process outsourcing.
Multinational companies such as Intel, Dell, Motorola and Citi Group have all based their global shared services in Penang.
Though the state still dependent on traditional E&E manufacturing, Sim said the state government has already started initiatives to encourage the local small-medium enterprises and industries (SME and SMI) to rethink their business models and strategies to meet the challenges ahead.
The state government had introduced initiatives such as SME Market Advisory, Resource and Traning Centre, SME Village, SME centres and Penang Research, Innovation and Science Module (PRISM) in recent years to encourage, promote and assist local SMEs.
Penang Institute economist Dr Lim Kim Hwa did not believe that Penang will face a similar situation as compared to the Asian Financial Crisis in the late 1990s, but risks remain.
“There may be similarities between the crisis now and then but the difference this time is that Asian countries today have a higher foreign exchange reserves and is a net creditor to the rest of the world and there is a better regulatory system now,” Dr Lim said.