KUALA LUMPUR (April 8): The limited involvements of electrical and electronics (E&E) players in higher value-added tasks such as research and development (R&D) and design may impact Malaysia's competitiveness in the global value chain, said RHB Investment Bank's (RHB IB) research team.

In a global economics and market strategy note on Monday, the research house highlighted that most E&E players in Malaysia are currently focused on back-end activities such as assembly, testing, and packaging.

To enhance competitiveness in the global market, RHB IB stressed the need for Malaysian E&E firms and exporters to embrace technology and innovation.

"While there are limited R&D and design activities in Malaysia's E&E sector, there is also potential for higher development and adoption of these capabilities in the next decade.

"The ability to adapt and adopt new technologies will significantly impact Malaysia's E&E competitiveness in the global value chain, especially in areas like semiconductor manufacturing, advanced electronics (such as artificial intelligence), medical and pharmaceutical-related, and renewable energy technologies," the research house said.

Underlining that the manufacturing sector will be Malaysia’s key engine of growth in the coming decade, RHB IB also identified key areas for growth beyond developing supply chain capabilities and adopting digital technologies.

Commenting on the government's efforts to attract foreign direct investment (FDI) across manufacturing, services, and technology sectors by offering incentives like tax breaks and streamlined regulations, RHB IB noted that this has led to Malaysia's FDI inflows as a percentage of nominal gross domestic product (GDP) broadly surpassing those of Southeast Asia emerging markets, indicating its perceived growth potential among international investors.

"The path towards developing high-value segments in the next decade would then suggest Malaysia's increased FDI inflows towards levels seen in East Asia developed markets, currently at around 15% to 20% of GDP, against Malaysia's 4.2% of GDP as of 2022," the research house said.

Furthermore, RHB IB emphasised the importance of supporting small and medium enterprises, which account for 98.5% of business establishments in Malaysia. Additionally, upskilling and reskilling the workforce were deemed essential to driving the adoption of new technologies and optimising automation systems in the E&E sector.