Penang’s state chief wants to foster an “ecosystem for innovation” as supply chains shift.

Long known as a “Silicon Island” for its manufacturing prowess, the northern Malaysian state of Penang is now sharpening its focus in an effort to dominate high-value technology sectors, including semiconductors and medical equipment, as global supply chain shifts create new opportunities.

The local government recently unveiled its “Silicon Design @5km+” initiative to position Penang as a global hub for integrated circuit (IC) design and digital innovation. The state hopes to create an ecosystem within a five-kilometer-plus radius of its Bayan Lepas Free Industrial Zone.

The centerpiece of the initiative is the Penang IC Design and Digital Park. Launched on December 7, the new industrial park features over 1 million square feet of office space tailored for IC design, R&D, and digital tech investments.

“This initiative is more than just infrastructure. It’s about fostering a thriving ecosystem for innovation,” said Penang chief miniser Chow Kon Yeow in an interview with Nikkei Asia. He added that the initiative serves as a platform to support integrated chip design and digital technology companies, offering the resources they need.

As geopolitical tensions between the US and China escalate, Penang has emerged as a neutral ground, benefiting from the global trend of supply chain diversification and attracting investments from both US and Chinese semiconductor makers.

“The US+1, China+1, and Taiwan+1 policies have positioned Penang as a sweet spot for semiconductor investments,” Chow said. He also pointed out that rising demand for electric vehicles and digitization have fueled the semiconductor industry’s growth, noting that the global semiconductor market is forecast to top USD 1 trillion by 2030.

Malaysia accounts for 13% of the world market for chip packaging, assembly, and testing, according to the Malaysian Investment Development Authority (MIDA).

Penang’s semiconductor journey began in the 1970s with the arrival of multinational giants such as Intel, Bosch, and Hewlett-Packard. Today, Penang supplies more than half of Malaysia’s electrical and electronics exports, Chow said. The state has shifted its focus from assembly and testing in recent years.

From the back end of semiconductor manufacturing to more advanced activities like IC design and packaging, Penang has hosted more than 350 multinational companies and over 4,000 small and medium enterprises to date in the semiconductor-related industry alone. “Despite its petite stature, Penang encompasses almost the entire IC value chain,” Chow said.

Penang is among Malaysia’s top investment destinations, along with Kuala Lumpur, Selangor, near the capital, and the southern state of Johor, according to MIDA.

Penang’s ambitions extend beyond semiconductors. The state is eyeing medical technology as its next frontier, leveraging its network of multinational companies and local SMEs. “We’re pivoting towards medical diagnostics, internet-of-things-driven healthcare solutions, and precision treatment technologies,” Chow said.

Global leaders like America’s Abbott and Boston Scientific anchor Penang’s medical tech ecosystem, while Dexcom’s MYR 2.83 billion (USD 634 million) facility in Penang’s Batu Kawan region underscores its growth potential. Opened on November 12, the plant is the company’s first site outside the US, solidifying Penang’s position as a rising hub for cutting-edge medical technology investment.

Many electronics manufacturing services providers in Penang also have medical businesses. These include Plexus, which has one plant dedicated to medical products, Pentax Medical, Japan Lifeline, and Canon Medical Systems.

“Semiconductors have always been our biggest stronghold. Over the last ten years, we’ve also been promoting medical technology and medical devices. That has become a strong feature for us, specifically, they (multinationals) focus on orthopedic implants and cutting-edge cardiovascular production. So, that’s one strategy for us to diversify,” said Loo Lee Lian, CEO of InvestPenang.

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