A New Dawn For Penang's Industrial Parks?

The Bayan Lepas Industrial Park.

The story of Penang’s industrial parks began in the 1970s, when then-Chief Minister Tun Dr Lim Chong Eu embarked on a journey to develop an export-oriented manufacturing sector and a re-zoning of industries. This gave birth to Penang’s first FTZ (Free Trade Zone) industrial park.

The idea to shift to an export-oriented manufacturing economy by developing industrial parks was, at that time, absolutely visionary. It reflected a deep understanding of industrial developments, trends of economic growth and an accurate needs assessment of what had to be done.

The provision of vast swaths of land plots in specially gazetted areas and tariff exemptions for importing materials and exporting finished goods met the needs of the global offshore movement of production stages to low-wage nations that gave rise to global manufacturing giants.1

(From left) Keith Thomson; Tun Dr Lim Chong Eu, then chief minister of Penang; Andy Grove, who later became president and CEO of Intel; and Lou Ross, who served as CEO of Intel Malaysia; at a meeting in Penang in 1972.

Today, the six main industrial parks in Penang constitute a thriving ecosystem of firms that make up various clusters.

Many early entrants have evolved out of their function as mere low-wage offshore production facilities to become critical operational nodes by providing higher value services.

Motorola Solutions in Penang is one example of this. First establishing its manufacturing operations here in 1974, Motorola’s Innoplex at the Bayan Lepas Industrial Park (BLIP) today is home to its largest R&D centre, and it also boasts the highest number of patents awarded outside of North America, at 22 patents in 2018.

Equally notable is the success of Penang-born firms, some of which have grown to become public-listed companies and, in their own right, claimed their position in the global value chain. The likes of Pentamaster, Mi Equipment, Vitrox and Greatech come to mind.

Their success translates into dollars and cents for the state: in 2017 the manufacturing sector contributed RM34.7bil to Penang’s economy. Investment figures of late record that Penang received RM8.85bil in approved manufacturing investment in the first quarter of this year, representing 35% of Malaysia’s total approved manufacturing investments. These figures reaffirm that industrial parks are really the economic engine of Penang.

Changing Landscape

Dato Loo Lee Lian.

At the same time, we are in the thick of the digital era, where the co-mingling of technologies, cross-industry diversity and collaboration between actors make up the new frontier of innovation.

How then do Penang’s industrial parks fare in this shift?

“Penang’s industrial parks will evolve to meet the demands of the day for technology, market and human resource,” says Dato’ Loo Lee Lian, CEO of investPenang, the state’s investment promotion arm. “They will bear different characteristics in 20 years, what with manufacturing facilities increasingly adopting Industry 4.0, AI and robotics (lights out production) and requiring fewer workers.”

This is pertinent as we witness a new wave of millennial workers, who encompass 40-50% of Malaysian employees; alongside jobs that didn’t exist 10 years ago, such as app developers, cloud computing specialists and big data analysts. These in turn drive demand for holistic workplaces, or “innovation districts” – areas where “leading-edge anchor institutions and companies cluster and connect with start-ups, business incubators and accelerators.”2

Innovation districts present in the form of spatial-design, a tangible interpretation of digital era mega-trends. But more importantly, they serve as a systematic conceptualisation of ideas that many can describe intuitively but find difficult to articulate in an organised manner.

Taking inspiration from innovation districts, industrial parks can be reimagined to be compact and densely populated by varied economic actors, and purpose-built to be people-centric.

Will behemoth-sized factories still be necessary when robots replace humans; or will they be rescaled to move with the times?

Michel Van Crombrugge, chairman of the Malaysian International Chamber of Commerce and Industry (MICCI) Penang and the North Branch, emphasises the importance of the accessibility of our industrial parks and their closeness to residential areas: “The people who work there also live there to reduce commuting time.”

Chu Jenn Weng, president and CEO of ViTrox, on the other hand envisions industrial parks as undergirded by networks of collaboration and an openness for exchange and sharing – what he terms as the “humanity and entrepreneurial spirit” of an industrial park.

So just how relevant are our industrial parks in the face of innovation districts? There seems to be a growing acceptance for companies to scale down their manufacturing operations in order to move up the value chain in line with value being shifted towards knowledge and innovation. This is also reflective of the competition among developed nations to attract segments and portions of the manufacturing industry that are primarily research intensive.

GBS@Mayang, a global business centre, in Bayan Baru.

Even within manufacturing activities themselves, technology applications are creating newer and nimbler production lines and processes. Increasingly recognised as advanced manufacturing, this new form of manufacturing method is also characterised as being higher in value and driven by cuttingedge technology. Will behemoth-sized factories still be necessary when robots replace humans; or will they be re-scaled to move with the times?

“You still need spaces, depending on the technology,” Loo reveals.

On top of that, Loo reiterates that the manufacturing ecosystem is still important in attracting high-end R&D investments. “In many aspects, you still need manufacturing to draw in and retain the design and innovation areas of the industry. When we have the ecosystem, talents and assets – and when we maintain and build on those – the manufacturers are more likely to keep their operations here. Design is mobile – investors can easily move to more productive and costeffective sites, but they are less wont to do so when they have set up a manufacturing base here,” she says.

Sandbox

While manufacturing activities and the manufacturing industry in general do exhibit traits of sprawl and seclusion, the concept of innovation districts cannot be disregarded. The next question is: Does our ecosystem have what it takes to materialise such a concept?

Existing prototypes can be seen from our business parks, such as the Bayan Baru Business Innovation District located within the vicinity of BLIP. They are located a stone’s throw from the typical facilities sought after by the millennial cohort: housing, eateries, cafes, banks, recreational facilities, public transport, medical facilities, etc.

Plans are also underway to build an innovation park – the equivalent of a business park – at Phase IV of BLIP, which will be equipped with eateries and commercial services. It is to be a collaboration between investPenang, the Penang Development Corporation (PDC) and the Penang Island City Council; and the private sector as well, where running the F&B and other amenities are concerned. A request for proposal has been given, and work should start within the next 12 months.

Southside of the mainland, an integrated satellite city has emerged, replete with the Batu Kawan Industrial Park, adjacent business parks, existing and upcoming housing developments, medical and educational facilities, commercial activities and shopping malls. “We are going to make it a place where people can live, work and play,” says Loo, adding that additional public transport facilities for the area is also in the works.

Whether it can be classified as a full innovation district remains yet to be seen, but it does appear that way on paper.

Addressing the Elephants in the Room

The Motorola Innoplex at Bayan Lepas is home to its largest R&D centre worldwide.

As Batu Kawan island takes shape, there are pressing issues to be addressed in the older industrial parks. Traffic, for one, is a perennial problem.

Interestingly, traffic congestion does not occur within the industrial parks but rather around the vicinity during rush hour when the arterial roads are choke-filled with cars. Parking remains an issue in Phase III of BLIP, while massive 14-wheeler trucks ply the road next to pedestrians.

It’s a consequence of the success the companies enjoy – as business grew, so did the size of their factories and headcount. And with bigger buildings, more people and more cars, the inevitable happens.

“We now have the flyover and highways, which have helped,” observes Loo. This is on top of the Bridge Express Shuttle Transit (BEST), the country’s first park and ride service, introduced by the state government in 2011. It brings commuters from Bandar Sunway, Bandar Perda and Auto City Juru to the Bayan Lepas industrial zone.

The 12 Waves warehouse at Batu Kawan.

“I think that the companies themselves, working with the state, have tried to initiate more park-and-ride alternatives, but these haven’t been sustainable. And because most of the companies have done exceedingly well, whatever free space they have has been converted into productive space. So yes, they have parking issues as well, but we are trying to help them find solutions and make good of whatever land there is – where Motorola is, we have spruced up nearby land next to the river to turn it into parking bays. But because it’s already a built-up area, there’s not much we can do, and that’s where the Penang Transport Master Plan would help. Apart from that, whatever solution that we provide is quite transitionary.”

In order to embrace elements found in innovation districts, there may be a need to review legislation, particularly those that relate to zoning, industrial standards and land use. These however involve multiple government agencies and possibly the direct involvement of politicians from both the state and federal levels.

ViTrox Campus 2.0 at Batu Kawan. Vitrox is among three Malaysian companies that got into the 2019 Forbes Asia's Best Under A Billion list.

Dato Mohd Bazid Abd Kahar, general manager of PDC, shares how PDC is constrained within this larger ecosystem: “We wanted to review some of our procedures and processes on land ownership, but the data we needed is collected by another agency; and [coincidentally], they don’t have this processed data.”

This in turn is reflective of another systemic constraint faced by the agencies. PDC in particular has to contend with issues of legacy: plans to rejuvenate older parks for example incur monetary cost for PDC today – cost that was not accounted for when the land was previously sold. PDC also finds itself being victim to legacy business models – for example, entering into a sales and purchase contract for 60-year land lease. “Along the way they make problems with the property, change its usage, but we can’t do anything,” laments Bazid, who is now on the receiving end of damaged properties after years of neglect and abuse. Indirectly, this lessens the possibility of PDC being fully invested in developing a futuristic industrial park. New concepts involve risks, and risks involve considerable monetary funding – monies that PDC is stretching thin to justify economic returns.

In addition, some scepticism is also expressed about the possibility of allowing more open-access to factory grounds – an extension of spatial design that is more people-centric and inclusive. “We have a duty of business confidentiality to our customers,” says Van Crombrugge. Security is another reason. It does make for a compelling argument that the manufacturing industry – or rather that manufacturing activities – by nature possess traits that in some ways contravene those of innovation districts.

Keysight Technologies is one of the corporations that collaborates with the Penang state government to bring talent up to a higher value.

At the same time, limited availability of certain skilled manpower poses a challenge, with Penang seeing a number of its talents leave for other countries such as Singapore. “In the last two years, we’ve lost a number of our engineers to Singapore because they pay much higher than us, boosted by the currency exchange rate,” says Loo.

The question is not so much how Penang can retain talent, but rather how Malaysia as a whole can do the same. “We could have a full-day conversation about our education system, whether it’s up to speed or not at the international level,” Loo says with concern.

“We do have a lot of initiatives to retain our talent – there is the Penang Future Foundation scholarship that we give out every year; we now have about 800-900 students whom we are sponsoring. It’s important to make Penang a world city so that people can make the choice to come here and work,” she says.

Whether existing industrial parks can truly evolve to become full innovative districts is a matter for lengthy discussion – the existing infrastructure, which was built that way for a reason (and for its times) – throws a spanner in the works.

But this doesn’t mean inspiration can’t be taken from it. Batu Kawan certainly has; and elsewhere, upgrades to infrastructure – be it public or private – have been made, and are on-going. “There are certain things that we need to improve on, for example having better connectivity logistically between parks, as well as the maintenance of the parks. Our broadband could be better, cheaper and faster; and we could improve by adopting more AI.

“We can certainly aim to have smart industrial parks,” says Loo.

The writer would like to thank Timothy Choy for his help with the article.

Dato’ Loo Lee Lian on…

Side effects of the US-China trade war

“If you look at our foreign direct investments (FDI) from quarter one, the figures for those three months alone have already bypassed the figures from the previous year. Last year, we made RM5.9bil; within the first quarter of 2019, we’ve already hit RM8.9bil.

Overall, the trade war doesn’t benefit anyone. We are likely going to see a drop in trade, but because of current uncertainties, a number of companies are unsure if they should be investing or not, and are holding back their investment plans. But in a way we have benefitted from the diversion – the American companies that are placing orders find that they have been diverted and are considering places outside of China. If they already have an existing plant in Penang, naturally orders will come here – you’ll see some of the companies doing very well.

We also have increased investment enquiries from Chinese companies as well, and we have signed an MOU with one of their industry consortiums. At the same time, we are also very cautious. We want to make sure that they succeed in Penang and the right companies with good value investments come in; perhaps companies in the semiconductor or automation industries – areas in which we are already doing very well.

They want to come here because they see Malaysia as a neutral country, ranked highly in the Global Ease of Doing Business index. If they are in low-end products and they don’t need highly skilled workers, they would go elsewhere. But if they know that they need certain kinds of skills and certain kinds of technical expertise, on top of multilingual capabilities, they will find that Malaysia is a good choice.

We want to make sure that the investments that come in are sustainable – we avoid those that come today just because of the trade war, because they will leave as soon as it is resolved.

We are seeing that there are going to be two supply chains now: one in China – they will start to build their own supply chain – and the other one probably outside of China or in the US for the rest of the world. For both of these, Penang is ready to welcome them, be they direct investments or businesses to local SMEs and LLCs.”

Julia "Bubba" Tan is editor of Penang Monthly and head of the Publications Unit at Penang Institute.

1http://siteresources.worldbank.org/INTRANETTRADE/Resources/Baldwin_ NBER_Working_Paper_17716.pdf. 2https://www.brookings.edu/essay/rise-of-innovation-districts/.



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