This report responds to a request by the Government of Malaysia to examine how Malaysia can move up the value chain in the solar and medical device industries. Through the lens of long-term development, the overall growth performance of the Malaysian economy has been a resounding success story. The Commission on growth and development listed Malaysia as one of only 13 countries that registered sustained growth of 7 percent or more for a period of 25 years or longer. Much of this growth occurred on the back of a buoyant manufacturing sector, which was spurred by Malaysia's export-led industrialization model reliant on foreign direct investment (FDI). Multinational firms favored the country for its geographical location, political stability, reliable infrastructure, elastic supply of low-cost labor and attractive incentives. As a result of this success, Malaysia became the region's third-most open economy to trade, with the electrical and electronics (E&E) industry accounting at its peak for approximately half of all trade. Moving up the value chain concerns the process of shifting the productive activity of a nation, an industry or a firm into those goods and services that generate higher value added. Moving up the value chain is a highly complex undertaking it requires a fundamental reorientation towards innovation as the fundamental driver of growth, supported by a healthy level of investment in human and physical capital. This process should not be confused with simply producing the same mix of products more efficiently and neither should it be construed as implying a shift in focus towards anything high-tech. Moving up the value chain entails new, more complex, and more skill-intensive activities in the manufacturing of products
it requires conducting these at world-class standards of quality, productivity and competitiveness
and, as long as higher value is created, it does not matter whether these final products are low-tech, medium-tech or high-tech. This study is as much a process as a product. This report is the outcome of the study. The report sets out a conceptual framework, examines the global industry context, analyzes Malaysia's position in the global value chain, identifies industry opportunities and bottlenecks, and suggests policy adjustments. This study is however more than just a report. The study is also accompanied by a process of capacity building to train policymakers and industry participants in global value chain analysis, so that this work can be updated, extended, and replicated to other industries. The study also constitutes an attempt to promote a novel way of thinking about identifying and seizing value chain opportunities in ways that emphasize bottom-up, decentralized, collaborative and consultative approaches.