CR Vol. 16, No.

3&4, 2006

COMPETITIVE FACTORS OF SEMICONDUCTOR INDUSTRY IN MALAYSIA: THE MANAGERS PERSPECTIVES

by A. Solucis Santhapparaj, Jayashree Sreenivasan and Jude Chong Kuan Loong

EXECUTIVE SUMMARY In an emerging global competitive environment, the Malaysian semiconductor industry is facing threats from low cost countries with limited innovative capabilities. It urges for improvement in competitiveness of the Malaysian semiconductor industry. This study focuses on the perspectives of the managers towards the enhancement of competitiveness. Through a focus group interview and data collected from 200 managers working in semiconductor-manufacturing units in Malaysia, the study identified twenty-two competitive factors for the improvement of competitiveness of the semiconductor industry in Malaysia. Since the collected data did not form a normal distribution, nonparametric tests such as Chi-squire test and Mann-Whitney U test were used to test the framed hypotheses. Based on the analysis, ten key competitive factors were identified out of the identified twenty- two competitive factors through focus group interview. Further, the study also highlighted the differences in the opinion of competitive factors of technical and non-technical job functioning managers.

INTRODUCTION Globalization has urged organizations to create competitive

capability through new strategies, which aims to exploit opportunities and to reduce threats (Harrison and Vessels, 2004). Competitiveness of a company depends on the ability of the organization to design, produce and deliver high value products to needs of the customers. Tracey et al., (1999) have empirically proved that factors like prices offered, quality of the product, product line breadth, and delivery capabilities are key factors to determine competitive capabilities. Organizational resources, such as know-how, physical capital, human capital and social capital supports achieve competitive capabilities (Harrison and Kessels, 2004). Competitiveness can be created through strategic planning and creating a learning environment in an organisation (Bauer, 1999, Tanabe, et al., 2004). However, there are negative opinions on the effectiveness of strategic planning on reducing the uncertainty associated with future markets (Baumol and Benhabib, 1999). In some cases, the effectiveness of strategic planning on active competitiveness has proved ineffective (Tanabe, et al., 2004). In general, the survival of a company at the micro level and the growth of a country at the macro level in the era of globalization heavily depends on the competitive capability of the company and thereby the competitiveness of the country. Nearly two decades after the invention of the first Integrated Circuits by Jack Kilby in 1958, Asia became an ideal breeding ground for semiconductor companies as Western firms sought to farm out labor-intensive production processes to Asias newly industrializing economies. Kozmetsky and Yuas (1998) comparative performance analysis shows that the US, Japanese, South Korean and Taiwanese semiconductor companies were major competitors in the global semiconductor industry. Through a national approach on

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CR Vol. 16, No. 3&4, 2006 technology development, South Korea and Taiwan have reached competitive positions in the global semiconductor industry, since both countries have unique characteristics (Chen and Sewall, 1996). Moreover, the dynamics of semiconductor economics, propelled by the pace of innovation, eventually led to the rise of advanced technology-driven Asian economies within a generation. SEMICONDUCTOR INDUSTRY IN MALAYSIA Malaysias role in the semiconductor industry goes back to the early 1970s when the U.S. based chipmakers like Intel, National Semiconductor, Advanced Micro Devices, Texas Instruments, ChipPac, Western Digital and Motorola established off-shore Integrated Circuit (IC) assembly and test operations. These companies were started in Malaysia to take advantage of the countrys cheap labor at that time. Much of the investments are concentrated on the island of Penang, which is popularly known as the Silicon Island of Southeast Asia. In recent years, most of the reputed companies in the chip business have a back-end manufacturing operation in Malaysia. Eight out of eleven free trade zones in Malaysia are monopolized by the semiconductor and electronics industry. The semiconductor industry plays a major role in making Malaysia an industrialized country. The semiconductor industry contributes about 30 per cent of Malaysias total manufacturing sector output and there are 40 semiconductor companies currently operating in Malaysia (Economic Research, 2005). The growth in production of semiconductors, integrated circuits and electronic transistors in Malaysia is shown in Table 1. The semiconductor industry contributes one third of the total export. Malaysias export and growth in export of semiconductors, electronic equipment and parts is presented in Table 2. Thus, the semiconductor industry acts as the backbone of Malaysian economy. This industry also dominates other manufacturing sectors in terms of employment, paid-up capital, total fixed assets, as well as foreign direct investment (FDI). The sharp drop in world demand for semiconductors in the year 2000 and the emergence of China as a favourable location for investment among high-tech multinationals was the primary reason for the drop in growth in the year 2001 and later. Such external threats are forcing Malaysia to re-think its role in the semiconductor industry. Malaysias competitive advantage may be eroding because of new players such as China. Moreover, the Malaysian semiconductor industry is still concentrating on low value segments, i.e., assembling and testing. The low value segment is prone to downswings in demand. Hence, if Malaysia wishes to remain a vital global player, there is an urgent need for them to move up the value chain to withstand the existing competition.

BACKGROUND OF THE STUDY Systematic production planning, procurements, logistics, production engineering and quality systems are the primary factors which attract foreign direct investment to the electronic component manufacturing sector in Malaysia and the major share of investments are made by U.S. companies. Malaysia lacks some of the fundamental aspects in terms of science and technology, corporate governance, local competition, shortage of highly skilled labor, increasing labor costs and upbeat on investment in service sector. Hence, Malaysia has lost its position in the global competitive position for FDI and its rank

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CR Vol. 16, No. 3&4, 2006 TABLE 1 Production and Percentage Growth in Production of Semiconductors, Integrated Circuits and Electronic Transistors (million units) % Electronic % Growth Growth transistors over the over the last year last year 1989 2,262 -5,071 -5,796 -1990 2,565 13.4 6,084 20.0 5,956 2.8 1991 2,689 4.8 6,413 5.4 6,760 13.5 1992 3,121 16.1 6,730 4.9 7,228 6.9 1993 3,491 11.9 8,109 20.5 7,738 7.1 1994 3,410 -2.3 9,336 15.1 8,368 8.1 1995 4,757 39.5 10,277 10.1 9,058 8.2 1996 5,237 10.1 9,774 -4.9 10,410 14.9 1997 7,432 41.9 12,571 28.6 13,530 30.0 1998 8,951 20.4 11,622 -7.5 13,545 0.1 1999 9,959 11.3 14,902 28.2 13,230 -2.3 2000 16,373 64.4 21,424 43.8 17,519 32.4 2001 13,524 -17.4 17,457 -18.5 19,989 14.1 2002 15,036 11.2 19,916 14.1 20,401 2.1 2003 15,958 6.1 23,424 17.6 24,189 18.6 2004 18,228 28.2 30,247 29.6 28,236 16.7 Source: Economic Research, Bumiputra-Commerce Bank Bhd, Vol.1, 2005, P.5. Year Semiconductors fell to the 22nd position (FDI Confidence Index) out of the top 25 destinations in the year 2001 and further worsened in the year 2003, where it was positioned at 23rd. % Growth over the last year Integrated circuits

TABLE 2 Exports and Percentage Growth in Export of Semiconductors and Electronic Equipment and Parts (RM* in Millions) % % Growth Electronic Growth Semiconductors over equipment over the last & parts the last year year --35,509.2 29,123.8 40,887.2 54,482.60 15.1 33.3 39,888.60 59,692.00 37.0 49.6

Year

1996 1997 1998

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CR Vol. 16, No. 3&4, 2006 1999 2000 2001 2002 2003 2004 65,485.4 71,110.8 60,530.0 72,990.9 85,183.8 89,289.2 20.2 8.6 -14.9 20.6 16.7 9.1 79,400.0 95,680.1 79,101.8 84,410.1 82,436.1 99,307.0 33.0 20.5 -17.3 6.7 -2.3 9.9

* 1 US dollar = 3.70 Malaysian Ringgit (RM) Source: Economic Research, Bumiputra-Commerce Bank Bhd, Vol.1, 2005, P.6. However, Malaysia moved up to 15th position in 2004 whereas China maintains its 1st position in 2004 (FDI Confidence Index, 2004). Emmanuel (2002) is optimistic about Malaysias competitiveness, in spite of challenging environmental factors. Further, he emphasizes that employees should maintain good ethics, high integrity and constant respect to suppliers and customers to keep up Malaysias competitive position. Abeysinghe, Siregar and Keng (2001), stress that productivity in Malaysia must increase to match those of more advanced nations apart from the gaps in innovation, human resource, trade and global investments. They emphasize that Malaysians should improve and concentrate on innovation, design, and new product development. Emmanuel (2002), claims that size reduction, increase in wafer diameter, increase in chip size, process, and defect reduction are among other manifestations that have a direct bearing on the competitiveness of manufacturing capabilities. The Economic Research of Bumiputra-Commerce Bank Bhd (2005) highlighted that the Malaysian semiconductor industry is currently dependent on low tech manufacturing, low value segment, and is facing competition from lower cost countries like China. Moreover, recently China has entered in the World Trade Organization, which is also a threat for the Malaysian semiconductor industry. Hence, Malaysia has to work harder in order to compete with China, particularly in labor intensive manufacturing sectors (Business times, 2002, Lin-Liu, 2002, Hatano, 2002). The quest for a global competitive position forces individual semiconductormanufacturing plants to struggle for greater efficiency and to seize every opportunity for improvement. In other words, semiconductor manufacturing units in Malaysia need to think outside the box, to remain competitive, despite direct head on competition with the awakened giant, China, as well as other upcoming developing neighbors like Thailand, Vietnam, Philippines, and Cambodia. The existing literatures show that competitiveness may be achieved through strategic planning, organizational learning, unique technological approach and so on (Chen and Sewell, 1996, Mathews, and Cho, 1999, Tracey et al., 1999 and Tanabe et al., 2004). However, the study is made with the objective of identifying and analyzing the competitive factors of the semiconductor industry in Malaysia through the perspective of the people having expertise and experience in this field.

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CR Vol. 16, No. 3&4, 2006 METHODOLOGY OF THE STUDY Population and Sample The population of the study consists of managerial level employees in semiconductor-manufacturing units in Malaysia. Since semiconductor units are heavily concentrated in free trade zones, the managers working in the semiconductor-manufacturing units in these zones were identified as the target population. The study adopted multistage random sampling techniques to identify the final sample respondents. In the first stage, out of the eleven Free Trade Zones where the semiconductor-manufacturing units are concentrated, two zones namely, Ulu Klang and Sungei Way were selected through simple lottery method. In total, there are 23 manufacturing plant located in these two zones. In the second stage, out of the total 23 companies, 10 companies were selected randomly by simple lottery method. To finalize the survey questions, focus group interviews was done to streamline various overlapping and redundant factors that were identified from the survey of literature. The focus group consisted of 6 managers from two manufacturing units. Attempt was also made to suggest new ideas and variables based on their work experience. The focus group interview was useful to finalize the variables to be included in studying the competitive factors. The focus group agreed with 22 variables that are crucial in determining competitiveness in the current semiconductor business environment in Malaysia. It also brings to light the fact that the approach towards competitiveness varies between the managers performing functions that are technical and nontechnical in nature. Hence, it was decided to collect the primary data from managers performing technical and non technical job functions. Further, the focus group interview revealed that on average, nearly 80 percent of the semiconductor plant management staff performs technical job functions and 20 percent perform nontechnical job functions. A self-administered questionnaire was developed based on the focus group interview. The same has been tested through a pilot study. The survey instrument was divided into three parts. Part I attempted to collect the demographic data concerning age, gender, income, marital status, education level, occupation, working experience, nature of job, and job status of the sample respondents. This part consisted of 10 questions. Part II emphasized queries pertaining to the nature of the semiconductor business cycle, current issues and threats to its existence. This part comprised of seven questions. Part III attempted to assess the opinion and feedback on factors determining the competitiveness of the semiconductor industry and covered the 22 questions which emerged from the focus group interview. Each question in Part II and Part III was developed using Likert- scale ranging from 1-5, with a rating of 1 as very important and 5 being least important. In each selected company, 20 individuals were randomly selected, 16 technical managers, and 4 non-technical managers. A total of 200 samples were collected by visiting each company. Since personal visits had been made several times, it was possible to get a 100 percent response. Out of the total 200 samples, 160 respondents have technical backgrounds and 40 respondents have non-technical backgrounds.

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CR Vol. 16, No. 3&4, 2006 Hypotheses Based on the literature review and the outcome of the focus group interview the following hypotheses have been developed: Hypothesis 1: H0: There is no significant need to improve the competitiveness of the semiconductor industry in Malaysia. H1: There is a significant need to improve the competitiveness of the semiconductor industry in Malaysia. Hypothesis 2: There is no significant difference H0: between the technical and nontechnical group of executives opinion about the importance of the competitive factors. H1: There is a significant difference between the technical and nontechnical group of executives opinion about the importance of the competitive factors. Tools of Data Analysis Apart from simple percentages, mean scores of the opinion of the 22 competitive factors has been estimated to rank the competitive factors. Chi-squired test has been used to test the perspectives of managers on the need for improvement in the competitiveness of the semiconductor industry in Malaysia. The difference between the opinion of technical and non-technical managers on the competitive factors is studied by applying U test, since the collected data does not form a normal distribution. DATA ANALYSIS AND DISCUSSION The demographic profile of the respondents is presented in Table 3. The male respondents outnumbered female. The male domination in managerial jobs could be explained by the fact that, in Malaysia, men in general tend to prefer a career in managerial profession. The majority of the respondents (39.0 per cent) were in the age group between 35 and 44. More than 55 percent of the sample respondents hold bachelors degrees.

TABLE 3 Demographic Profile of the Respondents Sex Male Female Total Nature of job function Technical Non technical Total Age <25 25-34 Frequency 144 56 200 Frequency 160 40 200 Frequency 30 43 Percent 72.0 28.0 100.0 percent 80.0 20.0 100.0 percent 15.0 21.5

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CR Vol. 16, No. 3&4, 2006 35-44 45-54 >55 Total Education level High school No formal education Diploma Bachelors Degree Masters Degree Ph. D Degree Total Source: Computed from Survey data. 78 41 8 200 Frequency 3 2 44 113 35 3 200 39.0 20.5 4.0 100.0 percent 1.5 1.0 22.0 56.5 17.5 1.5 100.0 industrys competitiveness in Malaysia do not form a normal distribution. Hence, in order to test Hypothesis I, the Chi Square Goodness of Fit Test, a non parametric statistical test is used. To perform the Chisquare test, the entire sample has been classified into two groups as shown in the table 4. Category 1: Significant This classification refers to respondents who either agreed or strongly agreed with the fact that there is a need for the semiconductor industry in Malaysia to improve its competitiveness.

Perception Towards the Need of Competitiveness: Null Hypothesis H0: There is no significant need for the semiconductor industry in Malaysia to improve its competitiveness. Alternative Hypothesis H1: There is a significant need for the semiconductor industry in Malaysia to improve its competitiveness. Both the graphical and the Kolmogorov-Smirnov K-S method confirms that the data collected of the need for the improvement of the semiconductor

TABLE 4 Categorical Classification of Sample Classification Significant Insignificant Total Observed 197 3 200 Expected 198 2 Residual -1.0 1

SOURCE: Computed from survey data with SPSS 11.0

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CR Vol. 16, No. 3&4, 2006 TABLE 5 Calculated Chi-Square Statistics Estimated Values Chi-Square Df .505 1

Asymp. Sig. .477 SOURCE: Computed from survey data with SPSS 11.0 Category 2: Insignificant This classification comprises of respondents who were either neutral, disagreed, or strongly disagreed towards the need for Malaysian semiconductor industry to improve its competitiveness. Expected Frequency It is anticipated frequency predicted by the Chi Square in the Null Hypothesis. 1. Significant (< 3) = 198 2. Insignificant ( 3) = 2 Observed Frequency It is the actual frequency counts that are observed in the 200 samples. Significant (< 3) = 197 Insignificant ( 3) = 3 The residual value in the right extreme of the Table 4 indicates the difference between the Observed Frequency with the Expected Frequency. Formulating Hypothesis for Chi Square Goodness of Fit Test The original Hypothesis I with H0 and H1 is restated as below, specifically for this Chi Square testing. H0 : There is no significant difference between observed frequency and expected frequency. H1: There is a significant difference between observed frequency and expected frequency. The result of the Chi Square goodness of fit test is indicated in Table 5 With = 0.01 percent, the critical value for 2 0.01,1 is 6.635. Inference Since 2Calculated < 2 0.01,1 which falls within the critical region, H0 can be confidently accepted. Therefore, the observed frequency very closely matches the expected frequency. It is inferred that there is a significant need for the semiconductor industry in Malaysia to improve its competitiveness. Relative Importance of Competitive Factors The respondents were asked to give their opinion (Likert- Scale) on the 22 competitive factors identified through the focus group interviews. The mean score has been estimated and it has been arranged according to their relative importance ratings as evidenced by their mean values of total samples (Table 6). If the mean score is approaching 1 the variable is highly important for competitiveness since the respondents opinion Strongly agreed takes numerical value 1. The corresponding mean values and ranks for the technical group and non technical group are also presented for comparison. Based on table 6, the ratings of each factor according to its importance for technical and non technical group are not exactly the same. Overall, the reported ratings of identifying important competitive factors by the technical and

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CR Vol. 16, No. 3&4, 2006 non technical group bear more similarities than differences. The means and ranks for combined sample data of both groups are used to identify the top ten competitive factors. The most prominent similarities is that both groups consider quality as the most important competitive priority. This finding is consistent with many other studies, suggesting that quality improvement has been the main focus of current management thinking. Cost reduction has been identified as the second priority. It is indeed the fundamental objective of any business entity to maximise profitability, and cost reduction is very critical for meeting an organizations bottom line. The third competitive factor is technical skill development. This aspect is crucial particularly in the semiconductor industry, which thrives on technology and engineering innovation. It also serves as the key advantage for Malaysian semiconductor manufacturing plants to differentiate themselves against the threat of emerging low cost countries. Productivity and cycle time improvement is ranked fourth and fifth, respectively. Both factors are concerned with maximization of output and improvement on timely delivery of products to customers. These factors are directly linked to profitability and customers satisfaction in the long term. Meanwhile, manufacturing flexibility is being viewed as the sixth important factor. This is because current manufacturing plants need to align themselves

TABLE 6 Relative Importance of Competitive Factors Non Technical (n = 40) Meana Rank 1.40 1 1.53 2 2.10 1.73 2.08 1.85 1.90 1.98 2.30 2.55 2.30 10 3 9 5 7 8 11 14 12

Competitive Factors Continuous quality improvement Continuous cost reduction to ensure high ROI Focus on technical skill development and enhancement Intensify productivity improvement Production cycle time improvement Improve manufacturing flexibility in terms of planning, strategy & capacity Continuous investment on human capital development Establish different business operating model with each SBU Meet KRAs / Score Cards of corporate levels Building strong integrated network of supply / value chain Application and adaptation of ICT to improve efficiency of daily operations

All Samples Technical (n = 200) (n = 160) a Mean Rank Meana Rank 1.46 1 1.48 1 1.59 2 1.61 3 1.65 1.74 1.91 2.03 2.11 2.14 2.24 2.27 2.41 3 4 5 6 7 8 9 10 11 1.54 1.74 1.86 2.07 2.16 2.18 2.23 2.20 2.44 2 4 5 6 7 8 10 9 11

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CR Vol. 16, No. 3&4, 2006 Highlighting intention to move up to higher value added products 2.76 12 2.85 13 2.38 Venture into R&D activities 2.88 13 2.83 12 3.08 Improve managerial skill 3.10 14 3.42 16 1.80 Public relation / rapport building to gain corporate confidence 3.29 15 3.64 18 1.88 Improving and upgrading equipment efficiency 3.31 16 3.24 15 3.55 Encourage technical patent disclosure 3.38 17 3.23 14 3.95 Encourage creativity and innovation involvement 3.65 18 3.59 17 3.88 Excellent corporate governance and workforces' ethical behaviour 3.81 19 3.82 19 3.78 Portal or web site development for convenience of SBUs 3.86 20 3.93 21 3.58 Future leadership and succession planning 3.94 21 3.92 20 4.03 Establish a flat organisation to improve response time 4.01 22 4.04 22 3.93 Note: a1 = Very Significant, 3 = Neutral, 5 = Very Insignificant SOURCE: Computed from survey data with SPSS 11.0 continuous inflow of foreign direct to parallel ever changing customers investment (FDI) to our country for our demand. Failure to do so, will jeopardize semiconductor MNCs. It is essential to the growth opportunities of an convince the corporate management and organization in the long run. consequently, this will serve as an Human capital development is effective marketing tool to boost local ranked as the seventh factor which is in capability and competitiveness. line with the Malaysian governments Last, but not the least, having an policy and Vision 2020, to develop integrated network of supply/value chain is knowledge workers in order to remain considered the tenth competitive factor in competitive. This factor will eventually this study. It is believed that the presence transform the current mode of of large semiconductor MNCs will manufacturing operations from producing indirectly contribute to the growth of our low cost products to high end and complex local vendors and suppliers as well. Hence, products. Moreover, this aspect is also a fully integrated system will improve the important to improve existing weaknesses overall efficiency of the workforce. It is in the semiconductor industry. strongly believed that real time and highly Establishing business operation customized products could be assembled models to align with each strategic and delivered to customers on time. This business units (SBUs) and meeting all Key particular factor basically involves Result Areas (KRAs) and Scorecards of primarily the application of Information, corporate levels are ranked as eighth and Communication, and Technology (ICT) as ninth respectively. These competitive well as Electronic Commerce (efactors are deemed to be necessary in order commerce), which is currently being to gain the confidence and momentum of intensified by our government as well. The importance of ICT is being reflected in the

13 15 4 6 16 21 19 18 17 22 20

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CR Vol. 16, No. 3&4, 2006 sense that this aspect is ranked on the eleventh position on the overall sample. The remaining competitive factors are equally significant for the semiconductor industry to ensure its existence in Malaysia. To be consistent with the objective of this research study, only the top ten factors are elaborated on. The other factors are basically selfexplanatory and can be explained by referring to Table 6. The majority of these competitive factors ranking from 11 to 22, though important, are not essential to be pursued at this period of time. Venturing into R&D activities is ranked 12th on overall basis with technical groups showing higher preference at 13th position while its non technical workforce, ranked it in the 15th position. Similar observation is perceived on the creativity and innovation involvement factor, which is ranked 18th on the whole. Equipment efficiency improvement and corporate governance/ethical behavior is positioned 16th and 19th with both groups illustrating almost the same preferences. Last, but not the least, future leadership and succession planning and leaner organizational structures are considered the least important factors for both groups. The reason for their poor ratings is probably due to the fact that most of the organizations selected for this study were in existence for more than 20 years in Malaysia. Hence, these organizations have a well established management structure leaving little room for improvement in these factors. Differences in the Perspective of Technical and Non-technical Job Functionaries on the Competitive Factors The Mann-Whitney U test is used to test the differences between means of the score by technical and non-technical job functionaries. The test can be used with ordinal, interval, and ratio scales. The Mann-Whitney test does not assume that the population follows a normal distribution, but assumes that the shapes of the two distributions are identical. The mean of each variable by job function and its respective significant pvalue is summarized in Table 7. All the results displayed in this table are based on a 5 point Likert scale from 1 5, with a rating of 1 being very significant and 5 being very insignificant. Hypothesis II testing is done at the level of significance, = 0.05. Based on Table 7, the following comparisons between both groups can be observed: Only 6 of the 22 competitive factors show a significant difference between technical groups versus non technical groups. These factors are: a) Improve managerial skill The non technical group seems to show a very favorable response to this aspect with a mean of 1.80 versus the technical group with the mean of 3.42. Such observation is due to the fact that the nature of job function plays a vital role in influencing respondents feedback on this particular variable. Generally, the non-technical group showed a strong preference to the importance of managerial skills compared to their technical peer. On the contrary, the technical group remained quite neutral as far as this aspect was concerned. b) Public relation / rapport building to gain corporate confidence The technical member showed quite an unfavorable response with the mean of 3.64 compared to non-technical member with a mean of 1.88. This finding is again related to

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CR Vol. 16, No. 3&4, 2006 the influence of job function. To a certain extent, the technical group tends to focus on engineering improvement activities extensively compared to the non technical group. c) Focus on technical skill development and enhancement There is a significant disparity between the groups in this competitive factor. Overall, technical groups showed a strong agreement, with a mean of 1.54, indicating that technical skills are important to improve competitiveness. Meanwhile, the mean for non-technical groups in this aspect is slightly higher at 2.10. Though it is expected that the technical workforce will put more emphasis on this variable, it is surprising that the non-

TABLE 7 Test Statistics of Mann-Whitney U Test Competitive Factors MEANa Non Technical Technical 1.48 1.40 1.61 1.74 3.42 1.53 1.73 1.80 Mann Whitney P-Value 0.7660 0.9170 0.9500 0.0000 Significant at = 0.05 No No No Yes

Continuous quality improvement Continuous cost reduction to ensure high ROI Intensified productivity improvement Improve managerial skill Improve manufacturing flexibility in terms of planning, strategy & capacity Public relation / rapport building to gain corporate confidence Continuous investment on human capital development Establish different business operating model with each SBU Production cycle time improvement Focus on technical skill development and enhancement Meet KRAs / Score Cards of corporate Application and adaptation of ICT to improve efficiency of daily operations Highlights the intention to move up to higher value added products Building strong integrated network of supply / value chain

2.07 3.64 2.16 2.18 1.86 1.54 2.23

1.85 1.88 1.90 1.98 2.08 2.10 2.30

0.1330 0.0000 0.1270 0.3590 0.0590 0.0080 0.6460

No Yes No No No Yes No

2.44 2.85 2.20

2.30 2.38 2.55

0.4970 0.0320 0.0740

No Yes No

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CR Vol. 16, No. 3&4, 2006 Venture into R&D activities 2.83 3.08 0.1850 No Equipment efficiency improvement and upgrade 3.24 3.55 0.1190 No Portal or web site development for convenience of SBUs 3.93 3.58 0.0350 Yes Excellent corporate governance and workforces' ethical behaviour 3.82 3.78 0.4950 No Encourage creativity and innovation involvement 3.59 3.88 0.1670 No Establish a leaner flat organisation to improve response time 4.04 3.93 0.3830 No Encourage technical patent disclosure 3.23 3.95 0.0000 Yes Future leadership and succession planning 3.92 4.03 0.7100 No Note: a1 = Very Significant, 3 = Neutral, 5 = Very Insignificant SOURCE: Computed from survey data with SPSS 11.0 e) Portal or web site development for technical groups responded positively as convenience of SBUs well. This is because scientific and Both groups illustrated an unfavorable engineering breakthrough forms the answer to this factor with the mean of essential foundation for the survival of 3.93 and 3.58 for technical and nonsuch high technological industry. technical members respectively. Even though there is significant difference d) Intention to move up to higher value between these two categories of added products workforce, they showed an With the level of significance = 0.05, unfavorable preference to this variable. both groups showed a significant Compared to the non technical group difference in this factor with the mean which generally showed a higher of 2.85 and 2.38 for the technical & preference, the technical workforce non technical group respectively. strongly believed that the portal or web Overall, the majority of non technical site development intended to align with group demonstrated a favorable the SBUs business operation model, response pertaining to this factor only serves as a supporting medium compared to most of the technical staff and hence does not contribute who is sitting on the fence by significantly in determining the responding fairly towards this factor. continuous existence of our This is because the technical staff semiconductor industry in Malaysia. strongly believed that merely f) Encourage technical patent disclosure highlighting the intention to move up Basically, the technical group and non to higher value added products is not technical group demonstrated sufficient to gain confidence from significant difference with a mean of either stakeholders or corporate 3.23 and 3.95 respectively in this management. In other words, this factor. In other words, the technical particular group is more result staff illustrated higher preference to orientated. this aspect while the non-technical

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CR Vol. 16, No. 3&4, 2006 peers seemed to treat this factor as insignificant. Such scenario arises because the non technical workforce believed that the technical patent disclosure is a long term solution. Moreover, this expectation can only be realized if the industry moves to high end products where abundant opportunities for new discovery and invention are available. Therefore, it is believed that this prevailing factor is irrelevant to the current timeframe. group and the non-technical group. Collective decision-making and collaboration are essential for the sustainability and continuous growth of an organization. Hence, it is advisable to create more informal learning opportunities within the organization such as job rotation, annual strategic meetings, and brainstorming sessions in order to minimize the disparity and the difference of opinion between both groups.

REFERENCES CONCLUSIONS The study clearly shows that the Malaysian semiconductor industry should concentrate on quality improvement, cost reduction, skill development, productivity improvement, flexibility in organizational strategy, etc, to keep competitiveness in this industry. The literature shows that in the emerging knowledge and information economy, the organization should be a reservoir of knowledge, a production of knowledge, and should have better network for knowledge sharing and knowledge formation (Harrison and Kessels, 2004). This can be achieved by making an organization be a learning organization, through both non-formal and informal learning. Through the focus group interview and the opinion from the managers, both technical and nontechnical, it is observed that the Malaysian semiconductor industry should develop a better learning environment. It should provide better informal learning opportunities to the employees to build a committed and skilled work force to meet the challenges arising from emerging low cost countries. Further, the study shows that there are few differences of opinion, in terms of competitive factors, between the technical Abeysinghe, Tilak., Siregar, Reza., and Meng, Choy Keen. (2001). Where is the illusive bottom of the electronic cycle? Mid-yearf Forecast update. Econometric Studies Unit, National University of Singapore. Baumol, W. and Benhabid, J. (1999). Chaos: Significance, mechanism and economic applications, Journal of Economic Perspective, 3 (1) 77-105, Cited in Tanane, Mario., Angelo, Claudio Felisoni De. and Alexander, Nicholas. (2004). The effectiveness of strategic planning: Competitiveness in the Brazilian supermarket sector. Journal of Retailing and Consumer Services,. 11, 51-59. Business Times. (2002, Nov.20). Malaysia will have to work harder to attract FDI. Business Source Premier, Malaysia. Chen, Cheng-Fen., and Sewell, Graham. (1996). Strategies for technical development in South Korea and Taiwan: The case of semiconductors, Research Policy, 25(5), 759-783.

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CR Vol. 16, No. 3&4, 2006 Economic Research (2005). Industry issue. Bumiputra-Commerce Bank Bhd (Malaysia), 1, 1-12. Emmanuel, Marina. (2002). Incentives hold key to generating more growth, New Straits Times, September 22, Malaysia. Global Business Policy Council. (2004). FDI confidence index. A.T. Kearney Inc. Virginia, USA, 7, 3. Haririson, Rosemary and Kessels, Joseph. (2004). Human resource development in a knowledge economy (pp.20-60), New York: Palgrave Macmillan. Hatano, Daryl G. (2002). Chinas compliance with World Trade Organization (WTO) commitments. Comments submitted to the office of the U.S. Trade Representative by the Semiconductor Industry Association. Kozmetesky, G. and Yue, P. (1998). Comparative performance of global semiconductor companies. Omega, 26 (2), 153-175. Mathews, John A., and Cho, Dong-Sung. (1999). Combinative capabilities and organisational learning in latecomer firms: The case of the Korean semiconductor industry. Journal of World Business, 34(2), 139-156. Tanane, Mario. Angelo, Claudio Felisoni De., and Alexander, Nicholas. (2004). The effectiveness of strategic planning: Competitiveness in the Brazilian supermarket sector. Journal of Retailing and Consumer Services, 11, 51-59. Tracey, Michael. Vonderembse, Mark A., and Lim, Jeen Su. (1999). Manufacturing technology and strategy formulation: Keys to enhancing competitiveness and improving performance, Journal of Operations Management, 17, 411-428.

___________________________ A. Solucis Santhapparaj is a Lecturer and Economics Unit Head, Faculty of Management at Multimedia University in Cyberjaya, Malaysia. Jayashree Sreenivasan is a Lecturer in Management Unit, Faculty of Management at Multimedia University in Cyberjaya, Malaysia.

Jude Chong Kuan Loong is a MBA Student, Faculty of Management, at Multimedia University, Cyberjaya, Malaysia.

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