Global Value Chains, Contract Manufacturers, and the Middle-Income Trap: The Electronics Industry in Malaysia

Abstract

The electronics industry has been a cornerstone to the successful industrialisation process in Malaysia since the 1970s. However, since the 2000s the industry, which is deeply integrated in global value chains, has failed to upgrade. Its stagnation is indicative of the general economic situation in Malaysia which has contributed to its middle-income trap. This paper argues two key factors combined have led to the electronics industry’s inability to upgrade within the global value chain. First is Malaysia’s excessive reliance on foreign investment which has contributed to a prolonged dominance of foreign firms, particularly large transnational contract manufacturers, which have maintained low-value-added production in the country. Second is the influx of low-skilled and low-waged foreign workers, which has contributed to trapping the industry in labour-intensive lower rungs of the value chain.