When Neighboring Countries Are More Popular for Large-Scale Technology Investments
Malaysia, which is located near Indonesia, is quite popular as an expansion destination for world giant technology companies.
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Microsoft CEO Satya Nadella (left), Microsoft Indonesia President Director Dharma Simorangkir (center), and Microsoft Asia President Ahmed Mazhari (right) climbed the stairs of Merdeka Palace in Jakarta to meet with President Joko Widodo on Tuesday (April 30, 2024).
Large technology companies, such as those from the United States and Europe, that want to diversify away from China are now expanding heavily into Southeast Asia. Geopolitical factors are reshaping the landscape of the technology manufacturing industry.
When he was the keynote speaker at the Microsoft Build: AI Day event, Thursday (2/5/2024), in Kuala Lumpur, Malaysia , Chairman and CEO of Microsoft Satya Nadella announced an investment commitment of 2.2 billion US dollars to Malaysia. This commitment will be disbursed for the next four years and he claims is the largest in Microsoft's 32 years of operations in Malaysia.
Also read: Microsoft Promises Investment of IDR 27.6 Trillion in Indonesia
An investment commitment of 2.2 billion US dollars covers four aspects. First, developing cloud computing and artificial intelligence infrastructure. Second, providing artificial intelligence skills training for 200,000 Malaysians. Third, establishing a center of excellence for artificial intelligence and improving cyber security in collaboration with the Malaysian government. Finally, supporting the growth of the Malaysian developer community.
The day before, the Microsoft Build: AI Day event in Southeast Asia was also held in Bangkok, Thailand. During the event on Wednesday (1/5/2024), Nadella announced an investment commitment with a theme similar to those in Malaysia and Indonesia, unfortunately the monetary value was not mentioned.
Malaysian Prime Minister Anwar Ibrahim (right) met with Microsoft CEO Satya Nadella at the Prime Minister's office in Putrajaya, Malaysia on Thursday, May 2, 2024.
While visiting Indonesia, still in the series of Microsoft Build: AI Day events, Tuesday (30/4/2024), in Jakarta, Nadella said that Microsoft would invest 1.7 billion US dollars over the next four years for cloud infrastructure. /i>and artificial intelligence, artificial intelligence skills training for 840,000 Indonesians, and support for the developer community. In a press release, Microsoft only explained that the investment of 1.7 billion US dollars in Indonesia was the largest in the 29 years that Microsoft has been present in Indonesia.
In recent years, Southeast Asia has become a technology industry battleground for giant technology companies from Western and Eastern countries. The ASEAN Digital Community 2040 Policy Brief report by the Economic Research Institute for ASEAN and East Asia (ERIA) 2023 states that around 80 percent of the 440 million internet users in Southeast Asia have made at least one online purchase with internet penetration of around 75 percent. Nearly 70 percent of internet users in some AMS have made at least one online purchase.
As the competition between the United States and China heats up in regards to cutting-edge technology and trade restrictions, large technology companies, even those operating in critical sectors such as semiconductors and electric vehicles, are working to strengthen their supply chain and production capabilities in Southeast Asia. Among the leaders of the countries in Southeast Asia, they are also striving to get a bigger share of the impact from this phenomenon.
Malaysia has been riding the wave of technological development since the 1970s.
With a stable government, a wealth of talented engineers, and advanced technological infrastructure, Singapore has long been a major point of reference for technology companies from both east and west. Even though citing The Investor Vafie Magazine, recently, a number of multinational companies, including those from the technology sector, have increasingly located their regional headquarters outside Singapore in order to save money and pursue wider opportunities, Singapore's attractiveness has not faded. Reuters, on Tuesday (7/5/2024), wrote that Amazon, through its cloud computing business AWS (Amazon Web Services), stated its investment commitment of 8.8 billion US dollars for the duration of 2024-2028. Apple CEO Tim Cook during his visit to Singapore last month also announced an investment plan of 250 million US dollars.
Also read: Indonesia Needs to Learn from Vietnam to Enter Apple's Supply Chain
Thailand and Vietnam have also become popular investment expansion targets for giant technology companies. Apple, for example, Nikkei Asia wrote last week that the number of Apple suppliers operating in Vietnam jumped 40 percent from last year to 35 suppliers, while the number of Apple suppliers in Thailand grew by around a third to 24 suppliers.
Both of these countries have recently aggressively courted semiconductor companies to expand, offering tax incentives and other attractive features.
Since 1970
Malaysia, a country that is really close to Indonesia, is also popular as a destination for the expansion of large technology companies. Hot discussions among netizens recently questioned why Microsoft was willing to invest with a larger amount of US dollars compared to Indonesia.
Quoting The New York Times, the United States chip giant, Intel, and the German company Infineon each invested US $ 7 billion in Malaysia. Nvidia, the world's leading maker of chips that support artificial intelligence, has teamed up with a Malaysian utility conglomerate to develop a $4.3 billion artificial intelligence supercomputing and cloud computing center. Texas Instruments, Ericsson, Bosch, and Lam Research are all expanding in Malaysia. Likewise, AT&S, a chip maker from Austria, also decided to expand its manufacturing plant in Malaysia in early 2020, after previously being present in 30 countries on three continents.
Malaysia has been leveraging the wave of technological development since the 1970's when they enthusiastically established relationships with several electrical and electronic superstars, such as Intel and Litronix (now called Osram, with headquarters in Austria and Germany). This created a free trade zone in Penang Island, offering tax breaks, and developing industrial areas, warehouses, and roads. Cheap labor also became an attraction, as did the large English-speaking population and government support for foreign investment.
Also read: Regarding Apple Investment, the Government is Still Formulating the Right Form of Incentive
In the Economics Working Paper Strategic Policies for Digital Transformation: The Case of Malaysia report published by the Yusof Ishak Institute or ISEAS (2022), it is stated that Malaysia's strategic policy for carrying out digital economic transformation began in the mid-1990s. The first phase lasts for about 15 years. Key initiatives during this period include investments in broadband infrastructure and the Multimedia Super Corridor.
A new wave of technology is driving the second stage of digital economic transformation, which began around 2016. Four consecutive policies and plans were launched during the 2016-2021 period. The focus was on e-commerce (2016), manufacturing in the fourth industrial revolution (2018, 2021), and the digital economy (2021). Strategic policies for digital economic transformation have become increasingly broad and detailed.
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The Coding with Peers (Codeers) community initiated by Aurelia Benita Sitanggang (16), a Junior College One student at the Singapore Intercultural School in Kelapa Gading, North Jakarta, provides free coding lessons for Jakarta State Middle School students, Friday ( 3/22/2024). Mastery of digital skills, one of which is coding, encourages students to be productive in utilizing developments in digital technology.
Malaysia has become the sixth largest semiconductor exporter in the world, and packages 23 percent of all American chips. The country is currently focusing on the industry of packaging smaller chips that are capable of improving computing power.
So, what about Indonesia so far? Junior Research Associate at the Center for Innovation Policy and Governance (CIPG), Maria Catherine, believes that the transformation towards the digital industry requires three factors. Firstly, an ecosystem that includes clarity in regulations, who is responsible, recognition, and capital. The second factor is a supportive government. As for the last factor, it is skilled human resources along with clarity in the system of worker protection rights.
CIPG collaborated with GIZ to research the portrait of digital transformation between Indonesia and Vietnam. From the results of the research, Maria said that the skills of Indonesian workers are still lacking, especially in the technology sector. In fact, when technology investors want to enter, they want the transfer of knowledge not to take too long.
"Domestic component level (TKDN) policies in Indonesia already exist, but their implementation is not yet optimal. Investors see that too. "Not to mention that Indonesia still has safeguarding problems, such as the legal umbrella for developing the technology industry which is not yet strong," he said, when met at a public discussion event Navigating Life in the Midst of Digital Transformation: Are Workers Protected, Tuesday (7/ 5/2024), in Jakarta.
Also read: 5 Percent TKDN Increase to Accommodate Domestic Mobile Phone Industry Capabilities
Apple CEO Tim Cook shows the victory symbol when he arrives at the Merdeka Palace in Jakarta to meet President Joko Widodo, Wednesday (17/4/2024).
The researcher at The SMERU Research Institute, Palmira Permata B, shares the same opinion. According to her, there are too many ministries/agencies in Indonesia talking about digital transformation. Although there is still a digital gap in ASEAN, including Indonesia, both in terms of internet access for the public and the uneven adoption of information communication technology, a common policy vision for digital transformation will determine the success of taking part in the digital industry competition. The Indonesian Business Competition Supervisory Commission (KPPU) also still needs to strengthen its role.
Meanwhile, Nailul Huda, the Director of the Digital Economy Center of Economic and Law Studies, believes that access to land is also often a reason why technology investors want to enter. In Indonesia, land issues are still complex and there have even been issues surrounding land mafia.
"In the past two years, there have been reports of the government planning to establish an algorithm hill in Sukabumi, West Java, which aims to imitate Silicon Valley. Many have expressed their objections. I also believe that the government should prepare an integrated digital industry ecosystem, starting from the supply chain of components to skilled human resources," he said.
Deputy Minister of Communication and Information (Wamenkominfo) Nezar Patria, on the sidelines of the ThinkThank & Journalist Workshop: Accelerating Responsible AI Governance and Innovation with Copilot for Indonesia, Monday (6/5/2024), acknowledged that one of the factors that makes technological giant companies from Western and Eastern countries want to expand its investment in Southeast Asia is the level of adoption of information and communication technology (ICT). According to him, Indonesia's neighboring countries, such as Malaysia, already have a higher level of ICT adoption.
"We (Indonesia) are still at the initial level," said Nezar.
