The Dual Nature of Innovation Ecosystem Factors in Semiconductor Hub Development Evidence from Penang Malaysia

Abstract

Innovative ecosystems in the semiconductor industry can be viewed as networks of interdependent players, such as companies, government institutions, research organizations, and infrastructural providers, whose overall interactions influence the speed and direction of technological progress. In the context of developing countries aspiring to rise in the semiconductor value chain, an appreciation of particular factors which can either expedite or hinder the process of ecosystem upgrade is crucial for proper policy-making and industrial strategy formulation. This paper aims at formulating the theoretical model of analysis of innovation ecosystem development drivers and obstacles in the developing economy semiconductor cluster. The research is carried out as a qualitative multiple case study of five purposefully chosen organizations, namely multinationals, technology champions, integrated circuit design start-up, and industry governing body, of the Penang semiconductor ecosystem in Malaysia. The data collection was achieved through the use of focus group discussions, semi-structured interviews, and document reviews between April and July 2025. The results show that there are four drivers within Penang's ecosystem that distinguish this ecosystem from others namely, the existence of mature back-end manufacturing, deep and diversified supply chain network, the rise of local technology champions, and the presence of a geopolitically neutral investment climate that facilitates investment in supply chain diversification. The six structural barriers that have been identified include the lack of a domestic demand base for locally designed chips, continued talent deficits worsened by brain drain, infrastructure limitations, import dependent supply chains, insufficient funding for deep technology initiatives, and inadequate policy coordination. What is significant about the study is that there are five core ecosystem drivers namely, multinational corporations anchor, geopolitics, sustainability requirements, quality of the talent pool, and the intensity of the government policy that can function at the same time as both drivers and barriers depending on the context and strategy of each ecosystem actor.