Upgrading Malaysia’s Semiconductor Ecosystem

Economic Growth, LEG 2025, Malaysia, South Asia & Pacific

Guest blog by Kenneth Woo, LEG ’25

When I joined this course 10 weeks ago, I expected to learn new frameworks for economic growth. Coming from Malaysia’s national investment ecosystem, and working daily on cross-border technology and industrial strategy, I have been preoccupied with the question: How can Malaysia escape the middle-income trap and raise its economic complexity? 

I came into the course believing the answer lay in better strategies, clearer visions, stronger policies, and more competitive positioning. All of that still matters. But what I learned during this course is that growth may not be the product of a masterplan but a result of persistent, iterative, capability-building work done by real people solving real constraints.

Key Learnings

Growth is a process, not a plan 

The first big shift came from PDIA (Problem Driven Iterative Adaptation). Before the course, I had a natural instinct to look for the right strategy, the right design, the right answer. PDIA challenged that instinct. In complex systems like national development, solutions must be discovered, not designed upfront. This was uncomfortable but freeing. I learned that: 

  • You start with a concrete problem, not with a vision statement. 
  • You take small steps, not big, high-risk bets. 
  • You mobilize coalitions, not just write policies. 
  • You learn by doing, not by forecasting. 

This perspective fits Malaysia’s situation uncannily well. I believe our issue was never the lack of plans; we fail because we don’t learn fast enough, adapt fast enough, or build capabilities deep enough. 

Economic complexity explains why some places take off 

Professor Hausmann’s lessons were an intellectual breakthrough. The “letters and words” analogy helped me see growth not as sectors, but as capabilities that combine into activities. Suddenly, Penang’s success in the E&E / semicon sector and Malaysia’s bottlenecks made sense in a way they never had. Penang simply has more letters, ie. more firms, more engineers, more relationships, more tacit know-how, more collaborative density. The rest of Malaysia is still assembling the alphabet. 

This made me realise: the goal of industrial policy is not to “pick sectors”. It is to accumulate productive capabilities so that more activities become possible. 

Inclusion is not a social goal but an economic engine 

The Brookings Metro Monitor and OECD Inclusive Growth frameworks fundamentally reshaped my thinking. Previously, I saw inclusion as a desirable complement to growth. Now I see it as a precondition. When growth is narrow / concentrated in a few regions, firms, or skill groups, capabilities cannot scale. Talent leaks out. Innovation remains thin. Spillovers stay limited.

Malaysia’s semiconductor success rests heavily on Penang. The rest of the country struggles to participate meaningfully. This is a constraint on the country’s complexity frontier. I now understand why reducing spatial / productivity inequality is central to my growth challenge. 

Insights on my Growth Challenge: Upgrading Malaysia’s Semiconductor Ecosystem 

My growth challenge was: How can Malaysia leverage re-globalization to upgrade its semiconductor ecosystem as a pathway to higher economic complexity? 

The course helped to reframe how I approached this: 

From strategy-formulation to constraint-solving 

I began thinking in terms of “What is the right national strategy?”, but through PDIA and the fishbone diagnostic, I learned to ask instead: 

  • What exactly is holding us back? 
  • Which constraints matter most? 
  • Where are capabilities missing? 
  • Who needs to work together but isn’t? 

This shifted me from abstract planning to practical problem decomposition. 

From copying best practices to crawling the design space 

I also learned to avoid the trap of “best practice shopping”. Instead, I crawled the design space using: 

  • External best practices (e.g., Taiwan’s ITRI) as inspiration, not templates. 
  • Existing practice within Malaysia to find immediate improvements. 
  • Latent practice to provoke new ideas from within our ecosystem. 
  • Positive deviance to learn from Malaysian SMEs already succeeding quietly. 

This generated a more grounded and realistic portfolio of ideas than any top-down strategy could have. 

Malaysia already has more capability than we think 

The course helped me realize something I had overlooked: Malaysia’s ecosystem holds scattered pockets of high-value capability – just not yet activated, coordinated, or scaled. 

We have: 

  • SMEs doing advanced automation  
  • Engineers capable of moving into design and high-reliability electronics. 
  • MNCs willing to deepen local supply chains. 
  • Regions like Sarawak emerging with green-energy advantages. 

My role is not to create capability from scratch. It is also to connect, amplify, and diffuse what already exists. 

Using what I Learned 

A new way of doing strategy 

I will take PDIA’s mindset back into my daily work: 

  • Begin with real, grounded problems. 
  • Convene cross-agency teams early. 
  • Move in small, testable steps. 
  • Learn constantly from action. 
  • Build coalitions, especially with the private sector. 

This approach is more realistic for Malaysia’s political and institutional context. 

A new way of measuring progress 

I learned that measurement must go beyond GDP and FDI. I will push for indicators that track: 

  • Economic complexity, national and subnational. 
  • Capability deepening (talent pipelines, domestic suppliers). 
  • Spatial inclusion (productivity convergence across states). 
  • Firm-level upgrading (more Malaysian firms moving into high complexity activities). 

A new way of seeing my role 

I now see myself less as a strategist and more as a connector, coalition builder, and capability mobilizer. My work at Khazanah and in Malaysia’s technology ecosystems will reflect this shift. 

Open Questions

There are several deeper questions I now carry with me: 

  1. How do we institutionalize PDIA in governments? PDIA works when individuals push it, but institutions often revert to top-down planning.  How do we embed iterative learning into bureaucracies? 
  1. How do we scale local successes without oversimplifying them? Positive deviance examples are powerful, but scaling them risks losing the nuance that made them work. 
  1. What are the best governance structures for long-term industrial upgrading? How do we build durable coalitions when political cycles are short? 
  1. How can countries systematically identify green-growth capabilities using complexity thinking? Green growth is a huge opportunity, but how do we rigorously map where countries have adjacent capabilities? 
  1. How can we align political incentives with long-term capability-building? This remains the hardest part of economic transformation. 

This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. 63 Participants  successfully completed this 10-week online course in December 2025. These are their learning  journey  stories.