When global semiconductor firms began diversifying supply chains amid US-China tensions, Southeast Asia became a key beneficiary. Malaysia, Vietnam and Thailand moved quickly to position themselves for advanced manufacturing investment. But the nature of competition has changed fundamentally.

Today, investors are less driven by low-cost production and more by regulatory certainty, engineering talent, digital infrastructure and ecosystem strength. The race is no longer about attracting factories, but about building industrial capability.

Malaysia’s position reflects this transition. The country remains a key hub in electrical and electronics manufacturing, particularly in Penang’s semiconductor ecosystem. Global players such as Intel Corporation and Infineon Technologies continue to expand in Malaysia, reinforcing its role in global supply chains. At the same time, regional competition is intensifying in electric vehicles (EVs), batteries and advanced manufacturing.

The rapid rise of China’s electric vehicle industry is reshaping this landscape. Chinese EV players now lead globally in batteries, platforms and supply-chain integration, creating both competitive pressure and collaboration opportunities for Southeast Asia.

These themes were reflected at the Malaysia-China Forum on EV, Battery and New Energy Talent Development and Innovation (MCEF 2026) from May 13-15. Deputy Prime Minister Datuk Seri Ahmad Zahid Hamidi stressed that Malaysia and China must move beyond traditional trade and deepen cooperation in EVs, battery systems, renewable energy and smart manufacturing. He described the energy transition as one of the most significant industrial shifts of this era.

He also highlighted the complementarity between both countries — China’s technological leadership and industrial scale, and Malaysia’s strategic location, manufacturing base and growing talent pool. The emphasis, he noted, should be on deeper industrial collaboration, not just investment flows.

Across the region, competition for high-value investment is intensifying. The next winners will not be those offering the lowest costs, but those able to build technology capability, innovation capacity and strong industrial ecosystems.

This marks a structural shift. Cost advantages remain relevant, but they are no longer decisive. The focus must move from attracting more investment to attracting better investment projects that generate R&D, skills development and technological upgrading.

Industries such as semiconductors, EVs, batteries, AI-enabled manufacturing and green technology are now ecosystem-driven. Investors assess regulatory predictability, supply-chain resilience and talent depth as much as cost. Countries that fail to adapt risk remaining stuck in lower-value assembly roles.

Legal and regulatory certainty has become a strategic economic advantage. Investors understand regulation is necessary, but uncertainty is costly. What deters investment is inconsistency, overlapping approvals, shifting policies and unpredictable timelines.

Large industrial projects often span more than a decade. EV plants, semiconductor fabs and battery facilities require heavy capital and long execution cycles. Even small regulatory delays can materially affect investment decisions.

Companies increasingly compare countries not just on incentives, but on execution reliability — how efficiently approvals, land matters, environmental clearances and utilities are coordinated.

These are not abstract issues. Industrial players routinely cite approval timelines and regulatory coordination as key determinants of investment location. In fast-moving sectors like EVs and semiconductors, delays of even months can shift investment elsewhere.

Countries that offer stable and predictable policy environments gain a clear advantage. Faster approvals, digitalised systems and stronger inter-agency coordination improve investor confidence and reduce execution risk.

Legal certainty is therefore no longer just governance. It is industrial competitiveness.

As industrial projects become more complex and cross-border, legal and advisory institutions play a larger role in shaping outcomes. Modern investments involve supply chains, IP structures, technology licensing and joint ventures.

Law firms and advisers now act as intermediaries between investors, regulators and industrial partners. Their role goes beyond compliance to include structuring deals, managing risk and coordinating multi-stakeholder execution. This is particularly visible in Malaysia-China EV and battery collaborations, where investments increasingly combine manufacturing, technology transfer, supplier development and workforce training.

Without strong advisory ecosystems, investment risks remaining at the level of assembly operations rather than capability building. In advanced manufacturing, legal and institutional quality is now part of the investment decision itself.

Industrial transformation ultimately depends on talent. High-value industries require engineers, technicians and skilled industrial managers at scale.

Across the region, engineering shortages are increasingly cited as a binding constraint. In Malaysia, employers continue to highlight skills mismatches, limited industrial exposure and gaps in specialised technical capability despite rising graduate numbers.

At MCEF 2026, the deputy prime minister emphasised that Technical and Vocational Education and Training (TVET) will be central to Malaysia’s industrial strategy, particularly in EVs, batteries and advanced manufacturing. He positioned TVET as a key pillar in building a future-ready workforce and strengthening Malaysia-China collaboration in new energy industries.

This is especially critical in EV and battery value chains, where technologies such as power electronics, battery engineering and embedded systems require specialised skills that are still developing in many economies.

Closer alignment between industry and education is essential. Apprenticeship and dual-training systems, such as those in Germany and South Korea, provide useful models for integrating technical education with industrial needs.

Policy incentives should also shift towards outcomes such as patents, engineering employment, localisation progress and innovation capability rather than input-based subsidies.

Strategic partnerships are central to industrial upgrading. China’s leadership in EVs and battery systems creates major opportunities for regional collaboration, particularly in technology transfer, supply-chain integration and talent development.

Malaysia-China cooperation in EVs is increasingly moving beyond investment inflows into structured industrial collaboration, including training programmes, joint development initiatives and supplier ecosystem building.

Across Southeast Asia, competition is intensifying. Indonesia is building a battery ecosystem around nickel resources, Vietnam continues to expand electronics manufacturing, while Thailand is positioning itself as an EV production hub. Malaysia’s challenge is to move beyond assembly-based participation and strengthen engineering and technology capability within its industrial base.

However, partnership quality is critical. Without structured mechanisms, joint ventures risk remaining low-value operations with limited knowledge transfer. Effective collaboration requires structured technology transfer, shared R&D, supplier development and meaningful participation of local engineers in core technical roles.

Localisation must be gradual and pragmatic. Complex industries cannot be fully localised overnight. But overdependence on imports and foreign expertise creates long-term vulnerability.

A phased approach from assembly to component manufacturing, then engineering participation and R&D capability is essential for sustainable industrial development. SMEs are central to this transition. They provide supply-chain depth and local value creation, but many still face challenges in meeting global standards for quality, certification and precision manufacturing.

For Malaysia, the EV and battery transition presents both opportunity and pressure. Firms that upgrade can integrate into global value chains; those that do not risk marginalisation in a more demanding industrial environment.

The next industrial phase will not be defined by capital attraction alone. It will depend on ecosystems that combine policy certainty, talent development, technological capability and strategic collaboration.

Countries that align these elements will move up global value chains. Those relying solely on incentives may continue attracting investment but risk stagnating in lower-value segments. For Malaysia, the foundations are strong: established industrial clusters, a leading semiconductor position and growing collaboration with China in EVs, batteries and new energy.

The key question is whether these strengths can be converted into sustained technological upgrading. With regulatory predictability, talent development and deeper Malaysia-China industrial cooperation, Malaysia has an opportunity not just to participate in the next industrial wave, but to help shape it.

S Saravana Kumar is a partner with the law firm, Rosli Dahlan Saravana Partnership. This commentary is adapted from the presentation delivered by the author at the Malaysia-China Forum on EV, Battery and New Energy Talent Development and Innovation.