Chuping Valley Development Plan
                   a) Building Materials
                   Within construction, the use of Green building materials has
                   the potential to provide numerous benefits to commercial
                   developers and contractors. These could come in the form of
                   cost savings (decreasing building operating costs through
                   more efficient energy use - by 9%), an increase in building
                   value given increased vacancy and more economical use of
                   space (by 7%) and hence, an overall increase in a building’s
                   Return On Investment (ROI) (by 6%)64. Domestic and regional
                   trends indicate increased awareness of these benefits; with
                   upward trends observed among Green Building Index (GBI)
                   certified buildings in Malaysia (Figure 5.34) and Leadership in
                   Energy and Environmental Design (LEED) certified buildings in
                   Thailand (Figure 5.35) – certifications which help determine the
                   characteristics a building must have to merit the word “Green”
                   6566.
                     Figure 5.34: GBI Certified Projects in Malaysia (2009-2014)
                    Figure 5.35: LEED Certified Buildings in Thailand (2007-2013)
                   Given these trends, development in Lembah Chuping will
                   focus on Green building applications such as internal insulation
                   boards, piping, internal flooring and roofing. Neighboring parks
                   will be evaluated based on their ability to complement the
                   manufacturing of these products.
64 http://www.greenbuildingindex.org/why-green-buildings.html
65 http://www.greenbuildingindex.org/how-GBI-works2.html
66 http://www.archdaily.com/227934/where-is-leed-leading-us-and-should-we-follow/
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                   The presence of contractors and developers within
                   surrounding industrial estates can provide downstream
                   support…
  Figure 5.36: Value Chain Support provided by Bukit Kayu Hitam, Prai, Bayan
         Lepas and Kuala Ketil Industrial Estates - Green Building Materials
                   The majority of firms associated with Green Building Materials
                   within surrounding industrial parks support the industry’s
                   downstream operations, particularly in ‘Sales, Marketing &
                   Distribution’ and ‘After Sale Services’ (Figure 5.36). These
                   players (suppliers of construction materials, hardware
                   providers and contractors) represent the appropriate target
                   market for building material manufacturers, being involved in
                   the sale of construction materials in addition to the actual
                   assembling of property-based infrastructure. Their presence in
                   the Northern Corridor implies the presence of a client base and
                   existing distribution channels. Furthermore, the presence of
                   just two (2) firms at the ‘Manufacturing and Assembly' stage
                   implies a lack of competition from surrounding industrial
                   estates. However, there is a lack of support at the upstream
                   stage with only one (1) firm involved in the ‘Procurement of
                   Raw Materials’.
                   b) Automotive Components
                   As automotive designers and manufacturers try to produce
                   cars more economically and less polluting, the materials that
                   cars are made out of and their environmental credentials both
                   in manufacture and disposal are becoming increasingly
                   important. One of the advantages of Green automotive
                   components are lighter, more cost-effective vehicles; with the
                   rule-of-thumb being that 5% less weight equates to average
                   fuel savings of 3%67. In addition, the materials used in
                   production may not be as affected by petrol prices as
                   petroleum-based products, having been manufactured from
67 http://www.plasticsnews.com/article/20120731/NEWS/307319980/automotive-giants-turn-to-bioplastics-
worldwide
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renewable products. In fact, prominent auto companies are
already using Green materials in component manufacturing; 3
of which have been ranked in the top 10 biggest auto
companies in 201468 (Table 5.4). The size and reach of these
companies could indicate the presence of a global market for
Green automotive components. Products with existing
commercial success include Green automotive mats and
carpets, door panels, and seat cushions.
Table 5.4: Use of Green Materials among Prominent Auto Companies
                                       (2012)
Company         Materials Used                                  Application
                          Soy-foam                              Seat Cushions
Ford                                                            Door Bolsters
                             Kenaf
Fiat Soy-Polylol                                                Seat Cushions
Toyota              Sugar-Case based PET                        Vehicle Liners
                (Polyethylene Terephthalate)
Mazda           Bio-fabric                                      Seat Covers
Mercedes        Wood Fibres, Bio-plastics                       Door Panels
Daimler         Kenaf, Flax, Sisal                              Door Linings
Source: Forbes
Automotive service providers could act as end-markets
for Green materials produced in Lembah Chuping …
Figure 5.37: Value Chain Support provided by Bukit Kayu Hitam, Prai, Kuala
Ketil and Sungai Petani Industrial Estates – Green Automotive Components
68 http://www.forbes.com/pictures/eimi45eilh/no-10-saic-motor/
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The majority of surrounding industrial estates could provide
downstream support for Green auto components
manufacturers in Lembah Chuping (Figure 5.37). This support
will come in the form of auto-service providers and suppliers of
spare parts; with interior maintenance and repair serving as
the main industrial application for kenaf-based products. In line
with this, the integration of Green components (front and back
bumpers, door panels, seat backs, package trays and
dashboards) is currently being promoted by the Malaysia
Automotive Institute (MAI); with MAI believing that the
programme is of national importance – being part of a
roadmap to support Malaysia becoming an ASEAN hub for
Green automotive applications69.
Conclusion – Green Building Materials & Automotive
Components
Potential investors should focus on establishing
relationships with suppliers of raw materials …
Figure 5.38: Proposed Green Materials Investor Functions
     Overall, the support provided by surrounding estates for both
     building materials and automotive components at the
     downstream stage focuses on ‘Sales, Marketing and
     Distribution’ and ‘After-Sales Services’ functions (Figure 5.38).
     As investors into Lembah Chuping will primarily be involved in
     activities associated with ‘Material Processing’ and
     ‘Manufacturing and Assembly’, the critical areas of value chain
     support will be among upstream operations (more specifically
     ‘Procurement of Raw Materials’). Potential investors will have
     to establish sufficient relationships with kenaf
     harvesters/vegetable oil producers to ensure a sustainable
     supply of necessary raw materials.
69 Malaysian Automotive Institute
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         5.3.2 Electrical & Electronics (E&E)
                   For E&E, the focus will be placed on sectors that are in line
                   with existing government initiatives; Entry Point Programs
                   (EPPs) outlined in the Economic Transformation Programme
                   (ETP)70 defined as follows (Figure 5.39):
                   i) Semiconductor Manufacturing
                                  EPP 3: Developing Integrated Circuit Design Firms
                                  EPP 4: Supporting the Growth of Substrate
                                  Manufacturers and Related Industries
                   ii) Solar Component Manufacturing
                                  EPP 6: Growing Wafer and Cell Producers
                                  EPP 7: Increasing Solar Module Producers
                   iii) Advanced LED Manufacturing Functions
                                  EPP 8: Developing LED Front-End Operations
                                  EPP 9: Expanding LED Packaging and Equipment
Source: PEMANDU
                     Figure 5.39: Snapshot of Malaysia's E&E Industry
70 http://etp.pemandu.gov.my/Electrical_-%E2%97%98-_Electronics-@-Electrical_-%E2%97%98-
_Electronics.aspx
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a) Semiconductor Manufacturing
Figure 5.40: Semiconductor Manufacturing Value Chain
Integrated Circuit Design and Substrate Manufacturing involve
the design and creation of essential electronic components
such as transistors, resistors, capacitors in addition to the
joining of these components onto a semiconductor wafer;
intermediate functions of electronic manufacturing that require
highly skilled employees and the use of intellectual property71.
The government is currently trying to encourage a Malaysian
presence in both sectors, therefore their development in
Lembah Chuping could facilitate the provision of higher value
added services within the domestic industry (Figure 5.40).
Therefore, in this Chapter, surrounding industrial parks will be
assessed based on their ability to complement these proposed
functions; where wafer fabrication and substrate
manufacturing will be the areas of focus for development
within ‘Intermediate Component Production’ (Figure 5.40). The
semiconductor value chain is defined as follows (Table 5.5):
Table 5.5: Value Chain Definition – Semiconductor Manufacturing
Stage of Value Chain                               Description
R&D                     Provision of Device/Integrated Circuit
                        Design Services
Intermediate Component  Supply of Machinery/Manufacturing of
         Production     Wafers, Substrates, Diodes, Transistors,
                        Sensors, Printed Circuit Boards, Wire
                        Components, Diodes, Transistors,
                        Switchboards, Plastic Components
Testing/Packaging       Provision of Injection Moulding/ Product
                        Testing Machinery and Services
Final Testing/Assembly  Provision of Product Testing
                        Services/Machinery, in addition to final
                        component assembly services/ machinery
Distribution            Physical Packaging/Wholesale of E&E
                        Components
       End Product      Wholesale/Retail Distribution/Repair and
Assembly/Distribution   Maintenance of Semiconductors or E&E
                        Components
Source: DISCO – Kiru, Kezuru, Migaku Technologies
71 http://etp.pemandu.gov.my/upload/etp_handbook_chapter_11_electronics_and_electrical.pdf
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                   Sungai Petani & Kuala Ketil
                   Firms within Sungai Petani and Kuala Ketil could serve as
                   end-markets for intermediate components
           Figure 5.41: Value Chain Support Provided by Sungai Petani and Kuala
                                                Ketil – E&E72
                   Support for intermediate component production among firms in
                   Sungai Petani and Kuala Ketil is primarily focused on
                   downstream operations; the majority of relevant firms are
                   involved in the ‘Distribution and ‘End Product
                   Assembly/Distribution’ stages of the value chain (Figure 5.41).
                   Among downstream operations, business activities generally
                   deal with E&E component supply; with service offerings
                   including the distribution and repair of semi-conductor related
                   products (printed circuit boards, electrolytic capacitors, cable
                   connectors). These firms could potentially serve as end-
                   markets for intermediate semi-conductor components (wafers)
                   produced in Lembah Chuping.
                   Kulim Hi-Tech Park
                   Despite the presence of competing firms in KHTP, Lembah
                   Chuping can leverage the lack of firms at this stage of the
                   value chain on a national level…
              Figure 5.42: Value Chain Support provided by Kulim Hi-Tech Park -
                                  Solar Component Manufacturing
72 Support firms may perform activities related to one or more stages of the value chain, hence the total
   number of firms may not correspond to the number of firms indicated in this figure
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Chuping Valley Development Plan
         Within Kulim Hi-Tech Park, there are two (2) firms that deal
         specifically with wafer fabrication; Infineon Technologies and
         SilTerra. Among the other tenants, three (3) other players are
         involved in the other aspects of semiconductor production;
         wafer purification and the supply of machinery and the
         manufacturing of components for semiconductor testing and
         assembly (Figure 5.42). Traditionally, Malaysia’s focus in E&E
         has been on assembly, relatively lower value-added activities,
         while countries like Taiwan, South Korea and Singapore are
         involved in higher value-added activities in research and
         development (R&D), design and manufacturing. In addition,
         Integrated Circuit (IC) trade statistics point towards a need to
         develop IC component manufacturing domestically; as
         Malaysia’s contribution was valued at just 3.65% of the total
         global market in 2014, ranking 9th behind Taiwan, South Korea,
         China, the US, Japan and Singapore (Figure 5.42). Therefore,
         despite some competition from firms in KHTP, the
         development of semiconductor manufacturing in Lembah
         Chuping could contribute further to the overall
         development of wafer fabrication activities in Malaysia
         towards higher value-added products.
Source: Observatory of Economic Complexity - Massachusetts Institute of
            Technology
Figure 5.43: Integrated Circuit Export Contributions by Country (2014)
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Chuping Valley Development Plan
         Prai Industrial Estate & Bayan Lepas FTZ (Free Trade
         Zone)
         Despite the presence of wafer fabrication facilities,
         Penang’s abundance of midstream and downstream firms
         could decrease E&E component lead times…
Figure 5.44: Value Chain Support Provided by Prai & Bayan Lepas E&E
         Given that Penang is an established E&E hub, firms within Prai
         and Bayan Lepas are able to provide support across the value
         chain; with a large proportion facilitating the testing and
         assembly of semiconductor-related products; about 37% of the
         total firms in Bayan Lepas and 27% in Prai (Figure 5.44)
         respectively. Of note, among the firms involved in
         ‘Intermediate Component Supply’, only 12% of firms deal
         with wafer fabrication and substrate manufacturing; 4
         firms in Bayan Lepas and none in Prai (Figure 5.45).
         Despite the potential for these firms to compete with substrate
         and wafer related activities in Lembah Chuping, the lack of
         these facilities at a national level (there are currently only five
         (5) wafer fabrication facilities in the whole of Malaysia), and the
         alignment of these developments with government initiatives
         (Figure 5.46) point to the feasibility of further developing these
         capabilities within the Northern Corridor. Overall, the presence
         of midstream and downstream support from Penang could
         assist with component testing and assembly procedures.
Figure 5.45: Composition of Intermediate Component Firms - Penang
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Chuping Valley Development Plan
                   Conclusion
                   Overall, there is no lack of midstream and downstream
                   support for the semiconductor sector in Lembah Chuping
                Figure 5.46: Proposed Semiconductor Investor Functions
                   Value chain support provided for Lembah Chuping’s proposed
                   semiconductor sector is primarily focused on the industry’s
                   midstream and downstream operations; with an abundance of
                   firms providing testing, product assembly and end-product
                   distribution services. Given the lack of upstream support,
                   investors into Lembah Chuping may want to consider ‘R&D’
                   (integrated circuit design) in addition to ‘Intermediate
                   Component Production’ should they have the capability or
                   capacity.
                   b) Solar Component Manufacturing
               Figure 5.47: Solar Component Manufacturing Value Chain
                   Solar component manufacturing encompasses the production
                   and testing of all necessary parts (cells, modules and wafers)
                   to produce solar panels (Figure 5.47). Currently, there are only
                   five (5) companies who produce solar components in Malaysia;
                   with a combined production capacity73 of 2.3 GW. Globally,
                   demand for panels is on the rise; a result of a decrease in price
                   (Figure 5.48), and from a local perspective, an embargo on
                   Chinese manufactured solar components has contributed to
                   increasing the sales of Malaysian produced panels
                   internationally74.
73 The cells and wafers produced have the capacity to generate a certain amount of energy
74 http://nyti.ms/12AhpER
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Source: Clean Technical
               Figure 5.48: Price of Solar Panels per Watt
         In line with this, PEMANDU has a goal of making Malaysia the
         second largest producer of solar components globally75, hoping
         to increase domestic production capacity by 10 times (to 23
         GW) by 2020. The solar value chain is defined as the following
         (Table 5.6):
Table 5.6: Value Chain Definition - Solar Component Manufacturing
Stage of Value Chain                                     Description
                 R&D/Design        Product Design, Development, Evaluation
            Component Supply       and Testing of Materials
        Construction/Installation
           End Product Supply      Manufacture/Supply of Solar Wafers, Cells,
   After Sale Service/Maintenance  Modules and Panels
Source: First Solar
                                   Construction of Required Infrastructure/
                                   Installation of Solar Panels
                                   Generation of Solar Power
                                   Maintenance/Repair of Panels, Recycling of
                                   Panels at the end of their useful life
75 http://etp.pemandu.gov.my/electronics_and_electrical
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                   Kulim Hi-Tech Park & Bayan Lepas FTZ (Free Trade Zone)
                   Despite the limited number of solar firms in KHTP,
                   company size and the range of services offered could
                   compete with solar component infrastructure in Lembah
                   Chuping
      Figure 5.49: Support provided by KHTP and Bayan Lepas FTZ – Solar
                                      Component Manufacturing
                   Despite the fact that there are a limited number of firms
                   undertaking solar component manufacturing in the area
                   surrounding Lembah Chuping (Figure 5.49), the size of these
                   players points towards their status as global competitors. First
                   Solar alone reached a cumulative production of 3,000MW
                   (more than 38,000 solar panels output)76 and were ranked in
                   the top 10 biggest listed solar companies in 201477. Within
                   KHTP, First Solar offer extensive design, installation,
                   operations and maintenance services in addition to component
                   supply, while Panasonic Energy’s competency is solely
                   focused on component supply. Furthermore, within Bayan
                   Lepas, TT Vision Technologies provides machinery and
                   solutions for solar wafer and cell inspection. Despite the fact
                   that TT Vision Technologies’ offerings could complement
                   operations (being used to test panels), the production
                   capacities of First Solar and Panasonic Energy could compete
                   with operations in Lembah Chuping.
                   Conclusion – Solar Component Manufacturing
                   Given the competition and the lack of solar service
                   providers in the Northern Corridor, potential investors
                   should possess capabilities across the value chain
76http://seda.gov.my/gohome.php?omaneg=00010100000001010101000100001000000000000000000000
   &y=45&s=1035
77 http://www.solarplaza.com/top10-stock-listed-companies-market-capitalization2/
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    Figure 5.50: Proposed Solar Component Manufacturing Investor Function
                   Despite the production capacities of both Panasonic Energy
                   and First Solar Sdn Bhd, the Malaysian solar industry is still in
                   its infancy; there are only 5 companies present domestically,
                   all of whom offer services across the value chain78.
                   Furthermore, a lack of solar service providers79 in the Northern
                   Corridor could hinder the actual installation and distribution of
                   panels; the total number of providers in Kedah and Penang
                   make up only 10% of the total in Malaysia, with no service
                   providers residing in Perlis (Figure 5.50). As a result, potential
                   solar component investors considering investing in
                   Lembah Chuping should offer services across the value
                   chain to ensure a stable supply of support for their
                   services, and to compete with existing players in the
                   Northern Corridor.
                           Northern Corridor Service Providers: 10%
                                                 of Total
                   Figure 5.51: PV Service Providers in Malaysia (2015)
78 Websites of SEDA, First Solar, Q-Cells Solar, AUO SunPower, Panasonic Energy Sdn Bhd and EQ
Solar
79 Provide design and installation services in addition to supplying solar components (modules and
inverters)
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Chuping Valley Development Plan
c) LED Manufacturing
                                            $0.76
Figure 5.52: LED Manufacturing Value Chain
Currently, Malaysia’s LED market is worth USD 40 billion,
employing over 200,000 workers80. Despite the size of this
sector, the majority of domestic Solid State Lighting (SSL)81
companies are involved in the industry’s downstream
operations; contract manufacturing of heating and optical
components, assembly, packaging, testing and distribution
services. The present state of the industry is such that there is
currently a market for specific LED component manufacturers
(Figure 5.51); various semiconductor and television
manufacturers have vertically integrated as a mode of market
entry and are now offering these components82. In line with
this, the focus of Lembah Chuping will be on developing
niche LED component sectors (Substrate/OLED
manufacturing and the introduction of epitaxy-based
companies) in line with the government’s E&E focus (Figure
5.52). For the purpose of this Chapter, the LED Manufacturing
value chain will be defined as follows:
Table 5.7: Value Chain Definition - LED Manufacturing
 Stage of Value Chain                              Description
 K                       Research, Design and Testing to Improve Product
 u R&D                   Efficacy and to Simplify Package Design
 l
Ciomponent Production    Manufacture/Supply/Testing of Optical, Electrical
 m                       and Mechanical LED Components – Wafers,
                         Semiconductors, Resistors, Transistors, Modules,
 H                       Chips, Arrays
 i Lamp Production
 -                       Testing/Final Assembly of all Components into an
 T                       LED/OLED Light Bulb (Plastic Injection Moulding
Leuminaire Production    Services Included)
 c
 h Lighting Design       Manufacture/Supply of Light Fixtures
 PInstallation Services  Service Providers: LED Design for
 a                       Industrial/Commercial/Residential Applications
                         Service Providers: LED Installation and
                         Replacement for Commercial/Residential Properties
                         Source: AT&Kearney
80 http://www.businesscircle.com.my/malaysian-led-consortium-targets-rm100m-sales/
81 A type of lighting that uses semiconductor LEDs, organic LED (OLEDs), and polymer LEDs (PLEDs) as
   sources of illumination
82 http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/how-led-is-revolutionizing-
   the-lighting-sector/10192
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                 Kulim Hi-Tech Park
                 Large players in KHTP could pose a competitive threat to
                 front-end LED operators in Lembah Chuping
  Figure 5.53: Value Chain Support Provided by KHTP - LED Manufacturing
                 Within KHTP, three (3) companies have the potential to
                 compete with other front-end LED operations in Lembah
                 Chuping (Figure 5.53). These are Silterra, Infineon and
                 Entegris Malaysia Sdn Bhd. Though they largely focus on
                 semiconductor component manufacturing, these players have
                 leveraged their proximity to Penang’s E&E sector to delve into
                 LED component and lamp production; offering wafers
                 (classified as an aspect of ‘Component Production’ that will be
                 undertaken by Lembah Chuping) in addition to strips, light
                 engines, drivers, and lamps (classified under ‘Lamp
                 Production’). Given the varied industrial applications of these
                 products, they could pose a threat to new front-end LED
                 entrants in Lembah Chuping.
                 Prai Industrial Estate & Bayan Lepas FTZ (Free Trade
                 Zone)
                 Despite the presence of large vertically integrated LED
                 component manufacturers in Penang, the scope of
                 products offered is fairly limited
Figure 5.54: Value Chain Support Provided by Prai Industrial Estate & Bayan
                                Lepas FTZ - LED Manufacturing
                 Given Malaysia’s role as a producer of LED products, Penang
                 as an E&E hub has firms along multiple stages of the LED
                 manufacturing value chain (Figure 5.54). As with players in
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Chuping Valley Development Plan
                   KHTP, the majority of component manufacturers are vertically-
                   integrated semiconductor firms. However, their range of
                   components offered is quite limited; with the majority of firms in
                   Bayan Lepas producing LED drivers, and only one (1)
                   substrate manufacturer present – in Prai Industrial Estate
                   (Figure 5.55). This point to the feasibility of developing other
                   government-promoted front-end LED operations83 in Lembah
                   Chuping. Furthermore, midstream and downstream firms, (in
                   ‘Lamp Production’, ‘Luminaire Production’ and ‘Lighting
                   Design’) represent end-markets for front-end components
                   produced in Lembah Chuping.
             Figure 5.55: Composition of LED Component Manufacturers - Bayan
                                Lepas FTZ & Prai Industrial Estate
                   Conclusion – LED Manufacturing
                   Potential investors should focus on niche component
                   manufacturing while also possessing some midstream
                   capabilities
                       Figure 5.56: Proposed LED Investor Functions
                   From a local perspective, domestic manufacturers are gearing
                   up for an increase in regional demand; with China expected to
                   account for 45% of the global general lighting market by
83 Substrate (sapphire and carrier), epitaxy, mirror and phosphor manufacturing
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Chuping Valley Development Plan
                   202084, and Thailand’s LED market expected to grow by 30%
                   per annum over the next 5 years85. In line with this demand
                   and the increasing global development of niche component
                   sectors, potential investors into Lembah Chuping should align
                   themselves with government promoted aspects of LED
                   ‘Component Production’ – Materials and Substrate
                   manufacturing, Epitaxy manufacturing, and LED wafer
                   fabrication. Although there are only two (2) firms undertaking
                   the above activities within the Northern Corridor, there is a
                   concentration of other vertically-integrated component firms
                   with both upstream (‘Component Production’) and midstream
                   (‘Lamp Production’’) capabilities within Lembah Chuping’s
                   surrounding vicinity. Hence, investors into Lembah Chuping
                   should still specialise in niche86 ‘Component Production’
                   but also look to attract somewhat vertically-integrated
                   firms (with ‘R&D’ and ‘Lamp Production’ capabilities), to
                   compete with existing players in the region.
         5.3.3 Halal Industries
                            Figure 5.57: Halal Industry Value Chain
                   Malaysia’s profile as a halal exporter has changed over the
                   past 10 years; with the focus shifting from F&B (farm to table87)
                   to include higher value added goods such as cosmetics and
                   body care products. Support for the local halal industry
                   continues to be provided in the form of increased funding, with
                   the SME Bank announcing another RM200 million to its Halal
                   Industry Fund in 2013 for SMEs to add value or improve their
                   halal products88. This focus is consistent with Phase 2 (2010-
                   2015 of HDC’s (Halal Development Corporation) Halal Industry
                   Master Plan; aiming to establish Malaysia as a preferred
84 http://www.chinapost.com.tw/life/science-and-technology/2012/06/05/343310/Malaysia-LED.htm
85 http://www.matrade.gov.my/en/archive/archive-press-release-2013/2727-thailand-led-lighting-market-on-
   the-rise-15-february-2013
86 Refers to the manufacturing of one or more of the components outlined under ‘Component Production’ –
Table 6
87 refers to the stages of the production of food: harvesting, storage, processing, packaging, sales,
and consumption
88 http://www.freemalaysiatoday.com/category/business/2013/03/22/halal-industry-fund-for-smes-to-
   improve-halal-products/
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Chuping Valley Development Plan
location for halal-related businesses (Figure 5.57). For the
purpose of this Chapter, activities along the halal industry
value chain will be defined as follows (Table 5.8):
Table 5.8: Value Chain Definition - Halal Industries
Stage of Value Chain                 Description
                       F&B Pharmaceuticals
R&D                    Development of new        Clinical development &
                       products/ more efficient  testing of new therapeutic
                       production processes      products for regulatory
                                                 approval & patient delivery
Procurement of Raw     Sourcing/Purchasing of Raw Materials for Manufacturing
       Materials
Inbound Logistics      Receiving, warehousing of raw materials, distribution of
                       materials to manufacturing facilities
Material Processing    Testing and Processing (Filtration, Purification, etc) of Raw
                       Materials to make them adequate for Manufacturing
Manufacturing and      Production and Testing of End Products
      Assembly
Outbound Logistics     Warehousing and distribution of finished goods
Distribution, Sales &  Wholesale/Retail Distribution of end products
      Marketing
a) F&B Manufacturing
Halal food and beverage manufacturing encompasses the
production of fast-moving consumer goods, primary meat
products and non-alcoholic beverages for domestic
consumption and international export. Within Malaysia, this
sector is already established; with Halal F&B manufacturers
making up approximately 60% of all Halal certified companies
2009 and 2012 (Figure 5.56). Trade statistics also point
towards the export potential of these goods; halal F&B exports
increased from 37.3% to 40.8% of all halal exports between
2012 and 2013. Given this, another aspect of Lembah
Chuping’s focus will be on Halal F&B manufacturing.
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Chuping Valley Development Plan
                    Source: Halal Industry Development Corporation (HDC) via JAKIM
Figure 5.58: Total Number of Halal Certified Companies in Malaysia (2009-
                                                 2012)
                Despite potential competition from surrounding estates,
                the range of existing products and the availability of
                downstream support could facilitate the entry of additional
                F&B manufacturers into Lembah Chuping
       Figure 5.59: Value Chain Support provided by Bayan Lepas, Bukit Kayu
         Hitam, Prai, Kuala Ketil & Sungai Petani Industrial Estates - Halal F&B
                                                 manufacturing
                Leveraging their product export potential and the extensive
                logistics infrastructure available, the strongest F&B presence is
                observed in Penang; with 65% of all relevant firms undertaking
                F&B ‘Manufacturing and Assembly’ residing in Prai and Bayan
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Chuping Valley Development Plan
 Lepas (Figure 5.58). Despite being involved in similar
 operations, these firms may not compete with halal F&B
 activities in Lembah Chuping given that the range of products
 offered is fairly limited. Existing players from surrounding
 estates are involved in sauces, different food powders, coffee
 and confectionary products, hence F&B manufacturers of other
 products to may consider locating its operations in Lembah
 Chuping With regards to the industry’s downstream operations,
 Lembah Chuping’s proximity to the Thai border (15 km) could
 facilitate international exports, while firms in surrounding
 industrial estates could aid domestic product distribution; given
 the presence of wholesalers, restaurants and convenience
 stores.
 Conclusion – F&B Manufacturing
 As with the case of halal pharmaceuticals, potential
 investors should have some degree of control over their
 ingredients and manufacturing processes to ensure
 regulatory compliance
Figure 5.60: Proposed Halal F&B Investor Functions
 As with the case of pharmaceutical manufacturing, potential
 investor focus on the ‘Material Processing’ and ‘Manufacturing
 and Assembly’ stages must be accompanied with some control
 over the ‘R&D’ and ‘Procurement of Raw Materials’ stages of
 the value chain; to ensure that ingredients and processes are
 JAKIM certified. Furthermore, potential investors may have to
 outsource certain testing procedures at the ‘Material
 Processing’ and ‘Manufacturing and Assembly’ stages; to
 ensure that products are halal (Figure 5.60). This implies a
 need to establish relationships with facilities that can perform
 these services. The scope of F&B distributors also implies that
 the supply of end-products could have a regional reach; with
 facilities in Singapore and Thailand.
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                   b) Pharmaceutical Manufacturing
                   Halal pharmaceutical and cosmetic manufacturing is a
                   potentially lucrative sector; occupying 37% of the 2.3 trillion
                   USD global halal market in 2013 (Figure 5.61). This sector is
                   already on the rise domestically, with Malaysia exporting $615
                   million USD worth of halal cosmetics and personal care
                   products in 2013 – a 19% increase from 2012. Furthermore,
                   this type of manufacturing requires a highly skilled labour
                   force; with the majority of pharmaceutical science jobs
                   requiring masters or doctorate qualifications89. The
                   development of this sector will not just cater to international
                   product demand, but will also be consistent with Perlis’ goal of
                   creating skilled jobs in Lembah Chuping.
                       Source: Halal Industry Development Corporation (HDC) via Euromonitor
                              Figure 5.61: Global Halal Market Size in 2013 (USD)
                   Kulim Hi-Tech Park
                   KHTP could provide R&D support to Halal pharmaceutical
                   manufacturers in Lembah Chuping…
              Figure 5.62: Value Chain Support provided by Kulim Hi-Tech Park –
                               Halal Pharmaceutical Manufacturing
89
http://educationportal.com/articles/Pharmaceutical_Science_Professions_Job_Duties_and_Info_About_Car
eers_in_P
harma_Science.html
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Chuping Valley Development Plan
                   Upstream support from KHTP could be provided in the form of
                   R&D capabilities (bio-processing, compounding, synthesis,
                   filtration and purification of relevant chemicals), in addition to
                   active ingredient/ excipient supply; these services are
                   consistent with pharmaceutical requirements at the ‘R&D’,
                   ‘Procurement of Materials’ and ‘Material Processing’ stages of
                   the value chain (Figure 5.62). Domestic trends show that the
                   majority of Malaysian pharmaceutical players have the ability
                   to manufacture generic and OTC (over-the-counter) drugs, but
                   lack the necessary R&D capabilities to develop high-value
                   added prescription products; up to 70% of pharmaceutical
                   demand for contemporary diseases (high cholesterol, diabetes,
                   cardiovascular ailments and cancer) is satisfied by
                   international sources90. Given this, the proximity of these
                   services could facilitate the development of higher-value added
                   halal pharmaceutical products in Lembah Chuping.
                   Kuala Ketil
                   The presence of midstream component- support firms in
                   Kuala Ketil could increase the efficiency of
                   pharmaceutical operations
          Figure 5.63: Value Chain Support provided by Kuala Ketil - Halal
                                   Pharmaceutical Manufacturing
                   Despite Kuala Ketil’s small size, there are firms present that
                   are able to provide midstream support to Lembah Chuping’s
                   halal pharmaceutical sector. Relevant players focus on
                   medical equipment sterilisation, goods packaging and rubber
                   glove manufacturing; products and services that can be used
                   in both the ‘Material Processing’ and ‘Manufacturing and
                   Assembly’ stages specifically when combining relevant raw
                   materials, and preparing finished products for distribution
                   (Figure 5.63). It is important to note that these organisations
                   are not involved in the actual manufacturing of
90 PhAMA Industry Factbook
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Chuping Valley Development Plan
                   pharmaceuticals, but that they manufacture components
                   that can be used in the pharmaceutical manufacturing
                   process. Therefore, the presence of these firms within
                   close proximity could facilitate more efficient operations;
                   given that the quick sourcing of these components could
                   decrease pharmaceutical product lead times.
                   Prai and Bayan Lepas FTZ (Free Trade Zone)
                   Despite the presence of large pharmaceutical
                   manufacturers, the availability of downstream support
                   from Bayan Lepas could facilitate the regional distribution
                   of halal pharmaceutical products
Figure 5.64: Value Chain Support provided by Prai & Bayan Lepas FTZ – Halal
                                   Pharmaceutical Manufacturing
                   Within Penang, downstream support is available from logistics
                   providers (freight forwarding, warehousing and customs
                   brokerage services) and pharmaceutical distributors
                   (wholesalers and retailers) from Bayan Lepas (Figure 5.64).
                   The presence of these services within close proximity to
                   Lembah Chuping could facilitate the distribution of halal
                   pharmaceuticals, while also aiding the transport of raw
                   materials and finished goods to and from Lembah Chuping.
                   However, the presence of two (2) pharmaceutical
                   manufacturers, both of which possess a diverse range of
                   products, could create a difficult environment for potential
                   pharmaceutical entrants into Lembah Chuping. Despite not
                   being explicitly labelled as halal certified, these players’
                   regional reach (given the presence of multiple offices around
                   South East Asia) and product range could compete with that of
                   a new pharmaceutical player in Lembah Chuping.
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Chuping Valley Development Plan
Conclusion – Pharmaceutical Manufacturing
Potential investors should have some control over their
upstream processes and raw materials, while also establishing
relationships with additional distributors to enable increased
market penetration…
Figure 5.65: Proposed Halal Pharmaceutical Investor Functions
         Given that drug companies in surrounding estates could
         compete with pharmaceutical operations in Lembah Chuping,
         potential investors could use halal pharmaceutical
         manufacturing as a form of competitive advantage. Despite the
         availability of downstream support, it is limited (only 6 firms
         across all relevant industrial estates involved in ‘Distribution,
         Sales & Marketing’) (Figure 5.65). Therefore, despite their
         focus being on ‘Material Processing’ and ‘Manufacturing
         and Assembly’, potential investors should look into
         having sufficient control over their upstream processes
         and raw materials (to make certain that they are JAKIM
         certified), while also establishing relationships with
         distributors outside of the surrounding area to facilitate
         more widespread domestic and international product
         penetration.
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Chuping Valley Development Plan
 5.3.4 General Support
           There are certain surrounding industrial parks that provide
           products and services which may complement all proposed
           industries. This Chapter will detail the specifics of these
           offerings, and the methods by which they are able to
           complement operations in Lembah Chuping.
           An abundance of logistics firms in surrounding estates
           could facilitate the import and export of goods to and from
           Lembah Chuping...
       Figure 5.66: Logistics Support for All Proposed Industries
           Firms in surrounding parks undertake logistics efforts for a
           variety of industries. The services offered range from
           transportation and distribution (traditional, open box and
           refrigerated – domestic and cross border), container haulage
           (to both domestic and international destinations), warehousing,
           and material transfer. For the majority of these players, their
           locations are strategic given their proximity to international
           borders; with storage and warehousing facilities in various
           cities in Thailand, Vietnam, China and Singapore. This range
           of capabilities has the potential to cater to the inbound and
           outbound logistics needs of all proposed industries –
           facilitating the extensive distribution of raw materials,
           intermediate goods and end-products (Figure 5.66).
           Sungai Petani Industrial Estate
           ...While industrial construction firms within other parks in
           Sungai Petani could aid facility renovation efforts
Figure 5.67: Composition of Plant/Facility Related Firms - Sungai Petani
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Chuping Valley Development Plan
                   In addition to firms in Sungai Petani Industrial Estate providing
                   value chain support to some of the proposed industries, there
                   are also 23 firms offering products and services related to
                   large-scale facility manufacturing located within other industrial
                   estates in the town of Sungai Petani (Figure 5.65). Stainless
                   steel, metal fabrication, flooring and welding organisations
                   (56% of firms) can be used for facility construction or
                   renovation, while machine and control system supply, material
                   handling, and electrical engineering services (44% of firms)
                   can be applied to industrial processes across all proposed
                   industries. The presence of these firms within close proximity
                   to Lembah Chuping is something that can be leveraged on for
                   firms seeking to undertake maintenance/expansion of facilities
                   in the future.
5.4 Key Salient Points
         The development of a sustainable business ecosystem requires the
         co-existence of the proposed industries, relevant supporting functions,
         surrounding industrial estates, and Institutions of Higher Learning
         (IHLs). To provide adequate support for prospective investors in
         Lembah Chuping, new developments should be established within the
         park (Industrial Park Supporting Functions), while relationships
         should also be established with complementary surrounding
         institutions (Value Chain Support and Competition). This sub-
         Chapter aims to summarise relevant findings and recommendations
         from Chapter 2.
                   Industrial Park Supporting Functions
          Figure 5.68: Summary of Proposed Industrial Park Supporting Functions
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Chuping Valley Development Plan
         The proposed initiatives under Industrial Park Supporting Functions is
         summarised based on four (4) categories:
         i) Lifestyle Infrastructure
                 An inflow of human talent as a result of job creation may require
                 support in the form of:
                        Housing: To be available within an adequate distance from
                        the park
                        Lifestyle services: (e.g. healthcare and F&B outlets) To
                        be available within adequate distances, within a 4km radius
                        (accessibility) and in adequate numbers (availability) within
                        centrally located areas of the park
                 Kangar could be a source for the above, however its distance
                 from Lembah Chuping might limit its accessibility for park
                 employees. As such, having new developments in the Lembah
                 Chuping area may serve to attract and retain human talent in the
                 state. Transport Infrastructure and Services
                 In line with the Green theme of Lembah Chuping, and the
                 promotion of park accessibility, a shuttle service should be
                 offered internally within the park Connection between the park
                 and other transport networks is also important (connection to
                 major road highways, interstate/inner-city rail and bus services).
                 Currently, state transport infrastructure to support this is limited;
                 however there is potential to further develop the interstate KTMB
                 service that runs along the electrified double track railway91. As
                 the park develops, an area to consider would be extending this
                 service to other areas of the state (more than 2 stops). This
                 could further enhance the well-being of employees of the park,
                 by making the park more accessible.
         ii) Human Capital Development and Requirements
                 A park service could assist in meeting the demand for human
                 talent with the supply of human talent (IHLs); given the need for
                 coordination between firms and IHLs. An internship programme
                 could also be part of this industry-academia collaboration, as
                 both firms and IHLs benefit; firms can train and scout potential
                 human talent, and IHLs boost student employability.
                 An institute to provide semi-skilled training could also be set up
                 in Lembah Chuping to:
                        Further assist in providing for human talent demand
                        Improve skill levels for new and existing labour in the state
                 The institute should focus on semi-skilled (vocational) training;
                 courses can be tailored to include Green themes (such as
                 environmental sustainability) to cater for proposed industries.
         iii) Other Supporting Functions
                 To assist in the overall development of the state, a park business
                 matching and advisory unit could link potential collaborators
                 (value chain suppliers) together; potentially increasing firm
                 income through the creation of new business opportunities.
                 Furthermore, adequate utilities to support industry operations in
91 Gamuda website
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Chuping Valley Development Plan
       the state should be an area to consider enhancing with the
       growth of the park. Providing a stable electricity supply is key for
       industry operations, while water and waste treatment should also
       be considered. As the industrial park grows, a waste-to-resource
       solution for water and waste output would be in line with the
       Green theme; limiting the environmental impact of the park,
       while also providing economic benefits.
Value Chain Support and Competition
To summarise the support offered by each industrial estate, each park
is evaluated with three (3) distinct criteria. These are:
         The Park’s Relevance to Each Proposed Industry
         Number of firms (in each park) Providing Value Chain
         Support92
         Number of firms (in each park) Competing93 with Lembah
         Chuping’s Proposed Activities
Based on these criteria, the following scale has been developed.
Figure 5.69: Complementary Industrial Estate Scoring System
                            Bayan Lepas  Prai Industrial  Bukit Kayu  Kulim High  Sungai Petani  Kuala Ketil
                             Free Trade       Estate         Hitam    Tech Park      Industrial   Industrial
                                  Zone                                                 Estate
                                                                                                    Estate
                                         Green M aterials
                  Building  44                                   -     - -4
                 Materials                                             - 44
               Automotive   -44
              Components                                              244
                                                          E& E        2- -
            Semi-conductor                                            2- -
                     LED    44                                   -
                    Solar                                             4-4
                            22                                   -     - 24
              Components                                              45 -
                            4- -                                      14 15 20
            Pharmaceutical
                     F&B                                  Halal
General Support             42                                   -
      TOTAL
                            222
                            445
                            24 22 11
Figure 5.70: Summary of Complementary Industrial Estates
92 Defined based on the activities outlined in Figures 11, 18, 25, 29 and 34
93 If industrial park operations overlap with Lembah Chuping’s focus; given definitions in Figures 11, 18, 25,
29 and 34
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Chuping Valley Development Plan
Scores given take into account the net complementary effect of each
estate (Figure 5.70); only firm capabilities (product and service
offerings), and the number of complementary and competing firms at
each value chain stage are considered when calculating each estate’s
score. Full methodology can be referred to in the Appendix 4.
From the table above, it can be seen that despite the fact that Penang
may pose competition to Lembah Chuping, by virtue of it being an
established E&E hub, the industrial parks in Penang actually offer the
most value chain support (on a net basis) to Lembah Chuping (in
terms of the number of firms). As such, the presence of Penang
should not be viewed as a deterrent to having an E&E industry in
Lembah Chuping, rather, it may offer an advantage that can be
leveraged on.
Availability of Midstream and Downstream Support
Composition of Green Materials Value  Composition of E&E Value Chain
   Chain Support (Number of firms)       Support (Number of firms)
                    1
                  (6%) 1
                           (6%)
       Upstream                         56          73   Upstream
       Midstream                      (27%)       (35%)  Midstream
       Downstream                                        Downstream
  15                                    78
(88%)                                 (38%)
       Composition of Halal Value Chain
           Support (Number of firms)
         17     6                     Upstream
       (35%)  (13%)                   Midstream
                                      Downstream
                25
              (52%)
      Figure 5.71: Composition of Value Chain Support - Surrounding
                                  Industrial Estates
Overall, value chain support from surrounding industrial estates is
mainly concentrated in the midstream and downstream segments,
except for the E&E industry where the proportion of firms that can
potentially provide upstream, midstream and downstream support are
more equally distributed.
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Chuping Valley Development Plan
i) Assembly, Packaging & Testing Services
         For E&E in particular, the composition of firms in surrounding
         industrial estates is indicative of Malaysia’s position on the
         value chain; serving as a location for the contract outsourcing
         of testing, assembly and packaging services in addition to
         original equipment manufacturing. In addition to service
         providers, these processes are also undertaken by
         organisations involved in the provision of intermediate
         components and machine supply. The presence of these
         companies in Lembah Chuping’s surrounding vicinity could
         result in a decrease in lead times94 for the production of E&E
         components and end-products (Figure 81).
ii) Distribution Support
         Distribution support is provided by several types of institutions.
         Green Materials manufacturers have access to contractors,
         developers and auto-service providers; supplying materials
         while also providing installation and maintenance services. For
         E&E, products are distributed by electronics component
         wholesalers; with the majority supplying components and end-
         products and only a select few providing repair and
         maintenance services. The distribution of halal goods is also
         primarily undertaken by wholesalers – within both F&B and
         pharmaceuticals. The provision of maintenance and repair
         services could facilitate the entry of new Green products to
         replace traditional materials, while the presence of distributors
         (for E&E and halal industries) within close proximity to the Thai
         border points to potential for regional exports and/or a foreign
         client base.
Relationships with ‘R&D’ and ‘Raw Material Supply’ Functions
Despite the availability of midstream and downstream support, in
general upstream support is limited for the industries proposed for
Lembah Chuping. The majority of surrounding parks do not include
R&D or raw material supply functions; prospective investors would be
responsible for procuring these services elsewhere. Within E&E,
relationships with an R&D function (internal or external) is important in
ensuring constant product innovation95, while a stable supply of raw
materials is essential for firms in Green materials manufacturing to
provide an uninterrupted stock of end-products. For firms in Halal
industries, most need to have a degree of control over their methods
of sourcing and production to ensure regulatory compliance. The
above points is the significance of prospective investors establishing
(or having established) relationships with firms performing these
upstream functions.
94 the time between the initiation and completion of a production process
95 http://www.mddionline.com/article/using-rd-outsourcing-competitive-tool
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Chuping Valley Development Plan
SUMMARY
i) Currently, Lembah Chuping is isolated from available lifestyle infrastructure
        such as education, healthcare, sports and recreation and entertainment.
        Therefore, the state government should develop additional lifestyle
        infrastructure in the areas surrounding Lembah Chuping
ii) The provision of shuttle services by the state government will increase
        accessibility within the park and connectivity to surrounding areas
iii) The setting up of a talent matching service, internship programmes and a
        vocational training institute would help to meet the various skill
        requirements of potential investors
iv) It is important for park management to liaise with nearby IHLs and the
        NCIA to tailor make courses for producing talent to meet the needs of the
        proposed industries
v) As Lembah Chuping develops, the state government may need to invest in
        additional utilities infrastructure to accommodate further developments and
        an influx of workers
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Chuping Valley Development Plan
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6.0 GOVERNANCE
                   MODEL
Chuping Valley Development Plan
6.0 GOVERNANCE MODEL
         Selecting a suitable governance structure for an industrial park is
         essential, as it constitutes an authority for decision-making supported
         by a set of business protocol to administer and manage the industrial
         park1. The choice of governance structure for an industrial park could
         impact aspects covering:
         • Level of authority and control – the decision making power might
              be concentrated at the top level or delegated to those at the next
              level
         • Funding – the stakeholder(s) responsible to request and source for
              park operating and development funds
         • Park administration – the administrative model to manage the day-
              to-day park operations and its tenants
6.1 Formation of the Governance Structure for Lembah Chuping
         There are two (2) steps which could be considered in setting up the
         governance structure for Lembah Chuping:
         6.1.1 Step 1: Setting up of a Delivery Management Office
                   The Perlis state government could establish a dedicated unit
                   in the form of a Delivery Management Office ("DMO”) as a
                   project management consultant to manage and monitor the
                   initial development of the project. The DMO would report to the
                   Timbalan Setiausaha Kerajaan (Pembangunan) of Perlis
                   (“TSUK Pembangunan Perlis”) on all matters relating to
                   Lembah Chuping and would consist of the following
                   stakeholders:
                        Northern Corridor Implementation Authority (NCIA):
                        secures funding from the federal government for the initial
                        development of infrastructure in Lembah Chuping.
                        State Economic Planning Unit of Perlis (UPEN Perlis):
                        to provide input and feedback to the DMO on areas for
                        improvement in Lembah Chuping.
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1 http://www.cognizant.com/InsightsWhitepapers/Governance-Model-Defined.pdf
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Chuping Valley Development Plan
                     Figure 6.1: Governance Structure of DMO
The DMO would play a crucial role in Lembah Chuping by:-
• Coordinate closely with all stakeholders to ensure the delivery of
    planned initiatives
• To report to TSUK Pembangunan Perlis on any major and/or
    potential issues or obstacles for Lembah Chuping
• To manage the technical issues on the development of Lembah
    Chuping
As a start, the DMO would be led by a Project Manager who would be
assisted by 6 personnel in charge of the following aspects for Lembah
Chuping:-
          Figure 6.2: Delivery Management Office (DMO) Structure
It should be noted that the DMO team size and roles might change as
deemed necessary when it is required. These additional team
members would be sourced externally or from other government
agencies. On the contrary, excess team members could be allocated
to other development projects when the initial phase of the project is
near completion.
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Chuping Valley Development Plan
6.1.2 Step 2: Setting up of a Separate Legal Entity as a Park
         Operator
         A legal entity will be formed to assume the responsibilities as a
         park operator in Lembah Chuping. Similar to the model
         adopted by KHTP and other states in Malaysia, this legal entity
         would operate under the custody of State Economic
         Development Corporation of Perlis (“SEDC”), which in turn
         would report to the Perlis State Government pertaining to the
         latest development of Lembah Chuping. SEDC Perlis would
         also be the responsible party to appeal for funding from the
         Federal Government to support the operations of Lembah
         Chuping.
         The Board of Directors would be chaired by the Menteri Besar.
         The other previous key stakeholders in DMO (i.e. UPEN and
         NCIA) would sit in the board with the addition of other relevant
         government agencies such as the Town and Urban Planning
         Department of Perlis (JPBD Perlis) and Malaysian
         Investment Development Authority (MIDA) to deliberate on
         issues that may arises from the development of Lembah
         Chuping. The composition of directors in the board might be
         extended in the future to cater to the expansion of the park’s
         operations.
          Figure 6.3: Structure of Legal Entity as a Park Operator Model
         In contrast to KHTP, the establishment of a local authority
         ("pihak berkuasa tempatan”) in Lembah Chuping might not be
         necessary as it involves the requirement for an enactment of
         law governing the local authority to gazette Lembah Chuping,
         which could be time consuming. In this case, Lembah Chuping
         could remain under the jurisdiction of Majlis Perbandaran
         Kangar as the local authority. In addition, it was recommended
         that a one-stop centre is set-up under the Majlis Perbandaran
         Kangar reduce bureaucracy in the procedure and process of
         business administrative matters.
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Chuping Valley Development Plan
Model Park on Park Operator Governance Model Structure
– Kulim Hi-Tech Park
Federal Government
                                                                 Kedah State Government      * The Central Communicator
                                                                                             * Requests for soft loans and grants
                                                           Kedah State Economic Development  from the Federal Government
                                                                        Corporation
* The developer and  Kulim Technology Park Corporation Sdn                                   Pihak Berkuasa Tempatan  * The local authority
manager of KHTP                     Bhd (KTPC)
                     5 Subsidiariesunder KTPC:
                     KTPC InformationTechnologies Sdn Bhd
Park Governance ModelKedahBioResourcesCorporationSdnBhd
            KTPC Resort Development Bhd
            Kulim Technology Management Sdn Bhd
            Kulim Golf and Country Resort Sdn Bhd
                                                            1. Deals directly with TNB, JKR, TM on park
                                                               infrastructure issues
Assessing the Park Operating Model of KHTP                  2. Not under jurisdiction of MP Kulim
            Board of Directors:
                     •Menteri Besar (Chairman)              3. To help speed up licensing and other
                     •State Exco                               compliance matters
                     •Government agencies
                     Consultant: M IGHT
Figure 6.4: Governance Structure of the Kulim Hi-Tech Park
 Looking at the governance model of Kulim Hi-Tech Park
 (KHTP) as depicted in the figure above, the Kedah State
 Economic Development Corporation (SEDC) plays a vital
 role in ensuring smooth operations in the park by serving
 as the central communicator between the Kedah State
 Government, the Federal Government, the Kulim Technology
 Park Corporation and the local authority of KHTP.
 The Kedah SEDC reports directly to the Kedah State
 Government on the latest developments in the park. As
 such, both parties would be able to work hand-in-hand to carry
 out necessary strategic planning initiatives for the future
 development of KHTP. Apart from that, the Kedah SEDC also
 has direct access to the Federal Government in requesting
 for soft loans and grants to fund the development of
 KHTP. Such a structure has allowed KHTP to obtain funds
 directly from the Federal Government instead of having to go
 through the Kedah State Government, which has helped to
 expedite the process of acquiring funds.
 There are two (2) parties reporting directly to the Kedah
 SEDC on the overall development of KHTP i.e.:
 i) Kulim Technology Park Corporation Sdn Bhd (KTPC),
      which is the developer and manager of KHTP; and
 ii) An independent local authority (or "Pihak Berkuasa
      Tempatan”) established solely to handle infrastructure,
      licensing and compliance matters/issues related to KHTP.
      KTPC would serve the following roles under this structure:
      a) Investment Vehicle for Stakeholders
           KTPC exists solely to own assets, which include the
           shares, real estates, patents, and trademarks
           copyrights of the five (5) subsidiaries. All proceeds
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Chuping Valley Development Plan
                             including dividends, rent or interest attained from these
                             five (5) subsidiaries will be transferred directly to KTPC
                             for the park’s reinvestment purpose.
                             b) Risk Management Tools
                             The holding company structure of KTPC could protect
                             its company assets by limiting the risk of liabilities
                             exposed to KTPC. In the event of any damage and
                             losses occur in any of these subsidiaries, the liability
                             would only be imposed on the affected subsidiaries.
                             The holding company in contrast, would be sheltered
                             from the damages and losses incurred on the affected
                             subsidiaries provided if it does not co-sign a liability
                             agreement with the affected subsidiary.
                             c) Decision Maker in the Operations of KHTP
                             With a 100% ownership in each of the subsidiaries,
                             KTPC has the absolute authority to make decisions
                             relating to policy and management matters of these
                             subsidiaries. KTPC has the right to decide on the
                             composition, appointment and removal of the
                             management team members involved in the park
                             operations.
                             The principal business activities of the 5 wholly-owned
                             subsidiaries under KTPC are mentioned below:-
                                  KTPC Information Technologies Sdn Bhd
                                  provides software solution and consultations
                                  (software solution, development, integration,
                                  implementation and system training),
                                  telecommunication services (one stop agent for the
                                  State of Kedah, safety audit and developing
                                  telecommunication tower), and acts as the one stop
                                  agency (OSA) on ICT for the State of Kedah
                                  (Implementing and monitoring of ICT blueprint
                                  programs 2011-2015)2.
                                  Kedah BioResources Corporation Sdn Bhd
                                  helps to develop the national economy by providing
                                  Biotechnology services and facilities in the Northern
                                  Region of Malaysia3.
                                  KTPC Resort Development Bhd focuses on
                                  property development and the management of the
                                  Kulim Golf and Country Resort4.
                                  Kulim Technology Management Sdn Bhd
                                  provides products and services related to
                                  Information Technology (IT) infrastructure, network
2 KTPC Information Technologies Sdn Bhd – About Us; http://kedah-it.com.my/About.html
3 KBioCorp – About Us; http://www.kbiocorp.com.my/KBIO/
4 KTPC Resort Development Berhad - http://www.khtp.com.my/86-subsidiaries/170-kedah-resort-
   development-sdn-bhd-krdb
                                                                                                    June 2015
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Chuping Valley Development Plan
                                  and system integration, advanced engineering,
                                  project management and consultancy5.
                                  Kulim Golf and Country Resort Sdn Bhd
                                  facilitates the overall maintenance and development
                                  of the Kulim Golf and Country Resort6.
                   In addition, the Kedah Menteri Besar, Dato’ Seri Mukhriz
                   Mahathir is the Chairman of KHTP. The Board of Directors
                   consists of representatives from the Kedah State Exco and
                   government agencies such as the Malaysian Investment
                   Development Authority (MIDA) and the Malaysian Industry-
                   Government Group for High Technology (MIGHT).
                   Besides the KTPC, an independent local authority has been
                   established to handle the infrastructure matters/issues in
                   KHTP. The independent local authority has its own fund
                   collected from the KHTP tenants to manage, maintain and
                   upgrade the infrastructures in the park. It does not fall under
                   the jurisdiction of the Kulim’s Members of Parliament but
                   instead, the independent local authority reports directly to the
                   Kedah SEDC on matters/issues related to the infrastructures in
                   the park. Additionally, this independent local authority could
                   also help to speed up the licensing and other compliance
                   requirements for the park tenants.
6.2 Recommendation on the Administrative Structure for Lembah
         Chuping
         As a separate state government-owned legal entity has been
         established to manage and operate Lembah Chuping, a Management
         Committee would be formed internally in spearheading the legal
         entity to execute its stipulated functions.
         The Management Committee is accountable to the Menteri Besar
         (who chairs the Board) and the Board Members, is responsible in
         setting the overall strategic direction for Lembah Chuping, making
         sure that the park is well run and delivering its preset goals. The figure
         below depicts the proposed structure of the Management Committee:
Figure 6.5: Divisions to be incorporated under the Management Committee
The Management Committee would comprise of representatives
from the Performance Management Division, Risk Management
Division, Administrative Division and Industrial Support Division.
The suggested stakeholders would be addressed in the next section.
5 Kulim Technology Management Sdn Bhd - http://www.ktmsb.com.my/
6 Kulim Golf and Country Resort - http://www.kulimgolf.com.my/
                                                                  June 2015
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Chuping Valley Development Plan
The rationale behind the election of representatives from each division
is to promote a check and balance where no party has the
absolute control over strategic and operational decisions related
to Lembah Chuping. As such, the Management Committee would be
in-charge to address and resolve any issue/difficulty raised by any of
these divisions. If required, the Management Committee would
escalate the issue/difficulty to the Board of Directors’ level.
Conversely, electing representatives from each division to be part of
the Management Committee would also help to promote
transparency for the operations in Lembah Chuping by clearly
defining the assigned duties for these representatives.
The roles and responsibilities of each of the proposed 4 divisions
sitting under the Management Committee are spelled out below:
i. Performance Management Division
                                           M anagement Committee
                                    Performance M anagement Division
                  Figure 6.6: Performance Management Division
The fundamental role of the Performance Management Division is to
preserve the identity of Lembah Chuping as a successful green
industrial park through on-going assessment, monitoring and
improvement of its performance. Based on the overall objective and
strategic direction set by the Management Committee, this division
shall assist in developing the relevant work plans. It would also decide
on the performance goals and appropriate key performance indicators
to meet the established goals (for instance, minimum number of new
tenants annually, investment value per year and percentage of gross
domestic product for the park). Also, it would identify underlying issues
which have affected the park’s performance and highlight them to the
Management Committee.
ii. Risk Management Division
                                           M anagement Committee
                                          Risk M anagement Division
                        Figure 6.7: Risk Management Division
Risk management involves identifying, managing and where required,
mitigating potential risks and issues that might impact Lembah
Chuping.
This division is responsible in setting risk management policies and
strategies, implementing risk response processes developed for
managing risk on a day-to-day basis; promoting risk awareness
culture within Lembah Chuping via initiatives such as education to
tenants and park employees; and making sure that risk management
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Chuping Valley Development Plan
         is incorporated throughout the operations of Lembah Chuping. This
         approach can help to minimise financial loses, service disruption,
         adverse publicity, and threats to public health or compensation claims.
         iii. Administrative Division
                                                             M anagement Committee
                                                               Administrative Division
                                      Figure 6.8: Administrative Division
         The objective of the Administrative Division is to provide administrative
         support to the park management of Lembah Chuping. Such
         administrative support would cover the following:-
              Finance and accounts bookkeeping for the park management
              Payroll and other human resources matters of the park employees
              Tenancy related matters including rental collection from the
              tenants on behalf of the park management
              Legal contracts/documentation (e.g. rental/lease agreements with
              the tenants)
              Sourcing of vendors and procurement of goods and services for
              park operation and maintenance
         iv. Industrial Support Division
                                   Figure 6.9: Industrial Support Division
         The Industrial Support Division would play a pivotal role to the
         industries in Lembah Chuping in facilitating their growth through
         business advisory and networking opportunities, talent sourcing and
         cultivating as well as complementing their day-to-day business
         operations via adequate infrastructure support.
6.3 Proposed Stakeholders for the Management Committee and
         Divisions
         These stakeholders have the decision-making authority that could
         affect the park. It is vital to select stakeholders with the relevant
         background, experience and understanding of the state that could
         help to spearhead the development of Lembah Chuping.
         Simultaneously, it is also essential to understand the respective roles
         and responsibilities of these stakeholders.
         Four (4) relevant stakeholders have been shortlisted for the proposed
         Management Committee as shown in the diagram below:
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Chuping Valley Development Plan
                         Figure 6.10: Proposed Stakeholders
The four (4) shortlisted stakeholders are the Malaysian Investment
Development Authority (MIDA), Economic Planning Unit of Perlis
(UPEN Perlis), Northern Corridor Implementation Authority (NCIA),
and the Town and Urban Planning Department of Perlis (JPBD). The
selection of these stakeholders is based on their current functions and
job scope which might be relevant for the development and
management of Lembah Chuping. Broadly, NCIA and UPEN Perlis
would be covering aspects such as socio-economic and policy
planning, budget management, projects and investors
evaluation, stakeholders engagement and management. Whilst
JPBD would play a part in land usage and infrastructure planning
for the park, the facilitation of businesses growth and incentivising
of investors in Lembah Chuping would be handled by MIDA.
Below are the detailed roles and responsibilities to be undertaken by
each stakeholder for the development of Lembah Chuping. It is
noteworthy that this is a preliminary recommended job scope for the
stakeholders and they may be extended/ revised in the future to cater
for the park operation expansion.
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Chuping Valley Development Plan
Table 6.1: Possible Roles and Responsibilities of the Four (4)
                                  Stakeholders
Roles and Responsibilities                                                                 M IDA  UPEN    NCIA JPBD
                                                                                                  Perlis
i. To promote foreign and local investments in the manufacturing and services sector
   √ √ √by providing prospects w it h informat ion on the opportunities for investment in
     Lembah Chuping.
ii. To undertake planning for industrial development by assisting companies w hich
     intend to invest in Lembah Chuping to establish operations, as w ell as facilitates
   √ √ √ √the implementation of their projects through direct consultation and co-operation
     w ith the relevant authorities at both the federal and state levels.
iii. To facilitate the exchange of information and co-ordination among institutions
   √ √ √engaged in or connect ed w ith industrial development, as w ell as facilitating
     interested companies to look for joint venture partners in Lembah Chuping.
iv. To recommend policies and strategies on industrial promotion in Lembah Chuping
   √ √ √ √by advising investors on government policies and procedures.
v. To evaluate applications from interested applicants for manufacturing licences and      √
     expatriate posts; tax incentives for industries, R&D, training institutions and
     softw are development; duty exemptions on raw materials and components, and
     machinery and equipment.
vi. To provide strategic directions and to devise policies and strategies in relation t o         √√
     socio-economic development in Lembah Chuping and Perlis as a w hole.
vii. To promote and accelerate the development of Lembah Chuping as part of the
   √aspirations to develop the northern region of M alaysia into a w orld-class economic √ √ √
     region and a choice destination for investment, w ork and living.
viii. To establish a performance management system to monitor the performance of                  √ √√
     the tenants of Lembah Chuping.
Source: Consultant Analysis
6.4 Key Salient Points
         An effective and comprehensive governance structure encompasses
         critical elements such as risk and financial management, strategic
         planning, level of authority and administrative model.
         At the initial development stage of Lembah Chuping, a Delivery
         Management Office (“DMO”) under the purview of the Timbalan
         Setiausaha Kerajaan (Pembangunan) will be formed to operate as the
         park manager. The role of the DMO model is to:-
         • Ensure the infrastructure development are carried out as planned
         • To facilitate and coordinate among stakeholders to resolve issues
             and challenges faced
         The table below summarises the key details of the DMO:-
Table 6.2: First Step – Setting up of a Delivery Management Office (“DMO”)
Key Stakeholders             Northern Corridor Implementation Authority (“NCIA”)
                             State Economic Planning Unit of Perlis (“UPEN Perlis’)
Roles and                    To plan and coordinate the development of the
Responsibilities             industrial park
                             To engage with key stakeholders in ensuring the
                             planned initiatives are adhered to the timeline
                             To assess and track the progress of the industrial park
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Chuping Valley Development Plan
A separate state government-owned legal entity under the custody of
SEDC Perlis will subsequently take over the role of park manager
from the DMO. The SEDC Perlis would be the central communicator
between the federal and the state government to seek funding to
support the development of Lembah Chuping. The table below
summarises the key details of this proposed legal entity:-
Table 6.3: Second Step - Setting up of a State Government-owned Legal
                                             Entity
Key Stakeholders       Menteri Besar of Perlis (as the Chairman)
                       SEDC Perlis (as the entity’s custodian)
                       Board members consisting of the State Exco and
                       selected government agencies
                  *The composition of directors in the board might be extended in the
                   future to cater to the expansion of the park’s operations.
Roles and            To perform as the role park manager and operator for
Responsibilities  Lembah Chuping
Recommendation of the Administrative Structure for Lembah Chuping
A Management Committee would be formed internally to spearhead
the legal entity in executing its functions. It would be assisted by the
following divisions:-
1) Performance Management Division – to assess, monitor and
    improve the performance of Lembah Chuping
2) Risk Management Division – to identify, measure and manage
    potential risks that would impact the development of Lembah
    Chuping
3) Administrative Division - to provide effective administrative support
    for the park management of Lembah Chuping
4) Industrial Support Division – to execute a pivotal role to the
    industries in Lembah Chuping in facilitating the growth of tenants
    in the industrial park
Proposed Stakeholders for the Management Committee and
Divisions
The selection of stakeholders is based on their current functions and
job scope relevant to the development and management of Lembah
Chuping. For now, the shortlisted stakeholders are:-
    UPEN Perlis
    NCIA
    Malaysian Investment Development Authority (MIDA)
    Town and Urban Planning Department of Perlis (JPBD Perlis)
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Chuping Valley Development Plan
The list of stakeholders and their respective job scope may be
extended/ revised in the future to cater for the expansion of park
operation.
SUMMARY
There are two (2) key steps for developing the governance structure
for Lembah Chuping:
Step 1: Delivery Management Office
i) A Delivery Management Office (DMO) would need to be set up as
    a temporary measure since there are no resources currently
    dedicated to the project.
ii) The DMO will monitor the planning and design of Lembah
    Chuping, and ensure that developments are executed as planned.
         In addition, the DMO could also need to work with the NCIA to
         obtain funding from the federal government
Step 2: Setting up a Park Operator
i) Eventually it is advisable to form a separate legal entity to manage
    the park once basic infrastructure has been developed
                                                • The Central Communicator
                                                • Requests for soft loans and
                                                                         grants from the Federal
                                                                         Government
                                                • The developer and manager of
                                                                         Lembah Chuping
ii) The Perlis SEDC would be the central communicator to seek
    funding for the development of Lembah Chuping.
iii) The board of director for this entity could include representatives
    from:
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Chuping Valley Development Plan
iv) A one-stop centre should be set up under the Majlis Perbandaran
    Kangar to expedite business administration processes on-site.
v) The proposed administrative structure for the park is illustrated as
    follows:
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7.0 INVESTOR ANALYSIS
Chuping Valley Development Plan
7.0 INVESTOR ANALYSIS
7.1 Introduction
         Three industries have been selected for further analysis based on
         Perlis’ state development goals and initial investigations into Lembah
         Chuping’s resources. These industries are:
         • Green Energy Generation
         • Green Manufacturing (Materials and E&E)
         • Halal Industries Manufacturing
         The viability of the above industries for Lembah Chuping has been
         determined by analysing the advantages and disadvantages of each
         industry using the Porter Diamond Model. To determine the viability of
         proposed industries should they be located in Lembah Chuping, the
         factors assessed are (see section 4.2 for more details):
         i) Government;
         ii) Market Structure and Rivalry;
         iii) Demand Conditions;
         iv) Supporting Industries;
         v) Factor Conditions; and
         vi) Chance
         An overview of the elements considered in our analysis for each
         industry is presented below:
         i) Solar Energy Generation
         Solar energy generation is proposed as one of the industries,
         leveraging on the physical characteristics of Perlis. Perlis receives
         among the highest levels of solar radiation in Malaysia. Furthermore,
         the 10th Malaysia plan highlights the plan to reduce the country’s
         dependence on fossil fuels by shifting to renewable energy
         alternatives1.
         ii) Green Manufacturing
                   a) Green materials: Automotive components and building
                        materials
                   b) Electricals and electronics (E&E): Semi-conductors, light-
                        emitting diodes (LEDs) and solar components
         Green material firms use renewable resources for value added
         manufacturing activities; while Green E&E firms have resource
         efficient processes to limit harm to the environment. In terms of
         government incentives, green technologies are promoted under the
         10th Malaysia Plan2; in addition to a range of entry point projects
         (EPPs) promoting the E&E3 sector.
1 Oil, Gas and Energy: Building Up Renewable Energy and Solar Power Capacity, Entry Point Project
 (EPP) 10, (10th Malaysia Plan)
2 Business Services: Jump-starting a Vibrant Green Technology Industry, EPP 4 (10th Malaysia Plan)
3 Electrical and Electronics: Developing Integrated Circuit Design Firms (EPP3); Supporting the Growth of
 Substrate Manufacturers and Related Industries (EPP4); Growing Wafer and Cell Producers (EPP6);
 Developing LED Front-end Operations (EPP8); Expanding LED Packaging and Equipment (EPP9) (10th
 Malaysia Plan)
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Chuping Valley Development Plan
iii) Halal Industries
         a) Pharmaceutical product manufacturing
         b) Food and beverages (F&B) product manufacturing
The halal industry is a developing market, with strong global demand
across a range of products. Domestically, the halal industry is being
promoted through the Halal Industry Master Plan (HIMP). Although
halal industries may not be explicitly defined as being Green, a study
done by UUM (Universiti Utara Malaysia) has found that certain
criteria used by JAKIM to audit halal companies are environmentally
focused. This implies that proposed halal industries could be in line
with the Green criteria.
A summary of the relevant points relating to each industry’s viability
can be summed up in the following diagram:
                                                          Porter Diamond Model Forces
                                   Market Structure           Demand                Supporting                Factor                                     Overall Industry
                                                            Conditions              Industries             Conditions                                         Viability
                  Government       and Rivalry                                                                                      Chance
                                                           Demand for           Limited availability of   Physical                                      Government support, demand
                  Policies          Investments into      renewable energy      service providers in     Characteristics        Upcoming                conditions and market structure are
                  seem to be       the solar sector from  is present            the Northern Corridor    There is currently    foreign labour           favourable for developing a green
                  effective –      both domestic and                                                     a lack of adequate    restrictions may         energy sector, however the
Green Energy      there has been   foreign sources          However, fossil                              supporting            affect profitability in  possible lack of market maturity
 Generation       an increase in   increasing             fuel subsidies are                             electrical            the manufacturing        and supporting electrical
                  solar                                   hindering the                                  Infrastructure in     sector                   infrastructure may hamper industry
                  investment         Despite solar        adoption of                                    Lembah Chuping                                 viability in Lembah Chuping
                  over time        component              alternative                                                           Low quality of
                                   manufacturing          energy sources                                  Availability of      domestic                 Green Materials: Although
                                   growth increased                                                      Human Capital         education system         favourable government policies,
                                   production is in line                                                  Surrounding          may hinder               demand conditions and physical
                                   with government                                                       institutions of       graduate                 conditions support the development
                                   initiatives                                                           higher education      involvement in           of green manufacturing, a lack of
                                                                                                         and Perlis’ existing  high-value added         design services may be hindering
      Green       Policies         Green Materials:       Green Materials:      Green Materials:         workforce could       sectors                  demand for green building
Manufacturing     have been        A large domestic       Green building        Lack of Malaysian        supply talent                                  materials
(Green Materials  less effective   supply of raw          trends indicate       companies offering        However, skilled      The trend in
                  because of the   materials may help     domestic and          green building           labour may lack       government               E&E: Despite the presence of
      & E&E)      risk associated  to attract investors   regional              consulting/design        industry-specific     initiatives over the     promoted sectors in Penang,
                  with green                              demand                services                 expertise/training    past 15 years            favourable government policies and
                  technology       E&E:                                                                                        indicates a further      demand conditions support the
                                    Sector has high       E&E: Production       E&E: Penang offers        Logistics            increase in              development of these activities in
                                   growth potential       trends of energy      support services for     Infrastructure        sophisticated            Chuping Valley.
                                    Penang’s close        efficient appliances  E&E (midstream and       Existing and          initiatives and
                                   proximity could deter  and LED lighting      downstream)              upcoming              incentives               Although demand conditions are
                                   potential investors    indicate                                       transport                                      favourable, the lack of supporting
                                   from investing in      opportunities                                  infrastructure         The appeal of           industries and infrastructure in the
                                   Lembah Chuping         domestic and                                   could facilitate the  products from            form of logistics support, R&D
                                                          regional markets                               flow of human         established              capabilities could hinder industry
                                                                                                         capital and goods     industries               development.
                  Qualification     Market                Global halal trends    Lack of domestic        to and from           (construction
                  for a halal      penetration may be     and domestic          R&D capabilities         Lembah Chuping        materials, E&E and
                  certification    limited; illegal to    indicators indicate   despite increased                              pharmaceuticals)
      Halal       may increase     place halal logo on    demand                collaboration with                             may hinder the
Manufacturing     costs            prescription drugs                           large MNCs                                     mass adoption of
                  (compliance)                                                  (pharmaceuticals)                              new offerings
                                     Growing number                              Lack of Halal
                                   of halal F&B                                 Logistics companies in
                                   companies,                                   Malaysia
                                   indicating demand
Figure 7.1: Viability of Proposed Industries in the Lembah Chuping
7.1.1             Proposed Criteria for “Green”
                  The development plans for Lembah Chuping focus on Green
                  manufacturing and Green energy generation. For the
                  development of Lembah Chuping, the State of Perlis wants to
                  attract potential investors who share this vision.
                  The term “Green” manufacturing can be interpreted in two
                  ways: either the manufacturing of “Green” products, or the
                  “Greening” of the manufacturing process itself, e.g. reducing
                  pollution and waste and reducing emissions. For Lembah
                  Chuping, the focus will be on the latter: a Green manufacturing
                  process. Hence, all investors who are interested in investing in
                  Lembah Chuping should meet the criteria of “green
                  manufacturing”. In order to select potential investors for
                  Lembah Chuping, a set of criteria for what is understood as
                  “Green” has been be compiled.
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