• McKinsey’s own economists put a number on Malaysia’s growth shortfall, and kept circling a gap the country has failed to close for decades.
• The firm is bullish on Malaysia’s place in the AI supply chain, but blunt about how little of that value it keeps.semiconductors

Malaysia is growing its economy at around 3.3% per capita a year. According to McKinsey, it could be growing about 50% faster than that. “Malaysia currently doing GDP per capita in the threes, 3.3 somewhere around there, and you could be in the fives,” Chris Bradley, a director of the McKinsey Global Institute (MGI) and co-author of the firm’s new book A Century of Plenty, told a media roundtable at the firm’s KLCC office on Tuesday. “It’s possible. That’s what we would say.”

The gap between those two numbers framed a session McKinsey had convened to make an optimistic case. Bradley walked through a century of economic progress and argued Malaysia sits “at the crossroads of enormous opportunity” as global trade reorganises around geopolitics and artificial intelligence. But across two hours, the firm’s partners were repeatedly drawn back to the same problem: the record trade numbers Malaysia is now posting are not translating into value the country keeps.

That problem is clearest in semiconductors, the sector Malaysia has made a national priority. On MGI’s own reading, Malaysia’s role in the AI supply chain is real but shallow.  Jeongmin Seong, a partner at the McKinsey Global Institute who leads its work on global trade, framed the risk plainly: by staying in the back end of semiconductor processing, Malaysia sees its revenue keep rising while, in his words, “profit and value-add is not so much.”

Malaysia’s electronics exports grew 54% in the first half of 2026, according to MGI analysis presented at the session, with a large share going to the United States, even as a large share of the electronics it imports comes from China.

Vidhya Ganesan, managing partner for McKinsey Malaysia, did not dispute the diagnosis. She pointed to genuine early traction under the National Semiconductor Strategy, now two years old: roughly RM100 billion in semiconductor investment over that period, and 18,000 of a targeted 60,000 engineers upskilled. But she was direct about where Malaysia sits in the value chain. 

The country “owns about 30% market share globally in the OSAT”, the outsourced assembly, packaging and testing that is the lowest-margin end of chipmaking, and moving beyond it, she said, “is not a traditional linear move up a value chain… it’s a very discontinuous, difficult move to make.”

The uncomfortable part is that Malaysia has been trying to make that move for a long time. “To move up the value chain” was the refrain of Rafidah Aziz, the country’s trade minister for two decades until 2008, and it has been repeated by every administration since. Pressed at the roundtable on why ordinary Malaysians were not yet feeling the benefit after so many years, Ganesan’s answer was a list of what is still missing. Malaysia should attach a “quid pro quo” to foreign investment, demanding, in return for access, that companies train local suppliers and transfer know-how, the kind of conditions Taiwan and Japan attached to their deals, 

She pointed to Malaysia’s US$250 million, 10-year partnership with UK-based Arm Holdings, which aims to move the country from basic chip assembly into higher-value front-end design, as the model. Talent policy needs to go further too: not just producing engineering graduates, she said, but “the likes of what Germany did with automotive manufacturers with finishing schools”, industry-run programmes that train graduates for the specific jobs employers need.

Bradley’s answer moved through three parts of his “machine of progress” framework. Asked which single one is keeping Malaysia on the cusp of high income rather than over the line, he named trust first, “the ability to build a social contract that’s of high trust” in a multicultural society. Second was energy: “Energy security is national security,” he said, “and in an AI world, we’re all in a race.” But the decisive one, in his telling, was whether Malaysia can grow large firms—the factor he said governments most often neglect.

“Productivity growth, 80% of it comes from 5% of companies doing extraordinary things,” he said, citing MGI’s Power of One research. “Malaysia won’t enter the top league of global economies without top league companies.”

Seong put the same point in starker figures. “If you look at the Fortune Global 500, Malaysia only has one. If you look at the unicorns, Malaysia only has two out of 1,400,” he said. His argument was that trade reconfiguration will not lift the country on its own, companies have to. “When this investment gets allocated to the productive part of the economy, it will create higher performing, more interesting, globally competitive companies,” he said, “and then they will take their products to the global market.”

None of the three treated the current tailwind as permanent. Seong argued the reconfiguration is structural rather than cyclical—restrictive trade measures have risen roughly five-fold since before the pandemic, and industrial-policy announcements have too—which is why he thinks Malaysia cannot afford to wait. “The window doesn’t remain open forever,” he said. “There’s a specific time of window that requires Malaysia to take very, very bold action.”

The clearest near-term test of that window is one the roundtable did not dwell on: tariffs. Malaysian semiconductors currently remain exempt from US reciprocal tariffs, but that exemption is under review as part of a Section 232 national-security investigation by the US Commerce Department that could still impose duties on the sector. 

Malaysia’s deputy investment and trade minister, Liew Chin Tong, told parliament this year that future US decisions on semiconductor tariffs would take the country’s trade-deal commitments into account. For a sector MGI itself describes as sitting in the back end of the chain, a change in that status would land on the part of the value chain Malaysia can least afford to lose.

Bradley, for his part, was careful not to frame any of this as decline. “The idea that Malaysia is in crisis is far from being true,” he said. “My overall disposition would be to be positive and to lean into it, because these are massive structural trends that aren’t going away.” Ganesan framed the task ahead in similar terms in a note after the session: “The question for leaders is how we convert that momentum into lasting competitive advantage, not simply for the next investment cycle, but for the next generation.”

That is the question McKinsey’s own numbers keep sharpening. The institute will publish its next report on global trade and geopolitics in August 2027, with quarterly updates in between, a year in which Malaysia’s answer, on the evidence of this roundtable, will still be a work in progress.

Want to learn more about AI and big data from industry leaders? Check out AI & Big Data Expo taking place in Amsterdam, California, and London. The comprehensive event is part of TechEx and is co-located with other leading technology events, click here for more information.

Tech Wire Asia is powered by TechForge Media. Explore other upcoming enterprise technology events and webinars here.