News / 13 July 2015

Penang is on its way to becoming the Silicon Valley of the East, and IoT is how

by Daniel Tay

Tech in Asia

 

It is almost lunchtime when I step into Suntech Tower, an unspectacular office building which is home to several high-flying Penang startups. As is typical here, the afternoon sun is scorching, so the cold air-conditioning that greets me as I enter is a welcome reprieve.

Today, I am here to visit Piktochart, whose infographic design app is arguably one of the Malaysian state’s most accomplished startups to date. It boasts 2.7 million users, of which 300,000 are active monthly. What is especially outstanding about this company is that it achieved its success without taking a cent of funding, nor done any “serious marketing,” as CEO Goh Ai Ching puts it.

It is, by many measures, an anomaly.

This particular building is, too, an anomaly amongst its monolithic neighbors. This part of town, called Bayan Lepas, is the main industrial hub of Penang. Many of the more than 300 multinational corporations doing manufacturing and R&D work have established factories here.

Silicon Valley of the East

One of the main reasons why these giants chose to set up shop in Penang was thanks to the establishment of a free trade zone – now called the Free Industrial Zone – in Bayan Lepas. This was back in 1969, and the years following that saw many MNCs pour in.

Intel was one of the first big-name electronic companies to visit the area. Together with Advanced Micro Devices (AMD), Hewlett Packard (now called Agilent Technologies), Clarion, National Semiconductor (now called Fairchild), Hitachi (now called Renesas), Litronix (now called Osram Opto Semiconductor) and Robert Bosch, they were the pioneers that set Penang’s economy on an upward trajectory. Nicknamed the “eight samurai,” the government correctly believed that they would “encourage many top MNCs in the world to establish their plant [sic] in Penang.”

Penang’s thriving manufacturing scene in 2009

Combined with Georgetown up north, which is popular among tourists, Penang generates a significant portion of Malaysia’s gross domestic product (GDP). In 2014, it contributed roughly MYR 71 billion (US$1.8 billion), making Penang’s GDP the fifth highest in Malaysia.

Penang has long been touted as the Silicon Valley of the East because of its similarities to how the southern area of San Francisco Bay Area developed. The 1950s to 70s saw the ushering in of the high-tech age in Silicon Valley, beginning with Fairchild Semiconductor. It was formed when eight former recruits of brilliant but eccentric American scientist William Shockley broke away from his employment. Consequently, MNCs such as Intel and AMD then emerged when, in similar fashion, its founders took off to pursue their own ventures.

In the same way, the arrival of electronic giants in Penang in the 1970s saw Malaysians being employed there by the truckload. In the years to come, many of Malaysia’s biggest companies spun off from their ranks.

ViTrox Technologies, which manufactures machine vision inspection systems, is one of them. Two local entrepreneurs, who previously worked in the same MNC, helm the company that listed on the MESDAQ in 2005. It currently has a market cap of about MYR 360 million (US$95 million) and clocked over MYR 100 million (US$26 million) in revenue in 2013.

Another example, which recently made headlines after making the largest-ever acquisition deal in the semiconductor industry, is Avago Technologies. Prior to his current appointment, Avago CEO Hock Tan worked in senior positions at a number of prominent MNCs, such as Integrated Circuit Systems and Commodore International.

Under the Malaysian native’s helm, the value of Avago’s shares shot up by almost 800 percent since it went public in 2009. Avago was previously the semiconductor products division of Hewlett Packard and went solo in 2005 after being acquired.

Then there’s Keysight Technologies, which spun-off from Agilent Technologies last year and boasts 2,600 workers who are all Malaysians. It also recently recommitted to growing its presence and supporting the electrical and electronics industry in Penang – it has spent its last 42 years in the Malaysian state.

The proverbial buck, however, stops there. Most of these local companies have been slow to share their expertise with a generation of budding entrepreneurs who are eager to get going, but are still relatively wet behind the ears. Meanwhile, Silicon Valley’s current success can be traced back to the passing down of knowledge from one generation to the next.

Man with a mission

To its credit, Penang’s local government has tried to foster an entrepreneurial spirit amongst the younger ones by building on the state’s comparative advantage in hardware. Non-profit organization Penang Science Cluster (PSC) was formed for this very purpose. Still, technology remains a mere curiosity, and few serious attempts at turning projects into proper businesses have been recorded so far. The “how” is a question that has belabored the mind of local tech community builder Khoo Kah Lee – affectionately known as Curry – for many years now.

Penang is on its way to becoming the Silicon Valley of the East, and IoT is how

Born in Penang, Khoo has spent the bulk of his life dabbling in technology. After obtaining a Higher Diploma in Computer Science at a local college, Khoo dived straight into the entrepreneur life, in part out of necessity – he was unable to further his studies due to financial issues and family problems.

“I started with website design and hosting. My first tech startup was founded in the year 2000, which managed to secure MYR 1 million (US$265,700) in seed funding, but did not manage to survive,” he recounts.

He founded a number of startups since then, the latest of which was a social ecommerceplatform. In 2011, however, it was apparent that it wasn’t doing too well. It was then that Khoo realized the important role a community had to play in the success of a startup – something that was practically non-existent in Penang at that time.

The next six months of his life was spent attending tech-related events in Kuala Lumpur, where there was a thriving startup scene. That period, however, was unbearably tiring for Khoo and his companion Tan Yin See, who both had to fly up and down from Penang and the capital city.

“We decided that Penang should have its own events and activities, and that is the point we started to work with others to organize events and meetups down in Penang.”

After years of talking, researching, and experimenting, Khoo identified the Internet of Things (IoT) as the next big step for Penang’s tech community. The IoT market has been making leaps and bounds in recent years – Intel recently bought chip maker Altera for roughly US$16.7 billion to build out its IoT offerings – and it makes sense in retrospect, given Penang’s plentiful hardware resources.

Some serendipity was required, however, for Khoo to reach this decision. The first domino was toppled when he met William Hooi, founder of DIY hobbyist community SG Makers, in 2014. Impressed by what he saw, Khoo worked with a few parties, such as industry-led electrical and electronics agency CREST (Collaborative Research in Engineering, Science and Technology), to bring the Mini Maker Faire, a bite-sized version of a popular maker event in the US, down to Penang. The resulting event turned out to be a resounding success, and will happen again this year.

Opportunities came knocking on Khoo’s door in the following months. The partnership between himself and PSC continued to grow, with a number of events and meetups coming out from it. “In August, I headed down to Sri Lanka for the Google Community event, where Google was promoting its maker movement and IoT projects,” he adds.

“Then in September, I joined MaGIC [Malaysian Global Innovation & Creativity Centre], and Cheryl [CEO of MaGIC] connected me with Brinc, an IoT accelerator from Hong Kong, who ended up visiting Penang in Oct to present to us the big picture of IoT.”

Khoo made a trip to Hong Kong and Shenzhen earlier this year with Brinc, and there he was fully convinced that, with the considerable manufacturing resources in its backyard, Penang could potentially become the next home for IoT startups after China.

Preparing the next generation

Now, the question is whether gatekeepers of the necessary resources would see the upside of investing in this space. Khoo pinpoints support from manufacturing giants as one critical component in the plan to inspire and launch a wave of successful IoT startups.

ViTrox is one of the first to open its doors. It recently poured MYR 10 million (US$2.6 million) into setting up the Centre of Excellence for Machine Vision, a one-stop shop for machine vision training and facilities, and is looking to add another MYR 20 million to MYR 25 million (US$5.3 million to US$6.6 million) in the next two to three years.

Here, local entrepreneurs and startups can tap into ViTrox’s services to learn how to create intellectual property rights, obtain seed funds from sponsors or government agencies, receive mentorship – so on and so forth. Most notably, ViTrox also offers incubation facilities for high-potential projects.

Khoo reveals that he is in the midst of getting buy-in from other important stakeholders, such as government agency MDeC, CREST, and other MNCs like Intel and National Instruments. According to him, all parties believe that Penang is “the next up-and-coming place for IoT startups.”

Going hand in hand with this is the local government’s initiative: creating a Creative and Technology (CAT) Accelerator Zone in Georgetown. InvestPenang, the agency in charge of this project, believes that Georgetown’s rich cultural heritage will make the perfect environment for the cohort of startups it plans to cultivate and nurture here.

Wisma Yeap: Penang’s Block 71

The linchpin in this plan is a charming old-world building called Wisma Yeap Chor Ee, which has been earmarked by authorities as an accelerator, incubator, and coworking space. Its initial launch was set for late-2014, but was postponed due to administrative reasons till the second half of this year. Khoo estimates that it will be ready by August.

Penang is on its way to becoming the Silicon Valley of the East, and IoT is how

Wisma Yeap will become Penang’s all-in-one tech community spot, much like Singapore’s Block 71, according to Khoo. Each of its three levels will house different activities. The ground floor will be a makerspace for hobbyists, and the second floor will be set aside for creative and administrative services.

Symbolically, the third and top floor will be an accelerator and incubation space for startups with go-to-market ideas. Brinc is in the midst of securing a spot there, and will be taking its first batch when Wisma Yeap launches if all goes well.

There have been rumors that heavyweights such as Malaysian sovereign wealth fund Khazanahwill be throwing in their support for Wisma Yeap. Khazanah has demonstrated interest in coming on as an investment partner of Brinc with a multimillion dollar fund.

In this very building Khoo’s plan will unfold in four stages: inspire, educate, build, and grow.

We will start with “inspire” activities such as Maker Faire, Science Fair, and so on. Then will come “educate” activities like workshops and training, followed by the “build” stage where we will send teams to join events like Startup Weekend and other hackathons. And then the “grow” stage will involve accelerators and investments coming in. Most activities will be happening inside Wisma Yeap Chor Ee.

Settling in for the long haul

It hasn’t been an easy journey for Khoo as a community builder in Penang. For one, he and his small team – just Khoo, Tan, and another Penangite named Louis Soo – had almost no experience, credibility, know-how, or networks to leverage on. Above and beyond that, they also had to overcome the Malaysian mentality that new stuff is “always fishy, especially if it is free,” according to Khoo. Many work in the aforementioned MNCs, and enjoy stable careers there.

In fact, the first event that they organized was a hands-down disaster. “We organized a meetup to discuss about Twitter and APIs, invited all our friends, and got around 20 people confirmed,” he recounts. They even threw in free pizza. Yet, on the day itself, there were only three attendees, which were Khoo and his two teammates.

With no salary or income to speak of, the team still had to come out with the cash for most of the events they ran. In Khoo’s words, “who want to become a community builder, right?”

Yet he and his team persevered. Khoo attributes the successes that they have achieved so far to Tan and Soo, without whom he “couldn’t have made it past the first year.”

From what Khoo has observed in Shenzhen, where the maker movement played a huge role in building up the local startup ecosystem, IoT might just be the spark they need to get the fire burning.

“It is the starting point for people to make things – things that solve problems, and gets others thinking and making even more things,” he says. “And from there, we plan to inject the technology and internet components with the help of local companies and MNCs, and hopefully spark off a couple of IoT startups.”

It will certainly be many years before the fruits of this strategy will be borne – community building is not for the weak at heart. But just as he did the years before, Khoo just might have the brass required to see it through.

 

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