With a population of 1.6 million and approximately 1,000 square kilometers of land, Penang is a state in northern Malaysia that has earned a reputation as the “Silicon Valley of the East”. Despite its small size and population base, it houses a sizeable cluster of electronics firms. In 2010, Penang attracted more foreign direct investment than any other state in Malaysia and over the past thirty years has consistently ranked among the top four states in the country.

However, the story behind Penang's deep and rapid economic transformation is less well-known. Traditionally a prosperous entrepôt economy dependent on trade, shipping, finance, and tin smelting, the state's economic model was called into question in the late 1960s. In 1968, the state's GDP per capita was 12 percent below the national average, and its unemployment rate of 15 percent was more than double the national average (Penang Chinese Chamber of Commerce 1968:9, Nathan Associates 1970:85).

In 1970, the Penang state government launched an ambitious economic program aimed at revitalizing the economy through promoting manufacturing and tourism. In 1972, the first multinational corporations set up their operations in the state. These companies - which are still in the state today - include: Advanced Micro Devices; Agilent Technologies (came in as Hewlett Packard); Clarion; Fairchild Semiconductor (came in as National Semiconductor); Intel; OsramOpto Semiconductors (came in as Litronix); Renesas (came in as Hitachi) and Robert Bosch.

Over the next four decades, the growth of the state's manufacturing sector was consistent and rapid. In 1970, manufacturing accounted for a mere 12.7% of the state's gross regional product (GRP). Today, manufacturing accounts for 48.2 per cent of the state's GRP, followed by the services sector, which represents 47.9 per cent. Within the manufacturing sector, electronics is the main growth engine, accounting for 54.5 per cent of all employment in 2006 (InvestPenang, 2008: 13). Similarly, the workforce in the manufacturing sector increased from 15 per cent of the total in 1970 to 32.2 per cent in 2010 (SERI, 2010: 6).