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

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.