Penang—“the Pearl of the Orient”—is located in the north west of peninsular Malaysia and is one of its thirteen states.  Largely contained in the island of Penang, the city has a population of about 1.7 million.  It was one of three Straits Settlements that the British established along with Malacca and Singapore.  The island city is in many ways a replica of the old Singapore in terms of its ethnic and cultural diversity and rapidly modernizing.   Often said to be one of the top ten destinations to add to one’s “bucket list”, the city is at once a flash of spice and color, a buzz of activity, and a paradise for food lovers.

Over the past 6 or 7 years, the city began to find its economic footing under a new state government.  The city was over dependent on one sector since the 1990s. Some 50% of the city’s GDP was attributed to the manufacturing sector.  New policy direction has added medical tourism and tourism, aerospace, and medical devices to the city’s portfolio.  The state government has managed to turn in consistent budget surpluses, state level debt is at an admirable low, and FDI is invited to leverage a strong supply chain.  Again by policy design, this supply chain localizes by innovatively pushing “control tower” services such as sub-contracting management, design coordination, and so on, deployable across multiple industries.  For example, medical device companies are incentivized to localize production to make devices that fit Asian physiques.

Penang is a classic case of a city whose local government decided to steer the ship a little and fine-tuned the quality of institutions.  For example, the city government wisely decided to only boost FDI that is value adding, by helping potential manufacturers see that the comparative advantages of Penang lies not in low-cost labor or large internal markets, but in sourcing high value activities. Support in talent acquisition programs, a flexible and supportive immigration system, and an education, social, entertainment, and recreational eco structure, all act to entice people to want to stay in the city.

The island city’s hard infrastructure, while significantly improved over the past decade or so, still struggles to attract and retain sufficient talent.  It has, however, attracted over 300 foreign investors by leveraging a skilled technical labor pool. Companies such as Bose and Intel have taken advantage of this. Institutional, supply chain and other efficiencies have cut factory build times to 10 months from the roughly 24 months it took in the early part of the millennium.

Penang is a city on the move with a five-star quality of life.  Not too large and not too small. It appears to be the storybook Goldilocks economy.