KUALA LUMPUR: Malaysia must turn European investments into a catalyst for technology transfer, skilled job creation and stronger local industries as it seeks to move up the global value chain amid intensifying US-China competition, economists said.
Achieving this will require more than attracting foreign capital, they said in response to Investment, Trade and Industry Minister Datuk Seri Johari Abdul Ghani's remarks.
Johari said Malaysia wanted European investments to facilitate technology transfer, develop highly skilled talent and create better-paying jobs as the country moves into its next phase of economic development.
He said the emphasis was shifting towards the quality and long-term value of inbound investments, with the ultimate goal of moving beyond participation in global value chains to creating and capturing more value within them.
"Ultimately, our objective is to move beyond simply participating in global value chains to capturing and creating greater value within them," he said at European Union-Malaysia Business Day 2026: Selangor in Focus today.
Economists said stronger links between multinational companies and local suppliers, particularly small and medium enterprises (SMEs), alongside targeted investment incentives and skills development, will be crucial to ensuring domestic businesses capture more value from foreign investments.
EU-Asean Business Council executive director Chris Humphrey said Malaysia could build on its existing attractiveness as a foreign direct investment (FDI)destination to draw more European companies into the country.
The recent announcement of a significant investment in semiconductor production by Nasdaq-listed NXP Semiconductors NV underscored Malaysia's appeal to international investors, he said.
However, sustaining that appeal and attracting more high-value activities would also depend on improving market access and giving businesses greater certainty to invest for the long term.
Humphrey said the swift conclusion of a high-quality, deep and comprehensive Malaysia-European Union free trade agreement (FTA) would be an important step towards achieving this.
"We have seen a steep increase in EU investments in Vietnam since the EU-Vietnam FTA was implemented, and given Malaysia's economic fundamentals, I would expect a similar pattern to emerge," he said.
A comprehensive agreement could boost business confidence by opening up new sectors, removing trade barriers and providing greater certainty for companies on both sides, he added.
While an FTA could help attract more European capital, Universiti Teknologi Mara senior lecturer Dr Mohamad Idham Md Razak said Malaysia would need complementary domestic policies to ensure those investments strengthened local capabilities.
He said investment incentives should be tied to measurable outcomes, including the employment of skilled local workers, development of domestic suppliers, workforce training and collaboration with Malaysian universities and research institutions.
The government should also strengthen technical and vocational education and training to ensure local talent could fill higher-skilled positions.
"Ultimately, the objective is to move Malaysian companies beyond basic assembly and subcontracting into engineering, product design, advanced manufacturing and innovation," he told Business Times.
Idham said the proposed Malaysia-EU FTA could help attract higher-quality investments by improving market access, reducing trade barriers and providing greater regulatory predictability.
However, an agreement alone would not guarantee technology transfer or meaningful benefits for local businesses.
Its effectiveness would depend on complementary measures, including stronger intellectual property protection, more efficient customs procedures, clearer investment regulations and better access to financing for SMEs seeking to meet European standards.
He said the government should also facilitate partnerships between European investors and local suppliers through supplier-development programmes, industry-academia collaboration and targeted skills training.
With effective implementation, the agreement could help Malaysian businesses enter European markets, diversify export destinations and move into higher-value activities.
"The key measure of success should not simply be the volume of European investment attracted, but how much domestic capability, skilled employment and long-term economic value Malaysia gains from it," he said.
Nusantara Academy for Strategic Research senior fellow Dr Azmi Hassan said the push for higher-value investments reflected a broader shift in Malaysia's investment strategy over the past decade.
Previously, Malaysia focused on attracting FDI by highlighting its political stability, safe investment environment and availability of low-cost labour. That approach was no longer sufficient as the country sought to compete for more sophisticated investments, he said.
Malaysia was now targeting high-technology investments in areas such as artificial intelligence (AI) and the green economy, with greater emphasis on technology transfer and developing a highly skilled local workforce.
Rather than competing on low labour costs, Malaysia needed to offer skilled talent and the expertise required to support higher-value activities, he said.
The country was also strengthening its infrastructure, including through the development of data centres, to support AI-related businesses and other technology-intensive investments.
Azmi said the ongoing negotiations for the Malaysia-EU FTA could further strengthen the country's appeal to European investors, particularly those in advanced technology, green technology and AI.
The agreement could deepen investment ties with Europe and encourage more companies to establish high-value operations in Malaysia, supporting the country's ambition to move beyond attracting capital towards building stronger domestic capabilities, he said.
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