Semiconductors are a cornerstone of modern technological development and a strategically vital global industry. Their production is characterized by a fragmented yet geographically concentrated global value chain (GVC), where latecomer economies often remain confined to lower-value segments. This thesis examines how the functional performance of Malaysia’s semiconductor innovation system interacted with GVC governance structures to shape its upgrading trajectory, offering lessons for latecomer economies seeking to advance in knowledge- and capital-intensive industries.

Adopting a longitudinal single-case study design, the research uses Malaysia’s semiconductor sector as the unit of analysis, covering the period from 1970 to the present. The analysis combines the functional Technological Innovation Systems (TIS) framework—assessing seven systemic functions—with an embedded GVC perspective to account for global governance regimes, upgrading pathways, and structural entry barriers. The study draws on secondary literature, policy archives, industry reports, and expert interviews to map the evolution of actors, networks, institutions, and systemic functions, alongside Malaysia’s positioning within the semiconductor GVC.

Findings reveal a dual character in Malaysia’s trajectory. Strong resource mobilization, positive cluster externalities, and foreign-led market formation enabled the country to secure a competitive position in assembly, testing, and packaging (ATP). However, systemic weaknesses in knowledge development, entrepreneurial experimentation, and legitimation, combined with the captive and hierarchical governance structures of upstream segments, limited upgrading into wafer fabrication and integrated circuit (IC) design. These structural dependencies, reinforced by high capital intensity, concentrated intellectual property, and tacit knowledge barriers, have locked Malaysia into a downstream specialisation.

The study concludes that latecomer economies in high-tech sectors must achieve both a balanced performance across systemic functions and strategic engagement with GVC governance dynamics. For policymakers, this implies integrating domestic innovation system strengthening with deliberate positioning in global production networks. The thesis contributes to the literature by integrating functional TIS analysis with GVC and latecomer industrialisation theory, offering a nuanced understanding of innovation system evolution in globally embedded, high-technology contexts.