When electronics manufacturers go to Malaysia, they do not stop in the national capital, Kuala Lumpur, but fly directly to production sites in a distant province, Penang. This small state, near Thailand, with a population of some 1.5 million, has established a reputation as a dynamic hub for technology-intensive goods such as semiconductors and hard disk drives. Penang has created an environment that seems different—and slightly separate—from the rest of the country. Investors here do not liaise with the federal government, but rather state government agencies for incentives, permits, and licences. They source components, design work, or labour from a variety of dynamic firms nearby, and send their products via local airports or the Internet.

Penang is a “different” state for a variety of reasons. It hosts a long tradition of political activity and is the home of personalities such as the Prime Minister, Abdullah Badawi, and Opposition leader, Anwar Ibrahim. Penang is also the only state with a Chinese majority and Chief Minister and has been governed by a small, regionally-based multi-ethnic party since 1969. Traditionally a centre for shipping, finance, and trade, Penang overhauled its economic model in the 1970s, following a deep recession. Since then, the state has received several waves of strategic foreign investment and reaped