PENANG, Malaysia -- Two years ago, Malaysian software engineer Terry Lim got a phone call from a Singapore-based dot-com company offering him a juicy new job. Soon, he got another call, then a third. He took the fourth offer, moved across the border and doubled his income.

And still the headhunters keep ringing. "It's fabulous," Mr. Lim raves.

Not for people like O.K. Lee, the executive director of Toray Pen Group's Malaysian unit. Mr. Lee wants experienced software designers to help automate his petrochemical and fabric factories here, and to create the Internet business-to-business capability the Japanese company's customers demand. But just when he needs them most, engineers like Mr. Lim are increasingly hard to find -- and even harder to keep.

"It's tough to find experienced people in Malaysia, and the market is getting tighter," says Datuk Lee. To fill the jobs from within, he sent Toray's own information-technology specialists for training to upgrade their skills. But then the poachers moved in. "It's a real dilemma. Their market value goes up the moment we train them," he laments. "We've lost 20% of our senior people in the last year."

The country's skills gap is widening at a time when Malaysia is trying to broaden its industrial base from assembly-oriented to higher valued-added manufacturing. While the software engineer shortage is a global problem, Malaysia feels the pinch more than regional rivals such as Hong Kong and Singapore. Those countries are cherry-picking Malaysia's small pool of homegrown talent with the promise of higher salaries in a more tech-savvy environment.

Malaysia's predicament: Until it becomes an innovation hub, its sharpest young software experts won't stay home. But to be a tech hot spot, the country first needs a critical mass of first-rate engineers. Mr. Lim, for example, says he won't come back any time soon, despite plenty of offers from Malaysian concerns. While money is a big issue, it's only part of Singapore's appeal. Mr. Lim says he can learn more where companies are developing -- not simply installing -- the latest technologies.

Desperate, Malaysian companies are starting to recruit information-technology specialists in India. But there, too, they must compete with global electronics giants.

"This is a serious situation. Unless it's dealt with quickly, some of these companies may decide to pack up and go," says Toh Kin Woon, the minister for human resources and the economy in Penang state, Malaysia's electronics manufacturing heartland. "It's all well to suggest our local factories move up the value-added chain, to R&D and design, but first we need the skilled labor."

Malaysia must adapt because it's fast losing its competitive edge as a cheap place to assemble electronics goods. To hold down labor costs, Globetronics Technology Bhd., a manufacturer of integrated circuit board components, now imports 40% of its factory workers from Indonesia. Even so, competition for experienced assembly-line employees in Penang's electronics plants is so intense that some companies offer an immediate 10% pay raise to workers willing to leave their current job.

To hasten a shift from assembly operations to more sophisticated production, the Malaysian government is pursuing policies intended to create a "knowledge economy."

Four years ago, the government began construction of the Multi-media Super Corridor project near Kuala Lumpur. The corridor -- a hard-wired, high-tech zone, complete with its own university, tax breaks and an array of other investor lures -- is touted as Malaysia's answer to Silicon Valley. Kuala Lumpur's 2001 budget adds more measures aimed at closing the skills gap, including a revamped, tech-heavy school curriculum and funding for four new universities and four new advanced technology training centers.

But some industry executives grumble that Malaysia got its priorities reversed, focusing on education and labor issues only after it started to build the super corridor. Tellingly, perhaps, the government has yet to survey national supply-and-demand trends for IT workers. The Multi Media Development Corp., a government-linked agency, estimates that companies in the super corridor alone will need about 108,000 IT specialists by 2001, and most of those companies want staff with at least two years' experience. In 1999, however, Malaysian schools produced just 20,000 graduates with IT-related degrees or diplomas.

Businesses are trying to help meet the demand. Local units of Siemens AG and Motorola Inc., for example, have teamed up with Malaysian universities to help design new technology programs. But neither those efforts nor the recent budget measures will produce the experienced engineers companies need right now.

"Manufacturing companies that just didn't need this kind of staff a few years ago now do, to install certain technologies. And without those technologies, a company may grow slower or be less competitive with global players," says Mark Chang, chief executive of Jobstreet.com, a Malaysia-based regional online recruiter. Moreover, he adds, it's often hard to persuade a programmer to move to small-town Penang to design software when he or she has offers from Singapore or the U.S.

That's something understood well by Datuk Lee of Toray Pen -- whose petrochemical factories produce materials used in printed circuits and plastic injection molds. His own two sons, both software engineers, are working in the U.S. and can't be tempted home. The attraction: being in a cutting-edge tech environment while pulling down a hefty salary. A fresh computer-science graduate can easily make $50,000 a year or more in Silicon Valley; in Malaysia, a similarly trained grad earns about 30,000 ringgit, or just under $8,000. "Who can blame them?" shrugs Datuk Lee.

Meanwhile, the Toray executive is scrambling to keep pace with the latest technologies. He's in the process of installing an online business-to-business capability for Toray's fabric business, which supplies U.S. retailers such as J.C. Penney Co. and The Gap Inc. "We need to automate our business processes as far as possible," Datuk Lee says. "The customers are demanding this."

He's prepared to pay more to deliver on those demands -- he's upped his IT specialists' pay by about 25% in the past year -- but turnover is still high.

Indeed, industry executives say poaching is rampant in Penang. Zip-drive maker Iomega (Malaysia) Sdn. Bhd. -- a unit of U.S.-based Iomega Corp. -- has lost eight programmers to a Penang-based subsidiary of Dell Computer Corp. in the past seven months. Joe Adams, an Iomega vice president, says he's spent $20,000 to $30,000 each to send about a dozen staffers to the U.S. over the past two years to be trained by Oracle Corp. But when the trained workers return, other Malaysia-based multinationals try to poach them. "Sometimes it's more expedient to pinch these people," says an exasperated Mr. Adams.

Local companies -- which can't compete with multinationals that offer big salaries and stock options -- are now forced to look overseas for skilled staff.

The quest for programmers took a team from Globetronics, the Malaysian components maker, to India. Globetronics created a subsidiary earlier this year to provide electronic-business services, and it needed six programmers to get the company off the ground. But competition forced the Malaysians to bypass key technology centers such as Bangalore and search for staff in small software companies on the outskirts of New Delhi. "All the big boys are there, too -- in terms of dollars and cents, we certainly can't compete," says Ng Kok Choon, corporate planning manager.

Globetronics's new subsidiary is sited in the super corridor, which made getting work visas for its Indian programmers easier than it is for most companies. Malaysia allows super-corridor-status concerns to import all the foreign experts they need and expedites the visa application process, which otherwise can take weeks or months to complete. But for manufacturers based elsewhere, the visa process can pose big headaches.

"The process for them seems to be the first application gets rejected, then you have to appeal," says Dr. Toh, the minister for human resources and the economy in Penang state, who gets regular calls for help from Penang-based manufacturers who've been stonewalled by Malaysian immigration officials. "It can be pretty frustrating for them."

Ultimately, however, attracting technology experts in a global labor market will depend on companies' own priorities. "Companies are just going to beef up on efficiencies and lower other costs so they can afford to pay what it takes to attract these people," says David Gee, vice president of ENG Teknologi Holdings Bhd., which makes hard-disk drive components. "Otherwise, it's going to be pretty bleak."

At Toray Pen, Datuk Lee has begun offering monthly bonuses to key staff, on top of pay raises, as an incentive to stay. And Iomega offers a twice-yearly performance-linked bonus that often adds up to an extra three months' pay.

"The prospects of the country depend on the quality of the human resources," says Datuk Lee. "If we miss out now, we'll fall further behind."