Professional Documents
Culture Documents
REPORT
2014/2015
MALAYSIA PRODUCTIVITY REPORT 2014/2015
9 771394 410003
Director General
Malaysia Productivity Corporation
P.O. Box 64, Jalan Sultan,
46904 Petaling Jaya,
Selangor Darul Ehsan,
MALAYSIA.
s
STATUTORY STATEMENT
CONTENTS
MESSAGE FROM THE Infrastructure ...20
MINISTER ...viii Regulation ...22
PRODUCTIVITY PERFORMANCE OF
CHAIRMANS STATEMENT ...ix THE SERVICES SECTOR ...27
Economic Performance ...28
ABOUT MPC ...x Productivity Performance ...30
Performance of Selected
Services Sub-Sectors ...32
ACKNOWLEDGEMENTS ...xiii Wholesale and Retail Trade Services...32
Transportation and Storage Services...35
Professional, Scientific and
MALAYSIAS PRODUCTIVITY Technical (PST) Services...40
PERFORMANCE ...1 Healthcare Services...45
Towards the Global Frontier ...48
Employment Trends ...3
Productivity Performance of Major PRODUCTIVITY PERFORMANCE OF
Economic Sectors ...4 THE MANUFACTURING SECTOR . ..51
Decomposition of Labour Productivity Growth ...4
TFP of Major Economic Sectors...5 Economic Performance ...52
Capital Deepening...6 Productivity Performance ...54
Closing the Gap and Challenging Performance of Selected
the Productivity Frontier ...6 Manufacturing Sub-Sectors ...58
Strengthening the Workforce...8 Electrical and Electronics...58
Boosting Productivity Through Machinery and Equipment...63
Information Technology...9 Chemical and Chemical Products...66
Unleashing the Potential of Industries...9 Multiplying the Potential of the
Outlook 2015 ...10 Manufacturing Sector ...69
LIST OF FIGURES
Figure 1.1: Malaysias Labour Productivity Figure 3.1: Contribution of the Services Sector to GDP, 2014 ...29
Performance, 20102014 ...2
Figure 3.2: Distribution of Employment Within
Figure 1.2: Job-Seekers, Job Vacancies and the Services Sector, 2014 ...29
Unemployment, 20132014 ...3
Figure 3.3: Export and Import of Services, 2006-2013 ...29
Employment in the Informal Sector by Industry, 2012-2013 (000) ...3
Figure 3.4: Shares of Exports and Imports of Services, 2013 ...30
Figure 1.3: Labour Productivity of Malaysias
Figure 3.5: Productivity of the Services Sector, 2011-2014e ...31
Major Economic Sectors, 2014 ...4
Figure 3.6: Productivity Level and Growth
Figure 1.4: Malaysias TFP Growth, 1996-2014 ...5
of Wholesale Trade, 2010-2014 ...32
Figure 1.5: TFP of Malaysias Economic Sectors ...5
Figure 3.7: Productivity Level and Growth of Retail Trade,
Figure 1.6: Capital Stock, Capital Deepening 2010-2014 ...32
and Capital Productivity ...6
Backward and Forward Linkages of the Services Sector ...33
Figure 1.7: Share of Gross Fixed Capital Formation (GFCF)
Figure 3.8: Labour Cost Competitiveness
by Type of Assets, 2006-2014 ...6
of Wholesale Trade, 2013-2014 ...34
Figure 1.8: Global Labour Productivity Frontier ...7
Figure 3.9: Labour Cost Competitiveness
Figure 1.9: Productivity and Employment as Drivers of Retail Trade, 2013-2014 ...34
of GDP Growth, Selected Countries ...8
Figure 3.10: Capital Productivity and Capital Intensity
Figure 1.10: 10 Shifts That Will Spur Continued of Wholesale Trade, 2013-2014 ...34
Excellence in the Higher Education System ...8
Figure 3.11: Capital Productivity and Capital Intensity
Figure 1.11: Malaysias Performance in the Global of Retail Trade, 2013-2014 ...34
Innovation Index (GII) - ICTs Sub-Pillar ...9
Backward and Forward Linkages for Wholesale
Figure 1.12: Malaysia vs Korea Productivity and Retail Trade Services ...36
Comparison, 2000-2011 ...10
Figure 3.12: Productivity Level and Growth of the Transportation
Labour Productivity vs GDP Per Capita. ...11 and Storage Services Sub-Sector, 2010-2014 ...37
Labour Productivity vs Labour Income Share to GDP. ...11 Figure 3.13: Growth of Labour Cost Competitiveness Within
the Transport and Storage Sub-Sector, 2013-2014 ...38
Figure 2.1: Malaysias Performance in Three Major
International Reports ...15 Backward and Forward Linkages for Transport
and Storage Services ...39
Figure 2.2: Most Productive Economies vs.
Least Productive Economies, 2013 ...15 Figure 3.14: Productivity Level and Growth of the Professional,
Scientific and Technical (PST) Services Sub-Sector, 2010-2014 ...40
Figure 2.3: Participation of Part-Time Labour
and Female Labour, 2013 ...17 Figure 3.15: Labour Cost Per Employee of the Professional, Scientific
and Technical (PST) Services Sub-Sector, 2010-2014 ...41
Figure 2.4: Employed Persons by Occupation
in Malaysia, Males vs. Females ...17 Figure 3.16: Unit Labour Cost of the Professional, Scientific and
Technical (PST) Services Sub-Sector, 2010-2014 ...41
Figure 2.5: Productive Countries Attracting
High-Skilled People, 2013 ...18 Figure 3.17: Capital Productivity of the Professional, Scientific
and Technical (PST) Services Sub-Sector, 2010-2014 ...42
Figure 2.6: Malaysias Attractiveness in Terms
of Investment Incentives, 2013 ...20 Figure 3.18: Capital Intensity of the Professional, Scientific and
Technical (PST) Services Sub-Sector, 2010-2014 ...42
Figure 2.7: Internet Bandwidth Speed, Most Productive
Countries vs. Malaysia, 2011 (kbps Per User) ...21 Backward and Forward Linkages for Professional,
Scientific and Technical Services ...43
Figure 2.8: Total Expenditure on R&D, Top 10 Most
Productive Countries vs. Malaysia, 2012 (USD) ...22 Figure 3.19: Productivity Level and Growth of the
Healthcare Sub-Sector, 2010-2014 ...45
Figure 2.9: Competition and Regulation, Selected Countries, 2014 ...23
Figure 3.20: Labour Cost Competitiveness of the
Figure 2.10: Regulatory Quality Gaps Between Malaysia
Healthcare Sub-Sector, 2011-2014 ...45
and Selected OECD Countries; 1996-2013 ...24
Figure 3.21: Capital Productivity of the
Figure 2.11: Regulatory Process Improvement for Baker
Healthcare Sub-Sector, 2010-2014 ...46
Hughes in Port Klang Free Trade Zone (PKFZ) ...25
Figure 3.22: Capital Intensity of the Healthcare
Figure 2.12: Enhancing Efficiency of Cargo Clearance Using K8s
Sub-Sector, 2010-2014 ...46
Documentation at Port Klang Free Zone (PKFZ) ...25
vii
LIST OF TABLES
Table 1.1: Decomposition of Productivity Growth ...4 Table 4.2: Labour Cost Competitiveness
of the M&E Sub-Sector, 2014e ...64
Table2.1: Government Initiatives to Facilitate Trade Via ICTs ...21
Table 4.3: Labour Cost Competitiveness of the Chemicals
Table 3.1: Productivity Growth of the Services Sector, 2012-2014 ...31
& Chemical Products Sub-Sector, 2014e ...68
Table 3.2: Logistics Performance Index 2014 ...38
Table 5.1: International Agriculture Productivity Comparison,
Average Monthly Salary Comparison by Country (USD) ...44 Malaysia vs. Selected Countries, 2012 2013 ...77
Table 3.3: Productivity in the Services Sector (PPP) Table 5.2: Production of Paddy of Selected ASEAN
Malaysia vs. Selected Countries ...48 Countries (000 tonnes), 2012 2014 ...78
Table 4.1: Labour Cost Competitiveness of Table5.3: Average Yield of Paddy 2010-2013* (Metric Tonne/Ha) ...78
the E&E Sub-Sector, 2014e ...61
viii
PRODUCTIVITY REPORT 2014/2015
MESSAGE FROM
THE MINISTER
W
hile Malaysias economic diversity and strong A holistic, nationwide productivity movement involving
fundamentals are helping to expedite the the Government, industry and businesses will support
countrys transformation towards becoming a the countrys long-term economic well-being and give
high income nation, the catalyst of Malaysias economic our children a brighter future. In this regard, under the
growth amidst global uncertainties is productivity. In 11th Malaysia Plan the Government will put in place a
2014, the countrys labour productivity grew by 3.5% nation-wide productivity agenda and implementation
to RM61,708, making it a strong contributing factor plan with a five-year Malaysia Productivity Blueprint. This
to Malaysias higher GDP growth of 6%. This puts the blueprint will strengthen the governance and institutional
country on track to achieving its goal of having an annual mechanism for implementation of productivity strategies.
productivity growth rate of 3.7% by 2020. A National Productivity Council (NPC) will also be set
up to outline direction and formulate a comprehensive
Malaysia will continuously challenge global frontiers and specific action plan to drive productivity through the
by building upon its productivity. Growth in productivity proposed blueprint.
not only has a positive correlation with national GDP,
but also ensures greater efficiency and sustainability I hope this report will serve as an informative and helpful
in the nations pursuit of excellence. In 2014, industry reference to decision makers in their strategic planning
growth remained focused on the key sectors of and policy formulation. We seek to challenge existing
construction (13.2%), mining (6.5%), agriculture (3.9%), barriers and to strive for greater achievements that
manufacturing (3.8%) and services (2.2%). The country will ultimately turn Malaysia into a more competitive
must strengthen its workforce, invest in technology economy with higher productivity.
and boost the productivity of our industries if it is to
accelerate its journey to challenge the productivity
frontier. Companies must instil a culture of productivity
within their employees, suppliers and industries as a
whole to sustain growth.
MALAYSIA PRODUCTIVITY
CORPORATION
BOARD OF DIRECTORS
CHAIRMAN
Y. Bhg. Tan Sri Azman Hashim
Ambank Group
DEPUTY CHAIRMAN
Y. Bhg. Dato Nik Rahmat Nik Taib
Ministry of International Trade and Industry
MEMBERS
Y. Bhg. Prof Tan Sri Dato Dzulkifli Abdul Razak Y. Bhg. Dato Prof Dr. Asma Ismail
Chair of Islamic Leadership, Universiti Sains Islam Higher Education Department
Malaysia Y. Bhg. Dato Saripuddin Kasim
Y. Bhg. Tan Sri Datuk Mustafa Mansur Ministry of Human Resource
Itco Niaga Sdn. Bhd. Y. Bhg. Dato Mohd Razali Hussain
Y. Bhg. Tan Sri Dato Azman Shah Dato Seri Harun Malaysia Productivity Corporation
Malaysian Employers Federation Y. Bhg. Dato Muhamad Noor Yacob
Y. Bhg. Datuk AG Buhtamam AG Mahmun Malaysia Automotive Institute
Kumpulan Syarikat One Holdings Sdn. Bhd. Y. Bhg. Dato Zamzuri Abdul Aziz
Y. Bhg. Datuk Ahmad Loman Ministry of Finance
Ministry of Agriculture and Agro-Based Industry Mr. A. Balasubramaniam
Y. Bhg. Datuk Abang Haji Abdul Karim Tun Abang Haji Malaysia Trade Union Congress
Openg Ms. Zakiah Jaafar
Brooke Dockyard & Engineering Works Corporation Economic Planning Unit
MANAGEMENT TEAM
AOL Ventures
Berjaya University College of Hospitality
Besi Apac Sdn. Bhd.
BUJ Technology Enterprise Sdn. Bhd.
BZ Chemicals Industries (M) Sdn. Bhd.
Federation of Malaysian Manufacturers (FMM)
Flextronics Technology (Penang) Sdn. Bhd.
Infineon Technologies Malaysia
Innate Synergy Sdn. Bhd.
KLAS Farm Sdn. Bhd.
KPJ Ipoh Specialist Hospital
KULICKE & SOFFA Technology (M) Sdn. Bhd.
Malayan Banking Berhad (Maybank)
Malaysia Palm Oil Board (MPOB)
Malaysian Institute of Architects
Mega Fortris (Malaysia) Sdn. Bhd
Malaysian Resources Corporation Berhad (MRCB)
Panasonic Energy Malaysia Sdn. Bhd.
Penang Seagate Industries (M) Sdn. Bhd.
Robert Bosch Sdn. Bhd., Malaysia
Saint-Gobain Malaysia Sdn. Bhd.
Sime Darby Property Berhad
Sunway Integrated Properties (SIP)
Taz Beauty and Cosmetics Sdn. Bhd.
University Kebangsaan Malaysia (UKM)
University of Malaya (UM)
Malaysias
PRODUCTIVITY
PERFORMANCE
In this chapter:
A
modern economy achieves growth from two will raise the economys capacity to supply goods
sources: first, by increasing the quantity of its and services and push the country towards greater
inputs in terms of capital, labour and materials; productivity frontiers.
and second, by improving the efficiency by which that
capital, labour and material is used. By enhancing its
productivity, a country can achieve economic growth MALAYSIAS PRODUCTIVITY
by transforming the same amount of input into higher PERFORMANCE
levels of total output. Productivity growth can also stem
from a higher quality of goods and services without In 2014, Malaysias labour productivity as measured
corresponding increases in their prices. by real added value per employee improved by 3.5% at
RM61,708 from RM59,622 in 2013. Meanwhile, labour
productivity as measured by real added value per hour
Higher standards of living will require worked improved to RM28.55 in 2014 from RM27.59 in
the countrys businesses to leave behind 2013. The growth in productivity was a contributing factor
traditional growth factors and embrace Figure 1.1: Malaysias Labour Productivity Performance,
a new, modern path to challenge the 20102014
frontier. 80 10
9.2
70
Growth (%)
In 2014, Malaysias Labour Force Participation Rate Informal employment basically occurs in small and less
(LFPR) increased slightly to 67.5% from 67% in 2013. efficient firms operating in the grey market. They gain
Malaysias employment remained stable, with total cost advantages over more productive and law-abiding
employment reaching 13.5 million persons with a net firms by ignoring quality and safety regulations or
job gain of 322,100 persons from the previous year. The avoiding taxes. They also lack incentives to invest and
unemployment rate declined marginally at 2.9% in 2014 achieve economies of scale. The increasing size of the
from 3.1% in previous year. informal sector in Malaysia may impact productivity.
Malaysias employment mismatch between vacancies Employment in the Informal Sector by Industry, 2012-
and job-seekers remained high but showed a decreasing 2013 (000)
trend. Total active job-seekers were recorded at 401,827 Industry 2012 2013
people compared with 407,626 people in 2013, while Manufacturing 161.7 207.5
the number of vacancies during 2014 was 1,074,018
Construction 261.3 252.0
positions compared with 1,402,690 positions in 2013
(Figure1.2). The ratio of vacancies per job-seekers Wholesale and retail trade, 195.5 226.2
repair of motor vehicles and
Figure 1.2: Job-Seekers, Job Vacancies and Unemployment, motorcycles
20132014 Accommodation and food and 134.6 177.6
beverage service activities
1,500 3.5 Administrative and support 53.4 69.4
1,403
service activities
Vacancies (Thousands)
1,200
Human health and social work 106.0 198.3
Job-Seekers and
3.1
1,074 activities
Growth (%)
900 995
Other service activities 30.5 29.7
672 3.0
600 Others* 100.0 123.5
2.9
Total 1,044.0 1,284.2
408 402
300
Note: *Others refers to Mining and Quarrying; Water Supply; Sewerage,
Waste Management and Remediation Activities; Transportation and
0 2.5 Storage; Information and Communication; Financial and Insurance/
2013 2014 Takaful Activities; Real Estate Activities; Professional, Scientific and
Job-Seekers Unemployment (%) Technical Activities; Education; Arts, Entertainment and Recreation.
Vacancies
Source: Department of Statistics, Malaysia.
Computed from: Department of Statistics, Malaysia; Economic Report, Ministry of
Finance; Bank Negara Malaysia.
4
was reduced from 1:3.4 to 1:2.7, indicating that there Sectors, 2014
are fewer job opportunities in the market. The drop in
the number of job-seekers in 2014 also indicates that
800 15
778.77 13.22
people might be finding work in the informal sector.
90.56
80 12
PRODUCTIVITY PERFORMANCE
RM Thousand
Growth (%)
60 63.90 9
OF MAJOR ECONOMIC SECTORS 6.52
40 6
The construction sector recorded the strongest 34.66 3.79
productivity performance with growth in productivity at 20 3.93 26.90
3
13.2%, followed by mining at 6.5%, agriculture at 3.9%, 2.25
manufacturing at 3.8% and services at 2.2% (Figure1.3). 0 0
The construction sector performed well mainly due to
s*
ion
re
ng
g
rin
ltu
ice
ini
ct
tu
u
tru
rv
M
strong growth in the residential and non-residential sub-
ric
ac
Se
ns
Ag
uf
Co
an
sectors. The sector recorded a labour productivity level of
M
RM26,895 in 2014 from RM23,755 in 2013. Computed from: Department of Statistics, Malaysia
Note: *Excludes Government Services
8
7MP 8MP 9MP 2011-2014
4
TFP Growth (%)
TFP = 1.4%
TFP = 1.5% TFP = 1.1%
TFP = 1.2%
0
-4
1996-2000 2001-2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Computed from: Department of Statistics, Malaysia and Economic Planning Unit, Malaysia
TFP of Major Economic Sectors Figure 1.5: TFP of Malaysias Economic Sectors
s
ur
rin
tio
s
ice
ini
ay
uc
tu
rv
M
al
ric
ac
str
Se
M
uf
Ag
9MP 2011-2014
The agriculture sector recorded a TFP growth of 1.3%
in 2011-2014, an upward bounce from its negative Computed from: Department of Statistics, Malaysia
growth of -0.3% during the 9MP. The positive TFP growth
is in line with the Governments move to modernise For the manufacturing sector, TFP grew at a minimal
and transform the sector, and even higher TFP could rate of 0.1%. The realisation of the AEC has the potential
be within reach if the sector takes advantage of the to further enhance manufacturing TFP. Sub-sectors
commencement of the ASEAN Economic Community such as automotive, electronics and food could further
(AEC) in the near future. enhance their productivity by leveraging on the AECs
impact to achieve economies of scale and optimise costs
The TFP growth of the services sector moderated to for labour and input sourcing, inventory, logistics and
2.3% in 2011-2014 from 4.1% during the 9MP period. transactions.
However, government initiatives to modernise the sector
through liberalisation activities will spearhead economic
and TFP growth in the long-term.
6
PRODUCTIVITY REPORT 2014/2015
Figure 1.7: Share of Gross Fixed Capital Formation (GFCF) by Type of Assets, 2006-2014
80
Machinery & equipment 50
60
45
40 2014: 50.6%
Structure
40
20
0 35
2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014
Australia 51,488
Singapore 49,464
Korea 46,098
Japan 44,927
Chile 37,117
Venezuela 25,766
Argentina 25,134
Malaysia 25,090
Mexico 20,289
Bulgaria 19,790
Thailand 17,491
China 16,470
Brazil 13,478
Indonesia 11,880
India 9,639
At the high end of performance, Hong Kong and Korea To catch up, Malaysia needs to identify leading indicators
have demonstrated good performance with productivity of real growth opportunity, particularly where there are
growth of 3.1% and 2.6% respectively over the period gaps between our current performance and the global
2001-2013. With growth faster than that of USAs benchmark. The country must strengthen its workforce,
(1.4%) it is likely that Hong Kong could soon set the new invest in technology and boost the productivity of our
productivity frontier. industries if it is to accelerate its journey to challenge the
productivity frontier.
Meanwhile, China, Myanmar, Indonesia, Thailand,
Bulgaria and India have been observed closing the gap
at an increasing rate since 2000. There is a possibility Malaysia must strengthen its workforce,
that these countries will surpass Malaysias performance
invest in technology and boost the
in the near future. To avoid being left behind, Malaysia
needs a better approach in terms of management, tools, productivity of our industries if it is to
technology and organisation. accelerate its journey to challenge the
productivity frontier.
8
Figure 1.9: Productivity and Employment as Drivers of GDP Growth, Selected Countries
PRODUCTIVITY REPORT 2014/2015
Growth (%)
5.82 5.56 6
9 5.13
6.82
6.05
6 5.21 4
4.60 5.00 4.74 4.57 2.93 3.34 2.91
3.31
3.10 2.18
3 1.88 2
0 0
sia
sia
ina
sia
ar
m
tes
alia
ore
ore
ina
sia
ar
m
tes
alia
ea
ea
ine
ine
ilan
ilan
tna
tna
anm
anm
Kor
Kor
lay
lay
one
one
Ch
Ch
Sta
Sta
gap
gap
str
str
lipp
lipp
Tha
Tha
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Vie
Ma
Ma
Au
Au
My
My
Ind
Ind
Sin
Sin
ited
ited
Phi
Phi
Un
Un
1
education system.
quality labour force helps boost a countrys labour Globalised
Online Learning address key perfor
9
the system, particu
productivity, employment and long-term economic WRTXDOLW\DQGHIF
2
Talent
success. Excellence
global trends that
the higher educati
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From the period of 2011-2013, the new Asian economies
Ou
8
Global
outcomes for key s
t c om
3
Learned including students
ab l e r s
Values-Driven Nation of
productivity contribution to GDP from the previous period
es
Lifelong
and TVET pathwa
Talent
Learners academic commun
(2000-2010), while the developed economies underwent
En
as all Malaysians p
in lifelong learning
7
significant shifts in the balance between productivity six Shifts focus on
4
and employment. Malaysia for its part continued to rely Innovation
the higher educati
Ecosystem covering critical co
upon growth in employment to achieve higher economic as funding, govern
6
Quality TVET
internationalisatio
5
growth (Figure1.9). Graduates
learning, and deliv
Empowered
Malaysia has the opportunity to achieve a significant Governance
Financial
Sustainability
E-participation
E-participation
the system, particularly with regard
20 20 20
ICT Use
ICT Use
ICT Use
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global trends that are disrupting
the higher education landscape.
7KHUVWIRXU6KLIWVIRFXVRQ
Government's Online Services Government's Online Services Government's Online Services
outcomes for key stakeholders
Malaysia Singapore Korea
in the higher education system,
including students in academic
and TVET pathways,
Source: The theIndex 2014, INSEAD
Global Innovation
can gain competitive advantages and of motor vehicles and motorcycles), information and
communication and real estate industries recorded more
improve its labour productivity. than 50% productivity of that in Korea. Malaysia needs
to implement and leverage on several initiatives under
According to the Global Innovation Index (GII), Malaysia the NKEAs as well as internalisation strategies in the
achieved improvements in ICT access and usage, services sector blueprint to empower its industries to
governments online services and e-participation from achieve higher productivity.
2011 to 2014. However, Singapore and Korea remain far
ahead of Malaysia in these aspects (Figure1.11).
10
Services Sub-Sectors
However, there are some outliers. A number of emerging and Higher productivity levels are necessary to raise wages
developing economies such as China and Malaysia recorded and labour income shares in an economy. Malaysias
higher labour income shares but no corresponding higher labour income share stood at 42.1% in 2013, which was
productivity levels. Such economies are most likely involved relatively low compared to selected developed economies.
in low-productivity, labour-intensive industries due to the For Malaysia to increase its labour income share, wages
large pool of low-skilled workers (right chart). can only grow if there is a corresponding increase in labour
productivity.
Labour Productivity vs GDP per Capita. Labour Productivity vs Labour Income Share to GDP.
productivity level 80
60 60
USD Thousand
USD Thousand
50 50 60
40 40
30 40
30
20 20
20
10 10
0 0 0
ia
ina
lia
A
a
n
ia
or
US
re
e
s
lia
ina
pa
a
or
ay
pa
re
Ch
s
ap
US
Ko
str
a
ay
Ja
Ch
ap
Ko
str
al
Ja
ng
Au
al
ng
M
Au
Si
M
Si
Source: Total Economy Database, The Conference Board Source: Total Economy Database, The Conference Board
ENHANCING
PRODUCTIVITY
THROUGH BETTER
GOVERNANCE
In this chapter:
P
roductivity is very closely intertwined with the high-productivity frontiers set by the top 20 most
competitiveness. Factors that enhance productive economies (Figure 2.2).
productivity growth make countries
more competitive in international markets, and Competitiveness can be a key driver of the economy.
competitiveness reflects the overall circumstances, Through the ceaseless endeavour for greater gains,
institutions and policies that impact productivity. Turning companies are forced to maintain a constant flow of
Malaysia into a more competitive economy with higher innovation to out-do their competitors. As companies
productivity levels will allow its citizens to achieve experiment with different problem-solving methods and
higher income levels. For this reason, the Government management systems, they begin to branch out further,
has made boosting productivity a top priority and looking into different means of maximising their return
has enacted several policies aimed at encouraging on investment (ROI). It is this creative flow that pushes
technology growth and eliminating factors that hinder an economy forward, helping it to adapt to ever-changing
competitiveness. social, technological and economic trends. With firms
all pushing harder to remain on top of the competition,
Over the past five years, Malaysia has implemented the market not only experiences greater productivity, but
many initiatives to strengthen the countrys position greater sustainability and wealth creation too.
in what is becoming an increasingly competitive
global marketplace. The country has moved up the
competitiveness rankings in many international An established and well-maintained
reports and has performed commendably in various
competitiveness indicators. Malaysia is now ranked
competitive business environment is
12th out of 60 economies in the World Competitiveness crucial in the pursuit of productivity, as
Yearbook (WCY) 2014, 20th out of 144 countries in the it lays a strong foundation for the need
Global Competitiveness Report (GCR) 2014-2015 and
18th out of 189 countries in the World Banks Doing to innovate, to work hard and to seek
Business 2015 (Figure 2.1). new frontiers.
In theory, competitiveness should improve in tandem An established and well-maintained competitive business
with productivity. However, Malaysia has yet to make this environment is crucial in the pursuit of productivity, as it
productivity breakthrough. Despite Malaysias favourable lays a strong foundation for the need to innovate, to work
achievement in World Competitiveness Yearbook (WCY) hard and to seek new frontiers. This invariably leads to
2014 rankings (12th), in terms of productivity it only higher productivity, more opportunities to create wealth,
ranked 48 out of 60 economies. This puts it far behind greater profitability and sustainable economic growth.
15
Figure 2.2: Most Productive Economies vs. Least Productive Economies, 2013
USA
100
Switzerland
Sweden Hong Kong
Norway
90 Germany Singapore
Malaysia Taiwan Qatar
Denmark
Netherlands Ireland
80 Australia Luxembourg
China Mainland Finland Austria
Belgium
Competitiveness Score
its efforts to turn its competitive giving them more incentive to become active members of
the countrys workforce.
edge into increased productivity. It
needs to challenge the frontier and
highest rate of part-time employment at 37.8%. The
compete at regional and global levels Netherlands model demonstrates that it is possible to
by empowering its workers through reduce a countrys welfare bill by raising a countrys
overall employment rate for women and ensuring higher
productivity and innovation. levels of job satisfaction.
Several factors contribute towards a countrys ability to With female participation accounting for only 53.4% of
maintain high productivity, such as the wide availability the eligible female workforce, Malaysia trails behind
of skilled labour, highly-motivated workers and sufficient Thailand and Singapore, each with 70% and 60%
training for employees. Higher workforce participation respectively. The reasons for this disparity may stem
rates among part-timers and females also boost a from the lack of support systems such as nurseries and
countrys productivity. Countries that rank highest in child-care centres, along with the inflexible working hours
terms of productivity generally demonstrate higher levels most companies enforce. Additionally, women who were
of part-time employment and female participation in once part of the labour market but who retired to raise
the workforce. In 2012, the Netherlands registered the
17
40 Philippines
Netherlands Productivity Per
Person (PPP)
A significant proportion of
35 high-productivity economies Most productive
Indonesia have a larger percentage economies
of women and part-timers (> US$70,000)
30 in the workforce Least productive
Part-Time Employment (%)
Switzerland
Australia economies
United Kingdom
Ireland (< US$70,000)
25 New Zealand
Germany
Japan
Mexico Norway Denmark
Colombia
20 Chile Belgium Canada
Austria
Luxembourg Iceland
Israel Sweden
Spain
15 Turkey
France
Thailand Kazakhstan
Korea USA Finland
Singapore Portugal Estonia
10 Slovenia Lithuania
Greece Latvia
Poland Croatia
South
Malaysia Czech Peru Africa Hungary
5 Republic Taiwan Slovak Russia
Romania Republic Bulgaria
0
30 35 40 45 50 55
Female Labour Force (%)
Source: IMD World Competitiveness Yearbook 2014
A significant proportion of
140,000 high-productivity economies Luxembourg Qatar
are extremely attractive
to foreign high-skilled people Norway
USA
120,000
Ireland
Productivity Per Person (PPP) (US$)
0 2 4 6 8 10
Attractiveness to Foreign High-Skilled People Score
Kong (45.2%), Ireland (45%) and USA (43%). Singapores FISCAL POLICY
leading ranking in higher education has been attributed
to an education system where teachers are chosen The second important factor affecting a countrys
from top graduates and trained extensively as well as a competitiveness is associated with fiscal policy and taxes.
cultural respect for education. Maintaining macroeconomic stability is an important
element in the policy mix of boosting productivity and
Increased globalisation has also escalated the diffusion competitiveness, as it entails the creation of a business
of talent to industrialised countries. Drawn by better environment free of uncertainties and unanticipated
salaries, working conditions and quality of life, the costs. A stable macroeconomic environment means
best global talent is able to operate anywhere in the lower volatility in inflation rates, interest rates and
world (Figure 2.5). As these high-skilled expats migrate, exchange rates as well as lower fiscal deficit relative to
they bring not only themselves, but also their highly- GDP.
transferrable skills. Countries that attract these skilled
workers are therefore able to engage in knowledge Fiscal policy has a direct impact on the creation of a
transfer, thus improving local skills in the process. competitive business environment. The lower the tax
Malaysias stable economy and quality of work and life rate imposed, the more competitive it is for businesses
have the added advantage of attracting high-skilled or investors to operate in a particular country. In addition,
foreign workers, a factor that will help improve the taxes play a significant role in shaping the economic
countrys productivity performance in the future. decisions of both businesses and individuals, as high
taxes limit investment and wealth creation.
The key criteria for foreign investors when considering Incentives, 2013
an investment destination include cost and ease of
doing business, political stability, market conditions Malaysia is a very attractive investment
and the availability of investment incentives. Malaysia destination, but it has not been able to
translate that investment into greater
offers attractive investment incentives to foreign 150,000 productivity.
With the implementation of the AEC, Malaysia is Technological infrastructure plays an important role
expected to attract at least RM200 billion or 10% of in supporting the modern economy. Information and
total investment in ASEAN. It will also have access to Communication Technology (ICT) is a key enabler of
the market of 620 million people in ASEAN countries. innovation and new employment opportunities. As these
With its Economic and Government Transformation technologies increasingly impact tangible assets and
Programmes moving into high gear, Malaysia has all key activities such as education, transportation and
the ingredients it needs to serve investors well into the healthcare, it becomes increasingly important to build
future. and strengthen digital ecosystems. The Government
has undertaken various business-centric initiatives to
facilitate trade through technological infrastructure
INFRASTRUCTURE (Table 2.1).
Another factor that impacts a countrys ability to boost Internet bandwidth speed is a vital factor in building a
productivity is its infrastructure. An advanced, high- competitive business environment. Malaysia was ranked
income economy requires world-class infrastructure to 52nd out of 60 countries in terms of Internet bandwidth
support its economic activity. The Malaysian Government speed, offering speeds of about 10.65 kbps per user
is committed to investing into the nations transportation, far behind Hong Kong (1,046 kbps), Singapore (343.73
technological, energy, public and scientific infrastructure. kbps), Thailand (24.63 kbps) and the Philippines
These investments empower businesses with access and (12.36 kbps) (Figure 2.7). Hong Kong stands out as a
connectivity, thus improving productivity and encouraging particularly telling example of how well-connectedness
expansion into high value-added products and services. can drive business. With a total land area of only 1,104
At the same time, greater connectivity between rural square kilometres and a population of just over seven
and urban areas ensures a more equitable distribution million, there are seven or eight major internet service
of economic benefits for all Malaysians. The country will providers (ISPs) vying for consumers attention. This
also intensify its efforts to deepen collaboration at the competition encourages ISPs to continuously improve
government-to-government level, specifically when it the quality and breadth of their service offerings, forcing
comes to undertaking infrastructure projects. them to deliver greater connection speeds at reasonable
prices.
21
Average Internet
for loans and grants from various public 250
agencies. 200
167.64
SSM Enterprise Building upon the introduction of a single 150 151.26
131.14
Services company identification system, MyCoID, the 100 89.56 78.58
Gateway SSM Enterprise Services Gateway will enable 69.03
50 47.17
simultaneous registration across multiple 0
22.33 10.65
agencies following the incorporation of a
a
Si ong
itz re
No nd
Be ay
xe ium
Fr g
Ire e
d
M tar
A
si
c
ur
lan
US
company with SSM. This reduces the need
Sw apo
rw
an
la
Qa
ay
bo
K
Lu lg
er
al
ng
ng
m
for companies to register multiple times
Ho
across various different agencies.
The system will be expanded from five Source: IMD World Competitiveness Yearbook 2014
agencies to include all public agencies
dealing with business entities. Bank study, a 10% increase in household broadband
National Single NSW is a web-based single point of entry for penetration can increase GDP growth by more than 1%.
Window (NSW) the submission of trade data and information. The Government has set a target of raising household
for trade It avoids repetition of provision of the same broadband penetration to 75% by the end of 2015. This
data multiple times and facilitates a quick
will be achieved via two main initiatives: High-Speed
and easy release and clearance of cargo.
During the Plan period, the services under Broadband (HSBB) and Broadband to General Population
the NSW will be expanded to include services (BBGP), both of which leverage wired and wireless
of Free Zone declarations, Dangerous technologies. Policy measures to stimulate demand
Goods declarations, non-customs permits, for broadband will introduce tax rebates for broadband
phytosanitary certificates and Convention of subscriptions, provide affordable packages for students
International Trade on Endangered Species
and the rural population, encourage computer ownership
certificates.
and promote the development of local content in both
Source: Tenth Malaysia Plan public and private sectors.
If Malaysia is to realise the transformation of its services The Malaysian Government has taken several steps to
sector as an engine of growth it must make high- nurture quality R&D and scientific innovation among
speed broadband a key enabler. According to a World businesses. However, the country remained ranked
22
41st among 60 countries in terms of Total Expenditure Countries vs. Malaysia, 2012 (USD)
on R&D per capita (Figure 2.8), a factor that has a
significant impact on productivity performance. That 453,544
said, ASEAN countries as a whole remain far behind 400
Total Expenditure
investment being focused on incremental improvements 50
for existing products and services. To climb the ranks, 40
Malaysia needs to create a favourable environment for 30
25,484
innovation that includes a competitive and open system 20
15,05010,800
for obtaining R&D funding as well as effective intellectual 10 8,269
5,797 3,631 3,079
1,910 784
property protection. Without this support, Malaysia will 0
continue to lack innovation credentials.
ce
itz ly
Be d
No um
Si way
Ire re
M nd
Ho ysia
m g
g
Fr A
ur
lan
xe on
US
Sw Ita
o
an
a
lgi
ap
bo
l
Lu ng K
r
er
a
ng
al
To further unleash productivity-led growth and
innovation, the Malaysian Government is intensifying Source: IMD World Competitiveness Yearbook 2014
collaborative R&D with established research institutes
to leapfrog innovation in terms of production processes Modernising business regulations will
and development of new high value-added products.
Through this collaboration, companies could benefit from
lead to more competitive growth, as this
technological assistance from a Public-Private Research will lower the cost of doing business.
Network (PPRN) to encourage knowledge transfer.
Additionally, the Ministry of Education in collaboration Modernising business regulations will lead to more
with the Malaysian Technology Development Corporation competitive growth, as this will lower the cost of doing
(MTDC) will spearhead the PPRN platform to boost business. The way regulations are implemented,
companies competitiveness using university-based administered and enforced can significantly impact
innovation to create a knowledge-friendly ecosystem. compliance burdens for businesses. For this reason, the
This potentially game-changing solution utilises the best process for developing and implementing regulations
academic minds to boost companies productivity with is necessarily complex. Regulations are required to
process and product innovation. The PPRN platform will comply with the legal requirements contained in various
ultimately help reduce the knowledge gap of companies Acts approved by Parliament and also with policies of
and innovators in businesses. the Government. New and amended regulations are
recommended to undergo a Regulatory Impact Analysis
(RIA) before they are implemented to ensure that the
REGULATION benefits of the proposed regulation will outweigh its
costs.
One other factor affecting productivity is regulation,
which is the lifeblood of a modern, well-functioning Recognising the impact that regulations can have on
economy. Smart regulation is crucial in shaping a the economy, the Government has issued the National
competitive business environment. Almost all regulations Policy on the Development and Implementation
can have an impact on productivity, whether indirectly of Regulations (NPDIR) to ensure the adoption of
(incentives that influence operating and investment best regulatory practices by all federal government
decisions) or directly (effects on compliance costs). ministries, departments, statutory bodies and regulatory
Private sector innovation and participation in the commissions. It is also applicable for voluntary adoption
economy requires a regulatory environment that provides by state government and local authorities.
necessary protection and guidelines while promoting
competition.
23
Romania
Improving decision making for policy
Bulgaria
implementation
Malaysia
Improving economic efficiency through enabling
fair competition Jordan
Venezuela
Kazakhstan
The Governments initiatives to promote a competitive Colombia
business environment through regulation have generally China Mainland
been viewed in a positive light. Like the majority of Thailand
developed countries, Malaysia has legislated laws that Ukraine
support competition and help prevent unfair competition. Philippines
It has also fared well in terms of legislation to support Indonesia
the creation of firms, which is an important component India
for open markets. In general, Malaysia outperforms most
0 2 4 6 8 10
developing nations in both areas (Figure2.9).
Score
Source: IMD World Competitiveness Yearbook 2014
24
compliance burdens associated with company had been facing difficulties moving dutiable
goods to outsourced manufacturers in Johor Bharu
regulation. due to current regulatory requirements. Raw materials
imported from Singapore had to first be transported to
The RURB seeks to reduce unnecessary compliance the PKFZ in Selangor before being trucked down to Johor
burdens associated with regulation. It is an important Bahru for processing and then transported back to Baker
part of the countrys reform process to improve its Hughes in PKFZ. This inefficient model reduced the
competitiveness and the performance of the economy. companys ability to serve its customers.
RURB activity can reduce procedural red tape and
compliance costs while at the same time increasing An RURB initiative by the Malaysia Productivity
savings. The impact of RURB activities has significantly Corporation (MPC) in collaboration with the Royal
benefited companies within the private healthcare, Malaysian Customs Department (RMCD), Malaysian
logistics and oil and gas industries. Investment Development Authority (MIDA) and Baker
Hughes has resulted in a proposal to ship dutiable
25
SERVICES
SECTOR
In this chapter:
M
alaysias services sector can be divided measures had an immediate impact, driving up
into three broad categories: intermediate investments and growth within certain sub-sectors such
services, final services and government as education and healthcare services. The number of
services. Intermediate services comprise finance and international schools grew by 9% in 2014, bringing the
insurance, transport and storage, real estate and total number of international schools established in the
business services and communication, while sub- country to 97.
sectors such as wholesale and retail, accommodation
and restaurants, utilities and other services are defined The Governments liberalisation measures as well as the
as final services. Under the Economic Transformation successful implementation of several EPPs have helped
Programme (ETP), 131 Entry Point Projects (EPPs) were to prepare the services sector for the advent of the
announced in 2010 with approximately 80 EPPs related ASEAN Economic Community (AEC), which will offer local
to the services sector. These EPPs are aimed to catalyse business players greater opportunities to boost their
Malaysias economy in seven identified services sub- competitiveness and tap into ASEAN markets. However,
sectors: financial services, wholesale and retail trade, exploiting the potential of these opportunities will
tourism, business services, communications content and require service providers to compete in a 21st century
infrastructure, education, and healthcare. global economy that values open competition above
protectionism. To ensure sustained growth, businesses
must be able to inspire a culture of productivity within
The government has taken measures to their employees, suppliers and industries as a whole.
Figure 3.1: Contribution of the Services Sector to GDP, 2014 Figure 3.2: Distribution of Employment Within the Services Sector,
2014
The services sector was the nations biggest employer of services exports came from travel at 53.4%, followed
in 2014, accounting for 45.4% of Malaysias workforce by other business services (21.4%) and transport
or 6.1 million people (excluding government services). (11.6%) (Figure 3.4). Despite this impressive growth,
The distributive trade sub-sector remained the imports continued to outpace exports at RM143.5 billion,
largest employer with 2.3 million workers, followed by compounding a trade deficit within the sector that began
accommodation and food and beverage service activities in 2010. Transportation and storage services comprised
with 1.1 million workers (Figure 3.2). a major portion of imports at 31.3% followed by travel
(26.7%) and other business services (20.6%).
Exports of services grew by 7.7% to a new high of
RM126.8 billion in 2013 (Figure 3.3). The largest share
150 Exports
143.5
Imports 133.2
120 126.8
116.9 117.0
110.6
103.6 104.3
RM Billion
30
0
2006 2007 2008 2009 2010 2011 2012 2013
Year
5.5%
Construction
26.7%
53.4% 21.4% Travel
Travel Other
Business
Services
20.6%
31.3% Other
11.6% 7.0% Transport Business
Transport Telecommunications, Services
0.2% Computer and
Government Information
Goods and Services
Services n.i.e
0.3%
2.6% 7.1%
Charges for
the Use of Construction Telecommunications,
Intellectual 1.5% Computer and
Property n.i.e Information
Insurance and Services
0.5% Pension Services
0.8%
Personal, Cultural 0.5% Maintenance and
and Recreational Financial Repair Services
Services Services
200
RM Thousand
150
100
50
0
Services Utilities Wholesale Transportation Accom. Information Financial Real Estate Other
(Excluding and Retail and and Food and and and Services
Government Trade and Repair Storage and Communications Insurance/ Business
Services) of Motor Vehicles Beverage Takaful Services
Services Activities
contributed to the growth of land transport. The opening Table 3.1: Productivity Growth of the Services Sector, 2012-2014
of the Second Penang Bridge in March 2014 as well as 2012 2013 2014
the extension of Express Rail Link (ERL) from KLIA to Utilities -10.39 3.05 2.86
KLIA2 in April 2014 led to an increase of highway and
Wholesale and retail trade and -1.16 1.40 6.19
rail passengers. repair of motor vehicles
Transportation and storage 1.77 5.05 10.06
Other services comprising health services, education
Accommodation and food and 3.81 -0.42 -3.01
services, sports activities and amusement activities
beverage service activities
registered the highest labour productivity growth at
Information and communication (ICT) 8.62 20.31 -0.60
10.84% in 2014, up from 7.84% in 2013. The efficiency
of this sub-sector was improved by the successful Financial and insurance/takaful 6.12 2.97 -1.24
activities
implementation of various EPPs during the year
education and healthcare services have 17 EPPs each. Real estate and business services -0.88 3.92 -3.06
Other services 8.57 7.84 10.84
The wholesale and retail trade and repair of motor Services (excluding government 1.79 2.61 2.20
vehicles sub-sector also recorded significant productivity services)
growth at 6.19% in 2014 as compared to 1.4% in 2013.
Computed from: Department of Statistics, Malaysia
This sub-sector has benefited from several EPPs that are
focused on modernising and globalising retail outlets.
Programmes such as 1Malaysia Unified Sales, Visit
Malaysia Year 2014 and the opening of the gateway mall
at KLIA2 also benefitted this sub-sector in 2014. 3.01%. Although there was high demand for real estate
transactions and professional services (especially
Several services sub-sectors registered lower labour engineering services in construction and computer
productivity growth in 2014. Real estate and business services), inefficient workforce management and
services dropped by 3.06%, while accommodation operational processes weighed down the productivity of
and food and beverage service activities dropped by these sub-sectors.
32
RM Thousand
80
Growth (%)
Wholesale trade is defined as the resale (sale without 2
60 0.88
transformation) of new and used goods to retailers as 1
well as business-to-business trade. Retail trade includes 40
0
the resale of new and used goods, mainly to the general 20 -1
public for personal or household consumption or -1.34
0 -2
utilisation. 2010 2011 2012 2013e 2014e
Computed from: Department of Statistics, Malaysia
Malaysias wholesale and retail trade sub-sector has
evolved over the years. Improvements in infrastructure Figure 3.7: Productivity Level and Growth of Retail Trade,
2010-2014
have enabled more rigorous sales activities from
both wholesalers and retailers. Annual disposable
50 6
income per household is projected to rise by 65.6% 49.66
47.05 47.41
in real terms over the 2014-2030 period. This will
45.76 46.37 4.80 5
40
mean an average annual real gain of 3.2%, which
RM Thousand
Growth (%)
could contribute considerably to the steady increase 30
3
of consumer expenditure in Malaysia. Continued 20
urbanisation will create higher demand for goods and 1.50 2
1.30
services in city centre, including higher value-added 10 1
products. Malaysias growing population will likewise 0.80
0 0
contribute towards steady demand, further boosting the 2010 2011 2012 2013e 2014e
performance of this sub-sector. Computed from: Department of Statistics, Malaysia
Improvements in infrastructure have to RM49,664 per employee (Figure 3.7). The sub-sector
enabled more rigorous sales activities employed a total of 1.7 million people in 2014, of which
1.2 million were engaged in the retail trade.
from both wholesalers and retailers.
Annual disposable income per household The wholesale and retail trade sub-sector is
characterised by its labour-intensive nature, making the
is projected to rise by 65.6% in real development of human capital particularly important.
terms over the 2014-2030 period. In terms of salaries and wages, wholesale employees
enjoyed higher salaries of RM2,000 per month
compared with retail employees who earned RM1,086
Productivity Performance per month. However, the average wage within this
industry is lowest among all the sub-sectors at RM6.75
Wholesale and retail trade registered productivity per hour worked.
growth of 4.1% amounting to RM68,632 per employee
in 2014 compared with 1.5% in 2013. Productivity The industrys low wages contributed to its better
in wholesale trade grew by 4% to RM111,518 per performance in terms of labour cost competitiveness in
employee (Figure3.6), while retail trade grew by 4.8% 2014. Productivity growth of the wholesale trade sub-
33
Government Services
Petroleum, Chemicals,
Rubber and Plastics Products
Electrical & Electronics
Non-Metallic Mineral Products,
Basic Metals, and Fabricated Metal Products
Agriculture
Wood Products, Furniture,
Paper Products, Publishing & Printing
Transport Equipment,
Other Manufacturing
Mining and Quarrying
sector was 4.0%, exceeding its growth in labour costs been launched through various EPPs, capital intensity
per employee of 3.0%. Unit labour costs also declined remained mostly unchanged at RM19,573 in 2014
by 1.4% (Figure3.8). Wholesale trade was more labour compared with RM19,200 in 2013.
cost competitive than retail trade, with added value per
labour costs of 4.6 and 3.8 respectively.
Challenges and Recommendations
Meanwhile, capital productivity within the wholesale
and retail trade sub-sector grew by 2.8% in 2014, The depressed wages within the wholesale and retail
while capital intensity increased a mere 1.3% to trade industry demonstrate that this industry has failed
RM28,092. Although several Government initiatives to realise the benefits of its productivity gains, indicating
aimed at modernising the retail trade industry have a short-term mentality among businesses focused on
34
Figure 3.8: Labour Cost Competitiveness of Wholesale Trade, Figure 3.9: Labour Cost Competitiveness of Retail Trade,
PRODUCTIVITY REPORT 2014/2015
2013-2014 2013-2014
25 0.13 14 0.170
24 24.04
+3.0%
(RM Thousand)
(Pure Number)
(RM Thousand)
0.1658
(Pure Number)
23 23.34
13 13.04 0.165
22 +2.9% -1.8%
0.1226 12.66
21 -1.4% 0.1628
Figure 3.10: Capital Productivity and Capital Intensity of Figure 3.11: Capital Productivity and Capital Intensity of Retail
Wholesale Trade, 2013-2014 Trade, 2013-2014
48 2.4 20 2.6
2.36
Capital Productivity
Capital Productivity
Capital Intensity
Capital Intensity
47.35 19.57
(RM Thousand)
(RM Thousand)
(Pure Number)
(Pure Number)
47 +1.2% +1.9%
2.7% 2.54
19.2
46.77
2.3 19 2.8% 2.5
46 2.29
2.47
45 2.2 18 2.4
2013e 2014e 2013e 2014e
Computed from: Department of Statistics, Malaysia Computed from: Department of Statistics, Malaysia
cutting costs instead of increasing productivity per To attract the high-quality human capital they need to
employee. There is tremendous scope for improvement raise productivity, industry players must bring about a
within this sub-sector, both for businesses and the mindset change among students and young job-seekers
people that work for them. by promoting career paths in the retail trade. Well-trained
and knowledgeable employees are the most important
Industry research has found that higher wages invariably component of the customer service equation. To aim for
lead to more motivated and productive workers, resulting true Service Excellence, wholesalers and retailers need
in lower turnover rates, improved morale and a higher to change their approach to human resources, provide
overall calibre of job applicants. The study also reveals employees with the right training and retain their best
that high-wage firms can sometimes offset more performers. Industry players should also collaborate with
than half of their higher wage costs through improved universities on training programmes and ensure that
productivity and reduced hiring and turnover costs. In educational institutes offer courses that are relevant to
addition to offering higher wages, industry players could the retail profession.
also make the sector more attractive by allowing more
flexible working hours.
35
Backward and Forward Linkages for Wholesale and Retail Trade Services
RM Thousand
6
Growth (%)
contributed 3.6% to GDP in 2014 and made up 9.7% of 30 5.05 4
1.77
the services sector, while employing a total of 593,300 2
20
workers. 0
10
-2
-3.41
The sub-sectors positive performance was largely 0 -4
driven by the economic recovery of the U.S. and other 2010 2011 2012 2013e 2014e
advanced economies as well as the continued demand Computed from: Department of Statistics, Malaysia
for trade-related activities within the region. The sub-
sectors productivity performance was also driven by will increase the ports handling capacity to 11 million
improvements in the freight industry, with warehousing twenty-foot equivalent units (TEUs) per year.
& support activities registering the highest productivity
growth of 10.7% to RM195,381 per employee in 2014.
The industry generated added value of RM16.1 billion, Challenges and Recommendations
making it the largest contributor to the sub-sectors total
added value. The transportation and storage sub-sector is the
backbone of the Malaysian and global economy,
Despite its large employment base, all industries in facilitating international trade, enabling economic
this sub-sector managed to sustain their labour cost activities, and linking producers and consumers with
competitiveness in 2014. The land transport industry markets, goods, materials and services. The continued
continued to be the sub-sectors largest employer, development of the transportation and storage services
employing 184,859 people. This can be attributed to sub-sector will be key to the successful growth of
passenger transportation activities such as bus, train Malaysias various economic corridors as well as the
and taxi services, which tend to require more workers AEC as a whole. However, it faces several challenges
than other industries. The warehousing and support with regards to quality and competency, environmental
activities industry was particularly impressive at compliance, innovation and differentiation as well as
improving labour cost competitiveness, with productivity policy and process.
growing by 10.7% while labour cost per employee grew at
4.5% and unit labour cost dropped by 5.4% (Figure3.13). The sub-sector fared well in the World Bank Logistics
Performance Index (LPI) (Table 3.2). The country was
All industries in the transport and storage sub- ranked in 25th place ahead of China, Turkey, Hungary
sector continued to invest in capital, which is to say and many other countries. However, Malaysias
that all of them registered positive growth in capital position in terms of timeliness and logistic quality
intensity and capital productivity. The warehousing and competency dropped from 28 to 31 and 30 to 32
and support activities industry recorded the highest respectively, indicating that while other countries have
growth, an indication that the industry is expanding and made progress in these areas, Malaysia has remained
modernising through activities such as the upgrading stagnant.
of petroleum storage terminals. Several new projects
that launched in 2014 are expected to further support Malaysias inadequate performance in these two
this sub-sectors continued growth. This includes the indicators can be attributed to a lack of professional
new Container Terminal 7 (CT7) at Westport, which talent in supply chain management, which is a critical
38
Figure 3.13: Growth of Labour Cost Competitiveness Within the Transport and Storage Sub-Sector, 2013-2014
PRODUCTIVITY REPORT 2014/2015
25
20 19.7 20.6
15 12.9
Growth (%)
requirement for logistics companies. To attract the Table 3.2: Logistics Performance Index 2014
necessary talent, companies should offer more attractive Indicator Malaysia Singapore Hong
and specific sets of incentives, employment packages Kong
and remuneration for logistics services careers. Overall Ranking 25 5 15
Customs clearance and 27 3 17
competency
In line with growing environmental Infrastructure 26 2 14
awareness worldwide, the sub-sector International shipments 10 6 14
must also prepare for the shift to green Logistics quality and
competence
32 8 13
Agriculture
Mining and Quarrying
Food, Beverage and
Tobacco Products
Textiles, Wearing Apparel and
Leather Products
Wood Products, Paper & Paper Products,
Furniture, Publishing & Printing
Petroleum, Chemicals, 0.235
Rubber and Plastics Products
Non-Metallic Mineral Products, Basic Metals,
and Fabricated Metal Products
Electrical & Electronics
Transport Equipment, Other Manufacturing
Utilities
Construction
Wholesale & Retail Trade
and Motor Vehicles
Accommodation & Restaurants
Communications
Financial & Insurance
Real Estate & Business Services
Government Services
Other Services
has led to inefficiency and price discrimination that upcoming U-Customs project is expected to help speed
distorts the freight industrys competitiveness. To boost up export and import container traffic as well as bulk
timeliness, predictability and cost-effectiveness within cargo through Malaysias gateways. The system is due
the sub-sector, the Government needs to create a more to begin operation in 2016 and will replace the existing
efficient policy infrastructure as well as streamline Customs Information System.
procedures with an electronic Customs process. The
40
PRODUCTIVITY REPORT 2014/2015
Professional, Scientific and Technical (PST) posted high productivity growth rates of 7.2%, 6.5% and
Services 6.4% respectively (Figure 3.14). Rapid changes in the
IT environment have impacted the accounting services
The PST services sub-sector comprises legal, accounting, industry in particular, pushing productivity to RM60,612.
architectural, engineering, land and quantity surveying, The automation of audit tasks, the development of
advertising, veterinary, management consultancy knowledge-sharing applications and the growing usage
and market research and other professional services. of specialised audit software have all contributed to
Because of its knowledge-intensive nature, this sub- higher productivity growth in this industry.
sector is highly differentiated and offers high-value
skills and services. PST companies are able to charge a The advertising industry registered the highest
premium for these services, which translates into higher productivity level within this sub-sector at RM122,453
wages and profit margins. In developed nations, PST per employee in 2014. New technologies have enabled
industries continue to drive change, boost economic business models based on digital media such as mobile
growth and increase efficiency. and online advertising, through which advertisers can
achieve greater reach at a lower cost than before. These
PST has been identified as a focus area in the NKEAs new advertising mediums have been complemented by
as it is one of the sub-sectors with the potential to move the healthy growth of out-of-home media and billboards.
Malaysia towards high-income nation status by 2020. Six
EPPs are associated with PST within the areas of aviation
maintenance, outsourcing, data centre hubs, green The productivity performance of the
technology industries, pure-play engineering services
and ship building and repair.
advertising industry also benefitted
from government initiatives such as the
SME Corp Advertising and Promotion
Productivity Performance
grant for SMEs in the services sector.
Productivity growth within the PST services sub-sector
slowed to 5.8% in 2014 compared with 8.5% growth in The productivity performance of the advertising industry
2013. Despite steep declines in productivity growth, the also benefitted from government initiatives such as SME
accounting, engineering and legal services industries all Corps Business Accelerator Programme (BAP), which
Figure 3.14: Productivity Level and Growth of the Professional, Scientific and Technical (PST) Services Sub-Sector, 2010-2014
2013e 2014e
11.8 12
150 10.8
10.3
Productivity Level (RM Thousand)
8.8 10
120 122.45
7.2 6.8
118.37 8
6.4 102.51 6.6 104.84
100.28
90 5.1 96.29 5.4 6
4.2 6.5 4.6
Growth (%)
Figure 3.15: Labour Cost Per Employee of the Professional, Scientific and Technical (PST) Services Sub-Sector, 2010-2014
2013e 2014e
29.72 29.4
+5.0% 28.52 28.04
25 26.43
25.38 +4.0%
(RM Thousand)
22.39
23.51 +2.5% 21.5
20 20.67
18.84 19.32
15
10
5
0
Legal Accounting Architectural Engineering Land & Advertising Veterinary Management Other PST
Quantity Consultancy Services
Surveying & Market
Research
Computed from: Department of Statistics, Malaysia
Figure 3.16: Unit Labour Cost of the Professional, Scientific and Technical (PST) Services Sub-Sector, 2010-2014
2013e 2014e
0.5
-1.5%
0.4 0.4057 0.3994
-1.1% -0.9%
0.3 -1.1% -0.7%
Unit Labour Cost
(Pure Number)
0.0
Legal Accounting Architectural Engineering Land & Advertising Veterinary Management Other PST
Quantity Consultancy Services
Surveying & Market
Research
offers matching grants and soft loans to eligible SMEs to However, capital productivity in the PST sub-sector
help them kick start advertising and promotion activities slowed to 3.4% in 2014 compared to 5.3% in 2013,
for their businesses. although both the accounting and legal services
industries posted better capital productivity growth
The PST sub-sector maintained its labour cost rates of 6% and 4.4%. These two industries have fully
competitiveness in 2014, with productivity growth of utilised their investments ICT assets such as advanced
5.8% exceeding the growth of labour costs per employee software and hardware to generate added value
at 5.2%. Unit labour costs declined by 0.7%. Each (Figure3.17). The engineering and architectural services
industry within the PST services sub-sector generated industries also achieved higher capital intensity at
at least twice in added value what they spent on RM32,954 and RM30,488 respectively as they began
labour cost. Advertising was the leader in labour cost to adopt new technologies such as Building Information
competitiveness, with every ringgit spent on labour cost Modelling (BIM) and Industrialised Building Systems
generating RM3.40 in added value (Figure 3.15). (IBS) (Figure3.18). These advanced technologies
42
Figure 3.17: Capital Productivity of the Professional, Scientific and Technical (PST) Services Sub-Sector, 2010-2014
PRODUCTIVITY REPORT 2014/2015
2013e 2014e
12
+6.0%
10 10.33
9.75
8 +4.4%
Pure Number
7.1
6.8 +2.3%
6
5.56 5.69
4 +2.9% +3.2%
+3.1%
3.59 3.55
+2.4% 3.02 3.11 3.49
+1.0% 3.44 +1.5%
2 2.27 2.32
1.92 1.94 2.22 2.26
0
Legal Accounting Architectural Engineering Land & Advertising Veterinary Management Other PST
Quantity Consultancy Services
Surveying & Market
Research
Figure 3.18: Capital Intensity of the Professional, Scientific and Technical (PST) Services Sub-Sector, 2010-2014
2013e 2014e
55
50 +3.0%
45 45.1
46.44
40
35 +3.3%
+2.6%
RM Thousand
32.95
30 29.73
30.49 31.9
25 +1.2%
+1.9%
20 +1.7% 21.29 21.54 +2.1%
19.94 20.32
15 17.14 17.42 17.35 17.72
+1.9%
10 +1.1%
8.17 8.33
5 5.8 5.87
0
Legal Accounting Architectural Engineering Land & Advertising Veterinary Management Other PST
Quantity Consultancy Services
Surveying & Market
Research
represent a trade-off between high initial capital PST service providers will face increasing competition
investment and returns in the long run, but due to a lack from foreign firms. This will pose many challenges to the
of professionals with expertise in these systems, they sub-sector, as it is dominated by small firms that lack
suffer from lower utilisation rates. the capacity to compete on a bigger scale. Financial
institutions do not consider these small firms to be
key client segments and are rarely prepared to offer
Challenges and Recommendations them the financial assistance they need to expand and
achieve economies of scale. Due to their small size and
The market for PST services is currently largely domestic, lack of financial support, local professional firms will be
although exports are becoming increasingly important. at a competitive disadvantage compared with foreign
However, with greater globalisation, liberalisation and a firms that can draw upon multidisciplinary experts and
freer flow of services ushered in by the AEC, Malaysian wide global networks.
43
Backward and Forward Linkages for Professional, Scientific and Technical Services
Forward Linkages 0.00 0.02 0.04 0.06 0.08 0.10 0.12 0.14
Backward Linkages Pure Number
Computed from: Input-Output Table 2010, Department of Statistics, Malaysia
To address this challenge and enhance the capabilities open up access to new markets and unlock economies
of small local PST firms, the Government has provided of scale. Eligible sectors include professional services
an incentive for mergers and acquisitions of small (specialised medical and dental services, accounting,
and medium service providers. The incentive is taxation, architectural and engineering services), courier
aimed at building up the capacity and enhancing the services, private technical and vocational secondary
competitiveness of local service providers in the global education services and training.
arena. Mergers and acquisitions can create new brands,
44
PRODUCTIVITY REPORT 2014/2015
Source: www.salaryexplorer.com
Government agencies and government-linked companies their foreign counterparts, especially in engineering and
(GLCs) should cultivate a mindset of supporting local architectural services firms. This makes it difficult for
professional firms when awarding projects. Malaysian local professional firms to compete with international
companies investing abroad currently prefer to use firms when it comes to attracting key talent.
foreign consultants and service providers over local firms,
a practice that not only stunts opportunities for domestic Malaysias educational service providers will also play
services providers to venture abroad but also increases a role in this sub-sectors future, as there is an urgent
the outflow of funds to other countries. There is often no need to improve the quality of graduates in professional
shortage of local capacity or competence. Currently, local programmes. These programmes need to be brought up
expertise performs the actual work in many projects that to industry requirements with regards to technical know-
are awarded to foreign firms. how, communication, managerial and interpersonal
skills as well as command of English. Local universities
However, local firms also have a role to play in increasing and institutions need to apply more stringent entry
their competitiveness by revising the salaries they offer requirements for professional courses, while industry
in order to better attract and retain professional talent players should become involved with apprenticeships
in Malaysia. Local professionals are paid far less than and other support. This will enlarge the pool of available
45
RM Thousand
Growth (%)
The healthcare industry encompasses private hospitals; 30 1
general medical services; specialised medical and
20
dental services; maternity homes; dialysis centres; -1
medical laboratories; acupuncture centres; herbalist and 10 -2.5 -1.3
homeopathy services; as well as other human health 0 -3
services. In recognition of its importance to both societal 2010 2011 2012 2013e 2014e
well-being and the creation of wealth, the Government Computed from : Department of Statistics, Malaysia
has identified healthcare as one of the countrys NKEAs.
Figure 3.20: Labour Cost Competitiveness of the Healthcare Sub-
Sector, 2011-2014
The global healthcare industry is among the most
dynamic and rapidly growing industries in the world
4
economy. Demand for healthcare is likely to expand
3
in the future based on expected demographic shifts
2
such as the increase in the number of elderly people,
Growth (%)
scope of public spending. The number of private Productivity -2.5 -1.3 2.8 3.8
hospitals in the country rose to 214 in 2013 providing Labour Cost -0.1 1.0 1.9 2.9
a total of 14,033 beds. Although private hospitals still Per Employee
Unit Labour 1.9 2.2 -1.1 -1.0
only account for 28.9% of the total hospital beds in the Cost
country, the rate of growth at 2.7% was nearly twice as
Computed from: Department of Statistics, Malaysia
fast the increase in beds in public hospitals (1.5%).
The industry currently employs approximately 93,861
employees and generates RM4.8 billion in added
Productivity Performance value. Labour productivity experienced healthy growth
thanks to three important factors that are shaping
Supported in part by government initiatives such as the Malaysias healthcare sub-sector: increased investment
EPPs, productivity growth within the healthcare sub- and savings in physical capital, the application of new
sector surpassed its average wage growth rates in 2013 medical technologies and equipment and the training of
and 2014. Productivity in this industry rose by 3.8% highly-skilled human capital. The industrys productivity
in 2014 (Figure3.19), giving it an average productivity performance was supported by hospital accreditation
growth rate of 0.7% between 2010 and 2014. This programmes such as Malaysia Society for Quality in
improvement may be attributed to the industrys ability Health (MSQH) and Joint Commission International (JCI).
to offer better facilities and a higher quality of services at
affordable rates. The majority of the healthcare industrys employees are
professionals. In 2013, the industry employed 11,697
46
Figure 3.21: Capital Productivity of the Healthcare Sub-Sector, Figure 3.22: Capital Intensity of the Healthcare Sub-Sector, 2010-
PRODUCTIVITY REPORT 2014/2015
2010-2014 2014
Capital Intensity
(RM Thousand)
(Pure Number)
53.55
Growth (%)
Growth (%)
53.35
0.8 0.5 53 53.01 0.3
-0.3
0.7 -0.5 52 -0.3
-0.7
0.6 -1.9 -1.5 51 -0.9
-1.0
0.5 -2.5 50 -1.5
2010 2011 2012 2013e 2014e 2010 2011 2012 2013e 2014e
Computed from: Department of Statistics, Malaysia Computed from: Department of Statistics, Malaysia
Meanwhile, capital intensity in healthcare services these investments can serve as a powerful engine for
grew by 1.4% in 2014 (Figure 3.22), which is perhaps productivity growth.
unsurprising considering the huge investments industry
players need to make in this capital-intensive industry.
Many aspects of healthcare delivery have become Challenges and Recommendations
increasingly dependent on information technology and
the computerisation of almost all aspects of patient The Governments continued promotion of medical
care, diagnosis and treatment. If properly utilised, tourism is expected to support the industrys growth,
47
One challenge facing Malaysias services sector is that Local services firms also struggle to secure financing
it has failed to successfully diversify into export-oriented from commercial banks that do not fully understand the
sub-sectors such as financial and ICT services. Activities services business model. Improving access to capital
49
will remove a major hurdle in enabling these businesses abroad and could serve as a champion. It may also be
to pursue large international projects. The Government necessary to enhance existing franchise development
would do well to establish a global or regional champion programmes to further build the capabilities of local
for reference or benchmarking purposes, especially services providers such as Smart Reader, which now has
given the challenges faced by services companies in 150 franchise centres in the Philippines, China, Thailand,
closing gaps. Maybank is one example of a home-grown, Brunei and Middle East, while KPJ Healthcare has
high-touch company that has successfully expanded expanded to Indonesia and Bangladesh.
Productivity Performance of the
MANUFACTURING
SECTOR
In this chapter:
M
alaysias manufacturing sector is broadly Figure4.1 Malaysias Manufacturing Sub-Sectors
divided between the domestic-oriented Export-Oriented Sub- Domestic-Oriented Sub-
and export-oriented industries. Under the Sectors Sectors
Economic Transformation Programme (ETP), three Chemicals & Chemical Basic Metals
manufacturing sub-sectors E&E, palm oil and refined Products Pharmaceuticals
petroleum products were identified as National Key Palm Oil Machinery & Equipment
Economic Areas (NKEAs) with potential multiplier effects Refined Petroleum Transport Equipment
Electrical & Electronics Food Products
on other sub-sectors along their supply chains. As export-
Textiles Other Non-Metallic Mineral
oriented industries, these three sub-sectors are also Wearing Apparel Products
expected to contribute to the countrys export income Wood & Wood Products Fabricated Metal Products
and boost economic growth. Paper & Paper Products Beverages
Rubber & Plastic
In 2014, productivity in the manufacturing sector grew Products
by 3.8% to RM90,556, compared with 4.1% in 2013.
The electrical and electronics (E&E) sub-sector was
the largest contributor to the sectors total output and of AEC to achieve economies of scale; optimise labour
recorded a significant growth of 11.8%. and input sourcing; and reduce the costs of inventory,
logistics and transactions.
13.9%
Rubber & Plastic
Products
20.8% 8.3%
E&E Food Products
0.3% Refined Petroleum
0.6% BasicPharmaceuticals
0.7% Beverages
1.6% Textiles
3.2%
Paper & Paper
Products 8.7% 2.6% Palm Oil
largest share to total manufacturing value added Figure 4.5: Employment Growth in Selected Manufacturing Sub-
(Figure4.4). Employment in the beverages sub-sector Sectors, 2014
surged by 17.5% (Figure4.5).
Domestic-oriented
Export-oriented
Total manufacturing exports amounted to RM582 billion
Beverages 17.5
in 2014, an increase of 6.1% from RM543.3 billion WearingApparel 7.4
in 2013. The surge in exports was due to recovering BasicMetals 7.4
Rubber&PlasticProducts 6.7
demand from the USA and EU especially for E&E Machinery& Equipment 6.4
products such as semiconductors. Receipts from E&E Textiles 5.2
OtherNon-MetallicMineralProd. 4.2
products grew by an impressive 8.1% to RM256.1 billion Manufacturing 2.6
from RM236.98 billion in 2013. While E&E contributed Transport Equipment 2.2
E&E 0.9
the largest share of the sectors total exports (42.7%), Paper&PaperProducts 0.8
FoodProducts 0.6
other sub-sectors also made significant contributions, Wood&Wood Products -0.3
namely refined petroleum (11.5%), chemicals and Chemicals&ChemicalProducts -0.3
FabricatedMetalProducts -0.5
chemical products (9.1%), and machinery (5.1%). Palm Oil -0.8
RefinedPetroleum -3.5
BasicPharmaceutical -9.5
Figure 4.6: Productivity of Selected Manufacturing Sub-Sectors, Figure 4.7: Productivity Growth of Selected Manufacturing Sub-
2013-2014 Sectors, 2013-2014
mainly in E&E, textile, wearing apparel, leather product new developments in high-value bio-generics and the
and footwear. Productivity was highest in the refined potentially lucrative halal drugs market.
petroleum sub-sector at RM4.2 million followed by
chemicals and chemical products at RM234,377. Other E&E productivity also grew significantly at 11.3% as
sub-sectors with above-average productivity were palm a result of a 12.2% increase in its added value. This
oil products, E&E and basic pharmaceuticals products. corresponded with the progress of Entry Point Projects
In contrast, wearing apparel experienced the lowest (EPPs) that placed greater focus on higher-value
productivity at RM21,382 (Figure4.6). activities such as design, assembly, packaging and the
provision of total solutions. In addition, strong global
Basic pharmaceutical products recorded impressive demand of E&E products contributed to the added value
productivity growth of 13.6% in 2014, up from 4.9% growth.
in 2013 (Figure4.7). The sub-sectors double-digit
productivity growth resulted from a large contraction Wood and wood products also posted double-digit growth
of employment of 9.5% while added value increased of 11.4% in 2014, up from 11.2% in 2013. The sub-
by 2.8%. This performance can be attributed to growth sectors productivity performance benefited from the
of spending on generic medicine in emerging markets, utilisation of machinery and equipment which enabled
56
Figure 4.8: Labour Cost per Employee of Selected Manufacturing Figure 4.9: Growth of Labour Cost per Employee of Selected
PRODUCTIVITY REPORT 2014/2015
the sub-sector to generate double-digit added value and outstripping productivity growth of 13.6%, while unit
growth at 11.1%. labour cost increased at 1.3%.
As a result of this growth, overall labour cost In the manufacturing sector, wage rate as measured
competitiveness in the manufacturing sector improved by labour cost per employee grew by 1.9% to
significantly in 2014 (Figure4.8), with productivity RM29,571 in 2014, a drop from its growth of 5.5%
growth of 3.8% outpacing growth in labour cost per in 2013 (Figure4.9). The wage rate for the selected
employee at 1.9%, while unit labour costs decreased manufacturing sub-sectors ranged from RM18,188
by 1.5%. The E&E, wood and wood products, transport to RM104,146. Manufacturing employees received
equipment, chemicals and chemical products, and an average of RM2,796 per month, with the highest
palm oil products sub-sectors all sustained their labour wage rate observed in the refined petroleum sub-sector
cost competitiveness. In contrast, and despite its large at RM8,679 per month, followed by chemicals and
contraction in employment, the basic pharmaceutical chemical products at RM3,857 per month. The range
products sub-sector was unable to sustain its labour of wages was commensurate with productivity level,
cost competitiveness, with labour costs rising by 14.6% as these sub-sectors mainly employed a highly skilled
workforce made up of technical professionals such as
57
1.6
Quardant 2: Strong Backward Quadrant 1: Strong Backward
Linkages, Weak Forward Linkages and Forward Linkages
1.4 Food, Beverage
Non-Metallic Mineral Products,
& Tobacco Products
Basic Metals and Fabricated
Metal Products
Chemicals &
1.2 Chemical Wood Products, Paper &
Petroleum, Rubber Products Paper Products, Furniture,
& Plastic Products Publishing & Printing
Backward Linkage Index
0.6
0.4
Figure 4.10: Unit Labour Cost per Employee of Selected Figure 4.11: Growth of Unit Labour Cost per Employee of Selected
PRODUCTIVITY REPORT 2014/2015
2013 2013
RefinedPetroleum 3.1
2014 2014 Beverages 4.9
Palm Oil FoodProducts 8.0
3.3
Chemicals&ChemicalProducts Machinery& Equipment 1.4
3.2
Beverages OtherNon-MetallicMineralProd. -3.4
2.4
Transport Equipment RefinedPetroleum -2.1
1.8
E&E Rubber&PlasticProducts 2.7
1.6
Manufacturing FabricatedMetalProducts -1.1
1.4
FoodProducts WearingApparel 1.1
1.4
BasicMetals 1.9
BasicPharmaceutical 1.3
OtherNon-MetallicMineralProd. 0.7
Textiles 0.9
BasicPharmaceutical 1.0
Palm Oil -1.3
Rubber&PlasticProducts 1.2
Manufacturing -1.5
Machinery& Equipment 2.7
BasicMetals -1.8
FabricatedMetalProducts 1.3
Chemicals&ChemicalProd. -2.0
Wood&Wood Products -3.5
Transport Equipment -3.7
Textiles 1.2
Wood&Wood Products -5.4
Paper&PaperProducts 1.0
Paper&PaperProducts -5.6
WearingApparel 1.3
E&E -8.3
0.00 0.05 0.10 0.15 0.20 0.25
Pure Number -10 -8 -6 -4 -2 0 2 4 6 8
Growth (%)
Computed from: Department of Statistics, Malaysia Computed from: Department of Statistics, Malaysia
11.1%
10.3%
13.4% Electronic
Components Consumer Electronics
Communications &Boards 5.5%
Equipment ElectricMotors
3.1%
0.02% MagneticandOpticalMedia
Wiring&WiringDevices
0.6% Measuring, Testing,
Watches etc.
0.6% OtherElectricalEquipment
0.7% OpticalInstrumentsetc.
5.0% 1.2% Irradiation,
Electrometrical etc.
51.5%
Computers 1.8% Domestic Appliances
& Computer
Peripherals
9.0%
Consumer Electronics 5.9%
9.7%
Communications Equipment
Electric Motors
4.5%
Wiring&WiringDevices 0.04% MagneticandOpticalMedia
1.7% OtherElectricalEquipment
12.5%
Computers 2.7% Domestic Appliances
& Peripherals
2.7% Irradiation,
12.8% Electrometrical, etc.
2.8% Measuring,Testing,
Watchesetc.
45.6%
Electronic 2.9% OpticalInstrumentsetc.
Components
& Boards
computers and peripheral equipment (12.5%), electric Figure 4.15: Added Value, Employment and Productivity of the
motors (9.7%) and consumer electronics (9.0%). E&E Sub-Sector, 2011-2014
120 113.11 15
12.2
Productivity Performance 100 101.62
12
11.3
RM Thousand
94.14 7.9 9
Growth (%)
87.48
80
In 2014, productivity in the E&E sub-sector surged by 7.6 6
60 2.5
11.3% to RM113,110, spurred by the US economic 4.8 3
1.0
recovery and weakening ringgit. Favourable global 40
0
0.8
demand for Malaysian E&E products helped boost the 20 -3.6 -4.8 -3
sub-sectors added value growth to 12.2%, helping it -4.5 -2.9
0 -6
keep far ahead of the sub-sectors employment growth 2011 2012 2013 2014
rate of 0.8% (Figure4.15), a trend that began in 2012. Employment Growth Productivity Growth
The steady divergence between added value growth and Added Value Growth Productivity Level
employment growth over the past few years indicates
that the sub-sector is slowly but surely making the shift Computed from: Department of Statistics, Malaysia
into knowledge-intensive industries that require fewer
workers but higher skills. This reflects the countrys new laptops or tablets. However, these mobile devices have
focus on industries such as integrated circuit (IC) design, much shorter lifespans than desktops and thus require
advanced packaging, LEDs, solar and wafer technology. replacing much more frequently, which benefits the
mobile devices industry.
Among all the electronics industries, productivity growth
was highest in the computer and peripheral equipment Electronic components and boards registered the
industry at 18.1% (Table4.1). This notable increase second highest productivity growth at 13.6%, followed by
can be attributed to the growing e-services trend, communication equipment at 11.6%. These industries
which includes e-government services for increasing were driven by growth in global demand and expansion
business efficiency. With rising affluence and mobility, in other industries along their supply chain, especially
many desktop computers are also being replaced with wearable devices and automotive. The increasing
61
Intensifying domestic demand for solar and LED Singapores investment promotion agency and the
products will help these industries boost production countrys Economic Development Board (EDB) work
and achieve economies of scale, thus supporting their hand-in-hand to attract new investment and encourage
activities for exploiting the export market. Support existing industry players to reinvest in Singapore. Beside
from other industries, especially construction and business-friendly regulatory and labour policies and a
automotive, will create strong forward linkages for these range of investment incentives, Singapore also provides
industries in the future. Government procurement can special incentives directed at high-tech firms such as
help to maximise the utilisation of solar and LED, while the Initiatives in New Technology, Research Incentive
government incentives can further encourage take-up of Scheme and Technopreneur investment incentive. EDB
these technologies in other industries. also acts as a co-investor, taking a stake in high-profile
ventures such as the new United Microelectronics factory
However, there is a more serious issue: industries such and several other wafer fabrication plants.
as solar and LED are still focused on the low value-
added industry segments such as manufacturing of solar about 30% to 40% of which are engineers and managers.
panels. This is being addressed by the solar technology However, there is an acute shortage of experienced
EPPs for growing producers of silicon, wafers and cells, engineers within the sub-sector, and the quality of
and for moving up to higher value-added activities such engineers that are available has fallen below employers
as downstream maintenance, repair and overhaul (MRO) expectations. These shortages are holding back D&D
activities and balance of systems (BOS) businesses. efforts and making it difficult for the sub-sectors to move
Meanwhile, the LED EPPs are aimed at developing up the value chain.
front-end operations to help the market expand into
new classes of intermediate products such as organic The Government has provided many facilities and
light-emitting diodes (OLEDs), expanding LED packaging institutional support to help industries innovate their
and equipment, and creating local solid state lighting way out of this predicament. Agencies like TalentCorp
champions. and the Collaborative Research in Engineering, Science
and Technology (CREST) help nurture industry-ready
graduates and R&D collaborations within E&E disciplines
The E&E sub-sector is highly dependent through industry-academia partnerships, while
on a highly skilled workforce with intervention programmes such as MyBrain 15, Fast Track
and CREST internships help cater to immediate industry
expertise in areas such as research, needs. CREST members are also actively pursuing
design and development (R&D&D) research collaborations that utilise the combined
capabilities of its MNC members to innovate new E&E
and electrical engineering. products and processes. The research alliance is also
exploring potential ideas in related businesses such as
The E&E sub-sector is highly dependent on a highly medical devices.
skilled workforce with expertise in areas such as
research, design and development (R&D&D) and The E&E sub-sector needs to deepen and strengthen
electrical engineering. It employs about 472,000 workers, the three major ecosystems of semiconductors, solar
63
and LED technologies. Because of the growing global in the first half of 2014 compared with 1.4% in 2013
Growth (%)
75.86 6
employees in the manufacturing sector in 2014, or 5.4
60 2.1 4
75,472 people. Employment was highest in the other 0.7 2
general-purpose machinery industry (28.7%), followed by 40 -2.0 -1.0 0
-2
metal-forming machinery and machine tools (21.4%) and 20 -4
other special-purpose machinery (17.4%). -7.2 -8.0 -6
0 -8
2011 2012 2013 2014
Machinery, appliances and parts valued at RM30 billion
contributed 5.2% to the countrys total manufacturing Employment Growth Productivity Growth
Added Value Growth Productivity Level
exports in 2014, up from RM27 billion in 2013. Exports
of machinery, appliances and parts expanded by 12%
Computed from: Department of Statistics, Malaysia
64
employee by 2.8% and unit labour cost by 3.2%. Despite also recorded a decline in unit labour cost by 1.2% and
the dip in productivity growth, added value of M&E 0.3% respectively (Table 4.2).
nonetheless increased by 5.4% as companies reaped
the benefits of high productivity gains from the earlier
years. Challenges and Recommendations
The general purpose machinery industry saw a huge The machinery equipment sub-sector comprises
decline in productivity growth, which slowed to 5.0% knowledge-based industries that are very dependent
(Table4.2). The unfavourable performance came from on high-skilled labour, especially in high precision
reduced productivity in air-conditioning machines mechatronics and engineering. Retaining talent in these
including motor vehicles at 11.0% and other pumps, areas is a challenge to employers, and the turnover rate
compressors, taps and valves at 1.4%. The decline is generally quite high.
in productivity in these industries was due to an
8.3% contraction in the production of air-conditioning TalentCorp is facilitating a holistic approach through
machines as well as labour inefficiency in other pumps, private-public partnership to address mismatches
compressors, taps and valves. between graduate skills and market needs. These
partnerships have established various technical
Labour cost competitiveness of this sub-sector educational institutions such as the German-Malaysian
deteriorated as shown by the increase in labour cost per Institute (GMI), Japan-Malaysia Technical Institute (JMTi),
employee at 2.8%, while unit labour cost increased by Advanced Technology Training Centre (ADTEC) Shah
3.2% and productivity declined by 1.0%. Within the sub- Alam and Institut Latihan Perindustrian (ILP), all of which
sector, industries which manufactured special purpose offer diplomas and advanced diplomas in mechatronics,
machinery rather than general purpose machinery computers, electronics and manufacturing technology.
experienced greater labour cost competitiveness. This
was observed in the metal-forming machinery and In the M&E sub-sector, special purpose machinery is
machinery for agricultural industries, which registered becoming increasingly important in providing support
productivity growth rates of 7.3% and 4.1% respectively to other industries. Malaysia has proven strengths in
while wage rates grew at 6% and 3.4%. Both industries utilising machinery for working with rubber and plastics,
65
textile processing, metal working, paper making, as Kong, China, Singapore, Thailand and USA. Exports of
well as uses in agriculture and E&E. This means that chemicals and chemical products have nearly doubled
there are significant opportunities to expand M&E and over the past decade in 2014, exports grew by 8.5% to
strengthen both backward and forward linkages for RM51.5 billion from RM47.5 billion in 2013.
existing and new companies in the sub-sector, including
SMEs.
Productivity Performance
Chemical and Chemical Products In 2014, productivity for chemical and chemical products
grew by 4.2% to RM234,377 from RM224,944 in 2013
The chemical and chemical products sub-sector covers (Figure4.17). Productivity growth was highest in the
a wide range of goods including oleo-chemicals, fertilisers and associated nitrogen products industries
petrochemicals, industrial gases, agricultural chemicals at 10.1%, followed by basic organic chemicals, inorganic
and fertilizers, inorganic chemicals, soaps and compounds and other basic chemicals at 9.5%.
detergents, and cosmetics and paints. It is one of the Productivity growth in the other chemical products and
countrys leading economic sub-sectors in Malaysia, man-made fibre industries hit 6.5% in 2014.
accounting for 6.7% of Malaysias total exports of
manufactured goods. It also has very strong backward The sub-sectors productivity growth was due to the
and forward linkages to almost every other sub-sector increase in exports and expansions of domestic
in the economy, contributing key components to the industries that require chemical inputs such as
automotive, E&E, pharmaceutical and construction agriculture, construction, automotive and machinery.
industries among others. These factors helped the sub-sector maintain its labour
cost competitiveness, as productivity growth of 4.2%
The number of employees registered in this sub-sector exceeded growth in labour cost per employee of 2.5%,
continued to decline in 2014 at slower rate of 0.3% while unit labour cost decreased by 2%. The sub-sectors
compared with a decline of 6.5% recorded in 2013. It most labour cost competitive industry was that of basic
nonetheless employed 96,197 people in 2014, which organic chemicals, inorganic compounds and other basic
accounted for 4.2% of the manufacturing sectors total chemicals, which saw unit labour costs declining by 4%
workforce. It also contributed 10.9% (RM18.8 billion) (Table4.3).
to the countrys total added value in manufacturing,
making it the sectors third largest contributor to GDP. Figure 4.17: Added Value, Employment and Productivity of the
Chemicals & Chemical Products Sub-Sector, 2011-2014
6.7 4.2
Growth (%)
UNIVERSITY
30% OR
University
DUAL VOCATIONAL TRAINING graduates
have to be
WORKPLACE 500,000
SCHOOL LEAVING CERTIFICATE
trained
TRAINING IN on-the-job Companies
THE COMPANY (praxis shock)
60% 3.5 DAYS 1.5 million
EXAMINATIONS
Source: WTO International Trade Statistics 2012. Adapted from Handelskammer Hamburg.
68
Table 4.3: Labour Cost Competitiveness of the Chemicals & Chemical Products Sub-Sector, 2014e
PRODUCTIVITY REPORT 2014/2015
Labour costs per employee for the chemical and expects to continue its sterling growth in lucrative export
chemical products sub-sector grew by 2.5% to RM46,291 markets.
in 2014 as compared to RM45,176 in 2013. However,
pay in this sub-sector is generally commensurate with One example of a successful chemical safety programme
its productivity level as it employs a mainly high-skilled is the Responsible Care initiative that was launched by
workforce with technical skillsets such as laboratory the Chemical Industry Association of Canada in the wake
specialists, chemists and specialised technicians. of the 1985 Bhopal disaster. Responsible Care has since
become the global chemical industrys de facto voluntary
standard for promoting good chemical management
Challenges and Recommendation and environmental, health and safety (EHS). It has
been adopted in 52 countries around the world to drive
Although chemicals and chemical products offer continuous improvements in performance, technologies,
improvements to our daily lives, some chemicals do pose processes and products over life cycles to safeguard
certain threats to the safety and health of humans as people and the environment.
well as the environment. The industry recognises that
it requires more stringent safety standards to ensure The sub-sector would also benefit from diversifying
that it complies with international Safety, Health and into new products besides commodities and specialty
Environment (SHE) and quality standards, especially if it chemicals (Figure4.18). A look at Malaysias trade
balance sheet suggests that Malaysian chemical forward linkages in converting these inputs into higher
AGRICULTURE
SECTOR
In this chapter:
T
he agriculture sector plays an important role in Community (AEC) at the end of 2015, which will involve
Malaysias economic development. Beyond its the liberalisation and facilitation of trade in goods,
contribution to gross domestic product (GDP), it services, and investment as well as the protection and
also provides job opportunities and elevates incomes promotion of investment.
in rural areas while helping to ensure national food
security. The sector comprises various sub-sectors
including oil palm, rubber, livestock, forestry and logging, The agriculture sector should gain a
fisheries, aquaculture and other agriculture (paddy, fruits,
significant cost advantage with the
vegetables, coconut, tobacco, tea, flowers, pepper, cocoa,
and pineapple). At a time of high global demand for implementation of Malaysias Goods
agricultural products due to the growing world population and Services Tax (GST) on 1 April
and a strengthening world economy, Malaysias
agriculture sector has a great opportunity to expand 2015.
its contribution to national income and to support the
ringgits foreign exchange valuation. The agriculture sector should gain a significant cost
advantage with the implementation of Malaysias Goods
The Agriculture National Key Economic Area (NKEA) aims and Services Tax (GST) on 1 April 2015. Since major
to transform the agriculture sector from an uneconomic, agriculture sub-sectors such as oil palm and rubber are
small-scale industry into a large-scale, multi-pronged export-oriented in nature, their products are categorised
agribusiness that supports the countrys economic under zero-rated supply (0% GST) and producers are
growth and sustainability. A total of 17 Entry Point entitled to claim all GST paid on their inputs used in the
Projects (EPPs) have been identified to spur growth in the furtherance of business. This is expected to reduce the
agriculture sector. This strategy seeks to create RM26.9 cost of production for the agriculture sector, allowing
billion in incremental GNI and 201,196 new employment industry players to become more competitive exporters.
opportunities in the sector by 2020.
Besides the technological change and policy
The agriculture sector must increase its productivity by transformation, other factors that can increase the
fully utilising resources such as land, labour, capital and productivity of the agriculture sector include R&D,
entrepreneurship. To achieve change in its operations, human capital and prices (input and output). The
the sector also needs to adopt new technologies while productivity of the agriculture sector is also vulnerable
continuously enhancing the knowledge and skills of to unfavourable weather conditions, particularly in low-
its workforce. Agricultural performance will also be lying areas the massive floods that occurred in the
indirectly affected by the launch of the ASEAN Economic
73
Growth (%)
RM Million
The agriculture sector grew marginally at 2.6% in 2014. 30,000
The sectors contribution to GDP trended upwards, 2.6 3
20,000 2.1
increasing from RM56,095 million in 2013 (2.1% of
10,000 2.4 2
GDP) to RM57,528 million (2.6% of GDP) as a result of
1.3
higher output of palm oil and key food commodities such 0 1
as poultry, vegetables and fruits (Figure 5.1). The largest 2010 2011 2012 2013 2014
contributor of the agriculture sector to GDP was the oil Source: Department of Statistics, Malaysia
palm sub-sector at 36.6%, followed by other agriculture
(20.1%) and fisheries and aquaculture (14.6%). Figure 5.2: Employment in the Agriculture Sector, 20102014
Employment in the agriculture sector, which accounts
for 12.2% of national employment, recorded a marginal 2,000 15
13.6
decline of 1.3% to 1.66 million in 2014 (Figure 5.2). 12
1,615
1,682 1,660 9
1,500 1,602
6
The sectors external trade was valued at RM82.1 million 2.8 1,410
3
Growth (%)
5.0
Thousand
nine months of 2014, down 17.7% from RM75 million in Source: Department of Statistics, Malaysia
2013. The agriculture sector remained a net exporter for
the Malaysian economy, with a balance of trade recorded
at RM24.5 million in the first nine months of 2014, down Figure 5.3: External Trade of the Agriculture Sector, 20102014*
from RM30.9 million in 2013.
150,000
months of 2014. 0
2010 2011 2012 2013 2014
Exports 106,099 133,872 119,647 106,145 82,119
Oil palm maintained its role as the largest contributor to Imports 64,580 77,573 79,122 75,215 57,634
the agriculture sector at 36.6%. CPO production grew Bal. of Trade 41,519 56,299 40,525 30,930 24,486
by 2.3% to 19.7 million tonnes in 2014, partly due to
an increase in matured areas, especially in Sarawak, Source: Ministry of Agriculture
Note: * January - September 2014
as well as higher oil extraction rates. The price of CPO
74
15.0% 14.6%
35.3% 36.6%
10.2%
13.5%
20.1%
17.0%
8.8% 5.5%
10.4% 13.0%
2010 2014
Oil Palm Livestock Forestry & Logging
Rubber Other Agriculture Fisheries & Aquaculture
Source: Department of Statistics, Malaysia
strengthened at RM2,367 per tonne in 2014 due to to increase outputs of agro-food and aquaculture as well
stable global demand in the world market. as enhance food security.
Construction
Goverment Services
Logistics
Communications
Other Services
Forward Linkages
0.00 0.05 0.10 0.15 0.80
Backward Linkages
Pure Number
PRODUCTIVITY PERFORMANCE
40 25
The sector experienced significant productivity growth 38,475
35 20
of 3.9% to RM34,666 per employee in 2014, an 21.21 34,315 33,348
34,666
30 31,744 15
improvement from -2.8% in 2013 (Figure 5.5). In terms
RM Thousand
25 10
Growth (%)
of productivity per hour worked, the agriculture sector 3.95
20 5
improved to RM18.91 in 2014 from RM18.19 in 2013.
15 -2.82 0
The increase in agricultural productivity was attributed
10 -5
to the decline in agricultural input prices supported by
5 -10
the increase in agricultural output prices prices for -10.81
0 -15
fertilisers dropped by between 6% and 12% in 2014 2010 2011 2012 2013 2014
compared with the previous year. Prices for urea in Computed from: Department of Statistics, Malaysia
particular declined by 6.6% to RM85 per bag compared
with RM91 per bag in 2013. Figure 5.6: Capital Intensity and Capital Productivity of the
Agriculture Sector, 20102014
Capital Productivity
28 28
25
Capital Intensity
25 1.22 1.20
(RM Thousand)
(Pure Number)
20
1.18 1.15
the increase in agricultural output prices. 15 1.15
1.10
10
The boost in agriculture productivity was also due 5 1.05
to marginal increases in prices experienced by the
0 1.00
plantation industry, particularly in the case of oil palm. 2010 2011 2012 2013 2014
The Governments implementation of a nationwide Computed from: Department of Statistics, Malaysia
switch to B7 biodiesel from B5 biodiesel in November
2014 is expected to further support CPO prices in the become more evident in the year ahead as producers
year ahead. The B7 biodiesel blend uses 7% palm adjust to the new rule.
biodiesel, 2% more than the B5 biodiesel blend.
Capital intensity (CI) in the agriculture sector grew by
The agriculture sector slowed its negative growth in 6.7% to RM30,058 in 2014 from RM28,162 in 2013.
capital productivity to -2.6% in 2014, an improvement The positive performance in this sectors capital intensity
from -3.3% in 2013 (Figure 5.6). The continued indicates that some labour-intensive agriculture sub-
negative capital productivity growth in the sector was sectors are making an effort to shift towards being a
due to the low adoption of modern technology and more capital-intensive.
machinery, particularly among smallholders. However,
the implementation of the minimum wage regulation on Malaysias agriculture productivity still lags far behind
1 January 2014 may be expected to spur producers to other high-performing countries. The nations agriculture
invest into labour-saving technology in order to reduce sector is only 25.4% that of USA and 26.7% that of
long-term labour costs. The rule requires that workers Australia, two countries where farming methods are
receive a minimum wage of RM900 in Peninsular more mechanised, technology-reliant and holistic in
Malaysia (RM800 in Sabah, Sarawak and Labuan). The approach. On the other hand, Malaysias agriculture
impact of this regulation on labour productivity will productivity was more than 70% that of Taiwan, Korea
and Japan (Table 5.1).
77
Table 5.1: International Agriculture Productivity Comparison, Malaysia vs. Selected Countries, 2012 2013
2012 2013
PERFORMANCE OF SELECTED
AGRICULTURE SUB-SECTORS
Rubber
and rearing an additional 300,000 heads of cattle in company is expected to collaborate with local and
large oil palm plantations by 2020. Estate owners will foreign experts on aquaculture R&D projects to enhance
implement the programme through a cattle breeding Malaysias aquaculture industry by improving production
and rotational grazing program in compliance with through biotechnology. Each IZAQ project consists of
Good Animal Husbandry Practices (GAHP). This effort is a large-scale R&D centre, high-productivity hatchery
supported by a programme to address rising production centres, an 800-hectare shrimp farm, frozen and dried
costs by increasing the supply of locally-produced feed seafood processing facilities and a high-capacity cold
and a breeding programme using artificial insemination storage warehouse. The processing plant will run at a full
to fast-track the breeding of good quality cattle. capacity of 30 tonnes per day and the frozen warehouse
has a storage capacity of 1,000 tonnes.
Another related focus area, EPP 12: Expansion of Cattle
in Feedlots, aims to establish 300 satellite farms to Malaysias marine fish production stands to gain a
support anchor companies involved in feedlot operations major boost from Integrated Cage Farming. Farms using
that improve the national self-sufficiency level for beef. At this technique in both Sandakan and Silam in Sabah
present, FELDA Gedung Makanan Negara (GMN) is the have targeted to produce approximately 800 tonnes
sole champion of this project and is tasked to oversee of high quality hybrid grouper annually for domestic
operations across the entire feedlot services value consumption and export to Hong Kong and mainland
chain and manage the integration and consolidation China.
of downstream processes. Improvements in the
downstream process will include the enforcement of
abattoir certification, cold-chain delivery of chilled cuts,
promotional exercises to create market awareness of
imported buffalo meat versus beef and the development
of other beef by-products.
Fisheries
TRADER Crude Palm Oil (CPO) (CPO) MILL Palm kernels TRADER
FARMERS
TRADER
Goats, poultry
FOOD INDUSTRY DETERGENT & CHEMICALS & ELECTRICITY &
COSMETICS INDUSTRY OTHER INDUSTRIES BIOFUEL PRODUCERS
MEAT INDUSTRY
CONSUMERS
Source: Adapted from World Wide Fund For Nature (also Known as World Wildlife Fund)
segment, while the remaining 1% is contributed and increasing Malaysias share of global
by oleo derivatives that are developed from demand for these products to 14% valued
basic oleochemicals. However, global demand at RM25 billion. Since the start of this EPP,
is far lower than the capacity for the two basic seven companies have committed investments
oleochemicals, fatty acids and fatty alcohols, totalling RM1.35 billion to develop plants and
and this gap is not expected to close in the near factories that specialise in producing these
future. These oleochemicals also have lower high-value oleo derivatives.
profit margins compared with high-value oleo
derivatives. Commercialising Second-Generation Biofuels:
The biomass potential of the oil palm industry
This initiative proposes to shift national remains significantly underutilised. In 2009
production from basic oleochemicals to higher alone, the industry generated over 60 million
value oleo derivatives, increasing the latters tonnes of oil palm biomass in the form of
share from 1% to a forecasted 40% by 2020 empty fruit bunches, tree fronds and trunks.
83
creation of goods and services that will be competitive in agriculture authorities. Boosting technology take-up is
an enlarged common market. integral to achieving the goal of food security. According
to forecasts from the Food and Agriculture Organization
of the United Nations, by 2030 the world will require 50%
Labour Issues more food than today and by 2050 global food demand
will surpass supply. With this in mind, the Government
The agriculture sector is vulnerable to labour shortages aims to ensure that Malaysians will have enough in the
because of its high dependence on foreign labour. As years to come.
local labour remains reluctant to enter agriculture due
to the relative attractiveness of the manufacturing and
services sectors, the agriculture sectors dependence on Recognising the vital importance of
foreign labour has reached critical levels. Oil palm, the
food security and nutrition in meeting
largest agriculture sub-sector, is particularly dependent
on the massive involvement of labour since there are the nations needs, Malaysia has made
very few prospects for effective mechanisation. it a point to ensure that sustainable
On a related note, the imposition of the current agriculture, food security and nutrition
minimum wage policy for domestic and foreign labour are high on its national agenda.
will have major impacts across the oil palm and rubber
sub-sectors, among others. Since the agriculture Recognising the vital importance of food security and
sectors productivity level is only 38% of that of the nutrition in meeting the nations needs, Malaysia
manufacturing sector, the cost of hiring labour will has made it a point to ensure that sustainable
increase if the minimum wage is not commensurate with agriculture, food security and nutrition are high
an increase in labour productivity. on its national agenda. In addition to its domestic
initiatives, Malaysia takes an active part in regional and
international cooperation in food security planning and
Addressing Food Security implementation. These measures will form a strong
foundation for the nation to move towards ensuring its
Encouraging farmers to make better use of technology food security and food sovereignty.
is one of the greatest challenges facing Malaysias
85
The Government has continued new planting and replanting Comparison of the First Year FFB Yields Under QOPSAS and
schemes for smallholders and plantations in 2014. The Non-QOPSAS
scheme offers incentives worth RM7,500 per hectare in 8 QOPSAS
The Quality Oil Palm Seedlings Assistance Scheme (QOPSAS) Status of Oil Palm Replanting and New Planting Scheme in
was implemented from 2006 to 2010 to help improve FFB 2013 and 2014 (ha)
yield and income for smallholders. The scheme allocated Replanting New Planting
RM37.6 million and successfully increased productivity and 2013 2014 2013 2014
income for total of 5,697 smallholders, especially in Sabah Applied 9,591.78 11,355.89 7,743.55 21,291.21
and Sarawak. The average price for the first year harvested
Approved 8,623.81 10,522.22 13,243.97 25,984.49
FFBs in 2014 was at RM430 per tonne. Based on the price,
the gross incomes for the QOPSAS and non-QOPSAS Source: Malaysian Palm Oil Board
smallholders were estimated. For the QOPSAS smallholders,
the estimated gross income for the first year of harvest in market demand, which will indirectly help the Malaysian oil
Sabah and Sarawak was around RM3,182 per hectare and palm industry to be more productive and competitive.
RM3,139 per hectare respectively, double the estimated
gross income recorded by the non-QOPSAS smallholders. Small and medium enterprises have been enlisted to promote
products related to the oil palm industry. In 2007, MPOB
The low productivity of the agriculture sector is linked signed an agreement with Jariz, which focuses on design
to its labour intensity, especially in the oil palm industry, and supply of motorised machines for manufacturing and
which is very dependent on field labour for FFB harvesting agriculture, to produce and market Cantas. As of 2014,
and collecting activities. To increase labour productivity, Cantas has been marketed in more than 10 countries
reduce dependency on foreign labour and reduce the cost including Indonesia, Columbia and India.
of FFB production, the Cantas mechanical harvesting pole
was introduced with a discounted price. According to a Meanwhile, Premium Food Corporation Sdn Bhd has
MPOB study, Cantas could increase the productivity of a pioneered the commercial production and sales of a palm
harvester from 350 to 750 FFB per day. Labour productivity milk substitute for coconut milk named Khalis Santan Sawit.
for harvesting activities could be further increased by about The product, developed using MPOB formulations, has
30% to 40% compared with manual harvesting. It is believed achieved market success with increasing sales from year
that continuous improvement of the tool could boost future to year. Today, Khalis Santan Sawit is available in various
hypermarkets such as Giant, Tesco, Jusco and Mydin.
Productivity Performance of the
CONSTRUCTION
SECTOR
In this chapter:
T
he construction sector is split into four key sub- Figure 6.1: GDP Performance of the Construction Sector,
sectors: residential, non-residential, specialised 20102014
activities and civil engineering. The first three sub-
sectors generally encompass all building activities with 35 18.59 20
32,984
the specialised activities sub-sector providing essential 30
29,554
services such as mechanical and electrical work, 25 26,640 15
11.61
RM Thousand
Growth (%)
22,464
20 21,459
engineering involves the construction of infrastructure 10.94 10
15
such as oil and gas facilities along with transportation
10 5
and utilities networks.
5 4.68
0 0
2010 2011 2012 2013 2014
The construction sectors contribution to
Source: Department of Statistics, Malaysia
the countrys GDP surged by 11.6% to
RM33 billion in 2014 compared to RM The sector as a whole encompasses all construction
29.5 billion in 2013, giving it a share activities within the industry, including the preparation
of land and the construction, alteration, embellishment
of 3.9% of the countrys total GDP. and repair of buildings, structures and other properties.
Construction is a high-investment sector, making it a
The construction sectors contribution to the countrys significant economic driver with multiple stakeholders at
GDP surged by 11.6% to RM33 billion in 2014 compared various stages of the value chain.
to RM 29.5 billion in 2013, giving it a share of 3.9%
of the countrys total GDP. It is also the fourth largest The bulk of project spending is distributed between
employer within Malaysia, utilising roughly 1.2 million residential, non-residential and civil engineering.
workers - 9% of the countrys total labour force. Non- Malaysias construction sector also has an overseas
residential construction was the largest employer within presence, with a reported RM8.3 million in overseas
the sector, employing 321,620 workers. This sub-sector projects completed in 2013. This figure is predominantly
includes private corporate buildings as well as shopping a result of construction work within ASEAN countries,
centres, commercial areas and various other private though overseas projects can be found as far as the
and public projects. The sheer scale of many of these Middle-East. The sector is closely tied to other sectors
projects makes it unsurprising that the sub-sector of the economy, with a backward-linkages index of 1.10
requires more workers overall. and a forward-linkages index of 0.79.
89
RM Thousand
19,820 19,817
Growth (%)
10
terms of productivity per hour worked, 2014 showed a 15
figure of RM11.92 per hour per employee, higher than 5
10
the RM10.53 recorded in 2013. 3.77
5 0
-0.02
The residential construction sub-sector was the greatest 0 -5
contributor to the sectors productivity performance in 2010 2011 2012 2013 2014
2014, with productivity growing by 17.9% to RM34,147 Computed from: Department of Statistics, Malaysia
per employee, generating an added value of RM9.6
million (Figure6.3). The residential sub-sector registered
the highest growth for both capital productivity
and capital intensity at 9.3% and 7.9% respectively Figure 6.3: Productivity of the Construction Sub-Sectors,
(Figure6.4). The governments growth in community 20132014
projects such as Rumah Mesra Rakyat, Rumah Mampu
Milik and Rumah Impian Rakyat contributed to the 35 17.9 2013e 2014e 20
34,147
increase in both output and demand, pushing the sub- 30 31,842
28,954 29,923 29,886
sector to greater levels of productivity. 26,734
11.8
28,288 12.6 15
25 26,404
13.3
RM Thousand
Growth (%)
20
10
The governments growth in community 15
6.2
10 5.8
projects such as Rumah Mesra Rakyat, 5 2.5
5
(Pure Number)
25 0.25
The residential sub-sector also showed the highest
(RM Thousand)
(Pure Number)
17.9% outpacing labour costs per employee of 7.3% while
15
unit labour costs declined by 7.4% (Figure6.5). This 0.22
shows that the sub-sector has managed to add greater 10
value to the economy relative to wage growth, while the
5 0.21
cost of hiring workers is dropping. This was followed by
non-residential sub-sectors, with a productivity growth 0 0.20
of 13.3% - two times higher than the labour cost per 2013e 2014e
employee growth of 6.7% at RM19,649, while unit labour Computed from: Department of Statistics, Malaysia
cost declined by 4.9%. The highest remuneration was Note: e - estimated
observed in the residential sub-sector at RM20,496 per
Figure 6.6: Total Number of Foreign Workers in the Construction
annum, followed by civil engineering at RM20,426 per Sector, 20002006
annum.
300 50
Developers continued to invest capital, indicating keen
interest in modernisation and confidence in the growth 250 265,415
40
Proportion of
200
30
Thousand
CHALLENGES AND Source: Immigration in Malaysia: Assessment of its Economic Effects, and
a Review of the Policy and System, the World Bank in Collaboration
RECOMMENDATIONS With ILMIA Ministry of Human Resources of Malaysia, 2013.
skill development is hindered by current management offer the lowest prices in the market to secure prominent
Spurring the Adoption of Advanced Building IBS component production systems require very high-
Methods quality materials; this means that IBS component
manufacturers must have access to a steady supply of
In Japan, Finland and other developed countries, building high-grade cement (Grade 30-35) and other materials
methods such as prefabrication, IBS and automation such as sand and granite aggregate - both of which are
have marked the transition of the construction industry in short supply in Malaysia. Another challenge is the fact
from being labour-intensive to technology-intensive. The that the steel moulds used for fabricating components
reason for this transition is simple; advanced building are expensive to manufacture.
methods reduce costs, offer workers better pay and
save lives. Using conventional building methods it takes Without regulations to enforce standardised building
roughly 400 people to build a typical 30-storey building. designs such as those that exist in Singapore and Japan,
Armed with IBS and automation systems, however, the IBS component manufacturers in Malaysia risk spending
same building could be built by a crew of 70 workers in a copious amounts of money creating mould designs that
shorter time-frame, all of whom would receive better pay no one wants. By stepping up to standardise building
and work conditions. designs, local authorities will encourage businesses
to set up shop to supply IBS components. Some skill
sets such as plastering and bricklaying would not be
Using conventional building methods required anymore, and buildings would require little
it takes roughly 400 people to build a to no additional concrete supplies. With guaranteed
demand, mass production becomes not only possible,
typical 30-storey building. Armed with but necessary. This widespread usage would translate
IBS and automation systems, however, into lower costs for everyone, helping to make IBS more
affordable for all involved.
the same building could be built by a
crew of 70 workers in a shorter time- Currently, Malaysias construction industry is
experimenting with partial IBS projects that utilise
frame, all of whom would receive better party walls in multi-residential buildings. Partial IBS
pay and work conditions. projects are more challenging than conventional projects
because they require investment in BIM expertise and
Despite the efforts of the Construction Industry technology to ensure that the conduits for wiring and
Development Board (CIDB), only a few companies have plumbing that already exist in the conventional building
embraced these methods in Malaysia. Admittedly, the align correctly with the conduits in the prefabricated
technology, expertise and materials required for the party walls. If these conduits do not align, new holes
successful adoption of IBS are significantly different would have to be drilled a much harder feat, as
from conventional labour-intensive building processes. prefabricated components are made from a higher-grade
Nonetheless, the benefits that come with a successful cement and are therefore harder to drill through.
transition are well worth the effort.
Another challenge to IBS adoption is the high cost of
With an IBS project, building components are transporting IBS components from manufacturing plants
prefabricated in bulk at specialised IBS component to building sites. Several of these plants already exist
manufacturing plants then transported to building sites in Johor, catering to Singaporean client. This means
to be assembled and installed. IBS manufacturers employers are far more likely to find workers with
can therefore seek economies of scale and quality experience in IBS in the Johor region compared to other
improvements that are not possible with on-site Malaysian states. It also makes IBS-led projects more
fabrication methods efficiency gains that will viable in Johor than elsewhere in the country; at present,
positively affect customers in the long run. However, the costs of transporting IBS components from Johor to
93
work together to help drive changes in In the short term, property developers and construction
the construction sector, with both short- companies must work together to overcome the
and long-term plans. challenges of quality and labour shortages. Although
property developers have little to no influence over
the hiring and labour management policies within the
94
PRODUCTIVITY REPORT 2014/2015
contracting companies they engage for their projects, organisations to ensure that their employees receive
they can nonetheless exert some influence over these adequate training and experience so that they can
construction companies and encourage them to make become skilled tradesmen sooner rather than later.
changes to their internal training processes and quality Structured apprenticeship programmes will:
control practices. Some of the steps that property
developers may take include: Facilitate the adoption of internal certification
programmes in the absence of formal external
Engaging third-party professionals to conduct certification. Such internal certification
regular, stringent site inspections. These third- programmes provide customers and employers
party assessments should evaluate projects with assurance about the quality of workers that
in progress according to recognised quality will be used on a project.
control standards and determine build quality
both internally and externally. This will spur Ensure that all new workers are seconded
construction companies to use high-skilled by at least one experienced worker. This will
labour instead of low-skilled labour as they will raise overall product quality and provide the
want to ensure tasks are executed correctly the construction company with a larger pool of
first time. skilled workers in a shorter period of time.
Procuring higher quality materials and requiring Ensure that knowledge and skills are retained
sub-contractor workers to be trained in their within the company. Even if the company loses
correct application and use. This provides an its more experienced workers when their work
incentive to construction companies to invest in permits expire, these junior apprentices will be
long-term skill development for their workforce ready to fill their shoes.
and offer higher value-added construction
methods and systems to clients. Expand abroad. Larger GLCs and construction
firms should invest into new markets within the
Using standardised building or automation region so as to not stifle the domestic market
systems. Standardisation can reduce margins and to allow other entrepreneurs to emerge.
of error due to unskilled workmanship, while This will also provide companies with much-
automation significantly improves on-site safety needed international experience, allowing them
and reduces costs. to compete more effectively globally.
Requiring that contractors use only certified While these short-term measures may bring noticeable
workers on critical jobs. Building components results in a very short period of time, the Government
such as wiring, plumbing, ventilation and air- and industry regulators must tackle the challenge
conditioning should be installed by properly for long-term restructuring. Many companies in the
trained personnel whose certifications are sector have not yet shifted away from old management
widely recognised within the industry. In mentalities inherited from their predecessors.
the long run, increasing the employment Government policy should be aimed at promoting
of certified skilled workers will raise the permanent changes in the industrys management
industrys productivity and enhance its overall practices, to bring about a shift from short-term
competitiveness. profitability to long-term investments in technology and
talent.
To complement these measures carried out by property
developers, construction companies can implement Making IBS a necessary ingredient for larger projects
structured apprenticeship programmes within their is a good start as it will also help reduce the need
95
Percent (%)
done by agencies to increase IBS adoption in building 58
Implementing a structured programme to Source: Immigration in Malaysia: Assessment of its Economic Effects, and
a Review of the Policy and System, the World Bank in Collaboration
attract skilled foreign labour to Malaysia. With ILMIA Ministry of Human Resources of Malaysia, 2013.
Currently, the proportion of high-skilled labour Computed from data from the Department of Statistics, Malaysia.
IBS, which will in turn spur the supply of training Streamlining the regulatory process for
programmes in advanced building methods. transporting construction materials across
The vast majority of trainees that undergo state lines within Malaysia. At present, state
these programmes will be Malaysians, and with authorities govern the resources within each
such a high demand for their services awaiting state, and moving sand and other materials
them, they will be assured of a high-income from one state to another involves several
employment opportunity upon graduation. bureaucratic hurdles.
Increasing policy support for the creation of Establishing a strategic national stockpile of
institutions to certify technical skills. This critical building materials such as sand, granite,
will make it possible to convince more cement and steel. This helps ensure that the
Malaysian talents to train and up-skill in order industry has access to an ample supply of
to enter the construction industry as skilled critical materials at all times. The stockpile will
workers. Compulsory quality assessment also help cushion the industry against price
requirements based on regionally-recognised shocks and geopolitical tensions.
national certifications will further support the
construction industrys transformation. In the Boosting this sectors productivity will demand courage
long term, Malaysias construction industry will from both business owners and policymakers.
eventually find itself using fewer foreign workers
to achieve the same amount of work due to the Construction companies now face profit margins that
higher skills of the workforce. This will allow have shrunk to as little as 5%, a result of the spiralling
them to offer higher wages for better talent, at price of land, a crowded marketplace and endless
which point project owners will be able to insist cost-cutting practices. Malaysia has gained the dubious
that sub-contractors only use certified workers. honour of having one of the lowest cost construction
This can be implemented in stages starting with sectors in the world, but this has also resulted in poor
smaller private projects and eventually moving quality buildings and an over-dependence on cheap
on to larger public projects. foreign labour. To avoid stagnation, companies must
invest in new technologies, building methods and higher-
The construction industry will also benefit from better skilled workers. The sectors greatest challenge will be to
affordability and access to construction materials, which drive the widespread adoption of these building systems
will lower barriers to entry for new contractors. To this in order to create enough lucrative job vacancies to
end, the following measures are recommended: attract Malaysians back into the construction workforce.
Encouraging the establishment of new local Meanwhile, the Government will need to address the
plants for the production of timber flooring and rakyats poor perception of the sector. Young Malaysians
porcelain ware. There are currently only two must be encouraged to view the sector as one that offers
suppliers of timber flooring within Peninsular challenging but bright career prospects, particularly
Malaysia, and only small-scale manufacturers within areas that involve knowledge and expertise in
of tiles and other porcelain ware. Malaysia advanced building technologies such as IBS, BIM and
should invest in the requisite technology and others.
processes required to mass-produce such
products to reduce the countrys dependence In the endless journey to greater nationwide productivity,
on imported goods. it is up to the Government and the industry to work hand-
in-hand and make the necessary changes to move the
industry forwards.
97
Other Services
Government Services
Real Estate
& Business Services
Financial & Insurance
Communications
Logistics
Accommodation
& Restaurants
Wholesale & Retail Trade
and Motor Vehicles
Utilities
Transport Equipment and
Other Manufacturing
Electrical & Electronics
Non-Metallic Mineral Products,
Basic Metals and Fabricated Metal Products
Petroleum, Chemicals,
Rubber and Plastics Products
Wood Products & Furniture, Paper &
Paper Products and Publishing & Printing
Textiles, Wearing Apparel
and Leather Products
Food & Beverage
and Tobacco Products
Mining and Quarrying
Agriculture
Forward Linkages
Backward Linkages 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35
Pure Number
PRODUCTIVITY
FRONTIER
In this section:
M
alaysias future productivity growth will Figure 7.1: Holistic Approach in Boosting Productivity
rely heavily on its ability to leverage the
compound effects of incremental gains
labour productivity rather than an expanding workforce.
This will reduce the countrys ability to grow GDP
by simply increasing employment, and will instead Good Regulatory Practice (GRP)
RI
IND SE Business
Industry-specific Excellence (BE)
Productivity Practices
NATIONWIDE PRODUCTIVITY Centres
MOVEMENT Productivity
Champions
Challenging the productivity frontier will require all
Malaysians to endure significant changes, not just
in terms of business processes and organisational
structures, but also in terms of their individual
performance metrics. Emergency cost-cutting and good governance practices. It would be a combined
retrenchment measures offer limited short-term effort of multiple ministries, agencies, associations,
gains that are eventually eroded. Instead, the key to industries and companies to transform the rakyats
raising national productivity is to inculcate a culture of mindset to accelerate countrys capacity for innovation
productivity excellence amongst businesses, workers and productivity. A study of international best practices
and public sector employees. show that Singapore offers a successful example of
a government-led national productivity movement
Making this move will require a shift in the way while Japan and Canada are prime examples national
Malaysian businesses and employees conduct their productivity movements led by the private sector.
business and work. These can only be achieved
through a comprehensive, multi-pronged nationwide Malaysias productivity campaign will also be led
productivity movement and supported by government by insights and best practices learned from other
101
productivity campaigns, such as Way to Go, Singapore! creation and sustained economic growth. The National
and institutions from around the world such as GO Policy on the Development and Implementation of
Productivity (Canada). Regulations (NPDIR) supports the modernisation of the
WAY TO GO, SINGAPORE! Good regulation requires good content and process. It also
requires regulation to be responsive to the private sector.
Way to Go, Singapore! is a national outreach campaign to Regulators and government officials need to have clear
rally Singaporeans to embrace productivity. Through the regulatory objectives and to understand the characteristics
campaign, employers, workers and the public are shown that of good regulation, but the business community is uniquely
everyone can play a role in raising productivity. Although it is placed to identify when and how things go wrong..
a public outreach campaign under the auspices of National
Productivity Council (NPC), the initiative is also an example The ideal regulatory intervention should be pro-competitive,
of tripartite cooperation among the government agencies, commensurate with objectives, and non-discriminatory. Such
industries and labour unions. regulatory interventions should be devised using processes
that involve consultation (with all stakeholders and affected
parties), coordination (within government), and evaluation
GET PRODUCTIVE, CANADA! (ex- ante and ex post).
GO Productivity is a private, not-for-profit organisation
formerly known as Productivity Alberta, a government agency. CONTENT PROCESS
It grew into institution that helps businesses nationwide
maximise resources and be more efficient by identifying and Pro-competitive Consultation
address gaps in productivity. Commensurate Coordination
Non-discriminatory Evaluation
can have a big impact in boosting productivity. As WSQ CERTIFIED PRODUCTIVITY AND
an example, Singapore has 16 productivity centres INNOVATION MANAGER (CPI MANAGER)
dedicated to championing productivity across a wide
a company remain ahead of its competitors. Talent its customers and inculcating a spirit of innovation and
Management also challenges a company to find ways entrepreneurship among employees.
to retain its best talent in the face of high employee
mobility and foreign competition.
LEADERSHIP BY EXAMPLE
STEADFAST IN DRIVING PRODUCTIVITY The leaders at Robert Bosch Malaysia are strongly committed
IMPROVEMENTS to promoting and embracing the companys philosophy,
vision, mission and core values. They initiated various change
Maybanks initiatives towards higher employee engagement management and improvement programs to align employee
and increasing emphasis on building a culture of productivity behavior to the desired values. One example of such change
with implementation of key productivity uplift initiatives have program is the Change for Excellence & Speed initiative,
resulted in productivity trending positively year-on-year. which promotes excellence in leadership, quality and cost.
Group-wide improvement in productivity was 1.2% higher in The holistic change management program has resulted in a
2014 compared to 2013. Cost to income ratio also improved positive impact on RBMAs productivity and sales turnover.
at 48.9% in 2014.
Productivity has been above reasonable targets since 2012
Maybanks GO Ahead Employee Value Proposition while sales turnover has increased by 35%.
encapsulates its humanising mission to retain and attract
talents. Employees are encouraged to take ownership of their
development by upgrading their skills, taking on expanded
Best Practices in Process Improvement
responsibilities, cross rotational roles and international
assignments. Staff experiencing international roles and/or Creating Value Through LEAN
assignments increased from less than 20 to over 100 now at
any point of time. Its robust talent management programme Being a lean enterprise means eliminating non- value
harnesses the intellectual capital of its diverse workforce added activities along the value stream towards an
to give the company a competitive edge, resulting in an efficient system of production that eliminates waste,
increase from 54 to over 800 now featuring in succession reduces delays and costs and improves quality and
pipeline pools. This framework increases the readiness productivity at the same time.
of the talent and leadership pool as well as guides career
development within the Group. Across the different levels, MAXIMISE VALUE ELIMINATE WASTE
employees are nurtured through global best-in-class
learning and development programmes. BUJ Technology Enterprise Sdn Bhd specialises in waste
collection services. With the implementation of lean
As a result, for 2014, Maybanks succession realisation management, the company has managed to eliminate waste
for mission critical positions exceeded its target of 60% and increase operational efficiency. The impact of the project
realisation with an achievement of 70%. Regrettable loss has improved their lead time, work processes, removed non-
was 14% in 2014 compared to 17% in 2013 and over 40% in value added activities and reduced the cost of services.
2008. Key retention rate improved from under 40% in 2008
to 86% in 2014. International mobility increased to over 130 IMPACT OF ADOPTING LEAN PROCESS
talents in 2014 compared to just 51 talents in 2012. MANAGEMENT AT BUJ TECHNOLOGY
Best Practices in Customer-Focused Delivery any type of device, including wireless mobile computing
devices.
Creating Service Excellence
The Kano model comprises of Must Have, Performance and Department managers and leaders make use of findings
Delighters. Must Have are the attributes customers view as and market-relevant information from training sessions,
basic. Performance are the customers wants; their needs conferences and exhibitions. The information is also shared
are expressed, and the customer satisfaction is proportional across 24 offices and distributors through the Mega Fortris
to the level of performance of what is implemented, while Group Annual Conferences.
Delighters are about customers unconscious needs or
current unknown demand. SHARING IS CARING
Under the companys Service Excellence Programme, SIP KPJ Ipoh Specialist Hospital successfully developed an in-
aims to create memorable touch points through the delivery house electronic Bed Management System (BMS) which has
of quality products and services that are complemented by since been adopted by all other hospitals in the KPJ group. It
the company-wide 3 WELLs (Welcome, Well Discipline, Well came about from the feedback of customers and contribution
Groomed) policy. of ideas from the staff. This system manages admission and
discharge processes at the wards, thus reducing waiting
time for clients. It also enables the doctors, nurses and other
Best Practices in Sharing Information caregivers to get online status updates on beds and patients
on a real time basis.
Leveraging on information
With the introduction of the Bed Management System and
Companies that focus on providing superior customer Standard People Practice, customer satisfaction scores at
service need to provide clients with 24-hour global KPJ Ipoh improved in 2013, while the number of complaints
dropped by 20%. The success of the BMS software shows
access to their information. The challenge for
the hospitals commitment in creating and sustaining a
organisations is to make this information available in
knowledge-sharing culture.
customer-friendly formats regardless of where the data is
housed. The information also needs to be accessible on
APPENDICES
In this chapter:
What is productivity?
Measuring productivity
Partial factor productivity measure
Decomposition of labour productivity growth
Total Factor Productivity (TFP) measure
Productivity indicators
Productivity data revision
Productivity statistics by manufacturing sub-sector
Contribution by services sub-sector
Productivity statistics by services sub-sector
Incentives to boost productivity 2014/2015
Acronyms and abbreviations
Contact MPC
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WHAT IS
PRODUCTIVITY REPORT 2014/2015
PRODUCTIVITY?
The Productivity Framework is based on shared PRODUCTIVITY FRAMEWORK
Malaysian values that drive national development
agendas such as the Economic Transformation
Programme, the Government Transformation Plan and SUSTAIN PROSPERITY
A BETTER QUALITY OF LIFE
the Malaysia Plans. These initiatives form the policy and
regulatory foundations of business in terms of human Outcome PRODUCTIVITY
capital and education, regulation, fiscal policy, access to
Industry INNOVATION
finance and infrastructure.
Creating Jobs
& Growing the PROCESSES PRODUCTS MARKETS SYSTEMS
Policies and initiatives are required to strengthen the Economy
foundations of human capital and education, regulation,
Coherent Human Fiscal Access to Infra-
fiscal policy, access to finance and infrastructure Policies to Capital & Policy Finance structure
Regulation
Enable
to enhance the countrys competitive business Business
Education
their products, processes and systems as these will lead Expands capital investment, upgrades technical
to greater markets through innovation. capabilities of businesses and improves industry
competitiveness
APPENDIX
Productivity is the relationship between the amount of output produced and the amount of input used to produce the
output. Higher productivity means achieving more with the same or lesser amount of input resources. An increase in
productivity will lead to benefits such as higher standard of living, enhanced competitiveness and better quality of life.
Productivity may be measured in two ways: the ratio of output to one input only, or the ratio of output to more than
one input. The method involving only one input is called the partial factor productivity measure, while the method
involving more than one factor input is called the multi-factor productivity measure or total factor productivity (TFP)
measure. Both output and inputs are commonly expressed in monetary terms.
The partial factor productivity measure is the ratio of output to one type of input. Measures of output include gross
domestic product (GDP), added value and monetary value of production, while measures of inputs include total
employed persons, total man-hours worked, capital or fixed assets, labour cost, energy and bought-in materials and
services. Examples of partial productivity measures are labour productivity (the ratio of output to labour input) and
capital productivity (the ratio of output to capital input).
Variables Description
Added Value Added value measures the wealth generated by the collective efforts of those who work in an enterprise (the
employees) and the capital providers (investors and shareholders). Added value is different from sales revenue
or value of production because it does not include the wealth created by the suppliers to the enterprise.
There are two ways to calculate added value:
i) Addition Method
It is called wealth distribution because the added value created is used to pay those who have contributed
to its creation in terms of wages and salaries (labour cost) for the employees, interest for capital providers,
taxes to the Government, depreciation for capital equipment usage and profits to the owners.
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PRODUCTIVITY REPORT 2014/2015
Added Value = Total Output less Bought-In Materials and Services (BIMS)
In order to produce goods or services, a company has to purchase the necessary raw materials
and other inputs. The difference between the total value of output and total cost of inputs
i.e. all inputs and services bought from another company is called added value.
Total Output Ex-factory value (Sales - Opening Stocks: finished goods + Closing Stocks: finished
goods - Carriage outwards - Commission to selling agents - Tax on products)
+ Income from industrial services rendered
+ Value of sales (from goods purchased for resale without further processing)
+ Value of other industrial work done
+ Income from other output
+ Professional fees received
+ Commission and brokerage earned
+ Capital expenditure for built / Self-produced
+ Closing Stocks: goods in process
Opening Stocks: goods in process
+ Closing Stocks: goods purchased for resale
Opening Stocks: goods purchased for resale
+ Payments for processing work done by others on materials supplied by company and
payments for current repairs and maintenance work done by others on companys fixed
assets
+ Payments for non-industrial services
APPENDIX
The Solow-Swan model (Solow 1956, Swan 1956) is the starting point for most theoretical analyses of economic
growth. Its main conclusion is that the accumulation of physical capital and labour cannot drive sustained, long run
growth in output per person, and that this is instead driven by the rate of technological change (productivity growth).
The model assumes that the production function takes the form:
Y = f (A,K,L)
Where A represents technology, and K and L represent capital and labour, respectively. A is chosen as an input
to the model, rather than being determined within it, and can be interpreted in terms of the stock of knowledge or
innovation, disembodied education and skills, the strength of property rights, the quality of infrastructure and cultural
attitudes to entrepreneurship and work. New growth theories build on the Solow-Swan concepts so that technological
growth, human capital, and institutions are determined within the model (Solow 2005). Microeconomic theory has
additional insights regarding a countrys position on its production possibilities frontier, which represents the most
efficient means of producing a range of goods and services. These concepts suggest ways by which a country can
improve its economic growth.
Firstly, a country can move to a more optimal position on its domestic production possibilities frontier by changing
the combination of products it produces for a given set of inputs. Secondly, a country can catch up to the global
production possibility frontier, by adopting more efficient processes and technologies that have been developed
elsewhere. Finally, a country that is producing optimally on the global production possibilities frontier can push that
frontier outward, through innovation.
TFP indicates the efficiency with which inputs are being used in the production process, and includes pure
technological change, A, along with changes in returns to scale. Labour productivity (LP) measures the level of output
per unit of labour input (such as employee and hours worked). The relationship between labour productivity growth
and TFP growth is:
In practice, measured productivity performance is influenced by all the factors that affect the level of production
and the use of labour and capital. This includes competition, business cycles, trade, financial markets, regulation,
technological change, weather, population growth and ageing, education, infrastructure, geography and structural
change. Some of these factors are within the influence of government policy and reform to varying degrees, while
others are not.
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PRODUCTIVITY REPORT 2014/2015
The Total Factor Productivity (TFP) measure is the ratio of total output to the sum of all input factors. It measures the
efficiency of the utilisation of all inputs to produce output.
Formerly, the growth accounting technique was utilised to measure TFP, where inputs were limited to labour and
capital. But the influence of knowledge-based economic factors in todays globalised economy has necessitated
a new approach in measuring TFP known as KLEMS. The KLEMS methodology utilises more broadly defined input
factors in which intermediate inputs such as energy and bought-in materials and services are included in the
measurement. Both labour and capital input factors are now decomposed into more detailed segments to enable
more detailed analysis in terms of labour quality and quantity for labour input, while capital input is now decomposed
into ICT and non-ICT capital.
The production functions are assumed to be separable in these inputs as the starting point:
Yj = g j (Yij ) = f j (K j , L j , X j , T ) (1)
Where Y is output, K is an index of capital service flow, L is an index of labour service flows and X is an index of
intermediate inputs, which consists of the intermediate inputs purchased from the other domestic industries and
imported products. Under the assumptions of constant returns to scale and competitive markets, the value of output
is equal to the value of all inputs as can be expressed as:
P Yj Yj = P Kj K j + P Lj L j + P Xj X j (2)
Where PjY denotes the price of output, PjX denotes the price of intermediate inputs, PjK denotes the price of capital
services and PjL denotes the price of labour services. Under the standard assumption of profit maximizing behavior,
competitive markets, such that factors are paid their marginal product, and constant returns to scale, we can define
TFP growth (lntj) as follows:
Growth of TFP is derived as the real growth of output minus a weighted growth of inputs where X = Xt Xt-1 denotes
the change between year t-1 and t, and with a bar denoting period averages and is the two period average share
of the input in the nominal value of output. The value share of each input is defined as follows:
The assumption of constant returns to scale implies that v jt + v jt + v jt = 1 and allows the observed input shares
X L K
APPENDIX
to be used in the estimation of TFP growth in equation (3). Rearranging (4) yields the standard growth accounting
decomposition of output growth into the contribution of each input and TFP (denoted by AY):
where the contribution of each input is defined as the product of the inputs growth rate and its two period average
revenue share.
In order to decompose growth at higher levels of aggregation, a more restrictive industry value-added function was
defined, which gives the quantity of value added as a function of only capital, labor and time as
Vj = g j (K j , L j , T ) (6)
j jP VV = P KK + P L L (7)
Where Vj is the quantity of industry value added. Valuej added
j j j
consists of capital and labour inputs, and the nominal
value is:
Vj = g j (K j , L j , T ) (6)
Where PV is the price of value added. Under the same assumptions as above, industry value added growth can be
decomposed into the contribution of capital, labour and TFP (AV).
where is the two period average share of the input in nominal value added. The value share of each input is defined
as follows:
1
lnVjt =
v jtV {lnYjt (1 vjtV )lnX jt} (10)
This methodology was introduced by Jorgenson, Gollop and Fraumeni (1987). We define the quantity of output in
industry j as an aggregate of M distinct outputs using the Tornqvist index as:
with a bar denoting period averages and is the two period average share of product i in the nominal value of
jt
output. The value share of each product is defined as follows:
lnX =v X lnX
With = the basic price received by industry j for selling
jt commodity
i
ijt i.jt
The intermediate input quantity index for industry j is defined analogously by:
v Yijt = ( p Yijt Yijt )-1p Yijt Yijt
i
Labour Accounts
The aim of the labour account is to estimate total labour input so that it reflects the actual changes in the amount and
quality of labour input over time. In short, in this method, the labour force is subdivided into types based on various
characteristics, in this case age, gender and educational attainment. It is further assumed that the flow of labour
services for each labour type is proportional to hours worked, and workers are paid their marginal productivities.
Hence the corresponding index of labour services input L is a translog quantity index of individual types, indexed by l,
and given by:
where weights are given by the average shares of each type in the value of labour compensation =
and vl,t = with the price of one hour work of labour type l.
Capital Accounts
For the measurement of capital services we need capital stock estimates for detailed assets and the shares of capital
remuneration in total output value.
The most commonly employed approach in capital stock measurement is the Perpetual Inventory Method (PIM). In the
PIM, capital stock (A) is defined as a weighted sum of past investments with weights given by the relative efficiencies
of capital goods at different ages according to (industry subscripts are suppressed for convenience):
Ak,t =0 k, Ik,t-
=0
115
APPENDIX
depreciation , different for each asset type, t = (1)t and it follows that the capital stock of a particular asset k at
timet, Ak,t is given by
Ak,t =(1k) I k,t- = (1k) Ak,t-1 + Ik,t
=0
For the aggregation of capital services over the different asset types it is assumed that aggregate services are a
translog function of the services of individual assets. It is further assumed that the flow of capital services for each
asset type is proportional to its stock, independent of time. Hence the corresponding index of capital input K is a
translog quantity index of individual assets in a particular industry given by:
where weights are given by the average shares of each component in the value of capital compensation
= and = with the price of capital services from asset type k.
In equilibrium, an investor is indifferent between two alternatives: buying a unit of capital at investment price ,
collecting a rental fee and then selling the depreciated asset for in the next period, or earning a nominal
rate of return, ti on a different investment opportunity. The equilibrium condition can be rearranged, yielding the
familiar cost-of-capital equation:
p
k
I
k,j,t-1
Ak,j,t
Where the first term is the capital compensation in industry j, which under constant returns to scale can be
derived as value added minus the compensation of labour.
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PRODUCTIVITY REPORT 2014/2015
Labour Competitiveness
Competitiveness in terms of labour cost indicates the comparability of the industry in producing products or services
at the lowest possible labour cost.
Ratio Unit What it Tells
i) Added Value Per Labour Cost Pure Number Indicates how competitive the enterprise is in terms of cost.
Added Value A low ratio indicates high labour cost which does not
= commensurate with added value creation.
Labour Cost
ii) Labour Cost Per Employee Ringgit Malaysia Measures the average remuneration per employee.
Labour Cost (RM) A high ratio means high returns to individual workers and vice-versa.
=
No. of Employees
iii) Unit Labour Cost Pure Number Indicates the proportion of labour cost to total output.
Labour Cost A high ratio indicates high labour costs. This could be due to a
= labour shortage and lack of skilled labour, or indicative of a poor
Total Output labour mix. It could also be due to high labour turnover.
Labour Productivity
Labour productivity is one way of gauging the productivity performance of an industry. The most commonly used
indicator is Added Value per Employee.
Ratio Unit What it Tells
i) Added Value Per Employee Ringgit Malaysia Reflects the amount of wealth created by the company relative to the
Added Value (RM) number of employees it has. It is influenced by:
= Management efficiency
No. of Employees Work attitudes
Price effects
Demand for the companys products
A high ratio indicates the favourable effects of labour factors in the wealth
creation process. A low ratio means unfavourable working procedures such
as:
Capital Productivity
APPENDIX
Capital productivity indicates the degree of utilisation of fixed assets and how efficient these assets are being utilised.
It is defined as Added Value generated per Ringgit of Fixed Assets.
Ratio Unit What it Tells
Added Value Per Fixed Asset Pure Number Indicates the degree of utilisation of tangible fixed assets.
Added Value A high ratio indicates that assets are being efficiently utilised.
= A low ratio reflects poor asset utilisation.
Fixed Assets
Capital Intensity
Capital intensity measures the amount of fixed assets allocated to each employee. It is also known as Fixed Assets
per Employee or simply capital-to-labour ratio. This ratio measures whether an industry is relatively capital-intensive or
labour-intensive.
Ratio Unit What it Tells
Fixed Assets Per Employee Ringgit Malaysia Indicates whether an enterprise adopts a capital-
Fixed Assets (RM) intensive or labour-intensive policy.
= A high ratio indicates high capital intensity.
No. of Employees A low ratio indicates that the enterprise is dependent on labour-
intensive methods or that there is low technological input.
APPENDIX
Utilities 2.5% 2.5% 2.5% 2.4% 1.0% 1.1% 1.1% 1.1%
Wholesale and Retail Trade; Repair of Motor Vehicles and 14.3% 14.2% 14.4% 14.8% 16.3% 16.6% 16.8% 16.8%
Motorcycles
Transportation and Storage 3.7% 3.6% 3.6% 3.6% 4.9% 4.9% 4.7% 4.4%
Accommodation and Food and Beverage Service Activities 2.5% 2.5% 2.5% 2.5% 7.7% 7.5% 7.7% 8.2%
Information and Communication 3.7% 3.9% 4.1% 4.2% 1.7% 1.6% 1.4% 1.6%
Financial and Insurance/Takaful Activities 9.2% 9.4% 9.1% 8.8% 2.6% 2.5% 2.4% 2.4%
Real Estate and Business Services 5.4% 5.5% 5.7% 5.8% 6.8% 7.1% 7.1% 7.7%
Other Services 5.1% 5.0% 5.0% 5.0% 4.0% 3.7% 3.5% 3.2%
Services Total (Excluding Government Services) 46.5% 46.6% 46.9% 47.0% 45.0% 45.2% 44.7% 45.4%
Note: f - forecast
APPENDIX
Capital Allowance to Increase Category 1 - High labour-intensive
Automation in Labour Intensive industries (such as rubber products,
Industries plastics, wood, furniture and textiles):
An automation capital allowance of 200%
To encourages shift from high labour will be provided on the first RM4 million
intensive towards automation and innovation expenditure incurred within the period from
activities 2015 to 2017; and
Soft Loan Scheme for Automation and The SLSAM assists manufacturing Malaysia Industrial Development
Modernisation (SLSAM) of SMEs companies to: Finance (MIDF)
The fund for this Scheme is channelled by modernise and automate manufacturing
the Government of Malaysia via the Ministry processes;
of International Trade and Industry (MITI) to upgrade production capability and http://www.midf.com.my/index.php/
MIDF for the implementation of the Scheme. capacity; development-finance-our-products-a-
minimise dependence on labour- services/development-finance-soft-loan-
intensive activities and foreign labour; scheme-for-automation-and-modenisation-
diversify into higher value- added slsam
activities;
rationalise and streamline operations
including through mergers and
acquisitions;
tooling acquisition, development and
production;
productivity improvement; and
enhancing export performance
123
APPENDIX
(PPRN) Ministry of Education (MOE), the Malaysian Corporation (MTDC)
Technology Development Corporation
To promote innovation programme based (MTDC), SME Corp and private industries. http://www.mtdc.com.my/file/MTDC%20
on demand in increasing productivity and News%20Jan-Oct%202014.pdf
strengthens the economic development in
Malaysia
Bumiputera Entrepreneurs To provide easy business financing. TEKUN Nasional
APPENDIX
LP Labour Productivity PKFZ Port Klang Free Zone
LPI Logistics Performance Index PKPA Foreign Personnel Skills Recognition
LRT Light Rapid Transit PPP Productivity per Person
M&E Machinery and Equipment PPP Public Partnership Projects
MADA Muda Agricultural Development Authority PPRN Public-Private Research Network
MAI Malaysia Automotive Institute PRN Public Research Network
MARDI Malaysian Agricultural Research and Development Institute PST Professional, Scientific and Technical
MATRADE Malaysia External Trade Development Corporation PWD Public Works Department
MDTC Malaysia Technology Development Corporation QLASSIC Quality Assessment System in Construction
MEP Paddy Mini Estates QOPSAS Quality Oil Palm Seedlings Assistance Scheme
MFM Mega Fortis R&D Research and Development
MH Total Man Hours Worked R&D&D Research, Design and Development
MIDA Malaysian Investment Development Authority RIA Regulatory Impact Analysis
MIMOS Malaysian Institute of Microelectronic Systems RM Ringgit Malaysia
MNC Multinational Corporation RMCD Royal Malaysian Customs Department
MOH Ministry of Health ROI Return on Investment
MPC Malaysia Productivity Corporation RURB Reducing Unnecessary Regulatory Burden
MPOB Malaysian Palm Oil Board SALT Livestock Farm Accreditation Scheme
MRI Magnetic Resonance Imaging SHE Safety, Health and Environment
MRO Maintenance, Repair and Overhaul SIRIM Standards and Industrial Research Institute of Malaysia
MRT Mass Rapid Transit SME Small Medium Enterprise
MSQH Malaysia Society For Quality in Health SMIDEC Small and Medium Industries Development Corporation
MTDC Malaysian Technology Development Corporation SSL Self-Sufficiency Level
NEC National Economic Council TEU Twenty-Foot Equivalent Unit
NEM New Economic Model TFP Total Factor Productivity
NHS National Health Service TQM Total Quality Management
NKEA National Key Economic Areas TVET Technical and Vocational Education and Training
NKRA National Key Result Area UiTM Universiti Teknologi Mara
NPDIR National Policy on the Development and USD United States Dollar
Implementation of Regulations USM Universiti Sains Malaysia
NSW National Single Window WCY World Competitiveness Yearbook
OECD Organisation for Economic Cooperation and Development WGI Worldwide Governance Indicators
PBT Pihak Berkuasa Tempatan or Local Authority WHO World Health Organisation
PCB Printed Circuit Board WTO World Trade Organisation
PK Palm Kernel
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