Challenges for Malaysia’s economy


Communication between industrial players and public officials is seldom smooth. Yet, good mutual understanding between the two is vital for effective economic growth. Seizing the initiative, industrial players have listed their chief needs, major challenges and immediate plans for all to see.

THE TOP MANAGMENT in leading industries in Penang has been getting more and more worried over the last few years. Some of the most important prerequisites for continued development, they feel, are fading fast. In their experience, the problems plaguing their manufacturing operations have not been properly understood or taken seriously by officials. It is therefore critical for them to get their message across more successfully to the public sector and other players.

What they have come up with is something loosely based on the American concept of a sports playbook. The objective here is to provide a standard documentation that describes challenges commonly faced by major industries; and more importantly, lists strategies for overcoming each challenge. “Although this is not a solution to all the problems faced, it will at least provide us with consistency when approached by different officials in their bid to assist our industries,” says BC Ooi, senior vice president of Global Operations in Avago, a key driver behind this initiative. “Here, we can be assured that we are communicating the same message and thus, [and makes it] easier for us and the authorities to be held accountable for promised deliverables.”

“Many of the challenges faced are common across our industry. The objective of this playbook is to calibrate major challenges and the suggested strategies to address them. Apart from sending a consistent message, this document can also be used as key performance indicators (KPIs) for the government and private sectors to measure, for the former, the effectiveness in addressing industrial issues and for the latt er, the ability to infl uence and support change required for sustainable growth,” adds Jordan Plofsky, senior vice president and general manager of the Altera R&D Centre.

Common challenge #1: Quality of the education system & graduates

Comparatively, Malaysian graduates undergo a longer training time before they are considered productive than those in many other countries. There is significant concern about the grasp of English by fresh graduates, and a more shocking problem is when top scorers are shown to lack basic communication and linguistic skills. The difference in ability among fresh graduates from different universities has also shown to be vast despite them possessing the same cumulative grade point average (CGPA) ranking. Compounding the issue is the latest policy reversal regarding the teaching of Mathematics and Science in English. This will compromise the foundation for the desperately required knowledge-worker pool. Scrapping this initiative will result in the government investing more in expensive short-term measures to boost talent capability and to fi ght the brain drain.

Common challenge #2: Attracting & retaining skilled talent

In a market strapped with talent shortage, high attrition rates are inevitable. This stunts the small and medium enterprise (SME) rate of growth, whose operations are often used as career launching pads for fresh graduates who do not fulfil the minimum academic requirements of the multinational corporations (MNCs) and larger companies. MNCs on the other hand invest time and money to retrain and re-skill the employee pool.

Datuk Tan Yew Th ong, managing director of Leong Bee Soo Bee, a local company involved in the production of cutting tools, abrasives and special steels compares this situation with a similar situation faced by the Malaysian banking industry in the early 1990s.

“Local banks were losing employees to international financial institutions that were able to provide higher salaries and a faster rate of career growth together with the prestige that their names carried. To stem this problem, Bank Negara Malaysia implemented restrictive policy measures which included levies per headcount hired from an existing institution. The levies imposed were channelled towards a training fund. This could be a scenario we could possibly be looking at in the near future out of sheer desperation, although we realise that in this industry, this move will stifle creativity and block personal growth. It is not a desirable action but may be highly necessary.”

Common challenge #3: Inflexible HR policies

Previous protectionist human resource (HR) policies were highly unfavourable for companies which require skill specific personnel not available locally. Recently many of these policies have been relaxed and the establishment of Talent Corporation promises more changes to come. This being said, at the industry level, the positive effects of these changes are trickling in slowly, but yet to be fully realised. The next step is to position Penang as an attractive city in which to live and work for young professionals.

Common challenge #4: Limitations within the local SME ecosystem

SMEs in Malaysia can be broadly classified into two categories. One category comprises the more modernised entities that are risk-takers and proponents of change, willing to invest in skills development and in HR. In Penang, these are companies that have made a name for themselves; yet the greatest challenge for them is penetration as suppliers into the global supply chain.

The second category is companies who have yet to transition fully into true corporate structures. These companies have limited access to opportunities as they are constantly fire-fighting productivity blips. As the bench-strength of these companies is low, specialised strengths lie within few key personnel, and when they leapfrog into larger companies, the production lines of the SMEs are crippled.

Talent shortage: The root cause

In addressing many of these challenges, Taiwan and Singapore are constantly cited as examples. Th eir amazing rate of growth in terms of economic figures and the capacity and capability of its local companies are viable reasons to use them as benchmarks. A large part of the success of Taiwan was due to the commitment of its government to support local companies.

Training grants alone are insufficient and do not address the chances of increased penetration as suppliers and players within global operations. Not for the first time, protectionist policies such as setting local content quotas within the MNC supply chain were debated. Such measures would force SMEs to upgrade and improve at a much faster rate, and encourage and reduce the disparity of job opportunities; however it could also compromise the overall competitiveness of the Malaysian landscape if local suppliers are unable to meet quality expectations.

Malaysia does not fall short in terms of enabling infrastructure. It has made significant investments within identified sectors ?and all this is proven and solidified by the latest Economic Transformation Programme. The big mystery lies in why Malaysia has not been able to extract an equal or close to equal amount of output as other competing economies. This can be narrowed down to a major root cause: talent shortage. Talent is akin to software required to complement hardware.

The common challenges above are all symptoms of talent shortage at its most critical level.

The strategies proposed

Having identified the most common challenges and agreeing on the root cause, industrialists accede that straight-shooting strategies need to be implemented; and the playbook is a definitive start. Addressing these challenges requires a concerted effort; and this playbook list of strategies will hold both industry players and agencies to task.

Strategy #1: Generating top talent through a review of the Malaysian education system Ranked as the most important issue to address, the suggested strategies to generate top talent include the following:

  • Continuation in teaching Mathematics and Science in English at school level
  • Increased industry influence in university curriculums
  • Shorter time to realisation of industry inputs towards existing curriculum
  • Longer duration of trainee internships and experiential training

Strategy #2: Introducing competitive policies for the industry & its workforce

Malaysia has to contend with competing countries to retain its talent and its industries. Neighbouring countries like Singapore come knocking at our doors to att ract young and capable Malaysians. The industry urges the government to consider policies aimed at retaining and att racting talent. These include:

  • A fair and accessible education system which emphasises meritocracy
  • Affordable housing grants for young working professionals
  • Incentives for returning expatriates which include flexible immigration and VISA policies and working permits for spouses
  • Review of Malaysian labour laws to ensure a competitive employment environment and effective industrial relations. Current labour laws make it difficult for employers to terminate employees with poor performance, major misconduct and ethical violations
  • Competitive tax policies and incentives especially those that promote innovation are required to develop the local ecosystem
  • Clarity and consistency of policies and guidelines imposed by the government

Strategy #3: Supporting & growing the local ecosystem

The term “multinationals” is being replaced by “global companies”. They do not only operate in multiple locations, but have synchronised operations across dispersed locations. This is what our SMEs must be prepared to contend with – suppliers from around the globe. In this respect, the government is urged to:

  • Grow SMEs as supply chain partners in research and development (R&D) solutions and materials solutions
  • Grow entrepreneurial angel investor communities to increase the risk appetite of local start-ups
  • Establish structures to protect and grow targeted new industries through careful consideration of protectionist policies and local content rules; especially in cases where MNCs are privy to Malaysian government grants
  • Provide enabling incentives and grants for local SMEs such as access to land and/or industrial parks, special consideration in the hiring of skilled expats and tax breaks

No easy way out

With an insufficient talent pool, SMEs are in trouble, MNCs cannot grow, cost (both financial and time invested) is compromised; and in the long term quality declines. There is no easy solution but to grow the talent pool. And the playbook, when it is finalised, will depict in detail the strategies required in a simple four-step process: first, getting the talent; second, creating the talent; third, growing the talent and fourth, retaining the talent.

Speaking bluntly…

In compiling the industry playbook, the following insights were obtained from an undisclosed group of local and multinational companies (MNCs) involved in electrical and electronic (E&E), design and development (D&D) and research and development (R&D) operations in Penang:

On the cost of retaining talent

“The cost of operations is increasing as a direct result of wage increase and rising commodity prices. Wage prices increase as we compete for talent. Local companies face diffi culties in gaining entry into the supply chain network of MNCs. We seek entrepreneurship development initiatives from the government including regulatory controls and incentives to encourage the utilisation of Malaysian-designed chips and parts.”

“Tightening labour market conditions in Penang are driving the salaries of high performers upwards. Cost of talent development and talent retention is high in Penang. Penang must improve the quality of life here in terms of traffic and affordable housing in order to attract a larger worker pool.”

“Labour laws should be reviewed to be more pro-business.”

On talent shortage and the education system

“What industry expects of modern universities is the ability to generate knowledge, not just disseminate knowledge. Their curriculum is unable to reflect the rate at which industry trends are progressing.”

On local company capability

“The Malaysian SME skills base is patchy. For example it is very strong in automation and mechanics, but weak in materials such as plastics, composites and metals. Tax incentives and policies to encourage venture capital funding and angel investors will help the proliferation of specific technologies.”

“There are capable local vendors and service providers in Malaysia, and a concerted effort to address training needs, competency development, grant support, technology acquisition and tax related incentives will assist them to help them achieve higher growth levels within a shorter time span.”

“Local content rules and specific incentives in some countries indirectly drive local company development and the process of vertical integration. Malaysia should consider this approach.”

Knowing Math & Science in English

INDUSTRIALISM in malaysia is caught between a rock and a hard place. The very key success factor required to accelerate the industry as it approaches a critical junction is the very key factor which is slowing it down – talent.

As industrial Penang grapples with talent bleeding abroad, high attrition rates and unemployable fresh graduates, it has to understand the root cause behind these trends and push for reforms. Temporary stop-gap measures only ensure short-term productivity at the expense of millions of dollars. Long-term measures are painful and difficult to implement, especially if one is to satisfy all stakeholders. However, not addressing the root cause will result in repetitive and costly cycles of capital injection for stop-gap measures.

Professional examination shows the root cause of these problems to be the gradual decline of the standards and quality of education provided at the foundation (school) and university levels.

In pursuit of nationalism, the importance of the English language has been sidelined. However, one has to realise that for now and many more decades into the future, English is the language of technology, research and business. The Malaysian education system is second to none – with comprehensive Science and Mathematics syllabuses that meet and exceed international standards. It is within the delivery system in which the problems lie.

Rewind Penang to the generation of the Baby Boomers and before. Penang was the education hub of Malaysia then. Schools were truly melting pots and the education system was a legacy of the British sett lement. As a result, Penang produced world-class scholars, many of whom played a role in the industrial transformation of the country; and many of whom are presently highly infl uential people within the public and private sectors of Malaysia and abroad. What has happened between then and now?

Simply put, a gradual erosion in the calibre of local talent set in.

First, those discouraged by the lack of meritocracy and who had the means to do so, sent their children abroad.

Second, in the pursuit of nationalism understood through the essence of language and culture, a heavy emphasis was put on Bahasa Malaysia and Mandarin. This has taken a heavy toll on our skills in the English language. Rightly so, the present rise of China does make skills in Mandarin useful; and Bahasa Malaysia as the national language has served as a uniting factor. But English must not lose its place as the language of technology, research and business. Limited by the long hours that students have to spend at school, skills in English is where the compromises are made. Since the key to language mastery is immersion, knowledge in the language becomes shallow. With the declining emphasis on English, students consequently lack the confidence to communicate in English and lack the depth required to take them to higher levels.

Mathematics and Science are the lifeblood of the economy and the industry. Instead of punishing young school children by putting them through curriculum changes, the authorities need to focus on the long term. They have to invest in training teachers and lecturers as generators of new talent; and needless to say, equip them to teach in English for these subjects.

Over the space of 18 months, the policy of The Teaching and Learning of Science and Mathematics in English (PPSMI) to teach Mathematics and Science in English was reversed back to the mother tongue of students; only to be followed by an announcement by the Prime Minister that the option for urban schools to continue teaching Mathematics and Science in English is being reviewed. The latter is a good sign, and reflects the government’s commitment to nation building.

The critical element is time. We cannot aff ord to falter and hesitate. The longer it takes, the more confused school children will be, and any education system, be it here or elsewhere, does not fare well in a state of limbo. Hopefully, the strong support seen and heard at the industry level calling for Mathematics and Science to be taught in English can seal the deal.

Talent is like water. What water is to the environmental system, talent is to the economic system. It prepares the ground for innovation, design, communication, hospitality and services. Many developed countries which we benchmark are able to attract, retain and develop talent.

How can Penang and Malaysia do the same? We have to go for the jugular. We need strong, aggressive and proactive measures which target the end-in-mind. We cannot aff ord the time and resources spent on wishywashy motherhood and apple pie statements and policy measures aimed at appeasing diff erent factions. It is time to leverage on the past to enhance the present in order to shape the future.

Poh Heem Heem is manager for special projects and consultancy at the psdc.

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