productivity performance of malaysia chapter 1 - MPC
productivity performance of malaysia chapter 1 - MPC
productivity performance of malaysia chapter 1 - MPC
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16 th PRODUCTIVITY REPORT<br />
MALAYSIA PRODUCTIVITY CORPORATION<br />
All rights reserved.<br />
No part <strong>of</strong> this publication may be reproduced, stored in a retrieval<br />
system or transmitted, in any form or any means, electronics, mechanical,<br />
photocopying, recording or otherwise, without the prior permission<br />
<strong>of</strong> the Malaysia Productivity Corporation.<br />
May 2009<br />
For further information, please refer to the:<br />
Director General<br />
MALAYSIA PRODUCTIVITY CORPORATION<br />
(Perbadanan Produktiviti Malaysia)<br />
P.O. Box 64, Jalan Sultan<br />
46904 Petaling Jaya, Malaysia<br />
Tel: 03-79557266, 79578068<br />
Fax: 03-79540795<br />
http://www.mpc.gov.my<br />
Designed By:<br />
Sketsa Sdn Bhd<br />
(120086-P)<br />
29C, Jalan Pandan 3/3<br />
Pandan Jaya<br />
55100 Kuala Lumpur
Statutory Requirements<br />
In accordance with Section 7 <strong>of</strong> the Malaysia Productivity Council (Incorporation)<br />
(Amendment) Act 1991, Malaysia Productivity Corporation hereby publishes and<br />
submits to the Minister <strong>of</strong> International Trade and Industry the status <strong>of</strong> <strong>productivity</strong> in<br />
Malaysia.
MESSAGE FROM THE MINISTER OF<br />
INTERNATIONAL TRADE AND INDUSTRY<br />
MALAYSIA<br />
In 2008, the Malaysian economy recorded a GDP growth <strong>of</strong> 4.6%. Malaysia’s strong<br />
economic fundamentals in terms <strong>of</strong> low inflation, full employment and low interest rates<br />
as well as the diversified economic structure had enabled Malaysia to sustain its growth<br />
momentum amidst the global economic slowdown. In tandem with the GDP growth, the<br />
economy registered a <strong>productivity</strong> growth <strong>of</strong> 2.9% to a level <strong>of</strong> RM49,526. This growth<br />
achievement was attributed to strong domestic consumption facilitated by the<br />
government’s proactive approaches to stimulate economic growth as well as the<br />
implementation <strong>of</strong> <strong>productivity</strong> and cost rationalisation measures by the private sector.<br />
All economic sectors achieved positive <strong>productivity</strong> growth ranging from 1.5% for the<br />
construction sector to 4.5% for the transport sector. At the international level, Malaysia<br />
achieved a higher <strong>productivity</strong> growth than most Asian countries namely, Thailand<br />
(2.0%), Hong Kong (1.6%), Taiwan (0.7%), and Singapore (-0.9%). Malaysia’s<br />
<strong>productivity</strong> growth was also higher than many OECD countries such as the USA<br />
(2.1%), Japan (0.8%) and Germany (0.1%). This continuous <strong>productivity</strong> growth is an<br />
important element in converting Malaysia towards a high income economy.<br />
The World Economic Forum (WEF) had identified Malaysia to be in the efficiency stage<br />
<strong>of</strong> development. The efficiency stage is driven by higher education and training, efficient<br />
goods market, well-functioning labour market, sophisticated financial market, a large<br />
domestic or foreign market and the ability to harness the benefits <strong>of</strong> existing<br />
technologies. However, Malaysia aspires to move towards the innovation-driven stage<br />
<strong>of</strong> development where industries must compete through innovation and producing new<br />
and different products and services using the most sophisticated production processes.<br />
Among the factors that will contribute to a quantum leap in <strong>productivity</strong> level is Total<br />
Factor Productivity (TFP) which encompasses enhancing efficiency <strong>of</strong> all factors <strong>of</strong><br />
production. TFP enhancement includes developing human capital capabilities through<br />
knowledge based activities, inculcating a creative and innovative mindset, as well as<br />
adopting new technologies and innovation to accelerate <strong>productivity</strong> growth. During the<br />
period 1999-2008, TFP recorded a growth <strong>of</strong> 2.0%. With this achievement, the economy<br />
will be able to achieve the targeted TFP growth <strong>of</strong> 2.2% by 2010 and 2.6% by 2020.
Productivity <strong>of</strong> the public sector is equally important to generate higher economic<br />
growth. To further enhance <strong>productivity</strong> <strong>of</strong> the sector, the government is continuously<br />
improving the public delivery system by nurturing a high <strong>performance</strong> work culture<br />
among public sector employees, adopting benchmarking and best practices in the<br />
public service administration, implementing Total Quality Management (TQM) initiatives<br />
and developing KPIs and <strong>performance</strong> measures for continuous improvement. These<br />
initiatives had resulted in a <strong>productivity</strong> growth <strong>of</strong> 3.8% in the public sector to RM32,073<br />
in 2008.<br />
For Malaysia to forge ahead to achieve developed nation status, strategic collaboration<br />
between the public and private sectors is <strong>of</strong> utmost importance. I am happy to note that<br />
there exists close collaboration between the public and private sectors which had<br />
enabled Malaysia to attain a higher level <strong>of</strong> competitiveness. I would like to encourage<br />
both the public and private sectors, academicians and the business community at large<br />
to use this report as reference to benchmark and improve <strong>performance</strong> in their quest to<br />
increase <strong>productivity</strong> and competitiveness.<br />
DATO’ MUSTAPA BIN MOHAMED<br />
Minister <strong>of</strong> International Trade and Industry<br />
Malaysia
STATEMENT BY THE CHAIRMAN<br />
The Productivity Report 2008 is the 16 th edition and it provides a comprehensive<br />
analysis <strong>of</strong> the <strong>productivity</strong> <strong>performance</strong> at the industry, sectoral, national and<br />
international levels. For the preparation <strong>of</strong> this Report, <strong>MPC</strong> had consulted with the<br />
public and private sectors as well as the academia. Views, opinions and issues on<br />
<strong>productivity</strong>, quality and competitiveness expressed during the dialogue sessions have<br />
been incorporated into the Report.<br />
To face the challenges <strong>of</strong> the current economic crisis, industries are <strong>of</strong> the opinion that<br />
current systems and processes need to be reviewed and re-assessed to remove<br />
inefficiencies. It was also acknowledged that industries need to focus on human capital<br />
development and to embark on innovative practices to enhance <strong>productivity</strong>, quality and<br />
competitiveness in preparation for the expected economic upturn.<br />
It is in line with the thrusts <strong>of</strong> assisting the private sector in facing the crisis and in<br />
building capacity for the future, the Malaysia Productivity Corporation (<strong>MPC</strong>) had<br />
launched the Efficiency Enhancement Clinics (EECs). The EEC is an avenue where<br />
advisory services, basic business diagnostics on efficiency enhancement as well as<br />
cost rationalisation measures are provided to the public and business communities. I<br />
urge industries to avail themselves <strong>of</strong> this unique facility <strong>of</strong>fered by <strong>MPC</strong>.<br />
In 2008, <strong>MPC</strong> had successfully reached out to 65,076 Small and Medium Enterprises<br />
(SMEs). Among the programmes participated by SMEs are Productivity and Quality<br />
Training and Systems Development, specifically in the areas <strong>of</strong> Total Quality<br />
Management Model Companies, Innovative and Creative Circles, Quality Environment,<br />
Business Enabling Skills Training, Company Productivity Assessment and the<br />
Productivity-Linked Wage System. The participation rate <strong>of</strong> SMEs in <strong>MPC</strong>’s<br />
programmes was 58.8%, while 30.9% was from the public sector and 10.3% from larger<br />
corporation.
I would like to thank the Board Members, Chairmen and Members <strong>of</strong> Consultative<br />
Panels and Taskforces, Members <strong>of</strong> Community <strong>of</strong> Practices as well as the<br />
management team and staff <strong>of</strong> <strong>MPC</strong> for their dedication and commitment in developing<br />
and implementing programmes to assist industries mitigate the adverse effect <strong>of</strong> the<br />
global economic crisis. I would also like to extend my appreciation to the various<br />
ministries and agencies, especially the Ministry <strong>of</strong> International Trade and Industry<br />
(MITI), for their continuous support, guidance and assistance. Last but not least, my<br />
thanks also to all who have contributed in one way or another to the successful<br />
publication <strong>of</strong> this Report.<br />
Tan Sri Dato’ Azman Hashim<br />
Chairman<br />
Malaysia Productivity Corporation
Malaysia Productivity Corporation<br />
The Malaysia Productivity Corporation (<strong>MPC</strong>) was established to assume an<br />
important role in the enhancement <strong>of</strong> <strong>productivity</strong> and quality <strong>of</strong> the country towards<br />
achieving a higher national economic growth.<br />
To realise the above, <strong>MPC</strong> has formulated a strategic operation based on<br />
the following vision, mission and objectives.<br />
VISION<br />
The leading organisation in <strong>productivity</strong> enhancement for global<br />
competitiveness and innovation.<br />
MISSION<br />
To deliver high impact services towards achieving <strong>performance</strong> excellence through<br />
innovation for the betterment <strong>of</strong> life.<br />
OBJECTIVES<br />
Our corporate objectives are:<br />
Providing value-added information on <strong>productivity</strong>, quality, competitiveness and best<br />
practices through research activities and databases;<br />
Developing human capital and organisational excellence for building a<br />
knowledge-based society through training, systems development and best practices;<br />
Nurturing innovative and creative culture through P&Q promotion and<br />
partnership programmes.
CONTENTS<br />
MESSAGE FROM THE MINISTER<br />
STATEMENT BY THE CHAIRMAN<br />
MALAYSIA PRODUCTIVITY CORPORATION<br />
Vision, Mission and Objectives<br />
REPORT HIGHLIGHTS ........................................................................... i<br />
CHAPTER 1<br />
PRODUCTIVITY PERFORMANCE OF MALAYSIA<br />
Malaysia’s Economic and Productivity Performance ............................... 4<br />
Overall Productivity Performance ............................................................ 5<br />
Productivity Performance <strong>of</strong> the Economic Sectors ................................ 7<br />
Box 1.1: Productivity Performance at the Regional Level ....................... 8<br />
Box 1.2: Sustaining Competitiveness through the PLWS ........................ 11<br />
International Productivity Comparison ..................................................... 12<br />
Box 1.3: Malaysia’s Competitiveness Performance ................................ 14<br />
Box 1.4: Attitude Towards Globalisation .................................................. 17<br />
Outlook for 2009 ...................................................................................... 18<br />
CHAPTER 2<br />
TOTALFACTOR PRODUCTIVITY<br />
Total Factor Productivity for Sustainable Economic Growth .................... 24<br />
Box 2.1: Total Factor Productivity Framework ......................................... 26<br />
Sources <strong>of</strong> Total Factor Productivity Growth ............................................ 27<br />
Box 2.2: Malaysian Management Capability Index (MCI) ........................ 31<br />
TFP Performance <strong>of</strong> Selected Economic Sectors ................................... 32<br />
Total Factor Productivity Growth for Competitiveness ............................. 35<br />
Box 2.3: Surviving the Economic Crisis through Efficiency Measures .... 37
CONTENTS<br />
CHAPTER 3<br />
PRODUCTIVITY PERFORMANCE OF THE MANUFACTURING SECTOR<br />
Performance <strong>of</strong> the Manufacturing Sector, 2008 ..................................... 42<br />
Productivity Performance <strong>of</strong> the Manufacturing Sector, 2008 ................. 45<br />
Box 3.1: Kaizen: The Leading Edge in Cost Management and<br />
Greater Efficiency ..................................................................................... 48<br />
Labour Cost Competitiveness .................................................................. 49<br />
Box 3.2: Linking Wages to Enhance Competitiveness <strong>of</strong> the<br />
Manufacturing Sector ............................................................................... 50<br />
International Comparison ......................................................................... 53<br />
Total Factor Productivity (TFP) <strong>of</strong> Selected Manufacturing<br />
Sub-sectors, 2004-2008 ........................................................................... 55<br />
Box 3.3: Competitiveness in the Food and Beverages Industry .............. 56<br />
TFP Growth <strong>of</strong> Selected Manufacturing Industries, 2004-2008 ............... 58<br />
Box 3.4: The Impact <strong>of</strong> Automation and Modernisation in the<br />
Manufacturing Sector ............................................................................... 60<br />
Initiatives Taken to Overcome the Economic Slowdown ......................... 60<br />
Outlook for 2009 ...................................................................................... 62<br />
CHAPTER 4<br />
PRODUCTIVITY PERFORMANCE OF THE SERVICES SECTOR<br />
Performance <strong>of</strong> the Services Sector ........................................................ 66<br />
Box 4.1: Innovative Practices in the Services Sector .............................. 67<br />
Productivity Performance <strong>of</strong> the Services Sector .................................... 70<br />
International Comparison in Selected Services Sectors .......................... 72<br />
Box 4.2: Patient Safety in Private Hospitals ............................................ 73<br />
Total Factor Productivity <strong>of</strong> the Services Sector ...................................... 75<br />
Transport Sub-Sector ............................................................................... 76<br />
Distributive Trade Industry ....................................................................... 78<br />
Hotel Industry ........................................................................................... 80<br />
Information and Communications Technology Industry (ICT) .................. 82<br />
Competitive Advantage <strong>of</strong> the ICT Industry ............................................. 85<br />
Box 4.3: The Performance <strong>of</strong> the ICT Services Sector ............................ 85<br />
Box 4.4: Management <strong>of</strong> Technology ...................................................... 86<br />
Initiatives and Measures to Mitigate the Impact <strong>of</strong> Global Crisis ............. 88<br />
Capacity Development ............................................................................. 89<br />
Private Finance Initiative (PFI) ...................................................................89<br />
Outlook for 2009 ....................................................................................... 92<br />
Box 4.5: Performance–Wage Linkages among Services Industries ...... 93
CONTENTS<br />
CHAPTER 5<br />
PRODUCTIVITY PERFORMANCE OF THE AGRICULTURE SECTOR<br />
Agriculture Challenges ............................................................................. 98<br />
Partial Productivity .................................................................................... 99<br />
Land Productivity ...................................................................................... 99<br />
Labour Productivity ................................................................................... 100<br />
Capital Productivity ................................................................................... 100<br />
Box 5.1: Comparison Between GLOBALGAP and SALM and its<br />
Impact Towards Farm Productivity and Competitiveness ........................ 101<br />
International Agricultural Productivity Comparison ................................... 102<br />
Productivity Performance <strong>of</strong> the Fisheries Sub-sector ............................. 103<br />
Productivity Performance <strong>of</strong> the Livestock Sub-sector ............................ 104<br />
Box 5.2: Enhancing the Competitiveness <strong>of</strong> the Agricultural Sector<br />
through Sustainable Practices ................................................................. 104<br />
Productivity Initiatives in the Agriculture Sector ....................................... 105<br />
Box 5.3: Marketing Options at the Farm Level ........................................ 108<br />
Box 5.4: An Overview <strong>of</strong> the Global Production and Trade <strong>of</strong><br />
Tropical Fruits .......................................................................................... 110<br />
Initiatives to Mitigate the Economic Slowdown ........................................ 112<br />
Outlook for 2009 ....................................................................................... 113<br />
CHAPTER 6<br />
PRODUCTIVITY PERFORMANCE OF THE CONSTRUCTION SECTOR<br />
Productivity <strong>of</strong> the Construction Sector .................................................... 118<br />
Productivity <strong>of</strong> the Construction Sub-sectors ........................................... 120<br />
Residential Sub-sector ............................................................................. 120<br />
Non-Residential Sub-sector ..................................................................... 122<br />
Civil Engineering Sub-sector .................................................................... 123<br />
Productivity Initiatives in the Construction Sector .................................... 125<br />
Measures to Mitigate the Impact <strong>of</strong> the Global Crisis from the<br />
Construction Perspective ......................................................................... 127<br />
Outlook for 2009 ...................................................................................... 127<br />
Box 6.1: Skills Training in the Construction Industry ............................... 128<br />
Box 6.2: Industrialised Building System (IBS) Centre .............................. 129
CONTENTS<br />
CHAPTER 7<br />
PRODUCTIVITY PERFORMANCE OF THE PUBLIC SECTOR<br />
Public Sector Productivity ........................................................................ 134<br />
Box 7.1: Best Practices in Land Offices ................................................... 135<br />
Public Sector Revenue and Expenditure ................................................. 136<br />
Productivity Performance <strong>of</strong> the Public Service Sub-sectors .................. 139<br />
Economic Services ................................................................................... 140<br />
Social Services Sub-sector ...................................................................... 144<br />
Health Services ........................................................................................ 145<br />
Poverty Eradication .................................................................................. 148<br />
Education Services .................................................................................. 149<br />
Creating a Critical Mass <strong>of</strong> Local Experts in Science and Engineering .. 151<br />
Security Services Sub-sector ................................................................... 152<br />
Public Safety ............................................................................................ 152<br />
Infrastructure Facilities ............................................................................. 153<br />
General Public Administration Sub-sector ............................................... 154<br />
Box 7.2: Improving Service Delivery through Process Improvement<br />
for Excellence (PRIME) ............................................................................ 157<br />
Increasing eKL Initiative ........................................................................... 158<br />
International Comparison on Efficiency <strong>of</strong> Public Administration .............. 158<br />
International Best Practices on Public Administration Efficiency ............. 160<br />
Enhancing Public Service Delivery .......................................................... 162<br />
CHAPTER 8<br />
PRODUCTIVITY PERFORMANCE OF THE SMALL AND MEDIUM INDUSTRIES<br />
Small and Medium Industries in the Manufacturing Sector ..................... 168<br />
Entrepreneurship and Skills Development Programmes ......................... 169<br />
Moving SMIs Up the Value Chain ............................................................ 169<br />
Productivity Performance ......................................................................... 171<br />
Capital Intensity ........................................................................................ 172<br />
Capital Productivity ................................................................................... 173<br />
Labour Cost Competitiveness .................................................................. 174<br />
Box 8.1: National SME Development Blueprint 2008 .............................. 176<br />
Box 8.2: Productivity Enhancement through Quality Environment<br />
Activities ................................................................................................... 177<br />
Box 8.3: SMIs as Global Players ............................................................. 178<br />
Outlook for 2009 ...................................................................................... 179
CONTENTS<br />
CHAPTER 9<br />
BENCHMARKING FOR COMPETITIVENESS<br />
Benchmarking for Enhancing Competitiveness ....................................... 184<br />
Malaysia Benchmarking Index (MBI) for Tracking Business<br />
Performance ............................................................................................. 186<br />
MBI Components ...................................................................................... 187<br />
Performance <strong>of</strong> SME Manufacturing Companies in Selected<br />
Industries Using MBI, 2008 ...................................................................... 191<br />
International Comparison through MBI ...................................................... 194<br />
Box 9.1: Benchmarking Community <strong>of</strong> Practices (CoPs) ........................ 199<br />
Productivity and Quality Initiatives for Value Creation ............................. 199<br />
Measures to Assist Industries Mitigate the Global Crisis ......................... 204<br />
APPENDIX<br />
Appendix A: Terminology and Definitions ................................................. 209<br />
Appendix B: Deriving the Sources <strong>of</strong> Long-Term Economic<br />
and Productivity Growth ..................................................... 215<br />
<strong>MPC</strong> BOARD OF DIRECTORS ............................................................... 219<br />
<strong>MPC</strong> CONSULTATIVE PANELS .............................................................. 220<br />
<strong>MPC</strong> MANAGEMENT TEAM ................................................................... 226<br />
<strong>MPC</strong> OFFICES ......................................................................................... 227<br />
INDEX ...................................................................................................... 229
REPORT HIGHLIGHTS<br />
PRODUCTIVITY PERFORMANCE OF MALAYSIA<br />
National Productivity Performance<br />
In 2008, the Malaysian economy remained resilient with a growth in Gross Domestic<br />
Product (GDP) <strong>of</strong> 4.6%. In tandem with the GDP growth, <strong>productivity</strong> grew by 2.9% to<br />
a level <strong>of</strong> RM49,526. This achievement was commendable in the context <strong>of</strong> the global<br />
economic slowdown. The <strong>productivity</strong> growth attained was attributed to the strong<br />
domestic consumption which was facilitated by the government’s proactive approaches<br />
to stimulate economic growth. The <strong>productivity</strong> and cost rationalisation measures<br />
adopted by the private sector further contributed to the higher <strong>productivity</strong> registered.<br />
Productivity growth was broad-based, with all economic sectors registering growth.<br />
Among the major economic sectors, the manufacturing sector registered a <strong>productivity</strong><br />
growth <strong>of</strong> 2.0% amidst unfavourable export market conditions especially during the<br />
fourth quarter <strong>of</strong> 2008. The manufacturing <strong>performance</strong> was supported by strong growth<br />
among domestic oriented-industries such as chemicals and chemical products, food<br />
and beverages, non-metallic mineral products, transport equipment and machinery. The<br />
export-oriented industries specifically E&E products, rubber products, iron and steel<br />
products as well as appliances and parts, were however, affected by the slower export<br />
demand.<br />
The services sector which accounted for 46.3% <strong>of</strong> GDP attained a <strong>productivity</strong> growth<br />
<strong>of</strong> 3.3%, attributed to commendable growth in the transport, trade and finance subsectors.<br />
The transport and trade sub-sectors achieved a 4.5% and 4.3% <strong>productivity</strong><br />
growth respectively, arising from sustained domestic demand and increased tourist<br />
arrivals. Productivity <strong>of</strong> the finance sub-sector continued to grow by 4.2% as higher<br />
lending was recorded. High utilization <strong>of</strong> ICT in services further contributed to the<br />
<strong>productivity</strong> growth <strong>of</strong> the services sector.<br />
Productivity <strong>of</strong> the public sector is equally important to generate higher economic<br />
growth. To enhance <strong>productivity</strong> <strong>of</strong> the sector, the government is continuously improving<br />
efficiency and public delivery system through customer-centric approaches. Various<br />
administrative circulars had been introduced to intensify the implementation <strong>of</strong><br />
<strong>productivity</strong>, quality and innovation initiatives in the public sector. Among the initiatives<br />
are Total Quality Management, Benchmarking, Quality Control Circles, Key<br />
Performance Indicators, Public Service Innovation Award, and Improving Customer<br />
Service. These initiatives had resulted in a <strong>productivity</strong> growth <strong>of</strong> 3.8% in the public<br />
sector to a level <strong>of</strong> RM32,073 in 2008.<br />
PRODUCTIVITY REPORT 2008<br />
i
REPORT<br />
HIGHLIGHTS<br />
International Comparison<br />
Malaysia’s <strong>productivity</strong> growth <strong>of</strong> 2.9% was higher than selected Organisation for<br />
Economic Cooperation and Development (OECD) countries such as the United States<br />
(2.1%), Japan (0.8%), Australia (0.4%), Finland and Germany (0.1%), Canada and<br />
Denmark (-0.9%) and Ireland (-1.7%). Among Asian countries, Malaysia registered<br />
higher growth than Thailand (2.0%), Hong Kong (1.6%), Taiwan (0.7%), and Singapore<br />
(-0.9%). Malaysia will continually strive for higher <strong>productivity</strong> growth to achieve<br />
comparable <strong>productivity</strong> levels <strong>of</strong> the more developed economies.<br />
Among Asian countries, Malaysia’s <strong>productivity</strong> level <strong>of</strong> USD13,033 was higher than<br />
Thailand (USD4,844), Philippines (USD3,279), China (USD3,273), Indonesia<br />
(USD2,476) and India (USD1,700). However, the <strong>productivity</strong> level achieved by<br />
Malaysia was relatively lower than the OECD countries. Among the factors that had<br />
contributed to the higher <strong>productivity</strong> levels registered by the more developed<br />
economies are the adoption <strong>of</strong> sophisticated technology, higher innovation capacity and<br />
capabilities as well as more intensified research and development activities.<br />
Total Factor Productivity<br />
Total Factor Productivity (TFP) measures the efficiency and effectiveness <strong>of</strong> all factors<br />
<strong>of</strong> production. Among the factors that contribute to higher TFP are human capital<br />
development, demand intensity through promotion and marketing, higher technology<br />
adoption, strategic allocation <strong>of</strong> resources and innovation and creativity. For the period<br />
1999-2008, GDP grew by 5.6% supported by TFP growth <strong>of</strong> 2.0%. The contribution <strong>of</strong><br />
TFP to GDP growth was due to initiatives undertaken by both the public and private<br />
sectors to shift the economy from the efficiency stage <strong>of</strong> development to the innovation<br />
stage. Higher investments in ICT and technology, training and retraining <strong>of</strong> employees,<br />
branding and marketing efforts to increase exports as well as nurturing a culture <strong>of</strong><br />
innovation and creativity had contributed to higher TFP growth.<br />
For the period 1999-2008, the manufacturing sector registered TFP growth <strong>of</strong> 2.3%,<br />
contributing 34.4% to output growth. The improvements in TFP in the manufacturing<br />
sector was mainly due to the adoption <strong>of</strong> capital intensive production processes as well<br />
as the employment <strong>of</strong> skilled labour. In services, the transport sector registered a TFP<br />
growth <strong>of</strong> 1.4%, trade sector 2.1% and finance sector 1.9%. The improvement <strong>of</strong> TFP<br />
in the services sector was due to efficient utilization <strong>of</strong> equipment, application <strong>of</strong> cost<br />
effective systems, better linkages and connectivity as well as innovative initiatives such<br />
as outsourcing <strong>of</strong> non-core business operations. The agriculture sector recorded TFP<br />
growth <strong>of</strong> 1.0%, attributed to adoption <strong>of</strong> good agricultural practices, agronomic farm<br />
management practices, biotechnology, extensive R&D activities and improvement in<br />
food preservation and packaging technologies.<br />
ii PRODUCTIVITY REPORT 2008
Productivity <strong>of</strong> the Small and Medium Industries<br />
In 2008, Small and Medium Industries (SMIs) produced 30.9% <strong>of</strong> total manufacturing<br />
output, 26.5% <strong>of</strong> added value and 31.8% share <strong>of</strong> employment in manufacturing. SMIs<br />
recorded a <strong>productivity</strong> growth <strong>of</strong> 4.6%, contributed mainly by chemicals and chemical<br />
products, basic metals products, petroleum products, <strong>of</strong>fice, accounting and computing<br />
machinery, wood and wood products, and food and beverages. Capital intensity <strong>of</strong> SMIs<br />
grew by 2.6% attributed to high investments in fixed assets in chemicals and chemical<br />
products, <strong>of</strong>fice, accounting and computing machinery, electrical machinery and<br />
publishing, printing and reproduction <strong>of</strong> recorded media. Labour cost competitiveness<br />
was also achieved by SMIs as reflected by a reduction in unit labour cost by 2.9%. The<br />
cost <strong>of</strong> producing one unit <strong>of</strong> product or service by SMIs had decreased thereby<br />
enhancing their competitiveness.<br />
REPORT<br />
HIGHLIGHTS<br />
Benchmarking for Competitiveness<br />
Benchmarking is a management tool for organizations to carry out self-assessment,<br />
compare <strong>performance</strong> with the best, locally and internationally and create change to<br />
enhance competitiveness. The benchmarking and best practices systems and<br />
programmes <strong>of</strong>fered by the Malaysia Productivity Corporation (<strong>MPC</strong>) includes the<br />
Benchmarking On-Line Networking Database (BOND), the E-benchmark system, Best<br />
Practices Net, Process Improvement for Excellence (PRIME), and the Malaysia<br />
Benchmarking Index (MBI).<br />
The MBI is a business <strong>performance</strong> diagnostic tool which enables companies to<br />
compare their <strong>performance</strong> internationally using key <strong>performance</strong> indicators which are<br />
based on the four elements <strong>of</strong> the Balanced Scorecard. The elements are finance,<br />
customer, internal process and learning and growth. The MBI focuses on seven main<br />
areas <strong>of</strong> sales and pr<strong>of</strong>it, market growth, value creation, customers, employees,<br />
supplier management and future growth. Organisations can thus benchmark their<br />
<strong>performance</strong> in these areas and thus identify measures that will enable them to be the<br />
best.<br />
Outlook for 2009<br />
In 2009, economic growth is expected to be driven by the services and manufacturing<br />
sectors. Domestic industries will assume a greater role in driving economic growth as<br />
the export-oriented industries are expected to face greater challenges <strong>of</strong> weak external<br />
demand. The slowdown will create opportunities for industries as it serve as an impetus<br />
for industries to strive for higher efficiencies. Industries are encouraged to adopt<br />
measures to enhance <strong>productivity</strong> through integrating work processes, improving<br />
management systems, strengthening human capital, and nurturing a culture <strong>of</strong> creativity<br />
and innovation. With the challenging environment, the economy is expected to achieve<br />
a <strong>productivity</strong> growth <strong>of</strong> more than 1.0%.<br />
PRODUCTIVITY REPORT 2008<br />
iii
REPORT<br />
HIGHLIGHTS<br />
The services sector is expected to achieve a <strong>productivity</strong> growth <strong>of</strong> more than 2.8%.<br />
The finance sector is expected to grow by more than 3.0% from higher application <strong>of</strong><br />
ICT and online systems as well as advancement in Islamic finance. The transport and<br />
trade sectors are expected to grow by more than 2.5% and 2.0% respectively from<br />
higher consumer spending and tourists arrivals. The manufacturing sector is anticipated<br />
to achieve a moderate <strong>productivity</strong> growth <strong>of</strong> 1.0% due to the s<strong>of</strong>tening <strong>of</strong> external<br />
demand. This is evidenced particularly by a weaker demand for E&E products. The<br />
growth in manufacturing is expected to be from domestic-oriented industries, spurred<br />
by the implementation <strong>of</strong> the economic stimulus packages by the government.<br />
Similarly, the construction sector is expected to register <strong>productivity</strong> growth <strong>of</strong> more than<br />
1.0% with implementation <strong>of</strong> projects from the stimulus packages and Ninth Malaysia<br />
Plan. The agriculture sector is expected to achieve a relatively high <strong>productivity</strong> growth<br />
<strong>of</strong> more than 3.0%. This <strong>performance</strong> will be supported by <strong>productivity</strong> improvements<br />
through biotechnology, aquaculture development and intensive fruits and vegetables<br />
farming.<br />
iv PRODUCTIVITY REPORT 2008
CHAPTER 1<br />
PRODUCTIVITY PERFORMANCE OF<br />
MALAYSIA
Highlights<br />
CHAPTER 1<br />
PRODUCTIVITY PERFORMANCE OF MALAYSIA<br />
• Productivity grew by 2.9% to RM49,526 in 2008.<br />
• All economic sectors registered <strong>productivity</strong> growth ranging from 1.5% to 4.5%.<br />
• Malaysia’s <strong>productivity</strong> growth was higher than selected OECD and Asian<br />
countries.<br />
• The <strong>productivity</strong> level <strong>of</strong> RM49,526 was higher than most ASEAN countries as well<br />
as China and India.<br />
• In the World Competitiveness ranking, Malaysia was ranked 19 th among 55<br />
economies ahead <strong>of</strong> several developed economies.<br />
• In 2009, the economy is targeted to achieve a <strong>productivity</strong> growth <strong>of</strong> more than<br />
1.0%.<br />
Key Statistics<br />
Productivity Level 2008 2007<br />
(RM)<br />
(RM)<br />
Malaysia 49,526 48,113<br />
Agriculture, forestry and fishery 26,372 25,601<br />
Mining and quarrying 974,925 949,079<br />
Manufacturing 56,660 55,544<br />
Construction 20,511 20,204<br />
Government Services 32,073 30,905<br />
Services 56,139 54,374<br />
Utilities 162,606 156,413<br />
Transport 70,607 67,557<br />
Trade 40,027 38,362<br />
Finance 124,262 119,244<br />
Other Services 26,895 26,386<br />
GDP Growth 4.6% 6.3%<br />
Gross national savings (as % <strong>of</strong> GNP) 38.0% 38.18%<br />
Total Trade RM1.2 trillion RM1.11 trillion<br />
CPI (2005=100 (% change)) 4.4% 2.0%<br />
PRODUCTIVITY REPORT 2008 3
CHAPTER 1<br />
GDP grew by 4.6%<br />
supported by favourable<br />
domestic consumption<br />
MALAYSIA’S ECONOMIC AND PRODUCTIVITY<br />
PERFORMANCE<br />
In 2008, the Malaysian economy remained resilient<br />
with a Gross Domestic Product (GDP) growth <strong>of</strong> 4.6%.<br />
This achievement was commendable in the light <strong>of</strong><br />
the economic slowdown <strong>of</strong> major world economies.<br />
The growth was facilitated by continued pro-business<br />
policies <strong>of</strong> the government and improvement in<br />
domestic demand particularly from private<br />
consumption. It was further enhanced by public<br />
investment and higher fiscal spending by the<br />
government (Figure 1.1).<br />
The services sector registered<br />
the highest growth <strong>of</strong> 6.6%<br />
supported by an impressive<br />
<strong>performance</strong> by the trade,<br />
transport and finance<br />
sub-sectors<br />
Among the economic sectors, the services sector<br />
registered the highest growth <strong>of</strong> 6.6%. This growth<br />
was supported by impressive <strong>performance</strong> by the<br />
trade, transport and finance sub-sectors which<br />
grew by 9.4%, 6.7% and 5.6% respectively. These<br />
sub-sectors had benefited from continued expansion<br />
<strong>of</strong> businesses and increase in tourism activities. The<br />
<strong>performance</strong> was further enhanced by vibrant<br />
insurance and finance activities. The manufacturing<br />
sector’s output grew by 1.3%, supported by strong<br />
<strong>performance</strong> <strong>of</strong> domestic-oriented industries.<br />
The construction sector registered an output growth <strong>of</strong><br />
2.1%. This growth was driven by the intensification <strong>of</strong><br />
infrastructure projects under the Ninth Malaysia Plan.<br />
The agriculture sector continued to expand and grow<br />
by 3.8% attributed to competitive commodity prices <strong>of</strong><br />
rubber and palm oil. The mining sector declined by<br />
0.8% due to lower production <strong>of</strong> crude oil and natural<br />
gas.<br />
4 PRODUCTIVITY REPORT 2008
Figure 1.1: GDP Growth <strong>of</strong> National and Economic Sectors, 2008<br />
10<br />
9.36<br />
CHAPTER 1<br />
8<br />
6.69<br />
Percent<br />
6<br />
4<br />
2<br />
4.64<br />
5.62<br />
4.88<br />
3.83<br />
2.15<br />
2.13<br />
1.27<br />
0<br />
-2<br />
-0.76<br />
Malaysia<br />
Trade<br />
Transport<br />
Finance<br />
Other Services<br />
Agriculture<br />
Utilities<br />
Construction<br />
Manufacturing<br />
Mining<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia and Economic Planning Unit, Malaysia<br />
OVERALL PRODUCTIVITY PERFORMANCE<br />
In 2008, the economy registered a <strong>productivity</strong> growth<br />
<strong>of</strong> 2.9% amid the challenging economic environment<br />
experienced by major trading partners such as the<br />
USA, Japan, Singapore, China, Thailand and Korea<br />
(Figure 1.2). The <strong>productivity</strong> level improved to<br />
RM49,526 from RM48,135 in 2007. Productivity<br />
growth was broad-based with all economic sectors<br />
registering growth led by the services, manufacturing<br />
and agriculture sectors (Table 1.1). Malaysia’s<br />
<strong>productivity</strong> growth <strong>of</strong> 2.9% was higher than that<br />
registered by Hong Kong (1.6%), Taiwan (0.7%) and<br />
Singapore (-0.9%).<br />
Malaysia’s <strong>productivity</strong> grew by<br />
2.9% to RM49,526 which was<br />
higher than Hong Kong, Taiwan<br />
and Singapore<br />
PRODUCTIVITY REPORT 2008<br />
5
CHAPTER 1<br />
Figure 1.2: Malaysia’s Productivity Growth, 2004-2008<br />
5<br />
4.17<br />
4<br />
3.42<br />
3.68<br />
Percent<br />
3<br />
2.98<br />
2.89<br />
2<br />
1<br />
2004 2005 2006 2007 2008<br />
Computed from:<br />
- Economic report, Ministry <strong>of</strong> Finance, Malaysia and Economic Planning unit, Malaysia<br />
Table 1.1: Productivity Growth and Level <strong>of</strong> Economic Sectors<br />
National/Economic Productivity Productivity<br />
Sectors Growth (%) Level (RM)<br />
2007 2008 2007 2008<br />
Malaysia 4.17 2.89 48,135 49,526<br />
Agriculture 2.80 3.01 25,601 26,372<br />
Mining 2.99 2.72 949,110 974,925<br />
Manufacturing 2.65 2.01 55,544 56,660<br />
Construction 1.51 1.52 20,204 20,511<br />
Utilities 3.86 3.96 156,413 162,606<br />
Transport 5.66 4.51 67,560 70,607<br />
Trade 5.54 4.34 38,362 40,027<br />
Finance 4.87 4.21 119,242 124,262<br />
Other Services 1.77 1.93 26,386 26,895<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia and Economic Planning Unit, Malaysia<br />
6 PRODUCTIVITY REPORT 2008
PRODUCTIVITY PERFORMANCE OF THE<br />
ECONOMIC SECTORS<br />
All economic sectors registered <strong>productivity</strong> growth<br />
ranging from 1.5% by the construction sector to 4.5%<br />
by the transport sector. Overall, services registered<br />
a growth <strong>of</strong> 3.3% led by the transport sector (4.5%)<br />
followed by trade (4.3%) and finance (4.2%). The<br />
construction sector recorded a <strong>productivity</strong> growth<br />
<strong>of</strong> 1.5% (Figure 1.3).<br />
All economic sectors registered<br />
<strong>productivity</strong> growth ranging<br />
from 1.5% by the construction<br />
sector to 4.5% by the transport<br />
sector<br />
CHAPTER 1<br />
Figure 1.3: Productivity Growth <strong>of</strong> the Economic Sectors, 2008<br />
5<br />
4<br />
4.51<br />
4.34<br />
4.21<br />
3.96<br />
Percent<br />
3<br />
2<br />
2.89<br />
3.01<br />
2.72<br />
2.01<br />
1.93<br />
1.52<br />
1<br />
0<br />
Malaysia<br />
Transport<br />
Trade<br />
Finance<br />
Utilities<br />
Agriculture<br />
Mining<br />
Manufacturing<br />
Other Services<br />
Construction<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia and Economic Planning Unit, Malaysia<br />
In 2008, the <strong>productivity</strong> <strong>of</strong> the manufacturing sector<br />
grew by 2.0% supported by strong <strong>performance</strong> <strong>of</strong><br />
domestic-oriented industries which grew by 6.2%.<br />
Among the domestic-oriented industries that<br />
registered <strong>productivity</strong> growth were chemicals and<br />
chemical products, food and beverages, non-metallic<br />
mineral products, transport equipment and machinery<br />
The manufacturing sector grew<br />
by 2.0% attributed to strong<br />
<strong>performance</strong> <strong>of</strong> domesticoriented<br />
industries<br />
PRODUCTIVITY REPORT 2008<br />
7
CHAPTER 1<br />
Industries that achieved high<br />
<strong>productivity</strong> levels were<br />
chemicals and chemical<br />
products, transport equipment<br />
and machinery and equipment<br />
and equipment. The industries that achieved high<br />
<strong>productivity</strong> levels were chemicals and chemical<br />
products (RM212,579), transport equipment<br />
(RM133,697) and machinery and equipment<br />
(RM127,698).<br />
The export-oriented industries were affected by the<br />
unfavourable economic development as shown by<br />
an overall decline in exports particularly in the<br />
fourth quarter <strong>of</strong> 2008. Among the export-oriented<br />
industries that registered decline in <strong>productivity</strong> were<br />
E&E products, machinery, appliances and parts,<br />
rubber products and iron and steel products.<br />
Box 1.1: Productivity Performance at the Regional Level<br />
In 2008, the Southern Region <strong>of</strong> Malaysia recorded the highest manufacturing<br />
<strong>productivity</strong> growth <strong>of</strong> 7.7% to RM57,216. The growth was contributed by rubber<br />
and plastic products (14.8%) and chemicals and chemical products (11.0%). The<br />
Central Region registered a <strong>productivity</strong> growth <strong>of</strong> 6.3% followed by the Northern<br />
Region (5.5%), Sabah (4.5%), Eastern Region (4.2%) and Sarawak (2.9%). The<br />
growth in the Central Region was contributed mainly by motor vehicles, trailers<br />
and semi-trailers (15.9%) and other transport equipment (11.5%).<br />
The Northern Region registered a <strong>productivity</strong> growth <strong>of</strong> 5.5% supported by basic<br />
metals (10.2%), food products and beverages (9.8%); and <strong>of</strong>fice, accounting and<br />
computing machinery (9.8%). Sabah registered a <strong>productivity</strong> growth <strong>of</strong> 4.5%<br />
supported by food products and beverages (5.4%) and paper and paper products<br />
(4.5%). Sarawak registered a <strong>productivity</strong> growth <strong>of</strong> 2.9% mainly contributed by<br />
higher growth in chemicals and chemical products (8.6%) and motor vehicles,<br />
trailers and semi-trailers (6.7%). In terms <strong>of</strong> <strong>productivity</strong> level, Sarawak registered<br />
the highest <strong>productivity</strong> level <strong>of</strong> RM190,255.<br />
8 PRODUCTIVITY REPORT 2008
Productivity Growth by Regions, 2008<br />
CHAPTER 1<br />
8<br />
7.67<br />
7<br />
6.30<br />
Percent<br />
6<br />
5<br />
4<br />
3<br />
5.54<br />
4.47<br />
4.21<br />
2.87<br />
2<br />
1<br />
0<br />
Southern<br />
Central<br />
Northern<br />
Sabah<br />
Eastern<br />
Sarawak<br />
Sources: Computed from Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
Productivity Level by Regions, 2008<br />
200<br />
190.25<br />
RM Thousand<br />
180<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
Sarawak<br />
147.51<br />
Eastern<br />
110.15<br />
Central<br />
102.18<br />
Northern<br />
57.22<br />
Southern<br />
45.08<br />
Sabah<br />
Sources: Computed from Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
PRODUCTIVITY REPORT 2008<br />
9
CHAPTER 1<br />
The services sector registered<br />
a <strong>productivity</strong> growth <strong>of</strong> 3.3%<br />
to RM56,139<br />
The services sector (which includes utilities, transport,<br />
trade, finance and other services sub-sectors)<br />
registered a commendable <strong>productivity</strong> growth <strong>of</strong><br />
3.3% to RM56,139. This was attributed to strong<br />
<strong>performance</strong> by the transport, utilities, finance and<br />
trade sub-sectors which were increasingly moving<br />
towards E-systems.<br />
The transport sub-sector<br />
achieved a 4.5% <strong>productivity</strong><br />
growth while the trade subsector<br />
recorded a growth<br />
<strong>of</strong> 4.3%<br />
Productivity growth <strong>of</strong> the<br />
finance sub-sector was 4.2%<br />
to RM124,262<br />
Productivity <strong>performance</strong> <strong>of</strong> the<br />
construction sector was further<br />
enhanced with the application<br />
<strong>of</strong> IBS<br />
The growth <strong>of</strong> agriculture sector<br />
was attributed to efficiencies in<br />
production and high commodity<br />
prices<br />
The transport sub-sector achieved a 4.5% <strong>productivity</strong><br />
growth which had benefited from the robust domestic<br />
demand attributed to increase in travel and traderelated<br />
activities. The trade sub-sector’s <strong>productivity</strong><br />
improved by 4.3% to RM40,027 benefiting from an<br />
increase in disposable income and competitive<br />
interest rates arising from ample liquidity in the<br />
market. The sector also benefited from increased<br />
tourism spending.<br />
Productivity growth <strong>of</strong> a the finance sub-sector was<br />
4.2% and reached level <strong>of</strong> RM124,262. This<br />
<strong>performance</strong> was attributed to an increase in demand<br />
for loans and insurance. The year also witnessed<br />
high bank lending, improved <strong>performance</strong> <strong>of</strong> the<br />
insurance industry and high utilisation <strong>of</strong> information<br />
and communication technology.<br />
The construction sector recorded a 1.5% <strong>productivity</strong><br />
growth attributed to continuation <strong>of</strong> projects under<br />
the Ninth Malaysia Plan. To further stimulate growth in<br />
the sector, the government has allocated RM1,200<br />
million to build low and medium cost houses. The<br />
<strong>performance</strong> <strong>of</strong> the sector was further enhanced<br />
with the application <strong>of</strong> the Industrialised Building<br />
System (IBS) particularly for public buildings and the<br />
exemption on import duty for cements and steel<br />
products.<br />
Productivity <strong>of</strong> the agriculture sector improved by<br />
3.0% attributed to efficiencies in the production <strong>of</strong><br />
primary products and attractive prices <strong>of</strong> palm oil and<br />
rubber. Productivity improvement initiatives such as<br />
the use <strong>of</strong> better clones and systematic application<br />
<strong>of</strong> fertiliser and continuous adoption <strong>of</strong> labour saving<br />
technologies and biotechnology had enhanced the<br />
<strong>performance</strong> <strong>of</strong> the sector.<br />
10 PRODUCTIVITY REPORT 2008
The <strong>productivity</strong> <strong>of</strong> the mining sector improved by<br />
2.7% to RM974,925. The <strong>productivity</strong> <strong>of</strong> the utilities<br />
sub-sector improved by 4.0% to RM162,606 attributed<br />
to sustainable demand for electricity and water from<br />
the commercial, industrial and household segments.<br />
The mining and utilities sector’s<br />
<strong>productivity</strong> grew by 2.7% and<br />
4.0% respectively<br />
CHAPTER 1<br />
Box 1.2: Sustaining Competitiveness through the PLWS<br />
In 2008, 1,011 companies had embarked on <strong>productivity</strong>/<strong>performance</strong> initiatives<br />
and had linked these measures to their wage systems through the Productivity-<br />
Linked Wage System (PLWS). The elements used to ensure a sustainable and<br />
competitive wage structure are <strong>productivity</strong>/<strong>performance</strong> improvement, pr<strong>of</strong>itbased<br />
bonuses, individual <strong>performance</strong>, target achievement, timeliness, discipline<br />
and skills-based <strong>performance</strong>.<br />
Collective Agreements (CAs) with Productivity/<br />
Performance Linkages<br />
Sector<br />
No. <strong>of</strong> CAs<br />
No./Percentage <strong>of</strong> CAs<br />
with PLWS<br />
No.<br />
Percentage<br />
Manufacturing 153 108 70.6<br />
Services 112 81 72.3<br />
Agriculture 5 5 100<br />
Total 270 194 71.9<br />
PRODUCTIVITY REPORT 2008<br />
11
CHAPTER 1<br />
PLWS Performance Measures<br />
Elements %<br />
Productivity/Performance 42.9<br />
Improvement<br />
Pr<strong>of</strong>it-Based Bonus 19.3<br />
Individual Performance 24.1<br />
Improvement<br />
Commitment, Discipline 20.0<br />
and Timeliness<br />
Skills-based Performance 1.9<br />
A wage system that incorporates PLWS will ensure job stability and reduce the<br />
likelihood <strong>of</strong> retrenchment in difficult times. Both employers and employees will<br />
benefit through the system as they strive together to enhance <strong>performance</strong> and<br />
sustain overall competitiveness. Companies that had implemented the PLWS<br />
recorded improvements in <strong>productivity</strong> from 2.64% to 5.17%, reduction in staff<br />
turnover from 5.21% to 2.23%, reduction in absenteeism from 8.80% to 4.17%<br />
and lower rejects and reworks from 5.33% to 2.85%.<br />
INTERNATIONAL PRODUCTIVITY COMPARISON<br />
Malaysia’s <strong>productivity</strong> growth<br />
was higher than many OECD<br />
countries<br />
Malaysia’s <strong>productivity</strong> growth <strong>of</strong> 2.9% was higher<br />
than selected Organisation for Economic Cooperation<br />
and Development (OECD) countries such as the<br />
United States (2.1%), Japan (0.8%), Australia (0.4%),<br />
Finland and Germany (0.1%). Countries such as<br />
Sweden (-0.4%), Norway (-0.5%), Canada and<br />
Denmark (-0.9%), Italy (-1.2%) and Ireland (-1.7%)<br />
experienced declining <strong>productivity</strong> growth<br />
(Figure 1.4).<br />
12 PRODUCTIVITY REPORT 2008
Figure 1.4: Productivity Growth <strong>of</strong> Malaysia and Selected<br />
OECD Countries, 2008<br />
CHAPTER 1<br />
4.0<br />
3.6<br />
3.0<br />
2.9<br />
2.0<br />
2.1<br />
Percent<br />
1.0<br />
0.0<br />
0.8<br />
0.4<br />
0.1<br />
0.0<br />
-1.0<br />
-2.0<br />
-0.4 -0.5<br />
-0.5<br />
-0.7<br />
-0.9 -0.9<br />
-1.2<br />
-1.7<br />
Rep. <strong>of</strong> Korea<br />
Malaysia<br />
USA<br />
Japan<br />
Australia<br />
Germany<br />
United Kingdom<br />
Sweden<br />
France<br />
Norway<br />
New Zealand<br />
Canada<br />
Denmark<br />
Italy<br />
Ireland<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia, various issues<br />
- OECD Economic Outlook, December 2008, Vol. 84,<br />
- National Accounts <strong>of</strong> OECD Countries, Vol. IIa and IIb :Detailed Tables 1996-2006<br />
Among Asian countries, Malaysia registered a higher<br />
<strong>productivity</strong> growth than Thailand (2.0%), Hong Kong<br />
(1.6%), Taiwan (0.7%), and Singapore (-0.9%).<br />
However, China, Indonesia and India registered<br />
higher growth at 7.8%, 3.5% and 3.4%<br />
respectively. The <strong>productivity</strong> achievement <strong>of</strong> these<br />
countries was attributed to efficient utilisation <strong>of</strong><br />
available natural resources, strong domestic demand<br />
and technological advancement (Figure 1.5).<br />
Malaysia’s <strong>productivity</strong> growth<br />
continues to surpass that <strong>of</strong><br />
neighbouring countries<br />
PRODUCTIVITY REPORT 2008<br />
13
CHAPTER 1<br />
Figure 1.5: Productivity Growth <strong>of</strong> Malaysia and Selected<br />
Asian Countries, 2008<br />
8.0<br />
7.8<br />
7.0<br />
6.0<br />
Percent<br />
5.0<br />
4.0<br />
3.0<br />
2.0<br />
1.0<br />
0.0<br />
-0.1<br />
-0.2<br />
China<br />
3.5<br />
Indonesia<br />
3.4<br />
India<br />
3.0<br />
Philippines<br />
2.9<br />
Malaysia<br />
2.0<br />
Thailand<br />
1.6<br />
Hong Kong<br />
0.7<br />
Taiwan<br />
-0.9<br />
Singapore<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia, various issues<br />
- Country Data, The Economist Intelligence Unit<br />
- Market Indicators and Forecast, The Economist Intelligence Unit<br />
Box 1.3: Malaysia’s Competitiveness Performance<br />
In the 2008 World Global Competitiveness Yearbook rankings, Malaysia was<br />
ranked 19th ahead <strong>of</strong> several developed economies namely, United Kingdom<br />
(21 st ), Japan (22 nd ), France (25 th ), Thailand (27 th ), Korea (31 st ) and Italy (46 th ).<br />
Malaysia attained the 7 th position among 29 economies with population greater<br />
than 20 million as shown:<br />
14 PRODUCTIVITY REPORT 2008
Malaysia’s Competitiveness<br />
(WCY 2008)<br />
CHAPTER 1<br />
Various Categories<br />
Overall Global<br />
Ranking<br />
Asia–Pacific<br />
Region<br />
Countries with GDP<br />
per capita less than<br />
USD 10,000<br />
Population greater<br />
than 20 million<br />
2008<br />
2007<br />
2008<br />
2007<br />
2008<br />
2007<br />
2008<br />
2008<br />
19/55<br />
23/55<br />
7/13<br />
7/13<br />
2/20<br />
2/19<br />
7/29<br />
8/28<br />
4 Factors<br />
(By Overall)<br />
2008<br />
n=55<br />
2007<br />
n=55<br />
4 Factors<br />
(By Population<br />
Size)<br />
2008<br />
n=29<br />
2007<br />
n=29<br />
Economic<br />
Performance<br />
8 12<br />
Economic<br />
Performance<br />
4 6<br />
Government<br />
Efficiency<br />
19 21<br />
Government<br />
Efficiency<br />
6 6<br />
Business<br />
Efficiency<br />
14 15<br />
Business<br />
Efficiency<br />
5 4<br />
Infrastructure 25 26<br />
Infrastructure 10 10<br />
Malaysia’s <strong>performance</strong> has improved in all the four factors namely, Economic<br />
Performance 8 th position, Government Efficiency 19 th position, Business<br />
Efficiency 14 th position and Infrastructure 25 th position. The biggest improvement<br />
recorded was in Economic Performance from 12 th to 8 th position. Under the<br />
category <strong>of</strong> population greater than 20 million, Malaysia sustained its top 10 th<br />
position in all factors among 29 economies. For Economic Performance, Malaysia<br />
had improved to 4 th position while remaining unchanged for Government<br />
Efficiency and Infrastructure.<br />
PRODUCTIVITY REPORT 2008<br />
15
CHAPTER 1<br />
Malaysia’s <strong>productivity</strong> level<br />
was at USD13,033, higher<br />
than Asian countries such<br />
as China, India, Indonesia,<br />
Philippines and Thailand<br />
Among Malaysia’s trading partners, Japan achieved<br />
the highest <strong>productivity</strong> level <strong>of</strong> USD81,334. This was<br />
followed by the USA (USD78,807), the United<br />
Kingdom (USD55,172), Germany (USD51,885),<br />
Singapore (USD50,744) and Korea (USD31,212).<br />
Malaysia’s <strong>productivity</strong> level in 2008 was at<br />
USD13,033, higher than Asian countries such as<br />
China, India, Indonesia, Philippines and Thailand<br />
(Table 1.2).<br />
Table 1.2: Productivity Level and Growth, 2008<br />
Productivity<br />
Productivity Level<br />
Country Growth (at 2000 constant<br />
(%) prices in USD)<br />
China 7.8 3,273<br />
Korea 3.6 31,212<br />
Indonesia 3.5 2,476<br />
India 3.4 1,700<br />
Philippines 3.0 3,279<br />
Malaysia 2.9 13,033<br />
USA 2.1 78,807<br />
Thailand 2.0 4,844<br />
Hong Kong 1.6 68,436<br />
Japan 0.8 81,334<br />
Taiwan 0.7 40,225<br />
Australia 0.4 48,057<br />
Finland 0.1 60,645<br />
Germany 0.1 51,885<br />
United Kingdom 0.0 55,172<br />
Sweden -0.4 65,627<br />
France -0.5 58,306<br />
Norway -0.5 78,471<br />
New Zealand -0.7 38,750<br />
Canada -0.9 50,149<br />
Denmark -0.9 62,506<br />
Singapore -0.9 50,744<br />
Italy -1.2 46,481<br />
Ireland -1.7 65,777<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia, various issues<br />
- OECD Economic Outlook, December 2008, Vol. 84,<br />
- National Accounts <strong>of</strong> OECD Countries, Vol. IIa and IIb :Detailed Tables 1996-2006<br />
- Country Data, The Economist Intelligence Unit<br />
- Market Indicators and Forecast, The Economist Intelligence Unit<br />
16 PRODUCTIVITY REPORT 2008
Box 1.4: Attitude Towards Globalisation<br />
CHAPTER 1<br />
There is a need for industries to adopt new business approaches with renewed<br />
vigour to sustain their competitive edge. Malaysian businesses have been<br />
proactive in implementing new management practices to adapt to market<br />
changes. In 2008, Malaysia was ranked 8 th in terms <strong>of</strong> adaptability to changes in<br />
the market environment which was better than Germany, Japan and the United<br />
Kingdom.<br />
Adaptability <strong>of</strong> Industries to Change<br />
Ranking<br />
Country (population > 20<br />
million)<br />
Brazil 1<br />
USA 2<br />
Taiwan 3<br />
Australia 4<br />
Malaysia 8<br />
Germany 9<br />
Italy 11<br />
India 12<br />
Thailand 13<br />
Japan 14<br />
United Kingdom 15<br />
Businesses in Malaysia have inculcated a positive attitude towards globalisation.<br />
It was among the top five countries and performed better than Korea, Japan, the<br />
United Kingdom and the USA.<br />
PRODUCTIVITY REPORT 2008<br />
17
CHAPTER 1<br />
Attitude towards Globalisation<br />
Ranking<br />
Country (population > 20<br />
million)<br />
Taiwan 1<br />
India 2<br />
Australia 3<br />
Malaysia 4<br />
Korea 5<br />
Japan 7<br />
Thailand 9<br />
United Kingdom 13<br />
USA 14<br />
Source: World Competitiveness Yearbook 2008<br />
OUTLOOK FOR 2009<br />
Malaysia is expected to<br />
achieve a <strong>productivity</strong><br />
growth <strong>of</strong> more than 1.0%<br />
driven by the services and<br />
agriculture sectors<br />
In 2009, the growth in the economy will be driven<br />
mainly by the services and agriculture sectors. With<br />
weak external demand, domestic demand will assume<br />
a greater role in driving economic growth. This<br />
scenario calls for concerted efforts in <strong>productivity</strong><br />
and quality enhancement initiatives such as<br />
integrating work processes, utilising higher<br />
technologies, improving management systems,<br />
strengthening human resource capabilities and<br />
nurturing creativity and innovation at all levels. The<br />
economy is expected to achieve a <strong>productivity</strong> growth<br />
<strong>of</strong> more than 1.0%.<br />
18 PRODUCTIVITY REPORT 2008
The services sector comprising the trade, transport<br />
and finance sub-sectors are expected to achieve a<br />
<strong>productivity</strong> growth <strong>of</strong> 2.8%. The <strong>productivity</strong> <strong>of</strong> the<br />
finance sub-sector is expected to grow by more than<br />
3.0% while the transport and trade sub-sectors are<br />
expected to grow by more than 2.5% and 2.0%<br />
respectively. This growth will be supported by<br />
household spending and improvement in the tourism<br />
industry. The sector is also expected to benefit from<br />
higher ICT utilisation and Islamic financing.<br />
The services sector is expected<br />
to grow by more than 2.5%.<br />
The sector is expected to<br />
benefit from higher ICT<br />
utilisation and Islamic<br />
financing<br />
CHAPTER 1<br />
The manufacturing sector’s <strong>productivity</strong> is expected<br />
to register lower growth <strong>of</strong> 1.0% due to s<strong>of</strong>tening <strong>of</strong> the<br />
export sector. The sector is expected to experience<br />
weakness due to the slowdown <strong>of</strong> the E&E industries<br />
and general decrease in demand. Among the<br />
industries that are expected to achieve growth are<br />
food and beverages, non-metallic mineral products,<br />
chemicals and chemical products, iron and steel,<br />
transport equipment and machinery and equipment.<br />
The construction sector is expected to grow by 1.0%<br />
supported by on-going Ninth Malaysia Plan projects,<br />
intensifying the use <strong>of</strong> IBS methods in construction<br />
activities and economic development in the economic<br />
regional corridors. The stimulus package directed to<br />
further improve infrastructure projects will enhance the<br />
<strong>productivity</strong> <strong>of</strong> the sector.<br />
Productivity growth <strong>of</strong> the agriculture sector is<br />
forecasted at 3.0% supported by <strong>productivity</strong><br />
improvement initiatives implemented by the sector.<br />
Productivity improvement activities in the areas<br />
<strong>of</strong> biotechnology, livestock breeding programmes,<br />
aquaculture development and intensive fruit and<br />
vegetable farming, will positively contribute to the<br />
<strong>productivity</strong> <strong>of</strong> the sector.<br />
A lower <strong>productivity</strong> growth<br />
<strong>of</strong> 1.0% is expected for the<br />
manufacturing sector due to<br />
the overall s<strong>of</strong>tening <strong>of</strong> export<br />
demand<br />
Productivity <strong>of</strong> the construction<br />
is expected to grow by 1.0%<br />
with the intensification <strong>of</strong> IBS<br />
The agriculture sector is<br />
forecasted to register a<br />
<strong>productivity</strong> growth <strong>of</strong> 3.0%<br />
PRODUCTIVITY REPORT 2008<br />
19
CHAPTER 1<br />
Economic Sector<br />
Table 1.3: Productivity Growth, 2009<br />
Productivity<br />
Growth (%)<br />
Malaysia 1.0 – 1.2<br />
Agriculture 3.0 – 3.3<br />
Mining 1.5 – 2.0<br />
Manufacturing 0.5 – 1.1<br />
Construction 1.0 – 1.2<br />
Utilities 3.5 – 3.8<br />
Transport 2.5 – 3.0<br />
Trade 2.0 – 2.3<br />
Finance 3.0 – 3.7<br />
Other Services 1.0 – 1.2<br />
20 PRODUCTIVITY REPORT 2008
CHAPTER 2<br />
TOTALFACTOR PRODUCTIVITY
CHAPTER 2<br />
TOTALFACTOR PRODUCTIVITY<br />
Highlights<br />
• For the period 1999-2008, the economy registered an annual. Total Factor<br />
Productivity (TFP) growth <strong>of</strong> 2.0%, contributing 35.8% to GDP growth <strong>of</strong> 5.6%.<br />
• All economic sectors registered TFP growth ranging from 1.0% by the<br />
agriculture sector to 2.3% by the manufacturing sector.<br />
• Initiatives had been undertaken by both the public and private sectors to shift<br />
towards innovation, high-technology and increased efficiency <strong>of</strong> human capital.<br />
• By 2010, TFP is expected to grow by 2.2%.<br />
Key Statistics<br />
1999 - 2008 2004 - 2008<br />
GDP growth 5.61% 5.98%<br />
TFP growth 2.01% 2.14%<br />
TFP targets<br />
9MP (2006-2010) 2.2%<br />
OPP3 (2006-2020) 2.6%<br />
2008<br />
Total exports (RM billion) 663.51<br />
Electrical and electronic products 253.81<br />
Palm oil (crude and processed) 49.69<br />
Crude petroleum 44.09<br />
Liquefied natural gas 40.73<br />
Total imports (RM billion) 521.50<br />
Intermediate goods 379.00<br />
Capital goods 69.96<br />
Consumption goods 32.27<br />
Total trade (RM trillion) 1.185<br />
Capacity utilisation 78.7%<br />
Gross fixed capital formation<br />
Public (RM million) 65,385<br />
Private (RM million) 68,286<br />
PRODUCTIVITY REPORT 2008<br />
23
CHAPTER 2<br />
TOTALFACTOR PRODUCTIVITY FOR<br />
SUSTAINABLE ECONOMIC GROWTH<br />
Total Factor Productivity (TFP) measures the<br />
efficiency and effectiveness <strong>of</strong> all factors <strong>of</strong><br />
production. The activities that contribute to TFP<br />
growth include higher capacity utilisation,<br />
advancement in technology, improvement in skills<br />
and human capital capabilities and enhancing<br />
knowledge through training and retraining.<br />
For the period 1999-2008, TFP<br />
grew by 2.0% contributing<br />
35.8% to GDP growth<br />
By 2010,TFP is expected to<br />
grow by 2.2%<br />
For the period 1999-2008, GDP grew at an<br />
annual average <strong>of</strong> 5.6%. This <strong>performance</strong> was<br />
supported by strong TFP growth <strong>of</strong> 2.0%, contributing<br />
35.8% to GDP growth (Table 2.1). The contribution <strong>of</strong><br />
TFP to GDP was due to initiatives undertaken by both<br />
the public and private sectors to shift the economy<br />
towards higher value added activities through<br />
innovation, high-technology and human capital<br />
development. Higher investments in ICT, training and<br />
retraining <strong>of</strong> employees and the increase in exports<br />
have contributed to higher TFP growth.<br />
The annual average TFP growth for the period<br />
2004-2008 was 2.1% contributing to a <strong>productivity</strong><br />
growth <strong>of</strong> 3.7% and GDP growth <strong>of</strong> 6.0% (Table 2.1<br />
and Figure 2.1). The <strong>productivity</strong> growth <strong>of</strong> 3.7%<br />
for the period was contributed by TFP (57.5%) and<br />
capital intensity by (42.5%). TFP is expected to grow<br />
by 2.2% by 2010 with the intensified efforts by the<br />
government through two stimulus packages<br />
introduced at the end <strong>of</strong> 2008 and early 2009. Among<br />
the thrusts that will enhance the TFP growth are<br />
training and capacity building. Comparing the two subperiods<br />
<strong>of</strong> 1999-2003 and 2004-2008, it is evident that<br />
the efforts in enhancing human capital and<br />
investments in capital and technology in the latter<br />
period (2004-2008) had contributed to higher TFP and<br />
GDP growth.<br />
24 PRODUCTIVITY REPORT 2008
Table 2.1: The Growth <strong>of</strong> GDP, TFP, Capital and Labour<br />
Growth (%)<br />
Period Labour Capital TFP GDP<br />
1999 - 2008 1.40 2.20 2.01 5.61<br />
1999 - 2003 1.22 2.18 1.88 5.24<br />
2004 - 2008 1.58 2.27 2.14 5.98<br />
CHAPTER 2<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Figure 2.1: TFP Contribution to Productivity Growth, 2004 - 2008<br />
GDP<br />
5.98%<br />
PRODUCTIVITY<br />
3.72%<br />
EMPLOYMENT<br />
2.26%<br />
TFP<br />
2.14<br />
(57.53%)<br />
CAPITAL INTENSITY<br />
1.58<br />
(42.47%)<br />
Quality <strong>of</strong> Human<br />
Capital<br />
Quality <strong>of</strong> Capital<br />
Input<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
25
CHAPTER 2<br />
Box 2.1: Total Factor Productivity Framework<br />
The emphasis towards TFP growth for competitiveness will ultimately lead to<br />
improved economic <strong>performance</strong> and higher standard <strong>of</strong> living. Higher TFP<br />
growth can be achieved through Human Capital Development, Demand Intensity,<br />
Capital Structure, Economic Restructuring and Technical Progress.<br />
Enhancing Competitiveness through TFP<br />
Human Capital<br />
Development<br />
Demand Intensity<br />
Capital Structure<br />
INPUTS<br />
Capital<br />
&<br />
Labour<br />
Transformation<br />
INPUTS<br />
Higher quality<br />
<strong>of</strong> labour<br />
and Capital<br />
HIGHER TFP<br />
• Higher quality<br />
products<br />
• Excellent services<br />
• Lower cost<br />
• High customer<br />
satisfaction<br />
• Sustainable<br />
economic growth<br />
HIGHER GDP<br />
• Greater wealth<br />
• Higher standard<br />
<strong>of</strong> living<br />
Input-Driven<br />
Growth<br />
Productivity-<br />
Driven Growth<br />
Technical<br />
Progress<br />
Economic<br />
Restructuring<br />
The main sources <strong>of</strong> TFP growth are as follows:<br />
Human Capital Development: Investment in human capital development<br />
will increase the capacity and capabilities <strong>of</strong> the workforce. Trained and<br />
knowledgeable workers will be more productive and be able to produce more<br />
quality products and services that will contribute to higher TFP growth.<br />
Capital Structure: Investment in new production technologies are required<br />
to improve the quality <strong>of</strong> products and services. This would enhance<br />
competitiveness and reduce cost <strong>of</strong> production. Through capital restructuring,<br />
industries would be able to streamline their business plans for better operational<br />
and production efficiencies.<br />
26 PRODUCTIVITY REPORT 2008
Economic Restructuring: Economic restructuring involves the movement <strong>of</strong><br />
resources from less productive to the more productive sectors and industries to<br />
produce higher value added products and services.<br />
CHAPTER 2<br />
Demand Intensity: An increase in both domestic and global demand for products<br />
and services will lead to higher capacity utilisation <strong>of</strong> the economy. This will<br />
contribute towards export competitiveness and higher TFP growth.<br />
Technical Progress: The application <strong>of</strong> appropriate technologies, innovation,<br />
R&D, efficient management and organisational systems and techniques will<br />
improve technical progress.<br />
Sources <strong>of</strong> Total Factor Productivity Growth<br />
The present standard <strong>of</strong> living enjoyed by the nation<br />
is the result <strong>of</strong> higher TFP growth, and had enabled<br />
the economy to sustain a positive growth momentum.<br />
The factors that support TFP growth are demand<br />
intensity, human capital development, capital<br />
structure, economic restructuring and technical<br />
progress (Figure 2.2). For the period 2004-2008, TFP<br />
grew by 2.1% driven mainly by demand intensity<br />
(44.9%) and human capital development (26.2%).<br />
TFP growth was driven<br />
by demand intensity<br />
(44.9%) and human<br />
capital (26.2%)<br />
Figure 2.2: Components <strong>of</strong> TFP Growth<br />
(1999 – 2008) (2004 – 2008)<br />
Demand<br />
Intensity<br />
39.67%<br />
Human<br />
Capital<br />
Development<br />
31.35% TFP<br />
2.01<br />
Capital<br />
Structure<br />
14.01%<br />
Demand<br />
Intensity<br />
44.94%<br />
Human<br />
Capital<br />
Development<br />
26.17% TFP<br />
2.14<br />
Capital<br />
Structure<br />
10.43%<br />
Technical<br />
Progress<br />
4.97%<br />
Economic<br />
Restructuring<br />
10.00%<br />
Technical<br />
Progress<br />
8.66%<br />
Economic<br />
Restructuring<br />
9.80%<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
27
CHAPTER 2<br />
For the period 2004-2008,<br />
demand intensity contributed<br />
44.9% to TFP growth<br />
Demand Intensity indicates the extent <strong>of</strong> the<br />
productive capacity <strong>of</strong> the economy. For the period<br />
1999-2008, demand intensity contributed 39.7%<br />
to TFP growth as a result <strong>of</strong> an increase in both<br />
domestic and external demand. The contribution <strong>of</strong><br />
demand intensity for the period 2004-2008 increased<br />
to 44.9%. The increase in contribution was a result <strong>of</strong><br />
initiatives undertaken by the government to improve<br />
bilateral trade to facilitate exports. Total exports<br />
increased from RM321.2 billion in 1999 to RM663.5<br />
billion in 2008 (Table 2.2). The Government through<br />
the Market Development Grant (MDG) provides<br />
grants to companies to partially defray the high cost <strong>of</strong><br />
export promotion. Companies can obtain a 50%<br />
reimbursable matching grant on the approved cost <strong>of</strong><br />
the eligible export promotion activities.<br />
Table 2.2: Main Exports <strong>of</strong> Malaysia<br />
RM Million<br />
Exports<br />
1999 2004 2008<br />
Manufactured goods 272,653 395,127 491,930<br />
Palm oil (crude and processed) 14,475 20,047 64,808<br />
Crude petroleum 9,306 21,762 43,698<br />
Liquefied natural gas 6,349 17,079 40,732<br />
Total 321,181 480,740 663,494<br />
Source: MATRADE<br />
Human capital development<br />
contributed 26.2% to TFP<br />
growth during the period<br />
2004-2008<br />
Human Capital Development is one <strong>of</strong> the key<br />
thrusts to ensure the country sustains competitiveness<br />
in the global economy. Human capital development<br />
facilitates skills upgrading and knowledge<br />
enhancement. For the period 1999-2008, human<br />
capital contributed 31.4% to TFP growth as compared<br />
to 26.2% during the period 2004-2008. Human capital<br />
development is accorded high priority in national<br />
28 PRODUCTIVITY REPORT 2008
development under Malaysia's five-year development<br />
plans. To date, there are 20 public and 18 private<br />
universities as well as more than 500 colleges,<br />
polytechnics and industrial training institutes that <strong>of</strong>fer<br />
courses at certificate, diploma, degree and postgraduate<br />
levels. Higher investment by both the public<br />
and private sectors had resulted in a larger pool <strong>of</strong><br />
technically trained and skilled workforce (Table 2.3).<br />
Higher investment by both the<br />
public and private sectors had<br />
resulted in a large pool <strong>of</strong><br />
technically trained and<br />
skilled workforce<br />
CHAPTER 2<br />
Table 2.3: Job Seekers Registered with Labour Department<br />
by Educational Level, 2004-2008<br />
Educational Level 2004 2005 2006 2007 2008<br />
Degree & Above 22,209 37,447 31,682 28,971 40,356<br />
Diploma 18,273 30,102 24,079 26,979 35,832<br />
Skill<br />
Level<br />
Malaysian Skills<br />
Certificate 8,910 7,688 6,114 6,890 8,805<br />
(MLVK)<br />
Other Skills<br />
Certificate 427 734 551 532 740<br />
Non-Technical<br />
Skills 4,683 8,899 7,427 10,721 12,293<br />
Certificate<br />
Source: Ministry <strong>of</strong> Human Resource<br />
Capital Structure reflects capital investments<br />
which will improve production efficiency. For the period<br />
1999-2008 and period 2004-2008, the contribution<br />
<strong>of</strong> capital structure to TFP growth was 14.0% and<br />
10.4% respectively. Total investments grew from<br />
RM17,021 million in 1999 to RM62,785 million in<br />
2008. This indicated that Malaysian industries were<br />
increasingly shifting from labour-intensive operation to<br />
more capital-intensive systems (Table 2.4).<br />
Capital structure contributed<br />
10.4% to TFP growth during<br />
the period 2004-2008<br />
PRODUCTIVITY REPORT 2008<br />
29
CHAPTER 2<br />
Table 2.4: Approved Investment in the Manufacturing Sector<br />
Foreign Direct Domestic Total<br />
Investment (Million) Investment<br />
(Million)<br />
(Million)<br />
1999 4,746.9 12,273.8 17,020.8<br />
2004 13,173.7 17,882.9 31,056.6<br />
2008 46,098.8 16,686.2 62,785.0<br />
Source: MIDA<br />
During the period 2004-2008,<br />
economic restructuring<br />
contributed 9.8% to TFP<br />
growth<br />
Economic Restructuring measures the efficiency<br />
in resource allocation among the economic sectors.<br />
For the period 1999-2008 and 2004-2008, the<br />
contribution <strong>of</strong> economic restructuring to TFP was<br />
10.0% and 9.8% respectively. The economy was<br />
successful in mobilising the workforce from low value<br />
added activities to higher value added activities in<br />
the various economic sectors. Share <strong>of</strong> employment in<br />
the manufacturing and services sectors increased<br />
from 32.6% and 19.3% in 1990 to 41.2% and 29.0%<br />
respectively in 2008 while employment in the<br />
agriculture sector contracted from 27.5% in 1990 to<br />
12.0% in 2008 (Table 2.5).<br />
Table 2.5: Employment Share <strong>of</strong> Economic Sectors<br />
Years Agriculture Manufacturing Services<br />
Sector Sector Sector<br />
(%) (%) (%)<br />
2008 11.97 29.03 41.16<br />
2000 15.18 27.59 38.06<br />
1990 27.49 19.30 32.57<br />
Source: Economic Report, various issues.<br />
30 PRODUCTIVITY REPORT 2008
Technical Progress indicates the efficient and<br />
effective utilisation <strong>of</strong> technology, innovative practices,<br />
management and organisational effectiveness. With<br />
<strong>productivity</strong> initiatives being given greater emphasis<br />
during the period 1999-2008, technical progress<br />
contributed 5.0% to TFP growth. The improvement in<br />
technical progress will create higher value-added<br />
products and services. Creativity, innovation and a<br />
positive mindset that are oriented towards the<br />
accumulation, dissemination and utilisation <strong>of</strong><br />
knowledge had enhanced TFP growth. To date, 2,078<br />
ICC projects involving 19,747 participants from 1,205<br />
organisations had participated in ICC Conventions<br />
resulting in total savings <strong>of</strong> RM738.2 million. The<br />
involvement <strong>of</strong> many organisations in ICC projects<br />
indicated that higher emphasis were given to<br />
innovative and creative processes.<br />
For the period 2004-2008,<br />
technical progress contributed<br />
8.7% to TFP growth. Creativity,<br />
innovation and a positive<br />
mindset had enhanced TFP<br />
growth<br />
CHAPTER 2<br />
Box 2.2: Malaysian Management Capability Index (MCI)<br />
The 2008 Malaysian MCI Study was a collaborative research effort between <strong>MPC</strong><br />
and the Malaysian Institute <strong>of</strong> Management (MIM). The main objective <strong>of</strong> the<br />
study was to provide information on the <strong>performance</strong> ranking and to ascertain<br />
and compare management capability among the 16 member countries <strong>of</strong> the<br />
Asian Association <strong>of</strong> Management Organisations (AAMO).<br />
Malaysia’s achievement based on the ten categories is shown in the table below:<br />
No. Category Score<br />
1. Integrity and corporate governance 75.2<br />
2. Financial management 71.7<br />
3. Performance leadership 70.0<br />
4. Visionary and strategic leadership 69.3<br />
5. Application <strong>of</strong> technology and knowledge 67.8<br />
6. External relationships 67.1<br />
7. People leadership 66.2<br />
8. Organisation capability 65.6<br />
9. Results and comparative <strong>performance</strong> 65.0<br />
10. Innovation – products and services 64.9<br />
2008 Malaysian Management Capability Index 67.7<br />
PRODUCTIVITY REPORT 2008<br />
31
CHAPTER 2<br />
Overall, the Malaysian strengths were in integrity and corporate governance,<br />
financial management and <strong>performance</strong> leadership. However, the four areas<br />
which will have the greatest impact on improvement <strong>of</strong> Malaysia’s management<br />
<strong>performance</strong> are "Innovation-Products and Services", "Organisation Capability",<br />
"People Leadership" and "External Relationships".<br />
TFP PERFORMANCE OF SELECTED ECONOMIC<br />
SECTORS<br />
High skilled labour and capitalintensive<br />
production activities<br />
enhanced TFP growth<br />
For the period 1999-2008, the manufacturing sector<br />
registered an annual average TFP growth <strong>of</strong> 2.3%<br />
contributing 34.3% to output growth. During the subperiod<br />
2004-2008, annual average growth <strong>of</strong> TFP was<br />
1.4%. For the period 2004-2008, the highest<br />
contribution <strong>of</strong> TFP to output growth was registered by<br />
the trade sector at 42.1%, followed by utilities (40.8%),<br />
agriculture (34.2%), mining 28.9%, finance (24.4%)<br />
and manufacturing (23.9%) (Table 2.6 and Figures 2.3<br />
and 2.4). The improvement in TFP was mainly due to<br />
the adoption <strong>of</strong> capital-intensive production processes<br />
as well as the employment <strong>of</strong> skilled labour.<br />
Table 2.6: Performance <strong>of</strong> Total Factor Productivity by Sectors<br />
Growth (%)<br />
Sector TFP<br />
1999 - 2008<br />
TFP<br />
1999 - 2003<br />
TFP<br />
2004 - 2008<br />
Agriculture 1.01 1.03 1.26<br />
Mining 1.26 1.48 0.41<br />
Manufacturing 2.26 3.09 1.41<br />
Utilities 1.63 1.13 2.13<br />
Transport 1.36 1.27 1.44<br />
Trade 2.12 0.40 3.82<br />
Finance 1.87 1.72 2.02<br />
Others 1.02 3.08 0.71<br />
Computed from :<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
32 PRODUCTIVITY REPORT 2008
Percent<br />
100<br />
80<br />
60<br />
40<br />
20<br />
31.27<br />
39.86<br />
34.31<br />
33.83<br />
20.69<br />
33.70<br />
23.32<br />
24.08<br />
41.49<br />
42.78<br />
35.91<br />
35.76 44.62 32.41<br />
40.14<br />
27.50<br />
27.24<br />
17.36<br />
29.78<br />
30.41<br />
34.68<br />
33.89<br />
36.54<br />
48.42<br />
Figure 2.3: Contribution <strong>of</strong> TFP, Capital and Labour<br />
to Output Growth, 1999 - 2008<br />
CHAPTER 2<br />
0<br />
Agriculture<br />
Mining<br />
Manufacturing<br />
Utilities<br />
Transport<br />
Trade<br />
Finance<br />
Capital Employment TFP<br />
Others<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Figure 2.4: Contribution <strong>of</strong> TFP, Capital and Labour<br />
to Output Growth, 2004 - 2008<br />
Percent<br />
100<br />
80<br />
60<br />
40<br />
34.16<br />
28.71<br />
28.90<br />
28.34<br />
23.90<br />
33.55<br />
40.76<br />
22.71<br />
19.43<br />
29.43<br />
42.10<br />
24.39<br />
24.38<br />
16.57<br />
14.99<br />
53.20<br />
20<br />
0<br />
Agriculture<br />
37.13<br />
Mining<br />
42.75<br />
Manufacturing<br />
42.55<br />
36.53<br />
Utilities<br />
Transport<br />
51.14<br />
33.51<br />
Trade<br />
Capital Employment TFP<br />
59.06<br />
Finance<br />
Others<br />
31.81<br />
Computed from:<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
33
CHAPTER 2<br />
The TFP growth <strong>of</strong> 1.4% in<br />
the sector was supported<br />
by efficient utilisation <strong>of</strong><br />
equipment and innovation<br />
TFP in the transport sector which grew by 1.4%<br />
contributed 20.7% to output growth during 1999-2008.<br />
The improvement in TFP growth was due to efficient<br />
utilisation <strong>of</strong> equipment, application <strong>of</strong> cost effective<br />
operating systems, better linkages and connectivity<br />
among the transport operators.<br />
Trade sector recorded TFP<br />
growth <strong>of</strong> 3.8% for the<br />
period 2004-2008<br />
Outsourcing <strong>of</strong> non-core<br />
business operations enhanced<br />
the competitiveness <strong>of</strong> finance<br />
sector improved the TFP<br />
growth by 2.0% during the<br />
period 2004-2008<br />
TFP growth <strong>of</strong> the agriculture<br />
sector was 1.3% during the<br />
period 2004-2008<br />
The trade sector recorded a TFP growth <strong>of</strong> 2.1% and<br />
accounted for 33.8% <strong>of</strong> output growth. During the<br />
period 2004-2008, TFP recorded annual average<br />
growth <strong>of</strong> 3.8% and contributed 42.1% to output<br />
growth. The growth was attributed to the adoption <strong>of</strong><br />
good marketing strategies and efficient service<br />
delivery <strong>of</strong> goods and services by the wholesalers and<br />
retailers to meet the changing expectations <strong>of</strong><br />
customers.<br />
The finance sector recorded a TFP growth <strong>of</strong> 1.9%<br />
during the period 1999-2008 and contributed 23.3% <strong>of</strong><br />
output growth. The growth was attributed to both<br />
business resilience and regulatory measures<br />
undertaken by the government to reshape the financial<br />
landscape in order to enhance the competitive<br />
capabilities <strong>of</strong> the sector. For the period 2004-2008,<br />
TFP recorded an annual average growth <strong>of</strong> 2.0% and<br />
contributed 24.4% to output growth which was due to<br />
innovative initiatives such as outsourcing <strong>of</strong> non-core<br />
business operations, data processing, improved<br />
marketing <strong>of</strong> products and services and application <strong>of</strong><br />
information and communication technology.<br />
The agriculture sector recorded a TFP growth <strong>of</strong> 1.0%<br />
contributing 31.3% <strong>of</strong> output growth during the period<br />
1999-2008. For the period 2004-2008, the agriculture<br />
sector registered an annual average TFP growth <strong>of</strong><br />
1.3% contributing 34.2% to output growth. The growth<br />
was attributed to adoption <strong>of</strong> Good Agricultural<br />
Practices (GAP), good agronomic farm management<br />
practices, application <strong>of</strong> biotechnology, strong<br />
institutional support by the government, extensive<br />
R&D activities, replanting and new planting <strong>of</strong> high<br />
yielding clones, use <strong>of</strong> quality seeds, and<br />
improvement in food preservation and packaging<br />
technologies.<br />
34 PRODUCTIVITY REPORT 2008
Total Factor Productivity Growth for<br />
Competitiveness<br />
As the economy moves towards an innovative and<br />
knowledge-based economy, it is imperative that<br />
competitiveness and higher economic growth be<br />
sustained. This can be achieved through continuous<br />
TFP improvement initiatives such as:<br />
CHAPTER 2<br />
i. Developing Human Capital<br />
Human capital is one <strong>of</strong> the main avenues for<br />
improving TFP. This is a necessity especially in<br />
the current economic environment where there<br />
will be strong competition for skilled labour<br />
among the industries. To ensure a consistent<br />
supply <strong>of</strong> a skilled and knowledgeable<br />
workforce, a comprehensive manpower<br />
development programme has been outlined<br />
under both the Ninth Malaysia Plan and the<br />
Third Industrial Master Plan.<br />
ii. Intensifying Demand<br />
Demand intensity will result in higher capacity<br />
utilisation contributing to higher TFP growth. In<br />
a highly competitive market environment there<br />
is a need to adopt effective marketing<br />
strategies, develop new products and strong<br />
brands to build consumer loyalty and<br />
preferences for products and services. Apart<br />
from new products and branding, the market<br />
requires consistency in the quality <strong>of</strong> products<br />
and services <strong>of</strong>fered as well as the assurance<br />
<strong>of</strong> supply availability. The government has<br />
provided initiatives to the local companies to<br />
develop and market Malaysian products and<br />
services globally. The initiatives include tax<br />
incentives, financial assistance in the form<br />
<strong>of</strong> grants, loans as well as the necessary<br />
institutional support.<br />
Development <strong>of</strong> human capital<br />
improved the TFP <strong>of</strong> the<br />
economy<br />
Quality <strong>of</strong> products, effective<br />
marketing, new product<br />
development and branding<br />
strengthened demand intensity<br />
PRODUCTIVITY REPORT 2008<br />
35
CHAPTER 2<br />
New sources <strong>of</strong> growth<br />
such as biotechnology,<br />
tourism, education,<br />
healthcare, renewable<br />
energy and Islamic<br />
finance lead to efficient<br />
allocation <strong>of</strong> resources<br />
iii. Efficient allocation <strong>of</strong> resources among the<br />
sectors.<br />
To achieve efficient allocation <strong>of</strong> resources<br />
among the sectors, the government is currently<br />
promoting new sources <strong>of</strong> growth for the<br />
agriculture, manufacturing and services<br />
sectors. The new sources <strong>of</strong> growth include<br />
biotechnology, tourism, education, healthcare,<br />
renewable energy and Islamic finance. Efforts<br />
will also be taken to accelerate economic<br />
growth in the five Economic Development<br />
Corridors through the granting <strong>of</strong> both tax and<br />
investment incentives to the industries.<br />
Technological capabilities from<br />
new trends in technology and<br />
investment in green technology<br />
iv. Enhancing technological capabilities<br />
Investment in modern machinery and<br />
equipment will increase the technological<br />
capabilities and productive capacity <strong>of</strong> the<br />
economy. Greater efforts need to be<br />
undertaken to develop technological<br />
capabilities to take advantage <strong>of</strong> new trends in<br />
technology, application <strong>of</strong> ICT and capital<br />
intensive processes to produce higher value<br />
added products. To facilitate the industries in<br />
undertaking restructuring, the government had<br />
established the Industry Restructuring<br />
Guarantee Fund Scheme. The scheme is to<br />
assist viable medium and large enterprises<br />
to secure financing to modernise and upgrade<br />
business operations, particularly in automation,<br />
energy efficiency and green technology.<br />
36 PRODUCTIVITY REPORT 2008
v. Innovation and Creativity<br />
TFP enhancement can be achieved through<br />
continuous R&D and innovative activities,<br />
increased utilisation <strong>of</strong> technologies, ICT and<br />
enhancing skills and management capabilities<br />
in all economic sectors. Innovative and creative<br />
activities to produce higher value added<br />
products and services will enhance<br />
competitiveness. Malaysia will be able to move<br />
from efficiency stage <strong>of</strong> development to<br />
innovative stage <strong>of</strong> development with higher<br />
emphasis on R&D.<br />
R&D activities and <strong>productivity</strong><br />
initiatives enhance TFP growth<br />
CHAPTER 2<br />
Box 2.3: Surviving the Economic Crisis through Efficiency Measures<br />
In line with the thrusts <strong>of</strong> assisting the private sector in facing the crisis and<br />
building capacity for the future as announced in the Second Economic Stimulus<br />
Package on March 2009, Malaysia Productivity Corporation (<strong>MPC</strong>) had launched<br />
the Efficiency Enhancement Clinics (EEC). These clinics are held simultaneously<br />
on every Thursday <strong>of</strong> the week at <strong>MPC</strong>’s Headquarters in Petaling Jaya and its<br />
Centres <strong>of</strong> Excellence located in Kota Kinabalu, Kuching, Johore Baru, Penang,<br />
and Kuantan. The main objective <strong>of</strong> the efficiency enhancement clinics is to assist<br />
companies cope with adverse effects <strong>of</strong> the global crisis and more importantly, to<br />
ensure that Malaysian industries emerge stronger during the anticipated<br />
economic recovery.<br />
The EEC is an avenue where advisory services, business diagnostics<br />
on efficiency enhancement as well as cost rationalisation measures will be<br />
provided to the public and business communities. Among the efficiency<br />
enhancement tools that <strong>MPC</strong> provide to assist industries are: Quality<br />
Environment; Innovative and Creative Circles; Total Quality Management Model<br />
Companies; Company Productivity Assessment; the Productivity-Linked Wage<br />
System; Process Improvement; Reduction <strong>of</strong> the Seven Wastes; and Productivity<br />
and Quality Enhancement Training.<br />
PRODUCTIVITY REPORT 2008<br />
37
CHAPTER 2<br />
These programmes have proven to be effective in enhancing efficiency and<br />
reducing costs. As an example, the improved efficiency achieved through quality<br />
environment practices had contributed to higher sales, reduction in operation<br />
costs, improvements in <strong>productivity</strong> and quality <strong>of</strong> the workforce, visual<br />
management and service delivery. Participation in <strong>MPC</strong>’s Innovative and Creative<br />
Circles Convention in 2008 had resulted in total cost savings <strong>of</strong> RM88 million<br />
through the development <strong>of</strong> new and innovative processes.<br />
Another efficiency enhancement measure is the Productivity-Linked Wage<br />
System. Among the benefits to companies who had implemented the system<br />
are: improvements in <strong>productivity</strong> from 2.6% to 5.2%; reduction in staff turnover<br />
from 5.2% to 2.1%; reduction in absenteeism from 8.8% to 4.2%; and reduction<br />
in rejects and reworks from 5.3% to 2.9%. Companies who had participated<br />
in <strong>MPC</strong>’s TQM Model Company Projects had been able to transform themselves<br />
to venture successfully into the export markets.<br />
In addition, to further encourage industries to make productive use <strong>of</strong> the "slack"<br />
time during the economic crisis is to train and re-train employees. <strong>MPC</strong> is <strong>of</strong>fering<br />
special training rates <strong>of</strong> up to 80 percent <strong>of</strong>f its normal course fees. Small and<br />
Medium Enterprises need to pay only 20% while larger companies pay 50%<br />
<strong>of</strong> the course fees. These special rates, formerly only available to SMEs, were<br />
extended to larger companies as part <strong>of</strong> <strong>MPC</strong>’s efforts to foster an<br />
industry-wide increase in <strong>productivity</strong> among Malaysian workers and<br />
organisations. Efficiency enhancement measures once implemented will ensure<br />
that the company not only survive the current crisis but emerge stronger and<br />
become more competitive when the economy recovers.<br />
38 PRODUCTIVITY REPORT 2008
CHAPTER 3<br />
PRODUCTIVITY PERFORMANCE<br />
OF THE MANUFACTURING SECTOR
CHAPTER 3<br />
PRODUCTIVITY PERFORMANCE OF THE<br />
MANUFACTURING SECTOR<br />
Highlights<br />
• The manufacturing sector recorded a <strong>productivity</strong> growth <strong>of</strong> 6.3%.<br />
• Manufacturing added value rose by 4.7% to RM98.3 billion.<br />
• E&E industries was the largest employer.<br />
• Labour cost competitiveness improved as reflected by a decline <strong>of</strong> 4.7% in unit<br />
labour cost.<br />
• For the period 2004-2008, TFP <strong>of</strong> the sector grew by 2.1%.<br />
Key Statistics<br />
2008<br />
Added value growth 4.7%<br />
Productivity growth (Value added per employee) 6.3%<br />
TFP growth (2004-2008) 2.1%<br />
Total exports (RM billion)<br />
RM663.5<br />
Productivity & Competitiveness<br />
Productivity Labour Cost Unit Labour<br />
Sub-sector % per Employee Cost<br />
% %<br />
Manufacturing average 6.3 2.0 -4.7<br />
Food and beverages 19.2 6.1 -8.2<br />
Chemicals and chemical products 16.0 6.3 -3.9<br />
Non-metallic mineral products 12.5 4.8 -7.1<br />
Iron and steel 8.6 2.8 -0.5<br />
Transport equipment 8.3 5.8 -1.6<br />
PRODUCTIVITY REPORT 2008<br />
41
CHAPTER 3<br />
Total manufacturing exports<br />
rose by 9.6% largely<br />
contributed by E&E,<br />
chemicals and chemical<br />
products, machinery,<br />
appliances and parts as<br />
well as metal products<br />
PERFORMANCE OF THE MANUFACTURING<br />
SECTOR, 2008<br />
The manufacturing sector registered an output growth<br />
<strong>of</strong> 1.3% and an increase in the production index <strong>of</strong><br />
0.2% in 2008. Total trade reached RM1.2 trillion, an<br />
increase <strong>of</strong> 6.8% from 2007 while total manufacturing<br />
exports rose by 9.6% to RM663.5 billion. Major<br />
exports include E&E products, chemicals and<br />
chemical products, machinery, appliances and parts,<br />
and metal products. E&E products remained as<br />
Malaysia’s leading export earner and accounted for<br />
38.3% <strong>of</strong> total exports. However, export revenue from<br />
E&E decreased by 3.4% in 2008 due to lesser<br />
demand from our major trading partners. Electronic<br />
integrated circuit is a major component <strong>of</strong> E&E export,<br />
accounting for 26.2% <strong>of</strong> total export <strong>of</strong> E&E products.<br />
Increase in import <strong>of</strong><br />
intermediate and capital<br />
goods accounted for 72.7%<br />
<strong>of</strong> total imports<br />
E&E, chemicals and chemical<br />
products and refined petroleum<br />
product industries recorded<br />
decline in exports<br />
Total imports <strong>of</strong> the sector increased by 3.3% to<br />
RM521.5 billion. The increase was contributed by<br />
higher imports <strong>of</strong> intermediate and capital goods. The<br />
imports <strong>of</strong> intermediate goods amounted to RM379<br />
billion constituted 72.7% <strong>of</strong> total imports. The main<br />
components being parts and accessories <strong>of</strong> capital<br />
goods excluding transport equipment amounted to<br />
RM164 billion or 43.4% <strong>of</strong> intermediate goods. The<br />
import <strong>of</strong> capital goods represent 13.4% <strong>of</strong> total<br />
imports valued at RM70 billion. The high import <strong>of</strong><br />
intermediate goods and capital goods is an indication<br />
that the country is moving towards the production <strong>of</strong><br />
higher value added products.<br />
Growth in the manufacturing sector was supported by<br />
continuous growth in domestic-oriented industries<br />
especially from the transport equipment,<br />
construction-related industries and food industries.<br />
However, export oriented industries registered a<br />
decline due to the slowdown in global demand.<br />
Main industries which recorded decline in exports<br />
were E&E (10.6%), chemicals and chemical products<br />
(18.9%), and refined petroleum products (31.1%).<br />
42 PRODUCTIVITY REPORT 2008
The E&E industry remained as the largest employer,<br />
accounting for 34.2% <strong>of</strong> total manufacturing<br />
employment in 2008. The industry which registered<br />
growth in employment were chemicals and chemical<br />
products, transport equipment, food and beverages,<br />
iron and steel, and fabricated metal products. In<br />
response to slower demand, industries were<br />
reengineering their business operations and had<br />
temporarily put major business expansions on hold.<br />
The E&E industry remained<br />
the largest employer and<br />
accounted for 34.2% <strong>of</strong> total<br />
manufacturing employment<br />
CHAPTER 3<br />
Added value in the manufacturing sector registered a<br />
4.7% growth amounting to RM9.8 billion (Figure 3.1)<br />
compared to 11.3% in 2007. Among the industries<br />
which recorded double-digit growth in added value<br />
were the iron and steel, food and beverages,<br />
chemicals and chemical products, fabricated metal<br />
products and transport equipment. In terms <strong>of</strong><br />
contribution, the E&E remained the largest contributor<br />
to added value, accounting for 33.0% <strong>of</strong> total added<br />
value in 2008. The chemicals and chemical products,<br />
transport equipment, and iron and steel contributed<br />
10.0%, 6.1% and 5.5% to total manufacturing added<br />
value respectively (Figure 3.2).<br />
Domestic-oriented industries performed better than<br />
export-oriented industries in added value generation.<br />
The construction related industries such as iron and<br />
steel, chemicals, fabricated metals and non-metallic<br />
mineral products continued to expand as a result <strong>of</strong><br />
domestic construction activities. The 13.1% growth in<br />
transport equipment was attributed to improved sales<br />
<strong>of</strong> new motor vehicles following the release <strong>of</strong> new<br />
models. The food industry recorded added value<br />
growth <strong>of</strong> 20.5%. The growth in added value was due<br />
to the growing concern for health food, improved<br />
packaging and increased demand for halal food.<br />
Manufacturing added value<br />
grew by 4.7% in 2008.<br />
E&E remained the largest<br />
contributor followed by<br />
chemicals and chemical<br />
products and transport<br />
equipment sub-sectors<br />
Construction related industries<br />
continued to expand as a result<br />
<strong>of</strong> domestic construction<br />
activities<br />
PRODUCTIVITY REPORT 2008<br />
43
CHAPTER 3<br />
Figure 3.1: Added Value Growth <strong>of</strong> the Manufacturing Sector, 2008<br />
Iron and steel<br />
Food and beverages<br />
Chemicals and chemical products<br />
Fabricated metal products<br />
Transport equipment<br />
Non-metallic mineral products<br />
Manufacturing<br />
Rubber products<br />
Plastic products<br />
Machinery and equipment<br />
Wood and wood products<br />
Textiles and apparel<br />
Electrical and electronics products<br />
-5.9<br />
-7.0<br />
-0.6<br />
-0.7<br />
-1.3<br />
-3.4<br />
4.7<br />
9.7<br />
14.4<br />
13.1<br />
20.5<br />
18.9<br />
24.8<br />
-10.0 -5.0 0.0 5.0 10.0 15.0 20.0 25.0 30.0<br />
Percent<br />
Computed from: Monthly Manufacturing Survey and Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
Figure 3.2: Contributions <strong>of</strong> Industries to Total Manufacturing<br />
Sector’s Added Value, 2008<br />
Electrical and electronics products<br />
Chemicals and chemical products<br />
Transport equipment<br />
Iron and steel<br />
Wood and wood products<br />
Rubber products<br />
Food and beverages<br />
Non-metallic mineral products<br />
Fabricated metal products<br />
Plastic products<br />
Textiles and apparel<br />
Machinery and equipment<br />
6.1<br />
5.5<br />
4.9<br />
4.1<br />
3.8<br />
3.7<br />
3.6<br />
3.3<br />
1.5<br />
1.3<br />
10.0<br />
33.0<br />
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0<br />
Percent<br />
Computed from: Monthly Manufacturing Survey and Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
44 PRODUCTIVITY REPORT 2008
Productivity Performance <strong>of</strong> the Manufacturing<br />
Sector, 2008<br />
The unfavourable global economic environment had<br />
affected the <strong>performance</strong> <strong>of</strong> the manufacturing sector.<br />
Nevertheless, <strong>productivity</strong> as measured by value<br />
added per worker grew by 6.3%. Among the industries<br />
which recorded high <strong>productivity</strong> growth were food<br />
and beverages, chemicals and chemical products,<br />
non-metallic mineral products (Figure 3.3). Various<br />
measures and initiatives taken at the firm level such<br />
as streamlining operations and processes, adoption<br />
<strong>of</strong> quality management systems, improving inventory<br />
and logistics management, and human resource<br />
development had contributed to the <strong>productivity</strong><br />
growth.<br />
The manufacturing sector<br />
registered a <strong>productivity</strong><br />
growth <strong>of</strong> 6.3% with doubledigit<br />
growth recorded by<br />
food and beverages, chemicals<br />
and chemical products and<br />
non-metallic mineral products<br />
CHAPTER 3<br />
Figure 3.3: Productivity Growth <strong>of</strong> the Manufacturing Industries, 2008<br />
Food and beverages<br />
Chemicals and chemical products<br />
Non-metallic mineral products<br />
Iron and steel<br />
Transport equipment<br />
Fabricated metal products<br />
Manufacturing<br />
Machinery and equipment<br />
Textiles and apparel<br />
Rubber products<br />
Plastic products<br />
Wood and wood products<br />
Electrical and electronics products<br />
-10.0<br />
-0.2<br />
-2.9<br />
2.6<br />
1.3<br />
1.3<br />
12.5<br />
8.6<br />
8.3<br />
7.3<br />
6.3<br />
5.4<br />
19.2<br />
16.0<br />
-5.0 0.0 5.0 10.0 15.0 20.0 25.0<br />
Percent<br />
Computed from: Monthly Manufacturing Survey and Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
PRODUCTIVITY REPORT 2008<br />
45
CHAPTER 3<br />
Figure 3.4: Productivity Level <strong>of</strong> the Manufacturing Industries, 2008<br />
Chemicals and chemical products<br />
Iron and steel<br />
Machinery and equipment<br />
Transport equipment<br />
Manufacturing<br />
Food and beverages<br />
Electrical and electronics products<br />
Non-metallic mineral products<br />
Fabricated metal products<br />
Rubber products<br />
Plastics products<br />
Wood and wood products<br />
Textiles and apparel<br />
110.6<br />
107.3<br />
91.1<br />
90.6<br />
90.0<br />
88.7<br />
66.8<br />
63.1<br />
39.5<br />
35.2<br />
24.1<br />
245.4<br />
337.1<br />
0 50 100 150 200 250 300 350 400<br />
RM Thousand<br />
Computed from: Monthly Manufacturing Survey and Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
The domestic-oriented<br />
industries performed better<br />
than export-oriented industries<br />
Continous demand coupled<br />
with various efforts undertaken<br />
by the food and beverages<br />
industry had contributed to<br />
its high growth<br />
The domestic-oriented industries achieved higher<br />
<strong>productivity</strong> growth as compared with the exportoriented<br />
industries. Food and beverages, chemicals<br />
and chemical products and non-metallic mineral<br />
products recorded a double-digit growth <strong>of</strong> 19.2%,<br />
16.0% and 12.5% respectively. Other domesticoriented<br />
industries such as iron and steel, transport<br />
equipment, fabricated metal products and machinery<br />
and equipment also recorded <strong>productivity</strong> growth.<br />
The <strong>performance</strong> <strong>of</strong> these domestic-oriented<br />
industries was due to strong domestic demand within<br />
the domestic market for construction and agriculture<br />
related industries.<br />
The food and beverage industries recorded a<br />
<strong>productivity</strong> growth <strong>of</strong> 19.2%. Modernisation and<br />
application <strong>of</strong> best practices in the food production<br />
system and good management systems had<br />
contributed to the strong <strong>performance</strong> <strong>of</strong> the industry.<br />
This is also in line with the move towards selfsufficiency<br />
in food production as the nation aspires to<br />
be a net food exporter by 2010.<br />
46 PRODUCTIVITY REPORT 2008
The <strong>productivity</strong> <strong>of</strong> chemicals and other chemical<br />
products improved <strong>of</strong> double-digit growth by 16.0% to<br />
a level <strong>of</strong> RM337,100. All the sub-industries registered<br />
increase in <strong>productivity</strong> growth ranging from 5.5% to<br />
42.6% except for industrial gases. The <strong>performance</strong> <strong>of</strong><br />
these sub-industries was driven by strong demand in<br />
both domestic and global markets. Increase in exports<br />
was recorded in pesticides and other agrochemical<br />
products as well as fertiliser and nitrogen compounds<br />
products.<br />
Productivity <strong>of</strong> chemicals and<br />
other chemical products grew<br />
by 16.0% driven by strong<br />
market demand<br />
CHAPTER 3<br />
The non-metallic mineral products industry registered<br />
a <strong>productivity</strong> growth <strong>of</strong> 12.5%. All sub-industries<br />
recorded <strong>productivity</strong> growth ranging from 0.3%<br />
to 31.4% except for the manufacture <strong>of</strong> other<br />
non-metallic mineral products. The industry benefited<br />
from expansion in other industries, particularly from<br />
the construction and transport equipment industries.<br />
Productivity <strong>of</strong> the transport equipment industry<br />
increased by 8.3% to RM107,300. High capacity<br />
utilisation due to strong demand across all industries<br />
namely automotive, motor vehicles, parts and<br />
accessories and motor cycles and scooters<br />
contributed to the high <strong>performance</strong> <strong>of</strong> the industry. In<br />
addition, skilled workers and good manufacturing<br />
practices such as Kaizen (continuous improvement)<br />
had further contributed to the <strong>performance</strong>.<br />
Most <strong>of</strong> the export-oriented industries registered<br />
lower <strong>productivity</strong> growth as compared with the<br />
overall manufacturing average. Initiatives such as<br />
improvement in the production and marketing aspects<br />
were undertaken to overcome the declining demand.<br />
A <strong>productivity</strong> growth <strong>of</strong> 0.6% amounting to RM23,600<br />
was recorded by the textiles and apparel industry in<br />
2008. The lower growth was attributed to the lower<br />
capacity utilisation as a result <strong>of</strong> weaker external<br />
demand for both textiles and apparel.<br />
Overall, export-oriented industries experienced<br />
declining demand due to the poor economic<br />
<strong>performance</strong> among developed economies which had<br />
affected the <strong>performance</strong> <strong>of</strong> the E&E industry. The<br />
Expansion in other industries,<br />
particularly from the<br />
construction and transport<br />
equipment industries<br />
contributed to high <strong>productivity</strong><br />
<strong>performance</strong> <strong>of</strong> non-metallic<br />
mineral products industry<br />
Productivity <strong>of</strong> the transport<br />
equipment industry increased<br />
by 8.3%<br />
Most <strong>of</strong> the export-oriented<br />
industries registered lower<br />
<strong>productivity</strong> growth as<br />
compared to the<br />
manufacturing average<br />
Declining demand due to poor<br />
economic <strong>performance</strong> <strong>of</strong><br />
developed economies had<br />
affected E&E <strong>productivity</strong><br />
PRODUCTIVITY REPORT 2008<br />
47
CHAPTER 3<br />
Various measures such as<br />
reducing direct cost and<br />
realigning human resource<br />
management had been<br />
implemented<br />
<strong>productivity</strong> <strong>of</strong> the industry declined by 2.9% to<br />
RM90,600. Electric power cables and wires, other<br />
insulated wires and cables, and domestic appliances<br />
industries posted a <strong>productivity</strong> growth <strong>of</strong> 7.8%, 6.9%<br />
and 5.3% respectively. Various measures such as<br />
reducing indirect cost and realigning human resource<br />
management had been implemented by the<br />
industries. The audio visual products, semi-conductor<br />
devices and computers and computer peripheral<br />
products experienced a decline in <strong>productivity</strong> by<br />
11.6%, 2.6% and 0.4% respectively. The reduction in<br />
orders and cancellation especially in audio visual<br />
products, semi-conductor devices, computers and<br />
computer peripherals had contributed to the low<br />
<strong>productivity</strong> <strong>performance</strong> <strong>of</strong> the industry.<br />
Box 3.1: Kaizen: The Leading Edge in Cost Management<br />
and Greater Efficiency<br />
Kaizen is a life philosophy for continuous and incremental self improvement and<br />
it is used for improvement to existing processes. Many industries have adopted<br />
this concept to improve the quality <strong>of</strong> output and increase <strong>productivity</strong> levels.<br />
Through Kaizen practice, operational costs can be reduced and a continuous<br />
work improvement culture be internalised. Successful companies that had<br />
implemented Kaizen recorded improvements in manpower, time and reject rates:<br />
• The manpower at the production hydraulic zone was reduced from<br />
3 to 2.<br />
• The time taken to transport the raw material to the mixer was<br />
reduced by 50%.<br />
• The reject rate at the blow moulding zone was reduced to 0.35%<br />
per 1,000 output as compared to 0.70% per 1,000 output before<br />
implementing Kaizen.<br />
48 PRODUCTIVITY REPORT 2008
The process <strong>of</strong> implementing Kaizen<br />
CHAPTER 3<br />
Identifying problem<br />
Problem analysis<br />
Action<br />
Plan<br />
Check<br />
Do<br />
Labour Cost Competitiveness<br />
The manufacturing sector continued to strengthen its<br />
labour cost competitiveness in 2008 as reflected by<br />
a decline in unit labour cost <strong>of</strong> 4.7%. Unit labour cost<br />
measures the labour cost <strong>of</strong> producing one unit <strong>of</strong><br />
output. Labour cost competitiveness <strong>of</strong> the sector was<br />
enhanced with an achievement <strong>of</strong> higher <strong>productivity</strong><br />
growth <strong>of</strong> 6.3% as compared with labour cost growth<br />
<strong>of</strong> 2.0%. One <strong>of</strong> the initiatives adopted by the<br />
manufacturing sector to ensure competitiveness is<br />
through the <strong>productivity</strong>-linked wage system.<br />
Labour cost competitiveness<br />
improved by a 4.7% decline in<br />
unit labour cost<br />
PRODUCTIVITY REPORT 2008<br />
49
CHAPTER 3<br />
Box 3.2: Linking Wages to Enhance Competitiveness<br />
<strong>of</strong> the Manufacturing Sector<br />
Linking wages to <strong>productivity</strong>/<strong>performance</strong> will ensure that firms remain resilient<br />
and sustain labour cost competitiveness at all times. The Productivity-Linked<br />
Wage System provides the flexibility to adjust wages according to<br />
<strong>performance</strong> in line with economic changes. Productivity/<strong>performance</strong><br />
elements that had been identified include the following:<br />
Productivity / Performance Elements<br />
Productivity/<br />
Performance<br />
Improvement<br />
– Identify key<br />
<strong>performance</strong><br />
indicators<br />
–Total output per<br />
employee<br />
– Added value per<br />
employee<br />
– Sales value per<br />
employee<br />
– Cost Savings<br />
– Reduction in<br />
rejects<br />
Pr<strong>of</strong>it Based<br />
Bonus example:<br />
– Pr<strong>of</strong>it after text<br />
– Return on sales<br />
– Return on equity<br />
– Return on<br />
investment<br />
– Return on assets<br />
Individual<br />
Performance<br />
Improvement<br />
example:<br />
– Improving work<br />
processes<br />
– Achieving<br />
<strong>performance</strong><br />
targets<br />
– Quality conscious<br />
–Quick response<br />
to customer<br />
complaints<br />
– Innovative<br />
Commitment,<br />
Discipline,<br />
Timelines:<br />
– Able to work<br />
independently<br />
– Making the right<br />
decisions<br />
– Perform better<br />
with less<br />
supervision<br />
– Possesses<br />
initiative<br />
–Time conscious<br />
with regards to<br />
work processes<br />
– Achieving teambased<br />
targets<br />
Skills Incentives:<br />
– Able to perform<br />
more than one<br />
type <strong>of</strong> job<br />
function<br />
– Able to handle<br />
more than one<br />
machine<br />
– Having skills<br />
qualification in<br />
specific areas<br />
50 PRODUCTIVITY REPORT 2008
Details on the number <strong>of</strong> <strong>performance</strong> elements implemented by manufacturing<br />
companies are shown below:<br />
CHAPTER 3<br />
Performance Elements in the Manufacturing Sector, 2008<br />
Performance Elements 2008<br />
%<br />
Productivity/Performance Improvement 38.6<br />
Individual Performance Improvement 29.4<br />
Commitment, Discipline, Timelines 24.8<br />
Pr<strong>of</strong>it-Based Bonus 11.8<br />
Skills Incentives 1.9<br />
Table 3.1: Labour Cost Competitiveness, 2008<br />
Industries Productivity Labour Cost Unit Labour<br />
per Employee Cost<br />
Growth rate (%)<br />
Food and beverages 19.2 6.1 -8.2<br />
Chemicals and chemical products 16.0 6.3 -3.9<br />
Non-metallic mineral products 12.5 4.8 -7.1<br />
Iron and steel 8.6 2.8 -0.5<br />
Transport equipment 8.3 5.8 -1.6<br />
Fabricated metal products 7.3 0.3 -2.3<br />
Manufacturing 6.3 2.0 -4.7<br />
Machinery and equipment 5.4 -2.5 -2.2<br />
Textiles and apparel 2.6 1.5 -1.3<br />
Plastic products 1.3 0.5 -1.6<br />
Rubber products 1.3 0.1 -0.4<br />
Wood and wood products -0.2 0.4 2.0<br />
Electrical and electronics -2.9 0.1 6.5<br />
PRODUCTIVITY REPORT 2008<br />
51
CHAPTER 3<br />
The food and beverage and<br />
non-metallic mineral products<br />
achieved higher labour cost<br />
competitiveness<br />
Among the industries, food and beverages and nonmetallic<br />
mineral products recorded lower unit labour<br />
cost as compared with the manufacturing average.<br />
The labour cost competitiveness <strong>of</strong> E&E industry<br />
declined as reflected by an increase in unit labour cost<br />
<strong>of</strong> 6.5%.<br />
Figure 3.5: Changes in Unit Labour Cost <strong>of</strong> the<br />
Manufacturing Industries, 2008<br />
Food and beverages<br />
Non-metallic mineral products<br />
Manufacturing<br />
Chemicals and chemical products<br />
Fabricated metal products<br />
Machinery and equipment<br />
Transport equipment<br />
Plastic products<br />
Textiles and apparel<br />
Iron and steel<br />
Rubber products<br />
Wood and wood products<br />
Electrical and electronics products<br />
-8.2<br />
-7.1<br />
-4.7<br />
-3.9<br />
-2.3<br />
-2.2<br />
-1.6<br />
-1.6<br />
-1.3<br />
-0.5<br />
-0.4<br />
2.0<br />
6.5<br />
-10.0 -0.8 -0.6 -4.0<br />
-2.0 0.0 2.0 4.0<br />
Percent<br />
6.0 8.0<br />
Computed from: Monthly Manufacturing Survey and Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
Industries that registered high<br />
labour cost per employee<br />
were chemicals and chemical<br />
products, food and beverages,<br />
transport equipment, nonmetallic<br />
mineral products<br />
and iron and steel<br />
The non-metallic mineral products, food and<br />
beverages, transport equipment and chemicals and<br />
chemical products registered faster growth in labour<br />
cost per employee ranging from 4.8% to 6.3% as<br />
compared with the manufacturing average <strong>of</strong> 2.0%.<br />
Machinery and equipment industry recorded a decline<br />
in labour cost per employee <strong>of</strong> 2.5%. Several<br />
measures such as reducing the number <strong>of</strong> employees,<br />
number <strong>of</strong> working days and cutting down on overtime<br />
in tandem with the slow demand for products,<br />
especially for the last quarter <strong>of</strong> 2008 contributed to<br />
the <strong>performance</strong>.<br />
52 PRODUCTIVITY REPORT 2008
Figure 3.6: Growth in Labour Cost per Employee <strong>of</strong> the<br />
Manufacturing Industries, 2008<br />
CHAPTER 3<br />
Chemicals and chemical products<br />
Food and beverages<br />
Transport equipment<br />
Non-metallic mineral products<br />
Iron and steel<br />
Manufacturing<br />
Textiles and apparel<br />
Plastic products<br />
Wood and wood products<br />
Fabricated metal products<br />
Electrical and electronics products<br />
Rubber products<br />
Machinery and equipment<br />
-2.5<br />
1.5<br />
0.5<br />
0.4<br />
0.3<br />
0.1<br />
0.1<br />
2.0<br />
2.8<br />
4.8<br />
6.3<br />
6.1<br />
5.8<br />
-4.0 -2.0 0.0 2.0 4.0 6.0 8.0<br />
Percent<br />
Computed from: Monthly Manufacturing Survey and Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
International Comparison<br />
The Malaysian manufacturing sector recorded growth<br />
<strong>of</strong> 8.0% in <strong>productivity</strong>. The <strong>performance</strong> was the third<br />
highest after Republic <strong>of</strong> Korea and Taiwan which<br />
recorded a growth <strong>of</strong> 8.7% (Figure 3.7). Productivity<br />
growth in most <strong>of</strong> the other economies also improved<br />
ranging from 0.7% to 8.7%. However, both Norway<br />
and Italy recorded a contraction in its <strong>productivity</strong><br />
growth <strong>of</strong> 0.2% and 0.5% respectively.<br />
Productivity growth for the<br />
Malaysian manufacturing<br />
sector was higher than<br />
Germany and the<br />
United States<br />
PRODUCTIVITY REPORT 2008<br />
53
CHAPTER 3<br />
Figure 3.7: Productivity Growth (National Currency basis), 2007<br />
10 8.7 8.7<br />
8.0<br />
8<br />
Percent<br />
6<br />
4<br />
2<br />
5.0<br />
4.1<br />
3.8<br />
3.1 2.8 2.8<br />
2.6<br />
2.5<br />
2.1<br />
2.1<br />
0.9<br />
0.7<br />
0<br />
-2<br />
Rep. <strong>of</strong> Korea<br />
Taiwan<br />
Malaysia<br />
Germany<br />
United States<br />
Spain<br />
Australia<br />
Netherlands<br />
Japan<br />
France<br />
United Kingdom<br />
Belgium<br />
Canada<br />
Sweden<br />
-0.2 -0.5<br />
Denmark<br />
Norway<br />
Italy<br />
Source: - Bureau <strong>of</strong> Labour Statistics News, 26 September 2008<br />
(Productivity figures refer to percent change in manufacturing output per hour worked while<br />
Malaysian figures refer to growth in Added Value per Employee, computed from Monthly<br />
Manufacturing Statistics, Department <strong>of</strong> Statistics, Malaysia )<br />
Malaysia was the second<br />
competitive economy in terms<br />
<strong>of</strong> labour cost competitiveness<br />
Malaysia is amongst the most competitive in terms <strong>of</strong><br />
unit labour cost. Malaysia achieved a 5.7% decline in<br />
unit labour cost, indicating a lower cost <strong>of</strong> production.<br />
Compared to selected Asian and OECD countries,<br />
Malaysia’s labour cost competitiveness is second<br />
to Taiwan (-6.5%). However, Malaysia is more<br />
competitive than Germany, the USA, Japan and the<br />
UK (Figure 3.8).<br />
54 PRODUCTIVITY REPORT 2008
Figure 3.8: Percentage Change in Manufacturing Unit Labour Cost<br />
(National Currency basis) 2007<br />
Taiwan<br />
Malaysia<br />
Germany<br />
Rep. <strong>of</strong> Korea<br />
United States<br />
Japan<br />
United Kingdom<br />
Netherlands<br />
France<br />
Belgium<br />
Spain<br />
Denmark<br />
Canada<br />
Sweden<br />
Italy<br />
Australia<br />
Norway<br />
-6.5<br />
-5.7<br />
-3.1<br />
-0.9<br />
-0.5<br />
-0.3<br />
-0.1<br />
0.2<br />
0.3<br />
0.5<br />
1.0<br />
1.1<br />
1.6<br />
2.6<br />
2.6<br />
2.8<br />
4.9<br />
CHAPTER 3<br />
-8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0<br />
Percent<br />
Source: - Bureau <strong>of</strong> Labour Statistics News, 26 September 2008<br />
Malaysia figures: Computed from Monthly Manufacturing Statistics, Department <strong>of</strong> Statistics, Malaysia<br />
TOTALFACTOR PRODUCTIVITY (TFP) OF<br />
SELECTED MANUFACTURING SUB-SECTORS,<br />
2004 – 2008<br />
Total Factor Productivity (TFP) is crucial for both<br />
economic and industrial growth which is achieved<br />
through technology development, better management,<br />
skills upgrading and ICT. The contribution <strong>of</strong> TFP<br />
growth to the manufacturing sector output was 43.3%<br />
while contributions from labour and capital were 23.7%<br />
and 33.1% respectively.<br />
The recent global economic slowdown had compelled<br />
the manufacturing sector to improve their production<br />
processes as well as human resource capabilities in<br />
order to boost the TFP <strong>of</strong> the sector. During the period<br />
2004-2008, TFP <strong>of</strong> the manufacturing sector grew by<br />
2.1%. There are four sources <strong>of</strong> TFP growth in the<br />
manufacturing sector namely, capital structure, quality<br />
<strong>of</strong> labour, demand intensity and technical progress<br />
(Figure 3.9).<br />
Total Factor Productivity is<br />
crucial for both economic and<br />
industrial growth<br />
For the period 2004-2008,<br />
TFP <strong>of</strong> the manufacturing<br />
sector grew by 2.1%<br />
reflecting enhanced<br />
efficiency <strong>of</strong> the sector<br />
PRODUCTIVITY REPORT 2008<br />
55
CHAPTER 3<br />
Figure 3.9: Sources <strong>of</strong> Manufacturing TFP<br />
Higher Productivity<br />
Higher TFP<br />
Capital<br />
Structure<br />
Quality <strong>of</strong><br />
Labour<br />
Demand<br />
Intensity<br />
Technical<br />
Progress<br />
• Automation<br />
• Modernisation<br />
• ICT<br />
•Training and<br />
Development<br />
• On-the-Job<br />
Training<br />
• Skills and<br />
Knowledge<br />
• Education<br />
• Market Share<br />
• Marketing<br />
Strategies<br />
• Product<br />
Differentiation<br />
•Technology<br />
• Creativity<br />
• Innovation<br />
• R&D<br />
• Management<br />
System<br />
Box 3.3: Competitiveness in the Food and Beverage Industry<br />
The competitiveness criteria used to assess competitiveness in the Food and<br />
Beverage Industry are organisation and culture, business measurement, plant<br />
and equipment, product development process, quality, innovation and cycle time.<br />
The criteria for organisation and culture includes beliefs, values, organisational<br />
style, approaches and systems. Organisation and culture achieved a score <strong>of</strong><br />
68.3%. Business measurement which refers to market share, inventory turnover<br />
and cash flow obtained a score <strong>of</strong> 68.2%. Plant and Equipment which reflects<br />
management commitment and emphasis on a company’s appearance,<br />
orderliness and cleanliness scored 67.6%. Product Development Process<br />
involving product design attained a score <strong>of</strong> 67.3%.<br />
56 PRODUCTIVITY REPORT 2008
Industry Competitiveness in the Food and Beverage Industry<br />
According to Business Process Areas<br />
CHAPTER 3<br />
Organisation and Culture<br />
Business Measurement<br />
68.3<br />
68.2<br />
Plant and Equipment<br />
Product Development Process<br />
Quality<br />
67.6<br />
67.3<br />
67.2<br />
Innovation<br />
64.4<br />
Manufacturing Cycle Time<br />
59.9<br />
54.0 56.0 58.0 60.0 62.0 64.0 66.0 68.0 70.0<br />
Percent<br />
Quality assurance and safety achieved a score <strong>of</strong> 67.2%. It reflects reliability,<br />
capability <strong>of</strong> processes, rejection or scraps, customer delivery as well as quality<br />
<strong>of</strong> suppliers. Innovation scored 64.4%. The innovation score was 64.4%.<br />
Innovative ideas through small group activities were assessed. The score for<br />
Manufacturing Cycle Time was the lowest at 59.9%. Food and beverages need to<br />
improve on their setting and adjustment times, as well as physical equipment<br />
changes and cleaning activities. Change-over process needs to be planned<br />
according to the company’s production schedules.<br />
PRODUCTIVITY REPORT 2008<br />
57
CHAPTER 3<br />
Strong TFP growth was<br />
achieved by transport<br />
equipment, chemicals and<br />
chemical products, nonmetallic<br />
mineral products, food<br />
and beverages and fabricated<br />
metal products<br />
TFP Growth <strong>of</strong> Selected Manufacturing<br />
Industries, 2004-2008<br />
Manufacturing industries which registered TFP growth<br />
higher than the manufacturing average were transport<br />
equipment at 3.0%, chemicals and chemical products<br />
at 3.0%, non-metallic mineral products at 2.8%, food<br />
and beverages at 2.5% and fabricated metal at 2.2%<br />
(Figure 3.10). The high TFP growth <strong>of</strong> the transport<br />
equipment industry was due to improvements in both<br />
human capital as well as technology and production<br />
processes. Likewise, the chemicals and chemical<br />
products industry was able to sustain high TFP growth<br />
due to its mainly capital intensive operations.<br />
Figure 3.10: TFP Growth <strong>of</strong> Manufacturing Industries, 2004-2008<br />
Transport equipment<br />
Chemicals and chemical products<br />
Non-metallic mineral products<br />
Food and beverages<br />
Electrical and electronic products<br />
Fabricated metal products<br />
Manufacturing<br />
Iron and steel<br />
Plastic products<br />
Machinery and equipment<br />
Textiles and apparel<br />
Rubber products<br />
Wood and wood products<br />
1.1<br />
1.0<br />
1.9<br />
1.7<br />
1.5<br />
2.5<br />
2.3<br />
2.2<br />
2.1<br />
2.0<br />
2.8<br />
3.0<br />
3.0<br />
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5<br />
Percent<br />
Computed from: Annual Industrial Survey, Department <strong>of</strong> Statistics<br />
58 PRODUCTIVITY REPORT 2008
Iron and steel, plastic products, machineries and<br />
equipment, textiles and apparel, rubber products as<br />
well as wood and wood product industries registered<br />
lower TFP growth than the manufacturing average.<br />
These industries would need to implement a more<br />
efficient system to enhance TFP.<br />
More efficient systems and<br />
processes needed to enhance<br />
TFP<br />
CHAPTER 3<br />
Although the economic slowdown may curb new<br />
investments in technology and machineries, it<br />
provides an opportunity for industries to enhance and<br />
upgrade their quality workforce instead <strong>of</strong> retrenching<br />
them during this period <strong>of</strong> low demand. Such training<br />
and retraining strategies will equip the employees with<br />
the necessary skills to prepare them for the<br />
anticipated economic recovery.<br />
Employees would be an asset if they are multi-skilled<br />
especially in skills that are relevant to the industries<br />
needs. They can also acquire new skills to enable<br />
them to be more marketable at the workplace.<br />
Employees should also be conscientious, creative,<br />
flexible and participate in company-wide projects<br />
which add value to the organisation.<br />
One <strong>of</strong> the main <strong>productivity</strong> enhancement initiatives<br />
is improvement in human resources capabilities. This<br />
includes involvement <strong>of</strong> frontline workers to selfmanage<br />
their work activities and to solve work-related<br />
problems. This leads to the establishment <strong>of</strong><br />
Innovative and Creative Circles (ICC) which focus on<br />
improving work processes and finding solutions to<br />
overcome bottlenecks, reduce wastages through<br />
team problem-solving efforts among the members<br />
to improve product quality, equipment efficiency,<br />
eliminate bottlenecks and ultimately reduce cost. By<br />
identifying bottlenecks at production line capacity<br />
utilisation can be optimised. Thus, the organisation will<br />
be able to produce high quality products as well as<br />
reduce production cost. ICC is a strategic effort in<br />
nurturing innovativeness and creativity among the<br />
employees through their small group improvement<br />
activities.<br />
Training and retraining will<br />
equip employees with the<br />
necessary skills<br />
Investment in human resource<br />
development to upgrade<br />
skills and capabilities <strong>of</strong> the<br />
workforce had contributed to<br />
the quality <strong>of</strong> labour<br />
ICC activates which focuses on<br />
improving work processes and<br />
finding solutions to overcome<br />
work related problems enable<br />
organisation to improve work<br />
processes, produce high quality<br />
products as well as reducing<br />
production cost<br />
PRODUCTIVITY REPORT 2008<br />
59
CHAPTER 3<br />
Box 3.4: The Impact <strong>of</strong> Automation and Modernisation<br />
in the Manufacturing Sector<br />
A study on "Automation and Modernisation in the Manufacturing Sector" was<br />
conducted in 2008 to identify benefits gained from the implementation <strong>of</strong><br />
new machinery and production lines across different industries. The use <strong>of</strong><br />
automation helps to overcome hazardous jobs especially in production lines<br />
which involve welding and handling <strong>of</strong> molding processes.<br />
With robotic arms, conveyors and pipelines, there is less human intervention<br />
thus reducing handling accidents. The results from the study are as follows:<br />
• Reduction in material wastage ranging from 3% to 22%.<br />
• Reduction in production cost and unit labour cost by an average <strong>of</strong><br />
13% to 30% and 20% to 40% respectively. Other benefits include<br />
cleaner environment, reduction in noise level and a conducive<br />
working environment.<br />
• The improvement in production processes has resulted in consistency<br />
<strong>of</strong> material usage thus improving the overall quality <strong>of</strong> the products.<br />
INITIATIVES TAKEN TO OVERCOME THE<br />
ECONOMIC SLOWDOWN<br />
Demand for manufacturing<br />
products and FDI affected<br />
Working Capital Guarantee<br />
Scheme to provide working<br />
capital to companies<br />
The economic slowdown had affected the demand for<br />
manufacturing products as well as the inflow <strong>of</strong><br />
Foreign Direct Investments (FDI). Among the<br />
initiatives to assist industries to mitigate the global<br />
crisis are:<br />
• Working Capital Guarantee Scheme<br />
amounting to RM5 billion to provide working<br />
capital to companies with shareholder<br />
equity below RM20 million. The maximum<br />
loan amount will be RM10 million with a<br />
maximum repayment period <strong>of</strong> five years to<br />
allow credit flows to companies.<br />
60 PRODUCTIVITY REPORT 2008
• Industry Restructuring Guarantee Fund<br />
Scheme amounting to RM5 billion for loans<br />
to increase <strong>productivity</strong> and value added<br />
activities as well as the application <strong>of</strong> green<br />
technology. The maximum loan is RM50<br />
million payable over a period <strong>of</strong> 10 years.<br />
Industry Restructuring<br />
Guarantee Fund Scheme to<br />
assist industries<br />
CHAPTER 3<br />
• Financial Guarantee to provide credit<br />
enhancement to companies that intend to<br />
raise funds from the bond market.<br />
Financial Guarantee to provide<br />
credit<br />
• The Government will exempt levy payment<br />
to the Human Resource Development Fund<br />
(HRDF) for a period <strong>of</strong> 6 months for<br />
employers in the textile as well as electrical<br />
and electronic industries effective from<br />
1 February 2009. The Government will<br />
reduce the levy payment rate from 1% to<br />
0.5% for all employers for a period <strong>of</strong><br />
2 years effective 1 April 2009. With this<br />
reduction, employers will save RM390<br />
million in business costs.<br />
HRDF levy payment exemption<br />
for selected industries<br />
• Provide an additional allocation <strong>of</strong> RM200<br />
million to the Automotive Development<br />
Fund to continue supporting the<br />
development <strong>of</strong> the automotive industry and<br />
auto vendors as well as to establish the<br />
Automotive Institute <strong>of</strong> Malaysia.<br />
Automotive Development Fund<br />
to assist the automotive<br />
industry<br />
PRODUCTIVITY REPORT 2008<br />
61
CHAPTER 3<br />
Launching <strong>of</strong> various<br />
stimulus packages to assist<br />
manufacturing industries<br />
The <strong>productivity</strong> <strong>of</strong> the<br />
manufacturing sector<br />
is expected to grow<br />
by about 1.0% in 2009<br />
OUTLOOK FOR 2009<br />
The stimulus packages introduced by the Government<br />
coupled with efficiency initiatives implemented by<br />
the manufacturing sector would enable the sector<br />
to achieve a 1.0% growth. The government is also<br />
providing incentives to stimulate growth <strong>of</strong> the sector<br />
by voluntary deduction <strong>of</strong> 3% for a two-year period.<br />
Import duties for the iron and steel industry and<br />
approved permits for the import <strong>of</strong> iron and steel has<br />
also been abolished. In addition an allocation<br />
<strong>of</strong> RM200 million has been allocated under the<br />
microcredit scheme to assist the manufacturing<br />
sector. To ensure steady supply <strong>of</strong> foreign talent, work<br />
permits will be continued to be given but restricted to<br />
knowledge workers.<br />
The P&Q initiative such as<br />
Kaizen practices which<br />
focus on cost reduction<br />
and increased efficiency<br />
will contribute to <strong>productivity</strong><br />
improvement<br />
At the industry level firms should undertake P&Q<br />
initiatives to increase <strong>productivity</strong> and competitiveness<br />
<strong>of</strong> the sector. The initiatives include cost savings by<br />
reduction in rejects and reworks, intensification in the<br />
use <strong>of</strong> high technologies and investment in human<br />
capital.<br />
62 PRODUCTIVITY REPORT 2008
CHAPTER 4<br />
CHAPTER 4<br />
PRODUCTIVITY PERFORMANCE OF<br />
THE SERVICES SECTOR<br />
PRODUCTIVITY REPORT 2008<br />
1
CHAPTER 4<br />
PRODUCTIVITY PERFORMANCE OF THE SERVICES SECTOR<br />
Highlights<br />
• The services sector remained as the largest contributor to GDP at 46.3% in 2008.<br />
• Productivity <strong>of</strong> the services sector grew by 3.3%, with the transport sub-sector<br />
registering the highest growth <strong>of</strong> 4.5%, followed by trade, finance and utilities<br />
sub-sectors.<br />
• Services sector achieved TFP growth ranging from 1.0% to 2.1% due to efficient<br />
utilisation <strong>of</strong> capital and labour.<br />
• Malaysia’s services sector recorded higher <strong>productivity</strong> growth than Singapore and<br />
Republic <strong>of</strong> Korea.<br />
• The sector is expected to grow by 2.5% in 2009 supported by broad-based<br />
expansion in all services sub-sectors.<br />
Key Statistics<br />
2008<br />
Output Share <strong>of</strong> GDP (%) Growth (%)<br />
Services 46.3 6.6<br />
Transport 7.4 6.7<br />
Finance 15.7 5.6<br />
Utilities 2.9 2.2<br />
Trade 14.8 9.4<br />
Other Services 5.5 4.9<br />
Productivity Level (RM) Growth (%)<br />
Services 56,139 3.3<br />
Transport 70,607 4.5<br />
Finance 124,262 4.2<br />
Utilities 162,606 4.0<br />
Trade 40,027 4.3<br />
Other Services 26,895 1.9<br />
Total Factor Productivity Growth 1999 - 2008<br />
Services 1.3<br />
Transport 1.4<br />
Finance 1.9<br />
Utilities 1.6<br />
Trade 2.1<br />
Other Services 1.0<br />
PRODUCTIVITY REPORT 2008<br />
65
CHAPTER 4<br />
The services sector remains<br />
the key engine <strong>of</strong> growth at<br />
6.6%<br />
Performance <strong>of</strong> the Services Sector<br />
The services sector is one <strong>of</strong> the key engines<br />
<strong>of</strong> growth, contributing 46.3% to GDP in 2008<br />
(Figure 4.1). The sector recorded an output growth <strong>of</strong><br />
6.6% in 2008 (Figure 4.2). The growth was attributed<br />
to strong domestic consumption, investment in finance<br />
and insurance sub-sector as well as tourism activities.<br />
The trade sub-sector registered the highest<br />
output growth <strong>of</strong> 9.4%, followed by the transport<br />
sector <strong>of</strong> 6.7% and finance sector <strong>of</strong> 5.6%.<br />
Figure 4.1: Contribution <strong>of</strong> Services Sub-Sectors to Output<br />
50<br />
Percent<br />
40<br />
30<br />
20<br />
10<br />
0<br />
2004 2005 2006 2007 2008<br />
Transport 7.07 7.13 7.15 7.29 7.44<br />
Trade 12.88 13.31 13.42 14.15 14.81<br />
Finance 13.87 14.22 14.55 15.50 15.67<br />
Utilities 2.99 3.00 3.00 2.92 2.86<br />
Other Services 5.71 5.65 5.59 5.52 5.54<br />
Overall Services 42.52 43.32 43.71 45.38 46.32<br />
Year<br />
Computed from:<br />
- Economic Reports, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
66 PRODUCTIVITY REPORT 2008
Percent<br />
Figure 4.2: Output Growth <strong>of</strong> Services Sector<br />
16<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
2004 2005 2006 2007 2008<br />
Transport 8.22 6.12 6.18 8.45 6.69<br />
Trade 8.61 8.69 6.83 12.19 9.36<br />
Finance 4.76 7.84 8.36 13.36 5.62<br />
Utilities 6.66 5.73 5.63 3.86 2.15<br />
Other Services 4.17 4.27 4.76 5.01 4.88<br />
Overall Services 6.52 7.19 6.87 10.48 6.64<br />
CHAPTER 4<br />
Year<br />
Computed from:<br />
- Economic Reports, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
Box 4.1: Innovative Practices in the Services Sector<br />
A survey was carried out by <strong>MPC</strong> to gauge the impact <strong>of</strong> innovative practices in<br />
the services sector involving respondents from distributive trade (32.9%), logistics<br />
(25.7%), business and pr<strong>of</strong>essional (17.8%), tourism (12.1%), education and<br />
training (7.9%), and health (3.7%) sub-sectors. The two main indices used were<br />
the innovation practices index and the operational outcomes index. The former<br />
assesses overall business improvements while the later assesses the extent to<br />
which innovation practices have led to better results.<br />
The findings showed that service firms generally took a more informal and<br />
incremental approach towards innovation. Instead <strong>of</strong> investing in R&D, most firms<br />
used training as a driver for new or improved products innovation. The findings<br />
PRODUCTIVITY REPORT 2008<br />
67
CHAPTER 4<br />
also revealed that service firms were aware on the importance <strong>of</strong> innovation in<br />
their business strategies but failed to put them into practice. The low levels <strong>of</strong><br />
innovation activities were due to lack <strong>of</strong> capital, skilled staff and limited market.<br />
The majority <strong>of</strong> those in the services sector attained a relatively low score for<br />
innovation practices. The result showed that only 16.7% achieved a score <strong>of</strong> 81 -<br />
100, while 20.8% <strong>of</strong> them scored between 71 - 80 on innovation practices.<br />
Innovation Practices Index for the Services Sector<br />
30<br />
Percent<br />
20<br />
10<br />
3.32 2.90<br />
5.20<br />
8.18<br />
11.58 12.27<br />
19.38<br />
20.44<br />
11.93<br />
4.86<br />
0<br />
0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100<br />
Score<br />
Large firms registered high scores on innovation practices compared to SME<br />
firms. In addition, 26.5% <strong>of</strong> the large firms were at the top bracket with a score <strong>of</strong><br />
81 - 100. Meanwhile, a total <strong>of</strong> 13.8% <strong>of</strong> SME firms was at the top bracket. Most<br />
<strong>of</strong> the large firms (27.6%) scored between 71 - 80 whereas, majority <strong>of</strong> SME firms<br />
(19.1%) scored between 61-70.<br />
68 PRODUCTIVITY REPORT 2008
Innovation Practices <strong>of</strong> the Services Sector by Firm Size<br />
SME<br />
Large<br />
CHAPTER 4<br />
30<br />
28<br />
Percent<br />
20<br />
10<br />
6<br />
9<br />
20<br />
19<br />
13 13 11<br />
7<br />
18<br />
10<br />
19<br />
8<br />
4<br />
4<br />
1 1<br />
1<br />
4<br />
4<br />
0<br />
0-10 11-20 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91-100<br />
Score<br />
On the operational outcome, more than 50% <strong>of</strong> the firms agreed that their cost,<br />
quality, service, flexibility, delivery time, customer satisfaction and employee<br />
satisfaction were comparable to their major competitors. The study also found that<br />
there was a positive correlation between innovation practices and operational<br />
outcome. This implied that, more emphasis given to innovation practices<br />
will eventually enhance operational outcomes <strong>of</strong> the service firms. As such, the<br />
service firms in Malaysia are encouraged to place more focus on innovation<br />
practices in order to improve <strong>performance</strong> and growth.<br />
PRODUCTIVITY REPORT 2008<br />
69
CHAPTER 4<br />
Productivity <strong>performance</strong> <strong>of</strong><br />
services sector grew by 3.3%.<br />
The Transport sub-sector<br />
recorded <strong>productivity</strong> growth<br />
<strong>of</strong> 4.5%<br />
PRODUCTIVITY PERFORMANCE OF THE<br />
SERVICES SECTOR<br />
The services sector registered a <strong>productivity</strong> growth <strong>of</strong><br />
3.3% amounting to RM56,139 in 2008 (Figures 4.3<br />
and 4.4). The growth was driven by sustainable<br />
domestic consumption and trade related activities.<br />
The <strong>productivity</strong> <strong>of</strong> the transport sub-sector recorded<br />
the highest <strong>productivity</strong> growth <strong>of</strong> 4.5% amounting to<br />
RM70,607 as compared to RM67,560 in 2007. Despite<br />
high fuel prices and the cost <strong>of</strong> spare parts, the growth<br />
remained healthy supported by continuous upgrading<br />
and maintenance <strong>of</strong> infrastructure, increase in travel<br />
and trade related activities in the maritime transport<br />
services, improvement in capacity and efficiency<br />
<strong>of</strong> port services, continuous improvement <strong>of</strong> public<br />
transport facilities and increase in air traffic.<br />
Trade sub-sector recorded<br />
<strong>productivity</strong> growth <strong>of</strong> 4.3%<br />
attributed to higher domestic<br />
consumption, increased<br />
investment and higher tourist<br />
expenditure<br />
Finance sub-sector registered<br />
<strong>productivity</strong> growth <strong>of</strong> 4.2%<br />
while the Utilities sub-sector<br />
grew by 4.0%<br />
The trade sub-sector achieved a <strong>productivity</strong> level <strong>of</strong><br />
RM40,027 in 2008 as compared to RM38,362 in 2007<br />
thus attaining a growth <strong>of</strong> 4.3%. The growth was<br />
due to higher domestic consumption, increased<br />
investment and higher tourist expenditure in line with<br />
the government efforts to promote tourism namely,<br />
eco-tourism, health tourism, sports tourism and<br />
homestay programmes. The "Visit Malaysia Year"<br />
campaigns have also been successful in promoting<br />
Malaysia as a preferred shopping destination. At<br />
the retail level, the growth was supported by<br />
the expansion <strong>of</strong> businesses especially shopping<br />
outlets and the launching <strong>of</strong> more foreign-owned<br />
hypermarkets and superstores.<br />
Productivity <strong>of</strong> the finance sub-sector grew at 4.2% to<br />
RM124,262 from RM119,242 in 2007. The sub-sector<br />
expanded due to increased lending and fee-based<br />
activities, continuous demand for housing loans,<br />
businesses financing, expansion <strong>of</strong> Islamic banking<br />
and increased demand for medical and health<br />
insurance. Productivity <strong>of</strong> the utilities sub-sector<br />
grew by 4.0% to RM162,606 as compared to<br />
RM156,413 in 2007. The growth was due to<br />
sustainable demand from industrial, commercial and<br />
residential users.<br />
70 PRODUCTIVITY REPORT 2008
Figure 4.3: Productivity Growth <strong>of</strong> Services Sub-Sectors<br />
CHAPTER 4<br />
Percent<br />
6.00<br />
5.00<br />
4.00<br />
3.00<br />
2.00<br />
1.00<br />
0.00<br />
2004 2005 2006 2007 2008<br />
Transport 3.21 4.03 4.07 5.66 4.51<br />
Trade 2.36 2.67 2.15 5.54 4.34<br />
Finance 2.41 3.86 4.06 4.87 4.21<br />
Utilities 2.90 4.92 4.52 3.86 3.96<br />
Other Services 1.76 1.19 1.51 1.77 1.93<br />
Overall Services 2.13 2.90 3.03 5.07 3.25<br />
Year<br />
Computed from:<br />
- Economic Reports, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
Figure 4.4: Productivity Level <strong>of</strong> Services Sub-Sectors<br />
RM Thousand<br />
180<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
2004 2005 2006 2007 2008<br />
Transport 59.06 61.44 63.94 67.56 70.61<br />
Trade 34.66 35.58 36.35 38.36 40.03<br />
Finance 105.21 109.27 113.70 119.24 124.26<br />
Utilities 137.33 144.09 150.60 156.41 162.61<br />
Other Services 25.24 25.54 25.93 26.39 26.90<br />
Overall Services 48.81 50.23 51.75 54.37 56.14<br />
Year<br />
Computed from:<br />
- Economic Reports, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
71
CHAPTER 4<br />
Malaysia’s services sector<br />
registered higher <strong>productivity</strong><br />
growth <strong>of</strong> 3.3%<br />
INTERNATIONAL COMPARISON IN SELECTED<br />
SERVICES SECTORS<br />
In 2008, Malaysia’s services sector recorded a growth<br />
<strong>of</strong> 3.3% in <strong>productivity</strong> which was ahead <strong>of</strong> Singapore<br />
(1.1%) and Korea (-1.9%) (Table 4.1). This<br />
<strong>performance</strong> was attributed to growth in the transport,<br />
finance and trade sub-sectors while the unfavourable<br />
growth <strong>of</strong> 1.9% experienced by Korea was caused by<br />
a 6.3% decline in the other services despite a growth<br />
<strong>of</strong> 7.7% and 4.2% in the transport and trade subsectors<br />
respectively.<br />
Table 4.1: Productivity Growth in the Services Sector for<br />
Selected Asian Countries, 2008<br />
Country<br />
Growth (%)<br />
Services Transport Finance Trade Others<br />
Malaysia 3.25 4.51 4.21 4.34 1.93<br />
Singapore 1.09 1.53 2.58 2.29 0.61<br />
Republic <strong>of</strong> -1.85 7.73 1.25 4.22 -6.32<br />
Korea<br />
Source:<br />
- Economic Reports, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Survey <strong>of</strong> Singapore, 2008<br />
- Asean Development Bank<br />
- Ministry <strong>of</strong> Labour, Korea<br />
72 PRODUCTIVITY REPORT 2008
Box 4.2: Patient Safety in Private Hospitals<br />
Private hospitals are continuously improving their quality <strong>of</strong> services to take<br />
advantage <strong>of</strong> the government’s effort in promoting healthcare tourism as a new<br />
source <strong>of</strong> growth. In this respect, <strong>MPC</strong> has established a Community <strong>of</strong> Practices<br />
(CoPs) for Private Hospitals since 2002. This serves as a platform for private<br />
hospitals to establish benchmarks in some <strong>of</strong> the functional areas.<br />
CHAPTER 4<br />
A benchmarking survey is carried out annually to gauge the <strong>performance</strong> <strong>of</strong><br />
private hospitals. The KPIs assessed are related to patient safety namely, clinical<br />
outcome and patient satisfaction. Clinical outcome measures the clinical<br />
management and/or outcome <strong>of</strong> patient care:<br />
Key Performance Indicators 2008 2007 2006<br />
Surgical patients who passed away within 0.7 0.7 0.6<br />
14 days <strong>of</strong> surgery per 1000 patients<br />
Percentage <strong>of</strong> elective LSCS with LOS 1.5% 2.3% 4.9%<br />
<strong>of</strong> more than 5 days<br />
Percentage <strong>of</strong> eligible AMI patients - 83% 87% 90%<br />
within 1 hour<br />
Rate <strong>of</strong> unscheduled return to the operating<br />
theatre within 48 hours <strong>of</strong> operation per 1.0 0.7 1.0<br />
1000 patients<br />
Rate <strong>of</strong> patients fall in a year per 1000 1.4 1.1 1.8<br />
inpatients admission<br />
Rate <strong>of</strong> needle stick injury per staff 1.4% 1.4% 1.5%<br />
Rate <strong>of</strong> MRSA cases per 1000 patients 0.6 0.3 0.5<br />
admission<br />
Rate <strong>of</strong> SSI per surgery per 1000 patients 2.4 0.7 0.7<br />
Percentage <strong>of</strong> patients readmitted into ICU 0.5% 0.7% 0.4%<br />
within 24 hours<br />
PRODUCTIVITY REPORT 2008<br />
73
CHAPTER 4<br />
Patient care is <strong>of</strong> utmost priority for hospitals as they are concerned in preventing<br />
untoward incidents such as reducing the rate <strong>of</strong> patient fall in a year for every<br />
1000 inpatients admission, whereby the rate had declined to a level <strong>of</strong> 1.4.<br />
Another improved KPI is the percentage <strong>of</strong> elective LSCS with LOS <strong>of</strong> more than<br />
5 days, reducing the level to 1.5%. The KPIs for patient satisfaction are as follows:<br />
Key Performance Indicators 2008 2007 2006<br />
Outpatient Department Waiting Time (minute) 26 26 26<br />
Waiting time for admission (minute) 22 20 33<br />
Waiting time for discharge (minute) 54 55 65<br />
Total number <strong>of</strong> complaints recorded 137 145 262<br />
Total number <strong>of</strong> feedbacks solved 126 117<br />
Percentage <strong>of</strong> feedbacks solved 95% 90%<br />
The private hospitals are striving to provide the best service experience to their<br />
patients based on improvement in several <strong>of</strong> the KPIs. The waiting time for both<br />
admission and discharge has reduced to 22 minutes and 54 minutes<br />
respectively. In addition, they managed to provide solutions to 95% <strong>of</strong> feedbacks<br />
received.<br />
Note:<br />
LSCS<br />
LOS<br />
AMI<br />
MRSA<br />
SSI<br />
Lower Segment Caesarean Section<br />
Length <strong>of</strong> Stay<br />
Acute myocardial infarction<br />
Methicillin-resistant staphyloccocus aureus<br />
Surgical Site Infection<br />
74 PRODUCTIVITY REPORT 2008
TOTALFACTOR PRODUCTIVITY OF THE<br />
SERVICES SECTOR<br />
During the period <strong>of</strong> 1999-2008, the services sector<br />
registered a TFP growth <strong>of</strong> 1.3%. This growth<br />
accounted for 20.6% <strong>of</strong> output growth with capital and<br />
labour contributing 40.8% and 38.6% respectively<br />
(Table 4.2). Within the services sector, the trade subsector<br />
recorded the highest TFP growth <strong>of</strong> 2.1%,<br />
contributing 33.8% to output growth. The contributions<br />
from capital and labour were 32.3% and 33.9%<br />
respectively. The growth in TFP was attributed to the<br />
ability <strong>of</strong> the industry to respond to changes in<br />
customers needs, service innovation in retailing, good<br />
marketing practices and efficient service delivery.<br />
TFP <strong>of</strong> the trade sub-sector<br />
grew by 2.1% for the period<br />
1999-2008<br />
CHAPTER 4<br />
Table 4.2: TFP Growth and Contribution (1999-2008)<br />
Services TFP Growth Contribution to Output Growth<br />
Sub-sector (%) TFP (%) Capital (%) Labour (%)<br />
Services 1.33 20.56 40.81 38.63<br />
Trade 2.12 33.79 32.32 33.89<br />
Finance 1.87 23.30 40.16 36.54<br />
Utilities 1.63 33.86 35.74 30.41<br />
Transport 1.36 20.70 44.62 34.68<br />
Computed from :<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
For the finance sub-sector, TFP grew by 1.9%,<br />
contributing 23.3% to output growth. The contributions<br />
from capital and labour were 40.2% and 36.5%<br />
respectively. The TFP growth was due to continuous<br />
launching <strong>of</strong> innovative banking products and services<br />
such as Islamic banking as well as rapid progression<br />
in ICT usage such as internet banking.<br />
TFP <strong>of</strong> the finance sub-sector<br />
grew by 1.9% for the period <strong>of</strong><br />
1999-2008<br />
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75
CHAPTER 4<br />
Utilities sub-sector TFP grew<br />
by 1.6% for the period <strong>of</strong><br />
1999-2008<br />
The Utilities sub-sector recorded a TFP growth <strong>of</strong><br />
1.6% which contributed 33.9% to output growth.<br />
Labour and capital contributed 30.4% and 35.7%<br />
respectively. The TFP increase was due to continuous<br />
efforts in developing human capital through training<br />
and retraining as well as investment in plant and<br />
machineries for the power plants.<br />
TFP <strong>of</strong> the transport sub-sector<br />
grew by 1.4% during the<br />
period <strong>of</strong> 1999-2008<br />
The transport sub-sector registered a TFP growth <strong>of</strong><br />
1.4% and its TFP contribution to GDP growth was at<br />
20.7%, with labour and capital contributing 34.7%<br />
and 44.6% respectively. The improvement in TFP<br />
growth was due to better utilisation <strong>of</strong> equipment,<br />
improvement in business processes which are more<br />
cost effective and improvement in connectivity through<br />
incentive marketing.<br />
The <strong>productivity</strong> growth <strong>of</strong> the<br />
sector was largely due to<br />
increase in intra-Asia trade<br />
Improvement in facilities,<br />
infrastructure and human<br />
capital contributed to<br />
growth in <strong>productivity</strong><br />
<strong>of</strong> the transport sub-sector<br />
TRANSPORT SUB-SECTOR<br />
The transport sub-sector includes water, air and land<br />
transport as well as various related services. In<br />
2008, the transport industry continued to record<br />
improvement in <strong>productivity</strong> despite the economic<br />
slowdown, where growth <strong>of</strong> 4.5% with RM70,607 was<br />
recorded as compared to RM67,560 in 2007<br />
(Figure 4.5 and Figure 4.6). The <strong>performance</strong> was<br />
largely due to the increase in the intra-Asia trade, local<br />
business activities and the volume <strong>of</strong> transshipment<br />
to 10.2 million Twenty-Foot Equivalent Units (TEUs)<br />
from 9.5 million in previous year.<br />
Initiatives carried out by the sub-sector include<br />
improvement in the ship turnaround time by the major<br />
ports through better facilities and infrastructure as well<br />
as employment <strong>of</strong> more skilled workers. Airlines have<br />
improved their load factor through the <strong>of</strong>fering <strong>of</strong><br />
competitive and value added services. In increasing<br />
efficiency and customer satisfaction, airports also<br />
have upgraded their facilities and infrastructure.<br />
Improvements in land infrastructure such as new<br />
highways have led to faster door to door delivery. More<br />
systematic delivery operations and the implementation<br />
<strong>of</strong> electronic systems such as e-freight had contributed<br />
to road and rail transport efficiency.<br />
76 PRODUCTIVITY REPORT 2008
Figure 4.5: Productivity Level <strong>of</strong> Transport Sub-Sector<br />
CHAPTER 4<br />
80<br />
61.44<br />
63.94<br />
67.56<br />
70.61<br />
RM Thousand<br />
60<br />
40<br />
20<br />
59.06<br />
0<br />
2004 2005 2006 2007 2008<br />
Year<br />
Computed from :<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
Figure 4.6: Productivity Growth <strong>of</strong> Transport Sub-Sector<br />
Percent<br />
8<br />
7<br />
6<br />
5<br />
4<br />
3<br />
2<br />
1<br />
0<br />
5.66<br />
4.03<br />
4.07<br />
4.51<br />
2005 2006 2007 2008<br />
Year<br />
Computed from :<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
- Economic Planning Unit, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
77
CHAPTER 4<br />
Distributive trade comprises<br />
wholesale, retail and, motor<br />
vehicle trade<br />
DISTRIBUTIVE TRADE INDUSTRY<br />
Distributive trade involves all related activities in the<br />
transfer <strong>of</strong> goods and services through the supply<br />
chain. It comprises wholesale, retail and motor vehicle<br />
trade. The industry assumes an important role in<br />
providing linkages for the growth <strong>of</strong> the services<br />
sector as dynamics within this industry have<br />
generated new activities and services to support<br />
supply chain activities, greater networking and<br />
outsourcing opportunities.<br />
Higher consumer spending,<br />
sustained domestic investment<br />
and high tourist expenditure<br />
contributed to growth<br />
Productivity <strong>of</strong> the Distributive Trade Industry<br />
The distributive trade industry performed favourably,<br />
registering <strong>productivity</strong> growth <strong>of</strong> 11.3% in 2008 to<br />
RM127,311 (Figure 4.7). The growth was supported<br />
by higher consumer spending, sustained domestic<br />
investment and high tourist expenditure. Factors that<br />
have attracted consumers to increase their spending<br />
are expansion and creation <strong>of</strong> new retail businesses<br />
such as establishment <strong>of</strong> new outlets, promotion <strong>of</strong><br />
international brand outlets entering local retail<br />
market, new concept <strong>of</strong> fashion designer goods and<br />
participation <strong>of</strong> foreign retailers operating in the<br />
country. Increased competition had compelled the<br />
industry to <strong>of</strong>fer more customer-centric services and<br />
unique shopping experiences.<br />
78 PRODUCTIVITY REPORT 2008
RM Thousand<br />
Figure 4.7: Productivity <strong>of</strong> Distributive Trade Industry<br />
200<br />
180<br />
160<br />
140<br />
120<br />
100<br />
80<br />
60<br />
40<br />
20<br />
0<br />
98.96<br />
114.41<br />
Year<br />
127.31<br />
2006 2007 2008<br />
CHAPTER 4<br />
Computed from :<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Labour Cost Competitiveness<br />
Labour cost competitiveness <strong>of</strong> the industry had<br />
improved as shown by the increase in <strong>productivity</strong> <strong>of</strong><br />
11.3% which was higher than the growth in labour cost<br />
per employee <strong>of</strong> 8.6%. The competitiveness <strong>of</strong> this<br />
industry was due to enhanced workers’ skills and<br />
technical capabilities in acquiring knowledge and new<br />
operational methods. This improvement in labour cost<br />
competitiveness is reflected in the decline <strong>of</strong> unit<br />
labour cost <strong>of</strong> 2.1% (Figure 4.8).<br />
Enhancing workers’ skills and<br />
technical capabilities improved<br />
competitiveness<br />
PRODUCTIVITY REPORT 2008<br />
79
CHAPTER 4<br />
Figure 4.8: Growth <strong>of</strong> Labour Cost Competitiveness <strong>of</strong><br />
Distributive Trade Services<br />
18<br />
16<br />
14<br />
12<br />
10<br />
8<br />
6<br />
4<br />
2<br />
0<br />
-2<br />
-4<br />
2006 2007 2008<br />
Productivity 13.34 15.61 11.28<br />
Labour Cost per<br />
Employee 10.84 14.21 8.63<br />
Unit Labour Cost -0.63 -1.18 -2.12<br />
Percent<br />
Year<br />
Computed from :<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
HOTEL INDUSTRY<br />
The Visit Malaysia Year 2008<br />
was successful in attracting<br />
22.05 million tourists generating<br />
tourist receipts <strong>of</strong> RM50 billion<br />
Malaysia was ranked 32 nd out <strong>of</strong> 130 countries by the<br />
Travel and Tourism Competitiveness Report 2008.<br />
Malaysia has benefited from its excellent price<br />
competitiveness (ranked 3 rd ) with low hotel and fuel<br />
prices, low ticket taxes, airport charges and a good<br />
transportation system. As a result, Malaysia has<br />
successfully drawn a total <strong>of</strong> 22.05 million tourists in<br />
2008, surpassing the 21.5 million target set under the<br />
Ninth Malaysia Plan. In addition, The Visit Malaysia<br />
Year 2007 which was extended to 2008 had<br />
contributed to an increase in tourist arrivals. The<br />
increase generated tourist receipts <strong>of</strong> RM50 billion in<br />
2008 as compared to RM46 billion in 2007.<br />
80 PRODUCTIVITY REPORT 2008
Productivity <strong>of</strong> the Hotel Industry<br />
The hotel industry recorded a <strong>productivity</strong> growth <strong>of</strong><br />
5.8% valued at RM47,011 in 2008 (Figure 4.9 and<br />
Figure 4.10) due to more on-the-job training and<br />
hiring <strong>of</strong> more skilled workers. The growth was also<br />
facilitated by attractive room rates <strong>of</strong>fered by hotels in<br />
Malaysia which has led to an increase in average<br />
length <strong>of</strong> stay to 6.4 nights in 2008.<br />
Productivity <strong>of</strong> the hotel<br />
industry grew by 5.8%<br />
attributed to on-the-job<br />
training and hiring <strong>of</strong><br />
more skilled workers<br />
CHAPTER 4<br />
Figure 4.9: Productivity <strong>of</strong> the Hotel Industry<br />
50<br />
48<br />
47.01<br />
RM Thousand<br />
46<br />
44<br />
42<br />
40<br />
43.27<br />
42.81<br />
44.44<br />
38<br />
2005 2006 2007 2008<br />
Year<br />
Computed from :<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Labour Cost Competitiveness<br />
Labour cost competitiveness <strong>of</strong> the hotel industry has<br />
improved as shown by the <strong>productivity</strong> growth <strong>of</strong> 5.8%<br />
which was higher than growth in labour cost per<br />
employee (1.0%). The hotel industry recorded a<br />
slightly higher growth in labour cost per employee as<br />
compared to the previous year. This has resulted in<br />
sustained improvement in unit labour cost.<br />
The hotel industry recorded a<br />
<strong>productivity</strong> growth <strong>of</strong> 5.8%<br />
PRODUCTIVITY REPORT 2008<br />
81
CHAPTER 4<br />
Figure 4.10: Growth <strong>of</strong> Labour Cost Competitiveness <strong>of</strong> the Hotel Industry<br />
Percent<br />
16<br />
12<br />
8<br />
4<br />
0<br />
-4<br />
-8<br />
-12<br />
2005 2006 2007 2008<br />
Productivity 2.87 -1.06 3.81 5.78<br />
Unit Labour cost 2.56 -4.70 -5.47 -2.77<br />
Labour Cost per 8.69 -2.31 -1.87 0.95<br />
Employee<br />
Year<br />
Computed from :<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
INFORMATION AND COMMUNICATIONS<br />
TECHNOLOGY INDUSTRY (ICT)<br />
The two ICT sub-sectors are<br />
computer services and<br />
telecommunication services<br />
The ICT industry includes computer and<br />
telecommunications services. Computer services<br />
include hardware consultancy, s<strong>of</strong>tware consultancy<br />
and supply, data processing services, database<br />
activities, maintenance and repair, and other<br />
computer related services, while telecommunication<br />
services cover telephone services, broadcasting,<br />
internet services and paging services.<br />
Productivity <strong>of</strong> the Information and<br />
Communications Technology (ICT) Industry<br />
The <strong>productivity</strong> <strong>of</strong> ICT services<br />
industry grew by 13.2%<br />
The <strong>productivity</strong> <strong>of</strong> the ICT services industry grew<br />
by 13.2% in 2008 with substantial growth in<br />
telecommunications services at 18.6% and computer<br />
services at 2.1% (Figure 4.11). The significant growth<br />
<strong>of</strong> the telecommunication industry was attributed by<br />
investments in infrastructure and development <strong>of</strong><br />
human capital. Emphasis on emerging technologies<br />
like the development <strong>of</strong> local creative content also<br />
contributed to the growth <strong>of</strong> the sector.<br />
82 PRODUCTIVITY REPORT 2008
Figure 4.11: Productivity Growth <strong>of</strong> the ICT Industry<br />
30.00<br />
CHAPTER 4<br />
20.00<br />
10.00<br />
Percent<br />
0.00<br />
-10.00<br />
-20.00<br />
2001 2002 2003 2004 2005 2006 2007 2008<br />
Computer Services 14.61 -12.01 -1.63 0.12 -0.24 1.51 1.84 2.14<br />
Telecommunication 6.35 22.50 6.56 -7.50 26.00 14.59 17.54 18.62<br />
Services<br />
Overall ICT Services 5.92 9.42 1.20 -8.20 14.90 9.03 11.68 13.16<br />
Year<br />
Computed from :<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Labour Cost Competitiveness<br />
Labour cost per employee for the ICT services<br />
industry grew by 2.0%, which reflects highly skilled<br />
manpower employed in the ICT sector (Figure 4.12).<br />
In 2008, the cost <strong>of</strong> producing one unit <strong>of</strong> product /<br />
service in the ICT services industry decreased by<br />
7.3%. Both computer services and telecommunication<br />
services industry attained labour cost competitiveness<br />
with significant reduction in unit labour cost <strong>of</strong> 4.5%<br />
and 8.8% respectively (Figure 4.13). The growing<br />
trend <strong>of</strong> outsourcing had contributed to the<br />
competitiveness as end users were more receptive<br />
towards outsourcing their ICT infrastructure to third<br />
party vendors which provide efficient services at a<br />
lower cost.<br />
Growing trend <strong>of</strong> outsourcing<br />
has led to efficient services<br />
at lower cost<br />
PRODUCTIVITY REPORT 2008<br />
83
CHAPTER 4<br />
Figure 4.12: Growth <strong>of</strong> Labour Cost per Employee <strong>of</strong> the ICT Industry<br />
Percent<br />
20.00<br />
10.00<br />
0.00<br />
-10.00<br />
-20.00<br />
2001 2002 2003 2004 2005 2006 2007 2008<br />
Computer Services -15.02 -5.02 9.79 3.65 -7.49 -1.10 -0.81 -0.56<br />
Telecommunication 11.45 7.58 17.02 2.56 -9.72 4.38 3.91 4.49<br />
Services<br />
Overall ICT Services 2.78 6.75 15.43 3.66 -7.30 2.13 1.82 2.00<br />
Year<br />
Computed from :<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Figure 4.13: Growth <strong>of</strong> Unit Labour Cost <strong>of</strong> the ICT Industry<br />
40.00<br />
Percent<br />
20.00<br />
0.00<br />
-20.00<br />
-40.00<br />
2001 2002 2003 2004 2005 2006 2007 2008<br />
Computer Services -28.35 -15.68 27.41 20.62 -7.58 -4.38 -4.44 -4.50<br />
Telecommunication -2.12 -11.47 8.14 -3.61 -29.12 -8.64 -9.71 -8.79<br />
Services<br />
Overall ICT Services -9.77 -7.76 15.16 3.82 -19.99 -6.40 -7.43 -7.33<br />
Year<br />
Computed from :<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
84 PRODUCTIVITY REPORT 2008
Competitive Advantages <strong>of</strong> the ICT Industry<br />
The ICT industry must be able to turn every possible<br />
threat into business opportunities. Among the<br />
opportunities that arise during the global downturn<br />
are increasing demand for mobile broadband and<br />
solutions and consumers are sourcing for the most<br />
efficient technology such as WiMAX.<br />
ICT providers need to innovate,<br />
optimise and improve<br />
operational efficiency<br />
CHAPTER 4<br />
Thus, ICT providers need to innovate, optimise and<br />
improve their businesses and operational efficiency in<br />
order to produce cost effective quality solutions for the<br />
benefits <strong>of</strong> the consumers.<br />
Box 4.3: The Performance <strong>of</strong> the ICT Services Sector<br />
The ICT spending is expected to grow by 4.4% in 2009. The positive outlook is<br />
attributed to continuing focus and emphasis in developing the regional economic<br />
development that require intensive ICT activities. These projects include Iskandar<br />
Development Region (IDR); Northern Corridor Economic Region (NCER); East<br />
Coast Economic Region (ECER); Sabah Development Corridor and Sarawak<br />
Corridor for Renewable Energy (SCORE). The deployment <strong>of</strong> shared services<br />
and outsourcing (SSO), content development, e-commerce and Internet based<br />
services and solutions are expected to contribute significantly to the development<br />
<strong>of</strong> the ICT sector.<br />
The telecommunications industry is also expected to remain vibrant and<br />
contribute effectively to national growth. Broadband has become a crucial and<br />
fundamental parameter in pursuing a knowledge-based economy (KBE) that is<br />
poised to provide a competitive edge in the global arena. Without adequate<br />
scope and coverage <strong>of</strong> broadband, it will be a formidable task for Malaysia to<br />
successfully implement elements <strong>of</strong> KBE such as e-commerce, e-learning,<br />
e-governance, tele-working and distance learning. Companies should seriously<br />
reconsider expanding their product and service <strong>of</strong>ferings through e-commerce to<br />
emerge stronger from the economic challenges ahead.<br />
PRODUCTIVITY REPORT 2008<br />
85
CHAPTER 4<br />
Recognising the significance <strong>of</strong> the ICT services sector, the Government had<br />
allocated RM400 million for the provision <strong>of</strong> broadband, covering both wired and<br />
wireless modes in the economic stimulus package. In particular, the High Speed<br />
Broadband Project (HSBP) with a planned capacity <strong>of</strong> 10Mbps is being targeted<br />
at areas experiencing high economic and population growth.<br />
Box 4.4: Management <strong>of</strong> Technology<br />
A study on the status <strong>of</strong> Management <strong>of</strong> Technology (MOT) among SMEs was<br />
conducted in 2008 by <strong>MPC</strong>. Six factors were examined in the study:<br />
(a) Technological Environment<br />
Includes leadership, strategies adopted, organisational structure,<br />
technology culture and human resource management.<br />
(b) Technological Categorisation<br />
The indicators related to technological catagorisation include the level<br />
<strong>of</strong> knowledge, appreciation <strong>of</strong> own technologies, state-<strong>of</strong>-the-art and<br />
emerging technologies.<br />
(c) Market and Competitors<br />
In terms <strong>of</strong> market and competitors, the assessment is made based on<br />
market and information <strong>of</strong> customers changing needs.<br />
(d) Innovation Process<br />
Innovation process involves generating new ideas for improving<br />
products and services. In implementing innovation processes,<br />
employees are encouraged and empowered to participate in idea<br />
generation by suggesting new ideas for products and services.<br />
86 PRODUCTIVITY REPORT 2008
(e) Value-added Functions<br />
Value-added functions include continuous improvement <strong>of</strong> the<br />
processes to ensure quality products and services while ensuring<br />
environmental sustainability.<br />
CHAPTER 4<br />
(f)<br />
Acquisition and Exploitation <strong>of</strong> Technology<br />
Factors to consider when acquiring and exploiting technology include<br />
company’s standing, urgency <strong>of</strong> acquisition, investment, life-cycle<br />
position, and technology categorisation. The technology and<br />
knowledge need to be protected through patents, trademarks and<br />
copyrights.<br />
The findings <strong>of</strong> the study are as follows :<br />
Distribution <strong>of</strong> Level 1 <strong>of</strong> MOT<br />
(according to contributing factors)<br />
Technological<br />
Environment<br />
Technological<br />
Categorisation<br />
Market &<br />
Competitors<br />
Innovation<br />
Process<br />
Value Added<br />
Functions<br />
Acquisition <strong>of</strong><br />
Technology<br />
18.5 37.4<br />
38.6<br />
36.3 34.6<br />
15.6 14.4 17.1 18.6 17.2<br />
3.7 6.6 10.5<br />
12.8<br />
10.6<br />
9.5 17.7<br />
14.3 14 14.8<br />
5.3 6.2 10.4<br />
10.9<br />
14.9<br />
47.3 17.7 9.2 7.4 8<br />
Level 1 Level 2 Level 3 Level 4 Level 5<br />
1 Note: A five-point scale, ranging from “Always Practised” to “Not Practised at All” was used. In the analysis, the scores <strong>of</strong><br />
1 to 5 were converted to an overall score that were then calculated by adding all the individual score and then were<br />
translated into five levels <strong>of</strong> MOT ranging from level 1 to 5.<br />
PRODUCTIVITY REPORT 2008<br />
87
CHAPTER 4<br />
- Level 1: MOT is in real infancy with opportunity for improvement;<br />
- Level 2: MOT is at an early stage <strong>of</strong> development;<br />
- Level 3: MOT is not practised fully, with significant room for improvement;<br />
- Level 4: MOT is well developed and practised, with moderate scope for<br />
improvement; and<br />
- Level 5: MOT is highly refined and practised, with only limited scope for<br />
enhancement.<br />
The findings suggest that technological environment was not extensively<br />
distributed (level 3; 38.6%), This indicates that SMEs in Malaysia need to further<br />
inculcate teamwork, creativity and flexibility to provide favourable environment<br />
for MOT. In terms <strong>of</strong> technological categorisation, 18.6% were at level 4 while<br />
17.2% and 17.1% were at levels 5 and 3 respectively. The level <strong>of</strong> acquisition <strong>of</strong><br />
technology was still low among SMEs; at level 1 representing 47.3% <strong>of</strong> the total<br />
respondents.<br />
INITIATIVES AND MEASURES TO MITIGATE THE<br />
IMPACT OF THE GLOBAL CRISIS<br />
Various measures are being<br />
undertaken by the government<br />
to liberalise the services sector<br />
In meeting the challenges to enhance <strong>productivity</strong>,<br />
quality and competitiveness <strong>of</strong> the services sector,<br />
various measures are being undertaken by the<br />
government to liberalise the sector to attract more<br />
investments, to bring more pr<strong>of</strong>essionals and<br />
technology as well as to strengthen competitiveness.<br />
These efforts are also in line with Malaysia’s<br />
commitments under the ASEAN Framework on<br />
Services and the World Trade Organisation.<br />
Industries need to tap on the opportunities and<br />
incentives aimed at further service liberalisation<br />
provided under the Second Stimulus Packages as<br />
follows:<br />
88 PRODUCTIVITY REPORT 2008
Capacity Development<br />
The Service Sector Capacity Development Fund<br />
(SSCDF) was established by the Government, with an<br />
initial allocation <strong>of</strong> RM100 million, managed by the<br />
Malaysian Industrial Development Authority (MIDA) to<br />
reduce the impact <strong>of</strong> liberalisation through capacity<br />
building and strengthening the competitiveness <strong>of</strong><br />
domestic service providers.<br />
CHAPTER 4<br />
Among the objectives are to enhance capacity building<br />
<strong>of</strong> local companies facing intense competition by the<br />
impact <strong>of</strong> liberalisation; to enhance competitiveness<br />
<strong>of</strong> sectors that have been prioritised for liberalisation;<br />
to encourage local companies to compete globally<br />
through mergers and acquisitions, as well as<br />
participation in overseas projects; and to improve<br />
the <strong>productivity</strong> <strong>of</strong> the services sector. Capacity<br />
building programmes qualified are training/outreach<br />
programmes; accreditation; mergers & acquisitions;<br />
and upgrading and modernization. In addition, the S<strong>of</strong>t<br />
Loan Scheme for Services Capacity Development<br />
(SLSCD) is being proposed aimed at improving the<br />
<strong>productivity</strong> <strong>of</strong> the services sector.<br />
Private Finance Initiative (PFI)<br />
To further boost private investment activities, the<br />
Government will assist the implementation <strong>of</strong> projects<br />
through PFI and public-private partnerships by<br />
providing funds amounting to RM2 billion. Projects to<br />
be implemented must be in strategic sectors, such<br />
as education, health and tourism, have high spillover<br />
effects; create sustainable job opportunities; and<br />
enhance the nation’s competitiveness.<br />
• Monitoring investments by Foreign<br />
Investment Committee (FIC)<br />
FIC is adopting a more liberal approach<br />
to nurture a more investor-friendly<br />
environment to attract more investments.<br />
At the micro level, FIC will continue to<br />
formulate policy guidelines focusing mainly<br />
in sectors <strong>of</strong> national interest, such as ports<br />
PRODUCTIVITY REPORT 2008<br />
89
CHAPTER 4<br />
and airports, property, defence, public<br />
transportation and telecommunication.<br />
• Public-private partnership in education<br />
To optimise existing capacity and improve<br />
access to private education, the<br />
government proposes to increase the<br />
number <strong>of</strong> scholarships for entry into local<br />
private universities. GLCs which also<br />
operate private universities such as UTP,<br />
UNITEN and MMU will establish 10 notfor-pr<strong>of</strong>it<br />
private schools to enhance CSR<br />
activities in human capital development.<br />
• Promoting tourism<br />
The tourism services sector being the<br />
second largest source <strong>of</strong> foreign exchange<br />
after the manufacturing sector, will intensify<br />
the implementation <strong>of</strong> various programmes<br />
to leverage competitive advantage in<br />
eco-tourism, health and education tourism.<br />
An allocation <strong>of</strong> RM200 million was to<br />
upgrade infrastructure in tourist spots,<br />
diversify tourism products, organize more<br />
international conference and exhibitions in<br />
Malaysia as well as improve the homestay<br />
programme. In addition, the government will<br />
strengthen the "Malaysia MySecond Home"<br />
Programme and consider issuing work<br />
permits to skilled spouses <strong>of</strong> the<br />
programme participants.<br />
• Transportation Industry<br />
To attract more tourists from abroad,<br />
concerted efforts will be taken to encourage<br />
more airlines to operate from Malaysia. For<br />
this, a rebate <strong>of</strong> 50% on landing charges will<br />
be given for a period <strong>of</strong> 2 years effective<br />
from 1 April 2009 to all airlines that operate<br />
from Malaysia.<br />
90 PRODUCTIVITY REPORT 2008
• Training in Retail or Distributive<br />
Business<br />
To develop more young entrepreneurs,<br />
Perbadanan Usahawan Nasional Berhad<br />
(PUNB) will expand the scope <strong>of</strong> the<br />
Graduate PROSPER (Projek Pembangunan<br />
Usahawan Dalam Bidang Peruncitan)<br />
Programme to include those with skills and<br />
technical certificates. An additional 400<br />
graduates would benefit from the<br />
programme. This programme was<br />
implemented since June 2005 to assist<br />
Bumiputera graduates in retail or<br />
distributive business with training, financing<br />
and business advisory services.<br />
Participants are <strong>of</strong>fered syariah-based<br />
financing <strong>of</strong> between RM5,000 to RM50,000<br />
with a repayment period <strong>of</strong> 3 to 7 years. To<br />
date, a total <strong>of</strong> 334 businesses have been<br />
successfully established.<br />
CHAPTER 4<br />
PUNB will also implement attachment<br />
training programmes for graduates and<br />
those with skills certificates. Participants will<br />
be placed in PUNB investee companies for<br />
a period <strong>of</strong> 6 months to a year. On<br />
completion <strong>of</strong> training, qualified participants<br />
will receive financial assistance from<br />
PROSPER to venture into business. PUNB<br />
targets 2,000 graduates to be trained under<br />
the attachment programme. To encourage<br />
graduates to venture into business activities<br />
and add value to existing small and medium<br />
enterprises (SMEs), a total <strong>of</strong> 500<br />
graduates and SMEs will participate in the<br />
Tunas Mekar programme.<br />
PRODUCTIVITY REPORT 2008<br />
91
CHAPTER 4<br />
Services to grow by 2.8%<br />
OUTLOOK FOR 2009<br />
The economic growth is expected to be continuously<br />
driven by the services sector, although the effect <strong>of</strong><br />
global economic slow down is anticipated to continue<br />
in the first half <strong>of</strong> 2009. The <strong>productivity</strong> for the<br />
services sector is anticipated to grow at 2.8% in 2009<br />
supported by broad-based expansion in all services<br />
sectors and resilient domestic demand.<br />
The commerce and trade subsector<br />
is expected to grow at<br />
a slower pace <strong>of</strong> 2.0%<br />
The tourism industry is<br />
expected to sustain<br />
<strong>performance</strong> in 2009<br />
Transport sub-sector to grow<br />
by 2.5%<br />
The commerce and trade sub-sector is expected to<br />
experience a slower growth <strong>of</strong> 2.0% in view <strong>of</strong> the<br />
current challenges <strong>of</strong> rising inflation due to higher food<br />
and energy prices. The government’s continuous<br />
efforts to undertake measures to ease the burden <strong>of</strong><br />
rising prices and introduction <strong>of</strong> the second stimulus<br />
package is expected to contain inflationary pressures.<br />
To stimulate retail spending, promotional and<br />
marketing activities, service innovation, customer<br />
service enhancement and development <strong>of</strong> human<br />
capital should be continued.<br />
The future and prospects <strong>of</strong> the tourism industry<br />
largely depends on the sustainability <strong>of</strong> Malaysia as<br />
an attractive tourist and business destination. The<br />
tourism industry is expected to sustain its <strong>performance</strong><br />
in 2009 as Malaysia has received 1,871,099 tourists in<br />
January 2009, an increase <strong>of</strong> 5.1% compared to the<br />
same period in the previous year. Moreover, Malaysia<br />
is a favoured destination for Middle East tourists. On<br />
the other hand, domestic tourism will continue to be<br />
an important economic activity, in the light <strong>of</strong> declining<br />
foreign arrivals due to the current global slowdown.<br />
For the transport sub-sector, it is expected that the<br />
<strong>productivity</strong> will grow at a slower rate <strong>of</strong> 2.5% as<br />
global trade continues to slow down. Innovation in<br />
operation systems and intensifying the utilisation <strong>of</strong><br />
ICT as solutions for operational and cost effectiveness<br />
will increase.<br />
92 PRODUCTIVITY REPORT 2008
Box 4.5: Performance-Wage Linkages among Services Industries<br />
The Productivity-Linked Wage System will provide the necessary linkages that<br />
will enhance <strong>performance</strong> among firms in the service sector. By linking wages to<br />
<strong>productivity</strong>, firms will be able to set targets to improve <strong>performance</strong> through a<br />
process <strong>of</strong> continuous improvement. Examples <strong>of</strong> <strong>performance</strong> indicators among<br />
service industries are as follows :<br />
CHAPTER 4<br />
Performance Indicators among Services Industries<br />
Productivity /<br />
Performance<br />
Improvement:<br />
- Performance<br />
Improvement<br />
example,<br />
achieving<br />
sales targets<br />
- Non-financial<br />
measures such<br />
as customer<br />
satisfaction and<br />
service quality<br />
Commitment,<br />
Discipline,<br />
Timelines:<br />
- Able to work<br />
and make<br />
decisions<br />
independently<br />
with less<br />
supervision<br />
- Possesses<br />
initiative<br />
- Time<br />
consciousness<br />
with regards to<br />
work<br />
processes<br />
Service<br />
Incentives:<br />
- Based on<br />
department, e.g.<br />
Housekeeping,<br />
front <strong>of</strong>fice, etc.<br />
- Group /<br />
individual<br />
<strong>performance</strong><br />
example<br />
achieving group<br />
/ individual<br />
targets<br />
Pr<strong>of</strong>it Based<br />
Bonus:<br />
- Pr<strong>of</strong>it before tax<br />
or after tax<br />
- Pr<strong>of</strong>it margin<br />
- Return on<br />
investment<br />
- Return on<br />
equity<br />
Skills Incentives:<br />
Individual<br />
Performance<br />
Improvement:<br />
- Based on job<br />
functions<br />
- Increase in<br />
customer base<br />
- Improving<br />
<strong>performance</strong><br />
gaps<br />
- On time<br />
service<br />
delivery<br />
- Performing<br />
more than one<br />
type <strong>of</strong> job<br />
functions<br />
- Able to speak<br />
more than one<br />
language<br />
- Having<br />
qualifications in<br />
specific skills<br />
PRODUCTIVITY REPORT 2008<br />
93
CHAPTER 5<br />
PRODUCTIVITY PERFORMANCE OF<br />
THE AGRICULTURE SECTOR
CHAPTER 5<br />
PRODUCTIVITY PERFORMANCE OF THE AGRICULTURE SECTOR<br />
Highlights<br />
• The agriculture sector recorded a <strong>productivity</strong> growth <strong>of</strong> 3.0% to RM26,372 in 2008.<br />
• Land <strong>productivity</strong> grew by 3.7% and capital <strong>productivity</strong> grew by 1.2%.<br />
• Agriculture export earnings amounted to RM108.7 billion.<br />
• Malaysian agricultural workers generated higher <strong>productivity</strong> levels than Korea and<br />
Taiwan.<br />
• More granary areas will be established in Pahang, Sabah and Sarawak.<br />
• The National Agriculture Training Programme was carried out to encourage the<br />
younger generation to pursue a career in agriculture.<br />
• New crops such as the cultivation <strong>of</strong> herbal products, kenaf and jatropha will be<br />
intensified.<br />
Key Statistics<br />
Year<br />
2007 2008<br />
Share <strong>of</strong> GDP (%) 7.5 7.6<br />
Exports (RM Billion) 82.30 108.7<br />
Imports (RM Billion) 46.01 59.0<br />
Per Capita Consumption <strong>of</strong> Major<br />
Food Commodities<br />
Crops<br />
Rice (Kg./Year) 72.23 73.00<br />
Vegetables (Kg./Year) 89.00 76.00<br />
Fruits (Kg./Year) 105.00 104.00<br />
Livestock<br />
Beef (Kg./Year) 24.88 25.90<br />
Mutton (Kg./Year) 8.75 9.15<br />
Poultry (Kg./Year) 121.39 96.60<br />
Poultry Eggs (Nos./Year) 111.38 125.58<br />
Milk (Liter/Year) 4.69 4.80<br />
Fisheries<br />
Food Fish (Kg./Year) 92.90 95.20<br />
PRODUCTIVITY REPORT 2008<br />
97
CHAPTER 5<br />
Global warming, food crisis,<br />
food security and competition<br />
for resources usage were the<br />
main challenges<br />
High commodity prices during<br />
the first half <strong>of</strong> 2008<br />
Bi<strong>of</strong>uels as alternative form <strong>of</strong><br />
energy to replace petroleum<br />
AGRICULTURE CHALLENGES<br />
The agriculture sector faced numerous challenges<br />
such as global warming, food crisis, food security, and<br />
competition for resources usage in 2008. Global<br />
warming due to rapid industrialisation and<br />
development had resulted in adverse climatic<br />
conditions which subsequently affected farm yield and<br />
led to a food crisis. To mitigate the impact <strong>of</strong> the food<br />
crisis, the immediate challenge to ensure food security<br />
was to boost food production by expanding the<br />
granary areas and revitalising more idle land for<br />
cultivation. The strong competition for the limited<br />
agricultural resources had also resulted in high<br />
commodity prices <strong>of</strong> the agricultural commodities in<br />
the international market during the first half <strong>of</strong> 2008.<br />
However the scenario changed with the surge in the<br />
oil price during the second and third quarter <strong>of</strong> 2008<br />
which compelled many countries to source for<br />
cheaper forms <strong>of</strong> energy namely, bi<strong>of</strong>uels which can<br />
be produced from the feedstock <strong>of</strong> agricultural crops.<br />
It is the competition for such resources usage that had<br />
led to the ethical issues being raised worldwide as<br />
to whether agriculture should continue with its<br />
conventional role <strong>of</strong> feeding mankind or to support the<br />
industry.<br />
Productivity grew by 3.0%<br />
leading to a value level <strong>of</strong><br />
RM26,372<br />
Export earnings was high<br />
despite volatile economic and<br />
climatic conditions<br />
The agriculture sector accounted for 7.6% share <strong>of</strong><br />
GDP supported by a <strong>productivity</strong> growth <strong>of</strong> 3.0% in<br />
2008 despite the above-mentioned challenges. In<br />
terms <strong>of</strong> value level, the <strong>productivity</strong> was RM26,372.<br />
This was due to favourable commodity prices, better<br />
usage <strong>of</strong> technology especially biotechnology and<br />
better farm agronomic management. High commodity<br />
prices during the first half <strong>of</strong> 2008 has led to a robust<br />
export <strong>performance</strong> generating export earnings<br />
amounting to RM108.7 billion. In the second half <strong>of</strong><br />
2008, the growth momentum was dampened due to<br />
exogenous factors such as global warming, natural<br />
disasters and rising fuel prices.<br />
98 PRODUCTIVITY REPORT 2008
PARTIAL PRODUCTIVITY<br />
Besides measuring <strong>productivity</strong> at the macro level,<br />
partial <strong>productivity</strong> can be examined in terms <strong>of</strong> land,<br />
labour and capital <strong>productivity</strong> respectively. Land<br />
<strong>productivity</strong> is measured in terms <strong>of</strong> output per<br />
hectare, labour <strong>productivity</strong> as output per worker,<br />
while capital <strong>productivity</strong> in terms <strong>of</strong> output per Ringgit<br />
investment.<br />
Productivity can be measured<br />
in terms <strong>of</strong> land, labour and<br />
capital<br />
CHAPTER 5<br />
Land Productivity<br />
Land <strong>productivity</strong> grew by 3.7% in 2008 (Figure 5.1).<br />
The higher <strong>productivity</strong> growth as compared to 2007<br />
was due to favourable commodity prices experienced<br />
in the first half <strong>of</strong> 2008 which resulted in more idle land<br />
being revitalised for agriculture purposes as well as<br />
through rehabilitation and consolidation programmes<br />
carried out by the relevant agencies to operate the<br />
farms on a commercial scale.<br />
Land <strong>productivity</strong> grew by 3.7%<br />
Figure 5.1: Growth in Land Productivity (2004-2008)<br />
8<br />
7<br />
6.80<br />
6<br />
5.53<br />
Percent<br />
5<br />
4<br />
3.60<br />
3.68<br />
3<br />
2<br />
1<br />
0<br />
1.04<br />
2004 2005 2006 2007 2008<br />
Computed from:<br />
- Ministry <strong>of</strong> Agriculture and Agro-based Industry, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
99
CHAPTER 5<br />
Land-labour ratio improved<br />
as more idle land is being<br />
revitalised for cultivation<br />
Labour Productivity<br />
Labour <strong>productivity</strong> increased by 3.0% in 2008 as<br />
compared to 2007 (2.8%) following the improvement in<br />
land-labour ratio as farm workers had to harvest a wider<br />
area due to more idle land being consolidated and<br />
rehabilitated for cultivation.<br />
Figure 5.2: Growth in Labour Productivity (2004-2008)<br />
4<br />
3.40<br />
Percent<br />
3<br />
2<br />
2.50 2.60<br />
2.80<br />
3.01<br />
1<br />
0<br />
2004<br />
2005 2006 2007 2008<br />
Computed from:<br />
- Ministry <strong>of</strong> Agriculture and Agro-based Industry, Malaysia<br />
Capital Productivity<br />
Capital <strong>productivity</strong> grew by<br />
1.2%<br />
Numerous investment<br />
incentives and stimulus<br />
package to support the sector<br />
Productivity growth <strong>of</strong> capital increased to 1.2% in<br />
2008 as compared to 0.3% in 2007. This was due<br />
to numerous investment incentives extended by<br />
financial institutions to the farmers to continuously<br />
invest in farming automation and modernisation in<br />
order to achieve higher yields. Strong institutional<br />
support was also extended by the Government<br />
through the launching <strong>of</strong> the first stimulus package to<br />
further improve the rural infrastructure and a better<br />
quality <strong>of</strong> working life for the rural communities.<br />
100 PRODUCTIVITY REPORT 2008
Percent<br />
Figure 5.3: Growth in Capital Productivity (2004-2008)<br />
2.00<br />
1.07<br />
1.21<br />
0.00<br />
0.12 0.33<br />
-2.00<br />
-4.00<br />
-6.00<br />
2004 2005 2006 2007 2008<br />
CHAPTER 5<br />
-8.00<br />
-10.00<br />
-12.00 -11.10<br />
Computed from:<br />
- Ministry <strong>of</strong> Agriculture and Agro-based Industry, Malaysia<br />
Box 5.1: Comparison Between GLOBALGAP and SALM and its Impact<br />
Towards Farm Productivity and Competitiveness<br />
Globalisation and changes in consumer behavior had resulted in higher<br />
expectation from customers on the needs and preference for quality food and other<br />
agricultural products to be produced in a safe environment which is socially<br />
accepted. Under such situation, it is imperative that Good Agricultural Practices<br />
(GAP) be adopted through the value chain <strong>of</strong> food processing. GlobalGap which<br />
was initially known as European Retailers and Producers Good Agricultural<br />
Practices (EurepGap) is a set <strong>of</strong> European retail chain standards established by a<br />
body <strong>of</strong> 118 major growers, exporters and importers <strong>of</strong> food products. The<br />
establishment <strong>of</strong> such global partnership is to ensure the production <strong>of</strong> safe and<br />
sustainable food production incorporating GAP. GAP in Malaysia is coordinated<br />
and endorsed by the Malaysian Farm Certification Scheme for Good Agricultural<br />
Practice (SALM) which focuses on traceability and good farm agronomic<br />
management.<br />
MALAYSIAN STANDARD ON GAP (SALM)<br />
SALM is a certification scheme implemented by the Department <strong>of</strong> Agriculture to<br />
recognise and certify farms which adopt GAP, operates in an environmentally and<br />
worker-friendly way to achieve <strong>productivity</strong>, sustainability, quality in the production<br />
PRODUCTIVITY REPORT 2008<br />
101
CHAPTER 5<br />
<strong>of</strong> safe produce suitable for human consumption. This scheme is based on the<br />
SALM standard and the Malaysian Standard MS1784:2005 Crop Commodities.<br />
The process <strong>of</strong> certification is achieved through farm visits to evaluate farming<br />
practices, analysis <strong>of</strong> farm produce so that these are in conformance with<br />
stipulated conditions imposed by standards, guidelines and regulations currently in<br />
place and approved by the Farm Certification Committee. Three major aspects will<br />
be evaluated before a farm is certified, namely, the environmental setting <strong>of</strong> the<br />
farm, farmer’s adherence to GAP and the quality and safety <strong>of</strong> the farm produce.<br />
These three aspects focus on 16 factors ranging from traceability to legal<br />
requirements to be fulfilled in order to be certified with SALM.<br />
Both systems are structured and documented standards <strong>of</strong> inculcating GAP. From<br />
a qualitative perspective, <strong>productivity</strong> can be enhanced due to strict adherence<br />
to workers’ safety, health, sanitary and phytosanitary improvement. From a<br />
quantitative perspective, there is <strong>productivity</strong> improvement due to the monetary<br />
savings associated with controlled usage <strong>of</strong> chemicals. Both GlobalGap and SALM<br />
provide the platform for the farmers to achieve competitiveness in terms <strong>of</strong> having<br />
wider export market as these are the prerequisites that exporters must acquire if<br />
they wish to export to Europe while for regional market, SALM would suffice.<br />
INTERNATIONAL AGRICULTURAL PRODUCTIVITY<br />
COMPARISON<br />
Malaysia’s agricultural<br />
<strong>productivity</strong> was ahead <strong>of</strong><br />
Korea and Taiwan<br />
The <strong>productivity</strong> <strong>of</strong> Malaysian agricultural workers in<br />
2007 increased to USD19,077 (2006: USD16,040)<br />
ahead <strong>of</strong> advanced countries namely, Korea<br />
(USD18,282) and Taiwan (USD17,209). This was<br />
attributed to higher commodity prices especially in oil<br />
palm and rubber. Japan remained ahead at<br />
USD22,981 and was able to record high <strong>productivity</strong><br />
due to the adoption <strong>of</strong> modern farming systems such<br />
as intensive cropping system and the use <strong>of</strong><br />
sophisticated farm automation technologies.<br />
102 PRODUCTIVITY REPORT 2008
Figure 5.4: International Productivity Comparison for Selected Asian<br />
Countries, 2007<br />
CHAPTER 5<br />
25,000<br />
22,981<br />
20,000<br />
19,077 18,282<br />
17,209<br />
USD<br />
15,000<br />
10,000<br />
5,000<br />
3,383 3,121 2,658 2,527 2,195<br />
0<br />
Japan<br />
Malaysia Korea Taiwan Philippines Thailand Indonesia India China<br />
Source: World Competitiveness Yearbook, 2008<br />
PRODUCTIVITY PERFORMANCE OF THE<br />
FISHERIES SUB-SECTOR<br />
A total <strong>of</strong> 13 areas covering 4,252 hectares under the<br />
Aquaculture Industrial Zones (AIZ) have been<br />
established with an estimated total production <strong>of</strong><br />
6,102.6 metric tonnes worth RM32.4 million to boost<br />
fish production in 2008. To expedite the production<br />
programme, incentives are being extended to the<br />
private sector to further boost investment in this<br />
industry. Labour <strong>productivity</strong> <strong>of</strong> the fisheries subsector<br />
was RM60,433 in 2008.<br />
13 areas under AIZ have been<br />
established and investment<br />
incentives are being extended<br />
to the private sector<br />
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CHAPTER 5<br />
27 TAC projects will be<br />
established through an<br />
integrated farming system<br />
PRODUCTIVITY PERFORMANCE OF THE<br />
LIVESTOCK SUB-SECTOR<br />
Labour <strong>productivity</strong> <strong>of</strong> the livestock sub-sector was<br />
RM27,301 in 2008. Currently, the production <strong>of</strong> beef,<br />
mutton and milk can only cater for 25%, 10%, and 5%<br />
respectively <strong>of</strong> domestic needs. To boost meat<br />
production, 27 more Target Area Concentration (TAC)<br />
projects will be established in some <strong>of</strong> the oil palm<br />
estates through an integrated farming system. A total<br />
<strong>of</strong> 2,922 breeders were trained in various disciplines<br />
<strong>of</strong> livestock management. The objective is to develop<br />
a working group who are competent and<br />
knowledgeable in both practical and technical aspects<br />
<strong>of</strong> livestock health at the operational level.<br />
Box 5.2: Enhancing the Competitiveness <strong>of</strong> the Agricultural Sector<br />
through Sustainable Practices<br />
Competitiveness has traditionally been measured by the cost <strong>of</strong> production. A<br />
country that can produce goods at a lower cost is said to have a competitive edge<br />
over other countries. However, competitiveness is now measured by the capacity<br />
to add value to economic products, services and processes. This means that the<br />
concept <strong>of</strong> competitiveness has changed from cost per unit to value creation. With<br />
regards to the agricultural sector, the competitiveness <strong>of</strong> the sector must<br />
incorporate sustainable agricultural systems that promote equality, farming pr<strong>of</strong>its,<br />
agro-ecosystems and product attributes. Thus economic, social and environmental<br />
aspects must be integrated into the agricultural development process in order for<br />
the agriculture sector to be competitive. This is especially so when trade and<br />
market access and competitiveness are linked to environmental protection.<br />
Environmental protection is a basic element <strong>of</strong> sustainable agricultural<br />
development. The environment supplies natural resources for agricultural<br />
production activities and is shaped by these activities. The concern for the<br />
environmental effects has caused the proliferating <strong>of</strong> environmental regulations.<br />
Although environmental regulations <strong>of</strong>ten raise production costs and reduce<br />
competitiveness in the short term, the long term effects will be more positive and<br />
should contribute towards sustaining farm <strong>productivity</strong> without any adverse impact<br />
on the environment.<br />
104 PRODUCTIVITY REPORT 2008
On the demand side, economic growth implies higher income and increasing<br />
demand for environmental protection and standards. On the supply side,<br />
governments in developing economies have scarce amounts <strong>of</strong> resources and<br />
human capital to address environmental issues. In view <strong>of</strong> this, the role <strong>of</strong> the<br />
private sector and the relevant research institutions are imperative to develop the<br />
necessary environmental technology in order to ensure sustainable practices in the<br />
agriculture sector.<br />
CHAPTER 5<br />
The said governments are accumulating policy and institutional experiences as<br />
institutional knowledge can be transferred across industries and borders. Hence,<br />
the free movement <strong>of</strong> institutional knowledge reinforces the sustainability <strong>of</strong><br />
economic development. Environmental side-agreements to trade agreements<br />
could facilitate such knowledge transfer. Cleaner technology innovation and<br />
adoption in industrial countries have been driven by environmental regulation.<br />
Combined with foreign direct investment (FDI) and the use <strong>of</strong> technology-laden<br />
imported inputs, this cleaner technology can be transferred to developing<br />
economies.<br />
Contributed by: Pr<strong>of</strong>. Dr. Mad Nasir Shamsudin (<strong>MPC</strong> Agriculture Consultative Panel member) Dean, Faculty <strong>of</strong><br />
Environmental Studies, UPM<br />
PRODUCTIVITY INITIATIVES IN THE<br />
AGRICULTURE SECTOR<br />
To further enhance the food safety and security<br />
programmes, seven <strong>productivity</strong> initiatives have been<br />
initiated. As rice is the staple food, the first priority is<br />
to increase the national paddy production. To achieve<br />
this, new granary areas in Pahang, Sarawak and<br />
Sabah will be developed together with improving the<br />
existing infrastructure <strong>of</strong> some <strong>of</strong> the current granary<br />
areas in Kelantan and Kedah. Infrastructural<br />
development includes improvement to existing<br />
drainage and irrigation systems and encouraging<br />
more farm mechanisation as well as the provision <strong>of</strong><br />
incentives for various field preparation programmes.<br />
In view <strong>of</strong> the <strong>productivity</strong> growth <strong>of</strong> paddy production<br />
which has averaged at 3.47 metric tonnes per hectare<br />
over the past few years, new farming technologies in<br />
collaboration with the relevant research institutions<br />
7 <strong>productivity</strong> initiatives have<br />
been initiated to enhance<br />
food safety and security<br />
programmes.<br />
New farming technologies will<br />
be intensified to develop better<br />
quality seeds<br />
PRODUCTIVITY REPORT 2008<br />
105
CHAPTER 5<br />
will be intensified to develop better quality seeds<br />
capable <strong>of</strong> producing higher yield. It is anticipated that<br />
paddy yield will increase to 4.48 metric tonnes per<br />
hectare through such R&D efforts. In 2008, a total <strong>of</strong><br />
3,421 agropreneurs have been trained as compared<br />
to 5,937 agropreneurs in 2007 and 20% <strong>of</strong> the<br />
agropreneurs have been identified to further enhance<br />
their product quality towards international standards.<br />
National Agriculture Training<br />
Programme was carried out<br />
to encourage careers in<br />
agriculture<br />
The National Agriculture Training Programme under<br />
the National Agriculture Training Council was carried<br />
out to encourage the younger generation to pursue a<br />
career in agriculture. Table 5.1 shows the number <strong>of</strong><br />
trainees being trained under this programme while<br />
Table 5.2 shows the areas <strong>of</strong> training attended. A total<br />
<strong>of</strong> 972 trainees have been trained in 2008 with the<br />
majority <strong>of</strong> them (445 trainees) achieving the basic<br />
Level 1 module on farm agronomics leading to the<br />
Malaysian Skill Certificate (MSC). The veterinary<br />
discipline was the most popular module for MSC with<br />
an enrolment <strong>of</strong> 79 trainees followed by 74 trainees<br />
for the marketing discipline and 67 trainees for the<br />
crops discipline.<br />
Table 5.1: Number <strong>of</strong> Trainees (2004 – 2008)<br />
ENROLMENT<br />
YEAR<br />
2004 2005 2006 2007 2008<br />
LEVEL 1 88 310 393 402 445<br />
MSC* LEVEL 2 - 182 390 338 334<br />
LEVEL 3 - 62 225 244 129<br />
MSD** LEVEL 4 47 31 26 - 64<br />
MSAD*** LEVEL 5 - - - 1 -<br />
TOTAL 135 585 1,034 985 972<br />
Source: Ministry <strong>of</strong> Agriculture and Agro-based Industry, Malaysia<br />
106 PRODUCTIVITY REPORT 2008
Table 5.2: Numbers <strong>of</strong> Trainees Who Completed MSC,<br />
MSD and MSAD until Level 3<br />
YEAR<br />
TRAINING<br />
AREA 2006 2007 2008<br />
CHAPTER 5<br />
MSD MSC MSD MSC MSD MSAD<br />
Aquaculture 7 38 11 35 - -<br />
Fruits - 20 - - - -<br />
Marketing 1 - 1 74 5 -<br />
Food Processing 5 6 - 31 7 -<br />
Food Distribution 7 6 10 - - -<br />
Poultry 2 - 2 - - -<br />
Vegetables - 22 - - - -<br />
Crops 17 13 30 67 13 1<br />
Fisheries Captured<br />
Technology - - - 19 - -<br />
Veterinary 8 52 11 79 - -<br />
TOTAL 47 157 65 305 25 1<br />
*MSC – Malaysian Skill Certificate, **MSD – Malaysian Skill Diploma, ***MSAD – Malaysian Skill Advanced Diploma<br />
Source: Ministry <strong>of</strong> Agriculture and Agro-based Industry, Malaysia<br />
Besides paddy production, other areas <strong>of</strong> food<br />
production include three more Permanent Food<br />
Production Parks (PFPP), covering 3,690 hectares to<br />
be established to further boost vegetables and fruits<br />
production. Likewise, about 12,347 hectares <strong>of</strong><br />
irrigated land had been identified to be suitable for<br />
aquaculture which will involve the participation <strong>of</strong><br />
11,000 breeders.<br />
To improve farm <strong>productivity</strong>, incentives such as the<br />
supply <strong>of</strong> quality seeds and high yielding clones are<br />
being extended to the farmers to enable them to<br />
obtain higher yield. The <strong>productivity</strong>, efficiency and the<br />
More areas to be developed<br />
for PFPP and Aquaculture<br />
activities<br />
Supply <strong>of</strong> seeds, incentives and<br />
price reduction <strong>of</strong> farm inputs to<br />
sustain farm operations<br />
PRODUCTIVITY REPORT 2008<br />
107
CHAPTER 5<br />
income/wealth generating potential <strong>of</strong> the sector will<br />
be enhanced through the wider application <strong>of</strong> modern<br />
farming methods, strengthening R&D and innovation,<br />
improved marketing capabilities and the development<br />
<strong>of</strong> entrepreneurial farmers and skilled workers.<br />
Box 5.3: Marketing Options at the Farm Level<br />
The agriculture sector has a dualism system comprising the plantation companies<br />
and the smallholders or farmers. The plantation companies are involved in the<br />
cultivation <strong>of</strong> export-oriented crops such as oil palm, rubber and cocoa. They are<br />
well managed and adopt a sophisticated and efficient management and marketing<br />
system. On the contrary, the marketing system adopted by the farmers goes<br />
through different levels <strong>of</strong> middlemen who adopt variable price systems. Hence the<br />
farmers are just price takers with no control over price unless they can organised<br />
among themselves through group farming, contract farming or cooperatives as<br />
practised in many developed countries. A notable worldwide example is the orange<br />
growers <strong>of</strong> California who are able to manage the whole spectrum <strong>of</strong> the supply<br />
chain <strong>of</strong> their farm products in the global market.<br />
As most <strong>of</strong> the farm products are easily perishable and with limited market<br />
information, the farmers have to depend on the marketing facilities provided by<br />
Government agencies such as the Federal Agricultural Marketing Authority (FAMA)<br />
or participate in programmes organised by the Department <strong>of</strong> Agriculture (DOA),<br />
Farmers’ Organisation Authority (FOA) or other state-owned agencies. However,<br />
there are also well established agropreneurs who had successfully gained access<br />
to the marketing network through their own channels or through anchor companies<br />
with available collection and distribution facilities.<br />
Alternatively, the farmers can also market their products through private middlemen<br />
or the various local markets, supermarkets, hypermarkets, restaurants and<br />
exporters. At this point, the products are very much consumer-driven and<br />
marketing at this level is competitive and require sustainable supply <strong>of</strong> quality<br />
products, good packaging and shelf-life. This calls for proper post-harvest<br />
handling, grading at farms or collection centres and preferably supported by<br />
unbroken cold chains and storage facilities. The value-adding processes, together<br />
with the final product presentation and consumer expectations contribute to better<br />
pricing and competitive advantage for retailers.<br />
108 PRODUCTIVITY REPORT 2008
In this era <strong>of</strong> globalisation, trading <strong>of</strong> farm products can also be carried out through<br />
e-commerce established by the Government through the Agri-bazaar portal which<br />
enables the farmers to market their products directly to the consumers and<br />
eliminate the involvement <strong>of</strong> the middlemen.<br />
CHAPTER 5<br />
To enable the farmers to have greater market access<br />
for their products, seven new collection centres have<br />
been established while two are currently in the<br />
process <strong>of</strong> being upgraded. Similarly, two new<br />
distribution centres will also be established while four<br />
are currently in the process <strong>of</strong> upgrading. A total <strong>of</strong> 50<br />
new farmer markets will be established in addition to<br />
the 230 existing ones nationwide to ensure wider<br />
outreach <strong>of</strong> farm products at the retail level. Besides<br />
infrastructural support, trading through e-commerce<br />
under the Agri-bazaar portal recorded a total business<br />
value <strong>of</strong> RM286 million in 2008 and the number <strong>of</strong><br />
users had increased to 42,674 as compared to only<br />
1,800 users during its launch in 2004.<br />
The Green Book Programme which had been<br />
reintroduced is a food subsistence programme to<br />
encourage backyard farming by households as part <strong>of</strong><br />
the <strong>productivity</strong> initiatives to cut down on household<br />
expenses. Under this Green Book Programme,<br />
concepts <strong>of</strong> "kitchen gardens" and "edible<br />
landscapes" are widely being promoted to encourage<br />
households to grow their own food. The programme<br />
has also been extended to the urban households and<br />
schools to inculcate the importance <strong>of</strong> "producing your<br />
own food."<br />
Some <strong>of</strong> the idle land and abandoned ponds<br />
nationwide will be revitalised for food production. To<br />
date, some 34,360 hectares <strong>of</strong> idle land which has<br />
been unattended for more than two years has been<br />
identified for cultivation. Likewise, 1,964 fresh water<br />
ponds covering 341 hectares and 733 brackish water<br />
ponds covering 491 hectares can also be revitalised<br />
for aquaculture production.<br />
Seven new collection centres<br />
have been established and 50<br />
new farmer markets will be<br />
established to ensure greater<br />
market access<br />
Green Book Programme was<br />
reintroduced to cut down on<br />
households expenses<br />
Idle land and abandoned<br />
ponds will be revitalised<br />
for food production<br />
PRODUCTIVITY REPORT 2008<br />
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CHAPTER 5<br />
2,255 hectares <strong>of</strong> land had<br />
been revitalised under<br />
Contract Farming<br />
Programme<br />
In 2008, under the Contract Farming Programme,<br />
2,255 hectares <strong>of</strong> land had been revitalised with the<br />
involvement <strong>of</strong> 960 participants. This project aims to<br />
ensure the end-products <strong>of</strong> the targeted group are<br />
marketable under competitive pricing and to train<br />
agropreneurs to produce quality products.<br />
Box 5.4: An Overview <strong>of</strong> the Global Production And Trade <strong>of</strong> Tropical Fruits<br />
In many developing countries, the cultivation <strong>of</strong> tropical fruits is an important<br />
livelihood in generating employment opportunities and income for the growers,<br />
traders and fruit processors. Tropical fruits are important to the food security <strong>of</strong><br />
developing countries from the nutritional standpoint as a source <strong>of</strong> dietary<br />
requirements for a healthy population.<br />
Exports <strong>of</strong> Tropical Fruits from Malaysia, 2006<br />
Lemon & Limes<br />
13.03 mil.tonnes<br />
5%<br />
Pineapples<br />
18.87 mil.tonnes<br />
7%<br />
Other Citrus<br />
Fruits<br />
7.14 mil.tonnes<br />
2%<br />
Papayas<br />
6.94 mil.tonnes<br />
2%<br />
Grapefruit &<br />
Pomelos<br />
5.06 mil.tonnes<br />
2%<br />
Avocados<br />
3.36 mil.tonnes<br />
1%<br />
Watermelons<br />
93.17 mil.tonnes<br />
32%<br />
Other melons<br />
26.10 mil.tonnes<br />
9%<br />
Mangoes<br />
33.45 mil.tonnes<br />
11%<br />
Bananas<br />
81.26 mil.tonnes<br />
28%<br />
Source: Food and Agriculture Organisation (FAO)<br />
The major fruits produced in Malaysia are watermelons, bananas, papayas,<br />
pineapples and mangoes. While these fruits are the focus <strong>of</strong> the 3 rd National<br />
Agriculture Policy, with the exception <strong>of</strong> papayas, their production had declined<br />
during the period 1998 - 2007. The yearly production <strong>of</strong> bananas and mangoes<br />
110 PRODUCTIVITY REPORT 2008
had remained constant at about 530,000 tonnes and 20,000 tonnes respectively.<br />
Watermelon production had declined by 40%, from 220,000 tonnes to 132,000<br />
tonnes. Production <strong>of</strong> pineapples had declined by 24% to 69,600 tonnes in 2007<br />
from 92,035 tonnes in 1998. While production <strong>of</strong> other fruits declined, papaya<br />
production recorded an increase <strong>of</strong> 35.8%, from 53,000 tonnes in 1998 to 72,000<br />
tonnes in 2007. Malaysia ranked 17 th position for the global production <strong>of</strong> papayas<br />
in 2007.<br />
CHAPTER 5<br />
Exports <strong>of</strong> papayas and pineapples had recorded significant growth and<br />
increases in terms <strong>of</strong> volumes shipped. During the period 1997 - 2006, Malaysia<br />
continued to retain its 2 nd position after Mexico in the global papaya export market.<br />
The exports <strong>of</strong> papaya increased by 53% from 33,000 tonnes in 1997 to 6.94<br />
million tonnes. Malaysia’s papaya exports volume in 2006 accounted for 18.6% <strong>of</strong><br />
the total world papaya export. Fresh pineapple fruits exported by Malaysia<br />
recorded an increase <strong>of</strong> 49.4% from 30,316 tonnes in 1997 to 18.87 million tonnes<br />
in 2006. However, in the global pineapple export market, Malaysia had fallen from<br />
its 6 th position in 1997 to a distant 14 th position in 2006. Malaysia ranked 10 th<br />
position in the global watermelon export market in 2006 with an export volume <strong>of</strong><br />
93.17 million tonnes which accounted for 3.5% <strong>of</strong> total global watermelon export.<br />
Major Tropical Fruits Importing Countries, 2006<br />
Others<br />
7.466 mil.tonnes<br />
45%<br />
USA<br />
2.594 mil.tonnes<br />
16%<br />
Germany<br />
1.479 mil.tonnes<br />
9%<br />
United Kingdom<br />
1.204 mil.tonnes<br />
7%<br />
France<br />
1.022 mil.tonnes<br />
6%<br />
Italy<br />
704 mil.tonnes<br />
4%<br />
Japan<br />
1.087 mil.tonnes<br />
7%<br />
Netherlands<br />
1.009 mil.tonnes<br />
6%<br />
Source: Food and Agriculture Organisation (FAO)<br />
PRODUCTIVITY REPORT 2008<br />
111
CHAPTER 5<br />
The increase in tropical fruit trade can be attributed to the following:<br />
i. Increased demand for exotic tropical fruits;<br />
ii. Increasing consumer awareness on health benefits derived from the<br />
consumption <strong>of</strong> tropical fruits, especially for their nutritional values in the form<br />
<strong>of</strong> high fiber, phytochemicals and vitamin contents;<br />
iii. Consumers’ demand for year-round availability <strong>of</strong> fresh fruits; and<br />
iv. The enhancement in post-harvest handling technologies leading to better<br />
storage, packaging and transportation <strong>of</strong> perishable fruits.<br />
The government places high priority in expanding the fruit sector in terms <strong>of</strong><br />
production for the domestic market as well as for exports. There is also an<br />
urgent need to aggressively promote local fruits in the overseas market through<br />
exhibitions and agriculture shows particularly in major tropical fruit importing<br />
countries in Europe.<br />
Contributed by: Chua Piak Chwee,(<strong>MPC</strong> Agriculture Consultative Panel member)<br />
INITIATIVES TO MITIGATE THE ECONOMIC<br />
SLOWDOWN<br />
Schemes to assist oil palm<br />
and rubber smallholders in<br />
re-planting, integrated farming<br />
and livestock breeding<br />
RM300 million microcredit<br />
programme to assist farmers<br />
and agro-based businesses in<br />
the rural areas<br />
For the agriculture sector, the focus will be towards<br />
higher income generating activities such as cultivation<br />
<strong>of</strong> herbal products, kenaf, and jatropha as well<br />
as to create more job opportunities through the<br />
agropreneurship programmes to encourage the rural<br />
population to venture into agro-processing activities<br />
especially among the housewives. The government<br />
will continue to assist oil palm and rubber<br />
smallholders whose incomes have been affected due<br />
to declining commodity prices during the second half<br />
<strong>of</strong> 2008. Assistance in the form <strong>of</strong> input subsidies and<br />
cash incentives will also be provided through<br />
re-planting, integrated farming and livestock breeding<br />
schemes by the related agencies.<br />
A total <strong>of</strong> RM300 million will be provided under the<br />
microcredit programme coordinated by AgroBank to<br />
assist farmers and agro-based businesses in the rural<br />
areas. As part <strong>of</strong> the government’s efforts to promote<br />
the agriculture sector as an engine <strong>of</strong> growth, priority<br />
will be given to domestic investment which have high<br />
112 PRODUCTIVITY REPORT 2008
multiplier effect and is capable <strong>of</strong> creating more job<br />
opportunities. Agricultural projects to be implemented<br />
under these funds include a 1,000-hectare prawn<br />
aquaculture project in Setiu, Terengganu as well as a<br />
200-hectare modern vegetable farming project in<br />
Cameron Highlands.<br />
CHAPTER 5<br />
OUTLOOK FOR 2009<br />
The agriculture sector is anticipated to face many<br />
challenges in 2009 as a result <strong>of</strong> the global economic<br />
slowdown. To cushion the impact <strong>of</strong> the slowdown, the<br />
impetus for growth calls for greater participation <strong>of</strong> the<br />
private sector to increase investment in food, animal<br />
feed and fertilisers production. The agriculture sector<br />
also needs to improve its technological capabilities to<br />
ease business and work processes as well as to<br />
improve the standard <strong>of</strong> living <strong>of</strong> the rural population.<br />
Given the emphasis on R&D for the development <strong>of</strong><br />
new products such as herbal products, kenaf, and<br />
jatropha will provide the multiplier effect <strong>of</strong> developing<br />
new industries in these areas. To ensure that these<br />
projects are viable and contribute to enhancing the<br />
<strong>productivity</strong> <strong>of</strong> the sector, collaboration from both the<br />
private and public sectors is essential.<br />
Greater participation from the<br />
private and public sectors to<br />
overcome the crisis.<br />
R&D to be intensified for the<br />
development <strong>of</strong> new agricultural<br />
products<br />
PRODUCTIVITY REPORT 2008<br />
113
CHAPTER 6<br />
PRODUCTIVITY PERFORMANCE OF<br />
THE CONSTRUCTION SECTOR
CHAPTER 6<br />
PRODUCTIVITY PERFORMANCE OF<br />
THE CONSTRUCTION SECTOR<br />
Highlights<br />
• The construction sector is classified into general construction and special trade.<br />
• The sector contributed 4% to the Gross Domestic Product.<br />
• Productivity <strong>of</strong> the sector grew by 1.5% to RM20,204.<br />
• Labour cost competitiveness was sustained as reflected by a decline in unit labour<br />
cost <strong>of</strong> 1.5%.<br />
• The civil engineering sub-sector contributed 40.5% to total output <strong>of</strong> the sector.<br />
• Total output <strong>of</strong> the residential sub-sector grew by 3.8% contributing 30% to total<br />
output.<br />
• The output growth in the non-residential sub-sector <strong>of</strong> 3.2% was attributed to the<br />
building more hypermarkets and shopping complexes.<br />
• Industrialised Building System being encouraged for cost savings and reduce<br />
dependency on unskilled foreign labour.<br />
Key Statistics<br />
Growth (%)<br />
Construction Sector 2007 2008<br />
Output 4.6 4.0<br />
Productivity 1.5 1.5<br />
Productivity and Labour Cost Competitiveness<br />
Sub-sectors Added Value per Labour Cost per Unit Labour<br />
Employee (%) Employee (%) Cost (%)<br />
Residential 3.0 1.2 -1.9<br />
Non-Residential 2.4 2.0 -1.2<br />
Civil Engineering 1.0 0.8 -1.4<br />
PRODUCTIVITY REPORT 2008<br />
117
CHAPTER 6<br />
Productivity grew by 1.5%.<br />
Construction sector comprises<br />
two categories: general<br />
construction and special trade<br />
PRODUCTIVITY OF THE CONSTRUCTION<br />
SECTOR<br />
The construction sector contributed 4.0% <strong>of</strong> GDP and<br />
recorded a <strong>productivity</strong> growth <strong>of</strong> 1.5% to RM20,204 in<br />
2008. The construction sector is classified into two<br />
categories namely, general construction and special<br />
trade. General construction comprises three subsectors<br />
which are residential construction, nonresidential<br />
construction and civil engineering<br />
construction. The second category is special trade<br />
which involves activities such as metal works,<br />
electrical, plumbing, sewerage and sanitary,<br />
refrigeration and air-conditioning, painting, carpentry,<br />
tiling and flooring, and glass.<br />
Productivity grew by 1.5%<br />
and unit labour cost reduced<br />
by 1.5%<br />
Productivity <strong>of</strong> the construction sector grew by 1.5%<br />
(Figure 6.1). Labour cost competitiveness <strong>of</strong> the<br />
sector improved as reflected by a decline in unit labour<br />
cost <strong>of</strong> 1.5%. Most <strong>of</strong> the construction activities<br />
comprises houses for the poor, public schools, roads,<br />
bridges and other public infrastructure.<br />
Figure 6.1: Productivity Indicators <strong>of</strong> the Construction Sector<br />
Percent<br />
5.0<br />
4.0<br />
3.0<br />
2.0<br />
1.0<br />
0.0<br />
-1.0<br />
-2.0<br />
-3.0<br />
Total Output Added Value Labour Cost Unit Added Value Fixed Asset<br />
Productivity per per Labour per Labour per Fixed per<br />
Employee Cost Employee Cost Assets Employee<br />
Growth 2007 1.50 3.76 1.26 1.33 -2.32 -0.03 2.64<br />
Growth 2008 1.50 2.69 1.07 1.32 -1.46 0.09 1.86<br />
Computed from:<br />
- Survey <strong>of</strong> Construction Industries<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
118 PRODUCTIVITY REPORT 2008
The construction sector is able to sustain growth due<br />
to the numerous projects initiated under the Ninth<br />
Malaysia Plan (9MP). During the Plan period<br />
(2006-2010), a total <strong>of</strong> 709,400 new houses will be<br />
constructed. Special emphasis will be given to<br />
housing for the lower-income group where 38.2% <strong>of</strong><br />
total new houses constructed will be for low-mediumcost<br />
houses. Under 9MP, a budget allocation <strong>of</strong><br />
RM233.1 million is allocated for the construction <strong>of</strong><br />
houses for the hardcore poor while a total <strong>of</strong> RM18.4<br />
billion will be for housing development and urban<br />
services.<br />
Positive growth in construction<br />
sector is supported by on-going<br />
projects identified under 9MP<br />
CHAPTER 6<br />
Activities in the construction sector are further<br />
sustained with on-going infrastructure projects and<br />
development <strong>of</strong> five economic growth corridors.<br />
The corridors are Iskandar Development Region<br />
(IDR), Northern Corridor Economic Region (NCER),<br />
East Coast Economic Region (ECER), Sabah<br />
Development Corridor (SDC) and Sarawak Corridor<br />
<strong>of</strong> Renewable Energy (SCORE). As a pioneer among<br />
the five corridors, IDR has progressed well and<br />
spurred the region’s economic activities.<br />
The establishment <strong>of</strong> the<br />
five economic corridors help<br />
to spur the country’s economic<br />
development<br />
PRODUCTIVITY REPORT 2008<br />
119
CHAPTER 6<br />
The construction sectors<br />
consist <strong>of</strong> residential,<br />
non-residential and<br />
civil engineering<br />
PRODUCTIVITY OF THE CONSTRUCTION<br />
SUB-SECTORS<br />
The construction sector comprises residential<br />
construction <strong>of</strong> houses and condominiums, the nonresidential<br />
construction <strong>of</strong> commercial and industrial<br />
buildings as well as civil engineering which involves<br />
the construction <strong>of</strong> public infrastructure such as<br />
bridges and highways.<br />
Added value <strong>of</strong> the residential<br />
sub-sector grew to RM4.5<br />
billion and contributed 29.8%<br />
<strong>of</strong> the total output in the<br />
construction sector<br />
Residential Sub-sector<br />
In 2008, a total <strong>of</strong> 4,848 projects were completed <strong>of</strong><br />
which 1,115 projects came from the residential<br />
category. Total output <strong>of</strong> the residential sub-sector<br />
grew by 3.8% to RM13.3 billion, contributing to 30%<br />
share <strong>of</strong> the construction sector’s total output. Added<br />
value grew by 3.1%, amounting to RM4.5 billion and<br />
contributing to 31.6% share <strong>of</strong> total added value<br />
generated in the construction sector. Employment<br />
grew marginally at 0.1% accounting for 27.5% <strong>of</strong> total<br />
employment in the construction sector (Table 6.1).<br />
Table 6.1: Total Output, Added Value and Employment<br />
<strong>of</strong> the Residential Sub-Sector<br />
Value Level* % Share to the Growth<br />
Construction Sector (%)<br />
2007 2008 2007 2008 2008<br />
Total Output 12,784 13,267 31.14 29.80 3.78<br />
Added Value 4,384 4,520 31.94 31.58 3.10<br />
Employment 123,420 123,581 32.20 27.47 0.13<br />
* Value Level for Total Output and Added Value are in RM Million<br />
Computed from:<br />
- Survey <strong>of</strong> Construction Industries<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
120 PRODUCTIVITY REPORT 2008
Percent<br />
Figure 6.2: Productivity Indicators <strong>of</strong> the Residential Sub-sector<br />
5.0<br />
4.0<br />
3.0<br />
2.0<br />
1.0<br />
0.0<br />
-1.0<br />
-2.0<br />
-3.0<br />
-4.0<br />
Added Value Total Output Added Value Labour Cost Unit Added Value Fixed Asset<br />
per per per Labour per Labour per Fixed per<br />
Employee Employee Cost Employee Cost Assets Employee<br />
Growth 2007 3.23 4.35 1.90 1.20 -2.74 0.03 2.51<br />
Growth 2008 2.97 3.65 1.53 1.19 -1.90 0.07 1.80<br />
CHAPTER 6<br />
Computed from:<br />
- Survey <strong>of</strong> Construction Industries<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
The residential sub-sector was able to sustain labour<br />
cost competitiveness as shown by <strong>productivity</strong> growth<br />
<strong>of</strong> 3.0% while labour cost per employee recorded a<br />
growth <strong>of</strong> 1.2% resulting in a unit labour cost <strong>of</strong> -1.9%.<br />
The growth momentum in the residential sub-sector<br />
was contributed mainly by continuous housing<br />
development in prime locations at major cities such as<br />
Kuala Lumpur, Johor Bahru, Penang, Kota Kinabalu<br />
and Kuching. Capital <strong>productivity</strong> grew by 0.1% while<br />
capital intensity registered a growth <strong>of</strong> 1.8% as a result<br />
<strong>of</strong> investment in ICT applications.<br />
Growth mainly in prime<br />
locations <strong>of</strong> major cities<br />
PRODUCTIVITY REPORT 2008<br />
121
CHAPTER 6<br />
The non-residential sub-sector<br />
registered an output growth <strong>of</strong><br />
3.2% despite high price <strong>of</strong><br />
building materials<br />
Non-Residential Sub-sector<br />
The sub-sector registered an output growth <strong>of</strong> 3.2%<br />
to RM11 billion, contributing 24.7% share <strong>of</strong> the<br />
construction sector’s total output. The sub-sector<br />
generated an added value <strong>of</strong> RM3.6 billion,<br />
contributing 25.4% share to the construction sector’s<br />
total added value. The sub-sector employed 111,215<br />
workers accounting for 24.7% <strong>of</strong> total employment in<br />
the sector (Table 6.2).<br />
Table 6.2: Total Output, Added Value and Employment<br />
<strong>of</strong> the Non-residential Sub-sector<br />
Value Level* % Share to the Growth<br />
Construction Sector (%)<br />
2007 2008 2007 2008 2008<br />
Total Output 10,631 10,973 25.90 24.65 3.22<br />
Added Value 3,538 3,630 25.77 25.36 2.60<br />
Employment 110,966 111,215 28.95 24.72 0.22<br />
* Value Level for Total Output and Added Value are in RM Million<br />
Computed from:<br />
- Survey <strong>of</strong> Construction Industries<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Added value per employee <strong>of</strong><br />
the non-residential sub-sector<br />
grew by 2.4% complemented<br />
with a decline in unit labour<br />
cost <strong>of</strong> 1.2%<br />
Output per employee grew by 3.0% (Figure 6.3). The<br />
non-residential sub-sector was able to sustain its<br />
labour cost competitiveness as shown by growth in<br />
added value per employee <strong>of</strong> 2.4% while labour cost<br />
per employee recorded a growth <strong>of</strong> 2.0% resulting in a<br />
unit labour cost <strong>of</strong> -1.2%. The growth momentum in<br />
the non-residential sub-sector was contributed mainly<br />
by the building <strong>of</strong> several hypermarkets and shopping<br />
complexes in major urban areas.<br />
122 PRODUCTIVITY REPORT 2008
Percent<br />
5.00<br />
4.00<br />
3.00<br />
2.00<br />
1.00<br />
0.00<br />
-1.00<br />
-2.00<br />
-3.00<br />
Figure 6.3: Productivity Indicators <strong>of</strong> the Non-residential<br />
Sub-sector<br />
Added Value Total Output Added Value Labour Cost Unit Added Value Fixed Asset<br />
per per per Labour per Labour per Fixed per<br />
Employee Employee Cost Employee Cost Assets Employee<br />
Growth 2007 2.70 4.13 1.29 2.12 -1.96 0.34 3.09<br />
Growth 2008 2.37 2.99 1.01 1.98 -1.20 0.13 2.03<br />
CHAPTER 6<br />
Computed from:<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Civil Engineering Sub-sector<br />
Civil engineering projects include the construction <strong>of</strong><br />
roads, bridges, tunnels, viaducts, highways, elevated<br />
highways, railways, airfields, harbours, dams,<br />
irrigation system, drainage and sewage system,<br />
pipelines and other water projects, communication<br />
and power lines, sports facilities such as stadium and<br />
golf course, and other civil engineering projects.<br />
The sub-sector’s total output grew by 2.3% to RM18<br />
billion, contributing 40.5% share <strong>of</strong> the construction<br />
sector’s total output. Such growth was derived from<br />
major infrastructure projects initiated under 9MP such<br />
as the construction <strong>of</strong> the East Coast Expressway<br />
Phase 2 (LPT2). Added value grew by 1.6% to RM5.9<br />
billion and accounted for 41.2% <strong>of</strong> the construction<br />
sector’s added value while employment recorded<br />
0.6% growth accounting for 33.3% <strong>of</strong> total<br />
employment (Table 6.3).<br />
Civil engineering was the<br />
main contributor accounting<br />
for 40.5% share <strong>of</strong> total<br />
output in the construction<br />
sector<br />
PRODUCTIVITY REPORT 2008<br />
123
CHAPTER 6<br />
Table 6.3: Total Output, Added Value and Employment<br />
<strong>of</strong> the Civil Engineering Sub-sector<br />
Value Level* % Share to the Growth<br />
Construction Sector (%)<br />
2007 2008 2007 2008 2008<br />
Total Output 17,631 18,037 42.95 40.52 2.30<br />
Added Value 5,804 5,897 42.28 41.20 1.60<br />
Employment 148,849 149,757 38.84 33.28 0.61<br />
* Value Level for Total Output and Added Value are in RM Million<br />
Computed from:<br />
- Survey <strong>of</strong> Construction Industries<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
Figure 6.4: Productivity Indicators <strong>of</strong> the Civil Engineering Sub-sector<br />
Percent<br />
3.00<br />
2.00<br />
1.00<br />
0.00<br />
-1.00<br />
-2.00<br />
-3.00<br />
Added Value Total Output Added Value Labour Cost Unit Added Value Fixed Asset<br />
per per per Labour per Labour per Fixed per<br />
Employee Employee Cost Employee Cost Assets Employee<br />
Growth 2007 1.13 2.06 0.63 0.67 -2.11 -0.43 2.35<br />
Growth 2008 0.98 1.68 0.64 0.82 -1.39 0.03 1.44<br />
Computed from:<br />
- Survey <strong>of</strong> Construction Industries<br />
- Department <strong>of</strong> Statistics, Malaysia<br />
124 PRODUCTIVITY REPORT 2008
The civil engineering sub-sector was able to sustain<br />
its labour cost competitiveness as shown by<br />
<strong>productivity</strong> growth <strong>of</strong> 1.0% while labour cost per<br />
employee recorded a growth <strong>of</strong> 0.8% resulting in a<br />
unit labour cost <strong>of</strong> -1.4%.<br />
Civil engineering sub-sector<br />
was able to sustain its labour<br />
cost competitiveness as shown<br />
by a decline <strong>of</strong> 1.4% in unit<br />
labour cost<br />
CHAPTER 6<br />
PRODUCTIVITY INITIATIVES IN THE<br />
CONSTRUCTION SECTOR<br />
The government has implemented several<br />
programmes and initiatives to boost the sector’s<br />
<strong>performance</strong> especially during the current economic<br />
slowdown. To speed up the economic growth,<br />
developers are encouraged to use Industrialised<br />
Building System (IBS) components in the construction<br />
<strong>of</strong> affordable homes and in government building<br />
projects. By using IBS components in building<br />
construction, completion time will be shortened<br />
resulting in cost saving and reduce dependency on<br />
unskilled labour.<br />
Developers must also be innovative and able to adopt<br />
new technologies. In line with this, the government<br />
had established Construction Research Institute <strong>of</strong><br />
Malaysia (CREAM) with a mission to serve the<br />
strategic research needs <strong>of</strong> the Malaysian<br />
construction industry. Latest establishment by CREAM<br />
was the development <strong>of</strong> "Makmal Kerja Raya" which<br />
started operations in September 2008. This laboratory<br />
provides facilities for heavy structural and material<br />
testing focusing mainly on IBS components. The<br />
laboratory also facilitates the verification, certification<br />
and accreditation process <strong>of</strong> IBS components.<br />
<strong>MPC</strong> had successfully organised four Round Table<br />
Discussion (RTD) sessions in 2008. These sessions<br />
were being conducted at regional level with the<br />
theme ‘Promoting the Application <strong>of</strong> Standard IBS<br />
Components to Increase Site Productivity’. The RTD<br />
session brings together key players from various<br />
government agencies, IBS component manufacturers,<br />
Industrialised Building System<br />
(IBS) involves the use <strong>of</strong><br />
components manufactured<br />
at factories, transported and<br />
then assembled into a<br />
structure using minimum<br />
workforce<br />
Research and Development<br />
(R&D) activities are crucial<br />
in the construction sector to<br />
sustain its competitiveness<br />
Round Table Discussion (RTD)<br />
sessions is one <strong>of</strong> <strong>MPC</strong>’s<br />
initiatives to provide a platform<br />
for construction key players<br />
to discuss issues in IBS<br />
implementation<br />
PRODUCTIVITY REPORT 2008<br />
125
CHAPTER 6<br />
CI Portal provides real time<br />
information on current issues<br />
in the construction industry<br />
Companies should maximise<br />
the benefit from National<br />
E-Tendering Initiatives in order<br />
to speed up the tender process<br />
and related construction associations to discuss the<br />
issues and challenges and recommend initiatives to<br />
improve site <strong>productivity</strong>.<br />
The Construction Industry Development Board (CIDB)<br />
had capitalised on information technology<br />
development by introducing the Construction Industry<br />
Portal known as CI Portal. The CI Portal provides real<br />
time information on current happenings, issues and<br />
information about the construction industry worldwide.<br />
The portal is a realisation effort to meet the 6 th<br />
Strategic Thrust requirement enlisted in the<br />
Construction Industry Master Plan (CIMP) 2006-2015<br />
which is to leverage on ICT in construction. Another<br />
initiative by the government is to integrate and<br />
bridge processes and components <strong>of</strong> the entire<br />
construction tendering supply chain known as National<br />
E-Tendering Initiatives (NeTI). By using NeTI, all<br />
tendering processes are done electronically to<br />
minimise human intervention in government projects<br />
procurement procedures and to speed up the approval<br />
process.<br />
The objective <strong>of</strong> QLASSIC is to<br />
encourage contractors towards<br />
‘doing things right the first time<br />
and every time’<br />
Use <strong>of</strong> CICIS to improve the<br />
cost <strong>of</strong> quality<br />
In order to be more competitive, developers are<br />
encouraged to use Quality Assessment System in<br />
Construction (QLASSIC) to assess and measure the<br />
workmanship quality <strong>of</strong> any construction work against<br />
an approved standard. This is to ensure that it is being<br />
done correctly the first time and every time.<br />
The Construction Industry Standard (CIS 7:2006)<br />
specifies the workmanship quality and assessment<br />
procedures for building construction work. The system<br />
was initiated by the Government to enhance quality<br />
control <strong>of</strong> construction work.<br />
The use <strong>of</strong> ICT has long been proven in enhancing<br />
<strong>productivity</strong> and efficiency in the construction sector.<br />
As such, the Construction Industry Cost Information<br />
Services (CICIS) online information system was<br />
developed to address the need to determine the cost<br />
<strong>of</strong> quality in the construction sector.<br />
126 PRODUCTIVITY REPORT 2008
MEASURES TO MITIGATE THE IMPACT OF THE<br />
GLOBAL CRISIS FROM THE CONSTRUCTION<br />
PERSPECTIVE<br />
The effect <strong>of</strong> the economic slowdown has been slowly<br />
melting into the economic climate putting pressure on<br />
the government to mitigate the downward trend <strong>of</strong><br />
the economic <strong>performance</strong>. A pro-growth stimulus<br />
package totalling RM7 billion was introduced in<br />
November 2008. The main objective <strong>of</strong> the stimulus<br />
package is to enhance domestic growth and improve<br />
market confidence. From this stimulus package, the<br />
construction sector will benefit in terms <strong>of</strong> additional<br />
construction <strong>of</strong> 25,000 units <strong>of</strong> low-and medium-cost<br />
houses while RM500 million was allocated to upgrade,<br />
repair and maintain police stations, living quarters,<br />
army camps and government quarters. In order to<br />
address the problem <strong>of</strong> shortage <strong>of</strong> construction<br />
projects, a further sum <strong>of</strong> RM600 million was<br />
budgeted for minor projects under the public and<br />
basic infrastructure project maintenance programme.<br />
This includes maintaining village roads, building<br />
community halls and small bridges, and improve<br />
infrastructure <strong>of</strong> the public transport system (e.g. LRT,<br />
commuter and city bus systems).<br />
Stimulus package launched<br />
to revitalise investment in<br />
the construction sector<br />
CHAPTER 6<br />
OUTLOOK FOR 2009<br />
The sector will benefit from the stimulus packages<br />
through the government’s initiatives to enhance<br />
construction activities. Among the efforts include<br />
repair and roads maintenance, improving the<br />
surroundings <strong>of</strong> public flats to ensure more<br />
comfortable living conditions, painting, repairing <strong>of</strong><br />
lifts and improving waste disposal facilities. In addition,<br />
renovation, maintenance and repairs <strong>of</strong> welfare<br />
homes, fire and rescue stations and quarters and<br />
public amenities especially in tourist areas will be<br />
intensified. Allocation has also been given to build and<br />
improve school facilities particularly in rural areas<br />
especially in Sabah and Sarawak. Apart from this,<br />
there are also plans to expand airports, ports,<br />
upgrading <strong>of</strong> schools, the construction <strong>of</strong> training<br />
centres and electricity transmission system as well.<br />
More construction activities<br />
to be undertaken in the near<br />
future to stimulate domestic<br />
investment<br />
PRODUCTIVITY REPORT 2008<br />
127
CHAPTER 6<br />
Box 6.1: Skills Training in the Construction Industry<br />
The technological advancement in building systems has compelled the industry<br />
to source for knowledgeable workers. Through the state <strong>of</strong> the art construction,<br />
management and systems, a knowledge workforce would be able to contribute<br />
towards higher <strong>productivity</strong> growth. To enhance <strong>productivity</strong> growth, continuous<br />
upgrading <strong>of</strong> skilled and semi-skilled workers is the norm and accounted for 36%<br />
<strong>of</strong> the total employment in the construction sector. Most <strong>of</strong> the workers have been<br />
trained and certified with at least a certificate <strong>of</strong> competency (Sijil Kemahiran<br />
Malaysia level 1 & 2).<br />
Total Employment According to Categories (2004-2008)<br />
Total number <strong>of</strong> workers (nos.)<br />
Category<br />
2004 2005 2006 2007 2008 e<br />
Construction Workers 249,647 298,647 356,385 419,951 509,792<br />
Semi skilled workers 29,878 34,165 38,161 42,293 48,840<br />
Skilled workers 94,274 101,242 111,087 123,460 136,557<br />
Supervisors 54,806 58,374 62,868 73,017 80,588<br />
Managers 37,705 40,067 43,593 48,503 52,990<br />
Administration staff 51,271 65,776 89,587 119,616 156,027<br />
e<br />
estimate<br />
Source: Construction Industry Development Board (CIDB), Malaysia<br />
To ensure a consistent supply <strong>of</strong> skilled workforce, training programmes to<br />
enhance the skills have been initiated by the government. Among the training<br />
institutions which provide relevant skills training are the CIDB Akademi Binaan,<br />
the Institut Kemahiran Mara and the Institut Kemahiran Belia Negara. The<br />
modules in these programmes include drafting and designing, basic trade<br />
and special trade to improve skills and enhance support services in the<br />
construction industries such as plumbing, electrical and telecommunication<br />
works.<br />
128 PRODUCTIVITY REPORT 2008
Box 6.2: Industrialised Building System (IBS) Centre<br />
The Industrialised Building System (IBS) will reduce dependency on unskilled<br />
foreign workers, reduce cost and improve <strong>productivity</strong>. Realising the importance<br />
<strong>of</strong> improving <strong>productivity</strong> through IBS, a one-stop reference centre on the<br />
Industrialised Building System (IBS) was established in 2007 to provide training<br />
and knowledge on IBS. The five main thrusts <strong>of</strong> the centre are:<br />
CHAPTER 6<br />
Thrust I - IBS Industry Planning<br />
The centre acts as the main secretariat for IBS Roadmap and industry<br />
coordination, supports the government to government (G2G) venture<br />
development and functions as a gateway to market IBS globally and coordinates<br />
Bumiputera development programmes.<br />
Thrust II - IBS Promotion and Marketing<br />
The centre manages training, seminars, road shows, resource centre, knowledgesharing<br />
sessions, publications, gallery for exhibition and showcases on IBS<br />
components applications.<br />
Thrust III - IBS Technology<br />
The centre is supported by the CIDB Construction Research Institute <strong>of</strong> Malaysia<br />
(CREAM) on R&D, technology transfer programmes by local experts,<br />
development <strong>of</strong> IBS-related Malaysian Standard (MS) and Construction Industry<br />
Standards (CIS), general technical IBS advisory services, design systemisation<br />
exercises and special incubation programmes for local IBS technopreneurs.<br />
Thrust IV - IBS Certification and Verification<br />
The centre handles the evaluation, certification and registration <strong>of</strong> IBS<br />
practitioners in Malaysia such as the IBS manufacturers, consultants and<br />
contractors. The IBS Manufacturers Status List and IBS Consultant List 2008<br />
provide lists <strong>of</strong> manufacturing and consultant companies which had been certified<br />
and verified for IBS practices.<br />
Thrust V - IBS Training<br />
The centre focuses on human capital development programmes<br />
through training and vendor development. Training is provided to managers,<br />
pr<strong>of</strong>essionals, site supervisors, workers and installers. To complement the IBS<br />
centre, a gallery has been established to provide information on IBS history,<br />
technology, success stories, incentives and policies relating to IBS.<br />
PRODUCTIVITY REPORT 2008<br />
129
CHAPTER 7<br />
PRODUCTIVITY PERFORMANCE<br />
OF THE PUBLIC SECTOR
CHAPTER 7<br />
PRODUCTIVITY PERFORMANCE OF THE PUBLIC SECTOR<br />
Highlights<br />
• Productivity <strong>of</strong> the public sector grew by 3.8% to RM32,073 in 2008.<br />
• Various guidelines had been introduced to instill quality consciousness, measure<br />
<strong>performance</strong> and inculcate an innovative and creative culture.<br />
• Vision 2020 had set-out key strategies to establish a prosperous and resilient<br />
economy.<br />
• The government promotes lifelong learning to enhance employability <strong>of</strong> the<br />
workforce.<br />
• In the Ease <strong>of</strong> Doing Business Report 2009 Malaysia improved its ranking to 20 th<br />
position.<br />
Key Statistics<br />
Productivity Level (RM)<br />
Productivity<br />
Growth (%)<br />
Sub-sectors 2005 2006 2007 2008 2008<br />
Economic Services 53,103 54,121 56,328 57,441 1.98<br />
Social Services 27,083 28,572 28,998 30,178 4.42<br />
Security Services 21,906 23,733 25,817 26,763 3.66<br />
General Public 34,245 37,439 36,094 36,861 2.12<br />
Administration<br />
PRODUCTIVITY REPORT 2008<br />
133
CHAPTER 7<br />
Productivity <strong>of</strong> the public sector<br />
grew by 3.8% to RM32,073<br />
due to <strong>productivity</strong> and quality<br />
improvement initiatives<br />
Public Sector Productivity<br />
To ensure the well-being <strong>of</strong> all Malaysians and to<br />
facilitate businesses to grow so as to ensure a vibrant<br />
economic environment, the public sector is constantly<br />
enhancing <strong>productivity</strong> and adopting customer-centric<br />
approaches. The public sector is continuously<br />
improving efficiency by implementing quality<br />
improvement initiatives such as, innovative and<br />
creative circles (ICC), total quality management, ISO<br />
9000, benchmarking, key <strong>performance</strong> indicators and<br />
service innovation. These initiatives had enhanced<br />
efficiency and resulted in a <strong>productivity</strong> growth <strong>of</strong> 3.8%<br />
to RM32,073 in 2008.<br />
Productivity and Quality<br />
Improvement initiatives include<br />
ICC, TQM, ISO, Benchmarking,<br />
KPIs and Service Innovation<br />
Various guidelines through administrative circulars<br />
had been introduced to further intensify the<br />
implementation <strong>of</strong> <strong>productivity</strong>, quality and innovation<br />
initiatives. Among the guidelines are:<br />
• "Guidelines on Quality Control Circles (QCC) in<br />
the Public Service" that emphasises on<br />
participative management in problem-solving<br />
which had led to the improvement <strong>of</strong> quality and<br />
<strong>productivity</strong> at the departmental level;<br />
• "Guide on Total Quality Management in the<br />
Public Service" which focuses on developing<br />
quality <strong>of</strong> systems and work processes through<br />
the development <strong>of</strong> <strong>performance</strong> measures;<br />
• "Guidelines for Implementing MS ISO 9000 in the<br />
Civil Service" to improve the quality <strong>of</strong> service<br />
delivery through structured processes and<br />
procedures;<br />
• "Guidelines on the Implementation <strong>of</strong><br />
Benchmarking in the Civil Service" that focuses<br />
on developing a systematic approach to<br />
improving <strong>productivity</strong> and quality, as well as<br />
identifying and adopting best practices in workrelated<br />
processes;<br />
134 PRODUCTIVITY REPORT 2008
• "Guidelines on Establishing Key Performance<br />
Indicators (KPIs) and Implementing Performance<br />
Assessment at Government Agencies" to set<br />
<strong>performance</strong> targets for improvement and<br />
measure level <strong>of</strong> achievement;<br />
CHAPTER 7<br />
• "Guidelines to implement Public Service<br />
Innovation Award" to ensure an innovative and<br />
creative culture which will improve efficiency and<br />
reduce costs;<br />
• "Guidelines on improving customer service"<br />
where the basic objective <strong>of</strong> these guidelines is<br />
"delighting the customer". A helpdesk is set-up<br />
at each government agency to assist customers<br />
in their queries and requests and to take the<br />
appropriate action.<br />
Box 7.1: Best Practices in Land Offices<br />
One <strong>of</strong> the biggest challenges faced by the land <strong>of</strong>fice is to expedite the registration<br />
<strong>of</strong> land transfer. Hence to identify the best practices, <strong>MPC</strong> conducted a study to<br />
measure the speed <strong>of</strong> delivery for registration <strong>of</strong> land transfer in 14 selected land<br />
<strong>of</strong>fices nationwide to find out the causes <strong>of</strong> delay. Findings from the study revealed<br />
the following:<br />
• The Sarawak Land Office is the benchmark for registration <strong>of</strong> land transfer as<br />
it uses a Single Unit Processing method (SUP) which eliminates unnecessary<br />
waiting time by processing immediately an application once it is received,<br />
without waiting for the whole batch at the end <strong>of</strong> the day. The practice is<br />
complemented with an E-application system which is able to expedite the land<br />
transfer process by reducing time taken by an average <strong>of</strong> 20%.<br />
• In terms <strong>of</strong> staff efficiency, the Terengganu Land Office is the benchmark.<br />
It utilises the "Sistem Pendaftaran Tanah Berkomputer (SPTB)" which is a<br />
comprehensive checking procedure where all the checking is conducted by<br />
the chief clerk alone instead <strong>of</strong> going through a process flow involving five<br />
checking points.<br />
• The Kelantan Land Office is the benchmark for Quality Environment (QE).<br />
Quality culture was observed at the workplace thus providing a conducive<br />
working environment for the employees.<br />
PRODUCTIVITY REPORT 2008<br />
135
CHAPTER 7<br />
• The Johor Land Office is the benchmark for systematic file tagging. It focuses<br />
on First in First out (FIFO) method through the implementation <strong>of</strong> colour codes<br />
for month and number code for queuing. Through this method, staff is able to<br />
monitor the flow <strong>of</strong> any file or backlog and detect any bottlenecks in the flow<br />
process.<br />
Public Sector Revenue and Expenditure<br />
Government revenue per<br />
employee recorded a growth<br />
<strong>of</strong> 13.5% in 2008<br />
Government revenue increased to RM161,558 million<br />
in 2008 from RM99,397 million in 2004 while revenue<br />
per government employee grew to RM127,532 in<br />
2008 from RM90,476 in 2004 recording an overall<br />
growth <strong>of</strong> 13.5% in 2008 (Figure: 7.1 and 7.2).<br />
Figure 7.1: Government Revenue per Employee (Level)<br />
150<br />
RM Thousand<br />
100<br />
50<br />
90,476 95,050<br />
107,198 112,412<br />
127,532<br />
0<br />
2004<br />
2005 2006 2007 2008<br />
Year<br />
Computed from :<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
136 PRODUCTIVITY REPORT 2008
Figure 7.2: Government Revenue per Employee (Growth)<br />
20<br />
CHAPTER 7<br />
Percent<br />
15<br />
10<br />
12.78<br />
13.45<br />
5<br />
5.06<br />
4.86<br />
0<br />
0.25<br />
2004 2005 2006 2007 2008<br />
Year<br />
Computed from :<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
The increase in government revenue over the years<br />
had enabled the government to increase overall<br />
development expenditure, specifically on social services<br />
(health, education, housing and poverty eradication),<br />
infrastructure (ICT, rural development, and R&D) and<br />
environment (air and water quality). Total government<br />
expenditure recorded an increase to RM197,211 million<br />
in 2008 from RM120,162 million in 2004.<br />
In terms <strong>of</strong> the breakdown in overall government<br />
expenditure, government operating expenditure<br />
increased to RM150,953 million in 2008 from<br />
RM91,298 million in 2004 while the development<br />
expenditure increased to RM46,258 million in 2008<br />
from RM28,864 million in 2004 (Figure:7.3). Likewise,<br />
government expenditure as a percentage <strong>of</strong> GDP<br />
increased to 37.3% in 2008 from 22.2% in 2004<br />
(Figure 7.4). The government had also allocated about<br />
25.0% <strong>of</strong> total expenditure for developmental<br />
purposes particularly in education and training,<br />
defence and internal security, health, transportation,<br />
trade and industry as well as agriculture and rural<br />
development.<br />
The increase in government<br />
revenue led to an overall<br />
increase in development<br />
expenditure<br />
Government operating<br />
expenditure increased<br />
to RM150,953 in 2008<br />
PRODUCTIVITY REPORT 2008<br />
137
CHAPTER 7<br />
Figure 7.3: Government Expenditure, 2004-2008<br />
250,000<br />
200,000<br />
150,000<br />
100,000<br />
50,000<br />
0<br />
2004 2005 2006 2007 2008<br />
Computed from :<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
Figure 7.4: Government Expenditure as a Percentage <strong>of</strong> GDP<br />
40<br />
37.29<br />
Percent<br />
30<br />
20<br />
28.17<br />
28.55<br />
30.20<br />
32.38<br />
10<br />
0<br />
2004 2005 2006<br />
Year<br />
2007 2008<br />
Computed from :<br />
- Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
138 PRODUCTIVITY REPORT 2008
Productivity Performance <strong>of</strong> the Public Service<br />
Sub-Sectors<br />
The public service sub-sectors comprises economic<br />
services (agriculture and rural development; trade<br />
and industry; and transport), security services<br />
(infrastructure, defence and internal security), social<br />
services (education and training; health and housing)<br />
and public administration (Figure 7.5).<br />
The public service sub-sectors<br />
include economic services<br />
security services, social<br />
services and public<br />
administration<br />
CHAPTER 7<br />
Figure 7.5: Public Service Sub-sectors<br />
Public Sector<br />
Productivity<br />
Economic<br />
Services<br />
Social<br />
Services<br />
Security<br />
Services<br />
Public<br />
Administration<br />
• Balance <strong>of</strong><br />
payment<br />
• Ratio <strong>of</strong> trade to<br />
GDP<br />
• Export <strong>of</strong> goods<br />
• Per capita income<br />
• Rate <strong>of</strong><br />
employment<br />
Health Services<br />
• No. <strong>of</strong> admission<br />
• Total patient days<br />
• Average length <strong>of</strong><br />
stay<br />
• Life expectacy<br />
• Infant mortality<br />
rate<br />
Education Services<br />
• Total number <strong>of</strong><br />
graduates<br />
• No. <strong>of</strong> graduates<br />
by program<br />
• Literacy rate<br />
• Poverty and<br />
hardcore poor<br />
• Type <strong>of</strong> crime<br />
• Police to<br />
population<br />
• Crime per 100,000<br />
population<br />
• Effective<br />
implementation<br />
<strong>of</strong> government<br />
decisions<br />
• Bribery and<br />
corruption<br />
• Bureaucracy<br />
• Transparency<br />
• Policy direction <strong>of</strong><br />
the government<br />
• Legal and<br />
regulatory<br />
framework<br />
• Adaptability <strong>of</strong><br />
government<br />
decisions to<br />
change<br />
The <strong>productivity</strong> level and growth <strong>of</strong> the public service<br />
sub-sectors are shown in Table 7.1. The <strong>productivity</strong><br />
level recorded by the economic services sub-sector<br />
was the highest at RM57,441 followed by general<br />
public administration at RM36,861. The <strong>productivity</strong><br />
growth <strong>of</strong> the social services was the highest at 4.4%<br />
while security services recorded a 3.7% growth. The<br />
public sector as a whole, recorded a growth <strong>of</strong> 3.8%.<br />
The social services recorded a<br />
<strong>productivity</strong> growth <strong>of</strong> 4.4%<br />
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139
CHAPTER 7<br />
Table 7.1: Productivity <strong>of</strong> the Public Service Sub-sectors<br />
Productivity Level (RM)<br />
Productivity<br />
Growth (%)<br />
2005 2006 2007 2008 2008<br />
Public Sector 28,835 29,820 30,905 32,073 3.78<br />
Economic Services 53,103 54,121 56,328 57,441 1.98<br />
Social Services 27,083 28,572 28,998 30,178 4.42<br />
Security Services 21,906 23,733 25,817 26,763 3.66<br />
General Public 34,245 37,439 36,094 36,861 2.12<br />
Administration<br />
Computed from : National Account, Various Issues, Department <strong>of</strong> Statistics<br />
Economic Services<br />
The government is committed<br />
in moving the economy up the<br />
value chain and assumes a<br />
pivotal role in facilitating socioeconomic<br />
development<br />
The aim <strong>of</strong> the government is to move the economy up<br />
the value chain by enhancing <strong>productivity</strong>, innovation<br />
and competitiveness. To enable private sector<br />
businesses to be dynamic in a global environment, the<br />
government has established several key economic<br />
policies to support them. Vision 2020 had set-out<br />
strategic challenges that would establish a prosperous<br />
society that is supported by an economy that is<br />
competitive, dynamic and resilient. In its quest<br />
towards inculcating a conducive business enviroment,<br />
the government assumes a pivotal role in facilitating<br />
the nation’s socio-economic development,<br />
strengthening internal resilience and international<br />
competitiveness as well as promoting optimum<br />
utilisation <strong>of</strong> available resources.<br />
140 PRODUCTIVITY REPORT 2008
In 2008, the <strong>productivity</strong> level <strong>of</strong> economic services<br />
was RM57,441 (Table 7.1). The government has been<br />
successful in managing the economy as reflected in<br />
the following indicators namely, balance <strong>of</strong> payments<br />
(BOP), ratio <strong>of</strong> trade to GDP, export <strong>of</strong> goods, per<br />
capita income, and the rate <strong>of</strong> unemployment. The<br />
balance <strong>of</strong> payments improved to RM114,979 million<br />
in 2008 from RM56,511 million in 2004 (Figure 7.6).<br />
The total trade to GDP ratio was consistent at 1:2.2<br />
since 2005 (Table 7.2).<br />
Productivity level <strong>of</strong> economic<br />
services was RM16,718 in<br />
2008 attributed to effective<br />
management by the<br />
government<br />
CHAPTER 7<br />
Figure 7.6: Balance <strong>of</strong> Payments<br />
140<br />
120<br />
100<br />
93.419<br />
100.410<br />
114.979<br />
RM Billion<br />
80<br />
60<br />
40<br />
56.511<br />
75.681<br />
20<br />
0<br />
2004 2005 2006 2007 2008<br />
Year<br />
Computed from : National Account, Various Issues, Department <strong>of</strong> Statistics<br />
PRODUCTIVITY REPORT 2008<br />
141
CHAPTER 7<br />
Table 7.2: Ratio <strong>of</strong> Total Trade to GDP<br />
GDP Total Trade Total Trade:<br />
(RM) Million (RM) Million GDP<br />
2004 426,508 880,885 1 : 2.07<br />
2005 449,250 967,798 1 : 2.15<br />
2006 475,192 1,069,738 1 : 2.25<br />
2007 505,353 1,109,668 1 : 2.20<br />
2008 533,910 1,185,017 1 : 2.22<br />
Source : Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
Exports <strong>of</strong> goods in 2008 was RM503,998 million while per capita income increased<br />
substantially to RM25,274 in 2008 from RM16,616 in 2004 (Figure 7.7 and Figure 7.8).<br />
Figure 7.7: Exports <strong>of</strong> Goods<br />
600<br />
RM Billion<br />
500<br />
400<br />
300<br />
200<br />
395.13<br />
435.74<br />
479.67 482.42<br />
504.00<br />
100<br />
0<br />
2004 2005 2006 2007 2008<br />
Year<br />
Source : Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
142 PRODUCTIVITY REPORT 2008
RM Thousand<br />
30<br />
25<br />
20<br />
15<br />
10<br />
Figure 7.8: Per Capita Income<br />
23.114<br />
20.841<br />
18.039<br />
16.616<br />
25.274<br />
CHAPTER 7<br />
5<br />
0<br />
2004 2005 2006 2007 2008<br />
Year<br />
Source : Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
Malaysia has also been experiencing full employment in the last decade and in 2008,<br />
the unemployment rate was 3.1% (Figure 7.9).<br />
Figure 7.9: Rate <strong>of</strong> Unemployment<br />
3.6<br />
3.5 3.5<br />
Percent<br />
3.4<br />
3.2<br />
3.3<br />
3.2 3.2<br />
3.0<br />
2004 2005 2006 2007 2008<br />
Year<br />
Source : Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
143
CHAPTER 7<br />
Third Industrial Master Plan<br />
strategies will enable Malaysia<br />
to meet international trade<br />
challenges<br />
Eleven strategic thrusts have been identified in the<br />
Third Industrial Master Plan to enable Malaysia to face<br />
the challenges in international trade. The thrusts<br />
include: intensifying exports <strong>of</strong> services; promoting<br />
exports <strong>of</strong> targeted growth areas in the manufacturing<br />
and services sectors; establishing Malaysia as a<br />
leading supplier <strong>of</strong> halal products and services;<br />
promoting the exports <strong>of</strong> indigenous E&E products;<br />
promoting trade in motor vehicles, parts and<br />
components; support for outsourcing services;<br />
enhancing exports by complying with international<br />
standards; providing effective financial assistance to<br />
enhance exports; enhancing the policy framework to<br />
facilitate trade; strengthening and expanding the<br />
institutional support for the exporting community and<br />
strengthening the role <strong>of</strong> the private sector as well as<br />
trade and industry associations in enhancing exports.<br />
The government has drawn up<br />
initiatives to assist the rural<br />
population. The social services<br />
sub-sector registered a<br />
<strong>productivity</strong> growth <strong>of</strong> 4.4%<br />
to RM30,178.<br />
Social Services Sub-Sector<br />
The government is concerned about the needs <strong>of</strong> the<br />
people especially those in the rural areas and has<br />
initiated several development programmes within<br />
the sector to ensure improvements and provide<br />
opportunities for advancement in business. To ensure<br />
a higher standard <strong>of</strong> living for the rural population,<br />
the government has provided improvements to<br />
infrastructure facilities, encouraged the development<br />
and advancement <strong>of</strong> cottage and traditional craft<br />
industries as well as improved farming methods<br />
for higher <strong>productivity</strong> and increased output. To<br />
complement these initiatives, flexible financial<br />
packages and technology facilities have been put in<br />
place to speed up the progress in the rural areas,<br />
especially in agriculture-related trade, services, and<br />
ecotourism. The social services sector registered a<br />
growth <strong>of</strong> 4.4% to RM30,178 in 2008.<br />
144 PRODUCTIVITY REPORT 2008
Health Services<br />
For the health services, the indicators used are<br />
number <strong>of</strong> admissions and total patient days. The total<br />
number <strong>of</strong> admissions increased to 1,852,401 in 2006<br />
from 1,804,697 in 2004 while total patient days<br />
increased to 8,458,812 in 2006 from 8,169,835 in<br />
2004 (Figure 7.10).<br />
CHAPTER 7<br />
Figure 7.10: Admissions and Patient Days in Government Hospitals<br />
Million<br />
10<br />
8<br />
6<br />
4<br />
7.92 8.17 8.33<br />
8.46<br />
Total Admissions<br />
Total Patient Days<br />
2<br />
1.72<br />
1.80 1.85 1.91<br />
0<br />
2003 2004 2005 2006<br />
Year<br />
Source: Ministry <strong>of</strong> Health (MOH)<br />
According to the International Health Organisation,<br />
Malaysia has one <strong>of</strong> the best rural health services in<br />
the world. It was also reported that a clinic is available<br />
within every 5km and more than 95% <strong>of</strong> the rural<br />
population has access to health facilities. Health<br />
services has improved since 2004 as indicated by the<br />
improvement in doctors to population ratio.<br />
Malaysia’s rural health facilities<br />
are among the best in the<br />
world<br />
PRODUCTIVITY REPORT 2008<br />
145
CHAPTER 7<br />
Doctor to population ratio is<br />
expected to be 1:600 by 2013<br />
The ratio had improved to 1:1,145 patients in 2007<br />
compared to 1:1,402 patients in 2004. This ratio is<br />
currently at 1:1,200 and the government has<br />
undertaken measures to improve the ratio to 1:600 by<br />
2013. The average length <strong>of</strong> stay in government<br />
hospitals was 4.5 days while the percentage <strong>of</strong> deaths<br />
to total discharge was 2.0% for government hospitals<br />
(Table 7.3).<br />
Table 7.3: Health Services Indicators in Government Hospitals<br />
2003 2004 2005 2006<br />
Death to total discharge (%) 2.12 2.11 2.13 2.13<br />
Average length <strong>of</strong> stay (days) 4.60 4.52 4.49 4.44<br />
Source: Ministry <strong>of</strong> Health (MOH)<br />
The life expectancy <strong>of</strong><br />
Malaysians is 74.1 years<br />
Overall life expectancy <strong>of</strong> Malaysians has improved<br />
to 74.1 years in 2007 from 73.3 in 2003. The life<br />
expectancy age for males also improved to 71.9 years<br />
in 2007 compared to 71.1 years in 2004 while the life<br />
expectancy age for females improved to 76.3 years<br />
in 2007 from 75.9 years in 2004 (Figure 7.11). In<br />
terms <strong>of</strong> infant mortality rate, Malaysia has been<br />
experiencing low mortality at an average <strong>of</strong> 6.5 per<br />
1,000 live births (Figure 7.12).<br />
146 PRODUCTIVITY REPORT 2008
Figure 7.11: Life Expectancy in Malaysia<br />
CHAPTER 7<br />
100<br />
Number<br />
80<br />
60<br />
75.6<br />
70.9<br />
75.9<br />
71.1<br />
76.2<br />
71.8<br />
76.3<br />
71.8<br />
76.3<br />
71.9<br />
Male<br />
40<br />
Female<br />
20<br />
0<br />
2003 2004 2005 2006 2007<br />
Year<br />
Source : Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
Figure 7.12: Infant Mortality Rate (per 1000 Live Births)<br />
10<br />
8<br />
Percent<br />
6<br />
4<br />
5.8<br />
6.5 6.7 6.6 6.7<br />
2<br />
0<br />
2003 2004 2005 2006 2007<br />
Year<br />
Source : Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
147
CHAPTER 7<br />
Telehealth connects doctors<br />
and patients nation-wide<br />
To educate the public on health issues and create<br />
nation-wide awareness, the Ministry <strong>of</strong> Health has set<br />
up tele-consultation through the MYHEALTH portal that<br />
<strong>of</strong>fers a wide range <strong>of</strong> health information and enables<br />
individuals to discuss healthcare issues with the<br />
experts. These services are also provided to community<br />
and rural clinics thus connecting doctors and patients.<br />
The National Social Policy has<br />
been effective in reducing<br />
poverty<br />
Poverty Eradication<br />
The National Social Policy has outlined several<br />
strategies to assist the less fortunate. A social safety net<br />
scheme that was introduced in 1990 to channel aid to<br />
children, the aged and those with special needs has<br />
been extended under the Ninth Malaysia Plan to<br />
improve the quality <strong>of</strong> life. The initiatives under this<br />
scheme include, giving priority to eradication <strong>of</strong> poverty,<br />
affordable housing for low income earners and<br />
improving the standard <strong>of</strong> living for marginalised<br />
groups. The policy has been successful in reducing the<br />
overall poverty rate to 3.6% in 2007 from 5.7% in 2004<br />
while hardcore poverty was reduced to 0.7% in 2007<br />
from 1.2% in 2004. The government has targeted to<br />
reduce overall poverty to 2.8% while hardcore poverty<br />
will be totally eradicated by 2010 (Figure 7.13).<br />
Figure 7.13: Incidence <strong>of</strong> Poverty and Hardcore Poverty<br />
10<br />
8<br />
8.7<br />
8.5<br />
Overall Poverty<br />
(% <strong>of</strong> households)<br />
Percent<br />
6<br />
4<br />
6.0<br />
5.7<br />
3.6<br />
Hardcore Poverty<br />
(%)<br />
2<br />
2.1<br />
1.9<br />
1.0<br />
1.2<br />
0.7<br />
0<br />
2003 2004 2005 2006 2007<br />
Year<br />
Source : Economic Report 2008/2009<br />
148 PRODUCTIVITY REPORT 2008
Under the second stimulus package, RM500 million<br />
had been allocated to improve infrastructure in rural<br />
areas. This funding would provide a comprehensive<br />
infrastructure system, in terms <strong>of</strong> roads, electricity and<br />
water that will assist in balanced growth for the<br />
economy. Another RM1 billion has also been set aside<br />
to improve sufficient housing facilities.<br />
CHAPTER 7<br />
Education Services<br />
The National Education Blueprint was launched on 16<br />
January 2007. The main objectives <strong>of</strong> the Blueprint<br />
were to upgrade the implementation <strong>of</strong> education<br />
programmes and to enhance the human resource<br />
development process at all levels and on continuous<br />
basis to obtain an output which will fulfill the national<br />
and international requirements in relation to<br />
Malaysia’s position in the global arena. The<br />
government, in identifying human resources as one<br />
<strong>of</strong> the country’s most valuable assets, continuously<br />
works towards creating highly skilled and<br />
knowledgeable workers and entrepreneurs.<br />
Private sector participation<br />
complemented government<br />
efforts for higher education<br />
opportunities<br />
The education system is formulated to keep up with the<br />
needs <strong>of</strong> the market. Beyond schools and universities,<br />
the government also promotes lifelong learning to<br />
enhance employability and <strong>productivity</strong> <strong>of</strong> the labour<br />
force. Private sector participation in the education<br />
sector has complemented efforts by the government to<br />
provide higher education and training opportunities.<br />
The total number <strong>of</strong> graduates had increased to 83,119<br />
in 2008 from 62,211 in 2004. The total number <strong>of</strong><br />
graduates from the public universities increased to<br />
59,471 in 2008 from 43,826 in 2004 (Figure 7.14).<br />
To meet the industries demand for skilled and<br />
technical workers, the number <strong>of</strong> graduates in<br />
technical studies had increased by 50.6% to 14,885<br />
graduates in 2007 from 9,886 graduates in 2004<br />
(Figure 7.15). Accessibility to education had also<br />
resulted in a higher literacy rate <strong>of</strong> more than 90%<br />
(Figure 7.16).<br />
Number <strong>of</strong> graduates in<br />
technical studies increased<br />
since 2004 to meet industries<br />
demand<br />
PRODUCTIVITY REPORT 2008<br />
149
CHAPTER 7<br />
Thousands<br />
Figure 7.14: Number <strong>of</strong> Graduates from Public and Private Institutions<br />
70<br />
60<br />
50<br />
40<br />
30<br />
20<br />
43,826<br />
18,385<br />
51,771<br />
20,294<br />
55,524<br />
27,176<br />
59,471<br />
23,648<br />
Number <strong>of</strong><br />
Graduates from<br />
Public Institutions<br />
<strong>of</strong> Higher Learning<br />
Number <strong>of</strong><br />
Graduates from<br />
Private Institutions<br />
<strong>of</strong> Higher Learning<br />
10<br />
0<br />
2004 2005 2006 2007<br />
Year<br />
Source: Ministry <strong>of</strong> Higher Education<br />
Figure 7.15: Number <strong>of</strong> Graduates by Types <strong>of</strong> Programmes<br />
100<br />
Science<br />
80<br />
25,701<br />
21,215<br />
Technical<br />
Thousands<br />
60<br />
40<br />
17,928<br />
9,886<br />
24,689<br />
12,297<br />
14,266<br />
42,733<br />
14,885<br />
47,019<br />
Arts<br />
20<br />
34,379<br />
35,079<br />
0<br />
2004 2005 2006 2007<br />
Year<br />
Source: Ministry <strong>of</strong> Higher Education<br />
150 PRODUCTIVITY REPORT 2008
100<br />
Figure 7.16: Literacy Rate in Malaysia<br />
91.80 92.00 92.70 92.30<br />
CHAPTER 7<br />
80<br />
Percent<br />
60<br />
40<br />
20<br />
0<br />
2004 2005 2006 2007<br />
Year<br />
Source : Economic Report, Ministry <strong>of</strong> Finance, Malaysia<br />
During this period <strong>of</strong> economic slowdown, it is<br />
pertinent that human capital development be given<br />
more emphasis as outlined in the Ninth Malaysia Plan.<br />
To help workers gain employability, the government is<br />
providing 100,000 training opportunities and job<br />
placements that will be a joint effort between the<br />
government and the private sector. The training will be<br />
implemented through various government agencies<br />
including government-linked companies (GLCs) and<br />
the private sector, including private training institutes.<br />
Human capital development to<br />
be given more emphasis during<br />
the economic slowdown<br />
Creating a Critical Mass <strong>of</strong> Local Experts in<br />
Science and Engineering<br />
For Malaysia to shift to the innovation stage <strong>of</strong><br />
development, it is crucial that there exists a steady<br />
supply <strong>of</strong> skilled and research based employees. The<br />
Government had provided various support programmes<br />
to promote local research activities. The<br />
Commercialisation <strong>of</strong> the R&D Fund (CRDF) was<br />
established to provide grants to qualified R&D projects<br />
undertaken by local tertiary institutions, research<br />
institutes and industry for commercialisation <strong>of</strong> R&D<br />
findings. In 2008, 22 projects were approved for various<br />
22 R&D projects were<br />
approved in 2008 for various<br />
clusters such as industrial<br />
products, biotechnology,<br />
recycle based and E&E<br />
PRODUCTIVITY REPORT 2008<br />
151
CHAPTER 7<br />
198 high impact S&T research<br />
projects were granted in 2008<br />
clusters such as industrial products, biotechnology,<br />
recycle based, and electrical and electronics.<br />
The Technology Acquisition Fund (TAF) was<br />
introduced to further promote efforts by the private<br />
sector to acquire new technology and enhance their<br />
technological capabilities and production processes.<br />
For 2008, eight projects were approved for electrical<br />
and electronics, biotechnology, food, and advanced<br />
material. MOSTI has granted 198 high impact Science<br />
and Technology (S&T) research projects involving<br />
various researchers and universities.<br />
Security Services Sub-sector<br />
Productivity <strong>of</strong> security services<br />
grew by 3.7% to RM17,503<br />
The security services sub-sector comprises infrastructure<br />
and national security. Security services recorded a<br />
<strong>productivity</strong> growth <strong>of</strong> 3.7% to RM17,503 in 2008.<br />
A good infrastructure system in the country is<br />
prerequisite to ensure public security.<br />
Public Safety<br />
To ensure continuous economic growth and to attract<br />
more investments to the country, safety <strong>of</strong> the public is<br />
<strong>of</strong> paramount importance. The police to population<br />
ratio in 2008 was 1:307. This ratio was comparable<br />
with other developed countries such as the USA<br />
(1:323) and Germany (1:329) (Table 7.4).<br />
Table 7.4: Total Number <strong>of</strong> Police to Population Ratio<br />
Year<br />
Police : Population<br />
2006 1 : 278<br />
2007 1 : 251<br />
2008 1 : 307<br />
Source: Royal Malaysian Police<br />
152 PRODUCTIVITY REPORT 2008
Initiatives to improve public safety apart from the<br />
recruitment <strong>of</strong> more police personnel include the<br />
installation <strong>of</strong> more CCTVs in crime prone areas,<br />
investment in new equipment and setting up more<br />
mobile police stations in residential areas. Other<br />
programmes implemented were "The Neighbourhood<br />
Watch Scheme" (Rukun Tetangga), "Police Volunteer<br />
Reserve" and "Rakan Cop".<br />
Neighbourhood Watch<br />
Scheme, Police Volunteer<br />
Reserve and Rakan Cop were<br />
among the various programmes<br />
to curtail crime<br />
CHAPTER 7<br />
Infrastructure Facilites<br />
Awell connected infrastructure system will ensure that<br />
businesses have the right support to enhance their<br />
competitive advantage. An intricate range <strong>of</strong><br />
infrastructural facilites and amenities will boost<br />
economic growth by reducing delivery response time.<br />
The government has undertaken long-term integrated<br />
planning and coordination <strong>of</strong> projects affecting roads,<br />
bridges, urban transport and rail, ports airports,<br />
communications and water and sewerge. Malaysia<br />
was among the top 20 among 131 countries for overall<br />
infrastructure (18 th position), quality <strong>of</strong> port<br />
infrastructure (13 th position), quality <strong>of</strong> roads (14 th<br />
position), quality <strong>of</strong> air transport (15 th postion), quality<br />
<strong>of</strong> railroad infrastructure (17 th position), as reported in<br />
the Global Competitiveness Report 2008-2009.<br />
To ensure security in terms <strong>of</strong> energy supply, the<br />
government had formulated the National Energy<br />
Policy towards adequate, secure and cost-effective<br />
supply <strong>of</strong> energy. The policy additionally promotes<br />
efficient utilisation <strong>of</strong> energy and focuses on<br />
environment protection in the production and<br />
utilisation <strong>of</strong> energy.<br />
Malaysia was ranked among<br />
the top 20 countries for overall<br />
infrastructure facilities<br />
National Energy Policy to<br />
ensure secure and costeffective<br />
supply <strong>of</strong> energy<br />
PRODUCTIVITY REPORT 2008<br />
153
CHAPTER 7<br />
The government strives to<br />
create change in the public<br />
service delivery<br />
General Public Administration Sub-sector<br />
General public administration achieved a <strong>productivity</strong><br />
growth <strong>of</strong> 1.4% to RM37,007. The government strives<br />
to provide excellent service and places strong<br />
emphasis on initiatives to create change in the public<br />
service delivery system. Public sector administrative<br />
efficiency <strong>performance</strong> is based on a perception<br />
survey on the following selected indicators namely,<br />
bureaucracy, transparency <strong>of</strong> government policy,<br />
government decision, bribery and corruption, policy<br />
direction <strong>of</strong> the government, legal and regulatory<br />
framework, and adaptability <strong>of</strong> government decisions<br />
(Figure 7.17). Public sector administrative efficiency<br />
<strong>performance</strong> is analysed based on the ranking <strong>of</strong> 28<br />
economies with population <strong>of</strong> more than 20 million<br />
(Table 7.5).<br />
Table 7.5: Public Administration Efficiency with Population<br />
<strong>of</strong> More than 20 Million<br />
Government Bribery Legal and Adaptability Transparency Bureaucracy Policy<br />
decisions regulatory <strong>of</strong> direction<br />
framework government<br />
policy<br />
Malaysia 7 9 4 2 8 4 6<br />
Australia 1 1 1 1 1 1 2<br />
Canada 2 2 2 5 2 2 4<br />
France 9 5 20 13 4 14 10<br />
Japan 13 7 15 24 18 7 22<br />
Korea 11 11 26 20 15 20 17<br />
Taiwan 12 10 8 16 20 3 21<br />
Thailand 15 18 16 10 24 6 25<br />
UK 19 6 10 18 10 16 19<br />
USA 6 4 3 7 6 5 14<br />
Source: World Competitiveness Yearbook 2008<br />
154 PRODUCTIVITY REPORT 2008
Based on the indicators, Malaysia was ranked 2 nd in<br />
terms <strong>of</strong> adaptability <strong>of</strong> government policy to changes<br />
in the economy followed by legal and regulatory<br />
framework (4 th ), bureaucracy (4 th ), policy direction<br />
(6 th ), government decisions (7 th ) and bribery (9 th )<br />
among selected Asian and OECD countries with<br />
population more than 20 million. Various initiatives<br />
were undertaken to improve public service delivery<br />
such as improvement in systems and procedures <strong>of</strong><br />
government procurement to enhance transparency.<br />
Malaysia’s public administration<br />
efficiency was ranked among<br />
the top 10 in various areas<br />
CHAPTER 7<br />
A Foreign Investment Committee was set up and<br />
guidelines on foreign participation in the distributive<br />
trade sector were developed. The government<br />
continued to facilitate business activities by<br />
streamlining procedures on approval permits,<br />
licences, and simplify property registration. To curtail<br />
bribery and corruption, the government has<br />
established the Malaysian Anti Corruption<br />
Commission (MACC). With the setting up <strong>of</strong> this<br />
commission, it is expected that Malaysia’s ranking in<br />
terms <strong>of</strong> bribery will improve.<br />
The government continued to<br />
facilitate business activities and<br />
curtail bribery<br />
PRODUCTIVITY REPORT 2008<br />
155
CHAPTER 7<br />
Figure 7.17: Framework for Measuring Efficiency in Public Administration<br />
Government<br />
Decision<br />
The extent to which government<br />
decisions are actively implemented<br />
Government<br />
Policy<br />
The extent to which government<br />
policy is adaptable to change in<br />
the economy<br />
Policy<br />
Direction<br />
The extent to which the policy<br />
direction <strong>of</strong> the government is<br />
consistent<br />
Efficiency in<br />
Public<br />
Administration<br />
Transparency<br />
The extent to which government<br />
policy is transparent<br />
Bribery &<br />
corruption<br />
The extent <strong>of</strong> non-existence <strong>of</strong><br />
high bribery and corruption<br />
Legal & Regulatory<br />
Framework<br />
The extent <strong>of</strong> the ability <strong>of</strong> the<br />
government to create conducive<br />
environment for enterprises to do<br />
business and invest<br />
Bureaucracy<br />
The extent <strong>of</strong> bureaucracy not<br />
hindering business activities<br />
156 PRODUCTIVITY REPORT 2008
Box 7.2: Improving Service Delivery through Process Improvement for<br />
Excellence (PRIME)<br />
CHAPTER 7<br />
Process Improvement for Excellence (PRIME) is an improvement technique to<br />
measure the <strong>performance</strong> <strong>of</strong> public agencies. The programme focuses on<br />
improving service delivery <strong>of</strong> both local authorities and the district <strong>of</strong>fices.<br />
Performance measures had been established for 30 core processes in which<br />
public agencies assess and compare to improve <strong>performance</strong>. The core processes<br />
are application for licences, healthcare services, development control, safety,<br />
customer complaints and enforcement. A step-by-step implementation <strong>of</strong> PRIME<br />
and the KPIs identified are shown below:<br />
Step-by-step Implemention <strong>of</strong> PRIME<br />
PRIME<br />
(Process Improvement for Excellence)<br />
Step 1<br />
Process measurement<br />
using PRIME s<strong>of</strong>tware<br />
• Prepares process description and flow chart<br />
• Measures key process indicator<br />
• Finalises KPI for all critical processes<br />
Step 2<br />
Step 3<br />
Benchmark <strong>performance</strong><br />
using e-Benchmark<br />
Best Practices sharing<br />
using Best Practices Net<br />
• Generates Benchmarking Report<br />
• Overall Report<br />
• Ranking Report<br />
• Competitive Report<br />
• On-line Best Practices Database<br />
• Regular Best Practices Rountable<br />
• Best practise visit to BIC organisation<br />
Step 4<br />
Process improvement<br />
through various P&Q<br />
interventions<br />
• Problem-solving approach<br />
• Process Improvement training<br />
• Process <strong>performance</strong> monitoring through the BOND<br />
system<br />
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157
CHAPTER 7<br />
PRIME KPIs<br />
• Average waiting time<br />
• Average no. <strong>of</strong> customers per day<br />
• Average cycle time<br />
• Average time for application<br />
• Total output produced<br />
• Targeted output vs. total<br />
output produced<br />
Effectiveness<br />
Efficiency<br />
Quality<br />
Productivity<br />
• Percentage <strong>of</strong> errors<br />
• Percentage <strong>of</strong> customer<br />
complaints resolved<br />
• Average response time to<br />
manage complaints<br />
• Staff <strong>productivity</strong><br />
Increasing eKL initiatives<br />
eKL to improve service delivery<br />
systems <strong>of</strong> government<br />
agencies within the Klang<br />
Valley<br />
The eKL is a government project to improve the<br />
service delivery systems <strong>of</strong> government agencies<br />
within the Klang Valley. It is one <strong>of</strong> the initiatives to<br />
intensify the implementation <strong>of</strong> electronic government<br />
to ensure efficient, fast, quality, safe and people<br />
friendly services that will improve the public’s<br />
perception <strong>of</strong> the services provided. Once fully<br />
implemented by 2010, it will be used as a benchmark<br />
for the rest <strong>of</strong> the country to follow. Ultimately, eKL will<br />
ensure that Malaysia’s competitive edge improves.<br />
International Comparison on Efficiency <strong>of</strong> Public<br />
Administration<br />
The international comparison on public sector<br />
<strong>performance</strong> focuses on the following perspectives,<br />
158 PRODUCTIVITY REPORT 2008
comparison on efficiency <strong>of</strong> public administration<br />
composite indicator for selected Asian and OECD<br />
countries based on perceptual efficiency indicators.<br />
Based on the <strong>performance</strong> indicator, Malaysia’s<br />
efficiency <strong>of</strong> public administration was higher than the<br />
rest <strong>of</strong> the selected Asian economies except Singapore<br />
and Hong Kong. Malaysia’s <strong>performance</strong> was better<br />
than selected OECD countries such as, Japan, UK and<br />
France. Overall, Singapore was leading in the efficiency<br />
<strong>of</strong> public administration in 2008 followed by Denmark<br />
and Australia (Table 7.6).<br />
Malaysia ranked higher than<br />
Japan, France and the UK<br />
for efficiency <strong>of</strong> public<br />
administration<br />
CHAPTER 7<br />
Table 7.6: Efficiency <strong>of</strong> Public Administration Among Selected<br />
Asian and OECD Economies<br />
Rank Economies Performance<br />
1 Singapore 7.71<br />
2 Denmark 7.00<br />
3 Australia 6.80<br />
4 Hong Kong 6.64<br />
5 Sweden 6.28<br />
6 New Zealand 6.28<br />
7 Canada 6.06<br />
8 Finland 6.04<br />
9 Ireland 5.85<br />
10 USA 5.15<br />
11 Malaysia 4.67<br />
12 Japan 4.56<br />
13 France 4.34<br />
14 UK 4.24<br />
15 Taiwan 4.12<br />
16 India 3.67<br />
17 Thailand 3.55<br />
18 Indonesia 3.42<br />
19 Korea 3.16<br />
20 Philippines 2.28<br />
Source: World Competitiveness Yearbook 2008<br />
* Score <strong>of</strong> 1-10, one being least efficient to 10 most efficient<br />
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159
CHAPTER 7<br />
Malaysia out performed<br />
selected Asian and OECD<br />
countries in government<br />
efficiency<br />
Figure 7.18 shows the overall scores <strong>of</strong> government<br />
efficiency in the selected Asian and OECD countries.<br />
Malaysia outperformed the selected Asian countries in<br />
all the eight indicators. However, for the legal and<br />
regulatory framework and regulation intensity,<br />
Malaysia’s <strong>performance</strong> was lower than the OECD<br />
average score. Overall, Malaysia’s <strong>performance</strong><br />
based on the scores for the eight indicators ranged<br />
from 3.77 for non-existence <strong>of</strong> bribery and corruption<br />
as well as bureaucracy not hindering business<br />
activities to a score <strong>of</strong> 5.96 for fair accessible and<br />
efficient justice process and responses. These scores<br />
need to be further improved as compared to the<br />
<strong>performance</strong> <strong>of</strong> the benchmark scores.<br />
Figure 7.18: Overall Government Efficiency Performance, 2008<br />
Score<br />
10.00<br />
9.00<br />
8.00<br />
7.00<br />
6.00<br />
5.00<br />
4.00<br />
3.00<br />
2.00<br />
1.00<br />
0.00<br />
Max<br />
OECD<br />
ASIAN<br />
Malaysia<br />
Min<br />
Bureaucracy<br />
Transparency<br />
Government<br />
Decision<br />
Bribery and<br />
corruption<br />
Justice<br />
Public Service<br />
Legal and<br />
regulatory<br />
framework<br />
Regulation<br />
intensity<br />
Source: World Competitiveness Yearbook 2008<br />
INTERNATIONAL BEST PRACTICES ON<br />
PUBLIC ADMINISTRATION EFFICIENCY<br />
Malaysia should benchmark<br />
Denmark for justice and<br />
transparency practices, and<br />
New Zealand for bribery and<br />
corruption reduction practices<br />
The Public Administration Efficiency Indicator provides<br />
the best practices on Public Service Administration for<br />
international comparison. Overall, New Zealand,<br />
Denmark and Singapore are the top three most efficient<br />
countries in public administration among 20 selected<br />
Asian and OECD economies.<br />
160 PRODUCTIVITY REPORT 2008
Table 7.7: International Public Administration Efficiency Indicators<br />
Indicators Malaysia’s Performance Benchmark Country and<br />
<strong>performance</strong><br />
CHAPTER 7<br />
Bureaucracy<br />
Transparency<br />
3.85<br />
4.53<br />
Singapore (6.93)<br />
Singapore (7.7),<br />
Denmark (7.7)<br />
Government decision 4.65 Singapore (9.28)<br />
Bribery and corruption 3.77 New Zealand (8.89)<br />
Justice 5.96 Denmark (8.91)<br />
Public service 3.96 Denmark (6.18)<br />
Legal and regulatory 5.35 Singapore (8.65)<br />
framework<br />
Regulation intensity 5.25 Singapore 7.49<br />
Source: World Competitiveness Yearbook 2008<br />
The Singapore government’s legal and regulatory<br />
framework creates a conducive environment for<br />
enterprises to do business and invest. The existing<br />
regulations also do not restrain companies from<br />
competing. This is a result <strong>of</strong> effective policy execution<br />
and policy options.<br />
Denmark should be benchmarked in terms <strong>of</strong> efficient<br />
justice process and transparency. In Denmark judicial<br />
independence is a requirement and is transparent<br />
through dialogue and collaboration. Disclosure <strong>of</strong><br />
public information is also practised.<br />
New Zealand should be benchmarked in terms <strong>of</strong><br />
reducing bribery and corruption. In New Zealand, a<br />
specific business compliance cost statement system<br />
(BCCS) is prepared for all regulatory proposals having<br />
‘red tape’. This is to ensure that compliance cost is<br />
kept as low as possible.<br />
PRODUCTIVITY REPORT 2008<br />
161
CHAPTER 7<br />
Based on the World Bank’s<br />
Ease <strong>of</strong> Doing Business<br />
Report, Malaysia improved its<br />
ranking to 20 th position in 2009<br />
Enhancing Public Service Delivery<br />
To support growth and a conducive business<br />
environment, special effort has been made by the<br />
government to coordinate and regulate activities <strong>of</strong> its<br />
various agencies. This led to the setting-up <strong>of</strong><br />
PEMUDAH which is the special taskforce to facilitate<br />
business. With improved work processes and<br />
collaborative efforts, Malaysia’s ranking in the World<br />
Bank’s Ease <strong>of</strong> Doing Business Report 2009,<br />
improved to 20 th position in 2009 from 25 th position in<br />
2008 . Malaysia was also ranked 1 st in terms <strong>of</strong> getting<br />
credit for business purposes and 4 th for protecting<br />
investors (Table 7.8). Improvement in public service<br />
efficiency is reflected by the positive change in the<br />
rankings <strong>of</strong> the indicators namely, paying taxes,<br />
starting a business and closing a business.<br />
Table 7.8: Ranking in Ease <strong>of</strong> Doing Business<br />
MALAYSIA<br />
Areas 2009 2008 Change in<br />
n=181 N=178 Ranking<br />
Overall 20 25 +5<br />
Starting a Business 75 82 +7<br />
Dealing with Construction Permits 104 106 +2<br />
Employing Workers 48 46 -2<br />
Registering Property 81 73 -8<br />
Getting Credit 1 1 0<br />
Protecting Investors 4 2 -2<br />
Paying Taxes 21 60 +39<br />
Trading Across Borders 29 24 -5<br />
Enforcing Contracts 59 60 +1<br />
Closing a Business 54 57 +3<br />
Source: World Bank Report on Ease <strong>of</strong> Doing Business 2009.<br />
Note:+ improvement<br />
- decline<br />
162 PRODUCTIVITY REPORT 2008
In 2008, improvements were made on many aspects,<br />
specifically on enhancing transparency and<br />
streamlining processes and procedures such as:<br />
• Reducing the time taken for clearance <strong>of</strong> exports<br />
to facilitate trade;<br />
To improve public sector<br />
efficiency, improvements were<br />
made to enhance transparency<br />
and streamline procedures<br />
CHAPTER 7<br />
• Reducing the time taken for property registration<br />
through improvement <strong>of</strong> processes and enabling<br />
on-line applications for property registration;<br />
• Improvements in tax administration;<br />
• Facilitating e-Payment;<br />
• Establishing a one stop centre to expedite<br />
incorporation <strong>of</strong> companies; and<br />
• Improving the processes for employing<br />
expatriates and skilled workers.<br />
These iniatitives had enabled the government to<br />
facilitate a conducive business environment to<br />
enhance efficiency <strong>of</strong> the public sector.<br />
PRODUCTIVITY REPORT 2008<br />
163
CHAPTER 8<br />
PRODUCTIVITY PERFORMANCE<br />
OF THE SMALL AND MEDIUM<br />
INDUSTRIES
Highlights<br />
CHAPTER 8<br />
PRODUCTIVITY PERFORMANCE OF THE SMALL AND<br />
MEDIUM INDUSTRIES<br />
• Small and Medium Industries (SMIs) constitute 99.2% <strong>of</strong> total business<br />
establishments.<br />
• SMIs recorded added value growth <strong>of</strong> 6.5% to RM20,507 million and<br />
contributed 26.5% share <strong>of</strong> total manufacturing added value.<br />
• Productivity <strong>of</strong> SMIs grew by 4.6 % in 2008 to RM47,719.<br />
• Industries which registered <strong>productivity</strong> growth were chemicals and chemical<br />
products, basic metals, petroleum products, radio, television and communication<br />
equipment and apparatus, <strong>of</strong>fice, accounting and computing machinery and wood<br />
and wood products.<br />
• SMIs remained competitive in terms <strong>of</strong> labour cost as shown by a 2.9% reduction in<br />
unit labour cost.<br />
Key Statistics<br />
Productivity, Added Value, Total Output and Employment <strong>of</strong> SMIs in the<br />
Manufacturing Sector, 2008<br />
Level Growth (%)<br />
Productivity (RM) 48,719 4.62<br />
Added Value (RM Million) 20,507 6.52<br />
Total Output (RM Million) 100,299 6.30<br />
Employment 420,917 1.82<br />
PRODUCTIVITY REPORT 2008<br />
167
CHAPTER 8<br />
The development <strong>of</strong> SMIs is<br />
top on national development<br />
agenda<br />
SMALL AND MEDIUM INDUSTRIES IN THE<br />
MANUFACTURING SECTOR<br />
Small and Medium industries (SMIs) constitute 99.2%<br />
<strong>of</strong> total business establishments in Malaysia. It is<br />
therefore important for the nation to build a viable SMI<br />
sector in order to broaden the sources <strong>of</strong> economic<br />
growth and sustain the growth momentum. The<br />
development <strong>of</strong> SMIs is top on the national<br />
development agenda, as reflected in the Ninth<br />
Malaysia Plan (9MP: 2006-2010) and the Third<br />
Industrial Master Plan (IMP3: 2006-2020).<br />
Competitive, innovative and<br />
technologically strong SMIs to<br />
strengthen domestic economy<br />
Collaborative ventures<br />
between GLCs and SMIs to<br />
facilitate knowledge transfer<br />
SMIs to become reliable<br />
suppliers for global<br />
outsourcing networks<br />
The SMI policy as outlined under the 9MP<br />
is the development <strong>of</strong> a competitive, innovative and<br />
technologically strong SMI sector capable <strong>of</strong><br />
contributing to the domestic economy and competing<br />
in international markets. Among the strategies<br />
identified include the acquisition <strong>of</strong> technologies to<br />
propel SMIs up the value chain across all sectors<br />
<strong>of</strong> the economy from manufacturing and services<br />
to agriculture.<br />
This is being done through several measures<br />
including:<br />
Outsourcing: outsource programmes are aimed<br />
at nurturing SMIs as research and development (R&D)<br />
partners in order to develop commercially viable<br />
products. Multinational Corporations (MNCs) and<br />
Government linked-companies (GLCs) are also<br />
encouraged to form collaborative ventures with SMIs<br />
as this will facilitate technology transfer, skills<br />
development and marketing in order to help SMIs<br />
grow.<br />
Inter-firm linkages: building SMIs also entails efforts<br />
to make them more competitive in both the domestic<br />
and international marketplace. Creating business<br />
linkages between SMIs, MNCs and GLCs will help<br />
SMIs to compete better and also enable them to<br />
become more reliable suppliers for global outsourcing<br />
networks. This in turn will help spur the expansion <strong>of</strong><br />
Malaysia’s trade.<br />
168 PRODUCTIVITY REPORT 2008
Entrepreneurship and Skills Development<br />
Programmes<br />
SMIs which participate in the Government’s<br />
Entrepreneurship and Skills Development<br />
Programmes including advisory and outreach services<br />
channeled through relevant ministries and agencies<br />
will be exposed to new and improved management<br />
and business practices, production methods, quality<br />
improvement, marketing and distribution. Towards this<br />
end, <strong>MPC</strong> <strong>of</strong>fers <strong>productivity</strong> and quality (P&Q)<br />
training programmes to help build SMIs and enhance<br />
their competitiveness through the propagation <strong>of</strong> P&Q<br />
culture for organisation excellence.<br />
Government provides advisory<br />
and outreach services to SMIs<br />
CHAPTER 8<br />
MOVING SMIs UP THE VALUE CHAIN<br />
In order to help SMIs compete better in the<br />
marketplace, the government has always urged SMIs<br />
to move up the value chain. Among the measures<br />
that must be taken by SMIs is to enhance ICT<br />
application and e-commerce. Strong ICT capabilities<br />
are crucial because today’s businesses are relying<br />
increasingly on internet-based business-to-business<br />
community portals to source for various products and<br />
services. In fact, more customers are using the<br />
internet to make their purchases. The internet savvy<br />
group represents a new market segment for SMIs to<br />
tap on.<br />
To nurture SMIs and help them to move up the value<br />
chain, the government has introduced various plans to<br />
strengthen the infrastructure, improve the capacity <strong>of</strong><br />
enterprises, enhance access to financing, increase<br />
market access and enhance growth and<br />
competitiveness.<br />
In 2008, SMIs produced RM100,299 million or 30.9%<br />
<strong>of</strong> total manufacturing output. Most <strong>of</strong> the SMIs were<br />
involved in food and beverages (32.2%), chemicals<br />
and chemical products (17.2%), rubber and plastics<br />
products (10.1%), fabricated metal products (6.4%),<br />
and basic metals products (6.1%). These industries<br />
ICT and e-commerce to<br />
enhance SMIs’ capabilities<br />
Various plans to strengthen<br />
infrastructure, capasity and<br />
financing for SMIs<br />
SMIs contributed 30.9% <strong>of</strong><br />
total manufacturing output<br />
PRODUCTIVITY REPORT 2008<br />
169
CHAPTER 8<br />
SMIs contributed 26.5%<br />
share <strong>of</strong> total added value<br />
produced RM72,096 million <strong>of</strong> output or 72% <strong>of</strong> total<br />
manufacturing output.<br />
SMIs recorded added value growth <strong>of</strong> 6.5% to<br />
RM20,507 million and contributing 26.5% share<br />
<strong>of</strong> total manufacturing added value. The major<br />
contributors were food and beverages (21.7%),<br />
chemicals and chemical products (19.2%), rubber<br />
and plastics (11.3%), and fabricated metal products<br />
(7.7%). These industries accounted for RM12,287<br />
million or 60% <strong>of</strong> SMIs added value.<br />
Employment in SMIs increased<br />
by 1.8% to 420,917<br />
Employment in the SMIs increased by 1.8% with a<br />
total workforce <strong>of</strong> 420,917. Most <strong>of</strong> the workers were<br />
in food and beverages (16.9%), rubber and plastics<br />
products (12.8%), furniture (10.9%), fabricated metal<br />
products (9.8%), and chemicals and chemical<br />
products (6.1%). These industries employed 237,617<br />
workers which accounted for 56.5% <strong>of</strong> total<br />
employment <strong>of</strong> SMIs.<br />
Table 8.1: Total Output, Added Value and Employment <strong>of</strong> SMIs, 2007-2008<br />
Level* Share <strong>of</strong> Manufacturing Growth<br />
Sector (%) (%)<br />
2007 2008 2007 2008 2008<br />
Total Output 94,356 100, 299 30.74 30.9 6.30<br />
Added Value 19,251 20,507 26.33 26.5 6.52<br />
Employment 413,397 420, 917 31.62 31.8 1.82<br />
* Value Levels for Total Output and Added Value are in RM Million<br />
Computed from:<br />
Annual Survey <strong>of</strong> Manufacturing Industries, Department <strong>of</strong> Statistics, Malaysia, various issues<br />
170 PRODUCTIVITY REPORT 2008
Productivity Performance<br />
Productivity improvement is essential for SMIs to shift<br />
to a higher growth path. In 2008, SMIs recorded a<br />
<strong>productivity</strong> growth <strong>of</strong> 4.6% to RM48,719 from<br />
RM46,568 in 2007 (Figure 8.1). Among the industries<br />
which registered growth were chemicals and chemical<br />
products, (8.5%), basic metals products, (5.9%),<br />
petroleum products, (5.6%), <strong>of</strong>fice, accounting and<br />
computing machinery, (5.4%), wood and wood<br />
products, (4.8%), and food and beverages (4.7%).<br />
Productivity grew by 4.6% to<br />
RM48,719. High growth was<br />
recorded in chemicals and<br />
chemical products, basic<br />
metals and petroleum products<br />
CHAPTER 8<br />
The resource-based industries benefited from an<br />
increase in demand as shown by the growth in output<br />
<strong>of</strong> chemicals and chemical products, (10.6%), paper<br />
and paper products, (7.3%), food and beverages,<br />
(6.0%), and wood and wood products (5.7%).<br />
Figure 8.1: Productivity <strong>of</strong> SMIs, 2004-2008<br />
60<br />
7.0<br />
50<br />
6.0<br />
RM Thousand<br />
40<br />
30<br />
20<br />
5.0<br />
4.0<br />
3.0<br />
2.0<br />
Percent<br />
10<br />
1.0<br />
0<br />
2004 2005 2006 2007 2008<br />
0.0<br />
Level 39.42 42.00 44.22 46.57 48.72<br />
Growth 6.48 6.54 5.28 5.31 4.62<br />
Computed from:<br />
Annual Survey <strong>of</strong> Manufacturing Industries,<br />
Department <strong>of</strong> Statistics, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
171
CHAPTER 8<br />
Capital intensity grew by 2.6%<br />
to RM39,757<br />
Capital Intensity<br />
Capital intensity <strong>of</strong> the SMIs grew by 2.6% to<br />
RM39,757 in 2008 (Figure 8.2). Among the industries<br />
which recorded high capital intensity growth were<br />
<strong>of</strong>fice, accounting and computing machinery (5.7%),<br />
electrical machinery and appratus products (5.6%),<br />
publishing and printing (4.8%), machinery and<br />
equipments (3.4%) and food and beverages (2.9%).<br />
Figure 8.2: Capital Intensity, 2004-2008<br />
40<br />
2.8<br />
39<br />
2.7<br />
RM Thousand<br />
38<br />
37<br />
36<br />
2.6<br />
2.5<br />
2.4<br />
Percent<br />
35<br />
2.3<br />
34<br />
2004 2005 2006 2007 2008<br />
2.2<br />
Level 35.94 36.81 37.8 38.75 39.76<br />
Growth 2.75 2.42 2.70 2.52 2.59<br />
Computed from:<br />
Annual Survey <strong>of</strong> Manufacturing Industries,<br />
Department <strong>of</strong> Statistics, Malaysia<br />
172 PRODUCTIVITY REPORT 2008
Capital Productivity<br />
In 2008, SMIs recorded efficient utilisation <strong>of</strong> fixed<br />
assets. Capital <strong>productivity</strong> grew by 2.0% with several<br />
industries recording growth such as wood and wood<br />
products (5.3%), basic metals products (3.9%),<br />
fabricated metal products (3.7%), textiles (2.7%), and<br />
chemicals and chemical products (2.2%).<br />
Capital <strong>productivity</strong> grew by<br />
2.0% led by wood and wood<br />
products and basic metal<br />
products<br />
CHAPTER 8<br />
Figure 8.3: Capital Productivity, 2004-2008<br />
1.25<br />
4.5<br />
Pure Number<br />
1.20<br />
1.15<br />
1.10<br />
1.05<br />
4.0<br />
3.5<br />
3.0<br />
2.5<br />
2.0<br />
1.5<br />
1.0<br />
Percent<br />
1.00<br />
2004 2005 2006 2007 2008<br />
0.0<br />
Level 1.10 1.14 1.17 1.20 1.23<br />
Growth 3.64 4.03 2.51 2.72 1.98<br />
Computed from:<br />
Annual Survey <strong>of</strong> Manufacturing Industries,<br />
Department <strong>of</strong> Statistics, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
173
CHAPTER 8<br />
SMIs remained competitive<br />
in terms <strong>of</strong> labour cost with<br />
2.9% decline in Unit Labour<br />
Cost<br />
Labour Cost Competitiveness<br />
SMIs managed to sustain its competitiveness through<br />
reduction in unit labour cost <strong>of</strong> 2.9% in 2008.<br />
Productivity grew by 4.6% while labour cost per<br />
employee grew by 1.4% (Figure 8.4). Industries<br />
which registered improvement in labour cost<br />
competitiveness were chemicals and chemical<br />
products, radio, television and communication<br />
equipment, <strong>of</strong>fice, accounting and computing<br />
machinery, wood and wood products, basic metal<br />
products and petroleum products (Table 8.2).<br />
Figure 8.4: Labour Cost Competitiveness <strong>of</strong> the SMIs, 2004-2008<br />
8.00<br />
6.00<br />
5.94<br />
6.48<br />
6.54<br />
5.28<br />
5.31<br />
4.62<br />
4.00<br />
Percent<br />
2.00<br />
0.00<br />
-2.00<br />
1.35<br />
0.73<br />
1.58 1.54<br />
1.30 1.39<br />
2003 2004 2005 2006 2007 2008<br />
-4.00<br />
-6.00<br />
-3.92<br />
-5.69<br />
-4.46<br />
-3.81<br />
-2.68<br />
-2.89<br />
-8.00<br />
Productivity<br />
Labour Cost per<br />
Employee<br />
Unit Labour<br />
Cost<br />
Computed from:<br />
Annual Survey <strong>of</strong> Manufacturing Industries,<br />
Department <strong>of</strong> Statistics, Malaysia<br />
174 PRODUCTIVITY REPORT 2008
Table 8.2: Labour Cost Competitiveness <strong>of</strong> the SMIs<br />
Growth (%)<br />
Industry Productivity Labour Cost Unit Labour<br />
per<br />
Cost<br />
Employee<br />
CHAPTER 8<br />
SMIs Average 4.62 1.39 -2.89<br />
Chemicals and chemical 8.52 2.53 -4.76<br />
products<br />
Basic metal products 5.85 2.83 -2.93<br />
Petroleum products 5.60 0.76 -5.70<br />
Radio, television and 5.49 2.70 -3.55<br />
communication equipment<br />
Office, accounting and 5.42 2.76 -6.23<br />
computing machinery<br />
Wood and wood products 4.82 2.15 -3.03<br />
Food and beverages 4.66 1.26 -2.20<br />
Paper and paper products 3.92 1.93 -2.31<br />
Rubber and plastics products 3.74 1.05 -2.12<br />
Machinery and equipment 3.51 1.71 -2.15<br />
Publishing, printing and<br />
reproducing <strong>of</strong> recorded 2.93 0.71 -1.60<br />
media<br />
Electrical machinery 2.91 1.44 -1.80<br />
Textiles 2.79 0.54 -1.86<br />
Wearing apparel 2.79 1.33 -0.61<br />
Fabricated metal products 2.32 1.11 -0.30<br />
Computed from:<br />
Annual Survey <strong>of</strong> Manufacturing Industries, Department <strong>of</strong> Statistics, Malaysia<br />
PRODUCTIVITY REPORT 2008<br />
175
CHAPTER 8<br />
Box 8.1: National SME Development Blueprint 2008<br />
Under the National SME Development Blueprint 2008, a total <strong>of</strong> 198 key<br />
programmes with financial commitment <strong>of</strong> RM3.2 billion have been identified<br />
to assist SMIs in 2008. These programmes will assist SMIs across all economic<br />
sectors, in the areas <strong>of</strong> enhancing the supporting infrastructure for SMIs,<br />
building to strengthen SMIs, and in improving access to financing. The main focus<br />
for 2008 will be to promote SMIs in the services, primary agriculture and<br />
agro-based based sectors, in line with strategies formulated in the 9MP and IMP3.<br />
The key programmes in capacity building are focused on entrepreneurship<br />
and human capital development, marketing and promotion and provision <strong>of</strong><br />
advisory services to SMIs. In providing the supporting infrastructure to SMIs,<br />
the government will provide more business premises, factories, business stalls<br />
and incubation centres for SMIs. These include the establishment <strong>of</strong> Halal Parks<br />
and centres for packaging, distribution and marketing <strong>of</strong> agriculture products at<br />
strategic locations.<br />
In the area <strong>of</strong> financing, banking and development financial institutions are<br />
expected to approve a total <strong>of</strong> RM70 billion financing to 140,000 SMIs accounts<br />
in 2008. This will be complemented by other Government financial assistance<br />
programmes including the Rural Economy Funding Scheme and the Franchise<br />
Financial Scheme.<br />
It is also pertinent to highlight the policy thrust for SMIs development in the 9MP<br />
that include strategies focusing on the establishment <strong>of</strong> high <strong>performance</strong><br />
and high value added SMIs with technical, competitive and innovative<br />
capability as well as managerial and business skills. Strategies are also directed<br />
at acquiring technologies that will propel SMIs up the value chain. Some<br />
advanced economies have succeeded in doing this because SMIs form a<br />
fundamental part <strong>of</strong> their economy, contributing substantially to employment and<br />
gross domestic product. Likewise in Malaysia, SMIs contribute significantly to the<br />
country’s economy and provide a strong foundation for the growth <strong>of</strong><br />
new industries as well as strengthening existing ones for Malaysia.<br />
176 PRODUCTIVITY REPORT 2008
Box 8.2: Productivity Enhancement through<br />
Quality Environment Activities<br />
CHAPTER 8<br />
One <strong>of</strong> the activities which organisations can adopt for immediate results is<br />
the implementation <strong>of</strong> Quality Environment (QE) practices. A study on the impact<br />
<strong>of</strong> Implementing Quality Environment Practices conducted recently by the<br />
Malaysia Productivity Corporation (<strong>MPC</strong>), showed that Quality Environment (QE)<br />
practices had contributed to improvements in <strong>productivity</strong>, quality <strong>of</strong> workforce,<br />
visual management and service delivery. 83.7% <strong>of</strong> the companies that had<br />
implemented QE practices reported reductions in reworks and optimisation <strong>of</strong><br />
floor space with better shop floor layout, while 78.4% experienced increased<br />
employee creativity, teamwork and morale.<br />
On implementation <strong>of</strong> QE practices, 68.8% <strong>of</strong> respondents achieved a reduction<br />
in customer complaints, 82.8% were happy with the improved visual<br />
management and more efficient material handling and retrieval time in the<br />
production area. The better efficiency achieved through QE practices had<br />
contributed to higher sales and reduction in operation costs. QE practices<br />
involved sorting out materials to be stored in designated places, discarding<br />
unnecessary items, simplifying processes and continuously ensuring that<br />
the practices are continuously improved upon and maintained.<br />
Among the practitioners <strong>of</strong> QE practices, Zamria Sdn. Bhd. had converted a<br />
storage area into functional <strong>of</strong>fice space for meetings as well as setting up a<br />
cafeteria. The implementation <strong>of</strong> QE in Kiwi Manufacturing Sdn. Bhd. had<br />
contributed to a better organised warehouse. With the improved layout <strong>of</strong> the<br />
warehouse, the number <strong>of</strong> employees required to manage the warehouse was<br />
reduced to 14 from 21, reflecting an improved efficiency <strong>of</strong> 33%.<br />
In 2008, the Malaysia Productivity Corporation (<strong>MPC</strong>) had certified a total <strong>of</strong><br />
222 organisations in Quality Environment. These certifications are reflective<br />
<strong>of</strong> organisations attainment <strong>of</strong> quality standards in the workplace environment<br />
management and their commitment to meet customer needs through continuous<br />
improvements.<br />
PRODUCTIVITY REPORT 2008<br />
177
CHAPTER 8<br />
Box 8.3: SMIs as Global Players<br />
SMIs AS GLOBAL PLAYERS<br />
PRODUCTIVITY<br />
EFFICIENCY<br />
COMPETITIVENESS<br />
INNOVATION<br />
SYSTEMS<br />
HUMAN CAPITAL<br />
• Management Innovation<br />
• Best Practices<br />
• Service Innovation<br />
• Information<br />
Management<br />
System & ICT<br />
Applications<br />
• Process Innovation<br />
• Certification<br />
• Standards<br />
• Procedures<br />
• Measurement<br />
• Quality Management<br />
System<br />
• Leadership<br />
• Talent Development<br />
• Centres <strong>of</strong> Excellence<br />
• Vendor Programme<br />
• BEST<br />
• Value Creation<br />
The <strong>productivity</strong> improvement initiatives for SMIs include capacity building, quality<br />
system development and certification, industry excellence award, development <strong>of</strong><br />
excellent company programme: model company, best practices management,<br />
<strong>performance</strong>/<strong>productivity</strong> measurement and information management<br />
systems and ICT application.<br />
A study that was carried by <strong>MPC</strong> to assess the impact <strong>of</strong> <strong>productivity</strong> improvement<br />
initiatives revealed the following:<br />
• 90% SMIs surveyed recorded between 2%-10% growth in<br />
<strong>productivity</strong>, sales and pr<strong>of</strong>itability;<br />
• 86% SMIs achieved a reduction <strong>of</strong> 5%-10% in accident rate; and<br />
• 40% SMIs reported between 7%-10% reduction in customer<br />
complaints, absenteeism, rework and reject rates.<br />
178 PRODUCTIVITY REPORT 2008
OUTLOOK FOR 2009<br />
To sustain the growth momentum, SMIs need to<br />
promote their products and services aggressively in<br />
both the local and international markets. The domestic<br />
market is expected to remain strong driven by<br />
various initiatives under the government’s economic<br />
stimulus packages. At the same time, SMIs should<br />
expand their horizons and capture international<br />
markets in anticipation <strong>of</strong> a better future global<br />
environment.<br />
CHAPTER 8<br />
To assist SMIs, various grants such as the Market<br />
Development Grant (MDG), and Brand Promotion<br />
Grant will enable industries in the furniture, processed<br />
food, and building and construction materials and<br />
hardware to venture into international markets. At the<br />
same time, there is a need to build home-grown SMI<br />
brands so that they are at the same level playing field<br />
as other international brands. For this venture, the<br />
Brand Promotion Grant will assist industries especially<br />
those from fashion, apparel, silverware, furniture,<br />
jewellery and confectionary.<br />
Nevertheless, to ensure brand value, SMIs must also<br />
be strong in the area <strong>of</strong> P&Q. <strong>MPC</strong> is providing<br />
special training for P&Q programmes to SMIs<br />
whereby SMEs pay only 20% <strong>of</strong> the normal course<br />
fees. Tailor-made programmes for Bumiputera SMIs<br />
such as Quality Management Systems, Certification<br />
on Quality Environment, Innovative & Creative Circles,<br />
TQM and benchmarking are also available.<br />
PRODUCTIVITY REPORT 2008<br />
179
CHAPTER 9<br />
BENCHMARKING FOR<br />
COMPETITIVENESS
Highlights<br />
CHAPTER 9<br />
BENCHMARKING FOR COMPETITIVENESS<br />
• Organisations need to benchmark against the best both locally and internationally<br />
to be competitive.<br />
• The Malaysia Benchmarking Index (MBI) provides a worldwide perspective on<br />
benchmarks with more than 100,000 datasets.<br />
• The MBI assists companies to track <strong>performance</strong>.<br />
• There are 28 indicators in seven areas <strong>of</strong> sales and pr<strong>of</strong>it, market growth, value<br />
creation, customers, employees, supplier management and building for the future.<br />
• MBI for SME manufacturing companies allows benchmarking activities in four<br />
selected industries.<br />
• <strong>MPC</strong>’s core activities, strategies focus and target groups are as depicted:<br />
<strong>MPC</strong> Core Activities<br />
PRODUCTIVITY REPORT 2008<br />
183
CHAPTER 9<br />
Benchmarking enhances<br />
competitiveness<br />
Benchmarking for Enhancing Competitiveness<br />
Benchmarking is a management tool for organisations<br />
to carry out self-assessment, compare their<br />
<strong>performance</strong> against their peers in the industries and<br />
create change for improvement. To be competitive,<br />
organisations need to benchmark against the best<br />
both locally and internationally.<br />
Through benchmarking, the following can be achieved :<br />
• Industries will be able to benchmark and<br />
compare against the best-in-class or world class<br />
organisations;<br />
• Develop a systematic approach in monitoring<br />
<strong>performance</strong> and chart out new improvement<br />
strategies; and<br />
• Identify business areas for enhancing business<br />
<strong>performance</strong>.<br />
At the firm level, organisations need to critically review<br />
and improve business operations to remain relevant<br />
to their customers and stakeholders. This would involve<br />
re-engineering business processes, improving the<br />
service delivery system, developing talent and<br />
capabilities <strong>of</strong> employees and fostering collaborations<br />
with other organisations. These approaches call for the<br />
application <strong>of</strong> benchmarking and best practices sharing<br />
to enhance organisational competitiveness.<br />
The main benchmarking and best practices systems<br />
and programmes are :<br />
• Benchmarking On-Line Networking Database<br />
(BOND) is a gateway that provides users with<br />
information on best practices using the internet<br />
as enabler to improve organisational<br />
<strong>performance</strong>.<br />
• E-benchmark system is an interactive system<br />
to assist organisations in measuring and<br />
184 PRODUCTIVITY REPORT 2008
evaluating business operations, functions<br />
and processes against best-in-class<br />
performers. With this system, Communities <strong>of</strong><br />
Practices (CoPs) members will be able to<br />
compute indicators, rank and benchmark<br />
<strong>performance</strong>.<br />
• Best Practices Net (BP Net) is a collaborative<br />
portal for management systems and an avenue<br />
for discussion, teamwork, sharing and<br />
exchange <strong>of</strong> knowledge on best practices<br />
among CoP members.<br />
Main activities in benchmarking<br />
and best practices include<br />
Benchmarking On-line Network<br />
database, E-benchmark<br />
system, public sector best<br />
practises, Best Practises Net,<br />
the Malaysia Benchmarking<br />
Index, process improvement for<br />
excellent and network with<br />
international institution<br />
CHAPTER 9<br />
• Best Practices Public Sector (BPPS) is a website<br />
developed for the public sector to facilitate<br />
information sharing.<br />
• Process Improvement for Excellence (PRIME)<br />
is a tool for public sector organisations to<br />
measure and improve service delivery<br />
<strong>performance</strong>.<br />
• Malaysia Benchmarking Index (MBI) provides<br />
the link to international databases for<br />
Malaysian companies to benchmark and gauge<br />
their business and operational <strong>performance</strong>s.<br />
• Compilation and dissemination <strong>of</strong> international<br />
and local best practices and benchmarks to<br />
enable firms to improve the <strong>performance</strong><br />
management process.<br />
• Networking with other international institutions<br />
such as Global Benchmarking Network and<br />
Fraunh<strong>of</strong>er Institute, local trade associations<br />
and <strong>MPC</strong> Consultative Panels to promote<br />
benchmarking and sharing <strong>of</strong> best practices.<br />
The existing key benchmarking and best practices<br />
programmes and systems are continuously improved<br />
and enhanced in line with the changing global<br />
business environment.<br />
PRODUCTIVITY REPORT 2008<br />
185
CHAPTER 9<br />
MBI allows companies to<br />
compare <strong>performance</strong> on<br />
finance, customer, internal<br />
process and learning and<br />
growth<br />
Malaysia Benchmarking Index (MBI) for Tracking<br />
Business Performance<br />
MBI is a business <strong>performance</strong> diagnostic tool which<br />
enables companies to track <strong>performance</strong>. MBI was<br />
developed through partnership with Fraunh<strong>of</strong>er<br />
Institute <strong>of</strong> Germany and Winning Moves Ltd <strong>of</strong> the<br />
United Kingdom. MBI allows companies to compare<br />
their <strong>performance</strong> internationally by using key<br />
<strong>performance</strong> indicators based on the four elements <strong>of</strong><br />
the Balanced Scorecard Model. The four elements are<br />
finance, customer, internal process, and learning and<br />
growth. This process involves collection <strong>of</strong> KPIs on the<br />
four elements from individual company <strong>of</strong> which the<br />
feedback is given in the form <strong>of</strong> a benchmarking<br />
report. The report is made available to all participating<br />
companies and information is treated with strictest<br />
confidence (Figure 9.1).<br />
Figure 9.1: MBI Framework<br />
186 PRODUCTIVITY REPORT 2008
A sample <strong>of</strong> a benchmarking report from the customer<br />
perspective is shown in Figure 9.2. The report will<br />
indicate the company’s actual <strong>performance</strong> against<br />
the weakest among participating companies. This will<br />
provide information to the company to take action for<br />
further improvements and strive to achieve the best<br />
<strong>performance</strong> possible.<br />
Benchmarking report to provide<br />
information for further action<br />
CHAPTER 9<br />
Figure 9.2: Benchmarking Report<br />
MBI COMPONENTS<br />
The MBI component focuses on seven main areas<br />
comprising sales and pr<strong>of</strong>it, market growth, value<br />
creation, customers, employees, supplier<br />
management and future growth (Figure 9.3).<br />
PRODUCTIVITY REPORT 2008<br />
187
CHAPTER 9<br />
Figure 9.3: MBI Components<br />
SMEs can compare<br />
<strong>performance</strong> based on 28<br />
indicators<br />
From these seven areas, a total <strong>of</strong> 28 indicators were<br />
developed for SMEs to compare <strong>performance</strong> with<br />
other SMEs internationally. The 28 KPIs under the<br />
seven areas are shown as follows:<br />
188 PRODUCTIVITY REPORT 2008
Performance KPI Definition<br />
Sales & Pr<strong>of</strong>it<br />
Sales Turnover per<br />
Employee (RM)<br />
Indicates sales generated by<br />
each employee.<br />
CHAPTER 9<br />
Market Growth<br />
Value Creation<br />
Pre-Tax Pr<strong>of</strong>it per<br />
Employee (RM)<br />
Percentage <strong>of</strong> Total Turnover<br />
from New Products and/or<br />
Service (%)<br />
Customer Growth (%)<br />
Return on Capital<br />
Employed (%)<br />
Return on Net Assets (%)<br />
Acid Test (No.)<br />
Cash in Bank to<br />
Turnover (%)<br />
Interest Cover (No.)<br />
Debtor Days (No.)<br />
Direct to Indirect (No.)<br />
Indicates pr<strong>of</strong>it before tax<br />
generated by each employee.<br />
Indicates revenue generated<br />
from new product/services as<br />
compared to total turnover.<br />
Percentage <strong>of</strong> customer growth<br />
as compared to last year<br />
<strong>performance</strong>.<br />
Indicates the percentage return<br />
generated on the total capital<br />
invested.<br />
Indicates the return being<br />
generated on equity<br />
shareholder’s investment.<br />
Indicates the ability to pay back<br />
its short-term liabilities with its<br />
short-term assets.<br />
Indicates the accessibility <strong>of</strong><br />
cash.<br />
Indicates the safety margin in<br />
terms <strong>of</strong> being able to meet its<br />
interest obligations.<br />
Indicates how many days on<br />
average it takes a business to<br />
get rid for what it sells.<br />
Number <strong>of</strong> employees directly<br />
involved in output-related<br />
activities compared with<br />
supporting activities.<br />
PRODUCTIVITY REPORT 2008<br />
189
CHAPTER 9<br />
Performance KPI Definition<br />
Value Creation<br />
FTE Employees per<br />
FTE Manager (No.)<br />
Number <strong>of</strong> employees to each<br />
manager.<br />
Customers<br />
Employees<br />
Supplier<br />
Management<br />
Complaints per<br />
Customer (%)<br />
Complaints per Order (%)<br />
Order Rejected During<br />
Warranty (%)<br />
New Employee Perspectives/<br />
Total Employees<br />
Total Leavers/<br />
Total Employees (%)<br />
Early Leavers/<br />
Total Employees (%)<br />
Day Lost to Absenteeism per<br />
Employees (%)<br />
Accidents per Employee (%)<br />
Percentage <strong>of</strong> Sub Standard<br />
Supplies (%)<br />
Average number <strong>of</strong><br />
complaints per customer.<br />
Indicates customer<br />
satisfaction with the products<br />
and services supplied.<br />
Percentage <strong>of</strong> orders that<br />
have failed during the<br />
warranty period.<br />
Indicates the relative retention<br />
level <strong>of</strong> a workforce.<br />
Indicates staff turnover.<br />
Indicates the extent to which<br />
the business has been<br />
successful in recruiting and<br />
selecting people who are right<br />
for the position and the<br />
organisation.<br />
Indicates the amount <strong>of</strong> time<br />
that people spent away from<br />
work due to sickness,<br />
unexplained absence etc.<br />
Indicates the number <strong>of</strong><br />
accidents per employee.<br />
Indicates the ability <strong>of</strong> the<br />
business’s suppliers to deliver<br />
quality goods as a percentage<br />
<strong>of</strong> total purchases.<br />
190 PRODUCTIVITY REPORT 2008
Performance KPI Definition<br />
Supplier<br />
Management<br />
Percentage <strong>of</strong> Supplies<br />
Delivered on Time (%)<br />
Indicates the ability <strong>of</strong> the<br />
business’s suppliers to deliver<br />
on time as a percentage <strong>of</strong><br />
total purchases.<br />
CHAPTER 9<br />
Building for the<br />
Future<br />
Supplier Effectiveness (RM)<br />
Capital Investment to<br />
Turnover<br />
R&D Expenditure to<br />
Turnover (%)<br />
Training Expenditure to<br />
Turnover<br />
FTE Graduates per FTE<br />
Employee (%)<br />
Marketing Expenditure to<br />
Turnover<br />
Indicates the average value <strong>of</strong><br />
business for each supplier.<br />
Indicates the level <strong>of</strong><br />
investment in the business’s<br />
asset base relative to its<br />
turnover.<br />
Indicates the business’s<br />
willingness to invest in the<br />
future and its capacity to be<br />
innovative.<br />
Indicates the business’s<br />
investment in its employees.<br />
Percentage <strong>of</strong> graduates to all<br />
employees.<br />
Indicates the business’s<br />
investment in its marketing<br />
activity.<br />
Performance <strong>of</strong> SME Manufacturing Companies<br />
in Selected Industries using MBI, 2008<br />
Based on the MBI from four selected industries,<br />
namely fabricated metals, electrical and electronics<br />
(E&E), petrochemicals and transport equipment<br />
industries, the following KPIs were developed. These<br />
KPIs are used by the industries as benchmarks to<br />
improve <strong>performance</strong>.<br />
KPIs for four selected<br />
industries had been developted<br />
PRODUCTIVITY REPORT 2008<br />
191
CHAPTER 9<br />
Table 9.1: MBI for SME Manufacturing Companies in Selected Industries<br />
No Performance<br />
KPI<br />
Performance<br />
Fabricated<br />
Metals<br />
E&E<br />
Petrochemicals<br />
Transport<br />
Equipment<br />
1.<br />
Sales and<br />
Pr<strong>of</strong>it<br />
Sales Turnover per<br />
Employee (RM)<br />
81,000<br />
173,947<br />
105,299<br />
193,533<br />
Pre-tax Pr<strong>of</strong>it per<br />
Employee (RM)<br />
2,000<br />
5,750<br />
1,444<br />
9,227<br />
2.<br />
Market<br />
Growth<br />
Percentage <strong>of</strong> Total<br />
Turnover from New<br />
Products and/or<br />
Service (%)<br />
6.01<br />
0.62<br />
39.50<br />
0.30<br />
Customer Growth (%)<br />
17.50<br />
35.64<br />
17.86<br />
11.11<br />
3.<br />
Value<br />
Creation<br />
Return on Capital<br />
Employed (%)<br />
14.40<br />
12.17<br />
15.80<br />
2.75<br />
Return on Net<br />
Assets (%)<br />
6.40<br />
14.35<br />
13.81<br />
3.45<br />
Acid Test (No.)<br />
1.21<br />
0.70<br />
0.99<br />
1.41<br />
Cash in Bank to<br />
Turnover (%)<br />
4.41<br />
3.54<br />
3.55<br />
8.28<br />
Interest Cover (No.)<br />
4.01<br />
1.96<br />
0.08<br />
5.05<br />
Debtor Days (days)<br />
78<br />
66.28<br />
54.89<br />
82<br />
Direct to Indirect (No.)<br />
3.44<br />
1.25<br />
2.61<br />
1.30<br />
FTE Employees per<br />
FTE Manager (No.)<br />
12.32<br />
9.33<br />
16.92<br />
20.50<br />
192 PRODUCTIVITY REPORT 2008
No<br />
Performance<br />
KPI<br />
Fabricated<br />
Metals<br />
Performance<br />
E&E<br />
Petrochemicals<br />
Transport<br />
Equipment<br />
CHAPTER 9<br />
4.<br />
Customer<br />
Complaints per<br />
Customer (%)<br />
0.1<br />
1.20<br />
0.33<br />
0.36<br />
Complaints per<br />
Order (%)<br />
0.25<br />
5.43<br />
0.28<br />
1.04<br />
Order Rejected During<br />
Warranty (%)<br />
0.28<br />
1.22<br />
0.08<br />
3.96<br />
5.<br />
Employee<br />
New Employee/Total<br />
Employees (%)<br />
17.42<br />
7.05<br />
21.11<br />
18.26<br />
Total Leavers/Total<br />
Employees (%)<br />
18.46<br />
7.14<br />
28.61<br />
24<br />
6.<br />
Supplier<br />
Management<br />
Percentage <strong>of</strong> Sub<br />
Standard Supplies (%)<br />
na<br />
13.99<br />
na<br />
na<br />
Percentage <strong>of</strong><br />
Supplies Delivered on<br />
Time (%)<br />
na<br />
5.78<br />
155.01<br />
91.99<br />
Supplier Effectiveness<br />
(RM)<br />
79,000<br />
97,250<br />
109,348<br />
325,000<br />
7.<br />
Building for<br />
Future<br />
Capital Investment to<br />
Turnover (%)<br />
4.75<br />
26.93<br />
8.18<br />
2.08<br />
R&D Expenditure to<br />
Turnover (%)<br />
na<br />
3.03<br />
na<br />
0.4<br />
Training Expenditure<br />
to Turnover (%)<br />
0.22<br />
1.38<br />
0.15<br />
0.1<br />
FTE Graduates per<br />
FTE Employee (%)<br />
10.43<br />
17.86<br />
24.72<br />
17.65<br />
Marketing Expenditure<br />
to Turnover (%)<br />
0.67<br />
0.45<br />
0.36<br />
0.27<br />
PRODUCTIVITY REPORT 2008<br />
193
CHAPTER 9<br />
The indicators allow companies<br />
to compare within the industry<br />
as well as inter-industry<br />
Table 9.1 shows a total <strong>of</strong> 25 indicators used to<br />
measure the seven <strong>performance</strong> factors <strong>of</strong> four<br />
selected industries. For example, under the sales and<br />
pr<strong>of</strong>it <strong>performance</strong> factor, two KPIs namely sales<br />
turnover per employee and pre-tax pr<strong>of</strong>it per employee<br />
were provided for companies to benchmark. The sales<br />
turnover per employee by industries show that<br />
transport equipment had the highest value <strong>of</strong><br />
RM193,533 as compared to the other industry.<br />
Similarly, the pre-tax pr<strong>of</strong>it per employee <strong>of</strong> the<br />
transport equipment had the highest value <strong>of</strong> RM9,227<br />
as compared to other industries. This showed that in<br />
terms <strong>of</strong> sales and pr<strong>of</strong>it <strong>performance</strong>, the transport<br />
equipment had generated more pr<strong>of</strong>it and better<br />
achievement.<br />
These figures will allow companies in the industry to<br />
compare with this <strong>performance</strong> and at the same time<br />
allows for inter-industry comparison.<br />
International Comparison through MBI<br />
Malaysia’s SMEs performed<br />
better in various areas<br />
The MBI provides a worldwide perspective on<br />
benchmarks with more than 100,000 datasets from<br />
25 benchmarking centres worldwide. It enables local<br />
enterprises to build on existing strengths as well as<br />
working to develop areas that require improvement.<br />
The MBI showed that Malaysia’s manufacturing SMEs<br />
performed better in the areas <strong>of</strong> turnover for new<br />
products and services (8.5%), customer growth<br />
(20.0%), complaints per order (0.2%), days lost to<br />
absenteeism per employee (0.2%), accident per<br />
employee (0.0%), capital investment to turnover<br />
(4.5%) and training expenditure to turnover (0.2%).<br />
The detailed comparison is shown in the table below:<br />
194 PRODUCTIVITY REPORT 2008
Table 9.2: Comparison <strong>of</strong> KPIs in Selected Countries, 2007/2008<br />
CHAPTER 9<br />
No<br />
Performance<br />
KPI<br />
Performance<br />
Malaysia<br />
International<br />
1.<br />
Sales and<br />
Pr<strong>of</strong>it<br />
Sales Turnover<br />
per Employee<br />
(RM)<br />
140,000<br />
872,000<br />
(USA)<br />
534,000<br />
(Germany)<br />
481,000<br />
(United<br />
Kingdom)<br />
Pre-tax Pr<strong>of</strong>it<br />
per Employee<br />
(RM)<br />
11,138<br />
28,195<br />
(Singapore)<br />
26,066<br />
(Italy)<br />
20,312<br />
(Ireland)<br />
2.<br />
Market<br />
Growth<br />
Percentage <strong>of</strong><br />
Total Turnover<br />
from New<br />
Products and/or<br />
Service (%)<br />
8.49<br />
8.49<br />
(Malaysia)<br />
8.3<br />
(USA)<br />
5.2<br />
(Germany)<br />
Customer<br />
Growth (%)<br />
20<br />
20<br />
(Malaysia)<br />
17.24<br />
(Australia)<br />
16.67<br />
(United<br />
Kingdom)<br />
3.<br />
Value<br />
Creation<br />
Return on<br />
Capital<br />
Employed (%)<br />
9.55<br />
24.6<br />
(Singapore)<br />
17.6<br />
(Italy)<br />
16.6<br />
(United<br />
Kingdom)<br />
Return on Net<br />
Assets (%)<br />
6.28<br />
13.8<br />
(Singapore)<br />
12.6<br />
(United<br />
Kingdom)<br />
12.2<br />
(Australia)<br />
Acid Test (No.)<br />
0.92<br />
1.1<br />
(Ireland)<br />
1.0<br />
(Spain)<br />
0.9<br />
(Australia)<br />
PRODUCTIVITY REPORT 2008<br />
195
CHAPTER 9<br />
No<br />
Performance<br />
KPI<br />
Malaysia<br />
Performance<br />
International<br />
Value<br />
Creation<br />
Cash in Bank to<br />
Turnover (%)<br />
3.48<br />
4.1<br />
(United<br />
Kingdom)<br />
3.6<br />
(Spain)<br />
3.48<br />
(Malaysia)<br />
Interest Cover<br />
(No.)<br />
2.07<br />
6.6<br />
(Singapore)<br />
4.9<br />
(Ireland)<br />
4.4<br />
(United<br />
Kingdom)<br />
Debtor Days<br />
(days)<br />
83<br />
37<br />
(United<br />
Kingdom)<br />
39<br />
(Germany)<br />
47<br />
(USA)<br />
Direct to<br />
Indirect (No.)<br />
2.75<br />
3.7<br />
(Australia)<br />
3.3<br />
(Ireland)<br />
2.9<br />
(United<br />
Kingdom)<br />
FTE Employees<br />
per FTE<br />
Manager (No.)<br />
11.50<br />
13.1<br />
(Singapore)<br />
11.50<br />
(Malaysia)<br />
10.4<br />
(Germany)<br />
4.<br />
Customer<br />
Complaints per<br />
Customer (%)<br />
0.14<br />
0.1<br />
(United<br />
Kingdom)<br />
0.14<br />
(Malaysia)<br />
0.3<br />
(Italy)<br />
Complaints per<br />
Order (%)<br />
0.17<br />
0.17<br />
(Malaysia)<br />
0.4<br />
(United<br />
Kingdom)<br />
0.5<br />
(Australia)<br />
Order Rejected<br />
During<br />
Warranty (%)<br />
0.06<br />
0.00<br />
(Italy)<br />
0.00<br />
(Spain)<br />
0.00<br />
(United<br />
Kingdom)<br />
196 PRODUCTIVITY REPORT 2008
No<br />
Performance<br />
KPI<br />
Malaysia<br />
Performance<br />
International<br />
CHAPTER 9<br />
5.<br />
Employee<br />
New Employee<br />
/ Total<br />
Employees (%)<br />
18.87<br />
10.0<br />
(Spain)<br />
11.6<br />
(Germany)<br />
14.3<br />
(Italy)<br />
Total<br />
Leavers/Total<br />
Employees (%)<br />
16.02<br />
1.8<br />
(Spain)<br />
6.9<br />
(Germany)<br />
7.1<br />
(Italy)<br />
Early<br />
Leavers/Total<br />
Employees (%)<br />
5.88<br />
0.00<br />
(United<br />
Kingdom)<br />
0.00<br />
(Italy)<br />
0.00<br />
(Spain)<br />
Day Lost to<br />
Absenteeism<br />
per Employees<br />
(%)<br />
0.17<br />
0.17<br />
(Malaysia)<br />
0.5<br />
(Singapore)<br />
2.0<br />
(Italy)<br />
Accidents per<br />
Employee (%)<br />
0.00<br />
0.00<br />
(Malaysia)<br />
0.01<br />
(Singapore)<br />
0.03<br />
(Germany)<br />
6.<br />
Supplier<br />
Management<br />
Percentage <strong>of</strong><br />
Sub-Standard<br />
Supplies (%)<br />
0.9<br />
0.00<br />
(USA)<br />
0.00<br />
(United<br />
Kingdom)<br />
0.00<br />
(Australia)<br />
Percentage <strong>of</strong><br />
Supplies<br />
Delivered on<br />
Time (%)<br />
91.87<br />
97.0<br />
(Australia)<br />
95.4<br />
(Singapore)<br />
92.3<br />
(Spain)<br />
Supplier<br />
Effectiveness<br />
(RM)<br />
119,000<br />
2,200,000<br />
(USA)<br />
411,000<br />
(Singapore)<br />
340,000<br />
(Ireland)<br />
PRODUCTIVITY REPORT 2008<br />
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CHAPTER 9<br />
No<br />
Performance<br />
KPI<br />
Malaysia<br />
Performance<br />
International<br />
7.<br />
Building for<br />
the Future<br />
Capital<br />
Investment to<br />
Turnover (%)<br />
4.49<br />
4.49<br />
(Malaysia)<br />
3.0<br />
(Spain)<br />
2.6<br />
(Ireland)<br />
R&D<br />
Expenditure to<br />
Turnover (%)<br />
0.13<br />
1.0<br />
(USA)<br />
0.3<br />
(Germany)<br />
0.2<br />
(Ireland)<br />
Training<br />
Expenditure to<br />
Turnover (%)<br />
0.22<br />
0.22<br />
(Malaysia)<br />
0.2<br />
(Ireland)<br />
0.2<br />
(United<br />
Kingdom)<br />
FTE Graduates<br />
per FTE<br />
Employee (%)<br />
13.64<br />
13.9<br />
(USA)<br />
13.64<br />
(Malaysia)<br />
10.6<br />
(Singapore)<br />
Marketing<br />
Expenditure to<br />
Turnover (%)<br />
0.53<br />
0.7<br />
(Germany)<br />
0.6<br />
(Ireland)<br />
0.6<br />
(United<br />
Kingdom)<br />
Malaysia is in the top 3 country<br />
in development <strong>of</strong> new<br />
products, reduction in customer<br />
complaints, high capital<br />
intensity and training<br />
The international benchmark countries are selected<br />
based upon their <strong>performance</strong> among the top three<br />
countries. Seven <strong>performance</strong> areas had been<br />
identified comprising 28 KPIs. Based on the KPIs,<br />
Malaysia is one <strong>of</strong> the top three countries in terms <strong>of</strong><br />
development <strong>of</strong> new products/services, reduction in<br />
customer complaints, expansion <strong>of</strong> labour force,<br />
reduction in absenteeism, low accident rates, high<br />
capital intensity and training.<br />
198 PRODUCTIVITY REPORT 2008
Box 9.1: Benchmarking Community <strong>of</strong> Practices (CoPs)<br />
Community <strong>of</strong> Practices (CoPs) comprises a group <strong>of</strong> organisations with common<br />
interest to establish <strong>performance</strong> indicators and identify benchmarks for<br />
continuous improvement. Benchmarks developed through the CoPs provide useful<br />
information and best practices for organisations to emulate. The CoPs is a<br />
community network <strong>of</strong> organisations with common interest or problems that get<br />
together and explore ways <strong>of</strong> working to identify best solutions and share good<br />
practices across the private and public sector.<br />
CHAPTER 9<br />
CoPs provides a collaborative network for organisations via information and<br />
knowledge sharing. Specifically this community can:<br />
• Measure and compare <strong>performance</strong> within the group;<br />
• Encourage the development and sharing <strong>of</strong> new ideas and strategies;<br />
• Support faster problem-solving; and<br />
• Improve efficiency and effectiveness.<br />
<strong>MPC</strong> has initiated 18 CoPs comprising 8 from the public sector and 10 from the<br />
private sector involving 394 organisations and 310 KPIs.<br />
Productivity and Quality Initiatives for Value<br />
Creation<br />
Productivity and Quality (P&Q) initiatives need to be<br />
intensified at all levels <strong>of</strong> the organisation for value<br />
creation. To achieve this, various programmes and<br />
activities are being implemented by <strong>MPC</strong> in the areas<br />
<strong>of</strong> <strong>productivity</strong>, quality, innovation and competitiveness.<br />
This will help industries to move up the value chain for<br />
sustainable growth. New initiatives by <strong>MPC</strong> include the<br />
Efficiency Enhancement Clinic (EEC) which provides<br />
opportunities for the public and business communities<br />
to seek advisory services on basic business<br />
diagnostics, efficiency enhancement as well as cost<br />
rationalisation measures. Details <strong>of</strong> the programmes<br />
according to <strong>MPC</strong>’s core areas are as follows:<br />
Implementation <strong>of</strong> P&Q<br />
initiatives will enable industries<br />
to move up the value chain<br />
PRODUCTIVITY REPORT 2008<br />
199
CHAPTER 9<br />
Core Areas<br />
P&Q<br />
Research<br />
Programmes<br />
Provides reliable and comprehensive information and data on<br />
<strong>productivity</strong>, quality, innovation and competitiveness for strategy<br />
planning and decision making. This involves continuous updating <strong>of</strong><br />
existing P&Q databases at the sectoral, national and international<br />
levels. Among the research focus areas are:<br />
• Productivity and Quality Management;<br />
• Productivity Growth and Trends at the Sectoral, National and<br />
International Levels;<br />
• Total Factor Productivity;<br />
• Public Sector Productivity;<br />
• Sectoral, National and International Competitiveness;<br />
• Human Capital Development;<br />
• Performance <strong>of</strong> Small and Medium Industries;<br />
• Information and Communication Technology;<br />
• Innovation and Creativity;<br />
• Productivity–Linked Wage System;<br />
• Benchmarking and Best Practices.<br />
• P&Q case studies.<br />
The research outputs are disseminated through both printed and<br />
electronic publication. More information can be obtained through <strong>MPC</strong>’s<br />
website at www.mpc.gov.my.<br />
200 PRODUCTIVITY REPORT 2008
Core Areas<br />
P&Q Training<br />
and Systems<br />
Development<br />
Programmes<br />
P&Q training and systems development programmes are<br />
conducted for human capital development and organisational<br />
excellence. The main programmes <strong>of</strong>fered are:<br />
CHAPTER 9<br />
• Productivity and Quality Enhancement Programmes such as Six<br />
Sigma Improvement Methodology and Tools, Enterprise<br />
Resource Planning, and Just-In-Time;<br />
• Total Productive Maintenance (TPM), KAIZEN, Total Quality<br />
Management and Organisational Excellence, and the<br />
Productivity-Linked Wage System (PLWS);<br />
• Leadership Skills and Management Development programmes<br />
such as creative thinking, interpersonal effectiveness, effective<br />
communication skills, team effectiveness for higher<br />
<strong>performance</strong>, and leadership skills;<br />
• Quality Management Systems Programmes namely, internal<br />
auditors training for ISO 9001:2000; integrated quality<br />
management systems; ISO 22000:2005 Food Safety<br />
Management System; and Environmental Management System<br />
(EMS 14000);<br />
• Customer Excellence which include Customer Relationship<br />
Management, Process Improvement, Productivity Analysis and<br />
Financial Management, Marketing Strategies, and Sales<br />
Management;<br />
• Performance Measurement which encompasses Productivity<br />
Measurement and Analysis, Company Manual for Productivity<br />
Assessment (COMPASS), and Balanced Scorecard;<br />
• Process Improvement Programmes such as Quality<br />
Environment (5S) and Strengthening Lean Manufacturing<br />
through Kaizen Practices;<br />
• Innovative SGA Programmes which include ICC for facilitators,<br />
Quality Improvement tools, and Process Innovation: A creative<br />
way <strong>of</strong> Managing Innovation;<br />
• Business Enabling Skills Training (BEST) that includes<br />
Leadership, Learning, Communication, and Personal and<br />
Pr<strong>of</strong>essional Effectiveness.<br />
PRODUCTIVITY REPORT 2008<br />
201
CHAPTER 9<br />
Core Areas<br />
Productivity<br />
and Quality<br />
(P&Q) Promotion<br />
Programmes<br />
The continuous promotion <strong>of</strong> <strong>productivity</strong> and quality to ensure the<br />
development <strong>of</strong> a P&Q culture for organisational excellence. This<br />
includes sharing <strong>of</strong> best practices through:<br />
• Weekly Efficiency Enhancement Clinics;<br />
• Awards and recognitions such as Prime Minister Industry<br />
Excellence Award (PMIEA), Quality Management Excellence<br />
Award (QMEA), Productivity Award, and the National 5S Award;<br />
• Networking and partnership with international institutions such<br />
as Asian Productivity Organisation (APO), Institute for<br />
Management Development (IMD), World Economic Forum<br />
(WEF), Japan International Cooperation Agency (JICA),<br />
INSEAD, the Institute <strong>of</strong> Public Administration (IPA), Ireland and<br />
Fraunh<strong>of</strong>er Institute, Germany;<br />
• Regional and National Innovative and Creative Circles (ICCs)<br />
Conventions which are held on an annual basis;<br />
• Conventions, seminars, conferences, workshops, and<br />
exhibitions on P&Q;<br />
• Publication <strong>of</strong> P&Q resource materials such as Productivity<br />
Journals, P&Q Magazines, Industry Newsletters, Quarterly<br />
Productivity Statistics, Productivity Report, Benchmarking<br />
Handbooks, Guidebooks on Information and Communication<br />
Technology, Best Practices Digest, Interactive Productivity-<br />
Linked Wage System, TQM Casebook, P&Q Case Studies,<br />
SMEs On The Move, and Measuring Up Series <strong>of</strong> publications;<br />
• Promotion programmes to inculcate creativity and<br />
innovativeness;<br />
202 PRODUCTIVITY REPORT 2008
Core Areas<br />
Programmes<br />
CHAPTER 9<br />
Benchmarking<br />
and Best<br />
Practices<br />
Benchmarking is a self-assessment management tool for<br />
organisations to compare <strong>performance</strong> and adapt best practices<br />
towards achieving best-in-class <strong>performance</strong>. Among the benefits<br />
are improvements in quality and <strong>performance</strong>, lower costs <strong>of</strong><br />
production, exposure employees to new ideas, as well as to<br />
encourage and stimulate innovation. The main activities in<br />
benchmarking and best practices are:<br />
• Malaysia Benchmarking Index (MBI) which can be used to<br />
benchmark companies <strong>performance</strong> locally and internationally<br />
based on the finance, customers, learning and growth as well as<br />
internal process perspectives;<br />
• Benchmarking On-Line Networking Database (BOND) and the<br />
e-Benchmark system to facilitate participation <strong>of</strong> Community <strong>of</strong><br />
Practices (CoPs);<br />
• Compiling international and local industry best practices and<br />
benchmarks through survey reports and case studies;<br />
• Disseminating best practices and benchmarks through<br />
seminars, publications, forums, and sharing <strong>of</strong> best practices<br />
from award winners;<br />
• Preparing periodic reports for CoP members and disseminate<br />
best practices and benchmarks through Best Practices Net and<br />
Public Sector Best Practices Portal;<br />
• Networking with other international best practices institutions,<br />
trade associations and <strong>MPC</strong> Consultative Panels to promote<br />
benchmarking and sharing <strong>of</strong> best practices. <strong>MPC</strong> is also<br />
affiliated with several global benchmarking institutes such as,<br />
Global Benchmarking Network (GBN), and Fraunh<strong>of</strong>er Institute,<br />
Germany.<br />
PRODUCTIVITY REPORT 2008<br />
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CHAPTER 9<br />
Measures to Assist Industries Mitigate the<br />
Global Crisis<br />
To mitigate the impact <strong>of</strong> the global economic crisis,<br />
<strong>MPC</strong> has undertaken various measures to help<br />
industries. Among the measures undertaken are:<br />
• Efficiency Enhancement Clinics (EEC)<br />
The EEC is an avenue where the public and<br />
business communities can seek advisory<br />
services on efficiency issues such as cost<br />
savings, process improvement, team<br />
effectiveness, quality improvement initiatives<br />
and <strong>performance</strong> measurement. The key aim<br />
is to provide ideas and possible solutions to<br />
the private sectors as well as assisting to<br />
building capabilities for the future. The EEC<br />
covers the following business issues such as<br />
P&Q diagnostic, operational efficiency and<br />
quick P&Q solutions.<br />
• Special Training Rates<br />
Special Training Rates are being <strong>of</strong>fered for<br />
both SMEs and larger organisation. SMEs<br />
continue to pay only 20 percent <strong>of</strong> the normal<br />
course fees while larger organisation are now<br />
<strong>of</strong>fered special rates <strong>of</strong> 50 percent <strong>of</strong>f the normal<br />
course fees.<br />
• Tailored-Made Programmes for SMEs<br />
P&Q Enhancement Programmes which are<br />
being refocused to meet the specific needs <strong>of</strong><br />
Bumiputera SMEs include programmes on<br />
Quality Management System, Certification in<br />
Quality Environment, Innovative and Creative<br />
Circles, TQM Model Company and<br />
Benchmarking.<br />
204 PRODUCTIVITY REPORT 2008
• Business Enabling Skills Training (BEST)<br />
This is to complement technical knowledge with<br />
s<strong>of</strong>t skills such as communication and<br />
leadership, innovation and creativity to ensure<br />
employability.<br />
CHAPTER 9<br />
• Entrepreneurship Development<br />
Programmes (EDP)<br />
This is to nurture fresh/unemployed graduates in<br />
entrepreneurship skills for self-employment.<br />
• Productivity Application Tools<br />
Productivity Application tools are being<br />
developed and or up-graded to intensify the<br />
implementation <strong>of</strong> <strong>productivity</strong> initiatives at the<br />
firm level. Among the tools are the Company<br />
Manual for Productivity Assessment<br />
(COMPASS), the Interactive Productivity-Linked<br />
Wage System (i-PLWS), E-learning modules,<br />
diagnostic tool at enterprise level: Enterprise<br />
TFP, and the Malaysian Benchmarking Index.<br />
PRODUCTIVITY REPORT 2008<br />
205
APPENDIX
APPENDIX A<br />
TERMINOLOGY AND DEFINITION<br />
1. Added Value<br />
Added value measures the wealth generated by collective efforts <strong>of</strong> those who<br />
work in an enterprise (the employees) and the capital providers (e.g. investors and<br />
shareholders). Added value is different from sales revenue or value <strong>of</strong> production<br />
because it does not include the wealth created by the suppliers to the enterprise.<br />
Methods Of Added Value Calculation<br />
There are two ways added value can be calculated:<br />
(i)<br />
Addition Method<br />
This is called the wealth distribution method.<br />
Added Value = Labour Cost + Interest + Tax + Depreciation + Pr<strong>of</strong>it<br />
It is called wealth distribution because the added value so created is used to<br />
pay those who have contributed to its creation in terms <strong>of</strong> wages & salaries<br />
(labour cost) for the employees, interest and loan for capital providers, taxes<br />
to the Government, depreciation for capital equipment usage and pr<strong>of</strong>its to<br />
the owner.<br />
(ii)<br />
Subtraction Method<br />
This is called the wealth creation method.<br />
Added Value = Total Output less Bought-In Materials and<br />
Services (BIMS)<br />
In order to produce goods or services, a company has to purchase the<br />
necessary raw materials and other inputs. The difference between the total<br />
value <strong>of</strong> output and total cost <strong>of</strong> inputs (all inputs and services bought<br />
from another company) is called added value.<br />
2. Total Ou