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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 />

PRODUCTIVITY REPORT 2008<br />

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 />

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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 />

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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 />

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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 />

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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 />

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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 />

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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 />

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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 />

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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 />

PRODUCTIVITY REPORT 2008<br />

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 />

PRODUCTIVITY REPORT 2008<br />

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 />

PRODUCTIVITY REPORT 2008<br />

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 />

197


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 />

203


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