Strategy Package for Higher Growth & Structural Change Human Capital for a High Income Economy

Strategy Package for Higher Growth & Structural Change Human Capital for a High Income Economy

Final Report

August 2009

Strategy Package for Higher Growth & Structural Change

Table of Contents Index of Exhibits ...............................................................................................................................2 Index of Appendices.........................................................................................................................4 Acronyms and Abbreviations ..........................................................................................................5 Project Approach ..............................................................................................................................6 Executive Summary..........................................................................................................................9 Impact 5: Human Capital for a High Income Economy ...............................................................12

Part 1: Diagnosis of Current Human Capital Development ....................................................12 5.1: State of Economy To-Date....................................................................................................12 5.2: Main Issues and Recent Human Capital Developments in the Labour Market ....................17 Part 2: Key Human Capital Challenges .....................................................................................20 5.3: Little Emphasis on Quality of Teaching Workforce ...............................................................20 5.4: Technical / Skills Education Currently Not a Mainstream Option .........................................24 5.5: Quality of Universities and Graduates Affect Employability ..................................................28 5.6: Increasing Low Skilled Foreign Labour and Decreasing Expatriates ...................................34 5.7: Regulatory Framework and Institution Inhibiting Labour Market Efficiency..........................42 5.8: Limited concerted effort to address human capital development .........................................45 Part 3: Options for Reform .........................................................................................................48 5.9: Produce and Maintain Quality of Teaching Workforce .........................................................48 5.10: Improve Quality and Perception of Technical / Skills Education..........................................55 5.11: Empower Universities to Improve Graduate Employability..................................................66 5.12: Enhance Foreign Labour Policies ........................................................................................77 5.13: Harmonize and Update Labour Laws ..................................................................................87 5.14: Streamline Management of Human Capital .........................................................................89

Conclusion.......................................................................................................................................91 Appendix..........................................................................................................................................93


2

Index of Exhibits Exhibit 5.1: Human Capital Initiative project approach .......................................................................6 Exhibit 5.2: Overview of timeline for the Human Capital Initiative ......................................................7 Exhibit 5.3: List of stakeholders engaged ...........................................................................................7 Exhibit 5.1.1: Malaysia today is in-between fast-growing high-income and developing economies 12 Exhibit 5.1.2: Challenging for Malaysia to achieve required high growth rates................................13 Exhibit 5.1.3: High income economies predominantly services focused..........................................13 Exhibit 5.1.4: GDP growth vs. workforce growth ..............................................................................14 Exhibit 5.1.5: GDP growth has outpaced workforce growth .............................................................15 Exhibit 5.1.6: Productivity lags Asian high income economies.........................................................15 Exhibit 5.1.7: Wage growth has been low.........................................................................................16 Exhibit 5.2.1: Workforce today still relatively unskilled .....................................................................17 Exhibit 5.2.2: Low skill levels reflected across almost all industry sectors .......................................18 Exhibit 5.2.3: Singapore skill-level benchmark .................................................................................18 Exhibit 5.3.1: Deteriorating student performance .............................................................................20 Exhibit 5.3.2: Quality of teachers is the most important determinant of student outcomes..............21 Exhibit 5.3.3: Medium monthly salary by jobs with 1-4 years experience ........................................22 Exhibit 5.4.1: 25% of students opt out of education after SPM and enter the workforce .................24 Exhibit 5.4.2: Employers increasingly demanding higher-skilled workforce.....................................25 Exhibit 5.4.3: SPM qualification limits ability to move to higher level jobs and wages .....................25 Exhibit 5.4.4: Low take up rate of technical /skills education............................................................26 Exhibit 5.5.1: Graduate unemployment rates by universities ...........................................................28 Exhibit 5.5.2: Wages of employed graduates ...................................................................................29 Exhibit 5.5.3: Government expenditure to address graduate employability .....................................31 Exhibit 5.5.4: Performance management system developed by MOHE’s PMO...............................32 Exhibit 5.5.5: Student admission process.........................................................................................33 Exhibit 5.6.1: Comparison of classification of foreign talent .............................................................34 Exhibit 5.6.2: Amount of expatriates by sectors (2000-2008)...........................................................35 Exhibit 5.6.3: Percentage of expatriate over total labour force (2005) .............................................35 Exhibit 5.6.4: Benchmark of Singapore and Hong Kong expatriate employment policy ..................36 Exhibit 5.6.5: Benchmark of economic demand for expatriates .......................................................36 Exhibit 5.6.6: Average salary for professionals by sectors and nationality.......................................38 Exhibit 5.6.7: Number of foreign workers by sector..........................................................................38 Exhibit 5.6.8: High Reliance on unskilled foreign workers in several sectors ..................................39 Exhibit 5.6.9: Statistics for Malaysian Diaspora................................................................................40 Exhibit 5.6.10: Summary of Brain Gain Program..............................................................................41 Exhibit 5.7.1: Process of settling disputes for collective agreements...............................................43 Exhibit 5.7.2: Malaysia’s ratings in hiring / firing practices and firing cost........................................43 Exhibit 5.8.1: Range of initiatives to address human capital development and supply issues .......45 Exhibit 5.8.2: Various Ministries and agencies involved in human capital development..................46 Exhibit 5.8.3: National Advisory Council for Education and Training ...............................................46 Exhibit 5.9.1: Performance based contracts for Principals - implementation guideline....................49 Exhibit 5.9.2: Induction mentoring for new teachers - implementation guideline .............................50


3

Exhibit 5.9.3: Teach for All – locations around the world..................................................................51 Exhibit 5.9.4: Teach for India and America a highly competitive program .......................................51 Exhibit 5.9.5: “Teach for Malaysia” will create virtuous cycle for the teaching profession ...............52 Exhibit 5.9.6: “Teach for Malaysia” - implementation guideline........................................................53 Exhibit 5.9.8: Mid to longer term educational reforms needed .........................................................54 Exhibit 5.10.1: Harmonize public training infrastructure ...................................................................56 Exhibit 5.10.4: Purchaser key performance indicators .....................................................................58 Exhibit 5.10.5: Owner key performance indicators ...........................................................................59 Exhibit 5.10.6: Corporatization of institutes can occur in phases .....................................................59 Exhibit 5.10.7: Corporatization of skills training institutes - implementation guideline .....................60 Exhibit 5.10.8: Strengthen Industry Collabouration - implementation guideline...............................61 Exhibit 5.10.9: Occupational licensing - implementation guideline...................................................62 Exhibit 5.10.10: Image campaign - implementation guideline ..........................................................63 Exhibit 5.10.11: Counseling teams - implementation guideline........................................................64 Exhibit 5.10.12: Policy implications for recommendations on improving the quality and perception of technical / skills education ................................................................................................................65 Exhibit 5.11.1: Australian Higher Education Indicators.....................................................................67 Exhibit 5.11.2: Performance assessment to be an input for budget allocation ................................68 Exhibit 5.11.3: Four types of innovative allocation mechanisms ......................................................69 Exhibit 5.11.4: Suggested timeline for instilling a performance and accountability culture ..............70 Exhibit 5.11.5: Universities to have autonomy in student admission................................................71 Exhibit 5.11.6: Suggested timeline for empowering universities with greater autonomy .................73 Exhibit 5.11.7: Knowledge Transfer Partnership an intermediary for collabouration .......................74 Exhibit 5.11.8: Suggested timeline for ensuring graduates meet industry needs ............................75 Exhibit 5.11.9: Policy implications for recommendations on empowering universities to improve graduate employability ......................................................................................................................76 Exhibit 5.12.1: Case studies of expatriate employment inducing job creations ...............................77 Exhibit 5.12.2: Permanent Residence Issuance System for Australia and Canada.........................79 Exhibit 5.12.3: Timeline for liberalization of expatriate entry ............................................................79 Exhibit 5.12.4: Best practice example (current Singapore levy and ceiling system) ........................80 Exhibit 5.12.5: Process map for issuance of foreign worker permits to outsourcing companies .....81 Exhibit 5.12.6: Example of sectoral approach in reducing foreign labour dependency....................82 Exhibit 5.12.7: Options on the manner with which to roll-out new levies..........................................82 Exhibit 5.12.8: Determination criteria for push on limiting foreign workers and increasing productivity ........................................................................................................................................83 Exhibit 5.12.9: Timeline for implementing ceilings and levies for foreign labour ..............................84 Exhibit 5.12.10: Timeline for implementation of Diaspora initiatives ................................................85 Exhibit 5.12.11; Policy Implications of recommendations on enhancing foreign labour policy ........86 Exhibit 5.13.1: Examples of issues with current labour laws............................................................87 Exhibit 5.13.2: Detailed timeline for updating labour laws ................................................................88 Exhibit 5.13.3: Policy Implications of recommendations of harmonizing and updating labour laws 88 Exhibit 5.14.1: Suggested timeline for streamlining the management of human capital..................90 Exhibit 5.14.2: Policy Implications of recommendations on streamlining management of human capital................................................................................................................................................90


4

Exhibit 5.4: Implementation units created in the UK and Australia...................................................92

Index of Appendices Appendix 1: List of documents used in identifying issues in human capital .....................................93 Appendix 2: Prioritization of issues...................................................................................................95 Appendix 3: Minutes of Meeting for Workshop 1..............................................................................99 Appendix 4: Minutes of Meeting for Workshop 2............................................................................119


5

Acronyms and Abbreviations AMCHAM American Malaysia Chamber of Commerce APEX Accelerated Program for Excellence BNM Bank Negara Malaysia CEO Chief Executive Officer COO Chief Operating Officer CAGR Compounded Annual Growth Rate CIDB Construction Industry Development Board DoS Department of Statistics EDB Economic Development Board (Singapore) EIU Economic Intelligence Unit EPU Economic Planning Unit FDI Foreign Direct Investment GDP Gross Domestic Product ICT Information, Communication and Technology ISMK National Institute of Human Resource JPA Jabatan Perkhidmatan Awam KPI Key Performance Indicator MPC Malaysia Productivity Corporation MIDA Malaysian Industrial Development Authority MOA Ministry of Agriculture MOE Ministry of Education MOH Ministry of Health MOHE Ministry of Higher Education MOHR Ministry of Human Resources MOTOUR Ministry of Tourism MITI Ministry of International Trade and Industry MOSTI Ministry of Science, Technology and Innovation MDeC Multimedia Development Corporation MSC Multimedia Super Corridor MNC Multinational Corporation NACET National Council for Education and Training PEMUDAH Special Task Force to Facilitate Business PR Permanent Residency R&D Research and Development RMK-9 Rancangan Malaysia Kesembilan SME Small and Medium Enterprises SMIDEC Small and Medium Industries Development Corporation SPM Sijil Pelajaran Malaysia SSM Suruhanjaya Syarikat Malaysia STI Skills Training Institute TIMSS Trends in International Mathematics and Science Study USM Universiti Sains Malaysia


6

Project Approach The Human Capital for a High Income Economy Initiative commenced in January with the first Working Group meeting on 21 January 2009. However, the involvement of The Boston Consulting Group (BCG) to support the Economic Planning Unit (EPU) started on 23 February 2009 and spanned over ten weeks. The study was developed over five phases, as pictured in Exhibit 5.1.

Exhibit 5.1: Human Capital Initiative project approach

Preliminary recommendations

• Develop preliminary recommendations to address issues

• Present and discuss recommendations with key stakeholders and obtain feedback

Project inception

• Obtain key stakeholder inputs to develop fact base

• Review previous studies, reports and plans

• Finalize work plan, scope of work

Prioritization of issues• Discussions with

stakeholders on key constrains/ structural issues

• Develop and formulate hypotheses

Phase III:Finalize recommendations

Phase I:Assessment of current situation (diagnostics)

Phase II:Preliminary recommendationsPhases

Study milestones Steering

Committee

Develop implementation roadmap

Finalizerecommendations

• Incorporating inputs from key stakeholders

Briefing to

Minister2

Benchmark learning from successful international strategies on human capital development

1. Briefing to Y.B Senator Tan Sri Amirsham A. Aziz 2. Briefing to Y.B. Tan Sri Nor Mohamed YakcopSource: BCG

Obtain buy-in from stakeholders

Workshop WorkshopInceptionreport

Finalreport

Draft finalreport

Briefing to EC

Secretariat

Briefing to Minister1

Refer to Appendix 1 for the list of documents referred to in identifying the challenges faced in human capital development, and Appendix 2 for the methodology used in the prioritization of issues.


7

The detailed timeline for the study is described in Exhibit 5.2.

Exhibit 5.2: Overview of timeline for the Human Capital Initiative

1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5

Feb 23 Mar 2 Mar 9 Mar 16 Mar 23 Mar 30 Apr 6 Apr 13 Apr 20 Apr 27

Key Milestones• Workshop 1• Briefing to Minister1

• Inception Report• Briefing to EC Secretariat • Workshop 2• Briefing to Minister2

• Draft final report to EC• Final Report• Steering Committee Meeting

Key Activities

11 Mar

19 Mar

6 May

16 Apr

4 May

31 Mar

Define set of key issues to address• Direct engagement with

stakeholders/working groups• Benchmark of successful

international strategies• Review existing reports/plans• Compile findings from Workshop 1• Prepare Inception Report

Develop draft recommendations• Present to Working Groups, (incl.

from other Strategic Thrusts)• Refine recommendations with inputs

from stakeholders• Prepare Draft Final Report

Finalize recommendations• Refinement with Working Groups• Discussion sessions with Working

Group from other Thrusts to assist alignment

• Circulate Draft Final Report for stakeholder inputs

• Finalize Report

14 Apr

17 Apr

2 Mar

1. Briefing to Y.B Senator Tan Sri Amirsham A. Aziz 2. Briefing to Y.B. Tan Sri Nor Mohamed YakcopSource: BCG

Over the course of the study, many Ministries and members from the private sector were engaged, as listed in Exhibit 5.3 below.

Exhibit 5.3: List of stakeholders engaged

MOEMOE

1. Tan Sri Zulkurnain bin HajiAwang

2. Datin Asariah bt. MiorShaharuddin

3. Haji Ali bin Abdul Ghani

4. Dr. Hj. Zainal Aalam5. Ruslan Zainudin6. Hj. Ahmad Tajudin b Jab7. Norhayati binti Alias8. Mohd., Subri Mat Isa

9. Tn. Hj. A'azmi Shahri10. Hamidun Abdullah11. Guan Eng Chan12. Dr. Khair13. Mohd Zainal bin Dirin

14. Dr. Zaida Mustafa15. Dr. Zainab Hussein16. Dr. Noor Zaib Wahab17. Mahanom Mat Sam18. Dr. Halibah Abdul Rahim19. Zulfikar Husni bin Shamsul20. Ismail Ahmad21. Eizzatul Fadhilah binti

Mohamad22. Sulaiman bin Mohamad

Khalid

Secretary General

Teachers Education DivisionCurriculum Development CenterTeachers Training Div.Technical & Vocational Education Div.

Educational Planning & Policy Research Div.Private Education Div.Private Education Div.R&D DivIAB.Curriculum Development CenterTeachers EducationTeachers EducationIABTeachers EducationBPPDPBPPDPBPTVResearch & Planning

Research & Planning

MOHAMOHA

1. Azman Azra Abd Rahman2. Ayub Abdul Rahman3. Aidil Hasinal Abu Bakar4. Ahmad Zulnasri bin Abdul

Khalid5. Rohaizi bin Bahari

Div. of Immigration AffairsForeign Labor Mgt. Dept.Foreign Labor Mgt. Dept.Foreign Labor Mgt. Dept.

Div. of Immigration Affairs

MOHRMOHR

1. Mohd. Sukri bin Ismail2. Pang Chau Leong3. K. Nadarajah4. Sulaiman Ismail5. Baharuddin bin Bedol6. Azizah Arrifin7. Asri bin Abdul Rahman8. Elvis Edmund Emus9. Ahmad Badri Jaafar10. Mej. (R) Van Weng Hong11. Muhd Ghazali Abdul Aziz12. Mohd. Sahar Darusman13. Syed Mohamed Noor bin

Syed Mat Ali 14. Aruna binti Ismail Abdul

Wahab15. Jamieyah binti Osman

16. Hashim bin Shikh Abdul Kadir

17 Mayzatul Azidah binti Abdul Wahab

18. Jeffrey Joakim Mohd. Jeffrey19. Mooi Poh Kong20. Mohd Napiah Haru21. Faizah Harun

Dept. of Skills Devt.Dept. of Skills Devt.Industrial Relations Dept.Industrial Relations Dept.Labor Policy Div.Labor Policy Div.Foreign Labor Div.Labor Policy Div.Labor Dept.PSMBHRDFPolicy DivisionManpower Department

Policy Division

Skill Development Fund Corp. (SDFC)SDFC

Training Resource & Dev. Div. Industrial Relations Dept.Industrial Relations Dept.

Manpower Deparment

EPUEPU

1. Dato' Dr. K. Govindan2. Prof. Datuk Dr. Noor Azlan

bin Ghazali3. Dr. Kamariah Noruddin4. Dr. Mazalan bin Kamis5. Jeevananth A/L Paliah

6. Dr. Soh Chee Seng7. Mohd. Razli Md. Shariff8. Ting Kok Onn9. Yogeesvaran Kumaraguru10. Zaity Zalina Razali11. Azizah Hamzah12. Nik Azman13.Norisam binti A. Aziz14.Kamarul Ariffin bin Ujang15.Dr. Roslina binti Mohd. Isa16.Nik Rozelin binti Nik Ramzi

Shah17.Mary George18.Asdirhyme bin Abdul Rasib

19.Sa'odah binti Junit20.Zizi binti Alias21.Nazaruddin Abu22.Salwani binti Ismail23.Selvarajoo Manikam

EPUMDI

MDIMDIManufacturing Industry, Science & Tech SectionPublic-Private Partnership Centre

Service IndustryService IndustryK-EconomyMacro EconomicsBudget DevelopmentCorridor Dev.MDIK-Economy Section

Macro EconomyManufacturing Industry, Science and TechnologyServices IndustryAgriculture SectionServices IndustrySocial Services SectionInfrastructure and Utilities

MOHEMOHE

1. Amir bin Mohd. Noor 2. Mazlan Zurin Zulkifli3. Norina Jamaludin4. Prof. Madya Dr. Norsaadah5. Prof. Dato' Radin Umar6. Dr. Siti Aishah Baharum7. Rahmah Hussain

8. Norehan Md. Shariff9. Nordiana Atan

Policy Devt. Div.Academic Devt Dept.PMOIndustrial Relations Dept.Dept. of Higher EducationIPTA Governance Dept.Student Admissions Dept.Dept. of Polytechnic & Comm College Edu.Industrial Relations Div

10. Prof. Dr. Md. Yusof

11. Mohd. Ghaus Bin Abdul Kadir

12. Dr. Mohamed Rashid Navi Bax

13.Ahmad Azizudin bin Abdul Karim

14.Ee Hong15. Dr. Guan Eng Chan

Graduate Tracer Study UnitCurriculum Development and Evaluation DivisionIPTS Management

Private EducationResearch and Planing


8

Other Government agenciesOther Government agencies

1. Abdul Rahim Hashim

2. Rosli bin Abdul Rahman

3. Mohamad DzafirMustafa

4. Najmi bin Hj. Mohd. Noor

5. Mohd. Salimi bin Sajari

6. Cheah Hock Kooi7. Dr. Mohd. Sopian bin

Johar8. Suzy Yanty Ahmad

Rubani9. Nor Azian binti Mohd.

Yusoff10. Lee Saw Hoon11. Noelle Chanan Singh12.Samauddin13. Wan Nadia14.Mohd. Razali bin

Hussain15. Mazmen binti Abdul

Hamid16. Mohd. Fauzi Mohd.

Kudong17. Nik Abu Bakar18. Phang Ah Tong19. Rohaini binti Ahmad20. Maimum Yusoff21. Sabariah Hassan22. Abd. Hamid Kasiman23. Widyawati Abd. Rani24. Mohd. Ali bin Jabar25. Azizah binti Mohd.

Yusof26. Mohd. Sanuri Shahid27. Ooi Goan Lee28. Harjeet Singh29. Hamdan Hj. Puteh

MARA (Vocational Training Div.)MARA

MOA

MOA

MOA

MOAMOA

SMIDEC

SMIDEC

MPCMPCMPCMPCMPC

MITI

MITI

MITIMIDAMIDAMin. of HealthMin. of HealthMin. of Youth & SportsMeCDPublic Service DepartmentCIDB

MOPICMOSTIMOWFCDJPA

1. Datuk Muhammad Feisol Hassan

2. Stewart Forbes

3. Dato' Raja ZulkepleyDahalan

4. Ivy Wong

5. Zuraidah Mohd Kamal

6. Tan Sri Dato Dr. James Alfred A. David

7. Tuan HajiShamsuddin Bardan

8. D. Danavaindran9. Thomas Eapan10. Ruben Gabriel11.Dato' Moehamad Izat

Emir12.Khoo Kok Hwa13. Zakri Baharudin14. Azizah Talib15. Lee Yoke Wan16.Zulraihah Harun17.Jaafar Karim18.Goh Seng Wing19. Tn. Hj. Indera Putra Hj.

Ismail20. R. Rajeswari21. Prof. Dr. Mohd Kamal

Hj Harun22. Prof. Dr. Mustafa

Mohd. Zain23. Dr. Chris Saville 24. Raenah Md. Sem25. Prof. Dr. Saran Kaur26. Hj. Mohd. Rashid

Mohd. Fadzil

M'sian German Chamber of Commerce & IndustryM'sian I'nt. Chamber of Commerce & IndustryM'sian I'nt. Chamber of Commerce & IndustryM'sian I'nt. Chamber of Commerce & IndustryM'sian I'nt. Chamber of Commerce & IndustryFMM

FMM

FMMFMMFMMFMM

FMMMEFMEFMEFMEFMEFMEFMTUC

MTUCUiTM

UiTM

UiTM-Industry Linkage Ctr.UiTM-Industry Linkage Ctr.UKMUKM

OthersOthers

27.Prof. Leslie Trustum

28.Gurpardeep Singh

29.Prof. Madya Dr. Noraini binti Kaprawi

30.Mohamad Ali bin Baba31. Prof. Dr. Ahmad b.

Othman32. Prof. Lindsay Falvey33. Tina Yeung34. J. Palaniappan35. Mohd Dzulqhifly Mohd36. Abdullah Monshi37. Wan Dallila Bakar38.Yusoff bin Mohd. Sahir39.Dato' Dr. Hamzah bin

Kassim40.Paul Boardman41.Dato' Hj. Matshah

Safuan42.Azizan Hawa Hassan43.Kevin Tan44.Sujitha Rajaratnam45.Lim Si Boon

46.Dato' Ghazali bin Dato' Mohd Yusof

47. Dato' Dr. Hj. MuhamadNasir

48. Mohamad b. Audong

49. Capt. (R) Azlan Mohd. Isa

50. A. Navamukundan51. Hanizan b. Zalazilah

Malaysian Association of Private Colleges and Uni.Malaysian Association of Private Colleges and Uni.University Tun Hussein Onn

University Tun Hussein OnnUniversity Malaysia Pahang

University of MelbourneSheffield UniversityPanasonicSime DarbyPetronasRHBGerman-Malaysian InstituteCareer Xcell Sdn. Bhd.

University of NottinghamSafuan Group Berhad

UEM AcademyOmni View ConsultancyG.A.BMalaysia Association of Foreign Maid AgenciesNusantara Technologies

Federation of JPKAccredited CentersM'sian Agricultural Producers AssociationCLAB

NUPWUUM

In addition, two workshops were held to gain input from various stakeholders. Refer to Appendix 3 and Appendix 4 for the minutes of the workshops.

Workshop 1

Date: 11th March, 2009

Agenda:

i. Present challenges in achieving a high income economy

ii. Identify and prioritize issues in human capital development

iii. Discuss potential recommendations to address issues

Workshop 2

Date: 14th April, 2009

Agenda:

i. Present key challenges in human capital development

ii. Present preliminary recommendations

iii. Discuss and obtain inputs on preliminary recommendations


9

Executive Summary The Boston Consulting Group was engaged by the Economic Planning Unit (EPU) under its “Human Capital for a High Income Economy Initiative” to identify a set of critical levers required for human capital development, to identify key issues and challenges that impact these levers and to develop a comprehensive set of recommendations that address these issues. This initiative is part of a wider Government strategy package for higher growth and structural change.

Together with EPU and key stakeholders from various Ministries, the BCG team has reviewed existing initiatives, plans and blueprints, engaged in international benchmarking and interviewed numerous experts from the Government and Industry to identify international best practices. The findings of this research and the recommendations that stem from them are presented in this report.

This report is organized in three parts

i. Diagnosis of current human capital development

ii. Key issues that impact the supply and labour market efficiencies of human capital

iii. Options for reform

Diagnosis of current human capital development

Malaysia faces several key challenges in its efforts to achieve its vision of reaching a high income economy by 2020. Malaysia’s growth is between that of fast growing high income economies and that of developing ones. However, given the current economic climate, it will be challenging to achieve the required high growth rates to transition into high income economy.

Malaysia will therefore need to change its economic industry structure. It will also need to significantly improve its labour productivity, which is currently lagging behind regional peers. To achieve so successfully, it will need to up-skill its existing mostly semi-skilled workforce, and improve the educational levels of new workers entering the labour market.

Key issues that impact the supply and labour market efficiencies of human capital

Multiple human capital recommendations and programs have been implemented in recent years to improve workforce quality. However, several key issues remain:

i. Education policies need to further emphasize on the critical levers required to improve quality of primary & secondary education, namely the quality and performance of the teaching workforce

ii. A high number of students enter the workforce with low skills levels as technical / skills education are not considered a viable and mainstream option due to quality and perception issues

iii. Many reports and feedback from employers point to the lack of employability competencies among graduates of local public universities. To-date, the Government has also invested heavily in graduate re-training schemes


10

iv. Continued influx of foreign labour, concentrated in low-value added activities, hinders the country’s aspiration to move to high-value added activities. At the same time, the number of expatriates, who can assist the country to move toward high-value added activities, has been declining

v. Limited update of labour laws, especially regulations governing collective agreements and flexible work arrangements

vi. Multiple human capital initiatives are being implemented by different Ministries with the risk of limited cohesive strategic planning and tracking of outcomes across Ministries

Options for reform

i. Further improve the quality and performance of the teaching workforce

a. Inculcate a performance culture in the using the leadership lever of introducing performance-based contracts for school Principals

b. Implement an elite graduate program to catalyze change in the perception of the teaching profession as well as to complement the above initiative

ii. Improve quality and perception of technical / skills education

a. Improve supply of technical / skills education

• Harmonize technical / skills infrastructure

• Corporatize technical / skills institutes

• Increase industry collabouration

• Enhance value of technical / skills certificates

b. Improve perception of technical / skills education

iii. Empower universities to improve performance, including graduate employability

a. Enhance the performance management system of public universities and make them fully accountable for their performance

• Link performance assessment to budget allocation

b. Grant greater autonomy to public universities in terms of student admissions and faculty management

c. At the same time, to implement structured tactical measures to ensure graduates meet industry needs

iv. Enhance foreign labour policies

a. Introduce 'minimum entry requirements' for expatriates and new employment pass access for middle income expatriates

b. Introduce dependency ceiling and enhance levy system


11

• Align with sector development plans

v. Update and harmonize labour laws

a. To include Employment Act 1955, Industrial Relations Act 1967 and Trade Union Act 1959

vi. Streamline the strategic management of human capital

a. Leverage the newly established Cabinet Committee for Human Capital Development with focus on specific outcomes


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Impact 5: Human Capital for a High Income Economy

Part 1: Diagnosis of Current Human Capital Development

5.1: State of Economy To-Date

Stuck in the middle

Malaysia has set an ambitious target to become a high income economy by 2020. However it faces several key challenges to achieve this target. Most importantly an economic structure that is currently dominated by low-skilled sectors, relatively low growth in labour productivity, and low wage growth hinders progress.

Challenging growth target

As Exhibit 5.1.1 shows, Malaysian GDP growth is between that of fast growing high income economies and that of developing ones. Exhibit 5.1.2 shows that in order to transform into a high income economy, which is defined as a GDP per capita of US$10,000 based on 1990 prices, Malaysia would require a minimum average GDP/capita growth rate of 7% until 2020. However, this target will be very challenging to achieve given the current economic climate. The Economic Intelligence Unit (EIU) forecasts an average growth rate of only 4.5% over the next 12 years. The latest Economist figures foresee zero or slightly negative growth in 2009. Malaysia will thus need multiple years of growth higher than 7% to offset the slow growth over the next few of years to reach the 2020 target.

Exhibit 5.1.1: Malaysia today is in-between fast-growing high-income and developing economies

0

10,000

20,000

30,000

Philippines

Singapore

South Korea

Taiwan

Thailand

Vietnam

1970 1972 1974 1976 1978 1980 1982

China

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

USD

Hong Kong

Indonesia

Japan

Malaysia

1984

GDP/capita 1970: 2008 (PPP)

Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009

1997 crisis


13

Exhibit 5.1.2: Challenging for Malaysia to achieve required high growth rates

Real growth of 7% needed for Malaysia to become high-income economy by 2020...

Real growth of 7% needed for Malaysia to become high-income economy by 2020... ...will be challenging to achieve...will be challenging to achieve

• Current economic downturn likely to further hamper economic growth

• "Leap-frogging" economic development may not be a viable option

– Malaysia has tried accelerating development of high value added ICT ...

– ... but failed given lack of required enablers

– As a result, FDI/MNC activities in ICT in recent years have been focused more on low value SSO2

activities

6.62020 aspiration

6.2Real GDP/capita

growth2000-2008

4.5Forecastgrowth ’09-’201

7.0

Growth required

between ’09-’20

0 5 6 7

1. Nominal growth Note: Based on target of Vision 2020 of USD 10’000 GDP/capita in 2020 based on 1990 prices 2. Shared Services OrganizationSource: Vision 2020; EIU 2008, BCG Analysis

Projected GDP/capita

(US$)

Projected GDP/capita

(US$)

7,569

10,000

Need for economic restructuring

High income economies are predominantly service focused, as detailed in Exhibit 5.1.3. Services typically account for 60-80% of GDP, but in Malaysia this figure is only 46%. Malaysia will therefore need to change its economic industry structure and focus more on high-end service sectors to transition to a high income economy.

Exhibit 5.1.3: High income economies predominantly services focused yp y y

79 76 73 72 71 71 70 70 69 67 6458 57

46

20 23 26 26 26 28 26 29 27 33 3340 41

45

1054 3302232111

MalaysiaNorwaySouth Korea

FinlandSingaporeIcelandSwedenNew Zealand

3

TaiwanAustraliaJapan

100

80

40

20

Manufacturing

0

Agriculture

Services

60

DenmarkUKUS

%

Percentage of GDP breakdown by industry

Source: CIA world fact book 2008


14

Increase labour productivity

Exhibit 5.1.4 shows that GDP growth has outpaced workforce growth over the last decade, resulting in steady growth in labour productivity.

Exhibit 5.1.4: GDP growth vs. workforce growth

GDP growth outpaced workforce growth ...GDP growth outpaced workforce growth ... ... with steady growth in labor productivity... with steady growth in labor productivity

8

Labor force growth

%

GDP Growth

1998 1999 2000 2001 2002 2003 2004 2005 2006 20070

10

2

4

6

-8

4.1%

2.7%

CAGR ’98 –‘07

CAGR ’98 –‘07

GDP vs. workforce growth

1998-2007

Source: MPC 2007, Department of Statistics, EPU economic model

-2

0

2

4

6

8

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

%Labor force productivity growth

1998-2007

GDP (RM B)Labor

force (M)

158 165 176 183 194 202 215 229 246 257

8.8 9.3 9.4 9.7 10.1 10.4 10.6 10.8 11.38.6

Post dotcom crisis

Post dotcom crisis

Exhibit 5.1.5 illustrates this picture is generally true for all sectors. However, Exhibit 5.1.6 shows that despite robust productivity growth, labour productivity is falling behind rapidly growing regional peers such as China and India. This exhibit also shows that overall productivity levels are still far below those of Asian high income economies. In 2007, for example, Singapore’s productivity level was four times higher than Malaysia’s at ~ US$ 48,000.


15

Exhibit 5.1.5: GDP growth has outpaced workforce growth

Manufacturing contributes largest portion of GDP...

Manufacturing contributes largest portion of GDP...

...with highest amount of productivity growth...

...with highest amount of productivity growth...

...supported by high labor force growth

...supported by high labor force growth

1. Includes insurance, real estate and other business services 2. Includes accommodation and restaurants 3. Includes government servicesSource: Department of Statistic, MPC, EPU economic model

Labor productivity growth across key sectors 1998-2007

2007 GDP key sectors Labor force growth 1998-2007 key sectors

4.6

0.0

4.6

-0.3

5.5

1.7

6.0

7.4

1.8

-5 0 5 10

‘000

3.2

-0.9

3.2

2.8

2.9

1.0

2.2

3.0

3.5

-1 0 1 2 3 4

%

15

18

35

41

42

47

66

93

156

0 100 200

Manufacturing

Finance1

W’sale & Retail Trade2

Construction

Utilities

RM Mn

Mining and Quarrying

Agriculture

Other services3

Transport, Storage& Communication

Key sectors to influence are manufacturing and trade given size of GDP and labor force

2,251

809

2,724

2,167

1,577

630

972

46

75

Labor force 2007

Exhibit 5.1.6: Productivity lags Asian high income economies

1. At 2000 constant prices 2. 2003-2006 period 3. 2006Source: MPC Productivity report 2007, Philippines National Statistics Coordination Board

1,4702,3922,9362,9634,750

12,661

29,985

39,948

48,638

0

10,000

20,000

30,000

40,000

50,000

US($)

Labor productivity falling behind rapidly growing LDCs ...

Labor productivity falling behind rapidly growing LDCs ... ... and overall productivity levels relatively low... and overall productivity levels relatively low

High Income countries

2.82.92.93.23.43.74.2

5.0

9.5

0

2

4

6

8

10

%

China

India

Indonesia

Thailand

Malaysia

Korea

Taiwan

Philippines2

Singapore

Taiwan

Korea

Malaysia

Thailand

China

Indonesia

Philippines3

IndiaSingapore

Productivity levels 20072Productivity growth for selected Asian countries 2003-2007

Wage growth

In recent years the Malaysian labour market has seen low wage growth at an average of 1.6% in recent years. Compared to pre-Asian crisis years, as shown in Exhibit 5.1.7, real wage growth has dramatically decreased between 1998 and 2007. The exhibit also shows that average real wage growth over the past 15 years has been significantly lower than that of regional peers. A move towards an industry structure dominated by high skills sectors and higher growth in labour productivity is expected to result in higher wage growth.


16

Exhibit 5.1.7: Wage growth has been low

Real wage growth has fallen over the years ...

Real wage growth has fallen over the years ...

... and is significantly lower than regional peers

... and is significantly lower than regional peers

5.95.9

6.8

7.9

2.8

5.86.06.2

1.8

0.61.2

2.5

1.4

-1.3

1.5

2.5

-2

0

2

4

6

8

E&E Petchem, Oleochemand real estate

Textiles Wood products

Other equip-ment

Food and beverage

Base metals

Total manufac-

turing

%

E.g., real wage changes for selected manufacturing sectors (%)

Source: The Star online January 15 2009, EIU

Average real wage growth, selected countries (1994-2007 in %)

-0.3

0.5

0.7

0.7

1.4

1.6

2.0

2.3

2.3

2.3

3.8

4.1

11.1

US

Japan

Thailand

Philippines

%

Vietnam

Taiwan

0 5

UK

10 15

Malaysia

India

Korea

China

Indonesia

Singapore

1994-19971998-2007


17

5.2: Main Issues and Recent Human Capital Developments in the Labour Market

Low level of skilled workforce

Exhibit 5.2.1 shows that Malaysia’s workforce is still relatively low-skilled. In 2007, 80% of the workforce was only educated up to the Sijil Pelajaran Malaysia (SPM) level or equivalent. In line with the low education levels that year, only 25% of Malaysian jobs were in the higher skill brackets. Even though this is a substantial improvement over the 1990 figure (16%), the current level is still much below that of regional peers such as Singapore (49%), Taiwan (33%) and South Korea (36%).

The previous section explained that Malaysia will need to change its economic industry structure and improve labour productivity levels if it is to transition to a high income economy. Malaysia will therefore need to up-grade the skill level of its existing mostly semi-skilled workforce, and improve the educational and skill levels of new workers entering the labour market.

Exhibit 5.2.1: Workforce today still relatively unskilled

~80% of workforce educated up to SPM or equivalent only

~80% of workforce educated up to SPM or equivalent only

Only 25% of Malaysian jobs are in the higher skilled bracket

Only 25% of Malaysian jobs are in the higher skilled bracket

Developed economies have significantly higher proportion

of higher skilled jobs

Developed economies have significantly higher proportion

of higher skilled jobs

7 5 5

2724 23 21

2322 21 20

3034 34 35

9 12 15 16

%

4

1998

4

2001

3

2004

4

LowSec

Primary

4 None

20070

Tertiary100

PostSec

20

UpSec

40

60

80

11 12

7363

812

8 13

1990 20070

100

20

40

60

80

%

3%

9%

5%

1%

0%

-3%

5.7%

5.0%

2.6%

2.9%

CAGR ’90 – ‘07CAGR

’90 – ‘07

6051

67 64

4049

33 36

Singapore 1997

Singapore 2008

Taiwan 2007

Korea 2007

0

100

20

40

60

80

%CAGR

’98 – ‘07CAGR

’98 – ‘07

TertiaryPostSec

UpSecLowSec

PrimaryNone

Unskilled1

Semi-skilled1

Skilled1

80% 25%

1. Based on type of occupations rather than education attainment to facilitate comparison with other countriesNote LowSec = PMR, UpSec = SPM, PostSec =STPM, Tertiary =Diploma, degreeSource: Department of Statistics, Korea International Labor Organization, Taiwan Department of Statistics

Management &professionals1 Semi and

unskilled1

Management, professional and other skilled1

Exhibit 5.2.2 shows that low skill levels are dominant across almost all industry sectors, with the exception of the Government, finance & insurance and mining sectors, which together account for only 15% of the total workforce. Skill levels are a reflection of the focus of the economic sectors of a country and the extent of high value added activities within individual sectors. Therefore, for Malaysia to move up the value chain towards a high income economy, it will need to do two things. First, it will need to start prioritizing those economic sectors that require a more highly skilled workforce. As Exhibit 5.2.3 shows, a high income country such as Singapore has a high proportion of skilled jobs in high-end service sectors. Malaysia is therefore advised to aim to increase its share of high-end service sectors such as finance and insurance. Secondly, within all sectors, Malaysia should aim to up-skill its workforce.


18

Exhibit 5.2.2: Low skill levels reflected across almost all industry sectors

19

51

12

17

7

69

7

Wholesale & retail trade

13

17

65

5

20

70

2

14

7

57

22

Construction

8

12

5

Other manufacturing

10

10

75

21

37

33

9

33

20

45

Managerial4

Skilled4

Semi-skilled4

28

0 10020 40 60 800

100

20

40

60

80

%

Other services

128

3

66

19

97

75

9

23

89

6

Agro and food

processing3

52

2

18

Unskilled4

1.Public administration, education and health 2. And oleochem 3. Also includes forestry and logging 4. Based on type of occupations rather than education attainment to facilitate comparison with other countriesNote: breakdown of skills level based on employed populationSource: Department of statistic, EPU Economic model

257 5371,438 1,8071,24628746 972487 8531,871 1,450Labor force('000)

Finance & insurance

MiningPetchem2

Gov’t services1

11,251

Total

Priority sectors

E&E

Logistics

Tourism

All sectors to up-skill

workforce

Shift focus of economic sectors,

impacting labor force concentration

Distribution of jobs by skills levels across key sectors, 2007

1,306

7,079

1,374

1,492

Exhibit 5.2.3: Singapore skill-level benchmark

23

80% 37%

41%

20%

2%

Public administration & education services

27%

33%

33%

7%

Real estate, rental & leasing services

53%

31%

40%

22%

16%

Wholesales & retail trade

16%

45%

23%

16%

Manufacturing

13%

33%

26%

Financial & insurance services

1%

18%

20%

51%

18%

Transport & storage

10%

20%

41%

29%

Administrative & support services

12%

19%

46%

23%

Other community, social & personal services

5%

12%

45%

38%

Hotels & restaurants

11%

28%

Construction

22%

53%

Others#

17%

30%

29%

24%

Health & social services

6%

27%

29%

38%

Professional, scientific & technical services

1%

19%

30%

50%

28%

Information & communications

1%

15%

Managerial1

Skilled1

Semiskilled1

Unskilled1

0 10020 40 60 800%

100%

20%

40%

60%

%

43 106229 312 2707487 124110 18223 85Labor force('000) 1,854

Total

89 120

Distribution of jobs by skills levels across key sectors, 2007

250

633

488

483

1. Based on type of occupations rather than education attainment to facilitate comparison with other countriesSource: Singapore Department of Statistics 2007


19

Conclusion

From a supply side perspective, Malaysia must ensure a strong pipeline of adequately skilled workers into the labour market in order to improve its workforce quality. Simultaneously, it must also up-skill its existing workforce. From a labour market efficiency perspective, where multiple components such as flexibility of wage determination, co-operation in labour-employer relations and rigidity of employment are used as evaluation metrics, Malaysia must improve the legal framework of its labour market and put in place policies to effectively manage alternative sources of labour (i.e., expatriates and foreign labour). These issues will be further discussed in detail in the following sections of the report.


20

Part 2: Key Human Capital Challenges

5.3: Little Emphasis on Quality of Teaching Workforce Despite substantial increases in education spending and several impressive reform efforts over the last decade, Malaysia’s primary and secondary students continue to lag behind peers from developed countries. The “Trends in International Mathematics and Science Study” (TIMSS) provides data on mathematics and science achievement over time for grade 81 students. Exhibit 5.3.1 shows that Malaysia’s score in mathematics dropped from 519 in 1999 to 474 in 2007 and the country’s performance in science also worsened from 492 in 1999 to 471 in 2007. The exhibit also shows that in math, Malaysia’s performance relative to other countries worsened over this period, from rank 16 in 1999 to rank 20.

Exhibit 5.3.1: Deteriorating student performance

CountryCountry

Chinese TaipeiRepublic of KoreaSingaporeHong Kong SARJapanHungaryEnglandRussian FederationUnited StatesLithuaniaCzech RepublicSloveniaArmeniaAustraliaSwedenMaltaScotlandSerbiaItalyMalaysiaNorwayCyprusBulgariaIsraelUkraineRomaniaBosnia LebanonThailandTurkey

19991999

3 (585)2 (587)1 (604)4 (582)5 (579)9 (532)20 (496)12 (526)19 (502)22 (482)15 (520)11 (530)-13 (525)----23 (479)16 (519)-24 (476)17 (511)28 (466)-25 (572)--27 (467)-

20032003 20072007

4 (585)2 (589)1 (605)3 (586)5 (570)9 (529)-12 (508)15 (504)16 (502)-21 (493)23 (478)14 (505)17 (499)-18 (498)24 (477)22 (484)10 (508)27 (461)29 (459)25 (476)19 (496)-26 (475)-31 (433)--

1 (598)2 (597)3 (593)4 (572)5 (570)6 (517)7 (513)8 (512)9 (508)10 (506)11 (504)12 (501)13 (499)14 (496)15 (491)16 (488)17 (487)18 (486)19 (480)20 (474)21 (469)22 (465)23 (464)24 (463)25 (462)26 (461)27 (456)28 (449)29 (441)30 (432)

CountryCountry

SingaporeChinese TaipeiJapanRepublic of KoreaEnglandHungaryCzech RepublicSloveniaHong Kong SARRussian Federation United StatesLithuaniaAustraliaSweden ScotlandItalyArmeniaNorwayUkraineJordanMalaysiaThailandSerbiaBulgariaIsraelBahrain BosniaRomaniaIranMalta

19991999 20032003 20072007

2 (568)1 (569)4 (550)5 (549)9 (538)3 (552)8 (539)13 (533)15 (530)16 (529)18 (515)23 (488)7 (540)--21 (493)---30 (450)22 (492)24 (482)--26 (468)--25 (472)31 (448)-

1 (567)2 (561)3 (554)4 (553)5 (542)6 (539)7 (539)8 (538)9 (530)10 (530)11 (520)12 (519)13 (515)14 (511)15 (496)16 (495)17 (488)18 (487)19 (485)20 (482)21 (471)22 (471)23 (470)24 (470)25 (468)26 (467)27 (466)28 (462)29 (459)30 (457)

TIMMS Math Score (13 years old)TIMMS Math Score (13 years old) TIMMS Science Score (13 year old)TIMMS Science Score (13 year old)

1 (578)2 (571)6 (552)3 (558)-7 (543)-12 (520)4 (556)17 (514)9 (527)14 (519)10 (527)11 (524)19 (512)22 (491)29 (461)21 (494)-25 (475)20 (510)-28 (468)24 (479)23 (488)33 (438)-27 (470)30 (453)-

Source: TIMSS (Trends in International Mathematics and Science Scores) 1999, 2003 and 2007

This report argues that the declining performance of Malaysian students might be partially explained by the fact that Malaysia has not been sufficiently focusing its resources on the most critical lever that affects student outcomes, namely, the quality of its teachers.

Extensive international research indicates that teacher quality is the most important determinant of student outcomes. Exhibit 5.3.2 shows student outcomes over a three-year period for two different students. One student was instructed by a high performing teacher while the other received instruction from a low performing teacher. Performance levels of both students were the same at the start of the research. However, at the end of year three, a staggering performance gap of 53% had opened. The exhibit also shows that the class that a student attends, and thus the quality of his / her teacher, is a much more important determinant of student outcomes than the school that he or she attends.

1 Equivalent to Form 1 in Malaysia


21

Exhibit 5.3.2: Quality of teachers is the most important determinant of student outcomes

Students with high performing teachers perform considerably better

Students with high performing teachers perform considerably better

Class (teacher) more important determinant in determining student achievement than schoolClass (teacher) more important determinant in determining student achievement than school

90

50

37

50

0

100

20

40

60

80

Student performance (percentile)

Age 8 Age 11

Student with high performing teacher1

Student with low performing teacher2

53 percentile

points

9

45

0

50

School

Variation in achievement (%)

Class

4

55

0

20

40

60

SchoolClass

Variation in achievement (%)

Primary English

Primary Mathematics

1. Among the top 20% of teachers 2. Among the bottom 20% of teachersNote: Other factors influencing student achievement include student characteristics, family background and community expectationsSource: Peter Hill 1997, Sanders and Rivers, BCG analysis

Despite the clear evidence that student outcomes are most highly correlated with the quality of teachers, Malaysia has over the last decade prioritized other levers to improve educational quality. The Ninth Malaysian plan puts a clear focus on building infrastructure and changing the curriculum. RM22 billion have been allocated to develop the education system in Malaysia with more than 17000 projects expected to be launched. Among the funds allocated, RM 401 million and RM 1 billion will be used to improve quality of schools in urban and rural areas respectively. It states that “the main focus of primary and secondary education will be to further increase access to quality education. In addition, greater emphasis will be given to developing a strong foundation in Mathematics, Science and English as well as to install good ethics and discipline among school children”. Other strategic plans such as the Education Blueprint 2001-2010 also emphasize building additional infrastructure and changing the curriculum over policies directed at improving the quality of the teaching workforce.

Two key levers are identified in this report as being critical to improving the quality of teachers i. Attracting and selecting the best people into the profession

ii. Improving the quality of leadership

Attracting the best teachers

Malaysia has recently introduced several policy measures to improve the quality of new teachers. All new primary and secondary school teachers are now required to have a degree-level education. In line with this new policy, the starting salary level for degree holders has been increased to approximately RM 2,000 per month including benefits. The teacher training department has also recently tightened the selection process for entry into teacher training institutes, which now consists of a CV review, assessment test and final interview.

Despite these recent initiatives, Malaysia’s best and brightest may still not be drawn into the teaching profession. As indicated in Exhibit 5.3.3, the average salary of secondary school teachers with one to four years of experience is much lower than average starting salaries in the private sector, including the salaries of secondary teachers at private schools.


22

The Institutes of Teacher Education now have a three-step selection process that includes CV review, an assessment round that includes numerical and verbal tests, and final interviews. However, despite the tightening of selection procedures, there are currently no minimum grade point average requirements for entry into the teacher training institutes. A non-selective selection process might be an additional reason why Malaysia’s best students perceive teaching as a secondary career choice, besides a lack of clear career progression for teachers.

Exhibit 5.3.3: Medium monthly salary by jobs with 1-4 years experience

Education levels of teachers relatively low –although degree is now a prerequisite

Education levels of teachers relatively low –although degree is now a prerequisite Selection process can be made more rigorousSelection process can be made more rigorous

• Recent efforts to tighten selection procedures, e.g. CV review, assessment tests, interview

• But requirement for entry into teachers training colleges still low, i.e. no minimum GPA

– Minimum requirement is only 6 credits– Top percentage of total applicants selected

• Lower entry requirements to encourage more male applicants

Compensation not very competitive despite recent increases1

Compensation not very competitive despite recent increases1

Leaders not always chosen based on merit; also, lack of mentoring culture for teachersLeaders not always chosen based on merit; also, lack of mentoring culture for teachers

• Leaders (Principals): Length of service still important in selection of Principals; MoE has little leverage to deal with underperforming Principals

• Mentors: Schools lack a mentoring culture (e.g., new teachers receive little or no mentoring; no mentors to provide constructive feedback)

• Trainers: Selection of trainers for teaching institutes not based on performance but on length of service as main criteria

– Compensation not substantially higher than for regular teachers

• Lack of clear career progression for teachers

26

Malaysia

100

Finland

100

Singapore

100

South Korea0

100

50

%

1. in starter salary to ~ RM 2,000 /month for degree holders Source: Expert interviews, www.payscale.com, MOE, OECD

4,0002,929

2,4212,049

0

2,000

4,000

Secondary teacher

Account executive

Mechanical engineer

IT consultant

RMMedium monthly salary by job with

1-4 years experience

% of primary school teachers with a University degree

Improving the quality of leadership

The most effective way to deliver sustained and substantial improvements in teacher quality is sustained and substantial improvements in leadership. It is therefore of critical importance to get the best people as Principals. However, at present, the most important factor for promotion from senior teacher to Principal is length of service, and not performance.

In addition to improving selection, it is also critically important to ensure that a Principal’s time is focused on the right levers to improve the school’s performance. Malaysia’s school system currently lacks a comprehensive performance management system where performance is regularly tracked against pre-defined indicators. That being said, principals currently experience multiple roadblocks that limit their ability to improve performance culture in schools. Firstly, in terms of curriculum, selection of teachers and pedagogy, Principals have little if any input on decision for those issues. The syllabus, contact hours and assignment of teachers are determined by the Ministry of Education and teaching delivery is based on individual teachers (Principals may observe and provide feedback to teachers but not regularly done). Principals are responsible for the administration of the school, including budget allocation and to a certain extent the retention of teachers but this limited autonomy hampers the implementation of an effective performance management system

Furthermore, although all primary and secondary schools should be audited at least once every five years by the Quality Assurance Division of the Ministry of Education, this target has yet to be


23

achieved. In 2009, only approximately 70% of all schools had been audited1. Equally important is the fact that little is currently done with the results of the audit. The Quality Assurance Division reports to the Education Minister and State level education departments, whose duty is to follow up on the results. However, stakeholder interviews revealed that there are currently few negative consequences for bad performance at school, teacher or Principal level.

Although MOE’s Quality Assurance Division has developed multiple criteria against which teachers are to be evaluated, including content knowledge and teaching style, interviews suggest that the criterion that teachers perceive as most important is the performance of their best students. This might partly be due to the annual reporting of the number of straight A’s in the media. This over-emphasis on straight A’s is unfortunately misleading because the number of students that fail all subjects in SPM has consistently been two to three times higher than those receiving all A’s.

Most schools also currently lack a mentoring culture where more experienced teachers provide feedback to new colleagues. Mentoring can provide new teachers with high-impact, peer-to-peer professional development and has been shown to improve retention, teacher motivation, and student outcomes in international pilots. Principals therefore have an important role to play in ensuring mentoring support for new teachers at their schools.

1 Stakeholder interview


24

5.4: Technical / Skills Education Currently Not a Mainstream Option Although Malaysia offers a wide range of affordable higher education pathways to its youth, Exhibit 5.4.1 shows that more than 100,000 SPM leavers (~25%) enter the workforce each year without pursuing further education.

This group of students may not be academically inclined or have sufficient grades to meet entry requirements into universities. However, technical / skills education, with generally much lower entry requirements, is not regarded as a viable alternative by these students. This type of education has become mainstream in all developed countries, but in Malaysia is still perceived by many students and parents as an option of last resort. Many prospective students are also not fully aware of the various skills training courses that are offered by various providers. For others, the benefits of further technical / skills education — higher pay or a quicker promotion period — is not apparent.

Exhibit 5.4.1: 25% of students opt out of education after SPM and enter the workforce

~25% of SPM leavers enter the workforce each year

~25% of SPM leavers enter the workforce each year

Further paper qualification and technical/ skills education not viable alternatives

Further paper qualification and technical/ skills education not viable alternatives

1. Including teacher training 2. Form six, pre-university courses, diploma in IPTA, matriculation 3. Institut pengajian tinggi swastaSource: EPU, OECD Education at a glance 2003, DSD, MOHR, BCG analysis

101 119

133 103

45 544130

0

100

200

300

400

500

413

2003

105

1689

15Polytechnic & CC

Public pre-uni2

students ‘000

Workforce

438

Public skills training institutes

2006

Private institutes

Public service training1

Paths taken by SPM leavers• Not academically inclined• Insufficient grades to meet entry

requirements• Unable to afford cost of education (esp. at

IPTS3)

• Perceived as inferior to University (i.e., associated with failures)

• Some programs do not offer relevant work-based education

• Benefits of certificates, e.g. higher pay, not apparent

• Oversupply of programs (i.e. from polytechnics, community colleges, skills institutes)

• Default choice• Need to earn income

Technical/ skills

education

University/Diploma

Workforce

Industry’s perception of a generally low quality of technical / skills education jeopardizes Malaysia’s goal of becoming a high income economy by 2020. Exhibit 5.4.2 shows that Malaysian employers continue to identify skilled labour shortages as the leading investment climate constraint. It also shows that according to EPU’s baseline occupational planning scenario, 32% of all jobs will fall into the skilled categories in 2020. However Malaysia might need to target an even higher figure of ~ 35% to be on par with high income regional peers such as Taiwan, Korea and Singapore (See exhibit 5.2.1)


25

Exhibit 5.4.2: Employers increasingly demanding higher-skilled workforce

Skilled labor shortage continues to be the #1 investment climate constraint

Skilled labor shortage continues to be the #1 investment climate constraint

Top three investment climate constraints1

21

32

44

17

22

44

0 10 20 30 40 50

Skilled labor shortage

Tax regulations and / or high taxes

Lack of business support services

20072002

%

1. Percent of firms identifying indicated problem as one of top three concerns 2. Forecast based on EPU human capital model 3. Based on type of occupations rather than education attainment to facilitate comparison with other countriesSource: Malaysia Productivity and Investment Climate Update October 2008, National Employment Returns 2008, BCG analysis

Gradual increase in higher skilled jobs required with shift to high income economy

Gradual increase in higher skilled jobs required with shift to high income economy

Job breakdown by skills level

11.0 12.0 10.0

73.063.0

58.0

8.012.0

15.0

8.0 13.0 17.0

1990 2007 202020

100

20

40

60

80

%

Unskilled3

Semi-skilled3

Skilled3

Management &professionals3

Employees will also profit from further education as this will enable them to move on to higher level jobs and wages. Exhibit 5.4.3 shows expected qualification requirements for various job levels based on the National Occupational Skills Standards (NOSS). The exhibit shows that managerial level jobs in trade related occupations require at minimum a SKM level 3 certificate. Only one year of additional education is required for an SKM level 3 certificate and this can lead to an almost doubling of the salary level.

Exhibit 5.4.3: SPM qualification limits ability to move to higher level jobs and wages

...which should lead to higher monetary gains

...which should lead to higher monetary gains

SKM 3/Community College certificates provide entrance into higher skilled jobs...

SKM 3/Community College certificates provide entrance into higher skilled jobs...

• A secretary should double her starting wage through one year of additional education...

• ...While she would need at least five years of practical work experience to move up from junior to senior secretary

Source World Bank 2008, DSD, EIU (2008) BCG Analysis

Electrical & Electronic

Electrical & Electronic

Electrical Engineer

Assistant Electrical Engineer

Senior Electrical Technician

Electrical Technician

Junior Electrical Technician

MultimediaMultimedia

Creative Director

Creative Manager

Designer

Technician

Junior Technician

Business management

Business management

N/a

N/a

Executive secretary

Secretary

Junior secretary

SKM 5

SKM 4

SKM 3

SPM/SKM 2

SPM/SKM 1

Skilled

Semi-Skilled

3,000

1,8001,500

0

2,000

4,000

Secretary Senior secretary

RM

Junior secretary

Monthly starting wageExamples of SKM levels

Despite the clear benefits of further technical / skills education to both employees and employers, the actual take up of this type of education is still low. This can be partly explained by the very low participation in technical, vocational and skills education at upper secondary level. Exhibit 5.4.4


26

shows that only ~10% of all upper secondary level students were enrolled in vocational training in 2006. This low figure stands in sharp contrast to countries such as the Netherlands, Germany and Australia, where the majority of upper secondary level students are enrolled in skills education. Based on these figures Malaysia should set ambitious targets to at least double the level of upper secondary students enrolled in technical / skills education.

Moreover, post secondary skills education is concentrated in the lower levels as ~ 90% of SKM are handed out for level 1 and 2 graduates. This is due mostly to the fact that there is limited recognition of SKMs in the market. The government themselves do not recognize these certificates and the private sector prefer graduates with more widely recognized certificates like the City and Guilds. To exacerbate the problem, there is a lack of supply of higher level courses in these skills training institutes due to the lack of demand, capable trainers and infrastructure. That being said, if Malaysia were to move up to a high-income economy it will need to stimulate enrolment in higher skills levels.

Exhibit 5.4.4: Low take up rate of technical /skills education

Low participation in upper sec technical/skills education (i.e. not a mainstream option)

Low participation in upper sec technical/skills education (i.e. not a mainstream option)

High proportion of post secondary skills enrolment at the lower levels

High proportion of post secondary skills enrolment at the lower levels

10

28

44

5962

68

0

20

40

60

80

Netherlands Australia Germany OECD average

Korea Malaysia1

%

1. 2005Source: EPU, OECD Education at a glance 2006, 9th Malaysian Plan, MOHE, DSD, BCG analysis

% of upper secondary studentsin vocational education (2006)

39

33

8

0

20

40

60

80

100

283

2006

SKM 4 & 5SKM 3

SKM 2

SKM 1

certificates ‘000

87%

SKM certificatesconferred

Organization of technical / skill training infrastructure

One reason identified by this report for the low participation rates in post secondary education is the fragmentation of the training infrastructure. Ten different Ministries and many private providers offer skills training courses. The largest providers of skills education are the Ministry of Higher Education (community colleges), the Ministry of Human Resources, the Ministry of Youth and Sports, and the Ministry of Rural and Regional Development (MARA1 colleges). These institutes offer certificate and diploma courses ranging from six months to three years. Most Ministries offer different qualification systems, and often the difference in course offerings might not be clear to students and parents.

The community colleges aim to educate multi-skilled graduates. These institutes provide an equal focus on core academic subjects such as math and sciences, general skills education, as well as

1 Majlis Amanah Rakyat


27

specific skills education. However, the training curriculum is not based on the NOSS. Skills training institutes under the other Ministries are more occupation- or vocation-oriented, and courses are more performance-based than those offered in community colleges. The training curriculum is generally based on NOSS. Approximately 9% of graduates1 from community colleges continue their education at polytechnics. Skills training institute graduates can also enter the polytechnics but very few currently use this option.

The cost of skills education also differs per institute. The annual operating costs per student are respectively RM 8,000 for the community colleges and RM 4,400 for the skills training institutes. Some community colleges and skills training institutes under other Ministries currently suffer from excess capacity.

Performance management in technical / skills training institutes

Performance management needs to be strengthened in education. Training institutes receive Government funding based on historical costs and therefore have little incentive to improve performance. There is a high variance in the quality of the performance monitoring. Although most Ministries organize annual tracer studies to track the employability of its graduates, poor performance on such indicators does not result in significant consequences such as a reduction in funding.

Industry collabouration

Most community colleges, polytechnics and skills training institutes have their own industry attachment programs and industry collabourations that allow for joint curriculum and training development. In addition, there is the National Dual Training System (NDTS) under the MOHR that is rapidly expanding with more than 10,000 students currently participating. However, it became clear from interviews with industry players that many of the public skills training institutes are not highly regarded and these collabouration efforts can still be enhanced. One particular area that can and should be improved is the lack of involvement of industry players in the development of NOSS ultimately resulting in its delayed completion. The government has until now only completed 1,000 job titles out of a target of 5000.

1 Brief report Tracer Study 2008


28

5.5: Quality of Universities and Graduates Affect Employability

Overview

Multiple reports have pointed to the lack of employability competencies among graduates. For example, graduates are cited as lacking basic functional skills including letter-writing, data-searching and organizational skills. They also lack soft skills, such as confidence, communication skills and language proficiency, thus hampering their ability to gain employment.

The MOHE has embarked on several programs and initiatives to ensure graduate employability. These include:

i. Introduction of soft skills modules into the student’s curriculum of studies

ii. Modul Asas Pembudayaan Keusahawanan (Basic entrepreneurship modules) to expose students to entrepreneurial skills

iii. Internship or industrial training programs to gain prior knowledge and exposure to actual working environment

These measures have seen an overall reduction in graduate unemployment (see exhibit 5.5.1) and is particularly commendable given the current economic climate. The critical agenda programs under the new Performance Management System also aim to increase graduate employability.

Exhibit 5.5.1: Graduate unemployment rates by universities

1. First degree graduates onlyNote: UTM: Universiti Teknologi Malaysia; UMS: Universiti Malaysia Sabah; UMT: Universiti Malaysia Terengganu; UNIMAS: Universiti Malaysia Sarawak; UUM: Universiti Utara Malaysia; USIM: Universiti Sains Islam Malaysia; UPM: Universiti Putra Malaysia; UIAM: Universiti Islam Antarabangsa Malaysia; UTHM: Universiti Teknologi Tun Hussein Onn Malaysia; UM: Universiti Malaya; UKM: Universiti Kebangsaan Malaysia; UiTM: Universiti Teknologi MARA; USM: Universiti Sains Malaysia; UPSI: Universiti Pendidikan Sultan Idris; UNiMAP: Universiti Malaysia PerlisUTeM: Universiti Teknikal Malaysia Melaka; UMP: Universiti Malaysia PahangSource: Tracer Study 2004, (Brief report) 2008; MOHE

32

0

2526

34353636374243444546

50

26

20

34

45

3

2421

3329

32

1816

3230

43

64

52

20

0

20

40

60

80

UTM UMS UMT UNIMAS UUM USIM UPM UIAM UTHM UTeM UMP

200420081

%

UM UKM UiTM USM UNiMAPUPSI Overall

Proportion of graduates that are unemployed

6,174 2,153 666 824 5,319 506 8,634 2,665 1,258 4,081 4,427 22,189 5,151 1,482 - -

5,622 3,371 1,426 1,440 5,682 239 6,013 3,012 1,216 5,202 5,310 11,376 5,405 2,791 639 1,184

-

383

Number of respondents

68,160

60,311


29

However, of the first-degree graduates who were employed, 60% and 34% in 2004 and 2008 respectively earned less than RM 1,500 per month (see Exhibit 5.5.2). The low wages received by graduates implies that they may be opting for jobs that require less than a degree-level qualification.

Exhibit 5.5.2: Wages of employed graduates

14

27

2423

13

39

27

20

12

2

0

10

20

30

40

20082004

>2,0011,501-2,0001,001-1,500501-1,0001-500

RM

%

Monthly Salaries of Degree Holders

18,582

33,243

Number of respondents

Source: Tracer Studies 2004, (Brief report) 2008, MOHE

Alongside concerns on the quality of graduates lie questions surrounding the quality of universities and its faculties. For example, stakeholder engagement revealed that 90% of lecturers do not have industry experience. This is in part due to the shortage of lecturers in universities as well as the heavy workload which hinders participation in industry attachment programs. On average, faculty spends 6-18 hours per week teaching, compared to 6-8 hours in international research universities1. This results in lecturers who may be knowledgeable in the subject matter, but lack working experience and may be unaware of the evolving needs of industries. This in turn gives rise to graduates who possess skill sets that are not entirely relevant or readily applicable to industry.

While there currently exists industry-academia collaboration, nevertheless, the ecosystem for such collaboration is still nascent. Among the collaborative programs currently in place are:

i. 3P Professional Certification Program – This program was initiated by MOHE to conduct training and work-based programs

jointly with Prestariang Systems Sdn Bhd (PSSB) on vendor-based certification from Microsoft, Cisco, IBM, Sun Microsystems, Oracle and CompTIA. At the end of the training program, graduates were given certificates by these companies to enhance their employability.

ii. Industrial placement for graduate and lecturers in the banking industry – Collaboration with Bank Negara Malaysia to conduct the Financial Sector talent

Enrichment Program (FSTEP) where graduates are given training in financial institutions for a period of 12 months as well as Internship/Research Experience Program for lecturers on one or two year basis

– Cooperating with Standard Chartered bank, OCBC Bank for graduate training program and financial research activities

– Cooperating with HSBC in communication and soft skills programs iii. Graduate Placement in construction industry

1Malaysia and the Knowledge Economy: Building a World-Class Higher Education System, World Bank


30

– Cooperating with the Construction Industry Development Board (CIBD) and two construction companies, i.e. Bina Puri Berhad and Gamuda Berhad in graduate training programs

iv. Placement of graduates in Small Medium Enterprises (SMEs) – Working with SMIDEC and UKM in apprenticeship program under the SMEs to

inculcate entrepreneurial interests among graduates v. Campus Connect Program with Infosys Technologies Limited, India

– Assimilating Infosys Foundation Program to IPTA to increase graduates capabilities in ICT

vi. Satnam campus link – Conducting “train-the-trainer” for lecturers in public universities

The success of such programs ranges across universities and is dependent, among other things, on the faculty in charge of championing the cause as well as the industries themselves. While guidelines have been set by the universities on the duration of the industrial training (between two to six months) as well as the criteria on the type of skills/knowledge that should be acquired during the training, at times students are not given the relevant training by the industry but rather perform merely administrative tasks. The situation is further aggravated by the fact that industries currently have little incentive to collaborate with universities, given that most enterprises are driven by production and not innovation.

The lack of industry-academia collaboration also gives rise to a mismatch in expectations between employers, universities and graduates in the job placement process. Most industry members expect universities to bear all teaching responsibility and are unwilling to train graduates. They also have unrealistic expectations of young graduates. For example, some employers expect graduates to enter the workforce with skill sets specific to the job requirement where, in reality, a university degree provides a broad-based education. On the other hand, graduates may also be unwilling to compromise expectations in their search for a job. For example, graduates may be unwilling to relocate for work, or may not take up jobs they perceive to be menial.

Heavy monetary investment has been made by the Government to address graduate employability. Between 2001 and 2005, the Government spent RM 13.4 Billion on tertiary education. Between 2006 and 2010 a further RM 16.1 Billion has been allocated under the 9th Malaysia Plan. On top of that, to alleviate challenges in graduate employability, the Government has channeled a significant amount of public funds towards this cause, as described in Exhibit 5.5.3. Many programs have been launched, including the Industrial Skills Enhancement Program (INSEP) and Graduate Retraining Scheme (GRS). While these programs have seen some success in retraining graduates and placing them in jobs, they merely address the current state of unemployed graduates, rather than addressing the root causes of graduate unemployment.


31

Exhibit 5.5.3: Government expenditure to address graduate employability

161161

80

135

68

299

0

100

200

300

20031 20052 20073 200942001-20021

RM Mn

20063

Government allocation on programs to address graduate employability

1. Including letter-writing, data searching, and organizing appointments 2. Allocation given to MOHR 3. RM 35.1 Mn allocated to MOF for Industrial Skills Enhancement Program (INSEP); RM 100 Mn allocated to MOHR 4. Allocated to MOF for Workforce Technical Transformation Program (WTTP, for SPM-leavers) and INSEP 5. RM 75 Mn allocated to MOHR for graduate retraining scheme and RM 86.0 Mn allocated to skills development centers under 2nd stimulus packageSource: Tracer Study, MOHE; EPU workshop; EPU; MOF; MOHR; 9th Malaysia Plan

This scenario points to the need to examine the current structure of universities and to inspect further areas in which universities may address to ensure their graduates that are employable. This report has identified performance management of universities and autonomy as two critical areas that can be further refined.

Root causes of situation

Performance Management of Universities

Graduate employability has been tracked through Tracer Studies since 2002. The 2004 Tracer study stated that the study was conducted with three objectives, that is, to track:

i. Employability and marketability of graduates from local higher education institutes ii. Effectiveness of academic programs and its delivery system iii. Level of use and effectiveness of amenities and services provided by institutions (e.g.,

career counselling)

While data collected has been useful in assessing trends in graduate employability, it is unclear if the second and third objectives are being met. There is no clear consequence to universities or its faculty for below-average graduate employment rates.

Currently, all public universities are required to submit their annual financial report on their overall performance, which is tabled at the Parliament for approval. In 2007, the MOHE set up a Program Management Office (PMO) to track and assess performance of all universities. Since then, they have identified seven strategic thrusts and 18 critical projects set out by the National Higher Education Strategic Plan 2007-2020, as detailed out in Exhibit 5.5.4. At the point of this report, targets are being developed for the universities (expected to be completed by May 2009) and implications of the assessment have yet to be formalized. It is unclear if a universities’ performance will impact student admission, budget allocation and/or universities’ top management or faculty.


32

Exhibit 5.5.4: Performance management system developed by MOHE’s PMO

Source: MOHE

Reinforcing delivery systems of MoHE7

Enculturation of lifelong learning6

Intensifying internationalization5

Strengthening of higher education institutions

4

Enhancing research and innovation3

Improving the quality of teaching and learning

2

Widening of access and increasing equity

1

18

17

16

15

14

13

12

11

10

987654321Strategic Thrusts/Projects

1. Governance2. Leadership3. Academia4. Teaching & Learning5. R&D6. Internationalization

7. Graduate Employability8. IPTS9. Holistic Student Development10. APEX11. MyBrain1512. Lifelong Learning

13. Academic Audit14. PTPTN15. Human Capital Development Fund16. MOHE Delivery System17. Polytechnic and Community Colleges18. Industry & Academia

Critical projects:

Autonomy of Universities

This report recognizes that the National Higher Education Strategic Plan 2007-2020 has set out plans to grant greater autonomy to universities, and has identified several key areas where universities have limited or no autonomy.

Firstly, universities have limited autonomy in determining the students whom they admit. Student admission is processed centrally by MOHE, and universities are unable to admit/deny admission to any student, as described in Exhibit 5.5.5. Universities advise MOHE on student capacity and the minimum entry criteria for the courses offered, but may not otherwise intervene in the selection of students. Thus, universities have limited control over the quality of students whom they admit, and by extrapolation, have limited ability to determine employability of their graduates.


33

Exhibit 5.5.5: Student admission process

Applicants

UPU1

Uni 1 Uni 2 Uni 20...

High performance students

Lower performance students

Applicant applies online through UPU1

• Rank eight university / course according to preference

UPU processes applications and allocates students to universities

• Ascertain each applicant's merit points2

• Rank applicants according to merit points– Screen applicants to ensure compliance with general and

course-specific entrance criteria• Allocate students to universities based on merit and capacity

Successful applicants receive an offer to a specific university and course

Unsuccessful applicants may appeal to be reconsidered• Allowed to apply for additional two programs

Universities to enroll students allocated to them

1. Unit Pusat Universiti 2. 90% academic achievement, 10% co-curricular participationSource: Bahagian Pengurusan Kemasukan Pelajar, MOHE

1

2

3

4

Secondly, faculties are compensated based on the Government’s fixed salary scale. This inhibits universities from attracting and retaining talent, as private sector jobs may offer better compensation. Some progress has been made through the ability for universities to hire faculty under contract for service, where a university may hire a specialist1 and compensate him/her up to a maximum of RM 60,000 per month. However, this provision is limiting, as it only extends to specialists, and universities will have to compensate these specialists at their own expense.

Along the same lines, appointments are seen as secured jobs and it is difficult to terminate non-performing staff, especially faculty with tenure where they have the contractual right not to have their position terminated without just cause. Moreover, regardless of performance, salary increases are almost automatic. Career progression is also currently based on academic/research output and does not reflect administrative or managerial duties that are performed by faculty. More importantly, this promotion process lacks focus on the quality and outcome of teaching. This academia-focused promotion system results in limited career progression for faculty who choose to focus on teaching only and have minimal or no research activities. While MOHE has recognized the need for two promotion tracks, i.e. one focusing on academic/research and another on the teaching/practical industry experience, this is still not widely practiced in many universities.

Thirdly, universities have little influence over their top management. Candidates for the Vice Chancellor position are sought out by a search committee. The search committee is comprised of seven members – five permanent members and two co-opted members who are selected based on the nature of the university. Members may include CEOs from varied industries, and former Vice Chancellors, but do not include representatives from the university. The search committee short-lists and identifies potential candidates and advises the Minister of Higher Education on whom to appoint to the position. The Minister then formally appoints the Vice Chancellor. The university is not involved in the selection process, and the position is not publicly advertised.

1 A specialist may be a person who is a member of a national or international professional body, or is a Nobel Laureate winner, or a lecturer from a top university or otherwise a widely accepted specialist


34

5.6: Increasing Low Skilled Foreign Labour and Decreasing Expatriates There are currently two classifications of foreign workers in Malaysia namely expatriates – foreign workers who earn more than RM5,000 per month1 and low skilled foreign labour – foreign workers who earn less than RM5,000 a month. A notable difference between the policies pertaining to these two groups of foreign workers is that expatriate employment is permitted for all sectors while foreign low skilled labourers are only allowed in four selected industries and can only be sourced from selected countries. Exhibit 5.6.1 shows a comparison of the classification of foreign talent in Malaysia against Singapore and Australia.

Exhibit 5.6.1: Comparison of classification of foreign talent

Malaysia: Differentiate based on income categories

Malaysia: Differentiate based on income categories

Singapore: Differentiate based on income categories

Singapore: Differentiate based on income categories

Australia: Differentiate by specific skills

Australia: Differentiate by specific skills

Expatriate

Middle income

expatriates

Foreign unskilled

labor

• Defined as foreign talent earning > S$2.5k

• Employment allowed for all sectors with no quotas or prerequisites

• Foreign talent earning S$1.8K –S$2.5K

• Assessed on a point-based system

• Quota of 10% of total workforce• However, sectors that allow for

low-skilled foreign labor can raise quota to 25%2

• Foreign labor earning < S$1.8K• Limited to selected source

countries and occupations/sectors

• Subject to dependency ceiling and levies

• Target specific skills, does not differentiate by income levels

• Two main types of visas– Temporary Business Long

Stay Visa... 3 months to 4 years... Need for employer

sponsorship... Allowed for both skilled

and low skilled occupation

– Permanent Residence Visa... To foreign talent with

specific skills... Point based system

with heavy weightage on skills

• Defined as foreign talent earning > RM5k1

• Employment allowed for all sectors but quota and prerequisites apply

• No specific guidelines for foreign talent with income < RM5K that do not fall under category of foreign unskilled labor

• Foreign labor earning < RM5K• Limited to selected source

countries and occupations/sectors

• Subject to quotas and levies

1. Increase from RM3,000 in January 2009 2. With proportionate reduction in quota of low skilled laborSource: Immigration Department of Malaysia, Singapore and Australia

The inflow of expatriates and foreign labour has always been heavily scrutinized due to its perceived threat to the local workforce. Various policies have been put in place to manage and control the inflow of expatriates and foreign labour, which has inadvertently resulted in a decline in the number of expatriates, while increasing the influx of foreign labour.

Expatriates

As shown in Exhibit 5.6.2, Malaysia has been experiencing a steady decline in the number of expatriates from 83,000 in the year 2000 to 38,000 in 2008. Most of these expatriates work in the manufacturing or services sectors.

1 Increased from RM3,000 in January 2009


35

Exhibit 5.6.2: Amount of expatriates by sectors (2000-2008)

0

10,000

20,000

30,000

40,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

Services

Manufacturing

# of workers

Source: DOS, Malaysia Immigration Department

Total workers('000)83 75 66 55 43 33 33 36 38

Others Construction

Education

Several key factors contribute to the drop in number of expatriates, including expatriate policies that are restrictive or cumbersome and current economic activities that do no require skilled foreign talent. Other factors include sub-par social infrastructure, negative perception of Malaysia overseas and lack of opportunity for foreigners to stay.

As a result, employers are unable to fully tap the pool of highly-skilled foreign talent, as evidenced by the low percentage of expatriates out of total workforce in Malaysia compared to other OECD countries as shown in Exhibit 5.6.3. This may hamper both the economic growth of companies and may be a disincentive to foreign direct investments.

Exhibit 5.6.3: Percentage of expatriate over total labour force (2005)

9.3

4.2

2.8

2.0

1.31.21.10.70.50.40.3

0

2

4

6

8

10

IrelandUnited Kingdom

Netherlands

GermanySpain Australia FranceJapan KoreaMalaysia

Percentage (%)

Italy

Note: Expatriate for OECD countries defined as foreign worker with tertiary education; Expatriate for Malaysia defined as foreign workers with salary > RM 3000 Expatriate total for OECD companies does not include expatriate from non OECD countries

Source: OECD Statistics, Malaysia Department of Statistics

Total expatriates('000) 33 280 130 140 120 300 350 870 210 1 270 190

Policy

Multiple application criteria are imposed on the hiring of expatriates, such as the age of expatriates and minimum paid-up capital of employers, which hamper the hiring of expatriates. A benchmark of Singapore’s and Hong Kong’s expatriate employment policy reinforces this point as shown in Exhibit 5.6.4. Furthermore, the tax rate (28% for non-residents in Malaysia) which is significantly


36

higher than in developed Asian peers such as Singapore (15% for non-residents) and Hong Kong (16% flat tax rate); serve as a disincentive for expatriates to come into the country.

Exhibit 5.6.4: Benchmark of Singapore and Hong Kong expatriate employment policy

Application requirement

Employment pass linked to employer

• "Cooling Off" period3 required when changing employer

– Employee required to return to home country for 6 month and not enter Malaysia for that duration

• Application of new employment pass required

1. ICT and Contract R&D companies have quota tied to employment of local residents 2. Includes good education background, salary commensurate with industry, genuine job vacancy, confirmed employment and pass security check 3. Exemption allowed if contract with employer have expired and if previous employer consent for change in employmentSource: Immigration departments of Malaysia, Singapore and Hong Kong; Press search; BCG Analysis

MalaysiaMalaysia SingaporeSingapore Hong KongHong Kong

Employment pass linked to employee

• Employee with Personalized employment pass able to change employment without applying for new pass

• Allowed to stay for 6 months in between jobs to evaluate opportunities

Inflexible industry specific requirements for work permit

• Quota on expatriate depends on sectors with no blanket rule

• Quota measured in terms of absolute numbers except for manufacturing related services1

– E.g., automatic approval of five key post for large manufacturing companies

• Quota exemption for MSC and Biotechcorp status companies only

Liberal expatriate work permit requirements

• No ceilings and levies for expatriate employment

• Only minimal requirements needed for permit application

– Minimum wage of SD$ 2500 and possess recognized qualifications

Employment pass linked to employee

• Employee allowed to apply for change of employment as long as previous eligibility criteria is fulfilled

Liberal expatriate work permit requirements• No ceilings and levies imposed• Only minimal terms of

employment2 required for expatriate assignment

• Continuity of residence permission for expatriates not subject to quota system but to the continuation of employment

Change of employment

.

Demand

As shown in Exhibit 5.6.5, current economic activities do not demand a high proportion of skilled foreign workers, since Malaysia is focused more on labour-intensive industries rather than R&D and knowledge intensive activities. Moreover, the number of multinational corporations operating in Malaysia significantly lags behind Singapore and Hong Kong

Exhibit 5.6.5: Benchmark of economic demand for expatriates

Malaysia lagging behind peers in terms of value chain presence...Malaysia lagging behind peers in terms of value chain presence...

...with limited companies spending on R&D...

...with limited companies spending on R&D...

...and lack of foreign companies in Malaysia

...and lack of foreign companies in Malaysia

4.7

5.1

5.45.5

4.0

4.5

5.0

5.5

Malaysia Taiwan Spore Hong Kong

Value Chain Breadth1

1 – Primarily involved in individual steps of the value chain e.g., production & resource extraction7 – Present across the entire value chain

4.2

4.64.8

5.1

4.0

4.5

5.0

5.5

Hong Kong

Malaysia Taiwan Spore

Company spending on R&D

1 – Do not spend money on research and development7 – Spend heavily on R&D relative to peers

4,232

8,512

13,259

0

5,000

10,000

15,000

Malaysia Hong Kong Singapore2

Number of foreign companies

1. Refers to the presence of the country across the whole value chainSource: Global Competitiveness Report 2008, Singapore Department of Statistics, Companies Commission Malaysia, Hong Kong Company Registrar

Score representations


37

Social Infrastructure

While Malaysia’s quality of life and social infrastructure is better than most South East Asian countries, its world ranking is still low. In the 2007 Mercer Quality of Life index, Malaysia is ranked 75th in the world, behind both Singapore (34th) and Hong Kong (70th). Among the criteria used in this ranking are the availability of education infrastructure, housing and security.

Perception

Malaysia experiences negative press overseas especially in terms of its crime rate and security levels, which negatively affects expatriates in their decision to move to Malaysia as their work destination. This is substantiated by the fact that crime and theft ranks 3rd (out of 15) for most problematic factor in doing business in Malaysia1.

Lack of Opportunity to Stay

Stringent permanent residency (PR) criteria make it difficult for expatriates to stay in Malaysia. PR status is not awarded based on skills but based on size of savings and investments or ties to Malaysian citizens (e.g., through marriage or family relations). The “Malaysia My Second Home” program has been relatively successful in attracting foreigners to the country, but participants are not allowed to engage in employment. The program is instead focused on promoting Malaysia as a retirement location for foreigners by offering them a multiple-entry social visit, initially for 10 years and subject to renewal.

Middle-income expatriates

The change of expatriate classification from a salary cut off of RM 3,000 to RM 5,000 per month in January 2009 has resulted in a void for skilled expatriates earning less than RM 5,000 per month. With the change in policy, there are no specific guidelines and corresponding employment pass to cater to foreign talent with income levels below RM 5,000 and who do not fall under the category of foreign unskilled labour. This category of expatriates would no longer be able to work in Malaysia, thereby leading to a loss of talent. Exhibit 5.6.6 reveals that a large proportion of foreign talent have salary levels below this RM 5,000 cut off point. A close examination of Singapore and Australia’s expatriate employment policy reveals specific provisions / programs to capture this category of skilled workers as seen in Exhibit 5.6.1.

1 Based on survey from 2008 Global Competitiveness Report


38

Exhibit 5.6.6: Average salary for professionals by sectors and nationality

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

C D KE F G H I J L M N

ForeignLocal

5,000

(RM)

A B

Large number of foreign talents will no longer be able to work in MalaysiaLarge number of foreign talents will no longer be able to work in Malaysia

A – AgricultureB – FishingC – Mining and QuarryingD – ManufacturingE – Electricity, Gas and Water SupplyF – ConstructionG - TradeH – Hotel and RestaurantsI – Transportation and StorageJ – Financial IntermediationK – Real EstateL – Public SectorM – EducationN – Health and Social Works

Source: NER 2008

No incentive for local talent to remain competitive as jobs are protected

Foreign talent earning <RM5K per

month will no longer be granted

employment permits going forward

Monthly salary of professionals by sectors (2007)

Low skilled foreign labour

On the flipside, the influx of low-skilled foreign labour has been on the rise as shown in Exhibit 5.6.7. The total number of foreign low-skilled workers has increased 5 times since 2000 to 2.1 million, with an additional 800,000 foreign labour estimated to be working illegally. This abundance of cheap foreign labour delays investments in mechanization and innovation, particularly in the agriculture and manufacturing sectors, thus hampering Malaysia’s ambition to move the economy up the value chain.

Exhibit 5.6.7: Number of foreign workers by sector

0

1,000

2,000

3,000

0%

5%

10%

15%

20%

410

1999

807

2000

850

2001

1,068

1,337

2003

1,470

2004

1,815

2005

1,869

2006 2007

ServicesMaidConstructionAgriculture1

Manufacturing

Foreign workers (‘000) % of total workforce

2002

1. Includes plantationSource: Department of Statistics, LFS (2004) EPU (2008), Narayanan (2007)

CAGR(’99-’07)

22%13%23%20%19%

Total = 20%

2,0455x increase since 1999

~800 add’lillegal

workers


39

In addition, the high reliance on unskilled foreign labour in several of these sectors has resulted in lower productivity. This is particularly true for the manufacturing, agriculture and construction sector as shown in Exhibit 5.6.8

Exhibit 5.6.8: High Reliance on unskilled foreign workers in several sectors

Agriculture

30%

Construction

8%

Services

0%

Mining & quarrying

18%

0%

80

50% % contributionto national GDP

0

100

2033%

Worker by origin (%), ‘07

60

40

Manufacturing

32%

100%

ForeignDomestic

Note: Foreign workers portion in services include maidsSource: EPU, Ministry of Home Affairs, BCG analysis

20%Contribution

to total employment

(11.3 Mn)

Average

14% 9% 57% 0.4%

Manufacturing, agriculture, and construction most reliant on unskilled foreign workers

Manufacturing, agriculture, and construction most reliant on unskilled foreign workers

Leading to low productivity and productivity growth across these sectors

Leading to low productivity and productivity growth across these sectors

Construction Oil & Gas

MalaysiaUS

Manufacturing

Services0

1,150

50

100

Agriculture

Productivity (Mn US$ at PPP, per ‘000 employees), ’07

-80%-61%

-73%-87%

1.0% 3.1% 4.0% 3.5% 2.4%Productivity growth (avg

’06-’07)

The increase in utilization of low skilled foreign labour can be attributed to several key shortcomings in Malaysia’s foreign labour policy:

Lack of strategic approach in controlling supply of foreign labour

Currently, non-uniformed and ambiguous quotas on foreign labour are set across different sectors. For example, quotas imposed on companies in the services industry depend on physical characteristics, such as the number of chairs in a restaurant, while for the manufacturing industry; the quota is dependent on the ratio of local to foreign workers. These non-uniformed quotas hamper enforcement efforts and are not linked to sector development strategies, such as moving up the value chain. Furthermore, employers may not appeal for an increase in the quota set.

Levies not effective in discouraging dependence on foreign labour

Malaysia imposes relatively low levies on foreign workers. For example, levies for workers in the manufacturing sector account for approximately 24% of average monthly wages compared to 52% in Singapore. Due to the availability of low cost labour, employers lack incentive to adopt mechanization and / or use higher skilled foreign labour. In addition, levies collected become direct revenue for the Government and are not channeled back to the industry in a manner that would enable them to reduce their dependency on foreign labour.

Lack of regulation of outsourcing companies

The lack of laws and regulations to govern the operations of outsourcing companies has lead to widespread abuse of the system. Originally, the concept was born to fill seasonal demand of workers, particularly for the manufacturing and construction sectors, as well as to serve companies with small demand for foreign labour. However, there have been many instances where outsourcing companies have not met their original purpose; for example, requiring employers to


40

take a minimum number of foreign labour for relatively lengthy periods. Furthermore, employers are also using outsourcing companies as an avenue to flaunt the quota on foreign labour imposed as these workers from the outsourcing companies fall under the employment of the outsourcing companies rather than the employers. While regulations are in place to address these issues -- for example the MOHA currently require outsourcing companies to submit a report detailing the employment and movement of their workers -- the prevalence of these acts of abuse shows that enforcement efforts can be enhanced.

Diaspora

To-date, Malaysia has approximately 350 000 to 800 000 diaspora working overseas with a significant amount of them being educated individuals as shown in Exhibit 5.6.9. Furthermore, most of the Malaysians living abroad are located in the ASEAN region and the emigration trend specifically to Australia is accelerating. While Malaysia does not have a very large Diaspora network like India or Taiwan, tapping into this fast growing network is still beneficial.

Exhibit 5.6.9: Statistics for Malaysian Diaspora

Most are in ASEANMost are in ASEAN Emigration acceleratingEmigration acceleratingEmigrants also tend to be

highly skilledEmigrants also tend to be

highly skilled

~8%

~32%

~20%

~40%

2000 census

Others

OECD

Brunei,Philippines,Indonesia

Singapore

Malaysians working abroad1

Malaysians living abroad2:

• as % of total population

1. According to Bernama.com, “Brain Gain Programme Incentives Will Be Improved” (July 3, 08); 2. According to Lucas (2008)Note: Data on breakdown by host country inferred from report text only – no figures availableSource: EPU commissioned study [Lucas (2008)], Bernama.com, Docquier and Marfouk (2005), Integrated Public Use Microdata Series (IPUMS), BCG estimates

Malaysians living overseasBreakdown by host country

785k

3.3%

~60k

~250k

~15k

~310k

Mainly Australia, US UK, Canada,

and NZ

0

2

4

6

’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05

+16%

Permanent arrivals into Australiaby Malaysian nationals (thousands)350k

~30-40k “professionals”

73% Chinese15% Indian7% others5% Bumi

0

10

20

30

40

50

60

70

8019

90

2000

1990

2000

1990

2000

EuropeN. AmericaPacificRim

Malaysian expatriates in OECD countriesby education level (‘000)

Tertiary

Secondary

Basic

The Brain Gain Malaysia program has provided a good start towards this end but the impact of the program is thus far limited due to its small scale. Exhibit 5.6.10 summarized the background, strategy and impact of the program


41

Exhibit 5.6.10: Summary of Brain Gain Program

• Managed by MOSTI, launched in Dec 06– Replaces Malaysia’s first brain gain program (“Returning Scientist”), introduced in 1995

• RM50 Mn allocation by 9MP

• To fast-track Malaysia's transition to an innovation-based economy

• Leverage Diaspora’s scientific, technological, and entrepreneurial talent for spawning innovation through incentive offerings for mutual benefit

– Target: Malaysian Diaspora and/or foreign Researchers, Scientists, Engineers and Technopreneurs(RSETs) residing abroad

– Priority industry clusters are: ICT, Biotechnology, Industry1, and Oceanography and Aerospace

• R&D collaboration (between overseas and local RSETs)• Distinguished Visitors (share expertise in advisory, supervisory or consultative capacity in short period)• Diaspora Innovation Partnership (to develop & commercialize new technology/product in Malaysia through

partnership with local industries)

• Sustenance / airfare / accommodation / medical Insurance• IP transfer (acquisition / licensing) cost• R&D / Prototype / Technology / Product Development cost

• As of end-2008, program has attracted 373 scientists on the network and 42 collaborations on R&D projects small compared to ~6000 Malaysian engineers & scientists working in US alone

Background

Mission

Incentive provided

Impact

Strategy

1. Advanced Material, Advanced Manufacturing, Nanotechnology and Alternative EnergyNote: Additional programs are available for local RSETs to access knowledge abroad, through International post-doctoral fellow ship and Back to Lab programsSource: MOSTI ICT R&D Workshop, press search, BCG estimates

Programs2

“Although the programme was on-going not many had responded... One reason may be the incentives and as such the

ministry is looking into the matter”

-Deputy HR Minister, Datuk Noraini Ahmad


42

5.7: Regulatory Framework and Institution Inhibiting Labour Market Efficiency Malaysia adopts three approaches for determining wages – through market forces, Collective Agreements and wage councils. Currently, there are 5.8 million workers in Malaysia who are permanent salaried workers, of which 600,000 (11%) are covered under collective agreements, 1.3 million (23%) covered under Wage Councils, and 3.9 million (66%) determined by market forces.

Collective Agreement System

The Industrial Relations Act 1967 allows for flexibility in the negotiation of Collective Agreements with only four items required to be set out in the contract:

i. Name of the parties

ii. Period for which the agreement shall be enforced

iii. Procedure for the modification and termination of the agreement

iv. Provision for the settlement of disputes, which will be arbitrated by the Industrial Court unless appropriate machinery exist by virtue of an agreement between both parties

Determination of other terms of employment is subject to negotiation as long as they are more favorable than the terms set in the Employment Act 1955. For example, working hours can be negotiated as long as it is not more than 48 hours a week as stipulated in the Employment Act. In addition, the period in which the clauses in the Collective Agreements can be renegotiated is also spelled out in the agreement.

However, in practice, negotiations between unions and employers usually result in less flexible agreements, particularly when the unions are strong. For example, Collective Agreements would include fixed annual increments and long salary scales which automatically award higher salaries to employees with longer tenure.

In the event of a dispute or deadlock in the collective bargaining process, the dispute is referred to the MOHR who would try to reconcile the differences between the two parties. This process is usually lengthy as there is no fixed timeline in the law for the Ministry to escalate the case to the Industrial Court. That being said, the Ministry have recently introduced internal timelines for the dispute escalation process but details of these guidelines are not made known to the public. If the reconciliation effort by MOHR fails, the Minister will decide whether to direct the case to the courts and, if so, the Industrial Court will step in to arbitrate. This process is shown in Exhibit 5.7.1. When this happens, the option of renegotiating the whole CA instead of the disputed articles only is available to both parties and can potentially further lengthen the settlement process.


43

Exhibit 5.7.1: Process of settling disputes for collective agreements

Negotiations between employers and unions

Industrial Relation Department to

reconcile differences

Industrial court to arbitrate and settle

disputes

Contracts to be deposited with the

Registrar and Industrial Court would take cognizance of the

agreement

If consensus cannot be reached

If consensus is reached

If consensus is reached

If consensus cannot be reached (only ~30% of cases

where reconciliation fail)

Significant backlog of cases resulting in

lengthy waiting period for settlement

Minister to deliberate on need for industrial court

to step in

No fixed timeline in law for reconciliation process before

referring case to Industrial Court2

Option of renegotiating whole

CA instead of disputed articles

only

Flexibility of hiring and firing

Businesses in Malaysia experience relatively inflexible hiring and firing practices. Malaysia lags its regional peers in flexibility of hiring and firing, including countries which do not have unemployment benefits, such as Singapore and Hong Kong. The cost of firing is also high, with an average 75 weeks of wages payable to the employee, as shown in Exhibit 5.7.2.

Exhibit 5.7.2: Malaysia’s ratings in hiring / firing practices and firing cost

Malaysia lagging peers in flexibility of hiring and firing...

Malaysia lagging peers in flexibility of hiring and firing...

... and have high firing cost compared to more developed countries

... and have high firing cost compared to more developed countries

4.4 4.44.6

5.45.8

4

5

6

7

4.1

Australia

4.3

Malaysia Vietnam Thailand Taiwan Hong Kong

Singapore

Hiring and firing practice index1

1 – Impeded by regulations7 – Flexibly determined by employers

91 87

6256

0

20

40

60

80

100

Taiwan Vietnam

75

Malaysia Hong Kong

Thailand

4

Australia

4

Singapore

Firing cost (weeks of wages)

1.Index that evaluates hiring and firing flexibilities 2. Assistance allocated in federal funding 3. Assistance funded in terms of unemployment insurance 4. Do not specifically provide unemployment benefits but assistance available to people who are suffering financial hardshipSource: Global Competitiveness Report 2008

Yes2 No Yes3 Yes3 Yes3 No4 No4Unemployment Benefits

One key reason for this is the inhibiting legal framework in Malaysia relating to the labour market. Currently, the Industrial Relations Act 1967 regulates trade relations between employer and


44

employees and covers all employees regardless of salary and job position. Therefore the Industrial Court has the jurisdiction to arbitrate all employment disputes. Section 20 of the Act allows for the termination of contract with just cause although the representation of just cause is not clearly defined. Instead, general guidelines have been developed from case law where rigorous requirements must be met prior to dismissal, as shown below:

Performance – Employers need to provide opportunities for performance improvement, with clear warning and timelines for performance review

Misconduct – Employers need to prove type of misconduct and if misconduct warrants dismissal

Redundancy – Employers need to prove type of redundancy in same occupation level and implement appropriate selection criteria for retrenching workers (E.g., Last-In-First-Out principle)

As a result, employers are more cautious in employment decisions since Industrial Court rulings can supersede provisions of the employment contract. For example, an employee can bring his case to the Industrial Court for unfair dismissal even though the contract provides for termination of employment with sufficient notice.

Limited updating of labour laws

There have also been limited unified revisions of labour laws. The lack of update and harmonization has resulted in limited legislation to facilitate flexibility and mobility in employment. For example, a supportive legal environment to facilitate part-time work, flexi-hours, tele-working, internships and other forms of practical training for students is currently lacking. Furthermore, ambiguities across the different labour laws are also evident. For instance, the Trade Union Act recognizes the formation of unions for workers but the Industrial Relation Act allows employers to reject the representation of their employees by certain unions (with the argument that those unions do not represent the majority of their workers.)


45

5.8: Limited concerted effort to address human capital development The Government of Malaysia recognizes the need to address human capital challenges. As such, multiple programs and initiatives have been launched to address human capital development and supply issues, both for the immediate and long term, as detailed in Exhibit 5.8.1.

Exhibit 5.8.1: Range of initiatives to address human capital development and supply issues

Ongoing

Initia-tives

Primary & Secondary Wages Foreign Labor / Women / Returning

MigrantsSkills training /

retraining

1. Department of Polytechnic and Community College EducationSource: Interviews, MPC Reports, Press Searches

Tertiary

PEMUDAH initiatives on expatriates employment• Simplification of immigration procedures• MOSTI Initiatives to attract foreign talentNational Brain Gain Program (NBGP)• Attract researchers and scientist from abroad through

collaboration programsStrengthening the National Brain Gain Program• Develop central database of the NBGP which contain

information on Malaysians abroad• Extend current incentives provided for Malaysians

residing abroadMalaysia "e-Xpats" services for MSC status companies

Initiatives to attract and retain women in the workforce • Panel of experts established to review labor legislations

laws – Part time work, flexi-hours, tele-working

General Incentives to reduce dependency on foreign labor• MITI / MIDA incentives to encourage automation• Capping number of foreign labor by economic sub-

sectors• Review conditions of hiring foreign workers

Malaysian Occupational Skills Development Masterplan

National Training programs and funds in place• National Dual Training

System• Modular training by

Human Resource Development Corporation

• Human Resource Development Fund

• SMIDEC grants• MITI / MIDA incentivesOther initiatives to improve skills• Provide skills training

through the 27 skills institute

• Establish 9 new skills training institutes

• Upgrade skills training institutes for youth training

• Incorporate in skills program social skills and social values

Inititatives to raise wages• Added 2 additional

occupations to be covered by the wage council

• Ongoing initiative to prepare guidelines for other private sector occupation not covered by the Wage Council

• Special task force set up by MOHR to evaluate feasibility of minimum wage

PLWSImplementation• Working committee

established to intensify implementation of PLWS

National Higher Education Action Plan

Institute benchmarking processes at all levels of education system

Relevant Programs• MSC Job Camp,

Graduate Trainee Program, Undergraduate Skills program

• Brain Gain and Split program

• MOSTI Human Capital Development Program

• MyBrain15 Program• Joint certification

programs• Annual industry-

academia dialogue• DPCCE1 Industry

Liaison Division

National Education Master plan

Relevant Initiatives• Review KBSR

and KBSM to strengthen adoption of student centered learning

• Implementation of "Program Khas Pensiswazahan Guru"

• Benchmark school systems against international standards

• Benchmark school curriculum against standards of UK, AUS and NZ

Masterplans

National Human Resources Development Master plan

While some of these programs and initiatives are reported to have gained some measure of success, the level of effectiveness and key performance indicators of most programs are generally unclear. There appears to be little or no concerted effort to regularly assess the success of these initiatives and / or improve on them.

Moreover, these programs and initiatives are rolled out by various Ministries and agencies, as detailed out in Exhibit 5.8.2. The current structure of Ministries appears to encourage a compartmentalized approach to human capital development, as there is little avenue, push, or incentive, for Ministries to collaborate. As a result, efforts and resources may overlap but with no clear indication of working towards common goals and outcomes.


46

Exhibit 5.8.2: Various Ministries and agencies involved in human capital development

Policy

Implementa-

tion

Database/ Support

Primary & Secondary Wages Foreign Labor / Women / Returning

MigrantsSkills training /

retraining

Foreign Labor Taskforce • Consist of EPU, MOHR, MITI, MOHA, MOA, MOPIC,

CIDB• Formulate policies & strategies on foreign labor

One Stop Center for Foreign Labor ApplicationMOHR and MOHA

• Approve/Reject application for services sectorCIDB

• Approve/Reject application for construction sector Ministry of Agriculture and Plantation and Commodities

• Approve/Reject application for agriculture and plantation sector

MITI• Approve/Reject application for manufacturing sector

Health Ministry• Approve/Reject application for healthcare sector

Enforcement agencies• Immigration Department• Jabatan Tenaga Kerja (MOHR)

MOHR• Determine

occupations that needs wage guidelines

– Commision of Inquiry

Wage Council• Conduct studies/

interviews to determine 'fair' wages

• Consist of representatives from labor union and employers

National Institute of Human Resources (ISMK)• Comprehensive HR Management Database containing

– Wages, based on job categories, sectoral, regional and international comparison– Workforce Profiles– Employment analysis and job classification– Requirements of skills training

EPU• Develop National Human Resources Master Plan

MOHR• Develop master plan

for skills development and training

Department of Skills Development (DSD)

• Develop the National Occupation Skills and Standard (NOSS)

• Award the Malaysian Skills Certificate

• Prepare quality assurance system for public and private training providers

MOE• Education

Master plan• Responsible

for determining the curriculum of primary and secondary schools

• Maintain quality and supply of teachers

• Manage centralized examinations

Compile database on students/ graduates

MOHE• National Higher

Education Action Plan

• Responsible for maintaining the standard of public universities including its curriculum

• Regulate private univerisities/ learning institutions including providing accreditations

Compile database on students/graduates

National Advisory Council on Education and Training• Single platform consisting of MOE, MOHE and MOHR

Source: Interviews, MPC Reports

Ministry of Women and Family Development• Responsible for labor affairs pertaining to women

MPC• Provides training to

companies to increase productivity

MPC• Implementation

of PLWS

MOSTI• Attract returning migrants/expats – Brain Gain Program

Tertiary

It is important to note that the Government has made an effort to ensure coordination in education, training and employment through the formation of the National Advisory Council for Education and Training (NACET), as detailed in Exhibit 5.8.3. This Council has the authority to create policies in education and training, and is to act as a platform for discussion among Ministries and the private sector.

Exhibit 5.8.3: National Advisory Council for Education and Training

• Chaired by Deputy Prime Minister, EPU as Secretariat• Ministers and ministry officials involved in education, training and human resource• Private sector representatives to be a part of focus groups

Description• Organization with the highest authority to create policies in education and training, set up in 2007• Acts as a platform for discussion between public and private sector• To meet at least three times a year. To date, two meetings held

Objective • Determine the direction of education and training to ensure human capital development is aligned with industry needs

Five focus groups formed

Education• Headed by MOE

Lifelong learning• Jointly headed by

MOHR and MOHE

Higher education• Headed by MOHE

Skills Training• Headed by MOHR

Reference themes of focus groups

• To suggest policies and strategies to enhance human capital development and to project employment needs• To coordinate efforts by public and private sector• To suggest opportunities for improvement in the delivery of education and training• To investigate all issues pertaining to focus group in a comprehensive and sectoral-based manner

Functions and

responsibili-ties

• Introduce policies and strategies for human capital development• Coordinate efforts in development of education, training and lifelong learning• Implement measures to improve delivery system of education and training• Monitor implementation of decisions made by the Council

National Employment Projection

• Headed by EPU

1. National Advisory Council for Education and TrainingSource: EPU

Members


47

While the objective of NACET is meant to ensure alignment in education, training and employment, it is not clear whether NACET has been fully leveraged, as it has only resided twice since it was formed. The proposed meetings to be held three times a year may be insufficient to ensure comprehensive alignment and strategy planning. Furthermore, it is unclear if each focus group is delivering on its required responsibilities. For example, our stakeholder engagement has revealed that the focus group on employment projection has not been fully leveraged, as sub-sectoral demand projection has not been completed. More recently however, the government has established the Cabinet Committee for Human Capital Development with NACET being folded under this Committee.

Furthermore, the National Human Resources Institute or ISMK has been under utilized. ISMK was formed to gather and manage a comprehensive HR database including data on demand and supply of labour, wages and work profiles but it remains unclear whether they have delivered on their mandate. An important reason for this is the lack of resources and leadership to facilitate the operations of the institute and limited platforms that leverage the expertise of this institute


48

Part 3: Options for Reform

5.9: Produce and Maintain Quality of Teaching Workforce Two key levers have been identified that must be prioritized and addressed if Malaysia is to achieve a tangible improvement in the quality of its teaching workforce:

i. Improving leadership at schools

ii. Enhancing the quality of new teachers

This section puts forward specific programs that, if properly implemented, will enable Malaysia to address these levers, and move from a situation where:

i. Significance of school leadership (principals) in improving performance of teachers and schools is underplayed

ii. There is a lack of feedback and performance culture among teachers

iii. Teaching is seen as a low status profession and an option of last resort for graduates

iv. There is an inability to hire high quality personnel or foreign talents

To a new state of affairs where:

i. School leaders are motivated and accountable and can lift the performance of teachers and schools

ii. There is a rich and constructive feedback environment for teachers (i.e., from Principals, peers, students and parents)

iii. Malaysia’s best and brightest see teaching as an attractive option

iv. There is open-ess and support for quality teachers and qualified foreigners to enter the profession

Improving leadership at schools

This report recommends a comprehensive set of measures to improve school leadership that is expected to drive significant cultural changes related to performance and development.

The cornerstone of the proposed approach is to have all new Principals work under a performance-based contract. New Principals will receive a three-year contract that offers a base salary equivalent to that of a senior teacher, complemented by a significant variable part1 based on meeting clear performance targets. Rewards can be adjusted upwards for more challenging positions, for example in rural schools. Existing Principals could be offered to participate in the program on a voluntary basis. They will keep their salaries and receive a bonus based on meeting their KPIs.

The proposed system requires that clear KPIs are put in place to measure the performance of Principals, with annual performance reviews by a panel of independent experts. Examples of

1 Variable salary could be the difference between senior teacher and Principal salary and should be adjusted upward based on additional years of experience (and meeting KPIs)


49

these KPIs include improvements in average student performance, improvements in staff morale and reduction in student drop out rates and absenteeism. The target set for each school should differ to reflect specific situation of each school. The proposed program also establishes clear consequences of underperformance, whereby Principals who do not meet agreed upon KPIs after three consecutive years revert back to teaching1.

The program should provide more autonomy to these Principals. For example, Principals should be given the opportunity to provide their opinion in the selection of some strong performing teachers to support improvement in their schools. Performance-based contract for Principals must also ensure that additional coaching and mentoring support is offered to participating Principals. Mentoring is one of the most effective leadership development mechanisms. Many successful Principals cite guidance from community and peers as a critical success factor in their development. Mentoring will also address Principal “isolation” and provides access to learning from other sectors through interaction with community and business leaders.

To ensure the success of mentoring for Principals, it is important to identify the needs of Principals (e.g., finances, strategic leadership). It is recommended that executive coaches or experienced peers be made available to, and are matched with, the best Principals under performance based contracts. Mentors should be offered induction training and on-going support.

One of the critical tasks for Principals under this performance-based contract will be to instill a school culture that promotes constructive feedback for teachers. This can be achieved through multiple means, such as MOE audit, adjusted student outcomes and performance, regular student and parent feedback, and peer reviews.

Another important task for Principals is to develop a mentoring culture in schools. Mentoring has been shown in benchmark countries to improve teacher motivation and retention, as well as student outcomes. It also benefits the mentors, by re-connecting them with the basics of teaching, and providing an environment for self-reflection on their own work practices. This report therefore suggests introducing an induction mentoring program for all new teachers during the first two years of teaching. Such a program can offer high-impact, peer-to-peer professional development.

In the teacher induction mentoring program, new teachers will be assigned to an experienced teacher as a mentor. MOE should design relationship parameters, providing guidelines on the mentoring/ coaching relationship, including meeting frequency and confidentiality agreement. For this program to be successful, mentors will need to undergo induction training.

Exhibits 5.9.1 and Exhibit 5.9.2 show suggested timelines that can serve as guideline for implementation.

Exhibit 5.9.1: Performance based contracts for Principals - implementation guideline 1 Under the performance contract, the salary is fixed at a senior teacher level, and additional income is upon achievement of KPIs. E.g. assume salary of senior teacher is RM4,000, incremental RM2,000 reward only if Principal meets his KPIs. Should he / she not meet his / her KPI for 3 consecutive years, the Principal reverts back to his / her senior teacher position with a RM4,000 salary


50

14

2009

MarFebJanDecNovOctSepAugJulJunMayApr NovOctSepAugJulJunMay DecApr

2010

Pilot with ~100 new principals in cluster schools

Obtain buy-in from key stakeholders, e.g. unions, MOE

• Design training course for mentors

Activity

• Conduct regular project evaluation

National roll-out open to all new and existing principals

• Design relationship parameters• Establish a search and matching process

Assign project management resources within MOUto coordinate implementation

• Define key roles and responsibilities• Recruit or re-assign staff

Define operational features of scheme• Set KPIs for participating principals

and develop principal Scorecard• Develop surveys and other data collection

methods• Develop remuneration scheme• Develop procedures to re-assign

underperforming principals to smaller schools• Establish review panel of experts• Determine level of autonomy for principals

e.g. to recruit teachersAssign mentors to top performing principals

• Identify needs of principals

Start pilot

Start national roll out

Exhibit 5.9.2: Induction mentoring for new teachers - implementation guideline

2009 2010 2011 2012

Q4Q3 Q4 Q1 Q2 Q3Q2 Q1Q4Q3Q2Q1 Q4Q2 Q3

Define operational features of program

• Recruit or re-assign staff• Define key roles and responsibilities

Assign project management resources within MOE to coordinate implementation

National roll-out

Activity

Conduct regular program evaluation

• MOE to ensure transfer of knowledge and adoption of best practices

Implement pilot at 100 schools

• Design induction training course and on-going support mechanisms to mentors

• Design relationship parameters, e.g. meeting frequency, confidentiality terms

Indentify experienced, motivated mentors

Start national roll out

Start pilot

80% of schools have adopted mentoring

model

Enhancing the quality of new teachers

The second key initiative that is put forward and that can be implemented immediately is to launch “Teach for Malaysia”. This program, based on the success of “Teach for America” and a number of similar programs in other parts of the world (refer to Exhibit 5.9.3), aims to rebrand teaching as a career of choice.


51

Exhibit 5.9.3: Teach for All – locations around the world

A new organization, “Teach for All” has recently been established (2007) by the Clinton Global Initiative to support aspiring countries with similar programs, and its expertise can be leveraged if Malaysia were to set up its own program.

“Teach for Malaysia” will target the best and brightest Malaysian graduates to teach for two years at under-performing schools. Participating graduates should be placed at underperforming schools as these are the schools that most need motivated, inspirational and high quality teachers.

“Teach for Malaysia” should be established as an independent non-profit organization to establish the image of an elite program that is independent from the MOE. In India and the US, this program is highly competitive – only 5-15% of applicants are selected (refer to Exhibit 5.9.4). The salaries of teachers under this program will nevertheless be paid by the MOE and are set at the same level as for regular teachers.

Exhibit 5.9.4: Teach for India and America a highly competitive program

Teach for all ProgramTeach for all Program

SuccessfulCandidates

(2008)

SuccessfulCandidates

(2008) % successful% successful

~15%

~5%

Applicants(2008)

Applicants(2008)

25,000

2,000

3,700

100

Source: Teach for America and Teach of India websites


52

Participating graduates will enter a fast-track training program under which they will receive intensive training in the latest proven teaching methods. They will also undergo continuous personal mentoring and coaching, as well as peer support over the two years. Additional training in leadership development will be provided through management training and extensive networking opportunities with leading corporations. Corporate sponsorship will in fact be a key success lever. Participating corporations are expected to defer potential offers to graduates for a two-year period to enable them to participate in the “Teach for Malaysia” program.

The experience from America shows that corporations are very willing to participate in the program as it enhances their own reputation while also delivering them high quality people with very relevant experience. The program will also create a powerful alumni network that can further strengthen its reputation to future graduates and contribute to broader educational reform. Exhibit 5.9.5 shows how “Teach for Malaysia” can create a virtuous cycle of success for the teaching profession.

Exhibit 5.9.5: “Teach for Malaysia” will create virtuous cycle for the teaching profession

Professional Status

High qualityapplicants to

teaching

EffectiveTeacher education

High quality teaching

1. Xu, Z., Hannaway, J. and Taylor, C. Making a Difference?: The Effects of Teach For America in High School, The Urban Institute and CALDER, March 2008; 2. McKinsey & Company, How the world's best performing school systems come out on top, September 2007; IPSE, An evaluation of innovative approaches to teacher training on the Teach First program, 2006.

Elite focus raises the profile and attractiveness of teaching among university graduates

Status of the profession is a major reason new

teachers enter education

Teachers improve students' results1

Mirror top performing education systems by selecting applicants

prior to training based on academic and personal characteristics2

Empowering graduates to excel in

the classroom through training and

on-going support

Schools also benefit

Graduates sent to under performing schools or schools where Principals have more

autonomy under performance contract


53

Exhibits 5.9.6 shows a suggested timelines that can serve as guideline for implementation

Exhibit 5.9.6: “Teach for Malaysia” - implementation guideline

Jul Sep Oct Nov DecAugNov Apr May JunOct Dec Jan Feb MarSep

2009 2010

Apr May Jun Jul Aug

• Develop partnership structures (e.g. MOE, corporates, schools)

Establish partnership with Teach for All

Design operational modules• Recruiting activities and selection processes• Placement activities: (Identify and engage

schools and match students)

• Alumni relationsStart recruiting cycle for year one

Provide two-month training for selected graduates

Assign graduates to schools

• Education and support ( Course design, creation of detailed content)

ActivitySet up organization

• Define organizational structure• Determine key roles and responsibilities

and hire staff• Determine board set-up and other

organizational structures

Students start teaching

Year one intake

Policy implications

The recommendations put forth in this section will have numerous policy implications, as described in Exhibit 5.9.7

Exhibit 5.9.7: Policy implications for recommendations on improving school leadership and teaching workforce

Key recommendations ...Key recommendations ...

1. Leadership capacity building via performance-based contracts

2. Lifting quality of supply of new teachers

• Launch "Teach for Malaysia"

• Allow for experienced hires, foreign teachers

... and policy implications... and policy implications

1. Introduction of a performance-based system for Principals with clear rewards and implications for performance

• Appointment of new principals and rewards for existing principals to be based on achievement of specific KPIs

• KPIs should reflect desired outcome (e.g., improvement in student performance)

– Improvement in overall passing rate– Improvement in average scores for key

examinations– Reduction in drop-out rates or absenteeism

2. Creation of contract posts for teachers under MoE• Targeted at the best and brightest graduates to become

teachers for 2 years• Abolish age limitation for teachers • Allow foreign graduates/teachers to teach English, Math

and Science for 2 years


54

Beyond performance contracts for school principals and Teach for Malaysia, there needs to be medium to longer term measures to reform the education system, as described in Exhibit 5.9.8.

Exhibit 5.9.8: Mid to longer term educational reforms needed

• Leadership capacity building

• Lifting quality of supply

TeachingWorkforce

effectiveness

• Continue to actively shape quality of supply

• Embedding performance and development culture

• Expand differentiated rewards and recognition to sustain performance and development culture

• Trial/pilots of transformational workforce models

• Roll out of transformational workforce models

Recommended immediate

priority for the Govt.


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5.10: Improve Quality and Perception of Technical / Skills Education This chapter recommends a set of key programs, which, if properly implemented, can transform technical / skills education into a vibrant and mainstream education option. Together, these measures will enable Malaysia to move away from a situation where:

i. Technical / skills training is fragmented with multiple qualification systems and non-

uniformed curricula standards

ii. There is insufficient performance monitoring and poor quality control of technical / skills institutes

iii. Single Ministries have conflicting roles as owner and purchaser of technical / skills training

iv. Industry’s involvement in technical / skills education is limited

v. Many semi-skilled jobs are not covered under the National Occupational Skills Standards (NOSS) and do not require minimum qualifications

vi. Technical / skills education is regarded as an option of last resort for poorly performing students

To a system where:

i. There is one strong national qualification system

ii. Institutes are corporatized with owner and purchaser roles separated between Ministries

iii. The public sector institutes are encouraged and able to compete with the private sector

iv. Industry becomes an important paying customer of training institutes, and takes a leading role in curricula development and performance monitoring

v. The majority of semi-skilled jobs are covered under the NOSS and require a minimum qualification

vi. Technical / skills education is recognized as a valuable, mainstream higher education option


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Harmonize technical / skills training infrastructure

Exhibit 5.10.1 shows the proposed harmonized training infrastructure.

Exhibit 5.10.1: Harmonize public training infrastructure

p g

Other Ministries to purchase skills training1

Other Ministries to purchase skills training1

Single ownership/provider of skills training

Single ownership/provider of skills training

Single reference for certification, accreditation

and quality control

Single reference for certification, accreditation

and quality control

Separation of owner and purchaser roles will ultimately enhance quality of skills training institutes

Place all institutes under MoHR or MoHE; and transition

to corporatization

Malaysian Qualifications Agency (MQA) to standardize various qualification systems into one national qualification

system and ensure compliance with standard set

(by the respective training providers)

Ministries can also, purchase from private sector training providersSource: BCG Analysis

Ministry of Human Resources• E.g. retraining of workers to

enhance skills

Ministry of Youth & Sports• E.g. training for youth,

particularly school drop-outs to develop new skill sets

Others• E.g. training to up-skill Ministry's

own staff

Ministry of Rural & Regional Dev.

• E.g. skills training to rural community to build, develop entrepreneurs

As a first step this report suggests to harmonize the various qualification systems from different Ministries. The Malaysian Qualifications Agency (MQA), as the national body for accreditation and certification of higher education institutions, must as a priority rationalize the various qualifications systems into one national qualification system to ensure compliance with set standards. MQA must also ensure that all curricula of skills training institutes follow the National Occupations Skills Standards (NOSS) as well as assess the curricula of polytechnics and community colleges to determine the possibility and extent to which it may also be based on the NOSS. This report also envisions one national agency that will be responsible for quality control of technical / skills institutes through regular audits and annual performance reviews. This body could either be under MQA or could be under an independent Ministry such as the Ministry of Finance. This body will also be responsible for ensuring that comprehensive information on performance of the institutes is easily accessible to prospective and current students.

As a second step, it is suggested to separate the ownership and management of the skills training institutes. The different institutes under the various Ministries will be placed under an independent body, e.g. MOHE or MOHR. The institutes will subsequently be corporatized in stages. An overview of corporatization is offered in Exhibit 5.10.2. Corporatization will enable technical / skills training institutes to transition to being more competitive/ commercially-focused entities.


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Exhibit 5.10.2: Definition and implications of Corporatization

Definition of corporatization

A Structural reform process which changes the conditions under which a department of the government operates

• Run on a commercial basis in a competitive environment• Government remain as owner (by being a majority shareholder), to continue to provide

broad direction by setting key financial and non financial performance targets and community service obligations

Objectives of corporatization

• Enhance efficiency of operations by limiting level of bureaucracy• Improve economic performance of organizations through competitive environment• Improve public accountability through strict performance management process • Provide incentives for corporation leaders to perform (e.g., through performance based

contracts)

Examples• POS Malaysia• Keretapi Tanah Melayu Berhad (KTMB)• National Heart Institute (IJN)• Inland Revenue Board (IRB)

Implications for Skill Training

Institutes

• Skills training institute to have greater autonomy over operating decisions (e.g., recruiting, curriculum) and operates on a commercial basis

• Employees that chose to continue working for these institutes would have to leave civil service

– Salaries to be determined by skills training institutes – Pension to be given to those that qualify upon the corporatization process1

– Staff to be placed under EPF scheme after corporatization• Government (who is the sole / majority shareholder) to focus on regulatory framework

instead of day to day operations of these institutes

1. Subject to the Pensions Act 1980

The future role of the other Ministries that currently own training institutes will be as purchaser of training places in a free market. It is important to note that Ministries may also purchase training places in private institutes. This will ultimately improve the overall quality of technical / skills education as institutes are required to compete for students. An annual fixed capital grant will still be provided to public institutes to fund basic infrastructure. However, additional operational funding will be linked to KPIs such as graduate employability and the ability to attract paying customers. Through the funding lever, the Government should prioritize investments in higher level skills education. This is described pictorially in Exhibit 5.10.3.

Exhibit 5.10.3: Ministries to “purchase” training from corporatized institutions and private institutions to encourage competition

MOF

Ministries

TrainingBudget

Corporatized skills training institutes

MoRRD MoH

MoYS Others

Private institutions

TrainingServices

TrainingServices

TrainingSpend

TrainingSpend

MOHR / MOHEFunding

Allocate funds from MOF to respective institutes

•Capital grant to fund basic infrastructure•Additional funding linked to KPIs

Owner

Training providers

Purchaser


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In order to ensure greater accountability and allow for better performance, these technical / skills training institutes should be granted more flexibility and autonomy. Institutes should be given the freedom to recruit their own staff, set salary levels and tailor curricula to meet the particular needs of their target audiences. They will have an independent board.

Exhibit 5.10.4 shows potential key performance indicators for the future purchaser of skills training, i.e. the various Ministries that currently have their own training institutes. Exhibit 5.10.5 portrays potential key performance indicators for the proposed future owner of skills training institutes, i.e. the Ministry of Finance or another independent body such as EPU.

Exhibit 5.10.4: Purchaser key performance indicators

Performance

Efficiency

Effectiveness

Process efficiency

Price/AHC

Competencies delivered to

priorities

Quality Regulation

Outcome

Stakeholder

GovtStakeholder

Industry

Students

Providers

• # days contracts competed in advance of Financial Year End

• Delivery price per AHC

• Need to develop measure of delivery relative to strategic priorities

• Enough spent on regulation? (# complaints, audit issues, etc)

• Competency/Qualification completion rate• Student outcomes

• Surveys/consultation

Note: AHC could change to competency unit


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Exhibit 5.10.5: Owner key performance indicators

1. Annual Hors Curriculum Note: AHC could change to competency unit

Performance

Efficiency

Effectiveness

$/AHC1

Assetutilization

People productivity

Operating margin

Quality

Delivery

Industry engagement

Teaching FTE

Admin

• Total expenditure per total AHC delivered

• Rent/AHC• AHC/FTE

• Operating result

• AHC/FTE• Revenue/FTE

• AHC/FTE• Employee expenses as

% of total expense

Outcomes

Staff

• Learning experience• Client satisfaction• Student outcomes

• Satisfaction survey• Leadership upward

feedback

• % contracts fulfilled

• % industry funded fee for service• Industry satisfaction survey

This report recommends that skills training institutes be corporatized in phases, as detailed out in Exhibit 5.10.6. In the first phase, only the most commercially orientated institutes, i.e., with the highest percentage of self-funded customers, should participate in the program. As and when the skills training institutes are deemed prepared, the program could be expanded. At an early stage, the Government should consider funding student places at private sector institutes and invite international training providers. The increased competition from new players entering the market will drive up overall performance.

Exhibit 5.10.6: Corporatization of institutes can occur in phases

Participants

Purpose

1st wave (year 1)

2nd wave (year 2-5)

All (year 6-10)

• Most commercially oriented institute, e.g., CIAST1

• Top 30% most commercial/ autonomous institutes

All

• Demonstrate initial success to encourage take up

• Further strengthen case for corporatization

• Drive up performance through increased competition

1. Centre for Instructor and Advanced Skills TrainingSource: Expert interviews BCG analysis

• All when ready

• Open funding to private sector/ foreign operators

ImplementationImplementation

Skills training institute to be government owned but run commercially

• Funding will still be provided by the Govt. but based on performance

– Capital grant to fund basic infrastructure

– Additional funding linked to KPIs, e.g., graduate employability, ability to attract paying, private customers

• Statutory authority with independent board and freedom to recruit staff, tailor curriculum, etc.

• Skills training institutes to compete for revenues from other relevant ministries / purchasers

Government to focus on regulatory framework instead of operations

• Create monitoring systems to assess schools' performance

• Ensure information on performance is easily accessible to students


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Exhibits 5.10.7 shows a suggested timeline that can serve as guideline for implementation

Exhibit 5.10.7: Corporatization of skills training institutes - implementation guideline

Q2Q3 Q4Q1Q2Q3 Q4 Q1 Q3 Q4Q1Q2 Q3Q4 Q1Q2Q3 Q4Q1Q2 Q4Q2 Q3

2009 2010 2011 2012 2013 2014 2015

Q2Q3Q4Q1

• Recruit or re-assign staffSecure buy-in from all Ministries

Separate role of purchaser vs. owner

Define corporatization arrangement

• Define new roles and responsibilities of Ministries as purchasers vs. owner

Activity

• Determine commercial governance arrangements

• Define key performance indicators for corporatized institutes and link to funding

• Most commercially orientated institutes

• Provide detail guidelines on the standards for each qualifications (including providing recognition to equivalent qualifications)

• Meet with respective stakeholders to obtainbuy-in

Streamline / harmonize skills qualifications

• Set up new department / identify specificdepartment under owner to mange these institutes

Establish project management unit• Define key roles and responsibilities

• All institutes• Top 30%

Roll out corporatization in phases

Start roll out

Strengthen industry collabouration

Technical / skills institutes should be encouraged to increase their share of direct industry-funded training. Operational funding should be linked to the degree of success of institutes in attracting paying students from industry.

In addition, members from the industry should be given a formal role in curriculum development and monitoring, based on NOSS and quality monitoring. There is a need to identify capable, interested Industry Bodies to give inputs into curriculum development. To this end, the Government should experiment with providing initial funding and training to Industry Lead Bodies. Emphasis should be placed on higher SKM levels (SKM 3 and above).

Moreover, to further improve on industry-academia collaboration, two-way staff exchanges should be encouraged and the National Dual Training System (NDTS) should be further expanded in the service sector and other key economic sectors.

Exhibits 5.10.8 shows a suggested timeline to serve as a guideline for implementation


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Exhibit 5.10.8: Strengthen Industry Collaboration - implementation guideline

Apr JunMayOct MarFebJanDecNovSepAugJulJunMay

2009 2010

Apr

• National roll out

• Pilot with 4 Industry Lead Bodies

• Second stage with 8 additional ILBs

• Pilot (100 placements)

Strengthen National Dual training System

• Design financial incentives to expand NDTSin services sector

• Identify capable and willing Industry Lead Bodies

Activity

• Provide funding and training for implementation

Offer industry formal role in curricula development and quality monitoring

Start pilot

Start pilot

Start roll out

Start roll out

Occupational licensing

A quick win program for the Government is to promote licensing of a higher number of semi-skilled jobs. An implementation body should be established to determine which semi-skilled occupations are to be considered for licensing. MOHR should take the lead in this, with inputs from relevant Ministries, develop job descriptions based on NOSS and determine minimum SKM qualifications. Furthermore, MOHR needs to organize licensing examinations. The relevant Acts/ regulations (i.e., National Skills Development Act) should be amended to ensure licensing requirements are enforced. Finally, an enforcement body needs to be established to enforce these requirements.

Increase recognition of SKM 3 and above in the job market

Currently, SKM is not recognized for public service. Therefore, the Public Service Department should re-examine the recognition criteria. A committee should be formed to ensure that SKM certificates are of sufficient standard to be used as qualification for entry into public service. Industry representatives must be involved in the committee. When evaluating institutes/ programs, actual skills attainment, rather than academic offerings, should be taken into consideration. This committee must explicitly spell out improvement areas for institutes to gain recognition.

Moreover, it is important to increase the capacity of institutes that offer qualifications at SKM 3 level and above. The Government may establish institutes that specialize in offering qualifications of SKM 3 and above. Alongside this, there needs to be an increase in recruitment of qualified teaching personnel, and current training facilities need to be improved and upgraded.



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Exhibit 5.10.9: Occupational licensing - implementation guideline

Q2Q2 Q1Q4Q3

2010 20112009

Q2Q4Q3Q2Q1Q4Q3

2012

Q3 Q4Q1

• Obtain inputs from key stakeholders, e.g. industry, employers, training providers

Develop licensing infrastructure• Develop job descriptions under NOSS• Determine minimum SKM qualifications• Design licensing examinations

Establish enforcement body

Activity

Establish implementation division under MOHR• Define key roles and responsibilities

Start operations

• Recruit or re-assign staff

Identify list of semi-skilled occupations to be considered for licensing

Infrastructure in place

Implement public information campaign to improve perception of technical / skills education

A national media campaign should be organized and launched as a priority to improve the image of technical / skills education. Additional professional resources, e.g., an advertising company, should be engaged for this endeavor to ensure the highest degree of professionalism and to increase the likelihood of success. A key component of the campaign would be to develop a new attractive name for technical / skills education and a professional branding firm should be contracted specifically for this purpose.

The main target group will be potential skills education students and their parents. The campaign should use strong messages that emphasize the negative consequences of entering the workforce without any qualifications. However positive messages should also be emphasized such as a new Government initiative to hire SKM 3 level graduates. Various delivery channels may be used to reach the appropriate target audience, such as school counselors, television, radio and magazines. Celebrities could also be engaged to promote the messages.

Moreover, the Government should also publish the economic consequences of obtaining a SKM qualification (e.g., starting salary, types of jobs, possible career paths). This will enable potential students and parents to understand the tangible benefits and new opportunities that arise from obtaining a SKM qualification.


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Exhibit 5.10.10: Image campaign - implementation guideline

NovOctSepJulJunMayAprMarJanDecNovOctSepAugJulJunMayApr

20102009

Feb Aug Dec

Run image campaign-phase one

• Jointly define key messages, target audiences, delivery channels

• Appoint agency• Organize tender

Engage advertising agency to run campaign

Evaluate impact of campaign and make adjustmentsRun campaign-phase two

ActivityAssign project management resources within EPU

• Define key roles and responsibilities• Recruit or re-assign staff

Develop database to track and publish economic consequences of certificates(refer to part one of Initiative 3.3)

Run government hiring campaign

Start campaign

Data on '09 graduates published

Establish counselling teams to assist most vulnerable students transition to post secondary education

As already identified in section 5.8, no institution or individual is currently responsible and accountable for ensuring that as many students as possible continue education post-SPM. Currently, each Ministry only focuses on and takes ownership of students in its own system. Students who opt out of education, particularly post-SPM, do not come under coverage of either Ministry.

This report therefore suggests establishing counseling teams that will take on a multi-year responsibility for students, starting from Form 4 and continuing in higher skills education until these students have successfully transitioned into the workforce.

The teams, consisting of three counselors, will be allocated in clusters of approximately five secondary schools and skills training institutes within a specific region. The teams would be responsible for establishing close relationships with secondary schools, skills training institutes and employers, and must improve coordination between these players through the exchange of information on students.

The teams will be also responsible for providing comprehensive career guidance to vulnerable students and their parents, particularly on the various options in technical / skills education. They will act as advisors to a student over a prolonged period, from age 16 to 21, or until the student has successfully transitioned into the workforce. Tasks, at different points in time, may include explaining the availability of various post-SPM programs, assisting in identifying appropriate work-based traineeships and helping with preparing for job interviews.


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Exhibit 5.10.11: Counseling teams - implementation guideline

Q2Q1Q4Q3Q1 Q2Q4Q3Q2

201120102009

Q3 Q4

• Recruit staff

• Provide comprehensive pre-service training

• Assign teams to school clusters

Roll out

• Implement pilot in clusters (~100 schools)

• National roll out

• Conduct regular evaluation to track impact and share best practices

Activity

Establish counseling teams

• Recruit or re-assign staff

• Define key roles and responsibilities

Assign project management resources within MOE

There are already existing skills/ training institutes that are successful and embrace some of the recommendations that have been put forward in this study. As an example, the German-Malaysia Institute (GMI) is successful in producing employable graduates. The institute currently has approximately 1,800 students and has a comprehensive course offering. Three-year advanced diploma courses are offered in manufacturing (e.g., automotive, electronics, semi-conductors, other metal parts) and processing industries (e.g., food processing, oil and gas). Graduates from GMI typically enter the workforce as technicians, assistant engineers or technical engineers.


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Policy implications The recommendations put forth in this section will have numerous policy implications, as described in Exhibit 5.10.12. Exhibit 5.10.12: Policy implications for recommendations on improving the quality and perception of technical / skills education


1. Harmonize technical/skills training education

2. Corporatize technical/skills training institutes

3. Officially recognise and regulate semi-skilled occupations


1a. Single, national qualification system for technical/skills training

1b. One entity (MoHR or MoHE) to own and coordinate technical/skills training institutes

1c. Other Ministries to buy training places from the designated entity (as well as from private institutions)

2. Corporatization of all public technical/skills training institutes over next 5 – 10 years

3. Need for a new Act or amendments to current Act to enforce mandatory certification requirements

4. Government (Public Service Department) to recognize SKM certificates


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5.11: Empower Universities to Improve Graduate Employability

Overview

The Government recognizes the importance of education in propelling the nation towards a high income economy, as evidenced by the ambitious target set to achieve a 50% tertiary participation rate among 17- to 24-year-olds by 2020. To ensure that this target is met, the Ministry of Higher Education has spelled out in two plans – the National Higher Education Strategic Plan and the National Higher Education Action Plan (2007-2020) – the strategic thrusts of tertiary education and the critical enablers for these thrusts. This report recognizes that the Government has considered, and planned for, improvement and transformation in the tertiary sector, and will highlight several key areas where the Government should focus or expedite implementation, particularly to address the concerns on graduate employability.

Universities need to be fully accountable for their performance. This report recommends that a thorough performance management system with clearly-defined consequences be implemented. Also, universities need to be granted greater autonomy so that they may be empowered to determine the quality of the university community – from the Vice Chancellor to its students – which translates directly to graduate employability. Meanwhile, there are several structured tactical measures that can be put in place to ensure alignment with industry requirements.

To offer a broad overview, the report aims to improve the current situation where:

i. Some graduates face employability challenges

ii. Universities have little accountability for quality of output due to lack of consequence management for universities to meet performance targets

iii. Universities have limited autonomy which hinders them from enhancing performance including, producing quality (and employable) graduates

To a situation where:

i. Graduates are at ease with securing employment

ii. Universities are accountable, resulting in high quality, competitive public universities

iii. Universities are empowered to influence graduate quality and employability

Instil performance and accountability culture

Universities need to be accountable for their performance, especially since they are heavily financed by public funds. Moreover, accountability will not only allow MOHE to monitor the performance of universities, but will also provide an opportunity for MOHE to detect weaknesses and intervene as and when necessary.

To ensure accountability, there needs to be a standardized assessment of all universities. MOHE has already made progress toward this end by setting up the Program Management Office (PMO)


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which has developed a performance measurement matrix based on the seven strategic thrusts and 18 critical agenda projects set out in the National Higher Education Action Plan, as detailed in Chapter 5.5. Graduate employability is currently included in this performance matrix. Overall, targets are expected to be developed by May 2009. This report emphasizes that targets should be output-, instead of process-driven. They must also be measurable and quantifiable. For example, a score of 1 may only be awarded to a university if graduate employability improves between 30-40%. The Government of Australia also tracks the performance of universities through KPIs. Exhibit 5.11.1 shows the indicators that are tracked and sample metrics within those indicators.

Exhibit 5.11.1: Australian Higher Education Indicators

Students• Equivalent full-time student units (EFTSU)• Equity groups as a share of local students• Number of broad fields of study

Staff• Academic staff as share of all staff• Student-staff ratio by faculty• Proportion of female academic staff

Finance• Operating revenue / expenses as share of total income• Earned income as a share of total income• Expenses per EFTSU

Research• Research quantum, income and publications• Higher degree research EFTSU as a share of total EFTSU

Outcome• Graduate full-time employment and salary• Progress and attrition rates• Graduate overall satisfaction

Source: Characteristics and Performance Indicators of Australian Higher Education Institutions, 2000, Australian Department of Education, Science and Technology

Indicator Selected metric

Budget allocation based on number of students and quality of research

To maintain the integrity of this performance management exercise, MOHE will need to ensure an unbiased panel of assessors to perform the audits. MOHE should also consider bringing in foreign inspectors to assess universities based on international standards. Data gathered must also be well managed. There should be internal- and public-facing databases to hold universities accountable to the community.

More importantly, performance assessment must result in implications. Firstly, the Vice Chancellor of a university should be accountable for the overall performance of the university, or face the possibility of non-renewal of his / her contract. MOHE has already developed a set of KPIs for the Vice Chancellor of universities, which includes graduate employability. The Vice Chancellor should in turn hold all university staff accountable toward this cause and manage their performance and progression accordingly.


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This report also proposes that the performance assessment be linked to Government funding allocation, as depicted in Exhibit 5.11.2.

Exhibit 5.11.2: Performance assessment to be an input for budget allocation

Public university

Budget proposal

MOFMOHE

Budget allocation

Public university

Performance assessment

MOHE

Cabinet

Identify KPIs to reflect desired

outcome

Transparent and consistent

assessment by independent body

Performance assessment as input to budget

allocation

Performance-linked funding is a transparent financing mechanism that will intrinsically motivate universities to improve their quality – including producing graduates that are employable. Such a financing system will cause universities to be more competitive and will act as a catalyst to diversify revenue streams in the future. It also provides a transparent mechanism for financing and encourages greater accountability in the expenditure of public funds. Moreover, it also allows the Government to link public policy to funding.


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Several allocation mechanisms are already in use internationally1, as detailed in Exhibit 5.11.3.

Exhibit 5.11.3: Four types of innovative allocation mechanisms

OverviewOverview

Regulatory agreements made between government and institutions

• All or part of funding may be based on performance assessment

• Emphasis on punitizing rather than incentivizing• Effective for improving internal efficiency and

sustainability

Benchmark countriesBenchmark countries

France: 1/3-1/2 of recurrent budget is tied to performance contractFinland and Denmark: Set out general goals for system as well as specifics for each institutionColorado: Penalize institutions that don't meet standards

Performance contracts

Portion of funding set aside to be allocated on the basis of performance

• Performance measures determined by institutions and government

Tennessee: 6% of funds based on multiple criteria, institutions compete against their own recordSouth Africa: Set aside most of its core budget for teaching, research, and other services based on multiple performance measures

Performance set asides

Funds established for specific purposes and open to universities to compete for

• Universities submit proposals which are then reviewed by selected committees or peers

• Effective for improving external efficiency and quality

Egypt: Engineering Education Fund transformed traditional engineering to more applied programs with close linkages to industryArgentina: Quality improvement fund encouraged universities to engage in strategic planning and strengthening of existing programs

Competitive Funds

Compensates universities based on output• Either by calculating eligibility of university to all or

part of its recurrent expenses or by payment for each student that completes a year of study

• Effective for improving internal efficiency and sustainability

Denmark: "Taximeter" model in which 30-50% of recurrent funds are paid for each student who passes examsNetherlands: Half of recurrent funding is based on number of degrees awarded

Payments for results

Source: Malaysia and the Knowledge Economy: Building a World-Class Higher Education System, World Bank

Of the four methods mentioned, this report recommends that, for a start, the Government adopt performance set asides. Under this method of funding, the Government will allocate additional funding to universities which perform. This will act as an incentive for universities to ensure the quality of their output and at the same time not affect their core funding.

Universities must be prepared before such a transition takes place. As such, implementation may be in stages starting with Apex and Research universities while developing universities be given a grace period to mature before they are subject to performance-linked funding. Adequate support must be given to universities in transitioning to performance-linked funding. MOHE will need to assess each university’s past performance to set realistic targets. Universities also need to be engaged so that they are in agreement with MOHE regarding the targets set and the implications following performance assessment.

1 Malaysia and the Knowledge Economy: Building a World-Class Higher Education System, World Bank


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Exhibit 5.11.4 shows a timeline that may be used as a guideline for implementation.

Exhibit 5.11.4: Suggested timeline for instilling a performance and accountability culture

Q4Q3Q1 Q2Q4Q3Q2Q1Q4Q3

1009

Q4Q3Q2 Q1 Q2

11 12

• Give constructive feedback and support to universities

• MOHE to audit reports to ensure integrity

• Assess past performance

• Universities to self-assess performance and report to MOHE

Gain approval and agreement from MOF

• Identify and agree on targets, agree on implications

Implement implications from performance management system

• Implications to Vice Chancellor and university staff

Assess system and revise where necessary

Activities

• Implications on funding– Weight of performance indicators on performance

assessment to be used for fundingEngage universities to determine individual targets and agree onimplications

• Attain baseline for performance measurement

Develop output-based standardized measure of assessment

• Exercise implications to Vice Chancellor and academic staff• Implement performance-linked funding

– To universities granted greater autonomy

Develop overall targets for tertiary education sector (7X18 matrix)

Implement performance management system by assess universities' performance

• Decide on budget allocation for performance set asides

Determine implications from assessment

Overall targets developed

Targets for each university agreed upon

Implications developed

First bi-annual assessment

Empower universities with greater autonomy

It is important to first note that MOHE acknowledges the need for greater autonomy in universities, as described in the National Higher Education Action Plan. To illustrate this, under the Accelerated Program for Excellence (APEX), APEX universities will be granted autonomy in the following areas: finance, scheme of service, management, student admissions, and selection of staff, faculty and top management as well as student fees. This program was kick-started in 2008, when Universiti Sains Malaysia (USM) was named as the program’s first participant. As the program is still being developed, USM does not yet have a full range of autonomy, but began selecting its own students in 2009. Therefore, the Government recognizes the importance of, and has made progress towards, granting universities greater autonomy.

Autonomy in the selection of students

This report supports the increase in the autonomy of universities, particularly on the selection of its own students. By doing so, each university has control over the quality of students whom they enroll. The current centralized student admission system admits students on the basis of merit and allocates these students into public universities (as elabourated in Chapter 5.5). Not only does the university not have the authority to grant or decline admission to an applicant, the merit system aggregates an applicant’s achievement. For example, an applicant who applies for a course in English may be a mediocre performer in the English subject, but excel in all other subjects, thus boosting his or her overall score and granting him or her admission to the English course. On the other hand, another applicant who has excellent results in English, and thus is more suited for the course in English, but has lesser results in other subjects, may not gain a place in the course. This illustrates that the current point-based system interferes with the selection and allocation of applicants to the most appropriate courses.


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To overcome this, universities should be given the autonomy to select their own students. Universities should manage the entire student admission process, from applications to student enrolment. Universities may enforce student entry tests or interviews to scrutinize each applicant’s capabilities more closely and admit them to courses that are most suited to his or her capabilities. USM, as an APEX university, is already putting this into practice by making all applicants sit a special placement test, the “Malaysia University Selection Inventory” (MUnsyI). The results from this test will assist USM in deciding whether to grant admission to a particular applicant or not, and to allocate a course most suitable to the applicant. This test is aimed at ensuring that students do not select courses merely based on their academic achievements, without taking into consideration their interest, personality, integrity, emotional intelligence and patriotism. It is also used as an additional measure for USM in deciding on student admissions (beyond a candidate’s pre-university results). Similar to the recommendation on performance-based funding for universities, the decentralization of university admissions should be done in stages, starting with the established Apex and Research universities. New universities are given the opportunity to improve their performance and establish their position before ultimately also having the discretion to select their own students.

This report recommends the following process for student selection, as detailed in Exhibit 5.11.5.

Exhibit 5.11.5: Universities to have autonomy in student admission

Admission of students to be at universities' discretion1Admission of students to be at universities' discretion1

Applicants apply for admission to universities through MOHE (UPU)

• Rank eight universities and courses according to preference

UPU redirects applications to individual universities

Individual universities select students• Able to assess applicants on case-by-case basis3

University's decision relayed back to UPU

UPU informs applicants of decisions of all universities

Applicants select university from list of universities he / she gains acceptance to

1. Implementation may be in stages (I.e., Begin with four research universities, progressively introduce to all universities) 2. Unit Pusat Universiti 3. Universities given flexibility to assess students (E.g., Able to interview applicants and / or closely scrutinize academic / co-curricular achievements vs. current point system which aggregates applicants and is inflexible)Source: Malaysia and the Knowledge Economy: Building a World-Class Higher Education System, World Bank; BCG analysis

UPU2

Applicants


UPU


High performance studentsLower performance students

Changes

Universities to determine whom they desire to enroll (i.e., able to control quality of students)

This student admission system will not only allow universities to determine the quality of their students, but it will also promote competition among universities. Given that students who receive more than one offer will have the freedom to choose which university they enrol in, universities will now have to compete for the best and brightest students. This will motivate universities to improve on their overall quality, including ensuring the employability of their graduates. Applicants with multiple offers will benefit from being able to make an educated decision on which university to enrol in, as opposed to the current system where applicants have to rank universities according to their preference and are then allotted to a particular university. Generally, applicants to universities globally make the final decision on which university to enroll in.

To ensure universities maintain high quality standards and that the needs of the Malaysian community are met, the Government may fix the capacity of the university (based, for example, on


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the number of faculty members and / or facilities available). This would ensure that universities do not expand student capacity without sufficient infrastructure.

Autonomy in the management of faculty

Universities should not only have the flexibility to select their own students, but also have the ability to attract and retain the best faculty. The current fixed salary system based on the Government salary scale handicaps universities from hiring and retaining talent, who may leave for higher-paying jobs outside the public service. Thus, this report suggests that universities be given the autonomy and sufficient financial support initially, to provide for their own remuneration scheme. Universities may then decide on their own remuneration method (e.g., a university-specific salary scale or individual negotiation process) that best caters to their hiring needs.

Taking this step further, universities should also be granted flexibility in dismissal of non-performing staff. Stakeholder engagement has revealed that it is difficult to dismiss non-performing staff. Universities may also consider hiring faculty on a contractual basis based on performance.

Along the lines of performance, universities need to recognize that there needs to be differentiated career progression for faculty. While MOHE has recognized the need for two promotion tracks based on academic/research and teaching/practical industry experience, universities still largely base promotions on academic output – research and publications – which limits the career progression of faculty who prefer to focus on teaching. Universities need to clearly define career paths and promotion criteria for different career specializations to ensure that the faculty is given due recognition for their vocation. This would allow for career development and encourage faculty satisfaction, which will foster retention.

Universities should also ensure that their faculty is adequately equipped with necessary industry experience to produce graduates who are employable. Faculties without industry experience are unable to transfer industry-relevant knowledge to their students as they themselves lack the experience. This would in turn create graduates who are not fit for the labour market. Universities may require faculty to participate in industrial attachment, and may allow faculty to second to industry. As a stop-gap measure, universities may hire foreign lecturers with relevant skills and industry experience to fill in any gaps. Additionally, universities should encourage greater mobility between the university and industry, for example by inviting guest lecturers from industry.

Autonomy in seeking out its top management

Universities should also be granted the autonomy to seek out their top management. This report recognizes that MOHE has put in place a rigorous process involving a search committee to select Vice Chancellors and Deputy Vice Chancellors of universities, but would like to put forward that it is important for the universities to also be involved in this exercise. This is to ensure that universities participate in determining the leader who will then define the direction and success of the university.

In addition, the vacancy should be publicly advertised both within Malaysia and internationally. This would widen the talent pool of candidates, and ensure that universities are led by the most qualified leaders.

On the whole, this report recognizes that a certain level of preparedness is necessary before universities are able to shoulder greater autonomy. Thus, implementation may be in stages, where universities deemed ready by MOHE to shoulder greater autonomy, be granted autonomy and reap the benefits of doing so. For example, implementation may begin with APEX universities, followed by research universities and subsequently extended to all other universities.


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Exhibit 5.11.6 shows a timeline to be used as a guideline for implementation.

Exhibit 5.11.6: Suggested timeline for empowering universities with greater autonomy

Bill submitted to Parliament

Q2 Q3 Q4Q2

12

Q1 Q2 Q4 Q1 Q2 Q3 Q4Q3

111009

Q3 Q4 Q1

• Identify necessary amendments in AUKU1 , prepare andsubmit bill to Parliament

Panel to debate and outline new governance structure (studentadmission, remuneration of faculty, selection of Vice Chancellor)

MOHE to identify panel of experts

• Organize workshop to share best practices in studentadmissions, remuneration of faculty

Activities

Roll-out of new governance structure in participating universities

Brief, guide and support universities in preparation for transitionto greater autonomy

• Engage universities to gain feedback and agreement

Monitor performance and review governance structure where necessary

Assess preparedness of universities and identify universities to be granted greater autonomy

Panel of experts identified and notified

1. University and University College Act (Akta University dan Kolej Universiti)Source: BCG analysis

New governance structure approved

One or two universities identified

Universities prepare to bear greater autonomy

Universities roll-out new governance system for new academic year

Act amended and gazetted

Structured tactical measures to ensure graduates meet industry needs

This report acknowledges that there are already several measures in place to enhance the employability of graduates, such as the soft skills modules in universities, but highlights three operational measures that will further enhance graduate employability.

Improve market signals

Currently, it is difficult for employers to send signals to students about how they value different courses from the different universities. A prospective university student would choose a course based on a number of factors, including interest and aptitude in the field, reputation of the course and university and employment prospects. However, students currently do not have sufficient course- and university- specific employability data to assist them in assessing employment prospects. As a result, there is a mismatch in the supply and demand of graduates. To address this, market signals can be improved if potential students are provided with information on the economic consequences of courses.

Therefore, universities should collect data on employability rates, career options and salaries of their graduates for all the courses that they offer. Then, MOHE should publish all these data on its website to allow potential students to assess how much value the labour market places on a specific course. This will serve as a guide for potential students to select and enroll in courses which are required by the industry.

Increase collabouration

Currently, industry collabouration with universities is limited to larger establishments, with the majority of companies not collabourating with universities ⎯ be it in the areas of research or in attachment programs. Common reasons cited for non-participation are the lack of incentives and


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awareness among industry members. Moreover, companies view training through attachment programs as an added responsibility and have indicated that they should be assisted financially in this effort.

As such, the Government can set up an agency to actively seek out participation of university faculty and students for specific collabourative efforts with industry. An example of an existing program that has successfully brought together universities and industries is the Knowledge Transfer Partnership in the UK, as detailed out in Exhibit 5.11.7. This agency, funded by the British Government, facilitates in seeking participation from industry and matching them with relevant universities.

Exhibit 5.11.7: Knowledge Transfer Partnership an intermediary for collabouration

• United Kingdom

Summary of findings

• Three principle players within a partnership – Company partner: usually a company (including not-for-profit)– Knowledge-base partner: higher education institute / college / research organization– KTP Associates: Each partnership employs one or more high caliber Associates, transferring the knowledge the company

is seeking into the business via a strategic project

• KTP links company and knowledge-base partner– University-based offices act as doorway for companies to approach knowledge-based partners– KTP Adviser facilitates and advises company and knowledge-based partner on proposal and grant application process – Partnership Approvals Group grants approval for proposed partnerships– Technology Strategy Board funds

• KTP Associate acts as main transfer link between company and knowledge-base partner– Employed by knowledge-base partner but works with company to manage the project, apply their own knowledge and

ensure that the expertise of the knowledge base partner is transferred into company– Academics from knowledge-base remain closely involved throughout project

• Program highly successful in many dimensions– Every £1m of government spend the average benefits to the company amounted to an £4.25m annual increase in profit

before tax, £3.25m investment in plant and machinery with 112 new jobs created and 214 company staff trained as a direct result of the project

– For the knowledge base partner, on average, each KTP Associate project produces 3.6 new research projects and 2 research papers

– 60% of associates are offered and accept a post in their host company, 41% register for a higher degree and 67% of these were awarded a higher degree

Country

Overview• UK-wide program to encourage business/knowledge base collaborations

– Improve competitiveness and/or productivity of businesses through the use of the knowledge, technology and skills that reside within academic institutions

1. The Technology Strategy Board is an executive non-departmental public body (NDPB), established by the UK Government in 2007 and sponsored by the Department for Innovation, Universities and Skills Source: KTP website

Organization • Technology Strategy Board1

In Malaysia, a similar agency can be formed under MOHE. This agency will act as an intermediary between universities (faculty and students) and industries. It will seek out and match universities, students and industry members to form partnerships as well as assist these partnerships in securing funding. This agency can leverage existing funds and incentives, some of which are detailed below:

i. Tax deduction under 34 (6) (n) Income Tax Act 1967

Companies which accept graduates to undergo apprenticeship programs at their premises will be eligible for tax deduction

ii. Human Resource Development Fund Companies may tap into HRDF for apprenticeship, industrial attachments and internships

iii. MOSTI Science Fund Funds R&D projects that can acquire and generate new knowledge in strategic basic and applied sciences

iv. MOSTI Enterprise Innovation Fund Targeted at small/micro businesses to encourage technological innovation


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v. MOSTI Techno Fund Funds to undertake development of new and / or cutting-edge technologies in biotechnology, ICT industry, Sea to space, and Science and Technology Core

Inculcate employability skills

MOHE has taken positive steps to incorporate soft skills module into the student curriculum to address the issue that some graduates from local universities lack employability skills. Students undergo entrepreneurial and soft skill modules and have courses in English language, but these are taught as separate subjects, rather than incorporated into all subjects. The university syllabus should therefore include skill needs that are required by the job market. For example, courses taught should incorporate teamwork, leadership, and business professionalism and communication skills.


Exhibit 5.11.8: Suggested timeline for ensuring graduates meet industry needs

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

09 10 11 12

Q2 Q3 Q4 Q1 Q2 Q3

Universities to roll out new curriculum

MOHE to issue directive for universities to gather data on economicconsequence of coursesUniversities to develop database to track employability of graduates

• Identify key person-in-charge• Develop paper-based and online survey

Gather data at point of graduation and at regular intervalsReport findings to MOHE

Activities

• Serve as one-stop shop to facilitate collaboration between universities, industries and graduates

Universities to develop curriculum to embed employability skills

• Recruit staff• Define key roles and responsibilities

Prepare for operations

Set up project management unit within MOE responsible for implementation coordination of KTP1 Malaysia

• Engage universities and industries to woo participation• Build database of interested universities and industries• Set up premise on university campuses• Launch website

MOHE to compile and publish data

Launch KTP Malaysia

MOHE to send out directive to universities regarding embedding employability skills in courses

KTP Malaysia launched

Universities informed and make preparations for change

Data on '09 graduates published

1. Knowledge Transfer PartnershipSource: BCG Analysis

Surveys developed


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Policy implications The recommendations put forth in this section will have numerous policy implications, as described in Exhibit 5.11.9. Exhibit 5.11.9: Policy implications for recommendations on empowering universities to improve graduate employability


1. Demand more accountability from universities

• KPIs for Vice Chancellors• Linked to budget

allocation

2. Allow greater flexibility to universities

• Selecting top management

• Compensating and promoting faculty

• Student admission


1. Government funding allocation to universities to be linked to performance

2. Changes to current law and regulations required to allow universities more flexibility


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5.12: Enhance Foreign Labour Policies The Government has up till now exercised great control over the entry of expatriates. Efforts to liberalize the entry of expatriates have been limited with multiple measures in place to protect the jobs of locals. However, to move to a higher income economy, Malaysian employers must be allowed to tap into a highly-skilled talent pool. The inflow of expatriates into Malaysia will not only help plug the short term shortage of high-skilled labour but it will also benefit locals through the creation of new job opportunities and the inculcation of an entrepreneurial culture among Malaysians. Positive externalities from inflow of expatriates are evident in case studies shown in Exhibit 5.12.1. On the other hand, the entry of low skilled foreign labour should be carefully monitored and controlled to prevent over reliance on this group of labour.

Exhibit 5.12.1: Case studies of expatriate employment inducing job creations

Skills and knowledge should be prioritized over place of origin

Company DescriptionCompany Description CEO CEO

Company Description• Focused on producing Electronics, Games,

Entertainment, and Financial services• Global leader in Electronic Goods with

market cap of USD$ 22.8 billionSony losing market share in core business

• Products which were once pillars for Sony e.g., TVs and portable media players suffering declining sales

• Profitability of company have come under intense pressure from low cost Asian rivals

Company Description• Japanese automobile manufacturer

engaged in the planning, development, manufacturing and sale of automobiles

Debt ridden and on the verge of bankruptcy in 1990s

• $20 billion in debt and only 3 out of 48 automobile models were generating profit

Howard Stringer (America) appointed first foreign CEO of Sony Corp.

• Former CEO of Sony Corp. America• Made sweeping changes including shutting

down the TV content business• Dramatically improved performance of Sony

Picture Entertainment when operated as CEO of Sony USA

• Stringer appointed Andrew Lack, another foreigner to lead its struggling music division

Carlos Ghosn (Brazilian) transformed Nissan from near bankruptcy to one of the most profitable automobile companies

• Proposed radical moves including auctioning off prized assets such as Nissan's aerospace unit

• In one year, Nissan's net profit climbed to $2.1 billion from $6.1 billion loss the previous year

• Spurred and maintain thousands of jobs by keeping Nissan in business

Source: Press Search

This report recommends a set of key policy changes, which if implemented effectively, can enable Malaysia to move from a situation where:

i. Expatriate employment policies are restrictive and cumbersome

ii. Middle income expatriates are unable to work in Malaysia

iii. Management of low skilled foreign labour lack strategic approach

iv. There are limited initiatives to tap into the Diaspora pool

To a state where:

i. Expatriate employment policies are liberal with limited application criteria

ii. Middle income expatriates are allowed entry through introduction of new employment pass

iii. Supply and demand of foreign labour are effectively managed and linked to sector development srategy


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iv. There are multiple effective efforts to tap into the Diaspora Pool

Liberalize expatriate employment policies

Firstly, Malaysia needs to change its current approach of allowing entry of expatriates. Currently, a positive-list concept is imposed – a rigid set of criteria must be fulfilled by both the company and the expatriate before a work permit is issued. For example, currently, an expatriate must be at least 27 years old and a company’s ability to employ expatriates depends on its paid-up capital. Contrary to the positive-list concept that is now used, this report suggests that a negative-list approach be adopted. Under the negative-list concept, expatriates must adhere to a minimum set of requirements. Current quotas and application requirements should be abolished and replaced with a negative checklist. This list should only ensure that a foreign worker possess recognized qualifications, pass a security background check and earn a minimum salary per month (which is currently set at RM 5,000) in order to qualify as an expatriate. The Government should not pre-determine the number of expatriates and in which sector they are allowed to work in. The liberalization of the expatriate policies effectively transfer the decision of hiring foreign talent back to the companies, who would be better able to anticipate and respond to the ever changing economic needs.

In the case of middle income expatriates (skilled expatriates earning less than RM 5,000), an employment avenue needs to be created to allow these talents to work in Malaysia. This category of foreign talent is still necessary for selected occupations where there is a shortage of local talent, such as nurses and pilots. A creation of a new type of expatriate pass for this category of workers will address the policy gap caused by the recent increase in expatriate categorization income threshold from RM 3,000 to RM 5,000. However, a positive list of jobs and industries needs to be developed and eligibility for this new pass should be limited to the sectors and occupations where a shortage of local worforce is evident, or for industries identified as growth industries. Frequent revisions of this list of sectors is necessary to reflect a changing market landscape and evolving demands.

Furthermore, expatriates should be given the option to remain in the country as permanent residents (PR). The current permanent residence regulations should be reviewed and a point-based system, as is currently adopted by Australia and Canada, should serve as benchmark in setting up a similar skills-focused PR issuance system for Malaysia. Key components of the system are summarized in Exhibit 5.12.2.

Efforts should also be made to provide avenues for non-Malaysian graduates from local institutions to seek employment in Malaysia. This can be done through special provisions or extension of student visas to allow graduates to remain in Malaysia to seek employment without having to secure a job offer first. Again, this provision would potentially be limited to selected sectors or occupations, such as for researchers, scientists and engineers.


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Exhibit 5.12.2: Permanent Residence Issuance System for Australia and Canada

PR points sytem in benchmark countriesPR points sytem in benchmark countries

Skill Age1

English Language AbilitySpecific work experienceOccupational demand / job offerAustralian qualificationRegional Aus. / Low population2

Spouse skillsRelationshipTotal1

Pass Mark

Other Key FeaturesOther Key Features

In addition to obtaining the require amount of points, applicant must satisfy following basic requirements

• Education – Post secondary qualifications3

• Language – Prove level of English• Age – Must be below 45 years old when applying• Work experience4 – Have recent work experience• Occupation – Must be on acceptable occupations list• Skills assesment – Skills have to be assessed by

relevant Australian authoritiesBonus points offered for:

• Capital investment in Australia• Australia skilled work experience• Fluency in one of Australia's major community

languages – other than English

In addition to achieving the pass mark, applicants must meet two additional requirements

• Meet minimum work experience requirements according to the Canadian National Occupation Classification Matrix6

• Prove that they have the fund to support their family for six months after arrival

60302010151555

15175115

341711699339

10066

Australia Points TestAustralia Points Test Points1Points1 %%

EducationEnglish Language AbilityWork ExperienceAgeArranged Employment in Can.Adaptability5

TotalPass Mark

25242110101010067

25242110101010067

Canada Points TestCanada Points Test PointsPoints %%

1. Represents maximum points 2. Points offered for regional PR status where residency in a certain low populated area is required for a fixed duration 3, Work experience may be used as substitute in certain cases 4. International students who have obtained degree in Australia exempted from work experience requirements 5. Points awarded for having family ties with citizens or permanent residents of Canada 6. Jobs on the list of restricted occupation cannot be used as work experienceSource: National Institute of Labor Studies (Flinders University)

Exhibit 5.12.3 shows a suggested timeline that can be used as a guideline for implementation

Exhibit 5.12.3: Timeline for liberalization of expatriate entry

Q1Q3 Q2

1110

Q4Q3

09

Q1Q4Q3 Q2

12

Q2 Q4 Q1 Q2 Q3 Q4Replace current expatriate employment criteria with negativelist concept

Introduce middle income expatriate employment pass • Engage industry and government representatives to

determine eligible sectors and occupations• Submit proposal to Cabinet for approval• Review list of sectors and occupations that would be granted pass

Establish points based Permanent Residence System• Determine skills focused criteria for issuance of permanent

residence– Engage respective government agencies to align

criteria with sector development plans • Submit proposal to Cabinet for approval

• Submit proposal to the Cabinet for approval

• Monitor inflow of talent and review criteria for issuance of PRProvide avenue for non-Malaysian graduate to seek employment inMalaysia

• Identify key sectors for non-Malaysian graduate to stay and work– Engage respective government agencies to align criteria

with sector development plans (e.g., for areas identified as newsources of growth)

• Submit proposal to Cabinet for approval• Monitor inflow of graduates and review criteria

Activities

• Detail out list of recognized qualifications and criteria in security background check

New expatriate employment policy submitted for approval

Proposal for new graduate provision submitted for approval

Proposal for new PR system submitted for approval

Implement ceilings and levies for foreign labour

Contrary to the approach for expatriates, the Government needs to tighten its control on the supply and demand of low skilled foreign labour. Malaysia’s long-term goal should be to gradually reduce the dependence on foreign unskilled workers. A dependency ceiling and levy system can be developed into a central policy tool towards achieving this goal.


80

Dependency ceilings are the maximum share of foreign workers permitted in a firm’s total employment. Previous prerequisites and quota should be eliminated and new ceilings, which reflects the difficulty of attracting local workers to the various sectors, should be set for each sector and should be uniform across firms in that sector. Ceilings can be determined in various ways but in principle, the short-term labour demand and supply conditions for a given sector should be first estimated. The shortfall between demand and domestic labour supply would yield the foreign labour component and this component expressed as a proportion of the total workforce in a sector would yield the ceiling in each sector. The current distribution of foreign workers across the sectors would provide an indication of this. In introducing this ceiling, the Government can effectively control the supply of foreign labour through constant review and revision of the ceilings. The possibility of implementing multi-tiered ceilings can also be explored to increase the flexibility of business in utilizing foreign talent. For example, there can be three different tiers of ceilings for the manufacturing sector, <30%, 30-40% and 40-50% but the levies imposed would be proportional to the different tiers. Exhibit 5.12.4 shows an example of this from the Singapore levy system together with other key learning. In addition, future foreign labour reduction targets have to be set on a sector-by-sector basis, and ceilings can be gradually reduced to achieve those goals. An example of this can be seen in Exhibit 5.12.6.

Exhibit 5.12.4: Best practice example (current Singapore levy and ceiling system)

450Skilled / Unskilled40%-50% of total workforce


240Unskilled

150Skilled Up to 30% of total workforce

Services

295Unskilled

150Skilled1 local full time worker to 5

foreign workersMarine

470Unskilled

150Skilled1 local full time worker to 7

foreign workersConstruction


280Unskilled

150Skilled 40%-50% of total workforce

240Unskilled

150Skilled2

Up to 40% of total workforce

Manufacturing

Levy1FW categoryDependency CeilingsSector

Singapore foreign workers ceiling and levy ratesSingapore foreign workers ceiling and levy rates Key learningKey learning

Clear rationale in setting of ceilings and levies

• A higher ceiling is set for sectors that face difficulty in attracting local workers

– Construction and marine sector are sectors with prevalent 3D (dirty, demanding, dangerous) jobs

• Multi-tiered ceiling/levy system for manufacturing and services to allow for more flexible labor market

– Employers able to weigh higher cost of labor against demand of business

• Higher levy imposed on unskilled workers to provide incentives for firm to import skilled workers

1

2

3

1. Monthly levy imposed in Singapore Dollar 2. Skilled workforce refers workers with salary <SD$2500 and possess SPM qualification or equivalent or NTC 3 trade certificate Source: Singapore Ministry of Manpower, USM Labor Report 2007

In addition, workers employed from outsourcing companies must be included in the company ceilings. The MOHA and its foreign labour One Stop Center1 can enforce this by closely tracking the movement of outsourcing companies and issuing work permits to outsourcing companies only when demand is proven through a request by the employer. Exhibit 5.12.5 shows the process of importing foreign workers through outsourcing companies. Going forward, tighter regulations on these outsourcing companies through enactment of specific laws to govern their operation can help limit its abuse. For instance, strict criteria should be imposed as a prerequisite for operating an outsourcing agency and should be accompanied by heavy penalties for companies that do not adhere to the regulations. Regulations should include minimum working conditions and provisions

1 One stop center includes representatives from MITI, MOH, MOHR, CIBD, MOA, MOPIC and MOHA


81

to ensure that outsourcing companies are responsible for the repatriation of workers after their contract expires. Exhibit 5.12.5: Process map for issuance of foreign worker permits to outsourcing companies

Employer

Outsourcing Companies

One Stop Center

Application for workers Processing and allocation of workers Monitoring

Approach outsourcing companies with demand for foreign workers

Compile demand from different employers and submit to the One Stop Center for approval of work

permits

One Stop Center Committee examines foreign workers demand

and approves work permit based on quota applicable to employers

Receive work permit and import workers from source country

Workers supplied by outsourcing companies

Ensure compliance with company ceiling

• Track movement of all foreign workers

Send monthly report to MOHA detailing movement of foreign

workers

Demand for workers evaluated before work

permit is granted

Foreign workers from

outsourcing firm tracked closely

by MOHA

MOHA

Source: Interviews

Malaysia already has a levy system in place. However, it needs to be aligned to sector development plans and linked to the dependency ceilings as shown in the example in Exhibit 5.12.6. In principle, levies should “tax away” the savings which employers gain from using foreign labour rather than locals. In doing so, foreign labour demand can be managed as the cost of foreign labour would closely reflect wages of the local labour market. Foreign labour can also be segmented based on skill levels, and duration of work in Malaysia. For instance, higher levies can be imposed on unskilled workers to encourage the move towards a highly-skilled workforce. This would incentivize companies to upgrade their workforce or hire more skilled foreign labour. Exhibit 5.12.7 displays several options for levies to be deployed and this study recommends the Gradual Step Up option. For this option, levies are gradually increased in a stair case manner. Although it may be more complicated to determine the timeframe and amount of levy increase, the gradualness of this option will likely receive less resistance from companies.


82

Exhibit 5.12.6: Example of sectoral approach in reducing foreign labour dependency

Con

stru

ctio

nPl

anta

tions

Sector Description LeviesDependency Ceilings

Set high ceilings• Address medium term

labor shortage• Forecast supply and

demand of labor Formulate plans for systematic reduction of ceilings

• Set medium term target for foreign labor and gradually reduce ceilings to reach target

Set high ceilings• Address labor

shortages for both medium and long term

Plan for long term gradual reduction

• Depends on breakthrough in mechanization efforts

High difficulty in attracting local labor

• ~40% of low skilled jobs taken by foreign labor

Labor saving techniques exist, but prohibitive cost may hamper implementation

• Potential labor savings of up to 60% with IBS system

• Critical mass needed for successful implementation

Significant difficulty in attracting locals

• Work site usually in rural areas that lack basic amenities

• Foreign labor account for 38% of workforce currently

Limited opportunity of mechanization

• Harvesting is labor intensive task with no substantial progress towards mechanization

Set high levies to discourage employment of foreign labor

• Higher cost will push for rapid mechanization and labor saving devices

• Increased levy allows employers to hire locals with higher wages

Set low levies• Lack of interest from

local workers• Limited scope for

mechanization / automation

Others

Ensure incentives are attractive and communicated

• Industry stakeholders to educate employers on mechanization method

Attract local workers by improving quality of life in plantations

• Monitor provision of basic facilities (to include schools and clinics)

• Extend incentives for employers

Identify labor saving areas and intensify research

Source: USM Foreign Labor Report 2007, BCG Analysis

Exhibit 5.12.7: Options on the manner with which to roll-out new levies

Levy holidayLevy holiday

• Stop collecting levy for a period prior to effective date

• Incentivize firms in this period to automate / reengineer processes / train workers to raise productivity

• Frees up cash that the companies can use directly to improve productivity and reduce reliance on unskilled labor

• May generate undesired behavior during such as “outsourcing spree”

• May be difficult to phase out the levy holiday

Simple step-upSimple step-up

• Single step-up of levies on a predetermined date

• Give advance notice to industries about the impending change

• Simplest to implement• Gives time for companies to

plan

• Does not directly incentivize companies to raise product-ivity during preparation

Gradual step-upGradual step-up

• “Stair case” shaped levy for gradual increase in penalty

• Lets companies gradually feel “pain” of higher levies

• Gradualness likely draws less resistance from companies

• More complicated to communicate and implement

Advantages

Dis-advantages

Description

Levy rate

Time

Levy rate

Time

Levy rate

Time

“Levy holiday”


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Levies collected from the employers should not be considered as revenue for the Government but instead should be channeled back to benefit the industry through the establishment of a special fund. This fund can assist employers to reduce their dependence on foreign labour, and not merely provide cash rebates to employers. For example, the fund could be channeled to research into mechanization and automation methods or upgrading the working environment to attract local workers.

For actual implementation, this study recommends that the manufacturing sector be made the primary target for overhaul. This sector should be pushed for improvement in both productivity and gradual end of reliance on foreign unskilled worker. Exhibit 5.12.8 provides the justification on the reason it was selected ahead of other sectors. The criteria taken in account for evaluation includes contribution to GDP, contribution to export, percentage of workforce that consist of foreign workers and productivity gap against the US.

Exhibit 5.12.8: Determination criteria for push on limiting foreign workers and increasing productivity

SectorSectorContribution

to GDPContribution

to GDP

10%

3%

27%

46%

14%

Contribution to export

Contribution to export

3%

0%

83%

Negligible

14%

Foreign workers (% of workforce)Foreign workers (% of workforce)

32%

30%

33%

8%

N/A

Productivity gap against US

Productivity gap against US

80%

87%

61%

73%

0%

Relative necessity for limiting unskilled foreign workers to increase productivity

Agriculture

Construction

Manufacturing

Services

Mining & quarrying

Note: 2008 data except for productivity gap, which is 2007Source: EPU, BCG analysis

Low High


84

Exhibit 5.12.9 presents a suggested timeline to serve as a guideline for the implementation of the aforementioned initiatives.

Exhibit 5.12.9: Timeline for implementing ceilings and levies for foreign labour

Q2

12111009

Q4Q3Q2Q1Q4Q3Q2Q1Q2 Q3 Q4Q1Q4Q3

• Constantly track performance of fund in reducing dependency on foreign labor

Activities

Establish central database to assist in enforcement of ceilings• Review and revise ceilings

• Forecast medium term market demand for labor and supply of local workers

– Engage respective stakeholder i.e., CIDB, MITIto obtain sector development plans and ensureforecast aligned with plans

Interagency technical committee to determine dependency ceilings across the different sectors

• Track movement of foreign workers and continuously update database

• Integrate database of different Ministries including access to EPF data

Review current levy rates• Clearly define skilled vs. unskilled foreign labor

and set different levy for each • Change and align current levy rates to sector development

plans (drawn out by respective ministries)• Review and revise levy rates

Reduce dependence on foreign labor• Establish fund to channel levy back to industry

– Select management personnel for fund and identify initiatives to reduce reliance on foreign labor

• Launch initiatives to encourage local labor participation– E.g., improve working conditions

Ceilings determined and submitted to Cabinet for approval1

Implementation of ceilings with operational central database

Revised levies submitted to cabinet for approval1

Establishment of industry fund

1. Implementation delayed due to current economic situationSource: BCG Analysis

Engage Diaspora on policy and investment

Since there is a sizable community of Malaysian diaspora, efforts should be made to engage them beyond existing mechanism on policy and investment issues particularly for R&D collabouration initiatives. Through the remote transfer of knowledge and advice to policy makers, an effective Diaspora network can bridge the knowledge gap between the origin and host countries. Furthermore, Diaspora can help stimulate capital flows by bringing in FDIs, for example, by assisting interested investors in locating trustworthy and competent domestic partners. Several initiatives are listed below to further enhance current efforts in tapping the Diaspora talent pool

Maintain relationship and source ideas

Policy makers should specifically engage Diaspora abroad to build relationships. This can be done through the setting up of annual dialogue between government representatives and Diaspora in each major city, where members of the Diaspora can exchange ideas and provide input into policy formulation, particularly on technology and industrial policy. Furthermore, Malaysian companies should be allowed and encouraged to source knowledge from Diaspora or foreigners for example via non executive directorship; potentially with Government Linked Corporations (GLCs) taking the lead in this initiative.

Source capital flow

Specific investment incentives should be provided to denaturalized persons of Malaysian origin to invest in Malaysia. Possible incentives may include considering equity held by denaturalized


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persons as that of native/local Malaysian for the purpose of qualifications for tax breaks or compliance with FIC guidelines.

Source investment know-how

The government should take steps to expand the scope of the Brain Gain Malaysia network beyond scientific research to also involve investors of innovation like venture capitalist. For example, exchange or visitation program for Venture Capitalist Experts and other financial professionals should be established to supplement current research based programs.

Build attractive environment for repatriation

While launching all the 3 initiatives above, Malaysia need to also improve its economic environment to make it attractive for Diaspora to return later. That being said, repatriation should not be the immediate objective of Diaspora programs but rather a consequence of economic development Exhibit 5.12.10 shows a timeline to be used as a guideline for implementation.

Exhibit 5.12.10: Timeline for implementation of Diaspora initiatives

216Final report6June 09-KLPv3.ppt

Q3 Q4 Q1

11

Q2 Q3

09 10

Q4

12

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

• Engage industry player and potential target of expansion to test viability and attractiveness of program

• Clearly identify expansion areas and draft new programs

• Compile and submit report to cabinet for approval

• Identify types of incentives to be offered through continuous engagement and feedback from overseasDiaspora

Provide specific investment incentives to denaturalized persons of Malaysian origin to invest in Malaysia

• Identify policy issues / areas for discussion and appoint Govrep that will reach out to Diaspora

• Determine criteria of potential target and leverage overseasMalaysian student network to engage target Diaspora

Policy maker to reach out to Diaspora to source ideas

• Meet annually to discuss policy matters and progress

Activities

• Obtain buy-ins and launch program / initiatives – Constantly monitor effectiveness / outcome of program

Expand scope of BGM network & activities beyond scientific research

• Continuously obtain views and feedbacks from Diasporaon potential reforms / improvement that can be made

Improve domestic economic environment

• Roll out new programs and monitor effectiveness of program– Modify program to suit needs of target group

Proposal submitted to cabinet for approval

1. Implementation delayed due to current economic situationSource: BCG Analysis

First dialogue to be carried out

Rollout of programs


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Policy implications

The recommendations put forth in this section have numerous policy implications as shown in Exhibit 5.12.11. Exhibit 5.12.11; Policy Implications of recommendations on enhancing foreign labour policy


1. Low skilled foreign labour• Establish sub-sectoral

dependency ceilings• Enhance current levy

system• Improve living and

working conditions for the workers

2. Expatriates earning <RM5,000

3. Expatriates earning >RM5,000

4. Engage Diaspora on policy and investments


1a. Introduce a cap to ratio of foreign labor to local by sector

1b. Levies channeled back to industries to up-grade to higher value added activities/innovation

1c. Impose conditions to provide necessary amenities for foreign labor

2. Allow middle income expatriates in selected sectors and occupation where there is a shortage of local workers

3. Adopt a more liberalized / open policy on expatriates• Including measures to offer appropriate social

infrastructure and amenities • E.g., international schools, arts and culture scene

4a. New investment incentives offered for Diaspora

4b. Annual dialogue to be established between policy makers and Diaspora

4c. Expansion of BGM network / activities beyond scientific research


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5.13: Harmonize and Update Labour Laws In order to increase the efficiency of the labour market, it is critical to ensure that current labour laws reflect the needs of the economy. This report proposes updating and harmonizing labour laws to reflect the change in economic structure. Currently, labour laws (e.g., Employment Act, Industrial Act and Trade Union Act) are not updated or harmonized. Moreover, these laws were created in the 1950’s and 1960’s to mainly cater to the public sector. Although these laws are now applicable mainly in the private sector, the laws have not been updated to reflect this shift. Therefore, labour laws need to be updated to reflect the change in economic structure.

Harmonize and update current labour laws

Labour laws should be updated and standardized to ensure consistency across the different Acts and to reflect changes in the economic structure. For example, new provisions should be included for flexi-hours and tele-working to reflect the need for flexible work arrangements. Also, laws governing the negotiation and dispute settlement process for Collective Agreements should be examined and revised with the objective of increasing the efficiency of the whole Collective Agreement system (e.g., by setting fixed timelines for the escalation of disputes to the Industrial Court). Updated laws have to be compatible to the region and should not deter foreign investments.

Exhibit 5.13.1 below summarizes a few issues in Malaysia’s current labour laws with some implications of change. However, these are only preliminary findings and are not exhaustive. A full review of labour laws has to be undertaken but is beyond the scope of this report. The MOHR is currently leading an initiative to review current labour laws by establishing a panel of experts that will spearhead this task. These preliminary findings should serve as input for that initiative.

Exhibit 5.13.1: Examples of issues with current labour laws

IssueIssue

No provision for flexible working arrangements (i.e., tele-working)

Lack of time guidelines for escalation of disputes to Industrial Court

Whole CA submitted to Industrial Court instead of disputed articles only

Relevant LawsRelevant Laws

Employment Act• Part XII

Industrial Relations Act• Part VI Section 18 and

19

Industrial Relations Act• Part VII Section 26

Implication of changeImplication of change

Institute conducive legal framework for highly skilled women and person with disabilities to join or re-enter workforce

Enhance efficiency of settlement of disputes for collective agreements

Note: A full review of the law is beyond the scope of this study and this list is a preliminary assessment. Further analysis into the all the relevant labor laws with detailed implications of suggested revisions have to be undertakenSource: Expert Interviews, BCG Analysis


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Exhibit 5.13.2 displays a suggested timeline for reviewing and updating Malaysia’s labour laws

Exhibit 5.13.2: Detailed timeline for updating labour laws

Q3Q2Q1Q4Q3Q3 Q2Q1Q4Q2Q1Q4 Q4Q3Q2

12111009

Activities

• Finalize and compile recommendations to be submitted to parliamentfor approval

• Conduct cost-benefit analysis of all the options– Obtain insight and buy in from employer and employees

• Determine possible options in resolving these issues– Benchmark and gain key learning from other countries

• Identify issues with current labor laws– Engage industry players, employers federations and

unions to assist in determining issues

Update and harmonize current labor laws

Proposal submitted to parliament for approval

Policy Implications

The recommendations put forth in this section have numerous policy implications, as described in Exhibit 5.13.3 Exhibit 5.13.3: Policy Implications of recommendations of harmonizing and updating labour laws


1. Harmonize and update current labor laws

• Reflect change in economic structure

• Revise laws governing collective agreements, including

– Ensure dispute escalation timeline set by MOHR constantly monitored and followed

– Eliminate ambiguities1

in collective bargaining regulations

– Explore possibility of limiting the Industrial Court arbitration process to articles in the CA under dispute only


1. Update laws and ensure consistency across different legislations

1. E.g., different regulations governing 1st vs subsequent collective agreement negotiations and employers involved in multiple industries refuse to negotiate with unions on premise that the unions do not represent the majority of their workers (for CAs)Source: BCG Analysis


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5.14: Streamline Management of Human Capital As described in Chapter 5.8, the current approach to human capital needs – through multiple programs and policies organized by various Ministries and agencies, can be further streamlined to enhance effectiveness in planning and execution. The desired outcomes of the recommendations in this section are to ensure the current fragmented approach to human capital, both in terms of supply and demand, will be minimized and replaced by a streamlined, coordinated approach.

There is a need to ensure that the recently established Cabinet Committee for Human Capital Development is fully leveraged. As described in Chapter 5.8, the Government has made progress toward a streamlined approach to human capital through the formation of NACET, but this Council has not been fully leveraged. For example, there is a focus group within NACET to look into employment projection, but its effectiveness is not clear. Particularly, our stakeholder engagements have shown that there is a need for greater planning on sub-sectoral industry demand. With regards to ensuring effective employment projection, all members of this focus group -- EPU, Department of Statistics, National Institute of Human Resource (ISMK) within MOHR, and Malaysian Industrial Development Authority (MIDA) – need to coordinate and leverage each other’s databases and expertise.

On an operational level, the Cabinet Committee needs to reside more frequently to ensure alignment. As mentioned earlier, NACET has only resided twice since its formation and this should not be the case with the new Cabinet Committee. It should meet as and when necessary, and there should also be a channel for the Ministries to collaborate beyond formal Cabinet Committee meetings. In addition, this report also emphasizes that the Cabinet Committee needs to be focused on common goals and outcomes rather than processes. For example, the Cabinet Committee should focus on the success of implemented programs / policies, rather than the number of meetings held.

To facilitate the Cabinet Committee, the National Human Resource Institute (ISMK) should be fully utilized, in particular, to offer database support for informed decision making. To ensure that the institute can provide timely and reliable national statistical information on the labour market, it should be fully staffed with competent personnel and should report directly to the Cabinet Committee.


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Exhibit 5.14.1: Suggested timeline for streamlining the management of human capital

Policy Implications

The recommendations put forth in this section have numerous policy implications, as described in Exhibit 5.14.2 Exhibit 5.14.2: Policy Implications of recommendations on streamlining management of human capital


1. Ensure new Cabinet Committee for Human Capital Development is fully leveraged to encompass all relevant Ministries towards achieving common outcomes

2. ISMK to be fully utilized


1. New Cabinet Committee with NACET (Majlis PenasihatKebangsaan Mengenai Pendidikan and Latihan or MPKPL) under it as the highest platform for strategic planning in human capital development

2. ISMK to directly report to the Cabinet Committee (provide database support)

12111009

Q3 Q4Q2Q1Q4Q3Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Establish panel of experts to forecast future skillrequirements of nation

Panel of experts to engage private sector representativesand government agencies in determining future skill needs

Ensure full utilization of ISMK to support the Cabinet Committee in formulating policies

• Recruit for new personnel and ensure ISMK is fully staffed• Collect, develop and compile important national statistics• Constantly publish statistics and submit frequent report to

Cabinet Committee

Activities

Ensure membership of new Cabinet Committee includes relevant Ministries

Cabinet Committee to reside and agree on expanded role to include labourmarket

Expert group formed

Forecast to 2015 completed


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Conclusion To conclude this report, it is important reiterate that the issues that have been addressed herein are critical in achieving a high income economy. There are certainly many more challenges within human capital development, but the issues addressed are the critical areas which need to be addressed in order to propel Malaysia towards a high income economy. Similarly, the recommendations presented were written to address the key challenges in human capital development. For each issue that is addressed, the recommendations will collectively address the core issue.

To illustrate, in addressing the issue where a high number of students enter the workforce with low skill levels because education is not considered a mainstream option, it is has proposed that firstly, the Government should focus on improving the supply of education, through harmonizing the infrastructure, corporatization, increasing industry collabouration and enhancing the value of certifications offered. Secondly, the Government should also improve the perception of education. Collectively, these recommendations will ensure that technical / skills education is a mainstream option and is no longer viewed as an inferior option.

While there is significant interest in wages (minimum wage, productivity-linked wages and Wage Council) and there has been consideration of whether or not the Government should intervene in the setting of wages, this report has chosen to focus on updating and harmonizing relevant labour laws to enhance labour market efficiency especially in terms of collective agreements. The premise of this report’s approach in wage determination is that market forces should in the end set wage levels. Direct intervention from government creates inflexibility in the labour market and could lead to severe wage overhang1. Wage increase is ultimately an outcome of multiple economic factors such as investments and skill levels of the labour force. Therefore, the optimal way forward for Malaysia is to enhance the aforementioned enablers instead of direct intervention in wage determination.

Finally, it has been suggested that there needs to be a central implementation unit to ensure successful implantation of the Strategy Package for Higher Growth and Structural Change, of which Human Capital for a High Income Economy is a strategic thrust. This Implementation Unit will report updates to the Prime Minister / Cabinet at least four times a year, based on its interaction with all the relevant implementation teams. Four to five staff will be necessary for this unit, and it should be headed by a person at Director-General level.

The role of this unit should be four-fold:

i. Facilitate in roll out of implementation process

a. Elaborate baselines (financial, headcounts and infrastructure)

b. Develop and manage tracking tool

ii. Coordinate across initiatives

a. Track initiatives’ progress against pre-defined timeline and milestones — ensure that desired outcomes, not processes, are achieved


92

b. Manage inter-dependencies among teams

iii. Facilitate communication

a. Frequently update key stakeholders

b. Establish communication channels across teams

iv. Identify and resolve issues

a. Ensure any issues are promptly identified and resolved

Australia and the UK have established similar units, which are described in Exhibit 5.4.

Exhibit 5.4: Implementation units created in the UK and Australia p

Prime Minister's Delivery UnitPrime Minister's Delivery Unit

• Created in 2001 in response to help Government focus on the effective delivery of its key priorities

• Monitor and report on progress in relation to PM's top delivery and reform priorities

• Identifies key barriers and areas for improvement in delivery

• Share knowledge on best practice • Supports development of high quality public

service agreement targets

• Reports jointly to the Prime Minister and to the Chancellor, works closely with Downing Street, the Cabinet Office

• 40 staff, a mix of central and department officials and private sector officials

Cabinet Implementation UnitCabinet Implementation Unit

• Created in 2003 to ensure better policy implementation, project management & monitoring

• Ensure that better information is put before decision-makers at the decision-making stage

• Organize selective and targeted follow-up of decisions

• Help change the way Government thinks about implementation relative to policy and how they plan for implementation

• Report every three months to the Prime Minister and then to Cabinet

• Staffed by 6-12 key staff over past two years with experience in policy and program areas

Overview

Objective

Operations

Staff

Source: University of Victoria; UK Treasury; Australian Government

Malaysia is at a critical juncture in human capital development and has the potential to achieve its aspiration of becoming a high income economy. However, it is important to quickly and effectively address the issues that are withholding Malaysia’s human capital development. The Government of Malaysia must ensure that necessary actions are taken to address these issues and that these actions must be accompanied by effective and constant monitoring to ensure that the desired results will be achieved.


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Appendix

Appendix 1: List of documents used in identifying issues in human capital 1. Human Resource Development Master Plan for Malaysia (2005), UNDP and Macquarie 2. Labour Situation in Malaysia: Overview 2008/2009, MOHR 3. "Ongoing Initiatives to Review Wage and Strategies to Raise Wage Rates" report, EPU 4. "Ongoing Initiatives for Strengthening Skills Training and Re-training, EPU 5. "Ongoing Initiatives to Reduce Utilization of Low Skilled Foreign Workers in Agriculture,

Manufacturing and Services", EPU 6. "Ongoing Initiatives to Improve Labour Productivity through Productivity-Linked Wage

System", EPU 7. Taskforce 3: Human Resource Best Proactive and Capacity Building update report

(5/2/2009), MPC 8. Productivity Report (2007), MPC 9. The National Action Plan for Employment (NAPE) in Malaysia (2008-2010), MOHR 10. Malaysia Labour Review (2007), MOHR 11. Labour Force Survey (1998-2008), DOS 12. Lambert Review of Business-University Collabouration (Dec 2003) 13. Malaysian Educational Statistics (2007,2008), MOE 14. Annual report of Steinbeis Foundation (2001-2004) 15. Guidebook on Policy, Procedure and Criteria for Foreign Worker employment in Malaysia 16. Impact of Foreign Workers on Malaysian Economy, National Economic Action Council 17. IPT Statistics 2007, MOHE 18. Briefing on The Human Resources Development Fund, PSMB 19. Measuring the Contribution to GDP and Productivity of the Malaysian Services Sector

(2008), World Bank 20. Evaluating SME Programs in Mexico Using Panel Firm Data (2004), World Bank 21. Strategies to Reduce the Dependence of the Malaysian Economy on Foreign Labour

(2007), USM 22. Standard for Quality Education in Malaysian Schools (2004), MOE 23. Malaysian Occupational Skills Development and Training Master Plan (2008-2020), MOHR 24. Malaysia: Enterprise Training, Technology and Productivity (1997), World Bank 25. Improving the Delivery System and Change Management of Skills Training Institutes

(2005), EPU NDTS Handbook on Social Skills and Social Values in Technical Education and Vocational Training, MOHR

26. Tracer Studies (2004, Brief Report 2008), MOHE 27. Report on training Capacity for SPM-leavers, EPU 28. Malaysia and the Knowledge Economy: Building a World-Class Higher Education System,

World Bank 29. National Employment Returns (2008), MOHR 30. MOHR Strategic Plan (2008-2010), MOHR 31. National Higher Education Strategic Plan Beyond 2020, MOHE 32. National Higher Education Action Plan (2007-2010), MOHE 33. Enhancing the Quality of Higher Education through Research: Shaping Future Policy,

MOHE 34. Report on Enhancement of Teaching Workforce: Toward Effective Skills Training, EPU 35. Ministry of Education Annual Report (2004), MOE 36. Education Development Blueprint (2001-2010), MOE 37. Labour and Human Resources Statistics (2006, 2008), MOHR


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38. PSMB Annual Report, MOHR 39. Training and Capacity-Building in English Language Teacher Education, MOE 40. Malaysia: Achieving the Millennium Development Goals, Success and Challenges, UNDP 41. Project Review System, Assessment Script, Government of Malaysia 42. Registry of National Occupational Skill Standard (NOSS), MOHR 43. 9th Malaysia Plan, EPU 44. Quick Facts, Department of Polytechnic and Community College Education, MOHE 45. Report on Drop-out Rates in Primary Education: Challenges in Compulsory Education,

MOE 46. Assessment of Intervention Programs to Address Drop-out in Secondary Education, MOE 47. Education Development Master plan (2006-2010), MOE 48. Preliminary report on Productivity and Investment Climate (October 2008)


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Appendix 2: Prioritization of issues

Reports and stakeholder engagements revealed wide range of issues across the human capital value chain, as listed below:

1. Low quality of (incoming) teachers 2. Infrastructure issues (large classroom sizes, low quality libraries, limited ICT infrastructure

in most schools 3. Outdated curriculum and teaching methods (hierarchical, little room for challenge) 4. Very few male teachers 5. Low percentage (25%) of primary school teachers with University degree 6. Malaysian students spend less time in the schooling system (11 years compared to 12

years globally) 7. High proportion of students opt-out of education after SPM/ technical skills education not a

mainstream option 8. Lack of performance development culture in higher education system 9. Infrastructure issues for certain geographies, professions (skills education) 10. High percentage of unemployed graduates 11. Students who are not suitable for tertiary education are granted university admission 12. Graduates lack employability skills, e.g., soft skills, English language proficiency 13. Negative attitude and aptitude of graduates towards employment 14. Little industry collabouration with universities 15. Promotion of faculty based on academic output only (i.e., does not take into account

industry experience or administrative / managerial responsibilities 16. Salaries of faculty fixed on Government pay scale 17. Selection of Vice Chancellor does not involve respective university 18. Funding is based on historical costs (No implications on funding regardless of

performance) 19. No clear policy on internships either for students or lecturers; Structure of internships

inconsistent 20. Performance management still nascent (targets yet to be developed) 21. Decline in number of high skilled expatriates 22. Dependence on foreign workers impeding innovation 23. Slow wage growth for certain sectors 24. Suboptimal function of Wage Councils 25. Lack of push for implementation of national level minimum wage 26. Low adoption of PLWS 27. Low participation of women, retirees and disabled workers in the workforce 28. Large untapped Malaysian Diaspora pool 29. Difficulty to dismiss employees due to inflexible labour laws and high firing cost 30. Lengthy collective agreement bargaining and settlement process 31. Overlapping efforts in managing human capital initiatives across Ministries


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Issues were short listed based on impact and feasibility of implementation, as described below:

Feasibility

Impact/ value

creation

Low High

Low

High

Source: BCG client experience

1

4

5

6

7

32

10

9

8 1112

13

14

15

1620

19

1718

2122

23

2425

2627

28

29

3031

Issues assessed based on impact and feasibility

Issues assessed based on impact and feasibility

Impact of issue• Impact on workforce capability and capacity• Necessarily to address to achieve higher

levels of growth

Feasibility of addressing issue• Duration required to fix issue• Complexity of issue• Number of stakeholders involved• Ability to access implementation resources

Mapping of human capital issuesMapping of human capital issues


97

The following exhibits show detailed prioritization of each issue:

IssueIssue

Low quality of (incoming) teachers

Infrastructure issues (large classroom sizes, low quality libraries, limited ICT infrastructure in most schools

Outdated curriculum and teaching methods (hierarchical, little room for challenge)

Very few male teachers

ImpactImpact

Quality of teachers is most important determinant of student outcomes

No significant relationship between class-room size and student outcomes

Improvements in curriculum and teaching methods will sort little effect if execution is done by low quality teachers

More male teachers are desirable as role-models but many high quality education systems are in a similar situation

FeasibilityFeasibility

Benchmarks show that targeted programs to improve leadership and quality of intake can be implemented at minimal costs

Building additional infrastructure or upgrading existing infrastructure will be costly

Updating curricula is not expensive but training teachers on new curricula will mean additional time away from class

Difficult to entice male students to become teachers without discriminatory measures, e.g., higher salaries

1

2

3

4

Low percentage (25%) of primary school teachers with University degree

Malaysian students spend less time in the schooling system (11 years compared to 12 years globally)

High proportion of students opt-out of education after SPM/ technical skills education not a mainstream option

Lack of performance development culture in higher education system

Infrastructure issues for certain geographies, professions (skills education)

Low percentage off degree holders means lower avg. quality of teachers and also lowers status of profession

Not a necessary prerequisite for improved outcomes, i.e. Finish students only start formal education at age 7

Relatively higher unemployment levels/ lower quality jobs and lower wages for those with only SPM

Existence of a performance management culture has shown to greatly improve quality in other professions, e.g., professional services

Additional infra for strategic sectors may be required but first ensure better utilisation of existing infra

Should be very feasible due to better salaries offered for degree holders

Could be addressed after quality of education has been improved

Feasible but requires that quality and perception of alternative (skills) education is adequate

Minor but efficient changes have the potential for large impact, e.g. performance management contracts for principals

Building additional infrastructure will be costly

5

6

7

8

9

High percentage of unemployed graduates

Students who are not suitable for tertiary education are granted university admission

Graduates lack employability skills, e.g., soft skills, English language proficiency

Negative attitude and aptitude of graduates towards employment

Little industry collaboration with universities

Promotion of faculty based on academic output only (i.e., does not take into account industry experience or administrative / managerial responsibilities

High quality graduates necessary to move economy up the value chain

Important to channel students to educational stream that can best hone the potential in them

Graduates who lack employability competencies face difficulty in securing job

Only affects small proportion of graduates

Tertiary education needs to equip students with industry-relevant skills

Rewarding teachers based on their individualized scope of work will keep them motivated

Feasible, but root causes needs to be addressed

Feasible through more stringent university admission process, to be determined by individual universities

Requires lecturers with relevant skill sets

Difficult to change mindset of individuals

Universities and industry prepared for collaboration, but lack push / pull

Feasible, need to revise promotion criteria

10

11

12

13

14

15


98

Salaries of faculty fixed on government pay scale

Selection of Vice Chancellor does not involve respective university

Funding is based on historical costs– No implications on funding

regardless of performance

No clear policy on internships either for students or lecturers; Structure of internships inconsistent

Performance management still nascent

– Targets yet to be developed

Universities unable to attract and retain talented faculty who opt for higher-paying jobs

Leader of university dictates quality of education and its outcome

Performance-linked funding will intrinsically motivate universities to perform

Internships will assist graduates to gain employability skills and ensure lecturers are up-to-date with industry development

Performance and accountability will ensure universities maintain quality

Feasible, but universities need to be able to justify remuneration paid

Include university representatives in search committee

Some universities may not be prepared for performance-based funding

Majority of companies do not participate in industrial training

Targets, method of measurement and implications from assessment needs to be developed

16

17

18

19

20

Decline in number of high skilled expatriates

Dependence on foreign workers impeding innovation

Slow wage growth for certain sectors

Suboptimal function of Wage Councils

Lack of push for implementation of national level minimum wage

Inability of employers to hire foreign skilled talent restricts economic growth and is a major disincentive for investments

Availability of low skilled foreign labor deters innovation and progression up value chain

Wage growth only small component contributing to the progression to high income economy;other factors include, investments and labor force

Wage council only caters to low income occupations

Minimum wage only assist low income workers with little implication on workforce capability and productivity

Can be addressed through policy change but may face resistance over the potential of local jobs being displaced

Can be addressed through ceiling and levy system but centralized database necessary for effective enforcement

Difficult to directly expedite wage growth as it is influenced by many economic factors e.g., skills level of labor force and type of economic activities

Can be addressed through enhancement / improvement of operations of Wage Councils

May face strong resistance from labor intensive firms in Malaysia as it affects their competitiveness

21

22

23

24

25

Low adoption of PLWS

Low participation of women, retirees and disabled workers in the workforce

Large untapped Malaysian Diaspora pool

Difficulty to dismiss employees due to inflexible labor laws and high firing cost

Lengthy collective agreement bargaining and settlement process

Overlapping efforts in managing human capital initiatives across ministries

PLWS one of the key elements to ensure flexibility in labor market especially in collective agreements

Number that would return limited and cannot fully alleviate labor shortage

Diaspora can remotely assist in knowledge transfer and facilitate in policy formulation

Flexibility of hiring and firing impacts ability of business to upgrade workforce

Results in inefficient settlement of disputes and inflexibility in labor market

Duplication of resources and non-alignment of initiatives impeding progress of human capital development

Requires mindset change and high level of trust between employer and employees

Requires mindset change accompanied by strong incentives / assistance from the government

Multiple initiatives i.e., expanding Diaspora network can be launched

Difficult to amend with strong resistance from employees and unions

Requires formulation of guidelines to assist in bargaining process

Requires establishment of monitoring agency at national level

26

27

28

29

30

31

Source: BCG Analysis


99

Appendix 3: Minutes of Meeting for Workshop 1

MINUTES FOR WORKSHOP ON STRATEGY PACKAGE FOR HIGHER GROWTH AND STRUCTURAL CHANGE: HUMAN CAPITAL FOR A HIGH INCOME ECONOMY

WORKSHOP 1

Plenary Session 1 Date: 11th March 2009

Time: 9:00am Venue: Hall 5, Putrajaya International Convention Center

Attendees Chairman Y. Brs. Dr. Mohd Gazali bin Abas – Director Human Capital Development Section, EPU Presenter Dr. Jim Minifie – Chief Economist, The Boston Consulting Group Y.Bhg. Prof. Datuk Dr. Noor Azlan bin Ghazali – Director, Malaysian Development Institute (MDI), EPU Participants Presenter, Commentator, Moderator and Participants for Working Group 1, 2, 3 & 4, 5 and 6 Challenges to Achieving a High Income Economy (by Dr Jim Minifie) KEY POINTS 1. Malaysia faces a significant growth challenge to achieve vision of a ‘high income

economy’ • Malaysian GDP growth slower than pre-crisis levels with slower wage growth • Current global downturn will further dampen economic growth

2. Productivity growth is central to GDP and income growth • Workforce and productivity are key drivers of economic growth • Malaysia GDP per capita mainly driven by increase in labour productivity • However, labour productivity still lags other Asian high income economy • Both capital and total factor productivity are critical to driving labour productivity

3. Human Capital is a major productivity growth driver and it features in peer’s growth agendas • Case Report Singapore: Liberalization and human capital development are major drivers

behind Singapore’s growth and success • Case Report Taiwan: Liberalization and tapping on diaspora key to Taiwan’s success


100

4. Implementing Malaysia’s ambitious human capital agenda will require significant discipline • Currently, Malaysian workforce still relatively unskilled • Multiple strategies and initiatives launched to date but challenge is to ensure

implementation of only the most effective strategies and initiatives

Human Capital for New Sources of Growth (by Prof. Datuk Dr. Noor Azlan)

KEY POINTS 1. Malaysia is losing its long term growth momentum

• Current growth of GDP is not as strong as before 1998 • Malaysia’s future economic sustainability is at risk unless growth momentum is regained • New growth areas needed to create this momentum

2. Malaysia is lagging behind its peers in terms of GDP growth • After the 1997 crisis, South Korea bounced back and made significant strides whereas

Malaysia has hardly moved on • Development is a relative term and a new engine of growth is needed to catch up in the

new economy

3. Malaysia risks falling into the “upper middle income trap” • Countries that fail to specialize and gain economies of scale risk falling into the trap • Malaysia needs to define specialization areas, focus and push for scale

4. Pushing for new sources of growth requires several elements including concentration, scale and supply & demand

5. Criteria for new sources of growth have been defined as fields containing the following elements • Significant impact on GDP • Job Creation • Ability to attain Global Dominance • Sustainability • Spillover and externalities

6. However, significant barriers still exist • No precedent/Incomplete info i.e., no reference/benchmark • High risk factor i.e., high penetration cost, uncertain rate of success • Uncertain Demand • Lack of critical mass

7. Human capital program to support the development of the fields identified as new sources of growth


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Workgroup 1: Strengthening Skills Training and Re-training Date: 11th March 2009

Time: 10:30am Venue: Room 24, Putrajaya International Convention Center

Attendees Presenter Mr. Pang Chau Leong – Deputy Director General, Department of Skills Development MOHR Y.Brs. Prof. Leslie Trustrum – Director of Academic Development, Malaysian Association of Private Colleges and Universities Y.Bhg. Dato’ Dr. Hj. Muhamad Nasir bin Hj. Hamzah – President, Federation of JPK Accredited Centers Commentator Y.Bhg. Datuk Muhammad Feisol bin Hj. Hassan – Malaysian German Chamber of Commerce & Industry Y.Bhg. Dato’ Hj. Imran bin Idris – Director General, Department of Polytechnic and Community College Education MOHE Y.Brs. Dr Mohamed Rashid Navi Bax – Deputy Director General, IPTS Management Department of Higher Education Moderator Y.Brs. Prof. Dr. Ahmad bin Othman – Faculty of Manufacturing Engineering & Tech. Management, UM Pahang Participants Mr. Mohd. Ali bin Jabar – Public Service Department Mr. Hj. Ahmad Tajudin bin Jab – Deputy Director, Technical and Vocational Education Division MOHE Mr. Syed Mohamed Noor bin Syed Mat Ali – Deputy Director General, Manpower Department, MOHR Mrs. Aruna bt Ismail@Abdul Wahab – Principal Assistant Secretary Human Resources Policy Division MOHR Mr. Hashim bin Shikh Ad. Kadir – General Manager (Operation), SDFC, MOHR Mej. (R) Van Weng Hong – Deputy Chief Executive (Operation), Human Resource Development Bhd (HRDB), MOHR Mrs. Mayzatul Azidah bt. Abdul Wahab – Training Resource & Development Division, HRDB, MOHR Y.Brs. Prof. Madya Dr. Noraini bt. Kaprawi – Director, Continuing Education Centre, University Tun Hussein Onn Mr. Zainuddin bin Yahya – Deputy Director Skills Development Division, Ministry of Youth and Sports Y.Brs. Dr. Muhamad Sopian bin Johar – Director of National Agriculture Training Council (NATC), Ministry of Agriculture and Agro based Industry (MOA)


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Mr. Abu Bakar bin Mohd Ali – NATC, MOA Mrs. Azizah bt Mohd Yusof – Senior Director, Construction Personnel Development Division, Construction Industry Development Board Mr. Rosli bin Abd. Rahman – Deputy Director, Education and Training Division, Majlis Amanah Rakyat (MARA) Mr. Phang Ah Tong – Senior Director (Investment), Malaysian Industrial Development Authority (MIDA) Mr. Yusoff bin Md. Sahir – Managing Director, German-Malaysian Institute Mr. Balakrishnan Vassu – Director, Quality Assurance Coordination Div., Malaysian Qualifications Agency (MQA) Mr. Najmi bin Hj. Mohd. Noor – Director, Institutional Audit Division, MQA Y.Brs. Dr. Kamariah bt. Noruddin – Deputy Director (Knowledge & Innovation), MDI KEY ISSUES: 1. Malaysia lacks skilled workers

• Proportion of skilled workers in Malaysia still low o 8.5% of workforce

• Lack of coordination between industry and training institutes • Many semi-skilled professionals do not have paper qualifications • Foreign investors refrain from investing in Malaysia due to limited skilled workforce • Increasing need for skilled and adaptable workers due to globalization and technological

advancements

2. Education system lack emphasis on employability skills • Employers cite lack of soft skills as barrier for hiring • Education culture lacks emphasis on employability skills • Internship programs do not provide valuable learning experience

o Intern not exposed to real working conditions

3. Vocational/skills training perceived as inferior option • Skills training institutes are currently viewed as inferior

o Only for those less academically inclined • Public sector does not recognize skills qualification • Institutes only performing at minimum requirement level • Teacher training outdated

o Not innovative, therefore translates into poor quality of graduates • Public perception toward skills training is poor

o Parents do not encourage children to go into these tracks o Paradigm shift required to realize full potential of vocational / skills training

4. Compartmentalized approach to education • Current knowledge economic model is compartmentalized

o Primary and secondary education o University / colleges o Skills training institutes


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o World of work • Workforce training has been neglected

o Industries not investing enough in training o Employers do not want to send employees for training

• Poor linkage among secondary schools and skills training institutes o Students are not aware of options available to them

• Need to break down barriers and allow for interflow • Lack of collabouration and coordination within compartments • Custodians of each compartment tend to be territorial • High proportion of students drop out before SPM, without continuing education

o Need for concerted efforts to track dropouts • Need for counsellors in schools

o Career counsellors to offer guidance on education and career options o Number of counsellors currently insufficient

5. Lack of emphasis on life long learning (LLL) • Minimal effort in LLL

o Efforts outlined in National Higher Education Action plan but implementation is still in progress

• Learning culture is not instilled in Malaysians o LLL is a social phenomena rather than a planned program

6. Foreign labour depressing wages and job opportunities of Malaysians • Wages depressed by foreign labour • Cheap foreign labour does not encourage companies to move up the value chain • Singapore train workers for redesigned jobs

o Security guards trained in paramedic knowledge and fire and rescue skills • Recognize the need for foreign labour in certain sectors but there are areas in which

Malaysians can take over • Malaysia needs to be aware of who it is creating jobs for and what kind of jobs are being

created

PROPOSED ACTIONS

1. Enhancement of policy coherence • Integrated approach to skills development

o Involve primary, secondary, tertiary education, and skills / technical training • R&D efforts should be coordinated • Provide articulation across different sectors in the MQF • Engage and empower private sector

o Establish Industry Lead Bodies and provide them with grants to undertake development of NOSS

2. Standardization of qualification of Malaysian workforce • Need for a single national certification system for skills training


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o Current certification gives rise to confusion and adds to inferior image of skills training, especially among parents and industry players

• Licensing of semi-professionals and skilled practitioners o License number of skilled occupations o Recognise and accredit experience and prior learning o Establish a ‘National Directory of Skilled Professionals’

• Enhance recognition of skills qualification in the public sector

3. Inculcate employability skills • Needs to be embedded into curriculum

o E.g., Adaptability, job-seeking skills, customer-oriented culture, professional etiquette, timeliness

4. Improve training delivery system • Training of trainers

o Incentives to be extended to private training providers • Increase training accessibility

o Feeder program through partnership in public and private sectors o E.g., SKM 2 at private institution can pursue diploma certification at public institution


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Workgroup 2: Strengthening collabouration between universities and industries Date: 11th March 2009


Attendees Presenter Y.Brs. Prof. Dr. Md. Yusof bin Abu Bakar – Director, Graduate Tracer Study Unit, MOHE Prof. Madya Dr. Norsaadah Ismail – Director, Industry Relation Division, MOHE Y.Bhg. Dato’ Dr. Hamzah bin Kassim – Chairman, Career Xcell Sdn. Bhd. Y.Brs. Prof Dr. Saran Kaur Gill – Deputy Vice-Chancellor (Industry and Community Partnership), UKM Y.Bhg. Dato’ Moehamad Izat Emir – President, Persatuan Pedagang dan Pengusaha Melayu Malaysia Mrs. Azizan Hawa Hassan – Senior General Manager, UEM Academy Sdn. Bhd. Commentator Y.Brs. Dr. Chris Saville – Advisor, UiTM-Industry Linkage Center Mr. Paul Boardman – Registrar, University of Nottingham Malaysia Y.Bhg. Dato’ Hj. Matshah Safuan – Group Executive Chairman, Safuan Group Berhad Mr. Mohd. Hanizan bin Zalazilah – Chairperson of Cooperative and Entrepreneurship Development Institute, UUM Mrs. Raenah bt. Md. Sem – Head of Student Industrial Affiliation, UiTM Moderator Y.Bhg. Dato’ Ghazali bin Dato’ Mohd Yusof – CEO Nusantara Technologies Participants Ms. Tina Yeung – Sheffield University Mr. Ahmad Azizuddin bin Abdul Karim – MOHE Y.Bhg. Dato’ Dr K Govindan – Secretariat, EC Y.Brs. Dr. Fatimah Mohd. Amin – Senior Fellow, MDI, EPU Y.Brs. Dr. Roslina bt. Mohd Isa – Principle Assistant Director, MDI, EPU Mrs. Nik Rozelin bt. Nik Ramzi Shah – Principal Assistant Director K-Economy Section, EPU


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KEY ISSUES:

1. Mismatch of expectations between employer and employees • Employers have unrealistic expectations of young graduates

o Unclear job requirements given by employers • Lack of employability competencies in graduates

o Graduates lack both soft (speaking, communication, etc…) and hard skills • Inappropriate curriculum structure and content

o Current curriculum subject oriented rather than competency oriented • Negative attitudes of students

o Not willing to be relocated o Not willing to do job considered as menial

• Curriculum in Higher Education is predominantly instruction led and content heavy (Dr Saville)

o Creates dependency rather than empowerment o KPIs needed for students to ensure students are instilled with employable skills

• Academicians do not know how to communicate with the industry players (Dato' Izzat) o Lead to lack of collabouration

2. Lack of information flow between companies and academic institutions • Inhibiting existing culture (Prof Norsaadah)

o Companies placing all responsibility of teaching to universities o Reluctant to train graduates

• Important for university lecturers to have industry experience (Prof Norsaadah) o Lecturers need to better understand industry needs for them to produce employable

graduates o Currently, 90% of lecturers in universities has no industry experience

3. Ecosystem is not mature enough to support university-academia collabouration • Industry academia collabouration is still in early phase of development • Structure of our enterprise do not demand collabouration

o Currently, economy is production driven rather than innovation driven • Lack of big conglomerates and MNCs to demand for collabourations • Current reward system in universities do not emphasize industry collabourations /

placements (Prof Norsaadah) • No incentives for industries to approach universities (Prof Dr. Saran)

o E.g., Singapore government provides grants for industries to absorb students

4. Multiple barriers faced by universities in collabouration effort • Difficulty in obtaining new attachment avenues • Delayed response from industry when invited for attachment programs • Objectives of industrial training not clearly defined by industry players • Industry players do not articulate grievances/complains about programs

o Thus, reduces chances of improvement in collabouration programs


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OTHER COMMENTS

1. Intermediaries like Career Xcell play important role (Paul) • Strengthen collabouration and assist student transition to the workforce

2. Systems have to be restructured to mandate experience in the industry for graduation with Bachelors degree and for progression from Bachelors to PhD (Paul)

3. International placement of domestic students vital to increase skill set and experience of graduates (Dato' Matshah) • Form collabouration with international companies • Provide exposure to latest technology for graduates

4. Entrepreneurship culture should be inculcated from secondary school (Dato' Matshah)

5. In general, most universities have good programs but lacks continuity (Prof Yusof) • Programs need to be institutionalized to ensure that it still continues even with changes in

personnel PROPOSED ACTIONS

1. Proposed initiatives to alleviate expectation mismatch between employer and employees • Create employment passport system on a benchmark basis

o Store profile of employability for graduates/workers • Conduct dialogues that will reduce the misconceptions about work environments • Expand work placements for academics in industry and vice versa • Jointly identify the 'hidden' curriculum in the subject

o Curriculum should be more competency focus • Communication between the Government and universities to align demands and supply

o Produce supply of human capital for identified growth areas • Government Linked Companies should play a more active role in absorbing students (Pn

Azizan) o Develop graduates in their specific field

2. Improve flow of information between parties • Establish online versatile portal to share important information

o Make information easy and accessible to all parties o Provide information on education programs available and current job opportunities

• KPIs of universities should be reviewed and should include o Number of linkages o Employability of graduates

• Incentives should be given for industry-academia collabouration o Include matching funds for critical fields of growth

• Publicize successful collabourations and case studies for other companies to emulate • Government should intervene actively to enhance collabourations

o E.g., ensure industry players will engage the proposed information portal


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3. Steps proposed to improve industry academia collabouration ecosystem • Contestable and competitive funding for universities

o E.g., higher funding for center of excellence that have higher rankings • Professors should be employed on a contract basis

o Contract should be performance linked • MOHE has to review KPI/reward system for lecturers in universities

o Reward system must include industry placement as one of the evaluation criteria • Qualifications to become lecturer have to be reviewed to include industry experience • National database system to track supply of graduates and alignment to country

development plans


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Workgroup 3&4: Enhancing Labour Productivity & Wage Rates (High Income Policy) Date: 11th March 2009


Attendees Presenter Tuan Haji Shamsuddin Bardan – Executive Director, Malaysian Employers Federation Mr. Mohd. Razali bin Hussain – Malaysian Productivity Corporation Mr. Kunaseelan Nadarajah – Ministry of Human Resources Mr. J. Palaniappan – Panasonic Air Conditioning (M) Sdn. Bhd. Commentator Y.Brs. Dr. Jim Minifie – Chief Economist, The Boston Consulting Group Mr. Kevin Tan – Omni View Consultancy (M) Sdn. Bhd. Moderator Tuan Haji Md. Jaafar Carrim – Immediate Past President, Malaysian Employers Federation Participants Mrs. Azizah bt. Arrifin – Labour Policy Department, MOHR Mrs. Rohani bt. Ahmad – Malaysian Industrial Development Authorities Ms. Sujitha Rajaratnam – Director, Human Resources, G.A.B Mrs. Nor Azian bt. Yahya – Small and Medium Industries Development Corporation (SMIDEC) Mrs. Mary George – Principle Assistant Director, Macro Economy, EPU Mr. Asdirhyme b Abdul Rasib – Principle Assistant Director Manufacturing Industry, Science and Technology, EPU Ms. Sa’odah bt. Junit – Deputy director, Services Industry, EPU Mr. Wan Hanafi bin Wan Mat – Deputy Director BCIC2, EPU Mr. Mat Noor bin Nawi – Director, Distribution & Corridor Development KEY ISSUES

1. Wage increase has outpace productivity growth (based on sample of companies surveyed by MEF) • Particularly in services and banks • Salary increased approximately 6% and 5.6% for execs and non execs over past few

years • A more conducive legal environment is needed to enhance flexibility in managing wages • Section 13(2)(a) of IR Act 1967 seen as ineffective as a yearly review of wages is

proposed but not mandated

2. Wages are sticky downwards • E.g., annual increment of salaries implemented, rather than annual review process


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3. Implementation of PLWS has been slow

4. Skill certification today not taken up given cost of RM300 to get certified • Companies ambivalent about skill certification

o Risk of increasing mobility of existing employees • Despite incentives to automate, companies still prefer foreign labour given current liberal

regulation on foreign labour usage

5. Implementability of a national minimum wage rate may not be required • Continue with current target sector driven minimum wage guidelines • However, wage councils need to review target sectors under its purview

o E.g., security guards mainly foreigners

6. Salient points that impact productivity today • Productivity growth for 2008 likely at 3.1% (4.2% for 2007) • Malaysia's productivity level is low at US$12 600. However, better than China, India and

Thailand • Unit labour cost is the manufacturing sector in Q4'08 has increased by 17.9%, associated

with declide in productivity of -14.8% • As of 2007, 62.4% of companies with Collective Agreements (CA) have PLWS elements • Resources need to be maximize to enhance productivity • High income policy may lead to wage gap • Total Factor Productivity aspects need to be addressed to enhance productivity • In current economic situation, brain drain could accelerate

7. Legal impediments in enhancing labour productivity and wage rates • Generally, there are no legal impediments to the existing legal framework

o Self governance structure with conflicts escalated • Wage councils are available, although wages set have been preceded by industry wage

changes • However, issues in implementing the legal framework

o E.g. Collective agreement locked in for 3 years o Constraints in terms of the daily working hours versus shorter working week

• Issue resolutions is a long process and difficult to achieve closure o Conciliation, enforcement, arbitration and finally appeal to courts o Any exemptions to legal framework require approval from DG and may be subject to

other conditions


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PROPOSED ACTIONS

1. Higher income strategy needs to be preceded by enhancement in human resource practices to achieve higher productivity and flexibility

2. PLWS is desirable and requires some intervention • Legislative facilitation to encourage PLWS implementation needs to be strengthened • More resources required to implement PLWS successfully • Common sector specific templates and models needs to be developed to ease

implementation

3. Skill certification an important tool to better link productivity/skills and wages • RM300 certification fee by JPK to be abolished

4. Establish platforms to enhance flexibility in managing workforce • E.g. multi-skilling, multi-tasking

5. Current sectoral approach (through wage councils) to minimum wages should be continued • Targeted at specific sectors facing intrinsic structural issues

6. National wage council a key enabler to provide guidelines for yearly wage review


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Workgroup 5: Reducing use of low skilled foreign workers in agriculture, manufacturing &

services sector Date: 11th March 2009


Attendees Presenter Mr. Asri Abd Rahman – Ministry of Human Resources Mr. Nik Abu Bakar – Ministry of International Trade and Industry Mr. Mohd Salimi bin Sajari – Ministry of Agriculture Mr. Goh Seng Wing – Senior Consultant, Malaysian Employers Federation Commentator Mr. Davies Danavaindran – Federation of Malaysian Manufacturers Mr. Mohamad bin Audong – Director, Malayan Agricultural Producers Association Moderator Y.Bhg. Dato’ Ghazali Mohd. Yusof – Senior Yellow MDI, EPU Participants YM. Dato’ Raja Zulkepley Dahalan – Malaysia Association of Foreign Maid Agencies Mr. Ayub bin Abd. Rahman – Foreign workers management division, MOHA Mr. Ahmad Zulnasri bin Abdul Khalid – Foreign Workers Management Division, MOHA Mr. Rohaizi bin Bahari – Deputy Director, Foreign Workers Division, Department of Immigration Mr. Mohamed Sanuri Shahid – Ministry of Plantation Industries and Commodities Mrs. Mazmen bt. Abdul Hamid – Ministry of International Trade and Industry Mr. Mohamed Zakri Baharuddin – Malaysian Employers Federation Mr. Baharudin bin Bedol – Labour Policy Division, MOHR Mr. A. Navamukundan – National Union of Plantation Workers Ms. Ivy Wong – Manager, Domestic Affairs, MICCI Mr. Khoo Kok Hwa – Manager, Business Environment Division, FMM Ms. Zizi bt. Alias – Assistant Director, Agriculture Section, EPU Mr. P. Jeevananth A/L Paliah – Principle Assistant Director Manufacturing Industry, Science and Technology, EPU Mr. Yogeesvaran A/L Kumaraguru – Director, Services Industry Section, EPU


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KEY ISSUES

1. High dependency on foreign workers - 2.06 Million foreign workers mainly from Indonesia and 700 000 of them are in manufacturing (Asri, MOHR) • Reasons for employing foreign labour:

o Shortage of local labour o Cheap o Poor work attitude of local workers (Goh, MEF)

High local turnover, job hopping, high rate of absenteeism in local workforce • Manufacturers unwilling to send back foreign labour because they have become ‘skilled’

with low turnover (Davies, FMM) • Conscious effort to reduce reliance on foreign labourers to 1.5 Million by 2015 – however,

target may be insufficient considering it is 5 years before achieving high income economy in 2020 (Moderator; Goh, MEF)

• Within agriculture, Government already intervening to manage inflow – through compulsory licensing and registration of farms, livestock, fisheries, etc (Mohd Salimi, MOA)

• That being said, some industries still need foreign workers – plantation and construction (estimated RM 90 Bn net export earnings lost from plantation in the scenario of no foreign workers) (Mohamad, MAPA)

• Phasing out of foreign workers should be gradual to allow employers ample time to adjust

2. Foreign workers depress wages in selected industries – RM450 – 550 (30% of total cost of production) (Asri, MOHR) • Results in low household savings and difficult to boost consumption during economic

downturn (Moderator) • However, no locals want to do jobs done by foreign workers especially plantation,

construction and 3D jobs (Mohamad, MAPA) • Labour laws do not discriminate between local and foreign workers (Goh, FMM)

o In practice however, many ways to circumvent this law, e.g., be self employed (Nava, NUPW)

3. Little incentive for industries to shift into automation, mechanization, ICT and IBS (Asri, MOHR; Moderator) • Activities can always be organized in a way that take away the back breaking operations to

modernize and move away from labour intensive activities, however investments not forthcoming from employers (Nava, NUPW)

• MPOB given task but some activities cannot be automated, e.g., harvesting --only 45% of processes can be automated (Mohamad, MAPA)

4. Outsourcing companies increasing labour supply where there is no demand • Malaysia branded as human trafficking due to the manner in which we handle human

capital (Nava, NUPW) • Note: 3 channels to approve foreign workers:

o One-stop centre o Outsourcing companies o Special approval by MOHA


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• Seasonal demand for workers (e.g., during CNY) require short term supply of workers o Established Outsourcing companies to get employees for the short term. However,

outsourcing companies impose stringent conditions, e.g. minimum 50 employees for 2 years

o Takes different form from what it was intended for

5. High cost of bringing in foreign labour; levy paid by employees • Government to double levy on foreign workers and levy are to be paid by employer with no

deduction from worker’s salary (Asri, MOHR)

6. Large untracked portion of illegal foreign workers • Creates social ills, housing, hospitalization, etc. • Legal foreign workers may also 'vanish into thin air' if know they are going to be repatriated

(Davies, FMM) • Even when workers fail medical, they do not return back to their homeland

o Stay on as illegals as a lot of money have been invested upfront(Davies, FMM) o Further problem of exposing Malaysians to infectious diseases (Goh, MEF)

• Need to reapply every 5 years, but number coming in to reapply always less than required (Mohd. Salimi, MOA)

• Difficult to track workers that come in through individual submission [Note: also through registered agencies or non-PAPA registered agencies]

7. Conflicting policies by different Ministries e.g., freeze on recruitment • 21/1/09 freeze recruitment in manufacturing & services • 11/2/09 uplift directive allowing recruitment in manufacturing, except E&E & textile

8. Laws in place, but enforcement proves difficult • No discriminating laws – same laws for local and foreign workers (Goh, MEF) • To what extent should the Govt regulate the labour market? • Malaysia has signed the ASEAN Declaration on Migration (Asri, MOHR)


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PROPOSED ACTIONS

1. Initiatives to reduce dependency on foreign labour • More drastic reduction of foreign workers through systematic paced reduction by sub-

sectors, in line with national policy of moving up value chain • Government to provide incentives and penalties to ensure compliance with rules and

policies formulated • Review education policy, provide job counselling to encourage locals to work in jobs done

by foreign workers (Goh, MEF) – need for mindset and attitude change of locals to relocate (Davies, FMM)

• Information on jobs need to be more widely available (FMM) • No blanket reduction on foreign workers imposed, careful consideration of industry's needs

and flexibility in setting limits (Mohamad, MAPA)

2. Government and industry players both to play role in addressing issues of depressed wages • Implement national minimum wage for selected sectors (Goh, MEF) • Companies to provide better compensation and fringe benefits to attract local workers

(Goh, MEF)

3. Government to actively promote mechanization • Government can intervene to encourage automation, e.g., tax breaks (Nava, NUPW) • Government provide support in terms of skills training and financial facilities as this

involves heavy investment (Goh, MEF)

4. Policies and management of foreign labour to be reviewed • Abolish outsourcing companies (Nik, MITI) • Government should consult industry in determining policies • One central agency or one Ministry to handle the affairs of foreign workers – recruitment,

policy changes, online applications (can be done if policies are clear) (Davies, FMM) o Current administrative system filled with last minute decisions and lack stability

• Monitor outsourcing companies which bring in large numbers of foreign workers without taking into account the actual market demand (Goh, MEF)

• Levies collected should be channelled to enhance automation scheme rather than become a source of revenue for the Government (Davies, FMM)

• Allow switching of foreign workers from one sector to another during economic downturn (similar concept implemented for construction where shift is permitted when project is over) (Davies, FMM; Dato' Raja Zulkepley, MAFMA)

• Government should provide facilities, e.g., housing, schools, and roads to further improve working environment (Asri, MOHR; Nava, NUPW)


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5. Enforcement of laws and regulations needs to be strengthened • Enforcement of law prohibiting individual submission for domestic help, Indonesia also

imposes fiscal tax of IDR2.5 Million (Dato' Raja Zulkepley, MAFMA) • Operation or campaign against illegal workers should be actively implemented (Davies,

FMM) • Laws need to be amended to comply with minimum standards set to ensure they can be

enforced (Asri, MOHR)

Workgroup 6: Flexibility in hiring expatriates Date: 11th March 2009


Attendees Presenter Mr. Azman Azra bin Abdul Rahman – Division of Immigration Affairs, Ministry of Home Affairs Mr. Stewart Forbes – Malaysia International Chamber of Commerce Mrs. Ee Hong – Private Education Division, MOE Mr. Ooi Goan Lee – Ministry of Science, Technology and Innovation Commentator Mr. Dom Lavigne – American Malaysian Chamber of Commerce Y.Brs. Dr. Ranu Dayal – Senior Partner and Managing Director, The Boston Consulting Group Moderator Mr. Vincent Chin – Partner and Managing Director, The Boston Consulting Group Participants Mrs. Lee Yoke Wan – Malaysian Employers Federation Ms. Lai Shevren – Ministry of Tourism Mr. Lim Si Boon – Chairman, MICCI of Perak and Local International School Operator Mrs. Zuraidah Mohd. Kamal – Senior Manager, MICCI Y.Bhg. Dato’ Sabariah Hassan – Ministry of Health Y.Brs. Dr. Ibrahim bin Abu Ahmad – Deputy Director, MDI, EPU Mrs. Salwani bt. Ismail – Principal Assistant Director, Social Services Section, EPU Mr. Selvarajoo A/L Manikam – Deputy Director, Infrastructure & Utilities


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KEY ISSUES

1. Currently, 38,000 expatriate positions in Malaysia but number is decreasing. Efforts to introduce new technologies and introduce new growth industries require skills that are not immediately available locally • Malaysian Government currently focuses on how to protect local jobs rather than attract

foreign talent • Mindset change needed at MOHR, as lead agency, to shift attention to building the human

capital base, of both local and foreign talent required for economic growth targets • Currently no-one has ownership of attracting foreign talent into Malaysia • Government should not restrict companies in their employment policy • Foreign companies view SEA Asia as one region and Malaysia currently loses out against

Singapore in attracting foreign business/ talent • Most measures so far to attract foreign and returning talent seem to be in place to

circumvent disincentives rather than offer positive inducements • Immigration feels political pressure to keep foreigners out as they are perceived to take

jobs from locals • Department of immigration has become more efficient in handling visa application process

but still room for improvement • Immigration wants to move to enabler role where guidelines come from the respective

Ministries • Limited efforts have been taken to encourage existing expatriates to stay, e.g., provision of

residence passes for long-stay expatriates • Malaysia does not really know where future growth will come from so restrictions on

expatriates should be as limited as possible

2. Brain Gain program is innovative program to tap into expertise of top Malaysian and international scientists, without physically relocating them. Program currently only focused on five sectors (Biotech, Sea to space, Industry, ICT, Innovation) • Program so far has had limited success with only approximately 550 participants

o Target group scattered worldwide o Currently low awareness amongst target group; more effort needed on branding &

positioning of the program • A database has been established to capture target group but needs to be further improved • Road shows have been undertaken overseas to reach out to target groups

PROPOSED ACTIONS

1. MOHR should see as its primary task to build Human Capital base including expatriates • Remove quota on expatriates • Move to negative list instead of current positive list for visa application; all expatriates

allowed in unless under specific circumstances, e.g., criminal record • Make visa application process as smooth as possible • Attract entrepreneurs who come without employment • Bring in PhD’s from developing countries


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• Retain current expatriates o Accelerated pathway in obtaining Permanent Residency o Ensure spouses can readily work

• Perform international benchmarking on best practices in terms of regulations

Quick win measures: • Eliminate unnecessary regulations on age, duration of stay, change of employment, paid

up capital requirement • Immigration needs more engagement from other Ministries / agencies on minimum

guidelines (negative list)

2. Selected improvement areas for Brain Gain Program • Program should widen focus to include all scientists. (Not only focus on five groups) • Establish strategic alliances with various partners to reach out to target groups • Pursue aggressive marketing, promotion and branding

Plenary Session 2

Date: 11th March 2009 Time: 4:30pm

Venue: Hall 5, Putrajaya International Convention Center Attendees Chairman Y.Bhg. Datuk Muhammad Feisol bin Hj. Hassan – Malaysian German Chamber of Commerce & Industry Presenter Moderators of each of the 6 Working Groups Participants Presenter, Commentator and Participants for Working Group 1, 2, 3 & 4, 5 and 6 CONTENT Recap findings of each of the Working Group


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Appendix 4: Minutes of Meeting for Workshop 2

MINUTES FOR WORKSHOP ON STRATEGY PACKAGE FOR HIGHER GROWTH AND STRUCTURAL CHANGE: HUMAN CAPITAL FOR A HIGH INCOME ECONOMY

WORKSHOP 2: RECOMMENDATIONS ON GOVERNMENT POLICIES AND ACTIONS

Date: 14th April 2009

Time: 8:30am Venue: 6th Floor, Block B6, EPU, Putrajaya

Attendees Presenter Larry Kamener – Senior Partner and Managing Director, The Boston Consulting Group Nor Azah Razali – Principal, The Boston Consulting Group Human Capital and Labour Market: Call to Action (Nor Azah Razali) KEY POINTS

1. Malaysia's productivity lags Asian high income economies

2. Workforce today still relatively unskilled • ~80% of workforce educated up to SPM or equivalent only • Only 25% of Malaysian jobs are in the higher skilled bracket • Skill levels a reflection of focus of economic sectors and extent of high value added

activities in each sector

3. To improve workforce quality, the Human Capital Initiative will tackle supply-side as well as labour market efficiency issues

4. Malaysia is facing a human capital crisis • Malaysia is not getting the best people to teach students • High proportion of students entering the workforce with low skill levels and are not career-

ready • Employers highlight general lack of employability competencies of graduates • 250% increase in low skilled foreign labour since 2000 ... while declining number of foreign

talent • Regulatory environment limiting workforce performance • Multiple Government initiatives to address human capital development and supply issues • but with limited tracking and assessment of output


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Performance & Development Culture in Government Schools in Victoria, Australia (Larry Kamener) KEY POINTS

1. Overview of Victoria and school workforce development strategy • Victoria is on the leading edge of policy and practice • School workforce development strategy developed in 2003, implementation to be in stages

2. Many leadership capacity building programs put in place • Programs targeted at three groups -- aspirant leaders, assistant Principals and Principals

3. Performance and development culture initiative aimed to develop a high-performing and supportive professional culture in schools • Survey reveals that teachers like schools with effective performance management and

were frustrated with tolerance of poor performance • 90% of Government schools have been accredited since 2005

4. Model can be applied for achieving cultural change in other complex and devolved organisations • E.g., Hospitals, Police, Universities, Technical Colleges, Government agencies

5. Lifting the quality of supply of teachers (Teach for Australia • 2-year program has intensive teacher training, classroom responsibility, leadership

development and ongoing benefits • Attracts new talent pool • Ultimately, Teach for Australia creates virtuous cycle for the teaching profession, raising its

status • Program participants have real impact • This global network is supported by the most prestigious organisations • Possible for Malaysia to use Teach for All model to enhance quality of teaching workforce

Participants Presenter, Participants for Breakout Sessions 1, 2, and 3


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Breakout 1: Improve perception and quality of technical / skills education Date: 14th April 2009


Attendees: Y. Bhg Dato Dr. K. Govindan -- Deputy Director General III, EPU Y. Bhg. Datuk Muhammed Feisol Hassan -- President, Malaysian German Chamber of Commerce & Industry Y. Bhg. Dato. Dr. HJ. Muhamad Nasir Hamzah -- President, Federation of JPK accredited centers, Malaysia Mr. Phang Chau Leong -- Deputy Director General, Department of Skills Development, MOHR Mr. Mohd. Subri Mat Isa -- Head, Planning Sector, Educational Planning and Policy Research Division, MOE Mr. Mohd. Sukri Ismail -- Deputy Director, Planning, Research & Development Division, Department of Skills Development, MOHR Mr. Zakri Baharudin -- Senior Manager, Malaysian Employers Federation Mr. Muhammed Ghazali Abdul Aziz -- Manager, R&D Unit Training Resource Division Human Resources Development Fund Mrs. Norehan Md. Shariff -- Department of Polytechnic and Community College Education, MOHE Mr. Abdul Rahim Hashim -- Director, MARA Vocational Training Division Tn. Hj. A’Azmi Shahri -- Deputy Director, Private Education Division Mr. Mohamad Dzafir Mustafa -- Head of Assistant Director, Standards and Qualifications Reference Division, Malaysian Qualifications Agency Ms. Suzy Yanty Ahmad Rubanti -- Assistant Manager, Strategic Planning Division, SMIDEC Mr. Abd. Hamid Kasiman -- Senior Assistant Director, Development & Training of Planning Branch, Skills Development Division, MOYS Mr. Ruslan Zainudin -- Principal Assistant Director, Technical and Vocational Education Division, MOE Mr. Jeevananth A/L Paliah -- Principal Assistant Director, Manufacturing Industry, Science & Technology Section, EPU Mrs. Widyawati Abd. Rani -- Planning & Assessment Division, MECD Y. Bhg. Dr. Soh Chee Seng -- Deputy Director, Public-Private Partnership Centre, EPU Mr. Ting Kok Onn -- Assistant Director, Public-Private Partnership Centre, EPU


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A. OVERVIEW

1. Breakout group agreed that skills training is currently not perceived as a mainstream option for SPM leavers • Poor perception, i.e. skills education is only for the worst students • Little knowledge on different options, (i.e. community colleges, public skills institutes,

private training providers) • Benefits of certificates, e.g. higher pay, not apparent

B. RECOMMENDATIONS

2. Harmonize technical/ skills training infrastructure • Breakout group agreed that harmonization is necessary to create a stronger system and

improve the status of skills education • Breakout group generally agreed to the measures to achieve this, i.e. all public skills

training providers must base their curricula on NOSS and adopt the SKM qualification system o However, the representative from MARA colleges objected to this proposal and stated

that MARA should be allowed to continue to use its own certification and curricula to ensure the MARA brand name

o It was suggested by one participant to use the national skills development act to enforce one certification system

3. Place institutes under one Ministry • Initial recommendation was to either place all public institutes under MOHE or MOHR • The breakout group agreed that the chosen Ministry should be the one closest to industry/

best understand industry needs • Several participants suggested placing the institutes under an independent body, e.g. EPU

or the Ministry of Finance

4. Corporatize training infrastructure • The facilitator explained the rationale for corporatizing and the key components, i.e.

separate role of owner and purchaser, provide operational funding based on performance and provide more autonomy to schools

• The breakout group had a lively discussion on the pros and cons of corporatization o Most participants believed average quality of education was likely to improve due to

increased competition o However some feared a loss of control by Ministries and poor quality outcomes. o A number of participants also highlighted the expected strong opposition from various

Ministries o One advocate of corporatization suggested to use funding to support growth in

strategic priority sectors


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5. Improve industry collabouration • Workshop participants agreed with the recommendations put forward to improve industry

collabouration, i.e.: o Increase share of direct industry-funded training o Promote industry staff exchanges (engage industry workforce as trainers and promote

industry attachments of teaching staff) o Appoint industry to implement quality monitoring and rating of technical / skills

institutes o Strengthen Industry Lead Bodies to assist with curriculum development based on

NOSS through grants and training of facilitators • One participant observed that it was of critical importance that industry moves away from

an advisory to an implementation role. • Another participant noted that one of the KPIs for institutes should be the number of

partnerships with companies

6. Enhance value of technical / skills certificates through licensing • Workshop participants agreed to this recommendation • It was suggested that an independent body be established for this purpose

7. Implement public education campaign to improve perception of technical/skill education • Workshop participants agreed to this recommendation • One participant mentioned that a campaign should not only focus on students but also the

wider workfoce


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Breakout 2: Enhance Quality and Employability of Local IPTA Date: 14th April 2009


Attendees: Prof Datuk Dr Noor Azlan bin Ghazali – Director, Malaysian Development Institute, EPU Mrs Nordiana Atan – Industry Relation Division, Higher Education Department, MOHE Y.Brs. Prof. Dr. Md. Yusof Abu Bakar – Director, Graduate Tracer Study Unit Mr. Hamidun Abdullah – Assistant Director, Private Education Division, MOE Mrs. Raenah Md Sem – Head, Student Industrial Affiliation, UiTM-Industry Linkages and Community Network Mr. Hanizan bin Zalazilah – Chairperson, Cooperative and Entrepreneurship Development Institute, UUM Y.Brs. Prof. Dr. Saran Kaur Gill – Deputy Vice Chancellor, Industry and Community Partnership, UKM Mr. Thomas Eapan – Deputy Chairman, FMM HRM Committee Mrs. Azizah Talib – Economist, Malaysian Employers Federation Mrs. Lee Yoke Wan – Manager, Malaysian Employers Federation Mr. Yogesvaran a/l Kumaraguru – Director, Service Industry, EPU Mrs. Azizah Hamzah – Director, K-economy, EPU Mr. Nik Azman – Macro Economics, EPU Mrs. Zaity Zalina Razali – Assistant Director, Service Industry, EPU Mrs. Fazliatun Abbas – Head of Resourcing, Sime Darby Bhd Y.Brs. Dr Zainal Aalam Hassan – Principal Assistant Director, Teacher Training Division, MOE Mr. Mohd. Fazli Md Shariff – Assistant Director, Public-Private Partnership Centre, EPU Dr. Chris Saville – Advisor, UiTM-Industry Linkage Centre Mr. Guan Eng Chan – R&D Division, MOE A. OVERVIEW

1. Breakout group agreed that graduates, in general, faced employability challenges • Lack motivation to seek out employment • Negative attitude toward work (E.g., Attitude that they are already knowledgeable and

need not learn further) • Lack self-confidence, particularly if they are not proficient in English language • Expect to be told what to do rather than being pro-active • Cannot endure hardship (E.g., Engineers do not want to be on-site)

2. At the same time, breakout group agreed that universities need to be better equipped in order to improve employability of graduates


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• Quality of teaching and leadership is paramount • Essential for academicians to have industry experience • Need for curriculum that is frequently updated with inputs from industry

3. Industry also has a role to play in ensuring that graduates are employable • Industry should share knowledge with universities. Avenues for these include research

collabouration, development of curriculum, and guest lectures • Should not place responsibility of teaching solely on universities • Should not expect universities to produce graduates with overly specific skill sets, as

universities offer a broad-based education B. RECOMMENDATIONS

4. Universities to be given autonomy in assessing and selecting students • Breakout group acknowledged that universities now are be enrolling students that may be

better suited to enrol at polytechnics / community colleges o Need to enhance alternative education channels to ensure students who are more

technical- / skills- inclined have an equally attractive option o Universities to screen and select own students to ensure quality of students enrolled

5. Promotion for lecturers need to reflect different career progression / pathways • Current promotion system is mainly based on academic output (e.g., research and

publications) without recognizing that there are two main pathways – academicians who focus on research and teachers who focus on delivering knowledge o Need to develop KPIs for each pathway o Should take into consideration administrative and management responsibilities

• Universities should also have flexibility in offering own remuneration scheme

6. Need to introduce a performance & development culture at universities with graduate employability as one of the key measures of performance • However, need to be implemented over time and with sufficient support from the

Government • Tailored targets in performance management system for each university • Effective utilization of government funds should also be included as performance measure • Implications from performance assessment should be formalized (e.g., accountability on

leadership of university or on budget allocation) • This will also make universities more competitive and eventually expand sources of

funding/ revenue streams


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7. Operational measures to ensure graduates meet needs of industry • Sharing of best practice among universities as well as with other institutions of higher

learning (e.g., polytechnics, other universities) • Encouraging "global exposure" to local graduates with twinning and exchange programs • Improving market signals: MOHE to provide students with information on economic

consequences of courses, including starting salaries and universities' performance matrix, including employability rates and career prospects of various courses

• Establishing fund and resources to support the participation of university faculty and students in specific collabourative efforts with industry

• Embedding employability skills into all courses • Introduce double degree or double major to widen skill sets of graduates (particularly for

students in social sciences / Islamic studies)

Breakout 3: Labour Market Efficiency Date: 14th April 2009


Attendees: Mr Stewart Forbes – Executive Director, MICCI Mr. Sulaiman Ismail – Director, Industrial Harmony & Research Unit, Dept. of Industrial Relations, MOHR Mr. Kunaseelan Nadarajah – Principal Assistant Director, Legal Unit, Dept. of Industrial Relations Malaysia Ms. Noeline Chanan Singh – Manager, Wages and Productivity, MPC Mr. Abdullah Monshi – General Manager, Human Resource Management, Petronas Tn. Hj. Indera Putra Hj. Ismail – Vice President, Malaysian Trades Union Congress Ms. R. Rajeswari – Research Officer, Malaysian Trades Union Congress Mrs. Lee Yoke Wan - Executive Director, Malaysian Employers Federation Mr. J. Palaniappan – Assistant General Manager, Panasonic HA Air Conditioning (M) Sdn Bhd Mr. Mohamad B. Audong – Director, Malayan Agricultural Producers Association Mr. A. Navamukundan – Executive Secretary, National Union of Plantation Workers Mrs. Maimum Yusoff – Deputy Undersecretary, Division of Human Resources MOH Mr. Ruben Gabriel – Executive, Federation of Malaysian Manufacturers Ms. Aidil Hasinah Abu Bakar – Foreign Workers Management Division, MOHA Mr. Azman Azra Abdul Rahman – Principal Assistant Secretary, Division of Immigration Affairs, MOHA Mrs. Wan Dallila Bakar – Head of Learning & Human Capital Development, RHB Mr. Elvis Edmund Emus – Assistant Secretary, Labour Policy Division, MOHR Y.Brs. Dr. Kamariah Noruddin – Principal Assistant Director, Malaysian Development Institute, EPU Mr. Ahmad Badri Jaafar – Principal Assistant Director, Labour Department, MOHR


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A. Foreign Labour

Key Points

1. Negative list key should be introduced to allow for optimal tapping of foreign talent • Employers should be free to hire foreign workers earning more than RM5,000 a month and

should be open to all sector • Only minimal requirements should be imposed for expatriate employment including

o Security Checks o Recognized Qualifications

• High skilled foreign talent are key to move to high income economy o Multiplier effect would benefit locals through creation of new jobs and inculcation of

entrepreneurial culture i.e., locals can learn from foreign talent the ways to operate a successful business

2. For middle income expatriates (income < RM5,000 a month), employment pass should be issued for selected sectors only. • E.g., for sectors such as IT, Transportation (pilots), Healthcare (nurses and pharmacist),

expatriates are still need to fill gap in human capital • Also, for industries identified as new sources of growth in Malaysia, employment pass

should also be issued in view of the likely lack of local talents • Issuance of pass should be restricted for industries that Malaysia already have a strong

base (e.g., Oil and Gas and Agriculture)

3. The lack of knowledge transfer from foreign talents currently working in Malaysia should be not be used as excuse in preventing expatriates entry • The responsibility lie as much in the locals, who do not show the hunger for knowledge

acquisition, as in expatriates

4. Dependency ceiling and enhance levy system should be implemented gradually and after deliberation with industry players • Vital to maintain competitiveness of firms hiring low skilled foreign talent to prevent their

migration to other countries • Initiatives to reduce dependency on foreign labour have to be done concurrently with

pushing the economy to higher value add activities - to ensure smooth transition • Relieves / Incentives should be given to companies that have reduced their dependence

on foreign labour (either through moving up the value chain, mechanizing or hiring local workers)

• Levies paid should be channeled back to the industry in a manner which would reduce employers dependence on foreign labour

5. Currently, Malaysia should focus effort on attracting high end FDIs but at the same time still accept other lower end investments • Transition to high value add economic activities would not happen overnight, and existence

of lower end activities are still vital for further economic progression


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B. Enhancing Labour Market Efficiency Key points

1. Current regulation on collective agreement does allow for flexibilities • Only 4 criteria are governed and negotiations on terms of employment can be done as

longs as the terms are not lower than those of the employment act • Variations to the terms negotiated are allowed by law; review on wages set can be don

annually (if negotiated in the agreement) • However, negotiations between unions and employers often rigidify the agreements

2. Flexibility of the CAs can be enhanced through implementation of PLWS • Guidelines on PLWS implementation should be review to ease implementation efforts

o Inherent barriers such as mistrust between employers and employees can be solved through clear implementation guidelines

• Most companies do incorporate elements of performance based wages in collective agreements

• Collective Agreement for B.Braun is industry best practice that should be used as example

3. Deadlock and disputes in CA negotiations are referred to MOHR industrial relations department, who would attempt to reconcile differences between both parties • Industrial Court would arbitrate when the reconciliation effort fails • Process of reconciliation and court arbitration decisions require long durations

4. Social security safety net i.e., unemployment welfare needs to be taken into consideration when addressing flexibility in hiring / firing practices • Efforts are currently being made to enhance social security

5. More effective meetings between MOHR and Wage councils to ensure mutually agreed recommendations are implemented • More frequent meetings/review of job specific wages for low income workers