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

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August 2009
The Boston Consulting Group

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

  1. 1. Strategy Package for Higher Growth & Structural Change Human Capital for a High Income Economy Final Report August 2009
  2. 2. 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
  3. 3. Strategy Package for Higher Growth & Structural Change 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
  4. 4. Strategy Package for Higher Growth & Structural Change 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
  5. 5. Strategy Package for Higher Growth & Structural Change 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
  6. 6. Strategy Package for Higher Growth & Structural Change 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
  7. 7. Strategy Package for Higher Growth & Structural Change 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 recommendations Phases Study milestones Steering Committee Develop implementation roadmap Finalize recommendations • 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 Yakcop Source: BCG Obtain buy-in from stakeholders Workshop WorkshopInception report Final report Draft final report 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.
  8. 8. Strategy Package for Higher Growth & Structural Change 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 Yakcop Source: 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 Haji Awang 2. Datin Asariah bt. Mior Shaharuddin 3. Haji Ali bin Abdul Ghani 4. Dr. Hj. Zainal Aalam 5. Ruslan Zainudin 6. Hj. Ahmad Tajudin b Jab 7. Norhayati binti Alias 8. Mohd., Subri Mat Isa 9. Tn. Hj. A'azmi Shahri 10. Hamidun Abdullah 11. Guan Eng Chan 12. Dr. Khair 13. Mohd Zainal bin Dirin 14. Dr. Zaida Mustafa 15. Dr. Zainab Hussein 16. Dr. Noor Zaib Wahab 17. Mahanom Mat Sam 18. Dr. Halibah Abdul Rahim 19. Zulfikar Husni bin Shamsul 20. Ismail Ahmad 21. Eizzatul Fadhilah binti Mohamad 22. Sulaiman bin Mohamad Khalid Secretary General Teachers Education Division Curriculum Development Center Teachers Training Div. Technical & Vocational Education Div. Educational Planning & Policy Research Div. Private Education Div. Private Education Div. R&D Div IAB. Curriculum Development Center Teachers Education Teachers Education IAB Teachers Education BPPDP BPPDP BPTV Research & Planning Research & Planning MOHAMOHA 1. Azman Azra Abd Rahman 2. Ayub Abdul Rahman 3. Aidil Hasinal Abu Bakar 4. Ahmad Zulnasri bin Abdul Khalid 5. Rohaizi bin Bahari Div. of Immigration Affairs Foreign Labor Mgt. Dept. Foreign Labor Mgt. Dept. Foreign Labor Mgt. Dept. Div. of Immigration Affairs MOHRMOHR 1. Mohd. Sukri bin Ismail 2. Pang Chau Leong 3. K. Nadarajah 4. Sulaiman Ismail 5. Baharuddin bin Bedol 6. Azizah Arrifin 7. Asri bin Abdul Rahman 8. Elvis Edmund Emus 9. Ahmad Badri Jaafar 10. Mej. (R) Van Weng Hong 11. Muhd Ghazali Abdul Aziz 12. Mohd. Sahar Darusman 13. Syed Mohamed Noor bin Syed Mat Ali 14. Aruna binti Ismail Abdul Wahab 15. Jamieyah binti Osman 16. Hashim bin Shikh Abdul Kadir 17 Mayzatul Azidah binti Abdul Wahab 18. Jeffrey Joakim Mohd. Jeffrey 19. Mooi Poh Kong 20. Mohd Napiah Haru 21. 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. PSMB HRDF Policy Division Manpower 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. Govindan 2. Prof. Datuk Dr. Noor Azlan bin Ghazali 3. Dr. Kamariah Noruddin 4. Dr. Mazalan bin Kamis 5. Jeevananth A/L Paliah 6. Dr. Soh Chee Seng 7. Mohd. Razli Md. Shariff 8. Ting Kok Onn 9. Yogeesvaran Kumaraguru 10. Zaity Zalina Razali 11. Azizah Hamzah 12. Nik Azman 13.Norisam binti A. Aziz 14.Kamarul Ariffin bin Ujang 15.Dr. Roslina binti Mohd. Isa 16.Nik Rozelin binti Nik Ramzi Shah 17.Mary George 18.Asdirhyme bin Abdul Rasib 19.Sa'odah binti Junit 20.Zizi binti Alias 21.Nazaruddin Abu 22.Salwani binti Ismail 23.Selvarajoo Manikam EPU MDI MDI MDI Manufacturing Industry, Science & Tech Section Public-Private Partnership Centre Service Industry Service Industry K-Economy Macro Economics Budget Development Corridor Dev. MDI K-Economy Section Macro Economy Manufacturing Industry, Science and Technology Services Industry Agriculture Section Services Industry Social Services Section Infrastructure and Utilities MOHEMOHE 1. Amir bin Mohd. Noor 2. Mazlan Zurin Zulkifli 3. Norina Jamaludin 4. Prof. Madya Dr. Norsaadah 5. Prof. Dato' Radin Umar 6. Dr. Siti Aishah Baharum 7. Rahmah Hussain 8. Norehan Md. Shariff 9. Nordiana Atan Policy Devt. Div. Academic Devt Dept. PMO Industrial Relations Dept. Dept. of Higher Education IPTA 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 Hong 15. Dr. Guan Eng Chan Graduate Tracer Study Unit Curriculum Development and Evaluation Division IPTS Management Private Education Research and Planing
  9. 9. Strategy Package for Higher Growth & Structural Change 8 Other Government agenciesOther Government agencies 1. Abdul Rahim Hashim 2. Rosli bin Abdul Rahman 3. Mohamad Dzafir Mustafa 4. Najmi bin Hj. Mohd. Noor 5. Mohd. Salimi bin Sajari 6. Cheah Hock Kooi 7. Dr. Mohd. Sopian bin Johar 8. Suzy Yanty Ahmad Rubani 9. Nor Azian binti Mohd. Yusoff 10. Lee Saw Hoon 11. Noelle Chanan Singh 12.Samauddin 13. Wan Nadia 14.Mohd. Razali bin Hussain 15. Mazmen binti Abdul Hamid 16. Mohd. Fauzi Mohd. Kudong 17. Nik Abu Bakar 18. Phang Ah Tong 19. Rohaini binti Ahmad 20. Maimum Yusoff 21. Sabariah Hassan 22. Abd. Hamid Kasiman 23. Widyawati Abd. Rani 24. Mohd. Ali bin Jabar 25. Azizah binti Mohd. Yusof 26. Mohd. Sanuri Shahid 27. Ooi Goan Lee 28. Harjeet Singh 29. Hamdan Hj. Puteh MARA (Vocational Training Div.) MARA MOA MOA MOA MOA MOA SMIDEC SMIDEC MPC MPC MPC MPC MPC MITI MITI MITI MIDA MIDA Min. of Health Min. of Health Min. of Youth & Sports MeCD Public Service Department CIDB MOPIC MOSTI MOWFCD JPA 1. Datuk Muhammad Feisol Hassan 2. Stewart Forbes 3. Dato' Raja Zulkepley Dahalan 4. Ivy Wong 5. Zuraidah Mohd Kamal 6. Tan Sri Dato Dr. James Alfred A. David 7. Tuan Haji Shamsuddin Bardan 8. D. Danavaindran 9. Thomas Eapan 10. Ruben Gabriel 11.Dato' Moehamad Izat Emir 12.Khoo Kok Hwa 13. Zakri Baharudin 14. Azizah Talib 15. Lee Yoke Wan 16.Zulraihah Harun 17.Jaafar Karim 18.Goh Seng Wing 19. Tn. Hj. Indera Putra Hj. Ismail 20. R. Rajeswari 21. Prof. Dr. Mohd Kamal Hj Harun 22. Prof. Dr. Mustafa Mohd. Zain 23. Dr. Chris Saville 24. Raenah Md. Sem 25. Prof. Dr. Saran Kaur 26. Hj. Mohd. Rashid Mohd. Fadzil M'sian German Chamber of Commerce & Industry M'sian I'nt. Chamber of Commerce & Industry M'sian I'nt. Chamber of Commerce & Industry M'sian I'nt. Chamber of Commerce & Industry M'sian I'nt. Chamber of Commerce & Industry FMM FMM FMM FMM FMM FMM FMM MEF MEF MEF MEF MEF MEF MTUC MTUC UiTM UiTM UiTM-Industry Linkage Ctr. UiTM-Industry Linkage Ctr. UKM UKM OthersOthers 27.Prof. Leslie Trustum 28.Gurpardeep Singh 29.Prof. Madya Dr. Noraini binti Kaprawi 30.Mohamad Ali bin Baba 31. Prof. Dr. Ahmad b. Othman 32. Prof. Lindsay Falvey 33. Tina Yeung 34. J. Palaniappan 35. Mohd Dzulqhifly Mohd 36. Abdullah Monshi 37. Wan Dallila Bakar 38.Yusoff bin Mohd. Sahir 39.Dato' Dr. Hamzah bin Kassim 40.Paul Boardman 41.Dato' Hj. Matshah Safuan 42.Azizan Hawa Hassan 43.Kevin Tan 44.Sujitha Rajaratnam 45.Lim Si Boon 46.Dato' Ghazali bin Dato' Mohd Yusof 47. Dato' Dr. Hj. Muhamad Nasir 48. Mohamad b. Audong 49. Capt. (R) Azlan Mohd. Isa 50. A. Navamukundan 51. Hanizan b. Zalazilah Malaysian Association of Private Colleges and Uni. Malaysian Association of Private Colleges and Uni. University Tun Hussein Onn University Tun Hussein Onn University Malaysia Pahang University of Melbourne Sheffield University Panasonic Sime Darby Petronas RHB German-Malaysian Institute Career Xcell Sdn. Bhd. University of Nottingham Safuan Group Berhad UEM Academy Omni View Consultancy G.A.B Malaysia Association of Foreign Maid Agencies Nusantara Technologies Federation of JPK Accredited Centers M'sian Agricultural Producers Association CLAB NUPW UUM 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
  10. 10. Strategy Package for Higher Growth & Structural Change 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
  11. 11. Strategy Package for Higher Growth & Structural Change 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
  12. 12. Strategy Package for Higher Growth & Structural Change 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
  13. 13. Strategy Package for Higher Growth & Structural Change 12 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
  14. 14. Strategy Package for Higher Growth & Structural Change 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 6.6 2020 aspiration 6.2 Real GDP/capita growth 2000-2008 4.5 Forecast growth ’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 Organization Source: 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 focusedyp y y 79 76 73 72 71 71 70 70 69 67 64 58 57 46 20 23 26 26 26 28 26 29 27 33 33 40 41 45 10 54 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
  15. 15. Strategy Package for Higher Growth & Structural Change 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 2007 0 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.
  16. 16. Strategy Package for Higher Growth & Structural Change 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 services Source: 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. 2006 Source: MPC Productivity report 2007, Philippines National Statistics Coordination Board 1,4702,3922,9362,963 4,750 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 2.82.92.9 3.23.4 3.7 4.2 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.
  17. 17. Strategy Package for Higher Growth & Structural Change 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 0.6 1.2 2.5 1.4 -1.3 1.5 2.5 -2 0 2 4 6 8 E&E Petchem, Oleochem and 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
  18. 18. Strategy Package for Higher Growth & Structural Change 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 27 24 23 21 23 22 21 20 30 34 34 35 9 12 15 16 % 4 1998 4 2001 3 2004 4 LowSec Primary 4 None 2007 0 Tertiary 100 PostSec 20 UpSec 40 60 80 11 12 73 63 8 12 8 13 1990 2007 0 100 20 40 60 80 % 3% 9% 5% 1% 0% -3% 5.7% 5.0% 2.6% 2.9% CAGR ’90 – ‘07 CAGR ’90 – ‘07 60 51 67 64 40 49 33 36 Singapore 1997 Singapore 2008 Taiwan 2007 Korea 2007 0 100 20 40 60 80 % CAGR ’98 – ‘07 CAGR ’98 – ‘07 Tertiary PostSec UpSec LowSec Primary None Unskilled1 Semi-skilled1 Skilled1 80% 25% 1. Based on type of occupations rather than education attainment to facilitate comparison with other countries Note LowSec = PMR, UpSec = SPM, PostSec =STPM, Tertiary =Diploma, degree Source: 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.
  19. 19. Strategy Package for Higher Growth & Structural Change 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 80 0 100 20 40 60 80 % Other services 128 3 66 19 9 7 75 9 2 3 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 countries Note: breakdown of skills level based on employed population Source: Department of statistic, EPU Economic model 257 5371,438 1,8071,24628746 972487 8531,871 1,450 Labor force ('000) Finance & insurance Mining Petchem2 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 80 0% 100% 20% 40% 60% % 43 106229 312 2707487 124110 18223 85 Labor 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 countries Source: Singapore Department of Statistics 2007
  20. 20. Strategy Package for Higher Growth & Structural Change 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.
  21. 21. Strategy Package for Higher Growth & Structural Change 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 Taipei Republic of Korea Singapore Hong Kong SAR Japan Hungary England Russian Federation United States Lithuania Czech Republic Slovenia Armenia Australia Sweden Malta Scotland Serbia Italy Malaysia Norway Cyprus Bulgaria Israel Ukraine Romania Bosnia Lebanon Thailand Turkey 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 Singapore Chinese Taipei Japan Republic of Korea England Hungary Czech Republic Slovenia Hong Kong SAR Russian Federation United States Lithuania Australia Sweden Scotland Italy Armenia Norway Ukraine Jordan Malaysia Thailand Serbia Bulgaria Israel Bahrain Bosnia Romania Iran Malta 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
  22. 22. Strategy Package for Higher Growth & Structural Change 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 school Class (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 teachers Note: Other factors influencing student achievement include student characteristics, family background and community expectations Source: 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.
  23. 23. Strategy Package for Higher Growth & Structural Change 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 teachers Leaders 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 Korea 0 100 50 % 1. in starter salary to ~ RM 2,000 /month for degree holders Source: Expert interviews, www.payscale.com, MOE, OECD 4,000 2,929 2,421 2,049 0 2,000 4,000 Secondary teacher Account executive Mechanical engineer IT consultant RM Medium 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
  24. 24. Strategy Package for Higher Growth & Structural Change 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
  25. 25. Strategy Package for Higher Growth & Structural Change 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 swasta Source: EPU, OECD Education at a glance 2003, DSD, MOHR, BCG analysis 101 119 133 103 45 54 4130 0 100 200 300 400 500 413 2003 105 16 89 15 Polytechnic & 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)
  26. 26. Strategy Package for Higher Growth & Structural Change 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 2007 2002 % 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 countries Source: 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 73.0 63.0 58.0 8.0 12.0 15.0 8.0 13.0 17.0 1990 2007 20202 0 100 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 wage Examples 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
  27. 27. Strategy Package for Higher Growth & Structural Change 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 59 62 68 0 20 40 60 80 Netherlands Australia Germany OECD average Korea Malaysia1 % 1. 2005 Source: EPU, OECD Education at a glance 2006, 9th Malaysian Plan, MOHE, DSD, BCG analysis % of upper secondary students in vocational education (2006) 39 33 8 0 20 40 60 80 100 2 83 2006 SKM 4 & 5 SKM 3 SKM 2 SKM 1 certificates ‘000 87% SKM certificates conferred 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
  28. 28. Strategy Package for Higher Growth & Structural Change 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
  29. 29. Strategy Package for Higher Growth & Structural Change 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 only Note: 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 Perlis UTeM: Universiti Teknikal Malaysia Melaka; UMP: Universiti Malaysia Pahang Source: Tracer Study 2004, (Brief report) 2008; MOHE 32 0 2526 34 35363637 4243444546 50 26 20 34 45 3 24 21 33 29 32 18 16 32 30 43 64 52 20 0 20 40 60 80 UTM UMS UMT UNIMAS UUM USIM UPM UIAM UTHM UTeM UMP 2004 20081 % 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
  30. 30. Strategy Package for Higher Growth & Structural Change 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 24 23 13 39 27 20 12 2 0 10 20 30 40 2008 2004 >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 1 Malaysia and the Knowledge Economy: Building a World-Class Higher Education System, World Bank
  31. 31. Strategy Package for Higher Growth & Structural Change 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.
  32. 32. Strategy Package for Higher Growth & Structural Change 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 package Source: 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.
  33. 33. Strategy Package for Higher Growth & Structural Change 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 1 8 1 7 1 6 1 5 1 4 1 3 1 2 1 1 1 0 987654321Strategic Thrusts/Projects 1. Governance 2. Leadership 3. Academia 4. Teaching & Learning 5. R&D 6. Internationalization 7. Graduate Employability 8. IPTS 9. Holistic Student Development 10. APEX 11. MyBrain15 12. Lifelong Learning 13. Academic Audit 14. PTPTN 15. Human Capital Development Fund 16. MOHE Delivery System 17. Polytechnic and Community Colleges 18. 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.
  34. 34. Strategy Package for Higher Growth & Structural Change 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 participation Source: 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
  35. 35. Strategy Package for Higher Growth & Structural Change 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 labor Source: 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
  36. 36. Strategy Package for Higher Growth & Structural Change 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 1.31.21.1 0.70.50.40.3 0 2 4 6 8 10 IrelandUnited Kingdom Netherlan ds 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
  37. 37. Strategy Package for Higher Growth & Structural Change 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 employment Source: 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 5.4 5.5 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 extraction 7 – Present across the entire value chain 4.2 4.6 4.8 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 development 7 – 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 chain Source: Global Competitiveness Report 2008, Singapore Department of Statistics, Companies Commission Malaysia, Hong Kong Company Registrar Score representations
  38. 38. Strategy Package for Higher Growth & Structural Change 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
  39. 39. Strategy Package for Higher Growth & Structural Change 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 Foreign Local 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 – Agriculture B – Fishing C – Mining and Quarrying D – Manufacturing E – Electricity, Gas and Water Supply F – Construction G - Trade H – Hotel and Restaurants I – Transportation and Storage J – Financial Intermediation K – Real Estate L – Public Sector M – Education N – 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 Services Maid Construction Agriculture1 Manufacturing Foreign workers (‘000) % of total workforce 2002 1. Includes plantation Source: Department of Statistics, LFS (2004) EPU (2008), Narayanan (2007) CAGR (’99-’07) 22% 13% 23% 20% 19% Total = 20% 2,045 5x increase since 1999 ~800 add’l illegal workers

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