Local manufacturers are turning to technology to reduce dependence on cheap foreign workers.
With the government applying pressure on them to improve the treatment of foreign workers in the face of international criticism, the cost of employing foreign workers is going up.
So, manufacturers are taking various measures to cope, from greater use of automation to moving operations abroad, according to a report in the Nikkei Asian Review (NAR).
The report said Top Glove, the world’s leading maker of rubber gloves, for instance, was taking measures to reduce its 7,000 foreign workers – about 70% of its payroll.
It is using cutting-edge technology at its new factory in Klang, scheduled to start operating in April, to economise on labour. Top Glove also plans to install robots at existing plants and to double the number of technical experts developing new equipment to 200 by next year.
NAR quoted Top Glove chairman Lim Wee Chai as saying technological development was the key to cutting its dependence on foreign workers.
Kossan Rubber Industries plans to install new packaging equipment at a plant scheduled to begin operating soon near Kuala Lumpur. When ready it would allow just 1.8 workers to do work that used to require five, said the NAR report. Through this, it is hoping to reduce the nearly 3,000 foreigners on its payroll.
NHF Manufacturing (Malaysia), a joint venture with Japanese food processing giant NH Foods, is installing greater automation at its new plant specialising in halal products, expected to be in operation by 2018.
The NAR report said these moves stemmed from a shift in Malaysian labour policy.
The number of foreign workers registered with the government increased 35% between 2011 and 2015 to 2.1 million. Another two million are said to be working illegally, meaning those from overseas account for a quarter of the country’s labour force, according to the report.
However, the treatment of these workers has drawn heavy criticism. Many are said to be paid below minimum wage and to have their passports taken away to prevent them escaping.
The Malaysian government, the report said, was worried that if it failed to address the issue, it could lead to a boycott of Malaysian products.
It has raised the minimum wage and cracked down on illegal work and minimum wage abuse. A new policy requires companies to shoulder an annual levy of RM1,500 to RM2,500 for each foreigner they employ.
Tougher regulations, the report noted, would inevitably raise wages, and labour-intensive factories would be hit harder than heavily automated ones.
Also, Malaysia’s long reliance on cheap foreign labour to keep its factories competitive has allowed outdated products and old labour practices to survive.
This has resulted in the manufacturing sector losing its edge despite the cheap workers available, according to the NAR report.
Productivity among manufacturing workers in Malaysia dropped 14.6% a year between 2012 and 2014, the World Bank reported last December.
The average decrease across Asean was much slimmer at 1.9%.
Although Malaysia’s gross domestic product per capita was about the same as South Korea’s until the mid-1980s, it now comes to roughly 35% of South Korea’s.
Malaysia, said the NAR report, had been “left in the dust by its former peer, which aggressively invested in cutting-edge technology and other fields”.
Also, some companies are moving out of Malaysia.
The NAR report said packaging materials maker Scientex, for instance, planned to build a stretch film plant in Arizona, US, to produce items previously exported from Malaysia closer to where they were sold.
EKA Noodles last month shut down its flagship plant in Kedah. Apparently the minimum wage hike last July from RM900 to RM1,000 a month made continued operations difficult.
Local factories are turning to automation following increased government pressure to take better care of foreign workers, but some firms are moving out.