Monday, March 22, 2010

Penang’s future in Putrajaya’s hands

When it suddenly packed up and left in July 2008, the Nikko Electronics factory in Seberang Prai left close to 1,000 workers in the lurch and sent shockwaves through the business community.

Malaysia would finally be taking the hard hits of the economic downturn it was feared, after months of coasting by while countries like the United States saw tens of thousands of people losing their jobs.

Over the next year and a half, none of that materialised. The Nikko plant, it seems, had been operating at a loss for the past three of its 15 years in Malaysia.

Then in December 2008, Dell Computers announced it was offering 700 workers at its plant in Bukit Minyak a voluntary separation scheme (VSS). It raised eyebrows but there was still no cause to worry.

The nightmare of massive lay-offs and factory closures did not occur but this does not mean that the industrial behemoth, that is Penang, can be complacent.

Many factories and companies had shed excess workers during the recession as they restructured and retooled their operations, says Federation of Malaysian Manufacturers Penang branch chairman Datuk O.K. Lee. The more high tech its operations and products became, the fewer workers were needed.

At the same time, companies forced pay cuts on their employees and transferred them out of non-active divisions instead of laying them off.

Those painful adjustments allowed factories to resize to meet lower demand from a still sluggish United States market but most have gone back to normal work hours and salaries by March this year, says Lee.

The outlook for Penang is not glum, says Lee, but that does not necessarily mean it’s bright skies and soaring growth ahead.

In fact, in the coming years, warns investPenang’s Executive Committee Chairman Datuk Lee Kah Choon, money and companies may gradually drain out of the state and also the country as Malaysia loses what makes it attractive in the first place — its talented workers.

Better flat than nothing

Mohd Nasir was a production operator for five years at a factory that makes medical instruments but that changed when the plant started getting fewer orders starting early last year.

Then in May his bosses transferred more than half of its production line workers out because they weren’t getting enough orders to justify running those operations at full capacity.

The workers were put in other departments such as technical maintenance, where Mohd Nasir ended up. The company even cut down the number of working days from five to four and almost everyone took salary cuts.

“It was rough trying to adjust,” says the 29-year-old who only wants to be known by his first name for fear he might upset his bosses.

“My take-home pay was less,” says Mohd Nasir, adding that he initially thought of quitting but stuck it out as there weren’t better prospects elsewhere.

His resilience paid off. Starting this month, the factory brought back normal work weeks and salaries have gone back to normal.

Though he still misses his old production line post, he is thankful that at least, he still has a job.

This had been the trend in the factories of Bayan Baru, Bayan Lepas and Seberang Prai, the steel heartlands of Penang’s manufacturing sector.

The Penang arm of the Malaysian Trades Union Congress says aside from the Nikko plant, they haven’t received reports of retrenchments or lay-offs during the recession.

The reason could be that the scale of lay-offs, in proportion to the size of the factories, were small.

In 2008, Penang had about 202,000 workers in the manufacturing sector says a report by the Social, Economic and Environmental Research Institute.

According to investPenang as of November 2009, only 5,231 workers have been retrenched.

FMM’s Lee says many companies cut production by about one third as the recession brought orders down by about 30 per cent.

This has prompted plants like Mohd Nasir’s to slash salaries to prevent laying off workers.

Workers who were retrenched were able to find other jobs as new plants such as those by Honeywell and Ebdam were being opened up, says Lee.

“Overall, Penang’s graph looks flat for 2010,” says Lee. And though government bigwigs will say that the country is on the “path to recovery and growth”, there is a lot of uncertainty and confidence is still low.

Being flat could be good given all the turbulence but that graph could plunge.

Penang needs to quickly transition from a low-tech assembly-line hub that produces things like radios to high value operations such as design and development (D&D) and research and development (R&D), he says.

Though Lee says Penang has tried getting many big names to set up their high-end operations here, many are still only interested in setting up assembly plants.

“The high value ones, they send to Singapore. Why? Because here we have unqualified graduates and workers.”

The rub to that is that those high value operations in places like Singapore are sucking in all the highly skilled and qualified Malaysians.

“We pay peanuts but don’t want monkeys”

How deep Malaysia is sliding into the middle-income trap is a joke, mused a Penang-based senior reporter for a major daily. The country exports all its skilled and qualified labour to places like Singapore, Australia, the United Kingdom and imports unskilled workers for its factories, plantations and construction yards.

The state government, the business associations and the unions realise that Malaysia has to extricate itself from that trap but the hardest part, of course, is actually doing it.

The solution that FMM, investPenang and MTUC agree on, is better human resources but they all have differing ideas on how to cultivate it.

Penang MTUC chairman Abdul Razak Abdul Hamid points to how the absence of a minimum wage system and outsourcing is fuelling the hunger for foreign-worker-driven assembly plants while it dissuades better-skilled locals from signing up.

Companies in Penang which want to lessen their labour costs farm out their operations to someone who can do the work for less pay.

“The outsourced workers take on the same jobs but are paid less, they get no Employee Provident Fund contributions and no medical benefits. But they work in the same factory under the same conditions.

“There are even cases where a company’s workers are told the next day that they will be managed and paid by an agent. Everyone does it, especially all the MNCs (multinational corporations),” claims Abdul Razak.

By suppressing wages, Abdul Razak reasons, companies have to ship in foreigners, who are willing to be paid less than locals, while the locals go overseas.

“Without high wages we will never go high end”

FMM’s Lee believes Penang needs to attract the best universities to set up here by offering tax free status like that given by companies in the free trade zone.

“If you have the best people being produced here, companies will set up shop here,” says Lee.

InvestPenang’s Lee says it is a problem of bureaucracy and ill-conceived priorities by the Federal government.

“Even with all these programmes, we are unable to get our talent to come back unlike Taiwan, India and China. We only look at things like allowing them to bring back cars but that is not that important.

“What is important is their family. They bring their spouses back but we don’t allow them to work here, even as cashiers. We don’t have enough international schools for their kids. In the end many get frustrated and go back.”

Development funds from the federal government are also not forthcoming, says Kah Choon and this crimps the state’s ability to provide infrastructure.

“Penang contributes 10 per cent of Malaysia’s Gross Domestic Product, yet we only get RM300 million year from the Federal government. In comparison, Penang Hospital’s operating budget is RM400 million a year.”

Future not necessarily in its hands

In the short term, Kah Choon believes that Penang is still attractive, both as place to do low-end work and as a hub for moving a company’s regional operations.

“Some of the biggest names have been here for years. Intel, AMD, Motorola all have their regional centres here. Penang is still a good place to invest.”

Ultimately, whether the state continues to be attractive depends not on itself. Policies on education, taxes, wages, investments and how to plug the brain drain are decided a world away in Putrajaya but their consequences are felt here.

“We want more say in how ministries approve of and bring international projects to Penang. We want more say in how our money is spent,” Kah Choon emphatically states.

Also, it would take a national consensus with input from all the states to agree on what to do with the many unskilled locals who could lose their jobs once a high tech economy is put in place and firms shift their assembly operations overseas.

Such retrenchments are a painful process, says Kah Choon, but for now, at least they are part of a company’s restructuring of operations.

“We don’t see a mass exodus (of MNCs) out of Malaysia yet. But if we don’t take care of our human resources it’s going to happen soon.”

And that will make the recent economic storm seem like a drizzle.

courtesy of Malaysian Insider

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