Malaysia
Skill formation in the auto parts industry
At the end of February 2000, Malaysia's Minister of Finance declared that the financial crisis in Malaysia was over. Domestic automobile sales started to show the recovery. Next, because of the small domestic market, exports had to be increased to enjoy scale merits. The automobile industry of Malaysia has, until now, not yet reached the level of international competitiveness. The key to its further development is skilled manpower.
By YURI SADOI
The automobile industry in Malaysia .has developed thanks to domestic car projects. In the late 1970s, in order to promote a more solid manufacturing base, the Malaysian government took the initiative to invest in the automobile industry. The automobile industry has developed to a considerable extent and it enjoys tax benefits and protective tariffs for domestically produced cars. Bumiputra auto parts makers were nurtured as suppliers for the domestic cars. The two domestic cars, Proton and Produa, now collectively command eighty per cent of the local passenger car market.In truth, the protection hindered the further development of the supporting industry. The local manufacturing base did not develop as was initially planned. At present, the automobile industry, though making progress, still suffers from a lack of quality and high prices. Low quality and high costs of production are largely due to the high dependence on imports.
Malaysia, as well as other Southeast Asian countries, did not have as much success in developing value-added industries. Malaysia in particular has increased exports in manufacturing, but these have tended to be low in value. Technology makes it possible to switch to higher value-added industries. Industrialized countries have been able to build new plants that produce higher value-added products and design production engineering, and install necessary machinery in plants. Countries without these technical capabilities, however, have to import practically everything to start production.
After two decades of domesticating auto parts production, local production has increased. Production counts as domestic when the final part is assembled in Malaysia, even if more than seventy per cent of all parts are still imported. Why does the production of parts still lag behind in Malaysia?
One of the problems is a lack of skilled workers and technicians. Auto parts production needs a wide range of production techniques, which in turn require many types and levels of skilled workers. The shortage of skilled workers in Malaysia can be attributed to the following four factors: (1) insufficient government support; (2) employers' lukewarm attitudes; (3) unfavourable skill environment; and (4) weak individual interests.
1. Realizing the importance of skilled workers, the Malaysian government has been emphasizing skill formation by increasing the number of technical schools, introducing a skill certification system, and giving a tax incentive to companies which undertake training for their employees. Although Malaysia is undertaking various skill upgrading programmes, its efforts are insufficient towards solving the absolute shortage of skilled workers and technicians. The problem lies not only in the number; a lack of certain kinds and levels of skills form a serious bottleneck, especially with regard to the advanced skilled workers.
2. The employers' lukewarm attitude toward investing in their employees are mainly due to two factors: (a) a low rate of return, and (b) a lack of competitive pressure. A low rate of return on manpower investment is due to the high turnover rate of workers. For employers, it is not vital to upgrade their workers because domestic cars are highly protected from import competition and bumiputra parts makers receive government aid. They benefit from nationalization projects and face little competition in the domestic market. They do not feel the competitive pressure to upgrade workers.
3. For Malaysia, a late starter in industrialization, advanced technologies were easily available from developed countries. It did not make serious efforts towards building the technological base for innovation and adaptation. From the initial stage onwards, Malaysia relied on advanced machinery. Even small parts makers installed state-of-the-art machinery. As a result, the machinery of parts makers is as modern as that in Korea or in Japan, if not more so. However, most of these factories were built by foreign companies applying the so-called 'turn-key system': ready to start production upon turning the key. It was an effective way to start operation and to maintain the quality of products. With little experience in parts production and with few experienced workers, the modern skill-replacing machinery was often the best guarantee for a smooth operation.
But advanced machinery hinders skill formation. The Computer Numeric Control (CNC) machines used for parts production are something like a black box, programmed with a wide range of experiences skilled workers may have. Once sealed in the black box, these become invisible for the workers who have never experienced the transition process from manual machines to CNC. If Malaysia is satisfied with the present situation, only operators who faithfully follow the manual are needed. However, if Malaysian parts makers try to produce more value-added products, they will have to master skills that are now performed by machines.
4. One of the essential elements for skill formation is the individual worker's attitude toward skill upgrading. In general, workers in Malaysia pay less attention to precision and are less motivated for skill acquisition than their counterparts in other industrialized countries. Another important factor in accounting for slow skill formation in Malaysia is the fact that Malaysian workers are fairly satisfied with their lives.
Being a protected industry in Malaysian cars and parts production has not yet faced much competitive pressure. Lowering protective measures and allowing greater exposure to international competition will strengthen skill formation activities in Malaysia and will influence further development in the Malaysian auto industry. *
Dr Yuri Sadoi is an affiliated fellow at IIAS (Mitsubishi Motors Corporation).
E-mail: ysadoi@let.leidenuniv.nl