THE manufacturing sector and foreign direct investments have been the growth engines of Malaysia’s economy. The former creates jobs for people of all skill and education levels.

In recent years, it has been said that most of these jobs — especially in the assembly and packaging of components — are, of necessity, low wage in nature. Besides that, questions have been raised over whether the sector is creating more jobs for foreign workers than for locals.

Some quarters opine that if the purpose of providing good-paying jobs for the locals is not met, then manufacturers should perhaps look into adopting automation to improve their factories’ efficiency.

It has not gone unnoticed that most local manufacturers are still hesitant to automate their operations, and their reluctance could be partly attributed to easy access to foreign labour. The latter is arguably cheaper than investing in automation.

“I think many companies in Malaysia are fairly complacent and risk-averse. They are not ready to move out of their comfort zone,” says Yeah Kim Leng, economics professor at Sunway University Business School and former group chief economist at credit rating agency RAM Holdings Bhd.

“We are stuck for a longer-than-necessary period in labour-intensive manufacturing because some of our companies are stuck in the ‘middle-income trap’, or rather ‘middle-age complacency’ at the firm level, where they have no hunger at all to grow faster and become the likes of Google and Samsung,” he tells The Edge.

Yeah acknowledges that the easy access to cheap foreign labour is a double-edged sword — it allows local manufacturers to operate in a lower-cost business environment but discourages them from automating.

“It is one of the hiccups that makes us complacent and feel less pressure to upgrade. That’s why some countries have a high-wage policy to force the manufacturing industry to move towards the right direction,” he says.

Federation of Malaysian Manufacturers president Tan Sri Saw Choo Boon says the government has realised that a labour-intensive manufacturing sector that relies mainly on low-cost labour, especially foreign workers, is not the way to go.

“We need to move up to high value-added activities that will also contribute to higher productivity through the use of automation, robotics and high-skilled workers, as well as the development of innovation through research and development,” says Saw.

“We should also attract high-end investments to the country, which could lead to the transfer of technology as is evident in the electrical and electronics industry. It has created world-class vendors through its outsourcing activities,” he adds.

Associated Chinese Chambers of Commerce and Industry of Malaysia president Datuk Ter Leong Yap says business players should change their mindset and realise that there is an urgent need to embark on automation, which requires capital investment. This is because relying too much on foreign workers will not work in the long run.

“Today, in order to remain competitive, manufacturers need to produce in huge volume with consistent quality. You cannot be hiring thousands of workers to do it … you will have problems in managing them and there could be human error. But if you are using automation, machines can run for 24 hours, and they are more reliable.”

However, he says efforts in reducing the reliance on low-skilled foreign workers should be made gradually.

“Yes, it is not good to have too large a foreign workforce, but it is also not good to have a hard landing,” warns Ter, who is also president of the National Chamber of Commerce and Industry of Malaysia.

Kossan Rubber Industries Bhd managing director and CEO Datuk Lim Kuang Sia concurs.

“Some business owners are sitting comfortably while their companies are making a profit. They might think to themselves, ‘If I can make money by hiring foreign workers to get the job done, why should I spend money on automation?’ So, there is a certain degree of complacency, and they should change their mindset,” he says.

Lim believes that labour-intensive manufacturing operations are no longer competitive in the world market, and automation is the way forward.

“We have to automate the whole plant, and I’m talking about every corner of the office, and not just the production line,” he says.

Anwar Jumabhoy of BCE Consulting says the most effective way for Malaysia to encourage its manufacturing sector to become automated is to remove all illegal workers and raise the salary level.

“I lived in Singapore and worked in a shipyard when the government pushed up the cost of labour. We had no choice but [to] improve productivity and go up the value chain, since there was zero chance of getting illegal workers,” he says.

According to Anwar, Malaysia has structural impediments to growth as all major contracts are parcelled out, which means that no one gets a chance to build scale and invest in technology.

“Anyway, why invest in technology when you can always get illegal workers that are cheap,” he quips.

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