Malaysia Productivity Blueprint - Driving productivity of the Nation

1. Sector Productivity Nexus are described in detail in chapter 6 of the Blueprint. Malaysia Productivity Blueprint E-4 Productivity must be addressed holistically and in tandem – at the national, sector and enterprise levels The Blueprint outlines immediate national-level priorities that require policy reform and the government’s intervention and action within the next twelve to twenty-four months. For sector-specific initiatives, a rollout in prioritised stages is proposed. At the enterprise level, the Blueprint describes the required expertise and support for enterprises to understand and tackle their productivity challenges on the ground. NATIONAL-LEVEL INITIATIVES SECTOR-LEVEL INITIATIVES ENTERPRISE-LEVEL INITIATIVES National-level initiatives outline policy Sector-level initiatives outline explicit Enterprise-level initiatives outline priorities to uplift national productivity sector strategies to address sector-level specific enterprise strategies to enhance productivity barriers operations related to productivity • To be led by core government ministries improvement and agencies • To be led by key industry associations • Targets governance of productivity policies and anchor enterprises for each sector • To be led by management at enterprises impacting all economic sectors • Targets acceleration of productivity uplift, (including SMEs) with guidance from impacting large enterprises and SMEs sector Productivity Nexus at sector level • Targets productivity improvement at enterprise level Strong coordination and governance are key to Productivity needs to be top of mind movement and securing implementation certainty embedded into day-to-day work culture The Blueprint implementation requires oversight through a robust Enterprises need to understand the impact that productivity will have governance model. There are four clear roles required going forward: on their bottom line, and have access to a feasible method of tracking strategic oversight, advisory, coordination and monitoring as well as their productivity. It is essential that government mechanisms encourage implementation. Strong coordination is critical to driving implementation productivity (such as by ensuring that all incentives are linked to clear on the ground, with rigorous programme management to ensure productivity outcomes) so that enterprises adopt productivity tracking as transparency and accountability. Sector Productivity Nexus will play a key the norm. In addition, a national-level campaign should be launched to role in supporting enterprises on the ground, simultaneously improving ensure targetted messages are communicated at enterprises, government the visibility of the implementation progress. agencies, youth and students as well as the general public. E-5 Executive Summary At the national level, ten initiatives require urgent action. These initiatives are anchored on the five strategic thrusts, and are outlined below: THRUSTS NATIONAL INITIATIVES Enforce structural changes to the workforce by formulating a comprehensive labour market policy, Building Workforce including reducing reliance on low-wage and low-skilled workers 1 of the Future Conduct national strategic workforce planning in anticipation of changing needs across the sectors Strengthen readiness, knowledge and adoption of technology by enterprises across sectors Driving Digitalisation 2 and Innovation Strengthen digitalisation among SMEs through e-commerce and adoption of innovative technology Gradually reduce the reliance on non-critical subsidies, and ensure liberalisation efforts are linked to Making Industry productivity outcomes 3 Accountable for Productivity Realign key grants, incentives, soft loans and other funding mechanisms to productivity metrics and outcomes Accelerate efforts to enhance whole-of-government approach towards addressing regulatory constraints Forging a Robust 4 Ecosystem Establish an accountability mechanism for the implementation of regulatory reviews by the government Institutionalise a strong coordination and governance model to secure implementation certainty across Securing a Strong government, sector, and enterprise levels 5 Implementation Mechanism Launch nationwide productivity movement to inculcate a stronger culture of productivity across all segments of society Malaysia Productivity Blueprint E-6 To rollout the national-level initiatives, sixteen key activities have been identified, six of which are to be implemented immediately. The sixteen activities are listed below: Making Industry Securing a Strong Building Workforce Driving Digitalisation Forging a Robust Accountable for Implementation of the Future and Innovation Ecosystem Productivity Mechanism Enforce structural changes to Strengthen readiness, Gradually reduce the reliance Accelerate efforts to enhance Institutionalise a strong N1 N3 N5 N7 N9 the workforce by formulating knowledge and adoption of on non-critical subsidies, and whole-of-government coordination and a comprehensive labour technology by enterprises ensure liberalisation efforts approach towards addressing governance model to secure market policy, including across sectors are linked to productivity regulatory constraints implementation certainty reducing the reliance on low- outcomes across government, sector, and wage and low-skilled workers enterprise levels 1 Restructure and improve 7 Actively encourage adoption 9 Undertake necessary revisions 13 Remove non-tariff measures 16 Evolve governance model to the management of foreign of 4th Industry Revolution to ensure regulations are that impede business growth drive game changing workers technologies by companies, aligned to liberalisation and improve efficency of the implementation of Malaysia across main economic policies logistics sector Productivity Blueprint sectors • 4 key roles going forward – strategic oversight, advisory, 2 Launch a National Wage Index 10 Develop a schedule for coordination and monitoring, and enhance the Productivity- removal of remaining non- and implementation Linked Wages System critical subsidies Conduct national strategic Strengthen digitalisation Realign key grants, incentives, Establish an accountability Launch nationwide N2 N4 N6 N8 N10 workforce planning in among SMEs through soft loans and other funding mechanism for the productivity movement to anticipation of changing e-commerce and adoption of mechanisms to productivity implementation of regulatory inculcate a stronger culture needs across the sectors innovative technology metrics and outcomes reviews by the government of productivity across all segments of society 3 Accelerate the establishment 8 Strengthen digitalisation 11 Embed productivity targets for 14 Strengthen the regulatory of the Malaysian Bureau of among SMEs through enterprises into disbursement portal and mechanism to Labour Statistics to improve e-commerce and adoption of processes of new grants, track regulatory review labour market statistics and innovative technology incentives and soft loans implementation information 4 Update job openings and 12 Review existing incentives to 15 Establish state-level employment projections given reduce/remove non-targetted benchmarking indicators for changing job profiles for key incentives and align them to businesses economic sectors programmes with clear targets and outcomes 5 Assess specific human capital requirements of key economic sectors and pro-actively plan for future human capital needs 6 Ensure focused efforts on up-skilling and re-skilling in industry through better utilisation of the Human Immediate Priorities Resources Development Fund E-7 Executive Summary The six immediate priorities are game changers and will significantly • Expedite the establishment of a single window for both business move the needle on productivity improvement. In summary, the six registration and licensing to reduce regulatory burden, and facilitate immediate priorities are: targetted intervention • Intensify internationalisation of SMEs through e-TRADE platform 1) Restructure and improve the management of foreign workers and strategic market alliances • Formulate and implement a comprehensive foreign workers policy • Use sector-specific, structured, phased-out plan complemented by 4) Embed productivity targets for enterprises into disbursement availability of local workers and automation processes of new grants, incentives and soft loans • Apply market mechanism based on levies • Establish clear guidelines on approval processes for funds • Ensure robust engagement and communication • Align disbursement of incentives to productivity milestones • Streamline management of foreign workers through a single point • Embed self-tracking culture across enterprises by enforcing of authority continuous monitoring of productivity improvements by fund recipients 2) Actively encourage adoption of 4th Industry Revolution technologies by companies, across main economic sectors 5) Remove non-tariff measures that impede business growth and • Develop human capital required improve efficiency of the logistics sector • Create dedicated pool of investment funds or align existing fund • Accelerate implementation of uCustoms to drive 4th Industry Revolution (I4.0) agenda nationally • Introduce guillotine approach to reduce regulatory burden • Set up I4.0 centre of excellence to support industry adoption • Establish and institutionalise an innovative policy development • Ensure quality and coverage of digital infrastructure especially engagement mechanism to embrace disruptive technology broadband to support I4.0 • Accelerate implementation of the Logistics Masterplan 3) Strengthen digitalisation among SMEs through e-commerce 6) Evolve governance model to drive game changing implementation and adoption of innovative technology of Malaysia Productivity Blueprint • Ensure seamless movement of SMEs through the entire innovation • Undertake four key roles going forward - strategic oversight, process under a single platform by providing access to technical advisory, coordination and monitoring, and implementation assistance, market information, and incubation and testing facilities • Increase promotion and marketing of e-commerce to SMEs in collaboration with various platform providers • Streamline incentives towards ICT-based business solutions for productivity gains Malaysia Productivity Blueprint E-8 Five main criteria to guide the design of the new governance model: Implications on Design Criteria Governance Model Clarity of roles to drive effective implementation efforts Clearly defined roles to 1 • Evolution of productivity governance model required with four clear roles going forward – ensure cohesive push for strategic oversight, advisory, coordination and monitoring, and implementation productivity Balancing the role of the government and the private sector Public-private partnership • Government to provide the enabling ecosystem to drive productivity, with on-the-ground governance model, with industry 2 associations and enterprise implementation at enterprise level led by the private sector • Industry associations and enterprise champions to be empowered as key change agents to champions as key private sector drive implementation efforts players for implementation Proper coordination to ensure cohesive efforts, drive accountability and achieve outcomes Setup of a strong coordinating • Need for a strong coordinating body to ensure linkage between public and private sector body to drive monitoring 3 players, and cohesiveness between national, sector and enterprise level action plans and evaluation of • Robust monitoring and evaluation efforts to ensure outcomes are achieved implementation efforts Demarcation of productivity governance and implementation roles vis-a-vis existing agencies Governance model to indicate • Critical to define roles within the productivity governance and implementation model and clear, non-duplicative roles, 4 interactions with other government / private sector entities with industry players able to clearly • Need to align with existing agencies to avoid duplicated or conflicted efforts navigate for support Empowered with credible leadership, supported by highly competent talent 5 • Leaders to have credibility and trust of both government and private sector. Leadership must be Selection of the right leadership transparent and accountable for achieving agreed results and outcomes. and talent as integral part of • Leaders to have core competencies required for success (such as industry expertise and delivery governance and implementation mindset) E-9 Executive Summary Comprehensive, transparent and coordinated efforts via institutionalised governance mechanism National Productivity Council Role = Leadership and Strategic Oversight Governing Council comprising senior government and private sector reprensentative Sector Productivity Nexus Advisory and Policy Support Unit Delivery Management Office Productivity Productivity Productivity Productivity Nexus 1 Nexus 2 Nexus 3 Nexus...n Role = Advisory and Role = Coordination and Policy Support Monitoring Role = Implementation Independent advisory function Acting as a programme management Implementation driven by unit to coordinate, monitor and industry associations and evaluate delivery efforts enterprise champions Successful implementation of the Blueprint will ensure that the outcomes will move Malaysia towards more competitive and productive mindsets, and increase the nation’s productivity to meet the 11MP targets. Looking into the future, the Blueprint envisions a Malaysia that will serve as a model of excellence regionally and globally in driving productivity transformations. Malaysia Productivity Blueprint E-10 11MP has set the target to achieve national labour productivity growth of 3.7% per annum To achieve this national target, each sector must raise labour productivity growth to target levels1 2.6% 4.1% 3.6% 1.1% 9.6% Manufacturing Services Agriculture Mining and Quarrying Construction The Malaysia Productivity Blueprint has paved the ‘Drive to Productivity’ to achieve these targets 5 KEY STRATEGIC THRUSTS TO ADDRESS PRODUCTIVITY CHALLENGES 1 2 3 4 5 Building Workforce Driving Digitalisation Making Industry Forging a Robust Securing a Strong of the Future and Innovation Accountable for Ecosystem Implementation Productivity Mechanism 10 national-level initiatives 9 priority subsectors 3 sector Productivity Nexus 16 key activities 3 deep-dive subsectors (Wave 1) to be established in Wave 1 6 immediate priorities 43 sector-level initiatives to boost enterprise productivity NATIONAL SECTOR ENTERPRISE Productivity efforts to be driven holistically at national, sector and enterprise levels 1. 11MP targets. 1-2 Context Malaysia Productivity Blueprint 1-3 01 CONTEXT 1-1 Context Malaysian labour productivity growth has decelerated in recent years and productivity levels lag behind developed economies. To sustain its growth momentum, it is imperative for Malaysia to focus on enhancing its productivity performance. The target is to double labour productivity growth to 3.7% per annum during the 11MP period. Productivity is a game changer to achieving high In line with this aspiration, the government has formulated the 11MP to economic growth guide the country on this final push towards realising Vision 2020. In this Plan, productivity was identified as a game changer to enable Malaysia Malaysia’s economy has demonstrated a healthy growth trajectory over to achieve its 2020 economic growth targets. The Eleventh Malaysia the last 50 years. As a result of this growth, Malaysia rose from a Plan (11MP) aims to increase the contribution of multi-factor productivity low-income economy in the 1970s to a middle-income economy in (MFP)1 to Gross Domestic Product (GDP) growth to 40% by 2020, as the 1990s, and is now making strides towards becoming an advanced well as increase labour productivity growth to 3.7% per annum during economy and inclusive nation by 2020. the Plan period. To achieve this, efforts need to be focused on driving productivity improvements over the next few years against a challenging global context of declining productivity, increasingly competitive markets and worsening global macroeconomic trends.

1. MFP and labour productivity are defined in Box 1-1. Malaysia Productivity Blueprint 1-2 BOX 1-1 HOW IS PRODUCTIVITY DEFINED? Productivity is commonly defined as the ratio of inputs (labour and At the sector level, labour productivity can be expressed as the capital) to output (goods and services), measuring how efficiently ratio of value add to the sector’s total employment. Value add is inputs are used to produce output. There are two kinds of productivity the measure of the sector’s contribution to GDP, measured by the measures, a MFP measure (relating a measure of output to a bundle value generated in each stage of production. of inputs) and a single factor productivity measure (relating a measure of output to a single measure of input). MFP is a measure Sector Labour Productivity = Value Add of the residual GDP growth unaccounted for by capital and labour force growth, and measures the combined productivity of different Total Employment inputs. Measuring MFP involves significant data requirements. Also, as an indicator that combines multiple inputs, it is less able to inform specific measures to increase productivity. On the other hand, a At the enterprise level, labour productivity can be translated into single factor productivity measure, such as labour productivity, is enterprise’s value add to GDP to the enterprise’s total employment. easier to measure and communicate at the national, sector and enterprise level, as it is able to clearly guide key initiatives to create Enterprise Labour Productivity = Profits + Wages value for the overall economy. Hence, a single factor productivity measure, labour productivity, will be the measure used throughout Total Employment this Blueprint. Value add at the enterprise level is expressed as profits and wages. At the national level, labour productivity is typically expressed as Employment is represented as total number of workers employed the ratio of value add to total employment. at the enterprise. National Labour Productivity = Value Add Changes to the level of inputs or output will affect productivity. For example, an increase in capital or improvements in technology can Total Employment increase value add for a given number of people employed, thereby increasing productivity. Alternatively, higher quality employees can Value add is the measure of the value generated in each stage of produce a higher level of output, contributing to an increase in production. Employment is represented by the total number of value add, which can also lead to an increase in productivity levels. employed people in the nation, including all documented foreign workers. 1-3 Context Global productivity growth is declining For many emerging economies, growth has been predominantly driven by capital expenditure rather than productivity improvements. Many of Since 2005, productivity growth has been declining globally, with a these countries are investing in more capital and hiring more labour, number of larger economies contributing to this negative trend. Figure without achieving a corresponding improvement in MFP. For example, 1-1 shows the diminishing MFP contribution to economic growth of as shown in Figure 1-2, while China increased its total labour and capital large countries such as China (1.1%), South Korea (0.4%) and United contributions from 5.6 percentage points (p.p.) to 5.8 p.p. between States (-0.2%) between the years 2011 to 2015. 1996 and 2015, its MFP contribution declined from 3.7 p.p. in 1996, to 1.3 p.p. in 2015, indicating that these investments in labour and capital did not result in increasing its MFP. Figure 1-1 TOTAL MFP CONTRIBUTION1 TO GROSS DOMESTIC PRODUCT FOR SELECTED ECONOMIES (1996 TO 2015) Figure 1-2 MFP AGAINST LABOUR AND CAPITAL CONTRIBUTION FOR SELECTED ECONOMIES (1996 TO 2015)1 Total MFP growth, period averages, % MFP contribution to growth (p.p.) Pre-Crisis Crisis Recovery 6 Avg. 2.3 p.p 4.9 2.5 5 5 1.7 1.0 0 4 2.6 5 Working “smarter” 2.3 2.2 0.3 1996 0 3 1996 1996 2015 5 2 0.6 0.3 0.0 0 -0.1 1 1996 2015 2015 5 2015 0.4 0.1 0 1996 -0.2 0 -0.2 Avg. -0.04 p.p 1.7 2015 5 0.1 1.3 -1 0 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 -1.5 Working “harder” 1996 – 2004 2005 – 2007 2008 – 2010 2011 – 2015 Labour and capital contribution to growth (p.p.)

1. Equivalent to MFP growth following the production function Δ ln GDP = v̅K Δ lnK + v̅LΔ lnL + Δln MFP. 1. Equivalent to MFP growth following the production function Δ ln GDP = v̅K Δ lnK + v̅LΔ lnL + Δln MFP. Source: Economic Planning Unit and The Conference Board. Source: Economic Planning Unit and The Conference Board. Malaysia Productivity Blueprint 1-4 For such countries, the foremost challenge is to ensure that increases in Malaysia’s international productivity ranking has also remained stagnant capital and labour expenditure are accompanied by productivity growth. as evidenced by national rankings of countries based on labour Thereby, achieving a higher amount of output for every unit of input productivity per hour worked. Figure 1-4 provides a comparison of invested. countries based on labour productivity per hour worked, and it can be seen that Malaysia remained at the 45th rank globally in both 2009 Malaysia is falling behind in productivity competitiveness and 2016. Malaysia’s productivity levels are currently lagging behind several developed economies such as Japan, South Korea, Singapore, Australia, Figure 1-4 RANKING OF COUNTRIES BY LABOUR and the United States. For example, as shown in Figure 1-3, in 2016, PRODUCTIVITY PER HOUR WORKED IN USD (2016)3 Malaysia’s labour productivity per person employed was approximately US$59,100, while the corresponding figure for the United States’ was approximately US$118,800. Rank 2009 2016 1 Norway Luxembourg Malaysia’s productivity level is however higher or comparable to its peers 2 Luxembourg Norway as shown in Figure 1-3. But productivty growth rates in these countries 3 Belgium Ireland are much faster. ... … … 10 Switzerland Switzerland Figure 1-3 LEVEL OF PRODUCTIVITY AND PRODUCTIVITY 11 Sweden Sweden GROWTH OF MALAYSIA AND SELECTED DEVELOPED 12 Austria Singapore COUNTRIES (2016) 13 Finland Austria Level of Productivity and Growth 14 Singapore Australia (Malaysia and selected Developed Countries) 20161 … … … US$ % 17 United Kingdom Spain 133,108 140,000 3.5 19 Spain United Kingdom 120,000 118,772 3.0 99,826 ... ... ... 100,000 2.16% 2.5 72,610 74,218 45 Malaysia Malaysia 80,000 2.0 60,000 1.45% 1.90% 59,142 1.5 46 Uruguay Russian Federation 40,000 1.0 50 Mexico Mexico 0.42% 20,000 0.5 51 South Africa South Africa 0 0.0 Source: The Conference Board -0.02% -0.5 -0.2% In addition, Malaysia’s ranking fell from 22nd (2016) to 23rd (2017) United Australia Singapore South Japan Malaysia States Korea position in the World Bank’s Ease of Doing Business Index. This was driven by declines in several indicators, such as the ease of starting a Productivity Growth Productivity Level business, registering for a property, paying taxes, trading across borders 1. 2015 price level with updated 2011 PPPs. and resolving insolvency. Malaysia improved in one dimension, which was the getting credit. Source: The Conference Board. 1-5 Context In the Global Competitiveness Report by the World Economic Forum, High reliance on capital to grow GDP is unsustainable Malaysia demonstrated a decline of seven positions, moving from the 18th (2015-2016) to the 25th (2016-2017) position, and was ranked For Malaysia to grow sustainably, it is pivotal that we move from input- among the highest in the developing Asian economies. However, several driven growth to productivity-driven growth. The Global Competitiveness improvements were noted, mostly related to technological readiness Report suggests that most of Malaysia’s past GDP contribution has and market size due to its credible performance in foreign market size been input driven, supported by private investments in industry and index. The report highlighted that although technological readiness public investments in infrastructure, utilities, schools and healthcare. showed an improvement, it continues to remain Malaysia’s weakest This finding is in line with the fact that efforts to increase innovation and pillar. Meanwhile, the World Competitiveness Yearbook (WCY) 2016 productivity and move towards a knowledge-based economy only began released by the Institute for Management Development (IMD), reported in the mid 1990s. It is especially critical that Malaysia moves away from that Malaysia’s competitiveness ranking has declined to 19th position relying heavily on capital for GDP growth as this is unsustainable in the compared to 14th position in 2015. long run due to increasing cost of growth via capital stock. The Blueprint focuses on improving Malaysia’s labour productivity performance to ensure that reliance on capital-driven growth is reduced. Figure 1-5 MALAYSIA’S GDP GROWTH AGAINST MALAYSIA’S LABOUR PRODUCTIVITY GROWTH (1995-2015) Labour productivity (RM ‘000 / worker) GDP (RM bn) 80 1,200 Labour productivity 1,100 70 1,000 GDP 60 900 800 50 700 40 600 500 30 400 20 300 200 10 100 0 0 ‘95 ‘96 ‘97 ‘98 ‘99 ‘00 ‘01 ‘02 ‘03 ‘04 ‘05 ‘06 ‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15 Source: Economic Planning Unit and Department of Statistics Malaysia. Malaysia Productivity Blueprint 1-6 What is the way forward for Malaysia? In light of these challenges, the Government has drawn up a comprehensive and inclusive Blueprint in collaboration with all In recent years, labour productivity growth has slowed down compared stakeholders, particularly industry players. The Blueprint sets out the with GDP growth. For example, as shown in Figure 1-5, Malaysia’s GDP initiative that must be implemented in the immediate and medium registered a growth of 5.3% per annum between 2011 and 2015. term to bring impactful increase in productivity and to propel economic growth. However, during the same period, Malaysia’s labour productivity growth was only 1.8% per annum. Under the 11MP, Malaysia sets out to achieve 3.7% year-on-year growth in labour productivity. This translates into a targetted increase in productivity per worker from RM75,550 in 2015 to RM92,300 by 2020. In order to achieve this, it is critical that productivity improvement be accelerated. “Productivity is one of the game changers under the 11MP, where renewed efforts will be undertaken to boost productivity in a focused and targetted manner with clear outcomes at the national, sector and enterprise levels.” Eleventh Malaysia Plan, 2016-2020 | Unlocking the Potential of Productivity PRODUCTIVITY IS CRUCIAL FOR LONG-TERM BUSINESS SUCCESS Raising productivity will improve business competitiveness and profitability to ensure businesses stay strong in the face of growing international competition 2-2 Productivity at a Glance Malaysia Productivity Blueprint 2-3 02 PRODUCTIVITY AT A GLANCE 2-1 Productivity at a Glance Under the 11MP, Malaysia sets out to increase labour productivity from 1.8% to 3.7% year-on-year growth. In order to achieve this, it is critical that productivity improvement be accelerated. Understanding productivity performance at the If Malaysia continues to experience slowing labour productivity growth, national level a high level of foreign labour employment, a declining proportion of skilled workers and a significant large versus small-medium enterprise Malaysia’s overall labour productivity has been growing at a historical productivity gap, the nation will be at risk of missing the 11MP rate of 1.8% from 2011 to 2015. The increase in labour productivity productivity targets. was a result of higher growth in value add as compared to growth in employment in this time period1. However, the proportion of skilled Understanding productivity performance at the sector labour has been decreasing, from 27.6% of total employment in 2010, level to 25.5% of total employment in 20152. The decline in the proportion of skilled labour can also be attributed to the growth of foreign labour, Figure 2-1 shows the productivity performance of Malaysia’s subsectors which grew at 4.8% per annum between 2010 to 2015, reaching a in 2015, against 11MP targets of RM92,300 value add per worker. total of 2.1 million3. Subsectors highlighted in green such as oil and gas, ICT services, finance and insurance, utilities, real estate and manufacturing have met and When the productivity of large and small-medium enterprises is exceeded the 2020 national productivity target. In comparison, most compared, large enterprises grew at a rate of 2.9% per annum, while of the services, construction and agriculture sectors have productivity SME productivity levels have been declining at a rate of -0.6% per levels, which are significantly lower than the target. annum between 2010 to 20154. In 2015, large enterprises were also 3.3 times more productive than SMEs. Sector productivity performance is analysed based on the five main economic sectors - agriculture, manufacturing, services, construction, and mining and quarrying. 1 & 2. Data from the Department of Statistics Malaysia.

3. Data from Ministry of Home Affairs.

4. Data obtained from SME Corp, at constant 2010 prices. Malaysia Productivity Blueprint 2-2 Figure 2-1 BREAKDOWN OF PRODUCTIVITY BY SUBSECTORS COMPARED TO 11MP PRODUCTIVITY TARGETS (2015) Labour productivity (RM ’000 / worker) 950 Relatively higher Relatively lower productivity subsectors productivity subsectors 212 145 92 250 % share of GDP 200 11MP target 68 of RM92k 150 per worker 911 283 226 207 203 911 100 125 50 91 66 61 58 54 37 36 27 0 Other ICT Services1 Construction Professional Agriculture Real Estate Private Wholesale Chemicals Finance & Private Oil & Gas Others Activites Insurance Utilities M&E E&E Education Manufacturing2 Healthcare & retail Logistics Services Services4 Tourism3 SUBSECTORS Oil & ICT Chemicals Finance & Utilities M&E E&E Private Retail & Logistics Professional Agriculture Con- Tourism3 Gas Services1 Insurance Healthcare Wholesale Services struction Best in Class 127 152 370 335 637 389 557 758 256 423 590 747 1,067 524 Comparable 97 56 126 159 142 36 179 175 167 459 54 247 176 GDP per Capita5 Note: Subsectors that meet 11MP overall RM92k per worker target are considered as relatively higher productivity subsectors.

1. ICT Services exclude ICT related manufacturing as already included as part of E&E.

2. Other Manufacturing includes food processing, beverages, tobacco products, textile, leather products, wood products, paper products, refined petroleum products, non-metallic and metallic products.

3. Food & Beverage Services is included in Tourism.

4. Other Services comprise of domestic household services, social work activities and non-governmental bodies.

5. Indexed based on Malaysia = 100. Source: Economic Planning Unit, Department of Statistics Malaysia, and Malaysia Productivity Corporation. 2-3 Productivity at a Glance BOX 2-1 AT CURRENT GROWTH RATES, MOST SECTORS WILL FALL SHORT OF 11MP PRODUCTIVITY TARGETS Manufacturing Services Agriculture Construction Labour productivity Labour productivity Labour productivity Labour productivity (RM ’000 / worker) (RM ’000 / worker) (RM ’000 / worker) (RM ’000 / worker) 120 120 85 65 58 64 56 64 56 117 81 63 54 115 114 62 52 52 80 62 78 50 111 61 60 48 47 110 60 46 75 75 59 44 43 108 58 58 42 105 105 72 57 40 39 70 69 38 56 56 36 55 36 100 98 55 35 34 66 54 32 65 53 95 54 30 52 28 51 26 0 0 0 0 2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020 Growth in the past 11MP target Growth in the past 11MP target Growth in the past 11MP target Growth in the past 11MP target % p.a., % p.a., % p.a., % p.a., % p.a., % p.a., % p.a., % p.a., 2011-2015 2016-2020 2011-2015 2016-2020 2011-2015 2016-2020 2011-2015 2016-2020 2.9% 2.6% 2.0% 4.1% 0.8% 3.6% 6.5% 9.6% 0.9x 2.1x 4.5x 1.5x Note: Labour productivity levels for 2016-2020 are based on 11MP productivity growth targets. Source: Economic Planning Unit, Department of Statistics Malaysia, and Malaysia Productivity Corporation. Malaysia Productivity Blueprint 2-4 Figure 2-2 PROFILE OF MAJOR ECONOMIC SECTORS Value Add Sector RM Billion, 2015 Share to GDP (%), 2015 Growth (% p.a.), 2011-2015 Total Large SMEs Total Large SMEs Total Large SMEs Agriculture 94.4 48.3 46.1 8.9 4.5 4.3 2.6 0.0 5.7 Mining and Quarrying 95.1 93.5 1.6 9.0 8.8 0.2 1.2 0.9 32.6 Manufacturing 244.2 160.5 83.7 23.0 15.1 7.9 4.9 3.8 7.2 Construction 46.6 24.5 22.1 4.4 2.3 2.1 10.6 3.4 24.2 Services 568.9 341.7 227.1 53.5 32.2 21.4 6.2 5.7 7.2 TOTAL 1,062.8 677.2 385.6 100.0 63.7 36.3 5.3 4.0 7.8 Number Establishments Employment Labour Productivity Growth Sector Number Share to Total (%), 2010 (% p.a.), Share of Total % Growth Gap, 2011-2015 (RM), 2015 (% p.a.), large/SMEs (2011-2015) Large SME Large SME Total Foreign workers Agriculture 2,121 6,708 4.6 95.4 1.7 36.9 53,676 0.9 2.2 Mining and Quarrying 119 299 28.5 71.5 12.8 6.1 911,245 -10.3 52.1 Manufacturing 1,808 37,861 4.6 95.4 2.0 18.7 105,138 2.9 1.5 Construction 2,857 19,283 12.9 87.1 3.9 23.9 35,601 6.4 1.2 Services 10,898 580,985 1.8 98.2 4.0 8.4 66,329 2.1 5.6 TOTAL 17,803 645,136 2.7 97.3 3.4 15.1 75,549 1.8 3.3 Source: Economic Planning Unit, Department of Statistics Malaysia, and SME Corp. Productivity performance of main economic sectors The reliance on foreign workers also increased5, where its share to total employment increased from 14.1% in 2010 to 15.1% in 2015. The Most of the economic sectors recorded labour productivity below national dependence of foreign workers is particularly high in the agriculture average of RM75,550 in 2015 except for the manufacturing and mining sector, where they made up 36.9% of the employment in the sector. sectors, which recorded RM911,250 and RM105,138, respectively. This is followed by the construction sector at 23.9% and manufacturing Among the main structural challenges to productivity improvements at 18.7%. The high proportion of low-skilled workers coupled with that were common across the sectors are the dominance of low-skilled the high dependence on foreign workers have resulted in low labour workers, high proportion of foreign workers and large presence of SMEs productivity performance in the agriculture sector, where it rose by only with high productivity gap compared to large enterprises, as shown in 0.9% per annum during 2011-2015, lower than the national average Figure 2-2. of 1.8% per annum. Between 2011 and 2015, total employment rose by 3.4% per annum, In 2015, SMEs employed 65.5% of the workers in the labour force but from 11.9 million in 2010 to 14.1 million in 2015. The growth was contributed 36.3% to total GDP. This translated into a lower labour mainly driven by the faster expansion of semi- and low-skilled workers productivity performance among the SMEs as compared to the large at 4.0% per annum. As a result, the share of skilled workers has fallen firms, where the latter was 3.3 times more productive than the former. from 27.6% of total employment in 2010 to 25.5% in 2015. The lower productivity for SMEs was partly due to the high reliance on labour input. SMEs employment increased by 8.5% per annum during 2011-2015, which is 8 times faster than that of the large firms.

5. Refer to the non-citizen component in the Labour Force Survey publised by the Department of Statistics Malaysia. 2-5 Productivity at a Glance Talent Technology Productivity growth is impacted by 5 core Enterprises face shortages in talent to drive long-term productivity. Many cite low-wage With relatively limited levels of investment in technology and digitalisation, Malaysian challenges levels and poor English language skills as the contributing factors to the depleting enterprises are limiting productivity growth. SMEs frequently cited insufficient talent pool, as it becomes increasingly commercial funding and low awareness across sectors difficult to attract and retain a skilled of available options as the key barriers workforce. In addition, disconnection to adopting new technology. The lack between academia and industry also of collaboration between academia contributes to graduate unemployment and industry has also led to a low Overall, productivity across sectors has been as they are not perceived as industry-ready, commercialisation rate of research and growing at a slower rate, and has been and typically require re-training. Due to development. Transfer of technology and hindered by five common challenges: high turnover rates, enterprises have a low knowledge by MNCs to local enterprises is level of willingness to invest in training also limited. There is also a need for quality programmes to upskill existing employees. and affordable digital infrastructure. In parallel, enterprises have increased their employment of low-skilled foreign workers, with foreign worker growth in the construction and services sectors of 26.0% and 12.2%, respectively from 2011 to 20156. Despite steady total employment growth of 3.4%7, the proportion of highly skilled workers has remained constant at 25% over the years.

6. Data from Ministry of Home Affairs.

7. Data from Department of Statistics Malaysia. Malaysia Productivity Blueprint 2-6 Incentive Business Productivity Structure Environment Mindset Most of the economic sectors are While Malaysia has made significant At present, there is limited understanding characterised by a high number of relatively improvements to reduce regulatory of the benefits of productivity among small players. This raises concerns as the burden there remain work to be done. Malaysian enterprises. 95% of the market is highly fragmented and individual Inconsistent interpretation and application enterprises surveyed agreed with the enterprises have limited economies of scale of regulations, existing regulatory statement that ‘productivity is important’9. to deliver high value add. In addition, key constraints and nuances between federal While this awareness is encouraging, only sectors that drive the Malaysian economy, and state government create additional 40% of enterprises surveyed tracked such as manufacturing, are focusing challenges in enhancing enterprise-level their productivity systematically10. Given more on the low-value market segment productivity. The cost of starting a business the various challenges faced by Malaysian but have yet to establish significant in Malaysia currently stands at 6.7% of businesses, improving productivity is not a presence in the high value segment. Many income per capita, more than two times primary concern, and many enterprises and government incentives have been provided that of developed countries8. business owners are currently contented for enterprises to upgrade themselves with the status quo, and hesitate to adopt but these initiatives have not necessarily new yet more efficient operating methods. functioned as levers to boost productivity.

8. World Bank Doing Business 2015. 9 & 10. Online Productivity Survey. 3-2 Five Strategic Thrusts and National-Level Initiatives Malaysia Productivity Blueprint 3-3 03 FIVE STRATEGIC THRUSTS AND NATIONAL-LEVEL INITIATIVES 3-1 Five Strategic Thrusts and National-Level Initiatives The Blueprint presents a holistic approach towards unlocking the potential of productivity of the nation by addressing productivity challenges at all levels – national, sector and enterprise levels. This new approach to productivity will shift from primarily government-driven initiatives at the national level to targetted actions across industry players and individual enterprises, with industry champions identified to role model change and ensure buy-in across stakeholders. This chapter will focus on national-level initiatives to address cross-cutting issues. Malaysia Productivity Blueprint 3-2 Despite the numerous initiatives introduced in the past, productivity This chapter describes the five national-level strategic thrusts that anchor levels are still wanting by all measurements and the economy remains the Blueprint recommendations: Building Workforce of the Future, highly dependent on traditional factor inputs of labour and capital. The Driving Digitalisation and Innovation, Making Industry Accountable Blueprint presents a holistic approach towards unlocking the potential for Productivity, Forging a Robust Ecosystem and Securing a Strong of productivity of the nation by addressing productivity challenges at Implementation Mechanism. The ten national-level initiatives that align all levels – national, sector and enterprise levels. This new approach to with the strategic thrusts are then presented, out of which 16 key productivity will shift from primarily government-driven initiatives at the activities that require action and implementation in the near future are national level to targetted actions across industry players and individual identified. Finally, six immediate priorities are drawn from these activities. enterprises, with industry champions identified to role model change and ensure buy-in across stakeholders. Broad-based initiatives will be developed and tailored for each sector with targets set and monitored. At the national level, productivity-linked incentives will be introduced and regulatory reforms will be accelerated. At the sector level, industry champions will spearhead sector-specific productivity initiatives, while at the enterprise level, incentives and upskilling programmes will be provided. Collectively, these strategies will produce a set of major shifts in productivity for the nation. 3-3 Five Strategic Thrusts and National-Level Initiatives Across the economic sectors, a set of common challenges is impeding productivity growth, requiring urgent action. These challenges are grouped into five clusters - talent, technology, incentive structure, business environment and productivity mindset (see Figure 3-1). Figure 3-1 CHALLENGES FACED ACROSS SECTORS Talent Technology Incentive Business Productivity Structure Environment Mindset More cohesive efforts Investments in technology Incentives and other Regulatory hurdles need Higher level of needed to meet the and digitalisation, and financial support need to be reduced, and awareness and demand of the future industry adoption, need to be directly linked regulations interpreted understanding of the economy, by building a to be accelerated and to productivity to and applied with greater importance and benefits strong pipeline of skilled supported. Stronger incentivise enterprises consistency, to improve of productivity needed workers and gradually collaboration between to improve efficiency ease and reduce cost at enterprise level, along reducing reliance on industry and academia and performance of doing business for with guidance on how low-skilled workers is essential for greater enterprises to measure and track innovation and industry- productivity relevant R&D Malaysia Productivity Blueprint 3-4 While efforts have been made to raise productivity through various initiatives, effective implementation and enforcement of these initiatives needs to be further enhanced. To ensure effective implementation, the Blueprint has three guiding principles: Figure 3-2 THREE GUIDING PRINCIPLES OF THE MALAYSIA PRODUCTIVITY BLUEPRINT 1 2 3 Productivity must be addressed Strong coordination and governance Productivity needs to be top of holistically – at national, sector and are key to securing implementation mind movement and embedded enterprise levels certainty into day-to-day work culture The Blueprint outlines immediate national- The Blueprint implementation requires oversight Enterprises need to understand the impact that level priorities that require policy reforms and through a robust governance model. There productivity will have on their bottom line, and government intervention, while sector-level are four clear roles required going forward: have access to a feasible method of tracking initiatives outline explicit sectoral strategies strategic oversight, advisory, coordination and their productivity. It is essential that government to remove sector-level productivity barriers. monitoring as well as implementation. Strong mechanisms encourage productivity (such as At the enterprise level, the Blueprint describes coordination through a central hub is critical by ensuring that incentives are linked to clear the specific enterprise strategies, and required to driving implementation on the ground, with productivity outcomes) so that enterprises expertise and support for enterprises to rigorous programme management to ensure adopt productivity tracking as the norm. In understand and tackle their productivity transparency and accountability. Productivity addition, national-level campaigns should be challenges on the ground. Nexus1 will play a key role in supporting launched to ensure targetted messages are enterprises on the ground, simultaneously emphasised to all segments of society. improving the visibility of the implementation progress.

1. Productivity Nexus is described in detail in Chapter 6. 3-5 Five Strategic Thrusts and National-Level Initiatives Guided by these three principles, the five strategic thrusts at the national level to raise productivity are as follows (see Figure 3-3). Figure 3-3 5 STRATEGIC THRUSTS AIMED AT ADDRESSING CHALLENGES IMPEDING PRODUCTIVITY GROWTH ACROSS SECTORS 1 2 3 4 5 Building Workforce Driving Digitalisation Making Industry Forging a Robust Securing a Strong of the Future and Innovation Accountable for Ecosystem Implementation Productivity Mechanism Restructuring workforce Strengthening the Reducing reliance Addressing regulatory Embedding culture by raising the number readiness of enterprises on non-critical constraints and of productivity of high-skilled workers, to effectively adopt and subsidies, linking developing a robust through nationwide tightening entry of low- exploit technology and financial assistance and accountability system movement, and skilled workers, and digital advantage liberalisation efforts to to ensure effective driving accountability meeting demands of (such as 4th Industry productivity outcomes, implementation of in productivity the future economy Revolution) and strengthening regulatory reviews performance through industry positioning effective governance in higher value add mechanism segments of the value chain Malaysia Productivity Blueprint 3-6 Based on the five strategic thrusts, ten national initiatives and sixteen key activities (see Figure 3-4), will drive nation-wide productivity improvement. Figure 3-4 THE 10 NATIONAL-LEVEL INITIATIVES IDENTIFIED THAT REQUIRE URGENT IMPLEMENTATION: THRUST NATIONAL-LEVEL INITIATIVE STAKEHOLDER Enforce structural changes to the workforce by formulating a comprehensive labour N1 market policy, including reducing reliance on low-wage and low-skilled workers MOHA Building Workforce 1 MITI of the Future Conduct national strategic workforce planning in anticipation of changing needs N2 Industry across the sectors Strengthen readiness, knowledge and adoption of technology by enterprises across MITI N3 Driving Digitalisation sectors SME Corp 2 and Innovation MCMM Strengthen digitalisation among SMEs through e-commerce and adoption of N4 Industry innovative technology Gradually reduce the reliance on non-critical subsidies, and ensure liberalisation N5 Making Industry efforts are linked to productivity outcomes MOF 3 Accountable for MITI Productivity Realign key grants, incentives, soft loans and other funding mechanisms to MOA N6 productivity metrics and outcomes Accelerate efforts to enhance whole-of-government approach towards addressing N7 Forging a Robust regulatory constraints 4 MPC Ecosystem Establish an accountability mechanism for the implementation of regulatory reviews N8 by the government Institutionalise a strong coordination and governance model to secure Securing a Strong N9 implementation certainty across government, sector, and enterprise levels 5 Implementation MITI Mechanism Launch nationwide productivity movement to inculcate a stronger culture of N10 productivity across all segments of society 3-7 Five Strategic Thrusts and National-Level Initiatives Figure 3-5 16 KEY ACTIVITIES IDENTIFIED ACROSS ALL INITIATIVES Making Industry Securing a Strong Building Workforce Driving Digitalisation Forging a Robust Accountable for Implementation of the Future and Innovation Ecosystem Productivity Mechanism Enforce structural changes to Strengthen readiness, Gradually reduce the reliance Accelerate efforts to enhance Institutionalise a strong N1 N3 N5 N7 N9 the workforce by formulating knowledge and adoption of on non-critical subsidies, and whole-of-government coordination and a comprehensive labour technology by enterprises ensure liberalisation efforts approach towards addressing governance model to secure market policy, including across sectors are linked to productivity regulatory constraints implementation certainty reducing the reliance on low- outcomes across government, sector, and wage and low-skilled workers enterprise levels 1 Restructure and improve 7 Actively encourage adoption 9 Undertake necessary revisions 13 Remove non-tariff measure 16 Evolve governance model to the management of foreign of 4th Industry Revolution to ensure regulations are that impede business growth drive game changing workers technologies by companies, aligned with liberalisation and improve efficiency of the implementation of Malaysia across main economic policies logistics sector Productivity Blueprint sectors • 4 key roles going forward – strategic oversight, advisory, 2 Launch a National Wage Index 10 Develop a schedule for coordination and monitoring, and enhance the Productivity- removal of remaining non- and implementation Linked Wages System critical subsidies Conduct national strategic Strengthen digitalisation Realign key grants, Establish an accountability Launch nationwide N2 N4 N6 N8 N10 workforce planning in among SMEs through incentives, soft loans and mechanism for the productivity movement to anticipation of changing e-commerce and adoption of other funding mechanisms implementation of regulatory inculcate a stronger culture needs across the sectors innovative technology to productivity metrics and reviews by the government of productivity across all outcomes segments of society 3 Accelerate the establishment 8 Strengthen digitalisation 11 Embed productivity targets for 14 Strengthen the regulatory of the Malaysian Bureau of among SMEs through enterprises into disbursement portal and mechanism to Labour Statistics to improve e-commerce and adoption of processes of new grants, track regulatory review labour market statistics and innovative technology incentives and soft loans implementation information 4 Update job openings and 12 Review existing incentives to 15 Establish state-level employment projections given reduce/remove non-targetted benchmarking indicators for changing job profiles for key incentives and align them to businesses economic sectors programmes with clear targets and outcomes 5 Assess specific human capital requirements of key economic sectors and pro-actively plan for future human capital needs 6 Ensure focused efforts on up-skilling and re-skilling in industry through better utilisation of the Human Immediate Priorities Resources Development Fund Malaysia Productivity Blueprint 3-8 The six immediate priorities are game changers that address the issue of productivity in a holistic manner across the five strategic thrusts. The six immediate priorities are game changers that address the issue of The rest of this chapter describes the national-level initiatives, key productivity in a holistic manner, addressing the key challenges across activities, and immediate priorities across the strategic thrusts following the five strategic thrusts (see Figure 3-5). They will each require strong the structure presented in Figure 3-5. While a rationale and overall stakeholder buy-in, ownership and accountability for successful delivery description for each key activity is outlined, a more detailed discussion and implementation. These need to be implemented as soon as possible on the design, implementation and enforcement is provided for the in order to achieve the targetted increase in productivity for the nation. immediate priorities. The fifth thrust, ‘Securing a Strong Implementation Mechanism’, is described in further detail in Chapter 6 of the Blueprint. 3-9 Five Strategic Thrusts and National-Level Initiatives 1 Building Workforce of the Future It is imperative to bring structural changes to the workforce by increasing The key activities contained within this initiative are as shown below: the proportion of higher-skilled human capital and reducing reliance on low-skilled and low-wage workers. Towards this end, the Blueprint Enforce structural changes to the workforce by formulating a recommends two national-level initiatives: N1 comprehensive labour market policy, including reducing the reliance on low-wage and low-skilled workers • Initiative N1: Enforce structural changes to the workforce by formulating a comprehensive labour market policy, including reducing 1 Restructure and improve the management of foreign workers the reliance on low-wage and low-skilled workers • Initiative N2: Conduct national strategic workforce planning in 2 Launch a National Wage Index and enhance the Productivity-Linked anticipation of changing needs across the sectors Wages System INITIATIVE N1 N1 E nforce structural changes to the workforce by  Key Activity 1 1 formulating a comprehensive labour market policy, Restructure and improve the management of foreign workers including reducing the reliance on low-wage and low-skilled workers The 11MP comprehensively outlines strategies to improve the management of foreign workers as well as enhance labour Initiative N1 focuses on restructuring and improving the management of productivity and wages, by shifting to high-skilled jobs. Although foreign workers. This initiative is aligned with the third strategic thrust Malaysia has set a maximum threshold of 15% for foreign workers of the Eleventh Malaysia Plan, 2016-2020 (11MP), specifically in Focus across all sectors, efforts to reduce the reliance on low-skilled area A2 to improve labour market efficiency. foreign workers are largely fragmented due to the existence of several implementing agencies, and could benefit from improved coordination. 2. Focus area A: Improving labour market efficiency to accelerate economic growth, under Chapter 5: Accelerating human capital development for an advanced nation. Malaysia Productivity Blueprint 3-10 In restructuring and improving the management of foreign • Sector/subsector: Higher levies for sectors/subsectors with workers, it is recommended that a comprehensive foreign higher labour intensity workers policy be formulated and implemented encompassing a • Skill level: Highest levies will be imposed for the recruitment structured phased-out plan of foreign workers. This policy should of lowest-skilled workers be complemented by the availability of local workers and greater • Proportion of foreign workers employed: Higher levies for automation in production processes to ensure least disruption to companies with a higher proportion of foreign employees industry. To date, employees bear the burden of levy charges, with little A single point of authority on all matters related to foreign workers incentive for industries to reduce employment levels of foreign must be established to streamline the development, administration workers. The Blueprint recommends that levies are borne and enforcement of foreign workers policies, and reduce overlaps instead by employers. The industry-specific foreign workers plan and inconsistencies. must be formulated through comprehensive consultation and engagement with the industry. It must have clear timeline and Foreign worker’s levies must be restructured to be based on clearly communicated. sector, skill level and proportion of foreign workers in companies. Currently, levies are only tiered by sector: 3-11 Five Strategic Thrusts and National-Level Initiatives Key Activity 2 The key activities contained within this initiative are: 2 Launch a National Wage Index and enhance the Productivity- Linked Wages System Conduct national strategic workforce planning in anticipation of N2 changing needs across the sectors Establish a National Wage Index by setting wage benchmarks based on skill level in consultation with industry. This Index should 3 Accelerate the establishment of the Malaysian Bureau of Labour be linked to the 40% target share of employees’ compensation Statistics to improve labour market statistics and information to the gross domestic product (GDP) as stated in the 11MP. In 4 Update job openings and employment projections given changing job addition, there is a need to standardise skills certification of profiles for key economic sectors varying skill levels to enable easy referencing and comparisons. The Productivity-Linked Wage System (PLWS3) also must be clearly Assess specific human capital requirements of key economic sectors 5 communicated to ensure employers and employees understand and pro-actively plan for future human capital needs the wage impact and required reporting practices. 6 Ensure focused efforts on up-skilling and re-skilling in industry through better utilisation of the Human Resources Development Fund INITIATIVE N2 N2 Conduct national strategic workforce planning in anticipation of changing needs across the sectors Key Activity 3 3 Accelerate the establishment of the Malaysian Bureau of Initiative N2 focuses on ensuring that stakeholders are aware of the Labour Statistics to improve labour market statistics and future skills required in their sectors and enable them to plan accordingly. information Through national strategic workforce planning, stakeholders including universities, Technical and Vocational Education and Training (TVET) Timely and comprehensive labour market statistics is crucial for institutions and industry players will have clarity on future skills labour productivity measurement and formulation of labour requirements and address any skills mismatch in the labour market. market policy. Currently, high-frequency labour statistics in This initiative supports the 11MP’s third strategic thrust, especially for Malaysia are mainly collected from household and establishment Focus area B4 that aims to collectively expand Malaysia’s skilled human surveys. They do not incorporate information from administrative capital pool and also increase the appeal of careers in various sectors. records, which can provide timely and better indication of actual 3. PLWS is an effort promoted by MOHR that links the annual increment of salary and variable components of the salary, such as bonuses, to productivity outcomes. 4. Focus area B: Transforming TVET to meet industry demand, under Chapter 5: Accelerating human capital development for an advanced nation. Malaysia Productivity Blueprint 3-12 labour market conditions in the economy. Therefore, the Blueprint for sectors with the largest shortfall in skilled workers. A proactive recommends accelerating the establishment of a dedicated unit in plan for future human capital needs is also required given the the Department of Statistics for the compilation of labour market rapidly evolving industry trends, such as 4th Industry Revolution statistics to enhance the quality and availability of key labour (I4.0)5. statistics in Malaysia to support policy research and monitoring. Key Activity 6 6 Key Activity 4 Ensure focused efforts on up-skilling and re-skilling in 4 Update job openings and employment projections given industry through better utilisation of the Human Resources changing job profiles for key economic sectors Development Fund Educational institutions have expressed concerns that there Given the fact that fast-paced technology advancements is insufficient detailed information on the demand for labour, are disrupting operations across many sectors, it is critical for hampering their ability to meet the requirements of the industry. enterprises to prepare continuously for the emerging innovations. The Blueprint recommends a systematic assessment and sharing They need to be encouraged to up-skill and re-skill their of information on job openings and employment projections. This workforce through improved utilisation of the Human Resources is especially critical given the rapid change in job profiles for key Development Fund (HRDF). economic sectors, such as services and manufacturing. Key Activity 5 5 Assess specific human capital requirements of key economic sectors and pro-actively plan for future human capital needs Presently, there is a low awareness of the impact of technology advancements on job profiles and employment. This will present a challenge for the educational institutions, industries and government in human capital planning. The Blueprint calls for an overall assessment of the specific human capital requirements of key economic sectors to be conducted. This should be initiated 5. 4th Industry Revolution is the comprehensive transformation of the whole sphere of industrial production through the merging of digital technology and the internet with conventional industry (source: European Union, 2015). 3-13 Five Strategic Thrusts and National-Level Initiatives 2 Driving Digitalisation and Innovation This thrust centres around boosting technological advantages at the The increased application of technology has been proven to deliver forefront of productivity growth. The key outcomes of this thrust are to higher quality products. Initiative N3 will raise the overall affordability increase investments in research and development (R&D), drive greater of adopting technology infrastructure to enable industries to improve adoption of technology to improve efficiency and develop an integrated their efficiency. This is in line with the fifth strategic thrust in the 11MP business environment. The two national-level initiatives recommended of ‘Strengthening Infrastructure to Support Economic Expansion’6. The to achieve these goals are: initiative ultimately aims to enable Malaysia to become a developed digital economy by 2020 as well as improve its ranking in the World • Initiative N3: Strengthen readiness, knowledge and adoption of Economic Forum’s Global Information Technology. technology by enterprises across sectors • Initiative N4: Strengthen digitalisation among SMEs through Key Activity 7 7 e-commerce and adoption of innovative technology Actively encourage adoption of 4th Industry Revolution technologies by companies across main economic sectors INITIATIVE N3 N3 Strengthen readiness, knowledge and adoption of Currently, the path towards the adoption of I4.0 technologies is technology by enterprises across sectors unclear for most companies. Challenges with human capital and access to I4.0 expertise persist, along with the need for dedicated This initiative has one key activity, which is also an immediate priority centres of excellence to provide an immersive experience and for implementation: drive industry adoption. The larger investment funds, such as the Domestic Investment Strategic Fund (DISF), mostly focus on Strengthen readiness, knowledge and adoption of technology by traditional mechanisation incentives, such as the upgrading of N3 machinery, and are typically sector-specific. The rollout of I4.0 enterprises across sectors should be prioritised focusing on sectors and industries that will 7 Actively encourage adoption of 4th Industry Revolution technologies by have the highest impact from its application. companies across main economic sectors 6. Focus area C: Improving coverage, quality and affordability of digital infrastructure under Chapter 7: Strengthening infrastructure to support economic expansion. Malaysia Productivity Blueprint 3-14 There is also a need to strengthen innovative practices and Strengthen digitalisation among SMEs through e-commerce and partnerships between industry and world-class technical players, N4 adoption of innovative technology beginning with priority subsectors, such as electrical and electronics manufacturing. 8 Strengthen digitalisation among SMEs through e-commerce and adoption of innovative technology Other initiatives to encourage the adoption of I4.0 by companies include providing a dedicated fund to promote the types of technologies and associated benefits of I4.0 to enterprises across 8 Key Activity 8 sectors. The fund should also focus on developing the human Strengthen digitalisation among SMEs through e-commerce capital required for the successful setup and implementation and adoption of innovative technology of I4.0 technologies, via programmes to re-skill and up-skill employees. The alignment of existing financial programmes also This activity is an immediate priority to ensure that SMEs are has to occur, so that the funds are more accessible to wider and well-supported for digitalisation. Firstly, SMEs need to have diverse type of enterprises in support of this purpose. Sectoral seamless movement through the entire innovation process under centres of excellence will be established to undertake R&D for a single platform and supported by technical assistance, market I4.0 to drive industry transformation. information as well as incubation and testing facilities. This is in line with High Impact Programme (HIP) 2 in the SME Masterplan. The quality of coverage and affordability of digital infrastructure Between May 2014 to December 2016, 21 innovations have will be improved to support enterprises to adopt new technologies. already been commercialised as part of the HIP 2 Technology Commercialisation Platform. INITIATIVE N4 N4 Strengthen digitalisation among SMEs through The establishment of a single window for both business registration e-commerce and adoption of innovative technology and licensing needs to be expedited, in order to reduce regulatory burden and to facilitate targetted interventions. This is in line with Malaysian SMEs face significant productivity challenges, and generate HIP 1 in the SME Masterplan, where the information portal for lower contributions to GDP compared to larger companies. On top of business registration and licensing is being rolled out in stages. this, they are more reluctant to use ICT tools in daily business activities7 Online services need to be integrated based on the readiness of or in online business. Hence, this initiative recommends a specific focus the systems in registration and licensing bodies8. on strengthening digitalisation among SMEs. The increased availability of technological infrastructure will increase the ease of mechanisation Promotion and marketing of e-commerce specifically to SMEs will for enterprises to automate current business models, and potentially need to be increased, in collaboration with platform providers. enhance their value-adding services. Incentives should be streamlined towards ICT-based business solutions, which drive productivity gain. Finally, support for SMEs to pursue international markets should be intensified, through the e-TRADE platform and strategic market alliances.

7. SME survey.

8. SME Corp Malaysia, Progress in the implementation of the SME Masterplan, Feb 2017. 3-15 Five Strategic Thrusts and National-Level Initiatives 3 Making Industry Accountable for Productivity The Blueprint aims to propel Malaysian businesses to be on par with The key activities contained within this initiative are: best-in-class countries for productivity practices. To realise this aspiration, it puts forth two cross-cutting initiatives: Gradually reduce the reliance on non-critical subsidies9, and ensure N5 liberalisation efforts are linked to productivity outcomes • Initiative N5: Gradually reduce the reliance on non-critical subsidies, and ensure liberalisation efforts are linked to productivity outcomes 9 Undertake necessary revisions to ensure regulations are aligned with • Initiative N6: Realign key grants, incentives, soft loans and other liberalisation policies funding mechanisms to productivity metrics and outcomes 10 Develop a schedule for removal of remaining non-critical subsidies INITIATIVE N5 N5 Gradually reduce the reliance on non-critical subsidies, and ensure liberalisation efforts are linked to productivity Key Activity 9 outcomes 9 Undertake necessary revisions to ensure regulations are aligned with liberalisation policies Over the years, economic liberalisation measures have been announced across various sectors. However, there are still sectors that would There is a need to review regulations governing key sectors benefit from further liberalisation. Core regulations governing key that have yet to be aligned to liberalisation efforts, dampen economic sectors must be aligned to liberalisation policies in order productivity performance across economic sectors. Additionally, to boost productivity and competitiveness. Subsidies which do not local companies are still protected from stronger competition, suggest productivity improvements must be reduced so that enterprises affecting their productivity performance. Thus, the Blueprint are less dependent on government assistance. This is in line with the proposes periodical reviews of regulations to ensure they are sixth strategic thrust of ‘Re-engineering Economic Growth for Greater aligned to liberalisation policies. Prosperity’ in the 11MP. By reallocating the financial assistance and subsidies, there will be a visible shift towards a more efficient and independent business ecosystem. 9. Refers to subsidies which are non-critical in improving productivity, such as price subsidies for cooking oil, rice and highway tolls. Malaysia Productivity Blueprint 3-16 BOX 3-1 Selected Sector Liberalisation Experiences Country/Industry USA, nuclear power Australia, airports Europe, railways 48 out of 103 nuclear 13 out of Australia’s 19 airports Infrastructure management separated power plants (NPP) sold to sold to independent operators via from transport operations independent utilities competitive bidding rounds Approach Implementation of uniform Access to power transmission Numerous anti-monopoly restrictions standards across national railways of infrastructure not liberalised different European countries Tough requirements for Third-parties given access to infrastructure NPP operators Introduction of independent regulatory systems 10% business efficiency 30% business efficiency improvement 40% business efficiency improvement improvement over 10 years over 7 years of privatisation over 15 years of reforms of liberalisation Best airports in customer-centric terms World’s best integrated railway Results World’s biggest number of system in length, density, and service power producers in one country quality terms Highest efficiency metrics 3-17 Five Strategic Thrusts and National-Level Initiatives Key Activity 10 The key activities contained within this initiative are: 10 Develop a schedule for removal of remaining non-critical subsidies Realign key grants, incentives, soft loans and other funding N6 mechanisms to productivity metrics and outcomes Currently, there are non-critical and untargetted subsidies, such as input-driven subsidies for agriculture, that directly impact the cost of doing business. These subsidies promote over-reliance on 11 Embed productivity targets for enterprises into disbursement processes of new grants, incentives and soft loans government assistance and perpetuate low productivity levels among enterprises. It is proposed that a schedule for removal Review existing incentives to reduce/remove non-targetted incentives 12 of remaining non-critical subsidies to boost productivity be and align them to programmes with clear targets and outcomes implemented. INITIATIVE N6 N6 Realign key grants, incentives, soft loans and other 11 Key Activity 11 Embed productivity targets for enterprises into disbursement funding mechanisms to productivity metrics and processes of new grants, incentives and soft loans outcomes Currently, the link between enterprises’ productivity performance It is proposed that assistance and incentive provided by the government and the approval and disbursement of any financial assistance is be leveraged to drive productivity. All grants, incentives, soft loans and not clear. As a result, government financial assistance programmes other of assistance provided by the government must be linked to have no significant impact on productivity improvements. It is productivity improvement targets. proposed that all assistance provided by the government to enterprise be based on agreed productivity milestones. Malaysia Productivity Blueprint 3-18 It is proposed that the disbursement of incentives be aligned with Key Activity 12 12 increase in productivity of recipients, with further funding pending Review existing incentives to reduce/remove non-targetted the meeting of key performance milestones. incentives and align them to programmes with clear targets and outcomes Additionally, there has been limited tracking and monitoring of recipient performance post-disbursement, which has resulted in The Blueprint strongly advocates for a comprehensive review insufficient monitoring to ensure funds are channelled towards of the existing incentive structure to determine incentives that approved project plans. The current focus is on the repayment are not targetted and align incentives to programmes with clear of loans, with little emphasis on the actual productivity increase targets and outcomes. This will entail the alignment of promoted generated. It is recommended that the government embed a industrial activities with sector-level productivity strategies. self-tracking culture across enterprises by enforcing continuous monitoring of productivity improvements. This initiative would The Blueprint also recommends that exit policies be established for require the scheduled reporting of financial and productivity data all types of incentives. from fund recipients, highlighting progress and flagging issues. 3-19 Five Strategic Thrusts and National-Level Initiatives 4 Forging a Robust Ecosystem The Blueprint aims to strengthen regulatory governance to improve Initiative N7 is aligned with the 11MP’s aspiration to ‘Transform Public the competitiveness of enterprises in Malaysia. This would require Service for Productivity’10. Further streamlining and refining of regulations the implementation of clear and effective regulation across multiple to ensure consistency across federal and state governments will greatly government ministries and agencies across the nation. A robust reduce the complexity of setting up and running businesses in Malaysia. ecosystem is critical to improve the efficiency, adaptability and This initiative is also aligned to the ‘Modernising Business Regulations’ accountability of governance systems in supporting enterprises to programme taken by the Malaysia Productivity Corporation (MPC) and increase their productivity. This thrust will further strengthen the business the Special Task Force on Service Delivery (PEMUDAH), which aims to environment to improve productivity growth through two national-level improve the quality of existing regulations. initiatives: The activity contained within this initiative is: • Initiative N7: Accelerate efforts to enhance whole-of-government approach towards addressing regulatory constraints Accelerate efforts to enhance whole-of-government approach • Initiative N8: Establish an accountability mechanism for the N7 towards addressing regulatory constraints implementation of regulatory reviews by the government 13 Remove non-tariff measures that impede business growth INITIATIVE N7 and improve efficiency of the logistics sector N7 Accelerate efforts to enhance whole-of-government approach towards addressing regulatory constraints Initiative N7 aims to strengthen the development and utilisation of Good Regulatory Practices (GRP) across government agencies. This will help increase investments and foster inclusive growth, societal well-being and public trust. The initiative also proposes continuous review of prohibitive regulations to promote a business-friendly regulatory environment and accommodate technological and innovative disruptions.

10. Chapter 9: Transforming public service for productivity. Malaysia Productivity Blueprint 3-20 Key Activity 13 The guillotine approach requires each ministry to list business 13 Remove non-tariff measures that impede business growth regulations within their purview, and highlight regulations that and improve efficiency of the logistics sector are no longer relevant or justified. Over time, these obsolete regulations would then be rescinded. However, at present, this Currently, there is a lack of consistency in export and import approach only applies to the ‘Modernising Business Licensing’ licensing, permit and approval processes. Most large Multinational programme, with potentially limited gains in reform. The Blueprint Corporations (MNCs) have identified the different processes and recommends expanding the guillotine approach for all areas and systems as a key barrier impeding productivity growth. Malaysia’s sectors and fixing a schedule for its implementation, based on Logistics Performance Index has declined from 25th position the relative importance. A review of all business regulations is in 2015 to 32nd globally in 2016. The Blueprint recommends also neccessary, specifically focusing on cross-agency and cross- the restructuring of non-tariff measures, including customs ministerial regulations. regulations, to ensure streamlined processes and regulations for export and import permits and regulations. Channels of communication between industry disruptors, such as Grab and Uber, and government regulators should be further The existing custom processes require high levels of manual input, structured, with a need for increased consultation to review the with gate releases still requiring a hardcopy of declaration, despite applicability of new and existing policies. The Blueprint proposes prior receipt of online approval. The delivery of the uCustoms to establish and institutionalise an innovative engagement platform has been delayed. The key challenges faced in the mechanism to promote greater and structured private sector uCustoms implementation have been the lack of alignment on involvement in policy-making, which complements ongoing regulations and processes to be streamlined across ministries, and efforts. initial IT specifications not meeting the requirements. The Blueprint recommends the accelerated implementation of uCustoms to improve logistics and trade facilitation. Alignment with key ministries and agencies has to be obtained for export and import licensing, permit and approvals. Better project management and a reporting mechanism are necessary to ensure the uCustoms is on track for launch and rollout. 3-21 Five Strategic Thrusts and National-Level Initiatives BOX 3-2 THE GUILLOTINE APPROACH USED WIDELY AROUND THE WORLD TO RAPIDLY STREAMLINE REGULATIONS A top-down approach for An example process of Successful implementation regulatory review guillotine approach observed across the world Government to rapidly and systematically Stock take of all regulations or formalities Mexico used the guillotine in review large numbers of regulations at affecting businesses by the government the 1990s to eliminate 47% of low administrative and political cost government formalities and create • Licences that do not meet legislative Each rule or formality is reviewed three its famous Federal Registry of justification are abolished times by; Formalities and Services • Requirements that are not business friendly – Civil servants are simplified – Business stakeholders As part of its economic recovery – The central guillotine unit1 after the financial crisis of 1997, Guillotine avoids reform weaknesses of South Korea used the guillotine to traditional bottom-up approach After review, each rule or formality is review 11,000 business regulations • No selection bias placed into one of three categories: and eliminate 50% of them in less • Burden of proof is reversed in favour of maintain, simplify or eliminate than a year reform The Council of Ministers and Parliament, In China, before its accession • Review is fast and final decision is taken by an omnibus process, eliminate to WTO, it eliminated over collectively, without need for individual unneeded regulations and simplify 8,000 regulations that were not decisions regulations that are too complex compatible with WTO rules Moldova adopted the regulatory guillotine by law in January 2005 to review over 1,000 regulations; eliminated 45% of them and simplified 13% in 4 months 1. Examples include Comisión Federal de Mejora Regulatoria (COFEMER), Mexico and Presidential Commission on Regulatory Reform (South Korea). Source: World Bank, Press search. Malaysia Productivity Blueprint 3-22 BOX 3-3 GOVERNMENT-FUNDED LABS ESTABLISHED AS A PLATFORM TO DRIVE USER ENGAGEMENT AND INNOVATE PUBLIC POLICIES MindLab GovLab • Cross-governmental innovation unit, which involves • Think tank in the federal practice that focuses on citizens and businesses in developing new solutions innovation in the public sector for the public sector • Fellows conduct research into key issues and • Supports government in 3 ways: emerging ideas shaping the public, private and - “Laboratory”: Experimental and user non-profit sectors Description participatory approaches through partnerships and workshops - “Think Tank”: Conduct research and analysis for government - “Inspirator”: Seminars, courses, presentations, training and development • Service design, customer insight, user experience, • Regulation, innovation, welfare, social media Areas of focus innovation Select programmes • Innovation Lab • Centre for Federation Innovation Location • Copenhagen, Denmark • London, United Kingdom 3-23 Five Strategic Thrusts and National-Level Initiatives INITIATIVE N8 (NPDIR). The portal for Regulatory Review Management System N8 Establish an accountability mechanism for the has been set up to track the implementation of the regulatory implementation of regulatory reviews by the government reviews. Presently, a lack of coordination and accountable implementation is To improve the implementation of regulatory reviews, the Blueprint hampering governance reforms. Malaysia’s Regulatory Quality Index seeks to strengthen the mechanism to track the progress of the lags behind benchmark countries, despite systematic regulatory reform NPDIR by among others, setting clear milestones and KPIs. This effort. Initiative N8 aims to implement an integrated governance reform portal will also provide an easy access to the complete set of to modernise regulatory regimes and drive productivity improvements regulations governing industries at state and local levels, especially through the effective enforcement of regulations and policies. updates on regulatory changes that can be shared swiftly across sectors. The key activities contained within this initiative are: Key Activity 15 15 Establish state-level benchmarking indicators for businesses Establish an accountability mechanism for the implementation of N8 regulatory reviews by the government There are also concerns over the limited visibility of the regulatory Strengthen the regulatory portal and mechanism to track regulatory burden across states and local governments. The World Bank’s 14 review implementation Ease of Doing Business data for Malaysia is limited to Kuala Lumpur, clearly illustrating the information gap between regions. 15 Establish state-level benchmarking indicators for businesses The Blueprint recommends establishing a set of state-level benchmarking indicators to measure the Ease of Doing Business, through collaboration with state governments. Key Activity 14 14 Strengthen the regulatory portal and mechanism to track regulatory review implementation The MPC is tasked to bring changes to the regulatory environment in government, culminating with the introduction of the National Policy on the Development and Implementation of Regulations Malaysia Productivity Blueprint 3-24 BOX 3-4 MEXICO PUBLISHED COMPARATIVE DATA ON THE EASE OF DOING BUSINESS ACROSS STATES Background and Context Key outcomes Lessons learned Ease of Doing Business indicators did Findings received wide media Bringing a global benchmark to the not reflect reality beyond Mexico City coverage local level empowers reformers • Limited visibility on reality in 31 states and • Improved visibility on measure of 100 million people Wide range of reform initiatives competitiveness spurred across the country, including In 2005, Comisión Federal de Mejora • Various Public-private taskforces Sharing easily replicated best practices Regulatoria (COFEMER) collaborated established at state level creates positive dynamic of reform with The United States Agency for • Non-participating state governments • Excuses for differences in state-level International Development (USAID) to lobbied to be benchmarked performance eliminated, with shared develop sub-national benchmarks federal laws • 12 states as benchmarks identified Significant progress observed, in just • 4 indicators selected- starting a business, over one year Strong local partners and local registering property, getting credit, and • 9 of 12 states reformed in at least one area ownership from benchmarked states enforcing contracts covered in report • Opens dialogue between federal and state government Findings launched at national • Involvement at state level conference in Mexico City • Specific reform initiatives and good Avoiding the traps of political practices shared at two nationwide partisanship conferences • Political alignment on improving investment climate 3-25 Five Strategic Thrusts and National-Level Initiatives 5 Securing a Strong Implementation Mechanism This thrust will embed the culture of productivity in a nationwide Uncoordinated efforts among multiple government entities and limited movement, and will drive accountability in productivity performance involvement from the private sector in driving productivity initiatives are through two key initiatives: the key challenges hindering the implementation of productivity efforts. • Initiative N9: Institutionalise a strong coordination and governance In addressing these challenges, a governance model encompassing model to secure implementation certainty across government, sector, strategic oversight, advisory, coordination and monitoring as well as and enterprise levels implementation has been developed (see Chapter 6). • Initiative N10: Launch nationwide productivity movement to inculcate a stronger culture of productivity across all segments of society The implementation of the six immediate priorities has the potential to uplift labour productivity growth between one and four percentage The key objective of this thrust is to build a shared sense of responsibility points, conditional upon their full implementation with accountability amongst all stakeholders to improve Malaysia’s productivity levels, and ownership. The growth estimate is based on the experience of ensuring a strong implementation mechanism to deliver and achieve the benchmark countries that have embarked on similar initiatives (see the Blueprint’s targets. Figure 3-6). Malaysia Productivity Blueprint 3-26 Figure 3-6 PRODUCTIVITY IMPROVEMENTS IN BENCHMARK COUNTRIES MALAYSIA PRODUCTIVITY BLUEPRINT UPLIFT IN NATIONAL PRODUCTIVITY BY COUNTRY BENCHMARKS Strategic Thrusts Immediate Priorities Japan Germany Singapore Australia Finland Reforms in the Different quota, Establish a Provide training for BUILDING Restructure and improve hiring of seasonal levies and workforce migrants on ICT the management of foreign workers (e.g., restrictions are used agency to advise and vocational skills WORKFORCE foreign workers employers to submit to restrict foreign government OF THE FUTURE proof that locals labour entry on workforce could not be hired) development needs Actively encourage adoption of 4th Industry Revolution Launched a 5-year 4th Industry Established Centre DRIVING technologies by companies initiative to deepen Revolution reduced of Innovation DIGITALISATION across main economic sectors the use of robotics manufacturing cost to help SMEs in all sectors approximately 5%- enhance technology AND Strengthen digitalisation among SMEs through 8%, while retail and innovation INNOVATION F&B by 9%-12% capabilities e-commerce and adoption of innovative technology Embed productivity Japan Productivity Construction MAKING targets for enterprises Centre (JPC) Productivity and INDUSTRY into disbursement tracked productivity Capability Fund ACCOUNTABLE FOR processes of new performance of aligned incentives grants, incentives and sectors and linked it to productivity PRODUCTIVITY to initiatives strategies soft loans Established Comprehensive Reducing red tape Reduction in Remove non-tariff special zone regulatory reform to ease burden product regulatory FORGING A measures that impede with regulatory bundle on businesses constraints ROBUST business growth and exception to speed (e.g., Hartz Labour have increased ECOSYSTEM improve the efficiency of up nationwide and pension productivity the logistics sector reform reform) Established an Evolve governance Established JPC, Established National independent SECURING model to drive a non-profit non- Productivity Council, Australian Productivity A STRONG game changing governmental which include Commission under the implementation of organisation, representatives Treasury that conducts IMPLEMENTATION Malaysia Productivity dedicated from government, research related to MECHANISM to promote businesses and Blueprint productivity for the productivity unions whole economy NET GAIN IN LABOUR PRODUCTIVITY1 1.5%-1.7% 3.0%-3.5% 2.0%-4.0% 1.7%-1.9% 1.0%-1.5%

1. Net gain in the labour productivity is the difference in CAGR during the time period before the initiatives were launched to after initiatives were completed. PRODUCTIVITY HELPS YOU STAY RELEVANT IN A FAST CHANGING JOB MARKET Employers value employees who innovate and seek ways to do things more efficiently and effectively 4-2 Sector-Level Initiatives Malaysia Productivity Blueprint 4-3 04 SECTOR-LEVEL INITIATIVES 4-1 Sector-Level Initiatives As there is a wide variation in challenges for different sectors and industries, additional sector-specific initiatives are critical for productivity improvement. This chapter outlines the sector-level challenges and initiatives for nine priority subsectors. Sector-specific initiatives are proposed, including the setting up of sector Productivity Nexus to drive the implementation of the initiatives in close partnership with the government. A detailed discussion of three deep-dive subsectors is also presented. 9 priority subsectors are identified and they collectively contribute to 30% of Malaysia’s GDP, and 40% of total employment. In the previous chapter, 10 national-level initiatives were presented For each priority subsector, two workshops and various one-on- that correspond to the 5 strategic thrusts. However, it is important to one engagements with stakeholders were conducted to identify the acknowledge the wide variation in challenges for different sectors and challenges that each subsector faced and validate the proposed sector- industries, and as such, additional sector-specific initiatives are critical specific initiatives. for productivity improvement. From these subsectors, 3 are selected as deep-dive subsectors: retail 9 priority subsectors are identified: retail and food & beverages (F&B)1; and F&B, agro-food, and chemicals and chemical products. They are electrical and electronics (E&E); chemicals and chemical products; agro- selected based on the following criteria: food; professional services; tourism; information, communication and technology (ICT); machinery and equipment; and private healthcare. • Significant size and highly visible Combined, the 9 priority subsectors selected contribute 30% of • Underperformed productivity growth with large gaps when compared Malaysia’s gross domestic product (GDP) and 40% of total employment. to the best-in-class sector benchmarks These subsectors are prioritised based on the following criteria: • Strong stakeholder support • Potential for quick-to-impact results • Contribution to GDP • Share of workforce • Opportunity for productivity improvement • High multiplier effect • Readiness to implement productivity improvement

1. Due to their many similarities, the retail and food and beverages (F&B) within the services sector are analysed jointly. Malaysia Productivity Blueprint 4-2 Figure 4-1 ELECTRICAL AND ELECTRONICS (E&E) 1 11MP Labour Productivity Target Gross Value Add (RM bn), 2015 57.1 Labour Productivity (RM ‘000), 2015 125 2.6 (% p.a.)2 Total Employment (‘000), 2015 457 Labour Productivity (% p.a.), 2011-2015 6.7 Growth Surplus / Shortfall (% p.p.) 4.1 Labour productivity lags best-in-class average by 5.5x Productivity growth is lagging behind Vietnam Labour productivity index (Malaysia = 100) Labour productivity (% p.a.), 2011-2014 1,500 10 9 5.5x 6.73 1,000 5 2 Average 557 3.2 500 0 100 36 35 0 -5 -5 Malaysia Best-in-class Comparable Selected ASEAN GDP / Capita members Malaysia Thailand Vietnam Philippines • South Korea • Mexico • Thailand • USA • Turkey • Philippines • Singapore • Argentina • Vietnam • Norway • Poland Index 100 62 5 38 • Denmark E&E SUBSECTORS SUBSECTOR COMPOSITION Electronics Electrical 2011 Census Large SMEs Computer & Peripherals Electric Motors & Generators Number of Establishments (‘000) 0.3 1.0 Electronic Components & Board Domestic Appliances Average Value Add (RM mn) 99.5 3 Communication Equipment Wiring Number of Employees (‘000) 363 43 Consumer Electronics Lighting & Others Labour Productivity (RM ‘000) 91 73 Communication Equipment is the most productive and Many small players but contribute less value add value adding subsector % to total Labour productivity (RM ‘000 / worker) Value add (RM bn) Labour productivity (RM ‘000 / worker) 533 100 100 1.3x 40 600 11 91 50 89 50 20 31 300 91 73 109 102 126 4 9 6.3 2 0 0 0 0 Electronics Communication Electric Wiring Number of Subsector Large SMEs Components Equipment Motors establishments value add % of segment 75% of Electronics VA 72% of Electrical VA Large SMEs Value add Labour productivity

1.Value add and labour productivity at 2010 Prices. 2. Manufacturing labour productivity growth target in 11MP. 3. 2011-2015 period. Source: Economic Planning Unit, Department of Statistics Malaysia, Oxford Economics, and International Labour Organisation. 4-3 Sector-Level Initiatives E&E Key Productivity Challenges E&E Subsector Initiatives Strengthen collaboration between Shortage of engineers compounded by brain drain industry, government and universities to WORKFORCE • Lack of manpower planning between industry and universities has led to shortage ensure supply of industry-ready engineers of engineers • Graduates leave for higher-pay countries • Preference to work for MNCs due to higher pay offered resulting in shortage of Up-skill workers to prioritise innovative talent for SMEs thinking to foster productive culture Limited R&D activities, especially amongst SMEs TECHNOLOGY • SMEs face financial constraint to do Research, Development and Innovation (R&D&I) Accelerate collaboration and • MNCs based in Malaysia focus more on assembly activities rather than R&D strengthen knowledge sharing • Weak research linkages between the academia and industry results in low technology between industry players, through innovations Centre of Excellence • Low knowledge and technology retention even from joint ventures with foreign firms INDUSTRY Limited focus on high-value activities, such as product development and design Promote higher value add activities, • Most activities are still in low value add manufacturing and assembly with limited R&D including Research, Development and STRUCTURE • Product mix is also suboptimal, for example subsector sales in TVs and video/disc Design and produce complex products players are more focused on products at lower profit margin Inadequate utility service level in certain areas BUSINESS • Inconsistent electricity supply, for example Free Trade Zones have reported frequent blackouts Enforce minimal guaranteed service • Slow broadband speed levels for utilities and infrastructures ENVIRONMENT in key industrial zones Need for streamlined regulatory processes • Repetitive submissions to import raw materials causing longer wait time and higher cost Malaysia Productivity Blueprint 4-4 Figure 4-2 MACHINERY AND EQUIPMENT (M&E) 1 11MP Labour Productivity Target Gross Value Add (RM bn), 2015 7.2 Labour Productivity (RM’000), 2015 113 2.6 (% p.a.)2 Total Employment (‘000), 2015 50 Labour Productivity (% p.a.), 2011-2015 10.3 Growth Surplus / Shortfall (% p.p.) 7.7 Labour productivity lags best-in-class average by 4x Above average growth but lags behind Philippines Labour productivity index (Malaysia=100) Labour productivity (% p.a.), 2011-2014 15 1,500 10.33 3.9x 10 8 1,000 0 5 Average 4 500 389 0 100 142 39 -2 0 -5 Malaysia Best-in-class Comparable Selected ASEAN GDP / Capita members Malaysia Thailand Vietnam Philippines • USA • Mexico • Thailand • Denmark • Turkey • Philippines • South Korea • Argentina • Vietnam • Germany • Poland Index 100 96 3 17 • France M&E SUBSECTORS SUBSECTOR COMPOSITION General Purpose Special Purpose 2011 Census Large SMEs Air-conditioning Machines Metal-forming Machinery Number of Establishment 70 1,222 Compressors and Pumps Mining and Quarry Machinery Average Value Add (RM mn) 46.2 1.8 Lifting and Handling Equipments Agricultural Machinery Number of Employees (‘000) 52 33 Labour Productivity (RM ‘000) 63 65 Air-conditioning has highest value add and highest SMEs are 1.4x less productive than large companies productivity level Value add (RM bn) Labour productivity (RM ‘000 / worker) % to total Labour productivity (RM ‘000 / worker) 4,000 200 160 1.0x 100 5 80 3,000 150 2,147 72 89 60 2,000 52 54 57 100 61 65 63 50 95 40 1,000 50 305 261 281 207 773 39 20 0 0 Air- Pumps Lifting & Metal- Mining Agri- 0 0 condition- Handling forming Equip- cultural ing ment Machinery Number of Subsector Large SMEs establishments value add % of segment 72% of 73% of General purpose VA Special Purpose VA Large SMEs Value add Labour productivity

1.Value add and labour productivity at 2010 Prices. 2. Manufacturing labour productivity growth target in 11MP. 3. 2011-2015 period Note: Historical labour extrapolated for Thailand, Philippines and Vietnam where not available, based on trend. Source: Economic Planning Unit, Department of Statistics Malaysia, Oxford Economics, and International Labour Organisation. 4-5 Sector-Level Initiatives M&E Key Productivity Challenges M&E Subsector Initiatives Shortage of engineers WORKFORCE • Firms report constant vacancies for skilled production workers Set up partnership between government • Brain drain of skilled Malaysians and industry associations to up-skill • Graduates lack technical skills and require longer training time (+6 months) existing employees • Mismatch between curriculum and industry needs leading to higher training cost Limited adoption of technology TECHNOLOGY • Heavy reliance on low-skilled labour, limiting ability to adopt technology and automation Set up Centres of Excellence for skilled professionals to share industry expertise Limited knowledge transfer between MNCs and local SMEs and develop new technologies • MNCs rarely source their inputs from domestic firms due to quality of local manufacturers and lack of product availability Update domestic product standards to be Mismatched quality standards for domestic market compared to at par with international standards and INDUSTRY international standards enforce compliance • Current standards for local and imported products are lower than international STRUCTURE standards for export products leading to lower investment on quality assurance and improvements Set up more product testing facilities to ensure standards are met Malaysia Productivity Blueprint 4-6 Figure 4-3 PRIVATE HEALTHCARE 1 11MP Labour Productivity Target Gross Value Add (RM bn), 2015 6.8 Labour Productivity (RM’000), 2015 68 4.1 (% p.a.)2 Total Employment (‘000), 2015 103 Labour Productivity (% p.a.), 2011-2015 0.1 Growth Surplus / Shortfall (% p.p.) -4.2 Labour productivity lags best-in-class average by 7.6x Malaysia’s growth is below selected ASEAN members average Labour productivity index (Malaysia=100) Labour productivity (% p.a.), 2011-2014 1,500 15 13 7.6x 1,000 10 758 7 500 5 Average 5 3 2 100 179 56 0.13 0 0 Malaysia Best-in-class Comparable Selected ASEAN Malaysia Thailand Indonesia Vietnam Philippines GDP / Capita members • Denmark • Mexico • Indonesia • Norway • Argentina • Philippines • France • Poland • Thailand • Singapore • Turkey • Vietnam Index 100 72 57 26 72 PRIVATE HEALTHCARE SUBSECTORS SUBSECTOR COMPOSITION Health Residential Social Work 2011 Census Large SMEs Services Care Activities Number of Establishments (‘000) 0.1 9 Average Value Add (RM mn) 32.8 0.3 Number of Employees (‘000) 32 58 Specialised medicine has highest productivity within Labour Productivity (RM‘000) 71 43 health services Value add (RM bn) Labour productivity (RM ‘000 / worker) SMEs are as productive as large companies 4 105 120 % to total Labour productivity (RM ‘000 / worker) 3 66 90 1 1.7x 100 80 2 43 51 60 47 49 60 1 2.5 30 50 40 0.4 99 71 43 1.1 0.3 0.1 53 20 0 0 Hospital General Specialised Dental Dialysis 0 0 Medical Medical Centres Number of Subsector Large SMEs establishments value add Value add Labour productivity Large SMEs

1. Value add and labour productivity at 2010 Prices. 2. Services labour productivity growth target in 11MP. 3. 2011-2015 period. Source: Economic Planning Unit, Department of Statistics Malaysia, Oxford Economics, and International Labour Organisation. 4-7 Sector-Level Initiatives Private Healthcare Key Productivity Challenges Private Healthcare Subsector Initiatives Review policies to ease Shortage of specialists and skilled nurses foreign skilled healthcare professionals WORKFORCE • Restriction on foreign talent to be trained in specific countries, such as UK, work in the subsector Australia, New Zealand and others • Mandatory government service for all doctors who want to practice in Malaysia creates a barrier for skilled specialists to enter the country Strengthen coordination between medical • Shortage of post-basic trained nurses as there are limited spaces for training schools and industry to ensure supply/demand match of professions Set up networks to provide high-quality Limited regulatory governance for third party administrators (TPAs) and coordinated patient care to reduce medical errors INDUSTRY managed care organizations (MCOs) and improve patient care quality • 98% of the healthcare industry is operated by SMEs, many of which are TPAs STRUCTURE and MCOs • Need for greater supervision of these practices, as they impact industry Develop and rollout national database to productivity levels and healthcare standards facilitate patient transfer between public and private healthcare providers BUSINESS High regulatory burden Streamline regulations and • Too many hard copy documents required for license renewals every ensure robust implementation of ENVIRONMENT 2 years which affects efficiency of practitioners regulatory reforms • Changes in regulations are sometimes not clearly communicated Malaysia Productivity Blueprint 4-8 Figure 4-4 PROFESSIONAL SERVICES 1 11MP Labour Productivity Target Gross Value Add (RM bn), 2015 20.8 Labour Productivity (RM’000), 2015 58 4.1 (% p.a.)2 Total Employment (‘000), 2015 359 Labour Productivity (% p.a.), 2011-2015 4.0 Growth Surplus / Shortfall (% p.p.) -0.1 Labour productivity lags best-in-class average by 6x Malaysia leads selected ASEAN members on professional services productivity growth Labour productivity index (Malaysia=100) Labour productivity (% p.a.), 2011-2014 1,500 10 5.9x 6 5 1,000 5 43 2 590 Average 2.6 500 459 0 100 155 -4 0 -5 Malaysia Best-in-class Comparable Selected ASEAN Malaysia Thailand Indonesia Vietnam Philippines GDP / Capita members • Singapore • Mexico • Indonesia • USA • Turkey • Philippines • UK • Poland • Thailand • Argentina • Vietnam Index 100 72 57 26 72 SELECTED SUBSECTORS IN PROFESSIONAL SERVICES SUBSECTOR COMPOSITION Engineering Advertising 2011 Census Large SMEs Legal Architectural Number of Establishments (‘000) 0.1 19 Accounting Consultancy Average Value Add (RM mn) 18.6 0.5 Number of Employees (‘000) 22 143 Advertising and Engineering have the highest productivity levels Labour Productivity (RM‘000) 99 67 Large companies are 1.5x more productive than SMEs Value add (RM bn) Labour productivity (RM ‘000 / worker) 98 8 100 % to total Labour productivity (RM ‘000 / worker) 80 6 59 66 1 51 100 13 150 1.5x 60 4 6.9 30 40 100 2 50 99 87 99 20 3.5 2.4 1.6 1.7 50 0 0 67 Engineering Legal Accounting Advertising Consultancy 0 0 and Number of Subsector Large SMEs Architectectural establishments value add Value add Labour productivity Large SMEs

1.Value add and labour productivity at 2010 Prices. 2. Services labour productivity growth target in 11MP. 3. 2011-2015 period. Source: Economic Planning Unit, Department of Statistics Malaysia, Oxford Economics, and International Labour Organisation. 4-9 Sector-Level Initiatives Professional Services Professional Services Key Productivity Challenges Subsector Initiatives Shortage of professionals WORKFORCE • Lower compensation in Malaysia when compared to other developed economies Provide input to colleges and • Graduates lack key skills, such as lower proficiency in English and grasp of core universities to ensure curriculum and industry principles training are industry-relevant • Syllabus sometimes too theoretical, with poor emphasis on English and practical skills TECHNOLOGY Low adoption of ICT especially amongst smaller firms and sole practitioners Encourage adoption of technology • Lack of understanding of ICT tools solutions, such as to track progress • Perception that investment can only be recouped in the longer term digitally rather than on paper Majority of companies lack scale to bid for large projects and to make human Form cross-country professional services capital and/or operational investments (for example, engineering consulting consortiums to increase capability INDUSTRY firms are smaller in scale than foreign firms and are less able to compete for to compete abroad overseas projects) STRUCTURE • Industry highly fragmented with 96% made up of SMEs Encourage adoption of operational • Industry only semi-liberalised (for example, foreign players in criminal law and metrics and performance-linked KPIs by family law practise are unable to expand to Malaysia) professional services firms Inconsistent and contradictory regulations BUSINESS Address regulatory inconsistency and • Contradictory regulations, such as Local Government Act 1976: different chapters constraints to enable the set up of detail out different regulations for renewal of licenses in states ENVIRONMENT alternative business models that are in - Subsection 4: license to be renewed annually line with global trends - Subsection 6: license to be renewed every 3 years Malaysia Productivity Blueprint 4-10 Figure 4-5 TOURISM SERVICE 1 11MP Labour Productivity Target Gross Value Add (RM bn), 2015 33.9 Labour Productivity (RM’000), 2015 27.4 4.1 (% p.a.)2 Total Employment (‘000), 2015 1.2 Labour Productivity (% p.a.), 2011-2015 0.7 Growth Surplus / Shortfall (% p.p.) -3.4 Malaysia’s labour productivity lags best-in-class Malaysia’s labour productivity growth in line withmost average by 5.2x of ASEAN but lags behind Thailand Labour productivity index (Malaysia=100) Labour productivity (% p.a.), 2011-2014 1,500 15 5.2x 12 1,000 10 524 500 5 3 2 2 176 Average 4 100 60 13 0 0 Malaysia Best-in-class Comparable Selected ASEAN Malaysia Thailand Indonesia Vietnam Philippines GDP / Capita members • Singapore • Mexico • Indonesia • USA • Turkey • Philippines • UK • Poland • Thailand Index 100 82 90 32 36 • Argentina • Vietnam SUBSECTORS TOURISM SUBSECTOR COMPOSITION 4 Accommodation Services Travel Agencies 2011 Census Large SMEs Food and Beverages (F&B) Services Cultural, Sports and Recreational activities Number of Establishments (‘000) 0.6 151.5 Average Value Add (RM mn) 17.1 0.1 Number of Employees (‘000) 155 680 F&B Services provide highest value add but lowest Labour Productivity (RM‘000) 71 25 productivity level SMEs make up 90% of companies and are 3x less Value add (RM bn) Labour productivity (RM ‘000 / worker) productive than large companies 40 100 % to total Labour productivity (RM ‘000 / worker) 71 80 2 3x 49 22.8 100 80 42 60 20 60 40 70 71 50 98 40 6.5 20 23 2.2 2.3 20 25 0 0 30 Accommodation F&B Culture, Travel 0 0 Services Sports and Agency Number of Subsector Large SMEs Recreation establishments value add Value add Labour productivity Large SMEs

1.Value add and labour productivity at 2010 Prices. 2. Services labour productivity growth target in 11MP. 3. 2011-2015 period. 4. Accomodation; F&B services; and Cultural, Sports and Recreational. Source: Economic Planning Unit, Department of Statistics Malaysia, and The World Bank. 4-11 Sector-Level Initiatives Tourism Key Productivity Challenges Tourism Subsector Initiatives Workforce lack English proficiency WORKFORCE • Insufficient emphasis on English in hospitality curriculum Strengthen collaboration efforts between industry and academia to High staff turnover rate from local to international hotels match industry needs • International hotels offer higher compensation and career development opportunities Establish a certification / accreditation programme for tourist sites to boost tourist volume and improve service delivery Industry highly fragmented with large proportion of SMEs, which are 3 times INDUSTRY less productive compared to large players Product owners to review pricing STRUCTURE system of sites Room to optimise prices of attractions, sites, hotels and tours, along with marketing awareness, and maintenance Align marketing strategy on targetted tourist segments BUSINESS Review industry standards Lack of industry engagement in formulating regulations and standards and regulations with ENVIRONMENT industry’s input Malaysia Productivity Blueprint 4-12 Figure 4-6 INFORMATION, COMMUNICATION AND TECHNOLOGY 1 11MP Labour Productivity Target Gross Value Add (RM bn), 2015 142.7 Labour Productivity (RM’000), 2015 134 4.1 (% p.a.)2 Total Employment (‘000), 2015 1.0 Labour Productivity (% p.a.), 2011-2015 3.9 Growth Surplus / Shortfall (% p.p.) -0.2 Labour productivity lags best-in-class average by 1.5x Highest growth of labour productivity among selected ASEAN members market Labour productivity index (Malaysia=100) Labour productivity (% p.a.), 2011-2014 1,000 10 1.5x 43 4 500 0 Average -2 152 100 97 -8 -8 31 0 -10 Malaysia Best-in-class Comparable Selected ASEAN GDP / Capita members Malaysia Thailand Philippines Vietnam • USA • Mexico • Thailand • Australia • Poland • Philippines • France • Turkey • Vietnam • Argentina Index 100 53 32 7 SUBSECTORS IN ICT ICT SERVICES SUBSECTOR COMPOSITION 5 ICT Manufacturing ICT Services 2011 Census Large SMEs ICT Trade Content and Media Number of Establishments (‘000) 0.2 2.2 Average Value Add (RM mn) 178.5 3.7 Number of Employees (‘000) 92 39 Labour Productivity (RM‘000) 372 203 ICT Services and ICT Manufacturing have highest value add Many small players contributing 22% of value add contribution and productivity levels4 to overall sector Value add (RM bn) Labour productivity (RM ‘000 / worker) % to total Labour productivity (RM ‘000 / worker) 210 80 250 100 8 600 60 126 200 2x 60.2 150 400 40 80 70 51.6 56 100 50 92 20 372 50 200 17.5 203 0 8.6 0 30 0 0 ICT ICT ICT Content Manufacturing Trade Services and media Number of Subsector Large SMEs establishments value add Value add Labour productivity Large SMEs

1. Value add and labour productivity at 2010 Constant Price, ICT includes both manufacturing and services for baseline based on Digital National Satellite Account. 2. Services labour productivity growth target in 11MP. 3. 2011-2015 period.

4. ICT breakdown based on ICT Satellite Account. 5. ICT Services sector composition based on latest available census data in 2011. Source: Economic Planning Unit, Department of Statistics Malaysia, Oxford Economics, and International Labour Organisation. 4-13 Sector-Level Initiatives ICT Key Productivity Challenges ICT Subsector Initiatives Shortage of ICT professionals WORKFORCE Strengthen collaboration between • Supply gap for new ICT graduates industry and academia to reduce • Shortage of experienced ICT professionals with specialised skills, such as software mismatch of supply and demand of development, system application and products, enterprise resource planning etc. workforce • Brain drain of skilled ICT professionals to countries with higher pay Connectivity perceived to have lower speed and quality than neighbouring Expanding and upgrading TECHNOLOGY countries broadband infrastructure • Malaysia’s speed is half that of Thailand and ranked 73rd in average Internet speed Cost of broadband relatively high • Cost of broadband is 2.4% of GNI per capita, which is higher than Vietnam (2%), Improving the access Pricing South Korea (1.3%), Japan (0.6%), and Singapore (0.4%) Framework for providers BUSINESS Centralised and coordinate efforts Fragmented initiatives and lack of centralised agency between relevant agencies to ensure • Agencies all run separate programmes to provide training and drive ICT adoption ENVIRONMENT proper utilisation of initiatives and • No centralised agency to drive ICT adoption efforts programmes Malaysia Productivity Blueprint 4-14 Deep-dive subsectors • High reliance on low-skill and low-wage workers • Low adoption of technology across the subsector This section outlines the challenges and initiatives identified for each of • Lack of operational efficiency tracking the deep-dive subsectors: retail, and food and beverages (F&B); agro- food; and chemicals and chemical products. 1. High reliance on low-skill and low-wage workers Retail, and Food and Beverages subsector The main factor affecting the retail subsector productivity is its reliance on low-skill and low-wage workers, which account for over 70% of The retail subsector includes non-specialised stores the subsector’s workforce2. (such as department stores, supermarkets and convenience stores) and specialised stores (such as jewellery, technology products, clothing and shoes). Figure 4-7 TOTAL RETAIL EMPLOYEES BY OCCUPATION The F&B subsector consists of restaurants, including casual dining and quick service restaurants. ‘000 employees majority are low-skilled and unskilled 400 A focused study of the retail and F&B subsector is crucial for two main reasons as it is: 300 1. The largest contributor at 30% to the services sector’s value add in 2015; and 2. Largely made up of SMEs. However, data shows that SMEs are only 200 380 half as productive when compared to large enterprises. Hence, there is potential of raising overall productivity by targeting SMEs. 100 Key Productivity Challenges for the Subsector 117 96 78 Some of the key challenges that have been identified in the retail and 0 Managerial Technical and Clerical and General F&B subsector are: professional and supervisory related executive Source: Department of Statistics Malaysia.

2. Ministry of Home Affairs. 4-15 Sector-Level Initiatives Figure 4-8 RETAIL AND F&B SUBSECTOR 8.3% 18% CONTRIBUTION TO TOTAL GDP SHARE OF TOTAL EMPLOYMENT 1 SMEs dominate the subsectors, in terms ...and SMEs productivity is 2x lower As a whole, retail and F&B are of both number and contribution... compared to large companies lagging in productivity, behind best-in-class average Number establishments vs. Labour productivity (RM ‘000 / worker) Labour productivity (RM ‘000 / worker) subsector value add (%)1 Retail1 F&B2 Retail F&B Retail F&B 0.1 0.2 5.4 17.1 60 2.6x 60 3.6x 40 40 99.9 82.9 99.8 94.6 103 58 34 20 42 20 24 17 28 0 0 8 Number of Subsector Number of Subsector Large SMEs Large SMEs Malaysia Benchmark Malaysia Benchmark establishments value add establishments value add average3 average Large SMEs

1. Census of Distribution Trade Report 2014. 2. Census of Food and Beverages 2012. 3. 2015 figures. Average benchmark comprises data from USA, Singapore and Australia. Source: Economic Planning Unit, Department of Statistics Malaysia, and Department of Statistics of respective countries. Malaysia Productivity Blueprint 4-16 Figure 4-9 THE RETAIL AND F&B SUBSECTOR EMPLOYS A LARGE WORKFORCE ACROSS MULTIPLE SEGMENTS Retail and F&B ... spans across ... with different employs a large multiple segments levels of productivity workforce ... RETAIL RETAIL Labour productivity Value add (RM bn) (RM ‘000 / worker) 30 150 Non-specialised Stores Food and Beverages 113 28.4 20 100 58 42 37 10 50 10.8 11.4 9.2 Automotive Fuel ICT 0 0 Non- House- ICT Other specialised hold segments Cultural and Recreation Household Equipment F&B Labour productivity Value add (RM bn) (RM ‘000 / worker) 20 40 Trade not in Stalls and Trade via Stalls and 32 31 Markets Markets 15 21 30 Other goods 10 20 2.5 million 18.7 5 2.2 10 2.0 F&B 0 0 employees Food Event Catering Beverage Services Services Services Food Services Beverage Services Labour productivity Value add Event Catering Services Source: Economic Planning Unit, and Department of Statistics Malaysia. 4-17 Sector-Level Initiatives There are two major factors causing this reliance: the poor perception is a poor alternative to a highly skilled workforce, and ultimately results surrounding the industry and the lack of an attractive career progression. in poor productivity performance in the subsector. The long hours, low wages and poor career prospects deter talent from entering the subsector, hindering the subsector’s ability to recruit 2. Low adoption of technology across the subsector skilled labour to drive productivity growth. Furthermore, it is widely acknowledged that there is a lack of investment in staff training The retail and F&B subsector is dominated by SMEs, with limited resources programmes. Only 1% of employers utilised the HRDF for certified and capability to invest in technology that can be a viable alternative to training3. Employers stated that the high turnover rate of employees low-skilled labour. The subsector spends less on ICT compared to any diminished the benefits of sending employees for training, further other subsector as well as relative to that in other countries. This directly impeding the ability of the subsector to upskill its talent pool. Given impedes the ability of these enterprises to compete, especially with the that more industries utilise online platforms as well as e-commerce in rise in e-commerce that changes purchasing patterns and store formats the retail subsector, higher skilled employees are required to maintain globally (see Figure 4-10). a competitive edge. Hence, over relying on low-skilled foreign labour Figure 4-10 TRENDS SHIFT DEMAND FOR SKILL SETS REQUIRED IN THE RETAIL AND F&B SUBSECTOR RETAIL AND F&B SUBSECTOR IS CHANGING THE WAY IT DOES BUSINESS Increased demand for skilled workers as well as the inability to hire required workforce would make it difficult for players to compete in the new landscape For example, an e-commerce specialist is required to manage omni-channel strategies and understand customer preferences to ensure consistent and optimal online and in-store experiences Increasing reliant on new skill sets & capabilities SINGLE MULTI- CROSS OMNI CHANNEL CHANNEL CHANNEL CHANNEL Single type of touch-point Multiple touch-points acting Multiple touch-points as part Seamless integration of a brand independently of the same brand

3. Globally Recognised Industry and Professional Certification (1 Malaysia GRIP). Malaysia Productivity Blueprint 4-18 Presently, a low proportion of SMEs in Malaysia are involved in doing business online, mainly focusing on the adoption of computers and the internet, with low usage of other ICT tools4. To increase competitiveness and drive productivity, it is important that industry players are better equipped to utilise technological advancements. This requires a holistic ecosystem in place and the strengthening of key enablers of technology (see Figure 4-11). Figure 4-11 HOLISTIC ECOSYSTEM REQUIRED FOR SUCCESSFUL E-COMMERCE IN RETAIL AND F&B SUBSECTOR Weak internet infrastructure - MULTI-CHANNEL inadequate coverage, high cost PLATFORM and quality issues COMPANY LOGISTIC PARTICIPATION INFRASTRUCTURE Critical mass of relevant SMEs Room to improve logistics and a few larger retailers infrastructure, where need to sign up to create a ‘cash on delivery’ is main CURRENT ECOSYSTEM strong supply payment channel NEEDS TO BE STRENGTHENED PEOPLE AND STRONG PRODUCT CAPABILITIES OFFERING Specialised skill sets and Strong value proposition required capabilities required to to create a differentiated operate digital business consumer proposition and to avoid price wars CONSUMER DEMAND Limited payment mechanisms – Consumer trust is essential – no scalable e-payment alternative high level of frauds and cyber which is critical to growth and less attacks can discourage the sharing risky for merchants (e.g., AliPay) of financial information online Successful e-commerce requires an entire ecosystem to come together

4. SME Corp Survey, 2015. 4-19 Sector-Level Initiatives

3. Lack of operational efficiency tracking R1 Initiative R1: Provide support to high potential SMEs for digitilisation of business operations and build Furthermore, enterprises within the retail and F&B subsector do not e-commerce capabilities prioritise productivity performance tracking. Its importance in day-to- day operations tends to be overshadowed by the operational challenges In line with the need to better support and equip local enterprises to faced in meeting production needs. Some enterprises have indicated adopt technological advancements, this initiative proposes to provide that the lack of priority placed on productivity stems from the perception SMEs with access to e-commerce experts who will offer end-to-end that productivity enhancement requires large capital investments, that e-commerce advisory support. are not always justified by the risk these investments entail. Therefore, it is unsurprising that almost 40% of survey respondents5 stated that To increase the number of SMEs who venture into local and international their companies do note have systems in place to effectively monitor the e-commerce markets and successfully increase their sales and customers, efficiency of processes and operations. This explains the fact that labour the Blueprint proposes for the development of an e-commerce productivity of domestic SMEs is two times lower than large players, even knowledge-based platform, that links all existing e-commerce initiatives though SMEs contribute 77% and 92.1% of value add in the retail and and matches businesses to vendors. This will streamline the entire process F&B subsector, respectively. There is a drastic need to change mindsets of conducting business online. surrounding productivity, and strategically prioritise productivity tracking in order to drive better operations and returns. In ensuring the success and sustainability of online platforms for e-commerce purposes, the Blueprint will facilitate the strengthening of To address these core issues, the Blueprint recommends four subsector- the e-commerce ecosystem to increase SMEs capabilities in adopting specific initiatives, which correspond with the national thrusts: of digital tools. This, in turn, will attract workers with digital and technological skills to work for SMEs, boosting productivity. Provide support to high potential SMEs for digitilisation of R1 To ease the access to e-commerce resources for SMEs, the Blueprint business operations and build e-commerce capabilities will establish an advisory support platform that is available through website, mobile application and telephone hotline. These channels of R2 Promote opportunities for sharing economy communication will connect businesses to e-commerce experts that provide advice on any e-commerce related issues, easing the shift to R3 Strengthen Retail and F&B competencies increased digitalisation. Provide assistance to Retail and F&B players to grow R4 internationally

5. Online Productivity Survey. Malaysia Productivity Blueprint 4-20 R2 Initiative R2: Promote opportunities for sharing economy R3 Initiative R3: Strengthen Retail and F&B competencies This initiative aims to support and promote sustainability, social This initiative focuses on ensuring employers’ commitment to developing cohesion and a robust retail and F&B subsector. It calls for identifying talent and competencies as well as providing a strong incentive the opportunities of the sharing economy through stakeholder’s needs structure and career development programme for employees. It calls for assessment and benchmarking with global best practices. Pilot projects establishing a talent development programme, which includes specific will be identified, implemented and further refined based on feedback measures to recruit and retain quality human capital. before expanding the projects. The Blueprint proposes proactive engagement with successful enterprises Existing laws and regulations will be strengthened to stimulate to develop better career pathways and incentive structures. This will sustainable shared services by ensuring risks are mitigated while not encourage graduates to actively seek a long-term career in retail and curtailing growth and innovation, as well as ensuring the protection of F&B, while motivate employees to provide high quality customer service consumers and workers. and improve efficiency, all of which will boost subsector productivity. The Blueprint also calls for jobs to be redesigned to match the future Industry and the government will collaborate in developing the sharing needs of the subsector. It is important that enterprises are prepared to economy platforms, in which industry players will lead by example in redesign jobs to involve higher value add tasks, with the lower value- establishing platforms to improve resource utilisation, drive efficiency and adding tasks eventually being replaced by the adoption of technology. scale up businesses. The government will facilitate industry participation, Thus, it is vital that enterprises recognise the importance of investing foster partnerships and participate in the sharing economy. in and developing their human capital. The awareness about the opportunities and benefits of the sharing economy will be increased, especially among the underprivileged, to boost workforce and industry participation, which will foster greater inclusiveness. The sharing economy innovation ecosystem will be strengthened to allow entrepreneurs explore the new concept, foster entrepreneurial and develop digital technology talent. The digital technology infrastructure will also be enhanced to support pervasive seamless and widespread adoption of the sharing economy platform. This includes fostering open data ecosystem across government and industries. 4-21 Sector-Level Initiatives BOX 4-1 Lazada is Southeast Asia’s number one online shopping and selling With approximately 12,000 sellers on board in Malaysia, Lazada destination, with presence in Indonesia, Malaysia, the Philippines, is supporting the growth of Malaysian SMEs through hassle-free Singapore, Thailand and Vietnam. fulfilment services, e-commerce trainings as well as marketing and analytical support. This has vastly increased the value add of SMEs in Launched in March 2012, Lazada is pioneering e-commerce in the retail subsector, who previously might not have had the resources the region by providing customers with an effortless shopping and reach of an MNC in selling their wares. experience with multiple payment methods, including cash-on- delivery, extensive customer care and free returns. Lazada features In June 2016, Lazada Malaysia signed a partnership with CIMB Bank a wide product offering in categories ranging from consumer Bhd to offer enterprise clean loans (ECLs) to Lazada merchants to electronics to household goods, toys, fashion and sports equipment. further support the expansion of local SMEs and raise productivity. Under this scheme, financing of up to RM300,000 per company is Lazada offers brands and merchants a marketplace solution with offered with a loan tenure of up to five years. These customised ECLs simple and direct access to about 560 million consumers in six have a rapid turnaround, offering a 48-hour approval timeline with countries through one retail channel. In view of Lazada’s undeniable the loan disbursed within 24 hours upon full document execution, potential, Alibaba1 invested US$1bn into the company in 2016. giving SMEs faster and easier access to the funds they need to fuel their business growth. Lazada has built a successful e-commerce platform that is easily accessible to SME retailers, who are seeking to expand their offerings online but lack the scale or experience to do so.

1. Alibaba is one of the most popular destinations for online shopping in the world e-commerce market. Source: www.lazada.com and www.cimb.com. Malaysia Productivity Blueprint 4-22 BOX 4-2 Initiative R4: Provide assistance to Retail and F&B players R4 to grow internationally With the fast-paced business landscape of the retail and F&B subsector, it Marrybrown is a homegrown fast food restaurant chain is essential that domestic enterprises are equipped to successfully venture established in Johor Bahru in 1981, and is the first local fast into international markets. This initiative strives to provide strategic food chain to franchise its business in Malaysia. Currently, it has customised assistance to high potential, medium-sized SMEs who are more than 350 restaurants in 15 countries throughout Asia, seeking to internationalise their businesses but lack the capabilities and Middle East and Africa. Marrybrown’s vision is to be an icon of support to penetrate overseas markets. The assistance will enable SMEs national pride. Marrybrown has been highly effective at catering to develop their trade networks via international trade fairs and gain to local nuances in taste – the main factor underlying its rapid access to current market research. expansion into markets abroad. The Blueprint also recommends the enhancement of the existing online In order to replicate Marrybrown’s success across other F&B platform, which will provide a one-stop centre to obtain information players with the potential to expand internationally, the Malaysia onhigh potential markets that would be of interest for growing SMEs. External Trade Development Corporation (MATRADE) has taken By improving local players’ knowledge of global markets and effective the initiative to introduce the country’s first ever Integrated business strategy and product design, it is hoped that there will be Centre for Export (ICE) at Menara MATRADE. Open twice a a visible increase in high potential medium-sized SMEs and brands week on Wednesdays and Thursdays, the ICE aims to ease access penetrating international markets. to up-to-date information on exporting, including matters of financing, customs regulations, standards and certification, To support the existing international expansion efforts, the Blueprint logistics as well as industry-related data. This full-fledged export recommends providing tailored assistance to high potential SMEs, service centre also provides information about all relevant including international trade representatives, showroom assistance and programmes carried out by MATRADE, relevant ministries, language support. These channels of support will serve as an initial point agencies, associations and banks, acting as a one-stop centre of contact for local SMEs before launching global marketing campaigns. to SMEs targeting expansion abroad. Ultimately, this assistance will push the visibility and competitiveness of SMEs internationally. 4-23 Sector-Level Initiatives Agro-food Subsector 1. Insufficient focus on value adding activities and disconnections along the value chain The agriculture sector is a key component of the Malaysian economy. As at 2014, the sector makes The agro-food value chain is highly fragmented, with a disconnection up 9% of the GDP and contributes 12% of the total between upstream producers and downstream manufacturers. national employment. Traditionally, government programmes have focused heavily on production, and as such, there is a lack of emphasis placed on the post- The agriculture sector can be broken down into two subsectors, namely production value chain. This leads to a low conversion of raw produce industrial commodities and agro-food. This section will focus on the into higher value-add products. A study has indicated that approximately agro-food subsector for two main reasons: 80% of wholesale agro-food production in Malaysia is sold for direct consumption, while the remaining is further processed into other goods6. 1. The industrial commodities subsector is fairly mature given the This current state is driven by multiple factors, such as the absence presence of large and successful Government Link Companies (GLCs), of distribution and logistics services (especially in the rural areas) and which have contributed to uplifting the productivity of the sector. reliance on middlemen who are primarily focused on transporting and On the other hand, the agro-food subsector is more fragmented and moving goods with minimal interest in converting goods into higher dominated by small players, who can benefit from more guidance value products. At the same time, there are weak linkages between and intervention on productivity improvements. the upstream and downstream activities, due to poor dissemination of information between agro-food producers and manufacturers, resulting 2. The agro-food subsector is expected to increase its contribution to in mismatched supply and demand. This issue is evidenced by the fact total value add of the agriculture sector as a whole. As targetted in that several large agro-food manufacturers rely on imported produce the Dasar Agro Makanan Negara (2011-2020), it may potentially grow as raw material for their products, despite the same produce being to contribute up to 50% of the total value add of the sector by 2020. available locally. Key Productivity Challenges for the Agro-food Subsector 2. Many small players with low levels of productivity The current key challenges which impact the productivity levels of the A key feature of the agro-food subsector is its composition, which is agro-food subsector have been identified as follows: largely comprised of SMEs with low levels of productivity. These SMEs face significant difficulties in achieving economies of scale to compete • Insufficient focus on value-adding activities and disconnections along against larger enterprises due to a number of issues including: the value chain • Many small players with low levels of productivity • Issues with quality and standards across the subsector • Low adoption of technology and modern farming techniques 6. Findings from Universiti Putra Malaysia (UPM) Research Paper, an Overview of the Supply Chain Management of Malaysian Vegetable and Fruit Industries Focusing on the Channel of Distribution, 2009. Malaysia Productivity Blueprint 4-24 Figure 4-12 AGRICULTURE SECTOR 9% 12% CONTRIBUTION TO TOTAL GDP SHARE OF TOTAL EMPLOYMENT 1 Malaysia’s labour productivity is ahead of Selected ASEAN peers are experiencing Going forward, agro-food is selected ASEAN members but lags productivity growth while Malaysia’s expected to become a bigger best-in-class average by 7.5x growth is declining contributor to the sector as a whole2 Labour productivity index (Malaysia=100) Labour productivity (%p.a.), 2011-2014 % to agriculture value add 1,500 5 100 4 7.5x 3 62 1,000 67 57 747 average 2.5 50 500 0.82 2 100 9 43 33 38 0 0 Malaysia Best-in-class Selected ASEAN Malaysia Thailand Indonesia Vietnam 0 members 2010 2015 2020 • Iceland • Thailand • France • Vietnam • Norway • Indonesia Index Industrial Agro-food • USA 100 11 11 5 Commodities 1. 2015 figures. 2. Dasar Agro Makanan Negara, 2011-2020. 3. 2011-2015 period. Source: Economic Planning Unit, Department of Statistics Malaysia and Ministry of Agriculture and Agro-based Industry. 4-25 Sector-Level Initiatives Figure 4-13 DISCONNECTION ALONG THE VALUE CHAIN KEY BARRIER TO AGRO-FOOD PRODUCTIVITY COMMODITY VALUE ADD PRODUCT • Identical products from farm to farm • Unique products • Subject to price fluctuations • Less price sensitive • Production oriented • Demand oriented Changing or transforming a product from its original state to other characteristics preferred by the market place PRIMARY DISTRIBUTION, WHOLESALE PRODUCTION HARVESTING AND PROCESSING AND PACKAGING AND AND RETAIL TRANSPORT STORAGE HANDLING MARKETS KEY PLAYERS Small farmers Small farmers Primary processors Packaging companies Grocery stores and supermarkets Farmer associations Farmer associations Machinery suppliers Logistics companies F&B companies Input providers Logistics companies Government interventions Middlemen primarily focused on transporting and moving goods with minimal focus on Wholesale and retail CHALLENGES and programmes are heavily processing or converting raw produce into high value add products markets rely on imported production centric and not goods to fill gaps in product well linked or integrated offering in spite of local with post production substitutes value chain Malaysia Productivity Blueprint 4-26 • Fragmented land ownership that restricts the scope for growth and mechanisation • Limited access to credit that hampers investments in modern farming techniques • Poor access to quality farming inputs and infrastructure that decreases yield production • Obsolete processing facilities that result in post-harvest losses • Limited selling and marketing capabilities, resulting in low prices due to low market access and excessive reliance on middlemen With increasing trade liberalisation and market access, these SMEs will be further challenged to remain competitive. Figure 4-14 AGRICULTURE SECTOR IS DOMINATED BY SMEs WITH LOW LEVELS OF PRODUCTIVITY MANY SMALL PLAYERS, WITH LOW LEVELS OF CHALLENGES TO PRODUCTIVITY IMPROVEMENTS PRODUCTIVITY ... Land- Input ownership Sourcing SMEs make up 76% ...but only account ... SMEs are 2.7x less of enterprises... for 9% of value productive than their add... larger counterparts Fragmented land holding Lack of access to credit and non-contiguous to invest in modern Labour productivity plots restricting scope farming techniques (RM ‘000 / worker) for mechanisation % to total Lack of access to high quality inputs 100 100 Number of 24 establishments 80 80 60 76 60 91 2.7x 91 Selling and Processing Farming marketing 40 40 20 20 34 Large number of Post-harvest losses Poor utilisation and 9 intermediaries maintenance of farm 0 0 (middlemen) Obsolete processing equipments Number of Subsector SMEs Large facilities establishments value add Companies Low open market price Poor access to infrastructure Low availability of Large SMEs information about Unable to utilise markets and prices yield-boosting technologies High cost of transport and logistics Source: Department of Statistics Malaysia. 4-27 Sector-Level Initiatives

3. Issues with quality and standards across the subsector (GMP). In the long run, this will have detrimental impact on the ability of the subsector to compete on an international platform. Overall, there is a lack of emphasis on excellence across multiple areas within the subsector, including quality issues in human capital, R&D and 4. Low adoption of technology and modern farming techniques products. From a human capital perspective, there is poor replenishment of talent within the subsector, given that 60% of the workforce are With the increasing advancement of technology and digitalisation, above the retirement age, and there is low inflow of younger talent the agro-food subsector is lagging in the adoption of modern farming into the subsector given the perception that the subsector is ‘Dirty, techniques. Malaysia’s investment in farm capital is significantly lower Difficult and Dangerous’. At the same time, industry players believe than its ASEAN neighbours. About 52% of enterprises surveyed are that graduates for the subsector are not field-ready, given that there is unsure or agree that they are not investing enough in technology. This a mismatch between curriculum delivered and what is required by the low adoption of technological innovation by agro-food enterprises will subsector. These issues, combined with the ease of access to cheap undoubtedly affect their productivity performance. foreign labour, have led to a high reliance on low-skilled foreign labour. About 50% of enterprises in the Online Productivity Survey agreed that To address these core issues, the Blueprint recommends six subsector- access to foreign labour was crucial to their business. specific initiatives, which directly correspond with the aforementioned national thrusts: From a knowledge creation perspective, Malaysia has amongst the highest agri-related R&D spend in South East Asia. However, while Facilitate better matching along the supply chain by linking research funds have led to a high number of publications, there have A1 downstream demand to upstream supply been low commercial outcomes. This mismatch can be attributed to insufficient dialogue between the industry players and R&D institutions, Embed robust contract-farming model across the subsector A2 leading academics to focus on intellectually interesting topics, but often resulting in R&D output that cannot be effectively utilised by the industry. Push for enforcement and adoption of relevant standards and Additionally, commercialisation of R&D often requires capital investment, A3 practices to strengthen end-to-end value chain which is not often allocated for this purpose. Boost awareness and adoption of technological upgrades and A4 Low product quality also manifests itself in the form of low levels of modern farming techniques standards compliance to good agricultural and manufacturing practices Establish industry-led collaboration with educational among key players. Given the global trend towards higher standards of A5 institutions food quality and safety, the lack of emphasis on standards and quality has negative implications on sector and national productivity. Despite local Encourage agro-food players to move into high value add standards which are less stringent than global standards, compliance A6 products and markets levels are still relatively low. Upstream players are not shifting to optimal farming practices, evident in the low compliance rate to Malaysia Good Agricultural Practices (MyGAP) at 4.6%, while the growth of downstream players is limited by non-compliance to standards such as Hazard Analysis and Critical Control Points (HACCP) and Good Manufacturing Practices Malaysia Productivity Blueprint 4-28 A1 Initiative A1: Facilitate better matching along the supply A2 Initiative A2: Embed robust contract-farming model chain by linking downstream demand to upstream across the subsector supply This initiative seeks to promote market access for small farmers and To reduce the gap within the agro-food value chain, there is a need reduce their dependence on middlemen by embedding a robust contract- for better compilation and dissemination of information within the farming model between leading industry players and small farmers. This subsector. This initiative aims to address this information asymmetry will improve market access for small farmers and simultaneously build by establishing a knowledge-sharing platform to disseminate market their capabilities through transfer of knowledge from larger players. demand and supply information. The MyAgriculture Flagship that is However, past attempts to put in place contract farming have seen being developed by the Ministry of Agriculture and Agro-based Industry varying levels of success due to the unsustainable nature of the contracts. can potentially serve as a knowledge-sharing platform to compile and disseminate information related to agriculture. Companies which have been successful in implementing contract farming have been identified, including Nestlé Malaysia (paddy and This platform will ensure that agro-producers are up-to-date on chilli contract farming) and Farm Fresh (dairy contract farming). Based the demand for produce and are able to cater to those demands. on these best practices, a robust contract-farming model framework Additionally, agro-manufacturers will be able to identify potential local needs to be developed to ensure shared value for all parties, ensuring the producers who can provide them with raw product, hence reducing sustainability of the contracts. For the smallholder, the benefits include the reliance on imports. Through this platform, gaps within the value increased market access, secure demand from established agro-food chain can also be identified and subsequently, players can be enabled players, increased transfer of knowledge as well as better access to input and supported to move into the ‘white spaces’ within the value chain. and product support. Large players benefit from increased security of This will help focus subsector players on value-adding activities which, in supply in terms of quality, quantity and timing. turn, will boost the productivity of the subsector as a whole. Beyond the setting up of the platform, roundtable talks to encourage linkages and collaboration between upstream and downstream players should also be encouraged. 4-29 Sector-Level Initiatives BOX 4-3 The Nestlé Paddy Club, a contract farming arrangement between The SARI method pioneered by Nestlé was first introduced to 20 Nestlé Malaysia and the local paddy farming community in Kedah, pioneering farms in 2010, and is now applied across more than 800 is an example of a success story that has boosted productivity in the hectares of farmland in Kedah. Nestlé started the Paddy Club in agricultural sector whilst concurrently increasing the welfare of B40 2012 with more than 300 farmers joining the programme with the households. One of the key initiatives of the Nestlé Paddy Club is the adoption of a contract-farming model that was mutually beneficial. transfer of technology to local farmers – this has been done through The contract-farming model guarantees a set price for the produce the commercialisation of the Semi Aerobic Rice Intensification (SARI) of the farmers regardless of the spot price of the crop at the time of method, a means of decreasing water usage in the planting of paddy harvest, while allowing the transfer of technology and best practices while also decreasing the methane emissions of decaying submerged from Nestlé to the smallholders that helps in increasing the paddy organic materials. SARI only requires that farmers release water yield. The increased stability creates the space for smallholders to from the paddy fields on the 50th day of each planting season, take a longer view and incentivises their compliance with Good and that the soil is saturated, but not inundated with water. This Agricultural Practices (GAP). This raises the quality of their crops to has a water savings potential of up to 40% as well as reduction global standards and increases the competitiveness of smallholders of methane emission by 74% from the conventional wet farming in the international marketplace. method. Despite the much reduced input of water, the output of the paddy fields running SARI achieved an average of 6.4 tonnes As the truest affirmation of Nestlé’s philosophy of Creating Shared per hectare, higher compared to the national average of 3.7 tonnes Value (CSV), the Paddy Club has benefited both smallholders and per hectare. Nestlé alike; farmers have seen their incomes sustainably increase, while Nestlé is able to manufacture and market a globally competitive food product that satisfies the discerning yet environmentally conscious millennial consumer. Source: Nestlé (Malaysia) Berhad. Malaysia Productivity Blueprint 4-30 Initiative A3: Push for enforcement and adoption of relevant Initiative A4: Boost awareness and adoption of technological A3 standards and practices to strengthen end-to-end value A4 upgrades and modern farming techniques chain As land for agriculture becomes increasingly scarce, technology adoption With increasing global food quality and safety standards, this initiative has been the key driver to boosting agro-food yield and profitability will combine efforts of the government, standards authorities, enterprises around the world. This initiative aims to improve the awareness of and agro-food associations to help agro-food players implement technology applications in the agro-food subsector and support measures to comply and maintain food standards certifications. Among technological upgrades and modern farming techniques, particularly others, the relevant standards and practices include MyGAP, HACCP among SMEs. and GMP. The Blueprint calls for the development of tailored technologies that The goal will be to increase the proportion of players who are able are suitable and cost efficient for small local players, such as digital to adopt the right measures to qualify for, achieve and maintain tools from drones, robotics, remote sensing and cloud-based farm certification, while at the same time ensuring that certifying authorities management systems under precision farming. Other modern farming are empowered and have the capacity to enforce the standards. At the techniques can include water management, usage of high quality seeds same time, consumers must be educated to value high quality produce and fertilizers and weather management. To ensure SMEs understand so that producers will be more incentivised to push for better standards. the importance of technological improvements and are receptive to new ways of working with the tailored technology, information on Technical aid and financial assistance can be provided to companies programmes focused on technology adoption for agro-food players who require support to achieve the right certification. At the same time, will be disseminated by leveraging on relevant stakeholders, such as standards authorities need to be strengthened with transparent and Department of Agriculture (DOA), SME Corp, industry associations and easy processes as well as competent and sufficient manpower, support other extension agencies. systems and equipment to be able to enforce certification. This will improve the effectiveness of the certifying authorities in pushing for Targetted training programmes will be launched to boost the adoption of higher compliance levels. productivity-enhancing technologies by SMEs. The impact of technology on productivity will be measured and tracked to extract key lessons for However, this initiative will only obtain buy-in and enhance productivity continuous improvements. if there is a near universal consumer awareness and appreciation of food standards. The Blueprint proposes the launch of consumer campaigns to spread the importance of food standards. 4-31 Sector-Level Initiatives Initiative A5: Establish industry-led collaboration with Initiative A6: Encourage agro-food players to move into A5 educational institutions A6 high value add products and markets The mismatch between talent required by industry players and that There is a low focus on high value add products markets by agro-food being supplied by educational institutions is a prevalent issue. Given players. However, food preferences are shifting towards more ‘premium’ the insufficient talent and poor commercialisation of R&D in the products, such as organic, halal and processed foods. As consumer subsector, this initiative aims to develop strategic and mutually beneficial trends shift toward higher-end products and trade liberalisation becomes partnerships between leading agro-food industry players and relevant increasingly prevalent, support is necessary to empower agro-food educational institutions to strengthen the talent pipeline and knowledge producers to take advantage of these opportunities. creation within the subsector. Market intelligence to move into higher value add products and markets Industry players must take the lead to attract and develop talent need to be developed and provided to subsector players. Then, high within the subsector and ensure the relevance of R&D. The Blueprint potential players need to be identified and supported to ensure that they proposes identifying and matching suitable industry players and relevant are able to take advantage of these new opportunities. Such companies educational institutes to design and launch customised programmes. would include SMEs with aspirations to move into different parts of The collaboration would include discussions on product research, the value chain or export overseas. Hence, industry best practices will competitions for commercialising R&D findings, sponsoring of final need to be developed and communicated to industry players to provide year projects that are relevant to enterprise needs as well as providing relevant insights. potential job offers for successful students. The increased role of industry in shaping the talent pipeline and creation of knowledge within the The Blueprint also proposes strategic partnerships between foreign subsector will translate into greater industry relevance of agro-food companies and local producers to export products. This will act as a related programmes in training and educational institutions as well as crucial scaffolding for SMEs as they venture to expand independently, a higher commercialisation of related R&D conducted by educational creating a supportive ecosystem to help these enterprises move into institutions. Graduating students who join the agro-food industry will international markets. also be more industry-ready. To retain talent within the subsector, attractive career pathways must also be in place. Malaysia Productivity Blueprint 4-32 BOX 4-4 Biotropics is an enterprise that engages in the R&D, discovery, the scientific community. Credibility from a scientific perspective identification, commercial extraction, manufacturing and marketing in turn allows Biotropics to fulfill regulatory requirements and of high-value herbal based products. Its portfolio of successful become competitive in the global market. The company has also products that it currently exports to the USA, Canada, Japan been recognised by the American Botanical Council as a leading and Hong Kong include herbal supplements based on Eurycoma company in terms of research and promotion of local ingredients longifolia (Tongkat Ali) and Labisia pumila (Kacip Fatimah). The in the global market. manufacturing arm of Biotropics, Phytes Biotek Sdn Bhd obtained the US Food and Drug Administration (FDA) certification for its Biotropics has also been an active participant in industry conferences, extraction facility in 2012, assuring customers worldwide that the with its Physta Tongkat Ali extract selected as the “Industry Success facility complies with international standards of health and safety. Story” in the “Healthy Aging” category at the Vitafoods Europe Conference 2016, the leading nutraceutical event globally. The In collaboration with Universiti Sains Malaysia from 2012 to 2015, Vitafoods Europe Conference is a platform bridging the gap Biotropics spearheaded a project to develop high-value nutraceutical between science and industry, facilitating the sharing of knowledge products, which are all-natural non-modified health supplements. and formation of partnerships. Biotropics active collaboration with This project included providing funding for pre-clinical and clinical institutions of education and heavy investment into R&D are the trials on the products, along with giving researchers the opportunity main drivers for its strong reception in the US market, raising the to present at symposiums. Such initiatives are necessary if the productivity of its workers as the herbal products it manufactures health benefits of products manufactured by Biotropics are to are able to command a premium in export markets abroad. be scientifically substantiated in order to gain credibility among Source: Biotropics Malaysia Berhad. 4-33 Sector-Level Initiatives Chemicals and Chemical Products 1. Limited presence in high value add segments Subsector Although 90% of the chemicals and chemical subsector consists of The chemicals and chemical products subsector SMEs, they contribute a small margin of the overall subsector’s value contributed 2% to the GDP, employing less than 1% add at about 30%. Market mapping studies have shown that this is due of the total employment in 2014. The sector comprises to the fact that almost 80% of chemical enterprises operate within the of basic chemicals, pharmaceuticals, other chemicals low value add segments, especially in base chemical manufacturing. This and man-made fibres. highlights the lost opportunities in leveraging off the higher margins in manufacturing specialty chemicals as well as the modification and A focused study on the chemicals and chemical products subsector is formulation segments. grounded on two main reasons: Figure 4-15 shows that chemical enterprises operating within the focused 1. The chemicals and chemical products subsector is fairly mature given specialty chemical segment gain the highest 10-year running return on the presence of large and successful GLCs, which contributed to net assets and revenue growth. This reinforces the point that chemical raising subsector productivity. However, the subsector is fragmented enterprises in Malaysia do have opportunities for significant gain, should with a large number of SMEs operating in different segments (such there be focused effort and investment to move into higher value add as petrochemicals, oleo chemicals, plastics, etc.) that can benefit from segments. more guidance from large enterprises. Figure 4-15 PERCENTAGE OF SMES IN THE CHEMICALS 2. About 80% of the chemical manufacturers operate in the base AND CHEMICAL PRODUCTS SUBSECTOR MAPPED TO THEIR chemical segment. Thus, the chemicals and chemical products VALUE ADD CONTRIBUTION subsector has many opportunities to significantly increase the subsector’s value add by shifting towards higher value add segments. Landscape of chemicals and chemical products companies in Malaysia and corresponding value add (2010) Key Productivity Challenges for the Agro-food Subsector % to total The core issues that have been identified in chemicals and chemical 100 8 products subsector are: 80 • Limited presence in high value add segments 92 70 60 • Insufficient talent • Inability of SMEs to adapt to technological changes 40 • SMEs unequipped to effectively expand internationally 20 30 0 Number of Subsector establishments value add Source: Economic Planning Unit, Department of Statistics Malaysia. Malaysia Productivity Blueprint 4-34 Figure 4-16 CHEMICALS AND CHEMICAL PRODUCTS SUBSECTOR 2% 0.8% CONTRIBUTION TO TOTAL GDP SHARE OF TOTAL EMPLOYMENT 1 Labour productivity lags Productivity growth slightly below Basic Chemicals is the most best-in-class by 3.7x the regional average productive subsector Value add (RM bn) Labour productivity Labour productivity index (Malaysia=100) Labour productivity (% p.a.), 2011-2015 (RM ‘000 / worker) 40 1,500 33 30 381 400 3.7x 20 1,000 Average 20 -1.3 0 6.2 0 151 200 500 370 17 100 56 10 58 27 -7 0 20 3 1 Malaysia Best-in- Comparable Selected Malaysia Thailand Vietnam Philippines 0 0 class GDP / ASEAN Basic Other Pharmaceuticals Capita members Chemicals Chemicals • USA • Mexico • Philippines • Korea • Argentina • Thailand Index 100 41 3 37 Value add Pharmaceuticals • France • Turkey • Vietnam • Poland 1. 2015 figures. Source: Economic Planning Unit, Department of Statistics Malaysia, Oxford Economics, International Labour Organisation. 4-35 Sector-Level Initiatives

2. Insufficient talent 3. Inability of SMEs to adapt to technological changes Over 34% of survey respondents in the chemicals and chemical product The low levels of skilled talent within the chemicals and chemical subsector cited talent as the greatest challenge in efforts to raise products subsector also limits the adoption of technological changes by productivity7. This is due to the lack of quality local graduates, who are local SMEs. Unaware of investment benefits and unequipped with skills not industry-ready and unable to meet the changing demands of the to manage the digital transition, SMEs rarely make the large investments niche chemical industry. As a result, employers opt to hire foreign talent associated with shifting to digitalisation and mechanisation. and there is also a high turnover rate of employees within the subsector. As a result, they continuously perform below capacity. This is evident In addition, there is insufficient relevant research on chemical with chemical SMEs, which are currently far less productive than manufacturing in universities. The limited capacity of the local academic larger chemical enterprises due to the underutilisation of productivity- community has a direct impact on the production and dissemination of enhancing technology. To remain competitive, SMEs need to be better current chemical research to industry, as local enterprises have no access equipped with appropriate access to technology and digital tools. to best practices. Hence, there is a crucial need for industry players and academic institutions to communicate their needs and form strategic partnerships that could drive national productivity.

7. Online Productivity Survey. Malaysia Productivity Blueprint 4-36 Figure 4-17 10-YEAR RUNNING RETURN ON NET ASSETS (RONA) AND 10-YEAR REVENUE CAGR BY REGION AND SUBSECTOR 10-year Regional RONA (%) Average 39 ASIA PACIFIC NA 19 10 8 AND LATIN 17.0 AMERICA 20 22 11 11 11 NORTH 16.4 AMERICA 21 20 10 11 13 15.9 EUROPE 7 12 NA 6 6 7.3 JAPAN Base chemicals Multispecialty Focused Industrial Agrochemical and basic plastics Specialties gases and fertilizers Subsector average 9.9 8.7 22.6 10.0 20.4 14.7 Revenue CAGR < 0.8 GDP Revenue CAGR > 0.8 GDP Revenue CAGR > 2.0 GDP Source: S&P Capital IQ. 4-37 Sector-Level Initiatives

4. SMEs unequipped to effectively expand internationally C1 Initiative C1: Establish chemicals Centre of Excellence built on clear strategies for chemicals and chemical products The chemicals and chemical product subsector is also constantly subsector threatened by the shrinking size of the domestic market. Currently, Malaysia has a limited local market, and up to 90% of larger company To address the gap between theoretical chemical research and solutions output is exported. With SMEs constituting approximately 90% of the feasible for industry, a chemicals Centre of Excellence will be established local industry landscape, it is essential that these enterprises expand to spearhead chemical productivity improvement initiatives. This Centre their business internationally. will provide an immersive experience in advanced technologies, help enterprises navigate relevant technology vendors and enable easy access However, many SMEs are still unequipped to expand internationally to best practice benchmarks and information on future industry trends, and form strong partnerships with foreign players. The lack of access to with the end goal to ensure enterprises move to high value production finance, skilled human capital and technological innovations drastically and enable continuous productivity improvement. limit SMEs ability to effectively compete globally. Thus, competitive spaces need to be identified and promoted to allow domestic SMEs Furthermore, the Centre of Excellence will enable collaborative to build recognisable brands, boosting international visibility and relationships between academia, large enterprises and SMEs through competitiveness. the sharing of experiences and key lessons from research or ventures undertaken. This will aid the development and launch of various pilot To address these issues, the Blueprint recommends five sector-specific projects between the Centre and industry. By evaluating past experiences, initiatives, which directly correspond with the aforementioned national reviewing current trends and periodically tracking effectiveness, these thrusts: pilot projects will be designed to encourage domestic enterprises to collaborate with the Centre and further enable continuous productivity Establish chemicals Centre of Excellence built on clear improvements. C1 strategies for chemicals and chemical products subsector Deepen collaboration between industry players and education Initiative C2: Deepen collaboration between industry C2 institutions offering chemical-related courses C2 players and educational institutions offering chemical- related courses Provide technical, digital and management support to enhance C3 SME capabilities The Blueprint proposes a collaboration framework between selected Enable SMEs to move towards high value add components in industry players and relevant education and training institutions, with C4 the chemical value chain effective tracking mechanisms. This pilot scheme will ensure that educational institutions receive input on updated technological advances Provide support to high potential SMEs to expand C5 and trends related to the industry to enable more targetted curriculum internationally planning as well as research funding. The collaboration will also allow industry players to articulate their required skill sets and provide input on the feasibility of proposed research based on experience on the ground. It will also include a comprehensive framework that will outline potential Malaysia Productivity Blueprint 4-38 collaborations for long apprenticeships, sponsored research and industry- To ensure the success of SMEs within this initiative, comprehensive led workshops to develop soft skills, focusing on developing industry- strategic partnerships between chemical SMEs and larger downstream ready graduates. By providing university students the opportunity to chemical players will be encouraged and facilitated to enable experience practical training in the industry, it will also encourage them knowledge and technology transfers. The Centre of Excellence will be to develop a career in chemicals in the future, creating a quality pipeline the cornerstone driving the initiative, ensuring continuous focus on of talent for the sector. productivity improvements of all enterprises regardless of their position in the value chain. Initiative C3: Provide technical, digital and management C3 support to enhance SME capabilities Initiative C5: Provide support to high potential SMEs to C5 expand internationally A systematic evaluation of industry SMEs is recommended to identify enterprises with high potential for growth and operational improvement. The gradual saturation of the local chemicals market coupled with These SMEs will then be supported through mentorship programmes with the lack of resources by SMEs to internationalise creates a challenging large enterprises to improve their portfolio mix, operational efficiency, landscape for the subsector. To address this concern, there is a need to commercial strategies and general management. Ultimately, these provide strategic support to high potential chemical SMEs to expand SMEs will be supported in improving their competitive advantage by internationally. strategically leveraging on available digital capabilities and incorporating new business models to explore new ways of working. The support Hence, the Blueprint proposes the compilation of a list of chemical framework and training content will be streamlined through partnerships SMEs with the potential to expand internationally, especially those with relevant bodies such as the HRDF and the aforementioned chemicals that successfully completed up-skilling programmes as proposed in Centre of Excellence to ensure the accountability and transparency of Initiative C2. Through collaboration with the Centre of Excellence, the processes. these enterprises will be primed with growth strategy guidance and the relevant knowledge for internationalisation. Additionally, the Centre of Excellence will be a significant resource centre for SMEs within the Initiative C4: Enable SMEs to move towards high value add subsector to seek aid and assistance for expansion. C4 components in the chemical value chain The Blueprint recommends identifying competitive spaces where domestic SMEs can thrive and setting a clear, attainable pathway for them to conduct thorough analysis of downstream supply gaps. By systematically addressing the barriers that prohibit enterprises from moving towards high value add segments, better targetted support can be provided to encourage vertical integration of the currently fragmented chemicals and chemical products subsector. This will steer chemical SMEs away from focusing solely on low value add primary manufacturing. 4-39 Sector-Level Initiatives Collaboration with leading global industry player BOX 4-5 BASF PETRONAS Chemicals is a Malaysian-based joint venture This cutting-edge technological investment will make Malaysia an between BASF of Germany and Malaysia’s state owned Petroliam important hub in Asia Pacific for the world-wide supply of aroma Nasional Berhad (PETRONAS) under its subsidiary PETRONAS ingredients. Chemicals Group (PCG). Incorporated in 1997, BASF PETRONAS Chemicals currently operates an integrated petrochemical complex In June 2015, the company started the construction of a production at the Gebeng industrial zone in Kuantan, Pahang. The company’s plant for 2-Ethylhexanoic Acid (2-EHAcid). The plants has started share of capital is 60% held by BASF and 40% by PCG with a total operation since 2016 with a total annual capacity of 30,000 metric initial investment of about RM3.4 billion in production facilities for tonnes. 2-EHAcid is a chemical intermediate used as a compound, for Acrylic monomers, Oxo products and Butanediol. example, in the production of synthetic lubricants and oil additives. It is also used for functional fluids like automotive coolants, metal The range of chemicals produced by BASF PETRONAS Chemicals salts for paint dryers, plasticisers, stabilisers, catalysts and other meet the growing demand in various industries, including plastics, applications in various industries including cosmetics. adhesives, lacquers, dyestuff, automobile and industrial coatings, paper, diapers, water treatment, textile and leather. In March 2016, the company began building a new world-scale production plant for highly reactive polyisobutene (HR-PIB) at the In April 2014, the company broke ground on its new integrated BASF PETRONAS Chemicals site. The plant, which will be the first aroma ingredients complex, which will house facilities to produce of its kind in South East Asia with a total annual capacity of 50,000 citral, citronellol and L-menthol. The aroma ingredients produced metric tonnes of HR-PIB, is expected to start production in the fourth will be used as flavours and fragrances for the F&B, fabric and quarter of 2017. HR-PIB is an important intermediate product for homecare and personal care industries. The RM1.5 billion complex the manufacturing of high performance fuel and lubricant additives, will be developed in phases, where the first plants of the complex including additives for sludge prevention. are expected to be fully operational in 2017. Source: BASF PETRONAS Chemicals Sdn Bhd. Malaysia Productivity Blueprint 4-40 Collaboration with academia BOX 4-6 The Chemical Company of Malaysia Berhad (CCM) mooted This programme is a 3-year capacity building programme that offers the Programme CCM JATI (Jalinan Universiti dan Industri) in 2011 pharmacy undergraduates a holistic immersion in the industry and as one of its initiatives to boost productivity efforts among young empowers them with entrepreneurial capabilities as they venture into graduates in addressing the growing concern of unemployment the working environment. They will be given exposure in marketing, among pharmacy graduates. business management and hands-on retailing through training and interaction with CCM professionals. CCM JATI is a collaboration between CCM and public universities to train and groom pharmacy undergraduates on entrepreneurship CCM JATI recruits 50 pharmacy undergraduates annually. Since its in community retail pharmacies. It started off with Universiti inception, more than 200 students have successfully undergone the Sains Malaysia (USM) as the pioneer university and expanded to programme. It targets to develop 500 pharmacy undergraduates to Universiti Malaysia Sabah (UMS), Universiti Teknologi MARA (UiTM), become competent entrepreneurs in community retail pharmacies International Islamic University Malaysia (IIUM) and Universiti by 2020. Kebangsaan Malaysia (UKM). Source: CCM Berhad. 4-41 Sector-Level Initiatives Figure 4-18 OVERVIEW OF 44 SECTOR-LEVEL INITIATIVES ACROSS PRIORITY SECTORS AGRICULTURE MANUFACTURING Agro-food Chemicals and Chemical Products Electrical and Electronics Machinery and Equipment Establish chemicals Centre Accelerate collaboration Set up partnership Facilitate better matching along the of Excellence built on clear strategies and strengthen knowledge sharing between government and supply chain by linking downstream for chemicals and chemical between industry players through industry associations to up-skill demand to upstream supply products subsector Centre of Excellence existing employees Deepen collaboration between Promote higher value add Embed robust contract-farming industry players and educational activities, including Research, model across the subsector institutions offering Develpoment and Design and chemical-related courses produce complex products Update of domestic product standards to be at par SECTOR-LEVEL INITIATIVES with international standards and Push for enforcement and enforce compliance Provide technical, digital and adoption of relevant standards management support to enhance and practices to strengthen SME capabilities end-to-end value chain Strengthen collaboration between industry, government and universities to ensure supply of industry-ready engineers Boost awareness and adoption of Enable SMEs to move towards technological upgrades and modern high value add components in the farming techniques chemical value chain Set up more product testing facilities to ensure standards are met Up-skill workers to prioritise Establish industry-led collaboration innovative thinking to foster with educational institutions productive culture Provide support to high potential SMEs to expand internationally Enforce minimal guaranteed Set up Centre of Excellence for Encourage agro-food service level for utilities and skilled professionals to share players to move into high infrastructures in key industry expertise and develop new value add products and markets industrial zones technologies Workforce Technology Industry Structure Eco-system Initiatives involving Initiatives involving enhancement / acceleration enhancement / acceleration of of existing efforts existing efforts Malaysia Productivity Blueprint 4-42 SERVICES Retail and F&B Tourism Private Healthcare Professional Services ICT Strengthen collaboration Review policies to ease Provide input to colleges Raise awareness of efforts between industry and foreign skilled healthcare and universities to ensure available incentives to ensure academia to match industry professionals work in the curriculum and training are proper utilisation needs subsector industry-relevant and adoption of ICT Provide support for digitalisation of business operations and build e-commerce capabilities Establish a certification / Set up networks to provide Address regulatory accreditation programme for high-quality coordinated constraints to enable set tourist sites, to boost tourist patient care to reduce up of alternative business volume and improve service medical errors and improve models that are in line with SECTOR-LEVEL INITIATIVES delivery patient care quality global trends Centralised and coordinate efforts between relevant agencies to ensure proper utlisation of initiatives and Develop and rollout a programmes Form cross-country national database to facilitate Promote opportunities for Product owners to review professional services patient transfer between sharing economy pricing system of sites consortiums to increase public and private healthcare capability to compete abroad providers Strengthen collaboration Streamline regulations Encourage adoption of Review industry standards between industry and Strengthen Retail and and ensure robust technology solutions, such and regulations with academia to reduce F&B competencies implementation of as to track progress digitally industry’s input mismatch of supply and regulatory reforms rather than on paper demand of workforce Strengthen coordination Encourage adoption of Provide assistance to Align marketing between medical schools operational metrics and Improving the access Pricing Retail and F&B players to strategy on targetted and industry to ensure performance-linked KPIs by Framework for providers grow internationally tourist segments supply/demand match of professional services firms professions Workforce Technology Industry Structure Eco-system Initiatives involving Initiatives involving enhancement / acceleration enhancement / acceleration of of existing efforts existing efforts 5-2 Enterprise-Level Initiatives Malaysia Productivity Blueprint 5-3 05 ENTERPRISE-LEVEL INITIATIVES 5-1 Enterprise-Level Initiatives Firm-level intervention is imperative to address specific productivity constraints at the firm level and to ensure the achievement of industry and national productivity targets. This chapter will present the firm-level intenvention that will be undertaken in a systematic and structured manner, based on a diagnostic toolkit and using existing R&D intermediaries. The previous two chapters focus on productivity initiatives at national Enterprise Survey Results and sector levels. This chapter presents the approach to address productivity at the enterprise level. The micro-level intervention is A survey was conducted at the enterprise level to identify specific imperative to address specific productivity constraints at the enterprise challenges faced by enterprises in improving productivity. Generally, level and to ensure the achievement of industry and national productivity enterprises are constrained by talent issues, the applicability of research, targets. It will be undertaken in a systematic and structured manner the ability to internationalise their businesses and investments in through the Enterprise Productivity Programme. This programme is technology. For the manufacturing sector in particular, it is also designed to provide a customised and hands-on approach to increase constrained by insufficient knowledge of existing government support, the productivity of enterprises based on a diagnostic toolkit and using a high reliance on low-skilled foreign labour as well as limited skills of existing research and development (R&D) intermediaries, such as the existing employees to support further digitalisation of the business. Public-Private Research Network (PPRN), PlaTCOM, Steinbeis and SIRIM- Fraunhofer. The results and key learning from the pilot programme for seven participating enterprises from the retail and food and beverages (F&B), agro-food and chemicals and chemical products subsector are also shared. Malaysia Productivity Blueprint 5-2 Figure 5-1 CHALLENGES THAT IMPEDE PRODUCTIVITY FOR ENTERPRISES Top 4 productivity challenges: talent, research, ability to Some nuances by sector, for example manufacturing also facing issues with internationalise and investment in technology foreign labour reliance Question: Do you agree that your enterprise faces Manufacturing sector Services sector Other sectors these challenges? Talent recruitment 57 52 56 57 Inadequacy of research 46 46 done by local universities 46 47 Insufficient ability to 43 37 44 46 internationalise business Low investment in technology, 42 42 41 35 digitalisation, and mechanisation Limited knowledge of 40 44 41 36 availability of government support Ineffective systems to monitor 38 35 39 39 process and operation efficiency Reliance on low-skilled 37 39 35 38 foreign labour Insufficient skills of existing employees to support digitalisation 37 39 34 40 0 20 40 60 0 20 40 60 0 20 40 60 0 20 40 60 % of total respondents % of manufacturing respondents % of services respondents that agree % of other sector respondents that that agree per challenge statement1 that agree per challenge statement2 per challenge statement3 agree per challenge statement4

1. Includes chemicals and chemical products, electrical and electronics, machinery and equipment and other manufacturing industries.

2. Includes finance and insurance, ICT, private and public healthcare, logistics, tourism, retail and food & beverages, and professional services.

3. Includes agro-food, other agriculture, construction, civil service and other services / subsectors.

4. Respondents that agree includes the responses of “Strongly Agree” and “Agree”. Source: Online Productivity Survey. 5-3 Enterprise-Level Initiatives It is also important to disaggregate the findings between subsectors to retail and F&B subsector face large obstacles in obtaining capital to invest address the sectoral differences. The survey illustrated that while agro- in technology. Lastly, enterprises in the chemicals and chemical products food enterprises are more likely to struggle with gaining access to high subsector struggle in building more international collaborations, which value add markets and managing their supply chain, enterprises in the would help push their products into new markets. Figure 5-2 CHALLENGES THAT IMPEDE PRODUCTIVITY FOR ENTERPRISES IN THE AGRO-FOOD, RETAIL AND F&B, AND CHEMICALS AND CHEMICAL PRODUCTS SUBSECTORS Agro-food enterprises struggle with Chemical enterprises feel they Retail and F&B enterprises are access to high value add markets and lack the global collaborations to challenged by insufficient capital to supply chain management enter high value add markets make technology investments Question: Do you agree that your enterprise faces Question: Do you agree that your enterprise faces Question: Do you agree that your enterprise faces these challenges in the agro-food subsector? these challenges in the chemicals and chemical these challenges in the retail and F&B subsector? products subsector? Access to high Insufficient Insufficient capital to 66 62 value add markets partnership with 63 invest in technology international firms Inefficient supply Limited e-commerce 58 45 chain management platform Limited domestic demand 57 Inadequate capital 54 Insufficient structured assets to upscale career development 42 plan Insufficient participation in high value add 52 Insufficient move to 46 components of the Inadequate long-term 36 high value add products value chain career prospects 0 50 100 0 50 100 0 50 100 % of agro-food respondents % of manufacturing respondents % of retail and F&B respondents that agree with challenge statement1 that agree with challenge statement2 that agree with challenge statement3

1. Refers to only agro-food respondents, N = 50 as of 22nd July 2016.

2. Refers to only chemicals and chemical products respondents, N = 59 as of 22nd July 2016.

3. Refers to only retail and F&B respondents, N = 163 as of 22nd July 2016. Note: Respondents that agree includes the responses of “Strongly Agree” and “Agree”. Source: Online Productivity Survey. Malaysia Productivity Blueprint 5-4 Enterprise Productivity Programme Strategy and Leadership 1 This measure assesses the ability of an enterprise to grow The Blueprint proposes an Enterprise Productivity Programme to sustainably via the application of a clear, coherent and consistent enable enterprises raise their productivity performance based on a business strategy and operating model. pilot programme. The pilot programme involved seven enterprises drawn from the three subsectors, namely retail and F&B, agro-food, Operational Excellence and chemicals and chemical products. The programme was conducted 2 This measure assesses the ability of an enterprise to drive efficiency by a productivity enablement team, which made up of public and private by streamlining processes, and to deploy the right tools to support consultants as well as industry experts. these initiatives. The Enterprise Productivity Programme consists of two key elements: an Talent Management Enterprise Productivity Diagnostic (EPD) framework, which is a qualitative 3 This measure assesses the ability of an enterprise to enable and assessment of enterprise productivity, and a Productivity Metrics Toolkit, encourage individual performance by raising employees’ skill which is designed to enable enterprises collect and track their own levels and improving recruitment and retention of staff. productivity data. Customer and Product Experience Enterprise Productivity Diagnostic Framework 4 This measure assesses the ability of an enterprise to incorporate customer needs into the design of products and/or service The EPD framework forms the first part of the Enterprise Productivity offerings. Programme. The framework has four main dimensions and was designed to group and diagnose the challenges faced at enterprise level as well as guide the recommendations (See Figure 5-3). The four dimensions within the framework are: 5-5 Enterprise-Level Initiatives Figure 5-3 COMPREHENSIVE ENTERPRISE PRODUCTIVITY DIAGNOSTIC FRAMEWORK DEVELOPED FOR THE ENTERPRISE PRODUCTIVITY PROGRAMME Strategy and Leadership 1 2 3 Operational Talent Excellence Management Customer and Product Experience 4 Using the information obtained from stakeholder interviews and best- Productivity Metrics Toolkit practice benchmarks, a heatmap diagnostic was conducted for the enterprises participating in the pilot programme1. Evaluation scores in line The Productivity Metrics Toolkit forms the second part of the Enterprise with best-practice benchmarks have dimensions that are coloured green, Productivity Programme. During this phase, enterprises were introduced scores that indicate a movement towards best-practice benchmarks are to operational productivity metrics that require tracking (see Figure coloured yellow, and existing practices that require significant areas of 5-4). A dashboard was designed around these productivity metrics improvements are coloured red. Using this diagnostic, the productivity measures to ease the process of measuring and tracking of productivity enablement team proposed enterprise-specific initiatives for each performance for individual enterprises. Utilising this user-friendly and dimension in the EPD framework. The initiatives were developed with intuitive dashboard, enterprises are able to generate and track over time the advice of industry experts and anchored on best-practice case studies. their unique productivity metrics. Simultaneously, this exercise raised awareness of the importance of productivity to growth and profitability of enterprises. 1. Seven enterprises were selected to be part of the pilot programme, based on their size, productivity gap and potential, and support from their senior management. Malaysia Productivity Blueprint 5-6 Figure 5-4 PRODUCTIVITY METRICS FOR CHEMICALS AND CHEMICAL PRODUCTS, AGRO-FOOD, AND RETAIL AND F&B SUBSECTORS CHEMICALS AND CHEMICAL PRODUCTS AGRO-FOOD RETAIL AND F&B OVERALL VALUE ADD / EMPLOYEE (RM) INDICATOR (EBITDA1 + Total labour cost) / Total number of employees Capacity Utilisation Actual output / Capacity Utilisation Actual Output / Sales / FTE2 (RM) Local retail sales / Rate (%) Potential output * Rate (%) Installed Capacity Total FTE2 100 Labour cost as % Total labour cost / OPERATIONAL INDICATORS Labour as % of Total labour cost / Labour as % of Total labour cost / of sales Local retail sales Sales (%) Total sales Sales (%) Total sales Sales / square foot Local retail sales Machine Utilisation Operating hours / Total Ouput / FTE2 Total Output / (RM) / Size of selling (%) available hours * (RM) Total FTE2 space (sq ft) 100 Total Cost per Cost of Goods Sold Sales / Total Fixed Local retail sales / Cycle Time Number of days Output (RM) (Labour, Materials, Assets (RM) Cost of total fixed (number of days) it takes for a Marketing, assets customer to receive Packaging Costs) / a product Total Output

1. Earnings before interests, taxes, depreciation and amortization.

2. Full-Time Equivalent employees. 5-7 Enterprise-Level Initiatives BOX 5-1 WHY DO WE NEED TO ASSESS PRODUCTIVITY PERFORMANCE? Labour productivity Enterprises traditionally However, it is more can measure an only think about profits and sustainable for a company employee’s efficiency in not productivity to focus on value add (VA) generating value Most companies feel that improving Value add is the value created by the Given how important workers are, productivity would require high capital company and its employees companies should track efficiency by measuring their value add per employee VA = Sales - Operating Costs = Profit + Wages This issue is particularly glaring in SMEs, When value add increases, both profit and Which is labour productivity, that is where modernisation is deterred by high wages can increase over time. how much output can be generated by investment costs and high dependency on Employees will be motivated to work to one employee cash flow cycles achieve the company’s goals. Malaysia Productivity Blueprint 5-8 The Pilot Programme The heatmap diagnostic conducted using the EPD framework revealed that the business performed well in the Strategy and Leadership The selected enterprises for the pilot programme went through both dimension, while the Operational Excellence dimension showed stages of the Enterprise Productivity Progamme. Following this, the practices that were moving in the right direction as the best-practice Productivity Enablement Team provided proposed initiatives and benchmarks (see Figure 5-5). However, the enterprise showed significant recommendations. An example of the analysis conducted is shared opportunities for improvement in two dimensions: Talent Management below for each of the deep-dive subsectors. and Customer and Product Experience. Example 1: Food and Beverages Enterprise Deep-Dive Summary of Pain Points and Recommendations A family-owned business within the F&B subsector aspires to grow their Strategy and Leadership business internationally within the next few years. The business currently operates under several brands and has restaurants scattered around Pain points: the Klang Valley. The different brands aim to target different consumer • Management style is still very hands-on, with the founder playing a groups and the associated restaurants serve different cuisines. significant role in all business decisions Recommendations: Figure 5-5 HEATMAP DIAGNOSTIC EXERCISE FOR F&B • The founder to lead all expansion efforts to prevent a dilution of the ENTERPRISE PILOT EXAMPLE brand value • The management team to pick only one strong brand to establish in overseas venture In line with best • A clear line of succession should be established so that the company gy and Leadersh practice trate ip is not dependent entirely on the founder for continued operations S Efforts in the right direction Operational Excellence Opportunities for improvement Pain points: Operational Talent • The operations are only overseen by only one operations manager Excellence Management across all restaurants and this causes the manager to be spread quite thin • Insufficient menu analysis results in cost inefficiency • Insufficient supply chain management leads to inconsistent quantity Customer and and quality of raw ingredients Product Experience 5-9 Enterprise-Level Initiatives Recommendations: their occasion needs (such as holiday festivities) instead of segmenting • Area managers need to be appointed to assist in auditing of restaurants based on demographics alone • Set the maximum threshold for food ingredient cost to not more than • Place tech-savvy staff in charge of social media presence 30-40% of total sales value • Adopt IT systems for data-driven labour scheduling Example 2: Agro-food Enterprise Deep-Dive • Establish a central kitchen to reduce the preparation time and costs of standard food products across different outlets A small local business specialising in the manufacturing of instant coffee mixes and freeze-dried tropical fruits seeks to expand its reach in local Talent Management and international markets. However, this industry is characterised by many small players competing in the same markets. The company is Pain points: now trying to differentiate itself by offering more unique products to • Training programmes for employee development have low take-up cater to niche markets. rate • Challenge in recruiting and retaining front-line staff, particularly The heatmap diagnostic conducted using the EPD framework revealed Malaysian staff that the Strategy and Leadership as well as Talent Management • Existing incentives provided require restructuring to boost morale and dimensions showed efforts in the right direction (see Figure 5-6). However, reduce turnover Recommendations: Figure 5-6 HEATMAP DIAGNOSTIC EXERCISE FOR • Ensure rising stars in the business are retained by monitoring attrition AGRO-FOOD ENTERPRISE PILOT EXAMPLE rate (for example, attrition rate of more than 50% raises a red flag) • Emphasise transparency and flexibility of career path (for example, In line with best create a customisable roadmap outlining different career progression practice y and Leader options for employees) ateg shi Str p Efforts in the right • Adopt flexible working hours for permanent staff as retention strategy direction for staff with household commitments Opportunities for improvement Customer and Product Experience Operational Talent Pain points: Excellence Management • Challenge in differentiating business from competitors and offering a unique value proposition Recommendations: Customer and Product Experience • Run a company-wide initiative to get input from staff on improving customer service • Conduct customer research to identify key customer segments and Malaysia Productivity Blueprint 5-10 the enterprise showed significant opportunities for improvement in Example 3: Chemical Enterprise Deep-Dive two dimensions: Customer and Product Experience, and Operational Excellence. A local plastic manufacturer that specialises in injection moulding for plastic products mainly exports its products to Asia Pacific countries. Summary of Pain Points and Recommendations The business is currently seeking to provide end-to-end solutions to its clients. Its Managing Director is currently the key person that drives and Customer and Product Experience oversees the whole business and its operations. Pain points: The heatmap diagnostic conducted using the EPD framework showed • A lack of strategic focus has resulted in insufficient research and that the Operational Excellence as well as Customer and Product development, which in turn has resulted in poor product development Experience showed efforts in the right direction, while the Strategy • Government red-tape causes delays in standards compliance and Leadership and Talent Management dimensions showed significant certification opportunities for improvement (see Figure 5-7). • Facing regulatory issues in exporting certain products y & Le a d e r a te g s hi Str p Recommendations: Figure 5-7 HEATMAP DIAGNOSTIC EXERCISE FOR • Focus and boost research and development efforts to deliver products CHEMICALS ENTERPRISE PILOT EXAMPLE that cater to attractive market segments • Collaborate with local competitors via alliances/consolidation to In line with best strengthen the trust between industry players y and Leader practice • Collaborate with government agencies to promote the reduction of ateg shi Str p Efforts in the right restrictions and red-tape direction Opportunities for Operational Excellence improvement Pain points: Operational Talent • Inconsistent supply and quality of raw materials to meet demand Excellence Management • Insufficient capital investments to increase automation and production levels • Gaps in public infrastructure lead to unwanted and unexpected Customer and production downtime (for example, power outages) Product Experience Recommendations: • Secure raw material supply via contract farming • Develop in-house maintenance and crisis management team • Establish strategic relationships with key stakeholders to raise automation and production levels 5-11 Enterprise-Level Initiatives Summary of Pain Points and Recommendations Talent Management Strategy and Leadership Pain points: • Productivity metrics are not formally tracked and monitored Pain points: • Inadequate operational training available to staff and operational • Heavy reliance on the Managing Director for direction and oversight knowledge is limited to the leadership • Inadequate succession planning; there is no clear line of succession • Difficulty in attracting and retaining talent, especially in middle should the Managing Director leave the business management Recommendations: Recommendations: • Formalise and document business plans and strategies • Engage with academia to explore apprenticeship and internship • Frequently refresh implementation plans to ensure effectiveness and opportunities improve business efficiency • Introduce incentives to attract and retain middle managers • Launch succession planning efforts as soon as possible • Conduct more skill transfer sessions from senior staff • Engage clients and suppliers to provide training to reduce the burden Operational Excellence on leadership to provide training Pain points: Customer and Product Experience • Procurement of a consistent supply of raw material is challenging, leading to long lead times Pain points: • There is a high reliance on manual assembly and packaging, with • Over-reliance on key accounts, where a small number of customers mechanisation efforts of these processes proving to be challenging made up an overwhelmingly large portion of revenue • Limited access to affordable domestic supply of raw materials limits • All research and development is carried out by the Managing Director the ability to explore new business options or the Factory Manager • Intellectual property associated with the mould design belongs to the Recommendations: client • Invest in rapid prototyping solutions that offer faster prototype • The business faces steep competition from cheaper production centres turnover times so that less time is spent waiting and more time is spent on testing • Invest in process control and automation systems to ensure that there is a smooth and seamless linkage between processes Malaysia Productivity Blueprint 5-12 Recommendations: slightly more resistance to adopting new work methods. Thus, • Provide after-sales service, including product and design the Blueprint suggests targeting enterprises that have clear growth improvements aspirations, and that have shown openness to new working • Expand the capabilities of the research and development methods during the pilot phase. department • Develop turnkey solutions that would facilitate in-house Involvement of industry experts is critical to provide specific development of intellectual property that can serve a wider 3 insights and solutions group of clients with minimal modification Industry experts were engaged to support the Productivity Key Lessons from Productivity Pilot Programme Enablement Team during each enterprise study, enabling the team to benefit from these experts’ unique positions in providing Overall, this pilot yielded key learnings across the board and also sector-specific insights and sharing best-practices to address the highlighted some key considerations for the subsequent roll out challenges raised. of enterprise studies: Focused conversations with multiple employees of different 4 functions and levels help drive more open discussion of 1 Enterprises typically monitor top line performance but do not actively track productivity metrics challenges During the duration of the pilot study, enterprises struggled to Interviews across all levels of employees were conducted within provide the data required to calculate the productivity metrics. the enterprises to understand the unique challenges. Small Hence, it is critical that the importance of tracking productivity group conversations were most effective in facilitating open metrics be continuously emphasised. conversations, while separate conversations with mid- or working- level staff also yielded insights that top management may not Deep-dives are most effective when enterprise leaders aspire have been willing to share as openly. Therefore, interview sessions 2 to grow the business and are receptive to improvements should be conducted in a one-to-one or small group setting, with a small number of interviewers to facilitate more candid and open Throughout the pilot study, enterprise leaders who intended conversations. Separate interviews should be conducted with to scale up their businesses have showed more concern about employees from different functions across all working levels to productivity improvements. On the other hand, family-owned garner a more holistic view of the challenges. businesses which are less geared to expansion have shown 5-13 Enterprise-Level Initiatives Figure 5-8 SCOPE OF WORK FOR INTERMEDIARIES3 The Public-Private Research Network This initiative, introduced by MOHE, in collaboration with MTDC and SME Corp, aims to connect companies, especially SMEs, to researchers at the institute of higher learning to provide solutions. It will be a catalyst for innovation, knowledge-sharing and technological advancement for local companies. PlaTCOM Ventures Sdn. Bhd. PlaTCOM Ventures Sdn. Bhd. is the national technology commercialisation platform. It is a smart partnership between National Innovation Agency Malaysia (AIM) and SME Corp. The platform provides end-to-end facilitation services from concept to commercialisation of innovation, including access to funding, infrastructure, testing, validation, regulatory certification, market intelligence, technical expertise and commercialisation advisory. Steinbeis Malaysia Foundation Existing platforms can be utilised to help address the enterprise-level Steinbeis Malaysia Foundation aims to connect academia to industry challenges. The PPRN, part of the Ministry of Higher Education (MOHE), and promote effective and efficient cooperation in knowledge and facilitates the collaboration between university researchers and industry technology transfers. It will enable academics and scientists to set up players in contract research. Intermediaries have also been established ‘mini-entities’ or ‘transfer centres’ to conduct short consultations, R&D by the government, such as Steinbeis, SIRIM-Fraunhofer and PlaTCOM, and projects for private entities, more commonly for SMEs but also to encourage industry players to innovate and improve their market larger companies and MNCs. It provides an innovative platform for competitiveness and productivity (see Figure 5-8). The intermediaries will collaboration for business solutions and focuses on development of assist in identifying the right business solutions, in terms of technology, the end products. process and business model improvements. These strategic alliances will accelerate the sharing of knowledge and innovative ideas, and ultimately SIRIM-Fraunhofer Programme boost company competitiveness and productivity.2 SIRIM-Fraunhofer Programme is a strategic collaboration with Fraunhofer Germany, which focuses on technology penetration and In the long-term, the rollout of the Enterprise Productivity Programme upgrading, technology audit, technology commercialisation as well as will be carried out through the sector Productivity Nexus. The structure strengthening market access to boost productivity of SMEs. Through of the sector Productivity Nexus will be explained in further detail in this programme, SMEs are able to develop new products and processes, Chapter 6 of the Blueprint. solve technological problems, automate and mechanise their production processes, obtain new technologies, and access calibration, testing and certification services. The SIRIM Delivery Mechanism will identify industry problems through technology audit or value chain analysis, industry engagement and direct enquiries. SIRIM will customise solutions for the identified problems to enhance technology penetration and upgrading of SMEs. The delivery of the services and KPIs will be monitored to ensure the success of the programme. 2. 11MP, Strategy Paper 21: Translating Innovation to Wealth.

3. Ministry of Higher Education, National Innovation Agency Malaysia and SIRIM Berhad. PRODUCTIVITY OPTIMISES OUR TIME AND RESOURCES, HELPING PEOPLE LEAD BETTER QUALITY LIVES Productive individuals enjoy healthier work-life balance and collectively create a happier and healthier society 6-2 Governance and Implementation Malaysia Productivity Blueprint 6-3 06 GOVERNANCE AND IMPLEMENTATION 6-1 Governance and Implementation A clear governance model will be set up to ensure the successful implementation of the Blueprint, undertaking four key roles – strategic oversight, advisory, coordination and monitoring, and implementation. The Blueprint plans to ensure that productivity is addressed holistically. The new governance model will have clear roles and responsibilities Three key challenges which are currently hindering the implementation and be driven by public-private partnership to ensure accountability of productivity efforts are: and involvement of both parties. It will also be well coordinated to ensure a cohesive effort, clear ownership and transparent outcomes. • Multiple government agencies are addressing productivity-related The governance model will minimise duplication and ensure it does not matters and is fragmented conflict with on-going efforts. Most importantly, it will be empowered • Current productivity efforts are mainly driven by the government, with with strong leadership and talent. low involvement from private sector players • Lack of coordination in implementation has limited the effectiveness The governance structure is in Figure 6-1. of numerous ideas and programmes Malaysia Productivity Blueprint 6-2 Figure 6-1 GOVERNANCE STRUCTURE OF MALAYSIA PRODUCTIVITY BLUEPRINT National Productivity Council (Chairperson: The Honourable Prime Minister) Advisory and Policy Support (EPU) Delivery Management Office (MPC, MITI) Productivity Nexus 1 Productivity Nexus 2 Productivity Nexus... n (Industry-driven) 6-3 Governance and Implementation The four key roles of the governance model are as outlined in Figure 6-2: Figure 6-2 FOUR KEY ROLES OF THE GOVERNANCE MODEL STRATEGIC OVERSIGHT The National Productivity Council will provide leadership, set the strategic direction and drive the national productivity agenda. It will comprise senior government and private sector representatives Advisory Coordination and Monitoring1 Implementation Provide advice and recommend Act as a central coordinator to monitor Focus on grassroot implementation policies on national productivity and evaluate implementation efforts of productivity initiatives Act as a single point source of Collaborate with relevant stakeholders, baseline data and information, Devise remedial action to ensure such as research bodies and government benchmarks and targets efforts are on track agencies, where necessary Review regulations to reduce Communicate progress and impact Share best practices, introduce hindrance to productivity of implementation to stakeholders self-help mechanisms and provide technical support to enterprises Function carried out by the Delivery Management Office based in Implementation carried out by sector Economic Planning Unit, Malaysia Productivity Corporation, Productivity Nexus, driven by industry Prime Minister’s Department Ministry of International Trade and Industry associations and enterprise champions STRATEGIC MORE ACTION ORIENTED

1. Will also undertake implementation of selected initiatives and also in partnership with sector Productivity Nexus Malaysia Productivity Blueprint 6-4 The National Productivity Council (NPC) will provide the leadership and strategic direction of the national productivity agenda. The NPC Figure 6-3 A DELIVERY MANAGEMENT OFFICE TO COORDINATE will be chaired by the Prime Minister and the council members will INITIATIVES ACROSS VARIOUS STAKEHOLDERS comprise of representatives from ministries and agencies, private sector and industry associations. The key role of the council will be to provide the strategic oversight and direction to ensure the implementation of Advisory the Blueprint. Advisory and Policy Support will be provided by the Economic Planning Unit, Prime Minister’s Department (EPU). It will serve as the main source of reference on national productivity. It provides a cross- Advisory and cutting view of productivity and engage with various government Policy Support agencies and universities. It will propose the overall strategy, targets at Public Sector Private Sector national and sector level to the NPC and ensure that key productivity data is collected, analysed and shared. Impact assessment studies, benchmarking and relevant analysis will be conducted at macro level to develop the knowledge depository on productivity and form the basis Industry Ministries for national and sector policies. It will review regulatory hurdles that are Associations hampering productivity. Delivery Government Management The Delivery Management Office (DMO) will ensure the successful Enterprises implementation of the Blueprint by coordinating, monitoring and Agencies Office evaluating implementation of productivity strategies by both the public and private sector players. The office will work closely with both EPU and Public Research the sector Productivity Nexus to monitor and track the implementation Universities Institutions of productivity initiatives at the national, sector and enterprise levels. Impact assessments will also be conducted to assess the outcomes of the initiatives, escalate issues that need to be resolved and devise remedial Implementation actions. The DMO will also implement specific initiatives on its own and in partnership with university and sector Productivity Nexus. The Malaysia Productivity Corporation (MPC) will be restructured and empowered to perform as the DMO, as shown in Figure 6-3: Sector Productivity Nexus (industry-driven) 6-5 Governance and Implementation A hub and spoke model will be adopted to drive coordinated that will boost productivity, and foster knowledge sharing through implementation efforts. The three main roles of the sector Productivity productivity experts, who can help enterprises identify their productivity Nexus will be to improve awareness and adoption of sector-level challenges and share best practices and solutions. The hub and spoke initiatives, empower enterprises by developing and disseminating tools model is illustrated in Figure 6-4. Figure 6-4 HUB AND SPOKE MODEL WILL FACILITATE COORDINATED EFFORTS AND EMPOWER PRIVATE SECTOR PLAYERS A B C Support Sector-Level Empower Enterprises to Enable Enterprises Initiatives Help Themselves through Knowledge Sharing Delivery Sector Productivity Management Office Nexus Improve awareness, Develop and disseminate Offer expertise, understanding and productivity tools for masterclasses Role: Coordination adoption of sector-level enterprises Role: Implementation initiatives and Monitoring Lean and result-driven entity to coordinate, monitor and evaluate Set up E&E Centre of Strengthen collaboration Access to leading Electrical and Excellence and knowledge sharing E&E experts implementation of Electronic  between industry players productivity strategies Productivity Nexus • Monitor and track implementation of productivity strategies • Conduct impact Set up Chemicals Disseminate Access to leading Chemicals and Centre of Excellence benchmarking chemicals experts assessment of initiative chemical products information outcomes Productivity Nexus • Implement selected initiatives • Escalate issues to NPC • Devise remedial actions Support digitalisation of Share benchmarking Access to retail • Communicate progress of implementation Retail and F&B business operations and data on key productivity Industry experts Productivity Nexus promote partner network metrics • Run nation-wide, programmes campaign to inculcate productivity culture Malaysia Productivity Blueprint 6-6 Industry associations and enterprise champions will be as change agents knowledge and represent the collective voice of the sectors. Moving to drive the sector Productivity Nexus, given the need to have the private forward, suitable associations and enterprise champions will be identified sector play a key role in implementing the Blueprint. Industry associations and empowered to enable them to lead effectively. Figure 6-5 below have strong connections and networks with sector players, have practical explains this in further detail: Figure 6-5 INDUSTRY ASSOCIATIONS ALREADY PLAYING A KEY ROLE AS CHANGE AGENTS Industry associations already playing a key role as However, they need to be further empowered to be change agents within their respective sectors fully effective in their new, augmented role Membership of associations need to be boosted, ensuring a Industry associations have strong connections and better reach to spectrum of enterprises in the sector networks with sector players • Some sectors, such as agro-food, have a high number of associations • The collective power of industry associations offers a strong with fragmented memberships, thus the latter need to consolidate bridge to connect with enterprises and knowledge experts for greater effectiveness in each sector • To empower industry associations to implement productivity initiatives, association membership to an industry be intoduced as a qualifying criteria for an enterprise to get assistance from the government Provision of dedicated funding and manpower to focus on Industry associations have practical knowledge of productivity efforts their sectors • Most association members and their leaders operate on a • Associations have deep on-the-ground understanding part-time basis of the sector and are able to articulate trends and best • Dedicated, full time staffing for the sector Productivity Nexus is practices required to ensure effectiveness of implementation • Sector Productivity Nexus may be provided a launching grant by the government and industry, where they are expected to be eventually self-funded Embed performance management system to incentivise delivery Industry associations represent the voice of the sector while keeping associations accountable for funds • As advocates for the sector, associations understand the • Robust KPIs are set and tracked to ensure on-time and on-budget current agenda and issues within the sector and have a delivery of implementation efforts vested interest to grow and advance the sector • Financial assistance are linked to the achievement of KPIs and expected outcomes Suitable industry associations and champion enterprises to be identified and further empowered to lead implementation efforts 6-7 Governance and Implementation Sector Productivity Nexus for the key sectors will be established in phases (see Figure 6-6): Figure 6-6 PRODUCTIVITY NEXUS TO BE ESTABLISHED IN WAVES Prioritisation Criteria Rollout of sector Productivity Nexus 1 Productivity Gap WAVE 1 WAVE 2 Prioritise subsectors that require the Immediate priorities Medium-term priorities WAVE 3 most support to close productivity gap Long-term priorities + 2 Impact on GDP Prioritise subsectors with significant contributions to national GDP to maximise productivity growth efforts + Electrical and Potential Subsectors: Potential Subsectors: Electronics Machinery and Equipment ICT 3 Percentage of Workforce Productivity Nexus Tourism Professional Services Prioritise subsectors with significant Agro-food Private Healthcare contribution to national employment Chemicals and Chemical Products + Productivity Nexus 4 Readiness of Subsector Prioritise subsectors with strong Retail and F&B industry associations to quickly Productivity Nexus mobilise sector Productivity Nexus + Identified as Prioritisation to be deliberated immediate priority and decided by the Advisory 5 PrioritiseExisting Government Plans subsectors that have limited existing and Policy Support unit government plans and initiatives in place Malaysia Productivity Blueprint 6-8 The governance model is expected to evolve as the Blueprint is implemented and the productivity agenda matures over time. Both the role of the DMO as well as the dependence on government funding are expected to reduce over time (see Figure 6-7): Figure 6-7 GOVERNANCE MODEL TO EVOLVE AS BLUEPRINT IS IMPLEMENTED AND PRODUCTIVITY AGENDA MATURES OVER TIME Initial Stage Mature Stage Advisory Delivery Sector Advisory Delivery Sector and Policy Management Productivity and Policy Management Productivity Support Office Nexus Support Office Nexus Evolution of roles Role of DMO as coordination and monitoring Role of DMO will reduce towards the tail-end unit is critical at initial implement stages of the implementation of the Blueprint as: Blueprint to ensure: • Productivity mindset and KPIs becomes entrenched into • Coordination among various government agencies policy-making decisions in government required to support the national and sectoral initiatives • Sector Productivity Nexus mature and become fully • Monitoring of efforts by sector Productivity Nexus as they independent, with little monitoring required build credibility and capability and returns on investments • Productivity is successfully embedded into the national • Rollout of a nation-wide strategic communication psyche campaign on productivity to embed mindset of productivity Dependence on Government Funding Launching grant may be allocated to kick start Sector Productivity Nexus are expected to operations of the sector Productivity Nexus be self-sufficient as they become the hub for productivity support 6-9 Governance and Implementation BOX 6-1 BENCHMARKING OF GOVERNANCE MODELS IN SELECTED COUNTRIES Level of Government Involvement Canada Australia Singapore Implement- Implement- Implement- Advisory Coordination Advisory Coordination Advisory Coordination ation ation ation Entities x x x • Started as a service of the Government • The Productivity Commission (AGPC) • The precursor to the Standard of Alberta in 2008 was formed in 1998 through an Act Productivity and Innovation Board • Transitioned to a private, not-for-profit of Parliament (SPRING) was founded in 1972 History corporation in 2011 • The Productivity Council (APC) was • The Productivity Association (SPA) was • Expanded nationwide in 2014 an association turned into a private founded as an affiliation to SPRING business focused on productivity • The Productivity Centre (SPC) was formed by SPA in 2013 • Semi funded by the government of • Parliament funds AGPC and is • SPRING is a government body in charge Role of Alberta with aspirations to be self responsible to address its findings and of productivity Government sustaining (less than 25% funding from recommendations • SPRING funds both SPA and SPC Today the government, 75% from fees) • APC is completely private, with no • SPRING personnel seconded as key government intervention management in both entities • Independence from government allows • Findings from AGPC are authoritative • Government has full control and the freedom in prioritising productivity over the Government coordination of strategy and Pros efforts • APC free to choose weather to follow implementation • Private sector has influence to shape the recommendations or not the interventions that matter to them • Requires a driven private sector • Limited coordination between the • Subject to government intervention/ Cons • Harder to raise private funds advisory and the implementation agenda function • Bureaucracy may become unwieldy Private Sector Government Source: GO Productivity, Australian Government Productivity Commission, Australian Productivity Council, Singapore Productivity Association, Singapore Productivity Centre 7-2 Conclusion Malaysia Productivity Blueprint 7-3 07 CONCLUSION 7-1 Conclusion Malaysia’s productivity challenges are centred around talent and skills, current level of digitalisation, industry structure, regulatory hurdles, and insufficient productivity drive among enterprises. A holistic transformation is needed to propel the nation into the ranks of other advanced countries with sustainable economic growth. This is the goal of the Malaysia Productivity Blueprint. To achieve these outcomes, initiatives need to be focused, inclusive, consistent and well implemented. They need to be developed and driven at national, sector and enterprise levels to address the challenges that inhibit productivity growth. Five strategic thrusts have been identified to form the basis of the initiatives namely, Building a Workforce for the Future, Driving Digitalisation and Innovation, Making Industry Accountable for Productivity, Forging a Robust Ecosystem, and Securing a Strong Implementation Mechanism. At the national level, 10 national-level initiatives, 16 key Malaysia Productivity Blueprint 7-2 activities and 6 immediate priorities have been identified. At the sector level, 43 initiatives have been identified. They have been modelled and validated through extensive engagement with relevant stakeholders to ensure practical yet transformative actions. In order to realise the Blueprint’s aspirations, strong collaboration and partnership of all stakeholders is imperative. The new governance model is critical to ensure accountable and successful implementation of the Blueprint. The outcome of the Blueprint will be a game changer for productivity improvement in Malaysia, shifting mindsets away from ‘business as usual’, enhancing competitiveness and productivity, and doubling the nation’s productivity to become an advanced economy and inclusive nation. 2-2 Methodology and Approach Malaysia Productivity Blueprint A-3 APPENDIX A-1 Appendix 1,107 250+ government agencies and ministries enterprises 120+ survey 80+ industry and topic experts responses professional boards and associations 30+ An extensive, collaborative and consultative process was employed included in the design and development of the Blueprint. Insights from over the duration of the development of the Blueprint. Perspectives these stakeholders were gathered through workshops, focus groups and from over 500 stakeholder groups, including ministries and government interviews. A national survey was also conducted to further understand agencies, industry experts, professional boards and associations, the perspectives and challenges relating to productivity at the enterprise universities, training institutes and enterprises on the ground were level, receiving 1,107 responses. Malaysia Productivity Blueprint A-2 Figure A-1 APPROACH TAKEN TO IDENTIFY PRODUCTIVITY CHALLENGES AT NATIONAL, SECTOR AND ENTERPRISE LEVELS National Sector Enterprise level level level Reviewed key government Uncovered key challenges and Conducted enablement training strategies to determine existing solutions through series of sessions for MPC team public policy direction engagements with enterprises, industry associations and government Engaged with enterprises to discuss Determined point of view through agencies – 20 workshops, including specific challenges through 20 workshops articulation of case for change and Gallery Walks at EPU and MITI and 3 roundtable sessions global best practices Validated priority initiatives Conducted in-depth, enterprise-level Defined set of 16 key activities through roundtable sessions for interviews with 7 enterprises from for government to focus on to subsector deep-dives, and follow-up deep-dive subsectors uplift productivity at national, meetings with key owners cross-sector level, of which 6 are Shared productivity metrics tool and immediate priorities outline key recommendations for productivity uplift with enterprises A key feature of the Blueprint is its emphasis on addressing productivity At the national level, key government strategies were reviewed in order in a holistic way, at the national, sector and enterprise levels. As such, to evaluate current challenges and identify immediate priorities. the approach involved analysing productivity challenges and solutions at each level, enabling a system-wide implementation of programmes and initiatives moving forward (see Figure 7). A-3 Appendix Figure A-2 ADDRESSING PRODUCTIVITY HOLISTICALLY AT THE NATIONAL, SECTOR AND ENTERPRISE LEVELS NATIONAL-LEVEL INITIATIVES SECTOR-LEVEL INITIATIVES ENTERPRISE-LEVEL INITIATIVES National-level initiatives outline policy Sector-level initiatives outline explicit sector Enterprise-level initiatives outline specific priorities to uplift national productivity strategies to address sector-level productivity enterprise strategies to enhance operations barriers related to productivity improvement • To be led by core government ministries and agencies • To be led by key industry associations • To be led by management at enterprises • Targets governance of productivity policies and anchor enterprises for each sector (including SMEs) with guidance from sector impacting all economic sectors • Targets acceleration of productivity uplift, Productivity Nexus impacting large enterprises and SMEs at • Targets productivity improvement at enterprise sector level level At the sector level, the main challenges were uncovered through analysis Out of the nine priority subsectors, three subsectors were selected as and engagement with key sector players, including enterprises, industry deep-dive subsectors, which were explored in more detail. These three associations and government agencies, enabling the development of subsectors, namely: retail and F&B, electrical & electronics, and chemicals sector specific priority initiatives. Nine priority sectors were identified and chemical products, were selected for the following reasons: based on the presence of the following features: • Significant size and highly visible • Contribution to GDP • Underperformed productivity growth with large gaps when compared • Share of workforce to the best-in-class sector benchmarks • Opportunity for productivity improvement • Strong stakeholder support • High multiplier effect • Potential for quick-to-impact results • Readiness to implement productivity improvement At the enterprise level, a selection of Malaysian enterprises was identified to be part of a pilot programme to diagnose productivity challenges. From the programme’s findings, key recommendations were identified to raise the productivity of these enterprises. Malaysia Productivity Blueprint A-4 Figure A-3 NINE PRIORITY SUBSECTORS IDENTIFIED AS NEEDLE-MOVERS 20 SECTORS SPANNING 6 KEY AREAS... Services Manufacturing Agriculture Construction Mining and Civil Service Quarrying Wholesale & Retail, F&B and Tobacco, Agro-food (Paddy, Civil Engineering, Central agencies Accommodation & Metal Products, Fisheries, Livestock, Residential, Oil & Gas (MOF, PSD), Restaurant,Finance E&E, Machinery & Fruits & Vegetable) Non-Residential Executing agencies & Insurance, Real Equipment, Petrol & Others (Iron ore, (e.g. Health, Estate, Business & Chemicals Rubber/ Industrial Tin mine) Defence) Professional Services, Polymer, Paper & commodities Utility, Logistics,ICT, Printing, Leather (Palm oil, Rubber, Tourism, Education, and Wood, Textiles, Cocoa, Pepper, Healthcare Motor/Transport Kenaf, Timber) PRIORITISED USING KEY CRITERIA... ...TO DETERMINE 9 PRIORITY SUBSECTORS Services Manufacturing Retail and Food & Beverage Chemicals and Chemical Products ICT Machinery and Equipment Contribution to GDP Low productivity Tourism Electrical and Electronics Professional Services Private Healthcare Others Multiplier impact 11MP focus area Agro-food A-5 Appendix BOX A-1 NUMEROUS ENGAGEMENT SESSIONS HAVE BEEN HELD WITH GOVERNMENT, INDUSTRY, EXPERTS AND OTHERS Workshop, Roundtables and Presentations 2 sets of workshops were conducted engaging Roundtable sessions held for deep-dive with public and private sector stakeholders subsectors • E&E, M&E, Chemicals, Tourism, Professional • Retail and F&B, Agro-food, and Chemicals and Services, Healthcare, Agro-food, Retail and F&B Chemical Products • Workshop 1: Uncover productivity challenges - 3 roundtables with over 80 attendees - 9 workshops with over 246 attendees • Workshop 2: Prioritise and further define initiatives Presentations held across various productivity - 6 workshops with almost 140 attendees topics • World Economic Forum breakfast panel discussion on the Productivity Paradox, attended by almost 80 local client and WEF attendees • Productivity and Competitiveness Forum by MPC, attended by around 200 attendees • Productivity Expert Series on 4th Industry Revolution, attended by almost 70 attendees Focus Groups and Interviews Focus groups and interviews with public and private sector stakeholders for additional subsectors • Oil & Gas, Utilities, Logistics, Civil Service, ICT, Financial & Insurance, E&E, Manufacturing • Highlighted productivity challenges and identifed available plans in place to address them • 6 focus group discussions with almost 70 attendees Online Productivity Survey Distributed to employees across all sectors covering topics: • Importance of productivity, metrics tracking and usage • Productivity challenges and potential productivity enablers • Received input from 1,107 respondents, as of 22 July 2016 - 237 respondents from manufacturing sector - 569 from services sector - 256 from other sectors - 45 from civil service Malaysia Productivity Blueprint 2-6 G-1 Glossary GLOSSARY Acronym Definition Acronym Definition 11MP Eleventh Malaysia Plan, 2016-2020 JATI Jalinan Universiti dan Industri ASEAN Association of Southeast Asian Nations JKPDA Jawatankuasa Pelaburan Dana Awam bn billion JPC Japan Productivity Centre CAGR Compound annual growth rate KPI Key performance indicator CCM Chemical Company of Malaysia M&E Machinery and equipment COE Centre of Excellence MATRADE Malaysia External Trade Development Corporation COFEMER Comision Federal de Mejora Regulatoria MCOs Managed Care Organisations CSV Creating Shared Value MDEC Malaysia Digital Economy Corporation DISF Domestic Investment Strategic Fund MFP Multi-factor productivity DOA Department of Agriculture MIDA Malaysian Investment Development Authority DOSM Department of Statistics Malaysia MITI Ministry of International Trade and Industry E&E Electrical and electronics mn million ECL Enterprise Clean Loan MNC Multinational Corporation EPD Enterprise Productivity Diagnostic MOA Ministry of Agriculture & Agro-Based Industry EPU Economic Planning Unit, Prime Minister's Department Malaysia F&B Food and Beverages MOF Ministry of Finance FDI Foreign direct investment MOHA Ministry of Home Affairs FMM Federation of Malaysian Manufacturers MOHE Ministry of Higher Education FTE Full-Time Equivalent MOHR Ministry of Human Resources GAP Good Agricultural Practices MPC Malaysia Productivity Corporation GDP Gross domestic product MTDC Malaysian Technology Development Corporation GLC Government-linked company MyGAP Malaysia Good Agricultural Practices GMP Good Manufacturing Practices NPDIR National Policy on the Development and Implementation of Regulations GRP Good Regulatory Practices NPP Nuclear power plant HACCP Hazard Analysis and Critical Control Points p.a. per annum HIP High Impact Programme p.p. percentage point HRDF Human Resources Development Fund PCG PETRONAS Chemicals Group ICE Integrated Centre for Export PEMUDAH Special Task Force on Service Delivery (Pasukan ICT Information and Communication Technology Petugas Khas Pemudahcara Perniagaan) IIUM International Islamic University Malaysia PETRONAS Petroliam Nasional Berhad IMD Institute for Management Development PLWS Productivity-Linked Wage System IT Information Technology PPP Purchasing Power Parity Malaysia Productivity Blueprint G-2 Acronym Definition PPRN Public-Private Research Network PSD Public Service Department R&D Research and development R&D&C Research, development and commercialisation R&D&D Research, development and design R&D&I Research, development and innovation RM Ringgit Malaysia RONA Return on net assests SARI Semi Aerobic Rice Intensification SIRIM Standards and Industrial Research Institute of Malaysia SME Corp SME Corporation Malaysia SMEs Small and medium enterprises TPAs Third Party Administrators TV Television TVET Technical and Vocational Education and Training UiTM Universiti Teknologi MARA UKM The National University of Malaysia (Universiti Kebangsaaan Malaysia) UMS Universiti Malaysia Sabah USAID The United States Agency for International Development USM University of Science, Malaysia (Universiti Sains Malaysia) VA Value add WCY World Competitive Yearbook WEF World Economic Forum WTO World Trade Organisation G-3 Acknowledgements ACKNOWLEDGEMENTS The formulation of the Malaysia Productivity Blueprint benefited substantially from the extensive deliberations, engagements and dialogues with the Government, industry stakeholders and experts. The Economic Planning Unit, Prime Minister’s Department would like to express its appreciation to the following organisations for their invaluable contribution in providing feedback and insight. We would like to thank Biotropics Malaysia Berhad, Hannan Corp Sdn Bhd, Holstein Milk, Sitt Heng Sdn Bhd, United Grain Resources, Nestlé Malaysia, Blue Archipelago Berhad, FFM Farms, Crops For the Future, Tastiway Sdn Bhd, Zinon Food Industry Sdn Bhd and Farm Fresh Milk Sdn Bhd enterprises from the agro-food subsector; ARUP, Atsa Architects, BDO, Hadid Engineering, Jurukur Esa, KPMG, PWC, UEM and Zicolaw from the professional services subsector; Infineon Technologies (M) Sdn Bhd, MTM, PIKOM, Tenaga Switchgear, FlexTTech Innovation, Globetronics Sdn Bhd, Inari Technology Sdn Bhd, ISO Technology Sdn Bhd, Jabil Circuit (M) Sdn Bhd, Lumileds Malaysia Sdn Bhd, Motorola Solutions Malaysia Sdn Bhd, NationGate Solution (M) Sdn Bhd, Plexus Manufacturing Sdn Bhd, Seagate, SMART Modular Technologies Sdn Bhd and Silterra enterprises from the E&E subsector; 99 Speedmart, Anakku Sdn Bhd, Bonia Corporation, Happy Fresh, Secret Recipe Sdn Bhd, Tesco Malaysia, Lazada, Parkson, Serai Group, SegiFresh, Fashion Valet, Ceramics Centre Sdn Bhd and Mydin enterprises from the retail and F&B subsectors; Genting Malaysia, Sunway Resort Hotels, MyCreative Ventures and Asian Overland Services Tours & Travel Sdn Bhd enterprises from the tourism subsector; Sime Darby Industrial, EMDEK, Favelle Falco, MTM and Senior Flexonics enterprises from the M&E subsector; Damai Service Hospital, Hospital Fatimah Ipoh, IHH Healthcare, Pantai Hospital Malaysia, Qualitas Medical Group Sdn Bhd, Tung Shin Hospital and KPJ Healthcare enterprises from the private healthcare subsector; Lotte Chemical Titan, PETRONAS, Pharmacys Manufacturing, Pharmaniaga Logistics, BASF PETRONAS Chemicals, BASF (Malaysia) Sdn Bhd, KANEKA, Techbond Manufacturing Sdn Bhd and Plasform Sdn Bhd enterprises from the chemicals and chemical products subsector; and PETRONAS and Telekom Malaysia enterprises from the oil and gas, and utilities subsectors. In addition, none of the above would have been possible without the assistance of several industry associations. We extend our warmest thanks to the National Association of Smallholders Malaysia (NASH), Pertubuhan Peladang Kebangsaan (NAFAS), the Associated Chinese Chambers of Commerce and Industry of Malaysia, Persatuan Kebangsaan Pekebun-Pekebun Kecil Malaysia (PKPKM), Persatuan Industri Udang Malaysia, Persatuan Pembiak Kambing Malaysia (PPKM), Persatuan Nelayan Kebangsaan (NEKMAT) and the Malaysian Agriculture Producers Association from the agro-food subsector; the Bar Council Malaysia, the Board of Engineers Malaysia, the Institution of Engineers of Malaysia, Malaysia Institute of Accounting and Royal Institution of Surveyors Malaysia from the professional services subsector; the American Malaysian Chamber Malaysia Productivity Blueprint G-4 of Commerce (AMCHAM), Collaborative Research in Engineering, Science and Technology (CREST) and Malaysian Industry-Government Group of High Technology from the E&E subsector; Malaysia Retail Chain Association (MRCA), Malaysian Franchise Association (MFA), Malaysian Food Beverage Executives Association and Malaysian Retail Association from the retail and F&B subsectors; the KL Tourist Guides Association, Malaysian Association of Hotels, the Association for Shopping Complex and High-Rise Management, Malaysian Tourist Guide Council and MATTA from the tourism subsector; the Machinery and Equipment Manufacturers Association of Malaysia (MEMA) from the M&E subsector; the Association of Private Hospitals Malaysia (APHM), Malaysian Medical Association, Federation of Private Medical Practitioners’ Association, Malaysian Medical Council and the Malaysian Society for Quality in Health (MSQH) from the private healthcare subsector; Chemical Company of Malaysia Berhad (CCM), Malaysian Plastics Manufacturers Association (MPMA), Chemical Industries Council of Malaysia (CICM), Malaysian Organisation of Pharmaceutical Industries and Malaysia Mould and Die Association (MMDA) from the chemicals and chemical products subsector; the Malaysian Water Association, Malaysian Oil and Gas Services Council (MOGSC) and Malaysia Association of Energy Service Companies (MAESCO) from the oil and gas, and utilities subsector; the Federation of Malaysian Manufacturers (FMM) from the manufacturing sector; the Life Insurance Association of Malaysia and Association of Banks in Malaysia from the financial services subsector; and the Airfreight Forwarders Association of Malaysia and ASEAN Port Association Malaysia from the logistics subsector. The following governmental and government-linked agencies have also been of indispensable help to us: Malaysia Digital Economy Corporation (MDEC), Malaysia Productivity Corporation (MPC), Ministry of International Trade and Industry (MITI), SME Corporation (SME Corp), Malaysia External Trade Development Corporation (MATRADE), Ministry of Agriculture and Agro-Based Industry (MOA), Ministry of Domestic Trade, Co- operatives and Consumerism (KPDNKK), Ministry Of Science Technology & Innovation (MOSTI), Malaysian Investment Development Authority (MIDA), Ministry of Human Resource (MOHR), Ministry of Health (MOH), Talent Corporation Malaysia Berhad (TalentCorp), Department of Fisheries (DOF), Ministry of Finance (MOF), Malaysian Agricultural Research and Development Institute (MARDI), National Innovation Agency Malaysia (AIM), Perbadanan Nasional Berhad (PNS), Tourism Malaysia, Ministry of Tourism and Culture Malaysia (MOTAC), Jabatan Kemajuan Islam Malaysia (JAKIM), Halal Industry Development Corporation (HIDC), the Royal Malaysian Customs Department, Ministry of Higher Education (MOHE), Public Service Department (JPA), Bank Negara Malaysia (BNM), Securities Commission Malaysia (SC), Ministry of Energy, Green Technology and Water (KeTTHA), Energy Commission, Marine Department Malaysia, Minerals and Geoscience Department Malaysia (JMG), Federal Agricutural Marketing Authority (FAMA), National Department for Culture and Arts (JKKN), The Northern Corridor Implementation Authority (NCIA), Ministry of Natural Resources and Environment (NRE), Sustainable Energy Development Authority of Malaysia (SEDA), Malaysia Healthcare Travel Council (MHTC), Federation of Private Medical Practitioners’ Associations (FPMPAM), Universiti Putra Malaysia and the Ministry of Works Malaysia. Finally, invaluable topical expertise in the writing of this Blueprint has been obtained from Crops For the Future (CFF) Research, BASF (Malaysia) Sdn Bhd, Bank Negara Negara (BNM), Marrybrown Sdn. Bhd., Lazada Group, University of Malaya, Grattan Institute and MCG, the local chapter of the Boston Consulting Group.