Strategy Package for Higher Growth & Structural Change Human Capital for a High Income Economy

Strategy Package for Higher
Growth & Structural Change
Human Capital for a High Income Economy
Final Report
August 2009

Strategy Package for Higher Growth & Structural Change
Table of Contents
Index of Exhibits ...............................................................................................................................2
Index of Appendices.........................................................................................................................4
Acronyms and Abbreviations..........................................................................................................5
Project Approach ..............................................................................................................................6
Executive Summary..........................................................................................................................9
Impact 5: Human Capital for a High Income Economy...............................................................12
Part 1: Diagnosis of Current Human Capital Development ....................................................12
5.1: State of Economy To-Date....................................................................................................12
5.2: Main Issues and Recent Human Capital Developments in the Labour Market ....................17
Part 2: Key Human Capital Challenges.....................................................................................20
5.3: Little Emphasis on Quality of Teaching Workforce ...............................................................20
5.4: Technical / Skills Education Currently Not a Mainstream Option .........................................24
5.5: Quality of Universities and Graduates Affect Employability..................................................28
5.6: Increasing Low Skilled Foreign Labour and Decreasing Expatriates ...................................34
5.7: Regulatory Framework and Institution Inhibiting Labour Market Efficiency..........................42
5.8: Limited concerted effort to address human capital development .........................................45
Part 3: Options for Reform .........................................................................................................48
5.9: Produce and Maintain Quality of Teaching Workforce .........................................................48
5.10: Improve Quality and Perception of Technical / Skills Education..........................................55
5.11: Empower Universities to Improve Graduate Employability..................................................66
5.12: Enhance Foreign Labour Policies ........................................................................................77
5.13: Harmonize and Update Labour Laws ..................................................................................87
5.14: Streamline Management of Human Capital.........................................................................89
Conclusion.......................................................................................................................................91
Appendix..........................................................................................................................................93

2
Index of Exhibits
Exhibit 5.1: Human Capital Initiative project approach.......................................................................6
Exhibit 5.2: Overview of timeline for the Human Capital Initiative ......................................................7
Exhibit 5.3: List of stakeholders engaged...........................................................................................7
Exhibit 5.1.1: Malaysia today is in-between fast-growing high-income and developing economies 12
Exhibit 5.1.2: Challenging for Malaysia to achieve required high growth rates................................13
Exhibit 5.1.3: High income economies predominantly services focused..........................................13
Exhibit 5.1.4: GDP growth vs. workforce growth ..............................................................................14
Exhibit 5.1.5: GDP growth has outpaced workforce growth .............................................................15
Exhibit 5.1.6: Productivity lags Asian high income economies.........................................................15
Exhibit 5.1.7: Wage growth has been low.........................................................................................16
Exhibit 5.2.1: Workforce today still relatively unskilled .....................................................................17
Exhibit 5.2.2: Low skill levels reflected across almost all industry sectors.......................................18
Exhibit 5.2.3: Singapore skill-level benchmark .................................................................................18
Exhibit 5.3.1: Deteriorating student performance .............................................................................20
Exhibit 5.3.2: Quality of teachers is the most important determinant of student outcomes..............21
Exhibit 5.3.3: Medium monthly salary by jobs with 1-4 years experience ........................................22
Exhibit 5.4.1: 25% of students opt out of education after SPM and enter the workforce .................24
Exhibit 5.4.2: Employers increasingly demanding higher-skilled workforce.....................................25
Exhibit 5.4.3: SPM qualification limits ability to move to higher level jobs and wages .....................25
Exhibit 5.4.4: Low take up rate of technical /skills education............................................................26
Exhibit 5.5.1: Graduate unemployment rates by universities ...........................................................28
Exhibit 5.5.2: Wages of employed graduates ...................................................................................29
Exhibit 5.5.3: Government expenditure to address graduate employability .....................................31
Exhibit 5.5.4: Performance management system developed by MOHE’s PMO...............................32
Exhibit 5.5.5: Student admission process.........................................................................................33
Exhibit 5.6.1: Comparison of classification of foreign talent .............................................................34
Exhibit 5.6.2: Amount of expatriates by sectors (2000-2008)...........................................................35
Exhibit 5.6.3: Percentage of expatriate over total labour force (2005) .............................................35
Exhibit 5.6.4: Benchmark of Singapore and Hong Kong expatriate employment policy ..................36
Exhibit 5.6.5: Benchmark of economic demand for expatriates .......................................................36
Exhibit 5.6.6: Average salary for professionals by sectors and nationality.......................................38
Exhibit 5.6.7: Number of foreign workers by sector..........................................................................38
Exhibit 5.6.8: High Reliance on unskilled foreign workers in several sectors ..................................39
Exhibit 5.6.9: Statistics for Malaysian Diaspora................................................................................40
Exhibit 5.6.10: Summary of Brain Gain Program..............................................................................41
Exhibit 5.7.1: Process of settling disputes for collective agreements...............................................43
Exhibit 5.7.2: Malaysia’s ratings in hiring / firing practices and firing cost........................................43
Exhibit 5.8.1: Range of initiatives to address human capital development and supply issues .......45
Exhibit 5.8.2: Various Ministries and agencies involved in human capital development..................46
Exhibit 5.8.3: National Advisory Council for Education and Training ...............................................46
Exhibit 5.9.1: Performance based contracts for Principals - implementation guideline....................49
Exhibit 5.9.2: Induction mentoring for new teachers - implementation guideline .............................50

3
Exhibit 5.9.3: Teach for All – locations around the world..................................................................51
Exhibit 5.9.4: Teach for India and America a highly competitive program .......................................51
Exhibit 5.9.5: “Teach for Malaysia” will create virtuous cycle for the teaching profession ...............52
Exhibit 5.9.6: “Teach for Malaysia” - implementation guideline........................................................53
Exhibit 5.9.8: Mid to longer term educational reforms needed .........................................................54
Exhibit 5.10.1: Harmonize public training infrastructure ...................................................................56
Exhibit 5.10.4: Purchaser key performance indicators .....................................................................58
Exhibit 5.10.5: Owner key performance indicators...........................................................................59
Exhibit 5.10.6: Corporatization of institutes can occur in phases.....................................................59
Exhibit 5.10.7: Corporatization of skills training institutes - implementation guideline .....................60
Exhibit 5.10.8: Strengthen Industry Collabouration - implementation guideline...............................61
Exhibit 5.10.9: Occupational licensing - implementation guideline...................................................62
Exhibit 5.10.10: Image campaign - implementation guideline ..........................................................63
Exhibit 5.10.11: Counseling teams - implementation guideline........................................................64
Exhibit 5.10.12: Policy implications for recommendations on improving the quality and perception of
technical / skills education ................................................................................................................65
Exhibit 5.11.1: Australian Higher Education Indicators.....................................................................67
Exhibit 5.11.2: Performance assessment to be an input for budget allocation ................................68
Exhibit 5.11.3: Four types of innovative allocation mechanisms ......................................................69
Exhibit 5.11.4: Suggested timeline for instilling a performance and accountability culture..............70
Exhibit 5.11.5: Universities to have autonomy in student admission................................................71
Exhibit 5.11.6: Suggested timeline for empowering universities with greater autonomy .................73
Exhibit 5.11.7: Knowledge Transfer Partnership an intermediary for collabouration .......................74
Exhibit 5.11.8: Suggested timeline for ensuring graduates meet industry needs ............................75
Exhibit 5.11.9: Policy implications for recommendations on empowering universities to improve
graduate employability......................................................................................................................76
Exhibit 5.12.1: Case studies of expatriate employment inducing job creations ...............................77
Exhibit 5.12.2: Permanent Residence Issuance System for Australia and Canada.........................79
Exhibit 5.12.3: Timeline for liberalization of expatriate entry ............................................................79
Exhibit 5.12.4: Best practice example (current Singapore levy and ceiling system)........................80
Exhibit 5.12.5: Process map for issuance of foreign worker permits to outsourcing companies .....81
Exhibit 5.12.6: Example of sectoral approach in reducing foreign labour dependency....................82
Exhibit 5.12.7: Options on the manner with which to roll-out new levies..........................................82
Exhibit 5.12.8: Determination criteria for push on limiting foreign workers and increasing
productivity........................................................................................................................................83
Exhibit 5.12.9: Timeline for implementing ceilings and levies for foreign labour..............................84
Exhibit 5.12.10: Timeline for implementation of Diaspora initiatives ................................................85
Exhibit 5.12.11; Policy Implications of recommendations on enhancing foreign labour policy ........86
Exhibit 5.13.1: Examples of issues with current labour laws............................................................87
Exhibit 5.13.2: Detailed timeline for updating labour laws................................................................88
Exhibit 5.13.3: Policy Implications of recommendations of harmonizing and updating labour laws 88
Exhibit 5.14.1: Suggested timeline for streamlining the management of human capital..................90
Exhibit 5.14.2: Policy Implications of recommendations on streamlining management of human
capital................................................................................................................................................90

4
Exhibit 5.4: Implementation units created in the UK and Australia...................................................92
Index of Appendices
Appendix 1: List of documents used in identifying issues in human capital.....................................93
Appendix 2: Prioritization of issues...................................................................................................95
Appendix 3: Minutes of Meeting for Workshop 1..............................................................................99
Appendix 4: Minutes of Meeting for Workshop 2............................................................................119

5
Acronyms and Abbreviations
AMCHAM American Malaysia Chamber of Commerce
APEX Accelerated Program for Excellence
BNM Bank Negara Malaysia
CEO Chief Executive Officer
COO Chief Operating Officer
CAGR Compounded Annual Growth Rate
CIDB Construction Industry Development Board
DoS Department of Statistics
EDB Economic Development Board (Singapore)
EIU Economic Intelligence Unit
EPU Economic Planning Unit
FDI Foreign Direct Investment
GDP Gross Domestic Product
ICT Information, Communication and Technology
ISMK National Institute of Human Resource
JPA Jabatan Perkhidmatan Awam
KPI Key Performance Indicator
MPC Malaysia Productivity Corporation
MIDA Malaysian Industrial Development Authority
MOA Ministry of Agriculture
MOE Ministry of Education
MOH Ministry of Health
MOHE Ministry of Higher Education
MOHR Ministry of Human Resources
MOTOUR Ministry of Tourism
MITI Ministry of International Trade and Industry
MOSTI Ministry of Science, Technology and Innovation
MDeC Multimedia Development Corporation
MSC Multimedia Super Corridor
MNC Multinational Corporation
NACET National Council for Education and Training
PEMUDAH Special Task Force to Facilitate Business
PR Permanent Residency
R&D Research and Development
RMK-9 Rancangan Malaysia Kesembilan
SME Small and Medium Enterprises
SMIDEC Small and Medium Industries Development Corporation
SPM Sijil Pelajaran Malaysia
SSM Suruhanjaya Syarikat Malaysia
STI Skills Training Institute
TIMSS Trends in International Mathematics and Science Study
USM Universiti Sains Malaysia

6
Project Approach
The Human Capital for a High Income Economy Initiative commenced in January with the first
Working Group meeting on 21 January 2009. However, the involvement of The Boston Consulting
Group (BCG) to support the Economic Planning Unit (EPU) started on 23 February 2009 and
spanned over ten weeks. The study was developed over five phases, as pictured in Exhibit 5.1.
Exhibit 5.1: Human Capital Initiative project approach
Preliminary
recommendations
• Develop
preliminary
recommendations
to address issues
• Present and
discuss
recommendations
with key
stakeholders and
obtain feedback
Project
inception
• Obtain key
stakeholder
inputs to
develop fact
base
• Review
previous
studies,
reports and
plans
• Finalize
work plan,
scope of
work
Prioritization of issues
• Discussions with
stakeholders on key
constrains/ structural
issues
• Develop and formulate
hypotheses
Phase III:
Finalize recommendations
Phase I:
Assessment of current situation (diagnostics)
Phase II:
Preliminary recommendations
Phases
Study
milestones Steering
Committee
Develop
implementation
roadmap
Finalize
recommendations
• Incorporating
inputs from key
stakeholders
Briefing
to
Minister2
Benchmark learning from
successful international
strategies on human capital
development
1. Briefing to Y.B Senator Tan Sri Amirsham A. Aziz 2. Briefing to Y.B. Tan Sri Nor Mohamed Yakcop
Source: BCG
Obtain buy-in from
stakeholders
Workshop WorkshopInception
report
Final
report
Draft final
report
Briefing to
EC
Secretariat
Briefing to
Minister1
Refer to Appendix 1 for the list of documents referred to in identifying the challenges faced in
human capital development, and Appendix 2 for the methodology used in the prioritization of
issues.

7
The detailed timeline for the study is described in Exhibit 5.2.
Exhibit 5.2: Overview of timeline for the Human Capital Initiative
1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5 1 2 3 4 5
Feb 23 Mar 2 Mar 9 Mar 16 Mar 23 Mar 30 Apr 6 Apr 13 Apr 20 Apr 27
Key Milestones
• Workshop 1
• Briefing to Minister1
• Inception Report
• Briefing to EC Secretariat
• Workshop 2
• Briefing to Minister2
• Draft final report to EC
• Final Report
• Steering Committee Meeting
Key Activities
11 Mar
19 Mar
6 May
16 Apr
4 May
31 Mar
Define set of key issues to address
• Direct engagement with
stakeholders/working groups
• Benchmark of successful
international strategies
• Review existing reports/plans
• Compile findings from Workshop 1
• Prepare Inception Report
Develop draft recommendations
• Present to Working Groups, (incl.
from other Strategic Thrusts)
• Refine recommendations with inputs
from stakeholders
• Prepare Draft Final Report
Finalize recommendations
• Refinement with Working Groups
• Discussion sessions with Working
Group from other Thrusts to assist
alignment
• Circulate Draft Final Report for
stakeholder inputs
• Finalize Report
14 Apr
17 Apr
2 Mar
1. Briefing to Y.B Senator Tan Sri Amirsham A. Aziz 2. Briefing to Y.B. Tan Sri Nor Mohamed Yakcop
Source: BCG
Over the course of the study, many Ministries and members from the private sector were engaged,
as listed in Exhibit 5.3 below.
Exhibit 5.3: List of stakeholders engaged
MOEMOE
1. Tan Sri Zulkurnain bin Haji
Awang
2. Datin Asariah bt. Mior
Shaharuddin
3. Haji Ali bin Abdul Ghani
4. Dr. Hj. Zainal Aalam
5. Ruslan Zainudin
6. Hj. Ahmad Tajudin b Jab
7. Norhayati binti Alias
8. Mohd., Subri Mat Isa
9. Tn. Hj. A'azmi Shahri
10. Hamidun Abdullah
11. Guan Eng Chan
12. Dr. Khair
13. Mohd Zainal bin Dirin
14. Dr. Zaida Mustafa
15. Dr. Zainab Hussein
16. Dr. Noor Zaib Wahab
17. Mahanom Mat Sam
18. Dr. Halibah Abdul Rahim
19. Zulfikar Husni bin Shamsul
20. Ismail Ahmad
21. Eizzatul Fadhilah binti
Mohamad
22. Sulaiman bin Mohamad
Khalid
Secretary General
Teachers Education
Division
Curriculum Development
Center
Teachers Training Div.
Technical & Vocational
Education Div.
Educational Planning &
Policy Research Div.
Private Education Div.
Private Education Div.
R&D Div
IAB.
Center
Teachers Education
Teachers Education
IAB
Teachers Education
BPPDP
BPPDP
BPTV
Research & Planning
Research & Planning
MOHAMOHA
1. Azman Azra Abd Rahman
2. Ayub Abdul Rahman
3. Aidil Hasinal Abu Bakar
4. Ahmad Zulnasri bin Abdul
Khalid
5. Rohaizi bin Bahari
Div. of Immigration Affairs
Foreign Labor Mgt. Dept.
Div. of Immigration Affairs
MOHRMOHR
1. Mohd. Sukri bin Ismail
2. Pang Chau Leong
3. K. Nadarajah
4. Sulaiman Ismail
5. Baharuddin bin Bedol
6. Azizah Arrifin
7. Asri bin Abdul Rahman
8. Elvis Edmund Emus
9. Ahmad Badri Jaafar
10. Mej. (R) Van Weng Hong
11. Muhd Ghazali Abdul Aziz
12. Mohd. Sahar Darusman
13. Syed Mohamed Noor bin
Syed Mat Ali
14. Aruna binti Ismail Abdul
Wahab
15. Jamieyah binti Osman
16. Hashim bin Shikh Abdul
Kadir
17 Mayzatul Azidah binti Abdul
Wahab
18. Jeffrey Joakim Mohd. Jeffrey
19. Mooi Poh Kong
20. Mohd Napiah Haru
21. Faizah Harun
Dept. of Skills Devt.
Dept. of Skills Devt.
Industrial Relations Dept.
Labor Policy Div.
Labor Policy Div.
Foreign Labor Div.
Labor Policy Div.
Labor Dept.
PSMB
HRDF
Policy Division
Manpower Department
Policy Division
Skill Development Fund
Corp. (SDFC)
SDFC
Training Resource & Dev.
Div.
Manpower Deparment
EPUEPU
1. Dato' Dr. K. Govindan
2. Prof. Datuk Dr. Noor Azlan
bin Ghazali
3. Dr. Kamariah Noruddin
4. Dr. Mazalan bin Kamis
5. Jeevananth A/L Paliah
6. Dr. Soh Chee Seng
7. Mohd. Razli Md. Shariff
8. Ting Kok Onn
9. Yogeesvaran Kumaraguru
10. Zaity Zalina Razali
11. Azizah Hamzah
12. Nik Azman
13.Norisam binti A. Aziz
14.Kamarul Ariffin bin Ujang
15.Dr. Roslina binti Mohd. Isa
16.Nik Rozelin binti Nik Ramzi
Shah
17.Mary George
18.Asdirhyme bin Abdul Rasib
19.Sa'odah binti Junit
20.Zizi binti Alias
21.Nazaruddin Abu
22.Salwani binti Ismail
23.Selvarajoo Manikam
EPU
MDI
MDI
MDI
Manufacturing Industry,
Science & Tech Section
Public-Private
Partnership Centre
Service Industry
Service Industry
K-Economy
Macro Economics
Budget Development
Corridor Dev.
MDI
K-Economy Section
Macro Economy
Manufacturing Industry,
Science and Technology
Services Industry
Agriculture Section
Services Industry
Social Services Section
Infrastructure and Utilities
MOHEMOHE
1. Amir bin Mohd. Noor
2. Mazlan Zurin Zulkifli
3. Norina Jamaludin
4. Prof. Madya Dr. Norsaadah
5. Prof. Dato' Radin Umar
6. Dr. Siti Aishah Baharum
7. Rahmah Hussain
8. Norehan Md. Shariff
9. Nordiana Atan
Policy Devt. Div.
Academic Devt Dept.
PMO
Dept. of Higher Education
IPTA Governance Dept.
Student Admissions Dept.
Dept. of Polytechnic &
Comm College Edu.
Industrial Relations Div
10. Prof. Dr. Md. Yusof
11. Mohd. Ghaus Bin Abdul
Kadir
12. Dr. Mohamed Rashid Navi
Bax
13.Ahmad Azizudin bin Abdul
Karim
14.Ee Hong
15. Dr. Guan Eng Chan
Graduate Tracer Study
Unit
and Evaluation Division
IPTS Management
Private Education
Research and Planing

8
Other Government agenciesOther Government agencies
1. Abdul Rahim Hashim
2. Rosli bin Abdul
Rahman
3. Mohamad Dzafir
Mustafa
4. Najmi bin Hj. Mohd.
Noor
5. Mohd. Salimi bin
Sajari
6. Cheah Hock Kooi
7. Dr. Mohd. Sopian bin
Johar
8. Suzy Yanty Ahmad
Rubani
9. Nor Azian binti Mohd.
Yusoff
10. Lee Saw Hoon
11. Noelle Chanan Singh
12.Samauddin
13. Wan Nadia
14.Mohd. Razali bin
Hussain
15. Mazmen binti Abdul
Hamid
16. Mohd. Fauzi Mohd.
Kudong
17. Nik Abu Bakar
18. Phang Ah Tong
19. Rohaini binti Ahmad
20. Maimum Yusoff
21. Sabariah Hassan
22. Abd. Hamid Kasiman
23. Widyawati Abd. Rani
24. Mohd. Ali bin Jabar
25. Azizah binti Mohd.
Yusof
26. Mohd. Sanuri Shahid
27. Ooi Goan Lee
28. Harjeet Singh
29. Hamdan Hj. Puteh
MARA (Vocational Training
Div.)
MARA
MOA
MOA
MOA
MOA
MOA
SMIDEC
SMIDEC
MPC
MPC
MPC
MPC
MPC
MITI
MITI
MITI
MIDA
MIDA
Min. of Health
Min. of Health
Min. of Youth & Sports
MeCD
Public Service Department
CIDB
MOPIC
MOSTI
MOWFCD
JPA
1. Datuk Muhammad
Feisol Hassan
2. Stewart Forbes
3. Dato' Raja Zulkepley
Dahalan
4. Ivy Wong
5. Zuraidah Mohd Kamal
6. Tan Sri Dato Dr.
James Alfred A. David
7. Tuan Haji
Shamsuddin Bardan
8. D. Danavaindran
9. Thomas Eapan
10. Ruben Gabriel
11.Dato' Moehamad Izat
Emir
12.Khoo Kok Hwa
13. Zakri Baharudin
14. Azizah Talib
15. Lee Yoke Wan
16.Zulraihah Harun
17.Jaafar Karim
18.Goh Seng Wing
19. Tn. Hj. Indera Putra Hj.
Ismail
20. R. Rajeswari
21. Prof. Dr. Mohd Kamal
Hj Harun
22. Prof. Dr. Mustafa
Mohd. Zain
23. Dr. Chris Saville
24. Raenah Md. Sem
25. Prof. Dr. Saran Kaur
26. Hj. Mohd. Rashid
Mohd. Fadzil
M'sian German Chamber of
Commerce & Industry
M'sian I'nt. Chamber of
Commerce & Industry
Commerce & Industry
Commerce & Industry
Commerce & Industry
FMM
FMM
FMM
FMM
FMM
FMM
FMM
MEF
MEF
MEF
MEF
MEF
MEF
MTUC
MTUC
UiTM
UiTM
UiTM-Industry Linkage Ctr.
UiTM-Industry Linkage Ctr.
UKM
UKM
OthersOthers
27.Prof. Leslie Trustum
28.Gurpardeep Singh
29.Prof. Madya Dr.
Noraini binti Kaprawi
30.Mohamad Ali bin Baba
31. Prof. Dr. Ahmad b.
Othman
32. Prof. Lindsay Falvey
33. Tina Yeung
34. J. Palaniappan
35. Mohd Dzulqhifly Mohd
36. Abdullah Monshi
37. Wan Dallila Bakar
38.Yusoff bin Mohd. Sahir
39.Dato' Dr. Hamzah bin
Kassim
40.Paul Boardman
41.Dato' Hj. Matshah
Safuan
42.Azizan Hawa Hassan
43.Kevin Tan
44.Sujitha Rajaratnam
45.Lim Si Boon
46.Dato' Ghazali bin Dato'
Mohd Yusof
47. Dato' Dr. Hj. Muhamad
Nasir
48. Mohamad b. Audong
49. Capt. (R) Azlan Mohd.
Isa
50. A. Navamukundan
51. Hanizan b. Zalazilah
Malaysian Association of
Private Colleges and Uni.
Malaysian Association of
Private Colleges and Uni.
University Tun Hussein Onn
University Tun Hussein Onn
University Malaysia Pahang
University of Melbourne
Sheffield University
Panasonic
Sime Darby
Petronas
RHB
German-Malaysian Institute
Career Xcell Sdn. Bhd.
University of Nottingham
Safuan Group Berhad
UEM Academy
Omni View Consultancy
G.A.B
Malaysia Association of
Foreign Maid Agencies
Nusantara Technologies
Federation of JPK
Accredited Centers
M'sian Agricultural
Producers Association
CLAB
NUPW
UUM
In addition, two workshops were held to gain input from various stakeholders. Refer to Appendix 3
and Appendix 4 for the minutes of the workshops.
Workshop 1
Date: 11th March, 2009
Agenda:
i. Present challenges in achieving a high income economy
ii. Identify and prioritize issues in human capital development
iii. Discuss potential recommendations to address issues
Workshop 2
Date: 14th April, 2009
Agenda:
i. Present key challenges in human capital development
ii. Present preliminary recommendations
iii. Discuss and obtain inputs on preliminary recommendations

9
Executive Summary
The Boston Consulting Group was engaged by the Economic Planning Unit (EPU) under its
“Human Capital for a High Income Economy Initiative” to identify a set of critical levers required for
human capital development, to identify key issues and challenges that impact these levers and to
develop a comprehensive set of recommendations that address these issues. This initiative is part
of a wider Government strategy package for higher growth and structural change.
Together with EPU and key stakeholders from various Ministries, the BCG team has reviewed
existing initiatives, plans and blueprints, engaged in international benchmarking and interviewed
numerous experts from the Government and Industry to identify international best practices. The
findings of this research and the recommendations that stem from them are presented in this
report.
This report is organized in three parts
i. Diagnosis of current human capital development
ii. Key issues that impact the supply and labour market efficiencies of human capital
iii. Options for reform
Diagnosis of current human capital development
Malaysia faces several key challenges in its efforts to achieve its vision of reaching a high income
economy by 2020. Malaysia’s growth is between that of fast growing high income economies and
that of developing ones. However, given the current economic climate, it will be challenging to
achieve the required high growth rates to transition into high income economy.
Malaysia will therefore need to change its economic industry structure. It will also need to
significantly improve its labour productivity, which is currently lagging behind regional peers. To
achieve so successfully, it will need to up-skill its existing mostly semi-skilled workforce, and
improve the educational levels of new workers entering the labour market.
Key issues that impact the supply and labour market efficiencies of human capital
Multiple human capital recommendations and programs have been implemented in recent years to
improve workforce quality. However, several key issues remain:
i. Education policies need to further emphasize on the critical levers required to improve
quality of primary & secondary education, namely the quality and performance of the
teaching workforce
ii. A high number of students enter the workforce with low skills levels as technical / skills
education are not considered a viable and mainstream option due to quality and
perception issues
iii. Many reports and feedback from employers point to the lack of employability competencies
among graduates of local public universities. To-date, the Government has also invested
heavily in graduate re-training schemes

10
iv. Continued influx of foreign labour, concentrated in low-value added activities, hinders the
country’s aspiration to move to high-value added activities. At the same time, the number
of expatriates, who can assist the country to move toward high-value added activities, has
been declining
v. Limited update of labour laws, especially regulations governing collective agreements and
flexible work arrangements
vi. Multiple human capital initiatives are being implemented by different Ministries with the risk
of limited cohesive strategic planning and tracking of outcomes across Ministries
Options for reform
i. Further improve the quality and performance of the teaching workforce
a. Inculcate a performance culture in the using the leadership lever of introducing
performance-based contracts for school Principals
b. Implement an elite graduate program to catalyze change in the perception of the
teaching profession as well as to complement the above initiative
ii. Improve quality and perception of technical / skills education
a. Improve supply of technical / skills education
• Harmonize technical / skills infrastructure
• Corporatize technical / skills institutes
• Increase industry collabouration
• Enhance value of technical / skills certificates
b. Improve perception of technical / skills education
iii. Empower universities to improve performance, including graduate employability
a. Enhance the performance management system of public universities and make
them fully accountable for their performance
• Link performance assessment to budget allocation
b. Grant greater autonomy to public universities in terms of student admissions and
faculty management
c. At the same time, to implement structured tactical measures to ensure graduates
meet industry needs
iv. Enhance foreign labour policies
a. Introduce 'minimum entry requirements' for expatriates and new employment pass
access for middle income expatriates
b. Introduce dependency ceiling and enhance levy system

11
• Align with sector development plans
v. Update and harmonize labour laws
a. To include Employment Act 1955, Industrial Relations Act 1967 and Trade Union
Act 1959
vi. Streamline the strategic management of human capital
a. Leverage the newly established Cabinet Committee for Human Capital
Development with focus on specific outcomes

12
Impact 5: Human Capital for a High Income Economy
Part 1: Diagnosis of Current Human Capital Development
5.1: State of Economy To-Date
Stuck in the middle
Malaysia has set an ambitious target to become a high income economy by 2020. However it
faces several key challenges to achieve this target. Most importantly an economic structure that is
currently dominated by low-skilled sectors, relatively low growth in labour productivity, and low
wage growth hinders progress.
Challenging growth target
As Exhibit 5.1.1 shows, Malaysian GDP growth is between that of fast growing high income
economies and that of developing ones. Exhibit 5.1.2 shows that in order to transform into a high
income economy, which is defined as a GDP per capita of US$10,000 based on 1990 prices,
Malaysia would require a minimum average GDP/capita growth rate of 7% until 2020. However,
this target will be very challenging to achieve given the current economic climate. The Economic
Intelligence Unit (EIU) forecasts an average growth rate of only 4.5% over the next 12 years. The
latest Economist figures foresee zero or slightly negative growth in 2009. Malaysia will thus need
multiple years of growth higher than 7% to offset the slow growth over the next few of years to
reach the 2020 target.
Exhibit 5.1.1: Malaysia today is in-between fast-growing high-income and developing economies
0
10,000
20,000
30,000
Philippines
Singapore
South Korea
Taiwan
Thailand
Vietnam
1970 1972 1974 1976 1978 1980 1982
China
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
USD
Hong Kong
Indonesia
Japan
Malaysia
1984
GDP/capita 1970: 2008 (PPP)
Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009
1997 crisis

13
Exhibit 5.1.2: Challenging for Malaysia to achieve required high growth rates
Real growth of 7% needed for Malaysia to become high-income
economy by 2020...
Real growth of 7% needed for Malaysia to become high-income
economy by 2020... ...will be challenging to achieve...will be challenging to achieve
• Current economic downturn
likely to further hamper
economic growth
• "Leap-frogging" economic
development may not be a
viable option
– Malaysia has tried
accelerating development of
high value added ICT ...
– ... but failed given lack of
required enablers
– As a result, FDI/MNC
activities in ICT in recent
years have been focused
more on low value SSO2
activities
6.6
2020
aspiration
6.2
Real GDP/capita
growth
2000-2008
4.5
Forecast
growth ’09-’201
7.0
Growth
required
between
’09-’20
0 5 6 7
1. Nominal growth Note: Based on target of Vision 2020 of USD 10’000 GDP/capita in 2020 based on 1990 prices 2. Shared Services Organization
Source: Vision 2020; EIU 2008, BCG Analysis
Projected
GDP/capita
(US$)
Projected
GDP/capita
(US$)
7,569
10,000
Need for economic restructuring
High income economies are predominantly service focused, as detailed in Exhibit 5.1.3. Services
typically account for 60-80% of GDP, but in Malaysia this figure is only 46%. Malaysia will
therefore need to change its economic industry structure and focus more on high-end service
sectors to transition to a high income economy.
Exhibit 5.1.3: High income economies predominantly services focusedyp y y
79 76 73 72 71 71 70 70 69 67 64
58 57
46
20 23 26 26 26 28 26 29
27 33
33
40 41
45
10
54 3302232111
MalaysiaNorwaySouth
Korea
FinlandSingaporeIcelandSwedenNew
Zealand
3
TaiwanAustraliaJapan
100
80
40
20
Manufacturing
0
Agriculture
Services
60
DenmarkUKUS
%
Percentage of GDP breakdown by industry
Source: CIA world fact book 2008

14
Increase labour productivity
Exhibit 5.1.4 shows that GDP growth has outpaced workforce growth over the last decade,
resulting in steady growth in labour productivity.
Exhibit 5.1.4: GDP growth vs. workforce growth
GDP growth outpaced workforce growth ...GDP growth outpaced workforce growth ... ... with steady growth in labor productivity... with steady growth in labor productivity
8
Labor force
growth
%
GDP Growth
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
0
10
2
4
6
-8
4.1%
2.7%
CAGR ’98 –
‘07
CAGR ’98 –
‘07
GDP vs. workforce growth
1998-2007
Source: MPC 2007, Department of Statistics, EPU economic model
-2
0
2
4
6
8
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
%
Labor force productivity growth
1998-2007
GDP
(RM B)
Labor
force (M)
158 165 176 183 194 202 215 229 246 257
8.8 9.3 9.4 9.7 10.1 10.4 10.6 10.8 11.38.6
Post dotcom
crisis
Post dotcom
crisis
Exhibit 5.1.5 illustrates this picture is generally true for all sectors. However, Exhibit 5.1.6 shows
that despite robust productivity growth, labour productivity is falling behind rapidly growing regional
peers such as China and India. This exhibit also shows that overall productivity levels are still far
below those of Asian high income economies. In 2007, for example, Singapore’s productivity level
was four times higher than Malaysia’s at ~ US$ 48,000.

15
Exhibit 5.1.5: GDP growth has outpaced workforce growth
Manufacturing contributes
largest portion of GDP...
Manufacturing contributes
largest portion of GDP...
...with highest amount of
productivity growth...
...with highest amount of
productivity growth...
...supported by high labor
force growth
...supported by high labor
force growth
1. Includes insurance, real estate and other business services 2. Includes accommodation and restaurants 3. Includes government services
Source: Department of Statistic, MPC, EPU economic model
Labor productivity growth across
key sectors 1998-2007
2007 GDP key sectors Labor force growth 1998-2007
key sectors
4.6
0.0
4.6
-0.3
5.5
1.7
6.0
7.4
1.8
-5 0 5 10
‘000
3.2
-0.9
3.2
2.8
2.9
1.0
2.2
3.0
3.5
-1 0 1 2 3 4
%
15
18
35
41
42
47
66
93
156
0 100 200
Manufacturing
Finance1
W’sale & Retail Trade2
Construction
Utilities
RM Mn
Mining and Quarrying
Agriculture
Other services3
Transport, Storage
& Communication
Key sectors to influence are manufacturing and trade
given size of GDP and labor force
2,251
809
2,724
2,167
1,577
630
972
46
75
Labor force
2007
Exhibit 5.1.6: Productivity lags Asian high income economies
1. At 2000 constant prices 2. 2003-2006 period 3. 2006
Source: MPC Productivity report 2007, Philippines National Statistics Coordination Board
1,4702,3922,9362,963
4,750
12,661
29,985
39,948
48,638
0
10,000
20,000
30,000
40,000
50,000
US($)
Labor productivity falling behind rapidly
growing LDCs ...
Labor productivity falling behind rapidly
growing LDCs ... ... and overall productivity levels relatively low... and overall productivity levels relatively low
High Income countries
2.82.92.9
3.23.4
3.7
4.2
5.0
9.5
0
2
4
6
8
10
%
China
India
Indonesia
Thailand
Malaysia
Korea
Taiwan
Philippines2
Singapore
Taiwan
Korea
Malaysia
Thailand
China
Indonesia
Philippines3
IndiaSingapore
Productivity levels 20072Productivity growth for selected
Asian countries 2003-2007
Wage growth
In recent years the Malaysian labour market has seen low wage growth at an average of 1.6% in
recent years. Compared to pre-Asian crisis years, as shown in Exhibit 5.1.7, real wage growth has
dramatically decreased between 1998 and 2007. The exhibit also shows that average real wage
growth over the past 15 years has been significantly lower than that of regional peers. A move
towards an industry structure dominated by high skills sectors and higher growth in labour
productivity is expected to result in higher wage growth.

16
Exhibit 5.1.7: Wage growth has been low
Real wage growth has fallen
over the years ...
Real wage growth has fallen
over the years ...
... and is significantly lower than
regional peers
... and is significantly lower than
regional peers
5.95.9
6.8
7.9
2.8
5.86.06.2
1.8
0.6
1.2
2.5
1.4
-1.3
1.5
2.5
-2
0
2
4
6
8
E&E Petchem,
Oleochem
and real
estate
Textiles Wood
products
Other
equip-
ment
Food and
beverage
Base
metals
Total
manufac-
turing
%
E.g., real wage changes for selected manufacturing sectors
(%)
Source: The Star online January 15 2009, EIU
Average real wage growth, selected countries (1994-2007 in %)
-0.3
0.5
0.7
0.7
1.4
1.6
2.0
2.3
2.3
2.3
3.8
4.1
11.1
US
Japan
Thailand
Philippines
%
Vietnam
Taiwan
0 5
UK
10 15
Malaysia
India
Korea
China
Indonesia
Singapore
1994-19971998-2007

17
5.2: Main Issues and Recent Human Capital
Developments in the Labour Market
Low level of skilled workforce
Exhibit 5.2.1 shows that Malaysia’s workforce is still relatively low-skilled. In 2007, 80% of the
workforce was only educated up to the Sijil Pelajaran Malaysia (SPM) level or equivalent. In line
with the low education levels that year, only 25% of Malaysian jobs were in the higher skill
brackets. Even though this is a substantial improvement over the 1990 figure (16%), the current
level is still much below that of regional peers such as Singapore (49%), Taiwan (33%) and South
Korea (36%).
The previous section explained that Malaysia will need to change its economic industry structure
and improve labour productivity levels if it is to transition to a high income economy. Malaysia will
therefore need to up-grade the skill level of its existing mostly semi-skilled workforce, and improve
the educational and skill levels of new workers entering the labour market.
Exhibit 5.2.1: Workforce today still relatively unskilled
~80% of workforce educated up to SPM
or equivalent only
~80% of workforce educated up to SPM
or equivalent only
Only 25% of Malaysian jobs are in the
higher skilled bracket
Only 25% of Malaysian jobs are in the
higher skilled bracket
Developed economies have
significantly higher proportion
of higher skilled jobs
Developed economies have
significantly higher proportion
of higher skilled jobs
7 5 5
27
24 23 21
23
22
21
20
30
34
34 35
9 12 15 16
%
4
1998
4
2001
3
2004
4
LowSec
Primary
4
None
2007
0
Tertiary
100
PostSec
20
UpSec
40
60
80
11 12
73
63
8
12
8
13
1990 2007
0
100
20
40
60
80
%
3%
9%
5%
1%
0%
-3%
5.7%
5.0%
2.6%
2.9%
CAGR
’90 – ‘07
CAGR
’90 – ‘07
60
51
67 64
40
49
33 36
Singapore
1997
Singapore
2008
Taiwan
2007
Korea
2007
0
100
20
40
60
80
%
CAGR
’98 – ‘07
CAGR
’98 – ‘07
Tertiary
PostSec
UpSec
LowSec
Primary
None
Unskilled1
Semi-skilled1
Skilled1
80% 25%
1. Based on type of occupations rather than education attainment to facilitate comparison with other countries
Note LowSec = PMR, UpSec = SPM, PostSec =STPM, Tertiary =Diploma, degree
Source: Department of Statistics, Korea International Labor Organization, Taiwan Department of Statistics
Management &
professionals1 Semi and
unskilled1
Management,
professional
and other skilled1
Exhibit 5.2.2 shows that low skill levels are dominant across almost all industry sectors, with the
exception of the Government, finance & insurance and mining sectors, which together account for
only 15% of the total workforce. Skill levels are a reflection of the focus of the economic sectors of
a country and the extent of high value added activities within individual sectors. Therefore, for
Malaysia to move up the value chain towards a high income economy, it will need to do two things.
First, it will need to start prioritizing those economic sectors that require a more highly skilled
workforce. As Exhibit 5.2.3 shows, a high income country such as Singapore has a high proportion
of skilled jobs in high-end service sectors. Malaysia is therefore advised to aim to increase its
share of high-end service sectors such as finance and insurance. Secondly, within all sectors,
Malaysia should aim to up-skill its workforce.

18
Exhibit 5.2.2: Low skill levels reflected across almost all industry sectors
19
51
12
17
7
69
7
Wholesale &
retail trade
13
17
65
5
20
70
2
14
7
57
22
Construction
8
12
5
Other
manufacturing
10
10
75
21
37
33
9
33
20
45
Managerial4
Skilled4
Semi-skilled4
28
0 10020 40 60 80
0
100
20
40
60
80
%
Other
services
128
3
66
19
9
7
75
9
2
3
89
6
Agro and
food
processing3
52
2
18
Unskilled4
1.Public administration, education and health 2. And oleochem 3. Also includes forestry and logging
Note: breakdown of skills level based on employed population
Source: Department of statistic, EPU Economic model
257 5371,438 1,8071,24628746 972487 8531,871 1,450
Labor
force
('000)
Finance &
insurance
Mining
Petchem2
Gov’t
services1
11,251
Total
Priority sectors
E&E
Logistics
Tourism
All sectors to
up-skill
workforce
Shift focus of
economic sectors,
impacting labor
force concentration
Distribution of jobs by skills levels across key sectors, 2007
1,306
7,079
1,374
1,492
Exhibit 5.2.3: Singapore skill-level benchmark
23
80% 37%
41%
20%
2%
Public administration & education services
27%
33%
33%
7%
Real estate, rental & leasing services
53%
31%
40%
22%
16%
Wholesales & retail trade
16%
45%
23%
16%
Manufacturing
13%
33%
26%
Financial & insurance services
1%
18%
20%
51%
18%
Transport & storage
10%
20%
41%
29%
Administrative & support services
12%
19%
46%
23%
Other community, social & personal services
5%
12%
45%
38%
Hotels & restaurants
11%
28%
Construction
22%
53%
Others#
17%
30%
29%
24%
Health & social services
6%
27%
29%
38%
Professional, scientific & technical services
1%
19%
30%
50%
28%
Information & communications
1%
15%
Managerial1
Skilled1
Semiskilled1
Unskilled1
0 10020 40 60 80
0%
100%
20%
40%
60%
%
43 106229 312 2707487 124110 18223 85
Labor force
('000)
1,854
Total
89 120
Distribution of jobs by skills levels across key sectors, 2007
250
633
488
483
Source: Singapore Department of Statistics 2007

19
Conclusion
From a supply side perspective, Malaysia must ensure a strong pipeline of adequately skilled
workers into the labour market in order to improve its workforce quality. Simultaneously, it must
also up-skill its existing workforce. From a labour market efficiency perspective, where multiple
components such as flexibility of wage determination, co-operation in labour-employer relations
and rigidity of employment are used as evaluation metrics, Malaysia must improve the legal
framework of its labour market and put in place policies to effectively manage alternative sources
of labour (i.e., expatriates and foreign labour). These issues will be further discussed in detail in
the following sections of the report.

20
Part 2: Key Human Capital Challenges
5.3: Little Emphasis on Quality of Teaching Workforce
Despite substantial increases in education spending and several impressive reform efforts over the
last decade, Malaysia’s primary and secondary students continue to lag behind peers from
developed countries. The “Trends in International Mathematics and Science Study” (TIMSS)
provides data on mathematics and science achievement over time for grade 81
students. Exhibit
5.3.1 shows that Malaysia’s score in mathematics dropped from 519 in 1999 to 474 in 2007 and
the country’s performance in science also worsened from 492 in 1999 to 471 in 2007. The exhibit
also shows that in math, Malaysia’s performance relative to other countries worsened over this
period, from rank 16 in 1999 to rank 20.
Exhibit 5.3.1: Deteriorating student performance
CountryCountry
Chinese Taipei
Republic of Korea
Singapore
Hong Kong SAR
Japan
Hungary
England
Russian Federation
United States
Lithuania
Czech Republic
Slovenia
Armenia
Australia
Sweden
Malta
Scotland
Serbia
Italy
Malaysia
Norway
Cyprus
Bulgaria
Israel
Ukraine
Romania
Bosnia
Lebanon
Thailand
Turkey
19991999
3 (585)
2 (587)
1 (604)
4 (582)
5 (579)
9 (532)
20 (496)
12 (526)
19 (502)
22 (482)
15 (520)
11 (530)
-
13 (525)
-
-
-
-
23 (479)
16 (519)
-
24 (476)
17 (511)
28 (466)
-
25 (572)
-
-
27 (467)
-
20032003 20072007
4 (585)
2 (589)
1 (605)
3 (586)
5 (570)
9 (529)
-
12 (508)
15 (504)
16 (502)
-
21 (493)
23 (478)
14 (505)
17 (499)
-
18 (498)
24 (477)
22 (484)
10 (508)
27 (461)
29 (459)
25 (476)
19 (496)
-
26 (475)
-
31 (433)
-
-
1 (598)
2 (597)
3 (593)
4 (572)
5 (570)
6 (517)
7 (513)
8 (512)
9 (508)
10 (506)
11 (504)
12 (501)
13 (499)
14 (496)
15 (491)
16 (488)
17 (487)
18 (486)
19 (480)
20 (474)
21 (469)
22 (465)
23 (464)
24 (463)
25 (462)
26 (461)
27 (456)
28 (449)
29 (441)
30 (432)
CountryCountry
Singapore
Chinese Taipei
Japan
Republic of Korea
England
Hungary
Czech Republic
Slovenia
Hong Kong SAR
Russian Federation
United States
Lithuania
Australia
Sweden
Scotland
Italy
Armenia
Norway
Ukraine
Jordan
Malaysia
Thailand
Serbia
Bulgaria
Israel
Bahrain
Bosnia
Romania
Iran
Malta
19991999 20032003 20072007
2 (568)
1 (569)
4 (550)
5 (549)
9 (538)
3 (552)
8 (539)
13 (533)
15 (530)
16 (529)
18 (515)
23 (488)
7 (540)
-
-
21 (493)
-
-
-
30 (450)
22 (492)
24 (482)
-
-
26 (468)
-
-
25 (472)
31 (448)
-
1 (567)
2 (561)
3 (554)
4 (553)
5 (542)
6 (539)
7 (539)
8 (538)
9 (530)
10 (530)
11 (520)
12 (519)
13 (515)
14 (511)
15 (496)
16 (495)
17 (488)
18 (487)
19 (485)
20 (482)
21 (471)
22 (471)
23 (470)
24 (470)
25 (468)
26 (467)
27 (466)
28 (462)
29 (459)
30 (457)
TIMMS Math Score (13 years old)TIMMS Math Score (13 years old) TIMMS Science Score (13 year old)TIMMS Science Score (13 year old)
1 (578)
2 (571)
6 (552)
3 (558)
-
7 (543)
-
12 (520)
4 (556)
17 (514)
9 (527)
14 (519)
10 (527)
11 (524)
19 (512)
22 (491)
29 (461)
21 (494)
-
25 (475)
20 (510)
-
28 (468)
24 (479)
23 (488)
33 (438)
-
27 (470)
30 (453)
-
Source: TIMSS (Trends in International Mathematics and Science Scores) 1999, 2003 and 2007
This report argues that the declining performance of Malaysian students might be partially
explained by the fact that Malaysia has not been sufficiently focusing its resources on the most
critical lever that affects student outcomes, namely, the quality of its teachers.
Extensive international research indicates that teacher quality is the most important determinant of
student outcomes. Exhibit 5.3.2 shows student outcomes over a three-year period for two different
students. One student was instructed by a high performing teacher while the other received
instruction from a low performing teacher. Performance levels of both students were the same at
the start of the research. However, at the end of year three, a staggering performance gap of 53%
had opened. The exhibit also shows that the class that a student attends, and thus the quality of
his / her teacher, is a much more important determinant of student outcomes than the school that
he or she attends.
1
Equivalent to Form 1 in Malaysia

21
Exhibit 5.3.2: Quality of teachers is the most important determinant of student outcomes
Students with high performing teachers
perform considerably better
Students with high performing teachers
perform considerably better
Class (teacher) more important determinant in
determining student achievement than school
Class (teacher) more important determinant in
determining student achievement than school
90
50
37
50
0
100
20
40
60
80
Student
performance (percentile)
Age 8 Age 11
Student
with high
performing
teacher1
Student
with low
performing
teacher2
53
percentile
points
9
45
0
50
School
Variation in
achievement (%)
Class
4
55
0
20
40
60
SchoolClass
Variation in
achievement (%)
Primary English
Primary Mathematics
1. Among the top 20% of teachers 2. Among the bottom 20% of teachers
Note: Other factors influencing student achievement include student characteristics, family background and community expectations
Source: Peter Hill 1997, Sanders and Rivers, BCG analysis
Despite the clear evidence that student outcomes are most highly correlated with the quality of
teachers, Malaysia has over the last decade prioritized other levers to improve educational quality.
The Ninth Malaysian plan puts a clear focus on building infrastructure and changing the curriculum.
RM22 billion have been allocated to develop the education system in Malaysia with more than
17000 projects expected to be launched. Among the funds allocated, RM 401 million and RM 1
billion will be used to improve quality of schools in urban and rural areas respectively. It states that
“the main focus of primary and secondary education will be to further increase access to quality
education. In addition, greater emphasis will be given to developing a strong foundation in
Mathematics, Science and English as well as to install good ethics and discipline among school
children”. Other strategic plans such as the Education Blueprint 2001-2010 also emphasize
building additional infrastructure and changing the curriculum over policies directed at improving
the quality of the teaching workforce.
Two key levers are identified in this report as being critical to improving the quality of teachers
i. Attracting and selecting the best people into the profession
ii. Improving the quality of leadership
Attracting the best teachers
Malaysia has recently introduced several policy measures to improve the quality of new teachers.
All new primary and secondary school teachers are now required to have a degree-level education.
In line with this new policy, the starting salary level for degree holders has been increased to
approximately RM 2,000 per month including benefits. The teacher training department has also
recently tightened the selection process for entry into teacher training institutes, which now
consists of a CV review, assessment test and final interview.
Despite these recent initiatives, Malaysia’s best and brightest may still not be drawn into the
teaching profession. As indicated in Exhibit 5.3.3, the average salary of secondary school teachers
with one to four years of experience is much lower than average starting salaries in the private
sector, including the salaries of secondary teachers at private schools.

22
The Institutes of Teacher Education now have a three-step selection process that includes CV
review, an assessment round that includes numerical and verbal tests, and final interviews.
However, despite the tightening of selection procedures, there are currently no minimum grade
point average requirements for entry into the teacher training institutes. A non-selective selection
process might be an additional reason why Malaysia’s best students perceive teaching as a
secondary career choice, besides a lack of clear career progression for teachers.
Exhibit 5.3.3: Medium monthly salary by jobs with 1-4 years experience
Education levels of teachers relatively low –
although degree is now a prerequisite
Education levels of teachers relatively low –
although degree is now a prerequisite Selection process can be made more rigorousSelection process can be made more rigorous
• Recent efforts to tighten selection procedures, e.g. CV
review, assessment tests, interview
• But requirement for entry into teachers training colleges
still low, i.e. no minimum GPA
– Minimum requirement is only 6 credits
– Top percentage of total applicants selected
• Lower entry requirements to encourage more male
applicants
Compensation not very competitive despite
recent increases1
Compensation not very competitive despite
recent increases1
Leaders not always chosen based on merit;
also, lack of mentoring culture for teachers
Leaders not always chosen based on merit;
also, lack of mentoring culture for teachers
• Leaders (Principals): Length of service still important in
selection of Principals; MoE has little leverage to deal
with underperforming Principals
• Mentors: Schools lack a mentoring culture (e.g., new
teachers receive little or no mentoring; no mentors to
provide constructive feedback)
• Trainers: Selection of trainers for teaching institutes not
based on performance but on length of service as main
criteria
– Compensation not substantially higher than for
regular teachers
• Lack of clear career progression for teachers
26
Malaysia
100
Finland
100
Singapore
100
South Korea
0
100
50
%
1. in starter salary to ~ RM 2,000 /month for degree holders
Source: Expert interviews, www.payscale.com, MOE, OECD
4,000
2,929
2,421
2,049
0
2,000
4,000
Secondary
teacher
Account
executive
Mechanical
engineer
IT consultant
RM
Medium monthly salary by job with
1-4 years experience
% of primary school teachers with a
University degree
Improving the quality of leadership
The most effective way to deliver sustained and substantial improvements in teacher quality is
sustained and substantial improvements in leadership. It is therefore of critical importance to get
the best people as Principals. However, at present, the most important factor for promotion from
senior teacher to Principal is length of service, and not performance.
In addition to improving selection, it is also critically important to ensure that a Principal’s time is
focused on the right levers to improve the school’s performance. Malaysia’s school system
currently lacks a comprehensive performance management system where performance is regularly
tracked against pre-defined indicators. That being said, principals currently experience multiple
roadblocks that limit their ability to improve performance culture in schools. Firstly, in terms of
curriculum, selection of teachers and pedagogy, Principals have little if any input on decision for
those issues. The syllabus, contact hours and assignment of teachers are determined by the
Ministry of Education and teaching delivery is based on individual teachers (Principals may
observe and provide feedback to teachers but not regularly done). Principals are responsible for
the administration of the school, including budget allocation and to a certain extent the retention of
teachers but this limited autonomy hampers the implementation of an effective performance
management system
Furthermore, although all primary and secondary schools should be audited at least once every
five years by the Quality Assurance Division of the Ministry of Education, this target has yet to be

23
achieved. In 2009, only approximately 70% of all schools had been audited1
. Equally important is
the fact that little is currently done with the results of the audit. The Quality Assurance Division
reports to the Education Minister and State level education departments, whose duty is to follow up
on the results. However, stakeholder interviews revealed that there are currently few negative
consequences for bad performance at school, teacher or Principal level.
Although MOE’s Quality Assurance Division has developed multiple criteria against which teachers
are to be evaluated, including content knowledge and teaching style, interviews suggest that the
criterion that teachers perceive as most important is the performance of their best students. This
might partly be due to the annual reporting of the number of straight A’s in the media. This over-
emphasis on straight A’s is unfortunately misleading because the number of students that fail all
subjects in SPM has consistently been two to three times higher than those receiving all A’s.
Most schools also currently lack a mentoring culture where more experienced teachers provide
feedback to new colleagues. Mentoring can provide new teachers with high-impact, peer-to-peer
professional development and has been shown to improve retention, teacher motivation, and
student outcomes in international pilots. Principals therefore have an important role to play in
ensuring mentoring support for new teachers at their schools.
1
Stakeholder interview

24
5.4: Technical / Skills Education Currently Not a
Mainstream Option
Although Malaysia offers a wide range of affordable higher education pathways to its youth, Exhibit
5.4.1 shows that more than 100,000 SPM leavers (~25%) enter the workforce each year without
pursuing further education.
This group of students may not be academically inclined or have sufficient grades to meet entry
requirements into universities. However, technical / skills education, with generally much lower
entry requirements, is not regarded as a viable alternative by these students. This type of
education has become mainstream in all developed countries, but in Malaysia is still perceived by
many students and parents as an option of last resort. Many prospective students are also not fully
aware of the various skills training courses that are offered by various providers. For others, the
benefits of further technical / skills education — higher pay or a quicker promotion period — is not
apparent.
Exhibit 5.4.1: 25% of students opt out of education after SPM and enter the workforce
~25% of SPM leavers enter
the workforce each year
~25% of SPM leavers enter
the workforce each year
Further paper qualification and technical/ skills education
not viable alternatives
Further paper qualification and technical/ skills education
not viable alternatives
1. Including teacher training 2. Form six, pre-university courses, diploma in IPTA, matriculation 3. Institut pengajian tinggi swasta
Source: EPU, OECD Education at a glance 2003, DSD, MOHR, BCG analysis
101 119
133 103
45 54
4130
0
100
200
300
400
500
413
2003
105
16
89
15
Polytechnic & CC
Public pre-uni2
students ‘000
Workforce
438
Public skills training
institutes
2006
Private institutes
Public service
training1
Paths taken by SPM leavers
• Not academically inclined
• Insufficient grades to meet entry
requirements
• Unable to afford cost of education (esp. at
IPTS3)
• Perceived as inferior to University (i.e.,
associated with failures)
• Some programs do not offer relevant work-
based education
• Benefits of certificates, e.g. higher pay, not
apparent
• Oversupply of programs (i.e. from
polytechnics, community colleges, skills
institutes)
• Default choice
• Need to earn income
Technical/
skills
education
University/
Diploma
Workforce
Industry’s perception of a generally low quality of technical / skills education jeopardizes Malaysia’s
goal of becoming a high income economy by 2020. Exhibit 5.4.2 shows that Malaysian employers
continue to identify skilled labour shortages as the leading investment climate constraint. It also
shows that according to EPU’s baseline occupational planning scenario, 32% of all jobs will fall into
the skilled categories in 2020. However Malaysia might need to target an even higher figure of ~
35% to be on par with high income regional peers such as Taiwan, Korea and Singapore (See
exhibit 5.2.1)

25
Exhibit 5.4.2: Employers increasingly demanding higher-skilled workforce
Skilled labor shortage continues to be the #1
investment climate constraint
Skilled labor shortage continues to be the #1
investment climate constraint
Top three investment climate constraints1
21
32
44
17
22
44
0 10 20 30 40 50
Skilled labor
shortage
Tax regulations
and / or high taxes
Lack of business
support services
2007
2002
%
1. Percent of firms identifying indicated problem as one of top three concerns 2. Forecast based on EPU human capital model
Source: Malaysia Productivity and Investment Climate Update October 2008, National Employment Returns 2008, BCG analysis
Gradual increase in higher skilled jobs
required with shift to high income economy
Gradual increase in higher skilled jobs
required with shift to high income economy
Job breakdown by skills level
11.0 12.0 10.0
73.0
63.0
58.0
8.0
12.0
15.0
8.0
13.0 17.0
1990 2007 20202
0
100
20
40
60
80
%
Unskilled3
Semi-skilled3
Skilled3
Management &
professionals3
Employees will also profit from further education as this will enable them to move on to higher level
jobs and wages. Exhibit 5.4.3 shows expected qualification requirements for various job levels
based on the National Occupational Skills Standards (NOSS). The exhibit shows that managerial
level jobs in trade related occupations require at minimum a SKM level 3 certificate. Only one year
of additional education is required for an SKM level 3 certificate and this can lead to an almost
doubling of the salary level.
Exhibit 5.4.3: SPM qualification limits ability to move to higher level jobs and wages
...which should lead to higher
monetary gains
...which should lead to higher
monetary gains
SKM 3/Community College certificates provide
entrance into higher skilled jobs...
SKM 3/Community College certificates provide
entrance into higher skilled jobs...
• A secretary should double her
starting wage through one year of
additional education...
• ...While she would need at least
five years of practical work
experience to move up from junior
to senior secretary
Source World Bank 2008, DSD, EIU (2008) BCG Analysis
Electrical &
Electronic
Electrical &
Electronic
Electrical
Engineer
Assistant
Electrical
Engineer
Senior
Electrical
Technician
Electrical
Technician
Junior
Electrical
Technician
MultimediaMultimedia
Creative
Director
Creative
Manager
Designer
Technician
Junior
Technician
Business
management
Business
management
N/a
N/a
Executive
secretary
Secretary
Junior
secretary
SKM 5
SKM 4
SKM 3
SPM/
SKM 2
SPM/
SKM 1
Skilled
Semi-
Skilled
3,000
1,8001,500
0
2,000
4,000
Secretary Senior
secretary
RM
Junior
secretary
Monthly starting wage
Examples of SKM levels
Despite the clear benefits of further technical / skills education to both employees and employers,
the actual take up of this type of education is still low. This can be partly explained by the very low
participation in technical, vocational and skills education at upper secondary level. Exhibit 5.4.4

26
shows that only ~10% of all upper secondary level students were enrolled in vocational training in
2006. This low figure stands in sharp contrast to countries such as the Netherlands, Germany and
Australia, where the majority of upper secondary level students are enrolled in skills education.
Based on these figures Malaysia should set ambitious targets to at least double the level of upper
secondary students enrolled in technical / skills education.
Moreover, post secondary skills education is concentrated in the lower levels as ~ 90% of SKM are
handed out for level 1 and 2 graduates. This is due mostly to the fact that there is limited
recognition of SKMs in the market. The government themselves do not recognize these certificates
and the private sector prefer graduates with more widely recognized certificates like the City and
Guilds. To exacerbate the problem, there is a lack of supply of higher level courses in these skills
training institutes due to the lack of demand, capable trainers and infrastructure. That being said, if
Malaysia were to move up to a high-income economy it will need to stimulate enrolment in higher
skills levels.
Exhibit 5.4.4: Low take up rate of technical /skills education
Low participation in upper sec technical/skills
education (i.e. not a mainstream option)
Low participation in upper sec technical/skills
education (i.e. not a mainstream option)
High proportion of post secondary skills
enrolment at the lower levels
High proportion of post secondary skills
enrolment at the lower levels
10
28
44
59
62
68
0
20
40
60
80
Netherlands Australia Germany OECD
average
Korea Malaysia1
%
1. 2005
Source: EPU, OECD Education at a glance 2006, 9th Malaysian Plan, MOHE, DSD, BCG analysis
% of upper secondary students
in vocational education (2006)
39
33
8
0
20
40
60
80
100
2
83
2006
SKM 4 & 5
SKM 3
SKM 2
SKM 1
certificates
‘000
87%
SKM certificates
conferred
Organization of technical / skill training infrastructure
One reason identified by this report for the low participation rates in post secondary education is
the fragmentation of the training infrastructure. Ten different Ministries and many private providers
offer skills training courses. The largest providers of skills education are the Ministry of Higher
Education (community colleges), the Ministry of Human Resources, the Ministry of Youth and
Sports, and the Ministry of Rural and Regional Development (MARA1
colleges). These institutes
offer certificate and diploma courses ranging from six months to three years. Most Ministries offer
different qualification systems, and often the difference in course offerings might not be clear to
students and parents.
The community colleges aim to educate multi-skilled graduates. These institutes provide an equal
focus on core academic subjects such as math and sciences, general skills education, as well as
1
Majlis Amanah Rakyat

27
specific skills education. However, the training curriculum is not based on the NOSS. Skills
training institutes under the other Ministries are more occupation- or vocation-oriented, and
courses are more performance-based than those offered in community colleges. The training
curriculum is generally based on NOSS. Approximately 9% of graduates1
from community colleges
continue their education at polytechnics. Skills training institute graduates can also enter the
polytechnics but very few currently use this option.
The cost of skills education also differs per institute. The annual operating costs per student are
respectively RM 8,000 for the community colleges and RM 4,400 for the skills training institutes.
Some community colleges and skills training institutes under other Ministries currently suffer from
excess capacity.
Performance management in technical / skills training institutes
Performance management needs to be strengthened in education. Training institutes receive
Government funding based on historical costs and therefore have little incentive to improve
performance. There is a high variance in the quality of the performance monitoring. Although most
Ministries organize annual tracer studies to track the employability of its graduates, poor
performance on such indicators does not result in significant consequences such as a reduction in
funding.
Industry collabouration
Most community colleges, polytechnics and skills training institutes have their own industry
attachment programs and industry collabourations that allow for joint curriculum and training
development. In addition, there is the National Dual Training System (NDTS) under the MOHR
that is rapidly expanding with more than 10,000 students currently participating. However, it
became clear from interviews with industry players that many of the public skills training institutes
are not highly regarded and these collabouration efforts can still be enhanced. One particular area
that can and should be improved is the lack of involvement of industry players in the development
of NOSS ultimately resulting in its delayed completion. The government has until now only
completed 1,000 job titles out of a target of 5000.
1
Brief report Tracer Study 2008

28
5.5: Quality of Universities and Graduates Affect
Employability
Overview
Multiple reports have pointed to the lack of employability competencies among graduates. For
example, graduates are cited as lacking basic functional skills including letter-writing, data-
searching and organizational skills. They also lack soft skills, such as confidence, communication
skills and language proficiency, thus hampering their ability to gain employment.
The MOHE has embarked on several programs and initiatives to ensure graduate employability.
These include:
i. Introduction of soft skills modules into the student’s curriculum of studies
ii. Modul Asas Pembudayaan Keusahawanan (Basic entrepreneurship modules) to expose
students to entrepreneurial skills
iii. Internship or industrial training programs to gain prior knowledge and exposure to actual
working environment
These measures have seen an overall reduction in graduate unemployment (see exhibit 5.5.1) and
is particularly commendable given the current economic climate. The critical agenda programs
under the new Performance Management System also aim to increase graduate employability.
Exhibit 5.5.1: Graduate unemployment rates by universities
1. First degree graduates only
Note: UTM: Universiti Teknologi Malaysia; UMS: Universiti Malaysia Sabah; UMT: Universiti Malaysia Terengganu; UNIMAS: Universiti Malaysia Sarawak; UUM: Universiti Utara Malaysia; USIM:
Universiti Sains Islam Malaysia; UPM: Universiti Putra Malaysia; UIAM: Universiti Islam Antarabangsa Malaysia; UTHM: Universiti Teknologi Tun Hussein Onn Malaysia; UM: Universiti Malaya; UKM:
Universiti Kebangsaan Malaysia; UiTM: Universiti Teknologi MARA; USM: Universiti Sains Malaysia; UPSI: Universiti Pendidikan Sultan Idris; UNiMAP: Universiti Malaysia Perlis
UTeM: Universiti Teknikal Malaysia Melaka; UMP: Universiti Malaysia Pahang
Source: Tracer Study 2004, (Brief report) 2008; MOHE
32
0
2526
34
35363637
4243444546
50
26
20
34
45
3
24
21
33
29
32
18
16
32
30
43
64
52
20
0
20
40
60
80
UTM UMS UMT UNIMAS UUM USIM UPM UIAM UTHM UTeM UMP
2004
20081
%
UM UKM UiTM USM UNiMAPUPSI Overall
Proportion of graduates that are unemployed
6,174 2,153 666 824 5,319 506 8,634 2,665 1,258 4,081 4,427 22,189 5,151 1,482 - -
5,622 3,371 1,426 1,440 5,682 239 6,013 3,012 1,216 5,202 5,310 11,376 5,405 2,791 639 1,184
-
383
Number of
respondents
68,160
60,311

29
However, of the first-degree graduates who were employed, 60% and 34% in 2004 and 2008
respectively earned less than RM 1,500 per month (see Exhibit 5.5.2). The low wages received by
graduates implies that they may be opting for jobs that require less than a degree-level
qualification.
Exhibit 5.5.2: Wages of employed graduates
14
27
24
23
13
39
27
20
12
2
0
10
20
30
40
2008
2004
>2,0011,501-2,0001,001-1,500501-1,0001-500
RM
%
Monthly Salaries of Degree Holders
18,582
33,243
Number of
respondents
Source: Tracer Studies 2004, (Brief report) 2008, MOHE
Alongside concerns on the quality of graduates lie questions surrounding the quality of universities
and its faculties. For example, stakeholder engagement revealed that 90% of lecturers do not
have industry experience. This is in part due to the shortage of lecturers in universities as well as
the heavy workload which hinders participation in industry attachment programs. On average,
faculty spends 6-18 hours per week teaching, compared to 6-8 hours in international research
universities1
. This results in lecturers who may be knowledgeable in the subject matter, but lack
working experience and may be unaware of the evolving needs of industries. This in turn gives
rise to graduates who possess skill sets that are not entirely relevant or readily applicable to
industry.
While there currently exists industry-academia collaboration, nevertheless, the ecosystem for such
collaboration is still nascent. Among the collaborative programs currently in place are:
i. 3P Professional Certification Program
– This program was initiated by MOHE to conduct training and work-based programs
jointly with Prestariang Systems Sdn Bhd (PSSB) on vendor-based certification from
Microsoft, Cisco, IBM, Sun Microsystems, Oracle and CompTIA. At the end of the
training program, graduates were given certificates by these companies to enhance
their employability.
ii. Industrial placement for graduate and lecturers in the banking industry
– Collaboration with Bank Negara Malaysia to conduct the Financial Sector talent
Enrichment Program (FSTEP) where graduates are given training in financial
institutions for a period of 12 months as well as Internship/Research Experience
Program for lecturers on one or two year basis
– Cooperating with Standard Chartered bank, OCBC Bank for graduate training program
and financial research activities
– Cooperating with HSBC in communication and soft skills programs
iii. Graduate Placement in construction industry
1
Malaysia and the Knowledge Economy: Building a World-Class Higher Education System, World Bank

30
– Cooperating with the Construction Industry Development Board (CIBD) and two
construction companies, i.e. Bina Puri Berhad and Gamuda Berhad in graduate
training programs
iv. Placement of graduates in Small Medium Enterprises (SMEs)
– Working with SMIDEC and UKM in apprenticeship program under the SMEs to
inculcate entrepreneurial interests among graduates
v. Campus Connect Program with Infosys Technologies Limited, India
– Assimilating Infosys Foundation Program to IPTA to increase graduates capabilities in
ICT
vi. Satnam campus link
– Conducting “train-the-trainer” for lecturers in public universities
The success of such programs ranges across universities and is dependent, among other things,
on the faculty in charge of championing the cause as well as the industries themselves. While
guidelines have been set by the universities on the duration of the industrial training (between two
to six months) as well as the criteria on the type of skills/knowledge that should be acquired during
the training, at times students are not given the relevant training by the industry but rather perform
merely administrative tasks. The situation is further aggravated by the fact that industries currently
have little incentive to collaborate with universities, given that most enterprises are driven by
production and not innovation.
The lack of industry-academia collaboration also gives rise to a mismatch in expectations between
employers, universities and graduates in the job placement process. Most industry members
expect universities to bear all teaching responsibility and are unwilling to train graduates. They
also have unrealistic expectations of young graduates. For example, some employers expect
graduates to enter the workforce with skill sets specific to the job requirement where, in reality, a
university degree provides a broad-based education. On the other hand, graduates may also be
unwilling to compromise expectations in their search for a job. For example, graduates may be
unwilling to relocate for work, or may not take up jobs they perceive to be menial.
Heavy monetary investment has been made by the Government to address graduate employability.
Between 2001 and 2005, the Government spent RM 13.4 Billion on tertiary education. Between
2006 and 2010 a further RM 16.1 Billion has been allocated under the 9th
Malaysia Plan. On top of
that, to alleviate challenges in graduate employability, the Government has channeled a significant
amount of public funds towards this cause, as described in Exhibit 5.5.3. Many programs have
been launched, including the Industrial Skills Enhancement Program (INSEP) and Graduate
Retraining Scheme (GRS). While these programs have seen some success in retraining
graduates and placing them in jobs, they merely address the current state of unemployed
graduates, rather than addressing the root causes of graduate unemployment.

31
Exhibit 5.5.3: Government expenditure to address graduate employability
161161
80
135
68
299
0
100
200
300
20031 20052 20073 200942001-20021
RM Mn
20063
Government allocation on programs to
address graduate employability
1. Including letter-writing, data searching, and organizing appointments 2. Allocation given to MOHR 3. RM 35.1 Mn allocated to MOF for Industrial Skills Enhancement Program (INSEP); RM 100
Mn allocated to MOHR 4. Allocated to MOF for Workforce Technical Transformation Program (WTTP, for SPM-leavers) and INSEP 5. RM 75 Mn allocated to MOHR for graduate retraining scheme
and RM 86.0 Mn allocated to skills development centers under 2nd stimulus package
Source: Tracer Study, MOHE; EPU workshop; EPU; MOF; MOHR; 9th Malaysia Plan
This scenario points to the need to examine the current structure of universities and to inspect
further areas in which universities may address to ensure their graduates that are employable.
This report has identified performance management of universities and autonomy as two critical
areas that can be further refined.
Root causes of situation
Performance Management of Universities
Graduate employability has been tracked through Tracer Studies since 2002. The 2004 Tracer
study stated that the study was conducted with three objectives, that is, to track:
i. Employability and marketability of graduates from local higher education institutes
ii. Effectiveness of academic programs and its delivery system
iii. Level of use and effectiveness of amenities and services provided by institutions (e.g.,
career counselling)
While data collected has been useful in assessing trends in graduate employability, it is unclear if
the second and third objectives are being met. There is no clear consequence to universities or its
faculty for below-average graduate employment rates.
Currently, all public universities are required to submit their annual financial report on their overall
performance, which is tabled at the Parliament for approval. In 2007, the MOHE set up a Program
Management Office (PMO) to track and assess performance of all universities. Since then, they
have identified seven strategic thrusts and 18 critical projects set out by the National Higher
Education Strategic Plan 2007-2020, as detailed out in Exhibit 5.5.4. At the point of this report,
targets are being developed for the universities (expected to be completed by May 2009) and
implications of the assessment have yet to be formalized. It is unclear if a universities’
performance will impact student admission, budget allocation and/or universities’ top management
or faculty.

32
Exhibit 5.5.4: Performance management system developed by MOHE’s PMO
Source: MOHE
Reinforcing delivery systems of MoHE7
Enculturation of lifelong learning6
Intensifying internationalization5
Strengthening of higher education
institutions
4
Enhancing research and innovation3
Improving the quality of teaching and
learning
2
Widening of access and increasing
equity
1
1
8
1
7
1
6
1
5
1
4
1
3
1
2
1
1
1
0
987654321Strategic Thrusts/Projects
1. Governance
2. Leadership
3. Academia
4. Teaching & Learning
5. R&D
6. Internationalization
7. Graduate Employability
8. IPTS
9. Holistic Student Development
10. APEX
11. MyBrain15
12. Lifelong Learning
13. Academic Audit
14. PTPTN
15. Human Capital Development Fund
16. MOHE Delivery System
17. Polytechnic and Community Colleges
18. Industry & Academia
Critical projects:
Autonomy of Universities
This report recognizes that the National Higher Education Strategic Plan 2007-2020 has set out
plans to grant greater autonomy to universities, and has identified several key areas where
universities have limited or no autonomy.
Firstly, universities have limited autonomy in determining the students whom they admit. Student
admission is processed centrally by MOHE, and universities are unable to admit/deny admission to
any student, as described in Exhibit 5.5.5. Universities advise MOHE on student capacity and the
minimum entry criteria for the courses offered, but may not otherwise intervene in the selection of
students. Thus, universities have limited control over the quality of students whom they admit, and
by extrapolation, have limited ability to determine employability of their graduates.

33
Exhibit 5.5.5: Student admission process
Applicants
UPU1
Uni 1 Uni 2 Uni 20...
High performance
students
Lower performance
students
Applicant applies online through UPU1
• Rank eight university / course according to preference
UPU processes applications and allocates students to
universities
• Ascertain each applicant's merit points2
• Rank applicants according to merit points
– Screen applicants to ensure compliance with general and
course-specific entrance criteria
• Allocate students to universities based on merit and capacity
Successful applicants receive an offer to a specific university and
course
Unsuccessful applicants may appeal to be reconsidered
• Allowed to apply for additional two programs
Universities to enroll students allocated to them
1. Unit Pusat Universiti 2. 90% academic achievement, 10% co-curricular participation
Source: Bahagian Pengurusan Kemasukan Pelajar, MOHE
1
2
3
4
Secondly, faculties are compensated based on the Government’s fixed salary scale. This inhibits
universities from attracting and retaining talent, as private sector jobs may offer better
compensation. Some progress has been made through the ability for universities to hire faculty
under contract for service, where a university may hire a specialist1
and compensate him/her up to
a maximum of RM 60,000 per month. However, this provision is limiting, as it only extends to
specialists, and universities will have to compensate these specialists at their own expense.
Along the same lines, appointments are seen as secured jobs and it is difficult to terminate non-
performing staff, especially faculty with tenure where they have the contractual right not to have
their position terminated without just cause. Moreover, regardless of performance, salary
increases are almost automatic. Career progression is also currently based on academic/research
output and does not reflect administrative or managerial duties that are performed by faculty. More
importantly, this promotion process lacks focus on the quality and outcome of teaching. This
academia-focused promotion system results in limited career progression for faculty who choose to
focus on teaching only and have minimal or no research activities. While MOHE has recognized
the need for two promotion tracks, i.e. one focusing on academic/research and another on the
teaching/practical industry experience, this is still not widely practiced in many universities.
Thirdly, universities have little influence over their top management. Candidates for the Vice
Chancellor position are sought out by a search committee. The search committee is comprised of
seven members – five permanent members and two co-opted members who are selected based
on the nature of the university. Members may include CEOs from varied industries, and former
Vice Chancellors, but do not include representatives from the university. The search committee
short-lists and identifies potential candidates and advises the Minister of Higher Education on
whom to appoint to the position. The Minister then formally appoints the Vice Chancellor. The
university is not involved in the selection process, and the position is not publicly advertised.
1
A specialist may be a person who is a member of a national or international professional body, or is a Nobel Laureate
winner, or a lecturer from a top university or otherwise a widely accepted specialist

34
5.6: Increasing Low Skilled Foreign Labour and
Decreasing Expatriates
There are currently two classifications of foreign workers in Malaysia namely expatriates – foreign
workers who earn more than RM5,000 per month1
and low skilled foreign labour – foreign workers
who earn less than RM5,000 a month. A notable difference between the policies pertaining to
these two groups of foreign workers is that expatriate employment is permitted for all sectors while
foreign low skilled labourers are only allowed in four selected industries and can only be sourced
from selected countries. Exhibit 5.6.1 shows a comparison of the classification of foreign talent in
Malaysia against Singapore and Australia.
Exhibit 5.6.1: Comparison of classification of foreign talent
Malaysia: Differentiate
based on income categories
Malaysia: Differentiate
Singapore: Differentiate
Singapore: Differentiate
Australia: Differentiate
by specific skills
Australia: Differentiate
by specific skills
Expatriate
Middle
income
expatriates
Foreign
unskilled
labor
• Defined as foreign talent earning
> S$2.5k
• Employment allowed for all
sectors with no quotas or
prerequisites
• Foreign talent earning S$1.8K –
S$2.5K
• Assessed on a point-based
system
• Quota of 10% of total workforce
• However, sectors that allow for
low-skilled foreign labor can
raise quota to 25%2
• Foreign labor earning < S$1.8K
• Limited to selected source
countries and occupations/
sectors
• Subject to dependency ceiling
and levies
• Target specific skills, does not
differentiate by income levels
• Two main types of visas
– Temporary Business Long
Stay Visa
... 3 months to 4 years
... Need for employer
sponsorship
... Allowed for both skilled
and low skilled
occupation
– Permanent Residence Visa
... To foreign talent with
specific skills
... Point based system
with heavy weightage
on skills
• Defined as foreign talent earning
> RM5k1
• Employment allowed for all
sectors but quota and
prerequisites apply
• No specific guidelines for foreign
talent with income < RM5K that
do not fall under category of
foreign unskilled labor
• Foreign labor earning < RM5K
• Limited to selected source
countries and occupations/
sectors
• Subject to quotas and levies
1. Increase from RM3,000 in January 2009 2. With proportionate reduction in quota of low skilled labor
Source: Immigration Department of Malaysia, Singapore and Australia
The inflow of expatriates and foreign labour has always been heavily scrutinized due to its
perceived threat to the local workforce. Various policies have been put in place to manage and
control the inflow of expatriates and foreign labour, which has inadvertently resulted in a decline in
the number of expatriates, while increasing the influx of foreign labour.
Expatriates
As shown in Exhibit 5.6.2, Malaysia has been experiencing a steady decline in the number of
expatriates from 83,000 in the year 2000 to 38,000 in 2008. Most of these expatriates work in the
manufacturing or services sectors.
1
Increased from RM3,000 in January 2009

35
Exhibit 5.6.2: Amount of expatriates by sectors (2000-2008)
0
10,000
20,000
30,000
40,000
2000 2001 2002 2003 2004 2005 2006 2007 2008
Services
Manufacturing
# of workers
Source: DOS, Malaysia Immigration Department
Total workers
('000)
83 75 66 55 43 33 33 36 38
Others
Construction
Education
Several key factors contribute to the drop in number of expatriates, including expatriate policies
that are restrictive or cumbersome and current economic activities that do no require skilled foreign
talent. Other factors include sub-par social infrastructure, negative perception of Malaysia
overseas and lack of opportunity for foreigners to stay.
As a result, employers are unable to fully tap the pool of highly-skilled foreign talent, as evidenced
by the low percentage of expatriates out of total workforce in Malaysia compared to other OECD
countries as shown in Exhibit 5.6.3. This may hamper both the economic growth of companies and
may be a disincentive to foreign direct investments.
Exhibit 5.6.3: Percentage of expatriate over total labour force (2005)
9.3
4.2
2.8
2.0
1.31.21.1
0.70.50.40.3
0
2
4
6
8
10
IrelandUnited
Kingdom
Netherlan
ds
GermanySpain Australia FranceJapan KoreaMalaysia
Percentage (%)
Italy
Note: Expatriate for OECD countries defined as foreign worker with tertiary education; Expatriate for Malaysia defined as foreign workers with salary > RM 3000
Expatriate total for OECD companies does not include expatriate from non OECD countries
Source: OECD Statistics, Malaysia Department of Statistics
Total expatriates
('000)
33 280 130 140 120 300 350 870 210 1 270 190
Policy
Multiple application criteria are imposed on the hiring of expatriates, such as the age of expatriates
and minimum paid-up capital of employers, which hamper the hiring of expatriates. A benchmark
of Singapore’s and Hong Kong’s expatriate employment policy reinforces this point as shown in
Exhibit 5.6.4. Furthermore, the tax rate (28% for non-residents in Malaysia) which is significantly

36
higher than in developed Asian peers such as Singapore (15% for non-residents) and Hong Kong
(16% flat tax rate); serve as a disincentive for expatriates to come into the country.
Exhibit 5.6.4: Benchmark of Singapore and Hong Kong expatriate employment policy
Application
requirement
Employment pass linked to
employer
• "Cooling Off" period3
required
when changing employer
– Employee required to
return to home country for
6 month and not enter
Malaysia for that duration
• Application of new employment
pass required
1. ICT and Contract R&D companies have quota tied to employment of local residents 2. Includes good education background, salary commensurate with industry, genuine job vacancy,
confirmed employment and pass security check 3. Exemption allowed if contract with employer have expired and if previous employer consent for change in employment
Source: Immigration departments of Malaysia, Singapore and Hong Kong; Press search; BCG Analysis
MalaysiaMalaysia SingaporeSingapore Hong KongHong Kong
employee
• Employee with Personalized
employment pass able to
change employment without
applying for new pass
• Allowed to stay for 6 months in
between jobs to evaluate
opportunities
Inflexible industry specific
requirements for work permit
• Quota on expatriate depends
on sectors with no blanket rule
• Quota measured in terms of
absolute numbers except for
manufacturing related
services1
– E.g., automatic approval of
five key post for large
manufacturing companies
• Quota exemption for MSC and
Biotechcorp status companies
only
Liberal expatriate work permit
requirements
• No ceilings and levies for
expatriate employment
• Only minimal requirements
needed for permit application
– Minimum wage of SD$
2500 and possess
recognized qualifications
employee
• Employee allowed to apply for
change of employment as long
as previous eligibility criteria is
fulfilled
Liberal expatriate work permit
requirements
• No ceilings and levies imposed
• Only minimal terms of
employment2
required for
expatriate assignment
• Continuity of residence
permission for expatriates not
subject to quota system but to
the continuation of
employment
Change of
employment
.
Demand
As shown in Exhibit 5.6.5, current economic activities do not demand a high proportion of skilled
foreign workers, since Malaysia is focused more on labour-intensive industries rather than R&D
and knowledge intensive activities. Moreover, the number of multinational corporations operating
in Malaysia significantly lags behind Singapore and Hong Kong
Exhibit 5.6.5: Benchmark of economic demand for expatriates
Malaysia lagging behind peers in
terms of value chain presence...
Malaysia lagging behind peers in
terms of value chain presence...
...with limited companies
spending on R&D...
...with limited companies
spending on R&D...
...and lack of foreign companies in
Malaysia
...and lack of foreign companies in
Malaysia
4.7
5.1
5.4
5.5
4.0
4.5
5.0
5.5
Malaysia Taiwan Spore Hong
Kong
Value Chain Breadth1
1 – Primarily involved in individual steps
of the value chain e.g., production &
resource extraction
7 – Present across the entire value chain
4.2
4.6
4.8
5.1
4.0
4.5
5.0
5.5
Hong
Kong
Malaysia Taiwan Spore
Company spending on R&D
1 – Do not spend money on research and
development
7 – Spend heavily on R&D relative to peers
4,232
8,512
13,259
0
5,000
10,000
15,000
Malaysia Hong Kong Singapore2
Number of foreign companies
1. Refers to the presence of the country across the whole value chain
Source: Global Competitiveness Report 2008, Singapore Department of Statistics, Companies Commission Malaysia, Hong Kong Company Registrar
Score representations

37
Social Infrastructure
While Malaysia’s quality of life and social infrastructure is better than most South East Asian
countries, its world ranking is still low. In the 2007 Mercer Quality of Life index, Malaysia is ranked
75th
in the world, behind both Singapore (34th
) and Hong Kong (70th
). Among the criteria used in
this ranking are the availability of education infrastructure, housing and security.
Perception
Malaysia experiences negative press overseas especially in terms of its crime rate and security
levels, which negatively affects expatriates in their decision to move to Malaysia as their work
destination. This is substantiated by the fact that crime and theft ranks 3rd
(out of 15) for most
problematic factor in doing business in Malaysia1
.
Lack of Opportunity to Stay
Stringent permanent residency (PR) criteria make it difficult for expatriates to stay in Malaysia. PR
status is not awarded based on skills but based on size of savings and investments or ties to
Malaysian citizens (e.g., through marriage or family relations). The “Malaysia My Second Home”
program has been relatively successful in attracting foreigners to the country, but participants are
not allowed to engage in employment. The program is instead focused on promoting Malaysia as
a retirement location for foreigners by offering them a multiple-entry social visit, initially for 10 years
and subject to renewal.
Middle-income expatriates
The change of expatriate classification from a salary cut off of RM 3,000 to RM 5,000 per month in
January 2009 has resulted in a void for skilled expatriates earning less than RM 5,000 per month.
With the change in policy, there are no specific guidelines and corresponding employment pass to
cater to foreign talent with income levels below RM 5,000 and who do not fall under the category of
foreign unskilled labour. This category of expatriates would no longer be able to work in Malaysia,
thereby leading to a loss of talent. Exhibit 5.6.6 reveals that a large proportion of foreign talent
have salary levels below this RM 5,000 cut off point. A close examination of Singapore and
Australia’s expatriate employment policy reveals specific provisions / programs to capture this
category of skilled workers as seen in Exhibit 5.6.1.
1
Based on survey from 2008 Global Competitiveness Report

38
Exhibit 5.6.6: Average salary for professionals by sectors and nationality
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
C D KE F G H I J L M N
Foreign
Local
5,000
(RM)
A B
Large number of foreign talents will no longer be able to work in MalaysiaLarge number of foreign talents will no longer be able to work in Malaysia
A – Agriculture
B – Fishing
C – Mining and Quarrying
D – Manufacturing
E – Electricity, Gas and Water Supply
F – Construction
G - Trade
H – Hotel and Restaurants
I – Transportation and Storage
J – Financial Intermediation
K – Real Estate
L – Public Sector
M – Education
N – Health and Social Works
Source: NER 2008
No incentive for local talent to remain
competitive as jobs are protected
Foreign talent
earning <RM5K per
month will no longer
be granted
employment permits
going forward
Monthly salary of professionals by sectors (2007)
Low skilled foreign labour
On the flipside, the influx of low-skilled foreign labour has been on the rise as shown in Exhibit
5.6.7. The total number of foreign low-skilled workers has increased 5 times since 2000 to 2.1
million, with an additional 800,000 foreign labour estimated to be working illegally. This abundance
of cheap foreign labour delays investments in mechanization and innovation, particularly in the
agriculture and manufacturing sectors, thus hampering Malaysia’s ambition to move the economy
up the value chain.
Exhibit 5.6.7: Number of foreign workers by sector
0
1,000
2,000
3,000
0%
5%
10%
15%
20%
410
1999
807
2000
850
2001
1,068
1,337
2003
1,470
2004
1,815
2005
1,869
2006 2007
Services
Maid
Construction
Agriculture1
Manufacturing
Foreign workers (‘000) % of total workforce
2002
1. Includes plantation
Source: Department of Statistics, LFS (2004) EPU (2008), Narayanan (2007)
CAGR
(’99-’07)
22%
13%
23%
20%
19%
Total = 20%
2,045
5x increase
since 1999
~800 add’l
illegal
workers

Strategy Package for Higher Growth & Structural Change Human Capital for a High Income Economy

Strategy Package for Higher Growth & Structural Change Human Capital for a High Income Economy

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