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publication November 10, 2020

Management Practices in Malaysia: the Good, the Bad and the Ugly

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Management practices in Malaysia’s manufacturing sector remains on par with that of other developing and emerging economies but lag far behind those of advanced countries.

  • In the World Management Survey (WMS), Malaysia scores 2.84 out of 5. This puts the country ahead of India (2.55), Vietnam (2.61) and even high-income countries like Spain (2.75). Falling short of advanced economies like the United States (3.32), Japan (3.23) and Singapore (2.95), shows the significant room for improvement among Malaysian firms.
  • According to international evidence, a one-point increase in a firm’s management score in the WMS leads to a 26% increase in labor productivity, a 2% increase in profitability, a 7% increase in sales and a 1% reduction in bankruptcy.
  • Improving management practices can result in improved productivity of Malaysian firms. For example, if manufacturers improved their management practices to be on par with those in the United States, labor productivity could potentially see an increase of roughly 13%.
  • This report uses data collected from Malaysia’s debut participation in the WMS, completed in 2017. Introduced in 2007, the WMS is the first internationally comparable survey of management practices. The WMS evaluates both “good management” overall and the specific management dimensions of operations management, performance monitoring, target setting and talent management. The country performed best in the area of performance monitoring but worst in its target setting.

Current practices in Malaysian management

In Malaysia, performance of management practices varies substantially across firms with different characteristics.

These are:

  1. Firm size: larger firms, with over 200 workers, perform better than smaller firms
  2. Sector: chemicals and pharmaceutical, computer and electronics manufacturers outperform other subsectors
  3. Age: older firms perform better than newer firms
  4. Region: firms based in the central region and more developed parts of the country recorded the highest management scores.

Overall, the following assessments can be made based on the four aspects of management practices examined:

  • Modern operations processes have been implemented but are not fully formalized. This suggests that businesses are introducing these practices to keep up with competitors rather than push their own business objectives forward
  • The average firm has a formal performance monitoring process in place, but these indicators may not be measured often enough and may not be developed into follow-up plans and objectives.
  • The average firm sets broad objectives rather than actionable and measurable targets, with these targets factoring less into employees’ day-to-day responsibilities.
  • Formal systems of talent appraisal and accountability are in place but may not be rigorously followed.

Driving change and improvements

  • Management practices vary due to several factors, including intensity of competition, firm ownership structure, access to FDI, and the supply of skilled and well-educated managers and workers.
  • Like in other countries, Malaysian private firms with diverse stakeholders tend to have higher management scores than other firms such as those owned and managed by the government or by their founders.
  • Similarly, better access to foreign direct investment and global talent improves management practices through the spread of innovative practices and the introduction of new technologies.
  • Education and skill levels of both workers and managers plays a significant role in implementing new practices and in ensuring enough buy-in and support for these practices.
  • One challenge for Malaysia is the significant gap between managers’ self-assessment of their performance and their actual performance. If they fail to recognize the potential of better practices, managers may be unlikely to pursue opportunities for improvement.

Policies to drive change

Raising Malaysia’s productivity growth through better management practices will require a comprehensive policy approach.

  • Promoting conducive ownership structures for family-controlled firms to instill confidence in hiring professional managers without fear of ceding ownership
    • Even better improving minority shareholder protection
    • Further advancing the rule of law and the quality of institutions
  • Promoting foreign direct investment (FDI) to disseminate innovative management practices
    • Liberalizing investment policies such as relaxing domestic content requirements
  • Improving access of small and medium enterprises to new technology and management practices
    • Introducing supplier development programs to link smaller firms to large multinational corporations and government research and development programs
    • Equipping SMEs to compete more effectively and gain greater market access
  • Expanding access to global talent, specifically among the Malaysian diaspora
    • Extending eligibility of the existing Residence Pass-Talent (RP-T) incentive to include talent applying from abroad
    • Implementing a comprehensive policy approach to attract Malaysians abroad encompassing adequate wages, social inclusion and quality of life
  • Improving learning opportunities among managers and employees
    • Strengthening private sector collaboration in the design of training programs and the provision of apprenticeship opportunities
    • Providing hands-on on support and sharing better management and evaluation practices