AS DEMAND FALLS, PENANG PLANTS CUT JOBS AND PRODUCTION

As demand falls, Penang plants cut jobs and production

GEORGE TOWN, Nov 13 ―  Falling global demand has forced Penang factories to freeze hiring, cut production and implement four-day weeks, even as analysts predicted Malaysia’s economy grew slower in the third quarter.

The Malaysian Insider understands that factories in Penang, the country’s main electronics manufacturing hub, have stopped hiring, and are not even replacing those who have retired or resigned.

Many plants have also reduced output to cut costs.

Malaysia’s economy probably grew at its slowest pace in the third quarter as exports fell, but resilient domestic demand, partly fuelled by government spending ahead of an election next year, helped shore up expansion, according to a Reuters poll.

Exports account for roughly 60 per cent of Malaysia’s gross domestic product, and these have been hurt by weaker demand for commodities and electronic components in China as well as the European Union.

The hardest hit would be the electronics sector due to the drop in global demand.

“For the time being, many of these companies are still able to sustain their business until the end of this year,” said Federation of Malaysian Manufacturers’ Datuk O.K. Lee. The hardest hit would be the electronics sector due to the drop in global demand but Lee said other industries are also similarly affected as the manufacturing sector relies heavily on exports.

“Some of the factories are not working at full capacity now and due to the gloomy global economic outlook, many are also holding back on investments and adopting the wait and see method,” he said.

Some industry insiders noted that several multinationals are offering voluntary separation schemes to its employees but are careful to keep this hushed up.

”These are big MNCs so they have to be careful to protect their reputation but these are not huge numbers of VSS in any one company but small numbers spread out over the months so as not to raise any alarm ,” one industry official said.

Even as factories cut down production and output, working hours were also reduced and overtime slashed. A factory manager said it has been several months since the factory workers were told to work four-day weeks.

This is also the time for some of us to clear our leave too as production has decreased. We are just glad that there were no retrenchment exercises.

While there were no signs of retrenchments, plants have had to adjust capacities in order to remain viable in these uncertain times, said InvestPenang executive chairman Datuk Simon Wong. He said Penang was fortunate that it had recorded exceptionally great months last year and this helps to ease the slowdown this year due to the whiplash from the global economic downturn.

Penang had recorded RM12.2 billion in manufacturing investments in 2010 and RM9.1 billion last year. Wong said the previous years’ exceptional performance in investments will help to tide the sector over for this year and possibly next year.

This year, between January to July, Penang only recorded investments of not more than RM1.7 billion.

“Instead of comparing the investment amount on an annual basis, we should be looking at the investments on a three-year basis as we are talking about long-term investments,” said Wong.

He said what looks like a “flat” year in terms of investments in Penang this year may not be a bad thing at all as it allows the industrial sector to move up higher the value-chain instead of continuing with the traditional operator-based services.

“We don’t want to have too many of these kinds of investments as it will choke up the industry and create a bottleneck.”

He said the amount of investments will also need to grow in tandem with the available infrastructure in order to sustain the industry in the years to come.

Wong said the state government is now spending more time to develop the local small medium enterprises (SME) to get these smaller entities to compete at the global and regional level.

The state is also concentrating on attracting investments in other sectors such as in medical devices, LED, renewable energy, medical tourism and most recently, the halal industry.

There is a global market trend of increasing demand in the LED industry as the industry is forecasted to grow by six per cent by the end of this year. The next big thing that is seeing growth in Penang is the medical tourism industry. According to the Malaysia Healthcare Travel Council, Penang accounts for 50 per cent of the medical tourism industry in Malaysia.

This industry saw a 26 per cent growth last year as compared to 2010. The manufacturing sector may be expecting a gloomy outlook in the months to come due to the uncertain global economic outlook which could also cause investors to be more cautious, Wong said this will not greatly affect the overall performance of the sector in the state.

“Everyone will be more cautious next year due to the global outlook, but that doesn’t necessarily spell gloom for Penang as we have other industries to focus on,” Wong said.

By Opalyn Mok