Silver lining in Goodyear’s departure?

 

Last week, tyre manufacturer Goodyear announced it intends to shut down its Shah Alam facility by year-end after 52 years of operation.

PETALING JAYA: Factory closures like Goodyear’s are part of a broader trend of operational migration in pursuit of cost efficiency. However, they may also be a blessing in disguise as the national economy seeks to reduce its reliance on foreign workers and focus on higher-value added sectors.

Last week, the tyre manufacturer announced a complete shutdown of its factory in Shah Alam by year-end, after 52 years in operation. The closure is part of a US$1 billion (RM4.73 billion) exercise aimed at streamlining the company’s operations and maintaining its competitiveness.

At 23.4%, manufacturing was the second biggest contributor to the country’s GDP, second only to the services sector, which contributed 59.2%.

Universiti Malaya economics lecturer Goh Lim Thye said although emerging economies like Malaysia have historically attracted manufacturers due to lower operational costs, multinational corporations are choosing to shift operations to countries with more favourable cost structures — such as Vietnam, Bangladesh and Indonesia — as labour costs rise with economic growth.

Highlighting the country’s large migrant worker population, Goh said that Malaysia’s high reliance on external labour emphasises the need for a “strategic pivot”.

According to the statistics department, as of July last year, approximately three million migrants – representing 8.9% of the country’s population of 33.4 million – were living in Malaysia.

Foreign workers represent an estimated 15.3% of the Malaysian workforce and dominate low-skilled and semi-skilled jobs in sectors such as manufacturing, services, plantation, agriculture and domestic work.

“Malaysia’s dependency on foreign labour for its labour-intensive industries highlights the sustainability challenges of maintaining such operations over the long term.

“Hence, Malaysia’s shift towards sectors with higher value addition is vital for its economic resilience and sustainability,” said Goh.

He said transitioning to sectors characterised by higher innovation, better wages, and increased global competitiveness — such as technology, biotechnology, renewable energy and advanced manufacturing — is the way forward for the Malaysian economy.

However, Goh said this demands “substantial investment” in education, skill development and infrastructure, adding that they should also be accompanied by policies which foster innovation and entrepreneurship to ensure a robust framework for sustainable economic advancement.

Meanwhile, Barjoyai Bardai of Universiti Tun Abdul Razak said closures by manufacturers such as Goodyear are to be expected.

He said Malaysia is becoming too expensive for manufacturing operations, compared with countries like Vietnam, especially for producers which rely on cheap labour and raw materials.

Barjoyai said many investors had in the past been attracted to Malaysia due to the cheap cost of labour, but such investors are deterred by increases to the minimum wage.

“Most investors come to Malaysia for cheap labour, but these sectors have low value-added (output) for the country. We are moving towards a higher value-added economy, so Goodyear’s departure is not necessarily a bad thing,” he said.

Malaysian Institute of Economic Research (MIER) senior research fellow Shankaran Nambiar noted that weakening global demand, competition and the need for rationalisation are likely to have played a key role in Goodyear’s decision to leave Malaysia, pointing out that the company is competing in a tight global market.

“You can’t compete with countries like Vietnam and Indonesia on labour costs and, generally, the cost of doing business. I think this year and the next you can expect to see a sprinkling of companies shifting their location as part of their optimisation exercises,” he said.

“Having said that, (the government) can’t abruptly pull out of FDI that’s not high value-added. You won’t have the kind of FDI you’re looking for to fill the gap at short notice.”

According to the Malaysian Investment Development Authority (Mida), the manufacturing sector recorded RM152.0 billion (46.1%) of the country’s total approved investments in 2023 – an 80.3% increase from the RM84.3 billion recorded in 2022.

Mida said this surge in manufacturing investments is set to create 73,939 job opportunities. The agency said management, professional/technical, supervisory, and skilled worker roles account for 30,407 jobs, of which 91.7% are expected to be filled by Malaysians. - FMT