Malaysia needs more productive workplaces, not more workers

 Malaysia’s labour shortages are real, but poor processes and management may be holding businesses back more than a lack of workers.

From Zulfabli Hasan

Whenever Malaysian businesses struggle to fill vacancies, the diagnosis is often immediate: we do not have enough workers.

The proposed solutions tend to follow the same pattern: recruit more people, hire more foreign workers, increase overtime, automate or, increasingly, use artificial intelligence (AI).

Labour shortages are real in certain industries, occupations and locations. Some employers genuinely struggle to find people with the required skills or willingness to perform particular jobs.

But continuously adding workers to inefficient systems does not solve the underlying problem. It merely gives inefficient systems more people to manage.

Malaysia is working. But are we creating enough value?

According to the statistics department (DOSM), Malaysia’s labour productivity per hour worked grew 5.5% in the second quarter of 2026, reaching RM46.50 in value added per hour. Total hours worked stood at about 9.6 billion during the quarter, following productivity growth of 4.8% in the first quarter.

These figures are encouraging, but Malaysia must sustain productivity growth as wages rise, the workforce becomes more skilled, and the economy moves towards higher-value activities.

Productivity is not about simply asking employees to work harder. It depends not only on workers’ skills but also on the technology they use and how efficiently work processes are managed.

Busy does not necessarily mean productive

Consider a typical workplace. An employee completes a document but waits two days for approval. A machine operator stops work because materials have not arrived. A technician spends 20 minutes looking for the right tool. A purchasing officer enters information that another department has already entered.

Everyone may look busy, but being busy is not the same as being productive.

These are examples of operational waste, including waiting, unnecessary movement, excessive processing, mistakes and rework.

None can be permanently solved simply by recruiting another employee. In fact, adding workers without redesigning the process may increase complexity.

The foreign-worker question is also a productivity question

The finance ministry reported that registered low-skilled foreign workers numbered about 2.5 million as at August 2024, making up 14.8% of total employment at the time. Manufacturing employed 31.5% of these workers, followed by construction at 28.4% and services at 18.2%.

Foreign workers have contributed significantly to Malaysia’s economic development, particularly in labour-intensive industries. The issue should therefore not be about blaming foreign workers.

The bigger question is why, after decades of industrial development, some businesses still depend heavily on adding more low-skilled workers whenever they need to increase output.

If production rises by 20%, must the workforce also increase by almost 20%? Or can better processes, better skills, suitable technology and less waste allow the same workforce to produce more?

SMEs cannot escape the challenge

Small-to-medium enterprises contributed RM652.4 billion in value added, or 39.5% of Malaysia’s GDP, in 2024, according to DOSM.

Improving productivity among smaller businesses therefore cannot be treated as a side issue, but discussions about productivity often jump straight to automation, robotics, enterprise systems, data analytics and AI.

These technologies have enormous potential but should not become an excuse to avoid fixing poor processes.

There is little benefit in automating a process containing 10 unnecessary steps when the process could first be redesigned to require five.

Digitising unnecessary paperwork simply creates digital waste. Automating an inefficient production process allows waste to happen faster.

The principle should be simple: Simplify first. Standardise next. Digitalise where it adds value.

Look at the process before blaming the worker

This is where “Lean Management” offers an important lesson.

“Lean” is sometimes seen as a way to cut costs or reduce headcount. Properly understood, it is about creating more value while removing activities that do not add value.

Suppose five employees are processing customer applications and management believes another two are needed because customers are waiting too long.

Before hiring, management should examine the entire process.

How much time is spent processing an application? How much is spent waiting for approval? How often is the same information entered? Are all the approval levels necessary?

The answers may reveal that the organisation does not have a manpower problem at all. It only has a process problem.

Workers should be problem solvers

Employees should not merely be treated as pairs of hands performing predetermined tasks. They should be developed as problem solvers.

Frontline workers often understand operational problems better than senior managers because they encounter them every day.

They know which machine causes delays, which form customers repeatedly misunderstand, which approval is unnecessary and which tasks are routinely repeated.

Yet organisations can spend heavily on consultants or technology while overlooking the knowledge of the people already doing the work.

A productive organisation creates mechanisms for employees to identify problems, suggest improvements, test solutions and learn continuously.

Small improvements repeated across thousands of workplaces can have a significant economic effect.

Productivity must support better wages

Malaysia wants higher wages and better-quality jobs. Workers understandably expect their incomes to improve as the cost of living rises and the economy develops.

But sustainable wage growth ultimately needs to be supported by greater value creation.

The government’s Pre-Budget Statement 2027 makes this link, saying sustainable wage growth requires productivity gains while calling for industry-led skills development, AI capability, digitalisation and less reliance on low-skilled foreign workers.

The objective should not be to squeeze more work out of employees. It should be to design workplaces where employees can produce greater value without proportionately increasing effort, hours or headcount.

Better equipment, skills, technology and AI can help. But they work best when supported by good management and well-designed processes.

Ask a different question

The next time an organisation says, “We need more workers”, management should resist immediately opening another recruitment exercise.

Go to the workplace first. See how the work is done. Measure waiting time. Look for rework. Count unnecessary approvals. Check inventory. Ask employees what stops them from doing their jobs well.

Only then determine whether additional workers are genuinely required.

Malaysia certainly has labour shortages in particular sectors and occupations. But treating every operational capacity problem as a labour shortage risks hiding a much larger issue.

A country does not become a high-income economy simply by employing more people. It becomes one when its people, technology and processes can create more value over time.

Perhaps the question Malaysia should be asking is therefore not “Where will we find more workers?” It is: “How can every hour of work create more value?”

That is not merely a labour question. It is a management question. And ultimately, it is Malaysia’s productivity challenge. - FMT

Zulfabli Hasan is a senior lecturer at the Department of Management and Technology, Faculty of Management, Universiti Teknologi Malaysia, Johor Bahru, specialising in Lean Management and Operations Management.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT