Labour pain and power shortage

 Penang's high-technology dreams hit by double whammy

THE evolution of the technology sector into a veritable hub that supports a variety of high-technology industries has hit a snag, prompting both the federal and state governments to race against time to clear the obstacle.

Known as the “Silicon Valley” owing to the establishment of US-based semiconductors companies such as Intel, AMD, and Fairchild Semconductor in the 1970s, Penang’s technological hub is now facing a shortage of workers and recurring power disruptions.

Having evolved from its semiconductor mould in the 1990s, the Silicon Valley has branched out to provide support for other technology industries in the light-emitting diodes, medical devices, aerospace, automation, and test and measurement devices sectors.

In an interview, Penang Chief Minister Lim Guan Eng says that besides the scarcity of land, human resource is another constraint for Penang, as newly-promoted sectors - such as shared services and business processed outsourcing (BPO) activities — require large numbers of skilled workers such as engineers, scientists and accountants.

“Penang cannot produce sufficient numbers to cater to these requirements. We need to train and retrain new and existing human resources as well as attract new talents,” says Lim.

Last September, Lim said the state was unable to supply 1,000 engineers which had resulted in Penang losing some US$3bil in investments.

Penang Free Industrial Zone Companies’ Association president Horst Rosenmueller says about five years ago, the investments that poured into the state became more involved in product development and designing, and complex manufacturing activities.

“This led to a greater demand for higher skilled workers and more operators. At both levels, we are experiencing a severe shortage of employees, which poses a challenge to expansion and potential investments, should the problem persists,” he says.

Penang Foundry & Engineering Industries Association president Datuk Ng Chai Eng says the Federal Government lacks an understanding on the needs of the electronics sector.

“That is why the engineers that the education system is producing do not meet the needs of the industry. There are many local technicians and engineers today who can’t handle new range of computer numerical control (CNC) machines with more than five axes,” he says.

(A five-axis CNC machine refers to the ability of the machine to move a part or tool on five different axes simultaneously.)

 

The Penang’s ‘Silicon Valley’.

Regular disruption 

The problem is not to be taken lightly. Driving home this point is Pentamaster Corp Bhd executive chairman C.B. Chuah who recently said that the lack of skilled engineers would eventually sound the death knell of the automated equipment manufacturing industry in Penang.

“China will overtake us in the automated equipment segment in two to three years because it has better engineers who can produce innovative equipment that are cost-effective to manufacture,” he says.

Last April, Institute of Engineers Malaysia president Professor Datuk Chuah Hean Teik had noted that Malaysia was facing a shortage of engineers, which would impede the country’s development.

He says there is a need to train more engineers before the situation becomes critical, adding that the country will need about 200,000 engineers by 2020. “Currently, there are only 60,000 engineers in the country. We should plan ahead and not wait until there is an acute shortage.”

Besides the labour-shortage problem, there is also the recurrence of regular power disruption in Penang’s technology hub.

Rosenmueller says many of the companies here experience power disruption at least once a month.

“The power disruption may not be long in duration, but it delays the production process and increases wastage, as the machine and the production line have to be re-started,” he says, adding that Penang will lose out in foreign direct investments from Japan if the manpower shortage faced by the manufacturing sector prolongs and energy supply disruptions by Tenaga Nasional Bhd (TNB) are not resolved.

Due to the global recession, the State Government had a total of only 104 projects with investments totalling RM2.17bil last year, RM1.45bil of which came from overseas. In 2008, total investments brought in RM10.2bil.

“From the 104 projects, 61 were new projects totalling RM1.37bil while 43 were expansion or diversification investments with RM796.9mil.

“The projects approved were expected to create potential employment for 8,696 people,” he says.

Despite the labour shortage, the state’s electronics and electrical sector recorded the highest investment approved in 2009 with RM608.29mil for 30 projects.

The chemical products and test and measurement equipment industries registered the second and third highest with RM445.40mil and RM303.52mil respectively. The state’s gross domestic product has grown from approximately RM1.3bil in 1970 to RM21bil to date. This increase is largely due to the expanding manufacturing sector that now accounts for 39% of Penang’s economy, with the services sector contributing 57%.

Penang has now 1,427 companies, of which 227 are multi-national corporations employing 202,000 workers, where 50% of them are in the electrical and electronics industry. Penang contributes nearly 25% to Malaysia’s imports and exports both in value and volume.

Seeking a solution

To tackle the skills-shortage woes, the recently-formed Penang Skills Development Centre (PSDC) has asked for RM55mil funds under the 10th Malaysian Plan to establish a programme for diploma and degree holders to acquire the hard and soft skills in engineering in the shortest time possible via a finishing school concept.

PSDC chief executive officer Datuk Boonler Somchit says engineers need to be trained for one to two years to become productive.

“This means the companies that provide such training to the fresh graduates during this period will lose productive work. There is a need to formalise a system for graduates to acquire fast-tracked training and experience in six to eight months,” he says.

“The PSC will provide children mentoring on how to make scientific and technological ideas commercially viable,” Lim says, adding that the state has also set aside a 200-acre land in Balik Pulau for an education hub to woo investments from the private sector to build schools to produce the next generation of knowledge labour.

“We believe we can turn Penang into a showcase for silicon and software valley of Malaysia eventually becoming both a sweat-shop of the manufacturing industry and a smart-shop of the services industry,” he says.

On the problem of regular power disruptions, Lim says he will seek a meeting between all parties, including the top management of TNB.

New direction 


Due to scarcity of land, the State Government is also keen to attract high-end technology businesses involved in research and development which require relatively smaller land space or built-up space. However, these companies need to meet the requirement of providing world-class services, adhere to international safety standards and have exposure to a wide market.

BPO fits well into this. It is noteworthy that last year, hard-disk maker Seagate, test and measurement devices manufacturer National Instruments, and broadband communications and storage semiconductors provider PMC-Sierra Inc established their BPO and intellectual property headquarters at the RM100mil SunTech Tower in Bayan Lepas.

A report last year entitled “Exploring Global Frontiers” by KPMG pointed out that Penang was among the 31 sites in the world that could become alternative BPO centres to established Indian cities. The credit crisis had resulted in a new rush for outsourcing services and a number of new locations were emerging as viable BPO hubs, according to the report.

Penang’s strength as a BPO hub has attracted MNCs such as Intel, Dell, Motorola, Citicorp and IBM to set up such centres in Penang.

Besides BPO companies, the State Government’s aim to bring in high-value activities has led to internationally-known companies such as National Instruments (NI), Rubicon Inc, B. Braun, and Symmetry Medical to set up or expand their research and development activities.

NI (Penang) managing director Rajesh Purushothaman says it will develop its products from concept to be released in Penang, which include the hardware, software and firmware. “This is very similar to what we do in our research and development centre in Austin, US.”

Illinois-based Rubicon Technology Inc is setting up a state-of-the-art LED operation in the Prai Industrial Estate to perform a high-end manufacturing process known as post-crystal growth processing.

B. Braun is also investing about RM500mil to expand its research and development and manufacturing facilities at its plant in Bayan Lepas to undertake R&D activities in nano technology, information technology and digitalisation to improve its medical products such as needles.

Meanwhile, US-based Symmetry Medical Inc, the world’s largest orthopaedic product outsourcing firm, also plans to invest RM30mil over the next two years for the design and development of medical devices for the endoscopy industry.

By DAVID TAN
davidtan@thestar.com.my

EC president: Greece bailout will stop spillover

 Barroso says China remains confident in the euro

BEIJING: A multi-billion-euro aid package for Greece will be hammered out within days and the bailout will prevent the crisis from spilling over to other countries, European Commission president Jose Manuel Barroso said yesterday.

Speaking to reporters in Beijing, Barroso said he had discussed Greece’s troubles in meetings with Chinese Premier Wen Jiabao and that China remained confident in the euro even as sovereign debt worries ripple across Europe.

“I don’t think that China is lacking confidence in the European Union (EU) or the euro, on the contrary,” he said.

He also said Chinese leaders “never mentioned” any possible aid for Athens. Reports that Greece would sell bonds to China spurred market optimism earlier this year, but the Greek government subsequently denied there was any deal in place.

 

Visitors look at an art work featuring a projection of a Chinese renminbi note with a talking Mao Zedong at a gallery in Beijing. The Chinese currency has steadily appreciated against the euro since the end of last year.— AP

 

International Monetary Fund (IMF), European Union (EU) and European Central Bank officials are in Athens to negotiate the bailout and hope to wrap up a deal within days in an effort to avoid a debt default in Greece that could sink other fragile EU countries.

Barroso said they were “making solid, rapid progress” in drawing up the rescue package, reiterating that debt restructuring was not on option for Greece.

He also said the aid deal “will prevent further possible effects” of the crisis from spreading within the EU.
German politicians have said the aid package could be worth 100 billion-120 billion euros over three years, against an original plan for 45 billion euros of aid in 2010.

Greece has readied severe austerity measures demanded as a condition for the aid, providing relief to financial markets but drawing threats from unions of a mighty battle to come.

Union officials said the IMF asked Athens to raise sales taxes, scrap bonuses amounting to two extra months pay in the public sector, and accept a three-year pay freeze.

Greece’s debt woes served as a reminder of the need to address economic imbalances both inside and beyond Europe, Barroso said.

In the past, EU leaders have pointed their fingers at an undervalued yuan as a source of global imbalances, fuelling China’s massive trade surplus with Europe. But Barroso had a softer tone in public, at least after his latest round of meetings in Beijing.

“We are not putting pressure on anybody,” he said.

He added that it was natural that “the main global players discuss these issues of global imbalances, because we need to have a common approach, we need to restore growth globally.”

China had “clearly understood” EU’s message on currencies, Barroso said.

Beijing has effectively pegged the yuan at about 6.83 to the dollar since mid-2008, trying to cushion its exporters from the global economic downturn.

Tracking the dollar’s movements, the Chinese currency has steadily appreciated against the euro since the end of last year. — Reuters

Why Greece Will Default?

CAMBRIDGE – Greece will default on its national debt. That default will be due in large part to its membership in the European Monetary Union. If it were not part of the euro system, Greece might not have gotten into its current predicament and, even if it had gotten into its current predicament, it could have avoided the need to default.

Greece’s default on its national debt need not mean an explicit refusal to make principal and interest payments when they come due. More likely would be an IMF-organized restructuring of the existing debt, swapping new bonds with lower principal and interest for existing bonds.

Or it could be a “soft default” in which Greece unilaterally services its existing debt with new debt rather than paying in cash. But, whatever form the default takes, the current owners of Greek debt will get less than the full amount that they are now owed.

The only way that Greece could avoid a default would be by cutting its future annual budget deficits to a level that foreign and domestic investors would be willing to finance on a voluntary basis. At a minimum, that would mean reducing the deficit to a level that stops the rise in the debt-to-GDP ratio.

To achieve that, the current deficit of 14% of GDP would have to fall to 5% of GDP or less. But to bring the debt-to-GDP ratio to the 60% level prescribed by the Maastricht Treaty would require reducing the annual budget deficit to just 3% of GDP – the goal that the eurozone’s finance ministers have said that Greece must achieve by 2012.

Reducing the budget deficit by 10% of GDP would mean an enormous cut in government spending or a dramatic rise in tax revenue – or, more likely, both. Quite apart from the political difficulty of achieving this would be the very serious adverse effect on aggregate domestic demand, and therefore on production and employment. Greece’s unemployment rate already is 10%, and its GDP is already expected to fall at an annual rate of more than 4%, pushing joblessness even higher.

Depressing economic activity further through higher taxes and reduced government spending would cause offsetting reductions in tax revenue and offsetting increases in transfer payments to the unemployed. So every planned euro of deficit reduction delivers less than a euro of actual deficit reduction. That means that planned tax increases and cuts in basic government spending would have to be even larger than 10% of GDP in order to achieve a 3%-of-GDP budget deficit.

There simply is no way around the arithmetic implied by the scale of deficit reduction and the accompanying economic decline: Greece’s default on its debt is inevitable.

Greece might have been able to avoid that outcome if it were not in the eurozone. If Greece still had its own currency, the authorities could devalue it while tightening fiscal policy. A devalued currency would increase exports and would cause Greek households and firms to substitute domestic products for imported goods. The increased demand for Greek goods and services would raise Greece’s GDP, increasing tax revenue and reducing transfer payments. In short, fiscal consolidation would be both easier and less painful if Greece had its own monetary policy.

Greece’s membership in the eurozone was also a principal cause of its current large budget deficit. Because Greece has not had its own currency for more than a decade, there has been no market signal to warn Greece that its debt was growing unacceptably large.

If Greece had remained outside the eurozone and retained the drachma, the large increased supply of Greek bonds would cause the drachma to decline and the interest rate on the bonds to rise. But, because Greek euro bonds were regarded as a close substitute for other countries’ euro bonds, the interest rate on Greek bonds did not rise as Greece increased its borrowing – until the market began to fear a possible default.

The substantial surge in the interest rate on Greek bonds relative to German bonds in the past few weeks shows that the market now regards such a default as increasingly likely. The combination of credits from the other eurozone countries and lending by the IMF may provide enough liquidity to stave off default for a while. In exchange for this liquidity support, Greece will be forced to accept painful fiscal tightening and falling GDP.

In the end, Greece, the eurozone’s other members, and Greece’s creditors will have to accept that the country is insolvent and cannot service its existing debt. At that point, Greece will default.

Copyright: Project Syndicate, 2010.
www.project-syndicate.org , Martin Feldstein Copyright: Project Syndicate