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170 automobiles, rubber, palm oil, and micro chips.

Demand by itself, however, is only one component of skills formation. Sources of supply to meet this new demand must be found. Although publicly provided education and training inevitably create the bulk of skills and knowledge in any labour force, the challenge of matching the skill sets in the supply of labour to the demands of industry is always great. But, as Tan and Batra (1995) note, when training is provided or sponsored by the private sector, matching supply with demand is much easier. Thus, whether MNCs train is an important determinant of whether appropriate skills and knowledge will be created in the local economy.

Source: Ritchie, BK 2002, ‘Foreign direct investment and intellectual capital formation in southeast Asia’, OECD Working Paper no. 194, pp15-16

A study done by Norlela and Figueiredo (2004) has shown that most of the electronic MNCs in Malaysia only focus on assembling activities rather that conduct research-based activities. From 53 samples of MNCs studied, only two of them have seriously taken the initiative to invest in research activities. Norlela and Figueiredo (2004) also found that although these MNCs are gradually transferring innovative activity into Malaysia, major R&D activities still remains in their parent companies. This has constituted a barrier to the local talent to master and gain full knowledge from the transfer activity. On the other hand, according to Narayanan and Wah (2000), insufficient supply of skilled human capital, limited market size, and a weak intellectual property right protection system, is among the factors contributing to the reluctance of MNCs to locate their R&D activity in Malaysia. A survey conducted by Hasnah, Sanep and Rusnah (2010) on 100 foreign companies located in Malaysia had shown that 58 percent of the firms state that availability of skilled workers is a significant determinant of their location in a host country.


of potential foreign investment in R&D. The brain drain problem has been a recent obstacle encountered in the development of skilled human capital in Malaysia.40 Due to global competition, Malaysia has been gradually losing its skilled people who are travelling abroad in search of better careers. It should be noted that this is happening not only in Malaysia but also contributes to the shortage of skilled human capital in most developing countries. Kamarul Zaman and Koh (2004) postulate that the brain drain does not only indicate the country’s loss of a stock of skilled workers but also loss of benefits from the returns of the capital that have been invested in a worker. High investment is allocated to educate and train a skilled worker and it is hoped that through this investment the worker would pay the country back by contributing to its future growth. However, when this worker decides to migrate abroad it will be a loss to the country’s economy.

According to Solimano (2008), the mobility of skilled people is divided into three categories: the mobility of direct productive talent, academic talent and talent in the social and cultural sector. The first category is a mobility of human capital that is involved directly with the production activities. This includes those who are working as entrepreneurs, engineers and other technical talents. The mobility of scientists, academicians and students who are involved in the production of products that have the potential to be commercialised are categorised in the second group. Finally, the third category is the mobility of a group of people from the social and cultural sectors. This

40 According to Davenport (2004), the term ‘brain drain’ was first used by the British Royal Society in the 1950s to explain the outflow of scientists to the United States and Canada. The word ‘brain’ refers to skills possessed by individuals and ‘drain’ on the other hand, refers to the high rate of exit. ‘Brain drain’ is often refers to outflow of highly skilled human capital with tertiary level education.


includes human capital in the health sector, such as medical practitioners and also those who are involved in creative activities such as writers and performing arts (Solimano, 2008).

Box 3.7:

Brain Drain Can Erode Skill Base and Depress Innovation

Brain drain could create a vicious circle that may trap a country into an undesirable equilibrium with low levels of human capital and a large technology gap. In this sense, brain drain could contribute to rich countries becoming richer at the expense of poorer countries. Two key factors are responsible for bringing about this trap (Docquier and Rapoport, 2011):

The domestic human capital base shrinks. The most direct effect of skilled emigration on the human capital base at origin is that those who migrate will no longer be there to actively contribute to domestic production.

The capability to innovate is eroded. The lower skill base may have an important spill-over effect on productivity growth as innovation—which is one of the key driving factors of sustained productivity improvement—rests on a solid base of human capital.

Reinforcing these negative effects are the following channels. Productivity at destination may be raised, magnifying pull effects. This would occur in circumstances where the brain drain is substantial enough to boost productivity growth in the destination economy, which would provide further incentives for people at source to migrate. The technology gap may also widen further, which boils down to the same effect (Mountford and Rapoport, 2011).

Also, unemployment may rise for all skill levels. If wages are determined non-competitively, then the employment prospects for the remaining skilled workers may –counterintuitively-increase as the skilled migrate. This mechanism relies on the internationally mobile highly-educated bargaining for higher wages, which leads also low-skilled workers to raise their wage demands and a situation where the only way to offset these demands will be higher unemployment (Bhagwati and Hamada, 1974).

Finally, occupational shortages may drive economy-wide productivity down. Shortages in certain important sectors and professions (such as teachers, engineers, physicians and nurses) may affect the productivity of others or reduce the pace of human capital accumulation in the country (Kremer, 1993).

Source: World Bank 2011, Malaysia Economic Monitor: Brain Drain, The World Bank, Thailand, pp114

As stated by Davenport (2004), brain drain happens because of the attractive opportunities and prospects offered by the host country. Muula (2005) in his research on


brain drain among health professionals and knowledge workers in Africa found that dissatisfaction with the working environment, particularly with salary, job satisfaction and career advancement, are the key motivating factors for worker to go abroad.

However, Muula asserted that this process can be reversed through the implementation of strategies that support local human capital development which includes improvement of training programs and incentives system. Suntharasaj and Kocaoglu (2008) have agreed with this analysis. In their work on brain drain scenario’s in Korea, China, India, Turkey, Africa, United States and Thailand they have stressed that strong support from the public and private sector, and possessing a national policy on human capital development are among the key factors reversing the brain drain.

In Malaysia, the political and socioeconomic situation, salary offered, and lack of infrastructure promoting knowledge and skills development are some of the factors that contribute to the skilled workers moving away from Malaysia (Thiruchelvam et al., 2004 and Koh & Tee, 2010). Skilled Malaysian workers are also highly marketable because many have the ability to converse in multiple languages (Kok & Tee, 2010). It is reported that in 2006, about 785,000 skilled Malaysian workers worked abroad particularly in the industrialised countries (Malaysia, 2008). And between March 2008 and August 2009 a total of 304,358 skilled Malaysians had left the country (Kok & Tee, 2010). Singapore, United States, United Kingdom, New Zealand, Canada and Australia are the countries most regularly chosen (see Table 3.28 and Table 3.29). Based on a decade of data on Malaysia’s brain drain, it is concluded that Singapore is the main magnet for skilled migrants out of Malaysia (Table 3.30). From the Table, Singapore,


Australia and the United States account for almost 80 percent of the brain drain.

Table 3.28

Malaysian Residents Abroad Year Australia Japan New


Singapore United Kingdom

United States

1981 31,598 n.a 3,300 120,104 45,430 11,001

1991 72,628 5,047 8,820 194,929 43,511 33,834 2001 78,858 9,150 11,463 303,828 49,886 51,510

2007 92,337 7,902 14,547 n.a 61,000 n.a

Source: Fong (2010) Note: n.a - not available

Table 3.29

Number of Malaysian Migrants with Tertiary Education in OECD Countries

Country 1990 2000 Increase


Australia 34,716 39,601 14.07

Canada 8,480 12,170 43.51

New Zealand 4,719 5,157 9.28

United Kingdom 9,812 16,190 65.00

United States 12,315 24,695 100.53

Others 2,607 4,508 72.92

Total 72,649 102,321 40.84

Source: Fong (2010)


Table 3.30

The Malaysian brain drain, 2000 and 2010

Country 2000 2010

Singapore 66,452 121,662

Australia 38,620 51,556

United states 24,085 34,045

United kingdom 12,898 16,609

Canada 12,170 12,807

Brunei 6,438 10,208

New Zealand 4,221 6,708

India 1,509 4,503

China 2,655 3,496

Taiwan 2,916 3,235

Vietnam 1,517 1,929

Philippines 2,974 1,785

Germany 783 1,211

Japan 961 1,151

Ireland 685 837

Indonesia 393 811

Pakistan 297 718

France 381 674

Egypt 1,588 641

Netherlands 560 633

Thailand 1,071 491

Switzerland 358 310

Sweden 210 260

Sweden 193 224

South Africa 79 51

Source: Worldbank, 2011

To address the migration of skilled human capital problem, the Malaysian government through the Ministry of Science, Technology and Innovation has launched the scheme


known as the ‘Brain Gain Malaysia’41 under the Ninth Malaysia plan (2006-2010). One of the objectives of this plan is to gain back these skilled workers. However, the response received has so far not been altogether encouraging. In fact, ‘Brain Gain Malaysia’ is not the first and only government scheme to attempt attracts back local talent residing abroad. Previously, in 2001, the government under the Ministry of Human Resources launched a program known as the ‘Returning Malaysian Experts Program’ with the purpose to attract back skilled Malaysians working overseas. The difference between the ‘Brain Gain Malaysia’ program and the ‘Returning Malaysian Experts Program’ is that the later program is not only specifically for scientists, or those who are involved in R&D activity, but also includes all range of fields including science and technology (Thiruchelvam et al., 2004). Table 3.31 shows the differences between those two programs. It is recorded that until 2009, about 516 Malaysians have returned under the ‘Returning Malaysian Experts Program’ and 677 researchers have joined the

‘Brain Gain Malaysia’ program (Madinah, 2009).

Although both programs have offered attractive initiatives to attract back these workers, the number of those who are interested to serve in Malaysia is still small. According to Thiruchelvam et al. (2004) flawed implementation of these programs has contributed to this situation, the long process of obtaining approval from the administration for workers

41 Malaysia’s first brain gain program was known as the Returning Scientists Program. It was launched under the Ministry of Science, Technology and the Environment in the year of 1995. The program‘s objective was to attract both Malaysian and foreign experts who could contribute to the development of science and technology in Malaysia, particularly in the priority areas that have been identified under the IRPA program. However, the Returning Scientists Program was suspended in 1998 because of the country’s economic downturn. Within two year of its commencement the program had succeeded in attracting about 93 scientists with 23 were Malaysians and the balance were foreigner. In 2006 the government had relaunched the program with a new name known as the ‘Brain Gain Malaysia’. For further reading on this topic see Thiruchelvam et al. (2004) and Malaysia (2008).


to return and the lack of focus in the program being important weaknesses.

Table 3.31

Differences between Schemes Operated by the Ministry of Science, Technology, and Innovation (MOSTI) and the Ministry of Human Resources (MOHR)

Aspect Scheme under MOSTI Scheme under MOHR

Scheme operated by Ministry of Science, Technology and Innovation (MOSTI)

Ministry of Human Resources (MOHR)

Target group Malaysian researchers, scientists and engineers residing abroad and non-Malaysian scientists based overseas

Skilled Malaysians residing abroad

Fields of expertise Selected science, technology and engineering fields

Wider range of fields of expertise including science and technology Eligibility Varies with package. In most cases

minimum of Masters with 5 years of experience in related field

2 years of working experience overseas with PhD; 4 years of

working experience with Masters; and 6 years of working experience with Bachelor’s. However, eligibility varies with field

Incentives given Sustenance, return airfare,

accommodation, medical insurance, top-up project costs and

immigration support

All personal belongings, including two cars are given import duty exemption;

Spouse of Malaysians and children who are not Malaysians will be given Permanent Resident Status within six months;

Children of applicants allowed to enroll in international schools Employment Short-term employment for those

identified by receiving organization

Government not responsible for finding employment for applicants under this scheme

Participation of Industry

Encouraged but to-date no joint program as yet;

Malaysian Employers Federation involved in approval of applications

178 Source: Rasiah and Thiruchelvam (2009)

Surveys done by MOSTI (Thiruchelvam & Kamarul Zaman, 2008) have attributed poor responses to both programs to the:

(a) Weak job market and failure to guarantee employment for those returning to Malaysia.

(b) Restrictions in the recruitment of scientists. The program under MOSTI has indicated that priority should be accorded to scientists from China, India, Pakistan, Russia, and countries of the Commonwealth of Independent States.

(c) No appropriate database on Malaysians residing abroad. Lack of such information hampers the adoption of more selective approaches.

(d) There is no specific unit in MOSTI to implement the program. The program was implemented on an ad hoc basis.

It is suggest that if Malaysia is serious about attracting talented scientists from abroad then it must be prepared to make a number of changes to its existing policies and programs.