Construction Industry in Malaysia: Issues and Challenges

Extracted from Kamar, K. A. M (2011), The Critical Success Factors and Readiness Model of Industrialised Building System (IBS) Contractors in Malaysia, Unpublished PhD Thesis, University of Salford Manchester

Despite its growth and healthy contribution to the GDP, Malaysian construction industry is under constant pressure to improve its performance. The Malaysian construction industry has been characterised as adversial and inefficient and in need of structural and cultural reform. The projects today are far more complicated than ever before. They involve larger capital investments, embraces several disciplines, widely dispersed project participants, tighter schedules and stringent quality standards. The changing construction environment is also influenced by factors other than the project management requirements. The examples of such factors are:

·       The economical forces; this factor may significantly affect the client organisation and subsequently can impact the initial objectives of their projects. The construction growth rates in Malaysia fluctuates between extremities that varies from as high as 21.1 percent in 1995 to as low as -24 percent in 1998. Since the 1990’s, the contribution of the construction sector to the GDP also fluctuated albeit at a more stable rate varying from a high of 4.8 percent in 1997 to an estimated low of 2.7 percent in 2005 (CIDB, 2008). This shows that the demand for construction is highly sensitive to the developments in other sectors of the economy. This is worsen by the decline in Foreign Direct Investment (FDI) for 18% in Q42009 compared to the same period last year and recent government policy to reduce public spending. Moreover, the property market is yet to recover from global recession with soft demand recorded in Grade A office and high-end condominium in Klang Valley hot spots.
·       With high demand for construction activities in previous years, the industry has attracted a huge number of foreign workers into this country to take up employment on site as unskilled labour doing manual jobs. According to Construction Industry Development Board (CIDB) Malaysia, 69% (552,000) out of total 800,000 of registered workers as at June 2007 is foreign workers. It is a huge number which distress the stability and growth of domestic economy and created social problems. The locals are reluctant to join the industry due to the low salary scheme being offered to foreign workers and wrong image projected by the industry. Therefore, government put in place measures to encourage industries to move-up the value chain and, where possible, to automate and mechanise their operations and in areas where automation and mechanisation was not possible, efforts were being made to replace foreign workers with skilled workforce.
·       Increases in project complexity; project complexity has increased due to extent of scope and fragmented parties around the world having to communicate with one another for efficient project execution. The complexity of the projects is reflected by the large number of specialists who contribute to the decision-making process
·       The need to achieve faster results with the given resources; this factor places severe time pressures on the entire project team
·       Rapid changes to project scope to expand benefits; some scope changes take place very rapidly before even realising the benefits of the changes
·       New procurement practices; the emergence of new procurement practices changes the way the team members are interrelated. For example, procurement schemes such as Private Finance Initiative (PFI) and partnering have impacted construction project management. Such schemes bring the government and the private sector firms together in large-scale infrastructure projects in which very high quality standards, tight schedules and cost targets are aimed at. With the government’s greater involvement in standardising contractual procedures for PFI schemes, the commitments of all parties have become clearer and more visible.
·       Client sophistication; this has become a major driver for productivity improvements in construction. Clients demand higher quality end products and services at lower price. This has created a buyers market whereby firms compete for projects at lower margins and hence demand better project management practices to enforce tighter control on the projects activities.
·       Globalisation of the marketplace; many industries are facing a lot of pressure due to this factor. Tariff barriers are virtually falling and labour has become more mobile. Further, due to productivity improvements and advantages in economies of scale, some foreign firms are capable of competing with local firms on price, quality and delivery. Thus, the involvement of Malaysian contractors in oversea projects particularly on Middle East, Africa and India is significant. This is due to declining in Foreign Direct Investment (FDI) to Malaysia and the government policy to reduce government spending on mega projects. However, to venture to the oversea market, the Malaysian firms must be able to compete with others and become a total solution provider to the clients. They must also capable to offer competitive price. Thus, it requires immense knowledge, skills and expertise in management of project. One of the recommendations is to pile up knowledge on the latest innovation in construction such in IBS and automated and mechanised construction
·       As in conventional construction which is a common practice in Malaysia, reinforced concrete frame and brick, beam, column, wall and roof are cast in-situ using timber framework while steel reinforcement is fabricated offsite. This method is labour-intensive involving formwork fabrication, steel bending and concreting. It requires many wet trades on site such as skilled carpenters, plasterers and brick workers. The process can be hampered by quality issues, unfavourable site conditions, skilled labour shortage and bad weather conditions.
·       The total number of registered contractors is 63,610. That is a phenomenal number if one compares that to the population and this has created a fragmented industry. In this regard, the fragmented construction industry retards the development of industry-wide information and knowledge sharing. Most of the time, planners, architects and designers interact only minimally among themselves and they as a rule are uncommunicative with the builders and contractors so none benefit from the experience of others. 
·       Although the construction industry is very competitive, practices in the industry have resulted in relatively low productivity as compared with other sectors, with the GDP per worker about half that of other industries. The productivity of the construction industry has been stagnant since the 1980s. The productivity level of the industry is worth RM 20,511, with an increase of 1.52% from the previous years. Nonetheless, this growth is relatively low compared to other sectors in Malaysia. The ineffectiveness and low productivity are caused by the failure of the industry to utilise the new as well as other relevant labour-reducing technologies. At present, the products of the construction industry are generally not of a high quality. Factors that contribute to a lack of quality in construction are poor design and buildability, ineffective supervision, lack of skilled manpower, inadequate and inappropriate equipment, financial problems and lack of information at point of use
·       Records tend to show that the construction industry is among the leaders in the frequency of injuries and fatalities. The fatality rate by occupational accidents in construction is one of the highest in the country with 72 recorded cases in 2008 and 95 cases in 2007.. These rates were on a par with the number of cases in the manufacturing industry, although the manufacturing sector produced a larger volume of works and a higher number of occupational accidents. Though the number of incidents, injuries and fatalities has declined significantly over the past decades, the current number recorded is still high and unacceptable as compared to other developed countries. This is due to the current practices of the construction industry which often take place outdoors under conditions which are not favourable to health and safety. The main cause of accidents in construction is falling from elevation, like a fall from a roof, scaffolding collapsing, and structures collapsing, followed by being struck, which includes, being struck by falling objects, run over by heavy equipment, or struck by a crane, boom or load
·       The industry also puts time and energy into security requirements outlined by financial institutions. Some banks have asked for construction companies to deposit sinking funds equivalent to the amount of the loan requested as a prerequisite for loan approval. The impracticality of this requirement lies in the fact that access to such funds would negate the need for a loan in the first place. For overseas projects, normally the initial working capital required to kick-start the construction project is estimated to be in the range of 10% to 12% of the contract value. At present, there are limited Malaysian bank representatives in overseas markets. As a result, contractors operating in some markets have found fund raising activities using banking facilities in foreign currencies difficult and costly
·       In the area of construction R&D, the industry perceived that most companies do not conduct their own R&D but would rather purchase technology they require. Most construction related R&D activities in the country are performed in academic institutions, but the areas covered usually do not meet the industry need


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