KUALA LUMPUR (Reuters) – With the cost of hiring workers soaring in Malaysia as minimum wages kick in, the government is offering tax benefits to labour-intensive sectors going the automation route, a tactic that analysts say may help lift profits by up to 20 per cent.
But some manufacturers, including Top Glove Corp Bhd, which produces one out of every four pairs of latex gloves in the world, say the incentives are not enough. Smaller companies will benefit more due to the way the benefits are structured, analysts say.
“The direction is there, although it is not enough,” Chairman Lim Wee Chai said in a post-earnings conference in Kuala Lumpur on Thursday.
One of the processes that Top Glove has partially automated is the removal of gloves from moulds. Some of it is now carried out by robotic arms, cutting the number of workers per production line to four from eight, a company official says, adding that some of the packing, counting, weighing and sorting has also been automated.
The automation comes as the cost of hiring rises in Southeast Asia. Countries such as Indonesia and Vietnam have recently raised minimum wages. On Jan 1, 2013, Malaysia implemented minimum wages for the first time, prompting concerns about higher operating expenses and pressure on margins.
Malaysian plastics packaging firms including Scientex Bhd have seen their production costs rise 11-19 per cent annually over the past five years, mainly due to labour, utility and transportation costs. Rubber glove makers such as Top Glove saw costs climb six-16 per cent a year on a compound basis, Thomson Reuters calculations based on corporate income statements show.
In Prime Minister Najib Razak’s 2015 budget speech late last week, he said labour-intensive industries such as rubber, plastics, wood, furniture and textiles will receive automation incentives. On the first four million ringgit ($1.2 million) firms spend on automation between 2015 and 2017, they will be entitled to tax savings of two million ringgit.