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Foreign Workers In Malaysian Construction Industry Economics Essay


Manpower is one of the most constrain challenge facing by Malaysian construction industry as we rely too heavy on large number of foreign labour workforce. Economic Report 2011/2012 stated that total employment of foreign labour force was about 12,645,700 while 768,800 were involved in construction sector.

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Background Information

The term ‘foreign workers’ means to a group of foreign nationals who were legally to work in another country where they have been officially recruited (Zehadul Karim, AHM, Mohd Asri Abdullah and Mohd Isa Haji Bakar, 1999). Miller (1991) used the term of ‘foreign workers’ as these person come from a welter of nationality groups, living and working with diverse legal status in a particular country. For our definition, ‘foreign workers’ means that they are coming in to work illegally and there should have no right to stay in the country.

Our country starts to import foreign workers into our country since 19th century for plantations and mines. Workers were mostly recruited from China, India, and Indonesia to work in mines, rubber estate, and plantation. The rapidly growth of economic in our country has caused an increasing demand on foreign workforce in every sectors of industries. The trend on employment of foreign workers has keep going high and increases. The group of “non-Malaysian Citizen” in Table 1.1 below can shows that the amount was increasing from year 2008 until year 2011.

Table 1. Population by Ethnic Group in Malaysia

There are about 2.4 millions of foreign workers in our country in year of 2009 (Jabatan Penerangan Malaysia, 2009), including both legal and illegal workers, which came from Thailand, Bangladesh, Philippines, India, Indonesia and etc. The amount of skilled workers which is only 12,705 was much lower than those unskilled workers which in number of 810,695 based on Economic Report 2001/2002. Most of them was involving in agriculture, construction and manufacturing sectors. This shows that our country is going to rely on foreign workforce in coming years to remain the growth of economic. Besides that, influx of immigrant foreign workers has raised many social issues and implications as well.

Problem Statement

It has been widely recognized that human resources are important for construction organizations. Yet, it is tough to forecast and plan the manpower requirements in construction industry (Fellows, Langford, Newcombe and Urry, 1983). Human resources are one of the most pressing challenges facing by Malaysian construction industry. There was around 40 percent of more than 1.8 million legal foreign workers are in the manufacturing sector, followed by construction (20 per cent), plantation (14 per cent), housemaids (12 per cent), services (10 per cent) and the rest in the agriculture sector (Hamisah Hamid, 2010).

There is a heavy dependency of foreign workers in local construction industry as it has not successful in attracting potential local youth to involve in this sector. This is mainly because of the ‘Dirty, Dangerous, Difficult’ image of construction industry given to the public (Construction Industry Development Board, 2007). Therefore, the gap has to be filled by foreign workers. High rising in standards of living and economic growth in Malaysian society created a high demand on construction activities (CIDB 2005). At the end, huge amount of foreign workers were imported into our country as unskilled or semi-skilled labour which doing some manually jobs. Total number of foreign workers was increased from 850,000 in year 2001 to 2.05 million in year 2007 according to statistic in Selected Social Statistics, Series 10, (Department of Immigration Malaysia, 2009).

Wan Hamidon (Maryam Qays Oliewy and Kamal Nasharudeen Mustapha n.d. p. 3) stated that the consequences will be outflow of our currency to other countries, social problems such as fighting and robbery cases, low quality of works due to they are not well-trained worker, and also they might spread out dangerous diseases such as hepatitis and AIDS. Due to the complexity of the construction project, there are very less of local youth which are willing to join the construction industry. Most of the reason is they think that construction industry was dirty, dangerous and difficult job. At the end, local construction industry has to be filled by all foreign workers. The related department which should be responsible on this problem should act effectively to solve the problems and reduce the dependency on foreign workers, and to increase the awareness of Construction Company on the negative impact which bring along with amount of foreign workers. This is because all these factors may bring negative aspects to Malaysian Construction Industry.

Research Questions

What are the reasons of employing foreign workers in Malaysian construction industry?

What are the reasons of poor participation of local workforce in Malaysian construction industry?

What are the problems arising due to the employment of foreign workers in Malaysian construction industry?


To identify the reasons of employing foreign workers in local construction industry.

To investigate the reasons of the poor participation of local workforce in Malaysian construction industry.

To assess the problems arising due to the employment of foreign workers in Malaysian construction industry.

Scope of Research

This research is only targeted on Malaysia’s construction industry and is not related with all other countries. Thus there is a limitation of getting more proper and specific information from internet and online articles. Besides that, not all 100% of the construction companies are willing to do and complete the research questionnaire because some of them were not realize how serious the dependency on foreign workers in the industry is. Therefore, this research will be concentrated on the causes of employment foreign workers, causes of poor participation of local workforce and problem arising due to employment of foreign workers in construction industry.

The targeted study population for this survey questionnaire is local construction companies rather than foreign workers. This is because foreign workers may be illiterate and they do not able to answer the set of questionnaire accordingly. This will cause the answers to be lack of accuracy. Furthermore, construction companies are the employers of the foreign workers, so their answers will be more precise and accurate.

This research in conducted among the local construction company in KL area. This is because most of the foreign workers were employed in Kl area due to the rapidly growth of construction sector. Besides that, this research is only targeted on legal foreign workers in Malaysia as it is difficult to obtain the data and information from those parties which involve with illegals foreign workers.

50 sets of questionnaires will be generated and distributed randomly to the local construction company which located in KL area in Malaysia. The list of respondents can be obtained from relevant professional boards such as Construction Industry Development Board (CIDB), Master Builders Association Malaysia (MBAM), and Malaysia Builders Directory.

Research Methodology

The research method used in conduct this study include of literature review and followed by a randomly picked questionnaire survey to local construction company. The research’s literature review was picked and taken from the existing foreign labour issues in Malaysian construction industry. Basically the review is to identify the causes of employing foreign workers, causes of poor participation of local workforce, and the problems arising due to the employment of foreign workers in construction industry. Information needs can be acquired from published books, research papers, seminar papers, newspapers, journals, online resources, etc.

The questionnaire is conducted in order to collect the primary data which is relevant to the research objectives. The primary data will be analyzed through qualitative and quantitative approaches after considering the type of data and research objectives. The result of data analysis will be used to produce of conclusions or recommendations at the end of the research. This report will be concluded by an overall conclusion by answering the research objectives and research questions, If possible, some recommendations will be provided as well.

The questionnaire survey is distributed via mail. Phone calls can be made to ask permission from companies to answer the questionnaire set. If less than half of the construction companies response, self-visit to the construction companies are required in order to make sure relevant data can be collected smoothly.

The result of data is then analyzed and interpreted. Analyzed data will be presented in a systematic manner to avoid misunderstanding. Graphs, charts or etc. will be included to provide a better understanding. After data analysis and interpretation is completed, conclusions and recommendations can be made. The following figure shows the steps to carry out research methodology.

Identify Research Problem

Literature Review

Reasons of employing foreign workers

Efficient ways to reduce the dependency of foreign workers in Malaysian construction industry

Problem arising due to the employment of foreign workers in Malaysian construction industry

Questionnaires (Data Collection)

Data Analysis

Conclusions and Recommendations

Figure .1 Steps of research methodology

1.8 Thesis organisation

Chapter 1: Introduction to the research

Under this chapter, it has discussed the research title, problem statement, research aim, research objectives, scope of study and method to carry out this study. Besides, this chapter also discusses the brief background information regarding the employment of foreign workers in Malaysian construction industry. The detailed planning for research stages is outlined and a brief introduction for the subsequent chapter is discussed in this chapter.

Chapter 2: Topic of employment of foreign workers, reasons of poor participation of local and problem arising from it.

In order to complete this chapter, a number of published books, research papers, seminar papers, journals, quotes and online articles need to be collected in order to improve the knowledge and literature review for the research title chosen. First, background information of foreign workers should be studied and understood. After understand the background, the reasons of employing foreign workers in local construction industry will be determined. Afterward, reasons of poor participation and problems arising have to be figure out as well.

Chapter 3: Questionnaire design

Questionnaire will design based on the Objectives of this research, and mainly targeted on reasons of employing foreign workers and the problem arising from it.

Chapter 4: Data analysis and result discussion

This chapter is focused on the analysis of data collected from the respondents through survey questionnaire. The findings will be reported in this chapter. For the purpose of easy reference and presentable, the analyzed result will be tabulated in the form of table, histogram, pie chart, bar chart and etc. The discussion will based on the issues and problems in this research.

Chapter 5: Conclusions and Recommendations

In this chapter, the main issues and discussion on the result of the finding will be concluded to produce a concise summary. Recommendations and suggestions which are useful for future research will be made based on the summary.

Chapter 6: References

A list of references that helps to obtain information for this research is listed down according the Harvard Referencing System.

Literature Review


There are a number of studies have been conducted on foreign workers issues and they have covered diversify aspects of it in various ways. There are some studies which more focus specifically on the “foreign workforce” issue. A review on some of the important studies has been carried out to provide a brief idea about the issue of the foreign workers in Malaysian construction industry (Ling 2005).

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In the earlier days, most construction workers in the country were locals who were recruited through the “apprenticeship” system (Wong, 2003). In this system, a foreman who usually a skilled worker will help to recruit more workers among his community, as the needs for labour is increasing. So he will be responsible on training those new recruited workers by arranging them a suitable worksite, provide them learning sequences and teach them about the materials. All these workers were usually paid by daily wages through the skilled foreman who was recruiting them.

In the actual situation in construction industry, the percentage of skilled and professional workers is much lower than the percentage of unskilled workers. The rapidly growth of economic in our country has created a regular and increasing demand for foreign workers in all sectors of economy. Most of the foreign workers are concentrated in agriculture, construction and manufacturing sectors. This is actually indirectly reflects that Malaysia has to depend on foreign workers to support the economic growth of the country. Construction industry has provided job opportunities for approximately 800,000 people (Ling 2005).

As of July 1999, the total number of registered workers according to the government was 715,145 which 73% from it were Indonesian, 19% of Bangladeshis, 3% of Filipinos and the remaining were from other countries like Myanmar, Sri Lanka, India, Pakistan, etc (Navamukundan, 2002). According to Economic Report 2003/2004, foreign workers hold on the total of 9.9% from the total labour force (10,514,900) in year 2003. The data of the numbers was not exact to the real amount due to the reasons of do not have any study or survey to carry out to get an exact amount on it.

However, the Malaysians are aware that the actual number of foreign labour in our country was not only that little. The approximate of estimation was about 1.5 millions of foreign labour workers were working in Malaysia no matter legally or illegally. There were over 230,000 of foreign workers been absorbed into Malaysia as in year 2000 which mostly came from Indonesia and Philippines, while part of them from China, Myanmar, Thailand and Bangladesh. Low-skilled foreign labours are employed to the position and assigned for jobs which Malaysian refuse or do not wanted to participate (Gross, 2001). The amount of foreign workers in Malaysia was increasing up to 2.06 million at year of 2008. Table 2.1 below showing that numbers of foreign workers coming from their origin country, up to date until year 2008:-

Table 2. Number of foreign workers in Malaysia by country of origin, 2003-2008

Here is a suggested pyramid form provides a practical basis for the computation of manpower needs. Figure 2.1 illustrates the suggested pyramid manpower (Wang, 1987). The rationale of the pyramid concept is based on the site organization of a construction project. The category that located at the lowest of the pyramid is the unskilled and semi-skilled workers. Unskilled labours act as general helpers on site and will carry out simple and basic activities as directed by the upper category. On the other hand, semi- skilled workers of various trades assist the craftsmen under whom they are assigned. Semi-skilled workers capable of carry out certain simple work independently and leave the more complicated work to the craftsmen to handle or complete. Craftsmen or skilled workers are placed at the higher category. Skilled worker is expected to proceed on with his work independently receiving directions and guidance from his supervisor from time to time. The technicians are placed higher than unskilled, semi-skilled and skilled labour in the pyramid. Technologist situated at the top of the pyramid. The pyramid shows that the number of professional is much lesser than number of labours, no matter unskilled, semi-skilled or skilled. Based on the pyramid concept, a conventional method of construction is labour intensive. That is still prevalent in Malaysia as a result of needed 20% craftsmen (skilled workers), 40% semi-skilled workers and 30% unskilled workers in construction project.

1 Senior Technician + 3 Technicians + 5 Junior Technicians

1 Technologist

20 Craftsmen (Skilled Workers)

40 Semi-skilled Workers + 30 Unskilled Workers

Figure .1 Suggested Manpower Pyramid Chart (Wang, 1987)

Reasons of Employing Foreign Workers

There are some reasons that caused the employing of foreign workers in Malaysian construction industry. The most important reason is because of the cheaper cost to hire them if compare to local workforces. Besides that, there are still some other reasons which lead to this situation and the reasons are stated as below:-

Why Foreign Labour in Malaysian Construction Industry

In the seventies and earlier of eighties, almost 70% of the foreign workers were concentrated in the construction sector because the country was experiencing a construction boom (Ghosh, 1998). During this period of time, there was a very huge amount influx of foreign workers mainly from Indonesia, as well as other SEA country like Thailand, Myanmar, Vietnam, and etc. Most of these workers came in illegally. Our local workmen are no longer able to support the demand and needs of the construction industry anymore (Azlan, 2004). At the end, this industry has to rely on foreign workers in order to maintain the rapid growth.

The Malaysian construction industry has started to rely on foreign workers since early of 1980 (Ahmad Rosdan Razak, 1996). Foreign labour mostly started to work in plantation and it caused the owner of plantation no longer rely on local workforce. Local workforces are more prefer to work in the manufacturing sector rather than construction and plantation because of the better income and better working condition. Sooner, the local workers found that it was not conductive and started to shield away themselves from working along together with all the foreign workers. Those skilled local workers were started to look for new jobs in overseas countries such as Singapore and some other western country which they can get higher paid for their skills (Gross, 2001). At the end, Malaysian construction industry was left out with such a high demand on foreign workers or else the construction progress will be affected.

Causes Influence the Inflow of Foreign Labour

Generally, Malaysia is a country which have moderate climate and most of people will feel comfortable to stay in this country. Politically and economic stable was also another reason for foreign labour to choose to work in our country. In addition, Malaysia is attractive because of its relatively economic performance and prospect of foreign labour. Due to the industrialization and urbanization, there has been a massive rural-urban migration, which at the end caused an acute of shortage of workforce (Ling 2005).

As a fast developing and progressive nation, Malaysia holds on a better prospect for prospective immigrants, the demand for foreign labour has been increasing continuously simultaneously with our economic growth. The accelerated economics development programmes and sustained high economic growth rate in Malaysia caused the influx of foreign workers to meet the high demanding of Malaysian labour market’s need (Navamukundan, 2002).

The reasons of poor participations of locals in construction industry

There are quite a lot of reasons have been responsible for the poor participations of local workers in Malaysian construction industry. Among all the causes of it, there are some causes as below:-

Construction jobs poor images, poor working conditions, and locals always prefer easier jobs

As we know, foreign labours mostly were in the lower end and heavier kind of job, especially in construction industry. Most of the local workforce prefer to work in a comfortable environment like office jobs with air-conditioned and some other factories which offer them white-collar jobs. Besides that, the working condition of construction sector is very poor. Poor from security, lack of job advancement, poor management and all these may be the reasons for local who refuse to involve in this sector (Ling 2005).

Low wages structure in construction sector

One of the reasons why local workforce tries to avoid involving in construction industry is because of the low wages and high risk jobs. Payment for those who work in construction sector was relatively low if compare with other sector like manufacturing. Some of the companies are purposely to keep the salary in low level to allow higher turnover of local workforce and encourage more foreign workers to join in. The uncontrolled presence of foreign labour plays a significant role by maintain a relatively low wages to avoid participation of local labour and at the end, very few local labour who want to join themselves in construction industry (Zehadul et al., 1999).

Higher Education Level

Nowadays, there are more and more people who getting a higher educational level like diploma, degree or even master degree. For them, they gain a higher of education level is to avoid themselves from being working on dangerous or high risk jobs, eg like working in construction site. Therefore, the reducing of local youth to join in construction sector is going less. This happened and gave more opportunity for importing foreign labour by the employer to fill in the gap to make sure their construction run smooth. Most of the foreign labours were coming from our neighbouring countries such as Indonesia, Vietnam and etc.

Employer can easily bring in foreign labour

Employer can easily bring in foreign labour as long as there is unlimited supply of foreign labour. Employer can select their workers among locals or foreign works, but due to cost-conscious, they will prefer the one who is cheaper with necessary skills and will comply with their working disciplines and rules, especially hardworking (Ling 2005).

Normally the foreign workers will fulfill their entire requirement, no matter in lower wages or strict working conditions. The newly arrived labour willing to accept lower wages and lower conditions so their paid is less than local workforces even though they perform the same jobs (Michael, 2001). The employer will choose foreign workers mainly causes is the cheap wages compare to locals, and some of the company not even pay out EPF and SOCSO for them.

It is believed that there is no actual shortage of manpower on locals, it was just because most employer prefer foreign workers especially them who came in illegally. They can be easily exploited as they have no recourse to law and justice (Tey, 1997).

Problems Arising Due to the Employment of Foreign Workers

There are various types of impacts onto our economy and problems’ arises in our society in Malaysia when hiring of more and more foreign workers. People are starting to feel unsafe on this situation and they do start to worry that foreign workers will bringing in problems and criminal acts to our country and our economy. The following will be the negative issues and problems arising due to the employment of foreign workers.

Cultural Pollution

Most of the foreign workers are trying to be peaceful. What they need is just to earn money and send back to their hometown. In most cases, concern over foreign labour is linked to anxieties over what some have characterized as cultural pollution (Weiner, 1990). They might able to change the cultural and social orders of the normal practice of the local workforce in construction industry (Ling 2005).

Social Problems

No matter legal or illegal foreign labour may create or cause some social problems and the impact will fall onto the locals. Example like, spreading of diseases, theft, robbery, cheating, killing cases, etc. Between year 2000 and 2004, Malaysian police arrested 465,878 irregular immigrants, which 64% were from Indonesia, 10% from Philippines and 7.5% from Myanmar (Othman Talib, 2005). According to Police Chief Musa Hassan, 5000 crimes were committed by foreigners at year 2006 from a total of about 230,000 cases (The Associated Press, 2007). Besides that, the foreign workers are likely to hanging out in groups (Dr. Ibrahim bin Abu Ahmad, 2012). This will caused uncomfortable and unsafely feel on locals who are around them.

Economic Issues

The foreign workers have had created an impact on local’s wages structure and caused higher competitive with locals. Another impact on economically is a high amount of remittances sent out by foreign workers back to their home countries. This causes our currency to outflow to other country.

The increasing of inflation rate also related to those foreign workers in our country. Due to the increase demand on goods, price of goods increasing while they are not paying any taxes and enjoy the benefits for free. However, the foreign labours are helping in the rapidly growing sectors example like construction industry, which are always shortage of manpower (Zehadul et al,. 1999).

Competition between locals and foreigners

The problem of foreign workers stemmed from the Government’s open policy, which allowed a large number of inflows of foreign workers to our country (Ling 2005). A highly competitive situation has appear because of the foreign workers accept the lower wages compare to locals. As a result, wages rates on construction industry has gone down, include for locals and at the end, more foreign workers came into the industry while locals workforce are choose to quit the sector.

Besides that, some of the foreign workers are trying to take over jobs from locals and involve into sub-contracting works like renovation jobs. They have no rights to register a proper firm to run their business, but they can offer their service privately to the consumer. Price which they can able to offer is much lower than local’s company.  All the foreign workers are seems free to start on their own business like nobody cares while the authority seems like helpless to take action against them (Dr. Ibrahim bin Abu Ahmad, 2012).

Klang Valley is actually a good example which local authority should put attention on this place. Foreign workers setting up shops and turn the certain place into so called Little India and so on. This is not a good situation as the competition between locals Indian shops owner with the foreigner is higher. Locals will get affected due to the selling price by the foreigner was always lower than locals. The example of Little India is somewhere around Brickfield area in Bangsar and another one located around Jalan Raja Chulan, Kuala Lumpur.

Works delay

According to Economic Report 2003/04, The New Immigration Act 1995/63 (Amendment 2002), which came into effect on 1st August 2002, which caused about 318,300 illegal immigrants were deported in year 2002. Due to the heavy dependency on foreign workers for construction industry, some of the construction activities was slowed down and end up with works delay.

Amount of illegal foreign workers may increase

The importation of foreign workers legally was time consuming and costly (Tey, 1997). Based on current experience, it will normally take about 2-3 months to go through the entire process for application of a new working permit from Ministry of Home Affairs. Furthermore, it is costly to renew or make new application for foreign workers. At the end, employer will just employ illegal foreign labour to evade the levies and other charges on them to employ a legal foreign worker.

For legal migrant workers, there was an additional financial burden to bear. They are required to renew their working passes annually and the related to this had increased. In order to renew the working pass, few of the other charges have come together with it. If that is time consuming, some of the employers are rather than choosing illegal foreign workers to work for them due to the project completion date cannot be delayed. At the end of this, the situation will go worse because the amount of illegal workers was increasing.


Malaysian construction industry was highly dependent on foreign workers and it was not possible to reduce in a short term of period. In long term, all parties involved in construction sector should seriously find out attraction to attract local workforce to join into the construction industry.

Probably by improving the construction sector’s image and make change to a better working environment will help to improve the construction sector’s image. Besides that, by improving safety procedure, offering a more competitive wages and benefits will also help to improve the current situation which is low wages, dangerous and dirty images in the mind.

Malaysia should take experience from South Korea where the country has in rapid economic growth but never rely on foreign labour (Ahmad Rosdan Razak, 1996) and similarly to Singapore, the dependency on foreign labour in Singapore has overcome so easily.


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