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The world's largest maker of natural rubber gloves, said it plans to cut its foreign labour by 5% this year amid rising costs and increasing automation. The reduction in Top Glove's foreign workforce, who currently numbers about 7,000, also dovetails the company's efforts to keep a lid on cost spike following the government's decision to raise minimum wages and an unexpected move to double a levy on foreign workers. Earlier this week, Malaysia announced raising annual levy on foreign worker to 2,500 ringgit ($602) employed in the manufacturing, services and construction sectors. "The rates are double now and it is definitely not encouraging," chairman Lim Wee Chai was quoted as saying by The Star newspaper. A Top Glove spokesperson confirmed his remarks. The company, which has annual glove production capacity of 44 billion pieces, plans to spend about 200 million ringgit ($47 million) in the fiscal year through Aug. 2016 to expand existing facilities and build more factories. Analysts say the higher levy rates will hurt profits of rubber glove makers although increasing reliance on automation will help to reduce dependence on foreign labour in the longer term. Malaysia, has long been a magnate for migrant labour from the poorer neighbours Indonesia, Myanmar and the Philippines. These foreigners form the bulk of the workforce that toil in the plantations, construction sites, factory shop floors and other services sectors in jobs that Malaysians don't want. Importing unskilled and semi-skilled labour has helped Malaysian manufacturers to keep their costs down, and stalled mass relocation of manufacturing plants to other low-cost regions. Still, there is a massive social cost attached to hosting a large foreign work force that strains public services, such as security, health, transportation and education. Malaysia has been tightening employment rules for unskilled foreign workers. According to World Bank there are 2.1 million registered immigrants in Malaysia and likely over 1 million undocumented immigrants, making up 15% of Malaysia's workforce in 2014. It estimates that a 10% net increase in low-skilled foreign workers may raise Malaysia's gross domestic product by as much as 1.1%. "We remain positive on the sector as we opine that the gradual increase in glove production capacity of the players, as well as the resilient demand for rubber gloves globally, will eventually offset the increase in labour cost going forward," said MIDF Amanah Investment Bank analyst Noor Athila Mohd Razali. TA Securities meanwhile trimmed earnings estimates by between 0.9% and 1.5% to reflect "potential short term cost pressures amid the environment of rapid on-going cost pressure of late."
Keywords
world, natural rubber gloves, foreign labour, foreign workforce, minimum wages, annual levy, foreign, manufacturing, construction sector
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