An overview of the Malaysian construction industry

Malaysia began develop its construction industry since independence. According to Lewis (1955), more than half of capital formation consists of work in construction. Hence, the expansion of capital is a function the rate at which the construction industry can be expanded. This can be seen in the initial economic plan (1956-1960) where it was basically a development expenditure plan. The primary concern was developing the infrastructure during independence because of its inadequacy. In order for the nation's economy to prosper, the construction industry has to be developed first for the economy to take a one step further.

The Malaysian construction industry (MCI) is generally separated into two areas. One area is general construction, which comprises residential construction, nonresidential construction and civil engineering construction. The second area is special trade works, which comprises activities of metal works, electrical works, plumbing, sewerage and sanitary work, refrigeration and air-conditioning work, painting work, carpentry, tiling and flooring work, and glass work.

Role of the Malaysian construction industry

The construction industry is considered to be a major productive sector in Malaysia, for example output for the construction sector hovered around RM 7248 million, RM 7168 million, and RM 7350 million in year 2004, 2005, and the estimate for 2006, respectively, (Budget Report 2006). This sector is essential for development of the nation. It is among the top three of the major economic sectors. The other two sectors being manufacturing and agriculture, which contribute to the national output. For instance, the contribution to gross domestic product (GDP) in 2004 by manufacturing, agriculture and construction sector is 57.1, 8.3, and 2.9 percent, respectively, (Construction Industry Master Plan (CIMP), 2005).

The construction industry's output is relatively small when compared to the other sectors in Malaysia. For example, the construction sector contribution accounts 1.8 percent in first quarter 2006 and 2.9 percent in 2004 to GDP. Its contribution to the GDP is less than 15 times smaller than that of the services sector and less than eight times smaller than that of the manufacturing sector (Malaysian Economic Report 1999-2004). Although it accounted for less than 3.3 percent of GDP from 1999 to 2004, the industry is a strong growth push because of its extensive backward and forward linkages with the rest of the economy (Ofori, 1990). Backward linkages, or derived demand, are measures of the demands created by one economic sector for the products of other sectors. It has widespread impact because much of the raw, semi-processed, and processed materials can be provided by relatively unsophisticated labour-intensive domestic sources and by basic industries such as cement and steel manufacturing. The backward linkages are quite strong in the case of construction and represent a value, which in most circumstances exceeds the value added by the construction industry itself. The Malaysian Department of Statistics observes that the intermediate inputs to construction as a percentage of the industry's output from 1983 to 1993 averaged around 65 percent. The forward linkages or the consumption encouraged by the production of intermediate goods, are more difficult to establish for construction than backward linkages. The forward linkages or consumption of products affects practically all other sectors of the economy and construction has been ranked among the top four out of twenty economic sectors in terms of intersectional linkage (Park, 1989; Stanley, 1984). It

is difficult to separate the value of investment in various structures from the value of the activities inside. The task is further complicated by national accounting practices that treat construction as a final product. Regardless of the varying stages of industrialisation of different countries, their construction industries generate one of the highest multiplier effects through its extensive backward and forward linkages with the other sectors of the economy (Park, 1989; Fadhlin, 2004).

However, the construction industry is crucial because the role that it plays as a major indicator and determinant of domestic performance in the economy. As Malaysia is in the process of industrialisation, the construction industry is important because it provides the economic and social infrastructure for industrial production and reproduction. Basic amenities and also infrastructure for example residential space, roads, airports, railways, ports, power electricity, communication utilities, and also the other basic infrastructure needed in a country are just some of the basic developments required for the society to improve in social living standards and also for all other sectors to develop and grow. The Malaysian Government has realised the importance of building up the construction sector to benefit other sectors along the way. Therefore, the government has initiated some mega projects in the hope of propelling the economy to a better level. Since 1991, Malaysia has spent well over US $15 billion on infrastructure projects such as the Kuala Lumpur International Airport (KLIA). The KLIA that cost $2.4 billion was built to resemble a cluster of Arabian tents. The $2.9 billion Petronas Twin Towers in Kuala Lumpur, which consist of Islamic motifs with the soaring lines of New York's Chrysler building, are the world's tallest twin skyscrapers. The new capital, Putrajaya was built at a cost of $5.3 billion some 30 kilometres from central Kuala Lumpur, parking lots are landscaped like golf courses, and domed government office buildings are modelled after mosques. The city was built to relieve overcrowding in Kuala Lumpur. The Multimedia Super Corridor Malaysia an intricate project that transformed a 15-by-40-kilometre area stretching south from Kuala Lumpur into Asia's version of Silicon Valley.

The progress of the Malaysian construction industry

The construction boom in Malaysia started in the early 1990s in conjunction with the development of mammoth projects. The Government has launched Vision 2020 to envision that Malaysia will be a fully industrialised country by the year 2020. Towards this goal, the government has invested heavily in modernising the infrastructure of the Kuala Lumpur metropolitan area. The modernisation is designed to propel Malaysia into the digital age and position it as a hub for high technology businesses in Southeast Asia.

The construction industry reached its peak 1995 where the GDP of construction industry hit an amazing 17.3 percent. That rate of development was equivalent to the developed countries. During the period from 1994 to 1997, the construction industry GDP averaged at 14 percent. Consequently, the MCI dropped to an alarming position in 1998, when Malaysia and the Asian region were facing the Asian Financial Crisis. During the regional economic crisis in 1997-1998, output of the industry experienced a bust cycle with a sharp drop in output. In 1998, output of the industry contracted by 23 percent, after a robust and double-digit growth rate (Bank Negara Malaysia 2003). This was the worst slump for the construction industry. While GDP grew at an average rate of 5.2 percent from 1999 to 2004, the construction industry stagnated, recording an

average growth of 0.4 percent over the same period. Output for the construction industry hovered around the RM 7 billion mark, but steadily contracted as a share of GDP, from 3.6 percent in 1999 to 2.9 percent in 2004 (Table I). The contribution of the MCI to the nation's GDP is much lower compared to the other countries as shown in Table II. Its been estimated that a 10 percent increase in the construction industry's in productivity would result in a 2.5 percent improvement in GDP (Stoeckel and Quirke, 1992) and that the construction industry represents about 10 percent of the GDP for most countries (Olomolaiye et al. , 1998 ).

The MCI has largely been spurred by Government spending to build the nation's infrastructure. From 1981 to 2005, total development expenditure by the Federal Government is in excess of RM 300 billion, mainly in expenditure in economic sector, i.e. agriculture and rural development, transport and commerce and industry (Table III). The demand for sports tourism in general and information technology (IT) development has resulted in the need for some government projects as depicted in Table IV during the period of 1998-2001.

A decline in the number of large-scale infrastructure projects is one of the major immediate causes for the construction industry slowdown of recent years. The industry was buoyed by major projects initiated by the Government in the early and mid-1990s four of these projects alone contributed an estimated RM 60.0 billion in jobs (nearly ten times 2004 industry output) to the construction industry. Since the completion of these major projects approximately five years ago, there have been no new large-scale projects announced by the government. Another reason for the slowdown of the construction industry is return of a cyclical downturn in the business cycle that affects current performance. The construction sector has consistently been the smallest contributing sector to the economy. Its contribution to GDP is less than 15 times smaller than that of the services sector and less than eight times smaller than that of the manufacturing sector, see Table V.

The construction industry enables the growth of other industries through its role as a fundamental building block of the nation's socio economics development. Educational institutions, government offices, some tourist attractions, transportation infrastructure (airports, seaports, roads), housing, commercial property – all the essential elements of a healthy, functioning economy, need to be built and maintained by the construction industry. Besides, enabling socio-economic development, the construction activities generate tremendous spillover opportunities. It contributes to the growth of other industries in its role as a large user of manufactured goods (building materials, iron, steel, etc.) of specialized tooling and heavy machinery and the financial services sector. Malaysia has gained an impressive growth over past more than three decades (Frances, 2002). During this period, the construction industry has carried out glorious projects but some of them were not cost, time and quality effective (Hamzah Hassan, 2003; Imtiaz and Ibrahim, 2005; Ron Pratt, 2000) and also has gone through an economic downturn in 1997 when whole Asia was in financial crises during 1997. As a result of the crisis, some of the investment and activity in the sector halted because of the excess capacity and deferment of major construction projects in the country. In 2001, the industry continued to show a promising trend and registered a positive growth of 2.3 percent compared with 1.0 percent in 2000. In 2003, the construction industry registered a slow growth of 2.4 percent in GDP.

Employment created by the Malaysian construction industry

The construction industry plays an important role in national employment (Ofori, 1990) and in generating wealth and improving the quality of life for Malaysians through the translation of Government's socio-economic policies into social and economic infrastructures and buildings. The construction industry provides job opportunities to approximately 800,000 people (Table VI). Further, the construction industry creates a multiplier effect on other industries, including manufacturing, financial services, and professional services. The construction industry employed approximately 8 percent of the total workforce in Malaysia. However, most of them are Indonesian or from other Association of Southeast Asian Nations. As per Economic Report 2003/2004, it estimated that only 30 percent of the 800,000 workers are local.

Problems in the Malaysian construction industry

A wealth of literature is available on the problems faced by the construction industry globally discussed earlier in an earlier paper in this issue, but very little research has been carried out by academics and practitioners on the problems faced by the local construction industry. There is a gap in the literature on the problems faced by the MCI, and also for developing countries in local and international journals, conferences, and conventions. However, very few writers such as: Abdul Rahman and Alidrisyi (1994), Abdul Rahman et al. (2005) , BIPC/CIDB (2003), Hamzah Hassan (2003), Imtiaz and Ibrahim (2005), and Pratt (2000) have written on the problems in the MCI. Abdul Rahman et al. (2006) , who is currently Dean of the Faculty of Built Environment in University Malaya have found 45.9 percent delays in the completion dates during the construction stage. These delays are known to cause losses to the client/developer and to the entire industry because construction has an important influence on the economy.

Similarly, Pratt (2000), a construction and project management consultant (PMC) in Malaysia since 1962, has mentioned that Malaysian projects in the last decade especially the magnificent monuments were not cost and function effective. He further added that in certain cases the budget was exceeded, projected completion dates were not achieved and quality was not always up to the expectation. Pratt has emphasized this situation must be rectified in the new millennium. Similar views by Abdul Rahman and Alidrisyi (1994) that Malaysian construction projects faced delays in material arrival at construction sites caused delay in the completion of projects, and frequently a bulk of surplus material at site after project completion. Another local study by Abdullah (1985) on construction material wastage showed the cost of materials exceeded 50 percent of the construction cost, depending on the type of construction. He indicated the reasons of such material wastage were poor workmanship, setting out error, order not meeting specifications, excessive use of materials, material not meeting requirements, breakage in handling materials, improper storage, and misdemeanour. The Construction Industry Development Board (CIDB) master plan for occupational safety and health (CIDB Master Plan OSHA, 2004) highlighted seriously MCI problems such as as low quality, low productivity, poor image, economic volatility, delays, shortage of manpower, and lack of data and information. The low productivity in the industry is attributed to low technology usage, poor project and site management, unskilled labour, high-input cost and duration estimation, shortage of construction manpower, high-construction wastage, poor maintenance, nonconducive, and accident prone environment. The poor image of the industry is caused by high incidence of accidents, absence of job security, poor management, and low wages for high-risk jobs and lack of opportunity for career development.

On a similar note, Wong (1991), honorary advisor to the Master Builders Association Malaysia, has highlighted that the weak points of the construction sector of Malaysia include that the discipline of planning, architecture, various fields of engineering and quantity surveying have been well established, however the important discipline of construction which is the production function that deals with physical implementation of development projects, only recommended formal education and training just under two decades ago. The imbalance is great as between those who plan, design (both architectural and engineering), take off quantities and prepare documentation (all known as consultants) and those who plan, implement and execute construction development projects (known as contractors). It is therefore obvious that accelerated growth and development in the construction discipline or the production of construction is imperative. The weak points of the industry among others are: poor image of the industry, lack of systematic and orderly education and training of skills in the industry, lack of appropriate recognition of status of construction technicians and technologists, the confrontational attitude taken by the consultants and contractors, lack of team work approach and sense of belonging.

Interestingly, as of the end 2004, major development projects face problems such as delay in construction time and cost escalation and the structural defects said to be found in school buildings and community college buildings. PMCs, which supervises and manages government projects, has failed to control costs, design and scope of those projects, resulting in higher costs. It has been quoted that the construction industry was fraught with delays in approval of projects, uncompleted projects, and poor quality of work, cost overruns and late payment to contractors. Similarly, problems in projects like new Pandan hospital, Middle Ring Road 2 project highway and KLIA have been reported in local newspapers of having problems during post occupation period. The local papers have recently reported safety concerns of the industry after the two fatal accidents, which claimed two lives.

Considering the above weaknesses and problems in the construction industry of Malaysia, the CIDB in collaboration with Building Industry Presidents Council held a roundtable discussion in June 2003 with president's and chief executive officers of the MCI. The theme of discussion was establishing priorities to improve the MCI for the future. Among the ten priorities identified and recommended for improvement, were productivity and quality. Furthermore, CIDB has suggested that the construction industry use automation, prefabricated products, new construction methods and techniques and industrialisation, etc. so as to improve operational performance and the bad image of the industry.

Similarly, Zaini Omar (2000), Director General Public Works Department Malaysia has advised that in spite of spectacular growth rate, the MCI has not change much since the 1960s in terms of technology. Whilst the country's other major economic sectors have advanced in the utilization of modern technology, the construction industry still depends on old conventions of building techniques. The local construction industry needs to undergo a marked evolution in its development and maturity, old construction practices, management and technology that have served to transform Malaysia into a modern and thriving country need to be radically upgraded to meet exacting standard of building performance for the future. Expectation of higher quality finish, tighter building schedules and the need to keep within budget will mean that superior construction technology and techniques will be required. Therefore, it is time to act fast and act decisively before many more become disillusioned with the industry. First and foremost we have

to rebuild confidence in construction through training. In order to face the challenges of the twenty-first century the MCI must compete through continuous productivity improvement, more value-added operations and enhanced product quality. There is no doubt that substantial improvement in quality and efficiency is possible.

Regulatory framework and registration of contractors by CIDB

Construction companies in Malaysia must be registered before executing any construction work. The CIDB established in 1994 registers all construction companies on behalf of the Malaysian Government. CIDB's headquarters are in Kuala Lumpur (www.cidb.gov.my). One of the functions of CIDB is to regulate and register construction firms in seven grades from G1 to G7. These grades depend on the construction company experience, financial status and personnel capability. The registration of construction companies is on a one to three year basis and is granted to qualified construction companies under the relevant grade that defines the limits of the value of work the company is allowed to undertake. Table VII showed the value of work for which approved construction companies can tender. Construction companies can apply for promotion to a higher grade. Other functions of CIDB are to provide training, to promote and simulate development, improvement and expansion of the construction industry, to advise the government on matters affecting the construction industry, to promote, stimulate, and assist in the export of services relating to the industry, and to initiate and maintain construction industry information systems. A total of 64,194 construction companies are registered with CIDB in different grades as shown in Table VIII and Figure 1.

These grades (G1-G7) are classified further as specialist category building construction (B), civil engineering construction (CE), mechanical and electrical construction. These specialist categories are further subdivided into subspecialties. Building construction for example is subdivided has 19 subspecialties from B01 to B19, civil engineering construction has 20 subspecialties from CE01 to CE22. Construction mechanical has 15 subspecialties from M01 to M15 and finally electrical has ten subspecialties from E01 to E10.

As per a CIDB ruling, a construction company can be registered in more than one category and subspecialty within one grade (tendering limit) as far as it satisfies the registration requirements.

Challenges in the Malaysian construction industry

Improvement in the operations

Given due consideration to the current market condition, the enhancement of productivity and quality is vital to build a sustainable local construction industry that is poised to venture overseas. While the productivity of the construction industry at present may be sufficient to meet domestic market or regional market needs, it has to improve to compete effectively with global players and increase the benefits to the local market. In order to enhance productivity, there is a need to take a holistic approach to reviewing factors impacting the construction industry. Besides, improving operational performance the construction industry in Malaysia shall focus on health, safety and environment at construction sites. The accidents and fatality rates in the construction industry stood at 3.3 percent (Social Security Organisation (SOCSO), Ministry of

Finance (MOF), Economic Report 2003/2004) higher than other sectors such as manufacturing (0.7 percent), transport (2.1 percent), and services (1.1 percent).

Research and development

Construction industry players are not conducting Research and development (R&D) and in Malaysia most of the R&D is carried out in academic institutions. But areas covered are usually not in accordance with industry needs. This is another challenge for the industry and institutions to develop a closer working relationship with each other.

Human resources

The MCI needs to train to its professionals and workers so as to be more competitive, capable and enhance operational performance in local and international markets. Besides, training of the existing construction industry workforce, the industry has to overcome shortages of technical, managerial, skilled and unskilled personnel. The construction industry's human resources are the key challenge that has a significant bearing on the industry in fulfilling construction demand.

Technology

Technology and capital-intensive construction are other challenging areas for the industry and these will reduce reliance on labour or human capital. The use of mechanisation, prefabrication, IT and creative use of new construction project management techniques is vital for the enhancement of the industry's capabilities and performance. A study conducted by Mui et al. (2002) of the MCI on internet usage found that the use of the internet in industry is still limited to basic typical business processes such as e-mail and obtaining information. The user of the internet in this industry has yet to strategically exploit its potential, such as virtual meetings or teleconferencing, project management seminars, completing design estimates and contracting procurement and bidding (Mui et al. , 2002 ). Superior construction technologies and techniques will be required to meet higher quality finish, tighter building schedules and the needs to keep within budget (Zaini Omar, 2000).

Environmental pollution

The need to manage the environment is assuming increasing importance by the day. The construction industry, provides an important component of economic growth and social development, but has been the source of significant negative impacts on the physical environment, such as soil erosion and sedimentation, flash floods, destruction of vegetation, dust pollution, noise pollution (Lee and Fong, 2000). This is another challenging area for the industry. Tun Dr Mahatir Mohammed said in June 2001:

[…] in the pursuit of economic development, Malaysia will ensure that its invaluable natural resources are not wasted. The land must remain productive and fertile, the atmosphere clear and clean, the water unpolluted the forest resources capable of regeneration, able to yield the needs of national development. The beauty of our land must not be desecrated for its own sake and for its economic development […] (Source: Utusan Malaysia, June 2001).

Since, the lean production system (LPS) has showed relationship of lean to green (Florida, 1996; Hart, 1997), the adoption of LPS in construction practices may lead inadvertently to pollution reduction (Imtiaz and Ibrahim, 2006). Additionally the zero waste mantra of LPS suggests that pollution reduction will inevitably follow from it (King Andrew and Micheal, 2001). Hence, the scholars propose that the adoption of LPS principles will improve the environmental performance of manufacturing establishments; in other words, lean is green. Thus, lean and green compliment each other.

Occupational safety and health

Another big challenge to the construction industry, the rise in the number of fatalities within the industry over the last ten years, has brought into focus the hitherto low priority placed by the stakeholders on occupational safety and health. As per master plan for occupational safety and health in the construction industry 2005-2010, the number of fatalities in the industry is alarming. Out of the total 73,858 industrial accidents reported by SOCSO by the year 2003, 4,654 were recorded in construction. From this figure, almost 2 percent or 95 resulted in death, while 12.2 percent or 566 resulted in permanent disability. In comparison, the manufacturing and agriculture, forestry and fisheries industry recorded 0.7 and 0.6 percent fatalities out of the total accidents. Since, LPS advocates minimizing waste and continuously improving, incidents that disrupt the flow of work or lead to injury are waste, so the relationship between LPS and safety is clear (Howell et al. , 2002 ).

Strategic directions for the construction industry

Over the past decade, the MCI has contributed significantly to the economy as an enabler of growth to other industries. Although it accounts for <5 percent of GDP, the industry is an essential growth enabler because of its extensive linkages with the rest of the economy, for example, the manufacturing industry (such as basic metal products and electrical machinery). In 1998, when the construction industry experienced a sharp downturn, basic metal incurred some 35.6 percent drop in output (Malaysia Market watch 2005). Nevertheless, recent events, such as globalisation and the saturation of business prospects in Malaysia, have contributed to the sudden plunge in the growth of the industry. At this juncture, it is clear that fundamental changes are now needed in order for the construction industry to achieve greater efficiency and address the overarching challenges, as well as seize new opportunities in liberalized global markets.

The MCI has reached a critical juncture (CIMP, 2005) in its development. The vast mega projects that sustained the industry over the past decade have been either completed or reprioritised. In addition, the dampening effect of the Asian financial crises and the subsequent economic prudence is slowly taking its toll on the industry. At the same time, the growth of countries abroad – from China to Kazakhstan – is creating opportunities that, with some efforts, would be apt for the MCI to garner.

Internally, there are considerable issues across the construction industry's value and supply chain. The challenges discussed above have retarded the forward movement of the construction industry. Thus, the current situation necessitates a comprehensive framework to ensure that a

strong foundation will be laid and that construction players will be well positioned to complete globally.

The critical success factors are the elements that are imperative to the success of the achievement of the strategic thrust and strategies. These are productivity, quality, human resources, knowledge, innovation, environment practices, industry sustainability, and professionalism (CIMP, 2005).

Time to change

Traditional ways of performing and managing construction processes face unprecedented challenges. The growing competition forces construction organizations to rethink their construction for improving productivity, quality, and efficiency (Karna and Jonnonen, 2005). The construction industry may also benefit from best practices in other industries – for example electricity (Chau, 2009), breweries (Goncharuk, 2009), healthcare (Duggirala et al. , 2008 ) or new processes – for example quality function deployment (Miguel and Carnevalli, 2008).

The MCI has completed numerous projects but is not cost, quality and time effective. Additionally the Malaysian government's investments in construction jobs has been decreased substantially (Abdul Rahman et al. , 2005 ) in the last few years and the project owners are working on construction cost reductions to implement construction projects with client(s) satisfaction, effectiveness, and within limited resources. These are the reasons why today's MCI must implement an aggressive transformation plan for the future. And in order to face the challenges of the twenty-first century, the MCI must compete through continuous productivity improvement, more value-added operations, enhanced quality and there is no doubt that substantial improvement in operational strategies are possible (Zaini Omar, 2000).

The MCI sooner or later has to innovate new operational and productivity instruments so as to have a competitive advantage in local and global markets. The industry needs to prepare for paradigm shifts to improve its competitiveness that can be achieved by using good practices, advanced construction techniques and optimise resources utilization. Increasing productivity is the greatest untapped area for improvement in the construction industry. Companies that embrace new technologies, innovative processes, collaborative partnering, improved safety and reduction in litigation costs through contract arrangements will have a significant advantage over those that continue with past practices. Only with enhanced capabilities and capacity can the industry withstand challenges in good and bad times (Abdul Rahman et al. , 2005 ; Zaini Omar, 2000).

Figure 1Contractors' population by grade

Table IMalaysian construction industry and the economy

Table IIConstruction industry contribution to GDP by country

Table IIIFederal government development allocation/expenditure 1981-2005

Table IVPartial list of major government projects 1998-2001

Table VContribution to GDP by sector

Table VIEmployment by services

Table VIITendering capacity for the construction companies

Table VIIIContractors population by grade

References

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Abdul Rahman, H., Mohd Rahim, F.A., Hamid, M., Zakaria, N. (2005), "Beyond basic: the potential role and involvement the QS in public projects – an observation", QS National Convention 2005; Sustaining the Profession – Towards Diversification, August 10-11, Kuala Lumpur, Malaysia, pp.10-18.