Overview
Malaysia is a culturally diverse country in South East Asia with a workforce of approximately 16.2 million (Source: DOSM 2023). The labour force participation rate has increased in recent years to approximately 70.2% (Source: Labour Force Survey). Unemployment is usually relatively low, at 3.86% in 2023, and the market is projected to strengthen further, dropping the unemployment rate to 3.1% in 2025 (Source: The Edge Malaysia).
Talent in Malaysia, quality over quantity
While Malaysia is not as populated as neighbouring countries of Vietnam, the Philippines and Indonesia, Malaysia does have a sizable high skilled workforce with an adult literacy rate of 95%. With our diverse cultures, we are the most multilingual country in South East Asia and potentially even the Asia Pacific region. The two most commonly spoken languages are Malay and English (due to Malaysia’s British colonial past). Other minority languages include mandarin, tamil, hindi, and other dialects. Many Foreign Direct Investors (FDIs) consider Malaysia for the trifecta of English (global markets), Malay (access to Indonesia), and Mandarin (access to mainland China).
Employment laws and government regulations
Rooted in its British colonial past, Malaysia is a relatively well-run country. This adds to its appeal as a business friendly destination, ranking 12 out of 190 economies as a conducive place to do business. Likewise, employment laws in Malaysia are also moderate and relatively easy for employers to navigate. Employee taxes are relatively straightforward, operating on a simple progressive taxation scheme. There are some additional rules pertaining to returning Malaysian employees and foreign employees to adopt tax residency in Malaysia. There are no regulations to hire disabled persons or meet diversity quotas. A lot of these decisions are left up to companies to decide what works best for them.
Hiring local vs foreign
In the past (from the 70s to early 2000s), Malaysia was considered an ideal destination to set up shop to benefit from its robust foreign worker schemes enabling access to cheap South East Asian labour. However, things have changed drastically in the past 10 to 15 years. The recruitment cost in Malaysia has increased and surpassed neighbouring countries of Singapore, Brunei, Hong Kong and Taiwan. The weak ringgit is also not attracting skilled talent as much as before. The local labour market however, has become more skilled with the transfer of knowledge gained and opportunities that were present in the market. Therefore, the hiring trend in Malaysia is to shift towards a larger local ratio.
The hiring ratio of locals to foreign depends on market trends and the government’s regulations to control and keep more desirable jobs for Malaysians, or East Malaysians in Sabah and Sarawak. The Malaysian Investment Development Authority’s standard policy is 80/20. Foreign Direct Investors setting up in Malaysia must show a roadmap on how they will achieve this hiring ratio. In some states, flexibility is offered whereby companies may justify 60/40 in the first 1 or 2 years. But within 3 years, they are expected to shift to 80/20 and subsequently, more KPIs may be set to shift to 90/10 or even 95/5, depending on the industry.
Shifting to hiring local
There are many benefits to hiring locals. Firstly, there are less accommodation requirements as it is compulsory to offer non-white collar foreign employees accommodation in Malaysia. Secondly, there is increasing global pressure to deploy the employer pays model, whereby all recruitment costs related to the migration of non-white collar foreign employees must be borne by employers. This is part of a global trade supply trend to reduce modern slavery in supply chains. With local employees, there’s minimal migration and recruitment costs. Hiring is done through online channels, agents or recruitment drives. With minimum wage implementations, the cost of hiring locals is also not too different from hiring foreigners. Further, Malaysia has also standardised the employment protection for locals and foreigners, which closes the vost hiring gap between the two labour pools.
Hiring skilled foreign employees
Typically termed expatriates, Malaysia is still open to allowing expatriates in a select number of industries, such as education, oil and gas, manufacturing, technology, telecommunications, to name a few. However, again, as we’ve seen in Singapore, as the local market starts filling the gaps of these skill demands, the government will impose stricter policies on expatriate entry. For now, within the APAC region, Malaysia and Singapore still lead in open door policies for expatriates.
Conclusion
Overall, Malaysia is starting to become an exciting option for foreign direct investment due to the availability of a highly skilled workforce, with strong language capabilities, and unique appreciation for nuances in the global markets and international trade. Malaysia is capable of doing business with almost all economies in the world, largely due to our diversity. Government incentives are also targeted to attract more high tech manufacturing and digital jobs, improving the overall quality of jobs for Malaysians and in turn improving work satisfaction and quality of life.
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