ADBI-OECD-ILO Roundtable on Labor

Migration in Asia
Electronics Sector in Malaysia
by
Datuk Hj. Shamsuddin Bardan
Executive Director, Malaysian Employers Federation

30-31 January 2018, Incheon, Republic of Korea

The views expressed in this presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank
Institute (ADBI), the Asian Development Bank (ADB), its Board of Directors, or the governments they represent. ADBI does not guarantee the accuracy of the
data included in this paper and accepts no responsibility for any consequences of their use. Terminology used may not necessarily be consistent with ADB
official terms.
 American Electronics Industry
§ Results of study in ‘86 and 3 studies in ‘92:
§ Doubling of the rate of miscarriages for
exposed women employees
§ U.S. tech companies to stop using chemicals that
caused miscarriages and birth defects
§ U.S. tech companies outsourced production of
silicon chips to Asia

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 Electrical & Electronics Sector in
Malaysia
§ In 2016, E&E products accounted for:
§ 30% or RM209.9 billion of Malaysia’s imports
§ the largest export earner at RM287.7 billion
§ 36.6% of manufacturing goods total exports
§ Employs about 350,000 Foreign Workers(FWs)
§ Computer, electronic and optical products account
for about 87% to total E&E share
§ USA, Germany, Mexico, India, Singapore and the
United Arab Emirates top export destinations

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 Forced Labor in the Production of
Electronic Goods in Malaysia
n 2012: US DOL backed study to determine
whether such forced labor exist in the
production of electronics industry in Malaysia
n 2014: Verité Report (Massachusetts-based
labor watchdog)
n 32% of about 350,000 FWs employed at
Malaysian factories are trapped in their jobs

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 Factors leading to forced labour
§ Forced to hand over passports
§ High recruitment fees
§ Personal debt
§ Complicated recruitment processes
§ Lack of transparency about their eventual working conditions
§ Inadequate legal protection
§ Unscrupulous behavior on the part of employers or 3rd party
employment agents can worsen exposure to exploitation
§ System in which FWs are recruited, placed and managed is
complex enough to create vulnerability even in the absence of
willful intent to exploit

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 U.S. Trafficking in Persons (TiP) Report
n Trafficking in Persons (TiP) Report of the U.S. State
Department grades countries according to their
efforts to curb human trafficking:
n 2014: Malaysia ranked lowest Tier 3 Level:
n frequent forced labour
n child labour
n sex trafficking
n 2016: Malaysia upgraded to Tier 2 Watch List
n allowed Malaysia to sign TPP Agreement

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 Coverage of EICC Code of Conduct
§ EICC required its members to adopt the Code and
become a ‘Participant’
§ ‘ A business shall declare its support for the Code and
actively pursue conformance to the Code and its
standards in accordance with a management system.’
§ The Code is made up of 5 sections:
A. Labour
B. Health and Safety
C. Environmental
D. Ethics and
E. System to manage conformity to this Code

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 EICC Membership
n EICC is world’s largest industry coalition dedicated to electronics
supply chain responsibility.
n Founded in 2004 with 12 pioneer members
n Calestica
n Cisco
n Dell
n Flextronics
n HP
n IBM
n Intel
n Jabil
n Microsoft
n Sanmina
n Solectron
n Sony
n Now more than 100 members
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 EICC EVOLVED TO RBA
n 17th Oct 2017 EICC announced it has become the
Responsible Business Alliance (RBA)
n RBA members commit & held accountable to a
common Code Of Conduct
n Members utilize RBA training and assessment tools
for continuous improvement in social,
environmental & ethical responsibility of their
supply chains

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 Impact of EICC Code of Conduct on
Electronics Industry in Malaysia

n The EICC Code provides guidelines on:

ü social,
ü environmental
ü ethics
n to the global electronics supply chain

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 Impact on Labour

1. Labour – Freely Chosen Employment

2. Young Workers (child labour)
3. Working Hours
4. Wages and benefits
5. Humane Treatment
6. Freedom of Association

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 Freely chosen employment
n No Forced, bonded (including debt dentured labor, involuntary
prison labor, slavery or trafficking of persons shall not be used:
q includes transporting, harboring, recruiting, transferring or
receiving persons by means of threat, force, coercion, abduction or
fraud for labor or services.
n There shall be no unreasonable restrictions on workers’ freedom
of movement in the facility in addition to unreasonable
restrictions on entering or exiting company-provided facilities.
n As part of the hiring process, workers must be provided with a
written employment agreement in their native language that
contains a description of terms and conditions of employment
prior to the worker departing from his or her country of origin .

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 Freely chosen employment
• All work must be voluntary and workers shall be free to
leave work at any time or terminate their employment.
• Employers and agents may not hold or otherwise destroy,
conceal, confiscate or deny access by employees to
employees’ identity or immigration documents, such as
Government issued identification, passports or work
permits, unless the holding of work permits is required by
law
• Workers shall not be required to pay employers or agents
recruitment fees or other aggregate fees, if such fee are
found to have been paid by workers, such fee shall be
repaid to the workers
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 Main factors towards forced
labour in industries
From recruitment fees:
1. Human Trafficking
2. Debt bondage
3. Passport retention
4. Cannot leave the employment
5. Force to work

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 Young Workers

Child Definition
1. Person under age of 15 or
2. Completing compulsory education
3. Legal minimum age at each country

Young workers
1. under age of 18
2. Work shall not affect safety & health
3. No night shift and overtime

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 Working Hours

§ Comply with local laws

§ Normal work week should not exceed 60 hours -
including overtime (except emergency or unusual
situations)
§ Min. / compulsory one day off in every 7 days
§ Mandatory breaks (lunch/dinner)
§ Mandatory Public Holiday

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 Wages & Benefits

§ Compensation according to legal benefits laws

§ No deduction of wages for disciplinary issues.
§ Suspension without pay as punishment
allowable
§ Wages statement or documentation (pay slip)
§ Temporary/ outsourcing within local law limits
- same benefits must be granted.

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 Humane treatment

n No harsh or inhumane treatment is allowed

including:
§ Sexual harassment
§ Sexual abuse
§ Corporal punishment
§ Verbal abuse

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 Non Discrimination
Freedom of Association
§ No discrimination in hiring § Respect worker’s to form
and employment practices join and organise labor
such gender as promotions, union
rewards and training § Respect worker’s to seek
§ Accommodation for religious representation
practices § Worker free to complaint
§ No medical test that can be with reprisal
use for discriminatory way
(new employee)
Advertisement to avoid gender, religion or question
not related to the job.

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 Impact to Employers on
Compliance to EICC
Risk
q A situation that increases potential damage to company,
such as reputational damage or legal liability, or damage to
individuals or entities affected by company’s activities or
linked to company’s operations, products or services through
business relationships.
Impact
q A situation in which damage has been done to company, such

as reputational damage or legal liability, or to individuals or

entities affected by company’s activities or linked to
company’s operations, products or services through business
relationships.
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 If you are supplying your product to Customer
complying or members of EICC you will
experience VAP audit by Verite.

Report will include all findings:

q Core violation:
§ A situation that Auditor considers unacceptable.
Auditees given opportunity to improve performance,
but Auditee's response to, and adequate resolution of a
core violation is non-negotiable.
§ In the case of immediate risk of life, Auditee given 24
hours to complete containment actions.
§ In other cases, the Auditee allowed seven days for
submission of action plans and 30 days for completion of
plans.

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 If you are supplying your product to
Customer complying or members of EICC
you will experience VAP audit by Verite.

§ Sanctions for unresolved core violations can result in

withdrawal/termination of business.

§ Major and Minor non-conformance:

§ Corrective Action Report (CAP) will be issued to auditee

within 2 weeks after closing meeting.
§ All major and minor findings must be approved by
Auditor within 2 weeks after receiving the CAP report.
§ Auditee must send action plan update every 30, 60 and
90 days.
§ All corrective action must be closed in 90 days.

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 Positive Impact

LABOUR
Ø Directing Employers to do right things
Ø Being responsible employers to entire industries
Ø Gain more trust from customers
Ø Employers of choice
Ø Employees loyalty as employer care about them
Ø Comply to International standards

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 Positive Impact

n ENVIRONMENT
§ Protecting environment and natural resources and
activities recycling, re using, reducing & recycling
wastages
n SAFETY & HEALTH
§ Minimise injuries and health issues
n BUSINESS
§ Fair trade & Business practices

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 Negative Impact
§ Recruitment fees
§ Working Hours
§ Manpower
§ Cost Impact
§ Management Commitment
§ Documentation
§ Sanctions for unresolved core violations may result in
withdrawal/termination of business.

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 FW recruitment fees
§ Zero recruitment fees (EICC ver 5.0 2016)
§ Employers has to bear all Recruitment fees.100% recruitment
cost increase
§ ZERO FEES. No more deduction or charges to Foreign Worker
§ Additional cost after min wages implementation
§ Upgrading accommodation facilities
§ Need to provide hot shower, fire ext., 1st Aid & 2nd exit door
§ Additional Manpower to cover shortage of w/hours
§ Due to limitation of w/hours (max 60) more people needed
§ to cover production shortage.

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 Working Hours

§ Working hours of 60 hours per week is the toughest to

achieve.
§ Needs of organisation vs needs of employees
§ EICC working hours < 60 hrs /week+ OT
§ Employment Act 1955 – normal working hours /week
§ 48 hrs. excluding overtime
§ OT not more than 104 hours /month
§ Reduce production capacity
§ Reduce workers take home pay

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 Manpower issue

§ Workers shall be free to leave work at

any time or terminate their employment
§ FW were recruited with zero recruitment fees and
contracted to serve 1-2 years but if they decide to
leave or terminate their employment, employers have
no other choice but to let them go.
§ It will result in shortage of manpower and loss of
recruitment costs.

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 Costs

§ Additional costs will impact the production /

operation costs;
§ Cost cutting to be introduced
§ Control of purchases
§ Limitation of overtimes or benefits
Resulting Financial strain for company/foreign
Workers
Effect –Downsizing, retrenchment…

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 Management Commitment

§ Management commitment is required to develop a

climate that promotes implementation of EICC Code in
the organization.
§ Management face challenges in view of the increasing
operation cost.
§ Fulfilling customer requirements vs answering to
shareholders and ensuring organization stays healthy
financially
§ If top management refuse to spend more on
recruitment.HR will be faced with serious challenges

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 Other concerns

q Elements of implementation may be hijacked by

trade unions for their own purposes.
q Unions may see it as an opportunity to help
advance their objectives of gaining members
amongst FWs and secure bargaining rights by
using freedom of employment issues.

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 Challenges for companies in assessing
and identifying risks in operations on
issues of forced labour
1. Difficulties to identify forced labour practices – Hidden from employer
2. Global supply chains are getting more complex – Diff location / region
3. Complying with EICC (for Electronics Industries) - Diff buyers diff
requirement
4. Global trend in outsourcing – What contractors do are against EICC
practices
5. Excessive recruitment fees at source countries – Unnecessary charges
6. Conflict within the law at source country with minimum fee –Employee
needs to take loan, persoanl debt become debt bonded.
7. With-holding passport – security & safety from syndicate ( 3 in one)
8. Workers indebtedness –Debt Bondage – Legal recruitment Fees at home
country but not by EICC
9. Grow ing m obility of w orkers and increasing role of Labour brokers during
recruitment
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 Measures to avoid sanction for
unresolved issue
§ To reduce FW intake – reduce fees
§ Re schedule work cycle e.g.: from 3 Group 3 shift to 2 group 2 shift
§ Upskills training local employee to be multi skills, high productivity

§ In order to reduce the operating cost, it is suggested:

§ that organizations increase selling price to ease financial strain
§ As the working hour is the main factor of causing the cost impact, HR
department plays an important role to propose work schedule that complies
with the 60-hour work week
§ Work schedules may include change of work shift pattern such as 1 shift 2
groups to minimize production idling time
§ To increase automation and mechanisation to reduce manual labour

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 11 Oct 2017

§ Export-oriented manufacturers may hire FW to make up 100% of

production staff
§ FW can only be hired as low-level production workers
§ Ratio of local to FW in manufacturing sector currently 1:3
§ Each SME short of 10,000 to 20,000 workers because SMEs are
restricted from hiring any FW
§ at present 18.6% of SMEs are involved in exports, others play an indirect
role by offering support to multinational companies
§ About 10,000 SMEs are involved directly/indirectly in exports, and 90% of
them are facing labour shortages

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 Cost of recruiting foreign workers
§ Accommodation § Insurance guarantee
§ Transportation § FW Centralized Management System
§ Utility bills (water and electricity) (3rd party vendor)

§ Levy § Health insurance for Foreign Workers

(SPIKPA)
§ Bond
§ Average fees incurred by industries
§ PLKS (Temporary Work Permit)
amounted to RM6,240 per FW/year.
§ VLN (Overseas Visa)
§ Source countries demand that
§ Omni Sarana Cipta (3rd party vendor) employers bear all costs with ‘zero
to manage visa processing in cost’ to the foreign workers; e.g. cost
Indonesia) of document processing in Indonesia
§ Immigration Security Clearance & Nepal from RM3,000/FW.
§ FOMEMA medical examinations
§ Doctor’s consultation fees

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 Letter Of Undertaking signed
by employer
• Employer pay levy as in Fee Act w.e.f 1 Jan 2018
• Contract of service in compliance with
Employment Act
• Compliance to Minimum Wages Order
• Provision of accommodation
• Not in possession of passport and travel
documents
• Provide medical benefits
• Not to employ illegal foreign workers
• Repatriate unfit FW
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 Employers Mandatory
Commitment (EMC)
· EMC to streamline FW recruitment process, reduce illegal FW and abolish middlemen /
agents
· EMC apply to new FW and for renewal of work permit
· Amend Employment Restriction Act 1968
Ø employers of absconded FW face increased penalty from RM50,000 to
RM100,000/FW
Ø enable prosecution of self-employed FW
· Responsibility of employer of absconded FW absolved upon submission of report at
Labour Department
· Shift in responsibility of paying levy to employer functions as wage increments for FW
· Government to legalize only illegal FW with documents
· EMC to level T&C between locals and FW
· Online single-window system

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