FMM PRESS STATEMENT: Foreign Worker Policy Must Balance Industry Needs and Local Employment Goals

August 21, 2025

Head Office, KL

Kuala Lumpur, August 21, 2025 — The Federation of Malaysian Manufacturing (FMM) today welcomes the announcement by the Minister of Home Affairs on the reopening of foreign worker quota applications for the three main sectors and ten sub-sectors, but stresses that the exclusion of several key sectors remains unclear.

We welcome the government’s decision to reopen applications, but shortages are not confined to just these sectors, they are widespread across almost all industries, the most foreign labour reliant remain manufacturing, construction, and plantation. Within manufacturing, subsectors such as furniture, rubber products, food processing, and E&E support services face the most urgent manpower needs.

Through surveys conducted among its members, many of whom are existing investors, FMM is already receiving clear indications that labour shortages are putting significant pressure on business growth and long-term viability in Malaysia. These shortages are not limited to the sectors announced by the government, but cuts across almost all economic industries. It is therefore highly concerning that existing manufacturers, have been excluded from consideration. Many are facing critical manpower challenges due to workers returning home at the end of their contracts; inability to replace workers because of the prolonged freeze; and the most critical factor is the increasing orders arising from strong domestic and export demand. The exclusion thus risks undermining production continuity, deterring reinvestments, and weakening Malaysia’s competitive position in global supply chains.

The manufacturing sector remains a key driver of Malaysia’s economy. According to Bank Negara Malaysia, the manufacturing sector grew 3.7% in 2Q2025, continuing to support national trade performance. In 1H2025, manufactured exports rose 5.2% to RM656.56 billion, backed by strong demand for E&E, machinery, processed food, and other goods. This growth is powered not only by new investments but also by existing manufacturers who continue to expand capacity, fulfil export orders, and reinvest in Malaysia. Excluding them from case-by-case approvals risks stalling momentum and undermining Malaysia’s trade performance.

FMM notes the government’s policy direction under the 13th Malaysia Plan (RMK-13) to reduce reliance on foreign workers from 15% to 10%. The government has also clarified that the new 10% ceiling will begin applying from the first or second quarter of 2026, replacing the current 15% limit. While the direction is commendable, the transition must be gradual. Businesses need time to invest in automation, attract and retain local workers, and improve productivity. A sudden reduction risks worsening shortages.

Drawing from international benchmarks, Singapore has adopted a phased and sectoral approach, tightening foreign worker dependency ceilings gradually, with advance notice to industries, while providing strong support through automation grants, levies as incentives, and reskilling of local workers. FMM believes Malaysia can adapt similar best practices by combining gradual reduction targets with parallel support measures, ensuring industry continuity while pursuing national objectives.

In this regard, the introduction of the Multi-Tier Levy Mechanism (MTLM) from 2026 can serve as a powerful policy tool. By adjusting levy rates according to sectoral reliance, MTLM can encourage companies to progressively reduce foreign worker dependency without imposing a sudden, rigid cap. To be effective, MTLM must be accompanied by a transparent digital system for worker applications, automation incentives and upskilling programmes, including establishment of the National TVET Apprenticeship Fund and National Automation and Industry 4.0 Fund with an initial seed fund of RM100 and RM500 million, respectively by the Government and subsequently channelling 60% and 40%, respectively of the collection of foreign worker levy towards the Funds.

On the government’s proposed case-by-case approval process, FMM expressed concern that it may cause delays and uncertainty. Approvals must be transparent, efficient, and predictable so that employers can plan operations with confidence.

To avoid delays and uncertainty under the proposed case-by-case system, FMM urges the government to leverage technology in processing foreign worker applications. A centralised, transparent digital platform, directly accessible to employers, would allow applications to be submitted, tracked, and approved efficiently. This would not only speed up processing but also eliminate the current reliance on agents lobbying for quotas, which has been a source of abuse and inflated demands. A technology-based system ensures fairness, accountability, and real-time monitoring of actual industry needs.

FMM further warns that restricting the supply of foreign workers will likely have cost implications. If supply is restricted, operating costs will rise, projects may be delayed, and output reduced. Malaysia’s investment competitiveness could also be affected.

While the government has emphasised the priority of hiring locals, FMM stresses that in reality, most Malaysians are still reluctant to take up labour-intensive jobs due to wage expectations, job perception, and working conditions. FMM reiterates that businesses do not favour foreign workers over locals. Hiring Malaysians has always been the priority. Employers have increased wages, offered better benefits, and introduced recruitment incentives, yet attracting locals for general worker roles remains extremely challenging. This is due to changing workforce aspirations, with younger Malaysians seeking higher-skilled, white-collar jobs. Employing foreign workers is also neither cheap nor easy, given rising recruitment costs, policy uncertainty, and the need for compliance with stringent ESG and international certification standards.

The balance is crucial. Protecting local employment is important, but industries must also have timely access to foreign workers in jobs where locals are unwilling. Malaysia’s manufacturing sector remains a vital engine of growth. To sustain this momentum, the Government must adopt a balanced, transparent, and inclusive approach to foreign worker management that supports both new and existing investors. Excluding existing investors from quota approvals will jeopardise production, disrupt supply chains, and weaken Malaysia’s competitive edge at a time when global opportunities are expanding. FMM is committed to working with government on a gradual reduction of dependency, while supporting productivity improvements and reskilling initiatives.

DOWNLOAD FMM PRESS STATEMENT

Tan Sri Dato’ Soh Thian Lai

President, Federation of Malaysian Manufacturing

FMM Advocates Transparency, Integrity, Accountability and No Corruption

About FMM

The Federation of Malaysian Manufacturing (FMM) (formerly known as Federation of Malaysian Manufacturers) has been the voice of the Malaysian manufacturing sector since 1968, advocating policies and initiatives that drive industrial growth, competitiveness and workforce development. Representing over 13,100 member companies (4,100 direct and 9,000 indirect) from the manufacturing supply chain, FMM is actively engaged with government and its key agencies at Federal, State and local levels. FMM is also well-linked with international organisations, Malaysian businesses and civil society. Apart from benefitting from FMM’s advocacy, FMM members enjoy value-added services including training, business networking and trade opportunities as well as regular information updates.

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