asean economic community (aec): effects of service liberalisation towards the quantity surveying...

7/24/2019 ASEAN ECONOMIC COMMUNITY (AEC): EFFECTS OF SERVICE LIBERALISATION TOWARDS THE QUANTITY SURVEYIN

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ABSTRACT

The Association of South East Asian Nation (ASEAN) has stated its intention

to establish an economic integration amongst ASEAN country members

called ASEAN Economic Community (AEC). The AEC aims to transform

ASEAN into a single market and production base, a highly competitive

economic region, a region of equitable economic development, and a region

fully integrated into the global economy. In realising a single market, service

liberalisation was introduced and ASEAN has agreed to liberalise the trade of

services through the workings of ASEAN Framework of Agreement in

Services (AFAS) in addition to existing commitments through General

Agreements on Trade in Services (GATS) in the World Trade Organization

(WTO). The aim of this study is to investigate the potential benefits of AECs

policy on free flow of skilled labour to the Malaysian construction industry

and its effects on the Quantity Surveying profession in Malaysia. Data

collection was conducted through questionnaire survey among registered

practicing quantity surveyors (QS). Responses from 31 respondents were

analysed using the average index. This study finds that among the potentialbenefits of AEC towards the Malaysian construction industry is that the

construction industry will be opened to more domestic and foreign markets,

construction firms become more competitive and target market becomes

larger. The potential effects of service liberalisation towards the QS

profession include greater competition between domestic and foreign QS,

increase competition of QS employment and more diverse QS services.


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APPROVAL PAGE

This dissertation was submitted to the Department of Quantity Surveying and is

accepted as a partial fulfilment of the requirements for the degree of Bachelor of

Quantity Surveying

_____________________

Head, Department of Quantity Surveying


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DECLARATION

I hereby declare that this dissertation is the result of my own investigations, except

where otherwise stated. I also declare that it has not been previously or concurrently

submitted as a whole for any other degree at IIUM or other institutions.

AINUL ASHIQIN BINTI AHMAD SHUHAIMI

Signature ______________________ Date ___________________


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INTERNATIONAL ISLAMIC UNIVERSITY MALAYSIA

DECLARATION OF COPYRIGHT AND AFFIRMATION OF FAIR USE OF

UNPUBLISHED STUDY

Copyright 2013 by Ainul Ashiqin Binti Ahmad Shuhaimi. All rights reserved.

ASEAN ECONOMIC COMMUNITY (AEC): EFFECTS OF SERVICE

LIBERALISATION TOWARDS THE QUANTITY SURVEYING

PROFESSIONTHE QS PERCEPTIONS

No part of this unpublished study may be reproduced, stored in a retrieval system or

transmitted, in any form by any means, electronic, mechanical, photocopying,

recording or otherwise without prior written permission of the copyright holder

except as provided below.

1. Any material contained in or derived from this unpublished study may only be

used by others in their writing with due acknowledgement.

2.

IIUM or its library will have the right to make and transmit copies (print and

electronic) for institutional and academic purposes.

3. The IIUM library will have the right to make, store in a retrieval system and

supply copies of this unpublished study if requested by other Universities and

research institutions.

Affirmed by Ainul Ashiqin Binti Ahmad Shuhaimi

Signature _______________________ Date ______________


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DEDICATION

Specially dedicated to...

My family;

Ahmad Shuhaimi bin Mat Dom

Ainon Jariah binti Muhamad

Amin Arif & Yuslinaniza

Ainil Ainiah & Mohd Zulhairy

Anis Adriana

Amin Ashraf

Ammar Hadif

Zahara Amani

My classmates;

Nawwar Harliyana

Nur Athirah

Nur Ayunni

Nur Najiah

Su Thazin Tun

Najwa Izni & others

My cheerleaders;

Alfatihul Sakinah

Hafizah Mohd Zaidi

Siti Hajar Madina

... for the love and support. Thank you.


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ACKNOWLEDGEMENT

In the name of Allah, The Most Gracious, The Most Merciful. All praises be

to Allah (SWT) who gave me the opportunity, time, strength, courage and patience to

complete this dissertation successfully.

My sincere appreciation goes to my supervisor, Asst. Prof. Dr. Sharina

Farihah Hasan for her guidance, encouragement as well as for the academic and

moral support. Her constructive comments and suggestions have contributed to the

success of this research. I am extremely indebted to her who keenly devoted so much

time in giving guidance to me despite her busy schedule.

My highest gratitude goes to my beloved parents, Ahmad Shuhaimi Mat Dom

and Ainon Jariah Muhamad for their unconditional love, prayers and encouragement.

Special thanks also dedicated to my supportive siblings; Amin, Yuslinaniza, Ainil,

Zulhairy, Anis, Ashraf for their endless support and tolerance throughout my

academic years.

To my favourite cheerleaders; Alfatihul, Hajar and Hafizah, thank you for

your undying encouragements and care. To my wonderful classmates; thank you for

making these 4 academic years a joyous one despite of all the stress from exams and

deadlines.

And, to those who have indirectly contributed to this research, your kindness

means a lot to me and may Allah bless you always. Thank you.


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CONTENTS

ABSTRACT i

APPROVAL PAGE ii

DECLARATION PAGE iii

COPYRIGHT PAGE iv

DEDICATION PAGE v

ACKNOWLEDGEMENT vi

TABLE OF CONTENTS vii

LIST OF TABLES xi

LIST OF FIGURES xii

LIST OF ABBREVIATION xiii

CHAPTER 1 - INTRODUCTION OF RESEARCH

1.1 INTRODUCTION 4

1.2 PROBLEM STATEMENT 6

1.3 AIM & OBJECTIVES 7

1.4 SCOPE OF RESEARCH 8

1.5 RESEARCH QUESTIONS 8

1.6 RESEARCH METHODOLOGY 9

1.6.1 RESEARCH DESIGN 9

1.7 SIGNIFICANCE OF THE RESEARCH 9

1.8 SUMMARY 10

CHAPTER 2 - ASEAN ECONOMIC COMMUNITY

2.1 INTRODUCTION 11

2.2 AN OVERVIEW OF THE ASEAN ECONOMIC COMMUNITY 11

2.2.1 Formation Background 12


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2.2.2 ASEAN Economic Community Blueprints 12

2.2.2.1 Pillar I: Single Market and Production Base 12

2.2.2.2 Pillar II: Competitive Economic Region 16

2.2.2.3 Pillar III: Equitable Economic Development 17

2.2.2.4 Pillar IV: Integration into the Global Economy 18

2.3 SERVICES LIBERALISATION 19

2.3.1 ASEAN Framework of Agreement in Services (AFAS) 19

2.3.2 General Agreement on Trade in Services (GATS) 21

2.4 ASEAN ECONOMIC COMMUNITY ASPECTS 23

2.5 CONCLUSION 23

CHAPTER 3 - MALAYSIAN CONSTRUCTION INDUSTRY

3.1 INTRODUCTION 24

3.2 OVERVIEW OF THE MALAYSIAN CONSTRUCTIONINDUSTRY

24

3.2.1 Background of the Malaysian Construction Industry 24

3.2.2 Current Status 25

3.3 SKILLED LABOUR IN THE MALAYSIAN CONSTRUCTIONINDUSTRY

26

3.3.1 Definition of Skilled Labour 26

3.3.2 Construction Industrys Professionals 27

3.3.3 Issues on the Professionals in the Malaysian

Construction Industry

27

3.4 AEC AND THE CONSTRUCTION INDUSTRY 34

3.4.1 AEC and Development 34

3.4.2 Potential Benefits 35

3.4.3 Potential Effects 37

3.5 CONCLUSION 40


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CHAPTER 4 - RESEARCH METHODOLOGY

4.1 INTRODUCTION 41

4.2 RESEARCH STRATEGY 41

4.2.1 Reviews on Research Methodology of SimilarResearches

41

4.3 APPROACHES TO DATA COLLECTION 44

4.3.1 Secondary data collection 44

4.3.2 Primary data collection 44

4.4 METHOD OF DATA ANALYSIS 52

4.5 SUMMARY 54

CHAPTER 5 - DATA ANALYSIS AND DISCUSSION

5.1 INTRODUCTION 55

5.2 FEEDBACK FROM SURVEY 56

5.3 PART A - RESPONDENTS PARTICULAR 58

5.3.1 Respondents Gender 58

5.3.2 Respondents Age 58

5.3.3 Respondents Types of Employment Agency 59

5.3.4 Years of Experience 60

5.4 PART B - THE AWARENESS/ UNDERSTANDING OF THE

AEC

61

5.5 PART C - THE POTENTIAL BENEFITS OF AEC ON THEMALAYSIAN CONSTRUCTION INDUSTRY

63

5.6 PART D - THE AWARENESS ON THE AEC AND THESERVICE LIBERALISATION

67

5.7 PART E - THE POTENTIAL EFFECTS OF AFAS AND MNPTOWARD THE MALAYSIAN QS PROFESSION

68

5.8 SUMMARY 72


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CHAPTER 6 - DISCUSSION AND FINDINGS

6.1 INTRODUCTION 73

6.2 FEEDBACK FROM SURVEY 73

6.3 THE POTENTIAL BENEFITS OF AEC ON THE MALAYSIANCONSTRUCTION INDUSTRY

74

6.3.1 Comparison between Literature Review and Findings 76

6.4 THE POTENTIAL EFFECTS OF ASEAN FRAMEWORK OFAGREEMENT IN SERVICES (AFAS) AND ITS MOVEMENT OF

NATURAL PERSONS TOWARD THE MALAYSIAN QS

PROFESSION

77

6.4.1 Comparison between Literature Review and Findings 79

6.5 SUMMARY 80

CHAPTER 7 - CONCLUSION AND RECOMMENDATION

7.1 INTRODUCTION 81

7.1.1 Objective 1 81



7.2 LIMITATIONS 83

7.3 RECOMMENDATION 83

REFERENCES xiv

APPENDICES xxi


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LIST OF TABLES

Table 3.1 Summary of Potential Benefits to QS Profession in Malaysia 37

Table 3.2 Summary of Potential Effects to the QS Profession in Malaysia 40

Table 4.1 Reviews on Research Methodology of Similar Researches 43

Table 5.1 Feedback from Survey 56

Table 5.2 Returned Questionnaires 57

Table 5.3 Respondents Gender 58

Table 5.4 Respondents Age 58

Table 5.5 Respondents Types of Employment Agency 59

Table 5.6 Years of Experience 60

Table 5.7 The awareness and understanding 62

Table 5.8 The potential benefits 65

Table 5.9 The awareness 67

Table 5.10 The potential effects 70

Table 6.1 The Potential Benefits According to Scales 74

Table 6.2 Comparison of the Potential Benefits between the Literature Reviewand Findings

76

Table 6.3 The Potential Effects According to Scales 77

Table 6.4 Comparison of the Potential Effects between Literature Review and

Findings

79


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LIST OF FIGURES

Figure 1.1 Research Background 7

Figure 2.1 Summarised Relationship 22

Figure 3.1 Factors of Brain Drain 28

Figure 3.2 Issues on Brain Drain 31

Figure 3.3 Professional Vacancies 32

Figure 4.1 Method of Data Collection 45

Figure 4.2 Method of Sampling 51

Figure 4.3 Research Methodology 54

Figure 5.1 Feedbacks from Survey 57

Figure 5.2 Returned Questionnaires 57

Figure 5.3 Respondents Gender 58

Figure 5.4 Respondents Age 59

Figure 5.5 Respondents Types of Employment Agency 60

Figure 5.6 Years of Experience 61

Figure 5.7 The awareness and understanding 62

Figure 5.8 The potential benefits based on Average Index 66

Figure 5.9 The awareness 67

Figure 5.10 The potential effects based on Average Index 71


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LIST OF ABBREVIATION

ASEAN - Association of South East Asian Nation

EU - European Union

AEC - ASEAN Economic Community

AFAS - ASEAN Framework of Agreement in Services

MNP - Movement of Natural Persons

BQSM - Board of Quantity Surveyors Malaysia

QS - Quantity Surveyors

AFTA - ASEAN Free Trade Agreement

WTO - World Trade Organization

GATS- General Agreements on Trade in Services

RTA - Regional Trade Agreements

CER - Closer Economic Relations Agreement

AIA - ASEAN Investment Area

FDI - Foreign Direct Investment

AUN - the ASEAN University Network

IPR - Intellectual Property Rights

CLMV - Cambodia, Laos, Myanmar and Vietnam

GDP - Gross Domestic Product

SME - Small And Medium Enterprise

IAI - Initiative for ASEAN Integration

MRA - Mutual Recognition Agreements

AFAFGIT - ASEAN Framework Agreement on the Facilitation of Goods in Transit

AFAMT - ASEAN Framework Agreement on Multimodal Transport

AFAFIST - ASEAN Framework Agreement on Facilitation of Interstate Transport

CIDB - Malaysian Construction Industry Development Board


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CHAPTER 1

INTRODUCTION OF RESEARCH

1.1 INTRODUCTION

The Association of South East Asian Nation (ASEAN) has stated its intention to

establish an economic integration amongst ASEAN country members, an initiative

made upon witnessing the success of the European Union (EU) (Moorthy & Benny,

2012). The ASEAN region is envisioned to be a Zone of Peace, Freedom and

Neutrality (ASEAN Vision 2020), in full reality by 2020 as envisaged in the Kuala

Lumpur Declaration of 1997 (Hartarto, 2011). The Heads of States/ Government of

ASEAN members in the ASEAN Concord II, Bali, Indonesia of 2003 recalled their

earlier decision on the establishment of the ASEAN Economic Community (AEC) to

be accelerated to 2015 during the 12th ASEAN Summit in Philippines (ASEAN

Economic Community Blueprint 2008).

According to Petri, Plummer & Fan Zhai (2010), AEC is considered as an

ambitious and sophisticated initiative which takes into consideration every possible

obstacle that may arise due to different political, social, economic backgrounds and

the population size of each ASEAN country. AEC aims for market liberalisation with

its structural components consisting of four pillars which are; single market and

production base, competitive economic region and equitable economic development

and integration into the global economy (Capannelli, 2012). Capannelli (2012)

further stated that the first pillars core element focuses on the free -flow of good,

skilled-labour, services, investments and capital. This study shall look into the

service liberalisation under the AEC and its free flow of skilled labours on how these

two policies and agenda shall affect the Malaysian QS profession.

Dee (2011) stated that, AEC is intended to deepen economic integration in East

Asia as a whole. Thus, in order to achieve free flow of good, skilled-labour,

services, investments, and capital, the AEC Blueprint has laid out sequential events

designed to achieve an ASEAN single market. Market liberalisation policy

according to Zhen Li (2012), takes place when a country removes its marketing


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barriers allowing foreign investors to invest in the countrys domestic market and the

domestic investors in turn are given the right to invest in foreign shares. This idea of

market liberalisation according to Azryani and Rubi (2009) is an act of removing the

legal and informal restrictions to allow integration of capital market within the

region.

One of the ways towards realising the free flow of skilled labour under the AEC

is through the ASEAN Framework of Agreement in Services (AFAS). This

agreement is made, believing that the ASEAN can benefit from this service

liberalisation through greater efficiencies and greater growth from goods trade

liberalisation (Hartarto, 2011). In 2003, the Labour Ministers noted the need to

accelerate the service liberalisation by 2010 (Chia, 2011). The AFAS 1995 provides

inter alia, regulatory convergence and regulatory harmonisation including MRAs that

allows ASEAN countries to recognise the education and experience gained and

granted licensing or certification to the service providers by the other ASEAN

countries (Chia, 2011).

According to Chia (2011), AEC aims to provide the market access for ASEAN

professionals and skilled workforce under the Movement of Natural Persons (MNP).

According to Steiner and Mohr (1998) as cited by Ponnusamy, Mohamad bin Ayob

and Muhamad Azani Yahya (2011), skilled workers are defined as those with the

acquisition of university degrees and with possession of a long-line of experience in

the field. Chia (2011) mentions that, these skilled workers range from business

visitor, trade and investors, intra-corporate transferees and professional (i.e. doctors,

lawyers, engineers and etc).

Professionals such as engineers, accountants, technical workers and many othersfrom developing countries were driven to take chances in developed countries to

seek for better payment or better lifestyle standards, and Malaysia is not an exception

to this trend. As a result, this phenomenon has led local entities to seek foreign talent

to fill in the gaps, (Junaimah and Yusliza, 2011). Involvement of foreign

professionals in Malaysias construction industry does make positive changes

towards the local industry. However, this according to Ponnusamy, Mohamad bin


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Ayob, Muhamad Azani Yahya, (2011) does not mean that local professionals are

incapable of performing as good.

1.2 PROBLEM STATEMENT

Over the past decade the movement of professionals across country borders has

been a trend and have clearly grown over the years especially in fast developing

countries even during the economic crises (Abella & Ducanes, 2009; Ponnusamy,

Mohamad and Azani, 2011). The main concern is the scale of such movement upon

the establishment of AEC in 2015 that encourages regional market integration

facilitates through free flow of skilled labour among the ASEAN country. The

movement of foreign professionals for the construction industry into Malaysia is

currently restricted by several policies one of which requires foreign talents to be

pre-employed before being granted access into Malaysia (Ponnusamy, Mohamad and

Muhamad, 2011).

In the case of the Quantity Surveying profession, the Board of Quantity

Surveyors Malaysia (BQSM) clearly states the regulations pertaining to the practice

of foreign Quantity Surveyors (QS). According to the Quantity Surveyors Act 487

(1967), Clause 10.A, under the heading Temporary Register Quantity Surveyor, a

foreign QS may practice in the local construction industry provided that the foreign

QS obeys and fits all regulations under the clause. It is also stated that the QS is only

allowed to practice Quantity Surveying for a period not more than two calendar years

and with a job that his physical presence is required in Malaysia. However, with the

encouragement and new arrangements made through AEC, it is forecasted that the

movement of foreign skilled workers into Malaysia shall be even greater. As of 2010

as reported by the Ministry of Home Affairs Malaysia as cited by Luqman Ahmad

(2012) in his report, the number of expatriates in Malaysia has reached 200 000

personnel. However, there is no exact figure to reflect the number of QS moving into

the country to practice Quantity Surveying works. The figure mentioned only reflects

the overall number of expatriates in Malaysia.

Then there is the outflow of professional skills, which according to Ahmed

Usman Awil and Abdul Rashid Abdul Aziz (2001), occurs based on two main factors


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that drive local firms and professionals towards foreign market. The first factor

includes the individuals and the organisations goals with regards to their

capabilities, strategies and resources. The second factor is driven by the different

lifestyle standards and the difference in the market policies such as legal

requirements, tax regulations and others. The concern of this study is whether as of

2010 the number of Malaysians residing in foreign countries, like Singapore, United

Kingdom, United states, Brunei, Australia totals 1million in which a third of them

are skilled labours as reported by Luqman Ahmad (2012), citing The World Bank

2012. Furthermore, according to the Australian Governments Department of

Immigration and Citizenship (2012), 4,617 visas on skilled labour were granted to

Malaysian nationals between 2011 and 2012, the professional line includes Contract,

program and project administrators, engineering professionals and others service

sector professionals. Again, there has been no exact statistics on the movement of QS

professionals in particular.

1.3 AIM & OBJECTIVES

AIM

The aim of this study is to investigate the potential benefits of AECs policy

on free flow of skilled labour to the Malaysian construction industry and its effects

on the Quantity Surveying profession in Malaysia.

OBJECTIVES

The objectives of this research are:

1)

To understand AEC and its policy2)

To identify the potential benefits of AEC policy on the Malaysian

construction industry

3) To assess the potential effects of AFAS and MNP on the QS profession

in Malaysia.


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1.4 SCOPE OF RESEARCH

This study looks at how AEC affects the Malaysian construction industry in

general. It focuses on how the free flow of skilled labour under the establishment of

AEC could affect the QS profession in Malaysia. The allowance for less restriction

of services, goods, skilled labours, and investments will certainly take its toll towards

the local construction industry, thus, this study intends to identify the benefits of this

movements towards the local construction industry through collective perceptions of

experienced QS. Assessment of the impact of AECs free flow of skilled labour will

be gathered from the perceptions of those practicing QS firms. Their collective

genuine perceptions are crucial for this research study because of their years of

experience in the profession and their exposure to how the QS profession in Malaysia

has changed throughout the years.

The collective perceptions of these QS are obtained through primary data

collection, which will be further explained in Chapter 4. The data collected shall then

be analysed using the frequency distribution that uses the average index formula to

find the final weightage on respective potential benefits and potential effects.

1.5 RESEARCH QUESTIONS

Based on the objectives of the research, the research questions to be addressed

are as follows:

1) What are the QS perceptions of the potential benefits of AEC policy on

the Malaysian construction industry?

2) What are the QS perceptions on the potential effects of the free flow

skilled labour policy on the employment of Quantity Surveyors?


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1.6 RESEARCH METHODOLOGY

1.6.1 RESEARCH DESIGN

Participant/ Sample

The target sample for this research study are Quantity Surveying firms; in this

research context, Quantity Surveying firms includes QS individuals, Senior

QS, QS companies, QS firms Principles, and QS firms Directors.

Data Collection

Data collected is based on a survey using a self-constructed questionnaire.

Data Analysis

Respondents for the survey questionnaire will be descriptively analysed based

on percentage means.

1.7 SIGNIFICANCE OF THE RESEARCH

The findings of this research study would help cast some light as what and how

the AEC policies affect the movement of the skilled labours, specifically that of the

Quantity Surveying profession in Malaysia. The findings of this study also help the

young graduates and young Quantity Surveyors to be prepared for what is in store

with the establishment of AEC in 2015. Malaysian QS firms and policy makers

would be made more aware of the impacts of the AEC policies on the construction

industry. Knowledge of theirs can therefore be a helpful guide in planning and

decision making.


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1.8 SUMMARY

BACKGROUND STUDYASEAN ASEAN Economic Community (AEC) Service Liberalisation AEC CoreElement, Free flow of Skilled Labour Professionals in the Construction Industry

Quantity Surveyors Perceptions on AEC

PROBLEM STATEMENT

Issue: Implication of free flow of skilled labour via AEC

Problem: Greater competition for job opportunities locally and predictions on professionalsbrain drain

AIM

The aim of this study is to investigate the potential benefits of AECs policy on free flow ofskilled labour to the Malaysian construction industry and its effects on the QuantitySurveying profession in Malaysia.

RESEARCH QUESTIONS

------

------

RESEARCH METHOD

1. What are the QS perceptions of the

potential benefits of AEC policy on the

Malaysian construction industry?

Survey

2. What are the QS perceptions on the

potential effects of the free flow skilled

labour policy on the employment of

Quantity Surveyors?

Survey

DATA ANALYSIS

Descriptive Analysis Frequency Distribution/ Percentage/ Average Index

OUTCOME OF RESEARCH

The perceptions and views of Quantity Surveyors firms in the establishment of AEC towardsfuture construction industry, QS profession in particular.

Figure 1.1 - Research Background 1


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CHAPTER 2

ASEAN ECONOMIC COMMUNITY

2.1 INTRODUCTION

Chapter 2 is a chapter that presents the review of the literature on ASEAN

Economic Community (AEC) by looking at two major sections. Each section focuses

on two different aspects of AEC with a common aim to explain, describe and analyse

in order to understand the purpose of the AEC agenda and to relate it to the

objectives of this study, which are:

1)

To understand AEC and its policy

2) To investigate the potential benefits of AEC policy on the Malaysian


3) To investigate the potential effects of AFAS and MNP on the QS

profession in Malaysia.

2.2 AN OVERVIEW OF THE ASEAN ECONOMIC COMMUNITY (AEC)

The Association of the Southeast Asian Nations (ASEAN) was originally

formed for geopolitical reasons (Chia, 2011). It is only later after the formation of

ASEAN, that the country members worked towards economic cooperation (Chia,

2011). The Heads of State/ Government of ASEAN envisioned that the region shall

be a zone of Peace, Freedom and Neutrality in 2020 (ASEAN Secretariat, 1997).As

part of the ASEAN Vision 2020, the leaders have resolved towards an economic

integration through the ASEAN 2020: Partnership in Dynamic Development

(ASEAN Secretariat, 1997). The AEC aims to transform ASEAN into a single

market and production base, a highly competitive economic region, a region of

equitable economic development, and a region fully integrated into the global

economy (ASEAN Secretariat, 2008). The Association of South East Asian Nation

(ASEAN) have stated their intention to establish an economic integration amongst

ASEAN country members, an initiative made upon witnessing the success of the

European Union (EU) (Moorthy& Benny, 2012).


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2.2.1 Formation Background

In 2003, the ASEAN Economic Community (AEC) was initially planned to

be fully realised by 2020, but later, in 2007 the Leaders made a decision to speed up

the establishment to 2015(AEC Fact Book, 2011). The wide economic gaps between

the ASEAN countries have slowed down the building pace of the regions economic

integration and liberalisation (Chia, 2011). Despite the slow pace, ASEAN members

have been showing progress and maintaining their commitments towards realising

this mission. According to Chia (2011), The economic literature lists several

benefits of integration, including an enlarged market with economies of scale and

scope, improved resources allocation with free movement of factors of production,

improved resources pools with inflows of capital and labour, and competition leading

to improved efficiency and innovation. ASEAN Vision 2020 envisioned that the

regional economic integration shall be built by strengthening the foundation of the

existing collaboration efforts, expanding ASEANs joint efforts and enhancing

mutual aid (ASEAN Secretariat, 1997).

2.2.2 ASEAN Economic Community Blueprints

The ASEAN Economic Community (AEC) Blueprint was adopted in2007(AEC Fact Book, 2011). The blueprint defines the characteristics of the

implementation of AEC. There are four pillars under the AEC, which are; (1) single

market and production base, (2) competitive economic region, (3) equitable

economic development and (4) integration into the global economy.

2.2.2.1 Pillar I: Single Market and Production Base

A single market shall be barrier free, with tariff or without tariff to themovement of goods and services among the 10 countries within the ASEAN region

(Reyes, 2004). According to Reyes (2004), with full execution of the Green Lane

system for products covered by the ASEAN Free Trade Agreement (AFTA),

electronic processing of trade documents, harmonization of standards,

implementation of Mutual Recognition Agreements, no visa entry and exit, and

removal of all other non-tariff and technical barriers, there would be free movement

of goods and people. A single market and production base is expected to reduce and


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minimise operation cost and to maximise trade gains (Trairatvorakul, 2011). The full

implementation of this pillar shall result in a more advanced competitive production

environment among ASEAN producers (Reyes, 2004). Pillar 1 has five (5) core

elements which are: (i) free flow of goods; (ii) free flow of services; (iii) free flow of

investment; (iv) freer flow of capital; and (v) free flow of skilled labour. There are

also another two additional components under the first AEC pillar, which are: the

priority integration sectors, and food, agriculture and forestry.

(i) Free Flow of Goods

This could be achieved through the elimination of non-tariff barriers in some

cases (AEC Blueprint, 2008). The aim of the free flow of goods is to minimise the

transaction costs and to achieve trade maximisation (Zakariah, Zhai, Petri, Plummer,

& Chia, 2009). To achieve a single market, it shall require the removal of all border

restrictions and full National Treatment in respect to the taxes and other charges and

regulations (Lloyd, 2007). These steps need to be supported by the harmonisation of

laws and regulations between and across national borders to ensure a single price

ruling among the countries (Lloyd, 2007).

Box 2.1

National Treatment

National treatment is a rule that a good or factor that crosses the border should

receive the same treatment. In World Trade Organization (WTO) and in many

treaties, National Treatment is couched in terms of treatment that is no less

favourable than the treatment accorded national products or corporations or persons.

Source: What is a Single Market? An Application to the Case of ASEAN (Lloyd,

2007).


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(ii) Free Flow of Services

This is one key element in AEC, where there will be no extensive restriction

to ASEAN services suppliers in providing services and in establishing companies

across national borders within the ASEAN, subject to domestic set of laws (AEC

Blueprint, 2008).

The role of the service sector in the domestic economy is reflected in the

international economy as well (Zakariah et. al, 2009). According to Zakariah et al

(2009), General Agreements on Trade in Services (GATS) was established by the

Uruguay Round in order to promote trade in services and service liberalisation and

went into full effect in 1995. Seeing how liberalisation has become an important part

of the regional trade agreements (RTA), several other agreements aside from GATS

have been agreed upon; ASEAN concluded on the ASEAN Framework Agreement

on Services (AFAS) and Australia and New Zealand concluded on the Closer

Economic Relations Agreement (CER).

(iii) Free Flow of Investment

Continued inflows of new investments and reinvestments will promote and

make certain dynamic development of ASEAN economies (AEC Blueprint, 2008).

In order to support the establishment of AEC, the ASEAN Investment Area

(AIA) was signed in 1998 (Hew, 2007). Hew (2007) also stated that the AIA aims to

make ASEAN a highly competitive investment area that will attract foreign direct

investment (FDI) from ASEAN countries and non-ASEAN countries. The AIA is

also expected to provide greater benefits for the investors through greater

investments access to the industries and economic sectors (Hew, 2007).

(iv) Free Flow of Capital

This is to strengthen ASEAN capital market development and integration and

to allow better capital mobility (AEC Blueprint, 2008).

The free flow of capital is aimed to be achieved by strengthening the

domestic capital market to provide a better channel towards a more efficient use, and


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enhancing capital account liberalisation that shall allow both inflow and outflow of

capitals (Trairatvorakul, 2011).

(v) Free Flow of Skilled Labour

This is about allowing controlled mobility or facilitated entry for the

movement of natural person (MNP) engaged in goods, services and investments, in

accordance to existing domestic regulations (AEC Blueprint, 2008).

ASEAN is encouraging the movement of skilled labour through this core

element of AEC pillars. The movement of skills is not limited to practitioners; it aims

to facilitate the movement of knowledge based talents including those involved in the

academic field. ASEAN is working towards facilitating the issuance of skill visas

and employment passes for ASEAN professionals and skilled labours, facilitating the

free flow of services, enhancing the ASEAN University Network (AUN) and

strengthening ASEAN member country research capabilities in promoting skills

(Chia, 2011). Many countries in Asia have eased the allowance for foreign skilled

movement but with a considerable amount of restrictions and policies in order to

protect their local talents from eventually being replaced by expatriates (Iredale,

Turpin, Stahl, & Getuadisorn, 2010).

(vi) Priority Integration Sectors

Twelve (12) priority sectors were recognized to fasten the economic

integration, which are: agro-based, air transport, automotive products, e-ASEAN

(including IT equipments), electronic goods, fisheries, healthcare, rubber based,

textiles and clothing, tourism, logistics and wood based products (AEC Blueprint,

2008).

(vii) Food, Agriculture and Forestry

This is to enhance intra and extra-ASEAN trade and long-term

competitiveness of ASEANs food, agriculture and forestry products and goods

(AEC Blueprint, 2008).


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creation of roadmaps for an integrated and competitive maritime transport in ASEAN

in order to strengthen the shipping markets and services between ASEAN members

as well as the roadmaps for the air travel sector (Pupphavesa et al, 2009).

Transportation cooperation between ASEAN members requires several framework

agreements; these agreements were initially proposed because the progress of the

service liberalisation was too slow (Pupphavesa et al, 2009).

(v) Taxation

Complete the network of mutual agreements on the avoidance of double

taxation among all ASEAN countries by 2010, as much as possible (AEC Blueprint,

2008).

(vi) E-Commerce

This core element is to set out policies and legal infrastructure for electronic

business and permit online trading in goods through the execution of e-ASEAN


2.2.2.3 Pillar III: Equitable Economic Development

Narrowing the economic gap among ASEAN countries are essential towards

forming an economic integration. The third pillar is indirectly related to the

Cambodia, Laos, Myanmar and Vietnam (CLMV) countries which are expected to

be able to narrow down the economic gap with more advanced economic, given their

limited resources (Thanh, 2008). Over the past two decades, CLMV countries have

been doing a good job catching up with the other ASEAN economies: the ratio of

average per-capita GDP of the ASEAN-6 to CLMV countries declined from over 11

times in 1990 to about 4 times in 2010. If 2030 per-capita GDP growth aspirations

are met, the ratio would further fall to about 3 times, (Asian Deve lopment Bank

Institute, 2012).

(i) SME Development

Its objectives are: To accelerate the development of SME development; to

enhance ASEANs SME competitiveness and dynamism; to strengthen the resilience

of ASEAN SME to adhere macroeconomic difficulties; and to increase SME


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contribution to the overall economic growth in the ASEAN region (AEC Blueprint,

2008).

(ii) Initiative for ASEAN Integration (IAI)

Its aim is to allow the ASEAN members to move in a uniform manner.

Currently, IAI covers these priority areas, which are: infrastructure, human resource

development, ICT, capacity building for regional economic integration, energy,

investment climate, tourism, poverty reduction and improvement in the quality of life


2.2.2.4 Pillar IV: Integration into the Global Economy

A stronger regional economic integration is crucial in order for ASEAN to

compete in the global market. ASEAN needs to create tighter business integration

beyond the borders of ASEAN (ASEAN Secretariat, 2008). One of the ways to be

recognised in the global market is via production sharing. East Asias trade in parts

and components have been getting lots of attention in the international market, this is

credited through the rise of production sharing (Rosellon & Medalla, 2011;

Bhattacharyay, 2009). Production sharing or production network is a fragmented

production carried out in two or more different countries; eventually the part and

components are assembled into the final products and exported (Chia, 2013).Global

supply chains permit small and medium-sized enterprises (SMEs) to perform as

suppliers of labour-intensive parts and components or to supply other basic services,

largely on a subcontracting basis (Abe, 2012). It is important when it comes to

developing policy for AEC, all external regulations shall be taken into consideration:

(i) Coherent Approach towards External Economic Relations

All ASEAN members shall work towards sustaining the idea of ASEAN

Centrality in performing their external economic relations (AEC Blueprint, 2008).

(ii) Enhanced participation in global supply networks

This shall be done through adoption of the international best standards in

production and supply and to develop a comprehensive technical support for the less

developed ASEAN countries in order to develop their industrial potential that shall


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improve their participation in regional and global integration initiatives (AEC

Blueprint, 2008).

All in all there are four main pillars for the establishments of the AEC.

However, the main focus of this study would only be the first pillar which is on the

free flow of skilled labour. The other three pillars are briefly explained in this chapter

to give a better understanding on the establishment of AEC in 2015.

2.3 SERVICES LIBERALISATION

The ASEAN regional economy growth was designed to accommodate

movements of trades, capital flows and labour flows (Amarjit, 2009). In the marketof services in which the supply is inadequate, the imports of services become

essential (WTO , 2001). WTO (2001) also stated that, service liberalisation is

encouraged due to its positive impacts that go beyond the service industries itself; the

effect that can be felt on other economic activities as well. As of 2005, Malaysia had

received service requests from twenty-one countries (Cheen, 2005).

Immigration from neighbouring countries has also been a successful strategy

for poorer Southeast Asians to improve their economic position (Amarjit, 2009).

According to Amarjit (2009), the economic growth of Singapore, Malaysia and

Thailand have increased the demands for professionals and highly skilled labours.

Amarjit (2009) also stated that, the reduction of conflicts within the region have it

easier for international movement. GATS and AFAS are formed in order to achieve

service liberalisation.

2.3.1 ASEAN Framework of Agreement in Services (AFAS)

AFAS was signed and agreed in 1995 by ASEAN. It was formed towards

realizing the liberalisation of trades in services, as well as to improve the efficiency

and competitiveness of ASEAN service providers, (Chia, 2011). The GATS

framework was used as the basis for negotiations under AFAS. (Zakariah, Zhai,

Petri, Plummer, & Chia, 2009). According to Amarjit (2009), AFAS seeks to

encourage the movement of labour for services within the region moving towards

achieving AEC by 2020 which was then brought forward to 2015. The progress has


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been weak, due to the nature of certain sector of services that are politically sensitive

(Plummer, 2006). Chia (2011) also stated that new negotiations on the agreements of

World Trade Organisation (WTO) were formed. In terms of regional service

liberalisation, ASEAN has agreed to liberalise the trade through the workings of

AFAS in addition to existing commitments through GATS in the WTO (Indira &

MacLaren, 2012). AFAS was signed by ASEAN Economic Ministers in Bangkok,

1995. AFAS aims to:

enhance cooperation in services among ASEAN Member States to

improve the efficiency and competitiveness of ASEAN services

industries, diversify production capacity and supply, and distribution of

services;

eliminate substantial barriers to trade in services;

liberalise trade in services by expanding the depth and scope of

liberalisation beyond those undertaken under the General Agreement on

Trade in Services of the World Trade Organization

Source: (AEC Fact Book, 2011)

There are seven sectors that are included under AFAS, which are; air

transport, business services, construction, financial services, maritime transport,

telecommunications and tourism (Hew, 2007).

Movement of Natural Persons (MNP) under AFAS

According to Llyod (2007), in the year 2001, AFAS was extended in order to

include services to be delivered under Mode 4, Movement of Natural Persons. Under

the free flow of skilled labour, the main action plan of MNP is working towards

facilitating the issuance of visas and employment passes for ASEAN professionals

and skilled labours that are engaged with a cross-border trade (AEC Blueprint,

2008). The movement are also eased with standardisation of regulations with the

receiving countries (AEC Blueprint, 2008).


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The 10thASEAN Summit in 2004 agreed to facilitate the movement of skilled

labours, business people and talents within the ASEAN region and have started

exploring Mutual Recognition of professional qualifications (Lloyd, 2007).

Mutual Recognition Agreements (MRA)

The main action towards realising free flow of skilled labour among ASEAN

countries is through the implementation of Mutual Recognition Agreements (MRA).

MRA was introduced in order to minimize transaction costs that cover several

sectors (Chia, 2011). However, even when a standardised quality assurance was

empowered, MRA still finds difficulty in overseeing the wide economic gaps

between the ASEAN countries (Chia, 2011). MRA enables qualified professional

services suppliers to be recognised by the respective ASEAN countries local

authorities. This mutual recognition requires a great deal of work but it shall offer

good opportunities for the ASEAN region and many would welcome this approach

(Plummer, 2006). As of 2009, several MRA were signed by ASEAN Economic

Ministers:

MRA on Engineering Services (2005)

MRA on Nursing Services (2006)

MRA on Architectural Services and Framework Arrangement for the

Mutual Recognition of Surveying Qualifications (2007)

MRA Framework on Accountancy Services, MRA on Medical

Practitioners, and MRA on Dental Practitioners (2009)

Source: (AEC Fact Book, 2011)

2.3.2 General Agreement on Trade in Services (GATS)

According to Rajan and Sen (2002), the rising importance of the multilateral

framework and liberalisation of trades in services was then conceptualised in the

form of GATS initiated under Worlds Trade Organization (WTO). According to

WTO (2001), GATS came into force in 1995, the first and only set that covers

international trade in services at the time. There is very little difference between


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AFAS and GATS (Indira & MacLaren, 2012), however, Indira and MacLaren also

stated that in terms of the depth of the commitments, GATS has greater liberalisation

impact on the service sector, especially on the financial service, in comparison to the

AFAS.

Movement of Natural Persons (MNP) under GATS

Trade in services under GATS have been conventionally classified under these

typologies:

Mode 1, Cross border Supply

Mode 2, Consumption Abroad

Mode 3, Commercial Presence

Mode 4, Movement of Natural Persons.

Mode 1, Cross border Supply

Mode 1 of trade in services is described as the likelihood for non-resident

service suppliers to provide services cross-border into the other ASEAN members

territory (Kaliappan, 2009; Mattoo & Stern, 2008).

Mode 2, Consumption Abroad

Mode 2 of trade in services is described as it gives freedom for the ASEAN

members residents to purchase services in the territory of another member

(Kaliappan, 2009; Mattoo & Stern, 2008).

Mode 3, Commercial Presence

Mode 3 is the ability for a company from an ASEAN member country to

supply professional establishment in the territory of another member, such as a

branch, agency, or wholly owned subsidiary (Kaliappan, 2009; Mattoo & Stern,

2008).


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Mode 4: Movement of Natural Persons.

MNP refers to the cross border movement of professional and skilled

individuals. However, the movement rules under GATS do not apply to permanent

employment (Kruszka, 2006). Rajan and Sen (2002) explains Mode 4 as presence of

natural persons which involves individuals travelling from their home country to a

host country to supply their services. Professional and skilled personnel covered

under MNP are:

Business visitors: engaging in business without in search of employment

Traders and investors: Natural persons carrying out particular trading and

investment activities

Intra-corporate transferees: employees of MNCs that move their staff

across borders

Professionals: include doctors and nurses, lawyers, accountants,

engineers, IT personnel and other professions

Source: Chia (2011)

The difference between AFAS and GATS are the scope of liberalisation of

services. The scope of liberalisation in services in AFAS goes beyond what has been

covered under GATS (Hew, 2007). AFAS is designed to be GATS-Plus agreement

(Hew, 2007; Hapsari & McLaren, 2012).

2.4 ASEAN ECONOMIC COMMUNITY ASPECTS

According to Chia (2011), there are seven service sectors identified under the

ASEAN economic liberalisation; this includes financial services, maritime transport,

air transport, telecommunication, tourism, business services and construction.

Hartarto (2011) emphasised in his paper; that there are four aspects that ASEAN

needs to focus on towards realizing ASEAN Community, which are:


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Food Security: Rice Economy

This is regarding the consumption of rice by the ASEAN population that is

likely to reach 600 million by 2020. The sensitivity of time, supply and demand

factor shall affect the food security in most ASEAN countries (Hartarto, 2011).

Energy Security: Gas and Electricity

Requires intensified mutual aid from ASEAN countries to assemble and

explore potential energy sources by inviting private sectors to invest in the ASEAN

energy sector (Hartarto, 2011).

Service Sector: People to People Linkages

The service sector plays a vital role towards improving the overall economic

growth in ASEAN. In order to facilitate the movement of the service sector among

the ASEAN countries, ASEAN Economic Ministers signed the ASEAN Framework

of Agreement in Services (AFAS) in 1995, Bangkok (Hartarto, 2011).

Infrastructure and Transportation: ASEAN Connectivity

Several agreements were signed in order to grasp the ASEAN Connectivity

such as (1) ASEAN Framework Agreement on the Facilitation of Goods in Transit

(AFAFGIT), (2) ASEAN Framework Agreement on Multimodal Transport

(AFAMT), (3)ASEAN Framework Agreement on Facilitation of Interstate Transport

(AFAFIST) (Hartarto,2011; Pupphavesa et al, 2009).


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Mode3:

Commercial

Presence

ASEAN

GENERAL

AGREEMENTS

ON TRADE IN

SERVICES

(GATS)

ASEAN ECONOMIC COMMUNITY

(AEC)

ASEAN FREE TRADE AREA

(AFTA)

ASEAN FRAMEWORK

AGREEMENTS ON

SERVICES (AFAS)

ASEAN INVESTMENT AREA

(AIA)

Single Market and

Production Base

Competitive

Economic Region

Equitable Economic

Development

Integration into the

Global Economy

Service

Liberalisation

Mode1:

Cross border

Supply

Free Flow of Services

MUTUAL RECOGNITION

AGREEMENTS (MRA)

Service

Liberalisation

Free Flow of Goods

Free Flow of Skilled

Labour

Free Flow of Capital

Free Flow of InvestmentMode4:

Movement Of

Natural

Persons (MNP)

Mode2:

Consumptio

n Abroad

Mode1:

Cross border

Supply

Mode4:

Movement Of

Natural

Persons (MNP)

Mode2:

Consumptio

n Abroad

Mode3:

CommercialPresence

Figure 2.1 - Summarised Relationship 1

22


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Figure 2.1 shows helps to visually understand the relationship between AEC,

GATS and related policies and agreements.

2.5 CONCLUSION

The AEC Blueprint has clearly stated the contents of the first pillar; from

what aspect does the AEC try to shift it into a single market and production base,

which includes the service sector. Mattoo and Stern (2008), stated that services

activities includes the transport of goods, educations, transport of people, financial

services, communication, distribution, health care, hotels and restaurants, accounting

and constructions. The construction industrys supply and demand of the

manufacturing and construction activities contributes greatly to the economic growth

(Langford & Male, 2001).

This chapter is written to understand the workings and policies of AEC. The

focus of this study is on the free flow of services and how it relates to the free flow of

skilled labour. The discussion surrounds the agreements made by ASEAN for trades

in services covering AFAS, GATS, MRA and MNP.


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CHAPTER 3

MALAYSIAN CONSTRUCTION INDUSTRY

3.1 INTRODUCTION

Chapter 3 is a chapter that presents the review of the literature on the

Malaysian construction industry. It consists of four major sections. Each section

focuses on four different aspects of the Malaysian construction industry with a

common aim to explain, describe and analyse in order to understand the workings

and the backgrounds of the Malaysian construction industry and to relate it to the

focus of this study. This chapter aims to provide the variables to be included in theprimary data collection in order to achieve the second and the third objectives of this

study. The objectives are:

2) To investigate the potential benefits of AEC policy on the Malaysian


3) To investigate the potential effects of AFAS and MNP on the QS

profession in Malaysia.

3.2 OVERVIEW OF THE MALAYSIAN CONSTRUCTION INDUSTRY

The construction industry is considered as a service sector (Langford & Male,

2001). Thus, this chapter attempts to clarify the relationship between the AEC and

the Malaysian construction industry and how each of these two different agenda shall

affect each other. The focus of this research is to look at how the AEC could

potentially benefit the Malaysian construction industry and how AEC, specifically

the AFAS and MNP could potentially affect the QS profession in Malaysia.

3.2.1 Background of the Malaysian Construction Industry

The Malaysian construction industry has developed from low-tech, labour

intensive and craft based industry to a more technologically advanced construction


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and involvement of highly skilled professionals, which is proven by the construction

of Petronas Twin Tower, Kuala Lumpur International Airport and Sepang Formula 1

Circuit (Ernawati, Syarmila, Norhidayah, & Faizal, 2012). Malaysian construction

industry is generally divided into two categories; one category is general

construction, which comprises of residential, non-residential and civil engineering

construction; the second category consist of special trade works that involves metal

works, electrical, plumbing, sewerage, sanitary, air-conditioning, carpentry, glass

work and many more (Razak, Roy, Zafar&Ghaffar, 2010). The construction industry

plays a very important role in the Malaysian economy, as it is made up of many

crucial components, such as; contractors, clients (government/ private), workers,

developers, management teams, architects, engineers, surveyors (quantity surveyors,

land surveyors), manufacturers, suppliers and plant hirers (Ernawati, Syarmila,

Norhidayah, & Faizal, 2012).

3.2.2 Current Status

3.2.2.1 Demand and Supply of Construction Jobs

The construction work demands which are especially buoyant in developing

countries have attracted many Malaysian professionals (Maznah, Kamaliah,

Hamidah, Rashidah & Khairil, 2012). Globalisation has brought many Malaysian

contractors to expand their services into the foreign markets (Maznah et al, 2012).

Foreign construction demands are greater in the global market and are supported by

the Malaysian Construction Industry Development Board (CIDB). As reported by

CIDB, in the year 2010, the number of international construction contracts awarded

to Malaysian contractors were 652 projects which valued RM92.138 million

(Maznah et al, 2012).

According to the Department of Statistics Malaysia, there has been an

increase in the value of constructions in Malaysia. Bank Negara Malaysia (BNM)

(2012) reported that the economic growth in the fourth quarter of 2012 was led by

the manufacturing and service sectors. The construction sector comes out strong


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driven by civil engineering works and residential sub-sectors (BNM, 2012). The push

factor for the construction sector is mainly driven by the Mass Rapid Transit (MRT)

projects including other oil and gas related construction projects (BNM, 2012).

The 2012/2013 Economic Report reported that the construction industry is

going strong showing 18.9% of growth in the first half of 2012. This positive growth

is mainly due to the performance of the civil engineering works and demands for

residential development. It also reported that 69.8% of the total construction value

was contributed by the private sector.

The civil engineering subsector showed growth of 27.5% which was of greatcontribution from major infrastructure projects such as Ipoh-Padang Besar electrified

double-track, Mass Rapid Transit (MRT) and many more. As for the residential

subsector, it is reported that 22% growth was achieved during the 2012 first half.

This growth was significantly supported by the high demand for housing and

investment purposes. These construction activities show that the Malaysian

construction industry is performing actively and that the impacts are positive towards

the countrys economy.

The Edge Malaysia (March 20, 2013) reported that BNM forecasted that

Malaysias 2013 GDP will grow 5 to 6 percent. According to BNM, the construction

industry is expected to contribute to the growth; the sectors growth could go up to

15.9 percent due to wide infrastructure developments.

3.3 SKILLED LABOUR IN THE MALAYSIAN CONSTRUCTION INDUSTRY

3.3.1 Definition of Skilled Labour

Skilled labour according to Amarjit (2009), are workers who are considered

professionals, possessing specific skills. These professionals are greatly demanded

and usually being offered high income. In terms of migrant skilled workers,


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according to Kanapathy (2008), they are all professionals and technical workers who

are in possession of short term contracts or Employment Pass.

3.3.2 Construction Industrys Professionals

There are several professional profession that are involved in the construction

industry such as Engineers, Architect, Landscape Architects, Land Surveyors,

Quantity Surveyors to name some. However, for the purpose of this study, Quantity

Surveyors (QS) will be the main focus. There is no doubt that QS play an important

role in construction projects, especially in terms of procurement, cost and contract

management, (Hee & Ling, 2011). Globalisation and rapid global constructiongrowth have sky rocketed the demand for construction professionals and workers

around the world. This rise in demand has led to global skill shortage (Smith, 2008).

3.3.3 Issues on the Professionals in the Malaysian Construction Industry

Malaysia suffers an increasing rate of skilled labour loss in comparison to

other nations (Jumaimah &Yusliza, 2011). Malaysian has a high intensity of braindrain that is 10.5 percent of skilled Malaysians have migrated to foreign countries

(World Bank, 2011). According to Pacific Bridge Inc, as cited by Jumaimah and

Yusliza (2011), Malaysian Engineers and technical workers are gradually finding

opportunities overseas particularly in Singapore, China and the Middle East

countries. Receiving countries of skilled labour are seen as enjoying the brain gain,

(Chia, 2011).

Brain Drain

Definition

Brain drain is the migration of talents across borders (World Bank, 2011).

According to Carrington and Detragiache (1998), Docquier and Rapoport (2004) and

Docquier and Rapoport (2011) as cited by Malaysia Economic Monitor, brain drain


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is defined as the emigration of skilled individuals, where a high skill emigrant is a

foreign-born individual, 25 years old and above, possess academic qualification or

any professional degree which is higher than high school. Tansel and Gungor (2003)

viewed brain drain as the movement of skilled individuals from their home countries

to other countries that make better offers in their field of specialty as well as better

living standards and lifestyles. Chia (2011) perceived brain drain as a flow of highly

skilled professionals and executives from the less developed countries to the more

developed countries. In the Malaysian context, some authors or researches uses the

term Diaspora - Malaysian-born people who reside outside the international

borders of Malaysia (Koh, 2012).

Reasons for Ski l led Labour M ovement

Jumaimah and Yusliza (2011) proposed a model that represents

comprehensive overviews that influences individual decision to leave the country;

Figure 3.1 - Factors of Brain Drain 1

Source: Jumaimah and Yusliza (2011)


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According to Jumaimah and Yusliza (2011), there has only been little

research on the push and pull factor Malaysian Brain Drain and the data collection

sample was relatively small. Figure 3.1 shows the summarized figure of the push and

pull factor of Brain Drain in general, without particularity in which profession it

covers. The content of Figure 3.1 is further explained later in this chapter.

Push Factors

Lack of Promotion

Immigration from the more neighbouring countries has been a successful

strategy for poorer Southeast Asians to improve their economy (Amarjit, 2009).

Lack of Social Support

Wong (2010), from a survey she conducted in 2010 concluded that, out of

814 Malaysia respondents who study abroad, a total of 530 respondents are residing

overseas. Issues like political situation, economic situation, safety, education and

human rights in Malaysia greatly affect their decisions to migrate.

Quality of Work life

This factor is the influence by the local talents perceptions that the working

environment in foreign countries are better than what they experience locally, as

explained in the Pull Factors; Better Perks & Better Work Environment.

Low Occupational Income

The salary in Malaysia is not at par with the living cost especially in Kuala

Lumpur. The Economic Intelligence Unit (EIU) ranked KL as the worlds most

expensive cities and Kuala Lumpur was spotted at 74 th place out of 140 cities in

terms of living costs. However, the salaries have not increased simultaneously with


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the living cost (Malaysia - Addressing Talent Issue, 2012). According to Chia

(2011), brain drain occurs when some countries failed to efficiently employ the local

talents, which may occur due to slow-moving economic development or high

unemployment rate.

Pull Factors

Promotion Prospects

According to Asian Strategy & Leadership Institute director Tan Sri Ramon

V. Navaratnam (The Star, July 9, 2007), as cited by Jumaimah &Yusliza (2011),

Malaysia is suffering a great loss of skilled labours and professionals due to better

payments offered by foreign companies. Many young Asians wish to further their

studies, whether it degree, masters or even doctorates in western countries, and this

has become a trend (Abella & Ducanes, 2008). Abella and Ducanes (2008) also

stated that these main destination countries; US, Canada, Australia and the UK offers

easier market access, taking advantage of the Asians desires towards meeting their

shortage of skills and talents.

Better Educational Opportunities

The desire to pursue further education, attraction towards better job offers,

better working condition and better living standards are generally the most common

pull factors, (Chia, 2011; Jumaimah & Yusliza, 2011; Tansel & Grungor, 2003). The

movement of these talents are either by personal initiatives or through recruitmentagents, or are sent by their home countries for overseas postings. All these are

closely related to expanding international trade in services, including financial and

communications (Amarjit, 2009).


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Better Perks & Better Work Environment

Winters (2008) wrote that the movement of talents are fairly driven by higher

wages offered to employees and that different wages corresponds to differentproductivities. Better working environment, job experience, and research

opportunities are some of the reasons for the movement of skilled workers (Chia,

2011).

Family Influence

There are two status of skill movements; temporary and permanent mobility.

Temporary skill mobility usually is not accompanied by their family members, in

contrast to the permanent mobility where the tendency for permanent mobility to

bring along family members to the host country is higher (Winters, 2008).

Resul ts of Brain Drain

Yankov and Kleiner (2001), as cited by Hee and Ling (2011) stated that, there

has been a shortage of qualified QS as well as other professions in the construction

industry.

Figure 3.2 - Issues on Brain Drain 1

Source: TalentCorp Analysis, 2012


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The shortages of skilled and talents in the western industries and the desire of

the young Asian talents to further their degrees in western institutions is the perfect

invitation for migration (Abella & Ducanes, 2008). To fill in the shortages of skilled

and professionals, some countries opt for outsourcing and some prefer foreign

professionals to fill the gaps in their countries (Jumaimah & Yusliza, 2011).

However, the official number of Malaysian students studying abroad whether for

Quantity Surveying or other specific courses was never issued, assuming that a

portion of that sum may seek employment overseas (Kanapathy, 2008).

According to Winters, et al (2007) as cited by Jumaimah &Yusliza (2011), an

estimated 785, 000 Malaysians are residing overseas and that two out of three of that

number are likely to be professionals, still however, the statistics are not as detailed

as to specify which professional groups are included in the figure. The Star Online

(1 Nov 2010) reported that currently there are 784,000 Malaysians working abroad,

with nearly half in Singapore, followed by Australia Britain and the US. The

number of local talents residing in foreign countries shows several implications. One

of it is as reported by The Ministry of Foreign Affairs, 304,358 had left the nation

between March 2008 and August 2009 as compared to 139,696 in 2007. The

process of replacing and hiring the right talent in Malaysia also takes time.

Figure 3.3 - Professional Vacancies1

Source: World Bank Data


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Figure 3.3 shows the number of weeks required by each ASEAN country to

fulfil the professional vacancy with the right talent. Indonesia shows the lowest

number of weeks, Indonesia takes only approximately two weeks to fill in the

vacancy while the highest figure is reflected by both Thailand and Malaysia. Both

these fast developing economy countries requires up to 6 week fulfilling a

professional vacancy. This shows how the outflow movement of skilled labour

affects each of the countries.

However, according to Quah (2010), brain drain is not always a zero-sum

game, it is later a brain gain when the talents return to stay and bring back ideas and

start business in domestic markets thereby contributing towards the economic

growth.

Inflow of Professionals

According to the Ministry of Home Affairs and Economic Planning Unit, the

number of expatriates in Malaysia has been decreasing since 2008, especially in the

construction industry. The movement of foreign professionals are restricted by

several restrictions; from persons who could contribute to the countrys commerceand industrial expansion, and persons who are highly skilled in areas that are not

available locally, to families of the local residents and to those who are on special

compassionate grounds (Amarjit, 2009).

The movement of foreign professionals into Malaysia has been strictly

controlled by several policies by local authorities and respective professional boards.

The Board of Quantity Surveyors (BQSM) made clear guidelines and restrictions

under the QS Act 487 (1967) that limits and allows foreign QS to practice locally.

However, according to the Economic Report 2010/2011 by the Ministry of Finance

(MoF), the Malaysian Government plans to encourage greater employment of high-

skilled expatriate to work in the country throughout the 10thMalaysian Plan.


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3.4 AEC AND THE CONSTRUCTION INDUSTRY

Infrastructure development is essential towards removing the economic gaps

and towards realising the economic integration that ASEAN aims for (Bhattacharyay,2009). In economic terms, Bhattacharyay (2009) defines infrastructure as any

structure that allows for production and exchange of goods and services. The

ASEAN Secretariat firmly identified that infrastructure development is crucial

towards realising AEC under the Priority Integrated Sectors (PIS) (Working Group

for Developing Roadmap toward East Asian Economic Integration, 2008). The

construction infrastructures and transportation systems will be the focussed sectors in

2015 and beyond; land, maritime and air transport (ERIA Study Team, 2010).

3.4.1 AEC and Development

Similar to as previously mentioned in Chapter 2, under the AEC

Connectivity; the AEC Blueprints highlighted seven areas of special concern:

Transport cooperation

Land transport Maritime and air transport

Information infrastructure

Energy cooperation

Mining cooperation

Financing of infrastructure projects

Source: (Pupphavesa, Chaisrsawatsuk, Sudsawasd, & Ongkittikul, 2009).

According to Puppahavesa et. al (2009), a trans-ASEAN transport network

plan has been completed and consists of 28 major highways, 6 rail lines, 46 seaports

and 51 airports. This inter-ASEAN connectivity is important to achieve efficient,

secure and integrated network in ASEAN. The transport action agenda was adopted

in 1998 in the Hanoi Plan of Action which called for:


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Progressive service liberalisation

Development of trans-ASEAN transportation network

Implementation of ASEAN Framework Agreement on Multimodal

Transport; and

Standardised and harmonised vehicle standards and regulations.

Source: (Pupphavesa, Chaisrsawatsuk, Sudsawasd, & Ongkittikul, 2009).

3.4.2 Potential Benefits

Deardoff (2001) stated that there are large positive gains through the

elimination of barriers in trades in services. Service liberalisation implies larger scale

of economic activity (Indira & MacLaren, 2012). There are several benefits to

service liberalisation and are seen as potential benefits of service liberalisation

towards the construction industry.

Construction works become more efficient

The standardisation and harmonisation of regulations between host and

receiving countries allows services to be delivered more efficiently (Mattoo & Stern,

2008).

Construction Firms become more competitive

The liberalisation under the AEC pushes service providers to be more

competitive. The competition and competitiveness of these service providers

increases with the implementation of competition policies, protection of intellectual

property rights and open regionalism (Plummer & Chia, 2009).

Construction industry is opened to domestic and foreign markets

The firms become more competitive and efficient in delivering their services. This

allows improvement in service providers performance and opens up service sector to

domestic and foreign entry (Ray, 2013).


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Higher quality of service

The potential benefits includes: Efficient service performance by respective service

provider, (WTO, 2001; Zakariah et al, 2009). Both WTO (2001) and Zakariah et al

(2009) insists that without the competition, the service providers have the potential to

not excel in their roles.

Easier to venture into foreign construction industry

Liberalisation of trades in services under AEC that ease the movements of

services and movement of skills allows the service providers to venture into another

ASEAN member economy (CIE, 2010).

Larger target market

Service liberalisation opens up new target market for the service sectors (Hermann,

2011). With liberalisation of services under the AEC, the industries are allowed to

have greater expansion, thus creates more job opportunities (Plummer & Chia,

2009).

Greater transfer of technology

Service liberalisation gives potential dynamic productivity through the technology

transfer (Rajan & Sen, 2002). The movement of skilled labours from one service

provider to another allows the transfer of skills and gives them opportunities to learn

new skills as the gain more experience throughout their services (WTO , 2001).

Faster physical development

Rajan and Sen (2002) also stated that the growth of productivity is also

contributed by the introduction of market competition. WTO (2001) mentioned that

service liberalisation under AEC shall trigger faster innovation and physical

improvement.

Greater job opportunities

Foreign participation increases competition and generates growth enhancing

effects (Mattoo, Rathindran, & Subramaniam, 2001). With growing competition and


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market, there shall be more employers employed in a growing variety of service

(Zakariah et al, 2009).

Potential Benefits

Author

Construction works become more efficient Mattoo & Stern (2008)

Construction Firms become more competitive Plummer & Chia (2009).

Construction industry is opened to domestic and

foreign markets

Ray (2013)

Higher quality of service WTO (2001)

Zakariah et al (2009)

Easier to venture into foreign construction

industry

CIE (2010)

Larger target market Hermann (2011)

Plummer & Chia (2009)

Greater transfer of technology Rajan & Sen, (2002)

WTO (2001)

Faster physical development Rajan & Sen, (2002)

WTO (2001)

Greater job opportunities Mattoo, Rathindran, &

Subramaniam (2001)

Zakariah et al (2009)

Table 3.1 - Summary of Potential Benefits to QS Profession in Malaysia

3.4.3 Potential Effects

Increase in job opportunities for QS

The increase in job opportunities is influenced by the free flow of skilled

labour. According to Plummer and Chia (2009), the free flow makes ASEAN more

attractive to the foreign investors, thus, more developments are expected that will

result in greater demand for construction professionals to fulfil the job demands for

each development works.


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Increase competition of QS employment

The movement of skilled labours is expected to be greater under the

establishment of the AEC. Mattoo and Stern (2008) also stated that the competitionbetween the foreign skills and local skills results in greater productivity that

eventually leads to an increase demand for domestic skilled worker.

More diverse services

The QS practice can widen its range of services from the traditional cost

estimating, measurements and preparing for Bills of Quantities, to the other filled of

optional skills acquire by QS. Those of optional sets of competency skills include

facilities management (Nkado, 2001). According to WTO (2001) liberalisation of

services creates greater development access to world class services. Liberalisation of

services that shall aid the movement of professional shall open more variety of

services to the market (Matoo & Stern, 2009).

Increase in quality of service & Better job qualities

The great access to international movement of services motivates the service

providers to increase their competitive strength and goods. The qualities of the

services and jobs offered are expected to improve due to increase in competition

(Plummer & Chia, 2009).

Change of employment form

According to Hermann (2011), the restructuring of the new competitors have

had impacts on the forms of employment. Mattoo et al (2001) predicted that a

countrys employment rate shall certainly decline if the country is a net importer,

however, such decline in employment may not be completely applicable towards

Malaysias QS profession.


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Greater competition between domestic and foreign QS Less opportunity for

local firms

Increase in competition between domestic and foreign suppliers, may result inloss of activity in the country (Indira & MacLaren, 2012). Those who are

uncompetitive, are considered losers for losing out to foreign competition .According

to Hermann (2011), the service liberalisation encourages more diverse services

offered by service providers.

Loss of talents/ brain drain

Increase in service quality (Hermann, 2011; Ray, 2013) is also a pull factor.

One of the pull factors of Malaysian brain drain is the international exposure

(Jumaimah and Yusliza, 2011). Less restriction on movement of high skilled talents

could lead to a great deal of talent loss. According to Zakariah et al (2009), the

sending countries face brain drain or loss of talents in the short term, but a reverse

brain drain in the medium and long term returnees.


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Potential Effects Author

Increase in job opportunities for QS Plummer and Chia (2009),

Increase competition of QS employment Mattoo and Stern (2008)

More diverse services Mattoo and Stern (2008)

WTO (2001)

Increase in quality of service & Plummer & Chia (2009)

Better job qualities Plummer & Chia (2009)

Change of employment form Hermann (2011)

Mattoo et al (2001)

Greater competition between domestic and

foreign QS

Hermann (2011)

Indira & MacLaren (2012)

Less opportunity for local firms Hermann (2011)

Indira & MacLaren (2012)

Loss of talents/ brain drain Hermann (2011)

Ray (2013)

Jumaimah and Yusliza (2011)Zakariah et al (2009)

Table 3.2 - Summary of Potential Effects to the QS Profession in Malaysia

3.5 CONCLUSION

Movement of professionals has a great impact on the economic development

of a country. The outflow and inflow of professionals in the service sectors is not a

new topic, as several studies and research have been conducted to assess these

movements. There has been growing recognition on the movement of talents

(Solimano, 2008). The industry shall face a greater impact from the introduction of

AFAS under the AEC, in support of the movement of natural persons under GATS.

AEC shall accommodate the movement of professionals in the service sectors, with

less restriction implemented.


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CHAPTER 4

RESEARCH METHODOLOGY

4.1 INTRODUCTION

Chapter 4 of this research describes the details of the research design and the

methodology used in this study. It consists of the research strategy, approaches to

data collection and data analysis used in order to achieve the aim and objectives of

the study, as discussed earlier in the first chapter; Chapter 1.

4.2 RESEARCH STRATEGY

Naoum (2004) stated that there are generally two types of research strategies

that can be applied in research studies which are quantitative and qualitative

research. According to Naoum (2004), deciding on the research strategy depends on

the purpose of the study, the type and the availability of the information required in

order in achieving the research aim and objectives. This study adopts the quantitative

approach, considering the nature of the study that requires collective perceptions andopinions.

4.2.1 Reviews on Research Methodology of Similar Researches

This section reviews the research methodology adopted by several related

studies. Examples of studies related to service liberalisation are ASEAN Economic

Community (AEC) (Benny et al, 2011; Moorthy & Benny, 2012), ASEAN

Framework of Agreement in Services (AFAS) (Hapsari & MacLaren, 2012),

Movement of Natural Persons (MNP) (Suplico-Jeong, 2010; Kruszka, 2005; Karim

& Naveed, 2011), service liberalisation (Rajan & Sen, 2002; Hermann, 2011), Brain

Drain (Wong, 2010; Jumaimah & Yusliza, 2011) and New Economic Model (NEM)

(Hajar, 2010). The previous studies are chosen as reference due to the similarity in

the research area, except for one study in NEM. The study conducted by Hajar

(2010) also included as a reference due to its sim

asean economic community (aec): effects of service liberalisation towards the quantity surveying...

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