In Part 2 of the Current Affairs series on Minimum Wage, Lim Kok Boon, president of the Malaysian Plastics Manufacturers Association and Michael Kang, vice-president of the SMI Association of Malaysia share the industry player perspective of introducing minimum wage for local and foreign workers in Malaysia.

[In Part 1 of the Current Affairs series on Minimum Wage, we spoke to Datuk Seri S Subramaniam, Human Resource Minister, on why the government pushed for minimum wage. Check out the interview here]

Lim, who is also CEO of public-listed GW Plastics Holdings Bhd, says that the industry players are not opposed to the minimum wage, but that the implementation of the minimum wage be done progressively. He says it is important is define what the government means by "minimum wage", whether it is referring to basic salary or take home pay. "Currently, the industry practises basic salary and in addition to that, bonus, allowances, incentives. Take the plastics industry for example, RM650 for basic salary and close to RM1,000 in take home pay. The misconception is that RM650 basic salary is below the poverty level, then the poor fellow will not be able to survive. But that is assuming that this is his take home pay. Basic salary is not take home pay, which is usually in the region of RM1,000," he tells BFM in a recent interview.

He feels that if the RM800 minimum wage only constitutes basic salary, with the industry having to top it up with incentives and allowances, "then the take home pay will jump to RM1,300 to RM1,400, which will then result in costs that are too big for the industry to absorb", echoing a point raised by Malaysian Employers Federation, that the viability of companies are at stake, with 200,000 companies likely to shut down and 4 million workers out of jobs.

"Cost is like water, it has to flow and find its own level. When there is an inordinate increase in cost, it will pass down the stream. When it can't flow, it will overflow. The cost will go to consumer and burden by way of inflation -- an employee who gets increment today and is saddled with cost increase tomorrow negates the purpose of the increase in the first place," Lim says. Conversesly, if the cost has to be absorbed by a company and the cost exceeds the revenue, the company has no choice but to close down.

Labour intensive SMEs will be the most impacted by the minimum wage implementation, says Kang of SMI Association of Malaysia, adding that an increase from RM600 to RM800 in basic salary is too big a jump. Lim explains that the labour constitutes 5% to 15% of the cost structure of most companies, whose profit margins on average is 5% for a listed firm and 2% to 3% for a smaller SME. "SMEs who don't have economies of scale and are labour intensive. With a 2% to 3% profit margin, the basic salary increase from RM650 to RM900 ringgit will result in an estimated cost increase of 4% to 5% of revenue. This will be too high a cost to absorb, if companies are unable to pass costs down to consumers, whatever profit the company has will be either completely or partially wiped out," he quips.

In the following interview, Lim and Kang also talk about whether raising the minimum wage will successfully decrease companies' dependency on foreign workers by drawing local employment, what is the middle ground solution to the minimum wage dilemma and what industry players are doing to prepare themselves for the impending minimum wage implementation.

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