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Productivity Performance of Malaysian Government Linked Companies (GLCs) in Plantation Sector

by Rosmi Abdullah
e-mail : rosmi@npc.org.my

Abstract
The increase in productivity performance and economies of scale are very important to the industry. Productivity performance explains how effective and efficient the company is, in managing the inputs such as labour and capital to produce the output. The increasing performance reflects the success of the business of the company in competing with others. The first part of these studies measure productivity performance of the Government Linked Companies in plantations sector. The productivity measurement indicators have been used because they explain the
efficiency and effectiveness of the company

in managing resources. To stay competitive


and efficient in the industries, productivity

ratio for the employee and capital should be higher compared with other companies. The two most important productivity measurements are labour productivity and capital productivity. Labour productivity measures the effectiveness and efficiencies of the labour in producing the product. A higher labour productivity indicates that the labours are efficient and a lower ratio is due to the inefficiency in managing the labour productivity. Capital productivity measures the efficiencies of the capital

utilisation- A higher ratio reflects the


effectiveness of the utilisation of the capital. The findings of this study explained the productivity performance of the selected companies. The trend of the productivity

performances for these 3 companies is very different and the productivity measurement ratios vary from each other. The labour productivity for GLCsl is higher compared with
GLCs2 and GLCs3. This implies that GLCsl is most efficient in managing its labour

input. The ratio for capital productivity for the GLCs 1 is higher than GLCs2 and GLCs3.

This indicates that the capital for GLCs2 and GLCs3 are under-utilised compared to the
GLCsl. Comparison between these 3 companies shows that company GLCsl is the most efficient in labour and capita! productivity. Companies GLCs2 and GLCs3 have to benchmark the best practices of company GLCsl and implement them to improve the efficiency in labour and capital productivities. The second part of the analysis finding

explains the economic theory of return to scale. The production function approach model
explained that 3 selected companies are operating at constant and decreasing return to scale. The GLCsl is operating at constant return to scale. The GLCs2 and GLCs3 are operating at decreasing return to scale. The findings proved that productivity measurement is very important in measuring the performance and economies of scale for companies because it explains how effective and efficient the labour and capital are. Eventhough from the financial report the company may record profit but the production function mode! approach may show that the company does not operate at an increasing economies of scale. The company should operate at an increasing economies of scale to maintain and succeed in the business. Productivity improvement refers to the change sought, noted and implemented in an operation to produce a positive change in the performance of the company. The company has to implement continuous productivity improvement programme for the labour and capital to improve, sustain and be competitive in the industries and the market. Keywords: Competitiveness, Efficiency, Productivity, Performance

Introduction Competitiveness of Malaysian Industries


Competitiveness and efficiencies are very important factors for industries to compete and sustain in this era of globalisation. The efficiency and effectiveness in management, production and marketing will contribute to the competitiveness and increase in profit. This research identifies the need to understand productivity performance and economies of scale for the plantation sector. The study will focus on

the same type of industries sector under the Malaysian Government Linked Companies. The productivity performance of the industries is very crucial to understand, identify and analyse the factors affecting and to understand the companies' internal problem, trend and competitiveness, and to sustain in the market.
The role of productivity in a firm's performance is fundamentally important to the economy. Many companies have been using productivity performance measurement to evaluate their performance and competitiveness. Productivity indicators of the

industries will be compared at the national productivity level. Benchmarking within the industries of the same sector is also conducted to ascertain the level of competitiveness, in terms of labour productivity and capital productivity. Productivity measurement is an indicator of how well companies are in managing their production, material, human capital and quality of their products. Peter Drucker (1974) had put it in a more general way, "Without productivity objectives, a business does not have direction. Without productivity measurement, it does not have control"- This statement proves that measurement of productivity indicator is very important to strategise how the companies should manage their production, human resources, raw material, capital and end products. Productivity indicator would be able to measure the trend, effectiveness and efficiencies in the utilisation of inputs in producing outputs. The overall performance of Malaysian productivity has been measured and compared with other countries. Productivity level can be used as an indicator to measure the competitiveness performance of Malaysian industries. The study by the National Productivity Corporation (NPC) produced in Productivity Annual Report 2005, shows that the productivity level of Malaysia was lower than USA, Japan, Ireland, Hong Kong, France, Finland, Singapore, UK, Germany, Canada, Australia, Taiwan and Korea. Conversely, the Malaysian productivity level is higher when compared to Thailand, Philippines, China, Indonesia and India. The comparison was based on the
relative productivity for year 2005. Among the Asian countries, Hong Kong, Singapore

and Taiwan's productivity were between 3.2 to 5-4 times that of Malaysia. Malaysia's productivity was higher than Thailand, Philippines, China, Indonesia and India. From the report by NPC, Malaysian industries were far behind our neighbouring country Singapore, which had productivity level of 4.7 compared to 1.0 for Malaysia. There are still a lot of rooms for improvement for the Malaysian industries through the implementation of productivity improvement programme, such as Total Management
Quality System.

-^w

Relative Productivity and Growth

Selected Countries

twity
(constant i'ei;\n USS) Productivity
6.9 6.8 5.6 5.3 5.1 4.9
4.7 4.6
Growth (%);:

USA

^"^^^^^ 77.346 77,061 62,936 60,299 57,677 55,698 52,426 51,882

1.8 1.9 1.0 5.0


1.4 0.1 1.9

Japan Ireland
Hong Kong France Finland Singapore

UK

0.9

Germany Canada
Australia Taiwan Korea Malaysia Thailand Philippines China

50,789 49,308 45,545 35,856 27,909


11,300 4,305 2.807

4.5 4.4 4.0 3.2 2-5 1.0 0.4 0.2 0.2 0.2 0.1

0.9 1.6 -1.0 2.7 2.6 3.0 3.0 -0.8


7.1 4.4 6.6

2,272
1,952 1,242

Indonesia
India

Computed from: Economic Report, Ministry of Finance, Malaysia, various Issues: OECD Economic Outlook, December 2005, Vol. 78 National Accounts of OECD Countries, Detailed Tables 1992-2003 Country Data, Source: National Productivity Corporation

Malaysian industries must be more competitive to sustain and compete in globalisation. There are many factors involved in managing quality and performance of a company. The two most important factors are the performance measures of labour

and capital in producing outputs. The result indicates that Malaysian industries should improve more on their productivity level to compete with the other countries. Additionally, to improve the macro productivity level, Malaysian Government should emphasise at the micro productivity level. This could be done by increasing the productivity in each company in Malaysia. This study measures the performance of productivity indicator in Malaysian Government Linked Companies (GLCs) to analyse and evaluate how competitive this sector is. in Industries Economies by Scherer (1996); Tirole (1988), it is found that frequently mentioned performance criteria include efficiency, product variety, innovativeness and macro-economic stability. Related dimensions of competitive conduct include pricing behaviour, R&D, advertising and product design. Market structure, finally, encompasses elements such as concentration, product differentiation, market entry barriers, and vertical integration. Structure, conduct and performance are all characteristics of markets. They include product and process technology, employees' skills, unionisation and location of raw resources. Basic conditions on the demand side influenced effective demand. They include consumers' buying methods, availability of substitutes, price elasticity, and cyclical and seasonal patterns in buying. This input can be divided into two main production factors, labour and capital, which are to produce output. These two factors measure efficiencies and effectiveness of the company by using productivity measurement. This can be analysed by productivity performance each year, comparing between the years to see how the factors are influencing the inputs and outputs of the companies. In terms of the structure, it is important to see whether the selected companies are influenced by the rules or regulations. The study will also determine whether the

conclusion by Scherer & Boss (1990), that public policies, finally, can both influence

market structure (e.g. via market entry regulations or anti-trust policies) and market

conduct (e.g. via subsidies and advertising rules). This study analysed the rules and
regulations in Malaysia with regards to the GLCs and how the rules and regulations

benefit these companies in competing with private companies.

Malaysian GLCs
The study analysed the productivity performance measurement in 3 selected GLCs. In general, a GLC is a corporate entity that may be private or public (listed on a stock exchange) where the government owns a stake using a holding company. There are two other main definitions of GLCs, depending on the proportion of the corporate entity the government owns. One definition purports that a company is classified as a GLC if the government owns an effective controlling interest of more than 50%, while
the second definition suggests that any corporate entity that has the government as a

shareholder is a GLC. The GLCs aim to realise their own organisational objectives such as making a profit, producing quality products and excellent services, and becoming the largest organisations. At the same time, GLCs organisations are expected, by the government themselves and the society, to contribute to important and collectively defined public interest and objectives such as maintaining or lowering the price, providing diverse and objective information related to their products and services, and creating jobs. Since the privatisation, GLCs policy makers have been engaged by the question of whether and how these organisations are effective, efficient and able to satisfy the public
interest objectives.

mnm

In Malaysia, GLCs are defined as companies that have a primary commercial

objective and in which the Malaysian Government has a direct controlling stake.
Controlling stake refers to the Government's ability (not just percentage ownership) to

appoint Board members, senior management, and/or make major decisions (e.g. contract awards, strategy, restructuring and financing, acquisitions and divestments
etc) for the GLCs, either directly or through Government Linked Investment Companies (GLICs). This includes GLCs where the Government of Malaysia controls directly through Khazanah, Ministry of Finance Inc. (MOF), KWAP and BNM or where GLCs

and/or other Federal Government linked agencies collectively have a controlling stake. GLICs are defined as Government Linked Investment Companies that allocate
some or all of their funds for GLC investments. Defined by influence of the Government in appointing/approving Board members and senior management, and having these individuals reporting directly to the Government, as well as in providing funds for operations and/or guaranteeing capital (and some income) placed by unit holders.

This definition currently includes seven GLICs, namely Employees Provident Fund (EPF}, Khazanah National Bhd (Khazanah), Kumpulan Wang Arnanah Pencen (KWAP), Lembaga Tabung Angkatan Tentera (LTAT), Lembaga Tabung Haji (LTH), Menteri Kewangan Diperbadankan (MKD) and Permodalan Nasional Berhad (PNB).

The Structure of Malaysian GLCs


The GLCs are managed by the Putrajaya Committee on GLC High-Performarice which comprises the Minister of Finance II, a representative from PMO, and heads of Khazanah, Permodalan Nasional Berhad (PNB), Employee Provident Fund (EPF), Lembaga Tabung Haji (LTH) and Lembaga Tabung Angkatan Tentera (LTAT). Others are invited as necessary. Khazanah is the Secretary to the Putrajaya Committee on GLC High-Performance. The structure of the Putrajaya Committee (PCG) and Joint Working Team (JWT) is shown in Figure 1. The PCG and Joint Working Team UWT} are to ensure that the GLCs succeed in their business and at the same time also have to respond to the objective stated by the Government for each of the GLCs. From the structure below, we can see that these companies report to the Second Finance Minister regarding their operations, management, merger and other activities related with the business.

Figure 1

Structure of the PCG

Second Finance Minister PMO Representatives GLICCEOs/MDs :.;^

GLC Roundtable Joint Working Team (JWT)

Secretariat: ?Khazanah

Representatives:
EPF PNB LTH LTAT

Lead Consultant: McKinsey & Company Consultant for Special Initiatives: Boston Consulting Group and Ethos Consulting

Source: Putrajaya Committee

The PCG is chaired by the Minister of Finance II, who reports directly to the Prime Minister. Membership of the PCG consists of the heads of Permodalan Nasional Bhd (PNB), Khazanah Nasional Bhd (KNB), Lembaga Tabung Angkatan Tentera (LTAT),
Employees Provident Fund (EPF), Lembaga Tabung Haji (LTH) and representatives

from MOF and the Prime Minister's Office. Khazanah acts as the Secretariat to PCG,
chairs and drives the PCG Joint Working Team (JWT) which consists of representatives from all GLICs. Lead consultant to the PCG is McKinsey & Company, while other consultants such as the Boston Consulting Group and Ethos Consulting contribute to specific initiatives in the programme. A Transformation Management Office (TMO) has been set up at the secretariat level to ensure the success of the programme at the design and roll-out phases for 2005 and 2006, with quarterly reports to the PCG, and
then onwards directly to the Prime Minister through a Program Monitoring Unit (PMU).

The CEO of the GLICs will be tasked to monitor and ensure that the implementation at their GLCs are on track, while the Chairman and CEO of the respective GLCs will be accountable for programme's results at their own companies. PCG, through TMO, is undertaking a programme management approach with the following 4 guidelines and
action points:

Clear implementation with applicability, responsibility and timeline for GLCs and GLICs;

Task and equip PCG to implement and monitor; Establish a programme management approach to implementation; and PCG and eventually PMU within the Prime Minister's Office act as a channel to ensure compliance.

GLCs are government business entities which are privatised. However, the Government is still holding some percentage of the share to maintain the control of the companies' managements and operations. The Government has to maintain the control of these companies because some of these companies are involved in services and products which are related to social responsibility to the public and to ensure that

the objectives set by the Government are implemented. The GLCs have to submit
reports and get approval from the Government when they decide to increase the price of electricity, price of the services and others, for example. This is very important because an increase in the price of the services and products will affect the Malaysian

economy. An increase in the price of electricity or petrol will increase other prices such as production cost, transportation and others. Table 2 shows the percentage of shares controlled by the Government in Malaysian GLCs.

List of Government Linked Companies

JHBBHBMHl^^^^e^^a^^^^^^^^^^^BBBBB^^^^^^^^^^^^M^M!BaCBroiiniiT5nn!iMfflcimME^^B ^^^^^^^^Stmmm -^-K^"--- ^ ^ ^ ^ ^ ^ ^ ^ ^ ^ B g B g g ^ g m g l i g g ^ l l l g ^ g g ^ ^ ^ Employees Provident Fund (GLICs)


Commerce Asset-Holding

20.0 % 14.2% 63-0 % 30.0 %

CIMB Malaysia Building Society

Malaysia Resources Corporations


Lembaga Tabling Haji (GLICs)
BIMB Holdings

30.0 % 22.2 %

Syarikat Takaful Malaysia Lembaga Tabling Angkatan Tentera (GLICs)


Affin Holdings Boustead Holdings Boustead Properties

47.4 % 70.0 % 39.2 % 23.1 % 27.3 % 60.0 %

PSC Industries UAC


Johan Ceramics

Petroliam Nasional {GLICs) Bintulu Port Holdings KLCC Property Holdings MISC
Petronas Dagangan

33.0 % 51.0%
62.0 % 70.0 % 61.0%

Petronas Gas
Minister of Finance Incorporated

Bursa Malaysia

20.0 % 33-3 %

Pos Malaysia & Services Holdings


Khazanah Malaysia Commerce Asset-Holding

26.0 % 1 8.7 % 20.0 % 41 .0 %

CIMB
D'nonce Technology

Faber Group
Malaysia Airport

73.0 % 69.0 % 25.0 % 38.0 % 67.0 % 37.0 %

MAS Park May

Proton Holdings
Plus Expressway Tenaga Nasional

Telekom Malaysia (TM)

35.0 % 24.5 % 45.0 % 50.3 %


50.0 %

VADS
Time Engineering Time dotcom

Uda Holdings UEM World Cement Industries of Malaysia Opus International Group PLC

63.0 %
34.0 % 39.1 % 34.7 % 32.8 %

Pharmaniaga
UEM Builders Permodalan Nasional & Funds
BIMB Holdings

30.0 %

Central Industrial Corporation


Chemical Company of Malaysia Formosa Prosonoc Industries

39-0 % 64.0 %
26.0 % 57.0 % 34.2 % 35.3 %

Golden Hope Plantation


Mentakab Rubber
Negara Properties Island & Peninsular Kumpulan Guthrie Guthrie Ropel Highlands & Lowlands

60.0 % 74.0 % 42.9 %


40.7 %

Malayan Banking
Malaysian Industrial Development Finance MNI Holdings
MNRB Holdings

51 .0 % 37.0 % 75.0 %
60. D % 56.0 % 45.0 % 31.5% 32.4 % 51 .0 % 60.0 %

NCB Holdings
Sime Darby

Sime Engineering Services Tractors Malaysia Holdings


Sime UEP Properties

UMW Holdings Ya Horng Electronic (Malaysia) Source: UBS Investment Research

30.0 %

The GLCs are split into 2 groups. The first is the G20 companies, defined by the Putrajaya Committee for GLCs (PCG) and are all public listed companies. The second group consists of the remaining 30 GLCs which are publicly listed but do not come under the direct purview of the PCG. The G20 companies are Telekom Malaysia (TM),

Tenaga Nasional Berhad (TNB), MAS, BCHB, UEM, Proton, Pos Malaysia, MAHB all under Khazanah, Maybank, Sime Darby, Golden Hope, Guthrie, UMW and CCM under PNB, Affin Holdings and Boustead under LTAT, MRCB and MBSB under EPF, and BIMB and TH Plantations under LTH. This study measures and analyses the performance and structure in the productivity level, which from the findings we are able to define the performance of the companies' operational efficiency, competitiveness and performance comparison between the companies.

This research focuses on 3 selected GLCs companies in the same sector to study their performance and structure over the period of 7 years. The study will show the growth of these companies, their performance and structure to survive and compete in globalisation.
The study of a firm has been a long-time concern of the economics and so-called microeconomic theory of the firm which occupies much of the economists' thoughts and attention, and shares a relative number of decision-making processes in a real world firm. All these are subjects which have been at the centre of research in economic theories. The key issue for the development of microeconomics in the next century is

whether they can be expressed and developed in ways which give them relevance to
business policy. This requires changes in the attitudes of both businessmen and economists. Microeconomics has potentially the same role in management issues that macroeconomics currently has for political issues. The growth in microeconomics sector will contribute to the growth of Malaysian economy. This is why the research on structure and performance of Malaysian GLCs is very important to the development

of Malaysia because of their significant influences on the macroeconomic level.

Problem Statement
There are several issues with regards to the development of existing GLCs. Firstly

is to improve their performance in terms of operations and financial indicators, such as


Return on Investment (ROI), as their key performance index and to sustain competitiveness. The study by CIMB on GLCs Issues and Prospects, year 2004,

showed that GLCs underperformed the broader Malaysian market on all key financial
indicators, except for the size of their companies. Another issue is how GLCs could play a leading role, not only in generating future

wealth for the nation but also in developing Malaysia as a modern nation. Their social obligations have also brought great benefits to a wider community, through carrying
out a government objective. According to Khazanah Nasional Bhd, GLCs represent a significant part of the corporate market where they contribute 54% to the KL Composite Index, employ 5% of the total workforce and provide major services to the community.

GLCs do, indeed, play a critical and influential role in shaping the standard of living. It
is not difficult to imagine the impact that GLCs have on our lives, from the electricity,

water and energy we depend on, to the food we consume, the waste we produce, the
cars and roads we use, the healthcare we need and the human capital development for the nation. In today's competitive environment, there is a fundamental shift in

expectations where there is now unrelenting pressure on GLCs to deliver greater


shareholder value and market relevance. The Malaysian society is depending on the

GLCs companies and they must be transparent and high performance-based, and allow
equal opportunity and respect for diversity and integrity. There are also issues in consumer welfare and efficiency gains. Privatisation is

supposed to enhance enterprise efficiency. There are two relevant aspects of efficiency related to GLCs that should be considered, namely productive and allocative efficiencies. Productive efficiency is attained when a firm's output is produced at
minimum resource cost. Allocative efficiency is achieved when the consumer's marginal valuation of the product equals the marginal cost of production, assuming no

externalities. However, this does not imply allocative efficiency in terms of satisfying consumer preferences for quality services. To achieve both productive and allocative
efficiencies, privatised enterprises such as GLCs generally need to be exposed to greater competition, liberalisation, marketisation, and deregulation, notwithstanding scale economies and other 'extenuating' circumstances. In Malaysia, many GLCs remain as monopolies. In contrast to privatisation, which is then expected to be accompanied by the relaxation or abolition of monopolistic practices, including statutory monopoly powers, such as those usually conferred on

and enjoyed by public utilities. Privatised entities are thus expected to face competitive
markets or environments. Competition may encourage more efficient behaviour among private as well as public entities or companies, in order to achieve both

productive and allocative efficiencies, unless increasing returns to scale are attainable. The important issues in Malaysian GLCs are whether these companies have achieved
their objectives, profit, efficiencies and also social responsibilities with all support given by the Government. The GLCs should be more competitive and efficient

considering many incentives given to them in business opportunity. The performance ratio should be higher because they have much advantage against their competitor.
However, there are many statements and complains on the efficiencies of the GLCs

due to services which are not up the expectations, as required by the consumers. In many cases, GLCs would increase their prices when financial problem arises or the profit margin becomes too small to gain more profit. They are often tagged as neglecting their social responsibilities to the public. There are also cases that the GLCs companies'
financial statement showed that they were running the business inefficiently and were

facing financial problem. This is a reflection of the performance of GLCs, which even
though they have all the benefits given, but are not able to perform well. Thus, they

should perform better given the advantage in business opportunity against their

competitor. This is the reason why we need to examine the performance of the GLCs

in terms of productivity because such measure can reflect the strengths and the weaknesses of the companies compared to the financial report. The productivity measurement is appropriate to a particular company to improve the management

system and the company's strategic intentions which will have been formed to suit the competitive environment in which it operates and the kind of business that it is.
The productivity indicators will help the companies in organising their strategies towards the mission, vision and objective.

Objectives of the Study


The general objective of the research project is to attempt and study the

productivity performance and economies of scale. This study will analyse the
productivity performance and economies of scale using the productivity indicators of the companies for a period of 6 years based on financial year reports. The result will

identify whether these companies succeeded in achieving the mission, vision, objective and government's goal in privatisation. It is generally believed that GLCs have
significant presence in the national economy due in part that many of them are market leaders in their respective sectors. The main objectives of the study are: i. ii. To better understand the trend reflected by labour productivity and capital productivity towards the performance of selected GLCs, and To study the performance of the selected GLCs by using a production function model approach to determine the economic theory of return to scale.

An analysis on production function approach model can reveal which company operates at increasing, constant or decreasing to scale. The study will identify the most significant factor affecting the success of the GLCs because the productivity indicators indicate the efficiency and effectiveness of managing resources and capital, reflected by the trend and performance of the companies over the period of the study. This will lead to the understanding of organisational control process, whereby an organisation ensures that it is pursuing strategies and actions which will enable it to

achieve its goals. Productivity performance measurements will help management with
far more useful information on how to run a company more effectively and efficiently. Management can determine with considerable certainty which direction the company

is going and, if all goes well, continue with the good work. Or, if the productivity performance measurements indicate that there are difficulties on the horizon,
management can work towards the success of the company. And if the finding shows

that the company operates at decreasing return to scale, this could help the company to plan how to improve the efficiency and effectiveness of their labour and capital.

Significance of the Study


The study is significant to analyse the performance and structure of Malaysian
GLCs. The study by D'Souza and Megginson (1999), found that there is a whole line of

study on privatisation and empirical results which consistently show that privatisation

induces output, efficiency, and profitability improvement. From the perspective of this traditional wisdom, the study examines the performance of the group of governmentrun enterprises in Malaysia. Malaysian Government sets up a group of GLCs in key industries to provide propelling forces to the country's economy. As such, GLCs play a

strategic and important role in the economic development. This research is to study the issues in Malaysia, whether these GLCs are generally well-run, efficient and profitable. Productivity indicators are used in this study to analyse the performance
and structure of the management and operations. The productivity measurement indicators were calculated by using the financial report. The findings represent the information on how efficient and effective the company is in using the input to produce

the maximum output. Some analysts even said that it is time for the Malaysian
Government to give up control of the GLCs to allow more competition into the market,

which would improve their performance. But given the fact that Malaysia is an opened
economy, the GLCs may have been competing with foreign companies all along. Such

competitions may well compel them to be more efficient than typical government
enterprises would be. In any case, Malaysian GLCs provide an interesting case to address the simple but fundamental question, "Are government-owned companies

necessarily inefficient?" We can see in the case of several GLCs which always increase their prices on products and services offered to gain more profit even though there are monopolistic company. The labour productivity will reflect how efficient the
management is, in managing human resources to produce the output. Capital productivity will explain how the capital will be utilised in producing a certain amount of output. The production function approach model should explain why these
companies have to increase the price to gain more profit if they operate at an increasing

return to scale.

Limitation of the Study


The results depend on the accuracy of the annual financial reports produced by

each company. The annual report was gathered from each selected company. The data

for this research were extracted and computed from certain values in the annual financial reports. The reliability and validity of the data were based on how true are the companies in reporting all the transactions and activities. The findings explain the efficiency and effectiveness of the labour and capital in producing the product and
services. The reliability and validity of the data produce the accuracy and precision of the findings on the performance of the companies.

Literature Review Background


The concept of productivity has existed for a long time, and the idea has many different applications. Jury (1992) in his study found that the customers buy utility, and productivity associates outputs with inputs. Productivity, at the organisation level, may be considered a measure of how well the company satisfies the customers' utility. Therefore, productivity measurement shows how well a company is doing. This does not, however, tell anything about why the company is performing the way it is. This discussion addresses the meanings that refer to work and economics. One basic way

of defining productivity is "output divided by input" (O/l}. If Company X uses 100 units
of input to produce 100 units of output, their productivity ratio is 1. To interpret this formula in economic terms, one can substitute ringgit for the input and output units, i.e., RM100 of output divided by RM100 of input produces the same productivity ratio of 1. Using money as a measure of value makes it possible to compare dissimilar

inputs and outputs.


Productivity change is the measure of productivity in this research which refers to the change in the productivity ratio over time. If in the above example the ratio of outputs to inputs was measured at a later date and was found to be RM 200/RM100, the new ratio would be 2. The change in productivity would be (2-1 )/1 or 100 percent. A problem with this formula is that if Company X achieved this improvement in productivity and responded by cutting the price of its output in half, the measured productivity change would be zero even though there was a real improvement. Productivity, defined by O/l, requires that the units of input be measured in some manner. The early applications of productivity measurement addressed simple, repetitive jobs of short duration. Several measurement techniques were developed for this purpose, including the labour productivity, capital productivity and others. Such techniques were designed to measure performance of the companies and to identify the strengths and weaknesses of the company's strategies in competitiveness. This

measure can also help the company to increase efficiencies, reduce loss and improve the quality of workforce and services. A business converts economic resources into something else. It may do well or poorly. Drucker {1974} believed that at this level,
productivity is the balance between all production factors that will give the greatest return, for the least effort and productivity at the organisational level is considered separately from productivity at lower levels. The performance measurements used in this research are labour productivity and capital productivity to identify the efficiency and effectiveness of the human resources and capital in producing the products.

Productivity Measurements
Productivity indicator as a measurement for efficiencies has been used in many companies. The labour and capital productivities are being used to determine how productive is the labour in producing one unit output and the capital productivity are

used to measure how effective is the utilisation of the capital in producing one output. Rittenhouse (1992) believed that it is very important to discover why productivity must first be examined at lower levels such as the work group, which are best suited for using productivity measures as an indication of change. Sardana (1987) in his study found that the concept of productivity is often vaguely defined and poorly understood,
although it is a widely discussed topic. Different meanings, definitions, interpretations and concepts have emerged, as experts working in various areas of operations have looked at it from their own perspectives. However a different view is only that the

terms 'performance' and 'productivity' are used concerning with the productivity level.
People who claim to be discussing productivity are actually looking at the more general issue of performance. Productivity is a fairly specific concept while performance

includes many more attributes. Drucker, also in his study found that knowledge worker is the area that offers the greatest opportunities to increase productivity. This is in line
with what our Prime Minister said, that it is important to increase the human capital

resources because human capital is the asset of the companies that can create wealth to the organisations.
Sink (1985) categorised three basic ways to collect data about a given phenomenon or organisational system: inquiry, observation, and collecting system data or documentation. This data gathering is the essential part of measurement. It is the

process by which productivity benchmarks are established. In the simplest form, the
outputs are evaluated against the inputs, but even at this simple level, terminology may be a problem. Some writers included non quantitative indicators such as quality in their definition of "output," but others confined the discussion of productivity to Output/

Input. The definition affects the type and amount of data gathered.
The literature suggests that organisations select the most appropriate measurement technique based on implementation costs. Inaccuracies in productivity measurement are acceptable if the level of inaccuracy remains constant over time. The measures are most important for tracking trends, not quantifying empirical data. The trend of

productivity indicators will reflect the performance of the company and can explain why the situation occurred. While productivity has been studied for decades and knowledge work has always
existed, it is only recently that researchers have tried to measure knowledge workers'

productivity. The concept of productivity has existed for a long time, and the idea has many different applications. This discussion addresses the meanings that refer to work
and economics. Today the varieties of productivity measurement have been used but

the most common are labour productivity and capital productivity.

The only way we can understand and compare the performance of one company against another is measuring its performance. Conventionally, the focus has been on internal, historic, financial, numeric and short-term information. Many aspects of an organisation's operation are intangible and difficult to pin down, yet these are increasingly seen to be the areas where companies can gain competitive edge. Professor R.S. Kaplan of Harvard Business School in The Evolution of Management Accounting states: "if senior managers place too much emphasis on managing by the financial numbers, the organisation's long term viability becomes threatened." That is, to provide corporate

decision makers with solely financial indicators is to give them an incomplete set of
management tools. Recently, more rigorous approaches to assess non-financial results have emerged. Measurements of this type, especially those that are future-oriented, are key components of the performance management revolution that is changing the way companies do business worldwide. This study uses the non-financial indicators to measure performance by using the productivity indicators to look inside the selected companies; the problem of inefficiency, unutilised input, cost of management and others. The analysis will provide a solution to improve productivity and quality in work place. Sardana and Vrat (1987) said those who measure productivity should have three objectives: (1) to identify potential improvements; (2) to decide how to reallocate resources; and, (3) to determine how well previously established goals have been met. They also use a broad definition of productivity that tells the observer how the measured organisation is doing, as a whole. Moore (1978) have explained the more important productivity measurement because they can be separated into two factors: performance and financial. Performance productivity is based on the number of outputs produced. For example, if Company A produces 100 units in one week and 120 the next, its performance productivity has increased by 20 percent. By contrast, financial productivity focuses on the value of the output. If Company A had produced 100 units in both weeks, but raised the price from $1.00 per unit to $1.20 per unit in the second week, its financial productivity would have increased by 20 percent with no increase in output. The productivity measurement now becomes an important tool in measuring the performance of a company, as the productivity indicators reflect the companies' efficiency and effectiveness in using the input to produce output, whether it is in maximum capacity or under utilised.

Measurement Techniques
Many measurement techniques and packages are available. Mundel (1989) presented a computer software package that evaluates productivity. Direct adjustments

for quality by the package are excluded, but quality indicators may be implicit because
the package considers only good output. The programme does not consider raw materials,

because the end product is knowledge. In this and other computer programmes, simple 0/1 algorithms are used to calculate productivity. The programmes facilitate the
calculation of productivity at the organisation level. Mundel presented eight levels of work units, starting from the lowest-motion-up to the highest-results achieved

because of outputs.

Sassone (1991) presented a technique that is relatively simple to implement. He classified work by the lowest level of employee who could reasonably do it. Work is then recorded for each participant by the type he or she is doing. This record is then analysed and compiled in a matrix format that shows the amount of effort expended
by each type of employee, and whether the employees are working at, above, or below their level. This information can indicate the mix of workers that is needed in a work group. It can be used to explore the consequences of common assumptions, such as

whether cutting support staff will actually reduce costs.


Sink (1985) presented several techniques of evaluating productivity. His three main methodologies are Multi-Factor Productivity Measurement Model (MFPMM), Normative Productivity Measurement Methodology (NPMM), and Multi-Criteria Performance/Productivity Measurement Technique (MCP/PMT). MFPMM is a

computerised methodology for measuring productivity, based strictly on O/l. NPMM uses structured group processes to formulate appropriate productivity measures for white-collar or knowledge workers. It uses the group technique to establish consensus about what the productivity measures are and how they should be measured. MCP/PMT is designed to allow the user to evaluate the various productivity measures and decide which is the most important. It also allows the user to aggregate dissimilar productivity
measures.
In Malaysia, NPC has produced computer software package, named COMPASS or

Company Manual Productivity Assessment to measure the performance of the


productivity indicator. The COMPASS software analyses the financial accounting data and produces the indicators related to productivity improvement measurement. The

indicator will be analysed to show the trend and performance of the company and the
improvement will be recommended to increase efficiency, effectiveness, productivity and quality. To encourage the usage of COMPASS software packages among Malaysian

industries, the Ministry of International Trade and Industry have established the Productivity Award. The Award is given to the companies with the highest productivity
performance. COMPASS is a standardised model developed by NPC, which allows company to conduct "self assessment" and makes the business analysis more result oriented. Participation in the Productivity Award allows third party assessment of the effectiveness of the company's productivity improvement initiatives and its comparative

advantage. It is essential for companies to measure productivity and implement productivity improvement programmes to increase their performance and enhance competitiveness. This is also to encourage Malaysian industries to measure their

performance using the productivity measurement to improve their competitiveness level, efficiencies and effectiveness. This study analyses the importance of the productivity measurement indicators, which are labour productivity and capital productivity and to prove the significance of using these indicators in measuring the economies of scale in producing the output.

Methodology Research Design


The research design used for this study is the secondary data from financial
annual reports, which make use of the inferential statistics to determine the values of the performance and economies of scale for the 3 selected GLCs. The study gathers
the information and data from financial statements between years, from 2000 to 2006.

From the financial reports, the study then calculates the labour productivity and capital productivity to identify the performance of the companies. Second part of the

methodology analyses the data, using Cobb-Douglas production functions to run the
test and to find the values of the variables to determine whether the company is

operating within the economic return to scale.

Study Area
The study focuses on the 3 selected companies from the G20 companies. The companies selected were from the same industries. This is because the comparison from the same industries will provide more information and accurate performance
measurement. The results produced identify which company is more efficient and effective in managing its human resources and capital, based on the measurement of labour productivity and capital productivity. The value of the ratio explains the
performance of the companies from year 2000 to 2006. The model will then explain

the relationships between the variables and the result will show whether the company's operation is efficient in producing output based on the economic concept

of return to scale.

Source of Data
The sources of the data for this research are mostly from the secondary data. The
secondary data were obtained from the 3 selected companies itself. Most of the data

and information are from the annual report. The other information such as number of employment and others, which were not included in the financial report were gathered

and obtained from the web site of the companies.

The Production Function Approach Model


The methodology of this research is to measure performance of GLCs using accounting data. If GLCs are generally well run, efficient and profitable, then the

performance of the GLCs, no matter how it is measured, should be comparable to the


performance of non-government, private companies. Furthermore, if the privatisation

objectives of GLCs are unrelated to resource allocation, greater efficiency, or reduction of the fiscal burden, their performance would not be greatly increased or improved after privatisation. For this reason, this study will measure the performance based on the productivity indicator. Essentially, we analyse the performance using the productivity indicator for the recent period of 6 years, based on the financial reports. Then from the
labour productivity and capital productivity, the research will further discuss on the production economic model, while focusing on the micro economy. Then the variables will explain the efficiency of the production based on the economics of return to scale. The performance of the GLCs will be analysed and examined using productivity

indicators measurement. The organisation needs to assess its productivity levels because it is very important to achieve international competitiveness level, with the
coming of AFTA and WTO. This is because productivity improvement is imperative to the successful achievement of developing the nation. Productivity measurement in this study will be measured by two main indicators: labour productivity and capital productivity.

Labour productivity is the most important input factor, and more readily measured
of all input factors. Labour productivity is measured by total output per employee. This reflects the amount of wealth created by the company, relative to the number of

employees. A high ratio indicates the favourable effect of labour factor in the wealth
creation process. A low ratio means unfavourable working procedures such as wastages of time and materials. Capital productivity is a measure used in determining the value

generated per unit capital. The high ratio indicates capitals are managed efficiently,
good asset utilisation and stock control. The observed changes in firm performance may be due to many factors such as efficiency, competitiveness, economy and others.

The research will focus on listed companies for the consideration of reliable and publicly
available financial and accounting data. The sample hence includes the 3 selected GLCs. The accounting data of the sample firms, obtained from their historical prospectuses, will be used in calculating the productivity performance of the companies.

The model used in this research will be able to analyse the relationship, correlation and effectiveness between revenue and two productivity measurements, and these two factors contribute more significantly to the profit and efficiency of a company. The model will also explain the production function based on the return of scale theory.

The first step of this research is to compute the labour productivity and capital

productivity of each selected company, using the financial reports. From the measurement indicator, we analyse the structural and performance of the companies. From the productivity data calculated, we run the data using SPSS software to identify the correlation and relationship between the two productivity measurements and the revenue. This will explain the performance and growth of the industries over the years, from 2000 to 2006. The model used in this study is based on the Cobb-Douglas production function because it is clear that the relationship between the output and the two
inputs is nonlinear.

The production function in this study is expressed as: Where Ff = output/revenue X2 = labour productivity Xj = capital productivity
u
e

= stochastic disturbance term


= base of natural

From equation 1, it is clear that the relationship between the output and the two inputs is nonlinear. However, if we log-transform the mode we obtain:

In K, = Infi, + j02 In X2i + fi3 In X*


Where j60 = Inj8,

The model is linear in the parameters j80, j#2 and^3 therefore is a linear regression model. From the model above, we are able to analyse the variables to understand the significance of the labour productivity and capital productivity contribution to the revenue

of the company. This can be explained by:


1. The (partial) elasticity of output with respect to the labour productivity that is, it measures the percentage change in output, 2. The (partial) elasticity of output with respect to the capital productivity, holding the labour input constant, and

3. The sum ( ) gives information on returns to scale, that is the response of output to a proportionate change in input. If the sum is 1, then
there is return to scale, that is doubling the inputs will double the outputs and so on. If the sum is less than 1, there is decreasing return to scale; it means doubling the inputs will lessen the outputs by twice. If the sum is greater than 1, there are increasing

returns to scale; it happens when double the inputs is more than double the outputs.
Before proceeding further, note that whenever we have a log-linear regression

model involving any number of variables, the coefficient of each of the X variables measures the (partial) elasticity of the dependent variable Y with respect to that variable. Thus, if we have a k-variable log-linear model:

In Y, = In/o + j02 In X* + j83 In X3i +........ +jff* In X* + u, Each of the (partial) regression coefficients,^through^ , is the (partial) elasticity of Y with respect to the variable X2 through Xt. Assume that model (2) satisfies the assumptions of the classical linear regression model. After calculating the labour productivity and capital productivity, we will run the
data using the SPSS program to get the value of the variablesj8 lr j8 2 andj0 3 . The result

explains the relationship between the independent and dependent variables regarding the return to scale economic theory. The model is also used to determine the relationship between the revenue of the companies and the labour and capital productivities. The correlation coefficient of determinations (R square) is a summary that tells how well the sample regression line fits the data or to measure the goodness of fit.

Results and Discussion Background of the Data Analysis


The time series data for this research were gathered from the financial reports of the three selected GLCs over year 2000 to 2006. The data are used to calculate the two productivity measurement indicators. The productivity measurements are very
useful in managing the organisation or the unit of organisations. Productivity can be

measured by the output to one input only or the ratio of output to more than one input. When more than one factor are involved, this productivity measurement is called multifactor or sometimes known as the total factor productivity measurement, especially by the economists when input factors of labour and capital are involved. This study focuses on the labour productivity and capital productivity, and thus
explains the effectiveness of utilisation of all input resources, which is suitable for assessing the performance of an organisation. Output is goods produced by the

organisations and can be measured by the value of productions. Input refers to the
factors of productions, namely labour, materials, energy, capital and other resources which are utilised in producing outputs. Labour productivity is computed by dividing total output by the number of the

employees. Due to changes and fluctuation in the flow of the labour, we will use the average number of employees for the period of time being measured. The reason that labour productivity is used is because labour is the most important input factor, being
more readily measured of all the input factors. The key to productivity of the

organisations lies in the way products and services are produced and delivered. Labour productivity will explain how effective and efficient their human resources are and how the organisations can manage their human resources.

Capital productivity is a measure used in determining the value generated per unit capital employed. Capital productivity indicates the degree of utilisation of fixed assets and their efficiency with which assets are utilised. It is defined as revenue generated per ringgit of fixed assets. High ratio indicates better performance of enterprise. The Production Function Approach Model is used to determine the relationship between labour and capital productivities, and the revenue. The finding explains how efficient resources are used in producing the output with regards to economies of scale theory. The information needed can be obtained using SPSS program to get the value of the Beta and return to scale. Findings explain the return to scale economic theory for the 3 selected GLCs. In the study, correlation of determination R2 is examined to measure the goodness-of-fit in this Production Function Approach Model. The F-value examines the sufficiency of information for the prediction of dependent variable that at least one variable contributes significant information for the prediction of revenue.

Result of Unit Root Test


To ensure that there is a long term relationship among the variables in production function approach model, Augmented Dickey-Fuller and Phillips Pheron tested the

stationary data on the variables revenue, labour productivity and capital productivity. The test is conducted for each company. The results for company GI_Cs1 are shown in Table 3. Table 3 reports the statistic
for unit root using ADF and PP for each series in time series. This shows the undeniable

existence of unit root in labour productivity (Inlabprod) at a significant statistical level, except for the existence of unit root in revenue (Inrevenue) and capital productivity (Incapprod}. This means that Inrevenue and Incapprod are stationary at level. The data
shown are stationary and can be used for further analysis.

Level
Variable Lnrevenue Lnlabprod Constant No trend 5.250547 -0.07Q981 5.89999

ADF Constant Trend 19.1027 -2.580727 4.4305 Constant No trend Q.6849 0.313096 1 .649342

PP Constant Trend -2.7239 -2.201378 -1.250231

Lncapprod
1st difference
Variable Lnrevenue Lnlabprod Lncapprod

^^^^^^^^^^^^Hi Constant Constant


No trend 15.22807 -2.132992 3.537039 Trend

Constant
No trend -3.1177 * -1.326083 -2.113564

Constant

Trend
-17.1022*** 1 .659457 -10.3518***

The result for company GLCs2, tested using Augmented Dickey-Fuller and Phillips Pheron, is shown in Table 4. The report shows the Augmented Dickey-Fuller and Phillips Pheron test at a significant statistical level except the existence of unit root in revenue (Inrevenue), labour productivity (Inlabprod) and capital productivity (Incapprod). This means that Inrevenue, Inlabprod and Incapprod are stationary at level. The data for

the three variables are stationary and can be used for further analysis.
Unit Root Test for Company GLCs2
Level
Variable Lnrevenue Constant

ADF
Constant Constant

PP
Constant

No trend
-0.433182 -3.623501
-2.826488

Trend
-2.742251

No trend
0.271120 -0.489388 -0.910947

Trend
-4.809872 -1-817388 -1.470332

Lnlabprod
Lncapprod

-9.314789*
-50.77674*

1st difference

^^^^^^^^^^^^H
Constant No trend -2.702027 -7.294841* -41.09709***

Variable
Lnrevenue

Constant
Trend

Constant
No trend -4.129902* -2.516184 2.300747

Constant
Trend -7.917392** -5.911542** -3.673089

Lnlabprod
Lncapprod

Notes: Lnrevenue = Ln revenue; Lnlabprod = Ln labour productivity; Lncapprod = Ln capital productivity.

The null hypothesis is that the series are non-stationary and the rejection of null hypothesis for ADF and PP test is based on the MacKinnon's 119911 critical value.
" ' *
***

Significant at 1% level Significant at 5% level


Significant at 10% level, indicates the rejection of null hypothesis of non-stationary at 10%, 5% and 1%

level respectively.

Table 5 shows the result of the Augmented Dickey-Fuller and Phillips Pheron test

for company GLCsS. The report shows the Augmented Dickey-Fuller and Phillips Pheron test at a significant statistical level except existence of unit root in revenue (Inrevenue), labour productivity (Inlabprod) and capital productivity (Incapprod). This means that Inrevenue, Inlabprod and Incapprod are stationary at level. The data for the three
variables are stationary and can be used for further analysis.

Unit Root Test for Company GLCs3


Level Variable Lnrevenue Constant ADF Constant PP

Constant
No trend
-2.735627

Constant
Trend -2.440830 -16.88829* -1.661016

No trend
-8.60132* -7.906291* -1.723994

Trend
-5.661365 -2.479446 -7.857781 -

Lnlabprod
Lncapprod

-8.943698* 1.701624

1st difference Variable Lnrevenue Lnlabprod Lncapprod


Constant No trend

ADF
Constant Trend

PP Constant No trend -1.108200 -14.76463*


-2.757883

Constant Trend 0.708338


-11.77362* -6.586986**

-3.611111 -1.733847 -5.342101*"

A/ofes: Lnrevenue = Ln revenue; Lnlabprod = Ln labour productivity; Lncapprod = Ln capital productivity. The null hypothesis is that the series are non-stationary and the rejection of null hypothesis for ADF and PP test is based on the MacKinnon's (1991/ critical value.
* '' *** Significant at 1 % level Significant at 5% level Significant at 10% level. Indicates the rejection of null hypothesis of non-stationary at 10%, 5% and 1 %

level respectively.

The results from the Augmented Dickey-Fuller and Phillips Pheron test or stationary data for the 3 selected companies are stationary at level, as shown in Table 3, 4 and 5.

The data are significant to be used for further tests.

Productivity Performance for the 3 Selected GLCs


The productivity performances were calculated from the company's annual financial reports. The indicators used for this study is labour productivity and capital productivity, based on each company's six years annual financial reports. The productivity ratio results from the calculation were analysed and the information regarding these two indicators was studied to see the productivity performance of each GLCs.

Productivity Performance of GLCsI


The productivity measurement indicator for this company was calculated from the
annual reports, year 2000 - 2006. Table 6 shows the result calculated for labour and

capital productivities for company GLCs!.

Productivity Measurement of Company GLCsI


Year
2000 2001
2002 2003

Labour Productivity (RM'OQO)


365.35
408.74 456.83

Capital Productivity (RM'OOO)


9.56 10.44 11.33 12.97 14.03 18.02

499.12 610.67
748.34 789.12

2004
2005 2006

19-61

The table shows that the performance or growth of labour and capital productivities increased over the years. The labour productivity increased from RM365,350 in the year 2000 to RM789,120 in year 2006. The capital productivity increased twice from year 2000 to year 2006, from RM9,560 to RM19.610. This indicates that the workers have improved the efficiency, knowledge and skill in producing the products. The utilisation of fixed asset has also increased for company GLCsI.

Figure 2
Productivity (RM'OOO)
900

Productivity Performance - GLCsI

2000

2001

2002

2003

2004

2005

2006

Year

Labour Productivity GLCsJ

Capital Productivity GLCsI

Figure 2 shows that the labour productivity performance is on an increasing trend. This implies that efficiencies of the human labour have improved; in the skill, knowledge and quality aspects such as to reduce the reject rate, defects and cost of
production. The performance of capital productivity also shows an increasing trend.

This indicates that machineries and plant equipment are efficiently utilised in producing
outputs for company GLCs!.

Productivity Performance of GLCs2


The productivity indicators for company GLCs2 show that it is lower than company

GLCsI. This indicates that there is room for improvement in labour and capital
productivities in the company. The performance of the labour productivity from year 2000 to 2006 indicates an increasing trend but it is lower than company GLCs!. Table 7 shows that labour productivity has decreased from year 2000 to year 2001, from RM88,520 to RM66,970. It then increased to RM98.520 in 2002 and increased more in 2003 and 2004. It decreased slightly in 2005, and in 2006 it increased to RM147.100.

Year
2000
2001

Labour Productivity (RM'OOO}


88.52
66.97 98.52 146.85

Capital Productivity {RM'OOO)


0-78
0.57

2002 2003 2004 2005 2006

0.78 1.07 1.05


0.86 0.97

141.59 131.86 147.10

Figure 3
Productivity (RM'OOO)

Productivity Performance - GLCs2

160
140

100

o
2000
,_

2001

2002

2003

2004

2005

2006

Year

Labour Productivity GLCs2

Capital Productivity GLCs2

The labour productivity fluctuation may also be affected by the economic factors such as price, economy depressions and also turnover of the workers. The labour input factors affect the productivity performance if labour is not skilful, knowledgeable and efficient in producing the output. The capital productivity shows a very low ratio compared to GLCsI, due to under-utilisation of machineries. This situation can be

improved by implementing work study to reduce breakdown time, implement good


operating procedures and maintain good conditions of the factory.

Productivity Performance of GLCs2


The labour productivity of company GLCsS is the lowest, compared with the two other companies. From the annual report, the number of employees was increasing

but the increase in the total output was not significant enough to affect the labour
productivity. This result shows a lower labour productivity for GLCsS, and is not efficient or effective compared to the other two GLCs. The other reason is that the

workers were not well managed or the allocation of resources was not maximised. The
ratio of capital productivity in the GLCsS is also the lowest. Table 8 shows that the

labour productivity for company GLCs3 has decreased from year 2000, from RM87.810

to RM36,060 in year 2001 - This is because the employees had increased by triple, from year 2000 to 2003, and also due to higher investment in capital but the revenue collected only increased by double. Capital productivity for this company was stagnated and the company has to study why it happens and not only measure their performance based on financial indicators. Table 8 shows that the capital productivity decreased from RM500.00 in year 2000 to RM400.00 in year 2006. The reasons are because the fixed assets were under capitalised and utilised. The utilisation of the fixed assets in this company needs to be improved to ensure a higher output.

Productivity Measurement of Company GLCs3


Year
2000 2001

Labour Productivity (RM'OOO)


87.81

Capital Productivity (RM'OOO)


0.50 0.39 0.56 0.52 0.45 0.40 0.40

36.06
51.62 50.44 43.60

2002 2003 2004 2005


2006

38.73
45.10

Figure 4 shows the negative trends of performance of labour productivities for company GLCsS. Even though the company recorded profit for every year but the utilisation of the capital and labour productivities were not maximised. Compared to GLCs! and GLCs2, the productivity ratio for GLCsS was the lowest. Being in the same industrial sector with the other two companies, GLCsS needs to benchmark the two other companies on how to improve the productivity ratio.
Productivity Performance - GLCsS

Figure 4
Productivity (RM'OOO)
100
90

2000
m

2001 2002
Labour Productivity GLCsS

2003

2004

2005

2006

Year

* Capital Productivity GLCs3

Comparison of Labour Productivities


Comparison between productivity ratios of the 3 selected GLCs is very important to understand why certain companies have higher labour productivity and capital
productivity ratios than the others. The higher ratios indicate that the company is very

effective and efficient in managing human and capital resources. In these three companies, the values of productivity ratio are varied from each other.

Table 9
Year
2000
2001

Comparison of Labour Productivities


Labour Productivity
GLCs2 (RM'OOO) 88.52 66.97 98.52 146.85 141.59 131.86 147.10

Labour Productivity
GLCsI (RM'OOO) 365.35 408.74 456.83 499.12 610.67 748.34 789.12

Labour Productivity
GLCs3 (RM'OOO)
87.81

36.06
51.62

2002 2003 2004 2005

50.44 43.60 38.73


45.10

2006

Table 9 shows the comparison in labour productivity for these 3 GLCs, with GLCs! having the highest labour productivity compared with the two other GLCs. There is a very significant difference in the productivity ratio. This means that the performance of
GLCsI is much better than GLCs2 and GLCsS. Their workers are very effective and

efficient in producing the outputs. One unit worker in company GLCsI can produce
RM789,120 compared with GLCs2 which only produced RM147,100 and RM45JOO for GLCs3 in year 2006. GLCs2 and GLCsS need to benchmark the systems implemented for

managing employees in GLCsI and adapt such programmes to improve their labour

productivity. The low ratio indicates that the workers are not maximised or not fully
capitalised, or wastage of time and maybe because of inadequate salary. The higher ratio indicates the management efficiency in managing their workers, work altitude of the employees is good and their workers are knowledgeable and skilful. Figure 5 shows the comparison of the labour productivity for these 3 selected GLCs.

Figure 5
Labour Productivity (RM'OOO)
900 800 700 600

Labour Productivity Comparison

500 400 300


200 100 D

2000

2001 2002

2003

2004

2005

2006

Year

Labour Productivity GLCsI

Labour Productivity GLCs2

Labour Productivity GLCs3

Figure 5 shows that the GLCsI has an increasing performance in labour productivity. This can be explained as GLCs! has a good managing system compared with the two other companies. GLCs2 also shows an increasing trend but its value of labour productivity ratio is far below that of GLCsI. The lowest in labour productivity ratio is GLCsS. The selected 3 GLCs companies are from the same plantation sector but have a very large range in the values of labour productivity. The labour productivity ratio is very important because from the ratio we can understand the problem of the companies and whether their workers are effective or efficient at all.

Comparison of Capital Productivities


The comparison between the capital productivity for these three companies also showed a significant difference in their capital utilisation. GLCsI has utilised its fixed assets very well in producing output, compared with the two others. GLCs2 and GLCsS have problems in managing their fixed assets because the productivity ratio is low compared to GLCsI. GLCs! indicates the efficiencies of assets utilisation compared to companies GLCs2 and GLCs3. GLCs2 and GLCsS should increase the utilisation of their fixed assets. Table 10 shows that in year 2006, GLCsI was very successful in handling capital productivity, which is 19 times higher than GLCs2 and

GLCsS. This can be explained as GLCs! has utilised the optimum of the fixed assets in
production than GLCs2 and GLCsS.

Comparison of Capital Productivities


Year
2000

Capital Productivity
GLCsI (RM'OOO) 9.56
10.44

Capital Productivity
GLCs2 (RM'OOO) 0.78 0.57 0.78 1.07 1.05 0.86 0.97

Capital Productivity
GLCsS (RM'OOO) 0.50 0.39 0.56 0.52 0.45 0.40 0.40

2001
2002

11.33 12.97 14.03 18.02 19.61

2003 2004 2005 2006

Figure 6 shows the trend of comparison in the capital productivity. It shows a significant difference in the value of capital productivity. The difference can be used to explain how good company GLCsI is in managing its capital compared with the others. The low ratio for the 2 other companies reflect the poor assets utilisation. The two other companies have to find a better way to improve the capital productivity by increasing the utilisation of their fixed assets.

Capital Productivity Comparison

Capital Productivity {RM'OOO)

0 2000
Capital Productivity GLCsl

2001

2002

2003

2004

2005

2006

Year

* Capital Productivity GLCs2

* Capital Productivity GLCsS

The graph shows the performance of capital productivity for the 3 selected GLCs,
from year 2000 to year 2006. The capital for GLCsI has increased from RM9,560 in

year 2000 to RM19,610 in year 2006, but for GLCs2 and GLCs3 the performance of
capital productivity is very low compared to GLCsI. This indicates that the fixed assets

are under utilised for GLCs2 and GLCsS. Capital productivity for GLCs2 and GLC3 can be improved by maximising the utilisation of their fixed assets.

Results of the Production Function Approach Model


The time series data for each selected company were run using the SPSS programme to analyse the relationship between the variables and to determine the economies of scale. The results explain the most significant factor affecting the revenue for these 3 selected GLCs. The model used is the Production Function Approach Model.

Results of the Data Analysis of GLCs!


The data for company GLCs! were regressed after the values of labour and capital productivities were transformed to In. The output of SPSS for company GLCsI is shown in the table below. The output explains the effectiveness and efficiency of the company. It also explains which variables have significantly contributed to the dependent variables.

Model Summary : Coefficient of Determination of GLCsI


R Square Adjusted R Square Std. Error oft the Estimate
.01235

,999a
a. Predictors : (Constant), Lnlcapprod, Lnlabprod

.999

.998

The Model Summary table shows the coefficient of determination. It measures the degree of predictive accuracy of the regression model in explaining the variations in the dependent variable. The model explains that 99.9 percent of the variation in revenue was contributed by labour and capital productivities. That means other variable have contributed very little to the revenue of GLCsI. The ANOVA (Analysis of Variance) table contains the sum of square, degree of freedom, mean square, F test and the level of significance of the regression and the residual. The purpose of this table is to prove whether the summary table is correct or not. The ANOVA table contains information needed to test the overall significance of the regression model. The purpose of the test is to compare the means of three or more independent groups and the variables compared are normally distributed.

Table 12
Model H H H p f ("Bflftre
.420 .001 .420

ANOVA: ANOVA for GLCsI *** Mean Square


.210 .000

Sia.

1 Regression Residual Total

2
4

1375.833

.0003

a. Predictors : (Constant). Lnlcapprod, Lnlabprod b. Dependent Variable : Lnrevenue

The above ANOVA table contains information to test the significance of the regression model. Since the Sig (or Prob) value (0.000) < 0.05, the model is significant and can explain or predict the revenue. Based on F-statistic, F = 1375-833 and P value (0.000) < 0.05 show that the model is significant, and conclude that labour productivity and capital productivity have affected the revenue of GLCsI.

Table 13
Unstandardised Coefficients Std. Error
(Constant) 13.285
.185 .777

Coefficients : Coefficients of GLCsI


Standardised Coefficients

.446 .128
.140

29.785

.000

Lnlabprod
Lnlcapprod

.206
.795

1.436 5-541

.224 .005

a. Dependent Variable : Lnrevenue

The coefficients table contains information needed to evaluate the significance of

individual independent variables and for comparing the relative importance of each other. The Sig. value corresponding to each variable is to determine whether that variable is significantly related to the dependent variable or not. The table coefficient shows for GLCsI, the capital productivity is significant in contributing to the revenue because the P value (0.005) < 0.05. The labour productivity is not significant in contributing to the revenue because P value (0.224) > 0.05. The equation for the production function model for company GLCsI is:

= 13.285+ 0.206 In j0L + 0.777 In J32


ThejS, value of 0.206 indicates that if a labour productivity increased by 1 percent,

then the revenue should increase by approximately 0.206. Thej6 2 value indicates that
when capital productivity assets increased by 1 percent, the revenue will increase by 0.795 percent. Based on the beta value, the capital productivity is more significant and important compared to labour productivity in contributing to the revenue of company GLCsI. The parameter for economies of scale for company GLCs! is obtained by adding these two dependent variables (economies of scale _/J, + JS2 = 1.001)- 1.001 was obtained, which gives the value of constant return to scale. As is evident, over the period of this study, the revenue for company GLCs! was characterised by constant

return to scale.

Results of the Data Analysis GLCs2


The data for company GLCs2 were run through the SPSS. The output from SPSS is shown in the table below. The outputs have been studied to identify the significance of the independent variables towards the dependent variables.

Model Summary : Coefficient of Determination of GLCs2


Model R R Square Adjusted R Square
.896 .975

Sld. Error of the Estimate


.12467 .06159

1
2

.9569

.913 .983

.991 C

a. Predictors : {Constant). Lnlabprod b. Predictors : (Constant), Lnlcapprod, Lnlabprod

Table 14 explains the coefficient of determinant R2 for GLCs2. This table shows
that the two dependent variables, labour productivity and capital productivity, contributed 98.3 percent in generating revenue in the company, while the remaining percent is not explained by R2. The unexplained value of 1.7 percent may be because of the materials and services bought from contractors hired by the company.

Table 15
Model Sum of Square
.819 .078 .896 .881 .015 .896

ANOVA: A N O V A f o r G L C s 2 df Mean Square


.819 .016

Sig.

1 Regression Residual Total 2 Regression Residual Total

1 5 6 2 4 6

52.669

.D01a

.441 .004

116.141

.000b

a. Predictors : (Constant), Lnlabprod b. Predictors : {Constant!, Lnlcapprod, Lnlabprod c. Dependent Variable : Lnrevenue

The ANOVA table contains information to test the significance of the regression model. Since the Sig (or Prob) value < 0.05, the model is significant and can explain or predict the revenue. Based on F-statistic, F = 11.141 and P value (0.000) < 0.05 show

that the model is significant, and conclude that labour productivity and capital
productivity have contributed to the revenue of company GLCs2.

Coefficients : Coefficients of GLCs2

1 (Constant)

8-990 1.206
2.977 2-416 -1.707

.787 .166 1-531 .309 1.915 -.995 .956

11.424 7.257 1.945 7.815 -4.060

.ODD

Lnlabprod
2 (Constant)

.001
.124 .001 .015

Lnlabprod Lncapprod

.420

a. Dependent Variable : Lnrevenue

The coefficients table contains information needed to evaluate the significance of individual independent variables and for comparing the relative importance of each other. The Sig. value corresponding to each variable is to determine whether that variable is significantly related to the dependent variable or not. The table coefficient shows for GLCs2, the labour productivity is significant in contributing to the revenue because the P value (0.001) < 0.05. The capital productivity is also significant in contributing to the revenue because P value (0.015) < 0.05. The production function equation model for company GLCs2 is:

Y = 2.977 + 1.91 5 In j9, + -0.995 In


The value of fi^ explains that the revenue in GLCs2 increases by 1.915 percent if labour productivity is increased by 1 percent. The value of _/J2 explains that if the company increases 1 percent in capital, the revenue will decrease by 0.995 percent. Adding the two inputs' elasticity, we obtained 0.920, for the return to scale parameter. As is evident, over the period of this study, GLCs2's revenue was characterised by

decreasing return to scale.

Results of the Data Analysis GLCs3


The data for company GLCsS were processed using the SPSS programme. The output of SPSS is shown in the table below. The output is studied to identify the

significance of independent variables towards the dependent variables. Table 17


suggests that the model explains 89.6 percent of the variation in revenue. That means other variables not included in the model are also related to the revenue. The coefficient of determination R2 explains 89.6 percent revenue was explained by labour and capital
productivity factors.

Model Summary : Coefficient of Determination of GLCsS


R Square Adjusted R Square
.704 Std. Error of

the Estimate
.12624

896a
a. Predictors : (Constant), Lnlcapprod, Lnlabprod

.803

ANOVA : ANOVA for GLCsS


Model Sum of Square
.259 .064 .323

df

Mean Square
.130 .016

Sig.

1 Regression

2 4
6

8.132

.039a

Residual
Total

b. Predictors : (Constant), Ln/capprod, Lnlabprod c. Dependent Variable : Lnrevenue

The table ANOVA shows the significant effect of the dependent variables towards independent variables. Based on F-statistic, F = 8.132 and P value (0.039) < 0.05 show

that the model is significant, and conclude that labour productivity and capital
productivity have contributed to the revenue of company GLCsS. Coefficients : Coefficients of GLCsS
Standardised Coefficients

Table 19
Unstandardised Coefficients
Std. Error 1 (Constant] Lnlabprod Lncapprod 18-992 -.779 1.640
1.107 .221 .445 -.979 1.025

17.150 -3.523 3.687

.000 .024 .021

a. Dependent Variable : Lnrevenue

The table coefficient for GLCsS shows that the labour productivity is significant in contributing to the revenue because the value of P (0.024) < 0.05. The capital productivity is also significant in contributing to the revenue as P (0.021) < 0.05. Both variables will significantly affect the dependent variables. The equation for production function model for company GLCsS is: Y = 18.992 + (-0.797) In jfi, + 1.025) In j82

The value of j&i explains that revenue in GLCsS decreases by 0.797 percent if labour productivity is increased by 1 percent. The value of j62 explains that if company
GLCsS increases 1 percent in capital, the revenue will increase by 1.025 percent. Adding

the two input elasticity, we obtained - 0.228, for the return to scale parameter As is evident, over the period of this study, the company's revenue was characterised by decreasing return to scale.

Conclusion and Recommendation Summary


The findings of this research show that the performance of the labour and capital
productivity factors of the companies is significantly different from each other. The

labour productivity for GLCsI is higher than GLCs2 and GLCsS even though they are in the same plantation sector The differences are indicated by the efficiencies of the
labour in producing the output. The capital productivity for these 3 companies also shows a different performance in the utilisation of their fixed assets. Company GLCsI has a higher performance in capital productivity compared with the two others. Company

GLCsS has a fluctuating performance in capital productivity. This indicates that the capital is not utilised and not effective in producing the output for GLCs2 and GLCsS. The performance from 2000 to 2006 reflects the productivity growth for each company. The higher labour productivity indicates the effectiveness and efficiencies of their workers in producing the output. The capital productivity explains how the fixed assets are utilised. The highest ratio implies that the capital is utilised to the maximum compared to the lower ratio result, which indicates capital is not efficient and under utilised. The production function approach model explains the economies of scale for each
company. The company GLCsI is operating at constant return to scale, meanwhile

GLCs2 and GLCsS are operating under decreasing return of scale. The study shows
that the three GLCs are not efficient in managing labour and capital productivities. Eventhough all the 3 companies selected are making profit over the period of study,

their performance can still be improved further by increasing labour and capital
productivities. The companies have to strategise the management and development of human capital, with the aim of increasing their knowledge and skills through trainings.

Capital can be improved further by increasing the utilisation of fixed assets. The company should emphasise the study on economies of scale to increase the efficiency and effectiveness in production of the products. The study shows only GLCsI is operating at a constant return to scale The two other companies are operating at
decreasing return to scale This means that the company has not maximised the labour

productivity and capital productivity. The company has a lot of room to improve their labour and capital productivities. The company should have a continuous productivity
improvement plan to increase the efficiency and competitiveness m the market.

Conclusion
With increasing recognition that productivity growth is the key to sustain the
economic expansion, measuring productivity is becoming important to economists and

policy makers. The accurate measurement of productivity performance plays an important role in providing the information economists need to put forth better policy recommendations and for policy makers to make the right decisions. Micro productivity is parallel with the scope covered by the term "microeconomics." It refers to the productivity of the organisational unit and size, such as a business, division, or department. The findings of the study show the productivity measurement can identify the effectiveness in capital and labour compared to using the financial indicators.
The result shows that the three selected GLCs are still operating under economies of scale. The economies of scale can be increased further if the company measure
their labour and capital productivities, because these two indicators are very important

in contributing to the total output of the company. The measurement of labour and capital productivities will explain many factors related to the production, from the aspects of managing quality and productivity. The measurement will explain the effectiveness of labour, reject rates, defect rates of the products, utilisation of machines, broke down time, capacity of the machines and handling. The findings of the research suggested that the company should increase their labour and capital productivities to achieve increasing return to scale. The findings can be used to increase the efficiencies of the economies of scale in production by studying the factors that affect labour and capital productivities. GLCs2 and GLCsS can also benchmark GLCsI in their best practices to increase their economies of scale. Missions, vision and strategies are powerful drivers towards the success of the company.

Recommendation
The productivity movement has a scientific basis in the statistical control of

manufacturing processes, that is, quality control. Since the late 1980s, it has been
increasingly applied to the business-level management of an organisation. The objective

in the original approach was to manage the production process so that it achieved and maintained a consistent, desired level of quality. The Malaysian Government gives recognition to the company which measures productivity. The Productivity Award was
presented to companies with a higher ratio in productivity measurement indicator. The

principles and values emphasised in this category are productivity measurement, management by facts, continuous improvement, and long-term goals of the organisation.
Organisations that have succeeded in improving productivity growth have typically

used approaches in productivity and quality improvement programmes, such as Total Quality Management (TQM), Just In Time, Total Preventive Maintenance, Quality Control

Circle, Kaizen, 5S and others. The performance or productivity growth seeks continuous improvement in processes, products, and services of an organisation. The company should require a shared mindset (culture) that emphasises customer satisfaction,
shared leadership and getting it right the first time. Another perspective indicates that

to increase efficiency and performance the company should have philosophies that are related to customer focus, continuous improvement and employee participation. To sustain and maintain competitiveness, the organisations have to measure their performance or productivity growth since these reflect how competitive the companies are. The productivity performance emphasises the understanding of variation, the importance of measurement, the role of the customer and the involvement of employees at all levels of an organisation in pursuit of such an improvement.

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