Introduction

The service sector is an important component part in contributing to Malaysias economy.

Beginning in 1960, the service sector has received much attention in economic analysis,
especially in the tertiary sector. The service sector is related with other sectors such as the
agricultural and manufacturing sectors. The development of the agricultural and
manufacturing sectors has shaped economic growth and the structure of the service sector,
which includes various sub-sectors that initiated the economic transformation from the
manufacturing sector to the service sector. Accordingly, the purpose of this study is to
identify the growth of the service sector in Malaysia. The focus of the study takes into
account the productivity for each of the sub-sectors in the service sector. The research was
measured by the Malmquist Index approach using data from 1995 to 2007. The findings
showed that service sector growth increased due to the technical efficiency of labour and
increased productivity due to modern technology. The results showed that starting in 2005,
the service sector was able to fluctuate the level productivity, proving that efficiency occurred
as a result of modern technology. In conclusion, this research was able to provide empirical
evidence that the development and growth of the service sector has contributed to economic
growth.
Service sector In Malaysia

The service sector contributes significantly to the Malaysian economy. In 1980, it contributed
44.7 percent to the GDP and 46.0 percent to total employment. However, as of 2009, the
percentage increased to 57.3 percent to the GDP (MIDA, 2009). In terms of the employment,
this sector provided 57 percent of the total employment in 2009. Projected contribution to the
economy in 2015 is 61 percent with annual growth of 7.2 percent. As reported in The Report
Malaysia 2010, during January-September 2010, investment in service sectors reached
RM27.36 billion with a significant amount of RM24.08 billion as domestic investment.
Malaysian government has taken several steps to give a boost to this sector. Malaysian
Industrial Development Authority, a government agency that is in charge of industrial
development, has established a National Committee for Approval of Investment with the
function to facilitate the investment in this sector. Malaysian government has also taken
vigorous initiatives to further enhance the service sector targeting key services sectors such
as educations and training services, health tourism, financial services, creative services, ICT
and telecommunications etc. Following is a brief overview of these sectors.

Under the Ninth Malaysian Plan, a total of RM 40.3 billion was set aside for education and
training. This amount accounts to about 21 percent of the total budget allocation. Until 2006
there had been 16 private universities of which 11 are owned by Malaysians. A total of
40,525 foreign students enrolled in the higher education institutions. As of 2011, the
Malaysian Association of Private Colleges and Universities, an influential association of
private higher institution, has 45 Ordinary Members, 15 Associate Members and ten Branch
Members comprising private colleges and institutes from all over Malaysia (MAPCU, 2011).
Malaysian government strives to make Malaysia as the hub for regional education in South
East Asia. After the events of September 11, 2001, Malaysia has emerged as an important
destination for students, particularly from the Middle East and the Malaysian government has
been organizing seminars and exhibitions annually to attract foreign students (Sirat, 2008).

Banking and financial institution in Malaysia is governed by Bank Negara Malaysia. The
pretax profit of Malaysian banking industry increased to 17.8 percent in the third quarter of
2010 (Emerging Markets Direct, 2011). The largest segment of all financial institution is the
commercial banks with the total asset of RM1,192.84 million. Maybank is the largest bank
with the market share of 27.18 percent. Bank Negara Malaysia continues to regulate and
monitor banking activities to ensure that Malaysia stays structurally sound in financial
management. Net financing through the banking system and capital market expanded by
11.3 percent in 2010 as compared to 8.4 percent in 2009 due to strong demand from
business and household sectors (Bank Negara Malaysia, 2011). In 2010, private sectors
savings has increased to RM199.4 billion. Banking sector deposits held by household and
business rose to RM821.8 billion in 2010 from RM772.9 billion in 2009. Due to a strong
economic recovery in the first half of 2010, growth of private sector financing has shown an
uptrend.

Another important service sector of the Malaysian economy, health care industry is also
being prioritized by the Malaysian government. As of 2009, there were 130 public hospitals
and 245 private health care institutions, which included nursing and maternity homes
(Ministry of Health, 2010). In total, there were 12,619 hospital beds. In 2005, only 222 private
health care centers operated were operational. All private medical services in Malaysia are
governed by Private Facilities and Services Act 1998 and they must be compliant with the
Ministry of Health that monitors, regulates and coordinates the industry.

The performance of hotel industry is Malaysia is influenced by both the internal and external
factors. Malaysian government assumes a strong positive role in promoting this industry. In
general, hotel industry in Malaysia has an encouraging growth rate. From merely RM5.1
billion in 1994 generated for the economy from this sector, the amount increased to RM8.9
billion in 2008 (Hotel Malaysia, 2009). As of 2009, there were 180 four-star and above hotels
with a total of 54,175 rooms. The average occupancy rate in 2009 was 60 percent. The total
employment from this industry was about 100,000 employees. Malaysia allocated RM100
million in the 2011 budget to promote tourism in Malaysia and additional RM85 million to
facilitate construction of hotels and resorts in remote areas (The Star, 2011).

Conclusion
The importance of service sector in Malaysia is undisputable and thus identifying
competitive priorities of this sector has become increasingly important. This study presents
a snapshot of the Malaysian service sector and competitive priorities of nine industries within
it. This

Bank Negara Malaysia (2011), Economic and Financial Data for Malaysia, Bank Negara Malaysia.

Emerging Markets Direct (2011), Malaysia Banking Industry Overview, Trends, Analysis, Outlook and
SWOT, Emerging Markets Direct.

Hotel Malaysia (2009), Accommodation Services.

MAPCU (2011), Malaysian Association of Private Colleges and Universities.

MIDA (2009), Performance Report 2009, MIDA.

Ministry of Health (2010), Health Facts 2009, Ministry of Health.

Sirat, M. (2008), The impact of September 11 on international student flow into Malaysia: lessons
learned, IJAPS, Vol. 4 No. 1, pp. 80-95.

(The) Star (2011), Highlights of PMs Budget 2011 speech, The Star.