Revenues from the Malaysian IT/ITeS outsourcing industry are expected to grow at a CAGR of 15% to reach $1.9 billion by 2013, according to a joint publication by Outsourcing Malaysia and ValueNotes . Currently, IT outsourcing services in Malaysia have a greater share of the overall outsourcing market, followed by BPO services; while knowledge services outsourcing, still in its nascent stage, has a smaller share.
While Malaysia is still exploring its niche, the country has established credibility as an outsourcing destination. The Malaysian outsourcing industry has been built on attracting investments in captive and third party outsourcing operations from several leading global companies (DHL, Shell, BAT, HSBC, Standard Chartered) spanning across various verticals (Oil & Gas, Logistics, Banks). Today, outsourcing in Malaysia has evolved to provide services, niche as well as integrated, in IT, BPO and knowledge processing in multiple industry verticals. Amongst the emerging destinations, Malaysia has had a good start in many areas. Some of the key drivers are:
- Domain knowledge: Malaysia possesses domain knowledge in sectors like Oil & Gas, Logistics and BFSI, which have been responsible for employment and economic growth. Large multi national companies such as Shell, ExxonMobil, BASF, HSBC, Standard Chartered, DHL, etc opened their captive centers in the country to support their local and Asian operations.
- IT-led growth: The Malaysian outsourcing industry has predominantly been driven by IT. Majority of the multi national companies set up their captive centers in Malaysia to support their IT operations. This was followed by multi national IT companies like IBM, HP, Apple, Intel and Sun Computer Systems, etc. setting up base in Malaysia to gain geographical advantage. The local Malaysian industry also consists of IT firms, large and small offering services ranging from infrastructure management services, application development and maintenance, and network and desktop related services.
- Language advantage: One of the major competitive advantages that Malaysia has is its multi-cultural and multi-lingual population. There is a sizeable population proficient in languages like English, Korean, Japanese, Tamil, Indonesian and various dialects of Chinese.
- Government support: The Malaysian government initiatives are a dominant factor in driving the outsourcing industry. The government support has helped form institutions that manage a variety of roles ranging from setting up a company to kick-starting the business. Moreover, the establishment of world class infrastructure and fiscal benefits has helped attract companies to Malaysia.
However Malaysia as an outsourcing destination has seen challenges in the form of manpower, inadequate VC funding, etc. that have slowed the relative growth of the outsourcing industry in Malaysia. One of the major challenges for the Malaysian outsourcing industry is to overcome constraints with regards to scalability. The total number of employees in the industry is roughly comparable to the number of new hires by a leading Indian IT outsourcing service provider.
One of the key concerns for the outsourcing industry in Malaysia is the need to move up the value chain to offer high value services as opposed to highly commoditized services in IT or BPO. According to Bobby Varanasi, an outsourcing consultant, “Strand Aerospace Sdn Bhd is a prime example of a Malaysian company moving up the value chain in outsourcing. The company specializes in computer-aided stress testing for engines of Boeing and Airbus.”
“Despite the challenges, our research has identified a multi-pronged and focused strategy for Malaysia to capture the burgeoning global outsourcing opportunities,” said David Wong, PIKOM and Outsourcing Malaysia Chairman. “To sustain growth, Malaysia needs to carve its own niche that fits its strengths. For instance, Malaysia has become one of the preferred destinations to offshore services for companies in the Middle East, especially in key sectors such as oil and gas and Islamic finance. And we do need to further build on this. More importantly, we should also focus on our cultural and language strengths to cater to Asian markets in selected areas,” he explained.
The Outsourcing Malaysia Road-show
Last week, the NASSCOM organized India Leadership Forum (NILF) concluded in Mumbai. Held annually, NILF is an IT and BPO centric conference that showcases thought leadership and innovation in the industry. It also allows professionals from the industry network with one another. This year the conference had an attendance estimated at 1600 people representing various companies, delegates from foreign countries and investment promotion agencies (IPAs).
Outsourcing Malaysia (OM), one such delegation, participated in the conference with an aim to promote the capabilities and competencies of the Malaysian outsourcing industry. Going beyond just showcasing Malaysia as an outsourcing destination, the delegation were keen to highlight other aspects such as mutual market access, co-creation of solutions, services and sub-contracting. Some other propositions included extended Malaysian facilities as possible disaster recovery centers (or business continuity centers) as well as providing either scale or multi-shoring options to Indian providers.
With ValueNotes organizing meetings and introductions, the OM delegation networked with decision makers from leading IT and BPO companies. These meetings revolved around identifying and developing synergistic partnerships between Malaysian and Indian companies.