September 2009: Revenues from the Malaysian IT/ITeS outsourcing industry are expected to touch $1.1 billion in 2009, according to a joint publication by Outsourcing Malaysia and ValueNotes. The industry is expected to grow at a CAGR of 15% to reach $1.9 billion by 2013. 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.


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Government support, domain knowledge and industry expertise in BFSI, oil & gas and logistics has benefited the growth of the Malaysian outsourcing industry. Moreover, Malaysia’s multi-cultural and multi-lingual capability is attracting business from Asian markets like China, Japan, South East Asia and the Middle East. According to Arun Jethmalani, CEO, ValueNotes, “Companies in the BFSI, oil & gas and logistics sectors, which had set up operations in Malaysia decades ago, are leveraging the country’s multi-lingual ability and domain expertise in these verticals to set up IT and BPO centres in Malaysia.”


Malaysia has been recognized as one of the preferred destinations for outsourcing, however it faces some challenges. “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,” says Suheil Patel, analyst and co-author of the report. Employee costs, too, are 15% to 20% higher when compared to other popular destinations like India.


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. Says 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.”


Finding its own niche will be critical for the Malaysian outsourcing industry to sustain its growth. For example, a majority of the local Malaysian service providers serve the Asian and the Middle East markets. They are well poised to address the outsourcing opportunity in Islamic banking services from these markets. “Malaysian companies have started to focus on delivering business value to their clients through packaging of ITO, BPO and KPO. This should and will be one of the ways forward to differentiate Malaysian companies from others,” said CEO of Cuscapi Berhad.


“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.


With consolidation and collaboration at the service provider’s end and strong initiatives from the government for the outsourcing industry, Malaysian service providers will receive greater recognition in the global markets. However, given the challenges, providers will find it difficult to make a significant dent in the outsourcing market. Considering the scale, a focused approach backed by the government and industry initiatives will drive the success of the Malaysian outsourcing industry in the long term.


The report titled Outsourcing in Malaysia: Scaling New Heights, a joint publication by Outsourcing Malaysia and ValueNotes, presents the competitive landscape of service providers in the Malaysian outsourcing industry. It features in-depth insights and analysis, including the competitive standing of Malaysia as an outsourcing destination, and future trends and challenges faced by the industry.


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About ValueNotes
ValueNotes is a leading provider of business intelligence and research, with expertise across selected domains and types of customer needs. Working with clients across the globe, we have significant understanding of international markets.

The ValueNotes Sourcing Practice is one of the largest information providers on the outsourcing industry. The Practice uses a comprehensive, analytical framework providing fresh insights into the fast emerging and yet, complex outsourcing space. We extensively track the space through regular analysis of news and events, continuous primary research and contact with the industry.

About Outsourcing Malaysia
Outsourcing Malaysia (OM) is an initiative of the Malaysian outsourcing industry and a chapter of PIKOM. With support from its institutional partners, the Multimedia Development Corporation (MDeC), and senior leaders from the global services industry, this outsourcing consortium aims to promote the capabilities and competencies of the Malaysian outsourcing industry.

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