Outsourcing in Malaysia: Scaling New Heights
September 4, 2009
The turn of the century has seen growth in the number of outsourcing destinations, with countries around the world trying to grab a larger share of the outsourcing market. India along with the Philippines and China are the leading outsourcing destinations. Some destinations such as Vietnam, Kenya, Ghana, etc. have seen growth from their domestic or local outsourcing market. Malaysia however has seen a mix of both – large corporates setting up their captive centers in Malaysia and also the growth of the local outsourcing industry.
Drivers for Malaysia outsourcing industry
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.
Scaling new heights
Though recession has seen significant retrenchment of labor and drop in number of contracts, IT outsourcing will continue to be a significant contributor to the outsourcing revenues for Malaysia. The Malaysian outsourcing industry has been growing 15% annually and has touched $1.1 billion for the year 2009. The industry is expected to grow at a CAGR of 15% to reach $1.9 billion by 2013.
“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. Adds Danny Leong, CEO, Cuscapi, “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.”
The above article is an excerpt from the report “Outsourcing in Malaysia: Scaling New Heights”, a joint publication by Outsourcing Malaysia and ValueNotes. The report presents the competitive landscape of service providers in the Malaysian outsourcing industry. To know more about the report, please contact Rakhi at rakhi@valuenotes.com.
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