Malaysia’s outsourcing industry poised to take on the world

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Malaysia has a lot more going for it as an outsourcing destination than previously thought (photo credit: cyberjaya-msc.com)

Malaysia has a lot more going for it as an outsourcing destination than previously thought (photo credit: cyberjaya-msc.com)

By Sharmila Ganapathy

It was not too long ago that Malaysia was seen as a “less attractive” outsourcing destination than rivals such as India and the Philippines. To many, this perception is still very real as Malaysian outsourcing players continue to face an ongoing struggle to convince buyers that Malaysia is a viable regional outsourcing destination.

This perception is likely to change now that a recently released study by ValueNotes has indicated that Malaysia has a lot more going for it as an outsourcing destination than previously thought. Called “Malaysia’s Global Business Services Outlook”, the report predicts that revenue from the outsourcing industry in Malaysia is expected to grow at a compounded annual growth rate of 15 per cent to USD3.4 billion (RM10.7 billion) by 2017. Revenue from the industry as at 2012 was USD 1.7 billion (RM5.35 billion).

2Highlighting this to members of the media at the recently concluded Asia Pacific Outsourcing Summit 2013 held in Nusajaya, Outsourcing Malaysia chairman David Wong (pic) also said that the number of employees in Malaysia’s outsourcing industry is expected to grow from 45,000 currently to 85,000 by 2017.

Wong also pointed out that Malaysia has been ranked 12th worldwide by the World Bank in terms of ease of doing business, which is the highest amongst all countries that are considered ‘outsourcing countries’.

“A simple illustration of this is that a potential investor can start doing business in Malaysia in a mere six days, while it takes an average of 36 days to do the same in other APAC countries,” he said. In addition, in terms of infrastructure readiness, the ValueNotes report ranked Malaysia 32nd in the world, which is a strong positive in comparison to India, which is ranked 84th in terms of infrastructure.

The new study also points a need for Malaysia to immediately move away from entry-level outsourcing, said Wong. “The largest Malaysian outsourcing company only manages to employ 5,000 people as compared to more than 100,000 employees in some of the larger firms in India and China. This illustrates the average size of outsourcing centres in Malaysia, which limits our capability in taking on volume-driven type of outsourcing project.”

“This is why we have to focus [higher up the value chain] on providing more highly specialised end-to-end services in niche markets such as a) Business Financial Services Industry (BFSI) b) Healthcare c) Logistics and d) Oil and Gas in order to remain globally competitive,” he said.

Wong said that government outsourcing is also an area for domestic outsourcing companies to pursue, given that the government has already outsourced a fair bit of its data centre functions since last year.

Wong said the BFSI sector now currently accounted for 30 per cent of the market share and would increase especially in Islamic banking with the potential to offer off-shoring services. “The fastest growth will be seen in the Healthcare (CAGR 10 per cent), Government (CAGR 9 per cent) and Travel and Logistics (CAGR 8 per cent) sectors. Infrastructure management and payment processing are some of the services that are being predominantly outsourced by businesses within the sector.”

According to Wong, some of the most popular IT outsourcing projects are generic office enrolment (GOE), electronic procurement (eP) and human resource management information system (HRMIS). “Oil & Gas is another critical sector where there is high potential for growth. Malaysia’s strategic location, good port quality and road infrastructure on the other hand is contributing to the growth of the logistics sector,” he said.

While the positives are heartening, Wong acknowledges that the study also discovered challenges that the outsourcing industry in Malaysia still faces and will continue to face. “Talent is still an issue – we don’t have the kind of numbers produced by India and China. So we are able to focus on areas that are knowledge-based and specialised. Players have to make sure that they catch up with changes and embrace technology to be able to differentiate themselves from the competition,” he said.

Another challenge is the mismatch of skills, he said. A recommendation by the report, said Wong, is to embed practical industry curriculum into academic curriculum, which is being done successfully by Nasscom in India. “We will start off by selecting interested parties to conduct courses to enhance employability,” he said, commenting on Outsourcing Malaysia’s efforts to bridge the gap.

Overcoming these challenges will prove no small feat for local outsourcing players. However, it can be achieved with the right mix of self-perception, perseverance and support from customers. By focusing on the verticals recommended in the study and by playing to their strengths, local players should finally establish Malaysia on the global outsourcing map.

 

Tomorrow: Time for outsourcing players to collaborate.

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