Experience Counts

Malaysia

Economic News

22 Jul 2010
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A recent study by global consulting firm Frost & Sullivan has ranked Malaysia as the world's fifth preferred shared service and outsourcing (SSO) destination. India is ranked first, followed by China, Ireland and Singapore. Following Malaysia in the rankings are Mexico, Czech Republic, Poland, the Philippines and Canada.



With the global SSO industry estimated to be worth $930bn in 2006 and forecast to grow at a rate of 15% to reach $1.43trn by the end of 2009, Malaysia is keen to continue tapping into the industry's vast potential.



The Frost & Sullivan study covers seven SSO industry verticals, with Malaysia ranked second in energy, third in transportation and logistics, fourth in banking, financial services and insurance, and eighth in Information and Communications Technology (ICT).



The leading factors considered in the evaluation of a location were costs, availability of skilled labour and intellectual property regulations.



While Malaysia, with a population of only 27m and a higher cost of living than India and China, finds it difficult to compete on the labour side of the equation, it boasts government and economic stability, relatively transparent legislation, low inflation, strong infrastructure and a multicultural and cosmopolitan workforce.



When it comes to human capital, India is the clear leader due to a low wage structure and abundance of skilled human capital. The country is estimated to produce 2m ICT and engineering graduates a year. Malaysia, in comparison, is estimated to produce 75,000.



What Malaysia lacks in quantity, however, it makes up for in quality, with Malaysia's workforce offering strong international experience, language and soft skills.



In terms of experience, Malaysia benefits from over three decades of investment from global companies such as Shell, DHL and Dell, each of which set up manufacturing and outsourced business solutions operations in the 1970s. Wong Siew Hai is chairman of the Malaysian American Electronics Industry, an organisation representing 17 US-based companies involved in electronics manufacturing in Malaysia. He told OBG, "It's not just about labour price anymore. Over the past 30 years, Malaysia has developed management and leadership skills and we now understand American and MNC [multi-national corporation] culture. We also have a low turnover rate of employees and stable inflation, and added together these classify as 'compounded costs' that have to be factored into an investment decision."



International experience is further gained from the significant proportion of Malaysians who study abroad, 95% of whom elect to return and work in their home country.



Another asset that Malaysia offers is a workforce with a mixed population that includes 24% Chinese and 8% Indian. Yasmin Mahmood, managing director of Microsoft Malaysia, which bases its call centre as well its high-end support centre for premier customers for the entire Asia Pacific region out of Malaysia, told OBG, "It is not just about technical skill, which India and China have in abundance. Linguistically, we have a population that can speak English, Mandarin and Tamil, and in a fairly neutral accent. Take those three languages together and immediately you cater to a huge proportion of the world's population. You also have a population that is comfortable and familiar with Western, Arabic and Oriental cultures, so our people can work with anyone in the world. Lastly, you have a mix of profiles, with both left and right-brained personalities. If you require data entry staff or programmers, you have those who are straight and narrow, and if you want animators and game designers, you have those who are artistic and creative. Malaysia offers it all."



An additional area where Malaysia competes well over the likes of China and India is through a stable political and economic climate, and lower levels of red tape, bureaucracy and intellectual piracy.



Wong Siew Hai told OBG, "Compared to China and India, Malaysia is very predictable and stable. There are rarely drastic changes in compliance laws so investors know what they are going to get."



Mahmood echoed this sentiment, telling OBG, "While China and India have cost advantages, there is significant inflation and market volatility that offsets the cost benefits."



In order to position the country as an attractive SSO hub, Outsourcing Malaysia was established in 2004. It is a joint initiative set up by the Association of the Computer and Multimedia Industry of Malaysia, the Multimedia Development Corporation (MDec) and Malaysia Debt Ventures. MDeC oversees the development of the Multimedia Super Corridor, which since its inception a decade ago, has already attracted the likes of Shell, which runs a global IT support centre, DHL, which has set up one of its three global data centres there and HP, which is also running a global data centre in the area. Other arrivals to the corridor include Intel, Ericcson, HSBC, BMW and Nokia.



As Mustapha Kamal Bin Hj Abu Bakar, chairman of Setia Haruman, the master developer behind the intelligent city of Cyberjaya told OBG, "We did a comparative study with Bangalore and Dubai, and decided that while superior physical infrastructure was important, emphasis on the availability and delivery of intellectual capital was equally or more important. What we do have is first world infrastructure and land availability and we are not crowded like India, Singapore and the Philippines. What we needed to focus on was building the intellectual capital in Malaysia as Malaysia is a pleasant place to live and work."
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