Many of Malaysia’s Vision 2020 goals to develop into a high-income knowledge economy hinge on its ability to leverage its IT sector strategically and effectively. As is true in all developed countries, the country’s IT backbone undergirds and acts as the foundation for the potential of a wide swathe of other sectors, from services and industry to tourism and banking. Although the sector is steadily achieving its Vision 2020 goals, it is at the same time faced with doing so in a demanding environment. A depreciated currency, increased costs due to the implementation of the goods and services tax, and the dual challenges of training a competent workforce of employable graduates and stemming the tide of brain drain all combine to make this a time of increased challenges.
Up The Ranks
Despite the difficult conditions, Malaysia ranked 32nd of 141 countries in the 2015 Global Innovation Index (GII), moving up one place from 2014. Within the South-east Asia and Oceania subcategory, it was ranked number eight, behind China and ahead of Vietnam. The country had strong GII scores in many areas: investor protection, the amount of market capitalisation and creative goods exports, research collaboration between industry and academia, cluster development and organisational model creation, among other things.
According to the National ICT Association of Malaysia’s (PIKOM) “ICT Strategic Review 2015/16,” the ICT sector was projected to record growth of 14.8%, or RM81.4bn ($20.15bn), in 2016, up from 14.2% in 2015, primarily from the intensification of digitalisation fundamentals included in the government’s economic transformation and regional corridor projects. PIKOM expects ICT services’ contribution to GDP to reach 6.9% by 2016, from 3.3% in 2000.
Indeed, the ICT services subsector has been growing for some time now. From 2005 to 2014 the total value of the ICT industry, which includes services and manufacturing, increased from RM72.7bn ($18bn) to RM115.9bn ($28.7bn), according to the Department of Statistics Malaysia’s ICT Satellite National Account. The industry’s growth was mainly due to the ICT services subsector, with GDP share for the entire sector increasing significantly from 44.7% to 67.7% during the same period. The GDP value of the ICT products subsector (computers, communications, consumer electronics, and miscellaneous ICT components and goods) declined from RM40.2bn ($9.95bn) to RM37.4bn ($9.26bn) during the same period.
The Malaysian government has prioritised digital government initiatives in order to increase the transparency and accountability of government services and the management of the country’s public sector. Encouraging citizens to become more participatory in governance, enhancing service delivery, proliferating open data and data sharing among government agencies, rationalising public sector institutions, leveraging big data analytics (BDA) and implementing a National Internet of Things (IoT) roadmap have all been listed as current goals by the Malaysian Administrative Modernisation and Management Planning Unit.
With a remit to support the domestic ICT industry in becoming more innovative and competitive by developing sound technologies for its use, in July 2015 the Ministry of Science, Technology and Innovation (MOSTI) and its applied research agency, the Malaysian Institute of Microelectronic Systems, released a National IoT Strategic Roadmap to serve as a guideline for IoT implementation. IoT has been defined as a merging of smart devices that generate data with the ultimate aim of enhancing overall quality of life. These are devices connected to the internet that monitor and generate data on health, home appliances, automobiles and even infrastructure. In Malaysia IoT implementation is projected to contribute RM9.5bn ($2.35bn) to GNI and generate 14,270 high-skilled employment opportunities by 2020.
11MP: Progress on these wide-ranging initiatives is set to be continued during 11the Malaysia Plan for 2016-20 (11MP). To extend the reach of broadband infrastructure to 95% of populated areas, key infrastructure initiatives are being put into place, including the High-Speed Broadband 2 (HSBB 2), Suburban Broadband (SUBB) and Digital Terrestrial Television projects. In addition, policies to improve access pricing and consumer protections are being put in place to make broadband access more affordable, targeting a cost of 1% of GNI per capita for fixed broadband.
Within the ICT industry, the 11MP plans to capture a bigger export market for both products and services such as digital content, the IoT, data centres and cloud services, software development and testing, cybersecurity and BDA. Toward this, the nation’s small and medium-sized enterprises (SMEs) are being encouraged to adopt automation in production, business services and operations, as well as supply chain management and delivery systems. Two existing programmes – Technology Commercialisation Platform (TCP) and Inclusive Innovation – have been successful in these areas and are set to be continued during the 11MP period. Linking innovation initiatives under one platform and removing market and financing barriers to innovation, TCP facilitates SMEs’ ability to use technology, as well as to acquire intellectual property (IP) rights and early-stage financing. Meanwhile, the Inclusive Innovation programme provides financial, technical and management support to rural areas and low-income households and encourages these groups to participate in micro-enterprise activities.
Malaysia is looking to attract foreign investment in its IT industry, particularly in the Multimedia Super Corridor (MSC). In exchange for a commitment of considerable technology transfer, foreign investors who obtain MSC status receive regulatory and tax exemptions. The Multimedia Development Corporation (MDeC) approves all applications for MSC status and manages various programmes to promote the ICT sector. In May 2015 MDeC announced the launch of a new programme, MSC Malaysia for Start-ups, which aims to position Malaysia as a regional entrepreneur centre.
The programme aims to nurture start-up companies, and facilitate and accelerate their ability to obtain MSC Malaysia status. MDeC awards MSC Malaysia status for ICT and ICT-facilitated businesses that develop or use multimedia and digital technologies to produce and enhance their products and services. In 2015 MSC status was extended to 249 firms offering more than 12,850 potential employment opportunities and with foreign investments of around RM2.1bn ($519.82m). In all, more than 3600 global and local companies have been awarded with MSC Malaysia status, comprising cluster areas such as IT and global business services (GBS). Digital entrepreneurs, SMEs and ICT industry start-ups with MSC Malaysia status are also able to take advantage of special incentives. For instance, MSC Malaysia status companies are allowed to hire up to 20 foreign knowledge workers in key positions and they are entitled to financial incentives including 70% tax exemption on statutory income for five years.
As part of the National Broadband Initiative, Malaysia has been working to develop its HSBB infrastructure for some time, while at the same time trying to make HSBB affordable for all consumers. Moving further toward this goal, the government and Telekom Malaysia (TM) have collaborated on an RM11.3bn ($2.78bn) HSBB project to build HSBB infrastructure across the country. According to TM’s 2015 annual report, more than 2.34m broadband customers had connectivity of 4 Mbps or more.
In December 2015 TM announced it had signed two 10-year public-private partnership (PPP) agreements with the government for the execution of the second phase of HSBB 2, as well as a separate agreement for the SUBB project. Under the agreements, TM will use fibre-to-the-home (FTTH), ethernet-to-the-home and very-high-bit-rate digital subscriber line 2 – which uses existing copper wire infrastructure to deliver high-speed internet access – to build last-mile access networks to both homes and businesses.
Under the HSBB 2 agreement, TM will carry out planning, designing, implementation, operation and maintenance of the HSBB network infrastructure and services. It also has a deadline of 2017 for adding 95 more HSBB-ready exchanges and extending HSBB access to 390,000 premises in state capitals and selected major towns. The total 10-year cost of the HSBB 2 investment is estimated to be RM1.8bn ($445.56m), of which the government will contribute RM500m ($123.8m). For the SUBB project, TM will upgrade existing copper lines to deliver broadband at downlink speeds of up to 20 Mbps (and up to 100 Mbps in areas that have FTTH technology) to 420,000 premises in suburban and rural areas by 2019. Total investment in the project is expected to amount to RM1.6bn ($396.1m) over 10 years, with the government footing RM600m ($148.52m) of the cost.
As part of the government’s efforts to increase the capacity of HSBB, TM has also been contracted to assist TIME dotCom subsidiary TT dotcom in constructing, deploying and managing a new subsea cable system to link Peninsular Malaysia with Sabah and Sarawak. The 3500-km cable will replace TM’s aging Malaysian Domestic Submarine Cable System and is set to begin carrying commercial traffic in 2017.
The fixed broadband market offers diverse offerings and promotions, and consumers have a wide range of services to choose from. However, although customers may in theory choose from many HSBB packages available from the main providers, the price of these packages can deter some subscribers. Many Malaysians therefore opt to pay less for slower internet speeds because the high-speed packages are too costly. The Malaysian Communication and Multimedia Commission (MCMC) recognises that improving broadband speeds, coverage and affordability is a priority. “With more demand for data services, prices for broadband are expected to reduce over time,” the commission said in a statement released in October 2015.
Malaysia’s broadband service is generally considered both slower and more expensive than that of similar countries. In Malaysia broadband is defined as service with a minimum speed of 384 Kbps. In comparison, the US Federal Communications Commission defines broadband as service with a minimum download speed of 25 Mbps and an upload speed of 3 Mbps. US-based IT services firm Akamai’s fourth quarter 2015 “State of the Internet” report found that Malaysia’s average connection speed was 5.2 Mbps, a 7.5% increase over the third quarter of 2015 and a 28% year-on-year (y-o-y) change, making it number ninth in the Asia Pacific region and 73rd globally. In terms of average peak connection speed, Malaysia was again ninth in the Asia Pacific region, but at 42 Mbps had moved up to 55th globally, a 9.5% jump over the previous quarter and a 42% y-o-y spike.
TIME, Packet One Networks (P1), Maxis, TM and ABN xcess provide fibre and ADSL broadband services with varying download quotas and maximum speeds. As of the first quarter of 2016 monthly prices for 2-Mbps packages ranged from RM51.94 ($12.86) to RM73.14 ($18.1) for Maxis, RM137.80 ($34.11) for TM’s Streamyx service and RM147.34 ($36.47) for P1. In line with ICT infrastructure targets set out in the 11MP, the MCMC is working with industry partners to improve speeds to as fast as 100 Mbps in urban areas and 20 Mbps in half of suburban areas by 2020. TIME and Maxis already offer fibre home broadband in selected areas at 100 Mbps for RM157.94 ($39.10) and RM421.88 ($104.43) per month, respectively. To reach this goal, the partners are expected to invest about RM20bn ($4.95bn) in the next few years. Malaysia’s IT spending in 2016 is forecast to grow by 7.6% to RM69bn ($17.1bn), above the average growth of 4.5% in the Asia Pacific region, according to IT research firm Gartner’s Worldwide IT Spending Forecast.
The need for speed is partially a result of Malaysians’ interest in consuming online content. According to a 2015 survey by US software firm Adobe, nearly 80% of Malaysians stream or download online video content each month, while 42% watch TV content and movies via the internet. The survey also found that Malaysians view social network sites 14bn times a month – almost 731 times per person – and on average each user has 233 friends on Facebook, which is nearly 80% higher than the global average. Finally, the popularity of e-commerce also plays a role. When it comes to shopping, nearly 69% of survey respondents indicated they preferred to start with a Google search when online shopping.
Adding to the IT sector’s value proposition, GBS, which encompasses business process outsourcing, IT process outsourcing and knowledge process outsourcing, has been folded into the Business Services National Key Economic Area of the Economic Transformation Programme. Championed by MDeC and Outsourcing Malaysia, GBS is gaining momentum in Malaysia with the aim of developing an internationally competitive GBS offshoring and outsourcing centre in the country. As an Entry Point Project (EPP), it has raked in several high-profile achievements, such as attaining RM2.02bn ($500.02m) in export revenue by outsourcing companies in 2014 – surpassing the RM1.83bn ($453m) target – as well as the completion of Symphony House’s $6.6m acquisition by Aegis, one of the world’s largest business services providers. In addition, the launch of the Goldbury Global IT Automotive Outsourcing Hub in November 2014 is expected to generate RM113m ($27.97m) in GNI, create 450 highly skilled jobs and attract RM4.2m ($1.04m) in investments.
Enforcing IP Rights
Malaysia has also stepped up enforcement against online piracy and amended its copyright law to include penalties for unlawful internet hosting, streaming and linking. Even so, levels of physical and online piracy remain unacceptably high, as shown in the IP Index compiled by the Global Intellectual Property Centre. The index assesses the IP environment around the globe, evaluating each country’s trade secrets, market access, enforcement rate, membership in international IP-related treaties, and account patent, trademark and copyright protection. The 38 countries scored included six ASEAN member states, and of these Malaysia was rated second, scoring 14.8 on the IP Index, meaning it has room for improvement. Malaysia’s score placed it behind Singapore, but ahead of Brunei Darussalam and Indonesia. The opportunity to improve its score on the IP Index could arrive soon, as there are substantial provisions in several free trade agreements (FTAs) that Malaysia is currently negotiating, including the Trans-Pacific Partnership and an FTA with the EU.
IT-related SME development policies were highlighted in the 2016 budget, including: RM1.5bn ($371.3m) to the MOSTI for various research and development and entrepreneurship initiatives; RM1.2bn ($297.04m) to MCMC to make improvements to the national communication infrastructure, National Fibre Backbone infrastructure, high-speed and rural broadband projects, and an undersea cable system; and RM200m ($49.5m) for the SME Technology Transformation Fund.
Part of MCMC’s RM1.2bn ($297.04m) allocation will go towards getting HSBB to rural areas, which will also help to spur the growth of mobile online shopping – all of which will also help SMEs and entrepreneurs grow the country’s e-commerce environment. Allocations for two programmes, the Entrepreneurs Acceleration Scheme and the SME Capacity and Capability Enhancement Scheme, totalled RM60m ($14.85m). The SME Technology Transformation Fund falls under the SME Bank and will offer soft loans to SMEs. The loans will help SMEs improve business values in order for them to achieve the goal set out for them in the 11MP of accounting for 41% of GDP by 2020.
Big Data, Big Workforce
The demand for IT sector employees is high in many areas, including engineering, finance, business, agriculture and management. As Malaysia’s technology space experiences rapid growth, and as big data analytics (BDA) gets under way and the e-commerce space grows, more companies are going to need qualified IT specialists. Unfortunately, there is a shortage of both IT graduates and experienced IT professionals in Malaysia. By 2018 the total demand for ICT professionals is projected to be 134,438, according to a study conducted by MSC Malaysia. In 2014 there was a shortage of 5800 computer science and IT specialists against a demand of 13,300, with about 80% of job vacancies requiring experienced professionals.
For its part, MDeC is continuing its efforts to produce more data specialists. It aims to grow the number of data professionals from 4000 in 2016 to 16,000 by 2020. Malaysia had more than 100 data scientists in 2016, a number that MDeC wants to boost to 1500 by 2020. Seven of Malaysia’s public and private institutes of higher learning began offering undergraduate and post-graduate courses in data analytics, data science and computer science in July 2015, according to MDeC. These institutes include Asia Pacific University, Malaysia Multimedia University, International Islamic University Malaysia, Sunway University, University Institute Technology Mara, Monash University and University Teknologi Petronas.
This drive to produce more data scientists is part and parcel of MDeC’s vision to make Malaysia a regional centre for BDA. Working toward this, MDeC is preparing to launch the ASEAN Data Analytics Exchange (Adax), an online and physical platform to connect data scientists to solve BDA problems. Adax is intended to eventually comprise start-ups, academics and businesspeople working together. The exchange will initially be launched by MDeC, but in March 2016 Karl Ng Kah Hou, MDeC’s director of innovation capital, told Malaysian news site Digital News Asia that they “expect it to be driven by the private sector and be self-sustainable as more and more SMEs look into BDA.” MDeC plans to open Adax’s virtual platform by the third quarter of 2016.
Looking ahead, there are numerous fundamentals feeding optimism about the IT and ICT sectors’ performance. From moving up in global innovation charts to recording growth and increased total value, the sector has a strong base on which to build. The government is moving in the right direction by encouraging more citizen participation in governance, leveraging BDA, implementing the IoT, enforcing IP rights and setting up Adax. Furthermore, all these plans appear to be well funded by a combination of 11MP allocations, PPPs and foreign investment, particularly via the MSC. Meanwhile, the expanded internet access provided by HSBB and SUBB will work to both quench Malaysians’ thirst for online activity and introduce new sectors to build on that demand, such as GBS and BDA. However, the urgent need for more data scientists could become stumbling blocks if not addressed quickly. Fortunately, these are issues that can be easily overcome with the necessary political will and new academic programmes and incentives.
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