Outsourcing in Malaysia

Outsourcing in Malaysia: Competitive Factors and Entrepreneurial Challenges

In the Asia-Pacific region, the competition for business process outsourcing (BPO), IT outsourcing, and professional outsourcing is fierce. While the global market continues to be dominated by established service providers like the Philippines, China, and India, emerging contenders such as Malaysia have significantly elevated their presence.

Malaysia, a 13-state federal peninsular country with two distinct geographical regions—West Malaysia (peninsular Malaysia) and East Malaysia (Malaysian Borneo)—separated by the South China Sea, is making notable strides. Among its 32 million citizens, approximately half, or 15.60 million, constitute the entire labor force, encompassing 1.1 million ICT professionals engaged in services, trade, content & media, manufacturing, and various other ICT subsectors.

Development of Malaysia’s Outsourcing Market

In the APAC outsourcing market, Malaysia, while still relatively small, has significantly advanced in investments and innovation within the industry, contributing to the growth of local and foreign outsourcing revenue.

The Malaysian government, under its Economic Transformation Programme (ETP), has identified the promising and disruptive outsourcing market as a crucial Entry Point Project (EPP) to stimulate the country’s economic expansion. Subsectors like IT process outsourcing (ITO), business process outsourcing (BPO), and knowledge process outsourcing (KPO) fall under the National Key Economic Area (NKEA), aiming to spearhead industry-wide efforts to elevate Malaysia into a high-income nation.

The Global Business Services (GBS) sector, encompassing all shared services and outsourcing-enabled solutions, is anticipated not only to uphold transactional excellence but also to utilize Centers of Excellence (COEs) in driving digital transformation for both local and global outsourcing players in the country.

As per the projections by the International Data Corporation (IDC), the BPO market alone is expected to generate $1.4 billion in revenue by 2021. Achieving this will involve leveraging cloud platform solutions, mobility technologies, big data & analytics, and other digital technologies to provide high-end services, quality customer care, and automated business processes.

The forecasted compound annual growth rate (CAGR) of 8.9% in the ICT market is poised to result in $25.2 billion in revenue by 2023. This growth is fueled by the prominence of five leading ICT solution areas, encompassing data analytics, cloud computing, mobility, storage, and business process outsourcing.

COMPETITIVE OUTSOURCING FACTORS

Digital Infrastructure Readiness

The allure of investment opportunities in the ASEAN region has significantly increased, attributed to the development of its digital and e-commerce industries. In Malaysia, this transformation is unmistakable, underscored by high-impact national programs and digital initiatives aimed at propelling the nation toward a highly productive and digitally advanced economy.

A key catalyst is the widespread adoption and application of Artificial Intelligence (AI) technologies within smart cities, focusing on maximizing economic and social benefits. Additionally, there is strategic leverage of e-commerce, Big Data & Analytics, nanotechnology, and the Internet of Things (IoT) to unlock substantial revenue potential. The implementation of the Mandatory Standard for Access Pricing (MSAP) further facilitates the creation of multimedia technology hubs, robust telecommunications infrastructure, and accessible high-speed Internet services.

Malaysia is actively positioning itself as an immensely attractive trade, investment, and outsourcing destination, notably through the establishment of the Digital Free Trade Zone (DFTZ). Launched in collaboration with Chinese e-commerce giant Alibaba, this initiative is recognized as the world’s first electronic world trade platform (e-WTP) established outside China. The aim is to leverage Malaysia’s vibrant Internet ecosystem, drawing both domestic and international business enterprises and establishing the country as a global hub for the 21st-century digital economy.

This concerted effort has earned Malaysia international recognition, including:

Ranking 3rd (out of 50 countries) for Global Digital Resonance in 2019.
Ranking 12th (out of 190 countries) for Ease of Doing Business in 2019 (Top 2 in Asia).
Ranking 26th (out of 63 countries) for World Digital Competitiveness in 2019.
Ranking 30th (out of 79 countries) for Global Connectivity Index in 2019.
Ranking 63rd (out of 176 countries) for Global ICT Development Index in 2017 (Top 9 in Asia).

Investor-Friendly Policies

With an anticipated budget of around $25 billion allocated for the ICT sector, this underscores robust government backing for all projects and endeavors related to the development and enhancement of digital infrastructure capabilities. Furthermore, the Ministry of Housing and Local Government (KPKT) has initiated the Malaysia Smart City Framework, aiming to transform highly urbanized areas into smart cities capable of supporting global businesses across diverse industries, including the outsourcing sector.

The formulation of Malaysia’s National Development Policy (NDP) and National Vision Policy (NVP) serves a dual purpose: 1) ensuring that the local workforce is provided equal opportunities across all facets of economic activities and advancement; 2) providing equitable opportunities for global players in terms of investment ownership and control within the country.

ENTREPRENEURIAL CHALLENGES TO OUTSOURCING

Lack of Competitive Human Capital

Despite the growth in the size and scope of Malaysia’s ICT sector, facilitating the delivery of outsourcing-related services, there is a notable shortage of workers with high educational qualifications, particularly in knowledge-based and specialized competencies.

The ICT courses offered by higher education institutions (HEI) in the country feature outdated core curricula, lagging in their reflection and incorporation of subject matters that would adequately prepare future graduates with the essential skills needed for pursuing technical careers in the current digital age.

Employers in the outsourcing industry are increasingly expecting job-seekers not only to possess problem-solving and creative thinking skills but also to have a robust technological foundation in areas such as data analysis, computational thinking, machine learning, robotics, networking, and cybersecurity.

Regrettably, the lack of ICT proficiency is contributing to a high graduate unemployment rate and an increase in the hiring of foreign workers with ICT qualifications.

For the Malaysian government to establish itself as a global outsourcing destination, it must implement innovative education reforms to narrow the existing gap between what degree holders possess and the technical and soft skills that the outsourcing industry expects. Addressing this issue should also involve providing students and new graduates with internship opportunities, industrial courses, and on-the-job training options within the ICT sector.

Rising Cybersecurity Breaches

In November 2013, Malaysia’s Personal Data Protection Act (PDPA) was enacted with the aim of safeguarding customer data from exploitation. However, this goal appears challenging amid the escalating incidents of online crime and cyber-harassment that have plagued the nation year after year. Instances range from a data leak involving 46 million mobile phone users and 20,000 medical records to the digital intrusion of millions of airline passenger accounts and web identity theft for financial gain. The cybercriminal marketplace in Malaysia is expanding and becoming increasingly aggressive.

Given the surge in illegal online activities, marked by an 82.5% increase in the first half of 2020 alone, there is an urgent need to amend the existing legislation on data privacy. It is particularly crucial to take action now, not only to elevate Malaysia from being the fifth worst-performing country in safeguarding its citizens’ personal data but also to avert potential revenue losses in the millions of dollars. The government must act swiftly to address these concerns.

Conclusion

While Malaysia presents competitive advantages for outsourcing, it’s essential to carefully assess your company’s specific needs and requirements before engaging with an outsourcing service provider in the country. For additional information on identifying the ideal outsourcing partner for your business, you can find further details here.

Outsourcing in Malaysia