Outsourcing Malaysia: In Search of Excellence

Secret Service had finished its bomb sweep of the Hilton meeting room, which meant we could file back in to await the arrival of the Malaysian dignitaries, including the Prime Minister, the Hon. Dato' Seri Abdulla Ahmad Badawi.

Across the street (guarded by a phalanx of Austin's finest and their motorcycles) at the Austin Convention Center, the World Congress on Information Technology 2006 was in full swing. Keynoter Michael Dell had just finished taking questions from the crowd of a thousand on Dell's stock price. Gray-suited businessmen, grinning like soap-box derby contenders, rolled around on demo Segues in the exhibit hall. And 300 delegates from Malaysia (including 74 government officials, 12 exhibitors and representatives from 70 private companies) were studying the details of the conference with an eye toward the country's own hosting of the event in 2008 in Kuala Lumpur.

Back at the Hilton, we stood as the Prime Minister, a petite, smiling man, entered the room, surrounded by his security contingent. He shook hands as he was led to his seat at the front of the crowd. When the brief speeches — including his own — were over, he was invited to autograph an official proclamation. That's when the music cranked up and we all watched as — to the beat of disco — the Prime Minster signed a plaque declaring the launch of “Outsourcing Malaysia.”

Projections Look Positive

Outsourcing Malaysia is a new joint initiative by several groups — the Association of the Computer and Multimedia Industry of Malaysia (PIKOM), Multimedia Development Corp. (MDeC), and Malaysia Debt Ventures (MDV) — to position the country as an attractive location for shared services and outsourcing (SSO). (One participant recalled how, at an early meeting of the various organizations, guests from Mumbai looked around the room and were “astounded. They said, ‘You know, I sat in the first NASCOMM meeting, and it looked just like this.\'”)

But Malaysia is hardly new to the business of global services. This small country of 24 million in Southeast Asia is already host to dozens of multinationals that have tapped expertise in the energy, finance and logistics industries, many through captive arrangements.

In both its 2004 and 2005 Global Services Location Indexes, consulting firm A.T. Kearney named Malaysia the top third location for shared services and outsourcing behind only India and China and just ahead of Singapore. The ranking analyzes the top 40 service locations worldwide against 40 measurements in three categories: cost, people skills and availability and business environment.

According to the report, “…Government promotion policies continue to pay off… Malaysia has augmented continued investment in world-class infrastructure along the Multimedia Super-Corridor, with further incentives for corporations choosing to locate in Malaysia and additional policies to open up the labor pool and deepen English language and technical skills throughout the population.”

In its Global Institute Labor Supply Database McKinsey points out that although Malaysia has a “relatively small” pool of talent, its graduates have “significant international experience.” That is a result of three decades of foreign investment in the country by global companies such as Shell, DHL and Dell.

Likewise, Frost & Sullivan, which shared the stage with the outsourcing consortium in Austin, also has identified the potential for major growth of SSO in Malaysia in survey work that is ongoing.

The advisory firm sizes the SSO market worldwide at $758 billion for 2005. Of that, offshoring accounts for about 6% — $46.5 billion. While domestic SSO is expected to grow about 12% a year over the next three to four years, offshore is expected to grow between 20% and 30% annually over the same timeframe.

The finance industry is the biggest spender (accounting for 33% of the global SSO spend), while the energy industry is growing the fastest (with a compounded annual growth rate of 21.5%), said Aroop Zutshi, president and senior partner at Frost & Sullivan. The firm has identified logistics as the fastest growing vertical in the Asia Pacific region.

This positions Malaysia well for becoming a dominant player in the SSO arena. In the area of finance, said Zutshi, while India is the “clear favorite due to cost and skill of its human capital,” and China is “ambitiously catching up by leveraging on human capital,” Malaysia is “preferred due to its ‘First World' infrastructure.”

In the energy sector, Frost & Sullivan points to Malaysia's “prominence in the sector…due to clustering of industry players and a skilled talent pool.”

In the area of logistics, said Zutshi, Malaysia has been identified as the “rookie of the year,” by virtue of being a newcomer “thriving on a high concentration of supply chain management expertise and…completeness of infrastructure ecosystem.”

Who's Doing Business There

Momentum for doing business in Malaysia, according to Frost & Sullivan's Zutshi, is coming from companies looking for specific domain expertise. “We hear of countries like India that have excelled in knowledge process outsourcing, China in the manufacturing side. What is interesting is that many, many companies today — especially the Fortune 500, that spend millions of dollars on outsourcing issues — are looking for pockets of excellence, countries — regions within countries — that can offer core competencies in certain areas to help on the process side…”

Companies are seeking “business processes that go beyond generic ones,” said David Wong, co-chairman of Outsourcing Malaysia, “That's why the industry is moving… not on the cost differential, but on the value you're getting.”

Outsourcing Malaysia's job is to make sure the capabilities exist as well as the domain knowledge to be able to serve growing demand. He said the goal is to “achieve 60,000 knowledge workers by 2008″ — up from 40,000 currently — to serve the supply side of talent requirements.

During the announcement, Rob Cayzer, director of Shared Services and Outsourcing for MDeC, which oversees the development of the Multimedia Super Corridor in Malaysia, held up a brand new type of Motorola Nextel phone and said that it was “designed, researched, developed, tested, manufactured and shipped out from Malaysia. This is the kind of high end services you will find in Malaysia.”

In the financial services realm, Standard Chartered Bank and HSBC have set up global processing hubs in Cyberjaya, a hub location for ICT companies that is situated midway between Kuala Lumpur's city center in the north and the Kuala Lumpur International Airport to the south. Citibank runs a regional trade processing center in Penang.

Royal Dutch Shell Group runs a global IT support center in Cyberjaya, offering desktop support as well as engineering and development services to Shell companies around the world.

DHL has located its regional IT hub there, responsible for operations in Asia Pacific. Known as DHL GIS Cyberjaya, it's one of three global data centers run by DHL around the world.

HP is running a data center in Cyberjaya as well as Petaling Jaya outside of Kuala Lumpur. The company said part of its drive to open the newer center in Cyberjaya was to support local clients, including DHL and Western Digital.

Other companies with a presence in Malaysia include Microsoft, Intel (with 8,000 employees in Malaysia, including 1,500 in R&D), Ericsson, BMW and Nokia. On the service provider side, IBM, Fujitsu, EDS and CSC have all set up operations there. On May 9, 2006, ACS announced the opening of a new technical development center in Cyberjaya, which will employ 700 workers by 2007. From this facility ACS said it will provide clients with network and desktop engineering solutions, system engineering services, mainframe support, application management systems, customer care and human resources services.

Much of what has attracted this blue-chip roster of companies is a stable government, a highly skilled talent pool and competitive costs. The country enjoys low inflation, low staff attrition and high levels of returnees among its foreign graduates. Also, unlike many other nations aspiring to become a favorite pick in global sourcing portfolios, said MDeC's Cayzer, “Malaysia is an affluent country.”

At the same time a number of domestic service providers are also building growing businesses in Malaysia. These include BPO firm Scicom; IT service provider ea cap; Sapura, which has grown from being a telecomm provider to becoming an expert in fields such as ICT, energy, industrial and automotive; Vsource, which runs centers of excellence across Asia for banking and finance, insurance, transportation, manufacturing and technology; and ICT provider Kompakar, which became a national hero when it became CMMi Level 5-certified and earlier this year won a RM1.15 million deal with a hospital in China.

Malaysia Finds Its Groove

So why jump up and down (to a disco beat) and launch Outsourcing Malaysia when it's been around for years anyway? Why take on hosting WCIT 2008? According to MDeC's Cayzer, “When AT Kearney ranked Malaysia as number three in the world, it shocked a lot of people.” He pointed out that it arrived in a time when confidence in the country was just coming out of a low point — following on the Asia financial crisis of the turn of the century.

“This ranking is a potential,” he said. “When this thing first started, we were considered very expensive compared to India. Now compared to Bangalore, in the high end IT space, we're considered cheaper… We have 3,000 foreign investment projects in the country… It just keeps growing.”

The country is already strong in captives. Outsourcing Malaysia's goal, Cayzer said, is to start to “brand local companies.” The strategy, he said, is “to redevelop the relationships we have with the [multinationals]. We don't have to recreate them. We do have to enhance or capture more mindshare in the American services sector. That's something we have to aggressively go for.”

Concluded the Prime Minister before he took proclamation pen in hand and somebody found the volume knob on the speakers at the Hilton, “We believe we have many advantages we can share — people who are truly multilingual and multicultural. I am here to say to you, come to Malaysia and you will see many countries of Asia. It's a cosmopolitan country.”

The recorded disco thumping continued as cameras flashed and he worked the crowd on his way out of the room, still smiling, still shaking hands. Malaysia is on the move.

Useful Links

Outsourcing Malaysia
http://www.outsourcingmalaysia.org.my/
http://sso.msc.com.my/

Frost & Sullivan
http://www.frost.com/prod/servlet/frost-home.pag

MSC Malaysia
http://www.msc.com.my/

WCIT 2008
http://www.wcit2008.org/

CIA World Factbook on Malaysia
http://www.cia.gov/cia/publications/factbook/geos/my.html

A Baker & McKenzie archived Webcast on doing business in Malaysia
http://www.bakernet.com/NR/rdonlyres/9BBA0096-395E-4ADF-9119-1F61DFEC8DD4/39299/SourcingMalaysiaWebinarPresentation27oct2005.pdf

Service Providers in Malaysia

eacap
http://www.eacap.com/

Kompakar
http://www.kompakar.com.my/

Sapura
http://www.scicom-intl.com/

Scicom
http://www.scicom-intl.com/

Vsource Asia
http://www.vsourceasia.com/