MDeC: knowledge is power - Datuk Badlisham Ghazali
Malaysia's shared services and outsourcing sector is evolving. No longer content with business processes, it is moving towards higher-value knowledge-based activities. Datuk Badlisham Ghazali, CEO of the Multimedia Development Corporation (MDeC), tells Future Banking about its efforts to drive the transition, and the industry's performance so far.
For those looking to outsource, choosing the right location for a shared services centre can be a major challenge. Striking the right balance between local costs, government support and the ability of the native workforce is vital, but with such variety between countries and cities, even within a single region, doing so is often easier said than done.
Ranked third in global managing consultant firm AT Kearney's Global Services Location index since 2004, Malaysia's shared services and outsourcing (SSO) sector proves to be an attractive location. What's more, the industry continues to grow: export revenue for SSO companies accredited by the national ICT initiative MSC Malaysia reached an incredible €1.6 billion in 2012.
European firms are largely responsible for the industry's success. In 2012, the continent contributed 52% of the above-mentioned export revenue, represented almost 30% of the 300 companies working in the MSC SSO sector and created 22,000 jobs. North America is the country's next biggest revenue generator.
Malaysia's success is largely due to a number of boons for investors: the country has better info and infrastructure than other members of the Association of Southeast Asian Nations (ASEAN), diverse language capabilities (including English, Malay/Indonesian, Tamil, Hindi, Mandarin, Cantonese, Japanese, Korean, Thai, Tagalog and Vietnamese) and a stable business and economic environment. It also offers strong government and industry association support and is relatively safe from natural disasters, making it particularly appealing to data centre operations.
Currently, Malaysia's SSO sector is attracting more foreign direct investment from captive players (63%) than third-party outsourcers (35%), with the remainder operating as both captive and outsourcing provider. This is largely driven by the banking, financial services and insurance industry (whence the bulk of investment stems) requiring greater control over its services.
More than half of the country's SSO sector consists of IT outsourcing, while business process outsourcing (BPO) is around 36%. In MSC Malaysia, the finance and accounting shared services sector saw the highest growth for 2012, with a revenue rise of 57%, compared with oil and gas (23%), IT (22%), logistics and transportation (-14%), and pharmaceutical and healthcare industries (25%).
Focus on talent supply
Despite the sector's success, however, Malaysia's Multimedia Development Corporation (MDeC) - a government-funded organisation and the drive behind MSC Malaysia - wants to push the country towards high-value knowledge process outsourcing (KPO) activities, and away from commoditised work (generally termed as low-value BPO). It is thought this will create more lucrative jobs and skills that will transform Malaysia into a sustainable, competitive, valuable and high-income developed nation by 2020.
Talent is highly relevant, and MDeC is taking steps to ensure the growth of its pipeline by running a number of programmes and forming strategic partnerships with universities and professional bodies like the Association of Chartered Certified Accountants, the Chartered Institute of Management Accountants and Certified Practising Accountants Australia. These partnerships will promote SSO as a career among school and university students, establish a formal working group for the SSO industry stakeholders to understand and address challenges to promote growth, and encourage industry training so that employees can move up the value chain and perform knowledge-driven activities.
Towards further growth
The sector's growth does, however, face threats from European competitors, as an increasing number of the continent's firms opt for near-shoring SSO solutions in Central and Eastern Europe. There is also a reported trend in US onshoring.
Yet Malaysia is still arguably the best option for European firms looking to serve the Asia-Pacific region. Along with extensive support from MDeC and the 90,000 multilingual, multicultural and highly capable graduates it produces every year, Malaysia has the crucial advantage of being in the right time zone.
The industry looks set for further growth in 2014 and beyond. Japan has become more open to outsourcing, and, given the political tensions with China, is likely to look to Malaysia as a near-shoring solution. Many other companies, international and Malaysian, are also establishing shared service centres in the country in anticipation of the 2015 ASEAN free trade agreement. This influx of trade, combined with MDeC's support, allow Malaysia's SSO sector to face the years to come with a sense of cautious optimism.