Malaysia has the Advantage - now it needs to close the deal

The Everest Group reports strong continued growth in the global sourcing market, which reached ~US$127 billion last year. According to research conducted by Everest, Malaysia is one of the strongest contenders for the Asian region, due to its unique value proposition in terms of multi-lingual, multi-cultural capabilities, significant expertise, and supportive government bodies. It is well established to support both voice-based and non-voice work (F&A and application services). The market is also gradually expanding to offer high-end work such as analytics. And while offshoring growth did slow down after the 2008 recessionary phase, the recent emergence of various associations and supportive organizations is likely to attract more buyers in the near future. Malaysian Global Inhouse Captive (GIC) industry grew at a CAGR of 8.9% during the last decade: GICs form a core component of the Malaysian sourcing industry, with reowned companies having considerable presence in the country. Malaysia has established itself as a credible alternative to mature locations like India and the Philippines for basic transactional business processes, and is gradually envolving to offer other high-end processes such as analytics While the industry saw a setback after the global economic crisis in 2008, the formation and active involvement of organisations such as Ministry of International Trade and Industry, Multimedia Development Corporation, National ICT Association of Malaysia, and Outsourcing Malaysia is offering signs of its revival and growth. The combination of the country’s strengths (domain knowledge and language capabilities), coupled with government support, are likely to accelerate the industry in the future. While voice-based services are expected to grow in the single digits, the number of global business processes being managed from Malaysia are likely to register double digit growth While most enterprises are leveraging Malaysian centres to provide services to regional operations, these services are in some cases extended to the global business services portfolio. According to Everest Group research, Malaysia’s main attractions include: Strong potential for multiple source markets, including the US, Europe, Asia, and the Middle East. Even Singapore-based firms are now running shared services centres in Malaysia Finance is the largest vertical in terms of scale, in some cases running more than 1000 FTEs. Manufacturing, distribution, oil and gas also notable. F&A is the dominant function and is well supplied by graduates with relevant training [eventpdf] Most of the activity is based in the Government designated Klang Valley (90% of shared services are located there) While other regional markets may offer a lower cost base, Malaysia’s advantage is that it offers a sense of comfort for smaller-sized newcomers to Shared Services, who have a low risk-tolerance level. For this sector, Malaysia offers a "boutique" experience at a slight premium: Multilingual capability, multi-ethnic workforce Strategic location in Asia Competitive source cost Strong support of Multimedia Development Corporation [MDeC] and Outsourcing Malaysia/PIKOM Stable economy, politics, good connectivity, strong infrastructure. The challenges Malaysia will need to overcome relate mainly to size and workforce: Scalability Malaysia offers a relatively small labour pool with most centres around 500 FTEs. Attrition is an issue [average 15%] although this is increasingly being offset by moving to Tier 2 or 3 cities, which also offer additional cost arbitrage. However, in order for more organisations to take up Tier 2 and 3 locations, the Government will need to invest in the infrastructure. Talent Retention One of the biggest challenges facing services centres in Malaysia is attracting and retaining talent in the face of competition not just from other SSOs but also big name accounting firms, who offer a more traditional career path. As Shared Services increasingly take on higher value-add activities, end-to-end delivery, and specialized or complex work, it will be important to train and develop the kinds of leaders that can take on the challenge of driving these services forward. Carving out its niche While Malaysia has done a good job of attracting a first wave of companies to delivering transactional processes, it needs to sustain its position by proving it can deliver higher up the value chain. The sector would do well to identify and expand on niche areas, and build up relevant expertise. Data analytics, social media, and the supply-chain may offer good opportunities.

Malaysia has the Advantage - now it needs to close the deal

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Malaysia has the Advantage - now it needs to close the deal

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