Malaysia’s outsourcing industry lacks quality, and the leadership to transcend
Still looking at it as a technology issue and not about understanding client’s business
MALAYSIA is in danger of missing the outsourcing boat, if it hasn’t already, because it is still stuck in the ‘slave-master’ model which defined the early stage of the industry, an expert said at the DNA-TeAM Disrupt panel discussion on April 24.
Describing it as the nascent stage of the industry when it was driven by buyers, Matryzel Consulting Inc founder and chief executive officer Bobby Varanasi (pic above, second from right) said that the industry has moved on to a more collaborative model.
“But Malaysia is still stuck in the slave-master mindset, and unless we transcend this, the country is not going to hit its targets for the industry,” said Varanasi, whose company has been recognized by the International Association of Outsourcing Professionals (IAOP) as one of the world’s top advisors in the industry, while he himself has been recognized as one of the world’s top 25 leaders.
The Disrupt session, organized by Digital News Asia (DNA) and the Technopreneurs Association of Malaysia (TeAM), was discussing the issue Outsourcing: Has Malaysia Missed the Wave?. As noted by panel moderator Karamjit Singh (pic above, far right), DNA founder, in 2005, the Malaysian Government and outsourcing industry had set targets of creating 100,000 jobs and grabbing a 5-10% market share of the global industry by 2010.
Instead, at the end of 2012, only 54,000 jobs had been created, about 50% of the target. Worse, the industry has only hit 1% of the revenue target.
Industry body Outsourcing Malaysia had earlier this year unveiled a five-year plan and targets which Karamjit described as “uninspiring. It pains me to see how far we have fallen from our targets,” he added.
In making his point, Varanasi noted that the outsourcing industry itself was not planned – it came off the Millennium Bug or Year 2000 scare when the information technology industry had realized that its practice of using two digits to denote the year meant that many system were unprepared for the switchover to a new millennium.
This meant software had to be rewritten, which required engineers in large numbers – a need India provided.
Further, Varanasi noted that with the dotcom bust of the late 1990s, there was suddenly a lot of available bandwidth. India again took the opportunity to create offshore services that made use of this bandwidth, and the outsourcing industry was borne on the back of its large number of English-speaking engineers and technologists who worked at relatively low wages.
“It was an unplanned, unstructured and tumultuous industry, but we learned over time and standards were created,” he said. “But for a long time, clients drove it and it was a very one-sided industry.
“However, in the last five or six years, this has changed – the industry has matured sufficiently and moved beyond the slave-master model,” he added. “Except here in Malaysia.”
Varanasi conceded that this is the case with all but three of the 36 countries vying for the global outsourcing pie. “So many vendor locations are still speaking the old language of low wages, a young workforce and so on, which has no relation to the reality of their clients’ business.”
However, countries like India and Brazil have moved beyond this, he added.
Gurpardeep Singh (pic above, second from left), vice president of operations at the Asia Pacific University of Technology & Innovation, concurred with most of what Varanasi said about the “old language.”
“So many players here were trying to replicate the Indian model, and we had no business doing that,” he said. “That was our biggest mistake, and the result was that Malaysia got bypassed.”
Gurpradeep said Malaysia was still trying to use as selling points our wide use of English, relatively low wages, a large pool of science and technology graduates and a large, indigenous deomestic services industry.
“We don’t seem to have realized that we have lost all four of these competitive edges,” he said, noting that the standard of English had badly deteriorated, the quality of Malaysian graduates has come under question, and that with the nation’s aim to become a high-income economy under the Economic Transformation Program (ETP), wages would be going up.
No such thing as ‘outsourcing industry’
The other problem is that the outsourcing industry in Malaysia has been too closely linked to the IT industry, and with students losing interest in pursuing careers in IT over the last 10 years, this has had a direct effect on the outsourcing industry as well.
“Because of this, many students pursuing IT degrees have no business doing so because they have no interest in IT, and are only doing this because they couldn’t get into other programs,” said Gurpradeep.
This has an adverse effect on the quality of IT graduates, and a dichotomy where the industry can’t find workers, while graduates can’t find jobs, he noted.
“Malaysia has got to stop thinking of the outsourcing industry as a technology industry,” said Varanasi. “It is not – it’s not even an industry by itself; it’s a services sector.”
“Our problem as vendors is that we are stuck – hook, line and sinker – in software language. We still look at it as a technology issue,” he said. “We have to transcend this model or we won’t get the business.”
“If you want to move from the fringe and on to the center of the client’s business, you must understand their business,” he added.
This requires outsourcing company leaders who have the vision to hire the talent with the domain expertise in the client’s business. “Malaysia lacks the leadership required for this,” said Varanasi.
“I’ll be completely honest here – most Malaysian buyers are saying that Malaysian service providers are not good enough, and instead of trying to find out why, we’re appealing to their patriotism,” he added.
Government largesse, interventions
Outsourcing Malaysia’s Munirah Looi (pic above, far left) concurred with the lack of leadership within the industry.
“The Malaysian Government has been putting in a lot of interventions, but the people in outsourcing need to play their part,” she said.
“They need to have the hunger – if the outsourcing companies are too comfortable, they won’t go the extra mile to compete on the global scale,” she added.
Looi said the Malaysian industry still faces a lot of challenges – it’s a fragmented industry and because of this, cannot scale with the likes of India and Brazil, whose companies can hire thousands of workers.
“So we need to find our niche, but we still haven’t found this niche after 10 years of talking about it,” she acknowledged. “What is Malaysia’s value-proposition to the global market? Which markets should we go into?”
Looi said that together with government agencies such as Pemandu (the Performance Management & Delivery Unit of the Prime Minister's Department, which implements and oversees the ETP), Outsourcing Malaysia has identified 30 Malaysian companies.
“With the help of IAOP benchmarking, we have been able to identify the nine best companies that can best go global, and we will be using government aid to help them,” she said.
This aid would come in the form of consulting coaching and identifying possible synergistic mergers and acquisitions that can help them scale if organic growth is not possible.
“I strongly believe we have got our act together in the last six to nine months,” said Looi. “But this is a journey, and I am not going to say we’re going to get there immediately – but at least, thanks to the IAOP’s benchmarks, we know where we are today.”
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