2012 ETP annual report does not compare 2011 and 2012 progress
MDeC and Outsourcing Malaysia working together to grow data center and outsourcing sector
THE 2012 Annual Report on the Economic Transformation Program (ETP) is a serious document that charts the ongoing progress of the various initiatives under its umbrella.
The plan moving forward is to connect the ETP to the Government Transformation Program (GTP). There is a natural synergy here because the ETP is all about growing the economy by focusing on areas that can generate the lion’s share of growth for industry and consequent revenue for the Government via taxes.
This tax revenue for the Government will help it transform the way it operates, via the GTP, and focus on the top priority areas as indicated by the rakyat (citizenry).
“We will put the money where the rakyat wants,” says Datuk Idris Jala (pic), chief executive officer of the Performance Management & Delivery Unit (Pemandu) of the Prime Minister’s Department, speaking at a pre-release briefing on the annual report last week.
In 2009, when Pemandu was set up to oversee the GTP and the ETP, various polls and media sentiment analyses were done which eventually led to the National Key Results Area or NKRAs.
Months later, the cost of living was added as that became a top concern for citizens – the point being that the ETP and GTP are not rigid but will evolve and adapt, while remaining focused on the end goal.
And that goal is about creating stronger and much more robust Malaysian economy supported by an agile government machinery that recognizes its role as an enabler and catalyst to ease the way for private enterprise to do what it does best.
While there is no obvious study of what the people in the tech ecosystem want, on a high level, basic issues such as transparency and corruption when it comes to doing business cut across the board. Connectivity issues and the cost of that connectivity is another concern.
Indeed, the ETP Annual Report 2012 clearly states that one of the key pillars in establishing Malaysia as a world-class data center hub is dependent on its ability to offer competitive bandwidth.
A current look at Malaysia’s bandwidth cost versus Hong Kong and Singapore makes for grim reading. Our bandwidth costs -- which can vary from RM96 to RM256 per megabits per second per month – currently represents 30% of a data center’s operational cost and is two times higher than Singapore and three times higher than Hong Kong (click on chart to enlarge).
And this is where Digital News Asia (DNA) will start with in our coverage of the 2012 ETP Annual Report. The goal of creating a data center hub sits under ‘Business Services,’ which is one of 11 National Key Economic Areas (NKEAs) targeted for maximum impact.
Within Business Services we will also look at the target of building globally competitive outsourcers. There is a third area – growing the Maintenance, Repair and Overhaul (MRO) sector – which is not within DNA’s scope.
We will subsequently look at two other NKEAs – Communications, Content and Infrastructure (CCI) and Electrical and Electronics (E&E) – next week.
It is a veritable alphabet soup to digest for sure, but we will only highlight some of the key areas.
Readers will note immediately that the report for Business Services does not really drill down into growth comparisons between 2011 and 2012. Those looking for these particular data points will be disappointed. However, DNA has previously reported that in the first quarter of 2012 the outsourcing industry created 2,212 new jobs and hit RM318 million (US$102 million) in exports. The revenue target for 2012 is RM1.01 billion (US$323 million).
The annual report does not share any full-year 2012 data. It was released by Prime Minister Datuk Seri Najib Tun Razak, who said that the aims of seven key areas had been met.
“The day will come when all Malaysians enjoy the benefits of a high-income, developed nation status,” he added.
In terms of jobs, in 2011 the outsourcing sector created 5,000 new jobs. The 2012 target was to create 8,000 new jobs.
One interesting development to note is the creation of a special unit within Pemandu. While Malaysia has some great blueprints and roadmaps, execution has long been the bane of government policy – which is why Pemandu was set up to be the monitoring agency for the ETP.
A look at the annual report (click here for a copy) clearly gives one a sense of the massive effort this entails. Hence, within Pemandu, a special ETP Unit has been set up in 2012 to facilitate implementation.
This central facilitation team will bridge together disparate units of government, provide a link to the private sector, and present a platform to resolve issues that arise throughout implementation.
The ETP Unit will function as a standalone division with dedicated full-time staff, accountable to Idris. Its primary role includes architecting the ETP and resolving issues that arise in implementation, mobilizing investment by bringing parties together, and raising the pressure to perform to accelerate delivery.
Data center update
The chapter on Business Services points out a number of weaknesses of the sector that are generally well known, including the fact that Malaysia still does not have a niche focus – which means one is inevitable left to compete on costs.
The outsourcing industry is a good example of this. In 2009, the average annual salary of an IT employee in Malaysia was RM46,000, compared with RM40,000 in India and RM35,000 in the Philippines, leaving Malaysia unable to compete on cost.
[RM1 = US$0.32]
Yet at the same time, most Malaysian outsourcing companies lack the specialized skills and capabilities to compete in higher-value segments, such as knowledge process outsourcing, which involves work being carried out by highly-skilled staff in areas such as investment, market and legal research services.
The task of hitting the data center hub targets falls on the Multimedia Development Corporation (MDeC), the national ICT custodian, which will lead an aggressive campaign to market Malaysia as a preferred regional location for data centers.
This includes industry reviews by Broadgroup and IDC, participation in international and regional road shows, and increased presence at international data center conferences.
By establishing a world-class data center hub in Malaysia, Pemandu aims to generate approximately RM2.4 billion in incremental GNI (gross national income) for 2020 and create over 13,000 jobs.
It will measure this impact by achieving these targets: 5 million sq ft of data center space and 9,000 certified data center professionals by 2020; as well as 16 data centers operating to internationally benchmarked standards (by the Uptime Institute) by 2013 and with the enforced Personal Data Protection Act (PDPA).
The idea behind getting 16 data center operators to get certified by the Uptime Institute is to build international confidence in the capability of our operators.
Total funding of RM4.25 billion is required, of which RM4.23 billion will be sourced from the private sector and the remaining portion will be public funded.
Building globally competitive outsourcers
Between 2003 and 2008, the Malaysian outsourcing industry grew by 9%, a healthy growth rate but lower than the regional average and significantly slower than regional leaders such as India (27 %) and China (16%).
Malaysian outsourcing companies lag their regional peers because they are small and fragmented, lack niche focus areas, are over-reliant on the domestic market and lack a credible track record.
The aspiration is to create at least two globally-competitive outsourcing companies each with revenue greater than RM1.5 billion; to certify two outsourcing companies and 100 professionals per year and increase the brand awareness index score of Malaysian outsourcing companies in target markets by 50% by 2015; and finally, achieve a 20% to 30% reduction in Government and GLC (government-linked company) spending on non-core IT and business processes.
The smaller companies are not forgotten here, with policy incentives and marketing initiatives to allow them to flourish too.
For the larger companies, the Government will use policy incentives to encourage consolidation. The Ministry of Finance will establish a tiered procurement framework, stipulating that outsourcing companies must be of a minimum size to bid for the largest Government outsourcing contracts (i.e. revenues greater than RM96 million).
Once successful in building Malaysian global champions and capturing market share, Pemandu aims to grow outsourcing revenue from RM3.5 billion in 2009 to RM12.8 billion in 2020, while contributing RM6.9 billion in additional GNI in 2020 and creating approximately 43,000 jobs.
Of the RM2.28 billion required to achieve the targets set under this outsourcing EPP, RM2.1 billion (93%) will come from the private sector. Government funding will be used to roll out shared services within the public sector.
Meanwhile, MDeC and Outsourcing Malaysia will work together to increase Malaysia’s presence abroad through dedicated sales representation and trade missions.
MDeC will hire eight sales representatives for three years – four to be based in the United States, two in the United Kingdom and two in the Middle East – with the aim of doubling revenues in these markets by 2015.
It will be interesting to see how these sales reps do.
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Outsourcing Malaysia getting stale with plans, unrealistic with targets
5mil sq ft data center target not set in stone
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