Malaysian firms are lucky, perhaps too much so

By Bernard Sia April 10, 2013

Business Services EPP2 to build globally competitive outsourcers looks like a success
Meeting 2012 KPIs masks a deeper malaise among outsourcing companies however

Malaysian firms are lucky, perhaps too much so ON March 29, I was at Multimedia Development Corporation (MDeC) for a short performance briefing on Entry Point Project #2 (EPP) under the Business Services National Key Economic Area (NKEA) for 2012.

Based on the EPP’s KPIs (key performance indicators), the targets have both been achieved and exceeded per the table below; you can download the full report here.

Malaysian firms are lucky, perhaps too much so That is all well and good, but what is RM1.2 billion of overseas revenue from an entire EPP comprising various companies when you compare it against, say, the operating revenue of just one bank in 2012, when the Maybank Group made RM27.5 billion?

Am I comparing apples to apples? No, but I have to provide some form of contrast to the mountain that needs to be scaled in order for Malaysia to become a serious contender in global outsourcing.

Statistics aside, the points that caught my attention were two strategies proposed to attain greatness, namely: Joint ventures with companies wishing to set foot in Malaysia and capability stacking.

Global joint ventures

In order to achieve a positive Gross National Income (GNI), joint ventures have to be approached rather carefully. To simplify: One needs to have 51% ownership or greater to ensure that a bigger majority of the joint venture’s dividends stay within Malaysian shores.

This may be difficult considering foreign firms can be many times larger than your average Malaysian outsourcing company.

Michael Warren, head of Shared Services and Outsourcing (SSO) and InfoTech at MDeC, in his opening speech, courteously extended MDeC’s hand as a channel to seek further equity funding to beef up Malaysian ownerships from the various Malaysian trusts and investment funds such as Ekuinas, Khazanah Nasional, Teraju and others.

Capability stacking

Outsourcing organizations in Malaysia are fairly specialized beasts and narrow in their focus areas. Thus far, I can say I have yet to meet an Accenture or IBM Global Services equivalent in terms of business and technical expertise breadth as well as depth.

For example, you will meet firms that only do Human Resource and some Finance but which do not do technology. For a technology outsourcing firm, you know you’re dealing with a very narrow band despite the promises within the corporate marketing material when a meeting is attended by 12 people, each one representing a technology product.

Capability stacking is achieved when disparate skillsets come together to form a more complete outsourcing firm through a multiparty services contract (see this article by Digital News Asia).

Several unflattering analogies come to mind. Suffice to say, I have some reservations. This is however mitigated by the notion of having an anchor firm which MDeC recommends to be larger, in order to champion the services contract; and also be able to project a more confident front to potential customers – fair enough.

Some thoughts …

Honestly, with all the incentives thrown in by MDeC and the Malaysian Government, one has to wonder why so many Malaysian outsourcing firms are still struggling – heavily subsidized professional certification programs, tax incentives to fund trade missions and a bunch of foreigners hired to promote Malaysian firms to Japan, Europe, the Americas, Singapore and Australasia.

I have spoken to a few of these market representative and they have this to say.

What a lot of you are selling are commodity items; it is very hard for me to convince my customers why Malaysian firms should be the one when anyone can do the job.

So this brings me to just one conclusion – Malaysian companies have to dig deep and invest in capabilities and intellectual property assets. You cannot braindump yourself to outsourcing success with MCSE (Microsoft Certified Systems Administrator) or Cisco certifications, or stop at attaining CMMI (Capability Maturity Model Integration) and ISOs – everyone can do that.

So what are the fundamental investments required for success? I have decided to butcher CMMI’s maturity model to answer that question (click to enlarge).

The problem I see is that there are a lot of ambition and planning slides, but very little gumption for execution. To prove my point, most folks are likely shaking their heads by now thinking … easier said than done or smiling about how familiar the immaturity model sounds.

Kudos to MDeC for its efforts, but having spent as much time in MDeC, I am beginning to wonder whether Malaysian firms have been spoonfed a wee bit too much.

Then again, we are very lucky.

Bernard Sia is head of strategy at Mesiniaga Alliances Sdn Bhd. His opinions here do not necessarily reflect the views of Mesiniaga.