Outsourcing M’sia to local players: Go regional, or drown in the AEC

  • GBS companies must not underestimate impact of AEC
  • Hoping for more government incentives via Budget 2016
Outsourcing M’sia to local players: Go regional, or drown in the AEC

MALAYSIAN global business services (GBS) players need to start venturing outside the country and look at partnerships with other companies in South-East Asia urgently, or risk losing out when the Asean Economic Community (AEC) comes into being.
The AEC, to be officially launched on Dec 31, 2015, would facilitate trade and investments between members of Asean (the Association of South-East Asian Nations) – the movement of goods, products and even talent within the region would be made significantly easier.
According to Outsourcing Malaysia chairman David Wong (pic above), currently only 20% of the association’s members have revenue from overseas.
"This is very low. We hope they are able to get more business from outside Malaysia,” said Wong, who is also an advisor to the National ICT Association of Malaysia (Pikom).

“One of the ways would be through regional collaboration. It can be a strategic alliance, a joint venture, or even mergers and acquisitions,” he said after releasing findings from the Global Business Services Outlook Report 2015 in Kuala Lumpur on Sept 17.
Outsourcing Malaysia is a chapter of Pikom, representing the country’s shared services and outsourcing (SSO) industry – or what is now more popularly referred to as the GBS industry.
Wong argued that local GBS players must look at regional collaboration urgently, as the impact of the AEC must not be underestimated.
“Companies are not going to come here [to Asean] and appoint [GBS providers] country by country, or location by location,” he said, adding that the advantage would be with GBS companies that can look after the whole South-East Asian market as one.
“As you know, the whole idea for AEC is the single-market, borderless, free movement of investments, products and talent,” he said.
“So if you are going to be just a Malaysia-focused company, you are going to lose out.
“We should really look outwards. In a way, I think the AEC is good as it is putting pressure on companies to go out of the country – because if they don’t go out, they will be sitting ducks,” he added.
Potential for Malaysian companies
The Global Business Services Outlook Report 2015 highlighted that the GBS industry was worth US$670 billion in 2014 in terms of global demand. Asia Pacific has the largest market share, at 36% or US$240 billion.
The greatest demand in Asia Pacific came from Japan, estimated at US$110 billion, followed by Australia with US$35 billion worth of demand.
In Asean countries, GBS demand in Singapore was US$8 billion, in Thailand it was US$7 billion, Malaysia had a mere US$4 billion, while demand in Indonesia was US$2.5 billion.
The report shows that there is “a lot of potential for local GBS players if they expand their business abroad,” said Wong.
He however admitted that it would be challenging for Malaysian companies to capture a lion’s share of the US$240 billion global pie, as countries like the Philippines and India were still securing most GBS jobs.
Nevertheless, there’s still hope. “I think we are strong in serving the South-East Asian market,” he said.
“But if you set up in Malaysia to serve the US market, then it would be challenging,” he added.
Budget wish list
Outsourcing M’sia to local players: Go regional, or drown in the AECMeanwhile, Wong said he hoped that the Malaysian Government would announce initiatives to help improve the competitiveness of local GBS players in the national budget for next year, Budget 2016, due to be tabled in October.
Wong said that there are a few areas that the Government could address, such as talent, funding, and exports.
“We are in the service industry, and we need talent. We only have 77,000 workers in our industry, but we need to have at least double that by 2017 for the industry to achieve its US$3.4-billion target.
“So there is a gap of 77,000. Where do we get those from? We will need the Government’s intervention to [help us] fill the gap,” he added.
The talent problem was exacerbated by the fact that while the industry had jobs, graduates were largely not employable.
“Based on our internal survey, the employability [rate of graduates] is about 5%, so it’s not that the industry doesn’t have jobs. We have jobs, but they [graduates] can’t fit in,” said Wong.
As for funding, he argued that it was becoming increasingly difficult for GBS companies to borrow money.
“With the type of services we provide, it takes time to generate income. We are delivering a service, but before we can deliver the service, we have to first invest on people, infrastructure and systems – all this means a heavy cost,” said Wong.
“The Government has set up various funds provided by bodies such as Malaysia Venture Capital (Mavcap), Malaysian Debt Ventures (MDV), and others.
“Unfortunately, not a lot of those funds go to GBS companies,” he added.
In terms of ‘exports,’ Outsourcing Malaysia is hoping the Government, via its various agencies, could help local GBS players expand their presence across Asia Pacific.
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Disrupt: Outsourcing in Malaysia still in ‘slave-master’ mindset
Outsourcing Malaysia getting stale with plans, unrealistic with targets
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