Malaysia: the Captive Outsourcing Hotspot

Malaysia has been identified by Everest Research as a key country to watch in Asia as the global sourcing market continues to evolve and grow rapidly in coming years.

Malaysia has been identified by Everest Research as a key country to watch in Asia as the global sourcing market continues to evolve and grow rapidly in coming years. As buyers implement and utilise differing sourcing models in line with their strategic direction and objectives, the in-house model continues to be a significant component of this evolution.

Malaysia, a middle-income country, has transformed itself since the 1970s from a producer of raw materials into an emerging multi-sector economy. Under current Prime Minister Najib, Malaysia is attempting to grow its economy by attracting investments in Islamic finance, high technology industries, biotechnology, and ICT-BPO services. The population is 28 million of which 12 million make up the countries workforce.

As a former British colony it's hard not to see the British colonial influence, which is mixed with a fusion of Islamic modernism. The mix is spectacular and impressive and a credit to the vision of the country's leadership. Moreover, with its multicultural mix of Indian, Chinese and native Malays, the country is able to boast a peaceful and harmonious existence.

During the 22-year term of Prime Minister Mahathir, Malaysia was successful in diversifying its economy from dependence on exports of raw materials to the development of manufacturing, services, and tourism. The current government has continued these pro-business policies.

Malaysia is a nation of multilinguists due to their central geographical location; with the Straits of Melaka channeling trading ships between East and West. This resulted in traders from Arabia, India and China opting to make Malaysia their home throughout early history; not to mention a legal system based on English Common Law as well as a heavily influenced English education system having being previously a Crown Colony. Admirably, Malaysia is one of few nations that gained their independence from British rule in 1957 through a series of civilized negotiations versus massive upheavals and uprising. Malaysians are thus formally educated in the Malay language and English and may also be educated in Mandarin, Tamil and even Arabic should they began their early education with specific language or Islamist schools. With the rise of China and India as global economic hubs and existence of economic centers in the Middle East; Malaysia is well positioned to be the strategic staging point to export services to those regions.

Looking specifically at the BPO sector according to ValueNotes an Indian based BPO analyst firm about 15 percent are captives in the Shared Services space and of the balance only about 20% are servicing the international market. The sector is skewed towards the ITO sector with about half of the businesses represented in that area and 35 per cent in pure BPO.

The success of the captive outsourcing model, Everest refers to a captive as a Global In-House Centre (GIC), in India and Philippines has led buyers to explore other locations. While both these countries are the major focus for GIC activity, companies are establishing GICs in other parts of Asia, Central and Eastern Europe, South America and Africa.

Malaysia is one of the strongest contenders in the Asian region with significant GIC presence in the country. Due to its unique value proposition in terms of multi-lingual, multi-cultural capabilities, significant expertise, and supportive government bodies, the country is well established to support voice-based and non-voice work (mainly finance & accounting and application services). The market is also gradually expanding to offer high-end work such as analytics.

According to McKinsey Global Institute's Emerging Global Market Survey Study in 2005, Malaysia ranked high as an "enabling business environment", and its economy is mostly driven by services that run ahead of other markets, particularly in India, China, Poland, and the Philippines.

Malaysia has a booming service sector, shifting from its production-based economy to a rapidly expanding economy dependent on education and service. Malaysia benefits from its strategic location, its global integration, and its well-educated workforce. Although India is the leading nation for supplying outsourcing services, Malaysia is on the second tier of outsourcing nations with countries like China and The Philippines.

Malaysia's economic competitiveness is above average, scoring a 4.88 on the GCI index. Macro economic stability is also high with a 5.0 index, scoring higher than India (4.5), the Philippines (4.6) and Thailand (4.9). A nation's infrastructure is a major component in deciding where to set up sourcing projects. Malaysia's infrastructure scores are among the highest in the world, with both road quality and electric supply achieving a 5.7 index - tying the US for roads and Thailand for electric supply.


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