Malaysia IT industry

A software developer asked: “If India and China are leaders in Information Technology (IT) outsourcing? Who are the third or fourth? Is there any chance for others to get into outsourcing business?

Answer: India is the leader in global information Technology (IT) outsourcing but the second is the Philippines based on the revenue and the amount of job created. India is by far the most successful with revenue of $97 billion in 2011, accounts for 52% of the outsourced market share. The India's outsourcing industry employed approx. 2.1 million IT workers and indirectly created 18.5 million additional jobs to the economy.

The Philippines, with outsourcing revenue of $31 billion in 2011, with direct IT employment approx. 840,000 workers and indirectly created 3.1 million additional jobs to the economy. Recently, Philippines has gained more business in call centers because their workers speak English better than India so more companies are moving their call centers from India to the Philippines.

China is the third ranking in outsourcing market. It has the low cost advantage, and strong government support but it also disadvantage as few IT workers speak English well so its business is not growing as fast as expected. Another major disadvantage is China has not been able to enforce the intellectual property laws and many western countries are still reluctant to outsource to China. Today most outsourced businesses in China are coming from Japan and S. Korea but as its cost is increasing, some Japanese and S. Korean companies are considering moving out to other lower cost countries.

The fourth in ranking and fastest growing country is Malaysia. It has good intellectual property laws, strong education system with several training programs licensed from top schools in the U.S and Europe. Its workers have good foreign language skills with 87% speak English. The IT industry has less than 5% attrition and its cost is lower than China. According to the IT outsourcing Industry, Malaysia has the fastest growing IT services industry that ranks as the world's third most attractive for outsourcing location. Malaysia is ranked based on six critical areas for IT: overall business environment; IT infrastructure; strong education system; research and development; intellectual property protection; and government support for industry development.

In past few years, Malaysia has been actively promoted its potential to attract more IT businesses. It already established the Multi-media Super Corridor (MSC) area where local outsourced companies can get a special tax incentive for a period of 10 years, special telecom and electricity price incentives, more funding for trainings to meet global demands and so on.

Today, the IT services industry is a major contributor to the growth of the Malaysian economy and it has attracted many world class companies like ACS, BMW, DHL, HSBC, IBM, Intel, Motorola, Nokia, Shell, Unisys and many others that have set up their regional and global operations there. Last year, Malaysia consolidated many smaller companies into 130 larger outsourcing companies its multimedia Super Corridor. Malaysia is also home to 250 call centers.

According to IT outsourcing industry's report, the trend to outsourcing will accelerate as more companies are seeking offshore locations that have the skills (Technical skills and foreign languages such as English) and lower cost to improve their competitive in global market. The study found that worldwide IT spending in 2011 was about $865 billion but only about 20% (or $174 billion) is currently outsourced to India, Philippines, China, Malaysia and other countries so there are more opportunities to growth.

Given this potential, there are many opportunities to get into this business and several countries in South East Asia, Eastern Europe, South America and Africa are interested in actively pursuing this opportunity.

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University

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