Malaysian outsourcing firms to consolidate

Malaysian outsourcing firms to consolidate

Summary: Country's outsourcing services market likely to see consolidation as country reinvents itself in face of stiff global competition, notes industry body.

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KUALA LUMPUR--Malaysia's outsourcing and shared services (SSO) industry is likely to undergo a consolidation of sorts as it seeks to reinvent itself in the face of stiff competition in the global market, according to the country's national outsourcing association.

Outsourcing Malaysia Chairman David Wong acknowledged there were too many small and midsize local SSO companies in the country, revealing that the association has over 100 members.

"In the outsourcing business, the name of the game is the ability to scale. Obviously, if you are small, you'll find it difficult to do that and won't be able to bid for major global contracts," Wong said at a media briefing here Thursday. For example, he said, a company with a 100-seat call center operation would find it tough to bid for job that requires a 5,000-seat operation.

In view of this, he said Outsourcing Malaysia is rolling out a three-year plan to promote the creation of two or three SSO consortiums, which will be ready to compete globally by 2012.

Wong explained: "We have been talking with government ministries and agencies on the setting of a fund to facilitate mergers and acquisitions in the local SSO sector. The fund should be at least US$100 million."

The process of consolidating has already begun. Wong said his own business process outsourcing (BPO) services company SnT Global, acquired seven companies over the past several years and is still to ink more acquisitions or partnerships with other players.

The Sunway Group also confirmed it was looking to buy outsourcing services companies in the region. Cheah Kok Hoong, Sunway E-Systems's director who also attended the briefing, told ZDNet Asia the group recently acquired a Japanese engineering services outsourcing provider and was looking at possible acquisitions in Malaysia, Indonesia and Thailand.

Government-linked private equity fund, Ekuiti Nasional (Ekuinas), is also reportedly mulling potential investment in the country's major outsourcing services providers. The MDeC said it is in discussion with Ekuinas with a list of 35 top MSC Malaysia companies for consideration.

Rizatuddin Ramli, a director at the MDeC's industry development division, said over half of the 35 companies were involved primarily in ICT services, including outsourcing. Ekuinas has been allocated an initial capital of 500 million ringgit (US$146.8 million) that will be enlarged to 10 billion ringgit (US$293.6 million) eventually.

Malaysia outsourcing challenge
At the briefing, Bobby Varanasi, Outsourcing Malaysia's head of marketing and branding, also presented findings from an IDC report, commissioned by Outsourcing Malaysia and the Multimedia Development Corporation (MDeC), on Malaysia's outsourcing landscape.

The study revealed that the local SSO sector faced serious challenges that must be addressed for the industry to compete against global rivals.

Varanasi said the IDC report highlighted that the health of the country's outsourcing business "could be better".

According to the study, for on-shore service opportunities, business deals from local companies was "almost nil" and there were few business wins involving Western companies. For near‐shore business opportunities, despite Malaysia's proximity to growing economies, the country was not as attractive as India or the Philippines, the report said.

"Offshore business opportunities, despite possessing the requisite infrastructure and catalysts, we have not seen any growth in demand for Malaysia as an offshore destination," the report noted. "Further non‐availability of key management capabilities to create and engage with global clients is fully lacking in a competitive context."

IDC also highlighted the need for local players to offer scale and volume and bottom‐line savings by creating "portfolio" services, and not simply offer discrete services such as call centers or custom development.

"Provide value and top‐line impact by focusing on 'vertical' solutions--Malaysia's price points cannot afford low rates for non‐core discrete services, given higher cost structures in the country," it added.

The report also called for "aggressive adoption of outsourcing in the domestic marketplace" to support local providers going global. It recommended local providers work with foreign players as prime sub-contractors to acquire capabilities, scale and knowledge of global service delivery, rather than try to obtain end-users as key clients.

Other key findings of the IDC report:

  • Malaysia's total technology and technology-enabled services market, including shared services, outsourcing, joint ventures and partially-owned subsidiaries, is estimated to be US$3 billion with a projected compounded annual growth rate of 17 percent.
  • Government, financial services and insurance, and manufacturing, design and integration sectors present the largest market opportunities. About two-third of local market is dominated by foreign vendors that have inked large deals in these sectors.
  • Key vendor criteria include scalability, capability and skillsets, and reliability.
  • Niche market opportunities exist for local players in hosting, remote management and engineering services for computer aided modeling (CAD), prototyping and testing, in oil and gas and automotive sectors.

Lee Min Keong is a freelance IT writer based in Malaysia.

Topics: IT Employment, CXO, Outsourcing, SMBs

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  • Malaysian outsourcing firms to consolidate

    Thanks for sharing such nice info regarding call center outsourcing in malaysia.

    Asghar
    Fsd Solutions Call Center Outsourcing Malaysia
    http://www.fsdsolutions.com/call_center_outsourcing.html
    anonymous