Politics, economy hurting Malaysia's IT sector

Impact of country's March elections and global credit crisis cause 30 percent revenue dip for members of local IT association Pikom, says its chairman.
Written by Lee Min Keong, Contributor

KUALA LUMPUR--Local political uncertainties and the increasing impact of the global credit crisis have had a negative impact on Malaysia's IT industry, say industry players here.

The country's beleaguered ruling political elite, still struggling to regain public confidence since the historic gains by a resurgent opposition at the general elections in March this year, has delayed spending by federal and state governments.

Malaysia's IT sector association, Pikom, confirmed that various public sector IT deployments, some running into hundreds of millions of ringgit, have been cancelled or delayed. This has severely impacted the IT sector, industry observers said, as the federal government is the country's biggest purchaser of hardware and software.

According to IDC forecasts,the Malaysian government spent 1.3 billion ringgit (US$373 million) on IT deployments in 2007, or 11.9 percent of the country's overall IT spending.

Pikom Chairman David Wong said, since the second quarter of this year, Pikom member companies have suffered an average 30 percent fall in revenue on the back of the political and economic uncertainties.

"Feedback from our members indicated there has been a slowdown in their businesses, especially among those in the retail segment," Wong said in an interview with ZDNet Asia. The association has about 1,000 members.

He added that Pikom revised its 2008 growth projects for the Malaysian IT sector, from 10 percent to 7 percent, in light of the prevailing market conditions.

The uncertainty that followed the March elections also had an impact on government spending, he said. "I think that some purchasing of IT hardware and software has been held back and delayed", said Wong, who is also the group CEO of SnT Global, an Asian provider of business process outsourcing (BPO) offerings.

For example, he noted, an IT project under the Ministry of Education--valued at "a couple of hundred million ringgit"--that was planned for implementation earlier this year, was eventually delayed. It was only recently that the project appeared to be back on track after the government called for tenders, he said.

Wong said the slide in business has been evident since the middle of the year, about the same time the government announced its cost-cutting measures. "The weakening market became more apparent as the year progressed, in tandem with the worsening conditions of the global economic crisis. Both the government and the private sectors were affected," he said.

Investors spooked by political chaos
Political instability has also rocked potential foreign investors, according to Wong.

"It has impacted the market, too, particularly among foreign businesses that intend to invest in Malaysia," he noted. "Political stability has been one of Malaysia's FDI (foreign direct investment) draw. The recent changes in the political environment might have prompted foreign investors to be more cautious when making their commitments."

As economic conditions worsen, organizations respond by taking a "cautious spending approach", he said. "Most tend to hold back expenditure, especially on yet-to-start projects and adopt the wait-and-see mindset."

Meanwhile, software giant Microsoft has also seen a drop in its business and that of its partners in Malaysia.

Yasmin Mahmood, managing director of Microsoft Malaysia, told reporters here last week: "Definitely, there is some impact although I think Malaysia is in a stronger position to cope with the economic downturn."

"This is one of the biggest and most challenging global economic situations that we will see in our life time. Malaysia is not totally insulated [from its repercussions] as we have heavily depended on foreign trade, but I believe we are stronger than most [other countries]," Yasmin added.

Asked if Microsoft's local partners have seen their business slowed, she said: "Naturally of course. Not only our business, but across the board there has been [a slowdown], particularly the impact from the multinational companies." She declined to provide figures on how much Microsoft business in Malaysia have dipped.

However, Yasmin expressed hopes that the Malaysian government's 7 billion ringgit (US$1.9 billion) economic stimulus package unveiled last week, will help to minimize the impact on the local economy, as well as the IT sector.

And it is not all gloom for the local IT industry, she added.

"For Microsoft and our partners, during such difficult economic situations, we find that companies try to become more productive and efficient," she said. "So while overall demand is slowing down, there are opportunities specifically for the IT and software industry to capitalize on."

Alvin Yuen, CEO of independent software vendor ISA Technologies, said IT-related business from the public sector had contracted since the March 8 elections and "has not recovered". Thus far, the political uncertainties have affected the IT sector more adversely than the global financial crisis, Yuen said in an e-mail interview.

He noted that private sectors in the IT industry were most impacted, particularly companies that were trade- or commodities-linked.

"Companies are taking a cautious and pessimistic stance in view of the uncertainty, although [their] business may not be significantly impacted yet," Yuen said, adding he knew of a number of projects that have been postponed, such as upgrades of existing systems that are not critical to business.

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

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