Is Malaysia Ready For The IT Outsourcing Big Leagues?

November 30, 2019

Anna Frazzetto’s article from on November 30, 2019. 


Competition for IT outsourcing is intense in Asia-Pacific. While India and China have dominated the market for a long time, emerging challengers across Southeast Asia have upped their games. One small but mighty destination of note is Malaysia.

Malaysia is a peninsular nation of rainforests and beaches that, while only half the size of Texas, has 32.6 million citizens. That’s four million more people than live in the expansive Lone Star state. A good number of them are part of the expanding outsourcing workforce across Malaysia, which was ranked third on AT Kearney’s 2019 Global Services Location Index (GSLI), an annual ranking of BPO and IT outsourcing destinations.


Late But Catching Up

Until recently, Malaysia’s notable outsourcing engine has been mainly dedicated to low-cost manufacturing and service-focused IT efforts, such as help desk support. The country’s late entrance into IT outsourcing put it slightly behind other South Asian upstarts such as Vietnam and Singapore in developing a tech-fluent workforce capable of supporting more complex and digitally focused technology needs, such as data analytics, RPO and AI.

But now the digital tides are shifting. The Malaysian government has committed to numerous business and educational programs designed to grow its digital potential and proficiency. It’s an effort that seems to be paying off. The country’s Department of Statistics reported that 18.3% of the nation’s 2017 GDP could be attributed to the digital economy.


Is Malaysia Ready?

The concentrated investments and focus have many businesses considering whether Malaysia is a viable IT outsourcing destination for its more sophisticated technology projects and programs. Is Malaysia ready for big league, big tech outsourcing? To answer that question, a business must consider its outsourcing expectations and goals around talent, language, business climate and scalability.


The Talent Factor

Tech outsourcing is a talent question first and foremost. A business has to be sure that Malaysia, or any destination considered, has a tech workforce that is big enough, deep enough and stable enough to support advanced technology outsourcing.

Malaysia has a sizable technical workforce. Some of that size can be attributed to electronics industry employers establishing manufacturing centers in the area decades ago. Over the years, the Malaysian government has worked to advance skill levels of technical workers from low-cost manufacturing abilities to high-value technology proficiencies.

While Asian countries such as China, Vietnam and Singapore lead the pack in terms of bleeding-edge technology skills, Malaysia is working to catch up. In 2017, the government and its educational leadership committed to achieving several future milestones around skill growth, including increasing the skilled workforce to 35% skilled by 2020 and at least 45% by 2030. As a result of that push, and related educational investments, more workers are entering the digital workforce in Malaysia, creating a growing and eager talent pool.


The Language Factor

Another key factor in an outsourcing talent pool is English language proficiency. With Malaysian students starting English in primary and secondary schools, their language skill level is high. In fact, Malaysia falls behind only Singapore and the Philippines when it comes to English language proficiency among countries in Asia-Pacific.


The Business Environment

Compared to Asia-Pacific offshore destinations such as China, India, Indonesia, Thailand and the Philippines, Malaysia has strong IP laws and copyright protections. It scores higher on the 2019 Global Innovation Policy Center’s (GIPC) International IP Index than most every Asia-Pacific IT offshoring destination excluding Japan and South Korea.

And while IP protections are solid, political stability is one place where Malaysia demonstrates risk. In May of 2018, a surprising electoral result put Malaysia on the path to democratic reform. However, the transition and anticorruption reforms have hit some challenges. Its democratic evolution remains young and fragile, which can result in some level of uncertainty.

One additional environmental factor is some of the restrictions that come with operating in a majority Muslim country that leans conservative. For example, years of rampant sexual harassment of women led to the creation of pink, women-only railcars and buses. Dress codes are also conservative for both men and women. Revealing clothes and boisterous behavior are to be avoided.


The Scalability Challenge

Size does come into play when considering an outsourcing destination. Does the country and its businesses have the ability to rapidly scale to support changes to growing business needs? For Malaysia, which has a strong and young talent pool, that answer is yes but with limits.

While a country such as China can rapidly and cost-effectively scale to meet demand, Malaysia’s smaller and still emerging talent pool might take longer to scale and cost slightly more. Outsourcing scalability will increase with time and talent, but it’s a key factor to assess. If drastic swings in outsourced project scope or timing are likely, Malaysia may be limited in its ability to respond.


Malaysia Rising

As other Asia-Pacific regions experience bumps on the outsourcing road (such as trade wars for China and higher talent costs in India) Malaysia’s star is on the rise. While bigger, more populous neighbors offer plenty of outsourcing competition, it’s a nimble player expanding into high-value tech outsourcing, and the world is taking note.


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