Once a upon a time, Malaysia had dominant market share in low-cost manufacturing, leading to the creation of over 3 or 4 million employees. Today, it is clear this is something we are no longer competitive in. In some cases, companies resort to importing low-cost foreign labour in Malaysia to retain investments and local employees. But this is clearly not sustainable. Our collective job now is to exit these non-competitive activities. And it must be done now. Certainly, we need to move up into IP driven manufacturing. Moreover, we need to move seriously into services sectors. We need to move into the lucrative outsourcing industry.
Malaysia has the real opportunity to use outsourcing as vehicle to reach Vision 2020. Developing Malaysia's outsourcing industry will move the nation up the value chain. Outsourcing will rapidly transform our workforce from low-cost labour pool into an army of highly paid knowledge workers. There is also a real opportunity to create globally iconic Malaysian firms that serves dozens of clients in over a hundred markets. We can also significantly enhance our brand and the value we deliver to the international market - in particular the multinational firms.
But we could also squander this opportunity. And this will happen if we continue to think of outsourcing is a niche industry. This will happen if we also continue to think it is a low value added industry meant only for big global firms to take advantage of scarce Malaysian resources. There is nothing further from the truth. But that is not important. What is important is what you think, and you can do to take advantage of this opportunity.
Outsourcing – The five trillion ringgit industry
The global SSO industry revenues today is almost double the global Islamic financial industry's assets with over a hundred times more employees. It is also around three times larger than the computer hardware industry. It has 50 million or so employees, and it is growing. SSO is not a niche or emerging industry. It has arrived. And it has done so, in less than one generation. The great opportunity lies in the fact that less than 15% of the global SSO market has moved to more competitive locations like Malaysia. So there is still time for Malaysia to capture more opportunities.
Even more amazing is Malaysia's competitiveness in this mega-industry. Malaysia is considered by analysts around the world as one of the very best in the world. In 2005, McKinsey also ranked Malaysia as top three. Gone are the days of suspicion that something is wrong with the ranking. People are now accepting this our natural strength. But have we taken full advantage of this? There has been growth, but the greater opportunity is untapped. Specifically, even though we have top three ranking, we have not achieved anywhere near top three market share.
There is also a notion that our SSO sector is a low value added industry and employs low-end workers. This is an absolute fallacy. The numbers speak for themselves. Employee salaries in Malaysian SSO players are almost the same as IT employees. Their salaries are currently higher than creative multimedia employees. They also contribute almost half of the employment for MSC Malaysia. In general Malaysians are hired by MNCs directly, or indirectly via outsourcing firms because Malaysians are more competitive in higher value activities especially serving the Asian markets. SSO employees are amongst the highest paid in the country, and we should create more jobs in these high value activities.
Talent issues: Get over it
Malaysia does not have the tens or hundreds of millions or billions in population that other markets have. But, Malaysia is not the only country with challenges in talent. Even the largest economies have supply issues. According to studies by McKinsey large countries such as India, China and Philippines will not have enough engineers to feed the global demand by the year 2015. There is not enough resources in the world for the insatiable appetite of the outsourcing industry.
What we need to do is to concentrate on building supply properly, because this is now a supply game. Malaysia does not need to have 50 million employees for the outsourcing sector. A reasonable target is two million jobs by the year 2020. Two million employees is a major industry in any one's yardstick. The top 15 outsourcing companies in the world does not add up to two million employees. India's outsourcing industry is a little more than two million employees.
So our role should be to move our employees from non-competitive local sectors into outsourcing. There are significant improvements being done today in the Ministry of Human Resources in terms of retraining people into higher value skills needed by the global outsourcing industry. But this comprises one portion of the Malaysian machinery to get outsourcing going. This has to be done in a big scale by many institutions. Most importantly, the private sector needs to stop looking at the government for guidance and instruction. Malaysian industry needs to take the lead.
Concentrate on our local firms
There is nothing wrong with having multinational firms setting up in Malaysia. In fact, direct investments from MNCs was probably the greatest contributor to our economic and intellectual wealth to date. However in the new economy, Malaysia cannot survive on MNC-based FDI alone. We need to ensure we build our economies based on a strong foundation of local firms.
Moreover, the key resource needed by the global outsourcing industry, is not human capital. The key resource is scalable outsourcing companies. In fact, around half of the global SSO market is delivered by outsourcing players. Outsourcing companies do not just provide cheap resources. MNCs need ability to scale their operations up and down, as economies and markets rises and ebbs. Outsourcing players provide multinationals the ability to do this.
The Malaysian challenge lies in the ability of our local firms to become truly global. The good news is Malaysian companies are recognised by international analysts as amongst the best in the world. The bad news is although these firms are very good, but they are also small when compared with tier one players which employs tens of thousands of employees. They need fuel to grow in terms of financial and human capital.
Most importantly, local firms are not leveraging on the top talent available in Malaysia. Multinationals in Malaysia continue to hire the best people and pay top dollar, which is a good thing. What is not so good, is that our local firms cannot do this. They are not able to go into higher value added activities that yield higher revenues, higher profits and also create larger regional organisations. This is one of the biggest issues faced by the Malaysian outsourcing industry, and it is also the biggest issue faced by the Malaysian SSO industry in general. Our local industry needs to rapidly move up the value chain and take up high-value added activities.
Stand on the shoulder of giants
The most successful local outsourcing firms in Malaysia are an interesting collection of dynamic, industrious and committed entreprenuers. For the most part, they have built the local industry from the ground up. As I see it, they understand their own strengths, weaknesses and how to capture the greater global opportunities. But they need some help to compete with truly global players with over 50,000 or even 100,000 employees. If there's anything that is obvious about this industry, that it is about scale. If you do not scale, you will die or be gobbled up. Is it possible for a local firm to hire ten of twenty thousand Malaysians? Why not. It is time for Malaysian players to take a leadership role and take a no compromise stand on developing a globally competitive brand. This starts from the boardroom and cascades down to the cubicles. This is key in capturing the best talent, technology and trade.
Most glaring though is the absence of investments by local traditional players into the global game. Most of the outsourcing giants in the world was started by traditional firms: EDS was started from General Motors, Wipro was in agro-business, TATA and Mahindra were also from traditional businesses. The list goes on. So the big question is, where are the major local investors? It is time for major local firms to seize the greater opportunity and make a lot of money on the global outsourcing game.
"SEA" the opportunity
Four years ago in an article, I hinted Kuala Lumpur is a bit like Bangalore, and Malaysia is a bit like the state of Karnataka. Four years later the truism seems to be confirmed in the context of South East Asia. Many Malaysian players in ICT, outsourcing and animation are starting to consolidate their leadership in regional markets and go into global markets. There are too many to mention in one article. In the outsourcing space, local firms are continually recognised as amongst the leaders in the world.
However, the real war for talent has just begun. The battle for scale, and therefore for survival, is contingent upon how fast and how well our Malaysian firms can take advantage of vast talent pools in the region. In this region, Malaysian firms are best poised to take advantage of their current leadership position. Asia is now a major growth market, not just for low value activities. Today, the combined markets of India, China and South East Asia already has as many middle-class consumers as North America. It will probably double within a generation. Today, Malaysia and Malaysian firms are delivering all kinds of services, especially high-value activities, to these markets.
There is a major call from policy makers for local investors to commit themselves to the Malaysian economy. 2010 is the year to make this investment.
Table: Some of the largest Firms in the World (thousands of employees)
IBM 400 (not all are in outsourcing)
Accenture 180
TCS 140
HES 135
Infosys 105
Wipro 100
CSC 90
CapGemini 85
Convergys 75
ACS 75
HCL 50
ADP 45
AEGIS 35
Unisys 30
CGI 25
No comments:
Post a Comment