Outsourcing's next big thing--Malaysia?

PUTRAJAYA, Malaysia--India and China may be the world's premier outsourcing spots now, but Malaysia is fast emerging as a serious contender for global offshoring dollars, says management consultancy AT Kearney.

In the firm's latest study, Malaysia is ranked as the third most-attractive destination for shared services and outsourcing, behind India and China. Besides sending to Malaysia jobs in areas such as manufacturing and call centers, companies are using the country as a base for shared services like marketing and IT functions to support their operations in other countries.

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India took the top spot in AT Kearney's 2004 offshoring index because of its cost advantages, as well as its depth and breadth of offshoring experience and the availability of skilled labor. Although China trails India in outsourcing experience and qualifications, its large educated work force and low costs propelled it to second place, the company said.

Still, Malaysia's well-developed infrastructure, attractive business environment and strong government support makes it a "rising alternative to India and China," said Ooi Joon Leong, managing director of AT Kearney's Malaysia unit.

"The government's positioning of Malaysia as a hub for services and technology innovation has resulted in a number of multinationals locating some of its global or regional operations in Malaysia," he said.

Although India and China came out on top in the company's study, they have higher political and economic risks, as well as relatively weak infrastructures. Moreover, China has to resolve issues of intellectual-property piracy and political red tape, the report said.

By comparison, Malaysia has a relatively more stable political climate backed by consistent economic growth.

Still, Ooi warns that the limited size and quality of Malaysia's work force could be possible impediments in the country's quest for a bigger share of the global IT services and business process outsourcing pie. According to Ooi, this market is expected to cross the $750 billion mark globally by 2006.

To meet the demand for skilled IT labor, the report said, the educational system in India produces an estimated 2 million English-speaking graduates with strong technical backgrounds yearly. In contrast, the pool of IT and engineering graduates in Malaysia totals 75,000 annually, said Ooi, who spoke at a business conference here Wednesday.

During his keynote address at the same event, Malaysian Prime Minister Abdullah Ahmad Badawi spoke of the importance of the offshoring and shared services market to the country's Multimedia Super Corridor project, an attempt to develop a high-tech industrial zone like Silicon Valley.

According to Badawi, offshoring is one of the key business drivers in the corridor project. Multinational companies like Ericsson, HSBC, Electronic Data Systems, IBM, Motorola and Prudential have all planted global services centers in the Multimedia Super Corridor, he said.

The Malaysian government further expects to create at least 10,000 "high-value jobs" in the shared services industry by 2010, Badawi added.

Cordelia Lee reports for CNETAsia. CNETAsia's Winston Chai contributed to this report.

Religious extremism in Malaysia a concern

I'm surprised any article about Malaysia being the next big thing in outsourcing does not make even passing reference to the role of radical Islamists in that nation. Although Islamic fundamentalists are not as visible or as active in Malaysia as, say, in Indonesia, they are certainly not safe to ignore. Several incidences have occurred in Malaysia of groups of Islamic radicals attacking non-Muslims (particularly Christians), and several Malaysians purported to be senior members of Al-Qaeda have been captured recently (as reported by the BBC and other reputable media). Were I a business owner or executive considering outsourcing, I would be very wary indeed of doing so in any country with a substantial population of Islamic fundamentalists, given that I or other Western, non-Muslim staff might have to travel there regularly. If any attacks occur in Malaysia similar to those earlier this year in Indonesia, I doubt Malaysia will remain an attractive location for outsourcing.